JB Hi-Fi Limited Annual Report 2021

Plain-text annual report

916CRN8482_JB_Hi-Fi_Annual_Report_2021 - 1 - Cover_v1.indd 2 20/08/2021 3:22:03 PM ANNUAL REPORT 2021 Financial Summary FINANCIAL PERFORMANCE 2017(i) Underlying(ii) 2018 Statutory 2019 Statutory 2020 Statutory 2021 Statutory Growth Statutory Sales EBIT NPAT $5.63b $6.85b $7.10b $7.92b $8.92b $306.3m $350.6m $372.8m $483.3m $743.1m $207.7m $233.2m $249.8m $302.3m $506.1m Earnings per share 186.0cps 203.1cps 217.4cps 263.1cps 440.8cps Total dividend - fully franked 118cps 132cps 142cps 189cps 287cps 12.6% 53.8% 67.4% 67.5% 51.9% Sales $8.92b EBIT $743.1m $743.1m $8.92b $7.92b $6.85b $7.10b $5.63b(i) $483.3m $372.8m $350.6m $306.3m(i)(ii) 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 NPAT $506.1m $506.1m Earnings per share 440.8cps 440.8cps $302.3m 263.1cps $249.8m $233.2m $207.7m(i)(ii) 186.0cps(i)(ii) 203.1cps 217.4cps 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 (i) (ii) JB Hi-Fi acquired The Good Guys on 28 November 2016, all amounts disclosed for the 2017 ﬁ nancial year include The Good Guys for the period under JB Hi-Fi ownership. 2017 underlying results exclude transaction fees and implementation costs totaling $22.4m associated with the acquisition of The Good Guys in November 2016 and $15.8m of ﬁ xed asset and goodwill impairments in New Zealand. JB Hi-Fi Limited ABN 80 093 220 136 916CRN8482_JB_Hi-Fi_Annual_Report_2021 - 2 - Inside Cover_v1.indd 2 23/08/2021 8:07:16 PM Chairman’s and Group Chief Executive Ofﬁ cer’s Report Dear fellow shareholder, FY21 has been a strong year for JB Hi-Fi Limited and its subsidiaries (the “Group”). We were pleased to report record sales and earnings for the year ended 30 June 2021, a period where we continued to respond and adapt to the challenges resulting from Covid-19. We would like to recognise and thank our team members across Australia and New Zealand who worked tirelessly to deliver this record result. Our continued focus on the customer, combined with the strength and competitive advantage of our multichannel offer, be it in-store, online or over the phone, enabled us to seamlessly meet our customers’ increased demand throughout this period. As the challenges associated with Covid-19 continued throughout FY21, the health, safety and wellbeing of our team members, customers, business partners and the wider community remained our highest priority. The relationship between the Board and management is strong and remains engaging and constructive. Group CEO Transition The dual branded retail approach is underpinned by five key enablers that provide the Group with a unique competitive advantage, being: • • • • • scale; a low cost operating model, evidenced by the Group’s low cost of doing business (“CODB”); quality store locations; strong supplier partnerships; and our multichannel capabilities. It continues to be an integral part of the Group’s strategy to innovate and diversify in new products, online, supply chain, merchandising formats, advertising and property locations in a controlled and responsible manner. This approach provides opportunities to increase revenue, margin and productivity. The Group achieved sales of $8.9 billion in FY21, up 12.6% on the prior year. EBIT was up 53.8% to $743.1 million and Net profit after tax (NPAT) was up 67.4% to $506.1 million. Earnings per share was up 67.5% to 440.8 cents per share and the total dividend for FY21 was up 51.9% to 287 cents per share. Following a smooth and successful transition period, Group Chief Executive Officer Richard Murray left the Group in Brand Overview August 2021 and has been succeeded by Managing Director of The Good Guys and former JB Hi-Fi CEO, Terry Smart. JB Hi-Fi Australia The Board thanks Richard for his outstanding contribution to the Company over the past 18 years, wishes him all the best for the future and looks forward to Terry continuing to deliver on the Group’s previous success. Both Terry and Group Chief Financial Officer, Nick Wells, joined the Board as Executive Directors on 27 August 2021. Total sales grew by 12.0% to $5.96 billion, with comparable sales up 13.0%. Sales momentum was strong through the year, with heightened customer demand for consumer electronics and home appliance products. The key growth categories were Communications, Computers, Games Hardware, Visual and Small Appliances. Online sales grew 93.0% to $780.0 million or 13.1% of total sales. Group Overview The Group comprises two leading retail brands: JB Hi-Fi, with a focus on Technology and Consumer Electronics; and The Good Guys, with a focus on Home Appliances and Consumer Electronics. The value proposition for each brand centres around ranging the best brands at low prices supported by exceptional customer service across our 316 store network, our online and phone channels, and through our commercial business. Gross profit increased by 13.4% to $1.33 billion with gross margin up 27 bps to 22.2%, driven primarily by improvements in key categories. CODB was 11.2%, down 91 bps on the pcp. The business’ low CODB remains a competitive advantage and is maintained through a continued focus on productivity, minimising unnecessary expenditure and leveraging scale. Elevated sales growth, gross margin expansion and disciplined cost control resulted in strong earnings growth. EBIT was up 33.6% on the pcp to $523.0 million, with EBIT margin up 142 bps to 8.8%. 1 CHAIRMAN’S AND GROUP CHIEF EXECUTIVE OFFICER’S REPORT (continued) JB Hi-Fi New Zealand Generating sustainable long-term growth Total sales were up 17.4% to NZD261.6 million, with The Group’s FY21 Sustainability Report outlines our comparable sales up 17.4%. The key growth categories were commitment to having a positive impact on our people, our Computers, Visual, Communications, Games Hardware and communities and our environment. Small Appliances. Online sales in New Zealand grew 35.6% to NZD27.6 million, or 10.6% of total sales. Gross margins The Group is committed to: increased by 129 bps to 17.8% and CODB was 13.1%, down • developing our people and providing them with a safe and 109 bps on the pcp. EBIT was NZD5.8 million. respectful workplace, whilst looking for ways to improve The Good Guys work ﬂ exibility, diversity and inclusion; • giving back to the communities within which our team Total sales grew by 13.7% to $2.72 billion, with comparable members live and work; and sales up 13.7%. Sales momentum was strong through the year, with heightened customer demand for home appliance and consumer electronics products. The key growth • minimising the impact of waste and greenhouse gases generated by our operations on the natural environment. categories were Refrigeration, Laundry, Floorcare, Portable The Group is pleased with the progress made across these key Appliances and Visual. Online sales were up 48.5% to areas of focus, which in FY21 included: $258.3 million or 9.5% of total sales. • roll out of an updated Equal Opportunity and Workplace Gross profit was $608.6 million with gross margin up 189 bps Behaviour policy to all team members; to 22.4%, driven by strong improvements in key categories. CODB was 11.7%, down 100 bps as store wages remained well controlled throughout the year. Strong operating leverage from the elevated sales growth, gross margin expansion and disciplined cost control drove strong EBIT growth. EBIT was up 90.2% on the pcp to $214.7 million, with EBIT margin up 318 bps to 7.9%. Group Balance Sheet, Capital Management and Dividends The Group’s balance sheet continued to be strong with low financial and operating leverage, evidenced by our solid fixed charges cover of 4.6 times, gearing of 0.0 and interest cover of 228.4 times. JB Hi-Fi Limited regularly reviews all aspects of its capital structure with a focus on maximising returns to shareholders and maintaining balance sheet strength and flexibility. The Board declared a final dividend of 107 cents per share fully franked, up 17 cents per share or 18.9%, bringing the total dividend for FY21 to 287 cents per share, up 98 cents per share or 51.9%, and representing 65% of NPAT. • launching a set of Diversity and Inclusion initiatives, to continue to improve diversity in leadership and inclusion; • workplace giving donations totalling $3.7 million and $28.1 million since inception; • JB Hi-Fi’s Helping Hands program winning Workplace Giving Australia’s 2020 Best Overall Program and Best Innovation awards; • continuing to work with suppliers to embed our ethical sourcing policy; • committing to net-zero direct (scope 1 and 2) carbon emissions by 2030, with solar power generation recently installed at the JB Hi-Fi Chadstone Homemaker Centre store; • continuing to explore waste reduction, re-use and recycling initiatives led by the Group’s operational waste and recycling working group; and • continuous improvements in sustainable packaging. The FY21 Sustainability Report can be found on the Group’s Total dividend up 51.9% to 287cps investor website (https://investors.jbhifi.com.au/) Management alignment with Shareholders The Board firmly believes that equity participation for management through the Group’s share ownership-based 287 remuneration schemes creates strong alignment with shareholders and is a critical tool in attracting new management, 189 retaining existing management and rewarding performance. 118 132 142 FY17 FY20 FY19 FY18 Dividend per Share (cents) FY21 2 Outlook Whilst we have experienced some disruption and variability to sales as a result of the various state based COVID restrictions, we have continued to see heightened customer demand and strong sales growth rates over a two-year period. In view of the ongoing uncertainty arising from Covid-19, we do not currently consider it appropriate to provide FY22 sales and earnings guidance. The health, safety and wellbeing of our team members, customers, business partners and the wider community will remain our highest priority. While the retail environment remains uncertain, we have continued to demonstrate our ability to adapt, respond and thrive in the face of changing circumstances. The combination of our passionate and knowledgeable team members, our multichannel offer, and our ongoing investment in our supply chain gives us confidence in the outlook for the business. We look forward to another successful year in FY22. Stephen Goddard Terry Smart Chairman Group Chief Executive Officer 30 August 2021 3 Annual Report for the ﬁ nancial year ended 30 June 2021 Governance statement Directors' report Operating and ﬁ nancial review Remuneration report Auditor's independence declaration Independent auditor’s report Directors' declaration Statement of proﬁ t or loss Statement of proﬁ t or loss and other comprehensive income Balance sheet Statement of changes in equity Statement of cash ﬂ ows Notes to the ﬁ nancial statements Additional securities exchange information Page 5 14 19 31 55 56 60 61 62 63 64 65 66 98 4 JB Hi-Fi Limited ABN 80 093 220 136 GOVERNANCE STATEMENT JB Hi-Fi Limited (“the Company” or “JB Hi-Fi”) recognises the importance of Governance matters and the Board continually reviews and monitors developments in corporate governance which are relevant to the Group (being the consolidated entity consisting of the Company and the entities it controls). The Company’s Governance Statement is set out below. The Company also recognises the importance of environmental and social matters to its shareholders, suppliers and customers and has released its 2021 Sustainability Report to the ASX at the same time as this Report. CORPORATE GOVERNANCE STATEMENT The directors and management of the Group are committed to ensuring that the Group’s business is conducted ethically and in accordance with high standards of corporate governance. The Board believes that: • the Group’s policies and practices comply in all material respects with the 4th edition of the ASX Corporate Governance Council Principles and Recommendations (the “ASX Recommendations”); and • during the 2021 ﬁ nancial year, the Company has been compliant with the spirit of the principles contained in the ASX Recommendations. This Corporate Governance Statement has been approved by the Board and is effective as at 16 August 2021. THE BOARD Role The primary role of the Board is to protect and enhance long-term sustainable shareholder value. The Board is accountable to shareholders for the performance of the Company and it directs and monitors the business and affairs of the Group on behalf of shareholders. The Board’s responsibilities include: overseeing the business and affairs of the Group and demonstrating leadership of the Group; deﬁ ning the Group’s purpose and approving the Group’s statement of values and code of conduct so as to underpin the desired culture within the Group and overseeing management’s implementation of these values; setting (in consultation with management) the strategic and ﬁ nancial objectives of the Group and overseeing management’s implementation of these objectives; approving the appointment and replacement of senior executives including the Group CEO; monitoring the performance of management and, where required, challenging management and holding it to account; approving the adoption of the Group’s major corporate governance policies; ensuring that the Group has in place an appropriate risk management framework (for both ﬁ nancial and non-ﬁ nancial risk); overseeing the reliability and integrity of the Group’s accounting, ﬁ nancial reporting and ﬁ nancial management and disclosure practices and systems; overseeing the Group’s process for making disclosure to the market; approving the Group’s remuneration framework and satisfying itself that the Group’s remuneration policies are aligned with the Group’s values, strategic objectives and risk appetite; and the establishment of a formal and transparent procedure for the selection, appointment and review of directors. The Group Chief Executive Ofﬁ cer, who is accountable to the Board, is responsible for managing, directing and promoting the proﬁ table operation and development of the Group. A copy of the Board Charter can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. Composition of the Board / Selection and appointment of directors Details of each of the Directors are set out on pages 14 and 15 of this Report. The Board seeks to ensure that the combination of its members provides an appropriate range of experience, skills, diversity, knowledge and perspective to enable it to carry out its obligations and responsibilities. The Board believes that having a range of different skills, backgrounds, experience and gender ensures a diversity of viewpoints which facilitate effective governance and decision making. 5 GOVERNANCE STATEMENT (continued) The Company believes that skills and experience in the areas listed below are desirable for the Board to perform its role effectively. The Board considers that its current composition possesses an effective blend of these skills and experience which enables it and its Committees to effectively govern the business, operate effectively and add value in the context of the Company’s strategy. • • Executive/Management Retail, both physical and online/digital • Operational Management • • Finance Property • Online/Digital • Mergers & Acquisitions • Governance • Other Listed Board Experience • • Executive Remuneration Risk Management The Company maintains a majority of non-executive directors on its Board. The Board currently comprises seven directors, being six non-executive directors, including the Chairman, and one executive director, being the Group Chief Executive Ofﬁ cer. The Company has written agreements with each director setting out the terms of their appointment. Apart from the Group Chief Executive Ofﬁ cer, directors are subject to shareholder re-election by rotation at least every three years. The Company provides shareholders with all material information in its possession relevant to the election or re-election of a director. A copy of the Company’s Board Composition & Succession Policy, which includes the procedure for the selection and appointment of directors, can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. The Board will undertake appropriate checks before appointing any person, or putting forward to shareholders a candidate for election, as a director. Details of the directors as at the date of this Report, including further information about their experience, expertise and term of ofﬁ ce, are set out in the Directors’ Report. Independence The Company considers that each of its directors (including the Chairman) is independent with the exception of Richard Murray, the Group Chief Executive Ofﬁ cer. The Board regards directors as independent directors if they: do not have a material relationship with the Company other than solely as a result of being a director; are independent of management; and do not have any business or other relationship that could compromise the independent exercise of their judgement and their ability to act in the best interests of the Company. The independence of each director is considered on a case-by-case basis. Richard Uechtritz was Chief Executive Ofﬁ cer of the Company between July 2000 and May 2010 and a consultant to the Company from May 2010 to November 2013. Given the passage of time, the Board is of the opinion that Richard is an independent director, and that neither these previous roles, nor his relationship with current management, compromises his ability to exercise independent, unfettered judgement or act in the best interests of the Company. Beth Laughton is a non-executive director and chair of the audit, compliance & risk management committee of GPT Funds Management Limited (“GPTFM”), the responsible entity for the GPT Wholesale Shopping Centre Fund. Mark Powell is a non-executive director and chair of the ESG committee of Kiwi Property Group Limited. The Board notes that both the GPT Wholesale Shopping Centre Fund and Kiwi Property Group Limited have ownership interests in shopping centres in which the Group currently leases stores. The Board is of the opinion that Beth and Mark are independent directors on the basis that individual leasing arrangements within the Group, GPTFM and Kiwi Property Group Limited are generally determined at a managerial level rather than Board level. In addition, the Company’s internal protocols provide that Beth and Mark would be excluded from any discussion and decision making where any conﬂ ict of interest arises between their roles as a director of the Company and of GPTFM/Kiwi Property Group Limited. Geoff Roberts was previously a partner at Deloitte until 2015. During the period that Geoff was a partner, Deloitte were the appointed auditors of the Group, however at no stage during the term of his partnership was Geoff involved in the provision of audit or other services to the Group. The Board is therefore of the opinion that Geoff is an independent director. 6 Conﬂ ict of interest Directors must keep the Board advised, on an ongoing basis, of any interests that could potentially conﬂ ict with those of the Company. Directors are required to promptly disclose to the Board interests in contracts, other directorships or ofﬁ ces held, possible related party transactions and any other material personal interests in a matter relating to the Company’s affairs. If a material conﬂ ict of interest arises, the director concerned does not receive the relevant Board papers, is not present at the meeting whilst the item is considered and takes no part in decision making. Board meetings The Board meets regularly, dependent on business requirements. Prior to any meeting, the directors receive all necessary Board papers. As well as holding regular Board meetings, the Board also meets to comprehensively review business plans and the strategy of the Group. Access to information and independent advice Each director has the right of access to all relevant Company information and to the Group’s executives. Subject to prior consultation with the Chairman, each director may seek independent professional advice at the Company’s expense. Professional development of directors The Company recognises the need for its directors to develop and maintain the skills and knowledge needed to perform their roles as directors effectively. The Company periodically reviews the need for directors to undertake professional development to maintain the skills and knowledge necessary to perform their roles. This includes, where necessary, management (including the Group Chief Financial Ofﬁ cer and the Company Secretary & General Counsel) and external advisors providing the directors with brieﬁ ngs and advice on developments in both the law and current practice in areas relevant to the Company and their role as directors (including, for example, corporate governance, accounting and remuneration). Individual directors also take advantage of professional development opportunities provided by third parties such as the Australian Institute of Company Directors and major accounting and legal ﬁ rms. The Company also has an induction program for new directors. BOARD COMMITTEES Details of the Committees established by the Board are set out below. Audit and Risk Management Committee The Board has an Audit and Risk Management Committee. The Audit and Risk Management Committee is charged primarily with assisting the Board in its: • oversight of the reliability, adequacy and integrity of the Group’s ﬁ nancial management, ﬁ nancial reporting and disclosure, its related non-ﬁ nancial reporting and disclosure practices, and its ﬁ nancial reporting framework; • • oversight of the independence, performance, appointment and removal of the external auditor; review of the Group’s policies on risk oversight and management, and in discharging its responsibility to satisfy itself that a sound system of risk management and internal control has been implemented to manage the material risks affecting the Group’s businesses, including compliance with all applicable laws; and • review of the Group’s plans, actions and reporting in relation to sustainability. A copy of the Audit and Risk Management Committee Charter can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. During the 2021 ﬁ nancial year, the Audit and Risk Management Committee comprised the following non-executive directors, all of whom were independent and have relevant ﬁ nancial, commercial and risk management experience, including an independent chair who is not the Chair of the Board: • Beth Laughton: Chair of Committee; • Mark Powell; • Melanie Wilson; and • Geoff Roberts: member of Committee since 16 January 2021. 7 GOVERNANCE STATEMENT (continued) Details of the background and experience of each of these non-executive directors are included in the Directors’ Report. The Audit and Risk Management Committee meets regularly. Details of the meetings held and members’ attendance during the 2021 ﬁ nancial year are listed in the Directors’ Report. Directors who are not members of the Audit and Risk Management Committee may attend any Audit and Risk Management Committee meeting. Remuneration and Nominations Committee The Board has a Remuneration and Nominations Committee. The Remuneration and Nominations Committee is charged primarily with: • reviewing and making recommendations to the Board regarding the framework, structure and quantum of remuneration of executive ofﬁ cers and non-executive directors; and • reviewing and making recommendations to the Board regarding Board succession planning, the appointment and re-appointment of non-executive directors, the induction and continuing professional development of non-executive directors, the process for evaluating the performance of the board, its committees and directors, and the succession of the Group CEO and other senior executives. A copy of the Remuneration and Nominations Committee Charter can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. During the 2021 ﬁ nancial year, the Remuneration and Nominations Committee comprised the following directors, each of whom are considered by the Company to be independent: • • Stephen Goddard: Chair of Committee; Beth Laughton; and • Mark Powell. The Remuneration and Nominations Committee meets as required. Details of the meetings held and members’ attendance during the 2021 ﬁ nancial year are listed in the Directors’ Report. Directors who are not members of the Remuneration and Nominations Committee may attend a Committee meeting at the invitation of the Chairman when considered appropriate. COMPANY SECRETARY The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. CODE OF CONDUCT The Group acknowledges the need for directors, executives and employees to observe the highest ethical standards of corporate behaviour. The Group has adopted a Code of Conduct to provide directors, executives and employees with guidance on what the Group deems to be acceptable behaviour. The Group will ensure that the Board and/or Audit and Risk Management Committee is informed of any material incidents in breach of this Code. No such incidents have been reported in FY2021. A copy of the Code of Conduct can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. WHISTLEBLOWER POLICY AND ANTI-BRIBERY, CORRUPTION & FRAUD POLICY The Group has a Whistleblower Policy and an Anti-Bribery, Corruption & Fraud Policy. The Group will ensure that the Board and/or Audit and Risk Management Committee is informed of any material incidents reported under or in breach of these policies. No such incidents have been reported in FY2021. Copies of these policies are available on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. DIVERSITY The Group recognises the importance of diversity and values the competitive advantage that is gained from a diverse range of skills, backgrounds, experience and gender at all levels of the organisation. The Group has a Diversity Policy which is available on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. 8 The Group has a Group Diversity Strategy for both the JB Hi-Fi and TGG businesses. This strategy is focussed on identifying and growing internal talent, underpinned by common and meaningful competency-based criteria. The Group Diversity Strategy and associated program of work is fundamental to enabling diversity by supporting women’s progression to leadership roles, and is further supported by work to identify and remove potential barriers to this progression. Details of the Group’s diversity initiatives, measurable objectives and performance are set out in the Group’s Sustainability Report which can be found on the Company’s investor website at http://investors.jbhiﬁ .com.au in the “Corporate Social Responsibility” section. SAFETY The Group is committed to providing a healthy and safe work environment for all its team members, contractors, customers and visitors. Details of the Group’s health and safety policies and performance are set out in the Group’s Sustainability Report which can be found on the Company’s investor website at http://investors.jbhiﬁ .com.au in the “Corporate Social Responsibility” section. SHAREHOLDINGS OF DIRECTORS AND EMPLOYEES Directors’ current shareholdings are detailed in the Directors’ Report and are updated by notiﬁ cation to the ASX as required. The Board has approved and adopted a Securities Trading Policy setting out the rules and procedures applying to directors, ofﬁ cers and employees dealing in securities. All Key Management Personnel (being all Non-Executive Directors and the Executive KMP listed on page 33), are subject to the Company’s Minimum Shareholding Policies which require: • Non-Executive Directors to hold the equivalent of 1.0 times base Board fees in shares; • • the Group CEO to hold the equivalent of 1.5 times ﬁ xed pay in shares; and other Executive KMP to hold the equivalent of 1.0 times ﬁ xed pay in shares. This level of shareholding is required to be built over 5 years from the introduction of the policy in FY2019 (or appointment, if later). Subject to certain speciﬁ c and limited exceptions, directors and key employees may only trade in the Company’s shares, and any other securities of the Company, during designated Trading Windows. These four-week Trading Windows follow the release of the Company’s Final Results (August/September), Interim Results (February/March) and the Annual General Meeting (October/November). Directors and Group executives are required to obtain the Chairman’s consent in advance of any such trading and any transaction conducted by directors in shares of the Company is notiﬁ ed to the ASX. A copy of the Securities Trading Policy can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. INTEGRITY OF REPORTING The Company has controls designed to ensure the integrity of its ﬁ nancial reporting and that the Company complies with all regulatory requirements relevant to this reporting. In accordance with the Corporations Act and the ASX Recommendations, the Group Chief Executive Ofﬁ cer and Group Chief Financial Ofﬁ cer have stated in writing to the Board that, in their opinion: (a) the ﬁ nancial records of the Group (consisting of the Company and the entities it controlled during the ﬁ nancial year) for the ﬁ nancial year ended 30 June 2021 have been properly maintained in accordance with section 286 of the Corporations Act; (b) the ﬁ nancial statements for the ﬁ nancial year and the notes required by the accounting standards give a true and fair view of the consolidated entity’s ﬁ nancial position and performance, and comply with the accounting standards; (c) the statements in (a) and (b) above are founded on a sound system of risk management and internal control which is operating effectively; and (d) subsequent to 30 June 2021, no changes or other matters have arisen that would have a material effect on the operation of the risk management and internal control systems of the Group. The Company’s full year ﬁ nancial statements and remuneration report are subject to an annual audit by an independent, professional auditor who also reviews the Company’s half-yearly ﬁ nancial statements. The Audit and Risk Management Committee oversees this process on behalf of the Board. Deloitte has been the Company’s external auditor since 2002. The audit engagement partner is rotated every ﬁ ve years. 9 GOVERNANCE STATEMENT (continued) Information on procedures for the selection and appointment of the external auditor and for the rotation of external audit engagement partners can be found in the Charter of the Audit and Risk Management Committee on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. The Company also has a process in place to verify the integrity of any periodic corporate report that it releases to the market that is not audited or reviewed by the independent auditor. Such reports are written by the relevant members of the Company’s senior management team and are then independently reviewed by appropriate executives to ensure the information is accurate and stated assumptions or opinions are reasonable. Data is veriﬁ ed by reference to a reliable source of information and information is checked to ensure that it is consistent with any audited reports where relevant. A ‘third line’ check is then completed by an independent internal review team. Finally, the reports are reviewed in detail by the Company’s Audit and Risk Management Committee and then by the full Board which must formally authorise the release of any such report to the market. CONTINUOUS DISCLOSURE The Company seeks to provide relevant and timely information to its shareholders and is committed to fulﬁ lling its continuous disclosure obligations. The Board has approved a Continuous Disclosure Policy to ensure that the procedures for identifying and disclosing material price sensitive information in accordance with the Corporations Act and ASX Listing Rules are clearly articulated. This policy sets out the obligations of employees in respect of such information. The Group Chief Executive Ofﬁ cer, in consultation with the Chairman where appropriate, is responsible for communication with the ASX. A copy of the Continuous Disclosure Policy can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. The Company ensures that the Board receives copies of all material market announcements before, or promptly after, they have been made. The Company releases a copy of any substantive investor or analyst presentation to the ASX ahead of the presentation. SHAREHOLDER COMMUNICATIONS The Company’s investor website at https://investors.jbhiﬁ .com.au contains an overview of the Group’s businesses and their history and the following information for shareholders: • • • • • • all market announcements and related documents, which are posted immediately after release to the ASX; details relating to the Company’s directors and other key management personnel; Board and Board Committee charters and other corporate governance documents; a calendar of forthcoming key dates such as the date of results releases and the Company’s AGM; a summary of the Company’s dividend policy and its dividend payment history; and details of how investors can contact the Company and its share registry. Shareholders can elect to receive communications from, and send communications to, the Company’s share registry electronically. The registry also gives shareholders the opportunity to manage their account details and holdings electronically. Shareholders are also able to send communications to the Company and receive responses to these communications electronically. A copy of the Company’s Shareholder Communication Policy can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. The Company has an investor relations program which involves regular meetings with signiﬁ cant current and potential investors, and with analysts and the ﬁ nancial media. The Company holds an Annual General Meeting to which all shareholders are invited. In 2020, the Annual General Meeting was held “virtually” to take account of restrictions arising from the Covid-19 pandemic. All resolutions at Annual General Meetings are decided by a poll rather than a show of hands. Shareholders who are unable to attend are able to appoint a proxy to attend and vote or, alternatively, can vote electronically in advance of the Meeting. The Company ensures that the external auditor attends its Annual General Meetings and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. 