Joyce Corporation
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 ABN: 80 009 116 269 Email: investors@joycecorp.com.au Website: joycecorp.com.au Tel: +61 8 9445 1055 75 Howe Street Osborne Park, WA 6017 Australia Joyce Corporation Ltd Annual Report 2019 2 The year in review “Prosper in business together” Growth Through Partnerships 2 KWB and Bedshed opened a combined 7 new stores in FY19 The Joyce Way Annual Compound Growth (FY14 – FY19) Earnings: +59%1 Lloyds bring to market the Brock and Gosford Museum 3 1 – for current continuing operations 2– New KWB store in Toowoomba 3 – Lloyds charity auction at Bathurst supporting Farmers in Need CONTENTS CHAIRMAN’S LETTER ACTING CEO’S REPORT DIVISIONAL REVIEW DIRECTORS’ REPORT REMUNERATION REPORT 4 5 9 18 24 CORPORATE GOVERNANCE STATEMENT ANNUAL FINANCIAL REPORT CONSOLIDATED FINANCIAL STATEMENT DIRECTORS’ DECLARATION INDEPENDENT AUDITOR’S REPORT 36 37 38 93 94 Joyce Corporation Ltd Annual Report 2019 3 Chairman’s Letter PARTNER, DEVELOP, GROW “We prosper in business together” We will continue to identify and scope new opportunities to partner and take advantage of our model. High on our selection criteria is alignment to our values and people with whom we can work to maximise our joint growth potential. focus on With our improvement and working to maximise growth for our brands and partners, I can see that we are even better positioned today to successfully bring new opportunities into the Entity than we were 12 months ago. The Board and Executive team at Joyce have enjoyed working alongside our divisional leaders to maximise results for all look forward to stakeholders, and we maintaining the same level of engagement in FY20 and beyond. Acknowledgements to not It would be remiss of me acknowledge the tremendous contribution our outgoing Chairman Dan Smetana has made to Joyce Corporation in his 34 years of service. The Company has undergone many changes in that time and under Dan’s careful guidance, we see an organisation that is stronger, in possession of a more robust balance sheet and poised for future growth. I would also like to acknowledge the dedication and commitment of the senior executives in each of the Joyce Corporation subsidiaries. We are fortunate in having a dedicated group of highly driven managers striving to achieve exceptional results in a challenging economic environment. With plans for continued expansion in mind, the Mike Gurry AM Dear Shareholder, We are pleased to report that Joyce Corporation has delivered another successful year with a statutory revenue of $100 million and network sales revenue reaching $288 million, which is a 12.9% increase on the previous year. Sales revenue includes sales through franchisees and gross auction revenue which is a better indicator of the scale of the Joyce business. The significance of this achievement is magnified when you consider the recent decrease in consumer spending. On 2 August 2019 CommSec released an Economics Insights report for the June 2019 quarter – the title of which read: ‘Slowest retail spending in 28 years’1. Our ability to grow our revenue base during such a tumultuous period is a testament to the talent and commitment of the entire Joyce Corporation team. This result has been achieved through our ‘partnership’ model, encapsulated in Our Values of openness, integrity, professionalism and performance accountability. This model has given us the ability to continuously deliver value to our customers resulting in a corresponding uplift in earnings, rising by 7.1 per cent on the prior year to $9.8 million2. Our Business Model At Joyce Corporation, we look to partner with maturing organisations and together reach and maximise their earnings potential. The Executive Team has been optimising our planned integration process to simplify and focus new partner organisations on accelerating earnings growth. Our operational performance over the past 12 months reflects the success of this model and in what could have been a difficult in year, considering the national decrease consumer Corporation continued to grow. spending, Joyce Board has concluded that the CEO role should transition to being full- time. To this end, Anthony Mankarios has stepped down in preparation for the change to Joyce Corporation’s CEO role. On behalf of the Board, I would like to thank Anthony for stepping into the Executive Director role and for his commitment over the last nine years. Anthony will remain on the Board until November 2019 in a non- executive fully transitioning from the Company. capacity, before Keith Smith, our Chief Operating Officer and Finance Executive, has assumed the role of Acting CEO. Since joining Joyce Corporation in 2018, Keith has been instrumental in driving productivity and efficiency the organisation. He has formed strong and effective working relationships with all our subsidiary executives which is critical to our growth and financial performance. The Board is confident Joyce Corporation will be in reliable hands with Keith at the helm. throughout gains Finally, I would like to acknowledge the contributions of my colleagues on the Board. The Joyce Board is very actively involved with our subsidiaries. We are fortunate in having very competent Board members who are highly committed and hardworking. the partnership of Board members working with our Executive team which is one of the secrets to Joyce’s success. I would also like to welcome Travis McKenzie to the Board. We look forward to his contribution for many years to come. In my view is it With best wishes, Mike Gurry Chairman Joyce Corporation Ltd Annual Report 2019 4 Acting CEO Keith Smith “A year of growth, change and achievement” The past 12 months has seen significant growth, change and achievement for Joyce. Our nationally recognised brands – Kitchen Connection, Lloyds Online Auctions and Bedshed – have benefitted from strategic investments which will allow them to continue to mature and grow. This investment has helped lift our revenue in FY19, to more than $100 million something we have been working towards and of which we should all be very proud. It sets a new base from which we plan to continue building on in the coming years As one of Australia’s oldest ASX-listed companies, we continue to judge our performance over extended periods of time, being responsive and resilient to market changes and continuing to operate in a sustainable and ethical manner. In the past five financial years (FY14 to FY19) we have seen revenue increase by more than 700 per cent, which is an annual compound growth rate of 50-plus per cent. Our Partner Organisations KWB - expanded geographically during the year, following the shared strategy to deliver earnings growth by opening up in key markets located in new regions. In FY19 the team delivered an EBIT result of $9.5 million, representing a 14.0 per cent increase on the prior financial year1. There remains significant geography to expand into and drive earnings still further. in With 20 showrooms now in the KWB portfolio and strong coverage the state of Queensland, expansion plans for KWB in the 2020 Financial Year are focused on New South Wales and, more specifically, Northern Sydney. Lloyds - The auction market sector, where Lloyds Online Auctions division our larger competitors operates, has seen struggle due to insolvencies reaching a 31- year low. e-Commerce offering, which is expected to increase revenue growth from December, when the online store launches. Joyce – We have been refining plans to select and integrate new organisations into the Joyce portfolio. There is now more opportunity and capability to grow the Organisation through acquisition than we have historically had. The efforts of our leaders and teams across the Organisation over the past financial year, and execution of our strategic plan, have delivered positive earnings growth for our businesses and shareholders. Like Mike, I see great potential for Joyce and look forward to supporting the wider team and overseeing the delivery of our strategy through FY20. Sincerely, Keith Smith Acting CEO During this downturn the Lloyds team has focused on the Classic Car (vehicle 20 or more years old) vertical, delivering multi-million- dollar auctions like the Brock Racing Car Collection and the vehicles held by the Gosford Motor Museum. This segment of Lloyds’ business delivered auction sales growth of more than 40 per cent compared to the previous 12 months. This growth was supported by proprietary software deployed over the past 24 months, providing us with a rich dataset that ultimately allows us to better understand our customers and their needs. This strategic focus is supported by interest in and demand for Classic Cars remaining strong, as investors continue to look for alternatives to putting cash into the stock market or on deposit. To capitalize on this, Lloyds has recently secured motor vehicle auction licenses in Western Australia and Victoria—two states that are key to the continued expansion of Classic Car sales within Lloyds Bedshed - continues to add value to Joyce with earnings in the past financial year growing by 12.9 per cent to $2.1 million, which follows the 44 per cent growth in earnings recorded in the previous year. This impressive result has to be understood in the market context where other ‘Large Format Retailers’ have indicated a significant drop in sales and franchisees have passed agreements back to the franchisor. Counter to the broader market, demand for Bedshed franchises remains strong with four stores opening in the past 12 months. As franchise demand has grown the team has invested in ‘on boarding’ new franchisees. their franchisee The Bedshed team will continue to execute on recruitment plan, exceptional marketing plan and utilisation of new reporting technology to deliver further positive earnings growth through FY20. The team are also currently progressing an 1When the one-time property revaluation is removed from the prior year. Joyce Corporation Ltd Annual Report 2019 5 OPERATIONAL AND FINANCIAL REVIEW ORGANISATIONAL OVERVIEW THE JOYCE BUSINESS MODEL We identify emerging corporates, partner to unlock potential, ultimately creating wealth for all parties. WHO WE ARE Our Company, with its solid portfolio of nationally-recognised brands, continues to grow despite a challenging macro-economic environment. To continue our growth, we are working to identify additional partners to work with in the future. Our partnering model works across diverse industries and organisations. In FY20, we will invest in the talent of our Executive Team to further support our partners and identify future growth opportunities. We are committed to reaching the full potential of our partnerships. KWB GROUP PTY LTD (KWB) KWB delivers outstanding solutions to customers looking to renovate their homes. They have a rapidly expanding kitchen and wardrobe showroom network closing the year with 20 showrooms. (See Note 5) $M’s Continuing Revenue Segmental EBIT FY19 $65.0 $9.5 FY18 $56.3 $8.3 GROWTH +15.3% +14.0% LLOYDS ONLINE AUCTIONS (LLOYDS) Lloyds is one of Australia’s premier auctioneering and valuation firms, selling items valued at a few dollars through to multi-millions of dollars. Lloyds online and simulcast auctions are some of the most popular on the internet and they operate throughout Australia, across eleven dedicated auction facilities. (See Note 5) $M’s FY19 Continuing Revenue Segmental EBIT $17.0 $0.2 FY18 $15.9 $0.7 GROWTH +6.8% -65.4% The EBITDA earnings improved from $0.66m in FY18 to $0.92m in FY19 a 39% increase. BEDSHED FRANCHISING & COMPANY STORES (BEDSHED) Beshed is a leading Australian household name, renowned for delivering high- quality, made-to-order products. Much of the 37-store network is owned by franchisees, with five company-owned outlets. All stores enjoy the advantages of being part of a major buying and marketing group. (See Note 5) $Ms Continuing Revenue Segmental EBIT FY19 $19.2 $2.1 FY18 $21.1 $1.9 GROWTH -8.7% +12.9% Joyce Corporation Ltd Annual Report 2019 6 OPERATIONAL AND FINANCIAL REVIEW CONTINUED EXCEPTIONAL AND SUSTAINABLE GROWTH By identifying and partnering with high-quality corporates and making appropriate investments we have delivered consistent rates of growth over an extended period. With our experienced Board and talented Executive Team, we plan to continue our growth, and by 2023 deliver earnings that support a $100 million market capitalization. $m's 120.00 100.00 80.00 60.00 40.00 20.00 0.00 Revenue Annual Compound Growth +52% $m's 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 EBIT Growth Annual Compound Growth +59% FY19 FY14 FY19 FY14 The growth delivered over the past five years has come from deployment of the Joyce Business Model that has seen several successful acquisitions, the development of like-for-like sales and the addition of new lines of business. All the businesses we partner with are delivering growth—KWB and Bedshed through store network expansion plans and Lloyds through the development and growth of new ‘verticals’. The best example of how Lloyds has successfully launched a new vertical is the Classic Car Auction division which did not exist at the time Joyce Corporation bought into Lloyds in 2016. Today the Classic Car division has a larger auction revenue than the entire entity had at the point Joyce bought in during 2016. This is testament to the growth potential within the organisation. In FY20, Lloyds will be expanding its car operations in Western Australia and Victoria; further realising its potential and building new opportunities for growth. KWB successfully opened three showrooms in FY19 as planned and are looking to continue this pace of growth going forward. In FY20 this expansion will focus on establishing a presence in the growing region of Northern Sydney. Establishing here demonstrates the KWB team’s ongoing ability to open up sites in new population centres. Bedshed continues to expand its franchise network with four stores opening in FY19. Owing to our future growth plans, the Bedshed team is expanding, with new team members being employed to accelerate future expansion plans and support new franchisees as they come onboard. The sales chart below demonstrates the FY19 divisional growth and reflect where most of the investment has been made, namely KWB and Lloyds: Joyce Corporation Ltd Annual Report 2019 7 Joyce Corporation Ltd Annual Report 2019 8 DIVISIONAL REVIEW KWB – Managing Director’s Report KWB had another successful year supported by our team and customers, consolidating our position as a leader in the home renovation retail market. Our model, which provides great customer experiences, has increased our ratings on sites company providing kitchens across Australia and is supported by more than 1,400 reviews. In the 2018–19 Financial Year, our geographic reach increased with three new showrooms opening in strategically key locations of Toowoomba, Helensvale and West Gosford. Customer demand in these showrooms has been strong and as planned. Historically, new stores in our Group have returned their initial investment in the first year of trading—we expect this to continue as we continue with our geographic expansion. EBIT performance was strong, with double digit growth like the sales increase to achieve 14 per cent growth over the previous year and improving 2.2 points on the budgeted contribution margin. OUTLOOK The infrastructure currently in place for the KWB Group provides us with solid foundations to continue the successful roll-out of our new showroom program over the next 12 months. Three new showrooms are planned for 2019–20, and we have plans to secure a presence in the as yet untapped Sydney market over the coming three years. Our historic success has been based on delivering our consumer-centric model consistently across our network. As we grow, we recognise the need to ensure we are consistent and so we are developing a specialised training centre which we will launch in the next 12 months to support our consistent and well-regarded service. Retail showroom visitor numbers are expected to grow from our current base, buoyed by ongoing brand building led by advertising and positive online consumer product reviews that create referrals. In the 2019–20 Financial Year we anticipate the KWB Group will continue to experience strong growth, supported by Joyce. Joyce Corporation Ltd Annual Report 2019 9 Joyce Corporation Ltd Annual Report 2019 10 DIVISIONAL REVIEW LLOYDS ONLINE AUCTIONS—Founder’s Report In FY19 Lloyds grew overall auction turnover by 12.4 per cent (year on-year) to $125 million, despite operating during a 31-year low in insolvency rates – a key source of inventory for our historic business. Lloyds’ growth has been achieved through strategic planning and management, including the deployment of new ‘verticals’ in the last three-years targeting the classic car and fine art segments. Over the past 12 months we have set new records for classic car auction values and been selected to facilitate major events such as the iconic Peter Brock and Gosford Museum collection sales. This has established Lloyds as the ‘go to’ seller for classic cars and, collectively, represent significant milestones as we reach the mid-point of our five-year strategy. This year has also been a year of ‘giving