2021 ANNUAL REPORT
Key Dates
Contents
Company Info
31 August 2021
Announcement of Full-Year
Profit to 30 June 2021 &
Announcement of Final 2021
Dividend
18 October 2021
Record Date for Determining
Entitlement to Final 2021
Dividend
15 November 2021
Payment of Final 2021
Dividend
24 November 2021 at 11:00am
Annual General Meeting of
Shareholders
25 February 2022
Announcement of Half-Year
Profit to 31 December 2021 &
Announcement of Interim 2022
Dividend
1 April 2022
Record Date for Determining
Entitlement to Interim Dividend
3 May 2022
Payment of Interim 2022
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
2021 Financial Highlights
Chairman and CEO’s Report
Operating and Financial Review
Directors’ Report
Remuneration Report
Environment, Social &
Governance (ESG) Report
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
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79
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85
Notes to the Financial Statements
86
Shareholder Information
148
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HOLDINGS LIMITED | ACN 003 237 545
ANNUAL REPORT JUNE 2021
2
OPERATING AND FINANCIAL REVIEW (CONTINUED)
CHAIRMAN AND CEO’S REPORT (CONTINUED)
HOLDINGS LIMITED | ACN 003 237 545
2021 RESULTS
EBITDA
CHAIRMAN AND CEO’s REPORT
$1.457 billion
Increase of $512.46 million from FY20
Reported PBT
$1.183 billion
Increase of $521.24 million from FY20
Income Tax Expense
$336 million
Increase of $160.42 million from FY20
SYSTEM SALES REVENUE
Total System Sales Revenue
$9.721 billion
Increase of $1.263 billion from FY20
ANNUAL REPORT JUNE 2021
ANNUAL REPORT JUNE 2021
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SUPPORTING WOMEN IN SPORT
Harvey Norman® also proudly supports Katie Kelly,
who is aiming to become a back-to-back gold
medallist at the Tokyo Paralympic Games in the
Para-triathlon PT5 classification for athletes with a
visual impairment. Katie approaches every challenge
as an opportunity, and to help provide opportunities
to other athletes with disabilities she started the
Sport Access Foundation. Over the last four years
the foundation has provided grants to 25 individuals
and sporting clubs, with three of the recipients
now going on to join Katie as part of the Australian
Paralympic Team at Tokyo.
For over a decade, Harvey Norman® has built a
reputation for a commitment to supporting female
athletes in Australia – ensuring they get the support
they need and the recognition they deserve. We’ve
set up programmes and initiatives to further this
commitment, with our Team Harvey project helping
Australian sportswomen achieve their professional
goals, and Team Harvey Junior providing
sponsorship opportunities to the next generation of
female champions – helping to remove obstacles for
participation at grassroots levels.
Supporting women in sport also includes building
strong relationships with athletes in brand
ambassador partnerships. This year it’s been
a privilege to have Ariarne Titmus as a brand
ambassador.
Ariarne and her family know a thing or two about
commitment. While many in the general public may
only see the moments of sporting triumph while
tuning in to the Olympics, what they don’t see are
the years of effort and sacrifice it takes to reach
those moments. A family uprooting their lives in
Tasmania to move to Queensland to pursue better
training opportunities. The early morning sessions
before a full day of schooling. The pressures of
having the hopes and dreams of a nation on your
shoulders while constantly trying to beat your
personal best.
At the recent Tokyo 2020 Olympics Ariarne has
shown what a star she is, winning gold medals in
the 400m and 200m Freestyle events, a silver medal
in the 800m Freestyle and a bronze in the 4x200m
Women’s Freestyle Relay. While only Ariarne can do
what she does in the pool, we’re happy we could be
part of the team supporting her beyond the lane
ropes – finding ways to make life outside training
that little bit easier so she could focus on her
sporting dreams.
KATIE KELLY
Paralympian
Tokyo 2020 Paralympic Games
HARVEY NORMAN®
BRAND AMBASSADOR
Picture: Chris Chen
4
ANNUAL REPORT JUNE 2021
2021 FINANCIAL HIGHLIGHTS
HARVEY NORMAN HOLDINGS LIMITED (HNHL)
EBITDA
EBITDA
Excluding AASB 16 net impact and net property revaluations
$1.457bn
FROM $944.67m in FY20
UP
BY
54.2%
$1.147bn
FROM $742.47m in FY20
UP
BY
54.4%
EBIT
EBIT
Excluding AASB 16 net impact and net property revaluations
$1.233bn
FROM $721.08m in FY20
UP
BY
71.0%
$1.059bn
FROM $654.86m in FY20
UP
BY
61.7%
REPORTED PBT
PBT
Excluding net property revaluations
$1.183bn
FROM $661.29m in FY20
UP
BY
78.8%
$1.042bn
UP
BY
66.4%
FROM $626.33m in FY20
REPORTED PROFIT AFTER TAX & NCI
PROFIT AFTER TAX & NCI
Excluding net property revaluations
$841.41m
FROM $480.54m in FY20
UP
BY
75.1%
$743.12m
UP
BY
63.0%
FROM $456.00m in FY20
NET DEBT TO EQUITY: 7.47%
NET DEBT OF $295.54m vs NET CASH OF $15.35m in FY20
UNUSED, AVAILABLE
FINANCING FACILITIES OF
$193.96m
TOTAL SYSTEM SALES REVENUE
$9.721 billion
AGGREGATED HEADLINE FRANCHISEE SALES REVENUE*...$6.952bn
COMPANY-OPERATED SALES REVENUE……...………….……$2.768bn
*Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity.
HNHL CONSOLIDATED REVENUES
$4.439 billion
SALES OF PRODUCTS TO CUSTOMERS…………….....…...$2.768bn
REVENUE RECEIVED FROM FRANCHISEES…...…….……...$1.346bn
REVENUES AND OTHER INCOME ITEMS…...………....…... $0.325bn
NET ASSETS
BASIC EARNINGS PER SHARE
$3.893 billion
12.0% from $3.477bn at Jun-20
67.53c
from 39.19c in FY20
539
FRANCHISEES
IN AUSTRALIA
192
FRANCHISED
COMPLEXES
IN AUSTRALIA
REPORTED PBT
DIVIDENDS PER SHARE
(FULLY FRANKED)
35.0c
$643.91m
107
$342.76m ( 113.8%) from $301.15m in 1H20
OFFSHORE COMPANY
OPERATED STORES
REPORTED PROFIT AFTER TAX & NCI
from 24.0c in FY20
ANNUAL REPORT JUNE 2021
5
OPERATING AND FINANCIAL REVIEW (CONTINUED)
CHAIRMAN AND CEO’S REPORT
Dear Shareholder,
As with FY2020, the world continues to be impacted severely this year by the ongoing effects of COVID-19. The 192
franchised complexes in Australia and the 107 company-operated stores in 7 countries continue to be subjected to various
Government mandated closures.
The number one priority has been to keep our customers safe, protect our staff and enable them to do their job in a safe
manner. We thank each and every one of you that has supported us during this prolonged unprecedented uncertainty. It is
with your support and trust that we continue to build our brands and provide our customers with an unparalleled retail
experience – whichever way you choose to shop with Harvey Norman®.
CHAIRMAN AND CEO’s REPORT
A common theme in the countries in which we operate has been low interest rates, strong housing prices and strong home
renovations, booming stock markets and record household deposits. This has translated to unprecedented sales for the
Harvey Norman® brands.
Our multiple-channel ecosystem has highlighted the strength of the physical retail and digital touchpoints in which customers
engage and transact with Harvey Norman®. We have a competitive advantage with our large format stores, displaying a huge
range of technology, home and lifestyle products accompanied by the knowledgeable and friendly staff of franchisees in
Australia and our overseas company-operated stores within an easy drive of customers. In addition to multiple payment
options, also on offer is express contactless click and collect available at the store or safe delivery to the home in-person.
These are the strong foundations of our commitment to being the best retailer by embracing the lifestyle of the customer
through our multiple sales channels.
The results achieved this year are testament to the resilience of our model.
Record Financial Results
• Record reported earnings before interest, tax, depreciation & amortisation (EBITDA) of $1.457 billion, up by $512.46
million or +54.2%.
• EBITDA (excluding AASB 16 impact and net property revaluations) of $1.147 billion, up by $404.09 million or +54.4%.
• Record reported earnings before interest & tax (EBIT) of $1.233 billion, up by $511.66 million or +71.0%.
• EBIT (excluding AASB 16 impact and net property revaluations) of $1.059 billion, up by $404.30 million or +61.7%.
• Record profit before tax (PBT) of $1.183 billion, up by $521.24 million or +78.8%, delivering a robust return on net assets
of 30.4% for FY21 compared to 19.0% for FY20.
•
PBT (excluding net property revaluations) of $1.042 billion, up by $415.82 million or +66.4%.
• Record net profit after tax and non-controlling interests (NPAT&NCI) of $841.41 million, up by $360.87 million or +75.1%.
• NPAT&NCI (excluding net property revaluations) of $743.12 million, up by $287.12 million or +63.0%.
• Offshore company-operated retail profit result of $240.79 million, up by $88.72 million or +58.3%, amid government
imposed lockdowns and restrictions to mobility.
•
Solid earnings per share of 67.53 cents, up by +72.3% from 39.19 cents for FY20.
• Very strong balance sheet with total assets of $6.67 billion, up by $844.33 million or +14.5% primarily driven by organic
growth from offshore store expansion and increases in the tangible freehold property portfolio.
• Net assets of $3.89 billion, up by $415.69 million, or +12.0%.
Property
•
•
•
6
30 June 2021: 192 franchised complexes in Australia and 107 company-operated stores overseas.
Strong freehold property portfolio valued at $3.37 billion as at 30 June 2021, up by $355.90 million or +11.8%, consisting
of 95 freehold investment properties in Australia and 25 owner-occupied land and buildings in New Zealand, Singapore,
Slovenia, Ireland and Australia and joint venture assets.
12 new company-operated stores opened during FY21, all in the first half of the financial year earlier than expected. New
stores were opened as follows: Ireland (2 stores): Galway (Jul-20), Sligo (Nov-20); New Zealand (3 stores): Dunedin Outlet
(Aug-20), Grey Lynn Commercial Showroom (Oct-20), Glen Innes Outlet (Oct-20); Singapore (3 stores): Seletar Mall (Sep-
20), The Centrepoint (Sep-20), Westgate (Nov-20); Croatia (1 store): Pula (Nov-20); and Malaysia (3 stores): KL East Mall
(Nov-20), Menara (Dec-20), Quayside Mall (Dec-20).
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
CHAIRMAN AND CEO’S REPORT (CONTINUED)
Property (continued)
•
•
1 new franchised complex opened in Australia during FY21 located at Hornsby, New South Wales in Oct-20, a full-
format complex boasting a premium fit-out with styling and embellishments derived from the flagship concept.
3 small-format franchised complexes were closed in Australia during FY21 located at West Wyalong (Sep-20),
Coburg (Jan-21) and Cleveland (Jun-21).
• We recommenced the refit program this financial year with the completion of premium refits of franchised complexes
located at Cairns, Campbelltown, Aspley, Launceston, Mackay and Maribyrnong. We expect to complete up to 40
premium refits over the next 5 years.
CHAIRMAN AND CEO’s REPORT
Outlook
During the 2022 financial year, we intend to open up to 3 franchised complexes in Australia and 3 company-operated
stores overseas: 1 in Malaysia, 1 in Croatia and 1 in Ireland. Beyond the upcoming financial year, we intend to open up
to 2 franchised complexes in Australia during the 2023 financial year and we intend to relocate 1 franchised complex
from a leased site to a freehold property. We expect our offshore expansion plans to ramp-up towards the end of
calendar 2022 and we anticipate opening up to 8 company-operated stores overseas during FY23: 4 in New Zealand, 3
in Malaysia and 1 in Croatia.
We are announcing our intention to open 2 leasehold company-operated stores in Budapest, Hungary during calendar
year 2023. Hungary borders Slovenia and Croatia, and with the collective population of the 3 countries added together,
the Harvey Norman® brand can potentially reach approximately 16 million people.
Rolling lockdowns in most States and Territories of Australia have affected sales in July and August 2021, even though
Contactless Click & Collect and home delivery are operating for customers from 192 Australian franchised complexes.
These rolling lockdowns have continued into September 2021. Over 15 million people, or approximately 58% of the
Australian population, are currently in lockdown. However, we expect spending to recover quickly as we saw when
lockdown restrictions were eased in our overseas markets due to pent-up demand.
Malaysia closed from 1 June 2021 due to large outbreaks of COVID-19 in the country. Malaysian stores commenced
limited opening to customers from 21 August 2021. On 18 August 2021, New Zealand went into Level 4 lockdown with
no store click and collect permitted, but contactless home delivery allowed. All New Zealand stores outside of Auckland
commenced limited opening to customers from 7 September 2021, with click and collect permitted in Auckland from 22
September 2021. Our other 5 countries have been open in July, August and September 2021.
Refer to the post-year end retail trading update on page 26 of this report for further information on aggregated sales for
Australian franchisees and overseas company-operated stores from 1 July 2021 to 26 August 2021. With the exception
of Malaysia which was significantly affected by the lockdowns during this period, these reflect a continued elevated
customer demand with solid headline sales growth rates ahead of the comparable period in July and August 2019.
We thank our staff for their continued loyalty and commitment to our long-term vision and strategy, and we thank our
franchisees for their exemplary achievements this year and the continued support of their local communities. We value
and appreciate the continued support and confidence of our shareholders in the leadership and future direction of our
business.
ANNUAL REPORT JUNE 2021
7
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW
Group Results for 30 June 2021
The directors report a record result for the year ended 30 June 2021, with a $521.24 million or +78.8% increase in profit before tax
to $1.183 billion, up from $661.29 million in the 2020 financial year.
Excluding the effects of the net property revaluation adjustments both years, profit before tax increased by $415.82 million or
+66.4% to $1.042 billion, up from $626.33 million in the 2020 financial year.
The PBT return on net assets was 30.4% for the 2021 financial year, compared to a PBT return on net assets of 19.0% for the 2020
financial year.
Reported profit after tax and non-controlling interests increased by $360.87 million or +75.1% to $841.41 million in FY21, up from
$480.54 million in FY20. Excluding the after-tax effects of net property revaluation adjustments in both years, profit after tax was
$743.12 million for FY21, a $287.12 million or +63.0% increase from FY20.
The effective tax rate for the consolidated entity was 28.39% for FY21 compared to an effective tax rate of 26.50% for FY20. The
effective tax rate of the consolidated entity is akin to the 30% corporate tax rate in Australia, despite the corporate tax rates of the
7 overseas countries where our company-operated retail stores operate ranging from 17% to 28%.
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ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Segment Analysis
An Integrated Retail, Franchise, Property and Digital Strategy
The consolidated entity operates an integrated retail, franchise, property and digital strategy, comprising three main pillars:
1. Retail - 2. Franchise - 3. Property, complemented by a robust and sustained investment in technology, digital transformation and
IT infrastructure assets.
1
2
3
Offshore Company—
Operated Retail Segment
Franchising
Operations Segment
Profit before tax
$240.79m
Representing 20% of PBT
or 23.1% (excluding net property revaluations)
Profit before tax
$628.19m
Representing 53% of PBT
Property Segment
Profit before tax
$291.54m
Representing 25% of PBT
Increase of
$88.72m or +58.3%
Increase of
$279.60m or +80.2%
Increase of
$118.35m or +68.3%
Profitability of the franchising
operations segment increased by
$279.60 million or +80.2% to
$628.19 million for FY21,
compared to $348.59 million for
FY20.
This increase was achieved by
strong growth in franchising
operations segment revenues to
$1,237.71 million for FY21, an
increase of $288.67 million, or
30.4%, from $949.04 million in
FY20, primarily due to higher
franchise fees received from
franchisees during the year
underpinned by a 12.8% increase
in aggregated headline franchisee
sales revenue to $6.95 billion for
FY21, compared to $6.16 billion
for FY20.
Robust franchising operations
margin of 9.04% for FY21,
compared to 5.66% for FY20.
The retail property segment
delivered a result of $291.79
million in FY21 compared to a
result of $173.19 million in FY20,
an increase of $118.60 million or
+68.5%.
This was primarily achieved by a
$105.42 million increase in the net
property revaluation increment to
$140.37 million for FY21, up from
a net revaluation increment of
$34.96 million for FY20.
Strong freehold property portfolio
valued at $3.37 billion as at 30
June 2021, up by $355.90 million
or +11.8%.
Leasehold property portfolio
valued at $1.13 billion as at 30
June 2021, $620.46 million
relating to leases of investment
properties sub-leased to external
parties and $511.17 million
relating to leases of owner-
occupied properties and plant
and equipment assets.
Offshore company-operated retail
segment delivered strong retail
revenue for FY21 of $2.61 billion,
up by $480.12 million or +22.6%
from FY20.
Profit of the offshore company-
operated retail segment increased
by $88.72 million or +58.3%, to
$240.79 million in FY21, from
$152.08 million in FY20, the
highest ever overseas full-year
PBT.
NZ was the largest contributor to
this growth, increasing by $42.45
million or +42.8%, to $141.61
million in FY21.
The retail result for Ireland and
Northern Ireland increased by
$35.01 million or +208%, to
$51.89 million in FY21.
The retail result for Singapore and
Malaysia increased by $8.30
million, or +30.1%, to $35.92 mil-
lion in FY21.
The retail result for Slovenia and
Croatia increased by $2.95 million,
or +35.0%, to $11.38 million in
FY21.
ANNUAL REPORT JUNE 2021
9
The Franchising Operations Segment in Australia
The Franchised Opera(cid:415)ng Model in Australia
Harvey Norman Holdings Limited (HNHL) and subsidiaries of HNHL own valuable intellectual
property rights, including the trade marks Harvey Norman®, Domayne® and Joyce Mayne®,
so(cid:332)ware and other confiden(cid:415)al informa(cid:415)on 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 par(cid:415)cular branded complex,
pursuant to the terms of a franchise agreement.
Each franchisee owns and controls the franchisee business of that franchisee. Each franchisee
has control over the day-to-day opera(cid:415)ons of the franchisee business and has the discre(cid:415)on
and power to make the decisions necessary to drive sales, control floor margins and contain
opera(cid:415)ng costs to maximise the 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 opera(cid:415)ons 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 accommoda(cid:415)on
facility that is made available to each franchisee. The franchising opera(cid:415)ons segment also
includes the costs of opera(cid:415)ng the franchised system and monitoring and evalua(cid:415)ng the
performance and compliance of franchisees with their franchise agreements.
With an unrivalled national store and click & collect network,
the Harvey Norman®, Domayne® and Joyce Mayne®
franchised complexes are an easy drive for 23 million people
in towns, regions and capitals cities across Australia, with
further growth planned in the coming years.
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ANNUAL REPORT JUNE 2021
166
Franchised
Complexes
19 Franchised
Complexes
7 Franchised
Complexes
539
Number of independent franchisees
carrying on their business under
Harvey Norman®, Domayne® and
Joyce Mayne® brands.
192
Franchised complexes in Australia
trading under the Harvey Norman®,
Domayne® and Joyce Mayne®
brand names.
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Franchising Operations Segment
Franchisee sales revenue underpins the franchising
operations segment. For 1H21, we reported that Australian
franchisee sales revenue had increased by $805.09 million
or +27.3% to $3.76 billion, up from $2.95 billion in 1H20.
This led to a record franchising operations segment result of
$383.96 million for 1H21 and a record franchising
operations margin of 10.22% for the first-half of FY21.
Franchisee sales growth moderated in 2H21, primarily due
to cycling pandemic-fuelled comparatives in 2H20,
decreasing by $15.32 million or –0.5% to $3.194 billion,
from $3.21 billion in 2H20. The franchising operations
segment result remained solid at $244.23 million, with a
strong franchising operations margin of 7.65% - both record
achievements for a second-half period.
Aggregated franchisee sales revenue reached record highs
this year, increasing to $6.95 billion for the 2021 financial
year, an increase of $789.77 million or +12.8%, from $6.16
billion in the previous year.
The higher franchisee sales revenue has driven a $279.60
million, or +80.2%, increase in the franchising operations
segment result to a record $628.19 million for FY21,
compared to $348.59 million for FY20. This result has
generated a record full-year franchising operations margin
of 9.04% for FY21, an increase of 338 basis points, from the
5.66% franchising operations margin reported in FY20.
The growth in the franchising operations segment result is
attributable to the strong growth in franchising operations
segment revenues to $1.238 billion for FY21, an increase of
$288.67 million, or +30.4%, from $949.04 million in FY20.
This was primarily due to higher franchise fees received
from franchisees by $295.52 million this year.
Growth in rental income received from franchisees for
leased franchised complexes was flat due to the rental
support and assistance granted by the franchisor to those
franchisees affected by the 11-week COVID-19 mandatory
store closures in greater Melbourne, Victoria from 6 August
to 27 October 2020.
Operating expenses were largely consistent with the
previous year, despite the large increase in franchising
operations revenue, only increasing by 1.5% relative to
FY20.
FRANCHISING OPERATIONS SEGMENT
1H
2H
FY
Franchising Operations Segment PBT ($m)
Franchisee Aggregated Sales Revenue* ($bn)
Franchising Operations Margin (%)
FY21
FY20
FY19
$383.96m $244.23m $628.19m
$123.86m $224.73m $348.59m
$158.47m $89.93m $248.40m
FY21 $3.758bn $3.19bn $6.95bn
FY20 $2.953bn $3.21bn $6.16bn
FY19 $2.950bn $2.71bn $5.66bn
9.04%
FY21
FY20
5.66%
FY19
4.39%
10.22%
4.19%
5.37%
7.65%
7.00%
3.32%
*Sales made by franchisees in Australia do not form part of the financial results of the consolidated entity.
ANNUAL REPORT JUNE 2021
11
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Australian 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 is reported to the market as it is a key indicator of the performance of the franchising operations segment.
from consumers looking to upgrade and expand their range
of quality appliances at home.
Within Audio Visual, demand has remained for big screen in
home experiences as the stay at home and entertain at home
trend has continued. The latest 8K and 4K TV ranges from
premium brands continued to be a primary focus of
consumers and underpinned the strong growth overall in this
key category.
Continuing the home inspired focus of consumers, Furniture
and Bedding franchisees have performed strongly
throughout the year with solid sales increases in Sleep
Surface, lounges and home office categories. The upgrade
and expansion of outdoor entertaining areas in Australian
homes has delivered solid growth in outdoor furniture and
BBQ’s, and these lifestyle categories are expected to remain
in demand.
The home-focused Australian consumer has continued to
provide an environment for growth for franchisees throughout
the financial year.
Aggregated franchisee sales revenue was $6.95 billion for the
year ended 30 June 2021, an increase of $789.77 million or
12.8%, from $6.16 billion in the previous year ended 30 June
2020. On a comparable basis, franchisee sales were $6.92
billion, an increase of 12.9%.
Technology franchisees experienced strong demand for
Smart Phones, Gaming Laptops and PCs that provide power
and performance. With Australian homes continuing to move
quickly to being digitally connected, driven by remote
working and learning, categories such as Connected Home,
Mobile Technology and Super Wi-Fi have surged. The
Telecommunications category had another strong year
underpinned by offers to connect to the Optus network
throughout Australia. This is a strategic long term growth
category for Harvey Norman®, Domayne® and Joyce Mayne®
franchisees.
Within the Home Appliance category, the strong uptake of the
Federal Government’s Homebuilder grants program and the
ensuing renovations that have followed has led to strong
demand for kitchen products. Smart Refrigeration, smart
kitchen appliances and sensor cooking have all benefited
12
ANNUAL REPORT JUNE 2021
Hornsby, NSW Franchised Complex
OPERATING AND FINANCIAL REVIEW (CONTINUED)
A ‘Customer-Centric’ Strategy
The consolidated entity has continued to
invest in technology, digital transformation
and infrastructure.
This investment has enabled Harvey
Norman®, Domayne® and Joyce Mayne®
franchisees to continue to enhance their
capabilities to deliver the Shop Safe
experience for their customers, to uphold
COVID Safe practices and execute their
Customer-Centric strategies.
With 192 locations geographically-
spread across Australia, customers can
Shop Locally With Confidence with
stores and inventory within a short drive.
Customers can shop in-store or they can
opt for Contactless Click & Collect to
have goods delivered to their car, safe
in the knowledge they are following the
guidelines in place for their location.
Near Real-Time Inventory provides
their customers with accurate, up-to-date
stock information, confirming their local
franchisee has the products they are
looking for. On Demand and Contactless
Delivery options help provide the
essential products customers need, faster
and more cost-effectively — locally.
LiveChat Messaging and Chatbot
contactless solutions digitally connect
Harvey Norman® franchisees with
customers across the country, and assist in
keeping local communities safe.
Each franchisee is committed to delivering
Quality, Value & Service to their
customers.
Highlights Achieved by Harvey Norman®, Domayne® and Joyce Mayne® Australian Franchisees:
with any strict COVID-19 mandated
restrictions or lockdowns.
prepared when they arrive.
• Click & Collect services enables
customers to connect online with
franchisee in-store experts. Through
integrated notifications, the customer
can, at the press of an ‘On My Way’
button on their device, advise the
franchisee that they are on their way to
collect their order, and an ‘I’m Here’
button allowing the franchisee to be fully
• Tens of thousands of Contactless Click
& Collect customers used the integrated
notifications in Microsoft Teams. On
average, customers travel to their
nearest store within approximately 12
minutes and, if they choose Contactless
Click & Collect, the average wait time at
store for the safe delivery to their car is
approximately 6 minutes.
• There has been a significant uptake
of customers taking advantage of the
various flexible Click & Collect options
offered by franchisees.
• 1-Hour Click & Collect is now common
and widespread. Customers can
research online — using the myriad
of messaging platforms available to
them to receive expert product advice
— before they head to the franchised
complex after using Click & Collect. With
over 80% of orders ready within 1-hour
and a Customer Satisfaction (CSAT)
score of 84%, this has been one of the
most attractive options customers have
adopted this year.
• Since the commencement of the
pandemic, approximately 95% of
customers still go to their nearest, local
franchised complex for either 1-Hour
Click & Collect and Express Contactless
Click & Collect. The complexes have
dedicated Click & Collect parking
bays to ensure that customer pick-
up is a frictionless experience.
Contactless Click & Collect has enabled
each Harvey Norman® franchisee to
serve their customers while complying
Helping you shop safely for your home essentials
SHOP SAFE
ANNUAL REPORT JUNE 2021
13
OPERATING AND FINANCIAL REVIEW (CONTINUED)
A ‘Customer-Centric’ Strategy (continued)
• Harvey Norman® customers have
embraced LiveChat from the beginning
and now messaging is continuing to
drive this functionality. LiveChat aims to
make life easier for customers wherever
they are, fitting into their schedule, and
available on all the messaging platforms
customers prefer including Messenger,
iMessage, WhatsApp, Apple Business
Chat and SMS. Chatbots are a milestone
in building a powerful customer service
platform. Customers wanting order
updates and store trading hours are a
great example of how Chatbots respond
with known information. This frees up
LiveChat and Messaging agents to
focus on more specific customer needs,
delivering on the expertise for which
Harvey Norman® is well-known.
• Quick Reserve allows customers of
Harvey Norman® franchisees to quickly
reserve products online to view at their
local franchised complex.
providing more and more customers of
each franchisee with same-day delivery
options that are fast and affordable.
• The new Harvey Norman® Store
Finder, with dedicated hours for Click
& Collect as well as Local Government
Area information, has recently launched.
Improved location management during
COVID allows customers to access
timely and informative information on
all franchised locations including trading
hours and available Contactless and
Click & Collect services - a highly-utilised
informative tool during a pandemic.
Locations now include precise pick-up
location information at both retail stores
and warehouses. In an ever-changing
environment, where local stores for
essentials have never been more
important to customers, it’s critical to
provide franchisee customers making the
journey to a local store with
time-sensitive information.
• With faster delivery expected now more
than ever, Australia Post on Demand is
• Franchisees continue to improve the
mobile experience for customers,
enabling communication and
collaboration between customer
and franchisee by combining chat,
messaging and location information.
The smartphone is the device of choice
for customers researching and
shopping online.
• The rollout of Trak by Harvey Norman®
is now complete for Harvey Norman®
franchised complexes throughout
Australia. This logistics technology
optimises route planning for franchisee
deliveries and provides automated
customer communication, with
real-time tracking. Customers receive
an SMS link to a live location showing
the status of their impending delivery
and the expected arrival time at its
destination.
PHONE YOUR
LOCAL STORE
Store Finder
Helping you shop safely for your home essentials
SHOP SAFE
14
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Offshore Company-Operated Retail Segment
23.1%
OF TOTAL
CONSOLIDATED PBT
(excluding net property revaluations)
Record FY21 Offshore
Retail Revenue
$2.61bn
UP BY $480.12m (+22.6%)
Record FY21 Offshore
Retail PBT
$240.79m
UP BY $88.72m (+58.3%)
Overseas, the 107 Harvey Norman® branded stores are company-owned and company-operated.
During the first half of FY21, we reported opening 12 new stores overseas, with a number of them opened earlier than
expected. This was a year of a number of ‘firsts’: the first time offshore aggregated retail profit nudged the $A0.25 Billion
milestone, and the first time sales from our NZ stores surpassed the $A1.0 Billion dollar mark.
At varying points during the year, our offshore stores were compelled to close under the respective government directives.
Where permitted by the respective governments, our offshore stores continued to trade through their digital platforms to meet
customer needs.
Across the 7 offshore countries in which we operate, our 107 company-operated stores employ over 5,000 full-time and part-
time staff. We continue to prioritise the safety and livelihoods of our employees to ensure that they were not disadvantaged by
government-mandated closures and can continue to work in a COVID-safe manner.
The graph below represents the aggregate value of overseas retail revenue achieved over the past 5 years. Total overseas retail
revenue grew by $480.12 million, or 22.6%, to $2.61 billion for FY21, relative to $2.13 billion for FY20, with each country
delivering sales growth year–on–year.
The graph below shows the profit trajectory of the overseas retail segment. Offshore profitability has grown by 138.7% in the last
5 years and, for FY21, it represents 20.4% of total consolidated profit before tax. Offshore profitability has increased by $88.72
million, or 58.3%, to $240.79 million for FY21, up from $152.08 million for FY20.
ANNUAL REPORT JUNE 2021
15
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Offshore Company-Operated Retail Segment (continued)
New Zealand
43 Harvey Norman® Company-Operated Stores
In New Zealand, we were pleased to see the strong
momentum in sales growth reported for 1H21 continue into
2H21, with NZ sales far surpassing the billion dollar milestone
in Australian dollars for the first-time since opening the first NZ
store in 1997. Robust sales have also enabled the NZ business
to achieve another significant milestone of reaching a retail
profit result of well over $100 million for the first time this year.
The NZ business was subjected to 3 sharp, targeted
lockdowns affecting 11 stores in Auckland for short periods
ranging from 3 days to just under 3 weeks in FY21. This was in
contrast to the nationwide Alert Level 3 and 4 Restrictions last
year that saw all stores in NZ closed to the public for a 7-week
period.
In local currency, sales grew to NZ$1.23 billion in FY21, up by
NZ$220.64 million or +21.8%. When translated to Australian
dollars, sales increased to $1.15 billion in FY21, up by $187.97
million or +19.6% from $960.19 million in FY20. In local
currency, the retail profit result increased to NZ$152.12
million, up by NZ$47.54 million or +45.5%. When translated
to Australian dollars, the retail result increased to $141.61
million in FY21, up by $42.45 million or +42.8% from $99.16
million in FY20.
New Zealand
Opened 3 new stores
• Dunedin Outlet (Aug-20)
• Grey Lynn Commercial Showroom (Oct-20)
• Glen Innes Outlet (Oct-20)
43
STORES
Sales were positively impacted by the opening of 2 new
outlets in Auckland located at Dunedin on 8 August 2020 and
Glen Innes on 26 October 2020 and the Grey Lynn, Auckland
commercial showroom on 15 October 2020, along with a full
year’s trade at the Takanini and Northwood outlets opened
during the second half of FY20. The Wairau Park flagship
store at Auckland continues to perform strongly.
The pent-up demand from limited travel and entertainment
options, complemented by a strong NZ property market has
continued to give consumers the confidence to invest in their
homes. All key categories have recorded strong sales growth
during the year. The furniture and bedding categories have
benefited from the ready availability of NZ made product
ranges. The electrical and computer categories have
experienced strong consumer demand for whitegoods,
cooking appliances and hardware as consumers focus on
improving their homes & home offices.
16
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Offshore Company-Operated Retail Segment (continued)
Singapore and Malaysia
This segment is comprised of 14 Harvey Norman® stores in Singapore,
26 Harvey Norman® stores in Malaysia and the Space Furniture®
branded lifestyle stores in Singapore and Malaysia.
The performance of our Singapore and Malaysian stores has
remained stable during FY21 despite the challenges of the pandemic,
with the organic growth of this segment remaining a key focus.