10 RISK IDENTIFICATION AND MANAGEMENT The Group’s policy is to consider the balance of risk and reward, as far as practicable, in order to optimise the returns gained from its business activities, and to meet the expectations of its shareholders, other key stakeholders and the broader community. The Board has delegated to the Audit and Risk Management Committee responsibility for overseeing the implementation of policies and procedures aimed at ensuring that the Group conducts its operations in a manner that adequately manages risk to protect its people, the environment and the Group’s assets and reputation. The Group has an effective risk management framework in line with ISO31000 which enables management to identify and manage risk appropriately. The Committee regularly reviews and revises this framework and the Board reviews the framework at least annually to satisfy itself that it continues to be sound and that the Group is operating with due regard to the risk appetite set by the Board. The risk management framework was last reviewed by the Board in November 2020. Risk identiﬁ cation and management is also a key focus of the executive and management teams. The Group does not have a formal internal audit function. Instead, risk identiﬁ cation and management is managed on a day-to-day basis by a dedicated risk management and business assurance team. The risk management and business assurance team evaluate and look to continually improve the effectiveness of the Group’s governance, risk management and internal control processes. A copy of the Group’s Risk Management Policy can be found on the Company’s investor website at https://investors.jbhiﬁ .com.au via the “Investors” and “Corporate Governance” sections. SUSTAINABILITY AND ENVIRONMENTAL AND SOCIAL RISKS The Group recognises the material environmental and social risks that are relevant to its activities and takes action to manage those risks. A Group Sustainability Plan has been established to provide a foundational framework to integrate sustainability and the management of these risks into the operations and strategic priorities of the businesses. Governance and oversight of the approach and progress is provided by the Audit and Risk Management Committee. Further detail about these environmental and social risks is set out in the Operating and Financial Review. The Company has released its 2021 Sustainability Report to the ASX and this Report can be found on the Company’s investor website at http://investors.jbhiﬁ .com.au in the “Corporate Social Responsibility” section. This Report provides disclosure around the material sustainability-related issues for the Group’s businesses and how the Group plans to prioritise and manage these going forward. OUR PURPOSE & VALUES The Group’s purpose is to connect customers with the products and services that make life better. The Group aims to do this through its two iconic and trusted retail brands, JB Hi-Fi (a leading retailer of technology and consumer electronics) and The Good Guys (a leading retailer of home appliances and consumer electronics). Set out below are the Values which the Group and all of its team members are guided by in their activities. Passion – We love what we do. We: • • • are passionate about our people, our customers and our products show enthusiasm and take pride in our work strive to exceed our customers’ expectations and create amazing experiences Respect and Empower – We value and respect everyone. We: • • • empower, support and trust our people treat everyone fairly and without discrimination act with humility, listen openly, and value others’ opinions Integrity – We act honestly and do the right thing. We: • • • accept responsibility for our actions act lawfully, ethically and responsibly call out things that aren’t right 11 GOVERNANCE STATEMENT (continued) Innovative – We embrace change and adapt quickly. We: • • • never stand still and constantly evolve are entrepreneurial and look for opportunities are not afraid to fail and we learn from our mistakes Driven – We are focused and deliberate. We: • are results oriented and deliver on the things we commit to • make decisions based on facts and experience • focus on productivity and efﬁ ciency Social Conscience – We care about our people, our community and our environment. We: • • • give back to the communities where we live and work ensure our business is safe, inclusive and welcoming for everyone strive to minimise our impact on the environment Authentic – We are diverse and embrace individuality. We: • • • are informal and don’t take ourselves too seriously are energetic and enthusiastic have fun, enjoy ourselves and celebrate success BOARD AND EXECUTIVE PERFORMANCE JB Hi-Fi monitors and evaluates the performance of its Board, Board Committees, individual directors and executives in order to fairly review and continuously improve Board and management effectiveness. In June/July of each year, each director completes a written board review and assessment document, and subsequent one-on-one interviews then take place between the Chair and each director which cover: • • • review of Board performance as a whole; review of the individual director’s performance; and review of the Chair’s performance. The Chair reports back to the Board on the discussions and the Board considers any issues as necessary. Directors may also discuss the Chair’s performance with the Chair of the Company’s Audit and Risk Management Committee, who will report back to the Board if necessary. The Chair provides informal feedback to directors throughout the year as necessary. Each Board Committee reviews its performance and reports the results of the review to the Board. Where necessary, recommendations will be made to the Board for improving the effectiveness of the relevant Committee. Review of the Group CEO’s performance is evaluated by the Chair, with ultimate oversight by the Board. This involves an assessment against both ﬁ nancial and non-ﬁ nancial performance measures. All other Group executives are evaluated by the Group CEO including: (i) assessment against both ﬁ nancial and non-ﬁ nancial performance measures; and (ii) a one-on-one meeting between the Group CEO and executive to discuss the executive’s performance. The Group CEO provides a summary of the evaluation of each executive to the Board and the Remuneration and Nominations Committee. Evaluation of the performance of the Board, Board Committees, individual directors and Group executives has been conducted in respect of the 2021 ﬁ nancial year. 12 DIRECTORS’ FEES AND EXECUTIVE REMUNERATION Directors’ fees The details of remuneration paid to each non-executive director during the ﬁ nancial year and the principles behind the setting of such remuneration are included in the Remuneration Report. Executive KMP remuneration The amount of remuneration, both monetary and non-monetary, for the executives who had authority and responsibility for planning, directing and controlling the activities of the Group during the ﬁ nancial year, and the principles behind the setting of such remuneration, are included in the Remuneration Report. 13 DIRECTORS’ REPORT The directors of JB Hi-Fi Limited (the “Company”) submit herewith the annual ﬁ nancial report of the consolidated entity consisting of the Company and the entities it controlled (the “Group”) for the ﬁ nancial year ended 30 June 2021. In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows: The names and particulars of the directors of the Company during or since the end of the ﬁ nancial year are: Name Mr Stephen Goddard Non-Executive Director MSc. BSc (Hons) Ms Beth Laughton Non-Executive Director B.Ec, FAICD, FCA Particulars Stephen was appointed to the Board in August 2016 and became Chairman on 1 July 2020. Stephen is also Chair of the Company’s Remuneration and Nominations Committee and was a member of the Audit and Risk Management Committee until 30 June 2020. Stephen has more than 30 years’ retail experience having held senior executive positions with some of Australia’s best known retailers. These include Finance Director and Operations Director for David Jones, founding Managing Director of Ofﬁ ceworks, and various senior management roles with Myer. Stephen is currently a non-executive director and Chair of the Audit and Risk Management Committees of GWA Group Limited, Accent Group Limited and Nick Scali Limited. Beth was appointed to the Board in May 2011, became Chair of the Audit and Risk Management Committee in June 2012, and is also a member of the Company’s Remuneration and Nominations Committee. After qualifying as a Chartered Accountant, Beth spent over 25 years in corporate ﬁ nance, providing mergers and acquisition advice and arranging equity funding for companies in a range of industries including specialty retail. For 12 years her primary focus was on information technology, telecommunications and entertainment. She is also a member of the board of GPT Funds Management Limited and Chair of its Audit, Compliance & Risk Management Committee, and a non-executive director of Shopping Centres Australasia Property Group and Chair of its Audit, Risk Management and Compliance Committee. Beth was previously a member of the Defence SA Advisory Board, a non-executive director of Port Adelaide Maritime Corporation, a non-executive director and chair of the Audit Committee of both Sydney Ferries and CRC Care Pty Ltd, and a non-executive director of the ASX listed Australand Property Group companies. Mr Mark Powell Non-Executive Director BSc (Hons), MSc, MBA (Distinction), BApp. Theol, MA (Hons) Mark was appointed to the Board in March 2017 and is a member of the Audit and Risk Management Committee and the Remuneration and Nominations Committee. Mark has over 25 years’ executive experience in retail, logistics and wholesale distribution in the UK, Spain, North America, Australia and New Zealand. This includes being UK Logistics Operations Director for Tesco Plc, running Wal-Mart Canada’s logistics operations and CEO of Warehouse Stationery in NZ. Mark also spent ﬁ ve years as Group CEO for The Warehouse Group, a NSX listed retail group which includes Noel Leeming, NZ’s largest technology and appliances retailer. He was also an advisor to the board of The Good Guys for 18 months prior to its acquisition by JB Hi-Fi. Mark is currently a non-executive director and Chair of the ESG Committee of NZX listed Kiwi Property Group Limited, and a non-executive director of Bapcor Limited and Chair of its Nominations, Remuneration and ESG Committee. He is also involved on a voluntary basis on the boards of several not-for-proﬁ t organisations. Mr Geoff Roberts Geoff was appointed to the Board in January 2021. He recently retired as Group Chief Non-Executive Director Financial Ofﬁ cer of Seek Limited, having joined them in 2015. He has over 35 years’ ﬁ nance Exec. MBA, B.Comm, FCA, FAICD experience, including as Group CFO of AXA Asia Paciﬁ c Holdings Limited for seven years. Geoff is a Committee (Board) member and Chair of the Finance and Audit Committee of the Melbourne Cricket Club Committee, and was formerly a director and Chair of the Audit Committee of AMP Limited. Geoff was previously a partner at Deloitte and Managing Partner, Victoria from 2011 until 2015. During the period that Geoff was a partner, Deloitte were the appointed auditors of the Group, however at no stage during the term of his partnership was Geoff involved in the provision of audit or other services to the Group. Mr Richard Uechtritz Non-Executive Director Richard has over 30 years’ experience in retailing. He was co-founder of Australia’s two leading photo chains, Rabbit Photo and Smiths Kodak Express, and was a director of Kodak (Australasia) Pty Ltd. Richard led the management buy-in of JB Hi-Fi in July 2000 and was CEO and Managing Director until his resignation from these positions in May 2010. Richard re-joined the Board in April 2011 as a non-executive director. He is also a non-executive director of Seven Group Holdings Limited. 14 Ms Melanie Wilson Non-Executive Director MBA, B.Comm (Hons), GAICD Melanie was appointed to the Board in June 2020 and is a member of the Audit and Risk Management Committee. Melanie gained extensive experience in senior management roles across global retail brands, including Woolworths (Head of Online, Big W and Manager, Strategy Group), Limited Brands (Victoria’s Secret and Bath & Bodyworks, New York), and Diva/Lovisa. Her retail experience includes online/e-commerce, store operations, merchandise systems, marketing, brand development and logistics/fulﬁ lment. Melanie has also held roles with Bain & Company (Boston) and Goldman Sachs (Hong Kong/Sydney) and completed an MBA at Harvard Business School. Melanie is currently a non-executive director of Baby Bunting Group Ltd and Chair of its Remuneration & Nominations Committee, and a non-executive director of iSelect Limited and Chair of its Audit & Risk Committee. She is also a non-executive director of EML Payments Ltd and Property Guru Group (Singapore). Melanie was previously a non-executive director of Shaver Shop Group Limited. Mr Richard Murray Richard became Chief Executive Ofﬁ cer in July 2014 having been appointed to the Board in Group Chief Executive Ofﬁ cer and June 2012. Richard has 25 years’ experience in retail and ﬁ nance. He joined JB Hi-Fi as CFO Executive Director in 2003 and took the business through the IPO process. Prior to this Richard worked with B.Comm, Grad.Dip. Applied Deloitte for 10 years. He is currently Chairman of Workplace Giving Australia’s Leadership Finance & Investment, FCA Group, which aims to encourage Australian businesses to set up workplace giving programs. As detailed below, Richard will leave Company and cease to be a director at the end of August 2021. Each of the aforementioned directors held ofﬁ ce for the whole ﬁ nancial year and since the end of the ﬁ nancial year, other than Geoff Roberts as set out above. Board changes As announced on 28 April 2021, Richard Murray will leave the Company at the end of August 2021 and Terry Smart (currently Managing Director of The Good Guys business) has been appointed to succeed Richard as Group CEO. Both Terry and Group CFO, Nick Wells, will be appointed to the Board as Executive Directors upon Richard’s departure. Both Terry and Nick will be considered to be non-independent directors. In accordance with the Company’s Constitution, Nick will be subject to shareholder re-election by rotation at least every three years but Terry, as the Group CEO, will not. Company Secretary Particulars Mr Doug Smith BA (Hons). Admitted to legal practice in Victoria & in England & Wales. Doug was appointed Company Secretary in June 2012. Doug joined JB Hi-Fi as General Counsel in September 2010 and has over 25 years’ legal and company secretarial experience in-house and in private practice. Directorships of other listed companies Directorships of other listed companies held by directors in the 3 years immediately before the end of the ﬁ nancial year, and since the end of the ﬁ nancial year, are as follows: Name Company Stephen Goddard GWA Group Limited Accent Group Limited Nick Scali Limited Period of Directorship Since October 2016 Since November 2017 Since March 2018 Beth Laughton Shopping Centres Australasia Property Group Since December 2018 Mark Powell Kiwi Property Group Limited (NZX) Bapcor Limited Geoff Roberts AMP Limited Since October 2017 Since September 2020 July 2016 – May 2019 Richard Uechtritz Seven Group Holdings Limited Since June 2010 Melanie Wilson Baby Bunting Group Ltd iSelect Limited EML Payments Ltd Shaver Shop Group Limited Since February 2016 Since March 2016 Since February 2018 June 2016 – May 2020 15 DIRECTORS’ REPORT (continued) Principal activity The Group’s principal activity in the course of the ﬁ nancial year was the retailing of home consumer products. The Group offers a wide range of leading brands with particular focus on consumer electronics, software (including music, games and movies), whitegoods and appliances. There have been no signiﬁ cant changes in the nature of the principal activity of the Group during the ﬁ nancial year. Operating and Financial Review The Operating and Financial Review, which forms part of this Directors’ Report, is presented separately on pages 19 to 30. Changes in state of affairs During the ﬁ nancial year there was no signiﬁ cant change in the state of affairs of the Group. Subsequent events A number of JB Hi-Fi and The Good Guys stores have been temporarily closed to customers at various times since 1 July 2021 as a result of Covid-19 restrictions. The majority of these stores have continued to fulﬁ l online and Click- and-Collect orders whilst closed to customers. There have been no other matters or circumstances occurring subsequent to the end of the ﬁ nancial year that have signiﬁ cantly affected, or may signiﬁ cantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future ﬁ nancial years. Future developments Information regarding likely developments in the operations of the Group in future ﬁ nancial years is set out in the Operating and Financial Review and elsewhere in the Annual Report. Environmental regulations The Group’s operations are not subject to any particular and signiﬁ cant environmental regulation. The Group’s Sustainability Report provides disclosure around the material sustainability-related issues for the Group’s businesses. The Group has not incurred any signiﬁ cant liabilities under any environmental legislation during the ﬁ nancial year. Dividends In respect of the ﬁ nancial year ended 30 June 2020, as detailed in the Directors’ Report for that ﬁ nancial year, an interim dividend of 99.0 cents per share and a ﬁ nal dividend of 90.0 cents per share, both franked to 100% at the 30% corporate income tax rate, were paid to the holders of fully paid ordinary shares on 6 March 2020 and 11 September 2020 respectively. In respect of the ﬁ nancial year ended 30 June 2021, an interim dividend of 180.0 cents per share was paid to the holders of fully paid ordinary shares on 12 March 2021 and the directors have declared the payment of a ﬁ nal dividend of 107.0 cents per share to be paid to the holders of fully paid ordinary shares on 10 September 2021. Both dividends are franked to 100% at the 30% corporate income tax rate. The total dividend for the ﬁ nancial year of 287.0 cents per share represents a payout ratio of approximately 65% of net proﬁ t after tax of $506.1 million. Indemniﬁ cation of ofﬁ cers and auditors The Company indemniﬁ es current and former directors and ofﬁ cers for any loss arising from any claim by reason of any wrongful act committed by them in their capacity as a director or ofﬁ cer (subject to certain exclusions as required by law). During the ﬁ nancial year, the Company has paid premiums in respect of contracts insuring the directors and ofﬁ cers against any liability of this nature. In accordance with normal commercial practices, under the terms of the insurance contracts the nature of the liabilities insured against, and the amount of the premiums paid, are conﬁ dential. The Company has not otherwise, during or since the end of the ﬁ nancial year, except to the extent permitted by law, indemniﬁ ed or agreed to indemnify an ofﬁ cer or auditor of the Company or of any related body corporate against a liability incurred as such by an ofﬁ cer or auditor. 16 Directors’ meetings The following table sets out the number of directors’ meetings (including meetings of Committees of directors) held during the 2021 ﬁ nancial year and the number of meetings attended by the members of the Board or the relevant Committee. During the ﬁ nancial year, 21 Board meetings, 7 Remuneration and Nominations Committee meetings and 6 Audit and Risk Management Committee meetings were held. Directors S. Goddard B. Laughton M. Powell G. Roberts (aptd 16/1/21) R. Uechtritz M. Wilson R. Murray Board of Directors Remuneration and Nominations Committee Audit and Risk Management Committee Held Attended Held Attended Held Attended 21 21 21 11 21 21 17* 21 21 21 11 21 21 17* 7 7 7 – – – – 7 7 7 – – – – – 6 6 2 – 6 – – 6 6 2 – 6 – * Mr Murray was not invited to, and did not attend, Board meetings relating to his resignation as Group CEO. Directors’ shareholdings The following table sets out each director’s relevant interest in shares, debentures, and rights or options in shares or debentures of the Company, or a related body corporate, as at the date of this Report. Fully paid ordinary shares Executive share options Direct number Indirect number Total Direct number Indirect number Total 4,500 5,804 4,000 – 4,816 – 136,498 – – – – – 1,500 2,304 4,500 5,804 4,000 – 4,816 1,500 – – – – – – 138,802 46,705 – – – – – – – – – – – – – 46,705 Directors S. Goddard B. Laughton M. Powell G. Roberts (aptd 16/1/21) R. Uechtritz M. Wilson R. Murray Remuneration Report The Remuneration Report, which forms part of this Directors’ Report, is presented separately on pages 31 to 54. Proceedings on behalf of the Company The directors are not aware of any persons applying for leave under s.237 of the Corporations Act 2001 to bring, or intervene in, proceedings on behalf of the Company. Non-audit services Given the size and complexity of the Group, it can be in the interests of the Group to engage the services of its auditor to assist in a range of related projects. The directors are aware of the issues relating to auditor independence and have in place policies and procedures to address actual, potential and perceived conﬂ icts in relation to the provision of non-audit related services by the Company’s auditor. In FY2021 the Group engaged its auditor to provide non-audit services in the form of taxation services for The Good Guys group of companies relating to the period prior to the acquisition of those companies by the Group. The Group did not pay any fees to its auditor for this work in FY2021 and does not anticipate paying any fees to its auditor for any further work, as such fees will be borne by the previous owners of those companies. The directors are satisﬁ ed that the provision of these non-audit services during the year by the auditor (or by another person or ﬁ rm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. 17 DIRECTORS’ REPORT (continued) Based on advice received from the Audit and Risk Management Committee, the directors are of the opinion that these services as disclosed in note 28 to the ﬁ nancial statements do not compromise the auditor’s independence, for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in the Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Australian Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Auditor’s independence declaration The auditor’s independence declaration is included on page 55 of the Annual Report. Rounding off of amounts The Company is a company of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the Directors’ Report and ﬁ nancial report are rounded off to the nearest hundred thousand dollars, unless otherwise indicated. Signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the directors Stephen Goddard Chairman 16 August 2021 Richard Murray Group Chief Executive Ofﬁ cer 18 OPERATING AND FINANCIAL REVIEW OVERVIEW OF OPERATIONS The Group includes two iconic retail brands: • JB Hi-Fi – a leading retailer of technology and consumer electronics with a strong position with a young tech-savvy demographic; and • The Good Guys – a leading retailer of home appliances and consumer electronics with a strong position with home-making families and Generation X demographics. Both businesses aim to sell the best brands, providing a big range, at low prices with exceptional customer service provided by passionate, knowledgeable team members. The Group holds signiﬁ cant market-share in many of its product categories and sells the following products: • • • consumer electronics and technology products including televisions, audio equipment, computers and cameras; telecommunications products and services; home appliances including whitegoods, cooking products, heating & cooling products, small appliances and kitchen accessories; and • software (music, movies and games). The Group also provides information technology and consulting services. The Group has multi-channel sales capability with sales primarily from its branded retail store networks (197 JB Hi-Fi/JB Hi-Fi Home stores in Australia, 14 JB Hi-Fi stores in New Zealand and 105 The Good Guys stores in Australia as at 30 June 2021), online operations (JB Hi-Fi and The Good Guys websites) and over the phone. Sales are also generated from the Group’s commercial and education businesses. The Group Model is underpinned by 5 unique competitive advantages: Scale: • • • #1 player in the Australian market with the opportunity for further consolidation; relevance to global suppliers; and investments can be spread across a large base and drive efﬁ ciencies. Low Cost Operating Model: • The Group has a low cost of doing business relative to retail peers driven by: • • productive ﬂ oor space with high sales per square metre; and a continued focus on productivity and minimising unnecessary expenditure. • This low cost of doing business is an enabler for maintaining low prices (gross margins of ~22%) and responding to market prices. Quality Store Locations: • JB Hi-Fi stores are in high foot trafﬁ c areas and convenient locations - major shopping centres, CBD locations, homemaker centres and airports; and • The Good Guys stores are in easily accessible destination locations – leading homemaker centres and standalone stores. Supplier Partnerships: • • • • strong partnerships with all major suppliers, both locally and globally; store locations and high trafﬁ c websites provide suppliers with high visibility for their products; knowledgeable team members assist and inform the customer of product beneﬁ ts; and dual brand retail approach provides ranging and merchandising optionality and the ability to execute strategic initiatives at scale. 19 OPERATING AND FINANCIAL REVIEW (continued) Multichannel Capability: • • integrated, high quality in-store, online and phone offer provides customers with choice on how to transact with the businesses; store network provides fast online fulﬁ llment (via delivery from store or click and collect) and online customers with after sales service and support; and • national Commercial business supports corporate, government and education customers. GROUP FINANCIAL PERFORMANCE FY2021 – HIGHLIGHTS Total Sales ($m) Earnings before interest and tax ($m) Net profit after tax ($m) Earnings per share (basic ¢) Dividend per share (¢) FY2021 8,916.1 743.1 506.1 440.8 287.0 FY2020 7,918.9 483.3 302.3 263.1 189.0 Growth 997.2 259.8 203.8 +178cps +98cps +12.6% +53.8% +67.4% +67.5% +51.9% Total sales grew by 12.6% to $8,916.1 million, with continued heightened customer demand for consumer electronics and home appliance products. There was exceptional growth in online, with sales up by 78.1% to $1.1 billion, representing 11.9% of total sales (FY2020: 7.5%). Excluding Victorian sales where stores were temporarily closed during the ﬁ rst half of FY2021, online sales represented 10.3% of total sales. EBIT grew 53.8% to $743.1 million, with strong operating leverage from the elevated sales growth, gross margin expansion and disciplined cost control. Net proﬁ t after tax grew by 67.4% to $506.1 million and earnings per share were up 67.5% to 440.8 cps. Dividends per share are up 98.0 cps or 51.9% to 287.0 cps, with the ﬁ nal dividend of 107.0 cps up 17.0 cps or 18.9%. As announced to the ASX in April 2021, Richard Murray will leave the Group at the end of August 2021 and Terry Smart will succeed him as Group CEO. Both Terry and Nick Wells, Group CFO, will join the Board as Executive Directors upon Richard’s departure. Biag Capasso has been appointed as Managing Director of The Good Guys, taking over from Terry. Tania Garonzi has been appointed as Merchandise Director of The Good Guys. Tania joins The Goods Guys from Hisense Australia where she was the General Manager for 15 years and oversaw the introduction and successful establishment of the Hisense brand in the Australian market. The Group continued its investments in online and supply chain operations, including upgrades to the websites and expanded delivery and warehouse options, along with continued investment in sustainability initiatives including committing to net-zero direct (scope 1 and 2) carbon emissions by 2030. The Group continued its expansion of, and investment in, the Group’s Commercial businesses product and service offering. COVID-19 The Group’s operations were affected signiﬁ cantly by the Covid-19 pandemic and resulting government actions. The Group remained committed to supporting government and community efforts to limit the spread of the virus. The Group’s highest priority is the health and wellbeing of its team members, customers, business partners and the wider community, whilst responding to its customers’ changing needs and maintaining ﬁ nancial stability. During the year, the Group continued to take measures to protect the health and safety of everyone who worked in or visited its premises. Some stores were closed at various times throughout the ﬁ nancial year in accordance with government restrictions but continued to fulﬁ l online and click-and-collect orders where possible. In addition, the Group voluntarily closed its airport stores and some CBD stores for certain periods in response to a shift in foot trafﬁ c away from these areas. Despite these challenges, performance across the JB Hi-Fi and The Good Guys businesses remained strong with elevated sales growth driven by homemaker and free-standing stores and a signiﬁ cant acceleration in online, as the businesses provided customers with the essential products they needed to prepare for and respond to Covid-19. These included technology products that enabled remote working, learning and communication, essential home appliances for food storage and preparation and home entertainment products as customers spent more time at home. The Group was pleased with its well-executed promotional program and how its online businesses scaled and maintained a high level of customer service and on-time delivery during a period of signiﬁ cantly increased volume. The Group will continue to respond and adapt to its customers’ changing needs through the pandemic. 