ANNUAL REPORT
Australia
New Zealand
Singapore
Slovenia
Ireland
Northern Ireland
Malaysia
Croatia
ANNUAL REPORT
Contents
Results for Announcement
Chairman and CEO’s Report
Operating and Financial Review
Directors’ Report
Remuneration Report
Social and Environmental Sustainability
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Statement of Financial Position
Income Statement
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
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Shareholder Information
149
KEY DATES:
28 August 2020: Announcement of Full-Year Profit to 30 June 2020 & Announcement of Final 2020 Dividend | 12 October 2020: Record date for
Determining Entitlement to Final 2020 Dividend | 2 November 2020: Payment of Final 2020 Dividend | 25 November 2020 at 11:00am: Annual General
Meeting of Shareholders | 26 February 2021: Announcement of Half-Year Profit to 31 December 2020 & Announcement of Interim 2021 Dividend
| 1 April 2021: Record date for Determining Entitlement to Interim 2021 Dividend | 4 May 2021: Payment of Interim 2021 Dividend
Registered Office: A1 Richmond Road, Homebush West NSW 2140. Ph: 02 9201 6111 Fax: 02 9201 6250 | Share Registry: Boardroom Pty Limited, Level 12,
225 George Street, Sydney NSW 2000. Ph: 02 9290 9600 | Auditors: Ernst & Young (EY) | Securities Exchange Listing: Shares in Harvey Norman Holdings
Limited (HVN) are quoted on the Australian Securities Exchange Limited (ASX) | Solicitors: Brown Wright Stein | Company Secretary: Mr. Chris Mentis
COMPANY INFORMATION
HARVEY NORMAN HOLDINGS LIMITED
ACN 003 237 545
2
RESULTS FOR ANNOUNCEMENT TO THE MARKET
HARVEY NORMAN® HOLDINGS LIMITED
REPORTED PBT
PBT
Excluding AASB 16 net impact and net property revaluations
$661.29m
$86.73m (
15.1%) FROM $574.56m IN 2019
$635.60m
$131.35m (
26.0%) FROM $504.26m IN 2019
REPORTED PROFIT AFTER TAX & NCI
PROFIT AFTER TAX & NCI
Excluding AASB 16 net impact and net property revaluations
$480.54m
$78.22m (
19.4%) FROM $402.32m IN 2019
$462.16m
$109.08m (
30.9%) FROM $353.09m IN 2019
EBITDA
EBITDA
Excluding AASB 16 net impact and net property revaluations
$944.67m
$256.07m (
37.2%) FROM $688.60m IN 2019
$742.47m
$124.18m (
20.1%) FROM $618.30m IN 2019
EBIT
EBIT
Excluding AASB 16 net impact and net property revaluations
$721.08m
$117.74m (
19.5%) FROM $603.34m IN 2019
$654.86m
$121.82m (
22.9%) FROM $533.04m IN 2019
NET DEBT TO EQUITY: NIL
NET CASH OF $15.35m vs NET DEBT OF $626.47m in FY19
AN IMPROVEMENT OF $641.83m
UNUSED, AVAILABLE
FINANCING FACILITIES OF
$685m
AS AT 30 JUNE 2020
TOTAL SYSTEM SALES REVENUE
$8.46 billion
AGGREGATED HEADLINE FRANCHISEE SALES REVENUE* . . $6.16bn
COMPANY-OPERATED SALES REVENUE . . . . . . . . . . . . . . . . . . $2.29bn
* Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity.
HNHL CONSOLIDATED REVENUES
$3.55 billion
SALES OF PRODUCTS TO CUSTOMERS. . . . . . . . . . . . . . . . $2.29bn
REVENUE RECEIVED FROM FRANCHISEES . . . . . . . . $1,055.87m
REVENUES AND OTHER INCOME ITEMS . . . . . . . . . . . . . $195.00m
BASIC EARNINGS PER SHARE
39.19c
from 33.94c in 2019
DIVIDENDS PER SHARE
(FULLY-FRANKED)
24.0c
539 FRANCHISEES
IN AUSTRALIA
194
FRANCHISED
COMPLEXES
IN AUSTRALIA
96
OFFSHORE COMPANY
OPERATED STORES
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
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CHAIRMAN and CEO’s REPORT
Dear Shareholder,
Globally, the 2020 financial year was a year of unique challenges.
The drought and bushfires last summer, followed by COVID-19, had a significant impact in the 8 countries where
we, or our franchisees, trade.
In Australia, with the ‘Shop Smart’ and ‘Shop Safe’ guidelines, the Harvey Norman®, Domayne® and Joyce
Mayne® franchisees bolstered their ability to safely service their customers. With the exception of the mandatory
closure of two franchised complexes in Tasmania for a 2-week period, the 194 franchised complexes throughout
Australia have remained open during the year.
Overseas in the 7 countries in which we operate, the respective governments mandated temporary closures of
between 4 to 10 weeks, and staggered re-opening dates. As our company-operated stores overseas began to
re-open to the public, sales improved quickly.
Pleasingly, customers continued to engage strongly with our brands and importantly, as we are in the lifestyle /
home retail space, the customer was appreciative of the shopping experience, spaciousness and easy parking at
the physical franchised complexes and stores, whilst embracing the ease of connection to our brands digitally and
the important convenience of home delivery and click and collect.
The results achieved in 2020, are a testament to the strength of our model.
Record Financial Results
Reported earnings before interest, tax, depreciation & amortisation (EBITDA) of $944.67m, up by
$256.07m or +37.2%.
Record EBITDA (excluding AASB 16 impact and net property revaluations) of $742.47m, up by $124.18m
or +20.1%.
Reported earnings before interest & tax (EBIT) of $721.08m, up by $117.74m or +19.5%.
Record EBIT (excluding AASB 16 impact and net property revaluations) of $654.86m, up by $121.82m or
+22.9%.
Reported profit before tax (PBT) of $661.29m, up by $86.73m or +15.1% from prior year, our highest
ever PBT on record.
PBT (excluding AASB 16 net impact and net property revaluations) of $635.60m, up by $131.35m or
+26.0%, our highest ever since inception.
Reported net profit after tax (NPAT) and non-controlling interests of $480.54m, up by $78.22m or
+19.4%.
NPAT (excluding AASB 16 net impact and net property revaluations) of $462.16m, up by $109.08m or
+30.9%.
Very strong balance sheet with total assets of $5.83 billion, including tangible freehold property assets of
over $3 billion.
Positive net cash position of $15.35m (cash net of interest-bearing loans and borrowings) at the end of
FY20, compared to a net debt position of $626.47m at the end of FY19. This equates to a net debt to
equity ratio of nil as at 30 June 2020 compared to a net debt to equity ratio of 19.46% as at 30 June
2019. This was achieved through the stronger cash receipts and the stringent measures implemented
during FY20 to preserve cash and reduce external debt. As at 30 June 2020, the consolidated entity had
$685 million of unused, available financing facilities, and is therefore well-placed to respond to
challenges that may arise.
Net Assets of $3.5 billion, up by 8.7% from $3.2 billion.
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CHAIRMAN and CEO’s REPORT (continued)
Record Financial Results (continued)
Net cash flows from operating activities of $1.1 billion for FY20, up $684.12 million or +183%, from
$372.85 million in FY19.
Earnings per share (EPS) of 39.19 cents, up by 15.5% from 33.94 cents.
PBT return on net assets of 19.02% for FY20, up from 18.0% in FY19.
Property
30 June 2020: 194 franchised complexes in Australia and 96 company-operated stores overseas.
Robust $3 billion property portfolio, consisting of freehold investment properties in Australia, owner-
occupied land and buildings in New Zealand, Singapore, Slovenia, Ireland and Australia and joint venture
assets.
6 new company-operated stores opened during FY20 – 5 in Malaysia during HY20 at Mid Valley
Southkey, Johor Bahru (July 2019), AEON Mall, Kota Bahru (October 2019), IPC Toppen, Johor Bahru
(November 2019), Ipoh Parade, Ipoh (November 2019) and Batu Kawan, Penang (December 2019); and 1
in New Zealand at Takanini in South Auckland (March 2020).
The remaining 5 stores that were due to open in the second half of FY20 in Malaysia (2), Singapore (1),
and Ireland (2) did not occur as planned due to the government lockdowns and business closures in
response to COVID-19.
We intend to open up to 12 new stores overseas during FY21.
In last year’s report, we had disclosed our international expansion plans and our intention to open up to 21 new
stores overseas by the end of the 2021 financial year, with 17 of those new stores in Singapore and Malaysia. Of
those 21 new stores, 10 stores were planned to open in FY20 and 11 stores were planned for FY21. We were on
track with our offshore store opening program in Malaysia and had opened 5 new stores prior to 31 December
2019, in line with our schedule. In addition, we opened an electrical outlet store at Takanini, South Auckland in
March 2020. The COVID-19 pandemic halted our overseas expansion plans, and the remaining 5 stores slated for
the second half of this year were delayed due to government mandated lockdowns and business closures.
We have revised our plans, and we now intend to open up to 12 new stores overseas during the 2021 financial
year. We have already opened the Galway City store in Ireland on 22 July 2020, only 3 months behind schedule
and the Sligo store is anticipated to open in October 2020. Our second store in the town of Pula in Croatia is on
track to open in November 2020, and we intend to open 3 new stores/outlets in New Zealand by December
2020. The remaining 6 stores will be in Southeast Asia, which remains our fastest growing offshore region, with 3
new stores in Singapore to open before December 2020, and 3 new stores in Malaysia to open between October
2020 and May 2021.
Our ‘premium refit plan’ announced last year continued throughout FY20, but was scaled back to those refits that
were necessary for the safety, comfort and security of customers and for the protection of our brands. We
anticipate recommencing the premium refit plan in FY21.
COVID-19 Update
The coronavirus pandemic (COVID-19) presented different challenges in each of the 8 countries in which we, or
our franchisees, operate.
In our 8 countries, the primary concern for respective governments was, and is, keeping workers in jobs and
businesses in business – building a bridge to recovery on the other side post the pandemic.
COVID-19 has been a fast evolving and a significant challenge globally, and governments have supported their
economies during this extraordinary time. In our overseas territories, the respective governments mandated
temporary closures of between 4 to 10 weeks, and staggered re-opening dates. The temporary closures resulted
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HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 5
CHAIRMAN and CEO’s REPORT (continued)
COVID-19 Update (continued)
in a significant decline in turnover for each of our overseas businesses, and based on the eligibility criteria of the
COVID-19 support and assistance offered by the respective governments, each of our offshore subsidiaries
applied for, and were eligible to receive, wages support and assistance of $22.28 million in aggregate. All of the
support and assistance was passed onto our employees, and we did not terminate the employment of any
employee as a result of the pandemic. Our offshore businesses also received property-related support and
assistance (including rent abatements from landlords) of $9.81 million in aggregate.
The assistance received from governments and landlords ensured businesses could survive and thrive after the
lifting of mandated lockdowns. Importantly, it ensured workers continued to get paid and have been able to
meet their personal obligations even though businesses were in hibernation.
We own or control other non-franchised retail and wholesale operations under various brand names in Australia
(outside of the Harvey Norman®, Domayne® and Joyce Mayne®
brands). These other non-franchised businesses
applied for, and were eligible to receive, $2.39 million of wages support and assistance during 4Q20, all of which
was passed on in order to retain employees. In addition, they received $0.33 million in rent abatements from
their landlords.
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CHAIRMAN and CEO’s REPORT (continued)
COVID-19 Update (continued):
In Australia, certain franchisees were eligible for the government COVID-19 JobKeeper support for the retention
of the employees of the respective franchisees. In aggregate, this amounted to $7.6 million.
Outlook
The continued impact globally because of the fast evolving COVID-19, remains unknown.
To date, the biggest consumer change we have seen in our 8 countries, is the elevated importance of family,
home, work and study from home, cooking and entertainment from home. Our brands are well placed to take
advantage of this trend.
The sales uptick we saw in the last quarter in Australia accelerated in July and has continued in August and
September - notwithstanding the metropolitan Melbourne Government mandated Stage 4 lockdown.
Within our company-operated stores overseas, sales improved quickly as they re-opened to the public following
government mandated closures. This improvement continued into the September quarter, notwithstanding the
New Zealand Government lockdown of metropolitan Auckland from 11th August 2020 to 30th August 2020.
We’d like to thank all our staff for their loyalty and commitment to our vision, and pay tribute to the
commendable efforts of our franchisees throughout the year. We value and appreciate the continued support
and confidence of our shareholders in the leadership and future direction of our business.
G. HARVEY K.L. PAGE
Chairman Chief Executive Officer
Sydney Sydney
30 September 2020 30 September 2020
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HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 7
OPERATING and FINANCIAL REVIEW
Reported Profit Before Tax (PBT) and Profit After Tax (PAT)
Reported profit before tax (PBT) for FY20 was $661.29 million, an increase of $86.73 million or +15.1%, from $574.56 million in
FY19. Excluding the incremental impact of the first-time application of AASB 16 Leases and the net property revaluation
adjustments, there was a solid 26.0% or $131.35 million increase in PBT to $635.60 million in FY20, from $504.26 million in
FY19.
During FY20, the franchising operations segment was the largest contributor to PBT comprising 52.7% of PBT compared to
43.2% of PBT in FY19. Profitability of the franchising operations segment increased by $100.19 million or +40.3%, directly
attributable to the growth in aggregated franchisee sales revenue to $6.16 billion in FY20, an increase of $505.65 million or
+8.9%, fuelled by growth in the 2nd half of FY20, particularly in 4Q20.
The offshore company-operated retail segment delivered solid sales for FY20 of $2.08 billion, up by $71.17 million or +3.5%,
despite government-mandated lockdowns and business closures in all of the 7 overseas countries for a 4 to 10 week period,
with staggered re-opening dates in 4Q20. Profitability of the offshore company-operated retail segment rose by $22.38 million
or +17.3%, to $152.08 million in FY20, from $129.70 million in FY19. NZ was the largest contributor to this growth, increasing
by $21.76 million or +28.1% from FY19. The retail result for Ireland and Northern Ireland combined was $16.87 million for
FY20, an increase of $9.08 million or +116%, from $7.80 million in FY19.
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OPERATING and FINANCIAL REVIEW (continued)
Reported Profit Before Tax (PBT) and Profit After Tax (PAT) (continued)
The retail result for Slovenia and Croatia increased by $0.98 million, or +13.1%, to $8.43 million in FY20. This was offset by a
reduction in the retail result for Singapore and Malaysia by $9.44 million, or -25.5%, to $27.62 million in FY20 despite 5 new
stores in Malaysia in HY20, due to the temporary closures to control the spread of COVID-19 in Southeast Asia, and the
prolonged subdued retail, consumer and business sentiment in Singapore. The offshore retail businesses represent 23% of
consolidated PBT.
The retail property segment delivered a result of $173.19 million in FY20 compared to a result of $204.68 million in FY19, a
reduction of $31.49 million or -15.4%, mainly due to a lower net property revaluation increment of $34.96 million in FY20
relative to a net increment of $70.30 million in FY19. The lower net property revaluation increment by $35.35 million was offset
by higher rent received from franchisees and other external tenants during the year, net of any COVID-19 rent abatements
granted in the June 2020 quarter. The consolidated entity owns and manages a robust freehold property portfolio valued at
over $3 billion as at 30 June 2020. These large-format retail properties are characterised by larger retail footprints and
generous floor layouts, providing a safer, more spacious and comfortable shopping experience. Property values of large-format
retail complexes have been more resilient, despite the softening investment values of some traditional, multi-storey shopping
centres in Australia.
The ‘Other’ component of PBT, with a loss totalling $12.57 million for the 2020 financial year, is comprised of the remaining
operating segments of the consolidated entity. These include the following: Other Non-Franchised Retail segment which
incurred a loss of $8.84 million in FY20, compared to a loss of $16.67 million in FY19; Equity Investments which sustained a loss
of $2.15 million in FY20 due to the fall in equity prices partially attributable to COVID-19, compared to a profit of $18.40 million
in FY19 and the Other Segment which incurred a loss of $1.58 million in FY20, compared to a loss of $9.95 million in FY19.
The PBT return on net assets was 19.02% for the 2020 financial year, compared to a PBT return on net assets of 18.0% for the
2019 financial year.
Net profit after tax (NPAT) and non-controlling interests increased by $78.22 million, or +19.4%, to $480.54 million for the 2020
financial year, from $402.32 million in the preceding year. Excluding the AASB 16 net impact and the after tax net property
revaluation adjustments, NPAT would have been $462.16 million for FY20, up by $109.08 million or +30.9% relative to FY19.
The effective tax rate was 26.50% for the 2020 financial year, compared to an effective tax rate of 28.81% for the 2019 financial
year. This was primarily due to the recognition of a large credit to deferred tax expense of $14.77 million in FY20 (FY19: nil) in
New Zealand resulting from a legislative change as part of the COVID-19 Act (passed in March 2020) to re-introduce tax
deductions in NZ for future building depreciation expenses.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 9
OPERATING and FINANCIAL REVIEW (continued)
Offshore Company-Operated Retail Segment
The Harvey Norman® brand trades under a company-operated retail model overseas, with 96 Harvey Norman® stores in 7
countries outside of the Australian market. Offshore revenue has risen to $2.13 billion in FY20 compared to $2.05 billion in
FY19, up by $71.66 million or +3.5%. Offshore profitability has increased to $152.08 million during FY20, representing 23% of
total consolidated profit before tax.
Last year we had reported our overseas expansion plans, with the intention of opening 21 new stores overseas – 10 stores were
proposed to open in FY20 and 11 stores in FY21. We were on track with our expansion plans in Southeast Asia up to
December 2019, with the opening of 5 new Harvey Norman® stores in Malaysia during HY20. The government-enforced
lockdowns and business closures to flatten the COVID-19 curve, coupled with the strategic measures we have taken to preserve
cash, put our expansion plans on hold and the remaining 5 stores slated for opening in the second half did not occur. 4 of
those stores will now open in HY21 – with the Galway store in Ireland opening its doors on 22 July 2020, the proposed opening
of our Sligo store in Ireland in October 2020, and a store in Singapore and Malaysia expected to open in September and
November 2020 respectively.
Despite the government mandated temporary closures and staggered re-opening dates, and the prolonged uncertainty around
COVID-19, total aggregated company-operated retail sales and other revenue for the 96 Harvey Norman® branded stores
overseas and the 2 Space Furniture® branded stores in Asia grew by $71.66 million, or 3.5%, to $2.13 billion for FY20, relative to
$2.05 billion in FY19.
The result before tax for the overseas company-operated retail segment increased by $22.38 million, or +17.3%, to $152.08
million for FY20, from $129.70 million in FY19. The first-time application of AASB 16 Leases reduced the profitability of
offshore operations by $3.79 million for FY20. Excluding the incremental impact of AASB 16, the offshore profit result, in
aggregate, would have been $155.87 million, an increase of $26.17 million or +20.2%.
10
OPERATING and FINANCIAL REVIEW (continued)
Offshore Company-Operated Retail Segment (continued)
New Zealand | 40 Harvey Norman® Company-Operated Stores
In the December 2019 half-year report, we disclosed the pleasing, solid sales performance of our business in New Zealand. We
had reported another record half, with sales revenue topping over half-a-billion dollars in both local currency and on translation
to Australian dollars. Sales in local currency soared to $NZ533.83 million, up by $NZ20.61 million or +4.0% for HY20, from
$NZ513.22 million in HY19. Sales continued to show modest growth in January and February and we then saw a spike in March
2020 as New Zealand businesses prepared for temporary closures and mobilised their employees to work-from-home. A new
electrical outlet located at Takanini in South Auckland was opened in March 2020, bringing the total number of company-
operated stores to 40.
In New Zealand, the consolidated entity employs nearly 2,000 full-time and part-time employees across 40 Harvey Norman®
company-operated stores. When the pandemic struck in early March, the safety and livelihoods of our New Zealand
employees, adherence to the work-safety guidelines and restrictions enforced by the NZ Government, and our dedication to
service our loyal customers and support local communities were paramount. Alert Level 3 and 4 restrictions in New Zealand
came into effect on the evening of the 25th March 2020, and from 26th March up to the 13th May 2020, each of our 40 stores
were closed to the public. When permitted to do so, we concentrated our efforts to our online ‘essential-services’ offering and
we worked hard to ensure that our customers in NZ could purchase their essential needs safely and swiftly, in a contactless
manner. Despite our refocus to online trade, sales in NZ suffered a significant decline in local currency during the 7-week Alert
Level 3 & 4 lockdown periods, relative to the previous corresponding period.
As our NZ operations had suffered a significant decline in turnover of more than 30% as a direct result of COVID-19, our 40
company-operated stores were eligible for the ‘Wage Subsidy Scheme’ offered by the New Zealand Government. NZ received
wages support and assistance of $NZ12.70 million (or $12.04 million when translated into Australian dollars) up to 9th June 2020
(the end date of the subsidy period). The wages support and assistance in New Zealand assisted in sustaining our NZ
operations and retaining all our staff during the period that we were not able to trade at normal capacity. All 40 Harvey
Norman® stores re-opened to the public from 14th May 2020 and we saw a significant rebound and surge in the sales trend
when the Alert Level 3 restrictions were lifted.
In what was a tumultuous year, the New Zealand business generated sales of $NZ1.01 billion for the year ended 30 June
2020, an increase of $NZ14.96 million or 1.50% from $NZ998 million in the 2019 financial year. Translated into Australian
dollars, sales revenue increased 2.7%, or $25.09 million, to $960.19 million in the 2020 financial year. There was a 1.17%
appreciation of the New Zealand dollar relative to the Australian dollar during the current year.
Similar to the trend experienced in Australia, with international travel not an option, NZ consumers focussed on the ‘home’ with
home renovations and improvements. The housing market in NZ has remained stable, assisted by supply shortages and lower
interest rates. This trend has seen sales and market share growth across all key product categories. Robust sales with strong
margins, and an effort to curtail and streamline operating expenses, has resulted in an increase in the retail result in New
Zealand by $21.76 million, or 28.1%, to $99.16 million for the year ended 30 June 2020, up from $77.39 million in the
previous year.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 11
OPERATING and FINANCIAL REVIEW (continued)
Offshore Company-Operated Retail Segment (continued)
This segment is comprised of 12 Harvey Norman® stores in Singapore, 23 Harvey Norman® stores in Malaysia and the Space
Furniture® branded lifestyle stores in Singapore and Malaysia.
Malaysia | Sales Revenue | 23 Harvey Norman® Company-Operated Stores
We were on track with our expansion plans in Malaysia in the first half of the 2020 financial year with the opening of 5 Harvey
Norman® stores prior to December 2019 located at Mid Valley Southkey, Johor Bahru (July 2019), AEON Mall, Kota Bharu
(October 2019), IPC Toppen, Johor Bahru and Ipoh Parade, Ipoh (both in November 2019) and Batu Kawan, Penang (December
2019). The Malaysian economy was growing strongly and we were confident about our aspirational growth target of having 50
Harvey Norman® stores in Malaysia within the next 5 years. HY20 sales in Malaysia were strong at $S112.27 million, an increase
of $S13.67 million or 13.9% from $S98.60 million in HY19.
On 18th March 2020, the Malaysian government issued a Movement Control Order (MCO) to control the spread of COVID-19,
resulting in the temporary closure of all 23 stores, with a phased re-opening from 18th April 2020. Our Malaysian business
adhered to the directives of the Malaysian Government and generated nil sales during the temporary full closure of all physical
stores and online trade for the period from 18th March to 17th April 2020 inclusive. From 18th April 2020, the Malaysian
Government commenced the easing of their restrictions, permitting the staggered re-opening of stores. From the 18th to 30th
April 2020, 14 stores re-opened for trade for electrical and computers only. From 1st May to 12th May 2020, the remaining
stores and the furniture and bedding categories re-opened. Following the MCO mandated lockdown, sales in Malaysia began
to improve.
Amid the challenges of the second half, and the higher sales base in early FY19 due to the temporary reprieve from GST
obligations, the Malaysian business recorded sales of $S208.20 million for FY20, an increase of $S15.61 million or 8.1%, from
$S192.58 million in FY19. Translated to Australian dollars, the sales increase was $27.11 million, or 13.8%, to $224.23 million.
Last year we announced that we would open 14 new stores in Malaysia, 7 in FY20 and 7 in FY21. We had opened 5 new stores
prior to December 2019, however the remaining 2 stores did not open in the second half of the financial year due to the
pandemic. We presently anticipate opening 3 new stores in FY21, deferring the remaining 6 stores to FY22.
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OPERATING and FINANCIAL REVIEW (continued)
Offshore Company-Operated Retail Segment (continued)
Singapore | Sales Revenue | 12 Harvey Norman® Company-Operated Stores
In stark contrast to the stronger retail trading environment in Malaysia, retail, business and consumer sentiment was subdued in
Singapore throughout the first half of FY20, which was further exacerbated by the COVID-19 pandemic which saw all 12 Harvey
Norman® stores in Singapore closed under the government-enforced “Circuit Breaker” measures from 7th April to 18th June
2020 inclusive.
Earlier this year, we reported lower HY20 sales in Singapore by $S20.72 million in local currency or -11.9% to $S153.55 million,
down from $S174.27 million in HY19. This sales trend continued throughout the March 2020 quarter due to the adverse
conditions of the protracted trade war between the United States and China, the mounting fears around COVID-19 and the
progressive restrictions to contain the spread of COVID-19 in Singapore.
The Circuit Breaker measures of the Singapore Government came into effect on the 6th April 2020, which was a ‘stay-at-home’
order incorporating the mandatory closure of all non-essential workplaces from 7th April 2020. From 7th April to 18th June 2020,
all 12 Harvey Norman® stores in Singapore were closed to the public, however, online trade was permitted to continue. The
shift to an online-only model, and the re-positioning of staff to enable contactless online sales and deliveries during Circuit
Breaker was insufficient to stem the significant decline in sales, compared to the full-service offering both in-store and online in
the previous corresponding period.
All 12 Harvey Norman® stores re-opened on 19th June 2020 pursuant to the Phase 2 “Safe Transitioning” re-opening of the
economy in Singapore. Sales quickly rebounded upon the resumption of in-store trade.
The Jobs Support Scheme (JSS) of the Singapore Government was announced as part of the Solidarity Budget handed down on
6th April 2020. Under the JSS, affected industries were granted wages support and assistance to employers to help them retain
their local employees (Singapore citizens and permanent residents) during the period of economic uncertainty. Our Harvey
Norman® operations in Singapore recognised $S4.73 million (or $5.09 million in Australian dollars) in wages support and
assistance pursuant to the JSS from April to June 2020. In addition, property rental waivers and property tax rebates were
offered under the Solidarity Budget and following negotiations with landlords, resulting in the recognition of $S5.11 million (or
$5.50 million in Australian dollars) in COVID-19 related property support and assistance in FY20. This support and assistance
was integral to the viability of the Singaporean operations during Circuit Breaker to enable the business to continue to pay and
retain their staff and maintain the payment of operating expenses.
Total sales for the 12 Harvey Norman® stores in Singapore declined by $S66.89 million, or -20.0%, to $S267.21 million in FY20,
from $S334.10 million in FY19. Translated to Australian dollars, the reduction in sales was $54.18 million, or -15.8%, to $287.79
million for FY20, from $341.97 million in FY19.
Last year we announced that we would open 3 new stores in Singapore, 1 in FY20 and 2 in FY21. No new stores were opened
during FY20, with the proposed FY20 store delayed to September 2020 due to the pandemic. We plan to open a further 2 new
stores in FY21, bringing the total new stores in Singapore to 3 for FY21. We have also earmarked another site for possible
opening in early FY22.
Retail – Singapore & Malaysia | Sales and Segment Result
Aggregated sales revenue for the Harvey Norman® and Space Furniture® brands in Asia totalled $S487.01 million in local
currency for FY20, down by 10.3%, or $S55.68 million, from $S542.69 million in FY19. Translated to Australian Dollars, the
reduction in sales was 5.4% or down $29.72 million to $525.75m, from $555.47 million in FY19. Sales were assisted by a 5.22%
appreciation of the Singapore dollar relative to the Australian dollar over the past year.
Sales revenue for the Space Furniture® brand in Singapore and Malaysia combined decreased by $2.66 million, or -16.2%, due
to mandatory closure periods and the cautious outlook of consumers.
The segment profit result for the Harvey Norman® and Space Furniture® brands in Asia totalled $27.62 million for FY20, a
decrease of $9.44 million or -25.5%, from $37.06 million in FY19. This decrease incorporates the net financial impact of
adopting AASB 16 Leases from 1 July 2019 which saw expenses increase by $3.93 million as all Harvey Norman® stores in
Southeast Asia are leased from external landlords. Excluding the net impact of AASB 16, the segment profit result for FY20
would have been $31.54 million, a decrease of $5.51 million, or -14.9%.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 13
OPERATING and FINANCIAL REVIEW (continued)
Offshore Company-Operated Retail Segment (continued)
Slovenia | 5 Harvey Norman® Company-Operated Stores
In the December 2019 half-year report, we disclosed that sales revenue from the 5 company-operated stores in Slovenia
increased to €39.82 million, up by €1.65 million or +4.3%, from €38.17 million in HY19. Translated into Australian Dollars, sales
revenue increased +6.4% or $3.87 million to $64.55 million. This sales growth resulted in a record half-year profit of $5.24
million for HY20. Sales growth was solid throughout January and February before the government mandated lockdown.
The COVID-19 pandemic throughout Europe saw the 5 Harvey Norman® stores in Slovenia close by government decree from
16th March to 19th April 2020, with online trade permitted. Upon re-opening from 20th April 2020, sales have grown
significantly.
Total sales revenue for FY20 was €73.04 million, up by €0.50 million or +0.7%, from €72.54 million in FY19. Translated into
Australian dollars, sales revenue increased $4.66 million, or +4.0%, to $120.35 million, assisted by a 3.31% appreciation of the
Euro relative to the Australian dollar during FY20. Retail profit for FY20 was $8.26 million, up by $1.38 million or +20.1%, from
$6.88 million in FY19. Similar to the trend experienced in Australia and other offshore locations, the travel restrictions imposed
by the COVID-19 pandemic have resulted in people renovating and improving their homes.
Croatia | Flagship Harvey Norman® Store located at Zagreb
The Zagreb store was relaunched as a Flagship in October 2018. In the December 2019 half-year report, we disclosed that the
full 6 month contribution from the reinvigorated Flagship drove sales to €11.56 million in HY20, up by €1.13 million or +10.9%,
from €10.43 million in HY19. Translated into Australian dollars, sales revenue increased +13.0% or $2.16 million to $18.74
million. Sales growth was solid throughout January and February before suffering from the government mandated lockdown.
The Zagreb Flagship was closed by government decree from 19th March to 26th April 2020, with online trade permitted. Sales
growth has steadily increased upon re-opening the Zagreb Flagship.
Sales revenue increased to $34.01 million in FY20, up $0.78 million or +2.4%, from $33.23 million in FY19. However, profit
decreased to $0.17 million in FY20, down $0.41 million or -70.6%, from $0.58 million in FY19. The Croatian economy has a
significant tourist sector adversely affected by the travel restrictions imposed by the COVID-19 pandemic. We plan to open our
second store in the town of Pula in November 2020.
14
2
OPERATING and FINANCIAL REVIEW (continued)
Offshore Company-Operated Retail Segment (continued)
Ireland | 13 Harvey Norman® Company-Operated Stores
In the December 2019 half-year report, we disclosed that sales revenue increased to €143.94 million for HY20, up by €13.07
million or +10.0%, from €130.87 million in HY19. Translated into Australian dollars, sales revenue increased by +12.1% or
$25.27 million, to $233.33 million. The retail segment result in Ireland generated a profit of $12.36 million for HY20, a solid
improvement of $1.76 million or +16.6% on the $10.60 million profit in HY19. The 13 Harvey Norman® company-operated
stores in Ireland outperformed the discretionary retail market, with market share gains across all key product categories.
This sales trajectory continued into 3Q20, with a significant increase in March 2020 as home office and technology sales grew
strongly with individuals and businesses looking for home office solutions to work from home. The appliances category grew
significantly and, after a strong HY20, the reality of lockdown in Ireland resulted in the swift adaptation to provide an effective
online offering. The Irish business continued to innovate, launching contactless Click & Collect and focusing on the online
customer experience. The ongoing success of the Tallaght Flagship, complemented by the investment in an effective digital
strategy, ensured Harvey Norman® was the first point of call for Irish consumers wanting to set up a home office or reinvigorate
their homes.
The Irish Government decree resulted in the closure of all Furniture & Bedding departments across the physical store network
from 25th March to 7th June, and Electrical & Computer departments across the physical store network from 28th March to 17th
May. Online trade was permitted during this period. The government mandated lockdown resulted in a significant sales
decrease over the lockdown period.
Post lockdown, sales for the Irish business rebounded strongly. Sales revenue increased to €256.76 million for FY20, up by
€36.31 million or +16.5%, from €220.44 million in FY19. Translated into Australian dollars, sales revenue increased by +20.3%
or $71.47 million, to $423.06 million. The retail segment result in Ireland generated a profit of $17.58 million for FY20, an
increase of $9.54 million or +119% on the $8.05 million profit in FY19.
The COVID-19 pandemic delayed the opening of new stores at Galway and Sligo. The Galway store opening was initially
scheduled for April 2020, but was delayed, and opened on 22nd July 2020. This full-format store is 60,000 sq. ft. and anchors
the second phase of the Gateway Retail Park in Knocknacarra on the west side of Galway City. The 43,600 sq. ft. full-format
store at Sligo Retail Park, Carraroe, Sligo, was initially expected to open in FY20, but now has been delayed to October 2020.
Northern Ireland | 2 Harvey Norman® Company-Operated Stores
In the December 2019 half-year report, we disclosed that sales revenue increased to £6.13 million for HY20, up by £0.55 million
or +9.8%, from £5.58 million in HY19. Translated into Australian dollars, sales revenue increased by +13.0% or $1.30 million, to
$11.27 million. The retail segment result in Northern Ireland generated a profit of $0.09 million for HY20, an improvement of
$0.35 million on the ($0.26) million loss in HY19. The Flagship store on the iconic Boucher Road has gone from strength-to-
strength, recording double digit sales growth during the half in a very difficult trading environment.
The second half of this year should have seen the Northern Ireland business leverage its position as the number one furniture
and bedding destination in Northern Ireland. Instead, the UK Government decree resulted in the closure of the 2 stores at
Boucher Road & Holywood from 24th March to 7th June. Online trade was not permitted during the lockdown period.
COVID-19, coupled with the existing political challenges in the region, had the impact of decreasing sales revenue to £9.30
million for FY20, down £0.96 million or -9.4%, from £10.26 million in FY19. Translated into Australian dollars, sales revenue
decreased by -6.0% or $1.12 million, to $17.45 million. The retail segment result in Northern Ireland generated a loss of ($0.71)
million for FY20, a deterioration of $0.46 million on the trading loss of ($0.25) million in FY19.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 15
OPERATING and FINANCIAL REVIEW (continued)
Other Non-Franchised Retail
The Other Non-Franchised Retail segment consists primarily of retail and wholesale trading operations in Australia which are
wholly-owned, controlled or jointly-controlled by the consolidated entity and does not include the operations of any Harvey
Norman®, Domayne® and Joyce Mayne® franchisee.
Total revenue for the other non-franchised retail segment was $226.47 million for FY20, a decrease of $0.79 million or -0.3%,
from segment revenue of $227.26 million in FY19.
The result for the non-franchised retail segment was a loss of $8.84 million for FY20, compared with a loss of $16.67 million in
FY19, a reduction in the loss by $7.83 million from the loss incurred in FY19.
The other non-franchised retail and wholesale businesses in Australia did not close to the public during the second half of FY20.
Whilst they remained open throughout, these businesses operate in the retail categories that have been adversely impacted by
the COVID-19 pandemic, resulting in significant decreases in turnover, particularly in the months of March and April 2020.
Other Segment
The Other segment is primarily comprised of credit facilities provided to related and unrelated parties and other unallocated
income and expense items.
The Other segment incurred a loss of $1.58 million for FY20 compared to a loss of $9.95 million in FY19, a reduction in the loss
by $8.37 million.
Equity Investments
This segment includes the investment in, and trading of, equity investments, including listed securities in Australia and New
Zealand that are held at fair value.
The equity investments segment incurred a loss of $2.15 million for the 2020 financial year, compared to a profit of $18.40
million in the 2019 financial year.
16
2
OPERATING and FINANCIAL REVIEW (continued)
THE FRANCHISING OPERATIONS
SEGMENT IN AUSTRALIA
Auburn, Sydney
(Australia Flagship complex)
Harvey Norman Holdings Limited (HNHL) and subsidiaries
of HNHL own valuable intellectual property rights, including the trade
marks Harvey Norman®, Domayne® and Joyce Mayne®, software and
other confidential information to promote and enhance the brands.
A subsidiary of HNHL (a franchisor) grants separate franchises to
independent franchisees to use the Harvey Norman®, Domayne®
or Joyce Mayne® trade marks in Australia and to conduct the retail
business of the franchisee at or from a store within a particular
branded complex, pursuant to the terms of a franchise agreement.
194 Franchised complexes in Australia trading
under the Harvey Norman®, Domayne® and
Joyce Mayne® brand names.
Each franchisee owns and controls the franchisee business of
that franchisee. Each franchisee has control over the day-to-day
operations of the franchisee business and has the discretion and
power to make the decisions necessary to drive sales, control floor
margins and contain operating costs to maximise profitability of the
franchisee business.
Each franchisee pays franchise fees to a franchisor pursuant to a
franchise agreement between that franchisee and that franchisor.
The franchising operations segment in Australia captures and records
the franchise fees received from franchisees including gross franchise
fees, rent and outgoings for the use of a branded complex and
interest on the financial accommodation facility that is made available
to each franchisee.
539 Number of independent franchisees carrying
on their business under Harvey Norman®,
Domayne® and Joyce Mayne® brands.
The franchising operations segment also includes the costs of
operating the franchised system and monitoring and evaluating
the performance and compliance of franchisees with their
franchise agreements.
HN
18
DM
1
HN
2
JM
1
HN
36
DM
3
JM
4
HN
10
HN
57
DM
12
JM
2
HN
38
DM
2
HN
6
ACT
HN
1
DM
1
168 FRANCHISED
COMPLEXES
19 FRANCHISED
COMPLEXES
7 FRANCHISED
COMPLEXES
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
17
17
OPERATING and FINANCIAL REVIEW (continued)
Franchising Operations Segment
Earlier this year, we reported a reduction in the revenues and profit result generated by our franchising operations segment in
Australia for the half-year ended 31 December 2019. For HY20, franchising operations segment revenues were $443.81 million,
down by $24.82 million, or -5.3%, from $468.64 million in HY19. The fall in franchising operations segment revenues was
directly attributable to the moderation in aggregated franchisee sales revenue which grew by only +0.1% on a headline basis
and +0.03% on a comparable basis for the half. For HY20, we had reported that the sales revenues of our Australian Harvey
Norman®, Domayne® and Joyce Mayne® franchisees were adversely affected by the challenging and competitive retail
environment and the effects of the unforeseen, unprecedented natural disasters. Accordingly, the franchising operations
segment result decreased by $34.61 million, or -21.8%, to $123.86 million for HY20, from $158.47 million in HY19. Included in
the HY20 result was the first-time adoption of AASB 16 Leases which had an incremental financial impact of increasing expenses
by $3.81 million for the half. Excluding AASB 16, the franchising operations segment result would have been $127.67 million for
HY20, a reduction of $30.80 million, or -19.4%, relative to HY19. The franchising operations margin fell from 5.37% in HY19 to
4.19% in HY20, a reduction of 118 basis points. Excluding the incremental impact of applying AASB 16 Leases, the franchising
operations margin would have been 4.32% for HY20, a reduction of 105 basis points.
In January and February, the franchising operations segment continued to follow the same downward trajectory on the back of
declining aggregated franchisee sales revenue which fell by approximately 3% for those months, primarily due to the prolonged
severe impacts of the natural disasters. The response to the COVID-19 pandemic in March, and the transition to remote
working for many employees and remote learning for students, generated strong essential technology and appliances sales by
Harvey Norman®, Domayne® and Joyce Mayne® franchisees, reversing the sales reductions in January and February and closing
the March 2020 quarter stronger than the previous corresponding period.
The quarter from April 2020 to June 2020 saw the growth in franchisee sales revenue increase even further as the Australian
public invested in their homes, resulting in a substantial rise across all key product categories. Franchisee sales revenue
increased by 18.6% on a headline basis, or 18.9% on a comparable sales basis, to $3.21 billion for second half of the 2020
financial year (2H20), an increase of $502.49 million from $2.71 billion for the second half of the 2019 financial year (2H19). This
resulted in a corresponding increase in franchising operations segment revenue which grew by +37% to $505.22 million for
2H20, compared to $370.03 million for 2H19. 2H20 produced significant growth in the franchising operations segment profit
result rising by $134.81 million or +150% to $224.73 million, from $89.93 million in 2H19. The franchising operations margin
increased to 7.00% for 2H20 compared to 3.32% for 2H19, an increase of 368 basis points. If we excluded the incremental
impact of AASB 16, the franchising operations segment result for 2H20 would have been $227.92 million with a franchising
operations margin of 7.10%.
18
2
OPERATING and FINANCIAL REVIEW (continued)
Franchising Operations Segment (continued)
For the 2020 financial year, the franchising operations segment generated revenues of $949.04 million, up by $110.37 million,
or +13.2%, from $838.67 million in the 2019 financial year. The franchising operations segment result was $348.59 million for
FY20, up by $100.19 million, or +40.3%, from $248.40 million in FY19. Excluding the incremental impact of applying AASB 16
Leases of $7.00 million, the franchising operations segment result would have been $355.59 million for FY20, an increase of
$107.19 million, or +43.2%, relative to FY19. The franchising operations margin grew to 5.66% in FY20, compared to 4.39% in
FY19, an increase of 127 basis points. Excluding the incremental impact of applying AASB 16 Leases, the franchising operations
margin would have been 5.77% for FY20, a rise of 138 basis points.
The growth in the franchising operations segment result can be attributed mainly to an increase in revenue received from
franchisees by $112.22 million or +11.9%. Net franchise fees increased by $111.31 million, or+16.6%, primarily driven by the
robust aggregated franchisee sales growth in the second half of FY20, particularly the substantial franchisee sales growth in
4Q20 relative to 4Q19.
Offsetting this growth was a net increase in leasing expenses by $7.00 million due to the adoption of AASB 16 Leases in FY20.
Franchisee Sales Revenue Underpins the Franchising
Operations Segment
Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity. Retail sales in Harvey
Norman®, Domayne® and Joyce Mayne® in Australia are made by independently owned franchisee businesses that are not
consolidated with the consolidated entity’s results. Australian franchisee aggregated sales revenue are reported to the market as it
is a key indicator of the performance of the franchising operations segment.
2020 has been a difficult year for Harvey Norman®, Domayne® and Joyce Mayne® franchisees. In the first half of the financial year
(1H20), they operated in a challenging and competitive retail environment, influenced by a cautious consumer, changing promotional
cycles and unforeseen, unprecedented natural disasters. Aggregated franchisee sales revenue for 1H20 had increased by 0.1% on a
headline basis, and 0.03% on a comparable sales basis, relative to 1H19.
In January and February, the subdued retail sentiment and prolonged unprecedented natural disasters continued, with
aggregated franchisee sales revenue decreasing by 3% as franchisees focused on supporting and protecting local
communities. The “Shop · Support · Rebuild” initiatives in January through to early March saw Harvey Norman®, Domayne® and
Joyce Mayne® franchisees assist organisations such as the “BizRebuild – Disaster Relief Initiative” and “Good360” to help
rebuild affected communities.
The natural disasters of droughts, bushfires and floods were swiftly followed by the ongoing COVID-19 pandemic. In March,
franchisees faced challenges shared across the globe – a unique combination of a panicked consumer vying for household
necessities to bunker down and remain at home for an undefined period, and supply shortages due to ‘panic-buying’ and
supply-chain lockdowns. Such challenges were exacerbated by restrictions to domestic and international freight. Strong sales
in March 2020 – primarily driven by essential technology and appliance goods – reversed the sales reductions in January and
February and closed the March 2020 quarter stronger than the previous corresponding period.
Following the directive of the Australian Government to businesses to “keep Australia running”, steps were immediately taken
to ensure the Harvey Norman®, Domayne® and Joyce Mayne® franchisees could safely service their customers with the ‘Shop
Smart’ and ‘Shop Safe’ guidelines. With the exception of the mandatory closure of two franchised complexes in Tasmania for a
2-week period, the 194 franchised complexes throughout Australia have remained open throughout the year. Appropriate
social distancing measures and cleaning practices were applied in order to prioritise customer safety and enable trade to
continue, and this was assisted by the fact that Harvey Norman®, Domayne® and Joyce Mayne® franchisees operate their
businesses in large-format complexes located in stand-alone retail precincts.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 19
OPERATING and FINANCIAL REVIEW (continued)
Franchisee Sales Revenue Underpins the Franchising Operations Segment (continued)
Existing online, Click & Collect and contactless delivery offerings were expanded to provide further options for consumers to
shop in a way that’s safe for them and their families.
With the international and state borders closed, in addition to the mandatory closures of many leisure, sporting, dining and
recreational facilities, the Australian public returned ‘home’. From April to June, social interactions were limited, and customers
invested in their homes. As an established Home and Lifestyle Retailer, Harvey Norman®, Domayne® and Joyce Mayne®
franchisees were well-positioned to service the essential homemaker needs of their customers.
Whilst robust sales of essential whitegoods, technology and home office furnishings continued in the June quarter, franchisees
saw a good uptick in the audio-visual category, led by large-screen televisions that offered an unparalleled viewing experience
at affordable pricing, with 8K technology in televisions continuing to be a sought-after product by consumers. Connected
appliances are a natural growth area within consumer electronics, and demand remained strong throughout the period.
The physical distancing requirements enforced by the government, local businesses and society in general, has resulted in the
desire to be more digitally connected than ever. The necessity of virtual meetings for businesses, school or leisure activities has
seen growth in online platforms and mediums to virtually connect with colleagues, relatives and friends. The
telecommunications category of franchisees has seen corresponding growth in the June quarter, led by strong offers to connect
with the Optus network in Australia and outright mobile phone sales in general. The gaming category has seen solid growth in
the June quarter as a natural extension of the need for entertainment within the home throughout this unique period.
Technology franchisees have experienced an increased demand for better performance from products and this has driven a
faster refresh cycle with consumers choosing to upgrade mid to high end computers. With the strong growth in the setup of
home offices, there has also been an increased demand in connected essentials such as monitors, web cams, audio and printers.
The message by franchisees throughout the June quarter was simple and consistent: “We’re here for you” and “We’re doing
our part to help everyone stay safe”. Through this consistent messaging, franchisees have built trust with the Australian public.
Customers know they can rely on the Harvey Norman®, Domayne® and Joyce Mayne® brands to be there to support each local
community – regardless of whether they are located in a remote, regional area or within a large metropolitan city.
Aggregated franchisee sales revenue for the second half of the 2020 financial year (2H20) increased by 18.6% on a headline
basis, or 18.9% on a comparable sales basis, to $3.21 billion, an increase of $502.49 million from $2.71 billion for the second
half of the 2019 financial year (2H19).
Amid the difficult and unprecedented events of this year, aggregated franchisee sales revenue for FY20 increased by 8.9% on a
headline basis, or 9.1% on a comparable sales basis, to $6.16 billion, an increase of $505.65 million from $5.66 billion for FY19.
20
2
OPERATING and FINANCIAL REVIEW (continued)
O2O STRATEGY
The consolidated entity has continued to invest in technology, digital transformation and infrastructure assets.
Franchisees have been provided with the necessary tools to enhance their Online-to-Offline (O2O) Strategy and
optimise their service offering.
Customers of Harvey Norman®, Domayne® and Joyce Mayne® franchisees are more digitally connected than ever,
and are increasingly utilising technology both in-store and in the online marketplaces. Franchisees were agile in
adapting to the COVID-19 social distancing requirements, which resulted in a significant increase in the digital
expectations of their customers.
There has been a strong franchisee focus on ‘contactless’ retail and digital connectivity.
1 H R C L I C K
& C O L L E C T
1 Hour Click & Collect and ‘Contactless’ Click & Collect
Franchisees continue to improve the Click & Collect experience, where customers
want to be connected to their local store. The 1 Hour Click & Collect service enables
customers to connect with franchisee in-store experts via Microsoft Teams. Through
integrated notifications, the customer can advise the franchisee that they are on their
way to collect their order, allowing the franchisee to be fully prepared when they arrive.
COVID-19 has expedited the rollout of the new franchisee ‘Contactless In-Car Pickup’
option. Once at the franchised complex, customers can press the “I’m Here” button
on their app, and a staff member will bring out the purchase to the customer’s car,
contact-free. This option is currently available at the franchised complexes
throughout greater Melbourne and regional Victoria, and in the 13 company-operated
stores in Ireland.
Trak by Harvey Norman®
Trak by Harvey Norman® logistics technology, optimises route planning for franchisee
deliveries and provides automated customer communication with real-time tracking.
Franchisees are continuing their rollout of the Trak platform, and customer feedback to
date has been very positive.
The Trak platform provides delivery drivers for franchisees with improved capabilities to
communicate with the customer. Drivers are equipped with smart devices which enable
key events in the delivery process to be monitored and alerts sent to drivers, customers
and franchises. This capability is key to providing exceptional service levels at the final
stage of the delivery process.
Inbound Logistics Reservations
Franchisees have implemented a reservations system that enables inbound freight
providers to “book in” to a franchisee warehouse, ensuring receiving capabilities with
the aim of eliminating failed deliveries and re-scheduling. Additionally, the system
provides visibility of purchase order receipting information that contributes to fulfilling
the customer’s delivery of products.
Franchisees intend to continue the deployment of the Inbound Logistics Reservations
System throughout FY21.
21
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
21
OPERATING and FINANCIAL REVIEW (continued)
Home Delivery Services
Home delivery service standards provide franchisee customers with the delivery service
option that best suits their needs. Delivery services need to be flexible and responsive to
customers’ needs for a quick ‘Store to Door’ drop-off service, a ‘Delivery Plus’ for a basic
connection and assembly or a full ‘Premium Delivery’ for full assembly and trade based
services.