This growth is mainly attributed to the increased contributions
from new store openings, coupled with the continued strong de-
mand for home appliances and computers for working from home
arrangements. Sales in our Ikano, Kuala Lumpur flagship store also
continued to grow in 2H21, highlighting our strong product range,
customer-friendly layout and focus on COVID safety measures so
that customers can shop in confidence, safety and comfort, as they
manage the evolving COVID situation and changing restrictions.
3 new stores in Malaysia opened in the first half of FY21: KL East Mall
on 25 November 2020, Menara on 5 December 2020 and Quayside
Mall on 19 December 2020. There were also 3 new store openings in
Singapore: Seletar Mall on 15 September 2020, The Centrepoint on
22 September 2020 and Westgate on 25 November 2020. One
Singaporean store, Kinex Mall closed on 27 September 2020.
The Malaysian National Vaccination Program, in addition to the
National Recovery Plan announced by the Malaysian Government
in June 2021, are expected to restore business confidence and
stimulate further trade as the economy grows in a post-COVID
world. We remain committed to our expansion plans in Malaysia
& anticipate opening 1 new store in FY22 & 3 new stores in FY23.
26
STORES
14
STORES
Malaysia | Sales Revenue
26 Harvey Norman® Company-Operated Stores
In Malaysia, we had disclosed strong first-half sales of S$126.40
million for 1H21, an increase of 12.6% from sales of S$112.27 million
in 1H20, leveraging off 3 store openings - KL East Mall (Nov-20),
Menara and Quayside Mall (both in Dec-20), and a full 6-months trade
from the 5 new stores opened in the first half of FY20. 1H21 sales
were impacted by lower foot traffic due to inhibited mobility and
shortened trading hours throughout many regions, set in force by the
Recovery Movement Control Order (RMCO) and the Conditional
Movement Control Order (CMCO), although there were no closures
and all stores remained open to the public.
Solid sales in 1H21 placed the Malaysian business in good stead to
have a strong second half, however, on 13 January 2021, a stricter
Movement Control Order (MCO) was re-introduced for certain States
with a spike in COVID cases, and from May 2021 the MCO was
extended to all of Malaysia. Pursuant to the MCO, 12 stores in Kuala
Lumpur and Penang were closed for a 3-day period from 9 to 11 May
2021. Surging COVID-19 cases resulted in the re-imposition of the
Full Movement Control Order (FMCO) on 28 May 2021 leading to the
full closure of all 26 Malaysian stores from 1 June 2021, with all stores
reverting to online trade. Malaysian stores commenced limited
opening to customers from 21 August 2021.
Malaysian sales for the 26 Harvey Norman® company-operated stores
for FY21 was S$242.92 million, an increase of S$34.72 million, or
+16.7% from S$208.20 million in FY20. When translated to Australian
Dollars, the sales increase moderated to $17.41 million, or +7.8%,
due to a 7.6% devaluation of the Singaporean dollar relative to the
Australian dollar during the year.
Singapore | Sales Revenue
14 Harvey Norman® Company-Operated Stores
For Singapore, trade continued mostly uninterrupted through
FY21. The Singaporean Government’s approach in gradually
re-opening malls and other public areas, combined with decisive
additional restrictions when required to control the spread of
COVID-19, has resulted in only one temporary closure of the
Westgate store from 23 May to 4 June 2021, compared to the 10-
week closure of all Harvey Norman® stores in Singapore in the
second half of the 2020 financial year.
Sales for the 2021 financial year grew to S$324.19 million, an in-
crease of S$56.98 million or 21.3%, primarily due to a full 6-months
trade of the 3 new stores in 2H21 and due to cycling lower com-
paratives in 2H20 due to the prolonged COVID closures last year.
Sales in Australian Dollars increased by $34.69 million or 12.1%.
Our flagship store at Millennia Walk has continued to perform
strongly in FY21, showcasing the impressive range on offer, with its
expansive generous showroom facilitating social distancing while
continuing to deliver an unparalleled shopping experience to its
customers.
Retail – Singapore and Malaysia: Sales & Segment Result
Aggregated sales revenue for the Harvey Norman® and Space
Furniture® brands in Asia totalled S$580.54 million in local
currency for FY21, representing an increase of S$93.53 million, or
19.2%, from S$487.01 million in FY20. On translation to Australian
dollars, the devaluation of the Singapore dollar relative to the Aus-
tralian dollar during the year, resulted in a reduced increase of
$51.74 million or 9.8%, from $525.75 million in FY20.
Profitability has improved in Singapore and Malaysia through
improved margins and carefully targeted cost reductions, despite
additional costs incurred in opening 6 new stores during FY21.
The segment profit result of the Harvey Norman® and Space
Furniture® brands in Asia was $35.92 million, an increase of $8.30
million, or 30.1%, from $27.62 million in FY20. This was inclusive
of wages support and assistance received of $3.64 million in
Singapore and $0.11 million received in Malaysia in FY21, from
their respective governments in response to COVID-19.
ANNUAL REPORT JUNE 2021
17
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Offshore Company-Operated Retail Segment (continued)
Slovenia
5 Harvey Norman® Company-Operated Stores
Croatia
2 Harvey Norman® Company-Operated Stores
In Slovenia, the COVID pandemic resulted in the imposition of
store closures for all 5 stores between October 2020 and
February 2021. Stores fully re-opened on 15 February 2021, with
trading continuing throughout the remainder of 2H21.
In Croatia, there were no retail lockdowns throughout FY21,
allowing uninterrupted trade in the flagship store at Zagreb,
and the new Pula Store, which opened on 26 November
2020.
The pleasing sales growth reported in 1H21 has continued
throughout 2H21. Our Slovenian stores, including our flagship at
Ljubljana, have delivered double-digit sales growth overall in
FY21 and strong growth was achieved across all key product
categories. Sales from the 5 company-operated stores in
Slovenia increased €9.36 million or 12.8% to €82.40 million for
FY21. In Australian Dollars, sales increased $11.28 million or
9.4% to $131.63 million.
The result for Slovenia was a profit of $11.27 million for FY21,
representing a $3.01 million increase or 36.4%. This was
inclusive of government wages support and assistance received
in Slovenia of $0.28 million in FY21 in response to COVID-19.
2
STORES
5
STORES
We intend to open 2 new stores in Croatia over the next 2
years—a new store at Rijeka in FY22 and a second store in the
Croatian capital of Zagreb in FY23.
Sales for 1H21 were €13.07 million, an increase of €1.51
million or 13.1% from the previous corresponding period.
Sales for the 2021 financial year grew to €29.80 million,
increasing by €9.15 million or +44.3% for the full year.
Growth in 2H21 was largely due to a full 6-months
contribution of the new Pula store. In Australian Dollars, sales
increased by $13.58 million or 39.9%.
The retail result in Croatia was a profit of $0.11 million for
FY21, compared to a profit of $0.17 million in the previous
financial year.
Croatia
Opened a 2nd store at Pula on
26 November 2020
18
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Offshore Company-Operated Retail Segment (continued)
Ireland
15 Harvey Norman® Company-Operated Stores
Northern Ireland
2 Harvey Norman® Company-Operated Stores
In Ireland, two (2) new company-operated stores were opened
during 1H21 at Galway on 22 July 2020 and Sligo on 5
November 2020, strengthening the brand in the country’s west
and bringing the total store network to 15.
During the year, exponential increases in COVID-19 infections
resulted in the Irish Government imposing Level 5 lockdowns
on two occasions; the first in 1H21 from 22 October 2020 to 30
November 2020 and the second in 2H21 from 31 December
2020 to 16 May 2021. On both occasions, the furniture and
bedding categories across all stores were closed whilst the
electrical and computer categories were permitted to trade
in-store. No online restrictions were imposed during the first
lockdown in 1H21, however, with the second lockdown in
2H21, the online Click & Collect option for furniture and
bedding was prohibited, with no online restrictions imposed
on electrical and computers.
Sales in local currency increased to €391.89 million in FY21, up
by €135.13 million or +52.6%, from €256.76 million in FY20.
When translated to Australian dollars, sales increased to
$626.02 million in FY21, up $202.96 million or +48.0%, from
$423.06 million in FY20.
Our stores, including our flagship at Tallaght, have continued
to benefit from customers investing in their homes. To assist in
stimulating consumer demand, the Irish government reduced
the VAT rate from 23% to 21% between September 2020 and
March 2021. Double digit increases and market share growth
was experienced across all key homemaker product categories.
The strong sales result has enabled the Irish business to deliver
a retail result in Ireland of $49.64 million for FY21, up by $32.06
million or 182.3% from $17.58 million for FY20.
Ireland
Opened 2 new stores
• Galway (Jul-20)
• Sligo (Nov-20)
In Northern Ireland, we are pleased with the performance of our
two company-operated stores despite the dual challenges
posed by COVID-19 and Brexit.
Sales have been impacted by COVID-19 lockdowns in both the
current and prior years. During FY21, our stores were closed to
the public from 26 December 2020 to 29 April 2021, with all
online sales required to be delivered, as ‘Click & Collect’ was
not allowed. Last year, our stores were prohibited from all retail
and online trade between 24 March 2020 and 7 June 2020.
Sales in local currency increased to £12.14 million for FY21, up
by £2.84 million or 30.5% from £9.30 million in FY20.
Translated into Australian dollars, sales revenue increased to
$21.88 million in FY21, up by $4.43 million or 25.4% from
$17.45 million in FY20.
We are pleased to deliver our first full year profit in Northern
Ireland of $2.25 million for FY21, an improvement of $2.96
million on the loss of ($0.71) million for FY20. This was inclusive
of government wages support and assistance received in
Northern Ireland of $0.40 million in FY21 in response to
COVID-19.
Our flagship at Boucher Road, South Belfast continues to
perform well as it presents an unrivalled shopping experience
for furniture and bedding products across Northern Ireland.
2
STORES
15
STORES
ANNUAL REPORT JUNE 2021
19
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Review of the Property Segment
Strategic ‘Large-Format’ Retail Property Portfolio
Property ownership is a core pillar underpinning our successful integrated retail, franchise, property and digital strategy.
The Australian Large-Format Retail (LFR) Sector
The appetite for investment within the Large Format Retail
(LFR) sector of the property market has significantly
strengthened on the back of it being an attractive, resilient
asset class. This strong investment is being driven by a
combination of factors including demand for quality income
streams, the low cost of debt and the uplift in trading perfor-
mance across the home improvements sector. Additionally,
investors are recognising the positive yield spread of LFR
property assets relative to other property investment returns.
There are 192 Australian franchised complexes geographically
spread throughout metropolitan cities, large regional towns
and smaller regional communities to service the Australian
population without having to travel long distances to shop at
their nearest Harvey Norman®, Domayne® or Joyce Mayne®
store. 95 franchised complexes (49.5% of total franchised
complexes) are owned by the consolidated entity, inclusive of
warehouses that are either adjacent to, or in close proximity of,
the retail store, and are leased to external parties, including
Harvey Norman®, Domayne® and Joyce Mayne® franchisees.
In addition to our franchised complexes, our dominant, well-
located freehold properties are LFR centres that accommodate
a complimentary mix of over 450 third-party tenants that are
diversified across a variety of different categories including
Hardware, Medical, Chemists, Pets and Auto related products.
A large proportion of these third-party tenants are ASX-listed
and are national retailers that support the underlying value of
our properties. Generally, our LFR centres have expansive
footprints, easy and direct access points and open-air carparks
that enable the efficient execution of COVID-Safe practices.
These factors have contributed to cementing the consolidated
entity, with its $2.9 billion Australian freehold investment
property portfolio, as the largest single owner of LFR real
estate in the Australian market.
The full impact of momentum in the Australian economy,
sparked by targeted fiscal and monetary stimulus measures
introduced over the past 18 months as part of our COVID-
Response, is still materialising, and the LFR sector appears to
be a key beneficiary of these initiatives.
COVID-19 has stimulated a significant population shift moving
out of capitals to the regions. This bodes well for household
goods spending and property values in Regional Australia
where we have a strong market coverage with approximately
65% of our franchised complexes located in regional areas.
The demand of first home buyers, returning expats, ’up-sizers’
and ’down-sizers’ opting to upgrade their existing homes or
relocate has supported a strong base for sustained retail
growth within the Home and Lifestyle market. The buoyant
housing market has contributed to this increased demand.
Harvey Norman® Ballina, NSW Franchised Complex
20
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Review of the Property Segment (continued)
Strategic ‘Large-Format’ Retail Property Portfolio (continued)
The COVID-19 HomeBuilder grants program has provided a
strong boost to demand for housing construction activity.
Over 121,000 applications were received before the scheme
closed on 31 March 2021, approximately 80% relating to new
builds and 20% for major renovations. Higher house prices, an
elevated level of housing construction, high demand for Home
and Lifestyle retailing and the unsatisfied investor appetite for
well-located LFR sites is expected to continue to underpin
strong values in our Australian freehold investment property
portfolio.
More recently, investor demand has surged, triggering a
marked increase in capital searching for LFR property
investments with strong national lease covenants and lease
tenures. In April 2021, the Watergardens Homeplace retail
centre located in Taylors Lakes, Melbourne, Victoria was
acquired for $97 million. Watergardens Homeplace is
anchored by the Harvey Norman® Watergardens franchised
complex, Bunnings and six other national large-format tenants
alongside two fast-food restaurants. The Geraldton
Homemaker Centre in Western Australia was purchased in
March 2021 for $28 million.
Investor competitiveness for scarce LFR sites, and recent
investment transactions, have created a significant increase in
LFR values and a material uplift in the fair values of our invest-
ment properties. The Australian investment property portfolio
is valued at $2.89 billion as at 30 June 2021, increasing in
value by $310.59 million during the 2021 financial year -
$171.91 million relating to new property acquisitions,
renovations and refurbishments (including the premium refit
program) and $138.69 million relating to higher property fair
values.
Overseas Property Portfolio
Globally, we have 107 company-operated stores across 7
countries. 25 of the stores located overseas (23.4% of total)
are owned by the consolidated entity. The aggregate value of
the overseas owner-occupied and investment property
portfolio is $464.68 million, increasing in value by $45.91
million during the year primarily relating to capital
appreciation since the end of FY20.
Total Property Portfolio and the Performance of the Retail
Property Segment
Anchoring our consolidated balance sheet is our property
segment assets totalling $3.37 billion of tangible, freehold
investment properties and freehold owner-occupied
properties and joint venture assets. The freehold property
segment comprises 50.5% of our total $6.67 billion asset base.
Retail property segment revenue has grown to $409.20 million
for FY21, up by $108.67 million from $300.53 million in
FY20. This was primarily due to the recognition of $140.37
million in net property revaluation increments for FY21
compared to $34.96 million in net increments for FY20, an
increase of $105.42 million. Rent and outgoings received from
freehold properties have moderated during the year due to $6
million of rent abatements provided to franchisees affected by
the pro-longed 11-week mandatory Stage 4 lockdown in
greater Melbourne, Victoria and to other external tenants in
Australia.
The retail property result was $291.79 million for FY21, an
increase of $118.60 million or +68.5% from $173.19 million in
FY20.
Harvey Norman® Maroochydore, QLD Franchised Complex
ANNUAL REPORT JUNE 2021
21
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Review of the Property Segment (continued)
The below table shows the composition of freehold property segment assets as at 30 June 2021, the number of owned property
assets and the increase in fair value recognised in each country.
COMPOSITION OF FREEHOLD
PROPERTY SEGMENT ASSETS
June 2021
# of Owned
Retail
Property
Assets
# of Owned
Other
Property
Assets
Net Increase
in Fair Value
(Income
Statement)
Net Increase /
(Decrease)
in Fair Value
(Equity)
(1) Investment Properties (Freehold) and Assets Held for Sale
- Australia
- New Zealand
- Singapore (Property asset held for sale)
$2,894.22m
$11.29m
$12.66m
Total Investment Properties (Freehold) and Assets Held for Sale $2,918.17m
(2) Owner—Occupied Land & Buildings
- Australia
- New Zealand
- Singapore
- Slovenia
- Ireland
Total Owner—Occupied Land & Buildings
(3) Joint Venture Assets
$10.37m
$339.84m
$7.65m
$77.41m
$15.82m
$451.09m
$1.32m
95
-
-
95
-
19
-
5
1
25
-
41
2
1
44
1
1
1
-
-
3
7
$138.69m
$1.69m
-
-
-
($2.67m)
$140.37m
($2.67m)
-
-
-
-
-
-
-
-
$57.54m
-
-
$0.31m
$57.85m
-
Total Freehold Property Segment Assets
$3,370.58m
120
54
$140.37m
$55.18m
Net Property Revaluation Adjustments
For the year ended 30 June 2021, the portfolio has recorded $140.37 million in capital appreciation to fair value, which was the
net property revaluation increment for investment properties recognised in the income statement.
At each balance date, the 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.
Last year, we announced that 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 from the second half of the 2020 financial year. This
means that as at 30 June 2021 approximately 50% of the freehold investment property portfolio was valued by an Independent
Valuer.
For FY21, 67 valuations of freehold investment properties in Australia were performed by an Independent Valuer. This
represents a total of 48.9% of the number of freehold investment properties independently externally valued this year and
44.3% 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 2021
financial year, 19 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 19 properties were undertaken to determine
the effect of these factors.
22
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Leasehold Property Portfolio | AASB 16 Leases
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 meets the definition of an investment
property and are measured at fair value.
As at 30 June 2021, there were 263 leasehold investment properties. 97 leasehold investment properties (37% of total) were
occupied by Harvey Norman®, Domayne® and Joyce Mayne® franchisees in Australia for retail purposes. The remaining 166
leasehold investment properties (63% of total) were primarily used by our franchisees for warehousing.
Right-of-Use Assets: Leasehold Owner-Occupied Properties & 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 table below 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.
COMPOSITION OF LEASEHOLD
PROPERTY SEGMENT ASSETS
Right -of-Use
Asset
June 2021
Lease
Liabilities
June 2021
# of Leased
Retail
Property
Assets
# of Leased
Other
Property
Assets
(1) Leases of Properties Sub-Leased to External Parties
$620.46m
$647.12m
97
166
- Australia
(2) Leases of Owner-Occupied Properties and Plant and
Equipment Assets
- Australia
- New Zealand
- Singapore & Malaysia
- Slovenia & Croatia
- Ireland & Northern Ireland
Total Owner—Occupied Properties and Plant
and Equipment Assets
$30.13m
$113.13m
$244.16m
$19.23m
$104.51m
$46.19m
$130.55m
$190.12m
$21.27m
$143.41m
$511.17m
$531.55m
-
26
40
2
16
84
7
29
14
6
11
67
Total Leasehold Property Segment Assets
$1,131.63m
$1,178.67m
181
233
The table below shows the financial impact of AASB 16 Leases of our leasehold property portfolio on the income statement for the
year ended 30 June 2021.
Financial Impact of AASB 16 Leases:
Leases of Owner-
Occupied Properties
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 AASB 16 Expenses Recognised
Less: Lease payments made during FY21 (excluding variable
lease payments (short-term, low-value leases)
Other adjustments
AASB 16 Incremental Decrease in PBT for FY21
$000
62,908
-
17,765
80,673
(77,180)
(126)
3,367
Leases of Properties
Total Leases
Sub-Leased to
External Parties
$000
-
74,076
23,176
97,252
$000
62,908
74,076
40,941
177,925
(92,890)
(170,070)
-
4,362
(126)
7,729
ANNUAL REPORT JUNE 2021
23
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Review of the Financial Position of the Consolidated Entity
Net Debt to Equity Ratio
Our strong cash position at the end of FY20 had enabled us to
reduce our Syndicated Facility – the available external financing
facilities in Australia - by $200 million, from $810 million to $610
million. The Syndicated Facility amount utilised as at 30 June
2021 was $490 million, up from $195 million utilised at the end
of the previous year.
During 2H21, $146.82 million was spent on the purchase and
refurbishment of freehold investment properties in Australia.
Additionally, Australian franchisees requested, and were
provided with increased financial accommodation. This was to
assist the franchisees in their strategy of increasing their
inventory reserves in light of anticipated supply chain
disruptions ranging from chip shortages, factory delays due to
COVID-19, port and shipping issues and global demand
pressures.
This has resulted in a net debt position of $295.54 million at the
end of FY21, compared to a net cash position of $15.35 million
at the end of FY20.
This equates to a net debt to equity ratio of 7.47% as at 30 June
2021 compared to a net debt to equity ratio of nil as at 30 June
2020.
Solid Cash Flows
Cash and cash equivalents, net of bank overdraft, as disclosed in
the Statement of Cash Flows on page 85, decreased by $45.72
million to $248.73 million as at 30 June 2021, compared to
$294.45 million in the prior year.
Cash flows from operating activities decreased by $513.10
million to $543.87 million for FY21, from $1,056.96 million in
FY20. This was primarily attributable to a decrease in net
receipts from franchisees by $417.89 million, from $1,304.23
million in FY20 to $886.34 million in FY21. Despite higher
gross revenue received from franchisees by $289.92 million,
net receipts from franchisees were affected by the movement in
the aggregate amount of financial accommodation provided to
franchisees in FY21 relative to the movement in FY20. During
FY21, the movement in the aggregate amount of financial
accommodation provided to franchisees increased significantly
compared to the movement in FY20, aligned with the increased
inventory reserves held by purchasing franchisees during the
current year in order to avoid future supply chain disruptions
and drive higher franchisee sales.
Receipts from customers increased by $522.90 million due to
higher sales achieved by the company-operated stores, partly
attributed to 12 new offshore store openings. In line with the
increase in sales and new store openings, payments to
suppliers and employees increased by $512.49 million mainly
due to additional payments for the purchase of inventories by
the company-operated stores in response to the strong sales
growth.
Net cash investing outflows increased by $117.15 million
during FY21 primarily due to an increase in payments for the
purchase and refurbishments of freehold investment properties
by $122.35 million. In addition, balances in FY20 included the
proceeds received from the sale of the Byron at Byron Bay
Resort. The increase in outflows was offset by $15.08 million
net proceeds received from the sale of a controlled entity.
Net cash financing outflows decreased by $475.90 million
during FY21. There was a net drawdown of the Syndicated
Facility by $295 million during the year, compared to a net
repayment of $520 million during FY20. The increased
drawdowns were offset by higher dividend payments during
FY21 totalling $473.48 million, compared to $322.51 million in
FY20, an increase of $150.98 million. Prior year financial
cashflows included the proceeds raised from the renounceable
pro-rata Entitlement Offer in October 2019 of $165.68 million.
24
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Review of the Financial Position of the Consolidated Entity (continued)
Strong Balance Sheet
The consolidated entity’s net asset base grew by 12.0% during the year, or an increase of $415.69 million, to $3.89 billion as at
30 June 2021, from $3.48 billion as at 30 June 2020.
Total assets increased by 14.5%, or $844.33 million, to
$6.67 billion as at 30 June 2021, from $5.83 billion as at 30
June 2020. The value of the freehold investment property
portfolio increased by $312.18 million, or +12.0%, to $2.91
billion as at 30 June 2021 primarily due to $140.37 million
net property revaluation increments over the past 12
months, acquisition of new freehold investment properties
and the refurbishments of freehold investment property
assets.
Property, plant and equipment assets increased by $66.96
million mainly due to the fit-out of 12 new company-
operated stores in offshore regions, the premium fit-out of a
new Harvey Norman® franchised complex at Hornsby and
net property revaluation increments for the owner-occupied
freehold properties over the past 12 months.
Total liabilities increased by $428.64 million, or 18.2%, to
$2.78 billion as at 30 June 2021 from $2.35 billion as at 30
June 2020.
Interest-bearing loans and borrowings increased by
$262.13 million mainly due to an increase in utilisation of
the Syndicated Facility by $295 million, from $195 million
utilised as at 30 June 2020 to $490 million utilised as at 30
June 2021.
Income tax payable increased by $77.80 million driven by
higher profit generated by the consolidated entity during
the current year.
Receivables from franchisees increased
by $440.87 million mainly due to higher
financial accommodation provided to
franchisees to assist franchisees in their
strategy of increasing their inventory
reserves in light of anticipated supply
chain disruptions ranging from chip
shortages, factory delays due to COVID-
19, port and shipping issues and global
demand pressures.
Inventories of company-operated stores
increased by $87.11 million mainly due
to new overseas store openings and
higher inventory holdings in order to
satisfy strong sales growth.
The above increases have been offset
by a reduction in cash and cash
equivalents by $48.76 million.
ANNUAL REPORT JUNE 2021
25
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Outlook
During the 2022 financial year, we intend to open up to 3 franchised complexes in Australia and 3 company-operated stores overseas:
1 in Malaysia, 1 in Croatia and 1 in Ireland. Beyond the upcoming financial year, we intend to open up to 2 franchised complexes in
Australia during the 2023 financial year and we intend to relocate 1 franchised complex from a leased site to a freehold property. We
expect our offshore expansion plans to ramp-up towards the end of calendar 2022 and we anticipate opening up to 8 company-
operated stores overseas during FY23: 4 in New Zealand, 3 in Malaysia and 1 in Croatia.
We are announcing our intention to open 2 leasehold company-operated stores in Budapest, Hungary during calendar year 2023.
Hungary borders Slovenia and Croatia, and with the collective population of the 3 countries added together, the Harvey Norman®
brand can potentially reach approximately 16 million people.
RETAIL TRADING UPDATE: 1 July 2021 to 26 August 2021 vs 1 July 2020 to 26 August 2020 and
1 July 2021 to 26 August 2021 vs 1 July 2019 to 26 August 2019
Rolling lockdowns in most States and Territories of Australia have affected sales in July and August 2021, even though
Contactless Click & Collect and home delivery are operating for customers from 192 Australian franchised complexes. These rolling
lockdowns have continued into September 2021. Over 15 million people, or approximately 58% of the Australian population, are
currently in lockdown. However, we expect spending to recover quickly as we saw when lockdown restrictions were eased in our over-
seas markets due to pent-up demand.
Malaysia closed from 1 June 2021 due to large outbreaks of COVID-19 in the country. Malaysian stores commenced limited opening to
customers from 21 August 2021. On 18 August 2021, New Zealand went into Level 4 lockdown with no store click and collect
permitted, but contactless home delivery allowed. All New Zealand stores outside of Auckland commenced limited opening to
customers from 7 September 2021, with click and collect permitted in Auckland from 22 September 2021. Our other 5 countries have
been open in July, August and September 2021.
Aggregated Sales increase / (decrease) from 1 July 2021 to 26 August 2021 vs 1 July 2020 to 26 August 20201 and 1 July 2021 to
26 August 2021 vs 1 July 2019 to 26 August 20191
(% increases have been calculated in Australian Dollars $A)
1 comparable sales growth has not been adjusted for the temporary closures mandated by each local government as a result of their COVID-19 Response
COUNTRY
Australian Franchisees
New Zealand
Slovenia & Croatia
Ireland
Northern Ireland
Singapore
Malaysia
1 July 2021 to 26 August 2021 vs
1 July 2020 to 26 August 2020
Comparable
%
Total
%
1 July 2021 to 26 August 2021 vs
1 July 2019 to 26 August 2019
Comparable
%
Total
%
(-19.2)
(-12.3)
1.4
11.1
2.3
0.4
(-49.2)
(-19.1)
(-13.0)
(-5.9)
4.7
2.3
(-9.8)
(-52.4)
11.1
4.6
30.8
78.8
31.9
3.1
(-43.9)
11.9
3.1
21.4
62.0
31.9
(-7.0)
(-60.3)
Aggregated Sales increase / (decrease) from 1 July 2021 to 26 August 2021 vs 1 July 2020 to 26 August 20201
and 1 July 2021 to 26 August 2021 vs 1 July 2019 to 26 August 20191
COUNTRY
(% increase
calculated in local
currencies)
Australian Franchisees
New Zealand
Slovenia & Croatia
Ireland
Northern Ireland
Singapore
Malaysia
$A
$NZD
€Euro
€Euro
£GBP
$SGD
MYR
1 July 2021 to 26 August 2021 vs
1 July 2020 to 26 August 2020
Comparable
%
Total
%
1 July 2021 to 26 August 2021 vs
1 July 2019 to 26 August 2019
Comparable
%
Total
%
(-19.2)
(-13.9)
3.8
13.7
(-1.1)
2.4
(-19.1)
(-14.6)
(-3.7)
7.1
(-1.1)
(-7.9)
11.1
5.6
32.5
81.4
25.9
9.0
(-47.5)
(-55.0)
(-39.1)
11.9
4.1
23.1
64.3
25.9
(-1.8)
(-57.0)
(% increases have been calculated in local currencies)
1 comparable sales growth has not been adjusted for the temporary closures mandated by each local government as a result of their COVID-19 Response
ANNUAL REPORT JUNE 2021
26
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Summary of Key Business Risks
The Board remains optimistic about the consolidated entity’s future trading performance but acknowledges that there are several factors
that may pose risk to the achievement of the business strategies and future financial performance of the consolidated entity.
Every business is exposed to 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.
Similar to the last few months of FY20, during FY21 the consolidated entity has been subjected to various Government mandated
closures. The consolidated entity expects that the COVID-19 pandemic could continue to impact trading conditions in the year ahead.
From the onset of the pandemic to date, the COVID-19 Response by various government and health services organisations, through
regulation and policy, has limited the ability of franchised complexes in Australia and overseas company-operated stores to trade at
normal capacity — with varying levels of restrictions to trade imposed for varying time periods. Spontaneous temporary Government-
imposed closures, reduced trading hours, restrictions to consumer mobility and strict social distancing measures may continue to inhibit
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, generally characterised by generous retail footprints and spacious floor layouts centred around open-air
carparks, allowing for the efficient and effective execution of ‘COVID-Safe Plans and Practices’, thereby maximising the ability to trade
and service the needs of their customers. The consolidated entity has also continued to invest in technology, digital transformation and
infrastructure to enable franchisees and company-operated stores to further enhance ‘contactless’ fulfilment measures including
“Contactless Click & Collect” and “Contactless Delivery”, to continue to serve their customers while complying with any strict COVID-19
mandated restrictions or lockdowns.
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 has a robust balance sheet with a strong asset base totalling $6.67 billion and net assets of
$3.89 billion as at 30 June 2021. From the commencement of the pandemic, the consolidated entity has demonstrated its ability to
swiftly respond to COVID-19 challenges, while prioritising the safety of their staff, their customers and their local communities. The
consolidated entity remains confident in its ability to appropriately respond to COVID-19 challenges in the future, as they arise.
Information Technology (“IT”) security and data security breaches:
This risk relates to the potential failure in IT security measures resulting in fraud and the loss, destruction or theft of customer, supplier,
financial or other commercially-sensitive information including intellectual property. This has the potential to adversely affect operating
results which could lead to lawsuits, damage the reputation of the Harvey Norman® brand, and/or create other liabilities for the
consolidated entity. The consolidated entity has seen an elevated risk of potential IT security and data security breaches since the
commencement of the pandemic as the remote working environment, sparked by the pandemic, has created perceived opportunities for
fraudulent activities.
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.
ANNUAL REPORT JUNE 2021
27
OPERATING AND FINANCIAL REVIEW (CONTINUED)
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Summary of Key Business Risks (continued)
Compliance by franchisees with franchise agreements:
This 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 intellectual property of the franchisor.
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, and 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.
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.
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.
28
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT
A core philosophy we have maintained throughout the years is the significance and focus on the longevity of the
Board of Directors with ‘skin in the game’, the experience and skill-set of our various business leaders and their
deep understanding and expert-execution of the complex franchised operating model in Australia and the
company-operated stores across seven overseas countries.
The continuation of the COVID-19 pandemic during the 2021 financial year has necessitated the strict
implementation of the COVID-Safe framework and COVID-Safe Plans and Practices throughout the consolidated
entity. The successful strategies that we enhanced and delivered this year could have only been achieved with
formidable leadership with the intimate knowledge of the intricacies of our business, leaders that can be trusted to
protect our Brands and navigate us through this period of ongoing uncertainty.
This year we bade farewell to our non-executive director, Mr. Graham Charles Paton (AM), who retired at the end of
the 2020 Annual General Meeting held on 25 November 2020. We thank Mr. Paton for his invaluable contribution
to the consolidated entity over the past 15 years. Mr. Paton has provided wise counsel to management and
exercised professional, sound, experienced and independent judgement for the benefit of the consolidated entity.
The Board welcomes Ms. Luisa Catanzaro who was appointed as non-executive director on 25 November 2020. Ms
Catanzaro has more than 30 years of professional experience in senior finance executive roles across a range of
industries including FMCG and agriculture sectors, and with ASX listed companies.
Our Board
Unless otherwise indicated, all directors (collectively termed ‘the Board’), held their position as director
throughout the entire 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.
Directors
Kay Lesley Page
Executive Director and CEO
Chris Mentis
B.Bus., FCA, FGIA, Grad Dip
App Fin
Executive Director, CFO &
Company Secretary
Mr. G. Harvey has overall executive responsibility for the strategic direction of
the consolidated entity, and in particular, property investments.