20 DIVISIONAL PERFORMANCE JB Hi-Fi Australia Total Sales ($m) Gross Profit ($m) Gross Margin (%) Cost of Doing Business (%) EBITDA ($m) EBITDA Margin (%) EBIT ($m) EBIT Margin (%) FY2021 5,956.8 1,325.2 22.25% 11.19% 658.5 11.06% 523.0 8.78% FY2020 5,318.9 1,169.0 21.98% 12.10% 525.6 9.88% 391.5 7.36% Growth +12.0% +13.4% +27bps (91 bps) +25.3% +117 bps +33.6% +142 bps Total sales were up 12.0% to $5,956.8 million (FY2020: $5,318.9 million) with comparable sales growth up 13.0%. Sales momentum was strong through the year, with heightened customer demand for consumer electronics and home appliance products. Total sales growth over two years was 26.0%. Hardware and services sales (all sales excluding Music, Movies and Games Software categories) were up 14.1% for the ﬁ nancial year, with comparable sales up 15.1%, driven by the Communications, Computers, Games Hardware, Visual and Small Appliances categories. Software sales were down 14.5%, and on a comparable basis were down 14.2%, as a result of a decline in the Movies and Games Software categories offset by growth in Music. By value, software sales represented 5.5% of total sales (FY2020: 7.3%). Online sales in Australia grew 93.0% (FY2020: 56.6%) to $780.0 million or 13.1% of total sales (FY2020: 7.6%). Excluding Victorian sales during the period where stores were temporarily closed during the ﬁ rst half of FY2021, online sales represented 11.1% of total sales. The strength of the online offer was evidenced through the business’ ability to scale and maintain a high level of customer service and on-time delivery throughout the year. The Commercial business recorded solid sales growth as the Group continued to expand its product and service offering. Gross proﬁ t increased by 13.4% to $1,325.2 million, with gross margin increasing by 27 bps to 22.25%, driven by strong improvements in key categories. Cost of Doing Business (“CODB”) was down 91 bps to 11.2% for the year and in absolute terms CODB grew 3.6%, with disciplined cost control throughout the year. Depreciation grew by 1.1% with an increase in both depreciation on right-of-use assets and ﬁ xed assets. EBIT was up 33.6% to $523.0 million, with EBIT margin up 142 bps to 8.8%. JB Hi-Fi New Zealand(i) Total Sales (NZ$m) Gross Profit (NZ$m) Gross Margin (%) Cost of Doing Business (%) EBITDA (NZ$m) EBITDA Margin (%) EBIT (NZ$m) EBIT Margin (%) Underlying EBIT ($m) Underlying EBIT Margin (%) FY2021 261.6 46.6 17.83% 13.12% 12.3 4.70% 5.8 2.23% 6.0(iii) 2.28% FY2020 222.8 36.8 16.54% 14.21% Growth +17.4% +26.6% +129 bps (109 bps) 5.2 +137.5% 2.32% (22.3) +238 bps n/m (10.01%) +1224 bps (1.2)(ii) n/m (0.52%) +280 bps (i) Amounts disclosed for JB Hi-Fi New Zealand are in local currency to remove the impacts of foreign currency translation on trading performance. The Australian dollar performance is presented in Note 2 of the ﬁ nancial statements. (ii) FY2020 Underlying EBIT excludes a NZD21.1 million non-cash impairment of JB Hi-Fi New Zealand right of use assets and ﬁ xed assets. (iii) FY2021 Underlying EBIT excludes the beneﬁ t of a NZD6.3 million reduction to depreciation expense arising from the FY2020 impairment offset by a NZD6.5 million non-cash impairment of JB Hi-Fi New Zealand right of use assets and ﬁ xed assets. 21 OPERATING AND FINANCIAL REVIEW (continued) Total sales were up 17.4% to NZ$261.6 million, with comparable sales up 17.4%. Hardware and Services sales (all sales excluding Music, Movies and Games Software categories) were up 18.3%, with comparable sales up 18.3% driven by the Computers, Visual, Communications, Games Hardware and Small Appliance categories. Software sales were up 7.4% with comparable sales up 7.4%, with a decline in the Movies category offset by growth in Music and Games Software. Software sales were 7.1% of total sales (FY2020: 7.8%). Online sales in New Zealand grew 35.6% to NZ$27.6 million or 10.6% of total sales (FY2020: 9.1%). Total sales growth over 2 years was 10.8%. Gross margin was up 129 bps on FY2020 to 17.8%. CODB was down 109 bps on FY2020 to 13.1% as store wages remained well controlled. In absolute terms CODB grew 8.4% on FY2020. EBITDA was NZ$12.3 million, up 137.5%, driven by sales growth, gross margin expansion and cost control. Statutory EBIT for FY2021 was NZ$5.8 million, up NZ$28.1 million from a loss of NZ$22.3 million in FY2020. Underlying EBIT, excluding the impact of impairments in the current and prior year, was NZ$6.0 million, up NZ$7.2 million on FY2020. The Good Guys Total Sales ($m) Gross Profit ($m) Gross Margin (%) Cost of Doing Business (%) EBITDA ($m) EBITDA Margin (%) EBIT ($m) EBIT Margin (%) FY2021 2,715.7 608.6 22.41% 11.67% 291.7 10.74% 214.7 7.90% FY2020 2,388.8 490.2 20.52% 12.67% 187.5 7.85% 112.9 4.72% Growth +13.7% +24.2% +189 bps (100 bps) +55.6% +289 bps +90.2% +318 bps Total sales grew by 13.7% to $2,715.7 million (FY2020: $2,388.8 million) with comparable sales growth of 13.7%. Sales momentum was strong throughout the year, with heightened customer demand for home appliance and consumer electronics products. Total sales growth over 2 years was 26.4%. The key growth categories for FY2021 were Refrigeration, Laundry, Floorcare, Portable Appliances and Visual. Online sales for FY2021 were up 48.5% to $258.3 million or 9.5% of total sales (FY2020: 7.3%). Excluding Victorian sales during the period where stores were temporarily closed during the ﬁ rst half of FY2021, online sales represented 8.4% of total sales. The strength of the business’ online offer was evidenced through its ability to scale and maintain a high level of customer service and on-time delivery throughout the year while it experienced a signiﬁ cant increase in volumes. Gross proﬁ t for FY2021 was up 24.2% to $608.6 million from $490.2 million in FY2020, with gross margin up 189 bps to 22.4% (FY2020: 20.5%) driven by strong improvements in key categories. CODB for FY2021 was down 100 bps to 11.7% and in absolute terms grew 4.7% on FY2020 as store wages remained well controlled throughout the year. Depreciation grew by 3.3% with an increase in both depreciation on right-of-use assets and ﬁ xed assets. Strong operating leverage from the elevated sales growth, gross margin expansion and disciplined cost control drove strong EBIT growth of 90.2% to $214.7 million with EBIT margin up 318 bps to 7.9%. GROUP BALANCE SHEET, CAPITAL MANAGEMENT AND DIVIDENDS The Group’s total net assets at the end of the ﬁ nancial year were $1,308.4 million, which was $202.7 million higher than at the end of FY2020. During the year, as a result of the continuing strong cash position of the Group, the Group’s trade ﬁ nance facility was reduced from $400.0 million to $200.0 million and the Group’s term debt facilities were reduced from $380.0 million to $138.0 million. The Group’s bank overdraft facilities were also reduced from $59.3 million to $29.3 million. The Group now has $367.3 million total facilities as follows, with $356.9 million undrawn as at 30 June 2021: $200.0 million trade ﬁ nance facility renewable annually; $20.0 million and NZ$10.0 million overdraft facilities renewable annually (total AU$29.3 million); and $138.0 million term debt facility with an expiry date of July 2022. • • • 22 The ﬁ nancial covenants included in the Group’s ﬁ nancing facilities are leverage and ﬁ xed charges cover ratios. The Group has complied with each of its ﬁ nancial covenants throughout the period. At the end of the ﬁ nancial year the Group had a bank overdraft of $10.4 million and cash on hand of $273.6 million, resulting in net cash of $263.2 million, compared to net cash of $251.5 million in the prior year. The net cash position has been maintained this ﬁ nancial year as the Group continued to increase working capital to historical levels, as detailed below. The total dividend for the 2021 ﬁ nancial year of 287.0 cents per share represents a payout ratio of approximately 65% of the full year earnings. The Board will continue to regularly review the Groups capital structure, with a focus on maximising returns to shareholders and maintaining balance sheet strength and ﬂ exibility. The ﬁ nal dividend for the 2021 ﬁ nancial year of 107.0 cents per share fully franked will be paid on 10 September 2021 with a record date of 27 August 2021. INVESTMENTS FOR FUTURE PERFORMANCE Investments of $57.7 million were made during the ﬁ nancial year in capital expenditure projects, an increase of $14.6 million from $43.1 million during the previous ﬁ nancial year. Capital expenditure was in line with expectations as the Group continued to invest in the store portfolio, online offerings and strategic initiatives. The Group’s investing activities are anticipated to contribute towards earnings growth in FY2022 and beyond. WORKING CAPITAL Total inventory on hand increased from the previous ﬁ nancial year by $199.5 million to $938.8 million, as inventory availability continued to improve from the low FY2020 closing inventory position resulting from Covid-19 related supply shortages. Inventory turnover was up 61 bps to 8.3 times from 7.7 times in FY2020. Payables, which would ordinarily grow in line with inventory, were down in FY2021 as inventory was purchased earlier to replenish inventory levels and support the continued heightened customer demand. Receivables were down year on year as a result of actively managing outstanding receivables. Other current liabilities increased primarily due to income tax payable arising from the elevated proﬁ t in the current ﬁ nancial year. Financial and operating leverage remains low as is evidenced by solid ﬁ xed charges cover1 of 4.6 times (FY2020: 3.4 times) and interest cover1 of 228.4 times (FY2020: 40.4 times). The Company’s gearing ratio was maintained at 0.0 as there continued to be no borrowings at 30 June 2021. Operating cash ﬂ ows and operating cash conversion were impacted by the increases in working capital required to replenish inventory levels from the low FY2020 closing position, but remain strong over the last two years. The Group had net cash of $263.2 million at 30 June 2021. 1 Calculated prior to the impact of AASB 16 23 OPERATING AND FINANCIAL REVIEW (continued) STORES The Group’s sales are primarily from its branded retail store networks, located both in stand-alone destination sites and shopping centre locations. The store locations as at 30 June 2021 are set out below. 1 2 5 10 14 22 JB Hi-Fi Australia JB Hi-Fi New Zealand The Good Guys 23 39 30 61 28 55 3 5 1 3 Total JB Hi-Fi Stores – 211 Total The Good Guys Stores – 105 14 In Australia, one new JB Hi-Fi store was opened and one was closed in FY2021. In addition, one JB Hi-Fi store was relocated. There were no JB Hi-Fi New Zealand or The Good Guys stores opened or closed in during FY2021. 24 BUSINESS STRATEGIES AND PROSPECTS The following factors are considered important in understanding the strategy of the Group and the main opportunities and threats that may have a signiﬁ cant effect on its results and its prospects for future years. These factors are listed regardless of whether they were signiﬁ cant in FY2021. Business risks There are a number of factors, both speciﬁ c to the Group and of a general nature, which may threaten both the future operating and ﬁ nancial performance of the Group, and the outcome of an investment in the Group. There can be no guarantee that the Group will achieve its stated objectives or that forward looking statements will be realised. The operating and ﬁ nancial performance of the Group is inﬂ uenced by a variety of general economic and business conditions, including levels of consumer spending, inﬂ ation, interest and exchange rates, access to debt and capital markets, government ﬁ scal, monetary and regulatory policies and, at the present time, the ongoing effect on the economy of the Covid-19 pandemic. A prolonged deterioration in general economic conditions, including an increase in interest rates or a decrease in consumer and business demand, may have an adverse impact on the Group’s business or ﬁ nancial condition. The speciﬁ c material business risks faced by the Group, and how the Group manages these risks, are set out below. • Competition – the markets in which the Group operates remain highly competitive and any increased competition from new and existing competitors may lead to price deﬂ ation and a decline in sales and proﬁ tability. As the #1 player in a fragmented Australian market, the Group’s scale allows it to maintain focus on market share and absorb margin pressure during periods of heightened market price activity and consolidation. The Group also believes that its competitive advantages and the plans for growth set out below will allow it to maintain its market leading position. • A loss or erosion of reputation – both the JB Hi-Fi business and The Good Guys business enjoy a high level of loyalty and trust with customers. The JB Hi-Fi business has been consistently ranked among Australia’s most reputable companies in the Corporate Reputation Index released by the Reputation Institute and AMR. Between them, the JB Hi-Fi business and The Good Guys business have won the Roy Morgan Customer Satisfaction Award for Furniture/Electrical store of the year six times since 2011, including the JB Hi-Fi business winning in 2021. Additionally, The Good Guys Business has won the Canstar Blue Most Satisﬁ ed Customers Electronic Retailers Award every year from 2011 to 2020. Any decline in this high level of loyalty and trust could compromise the market leading positions of the JB Hi-Fi business and The Good Guys business and adversely affect the Group’s operating and ﬁ nancial performance. This could occur as a result of a wide range of factors or events, including: • a loss or erosion of the reputation of the JB Hi-Fi and The Good Guys businesses for price leadership. The Group constantly reviews and updates its pricing strategy and takes a pro-active approach to responding to the competitive environment including careful monitoring of its competitors’ pricing and strategic and tactical marketing campaigns to maintain its price position; • a loss or erosion of the reputation of the JB Hi-Fi and The Good Guys businesses for high levels of customer service, and/or the in-store experience provided by the businesses does not meet customer expectations. The Group seeks to mitigate this risk through the use of customer service and engagement analytics, senior management monitoring of customer complaints, targeted capex investment, optimising ﬂ oor layouts and category space allocation, the trialling of new store formats, and an ongoing program of work to improve in-store experience and evolve its service model including the development of team members and the use of technology to improve the quality and consistency of customer service. The Group uses market share and other data to understand customer behaviour and needs; • a major information security breach of the Group’s IT systems. The Group seeks to mitigate this risk through investment in IT security measures, including incident response planning and testing; • a major workplace health and safety incident or customer injury. The Group seeks to mitigate this risk through having appropriate occupational health and safety procedures and staff training in place for all of its sites; • a signiﬁ cant breach of regulatory or legislative requirements. The Group seeks to mitigate this risk through appropriate staff training on key regulatory and legislative requirements relevant to its business, as well as making legal and regulatory compliance a key focus of the management team; or • the Group failing to meet its sustainability or corporate social responsibility objectives, or not operating in accordance with community and stakeholder expectations in these areas and the potential for adverse media coverage should this occur. The Group seeks to mitigate this via its sustainability and corporate social responsibility initiatives under its Group Sustainability Framework. In addition, the Group actively monitors both social and traditional media on an ongoing basis and, where appropriate, responds to issues raised, as well as taking any steps necessary to promptly address valid concerns or underlying issues. 25 OPERATING AND FINANCIAL REVIEW (continued) • Consumer discretionary spending and changes in consumer demands – the Group is exposed to both the upside and downside of consumer spending cycles and changes in consumer demands. A reduction in consumer spending and demand may lead to a decline in the Group’s sales and proﬁ tability. The Group maintains its relevance using its strong market position supported by its everyday low price proposition. Many of the products sold by the Group are now considered less “discretionary” than in the past, with products such as mobile phones and computers now being seen as “essential” by many consumers. The Group’s stores, which are both in convenient and high trafﬁ c locations, seek to maximise both destination and impulse sales, reﬂ ected in the Group’s high sales per square metre of ﬂ oor space. The Group also closely monitors changes in the economic environment, consumer demand and new products, and is able to respond quickly to such changes. During FY2021, the Group’s diverse store portfolio (including its online stores) meant that the Group was able to continue to respond to changes in consumer behaviour brought about by Covid-19, as foot trafﬁ c shifted away from CBD stores, Tier 1 shopping centres and airports, to homemaker and free-standing stores and online shopping. • Online competition taking sales from the Group’s stores – the Group seeks to provide customers with a quality online offer, while leveraging the beneﬁ ts of its physical stores. The Group continues to innovate both in-store and online in order to give customers the choice as to how to transact with the JB Hi-Fi and The Good Guys businesses and is focusing on continuing to integrate the in-store and online experience. The Group continues to invest in its digital and online capability. The Group’s market leadership and scale gives it global relevance with suppliers and drives signiﬁ cant buying power which enables the Group to compete successfully with online players, as does its low cost of doing business. The Group also believes that the existence of its store networks will continue to provide conﬁ dence in after-sales service and support to its online customers, whilst also enabling fast online fulﬁ lment via delivery from stores and click & collect. • Digitisation of physical software leading to a fall in traditional software sales beyond expectations – the JB Hi-Fi business will maintain a software presence in store while the category is still providing solid returns, whilst adjusting inventory, range and in-store space allocated to the category as appropriate. • Ineffective inventory management – a failure to maintain sufﬁ cient inventory (or holding excessive inventory) may adversely affect the Group’s operating and ﬁ nancial performance. The Group mitigates this risk through regular monitoring of inventory quality and stock levels. • Failure to maintain key supplier relationships – the Group has strong partnerships with all major suppliers, with its dual brand retail approach providing ranging and merchandising optionality and facilitating the execution of strategic initiatives at scale. The Group’s store locations and high trafﬁ c websites provide suppliers with high visibility for their products. The Group has signiﬁ cant supplier management processes to mitigate the risk of failing to maintain key supplier relationships and, whilst at any one time certain products and suppliers are more important than others, the large and diverse range of products stocked by the businesses means that reliance on any one supplier or product is less than for some smaller competitors. In addition, the JB Hi-Fi and The Good Guys businesses have proven records of expansion into new product categories and introducing new brands, rather than remaining reliant on those products and brands which were successful in previous years. • Supply chain capability does not support the Group’s growth objectives – the Group continues to develop and improve its supply chain through initiatives such as the rationalisation of the previous third party operated warehouse network into Group owned and operated Home Delivery Centres, and the improvement of inventory planning and ordering processes. • Growth of JB Hi-Fi Solutions and The Good Guys Commercial – if the JB Hi-Fi Solutions and The Good Guys Commercial businesses do not deliver the expected growth outcomes for the Group. The Group continues to invest in these businesses to support their continued growth and expand their product and service offerings. • Growth from expansion of the Group’s product and services offerings do not deliver the expected growth outcomes for the Group. The Group continues to invest and innovate in these areas to support continued growth. • JB Hi-Fi New Zealand business - if the improved performance of the JB Hi-Fi New Zealand business is not sustained, this may have an adverse impact on the Group’s operating and ﬁ nancial performance. The Group is continuing to execute its strategy to improve performance in the JB Hi-Fi New Zealand business. • Increasing cost of doing business – certain costs of doing business are outside of the Group’s control. For example, the Group’s cost of doing business is impacted by the annual Fair Work Award wage reviews (which have resulted in increases totalling 14.8% over the past 5 years to 30 June 2021), and rising energy costs. However, the increasing scale of the Group’s operations continues to deliver cost reductions which mean that higher wage costs can be offset to some extent by cost reductions in other areas. 26 • Leasing arrangements – the ability to identify suitable sites and negotiate suitable leasing terms for new and existing stores is key to the Group’s ongoing growth and proﬁ tability. The Group believes that it will continue to be able to do this as it has done successfully to date. • Loss of, or inability to attract and retain, key staff – the Group’s ability to attract and retain talented staff is critical to its operating and ﬁ nancial performance. In recognition of this, succession planning and executive/senior management team composition is a key focus for the Board and Group executive team. The Group continues to focus on providing a safe, inclusive and welcoming environment for all of its employees and on developing and improving its programs and strategies relating to diversity & inclusion, and the prevention of harassment, discrimination or bullying. • IT systems – the Group’s increasing reliance on IT systems means that outages, disruptions and security breaches could have a detrimental impact on its operating and ﬁ nancial performance, and any failure to maintain and upgrade its IT systems over time has the potential to inhibit the achievement of the Group’s business initiatives. To mitigate these risks, the Group has documented disaster recovery processes (including off-site IT back-up infrastructure) and invests in IT security measures. The Group also continues to invest and develop its IT resources and capabilities to support the Group’s strategic objectives. • Sustained disruption to operations resulting from external factors – external factors outside of the Group’s control, such as pandemic or extreme weather events could materially impact the Group’s businesses. The Group mitigates these risks by contingency planning as far as practicable, and its ﬂ exible model allows management to quickly take appropriate action to react to any such risks as they arise. This includes, for example, the Group changing its marketing and stock buying patterns, developing contactless click-and-collect and home deliveries, and redeploying team members and stock to stores and categories with heightened demand, in response to the Covid-19 pandemic. • Changes in regulatory environment – changes in the regulatory environment in which the Group operates may increase compliance costs, and even (in extreme cases) affect the ability of the Group to sell certain types of products and services or conduct certain activities. Whilst such changes are outside the control of the Group, the Group monitors proposed changes in the regulatory environment so that it can assess the impact of such changes and develop appropriate response strategies where possible. • Finance – a breach of the Group’s debt covenants or inability to access ﬁ nancing facilities would adversely affect the Group’s operating and ﬁ nancial performance. The Group has signiﬁ cant headroom in both its debt facilities and covenants. Additionally, cash ﬂ ow forecasts and debt capacity are closely monitored by management. Details of the Group’s ﬁ nancing facilities are set out on pages 22 and 23. • Fraud and corruption – the Group has no history of material fraud or corruption and seeks to minimise the risk of loss arising from fraud and corruption through appropriate policies, procedures and controls. Risk identiﬁ cation and management is managed on a day-to-day basis by a dedicated risk management and business assurance team which evaluates and looks to continually improve the effectiveness of the Group’s governance, risk management and internal control processes. • Litigation/breach of legal or regulatory requirements – legal proceedings and claims may arise from time to time in the ordinary course of the Group’s businesses and may result in high legal costs, adverse monetary judgements and/or damage to the Group’s businesses which could have an adverse impact on the Group’s ﬁ nancial position and ﬁ nancial performance. Additionally, a signiﬁ cant breach of regulatory requirements or laws could adversely impact the Group’s ability to carry on its business. The Group seeks to mitigate this risk through appropriate staff training on key regulatory and legislative requirements relevant to its business, as well as making legal and regulatory compliance a key focus of the management team. Business Strategies The Group believes that the following strategies/factors will continue to drive growth in sales and earnings: • continuing to prioritise the safety of team members and customers through Covid-19 whilst adapting and responding to changing customer needs; • • focus on driving sales across all sales channels – in-store, online, phone and commercial; diverse product range, continued technological innovation, and the launch of new products and updated models which will continue to drive new and replacement sales. In FY2022 the businesses will focus, in particular, on the expansion of the communications, rideables, small appliances and pop culture categories within JB Hi-Fi and the connected-home appliances market in The Good Guys; 27 OPERATING AND FINANCIAL REVIEW (continued) • proactive management of its store portfolio with continued investment in, and optimisation of, the store network to maximise proﬁ tability. The JB Hi-Fi business will continue to trial alternative store formats to increase market penetration and The Good Guys will continue its store upgrade program, focusing on adjacencies, supporting growth categories, and showcasing the home appliance categories. The Group will continue its disciplined approach to selecting new stores based on high foot trafﬁ c and closure of underperforming or sub-scale existing stores; • enhancement of the Group’s partnerships with major suppliers to extend its capabilities, with a focus for The Good Guys in FY2022 on evolving the product offering with improved ranging and the introduction of new brands, and the continued expansion of its telecommunications products and services in partnership with Telstra; • • • continued execution of the Group’s strategy to improve the performance of the JB Hi-Fi New Zealand business; design and implementation of expanded services offerings for the JB Hi-Fi Australia business; utilisation of the Group’s supply chain capability within The Good Guys business to provide customers with an enhanced delivery experience; • continued development of the Group’s websites and online offering, aimed at enhancing the user experience across multiple platforms (e.g. computer, tablet and phone) to meet changing customer needs; continued integration of the in-store and online experience; expansion of the online product range and depth beyond that which is practical in store; continued focus on productivity (as demonstrated by the Group’s high sales per square metre relative to its peers), minimising unnecessary expenditure, and leveraging the scale of the Group, with a focus for FY2022 being the roll-out of technology to streamline in-store processes, inventory efﬁ ciency and the simpliﬁ cation of operational processes, with a focus on improved stock ﬂ ow into store and back of house processes to drive productivity; improved supply chain and logistics systems to support the Group’s expansion; personalisation of marketing and customer experiences; continued focus on customer service and in-store experience; signiﬁ cant opportunities to grow JB Hi-Fi Solutions and The Good Guys Commercial and expand into new markets; and continued mitigation of the business risks faced by the Group detailed on pages 25 to 27. • • • • • • • • Environmental & Social risks There are a range of environmental and social risks that could negatively impact the Group: • • if its activities adversely affect the natural environment or human society; and/or if its activities are adversely affected by changes in the natural environment or human society. In order to understand and prioritise these risks, the Group has undertaken a materiality assessment utilising a globally recognised assessment framework. The most material environmental and social risks identiﬁ ed, and the actions to mitigate those risks are set out below and additional information can be found in the Group’s 2021 Sustainability Report: • Health and Safety – the Group promotes and reinforces a culture of safety throughout its operations by: • maintaining a strong leadership focus and implementing a Group Strategy for safety; • employing a systematic approach to incident management and risk mitigation, supported by its Group Occupational Health and Safety System; • implementing policies and practices to provide a safe, inclusive and welcoming environment for all of its customers and employees, and by taking positive action to prevent harassment, discrimination or bullying; and • establishing key performance indicators and safety targets to monitor and improve performance. 