Implementation of a customer satisfaction framework for franchisee deliveries has
focussed attention on the quality of their delivery services. As the overall customer
experience is vital, providing feedback to franchisees is critical to ensure continuous
improvements during the delivery process.
Messaging and Chatbots
Franchisee LiveChat continues to be upgraded and enhanced, and is integral in helping
answer customer questions online. Franchisees are now moving towards a more
sophisticated service solution: ”Conversational Commerce that leverages AI-powered
Chatbots” and spans a multitude of messaging channels. With over 90% of people’s
day-to-day conversations happening in digital messaging channels, it is imperative to be
where consumers already are, resulting in the launch of messaging and customer service
platforms on Apple Business Chat, WhatsApp, Facebook Messenger and SMS. 2020
has seen the introduction of franchisee Chatbots to help automate the customer service
for customers who connect with Harvey Norman® 24/7. Chatbots can handle a wide
range of basic questions, freeing up Live Chat agents to handle more high-value and
sophisticated requests - delivering the expertise Harvey Norman® is known for.
Adobe Analytics
The Adobe Analytics platform provides franchisees with unsampled, real-time data to
comprehensively understand the customer journey.
Harvey Norman® Store Location Management System
The Harvey Norman® location management service (LMS) has been enhanced over the
past year, and continues to grow and evolve. This service provides a single source of
truth across all information services (Website, StoreFinder, Facebook, Google Maps) for
franchisees at each franchised complex including: location information, contact details,
trading hours, and local events, allowing customers to easily obtain information about
their nearest franchised complex. The LMS is integral to the seamless Click & Collect
experience, providing accurate information for franchisee store and warehouse customer
pickup locations. The LMS also gives context to customers within notification services
by advising customers of pickup hours in real-time, ensuring that franchisees are always
available to give them a great experience.
Latitude Pay
This year, Harvey Norman® partnered with Latitude Financial Services Australia Holdings
Pty Ltd (Latitude) to offer an attractive new buy now pay later (BNPL) finance offering both
in-store and online called “LatitudePay”. LatitudePay boasts ‘no interest payments’ as
well as the ability to combine multiple purchases into one simple payment plan over ten
instalments. LatitudePay has a fast 90-second sign up time which includes a credit and ID
check and allows instant approval for spending amounts of between $150 and $1,000.
H N S T O R E
22
OPERATING and FINANCIAL REVIEW (continued)
Review of the Property Segment
Our Robust Freehold Property Portfolio
Globally, we operate an integrated retail, franchise, property and digital system – and the ownership of a robust property
portfolio has always been our strategic, competitive advantage. Our consolidated balance sheet is anchored by over $3 billion
in tangible, freehold property segment assets that has appreciated in fair value by $63.34 million during the 2020 financial year.
In Australia, our franchisees operate in the large-format retail market, characterised by generous retail footprints and spacious
floor layouts, as opposed to the traditional retail market which includes multi-storey shopping centres. The majority of our 194
franchised complexes are located in large-format retail centres as the extensive floorspace is necessary to showcase the vast
product range of a home and lifestyle retailer. 94 franchised complexes (48% of total) are owned by the consolidated entity
and then leased to external parties, including Harvey Norman®, Domayne® and Joyce Mayne® franchisees pursuant to a licence,
terminable upon reasonable notice. 100 franchised complexes (52% of total) are leased by separate subsidiaries of the
consolidated entity from external landlords, and then sub-leased to Harvey Norman®, Domayne® and Joyce Mayne® franchisees
pursuant to a licence, terminable upon reasonable notice.
When the COVID-19 pandemic struck in the March 2020 quarter, these large-format retail centres enabled us to mitigate some
of the COVID-19 risks.
Our franchised complexes are primarily located in stand-alone retail precincts, which are constructed around a carpark, allowing
customers immediate and safe access to the shopfront. As there are generally no internal malls or dining and entertainment
facilities onsite, social interaction is limited and customers feel comfortable and safe to visit and shop. The large showroom
floorspace easily accommodates the strict social distancing requirements.
The tenancies within our complexes are primarily the Harvey Norman®, Domayne® or Joyce Mayne® franchisees, and other
complementary homemaker, lifestyle and hardware retailers. The COVID-19 restrictions in each state, coupled with the limited
ability to travel and socialise, resulted in the Australian public investing in their homes. The swift implementation of ‘COVID-safe’
practices enabled our franchisees to continue to trade to service the significant increase in demand for technology and essential
appliances at the commencement of the pandemic, and later, the rising demand in the furniture, bedding and electrical
categories as customers sought to refurbish their homes and upgrade their household goods. With the exception of two stores
in Tasmania for a two-week period, our franchised complexes remained open throughout, and the composition of the tenancy
mix within the home and lifestyle space meant minimal closures and high occupancy rates throughout the June quarter.
Whilst the COVID-19 pandemic has heightened the uncertainty around property fair values in general, there is evidence that the
large-format retail market has steady and more resilient fair values, in contrast to the softening values of some traditional, multi-
storey shopping centres in Australia. Our freehold property portfolio has recorded $63.34 million in capital appreciation to fair
value over the past 12 months, of which $34.27 million was the net property revaluation increment for investment properties
recognised in the income statement, $0.69 million increment for an overseas owner-occupied property recognised in the income
statement and $28.38 million was the net increment for owner-occupied properties recognised in equity.
Net Property Revaluation Adjustments
At balance date, the board of directors make an assessment of the fair value of each freehold investment property.
This assessment is informed by:
the information and advice contained in the last independent external valuation report for that property prepared by an external,
professionally qualified valuer who holds a recognised relevant professional qualification and has specialised expertise in the
property being valued (Independent Valuer);
the information and advice contained in the last internal valuation report for that property (which was informed by the
immediately preceding independent external valuation report for that property);
the last management review for that property; and
other information and professional or expert advice given or prepared by reliable and competent persons in relation to that
property.
Until 31 December 2019, the entire freehold investment property portfolio in Australia was independently valued at least once
every three (3) years, on a rotational basis by an Independent Valuer. Under this approach, approximately one-sixth of the
portfolio was independently externally valued at least once every six (6) months. It was determined that for the second half of
the 2020 financial year and thereafter, the entire freehold investment property portfolio in Australia will be independently
valued by an Independent Valuer at least once every two (2) years on a rotational basis. This means that as at 30 June 2020
approximately one-quarter (25%) of the freehold investment property portfolio was valued by an Independent Valuer.
36
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 23
OPERATING and FINANCIAL REVIEW (continued)
Net Property Revaluation Adjustments (continued)
For the 2020 financial year, sixty-one (61) valuations of freehold investment properties were performed by an Independent
Valuer: twenty-five (25) at 31 December 2019 and thirty-six (36) at 30 June 2020. This represents a total of 44.53% of the
number of freehold investment properties independently externally valued this year, and 44.72% in terms of the fair value of the
freehold investment property portfolio in Australia subject to independent external valuation.
Freehold investment properties not independently externally valued as at balance date are subject to an internal valuation or a
management review, performed by persons qualified by relevant education, training or experience. Each internal valuation and
management review is informed by the last independent external valuation and reliable market evidence. For the 2020 financial
year, 17 freehold investment properties had been affected by the same factors as the properties which had been independently
externally valued. As a consequence, internal valuations for these 17 properties were undertaken to determine the effect of
these factors.
The below table shows the composition of freehold property segment assets as at 30 June 2020, the number of owned
property assets and the increase in fair value recognised in each country.
Leasehold Property Portfolio | AASB 16 Leases
On 1 July 2019, the consolidated entity adopted AASB 16 Leases, resulting in the first-time recognition of right-of-use assets on
the balance sheet totalling $1.14 billion - representing our right to use an underlying leased asset as at 30 June 2020 - and the
recognition of $1.17 billion of lease liabilities - representing the present value of future lease payments.
Right-of-Use Assets: Leasehold Investment Properties (Sub-Leased to External Parties)
The consolidated entity has a portfolio of property leases primarily for the purposes of being sub-leased to Harvey Norman®,
Domayne® and Joyce Mayne® franchisees in Australia. For these properties, the consolidated entity enters into property leasing
arrangements with external landlords and then subsequently subleases these sites to franchisees pursuant to a licence,
terminable upon reasonable notice. Leasehold investment property: right-of-use asset meet the definition of an investment
property.
As at 30 June 2020, there were 240 leasehold investment properties. 100 leasehold investment properties (42% of total) were
occupied by Harvey Norman®, Domayne® and Joyce Mayne® franchisees in Australia for retail purposes. The remaining 140
leasehold investment properties (58% of total) were primarily used by our franchisees for warehousing. The adoption of AASB
16 Leases has resulted in an increase in expenses of $7.04 million for the leasehold investment properties in the current financial
year.
24
2
OPERATING and FINANCIAL REVIEW (continued)
Leasehold Property Portfolio | AASB 16 Leases (continued)
Right-of-Use Assets: Leasehold Owner-Occupied Properties and Plant and Equipment Assets
Leasehold properties occupied by the consolidated entity primarily include company-operated stores, warehouses and offices
that are leased from external landlords. Unlike the leasehold investment properties: right-of-use assets which are measured at
fair value, the leasehold owner-occupied properties and plant and equipment assets: right-of-use assets are measured at cost,
less any accumulated depreciation and impairment losses. The adoption of AASB 16 Leases has resulted in an increase in
expenses of $2.23 million for the leasehold Owner-Occupied Properties and Plant and Equipment Assets in the current financial
year.
The below table shows the composition of right-of-use assets and lease liabilities within our leasehold property portfolio as at
balance date, and the number of leased retail properties and other properties leased by the consolidated entity.
Review of the Financial Position of the Consolidated Entity
The unpredictable challenges and uncertainty of 2020 has reinforced the importance of our fundamental cornerstone principle
of developing, maintaining and enhancing our robust asset base and preserving our solid balance sheet.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 25
OPERATING and FINANCIAL REVIEW (continued)
OPERATING and FINANCIAL REVIEW (continued)
Review of the Financial Position of the Consolidated Entity (continued)
Preservation of cash and the repayment of external debt facilities has resulted in a NIL net debt to equity ratio:
In the third quarter of FY20, as the COVID-19 pandemic emerged, we moved quickly to bolster our financial position and
undertook a cash preservation approach across the consolidated entity. The cancellation of the interim FY20 dividend and the
20% reduction in the remuneration of the Directors for the months of April, May and June 2020 were some of the cash
preservation measures taken during the year. As at 30 June 2020, the consolidated entity generated a positive net cash
position (cash net of Interest-bearing loans and borrowings) of $15.35 million compared to a net debt position of $626.47
million as at 30 June 2019.
As at 30 June 2020, the consolidated entity had unused, available financing facilities of $685 million – only utilising $293 million
out of total approved financing facilities of $978 million. The robust cash flows generated by the consolidated entity in 2H20,
particularly in 4Q20, resulted in the ability to pay down external debt – including the $520 million repayment of the Syndicated
Facility in Australia. This has resulted in a net debt to equity ratio of nil as at 30 June 2020, compared to a net debt to equity
ratio of 19.46% as at 30 June 2019.
Strong Increase in Total Assets:
Total assets increased by +21.5%, or $1.03 billion, to $5.83 billion as at 30 June 2020, from $4.80 billion as at 30 June 2019.
$1.14 billion of this increase can be attributed to the first-time application of AASB 16 Leases from the beginning of the 2020
financial year that resulted in the recognition of right-of-use assets for leases of owner-occupied properties and plant and
equipment leases of $513.78 million and investment properties (leasehold): right-of-use assets of $621.90 million relating to
leases of properties that are sub-leased to external parties. The value of the freehold investment property portfolio increased
by $84.38 million, or +3.4%, to $2.59 billion as at 30 June 2020 primarily due to the net property revaluation increment over the
past 12 months and the refurbishments of other freehold investment property assets. Cash and cash equivalents increased by
$98.15 million to $313.20 million as at 30 June 2020, from $215.05 million as at 30 June 2019, predominantly due to greater
receipts from customers – due to stronger sales from company-operated stores – and greater receipts from franchisees –
primarily due to the improved profitability of the franchising operations segment. The higher receipts from customers and
higher net receipts from franchisees were used to pay down debt.
The above increases have been offset by a reduction in trade receivables by $230.41 million due to lower receivables from
franchisees by $255.37 million. Franchisee receivables are reduced on a daily basis by an automated process, at the direction of
the franchisee, to transfer the net cash receipts in the bank account of the franchisee to Derni, to reduce that franchisee’s
indebtedness to Derni. The net cash receipts of franchisees were significantly stronger in the second half of the 2020 financial
year – particularly in the 4th quarter. This resulted in higher repayments of franchisee indebtedness and a lower franchisee
receivables balance at the end of the year. Property, plant and equipment assets decreased by $33.32 million due to $75.16
million reclassification from property, plant and equipment assets to right-of-use assets upon the first-time adoption of AASB 16
Leases offset by the acquisition of a freehold owner-occupied property in NZ, and the fit-out of the 5 new company-operated
stores in Malaysia prior to December 2019, 1 new outlet in New Zealand and the fit-out of 2 new franchised complexes this
year. Upgrades and refurbishments to franchised complexes and company-operated stores have continued only where
necessary for the safety, comfort and security of the customers and for the maintenance and protection of our brands. The
premium refit program that we announced last year (which was to be progressively rolled-out in Australia and overseas) was put
on hold. Similarly, our overseas expansion plans have halted since December 2019, and the 5 stores that were planned to open
in the second half of the year did not occur due to government mandated lockdowns and business closures.
26
2
HARVEY NORMAN HOLDINGS LIMITED | APPENDIX 4E 30 JUNE 2020 27
HARVEY NORMAN HOLDINGS LIMITED | APPENDIX 4E 30 JUNE 2020 24
HARVEY NORMAN HOLDINGS LIMITED | APPENDIX 4E 30 JUNE 2020 25
OPERATING and FINANCIAL REVIEW (continued)
Review of the Financial Position of the Consolidated Entity (continued)
Reduction of Total Liabilities (excluding AASB 16 lease liabilities):
Total liabilities increased by $750.33 million, or +46.9%, to $2.35 billion as at 30 June 2020 from $1.60 billion as at 30 June
2019 mainly attributable to the recognition of lease liabilities of $1.17 billion resulting from implementing AASB 16 Leases
which took effect from 1 July 2019. The increase was offset by a reduction in interest-bearing loans and borrowings of $543.68
million, of which the majority of the reduction related to the repayment of the Syndicated Facility in Australia by $520 million
since the end of prior year.
Solid Net Assets:
The consolidated entity is very pleased to report another solid net asset base, with robust growth of 8.7% during the year, or an
increase of $279.53 million, to $3.48 billion as at 30 June 2020, from $3.20 billion as at 30 June 2019.
Robust Cash Flows
Cash and cash equivalents, net of bank overdraft, as disclosed in the Statement of Cash Flows on page 87, increased by
$108.63 million or 58.5% to $294.45 million in FY20, compared to $185.82 million in FY19.
During FY20, the consolidated entity generated $1.06 billion of net cash flows from operating activities. This was primarily
achieved by receiving $2.46 billion from customers and $1.30 billion in net receipts from franchisees, offset by $2.47 billion in
payments to suppliers and employees. Net receipts from franchisees increased by $445.86 million, or +51.9%, to $1.30 billion,
from $858.37 million in FY19 as net receipts from franchisees were affected by the movement in the aggregate amount of
financial accommodation provided to franchisees in FY20 relative to the movement in FY19. During FY20, the movement in the
aggregate amount of financial accommodation provided to franchisees decreased significantly compared to the movement in
FY19, primarily due to improved profitability of the franchising operations segment in the second half of FY20, particularly in
4Q20. Higher net receipts from franchisees are also assisted by an increase in gross revenue from franchisees received in FY20
compared to FY19. Receipts from customers increased by $63.67 million due to higher sales from company-operated stores.
Payments to suppliers and employees decreased by $210.28 million as FY19 included lease payments in accordance with the
superseded standard AASB 117. Under AASB 16 Leases, only variable lease payments and payments for short term and low-
value leases form part of payments to suppliers and employees. All other lease payments under AASB 16 are allocated
between interest and principal components and classified within operating and financing cash flows respectively.
There was an increase in the net cash flows used in investing activities by $70.76 million during FY20 as the prior year included
the receipt of proceeds of $40.50 million pursuant to the completion of the Administrator Sale of the Coomboona JV assets in
January 2019. Payment for the purchase of investment properties increased by $23.60 million in FY20 primarily due to the
purchase and refurbishments of freehold investment properties in the first half of FY20. The increase in outflows was offset by
an increase in proceeds from sale of property, plant and equipment and properties held for resale by $23.60 million
predominantly due to the completion of the sale for the Byron at Byron Bay Resort in the first half of this year.
There was an increase in the net cash financing outflows by $565.08 million during FY20 primarily due to an increase in net
repayment of the Syndicated Facility by $495 million and the inclusion of the principal component of lease payments of $124.77
million in financing activities upon the first-time adoption of AASB 16 Leases in the current year.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 27
OPERATING and FINANCIAL REVIEW (continued)
Capital Management Policy
The consolidated entity’s capital management policy objectives are to: create long-term sustainable value for shareholders;
maintain optimal returns to shareholders and benefits to other stakeholders; source the lowest cost available capital; and
prevent the adverse outcomes that can result from short-term decision making.
The Capital Management Policy stipulates a net debt to equity target for the consolidated entity of less than 50%. In this
report, the calculation of the net debt to equity ratio excludes the right-of-use assets and lease liabilities recognised under
AASB 16 in order to be comparable with ratios calculated in previous periods.
As at 30 June 2020, the consolidated entity had unused, available financing facilities of $685 million – only utilising $293 million
out of total approved financing facilities of $978 million. This has resulted in a net debt to equity ratio of nil as at 30 June 2020,
compared to a net debt to equity ratio of 19.46% as at 30 June 2019.
The capital structure of the consolidated entity consists of: debt, which includes interest-bearing loans and borrowings as
disclosed in Note 17. Interest-Bearing Loans and Borrowings of this report; cash and cash equivalents; and, equity attributable
to equity holders of the parent, comprising ordinary shares, retained profits and reserves as disclosed in Notes 22, 23 and 25
respectively.
The consolidated entity’s borrowings consist primarily of bank debt provided by a syndicate of ten banks (including 3 of the
“Big 4” Australian Banks). Concentration risk is minimised by staggering facility renewals and utilising a range of maturities of
up to 3 years.
Outlook
We expect to open up to 12 new Harvey Norman® company-operated stores overseas, with 3 in New Zealand, 3 in Malaysia, 3
in Singapore, 2 in Ireland and 1 in Croatia. The new store at Galway City in Ireland has already opened subsequent to balance
date and is trading well.
In Australia, we anticipate opening a new Harvey Norman® franchised complex at Hornsby, NSW in October 2020. Upgrades
and refurbishments to franchised complexes as part of our premium refit strategy announced last year is expected to
recommence in FY21, after being placed on hold temporarily due to COVID-19 disruptions. Subsequent to balance date,
eighteen (18) Harvey Norman® and Domayne® complexes in greater Melbourne, Victoria were closed to the public from 6th
August 2020 as a direct result of the Stage 4 Restrictions mandated by the State Government of Victoria. Our franchisees
quickly moved to service their customers via Click & Collect and contactless deliveries. The sales turnover of our affected
franchisees in greater Melbourne will be adversely affected by the mandated closures. It is presently estimated that the easing
of Stage 4 Restrictions in Victoria will be commence from 26th October 2020.
On 11th August 2020, the New Zealand Government announced Alert Level 3 restrictions for the Auckland region, and Alert Level 2
restrictions for the remainder of the country, resulting in the closure of eleven (11) Harvey Norman® company-operated stores in
Auckland to the public from midday 12th August 2020 to Sunday 30th August 2020 inclusive. All 11 stores re-opened to the public
from Monday 31st August 2020.
The below table shows the aggregated sales increase / (decrease) from 1 July 2020 to 17 September 2020 compared to 1 July
2019 to 17 September 2019. The % increases have been calculated in Australian Dollars $A.
COUNTRY
(% increase calculated in
$AUD)
Australian Franchisees
New Zealand
Slovenia & Croatia
Ireland
Northern Ireland
Singapore
Malaysia
July 2020 vs
July 2019
August 2020 vs
August 2019
1 July 2020 to 17 September
2020 vs 1 July 2019 to 17
September 2019
Total
%
40.5
24.1
24.8
63.1
31.7
0.8
15.6
Comparable
%
40.9
23.5
24.8
59.9
31.7
0.8
2.2
Total
%
34.3
14.6
35.3
57.4
19.5
6.1
5.4
Comparable
%
35.1
13.9
35.3
49.1
19.5
6.1
(-7.4)
Total
%
33.8
18.8
27.2
61.7
23.6
(3.7)
7.4
Comparable
% (1)
34.5
18.0
27.2
55.1
23.6
(-3.8)
(-5.1)
(1) Excludes the effect (in the relevant period) of the temporary closures mandated by each local government as a result of their
COVID-19 response.
28
2
OPERATING and FINANCIAL REVIEW (continued)
Summary of Key Business Risks
The Board is cautiously optimistic about the consolidated entity’s future trading performance but acknowledges that there are
several factors that may pose a risk to the achievement of the business strategies and future financial performance as outlined
above.
Every business faces risks with the potential to impair its ability to execute its strategy or achieve its financial objectives. There
are a number of key risks, both specific to the Harvey Norman® integrated retail, franchise, property and digital system and
external risks, for example the macroeconomic environment, over which the consolidated entity has no control. The
consolidated entity acknowledges the existence of these risks, and in the first instance seeks to identify and understand
individual risks, and then – to the extent possible – manage and/or minimise risks.
Changes in trading conditions due to the COVID-19 global pandemic:
The emergence of COVID-19 at the beginning of 2020 has created widespread panic and disruption to the way in which
governments lead their countries across the globe, the approach to business operations and trade, and how individuals carry
out their day-to-day lives. The consolidated entity has adapted to adhere to the mandatory social distancing restrictions
applicable in the 8 countries in which it, or its franchisees, operate and has temporarily closed to the public when mandated to
do so by the relevant government.
The consolidated entity expects that the COVID-19 pandemic could impact trading conditions in the year ahead. The response
to COVID-19 by government and health services organisations, through regulation and policy, may limit the ability of franchised
complexes in Australia and overseas company-operated stores to trade at normal capacity. Strict social distancing measures
and ‘COVID-Safe’ work practices may continue to restrict trade in future periods. This risk is mitigated as the majority of the
franchised complexes and company-operated stores are located in large-format retail centres, characterised by generous retail
footprints and spacious floor layouts, thereby maximising the ability to trade and service the needs of their customers.
The uncertainty around the lasting economic, health and social impacts of the COVID-19 pandemic, the risk of further
government-mandated retail closures in the near future, changing consumer behaviour and the ability of the supply-chains to
meet demand, may impact the sales revenue generated by franchisees in Australia and company-operated stores – thereby
impacting the profitability and cash flow of the consolidated entity. This risk is mitigated by the consolidated entity’s robust
balance sheet, stringent measures to preserve cash and enhance liquidity, coupled with the continuous monitoring of any
changes in COVID-19 regulation and policy as they are announced. The consolidated entity is in a positive net cash position of
$15 million as at 30 June 2020 – with $685 million of unused, available debt facilities (refer to Note 18. Financing Facilities
Available) – compared to a net debt position of $626.47 million as at 30 June 2019, and is therefore well-placed to tackle
COVID-19 challenges as they arise.
Changes to macroeconomic conditions and policy that may result in declining consumer sentiment:
The consolidated entity has a significant exposure to the economy of the countries in which it operates. There are a number of
general economic conditions, including interest and exchange rate movements, overall levels of demand, housing market
dynamics, wage growth, employment, economic and political instability and government fiscal, trade, monetary and regulatory
policies, that can impact the level of consumer confidence and discretionary retail spending. These conditions may affect
revenue from sales to customers and franchise fees. The consolidated entity seeks to reduce its exposure to these risks through
appropriate business diversification, also by closely monitoring both internal and external sources of information that provide
insights into any changes in demand within the economies in which it operates.
Increased competition resulting in a decline of retail margin or a loss of market share for franchisees in
Australia and company-operated stores in overseas markets:
The integrated retail, franchise, property and digital system, and diverse category mix assists in maintaining the consolidated
entity’s competitive position. Market consolidation and/or acquisition may result in further competition and changes to retail
margins and market share. Franchisees in Australia and company-operated stores in 7 overseas regions operate across a
number of categories in the strongly performing Home and Lifestyle market. Diversity of category and the ability to identify
growth opportunities locally and overseas, mitigates the risk from existing and potential competitors.
Emergence of competitors in new channels:
The Harvey Norman® Omni Channel Strategy provides customers of franchisees with a diverse, consistent and distinctive Harvey
Norman® customer experience through a range of channels. The Harvey Norman® Omni Channel Strategy integrates retail,
online, mobile, and social channels.
The online operations of franchisees in Australia and the company-operated online operations overseas continue to grow. The
digital platform provides new opportunities for growth and new ways to embrace and engage with customers. Data analytics
are an important element of the Harvey Norman® Omni Channel Strategy, and are utilised to improve customer experience.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 29
OPERATING and FINANCIAL REVIEW (continued)
Summary of Key Business Risks (continued)
The Harvey Norman® Omni Channel Strategy sets the Harvey Norman® brand apart from other online and digital competitors as
the digital, physical complex and distribution channels are fully integrated, providing customers of franchisees with a multitude
of engagement options to meet their needs. The Harvey Norman® Omni Channel Strategy, supported by the retail property
portfolio of the consolidated entity, makes the Harvey Norman® brand a strong competitor in the market.
A decline in the commercial property sector leading to softening property asset values, falling rental
returns and a reduction of future capital returns on property assets:
With a property portfolio of over $3 billion, the consolidated entity is exposed to potential reductions in commercial property
values. The consolidated entity has a selective and prudent acquisition and development strategy and maintains high-quality
complexes and a solid, dynamic, complementary tenancy mix in order to maximise the profitability of the property segment.
Refer to Note 14: Investment Properties: Freehold on pages 119 to 122 of this report.
Counterparty risks of service providers:
This risk relates to the inability of service providers to meet their obligations, including compliance obligations. The
consolidated entity closely monitors and evaluates the performance of external service providers to mitigate counterparty risk.
Counterparty risk associated with the mining camp accommodation joint ventures:
Commodity prices are inherently volatile. The provision of services to the mining industry is dependent on the investment
cycle. The consolidated entity has continued its joint ventures with counterparties to provide mining camp accommodation
services. The risk in respect of mining camp accommodation joint ventures includes the ability of counterparties to meet
financial and other obligations under mining camp accommodation joint venture agreements.
The consolidated entity closely monitors and evaluates the performance of counterparties of the mining camp accommodation
joint ventures by monitoring compliance with joint venture agreements; adopting a prudent and conservative approach to the
review of mining camp accommodation cash flows, including future cash flow projections; and ensuring that an adequate level
of security is maintained for any funds advanced to mining camp accommodation joint ventures.
Compliance by franchisees with franchise agreements:
The risk relates to franchisees acting in breach of the terms and conditions of their respective franchise agreements. The
consequences of non-compliance may include damage to the brand, fines or other sanctions from regulators, and/or a
reduction in franchise fees received from franchisees.
The franchisor continually monitors and evaluates the financial and operating performance of each franchisee to actively assess
compliance with executed franchise agreements. Instances of non-compliance are promptly addressed to protect the Harvey
Norman® brand and/or intellectual property of the franchisor.
Information Technology (“IT”) security and data security breaches:
This risk relates to the potential failure in IT security measures resulting in fraud, the loss, destruction or theft of customer,
supplier, financial or other commercially-sensitive information including intellectual property. This has the potential to adversely
affect our operating results which would lead to lawsuits, damage the reputation of the Harvey Norman® brand, and/or create
other liabilities for the consolidated entity.
There are a number of key controls in place, including an ongoing security improvement program, investment in cyber security
resources; the implementation, maintenance and supervision of operational policies and contracts intended to preserve the
confidentiality and integrity of IT systems. The Information Technology environment is subject to regular independent audit and
review of IT security controls, response plans and incident management practices.
30
2
DIRECTORS’ REPORT – THE BOARD OF DIRECTORS
Unless otherwise indicated, all directors (collectively termed “the Board”) held their position as a director throughout the entire
financial year and up to the date of this report.
Gerald Harvey
Executive Chairman
Mr. G. Harvey was the co-founder of Harvey Norman Holdings Limited in 1982 with Mr. I.J. Norman.
Mr. G. Harvey has overall executive responsibility for the strategic direction of the consolidated entity, and in
particular, property investments.
Kay Lesley Page
Executive Director and
CEO
Ms. Page joined Harvey Norman in 1983 and was appointed a director of Harvey Norman Holdings Limited in 1987.
Ms. Page became the Chief Executive Officer of the Company in February 1999 and has overall executive
responsibility for the consolidated entity.
Ms. Page was an independent member of the Place Management NSW Board, and resigned as a member on 21
February 2020.
Ms. Page was a Director of the Trustee of the Sydney Cricket and Sports Ground Trust, and resigned her directorship
on 6 March 2020.
Chris Mentis
B.Bus., FCA, FGIA, Grad
Dip App Fin
Executive Director, CFO
& Company Secretary
Mr. Mentis was appointed a director of Harvey Norman Holdings Limited on 30 August 2007. Mr. Mentis joined
Harvey Norman as Financial Controller on 15 December 1997. On 20 April 2006, he became Chief Financial Officer
and Company Secretary.
Mr. Mentis is a Fellow of the Chartered Accountants Australia & New Zealand (CA ANZ) and a Fellow of the
Governance Institute of Australia, with extensive experience in financial accounting. Mr. Mentis has overall executive
responsibility for the accounting and financial matters of the consolidated entity.
John Evyn Slack-Smith
Executive Director &
COO
Mr. Slack-Smith was a Harvey Norman® computer franchisee between 1993 and 1999. Mr. Slack-Smith became a
director of the Company on 5 February 2001. Mr. Slack-Smith has overall executive responsibility for the operations
of the consolidated entity.
Mr. Slack-Smith was appointed a Non-Executive Director of the Children’s Tumour Foundation of Australia on 22 July
2019, and is the Chair of the Barker College Foundation Limited and a Member of Council at Barker College.
David Matthew Ackery
Executive Director
Mr. Ackery was appointed a director of Harvey Norman Holdings Limited on 20 December 2005. Mr. Ackery has
overall executive responsibility for the relationship between the consolidated entity and Harvey Norman® home
appliances, home entertainment and technology franchisees and strategic partners.
Mr. Ackery finished his tenure as the Chairman of the public company, St. Joseph’s College Foundation Limited, on
30 June 2019.
Michael John Harvey
B.Com
Non-Executive Director
Mr. M. Harvey joined Harvey Norman in 1987, having completed a Bachelor of Commerce degree. Mr. M. Harvey
gained extensive experience as a Harvey Norman® franchisee from 1989 to 1994. Mr. M. Harvey became a director
of the Company in 1993 and was appointed Managing Director in July 1994. Mr. M. Harvey ceased to be an
Executive Director and Managing Director on 30 June 1998.
Christopher Herbert
Brown
OAM, LL.M, FAICD, CTA
Non-Executive Director
Mr. Brown holds the degree of Master of Laws from the University of Sydney. Mr. Brown is the senior partner in
Brown Wright Stein Lawyers. Brown Wright Stein Lawyers has acted as lawyers for the consolidated entity since
1982. Mr. Brown was appointed a director of the Company in 1987, when it became a listed public company.
Mr. Brown is a member of the Audit, Remuneration and Nomination Committees.
Mr. Brown is the Chairman of Windgap Foundation Limited. In 2013 he was awarded the Medal of the Order of
Australia (OAM) for service to the community, particularly to people with disability.
Kenneth William
Gunderson-Briggs
B.Bus., FCA, MAICD
Non-Executive Director
(Independent)
Mr. Gunderson-Briggs was appointed a director of Harvey Norman Holdings Limited on 30 June 2003. Mr.
Gunderson-Briggs is a chartered accountant and a registered company auditor. Mr. Gunderson-Briggs has been
involved in public practice since 1982 and a partner in a chartered accounting firm since 1990. Mr. Gunderson-
Briggs’ qualifications include a Bachelor of Business from the University of Technology, Sydney and he is a Fellow of
the CA ANZ. Mr. Gunderson-Briggs was appointed Chairman of the Remuneration Committee on 16 December
2015 and is a member of the Audit & Risk and Nomination Committees.
Graham Charles Paton
AM, B.Ec, FCPA, MAICD
Non-Executive Director
(Independent)
Mr. Gunderson-Briggs is an independent Non-Executive Director of Australian Pharmaceutical Industries Limited, a
company listed on the ASX.
Mr. Paton holds a Bachelor of Economics degree from the University of Sydney. During his 23 years as a partner of
an international chartered accounting practice, he was involved in the provision of professional services to the retail
industry. He retired from public practice in July 2001. Mr. Paton is a Fellow and Life Member of CPA Australia and
was the National President of that professional accounting body in 1993/1994. In 2001, Mr. Paton was awarded
membership of the General Division of the Order of Australia for his services to the accounting profession and for his
services to the deaf community through his chairmanship of the Shepherd Centre for Deaf Children for the decade to
2001.
Mr. Paton was appointed a director of Harvey Norman Holdings Limited on 20 June 2005 and was appointed the
Senior Independent Director on 16 December 2015. Mr. Paton was appointed Chairman of the Nomination
Committee on 16 December 2015, Chairman of the Audit & Risk Committee on 9 March 2006 and is a member of
the Remuneration Committee.
Maurice John Craven
B.Sc, FAICD
Non-Executive Director
(Independent)
Mr. Craven was appointed a director of Harvey Norman Holdings Limited on 27 March 2019. Mr. Craven holds a
Bachelor of Science degree from the University of Melbourne and is a Fellow of the Australian Institute of Company
Directors.
Mr. Craven has been actively involved with innovation and growth in technology empowered industries for the past
20 years and prior to that was a partner for 25 years with Andersen Consulting.
Mr. Craven is Chair of Specialisterne Australia, a Member of the Board of Cenitex and a Member of the Board of
Social Venture Partners Melbourne.
33
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 31
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
The Board of Directors:
Roles and
Responsibilities /
Structure and
Composition
DIRECTORS’ REPORT (CONTINUED)
Role and Responsibilities
It is the role of the Board to:
set and approve the strategy of the Company
set the risk appetite of the Company;
oversee the risk management framework of the Company;
review the risk management framework of the Company at least annually to satisfy itself that the risk
management framework of the Company continues to be sound and that the Company is operating with
due regard to the risk appetite set by the Board;
satisfy itself that the risk management framework of the Company deals adequately with contemporary
and emerging risks such as conduct risk, digital disruption, cyber-security, privacy and data breaches,
sustainability and climate change; and
disclose, in relation to each reporting period, whether such a review has taken place.
It is the role of senior management of the Company to design and implement the risk management framework of
the Company and controlled entities and to ensure that the Company and each controlled entity operates within
the risk appetite(s) set by the Board of the Company.
The Board delegates to senior management of the Company, responsibility for the operational effectiveness and
efficiency of the management of risk.
The Board has established guidelines for the composition of the Board and meeting processes.
The responsibility for implementation of strategy and risk management and operations of the business is
delegated, by the Board, to the CEO and the executive management team. The CEO reports to the Board on
operational issues that include:
a. Recommendations on strategic initiatives and developing and implementing corporate strategies;
b. Preparation for approval by the Board of budgets and cash flow forecasts and management of operations within
the financial constraints imposed by the Board;
c. Maintenance of effective compliance and risk management frameworks;
d. Evaluation of the performance of key executives, including succession and learning and growth activities;
e. Achievement of financial and non-financial key performance indicators as set by the Board; and
f.
Information to keep the Board and ASX fully informed having regard to continuous disclosure obligations.
The Company's continuous disclosure policy sets out procedures supporting the Company's compliance with its
continuous disclosure obligations under the ASX listing rules. The policy is available on the Governance page of the
website. Matters which are specifically reserved for the Board are set out in the Board Charter, which is available
on the Governance page of the website. Other functions reserved for the Board include:
a. Approving the annual and half-yearly financial reports;
b. Approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and
divestitures; and
c.
Reporting to shareholders.
Board Structure and Composition
The relevant factors in determining the suitability of a board member are integrity, business savvy, an owner-
oriented attitude and a deep genuine interest in the business of the consolidated entity.
In applying these principles to the consolidated entity:
a.
Integrity requires a level of fundamental honesty, candour and frankness in dealing with colleagues, regulators
and other third parties. Integrity necessarily requires a director to bring an open mind and independent
judgment to the discussion of any matter of concern to the Board.
b. Business savvy requires a deep understanding of one or more of the sectors of retail, property, franchising and
digital.
c. An owner orientation or perspective of an owner requires the individual to either have:
1.
2.
"skin in the game" by holding, controlling or benefitting from a significant parcel of shares where the
financial interests of the director are aligned with the long term beneficial interest of shareholders; or
a perspective of advising owners of businesses and understanding that wealth generation is derived from
the building of business interests that create long term sustainable value.
d. Directors with an owner orientation retain an open mind to consider diverse views but are not strictly beholden
to the whims of fashionable thinking and are able to form their own views as to what constitutes best practice in
corporate governance.
e.
Interest in and time to do the job means:
1.
2.
the person has an executive role, meaning that the person's career is based on job performance at the
company; or
the individual has a limited number of outside interests (i.e. the person is not a professional Non-Executive
Director),
but in both cases the individual has an independence of mind and outlook.
Applying these criteria to the current Board, the Board is satisfied that each Director brings to the Board the
necessary skills and attributes specified.
32
32
DIRECTORS’ REPORT (CONTINUED)
The Board of Directors:
Roles and
Responsibilities /
Structure and
Composition
(continued)
Directors of the Company are considered to be independent when they are independent of management and free
from any business or other relationship that could interfere materially with, or could reasonably be perceived to
interfere materially with, the exercise of their unfettered and independent judgement.
A majority of the Board does not consist of independent directors. The majority of the Board consists of Executive
Directors. The Board recognises the recommendation of the ASX Corporate Governance Council (CGC) that a
majority of the Board should consist of independent directors.
The Board believes that Mr Gerald Harvey is the most appropriate person to lead the Board as Executive Chairman
and that he is able to bring, and does bring quality independent judgement to all relevant issues falling within the
scope of the role of Chairman and that the Company, as a whole, benefits from his long standing experience of its
operations and business relationships.
The Company has in place with each Director a written agreement which sets out the terms of their appointment.
Directors’ Meetings
DIRECTOR
Number of Meetings:
Attendance
Full Board
Audit & Risk
Remuneration
Nomination
16
13
4
4
G. Harvey
K.L. Page
J.E. Slack-Smith
D.M. Ackery
C. Mentis
M.J. Harvey
C.H. Brown
K.W. Gunderson-Briggs
G.C. Paton
M.J. Craven
100%
100%
94%
100%
100%
94%
100%
100%
100%
100%
16 [16]
16 [16]
15 [16]
16 [16]
16 [16]
15 [16]
16 [16]
16 [16]
16 [16]
16 [16]
n/a
n/a
n/a
n/a
n/a
n/a
13 [13]
13 [13]
13 [13]
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4 [4]
4 [4]
4 [4]
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4 [4]
4 [4]
4 [4]
n/a
The above table represents the directors’ attendance at meetings of the Board, Audit & Risk Committee,
Remuneration Committee and Nomination Committee. The number of meetings for which the director was
eligible to attend is shown in brackets. In addition, the Executive Directors held regular meetings for the purpose
of signing various documentation.
Directors’ Relevant
Interests
At the date of this report, the relevant direct and indirect interest of each director in the ordinary shares and
performance rights instruments of the Company and related bodies corporate are:
DIRECTOR
Ordinary Shares Performance Rights
G. Harvey
K.L. Page
J.E. Slack-Smith
D.M. Ackery
C. Mentis
M.J. Harvey
C.H. Brown
K.W. Gunderson-Briggs
G.C. Paton
M.J. Craven
TOTAL
392,385,265
19,772,685
1,101,443
641,021
1,118,847
3,335,180
205,525,565
10,059
17,582
30,673
193,500
478,500
293,000
293,000
241,000
-
-
-
-
-
623,938,320
1,499,000
Performance Rights
At the date of this report, there were 1,499,000 performance rights (2019: 1,349,500), being a right to acquire
ordinary shares in the Company at nil exercise price.
On 28 November 2016, a total of 400,000 performance rights under Tranche 2 of the 2016 LTI Plan were
granted to Executive Directors in accordance with the terms and conditions of the LTI Plan. On 1 January
2020, 160,000 performance rights representing 40% of Tranche 2 of the 2016 LTI Plan had lapsed and will
never be exercisable by the participants. On 5 March 2020, 240,000 performance rights under Tranche 2 of
the 2016 LTI Plan were exercised reducing the unissued ordinary shares under Tranche 2 of the 2016 LTI
Plan to nil.
On 1 December 2017, a total of 400,000 performance rights under Tranche 3 of the 2016 LTI Plan were
granted to Executive Directors in accordance with the terms and conditions of the LTI Plan.
On 4 December 2018, a total of 549,500 performance rights under Tranche FY19 of the 2016 LTI Plan were
granted to the Executive Directors in accordance with the terms and conditions of the LTI Plan.
On 2 December 2019, a total of 549,500 performance rights under Tranche FY20 of the 2016 LTI Plan were
granted to the Executive Directors in accordance with the terms and conditions of the LTI Plan.
33
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 33
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
CEO and CFO
Certification
DIRECTORS’ REPORT (CONTINUED)
The CEO and CFO have provided written statements to the Board in accordance with section 295A of the
Corporations Act 2001 and have also certified to the Board in relation to the year ended 30 June 2020, that:
a.
Their view provided on the Company’s financial report is founded on a sound system of risk management and
internal compliance and control which implements the financial policies adopted by the Board; and
b. The Company’s risk management and internal compliance and control system is operating effectively in all
material respects.
The Board agrees with the views of the ASX on this matter and notes that due to its nature, internal control
assurance from the CEO and CFO can only be reasonable rather than absolute. This is due to factors such as the
need for judgement, the use of testing on a sample basis, the inherent limitations in internal control and because
much of the evidence available is persuasive rather than conclusive. CEO and CFO control assurance is not, and
cannot, be designed to detect all weaknesses in control procedures.
In order to mitigate this risk, internal control questions are required to be answered and completed by the key
management personnel of all significant business units, including finance managers, in support of the written
statements of the CEO and CFO.
Company Secretary
Mr. C. Mentis is a chartered accountant and became Company Secretary on 20 April 2006. Mr. Mentis has
extensive experience in financial accounting and has been with the consolidated entity since 1997. Mr. Mentis is a
Fellow of the Governance Institute of Australia.
Committee Membership
As at the date of this report, the Company had an Audit & Risk Committee, a Remuneration Committee and a
Nomination Committee. Members acting on the committees of the board during the year were:
Corporate Governance
NON-EXECUTIVE DIRECTOR
Audit & Risk
Remuneration
Nomination
C.H. Brown
K.W. Gunderson-Briggs
G.C. Paton
√
√
√
√ (Chairman)
√
√
√ (Chairman)
√
√ (Chairman)
The board of directors (Board) of Harvey Norman Holdings Limited (the Company) is committed to a high
standard of corporate governance, and is responsible for establishing, maintaining and monitoring the corporate
governance framework of the consolidated entity.
The Board has benchmarked its practices against the ASX CGC published guidelines and the CGC corporate
governance principles and recommendations (27 March 2014 edition) (Principles). The Board guides and monitors
the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom
they are accountable.
The Corporate Governance Statement outlines the Company's corporate governance practices, including
compliance with the Principles for the year ended 30 June 2020. The Corporate Governance Statement has been
approved by the Board. The full Corporate Governance Statement and further details about corporate
governance policies adopted by the Company and the Board and committee charters may be accessed via the
Company's website www.harveynormanholdings.com.au.
Dividends
The directors recommend a fully franked final dividend of 18.0 cents per share to be paid on 2 November 2020 to
shareholders registered on 12 October 2020 (total dividend, fully franked - $224,281,198).
The following fully franked dividends of the Company have also been paid, declared or recommended since the
end of the preceding financial year:
Payment Date
Amount
2019 final fully-franked dividend
1 November 2019
$247,744,684
2020 interim fully-franked dividend
4 May 2020 (Proposed)
2020 special fully-franked dividend
29 June 2020
Cancelled
$74,760,399
On 1 November 2019, the final dividend in respect of the year ended 30 June 2019 was paid totalling $247.74
million.
On 2 April 2020, given the uncertainty regarding the duration of the COVID-19 pandemic and its potential impact
on trading, and for the abundance of precaution, the directors announced the decision to revoke the decision to
pay, and cancel, the FY20 interim dividend of 12.0 cents per share. The cancellation of the FY20 interim dividend
resulted in $149.52 million of cash being retained in the business.
On 10 June 2020, the directors announced that the Company would pay a special dividend of 6.0 cents per share,
fully-franked, to shareholders registered at the close of business on 23 June 2020. This special dividend was paid
on 29 June 2020 totalling $74.76 million.
34
34
Dividends (continued)
DIRECTORS’ REPORT (CONTINUED)
The total dividend in respect of the year ended 30 June 2020 of 24.0 cents per share represents 62.24% (2019:
96.77%) of profit after tax and non-controlling interests, as set out on page 83 of the financial statements.
Excluding the non-cash net property revaluation increments, the total dividend in respect of the year ended 30
June 2020 of 24.0 cents per share represents 65.59% (2019: 110.26%) of profit after tax and non-controlling
interests, as set out on page 83 of the financial statements.
The Dividend Policy of the Company is to pay such dividends as do not compromise the capability of the Company
to execute strategic objectives.
Indemnification of
Officers
During the financial year, insurance and indemnity arrangements were continued for officers of the consolidated
entity.
An indemnity agreement was entered into between the Company and each of the directors of the Company
named earlier in this report and with each full-time executive officer, director and secretary of all group entities.
Under the agreement, the Company has agreed to indemnify those officers against any claim or for any expenses
or costs which may arise as a result of work performed in their respective capacities.
Principal Activities
The principal activities of the consolidated entity are that of an integrated retail, franchise, property and digital
system including:
Franchisor;
Sale of furniture, bedding, computers, communications and consumer electrical products in New Zealand,
Singapore, Malaysia, Slovenia, Ireland, Northern Ireland and Croatia;
Property investment;
Lessor of premises to Harvey Norman®, Domayne® and Joyce Mayne® franchisees and other third parties;
Media placement; and
Provision of consumer finance and other commercial loans and advances.
Significant Changes in
the State of Affairs
In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity
that occurred during the year ended 30 June 2020.
Significant Events After
Balance Date
There have been no circumstances arising since balance date which have significantly affected or may significantly
affect:
the operations;
the results of those operations; or
the state of affairs of the entity or consolidated entity in future financial years.
Rounding of Amounts
The amount contained in the financial statements and the Directors’ Report have been rounded to the nearest
thousand dollars (unless specifically stated to be otherwise) under the option available to the Company under
Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191. The company is an entity to which this legislative instrument applies.
35
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 35
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
DIRECTORS’ REPORT – REMUNERATION REPORT
Letter from the Chair of the Remuneration Committee
Dear Shareholders
The consolidated entity delivered a record financial result for the 2020 year increasing reported profit before tax (PBT) by 15.1% to
$661.29 million and reported net profit after tax and non-controlling interests (NPAT) by 19.4% to $480.54 million. Comparable
profit year-on-year was up 26% on a PBT basis and 30.9% on NPAT.
It also delivered a strong increase of 8.7% in the net asset base for shareholders to $3.48 billion as at 30 June 2020. The PBT return
on net assets was 19% for the 2020 financial year compared to 18% for 2019.
COVID-19 Effects on Remuneration
The COVID-19 pandemic struck the Australian and world economies in March 2020. The consolidated entity operates businesses in
eight separate countries around the world, with the governments of each of those countries reacting in different ways to the health
and economic crisis.
In April 2020, each of the Executive Directors forewent 20% of their salaries for the 3 months of April, May and June 2020. Similarly,
the Non-Executive Directors elected to voluntarily reduce their director fee by 20% for the same period.
Following the end of the 2020 financial year, the Remuneration Committee resolved that in making its decisions and recommendations
in respect of remuneration outcomes for the Executive Directors, it would exclude the effect of COVID-19 support and assistance
received by the consolidated entity in each of the countries in which it operates, from remuneration outcomes, so as to eliminate
unintended windfall gains in remuneration returns for the Executive Directors. COVID-19 support and assistance is detailed on page 6
of this report.
Evaluation of Performance of Executive Directors
An appraisal of the performance of each Executive Director and the Executive Director team was undertaken following the end of the
2020 year as part of the annual Participant Performance Review by the Remuneration Committee.
The appraisal considered matters in respect of performance during the COVID-19 period, including:
The operation of the consolidated entity across the eight separate countries including in both lock-down and reduced trading
circumstances, around the management of risks to the business which included employee and stakeholder welfare;
The actions of the Executive Directors in protecting the business and reacting to the changes in market demand, including across
the key functions of franchising, physical stores, on-line presence, supply chain management, logistics, marketing and
advertising, government relations and property across the eight separate countries.
The appraisal was undertaken to ensure that executive remuneration in respect of the record financial result for 2020 was fair and
reasonable, was in line with performance, and did not result in unintended windfall gains in remuneration returns for the Executive
Directors.
Remuneration Considerations following the 2019 AGM
At the 2019 AGM held on 27 November 2019, a total of 683.62 million shares were held by key management personnel (KMPs) of
HNHL, and their related parties, and were therefore ineligible to vote on the adoption of the 2019 Remuneration Report. The total
number of ineligible votes represented 54.86% of total HVN shares on issue as at the date of the 2019 AGM.
Out of the remaining 562.39 million shares that were eligible to vote on the adoption of the 2019 Remuneration Report (representing
45.14% of total HVN shares on issue), the Company received 179.65 million votes against the adoption of the 2019 Remuneration
Report (representing 31.94% of the eligible votes).
In aggregate, the total number of votes against the adoption of the 2019 Remuneration Report was 14.42% of the total number of
HVN shares on issue.
Benchmarking and External Stakeholders
Several external stakeholders were of the view that the 2019 remuneration of the Executive Directors, and in particular, the fixed
remuneration of the Executive Directors, including the CEO, was too high relative to the benchmark groups referenced by some
proxy advisors to stakeholders. To address this, the Company commissioned an independent remuneration expert review of the level
of remuneration of the Executive Directors of the Company during 2020, including analyses and comparison of alternate peer groups,
such as those used by the Company and proxy advisors in their prior assessments of executive remuneration.