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 has been a Director of the Bradman Foundation since December 2017
and, on 21 October 2020, Ms. Page was appointed as a Member of the Tourism
Australia Board of Directors.
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 the 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 and COO
Mr. Slack-Smith was a Harvey Norman® computer franchisee between 1993 and
1999. Mr. Slack-Smith was appointed a director of the Company on 5 February
2001. Mr. Slack-Smith has overall executive responsibility for the operations of
the consolidated entity.
David Matthew Ackery
Executive Director
Mr. Slack-Smith is the Chair of the Barker College Foundation Limited and a
Member of Council at Barker College.
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.
ANNUAL REPORT JUNE 2021
29
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT (CONTINUED)
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.
Kenneth William
Gunderson-Briggs
B.Bus., FCA, MAICD
Non-Executive Director
(Independent)
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.
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 was appointed Chairman of
the Audit & Risk Committee and Nomination Committee on 25 November 2020.
Mr. Gunderson-Briggs is an independent Non-Executive Director of Australian
Pharmaceutical Industries Limited (API), a company listed on the ASX, from May 2014.
On 4 December 2020, he was appointed Chair of the API Board, having previously
been the Chair of the Audit & Risk Committee of API.
Maurice John Craven
B.Sc., FAICD
Non-Executive Director
(Independent)
Directors
Mr. Craven was appointed a director of Harvey Norman Holdings Limited on 27 March
2019 and became a member of the Nomination Committee of the Company on 24
June 2021. Mr. Craven holds a Bachelor of Science degree from the University of
Melbourne and is a Fellow of the Australian Institute of Company Directors.
Graham Charles Paton
AM, B.Ec., FCPA, MAICD
Non-Executive Director
(Independent)
Retired 25 November
2020
Luisa Catanzaro
B.Com., FCA, GAICD
Non-Executive Director
(Independent)
Appointed 25 November
2020
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.
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 retired as an independent non-executive director on 25 November 2020. Mr
Paton was Chairman of the Audit & Risk Committee, Chairman of the Nomination
Committee and a member of the Remuneration Committee of the Company.
Ms. Catanzaro was appointed a Non-Executive Director of Harvey Norman Holdings
Limited on 25 November 2020, and became a member of the Audit & Risk Committee
on 25 November 2020 and a member of the Remuneration Committee of the Company
on 24 June 2021.
Ms. Catanzaro has a Bachelor of Commerce from the University of NSW, is a Fellow of
the CA ANZ and is also a Graduate of the Australian Institute of Company Directors.
Ms. Catanzaro has more than 30 years of professional experience in senior finance
executive roles across a range of industries including FMCG and agriculture sectors,
and with ASX listed companies. Ms. Catanzaro is currently a Non-Executive Director of
ASX listed company, Ricegrowers Limited, from September 2018, where Ms. Catanzaro
is Chair of the Finance, Risk and Audit Committee and a member of the Remuneration
and Nomination Committees.
30
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT (CONTINUED)
Directors’ Meetings
DIRECTOR
Number of Meetings:
Attendance
Full Board
10
Audit & Risk
11
Remuneration
8
Nomination
3
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
L. Catanzaro
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
10 [10]
10 [10]
10 [10]
10 [10]
10 [10]
10 [10]
10 [10]
10 [10]
7 [7]
10 [10]
3 [3]
n/a
n/a
n/a
n/a
n/a
n/a
11 [11]
11 [11]
4 [4]
n/a
7 [7]
n/a
n/a
n/a
n/a
n/a
n/a
8 [8]
8 [8]
3 [3]
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3 [3]
3 [3]
2 [2]
n/a
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
G. Harvey
K.L. Page
J.E. Slack-Smith
D.M. Ackery
C. Mentis
M.J. Harvey
C.H. Brown
K.W. Gunderson-Briggs
M.J. Craven
L. Catanzaro
TOTAL
Ordinary Shares Performance Rights
392,620,640
19,856,315
1,143,893
683,471
1,161,297
3,335,180
205,525,565
10,059
30,673
-
196,500
549,000
327,000
327,000
249,000
-
-
-
-
-
624,367,093
1,648,500
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.
Performance Rights
At the date of this report, there were 1,648,500 performance rights (2020: 1,499,000), being a right to
acquire ordinary shares in the Company at nil exercise price.
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 1 January
2021, 173,600 performance rights representing 43.4% of Tranche 3 of the 2016 LTI Plan had lapsed and
will never be exercisable by the participants. On 6 January 2021, 191,025 performance rights under
Tranche 3 of the 2016 LTI Plan were exercised. On 26 March 2021, the remaining 35,375 performance
rights under Tranche 3 of the 2016 LTI Plan were exercised reducing the unissued ordinary shares under
Tranche 3 of the 2016 LTI Plan to nil.
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.
On 4 December 2020, a total of 549,500 performance rights under Tranche FY21 of the 2016 LTI Plan
were granted to the Executive Directors in accordance with the terms and conditions of the LTI Plan.
ANNUAL REPORT JUNE 2021
31
CEO and CFO
Certification
OPERATING AND FINANCIAL REVIEW (CONTINUED)
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 2021, that:
•
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
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 questionnaires 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.
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:
NON-EXECUTIVE DIRECTOR
Audit & Risk
Remuneration
Nomination
C.H. Brown
√
√
√
K.W. Gunderson-Briggs
√ (Chairman)
√ (Chairman)
√ (Chairman)
L. Catanzaro
M.J. Craven
√
n/a
√
n/a
n/a
√
Mr. Gunderson-Briggs was appointed Chairman of the Audit & Risk Committee and the Nomination
Committee on 25 November 2020.
Ms. Catanzaro became a member of the Audit & Risk Committee on 25 November 2020 and became a
member of Remuneration Committee on 24 June 2021.
Mr. Craven became a member of the Nomination Committee on 24 June 2021.
Mr. G.C. Paton retired on 25 November 2020. He was the Chairman of the Audit & Risk Committee, Chairman
of the Nomination Committee and a member of the Remuneration Committee of the Company up to 25
November 2020.
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 (February 2019 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 2021. 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.
Corporate
Governance
Dividends
The directors recommend a fully franked final dividend of 15.0 cents per share to be paid on 15 November
2021 to shareholders registered on 18 October 2021 (total dividend, fully franked - $186,900,998).
The following fully franked dividends of the Company have also been paid, declared or recommended since
the end of the preceding financial year:
2020 final fully-franked dividend
2 November 2020
2021 interim fully-franked dividend
3 May 2021
Payment Date
Amount
$224,281,198
$249,201,331
The total dividend in respect of the year ended 30 June 2021 of 35.0 cents per share (2020: 24.0 cents per
share) represents 51.83% (2020: 62.24%) of profit after tax and non-controlling interests, as set out on page
81 of the financial statements.
Excluding the non-cash net property revaluation increments, the total dividend in respect of the year ended
30 June 2021 of 35.0 cents per share represents 58.69% (2020: 65.59%) of profit after tax and non-controlling
interests, as set out on page 81 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.
32
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT (CONTINUED)
Indemnification of
Officers
During the financial year, 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 Compa-
ny 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 2021.
Significant Events
After Balance Date
From 26 June 2021, the New South Wales (NSW) government announced stay-at-home orders for the
greater Sydney area, with progressive lockdowns after that date for franchised complexes in greater
Sydney and regional areas of NSW, in response to the Delta Variant of COVID-19 and rising cases of local
transmission. Thereafter, and up to the date of this report, decisions have been made by local
governments to impose rolling lockdowns in most States and Territories of Australia. These government
mandates have affected franchisee sales in July and August 2021.
Apart from the above, 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.
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 2021, the consolidated entity had unused, available financing facilities of $193.96 million out of
total approved financing facilities of $749.52 million. The net debt to equity ratio as at 30 June 2021 was
7.47%, compared to a net debt to equity ratio of NIL as at 30 June 2020.
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 2 years.
ANNUAL REPORT JUNE 2021
33
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT
Letter from the Chair of the Remuneration Committee
Dear Shareholders
The consolidated entity delivered a further record financial result for the 2021 year increasing reported profit before tax (PBT) by 78.8% to
$1.183 billion and reported net profit after tax and non-controlling interests (NPAT) by 75.1% to $841.41 million.
It also delivered a strong increase of 12.0% in the net asset base for shareholders to $3.89 billion as at 30 June 2021. The PBT return on
net assets was 30% for the 2021 financial year compared to 19% for 2020.
CHAIRMAN AND CEO’s REPORT
The Design of Executive Director Remuneration for a Year of Great Uncertainty
At the outset of the 2021 year there was great uncertainty as to the expectation of outcomes. With this in mind the Remuneration
Committee applied the following settings to the remuneration framework for the Executive Directors:
• Consensus forecasts of market analysts were used to establish the entry point, the full achievement and the over-achievement levels for
the Short-Term Incentive (STI) Plan.
The maximum outcomes for the STI Plan were capped and did not provide awards on a proportionate basis to the record results.
The performance conditions for the STI Plan were not exclusively based on financial outcomes, with non-financial performance
conditions and a discretion to apply malus penalty provisions as necessary in the assessment of achievement.
The outcomes for the Long-Term Incentive (LTI) Plan were subject to achievement over a 3-year period, and not specifically weighted
in respect of the record outcome year.
The maximum outcomes for the LTI Plan were capped and did not provide awards on a proportionate basis to the record results.
•
•
•
•
Evaluation of Performance of Executive Directors to Consider Any Windfall Gain Effect
An appraisal of the performance of each Executive Director and the Executive Director team was undertaken following the end of the 2021
year as part of the annual Participant Performance Review by the Remuneration Committee. In this year, the appraisal focused on ensuring
that executive remuneration in respect of the record financial result for 2021 was fair and reasonable, was in line with performance, and did
not result in unintended windfall gains in remuneration returns for the Executive Directors.
The appraisal considered matters in respect of performance during the COVID-19 period, including:
•
•
•
•
The evaluation of the performance of Executive Directors linked with the design of the remuneration framework has led the Remuneration
Committee to the conclusion that the Executive Directors did not receive any windfall gains in their respective remuneration
returns. The Remuneration Committee views the outcome of the 2021 STI Plan and the LTI Plan as appropriate recognition of the
performance of the Executive Directors in dealing with the multi-faceted challenges imposed during the year, demonstrating resilience in
management of the integrated retail, franchise, property and digital business through much uncertainty.
In line with a similar resolution made last year, the Remuneration Committee resolved that in making its decisions and recommendations in
respect of remuneration outcomes for the Executive Directors for 2021, 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.
Subsequent to the year-end, in August 2021, all of the wages support and assistance received by controlled entities in Australia of $6.02
million (FY21: $3.63 million and FY20: $2.39 million) was repaid to the Federal Government via the Australian Taxation Office.
Benchmarking for Reasonableness
The Company commissioned an independent remuneration expert review of the level and reasonableness of remuneration of the
Executive Directors of the Company during 2021, 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, as well as remuneration structure and the components
including the level of “at risk” remuneration.
The critical findings of the independent remuneration expert review were as follows:
•
•
•
•
•
34
The overall remuneration opportunity remains within a reasonable range given executive tenure and position responsibilities.
The significant shareholdings of the respective Executive Directors align with the long-term interests of shareholders.
The remuneration mix is reasonable.
The STI framework is reasonable.
There is an opportunity to increase the long-term incentives, particularly for the CEO and the Executive Chairman.
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (CONTINUED)
Letter from the Chair of the Remuneration Committee (continued)
Benchmarking for Reasonableness (continued)
In respect to the benchmark peer group used by the Company, the independent remuneration expert findings were as follows:
•
The benchmark peer group of the Company validly estimates remuneration applicable to executive positions of the Company by
including peer companies that have important operational characteristics necessary to capture expertise required for position
matching and excludes companies with operations that are not comparable.
• As the statistical analysis indicated that executive pay varied with the size of the operation for which the executive was
accountable, and as 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 continue to position remuneration around the level that reflects the financial accountability and operational
scope of the Company relative to the benchmark peer group, which was around the 75th to 90th percentile of the benchmark peer
group.
CHAIRMAN AND CEO’s REPORT
•
The conclusions reached by the Remuneration Committee, informed by the independent expert review, in respect of the remuneration of
Executive Directors for 2021 were that:
•
•
•
The level of fixed remuneration was reasonable.
The level of target and maximum remuneration from the short term incentive (STI) was reasonable.
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 2021
The following improvements were made to the remuneration framework for Executive Directors informed by the independent
remuneration expert report:
•
The performance conditions for the 100% short term incentive pool were changed from being 50% as to financial conditions and
50% as to non-financial conditions, to be 80% as to financial conditions and 20% as to non-financial conditions.
• A malus or business modifier reduction of up to 30% of the 100% achievement pool for non-achievement of further non-financial
conditions.
In combination, this increases the overall difficulty of achieving maximum STI outcomes with up to 30% contingent on achieving both
financial performance and business modifier (non-financial) outcomes as opposed to only achieving non-financial performance in prior
years.
In line with settings adjusted in prior years:
•
•
•
•
Profit after tax adjusted for the after-tax effect of property increments and decrements (APAT), continues to be the measure used
for the achievement of the financial conditions for the short term incentive.
The 100% STI pool was increased to $3.25 million from $3.0 million in line with the increase in net assets of the Company over the
previous financial period, with the 100% STI pool able to be increased if the financial performance conditions for the STI are
over-achieved to the maximum extent of the over-achievement pool of $4.0 million from $3.6 million.
The level of LTI achievement for the determination of vesting continues 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 exclude the effects of the financial impact of the
adoption of the lease accounting standard AASB 16, to allow calculation consistency year-on-year.
Continuing the Framework in 2021
The framework for the Executive Director remuneration structure in the 2021 financial year remained similar to that which was in place for
the 2020 financial year in respect of the following:
• Benchmarked fixed remuneration, with no increase in the level of fixed remuneration. Fixed remuneration of the executives has not
•
•
increased since it was reset in FY2014 following the Global Financial Crisis (GFC);
Evaluation of satisfactory performance for each Executive Director required for entry into the STI;
Entry into the 2021 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 2021 STI Plan
The Board adopted a STI Plan for Executive Directors relevant to the desired outcomes of the 2021 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 80% weighting, and non-financial conditions as to 20% weighting, and malus or penalty reductions of up to 30%.
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 2021 STI Plan, the minimum financial performance conditions (entry-level to the 2021 STI
Plan) was set at APAT of $400 million (FY2020 $320 million, up 25%), the 100% achievement level at APAT of $502 million (FY2020 $378
million, up 33%), with a maximum over-achievement level at APAT of $553 million (FY2020 $424 million, up 30%).
ANNUAL REPORT JUNE 2021
35
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (CONTINUED)
Letter from the Chair of the Remuneration Committee (continued)
Things to Note for the 2021 STI Plan (continued)
The levels were set by the Remuneration Committee with reference to analyst consensus forecasts compiled by Bloomberg from each of
Credit Suisse, Goldman Sachs, Macquarie, Morningstar, JP Morgan, Morgan Stanley, UBS, Jeffries, CLSA and Evans and Partners, updated
at the beginning of November 2020. Achievement between the 50% and 100% targets and the 100% to the over-achievement targets re-
mained 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:
CHAIRMAN AND CEO’s REPORT
• obeying the law
•
acting fairly
•
not to mislead or deceive
• provide goods and services that are fit for purpose
• delivery of goods and services with reasonable care and skill
Remuneration Outcomes
The achievements of the 2021 financial year are reflected in the remuneration outcomes:
1) Executive Directors achieved 112.86 out of 120 points (94.05%) of their 2021 STI targets for performance against a balanced scorecard
of measures, as compared to 116.06 out of 120 points (96.72%) for the 2020 financial year.
•
In respect of the financial performance conditions, APAT of $738.44 million (FY2020 $426.78 million), which excluded COVID-19
assistance and support, exceeded the over-achievement maximum of $553 million.
•
The non-financial performance conditions were achieved as to 87.5% compared to 92.12% in 2020.
•
The malus reduction was 4.64%, i.e. 15.4% of the maximum reduction of 30 points.
• Aggregated STI expense for 2021 was $3,767,952 compared to $3,481,651 for 2020.
•
The total 2021 STI award was $286,301, or 8.2%, higher than for 2020.
2) RONA of 30.09% for the year (FY2020 18.91%), which excluded COVID-19 assistance and support, resulted in the following:
•
•
•
Tranche FY19 of the 2016 LTI Plan, granted on 4 December 2018 being assessed for vesting at 100%;
Tranche FY20 of the 2016 LTI Plan, granted on 2 December 2019 was assessed for probable vesting at 100%; and
Tranche FY21 of the 2016 LTI Plan, granted on 4 December 2020 was assessed for probable vesting at 100%.
3) The total “at risk” compensation expense for the 2021 financial year was $1,261,775 or 27.8% higher than the “at risk” expense in the
2020 financial year primarily due to the higher level of payment under the STI awards and the higher probability of assessed vesting
under the LTI Plan.
4) The total “take-home” pay for Key Management Personnel (KMP) Directors was $1,092,343 or 10.7% higher than the 2020 financial
year. The total compensation for KMP Directors was $1,584,925 or 13.9% higher than the previous year.
5) Tranche 3 of the 2016 LTI Plan, granted on 1 December 2017 and subject to performance over the 2018, 2019 and 2020 financial
years, vested as to 56.6% with effect from 1 January 2021. 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 (TFR), which provides alignment of the executive management with 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 and non-controlling
interests, earnings per share and average share price over a five year period from 2017 to 2021. The correlation factors range between
85% and 95% over the last five financial years from 2017 to 2021. Correlation is detailed at Item 10 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
36
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED)
Contents of the 2021 Remuneration Report
This remuneration report for the year ended 30 June 2021 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.
Introduction
CHAIRMAN AND CEO’s REPORT
The remuneration report is presented under the following sections:
1)
2) Remuneration principles and strategy
3) Remuneration governance
4) Remuneration mix - target
5) Details of the short-term incentive plan
6) Details of the long-term incentive plans
7) Performance and executive remuneration outcomes in FY21
8) Executive contractual arrangements
9) Non-Executive Director remuneration arrangements
10) Relationship between remuneration and the performance of the Company
11) Compensation of key management personnel
12) Additional disclosures relating to options, performance rights and shares
13) ‘Take-Home Pay’ for KMP Directors of the Company
14) Other matters for disclosure
15) Loans to key management personnel and their related parties
16) Other transactions and balances with key management personnel and their related parties
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 2021 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
Executive Director & Chief Executive Officer
John Evyn Slack-Smith
Executive Director & Chief Operating Officer
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
Kenneth William Gunderson-Briggs
Non-Executive Director (independent)
Maurice John Craven
Non-Executive Director (independent)
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
Graham Charles Paton AM
Non-Executive Director (independent)
Retired 25 November 2020
Luisa Catanzaro
Senior Executives
Martin Anderson
Non-Executive Director (independent)
Appointed 25 November 2020
General Manager—Advertising
Retired 30 June 2021
Thomas James Scott
General Manager—Property
Gordon Ian Dingwall
Chief Information Officer
Lachlan Roach
Glen Gregory
General Manager—Home Appliances
General Manager—Technology & Entertainment
Emmanuel Hohlastos
General Manager—Audio Visual
ANNUAL REPORT JUNE 2021
Full financial year
Full financial year
Full financial year
Full financial year
Full financial year
37
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
2. Remuneration Principles and Strategy
The executive remuneration strategy of the consolidated entity in 2021 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)
CHAIRMAN AND CEO’s REPORT
b)
Business savvy requires a deep understanding of one or more of the sectors of retail, property, franchising and digital.
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.
An owner orientation or perspective of an owner requires the individual to either have:
i.
"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.
ii.
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.
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),
c)
d)
e)
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 2021 aligns with the strategic direction and links
remuneration outcomes to performance.
Objective of the consolidated entity in 2021
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 2021
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 2021 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
38
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
2. Remuneration Principles and Strategy (continued)
Component
Vehicle
Purpose
Link to Performance
Fixed remuneration
CHAIRMAN AND CEO’s REPORT
Comprises base salary,
superannuation
contributions and other
benefits
To provide
competitive fixed
remuneration set
with reference to
role, market and
experience
Short-term incentive (STI)
Paid as cash as a
performance cash
incentive (PCI), subject to
minimum shareholding of
individual Executive
Directors
Rewards executives
for their
contribution to
achievement of
consolidated entity
outcomes
Consolidated entity and individual performance are considered
during the annual remuneration review
a.
b.
c.
d.
e.
f.
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 STI pool in respect of 100% achievement level is
subject to performance criteria as to:
80% subject to financial conditions;
i.
ii. 20% subject to business critical non-financial
conditions; and
iii. Malus reductions of up to 30% of the pool for non-
achievement of further non-financial performance
conditions.
Financial achievement calculated over the 100%
achievement level is subject to financial conditions only.
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.
If shares held are less than the benchmark, benefits are
to be provided in the form of shares.
Where Annual Profit After
Tax is calculated as follows:
Annual Net Profit After Tax (APAT), excluding the after-tax effect of property revaluation increments
or decrements, the after-tax effect of the net impact of AASB 16 Leases and the after-tax effect of
COVID-19 support and assistance received
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 2021,
2022 and 2023 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
ANNUAL REPORT JUNE 2021
39
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
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 2021, independent remuneration experts provided
CHAIRMAN AND CEO’s REPORT
remuneration benchmark information for consideration and analysis in respect of the level of Executive Director remuneration, including
fixed remuneration, the short-term incentives framework and the long-term incentives framework, and the reasonableness of the
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 of the NED remuneration cap.
The Remuneration Committee approves, having regard to the recommendations made by the CEO, the level of the 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 short-term incentive plan or long-term incentive plan
of the Company, and no Executive Director voted on those matters.
The Design of Executive Director Remuneration for a Year of Great Uncertainty
At the outset of the 2021 year there was great uncertainty as to the expectation of outcomes. With this in mind the Remuneration
Committee applied the following settings to the remuneration framework for the Executive Directors:
• Consensus forecasts of market analysts were used to establish the entry point, the full achievement and the over-achievement levels
for the Short-Term Incentive (STI) Plan.
The maximum outcomes for the STI Plan were capped and did not provide awards on a proportionate basis to the record results.
The performance conditions for the STI Plan were not exclusively based on financial outcomes, with both non-financial performance
conditions and malus penalty reductions included in the assessment of achievement.
The outcomes for the Long-Term Incentive (LTI) Plan were subject to achievement over a 3-year period, and not specifically weighted
in respect of the record outcome year.
The maximum outcomes for the LTI Plan were capped and did not provide awards on a proportionate basis to the record results.
•
•
•
•
Evaluation of Performance of Executive Directors to consider any Windfall Gain Effect
An appraisal of the performance of each Executive Director and the Executive Director team was undertaken following the end of the 2021
year as part of the annual Participant Performance Review by the Remuneration Committee. In this year, the appraisal focused on ensuring
that executive remuneration in respect of the record financial result for 2021 was fair and reasonable, was in line with performance, and did
not result in unintended windfall gains in remuneration returns for the Executive Directors.
The appraisal considered matters in respect of performance during the COVID-19 period, including:
•
•
•
•
The evaluation of the performance of Executive Directors linked with the design of the remuneration framework has led the Remuneration
Committee to the conclusion that the Executive Directors did not receive unintended windfall gains in their respective remuneration
returns.
40
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
3. Remuneration Governance (continued)
Evaluation of Performance of Executive Directors to consider any Windfall Gain Effect (continued)
The Remuneration Committee views the outcome of the 2021 STI Plan and the LTI Plan as appropriate recognition of the performance of
the Executive Directors in dealing with the multi-faceted challenges imposed during the year, demonstrating resilience in management of
the integrated retail, franchise, property and digital business through much uncertainty.
In line with a similar resolution made last year, the Remuneration Committee resolved that in making its decisions and recommendations
in respect of remuneration outcomes for the Executive Directors for 2021, 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.
CHAIRMAN AND CEO’s REPORT
Subsequent to the year-end, in August 2021, all of the wages support and assistance received by controlled entities in Australia of $6.02
million (FY21: $3.63 million and FY20: $2.39 million) was repaid to the Federal Government via the Australian Taxation Office.
No Unfair Benefit
Both the annual STI Plan and the ongoing 2016 LTI Plan have provisions to prevent an ‘unfair benefit’ being obtained by any participant in
respect of fraud or breach of obligation.
4. Remuneration Mix—Target
For the 2021 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 previous financial year, a review by an independent remuneration expert was undertaken in respect of the remuneration
benchmarking used by the Company, with reference to both sector peers and comparator groups comprising companies of
comparable financial size and operations. As a result of this independent review, the policy of the Company was changed to position
fixed remuneration against the level that reflects the financial accountability and operational scope of the position relative to peer group
positions.
The determination of fixed remuneration of Executive Directors was subject to the following principles:
a)
The performance of the Company, the longevity of the Executive Directors in their respective roles and the assessment of
opportunity costs in respect of replacement;
Be in line with the remuneration policies of the Company for Executive Directors so as to position fixed remuneration at around
75th to 90th percentile of the peer group; and
Target total remuneration to provide the opportunity for Executive Directors to earn top quartile rewards for outstanding
performance.
b)
c)
Remuneration levels are considered annually, with consideration of market data and the performance of the consolidated entity and
individual. The remuneration mix is considered against the maximum total remuneration for each Executive Director compared to the
75th percentile of the benchmark peer group recommended by the independent remuneration expert.
Relationship to Benchmark
Peer Group:
Below Target Range
Below Target Range
Within Maximum Range
The remuneration expert was commissioned to review the level and reasonableness of the remuneration set for Executive Directors.
The independent remuneration expert found the level of the remuneration and the remuneration mix to be reasonable.
5. Details of the Short-Term Incentive (STI) Plan
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 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.
ANNUAL REPORT JUNE 2021
41
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
5. Details of the Short-Term Incentive (STI) Plan (continued)
2021 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.
Who participates?
Executive Directors
STI awards, in the form of a cash bonus or performance cash incentive (PCI) or equity, 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.
CHAIRMAN AND CEO’s REPORT
How is the STI
delivered?
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 2021 STI Plan PCI to an Executive Director under the 2021 STI Plan is to be made on 30 September
2021, or as soon as reasonably practicable after that date, subject to the satisfaction of 2021 STI Plan Performance
Conditions and 2021 STI Plan Service Conditions.
Executive Directors, excluding the Executive Chairman, have a target STI opportunity of between 45% to 72% 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.
What is the 2021
STI opportunity?
For the year ended 30 June 2021, the 100% STI Pool for the 2021 STI Plan PCI was $3,250,000 allocated as follows:
(1) Gerald Harvey nil; (2) Kay Lesley Page $942,500; (3) John Evyn Slack-Smith $812,500; (4) David Matthew Ackery
$812,500; and (5) Chris Mentis $682,500.
The maximum over-achievement pool for allocation was $750,000, with the maximum STI pool being $4,000,000.
The over-achievement pool was allocated in proportion to the 100% STI Pool.
What are the STI
performance
conditions for
FY2021?
Actual STI payments awarded to each Executive Director depend on the extent to which specific measures, targets,
initiatives and conditions for the 2021 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 2021 STI Plan Performance Conditions are as follows:
a.
Financial Condition as to 80% entitlement to the 100% STI Pool;
b.
c.
d.
Non-Financial Conditions as to 20% entitlement to the 100% STI Pool;
Malus reductions of up to 30% for non-achievement of certain other non-financial performance conditions; and
Financial Condition as to the Over-Achievement Pool.
(a) STI 80% Financial Condition
(b) STI 20% Non-Financial Conditions
APAT was selected as the STI performance measure as it indicates the level
of after-tax profit generated adjusted for the after-tax effects of net
property revaluation adjustments, the net impact of AASB 16 Leases and
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
2021 and will be achieved at the following levels:
•
Entry Level at APAT of $400 million, equating to 50%
entitlement of the STI subject to the financial condition
(i.e., 40% entitlement to the 100% STI pool = $1.30 million);
The Non-Financial Conditions were assessed in respect of the following:
•
Productivity improvements equating to 50% entitlement of the
STI subject to the non-financial conditions
(i.e., 10% entitlement to the STI pool = $0.325 million); and
•
Digital innovations equating to 50% entitlement of the STI
subject to the non-financial conditions
(i.e., 10% entitlement to the STI pool = $0.325 million).
Full achievement of the non-financial conditions will equate to 20%
entitlement to the STI pool i.e., a total of $0.65 million.
•
•
•
•
42
100% Level at APAT of $502million, equating to 100%
entitlement of the STI subject to the financial condition
(i.e., 80% entitlement to the 100% STI pool = $2.60 million);
Straight-line sliding scale between Entry Level and 100% Level;
Over-Achievement Level at APAT of $553 million, equating to
100% entitlement of the 100% STI Pool subject to the financial
condition (i.e., 80% entitlement to the 100% STI pool = $2.60
million) and 100% entitlement to the Over-Achievement Pool
Amount of $0.75 million, resulting in a total Over-Achievement
entitlement of $3.35 million;
Straight-line sliding scale for achievement between 100% and the
Over-Achievement Level.
(c) Malus adjustments of up to 30% for non-achievement
The malus (financial penalty) provisions could reduce the overall
achievement of the STI award by 30%. The malus provisions were made
up of three main items:
•
•
•
Franchisee learning, development and growth = 5% of the 30%;
Customer Experience in Australia and NZ = 10% of the 30%
Company-operated store expansion strategy = 15% of the 30%.
The malus provisions could potentially reduce the overall achievement
of the STI award by up to 30% of the 100% STI Pool i.e., a reduction of up
to $0.975 million.
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
5. Details of the Short-Term Incentive (STI) Plan (continued)
2021 STI Plan (continued)
In respect of the 2021 STI, each participating Executive Director will be subject to an additional non-financial performance
condition in the form of a Participant Performance Review which is to:
•
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.
CHAIRMAN AND CEO’s REPORT
To determine whether an individual is eligible for the 2021 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 2021.
How is performance
assessed?
•
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 2021 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 2021 STI Plan by serving a written notice to
the relevant executive at any time before the payment date.
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.
6. Details of the Long-Term Incentive (LTI) Plan
There were three active tranches of the 2016 LTI Plan operating in respect of the 2021 financial year. The FY19 Tranche was issued in
FY2019 and is measured over 2019, 2020 and 2021. The FY20 Tranche was issued in FY2020 and is measured over 2020, 2021 and 2022.
The FY21 Tranche was issued in FY2021 as follows:
Tranche FY21 of the 2016 LTI Plan
Tranche FY21 of the
2016 LTI Plan
Who participates?
LTI grants are made annually to Executive Directors in order to align remuneration with the creation of sustainable
shareholder value over the long-term.
Executive Directors which have an impact on the performance of the consolidated entity against the relevant long-term
performance measures.
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 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.
How is the LTI
delivered?
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
ANNUAL REPORT JUNE 2021
43
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
6. Details of the Long-Term Incentive (LTI) Plan (continued)
Tranche FY21 of the 2016 LTI Plan (continued)
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 34% of fixed remuneration.
A total of 549,500 performance rights under Tranche FY21 of the 2016 LTI Plan were granted to Executive Directors on 4
December 2020.
What is the LTI
opportunity issued
in FY2021?
CHAIRMAN AND CEO’s REPORT
The performance rights were independently valued by Mercer Consulting (Australia) Pty Limited at grant date, with a fair
value of $3.85 per entitlement share based on a share price of $4.66.
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 and service
conditions of the 2016 LTI Plan, the total fair value of Tranche FY21 performance rights amounted to $2,115,575 in
aggregate.
Tranche FY21
Grant date
Vesting date
First exercise date
Last exercise date
Key Dates
4 December 2020
31 December 2023
1 January 2024
30 June 2026
What are the
performance
conditions for
Tranche FY21 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
The financial condition in respect of the achievement of Tranche FY21 of the 2016 LTI Plan is based on RONA, where
Tranche FY21 RONA means the fraction:
Tranche FY21 Aggregate APBT ÷ Tranche FY21 Aggregate Net Assets, expressed as a percentage.
Where:
Tranche FY21 Financial Years means the financial years ending 30 June 2021, 2022 and 2023;
Tranche FY21 Aggregate APBT means the aggregate amounts of the annual net profit before income tax of the
consolidated entity for each of the Tranche FY21 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 FY21 Financial Years;
Tranche FY21 Aggregate Net Assets means the aggregate amounts of the net assets of the consolidated entity, excluding
non-controlling interests, as at each of 30 June 2020, 2021 and 2022 as described in the annual report of the
consolidated entity in respect of each of the Tranche FY21 Financial Years.
Full vesting of the Tranche FY21 performance rights is conditional upon achievement of Tranche FY21 RONA of at least
20%, with a lesser vesting as set out in the table below:
Tranche FY21 RONA Achieved
Tranche FY21 % of Performance Rights that will become
Less than 16%
16%
17%
18%
19%
20%
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.
44
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
6. Details of the Long-Term Incentive (LTI) Plan (continued)
Tranche FY21 of the 2016 LTI Plan (continued)
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 FY21 of the 2016 LTI
Plan measured over the period for financial years ending 30 June 2021, 30 June 2022 and 30 June 2023.