28 • Diversity and Inclusion – The Group recognises the importance of diversity and understands that by adapting to the differing needs of its teams, it will build stronger teams and create value for its customers and shareholders. Initiatives implemented in FY2021 under the Group’s enhanced Diversity and Inclusion Strategy include: the setting of revised measurable objectives for gender diversity within the workforce, development of common competency-based criteria to identify and grow diverse talent, along with systematic talent mapping across all key roles; expansion of the Group’s Equal Opportunity and Workplace Behaviour Policy and training program; and the expansion of ﬂ exible working practices for Support Ofﬁ ce employees. • Employee engagement, labour practices and communication – an engaged workforce is key to the success of the Group’s businesses. The Group seeks to engage its employees through regular communication and surveys its employees periodically to understand the level of employee engagement and to identify opportunities for improvement. In FY2021 the Group invested in a platform which will increase the accessibility and regularity of engagement surveys to encourage feedback from our team members. • Responsible business – the Group’s stakeholders expect the Group to act responsibly and ethically and to comply with all relevant laws and regulations. The Group acts with integrity in conducting its businesses and has established a Statement of Values and a Code of Conduct to help guide its behaviours, together with additional policies and procedures including a Whistle-blower Policy, an Anti-Bribery, Corruption and Fraud Policy, and a Securities Trading Policy which clearly outline the standards of behaviour required and which provide avenues to report wrong-doing. • Ethical sourcing and human rights – the Group recognises the importance of sourcing responsibly, and the potential social and environmental impacts that its purchasing decisions can have. The Group also recognises the risk of modern slavery and the potential for human rights abuses in its supply chain. To mitigate these risks, the Group has an Ethical Sourcing Policy outlining the minimum standards expected of its suppliers’ labour, safety, environmental and ethical practices. Supporting this policy is a risk-based approach to supplier due diligence, which helps the Group assess compliance with the Ethical Sourcing Policy. Initiatives taken in FY2021 include: the submission of the Group’s ﬁ rst Modern Slavery Statement; continued membership of, and utilisation of the resources of, the Responsible Business Alliance; ongoing engagement with suppliers; and progression of the Group’s supplier due diligence program through self-assessment questionnaires and independent social compliance audits for locations of higher risk. • Packaging, Waste and Recycling – the products that the Group sells and related packaging can have an adverse impact on the environment if not recycled or re-used. To mitigate this risk, the Group has operational processes and systems in place to facilitate the recycling of cardboard, paper, hard and soft plastics and polystyrene waste. Processes are also in place to facilitate the salvage and re-use of unwanted technology from both the Group’s own operations, and from product returns by customers. Initiatives taken in FY2021 include the establishment of a Waste and Recycling Working Group to provide strategic direction in reducing the Group’s operational waste and increase recycling and re-use across the Group; development of a strategy to achieve the Australian Packaging Covenant’s (APCO) 2025 targets; the design and successful trial of new 100% recyclable packaging for three of the Group’s private label products with the program to be rolled out to more private label products in FY2022; a 42.8% reduction in plastic bag use compared to FY2020; the communication of our packaging expectations to all third party branded suppliers including encouragement to utilise the APCO Sustainable Packaging Guidelines; increasing the Group’s operational recycling capability for big and bulky products; launching a trial of the Group’s ﬁ rst in-store dedicated e-waste collection point; and the launch of The Good Guys National Uniform Recycling Program. • Energy and emissions – the majority of greenhouse gas (GHG) emissions resulting from the Group’s business operations come from the electricity used to power its store and warehouse network. In addition, the Group consumes natural gas for heating and fuel for company-owned cars as well as domestic and international business travel. In FY2021 the Group: undertook an assessment to better understand the risks and opportunities associated with climate change for our business; developed a plan to start reducing the Group’s Green House Gas (GHG) emissions through the use of renewable energy, and energy efﬁ ciency and reduction initiatives; and established an Energy and Emissions Working Group to provide strategic and operational oversight of the Group’s energy consumption and emissions. Importantly, the Group has set a strategic goal to achieve net-zero direct (scope 1 and 2) carbon emissions by 2030 (measured against the Group’s FY20 emissions (66,776 t-CO20-e). 29 OPERATING AND FINANCIAL REVIEW (continued) SALES UPDATE AND TRADING OUTLOOK – AS AT 16 AUGUST 2021 FY2022 YTD sales update The Group provides the following FY2022 YTD sales update, for the period 1 July 2021 to 15 August 2021: Sales Growth FY2022 YTD Comparable Total JB Hi-Fi Australia JB Hi-Fi New Zealand (NZD) The Good Guys vs FY2021 vs FY2020 vs FY2021 vs FY2020 (14.9%) 8.4% (8.6%) 19.4% 14.8% 28.2% (14.6%) 8.4% (8.1%) 19.1% 14.8% 28.9% Whilst the Group has experienced some disruption and variability to sales as a result of the various state based Covid restrictions, the Group has continued to see heightened customer demand and strong sales growth rates over a two-year period. In view of the ongoing uncertainty arising from Covid-19, the Group does not currently consider it appropriate to provide FY2022 sales and earnings guidance. 30 REMUNERATION REPORT (audited) CONTENTS • • Summary (page 31) Executive KMP Remuneration for FY2021 (page 33) • Non-Executive Director Remuneration (page 41) • Other Information (page 42) • • • Key Management Personnel Compensation (page 43) Key Management Personnel Equity/Options (page 48) Share Ownership Based Remuneration Schemes (page 51) SUMMARY Remuneration overview The Board recognises that the performance of the Group depends on the quality and motivation of its people, including both the Executive KMP (being those persons listed on page 33) and the approximately 13,200 employees of the Group across Australia and New Zealand. The Company’s remuneration strategy seeks to appropriately reward, incentivise and retain key employees. The Board aims to achieve this by setting competitive remuneration packages (“packages”) that include a mix of ﬁ xed remuneration and incentives under the Company’s Variable Reward Plan (“VRP”). Snapshot Another year of ﬁ nancial and strategic achievement The 2021 ﬁ nancial year has been an outstanding year for the Group, with management having delivered record revenue (up 12.6%), EBIT (up 53.8%) and EPS (up 67.5%). Sales momentum was strong throughout the year, with continued heightened consumer demand for consumer electronics and home appliance products. Gross margins were well managed with strong improvements in gross margins in all businesses. This gross margin improvement, combined with disciplined cost control and strong sales growth, drove signiﬁ cant operating leverage. In addition to driving these exceptional ﬁ nancial outcomes, management has also executed strongly on a number of key strategic initiatives aimed at further developing and reinforcing the Group over the longer term. These include further enhancing and growing the Group’s online channels, improving supply chain capability, successfully implementing sustainability initiatives and strengthening succession plans through internal talent development. Executive KMP FY2021 Incentive Achievement This very strong performance has been reﬂ ected in vesting outcomes in respect of FY2021 VRP incentives, with Executive KMP earning between 97% and 98% of rewards available for FY2021. As the Group CEO resigned prior to the end of the ﬁ nancial year, the Board determined he is not eligible for the equity component of his FY2021 VRP reward (value of $2,553,525). The VRP scorecard for FY2021 provided that 75% of available rewards were linked to ﬁ nancial measures, primarily Group EPS growth, and 100% of available rewards for ﬁ nancial performance were earned by each Executive KMP. The remaining 25% of available rewards were dependent upon the achievement of various strategic measures deemed relevant for the individual executive and between 88% and 92% of available rewards for this strategic component were earned by Executive KMP. Further detail is set out on pages 34 to 36. As with recent years, 25% of VRP rewards achieved in relation to FY2021 are paid in cash and the remaining 75% of the VRP rewards achieved in relation to FY2021 are delivered in deferred shares. One third of these shares will be released from dealing restrictions in each of August 2022, August 2023 and August 2024, such that the vast majority of VRP rewards will therefore be subject to the share price performance and align Executive KMP with the experience of shareholders over the medium to longer term. 31 REMUNERATION REPORT (continued) Management succession and transition Management has outperformed once again in FY2021 and remains motivated to continue to drive shareholder value in FY2022. In April and May 2021 announcements were made regarding the transition of several Executive KMP roles in FY2022, each of which has been ﬁ lled via promotion of internal talent, demonstrating the quality and depth of the Group’s current and upcoming management team talent. • Terry Smart (currently Managing Director – The Good Guys) will take over as Group CEO from Richard Murray during August 2021. Terry is a natural successor to the role, having previously led the Group as CEO between 2010 and 2014 and re-joined the Group in 2017 following the acquisition of The Good Guys. • Both Terry and Nick Wells (Group CFO) will join the Board as Executive Directors during August 2021. Nick has held various roles in the Group since 2009 and has been Group CFO since 2014. • Once Terry assumes the role of Group CEO, his role as Managing Director – The Good Guys will be taken up by Biag Capasso (currently Merchandise Director – The Good Guys). Biag has been with The Good Guys since 2011 and played a key role in its integration into the JB Hi-Fi Group. FY2021 remuneration packages – Executive KMP To remain competitive in attracting and retaining key talent in FY2021 the Board considered the remuneration levels for Executive KMP with reference to external market benchmarks as well as the skills, experience, complexity and responsibilities of the Executive KMP roles. The Board also noted that, with the exception of the Group CFO, ﬁ xed remuneration and annual remuneration packages for these individuals had not been increased from FY2019 to FY2020. The Board concluded that Executive KMP remuneration had fallen behind market peers and consequently, the Board increased ﬁ xed remuneration (by 2% in most cases) and VRP opportunities available (by 7% to 10% in most cases) for all Executive KMP. In the case of the Group CEO, in FY2021 the Board approved an increase to ﬁ xed remuneration of 11% and VRP opportunity of 26% following the statements in the Company’s FY2020 Remuneration Report that his package was modest when compared to peers, but would not be increased in FY2020 given the uncertain market conditions at that time. As noted above, the Group CEO subsequently resigned, his employment will end during August 2021 and he will not receive any equity component of his FY2021 VRP reward. Further detail and explanation is set out on page 33. Non-Executive Directors – FY2021 remuneration Fees for non-executive directors remained at the levels set for FY2018, FY2019 and FY2020, with no increases. 32 EXECUTIVE KMP REMUNERATION FOR FY2021 Details of executive key management personnel The following executive directors and Group executives, each of whom was engaged throughout and since the end of the ﬁ nancial year (Executive KMP), are considered members of key management personnel for reporting purposes: Executive Director Richard Murray Group Chief Executive Ofﬁ cer Executive KMP Terry Smart Nick Wells Managing Director – The Good Guys Group Chief Financial Ofﬁ cer Cameron Trainor Managing Director – JB Hi-Fi As noted in the Snapshot and on page 15, Richard Murray will leave the Company at the end of August 2021 and Terry Smart has been appointed to succeed Richard as Group CEO. Both Terry Smart and Nick Wells will be appointed to the Board as Executive Directors upon Richard’s departure, and Biag Capasso will take up Terry’s current role as Managing Director – The Good Guys. Executive KMP remuneration policy – FY2021 The Board believes that remuneration for Executive KMP should be fair and reasonable, structured effectively to attract, motivate, retain and reward valued executives, and designed to produce value for shareholders. The Remuneration and Nominations Committee annually reviews the remuneration packages of Executive KMP and makes recommendations to the Board. Remuneration packages are reviewed with due regard to performance and data on remuneration paid by comparable companies. Where appropriate, the Remuneration and Nominations Committee may receive expert independent advice regarding remuneration levels required to attract, retain and compensate Executive KMP given the nature of their work and responsibilities. In setting the FY2021 remuneration packages, the Board and the Remuneration and Nominations Committee considered a number of factors, including current market practice, external benchmarking, and the extent (if any) to which remuneration increases had been granted for FY2020. The Company benchmarks its Remuneration Packages for Executive KMP against the companies comprising the ASX 51 – 150 and the ASX 76 – 125 indices. The Group’s policy in relation to executive remuneration is to target total remuneration levels (i.e. ﬁ xed pay plus the maximum opportunity under the Variable Reward Plan) at a level between the 60th and 75th percentile of peers. This is because the Board believes executive reward should approach top quartile outcomes if the challenging targets set under the incentive plans are achieved. The Remuneration and Nominations Committee also considered current market conventions with regard to the splits between ﬁ xed remuneration and incentive elements. The package splits for FY2021 were as follows: Executive R. Murray T. Smart N. Wells C. Trainor Fixed 30% 37% 37% 37% Incentive 70% 63% 63% 63% Total 100% 100% 100% 100% Further details on each of the key elements of Executive KMP remuneration for the 2021 ﬁ nancial year are set out below. Fixed remuneration – FY2021 Fixed remuneration is paid by way of base salary, motor vehicle allowances and superannuation. No elements of ﬁ xed remuneration are dependent on performance conditions. Fixed remuneration for each Executive KMP was increased for FY2021 taking the policy referred to above into account. It was also noted that, with the exception of the Group CFO, ﬁ xed remuneration and annual remuneration packages for these individuals had not been increased from FY2019 to FY2020. For almost all Executive KMP, ﬁ xed remuneration was increased by 2%. In the case of the Group CEO, in FY2021 his ﬁ xed remuneration was increased by 11% in line with the Board’s statements in the Company’s FY2020 Remuneration Report that his package was modest when compared to peers, but would not be increased in FY2020 given the uncertain market conditions presented for that ﬁ nancial year. As announced to the ASX on 28 April 2021, the Group CEO resigned during FY2021 and his employment ends in August 2021. 33 REMUNERATION REPORT (continued) Variable Reward Plan Incentive – FY2021 The Group operates a variable reward plan to incentivise, attract and retain valued executives. The VRP allows for ﬂ exibility in setting performance targets year by year to take into account changing trading conditions which is particularly important in a fast moving and volatile retail environment. It therefore provides a more motivating remuneration framework for Executive KMP, as well as greater alignment with shareholders, than traditional structures. Following a review of the Executive KMP remuneration structure for FY2021 and the performance of the Group, the Board remained of the view that the VRP was the most appropriate form of incentive plan. Under the VRP, performance is assessed at the end of each ﬁ nancial year against a scorecard of robust measures and awards under the VRP are delivered: • • 25% in cash at the end of the one-year performance period; and 75% in restricted shares, to be released progressively in equal tranches over years 2, 3 and 4. By granting the majority of the reward as shares that are restricted over the medium to longer term and are subject to long term share price risk and clawback, the VRP provides for strong alignment with shareholders. This, combined with the minimum shareholding guidelines as set out on page 40, encourages Executive KMP to think and act like shareholders and to make decisions in the long term interests of the Group. During the restricted period, dividends are paid on the restricted shares and the executive may exercise votes attaching to these shares. The market value of a share used to calculate the number of restricted shares granted will be the volume weighted average price of shares traded on the ASX in the 5 trading days immediately following the release of the Company’s ﬁ nancial results for the year to which the award relates. All rewards under the VRP are subject to clawback at the Board’s discretion in the event of fraud, dishonesty, material misstatement, material breach or negligence by the executive and in certain other circumstances. Subject to the Board exercising its discretion to the contrary, an executive will not be eligible to receive a VRP award in respect of a particular performance period if, during that period, the executive ceases to be employed, or has given notice of his or her resignation from employment or has been given notice of termination from employment. An executive who ceases to be employed during the restriction period may, subject to the Board’s discretion: • • forfeit the restricted shares if they are a “bad leaver” (termination for cause or resignation to work for a competitor); or retain the restricted shares, subject to the restrictions, if they are a “good leaver” (retirement, redundancy, disablement, mental/terminal illness or death). Treatment of restricted shares where an executive leaves in other circumstances is at the Board’s discretion. Further detail on the performance measures for each of the Executive KMP under the FY2021 VRP is set out below. FY2021 VRP incentive scorecard – performance conditions and outcomes Under the VRP, performance is assessed at the end of each ﬁ nancial year against a scorecard of robust measures. 75% of the rewards under the plan for each executive are dependent on ﬁ nancial targets and the remaining 25% of the scorecard are based on strategic measures approved by the Board and aligned with the Group’s long term corporate plans. The ﬁ nancial targets in the scorecard are predominantly based on Group EPS, with some executives also having targets relating to aspects of the business for which that executive is responsible or where particular focus is required. As detailed in the Company’s FY2020 Remuneration Report, at the start of FY2021 the Board determined that the FY2021 ﬁ nancial targets for the VRP would be set off the Group’s FY2020 (pre-Covid) NPAT guidance ($270 million) rather than the reported NPAT result of $302.3 million or the underlying FY2020 NPAT result of $332.7 million. This approach was consistent with the Company’s approach to measuring FY2020 incentive achievement in removing any impact of Covid-19 from FY2020 proﬁ t. The Company set growth targets under the VRP of between 0 and 10% EPS growth in FY2021 from this, noting that achieving the 10% stretch target in FY2021 would represent approximately 19% growth over the two years from FY2019 to FY2021. In FY2021 Group EPS grew 87.6% from 235.0 (based on the Group’s $270 million (pre-Covid) NPAT guidance for FY2020) to 440.8 cents per share and as a result 100% of available rewards for the ﬁ nancial performance component (primarily EPS growth) were earned by each of the Executive KMP. The Board notes that, had the reported FY2020 NPAT result of $302.3 million or the underlying FY2020 NPAT result of $332.7 million been used as the basis of the FY2021 ﬁ nancial targets for the VRP, Executive KMP would still have earned 100% of the awards available based on ﬁ nancial targets, with 67.5% EPS growth from $302.3 million and 52.2% growth from $332.7 million having been achieved. 34 FY2021 VRP achievement outcomes for each member of KMP, measured against the ﬁ nancial and strategic measures, are set out in the tables below. GROUP CEO – RICHARD MURRAY MEASURE PERFORMANCE COMMENTARY Note on outcomes for the Group CEO The Board determined that, in light of his resignation and scheduled departure in early FY2022 and having regard to the circumstances of his departure (including the exceptional performance of the company in FY2021), the Group CEO will forgo the right to receive any earned part of his FY2021 VRP rewards that would otherwise have been awarded in restricted shares. The Group CEO’s maximum FY2021 VRP achievement has therefore been reduced by 75% and is reflected in the tables below. He will receive a cash reward under the FY2021 VRP awarded based on his performance. Financial Measures (75%) 1. Group EPS 1. Group EPS – Above Target (87.6% growth from 235.02 to 440.8 cents per share) Achievement 100% (as a % of maximum available) Strategic Measures (25%) 1. Group OHS 2. Diversity 3. Succession/Talent 4. Strategic Initiatives 5. Investor Relations 1. 2. 3. Group OHS – At Target, with strong results in OHS metrics as set out in Sustainability Report Diversity – At Target, with good progress made on implementation of Group diversity strategy and introduction of other significant diversity initiatives as set out in Sustainability Report Succession/Talent – Above Target, with strong succession planning and talent development, including senior management internal appointments 4. Strategic Initiatives – At Target, as key strategic initiatives were implemented 5. Investor Relations – Above Target, with strong investor relations engagement in a challenging climate Achievement 88% (as a % of maximum available) Total (100%) Unadjusted achievement 97% (as a % of maximum available) Adjusted achievement of 24.25% (taking account FY2021 VRP restricted share rewards foregone) 2 Based on the Group’s $270 million (pre-Covid) NPAT guidance for FY2020 MANAGING DIRECTOR, THE GOOD GUYS – TERRY SMART MEASURE PERFORMANCE COMMENTARY Financial Measures (75%) 1. Group EPS 2. TGG EBIT Strategic Measures (25%) 1. TGG OHS 2. Succession/Talent/Diversity 3. TGG Brand Strategy 4. Online Growth 5. Category Architecture 6. Process Improvements and Simplification 1. 2. Group EPS – Above Target (87.6% growth from 235.02 to 440.8 cents per share) TGG EBIT – Above Target, with 90% EBIT growth from FY2020 Achievement 100% (as a % of maximum available) 1. 2. 3. 4. 5. 6. TGG OHS – At Target, with strong results in OHS metrics as set out in Sustainability Report Succession/Talent/Diversity – Above Target, with strong succession planning and talent development, including senior management internal appointments, and continued progress on diversity initiatives TGG Brand Strategy – Above Target, with ongoing implementation of TGG Brand Strategy Online Growth – Above Target, with continued enhancement of online channels and significant growth Category Architecture – Above Target, with significant advancements in category architecture and store layouts Process Improvement/Simplification – At Target, with implementation of process improvements Achievement 92% (as a % of maximum available) Total (100%) Achievement 98% (as a % of maximum available) 2 Based on the Group’s $270 million (pre-Covid) NPAT guidance for FY2020 35 REMUNERATION REPORT (continued) GROUP CFO – NICK WELLS MEASURE PERFORMANCE COMMENTARY Financial Measures (75%) 1. Group EPS 1. Group EPS – Above Target (87.6% growth from 235.02 to 440.8 cents per share) Achievement 100% (as a % of maximum available) Strategic Measures (25%) 1. Group OHS 2. Succession/Talent/Diversity 3. Risk Management/Sustainability 4. Strategic Initiatives 5. Investor Relations 1. 2. 3. Group OHS – Above Target, with strong results in OHS metrics including leading the Group’s response to Covid-19 Succession/Talent/Diversity – Above Target, with continued progress in succession planning, talent development and diversity initiatives Risk Management – Above Target, with strong results including leading the Group’s response to Covid-19 and implementation of sustainability initiatives 4. Strategic Initiatives – At Target, as key strategic initiatives were implemented 5. Investor Relations – Above Target, with strong investor relations engagement in a challenging climate Achievement 89% (as a % of maximum available) Total (100%) Achievement 97% (as a % of maximum available) 2 Based on the Group’s $270 million (pre-Covid) NPAT guidance for FY2020 MANAGING DIRECTOR, JB HI-FI – CAMERON TRAINOR MEASURE PERFORMANCE COMMENTARY Financial Measures (75%) 1. Group EPS 2. JB Hi-Fi EBIT Strategic Measures (25%) 1. JB Hi-Fi OHS 2. Succession/Talent/Diversity 3. JB Hi-Fi Brand Strategy 4. Online Growth 5. Category Architecture 6. Process Iimprovements and Simplification 1. 2. Group EPS – Above Target (87.6% growth from 235.02 to 440.8 cents per share) JB Hi-Fi EBIT – Above Target, with 34% EBIT growth from FY2020 Achievement 100% (as a % of maximum available) 1. 2. 3. 4. 5. 6. JB Hi-Fi OHS – Above Target, with strong results in OHS metrics as set out in Sustainability Report Succession/Talent/Diversity – At Target, with continued progress in succession planning, talent development and diversity initiatives JB Hi-Fi Brand Strategy – At Target, with ongoing development of JB Hi-Fi Brand Strategy Online Growth – Above Target, with continued enhancement of online channels and significant growth Category Architecture – Above Target, with continued improvements in category architecture Process Improvement/Simplification – Above Target, with implementation of significant process improvements Achievement 89% (as a % of maximum available) Total (100%) Achievement 97% (as a % of maximum available) 2 Based on the Group’s $270 million (pre-Covid) NPAT guidance for FY2020 Legacy Long-Term Incentive (“LTI”) Option Plan – pre FY2019 Some of the options granted to Executive KMP prior to FY2019 under the Company’s previous LTI structure vested in FY2021. Details of options that vested and were exercised are set out on page 50. Further details of the terms of these options are included under the heading “Group Incentive Plans” on pages 51 and 52. 36 Relationship between ﬁ nancial performance and remuneration The remuneration of Executive KMP is directly related to the performance of the Group through the linking of the incentives to certain ﬁ nancial measures as detailed previously and shown below. The ﬁ nancial performance of the Group is summarised in the table below, whilst the alignment of Executive KMP remuneration to the performance of the Group is detailed in the graph and the table on page 38. Growth FY2017(vi) FY2018(vi) FY2019(vi) FY2020 FY2021 FY2021 1. Financial performance: Sales ($m) EBIT ($m) NPAT ($m) Basic EPS (cents) 2. Shareholder value created: Company share price at the end of the reporting period ($) 5,628.0 6,854.3 7,095.3 7,918.9 8,916.1 290.5(v) 192.2(v) 172.1(v) 350.6 233.2 203.1 372.9 249.8 217.4 483.3 302.3 263.1 743.1 506.1 440.8 23.37 22.52 25.85 43.03 50.58 Market capitalisation ($m) 2,674.0 2,587.2 2,969.7 4,943.4 5,810.8 Enterprise value(i) ($m) 3,160.0 2,984.5 3,289.6 4,691.9 5,547.6 13% 54% 67% 68% 18% 18% 18% CAGR Last 5 years(iii) 18% 27% 27% 23% 16% 19% 18% Movement in enterprise value during the financial year ($m) Dividends paid to shareholders during the financial year ($m) Shareholder value created(ii) 717.5 (175.5) 305.1 1,402.3 855.7 119.1 151.6 157.4 172.3 310.2 80% 27% - per annum ($m) 836.6 (23.9) 462.5 1,574.6 1,165.9 - cumulative ($m) since IPO 3,928.1 3,904.2 4,366.7 5,941.3 7,107.2 20% 22%(iv) (i) Enterprise value is measured as the sum of market capitalisation and net debt. (ii) Shareholder value created is measured as the increase in the enterprise value, plus cash dividends and share buy-backs paid during the ﬁ nancial year. Cumulative shareholder value is measured from the date of listing in October 2003 when opening shareholder value was $201.7m. (iii) Percentage movement shown is the compound annual growth rate over the last 5 years. (iv) Percentage movement shown is the compound annual growth rate since IPO in 2003. (v) FY2017 EBIT, net proﬁ t and EPS exclude transaction fees and implementation costs totalling $22.4m associated with the acquisition of The Good Guys in November 2016 but include New Zealand Goodwill and New Zealand Fixed Asset impairments of $15.8 million. (vi) FY2017 to FY2019 results are prior to the adoption of AASB 16 Leases. 37 REMUNERATION REPORT (continued) The graph below shows the relationship between total Executive KMP remuneration and EPS over the past 5 years (following the acquisition of The Good Guys in FY2017) and the high correlation between Executive KMP remuneration with Company performance. Executive KMP remuneration and EPS over the last 5 ﬁ nancial years: 14,000,000 12,000,000 10,000,000 $ n o i t a r e n u m e R 8,000,000 6,000,000 4,000,000 2,000,000 - Notes 500 450 400 350 300 250 200 150 100 50 - ) e r a h s r e p s t n e c ( S P E LTI/VRP Shares STI/VRP Cash Fixed EPS 2017 2018 2019 2020 2021 1. The graph shows the aggregate total of remuneration for Executive KMP for each year from 2017 to 2021, excluding payments made in relation to departures from the Group. For the purposes of this graph, Executive KMP for 2018 – 2021 were R. Murray, C. Trainor, T. Smart and N. Wells and for 2017 were R. Murray, C. Trainor, T. Smart, N. Wells and M. Ford (MD of The Good Guys until April 2017). 2. LTI/VRP expense is the current period LTI/VRP expense only, excluding any prior period write-backs. 3. EPS in FY2017 excludes transaction fees and implementation costs totalling $22.4m associated with the acquisition of The Good Guys in November 2016 but includes New Zealand Goodwill and New Zealand Fixed Asset impairments of $15.8 million. 4. FY2017 to FY2019 EPS numbers are prior to the adoption of AASB 16 Leases. Group CEO STI and VRP incentive achievement over the last 5 ﬁ nancial years: Executive KMP incentive achievement outcomes continue to align with the ﬁ nancial performance and strategic objectives of the Group. The table below sets out the Group CEO’s incentive achievement over the last 5 years, with FY2019 – FY2021 under the VRP and FY2017 – FY2018 under the Group’s previous STI incentive structure. Group Financial Target Incentive Target (Growth) 0 - 10% 23% - 34%(ii) 0 - 10% 0 - 10% 0 - 10% Actual Growth 21.2% 30.8% 7.1% 23.6%(iii) 87.6%(v) Achievement Non-Financial Target Achievement Total Achievement 100% 71% 77% 91%(iv) 100% 100% 96% 74% 78% 88% 100% 77% 76% 87% 97%(vi) Financial Year(i) 2017 2018 2019 2020 2021 Notes (i) FY2017 – FY2018 STI target based on EBIT, FY2019 - FY2021 VRP targets based on EPS. (ii) FY2018 target increased due to the acquisition of The Good Guys and JB Hi-Fi New Zealand goodwill impairment in the base in the prior year, on an underlying basis this represented 0-10% growth target. (iii) Based on statutory proﬁ t prior to the impact of AASB 16 Leases. (iv) FY2020 achievement of Group Financial Target based on the Group’s (pre-Covid) guidance of $270 million rather than reported NPAT result of $302.3m. (v) FY2021 EPS growth from the Group’s FY2020 $270 million (pre-Covid) NPAT guidance. (vi) Unadjusted achievement of 97%, adjusted achievement of 24.25% taking account FY2021 VRP restricted share rewards foregone following R. Murray’s resignation and scheduled departure in early FY2022. 38 The effectiveness of the Executive KMPs’ performance related remuneration in driving performance is reﬂ ected in the long term growth of the share price of the Company. The following graph plots the JB Hi-Fi closing share price and the ASX 200 on a daily basis between listing on the ASX and 1 August 2021. The JB Hi-Fi closing share price compound annual growth rate between listing and 1 August 2021 is 20.6%, whilst the ASX 200 compound annual growth rate over the same period is 4.6%. e c i r P e r a h S $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 3 0 - t c O 4 0 - t c O 5 0 - t c O 6 0 - t c O 7 0 - t c O 8 0 - t c O 9 0 - t c O 0 1 - t c O 1 1 - t c O 2 1 - t c O 3 1 - t c O 4 1 - t c O 5 1 - t c O 6 1 - t c O 7 1 - t c O 8 1 - t c O 9 1 - t c O 0 2 - t c O 1 2 - t c O JB Hi-Fi Share Price ASX 200 (rebased against JBH share price) Key terms of Executive KMP employment agreements The remuneration and other terms of employment for each of the Executive KMP are set out in individual Company employment agreements. None of these executives are subject to a ﬁ xed term of employment. Name T. Smart N. Wells C. Trainor Notice Periods/Termination Payment/Non-compete 12 months’ notice (or payment in lieu) 12 months’ post termination non-compete and non-solicitation restriction 6 months’ notice (or payment in lieu) 6 months’ post termination non-compete and non-solicitation restriction 9 months’ notice (or payment in lieu) if terminated by the Company 6 months’ notice if notice is given by the executive 6 months’ post termination non-compete and non-solicitation restriction As announced to the ASX on 28 April 2021, R. Murray resigned and will leave the Company at the end of August 2021. Each Executive KMP may be terminated immediately for serious misconduct. In no instance would a payment in lieu of notice exceed the termination payments limits set out in the Corporations Act 2001. Each of the Executive KMP service contracts contains contractual entitlements for the Company to clawback incentive remuneration in the event of fraud, dishonesty, or material misstatements in, or omissions from, the Company’s ﬁ nancial statements or misstatements concerning the satisfaction of a performance condition. 