The critical findings of the independent remuneration expert review were as follows:
Prior remuneration benchmark peer groups of the Company and of external stakeholders could be refined in order to validly
estimate remuneration applicable to executive positions of the Company by:
an increase in peer company numbers to improve statistical reliability;
including peer companies that have important operational characteristics necessary to capture expertise required for
position matching; and
excluding companies with operations that are not comparable.
Prior benchmarking peer groups, including those utilised by external stakeholders, differed, so that there were bound to be
differences in assessment. It was found that all stakeholder methods could be improved by matching positions for operational
size, focus, breadth, industry, geographic locations and financial accountability.
36
DIRECTORS’ REPORT – REMUNERATION REPORT
Letter from the Chair of the Remuneration Committee (continued)
Benchmarking and External Stakeholders (continued)
The peer group used by the Company to benchmark executive remuneration should be expanded to include additional
companies similar in size and operations, balanced across a greater range of measures and operational characteristics, including:
company size e.g. system revenue, EBIT, net assets, tangible assets and market capitalisation; and
operations e.g. franchising, physical stores, on-line presence, overseas operations and property investment.
The benchmark group of the Company be reset to a group having sufficient companies to provide matches for the executive
director positions, enough data to be reliable over time, with narrower differences in size parameters to reliably compare
remuneration, although noting that the number of peers that match in terms of operational scope and financials among ASX
listed companies was less than ideal.
The statistical analysis indicated that executive pay varied with the size of the operation for which the executive was accountable.
Because the Company is larger than most companies in its industry, paying the median level would not attract or retain
executives best suited to running larger businesses.
The Company should position remuneration around the level that reflects the financial accountability and operational scope of
the Company relative to the enlarged and more relevant comparator group, which was around the 75th to 90th percentile of that
group.
The conclusions reached by the Remuneration Committee, informed by the independent expert review, in respect of the
remuneration of Executive Directors for 2019 were that:
The level of fixed remuneration was reasonable;
The level of target and maximum remuneration from the short term incentive (STI) was reasonable; and
The level of target and maximum remuneration from the long term incentive (LTI) was underdone and could have included
further long term or extended term incentives.
Improving the Framework for Remuneration in 2020
The following improvements were made to the remuneration framework for Executive Directors:
Profit after tax adjusted for the after tax effect of property increments and decrements (APAT) is the measure used for the
achievement of the financial conditions for the short term incentive, replacing earnings per share;
The 100% short term incentive (STI) pool was increased to $3.0 million from $2.8 million in line with the increase in net assets of
the Company over the previous two financial periods, with the 100% STI pool able to be increased if the financial performance
conditions for the short term incentives are over-achieved to the maximum extent of 120% i.e. to $3.6 million from $3.36 million.
The level of long term incentive (LTI) achievement for the determination of vesting is to be based on a straight line basis as
opposed to a gradation basis to remove the risk of calculation bias.
The determination of return on net assets (RONA) for the on-foot LTI tranches will exclude the effects of the financial impact of
the adoption of the lease accounting standard AASB 16, to allow calculation consistency.
Continuing the Framework in 2020
The framework for the Executive Director remuneration structure in the 2020 financial year remained similar to that which was in place
for the 2019 financial year in respect of the following:
Benchmarked fixed remuneration;
Evaluation of satisfactory performance for each Executive Director required for entry into the STI;
Entry into the 2020 STI subject to the Executive Directors having managed risk in accordance with the risk management
framework and the risk appetite of the Company;
At risk STI subject to a balanced scorecard of measures relevant to the given financial year;
Entry at the base level of financial achievement for the STI required before the plan becomes activated;
At risk LTI in the form of performance rights as issued under the terms of the 2016 LTI Plan;
The use of RONA as the measure of financial performance for LTI capturing the effect of all impairments and write-downs, apart
from property revaluation increments and decrements.
Things to Note for the 2020 STI Plan
The Board adopted a STI Plan for Executive Directors relevant to the desired outcomes of the 2020 financial year. The STI Plan is
subject to both financial conditions, calculated exclusively using Profit after tax adjusted for the after tax effect of property increments
and decrements (APAT) as to 50% weighting, and non-financial conditions as to 50% weighting. The minimum financial performance
conditions (i.e. entry-level achievement) must be achieved prior to the activation of the non-financial performance conditions.
With respect to the 2020 STI Plan, the minimum financial performance conditions (entry-level to the 2020 STI Plan) was set at APAT of
$320m, the 100% achievement level at APAT of $378m, with a maximum over-achievement level of 120% at APAT of $424m. The
100% achievement equated to a 4.5% increase of the equivalent APAT for the 2019 year after adjusting for the financial impact of the
adoption of the lease accounting standard AASB 16. Achievement between the 50% and 100% targets and the 100% to the 120%
targets remains set on a straight line basis.
Equivalent to previous STI Plans, each participating Executive Director is subject to the non-financial performance condition that the
Executive Directors of the Company managed risk in accordance with the risk management framework and risk appetite of the
Company. The Company recognises the critical connection between conduct and reward. The assessment of conduct is informed by
the fundamental principles of:
obey the law
act fairly
do not mislead or deceive
provide goods and services that are fit for purpose
delivery goods and services with reasonable care and skill
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
37
DIRECTORS’ REPORT – REMUNERATION REPORT
Letter from the Chair of the Remuneration Committee (continued)
Remuneration Outcomes
The achievements of the 2020 financial year are reflected in the remuneration outcomes:
1) Executive Directors achieved 116.06% of their 2020 STI targets for performance against a balanced scorecard of
measures, as compared to 90.61% for the 2019 financial year.
In respect of the financial performance conditions, APAT of $426.78 million, which excluded COVID-19 assistance and support,
exceeded the 120% over-achievement maximum of $424 million.
The non-financial performance conditions were achieved as to 92.12% compared to 94.32% in 2019.
Aggregated STI expense for 2020 was $3,481,651 as compared to $2,537,080 for 2019.
The total 2020 STI award was $944,571, or 37.2%, higher than for 2019, aligned with the increase in comparable NPAT of 30.9%.
2) RONA of 18.91% for the year, which excluded COVID-19 assistance and support, resulted in the following:
Tranche 3 of the 2016 LTI Plan, granted on 1 December 2017 being assessed for vesting at 56.6%;
Tranche FY19 of the 2016 LTI Plan, granted on 4 December 2018 was assessed for probable vesting at 60%;
Tranche FY20 of the 2016 LTI Plan, granted on 2 December 2019 was assessed for probable vesting at 60%.
3) The total “at risk” compensation expense for the 2020 financial year was $1,284,308 or 39.5% higher than the “at risk”
expense in the 2019 financial year primarily due to the higher level of payment and assessed vesting under the STI
awards.
4) The total “take-home” pay for KMP Directors was $142,230 or 1.4% higher than the 2019 financial year.
5) Tranche 2 of the 2016 LTI Plan, granted on 28 November 2016 and subject to performance over the 2017, 2018 and 2019
financial years vested as to 60% with effect from 1 January 2020. All vested performance rights have been exercised.
6) All of the Executive Directors continued to be employed throughout the year.
7) Each of the Executive Directors have a significant shareholding in the Company, each more than their respective total
fixed remuneration, which provides alignment of the executive management with that of shareholders.
Correlation of Remuneration Outcomes with Performance Over 5 Years
Correlation is a calculation of the degree of relationship between two items with 100% being strongest and 0% being weakest.
The level of statistically significant correlation remains strong, between both the total remuneration expense and the “at risk”
remuneration of the Directors, with all of the performance indicators such as profit before tax, return on net assets, net profit after
tax, earnings per share and average share price over a five year period from 2016 to 2020. The correlation factors range between
73% and 97% over the last five financial years from 2016 to 2020. Correlation is detailed at Item 9 of the Remuneration Report.
The Board continues to be confident that the remuneration policies support the financial and strategic goals of the consolidated
entity.
The directors and other members of the key management personnel team continue to be committed to protecting and growing a
sustainable business and creating long-term sustainable value for all stakeholders of the consolidated entity.
On behalf of the Board, I invite you to review the full report and thank you for your continued interest.
Yours sincerely
KEN GUNDERSON-BRIGGS
Remuneration Committee Chairman
Contents of the 2020 Remuneration Report
This remuneration report for the year ended 30 June 2020 outlines the remuneration arrangements of the consolidated entity in
accordance with the requirements of the Corporations Act 2001 (Cth), as amended, (the “Act”) and its regulations. This information
has been audited as required by section 308(3C) of the Act.
The remuneration report is presented under the following sections:
Introduction
1)
2) Remuneration principles and strategy
3) Remuneration governance
4) Remuneration mix - target
5) Details of short-term and long-term incentive plans
6) Performance and executive remuneration outcomes in FY20
7) Executive contractual arrangements
8) Non-Executive Director remuneration arrangements
9) Relationship between remuneration and the performance of the Company
10) Compensation of key management personnel
11) Additional disclosures relating to options, performance rights and shares
12)
13) Other matters for disclosure
14) Loans to key management personnel and their related parties
15) Other transactions and balances with key management personnel and their related parties
‘Take-Home Pay’ for KMP Directors of the Company
38
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
1. Introduction
The remuneration report details the remuneration arrangements for key management personnel (“KMP”) who are defined as those
persons having authority and responsibility for planning, directing and controlling the major activities of the consolidated entity,
directly or indirectly, including any director (whether executive or otherwise) of the consolidated entity.
Details of KMP of the Company and consolidated entity during the 2020 financial year are set out below. Unless otherwise indicated,
the individuals were KMP for the entire financial year. For the purposes of this report, the term "executive" includes the Chief
Executive Officer (“CEO”), Executive Directors and Senior Executives of the consolidated entity.
Key Management Personnel (KMP)
Position
Term as KMP
Executive Directors
Gerald Harvey
Kay Lesley Page
Executive Chairman
Full financial year
Executive Director & Chief Executive Officer
Full financial year
John Evyn Slack-Smith
Executive Director & Chief Operating Officer
Full financial year
David Matthew Ackery
Executive Director
Chris Mentis
Executive Director, Chief Financial Officer &
Company Secretary
Non-Executive Directors
Christopher Herbert Brown OAM
Non-Executive Director
Michael John Harvey
Non-Executive Director
Full financial year
Full financial year
Full financial year
Full financial year
Kenneth William Gunderson-Briggs
Non-Executive Director (Independent)
Full financial year
Graham Charles Paton AM
Non-Executive Director (Independent)
Full financial year
Maurice John Craven
Non-Executive Director (Independent)
Full financial year
Senior Executives
Martin Anderson
General Manager – Advertising
Thomas James Scott
General Manager – Property
Gordon Ian Dingwall
Chief Information Officer
Full financial year
Full financial year
Full financial year
Frank Robinson
Lachlan Roach
Ajay Calpakam
Glen Gregory
General Manager – Technology & Entertainment
Resigned 30 September 2019
General Manager – Home Appliances
Full financial year
General Manager – Audio Visual
Resigned 30 April 2020
General Manager – Technology & Entertainment
Appointed 9 September 2019
Emmanuel Hohlastos
General Manager – Audio Visual
Appointed 1 May 2020
2. Remuneration Principles and Strategy
The executive remuneration strategy of the consolidated entity in 2020 is designed to attract, motivate and retain high performing
individuals and align the interests of executives with shareholders. The relevant factors in determining the suitability of a board
member, including the Executive Directors, are integrity, business savvy, an owner-oriented attitude and a deep genuine interest in
the business of the consolidated entity.
In applying these principles to the consolidated entity:
a) Business savvy requires a deep understanding of one or more of the sectors of retail, property, franchising and digital.
b)
Integrity requires a level of fundamental honesty, candour and frankness in dealing with colleagues, regulators and other third
parties. Integrity necessarily requires a director to bring an open mind and independent judgment to the discussion of any
matter of concern to the Board.
c) An owner orientation or perspective of an owner requires the individual to either have:
i.
ii.
"skin in the game" by holding, controlling or benefitting from a significant parcel of shares where the financial
interests of the director are aligned with the long term beneficial interest of shareholders; or
a perspective of advising owners of businesses and understanding that wealth generation is derived from the building
of business interests that create long term sustainable value.
d) Directors with an owner orientation retain an open mind to consider diverse views but are not strictly beholden to the whims
of fashionable thinking and are able to form their own views as to what constitutes best practice in corporate governance.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
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2. Remuneration Principles and Strategy (continued)
e)
Interest in and time to do the job means:
i.
ii.
the person has an executive role, meaning that the person's career is based on job performance at the company; or
the individual has a limited number of outside interests (i.e. the person is not a professional Non-Executive Director),
In both cases, the individual has an independence of mind and outlook.
Applying these criteria to the current Board, the Board is satisfied that each director, including the Executive Directors, bring to the
Board the necessary skills and attributes specified.
The following table illustrates how the remuneration strategy of the consolidated entity in 2020 aligns with the strategic direction and
links remuneration outcomes to performance.
Objective of the consolidated entity in 2020
To be recognised as a leader in the sectors in which the consolidated entity
operates and build long-term sustainable value for shareholders
Remuneration strategy linkages
to objectives of the
consolidated entity in 2020
Align the interests of
executives with
shareholders
The remuneration framework
incorporates “at risk”
components, through STI
and LTI plans
Short-term performance is assessed against a
suite of financial and non-financial measures
relevant to the success of the consolidated
entity in 2020 and generating returns for
shareholders
Long-term
performance is
assessed against
financial performance
conditions calculated
exclusively in respect
of RONA
Attract, motivate and retain
high performing individuals
Longer-term remuneration
encourages retention and
multi-year performance focus
The remuneration offering is competitive for
companies of a similar sector, size and
complexity
Component
Vehicle
Purpose
Link to Performance
Fixed Remuneration
Short-Term Incentive (STI)
Comprises base
salary,
superannuation
contributions and
other benefits
Paid as cash as a
performance cash
incentive (PCI),
subject to minimum
shareholding of
individual Executive
Directors.
To provide competitive fixed
remuneration set with
reference to role, market and
experience
Consolidated entity and individual
performance are considered during the annual
remuneration review
Rewards executives for their
contribution to achievement
of consolidated entity
outcomes
a.
There is no STI award for an Executive
Director unless the Executive Director
satisfies the Participant Performance
Review in terms of the Individual
Executive Director Assessment Report.
b. There is no STI award unless the Entry
Level financial condition is achieved.
c.
The STI pool in respect of 100%
achievement level is subject to
performance criteria as to:
1.
2.
50% subject to financial conditions,
with the financial conditions based
on Annual Profit After Tax (APAT);
50% subject to non-financial
conditions.
d.
Financial achievement calculated over the
100% achievement level is subject to
financial conditions only.
e. Executive Directors are to hold shares to
the value equating to the level of fixed
remuneration for that Executive Director
at the end of the given financial year.
f.
If shares held are less than the
benchmark, benefits are to be provided
in the form of shares.
Where Annual Profit After Tax
(APAT) is calculated as follows:
Annual Net Profit After Tax (APAT), excluding the after-tax effect of property revaluation
increments or decrements and the after-tax effect of COVID-19 support and assistance received
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
2. Remuneration Principles and Strategy (continued)
Long-Term Incentive (LTI)
Awards under the LTI Plan are
granted in the form of
performance rights, being a
right to acquire one ordinary
share in the Company at nil
exercise price
Rewards executives for
their contribution to the
financial performance of
the consolidated entity and
the effective utilisation of
net assets to generate
wealth for shareholders
Vesting of LTI performance rights is
conditional upon achievement, in
aggregate, of minimum RONA over the
2020, 2021 and 2022 financial years of
16% (for 20% vesting) with full vesting
(i.e. 100%) achieved at 20% RONA
Where Return on Net Assets
(RONA) means the fraction:
APBT (annual net profit before income tax excluding property revaluation
increments or decrements, the net impact of AASB 16 Leases and any COVID-19 support and
assistance received)
Net Assets (excluding non-controlling interests) at the close of the preceding financial year
3. Remuneration Governance
Remuneration Committee
The Remuneration Committee is responsible for making recommendations to the Board on the remuneration arrangements for
Executive Directors and Non-Executive Directors (“NEDs”).
The Remuneration Committee assesses the appropriateness of the nature and amount of remuneration of NEDs and executives on a
periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder
benefit from the retention of a high performing director and executive team. In 2020, independent remuneration experts provided
remuneration benchmark information for consideration and analysis in respect of the level of Executive Director remuneration,
including fixed remuneration and the long-term incentives framework.
The Remuneration Committee comprises three NEDs, two of whom are independent NEDs. Further information on the committee’s
role, responsibilities and membership is located on the website: www.harveynormanholdings.com.au.
Remuneration Approval Process
The Board approves the remuneration arrangements of the CEO and executives and all awards made under the long-term incentive
plans of the Company, following recommendations from, and certain determinations by, the Remuneration Committee. The Board
sets the aggregate remuneration of NEDs, subject to shareholder approval.
The Remuneration Committee approves, having regard to the recommendations made by the CEO, the level of the short term
incentive (“STI”) pool for Executive Directors.
No Director participates in deliberations about, or decisions, in respect of the remuneration of that Director.
No Executive Director was present at any meeting of directors which considered any long term incentive plan or short term incentive
plan of the Company, and no Executive Director voted on those matters.
COVID-19 Effects on Remuneration
The COVID-19 pandemic struck the Australian and world economies in March 2020. The consolidated entity operates businesses in
eight separate countries around the world, with the governments of each of those countries reacting in different ways to the health
and economic crisis.
In April 2020, each of the Executive Directors forewent 20% of their salaries for the 3 months of April, May and June 2020. Similarly,
the Non-Executive Directors elected to voluntarily reduce their director fee by 20% for the same period.
Following the end of the 2020 financial year, the Remuneration Committee resolved that in making its decisions and
recommendations in respect of remuneration outcomes for the Executive Directors, it would exclude the effect of COVID-19 support
and assistance received by the consolidated entity in each of the countries in which it operates, from remuneration outcomes, so as to
eliminate unintended windfall gains in remuneration returns for the Executive Directors.
In addition, the consolidated entity did not receive or pay any COVID-19 support and assistance in respect of any individual director
or key management personnel (KMP).
The appraisal of the performance of each Executive Director and the Executive Director team was undertaken following the end of
the 2020 year as part of the annual Participant Performance Review by the Chair of the Remuneration Committee with the CEO and
Executive Chairman.
For the 2020 year, the appraisal considered matters in respect of performance during the COVID-19 period including:
The operation of the consolidated entity across the eight separate countries including in both lock-down and reduced trading
circumstances, around the management of risks to the business which included employee and stakeholder welfare;
The actions of the Executive Directors in protecting the business and reacting to the changes in market demand, including across
the key functions of franchising, physical stores, on-line presence, supply chain management, logistics, marketing and
advertising, government relations and property across the eight separate countries.
The appraisal was undertaken to ensure that executive remuneration in respect of the record financial result for 2020 was fair and
reasonable, was in line with performance, and did not result in unintended windfall gains in remuneration returns for the Executive
Directors.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
4. Remuneration Mix - Target
For the 2020 financial year, the executive remuneration framework comprised fixed remuneration, STI and LTI.
The consolidated entity aims to reward executives with a level and mix of remuneration appropriate to their position and
responsibilities, while being market competitive.
During the 2020 financial year, a review by an independent remuneration expert was undertaken in respect of the remuneration
benchmarking used by the Company in 2019, with reference to both sector peers and comparator groups comprising companies of
comparable financial size and operations.
As a result of the remuneration review undertaken by the independent remuneration expert, the policy of the Company to position
fixed remuneration around the average or median of the previous comparator group changed to position fixed remuneration against
the level that reflects the financial accountability and operational scope of the position relative to peer group positions. This was
around the 75th to 90th percentile of the enlarged and more relevant comparator group arising from the research. Target total
remuneration is intended to provide the opportunity to earn top quartile rewards for outstanding performance.
Remuneration levels are considered annually, with consideration of market data and the performance of the consolidated entity and
individual.
The following summarises the target remuneration mix of the Executive Directors.
5. Details of Short-Term and Long-Term Incentive Plans
The extent to which the financial conditions and non-financial conditions have been satisfied will be documented in a Performance
Report and an Internal Audit Report, for consideration by the Remuneration Committee in accordance with the terms and conditions
of the short-term and long-term incentive plans. The Performance Report is a report prepared for, and on behalf of, the CEO
addressing whether each weighted non-financial condition has been satisfied or, where relevant, the extent (expressed as a
percentage) to which each weighted non-financial condition has been satisfied. The Internal Audit Report is a report prepared by the
Chief Internal Auditor of the Company, which is an objective appraisal of the Performance Report and documents the findings of the
audit of the Performance Report.
2020 STI Plan
The consolidated entity operates an annual STI program available to Executive Directors and awards a performance cash incentive
(PCI), or equity, subject to the achievement of clearly defined measures, targets, initiatives and conditions.
2020 STI Plan
Who participates?
Executive Directors
How is the STI delivered?
STI awards, in the form of a cash bonus or performance cash incentive (PCI) or equity (subject to the
below criteria), have been made annually to Executive Directors in order to align remuneration with the
achievement of a number of performance measures, targets and initiatives covering both financial and
non-financial, corporate and individual measures of performance.
Executive directors are to hold shares in the Company to the value equating to the level of fixed
remuneration for that Executive Director at the end of the given financial year (the Benchmark
Shareholding Level), with any STI paid in equity or cash subject to the following:
a.
b.
If the Executive Director is under the Benchmark Shareholding Level, the STI reward will be paid in
equity, subject to shareholder approval and compliance with the ASX Listing Rules, to the value that
increases the holding of the Executive Director to the Benchmark Shareholding Level, with any
remaining balance of the STI reward paid in cash.
If the Executive Director is over the Benchmark Shareholding Level, the STI reward will be paid in
cash.
When is the STI paid?
The payment of the 2020 STI Plan PCI to an Executive Director under the 2020 STI Plan is to be made
on 30 September 2020, or as soon as reasonably practicable after that date, subject to the satisfaction
of 2020 STI Plan Performance Conditions and 2020 STI Plan Service Conditions.
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
5. Details of Short-Term and Long-Term Incentive Plans (continued)
2020 STI Plan (continued)
What is the 2020 STI
opportunity?
Executive Directors, excluding the Executive Chairman, have a target STI opportunity of between 43%
to 71% of fixed remuneration. The target STI opportunity is set at a level so as to provide sufficient
incentive to Executive Directors to achieve the operational targets and such that the cost to the
consolidated entity is reasonable in the circumstances.
For the year ended 30 June 2020, the 100% STI Opportunity Pool of the 2020 STI Plan PCI, potentially
payable, was $3,000,000 as follows:
1.
2.
3.
4.
5.
in respect of Gerald Harvey, nil;
in respect of Kay Lesley Page, $860,000;
in respect of John Evyn Slack-Smith, $750,000;
in respect of David Matthew Ackery, $750,000; and
in respect of Chris Mentis, $640,000.
The maximum pool for allocation at 120% Over-Achievement Level was $3,600,000 in aggregate.
What are the STI performance
conditions for FY2020?
Actual STI payments awarded to each Executive Director depend on the extent to which specific
measures, targets, initiatives and conditions for the 2020 financial year (STI Targets) were met. STI
Targets cover financial and non-financial measures of performance.
There is no STI award for an Executive Director unless the Executive Director satisfies the Participant
Performance Review in terms of the Individual Executive Director Assessment Report.
There is no STI award unless the Entry Level financial condition is achieved.
The primary weighting of the 2020 STI Plan Performance Conditions are as follows:
a.
b.
as to 50% - the Financial Condition; and
as to 50% - the Non-Financial Conditions
s
(a) STI 50% Financial Condition
(b) STI 50% Non-Financial Conditions
The Non-Financial Conditions are assessed in
respect of the year ended 30 June 2020 and
include the following non-financial measures in:
Customer experience (10%);
Operations / Improve productivity (15%);
Company-operated store expansion
strategy (15%); and
People & Culture / Franchisee learning,
development and growth (10%).
Full achievement of the non-financial conditions
will equate to 50% entitlement to the STI pool i.e.
$1.50 million.
APAT [Annual Net Profit After Tax] as defined in
Section 2 above was selected as the STI
performance measure as it:
indicates the level of after tax profit
generated adjusted for the after-tax
effect of net property revaluation
adjustments and the after-tax effect of
any COVID-19 support and assistance
received; and
provides a basis for comparing growth in
profitability year-on-year
The Financial Condition is calculated in respect of
the year ended 30 June 2020 and will be achieved
at the following levels:
Entry Level at APAT of $320 million,
equating to 25% entitlement to the STI
pool (50% opportunity pool = $0.75
million);
100% Level at APAT of $378 million,
equating to 50% entitlement to the STI
pool (100% opportunity pool = $1.50
million);
Straight-line sliding scale between Entry
Level and 100% Level;
120% Over-Achievement Level at APAT
of $424 million, equating to 70%
entitlement to the STI pool (120%
opportunity pool = $2.10 million);
Straight-line sliding scale for achievement
between 100% and 120% Level.
How is performance assessed?
In respect of the 2020 STI, each participating Executive Director will be subject to an additional non-
financial performance condition in the form of a Participant Performance Review which would:
Measure the extent of the proper performance and discharge of the executive responsibilities
and accountabilities of that Individual Participant Executive Director;
Measure the extent of the proper performance and discharge of the duties of that Individual
Participant Executive Director, as an officer and director of the Company.
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5. Details of Short-Term and Long-Term Incentive Plans (continued)
2020 STI Plan (continued)
How is performance assessed?
(continued)
To determine whether an individual is eligible for the 2020 STI, in terms of performance, the following
process is undertaken:
A report by the CEO in respect to which each Individual Participant Executive Director has
satisfied the Participant Performance Review in the form of an Individual Executive Director
Assessment Report. In respect of the assessment of the CEO, the Chairman of the
Remuneration Committee shall undertake the report and assessment in respect of the CEO.
An objective appraisal by the Internal Auditor of the process and conclusions reached in the
Individual Executive Director Assessment Reports, to be provided to the Remuneration
Committee promptly after 30 June 2020.
Subject to a satisfactory Participant Performance Review, and after consideration of reports and
performance against STI Targets, the Remuneration Committee makes a final determination of the
amount of STI to be paid to the CEO and other Executive Directors.
The extent to which the financial conditions and non-financial conditions have been satisfied will be
documented in the Performance Report and an Internal Audit Report, for consideration by the
Remuneration Committee in accordance with the terms and conditions of the 2020 STI Plan.
The Remuneration Committee (acting on behalf of the Company) may at any time, in its absolute
discretion, decrease the amount of the STI which is, or may become, payable to an executive under the
2020 STI Plan by serving a written notice to the relevant executive at any time before the payment date.
Details of the 2020 STI Targets and levels of achievement in the 2020 financial year are set out in pages
46 to 49 of this report.
What happens if an executive
leaves?
For "Bad Leavers" (defined by the Company as resignation or termination for cause), any STI is forfeited,
unless otherwise determined by the Board. For any other reason, the Board has discretion to award STI
on a pro-rated basis taking into account time and the current level of performance against performance
hurdles.
Tranche FY20 of the 2016 LTI Plan
Tranche FY20 of the 2016 LTI
Plan
LTI grants are made annually to Executive Directors in order to align remuneration with the creation
of sustainable shareholder value over the long-term.
Who participates?
Executive Directors which have an impact on the performance of the consolidated entity against the
relevant long-term performance measures.
How is the LTI delivered?
Shareholders at the AGM held on 24 November 2015 approved the terms and conditions of the 2016
LTI Plan that permitted the grant of performance rights to Executive Directors, being a right to acquire
one ordinary share in the Company at nil exercise price, in three separate tranches in the 2016, 2017 and
2018 financial years.
Shareholders at the AGM held on 27 November 2018, permitted the grant of a further three separate
tranches of performance rights to Executive Directors in the 2019, 2020 and 2021 financial years, subject
to the terms and conditions of the 2016 LTI Plan.
Executive
G. Harvey
K.L. Page
J.E. Slack-Smith
D.M. Ackery
C. Mentis
Total
Tranche FY19
Exercisable between
1 January 2022 and
30 June 2024
Tranche FY20
Exercisable between
1 January 2023 and
30 June 2025
Tranche FY21
Exercisable between
1 January 2024 and
30 June 2026
65,500
183,000
109,000
109,000
83,000
549,500
65,500
183,000
109,000
109,000
83,000
549,500
65,500
183,000
109,000
109,000
83,000
549,500
A performance right is the right to acquire one ordinary share in the Company at nil exercise price. No
amount is payable in respect of the grant of a performance right. If exercised, each performance right
will be converted into one ordinary share in the Company.
Executive Directors have a target LTI opportunity of between 31% to 32% of fixed remuneration.
A total of 549,500 performance rights under Tranche FY20 of the 2016 LTI Plan were granted to
Executive Directors on 2 December 2019.
The performance rights were independently valued by Mercer Consulting (Australia) Pty Limited at grant
date with a fair value of $3.47 per entitlement share granted under Tranche FY20 on 2 December 2019,
based on a share price of $4.30.
What is the LTI opportunity?
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
5. Details of Short-Term and Long-Term Incentive Plans (continued)
Tranche FY20 of the 2016 LTI Plan (continued)
What is the LTI opportunity?
(continued)
The fair value was derived from a discounted cash flow technique where the value of the performance
right is the face value of the share at grant date less the present value of the dividends expected to be
paid on the share but not received by the holder during the vesting period. Subject to the satisfaction
of the financial performance condition (calculated exclusively based on RONA) and service conditions of
the 2016 LTI Plan, the total fair value of Tranche FY20 performance rights amounted to $1,906,765 in
aggregate.
Tranche FY20
Grant date
Vesting date
First exercise date
Last exercise date
Key Dates
2 December 2019
31 December 2022
1 January 2023
30 June 2025
What are the performance
conditions for Tranche FY20
of the 2016 LTI Plan?
Performance conditions are deemed to be an essential component of all variable reward entitlements.
The proposed allocation of performance rights will be subject to service conditions and financial
performance conditions. The Board (after consideration of the recommendations of the Remuneration
Committee), may, in its discretion, impose additional non-financial performance conditions which must
be satisfied as a condition of exercise of any performance rights by the Grantee.
100% Financial Condition
With the exception of the service condition, the Board has resolved that the conditions in respect of the
achievement of Tranche FY20 of the 2016 LTI Plan will be all financial, based exclusively on RONA,
where Tranche FY20 RONA means the fraction:
Tranche FY20 Aggregate APBT Tranche FY20 Aggregate Net Assets, expressed as a percentage.
Where:
Tranche FY20 Financial Years means the financial years ending 30 June 2020, 2021 and 2022;
Tranche FY20 Aggregate APBT means the aggregate amounts of the annual net profit before income
tax of the consolidated entity for each of the Tranche FY20 Financial Years, but excluding amounts
accounted for in the financial statements of the consolidated entity for increments or decrements arising
from the revaluation of land or buildings, the net impact of AASB 16 Leases and any COVID-19 support
and assistance received in the Tranche FY20 Financial Years;
Tranche FY20 Aggregate Net Assets means the amounts of the net assets of the consolidated entity,
excluding non-controlling interests, as at each of 30 June 2019, 2020 and 2021 as described in the
annual report of the consolidated entity in respect of each of the Tranche FY20 Financial Years.
Full vesting of the Tranche FY20 performance rights is conditional upon achievement, of Tranche
FY20 RONA of at least 20%, with a lesser vesting as set out in the table below:
Tranche FY20 RONA Achieved
Less than 16%
16%
17%
18%
19%
20%
Tranche FY20 % of Performance Rights
that will become exercisable
Nil
20%
40%
60%
80%
100%
The level of LTI achievement for the determination of vesting will be based on a straight-line basis
between 16% RONA as to 20% achievement and 20% RONA as to 100% achievement.
How is performance assessed?
Level of satisfaction of LTI Plan conditions is monitored by the Remuneration Committee, with
assistance from Internal Audit, each year, with the vesting outcomes ultimately determined at the end
of the three-year performance period.
The LTI award for each of the financial years will be measured over a three-year period, with Tranche
FY20 of the 2016 LTI Plan measured over the period for financial years ending 30 June 2020, 30 June
2021 and 30 June 2022.
When does the LTI vest?
Performance rights granted under Tranche FY20 of the 2016 LTI Plan will vest on 31 December 2022,
subject to meeting the financial performance conditions in the 2020, 2021 and 2022 financial years and
service conditions, and will be capable of exercise between 1 January 2023 and 30 June 2025.
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
5. Details of Short-Term and Long-Term Incentive Plans (continued)
Tranche FY20 of the 2016 LTI Plan (continued)
How are potential LTI awards
treated on termination?
In general, where a participant resigns or is terminated for cause before a performance right vests, all
unvested performance rights will lapse. The Board (after consideration of the recommendations of the
Remuneration Committee of the Board), has discretion to determine the treatment of any unvested
performance rights where a participant ceases employment in “good leaver” circumstances (such as by
reason of death, disability or otherwise in circumstances approved by the Board).
In the event of fraud, dishonesty or breach of obligations, the Board may make a determination,
including lapsing an award of performance rights, to ensure no unfair benefit is obtained by a
participant.
How are potential LTI awards
treated if a change of control
occurs?
In the event of a takeover, scheme of arrangement or other transaction which may result in a person
becoming entitled to exercise control over the Company, the Board has a discretion to determine
whether any unvested performance rights should vest, lapse or become subject to different
performance conditions, or whether any resulting shares that are subject to a restriction period, should
become unrestricted.
Are executives eligible for
dividends?
Performance rights will not carry any voting or dividend rights. Performance rights are non-transferable
except in limited circumstances or with the consent of the Board. If exercised, each performance right
will be converted into one ordinary share in the Company. Executives will then be entitled to dividends
on those ordinary shares after conversion.
6. Performance and Executive Remuneration Outcomes in
FY20
6A. Actual Remuneration Earned by Key Management Personnel (KMP) in FY20
The compensation expensed in respect of KMP in FY20 is set out in Table 1 (for Directors) and Table 2 (for Senior Executives) on
pages 56 and 57 of this report. This provides shareholders with a view of the remuneration earned by KMP for performance in the
2020 financial year and the value of any LTIs expensed during the financial year.
The ‘take-home pay’ for KMP Directors of the Company, representing the benefits paid to each Director during the year ended 30
June 2020, or as soon as practicable after that date, is set out in Section 12 of the Remuneration Report on page 61.
6B. Fixed Remuneration
Executive contracts of employment do not include any guaranteed base pay increases. The fixed remuneration of Executive Directors
is reviewed annually by the Remuneration Committee.
During the 2020 financial year, a review of the remuneration benchmarking used by the Company in 2019 was undertaken by an
independent remuneration expert, referencing sector peers and companies more similar to the Company in financial size and
operations. As a result of the remuneration review:
the policy of the Company was amended to set fixed remuneration against the level that reflects the size of the Company within
the peer group of the refined comparator group identified by the research; and
this benchmark ranged between the 75th and 90th percentiles because, the Company is larger than most comparable companies,
and the position accountabilities of the Company when compared to matched positions in the comparator group.
Target total remuneration is intended to provide the opportunity to earn top quartile rewards for outstanding performance.
Remuneration levels are considered annually, with consideration of market data and the performance of the consolidated entity and
individual, along with the longevity of the Executive Directors in their respective roles, and the assessment of opportunity costs in
respect of replacement. The process undertaken by the Remuneration Committee following the review by the independent
remuneration expert consisted of a review of Company, business unit and individual performance, relevant comparative remuneration,
and external advice independent of management.
The fixed component of the remuneration of Executive Directors is disclosed in Table 1 on page 56 of this report.
6C. Actual Performance Against Short Term Incentive (STI) Measures
A combination of financial and non-financial measures is used to measure performance for STI awards. The aggregate 100%
opportunity pool of the 2020 STI Plan potentially payable was $3,000,000, an increase of $200,000 from the 2019 STI pool of
$2,800,000. The maximum pool for allocation at 120% over-achievement level was $3,600,000 in aggregate.
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
6C. Actual Performance Against Short Term Incentive (STI) Measures (continued)
50% of the STI is dependent on the satisfaction of financial performance conditions (exclusively based on APAT) and 50% is measured
against the achievement of set non-financial measures.
Actual performance against those measures is as follows for the 2020 financial year:
(a) 120% over-achievement of the 50% Financial Condition (score of 70.00%) = $2,100,000 payable for FY20
(b) 92.12% achievement of the 50% Non-Financial Conditions (score of 46.06%) = $1,381,651 payable for FY20
The total 2020 STI Plan payable in respect of the 2020 financial year is $3,481,651, compared to $2,537,080 for the 2019 financial
year. This represented a total achievement of 116.06% of the 2020 STI as shown in the tables below. The payment of the 2020 STI
Plan is to be made on or before 30 September 2020, or as soon as reasonably practicable after that date, subject to the satisfaction of
the 2020 STI Plan Service Conditions.
Financial Conditions of the 2020 STI Plan
Achievement of 50% Financial Condition
Calculation of FY20 APAT
Annual Net Profit After Tax (APAT) excluding the after-
tax effect of property revaluation increments or
decrements and the after-tax effect of any COVID-19
support and assistance received
$426.78 million for
FY20
Achievement =
120% over-
achievement
100% Level
2020 STI PCI
% Financial
Conditions
2020 STI PCI
Financial
Condition
2020 APAT
% Financial
Condition Satisfied
2020 STI PCI
Payable
Gerald Harvey
Nil
Kay Lesley Page
$860,000
John Evyn Slack-Smith
$750,000
David Matthew Ackery
$750,000
Chris Mentis
Total
$640,000
$3,000,000
n/a
50%
50%
50%
50%
Nil
$426.78 million
n/a
Nil
$430,000
$426.78 million
120% (70% score)
$602,000
$375,000
$426.78 million
120% (70% score)
$525,000
$375,000
$426.78 million
120% (70% score)
$525,000
$320,000
$426.78 million
120% (70% score)
$448,000
$1,500,000
$2,100,000
For the 2020 financial year, $1,500,000, being 50% of the aggregate 100% level opportunity pool of the 2020 STI Plan PCI of
$3,000,000, was subject to the APAT financial condition. The maximum pool for allocation at 120% over-achievement level was
$3,600,000 in respect of the 2020 financial year.
The Entry Level point for the financial condition was at APAT of $320 million with the 100% achievement level at APAT of $378
million. Achievement points are set on a straight-line, sliding scale basis between the Entry Level of $320 million APAT to the 100%
Level of $378 million APAT. The Over-Achievement Level point for the financial condition was at APAT of $424 million, equating to
120% entitlement to the STI pool. Over-Achievement points are set on a straight-line, sliding scale basis between the 100% Level of
$378 million APAT and the 120% Level of $424 million APAT.
APAT for the 2020 financial year was $426.78 million resulting in attainment of the Over-Achievement Level of 120% of the financial
condition. This translated to an achievement score of 70% in respect of the 2020 STI.
Non-Financial Conditions of the 2020 STI Plan
Achievement of 50% Non-Financial
Conditions
For the 2020 financial year $1,500,000, being 50% of the aggregate 100% opportunity pool
of the 2020 STI Plan PCI of $3,000,000, was subject to set non-financial performance
measures as to:
Customer experience (10%);
Operations / Improve productivity (15%);
Company-operated store expansion strategy (15%); and
People & culture / Franchisee learning, development and growth (10%).
100% Level
2020 STI PCI
% Non-Financial
Conditions
2020 STI PCI
Non-Financial
% Non-Financial
Conditions Satisfied
2020 STI PCI
Payable
Gerald Harvey
Nil
Kay Lesley Page
$860,000
John Evyn Slack-Smith
$750,000
David Matthew Ackery
$750,000
Chris Mentis
Total
$640,000
$3,000,000
n/a
50%
50%
50%
50%
Nil
n/a
$430,000
92.12% (46.06% score)
$375,000
92.12% (46.06% score)
$375,000
92.12% (46.06% score)
$320,000
92.12% (46.06% score)
$1,500,000
Nil
$396,073
$345,413
$345,413
$294,752
$1,381,651
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
47
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
6C. Actual Performance Against Short Term Incentive (STI) Measures (continued)
Non-Financial Conditions of the 2020 STI Plan (continued)
The Remuneration Committee had regard to certificates and reports from officers of the Company, other Board committees and
management, including the Individual Director Assessment Reports and Internal Audit Reports, and noted that 92.12% of the non-
financial performance hurdles for the 2020 STI Plan were achieved, equating to a score of 46.06%. This resulted in an amount of
$1,381,651 in respect of the non-financial performance measures becoming payable to Executive Directors.
Achievement of the Non-Financial Performance Conditions for the 2020 STI Plan are set out in the following table.
Assessment of Non-Financial Conditions of the 2020 STI Plan
Primary
Weighting
10%
Measure
Target
Customer
Experience
Grant licences to use
tools to reinforce
and enhance the
"Shop with
Confidence" Harvey
Norman® brand
positioning through
the Customer
Service Standards.
Operations /
Improve
Productivity
15%
Implement process
improvements and
systems to enhance
the Online-to-Offline
(020) Strategy of the
consolidated entity.
Initiatives and Conditions
(1) Each franchisee in a Harvey
Norman® complex to achieve an
aggregate satisfaction rating from
customer experience surveys of no
less than 50% for that complex in
Australia (expected achievement of
75%).
(2) Each franchisee in Australia to
achieve a reduction in the number of
total consumer complaints of 4% in
FY20 over the prior year on a like-for-
like basis.
(3) Company-operated stores in New
Zealand to achieve an aggregate
independent rating from the planned
and budgeted customer experience
surveys during FY20 of at least 50%
(expected achievement of 75%).
(4) Company-operated stores in New
Zealand to achieve a net reduction in
total complaints of 3% in FY20 over
the prior year on a like-for-like basis.
Franchisees are to be provided with
licences and training to use tools to
improve the profitability of their
franchised business:
(1) Trak by Harvey Norman® to be
expanded to 35 franchised complexes
during FY20.
(2) Tools to expand business scope in
respect of ‘Drop Ship’ capability.
(3) Optus process improvement to be
delivered to franchised complexes.
Establish the governance structure for
the upgrade of finance platforms of
the consolidated entity in Australia.
Achievement
Score
Weighting of
Initiatives &
Conditions
40%
98.75%
3.95%
40%
100%
4%
10%
98%
0.98%
10%
100%
1%
25%
100%
3.75%
25%
25%
100%
3.75%
100%
3.75%
25%
100%
3.75%
Company-
Operated
Store
Expansion
Strategy
People &
Culture /
Franchisee
Learning,
Development
and Growth
Company-operated
store expansion
strategy to be
developed and
executed in Malaysia
and Ireland.
Ongoing refinement
of the process by
each franchisee that
promotes and
encourages
measureable
improvement in the
knowledge and
capability of the
franchisee and their
employees.
Total
48
15%
(1) Malaysia: Six (6) new stores to be
opened during FY20.
(2) Ireland: One (1) new store to be
opened at Galway
75%
83.33%
9.38%
25%
100%
3.75%
10%
(1) Franchisees to identify and
nominate a minimum number of 50
candidates to attend the “Franchisees
and Proprietor in Training (FIT)”
development program during FY20.
(2) Franchisees to achieve a successful
completion rate of 75% by participants
in the FIT development program
during FY20.
(3) To establish a Lead Proprietor in
Training (PIT) program framework in
New Zealand.
40%
100%
4%
40%
100%
4%
20%
0%
0%
50%
46.06%
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
6C. Actual Performance Against Short Term Incentive (STI) Measures (continued)
Service Conditions of the 2020 STI Plan
The 2020 STI Plan Service Conditions will be deemed to be satisfied, if and only if, as at the relevant payment date being 30
September 2020:
the Executive has not resigned or provided notice of resignation of employment from the Employer, except in order to retire
from the workforce;
the Employer has not terminated the employment of the Executive for cause; or
the Board has not determined that the incentives should be revoked or lapse as a result of any breach of the law, corrupt
conduct, bribery, fraud, gross misconduct or conduct of the Executive which brings the Company or the Employer into disrepute.
Shareholding Benchmark of the 2020 STI Plan
Executive Directors are to hold shares in the Company to the value equating to the level of fixed remuneration for that Executive
Director at the end of the financial year (the Benchmark Shareholding Level). If shares held by the Executive Director are less than
the Benchmark Shareholding Level, the STI benefit are to be provided in the form of shares, subject to shareholder approval and
compliance with ASX Listing Rules, to the value that increases the holding of the Executive Director to the Benchmark Shareholding
Level.
Each of the Executive Directors that participated in the 2020 STI Plan held shares in the Company of a value that was in excess of the
Benchmark Shareholding Level. The STI benefit under the 2020 STI Plan is to be paid in cash.
6D. Actual Performance Against Long-Term Incentive (LTI) Measures for Tranche FY20 of the 2016 LTI Plan
With the exception of the service condition, the Board has resolved that the conditions in respect of Tranche FY20 of the 2016 LTI
Plan will be all financial, based exclusively on RONA, where Tranche FY20 RONA means the fraction Tranche FY20 Aggregate APBT
Tranche FY20 Aggregate Net Assets, expressed as a percentage. Tranche FY20 of the 2016 LTI Plan will be measured over a three-
year period for financial years ending 30 June 2020, 30 June 2021 and 30 June 2022. The financial condition of Tranche FY20 will be
wholly satisfied if the cumulative RONA over the measurement period is 20%, with lesser vesting as set out in the LTI Plan conditions
on pages 44 to 46. Tranche FY20 will not vest if the RONA is less than 16% on a cumulative basis over the three-year measurement
period.
A total of 549,500 performance rights were granted to Executive Directors on 2 December 2019. The performance rights were
independently valued by Mercer Consulting (Australia) Pty Limited at a fair value of $3.47 per entitlement share, based on a share
price of $4.30 as at grant date, resulting in a total fair value of Tranche FY20 of $1,906,765. The Remuneration Committee had
regard to certificates and reports from officers of the Company, other Board committees and management and Internal Audit
Reports, and has estimated, based on the available evidence, that the financial performance condition for Tranche FY20 of the 2016
LTI Plan will be 60% achieved by the end of the vesting period and 60% of the estimated fair value of the performance rights will
meet the performance condition.
The Remuneration Committee resolved in making its decisions and recommendations in respect of remuneration outcomes for the
Executive Directors of the Company, it will exclude the effect of COVID-19 support and assistance in respect of remuneration
outcomes, so as to eliminate unintended windfall gains in “at risk” remuneration returns for the Executive Directors.
The probability of 60% vesting has been estimated based on the calculation of Tranche FY20 RONA for the 2020 financial year of
18.91%. An 18.91% RONA for FY20 would result in a 60% vesting for year 1 of the three-year measurement period. A 60% vesting
probability will result in an estimated cumulative Tranche FY20 fair value of $1,144,059 over the vesting period. An amount of
$215,312 has been recognised as remuneration to Executive Directors and expensed in the income statement on a straight-line basis
for the year ended 30 June 2020.
Achievement of 100% Financial
Condition for Tranche FY20 of 2016 LTI
Calculation of FY20 RONA:
FY20 APBT (net profit excluding property revaluations,
the net impact of AASB 16 Leases and any COVID-19 support
and assistance received)
FY 19 Net Assets (excluding non-controlling interests)
$598.93 million
$3,167.41 million
= 18.91%
RONA
Number of
Performance
Rights
Fair Value
per Right
Fair Value of
Performance
Rights
Probability of
Vesting %
Estimated Value of
Tranche FY20 2016
LTI Plan to Vest
Tranche FY20 LTI Plan
Expense in FY20
Gerald Harvey
65,500
$3.47
$227,285
Kay Lesley Page
183,000
$3.47
$635,010
John Evyn Slack-Smith
109,000
$3.47
$378,230
David Matthew Ackery
109,000
$3.47
$378,230
Chris Mentis
83,000
$3.47
$288,010
60%
60%
60%
60%
60%
$136,371
$381,006
$226,938
$226,938
$172,806
$25,665
$71,705
$42,710
$42,710
$32,522
Total
549,500
$1,906,765
$1,144,059
$215,312
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
49
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
6D. Actual Performance Against Long-Term Incentive (LTI) Measures for Tranche FY20 of the 2016 LTI Plan
(continued)
Subject to the satisfaction of the financial performance condition and service conditions of the 2016 LTI Plan, Tranche FY20 will vest
on 31 December 2022. The exercise price for each performance right will be nil. If exercised, each performance right will be
converted into one ordinary share of the Company. Unexercised performance rights will lapse, irrespective of whether they have
become exercisable on 1 July 2025 or:
such earlier date specified by the Board;
the Board determines the performance rights granted to a Grantee should lapse, as a result of any fraud, gross misconduct or
conduct by that Grantee which brings the Company into disrepute; or
the Board determines the relevant requirements in relation to performance rights granted to a Grantee, including performance
conditions and a service condition, have not and are incapable of being met.
6E. Reassessment of Tranche FY19 of the 2016 LTI Plan Performance Conditions and Expense Recognised
in FY20
In the 2019 financial year, a total of 549,500 performance rights were granted to Executive Directors on 4 December 2018 under
Tranche FY19 of the 2016 LTI Plan. The performance rights were independently valued by Mercer Consulting (Australia) Pty Limited
at a fair value of $2.59 per entitlement share, based on a share price of $3.21 as at grant date, resulting in a total fair value of Tranche
FY19 of $1,423,205. Tranche FY19 of the 2016 LTI Plan will be measured over a three-year period for financial years ending 30 June
2019, 30 June 2020 and 30 June 2021.
In the 2019 Remuneration Report, it was reported that the estimated achievement of Tranche FY19 of the 2016 LTI Plan would have
been 40% by the end of the vesting period and that 40% of the estimated fair value of the Tranche FY19 performance rights will meet
the performance condition. The probability of 40% vesting had been estimated based on the calculation of Tranche FY19 RONA for
the 2019 financial year of 17.32%.
The financial performance condition of Tranche FY19 is subject to reassessment during each of the Tranche FY19 Financial Years
meaning the financial years ending 30 June 2019, 2020 and 2021. A reassessment of the Tranche FY19 Aggregate APBT and Tranche
FY19 Aggregate Net Assets for the 2019 and 2020 financial years has resulted in a revised RONA (excluding property revaluations,
the net impact of AASB 16 Leases and any COVID-19 support and assistance received) for the two-year aggregated period of 18.15%.
A revised aggregated RONA of 18.15% for the Tranche FY19 Financial Years has resulted in a revised probability of vesting of 60%.