When does the LTI
vest?
CHAIRMAN AND CEO’s REPORT
Performance rights granted under Tranche FY21 of the 2016 LTI Plan will vest on 31 December 2023, subject to meeting
the financial performance conditions and service conditions, and will be capable of exercise between 1 January 2024 and
30 June 2026.
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.
7. Performance and Executive Remuneration Outcomes in FY21
7A. Actual Remuneration Earned by Key Management Personnel (KMP) in FY21
The compensation expensed in respect of KMP in FY21 is set out in Table 1 (for Directors) and Table 2 (for Senior Executives) on pages 55
and 56 of this report. This provides shareholders with a view of the remuneration earned by KMP for performance in the 2021 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
2021, or as soon as practicable after that date, is set out in Section 13 of the Remuneration Report on page 59.
7B. 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.
In line with the independent review undertaken during the 2020 financial year by an independent remuneration expert, the determination
of fixed remuneration of Executive Directors was subject to the following principles:
a)
The performance of the Company, the longevity of the Executive Directors in their respective roles and the assessment of
opportunity costs in respect of replacement;
Be in line with the remuneration policies of the Company for Executive Directors so as to position fixed remuneration at around
75th to 90th percentile of the peer group; and
Target total remuneration to provide the opportunity for Executive Directors to earn top quartile rewards for outstanding
performance.
b)
c)
Remuneration levels are considered annually, with consideration of market data and the benchmark peer group. The process undertaken
by the Remuneration Committee consisted of a review of Company, business unit and individual performance, relevant comparative
remuneration, and external advice independent of management as to the reasonableness of the fixed remuneration of the Executive
Directors.
For FY2021, there was no increase in the level of fixed remuneration for the Executive Directors. The fixed remuneration of the Executive
Directors has not increased since the fixed remuneration was re-set in FY2014 following the Global Financial Crisis (GFC).
The fixed component of the remuneration of Executive Directors is disclosed in Table 1 on page 55 of this report.
ANNUAL REPORT JUNE 2021
45
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
7. Performance and Executive Remuneration Outcomes in FY21 (continued)
7C. Actual Performance Against Short Term Incentive (STI) Measures
A combination of financial and non-financial measures are used to measure performance for STI awards. The STI 100% opportunity pool
was $3,250,000 (2020: $3,000,000). The pool for over-achievement was $750,000 (2020: $600,000). The maximum aggregate pool for
allocation was $4,000,000 (2020: $3,600,000).
80% of the STI is dependent on the satisfaction of financial performance conditions (based on APAT) and 20% is measured against the
achievement of non-financial measures.
Actual performance against those measures is as follows for the 2021 financial year:
a)
CHAIRMAN AND CEO’s REPORT
b)
c)
d)
100% achievement of the 80% Financial Condition (score of 80 out of 80) of the 100% STI pool = $2,600,000
100% achievement of the Over-Achievement Pool subject to the Financial Condition (score of 20 out of 20) = $750,000
87.5% achievement of the 20% Non-Financial Conditions (score of 17.5 out of 20) = $568,752
15.5% reduction for malus penalties of up to 30% of the STI Pool (score of 4.64 out of 30) = reduction of $150,800
The total 2021 STI Plan payable in respect of the 2021 financial year is $3,767,952 (2020: $3,481,651). This represented a total
achievement of 112.86 points out of 120 points (94.05%) as shown in the tables below.
Financial Conditions of the 2021 STI Plan
Achievement of 80% Financial Condition
Calculation of FY2021 APAT
Annual Net Profit After Tax (APAT) excluding the
after-tax effects of property revaluation
increments or decrements, the net impact of
AASB 16 Leases and any COVID-19 support
and assistance received
= $738.44 million
for FY21
Achievement =
120% Over-
Achievement
100% Level
2021 STI PCI
% Financial
Conditions
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
Nil
$942,500
$812,500
$812,500
$682,500
$3,250,000
Achievement of Over-Achievement Pool
n/a
80%
80%
80%
80%
120% Over-
Achievement Pool
% Financial
Conditions
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
Nil
$217,500
$187,500
$187,500
$157,500
$750,000
n/a
100%
100%
100%
100%
2021 STI PCI
Financial
Condition
Nil
$754,000
$650,000
$650,000
$546,000
$2,600,000
2021 STI PCI
Financial
Condition
Nil
$217,500
$187,500
$187,500
$157,500
$750,000
% Financial Condition Satisfied
n/a
100% (80 out of 80)
100% (80 out of 80)
100% (80 out of 80)
100% (80 out of 80)
% Financial Condition Satisfied
n/a
100% (20 out of 20)
100% (20 out of 20)
100% (20 out of 20)
100% (20 out of 20)
2021 STI PCI
Payable
Nil
$754,000
$650,000
$650,000
$546,000
$2,600,000
2021 STI PCI
Payable
Nil
$217,500
$187,500
$187,500
$157,500
$750,000
APAT for the 2021 financial year was $738.44 million resulting in the full achievement of the financial conditions for the STI 100% Pool
(level required $502 million), and full achievement of the financial conditions in respect of the Over-Achievement Pool (level required
$553 million).
46
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
7. Performance and Executive Remuneration Outcomes in FY21 (continued)
7C. Actual Performance Against Short Term Incentive (STI) Measures (continued)
Non-Financial Conditions of the 2021 STI Plan
Achievement of 20% Non-
Financial Conditions
For 2021, 20% of the 100% opportunity pool i.e., $650,000 was subject to non-financial performance measures
as to:
•
•
Productivity improvements of 50% for $325,000; and
Digital innovations of 50% for $325,000.
100% Level
2021 STI PCI
% Non-Financial
Conditions
2021 STI PCI Non-
Financial
% Non-Financial
Condition Satisfied
2021 STI PCI
Payable
CHAIRMAN AND CEO’s REPORT
Gerald Harvey
Nil
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
$942,500
$812,500
$812,500
$682,500
$3,250,000
n/a
20%
20%
20%
20%
Nil
n/a
$188,500
87.5% (17.5 out of 20)
$162,500
87.5% (17.5 out of 20)
$162,500
87.5% (17.5 out of 20)
$136,500
87.5% (17.5 out of 20)
$650,000
Nil
$164,938
$142,188
$142,188
$119,438
$568,752
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 87.5% of the non-financial
performance hurdles for the 2021 STI Plan were achieved, equating to a score of 17.5 points out of 20 points.
Achievement of the Non-Financial Performance Conditions for the 2021 STI Plan are set out in the following table:
Assessment of Non-Financial Conditions of the 2021 STI Plan
Primary
Weighting
10%
Measure
Target
Implement
process
improvements
and systems to
enhance the
Online-to-
Offline (020)
Strategy of the
consolidated
entity.
Productivity
Improvements
Initiatives and
Conditions
Establish and commence the build phase for the up-
grade of finance platforms of the consolidated entity in
Australia, with governance established for each stream
of the project within approved scope and budget.
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® functionality in no less than
80 franchised complexes with the third phase of the
approved program within approved scope and budget.
(2) Complete phase 3 of the approved project to
replace all end-of-life and at-capacity hardware used by
franchisees within approved scope and budget.
(3) Establish and commence the security and improve-
ment program for franchisees with governance
established for each stream of the program within
approved scope and budget.
Digital
Innovations
Implement
innovation and
improvement
initiatives to
enhance the
digital
operations of
the
consolidated
entity.
10%
Franchisees are to be provided with licences and train-
ing to use the digital innovations to improve the
profitability of the franchised business:
(1) Establish a program of improvement initiatives
within franchised complexes and the Marketplace
franchisee operational environments including a
schedule for scope approval and an execution
timetable.
(2) Upgrade the digital platform licensed to the
Marketplace franchisee with appropriate governance
over the approved scope and budget.
Total
20%
ANNUAL REPORT JUNE 2021
Weighting
of initiatives
& conditions
Achieve-
ment
Score
25%
80%
2.0%
25%
100%
2.5%
25%
100%
2.5%
25%
100%
2.5%
50%
100%
5.0%
50%
60%
3.0%
17.5%
47
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
7. Performance and Executive Remuneration Outcomes in FY21 (continued)
7C. Actual Performance Against Short Term Incentive (STI) Measures (continued)
Malus Reduction in Respect of 2021 STI Plan
Malus Reductions of up to
30% of the 2021 STI
Malus (financial penalty) provisions to reduce the overall achievement of the 100% STI pool by up to 30%
i.e., $975,000, in respect of:
•
•
•
Customer Experience in Australia and New Zealand, as to 10 points of the 30%;
Franchisee learning, development and growth, as to 5 points of the 30%; and
Company-operated store expansion strategy, as to 15 points of the 30%.
CHAIRMAN AND CEO’s REPORT
100% Level
2021 STI PCI
% Malus
Reductions
2021 STI PCI Malus
Reductions
% Malus Reductions (Score)
Reduction in 2021
STI PCI Payable
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
Nil
$942,500
$812,500
$812,500
$682,500
$3,250,000
n/a
-30%
-30%
-30%
-30%
Nil
n/a
($282,750)
-15.47% (4.64 out of 30)
($243,750)
-15.47% (4.64 out of 30)
($243,750)
-15.47% (4.64 out of 30)
($204,750)
-15.47% (4.64 out of 30)
($975,000)
Nil
($43,732)
($37,700)
($37,700)
($31,668)
($150,800)
Total achievement of the 2021 STI was reduced by 4.64% ($150,800) relating to the assessment of malus reductions as indicated in the
table below.
Primary
Weighting
-10%
Measure
Target
Grant licences to use
tools to reinforce
and enhance the
"Shop with
Confidence" Harvey
Norman® brand
positioning through
the Customer
Service Standards.
Customer
Experience
Ongoing refinement of
the process by each
franchisee that
promotes and
encourages measure-
able improvement in
the knowledge and
capability of the
franchisee and their
employees.
Company-operated
store expansion
strategy in Singa-
pore, Malaysia,
Ireland and Croatia.
People &
Culture /
Franchisee
Learning,
Development
and Growth
Company-
Operated
Store
Expansion
Strategy
Total
48
Assessment of the Malus Provisions
Initiatives and
Conditions
Weighting
of initiatives
& conditions
Achieve-
ment /
Score
(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 FY21 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 FY21 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
FY21 over the prior year on a like-for-like basis.
-5%
(1) Franchisees to identify and nominate a minimum
number of 50 candidates to attend the “Franchisees
and Proprietor in Training (FIT)” development program
during FY21.
(2) Franchisees to achieve a successful completion
rate of 75% by participants in the FIT development
program during FY21.
Malus
Reduc-
tion
0.0%
-3.64%
0.0%
-1.0%
0.0%
0.0%
40%
40%
10%
10%
50%
50%
100%
(Score of
4.0%)
9.0%
(Score of
0.36%)
100%
(Score of
1.0%)
0.0%
(Score of
0.0%)
100%
(Score of
2.5%)
100%
(Score of
2.5%)
-11.25%
(1) Singapore: open 3 new stores during FY21.
75%
(2) Malaysia: open 3 new stores during FY21
-1.875%
-1.875%
(3) Ireland: One (1) new store to be opened at Sligo.
(4) Croatia: One (1) new store to be opened at Pula.
12.5%
12.5%
-30%
ANNUAL REPORT JUNE 2021
100%
(11.25%)
Both
100%
(1.875%)
0.0%
0.0%
0.0%
-4.64%
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
7. Performance and Executive Remuneration Outcomes in FY21 (continued)
7C. Actual Performance Against Short Term Incentive (STI) Measures (continued)
SUMMARY OF TOTAL
ACHIEVEMENT OF 2021 STI
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
100% Pool Amount
Over-Achievement
Pool
TOTAL 2021 STI
Financial
Non-Financial
Malus
Financial
-
$754,000
$650,000
-
$164,938
$142,188
$142,188
$119,438
-
($43,732)
($37,700)
($37,700)
($31,668)
David Matthew Ackery
CHAIRMAN AND CEO’s REPORT
Chris Mentis
$650,000
$546,000
Total
$2,600,000
$568,752
($150,800)
-
$217,500
$187,500
$187,500
$157,500
$750,000
-
$1,092,706
$941,988
$941,988
$791,270
$3,767,952
Service Conditions of the 2021 STI Plan
The 2021 STI Plan Service Conditions will be deemed to be satisfied, if and only if, as at the relevant payment date (30 September 2021):
•
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 2021 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 is 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 2021 STI Plan held shares in the Company of a value that was in excess of the
Benchmark Shareholding Level. The STI benefit under the 2021 STI Plan is to be paid in cash.
7D. Actual Performance Against Long Term Incentive (LTI) Measures for Tranche FY21 of the 2016 LTI Plan
A total of 549,500 performance rights were granted to Executive Directors on 4 December 2020. 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 FY21 of the 2016 LTI Plan will be 100%
achieved by the end of the vesting period and it is probable that 100% 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 in respect of COVID-19 support and
assistance. The probability of 100% vesting has been estimated based on the calculation of Tranche FY21 RONA for the 2021 financial year
of 30.09%. A 30.09% RONA for FY21 would result in a 100% vesting for year 1 of the three-year measurement period. A 100% vesting
probability will result in an estimated cumulative Tranche FY21 fair value of $2,115,575 over the vesting period. An amount of $393,726 has
been recognised as remuneration to Executive Directors and expensed in the income statement on a straight-line basis for FY2021.
Achievement of 100% Financial Condition for Tranche FY21 of 2016 LTI
Calculation of FY21 RONA:
FY21 APBT (net profit excluding property
revaluations, the net impact of AASB 16 Leases
and any COVID-19 support and
assistance received)
FY20 Net Assets (excluding non-controlling interests)
$1,036.91 million
$3,446.34 million
= 30.09% RONA
Number of
Performance
Rights
Fair Value
Per Right
65,500
183,000
109,000
109,000
83,000
549,500
$3.85
$3.85
$3.85
$3.85
$3.85
Fair Value of
Performance
Rights
$252,175
$704,550
$419,650
$419,650
$319,550
$2,115,575
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
Probability of
Vesting %
Estimated Value of
Tranche FY21 2016
LTI Plan to Vest
Tranche FY21
LTI Plan Expense
in FY21
100%
100%
100%
100%
100%
$252,175
$704,550
$419,650
$419,650
$319,550
$46,932
$131,123
$78,100
$78,100
$59,471
$2,115,575
$393,726
49
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
7. Performance and Executive Remuneration Outcomes in FY21 (continued)
7D. Actual Performance Against Long Term Incentive (LTI) Measures for Tranche FY21 of the 2016 LTI Plan (continued)
Subject to the satisfaction of the financial performance condition and service conditions of the 2016 LTI Plan, Tranche FY21 will vest on 31
December 2023. 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 the performance rights have become
exercisable on 1 July 2026 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.
•
CHAIRMAN AND CEO’s REPORT
7E. Reassessment of Tranche FY20 of the 2016 LTI Plan Performance Conditions and Expense Recognised in FY21
In the 2020 financial year, a total of 549,500 performance rights were granted to Executive Directors on 2 December 2019 under Tranche
FY20 of the 2016 LTI Plan. 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.
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.
In the 2020 Remuneration Report, it was reported that the estimated achievement of Tranche FY20 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 Tranche FY20 performance rights will meet the
performance condition. The probability of 60% vesting had been estimated based on the calculation of Tranche FY20 RONA for the 2020
financial year of 18.91%.
The financial performance condition of Tranche FY20 is subject to reassessment during each of the Tranche FY20 Financial Years being the
financial years ending 30 June 2020, 2021 and 2022. A reassessment of the Tranche FY20 Aggregate APBT and Tranche FY20
Aggregate Net Assets for the 2020 and 2021 financial years has resulted in a revised RONA for the two-year aggregated period of 24.73%.
The revised RONA of 24.73% has resulted in a revised probability of vesting of 100%. This revised probability of vesting of 100% is higher
than the previously estimated probability of vesting of 60% calculated in FY20 based on Tranche FY20 RONA.
The cumulative expense in respect of Tranche FY20 has been reassessed in the 2021 financial year as $1,906,765, an increase of $762,706
from the previous assessment of cumulative Tranche FY20 expense in the 2020 financial year of $1,144,059 as reported in the 2020
Remuneration Report. The total value of Tranche FY20 expense recognised in the 2021 financial year was $761,714, comprised of $618,173
relating to the recognition of the Tranche FY20 expense on a straight-line basis for FY2021, and $143,541 relating to an adjustment to the
Tranche FY20 expense recognised in the previous financial year due to the reassessment of the probability of vesting from 60% to 100%.
Reassessment of 100% Financial Condition for Tranche FY20 of 2016 LTI Plan
Calculation of Aggregated RONA for Tranche
FY20 Financial Years (FY2020 and FY2021)
Tranche FY20 Aggregated APBT (net profit excluding
property revaluations, the net impact of AASB 16 Leases
and any COVID-19 support and assistance received)
(2020 + 2021)
Tranche FY20 Aggregated Net Assets (2019 + 2020)
$1.635.84 million
$6,613.75 million
= 24.73%
RONA
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
Probability
Vesting % in
FY20
Tranche FY20
Estimated Fair
Value in FY20
Revised
Probability
Vesting in FY21
Revised Estimated
Tranche FY20 Fair
Value in FY21
Adjustment due to
reassessment
Tranche FY20 LTI
Plan Expense
in FY21
60%
60%
60%
60%
60%
$136,371
$381,006
$226,938
$226,938
$172,806
$1,144,059
100%
100%
100%
100%
100%
$227,285
$635,010
$378,230
$378,230
$288,010
$90,914
$90,796
$254,004
$253,674
$151,292
$151,292
$115,204
$151,095
$151,095
$115,054
$1,906,765
$762,706
$761,714
7F. Reassessment of Tranche FY19 of the 2016 LTI Plan Performance Conditions and Expense Recognised in FY21
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 was measured over a three-year period for financial years ending 30 June 2019, 30 June
2020 and 30 June 2021.
50
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
7. Performance and Executive Remuneration Outcomes in FY21 (continued)
7F. Reassessment of Tranche FY19 of the 2016 LTI Plan Performance Conditions and Expense Recognised
in FY21 (continued)
In the 2020 Remuneration Report, it was reported that the estimated achievement of Tranche FY19 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 Tranche FY19 performance rights will meet the
performance condition.
The probability of 60% vesting was reassessed in 2020 based on a 2-year aggregated RONA, being the Tranche FY19 Aggregate APBT
and Tranche FY19 Aggregate Net Assets for the 2019 and 2020 financial years. The reassessment in 2020 resulted in a revised 2-year
aggregated RONA of 18.15%.
CHAIRMAN AND CEO’s REPORT
The financial performance condition of Tranche FY19 was subject to reassessment during each of the Tranche FY19 Financial Years being
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, 2020 and 2021 financial years has resulted in a revised RONA for the three-year aggregated period of
22.47%. A revised aggregated RONA of 22.47% for the Tranche FY19 Financial Years has resulted in the actual achievement of 100% of
the Tranche FY19 performance rights. This revised achievement calculation of 100% is higher than the previously estimated probability of
vesting of 60% calculated in FY20.
The cumulative expense in respect of Tranche FY19 has been reassessed in the 2021 financial year as $1,423,205, an increase of $569,282
from the previous assessment of cumulative Tranche FY19 expense in the 2020 financial year of $853,923 as reported in the 2020
Remuneration Report. The total value of Tranche FY19 expense recognised in the 2021 financial year was $753,359, comprised of
$462,115 relating to the recognition of the Tranche FY19 expense on a straight-line basis for FY21, and $291,244 relating to an adjustment
to the Tranche FY19 expense recognised in the 2019 and 2020 financial years due to the reassessment of the probability of vesting from
60% to 100%. FY2021 was the final year of measurement for Tranche FY19 with the performance rights scheduled to vest at 31 December
2021.
Reassessment of 100% Financial Condition for Tranche FY19 of 2016 LTI Plan
Calculation of Aggregated RONA for Tranche
FY19 Financial Years (2019, 2020 and 2021)
Tranche FY19 Aggregated APBT (2019+ 2020 + 2021)
$2,140.10 million
Tranche FY19 Aggregated Net Assets (2018 + 2019 + 2020)
$9,524.76 million
= 22.47%
RONA
Probability
Vesting % in
FY20
Tranche FY19
Estimated Fair
Value in FY20
Revised Probability
Vesting in FY21
Revised Tranche
FY19 Fair Value in
FY21
Adjustment due to
Reassessment
Tranche FY19 LTI
Plan Expense
in FY21
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
60%
60%
60%
60%
60%
$101,787
$284,382
$169,386
$169,386
$128,982
$853,923
100%
100%
100%
100%
100%
$169,645
$473,970
$282,310
$282,310
$214,970
$67,858
$89,800
$189,588
$250,891
$112,924
$149,438
$112,924
$149,438
$85,988
$113,792
$1,423,205
$569,282
$753,359
7G. Assessment of Tranche 3 of the 2016 LTI Plan Performance Conditions and Expense Recognised in FY21
In 2018, 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 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
was measured over a three-year period for financial years ending 30 June 2018, 30 June 2019 and 30 June 2020.
In the 2020 Remuneration Report, it was reported that the estimated achievement of Tranche 3 of the 2016 LTI Plan would have been
56.6% by the end of the vesting period and that 56.6% of the estimated fair value of the performance rights would meet the performance
condition.
The cumulative expense in respect of Tranche 3 was $756,177 as reported in the 2020 Remuneration Report. The 2020 financial year was
the final year of Tranche 3 measurement. During the 2021 financial year, an expense of $123,456 was recognised in respect of Tranche 3
of the 2016 LTI Plan representing the remaining vesting period up to 31 December 2020.
Of the 400,000 performance rights granted to Executive Directors during 2018, a total of 56.6%, or 226,400 performance rights vested on
31 December 2020 and were exercisable from 1 January 2021. On 6 January 2021, 191,025 performance rights under Tranche 3 of the
2016 LTI Plan were exercised and on 26 March 2021, a further 35,375 performance rights under Tranche 3 were exercised, reducing the
unissued ordinary shares under Tranche 3 of the 2016 LTI Plan to nil.
ANNUAL REPORT JUNE 2021
51
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
7. Performance and Executive Remuneration Outcomes in FY21 (continued)
7G. Assessment of Tranche 3 of the 2016 LTI Plan Performance Conditions and Expense Recognised in FY21 (continued)
Assessment of 100% Financial Condition for Tranche 3 of 2016 LTI Plan
Calculation of Aggregated RONA for Tranche
3 Financial Years (2018, 2019 and 2020)
Tranche 3 Aggregated APBT (2018 + 2019 + 2020)
$1,581.71 million
Tranche 3 Aggregated Net Assets (2017 + 2018 + 2019)
$8,868.88 million
= 17.83%
RONA
Actual Achievement
in FY20
Actual Tranche 3
Fair Value
Tranche 3 LTI Plan
Expense in FY21
Gerald Harvey
CHAIRMAN AND CEO’s REPORT
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Total
56.6%
56.6%
56.6%
56.6%
56.6%
$118,153
$212,675
$141,783
$141,783
$141,783
$756,177
$19,290
$34,722
$23,148
$23,148
$23,148
$123,456
7H. Summary of Performance and Executive Remuneration Outcomes in FY21
Remuneration Component
100%-Level
Achievement
Amount
Achieve-
ment
Score
Amount
Payable
Vesting
Period
2021
Remuneration
Amount
2020
Remuneration
Amount
Value of STI and LTI Disclosed in 2021 and 2020 Remuneration Reports
2021 STI Plan
- Financial conditions (80/100)
- Over-achievement pool (20/20)
- Non-financial conditions (20/100)
- Malus Adjustments (up to 30/100)
Total
2020 STI Plan
- Financial conditions (50/100)
- Over-achievement pool (20/20)
- Non-financial conditions (50/100)
Total
Total Short-Term Incentive PCI
Tranche FY21 of 2016 LTI Plan
- Financial conditions (100%)
- Non-financial conditions (0%)
Total 100%
Tranche FY20 of 2016 LTI Plan
- Financial conditions (100%)
- Non-financial conditions (0%)
Total 100%
Tranche FY19 of 2016 LTI Plan
- Financial conditions (100%)
- Non-financial conditions (0%)
Total 100%
Tranche 3 (FY18) of 2016 LTI Plan
- Financial conditions (100%)
- Non-financial conditions (0%)
Total 100%
Tranche 2 (FY17) of 2016 LTI Plan
- Financial conditions (100%)
- Non-financial conditions (0%)
Total 100%
Total LTI Performance Rights
Total Value of STI and LTI
$2,600,000
$750,000
$650,000
$4,000,000
$1,500,000
$600,000
$1,500,000
$3,600,000
$2,115,575
-
$2,115,575
$1,906,765
-
$1,906,765
$1,423,205
-
$1,423,205
$1,336,000
-
$1,336,000
$1,548,000
-
$1,548,000
100.00%
100.00%
87.50%
15.47%
100.00%
100.00%
92.12%
80.00
20.00
17.50
(4.64)
112.86
50.00
20.00
46.06
116.06
$2,600,000
$750,000
$568,752
($150,800)
$3,767,952
$1,500,000
$600,000
$1,381,651
$3,481,651
1 Year
1 Year
$2,600,000
$750,000
$568,752
($150,800)
$3,767,952
-
-
-
-
-
-
-
-
$1,500,000
$600,000
$1,381,651
$3,481,651
$3,767,952
$3,481,651
100%
-
100%
-
$2,115,575
-
$2,115,575
4 Years
(Yr 1 of 4)
100%
-
100%
-
$1,906,765
-
$1,906,765
4 Years
(Yr 2 of 4)
100%
-
100%
-
$1,423,205
-
$1,423,205
4 Years
(Yr 3 of 4)
56.6%
-
56.6%
-
60%
-
60%
-
4 Years
(Yr 4 of 4)
n/a
$756,177
-
$756,177
$928,800
-
$928,800
$393,726
-
$393,726
$761,714
-
$761,714
$753,359
-
$753,359
$123,456
-
$123,456
-
-
-
-
-
-
$215,312
-
$215,312
$330,980
-
$330,980
$359,118
-
$359,118
$151,371
-
$151,371
$2,032,255
$1,056,781
$5,800,207
$4,538,432
The total value of STI and LTI expensed in the Income Statement for the 2021 financial year and disclosed in this remuneration report was $5.80
million compared to $4.54 million expensed in the 2020 financial year, an increase of $1.26 million or 27.8%, relative to the previous year.
52
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
8. 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.
Under the terms of the present contract the CEO’s total potential employment cost is $3,964,550 comprised of:
•
•
•
CHAIRMAN AND CEO’s REPORT
The CEO’s termination provisions are as follows:
fixed remuneration of $2,100,000 per annum;
maximum STI opportunity in respect of the year ended 30 June 2021 of $1,160,000 (including the 120% over-achievement level); and
maximum LTI opportunity in respect of the year ended 30 June 2021 of $704,550.
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 2021
STI Plan to determine whether the reward is to be paid as cash or in shares. The CEO held 19,845,750 shares in the Company at 30 June
2021 equating to a value of $108.75 million.
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
9. 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. At the 2020 annual general meeting (AGM) held on 25 November 2020, shareholders approved an increase of $500,000 to the
aggregate NED pool from $1,000,000 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 2021 and 30 June 2020 are disclosed in Table 1 on
page 55 of this report.
ANNUAL REPORT JUNE 2021
53
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
10. 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.
CHAIRMAN AND CEO’s REPORT
54
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
11. Compensation of Key Management Personnel
Table 1: Compensation of Key Management Personnel Expensed for the Year Ended 30 June 2021
Directors of Harvey Norman Holdings Limited:
Short-term benefits
Post Em-
ployment
Long Term
Incentives
Other
Perfor-
CHAIRMAN AND CEO’s REPORT
mance
Cash
Incentive
Salary &
Fees
Other
Short
Term
Non-
Monetary
Benefits
Superan-
nuation
Performance
Rights
Long
Service
Leave (c)
Total
Remuneration
%
earned
at risk
Gerald Harvey
Executive Chairman
2021
2020
717,906
682,668
-
-
10,400
10,400
-
-
21,694
246,818
21,003
144,882
23,675
21,694
670,410
17,812
21,003
325,505
-
-
-
-
996,818
24.8%
858,953
16.9%
3,863,116
45.6%
3,320,591
39.9%
-
-
-
-
21,694
401,781
20,472
2,614,241
51.4%
21,003
204,081
19,459
2,282,503
47.1%
21,694
401,781
20,472
2,614,241
51.4%
21,003
204,081
19,474
2,283,418
47.1%
42,213
21,694
311,465
14,768
2,067,503
53.3%
43,664
21,003
178,232
14,024
1,841,101
50.0%
-
-
-
-
-
-
-
-
-
-
-
-
5,205
4,945
13,881
13,187
19,741
18,528
5,784
13,187
12,580
11,951
8,263
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
60,000
57,000
160,000
152,000
280,505
293,088
66,667
152,000
145,000
137,750
95,238
-
-
-
-
-
-
-
-
-
-
-
-
-
Kay Lesley Page
Executive Director/CEO
2021
2,054,631
1,092,706
2020
1,958,198
998,073
John Evyn Slack-Smith
Executive Director/COO
2021
1,228,306
941,988
2020
1,167,547
870,413
-
-
-
-
David Matthew Ackery
Executive Director
2021
1,210,306
941,988
18,000
2020
1,150,447
870,413
18,000
886,093
791,270
841,426
742,752
54,795
52,055
146,119
138,813
260,764
274,560
60,883
138,813
132,420
125,799
86,975
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Chris Mentis
Executive Director/CFO
Michael John Harvey
Non-Executive Director
Christopher Herbert Brown
Non-Executive Director
Kenneth William
Gunderson-Briggs
Non-Executive Director
Graham Charles Paton (a)
Non-Executive Director
Maurice John Craven
Non-Executive Director
Luisa Catanzaro (b)
Non-Executive Director
Total for the 2021
Financial Year
Total for the 2020
Financial Year
6,839,198 3,767,952
28,400
65,888
173,924
2,032,255
55,712
12,963,329 44.7%
6,530,326 3,481,651
28,400
61,476
166,813
1,056,781
52,957
11,378,404 39.9%
The listed Parent Company, Harvey Norman Holdings Limited, does not have any employees.
(a)
(b)
(c)
Graham Charles Paton retired on 25 November 2020.
Luisa Catanzaro was appointed a Non-Executive Director of Harvey Norman Holdings Limited on 25 November 2020.
Table 1 includes the accrual for long service leave entitlements in respect of the years ended 30 June 2021 and 30 June 2020.
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.
ANNUAL REPORT JUNE 2021
55
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
11. Compensation of Key Management Personnel (continued)
Table 2: Compensation of Key Management Personnel Expensed for the Year Ended 30 June 2021
Senior Executives of Harvey Norman Holdings Limited:
Short-term benefits
Post Em-
ployment
Other
CHAIRMAN AND CEO’s REPORT
Perfor-
mance
Cash
Incentive
Salary & Fees
Other
Short
Term
Non-
Monetary
Benefits
Superan-
nuation
Termination
Benefits (f)
Long
Service
Leave (g)
Total
Remuneration
%
earned
at risk
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Thomas James Scott
GM — Property
Martin Anderson (e)
GM – Advertising
Gordon Ian Dingwall
Chief Information Officer
Lachlan Roach
GM — Home Appliances
Emmanuel Hohlastos (a)
GM — Audio Visual
Glen Gregory (b)
GM — Technology &
Entertainment
Ajay Calpakam (c)
GM – Audio Visual
Frank Robinson (d)
GM — Technology &
Entertainment
Total for the 2021
Financial Year
Total for the 2020
Financial Year
573,159
573,850
296,281
305,271
511,181
503,997
409,306
409,997
418,306
69,833
422,806
346,533
-
307,496
-
121,012
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,000
9,000
-
-
12,000
9,733
-
6,750
-
3,750
-
-
21,694
21,003
-
-
9,553
9,564
27,423
23,422
33,985
4,938
27,543
22,781
21,694
21,003
21,694
21,003
21,694
5,251
21,694
17,035
-
-
-
-
-
-
-
-
-
-
-
-
-
15,752
32,765
-
-
5,251
56,300
-
-
-
-
-
-
-
-
-
-
5,088
8,520
8,400
6,822
6,833
6,972
1,164
7,047
5,776
-
-
-
-
604,406
604,417
386,049
360,683
541,395
533,400
446,822
446,833
446,972
76,248
463,547
379,077
-
362,763
-
186,313
2,631,039
- 21,000
27,423
131,892
33,985
43,852
2,889,191
2,637,989
- 29,233
27,543
129,079
89,065
36,825
2,949,734
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Commenced as GM – Audio Visual on 1 May 2020
Commenced as GM – Technology & Entertainment on 9 September 2019
Resigned 30 April 2020
Resigned 30 September 2019
Retired on 30 June 2021
This amount represents the cash payment of employee leave entitlements upon resignation or retirement
This amount represents the accrual for long service leave entitlements in respect of the years ended 30 June 2021 and 30 June 2020
56
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
12. 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 2021. There were no movements in option
holdings during the year ended 30 June 2021.