back’, with Lloyds hosting a very successful charity auction in Bathurst supporting Farmers in Need. During the Supercar race event at Bathurst Lloyds partnered with race teams to bring to auctions many items of racing memorabilia. It is an important part of our culture that we volunteer to carry out events like this. Lee Hames has taken a wider leadership role at Lloyds this year, supporting the businesses’ growth as Chief Operating Officer and being elected as a director of Lloyds Online Auctions Pty Ltd. Andrew Webber, Founder Lee Hames, Chief Operating Officer and Director With the downturn across the auction sector, Lloyds ‘traditional’ business was impacted. In response, the team has undertaken a significant cost reduction program, which will be completed prior to the end of the 2019 calendar year. As a result, since October 2018 we have seen a 20-plus per cent reduction in staff numbers. OUTLOOK Lloyds is positioned for profitable growth in FY20 with the expected resurgence in yellow and green goods, like the equipment pictured above, coming to market over the next 12 months. The expected earnings growth will be underpinned by the cost base reduction, the leveraging our cutting-edge technology platform and the further simplification of our business processes. Joyce Corporation Ltd Annual Report 2019 11 Joyce Corporation Ltd Annual Report 2019 12 DIVISIONAL REVIEW BEDSHED – General Manager’s Report Throughout FY19 there was a lot of commentary around the challenges facing retailers, particularly those operating in the high-value discretionary spend sector. Despite this backdrop, Bedshed has improved year-on-year sales and profit, as reported in our FY19 financial results. In the past year Bedshed opened four franchised stores, highlighting the demand for our franchisee services and support, and we have recently appointed two key staff to drive our continued growth over the coming years. One of our new team members is focused on our range and the other will work to accelerate the pace at which we can onboard new franchisees. These resources are key investments in the future growth of the Bedshed business. OUTLOOK Against the challenging backdrop in the retail sector generally, a significant number of new initiatives have been deployed to complement the strength we have shown in our marketing, staff training and franchise programs. These activities have delivered growth in EBIT of 12.9 per cent compared to the prior year. With the launch of new bedroom furniture ranges, the deployment of enhanced systems across the remaining franchisee stores and the launch of a new eCommerce platform in this coming year we anticipate further growth. In addition, there are plans to extend our franchise network as we continue to experience demand for new stores from both new and existing franchisees. Joyce Corporation Ltd Annual Report 2019 13 DIVISIONAL REVIEW DELIVERING VALUE TO OUR PARTNERS OR STAKEHOLDERS PARTNERSHIP CASE STUDY—KWB earnings growth As we celebrate KWB’s earnings growth, we are reminded that the level of earnings is significantly higher than it was in the financial year that Joyce Corporation went into partnership with the business. In FY15, earnings were reported at $1.7 million. In the year just gone, earnings were $9.5 million. Joyce Corporation partners with businesses to help them see their full potential. Our investment in KWB has supported their growth thus far. With KWB having, and retaining, an exceptional management team, the initial partnership saw financial support as the key objective of the relationship. Our first injection of financial support took place in February 2013 and a second investment took place in November 2013. At that point in time, Joyce Corporation had a 57 per cent stake in the organisation. Through management exceeding growth expectations, their ownership percentage has increased to 49 per cent over time, with Joyce retaining 51 per cent. Following the initial investment, the Joyce Executive and Board has worked with the KWB team to support and increase their earnings potential—leading to the declared earnings of $9.5 million reported in this Annual Report. Over the 5-year period in which Joyce and KWB have been partners, the earnings growth of KWB has been exceptional. To continue to grow the business, in 2019–20, Joyce and KWB are furthering their partnership, with Joyce supporting the deployment of structures and systems to carry the organisation’s growth plans forward into future years. Joyce is providing thought leadership and strategic support to explore all organisational opportunities and maximise financial outcomes for all the shareholders in KWB. We are proud of the history we have with KWB and excited by the opportunities to engage with the business into the future to maximise wealth. RETURN ON EQUITY Delivering value to our shareholders is important to us. As noted by Investopedia, return on equity (ROE) is a measure used to assess how effectively management is using a company’s assets to create profits. This ratio is often used to compare a company to its competitors or to the overall market. Across the finance industry, it is acknowledged that a ROE of 15 per cent is good. Joyce Corporation is exceeding this ROE benchmark, returning 19 per cent in FY19. This performance is also greater than the broader specialty retail sector - which is performing around 12.7 per cent ROE (as reported by CommSec). Joyce Corporation Ltd Annual Report 2019 14 OPERATIONAL AND FINANCIAL REVIEW CONTINUED THE JOYCE WAY Our values define how we do business. We value business partners and staff alike, and we engage in an open and honest way. True to our values we aim to develop long-term relationships with our partners to drive growth for all parties. By developing our culture to support our longer-term business outcomes we expect to optimise future earnings—through the next financial year and beyond. Joyce Corporation Ltd Annual Report 2019 15 LEADERSHIP TEAM BOARD TEAM MIKE GURRY AM Chairman Mike was appointed Chair in Dec 2018 and has been a Non- Executive Director since 2008. He has 34 years Chair/Non-Executive Director experience and has held directorships across the publicly listed, private, government and not-for- profit sectors within Australia and internationally including Foundation Housing Ltd, Australian Health Insurance Association (AHIA), the Australian Information Industry Association (AIIA), the West Australian Ballet and Integrated Group Ltd. He is currently a Non- Executive Director of St John Ambulance WA and a Councilor of HBF Ltd. Mike is a pure mathematician and statistician who has worked as a senior executive for IBM and CEO of both an international management consulting company and a large WA based insurance company. He has consulted to Government at both State and Federal level and worked in numerous industries including Banking, Insurance, Health, Manufacturing, Mining, Transport and Energy. Mike was awarded the Order of Australia (AM) in 2018. KAREN GADSBY Deputy Chair Karen was appointed Deputy Chair in May 2019 and has been a Non-Executive Director since July 2017. She has 18 years Chair/Non-Executive Director experience and has held directorships across the publicly listed, private, government and not- for-profit sectors within Australia including Strategen Environmental Consulting Pty Ltd, Landgate, Forest Products Commission, Western Health (Vic.), Community First International, GMHBA (Vic). She is currently a Non-Executive Director of Talisman Mining Ltd and Mindful Meditation Australia. Karen is a Chartered Accountant who worked as a senior executive with North Limited for 13 years across finance, commercial, risk, IT and human resources. DAN SMETANA Non-Executive Director Dan was Chair of Joyce Corporation Ltd for 34 years, stepping down in Nov 2018, and has been a Non-Executive Director since 1984. He has had 50 years Chair/Non- Executive Director experience and has held directorships across the publicly listed, private, government and not-for-profit sectors within Australia and internationally including Defence Reserves Support Council – WA, Youth Focus. Western Power, West Australian Symphony Orchestra, Edge Employment and WA Federation of PCYC. He is currently a Non- Executive Director of Korab Resources Limited. Dan is a Certified Practicing Accountant (CPA) who has worked across many industries including mining, manufacturing and retail. Dan was awarded the Centenary Medal for Service to Commerce and the Community in 2003. TIM HANTKE Non-Executive Director Tim has been a Non-Executive Director since 2006. He has 29 years Non- Executive Director experience across the publicly listed, private, government and not-for-profit sectors within Australia including Snap Printing and Lifeline, as well as serving on various advisory boards for the Federal Government. He is currently a Non-Executive Director of Mrs Macs Pty Ltd and Bentech Assistive Technologies Inc. Tim has a B Comm. (UWA) degree, and is a Fellow Member of AICD, AIM and a Member of AMA. He has worked in a wide variety of industries including building materials, food manufacturing, government relations, printing and franchising. Joyce Corporation Ltd Annual Report 2019 16 LEADERSHIP TEAM ANTHONY MANKARIOS Non-Executive Director Anthony was appointed a Non-Executive Director in 2008. He was Executive Director from March 2010 until June 2019 and is currently one of the Non- Executive Directors. He has over 30 years’ experience as a Company Director and has been Chair of several private companies. These directorships have been across the publicly listed and private sectors within Australia and internationally including Inventis Limited, Oldfields Holdings Limited, Tangshan Hengfen Painting Accessories Co LTD (China) and Foshan Advcorp Scaffold LTD (China). He is currently a Non-Executive director of Inventis Limited and the Chair of their Audit and Risk committee. Anthony is a Certified Finance and Treasury Professional (CFTP) and has worked as a senior executive, leading businesses both nationally and including retail, manufacturing, property and wholesale. in multiple sectors internationally LEADERSHIP TEAM TRAVIS McKENZIE Non-Executive Director Travis was appointed a Non-Executive Director in July 2019. He has had 5 years Executive Director experience on private boards within Australia including Celsius Developments Pty Ltd. He is currently an Executive Director of Alma Road Rise Pty Ltd and 78 Degrees Pty Ltd. Travis is a Qualified Lawyer who has worked in derivatives and foreign exchange trading in Europe and the Americas as well as in Australia. He has worked in multiple industries and more recently has focused on property and property development. KEITH SMITH Acting CEO / Company Secretary Keith joined the team in May 2018 and has previously worked across Europe and the Americas which allows a global perspective to be taken and the ability to present different solutions to local issues. Since coming to Australia, he has led Finance, Technology, Operations and Company Secretarial functions for publicly listed and not-for-profit (NFP) organisations. Exposure to technology in its broadest form and recent emerging technology has provided Keith with unique experiences and awareness of the potential ‘digitalisation’ has for commercial and NFP entities. Keith has led divisions of a large international Corporate during his time in the United States. From this he has extensive experience in successfully leading businesses in diverse industries achieve their commercial and cultural goals. ANITA HOLLENBERG Group Financial Controller Anita joined the team in February 2019 and has 13 years of experience as a Chartered Accountant, working across listed and private companies in Australia and the United Kingdom. She has held senior roles in property, funds management and infrastructure sectors, and to date at Joyce she has led project and organisational change. Anita has been able to add value to Joyce through her ability to deliver ‘back office’ change and Group synergies. She leads the Joyce Corporation Finance team which supports the Group and its wider initiatives. The Board and Leadership team look forward to taking Joyce Corporation into a new phase of growth. Joyce Corporation Ltd Annual Report 2019 17 DIRECTORS’ REPORT Your Directors present their report on the Consolidated Entity, consisting of Joyce Corporation Ltd (“the Company”) and the entities it controlled at the end of, or during, the year ended 30 June 2019. DIRECTORS The names of the Company’s Directors in office during the year ended 30 June 2019 and until the date of this report are as stated below. Directors were in office for this entire period unless otherwise stated. Mike Gurry Karen Gadsby Dan Smetana Tim Hantke Travis McKenzie Anthony Mankarios SECRETARY Keith Smith Non-executive Director (Chair from 27 November 2018) Non-executive Director (Deputy Chair from 1 May 2019) Non-executive Director (Chair to 27 November 2018) Non-executive Director Non-executive Director (from 1 July 2019) Executive Director (to 30 June 2019), Non-executive Director (1 July 2019 to 24 November 2019) PRINCIPAL ACTIVITIES During the year the principal continuing activities of the Consolidated Entity consisted of being: (a) Majority owner of 51% of KWB Group Pty Ltd, a kitchen and wardrobe supply and installation operator; (b) Majority owner of 56% (increased from 51% holding on 22 January 2019) of Lloyds Online Auctions Pty Ltd, online auctioneers and valuers; (c) Franchisor of the Bedshed chain of retail bedding stores; and (d) Owner of five Bedshed retail stores; There were no significant changes in the nature of the principal activities of the Consolidated Entity. REVIEW AND RESULTS OF OPERATIONS During the year ended 30 June 2019 (“the Financial Year”) the Consolidated Entity achieved revenue from continuing operations of $101.16m (2018: $91.42m) and a profit from continuing operations before tax of $9.53m (2018: $9.82m) and an overall net profit after tax of $6.73m (2018: $6.72m). Financial Position At 30 June 2019, the Consolidated Entity had total equity of $27.42m (2018: $28.11m) including non-controlling interest, with dividend payments of $3.55m in 2019 (2018: $3.08m). Cash and cash equivalents increased from $6.21m at 30 June 2018 to $6.97m at 30 June 2019. Un-utilised debt facilities were $250k (2018: $150k). Joyce Corporation Ltd Annual Report 2019 18 Bank Facilities The Consolidated Entity has its long-term debt funding facility with St George Bank approved to 31 January 2021. The bank bill facility was fully drawn at 30 June 2019, with the total reducing by $434.8k per year. An annually approved multi option facility of $900k, including $210k overdraft, was approved on 30 January 2018. The overdraft was undrawn at 30 June 2019. The Consolidated Entity has contracted to transition banking facilities from St George to Commonwealth Bank on a date subsequent to the signing of these accounts. The Commonwealth Bank facilities are approved for a two-year rolling term. Prior to 30 June 2019 a $300k overdraft facility was established with the Commonwealth Bank of which $40k was undrawn at reporting date. The 51% owned KWB Group completed the purchase of property in Lytton Brisbane for $8m utilising a $5.6m standalone facility fully drawn in April 2017. The facility has been provided by the Commonwealth Bank for a term of three years to KWB Property Holdings Pty Ltd. In addition to property purchase facility there is a bank guarantee facility of $500k of which $27k was undrawn at the end of the Financial Year. KWB Property Holdings Pty Ltd have contracted with the National Australia Bank to transition banking facilities over from the Commonwealth Bank. The full transition of banking arrangements is to occur subsequent to the signing of these financial statements. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES The Consolidated Entity will look to further develop the KWB business and continue to invest in additional stores down the East Coast of Australia. Lloyds will continue to expand its online presence and focus on the rapidly expanding Classic Car and Fine Art verticals. The Bedshed business will develop through the expansion of its network of franchised stores and improving the financial performance of the five Company owned and operated stores. DIVIDENDS Dividends declared or paid during the financial year are as follows: Distributions paid or payable Final fully franked ordinary dividend of 3.0 cents per share (Paid 22 November 2017) Special fully franked dividend of 3.0 cents per share (Paid 22 November 2017) Interim fully franked dividend of 5.0 cents per share (Paid 11 April 2018) Final fully franked ordinary dividend of 6.0 cents per share (Paid 21 November 2018) Interim fully franked dividend of 5.0 cents per share (Paid 10 April 2019) Second interim fully franked dividend of 1.7 cents per share (Paid 28 June 2019) 2019 $000 2018 $000 839 839 1,399 1,678 1,399 475 3,552 3,077 The Board will continue to review the Company’s ability to pay dividends. Future payments will be in line with the dividend policy where there is sufficient liquidity available. Joyce Corporation Ltd Annual Report 2019 19 SIGNIFICANT CHANGES IN STATE OF AFFAIRS On 22 January 2019, Lloyds Online Auctions Pty Limited issued an additional 699,000 ordinary shares. These were purchased by Joyce International Pty Ltd (a 100% owned subsidiary of Joyce Corporation Ltd). The investment was paid for by the capitalisation of existing loans. This brings Joyce’s holding in Lloyds to 56%. Other than the disclosed above, there were no other significant changes in the state of affairs of the Consolidated Entity during the year ended 30 June 2019. SIGNIFICANT AFTER REPORTING DATE EVENTS A fully franked dividend of 5.0 cents per share was declared on 27 August 2019 payable on 18 November 2019. The Consolidated Entity has contracted to transitioned loan facilities from St George to Commonwealth Bank on a date subsequent to the signing of these accounts. KWB Property Holdings Pty Ltd entered into contractual arrangements with the National Australia Bank to transition loan facilities over from the Commonwealth Bank on a date subsequent to the signing of these accounts. In the ASX announcement dated 24 July 2019 the Company communicated the following payments and arrangements with the former Executive Director, Anthony Mankarios: • • • $245,966 (plus GST) will be paid to Starball Pty Ltd (Mr Mankarios’ private company) in addition to payments for services up to when the contract with Starball ended on 30th June 2019. All of Starball Pty Ltd's and Mr Mankarios' Short Term Incentive Plan participation and performance rights have been cancelled (including as approved at the 2018 Joyce AGM); The Board will propose a resolution for the shareholders to consider at the upcoming 2019 AGM to consider whether to issue 131,579 fully paid ordinary Joyce shares to Starball Pty Ltd in recognition of Mr Mankarios’ contribution. Other than disclosed above no event has occurred since the reporting date to the date of this report that has significantly affected, or may significantly affect: (i) the Consolidated Entity’s operations, or (ii) the results of those operations, or (iii) the Consolidated Entity’s state of affairs. Joyce Corporation Ltd Annual Report 2019 20 INFORMATION ON DIRECTORS Mike Gurry - Chair. Age 72. Bachelor of Science (UWA), Dip AICD, FAIM, SF Fin, FAICD Other current Directorships of listed companies None Former Directorships of listed companies in last 3 years None Special responsibilities Chair Lloyds Board Director Bedshed Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Chair KWB Board until 13 August 2019 Member KWB Board Interests in shares and options 56,878 ordinary shares _________________________________________________________________________________________________ Karen Gadsby – Deputy Chair. Age 56. B. Comm, FCA, MAICD Other current Directorships of listed entities Talisman Mining Ltd Former Directorships of listed companies in the last 3 years None Special responsibilities Deputy Chair from 1 May 2019 Chair KWB Board from 13 August 2019 Alternate Director Lloyds Board Director Bedshed Chair of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Interests in shares and options: 20,000 shares ordinary shares _________________________________________________________________________________________________ Dan Smetana Non-Executive Director, Former Chair (January 1985 to November 2018). Age 75. Dip Comm, FCPA, FAIM, FAICD Other current Directorships of listed companies Korab Resources Limited Former Directorships of listed companies in last 3 years None Special responsibilities Director Bedshed Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Interests in shares and options 10,254,129 beneficial fully paid ordinary shares. Joyce Corporation Ltd Annual Report 2019 21 INFORMATION ON DIRECTORS (CONTINUED) Tim Hantke – Non-Executive Director. Age 71. Bachelor of Commerce, FAIM, FAICD Other current Directorships of listed companies None Former Directorships of listed companies in last 3 years None Special responsibilities Director Lloyds Board Director KWB Board Chair Bedshed Member of the Audit and Risk Committee Chair of the Remuneration Committee Chair of the Nomination Committee Interests in shares and options 20,000 ordinary shares Travis McKenzie – Non-Executive Director. Age 41. Bachelor of Law, Bachelor of Commerce Other current Directorships of listed companies None Former Directorships of listed companies in last 3 years None Special responsibilities Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Interests in shares and options None Anthony Mankarios – Executive Director (to 30 June 2019), Non-Executive Director (from 1 July 2019 to 24 November 2019) Age 52. MBA, FAICD, CFTP Other current Directorships of listed companies Inventis Limited Former Directorships of listed companies in last 3 years None Special responsibilities Director Lloyds Board (to 26 August 2019) Director KWB Board (to 13 August 2019) Director Bedshed (to 26 August 2019) Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Interests in shares and options 741,323 ordinary shares COMPANY SECRETARY Keith Smith – Acting CEO (from 1 July 2019), Company Secretary. Age 53. Accounting BSc (Hons), ACA, CA ANZ, AICD, GIA (Cert) Joyce Corporation Ltd Annual Report 2019 22 INFORMATION ON DIRECTORS (CONTINUED) MEETINGS OF DIRECTORS The numbers of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 30 June 2019, and the number of meetings attended by each Director were: Directors Full meeting of Directors Audit Remuneration Mike Gurry Karen Gadsby Dan Smetana Tim Hantke Anthony Mankarios A 11 11 11 11 11 B 11 11 10 11 8 A 5 5 5 5 5 B 5 5 2 5 5 A 7 7 7 7 7 B 7 7 6 7 7 A = B = Number of meetings held Number of meetings attended during the time the Director held office or was a member of the committee during the year Two of the Board Meetings the Executive Director did not attend were related to his contract of employment and remuneration, and a third meeting due to annual leave taken. Joyce Corporation Ltd Annual Report 2019 23 REMUNERATION REPORT - AUDITED The remuneration report is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration B. Service agreements C. Details of remuneration D. Share-based compensation E. Equity instrument disclosures relating to key management personnel (KMPs’) F. Link between remuneration policy and Consolidated Entity performance G. Voting at the 2018 Annual General Meeting H. Independent salary and incentive review I. Loans or other transactions with Directors and Executives The information provided in this remuneration report is also included in the financial report which has been audited as required by section 308(3C) of the Corporations Act 2001. As well as the Directors previously mentioned in this Directors’ Report, other KMPs of the Group include: Key Management Personnel Position Held Keith Smith Keith Gray John Bourke Chris Palin Andrew Webber Lee Hames Gavin Culmsee Acting CEO / COO / Finance Executive and Group Company Secretary Chief Financial Officer and Company Secretary Joyce Corporation Ltd to 10 October 2018 Managing Director KWB Group Pty Ltd Finance Director KWB Group Pty Ltd Founder of Lloyds Online Auctions Pty Ltd Director and COO Lloyds Online Auctions Pty Ltd General Manager Bedshed Franchising Pty Ltd A. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION Remuneration Committee The Remuneration Committee Charter establishes the role of the Remuneration Committee, which is to review and make recommendations on Board remuneration; senior management remuneration; executive share plan participation; human resource and remuneration policies; and senior management succession planning, appointments and terminations. The main responsibilities of the Remuneration Committee include reviewing and making recommendations on remuneration policies for the company including those governing the directors and senior management. The Remuneration Committee comprises a majority of non-executive directors and at least three members. The Chair of the Remuneration Committee is appointed by the Board and is a non-executive director. The Remuneration Committee meets as and when required by the Chair and at least twice annually. The Committee may invite persons deemed appropriate to attend meetings and may take any independent advice as it considers necessary or appropriate. Any Committee member may request the Chair to call a meeting. During the year the Remuneration Committee reviewed and revised its Charter and Policy and reviewed its effectiveness. Joyce Corporation Ltd Annual Report 2019 24 A. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION (CONTINUED) Remuneration Policies The objective of the Consolidated Entity’s executive reward framework is to ensure reward is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders and conforms to market practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices: • • • • • competitiveness and reasonableness; acceptability to shareholders; performance linkage / alignment of executive compensation to organizational results; transparency; and capital management. In consultation with external remuneration consultants, where appropriate, the Consolidated Entity has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. A remuneration consultant was used during the Financial Year to review the executive remuneration compared to the market. The framework aligns to shareholders’ interests by: • • • having economic profit as a core component of plan design; focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant return on assets as well as focusing the executive on key non-financial drivers of value; and attracting and retaining high calibre executives. It aligns to program participants’ interests by: • • • • rewarding capability and experience; reflecting competitive reward for contribution to growth in shareholder wealth; providing a clear structure for earning rewards; and providing recognition for contribution. Non-executive director’s remuneration Fees and payments to non-executive directors reflect the demands that are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed annually by the Board. The Board considers, where appropriate, the advice of independent remuneration consultants to ensure non-executive directors’ fees and payments are appropriate and in line with the market. The Chair’s fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. The Chair is not present at any discussions relating to the determination of their own remuneration. The current base remuneration was last independently reviewed in December 2016. Executive Directors who are members of a committee do not receive additional fees for membership of the committee. Non-executive directors receive additional fees for the Chairing of a committee. Since that time fees have been increased by the rate of CPI. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The limit currently stands at $700,000 per annum and was approved by shareholders at the Annual General Meeting on 30 November 2017. Joyce Corporation Ltd Annual Report 2019 25 A. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION (CONTINUED) Executive remuneration Fixed Component The level of fixed remuneration is set so as to provide a base level of remuneration, which is both appropriate to the position and is competitive in the market. Fixed remuneration is reviewed annually by the Remuneration Committee and the process involves the review of both the performance of the Consolidated Entity and the individual. Variable Component - Short Term Incentives Goals are set at the start of each Financial Year and consist of one or more key performance indicators (KPI's) covering both financial and non-financial, corporate and individual measures of performance. Included in the measures are targets for profit, cash balances and departmental functional KPI's. At the end of the financial year the Remuneration Committee assesses the actual performance of the Consolidated Entity, the relevant segment and individual against the KPI targets. When the Consolidated Entity, or the relevant segment, and the individual achieve their KPIs, the Board will reward the KMP with a bonus paid after the end of the Financial Year being assessed. A percentage of a pre-determined maximum amount is awarded depending on the results achieved. No bonus is awarded where performance falls below the minimum. Variable Component - Long Term Incentives The Remuneration Committee offers Performance Rights in the Long-Term Incentive Scheme. B. SERVICE AGREEMENTS This remuneration report outlines the director and executive remuneration arrangements with the organisation in accordance with the requirements of the Corporations Act 2001 and its regulations. For the purposes of this report, KMP’s are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Consolidated Entity, directly or indirectly, including any director (whether executive or otherwise) of the Company. For the purposes of this report, the term "executive" encompasses the Executive Director, Company Secretary and other senior executives of the Consolidated Entity. Joyce Corporation Ltd Annual Report 2019 26 B. SERVICE AGREEMENTS (CONTINUED) Details of key management personnel (including the senior executives of the Consolidated Entity): Name Mike Gurry Karen Gadsby Dan Smetana Tim Hantke Position Held Chair of Audit Committee to 30 June 2018, Non-Executive Director, Chair from 27 November 2018 Non-Executive Director, Chair of Audit Committee from 1 July 2018 Non-Executive Director and Chair to 27 November 2018 Non-Executive Director, Chair of Remuneration Committee Travis McKenzie Non-Executive Director from 1 July 2019 Anthony Mankarios Executive Director to 30 June 2019, Non-Executive Director from 1 July 2019 to Keith Smith Keith Gray John Bourke Chris Palin Andrew Webber Lee Hames Gavin Culmsee 24 November 2019 Acting CEO / COO / Finance Executive and Group Company Secretary Chief Financial Officer and Company Secretary Joyce Corporation Ltd to 10 October 2018 Managing Director KWB Group Pty Ltd Finance Director KWB Group Pty Ltd Founder of Lloyds Online Auctions Pty Ltd Director and COO of Lloyds Online Auctions Pty Ltd General Manager Bedshed Franchising Pty Ltd The employment conditions of all KMP’s are formalised in contracts. The directors and Acting CEO are engaged by Joyce Corporation Ltd. All other executives, except for Andrew Webber (who has a fixed term contract), are permanent employees of subsidiaries within the Consolidated Entity. The Executive Director, Anthony Mankarios, had a service contract, which expired at 30 June 2019 and was not renewed by the Board. This was an at call role, which provided a director’s fee and an hourly charge for work undertaken above this and was paid monthly. All out of pocket expenses in connection with carrying out the role have been reimbursed. As disclosed in the ASX announcement on 24 July 2019 Starball Pty Ltd, a company under significant control by Anthony Mankarios, received certain cash payments. The Performance Rights approved at the 2018 AGM to Anthony Mankarios were cancelled. Joyce Corporation Ltd Annual Report 2019 27 B. SERVICE AGREEMENTS (CONTINUED) Other Executives All executives have rolling contracts, except for Andrew Webber who has a fixed term contract, as per the table below. The Consolidated Entity can terminate each contract by providing three months written notice or providing payment in lieu of the notice period (based on the fixed component of the executives’ remuneration). The Consolidated Entity may terminate an executive for serious misconduct without notice. Where termination with cause occurs, the executive is only entitled to that portion of remuneration that is fixed up to the date of termination. 30 June 2019 Term of agreement In months months Notice Period Termination payment in 3 3 3 3 - 3 3 3 3 3 3 - 3 3 Keith Smith rolling Keith Gray (to 10 October rolling 2018) Chris Palin John Bourke Andrew Webber Lee Hames Gavin Culmsee rolling rolling 3 years rolling rolling For base salary and superannuation, see table at C below. Related party transactions with KMP’s Please refer to Note 26 related party disclosures. C. DETAILS OF REMUNERATION 30-Jun-19 Short-term employment benefits Post employment benefit Long- term benefits Share based payment Total % relating to performance Mi ke Gurry Ka ren Ga ds by Da n Smeta na Ti m Ha ntke Total Non-Executive Directors Executive Director Anthony Ma nka ri os 1 Total Directors Kei th Smi th Kei th Gra y2 John Bourke 3 Chri s Pa l i n3 Andrew Webber4 Lee Ha mes 5 Ga vi n Cul ms ee 2 Total Other Key Management Personnel Salary & Fees 115,982 86,073 120,772 86,073 Cash Bonus - - - - Non-Cash - - - - 408,900 - 321,572 730,472 242,149 114,003 326,946 258,393 50,000 185,433 236,210 120,000 120,000 - 19,752 94,767 74,897 - - 61,683 - - - - - - - - 4,099 - Super 11,018 8,177 11,473 8,177 38,845 6,637 45,482 23,004 11,073 40,063 31,663 4,750 15,894 23,421 LSL & AL - - - - - - - - 48,383 - - - 4,183 - 1,413,134 251,099 4,099 149,868 52,566 Total Remuneration 2,143,606 371,099 4,099 195,350 52,566 - - - - - - - - - - - - - - - 127,000 94,250 132,245 94,250 447,745 448,209 895,954 265,153 193,211 461,776 364,953 54,750 209,609 321,314 - - - - 0.0% 26.8% - - 10.2% 20.5% 20.5% - - 19.2% 1,870,766 13.4% 2,766,720 13.4% Joyce Corporation Ltd Annual Report 2019 28 C. DETAILS OF REMUNERATION (CONTINUED) 30-Jun-18 Short-term employment benefits Salary & Fees 85,000 75,000 175,494 Cash Bonus - - - Non-Cash - - 9,789 Mi ke Gurry Ka ren Ga ds by Da n Smeta na Ti m Ha ntke 6 Total Non-Executive Directors Executive Director Anthony Ma nka ri os 1 Total Directors Kei th Smi th Kei th Gra y2 John Bourke 3 Chri s Pa l i n3 Andrew Webber4 Lee Ha mes 5 Ga vi n Cul ms ee 2 63,750 399,244 249,451 648,695 18,500 216,907 315,890 234,057 50,000 145,000 256,054 - - 288,750 288,750 - 50,801 93,000 73,500 - - 15,922 Total Other Key Management personnel 1,236,408 233,223 Post employment benefit Super 8,075 7,125 16,672 6,056 37,928 - 37,928 1,758 20,606 38,844 32,704 4,750 13,775 25,838 138,275 Long- term benefits Total % relating to performance LSL & AL - - - - - - - - - - - - - - - 93,075 82,125 201,955 69,806 446,961 538,201 985,162 20,258 288,314 447,734 340,261 54,750 158,775 297,814 - - - - - 53.6% 29.3% - 17.6% 20.8% 21.6% - - 5.3% 1,607,906 14.5% - 9,789 - 9,789 - - - - - - - - Total Remuneration 1,885,103 521,973 9,789 176,203 0 2,593,068 20.1% 1. Anthony Mankarios was paid a cash bonus at the start of the financial year based on the achievement of key performance criteria related to the year ended 30 June 2018. These include profit goals and the successful completion of predetermined events set by the non-executive directors. For the year ended 30 June 2019 the short-term incentive bonus performance targets were not met and no payment will be made related to this incentive. Anthony Mankarios was contracted to 30 June 2019; the Board have not renewed this contract. In the announcement made to the ASX on 24 July 2019 the Board indicated that the Performance Rights voted at the 2018 AGM had been cancelled. 