This revised probability of vesting of 60% is higher than the previously estimated probability of vesting of 40% calculated in FY19
based on Tranche FY19 RONA.
The cumulative expense in respect of Tranche FY19 has been reassessed in the 2020 financial year as $853,923, an increase of
$284,641 from the previous assessment of cumulative Tranche FY19 expense in the 2019 financial year of $569,282 as reported in the
2019 Remuneration Report. The total value of Tranche FY19 expense recognised in the 2020 financial year was $330,980, comprised
of $278,037 relating to the recognition of the Tranche FY19 expense on a straight-line basis for FY20, and $52,943 relating to an
adjustment to the Tranche FY19 expense recognised in the previous financial year due to the reassessment of the probability of
vesting from 40% to 60%.
Reassessment of 100% Financial
Condition for Tranche FY19 of
2020 LTI Plan
Calculation of Aggregated RONA for
Tranche FY19 Financial Years
(FY2019 and FY2020)
Tranche FY19 Aggregated APBT (2019 + 2020)
Tranche FY19 Aggregated Net Assets (2018 + 2019)
$1,103.19 million
$6,078.42 million
= 18.15% RONA
Probability
Vesting % in
FY19
Tranche FY19
Estimated
Fair Value in
FY19
Revised
Probability
Vesting in FY20
Revised Estimated
Tranche FY19 Fair
Value in FY20
Adjustment due
to Reassessment
Tranche FY19
LTI Plan
Expense in
FY2020
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
40%
40%
40%
40%
40%
$67,858
$189,588
$112,924
$112,924
$85,988
$569,282
60%
60%
60%
60%
60%
$101,787
$33,929
$39,453
$284,382
$94,794
$110,226
$169,386
$56,462
$169,386
$56,462
$128,982
$42,994
$65,654
$65,654
$49,993
$853,923
$284,641
$330,980
6F. Reassessment of Tranche 3 of the 2016 LTI Plan Performance Conditions and Expense Recognised in
FY20
In the 2018 financial year, a total of 400,000 performance rights were granted to Executive Directors on 1 December 2017 under
Tranche 3 of the 2016 LTI Plan. The performance rights were independently valued by Mercer Consulting (Australia) Pty Limited at a
fair value of $3.34 per entitlement share, based on a share price of $4.02 as at grant date, resulting in a total fair value of Tranche 3 of
$1,336,000. Tranche 3 of the 2016 LTI Plan will be measured over a three-year period for financial years ending 30 June 2018, 30
June 2019 and 30 June 2020.
50
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
6F. Reassessment of Tranche 3 of the 2016 LTI Plan Performance Conditions and Expense Recognised in
FY20 (continued)
In the 2019 Remuneration Report, it was reported that the estimated achievement of Tranche 3 of the 2016 LTI Plan would have been
40% by the end of the vesting period and that 40% of the estimated fair value of the Tranche 3 performance rights will meet the
performance condition.
The probability of 40% vesting was reassessed in 2019 based on a 2-year aggregated RONA, being the Tranche 3 Aggregate APBT
and Tranche 3 Aggregate Net Assets for the 2018 and 2019 financial years. The reassessment in 2019 resulted in a revised RONA of
17.24%.
The financial performance condition of Tranche 3 is subject to reassessment during each of the Tranche 3 Financial Years meaning the
financial years ending 30 June 2018, 2019 and 2020. A reassessment of the Tranche 3 Aggregate APBT and Tranche 3 Aggregate
Net Assets for the 2018, 2019 and 2020 financial years has resulted in a revised RONA (excluding property revaluations, the net
impact of AASB 16 Leases and any COVID-19 support and assistance received) for the three-year aggregated period of 17.83%. A
revised aggregated RONA of 17.83% for the Tranche 3 Financial Years has resulted in the vesting of 56.6% of the Tranche 3
performance rights as calculated on a linear basis (i.e. a RONA of 17.83% has resulted in an achievement of 56.6% on a pro-rata basis
between the 40% and 60% gradation levels). This revised vesting calculation of 56.6% is higher than the previously estimated
probability of vesting of 40% calculated in FY19.
The cumulative expense in respect of Tranche 3 has been reassessed in the 2020 financial year as $756,177, an increase of $221,777
from the previous assessment of cumulative Tranche 3 expense in the 2019 financial year of $534,400 as reported in the 2019
Remuneration Report. The total value of Tranche 3 expense recognised in the 2020 financial year was $359,118, comprised of
$245,573 relating to the recognition of the Tranche 3 expense on a straight-line basis for FY20, and $113,545 relating to an
adjustment to the Tranche 3 expense recognised in the 2018 and 2019 financial years due to the reassessment of the probability of
vesting from 40% to 56.6%. FY20 was the final year of measurement for Tranche 3.
Reassessment of 100% Financial
Condition for Tranche 3 of 2020 LTI
Plan
Calculation of Aggregated RONA for
Tranche 3 Financial Years (2018, 2019
and 2020)
Tranche 3 Aggregated APBT (2018+2019+2020)
Tranche 3 Aggregated Net Assets (2017+2018+2019)
$1,581.71 million
$8,868.88 million
= 17.83%
RONA
Probability
Vesting % in
FY19
Tranche 3
Fair Value in
FY19
Revised
Probability
Vesting in FY20
Revised Tranche
3 Fair Value in
FY20
Adjustment due to
Reassessment
Tranche 3
LTI Plan
Expense in
FY2020
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
40%
40%
40%
40%
40%
$83,500
$150,300
$100,200
$100,200
$100,200
$534,400
56.6%
56.6%
56.6%
56.6%
56.6%
$118,153
$212,675
$141,783
$141,783
$141,783
$34,653
$56,112
$62,375
$101,001
$41,583
$67,335
$41,583
$67,335
$41,583
$67,335
$756,177
$221,777
$359,118
6G. Assessment of Tranche 2 of the 2016 LTI Plan Performance Conditions and Expense Recognised in
FY20
In 2017, a total of 400,000 performance rights were granted to Executive Directors on 28 November 2016 under Tranche 2 of the
2016 LTI Plan. The performance rights were independently valued by Mercer Consulting (Australia) Pty Limited at a fair value of $3.87
per entitlement share, based on a share price of $4.73 as at grant date, resulting in a total fair value of Tranche 2 of $1,548,000.
Tranche 2 of the 2016 LTI Plan was measured over a three-year period for financial years ending 30 June 2017, 30 June 2018 and 30
June 2019.
In the 2019 Remuneration Report, it was reported that the estimated achievement of Tranche 2 of the 2016 LTI Plan would have been
60% by the end of the vesting period and that 60% of the estimated fair value of the performance rights would meet the performance
condition. The probability of 60% vesting was reassessed in 2019 based on a 3-year aggregated RONA, being the Tranche 2
Aggregate APBT and Tranche 2 Aggregate Net Assets for the 2017, 2018 and 2019 financial years. The reassessment in 2019
resulted in a revised RONA of 18.10% and therefore an actual achievement of 60% of the Tranche 2 performance rights.
The cumulative expense in respect of Tranche 2 was $928,800 as reported in the 2019 Remuneration Report. The 2019 financial year
was the final year of Tranche 2 measurement. During the 2020 financial year, an expense of $151,371 was recognised in respect of
Tranche 2 of the 2016 LTI Plan representing the remaining vesting period up to 31 December 2019. Of the 400,000 performance
rights granted to Executive Directors during 2017, a total of 60%, or 240,000 performance rights vested on 31 December 2019 and
were exercisable from 1 January 2020.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
51
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
6G. Assessment of Tranche 2 of the 2016 LTI Plan Performance Conditions and Expense Recognised in
FY20 (continued)
Assessment of 100% Financial
Condition for Tranche 2 of
2020 LTI Plan
Calculation of Aggregated
RONA for Tranche 2 Financial
Years (2017, 2018 and 2019)
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
Tranche 2 Aggregated APBT (2017+2018+2019)
Tranche 2 Aggregated Net Assets (2016+2017+2018)
$1,514.54 million
$8,367.76 million
= 18.10%
RONA
Actual
Achievement in
FY19
Actual Tranche
2 Fair Value
Tranche 2 LTI
Plan Expense in
FY20
60%
60%
60%
60%
60%
$145,125
$261,225
$174,150
$174,150
$174,150
$23,652
$42,573
$28,382
$28,382
$28,382
$928,800
$151,371
52
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
6H. Summary of Performance and Executive Remuneration Outcomes in FY20
Value of STI and LTI Disclosed in 2020 and 2019 Remuneration Reports
Remuneration Component
2020 STI Plan
Financial conditions (50%)
Non-financial conditions (50%)
Total 100%
2019 STI Plan
100%-Level
Achievement
Amount
$1,500,000
$1,500,000
$3,000,000
Achieve-
ment
Score
Amount
Payable
Vesting
Period
2020
Remuneration
Amount
2019
Remuneration
Amount
120.00%
92.12%
70.00%
46.06%
1 Year
$2,100,000
$1,381,651
$3,481,651
$2,100,000
$1,381,651
$3,481,651
-
-
-
Financial conditions (50%)
Non-financial conditions (50%)
Total 100%
$1,400,000
$1,400,000
$2,800,000
86.90%
94.32%
43.45%
47.16%
1 Year
$1,216,600
$1,320,480
$2,537,080
-
-
-
$1,216,600
$1,320,480
$2,537,080
Total Short-Term Incentive PCI
Tranche FY20 (FY20) of 2016
LTI Plan
Financial conditions (100%)
Non-financial conditions (0%)
Total 100%
Tranche FY19 (FY19) of 2016
LTI Plan
$3,481,651
$2,537,080
$1,906,765
-
$1,906,765
60%
-
60%
-
$1,144,059
-
$1,144,059
4 Years
(Yr 1 of 4)
$215,312
-
$215,312
-
-
-
Financial conditions (100%)
$1,423,205
Non-financial conditions (0%)
Total 100%
-
$1,423,205
60%
-
60%
-
4 Years
(Yr 2 of 4)
$853,923
-
$853,923
$330,980
$105,887
-
-
$330,980
$105,887
Tranche 3 (FY18) of 2016 LTI
Plan
Financial conditions (100%)
$1,336,000
Non-financial conditions (0%)
Total 100%
-
$1,336,000
56.6%
-
56.6%
-
4 Years
(Yr 3 of 4)
$756,177
-
$756,177
$359,118
$173,076
-
-
$359,118
$173,076
Tranche 2 (FY17) of 2016 LTI
Plan
Financial conditions (100%)
$1,548,000
Non-financial conditions (0%)
Total 100%
-
$1,548,000
60%
-
60%
-
$928,800
-
$928,800
4 Years
(Yr 4 of 4)
$151,371
$300,277
-
-
$151,371
$300,277
Tranche 1 (FY16) of 2016 LTI
Plan
Financial conditions (100%)
$1,408,000
Non-financial conditions (0%)
Total 100%
-
$1,408,000
60%
-
60%
-
$844,800
n/a
-
$844,800
Total LTI Performance Rights
Total Value of STI and LTI
-
-
-
$137,804
-
$137,804
$1,056,781
$717,044
$4,538,432
$3,254,124
The total value of STI and LTI expensed in the Income Statement for the 2020 financial year and disclosed in this remuneration report
was $4.54 million compared to $3.25 million expensed in the 2019 financial year, an increase of $1.28 million or 39.5%, relative to the
previous year.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
53
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
7. Executive Contractual Arrangements
Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts are below.
Chief Executive Officer
The CEO, Ms. K.L. Page is employed under a rolling contract.
fixed remuneration of $2,100,000 per annum;
Under the terms of the present contract the CEO’s total potential employment cost is $3,767,010 comprised of:
maximum STI opportunity in respect of the year ended 30 June 2020 of $1,032,000 (at 120% over-achievement level); and
maximum LTI opportunity in respect of the year ended 30 June 2020 of $635,010.
The CEO’s termination provisions are as follows:
CEO’s Termination Provisions
Notice Period Payment in Lieu
of Notice
Treatment of STI on
Termination
Treatment of LTI on
Termination
Employer-initiated termination
5 weeks
5 weeks
Pro-rated for time and
performance
Board discretion
Termination for serious misconduct
None
None
Unvested awards forfeited
Unvested awards forfeited
Employee-initiated termination
5 weeks
5 weeks
Unvested awards forfeited,
subject to Board discretion
Unvested awards forfeited,
subject to Board discretion
Minimum Shareholding Requirement
There are no minimum shareholding requirements imposed on the CEO. There is a Benchmark Shareholding Level in respect of the
2020 STI Plan to determine whether the reward is to be paid as cash or in shares.
Other KMPs
All other KMPs have rolling contracts.
Standard KMP Termination Provisions Notice Period Payment in Lieu
of Notice
Treatment of STI on
Termination
Treatment of LTI on
Termination
Employer-initiated termination
4-5 weeks
4-5 weeks
Pro-rated for time and
performance
Board discretion
Termination for serious misconduct
None
None
Unvested awards forfeited
Unvested awards forfeited
Employee-initiated termination
4-5 weeks
4-5 weeks
Unvested awards forfeited,
subject to Board discretion
Unvested awards forfeited,
subject to Board discretion
8. Non-Executive Director Remuneration Arrangements
Remuneration Policy
The Board seeks to set aggregate remuneration at a level that provides the consolidated entity with the ability to attract and retain
directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders.
The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually against
fees paid to NEDs of comparable companies. The Board considers published material from external sources and makes its own
enquiries when undertaking the annual review process.
The Company’s constitution and the ASX listing rules specify that the NED fee pool shall be determined from time to time by a
general meeting. The latest determination was at the 2006 annual general meeting (AGM) held on 21 November 2006 when
shareholders approved an aggregate NED pool of $1,000,000 per year.
The Board will seek an increase for the NED pool at the 2020 AGM to $1,500,000.
Structure
The remuneration of NEDs consists of directors’ fees. NEDs do not receive retirement benefits, nor do they participate in any
incentive programs. Each NED receives a fee for being a director of the Company. The structure of NED remuneration is separate
and distinct from executive remuneration. The remuneration of NEDs for the years ended 30 June 2020 and 30 June 2019 are
disclosed in Table 1 on page 56 of this report.
54
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
9. Relationship between Remuneration and the
Performance of the Company
The graphs below illustrate the performance of the Company for the past five financial years and the high level of correlation between
remuneration and performance. Correlation is a calculation of the degree of relationship between two items with 100% being
strongest and 0% being weakest. Correlation between the indicators of performance and remuneration remain strong.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
55
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
10. Compensation of Key Management Personnel
TABLE 1: Compensation of Key Management Personnel Expensed for the Year Ended 30 June 2020
Directors of Harvey Norman Holdings Limited:
Short Term Benefits
Post-Employment
Salary &
Fees
Performance
Cash
Incentive
Other
Short
Term
Non-
Monetary
Benefits
Superannuation
Long Term
Incentives
Performance
Rights
Other
Long
Service
Leave (a)
Total
Remuneration
% earned
at risk
Gerald Harvey
Executive Chairman
Kay Lesley Page
Executive Director/CEO
John Evyn Slack-Smith
Executive Director/COO
David Matthew Ackery
Executive Director
Chris Mentis
Executive Director/CFO
Michael John Harvey
Non-Executive Director
Christopher Herbert Brown
Non-Executive Director
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Kenneth William Gunderson-Briggs
2020
Non-Executive Director
Graham Charles Paton
Non-Executive Director
Maurice John Craven
Non-Executive Director
2019
2020
2019
2020
2019
682,668
719,069
1,958,198
2,060,306
1,167,547
1,229,469
1,150,447
1,211,469
841,426
885,264
52,055
54,795
138,813
146,119
274,560
251,922
138,813
146,119
125,799
34,828
-
-
10,400
10,400
998,073
724,880
870,413
634,270
-
-
-
-
870,413
18,000
634,270
18,000
742,752
543,660
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,812
19,163
-
-
-
-
43,664
44,205
-
-
-
-
-
-
-
-
-
-
21,003
20,531
21,003
20,531
21,003
20,531
21,003
20,531
21,003
20,531
4,945
5,205
13,187
13,881
18,528
20,531
13,187
13,881
11,951
3,304
144,882
108,115
325,505
207,151
204,081
135,596
204,081
135,596
178,232
130,586
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,459
20,491
19,474
20,491
14,024
14,754
-
-
-
-
-
-
-
-
-
-
858,953
858,115
3,320,591
3,032,031
2,282,503
2,040,357
2,283,418
2,040,357
1,841,101
1,639,000
57,000
60,000
152,000
160,000
293,088
272,453
152,000
160,000
137,750
38,132
Total for the 2020 Financial Year
2020
6,530,326
3,481,651
28,400
61,476
166,813
1,056,781
52,957
11,378,404
Total for the 2019 Financial Year
2019
6,739,360
2,537,080
28,400
63,368
159,457
717,044
55,736
10,300,445
16.9%
12.6%
39.9%
30.7%
47.1%
37.7%
47.1%
37.7%
50.0%
41.1%
-
-
-
-
-
-
-
-
-
-
39.9%
31.6%
(a) Table 1 includes the accrual for long service leave entitlements in respect of the years ended 30 June 2020 and 30 June 2019. The Chairman (G. Harvey) and Chief Executive Officer (K.L. Page) do not have a long
service leave accrual as they have elected to forgo this employee entitlement.
The listed Parent Company, Harvey Norman Holdings Limited, does not have any employees.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
56
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
10. Compensation of Key Management Personnel (continued)
TABLE 2: Compensation of Key Management Personnel Expensed for the Year Ended 30 June 2020
Senior Executives of Harvey Norman Holdings Limited:
Short Term Benefits
Post-Employment
Long Term
Incentives
Other
Salary &
Fees
Perform-
ance Cash
Incentive
Other
Short
Term
Non-
Monetary
Benefits
Superannuation
Performance
Rights
Termination
Benefits (e)
Long
Service
Leave
Total
Remuneration
%
earned
at risk
Thomas James Scott
GM – Property
Martin Anderson
GM – Advertising
Gordon Ian Dingwall
Chief Information Officer
Ajay Calpakam (a)
GM – Audio Visual
Emmanuel Hohlastos (b)
GM – Audio Visual
Lachlan Roach
GM – Home Appliances
Frank Robinson (c)
GM – Technology & Entertainment
Glen Gregory (d)
GM – Technology & Entertainment
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
573,850
574,322
305,271
299,777
503,997
494,469
307,496
403,017
69,833
-
409,997
403,017
121,012
484,517
346,533
-
Total for the 2020 Financial Year
2020
2,637,989
Total for the 2019 Financial Year
2019
2,659,119
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,750
9,000
-
-
9,000
9,000
3,750
15,000
9,733
-
-
-
27,543
28,057
-
-
-
-
-
-
-
-
-
-
-
-
21,003
20,531
22,781
22,162
21,003
20,531
15,752
20,531
5,251
-
21,003
20,531
5,251
20,531
17,035
-
29,233
27,543
129,079
33,000
28,057
124,817
(a)
(b)
(c)
(d)
(e)
resigned 30 April 2020
commenced as GM – Audio Visual on 1 May 2020
resigned 30 September 2019
commenced as GM – Technology & Entertainment on 9 September 2019
this amount represents the cash payment of employee leave entitlements upon resignation
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32,765
-
-
-
-
-
56,300
-
-
-
9,564
9,572
5,088
4,996
8,400
8,241
-
6,717
1,164
-
6,833
6,717
-
8,075
5,776
-
604,417
604,425
360,683
354,992
533,400
523,241
362,763
439,265
76,248
-
446,833
439,265
186,313
528,123
379,077
-
89,065
36,825
2,949,734
-
44,318
2,889,311
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
57
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
11. Additional Disclosures Relating to Options, Performance Rights and Shares
Options Granted to Executive Directors as Part of Remuneration:
There were no options granted to any Executive Director during the year ended 30 June 2020.
There were no movements in option holdings during the year ended 30 June 2020.
Option Holdings of Key Management Personnel for the Year Ended 30 June 2020
There were no options held by any director or senior executive during the year ended 30 June 2020.
TABLE 3: Performance Rights Granted to Executive Directors as Part of Remuneration
The table below discloses the number of performance rights granted to Executive Directors as remuneration during the year ended 30 June 2020 as well as the number of performance rights that vested, were exercised or
lapsed during the year.
Performance rights do not carry any voting or dividend rights and can be exercised once the vesting conditions have been met until their expiry date.
Performance Rights Granted as
Remuneration During Year
Performance Rights Vested
During the Year
Performance Rights Lapsed
During the Year
Unvested Performance Rights at
30 June 2020
Performance Rights Exercised
During the Year
Number of
Performance
Rights
Granted
Value of
Performance
Rights
Granted $
Number of
Performance
Rights
Vested
Value of
Performance
Rights Vested
$
Number of
Performance
Rights
Lapsed
Value of
Performance
Rights
Lapsed $
Number of
Unvested
Performance
Rights
Value of
Unvested
Performance
Rights $
Number of
Performance
Rights
Exercised
Value of
Performance
Rights
Exercised $
Gerald Harvey
65,500
$227,285
Kay Lesley Page
183,000
$635,010
John Evyn Slack-Smith
109,000
$378,230
David Matthew Ackery
109,000
$378,230
83,000
$288,010
Chris Mentis
Total
37,500
67,500
45,000
45,000
45,000
$145,125
$261,225
$174,150
$174,150
$174,150
25,000
$96,750
193,500
$605,680
45,000
$174,150
478,500
$1,484,730
30,000
$116,100
293,000
$911,040
30,000
$116,100
293,000
$911,040
30,000
$116,100
241,000
$753,480
37,500
67,500
45,000
45,000
45,000
$145,125
$261,225
$174,150
$174,150
$174,150
549,500
$1,906,765
240,000
$928,800
160,000
$619,200
1,499,000
$4,665,970
240,000
$928,800
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
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11. Additional Disclosures Relating to Options, Performance Rights and Shares (continued)
Movement in performance rights during the year ended 30 June 2020:
a. A total of 549,500 performance rights under Tranche FY20 of the 2016 LTI Plan were granted to Executive Directors on 2 December 2019. The performance rights were independently valued by Mercer Consulting
(Australia) Pty Limited at grant date with a fair value of $3.47 per entitlement on 2 December 2019, based on a share price of $4.30. The fair value was derived from a discounted cash flow technique where the value of the
performance right is the face value of the share at grant date less the present value of the dividends expected to be paid on the share but not received by the holder during the vesting period. Subject to the satisfaction of
the financial performance condition (calculated exclusively based on RONA) and service conditions of the 2016 LTI Plan, the total fair value of Tranche FY20 performance rights amounted to $1,906,765 in aggregate.
b. On 1 January 2020, 160,000 performance rights representing 40% of Tranche 2 of the 2016 LTI Plan had lapsed and will never be exercisable by the participants. On 5 March 2020, 240,000 performance rights under
Tranche 2 of the 2016 LTI Plan were exercised reducing the unissued ordinary shares under Tranche 2 of the 2016 LTI Plan to nil.
c. As at 30 June 2020, a total of 400,000 performance rights under Tranche 3 of the 2016 LTI Plan (FY18), 549,500 performance rights under Tranche FY19 of the 2016 LTI Plan (FY19) and 549,500 performance rights under
Tranche FY20 of the 2016 LTI Plan (FY20) were outstanding, unvested and not capable of exercise.
TABLE 4: Performance Rights of Key Management Personnel for the Year Ended 30 June 2020
1 July 2019
Balance at the
Beginning of
Year
Granted as
Remuneration
Performance
Rights Exercised
Performance
Rights Lapsed
30 June 2020
Balance at End of
the Year
Due for Vesting during the year ended 30 June 2020
Total
Exercised
Lapsed
KMP: Board of Directors
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
190,500
408,000
259,000
259,000
233,000
65,500
183,000
109,000
109,000
83,000
(37,500)
(67,500)
(45,000)
(45,000)
(45,000)
(25,000)
(45,000)
(30,000)
(30,000)
(30,000)
193,500
478,500
293,000
293,000
241,000
62,500
112,500
75,000
75,000
75,000
37,500
67,500
45,000
45,000
45,000
25,000
45,000
30,000
30,000
30,000
1,349,500
549,500
(240,000)
(160,000)
1,499,000
400,000
240,000
160,000
Apart from the KMPs disclosed above, comprised of the Executive Directors of the Company, each of the Non-Executive Directors or senior executives of the Company did not have any performance rights during the year
ended 30 June 2020.
The closing balance of the performance rights in the Company of 1,499,000 as at 30 June 2020 is comprised of:
a.
b.
400,000 performance options under Tranche 3 of the 2016 LTI Plan (FY18); fair value at grant date of $3.34; to vest on 31 December 2020; exercisable between 1 January 2021 and 30 June 2023; and
549,500 performance options under Tranche FY19 of the 2016 LTI Plan (FY19); fair value at grant date of $2.59; to vest on 31 December 2021; exercisable between 1 January 2022 and 30 June 2024; and
c. Granted as remuneration during the 2020 financial year: 549,500 performance options under Tranche FY20 of the 2016 LTI Plan (FY20); fair value at grant date of $3.47; to vest on 31 December 2022; exercisable between 1
January 2023 and 30 June 2025.
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DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
11. Additional Disclosures Relating to Options, Performance Rights and Shares (continued)
TABLE 5: Shareholdings/Relevant Interests of Key Management Personnel for the Year Ended 30 June 2020
1 July 2019
Balance at the
Beginning of Year
On Exercise of
Performance
Rights (a)
Renounceable Pro-
Rata Entitlement
Offer (b)
Net Change
Other (c)
30 June 2020
Balance at the
End of Year
KMP: Board of Directors
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Michael John Harvey
369,778,107
18,605,005
997,750
562,908
1,014,186
3,149,892
Christopher Herbert Brown
194,107,477
Kenneth William Gunderson Briggs
Graham Charles Paton
Maurice John Craven
KMP: Senior Executives
Thomas James Scott
Lachlan Roach
Total
9,499
16,605
15,925
33,708
5,000
37,500
67,500
45,000
45,000
45,000
-
-
-
-
-
-
-
21,751,658
593,000
392,160,265
1,094,738
5,442
19,772,685
58,693
33,113
59,661
185,288
11,418,088
560
977
936
1,983
295
-
-
-
-
-
-
-
13,812
(25,691)
4,705
1,101,443
641,021
1,118,847
3,335,180
205,525,565
10,059
17,582
30,673
10,000
10,000
588,296,062
240,000
34,605,990
591,268
623,733,320
a. On 6 January 2020, the Company announced that 240,000 performance rights, representing 60% of the performance rights issued in accordance with Tranche 2 of the 2016 LTI Plan, had vested and was exercisable from 1
January 2020.
On 6 January 2020, the Company announced that 160,000 performance rights, representing 40% of the performance rights issued in accordance with Tranche 2 of the 2016 LTI Plan, had lapsed and will never be
exercisable by the participants.
On 5 March 2020, 240,000 performance rights under Tranche 2 of the 2016 LTI Plan were exercised, reducing the unissued ordinary shares under Tranche 2 of the 2016 LTI Plan to nil.
b. On 30 August 2019, the Company announced that it would be offering shareholders the opportunity to participate in a renounceable pro-rata entitlement offer of new fully-paid ordinary shares in the Company (New
Shares) to raise approximately $173.49 million (before costs) (Entitlement Offer). The offer price was $2.50 per New Share (Offer Price). The Entitlement Offer was for 1 New Share for every 17 existing ordinary shares in
the Company at the Record Date, being 10 September 2019. The Entitlement Offer forms part of the Company’s ongoing capital management program. It was intended that the proceeds from the Entitlement Offer be
used to reduce the amount of HVN consolidated debt.
On 21 October 2019, the Company announced that the Directors of the Company took up their full entitlement in respect of the Entitlement Offer and acquired 34,603,712 New Shares in HVN in accordance with the
Change of Directors’ Interest Notice to the ASX effective 18 October 2019 and the terms and conditions of the Entitlement Offer.
c.
The ‘Net Change Other’ column discloses the number of shares acquired by each Director of the Company via an ‘on-market trade’ in accordance with the prevailing market conditions on the ASX at the time of the
transaction. These trades were on no more favourable terms and conditions than those that would be reasonably expected of an arm’s length transaction.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
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12. ‘Take-Home Pay’ for KMP Directors of the Company
The below table shows the ‘take-home pay’ for each director of the Company, representing the benefits paid to each director during the
year ended 30 June 2020, or as soon as practicable after that date. Total ‘take-home pay’ for the directors of the Company amounted to
$10.25 million for the year ended 30 June 2020. The total value of remuneration expensed for directors of the Company in respect of the
2020 financial year was $11.38 million (refer to Table 1 on page 56 of this report). For the 2020 financial year, total ‘take-home pay’ was
$1.13 million lower than the value of remuneration expensed to the income statement.
KMP:
Board of Directors
Salary & Fees Other
Short
Term
Non-
Monetary
Benefits
Super-
annuation
Short-Term
Performance
Cash
Incentive (a)
Exercise of
Tranche 1
2016 LTI
Plan
Exercise of
Tranche 2
2016 LTI
Plan (b)
FY2020 Total
Take-Home
Pay
FY2019 Total
Take-Home
Pay
Gerald Harvey
682,668
10,400
-
21,003
-
Kay Lesley Page
1,958,198
1,167,547
-
-
John Evyn Slack-
Smith
David Matthew
Ackery
1,150,447
18,000
Chris Mentis
841,426
Michael John Harvey
52,055
Christopher Herbert
Brown
Kenneth William
Gunderson-Briggs
Graham Charles
Paton
138,813
274,560
138,813
Maurice John Craven
125,799
-
-
-
-
-
-
17,812
21,003
724,880
-
-
21,003
634,270
21,003
634,270
43,664
21,003
543,660
-
-
-
-
-
4,945
13,187
18,528
13,187
11,951
-
-
-
-
-
6,530,326
28,400
61,476
166,813
2,537,080
Total Take-Home
Pay 2020
Total Take-Home
Pay 2019
-
-
-
-
-
-
-
-
-
-
-
145,125
859,196
882,000
261,225
2,983,118
2,987,680
174,150
1,996,970
1,977,220
174,150
1,997,870
1,977,220
174,150
1,623,903
1,595,960
-
-
-
-
-
57,000
60,000
152,000
160,000
293,088
272,453
152,000
160,000
137,750
38,132
928,800
10,252,895
6,739,360
28,400
63,368
159,457
2,275,280
844,800
-
10,110,665
a.
The short-term incentive of $2.54 million represented the payment of the 2019 STI Plan that was earned in respect of the 2019
financial year, and was paid to Executive Directors in September 2019.
b. The aggregate fair value of the performance rights exercised during the 2020 financial year was $928,800, calculated at a fair value of
$3.87 per right multiplied by 240,000 performance rights exercised.
13. Other Matters for Disclosure
Comments on the Remuneration Report at the 2019 AGM of the Company
The previous AGM of the Company was held on 27 November 2019.
At that meeting, questions were answered in respect of the Participant Performance Review process, the allocation of the STI pool
amongst Executive Directors, changes to remuneration for the Executive Directors since the 2018 AGM, and the calculation of the
RONA return for the 2019 year.
The Company received 179.65 million votes against the adoption of the 2019 Remuneration Report representing 31.94% of the total
562.39 million shares that were eligible to vote on that resolution. A total of 683.62 million shares were ineligible to vote on the
adoption of the 2019 Remuneration Report as they were held by KMPs or their related parties.
The following improvements have been made to the remuneration framework for Executive Directors:
Profit after tax adjusted for the after tax effect of property increments and decrements (APAT) is the measure used for the
achievement of the financial conditions for the short term incentive, replacing earning per share;
The 100% short term incentive (STI) pool was increased to $3.0 million from $2.8 million in line with increase in net assets of the
Company over the previous two financial periods, with the 100% STI pool able to be increased if the financial performance conditions
for the short term incentives are over-achieved to the maximum extent of 120% i.e. to $3.6 million from $3.36 million.
The level of long term incentive (LTI) achievement for the determination of vesting is to be based on a straight line basis as opposed to
a gradation basis to remove the risk of calculation bias.
The determination of return on net assets (RONA) for the on-foot LTI tranches will exclude the effects of the financial impact of the
adoption of the lease accounting standard AASB 16, to allow calculation consistency.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
61
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
14. Loans to Key Management Personnel and their Related
Parties
There were no loans granted to key management personnel during the year ended 30 June 2020 (2019: nil). There were no loans
outstanding from key management personnel as at 30 June 2020 (2019: nil).
15. Other Transactions and Balances with Key Management
Personnel and their Related Parties
CONSOLIDATED
(i)
Loans from directors to subsidiaries of Harvey Norman Holdings Limited:
Derni Pty Limited (a wholly owned subsidiary of Harvey Norman Holdings Limited)
borrowed money from entities and related parties associated with G. Harvey, M.J.
Harvey and K.L. Page. Interest is payable at commercial rates. These loans are
unsecured and repayable at call.
Net amounts paid to entities associated with the above mentioned directors and
their related parties.
Interest paid/payable
(ii)
Lease of business premises from Ruzden Pty Limited:
The consolidated entity leases business premises at Bundall, Queensland from
Ruzden Pty Limited. Mr G. Harvey, Ms K.L. Page, Mr M.J. Harvey and I.J. Norman
Nominees Pty Limited (C.H. Brown) have an equity interest in Ruzden Pty Limited.
The lease arrangements were approved by shareholders in the General Meeting
held 25 May 1993, and in the General Meeting held 31 August 1999. The lease is
subject to normal commercial terms and conditions. Lease payments and
outgoings made by the consolidated entity to Ruzden Pty Limited was:
(iii)
Legal fees paid to a director-related entity:
Legal fees were paid to the firm of which Mr C.H. Brown is a partner for
professional services rendered to the consolidated entity in the normal course of
business.
(iv) Other income derived by related entities of key management personnel:
Certain franchises are operated by entities owned or controlled by relatives of key
management personnel under normal franchisee terms and conditions.
Aggregated net income derived by entities owned or controlled by relatives of key
management personnel was:
(v) Perth City West Complex
June
2020
$
-
-
-
June
2019
$
-
(39,566,536)
371,695
5,231,401
5,134,607
3,090,533
2,638,587
2,647,890
310,761
By a contract for sale dated 31 October 2000, Gerald Harvey, as to a one-half share as tenant in common, and a subsidiary of Harvey
Norman Holdings Limited, as to a one-half share as tenant in common, purchased the Perth City West Complex for a purchase price of
$26.60 million. In the financial statements of the consolidated entity, the day-to-day management of this entity has been accounted for
as a joint venture as disclosed in Note 27. The property was subject to a lease of part of the property in favour of a subsidiary of
Harvey Norman Holdings Limited (the "P.C.W. Lessee"). Gerald Harvey is entitled to one-half of the lease payments and outgoings
paid by the P.C.W. Lessee. The amount of lease payments and outgoings paid by the P.C.W. Lessee to Gerald Harvey and the
subsidiary of Harvey Norman Holdings Limited for the year ended 30 June 2020 was $0.74 million (2019: $0.74 million). Each of the
above transactions were executed under terms and conditions no more favourable than those which it is reasonable to expect would
have applied if the transactions were at arm’s length.
(vi) The Byron at Byron Resort, Spa and Conference Centre
By a contract for sale dated 15 May 2002, a company (of which Gerald Harvey was a director) acting in its capacity as trustee of a trust,
as to a one-half share as tenant in common (the “GH entity”), and a subsidiary of Harvey Norman Holdings Limited, as to a one-half
share as tenant in common, purchased the Byron at Byron Resort, Spa and Conference Centre (the “Byron Bay Joint Venture”).
On 9 August 2019, the consolidated entity announced that Harvey Norman Holdings Limited (the Company) and certain of its
controlled entities, with certain entities controlled by Gerald Harvey, as owners of the Byron Bay Joint Venture, have entered into
agreements for sale of the Byron Bay Joint Venture (Sale Contract) for the sale price of $41,764,000 (ex GST), subject to terms and
conditions for completion. The purchasers under the Sale Contract were GAG Byron on Byron Property Co Pty Ltd ACN 635 158 351
and GAG Byron on Byron Business Company Pty Ltd ACN 635 172 333. The Sale Contract was settled during FY20 following the grant
of the liquor licence approval by the relevant authority.
No conference fee was paid by the consolidated entity to the Byron Bay Joint Venture in the 2020 financial year (2019: $0.11 million).
62
OPERATI
DIRECTORS’ REPORT – REMUNERATION REPORT (AUDITED)
15. Other Transactions and Balances with Key Management Personnel and their Related Parties (continued)
(vii) Gepps Cross Home HQ
By a contract for sale dated 18 December 2007, a subsidiary of the Company (“HNHL G.C. Entity”) and Axiom Properties Fund Limited
(“G.C. Co-Owner”) purchased land located in Gepps Cross, South Australia (“G.C. Land”) in equal shares as tenants in common, for
the purpose of constructing and subsequently managing a retail complex on the G.C. Land (“the Gepps Cross Joint Venture”). In
November 2009, the HNHL G.C. Entity and the G.C. Co-Owner granted a lease of part of the G.C. Land and retail complex to a
subsidiary of the Company (“G.C. Lessee”) on arm’s length commercial terms (“G.C. Lease”). In August 2010, the G.C. Co-Owner
informally advised the Company that the G.C. Co-Owner intended to dispose of its interest in the Gepps Cross Joint Venture,
triggering first and last rights of refusal in the HNHL G.C. Entity. At a meeting of the Company held 26 August 2010, it was resolved
that the Company not purchase the share of the G.C. Co-Owner in the Gepps Cross Joint Venture (including G.C. Land). On 6
October 2010, the HNHL G.C. Entity formally waived the right to purchase the interest of the G.C. Co-Owner in the Gepps Cross Joint
Venture (including the G.C. Land).
By a contract for sale dated 23 December 2010, GH Gepps Cross Pty Limited, an entity associated with Gerald Harvey (“Gerald Harvey
Entity”) and MJH Gepps Cross Pty Limited, an entity associated with Michael Harvey (“Michael Harvey Entity”) and, M&S Gepps Cross
Pty Limited, purchased the one-half share as tenants in common of the G.C. Co-Owner in the G.C. Land and retail complex. The sale
was subject to the G.C. Lease. In the financial statements of the consolidated entity, the day-to-day management of the Gepps Cross
Joint Venture has been accounted for as equity accounted investment as disclosed in Note 27. The Gerald Harvey Entity is entitled to
one-quarter of the lease payments and outgoings paid by the G.C. Lessee. The Michael Harvey Entity is entitled to one-eighth of the
lease payments and outgoings paid by the G.C. Lessee. The adoption of AASB 16 Leases resulted in the recognition of a lease liability
of $18.98 million by the G.C. Lessee as at 30 June 2020. The amount of lease payments and outgoings paid by the G.C. Lessee to the
Gepps Cross Joint Venture for the year ended 30 June 2020 was $3.41 million (2019: $3.33 million). Each of the above transactions
were executed under terms and conditions no more favourable than those which it is reasonable to expect would have applied if the
transactions were at arm’s length.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
63
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
The consolidated entity acknowledges that integrating sustainable growth into its strategy, business practices and decision
making is essential for long-term value creation. The consolidated entity believes that the sustainability of its operations is, in
part, linked to the successful monitoring and management of its economic, social and environmental risks and opportunities
and therefore the consolidated entity aims to adopt sustainable practices that will generate better long-term returns and
benefits for investors and stakeholders, both internal and external.
The Board of Directors, as the highest governance body of the consolidated entity, alongside management is charged with establishing a
business strategy that supports responsible decision making and sustainable value creation.
The Code of Conduct of the consolidated entity reinforces the commitment to honest, fair and transparent business practices and outlines the
standards of behaviour that the consolidated entity expects of its employees.
In addition, the consolidated entity has adopted other policies such as the Conflicts of Interest Policy, the Gifts and Benefits Policy, the
Intellectual Property Policy and a Confidentiality and Privacy Policy, all of which aim to reinforce corporate governance best practices.
WELL-BEING & SAFETY
Creating an environment where our people and customers can work
and shop safely has always been our commitment. In the current
climate, it has never been more important.
During this financial year, we have continued to progress our safety and
well-being initiatives including further refinements to our overarching
governance and reporting structures globally.
Our teams have undertaken various training and education opportunities in
health and safety throughout the year, including refresher training on various
Work Health and Safety (WHS) focus areas as part of October Safety Month,
completion of Mental Health First Aid Accreditation for nominated employees,
and BizSAFE Risk Management and Safety training to improve the ability of
frontline warehouse, administrative, and retail managers in Singapore to conduct
Safety and Health Risk Assessment Plans.
MHFAider
WHS
BizSAFE
Harvey Norman® Singapore employees attending a BizSAFE training course
As for most businesses, the second half of 2020 saw
COVID-19 become the focus of our health and well-being
initiatives. At the very start of the pandemic, an Incident
Management Team was formed to enable swift and decisive
actions and operational implementations in response to the
evolving risks and government requirements.
The experiences earlier in the year gained from our
European and Asian responses meant that the brands were
well-placed to act appropriately when the COVID-19 impacts
became apparent in Australia. Consumers were encouraged
to Shop Smart and Shop Safe, and a wide range of controls
including hand sanitiser, increased cleaning and sanitisation,
employee training, additional PPE, and improved contactless
shopping options were implemented by franchisees to keep
their customers and employees safe.
Harvey Norman® Malaysia frontline workers preparing COVID-19 packages
Harvey Norman® Singapore employees preparing COVID-19 gift packs
64
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
Mental wellness continues to be a strong focus of health and safety initiatives. To build awareness
and encourage relationship building and connection amongst employees, the consolidated entity
participated in R U OK Day and held various events over Mental Health Week that focused around
the mental, social, physical and spiritual pillars that affect wellness. The consolidated entity continues
a strong focus on mental wellness initiatives as a focus, particularly as a result of the ongoing impacts
of COVID-19. As part of these events, a number of employees completed their Accredited Mental
Health First Aid course to grow support in the workplace for any employees who may experience
mental health concerns.
Preparing for R U OK Day
TRAINING AND DEVELOPMENT
We recognise that training and developing our
people is a sound investment and can only lead to
better outcomes for the consolidated entity and our
stakeholders.
This year, investment in training and development has
continued, with our people undertaking a variety of
role-based and soft-skill courses. Whilst COVID-19
has impacted on the ability for our people to attend
face-to-face or in-person meetings and development,
an agile shift more towards online options occurred and
has become a normal part of day to day engagement.
Harvey Norman® Malaysia Bite Sized Learning Programme
With a recognition of the increased importance of non-contact communications, a project was initiated at the end of the financial year to
upgrade the internal intranet of the consolidated entity, due for completion in the 2021 financial year. The consolidated entity looks forward
to this project providing improved opportunities to drive employee engagement, clear and concise communication, and increased interaction
between business units, all of which are important to successful business and employee outcomes.
Harvey Norman® New Zealand Cooking & Whiteware School
Key Development Program of Franchisees*
The consolidated entity continues to invest in systems and process improvements to provide franchisees with the necessary tools to promote
and enhance the knowledge and capability of the franchisee and their employees.
Franchisees can request their employees participate in the Key Development Program, the aim of which is to provide tools for the development
of these employees to be future successful leaders as a Harvey Norman®, Domayne® or Joyce Mayne® franchisee.
The framework of the program is built upon three pillars – Leadership, Managing & Creating, and Operations.
Whilst traditionally provided in a face-to-face setting, the Program has successfully transitioned to an online platform due to COVID-19 restrictions.
*Franchisees and employees of franchisees in Australia are not employees of the consolidated entity.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
65
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
Some of the participants of a 2019 Key Development Program session
I am really enjoying the journey so far and
am looking forward to increasing my knowledge
and understanding of the back end and
reporting side of a franchisee business.
– Matthew Smith
I enjoy the online learning and being able to
apply the newly formed skilled immediately to
everyday business.
– Jason Platz
I thoroughly enjoyed being a part of a like-minded group of individuals. I enjoy being stimulated on subject matter
that is of high interest to me and listening to examples of co-workers and mentors being in the situations I am confronted
with and how they personally handled the task. Meeting the GM of Home Appliances (even though it wasn’t in person) was
a highlight for me as I really enjoy listening and absorbing other people’s “journey”. I definitely enjoyed Lachlan’s energy
and ability to visualise, plan and attack. I was inspired to embrace change and just say yes.
– Aydin Tezer
GRADUATE OPPORTUNITIES
Each year, some franchisees within Australia offer opportunities to recent graduates with relevant university qualifications, a unique graduate
opportunity to fast-track their development and training to progress their career opportunities with Harvey Norman®. This opportunity can lead
to participating in the Key Development Program, and eventually becoming a future Harvey Norman®, Domayne® or Joyce Mayne® franchisee.
In the 2020 financial year:
1.
2.
5 franchisee employees completed the Graduate Program and transitioned to participate in the Key Development Program.
7 new franchisee employees commenced the Graduate Program.
2019 Graduates
66
End of Financial Year Partnership Summary
End of Financial Year Partnership Summary
Financial Year 19 / 20
June 2020
Harvey Norman
Partner Since: 2020
June 2020
Harvey Norman
Partner Since: 2020
This past year has been huge. Australia has been hit hard by disasters including drought, fire, flood and a global pandemic.
There has been a 200% increase in charities accessing support from Good360 and as Australia slowly recovers, demand remains high.
Financial Year 19 / 20
This past year has been huge. Australia has been hit hard by disasters including drought, fire, flood and a global pandemic.
There has been a 200% increase in charities accessing support from Good360 and as Australia slowly recovers, demand remains high.
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
Your support through this time is hugely appreciated.
Thank you so much for all your help.
Your support through this time is hugely appreciated.
Thank you so much for all your help.
June 2020
Harvey Norman
Partner Since: 2020
COMMUNITY & PARTNERSHIPS
Harvey Norman's
donations to Good360
Harvey Norman's
End of Financial Year Partnership Summary
FY18
FY17
donations to Good360
Financial Year 19 / 20
Value RRP
This past year has been huge. Australia has been hit hard by disasters including drought, fire, flood and a global pandemic.
$0
$0
Cash Donated
There has been a 200% increase in charities accessing support from Good360 and as Australia slowly recovers, demand remains high.
Our communities have faced many challenges over the past 12 months, with the natural disasters of droughts, bushfires
$3,083,844 $3,083,844
and floods swiftly followed by the ongoing COVID-19 pandemic – which has touched all our lives in so many ways.
$3,083,844 $3,083,844
Lifetime
Value
Cash Donated
Value RRP
FY20
FY17
FY19
FY16
FY16
FY20
FY19
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Lifetime
FY18
Value
Harvey Norman® has always felt a strong connection to community – both on local and national levels – forming a symbiotic relationship of
Your support through this time is hugely appreciated.
mutual strength and support. It is times like these that remind us of the importance of giving back and supporting those communities that
Harvey Norman's Impact as of June 2020
Thank you so much for all your help.
have been our supporters for so many years.
Harvey Norman's Impact as of June 2020
Harvey Norman's
donations to Good360
FY16
FY17
FY18
FY19
FY20
Lifetime
Value
Value RRP
Cash Donated
$0
$0
$0
$0
$0
$0
$0
$0
$0
$3,083,844 $3,083,844
$3.08M
Total Goods donated (RRP)
$2.98M
$3.08M
Goods donated to Not for Profit &
Total Goods donated (RRP)
Schools (RRP)
Harvey Norman's Impact as of June 2020
3,251
$2.98M
New items connected
Goods donated to Not for Profit &
with people in need
Schools (RRP)
$3.08M
0
Goods matched with
Total Goods donated (RRP)
Local Store Donation Program
$2.98M
67
0
Goods donated to Not for Profit &
Goods matched with
Not for Profits & Schools supported
Schools (RRP)
Local Store Donation Program
3,251
21
67
New items connected
Cause areas supported
with people in need
Not for Profits & Schools supported
Harvey Norman® formed a working partnership with Good360
to help distribute goods to those in need.
$0
$0
Good360 help ensure individuals facing challenging life
$0
3,251
New items connected
Donated to Good360
with people in need
circumstances are able to get the goods they need – and this
Donated to Good360
important service became more vital than ever in the wake of
the devastation of the bushfire season, with many families left
without homes and communities stripped of infrastructure.
To date, Harvey Norman® has donated a variety of goods -
covering everything from fridges and washing machines to
0
beds and furniture – with a retail value of $3.08 million to
$0
0
21
Donated to Good360
Hours donated to Good360
Cause areas supported
help ensure these communities can get back on their feet.
Hours donated to Good360
Not for Profits supported by State
Not for Profits supported by State
Top causes supported
Top causes supported
Not for Profits supported by State
7
Top causes supported
Homelessness
0
Goods matched with
Local Store Donation Program
Community
21
Improvement
0
Harvey Norman® continued their partnership with Sky News
& Economic
Not for Profits & Schools supported
Cause areas supported
and the Paul Murray Live program to stage a series of monthly
Development
OUR TOWN - SKY NEWS
67
0
Our Town events in regional Australia. These events were
0
0
0
women’s shelters, emergency accommodation, remote
designed to promote and raise funds to support regional
organisations such as the Country Women’s Association (CWA)
in their efforts towards drought and bushfire relief, providing
48
Community
Improvement
& Economic
Development
healthcare solutions and much more.
11
ACT
0
Live events were held in Thredbo, Broome, Alice Springs,
1
Newcastle, Dubbo, Batemans Bay and Hobart, with over
48
11
Migrant
& Ethnic
Groups
ACT
1
0
0
$292,000 in donations and funds raised this financial year.
TAS
0
7
7
Community
Children &
0
Improvement
Youth
Hours donated to Good360
& Economic
Development
Migrant
& Ethnic
Groups
Social or
Children &
Youth
Public
Welfare
Homelessness
Children &
Youth
Social or
Public
Welfare
TAS
0
Homelessness
Paul Murray and Members of the Newcastle CWA
0
TAS
0
48
11
ACT
1
Migrant
& Ethnic
Groups
Social or
Public
Welfare
www.good360.org.au
#makegoodhappen
On Saturday 29th of February 2020, Harvey
Norman® harnessed its significant commercial power
to promote a ‘SHOP. SUPPORT. REBUILD.’ event
www.good360.org.au
#makegoodhappen
where a percentage of franchisee sales generated on
the day would be donated to Biz Rebuild.