Options Holdings of Key Management Personnel for the Year Ended 30 June 2021:
There were no options held by any director or senior executive during the year ended 30 June 2021.
Table 3: Performance Rights Granted to Executive Directors as Part of Remuneration:
CHAIRMAN AND CEO’s REPORT
The table below discloses the number of performance rights granted to Executive Directors as remuneration during the year ended 30
June 2021 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
the Year (a)
Performance Rights
Vested During the Year
(b)
Performance Rights
Lapsed During the
Year (b)
Unvested Performance
Rights at 30 June 2021
(c)
Performance Rights
Exercised During the
Year
Number
Granted
Fair Value
Granted $
Number
Vested
Fair Value
Vested $
Number
Lapsed
Fair Value
Lapsed $
Number
Unvested
Fair Value
Unvested $
Number
Exercised
Fair Value
Exercised $
Gerald Harvey
65,500
$252,175
35,375
$118,153
27,125
$90,597
196,500
$649,105
35,375
$118,153
Kay Lesley Page
183,000
$704,550
63,675
$212,675
48,825
$163,075
549,000
$1,813,530
63,675
$212,675
John Evyn Slack-
Smith
David Matthew
Ackery
109,000
$419,650
42,450
$141,783
32,550
$108,717
327,000
$1,080,190
42,450
$141,783
109,000
$419,650
42,450
$141,783
32,550
$108,717
327,000
$1,080,190
42,450
$141,783
Chris Mentis
83,000
$319,550
42,450
$141,783
32,550
$108,717
249,000
$822,530
42,450
$141,783
Total
(a)
(b)
(c)
549,500
$2,115,575 226,400
$756,177 173,600
$579,823 1,648,500
$5,445,545
226,400
$756,177
A total of 549,500 performance rights under Tranche FY21 of the 2016 LTI Plan were granted to Executive Directors on 4
December 2020. The performance rights were independently valued by Mercer Consulting (Australia) Pty Limited at grant date with a
fair value of $3.85 per entitlement on 4 December 2020, based on a share price of $4.66, resulting in a total fair value of Tranche FY21
performance rights of $2,115,575 in aggregate.
On 1 January 2021, 226,400 performance rights representing 56.6% of Tranche 3 of the 2016 LTI Plan vested after all financial
conditions and service conditions were satisfied. On that same day, 173,600 performance rights representing 43.4% of Tranche 3 of
the 2016 LTI Plan lapsed and will never be exercisable by the participants. On 6 January 2021, 191,025 performance rights under
Tranche 3 of the 2016 LTI Plan were exercised and on 26 March 2021, a further 35,375 performance rights under Tranche 3 were
exercised, reducing the unissued ordinary shares under Tranche 3 of the 2016 LTI Plan to nil.
As at 30 June 2021, a total of 1,648,500 performance rights were outstanding, unvested and not capable of exercise comprised of:
i.
ii.
iii.
549,500 performance rights under Tranche FY19 of the 2016 LTI Plan (FY2019);
549,500 performance rights under Tranche FY20 of the 2016 LTI Plan (FY2020); and
549,500 performance rights under Tranche FY21 of the 2016 LTI Plan (FY2021).
Table 4: Performance Rights of Key Management Personnel for the Year Ended 30 June 2021
The table below discloses the number of performance rights granted to Executive Directors as remuneration during the year ended 30
June 2021 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.
1 July 2020
Balance at begin-
ning of the year
Granted as
Remuneration
Performance
Rights
Exercised
Performance
Rights
Lapsed
30 June 2021
Balance at end
of the year
Due for Vesting during the year
ended 30 June 2021
Total
Exercised
Lapsed
Gerald Harvey
193,500
65,500
(35,375)
(27,125)
196,500
62,500
35,375
27,125
Kay Lesley Page
478,500
183,000
(63,675)
(48,825)
549,000
112,500
63,675
48,825
John Evyn Slack-Smith
293,000
109,000
(42,450)
(32,550)
327,000
75,000
42,450
32,550
David Matthew Ackery
293,000
109,000
(42,450)
(32,550)
327,000
75,000
42,450
32,550
Chris Mentis
241,000
83,000
(42,450)
(32,550)
249,000
75,000
42,450
32,550
Total
1,499,000
549,500
(226,400)
(173,600)
1,648,500
400,000
226,400
173,600
ANNUAL REPORT JUNE 2021
57
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
12. Additional Disclosures Relating to Options, Performance Rights and Shares (continued)
Table 4: Performance Rights of Key Management Personnel for the Year Ended 30 June 2021 (continued)
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 2021.
(b)
The closing balance of the performance rights in the Company of 1,648,500 as at 30 June 2021 is comprised of:
(a)
549,500 performance options under Tranche FY19 of the 2016 LTI Plan (FY19) at a fair value at grant date of $2.59 to vest on
31 December 2021. The FY19 Tranche is exercisable between 1 January 2022 and 30 June 2024.
549,500 performance options under Tranche FY20 of the 2016 LTI Plan (FY20) at a fair value at grant date of $3.47 to vest on
31 December 2022. The FY20 Tranche is exercisable between 1 January 2023 and 30 June 2025.
Granted as remuneration during the 2021 financial year: 549,500 performance options under Tranche FY21 of the 2016 LTI Plan
(FY21) at a fair value at grant date of $3.85 to vest on 31 December 2023. The FY21 Tranche is exercisable between 1 January
2024 and 30 June 2026.
CHAIRMAN AND CEO’s REPORT
(c)
Table 5: Shareholdings/Relevant Interests of Key Management Personnel for the Year Ended 30 June 2021
1 July 2020
Balance at Beginning
of the Year
On Exercise of
Performance Rights
(a)
Net Change Other (b)
30 June 2021
Balance at End of
the Year
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
David Matthew Ackery
Chris Mentis
Michael John Harvey
392,160,265
19,772,685
1,101,443
641,021
1,118,847
3,335,180
Christopher Herbert Brown
205,525,565
Kenneth William Gunderson-Briggs
Graham Charles Paton
Maurice John Craven
Luisa Catanzaro
KMP: Senior Executives
Thomas James Scott
Lachlan Roach
10,059
17,582
30,673
-
10,000
10,000
35,375
63,675
42,450
42,450
42,450
-
-
-
-
-
-
-
-
225,000
392,420,640
9,390
19,845,750
-
-
-
-
-
-
(17,582)
-
-
-
-
1,143,893
683,471
1,161,297
3,335,180
205,525,565
10,059
-
30,673
-
10,000
10,000
Total
(a)
623,733,320
226,400
216,808
624,176,528
On 4 January 2021, the Company announced that 226,400 performance rights, representing 56.6% of the performance rights
issued in accordance with Tranche 3 of the 2016 LTI Plan, had vested and was exercisable from 1 January 2021.
On 4 January 2021, the Company announced that 173,600 performance rights, representing 43.4% of the performance rights
issued in accordance with Tranche 3 of the 2016 LTI Plan, had lapsed on 1 January 2021 and will never be exercisable by the
participants. The consolidated entity acquired 226,400 shares in the Company via an ‘on-market trade’ at an average price of
$4.68 per share for the purposes of satisfying the entitlements of each Executive Director to the performance rights in respect
of Tranche 3 of the 2016 LTI Plan.
(b)
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. The
reduction in the shareholding of Graham Charles Paton relates to the removal of disclosures as Mr. Paton is no longer a NED
as at 30 June 2021 (retired on 25 November 2020).
58
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
13. ‘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 2021, or as soon as practicable after that date.
Total ‘take-home pay’ for the directors of the Company amounted to $11.35 million for the year ended 30 June 2021. The total value of
remuneration expensed for directors of the Company in respect of the 2021 financial year was $12.96 million (refer to Table 1 on
page 55 of this report).
For the 2021 financial year, total ‘take-home pay’ was $1.62 million lower than the value of remuneration expensed to the income statement.
CHAIRMAN AND CEO’s REPORT
KMP:
Board of Directors
Salary &
Fees
Other
Short
Term
Non-
Monetary
Benefits
Superan-
nuation
Short-term
Performance
Cash
Incentive (a)
Exercise of
Tranche 2
2016 LTI
Plan
Exercise of
Tranche 3
2016 LTI
Plan (b)
FY2021
Total Take-
Home Pay
FY2020
Total Take-
Home Pay
Gerald Harvey
717,906
10,400
-
21,694
-
Kay Lesley Page
2,054,631
John Evyn Slack-Smith
1,228,306
-
-
David Matthew Ackery
1,210,306
18,000
23,675
21,694
998,073
-
-
21,694
870,413
21,694
870,413
42,213
21,694
742,752
-
-
-
-
-
-
5,205
13,881
19,741
5,784
12,580
8,263
-
-
-
-
-
-
886,093
54,795
146,119
260,764
60,883
132,420
86,975
-
-
-
-
-
-
-
6,839,198
28,400
65,888
173,924
3,481,651
-
-
-
-
-
-
-
-
-
-
-
-
118,153
868,153
859,196
212,675
3,310,748
2,983,118
141,783
2,262,196
1,996,970
141,783
2,262,196
1,997,870
141,783
1,834,535
1,623,903
-
-
-
-
-
-
60,000
57,000
160,000
152,000
280,505
293,088
66,667
152,000
145,000
137,750
95,238
-
756,177
11,345,238
Chris Mentis
Michael John Harvey
Christopher Herbert
Kenneth William
Gunderson-Briggs
Graham Charles Paton
Maurice John Craven
Luisa Catanzaro
Total Take-Home Pay
2021 Financial Year
Total Take-Home Pay
2020 Financial Year
6,530,326
28,400
61,476
166,813
2,537,080
928,800
-
- 10,252,895
(a)
(b)
The short-term incentive of $3.48 million represented the payment of the 2020 STI Plan that was earned in respect of the 2020
financial year, and was paid to Executive Directors in September 2020.
The aggregate fair value of the performance rights exercised during the 2021 financial year was $756,177, calculated at a fair value
of $3.34 per right multiplied by 226,400 performance rights exercised.
14. Other Matters for Disclosure
The previous AGM of the Company was held on 25 November 2020.
•
The Company received 519.24 million votes for the adoption of the 2020 Remuneration Report representing 92.5% of the 561.35
million shares that were eligible to vote on that resolution. A total of 684.65 million shares were ineligible to vote on the adoption
of the 2020 Remuneration Report as the shares were held by KMPs or their related parties. The vote against the
Remuneration Report represented 7.5% of the eligible votes and 3.3% of the shares on issue.
The following improvements were made to the remuneration framework for Executive Directors informed by the independent
remuneration expert:
•
The performance conditions for the 100% short term incentive pool were changed from being 50% as to financial conditions and
50% as to non-financial conditions, to be 80% as to financial conditions and 20% as to non-financial conditions.
A malus or business modifier reduction of up to 30% of the 100% achievement pool was introduced for non-achievement of
further non-financial conditions.
•
In combination, this increases the overall difficulty of achieving maximum STI outcomes with up to 30% contingent on achieving both
financial performance and business modifier (non-financial) outcomes as opposed to only achieving non-financial performance in prior
years.
15. Loans to Key Management Personnel and their Related Parties
There were no loans granted to key management personnel and their related parties during the year ended 30 June 2021 (2020: nil).
There were no loans outstanding from key management personnel and their related parties as at 30 June 2021 (2020: nil).
ANNUAL REPORT JUNE 2021
59
OPERATING AND FINANCIAL REVIEW (CONTINUED)
DIRECTORS’ REPORT — REMUNERATION REPORT (AUDITED) (CONTINUED)
16. Other Transactions and Balances with Key Management
Personnel and their Related Parties
(i) Lease of business premises from Ruzden Pty Limited
CHAIRMAN AND CEO’s REPORT
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:
(ii) Legal fees paid to a director-related entity
CONSOLIDATED
June 2021
$
June 2020
$
5,334,262
5,231,401
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.
2,731,330
3,090,533
(iii) 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:
2,064,758
2,647,890
(iv) Perth City West Complex
Gerald Harvey has a 50% equity interest and a subsidiary of Harvey Norman Holdings Limited has a 50% equity interest in the Perth
City West Property. 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 2021 was $1.01 million (2020: $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.
(v) 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 application of AASB 16 Leases resulted in
the recognition of a lease liability of $18.42 million by the G.C. Lessee as at 30 June 2021 (2020: $18.98 million). 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 2021 was $3.48
million (2020: $3.41 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.
60
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT
Our Approach
At Harvey Norman Holdings Limited (the consolidated entity), we are part of the wider community and aspire to make a positive impact
within each community that our company-operated stores operate in across 7 countries. Each Australian Harvey Norman®, Domayne®
and Joyce Mayne® franchisee is also committed to making a positive impact in the community in which they carry on business. The
consolidated entity, and our franchisees, are committed to diversity and inclusion, environmental responsibility and a sustainable future.
The consolidated entity has established a new Executive Sustainability Committee to determine ESG-related strategy, assess corporate
ESG risks and monitor ESG performance across our global operations.
CHAIRMAN AND CEO’s REPORT
Our Board of Directors, alongside management, has a business strategy that supports responsible decision making and sustainable
long-term value creation. The Code of Conduct of the consolidated entity reinforces our commitment to honest, fair and transparent
business practices, and outlines the standards of behaviour expected of all our employees globally and of our franchisees in Australia.
As this report outlines, we are committed to and well advanced in terms of diversity and inclusion, as well as our other “people” related
ESG initiatives. In particular, this financial year, the consolidated entity is pleased to have achieved gender balance (based on 40:40:20)
in both our global workforce (of which over 45% are women), and our global senior executive teams, with women now holding 40% of
our senior executive roles. This is up on last year’s results of 35%.
We are at the start of our journey to disclose climate-related risks and opportunities informed by the Task Force on Climate-Related
Financial Disclosures (TCFD) framework. This task will take time to achieve as we build capacity, update internal processes, explore and
quantify the financial risk of climate change and, design and report on decision useful metrics and targets.
Today, we report on the sustainability issues most relevant to the consolidated entity and our value chain.
Statement of Values
Values set out in this statement below are the embodiment of what the consolidated entity stands for and are the basis
for the behaviour of the enterprise and its employees. These values underpin the culture of the consolidated entity.
We recognise that behaviour cannot be prescribed or legislated. The culture of any organisation needs to reflect its values.
The Board will regularly test whether our culture in practice reflects the values articulated in this statement. These values guide how the
consolidated entity will interact with anyone engaging with us, including colleagues, customers, shareholders, suppliers, independent
franchisees and the community generally.
Integrity We comply with the law and develop systems that make it easy for our colleagues to comply with the law. We act honestly,
ethically and with integrity. We do not mislead or deceive people.
Humanity We treat all people with respect. We are tolerant of differences in ethnicity, religion, gender, sexuality, physical and
intellectual ability. We are patient when cultural misunderstandings arise. We are inclusive and collaborative. We recognise that
sometimes genuine people make honest mistakes.
Authenticity We are authentic. We stand up for the things we believe in. We deliver on our promises. We value honesty, candour and
frankness. We will act fairly.
Optimism We are optimistic. We are passionate about what we do. We search for opportunity and manage risk. We recognise that our
environment is constantly evolving. We innovate with product and technology. We believe we can all keep learning – and learn from our
failures as well as our successes.
Responsibility We are part of a wider community. We aspire to make a positive impact within each community that we conduct
business. We are committed to environmental responsibility and a sustainable future. We are proud that we can create jobs and
opportunities for people in countries in which we operate.
People
Our people are the greatest asset of Harvey Norman®,
and are central to the success of our business strategy and
realisation of our Vision.
We recognise that having an engaged, invested, and productive workforce is not only important for our business success, but also for
the wellbeing of the over 6,000 individuals that work for us globally. Our business is strong because our people are strong.
ANNUAL REPORT JUNE 2021
61
OPERATING AND FINANCIAL REVIEW (CONTINUED)
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
People (continued)
With an average employee tenure in Australia of over seven years, our people often tell us that our strong family culture, innovative
development opportunities, and working alongside our good, honest and knowledgeable people every day, are key contributing factors
to their decision to work for the consolidated entity.
We constantly look for ways to improve our attraction, development, recognition and retention strategies as a means to continue
building our talent pipelines, encouraging innovation and entrepreneurship, and maximising success and results for our individual
company team members.
Response to COVID-19
CHAIRMAN AND CEO’s REPORT
The ongoing impacts of COVID-19 felt across our global operations in FY2021 and into FY2022 have reinforced our commitment to
maintaining an environment where our people, and our franchisees and their staff, can work safely and customers can shop safely.
The Incident Management Team of the consolidated entity has communicated regularly to each team member to recommend and
enable swift and decisive actions in response to the evolving risks and Government restrictions experienced across many of the different
countries and jurisdictions in which we, and our franchisees, operate. The learnings gained from our overseas responses to the
emerging Delta variant meant that we were ready to rapidly respond when the Delta variant arrived in Australia.
COVID-safe practices implemented since March 2020 were further refined in FY2021. Each franchisee focused on safety controls at their
franchised complex including:
•
•
•
•
•
•
Personal protective equipment
Personal hygiene protocols
Sanitisation practices
COVID-19 employee training
Physical distancing measures
Shop Smart and Shop Safe customer offerings (including Contactless Click and Collect, and Contactless Delivery).
Along with physical safety, psychological wellbeing has also been an ongoing focus for us during FY2021 as employees, and franchisees
and their staff, dealt and continue to deal with varying levels of personal and work impacts due to COVID-19. Our overseas stores
continued to engage with and support their teams in order to maintain connections to each other, particularly during periods of
lockdowns. Franchisees in Australia have found new and innovative ways to support their staff and remain connected to their
businesses during Government-mandated periods of lockdowns or other precautionary measures taken to keep their staff and
customers safe.
Franchisees and their staff have undertaken a range of training and education opportunities in health and safety throughout the year,
including continuous refresher training on various Work Health and Safety (WHS) focus areas, and completion of Family and Domestic
Violence Contact Officer training for nominated employees. The consolidated entity also undertook a range of training and education
opportunities to keep their employees well-informed and safe.
During FY2021 we continued work on the development of our renewed Health and Safety Framework and Strategy that will improve
and mature the governance, oversight and alignment of our global health and safety initiatives and outcomes. This work will continue
into FY2022.
Diversity and Inclusion
The consolidated entity continues to be an inclusive place to work that is representative of the customers and communities in which we,
and our franchisees, carry on business. The consolidated entity is a member of the Diversity Council of Australia.
We promote an inclusive environment throughout our global operations in which all colleagues are able to be themselves at work, feel
valued for their contribution and are supported to perform their best. The goal is to continue to reinforce this reputation and position.
We are passionate about supporting the creation of employment opportunities and promoting the development and training of
employees from diverse backgrounds and experiences, to grow and strengthen our talent pool of future leaders. 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 40 different cultural backgrounds.
Employee engagement is important to our success as a business. Each year we conduct an employee engagement survey in Australia
that provides actionable, anonymised reports at a team level. While this year’s survey in Australia could not be completed in full due to
COVID-19 lockdowns and challenges, our New Zealand employees completed the survey with positive results showing:
•
•
•
62
92% of respondents feel safe at work
87% of respondents enjoy their role
87% of respondents feel like they are part of a team.
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
People (continued)
Diversity and Inclusion (continued)
Harvey Norman® has always been a supporter of women in sports and in the community, and this support is no different when it comes
to supporting the women that will or do work for us.
Led by Katie Page, our Chief Executive Officer for the past 22 years, who is one of only 10 female CEOs in ASX 200 companies (5% of
total), conversations and active strategies to build the visible representation of women in leadership across the consolidated entity, and a
strong talent pipeline globally, has always been part of our day-to-day.
Achievements towards Gender Balance
CHAIRMAN AND CEO’s REPORT
Following year-on-year improvements, we are pleased to report continued growth in female representation in our Senior Executive roles
in FY2021, with women now making up 40% of our Global Senior Executives (up from 35% in FY2020). This is an achievement that
brings the consolidated entity to a gender balance within our most senior roles.
The breakdown of the HNHL Board and the Group as a whole by gender as at the end of FY2021 was:
30 JUNE 2021
Chair and CEO
Board
Senior Executives
All Employees
Male
1
8
90
Number
Female
1
2
60
3,617
2,923
The breakdown at the end of FY2020 was:
30 JUNE 2020
Chair and CEO
Board
Senior Executives
All Employees
Male
1
9
92
Number
Female
1
1
50
3,430
2,798
Total
2
10
150
6,540
Total
2
10
142
6,228
Percentage
Female
50%
20%
40%
45%
Percentage
Female
50%
10%
35%
45%
Male
50%
80%
60%
55%
Male
50%
90%
65%
55%
With 45% of our global workforce made up of women, the consolidated entity is proud to have a diverse, talented employee
population from which to draw from and develop its future leaders, and we are committed to continuing the support and development
of women into the future.
Over the past 12 months we also have implemented several activities to further enhance our already high level of diversity and
inclusion, including:
•
•
Ongoing Development of our Discrimination, Harassment and Workplace Bullying Prevention Policy
Recognition of Harvey Norman® Ireland in FY21 for the 4th year running as one of the top 20 Best Workplaces™, and Best
Workplaces™ for Women, by Great Place To Work® Institute
Inaugural Life @ Work Engagement Survey completed by Harvey Norman New Zealand to gain insights into the views of
employees
Refined employee feedback mechanisms in Australia including informal and formal channels such as employee exit interviews
and pulse snapshots, to inform strategies
Celebrated our long history of encouraging and supporting Australian women through a sponsorship program celebrating the
next generation of women and girls in Sport, Education, Employment & Innovation
Created diversity focused projects such as our “Taste of Harmony” family recipes & associated stories e-book
Participation in National Reconciliation Week
Acting as naming rights partner for two prestigious Women of the Year awards; Gold Coast Bulletin’s Women of the Year 2021
and NSW Women of the Year 2021.
•
•
•
•
•
•
Our key priorities for the next 12 months include:
•
Continue to proactively monitor gender balance outcomes within different levels of the organisation and within our different
teams, including Senior Executive positions
Proactive engagement with colleagues to increase knowledge of Diversity & Inclusion in the workplace, such as webinars,
events, and videos from business leaders
Review and consider our Flexible Work Policy and Parental Leave Policy.
•
•
ANNUAL REPORT JUNE 2021
63
SHOP SAFE
M O B I L E
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
C O M M U N I T Y & PA R T N E R S H I P S
With 192 franchised complexes in Australia, independently operated by 539 franchisees, and 107 company-operated
stores in 7 countries across the globe, the Harvey Norman® brand is a truly international business. Harvey Norman® has
always felt a strong connection to community – both on local and national levels – forming a symbiotic relationship of
mutual strength and support.
It is times like these that reinforce the importance of giving back and supporting each local community, and this is something that
Harvey Norman® has been doing since its establishment in 1982.
I N I T I AT I V E S I N 2 0 2 1 :
Good360
Harvey Norman® continued the working partnership with
Good360 to help distribute goods to those in need. Good360
help ensure individuals facing challenging life circumstances are
able to get the goods they need – this includes flood affected
communities as well as those still rebuilding their homes after
last year’s bushfires or struggling due to the pandemic. To date,
Harvey Norman® has donated a variety of goods - covering
everything from fridges and washing machines to beds and
furniture - to help ensure these communities can get back on
their feet.
Our Town - Sky News
Harvey Norman® continued their
partnership with Sky News and the
Paul Murray Live program to stage
a series of monthly Our Town
shows shining a light on regional
Australia. These shows raised
awareness and helped support
regional organisations and causes
such as food manufacturers,
thoroughbred farms, frontline
health workers, disadvantaged
multicultural Australian youth,
emergency food relief, grassroots
rugby league and female
participation and much more.
Sydney Zoo
In 2021, Harvey Norman® collaborated with Sydney Zoo to
enable every Year 2, NSW Public School student the opportunity
to receive a FREE self-guided school excursion. Students
also learned about conservation and were immersed into
the Indigenous Australian culture, as part of the Bungarribee
Dreaming Experience!
The new Sydney Zoo is a world-class zoo in the heart of Western
Sydney and aims to create an amazing experience for the local
and international community. With clever habitat design, Sydney
Zoo provides an experience that is more immersive and engaging
than traditional zoos.
The Harvey Norman® Amphitheatre has seen over 25,000
attendees and 140 shows and events including Aboriginal cultural
talks, keeper talks and NAIDOC week presentations to thousands
of families in NSW.
Katie Page &
Gerry Harvey
at the new
Sydney Zoo
64
ANNUAL REPORT JUNE 2021
SHOP SAFE
M O B I L E
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
Boys to
the Bush
mentoring
program
Boys to the Bush
Boys to the Bush (BTTB) offers a variety of mentoring
programs to assist disengaged, disadvantaged or ‘at risk’
youth. In 2020, on our Paul Murray Live visit to Albury,
Harvey Norman® donated to Boys to the Bush and covered
the cost of a camp of 15 disadvantaged young boys. The
aim of the camps is to give the young men an opportunity to
escape their current environment, surround them with positive
adult influences, teach them new skills, experience life on a
farm and to also give them the opportunity to connect and
belong to something.
The camp supported by Harvey Norman® was held on a
property 40km south of Forbes and was made up of 15 young
men who came together for 4 memorable days. Some of
the boys were winners of an online competition which BTTB
conducted whilst the majority were nominated by Out of
Home Care service providers. The participants came from all
over NSW, including regional areas such as Leeton, Dubbo,
Bathurst, Wagga Wagga, Forbes, Parkes, Peak Hill and Albury.
Sir Roden & Lady Cutler Foundation (SRLCF)
Harvey Norman® are proud partners of Sir Roden & Lady Cutler
Foundation’s FREE Patient Transport Service with a total of 7 years
commitment to the foundation.
Established in 1999 the foundation honours a great Australian and
humanitarian. Sir Arthur Roden Cutler VC was the longest serving
Governor of NSW and a recipient of the Victoria Cross award,
serving fellow Australians and providing for the most vulnerable
in the community. The foundation has grown rapidly to meet
an important community need through its free medical patient
transport service.
The SRLCF is a self-funded organisation and relies on the support
of the local community, sponsors, donors and volunteers.
The SRLCF currently has 9 cars in its fleet, 2 of them with
wheelchair access, servicing Sydney’s CBD, Eastern Suburbs,
South, Inner West, South West, North, West and Hills District.
Patient Transport proudly sponsored by Harvey Norman®
have successfully made a total of 5,218 free trips this year!
Unfortunately, the service has been placed on hold due to the
current situation however, the incredible volunteers are dedicated
to ensure their clients are not forgotten by adopting the ‘Buddy
Program’ and making weekly calls to check in on each other
during this difficult time.
Harvey Norman® proudly sponsor the SRLCF Annual Golf Day
and this year’s event was yet again a fantastic success with over
$30,000 after costs raised towards the foundation’s unique and
free community medical transport service. A record 140 people
attended the event and luncheon at the prestigious
Concord Golf course.
Lady Cutler
presenting
the SRLCF
Annual Golf
Day Trophy
ANNUAL REPORT JUNE 2021
65
SHOP SAFE
M O B I L E
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
PA R A LY M P I C S A U S T R A L I A PA R T N E R S H I P
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.
Against unprecedented odds amid the massive disruption caused
by the COVID pandemic from early 2020 in the lead up to Tokyo
2020, Australia’s elite Para-athletes won 80 medals to finish sixth
on the overall medal tally and 21 gold to come eighth on the gold
medal count.
The Australian Paralympic Team produced perhaps the most
courageous and successful campaign in the nation’s 61-year
Games history with not only an exceptional medal count but also
records broken on a world stage and countless awe-inspiring
performances that lifted the many Australians watching back home
and made incredible progress for the Paralympic movement.
In 2021, Harvey Norman® worked closely with Paralympics
Australia to develop an Employment Initiative for Para-
athletes. The initiative aims to connect Para-athletes looking for
employment with opportunities in local stores across the country
as well as corporate roles in administration offices.
Katie Kelly
Paralympian Tokyo 2020
Paralympic Games
Harvey Norman®
Brand Ambassador
Picture: Chris Chen
Athlete Profile: Katie Kelly
Harvey Norman® have been proud partners of Katie Kelly and
her Paratriathlon journey since her Gold at Rio 2016 and have
continued to support Katie to the Tokyo 2020 Paralympic Games.
Katie Kelly competed in the Para-Triathlon race in Tokyo, where
she pushed right through to the very end to come away with an
incredible 6th place!
The PTVI (para-triathlon vision impaired) category in which Katie
competes means she does the entire race with a guide. For
the swim and run, they are tethered together with a short rope
clipped to their clothing. For the cycling leg, they ride a tandem
bike, with the guide taking the front seat.
We are proud of the way she used her platform after winning in
Rio. Rather than indulge herself, she wondered how she could
help others. Not long after that great day on Copacabana Beach
in Rio, she set up Sport Access Foundation, which raises money to
provide grants to help people with a disability access sport, with
which Harvey Norman® are also proud partners.
Whatever the
future holds
for Katie, she
will forever be
Australia’s first
Triathlon gold
medallist at a
Paralympic Games.
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ANNUAL REPORT JUNE 2021
SHOP SAFE
M O B I L E
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
In its third year, there were over 100 Gold
Coast women nominated across seven
categories - from entrepreneurs and
mentors to champions of sport,
entertainers, education and young
women – in an event that recognises
and celebrates the inspiring,
influential and innovative women
living and working on Queensland’s
Gold Coast.
2021 Winner, Support the Girls
Founder Jane Holmes, aims to
lift up the plight of marginalised,
disenfranchised women, particularly in
regional areas with correctly fitted bras and
sanitary and beauty care packs.
Dr
Samantha
Wade
Jane
Holmes
N S W W O M E N O F T H E Y E A R AWA R D S
The NSW Women of the Year Awards recognise and celebrate
the outstanding contribution made by women across New
South Wales. In 2021, Harvey Norman® was the naming partner
for the Young Woman of the Year award, which was won by
Dr Samantha Wade.
Dr Wade worked on a team which developed a drug delivery device
aimed at improving outcomes for pancreatic cancer patients. Supervised
and guided by renowned cancer biologists, oncologists and material
scientists, Dr Wade spent six years engineering the device.
Although still in the pre-clinical stage of development, it could change how
medicine is delivered. Pancreatic cancer has a five-year survival rate of just
10 per cent. The device has the potential to make more cases curable and
help patients avoid major surgery.
S H I N E AWA R D S
The Shine Awards is an annual event that shines a spotlight on regional and rural women who are making a real difference to
their communities, businesses and industries.
Produced in partnership with
The Weekly Times, and now heading
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.
2020 Shine Award Overall Winner,
Carmel Beresford lost her 21 year old
son Sam in a shock gyrocopter accident.
Consumed by sorrow, Carmel poured
her anguish to paper, writing the story of
Sam’s life; the adventure and challenges
of rearing stock in the Outback. She
published the book, Unforgiving: The
Story of Life and Death of Sam.
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
2020
Carmel Beresford,
2020 Shine Award Overall Winner
ANNUAL REPORT JUNE 2021
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SHOP SAFE
M O B I L E
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
C O M M U N I T Y FAT H E R O F T H E
Y E A R AWA R D
Each year the Australian Father’s Day Council
and The Shepherd Centre select a distinguished
father who has demonstrated support, guidance
and love to his children or other children through
his working role or family life to take out the
prestigious Australian Father of the Year Award.
In 2021, Harvey Norman® was proud to sponsor the
Community Father of the Year Award, presented
to Dr Mark Cross, best known for his work as The
Anxious Shrink. A psychiatrist for over 30 years, Mark
is dedicated to breaking the social stigma around
mental health issues, encouraging others to speak up
by talking about his own anxiety.
D E L I C I O U S P R O D U C E AWA R D S
The 2021 delicious Harvey Norman® Produce
Awards are the country’s most prestigious food
industry campaign. Now in its 16th year, the
Awards celebrate the new, innovative, native and
consistently outstanding Australian ingredients
grown, caught, sourced or produced with
dedication, passion, knowledge and regard for
the environment.
Seventeen trophies were awarded by some of
Australia’s most renowned chefs. The overall
Producer of the Year Award, presented by Harvey
Norman®, was awarded to Gary, Jo and Sam Rodely
from Tathra Oysters in NSW.
N R L H A R V E Y N O R M A N ® A L L - S TA R S
2021 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 20th February 2021, both male and female
representatives from each team attended an in-store exclusive
event at Harvey Norman® Townsville, where the local community
was able to come and hear from some of their favourite players
such as local icon Jonathon Thurston, All Stars Founder Preston
Campbell and current players Josh Kerr and Shaniah Power.
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.