2. Cash bonuses paid to other KMP’s were at the discretion of the directors and were based on key performance criteria, which required performance to meet or exceed the group budget and successfully complete predetermined targets. 3. John Bourke and Chris Palin are both directors of KWB Group Pty Ltd, their cash bonuses are related to meeting key performance criteria related to KWB Group Pty Ltd at the date of this report. 4. Andrew Webber’s consultancy company was paid $240k for consulting services performed by his staff members for the Lloyds Online group of companies. 5. Lee Hames is a Director and COO of Lloyds Online Auctions Pty Ltd. 6. Tim Hantke’s remuneration reduced in 2018 due to extended unpaid leave taken during the year. Joyce Corporation Ltd Annual Report 2019 29 D. SHARE-BASED COMPENSATION Recognition and Measurement The schemes in place can only be equity-settled and are accounted for accordingly. The cost of equity-settled transactions with employees is measured using their fair value at the date which they were granted. In determining the fair value, no account is taken of any performance conditions. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which any performance conditions are met, ending on the date on which the employee becomes fully entitled to the award (vesting date).The cumulative expense recognised for these transactions at each reporting date reflects the extent to which the vesting period has expired and the proportion of the awards that are expected to ultimately vest. No expense is recognised for awards that do not ultimately vest due to a performance condition not being met. In the ASX announcement dated 24 July 2019 the Company communicated the Performance Rights allocated at the 2018 AGM had been cancelled. E. EQUITY INSTRUMENT DISCLOSURES RELATING TO KMP’S i. Option and holding rights granted as compensation During the financial year ended 30 June 2019 no options (2018: Nil) were granted or vested as equity compensation benefits to any director or executive of the Consolidated Entity. ii. Option holdings There were no options on issue to KMP’s during the year ended 30 June 2019 (2018: Nil). iii. Performance rights granted as compensation During the financial year ended 30 June 2019, 263,158 FY18 performance rights and 272,109 FY19 performance rights were granted to Anthony Mankarios (2018: Nil), as equity compensation benefits. iv. Performance right holdings During the financial year ended 30 June 2019, 263,158 FY18 performance rights and 272,109 FY19 performance rights were granted to Anthony Mankarios which are subject to continued employment with Joyce Corporation Ltd and to the Group meeting predetermined performance criteria. On 24 July 2019 his contract was not renewed and did not continue beyond 30 June 2019. The performance rights have been cancelled as announced to the ASX on 24 July 2019. Therefore, no amount is recorded as a share-based payment expense for the year ended 30 June 2019. Joyce Corporation Ltd Annual Report 2019 30 E. EQUITY INSTRUMENT DISCLOSURES RELATING TO KMP’S (CONTINUED) v. Share Holdings The number of shares in the Company held during the financial year by each director and other KMP’s of the Consolidated Entity, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation (2018: Nil). Balance Granted as On Exercise of Net Change Balance 01-Jul-18 Remuneration Options Other 30-June-19 30 June 2019 Mike Gurry Karen Gadsby Dan Smetana Tim Hantke Travis McKenzie 56,878 20,000 9,874,129 20,000 - Anthony Mankarios 723,823 Keith Smith Keith Gray John Bourke Chris Palin Andrew Webber Lee Hames Gavin Culmsee - - 65,359 6,615 - - - TOTAL 10,766,804 30 June 2018 Mike Gurry Karen Gadsby Dan Smetana Tim Hantke Anthony Mankarios Keith Smith Keith Gray John Bourke Chris Palin Andrew Webber Lee Hames Gavin Culmsee 56,878 - 9,874,129 20,000 718,545 - - 65,359 6,615 - - - TOTAL 10,741,526 Balance Granted as On Exercise of Net Change Balance 01-Jul-17 Remuneration Options Other 30-June-18 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 56,878 20,000 380,000 10,254,129 - - 17,500 40,000 - - (6,615) - - 20,000 - 741,323 40,000 - 65,359 - - - 10,000 10,000 440,885 11,207,689 - - - - - - - - - - - - - - - - - - - - - - - - - - - 20,000 - - 5,278 - - - - - - - 56,878 20,000 9,874,129 20,000 723,823 - - 65,359 6,615 - - - 25,278 10,766,804 Joyce Corporation Ltd Annual Report 2019 31 E. EQUITY INSTRUMENT DISCLOSURES RELATING TO KMP’S (CONTINUED) vi. Partly Paid Ordinary Share Holding The number of partly paid ordinary shares in the Company held during the financial year by each director of the Company and the other KMP’s of the Consolidated Entity, including their personally related parties, is set out below. There were no shares granted during the reporting period as compensation (2018: Nil). 30 June 2019 Mike Gurry Karen Gadsby Dan Smetana* Anthony Mankarios Keith Smith Keith Gray John Bourke Chris Palin Andrew Webber Lee Hames Gavin Culmsee Balance Granted as On Exercise of Net Change Balance 01-Jul-18 Remuneration Options Other 30-June-19 - - 380,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (380,000) - - - - - - - - - - - - - - - - - - - *On 16 July 2018 Dan Smetana settled the final payment for the 380,000 partly paid ordinary shares held at 30 June 2018. Balance Granted as On Exercise of Net Change Balance 01-Jul-17 Remuneration Options Other 30-June-18 30 June 2018 Mike Gurry Karen Gadsby Dan Smetana Tim Hantke Anthony Mankarios Keith Smith Keith Gray John Bourke Chris Palin Andrew Webber Lee Hames Gavin Culmsee - - 380,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 380,000 - - - - - - - - - 380,000 TOTAL 380,000 All equity transactions with specified directors and Other KMP’s of the Consolidated Entity have been entered into under terms and conditions no more favorable than those the Company would have adopted if dealing at arm’s length. Partly paid shares are unquoted until they become fully paid. Partly paid shares carry voting rights and rights to participate in entitlement issues and dividends although any shares acquired under a rights issue cannot be quoted until the partly paid shares become fully paid. Joyce Corporation Ltd Annual Report 2019 32 F. LINK BETWEEN REMUNERATION POLICY AND COMPANY PERFORMANCE The Consolidated Entity provided executives with variable remuneration in the form of short-term and long-term incentives as described in Part A of the Remuneration Report. These incentives are payable upon the achievement of certain goals covering both financial and non-financial, corporate and individual measures of performance. Included in the measures are contributions to profit, cash targets and departmental functional KPI's. The following table shows the gross revenue, profits and dividends for the last five years for the Consolidated Entity, as well as the share price at the end of the respective financial years. The dividend includes ordinary and special dividends paid or payable in respect of each Financial Year (FY). FY19 $000 FY181 $000 FY171 $000 FY16 $000 FY15 $000 Revenue from continuing operations 101,161 91,419 78,7702 56,544 34,737 Profit from continuing operations after tax 6,734 6,723 5,6402 3,461 Share price at year-end $ Dividends (Cents) paid or payable 1.53 12.7 1.42 11.0 1.60 11.5 1.01 16.0 126 0.96 5.5 1 Revenue and net profit exclude discontinued operations in the current business. 2 Revenue and profit increased in 2017 from consolidation of Lloyds Online Auctions Pty Ltd from July 2016. G. VOTING AT THE 2018 ANNUAL GENERAL MEETING ON THE REMUNERATION REPORT The Remuneration Report in the 2018 Annual Report to shareholders was approved by 97.7% of shareholders at the 2018 Annual General Meeting. No specific feedback was received at the Annual General Meeting or throughout the year. H. INDEPENDENT SALARY AND INCENTIVE REVIEW During FY19 the Company undertook an independent review of executive salary and incentive levels to benchmark against market. Additional work was also undertaken to establish the Long-Term Incentive Scheme, approved at the 27 November 2018 Annual General Meeting. The review and work were undertaken by the independent professional firm of Godfrey Remuneration Group for the sum of $34,000. Recommended changes are the subject of an ongoing project. I. LOANS OR OTHER TRANSACTIONS WITH DIRECTORS AND EXECUTIVES There are no loans outstanding with any Director as at 30 June 2019 (2018: $29,450). During FY19 an unsecured loan from Dan Smetana of $400k was entered into, with an interest rate of 7.22% pa. This was repaid in full in March 2019. In FY18 an unsecured loan for the same amount was received, of which $371k was repaid in July 2018 and the remaining $29k loan balance was subsequently used by Dan Smetana as the final payment towards the partly paid shares. There were no other transactions with KMP’s not in the ordinary course of business. The Executive Directors fees were paid to Starball Pty Ltd, a company in which Anthony Mankarios has significant influence FY19 - $485,350 (2018: $538,201). As at year end the amount owing to this related party was $nil (2018: $26,773). At 30 June 2018 the receivable from Pynland Pty Ltd was $26,231, a company with shares held in trust by Dan Smetana for the suspended employee share scheme, was received in full on 16 May 2019. During the year ended 30 June 2019, LAAV Management Pty Ltd, a company of which Andrew Webber is a director, was paid $240,000 (2018: $190,000) by Lloyds Online Auctions Pty Ltd for the provision of management services by Andrew Webber and Mark Fitzpatrick. This amount is in addition to the remuneration disclosed in the KMP remuneration disclosures. End of Audited Remuneration Report. Joyce Corporation Ltd Annual Report 2019 33 INSURANCE OF OFFICERS During FY19, Joyce Corporation Ltd paid a premium to insure the directors, secretaries and KMP’s of the Consolidated Entity. A clause in the relevant insurance policy prevents the disclosure of the amount of the premium. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers of the Consolidated Entity, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a willful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company or more broadly to the Consolidated Entity. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for taking responsibility on behalf of the Company for all or part of those proceedings. PERFORMANCE IN RELATION TO ENVIRONMENTAL REGULATION Joyce Corporation is party to licenses issued by the Environmental Protection Authority as per NGER Act 2007 and various other authorities throughout Australia. These licenses regulate the management of air and water quality, the storage and carriage of hazardous materials and disposal of wastes associated with the Consolidated Entity’s properties. There have been no new or material known breaches associated with the Consolidated Entity’s license conditions. NON-AUDIT SERVICES There were no fees paid or payable to the auditors for non-audit services for the year ended 30 June 2019. The Company may deploy auditors for non-audit services in the future. AUDITOR'S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 35. ROUNDING OF AMOUNTS The Consolidated Entity has applied the relief available to it in ASIC Corporate Legislative Instrument 2016/191 and accordingly certain amounts in the Directors’ Report have been rounded off to the nearest $1,000. Signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001. M A Gurry Chair Perth, 27 August 2019 Joyce Corporation Ltd Annual Report 2019 34 Joyce Corporation Ltd Annual Report 2019 35 CORPORATE GOVERNANCE STATEMENT Joyce Corporation Ltd (“the Company”) and the Board are committed to achieving and demonstrating a high standard of corporate governance. The Company has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2019 corporate governance policy and statement reflects the corporate governance practices in place throughout the 2019 financial year. A description of the Company’s current corporate governance practices is set out in the Company’s corporate governance statements, which can be viewed at www.joycecorp.com.au. Joyce Corporation Ltd Annual Report 2019 36 ANNUAL FINANCIAL REPORT Joyce Corporation Ltd AND CONTROLLED ENTITIES ABN: 80 009 116 269 Annual Financial Report For the Year Ended 30 June 2019 Joyce Corporation Ltd Annual Report 2019 37 CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED Continuing operations Revenue Cost of sales Gross profit Other income Variable costs Contribution margin Expenses from continuing operations Employment expenses Occupancy expenses Marketing expenses Administration expenses Earnings before depreciation, interest, tax and revaluation Depreciation and amortisation Earnings before interest, tax and revaluation Investment property revaluation Earnings before interest and tax Net interest expense Earnings before tax Income tax expense Profit from continuing operations after tax Discontinued operations Profit/(Loss) for the year from discontinued operations Profit for the year Profit is attributable to: Ordinary equity holders of the company Non-controlling interests Earnings per share (cents per share) for profit attributable to ordinary equity holders of the company: Overall operations basic earnings per share Overall operations diluted earnings per share Overall operations basic earnings per share excluding property revaluation Note 6 6 6 6 6 6 8 7 9 9 9 2019 $000 101,161 (42,834) 58,327 3,886 (7,801) 54,412 (28,101) (5,799) (3,189) (5,783) 11,540 (1,713) 9,827 - 9,827 (298) 9,529 (2,795) 6,734 4 6,738 3,453 3,285 6,738 12.3 12.3 12.3 2018 $000 91,419 (39,097) 52,322 3,901 (8,509) 47,714 (23,761) (5,421) (3,261) (5,050) 10,221 (1,043) 9,178 933 10,111 (287) 9,824 (3,101) 6,723 (140) 6,583 3,380 3,203 6,583 12.3 12.1 10.9 The consolidated statement of profit or loss is to be read in conjunction with the notes to the consolidated financial statements set out on pages 43 to 92. Joyce Corporation Ltd Annual Report 2019 38 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED Profit for the year Other comprehensive income Items that will not be reclassified to profit or loss Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year is attributable to: Ordinary equity holders of the company Non-controlling interests Total comprehensive income for the year Total comprehensive income for the year is attributable to ordinary equity holders of the company arises from: Continuing operations Discontinued operations Total comprehensive income for the year 2019 $000 6,738 - - 6,738 3,453 3,285 6,738 3,449 4 3,453 2018 $000 6,583 - - 6,583 3,380 3,203 6,583 3,520 (140) 3,380 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the consolidated financial statements set out on pages 43 to 92. Joyce Corporation Ltd Annual Report 2019 39 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019 Note 10 11 12 13 14 11 8 15 12 16 17 18 19 20 8 20 8 19 21 26 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Other assets Other financial assets Total Current Assets Non-Current Assets Trade and other receivables Deferred tax asset Plant and equipment Inventories Investment property Intangible assets Total Non-Current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Provisions Interest bearing loans and borrowings Provision for income tax Total Current Liabilities Non-Current Liabilities Interest bearing loans and borrowings Deferred tax liabilities Provisions Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Non-controlling interests Retained earnings TOTAL EQUITY CONSOLIDATED 2019 $000 6,975 2,125 3,204 1,573 31 13,908 399 1,543 11,194 544 9,623 18,306 41,609 55,517 14,141 1,613 894 155 16,803 9,809 570 914 11,293 28,096 27,421 18,090 3,197 