This initiative was set up by the Business Council
of Australia (BCA) in response to the devastating
bushfire season in order to help support the
www.good360.org.au
#makegoodhappen
affected communities.
rebuilding of businesses and industries in
The Community Rebuilding Initiative surveying the bushfire devastation in Batemans Bay
The day was a great success, with an amount
of $200,000 being donated – which was the
equivalent of 1% of total franchisee sales from
franchised complexes throughout Australia.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
67
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
DIVERSITY & INCLUSION
The consolidated entity is committed to promoting and supporting an environment where our workforce is representative
of the communities in which it operates. A diverse workforce generates value for its shareholders by building capabilities
for the consolidated entity to become more innovative, responsive, and competitive. Celebrating diversity and building an
inclusive culture is part of what we do every day.
Women
with
harvey norman
MEET SOME OF THE TALENTED, PASSIONATE AND
DETERMINED WOMEN HELPING TO CREATE PATHWAYS
OF OPPORTUNITY IN THEIR COMMUNITIES.
OUR PEOPLE
IN NUMBERS
Jessica Sergis
JILLAROOS/RUGBY
LEAGUE
Ali Brigginshaw
QRL/RUGBY LEAGUE
Belinda Sharpe
NRL REFEREE
Alicia Eva
2020 GIANTS
AFLW CAPTAIN
“It isn’t complicated.
Harvey Norman® has supported
Australian women for as long as we
have been in business.”
Katie Page
Executive Director and CEO
HARVEY NORMAN HOLDINGS LIMITED
Madison de Rozario
PARALYMPIAN
WHEELCHAIR RACING
Sage Goldsbury
WSL AUSTRALIAN
SURFER
Katie Kelly
OAM, PARA-TRIATHLETE
FOUNDER, SPORT ACCESS
FOUNDATION
Abigail Santos
GLOBAL FINANCIAL
CONTROLLER AT
HARVEY NORMAN
HNHL
WORKPLACE PROFILE
55%
(3430)
45%
(2798)
45+
35+
HNHL
SENIOR MANAGEMENT
65%
(92)
35%
(50)
Melissa Wilson
MANAGING DIRECTOR,
HARVEY NORMAN
EUROPE
Tanya Cameron
OAM, NATIONAL
PRESIDENT, COUNTRY
WOMEN’S ASSOCIATION
OF AUSTRALIA
Nikia Nolan
HARVEY NORMAN®
YOUNG FUTURE
FARMERS AWARD
WINNER
Hannah Beder
HARVEY NORMAN®
2020 YOUNG WOMAN
OF THE YEAR
Margy Perkuhn
SHINE AWARDS 2019
OVERALL WINNER
Tani Bloudell
HARVEY NORMAN®
2020 GOLD COAST
WOMAN OF THE YEAR
MALE
FEMALE
7.5 Years
6.5 Years
Average Tenure
HNHL AU
The same support extends to our employees and future employees, via supporting the creation of
employment opportunities and emphasising the development and training of females to grow our
future talent pool. This year, the consolidated entity was pleased to note continued growth in female
representation in Senior Management roles, increasing to 35.2% of total HNHL Senior Management Positions.
Working to create a strong talent pool of future leaders is a key part of the DNA at Harvey Norman®.
Based on disclosed information by its employees, the consolidated entity in Australia is fortunate to
have a workforce that is diverse in background, with employees self-identifying from over 43 different
cultural backgrounds. We find ways to celebrate this diversity through events such as Diwali. Given the
COVID-19 restrictions, events were cancelled for this financial year however we look forward to further
initiatives in the second half of FY 21. All employees undertake a cultural awareness e-learning module
and a Discrimination, Bullying & Harassment Prevention Policy e-learning refresher course each year to
support employee awareness and knowledge and promote a positive workplace culture.
Employees of the consolidated entity are fortunate to participate in sponsored events from time-to-time
to bring awareness to people from all backgrounds. For example, employees enjoyed participating in
the Para-Tough Cup 2020, and New Zealand employees enjoyed hosting a fundraiser event for the NZ
Paralympics Team.
For further information on Diversity initiatives, refer to the Corporate Governance Report on the
consolidated entity website.
*Franchisees and employees of franchisees in Australia are not employees of the consolidated entity.
68
HN/DM/JM
FRANCHISEE STAFF*
56%
(5804)
44+
44%
(4569)
Average Tenure
(with Brands)
HN/DM/JM
FRANCHISEE STAFF*
MALE
FEMALE
4.8 Years
5.3 Years
55
65
56
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
Paralympics Australia Partnership
Harvey Norman® is proud to partner with Paralympics Australia and also support the
AUS Squad, the official cheer squad of the Australian Paralympic Team. Featuring
talented athletes across all disciplines, the Australian Paralympic Team are an inspiring
force in the community, and Harvey Norman® is proud to provide support on their journey
to achievement.
This year saw the the inaugural Harvey Norman® Para Tough Cup, with franchisee suppliers
and corporate office staff competing and raising funds – with over $49,000 raised on the
day, and a further $10,000 being raised from the sale of AUS Squad merchandise in store.
Participants in the Harvey Norman® Para Tough Cup
68
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
69
ATHLETE PROFILEMadison de Rozario PARALYMPIC WHEELCHAIR RACER Not only is Madison de Rozario one of the most promising young athletes in wheelchair racing, but she’s already got the track record of a seasoned veteran. Madison first represented Australia at the Paralympics in Beijing in 2008 at the tender age of 15, and has since gone on to compete at London in 2012 and Rio in 2016.With her sights set firmly on the next Paralympics, Madison’s future in the sport is looking brighter than ever, thanks to her desire for each performance to be a new personal best. SOCIAL & ENVIRONMENTAL SUSTAINABILITY
Young Future Farmers Awards
For Nikia Nolan, growing up around animals ignited a deep
passion for farming - a passion which has seen her take
great steps towards a bright career in the industry. A Harvey
Norman® Young Future Farmers Ambassador for 2020 and
winner of the YFFA 2019 University Award, Nikia is currently
studying a Bachelor of Rural Science at the University
of New England in Armidale - covering such diverse
subject areas as soil science, agronomy, animal nutrition,
biochemistry and genetics.
Nikia is just one of many Future
Farmers who are driving the next
wave of innovation in farming.
Harvey Norman® Young Farmer of the Year 2019 University Award Winner Nikia Nolan
NSW Women of the Year Awards
The NSW Women of the Year Awards recognise and celebrate the
outstanding contribution made by women across New South Wales. In
2020, Harvey Norman® was the naming partner for the Young Woman
of the Year award, which was won by Hannah Beder.
Hannah is a computer scientist who is passionate about addressing
the historical gender disparity in STEM by mentoring young women
to be successful in the tech industry.
Since 2015, Hannah has volunteered for Girls Programming Network,
an all-female group who run free programming workshops for high
school girls.
As a successful Software Engineer, Hannah’s visibility in the
technology and computing education industries helps to combat the
notion that ‘you can’t be what you can’t see’.
Harvey Norman® 2020 Young Woman of the Year Winner Hannah Beder (second from right)
G W
N
I
T
A
R
B
E
L
E
C
O M E N OF R
U
R
A
L
A
U
S
T
R
A
L
I
A
Harvey Norman® Gold Coast Woman of the Year Tani Bloudell (centre)
Shine Awards Overall Winner 2019 Margy Perkuhn
Gold Coast Women of the Year
Shine Awards
Harvey Norman® was proud to be a naming rights partner for the
Gold Coast Bulletin’s Women of the Year campaign in 2020.
The Shine Awards is an annual event that shines a spotlight on
regional and rural women who are making a real difference to their
In its second year, there were over 250 Gold Coast women nominated
communities, businesses and industries.
across eight categories - from entrepreneurs and mentors to
Produced in partnership with The Weekly Times, and now heading
champions of sport and education
– in an event that recognises and
celebrates the inspiring, influential and
innovative women living and working
on Queensland’s Gold Coast.
70
into their fourth year, these awards celebrate the vision, dedication,
spirit, belief, grace and courage of women across rural and regional
Australia. With the past 12 months presenting extreme challenges
for so many communities, it feels more important than ever to share
stories of hope, celebrate their perseverance, and to recognise the
positive impact of these women.
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
NRL Harvey Norman® All-Stars
2020 saw Harvey Norman® continue in its role
as the naming rights partner of the NRL All-Stars
match between Indigenous and Maori teams.
Prior to the match on 22 February 2020, both
male and female representative teams made
in-store appearances at Harvey Norman® Bundall,
where the local community was able to come and
meet some of their favourite players.
As the first major Rugby League event of the
calendar year, this was a great opportunity to
bring the community together in a positive way
that celebrates the contribution of Indigenous &
Maori players.
NRL All-Stars at Harvey Norman Bundall
NRLW player Annette Brander
Women in Sport
Harvey Norman® has long been a proud supporter of
women in sport – with sponsorship involvement spanning
from juniors and grassroots all the way up to the elite
levels. This support is helping these athletes achieve their
goals, and by doing so also inspiring the next generation
of women - creating pathways for them to pursue their
own sporting endeavours.
WSL Australian surfer Sage Goldsbury
GIANTS AFLW player Nicola Barr
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
HARVEY NORMAN HOLDINGS LIMITED | APPENDIX 4E JUNE 2020
71
XX
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
Environmental Responsibility
The consolidated entity is a member of the following organisations and associations:
Consumer Electronics Association
Australasia Furniture Research and Development Institute
(AFRDI)
New Zealand Leather and Shoe Research Association (LASRA)
National Retailers Association, including representation on the
Technical Standards Committee (NRATSC)
Soft Landings Product Stewardship Scheme (Founding Member)
Energy Users Association of Australia
Diversity Council of Australia
Environmental Regulation Performance
The consolidated entity submits a National Greenhouse Gas and Emissions Report (NGER) to the Clean Energy Regulator annually.
The consolidated entity’s environmental obligations are regulated under both State and Federal Law. There were no environmental breaches
notified to the consolidated entity by any Government agency during the year ended 30 June 2020 and up to the date of this report.
The 2020 financial year saw franchisees in Australia face a new challenge in terms of managing the safety of the environment within their
franchised complex. The introduction of regulations in relation to social distancing and capacity restrictions by State Governments, in response to
the COVID-19 global pandemic, resulted in a number of changes to how franchisees interact with their customers.
Initiatives undertaken at franchised complexes:
Social distancing practices for customer interactions
The installation and maintenance of hand sanitiser stations
The management of the number of customers within the store
Increased cleaning practices, particularly around high touch
environments like checkouts
Implementation of contactless pick-up and delivery from
warehouse locations
Increased vigilance around staff health and workplace
attendance when ill
Staff personal protective equipment
Harvey Norman®, Domayne® and Joyce Mayne® franchised complexes had a number of visits from police and state based regulators and
the overall feedback about the execution of safe practices by franchisees was very positive.
Harvey Norman®, Domayne® and Joyce Mayne® Franchised Complexes
The consolidated entity acts as a landlord in a number of retail complexes utilised by Harvey Norman®, Domayne® and Joyce Mayne®
franchisees. At those premises, the landlord provides lighting and air conditioning for the utilisation of franchisees at the site and also provides
electricity to the site.
The consolidated entity has undertaken the following recent actions with respect to solar energy, LED
lighting and stormwater harvesting systems:
Solar Energy:
Solar installations have been completed at 31 franchised complexes, with one further installation awaiting commencement.
72
SOCIAL & ENVIRONMENTAL SUSTAINABILITY
Using FY2016 electricity consumption as a baseline, the electricity consumption for the 31 selected franchised complexes has dropped 18.7%
as a result of the solar and other energy efficiency initiatives commenced at these complexes (this result is based on comparing FY16 total
consumption at participating sites with FY20 total consumption and excluding Auburn Flagship Store, where the configuration has changed
dramatically and has resulted in an increase in energy usage. Not all complexes completed in FY20 had the system in operation for the full 12
months period). The supplier of the solar installations has commenced an audit of each installed system to verify its ongoing effectiveness in
producing energy for consumption at the site.
Total Energy Consumption
Using FY2016 as the baseline year of
measurement, the consolidated entity and the
franchised complexes have reduced energy
consumption in Australia by 9.4%.
The value of this reduction is equivalent to:
More than 23,800 tonnes of C02 avoided;
More than 5,000 cars taken off the
road annually.
Waste Reduction
A thorough review of all packaging used by franchisees (including plastic bags, tape, strapping, cardboard boxes, etc.) against the Sustainable
Packaging Guidelines was conducted in FY2020. The opportunities identified as part of that review will be implemented in subsequent years.
Each Harvey Norman®, Domayne® and Joyce Mayne® franchisee has improved their waste management performance during the 2020 financial
year as follows:
WASTE STREAM
PERCENTAGE IMPROVEMENT DURING
2020 FINANCIAL YEAR
DESCRIPTION
E-WASTE
13.1% aggregate overall increase on FY2019
volumes
E-waste recycling is available through
most Harvey Norman®, Domayne® and
Joyce Mayne® franchised complexes.
MATTRESSES
17,189 mattresses in aggregate recycled via
the Soft Landings Product Stewardship and
Social Enterprise Scheme, an aggregated 35%
increase on the previous financial year. Some
franchisees may have used alternate service
providers, particularly in Melbourne.
Harvey Norman® and Domayne® franchisees
are founding members of the Soft Landings
Mattress Product Stewardship Scheme.
POLYSTYRENE
An aggregate 6.7% increase in polystyrene
recycling (measured in tonnes) in FY2020.
Approximately 80% of franchised complexes in
Australia recycle this separate waste stream.
CARDBOARD AND PLASTIC RECYCLING
AS A PERCENTAGE OF FRANCHISED
COMPLEX WASTE
(EXCLUDING THE ABOVE INITIATIVES)
Harvey Norman®, Domayne® and Joyce
Mayne® franchised complexes recycled 7,240
tonnes, in aggregate, of cardboard and
paper and 5.71 tonnes of plastic (LDPE), in
aggregate, in FY2020.
Average landfill diversion:
•
•
41% (measured by weight)
48% (measured by volume)
Each franchisee in each franchised complex
in Australia carries out cardboard and plastic
recycling.
PLASTIC BAG DISTRIBUTION
Net distribution of plastic bags decreased by
36% in aggregate in FY2020. Use of reusable
smart bags decreased by 6.42% in aggregate.
From February 2018, all plastic bags supplied
to customers by Harvey Norman®, Domayne®
and Joyce Mayne® franchisees were a minimum
of 40 microns.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
73
DIRECTORS’ REPORT (CONTINUED)
Auditor Independence and Non-Audit Services
During the year, the auditors of Harvey Norman Holdings Limited, Ernst & Young, provided non–audit services to the consolidated entity.
In accordance with the recommendation from the Audit & Risk Committee of the Company, the directors are satisfied that the provision of
the non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations
Act 2001. Also, in accordance with the recommendation from the Audit & Risk Committee, the directors are satisfied that the nature and
scope of each type of non–audit service provided means that auditor independence was not compromised.
Details of the amounts paid or payable to the auditor, Ernst & Young, for the provision of non–audit services during the year ended 30 June
2020 are outlined in Note 30. Remuneration of Auditors of this annual report.
The directors received the following declaration from the auditor of Harvey Norman Holdings Limited.
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 Harvey Norman Holdings Limited
As lead auditor for the audit of the financial report of Harvey Norman Holdings Limited for the financial year ended 30 June 2020, 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 Harvey Norman Holdings Limited and the entities it controlled during the financial year.
Ernst & Young
Renay Robinson
Partner
Sydney
30 September 2020
Signed in accordance with a resolution of directors.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
G. HARVEY K.L. PAGE
Chairman Chief Executive Officer
Sydney Sydney
30 September 2020 30 September 2020
74
74
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
Independent Auditor's Report to the Members of Harvey Norman
Holdings Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Harvey Norman Holdings Limited (the Company) and its
subsidiaries (collectively the Group), which comprises the consolidated statement of financial position
as at 30 June 2020, the consolidated income statement, consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the
year then ended, notes to the financial statements, including a summary of significant accounting
policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
a)
b)
giving a true and fair view of the consolidated financial position of the Group as at 30 June
2020 and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with
the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial report of the current year. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide
a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial report.
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1. Valuation of investment properties and owner-occupied properties
Why significant
How our audit addressed the key audit matter
Investment properties and owner-occupied
properties (collectively, “properties”) represent
51% of the Group’s total assets as at 30 June
2020.
Investment properties are carried at fair value
with changes in fair value recognised in the
income statement. Note 14 of the financial
report describes the basis upon which fair value
has been determined.
Owner-occupied properties, represented as Land
and Buildings are carried at fair value, with
changes in fair value recognised in equity. Note
12 of the financial report describes the basis
upon which fair value has been determined.
Fair value is assessed by the directors with
reference to either external independent
property valuations or internal valuations and
are based on market conditions existing at the
reporting date.
At 30 June 2020 there is significant valuation
uncertainty arising from the COVID-19 pandemic
and the response of Governments to it. The
valuation of investment properties is inherently
subjective given that there are alternative
assumptions and valuation methods that may
result in a range of values. The impact of COVID-
19 at 30 June 2020 has resulted in a wider
range of possible assumptions and values than at
past valuation points. In addition, property
values may change significantly and
unexpectedly over a short period of time.
Given the market conditions at balance date, the
independent valuers have reported on the basis
of the existence of ‘material valuation
uncertainty’, noting that less certainty and a
higher degree of caution should be attached to
the valuations than would normally be the case.
The disclosures in the financial statements
provide particularly important information about
the assumptions made in the property valuations
and the market conditions at 30 June 2020.
For these reasons we consider it important that
attention is drawn to the information in Notes 12
and 14 in assessing the property valuations at
30 June 2020.
Our audit procedures included the following:
• Assessed the Group’s accounting policies
with respect to investment properties and
owner-occupied properties for compliance
with the relevant Australian Accounting
Standards.
• Assessed whether we could rely on the work
of those responsible for the Director’s
valuations and the work of the independent
valuation experts by considering their
qualifications, competence and objectivity.
• Held discussions with management and a
sample of independent valuers to understand
movements in the Group’s investment
property portfolio and the impact that
COVID-19 has had on the Group’s property
portfolio at 30 June 2020, including trading
performance, rent abatements offered to
tenants, and tenant occupancy risk.
For a sample of properties we:
• Assessed the reasonableness of key
assumptions used in the valuations with
reference to external market evidence.
• Assessed whether any relief provided to
tenants in connection with COVID-19 had
been factored into the valuations and that
changes in tenant occupancy risk were
considered.
• We involved our real estate valuation
specialists to assist with the assessment of
the valuation assumptions and
methodologies for both internal and external
valuations, in particular, changes made as a
result of COVID-19.
• Evaluated the suitability of the valuation
methodology across the portfolio based on
the type of asset.
• Considered whether there have been any
indicators of material changes in property
valuations from 30 June 2020 up to the date
of our audit opinion, or any matters
emerging since 30 June 2020 which provide
evidence of a material change in valuation at
that date. We involved our real estate
76
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valuation specialists to assist us in making
this assessment.
• Considered whether the financial report
disclosures and in particular those relating to
the valuation uncertainty are appropriate.
For the year ended 30 June 2020, valuation of
investment properties and owner-occupied
properties was considered a key audit matter
given:
•
the value of the properties relative to total
assets of the Group;
•
•
•
the number of judgements exercised by
both independent valuation specialists and
the Directors in determining fair value;
by their nature, the use of Directors’
valuations and;
uncertainty regarding key valuation
assumptions as a result of the COVID-19
economic impact.
2. Adoption of Australian Accounting Standard AASB 16 Leases
Why significant
How our audit addressed the key audit matter
The 30 June 2020 financial year was the first
year of adoption of Australian Accounting
Standard AASB 16 Leases (“AASB 16”). The
Group holds a significant volume of leases by
number and value, over retail, warehouse and
office sites in Australia (as lessor and lessee) and
overseas (as lessee).
A large portion of the leases over retail and
warehouse sites in Australia involve sub-leases
to Harvey Norman, Domayne and Joyce Mayne
franchisees. AASB 16 requires that the right-of
use assets in respect of these leases be classified
as investment properties and measured in line
with the Group’s accounting policy, at fair value
each reporting period.
As a result, on transition (1 July 2019), a lease
liability of $1,161.0 million, property, plant and
equipment: right-of-use assets of $449.7 million
and investment properties (leasehold): right-of-
use assets of $608.5 million were recognised by
the Group.
Note 1(f) of the financial report describes the
accounting for the transition and the accounting
policy for leases on an ongoing basis.
Our audit procedures included the following:
• Considered whether the Group’s accounting
policies as set out in Note 1(f) satisfied the
requirements of AASB 16, including the
adoption of any practical expedients selected by
the Group as part of the transition process.
• Assessed the effectiveness of controls over the
computation and recognition of the right of use
asset and lease liability on transition.
• Assessed the mathematical accuracy of the
Group’s AASB 16 lease calculation model.
•
For a sample of leases, we agreed the Group’s
inputs in the AASB 16 lease calculation model in
relation to those leases, such as key dates, fixed
and variable rent payments, renewal options
and incentives, to the relevant terms of the
underlying signed lease agreements.
• Considered the Group’s assumptions in relation
to the treatment of lease renewal options.
• Assessed whether the Group had included all of
its leases, taking into consideration the modified
retrospective transition approach and practical
expedients adopted by the Group, by reviewing
the reconciliation of the operating lease
commitments disclosure in the prior year
financial report to the transition disclosures.
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Given the financial significance to the Group of
its leasing arrangements, the complexity and
judgements involved in the application of AASB
16, and the transition requirements of the
standard, this was considered to be a key audit
matter.
• We involved our valuation and financial
reporting specialists to assist with:
• Assessment of the market rents and market
discount rates used in determining the
valuation of the Group’s right-of-use asset
for leasehold properties classified as
investment properties; and
• Assessment of the incremental borrowing
rates used to discount future lease payments
to present value.
• Assessed the adequacy of the financial report
disclosures contained in Note 1(f).
3. Recoverability of Receivables from Franchisees
Why significant
How our audit addressed the key audit matter
At 30 June 2020, the balance of receivables
from franchisees was $352.4 million (30 June
2019: $607.7 million), representing 6% of the
Group’s total assets at 30 June 2020.
Our audit procedures included the following:
• Evaluated the Group’s assessment of the
recoverability of receivables from
franchisees.
Note 7 of the financial report describes the
nature of the balances receivable from
franchisees and outlines the accounting policy in
relation to receivables from franchisees.
The recoverability of receivables from franchisee
was considered a key audit matter given the
value of the balance and the judgements
exercised by the Group in making their
recoverability assessment.
• Performed a range of scenarios to ‘stress
test’ assumptions applied by management in
determining the recoverability of receivables
from franchisees.
• For a sample of franchisee receivables, we
obtained confirmation from the franchisees
acknowledging the amounts owing at year end.
• Reviewed a sample of General Security Deeds
between the franchisees and the Group that
provides the Group with security over the
assets of franchisees.
• Considered the value of assets provided as
security by each of the franchisees against
each franchisee receivable balance.
• Enquired of management and considered any
evidence arising post year end of adverse
performance of the franchisees, which could
impact the recoverability of receivables from
franchisees.
• Considered the adequacy of the disclosures
included in Note 7 of the financial report.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the
information included in the Company’s 2020 Annual Report, but does not include the financial report
and our auditor’s report thereon.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
78
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
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• Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in
a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 39 to 63 of the directors' report for the
year ended 30 June 2020.
In our opinion, the Remuneration Report of Harvey Norman Holdings Limited for the year ended 30
June 2020, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Renay Robinson
Partner
Sydney
30 September 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
80
DIRECTORS’ DECLARATION
In accordance with a resolution of the directors of Harvey Norman Holdings Limited, we state that:
In the opinion of the directors:
a)
the financial statements, notes and the additional disclosures included in the Directors’ Report designated as audited, of
the Company and its subsidiaries (collectively the consolidated entity) are in accordance with the Corporations Act 2001,
including:
i.
ii.
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance for
the year ended on that date; and
complying with Accounting Standards and the Corporations Regulations 2001;
b)
c)
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1; and
there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become
due and payable.
This declaration has been made after receiving the declarations required to be made to the directors by the Chief Executive Officer
and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2020.
In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the
Closed Group identified in Note 37. Deed of Cross Guarantee will be able to meet any obligations or liabilities to which they are or
may become subject, by virtue of the Deed of Cross Guarantee.
On behalf of the Board.
G. HARVEY
Chairman
Sydney
30 September 2020
Chief Executive Officer
K.L. PAGE
Sydney
30 September 2020
79
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020 81
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
STATEMENT OF FINANCIAL POSITION
as at 30 June 2020
Current Assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Other assets
Intangible assets
Assets held for sale
Total current assets
Non-Current Assets
Trade and other receivables
Investments accounted for using the equity method
Other financial assets
Property, plant and equipment
Property, plant and equipment: Right-of-use assets
Investment properties: Freehold
Investment properties (Leasehold) : Right-of-use assets
Intangible assets
Deferred tax assets
Total non-current assets
Total Assets
Current Liabilities
Trade and other payables
Interest-bearing loans and borrowings
Lease Liabilities
Income tax payable
Other liabilities
Provisions
Total current liabilities
Non-Current Liabilities
Interest-bearing loans and borrowings
Lease Liabilities
Provisions
Deferred tax liabilities
Other liabilities
Total non-current liabilities
Total Liabilities
NET ASSETS
Equity
Contributed equity
Reserves
Retained profits
Parent entity interests
Non-controlling interests
TOTAL EQUITY
Note
26(a)
7
8
9
10
11
28
7
27
8
12
13
14
15
11
16
17
19
20
21
17
19
21
20
22
25
23
24
CONSOLIDATED
June
2020
$000
313,195
511,579
30,237
391,984
34,872
278
16,186
June
2019
$000
215,048
741,862
28,888
395,965
37,541
370
36,666
1,298,331
1,456,340
49,269
4,692
18,176
662,889
513,782
2,593,330
621,903
63,003
3,227
49,391
3,854
19,370
696,207
-
2,508,951
-
64,631
-
4,530,271
3,342,404
5,828,602
4,798,744
351,772
102,841
130,280
70,229
96,141
34,181
785,444
195,000
1,042,807
9,226
317,937
863
1,565,833
283,682
494,579
-
12,000
75,819
33,028
899,108
346,942
-
13,025
330,546
11,330
701,843
2,351,277
1,600,951
3,477,325
3,197,793
717,925
216,837
2,511,580
3,446,342
30,983
3,477,325
552,250
217,724
2,397,436
3,167,410
30,383
3,197,793
The above Statement of Financial Position should be read in conjunction with the accompanying notes. The financial position as at 30 June 2019
was not restated upon the adoption of AASB 16 Leases. Refer to Note 1(f) for further information.
82
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
INCOME STATEMENT
for the year ended 30 June 2020
Sales of products to customers
Cost of sales
Gross profit
Revenue received from franchisees
Revenues and other income items
Distribution expenses
Marketing expenses
Occupancy expenses
Administrative expenses
Other expenses
Finance costs
Share of net profit of joint ventures entities
Profit before income tax
Income tax expense
Profit after tax
Attributable to:
Owners of the parent
Non-controlling interests
Earnings Per Share:
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Dividends per share (cents per share)
Note
3
3
3
4, 13, 15
4
4, 19
27
5
CONSOLIDATED
June
2020
$000
2,294,913
(1,555,271)
739,642
1,055,866
194,995
(45,089)
(380,099)
(239,041)
(554,753)
(58,067)
(59,794)
7,628
661,288
(175,265)
486,023
480,541
5,482
486,023
June
2019
$000
2,234,118
(1,510,733)
723,385
943,648
242,419
(41,102)
(391,044)
(258,106)
(567,970)
(57,676)
(28,782)
9,787
574,559
(165,557)
409,002
402,317
6,685
409,002
6
6
23
39.19 cents
39.15 cents
33.94 cents
33.91 cents
24.0 cents
33.0 cents
The above Income Statement should be read in conjunction with the accompanying notes.
The Income Statement for the year ended 30 June 2019 was not restated upon the adoption of AASB 16 Leases.
Refer to Note 1(f) for further information.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
83
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2020
Profit for the year
Items that may be reclassified subsequently to profit or loss:
Foreign currency translation
Net movement on cash flow hedges
Income tax effect on net movement on cash flow hedges
Items that will not be reclassified subsequently to profit or loss:
Net fair value losses on equity investments
Fair value revaluation of land and buildings
Income tax effect on fair value revaluation of land and buildings
Other comprehensive income for the year (net of tax)
CONSOLIDATED
June
2020
$000
June
2019
$000
486,023
409,002
(9,236)
(47)
14
(1,030)
28,384
(4,655)
13,430
26,373
9
(3)
(953)
12,234
(3,910)
33,750
Total comprehensive income for the year (net of tax)
499,453
442,752
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
494,391
5,062
499,453
434,888
7,864
442,752
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
The Statement of Comprehensive Income for the year ended 30 June 2019 was not restated upon the adoption of AASB 16 Leases.
Refer to Note 1(f) for further information.
84
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2020
Attributable to Equity Holders of the Parent
d
e
t
u
b
i
r
t
n
o
C
y
t
i
u
q
E
d
e
n
i
a
t
e
R
s
t
i
f
o
r
P
t
e
s
s
A
n
o
i
t
a
u
l
a
v
e
R
e
v
r
e
s
e
R
i
n
g
e
r
o
F
y
c
n
e
r
r
u
C
e
v
r
e
s
e
R
I
C
O
V
F
e
v
r
e
s
e
R
$000
$000
$000
$000
$000
e
v
r
e
s
e
R
w
o
l
F
h
s
a
C
e
g
d
e
H
$000
s
t
i
f
e
n
e
B
y
t
i
e
v
r
e
s
e
R
e
e
y
o
p
m
E
l
u
q
E
$000
n
o
i
t
i
s
i
u
q
c
A
e
v
r
e
s
e
R
-
n
o
N
g
n
i
l
l
o
r
t
n
o
c
s
t
s
e
r
e
t
n
I
L
A
T
O
T
I
Y
T
U
Q
E
$000
$000
$000
552,250 2,397,436
152,850
65,853
10,949
(2)
10,125
(22,051)
30,383
3,197,793
-
(43,892)
(18,067)
-
-
-
-
-
80
(61,879)
552,250 2,353,544
134,783
65,853
10,949
(2)
10,125
(22,051)
30,463
3,135,914
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,825
-
-
-
-
-
-
(8,912)
-
-
-
-
-
-
2
-
(35)
-
(1,030)
-
23,825
(8,912)
(1,030)
(33)
480,541
-
-
-
-
480,541
23,825
(8,912)
(1,030)
(33)
-
-
-
-
-
-
-
-
-
-
-
-
(322,505)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
739
(859)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,450
(96)
23,729
-
2
(324)
(9,236)
-
-
(35)
(1,030)
(420)
13,430
5,482
486,023
5,062
499,453
-
-
-
-
739
(859)
165,675
3,450
-
-
(3,345)
(325,850)
(1,197)
(1,197)
At 1 July 2019, as
previously reported
Transition adjustments
arising from adoption
of AASB 16
At 1 July 2019, post
transition
Other comprehensive
income:
Revaluation of land and
buildings
Reverse expired or
realised cash flow
hedge reserves
Currency translation
differences
Fair value of forward
foreign exchange
contracts
Fair value of financial
assets at fair value
through other
comprehensive income
Other comprehensive
income
Profit for the year
Total comprehensive
income for the year
Cost of share based
payments
Utilisation of employee
equity benefits reserve
Shares issued
165,675
Disposal of investment
Dividends paid
Distribution to members
-
-
-
At 30 June 2020
717,925 2,511,580
158,608
56,941
9,919
(35)
10,005
(18,601)
30,983 3,477,325
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
85
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2020 (continued)
Attributable to Equity Holders of the Parent
d
e
t
u
b
i
r
t
n
o
C
y
t
i
u
q
E
d
e
n
i
a
t
e
R
s
t
i
f
o
r
P
t
e
s
s
A
n
o
i
t
a
u
l
a
v
e
R
e
v
r
e
s
e
R
i
n
g
e
r
o
F
y
c
n
e
r
r
u
C
e
v
r
e
s
e
R
r
o
f
l
e
b
a
l
i
a
v
A
e
v
r
e
s
e
R
e
l
a
S
$000
$000
$000
$000
$000
e
v
r
e
s
e
R
I
)
a
(
C
O
V
F
$000
e
v
r
e
s
e
R
w
o
l
F
h
s
a
C
e
g
d
e
H
$000
s
t
i
f
e
n
e
B
y
t
i
e
v
r
e
s
e
R
e
e
y
o
p
m
E
l
u
q
E
$000
n
o
i
t
i
s
i
u
q
c
A
e
v
r
e
s
e
R
-
n
o
N
g
n
i
l
l
o
r
t
n
o
c
s
t
s
e
r
e
t
n
I
L
A
T
O
T
I
Y
T
U
Q
E
$000
$000
$000
At 1 July 2018
388,381
2,337,241
144,526 40,659
11,902
-
(8)
10,356
(22,051)
26,926 2,937,932
Other
comprehensive
income:
Revaluation of land
and buildings
Reverse expired or
realised cash flow
hedge reserves
Currency translation
differences
Fair value of forward
foreign exchange
contracts
Transfer to financial
assets at fair value
through other
comprehensive
income
Fair value of financial
assets at fair value
through other
comprehensive
income
Other
comprehensive
income
Profit for the year
Total
comprehensive
income for the year
Cost of share based
payments
Utilisation of
employee equity
benefits reserve
-
-
-
-
-
-
-
-
-
-
-
Shares issued
163,869
-
-
-
-
-
-
-
-
-
-
Dividends paid
Distribution to
members
-
-
(342,122)
-
8,324
-
-
-
- 25,194
-
-
-
-
-
-
-
-
-
-
8
-
(2)
-
-
-
-
(11,902)
11,902
-
-
-
(953)
8,324
25,194
(11,902)
10,949
402,317
-
-
-
-
402,317
8,324
25,194
(11,902)
10,949
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
519
(750)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,324
8
1,179
26,373
-
-
-
(2)
-
(953)
1,179
33,750
6,685
409,002
7,864
442,752
-
-
-
519
(750)
163,869
(2,852)
(344,974)
(1,555)
(1,555)
-
6
-
6
-
-
-
-
-
At 30 June 2019
552,250
2,397,436
152,850 65,853
- 10,949
(2)
10,125
(22,051)
30,383 3,197,793
The Statement of Changes in Equity for the year ended 30 June 2019 was not restated upon the adoption of AASB 16 Leases. Refer to Note
1(f) for further information.
(a) Upon the application of AASB 9 Financial Instruments on 1 July 2018, the consolidated entity has elected to classify equity investments,
which were previously classified as available for sale under AASB 139, as financial assets at fair value through other comprehensive
income (FVOCI).
86
STATEMENT OF CASH FLOWS
for the year ended 30 June 2020
CONSOLIDATED
Cash Flows from Operating Activities
Net receipts from franchisees
Receipts from customers
Payments to suppliers and employees
Distributions received from joint ventures
GST paid
Interest received
Interest and other costs of finance paid
Interest paid on lease liabilities (a)
Income taxes paid
Dividends received
Note
June
2020
$000
1,304,230
2,461,539
(2,471,564)
8,385
(65,501)
8,142
(20,489)
(40,538)
(128,967)
1,727
Net Cash Flows From Operating Activities
26(b)
1,056,964
Cash Flows from Investing Activities
Payments for purchases of property, plant and equipment
and intangible assets
Payments for purchase of freehold investment properties
Proceeds from sale of property, plant and equipment and
properties held for resale
Payments for purchase of units in unit trusts and other
investments
Payments for purchase of equity accounted investments
Payments for purchase of equity investments
Proceeds from sale of equity investments
Proceeds from insurance claims
Cash obtained on consolidation of KEH Partnership
Proceeds from the completion of the Administrator Sale of
the Coomboona JV assets
Loans granted to joint venture entities, joint venture
partners and related and unrelated entities
(93,905)
(51,474)
26,510
(215)
(2,215)
(5,000)
-
2,628
-
-
(13,292)
June
2019
$000
858,372
2,397,871
(2,681,840)
10,027
(56,815)
6,625
(29,223)
-
(135,139)
2,967
372,845
(94,222)
(27,878)
2,911
(1,320)
(434)
-
18,470
903
50
40,500
(5,183)
Net Cash Flows Used In Investing Activities
(136,963)
(66,203)
Cash Flows from Financing Activities
Lease Payments (principal component) (a)
Proceeds from shares issued – renounceable pro-rata
Entitlement Offer
Repayments of Syndicated Facility
Dividends paid
Loans repaid to related parties
Repayments of other borrowings
Net Cash Flows Used In Financing Activities
Net Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of the Year
(124,770)
165,675
(520,000)
(322,505)
(8)
(9,763)
(811,371)
108,630
185,816
-
163,869
(25,000)
(342,122)
(39,559)
(3,477)
(246,289)
60,353
125,463
Cash and Cash Equivalents at End of the Year
(a) In the previous financial year, lease payments formed part of payments to suppliers and employees within operating cash flows.
Under AASB 16 Leases, lease payments are allocated between interest and principal components and classified within operating and
financing cash flows respectively.
294,446
185,816
26(a)
In addition, the consolidated entity recognised rent expense of $28.62 million from short-term leases and variable lease payments
during the current year which forms part of payments to suppliers and employees within operating cash flows. The above Statement
of Cash Flows should be read in conjunction with the accompanying notes. The Statement of Cash Flows for the year ended 30 June
2019 was not restated upon the adoption of AASB 16 Leases. Refer to Note 1(f) for further information.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
87
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
1.
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
(a) Corporate Information
Harvey Norman Holdings Limited (the “Company”) is a for profit company limited by shares incorporated in Australia and operating in
Australia, New Zealand, Ireland, Northern Ireland, Singapore, Malaysia, Slovenia and Croatia whose shares are publicly traded on the
Australian Securities Exchange (“ASX”) trading under the ASX code HVN.
(b) Basis of Preparation
The financial report has been prepared on a historical cost basis, except for freehold investment properties, leasehold investment
properties: right-of-use assets, land and buildings, derivative financial instruments and equity investments, which have been measured
at fair value.
Certain comparative amounts have been re-presented to align with the presentation in the current year.
The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($000) unless
otherwise stated under the option available to the Company under Australian Securities and Investments Commission Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies.
The consolidated financial statements of the Company and its subsidiaries (the “consolidated entity”) for the year ended 30 June
2020 was authorised for issue in accordance with a resolution of the directors on 30 September 2020.
(c) Statement of Compliance
The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the
Corporations Act 2001, Australian Accounting Standards and Interpretations, and complies with other requirements of the law. The
financial report complies with Australian Accounting Standards, as issued by the Australian Accounting Standards Board, and
International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board.
Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet effective have not
been adopted by the consolidated entity for the annual reporting period ended 30 June 2020. For details on the impact of future
accounting standards, refer to page 93.
(d) Basis of Consolidation
The consolidated financial statements comprise the financial statements of Harvey Norman Holdings Limited and its controlled
entities. Control is achieved when the consolidated entity is exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investee. Specifically, the consolidated entity controls
an investee if and only if the consolidated entity has all of the following:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
The ability to use its power over the investee to affect its returns
When the consolidated entity has less than a majority of the voting or similar rights of an investee, the consolidated entity considers
all relevant facts and circumstances in assessing whether it has power over an investee, including:
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
The consolidated entity’s voting rights and potential voting rights
The consolidated entity assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the consolidated entity obtains control over
the subsidiary and ceases when the consolidated entity loses control of the subsidiary.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in
full. Unrealised losses are eliminated unless costs cannot be recovered. Financial statements of foreign controlled entities presented
in accordance with overseas accounting principles are, for consolidation purposes, adjusted to comply with the consolidated entity’s
policy and generally accepted accounting principles in Australia.
Non-controlling interests are allocated their share of net profit after tax in the income statement and are presented within equity in
the consolidated statement of financial position, separately from the equity of the owners of the Parent. Losses are attributed to the
non-controlling interest even if that results in a deficit balance.
A change in the ownership interest of a subsidiary (without a change in control) is to be accounted for as an equity transaction.
(e) Summary of Significant Accounting Policies
(i) Changes in accounting policy, disclosures, standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of new standards
mandatory for annual periods beginning on or after 1 July 2019. The consolidated entity has early adopted AASB 2020-4
Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions which is effective from 1 June 2020. Details
of the early adopted standard and new mandatory standards, where material, are disclosed in Note 1(f) Summary of new Standards
Adopted by the Consolidated Entity on pages 90 to 93 of this report. The consolidated entity has not early adopted any other
standard, interpretation or amendment that has been issued but is not yet effective.
88
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
Statement of Significant Accounting Policies (continued)
(ii) Significant accounting judgements and estimates
In applying the consolidated entity’s accounting policies, management continually evaluates judgements, estimates and assumptions
based on experience and other factors, including expectations of future events that may have an impact on the consolidated entity.
All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances
available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgements and
estimates made by management in the preparation of these financial statements are outlined below:
Assessment of AASB 10 Consolidated Financial Statements in respect of Harvey Norman®, Domayne® and Joyce Mayne®
Franchisees in Australia
In determining whether the consolidated entity has control over an entity (investee) and should or should not consolidate the results
of the investee, the consolidated entity assesses its exposure to / rights to variable returns from its involvement with the investee and
whether it has the ability to affect those returns through its power over the investee.
The assessment of whether Harvey Norman Holdings Limited (HNHL), or any subsidiary of HNHL, as franchisor, should consolidate or
not consolidate the results of a franchisee or business operations of that franchisee, is determined by whether the franchisor has
control over the franchisee. The assessment of whether a franchisor controls a franchisee or the business operations of that
franchisee, involves significant judgement in assessing whether the franchisor has sufficient power through its rights under
arrangements with franchisees and through the practical application of those arrangements, to direct the relevant activities of the
franchisee that most significantly affect the returns (profits or losses) of the franchisee.
At least on an annual basis, the directors of HNHL assess the requirements of control in accordance with AASB 10 Consolidated
Financial Statements. During the 2020 financial year, after considering both the legal arrangements in place between the
consolidated entity and Harvey Norman®, Domayne® and Joyce Mayne® franchisees and the practical application of those
arrangements, the directors have continued to conclude that HNHL, or any subsidiary of HNHL, does not control the business
operations of franchisees. In particular, HNHL, or any subsidiary of HNHL, does not have any existing rights that give the
consolidated entity the current ability to direct the relevant activities that most significantly affect the returns of the franchisee. The
ability to direct the relevant activities that most significantly affect the returns of the franchisee, rest with the franchisee.
HNHL, or any subsidiary of HNHL, does not have any voting rights or legal ownership or any equity interest in any franchisee business.
Each franchise business is operated by a separate legal entity which is independent of HNHL, or any subsidiary of HNHL. The
franchisee has the authority and decision-making responsibility over the day-to-day operation and administration of the franchisee
business. The franchisee has the substantive right to control the decisions regarding sales and pricing, inventory purchasing and
inventory management, staff management (hiring, termination, staff numbers, remuneration, appointment of management) and
employment of personnel including key management.
The above assessment has resulted in the conclusion that the assets, liabilities and the results of franchisees in Australia are not
consolidated by the consolidated entity because the consolidated entity does not control the business operations of Harvey Norman®,
Domayne® and Joyce Mayne® franchisees.
Impairment of non-financial assets
The consolidated entity assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an asset is required, the consolidated entity estimates the asset’s recoverable
amount. The recoverable amount of an asset or cash generating unit (CGU) is the higher of that asset or CGU’s fair value less costs to
sell and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for
the CGU to which the asset belongs. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.
An assessment is made at each reporting date to determine whether there is any indication that previously recognised impairment
losses may no longer exist or may have decreased. If such indication exists, the consolidated entity estimates the asset’s or CGU’s
recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income
statement.
Recovery of deferred tax assets – refer to Note 5. Income Tax
Expected credit loss assessment for financial assets – refer to Note 7. Trade and Other Receivables
Valuation of freehold owner-occupied properties – refer to note 12. Property, Plant and Equipment
Valuation of freehold investment properties – refer to Note 14. Investment Properties (Freehold)
Valuation of investment properties (leasehold): right-of-use assets – refer to Note 15. Investment Properties (Leasehold):
Right-of-Use Assets
Determining the incremental borrowing rate and lease term – refer to Note 19. Lease Liabilities
Provision for lease make good – refer to Note 21. Provisions
Measurement of the cost of equity–settled transactions – refer to Note 25. Reserves
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
89
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
Statement of Significant Accounting Policies (continued)
(iii) Taxes
Refer to Note 5. Income Tax for accounting policy on current income tax and deferred tax.
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except:
when the GST incurred on a sale or purchase of assets and services is not payable or recoverable from the taxation authority, in
which case the GST is recognised as part of the revenue or expense item or as part of the cost of acquisition of the asset as
applicable.
when receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
statement of financial position. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or
payable to, the taxation authority.
Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from operating,
investing and financing activities, which is recoverable from, or payable to, the taxation authority, is classified as operating cash flows.
(iv) Foreign currency translation
Both the functional and presentation currency of Harvey Norman Holdings Limited and its subsidiaries is Australian dollars.
Transactions in foreign currencies are initially recorded in the functional currency at exchange rates prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at
balance date. Differences arising on settlement or translation of monetary items are recognised in the income statement. Non-
monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the
date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
(f) Summary of New Standards Adopted by the Consolidated Entity
(i) AASB 16 Leases – application date 1 July 2019
The consolidated entity adopted AASB 16 Leases using the modified retrospective transition approach with the date of initial
application of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying
the standard recognised at the date of initial application. Accordingly, the comparative information presented in this report for
previous reporting periods was not restated to reflect the adoption of AASB 16 Leases.
AASB 16 provides a single lease accounting model for identifying and measuring lease arrangements and requires a lessee to
recognise assets and liabilities for all leases with a term of more than twelve (12) months, unless the underlying asset is of low value.
The consolidated entity, as a lessee, will be required to recognise a right-of-use asset, representing its right to use the underlying
asset over the lease term, and a lease liability, representing the present value of future lease payments.
AASB 16 Leases - Transition method: 1 July 2019
Leases of Owner-Occupied Properties and Plant and Equipment Leases
Leasehold properties occupied by the consolidated entity primarily include company-operated stores, warehouses and offices that are
leased from external landlords. These leasehold properties are primarily located overseas and are occupied by the company-
operated stores located in New Zealand, Singapore, Malaysia, Ireland, Northern Ireland, Slovenia and Croatia.
On transition, the right-of-use asset was measured at its carrying amount as if AASB 16 had been applied since the lease
commencement date, but discounted using the lessee’s incremental borrowing rate at the date of initial application and translated at
the rates of exchange at the date of transition (1 July 2019). The right-of-use assets in respect of leases of owner-occupied properties
are referred to as Property, plant and equipment: Right-of-use assets in this report.
On transition, the lease liability was measured at the net present value of future payables under the lease, including option renewal
periods, where the consolidated entity assessed that the probability of exercising the renewal was reasonably certain.
The consolidated entity adopted the “modified retrospective” approach as permitted by AASB 16 at the date of transition. Under
this approach the cumulative effect of adopting AASB 16 was recognised as an adjustment to the opening balance of retained
earnings at 1 July 2019, with no requirement to restate any comparative information.
The effect of adopting AASB 16 as at 1 July 2019 for leases of owner-occupied properties and plant and equipment are as follows:
Assets
Property, plant and equipment: Right-of-use assets
Property, plant and equipment (a)
1 July 2019
$000
Increase/(Decrease)
524,497
(74,778)
Impact on Total Assets
(a) The reclassifications relate to a property which had been previously accounted for under a finance lease arrangement and lease
449,719
make good assets.
90
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
(f) Summary of New Standards Adopted by the Consolidated Entity (continued)
(i) AASB 16 Leases – application date 1 July 2019 (continued)
Liabilities
Lease liabilities: Leases of owner-occupied properties and P&E leases
Trade and other payables (c)
Interest-bearing loans and borrowings (b)
Other liabilities (c)
Provisions (c)
Deferred tax liabilities
Impact on Total Liabilities
1 July 2019
$000
Increase/(Decrease)
538,146
(727)
(3,564)
(11,950)
(1,020)
(14,231)
506,654
Impact on Net Assets
(b) The reclassification of pre-existing balances relates to finance leases previously recognised within interest-bearing loans and
(56,935)
borrowings.
(c) The consolidated entity adopted the modified retrospective approach as permitted by AASB 16 on the date of transition. Under
this approach, existing lease payables and provisions were recognised as an adjustment to the opening balance of retained
earnings at 1 July 2019.
Equity
Retained profits
Reserves
Non-controlling interests
Impact on Total Equity
1 July 2019
$000
Increase/(Decrease)
(38,948)
(18,067)
80
(56,935)
Leases of Properties Sub-Leased to External Parties
In addition, the consolidated entity has a portfolio of property leases for competitive retail sites primarily for the purposes of being
sub-leased to Harvey Norman®, Domayne® and Joyce Mayne® franchisees in Australia. For these properties, the consolidated entity
enters into property leasing arrangements with external landlords and then subsequently subleases these sites to franchisees,
pursuant to a licence, terminable upon reasonable notice and, as such, is classified as an operating lease.
On transition, the adoption of AASB 16 resulted in the recognition of a right-of-use asset which meets the definition of an investment
property. The consolidated entity adopted the fair value model in AASB 140 Investment Property and accordingly, the right-of-use
asset was measured in accordance with the fair value model in AASB 140. The right-of-use assets in respect of leases of properties
sub-leased to external parties are referred to as Investment properties (Leasehold): Right-of-use assets in this report.
On transition, the lease liability was measured at the net present value of future payables under the lease, including option renewal
periods, where the consolidated entity assesses that the probability of exercising the renewal was reasonably certain.
The effect of adopting AASB 16 as at 1 July 2019 for leases of investment properties sub-leased to external tenants are as follows:
Assets
Investment properties (Leasehold): Right-of-use assets
Property, plant and equipment
Impact on Total Assets
Liabilities
Lease liabilities: Leases of properties sub-leased to external parties
Other liabilities (a)
Provisions (a)
Deferred tax liabilities
Impact on Total Liabilities
Impact on Net Assets
1 July 2019
$000
Increase/(Decrease)
608,845
(380)
608,465
622,863
(3,417)
(3,919)
(2,118)
613,409
(4,944)
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
91
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
(f) Summary of New Standards Adopted by the Consolidated Entity (continued)
(i) AASB 16 Leases – application date 1 July 2019 (continued)
(a)
Leases of properties sub-leased to external parties meets the definition of an investment property, and accordingly, the right-of-
use asset was measured in accordance with the fair value model under AASB 140. Under this approach, existing lease payables
and provisions were recognised as an adjustment to the opening balance of retained earnings at 1 July 2019.