Dr Mark Cross,
Awarded Community Father
of the Year Award
(Left to right)
Dallin Watene-
Zelezniak
& Josh Kerr
68
ANNUAL REPORT JUNE 2021
(Left to right)
Jasmine Peters,
Botille Vette-Welsh
& Shaniah Power
(Left to right)
Tyrone Roberts,
Preston Campbell,
Johnathan Thurston,
Katrina Fanning
SHOP SAFE
M O B I L E
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
Ariarne Titmus
Australian Olympic
Gold Medalist
Tokyo 2020
Olympics
Harvey Norman®
Brand Ambassador
Congratulations to
Ariarne Titmus who
brought Australia
to its feet, not
once but twice,
when she won the
gold medal in the
women’s 200 and
400m freestyle at
the Tokyo Olympic
Games.
Ariarne, now an
Olympic champion
and household
name, went on to
win silver in the
800m and bronze
in the 4 x 200m
freestyle relay.
Harvey Norman®
proudly supporting
Ariarne since 2020
W O M E N I N S P O R T
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
Isabella Nichols
(Left to right)
Women’s
State of Origin
Captains Ali
Brigginshaw
and Kezie Apps
GIANTS
AFLW Player
Alyce Parker
ANNUAL REPORT JUNE 2021
69
OPERATING AND FINANCIAL REVIEW (CONTINUED)
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
People (continued)
Learning & Development
We recognise that the ongoing training and development of our people is a sound investment and can only lead to better outcomes for
our stakeholders.
While in-person meetings and development opportunities were limited in FY2021 due to COVID-19, our teams have continued to
innovate and invest in training and development initiatives. Online facilitation has become a part of normal, day to day engagement,
and has increased our ability and provided scope to offer more frequent targeted initiatives with lower cost impacts to a wider audience,
CHAIRMAN AND CEO’s REPORT
while also improving collaboration across teams in different regions.
Employees have the opportunity to complete a range of courses, from compliance based training, to soft skills such as leadership,
management, and mental health training, to technical and professional training in roles such as IT, Digital, Accounting, and HR.
With the growing importance of keeping communications and connections in place while we are at times, physically distant, the Connect
Intranet was successfully implemented across the consolidated entity in FY2021. Connect allows us to facilitate employee engagement,
broadcast clear and concise internal communications, and increases interactions between business units, all of which are important to
successful business and employee outcomes.
Environment and Climate Change
Disclosures and Standards – Environmental
The world’s changing climate is a major consideration for the future of the business operations, supply chain, colleagues, franchisees and
customers of the consolidated entity. Over the past 12 months we have continued to progress how we manage, report and address
climate change issues.
The consolidated entity is a member of the following organisations and associations to support our commitment to environmental and
social responsibility:
•
•
•
•
•
•
Consumer Electronics Association
New Zealand Leather and Shoe Research Association (LASRA)
Energy Users Association of Australia
Australasia Furniture Research and Development Institute (AFRDI)
National Retailers Association
Australian Bedding Stewardship Council (founding member and Board representation).
The consolidated entity has undertaken the following recent actions with respect to energy reduction and waste reduction.
Energy Reduction
Using FY2016 as the baseline year of measurement, the complexes of the consolidated entity have reduced energy consumption in
Australia by 20.2%. The effect of store closures and reduced operations during Government-mandated periods of temporary lockdown
has affected this figure in FY2021.
Across the complexes in Australia, solar installations have been completed at 39 complexes, with another 29 complexes awaiting
commissioning or being planned for installation and commissioning. Using FY2016 electricity consumption as a baseline, the electricity
consumption for 30 selected complexes has dropped 20.5% as a result of the solar and other energy efficiency initiatives commenced at
these complexes.
An audit of the effectiveness of the installed solar panels at each location was undertaken in FY2021, revealing that on average, the
installed systems produce over 120,000 kilowatt hours (KWh) of electricity per annum per array, for use at that property. In total,
4,761,563 KWh of electricity was generated by installed solar arrays at properties across Australia in FY2021. Using emission factors for
electricity generated in New South Wales, that equates to approximately 3,900 tonnes of Co2e abated by these solar installations.
Solar installations at our overseas company-owned stores will be part of the forward planning for emissions reduction.
Our Irish operations already have all electricity generated from renewable sources. In FY2021, two company-operated stores in Ireland
began trialling energy efficient heating, ventilation and cooling systems, and an LED lighting retrofit program is underway across stores
and warehouses in Ireland.
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ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
ENVIRONMENT, SOCIAL & GOVERNANCE (ESG) REPORT (CONTINUED)
Environment and Climate Change (continued)
Disclosures and Standards – Environmental (continued)
Waste Reduction
The consolidated entity is committed to an internal circular economy model to ensure minimisation and eradication of landfill waste
across our company-operated stores and complexes in Australia. Our new Executive Sustainability Committee will further develop a
‘circular waste’ solution and work to reduce waste and improve re-use via store product ‘take-back’ schemes.
Waste management performance of the franchisees during FY2021 was as follows:
Waste Stream
Waste Management Performance
CHAIRMAN AND CEO’s REPORT
E-Waste
E-waste recycling is available through most Harvey Norman®, Domayne® and Joyce Mayne®
franchised complexes.
Mattresses
15,868 mattresses were recycled through Soft Landing in FY2021.
Soft Landing is an accredited supplier to the Australian Bedding Stewardship Council (ABSC). The ABSC
is a not-for-profit organisation dedicated to the development of a mattress product stewardship scheme
in Australia. Certain Harvey Norman® and Domayne® franchisees are members of the ABSC.
Polystyrene
Approximately 80% of franchised complexes in Australia recycle this separate waste stream.
Cardboard and plastic recycling
Each franchisee in each franchised complex in Australia carries out cardboard and plastic recycling.
Harvey Norman®, Domayne® and Joyce Mayne® franchisees recycled 7,825 tonnes, in aggregate, of
cardboard and paper and 5.30 tonnes of plastic (LDPE), in aggregate, in FY2021.
Plastic bag distribution
Harvey Norman®, Domayne® and Joyce Mayne® franchisees are currently considering removal of plastic
bags and replacement with paper bags.
Overseas Company-Operated Retail
The following initiatives were implemented at company-owned stores:
•
•
•
•
•
•
•
All electricity used by operations in Ireland is generated from renewable sources
An LED lighting retrofit program is underway across stores and warehouses in Ireland
Two sites in Ireland are trailing energy efficient heating, ventilation and cooling systems
E-waste and battery recycling initiatives are in place in our Irish operations
Cardboard, plastic and polystyrene recycling is maximised using compactors in stores.
Mattress recycling is available at some of our stores in Ireland
Plastic bags are not provided to customers in retail stores in Ireland and Slovenia, with Croatia also phasing these out by the end
of the 2021 calendar year
The New Zealand operations actively recycle cardboard, paper, polystyrene, plastic and timber from pallets. A new Executive
Sustainability Committee has been formed with initial focus on waste diversion, energy emission reduction, packaging and
ethical sourcing.
•
Supply Chain
Responsible Sourcing Standards
With a significant number of suppliers across the globe, supplier obligations are conveyed via robust trading terms which include an
obligation to comply with the law in each relevant jurisdiction.
Modern Slavery
We support the objectives of Governments around the world to eradicate all forms of modern slavery and human trafficking. It is
planned that all contracted suppliers to the consolidated entity will have positive obligations on modern slavery and human rights as
prescribed by the relevant jurisdiction in which they operate.
In FY2021, we continued to build on our position in the 2020 modern slavery statement by surveying suppliers to the consolidated entity,
and undertaking additional questioning to some of the suppliers to ensure compliance with relevant standards.
We are implementing our internal modern slavery policy with a view to including a risk assessment in the business as usual activities of each
subsidiary vendor management program. Our modern slavery training is set to be delivered in November 2021, and our second modern
slavery statement will be posted on the website of the Company by the due date of 31 December 2021.
Governance and Risk
For a description of the governance and risk practices in place at the consolidated entity, please refer to page 32 of this Annual Report and
to the Governance section of the website of the Company: www.harveynormanholdings.com.au.
ANNUAL REPORT JUNE 2021
71
OPERATING AND FINANCIAL REVIEW (CONTINUED)
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 2021 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 Declara(cid:415)on 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 2021,
I declare to the best of my knowledge and belief, there have been:
a) no contraven(cid:415)ons of the auditor independence requirements of the Corpora(cid:415)ons Act 2001 in rela(cid:415)on to the audit; and
b) no contraven(cid:415)ons of any applicable code of professional conduct in rela(cid:415)on to the audit.
This declara(cid:415)on is in respect of Harvey Norman Holdings Limited and the en(cid:415)(cid:415)es it controlled during the financial year.
Ernst & Young
Renay Robinson
Partner
Sydney
30 September 2021
Signed in accordance with a resolution of the directors.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legisla(cid:415)on
G. HARVEY
Chairman
Sydney
30 September 2021
K.L. PAGE
Chief Executive Officer
Sydney
30 September 2021
72
ANNUAL REPORT JUNE 2021
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 2021, 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)
giving a true and fair view of the consolidated financial position of the Group as at
30 June 2021 and of its consolidated financial performance for the year ended on that date;
and
b)
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.
73
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
1. Valuation of investment properties and owner-occupied properties
Why significant
How our audit addressed the key audit matter
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.
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.
►
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 subsequent to 30 June 2021. We
involved our real estate 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.
Investment properties and owner-occupied
properties (collectively, “properties”) represent
50.5% of the Group’s total assets as at
30 June 2021.
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 2021 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 2021 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 ‘significant 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 2021.
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 2021.
74
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Why significant
How our audit addressed the key audit matter
For the year ended 30 June 2021, 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. Recoverability of Receivables from Franchisees
Why significant
How our audit addressed the key audit matter
At 30 June 2021, the balance of receivables from
franchisees was $793.2 million representing 12% of
the Group’s total assets at 30 June 2021.
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 franchisees
was considered a key audit matter given the value
of the balance and the judgements exercised by the
Group in making their recoverability assessment.
Our audit procedures included the following:
►
Evaluated the Group’s assessment of the
recoverability of receivables from franchisees.
► 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 the franchisees against the franchisee
receivable balances.
►
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
75
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 2021 Annual Report, but does not include the financial report
and our auditor’s report thereon.
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
►
76
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
► 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
► 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
77
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 37 to 60 of the directors' report for the
year ended 30 June 2021.
In our opinion, the Remuneration Report of Harvey Norman Holdings Limited for the year ended
30 June 2021, 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 2021
78
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
OPERATING AND FINANCIAL REVIEW (CONTINUED)
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.
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2021 and of its performance for
CHAIRMAN AND CEO’s REPORT
the year ended on that date; and
complying with Accounting Standards and the Corporations Regulations 2001;
ii.
(b)
(c)
the financial statements and notes also comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board; 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 2021.
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 K.L. PAGE
Chairman Chief Executive Officer
Sydney S ydney
30 September 2021 30 September 2021
ANNUAL REPORT JUNE 2021
79
OPERATING AND FINANCIAL REVIEW (CONTINUED)
STATEMENT OF FINANCIAL POSITION — 30 JUNE 2021
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Other assets
Intangible assets
Assets held for sale
Total 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
s
t
e
s
s
A
t
n
e
r
r
u
C
s
t
e
s
s
A
t
n
e
r
r
u
c
-
n
o
N
Intangible assets
Deferred tax assets
Total non-current assets
Total Assets
Trade and other payables
Interest-bearing loans and borrowings
Lease liabilities
Income tax payable
Other liabilities
Provisions
Total current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Provisions
Deferred tax liabilities
Other liabilities
Total non-current liabilities
Total Liabilities
NET ASSETS
Contributed equity
Reserves
Retained profits
Parent entity interests
Non-controlling interests
TOTAL EQUITY
s
e
i
t
i
l
i
i
b
a
L
t
n
e
r
r
u
C
s
e
i
t
i
l
i
i
b
a
L
t
n
e
r
r
u
C
-
n
o
N
y
t
i
u
q
E
CONSOLIDATED
June 2021
$000
June 2020
$000
264,431
889,201
41,376
479,093
39,555
258
12,662
313,195
511,579
30,237
391,984
34,872
278
16,186
1,726,576
1,298,331
72,560
1,321
33,083
729,847
511,167
49,269
4,692
18,176
662,889
513,782
2,905,509
2,593,330
620,461
621,903
63,668
8,742
63,003
3,227
4,946,358
4,530,271
6,672,934
5,828,602
355,663
359,969
135,389
148,031
108,847
37,162
351,772
102,841
130,280
70,229
96,141
34,181
1,145,061
785,444
200,000
195,000
1,043,276
1,042,807
9,823
380,932
823
9,226
317,937
863
1,634,854
1,565,833
2,779,915
2,351,277
3,893,019
3,477,325
717,925
267,393
717,925
216,837
2,879,511
2,511,580
3,864,829
3,446,342
28,190
30,983
3,893,019
3,477,325
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
The above Statement of Financial Position should be read in conjunction with the accompanying notes.
80
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2021
Sales of products to customers
Cost of sales
Gross profit
Revenues 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 venture 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 2021
$000
June 2020
$000
2,768,328
(1,838,365)
929,963
2,294,913
(1,555,271)
739,642
1,345,782
324,521
(49,971)
(377,639)
(243,066)
(637,583)
(67,585)
(50,213)
8,320
1,182,529 1
(335,684)
846,845 1
841,414
5,431
846,845
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
6
6
23
67.53 cents
67.45 cents
39.19 cents
39.15 cents
35.0 cents
24.0 cents
The above Income Statement should be read in conjunction with the accompanying notes.
ANNUAL REPORT JUNE 2021
81
OPERATING AND FINANCIAL REVIEW (CONTINUED)
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021
CONSOLIDATED
June 2021
$000
June 2020
$000
Profit for the year
846,845
486,023
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
Fair value revaluation of land and buildings
Income tax effect on fair value revaluation of land and buildings
Net fair value gains / (losses) on financial assets at fair value
through other comprehensive income
(16,897)
46
(14)
55,616
(5,578)
12,655
(9,236)
(47)
14
28,384
(4,655)
(1,030)
Other comprehensive income for the year (net of tax)
45,828
13,430
Total comprehensive income for the year (net of tax)
892,673
499,453
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
889,249
3,424
892,673
494,391
5,062
499,453
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
82
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021
Attributable to Equity Holders of the Parent
CONSOLIDATED
$000
E
q
u
i
t
y
C
o
n
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r
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b
u
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e
d
P
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o
fi
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s
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t
a
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d
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l
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A
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s
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F
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s
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r
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F
V
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C
I
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s
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l
F
o
w
H
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d
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C
a
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h
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s
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r
v
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B
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fi
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s
E
q
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l
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m
p
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y
e
e
R
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s
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v
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A
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s
i
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i
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I
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s
t
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o
n
t
r
o
l
l
i
n
g
N
o
n
-
T
o
t
a
l
At 1 July 2020
717,925 2,511,580
158,608
56,941
9,919
(35)
10,005
(18,601)
30,983 3,477,325
Revaluation of land
and buildings
Currency translation
differences
Reverse expired or
realised cash flow
hedge reserves
Fair value of forward
foreign exchange
contracts
Fair value of financial
assets at fair value
through other
comprehensive
income
Other comprehen-
sive income
Profit for the year
Total comprehensive
income for the
year
Cost of share based
payments
Utilisation of
employee equity
benefits reserve
-
-
-
-
-
-
-
50,038
-
-
(14,890)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35
(3)
-
-
-
12,655
-
-
50,038
(14,890)
12,655
841,414
-
-
-
-
841,414
50,038
(14,890)
12,655
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
-
32
-
-
-
-
-
-
-
-
-
-
-
-
1,453
(1,059)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,038
(2,007)
(16,897)
-
-
35
(3)
-
12,655
(2,007)
45,828
5,431
846,845
3,424
892,673
-
-
1,453
(1,059)
(2,634)
(476,117)
2,327
(3,583)
(1,256)
Dividends paid
-
(473,483)
Disposal of invest-
ment
-
-
At 30 June 2021
717,925 2,879,511
208,646
42,051
22,574
(3)
10,399
(16,274)
28,190 3,893,019
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
ANNUAL REPORT JUNE 2021
83
OPERATING AND FINANCIAL REVIEW (CONTINUED)
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021
Attributable to Equity Holders of the Parent
CONSOLIDATED
$000
E
q
u
i
t
y
C
o
n
t
r
i
b
u
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e
d
P
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o
fi
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s
R
e
t
a
n
e
d
i
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s
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R
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t
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A
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s
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R
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s
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F
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i
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s
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F
V
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I
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s
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v
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F
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H
e
d
g
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C
a
s
h
R
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s
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r
v
e
B
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fi
t
s
E
q
u
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t
y
l
E
m
p
o
y
e
e
R
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s
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r
v
e
A
c
q
u
i
s
i
t
i
o
n
I
n
t
e
r
e
s
t
s
C
o
n
t
r
o
l
l
i
n
g
N
o
n
-
T
o
t
a
l
At 1 July 2019 as
previously reported
Transition adjust-
ments arising from
adoption of AASB 16
At 1 July 2019, post
transition
Revaluation of land
and buildings
Currency translation
differences
Reverse expired or
realised cash flow
hedge reserves
Fair value of forward
foreign exchange
contracts
Fair value of financial
assets at fair value
through other
comprehensive
income
Other comprehen-
sive income
Profit for the year
Total comprehensive
income for the
year
Cost of share based
payments
Utilisation of employ-
ee equity benefits
reserve
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
-
-
-
-
-
-
2
(35)
23,825
-
(8,912)
-
-
-
-
-
-
-
(1,030)
-
-
23,825
(8,912)
(1,030)
(33)
480,541
-
-
-
-
480,541
23,825
(8,912)
(1,030)
(33)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
739
(859)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,450
-
-
(96)
23,729
(324)
(9,236)
-
-
2
(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)
Shares issued
165,675
Sale of a controlled
entity
-
Dividends paid
Distribution to
members
-
(322,505)
-
-
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
84
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021
s
e
i
t
i
v
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c
A
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n
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i
t
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c
A
g
n
i
c
n
a
n
F
i
Cash Flows from Operating Activities
Note
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
Income taxes paid
Dividends received
Net Cash Flows From Operating Activities
26(b)
Cash Flows from Investing Activities
Payments for purchases of property, plant and equipment and
intangible assets
Payments for purchase and refurbishments 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 listed securities
Proceeds from sale of listed securities
Proceeds from sale of a controlled entity
Proceeds from insurance claims
Loans repaid from / (granted to) joint venture entities, joint ven-
ture partners, related and unrelated entities
CONSOLIDATED
June 2021
$000
June 2020
$000
886,344
2,984,441
(2,984,050)
9,332
(103,403)
5,496
(8,953)
(40,941)
(206,595)
2,198
543,869
1,304,230
2,461,539
(2,471,564)
8,385
(65,501)
8,142
(20,489)
(40,538)
(128,967)
1,727
1,056,964
(100,300)
(93,905)
(173,822)
(51,474)
1,922
(2,312)
(409)
(2,360)
78
15,082
2,689
5,316
26,510
(215)
(2,215)
(5,000)
-
-
2,628
(13,292)
Net Cash Flows Used In Investing Activities
(254,116)
(136,963)
Cash Flows from Financing Activities
Lease payments (principal component)
Proceeds from shares issued — renounceable pro-rata Entitlement
Offer
Proceeds from / (Repayments of) Syndicated Facility
Dividends paid
Loans repaid to related parties
Repayments of other borrowings
Net Cash Flows Used In Financing Activities
Net (Decrease) / Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of the Year
Cash and Cash Equivalents at End of the Year
26(a)
(130,849)
(124,770)
-
165,675
295,000
(473,483)
-
(26,140)
(335,472)
(45,719)
294,446
248,727
(520,000)
(322,505)
(8)
(9,763)
(811,371)
108,630
185,816
294,446
The above Statement of Cash Flows should be read in conjunction with the accompanying notes.
ANNUAL REPORT JUNE 2021
85
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS — 30 JUNE 2021
1 Statement of Significant Accounting Policies
Corporate Information
(a)
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.
Basis of Preparation
(b)
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 financial assets, 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
2021 were authorised for issue in accordance with a resolution of the directors on 30 September 2021.
(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 2021. For details on the impact of
future accounting standards, refer to page 89.
(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.
86
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1 Statement of Significant Accounting Policies (continued)
(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 ended 30 June 2020. The consolidated
entity has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
The consolidated entity is currently assessing the impact of the recently published IFRIC agenda decisions in relation to the
accounting treatment for cloud computing costs and costs to be included in determining net realisable value of inventories,
which was published by IFRIC in April 2021 and June 2021 respectively. The consolidated entity expects to complete its
assessment of the above IFRIC agenda decisions by 31 December 2021.
(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 2021 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.
ANNUAL REPORT JUNE 2021
87
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1 Statement of Significant Accounting Policies (continued)
(e) Summary of Significant Accounting Policies (continued)
(ii) Significant accounting judgements and estimates (continued)
•
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
(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; and
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.
88
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1 Statement of Significant Accounting Policies (continued)
(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) 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 2021. The consolidated entity does not
expect a material impact on the application of the below standards.
Reference
New Standard
Effective Date
Application Date
AASB 2020-8 Amendments to Australian Accounting Standards — Interest Rate
1 January 2021
1 July 2021
Benchmark Reform—Phase 2
AASB 2021-3 Amendments to Australian Accounting Standards — COVID-19 Related
1 April 2021
1 July 2021
Rent Concessions beyond 30 June 2021
AASB 2020-3 Amendments to Australian Accounting Standards — Annual
1 January 2022
1 July 2022
Improvements 2018-2020 and Other Amendments
AASB 2014-10 Amendments to Australian Accounting Standards — Sale or Contribution
1 January 2022
1 July 2022
of Assets between and Investor and its Associate or Joint Venture
AASB 2020-1 Amendments to Australian Accounting Standards — Classification of
1 January 2023
1 July 2023
Liabilities as Current or Non-current
AASB 2021-2 Amendments to Australian Accounting Standards — Disclosure of
1 January 2023
1 July 2023
Accounting Policies and Definition of Accounting Estimates
AASB 2021-5 Amendments to Australian Accounting Standards — Deferred Tax Related
to Assets and Liabilities arising from a Single Transaction
1 January 2023
1 July 2023
ANNUAL REPORT JUNE 2021
89
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 Operating Segments
Operating Segment Revenue:
30 June 2021
Sales of products to
customers
Revenues received
from franchisees and
other income items
Total Revenue by
Segment
FRANCHISING OPERATIONS
-
1,237,706
1,237,706
CONSOLIDATED ($000)
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
1,148,150
577,483
179,223
647,903
224,538
2,777,297
6
6
-
2,805
28,537
10,788
3,274
11,225
5,990
59,814
409,197
409,197
11,103
20,360
1,176,687
588,271
182,497
659,128
230,528
2,837,111
409,203
409,203
11,103
23,165
INTERCOMPANY ELIMINATIONS
(11,780)
(67,877)
(79,657)
TOTAL SEGMENT REVENUE
2,768,328
1,670,303
4,438,631
CONSOLIDATED ($000)
Operating Segment Revenue:
30 June 2020
Sales of products to
customers
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
2,305,586
25
25
-
2,229
23,086
11,685
2,399
8,491
4,318
49,979
300,507
300,507
1,450
14,996
983,271
537,431
156,761
449,004
229,098
2,355,565
300,532
300,532
1,450
17,225
INTERCOMPANY ELIMINATIONS
(12,927)
(65,108)
(78,035)
TOTAL SEGMENT REVENUE
2,294,913
1,250,861
3,545,774
90
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 Operating Segments (continued)
Operating Segment Result
30 June 2021
CONSOLIDATED ($000)
Interest
Expense
Depreciation
Expense
Segment
Result Before
Interest, Tax,
Depreciation &
Amortisation
Amortisation
Expense
Segment
Result
Before
Tax
Depreciation
& Fair Value
Re-
measure-
ment
of ROU Asset
FRANCHISING OPERATIONS
776,309
(25,218)
(26,286)
(77,947)
(18,670)
628,188
Retail — New Zealand
Retail — Singapore & Malaysia
Retail — Slovenia & Croatia
Retail — Ireland & Northern Ireland
Other Non-Franchised Retail
TOTAL RETAIL
Retail Property
Retail Property Under Construction
Property Developments for Resale
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
INTER-COMPANY ELIMINATIONS
163,667
80,465
18,019
78,787
8,492
(4,591)
(5,595)
(1,032)
(6,211)
(1,137)
(7,307)
(7,247)
(2,935)
(6,531)
(2,368)
(9,804)
(31,315)
(2,544)
(13,966)
(1,408)
(355)
(393)
(126)
(193)
(255)
141,610
35,915
11,382
51,886
3,324
349,430
(18,566)
(26,388)
(59,037)
(1,322)
244,117
307,647
(5,868)
(9,687)
(104)
(104)
(14)
(28)
-
-
307,439
(5,910)
(9,687)
10,959
13,026
(26)
(77)
(468)
26
-
(4,753)
-
-
-
-
-
-
-
-
(305)
291,787
-
-
(118)
(132)
(305)
291,537
-
-
-
10,882
7,805
-
TOTAL SEGMENT RESULT BEFORE TAX
1,457,137
(50,213)
(67,114)
(136,984)
(20,297)
1,182,529
Operating Segment Result
30 June 2020
CONSOLIDATED ($000)
Segment
Result Before
Interest, Tax,
Depreciation,
Impairment &
Amortisation
Interest
Expense
Depreciation
Expense
Impairment
&
Amortisation
Expense
Segment
Result
Before
Tax
Depreciation
& Fair Value
Re-
measure-
ment
of ROU Asset
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
Other Non-Franchised Retail
120,196
73,550
13,908
43,263
(2,640)
(4,282)
(6,068)
(908)
(7,520)
(1,859)
(7,059)
(6,843)
(2,701)
(5,186)
(2,525)
(9,354)
(31,818)
(1,723)
(13,512)
(1,508)
(345)
(1,206)
(143)
(172)
(305)
99,156
27,615
8,433
16,873
(8,837)
TOTAL RETAIL
248,277
(20,637)
(24,314)
(57,915)
(2,171)
143,240
Retail Property
TOTAL PROPERTY
199,022
(14,099)
(11,430)
199,022
(14,099)
(11,430)
EQUITY INVESTMENTS
(2,001)
(152)
-
OTHER
INTER-COMPANY ELIMINATIONS
4,874
(170)
(1,378)
(5,075)
170
-
-
-
-
-
-
(305)
(305)
173,188
173,188
-
-
-
(2,153)
(1,579)
-
TOTAL SEGMENT RESULT BEFORE TAX
945,849
(59,794)
(66,016)
(135,975)
(22,776)
661,288
ANNUAL REPORT JUNE 2021
91
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 Operating Segments (continued)
CONSOLIDATED ($000)
Operating Segment
Assets and Liabilities
30 June 2021
Segment
Assets
Inter-
Company
Eliminations
Segment
Assets After
Eliminations
Segment
Liabilities
Inter-
Company
Eliminations
Segment
Liabilities
After Elimina-
tions
FRANCHISING OPERATIONS
3,981,402
(2,272,596)
1,708,806
850,415
(7,348)
843,067
Retail — New Zealand
Retail — Singapore & Malaysia
390,749
475,869
-
390,749
250,246
(2,232)
248,014
(2,451)
473,418
326,132
(40,731)
285,401
Retail — Slovenia & Croatia
85,457
(2,156)
83,301
75,810
Retail — Ireland & Northern Ireland
281,545
-
281,545
267,794
(525)
(577)
Other Non-Franchised Retail
218,656
(58,705)
159,951
267,252
(154,111)
75,285
267,217
113,141
TOTAL RETAIL
Retail Property
1,452,276
(63,312)
1,388,964
1,187,234
(198,176)
989,058
3,339,075
(3,567)
3,335,508
2,334,254
(1,983,024)
351,230
Retail Property Under Construction
Property Developments for Resale
7,486
27,662
-
-
7,486
27,662
7,562
3,917
(7,562)
(2,199)
-
1,718
TOTAL PROPERTY
3,374,223
(3,567)
3,370,656
2,345,733
(1,992,785)
352,948
EQUITY INVESTMENTS
69,327
-
69,327
4,861
-
4,861
OTHER
179,604
(53,165)
126,439
255,349
(194,331)
61,018
TOTAL SEGMENT ASSETS/LIABILITIES
BEFORE TAX
9,056,832
(2,392,640)
6,664,192*
4,643,592
(2,392,640)
2,250,952*
CONSOLIDATED ($000)
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 Elimina-
tions
FRANCHISING OPERATIONS
3,495,462
(2,222,820)
1,272,642
916,694
(139,436)
777,258
Retail — New Zealand
Retail — Singapore & Malaysia
434,573
446,675
-
434,573
269,969
(4,188)
(1,671)
445,004
298,827
(40,670)
Retail — Slovenia & Croatia
74,388
(3,260)
71,128
63,719
Retail — Ireland & Northern Ireland
243,916
(262)
243,654
266,188
(368)
(615)
265,781
258,157
63,351
265,573
Other Non-Franchised Retail
211,721
(43,627)
168,094
237,933
(144,973)
92,960
TOTAL RETAIL
Retail Property
1,411,273
(48,820)
1,362,453
1,136,636
(190,814)
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*
* Segment assets for FY21 and FY20 are exclusive of deferred tax assets. Segment liabilities for FY21 and FY20 are exclusive of
income tax payable and deferred tax liabilities.
92
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 Operating Segments (continued)
The consolidated entity operates predominantly in eleven (11) 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
Retail – Singapore &
Malaysia
Retail – Slovenia &
Croatia
Retail – Ireland &
Northern Ireland
Consists of the wholly-owned operations of the consolidated entity in the retail trading operations in New
Zealand under the Harvey Norman® brand name.
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.
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.
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 or
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.
Retail Property Under
Construction
Consists of freehold sites that are currently undergoing construction at balance date intended for retail
leasing. It also includes vacant land that has been purchased for the purposes of generating future
investment income.
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:
•
•
•
•
•
Nature of the products and services;
Nature of the production processes;
Type or class of customer for the products and services;
Methods used to distribute the products or provide the services; and, if applicable
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”.
ANNUAL REPORT JUNE 2021
93
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
3 Revenues
Revenue from contracts with customers and franchisees:
Sale of products to customers (a)
Services to customers (c)
Franchise fees in accordance with franchise agreements (b)
Total revenue from contracts with customers and franchisees
Other revenue from franchisees:
Rent and outgoings received from franchisees
Interest to implement and administer the financial accommodation facilities
Total other revenue received from franchises (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 other revenue received from 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
2,768,328
33,496
1,075,753
3,877,577
248,598
21,431
270,029
98,006
5,068
2,340
105,414
138,686
1,688
8,763
36,474
185,611
2,768,328
1,345,782
324,521
2,294,913
27,676
780,237
3,102,826
247,291
28,338
275,629
98,610
6,388
1,450
106,448
34,268
688
-
25,915
60,871
2,294,913
1,055,866
194,995
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.
94
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3 Revenues (continued)
TYPES OF CONTRACTS $000
Operating Segments
30 June 2021
Sale of Products to
Customers
Services to
Customers
Franchisee Fees
from Franchisees
Total Revenue
from Contracts
with Customers
FRANCHISING OPERATIONS
-
-
1,075,753
1,075,753
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
1,148,150
16,446
577,483
179,223
647,903
224,538
5,197
2,385
8,983
485
2,777,297
33,496
6
6
-
2,805
(11,780)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,164,596
582,680
181,608
656,886
225,023
2,810,793
6
6
-
2,805
(11,780)
TOTAL SEGMENT REVENUE
2,768,328
33,496
1,075,753
3,877,577
TYPES OF CONTRACTS $000
Operating Segments
30 June 2020
Sale of Products to
Customers
Services to
Customers
Franchisee Fees
from Franchisees
Total Revenue
from Contracts
with Customers
FRANCHISING OPERATIONS
-
-
780,237
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
13,933
4,818
1,759
6,604
562
2,305,586
27,676
25
25
-
2,229
(12,927)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
ANNUAL REPORT JUNE 2021
95
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3 Revenues (continued)
PRIMARY GEOGRAPHICAL MARKETS $000
Operating Segments
30 June 2021
Australia
New Zealand
Asia
Europe
Total Revenue
from Contracts
with Customers
FRANCHISING OPERATIONS
1,075,753
-
Retail — New Zealand
Retail — Singapore & Malaysia
Retail — Slovenia & Croatia
Retail — Ireland & Northern Ireland
-
-
-
-
1,164,596
-
-
-
Other Non-Franchised Retail
213,191
11,832
-
-
582,680
-
-
-
-
-
-
181,608
656,886
-
1,075,753
1,164,596
582,680
181,608
656,886
225,023
213,191
1,176,428
582,680
838,494
2,810,793
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
6
6
-
2,805
-
-
-
-
-
-
-
-
-
-
-
-
-
6
6
-
2,805
(11,780)
INTER-COMPANY ELIMINATIONS
-
(11,177)
(603)
TOTAL SEGMENT REVENUE
1,291,755
1,165,251
582,077
838,494
3,877,577
PRIMARY GEOGRAPHICAL MARKETS $000
Operating Segments
30 June 2020
Australia
New Zealand
Asia
Europe
Total Revenue
from Contracts
with Customers
FRANCHISING OPERATIONS
780,237
-
Retail — New Zealand
Retail — Singapore & Malaysia
Retail — Slovenia & Croatia
Retail — Ireland & Northern Ireland
-
-
-
-
974,118
-
-
-
Other Non-Franchised Retail
213,799
11,563
-
-
530,564
-
-
-
-
-
-
156,121
447,117
-
780,237
974,118
530,564
156,121
447,117
225,362
213,799
985,681
530,564
603,238
2,333,282
TOTAL RETAIL
Retail Property
TOTAL PROPERTY
EQUITY INVESTMENTS
OTHER
25
25
-
2,229
-
-
-
-
-
-
-
-
-
-
-
-
-
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
96
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$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
Depreciation, amortisation and impairment:
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-current assets
Impairment of other financial assets
Total depreciation, amortisation and impairment
351,110
2,768
16,782
14,828
1,488
12,797
399,773
40,941
7,975
1,297
50,213
30,407
62,908
74,076
75,675
243,066
9,276
57,838
19,777
520
-
-
87,411
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
* These amounts are net of the following COVID-19 wages support and assistance received:
•
•
$4.43 million received overseas, in aggregate, by our overseas company-operated stores in Malaysia, Singapore,
Northern Ireland and Slovenia; and
$3.63 million received in Australia by controlled non-franchised retail businesses in Australia.