6,134 27,421 2018 $000 6,215 1,918 3,645 1,260 68 13,106 588 1,445 10,778 395 9,623 18,163 40,992 54,098 11,779 1,528 435 820 14,562 10,056 554 818 11,428 25,990 28,108 18,060 3,073 6,975 28,108 The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements set out on pages 43 to 92. Joyce Corporation Ltd Annual Report 2019 40 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2019 CONSOLIDATED Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Income tax paid Net cash flows (used in) / from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Secured loan Purchase of non-current assets Purchase of intangible assets Payments for business acquisitions net of cash acquired Net cash flows (used in) / from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Proceeds from related party loan Repayment of related party loan Proceeds from partly paid share dividend Dividends paid Dividends paid to non-controlling interest Net cash flows (used in) / from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Reconciliation of cash Cash at bank and in hand Note 30 27 10 2019 $000 108,465 (94,678) 85 (334) (3,542) 9,996 60 - (1,800) (528) - (2,268) 738 (575) 400 (400) 30 (3,552) (3,609) (6,968) 760 6,215 6,975 6,975 6,975 2018 $000 104,116 (91,647) 64 (351) (3,157) 9,025 111 78 (2,074) (2,230) (815) (4,930) 2,400 (479) - - 41 (3,077) (2,061) (3,176) 919 5,296 6,215 6,215 6,215 The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements set out on pages 43 to 92. Joyce Corporation Ltd Annual Report 2019 41 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019 Non- Note Contributed Equity $000 18,019 Reserves $000 2,699 Retained Earnings $000 3,838 Total Controlling Interest $000 1,930 Equity $000 26,486 Balance at 1 July 2017 Total comprehensive income for the year: Profit attributable to members of the parent entity Profit attributable to non- controlling interests Transfer of reserve to retained earnings and tax adjustments Total comprehensive income for the year Transactions with owners in their capacity as owners: Payment partly paid shares Dividends paid or provided for Balance at 30 June 2018 21 Balance at 1 July 2018 Change in accounting policy 2 Restated total equity at the beginning of the financial year Total comprehensive income for the year: Profit attributable to members of the parent entity Profit attributable to non- controlling interests Total comprehensive income for the year Transactions with owners in their capacity as owners: Transactions with non-controlling interests Payment partly paid shares Dividends paid or provided for 26(b) Balance at 30 June 2019 21 - - - 18,019 41 - 18,060 18,060 - 18,060 - - - - 30 - 18,090 - - 3,380 - 3,380 - 3,203 3,203 (2,699) 2,834 - 135 - - - - - - - - - - - - - - 10,052 5,133 33,204 - (3,077) 6,975 6,975 (95) - 41 (2,060) 3,073 (5,137) 28,108 3,073 28,108 - (95) 6,880 3,073 28,013 3,453 - 3,453 - 3,285 3,285 3,453 3,285 6,738 (647) - (3,552) 6,134 448 - (3,609) 3,197 (199) 30 (7,161) 27,421 The consolidated statement of changes in equity is to be read in conjunction with the notes to the consolidated financial statements set out on pages 43 to 92. Joyce Corporation Ltd Annual Report 2019 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. CORPORATE INFORMATION The consolidated financial statements of Joyce Corporation Ltd (“the Company”) for the year ended 30 June 2019 were authorised for issue in accordance with a resolution of the directors of the Company dated 27 August 2019. Joyce Corporation Ltd is a Company incorporated in Australia and limited by shares which are publicly traded on the Australian Securities Exchange. The company is a for-profit entity for the purpose of this financial report. The nature of the operation and principal activities of the Company and its controlled entities are described in Directors’ Report. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements comprise the financial statements of Joyce Corporation Ltd and its controlled subsidiaries (‘the Consolidated Entity’). Below is a summary of significant accounting policies. More accounting policies are presented in following notes to the consolidated financial statements. (a) Basis of preparation These general-purpose financial statements for the year ended 30 June 2019 have been prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Historical cost convention These financial statements have been prepared under the historical cost convention, except for the investment property and certain other financial instruments which are measured at fair value. New or revised Standards and Interpretations that are first effective in the current reporting period A number of new or amended standards became applicable for the current reporting period and the Consolidated Entity had to change its accounting policies as a result of the adoption of the following standards: • • AASB 9 Financial Instruments; and AASB 15 Revenue from Contracts with Customers. The impact of the adoption of these standards and the new accounting policies is disclosed below. The impact of these standards, and the other new and amended standards adopted by the Consolidated Entity, has not had a material impact on the amounts presented in the Consolidated Entity’s financial statements. Joyce Corporation Ltd Annual Report 2019 43 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Changes in accounting policies This note explains the impact of the adoption of AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers on the Consolidated Entity’s financial statements and also discloses the new accounting policies that have been applied from 1 July 2018, where they are different to those applied in prior periods. (i) AASB 9 Financial Instruments Classification From 1 July 2018, the Consolidated Entity classifies its financial assets in the following measurement categories: - - those to be measured subsequently at fair value (either through OCI, or through profit or loss); and those to be measured at amortised cost. The classification depends on how the Consolidated Entity manages the financial assets and the contractual terms of the cash flows. Measurement At initial recognition, the Consolidated Entity measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Impairment From 1 July 2018, the Consolidated Entity assesses expected credit losses associated on a forward-looking basis. For trade receivables, the Consolidated Entity applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Impact of Adoption The Consolidated Entity’s financial assets subject to AASB 9’s new expected credit loss model. The assets assessed are trade receivables, which arise from the provision of services and sale of goods. The impact of the impairment requirements of AASB 9 on trade receivables has not resulted in a material impact to the financial statements. Under AASB 9, the Consolidated Entity was required to revise the impairment methodology used in the calculation of its provision for doubtful debts to the expected credit loss model. This change in methodology has not had a material impact on the financial statements. The Consolidated Entity applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure or a debtor to engage in a repayment plan with the Consolidated Entity, and a failure to make contractual payments for a period of greater than 120 days past due. Joyce Corporation Ltd Annual Report 2019 44 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (ii) AASB 15 Revenue from Contracts with Customers The Consolidated Entity revenues consist of the following elements: Sale of goods – Bedshed owned and operated retail stores The Group operates five retail stores selling mattresses, bedroom furniture and goods. Revenue from the sale of goods is recognised when the product is sold to the customer. It is the Group’s policy to sell its mattresses with a right of substitution within 60 days, the 60- day Comfort Guarantee to all mattresses sold at Bedshed stores. Therefore, a return liability (included in trade and other payables) and a right to the returned goods (included in other current assets) are recognised for the products expected to be returned. Accumulated experience is used to estimate such returns at the time of sale at a Group level (expected value method). Because the number of products returned has been steady for years, it is highly probable that a significant reversal in the cumulative revenue recognised will not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting date. Franchise revenues – Bedshed franchisees Joyce provides franchisor services to franchisees, as performance obligations are satisfied revenue is recognised. Revenue is based on a percentage of franchisees sales. Sale of goods – Kitchen Division Revenues from the Kitchen Group (KWB) are recognised when control of the goods passes to the customer, which is when the product is delivered to the client’s premises. KWB does not provide installation services. Auction services The Group acts as an agent in providing auction services and commission revenue is earned at the point the online auction closes, provided funds are subsequently received from the successful buyer. The Group has no material contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. Impact of Adoption The Consolidated Entity has adopted AASB 15 Revenue from Contracts with Customers from 1 July 2018, which resulted in changes to accounting policies but no material adjustments to the amounts recognised in the financial statements. See Notes 5 Segment Information and 6 (a) Revenue from Continuing Operations for additional disclosure and disaggregation of revenue. Joyce Corporation Ltd Annual Report 2019 45 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impact of AASB 9 and AASB 15 on the financial statements The Consolidated Entity took the modified transitional approach to implementation of AASB 9 and AASB 15 where transitional adjustments have been recognised in retained earnings at 1 July 2018 without adjustment of comparatives and the new standard has been applied to contracts that remain in force at that date. The following table shows the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided. 30.06.2018 As originally stated AASB 9 AASB 15 1.07.2018 Restated $000 $000 $000 $000 ASSETS Current Assets Trade receivables Total Current Assets 1,918 13,106 (95) (95) TOTAL ASSETS 54,098 (95) NET ASSETS EQUITY Retained earnings TOTAL EQUITY 28,108 (95) 6,975 28,108 (95) (95) - - - - - - 1,823 13,011 54,003 28,013 6,880 28,013 The total impact on the Consolidated Entity’s retained earnings as at 1 July 2018 is as follows: Retained earnings as reported previously as at 30 June 2018 Adjustment to retained earnings from adoption of AASB 9 on 1 July 2018 Opening retained earnings 1 July 2018 1.07.2018 Restated $000 6,975 (95) 6,880 The Consolidated Entity’s comparative financial information has not been restated. There is nil impact on the profit for the year ended 30 June 2019 and a $95k impact on Retained Earnings as at 1 July 2018 on adoption of AASB 9. Joyce Corporation Ltd Annual Report 2019 46 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following table summarises the impacts of adopting AASB 9 and 15 on the Consolidated Entity’s statement of financial position as at 30 June 2018 for each of the line items affected. There was no impact on the Consolidated Entity’s statement of profit or loss and other comprehensive income and statement of cash flows for the year ended 30 June 2019. Restated to AASB 9 and As Reported with AASB 118 and AASB 15 Adoption of AASB 9 AASB 139 Impacts and AASB 15 $000 1,808 28,161 6,736 $000 (95) (95) (95) $000 1,713 28,066 6,641 Accounts receivable Net asset impact Retained profits (b) Principles of consolidation The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its investment with the entity and can affect those returns through its power to direct the activities of the entity. All controlled entities have a 30 June financial year end. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Consolidated Entity controls another entity. A list of controlled entities is provided in Note 26 to the financial statements. Consolidated financial statements are the financial statements of the Consolidated Entity presented as those of a single economic entity. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intra-Consolidated Entity balances and transactions, including income, expenses and dividends, are eliminated in full on consolidation. The results of the investees acquired or disposed of during the financial year are accounted for from the respective dates of acquisition or up to the dates of disposal. On disposal, the attributable amount of goodwill, if any, is included in the determination of the gain or loss on disposal. Non-controlling interests, being that portion of the profit or loss and net assets of subsidiaries attributable to equity interests held by persons outside the Consolidated Entity, are shown separately within the Equity section of the consolidated Statement of Financial Position and in the consolidated Statement of Profit or Loss and Other Comprehensive Income. Amounts held on trust for the ‘Marketing Fund’, ‘Approved Purposes Fund’ and the Lloyds ‘Auction Trust’ account are not the funds of the Consolidated Entity and have not been consolidated. Joyce Corporation Ltd Annual Report 2019 47 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Consolidated Entity for similar financial instruments. (d) Investments and other financial assets (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position. (ii) Subsequent measurement Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. (e) Comparatives When required by applicable accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (f) Rounding of Amounts The Company has applied the relief available to it under ASIC Corporate Legislative Instrument 2016/191 and accordingly, amounts in the financial report have been rounded off to the nearest $1,000. (g) 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 Statement of Cash Flows includes cash flows on a gross basis. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Joyce Corporation Ltd Annual Report 2019 48 3. FINANCIAL RISK MANAGEMENT The Consolidated Entity's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Consolidated Entity's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Consolidated Entity. The Consolidated Entity makes occasional use of derivative financial instruments such as foreign exchange contracts to manage foreign currency risk. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Consolidated Entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and aging analysis for credit risk. Risk management is carried out by the Finance Executive under the supervision of the Board of Directors. The Board provides principles for overall risk management, as well as policies and supervision covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. The Consolidated Entity holds the following financial instruments: Financial assets Cash and cash equivalents Trade and other receivables Other financial assets Financial liabilities Trade and other payables Interest-bearing loans and borrowings (a) Market risk (i) Foreign exchange risk Note 10 11 14 18 20 CONSOLIDATED 2019 $000 6,975 2,524 31 9,530 14,141 10,703 24,844 2018 $000 6,215 2,506 68 8,789 11,779 10,491 22,270 The Consolidated Entity’s exposure to foreign currency risk is not material. It is principally limited to goods sold in the five Company owned Bedshed stores. (ii) Cash flow interest rate risks The Consolidated Entity's main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Consolidated Entity to cash flow interest rate risk. The Consolidated Entity polices seek to manage both risks, interest rate and liquidity (see below), by assessment of the current state of the yield curve and expectations about interest rates in the medium term and the Entity’s need for flexibility to minimise the Consolidated Entity’s interest expense. Joyce Corporation Ltd Annual Report 2019 49 3. FINANCIAL RISK MANAGEMENT (CONTINUED) As at the reporting date, the Consolidated Entity had the following variable and fixed rate financial instruments: Weighted Average Interest rate % Weighted Average Interest rate % 2019 $000 2018 $000 0.03% 6,975 0.03% 6,215 6,975 6,215 Financial assets Cash and cash equivalents (i) Financial liabilities Commercial bill –secured – variable (ii) Bank loan – secured (iii) 4.73% 3.77% 5,103 5,600 10,703 4.84% 3.61% 4,891 5,600 10,491 (i) (ii) The overdraft facility pays interest at variable interest rates plus a line fee. The Commercial bill facility is approved to 1 January 2020. This debt facility is bank bill based and incurs a line fee and an on-use fee. Facility expires 31 January 2021. (iii) The bank loan facility is approved to 9 April 2020. Contractual arrangements have been entered into to roll this facility over to the National Australian Bank. An analysis by maturities is provided in (c) below. The Consolidated Entity analyses its interest rate exposure on a dynamic basis. Various scenarios are modelled taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the Consolidated Entity calculates the impact on profit or loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. Based on the various scenarios, the Consolidated Entity manages its cash flow interest rate risk adopting an appropriate mix of fixed versus variable rate debt and an appropriate mix of debt maturities to provide it with flexibility to repay debt as quickly as possible whilst having liquidity available to take advantage of business opportunities as they arise. Consolidated Entity sensitivity The major debt facility drawn at 30 June 2019 is at a variable interest rate (see above). Variable interest rates apply to the overdraft and cash and cash equivalents. On balances held at 30 June 2019, if interest rates had changed by -/+ 100 basis points from the year-end rates with all other variables held constant, post-tax profit for the year would have been $75k higher or $75k lower (2018 – $97k). This is a result of a higher or lower interest expense arising from borrowings, offset by higher or lower interest income from cash and cash equivalents. Equity would have been $75k higher or $75k lower (2018 - $97k) for the same reasons as above. Joyce Corporation Ltd Annual Report 2019 50 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk Credit risk is limited to high credit quality financial institutions with which deposits are held and high credit quality wholesale customers with which the Consolidated Entity trades. Credit risk is managed on a Consolidated Entity basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of 'A' are accepted. If wholesale customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, considering its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set internally. The compliance with credit limits by wholesale customers is regularly monitored by line management. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as summarised in each applicable note. For wholesale customers without credit rating the Consolidated Entity generally retains title over the goods sold until full payment is received. For some trade receivables the Consolidated Entity may also obtain security in the form of guarantees, deeds of undertaking or letters of credit which can be called upon if the counterparty is in default under the terms of the agreement. The Consolidated Entity does not hold any credit derivatives to offset its credit exposure. The Consolidated Entity trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Consolidated Entity's policy to securitise its trade and other receivables. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates: Cash and cash equivalents AA Trade and other receivables Non-rated Other financial assets Non-rated CONSOLIDATED 2019 $000 2018 $000 6,975 6,215 2,524 2,506 31 68 9,530 8,789 Joyce Corporation Ltd Annual Report 2019 51 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Consolidated Entity manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Due to the dynamic nature of the underlying businesses, the Consolidated Entity aims at maintaining flexibility in funding by keeping committed credit lines available and, where possible, with a variety of counterparties. Surplus funds are generally invested in term deposits or used to repay debt. Maturities of financial assets and financial liabilities The tables below analyses the Consolidated Entity’s financial liabilities, net and gross settled derivative financial instruments into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Consolidated disclosures Year ended 30 June 2019 Consolidated financial assets Cash and cash equivalents Trade and other receivables Other financial assets Consolidated financial liabilities Trade and other payables Interest bearing loans & borrowings Net maturity Year ended 30 June 2018 Consolidated financial assets Cash and cash equivalents Trade and other receivables Other financial assets ≤ 6 months $000 6-12 months $000 1-5 years $000 >5 years $000 6,975 2,125 31 9,131 14,141 895 15,036 (5,905) - - - - - - - - - 399 - 399 - 9,808 9,808 (9,409) - - - - - - - - ≤ 6 months $000 6-12 months $000 1-5 years $000 >5 years $000 6,215 1,918 68 8,201 - - - - - 588 - 588 Total $000 6,975 2,524 31 9,530 14,141 10,703 24,844 (15,314) Total $000 6,215 2,506 68 8,789 11,779 11,704 23,483 (14,694) - - - - - - - - Joyce Corporation Ltd Annual Report 2019 52 Consolidated financial liabilities Trade and other payables Interest bearing loans & borrowings Net maturity 11,779 215 11,994 (3,793) - 220 220 (220) - 11,269 11,269 (10,681) 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk (continued) Financing arrangements The Consolidated Entity had access to the following bank borrowing facilities at the reporting date: 30 June 2019 Consolidated 30 June 2018 Consolidated Facility limit $000 10,131 Used $000 9,881 Available $000 250 10,641 10,491 150 As at 30 June 2019 the Consolidated Entity had facilities in place of $10,131,700 (2018: $10,641,300). The Consolidated Entity had utilised $9,881,493 consisting of the $5,600,000 bank loan, $4,021,700 bank bill facility and $259,793 in temporary facility (2018: $10,491,300). The consolidated entity had $6,975,000 (2018: $6,215,000) cash at bank as at the reporting date including funds held in trust set out at Note 10. In addition, the Consolidated Entity had a net investment in inventories of $3,748,000 as at 30 June 2019 (2018: $4,040,000). (d) Capital risk management Management controls the capital of the Consolidated Entity to maintain a good debt to equity ratio, to provide shareholders with adequate returns and ensure that the Consolidated Entity can fund its operations and continue as a going concern. The Consolidated Entity’s debt and capital includes ordinary share capital and financial liabilities, supported by financial assets. The Consolidated Entity is not subject to any externally imposed capital requirements. Management effectively manages the Consolidated Entity’s capital by assessing the Consolidated Entity’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the Consolidated Entity since the prior year. This strategy is to ensure that the Consolidated Entity’s gearing ratio remains below 40%. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. Joyce Corporation Ltd Annual Report 2019 53 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Consolidated Entity makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Impairment of Goodwill The Consolidated Entity assesses impairment at each reporting date by evaluating conditions specific to the Consolidated Entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. (b) Judgement in determining control of subsidiaries (AASB 10) In determining whether the Company has control over subsidiaries that are not wholly owned, judgement is applied to assess the ability of the Company to control the day-to-day activities of the partly owned subsidiary and its economic outcomes. In exercising judgement, the commercial and legal relationships that the Company has with other owners of partly owned subsidiaries are taken into consideration. Whilst the Company is not able to control all activities of a partly owned subsidiary, the partly owned subsidiary is consolidated within the Consolidated Entity where it is determined that the Company controls the day- to-day activities and economic outcomes of a partly owned subsidiary. Changes in agreements with other owners of partly owned subsidiaries could result in a loss of control and subsequently de-consolidation. Upon acquisition of partly owned subsidiaries by the Company, judgement is exercised concerning the value of net assets acquired on the date of acquisition. The minority owner interest share of net assets acquired, fair value of consideration transferred and subsequent period movements in value thereof, are disclosed as outside equity interest. (c) Net realisable value of inventory In determining the number of write-downs required for inventory, management has made judgements based on the expected net realisable value of that inventory. Historic experience and current knowledge of the products has been used in determining any write-downs to net realisable value. (d) Judgment on capital development investments Discounted cash flow models are used for business cases, these include assumptions and estimates of business outcomes and are used for capital investments, such as software. The Consolidated Entity has made an assessment to amortise software development costs over 5 years, refer to Note 17 Intangible Assets for the company policy. Joyce Corporation Ltd Annual Report 2019 54 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) (e) Treatment of investment property in QLD The KWB property located at 97 Trade Street, Lytton has the majority of the site rented to third parties at market rates. KWB occupy a minority of the site (42%). Management have determined the occupation of the majority of the site by third parties is the key factor in determining its treatment as an investment property. (f) Treatment of Franchise Fee Income The Bedshed franchising operations undertake a number of support functions for franchisees and in the main these are related to the ongoing ability of franchisees to operate. There is a further, separate service obligation which occurs prior to a franchisee commencing trading. Management have determined that these are two different service obligations and are accounted for separately. (g) Share based payments At the 2018 AGM 263,158 FY18 performance rights and 272,109 FY19 performance rights were granted to the Executive Director. The vesting criteria mean that these are ‘off market’ options and they have been accounted for in accordance with AASB-2 (Accounting for share based payments). The likelihood of achieving the vesting criteria was assessed during the year and an expense booked for the proportion of the time that had elapsed compared to the total vesting period. The Executive Director’s contract was not renewed and ended on 30 June 2019. In the announcement to the ASX on 24 July 2019 it was noted all the performance rights were cancelled, $Nil was expensed in the year ending 30 June 2019. (h) AASB 9 – Expected credit loss Debtors in each part of the organisation have been reviewed for the potential of non-recovery. Management have reviewed the various circumstances of each entity and determined that full recovery has a high potential likelihood. These circumstances are as follows: • • • • In Bedshed and KWB Group the customer has to pay for the goods being purchased prior to delivery; In Lloyds auction business revenue is only recognised when purchaser of the item has paid; and In Lloyds the discontinued owned inventory debtor is a well backed entity and a material sum has already been paid. Included in the financial position of Lloyds is a receivable of $795,000 (ex-GST) held in respect of the sales recorded under the discontinued operations line disclosed in Note 7. Management have assessed that the expected credit loss on this item to be immaterial, due to the counter-party being well funded, and that payments, including the initial $200k deposit, being made in line with the agreed terms. Joyce Corporation Ltd Annual Report 2019 55 5. SEGMENT INFORMATION (a) AASB 8 Operating segments Operating Segments are identified based on internal reports about components of the Consolidated Entity that are regularly reviewed by the chief operating decision makers (The Board of Directors and the Acting CEO) in order to allocate resources to the segments and to assess their performance. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The Consolidated Entity has the following operating segments: • Bedshed retail bedding franchise operation; • Company owned retail bedding stores; • Operation of retail kitchen stores; and • Operation of valuation, online and physical auction sales. Transfer prices between operating segments are set at an arms-length basis in a manner consistent with transactions with third parties. Joyce Corporation Ltd Annual Report 2019 56 5. SEGMENT INFORMATION (CONTINUED) Operating segments The following table presents revenue and profit information and certain asset and liability information regarding operating segments for the year ended 30 June 2019. Continuing Operations Discontinued Operations Bedshed Franchise $000 Retail Bedding Stores $000 Retail Kitchen Stores $000 Online Auction Total Lloyds’ Stock Total $000 $000 $000 $000 Year ended 30 June 2019 Revenue Revenue Inter-segment sales Total consolidated revenue Timing of revenue recognition At a point in time Over time Unallocated revenue Total consolidated revenue Result Segment result Unallocated expenses net of unallocated income Income tax expense Net consolidated profit for the year Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities 5,465 13,776 64,964 16,956 101,161 - - - - - 101,161 146 5,319 5,465 13,776 64,964 16,956 - - - 95,842 5,319 13,776 64,964 16,956 101,161 - 101,161 1,645 492 9,452 242 11,831 7,099 5,965 20,130 13,234 1,052 4,646 15,964 2,998 (2,302) (2,795) 6,734 46,428 9,089 55,517 24,660 3,436 28,096 Other segment information Capital expenditure Depreciation and amortisation 23 21 90 171 1,074 753 1,127 660 2,314 1,605 183 101,344 - - 183 101,344 183 - 96,025 5,319 183 101,344 - - 183 101,344 5 - (1) 4 - - - - - - - - 11,836 (2,302) (2,796) 6,738 46,428 9,089 55,517 24,660 3,436 28,096 2,314 1,605 Joyce Corporation Ltd Annual Report 2019 57 5. SEGMENT INFORMATION (CONTINUED) Operating segments (continued) The following table presents revenue and profit information and certain asset and liability information regarding operating segments for the year ended 30 June 2018. Continuing Operations Discontinued Operations Bedshed Franchise $000 Retail Bedding Stores $000 Retail Kitchen Stores $000 Online Auction Total Lloyds’ Stock Total $000 $000 $000 $000 5,286 15,800 56,324 15,880 93,290 3,314 96,604 - - - - 75 15,800 56,324 15,880 5,211 5,286 - - - 15,800 56,324 15,880 - 93,290 88,079 5,211 93,290 (1,871) 91,419 - - 3,314 96,604 3,314 - 3,314 - 3,314 91,393 5,211 96,604 (1,871) 94,733 1,435 457 8,290 700 10,882 (200) 10,682 933 (1,991) (3,101) 6,723 44,048 8,618 52,666 21,059 3,552 24,611 - - 60 (140) 1,432 - 1,432 1,379 - 1,379 933 (1,991) (3,041) 6,583 45,480 8,618 54,098 22,438 3,552 25,990 6,884 5,967 20,227 10,970 704 4,005 14,695 1,655 12 31 131 188 1,341 589 504 131 1,988 939 - - 1,988 939 Year ended 30 June 2018 Revenue Revenue Inter-segment sales Total consolidated revenue Timing of revenue recognition At a point in time Over time Unallocated revenue Total consolidated revenue Result Segment result Gain on property investment revaluation Unallocated expenses net of unallocated income Income tax expense Net consolidated profit for the year Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information Capital expenditure Depreciation and amortisation Joyce Corporation Ltd Annual Report 2019 58 5. SEGMENT INFORMATION (CONTINUED) (b) Geographic segments The Consolidated Entity operates in one principal geographical area namely that of Australia (country of domicile). (c) Information about major customers No single customer of the Consolidated Entity generated more than 10% of the Consolidated Entity’s revenue during the year ended 30 June 2019. 