Equity
Retained profits
Impact on Total Equity
1 July 2019
$000
Increase/(Decrease)
(4,944)
(4,944)
Practical Expedients Applied on Transition
The following practical expedients have been applied on transition:
exclusion of leases with remaining terms of less than 12 months from 1 July 2019;
exclusion of leases that are considered of low value;
the application of a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar
remaining lease term); and
use of hindsight in determining the lease term where lease contracts include options to extend or terminate the lease.
AASB 16: Reconciliation of operating lease commitments to lease liabilities as at transition date
The following table reconciles the consolidated entity’s operating lease commitments at 30 June 2019 disclosed in the 2019 Annual
Report of the consolidated entity to the lease liabilities recognised upon transition at 1 July 2019.
Operating lease commitments as at 30 June 2019
Commitments relating to leases contracted but not commenced
Commitments relating to outgoings and service costs
Commitments relating to short-term leases and other lease payments
Commitments relating to leases previous classified as finance leases
Optional extension periods not recognised as at 30 June 2019
Impact of discounting and other adjustments (weighted average rate of 3.39%)
Lease liabilities as at 1 July 2019
AASB 16 Leases – Impact on Income Statement for 2020 Financial Year:
$000
693,555
(19,986)
(29,825)
(4,102)
3,564
736,648
(218,845)
1,161,009
Expenses Recognised Under AASB 16 Leases:
Property, plant and equipment: Right-of-use asset
- Depreciation expense
Investment properties (leasehold): Right-of-use asset
- Fair value re-measurement
Finance costs: Interest on lease liabilities (accretion)
Total Expenses Under AASB 16 Leases
Less: Lease payments made during FY20 (Note 19) excluding
variable lease payments (short-term, low-value leases)
Less: Other reclassifications under AASB 16 Leases
Less: Foreign currency adjustments
Incremental Decrease in Profit Before Tax
on Adoption of AASB 16 Leases
Leases of Owner-
Occupied Properties
$000
30 June 2020
Leases of Properties
Sub-Leased to
External Parties
$000
61,769
-
18,314
80,083
(75,916)
(1,829)
(104)
2,234
-
74,206
22,224
96,430
(89,392)
-
-
7,038
Total Leases
$000
61,769
74,206
40,538
176,513
(165,308)
(1,829)
(104)
9,272
92
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
(f) Summary of New Standards Adopted by the Consolidated Entity (continued)
(ii) AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions (effective 1 June
2020)
The standard allows the lessee to account for any COVID-19 related rent concessions received as a variable lease payment with the
effect of the rent concession recognised directly in the income statement, rather than a lease modification, which generally requires a
lessee to remeasure the lease liability by discounting the revised lease payments using a new discount rate under AASB 16 Leases.
Accounting for any COVID-19 related rent concessions directly in the income statement is permissible provided the following
conditions are met:
1) The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than,
the consideration for the lease immediately preceding the change;
2) Any reduction in lease payments affects only payments originally due on or before 30 June 2021; and
3) There is no substantive change to other terms and conditions of the lease.
The consolidated entity has early adopted this standard for the year ended 30 June 2020 and has applied the exemption available in
the standard.
(g) Future Accounting Standards
The table below lists the Australian Accounting Standards which have recently been issued or amended but not yet effective and have
not been adopted by the consolidated entity for the year ended 30 June 2020. The consolidated entity does not expect material
impact on the application of the below standards.
Reference
AASB 2018-6
AASB 2018-7
AASB 2019-1
AASB 2019-5
New standard
Amendments to the definition of a business
Amendments to the definition of material
Conceptual framework for financial reporting
Amendments to the disclosure of the effect of new IFRS standards not yet
issued in Australia
AASB 2020-1
AASB 2020-3
AASB 2014-10
Amendments to the classification of liabilities as current or non-current
Annual improvements 2018-2020 and other amendments
Amendments to sale or contribution of assets between an investor and its
Effective Date
Application Date
1 January 2020
1 July 2020
1 January 2020
1 July 2020
1 January 2020
1 July 2020
1 January 2020
1 July 2020
1 January 2022
1 July 2022
1 January 2022
1 July 2022
associate or joint venture
1 January 2022
1 July 2022
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
93
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
2.
OPERATING SEGMENTS
Operating Segment Revenue:
30 June 2020
Sales of
Products to
Customers
June 2020 $000
Revenues received
from franchisees and
other income items
Total Revenue
by Segment
FRANCHISING OPERATIONS
-
949,037
949,037
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
960,185
525,746
154,362
440,513
224,780
23,086
11,685
2,399
8,491
4,318
983,271
537,431
156,761
449,004
229,098
2,305,586
49,979
2,355,565
25
25
-
300,507
300,507
300,532
300,532
1,450
1,450
2,229
14,996
17,225
INTER-COMPANY ELIMINATIONS
(12,927)
(65,108)
(78,035)
TOTAL SEGMENT REVENUE
2,294,913
1,250,861
3,545,774
Operating Segment Revenue:
30 June 2019
June 2019 $000
Sales of
Products to
Customers
Revenues received
from franchisees and
other income items
Total Revenue
by Segment
FRANCHISING OPERATIONS
-
838,665
838,665
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
INTER-COMPANY ELIMINATIONS
935,096
555,467
148,922
370,154
221,899
21,877
12,937
2,256
8,098
5,362
956,973
568,404
151,178
378,252
227,261
2,231,538
50,530
2,282,068
33
33
-
2,871
(324)
332,126
332,126
332,159
332,159
18,666
18,666
11,269
14,140
(65,189)
(65,513)
TOTAL SEGMENT REVENUE
2,234,118
1,186,067
3,420,185
94
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
2.
OPERATING SEGMENTS (CONTINUED)
Operating Segment Result:
30 June 2020
June 2020 $000
Interest
Expense
Depreciation
Expense
Depreciation &
Fair Value Re-
measurement
of ROU Asset
Impairment
&
Amortisation
Expense
Segment
Result
Before Tax
Segment
Result Before
Interest,
Taxation,
Depreciation,
Impairment &
Amortisation
FRANCHISING OPERATIONS
495,847
(23,698)
(25,197)
(78,060)
(20,300)
348,592
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern
Ireland
120,196
73,550
13,908
43,263
(4,282)
(6,068)
(908)
(7,520)
(7,059)
(6,843)
(2,701)
(5,186)
Other Non-Franchised Retail
(2,640)
(1,859)
(2,525)
TOTAL RETAIL
248,277
(20,637)
(24,314)
Retail Property
TOTAL PROPERTY
199,022
(14,099)
199,022
(14,099)
(11,430)
(11,430)
EQUITY INVESTMENTS
(2,001)
(152)
-
OTHER
4,874
(1,378)
(5,075)
(170)
170
-
(9,354)
(31,818)
(1,723)
(13,512)
(1,508)
(57,915)
-
-
-
-
-
(345)
(1,206)
(143)
(172)
99,156
27,615
8,433
16,873
(305)
(8,837)
(2,171)
143,240
(305)
(305)
173,188
173,188
-
-
-
(2,153)
(1,579)
-
INTER-COMPANY
ELIMINATIONS
TOTAL SEGMENT RESULT
BEFORE TAX
Operating Segment Result:
30 June 2019
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
945,849
(59,794)
(66,016)
(135,975)
(22,776)
661,288
June 2019 $000
Interest
Expense
Depreciation
Expense
Impairment &
Amortisation
Expense
Segment Result
Before Tax
Segment Result
Before Interest,
Taxation,
Depreciation,
Impairment &
Amortisation
FRANCHISING OPERATIONS
295,771
(3,221)
(25,648)
(18,502)
248,400
84,598
44,674
10,487
15,255
(12,200)
142,814
-
(87)
(416)
(2,424)
(1,531)
(4,458)
(6,851)
(6,483)
(2,447)
(4,867)
(2,443)
(355)
(1,049)
(167)
(167)
(497)
(23,091)
(2,235)
235,083
(19,463)
235,083
(19,463)
(10,634)
(10,634)
(305)
(305)
-
77,392
37,055
7,457
7,797
(16,671)
113,030
204,681
204,681
18,398
(9,950)
-
EQUITY INVESTMENTS
18,595
(197)
-
OTHER
4,999
(1,711)
(4,990)
(8,248)
INTER-COMPANY ELIMINATIONS
(268)
268
-
-
TOTAL SEGMENT RESULT BEFORE
TAX
696,994
(28,782)
(64,363)
(29,290)
574,559
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
95
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
2. OPERATING SEGMENTS (CONTINUED)
Operating Segment Assets and
Liabilities: 30 June 2020
Segment
Assets
Inter-
company
Eliminations
Segment
Assets After
Eliminations
Segment
Liabilities
Inter-
company
Eliminations
Segment
Liabilities
After
Eliminations
Segment Assets
Segment Liabilities
June 2020 $000
FRANCHISING OPERATIONS
3,495,462
(2,222,820)
1,272,642
916,694
(139,436)
777,258
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
434,573
446,675
74,388
243,916
211,721
-
434,573
269,969
(1,671)
(3,260)
(262)
445,004
298,827
71,128
63,719
243,654
266,188
(4,188)
(40,670)
(368)
(615)
(43,627)
168,094
237,933
(144,973)
1,411,273
(48,820)
1,362,453
1,136,636
(190,814)
265,781
258,157
63,351
265,573
92,960
945,822
3,061,520
(63,486)
2,998,034
2,040,088
(1,848,851)
191,237
Property Developments for Resale
16,186
-
16,186
-
-
-
TOTAL PROPERTY
3,077,706
(63,486)
3,014,220
2,040,088
(1,848,851)
191,237
EQUITY INVESTMENTS
45,688
-
45,688
1,737
-
1,737
OTHER
188,513
(58,141)
130,372
261,223
(214,166)
47,057
TOTAL SEGMENT ASSETS /
LIABILITIES BEFORE TAX
8,218,642
(2,393,267)
5,825,375*
4,356,378
(2,393,267)
1,963,111*
Operating Segment Assets and
Liabilities: 30 June 2019
Segment
Assets
Inter-
company
Eliminations
Segment
Assets After
Eliminations
Segment
Liabilities
Inter-
company
Eliminations
Segment
Liabilities
After
Eliminations
Segment Assets
Segment Liabilities
June 2019 $000
FRANCHISING OPERATIONS
3,006,917
(2,078,590)
928,327
234,661
(10,340)
224,321
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
267,981
199,964
56,675
86,553
175,065
786,238
-
267,981
103,973
(1,772)
(3,115)
(119)
(46,765)
(51,771)
198,192
119,811
53,560
86,434
46,526
129,126
128,300
220,853
734,467
620,289
(4,031)
(40,141)
(753)
(416)
(141,443)
(186,784)
99,942
79,670
45,773
128,710
79,410
433,505
2,976,650
(25,319)
2,951,331
2,331,761
(1,820,345)
511,416
Property Developments for Resale
36,666
-
36,666
-
-
-
TOTAL PROPERTY
3,013,316
(25,319)
2,987,997
2,331,761
(1,820,345)
511,416
EQUITY INVESTMENTS
44,344
-
44,344
5,470
-
5,470
OTHER
161,871
(58,262)
103,609
280,166
(196,473)
83,693
TOTAL SEGMENT ASSETS /
LIABILITIES BEFORE TAX
7,012,686
(2,213,942)
4,798,744*
3,472,347
(2,213,942)
1,258,405*
* Segment liabilities are exclusive of income tax payable and deferred tax assets and deferred tax liabilities
96
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
2.
OPERATING SEGMENTS (CONTINUED)
The consolidated entity operates predominantly in ten (10) operating segments:
Operating Segment
Description of Segment
Franchising Operations
Consists of the franchisor operations of the consolidated entity, but does not include the results, assets,
liabilities or operations of any Harvey Norman®, Domayne® and Joyce Mayne® franchisees.
Retail – New Zealand
Consists of the wholly-owned operations of the consolidated entity in the retail trading operations in New
Zealand under the Harvey Norman® brand name.
Retail – Singapore &
Malaysia
Consists of the controlling interest of the consolidated entity in the retail trading operations in Singapore
and Malaysia under the Harvey Norman® and Space Furniture® brand names.
Retail – Slovenia &
Croatia
Consists of the wholly-owned operations of the consolidated entity in the retail trading operations in
Slovenia and Croatia under the Harvey Norman® brand name.
Retail – Ireland &
Northern Ireland
Consists of the wholly-owned operations of the consolidated entity in the retail trading operations in Ireland
and Northern Ireland under the Harvey Norman® brand name.
Other Non-Franchised
Retail
Consists of the retail and wholesale trading operations in Australia which are wholly-owned, controlled or
jointly-controlled by the consolidated entity, and does not include the operations of any Harvey Norman®,
Domayne® and Joyce Mayne® franchisees.
Retail Property
Consists of freehold land and buildings that are owned by the consolidated entity for each site that are fully
operational or are ready for operations. The revenue and results of this segment consists of rental income,
outgoings recovered and the net property revaluation increments and/or decrements recognised in the
Income Statement. This segment includes the mining camp accommodation joint ventures.
Property Developments
for Resale
Consists of freehold land and buildings acquired by the consolidated entity, to be developed, or currently
under development, for the sole purpose of resale at a profit. This segment includes land and buildings
held for sale, which were previously reported in the Retail Property segment.
Equity Investments
This segment refers to the investment in, and trading of, equity investments.
Other
This segment primarily relates to credit facilities provided to related and unrelated parties and other
unallocated income and expense items.
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating
results are regularly reviewed by the entity's chief operating decision makers to make decisions about resources to be allocated to
the segment and assess its performance and for which discrete financial information is available. This includes start-up operations
which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the
existence of a line manager and the level of segment information presented to the Board of Directors.
Operating segments have been identified based on the information provided to the chief operating decision makers – being the
executive management team. The consolidated entity aggregates two or more operating segments when they have similar economic
characteristics, and the segments are similar in each of the following respects:
methods used to distribute the products or provide the services; and, if applicable
nature of the products and services;
nature of the production processes;
type or class of customer for the products and services;
nature of the regulatory environment.
Operating segments that meet the quantitative criteria as prescribed by AASB 8 Operating Segments are reported separately.
However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the
segment would be useful to users of the financial statements. Information about other business activities and operating segments
that are below the quantitative criteria are combined and disclosed in a separate category as “other segments”.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
97
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
3. REVENUES
Revenue from contracts with customers and franchisees:
Sale of products to customers (a)
Services to customers (c)
(included in Revenues and other income items line in the Income Statement)
Franchise fees in accordance with franchise agreements (b)
(included in Revenue received from franchisees in the Income Statement)
Total revenue from contracts with customers and franchisees
CONSOLIDATED
June
2020
$000
June
2019
$000
2,294,913
2,234,118
27,676
780,237
3,102,826
27,536
668,926
2,930,580
Refer to Table 1 on page 99 for a breakdown of revenues and the relationship to the reported operating segments of
the consolidated entity - by Types of Contracts.
Refer to Table 2 on page 100 for a breakdown of revenues and the relationship to the reported operating segments of
the consolidated entity - by Primary Geographical Markets.
Other revenue from franchisees:
Rent and outgoings received from franchisees
Interest to implement and administer the financial
accommodation facilities
Total other revenue received from franchisees (b)
Gross revenue from other unrelated parties:
Rent and outgoings received from external tenants
Interest received from financial institutions and other parties
Dividends received
Total revenue from other unrelated parties (c)
Other income items:
Net property revaluation increment on Australian freehold
investment properties
Property revaluation increment for overseas controlled entity
Net revaluation increment of equity investments to fair value
Other income
Total other income items (c)
Disclosed in the Income Statement as follows:
(a) Sale of products to customers
(b) Revenue received from franchisees
(c) Revenues and other income items
247,291
28,338
275,629
98,610
6,388
1,450
106,448
34,268
688
-
25,915
60,871
243,940
30,782
274,722
95,982
5,262
2,711
103,955
69,289
1,012
15,955
24,672
110,928
2,294,913
1,055,866
194,995
2,234,118
943,648
242,419
Revenue from Franchisees
The application of AASB 15 Revenue from Contracts with Customers to franchise agreements with franchisees requires the
consolidated entity to recognise revenue from franchisees based on the amount it expects to receive in exchange for the
provision of franchising operations’ activities to franchisees, pursuant to a franchise agreement.
Sale of goods
The customer obtains control over the product upon delivery and revenue is therefore recognised at the point in time the
product is delivered or handed over to the customer. Revenue is measured based on the consideration expected to be
received, net of trade rebates and discounts paid.
Revenue from services
The consolidated entity provides repair services, installation services and delivery services to customers. These services are sold
either in their own contracts with the customers or bundled together with the sale of products. The consolidated entity
recognises revenue when the service is rendered. For bundled packages, the consolidated entity accounts for individual
products and services separately, if they are distinct.
98
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
3.
REVENUES (CONTINUED)
Table 1. Breakdown of Revenues and the relationship to the reported operating segments of the consolidated
entity – by Types of Contracts:
Operating Segments
30 June 2020
TYPES OF CONTRACTS
30 June 2020 $000
Sale of Products
to Customers
Services to
Customers
Franchise Fees
from Franchisees
Total Revenue from
Contracts with
Customers and
Franchisees
FRANCHISING OPERATIONS
-
-
780,237
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
INTER-COMPANY ELIMINATIONS
960,185
525,746
154,362
440,513
224,780
2,305,586
25
25
-
2,229
(12,927)
13,933
4,818
1,759
6,604
562
27,676
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
780,237
974,118
530,564
156,121
447,117
225,342
2,333,262
25
25
-
2,229
(12,927)
TOTAL SEGMENT REVENUE
2,294,913
27,676
780,237
3,102,826
Operating Segments
30 June 2019
TYPES OF CONTRACTS
30 June 2019 $000
Sale of Products
to Customers
Services to
Customers
Franchise Fees
from Franchisees
Total Revenue from
Contracts with
Customers and
Franchisees
FRANCHISING OPERATIONS
-
-
668,926
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
INTER-COMPANY ELIMINATIONS
935,096
555,467
148,922
370,154
221,899
2,231,538
33
33
-
2,871
(324)
13,952
5,206
1,728
5,531
1,119
27,536
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
668,926
949,048
560,673
150,650
375,685
223,018
2,259,074
33
33
-
2,871
(324)
TOTAL SEGMENT REVENUE
2,234,118
27,536
668,926
2,930,580
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
99
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
3.
REVENUES (CONTINUED)
Table 2. Breakdown of Revenues and the relationship to the reported operating segments of the consolidated
entity – by Primary Geographical Markets:
Operating Segments
30 June 2020
PRIMARY GEOGRAPHICAL MARKETS
30 June 2020 $000
Australia
New
Zealand
Asia
Europe
Total Revenue
from Contracts
with Customers
and Franchisees
FRANCHISING OPERATIONS
780,237
-
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
-
-
-
-
213,779
213,779
25
25
-
2,229
-
-
530,564
-
-
-
-
-
-
156,121
447,117
-
780,237
974,118
530,564
156,121
447,117
225,342
974,118
-
-
-
11,563
985,681
530,564
603,238
2,333,262
-
-
-
-
-
-
-
-
-
-
-
-
-
25
25
-
2,229
(12,927)
INTER-COMPANY ELIMINATIONS
(1,891)
(10,424)
(612)
TOTAL SEGMENT REVENUE
994,379
975,257
529,952
603,238
3,102,826
Operating Segments
30 June 2019
Australia
PRIMARY GEOGRAPHICAL MARKETS
30 June 2019 $000
Asia
Europe
New
Zealand
Total Revenue
from Contracts
with Customers
and Franchisees
FRANCHISING OPERATIONS
668,926
-
Retail – New Zealand
Retail – Singapore & Malaysia
Retail – Slovenia & Croatia
Retail – Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
INTER-COMPANY ELIMINATIONS
-
-
-
-
214,359
214,359
33
33
-
2,871
(324)
-
-
560,673
-
-
-
-
-
-
150,650
375,685
-
668,926
949,048
560,673
150,650
375,685
223,018
949,048
-
-
-
8,659
957,707
560,673
526,335
2,259,074
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33
33
-
2,871
(324)
TOTAL SEGMENT REVENUE
885,865
957,707
560,673
526,335
2,930,580
100
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
CONSOLIDATED
June
2020
$000
June
2019
$000
4. EXPENSES AND LOSSES
Employee benefits expense:
Wages and salaries *
Workers’ compensation
Superannuation contributions
Payroll tax *
Share-based payments
Other employee benefits
Total employee benefits expense
Finance costs:
Interest on lease liabilities (accretion)
Bank interest paid to financial institutions
Other
Total finance costs
Occupancy expenses:
Variable lease payments (including short-term and low-value leases) *
Property, plant and equipment: Right-of-use assets
- Depreciation expense
Investment properties (leasehold): Right-of-use assets
- Fair value re-measurement
Other occupancy expenses
Total occupancy expenses
* these amounts are net of any COVID-19 support and assistance received for FY20
Depreciation, amortisation and impairment:
(included in administrative expenses in the Income Statement)
Depreciation of:
(excluding AASB 16 depreciation in occupancy expenses above)
- Buildings
- Plant and equipment
Amortisation of:
- Computer software
- Net licence property and other intangible assets
Impairment of non-trade debts receivable
Impairment of non-current assets
Impairment of other financial assets
Total depreciation, amortisation and impairment
Loss on restructure and consolidation of KEH
5.
(a)
INCOME TAX
Income tax recognised in the Income Statement:
Current income tax:
Current income tax charge
Adjustments in respect of current income tax of previous years
Deferred income tax:
Relating to the origination and reversal of temporary differences
Total income tax expense reported in the Income Statement
297,214
3,236
16,612
12,414
745
10,461
340,682
40,538
17,829
1,427
59,794
25,844
61,769
74,206
77,222
239,041
10,983
55,033
19,814
1,786
-
876
300
88,792
-
180,801
(462)
(5,074)
175,265
313,124
3,174
16,278
12,107
717
8,523
353,923
-
26,838
1,944
28,782
184,780
-
-
73,326
258,106
11,857
52,506
19,721
1,175
8,394
-
-
93,653
9,665
128,456
(135)
37,236
165,557
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
101
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
CONSOLIDATED
June
2020
$000
June
2019
$000
5. INCOME TAX (CONTINUED)
(b)
Income tax recognised in the Statement of Changes in Equity:
Deferred income tax:
Net (loss) / gain on revaluation of cash flow hedges
Net gain on revaluation of land and buildings
Total income tax expense reported in other comprehensive income
(14)
4,559
4,545
3
3,910
3,913
(c) Reconciliation between income tax expense and prima facie
income tax:
Accounting profit before tax
661,288
574,560
At the Australian statutory income tax rate of 30% (2019: 30%)
198,386
172,368
Adjustments to arrive at total income tax expense recognised for
the year:
Transactions undertaken by Harvey Norman Holdings Limited and
Harvey Norman Holdings (Ireland) Limited as agreed under the terms of
an Advance Pricing Arrangement with the Australian Taxation Office
dated 6 February 2012
Adjustments in respect of current income tax of previous years
Share-based payment expenses
Expenditure not allowable for income tax purposes
Income not assessable for income tax purposes
Unrecognised tax losses
Utilisation of previously unrecognised tax losses
Tax concession for research and development expenses
Difference between tax capital gain and accounting profit on revaluation
of pre-CGT properties
Non-allowable building and motor vehicle depreciation
Reversal of non-allowable building depreciation due to a legislative
change in New Zealand in FY20
Receipt of fully franked dividends
Sundry items
Effect of different rates of tax on overseas income and exchange rate
differences
Total adjustments
Total income tax expense reported in the Income Statement
Effective income tax rate (%)
5,793
(462)
(36)
1,194
(894)
294
(7,899)
(189)
(304)
488
(14,766)
(424)
(382)
(5,534)
(23,121)
175,265
26.50%
1,630
(135)
158
171
(66)
7
(2,768)
(221)
(154)
1,348
-
(792)
(636)
(5,353)
(6,811)
165,557
28.81%
Tax consolidation
Harvey Norman Holdings Limited (HNHL) and its 100% owned Australian resident subsidiaries are members of a tax
consolidated group. HNHL is the head entity of the tax consolidated group. Members of the group have entered into a
tax sharing agreement which provides for the allocation of income tax liabilities between the entities, should the head
entity default on its tax payment obligations. At the balance date, the possibility of default is remote.
Wholly-owned companies of the tax consolidated group have entered into a tax funding agreement. The funding
agreement provides for the allocation of current and deferred taxes on a modified standalone basis in accordance with the
principles as outlined in UIG Interpretation 1052 Tax Consolidation Accounting. The allocation of taxes under the tax
funding agreement is recognised as an increase or a decrease in the inter-company accounts of the subsidiaries with the
tax consolidated head entity.
102
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
STATEMENT OF
FINANCIAL POSITION
June
2020
$000
June
2019
$000
INCOME STATEMENT
June
2020
$000
June
2019
$000
5
INCOME TAX (CONTINUED)
(d) Deferred income tax assets and liabilities:
Deferred income tax at 30 June relates to the following:
Deferred tax liabilities:
Revaluations of freehold investment properties to fair value
(193,801)
(185,556)
9,876
21,102
Revaluations of owner-occupied land and buildings to fair value
(39,699)
(40,189)
-
-
Non-allowable building depreciation in respect of properties in New
Zealand
Reversal of non-allowable building depreciation due to a legislative
change in New Zealand in FY20
Reversal of building depreciation expense for freehold investment
properties
Research and development
Other items
Total deferred tax liabilities
Deferred tax assets:
Employee provisions
Unused tax losses and tax credits
Right-of-use assets and lease liabilities
Losses in respect of the Coomboona joint venture
Other provisions
Provision for lease makegood
Provision for deferred lease expenses
Lease incentives
Provision for executive remuneration
Revaluations of owner-occupied land and buildings to fair value
(15,389)
(13,831)
1,897
(515)
14,766
-
(14,766)
-
(116,570)
(105,152)
(15,279)
(16,531)
(5,020)
(4,108)
(370,992)
(365,367)
11,736
(1,123)
830
12,782
(276)
460
9,862
3,444
17,410
11,365
11,451
401
-
-
822
1,527
9,817
260
-
11,665
7,959
442
1,273
1,206
811
1,388
(120)
(3,206)
(8,013)
300
(2,397)
(78)
-
-
(10)
-
(396)
(41)
-
7,134
(4,093)
(44)
(72)
136
1,059
-
Total deferred tax assets
56,282
34,821
Total deferred tax
(314,710)
(330,546)
(5,074)
37,236
The consolidated entity has not recognised deferred tax assets relating to tax losses of $176.00 million (2019: $195.32 million)
which are available for offset against taxable profits of the companies in which the losses arose.
At 30 June 2020, no deferred tax liability has been recognised (2019: nil) in respect of the unremitted earnings of certain
subsidiaries, associates or joint ventures.
Current income tax
Current income tax assets and liabilities 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 at the reporting date in the
countries where the consolidated entity operates and generates taxable income.
Current income tax relating to items recognised directly in equity are recognised in equity, and not in the income statement.
Deferred income tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes at the reporting date. Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in 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. 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. Deferred tax items recognised outside the income statement are recognised in
correlation to the underlying transaction either in other comprehensive income or directly in equity.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
103
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
5. INCOME TAX (CONTINUED)
Deferred income tax (continued)
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and unused tax
losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the
carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred tax assets are reviewed at
each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all, or
part of, the deferred tax asset to be utilised.
Deferred tax assets and liabilities are not recognised if temporary differences arise from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit
or loss.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be recovered.
IFRIC Interpretation 23: Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of
AASB 112 Income Taxes. It does not apply to taxes or levies outside the scope of AASB 112, nor does it specifically include
requirements relating to interest and penalties associated with uncertain tax treatments.
The consolidated entity determines whether to consider each uncertain tax treatment separately or together with one or more other
uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty. Since the consolidated entity
operates in a complex multinational environment, it has assessed whether the Interpretation had an impact on its consolidated financial
statements.
Upon adoption of the Interpretation, the consolidated entity considered whether it has any uncertain tax positions, particularly those
relating to transfer pricing. The tax filings of the Company and its subsidiaries in different jurisdictions include deductions relating to
transfer pricing, and the taxation authorities may challenge those tax treatments.
The consolidated entity determined that, based on its tax compliance and transfer pricing documentation, it is probable that its tax
treatment (including those of its subsidiaries) will be accepted by the relevant taxation authorities.
This Interpretation did not have an impact on the consolidated financial statements of the consolidated entity.
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences as the consolidated entity considers that it is probable that
future taxable profit will be available to utilise those temporary differences. Deferred tax assets are recognised for unused tax losses to
the extent that it is probable that future taxable profit will be available against which the losses can be utilised. Significant judgement is
required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future
taxable profits.
6. EARNINGS PER SHARE
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
The following reflects the income and HVN shares data used in the
calculations of basic and diluted earnings per share:
Profit after tax
Less: Profit after tax attributable to non-controlling interests
Profit after tax attributable to owners of the parent
CONSOLIDATED
June
2020
$000
39.19c
39.15c
486,023
(5,482)
480,541
June
2019
$000
33.94c
33.91c
409,002
(6,685)
402,317
104
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
6
EARNINGS PER SHARE (continued)
Weighted average number of ordinary shares used in
calculating basic earnings per share (a)
Effect of dilutive securities (b)
Adjusted weighted average number of ordinary shares used in
calculating diluted earnings per share
NUMBER OF SHARES
June
2020
Number
June
2019
Number
1,226,271,429
1,159,443,029
1,267,770
1,114,644
1,227,539,199
1,160,557,673
(a)
(b)
Weighted Average Number of Ordinary Shares
The weighted average number of ordinary shares used in calculating basic earnings per share is inclusive of the new
shares totalling 66,270,064 ordinary shares in the Company issued on 18 October 2019 pursuant to the pro-rata
Entitlement Offer, weighted on a pro-rata basis from issue date to 30 June 2020.
Effect of Dilutive Securities
On 28 November 2016, the consolidated entity issued a total of 400,000 performance rights under Tranche 2 of the 2016
LTI Plan to the Executive Directors. These performance rights are capable of exercise from 1 January 2020 to 31
December 2022. The performance rights were valued at grant date at $3.87 per entitlement share using a discounted
cash flow technique. Subject to the satisfaction of the financial performance condition (calculated exclusively based on
RONA) and service conditions of the 2016 LTI Plan, the total fair value of Tranche 2 performance rights amounted to
$1,548,000 in aggregate. On 1 January 2020, 160,000 performance rights representing 40% of Tranche 2 of the 2016 LTI
Plan had lapsed and will never be exercisable by the participants. On 5 March 2020, 240,000 performance rights under
Tranche 2 of the 2016 LTI Plan were exercised, reducing the unissued ordinary shares under Tranche 2 of the 2016 LTI
Plan to nil.
On 1 December 2017, the consolidated entity issued a total of 400,000 performance rights under Tranche 3 of the 2016
LTI Plan to the Executive Directors. These performance rights are capable of exercise from 1 January 2021 to 31
December 2023. The performance rights were valued at grant date at $3.34 per entitlement share using a discounted
cash flow technique. Subject to the satisfaction of the financial performance condition (calculated exclusively based on
RONA) and service conditions of the 2016 LTI Plan, the total fair value of Tranche 3 performance rights amounted to
$1,336,000 in aggregate.
On 4 December 2018, the consolidated entity issued a total of 549,500 performance rights under Tranche FY19 of the
2016 LTI Plan to the Executive Directors. These performance rights are capable of exercise from 1 January 2022 to 30
June 2024. The performance rights were valued at grant date at $2.59 per entitlement share using a discounted cash flow
technique. Subject to the satisfaction of the financial performance condition (calculated exclusively based on RONA) and
service conditions of the 2016 LTI Plan, the total fair value of Tranche FY19 performance rights amounted to $1,423,205 in
aggregate.
On 2 December 2019, the consolidated entity issued a total of 549,500 performance rights under Tranche FY20 of the
2016 LTI Plan to the Executive Directors. These performance rights are capable of exercise from 1 January 2023 to 30
June 2025. The performance rights were valued at grant date at $3.47 per entitlement share using a discounted cash flow
technique. Subject to the satisfaction of the financial performance condition (calculated exclusively based on RONA) and
service conditions of the 2016 LTI Plan, the total fair value of Tranche FY20 performance rights amounted to $1,906,765 in
aggregate.
Performance rights issued under Tranche 3, Tranche FY19 and Tranche FY20 of the 2016 LTI Plan have been included in
the calculation of diluted earnings per share. There have been no conversions to, calls of, or subscriptions for ordinary
shares or issues of potential ordinary shares since the reporting date.
Basic 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 elements.
Diluted EPS is calculated as net profit attributable to members, adjusted for:
costs of servicing equity (other than dividends);
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised
as expenses; and
other non-discretionary changes in revenues or expenses during the year that would result from the dilution of potential
shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for
any bonus element.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
105
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
7.
TRADE AND OTHER RECEIVABLES
CURRENT
Receivables from franchisees
Trade receivables (a)
Consumer finance loans (b)
Allowance for expected credit loss (a) (b)
Trade receivables, net
Amount receivable in respect of finance leases (c)
Non-trade debts receivable from (d):
- Related entities (including joint ventures and joint venture partners)
- Unrelated entities
Allowance for expected credit loss (d)
Non-trade debts receivable, net
CONSOLIDATED
June
2020
$000
June
2019
$000
352,359
607,731
109,077
2,258
(3,716)
107,619
3,291
23,059
25,745
(494)
48,310
104,359
3,199
(444)
107,114
3,306
21,334
3,096
(719)
23,711
Total trade and other receivables (current)
511,579
741,862
NON-CURRENT
Trade receivables (a)
Consumer finance loans (b)
Allowance for expected credit loss (a) (b)
Trade receivables, net
Amounts receivable in respect of finance leases (c)
Non-trade debts receivable from (d):
- Related entities (including joint ventures and joint venture partners)
- Unrelated entities
Allowance for expected credit loss (d)
Non-trade debts receivable, net
7,276
476
(4)
7,748
912
49,442
19,835
(28,668)
40,609
546
677
(6)
1,217
820
50,939
25,968
(29,553)
47,354
Total trade and other receivables (non-current)
49,269
49,391
Total trade and other receivables
560,848
791,253
Trade and other receivables
Trade and other receivables are classified, at initial recognition, and subsequently measured at amortised cost if both of the
following conditions are met:
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual
cash flows, and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently subject to impairment reviews. Gains or losses are recognised in the income
statement when the asset is derecognised, modified or impaired. The financial assets at amortised cost of the consolidated
entity includes receivables from franchisees, trade receivables, consumer finance loans, non-trade debts receivable from related
entities and unrelated entities and finance lease receivables.
106
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
7. TRADE AND OTHER RECEIVABLES (CONTINUED)
Impairment of financial assets
The consolidated entity recognises an allowance for expected credit losses (ECLs) for financial assets measured at amortised
cost. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash
flows that the consolidated entity expects to receive, discounted at an approximation of the original effective interest rate. The
expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the
contractual terms.
For receivables from franchisees, consumer finance loans and non-trade debts receivable from related entities and unrelated
entities, the consolidated entity applies the general approach, as prescribed in AASB 9 Financial Instruments, in calculating
ECLs. For trade receivables and finance leases, the consolidated entity applies the simplified approach, as prescribed in AASB
9, in calculating ECLs. The consolidated entity has established a provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Receivables from franchisees
Derni Pty Limited (Derni), a wholly-owned subsidiary of Harvey Norman Holdings Limited (HNHL), may, at the request of a
franchisee, provide financial accommodation in the form of a revolving line of credit, to that franchisee. The repayment of the
indebtedness of that franchisee to Derni is secured by a security interest over all present and after-acquired property of that
franchisee, pursuant to a General Security Deed (GSD).
The receivables from franchisees balance of $352.36 million as at 30 June 2020 comprises the aggregate of the balances due from
each franchisee to Derni, and is net of any uncollectible amounts. The indebtedness of each franchisee to Derni is reduced on a
daily basis by an electronic funds transfer process. Each franchisee directs the financial institution of that franchisee to transfer
the net cash receipts in the bank account of the franchisee to Derni, in reduction of outstanding indebtedness.
Receivables from franchisees have been measured at amortised cost. The consolidated entity has performed an assessment of
the franchisee receivables and has calculated the expected credit loss by applying the general approach for provisioning for
expected credit losses prescribed by AASB 9. The expected credit loss assessment was conducted on the carrying value of
franchisee receivables as at 30 June 2020 totalling $352.36 million. Based on the assessment, receivables from franchisees
are current and neither past due nor impaired as at 30 June 2020.
(a) Trade receivables and allowance for expected credit loss
Trade receivables are non-interest bearing and are generally on 30-day terms. An allowance has been made for estimated
unrecoverable trade receivable amounts arising from the past sale of goods and rendering of services when there is objective
evidence that an individual trade receivable is impaired. An impairment loss of $3.68 million (2019: $0.26 million) has been
recognised by the consolidated entity in the current year for trade receivables. This amount has been included in the other expenses
line item in the Income Statement.
The ageing analysis of current and non-current trade receivables is as follows:
$91.30 million of the trade receivables balance as at 30 June 2020 (2019: $88.76 million) are neither past due nor impaired. It is
expected that these balances will be collected by the consolidated entity on, or prior to, the due date.
$21.36 million of the trade receivables balance as at 30 June 2020 (2019: $15.73 million) are past due but not impaired as there
has not been a significant change in credit quality and the consolidated entity believes that the amounts are still considered
recoverable. The consolidated entity does not hold any collateral over these balances as at 30 June 2020 (2019: nil).
$3.70 million of the trade receivables balance as at 30 June 2020 (2019: $0.41 million) are past due and impaired, and have been
provided for in full as at balance date.
Ageing
Analysis
Past due but not impaired
Past due and impaired
Neither past due
nor impaired
31-60
Days
61-90
Days
+90
Days
31-60
Days
61-90
Days
+90
Days
2020 ($000)
91,301
8,593
4,087
8,675
2019 ($000)
88,764
4,193
3,486
8,048
78
99
98
111
3,521
204
Total
116,353
104,905
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
107
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
7. TRADE AND OTHER RECEIVABLES (CONTINUED)
(a) Trade receivables and allowance for expected credit loss (continued)
Reconciled to:
Trade receivables (Current)
Trade receivables (Non-current)
Total trade receivables
Movements in the allowance for expected credit loss for trade
receivables were as follows:
At 1 July
Charge for the year
Foreign exchange translation
Amounts written off
At 30 June
(b) Consumer finance loans and allowance for expected credit loss
CONSOLIDATED
June
2020
$000
109,077
7,276
116,353
414
3,684
(10)
(391)
3,697
June
2019
$000
104,359
546
104,905
751
262
24
(623)
414
The consumer finance loans are non-interest bearing and are generally on 6 to 48 months interest-free terms. The ageing analysis of
current and non-current consumer finance loans is as follows:
$1.70 million of the consumer finance loans at 30 June 2020 (2019: $3.64 million) are neither past due nor impaired. It is
expected that these balances will be collected by the consolidated entity on, or prior to, the due date.
If a customer has missed a repayment in a consumer finance loan, the remaining balance of the consumer finance loan is treated
as past due. $1.01 million of the consumer finance loans balance as at 30 June 2020 (2019: $0.20 million) are past due but not
impaired. The consolidated entity does not hold any collateral over these balances and believes that these amounts will be
recovered.
$0.02 million of the consumer finance loans at 30 June 2020 (2019: $0.04 million) are past due and impaired, and have been
provided for in full as at balance date.
Ageing
Analysis
2020 ($000)
2019 ($000)
Past due but not impaired
Past due and impaired
Neither past due
nor impaired
31-60
Days
61-90
Days
+90
Days
31-60
Days
61-90
Days
+90
Days
1,699
3,642
372
132
432
22
208
44
-
-
-
-
23
36
Total
2,734
3,876
CONSOLIDATED
June
2020
$000
2,258
476
2,734
36
-
(13)
23
June
2019
$000
3,199
677
3,876
32
17
(13)
36
Reconciled to:
Consumer finance loans (current)
Consumer finance loans (non-current)
Total consumer finance loans
Movements in the allowance for expected credit loss for consumer
finance loans were as follows:
At 1 July
Charge for the year
Amounts written off
At 30 June
108
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
7. TRADE AND OTHER RECEIVABLES (CONTINUED)
(c) Finance lease receivables and allowance for expected credit loss
Finance lease receivables are reconciled as follows:
Aggregate of minimum lease payments and guaranteed residual
values:
Not later than one year
Later than one year but not later than five years
Future finance revenue:
Not later than one year
Later than one year but not later than five years
Net finance lease receivables
Reconciled to:
Amounts receivable in respect of finance leases (current)
Amounts receivable in respect of finance leases (non-current)
Total finance lease receivables
CONSOLIDATED
June
2020
$000
3,438
1,019
4,457
(147)
(107)
4,203
3,291
912
4,203
June
2019
$000
3,418
896
4,314
(112)
(76)
4,126
3,306
820
4,126
The consolidated entity offers finance lease arrangements as part of the consumer finance business. Finance leases are offered in
respect of motor vehicles and livestock with lease terms not exceeding 4 years. All finance leases are at fixed rates for the term of the
lease. A provision is made for estimated unrecoverable finance lease receivable amounts when there is objective evidence that a
finance lease receivable is impaired. No impairment loss was recognised in the FY20 financial year (2019: nil).
The ageing analysis of current and non-current finance lease receivables is as follows:
$1.48 million of the finance lease receivable balance as at 30 June 2020 (2019: $1.40 million) are neither past due nor impaired.
$2.72 million of the finance lease receivable balance as at 30 June 2020 (2019: $2.73 million) are past due but not impaired.
These receivables are subject to regular monitoring to ensure that they are recoverable. As at balance date, there were no
events that required the consolidated entity to sell or re-pledge the secured leased assets.
There was no finance lease receivable balance as at 30 June 2020 that was past due and impaired (2019: nil).
(d) Non-trade debts receivable and allowance for expected credit loss
Non-trade debts receivable are generally interest-bearing and are normally payable at call. The aggregate balance of current and
non-current non-trade debts receivable as at 30 June 2020 was $118.08 million (2019: $101.34 million) as follows:
$69.24 million of the non-trade debts receivable balance as at 30 June 2020 (2019: $51.85 million) are neither past due nor
impaired. It is expected that these balances will be collected by the consolidated entity on, or prior to, the due date.
$19.68 million of the non-trade debts receivable balance as at 30 June 2020 (2019: $19.22 million) are past due but not impaired.
These receivables are subject to regular monitoring and periodic impairment testing to ensure that they are recoverable.
$29.16 million of the non-trade debts receivable balance as at 30 June 2020 (2019: $30.27 million) are past due and impaired,
and have been provided for in full as at balance date.
At 30 June, the ageing analysis of non-trade debts receivable is as follows:
Past due but not impaired
Past due and impaired
Ageing
Analysis
Neither past due
nor impaired
31-60
Days
61-90
Days
2020 ($000)
2019 ($000)
69,241
51,847
-
-
-
-
+90
Days
19,678
19,218
31-60
Days
61-90
Days
+90
Days
Total
-
-
-
-
29,162
118,081
30,272
101,337
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
109
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
7. TRADE AND OTHER RECEIVABLES (CONTINUED)
(d) Non-trade debts receivable and allowance for expected credit loss (continued)
Reconciled to:
Non-trade debts receivable (current)
Non-trade debts receivable (non-current)
Total non-trade debts receivables
Movements in the allowance for expected credit loss for non-trade
debts receivable were as follows:
At 1 July
Charge for the year (iii)
Reversal during the year (i) (ii)
Utilisation of allowance for expected credit loss (iii)
At 30 June
CONSOLIDATED
June
2020
$000
48,804
69,277
118,081
30,272
1,335
(2,000)
(445)
29,162
June
2019
$000
24,430
76,907
101,337
63,008
3,786
(4,494)
(32,028)
30,272
(i) Non-trade debts receivable from the KEH Partnership retail joint venture:
As at 30 June 2018, the consolidated entity, through a wholly-owned subsidiary, had a 50% interest in KEH Partnership Pty Limited
(KEH), a retail joint venture in Australia. Effective 1 July 2018, a wholly-owned subsidiary of Harvey Norman Holdings Limited
acquired all of the inventory assets of KEH. Subsequently, there was a restructure of the KEH business where, by unanimous
agreement in writing, each partner in the Partnership agreed to vary the interest of the respective partners in the Partnership, with
the consolidated entity increasing its partnership interest in the Partnership to 99.02%. The effect of this restructure was the
consolidation and elimination of the commercial loans advanced to KEH. This resulted in a net reversal of $4.49 million in FY19 in
respect of the allowance for expected credit loss previously raised.
(ii) Non-trade debts receivable from mining camp joint venture:
The consolidated entity has made commercial advances to the mining camp joint ventures totalling $32.85 million (2019: $34.95
million) in aggregate as at 30 June 2020. The recoverable amount of non-trade receivables advanced to the mining camp joint
ventures was assessed during the year. An impairment reversal of $2.00 million was recognised in the current year. No impairment
loss or reversal was recognised in FY19. The total balance of the allowance for expected credit loss as at 30 June 2020 relating to
non-trade receivables from the mining camp joint ventures was $11.23 million (2019: $13.23 million).
The recoverable amount for these non-trade receivables have been determined based on the present value of estimated cash flow
projections as at 30 June 2020 for a five-year period, based on financial budgets and the assets held as security. The effective interest
rate applied to the cash flow projections was 7.5%. Cash flow projections were limited to five years due to the inherent risks
associated with the mining industry.
Each of the key assumptions in the impairment assessment were subject to significant accounting estimates and assumptions about
future economic conditions and its impact on the ongoing trading performance of the mining camp joint ventures and the possible
commencement of future projects which are currently out to tender. Judgement has been made, based on available information and
these accounting estimates and assumptions, to each of these variables to assess the recoverable amount of the non-trade
receivables as at balance date.
(iii) Non-trade debts receivable from the Coomboona joint venture:
On 16 January 2019, the Administrator Sale of the Coomboona JV assets was completed and the Contract for Sale settled. The
secured creditors received net proceeds on sale of $40.50 million for the full discharge of the NCF receivables and the partial
discharge of the HN JV Entity receivables. After taking into account the net sales proceeds, a further impairment expense of $8.25
million was recognised in December 2018, of which $3.25 million was recognised as an impairment loss in FY19 to reduce the value of
the HN JV Entity receivables to its estimated recoverable amount. Upon completion of the Administrator Sale and receipt of the net
proceeds on sale, the total allowance for expected credit loss for Coomboona of $32.03 million was utilised and reversed in full in
FY19.
110
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
8. OTHER FINANCIAL ASSETS
CURRENT
Equity investments at fair value through profit or loss
Derivatives receivable
Other current financial assets
Total other financial assets (current)
NON-CURRENT
Equity investments at fair value through OCI
Units in unit trusts
Other non-current financial assets
Total other financial assets (non-current)
Total other financial assets
CONSOLIDATED
June
2020
$000
30,237
-
-
30,237
15,451
414
2,311
18,176
48,413
June
2019
$000
27,483
5
1,400
28,888
16,861
414
2,095
19,370
48,258
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include listed shares held for trading and derivative receivables. Financial
assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets
at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value
recognised in the income statement.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the consolidated entity can elect to classify irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the definition of equity under AASB 132 Financial Instruments:
Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Gains and
losses on these financial assets are not recycled to the income statement. Dividends are recognised as other income in the
income statement when the right of payment has been established. Equity instruments designated at fair value through OCI
are not subject to an impairment assessment.
9.
INVENTORIES (CURRENT)
Finished goods at cost
Provision for obsolescence
Total inventories (current)
402,363
(10,379)
391,984
403,154
(7,189)
395,965
Inventories are valued at the lower of cost and net realisable value and are recorded net of all volume rebates, marketing and
business development contributions and settlement discounts. Costs are on a weighted average basis and include the
acquisition cost, freight, duty and other inward charges. Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs necessary to make the sale.
10. OTHER ASSETS (CURRENT)
Prepayments
Other current assets
Total other assets (current)
30,723
4,149
34,872
29,901
7,640
37,541
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
111
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
CONSOLIDATED
11.
INTANGIBLE ASSETS
CURRENT
Net licence property (current)
NON-CURRENT
Net licence property (non-current)
Other intangible assets (non-current)
Computer software:
At cost
Accumulated amortisation and impairment
Net computer software (non-current)
Net intangible assets (non-current)
Total net intangible assets
Reconciliation of non-current computer software is as follows:
Opening balance
Additions
Disposals
Amortisation
Net foreign currency differences arising from foreign operations
Net computer software (non-current)
June
2020
$000
278
2,494
156
214,688
(154,335)
60,353
63,003
63,281
61,910
19,167
(921)
(19,814)
11
60,353
June
2019
$000
370
2,469
252
204,327
(142,417)
61,910
64,631
65,001
65,607
16,606
(732)
(19,721)
150
61,910
Intangible assets
Intangible assets, consisting of capitalised computer software assets, capitalised development expenditure and licence property
are carried at cost less any accumulated amortisation and accumulated impairment losses. Intangible assets are amortised on a
straight line basis over their estimated useful lives, but not greater than a period of eight and a half (8.5) years.
Intangible assets are tested for impairment where there are any indicators of impairment, either individually or at the cash
generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a
prospective basis. The amortisation expense on intangible assets with finite lives are recognised in the income statement in the
expense category consistent with the function of the intangible asset.
Gain or loss arising from the derecognition of an intangible asset is measured as the difference between the net disposal
proceeds and the carrying amount of the intangible asset, and is recognised in the income statement when the intangible asset
is derecognised.