39 REMUNERATION REPORT (continued) Richard Murray (Group CEO) exit terms As announced to the ASX on 28 April 2021, and set out on page 15 of this Report, Richard Murray will leave the Company at the end of August 2021. No severance payment will be made upon Richard’s departure. At the time of his departure, Richard will hold a number of restricted shares in the Company issued in previous years following testing against the applicable year’s performance scorecard pursuant to its Variable Reward Plan. He will be permitted, pursuant to the terms of that Plan, to continue to hold those shares subject to the applicable restriction periods. As set out on page 35 of this Report, recognising that Richard led the Group for the whole of FY2021, the Board determined that Richard will be paid the cash element (25%) of his Variable Reward Plan beneﬁ ts for FY2021, subject to the achievement of the relevant KPIs. However, Richard will not receive the remaining 75% of his FY2021 VRP, which would otherwise have been paid in restricted shares. Richard’s employment contract contains a one-year restraint prohibiting him from working for competitors of JB Hi-Fi for 12 months following his departure (until August 2022), and a 12 month non-solicitation restriction. Richard has agreed the non-solicitation restriction will be increased in duration to 36 months and cover senior employees of the Group. In the event that Richard were to breach the non-compete or non-solicitation provisions, he will forfeit any of the restricted shares issued pursuant to the Variable Reward Plan that he holds at that time. Minimum shareholding guidelines Building Executive KMP shareholdings is a priority of the Board in the context of retention, and to ensure Executive KMP are invested in the long term success of the Group and aligned with shareholder interests. In conjunction with introducing the VRP, a minimum shareholding requirement for Executive KMP was introduced in FY2019, being: • • 1.5 times ﬁ xed pay for the Group CEO; and 1.0 times ﬁ xed pay for the other Executive KMP. This level of shareholding is required to be built over 5 years from the introduction of the VRP (or appointment, if later). FY2022 Executive KMP remuneration The Company will retain the same structure for FY2022 executive KMP remuneration as was used in FY2021. As disclosed in the Company’s “CEO Transition” announcement to the ASX in April 2021, Terry Smart’s ﬁ xed annual remuneration as Group CEO will be $1.7 million with a maximum incentive opportunity of 206% of this amount. Nick Wells’ remuneration package has increased by 14.3% from FY2021, recognising his increased responsibilities within the Group and his appointment as an Executive Director. The Group ﬁ nancial component of the FY2022 VRP (EPS growth) will be set by reference to annual budgets, longer term corporate plans and current market expectations, taking account of the effects of Covid-19 including elevated sales and proﬁ t in FY2020 and FY2021 and ongoing restrictions throughout much of Australia. 40 NON-EXECUTIVE DIRECTOR REMUNERATION FY2021 Non-Executive Director Remuneration The following persons acted as non-executive directors of the Company both during and since the end of the ﬁ nancial year (except to the extent speciﬁ ed otherwise below) and are considered members of key management personnel for FY2021: Stephen Goddard Non-executive Director, Chair of the Board and of the Remuneration and Nominations Committee Beth Laughton Non-executive Director, Chair of the Audit and Risk Management Committee and Member of the Remuneration and Nominations Committee Mark Powell Non-executive Director, Member of the Audit and Risk Management Committee and Member of the Remuneration and Nominations Committee Geoff Roberts Non-executive Director and Member of the Audit and Risk Management Committee – with effect from 16 January 2021 Richard Uechtritz Non-executive Director Melanie Wilson Non-executive Director and Member of the Audit and Risk Management Committee The overriding objective of the JB Hi-Fi remuneration policies with regard to non-executive directors is to ensure the Company is able to attract and retain non-executive directors with the skills and experience to enable the Board to discharge its oversight and governance responsibilities in an effective and diligent manner. The Board also believes that remuneration for non-executive directors should reﬂ ect the time commitment and responsibilities of the role. The remuneration packages for non-executive directors for FY2021 are set out below and are at the same level as those for FY2018 - FY2020. Aggregate non-executive director remuneration for FY2021 was within the amount determined by the Company in its Annual General Meeting on 26 October 2017 being $1,500,000. Role Chair of the Board Non-executive director Additional Committee Fees Fees 2021 $ Fees 2020 $ $300,000 $300,000 $134,000 $134,000 Remuneration and Nominations Committee Chair $25,000 $25,000 Audit and Risk Management Committee Chair $32,000 $32,000 Audit and Risk Management Committee member $16,000 $16,000 Remuneration and Nominations Committee member $14,000 $14,000 Superannuation contributions are made by the Company on behalf of non-executive directors in line with statutory requirements and are included in the remuneration package amount. It is the policy of the Company not to pay lump sum retirement beneﬁ ts to non-executive directors. It is the policy of the Company not to have any elements of non-executive director remuneration at risk. Speciﬁ cally, non-executive directors do not receive any bonus payments and are not entitled to participate in any Company share option plans or the VRP. In order to further align non-executive directors with shareholders of the Company, a minimum shareholding requirement for non-executive directors was introduced in October 2018, being 1 times the base board fees for each non-executive director. This level of shareholding is required to be built over 5 years from the introduction of the policy (or appointment, if later). 41 REMUNERATION REPORT (continued) FY2022 Non-Executive Director Remuneration Recognising the need to remain competitive in the market in order to continue to attract and retain talented directors, and noting that there had been no increase in non-executive director fees since FY2018, the Board has decided to increase fees for non-executive directors for FY2022 by 6%. There will be no change to the fees for Committee membership or chairing a Committee. OTHER INFORMATION Board policy with regard to executives limiting their exposure to risk in relation to equity options The Company’s Securities Trading Policy prohibits directors, executives, senior management and other speciﬁ ed employees from altering the economic beneﬁ t or risk derived by them in relation to any unvested equity options that they hold. The Policy also requires directors and Group executives to obtain prior written approval from the Chair of the Board before altering the economic beneﬁ t or risk derived by them in relation to any shares or vested options in JB Hi-Fi held by them. Each year directors and Executive KMP are required to sign a declaration that they are in compliance with all elements of the JB Hi-Fi Securities Trading Policy. These declarations have been received in relation to the 2021 ﬁ nancial year from all directors and Executive KMP. 42 KEY MANAGEMENT PERSONNEL COMPENSATION Key management personnel for FY2021 include the non-executive directors and the four identiﬁ ed executives set out on page 33. The aggregate compensation of the key management personnel of the Group is set out below: Short-term employee benefits Salary, fees & allowances Bonus VRP Cash Post-employment benefits Superannuation Share based payments Options expense VRP expense Total compensation of Key Management Personnel Consolidated 2021 $ 2020 $ 5,285,397 5,109,431 – 913,837 2,066,100 1,267,269 7,351,497 7,290,537 180,709 180,709 186,824 186,824 789,866 1,774,921 4,292,822 2,872,409 5,082,688 4,647,330 12,614,894 12,124,691 43 REMUNERATION REPORT (continued) The compensation for each member of the key management personnel of the Group is set out below: Short-term employee benefits Post- employ- ment benefits Bonus(ii) VRP Cash(ii) Total short-term employee benefits Super- annuation $ $ 303,306 21,694 164,384 15,616 149,772 14,228 62,785 5,965 122,374 11,626 137,081 13,023 939,702 82,152 $ – – – – – – – Share based payments Options(i)(ii) VRP(ii)(iii) Total share based payments $ – – – – – – – $ – – – – – – – Total $ 325,000 180,000 164,000 68,750 134,000 150,104 $ – – – – – – – 1,021,854 851,175 2,326,175 24,519 292,459 1,615,879(iv) 1,908,338 4,259,032 439,335 1,464,935 24,519 143,238 1,061,417 1,204,655 2,694,109 442,723 1,506,818 25,000 264,275 479,616 743,891 2,275,709 332,867 1,113,867 24,519 89,894 1,135,910(v) 1,225,804 2,364,190 – 2,066,100 6,411,795 98,557 789,866 4,292,822 5,082,688 11,593,040 – 2,066,100 7,351,497 180,709 789,866 4,292,822 5,082,688 12,614,894 2021 Non-executive directors S. Goddard B. Laughton M. Powell G. Roberts R. Uechtritz M. Wilson Executives R. Murray C. Trainor T. Smart N. Wells Salary, fees & allowances $ 303,306 164,384 149,772 62,785 122,374 137,081 939,702 1,475,000 1,025,600 1,064,095 781,000 4,345,695 5,285,397 $ – – – – – – – – – – – (i) In accordance with Accounting Standards, remuneration includes the amortisation of the fair value of options issued in prior years under the Group share option plans that are expected to vest, less any write-back on options lapsed or expected to lapse as a result of actual or expected performance against non-market hurdles (“Option Accounting Value”). The fair value of options is measured at grant date in accordance with the relevant accounting standard and progressively allocated to proﬁ t and loss over the vesting period of the option. The amount included in remuneration above may not be indicative of the beneﬁ t (if any) that key management personnel may ultimately realise should the equity instruments vest. (ii) Performance based (other than as set out in note (v) below). (iii) In accordance with Accounting Standards, remuneration includes the amortisation of the value of VRP that is paid in restricted shares. The value of shares is progressively allocated to proﬁ t and loss over the restriction period of the share. (iv) The VRP expense recognised for R. Murray in FY2021 represents the amortisation of the remaining fair value of VRP restricted shares allocated in prior years. In view of his resignation and departure from the Company in August 2021, R. Murray will not receive any part of his FY2021 VRP which would otherwise have been paid in restricted shares. (v) In addition to the amortisation of his “standard” performance based FY2021 VRP amount of $802,577 shown on page 45, the ﬁ gure for N. Wells includes amortisation of $333,334 relating to a one-off grant of restricted shares in 2019, to ensure the Group retained his services over the next 3 years. The grant value was equal to $800,000, being one year’s ﬁ xed remuneration at that time, with half of the shares restricted until August 2021 and half restricted until August 2022. The shares will be forfeited in the event that N. Wells resigns prior to the end of the restriction period, but retained if employment is terminated for reasons other than for cause. In all other respects the restricted shares will be treated in the same way as restricted shares granted under the Company’s Variable Reward Plan in August 2019. In accordance with Accounting Standards, the value of shares is progressively amortised to proﬁ t and loss over the restriction period of the shares. 44 Performance based Short-term employee benefits Bonus VRP Cash Maximum Potential Actual Maximum Potential Actual % of total potential remuneration – – – – – $ – – – – – $ – – – – – % of total actual remuneration % of total potential remuneration $ % of total actual remuneration $ – – – – – 877,500 451,758 451,758 342,720 19% 16% 20% 14% 851,175 439,335 442,723 332,867 2,123,736 18% 2,066,100 20% 16% 19% 14% 18% Performance based Share based payments Options(iii) VRP Shares(ii) Maximum Potential Actual Maximum Potential Actual % of total potential remuneration $ % of total actual remuneration $ % of total potential remuneration $ % of total actual remuneration $ 292,459 143,238 264,275 89,894 789,866 6% 5% 12% 4% 7% 292,459 143,238 264,275 89,894 789,866 7% 1,921,218 5% 1,176,071 12% 4% 489,405 881,280 42% 1,615,879 42% 1,061,417 22% 36% 479,616 802,577 7% 4,467,974 37% 3,959,489 38% 39% 21% 34% 34% 2021 Executives R. Murray C. Trainor T. Smart N. Wells 2021 Executives R. Murray(i) C. Trainor T. Smart N. Wells (i) The VRP expense for R. Murray in FY2021 represents the amortisation of the remaining fair value of VRP restricted shares allocated in prior years. In view of his resignation and departure from the Company in August 2021, R. Murray will not receive any part of his FY2021 VRP which would otherwise have been paid in restricted shares. (ii) The maximum potential and actual values represent the amortisation of the VRP restricted shares over the restriction period of the share in accordance with Accounting Standards. (iii) The maximum potential and actual values represent the amortisation of the fair value of the share options over the vesting period in accordance with Accounting Standards. The VRP Shares amounts included in the table above represent the FY2021 Maximum Potential accounting expense and Actual accounting expense recognised in accordance with Accounting Standards. The Maximum Potential VRP Shares available for each Executive KMP, based on their remuneration package, and the Actual VRP Shares earned in FY2021, are set out in the table below. The VRP Shares earned in FY2021 will be allocated in August 2021. VRP shares allocated to T. Smart and N. Wells (who will become Executive Directors at the end of August 2021), will be subject to a condition subsequent that shareholder approval for the allocation be obtained at the Company’s Annual General Meeting held in October 2021. If shareholder approval by simple majority of those voting is not obtained, the Board will consider alternative remuneration arrangements for T. Smart and N. Wells which are consistent with the Company’s remuneration principles and policy. 2021 Executives R. Murray C. Trainor T. Smart N. Wells VRP Incentive Package VRP Incentive Achieved Maximum Potential Cash Maximum Potential Shares Total VRP Incentive Package Achieved $ $ $ % Actual Cash $ 877,500 – (i) 877,500 97%(ii) 851,175 Actual Shares Total VRP achieved $ – $ 851,175 451,758 1,355,274 1,807,032 451,758 1,355,274 1,807,032 342,720 1,028,160 1,370,880 2,123,736 3,738,708 5,862,444 97% 98% 97% 97% 439,335 1,318,005 1,757,340 442,723 1,328,169 1,770,892 332,867 998,601 1,331,468 2,066,100 3,644,775 5,710,875 (i) In view of his resignation and departure from the Company in August 2021, R. Murray will not receive any part of his FY2021 VRP Incentive Package which would otherwise have been paid in restricted shares (Maximum Potential Shares value of $2,632,500). (ii) Achievement of 97% of the Maximum Potential Cash component of R. Murray’s FY2021 VRP Incentive only. Overall Total VRP achievement for R. Murray was 24.25% taking account the FY2021 VRP restricted share rewards foregone as per footnote (i) above. 45 REMUNERATION REPORT (continued) Short-term employee benefits Bonus(ii) VRP Cash(ii) Salary, fees & allowances $ 303,997 164,384 99,848 122,374 142,692 137,964 10,385 981,644 1,350,480 1,024,327 2020 Non-executive directors G. Richards B. Laughton W. Tang R. Uechtritz S. Goddard M. Powell M. Wilson Executives R. Murray C. Trainor T. Smart(iv) N. Wells $ – – – – – – – – – – Post- employ- ment benefits Total short-term employee benefits Super- annuation $ $ 303,997 164,384 99,848 122,374 142,692 137,964 10,385 21,003 15,616 9,486 11,626 13,556 13,107 987 981,644 85,381 Share based payments Options(i)(ii) VRP(ii)(iii) Total share based payments $ – – – – – – – – $ – – – – – – – – $ – – – – – – – – Total $ 325,000 180,000 109,334 134,000 156,248 151,071 11,372 1,067,025 $ – – – – – – – – 610,563 1,961,043 368,517 1,392,844 1,005,000 913,837 – 1,918,837 747,980 – 288,189 1,036,169 25,481 25,481 25,000 25,481 668,296 1,240,766 1,909,062 3,895,586 323,011 745,110 1,068,121 2,486,446 581,962 – 581,962 2,525,799 201,652 886,533(v) 1,088,185 2,149,835 4,127,787 913,837 1,267,269 6,308,893 101,443 1,774,921 2,872,409 4,647,330 11,057,666 5,109,431 913,837 1,267,269 7,290,537 186,824 1,774,921 2,872,409 4,647,330 12,124,691 (i) In accordance with Accounting Standards, remuneration includes the amortisation of the fair value of options issued in prior years under the Group share option plans that are expected to vest, less any write-back on options lapsed or expected to lapse as a result of actual or expected performance against non-market hurdles (“Option Accounting Value”). The fair value of options is measured at grant date in accordance with the relevant accounting standard and progressively allocated to proﬁ t and loss over the vesting period of the option. The amount included in remuneration above may not be indicative of the beneﬁ t (if any) that key management personnel may ultimately realise should the equity instruments vest. (ii) Performance based (other than as set out in note (v) below). (iii) In accordance with Accounting Standards, remuneration includes the amortisation of the value of VRP that is paid in restricted shares. The value of shares is progressively allocated to proﬁ t and loss over the restriction period of the share. (iv) Given T. Smart received a one-off 3 year grant of LTI on re-joining the Group in April 2017, he did not participate in the VRP for FY2020. Instead, he was able to earn an STI in FY2020. 80% of this STI will be paid in cash with 20% paid in deferred shares. (v) In addition to the amortisation of his “standard” performance based FY2020 VRP amount of $553,200, the ﬁ gure for N. Wells includes amortisation of $333,334 relating to a one-off grant of restricted shares in 2019, to ensure the Group retained his services over the next 3 years. The grant value was equal to $800,000, being one year’s ﬁ xed remuneration, with half of the shares restricted until August 2021 and half restricted until August 2022. The shares will be forfeited in the event that N. Wells resigns prior to the end of the restriction period, but retained if employment is terminated for reasons other than for cause. In all other respects the restricted shares will be treated in the same way as restricted shares granted under the Company’s Variable Reward Plan in August 2019. In accordance with Accounting Standards, the value of shares is progressively amortised to proﬁ t and loss over the restriction period of the shares. 46 Performance based Short-term employee benefits Bonus VRP Cash Maximum Potential Actual Maximum Potential Actual % of total potential remuneration – – 39% – 9% $ – – 1,030,000 – 1,030,000 $ – – % of total actual remuneration % of total potential remuneration $ % of total actual remuneration $ – – 698,625 412,000 – 913,837 36% – 913,837 – 320,000 8% 1,430,625 17% 16% – 610,563 368,517 – 14% 288,189 12% 1,267,269 16% 15% – 13% 11% Performance based Share based payments Options(iii) VRP Shares(ii) Maximum Potential Actual Maximum Potential Actual % of total potential remuneration $ % of total actual remuneration $ % of total potential remuneration $ % of total actual remuneration $ 668,296 323,011 581,962 201,652 16% 12% 22% 9% 668,296 323,011 581,962 201,652 1,774,921 15% 1,774,921 17% 1,513,688 13% 892,667 36% 1,240,766 34% 745,110 22% – – – 9% 650,000 16% 3,056,355 28% 553,200 26% 2,539,076 32% 30% – 26% 23% 2020 Executives R. Murray C. Trainor T. Smart(i) N. Wells 2020 Executives R. Murray C. Trainor T. Smart(i) N. Wells (i) Given T. Smart received a one-off 3 year grant of LTI on re-joining the Group in April 2017, he did not participate in the VRP for FY2020. Instead, he was able to earn an STI in FY2020. (ii) The maximum potential and actual values represent the amortisation of the VRP restricted shares over the restriction period of the share in accordance with Accounting Standards. (iii) The maximum potential and actual values represent the amortisation of the fair value of the share options over the vesting period in accordance with Accounting Standards. The VRP Shares amounts included in the table above represent the FY2020 Maximum Potential accounting expense and Actual accounting expense recognised in accordance with Accounting Standards. The Maximum Potential VRP Shares available for each Executive KMP, based on their remuneration package, and the Actual VRP Shares earned in FY2020, are set out in the table below. The VRP Shares earned in FY2020 were allocated in August 2020 and those allocated to the Executive Director, Richard Murray, were subsequently approved at the Company’s AGM in October 2020. 2020 Executives R. Murray C. Trainor T. Smart N. Wells VRP Incentive Package VRP Incentive Achieved Maximum Potential Cash Maximum Potential Shares Total VRP Incentive Package Achieved $ $ $ % Actual Cash $ Actual Shares $ Total VRP achieved $ 698,625 2,095,875 2,794,500 412,000 1,236,000 1,648,000 – – – 320,000 960,000 1,280,000 1,430,625 4,291,875 5,722,500 87% 89% – 90% 89% 610,563 1,831,689 2,442,252 368,517 1,105,551 1,474,068 – – – 288,189 864,567 1,152,756 1,267,269 3,801,807 5,069,076 All bonuses (including VRP cash) are paid in the ﬁ nancial year following the year in which they were earned, for example the FY2021 bonuses are paid in August 2021 (the 2022 ﬁ nancial year). 47 REMUNERATION REPORT (continued) KEY MANAGEMENT PERSONNEL EQUITY/OPTIONS Fully paid ordinary shares of JB Hi-Fi Limited 2021 S. Goddard B. Laughton M. Powell G. Roberts R. Uechtritz M. Wilson R. Murray C. Trainor T. Smart N. Wells Balance at 1 July 2020 No. Granted as compensation(i) No. Received on exercise of options No. Net other change No. Balance at 30 June 2021 No. Balance held nominally No. 4,500 5,804 3,000 – 4,816 – 154,027 30,881 9,405 48,247 260,680 – – – – – – 36,687 22,143 3,660 17,316 79,806 – – – – – – 65,088 31,044 53,156 19,177 168,465 – – 1,000 – – 1,500 (117,000) (41,337) – (27,290) (183,127) 4,500 5,804 4,000 – 4,816 1,500 138,802 42,731 66,221 57,450 325,824 – – – – – – – – – – – (i) Shares allocated under the Company’s Variable Reward Plan and executive deferred STI plan. 2020 G. Richards B. Laughton R. Uechtritz S. Goddard M. Powell M. Wilson R. Murray C. Trainor T. Smart N. Wells Balance at 1 July 2019 No. Granted as compensation(i) No. Received on exercise of options No. Net other change No. Balance at 30 June 2020 No. Balance held nominally No. 26,486 5,804 11,516 4,500 2,000 – 110,122 36,819 56,416 32,758 – – – – – – 51,723 30,881 4,690 47,306 286,421 134,600 – – – – – – 79,462 32,209 – 19,483 131,154 (4,000) – (6,700) – 1,000 – (87,280) (69,028) (51,701) (51,300) 22,486 3,455 5,804 4,816 4,500 3,000 – 154,027 30,881 9,405 48,247 – – – – – – – – – (269,009) 283,166 3,455 (i) Shares allocated under the Company’s executive deferred STI and Variable Reward Plan including one-off grant to N. Wells as detailed on page 44. (ii) W. Tang ceased to be a non-executive director on 14 February 2020 and, at this time, held 5,000 shares in the Company. W. Tang had no transactions in ordinary shares during the period in FY2020 in which she was a director. 48 Share options of JB Hi-Fi Limited 2021 R. Murray C. Trainor T. Smart N. Wells 2020 R. Murray C. Trainor T. Smart N. Wells Balance at 1 July 2020 No. Granted as compensation No. 111,793 53,881 106,312 33,530 305,516 – – – – – Balance at 1 July 2019 No. Granted as compensation No. 191,255 86,090 106,312 53,013 436,670 – – – – – Exercised No. (65,088) (31,044) (53,156) (19,177) (168,465) Exercised No. (79,462) (32,209) – (19,483) (131,154) Net other change No. Balance at 30 June 2021 No. Balance vested at 30 June 2021 No. Options vested during year No. – – – – – 46,705 22,837 53,156 14,353 137,051 – – – – – 65,088 31,044 53,156 19,177 168,465 Net other change No. Balance at 30 June 2020 No. Balance vested at 30 June 2020 No. Options vested during year No. – – – – – 111,793 53,881 106,312 33,530 305,516 – – – – – 79,462 32,209 – 19,483 131,154 During the ﬁ nancial year all options exercised by key management personal were zero exercise price options. During FY2020 75,597 zero exercise price options and 55,557 options with an exercise price were exercised by key management personnel. The weighted average exercise price for options with an exercise price in FY2020 was $17.72 per ordinary share in JB Hi-Fi Limited. Key management personnel options granted and exercised during the ﬁ nancial year The following table summarises the value of options granted and exercised during the ﬁ nancial year to and by the key management personnel: 2021 R. Murray C. Trainor T. Smart N. Wells Value of options granted – at the grant date(i) Value of options exercised – at the exercise date $ – – – – – $ 3,289,580 1,567,002 2,735,408 934,500 8,526,490 (i) The value of options granted during the period is recognised in remuneration over the vesting period of the option, in accordance with Accounting Standards. The value of options granted and exercised during the year is calculated based on the following: • • fair value of the option at grant date multiplied by the number of options granted; and the share price at the time the option is exercised multiplied by the number of options exercised. Options granted during the ﬁ nancial year There were no share options granted during FY2021 to key management personal (or the ﬁ ve most highly remunerated ofﬁ cers of the Company). Instead, these employees participate in the VRP as set out on page 34. 49 REMUNERATION REPORT (continued) Options exercised during the ﬁ nancial year The following table details the options exercised during the ﬁ nancial year by key management personnel. Number of options exercised Exercise date Number of shares Exercise price $ Share price at exercise date $ R. Murray C. Trainor Series 130 147 163 130 147 163 18,382 19/08/2020 16,032 24/08/2020 30,674 19/08/2020 65,088 8,206 19/08/2020 6,026 24/08/2020 16,812 19/08/2020 31,044 T. Smart 158 53,156 24/08/2020 53,156 N. Wells 130 147 163 4,825 18/08/2020 3,735 24/08/2020 10,617 18/08/2020 19,177 168,465 Options lapsed during the ﬁ nancial year – – – – – – – – – – 18,382 16,032 30,674 65,088 8,206 6,026 16,812 31,044 53,156 53,156 4,825 3,735 10,617 19,177 168,465 Performance condition – cumulative EPS growth per annum 4%-8% 4%-8% 9%-15% 4%-8% 4%-8% 9%-15% $50.24 $51.46 $50.24 $50.24 $51.46 $50.24 $51.46 9%-15% $48.07 $51.46 $48.07 4%-8% 4%-8% 9%-15% Performance condition – achieved Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes There were no options issued to the identiﬁ ed key management personnel that lapsed during the ﬁ nancial year. Key management personnel options granted, exercised and lapsed since the end of the ﬁ nancial year Since the end of the ﬁ nancial year, no options have been granted to key management personnel (or the ﬁ ve most highly remunerated ofﬁ cers of the Company), and no options issued to key management personnel (or the ﬁ ve most highly remunerated ofﬁ cers of the Company) have been exercised or lapsed. 50 SHARE OWNERSHIP-BASED REMUNERATION SCHEMES Group Incentive Plans The Group has the following share ownership-based remuneration schemes for executives and non-executive management (excluding non-executive directors). Variable Reward Plan (as detailed on page 34) Participants are Executive KMP, other executives and selected senior management. Employee Share Option Plan (as detailed below) Participants are executives and management. With effect from FY2019 Executive KMP no longer participate in this scheme and, instead, participate in the Variable Reward Plan. Under this Employee Share Option Plan, participants are granted options to acquire shares. Options under this Plan which are currently “on foot” or which vested, were exercised, or expired in FY2020 or FY2021 have the following features. • • Issue Price – no issue price is payable on the issue of an option; Exercise Price – for some of the options issued to Executive KMP and other executives prior to 30 June 2015, an exercise price was payable on the exercise of an option. This exercise price was usually calculated as being the closing volume weighted average share price (“VWAP”) of JB Hi-Fi Limited shares over the 5 trading days post and including the date of release of the Group’s full year results, immediately prior to the grant of the option. In some circumstances, this price was calculated by reference to another date or time period, for example where a grant of options occurred as the result of an executive or non-executive manager joining the Group or being promoted and the grant did not occur following the release of results. For options that had an exercise price payable on exercise of the option, a share price condition provided that options would only vest if, during a trading window (as deﬁ ned in the Group’s Securities Trading Policy), the VWAP of the shares over 5 consecutive trading days exceeded the option exercise price (at a time when all other conditions had been satisﬁ ed); • Zero Exercise Price – for some options issued before 30 June 2015, and all options issued after 30 June 2015, a zero exercise price; • Performance Conditions – for options issued to Executive KMP and other executives, the majority of options are subject to performance conditions based on EPS growth. Some of the options issued to certain senior managers are also subject to performance hurdles. These performance hurdles require compound annual earnings per share growth of between 4% and 15% per annum. To the extent that a performance condition is not achieved in one year, the hurdle is compounded and reassessed in each subsequent year, until the earlier of the condition being satisﬁ ed or the option expiring. However, no retesting takes place in the year of expiry; • Service Conditions – the options issued to Executive KMP and other executives in FY2015 to FY2017 (inclusive) vest a third each on the third, fourth and ﬁ fth anniversary of the grant date provided that the executive remains employed at that time. The only exception to this was for options issued to Terry Smart in April 2017, which vested one half each on each of the third and fourth anniversaries of the grant date, provided that he remained employed at that time. Options issued to Executive KMP and other executives in FY2018 also vest one half each on each of the third and fourth anniversaries of the grant date, provided the relevant executive remains employed at that time. Options issued to certain (non KMP) executives since FY2019 vest a third each on the second, third and fourth anniversary of grant date provided that the non-executive manager remains employed at that time. For all options issued to non-executive management, options vest a third each on the second, third and fourth anniversary of grant date provided that the non-executive manager remains employed at that time; • • Vesting – all conditions must be satisﬁ ed for an option to vest; Expiry – options issued to non-executive management generally expire ﬁ ve years after they are issued. Options issued to Executive KMP and other executives prior to 30 June 2017 generally expire six years after they are issued. Options issued to Executive KMP and other executives between 1 July 2017 and 30 June 2018 expire ﬁ ve years after they are issued. Options issued to certain (non KMP) executives since FY2019 also expire ﬁ ve years after they are issued. All unvested options generally expire immediately upon termination of employment although, depending upon the terms of issue, the Company may have discretion to allow the options to continue or waive vesting conditions in certain circumstances. Upon termination of employment, vested options either expire upon termination, 30 days after termination or continue in force depending upon the circumstances of the employee’s exit and the terms of issue; 51 REMUNERATION REPORT (continued) • Valuation – options are valued using the Black-Scholes option pricing model, which takes into account the exercise price, term of the option, the expected exercise date based on prior years’ experience, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate; • • Entitlement to Shares – each option entitles the holder to one ordinary share in JB Hi-Fi Limited; Share Issues – holders of options do not have the right, under the options, to dividends or to participate in any share issue or interest issue of JB Hi-Fi Limited or of any other body corporate or registered scheme; • Change of Control – upon a change of control of the Company all vested and unvested options will automatically lapse unless the Company determines otherwise; and • Other Conditions – other conditions including, amongst other things, treatment of the options in the event of a capital reorganisation. On-market purchase of shares for purposes of Group incentive plans During FY2021, 216,507 ordinary shares in the Company were purchased at an average price of $50.51 per share in order to satisfy the entitlements of the Executives and employees to acquire securities under the Group’s incentive plans. Shares under option Details of interests under option at the date of this Report are set out below. 