Subsequent to the year-end, in August 2021, all of the wages support and assistance received by controlled entities in Australia
of $6.02 million (FY21: $3.63 million and FY20: $2.39 million) was repaid to the Federal Government via the Australian Taxation
Office. No provision has been made in the Statement of Financial Position as at 30 June 2021 for this post year-end repayment.
ANNUAL REPORT JUNE 2021
97
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
5
Income Tax
(a) 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
(b) Income tax recognised in the Statement of Changes in Equity :
Deferred income tax:
Net gain / (loss) on revaluation of cash flow hedges
Net gain on revaluation of land and buildings
Total income tax expense reported in other comprehensive income
(c) Reconciliation between income tax expense and prima facie income tax:
Accounting profit before tax
At the Australian statutory income tax rate of 30% (2020: 30%)
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 year
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 reported in the Income Statement
Effective income tax rate (%)
98
ANNUAL REPORT JUNE 2021
285,742
(76)
50,018
335,684
14
5,578
5,592
1,182,529
354,759
11,125
(76)
129
1,931
(2,445)
105
(13,196)
(189)
(334)
266
-
(771)
(74)
(15,546)
(19,075)
335,684
28.39%
180,801
(462)
(5,074)
175,265
(14)
4,559
4,545
661,288
198,386
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%
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5
Income Tax (continued)
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 a 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.
(d) Deferred income tax assets and liabilities:
Deferred income tax at 30 June relates to the following:
Deferred tax liabilities:
STATEMENT OF FINANCIAL
POSITION
INCOME STATEMENT
June 2021
$000
June 2020
$000
June 2021
$000
June 2020
$000
Revaluations of freehold investment properties to fair value
(233,220)
(193,801)
40,982
9,876
Revaluations of owner-occupied land and buildings to fair value
(45,125)
(39,699)
-
-
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
Provisions for lease makegood
Provision for executive remuneration
Revaluations of owner-occupied land and buildings to fair value
Total deferred tax assets*
Total deferred tax
-
-
(15,389)
(760)
1,897
14,766
-
(14,766)
(130,307)
(116,570)
13,969
11,736
(13,548)
(15,279)
(1,731)
(1,123)
(8,455)
(5,020)
3,795
830
(430,655)
(370,992)
10,904
8,875
19,146
9,188
7,416
440
968
1,527
58,464
9,862
3,444
17,410
11,365
11,451
401
822
1,527
56,282 5
(1,221)
(5,592)
(1,702)
300
2,275
(61)
(146)
-
(120)
(3,206)
(8,013)
300
(2,397)
(78)
(10)
-
(372,191)
(314,710) 5
50,018
(5,074)
* Of the total deferred tax assets of $58.46 million (30 Jun 2020: $56.28 million), $49.72 million (30 June 2020: $53.06 million) was
offset with the deferred tax liabilities in accordance with the deferred income tax accounting policy outlined on page 100.
The consolidated entity has not recognised deferred tax assets relating to tax losses of $88.71 million (2020: $176.00 million) which
are available for offset against taxable profits of the companies in which the losses arose. At 30 June 2021, no deferred tax liability
has been recognised (2020: nil) in respect of the unremitted earnings of certain subsidiaries, associates or joint ventures.
ANNUAL REPORT JUNE 2021
99
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5
Income Tax (continued)
Current income tax
Current income tax assets and liabilities are measured at the amount expected to the 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.
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.
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.
100
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6 Earnings Per Share
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
CONSOLIDATED
June 2021
$000
June 2020
$000
67.53c
67.45c
The following reflects the income and number of HVN shares used in the calculation 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
846,845
(5,431)
841,414
39.19c
39.15c
486,023
(5,482)
480,541
NUMBER OF SHARES
June 2021
Number
June 2020
Number
Weighted average number of ordinary shares used in calculating basic
earnings per share (a)
1,246,006,654
1,226,271,429
Effect of dilutive securities (b)
1,413,644
1,267,770
Adjusted weighted average number of ordinary shares used in
calculating diluted earnings per share
(a) Weighted Average Number of Ordinary Shares
1,247,420,298
1,227,539,199
The weighted average number of ordinary shares used in calculating basic earnings per share for the 2020 financial year was
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. As there were no new shares issued
during the current year, the weighted average number of ordinary shares used in calculating basic earnings per share for the
2021 financial year was the number of shares on issue as at 30 June 2021.
(b) Effect of Dilutive Securities
Performance rights pursuant to Tranche FY19, Tranche FY20 and Tranche FY21 of the 2016 LTI Plan that have been issued to
Executive Directors, but have not yet vested as at 30 June 2021, have been included in the calculation of dilutive earnings per
share. Refer to Table 4. Performance Rights of Key Management Personnel for the Year Ended 30 June 2021 on page 57 of
this report for further information.
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.
ANNUAL REPORT JUNE 2021
101
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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
Amounts receivable in respect of finance leases (c)
Non-trade debts receivable from (d):
- Related parties (including joint ventures and joint venture partners)
- Unrelated parties
Allowance for expected credit loss (d)
Non-trade debts receivable, net
CONSOLIDATED
June 2021
$000
June 2020
$000
793,228
78,917
2,094
(3,578)
77,433
3,206
1,824
13,738
(228)
15,334
352,359
109,077
2,258
(3,716)
107,619
3,291
23,059
25,745
(494)
48,310
Total trade and other receivables (current)
889,201
511,579
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 parties (including joint ventures and joint venture partners)
- Unrelated parties
Allowance for expected credit loss (d)
Non-trade debts receivable, net
Total trade and other receivables (non-current)
6,703
441
(3)
7,141
713
56,022
29,352
(20,668)
64,706
72,560
7,276
476
(4)
7,748
912
49,442
19,835
(28,668)
40,609
49,269
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
cashflows, and
•
The contractual terms of the financial asset give rise on specific dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently subjected to an expected credit loss assessment. 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.
102
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7 Trade and Other Receivables (continued)
Allowance for expected credit losses
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 $793.23 million as at 30 June 2021 (2020: $352.36 million) 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 a recoverability
assessment as at 30 June 2021 to assess whether an allowance for expected credit loss was required in respect of the aggregate
franchisee receivables balance. This expected credit loss assessment was conducted by applying the general approach for provisioning
for expected credit losses prescribed by AASB 9, and was applied to the carrying value of franchisee receivables as at 30 June 2021
totalling $793.23 million (2020: $352.36 million). Based on the assessment, there is no expected credit loss in respect of
receivables from franchisees and therefore no allowance for expected credit loss has been raised as at 30 June 2021 (2020: nil).
Receivables from franchisees are neither past due nor impaired as at 30 June 2021.
(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 $0.25 million (2020: $3.68 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:
•
•
•
$72.08 million of the trade receivables balance as at 30 June 2021 (2020: $91.30 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.
$9.98 million of the trade receivables balance as at 30 June 2021 (2020: $21.36 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 2021
(2020: nil).
$3.56 million of the trade receivables balance as at 30 June 2021 (2020: $3.70 million) are past due and impaired, and
have been provided for in full as at balance date.
Past due but not impaired
Past due and impaired
Ageing
Analysis
2021 ($000)
2020 ($000)
Neither past
due or
impaired
31-60
Days
61-90
Days
+90
Days
31-60
Days
61-90
Days
+90
Days
Total
72,077
91,301
2,629
2,193
5,161
8,593
4,087
8,675
507
78
246
98
2,807
3,521
85,620
116,353
ANNUAL REPORT JUNE 2021
103
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
7 Trade and Other Receivables (continued)
Reconciled to:
Trade receivables (Current)
Trade receivables (Non-current)
Total trade receivables
Movement 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
78,917
6,703
85,620
3,697
254
(16)
(375)
3,560
109,077
7,276
116,353
414
3,684
(10)
(391)
3,697
(b) Consumer finance loans and allowance for expected credit loss
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:
•
$0.86 million of the consumer finance loans at 30 June 2021 (2020: $1.70 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. $1.66 million of the consumer finance loans balance as at 30 June 2021 (2020: $1.01 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 2021 (2020: $0.02 million) are past due and impaired, and have
been provided for in full as at balance date.
•
•
Ageing
Analysis
2021 ($000)
2020 ($000)
Past due but not impaired
Past due and impaired
Neither past
due or
impaired
31-60
Days
61-90
Days
+90
Days
31-60
Days
61-90
Days
+90
Days
Total
858
1,699
393
372
297
432
966
208
-
-
-
-
21
23
2,535
2,734
Reconciled to:
Consumer finance loans (Current)
Consumer finance loans (Non-current)
Total consumer finance loans
CONSOLIDATED
June 2021
$000
June 2020
$000
2,094
441
2,535
Movement in the allowance for expected credit loss for consumer finance loans were as follows:
At 1 July
Amounts written off
At 30 June
23
(2)
21
104
ANNUAL REPORT JUNE 2021
2,258
476
2,734
36
(13)
23
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
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
Reconciled to:
Amounts receivable in respect of finance leases (current)
Amounts receivable in respect of finance leases (non-current)
Total finance lease receivables
3,365
758
4,123
(135)
(69)
3,919
3,230
689
3,919
3,438
1,019
4,457
(147)
(107)
4,203
3,291
912
4,203
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. An expected credit loss allowance is made for estimated unrecoverable finance lease receivable amounts when there is
objective evidence that a finance lease receivable is impaired. No expected credit loss was recognised in the 2021 financial year
(2020: nil).
The ageing analysis of current and non-current finance lease receivables is as follows:
•
$1.20 million of the finance lease receivable balance as at 30 June 2021 (2020: $1.48 million) are neither past due nor
impaired.
$2.72 million of the finance lease receivable balance as at 30 June 2021 (2020: $2.72 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.
•
(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 2021 was $100.94 million (2020: $118.08 million) as follows:
•
$54.15 million of the non-trade debts receivable balance as at 30 June 2021 (2020: $69.24 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.
$25.89 million of the non-trade debts receivable balance as at 30 June 2021 (2020: $19.68 million) are past due but not
impaired. These receivables are subject to regular monitoring and periodic impairment testing to ensure that they are
recoverable.
$20.90 million of the non-trade debts receivable balance as at 30 June 2021 (2020: $29.16 million) are past due and
impaired, and have been provided for in full as at balance date.
•
•
Ageing
Analysis
2021 ($000)
2020 ($000)
Neither past
due or
impaired
54,150
69,241
Past due but not impaired
Past due and impaired
31-60
Days
61-90
Days
+90
Days
31-60
Days
61-90
Days
+90
Days
Total
-
-
-
-
25,890
19,678
-
-
-
-
20,896
29,162
100,936
118,081
ANNUAL REPORT JUNE 2021
105
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
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
15,562
85,374
100,936
Movement in the allowance for expected credit loss for non-trade debts receivable were as follows:
At 1 July
Charge for the year
Reversal during the year (i)
Utilisation of allowance for expected credit loss
At 30 June
29,162
35
(8,000)
(301)
20,896
48,804
69,277
118,081
30,272
1,335
(2,000)
(445)
29,162
(i) Non-trade debts receivable from mining camp joint venture:
The consolidated entity has non-trade debts receivable from the mining camp joint ventures totalling $30.69 million (2020:
$32.85 million) in aggregate as at 30 June 2021. The recoverable amount of non-trade receivable from the mining camp joint
ventures was assessed during the year. An impairment reversal of $8.00 million was recognised in the current year (2020:
impairment reversal of $2.00 million). The total balance of the allowance for expected credit loss as at 30 June 2021 relating to
non-trade receivables from the mining camp joint ventures was $3.23 million (2020: $11.23 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 2021 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, to each of these variables to assess the recoverable amount of the non-trade receivables as at balance date.
106
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8 Other Financial Assets
Current
Equity investments at fair value through profit or loss
Derivatives receivable
Total other financial assets (current)
Non-Current
Equity investments at fair value through other comprehensive income
Units in unit trusts
Other non-current financial assets
Total other financial assets (non-current)
CONSOLIDATED
June 2021
$000
June 2020
$000
41,281
95
41,376
28,046
414
4,623
33,083
30,237
-
30,237
15,451
414
2,311
18,176
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 at fair value through other comprehensive income (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)
490,015
(10,922)
479,093
402,363
(10,379)
391,984
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.
ANNUAL REPORT JUNE 2021
107
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10 Other Assets (Current)
Prepayments
Other current assets
Total other assets (current)
11 Intangible Assets
Current
Net licence property (current)
Non-Current
Net licence property
Other intangible assets
Computer software:
At cost
Accumulated amortisation and impairment
Net computer software
CONSOLIDATED
June 2021
$000
June 2020
$000
36,803
2,752
39,555
258
1,981
90
232,571
(170,974)
61,597
30,723
4,149
34,872
278
2,494
156
214,688
(154,335)
60,353
Total net intangible assets (non-current)
63,668
63,003
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)
60,353
20,791
(36)
(19,777)
266
61,597
61,910
19,167
(921)
(19,814)
11
60,353
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.
108
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
12 Property, Plant and Equipment
Land at fair value
Buildings at fair value
Land and buildings at fair value (a)
Plant and equipment:
At cost
Accumulated depreciation
Net 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
Total written down amount of property, plant and equipment
Reconciliation of the carrying amounts of property, plant & equipment were as follows:
Land at fair value
Opening balance
Additions
Disposals
Increase resulting from revaluation
Reclassification to leasehold properties: right-of-use assets
Net foreign currency differences arising from foreign operations
Closing balance
Buildings at fair value
Opening balance
Additions
Disposals
Increase resulting from revaluation
Depreciation for the year
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 (a)
185,916
265,173
451,089
798,335
(519,577)
278,758
451,089
798,335
1,249,424
(519,577)
729,847
150,235
1,685
-
35,910
-
(1,914)
185,916
252,681
3,222
(646)
21,938
(9,210)
-
(2,812)
265,173
451,089
150,235
252,681
402,916
837,764
(577,791)
259,973
402,916
837,764
1,240,680
(577,791)
662,889
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 $191.43 million (2020: $199.36 million) if measured on a historical cost basis.
ANNUAL REPORT JUNE 2021
109
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
12 Property, Plant and Equipment (continued)
Reconciliation of the carrying amounts of property, plant and equipment (continued):
Plant and equipment at cost:
Opening balance
Additions
Disposals
Net foreign currency differences arising from foreign operations
Closing balance
Plant and equipment accumulated depreciation:
Opening balance
Depreciation for the year
Disposals
Net foreign currency differences arising from foreign operations
Closing balance
Net book value plant and equipment
Leased plant and equipment at cost:
Opening balance
Reclassification to leasehold properties: right-of-use assets
Closing balance
Leased plant and equipment accumulated depreciation:
Opening balance
Reclassification to leasehold properties: right-of-use assets
Closing balance
Net book value leased plant and equipment
Lease make good asset at cost:
Opening balance
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
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
837,764
83,776
(115,390)
(7,815)
798,335
577,791
57,838
(110,938)
(5,114)
519,577
278,758
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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)
-
-
Total written down amount of property, plant and equipment
729,847
662,889
110
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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
Commencing from 1 January 2020, the entire freehold owner-occupied property portfolio is being 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 Note 12(b) and
Note 12(c).
Financial Reporting Impacts of COVID-19:
Land of $185.92 million and buildings of $265.17 million are measured at fair value at 30 June 2021. 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 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.
ANNUAL REPORT JUNE 2021
111
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12 Property, Plant and Equipment (continued)
(a) Reconciliation of owner occupied properties—land and building at fair value
New Zealand
Slovenia
Singapore
Ireland
Australia
Total
Retail
$000
Warehouse
$000
Retail
$000
Warehouse
$000
Office
$000
Retail
$000
Retail
$000
2021
$000
2020
$000
282,797
5,298
80,314
-
8,093
16,364
10,050
402,916
441,213
2,773
(645)
57,544
-
-
-
-
-
-
(6,712)
(93)
(1,950)
-
-
-
(1,104)
(21)
(2,637)
1,684
-
-
-
-
-
-
-
-
-
-
305
448
4,905
19,843
-
-
(645)
(3,351)
57,849
29,402
(19)
(308)
(128)
(9,210)
(10,897)
-
-
(426)
(538)
-
-
-
(68,571)
(4,726)
(4,723)
334,653
5,184
75,727
1,684
7,648
15,823
10,370
451,089
402,916
Opening
balance
Additions
Disposals
Fair value
adjustments
Depreciation
for the year
Transfer to
property: ROU
assets
Net foreign
currency
differences
Closing
balance
(b) Fair value measurement, valuation techniques and inputs
Class of property
Fair value
hierarchy*
Fair value
30 June 2021
$000
Valuation Technique
Key
unobservable inputs
Range of
unobservable
inputs
Retail
Level 3
436,573
Warehouse
Level 3
6,868
Office
Level 3
7,648
Discounted cash flow
Terminal Yield
3.1% - 7.8%
Discount Rate
4.0% - 8.5%
Income capitalisation
Net market rent per sqm p.a
$98 - $362
Capitalisation Rate
4.5% - 7.9%
Direct sale comparison
Price per sqm of lettable area
$7,621
Discounted cash flow
Terminal Yield
Discount Rate
Income Capitalisation
Net market rent per sqm p.a
5.9%
6.6%
$98
Discounted cash flow
Capitalisation Rate
5.60%
Terminal Yield
Discount Rate
3.5%
4.0%
Income capitalisation
Net market rent per sqm p.a
$215-$250
Capitalisation Rate
3.3%
Direct sale comparison
Price per sqm of lettable area
$7,266 - $9,026
TOTAL
451,089
* Level 3 - fair value is estimated using inputs that are not based on observable market data.
112
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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 and 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 adjust-
ments 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
Increase
Decrease
Capitalisation rate
Terminal yield
Discount rate
Decrease
Decrease
Decrease
Increase
Increase
Increase
Price per square metre
Increase
Decrease
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.
ANNUAL REPORT JUNE 2021
113
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12 Property, Plant and Equipment (continued)
(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 (ROUA)
CONSOLIDATED
Leasehold
properties:
ROUA
$000
Plant and
equipment:
ROUA
$000
Total ROUA
$000
AASB 16 transition adjustments
Reclassification of pre-existing balances
447,575
71,330
2,144
3,448
As at 1 July 2019
New and modified leases
Leases exited
Depreciation
Foreign currency
As at 30 June 2020
As at 1 July 2020
New and modified leases
Leases exited
Depreciation
Foreign currency
As at 30 June 2021
518,905
53,535
(535)
(59,619)
(3,066)
509,220
509,220
81,116
(5,390)
(60,788)
(16,868)
507,290
5,592
1,102
-
(2,150)
18
4,562
4,562
1,490
-
(2,120)
(55)
3,877
449,719
74,778
524,497
54,637
(535)
(61,769)
(3,048)
513,782
513,782
82,606
(5,390)
(62,908)
(16,923)
511,167
(a) The leasehold properties relate to leases of owner-occupied properties.
Australia
New Zealand
Singapore & Malaysia
Slovenia & Croatia
Ireland & Northern Ireland
Total lease liabilities of leases of owner occupied properties and plant and
equipment assets
CONSOLIDATED
June 2021
$000
June 2020
$000
30,181
113,083
244,163
19,235
104,505
511,167
35,144
109,244
245,443
11,301
112,650
513,782
Property, Plant and Equipment: Right-of-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.
114
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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 2021
$000
June 2020
$000
2,593,330
171,805
140,374
2,905,509
2,508,951
50,111
34,268
2,593,330
Below is a list of the top 20 freehold investment properties ranked in order of fair value as at 30 June 2021:
Property
Last independent
valuation date
Independent
valuation at last
valuation date
($000)
Fair value
30 June 2021
($000)
Cap rate
30 June 2021
%
Penrith Homemaker Centre — Harvey Norman® / Domayne®
30 Jun 2019
158,000
Springvale Homemaker Centre — Harvey Norman® / Domayne®
30 Jun 2020
142,000
Watergardens Homeplace — Harvey Norman® (a)
N/A
N/A
197,800
151,800
102,426
6.00%
6.25%
n/a
Maroochydore Homemaker Centre — Harvey Norman® /
Domayne® / Joyce Mayne®
30 Jun 2021
98,000
98,000
6.75%
Silverwater Warehouse Complex
Alexandria Complex — Domayne®
31 Dec 2020
68,000
30 Jun 2020
63,000
Toowoomba Centre Complex — Harvey Norman®
31 Dec 2019
61,800
The Cambridge Park Centre — Harvey Norman® / Domayne®
31 Dec 2020
61,300
Perth City West Complex — Harvey Norman® / Domayne® (b)
30 Jun 2020
57,500
Auburn Complex — Domayne® (c)
30 Jun 2020
55,000
Albury Homemaker Centre — Harvey Norman®
30 Jun 2021
54,000
Auburn Flagship Store Complex — Harvey Norman®
30 Jun 2021
51,000
Maribyrnong Complex — Harvey Norman®
31 Dec 2020
50,000
Rutherford (Maitland) Complex — Harvey Norman® / Domayne®
31 Dec 2020
47,300
Browns Plains Homemaker Centre — Harvey Norman®
31 Dec 2020
46,000
Gepps Cross Home HQ — Harvey Norman® (b)
30 Jun 2021
42,500
Munno Para Shopping City — Harvey Norman®
31 Dec 2020
42,200
Bendigo Homemaker Centre
30 Jun 2021
41,500
Devonport Homemaker Centre — Harvey Norman®
31 Dec 2018
34,000
Cannington Complex — Harvey Norman®
31 Dec 2020
36,000
68,976
67,700
64,700
61,462
59,077
55,072
54,000
51,000
50,013
47,584
47,400
42,500
42,207
41,500
38,900
36,427
6.50%
6.00%
7.25%
8.00%
7.00%
n/a
7.25%
5.75%
6.50%
7.50%
7.25%
6.75%
7.50%
6.50%
7.00%
7.50%
TOTAL TOP 20 INVESTMENT PROPERTIES
1,378,544*
The fair value of the top 20 freehold investment properties amounted to $1.38 billion as at 30 June 2021, representing 47.4% of the
total fair value of freehold investment properties of $2.91 billion. The fair value of the remaining 117 freehold investment properties as
at 30 June 2021 totalled $1.53 billion, representing 52.6% of the portfolio as at balance date.
(a)
(b)
(c)
The investment property was acquired in April 2021.
Balances represent the consolidated entity’s 50% ownership interest in the investment property.
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 2021 and the independent valuation as at
the last valuation date mainly relates to Internal Valuations and Reviews and capital additions in respect of the freehold investment
property between the periods.
ANNUAL REPORT JUNE 2021
115
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14 Investment Properties: Freehold (continued)
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. An 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.
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
Commencing from 1 January 2020, the entire freehold
investment property portfolio in Australia is being valued by an
Independent Valuer at least once every two (2) years on a
rotational basis.
For the 2021 financial year, sixty-seven (67) valuations of
freehold investment properties were performed by an
Independent Valuer: thirty-five (35) at 31 December 2020 and
thirty-two (32) at 30 June 2021. This represents a total of 48.9%
of the number of freehold investment properties independently
externally valued this year, and 44.3% in terms of the fair value
of the freehold investment property portfolio in Australia
subject to independent external valuation. In addition, two (2)
freehold investment properties in New Zealand were subject to
independent external valuations 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 current year, nineteen (19) 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 nineteen (19)
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 age and condition of improvements
the quality of construction
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 using 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 held for future development.
116
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14 Investment Properties: Freehold (continued)
Financial Reporting Impacts of COVID-19 (continued):
The large-format retail market in Australia has proven to be a resilient and buoyant asset class, underpinned by the strength of the Home &
Lifestyle retail sector, during the COVID-19 pandemic. Investor competitiveness for scarce, well-located large-format property
investments, with strong national lease covenants and lease tenures, has contributed to the surge in large-format retail values.
Despite the recent buoyancy of the large-format retail market, the pandemic continues to produce a 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. A large portion of the independent external valuation reports received during FY21
continued to contain the ‘significant valuation uncertainty’ clauses that were present in independent valuation reports received for the
previous year ended 30 June 2020. This clause continues to imply 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. Adjustments may have been made by the independent external valuer to one or a number of valuation
inputs and estimates, where appropriate, including lower probabilities of tenant recoveries, lower market rent growth rates, potential
estimated rent relief, 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 due to COVID-19.
Consistent with June 2020, 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 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.
However, it is important to note that some of the independent external valuation reports received during FY21 no longer contained the
‘significant valuation uncertainty’ clauses, but instead highlighted the potential short-term income risks, possible increased incentives and
the ongoing uncertainties that COVID-19 could continue to present that may impact the global economy.
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 judgement and 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 still
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.
A similar approach has been applied to the land and buildings measured at fair value of $451.09 million as disclosed in Note 12. Property,
Plant and Equipment.
(a) Reconciliation of investment properties: freehold
New Zealand
Australia
Total
Retail
$000
Warehouse
Retail
Warehouse
Office
$000
$000
$000
$000
2021
$000
2020
$000
Opening balance
6,713
2,995
2,307,486
237,466
38,670
2,593,330
2,508,951
Additions
Disposals
1
-
-
-
(2,334)
-
170,577
3,583
81
174,242
51,033
Fair value adjustments*
(136)
1,824
123,875
14,811
Depreciation for the year
Net foreign currency differences
(51)
(26)
(15)
(11)
-
-
-
-
-
-
-
-
(2,334)
(612)
140,374
34,268
(66)
(37)
(86)
(224)
Closing balance
6,501
4,793
2,599,604
255,860
38,751
2,905,509
2,593,330
* Fair value adjustments totalling $140.37 million for the year ended 30 June 2021 are included in other income (2020: $34.27 million).
ANNUAL REPORT JUNE 2021
117
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14 Investment Properties: Freehold (continued)
(b) Fair value measurement, valuation techniques and inputs
Class of
property
Fair value
hierarchy*
Fair value
30 June 2021
$000
Valuation Technique
Key
unobservable inputs
Range of
unobservable inputs
Retail
Level 3
Metropolitan = 1,566,037
Regional = 1,040,068
Total = 2,606,105
Warehouse
Level 3
260,653
Office
Level 3
38,751
Net market rent per sqm p.a
$70 - $326
Income capitalisation
Discounted cash flow
Capitalisation Rate
- Metropolitan
- Regional
Terminal Yield
Discount Rate
4.0% - 8.0%
6.5% - 9.8%
4.1% - 9.8%
5.0% - 9.8%
Direct sale comparison Price per sqm of lettable area
$710 - $5,664
Income Capitalisation
Net market rent per sqm p.a
Capitalisation Rate
Discounted cash flow
Terminal Yield
Discount Rate
$69 - $160
5.8% - 9.5%
6.0% - 8.3%
6.3% - 8.5%
Direct sale comparison Price per sqm of lettable area
$709 - $3,018
Income capitalisation
Net market rent per sqm p.a
Capitalisation Rate
$115 - $385
$7.0% - 8.8%
Discounted cash flow
Terminal Yield
Discount Rate
7.3%
7.0%
Direct sale comparison Price per sqm of lettable area
$1,442 - $4,793
TOTAL
2,905,509
* Level 3 - fair value is estimated using inputs that are not based on observable market data.
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
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
Price per square metre
Increase
Decrease
Decrease
Decrease
Increase
Decrease
Increase
Increase
Increase
Decrease
(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 $223.15 million for the year ended 30 June
2021 (2020: $220.04 million). Operating expenses, including rates and taxes and repairs and maintenance, recognised in the income
statement in relation to investment properties amounted to $52.34 million for the year ended 30 June 2021 (2020: $54.13 million).
118
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
15 Investment Properties (Leasehold): Right-Of-Use Assets
Opening balance at beginning of the year, at fair value
New and modified leases
Leases exited
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
Class of property
Fair value
hierarchy*
Fair value
30 June 2021
$000
621,903
85,659
(13,025)
(74,076)
620,461
608,465
102,873
(15,229)
(74,206)
621,903
Valuation Technique
Key
unobservable inputs
Range of
unobservable inputs
Retail
Level 3
469,623 Discounted cash flow
Warehouse
Level 3
150,838 Discounted cash flow
Discount rate
2.958% to 5.206%
Market rental ranges:
- Gross
- Net
$64—$851 per sqm
$21—$453 per sqm
Discount rate
2.958% to 5.206%
Market rental ranges:
- Gross
- Net
$29-$500 per sqm
$39-$300 per sqm
TOTAL
620,461
* Level 3 - fair value is estimated using inputs that are not based on observable market data.
(b) Sensitivity information
Key unobservable inputs
Discount rate
Market rent ranges
Impact on fair value for significant
increase in input
Impact on fair value for significant
decrease in input
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 $115.19 million for the year ended 30 June 2021 (2020: $116.75 million). 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 $24.42 million for the year ended
30 June 2021 (2020: $24.96 million).
ANNUAL REPORT JUNE 2021
119
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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 valued by an Independent Valuer at
least once every two (2) years. 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.
2)
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.
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 rent 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 rent
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
and professional advice provided by the Independent Valuer are used
to inform 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 account the
following:
•
External market based rates for a range of maturities as at the
reporting date;
•
•
The lending margins available to the consolidated entity; and
Other adjustments that may be made by market
participants over the lease term.
As at 30 June 2021, the discount rates used in re-measuring
investment properties (leasehold): right-of-use asses range from 2.96%
to 5.21% (2020: 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 continues to produce a degree of uncertainty
regarding the assessment of fair value of leasehold investment
properties, particularly around the critical assumptions regarding
market rents and discount rates.
Similar to the challenges experienced and reported for the June 2020
financial year, estimated fair values may change significantly and
unexpectedly over a relatively short period of time. To reflect the
ongoing potential impact of COVID-19, adjustments may be made,
where appropriate, to one or a number of valuation inputs and esti-
mates, 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 judgement and best estimate of the impact of
COVID-19. The duration and depth of the pandemic are still 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.
120
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16 Trade and Other Payables
Trade and other creditors
Accruals
Total trade and other payables
17 Interest-Bearing Loans and Borrowings
Current Secured:
Bank overdraft (a)
Commercial bills payable (b)
Syndicated Facility Agreement (c)
Other short-term borrowings (d)
Current Unsecured:
Derivatives payable
Non-trade amounts owing to:
- Related parties
- Unrelated parties
Total interest-bearing loans and borrowings (current)
Non—Current
Syndicated Facility Agreement (c)
Total interest-bearing loans and borrowings (non-current)
CONSOLIDATED
June 2021
$000
June 2020
$000
269,959
85,704
355,663
15,704
5,650
290,000
44,202
283,838
67,934
351,772
18,749
9,750
-
69,638
-
187
4,237
176
359,969
200,000
200,000
4,237
280
102,841
195,000
195,000
Bank Overdraft
(a)
The total bank overdraft of $15.70 million as at 30 June 2021 (2020: $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).
In the prior year, a total of $0.33 million related to a bank overdraft facility with AmBank (M) Berhad in Malaysia which is subject to
periodic review.
Commercial bills payable
(b)
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.
Syndicated Facility Agreement
(c)
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 (the Facility) with certain banks (Financiers and each a Financier). On 26 November 2018,
the Amending Deed (No. 6) to the Facility was executed with the effect of extending the repayment date of Tranche B of the Facility
totalling $240 million to 4 December 2021. On 29 November 2019, the Amending Deed (No. 7) to the Facility 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. On 26 November 2020, Tranche A3 of the Facility totalling $200 million was
cancelled, reducing the aggregate available facility of the Syndicated Facility Agreement from $810 million to $610 million.
The utilised amount of the Facility as at 30 June 2021 was $490 million (2020: $195 million), repayable as set out below, with $290 million
classified as current interest bearing loans and borrowings (2020: nil) and $200 million of which was classified as non-current interest-
bearing loans and borrowings (2020: $195 million).