112
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
12. PROPERTY, PLANT AND EQUIPMENT
Land at fair value
Buildings at fair value
Net land and buildings at fair value
Plant and equipment:
At cost
Accumulated depreciation
Net plant and equipment
Lease make good asset:
At cost
Accumulated depreciation
Net lease make good asset
Total plant and equipment
Total property, plant and equipment:
Land and buildings at fair value
Plant and equipment at cost
Total property, plant and equipment
Accumulated depreciation and amortisation
Total written down amount
CONSOLIDATED
June
2020
$000
June
2019
$000
150,235
252,681
402,916
837,764
(577,791)
259,973
-
-
-
199,078
242,135
441,213
828,962
(577,100)
251,862
7,042
(3,910)
3,132
259,973
254,994
402,916
837,764
1,240,680
(577,791)
662,889
441,213
836,004
1,277,217
(581,010)
696,207
195,490
-
-
2,962
(1,128)
(7,162)
-
8,916
199,078
236,971
7,204
(341)
9,272
(10,647)
(9,505)
-
9,181
242,135
441,213
Reconciliation of the carrying amounts of property, plant and equipment were as follows:
Land at fair value (a):
Opening balance
Additions
Disposals
Increase resulting from revaluation
Depreciation of leasehold land (b)
Reclassification to assets held for sale
Reclassification to leasehold properties: right-of-use assets
Net foreign currency differences arising from foreign operations
Closing balance
Buildings at fair value (a):
Opening balance
Additions
Disposals
Increase resulting from revaluation
Depreciation for the year
Reclassification to assets held for sale
Reclassification to leasehold properties: right-of-use assets
Net foreign currency differences arising from foreign operations
Closing balance
Net land and buildings at fair value
199,078
3,372
(1,809)
8,925
-
-
(57,641)
(1,690)
150,235
242,135
16,471
(1,542)
20,477
(10,897)
-
(10,930)
(3,033)
252,681
402,916
(a) The net book value of land and buildings (other than land and buildings classified as freehold investment properties) would have
been $199.36 million (2019: $225.49 million) if it was measured on a historical cost basis.
(b) The depreciation charge related to leasehold land located in Singapore. Upon the first time application of AASB 16 Leases, the
leasehold property in Singapore was reclassified as a leasehold property: right-of-use asset.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
113
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
12.
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Reconciliation of the carrying amounts of property, plant and equipment (continued):
Plant and equipment at cost:
CONSOLIDATED
June
2020
$000
June
2019
$000
Opening balance
Additions
Disposals
Acquisition of a subsidiary
Net foreign currency differences arising from foreign operations
Closing balance
Plant and equipment accumulated depreciation:
Opening balance
Depreciation for the year
Disposals
Acquisition of a subsidiary
Net foreign currency differences arising from foreign operations
Closing balance
Net book value plant and equipment
Leased plant and equipment at cost:
Opening balance
Additions
Acquisition of a subsidiary
Disposals
Reclassification to leasehold properties: right-of-use assets
Closing balance
Leased plant and equipment accumulated depreciation:
Opening balance
Depreciation for the year
Acquisition of a subsidiary
Disposals
Reclassification to leasehold properties: right-of-use assets
Closing balance
k
Net book value leased plant and equipment
Lease make good asset at cost:
Opening balance
Additions
Disposals
Net foreign currency differences arising from foreign operations
Reclassification to leasehold properties: right-of-use assets
Closing balance
Lease make good asset accumulated depreciation:
Opening balance
Depreciation for the year
Disposals
Net foreign currency differences arising from foreign operations
Reclassification to leasehold properties: right-of-use assets
Closing balance
Net book value lease make good asset
Total property, plant and equipment
114
822,143
71,773
(53,758)
-
(2,394)
837,764
573,729
55,033
(48,705)
-
(2,266)
577,791
259,973
6,819
-
-
-
(6,819)
-
3,371
-
-
-
(3,371)
-
-
7,042
-
(17)
18
(7,043)
-
3,910
-
(17)
11
(3,904)
-
-
795,632
76,863
(66,005)
5,656
9,997
822,143
574,843
50,548
(59,945)
1,582
6,701
573,729
248,414
6,475
443
69
(168)
-
6,819
2,120
1,364
14
(127)
-
3,371
3,448
6,257
908
(429)
306
-
7,042
3,525
594
(377)
168
-
3,910
3,132
662,889
696,207
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Freehold owner-occupied properties
Following initial recognition at cost, owner-occupied land and buildings are carried at fair value less any subsequent accumulated
depreciation and accumulated impairment losses. Depreciation is calculated on a straight-line basis over the estimated useful life
of the asset as follows:
Land – not depreciated
Buildings – 20 to 40 years
Any revaluation surplus is recorded in other comprehensive income and credited to the asset revaluation reserve in equity.
However, to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement,
the increase is recognised in the income statement. Any revaluation deficit is recognised in the income statement, except to the
extent that it offsets a previous surplus of the same asset in the asset revaluation reserve.
Any accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset and the net
amount is restated to the fair value of the asset.
Valuations are performed with sufficient regularity to ensure that the carrying amount does not differ materially from the fair value
of the asset at the balance date.
Plant and equipment assets
Plant and equipment assets are recognised at historical cost less accumulated depreciation and any accumulated impairment
losses. Depreciation is calculated on a straight-line basis over the estimated useful life of the plant and equipment assets (3 to 20
years). The residual values, useful lives and amortisation methods of plant and equipment assets are reviewed, and adjusted if
appropriate, at each financial year end.
Derecognition and disposal
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the income statement when the asset is derecognised.
Valuation of freehold owner-occupied properties
The consolidated entity values land and buildings at fair value. Fair value is determined by reference to market-based evidence,
which is the amount for which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable,
willing seller in an arm’s length transaction as at the valuation date.
The Board of Directors make an assessment of the fair value of each freehold owner-occupied property as at balance date. This
assessment is informed by:
the information and advice contained in the last independent external valuation report for that property prepared by an
external professionally qualified valuer who holds a recognised relevant professional qualification and has specialised
expertise in the property being valued (Independent Valuer);
the information and advice in the last internal valuation report for that property;
the last management review for that property; and
other information and professional or expert advice given or prepared by reliable and competent persons in relation to that
property.
Independent External Valuations
Until 31 December 2019, the entire freehold owner-occupied property portfolio was independently valued at least once every
three (3) years. It was determined that for the second half of the 2020 financial year and thereafter, the entire freehold owner-
occupied property portfolio will be independently valued by an Independent Valuer at least once every two (2) years.
Internal Valuation and Reviews
Freehold owner-occupied properties not independently externally valued as at balance date are subject to an internal valuation or
a management review, performed by persons qualified by relevant education, training or experience.
The key assumptions used to determine the fair value of freehold owner-occupied properties, and the relevant sensitivity analysis,
are disclosed in 12(b) and 12(c).
Financial Reporting Impacts of COVID-19:
Land of $150.24 million and buildings of $252.68 million are measured at fair value at 30 June 2020. Land and buildings measured
at fair value are also subject to similar valuation uncertainties as described in Note 14. Investment Properties: Freehold. The
COVID-19 pandemic has created a higher degree of uncertainty regarding the assessment of fair value, particularly around the
critical assumptions regarding market rents, capitalisation rates, terminal yields and discount rates. As a result, estimated fair
values may change significantly and unexpectedly over a relatively short period of time.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
115
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(a) Reconciliation of owner occupied properties – land and buildings at fair value
New Zealand
Slovenia
Singapore
Australia
Ireland
T
Total
Retail
Warehouse
Retail
Warehouse
Opening balance
Additions
Disposals
Fair value adjustments
Depreciation for the year
Transfer to property: ROU assets
Transfer to assets held for sale
Change in class of property
Net foreign currency differences
$000
$000
261,851
17,794
(24)
21,775
(8,480)
-
-
(4,447)
(5,672)
-
12
-
1,043
(109)
-
-
4,447
(95)
$000
75,342
-
-
6,019
(1,819)
-
-
-
772
Closing balance
282,797
5,298
80,314
(b) Fair value measurement, valuation techniques and inputs
$000
3,355
-
(3,327)
-
(61)
-
-
-
33
-
Retail
$000
68,420
-
-
-
-
(68,571)
-
-
151
-
Office
$000
8,438
-
-
(249)
(23)
-
-
-
(73)
Retail
$000
7,638
2,037
-
463
(88)
-
-
-
-
Retail
$000
2020
$000
2019
$000
16,169
441,213
432,461
-
-
351
(317)
-
-
-
19,843
(3,351)
29,402
(10,897)
(68,571)
-
-
7,204
(341)
12,234
(11,775)
-
(16,667)
-
161
(4,723)
18,097
8,093
10,050
16,364
402,916
441,213
Class of
property
Fair value
hierarchy *
Fair value
Valuation technique
Key unobservable inputs
Range of unobservable inputs
30 June 2020 $000
Retail
Level 3
389,525
Discounted cash flow
Terminal yield
Discount rate
Income capitalisation
Net market rent per sqm p.a.
Capitalisation rate
Direct sale comparison
Price per sqm of lettable area
Warehouse
Level 3
5,298
Income capitalisation
Net market rent per sqm p.a.
Office
Level 3
8,093
Discounted cash flow
Capitalisation rate
Terminal yield
Discount rate
Income capitalisation
Net market rent per sqm p.a.
Capitalisation rate
Direct sale comparison
Price per sqm of lettable area
Total
402,916
* Refer to Note 35 (e) on page 143 for the definition of level 3 fair value hierarchy
4.38% - 8.50%
5.50% - 8.90%
$128 - $362
4.75% - 8.63%
$7,621
$100
5.60%
3.50%
4.00%
$215 - $250
3.30%
$7,671 - $9,529
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
116
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(b) Fair value measurement, valuation techniques and inputs (continued)
The income capitalisation method of valuation was used for the valuation of retail and warehouse properties in New Zealand. A
discounted cash flow method was undertaken in respect of the same properties as a secondary method. There were no material
differences between the income capitalisation method result and the discounted cash flow method result.
The income capitalisation method of valuation was used for the valuation of one (1) retail owner-occupied property in Australia. A direct
sale comparison method was used for the same property as a secondary method. There were no material differences between the income
capitalisation method result and the direct sale comparison method result.
The income capitalisation method of valuation was used for the valuation of retail properties in Slovenia. The income capitalisation
method of valuation was used for the valuation of one (1) retail property in Ireland. The income capitalisation method, the direct sale
comparison method and the discounted cash flow method were used for the valuation of office properties in Singapore.
The table on the previous page includes the following descriptions and definitions relating to valuation techniques and key unobservable
inputs used in determining the fair value:
Income capitalisation method
Under the income capitalisation method, a property’s fair value is estimated using the current market rental value generated by the
property, which is divided by the appropriate market capitalisation rate.
Discounted cash flow (“DCF”) method
Under the DCF method, a property’s fair value is estimated using explicit assumptions about the benefits and liabilities of ownership over
the asset’s life, including terminal value. This involves the projection of a series of cash flows and the application of an appropriate market-
derived discount rate to establish the present value of the income stream.
Direct sale comparison method
Under the direct sale comparison method, a property’s fair value is estimated based on comparable transactions. The unit of comparison
applied by the consolidated entity is the price per square metre.
Net market rent
Net market rent is the estimated amount for which a property or space within a property could lease between a willing lessor and a willing
lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and wherein the parties have each acted
knowledgeably, prudently and without compulsion. In addition, an allowance for recoveries of lease outgoings from tenants is made on a
pro-rata basis (where applicable).
Capitalisation rate
The rate at which net market income is capitalised to determine the value of a property. The rate is determined by reference to market
evidence and independent external valuations received.
Terminal yield
The capitalisation rate used to convert income into an indication of the anticipated value of the property at the end of a given period when
carrying out a discounted cash flow calculation. The rate is determined by reference to market evidence and independent external
valuations received.
Discount rate
Rate used to discount the net cash flows generated from rental activities during the period of analysis. The rate is determined by reference
to market evidence and independent external valuations received.
Price per square metre
Price per square metre is obtained based on recent transactions of similar properties around the vicinity. Appropriate adjustments are
made between the comparables and the property to reflect the differences in size, tenure, location, condition and prevailing market
conditions and all other relevant factors affecting its value.
(c) Sensitivity Information
Key unobservable inputs
Impact on fair value for
significant increase in input
Impact on fair value for
significant decrease in input
Net market rent
Capitalisation rate
Terminal yield
Discount rate
Increase
Decrease
Decrease
Decrease
Price per square metre
Increase
Decrease
Increase
Increase
Increase
Decrease
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
117
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
12. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(c) Sensitivity Information (continued)
The net market rent of a property and the capitalisation rate are key inputs of the income capitalisation valuation method. The income
capitalisation valuation method incorporates a direct interrelationship between the net market rent of a property and its capitalisation rate.
This methodology involves assessing the total net market income generated by the property and capitalising this in perpetuity to derive a
capital value. Significant increases (or decreases) in rental returns and rent growth per annum in isolation would result in a significantly
higher (or lower) fair value of the properties. There is an inverse relationship between the capitalisation rate and the fair value of
properties. Significant increases (or decreases) in the capitalisation rate in isolation would result in a significantly lower (or higher) fair value
of the properties.
The discount rate and terminal yield are key inputs of the discounted cash flow method. The discounted cash flow method incorporates a
direct interrelationship between the discount rate and the terminal yield as the discount rate applied will determine the rate in which the
terminal value is discounted to present value. Significant increases (or decreases) in the discount rate in isolation would result in a
significantly lower (or higher) fair value. Similarly, significant increases (or decreases) in the terminal yield in isolation would result in a
significantly lower (or higher) fair value. In general, an increase in the discount rate and a decrease in the terminal yield could potentially
offset the impact on the fair value of the properties.
(d) Highest and best use
For all freehold owner-occupied properties that are measured at fair value, the current use of the property is considered its highest and
best use.
13.
PROPERTY, PLANT AND EQUIPMENT:
RIGHT-OF-USE ASSETS
AASB 16 transition adjustments
Reclassification of pre-existing balances (b)
As at 1 July 2019, post transition
Additions
Modifications and re-measurements
Disposals and lease surrenders
Depreciation for the year
Foreign currency
As at 30 June 2020
RIGHT-OF-USE ASSETS
Leasehold
properties
$000
(a)
Plant and
equipment
$000
447,575
71,330
518,905
53,588
(55)
(533)
(59,619)
(3,066)
509,220
2,144
3,448
5,592
1,102
-
-
(2,150)
18
4,562
Total
$000
449,719
74,778
524,497
54,690
(55)
(533)
(61,769)
(3,048)
513,782
(a) The leasehold properties relate to leases of owner-occupied properties.
(b) The reclassifications relate to lease make good assets and a property which was previously accounted for under a finance
lease arrangement.
The geographical split of Property, Plant and Equipment: Right-of-Use Assets is as
follows:
Leases of owner-occupied properties and plant and equipment assets:
Australia
New Zealand
Singapore & Malaysia
Slovenia & Croatia
Ireland & Northern Ireland
Total leases of owner-occupied properties and plant and equipment assets
30 June 2020
$000
35,144
109,244
245,443
11,301
112,650
513,782
Property, Plant and Equipment: Right-of-Use Assets
The consolidated entity recognises right-of-use assets in respect of leases of property, plant and equipment at the commencement
date of the lease (i.e. the date the underlying asset is available for use). The initial measurement of right-of-use assets includes the
amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date,
less any lease incentives received. Right-of-use assets are subsequently measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any re-measurement of lease liabilities. The right-of-use assets are depreciated on a straight-line
basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to an impairment assessment
under AASB 136 Impairment of Assets at each reporting date.
118
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
14. INVESTMENT PROPERTIES: FREEHOLD
Opening balance at beginning of the year, at fair value
Net additions, disposals and transfers
Net increase from fair value adjustments
Closing balance at end of the year, at fair value
CONSOLIDATED
June
2020
$000
2,508,951
50,111
34,268
2,593,330
June
2019
$000
2,429,397
9,253
70,301
2,508,951
Below is a list of the top 20 freehold investment properties ranked in order of fair value as at 30 June 2020:
Property
Last
Independent
Valuation
Date
Independent
Valuation at
last valuation
date
($000)
Fair Value
30 June
2020
Cap Rate
30 June
2020
($000)
Penrith Homemaker Centre – Harvey Norman® / Domayne®
Springvale Homemaker Centre – Harvey Norman® / Domayne®
Maroochydore Homemaker Centre – Harvey Norman® / DM® / JM®
Alexandria Complex – Domayne®
Silverwater Warehouse Complex
Toowoomba Centre Complex – Harvey Norman®
The Cambridge Park Centre – Harvey Norman®
Perth City West Complex – Harvey Norman® / Domayne® (a)
Auburn Complex – Domayne® (b)
Albury Homemaker Centre – Harvey Norman®
Maribyrnong Complex – Harvey Norman®
Auburn Flagship Store Complex – Harvey Norman®
Rutherford (Maitland) Complex – Harvey Norman®
Browns Plains Homemaker Centre – Harvey Norman®
Gepps Cross Home HQ – Harvey Norman® (a)
Munno Para Shopping City – Harvey Norman®
Bendigo Homemaker Centre
Harvey Norman® (NSW) Commercial Showroom & Warehouse
Devonport Homemaker Centre – Harvey Norman®
Balgowlah Complex – Harvey Norman®
TOTAL TOP 20 INVESTMENT PROPERTIES
30 Jun 2019
30 Jun 2020
31 Dec 2018
30 Jun 2020
31 Dec 2018
31 Dec 2019
30 Jun 2018
30 Jun 2020
30 Jun 2020
30 Jun 2019
31 Dec 2019
31 Dec 2018
31 Dec 2017
30 Jun 2019
30 Jun 2019
30 Jun 2018
30 Jun 2018
30 Jun 2020
31 Dec 2018
31 Dec 2019
158,000
169,243
142,000
142,000
81,000
63,000
60,700
61,800
56,700
57,500
55,000
52,000
51,500
48,500
42,000
41,800
40,900
40,000
37,000
36,000
34,000
34,500
81,979
63,000
62,600
62,312
58,012
57,500
55,000
52,210
50,000
49,383
43,502
42,754
41,137
41,094
38,440
36,000
35,056
34,602
1,215,824*
(%)
6.75
6.75
7.25
6.25
6.75
7.50
8.00
7.00
n/a
7.75
6.50
6.75
7.75
8.00
7.50
7.25
7.25
5.75
7.50
6.50
The fair value of the top 20 freehold investment properties amounted to $1.22 billion as at 30 June 2020, representing 46.9% of the
total fair value of freehold investment properties of $2.59 billion. The fair value of the remaining 117 freehold investment properties
as at 30 June 2020 totalled $1.37 billion, representing 53.1% of the portfolio as at balance date.
(a) Balances represent the consolidated entity’s 50% ownership interest in the investment property.
(b) The direct sale comparison method was adopted in the last independent valuation.
* The difference between the fair value of the freehold investment property as at 30 June 2020 and the independent valuation as at
the last valuation date mainly relates to capital additions in respect of the freehold investment property between the periods.
Valuation of Freehold Investment Properties
Each freehold investment property, which is property held to earn rentals and/or for capital appreciation is initially measured at cost,
including transaction costs, and subsequently valued at fair value. Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. Gains and losses arising
from changes in fair value of freehold investment properties are recognised in the income statement in the period in which they
arise. Investment property is derecognised when the property has been disposed of. The difference between the net disposal
proceeds and the carrying amount of the asset is recognised in the income statement in the period of derecognition.
Each freehold investment property is the subject of a lease or licence in favour of independent third parties, including Harvey
Norman®, Domayne® and Joyce Mayne® franchisees.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
119
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
14.
INVESTMENT PROPERTIES: FREEHOLD (CONTINUED)
Valuation Approach:
The board of directors make an assessment of the fair value of each freehold investment property as at balance date. This
assessment is informed by:
the information and advice contained in the last independent external valuation report for that property prepared by an
external, professionally qualified valuer who holds a recognised relevant professional qualification and has specialised expertise
in the property being valued (Independent Valuer);
the information and advice contained in the last internal valuation report for that property (which was informed by the
immediately preceding independent external valuation report for that property);
the last management review for that property; and
other information and professional or expert advice given or prepared by reliable and competent persons in relation to that
property.
Independent External Valuations
Until 31 December 2019, the entire freehold investment property portfolio in Australia was independently valued at least once every
three (3) years, on a rotational basis by an Independent Valuer. Under this approach, approximately one-sixth of the portfolio was
independently externally valued at least once every six (6) months.
It was determined that for the second half of the 2020 financial year and thereafter, the entire freehold investment property
portfolio in Australia will be independently valued by an Independent Valuer at least once every two (2) years on a rotational basis.
For the 2020 financial year, sixty-one (61) valuations of freehold investment properties were performed by Independent Valuers:
twenty-five (25) at 31 December 2019 and thirty-six (36) at 30 June 2020. A total of 44.53% of the number of freehold investment
properties were independently externally valued this year. A total of 44.72% of the aggregate fair value of the freehold investment
property portfolio in Australia was independently externally valued this year.
Internal Valuations and Reviews
Freehold investment properties not independently externally valued as at balance date are subject to an internal valuation or a
management review, performed by persons qualified by relevant education, training or experience. Each internal valuation and
management review is informed by the last independent external valuation and reliable market evidence. For the 2020 financial
year, 17 freehold investment properties had been affected by the same factors as the properties which had been independently
externally valued. As a consequence, internal valuations for these 17 properties were undertaken to determine the effect of these
factors.
Valuation Methodologies:
The fair value in respect of each freehold investment property has been calculated primarily using the income capitalisation method
of valuation, using the current market rental value, and having regard to, in respect of each property:
the highest and best use of the property
the quality of construction
the age and condition of improvements
recent market sales data in respect of comparable properties
current market rental value, being the amount that could be exchanged between knowledgeable, willing parties in an arm’s
length transaction
the tenure of franchisees and external tenants
adaptive reuse of buildings
non-reliance on turnover rent
other specific circumstances of the property
As a secondary method, a discounted cash flow valuation or a direct sale comparison valuation is undertaken as a check method.
The fair value of a freehold investment property under construction is determined under the income capitalisation method by
estimating the fair value of the property as at the relevant completion date less the remaining costs to complete and allowances for
associated risk. As a secondary method, a discounted cash flow valuation is undertaken. An internal valuation or management
review is performed for any property less than 75% complete where there is an indication of a substantial change in the risks or
benefits to warrant an earlier assessment. Normally, the direct sale comparison method of valuation is used for properties for future
development.
Financial Reporting Impacts of COVID-19:
The COVID-19 pandemic has created a higher degree of uncertainty regarding the assessment of fair value of freehold investment
properties, particularly around the critical assumptions regarding market rents, capitalisation rates, terminal yields and discount
rates.
For the 36 sites that were independently externally valued as at 30 June 2020, each of the five (5) independent, qualified valuers
engaged in the valuation process were faced with an unprecedented set of circumstances in a COVID-19 affected market on which
to base a judgement. As a result, the independent external valuations at 30 June 2020 incorporated a clause regarding ‘significant
valuation uncertainty’. This clause implies that valuations are current at the valuation date only, and less certainty and a higher
degree of caution should be attached to the valuation. Estimated fair values may change significantly and unexpectedly over a
relatively short period of time. However, for the avoidance of doubt, the inclusion of the ‘significant valuation uncertainty’ clause
does not mean that the valuation cannot be relied upon. Rather, the clause brings attention to the current extraordinary
circumstances arising from COVID-19, and therefore there is less certainty regarding some of the critical assumptions in the
valuation process than would otherwise be the case.
120
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
14.
INVESTMENT PROPERTIES: FREEHOLD (CONTINUED)
Financial Reporting Impacts of COVID-19 (continued):
To reflect the potential impact of COVID-19, independent valuers may consider and adjust, one or a number of valuation inputs and
estimates, where appropriate, including lower probabilities of tenant recoveries, lower market rent growth rates, longer lease up
periods, increased leasing allowances and adjustments to capitalisation and discount rates to reflect the uncertainty in the amount
and timing of cash flows.
Valuations may also include deductions for the cost of estimated rental relief to be provided to tenants, where relevant. Where
appropriate, directors have adopted a similar approach in the internal valuation and review process as used for independent external
valuations.
As at balance date, the fair value of the freehold investment property portfolio incorporates a best estimate of the impact of COVID-
19, using the information available at the time of preparing the valuations. The duration and depth of the pandemic are unknown,
and, in the event the impacts of the COVID-19 pandemic are more severe or prolonged than anticipated, this may have an adverse
impact on the fair value of the freehold investment property portfolio.
The valuation uncertainties described above also applies to the land and buildings measured at fair value, of $150.24 million and
$252.68 million respectively, as disclosed in Note 12. Property, Plant and Equipment.
(a)
Reconciliation of investment properties: freehold
New Zealand
Australia
TOTAL
Retail
Warehouse
Retail
Warehouse
Office
June 2020
June 2019
Opening balance
Additions
Transfer to assets held for
sale
Fair value adjustments*
Disposals
Depreciation for the year
Net foreign currency
differences
$000
6,940
3
-
-
-
(75)
(155)
-
-
-
-
(11)
(69)
$000
$000
$000
$000
$000
$000
3,075
2,239,761
220,598
38,577
48,351
2,559
120
2,508,951
51,033
2,429,397
30,189
-
19,777
(403)
-
14,518
(209)
-
-
-
-
-
(27)
-
-
-
-
(18,627)
34,268
(612)
(86)
70,301
(2,613)
(82)
(224)
386
Closing balance
6,713
2,995
2,307,486
237,466
38,670
2,593,330
2,508,951
* Fair value adjustments totalling $34.27 million for the year ended 30 June 2020 are included in other income (2019: $70.30 million).
(b) Fair value measurement, valuation techniques and inputs
Class of
property
Fair value
hierarchy*
Fair value June 2020
Valuation technique
Key unobservable inputs
$000
Range of
unobservable inputs
Retail
Level 3
Metropolitan: 1,369,959
Income capitalisation
Regional: 944,240
Total: 2,314,199
Discounted cash flow
Direct sale comparison
Net market rent/sqm p.a.
Capitalisation rate:
- Metropolitan
-
Regional
Terminal yield
Discount rate
Price per sqm of lettable
area
Warehouse
Level 3
240,461
Income capitalisation
Net market rent/sqm p.a.
Discounted cash flow
Capitalisation rate
Terminal yield
Discount rate
Direct sale comparison
Price per sqm of lettable
area
Office
Level 3
38,670
Income capitalisation
Net market rent/sqm p.a.
Discounted cash flow
Capitalisation rate
Terminal yield
Discount rate
Direct sale comparison
Price per sqm of lettable
area
$78 - $260
6.0% - 8.5%
6.5% - 9.8%
6.3% - 10.0%
7.0% - 10.5%
$607 - $3,615
$25 - $164
5.8% - 10.0%
6.0% - 9.3%
6.8% -10.3%
$722 - $2,488
$115 - $385
7.0% - 8.8%
7.3%
7.0%
$1,442 - $4,793
Total
2,593,330
* Refer to Note 35 (e) on page 143 for the definition of level 3 fair value hierarchy.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
121
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
14. INVESTMENT PROPERTIES: FREEHOLD (CONTINUED)
(b) Fair value measurement, valuation techniques and inputs (continued)
The income capitalisation method of valuation was primarily used for the valuation of all Retail, Warehouse and Office investment
properties in Australia and the Retail and Warehouse investment properties in New Zealand. A discounted cash flow valuation or a
direct sale comparison valuation was undertaken, excluding property for development in Australia, as a secondary method. There
were no material differences between the income capitalisation method result, the discounted cash flow method result and the direct
sale comparison method result. The direct sale comparison method was used for all properties classified as property for
development. The descriptions and definitions relating to valuation techniques and key unobservable inputs used in determining the
fair value of investment properties are the same as those for freehold owner-occupied properties detailed in Note 12(b).
(c) Sensitivity information
The sensitivity information for investment properties is the same as those for freehold owner-occupied properties detailed in Note
12(c).
(d) Rent and outgoings received and operating expenses of investment properties
Included in rent and outgoings received from franchisees and rent and outgoings received from other tenants other than franchisees
as disclosed in Note 3. Revenues is rent and outgoings received from investment properties of $220.04 million for the year ended 30
June 2020 (2019: $217.09 million). Operating expenses, including rates and taxes and repairs and maintenance, recognised in the
income statement in relation to investment properties amounted to $54.13 million for the year ended 30 June 2020 (2019: $50.74
million).
15. INVESTMENT PROPERTIES (LEASEHOLD):
RIGHT-OF-USE-ASSETS
Opening balance at beginning of the year, at fair value
Additions
Modifications and re-measurements
Disposals and lease surrenders
Net decrease from fair value re-measurements
Closing balance at end of the year, at fair value
(a) Fair value measurement, valuation techniques and inputs
Leasehold Properties
30 June 2020
$000
608,465
29,448
73,425
(15,229)
(74,206)
621,903
Class of
property
Fair value
hierarchy*
Fair value June 2020
$000
Valuation technique
Key unobservable inputs
Retail
Level 3
481,561
Discounted cash flow
Warehouse
Level 3
140,342
Discounted cash flow
Discount Rate
Market rent ranges/sqm.pa
- Gross
- Net
Discount Rate
Market rent ranges/sqm.pa
- Gross
- Net
Range of
unobservable inputs
2.921% to 5.191%
$65 to $500
$35 to $775
2.921% to 5.191%
$25 to $290
$35 to $210
Total
621,903
* Refer to Note 35(e) on page 143 for the definition of level 3 fair value hierarchy.
(b) Sensitivity Information
Key unobservable inputs
Impact on fair value for
significant increase in input
Impact on fair value for
significant decrease in input
Discount rate
Market rent ranges
Decrease
Increase
Increase
Decrease
(c) Rent and outgoings received and operating expenses of leasehold investment properties
Included in rent and outgoings received from franchisees as disclosed in Note 3. Revenues is rent and outgoings received from
leasehold investment properties of $116.75 million for the year ended 30 June 2020. Operating expenses, excluding interest on lease
liabilities and fair value re-measurements on leasehold investment properties: ROU Assets, recognised in the income statement in
relation to leasehold investment properties amounted to $24.96 million for the year ended 30 June 2020.
122
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
15. INVESTMENT PROPERTIES (LEASEHOLD): RIGHT-OF-USE ASSETS (CONTINUED)
Investment Properties (Leasehold): Right-Of-Use Assets
Subsidiaries of Harvey Norman Holdings Limited (HNHL) enter into leases of properties in Australia (each a Leasehold Investment
Property) with third party landlords. After entry into a lease with an external landlord, the relevant subsidiary of HNHL grants a sub-lease
or licence to a Harvey Norman®, Domayne® and Joyce Mayne® franchisee, to occupy an area of that Leasehold Investment Property.
The adoption of AASB 16 Leases resulted in the recognition of a right-of-use asset by the consolidated entity in respect of each
subsidiary's right to use each Leasehold Investment Property for the respective lease term (each an IP Leasehold ROU Asset). As each IP
Leasehold ROU Asset meets the definition of investment property under AASB 140 Investment Property, the consolidated entity is
required to measure each IP Leasehold ROU Asset at fair value. The consolidated entity has adopted the fair value model in AASB 140
and each IP Leasehold ROU Asset is measured at fair value.
In respect of each lease of a Leasehold Investment Property, the present value of the lease payments is determined and carried as a lease
liability and the fair value of the lessee's right to use the Leasehold Investment Property over the lease term is recorded as an IP
Leasehold ROU Asset. Gains or losses arising from re-measurement of the fair value of an IP Leasehold ROU Asset are included in the
Income Statement of the consolidated entity as a fair value increment or decrement in the period in which they arise.
Valuation of Investment Properties (Leasehold): Right-Of-Use Assets
Each IP Leasehold ROU Asset is subject to a semi-annual review to fair value at each reporting period. This review is undertaken by
persons qualified by relevant education, training or experience, with the assistance of qualified management. As part of the review, an
independent, professionally qualified valuer who holds a recognised relevant professional qualification and has relevant specialised
expertise (Independent Valuer) is engaged to provide independent verification of key observable inputs.
The re-measurement of an IP Leasehold ROU Asset to fair value comprises the following:
1) A reduction in the IP Leasehold ROU Asset to reflect the decrease in its future value due to the usage of the asset during the
period, reflecting the passage of time and a reduction in remaining lease tenure. This is recognised as a fair value decrement
in the Income Statement.
2) Re-measurement of the IP Leasehold ROU Asset at the prevailing discount rate as at the reporting date. If the discount rate
at the end of the period is higher than the discount rate at the beginning of the period, there will be a decrease in the value
of the IP Leasehold ROU Asset and a corresponding fair value decrement is recognised in the Income Statement. If the
discount rate at the end of the period is lower than the discount rate at the beginning of the period, there will be an increase
in the value of the IP Leasehold ROU Asset and a corresponding fair value increment is recognised in the Income
Statement. The discount rate used is determined using market data, information on margins available to the consolidated
entity, and other adjustments appropriate as at the reporting date.
3) The Independent Valuer provides independent verification of key observable inputs including the current market rent ranges,
being the amount that could be exchanged between knowledgeable, willing parties in an arm’s length transaction, at each
reporting date. If the current market range increases, there may be an increase in the value of the IP Leasehold ROU Asset
and a corresponding fair value increment may be recognised in the Income Statement. If the current market range
decreases, there may be a decrease in the value of the IP Leasehold ROU Asset and a corresponding fair value decrement
may be recognised in the Income Statement.
The results and recommendations of the review and the information or professional advice provided by the Independent Valuer are used
to inform each director of the assessment of the fair value of each IP Leasehold ROU Asset at balance date.
Discount rate
Investment properties (leasehold): right-of-use assets are re-measured to fair value by using the prevailing discount rate as at the
reporting date which is determined by taking into accounting the following:
Other adjustments that may be made by market participants over the lease term.
External market based rates for a range of maturities as at the reporting date;
The lending margins available to the consolidated entity; and
As at 30 June 2020, the discount rates used in re-measuring investment properties (leasehold): right-of-use assets range from 2.92% to
5.19%.
Market rent ranges
As at each balance date, the Independent Valuer provides market rent ranges for each leasehold investment property, being the amount
that could be exchanged between knowledgeable, willing parties in an arm’s length transaction at each reporting date. The market rent
ranges are used to assess whether future lease payments are representative of what market participants would pay for a particular asset
over a similar term.
Financial Reporting Impacts of COVID-19:
The COVID-19 pandemic has created a higher degree of uncertainty regarding the assessment of fair value of leasehold investment
properties, particularly around the critical assumptions regarding market rents and discount rates.
Estimated fair values may change significantly and unexpectedly over a relatively short period of time. To reflect the potential impact of
COVID-19, adjustments may be made, where appropriate, to one or a number of valuation inputs and estimates, including lower market
rent growth rates and adjustments to discount rates, to reflect the uncertainty in the amount and timing of cash flows.
As at balance date, the fair value of the leasehold investment property portfolio incorporates a best estimate of the impact of COVID-19.
The duration and depth of the pandemic are unknown, and, in the event the impacts of the COVID-19 pandemic are more severe or
prolonged than anticipated, this may have an adverse impact on the fair value of the leasehold investment property portfolio.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
123
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
CONSOLIDATED
16. TRADE AND OTHER PAYABLES (CURRENT)
Trade and other creditors
Accruals
Total trade and other payables (current)
17.
INTEREST-BEARING LOANS AND BORROWINGS
CURRENT - Secured:
Bank overdraft (a)
Commercial bills payable (b)
Syndicated Facility Agreement (c)
Other short-term borrowings (d)
Finance lease liabilities (refer to Note 19)
CURRENT - Unsecured:
Derivatives payable
Non-trade amounts owing to:
- Related parties
- Unrelated parties
Total interest-bearing loans and borrowings (current)
NON-CURRENT - Secured:
Syndicated Facility Agreement (a)
Finance lease liabilities (refer to Note 19)
Total interest-bearing loans and borrowings (non-current)
June
2020
$000
283,838
67,934
351,772
18,749
9,750
-
69,638
-
187
4,237
280
102,841
195,000
-
195,000
June
2019
$000
221,323
62,359
283,682
29,232
9,750
370,000
79,417
1,622
49
4,245
264
494,579
345,000
1,942
346,942
Total interest-bearing loans and borrowings
297,841
841,521
(a) Bank Overdraft
Of the total bank overdraft of $18.75 million as at 30 June 2020:
a total of $18.42 million relates to a bank overdraft due by Harvey Norman Trading (Ireland) Limited to Bank of Ireland (“BOI”)
(the “BOI Overdraft Facility”). Australia and New Zealand Banking Group Limited (“ANZ”) has provided an
indemnity/Guarantee/ Stand-by Letter of Credit Facility in favour of BOI in support of the BOI Overdraft Facility, at the request of
the Company (“ANZ-BOI Facility”). The ANZ-BOI Facility is further secured by the Syndicated Facility Agreement described in
Note 17(c).
a total of $0.33 million relates to a bank overdraft facility with AmBank (M) Berhad in Malaysia which is subject to periodic review.
The Company has granted a guarantee to AmBank (M) Berhad in Malaysia in respect of the obligations of Space Furniture
Collection Sdn Bhd.
(b) Commercial Bills Payable
The commercial bills payable form part of facilities granted by ANZ. The payment of each commercial bill is secured by the securities
given pursuant to the Syndicated Facility Agreement (as defined in Note 17(c)), and subject to annual review by ANZ. Each
commercial bill has a tenure not exceeding 180 days but is repayable on demand by ANZ, upon the occurrence of any event of
default or Relevant Event (as defined in Note 17(c)) under the Syndicated Facility Agreement, or after any annual review date.
(c) Syndicated Facility Agreement
On 2 December 2009, the Company, a subsidiary of the Company (“Borrower”) and certain other subsidiaries of the Company
(“Guarantors”) entered into a Syndicated Facility Agreement with certain banks (“Financiers” and each a “Financier”). On 29
November 2019, the Amending Deed (No. 7) to the Syndicated Facility Agreement was executed with the effect of extending the
repayment date of Tranche A1 of the Facility totalling $170 million to 4 December 2021 and Tranche A2 of the Facility totalling $200
million to 4 December 2022.
The aggregate available facility of the Syndicated Facility Agreement remained at $810 million. The utilised amount of the
Syndicated Facility Agreement as at 30 June 2020 was $195 million, repayable as set out below, all of which was classified as non-
current interest-bearing loans and borrowings. This Facility is secured by:
fixed and floating charge granted by the Company and each of the Guarantors in favour of a security trustee for the Financiers;
real estate mortgages granted by certain Guarantors in favour of the security trustee for the Financiers over various real
properties owned by those Guarantors.
124
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
17. INTEREST-BEARING LOANS AND BORROWINGS (CONTINUED)
(c) Syndicated Facility Agreement (continued)
Under the terms of the Syndicated Facility Agreement, the Facility is repayable:
in respect of Tranche A1 totalling $170 million, on 4 December 2021 ($170 million utilised at 30 June 2020);
in respect of Tranche A2 totalling $200 million, on 4 December 2022 ($25 million utilised at 30 June 2020);
in respect of Tranche A3 totalling $200 million, on 4 December 2020 (nil utilised at 30 June 2020);
in respect of Tranche B totalling $240 million, on 4 December 2021 (nil utilised at 30 June 2020); and
otherwise on demand by or on behalf of the Financiers upon the occurrence of any one of a number of events (each a “Relevant
Event”), including events which are not within the control of the Company, the Borrower or the Guarantors. Each of the
following is a Relevant Event:
(i)
an event occurs which has or is reasonably likely to have a material adverse effect on the business, operation, property,
condition (financial or otherwise) or prospects of the Borrower or the Company and the subsidiaries of the Company;
if any change in law or other event makes it illegal or impractical for a Financier to perform its obligations under the
Syndicated Facility Agreement or fund or maintain the amount committed by that Financier to the provision of the
Increased Facility ("Commitment"), the Financier may by notice to the Borrower, require the Borrower to repay the
secured moneys in respect of the Commitment of that Financier, in full on the date which is forty (40) business days after
the date of that notice.
(ii)
(d) Other Short-Term Borrowings
Of the total other short-term borrowings of $69.64 million:
a total of $35.77 million is secured by the securities given pursuant to the Syndicated Facility Agreement. The facilities are
utilised in Slovenia and Croatia and have a maturity date of 4 December 2020.
a total of $24.65 million is secured by the securities given pursuant to the Syndicated Facility Agreement. The facility is utilised in
Singapore and has a maturity date of 4 December 2020.
a total of $4.70 million relates to a revolving credit facility with ANZ in Singapore. This facility is subject to periodic review and
otherwise repayable on demand. The revolving credit facility is secured by the securities given pursuant to the Syndicated Facility
Agreement.
a total of $1.02 million relates to a revolving credit facility with AmBank (M) Berhad in Malaysia which is subject to periodic review
and otherwise repayable on demand. The Company has granted a guarantee to AmBank (M) Berhad in Malaysia in respect of
the obligations of Space Furniture Collection Sdn Bhd.
a total of $3.50 million relates to a revolving credit facility with ANZ in Australia which is subject to periodic review and otherwise
repayable on demand. The Company has granted a guarantee to ANZ in respect of the obligations of the Lighting Partners
Australia partnership.
The Company has not received notice of the occurrence of any Relevant Event from any Financier. During the 2020 and 2019
financial years, there were no defaults or breaches on any of the interest-bearing loans and borrowings referred to in this note.
(e) Defaults and Breaches
The Company has not received notice of the occurrence of any Relevant Event from any Financier. During the 2020 and 2019
financial years, there were no defaults or breaches on any of the interest-bearing loans and borrowings referred to in this note.
Financial liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly
attributable transaction costs.
The consolidated entity’s financial liabilities include trade and other payables, derivative payable and loans and borrowings
including bank overdrafts, commercial bills payable, Syndicated Facility Agreement, short-term borrowings, non-trade amounts
owing to directors, related parties and unrelated parties.
After initial recognition, loans and borrowings are subsequently measured at amortised cost. Gains and losses are recognised in
the income statement when the liabilities are derecognised.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
125
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
18. FINANCING FACILITIES AVAILABLE
At balance date, the following financing facilities had been negotiated and were available:
CONSOLIDATED
June
2020
$000
June
2019
$000
Total facilities:
Bank overdraft
Other borrowings
Commercial bank bills
Syndicated Facility
Total Available Facilities
Facilities used at reporting date:
Bank overdraft
Other borrowings (current)
Commercial bank bills (current)
Syndicated Facility (current)
Syndicated Facility (non-current)
Total Used Facilities
Facilities unused at reporting date:
Bank overdraft
Other borrowings
Syndicated Facility
Total Unused Facilities
51,512
107,018
9,750
810,000
978,280
18,749
69,638
9,750
-
195,000
293,137
32,763
37,380
615,000
685,143
50,260
110,896
9,750
810,000
980,906
29,232
79,417
9,750
370,000
345,000
833,399
21,028
31,479
95,000
147,507
Refer to Note 17. Interest-Bearing Loans and Borrowings for details regarding the security provided by the consolidated entity
over each of the financing facilities disclosed above.
19.
LEASE LIABILITIES
(a) The following table sets out the carrying amounts of lease liabilities and
movements during the year:
30 June 2020
$000
AASB 16 transition adjustments
Reclassification of pre-existing balances (i)
Lease Liabilities as at 1 July 2019
New, modified and re-measured leases
Interest on lease liabilities (accretion)
Lease payments
Foreign currency
Lease liabilities as at 30 June 2020
1,157,445
3,564
1,161,009
140,044
40,538
(165,308)
(3,196)
1,173,087
(i) The reclassification of pre-existing balances relates to finance leases previously recognised within interest-bearing loans
and borrowings.
Reconciled to:
Lease liabilities (current)
Lease liabilities (non-current)
Lease liabilities as at 30 June 2020
130,280
1,042,807
1,173,087
126
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
19. LEASE LIABILITIES (CONTINUED)
(b) The geographical split of lease liabilities as at 30 June 2020 is as follows:
Leases of owner-occupied properties and plant and equipment assets:
Australia
New Zealand
Singapore & Malaysia
Slovenia & Croatia
Ireland & Northern Ireland
Total lease liabilities of leases of owner-occupied properties and plant and
equipment assets
Leases of properties sub-leased to external parties:
Australia
Total lease liabilities of leases of sub-leased to external parties
Total lease liabilities
(c) The maturity profile of undiscounted lease liabilities as at 30 June 2020 is as
follows:
Less than 1 year
1 to 2 years
2 to 5 years
Over 5 years
Total undiscounted lease liabilities
30 June 2020
$000
52,492
126,749
184,544
13,340
152,282
529,407
643,680
643,680
1,173,087
30 June 2020
$000
171,185
168,722
445,904
656,160
1,441,971
(d) Commitments for leases not yet commenced
The consolidated entity had committed to leases which had not yet commenced as at 30 June 2020. These leases are not
included in the calculation of the consolidated entity’s lease liabilities. The estimated undiscounted lease liabilities for these
leases is $13.70 million.
Short-term leases and lease of low-value assets
The consolidated entity applies a recognition exemption to leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option. It also applies a recognition exemption to leases that are considered
of low value.
Lease liabilities
At the commencement of a lease, the consolidated entity recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments)
less any lease incentives receivable and amounts expected to be paid under residual value guarantees. In determining the lease
term, the consolidated entity considers all facts and circumstances that create an economic incentive to exercise a renewal option,
or not to exercise a termination option. Renewal options (or periods after termination options) are only included in the lease term
if the lease is reasonably certain to be extended (or not terminated). Outgoings and other variable lease payments that do not
depend on an index or a rate are recognised as incurred.
In calculating the present value of lease payments, the consolidated entity uses the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the
amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition,
the carrying amount of lease liabilities is remeasured if there is a change in the lease term, a change in the in-substance fixed lease
payments or a change in the assessment to purchase the underlying asset.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
127
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
19. LEASE LIABILITIES (CONTINUED)
Incremental borrowing rate
The incremental borrowing rate is derived by reference to the rate at which a lessee would borrow to acquire the underlying
asset, repaying over a similar term to the lease term. If the interest rate in the lease is not readily determinable, the consolidated
entity determines the incremental borrowing rate for each lease by taking into account the following:
external market based rate for a similar term to the lease term at the lease commencement date;
the lending margins available to the consolidated entity for the respective jurisdiction at the lease commencement date; and
other adjustments that may be made by market participants over the lease term.
As at 30 June 2020, the incremental borrowing rates applied by the consolidated entity were as follows:
Weighted Average Incremental
Borrowing Rate (%)
Australia
New Zealand
Singapore & Malaysia
Slovenia & Croatia
Ireland & Northern Ireland
3.59%
3.46%
2.98%
3.36%
3.66%
Lease term
The lease term is determined at lease commencement or at the effective date of lease modification, and is reviewed if a
significant change in circumstances occurs. In determining the lease term, the consolidated entity considers all facts and
circumstances that create an economic incentive to exercise a renewal option, or not to exercise a termination option. Renewal
options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended
(or not terminated).
As at 30 June 2020, the lease terms adopted by the consolidated entity were as follows:
Weighted average lease term
(years)
Australia
New Zealand
Singapore & Malaysia
Slovenia & Croatia
Ireland & Northern Ireland
10.70
13.62
6.65
9.46
9.17
As at 30 June 2020, the consolidated entity have assessed that a number of options do not meet the criteria of ‘reasonably
certain’ and therefore the lease payments relating to these options have not been included in the lease liability. The
undiscounted lease payments for these excluded options would amount to $85.31 million.
20. OTHER LIABILITIES
CURRENT
Lease incentives (a)
Unearned revenue
Total other liabilities (current)
NON-CURRENT
Lease incentives (a)
Unearned revenue
Total other liabilities (non-current)
CONSOLIDATED
June
2020
$000
-
96,141
96,141
-
863
863
June
2019
$000
4,101
71,718
75,819
11,223
107
11,330
Total other liabilities
(a) Prior to the first-time adoption of AASB 16 Leases, lease incentive liabilities and provisions for deferred leases were
separately recognised in accordance with the superseded AASB 117. On transition, existing lease payables and
provisions were recognised as an adjustment to the opening balance of retained earnings.
97,004
87,149
128
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
21. PROVISIONS
CURRENT
Employee entitlements
Lease make good
Deferred lease expenses (refer to Note 20(a))
Total provisions (current)
NON-CURRENT
Employee entitlements
Lease make good
Deferred lease expenses (refer to Note 20(a))
Total provisions (non-current)
Total provisions
CONSOLIDATED
June
2020
$000
34,181
-
-
34,181
2,213
7,013
-
9,226
43,407
June
2019
$000
31,902
437
689
33,028
2,171
6,604
4,250
13,025
46,053
Provisions are recognised when the consolidated entity has a present obligation (legal or constructive) as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation.
Provision for employee entitlements
Provisions are made for benefits accruing to employees in respect of annual leave and long service leave when it is probable
that settlement will be required and they are capable of being measured reliably. Provisions that are expected to be settled
within 12 months are measured at their nominal values using the remuneration rate expected to apply at the time of
settlement. Provisions which are not expected to be settled within 12 months are measured as the present value of the
estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to
reporting date. Expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the
rates paid or payable.
Provision for lease make good
Provisions are recognised for the anticipated costs of future restoration of leased premises. The provision includes future cost
estimates associated with dismantling and removing the assets and restoring the leased premises according to contractual
arrangements. These future cost estimates are discounted to their present value.
22. CONTRIBUTED EQUITY
Ordinary Shares
Total contributed equity
717,925
717,925
552,250
552,250
30 June 2020
Number of
shares
30 June 2019
Number of
shares
Number of ordinary shares issued and fully paid
1,246,006,654
1,179,736,590
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Movements in ordinary shares on issue:
At 1 July 2019
Issue of shares under renounceable pro-rata Entitlement Offer
At 30 June 2020
June 2020
No. of Shares
June 2020
$000
1,179,736,590
66,270,064
1,246,006,654
552,250
165,675
717,925
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
129
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
22.
CONTRIBUTED EQUITY (CONTINUED)
Ordinary Shares – Terms and Conditions
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in any
surplus on winding up in proportion to the number of and amounts paid up on shares held. Each ordinary share entitles the holder
to one vote, either in person or by proxy, at a meeting of the Company.
Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a reduction, net of tax, from the proceeds.
23. RETAINED PROFITS AND DIVIDENDS
Movements in retained profits were as follows:
Balance at beginning of the year
Transition adjustments arising from adoption of AASB 16
Profit for the year
Dividends paid
Balance at end of the year
Dividends declared and paid:
Dividends on ordinary shares:
Final fully-franked dividend for 2019: 21.0 cents (2018: 18.0 cents)
Interim fully-franked dividend for 2020: 12.0 cents (2019: 12.0 cents)
Special fully-franked dividend for 2020: 6.0 cents
Total dividends paid
CONSOLIDATED
June
2020
$000
2,397,436
(43,892)
480,541
(322,505)
2,511,580
247,745
-
74,760
322,505
June
2019
$000
2,337,241
-
402,317
(342,122)
2,397,436
200,554
141,568
-
342,122
On 1 November 2019, the final dividend in respect of the year ended 30 June 2019 was paid totalling $247.74 million.