306,864 of the outstanding options are vested and exercisable. All options entitle the holder to ordinary shares in JB Hi-Fi Limited. Number of shares under option Grant date (GD) Share Price at GD $ Expiry date Exercise price $ Weighted average expected volatility(i) Dividend yield at GD Risk-free interest rate at GD $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 31.4% 31.3% 28.8% 28.6% 28.2% 27.5% 27.1% 27.0% 36.2% 33.6% 31.8% 34.4% 4.2% 3.4% 4.6% 4.0% 4.6% 5.0% 5.5% 4.5% 3.7% 3.7% 3.7% 4.1% 2.1% 1.5% 2.0% 2.1% 2.2% 2.2% 2.2% 0.7% 0.4% 0.4% 0.4% 0.3% Weighted average fair value at GD(i) $ $17.45 $24.84 $20.68 $20.72 $20.70 $21.49 $19.22 $27.14 $46.35 $44.66 $43.03 $40.22 Option series 142 148 159 162 880 2/05/2016 $22.18 1/05/2022 41,083 22/08/2016 $28.95 21/08/2022 53,156 18/04/2017 $24.46 17/04/2023 2,317 1/05/2017 $24.69 30/04/2022 164-167 168,153 29/08/2017 $23.56 28/08/2022 168-170 163,063 20/08/2018 $26.21 19/08/2023 172-173 5,064 3/12/2018 $23.40 2/12/2023 174-176 209,636 19/08/2019 $32.06 18/08/2024 177 178 179 45,711 17/08/2020 $49.60 16/08/2025 45,641 16/08/2020 $47.33 15/08/2025 45,593 14/08/2020 $47.33 13/08/2025 180-182 2,118 7/12/2020 $43.97 6/12/2025 782,415 (i) The values shown are the weighted average for the relevant series listed. 52 The following tables include all share options granted under the Group share option plans that were exercised during and since the end of the current ﬁ nancial year and during the previous ﬁ nancial year. All shares are ordinary shares in JB Hi-Fi Limited and no amounts remain unpaid. 2021 Option Series 130 136 141 Grant date Number exercised Number of shares 14/08/2015 42,874 42,874 5/11/2015 2/05/2016 5,480 880 5,480 880 145-147 22/08/2016 78,528 78,528 154 157 158 161 19/10/2016 2/11/2016 18/04/2017 1/05/2017 492 492 53,156 2,317 492 492 53,156 2,317 163-167 29/08/2017 170,363 170,363 168-169 20/08/2018 81,563 81,563 171 174 3/12/2018 19/08/2019 2,531 921 2,531 921 439,597 439,597 Amount paid per share $ $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 2020 Option Series Grant date Number exercised Number of shares issued Amount paid per share $ 103-104 15/08/2014 109-113 15/08/2014 117-118 27/11/2014 123-127 27/11/2014 129-133 14/08/2015 135 139 140 5/11/2015 18/12/2015 2/05/2016 63,777 21,111 10,624 3,165 91,421 5,479 747 880 63,777 21,111 10,624 3,165 91,421 5,479 747 880 144-146 22/08/2016 78,474 78,474 153 156 160 165 19/10/2016 2/11/2016 1/05/2017 491 491 2,317 29/08/2017 75,581 491 491 2,317 75,581 354,558 354,558 $17.72 $0.00 $15.58 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Share price at exercise date(i) $ $48.07 to $50.24 $48.81 $48.07 $45.46 to $52.40 $47.91 $48.81 $51.46 $48.07 $44.62 to $52.40 $45.39 to $52.40 $51.59 $52.18 Share price at exercise date(i) $ $31.61 to $31.92 $30.97 to $32.06 $41.21 $41.21 to $42.95 $30.97 to $41.60 $36.73 $42.95 $31.92 $31.61 to $41.60 $36.72 $36.47 $30.99 $30.97 to $41.60 (i) Where a range of prices are shown, options within the series were exercised on various dates throughout the period. The share prices shown are the maximum and minimum share prices on the exercise dates for the relevant series. 53 REMUNERATION REPORT (continued) Long-term incentives subject to performance conditions Certain executives have been issued with options under the Group share option plans as part of the Company’s long-term option plans. Details of the features and conditions of such options are included in the section of this Report entitled “Group Incentive Plans” on pages 51 and 52. The following table details the options outstanding at the date of this Report which feature performance hurdles: Option Series Grant Date Performance Hurdle(i)(ii) Date for first testing Relevant Financial Year Exercise Price $ Expiry Date Vested (time based service condition and performance hurdle achieved) 142 159 164 2/05/2016 18/04/2017 29/08/2017 4%-8% 9%-15% 9%-15% 2/05/2021 18/04/2021 9/08/2021 2020 2021 2021 $0.00 $0.00 $0.00 1/05/2022 17/04/2023 28/08/2022 Not vested (performance hurdle achieved but time based service condition not achieved) 148 22/08/2016 4%-8% 22/08/2021 2021 $0.00 21/08/2022 (i) For options shown with a 4%-8% performance hurdle, options vest as follows: • where compound annual EPS growth of 4% is achieved 40% of the options vest; • where compound annual EPS growth is between 4% and 5% an additional 10% will vest on a linear basis; and • where compound annual EPS growth is between 5% and 8% the remaining 50% will vest on a linear basis. (ii) For options shown with a 9%-15% performance hurdle, 50% of the options vest where compound annual EPS growth is 9%, and where compound annual EPS growth is between 9% and 15% the remaining 50% of options vest on a linear basis. 54 AUDITOR’S INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au Board of Directors JB Hi-Fi Limited Podium Level, 60 City Road Southbank VIC 3006 16 August 2021 Dear Board Members Auditor’s Independence Declaration to JB Hi-Fi Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of JB Hi-Fi Limited. As lead audit partner for the audit of the ﬁ nancial statements of JB Hi-Fi Limited for the year ended 30 June 2021, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU Travis Simkin Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Paciﬁ c Limited and the Deloitte organisation. 55 INDEPENDENT AUDITOR’S REPORT Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JB HI-FI LIMITED Report on the Audit of the Financial Report Opinion We have audited the financial report of JB Hi-Fi Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated balance sheet as at 30 June 2021, the consolidated statement of profit or loss, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and 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: • Giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year then ended; and • Complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. 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 judgement, were of most signiﬁ cance in our audit of the ﬁ nancial report for the current period. These matters were addressed in the context of our audit of the ﬁ nancial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Paciﬁ c Limited and the Deloitte organisation. 56 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Carrying value of The Good Guys cash generating unit Our audit procedures included, but were not limited to: Refer to Note 12 Intangible assets • Understanding managements processes and controls As at 30 June 2021, the carrying value of The Good Guys cash generating unit (“TGG CGU”) included $575.6 million of related to the preparation of the VIU model for the TGG CGU. goodwill and $241.3 million of indeﬁ nite useful life brand names, • Agreeing forecast cash ﬂows for FY22 to the latest Board both of which are required to be assessed for impairment reviewed budget and assessing the historical accuracy of annually or where there is an indicator of impairment. budgeting for the TGG CGU. The recoverable amount of the TGG CGU has been • Assessing how management factored in estimation determined by management based on a value-in-use (“VIU”) uncertainty in setting the FY22 budget and selecting key model, which incorporates signiﬁ cant judgement related to assumptions, by comparing the estimates to historical the estimation of future cash ﬂ ows, short term growth rates, performance, industry reports and industry peers. long term growth rates and an appropriate discount rate. • In conjunction with our valuation specialists, assessing The estimation uncertainty associated with future cash the VIU methodology used by management and the ﬂ ows and key assumptions was elevated as at 30 June 2021 mathematical accuracy of the VIU model, as well as due to the continuing uncertainty arising from the COVID-19 comparing the discount rate and long term growth rate pandemic and its impact on macroeconomic factors, both to external benchmark data. globally and in Australia. • Performing independent sensitivity analysis to challenge key assumptions. • Evaluating the appropriateness of the disclosures included in Note 12 to the ﬁnancial statements. Lease accounting Our audit procedures included, but not limited to: Refer to Note 16 of Right of use assets and lease liabilities • Understanding managements processes and key controls The Group holds right of use assets of $536.3 million and related to the accounting for leases. lease liabilities of $631.3 million. • Testing on a sample basis, movements in the right of use In applying AASB 16 Leases, the Group is required to make a number of signiﬁ cant judgments and estimates as disclosed assets and lease liabilities and recalculating the interest and depreciation recognised in proﬁ t or loss. in Note 16, including: • Evaluating the estimates and judgements applied by • Measuring the lease term and determining whether renewal options are ‘reasonably certain’. • Determining the ‘enforceable period’ for stores in holdover, with reference to IFRS Interpretations Committee Guidance. management, including the probability of exercising renewal options and the lease term assigned to leases in holdover. • In conjunction with our treasury specialists, assessing the incremental borrowing rates adopted by management, by preparing an independent expectation of the • Determining an appropriate incremental borrowing rate incremental borrowing rates. to be applied in the measurement of right of use assets and lease liabilities. • Evaluating the appropriateness of the disclosures included in Note 16 to the ﬁnancial statements. Other Information The directors are responsible for the other information. The other information comprises: • the Governance Statement, Directors’ Report, Operating and Financial Review and additional securities exchange information, which we obtained prior to the date of this auditor’s report, and are included in the Group’s Annual Report; • the Chairman’s and Group Chief Executive Ofﬁ cer’s Report, which will be included in the Group’s Annual Report, which is expected to be made available to us after the date of this auditor’s report. 57 INDEPENDENT AUDITOR’S REPORT (continued) The other information does not include the ﬁ nancial report or the Remuneration Report and our auditor’s report thereon. Our opinion on the ﬁ nancial report does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the ﬁ nancial report, our responsibility is to read the other information identiﬁ ed above and, in doing so, consider whether the other information is materially inconsistent with the ﬁ nancial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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. When we read the Chairman’s and Group Chief Executive Ofﬁ cer’s Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the ﬁ nancial 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 ﬁ nancial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the ﬁ nancial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related 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 has 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 ﬁ nancial 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 inﬂ uence the economic decisions of users taken on the basis of this ﬁ nancial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the ﬁ nancial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufﬁ cient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signiﬁ cant 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 ﬁ nancial 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 ﬁ nancial report, including the disclosures, and whether the ﬁ nancial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufﬁ cient appropriate audit evidence regarding the ﬁ nancial information of the entities or business activities within the Group to express an opinion on the ﬁ nancial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. 58 We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and signiﬁ cant audit ﬁ ndings, including any signiﬁ cant deﬁ ciencies 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 with the directors, we determine those matters that were of most signiﬁ cance in the audit of the ﬁ nancial report of the current period 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 beneﬁ ts of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 31 to 54 of the Directors’ Report for the year ended 30 June 2021. In our opinion, the Remuneration Report of JB Hi-Fi 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. DELOITTE TOUCHE TOHMATSU Travis Simkin Partner Chartered Accountants Melbourne, 16 August 2021 59 DIRECTORS’ DECLARATION The directors declare that: (a) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; (b) the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 1 to the financial statements; (c) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (d) the directors have been given the declarations required by s.295A of the Corporations Act 2001. At the date of this declaration, the Company is within the class of companies affected by ASIC Corporations (Wholly-owned Companies) Instrument 2016/785. The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. In the directors’ opinion, there are reasonable grounds to believe that the Company and the companies to which the ASIC Class Order applies, as detailed in note 22 to the financial statements will, as a group, be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the Directors Stephen Goddard Chairman 16 August 2021 Richard Murray Group Chief Executive Officer 60 STATEMENT OF PROFIT OR LOSS for the ﬁ nancial year ended 30 June 2021 Revenue Cost of sales Gross proﬁ t Other income Sales and marketing expenses Occupancy expenses Administration expenses Other expenses Finance costs Proﬁ t before tax Income tax expense Proﬁ t for the year attributable to Owners of the Company Earnings per share Basic (cents per share) Diluted (cents per share) Notes 5 Consolidated 2021 $m 2020 $m 8,916.1 7,918.9 (6,938.9) (6,224.8) 1,977.2 1,694.1 2.9 (845.8) (293.6) (41.3) (54.7) (24.7) 720.0 (213.9) 506.1 3.6 (809.8) (313.1) (41.7) (48.7) (36.4) 448.0 (145.7) 302.3 Cents Cents 440.75 437.83 263.11 260.69 6 7 3 3 The above statement of proﬁ t or loss should be read in conjunction with the accompanying notes. 61 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME for the ﬁ nancial year ended 30 June 2021 Proﬁ t for the year Other comprehensive income Items that may be reclassiﬁ ed subsequently to proﬁ t or loss Changes in the fair value of cash ﬂ ow hedges (net of tax) Exchange differences on translation of foreign operations Other comprehensive income for the year (net of tax) Consolidated 2021 $m 506.1 – – – 2020 $m 302.3 0.2 (0.4) (0.2) Total comprehensive income for the year attributable to Owners of the Company 506.1 302.1 The above statement of proﬁ t or loss and other comprehensive income should be read in conjunction with the accompanying notes. 62 BALANCE SHEET as at 30 June 2021 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Plant and equipment Deferred tax assets Intangible assets Right-of-use assets Other non-current assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Deferred revenue Provisions Lease liabilities Current tax liabilities Total current liabilities Non-current liabilities Deferred revenue Provisions Lease liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Total equity Consolidated 2021 $m 2020 $m Notes 17 9 8 10 11 7 12 16 10 13 14 15 16 14 15 16 19 20 263.2 211.6 938.8 35.7 251.5 220.3 739.3 34.7 1,449.3 1,245.8 169.0 30.3 172.3 22.2 1,031.4 1,031.4 536.3 39.0 1,806.0 3,255.3 642.2 38.4 1,906.5 3,152.3 777.4 212.9 105.5 167.3 92.2 854.1 196.6 98.9 164.0 32.3 1,355.3 1,345.9 85.0 42.6 464.0 591.6 1,946.9 1,308.4 393.0 83.8 831.6 81.6 41.5 577.6 700.7 2,046.6 1,105.7 403.2 66.8 635.7 1,308.4 1,105.7 The above balance sheet should be read in conjunction with the accompanying notes. 63 STATEMENT OF CHANGES IN EQUITY for the ﬁ nancial year ended 30 June 2021 Consolidated Notes Balance at 1 July 2019 Adjustment on adoption of AASB 16 (net of tax) Restated total equity at the beginning of the ﬁ nancial year Proﬁ t for the year Cash ﬂ ow hedges (net of tax) Exchange difference on translation of foreign operations Total comprehensive income for the year Allocation of shares under share option plans Dividends paid Share-based payments - expense Share-based payments - income tax 19 4 Contributed equity $m 434.8 Equity settled beneﬁ ts reserve $m 54.2 – – 434.8 54.2 – – – – 1.3 – – – – – – – – – 12.1 1.2 – 67.5 Acquisition of shares by employee share trust 19 Balance at 30 June 2020 (32.9) 403.2 Balance at 1 July 2020 403.2 67.5 Proﬁ t for the year Total comprehensive income for the year Dividends paid Acquisition of shares by employee share trust Share-based payments - expense Share-based payments - income tax 4 19 – – – (10.2) – – Balance at 30 June 2021 393.0 – – – – 13.5 3.5 84.5 Foreign currency translation reserve $m Hedging reserves $m Common control reserve $m Retained earnings $m Total equity $m 5.0 – 5.0 – – (0.4) (0.4) – – – – – 4.6 4.6 – – – – – – 0.6 – 0.6 – 0.2 – 0.2 – – – – – 0.8 0.8 – – – – – – (6.1) 555.6 1,044.1 – (49.9) (49.9) (6.1) – – – – – – – – – 505.7 302.3 – – 994.2 302.3 0.2 (0.4) 302.3 302.1 – 1.3 (172.3) (172.3) – – – 12.1 1.2 (32.9) (6.1) 635.7 1,105.7 (6.1) – – – – – – 635.7 506.1 506.1 (310.2) – – – 1,105.7 506.1 506.1 (310.2) (10.2) 13.5 3.5 4.6 0.8 (6.1) 831.6 1,308.4 The above statement of changes in equity should be read in conjunction with the accompanying notes. 64 STATEMENT OF CASH FLOWS for the ﬁ nancial year ended 30 June 2021 Cash ﬂ ows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest and other ﬁ nance costs paid on borrowings Interest on lease liabilities Income taxes paid Net cash inﬂ ow from operating activities Cash ﬂ ows from investing activities Payments for plant and equipment Proceeds from sale of plant and equipment Net cash (outﬂ ow) from investing activities Cash ﬂ ows from ﬁ nancing activities Proceeds from issues of shares Payments for shares acquired by the employee share trust Repayment of borrowings Payments for debt issue costs Dividends paid to owners of the Company Payment of lease liabilities Net cash (outﬂ ow) from ﬁ nancing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the ﬁ nancial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year Consolidated 2021 $m 2020 $m Notes 9,837.1 8,759.3 (9,096.7) (7,624.5) 16 17 11 19 19 4 16 1.6 (3.3) (21.3) (158.7) 558.7 (57.7) – (57.7) – (10.2) – – (310.2) (168.9) (489.3) 11.7 251.5 – 263.2 1.1 (11.5) (24.9) (118.2) 981.3 (43.1) 0.1 (43.0) 1.3 (32.9) (440.0) (0.1) (172.3) (161.8) (805.8) 132.5 119.2 (0.2) 251.5 The above statement of cash ﬂ ows should be read in conjunction with the accompanying notes. 65 NOTES TO THE FINANCIAL STATEMENTS for the ﬁ nancial year ended 30 June 2021 Contents of the notes to the consolidated ﬁ nancial statements Page 1 About this report ................................................................................................................................................................67 Group Performance .....................................................................................................................................................................68 2 3 4 5 6 7 Segment information ..........................................................................................................................................................68 Earnings per share .............................................................................................................................................................69 Dividends ...........................................................................................................................................................................70 Revenue ............................................................................................................................................................................70 Expenses ...........................................................................................................................................................................71 Taxation .............................................................................................................................................................................72 Operating Assets and Liabilities ................................................................................................................................................74 8 9 10 11 12 13 14 15 16 Inventories .........................................................................................................................................................................74 Trade and other receivables ...............................................................................................................................................74 Other assets ......................................................................................................................................................................75 Plant and equipment ..........................................................................................................................................................76 Intangible assets ................................................................................................................................................................77 Trade and other payables ...................................................................................................................................................78 Deferred revenue ...............................................................................................................................................................78 Provisions ..........................................................................................................................................................................79 Right-of-use assets and lease liabilities ..............................................................................................................................80 Capital Structure and Risk Management ..................................................................................................................................83 17 18 19 20 21 Notes to the cash ﬂ ow statement .......................................................................................................................................83 Borrowings ........................................................................................................................................................................83 Contributed equity .............................................................................................................................................................84 Reserves............................................................................................................................................................................86 Financial risk management .................................................................................................................................................86 Group Structure ...........................................................................................................................................................................89 22 23 24 25 Subsidiaries .......................................................................................................................................................................89 Deed of cross guarantee ....................................................................................................................................................90 Parent entity ......................................................................................................................................................................92 Related party transactions .................................................................................................................................................92 Other Disclosures ........................................................................................................................................................................93 26 27 28 29 30 Key management personnel disclosures ............................................................................................................................93 Share-based payments ......................................................................................................................................................93 Remuneration of auditors ...................................................................................................................................................94 Summary of other signiﬁ cant accounting policies ...............................................................................................................95 Events occurring after the reporting period .........................................................................................................................97 66 1 ABOUT THIS REPORT These are the consolidated ﬁ nancial statements of JB Hi-Fi Limited (Company or parent entity) and its controlled entities. JB Hi-Fi Limited and its controlled entities together are referred to in this ﬁ nancial report as the Group. For the purposes of preparing the consolidated ﬁ nancial statements the Company is a for-proﬁ t entity. (a) Basis of preparation These general purpose ﬁ nancial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. (i) Compliance with IFRS The consolidated ﬁ nancial statements of JB Hi-Fi Limited comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) Historical cost convention These ﬁ nancial statements have been prepared under the historical cost convention. (iii) Corporation information JB Hi-Fi Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered ofﬁ ce and principal place of business is Podium Level, 60 City Road, Southbank, Victoria. The ﬁ nancial statements were authorised for issue by the directors on 16 August 2021. (b) Rounding off of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the ﬁ nancial report are rounded off to the nearest hundred thousand dollars, unless otherwise stated. (c) Sections The notes in these ﬁ nancial statements have been organised into the following sections to help users ﬁ nd and understand the information they need to know: (i) Group Performance: focuses on the results and performance of the Group; (ii) Operating Assets and Liabilities: provides information on the assets and liabilities used to generate the Group’s performance; (iii) Capital Structure and Risk Management: outlines how the Group manages its capital and various ﬁ nancial risks; (iv) Group Structure: explains aspects of the group structure and how any changes have affected the ﬁ nancial position and performance of the Group; and (v) Other Disclosures: provides information on items which require disclosure to comply with Australian Accounting Standards and other regulatory pronouncements. (d) Critical accounting estimates and assumptions Estimates and judgements used in the preparation of these ﬁ nancial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a ﬁ nancial impact on the Group and that are believed to be reasonable under the circumstances. The estimates and assumptions that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year are included in the following notes: Areas of judgement and estimate Inventory net realisable value Impairment of goodwill and other intangible assets Right-of-use assets and lease liabilities Note 8 12 16 67 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 GROUP PERFORMANCE 2 SEGMENT INFORMATION (a) Description of segments Management has determined the operating segments based on the reports reviewed by the Group Chief Executive Ofﬁ cer that are used to make strategic and operating decisions. The Group Chief Executive Ofﬁ cer considers the business primarily from a brand and geographic perspective. On this basis, management has identiﬁ ed three reportable segments, JB Hi-Fi Australia (JB Aust), JB Hi-Fi New Zealand (JB NZ) and The Good Guys (TGG). The Group Chief Executive Ofﬁ cer monitors the performance of these three segments separately. The Group does not operate any other brand or in any other geographic segment. (b) Segment information provided to the Group Chief Executive Ofﬁ cer The segment information provided to the Group Chief Executive Ofﬁ cer for the reportable segments for the year ended (i) As a result of the asset impairments highlighted in Note 6, JB Hi-Fi New Zealand FY2021 proﬁ t before tax has beneﬁ tted from a reduction in depreciation on right of use assets and ﬁ xed assets of $5.9 million. After allowing for the impact of current year impairment losses of $6.0 million, the net impact on JB Hi-Fi New Zealand FY2021 proﬁ t before tax was a $0.1 million reduction (2020: $19.7 million). 30 June 2021 is as follows: 2021 Revenue from external customers EBITDA Depreciation and impairment EBIT Interest on leases Interest revenue Other ﬁ nance costs Proﬁ t before income tax Other segment information Segment Assets Segment Liabilities 2020 Revenue from external customers EBITDA Depreciation and impairment EBIT Interest on leases Interest revenue Other ﬁ nance costs Proﬁ t before income tax Other segment information Segment Assets Segment Liabilities (i) EBIT and EBITDA TGG $m Elimininations $m JB Aust $m 5,956.8 658.5 (135.5) 523.0 (12.3) JB NZ(i) $m 243.6 11.4 (6.0) 5.4 (0.4) 2,715.7 291.7 (77.0) 214.7 (8.6) 510.7 5.0 206.1 1,689.2 1,444.3 47.3 35.9 1,731.8 679.7 (213.0) (213.0) TGG $m Elimininations $m JB Aust $m 5,318.9 525.6 (134.1) 391.5 (15.3) JB NZ $m 211.2 4.9 (26.0) (21.1) (0.5) 2,388.8 187.5 (74.6) 112.9 (9.1) 376.2 (21.6) 103.8 1,452.5 1,261.0 45.9 39.6 1,656.2 748.3 (2.3) (2.3) – – – – – – – – – – – – Total $m 8,916.1 961.6 (218.5) 743.1 (21.3) 1.6 (3.4) 720.0 3,255.3 1,946.9 Total $m 7,918.9 718.0 (234.7) 483.3 (24.9) 1.1 (11.5) 448.0 3,152.6 2,046.6 The Group Chief Executive Ofﬁ cer assesses the performance of the Group’s operating segments based on EBIT and EBITDA. EBIT excludes the effects of interest revenue, ﬁ nance costs (including interest on leases) and income tax. EBITDA further excludes depreciation, amortisation and impairment charges. 68 2 SEGMENT INFORMATION (continued) (c) Covid-19 The Group’s operations were affected signiﬁ cantly by the Covid-19 pandemic and resulting government actions. The Group remained committed to supporting government and community efforts to limit the spread of the virus. The Group’s highest priority is the health and wellbeing of its team members, customers, business partners and the wider community, whilst responding to its customers’ changing needs and maintaining ﬁ nancial stability. During the year the Group continued to take measures to protect the health and safety of all people who worked in or visited its premises. Some stores were closed at various times throughout the ﬁ nancial year in accordance with government restrictions but continued to fulﬁ l online and click-and-collect orders where possible. In addition, the Group voluntarily closed its airport stores and some CBD stores for certain periods in response to a shift in foot trafﬁ c away from these areas. Despite these challenges, performance across the JB Hi-Fi and The Good Guys businesses remained strong with elevated sales growth driven by homemaker and free-standing stores and a signiﬁ cant acceleration in online, as the businesses provided customers with the essential products they needed to prepare for and respond to Covid-19. These included technology products that enabled remote working, learning and communication, essential home appliances for food storage and preparation and home entertainment products as customers spent more time at home. The Group was pleased with its well executed promotional program and how its online businesses scaled and maintained a high level of customer service and on-time delivery during a period of signiﬁ cantly increased volume. The Group will continue to respond and adapt to its customers’ changing needs through the pandemic. 