ANNUAL REPORT JUNE 2021
121
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
17 Interest-Bearing Loans and Borrowings (continued)
(c) Syndicated Facility Agreement (continued)
This Facility is secured by:
•
a fixed and floating charge granted by the Company and each of the Guarantors in favour of a security trustee for the
Financiers; and
•
real estate mortgages granted by certain Guarantors in favour of the security trustee for the Financiers over various real
properties owned by those Guarantors.
in respect of Tranche A1 totalling $170 million, on 4 December 2021 ($170 million utilised at 30 June 2021);
in respect of Tranche A2 totalling $200 million, on 4 December 2022 ($200 million utilised at 30 June 2021); and
Under the terms of the Syndicated Facility Agreement, the Facility is repayable:
•
•
•
•
in respect of Tranche B totalling $240 million, on 4 December 2021 ($120 million utilised at 30 June 2021);
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 Facility, 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 $44.20 million (2020: $69.64 million):
•
•
•
•
a total of $29.11 million (2020: $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 2021.
a total of $9.84 million (2020: $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 2021.
a total of $4.45 million (2020: $4.70 million) relates to a revolving credit facility with ANZ in Singapore. This facility is sub-
ject 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 $0.80 million (2020: $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.
Defaults and Breaches
(e)
The Company has not received notice of the occurrence of any Relevant Event from any Financier. During the 2021 and 2020
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 attributa-
ble 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 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.
122
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
18 Financing Facilities Available
At balance date, the following financing facilities had been negotiated and were available.
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
48,415
85,452
5,650
610,000
749,517
15,704
44,202
5,650
290,000
200,000
555,556
32,711
41,250
120,000
193,961
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
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
Lease liabilities at beginning of the year
1,173,087
1,161,009
New and modified leases
Leases exited
Interest on lease liabilities (accretion)
Lease payments
Foreign currency
Lease liabilities at the end of the year
Disclosed as:
Lease liabilities (current)
Lease liabilities (non-current)
Total lease liabilities
169,828
(19,019)
40,941
(171,790)
(14,382)
1,178,665
135,389
1,043,276
1,178,665
155,897
(15,853)
40,538
(165,308)
(3,196)
1,173,087
130,280
1,042,807
1,173,087
ANNUAL REPORT JUNE 2021
123
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
19 Lease Liabilities (continued)
(b) The geographical split of lease liabilities 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
46,190
130,554
190,123
21,272
143,410
531,549
647,116
647,116
52,492
126,749
184,544
13,340
152,282
529,407
643,680
643,680
Total lease liabilities
1,178,665
1,173,087
(c) The maturity profile of undiscounted lease liabilities as at 30 June 2021 is as follows:
Less than 1 year
1 to 2 years
2 to 5 years
Over 5 years
174,665
166,888
440,412
661,850
171,185
168,722
445,904
656,160
Total undiscounted lease liabilities
1,443,815
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 2021. These leases are not
included in the calculation of the consolidated entity’s lease liabilities. The estimated undiscounted lease liabilities for these
leases are $0.78 million (2020: $13.70 million).
124
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
19 Lease Liabilities (continued)
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.
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 2021, the incremental borrowing rates applied by
the consolidated entity were as follows:
Location
Australia
New Zealand
Singapore & Malaysia
Slovenia & Croatia
Ireland & Northern Ireland
Weighted average
incremental
borrowing rate (%)
3.74%
3.41%
2.92%
3.30%
3.57%
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 2021, the lease terms adopted by the consolidated
entity were as follows:
Location
Australia
New Zealand
Singapore & Malaysia
Slovenia & Croatia
Ireland & Northern Ireland
Weighted average
lease term
(years)
10.62
13.13
5.72
9.47
8.35
As at 30 June 2021, 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 $33.62
million (2020: $85.31 million).
ANNUAL REPORT JUNE 2021
125
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
20 Other Liabilities
Total unearned revenue (current)
Total unearned revenue (non-current)
21 Provisions
Employee entitlements
Total provisions (current)
Employee entitlements
Lease make good
Total provisions (non-current)
CONSOLIDATED
June 2021
$000
June 2020
$000
108,847
823
37,162
37,162
2,380
7,443
9,823
96,141
863
34,181
34,181
2,213
7,013
9,226
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
Movements in ordinary shares on issue
Balance at 1 July 2020
Issue of shares
Balance at end of the year
717,925
717,925
717,925
717,925
June 2021
No. of Shares
June 2021
$000
1,246,006,654
-
1,246,006,654
717,925
-
717,925
Number of ordinary shares issued and fully paid as at 30 June 2021 was 1,246,006,654 (2020: 1,246,006,654)
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.
126
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
22 Contributed Equity (continued)
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 on ordinary shares:
Final fully-franked dividend for 2020: 18.0 cents (2019: 21.0 cents)
Interim fully-franked dividend for 2021: 20.0 cents (2020: 12.0 cents*)
Special fully-franked dividend for 2020: 6.0 cents
Total dividends paid
CONSOLIDATED
June 2021
$000
June 2020
$000
2,511,580
-
841,414
(473,483)
2,879,511
224,281
249,202
-
473,483
2,397,436
(43,892)
480,541
(322,505)
2,511,580
247,745
-
74,760
322,505
The final dividend of $224.28 million, fully franked, for the year ended 30 June 2020 was paid on 2 November 2020.
The interim dividend of 20.0 cents per share, totalling $249.20 million fully-franked, for the year ended 30 June 2021 was paid on
3 May 2021.
The final dividend of 15.0 cents per share totalling $186.90 million, fully franked, for the year ended 30 June 2021 will be paid on
15 November 2021 to shareholders registered at the close of business on 18 October 2021. No provision has been made in the
Statement of Financial Position for the payment of this final dividend.
* The interim dividend previously proposed for the year ended 30 June 2020 of 12.0 cents per share, totalling $149.52 million
fully-franked and payable on 4 May 2020, was cancelled on 2 April 2020 given the uncertainties surrounding COVID-19 and to
preserve and retain cash in the business. A special dividend of 6.0 cents per share was paid on 29 June 2020, totalling $74.76
million fully-franked.
Franking account balance:
The amount of franking credits available for 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 the 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
ANNUAL REPORT JUNE 2021
455,197
122,596
(80,100)
497,693
2,591
12,716
12,883
28,190
489,613
57,126
(96,121)
450,618
2,691
14,621
13,671
30,983
127
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
25 Reserves
CONSOLIDATED $000
Asset
Revaluation
Reserve
Foreign
Currency
Translation
Reserve
FVOCI
Reserve
Cash Flow
Hedge
Reserve
Employee
Equity
Benefits
Reserve
Acquisition
Reserve
Total
At 1 July 2019
152,850
65,853
10,949
(2)
10,125
(22,051)
217,724
Transition adjustments arising
from adoption of AASB 16
(18,067)
-
-
At 1 July 2019, post transition
134,783
65,853
10,949
Revaluation of land and buildings
Tax effect of revaluation of land
and buildings
Currency translation differences
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 on net loss on forward
foreign exchange contracts
Cost of share based payments
Utilisation of employee equity
benefits reserve
Sale of a controlled entity
28,384
(4,559)
-
-
-
-
-
-
-
-
-
-
(8,912)
-
-
-
-
-
-
-
-
-
-
(1,030)
-
-
-
-
-
-
-
(2)
-
-
-
-
2
(49)
14
-
-
-
-
-
(18,067)
10,125
(22,051)
199,657
-
-
-
-
-
-
-
739
(859)
-
-
-
-
-
-
-
-
-
-
3,450
28.384
(4,559)
(8,912)
(1,030)
2
(49)
14
739
(859)
3,450
At 30 June 2020
158,608
56,941
9,919
(35)
10,005
(18,601)
216,837
At 1 July 2020
158,608
56,941
9,919
(35)
10,005
(18,601)
216,837
Revaluation of land and buildings
Tax effect of revaluation of land
and buildings
Currency translation differences
Unrealised gain 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 on net loss on forward
foreign exchange contracts
Cost of share based payments
Utilisation of employee equity
benefits reserve
Sale of a controlled entity
55,616
(5,578)
-
-
-
-
-
-
-
-
-
-
(14,890)
-
-
-
-
-
-
-
-
-
-
12,655
-
-
-
-
-
-
-
-
-
-
35
(4)
1
-
-
-
-
-
-
-
-
-
-
1,453
(1,059)
-
-
-
-
-
-
-
-
-
55,616
(5,578)
(14,890)
12,655
35
(4)
1
1,453
(1,059)
-
2,327
2,327
At 30 June 2021
208,646
42,051
22,574
(3)
10,399
(16,274)
267,393
128
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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 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 in-
struments at the date when they are granted by using an appropriate valuation model.
ANNUAL REPORT JUNE 2021
129
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
26 Cash and Cash Equivalents
Reconciliation to the Statement of Cash Flows
(a)
Cash and cash equivalents comprise the following:
Cash at bank and on hand
Short-term money market deposits
Bank overdraft (refer to Note 17)
Cash and cash equivalents
(b) Reconciliation of profit after income tax to net operating cash flows
Profit after tax
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): ROUA
Amortisation
Impairment of non-current assets
Impairment of other financial assets
Revaluation of freehold investment properties
Executive remuneration expenses
(Loss) / profit on disposal and sale of property, plant and equipment and the
revaluation of listed securities
Changes in assets and liabilities:
(Increase)/decrease in assets:
Receivables
Inventories
Other assets
Increase/(decrease) in liabilities:
Payables and other current liabilities
Income tax payable
Provisions
Net cash flows from operating activities
CONSOLIDATED
June 2021
$000
June 2020
$000
206,971
57,460
264,431
(15,704)
248,727
287,043
26,152
313,195
(18,749)
294,446
846,845
486,023
268
289
(8,320)
67,114
62,908
74,076
20,296
-
-
(140,374)
5,648
(8,397)
(407,714)
(90,162)
(5,299)
50,916
80,472
(4,697)
543,869
639
3,019
(7,628)
66,016
61,769
74,206
21,600
876
300
(34,956)
3,449
3,976
238,782
791
1,093
76,908
55,560
4,541
1,056,964
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at bank and on hand and short-term highly liquid
deposits with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant
risk of changes in value. 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.
130
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
27 Investments Accounted for Using the Equity Method
CONSOLIDATED
June 2021
$000
June 2020
$000
Total investments accounted for using the equity method
1,321
4,692
Ownership interest
Contribution to Profit / (Loss)
Before Tax
June 2021
%
June 2020
%
June 2021
$000
June 2020
$000
Noarlunga (Shopping complex)
Perth City West (Shopping complex)
Warrawong King St (Shopping complex) (a)
Byron Bay (Residential/convention development)
Byron Bay—2 (Resort operations)
Dubbo (Shopping complex)
Bundaberg (Land held for investment)
Gepps Cross (Shopping complex)
QCV (Miners residential complex) (b)
Other
50%
50%
62.5%
-
-
50%
50%
50%
50%
50%
50%
50%
62.5%
-
-
50%
50%
50%
50%
50%
1,500
2,238
1,056
-
-
692
(205)
3,028
13
(2)
8,320
1,437
2,748
1,075
(210)
(243)
632
(352)
2,773
12
(244)
7,628
(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
2021. On 30 July 2021, the maturity date of this finance facility from ANZ was extended to 31 January 2022.
(ii) Finance facilities from Network Consumer Finance Pty Limited (“NCF”), a wholly-owned subsidiary of HNHL, for the
amount of $31.89 million plus interest and costs, subject to bi-annual review.
Investments 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.
ANNUAL REPORT JUNE 2021
131
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28 Assets Held for Sale
As at 30 June 2021, the assets held for sale balance of $12.66 million (2020: $16.19 million) represents 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 classifica-
tion. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
29 Employee Benefits
CONSOLIDATED
June 2021
Number
June 2020
Number
The number of full-time employees employed as at 30 June
6,183
5,732
The aggregate employee benefit liability was comprised of:
June 2021
$000
June 2020
$000
Accrued wages, salaries and on-costs
Provisions (Current—Note 21)
Provisions (Non-current—Note 21)
Total employee benefit provisions
24,288
37,162
2,380
63,830
20,123
34,181
2,213
56,517
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 performance rights in the table below were outstanding and vested (or able to be exercised) by, or for the
benefit of, directors of Harvey Norman Holdings Limited. Refer to Table 4. Performance Rights of Key Management Personnel for
the Year Ended 30 June 2021 on page 57 of this report for further information.
Grant date
Expiry Date
28/11/2016
30/06/2022
01/12/2017
30/06/2023
04/12/2018
30/06/2024
02/12/2019
30/06/2025
04/12/2020
30/06/2026
Number of Performance Rights
Outstanding
Number of Performance Rights Vested
2021
-
-
549,500
549,500
549,500
2020
-
400,000
549,500
549,500
-
2021
-
226,400
-
-
-
2020
240,000
-
-
-
-
1,648,500
1,499,000
226,400
240,000
132
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30 Remuneration of Auditors
Fees to Ernst & Young Australia:
Audit or review of 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 financial reports
Tax services
Consulting services
CONSOLIDATED
June 2021
$
June 2020
$
1,346,588
178,800
-
1,525,388
980,660
218,776
14,778
1,406,009
151,150
33,250
1,590,409
780,376
213,845
14,348
Total payable to overseas member firms of Ernst & Young Australia
1,214,214
1,008,569
Total remuneration payable to Ernst & Young
2,739,602
2,598,978
31 Key Management Personnel
(a) Details of Key Management Personnel
Title
Senior Executives
Title
Martin Anderson
General Manager — Advertising
(retired on 30 June 2021)
Thomas James Scott General Manager — Property
Gordon Ian Dingwall Chief Information Officer
Lachlan Roach
General Manager —
Home Appliances
Emmanuel Hohlastos General Manager — Audio Visual
Glen Gregory
General Manager —
Technology & Entertainment
Directors
Gerald Harvey
Kay Lesley Page
John Evyn Slack-Smith
Executive Chairman
Executive Director and
Chief Executive Officer
Executive Director and
Chief Operating Officer
David Matthew Ackery
Executive Director
Chris Mentis
Executive Director and
Chief Financial Officer and
Company Secretary
Christopher Herbert Brown OAM Non-Executive Director
Michael John Harvey
Non-Executive Director
Kenneth William Gunderson-
Briggs
Graham Charles Paton AM
(retired 25 November 2020)
Non-Executive Director (Independent)
Non-Executive Director (Independent)
Maurice John Craven
Non-Executive Director (Independent)
Luisa Catanzaro
(appointed 25 November 2020)
Non-Executive Director (Independent)
ANNUAL REPORT JUNE 2021
133
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$
June 2020
$
31 Key Management Personnel (continued)
(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 lease accrual
Other—termination benefit
13,380,900
305,816
2,032,255
99,564
33,985
12,796,618
295,892
1,056,781
89,782
89,065
Total compensation to Key Management Personnel
15,852,520
14,328,138
Refer to Tables 1 and 2 on pages 55 and 56 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) 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. The amount of receivables from related
parties at 30 June 2021 were $57,846,269 (30 June 2020: $72,500,801).
(ii) 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 30 June 2021 was $4,237,364 (30 June 2020:
$4,237,364).
Refer to information provided in Section 16. Other Transactions and Balances with Key Management Personnel and their Related
Parties in this report on page 60 for further information.
CONSOLIDATED
June 2021
$000
June 2020
$000
33 Commitment s
(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
112,714
208,078
44,847
365,639
105,805
191,537
46,694
344,036
The consolidated entity as 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.
134
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED
June 2021
$000
June 2020
$000
33 Commitments (continued)
(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
17,931
949
18,880
16,028
-
16,028
The consolidated entity had contractual obligations to purchase property, plant and equipment and investment properties of
$18.88 million (2020: $16.03 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 2021 was $5.96 million (2020: $0.95 million).
34 Contingent Liabilities
As at 30 June 2021, 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:
Guarantees in the normal course of business relating to lease make-good obligations under certain operating lease
a)
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.
35 Financial Risk Management
(a) 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 source of
finance.
ANNUAL REPORT JUNE 2021
135
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35 Financial Risk Management (continued)
Financial Risk Management Objectives and Policies (continued)
(a)
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;
ageing analyses and monitoring of specific credit allowances to manage credit risk; and
monitoring liquidity risk through the future rolling cash flow forecasts.
(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 exchange 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
136
ANNUAL REPORT JUNE 2021
CONSOLIDATED
June 2021
$000
June 2020
$000
52,597
4,098
95
56,790
36,441
16,269
-
52,710
4,080
44,375
5,167
-
49,542
34,351
11,742
187
46,280
3,262
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35 Financial Risk Management (continued)
(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
receivables from related entities and unrelated entities, finance lease receivables, 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
Average interest rate
Principal sub-
ject to floating
interest rate
1 year or
less
Over 1 to
5 years
More than
5 years
Non-interest
bearing
30 June 2021
$000
$000
$000
$000
$000
Total
$000
Floating
Fixed
Cash
132,842
57,459
-
-
-
508
689
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
74,130
264,431 0.00% - 0.60% 0.17% - 3.65%
2,535
2,535
2,722
3,919
793,228
793,228
85,620
85,620
74,459
74,459
-
-
-
-
11.00%
-
-
-
Consumer
finance loans
Finance lease
receivables
Receivables from
franchisees
Trade receivables
Other financial
assets
Non-trade debts
receivables &
loans
55,409
13,161
26,708
3,921
1,737
100,936 2.30% - 4.15%
5.00% - 13.0%
Total
188,251
71,128
27,397
3,921
1,034,431 1,325,128
Syndicated
Facility and other
short-term
borrowings
Trade creditors
Other loans
534,202
-
4,237
Bank overdraft
15,704
Bills payable
5,650
Total
559,793
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
534,202 0.30% - 5.09%
355,663
355,663
-
176
4,413 1.15% - 1.25%
-
-
15,704
2.01%
5,650 0.06% - 0.14%
355,839
915,632
-
-
-
-
-
ANNUAL REPORT JUNE 2021
137
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35 Financial Risk Management (continued)
(b) Market Risk (continued)
ii) Interest Rate Risk Management (continued)
Fixed interest rate maturing in
Average interest rate
Principal sub-
ject to floating
interest rate
1 year or
less
Over 1 to
5 years
More than
5 years
Non-interest
bearing
30 June 2020
$000
$000
$000
$000
$000
Total
$000
Floating
Fixed
Cash
203,649
28,998
Consumer finance
loans
Finance lease
receivables
Receivables from
franchisees
Trade receivables
Other financial
Non-trade debts
receivables &
loans
-
-
-
570
912
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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%
Total
262,624
54,116
15,748
5,991
616,859
955,338
Syndicated Facility
and other short-
term borrowings
Trade creditors
Other loans
Bank overdraft
Bills payable
Other financial
liabilities
264,638
-
4,237
18,749
9,750
-
Total
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
-
-
-
-
-
-
138
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35 Financial Risk Management (continued)
(b) Market Risk (continued)
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 $41.28 million as at 30 June 2021 (2020: $30.24 million). The fair value of the equity investments publicly traded on the
NZX was $28.05 million as at 30 June 2021 (2020: $15.45 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 is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to
a financial loss. 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, with a maximum
exposure equal to the carrying amount of these financial assets.
The consolidated entity manages the credit risk exposure by taking the following measures:
•
•
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;
Minimising concentrations of credit risk by undertaking transactions with a large number of debtors in various countries
and industries. Trade receivable balances are monitored on an ongoing basis.
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 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:
Location of credit risk
Australia
New Zealand
Singapore and Malaysia
Slovenia and Croatia
Ireland and Northern Ireland
Total
CONSOLIDATED
June 2021
$000
June 2020
$000
919,136
21,433
14,843
3,308
3,041
961,761
497,774
35,905
18,321
5,603
3,245
560,848
As at 30 June 2021, other than the loss allowance recognised in relation to trade and non-trade debts receivables and consumer
finance loans as disclosed in Note 7, no financial assets were impaired.
ANNUAL REPORT JUNE 2021
139
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35 Financial Risk Management (continued)
(d) Liquidity Risk
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:
•
•
has readily accessible standby facilities and other funding arrangements in place; and
maintains instruments that are tradeable in highly liquid markets.
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 undiscount-
ed cash flows of the financial liabilities based on the earliest date on which the consolidated entity can be required to pay.
30 June 2021
Less than 1 year
$000
1 to 2 years
$000
2 to 5 years
$000
Over 5 years
$000
Total
$000
Non derivative financial assets
Cash and cash equivalents
Receivables from franchisees
Trade and other receivables
Other financial assets
Derivative financial assets
264,431
793,228
100,911
41,281
-
-
-
-
24,411
46,779
-
-
8,846
33,083
264,431
793,228
180,947
74,364
Forward currency contracts
95
-
-
-
95
Total financial assets
1,199,946
24,411
46,779
41,929
1,313,065
Non derivative financial liabilities
Trade and other payables
Interest-bearing loans and borrowings
Total financial liabilities
Net maturity
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
355,663
365,146
720,809
-
201,170
201,170
-
-
-
-
-
-
355,663
566,316
921,979
479,137
(176,759)
46,779
41,929
391,086
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
351,772
106,360
-
-
6,452
-
6,452
-
-
40,455
-
40,455
-
-
171,388
25,155
-
-
11,047
18,176
29,223
-
-
-
-
313,195
352,359
221,813
48,413
935,780
351,772
302,903
187
654,862
Forward currency contracts
187
-
-
Total financial liabilities
458,319
171,388
25,155
Net maturity
401,331
(164,936)
15,300
29,223
280,918
140
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35 Financial Risk Management (continued)
(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).
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 2021
Quoted market price (Level 1)
$000
Market observable inputs (Level 2)
$000
Financial assets
Listed investments
Forward currency contracts
Total financial assets
30 June 2020
Financial assets
Listed investments
Total financial assets
Financial liabilities
Forward currency contracts
Total financial liabilities
69,327
69,327
-
95
95
Quoted market price (Level 1)
$000
Market observable inputs (Level 2)
$000
45,688
45,688
-
-
-
-
187
187
Total
$000
69,327
95
69,422
Total
$000
45,688
45,688
187
187
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,
retained profits and reserves as disclosed in Notes 22, 23 and 25 respectively. None of the consolidated entity’s entities are
subject to externally imposed capital requirements.
ANNUAL REPORT JUNE 2021
141
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
35 Financial Risk Management (continued)
(f) Capital Risk Management Policy (continued)
Capital management is monitored through the net debt to equity ratio. The Capital Management Policy stipulates a net debt to
equity target for the consolidated entity of less than 50%. As at 30 June 2021, the consolidated entity had unused, available
financing facilities of $193.96 million out of total approved financing facilities of $749.52 million. The net debt to equity ratio as
at 30 June 2021 was 7.47% (30 June 2020: Nil).
Borrowings (refer to Note 17: Interest-Bearing Loans and Borrowings)
Less: Cash and Cash equivalents
Net Debt / (Cash)
Total equity (a)
Net debt to equity ratio (b)
CONSOLIDATED
June 2021
$000
June 2020
$000
559,969
264,431
295,538
3,956,330
7.47%
297,841
313,195
(15,354)
3,533,326
-0.43%
(a)
For the purpose of calculating the net debt to equity ratio, total equity excludes the negative acquisition reserve of $16.27
million (2020: $18.60 million), the right-of-use assets in respect of property, plant and equipment leases of $511.17
million (2020: $513.78 million) and investment properties (leasehold): right-of-use assets of $620.46 million (2020:
$621.90 million) and the lease liabilities recognised under AASB 16 Leases of $1,178.67 million (2020: $1,173.09 million).
(b)
As at 30 June 2020, the consolidated entity had 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.
Current assets
Foreign currency contracts—held for trading
Foreign currency contracts—cash flow hedges
Current liabilities
Foreign currency contracts—held for trading
Foreign currency contracts—cash flow hedges
CONSOLIDATED
June 2021
$000
June 2020
$000
91
4
-
-
-
-
137
50
The consolidated entity has entered into forward currency contracts which are economic hedges but do not satisfy the
requirements of hedge accounting.
142
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36 Derivative Financial Instruments (continued)
(a) Forward currency contracts-held for trading
Average Exchange Rate
2021
2020
CONSOLIDATED
Currency
2021
2020
Buy
$000
Sell
$000
Buy
$000
Sell
$000
Euro (0-12 months)
US Dollar (0-12 months)
Total
71.44
76.38
67.29
67.40
5,600
5,131
10,731
-
-
-
3,682
4,043
7,725
-
-
-
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 gain on forward currency contracts during
the year ended 30 June 2021 was $0.09 million for the consolidated entity (2020: net fair value loss of $0.14 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:
Average Exchange Rate
2021
2020
CONSOLIDATED
Currency
2021
2020
Buy
$000
Sell
$000
Buy
$000
Sell
$000
Euro (0-12 months)
US Dollar (0-12 months)
Total
63.27
-
59.59
64.80
3,386
-
3,386
-
-
-
1,293
291
1,584
-
-
-
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 2021, the hedges were
100% effective (2020: 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.
Movement in the forward currency contract cash flow hedge reserve:
Opening balance
Transferred to inventory
Charged to other comprehensive income
Closing balance
ANNUAL REPORT JUNE 2021
CONSOLIDATED
June 2021
$000
June 2020
$000
Increase/(Decrease)
(35)
35
(3)
(3)
(2)
2
(35)
(35)
143
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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:
•
•
•
•
Arisit Pty Limited
Contemporary Design Group Pty Limited
Derni Pty Limited
Generic Publications Pty Limited
Harvey Norman Stores (N.Z.) Pty Limited
Network Consumer Finance Pty Limited
Sarsha Pty Limited
Yoogalu Pty Limited
•
•
•
•
•
Harvey Norman Big Buys Pty Limited
The Statement of Financial Position and Income Statement for the Harvey Norman Holdings Limited Closed Group are as follows:
June 2021
$000
June 2020
$000
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 & Equipment
Property, Plant & 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
Total non-current liabilities
Total liabilities
NET ASSETS
131,576
867,574
41,296
235,981
258
25,045
1,301,730
1,712,820
299,666
32,215
175,641
60,557
2,280,899
3,582,629
106,984
295,833
27,181
139,639
32,475
49,340
651,452
200,000
174,911
2,121
111,402
488,434
1,139,886
2,442,743
188,935
499,955
30,237
207,757
278
24,885
952,047
1,704,045
297,642
33,114
6,538
59,037
2,100,376
3,052,423
163,380
10,184
2,293
67,123
29,617
46,291
318,888
195,000
12,654
1,957
99,259
308,870
627,758
2,424,665
144
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
37 Deed of Cross Guarantee (continued)
Equity
Contributed equity
Reserves
Retained profits
Non-controlling interests
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
Dividends provided for or paid
Retained earnings at the end of the year
38 Parent Entity Financial Information
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 2021
$000
June 2020
$000
717,925
13,150
1,711,993
(325)
2,442,743
,
639,151
(147,885)
491,266
1,694,210
491,266
(473,483)
1,711,993
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 2021
$000
June 2020
$000
38
2,838,662
2,838,700
124,093
134,198
258,291
717,925
1,862,484
2,580,409
537,438
537,438
93
2,693,100
2,693,193
58,516
118,223
176,739
717,925
1,798,529
2,516,454
354,317
354,317
Guarantees
The Parent Company is party to a Deed of Cross Guarantee (“Deed”) with the following controlled entities:
•
•
•
•
•
Arisit Pty Limited
Contemporary Design Group Pty Limited
Derni Pty Limited
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.
ANNUAL REPORT JUNE 2021
145
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
38 Parent Entity Financial Information (continued)
Contingent Liabilities
Refer to information provided in Note 34: Contingent Liabilities for disclosures relating to the Parent Entity.
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. 15,16
Harvey Norman Trading d.o.o. 14,15
Bencoolen Properties Pte Limited 6,7
Harvey Norman Europe d.o.o. 14,
Network Consumer Finance Pty Limited 1,2
Cascade Consolidated Sdn. Bhd. 9,10
Harvey Norman Holdings (Ireland) Limited 12
Pertama Holdings Pte Limited 6,7,8
Consolidated Design Group Pty Limited 1
Harvey Norman Limited 4
Pertama Mechandising Pte Ltd 6,9
Contemporary Design Group Pty Limited 1,2
Harvey Norman Ossia (Asia) Pte Limited 6,7,8
Sarsha Pty Limited 1,2
Derni Pty Limited 1,2
Harvey Norman Properties (N.Z.) Limited 4,5
Space Furniture Pte Limited 6,7
Elitetrax Marketing Sdn. Bhd. 10,11
Harvey Norman Singapore Pte Limited 6,7
Space Furniture Collection Sdn. Bhd. 10
Generic Publications Pty Limited 1,2
Harvey Norman Stores (N.Z.) Pty Limited 1,2
Yoogalu Pty Limited 1,2
Harvey Norman Big Buys Pty Limited 1,2,3
Harvey Norman Trading (Ireland) Limited 12,13
Notes:
1
2
3
4
5
6
7
8
9
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.
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.
10 Company incorporated in Malaysia.
11 Shares held by Cascade Consolidated Sdn. Bhd.
12 Company incorporated in Ireland.
13 Shares held by Harvey Norman Holdings (Ireland) Limited.
14 Company incorporated in Slovenia.
15
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.
16 Company incorporated in Croatia.
146
ANNUAL REPORT JUNE 2021
OPERATING AND FINANCIAL REVIEW (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
39 Controlled Entities and Unit Trusts (continued)
Units in Trusts held by Harvey Norman Holdings Limited
A listing of material unit trusts of Harvey Norman Holdings Limited are detailed below:
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 Bendigo Trust
Calardu Brookvale Trust
Calardu Campbelltown Trust
Calardu Penrith No. 2 Trust
Calardu Cannington Trust
Calardu Perth City West Trust
Calardu Caringbah (Taren Point) Trust
Calardu Preston Trust
Calardu Devonport Trust
Calardu Frankston Trust
Calardu Gepps Cross Trust
Calardu Geraldton Trust
Calardu Rutherford Trust
Calardu Silverwater Trust
Calardu Springvale Trust
Calardu Taylors Lakes Trust
Calardu Hoppers Crossing Trust
Calardu Toowoomba Trust
Calardu Loganholme Trust
Calardu Toowoomba No. 1 Trust
Calardu Malaga Trust
Calardu Toowoomba No. 2 Trust
Calardu Maribyrnong Trust
Calardu Tweed Heads No. 1 Trust
Calardu Maroochydore Trust
Calardu Wodonga Trust
Calardu Midland Trust
Harvey Norman Discounts No. 1 Trust
Calardu Browns Plains No. 1 Trust
Calardu Munno Para Trust
Harvey Norman No. 1 Trust
Calardu Cairns Trust
Calardu Cambridge Trust
Calardu Penrith Trust
The Calardu Trust
Calardu Penrith No. 1 Trust
40 Significant Events After Balance Date
From 26 June 2021, the New South Wales (NSW) government announced stay-at-home orders for the greater Sydney area, with
progressive lockdowns after that date for franchised complexes in greater Sydney and regional areas of NSW, in response to the
Delta Variant of COVID-19 and rising cases of local transmission. Thereafter, and up to the date of this report, decisions have
been made by local governments to impose rolling lockdowns in most States and Territories of Australia. These government
mandates have affected franchisee sales in July and August 2021.
Apart from the above, 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.
ANNUAL REPORT JUNE 2021
147
OPERATING AND FINANCIAL REVIEW (CONTINUED)
SHAREHOLDER INFORMATION
Distribution of shareholdings as at 28 September 2021
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
Voting rights
Ordinary Shareholders
11,191
10,395
2,999
2,494
180
27,259
1,096
All ordinary shares issued by Harvey Norman Holdings Limited carry one vote per share.
Twenty largest shareholders as at 28 September 2021
Number of
Ordinary Shares
Shareholder
Percentage of
Ordinary Shares
392,620,640 Mr. Gerald Harvey
205,525,565 Mr. Christopher Herbert Brown
173,318,703 HSBC Custody Nominees Limited
94,100,077 Citicorp Nominees Pty Limited
72,093,995
J P Morgan Nominees Australia Limited
58,592,289 Ms. Margaret Lynette Harvey
22,264,123 BNP Paribas Nominees Pty Limited
21,066,348 National Nominees Limited
20,063,673
Enbeear Pty Limited
19,856,315 Ms. Kay Lesley Page
5,213,182 Argo Investments Limited
4,150,984 BKI Investment Company Limited
3,335,180 Mr. Michael Harvey
2,033,309 Omnilab Media Investments Pty Limited
1,585,457 Quotidian No 2 Pty Limited
1,312,000 Bond Street Custodians Limited
1,271,126 Merrill Lynch (Australia) Nominees Pty Limited
1,268,491 Mr. Arthur Brew
1,161,297 Mr. Chris Mentis
1,143,893 Mr. John Evyn Slack-Smith
1,101,976,647
148
ANNUAL REPORT JUNE 2021
31.51%
16.50%
13.91%
7.55%
5.79%
4.70%
1.79%
1.69%
1.61%
1.59%
0.42%
0.33%
0.27%
0.16%
0.13%
0.11%
0.10%
0.10%
0.09%
0.09%
88.44%