On 2 April 2020, given the uncertainty regarding the duration of the COVID-19 pandemic and its potential impact on
trading, and for the abundance of precaution, the directors announced the decision to revoke the decision to pay, and
cancel, the FY20 interim dividend of 12.0 cents per share. The cancellation of the FY20 interim dividend resulted in
$149.52 million of cash being retained in the business.
On 10 June 2020, the directors announced that the Company would pay a special dividend of 6.0 cents per share, fully-
franked, to shareholders registered at the close of business on 23 June 2020. This special dividend was paid on 29 June
2020 totalling $74.76 million.
The final dividend of 18.0 cents per share totalling $224.28 million fully-franked, for the year ended 30 June 2020 will be
paid on 2 November 2020. No provision has been made in the Statement of Financial Position for the payment of this
final dividend.
Franking Account Balance:
The amount of franking credits available for the subsequent financial
years are:
- franking account balance as at the end of the financial year
at 30%
- franking credits that will arise from the payment of
income tax payable as at the end of the financial year
- franking credits that will be utilised in the payment of proposed
final dividend
Amount of franking credits available for future reporting years
24. NON-CONTROLLING INTERESTS
Interest in:
- Ordinary shares
- Reserves
- Retained earnings
Total non-controlling interests
130
489,613
539,191
57,126
1,222
(96,121)
450,618
(106,176)
434,237
2,691
14,621
13,671
30,983
2,691
15,027
12,665
30,383
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
25. RESERVES
CONSOLIDATED $000
Asset
revaluation
reserve
Foreign
currency
translation
reserve
Available
for sale
reserve
FVOCI
reserve
Cash flow
hedge
reserve
Employee
equity
benefits
reserve
Acquisition
reserve
Total
At 1 July 2018
144,526
40,659
11,902
Revaluation of land and buildings
Tax effect of revaluation of land and
buildings
12,234
(3,910)
Transfer to financial assets at fair value
through other comprehensive income
(a)
Unrealised loss on financial assets at
fair value through other comprehensive
income
Reverse expired or realised cash flow
hedge reserves
Net loss on forward foreign exchange
contracts
Tax effect of net loss on forward
foreign exchange contracts
Currency translation differences
Cost of share based payments
Utilisation of employee equity benefits
reserve
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25,194
-
-
At 30 June 2019
152,850
65,853
At 1 July 2019
152,850
65,853
Transition adjustments arising from
adoption of AASB 16
(18,067)
-
At 1 July 2019, post transition
134,783
65,853
Revaluation of land and buildings
Tax effect of revaluation of land and
buildings
28,384
(4,559)
Unrealised loss on financial assets at
fair value through other comprehensive
income
Reverse expired or realised cash flow
hedge reserves
Net loss on forward foreign exchange
contracts
Tax effect of net loss on forward
foreign exchange contracts
Currency translation differences
Disposal of investment
Cost of share based payments
Utilisation of employee equity benefits
reserve
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(8,912)
-
-
-
At 30 June 2020
158,608
56,941
(11,902)
11,902
-
-
-
(953)
-
-
-
-
-
-
(8)
10,356
(22,051)
185,384
-
-
-
-
8
(3)
1
-
-
-
-
-
-
-
-
-
-
-
519
(750)
-
-
-
-
-
-
-
-
-
-
12,234
(3,910)
-
(953)
8
(3)
1
25,194
519
(750)
10,949
(2)
10,125
(22,051)
217,724
10,949
(2)
10,125
(22,051)
217,724
-
10,949
-
-
(1,030)
-
-
-
-
-
-
-
-
(2)
-
-
-
2
(49)
14
-
-
-
-
-
-
(18,067)
10,125
(22,051)
199,657
-
-
-
-
-
-
-
-
739
(859)
-
-
-
-
-
-
-
28,384
(4,559)
(1,030)
2
(49)
14
(8,912)
3,450
3,450
-
-
739
(859)
9,919
(35)
10,005
(18,601)
216,837
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a) The listed shares held as available for sale at fair value as at 30 June 2018 were classified as listed shares held at fair value
through other comprehensive income (FVOCI) upon first-time application of the standard, AASB 9 Financial Instruments from 1
July 2018.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
131
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
25. RESERVES (CONTINUED)
Asset revaluation reserve
Any revaluation increment arising from revaluation of freehold owner-occupied properties is recorded in other comprehensive
income (OCI) and credited to the asset revaluation reserve in equity. However, to the extent that it reverses a revaluation
decrement of the same asset previously recognised in the income statement, the increase is recognised in the income statement.
Any revaluation decrement is recognised in the income statement, except to the extent that it offsets a previous increment of the
same asset in the asset revaluation reserve.
Foreign currency translation reserve
The functional currency of overseas subsidiaries is the currency commonly used in their respective countries. As at the reporting
date the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of the consolidated
entity at the rate of exchange prevailing at the balance date and the income statements are translated at the weighted average
exchange rates for the year. The exchange differences arising on retranslation for consolidation are recognised in OCI in the
foreign currency translation reserve.
Fair Value through Other Comprehensive Income (FVOCI) Reserve
The consolidated entity elected to classify its non-current equity investments as equity instruments designated at fair value
through other comprehensive income. The fair value changes on the non-current equity investments are recorded in OCI in the
FVOCI reserve.
Cash Flow Hedge Reserve:
The consolidated entity uses forward currency contracts as hedges of its exposure to foreign currency risk in forecast transactions
and firm commitments. The ineffective portion relating to foreign currency contracts is recognised as other expense in the
income statement. The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow
hedge reserve.
Employee equity benefits reserve
The consolidated entity provides benefits to certain employees (including Executive Directors) of the consolidated entity in the
form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares
(“equity-settled transactions”). The cost of equity-settled transactions is determined by the fair value at the date when the grant
is made using an appropriate valuation model.
That cost is recognised in employee benefits expense, together with a corresponding increase in other comprehensive income
(employee equity benefits reserve), over the period in which the service and, where applicable, the performance conditions are
fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has expired and the consolidated entity’s best estimate of the
number of equity instruments that will ultimately vest. The expense or credit in the income statement for a period represents the
movement in cumulative expense recognised as at the beginning and end of that period. Further disclosure relating to equity-
settled transactions is also provided in the Remuneration Report, Note 4. Expenses and Losses and Note 29. Employee Benefits.
Acquisition Reserve:
Changes in the consolidated entity’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as
equity transactions. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of
the consideration paid or received shall be recognised in OCI in the acquisition reserve.
Equity-settled transactions
The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the
equity instruments at the date when they are granted by using an appropriate valuation model.
132
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
26.
CASH AND CASH EQUIVALENTS
(a)
RECONCILIATION TO CASH FLOW STATEMENT
Cash and cash equivalents comprise the following:
Cash at bank and on hand
Short term money market deposits
CONSOLIDATED
June
2020
$000
June
2019
$000
287,043
26,152
313,195
200,877
14,171
215,048
Bank overdraft (Note 17. Interest-Bearing Loans and Borrowings)
(18,749)
(29,232)
Cash and cash equivalents
294,446
185,816
(b) RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET
OPERATING CASH FLOWS
Profit after tax
486,023
409,002
Adjustments for non-cash items:
Net foreign exchange losses
Allowance for expected credit loss
Share of net profit from joint venture entities
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Fair value re-measurement of investment properties (leasehold):
right-of-use- assets
Amortisation
Impairment of non-trade debts receivable
Impairment of non-current assets
Impairment of other financial assets
Revaluation of Australian investment properties and investment
properties of overseas controlled entity
Loss on restructure and consolidation of KEH Partnership
Deferred lease expenses
Executive remuneration expenses
Loss/(profit) on disposal and sale of property, plant and equipment,
and the revaluation of listed securities
Movements in provisions
Changes in assets and liabilities:
(Increase)/decrease in assets:
Receivables
Inventory
Other current assets
Increase/(decrease) in liabilities:
Payables and other current liabilities
Income tax payable
Net cash flows from operating activities
639
3,019
(7,628)
66,016
61,769
74,206
21,600
-
876
300
(34,956)
-
-
3,449
3,976
4,541
238,782
791
1,093
76,908
55,560
1,056,964
461
671
(9,787)
64,363
-
-
20,896
8,394
-
-
(70,301)
9,665
239
3,175
(14,125)
(1,158)
(75,548)
(25,080)
7,531
48,056
(3,609)
372,845
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
133
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
26. CASH AND CASH EQUIVALENTS (continued)
Cash and cash equivalents
Cash and cash equivalents 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, net of outstanding bank overdrafts. Bank overdrafts are included within interest-
bearing loans and borrowings in current liabilities in the statement of financial position.
CONSOLIDATED
June
2020
$000
June
2019
$000
27. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Total investments accounted for using the equity method
4,692
3,854
Name and Principal Activities
Ownership Interest
Contribution to
Profit / (Loss) Before Tax
Noarlunga Shopping Complex
Perth City West Complex
Warrawong King St. Shopping Complex (a)
Byron Bay (Residential / Convention Development) (c)
Byron Bay – 2 (Resort Operations) (c)
Dubbo Shopping Complex
Bundaberg (Land held for investment)
Gepps Cross Home HQ
QCV (Miners Residential Complex) (b)
Other
June
2020
%
50%
50%
62.5%
-
-
50%
50%
50%
50%
50%
June
2019
%
50%
50%
62.5%
50%
50%
50%
50%
50%
50%
50%
June
2020
$000
1,437
2,748
1,075
(210)
(243)
632
(352)
2,773
12
(244)
June
2019
$000
1,447
3,123
1,087
(755)
536
699
(202)
3,117
11
724
7,628
9,787
(a) This joint venture has not been consolidated as the consolidated entity does not have control over operating and financing
decisions and all joint venture parties participate equally in decision making.
(b) A number of wholly-owned subsidiaries of Harvey Norman Holdings Limited (HNHL) have entered into joint ventures with an
unrelated party to provide mining camp accommodation. The respective joint ventures have been granted finance facilities as
follows:
(i)
A finance facility from ANZ for the amount of $5.15 million plus interest and costs, with a maturity date of 31 July 2020.
On 30 July 2020, the maturity date of this finance facility from ANZ was extended to 31 January 2021.
Finance facilities from Network Consumer Finance Pty Limited (“NCF”), a wholly-owned subsidiary of HNHL, for the
amount of $31.09 million plus interest and costs, subject to bi-annual review.
(ii)
(c) On 9 August 2019, the consolidated entity announced that Harvey Norman Holdings Limited (the Company) and certain of its
controlled entities, with certain entities controlled by Gerald Harvey, as owners of the property and business known as The Byron
at Byron Bay Resort (Resort), have entered into agreements for sale of the Resort (Sale Contract) for the sale price of
$41,764,000 (ex GST), subject to terms and conditions for completion. The purchasers under the Sale Contract are GAG Byron
on Byron Property Co Pty Ltd ACN 635 158 351 and GAG Byron on Byron Business Company Pty Ltd ACN 635 172 333. The
Sale Contract was settled during FY20 following the grant of the liquor licence approval by the relevant authority.
134
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
27.
INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (continued)
Investment in associates and joint ventures
An associate is an entity over which the consolidated entity has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee, but does not control or have joint control over those
policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those necessary to determine control
over subsidiaries.
The investments in associates and joint ventures of the consolidated entity are accounted for using the equity method. Under the
equity method, the investment in an associate or joint venture is initially recognised at cost. The carrying amount of the investment
is adjusted to recognise changes in the consolidated entity’s share of net assets of the associate or joint venture since the
acquisition date.
After application of the equity method, the consolidated entity determines whether it is necessary to recognise any impairment loss
with respect to its net investment in the associates and joint ventures. At each reporting date, the consolidated entity determines
whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the
consolidated entity calculates the amount of impairment as the difference between the recoverable amount of the associate or joint
venture and its carrying value.
28. ASSETS HELD FOR SALE
As at 30 June 2020, the assets held for sale balance of $16.19 million represents the carrying amount of a warehouse in Singapore
that is currently held for sale.
As at 30 June 2019, the carrying amounts of two (2) retail property assets were classified as current assets held for sale:
The carrying amount of the consolidated entity’s 50% asset ownership of The Byron at Byron Resort comprising its 50%
shareholding of the Byron Bay (residential / convention development) land and building assets and its 50% shareholding of the
Byron Bay (resort operations) plant and equipment assets; and
The carrying amount of a warehouse in Singapore that is currently held for sale.
Non-current assets held for sale
The consolidated entity classifies non-current assets as held for sale if their carrying amounts will be recovered principally through
a sale transaction rather than through continuing use. Non-current assets classified as held for sale are measured at the lower of
their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal
of an asset, excluding finance costs and income tax expense. The criteria for held for sale classification is regarded as met only
when the sale is highly probable and the asset is available for immediate sale in its present condition. Actions required to
complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will
be withdrawn. Management must be committed to the plan to sell the asset and the sale expected to be completed within one
year from the date of the classification. Property, plant and equipment and intangible assets are not depreciated or amortised
once classified as held for sale.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
135
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
29. EMPLOYEE BENEFITS
The number of full-time equivalent employees employed as at 30 June were:
The aggregate employee benefit liability was comprised of:
Accrued wages, salaries and on-costs
Provisions (Current – Note 21)
Provisions (Non-current – Note 21)
Total employee benefit provisions
CONSOLIDATED
June
2020
Number
June
2019
Number
5,732
June
2020
$000
20,123
34,181
2,213
56,517
5,510
June
2019
$000
20,152
31,902
2,171
54,225
The consolidated entity makes contributions to complying superannuation funds for the purpose of provision of superannuation
benefits for eligible employees of the consolidated entity. The amount of contribution in respect of each eligible employee is
not less than the prescribed minimum level of superannuation support in respect of that eligible employee. The complying
superannuation funds are independent and not administered by the consolidated entity.
Performance Rights
At balance date, the following performance rights were outstanding and vested (or able to be exercised) by, or for the benefit of,
directors of Harvey Norman Holdings Limited:
(
Grant Date
Expiry Date
Number of Performance
Rights Outstanding
Number of Performance
Rights Vested
2020
2019
2020
2019
30/11/2015
28/11/2016
01/12/2017
04/12/2018
02/12/2019
30/06/2021
30/06/2022
30/06/2023
30/06/2024
30/06/2025
-
-
400,000
549,500
549,500
-
400,000
400,000
549,500
-
-
240,000
240,000
-
-
-
-
-
-
-
1,499,000
1,349,500
240,000
240,000
30. REMUNERATION OF AUDITORS
Fees to Ernst & Young Australia:
-
-
-
audit or review of the financial reports
tax services
consulting services
Total payable to Ernst & Young Australia
Fees to overseas member firms of Ernst & Young Australia:
-
-
-
audit or review of the financial reports
tax services
consulting services
CONSOLIDATED
June
2020
$
June
2019
$
1,406,009
151,150
33,250
1,590,409
780,376
213,845
14,348
1,300,774
203,950
-
1,504,724
760,162
272,795
11,164
Total payable to overseas member firms of Ernst & Young Australia
1,008,569
1,044,121
Total Remuneration Payable to Ernst & Young
2,598,978
2,548,845
136
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
31.
KEY MANAGEMENT PERSONNEL
(a)
Details of Key Management Personnel
Directors
Title
Senior Executives
Title
Executive Chairman
Martin Anderson
General Manager – Advertising
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
Executive Director and
Chief Executive Officer
Executive Director and
Chief Operating Officer
David Matthew Ackery
Executive Director
Chris Mentis
Christopher Herbert Brown
OAM
Executive Director,
Chief Financial Officer
and Company Secretary
Non-Executive Director
Michael John Harvey
Non-Executive Director
Kenneth William Gunderson-
Briggs
Graham Charles Paton AM
Maurice John Craven
[commenced 27 March 2019]
Non-Executive Director
(Independent)
Non-Executive Director
(Independent)
Non-Executive Director
(Independent)
Thomas James Scott
General Manager – Property
Gordon Ian Dingwall
Chief Information Officer
Ajay Calpakam
[resigned 30 April 2020]
Lachlan Roach
General Manager – Audio
Visual
General Manager – Home
Appliances
Frank Robinson [resigned
30 September 2019]
General Manager –
Technology & Entertainment
Emmanuel Hohlastos
[commenced 1 May 2020]
General Manager – Audio
Visual
Glen Gregory [commenced
9 September 2019]
General Manager –
Technology & Entertainment
(b) Compensation of Key Management Personnel
The total remuneration paid or payable to Key Management Personnel of the consolidated entity was as follows:
Short-term
Post-employment
Long-term (share-based payments)
Other – long service leave accrual
Other – termination benefits
CONSOLIDATED
June
2020
$
12,796,618
295,892
1,056,781
89,782
89,065
June
2019
$
12,088,384
284,274
717,044
100,054
-
14,328,138
13,189,756
Refer to Tables 1 and 2 on pages 56 and 57 of this report for further information.
32. RELATED PARTY TRANSACTIONS
(a)
Ultimate Controlling Entity
The ultimate controlling entity of the consolidated entity is Harvey Norman Holdings Limited, a company incorporated in Australia.
(b)
Transactions with Other Related Parties
(i)
(ii)
Several controlled entities of Harvey Norman Holdings Limited operate loan
accounts with other related parties, mainly consisting of joint ventures and the other
joint venture partner of the joint ventures. Refer to Note 7. Trade and Other
Receivables.
The amount of receivables from related parties at balance date was:
The consolidated entity has a payable to other related parties (excluding
transactions with KMPs and their related parties) at arm’s length terms and
conditions. The amount owing to other related parties at balance date was:
72,500,801
72,273,155
4,237,364
4,244,921
Refer to information provided in Section 15. Other Transactions and Balances with Key Management Personnel and their Related
Parties in this report on pages 62 and 63 for further information.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
137
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
33.
COMMITMENTS
(a)
Lease commitments [the consolidated entity as a lessor]:
Future minimum amounts receivable under non-cancellable operating leases
are as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
Minimum lease receivable
CONSOLIDATED
June
2020
$
June
2019
$
105,805
191,537
46,694
344,036
102,750
173,457
30,784
306,991
The consolidated entity as a lessor
Leases in which the consolidated entity does not transfer substantially all the risks and benefits of ownership of an asset are classified as
operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset
and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in
which they are earned.
The consolidated entity has entered into commercial leases in respect of its freehold property portfolio and motor vehicles. All leases
in the consolidated entity’s freehold property portfolio include a clause to enable upward revision of the rental charge on an annual
basis according to prevailing market conditions.
(b) Capital expenditure contracted but not provided is payable as follows:
Not later than one year
Later than one year but not later than five years
Total capital expenditure commitments
16,028
-
16,028
52,186
-
52,186
The consolidated entity had contractual obligations to purchase property, plant and equipment and investment properties of $16.03
million (2019: $52.19 million). The contractual obligations are mainly for the acquisition of new properties and refurbishment of
existing franchised complexes in Australia. The contractual obligations relating to joint venture entities for the year ended 30 June
2020 was $0.95 million (2019: $2.52 million).
34. CONTINGENT LIABILITIES
As at 30 June 2020, Harvey Norman Holdings Limited (the Company) and its wholly-owned subsidiaries have entered into the
following guarantees, however the probability of having to make a payment under these guarantees is considered remote:
(a) Guarantees in the normal course of business relating to lease make-good obligations under certain operating lease contracts
(with the exclusion of those lease make-good payments that are considered to be probable and recognised as a provision in
Note 21. Provisions); and
Indemnities to financial institutions to support bank guarantees in respect of the performance of contracts.
(b)
No provision has been made in the financial statements in respect of these contingencies as the possibility of a probable outflow
under these guarantees is considered remote.
Contingent liabilities
The consolidated entity does not recognise liabilities that do not meet the recognition criteria as prescribed in AASB 137 Provisions,
Contingent Liabilities and Contingent Assets. Contingent liabilities are not recognised as liabilities if the possibility of a probable
outflow is considered remote as their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the consolidated entity.
At each reporting date, the consolidated entity assesses whether an outflow of future economic benefits has become probable. If it
becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent
liability, a provision is recognised in the financial statements of the period in which the change in probability occurs.
138
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
35.
(a)
FINANCIAL RISK MANAGEMENT
Financial Risk Management Objectives and Policies
The treasury function of the consolidated entity is responsible for the management of the following risks:
market risk;
credit risk; and
liquidity risk.
The consolidated entity’s principal financial liabilities, other than derivatives, comprise of trade and other payables and interest-
bearing loans and borrowings. The consolidated entity’s principal financial assets, other than derivatives, include cash and cash
equivalents, trade and other receivables and equity investments at fair value. The consolidated entity manages its exposure to key
financial risks, such as interest rate and currency risk in accordance with the consolidated entity’s Treasury Policy which is approved
by the Board of Directors. The objective of the Treasury Policy is to support the delivery of the consolidated entity’s financial targets
whilst protecting future financial security. The consolidated entity enters into derivative transactions, principally forward currency
contracts, to manage the currency risks arising from the consolidated entity’s operations and its sources of finance.
The consolidated entity uses different methods to measure and manage different types of risks to which it is exposed. These include:
monitoring levels of exposure to interest rate and foreign exchange risk;
monitoring assessments of market forecasts for interest rate and foreign exchange;
monitoring liquidity risk through the future rolling cash flow forecasts.
ageing analyses and monitoring of specific credit allowances to manage credit risk; and
The Board reviews and endorses policies for managing each of these risks as summarised below:
the setting of limits for trading in derivatives; and
hedging cover of foreign currency risk, credit allowances, and future cash flow forecast projections.
(b) Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Components of market risk to which the consolidated entity are exposed are discussed below.
(i) Foreign Currency Risk Management
Foreign currency risk refers to the risk that the value of financial instruments, recognised asset or liability will fluctuate due to
changes in foreign currency rates. The consolidated entity undertakes certain transactions denominated in foreign currencies, hence
exposures to exchange rate fluctuations arise.
The consolidated entity’s foreign currency exchange risk arises primarily from:
receivables or payables denominated in foreign currencies; and
firm commitments or highly probable forecast transactions for payments settled in foreign currencies.
The consolidated entity is exposed to foreign exchange risk from various currency exposures, primarily with respect to:
United States dollars;
New Zealand dollars;
Euro;
British pound;
Singapore dollars;
Malaysian ringgit; and
Croatian kuna
The consolidated entity minimises its exposure to foreign currency risk by initially seeking contracts effectively denominated in the
entity’s functional currency where possible and economically favourable to do so. Foreign exchange risk that arises from firm
commitments or highly probable transactions is managed principally through the use of forward currency contracts. The
consolidated entity hedges a proportion of these transactions in each currency in accordance with the Treasury Policy.
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives receivable
Financial liabilities
Trade and other payables
Interest-bearing loans and borrowings
Derivatives payable
Net exposure
CONSOLIDATED
June
2020
$000
44,375
5,167
-
49,542
34,351
11,742
187
46,280
3,262
June
2019
$000
37,962
7,282
5
45,249
28,807
12,016
49
40,872
4,377
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
139
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
FINANCIAL RISK MANAGEMENT (CONTINUED)
35.
(b) Market Risk (continued)
(ii) Interest Rate Risk Management
Interest rate risk is the risk that the fair value on future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.
The consolidated entity’s exposure to market interest rates relates primarily to cash and cash equivalents, non-trade debts receivable
from related entities and unrelated entities, bank overdraft, non-trade amounts owing to related parties, Syndicated Facility,
commercial bills and other short-term borrowings. The consolidated entity manages the interest rate exposure by adjusting the ratio
of fixed interest debt to variable interest debt to a desired level based on current market conditions. Where the actual interest rate
profile on the physical debt profile differs substantially from the desired target, the consolidated entity uses interest rate swap
contracts to adjust towards the target net debt profile.
Fixed interest rate maturing in
30 June 2020
Principal
subject to
floating
interest rate
1 year
or less
Over
1 to 5
years
More
than
5 years
Non-
interest
bearing
Total
Average interest rate
Cash
Consumer finance
loans
Finance lease
receivables
Receivables from
franchisees
Trade receivables
Other financial
assets
Non-trade
debts receivables &
loans
Syndicated Facility
and other short-
term borrowings
Trade creditors
Other loans
Bank overdraft
Bills payable
Other financial
liabilities
$000
$000
$000
$000
$000
$000
Floating
Fixed
203,649
28,998
-
-
-
-
-
-
570
-
-
-
-
-
912
-
-
-
- 1
80,548
313,195 0.00% - 1.92% 0.00% - 3.65%
-
-
-
-
-
2,734
2,734
2,721
4,203
352,359
352,359
116,353
116,353
48,413
48,413
-
-
-
-
-
-
11.00%
-
-
-
58,975
24,548
14,836
5,991
13,731
118,081 2.39% - 5.27% 5.00% -10.00%
262,624
54,116
15,748
5,991
616,859
955,338
264,638
-
4,237
18,749
9,750
-
297,374
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
264,638 0.95% -5.87%
351,772
351,772
-
280
4,517 2.37% - 3.20%
-
-
18,749 2.25% - 6.95%
9,750 1.44% -2.57%
187
187
-
-
352,239
649,613
-
-
-
-
-
-
Fixed interest rate maturing in
30 June 2019
Principal
subject to
floating
interest rate
1 year
or less
Over
1 to 5
years
More
than
5 years
Non-
interest
bearing
Total
Average interest rate
$000
$000
$000
$000
$000
$000
Floating
Fixed
169,617
2,675
-
-
-
-
-
-
579
-
-
-
-
-
820
-
-
-
-
-
-
-
-
-
42,756
215,048 0.01% - 3.15% 0.00% - 2.24%
3,876
3,876
2,727
4,126
607,731
607,731
104,905
104,905
48,258
48,258
-
-
-
-
-
-
11.00%
-
-
-
62,191
2,469
21,573
5,388
9,716
101,337 3.52% - 6.10% 5.00% - 9.50%
231,808
5,723
22,393
5,388
819,969
1,085,281
Cash
Consumer finance
loans
Finance lease
receivables
Receivables from
franchisees
Trade receivables
Other financial
assets
Non-trade
debts receivables &
loans
140
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
35. FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Market Risk (continued)
(ii) Interest Rate Risk Management
Fixed interest rate maturing in
30 June 2019
Principal
subject to
floating
interest rate
1 year
or less
Over
1 to 5
years
More
than
5 years
Non-
interest
bearing
Total
Average interest rate
$000
$000
$000
$000
$000
$000
Floating
Fixed
Syndicated Facility
and other short-
term borrowings
Trade creditors
Other loans
Bank overdraft
Bills payable
Finance lease
liabilities
Other financial
liabilities
794,417
-
4,245
29,232
9,750
-
-
-
-
-
-
-
-
-
-
-
-
1,622
1,942
-
-
-
-
-
-
-
-
-
-
794,417 1.27% - 6.12%
283,682
283,682
-
264
4,509 2.37% - 3.20%
29,232 1.20% - 6.95%
9,750 1.47% - 2.10%
-
-
-
3,564
- 3.30% - 10.21%
49
49
-
-
-
-
-
-
-
837,644
1,622
1,942
-
283,995
1,125,203
(iii) Equity Price Risk Management
The consolidated entity is exposed to equity price risk arising from equity investments. Equity investments are held for strategic
rather than trading purposes. The exposure to the risk of a general decline in equity market values is not hedged as the
consolidated entity believes such a strategy is not cost effective. The fair value of the equity investments publicly traded on the ASX
was $30.24 million as at 30 June 2020 (2019: $27.48 million). The fair value of the equity investments publicly traded on the NZX was
$15.45 million as at 30 June 2020 (2019: $16.86 million).
(iv)
Sensitivity analysis
At the reporting date, the consolidated entity’s exposure to interest rate risk, foreign currency risk (after taking into consideration
the hedge of foreign currency payables) and equity price risk are not considered material.
(c) Credit Risk
Credit risk refers to the loss that the consolidated entity would incur if a debtor or other counterparty fails to perform under its
contractual obligations.
Credit risk arises from the financial assets of the consolidated entity, which comprise receivables from franchisees, trade and non-
trade debts receivables, consumer finance loans and finance lease receivables. The consolidated entity’s exposure to credit risk
arises from potential default of the counter party, with a maximum exposure equal to the carrying amount of these financial assets.
The consolidated entity’s exposure to market interest rates relates primarily to:
The Franchisor constantly monitors and evaluates the financial position of each franchisee;
Conducting appropriate due diligence on counterparties before entering into an arrangement with them. It is the consolidated
entity’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures including an
assessment of their independent credit rating, financial position, past experience and industry reputation. Risk limits are set for
each individual customer in accordance with parameters set by the Board. These risk limits are regularly monitored;
Non-trade debts receivable are subject to regular monitoring and/or periodic impairment testing to ensure that they are
recoverable; and
Finance lease receivables are secured by assets with a value equal to, or in excess of, the counterparties’ obligation to the
consolidated entity.
The consolidated entity minimises concentrations of credit risk by undertaking transactions with a large number of debtors in various
countries and industries. In addition, receivable balances are monitored on an ongoing basis.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-
ratings assigned by international credit-rating agencies.
The table below represents the financial assets of the consolidated entity by geographic location displaying the concentration of
credit risk for each location as at balance date:
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
141
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
35. FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Credit Risk (continued)
Location of credit risk
Australia
New Zealand
Singapore and Malaysia
Slovenia and Croatia
Ireland and Northern Ireland
Total
(d)
Liquidity Risk
CONSOLIDATED
June
2020
$000
497,774
35,905
18,321
5,603
3,245
560,848
June
2019
$000
727,060
33,700
20,475
7,033
2,985
791,253
Liquidity risk includes the risk that, as a result of the consolidated entity’s operational liquidity requirements:
the consolidated entity will not have sufficient funds to settle a transaction on the due date;
the consolidated entity will be forced to sell financial assets at a value which is less than what they are worth; or
the consolidated entity may be unable to settle or recover a financial asset at all.
To help reduce these risks, the consolidated entity:
maintains instruments that are tradeable in highly liquid markets.
has readily accessible standby facilities and other funding arrangements in place; and
The Board reviews this exposure on a monthly basis from a projected 12-month cash flow forecast, listing of banking facilities,
explanations of variances from the prior month reports and current funding positions of the overseas controlled entities provided
by finance personnel. The following table details the consolidated entity’s remaining contractual maturity for its financial assets
and financial liabilities. The financial assets have been disclosed based on the undiscounted contractual maturities of the financial
assets including interest that will be earned on those assets. The financial liabilities have been disclosed based on the
undiscounted cash flows of the financial liabilities based on the earliest date on which the consolidated entity can be required to
pay.
30 June 2020
Non derivative financial assets
Cash and cash equivalents
Receivables from franchisees
Trade and other receivables
Other financial assets
Total financial assets
Non derivative financial liabilities
Trade and other payables
Interest bearing loans and borrowings
Derivative financial liabilities
Forward currency contracts
Less than
1 year
$000
1 to 2
years
$000
2 to 5
years
$000
Over 5
years
$000
Total
$000
313,195
352,359
163,859
30,237
859,650
-
-
6,452
-
6,452
-
-
40,455
-
-
-
11,047
18,176
313,195
352,359
221,813
48,413
40,455
29,223
935,780
351,772
106,360
-
-
171,388
25,155
187
-
-
-
-
-
-
351,772
302,903
187
654,862
Total financial liabilities
458,319
171,388
25,155
Net maturity
401,331
(164,936)
15,300
29,223
280,918
142
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
35. FINANCIAL RISK MANAGEMENT (CONTINUED)
(d)
Liquidity Risk (continued)
30 June 2019
Non derivative financial assets
Cash and cash equivalents
Receivables from franchisees
Trade and other receivables
Other financial assets
Derivative financial assets
Forward currency contracts
Less than
1 year
$000
1 to 2
years
$000
2 to 5
years
$000
Over 5
years
$000
Total
$000
215,048
607,731
138,350
28,883
5
-
-
-
-
6,976
51,085
-
-
-
-
-
-
6,200
19,370
215,048
607,731
202,611
48,253
-
5
Total financial assets
990,017
6,976
51,085
25,570
1,073,648
Non derivative financial liabilities
Trade and other payables
Interest bearing loans and borrowings
Derivative financial liabilities
Forward currency contracts
283,682
509,145
-
-
205,555
149,252
49
-
-
Total financial liabilities
792,876
205,555
149,252
-
-
-
-
283,682
863,952
49
1,147,683
Net maturity
197,141
(198,579)
(98,167)
25,570
(74,035)
(e)
Fair Value of Financial Assets and Financial Liabilities
The fair value of financial assets and financial liabilities are determined as follows:
The carrying amounts of cash and cash equivalents, receivables from franchisees, trade and other receivables, other financial
assets, trade and other payables and interest-bearing loans and borrowings are reasonable approximations of fair value.
The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets
are determined with reference to quoted market prices.
The fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance
with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market
transactions.
The consolidated entity enters into derivative financial instruments with various counterparties, particularly financial institutions
with investment grade credit ratings. Forward currency contracts are valued using valuation techniques which employs the use
of market observable inputs.
The consolidated entity uses various methods in estimating the fair value of financial instruments. The methods comprise:
Level 1 – the fair value is calculated using quoted prices in active markets.
Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices).
Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
The fair value of the financial instruments as well as the methods used to estimate the fair value are summarised in the table below.
30 June 2020
Financial Assets
Listed investments
Total financial assets
Financial Liabilities
Forward currency contracts
Total financial liabilities
Quoted market
price (Level 1)
$000
Market observable
inputs (Level 2)
$000
45,688
45,688
-
-
-
-
187
187
Total
$000
45,688
45,688
187
187
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
143
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
35.
FINANCIAL RISK MANAGEMENT (CONTINUED)
(e) Fair Value of Financial Assets and Financial Liabilities (continued)
30 June 2019
Financial Assets
Listed investments
Forward currency contracts
Total financial assets
Financial Liabilities
Forward currency contracts
Total financial liabilities
Quoted market
price (Level 1)
$000
Market observable
inputs (Level 2)
$000
44,344
-
44,344
-
-
-
5
5
49
49
Total
$000
44,344
5
44,349
49
49
Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date
without any deduction for transaction costs. The fair value of the listed equity investments are based on quoted market prices
and are included in level 1.
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques.
Forward currency contracts are measured using quoted forward exchange rates. These instruments are included in level 2.
(f)
Capital Risk Management Policy
The consolidated entity’s capital management policy objectives are to: create long-term sustainable value for shareholders;
maintain optimal returns to shareholders and benefits to other stakeholders; source the lowest cost available capital; and prevent
the adverse outcomes that can result from short-term decision making.
The consolidated entity is constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns
on assets. As the market is constantly changing, the consolidated entity may change the amount of dividends to be paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The capital structure of the
consolidated entity consists of debt, which includes the interest-bearing loans and borrowings disclosed in Note 17, cash and cash
equivalents disclosed in Note 26(a) and equity attributable to equity holders of the parent, comprising ordinary shares, reserves
and retained profits as disclosed in Notes 22, 25 and 23 respectively. None of the consolidated entity’s entities are subject to
externally imposed capital requirements.
Capital management is monitored through the net debt to equity ratio. The target for the consolidated entity’s net debt to equity
ratio is a tolerance level of up to 50%. As at 30 June 2020, the consolidated entity had unused, available financing facilities of $685
million – only utilising $293 million out of total approved financing facilities of $978 million. This has resulted in a net debt to
equity ratio of nil as at 30 June 2020, compared to a net debt to equity ratio of 19.46% as at 30 June 2019.
Borrowings (refer to Note 17. Interest-Bearing Loans and Borrowings)
Less: Cash and cash equivalents
Net (Cash) / Debt
Total equity (a)
Net debt to equity ratio (b)
CONSOLIDATED
June
2020
$000
297,841
313,195
(15,354)
June
2019
$000
841,521
215,048
626,473
3,533,326
3,219,841
-0.43%
19.46%
(a)
For the purpose of calculating the net debt to equity ratio, total equity excludes the negative acquisition reserve of $18.60 million
(2019: $22.05 million), the right-of-use assets in respect of property, plant and equipment leases of $513.78 million and investment
properties (leasehold): right-of-use assets of $621.90 million and the lease liabilities recognised under AASB 16 Leases of $1,173.09
million.
(b) As at 30 June 2020, the consolidated entity had a net cash of $15.35 million and therefore the net debt to equity ratio was
disclosed as nil.
36. DERIVATIVE FINANCIAL INSTRUMENTS
Hedging Instruments
The following table details the derivative hedging instruments as at balance date. The fair value of a hedging derivative is
classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current
asset or liability if the remaining maturity of the hedged item is less than 12 months.
144
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
36. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
(a)
Forward currency contracts – held for trading
Current Assets
Forward currency contracts – cash flow hedges
Current liabilities
Forward currency contracts – held for trading
Forward currency contracts – cash flow hedges
CONSOLIDATED
June
2020
$000
-
137
50
The consolidated entity has entered into forward currency contracts which are economic hedges but do not satisfy the
requirements of hedge accounting.
Currency
Average Exchange Rate
2019
2020
Euro (0-12 months)
US Dollar (0-12 months)
67.29
67.40
61.28
69.41
Total
CONSOLIDATED
2020
2019
Buy
$000
3,682
4,043
7,725
Sell
$000
-
-
-
Buy
$000
5,185
848
6,033
June
2019
$000
5
42
7
Sell
$000
-
-
-
These contracts are fair valued by comparing the contracted rate to the market rates at balance date. All movements in fair value
are recognised in the income statement in the period they occur. The net fair value losses on forward currency contracts during
the year ended 30 June 2020 was $0.14 million for the consolidated entity (2019: $0.04 million).
(b) Forward currency contracts – cash flow hedges
The consolidated entity purchases inventories from various overseas countries. As such, the consolidated entity is exposed to
foreign exchange risk from various currency exposures, primarily with respect to:
United States dollars; and
Euro.
In order to protect against exchange rate movements and to manage the inventory costing process, the consolidated entity has
entered into forward currency contracts to purchase US dollars and Euro. These contracts are hedging highly probable forecasted
purchases and they are timed to mature when payments are scheduled to be made. The following table details the forward
currency contracts outstanding as at reporting date:
Sell
$000
-
-
-
Currency
Average Exchange Rate
2019
2020
Euro (0-12 months)
US Dollar (0-12 months)
59.59
64.80
61.86
68.38
CONSOLIDATED
2020
2019
Buy
$000
1,293
291
Sell
$000
-
-
Buy
$000
2,058
285
Total
The forward currency contracts are considered to be highly effective hedges as they are matched against forecast
inventory purchases and firm committed invoice payments for inventory purchases. During the year ended 30 June 2020, the
hedges were 100% effective (2019: 100% effective), therefore the gain or loss on the contracts attributable to the hedged risk is
taken directly to other comprehensive income. When the inventory is delivered the amount recognised in other comprehensive
income is adjusted to the inventory account in the statement of financial position.
1,584
2,343
-
Movement in the forward currency contract cash flow hedge reserve:
CONSOLIDATED
June
2020
$000
June
2019
$000
Increase/(Decrease)
Opening balance
Transferred to inventory
Charged to other comprehensive income
Closing balance
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
(2)
2
(35)
(35)
(8)
8
(2)
(2)
145
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
37. DEED OF CROSS GUARANTEE
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, relief has been granted to certain controlled entities
of Harvey Norman Holdings Limited from the Corporations Act 2001 requirements for the preparation, audit and lodgement of their
financial reports. These controlled entities have entered into a Deed of Cross Guarantee with Harvey Norman Holdings Limited
(“Closed Group”). The effect of this Deed of Cross Guarantee is that Harvey Norman Holdings Limited has guaranteed to pay any
deficiency in the event of winding up a controlled entity within the Closed Group or if the controlled entity does not meet its
obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The controlled entities within the
Closed Group have also given a similar guarantee in the event that Harvey Norman Holdings Limited is wound up or if it does not
meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. The parties to the Deed
of Cross Guarantee include Harvey Norman Holdings Limited and the following controlled entities:
Generic Publications Pty Limited
Harvey Norman Big Buys Pty Limited
Harvey Norman Stores (N.Z.) Pty Limited
Network Consumer Finance Pty Limited
Arisit Pty Limited
Contemporary Design Group Pty Limited
Derni Pty Limited
Sarsha Pty Limited
Yoogalu Pty Limited
The Statement of Financial Position and Income Statement for the Harvey Norman Holdings Limited Closed Group are as follows:
Current Assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Intangible assets
Other assets
Total current assets
Non-Current Assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Property, plant and equipment: Right-of-use assets
Intangible assets
Total non-current assets
Total Assets
Current Liabilities
Trade and other payables
Interest-bearing loans and borrowings
Lease Liabilities
Income tax payable
Provisions
Other liabilities
Total current liabilities
Non-Current Liabilities
Interest-bearing loans and borrowings
Lease Liabilities
Provisions
Deferred income tax liabilities
Other liabilities
Total non-current liabilities
Total Liabilities
NET ASSETS
146
June
2020
$000
188,935
499,955
30,237
207,757
278
24,885
952,047
1,704,045
297,642
33,114
6,538
59,037
June
2019
$000
153,800
718,834
28,886
172,282
370
24,144
1,098,316
1,778,987
281,302
28,387
-
59,110
2,100,376
2,147,786
3,052,423
3,246,102
163,380
10,184
2,293
67,123
29,617
46,291
318,888
195,000
12,654
1,957
99,259
-
308,870
127,699
380,183
-
306
26,841
30,158
565,187
345,144
-
2,017
92,073
300
439,534
627,758
1,004,721
2,424,665
2,241,381
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
37. DEED OF CROSS GUARANTEE (CONTINUED)
Equity
Contributed equity
Reserves
Retained profits
Non-Controlling Interest
TOTAL EQUITY
Income Statement
Profit before income tax
Income tax
Profit after tax
Retained Earnings
Retained earnings at the beginning of the year
Profit after tax from continuing operations
Dividends provided for or paid
Retained earnings at the end of the year
38. PARENT ENTITY FINANCIAL INFORMATION
Statement of Financial Position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Contributed equity
Retained profits
Total Equity
Profit for the Year
Total Comprehensive Income
June
2020
$000
717,925
12,781
1,694,210
(251)
2,424,665
454,855
(114,378)
340,477
1,676,238
340,477
(322,505)
1,694,210
PARENT ENTITY
June
2020
$000
93
2,693,100
2,693,193
58,516
118,223
176,739
717,925
1,798,529
2,516,454
June
2019
$000
552,250
12,893
1,676,238
-
2,241,381
385,324
(85,570)
299,754
1,718,606
299,754
(342,122)
1,676,238
June
2019
$000
84
2,428,919
2,429,003
2,469
107,567
110,036
552,250
1,766,717
2,318,967
354,317
324,981
354,317
324,981
Arisit Pty Limited
Contemporary Design Group Pty Limited
Derni Pty Limited
Guarantees
The Parent Company is party to a Deed of Cross Guarantee (“Deed”) with the following controlled entities:
Generic Publications Pty Limited
Harvey Norman Big Buys Pty Limited
Harvey Norman Stores (N.Z.) Pty Limited
Network Consumer Finance Pty Limited
Sarsha Pty Limited
Yoogalu Pty Limited
The effect of this Deed is that the Parent Company has guaranteed to pay any deficiency in the event of winding up one of the above
controlled entities or if they do not meet their obligations under the terms of overdrafts, loans, leases or other liabilities subject to the
guarantee. The above controlled entities have also given a similar guarantee in the event that the Parent Company is wound up or if
it does not meet its obligations under the terms of overdrafts, loans, leases or other liabilities subject to the guarantee. Harvey
Norman Big Buys Pty Limited entered into the Deed with the Parent Company during the year ended 30 June 2020.
Contingent Liabilities
Refer to information provided in Note 34. Contingent Liabilities for disclosures relating to the Parent Entity.
HARVEY NORMAN HOLDINGS LIMITED | ANNUAL REPORT JUNE 2020
147
NOTES TO THE FINANCIAL STATEMENTS | JUNE 2020
39. CONTROLLED ENTITIES AND UNIT TRUSTS
The listing of controlled entities and unit trusts detailed on this page is not a complete and exhaustive list of all controlled entities and
unit trusts held by Harvey Norman Holdings Limited. The financial year of all controlled entities and unit trusts are the same as that of
the Parent Company.
Shares held by Harvey Norman Holdings Limited
A listing of material subsidiaries of Harvey Norman Holdings Limited are detailed below:
Arisit Pty Limited 1, 2
Harvey Norman Croatia d.o.o. 16,17
Harvey Norman Trading d.o.o. 15,16
Bencoolen Properties Pte Limited 7,8
Harvey Norman Europe d.o.o. 15, 16
Lighting Venture Pty Limited 1,4
Cascade Consolidated Sdn. Bhd. 10,11
Harvey Norman Holdings (Ireland) Limited 13
Network Consumer Finance Pty Limited 1,2
Consolidated Design Group Pty Limited 1
Harvey Norman Limited 5
Pertama Holdings Pte Limited 7,8,9
Contemporary Design Group Pty Limited 1,2
Harvey Norman Ossia (Asia) Pte Limited 7,8,9
Pertama Mechandising Pte Ltd 7,10
Derni Pty Limited 1,2
Harvey Norman Properties (N.Z.) Limited 5,6
Sarsha Pty Limited 1,2
Elitetrax Marketing Sdn. Bhd. 11,12
Harvey Norman Singapore Pte Limited 7,8
Space Furniture Pte Limited 7,8
Generic Publications Pty Limited 1,2
Harvey Norman Stores (N.Z.) Pty Limited 1,2
Space Furniture Collection Sdn. Bhd. 11
Harvey Norman Big Buys Pty Limited 1,2,3
Harvey Norman Trading (Ireland) Limited 13,14
Yoogalu Pty Limited 1,2
Notes:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Company incorporated in Australia.
Company is a member of the "Closed Group" relieved under the Class Order described in Note 37.
Harvey Norman Big Buys Pty Limited holds 99.02% of the shares in the KEH Partnership.
Lighting Venture Pty Limited holds 75% of shares in Glolight Pty Limited.
Company incorporated in New Zealand.
Shares held by Harvey Norman Limited.
Company incorporated in Singapore.
Harvey Norman Singapore Pte Limited owns 100% of the shares in Bencoolen Properties Pte Limited, 60% of the shares in Harvey
Norman Ossia (Asia) Pte Limited, 100% of the shares in Space Furniture Pte Limited and 50.62% of the shares in Pertama Holdings Pte
Limited.
Harvey Norman Ossia (Asia) Pte Limited holds 49.38% of the shares in Pertama Holdings Pte Limited.
Shares held by Pertama Holdings Pte Limited
Company incorporated in Malaysia
Shares held by Cascade Consolidated Sdn. Bhd.
Company incorporated in Ireland.
Shares held by Harvey Norman Holdings (Ireland) Limited.
Company incorporated in Slovenia.
Harvey Norman Europe d.o.o. owns 100% of the shares in Harvey Norman Trading d.o.o. and 100% of the shares Harvey Norman
Croatia d.o.o.
17
Company incorporated in Croatia.
Units in Unit Trusts held by Harvey Norman Holdings Limited
A listing of material unit trusts of Harvey Norman Holdings Limited are detailed below:
Calardu Trust
Calardu ACT Trust
Calardu Albury Trust
Calardu Alexandria DM Trust
Calardu Alexandria WH Trust
Calardu Auburn No. 1 Trust
Calardu Auburn No. 2 Trust
Calardu Auburn No. 4 Trust
Calardu Auburn No. 5 Trust
Calardu Auburn No. 6 Trust
Calardu Auburn No. 7 Trust
Calardu Auburn No. 8 Trust
Calardu Ballina No. 1 Trust
Calardu Bendigo Trust
Calardu Brookvale Trust
Calardu Midland Trust
Calardu Browns Plains No. 1 Trust
Calardu Munno Para Trust
Calardu Cairns Trust
Calardu Penrith No. 1 Trust
Calardu Cambridge Trust
Calardu Penrith Trust
Calardu Campbelltown Trust
Calardu Perth City West Trust
Calardu Cannington Trust
Calardu Preston Trust
Calardu Caringbah (Taren Point) Trust
Calardu Rutherford Trust
Calardu Devonport Trust
Calardu Gepps Cross Trust
Calardu Silverwater Trust
Calardu Springvale Trust
Calardu Hoppers Crossing Trust
Calardu Toowoomba No. 1 Trust
Calardu Loganholme Trust
Calardu Tweed Heads No. 1 Trust
Calardu Malaga Trust
Calardu Wodonga Trust
Calardu Maribyrnong Trust
Harvey Norman Discounts No. 1 Trust
Calardu Maroochydore Trust
Harvey Norman No. 1 Trust
40. SIGNIFICANT EVENTS AFTER BALANCE DATE
There have been no circumstances arising since balance date which have significantly affected or may significantly affect:
the operations;
the results of those operations; or
the state of affairs of the entity or consolidated entity in future financial years.
148
SHAREHOLDER INFORMATION
DISTRIBUTION OF SHAREHOLDINGS AS AT 28 SEPTEMBER 2020
Size of Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Number of Shareholders with less than a marketable parcel
Ordinary
Shareholders
7,587
8,121
2,323
2,141
168
20,340
504
VOTING RIGHTS
All ordinary shares issued by Harvey Norman Holdings Limited carry one vote per share.
TWENTY LARGEST SHAREHOLDERS AS AT 28 SEPTEMBER 2020
Number of
Ordinary Shares
Shareholder
Percentage of
Ordinary Shares
392,385,265
205,525,565
170,684,000
99,187,484
82,548,243
58,592,289
37,767,238
20,063,673
19,891,305
19,772,685
5,213,182
3,582,234
3,335,180
2,033,309
1,582,730
1,355,181
1,268,491
1,118,847
1,101,443
1,061,450
1,128,069,794
Mr. Gerald Harvey
Mr. Christopher Herbert Brown
HSBC Custody Nominees Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
Ms. Margaret Lynette Harvey
National Nominees Limited
Enbeear Pty Limited
BNP Paribas Nominees Pty Limited, BNP Paribas Noms Pty Limited & BNP Paribas
Noms (NZ) Limited
Ms. Kay Lesley Page
Argo Investments Limited
BKI Investment Company Limited
Mr. Michael Harvey
Omnilab Media Investments Pty Limited
AMP Life Limited
Navigator Australia Ltd
Mr. Arthur Brew
Mr. Chris Mentis
Mr. John Evyn Slack-Smith
Mr. Graeme Harvey
31.49%
16.49%
13.70%
7.96%
6.63%
4.70%
3.03%
1.61%
1.60%
1.59%
0.42%
0.29%
0.27%
0.16%
0.13%
0.11%
0.10%
0.09%
0.09%
0.09%
90.55%
149