3 EARNINGS PER SHARE Basic (cents per share) Diluted (cents per share) Consolidated 2021 Cents 2020 Cents 440.75 437.83 263.11 260.69 Consolidated 2021 $m 2020 $m (a) Reconciliation of earnings used in calculating earnings per share Basic earnings per share Proﬁ t for the year attributable to owners of the Company 506.1 302.3 Diluted earnings per share Proﬁ t for the year attributable to owners of the Company 506.1 302.3 (b) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Options Consolidated 2021 Number m 2020 Number m 114.8 114.9 0.8 1.1 Weighted average number of ordinary and potential ordinary shares used as the denominator in calculating diluted earnings per share 115.6 116.0 (c) Information concerning the classiﬁ cation of securities Options Options granted under the Company’s share option plans are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive (776,443 options are considered dilutive (2020: 1,062,413), zero are considered anti-dilutive (2020: zero)). The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 27. 69 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 4 DIVIDENDS Recognised amounts Final Dividend - previous ﬁ nancial year Interim Dividend - current ﬁ nancial year Unrecognised amounts 2021 Cents per share 2020 $m Cents per share 90.00 180.00 270.00 103.4 206.8 310.2 51.00 99.00 150.00 $m 58.6 113.7 172.3 Final Dividend - current ﬁ nancial year 107.00 122.9 90.00 103.4 In respect of the ﬁ nancial year ended 30 June 2021, the directors have recommended the payment of a ﬁ nal dividend of 107 cents per share. The record date is 27 August 2021. All dividends declared and subsequently paid by the Company are franked to 100% at the 30% corporate income tax rate. Consolidated 2021 $m 2020 $m (a) Franking account balance Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2020: 30.0%) 470.1 384.3 The above amounts represent the balance of the franking account as at the end of the ﬁ nancial year, adjusted for franking credits that will arise from the payment of the amount of the provision for income tax. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $52.7 million (2020: $44.3 million). 5 REVENUE Sale of goods and services - Stores and other Sale of goods and services - Online Total Revenue (a) Product information Consolidated 2021 $m 2020 $m 7,852.2 1,063.9 8,916.1 7,321.7 597.2 7,918.9 The Group operates in one product and services segment, being the sale of consumer electronics products and services, including televisions, audio equipment, computers, cameras, telecommunications products and services, software, whitegoods, cooking products, heating and cooling products, small appliances, kitchen accessories and information technology and consulting services. The Group’s revenue is primarily generated on a point in time basis. The amount of revenue recognised by the Group on an ‘over time’ basis is not material in the context of the Group’s total revenue. (b) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances, rebates and amounts collected on behalf of third parties. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic beneﬁ ts will ﬂ ow to the entity and speciﬁ c criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the speciﬁ cs of each arrangement. Revenue is recognised for the major business activities as follows: 70 5 REVENUE (continued) (b) Revenue recognition (continued) (i) Sale of goods Revenue associated with the sale of goods is recognised when the performance obligation of the sale has been fulﬁ lled and control of the goods has transferred to the customer, which occurs at the point of sale when the goods are collected/delivered. Gift cards and store credits are considered a prepayment for goods and services to be delivered in the future. The Group has an obligation to transfer the goods or services in the future - creating a performance obligation. The Group recognises deferred revenue for the amount of the prepayment and recognises revenue when the customer redeems the gift card or store credit and the Group fulﬁ ls the performance obligation related to the transaction or likelihood of the gift card being redeemed by the customer is deemed remote. In recognising revenue from the sale of goods, the Group considers its historical experience with sales returns to determine if its ‘highly probable’ that a signiﬁ cant reversal of revenue will arise in the future. (ii) Commissions The Group acts as an agent in the sale of various products and services to customers such as telecommunication contracts. Commissions associated with agency sales are recognised on a point in time basis when all performance obligations have been completed to entitle the Group to the commission. (iii) Rendering of services The Group generates revenue from the provision of various services including installation, customer delivery, IT services and extended care and customer support services. Revenue relating to installation, customer delivery and IT services is principally recognised on a point in time basis, which occurs upon completion of the service given the short time period over which the services are provided. Revenue relating to extended care and customer support services is recognised over the period of cover where the Group retains the responsibility for the performance obligations associated with the services and at point of sale when a third party assumes responsibility for the performance obligations associated with the services. Amounts collected for services not yet provided are recorded as deferred revenue in the balance sheet. 6 EXPENSES Proﬁ t before income tax includes the following speciﬁ c expenses: Finance costs Interest and other ﬁ nance costs on borrowings Interest on leases Fair value loss on interest swaps designated as cash ﬂ ow hedges Other interest expense Employee beneﬁ ts expenses Share-based payments - expense Deﬁ ned contribution superannuation expense Other employee beneﬁ ts Depreciation and impairment Depreciation - Plant and equipment Impairment - Plant and equipment Depreciation - Right-of-use assets Impairment - Right-of-use assets Consolidated 2021 $m 2020 $m 3.2 21.3 – 0.2 24.7 13.5 62.4 726.8 802.7 51.8 3.0 159.1 4.6 218.5 8.7 24.9 2.0 0.8 36.4 12.1 56.7 703.8 772.6 54.0 5.9 160.4 14.4 234.7 The impairment losses recognised in the current and prior year principally relate to JB Hi-Fi New Zealand. The Group is focused on continuing to improve the performance of JB Hi-Fi New Zealand however, the past performance and ongoing uncertainty arising from the current environment, has resulted in its right-of-use and plant and equipment assets being impaired. 71 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 7 TAXATION (a) Income tax expense Current tax Deferred tax (b) Numerical reconciliation of income tax expense to prima facie tax payable Proﬁ t from continuing operations before income tax expense Tax at the Australian tax rate of 30.0% (2020: 30.0%) Effect of expenses that are not deductible in determining taxable proﬁ t Effect of different tax rates of subsidiaries operating in other jurisdictions Effect of other deductibles in determining taxable proﬁ t Effect of New Zealand deferred tax asset derecognised Unrecognised New Zealand tax losses recouped Other Tax expense (c) Amounts recognised directly in equity The following current and deferred amounts were charged directly to equity during the period: Current tax Consolidated 2021 $m 2020 $m 222.0 (8.1) 213.9 720.0 216.0 4.4 (0.1) (4.8) – (1.4) (0.2) 146.2 (0.5) 145.7 448.0 134.4 4.3 0.2 (3.4) 10.1 – 0.1 213.9 145.7 Tax effect of employee share options in reserves 3.5 1.2 (d) Deferred tax The balance comprises temporary differences attributable to: Deferred tax assets Provisions Inventories Deferred revenue Lease liabilities Other Deferred tax liabilities Brand names Prepayments Right-of-use asset Net deferred tax assets/(liabilities) All movements in the above temporary differences have been charged to income. 39.1 11.4 37.4 184.7 20.9 293.5 (85.2) (17.1) (160.9) (263.2) 30.3 36.9 11.9 37.0 217.9 13.6 317.3 (85.2) (17.2) (192.7) (295.1) 22.2 72 7 TAXATION (continued) (e) Recognition and measurement Current tax Current tax represents the amount expected to be paid to taxation authorities on taxable income for the period, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Deferred tax Deferred tax is accounted for using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities under ﬁ nancial reporting and taxation purposes. Deferred tax is measured at the rates that are expected to apply in the period in which the liability is settled or asset realised, based on tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable proﬁ t nor the accounting proﬁ t or in relation to the initial recognition of goodwill. A deferred tax asset is recognised only to the extent that it is probable that future taxable proﬁ ts will be available against which the deductible temporary differences or unused tax losses and tax offsets can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax beneﬁ t will be realised. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Income tax is recognised in the statement of proﬁ t or loss except to the extent that it relates to items recognised directly in equity, in which case, the tax is also recognised directly in equity. (f) Tax consolidation legislation The Company and its wholly owned Australian resident entities are part of a tax consolidated group and are therefore taxed as a single entity. The head entity within the tax consolidated group is JB Hi-Fi Limited. The members of the tax consolidated group are identiﬁ ed at note 22. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are recognised in the separate ﬁ nancial statements of the members of the tax consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate ﬁ nancial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax consolidated group are recognised by the Company (as head entity in the tax consolidated group). Where the tax contribution amount recognised by each member of the tax consolidated group for a particular period is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to) equity participants. (g) Nature of tax funding and tax sharing agreements Entities within the tax consolidated group have entered into a tax funding arrangement and a tax sharing agreement with the head entity. Under the terms of the tax funding arrangement, JB Hi-Fi Limited and each of the entities in the tax consolidated group have agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reﬂ ected in amounts receivable from or payable to other entities in the tax consolidated group. The tax sharing agreement entered into between members of the tax consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax consolidated group is limited to the amount payable to the head entity under the tax funding agreement. JB Hi-Fi calculates deferred taxes in relation to investments within the tax consolidated group using the ‘change in tax status’ view. This view results in no deferred tax being recognised until such time as an entity leaves the tax consolidated group. 73 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 OPERATING ASSETS AND LIABILITIES 8 INVENTORIES Finished goods (a) Recognition and measurement Consolidated 2021 $m 2020 $m 938.8 739.3 Inventories are stated at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on the basis of weighted average costs. Costs of inventories are determined after deducting rebates and discounts. Net realisable value represents the estimated selling price less estimated costs necessary to make the sale. When determining the net realisable value of inventories (which is most applicable to obsolete, end of life and slow moving inventory), the Group uses its judgement to determine the expected selling price and the estimated costs necessary to make the sale considering the nature of the inventories. Determining the expected selling price requires the use of management judgement. The key assumptions and variables affecting the expected selling price are reviewed at least annually. As the inventories held by the Group are all ﬁ nished goods, the estimated costs necessary to make the sale typically relate to staff commissions. Such costs are not considered material to the estimation of net realisable value. Any change in the measurement of net realisable value in a particular year will affect the cost of goods sold. 9 TRADE AND OTHER RECEIVABLES Trade receivables Allowance for expected credit losses Non-trade receivables (a) Terms and conditions Trade receivables Consolidated 2021 $m 59.8 (2.1) 57.7 153.9 211.6 2020 $m 59.7 (1.5) 58.2 162.1 220.3 The average credit period on account sales of goods is 30 days. No interest is charged on trade receivables. An allowance has been made for expected credit losses using a provision matrix based on historical credit loss rates. Credit insurance is carried for most commercial debtor accounts. Trade receivables are recognised at amortised cost less allowance for expected credit losses. Non-trade receivables Non-trade receivables principally represent rebates receivable from suppliers for purchases of inventories and contributions from landlords. Rebates associated with the purchases of inventory are recorded as a reduction in the cost of inventory on hand until the inventory is sold. No amount is considered irrecoverable from suppliers and therefore no allowance has been made. (b) Ageing of trade receivables (net of allowance for expected credit losses) Not past due Past due but not impaired: 0 - 30 days 31 - 60 days 61 - 90 days 91+ days 74 Consolidated 2021 $m 52.2 4.7 0.5 0.3 – 57.7 2020 $m 53.4 4.1 0.7 – – 58.2 9 TRADE AND OTHER RECEIVABLES (continued) (c) Movements in allowance for expected credit losses Balance at the beginning of the year Remeasurement of loss allowance Receivables written off during the year as uncollectable Consolidated 2021 $m 1.5 1.0 (0.4) 2.1 2020 $m 1.4 0.5 (0.4) 1.5 (d) Collectability of trade receivables An allowance has been made for expected credit losses (ECL) calculated by using a simpliﬁ ed provision matrix that is based on historical credit loss rates. The historical loss rates are adjusted to reﬂ ect current and forward-looking information speciﬁ c to the economic environment and affecting customers’ ability to settle their receivables. Trade receivables are written off against the allowance account where there is no reasonable expectation of recovery. The amount of the ECL is recognised in proﬁ t or loss within other expenses. Subsequent recoveries of amounts previously written off are credited against the same line item 10 OTHER ASSETS Current Prepayments Other Non-current Prepayments Consolidated 2021 $m 30.7 5.0 35.7 39.0 39.0 2020 $m 30.8 3.9 34.7 38.4 38.4 Prepayments includes payments made in relation to The Goods Guys Gold Service Extras program and general prepaid expenses. 75 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 11 PLANT AND EQUIPMENT At 1 July 2019 Cost Accumulated depreciation and impairment Net book amount Year ended 30 June 2020 Opening net book amount Additions Disposals Depreciation charge Impairment charge Closing net book amount At 30 June 2020 Cost Accumulated depreciation and impairment Net book amount Year ended 30 June 2021 Opening net book amount Additions Disposals Depreciation charge Impairment charge Closing net book amount At 30 June 2021 Cost Accumulated depreciation and impairment Net book amount (a) Recognition and measurement Plant and equipment $m Leasehold improvements $m 354.1 (221.8) 132.3 132.3 20.6 (0.7) (36.2) (4.2) 111.8 460.7 (348.9) 111.8 111.8 33.7 (6.0) (31.2) (2.6) 105.7 431.1 (325.4) 105.7 201.0 (141.8) 59.2 59.2 22.5 (1.7) (17.8) (1.7) 60.5 221.6 (161.1) 60.5 60.5 24.0 (0.2) (20.6) (0.4) 63.3 237.1 (173.8) 63.3 Total $m 555.1 (363.6) 191.5 191.5 43.1 (2.4) (54.0) (5.9) 172.3 682.3 (510.0) 172.3 172.3 57.7 (6.2) (51.8) (3.0) 169.0 668.2 (499.2) 169.0 Plant and equipment and leasehold improvements are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item. Depreciation is provided on plant and equipment and leasehold improvements. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis. The following estimated useful lives are used in the calculation of depreciation: • • Leasehold improvements 1 to 15 years Plant and equipment 1.5 to 15 years Plant and equipment and leasehold improvements are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁ able cash inﬂ ows which are largely independent of the cash inﬂ ows from other assets or groups of assets (cash-generating units). An item of plant and equipment is derecognised upon disposal or when no future economic beneﬁ ts are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset, and is recognised in other expenses in the proﬁ t or loss. 76 Goodwill $m Brand names $m Location premiums $m Rights to proﬁ t share $m Total $m 747.0 – 747.0 747.0 747.0 284.4 – 284.4 284.4 284.4 2.4 (2.4) – – – 3.5 (3.5) – – – 1,037.3 (5.9) 1,031.4 1,031.4 1,031.4 12 INTANGIBLE ASSETS Year ended 30 June 2020 Opening net book amount Adjustment on adoption of AASB 16 Closing net book amount Year ended 30 June 2021 Opening net book amount Closing net book amount (a) Recognition and measurement Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identiﬁ able assets of the acquired subsidiary or business at the date of the acquisition. Goodwill is not amortised. Instead, it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Any impairment is recognised as an expense and is not subsequently reversed. Goodwill is carried at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) expected to beneﬁ t from the synergies of the related business combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit (higher of its value in use and fair value less costs of disposal) is less than the carrying amount of the unit, the impairment loss is allocated ﬁ rst to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset. Further details regarding the allocation of goodwill to cash generating units and the Group’s impairment testing results for the year ended 30 June 2021, including an overview of key assumptions, is set out below. Brand names Brand names that are acquired as part of a business combination are recognised separately from goodwill. These assets are measured at their fair value at the date of acquisition using the relief from royalty method. Brand names are subsequently carried at cost less accumulated impairment losses. Brand names have indeﬁ nite useful lives and therefore do not attract amortisation. As at 30 June 2021, management has concluded that an indeﬁ nite useful life remains appropriate as the Group expect to continue using the brand names for the foreseeable future and there are no legal, technical or commercial factors indicating that the brand names have a limited life. For the purpose of impairment testing, brand names with indeﬁ nite useful lives are assessed for impairment annually, or more frequently when there is an indication that a brand name may be impaired. An impairment loss is recognised for the amount by which the assets carrying value exceeds its recoverable amount (higher of its value in use and fair value less costs of disposal). None of the Group’s brand names have incurred an impairment in previous periods. 77 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 12 INTANGIBLE ASSETS (continued) (b) Impairment testing The carrying amount of goodwill and brand names is allocated to the following cash-generating units or groups of CGUs (CGUs) for impairment testing purposes: Goodwill The Good Guys JB Hi-Fi Australia Brand names The Good Guys JB Hi-Fi Australia Consolidated 2021 $m 575.6 171.4 747.0 241.3 43.1 284.4 2020 $m 575.6 171.4 747.0 241.3 43.1 284.4 The recoverable amount of each CGU has been determined based on value in use calculations. The key assumptions used in the value in use calculations include the FY2022 ﬁ nancial budget, sales growth, gross margin, cost of doing business (CODB) and the discount rate. These assumptions are based on past experience and the Company’s forecast operating and ﬁ nancial performance for each CGU taking into account current market and economic conditions, risks, uncertainties and opportunities for improvement for each CGU. The value in use calculations use cash ﬂ ow projections over a 5 year period, extrapolated into perpetuity using a long term growth rate of 2.5% (2020: 2.5%), which is consistent with the mid-point of long-term inﬂ ation forecasts by recognised bodies. The cash ﬂ ows projections in Year 1 are based on ﬁ nancial budgets for the FY2022 ﬁ nancial year, as reviewed by the Board. The cash ﬂ ow projections thereafter assume a steady growth rate of 2.5% (2020: 2.5%), consistent with historical experience. A post-tax discount rate of 9.0% (2020: 9.0%) has been used for all CGUs. Sensitivity analysis indicates that no reasonably possible change in key assumptions would result in an impairment loss. Accordingly, the Group has concluded that no impairment is required based on current market and economic conditions and expected future performance. 13 TRADE AND OTHER PAYABLES Trade payables Goods and services tax (GST) payable Other creditors and accruals Consolidated 2021 $m 716.1 39.8 21.5 777.4 2020 $m 796.2 22.6 35.3 854.1 Trade payables and other creditors and accruals represent liabilities for goods and services provided to the Group prior to the end of ﬁ nancial year which are unpaid. Trade and other payables are stated at amortised cost. The amounts are unsecured and are usually settled within 45 days of recognition. 14 DEFERRED REVENUE Current Deferred revenue Non-current Deferred revenue 78 Consolidated 2021 $m 2020 $m 212.9 212.9 85.0 85.0 196.6 196.6 81.6 81.6 14 DEFERRED REVENUE (continued) Deferred revenue relates to unfulﬁ lled services to be performed under The Good Guys Gold Service Extras program, unredeemed gift cards and customer deposits. Refer to note 5(b) for the Group’s revenue recognition accounting policy. It is expected that 74% (2020: 76%) of Non-Current Deferred Revenue will be recognised in the next 3 ﬁ nancial years and the remaining 26% (2020: 24%) recognised in the following 3 years. 15 PROVISIONS Current Employee beneﬁ ts Lease provision Non-current Employee beneﬁ ts Lease provision Consolidated 2021 $m 104.0 1.5 105.5 9.4 33.2 42.6 2020 $m 97.0 1.9 98.9 8.2 33.3 41.5 (a) Recognition and measurement Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash ﬂ ows estimated to settle the present obligation, its carrying amount is the present value of those cash ﬂ ows. (i) Employee beneﬁ ts Liabilities for wages and salaries, including non-monetary beneﬁ ts, are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and unpaid bonuses are recognised in the provision for employee beneﬁ ts. All other short-term employee beneﬁ t obligations are presented as payables. Contributions to deﬁ ned contribution superannuation plans are expensed when employees have rendered services entitling them to the contributions. The liability for long service leave is recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees, up to the end of the reporting period. Expected future payments are discounted using the Australian corporate bond discount rate curve as published by Milliman with terms to maturity and currency that match, as closely as possible, the estimated future cash outﬂ ows. Management judgement is applied in determining the following key assumptions used in the calculation of long service leave at balance date: • • • future increases in wages and salaries; future on cost rates; and experience of employee departures and period of service. (ii) Lease provision The lease provision includes the Group’s best estimate of the amount required to return the Group’s leased premises to their original condition at the end of the lease term in accordance with the terms of the lease. 79 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 16 RIGHT-OF-USE ASSETS AND LEASE LIABILITIES The Group leases various properties and equipment in Australia and New Zealand. The non-cancellable period for these leases is generally between: Properties Stores Ofﬁ ces Warehouses 1-10 years 1-10 years 1-7 years Equipment 1-5 years The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes. Extension options are included in a number of the Group’s lease agreements, which are used to maximise operational ﬂ exibility. The extension options held are exercisable only by the Group and not by the lessors. The Group does not have any options to purchase leased assets. Increase clauses are in line with market practices and include inﬂ ation-linked, ﬁ xed rates, resets to market rents and hybrids of these. Certain store leases contain variable lease payment terms that are linked to store sales. The carrying value of right-of-use assets and lease liabilities is presented below: Properties $m Equipment $m Total $m (a) Right-of-use assets At 1 July 2019 Cost Accumulated depreciation and impairment Carrying value Year ended 30 June 2020 Opening carrying value Adoption of AASB 16 Additions, modiﬁ cations and other reassessments of leases Depreciation Impairment charge Foreign exchange translation Closing carrying value At 30 June 2020 Cost Accumulated depreciation and impairment Closing carrying value Year ended 30 June 2021 Opening carrying value Additions, modiﬁ cations and other reassessments of leases Depreciation Impairment charge Closing carrying value At 30 June 2021 Cost Accumulated depreciation and impairment Closing carrying value 80 747.9 – 747.9 – 747.9 63.3 (158.8) (14.4) (0.6) 637.4 810.6 (173.2) 637.4 637.4 53.3 (156.9) (4.6) 529.2 869.0 (339.8) 529.2 3.9 – 3.9 – 3.9 2.5 (1.6) – – 4.8 6.4 (1.6) 4.8 4.8 4.5 (2.2) – 7.1 10.9 (3.8) 7.1 751.8 – 751.8 – 751.8 65.8 (160.4) (14.4) (0.6) 642.2 817.0 (174.8) 642.2 642.2 57.8 (159.1) (4.6) 536.3 879.9 (343.6) 536.3 16 RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (continued) Properties $m Equipment $m Total $m (b) Lease liabilities Year ended 30 June 2020 Opening carrying value Adoption of AASB 16 New and modiﬁ ed leases Payment of lease liabilities Payment of interest on lease liabilities Interest expense Foreign exchange translation Closing carrying value At 30 June 2020 Current Non-Current Total Year ended 30 June 2021 Opening carrying value New and modiﬁ ed leases Payment of lease liabilities Payment of interest on lease liabilities Interest expense Foreign exchange translation Closing carrying value At 30 June 2021 Current Non-Current Total (c) Amounts recognised in the Statement of Proﬁ t or Loss Depreciation expense on right of use assets Impairment expense on right of use assets Interest expense on lease liabilities Property lease expense(i) – 832.9 64.4 (160.2) (24.8) 24.8 (0.5) 736.6 162.5 574.2 736.7 736.7 54.2 (166.7) (21.2) 21.2 (0.1) 624.1 165.1 459.0 624.1 – 4.0 2.6 (1.6) (0.1) 0.1 - 5.0 1.5 3.4 4.9 4.9 4.5 (2.2) (0.1) 0.1 – 7.2 2.2 5.0 7.2 2021 $m 159.1 4.6 21.3 6.2 – 836.9 67.0 (161.8) (24.9) 24.9 (0.5) 741.6 164.0 577.6 741.6 741.6 58.7 (168.9) (21.3) 21.3 (0.1) 631.3 167.3 464.0 631.3 2020 $m 160.4 14.4 24.9 7.2 (i) The property lease expense includes short-term, low value and variable rent expenses not recognised as part of AASB 16 leases. (d) Recognition and Measurement The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases and leases of low value assets. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in proﬁ t or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets primarily comprise ofﬁ ce equipment such as printers and photocopiers. 81 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 16 RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (continued) (d) Recognition and Measurement (continued) Lease liability The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. The Group’s weighted average incremental borrowing rate used during the year ended 30 June 2021 was 3.25% (2020: 3.24%). Each lease payment is allocated between the lease liability and ﬁ nance costs. The ﬁ nance cost is charged to proﬁ t or loss over the period of the lease to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Lease payments included in the measurement of the lease liability comprise: • • • • • ﬁ xed payments (including in-substance ﬁ xed payments), less any lease incentives receivable; variable lease payment that are based on an index or a rate; amounts expected to be payable by the lessee under residual value guarantees; the exercise price of a purchase option (if the lessee is reasonably certain to exercise); and payments of penalties for terminating the lease, if the lease term reﬂ ects the lessee exercising that option. As a practical expedient, AASB 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has elected to apply this practical expedient. The carrying amount of a lease liability is remeasured if there is a modiﬁ cation, a change in the lease term, a change in the lease payments (e.g. inﬂ ation-linked payments or market rate rent reviews). A corresponding adjustment is made to the right of use asset. Right-of-use assets Right-of-use assets are measured at cost comprising the following: • • • • the amount of the initial measurement of lease liability; any lease payments made at or before the commencement date less any lease incentives received; any initial direct costs; and estimated restoration costs. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses, with depreciation recognised on a straight-line basis over the shorter of the asset’s useful life and the lease term. The Group applies AASB 136 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any identiﬁ ed impairment loss as described in Note 12. Extension options The Group assesses at lease commencement whether it is reasonably certain to exercise extension options, and where it is reasonably certain, the extension period is included in the lease liability. The Group considers an option to extend a lease to be reasonably certain when the extension date is within 24 months, no decision has been made to terminate the lease, a decision has been made to exercise the option or when there is a clear economic incentive for extension. The Group reassesses whether it is reasonably certain to exercise the options if there is a signiﬁ cant event or signiﬁ cant change in circumstances within its control. Store leases in holdover When a store lease enters holdover, management considers all facts and circumstances to determine whether an ‘enforceable period’ exists in lieu of a contractual lease term. In reaching this conclusion, the Group considers their ability and economic incentive to remain in the store location and the signiﬁ cance of the economic penalty that would arise from termination of the arrangement. When an ‘enforceable period’ is identiﬁ ed, management estimate the expected lease term, lease liability and related right of use asset based on information available at the date the store enters holdover. When a new lease agreement is subsequently entered into, management account for any change in terms in accordance with the principles that apply to lease modiﬁ cations. 82 CAPITAL STRUCTURE AND RISK MANAGEMENT 17 NOTES TO THE CASH FLOW STATEMENT For the purposes of the cash ﬂ ow statement, cash and cash equivalents includes cash on hand and in banks, net of outstanding bank overdrafts and trade ﬁ nance facilities. (a) Reconciliation of cash and cash equivalents Cash and cash equivalents at the end of the ﬁ nancial year as shown in the cash ﬂ ow statement is reconciled as follows: Cash Bank overdrafts Cash and cash equivalents (b) Reconciliation of net cash inﬂ ow from operating activities to proﬁ t Proﬁ t for the year Depreciation and amortisation Impairment charges Share-based payments - expense Share-based payments - income tax Net loss on disposal of non-current assets Change in operating assets and liabilities net of effects from acquisition of businesses: (Increase) decrease in inventories (Increase) decrease in current receivables (Increase) decrease in other current assets (Increase) decrease in deferred tax assets (Decrease) increase in current provisions (Decrease) increase in current payables (Decrease) increase in current deferred revenue (Decrease) increase in non-current deferred revenue (Decrease) increase in other current liabilities (Decrease) increase in non-current provisions (Decrease) increase in other non-current liabilities (Decrease) increase in current tax liabilities Net cash inﬂ ow from operating activities 18 BORROWINGS Reconciliation of liabilities arising from ﬁ nancing activities Opening borrowings Repayment of borrowings Debt issue costs paid Amortisation of debt issue costs Consolidated 2021 $m 273.6 (10.4) 263.2 506.1 210.9 7.6 13.5 3.5 6.2 2020 $m 251.5 – 251.5 302.3 214.4 20.3 12.1 1.2 2.3 (199.3) 146.6 8.7 (1.0) (8.1) 6.6 (76.7) 16.3 3.4 – 1.1 – 59.9 558.7 35.1 2.1 (0.5) 16.5 181.9 30.9 (8.5) (0.2) (2.8) (0.3) 27.9 981.3 Consolidated 2021 $m 2020 $m – – – – – 439.1 (440.0) (0.1) 1.0 – 83 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 18 BORROWINGS (continued) During the year, as a result of the continuing strong cash position of the Group, the Group’s trade ﬁ nance facility was reduced from $400.0 million to $200.0 million and the Group’s term debt facilities were reduced from $380.0 million to $138.0 million. The Group’s bank overdraft facilities were also reduced from $59.3 million to $29.3 million and therefore the Group has total borrowing facilities of $367.3 million of which $356.9 million are unused at 30 June 2021 in addition to cash on hand of $263.2 million. Refer to note 21(a) for further details on the Group’s ﬁ nancing facilities. (a) Recognition and measurement Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Borrowings are classiﬁ ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date, and intends to do so. The Group monitors compliance with its ﬁ nancial covenants on a monthly basis and reports compliance on a semi-annual basis to the banks. The Group has complied with all such requirements during the current and previous year. 19 CONTRIBUTED EQUITY (a) Share capital Ordinary shares - fully paid Parent entity Parent entity 2021 Shares 2020 Shares 2021 $m 2020 $m 114,883,372 114,883,372 393.0 403.2 Ordinary shares issued are classiﬁ ed as equity and are fully paid, have no par value and carry one vote per share and the right to dividends. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. If the entity reacquires its own equity instruments, for example, as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the proﬁ t or loss and the consideration paid, including any directly attributable incremental costs (net of income taxes), is recognised directly in equity. (b) Movements in ordinary share capital Date Details 1 July 2019 Opening balance Shares acquired by employee share trust Allocation of shares under share option, variable reward and deferred STI plans Balance excluding shares held by employee share trust Unallocated shares held by employee share trust 30 June 2020 Closing balance 1 July 2020 Opening balance Unallocated shares held by employee share trust Balance excluding shares held by employee share trust Shares acquired by employee share trust Allocation of shares under share option, variable reward and deferred STI plans Balance excluding shares held by employee share trust Unallocated shares held by employee share trust 30 June 2021 Closing balance Number of shares 114,883,372 (895,147) 543,551 114,531,776 351,596 114,883,372 114,883,372 (351,596) 114,531,776 (216,507) 566,438 114,881,707 1,665 114,883,372 $m 434.8 (32.9) 1.3 403.2 – 403.2 403.2 – 403.2 (10.2) – 393.0 – 393.0 84 19 CONTRIBUTED EQUITY (continued) (c) Share options In accordance with the provisions of the Company’s share option plans, as at 30 June 2021, executives and non-executive management have options over 785,543 ordinary shares (of which 4,862 were vested), in aggregate, with various expiry dates. As at 30 June 2020, executives and non-executive management had options over 1,091,782 ordinary shares (of which 3,197 were vested), in aggregate, with various expiry dates. Share options granted under the Company’s share option plans carry no rights to dividends and no voting rights. (d) Capital management The Board reviews the capital structure on an ongoing basis. The Group’s objective is to maintain an optimal capital structure which seeks to reduce the cost of capital and to ensure the Group has access to adequate capital to sustain the future development of the business. As part of its capital management program, the Group monitors the return on invested capital and the gearing ratio. The Group deﬁ nes return on invested capital as earnings before interest and tax (EBIT) divided by the sum of total equity plus net debt and the gearing ratio as term debt excluding capitalised borrowing costs, divided by earnings before interest, taxation, depreciation, amortisation and impairment (EBITDA). The Board has adopted a policy of monitoring the dividend payout ratio and targeting a payout ratio of 65% of net proﬁ t after tax as it seeks to strike a balance between shareholder returns and ensuring adequate capital is retained for the growth of the business so as to maximise long term shareholder returns. There were no changes in the Group’s approach to capital management during the year. The Group’s return on invested capital and gearing ratios as at 30 June 2021 and 30 June 2020 were as follows: Return on invested capital Proﬁ t before tax Net ﬁ nance costs EBIT Cash and cash equivalents Total equity Invested capital Return on invested capital Gearing ratio Term debt EBIT Depreciation and impairment EBITDA Gearing ratio Consolidated 2021 $m 720.0 23.1 743.1 (263.2) 1,308.4 1,045.2 2020 $m 448.0 35.3 483.3 (251.5) 1,105.7 854.2 71.1% 56.6% – – 743.1 218.5 961.6 483.3 234.7 718.0 0.00 0.00 85 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 20 RESERVES Equity-settled beneﬁ ts Common control reserve Hedging reserves Foreign currency translation reserve (a) Nature and purpose of reserves (i) Equity-settled beneﬁ ts Consolidated 2021 $m 84.5 (6.1) 0.8 4.6 83.8 2020 $m 67.5 (6.1) 0.8 4.6 66.8 The equity-settled beneﬁ ts reserve arises on the grant of share options and restricted shares to executives and non-executive management under the Company’s share option plans and variable reward plan. Further information about share based payments is in note 27 to the ﬁ nancial statements. (ii) Common control reserve The common control reserve represents the excess of the purchase consideration over the balance of a non-controlling interest at the date a change in ownership of a subsidiary occurs. (iii) Hedging reserves Hedging reserves include gains and losses recognised on the effective portion of cash ﬂ ow hedges with respect to the Group’s interest rate swaps, caps and forward foreign exchange contracts as described in note 29(a), in addition to gains and losses recognised on the effective portion of foreign currency loans in previous periods designated as net investment hedges. The cumulative deferred gain or loss on the interest rate swaps, caps and forward foreign exchange contracts is recognised in the proﬁ t or loss when the hedged transaction impacts the proﬁ t or loss. The gains and losses deferred due to the net investment hedge are recognised in the proﬁ t or loss when the foreign operation is disposed. (iv) Foreign currency translation Exchange differences relating to the translation of the Group’s foreign controlled entities from their functional currencies into Australian dollars are brought to account directly to the foreign currency translation reserve, as described in note 29(b). 21 FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of ﬁ nancial risks, including market risk (foreign currency and interest rate risk), liquidity risk and credit risk. The Group seeks to minimise the effects of these risks, by using various ﬁ nancial instruments, including derivative ﬁ nancial instruments. The Group does not enter into or trade ﬁ nancial instruments, including derivative ﬁ nancial instruments, for speculative purposes. The use of ﬁ nancial derivatives is governed by the Group’s policies approved by the Board of directors, which provide written principles on the use of ﬁ nancial derivatives. The Group holds the following ﬁ nancial assets and liabilities at reporting date: Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Lease liabilities 86 Consolidated 2021 $m 263.2 211.6 474.8 777.4 631.3 2020 $m 251.5 220.3 471.8 854.1 741.6 1,408.7 1,595.7 21 FINANCIAL RISK MANAGEMENT (continued) (a) Liquidity risk Ultimate responsibility for liquidity risk management rests with the Board of directors, who assess the Group’s short, medium and long term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash ﬂ ows. Financing arrangements The Group had access to the following borrowing facilities at the end of the reporting period: Unsecured bank overdraft facility: amount used amount unused Unsecured trade ﬁ nance facility: amount used amount unused Unsecured indemnity guarantees: amount used amount unused Unsecured bank loan facilities (term debt): amount used amount unused Headroom in total borrowing facilities (excluding security indemnity guarantees) Consolidated 2021 $m 10.4 18.9 29.3 – 200.0 200.0 3.5 2.8 6.3 – 138.0 138.0 356.9 2020 $m – 59.3 59.3 – 400.0 400.0 3.6 2.7 6.3 – 380.0 380.0 839.3 87 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 21 FINANCIAL RISK MANAGEMENT (continued) (a) Liquidity risk (continued) Maturities of ﬁ nancial liabilities The following tables detail the Group’s remaining contractual maturity for its ﬁ nancial liabilities. The tables have been drawn up based on the undiscounted cash ﬂ ows of ﬁ nancial liabilities based on the earliest date on which the Group can be required to pay. The table includes both principal and estimated interest cash ﬂ ows. Cash ﬂ ows for ﬁ nancial liabilities without ﬁ xed amount or timing are based on the conditions existing at the reporting date. 2021 Financial liabilities Trade and other payables Lease liabilities Less than 6 months 6 - 12 months $m $m Between 1 and 2 years $m Between 2 and 5 years $m Over 5 years $m Total $m 777.4 94.6 872.0 – 90.7 90.7 – 160.7 160.7 – 284.6 284.6 – 62.5 62.5 777.4 693.1 1,470.5 Less than 6 months 6 - 12 months $m $m Between 1 and 2 years $m Between 2 and 5 years $m Over 5 years $m Total $m 854.1 93.6 947.7 – 91.6 91.6 – 175.7 175.7 – 352.7 352.7 – 95.3 95.3 854.1 808.9 1,663.0 2020 Financial liabilities Trade and other payables Lease liabilities (b) Credit risk management Weighted average effective interest rate % – 3.25% Weighted average effective interest rate % – 3.24% Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in ﬁ nancial loss to the Group. The Group has endeavoured to minimise its credit risk by dealing with creditworthy counterparties. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. The Group does not have any signiﬁ cant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amount of ﬁ nancial assets recorded in the ﬁ nancial statements, net of any allowance for impairment, represents the Group’s maximum exposure to credit risk. 88 GROUP STRUCTURE 22 SUBSIDIARIES The consolidated ﬁ nancial statements incorporate the assets, liabilities and results of the following principal subsidiaries in accordance with the accounting policy described below: Name of entity Parent entity JB Hi-Fi Limited ^ Subsidiaries JB Hi-Fi Group Pty Ltd ^ Clive Anthonys Pty Ltd JB Hi-Fi (A) Pty Ltd ^ Rocket Replacements Pty Ltd JB Hi-Fi Education Solutions Pty Ltd ^ JB Hi-Fi Group (NZ) Limited JB Hi-Fi NZ Limited JB Hi-Fi (B) Pty Ltd ^ The Muir Electrical Company Pty Ltd ^ The Muir Electrical Service Co Pty Ltd ^ The Good Guys Discount Warehouses (Australia) Pty Ltd ^ Muir Group Employee Share Plan Pty Ltd ^ The Muir Finance Company Pty Ltd ^ M.E.W. (Australia) Pty Ltd ^ The Muir Electrical Company Pty Ltd as Trustee of the Muir Investment Unit Trust ^ The Good Guys Discount Warehouses (Australia) Pty Ltd as Trustee of the various store Trusts Home Services Network Pty Ltd ^ Notes: (i) (ii) JB Hi-Fi Limited is the head entity within the tax consolidated group. All Australian entities are members of the tax consolidated group. (iii) Entities identiﬁ ed with ‘^’ are party to a deed of cross guarantee. Ownership interest Country of incorporation 2021 % 2020 % Australia - - Australia Australia Australia Australia Australia New Zealand New Zealand Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (iv) The Company has a trust to administer the Company’s share options plans and variable reward plan. This trust is consolidated, as the substance of the relationship is that the trust is controlled by the Company. (a) Principles of consolidation (i) Subsidiaries Subsidiaries are all entities which are controlled by the Company. Control is achieved when the Company: • • • has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Company reassesses 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 listed above. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated ﬁ nancial statements. Investments in subsidiaries are accounted for at cost, less any impairment, in the separate ﬁ nancial statements of JB Hi-Fi Limited. 89 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 22 SUBSIDIARIES (continued) (a) Principles of consolidation (continued) (ii) Changes in ownership interests The Company treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Company. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reﬂ ect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of JB Hi-Fi Limited (the common control reserve). 23 DEED OF CROSS GUARANTEE The subsidiaries identiﬁ ed with a ‘^’ in note 22 are parties to a deed of cross guarantee under which each Company guarantees to each creditor payment in full of any debt in accordance with the deed of cross guarantee. By entering into the deed, the subsidiaries who are party to the deed have been relieved from the requirement to prepare and lodge an audited ﬁ nancial report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785. The consolidated statement of proﬁ t or loss, statement of proﬁ t or loss and other comprehensive income and balance sheet of the entities party to the deed of cross guarantee are provided as follows: (a) Consolidated statement of proﬁ t or loss, statement of proﬁ t or loss and other comprehensive income Statement of proﬁ t or loss Revenue Cost of sales Gross proﬁ t Other income Sales and marketing expenses Occupancy expenses Administration expenses Finance costs Other expenses Proﬁ t before income tax Income tax expense Proﬁ t for the year Statement of proﬁ t or loss and other comprehensive income Proﬁ t for the year Other comprehensive income Items that may be reclassiﬁ ed to proﬁ t or loss Changes in the fair value of cash ﬂ ow hedges (net of tax) Other comprehensive income for the year (net of tax) Total comprehensive income for the year 2021 $m 2020 $m 6,086.7 5,456.2 (4,740.5) (4,264.1) 1,346.2 1,192.1 354.2 (623.9) (252.6) (33.0) (24.2) (49.0) 717.7 (213.9) 503.8 186.6 (587.2) (197.0) (33.5) (35.8) (56.9) 468.3 (141.3) 327.0 503.8 327.0 – – 0.2 0.2 503.8 327.2 90 23 DEED OF CROSS GUARANTEE (continued) (b) Balance sheet Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Plant and equipment Right-of-use assets Deferred tax assets Intangible assets Investments in subsidiaries Other non-current assets Total non-current assets Total assets Current liabilities Trade and other payables Deferred revenue Lease liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Deferred revenue Lease liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 2021 $m 2020 $m 253.5 192.5 643.1 35.2 1,124.3 123.6 536.3 102.8 77.9 911.8 377.4 236.4 199.3 508.4 34.2 978.3 131.0 642.2 94.6 77.9 911.7 337.4 2,129.8 3,254.1 2,194.8 3,173.1 769.6 142.0 162.1 92.2 104.9 823.1 138.0 159.7 32.3 101.6 1,270.8 1,254.7 85.0 453.5 31.5 570.0 81.6 566.7 40.3 688.6 1,840.8 1,413.3 1,943.3 1,229.8 405.5 79.7 928.1 414.5 63.3 752.0 1,413.3 1,229.8 91 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 24 PARENT ENTITY Assets Current assets Non-current assets(i) Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Shareholders’ equity Contributed equity Reserves Retained earnings Proﬁ t for the year Total comprehensive income Parent Entity 2021 $m 2020 $m 0.1 623.5 623.6 97.4 0.2 97.6 - 393.0 84.5 48.5 526.0 318.2 318.2 0.5 548.0 548.5 37.2 0.1 37.3 - 403.2 67.5 40.5 511.2 184.4 184.4 (i) Non-current assets are predominantly loans to subsidiaries that have no set repayment and are effectively at call to enable the Parent entity to satisfy any liabilities required to be settled within the next 12 months. 25 RELATED PARTY TRANSACTIONS (a) Parent entity and equity interests in related parties The parent entity of the Group is JB Hi-Fi Limited, a listed public company, incorporated in Australia. (b) Equity interests in related parties Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 22. (c) Key management personnel Disclosures relating to key management personnel are set out in the Directors’ report. (d) Terms and conditions of transactions with related parties other than key management personnel or entities related to them Sales to, and purchases from, related parties for goods and services are made in arm’s length transactions at normal prices and on normal commercial terms. 92 OTHER DISCLOSURES 26 KEY MANAGEMENT PERSONNEL DISCLOSURES The aggregate compensation of the key management personnel of the Group is set out below: Short-term employee beneﬁ ts Post-employment beneﬁ ts Share-based payments expense Consolidated 2021 $’000 - 7,351 181 5,083 2020 $’000 7,291 187 4,647 12,615 12,125 Detailed remuneration disclosures are provided in the remuneration report on pages 31 to 54. 27 SHARE-BASED PAYMENTS (a) Group share option plans The Group has ownership-based remuneration schemes for executives and non-executive management (excluding non-executive directors). In accordance with the provisions of these schemes, executives and non-executive managers within the Group are granted options to purchase parcels of ordinary shares at various issue prices or to acquire shares at a zero exercise price. Details of the features of outstanding share options are provided in the remuneration report on pages 51 to 54. The following reconciles the outstanding share options granted under the Group’s share option plans at the beginning and end of the ﬁ nancial year: 2021 Balance at start of the year Number Granted during the year Number Exercised/ lapsed during the year Number Balance at end of the year Number Vested and exercisable at end of the year Number Outstanding Zero Exercise Price Options 1,091,782 141,974 (448,213) 785,543 4,862 Balance at start of the year Number Granted during the year Number Exercised/ lapsed during the year Number Balance at end of the year Number Vested and exercisable at end of the year Number 2020 Outstanding Share Options with an exercise price 74,401 – (74,401) – Outstanding Zero Exercise Price Options 1,178,530 1,252,931 217,561 217,561 (304,309) 1,091,782 (378,710) 1,091,782 – 3,197 3,197 Weighted average exercise price of those with an exercise price $17.41 – $17.41 – – The weighted average remaining contractual life of share options outstanding at the end of the period was 903 days (2020: 1,007 days). Fair value of options granted Equity settled share based payments with employees are measured at the fair value of the equity instrument at grant date. The weighted average fair value of options granted during the year ended 30 June 2021 was $44.61 (2020: $27.14). The fair value at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the expected exercise date based on prior years’ experience, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate. 93 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 27 SHARE-BASED PAYMENTS (continued) (a) Group share option plans (continued) Fair value of options granted (continued) The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The expected price volatility for options granted during the year ended 30 June 2021 is based on the daily closing share price for the number of years preceding the issue of the series, that matches the years to vesting as all of these options are expected to be exercised as soon as they vest. Detailed share option disclosures for all options series granted and exercised during the year are provided in the remuneration report on pages 31 to 54. Share based payments expense The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest, with a corresponding increase in equity. At each reporting date the Group estimates the number of equity instruments expected to vest. The number of equity instruments that are expected to vest is based on management’s assessment of the likelihood of the vesting conditions attached to the equity instruments being satisﬁ ed. The key vesting conditions that are assessed are earnings per share targets and required service periods. The impact of any revision in the number of equity instruments that are expected to vest is recognised as an adjustment to the share based payments expense with the corresponding adjustment to the equity-settled beneﬁ ts reserve in the reporting period that the revision is made. (b) Variable reward plan In the 2019 ﬁ nancial year, the Group introduced a Variable Reward Plan (VRP) for Group Executives which replaces their previous short term and long term incentives. Under the VRP, performance is assessed at the end of each ﬁ nancial year against a scorecard of robust measures and awards under the VRP are delivered: • • 25% in cash at the end of the one-year performance period; and 75% in restricted shares, to be released progressively in equal tranches over years 2, 3 and 4. There are also certain non-Group executives who participate in the VRP in addition to their existing short term and long term incentives, however the whole amount is delivered in restricted shares that are released progressively in equal tranches over years 2, 3 and 4. Further details on the VRP are set out in the remuneration report on page 34. The component of the VRP that is paid in cash is treated as a bonus and is expensed to the proﬁ t and loss in the period the bonus is earned. The component of the VRP that is delivered in shares is expensed on a straight line basis over the restriction period of each tranche, with the expense recorded as part of the share based payments expense and a corresponding increase in equity. 28 REMUNERATION OF AUDITORS Audit and other services Audit and review of group ﬁ nancial statements Audit and review of subsidiary ﬁ nancial statements Other assurance services Total remuneration for audit and other services The auditor of the Group is Deloitte Touche Tohmatsu. Consolidated 2021 $’000 2020 $’000 704 34 9 747 678 34 9 721 During the current and prior ﬁ nancial years the Group engaged Deloitte Touche Tohmatsu to assist with certain pre-acquisition tax matters associated with The Good Guys. The fees associated with these services will be paid for by the previous owner and there will be no cost to the Group. 94 29 SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES The remaining principal accounting policies adopted in the preparation of these ﬁ nancial statements that have not already been disclosed are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Derivatives and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: • hedges of a particular risk associated with the cash ﬂ ows of recognised assets and liabilities and highly probable forecast transactions (cash ﬂ ow hedges); or • hedges of a net investment in a foreign operation (net investment hedges). The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash ﬂ ows of hedged items. Movements in the hedging reserve in shareholder’s equity are shown in the statement of changes in equity. (i) Cash ﬂ ow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash ﬂ ow hedges is recognised in the cash ﬂ ow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in proﬁ t or loss within other income or other expenses. Amounts accumulated in equity are reclassiﬁ ed to proﬁ t or loss in the periods when the hedged item affects proﬁ t or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in proﬁ t or loss within ‘ﬁ nance costs’. When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs, resulting in the recognition of a non-ﬁ nancial asset such as inventory. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassiﬁ ed to proﬁ t or loss. (ii) Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash ﬂ ow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in proﬁ t or loss within other income or other expenses. Gains and losses accumulated in equity are reclassiﬁ ed to proﬁ t or loss when the foreign operation is partially disposed of or sold. (b) Foreign currency translation (i) Functional and presentation currency Items included in the ﬁ nancial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The ﬁ nancial statements are presented in Australian dollars, which is JB Hi-Fi Limited’s functional and presentation currency. 95 NOTES TO THE FINANCIAL STATEMENTS (continued) for the ﬁ nancial year ended 30 June 2021 29 SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Foreign currency translation (continued) (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in proﬁ t or loss, except when they are deferred in equity as qualifying cash ﬂ ow hedges and qualifying net investment hedges, or are attributable to part of the net investment in a foreign operation. (iii) Group companies The results and ﬁ nancial position of foreign operations (none of which has the currency of a hyperinﬂ ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • • assets and liabilities presented are translated at the closing rate at the date of that balance sheet; income and expenses are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other ﬁ nancial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassiﬁ ed to proﬁ t or loss, as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. (c) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash ﬂ ows are presented on a gross basis. The GST components of cash ﬂ ows arising from investing or ﬁ nancing activities which are recoverable from, or payable, to the taxation authority, are presented as operating cash ﬂ ows. (d) New accounting standards and interpretations In the current year, the Group has adopted all of the following new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. Their adoption has not had any material impact on the disclosures or on amounts reported in these ﬁ nancial statements. (i) AASB 2018-6 Amendments to Australian Accounting Standards - Deﬁ nition of a Business (ii) AASB 2018-7 Amendments to Australian Accounting Standards - Deﬁ nition of Material (iii) AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework 96 29 SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (continued) (d) New accounting standards and interpretations (continued) Software-as-a-Service (“SaaS”) arrangements In March 2021, the IFRS Interpretations Committee (“IFRIC”) issued an agenda decision to clarify the accounting treatment for SaaS arrangements, including the accounting for related implementation, customisation and conﬁ guration costs. The IFRIC clariﬁ ed that SaaS arrangements are service contracts that provide the Group with the right to access the cloud provider’s software over a period of time. As a result, the underlying software the Group has the right to access is not controlled by the Group and therefore ongoing access fees as well as costs incurred to implement, customise and conﬁ gure the cloud provider’s software are recognised as an expense when incurred. Costs incurred related to software controlled by the Group are capitalised and amortised on a straight-line basis over their useful life. Accordingly, the Group has revised its accounting policy in relation to SaaS arrangements in line with the new guidance. The effect of this change in accounting policy resulted in the derecognition of certain capitalised software costs as a disposal in FY2021 (as reﬂ ected in Note 11 - Plant and equipment). Given the quantum of the impact arising from the change in accounting policy, the Group has elected not to restate its comparative ﬁ nancial information. All expenditure in the current ﬁ nancial year in relation to SaaS arrangements has been assessed under the new guidance and expensed or capitalised as appropriate. The effects of the following Standards and Interpretations that are issued but not yet effective are not expected to be material: (i) AASB 2014-10 Amendments to Australian Accounting Standards: Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture (effective 1 January 2022) (ii) AASB 2015-10 Amendments to Australian Accounting Standards - Effective Date of Amendments to AASB 10 and AASB 128 (effective 1 January 2022) (iii) AASB 2017-5 Amendments to Australian Accounting Standards - Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections (effective 1 January 2022) (iv) AASB 17 Insurance Contracts and AASB 2020-5 Amendments to Australian Accounting Standards - Insurance Contracts (effective 1 January 2023) (v) AASB 2020-1 Amendments to Australian Accounting Standards - Classiﬁ cation of Liabilities as Current or Non-Current (effective 1 January 2022) (vi) AASB 2020-3 Amendments to Australian Accounting Standards - Annual Improvements 2018-2020 and Other Amendments (effective 1 January 2022) (vii) AASB 2020-8 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform - Phase 2 (effective 1 June 2021) (viii) AASB 2021-2 Amendments to Australian Accounting Standards - Disclosure of Accounting Policies and Deﬁ nition of Accounting Estimates (effective 1 January 2023) (ix) AASB 2021-3 Amendments to Australian Accounting Standards - Covid-19-Related Rent Concessions beyond 30 June 2021 (effective 1 April 2021) 30 EVENTS OCCURRING AFTER THE REPORTING PERIOD A number of JB Hi-Fi and The Good Guys stores have been temporarily closed to customers at various times since 1 July 2021 as a result of Covid-19 restrictions. The majority of these stores have continued to fulﬁ l online and Click-and-Collect orders whilst closed to customers. There have been no other matters or circumstances occurring subsequent to the end of the ﬁ nancial year, that have signiﬁ cantly affected, or may signiﬁ cantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future ﬁ nancial years. 97 ADDITIONAL SECURITIES EXCHANGE INFORMATION The shareholder information set out below was applicable as at 9 August 2021. A. Distribution of equity securities Analysis of numbers of equity security holders by size of holding: Holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Ordinary shares Total Holders Units % Issued Capital 26,141 7,170,877 4,100 8,284,289 310 145 27 2,139,692 3,868,271 93,420,243 30,723 114,883,372 6.24 7.21 1.86 3.37 81.32 100.00 There were 555 holders of less than a marketable parcel of ordinary shares. B. Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Ordinary shares Name 1. J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 2. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3. CITICORP NOMINEES PTY LIMITED 4. BNP PARIBAS NOMINEES PTY LTD 5. NATIONAL NOMINEES LIMITED Number held 32,490,524 31,131,401 12,204,330 5,666,251 3,260,177 6. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 3,038,577 7. BNP PARIBAS NOMS PTY LTD 8. WARBONT NOMINEES PTY LTD 9. WOODROSS NOMINEES PTY LTD 10. BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD 11. CITICORP NOMINEES PTY LIMITED 12. BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD 13. AMP LIFE LIMITED 14. CPU SHARE PLANS PTY LIMITED 15. 3RD WAVE INVESTORS PTY LTD 16. BNP PARIBAS NOMINEES PTY LTD 17. SCCASP HOLDINGS PTY LTD 18. BUTTONWOOD NOMINEES PTY LTD 19. JEREMY AND LYNETTE KING SUPERANNUATION PTY LTD 20. BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM 1,401,876 488,000 475,915 360,034 291,991 284,455 272,019 255,149 250,000 190,914 175,400 165,626 150,000 143,373 % of issued shares 28.28 27.10 10.62 4.93 2.84 2.64 1.22 0.42 0.41 0.31 0.25 0.25 0.24 0.22 0.22 0.17 0.15 0.14 0.13 0.12 92,696,012 80.66 98 C. Substantial holders Substantial holders in the Company are set out below: Ordinary shares AustralianSuper Pty Ltd Blackrock The Vanguard Group Magellan Financial Group Number held Voting Power % 12,741,156 7,384,822 6,957,042 6,948,678 11.09 6.43 6.06 6.05 Number on issue Number of holders D. Unquoted equity securities Employee share options issued under the Company’s share option plans 782,415 163 99 This page has been left intentionally blank 100 CORPORATE INFORMATION ABN 80 093 220 136 COMPANY SECRETARY Doug Smith PRINCIPAL REGISTERED OFFICE IN AUSTRALIA Podium Level 60 City Road, Southbank VIC 3006 Phone: +61 3 8530 7333 SHARE REGISTRY Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067, Australia Phone: 1300 302 417 (Australia) Phone: +61 3 9415 4136 916CRN8482_JB_Hi-Fi_Annual_Report_2021 - 2 - Inside Cover_v1.indd 2 23/08/2021 8:07:16 PM investors.jbhiﬁ .com.au 916CRN8482_JB_Hi-Fi_Annual_Report_2021 - 1 - Cover_v1.indd 2 20/08/2021 3:22:03 PM

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