6. REVENUE, INCOME AND EXPENSES (a) Revenue from Continuing Operations Revenue from contracts with customers Sale of goods Franchise revenue Provision of services Other income Rental income Other income CONSOLIDATED 2019 $000 90,675 3,457 7,029 101,161 420 3,466 3,886 2018 $000 80,574 3,403 7,442 91,419 513 3,388 3,901 Total revenue 105,047 95,320 Disaggregation of revenue The Executive review the business at the level of disaggregation shown in our segmental reporting (see Note 5). At this level it has grouped together similar activities and arrangements as follows: • • Similar contractual arrangements with our customer cohorts. At Lloyds Online Auctions all auction customers are required to complete a ‘Form 9’ which is a legislative defined document laying out the contractual arrangements. Similar types of revenue. At Bedshed Franchising the vast majority is earnt through payments made by the Franchisees for the services Bedshed provide in connection with the Franchise. In understanding the segments, the organisation rarely considers the geographic location of the customer as being the driver to an increased understanding. In the Bedshed company owned stores entity we have three trading locations in Queensland. Their geography is not the driver of the business understanding demand, a greater understanding comes from consideration of the broader macro-economic factors in play that would influence demand, and in the case of the three stores this would be the mining and resource cycle. We see in KWB, our retail kitchen provider, exposed to fluctuations in overall consumer renovation spend. Joyce Corporation Ltd Annual Report 2019 59 6. REVENUE, INCOME AND EXPENSES (CONTINUED) (a) Revenue from Continuing Operations (continued) The following table lays out the facts and circumstances that pertain to the Company’s contracts with customers and depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Operating segment / Factor Bedshed Franchise Nature of the revenue Franchise revenue Market Franchising in specialty retail Retail Bedding Stores Sale of goods Specialty retail Online Auction Joyce Corp Retail Kitchen Stores Sale of goods Provision of services Rental revenue Renovations Online products Commercial real estate Property cycle. Economic drivers of revenue Consumer confidence; and Growth in disposable income. Consumer confidence; Consumer confidence; Growth in disposable income; and Growth in disposable income; and Mining cycle. Growth in disposable income; and Online vs terrestrial retailing transition. Consumer spend on renovations. Contractual arrangements Standard form contract Standard form contract Standard form contract Standard form contract Lease agreement Specific revenue recognition criteria Contractual assets or liabilities Recognition at the point of product delivery Recognition at the point of product delivery Recognition based on business written sales from franchised stores Recognition is monthly as defined in the relevant lease agreement Recognition at the point auction services are provided (and cash is subsequently received from the buyer) Nil Nil Nil Nil Nil The recognition of revenue for lease income from the KWB Investment property is made in line with the contractual terms laid out in the leasing arrangements, principally paid on the first of the month in advance. (b) Expenses from Continuing Operations Cost of sales Cost of goods Cost of services Total cost of sales Net interest expense Interest income Interest expense Net interest expense CONSOLIDATED 2019 $000 (40,528) (2,306) (42,834) 85 (383) (298) 2018 $000 (38,559) (538) (39,097) 64 (351) (287) Joyce Corporation Ltd Annual Report 2019 60 6. REVENUE, INCOME AND EXPENSES (CONTINUED) (b) Expenses from Continuing Operations (continued) Variable costs Freight Wages – casual staff Auction costs Warranty costs Total variable costs CONSOLIDATED 2019 $000 (239) (3,240) (3,557) (765) (7,801) 2018 $000 (220) (2,831) (4,640) (818) (8,509) Administrative Expenses – continuing operations IT, communications and network costs (1,386) (1,096) Bank charges Consultancy fees Travel expenses Postage & stationery Insurance Accounting & audit fees Motor vehicle expenses Legal fees Other administration expenses Total administration expenses (679) (644) (574) (534) (464) (310) (281) (144) (767) (727) (112) (535) (530) (381) (375) (285) (109) (900) (5,783) (5,050) Lease payments and other expenses included in the statement of profit or loss and other comprehensive income – continuing operations Minimum lease payments - operating lease (4,849) (4,560) Joyce Corporation Ltd Annual Report 2019 61 7. DISCONTINUED OPERATIONS On 22 June 2018, the Consolidated Entity ceased operations of its LAAV Group Pty Ltd business division, thereby discontinuing its operations in this business segment. The financial performance of the discontinued operation, which is included in the profit/(loss) from discontinued operations per the statement of comprehensive income, is as follows: Discontinued Operations Revenue Expenses Profit/(loss) before income tax Income tax (expense)/benefit Profit/(loss) attributable to owners of the parent entity CONSOLIDATED 2019 $000 183 (178) 5 (1) 4 2018 $000 3,314 (3,514) (200) 60 (140) The net cash flows of the discontinued division, which have been incorporated into the statement of cash flows, are as follows: Net cash inflow/(outflow) from operating activities Net cash inflow from investing activities Net cash (outflow)/inflow from financing activities Net (decrease)/increase in cash generated by the discontinued division Gain/(Loss) on disposal of the division included in gain from discontinued operations per the statement of comprehensive income 5 - - 5 - (231) - - (231) - Joyce Corporation Ltd Annual Report 2019 62 8. INCOME TAX The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. The major components of income tax expense for the year ended 30 June 2019 are: Consolidated Statement of Profit or Loss and Other Comprehensive Income – continuing operations Current Income tax Current income tax expense Deferred income tax Relating to origination and reversal of temporary differences Utilisation of unused tax losses Under/(over) provision in respect of prior years CONSOLIDATED 2019 $000 2018 $000 2,878 2,955 (130) 37 10 130 - 16 Income tax expense relating to continuing operations 2,795 3,101 Joyce Corporation Ltd Annual Report 2019 63 8. INCOME TAX (CONTINUED) Income tax expense relating to continuing operations Income tax expense relating to discontinued operations Income tax expense relating to overall operations CONSOLIDATED 2019 $000 2018 $000 2,795 3,101 1 (60) 2,796 3,041 A reconciliation of income tax expense applicable to accounting profit before income tax at the statutory income tax rate to income tax expense at the Consolidated Entity’s effective income tax rate for the years ended 30 June 2019 and 30 June 2018 is as follows: CONSOLIDATED 2019 $000 2018 $000 Profit before income tax – continuing operations 9,525 9,824 Income tax expense calculated at the statutory income tax rate of 30% (2018: 30%) Expenditure not allowable for income tax purposes Impairment of goodwill not allowable for income tax purposes Under provision in respect of prior years 2,857 2,947 (72) - 10 123 9 22 Income tax expense recognised in profit or loss – continuing operations 2,795 3,101 Tax consolidation Joyce Corporation Ltd and its 100% Australian owned subsidiaries are a tax Consolidated Entity. Members of the Consolidated Entity have not entered into any tax sharing or tax funding arrangements. At the reporting date, the possibility that the head entity will default on its tax payment obligations is remote. The head entity of the tax Consolidated Entity is Joyce Corporation Ltd. Measurement method adopted under UIG 1052 Tax Consolidation Accounting The head entity and the controlled entities in the tax Consolidated Entity continues to account for their own current and deferred tax amounts. The Consolidated Entity has applied the Consolidated Entity allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax Consolidated Entity. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. Joyce Corporation Ltd Annual Report 2019 64 8. INCOME TAX (CONTINUED) In addition to its own current and deferred tax amounts, the head entity also recognises current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax Consolidated Entity. Tax consolidation contributions/(distributions) The Consolidated Entity has recognised no consolidation contribution adjustments. Taxation of financial arrangements (TOFA) Legislation is in place which changes the tax treatment of financial arrangements including the tax treatment of hedging transactions. The Consolidated Entity has assessed the potential impact of these changes on the Consolidated Entity's tax position. No impact has been recognised and no adjustments have been made to the deferred tax and income tax balances at 30 June 2019 (2018: Nil). Deferred income tax Deferred income tax at 30 June 2019 relates to the following: CONSOLIDATED Opening balance Charged to income Recognised in Business Combination Closing balance 30 June 19 $000 $000 $000 $000 Deferred tax liabilities Investment Property Trade & other receivables Fair value gains on other intangible assets (291) (3) (260) (13) (3) - Balance at 30 June 2019 (554) (16) Deferred tax assets Plant and equipment Trade and other payables Pensions and other employer obligations Provisions Other Unused Tax losses Balance at 30 June 2019 251 241 753 90 6 104 1,445 74 (86) 89 72 (3) (48) 98 The Consolidated Entity has accounted for all deferred tax assets and liabilities. - - - - - - - - - - - (304) (6) (260) (570) 325 155 842 162 3 56 1,543 Joyce Corporation Ltd Annual Report 2019 65 8. INCOME TAX (CONTINUED) Deferred income tax at 30 June 2018 relates to the following: Deferred tax liabilities Investment Property Trade & other receivables Fair value gain on other intangible assets Balance at 30 June 2018 Deferred tax assets Plant and equipment Trade and other payables Pensions and other employer obligations Provisions Other Unused Tax losses Balance at 30 June 2018 Provision for income tax Provision for income tax relates to the following: Balance at 30 June CONSOLIDATED Opening balance Charged to income Recognised in Business Combination Closing balance 30 June 18 $000 $000 $000 $000 - (2) (260) (262) 167 219 539 189 20 173 1,307 (291) (1) - (292) 84 22 214 (99) (14) (69) 138 - - - - - - - - - - - (291) (3) (260) (554) 251 241 753 90 6 104 1,445 CONSOLIDATED 2019 $000 155 2018 $000 820 Joyce Corporation Ltd Annual Report 2019 66 9. EARNINGS PER SHARE Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. As the performance rights have been cancelled, there are no potential ordinary shares, and therefore there is no dilution. The following reflects the income and share data used in the total operations basic and diluted earnings per share computations: Net profit attributable to ordinary Joyce shareholders from Continuing Operations Weighted average number of ordinary shares for basic earnings per share including partly paid CONSOLIDATED 2019 $000 3,453 2018 $000 3,380 Number of shares Number of shares 27,968,255 27,588,255 Adjusted weighted average number of ordinary shares for diluted earnings per share including partly paid 27,968,255 27,968,255 Weighted average number of converted, lapsed or cancelled potential ordinary shares included in diluted earnings per share Weighted average number of partly paid ordinary shares (issued at $1.955 and paid to $1.878) included in basic and diluted earnings per share1. - - - 380,000 Earnings per share are included at the foot of the Consolidated Statement of Profit or Loss. In the Financial Year ended 30 June 2018 results, there was $933k shown as a revaluation of the KWB investment property. After removal of the NCI and tax, the amount attributable to the ordinary shareholders of Joyce Corporation Ltd was $327k. The current Financial Year ended on 30 June 2019 had no revaluation, so to provide a better comparison an EPS figure has been calculated after removing the $327k from the comparative calculation. Once removed the EPS for the prior Financial Year is 10.9 cents per ordinary share. 1 The Performance Rights have not been included in the denominator of the diluted shares. Joyce Corporation Ltd Annual Report 2019 67 9. EARNINGS PER SHARE (CONTINUED) On 16 July 2018, Dan Smetana settled the final payment of $30k for the 380,000 partly paid ordinary shares held at 30 June 2018. The 380,000 shares were converted from partly paid to fully paid ordinary shares. No other share movements during the period. Basic and diluted earnings per share are calculated based on a weighted average of any shares issued during the reporting period. 10. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Refer to Note 3 for management of financial risks on cash and cash equivalents. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. Consolidated cash and cash equivalents balance exclude funds allocated for the specific use of operating the Approved Purposes activities on behalf of the Company’s franchisees. Approved Purposes cash is included in Other Current Assets. At 30 June 2019, the total of this balance was $31k (30 June 2018: $68k). For the purposes of the statement of cash flows, cash and cash equivalents are comprised of the following: Cash at bank and in hand 11. TRADE AND OTHER RECEIVABLES CONSOLIDATED 2019 $000 2018 $000 6,975 6,215 Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less a provision for impairment. Trade receivables are generally due for settlement within 30 days. Refer to Note 3 for management of financial risks on receivables. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure or a debtor to engage in a repayment plan with the Consolidated Entity, and a failure to make contractual payments for a period of greater than 120 days past due. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognised in the statement of profit or loss and other comprehensive income in other expenses. Joyce Corporation Ltd Annual Report 2019 68 11. TRADE AND OTHER RECEIVABLES (CONTINUED) Current Trade receivables Allowance for impairment loss (a) Non-current Trade receivables Other receivables CONSOLIDATED 2019 $000 2,145 (20) 2,125 - 399 399 2018 $000 1,918 - 1,918 - 588 588 2,524 2,506 (a) Allowance for impairment loss Trade receivables are non-interest bearing and are generally on 30-day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. An impairment provision of $20k (2018: $Nil) has been recognised by the Consolidated Entity. At 30 June, the ageing analysis of current trade receivables is as follows: 0-30 Days 31-60 61-90 61-90 Days Days Days +91 Days PDNI* CI* PDNI* +91 Days CI* $000 $000 $000 $000 $000 $000 1,822 1,765 229 41 29 63 - - 65 49 - - Total $000 2,145 1,918 2019 Consolidated 2018 Consolidated * Past due not impaired (‘PDNI’) * Considered impaired (‘CI’) Receivables past due but not considered impaired are: Consolidated Entity: $94,000 (2018: $112,000). Payment terms on these amounts have not been re-negotiated however credit has been stopped until full payment is made. Each operating unit has been in direct contact with the relevant debtor and is satisfied that payment will be received in full. Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. Joyce Corporation Ltd Annual Report 2019 69 11. TRADE AND OTHER RECEIVABLES (CONTINUED) Movement in the provision for impairment of receivables is as follows: Note 2 CONSOLIDATED 2019 $000 95 (75) - 20 2018 $000 25 - (25) - Opening balance at 1 July (Credit)/Charge for the year Amounts written-off Closing balance at 30 June 12. INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost comprises expenditure incurred in acquiring the inventories and in bringing them to their existing condition and location. Costs are assigned to individual items of inventory on a basis of weighted average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs to make the sale. Current Stock on hand at cost Provision for impairment (a) (a) Provision for impairment CONSOLIDATED 2019 $000 3,301 (97) 3,204 2018 $000 3,749 (104) 3,645 Write-downs of inventories to net realisable value recognised as an expense during the year ended 30 June 2019 amounted to $Nil (2018: $Nil). Non-current Stock on hand at cost Provision for impairment (b) CONSOLIDATED 2019 $000 758 (214) 544 2018 $000 582 (187) 395 This inventory are the assets used in KWB showrooms and is reduced in value over five years and at that point sold. (b) Provision for impairment Write-downs of inventories to net realisable value recognised as an expense during the year ended 30 June 2019 amounted to $Nil (2018: $Nil). Joyce Corporation Ltd Annual Report 2019 70 13. OTHER ASSETS Current Accrued revenue Prepayments Other receivables 14. OTHER FINANCIAL ASSETS Current Funds held in trust CONSOLIDATED 2019 $000 807 452 314 1,573 2018 $000 775 203 282 1,260 CONSOLIDATED 2019 $000 31 31 2018 $000 68 68 15. PROPERTY, PLANT AND EQUIPMENT Land and buildings are shown at fair value, based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Consolidated Entity and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of profit or loss and other comprehensive income during the reporting period in which they are incurred. Depreciation is calculated over the estimated useful life of the asset as follows: • • Plant and equipment – 1 to 20 years; Leasehold improvements – 3 to 15 years; • Buildings – 30 to 50 years; and • Motor Vehicles – 3 to 6 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the Consolidated Statement of Profit or Loss. On the sale of revalued assets, the profit element of the revalued amount is taken through the Consolidated Statement of Profit or Loss. Joyce Corporation Ltd Annual Report 2019 71 15. PROPERTY, PLANT & EQUIPMENT (CONTINUED) Year ended 30 June 2018 At 1 July 2017, Net of accumulated depreciation Additions Disposals Depreciation charge for the year Transfer to investment property Fixed Assets – work in progress At 30 June 2018 Net of accumulated depreciation CONSOLIDATED Property& Buildings $000 Plant and equipment $000 Leasehold improvements $000 14,754 259 - (105) (8,140) - 2,173 1,033 (176) (491) (550) 56 1,662 782 (32) (447) - - Total $000 18,589 2,074 (208) (1,043) (8,690) 56 6,768 2,045 1,965 10,778 At 30 June 2018 Cost Accumulated depreciation and impairment Net carrying amount 6,838 (70) 6,768 3,502 (1,457) 2,045 3,183 (1,218) 1,965 13,523 (2,745) 10,778 Year ended 30 June 2019 At 1 July 2018, Net of accumulated depreciation Additions Disposals Depreciation charge for the year At 30 June 2019 Net of accumulated depreciation At 30 June 2019 Cost Accumulated depreciation and impairment Net carrying amount CONSOLIDATED Property& Buildings $000 Plant and equipment $000 Leasehold improvements $000 6,768 6 - (65) 2,045 914 (56) (653) 1,965 880 - (610) Total $000 10,778 1,800 (56) (1,328) 6,709 2,250 2,235 11,194 6,844 (135) 6,709 4,005 (1,755) 4,063 (1,828) 14,912 (3,718) 2,250 2,235 11,194 The carrying value of plant and equipment held under finance leases and hire purchase contracts at 30 June 2019 is $377k (2018: $Nil). Leased assets and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities. Joyce Corporation Ltd Annual Report 2019 72 16. INVESTMENT PROPERTY Balance at beginning of year Transfer from property, plant & equipment Fair value adjustments Balance at end of year CONSOLIDATED 2019 $000 9,623 - - 9,623 2018 $000 - 8,690 933 9,623 During the prior year, in accordance with AASB 140, the KWB property located at Lytton Brisbane was classified as an investment property. An insignificant portion of the Lytton premise is owner-occupied, being 42%, as the significant portion is under an operating lease to an external third-party manufacturer earning rental income. In accordance with AASB 13 Fair value measurement, during the year, a third-party expert valuation company valued the Lytton property in Brisbane. The valuation resulted in an immaterial fair value change in the carrying value of the investment property. In accordance to AASB 140, a revaluation gain/(loss) of $nil (2018: gain of $933k) was included in the Consolidated Statement of Profit and Loss. 17. INTANGIBLE ASSETS Acquired both separately and from a business combination Intangible assets acquired separately are capitalised at cost. Following initial recognition, the cost model is applied to the class of intangible assets. Where amortisation is charged on assets with finite lives, this expense is taken to the Consolidated Statement of Profit or Loss through the ‘depreciation and amortisation’ expense line item. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists and annually in the case of intangible assets with indefinite lives, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Consolidated Entity’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. 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 and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Joyce Corporation Ltd Annual Report 2019 73 17. INTANGIBLE ASSETS (CONTINUED) Goodwill is allocated to cash-generating units (CGU’s) for impairment testing. Each of those CGU’s represents the Consolidated Entity’s investment in Australia by each operating segment. CGU’s to which goodwill is allocated to are as follows: • Bedshed Franchising cash generating unit • Bedshed Stores cash generating unit • • KWB Group Pty Ltd cash generating unit Lloyds Online Auctions Pty Ltd cash generating unit (ii) Software development Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and service, direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over periods generally ranging from 3 to 5 years. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where the Consolidated Entity has an intention and ability to use the asset. Impairment of non-financial assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed 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 identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Goodwill Software development CONSOLIDATED 2019 $000 15,933 2,373 18,306 2018 $000 15,933 2,230 18,163 Joyce Corporation Ltd Annual Report 2019 74 17. INTANGIBLE ASSETS (CONTINUED) An analysis of intangible assets is presented below: Goodwill 2019 $000 2018 $000 Software Development 2018 $000 2019 $000 Consolidated 2019 $000 2018 $000 15,933 15,933 2,230 - 18,163 15,933 - - - - - - 528 - (385) 2,230 - - 528 - (385) 2,230 - - 15,933 15,933 2,373 2,230 18,306 18,163 17,778 (1,845) - 15,933 17,778 (1,845) - 15,933 2,758 - (385) 2,373 2,230 - - 2,230 20,536 (1,845) (385) 18,306 20,008 (1,845) - 18,163 Year ended 30 June At 1 July net of accumulated impairment and amortisation Acquired intangible assets Impairment Amortisation At 30 June net of accumulated impairment and amortisation At 30 June Cost (gross carrying amount) Accumulated impairment Accumulated amortization Net carrying amount Goodwill (a) Initial Goodwill Goodwill as at 30 June 2019 reflects the value of the Bedshed activities for the Bedshed Joondalup store which was purchased in May 2007, the remaining 51% of Bedshed Franchising Pty Ltd purchased in 2006, the 51% interest in KWB Group purchased in October 2014 and the 51% interest in Lloyds Online Auctions Pty Ltd purchased July 2016 and additional 5% in January 2019. (b) Impairment of Goodwill Disclosures The Consolidated Entity assesses impairment at each reporting date by evaluating conditions specific to the Consolidated Entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate several key estimates. Impairment of $Nil (2018: $Nil) has been recognised in respect of goodwill for the year ended 30 June 2019. Goodwill is allocated to cash-generating units which are based on the Consolidated Entity’s operating segments: CONSOLIDATED Bedshed Franchising segment Bedshed Stores segment Kitchen Stores segment Online Auctions segment 2019 $000 6,307 1,820 1,023 6,783 15,933 2018 $000 6,307 1,820 1,023 6,783 15,933 Joyce Corporation Ltd Annual Report 2019 75 17. INTANGIBLE ASSETS (CONTINUED) (b) Impairment of Goodwill Disclosures (continued) The recoverable amount of each CGU above is determined based on value-in-use calculations. Value-in- use is calculated based on the present value of cash flow projections over a 5-year period with the period extending beyond the existing budget for FY20 extrapolated using estimated growth rates. The cash flows are discounted using risk-adjusted pre-tax discount rate. The following assumptions were used in the value-in-use calculations: Bedshed Franchising segment Bedshed Stores segment Kitchen Stores segment Online Auctions segment Pre –tax Discount Rate Pre –tax Discount Rate Sales Growth Rate Sales Growth Rate Expense Growth Rate Expense Growth Rate 2019 10.7% 10.7% 10.7% 10.7% 2018 10.7% 10.7% 10.7% 10.7% 2019 5.0% 5.0% 5.0% 5.0% 2018 6.0% 8.0% 8.0% 10.0% 2019 1.5% 1.5% 1.5% 1.5% 2018 1.5% 1.5% 1.5% 1.5% The Consolidated Entity’s value-in-use calculations incorporated a terminal value component beyond the 5-year projection period for all the operating segments. The principal assumption used to estimate the terminal value of each operating segment was a multiple of three to six times earnings (Store 3, Franchising 6, Kitchen 6 and Online Auctions 6) before interest, taxation, depreciation and amortisation for the year ended 30 June 2019. Impairment of Goodwill for the year ended 30 June 2019 was $Nil (2018: $Nil), due to changes in the estimates of future results and terminal value for the Bedshed stores segment. (c) Impact of possible changes in key assumptions Sensitivity analysis was conducted on all CGU’s, from this the Bedshed store segment was identified as having the lowest headroom and is the only one reported. For the Bedshed store segment: - - - If the pre-tax discount rate applied was 10% higher than used in management’s estimates, then the Consolidated Entity would recognised an impairment of $Nil. If the growth rate applied was 10% lower than used in management’s estimates, then the Consolidated Entity would recognised an impairment of $Nil. The discount rate above which an impairment could occur is 13.5%, which is above the rate used in both FY18 and FY19. Software development Software developments as at 30 June 2019 reflects the value of the Auctionator platform, Lead Generation Platform and the European Union Bidding Platform. Software developments are amortised in line with the company policy mentioned above, being straight-line basis over periods generally ranging from 3 to 5 years. Software developments were capitalised when first in use. Joyce Corporation Ltd Annual Report 2019 76 18. TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the Consolidated Entity prior to the reporting date which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition. Unsecured liabilities Trade payables Customer deposits Accruals and other payables Amounts held in trust for Bedshed marketing and other funds (a) CONSOLIDATED 2019 $000 3,565 6,288 4,139 149 14,141 2018 $000 2,709 4,867 3,763 440 11,779 (a) Amounts held in trust for Bedshed funds Included within the Total Current Assets balance are funds allocated for the specific use of the Bedshed Approved Purposes fund on behalf of the Consolidated Entity’s franchisee-owned and Company-owned stores. 19. PROVISIONS Provisions for legal claims, service warranties and make good obligations are recognised when the Consolidated Entity has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are several similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of Management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. Employee benefits (i) Wages and salaries and annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Joyce Corporation Ltd Annual Report 2019 77 19. PROVISIONS (CONTINUED) Employee benefits (continued) (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Provisions are comprised of the following: Current Employee benefits (a) Environmental testing (b) Total Current Non-current Employee benefits (a) Total Non-Current CONSOLIDATED 2019 $000 1,613 - 1,613 914 914 2018 $000 1,518 10 1,528 818 818 2,527 2,346 (a) Provision for employee benefits A provision has been recognised for employee benefits relating to long service leave and annual leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. (b) Provision for environmental testing The Consolidated Entity no longer considers it necessary to carry out environmental testing on historic sites owned by the Entity and as at 30 June 2019 no provision was considered necessary (2018: $10k). Joyce Corporation Ltd Annual Report 2019 78 19. PROVISIONS (CONTINUED) Consolidated Group Opening balance at 1 July 2018 Additional/ (amount released) Amounts used Closing balance at 30 June 2019 20. LOANS AND BORROWINGS Employee Benefits $000 2,336 529 (338) 2,527 Environmental Testing $000 10 (10) - - Total $000 2,346 519 (338) 2,527 Bank loans Finance lease liabilities Total loans and borrowings CONSOLIDATED 2019 Current $’000 694 200 894 Non-current $’000 9,622 187 9,809 Total $’000 10,316 387 10,703 2018 Current $’000 435 - 435 - Non-current $’000 10,056 - 10,056 Total $’000 10,491 - 10,491 The bank loans are secured by first mortgages over the Consolidation Entity’s freehold land and buildings, including those classified as investment properties. Refer to Note 3 for management of financial risks on loans and borrowings. During the year ended 30 June 2019 the Consolidated Entity entered into Hire Purchase agreements to fund the acquisition of plant and equipment. The net value of the Hire Purchase agreements at the reporting date was $360k (2018: nil). During FY19 an unsecured loan from Dan Smetana of $400k was entered into, with an interest rate of 7.22% pa. This was repaid in full in March 2019. The Joyce Corporation Ltd has entered into contractual arrangements to transition its banking facilities from St George to the Commonwealth Bank. Pertinent terms of the bank new loans are annual repayments of $333k and a rolling 2-year term. KWB Property Holdings Pty Ltd has entered into contractual arrangements to transition its banking facilities from the Commonwealth Bank to the National Australia Bank. This new loan allows for offset against relevant cash balances which will reduce interest expense. Compliance with loan covenants The Consolidated Entity has complied with the financial covenants of its borrowing facilities during the 2019 Financial Year. The financier assesses the financial covenants bi-annually based on the audited annual report and reviewed half-yearly report. Joyce Corporation Ltd Annual Report 2019 79 21. CONTRIBUTED EQUITY Ordinary shares carry one vote per share and carry the right to dividends. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. If the entity reacquires its own equity instruments, e.g. 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 profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. Opening share capital: Issued and fully paid ordinary shares 27,588,255 (2018: 27,588,255) Unissued partly paid ordinary shares 380,000 (2018: Nil) Receipts for partly paid ordinary shares - $0.077 on 380,000 shares (2018: $1.878 on 380,000 shares) Closing share capital CONSOLIDATED 2019 $000 2018 $000 17,347 17,347 713 30 - 713 18,090 18,060 Movement in ordinary shares on issue Number $000 At 1 July 2018 Issued and fully paid ordinary shares Final payment on partly paid ordinary shares (a) At 30 June 2019 Issued and fully paid ordinary shares Issued and partly paid ordinary shares (a) (a) Partly paid ordinary shares 27,588,255 18,060 380,000 30 27,968,255 - 27,968,255 18,090 - 18,090 At 30 June 2018 there were 380,000 partly paid shares on issue. Partly paid ordinary shares are unquoted until they become fully paid. Partly paid ordinary shares carry voting rights and rights to participate in entitlement issues although any ordinary shares acquired under a rights issue cannot be quoted until the partly paid ordinary shares become fully paid. On 16 July 2018, Dan Smetana settled the final payment of $30k for the 380,000 partly paid ordinary shares held at 30 June 2018. The 380,000 shares were converted from partly paid to fully paid ordinary shares. No other share movements occurred during the period. Basic and diluted earnings per share are calculated based on a weighted average of any shares issued during the reporting period. Joyce Corporation Ltd Annual Report 2019 80 22. CAPITAL AND LEASING COMMITMENTS There have been significant changes to commitments during the financial year ended 30 June 2019. These are driven by the following changes: • • • Three new showroom leases in our Retail Kitchen showroom segment; The renewal of a further 5 leases for existing stores in the Retail Kitchen Showroom segment; The renewal of the main Carrara site lease for the Online Auction segment; and • New hire purchase lease arrangements to fund capital investment in the Online Auction segment. Property lease payable – Consolidated Entity as lessee Within one year After one year but not more than five years More than five years CONSOLIDATED 2019 $000 5,298 11,392 464 17,154 2018 $000 3,757 4,686 47 8,490 Property leases are non-cancellable leases and have remaining terms of up to seven years, with rent payable monthly in advance. Provisions within the lease agreements require that the minimum lease payments shall be increased by the CPI per annum. An option exists for most of the leases to renew the lease at the end of the lease term for an additional term equal to the period of the original lease. If the lease is renewed the rental rate is adjusted to market value. 23. CONTINGENT LIABILITIES Financial Guarantees Where material, financial guarantees are issued, which requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due, are recognised as a financial liability at fair value on initial recognition. The guarantee is subsequently measured at the higher of the amount determined in accordance with the expected credit loss model under AASB 9 Financial Instruments and the amount initially recognised less, where appropriate, cumulative amounts recognised in accordance with AASB 15 Revenue from Contracts with Customers. Where the entity gives guarantees in exchange for a fee, revenue is recognised under AASB 15. The fair value of financial guarantee contracts has been assessed using a probability weighted discounted cash flow approach. The probability has been based on: i. the likelihood of the guaranteed party defaulting in a year period; ii. the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and iii. the maximum loss exposed if the guaranteed party were to default. Joyce Corporation Ltd Annual Report 2019 81 23. CONTINGENT LIABILITIES (CONTINUED) Financial Guarantees (continued) (a) Rental Guarantees Joyce Corporation Ltd has provided bank guarantees to third parties in relation to property leases for Bedshed Company owned stores. These guarantees will be required while the stores remain Company operated and currently total $689,429 (2018: $689,429). KWB Group have bank guarantees and rent deposits supporting store leases of $550,716 at 30 June 2019 ($351,366 at 30 June 2018). Rent deposits are included in Non-current Trade and Other Receivables, see Note 11. 24. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS The Consolidated Entity has a number of financial instruments which are not measured at fair value in the Statement of Financial Position. Current Receivables Loans Non-current Receivables Deposit Non-current Borrowings Carrying Amount $000 Fair Value Amount in $000 314 399 314 399 Interest bearing loans & borrowings 9,622 9,622 Due to their short-term nature, the carrying amount of the current receivables, current financial assets, current assets and current borrowings are assumed to approximate their fair value, except for the Investment Property which is based on a level 2 fair value method, using a third-party expert valuer. (1) Fair value hierarchy This note explains the judgements and estimates made in determining the fair values of the non-financial assets that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Consolidated Entity has classified its non-financial assets and liabilities into the three levels prescribed under the accounting standards. Level 1: The fair value is based on quoted market prices (unadjusted) in active markets for identical assets or liabilities at the end of the reporting period. Level 2: The fair value is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If one or more of the significant inputs is not based on observable market data, the asset is included in level 3. Joyce Corporation Ltd Annual Report 2019 82 25. SHARE BASED PAYMENTS Key Management Personnel Performance Rights During the reporting period, 263,158 FY18 performance rights and 272,109 FY19 performance rights were granted to the Executive Director which are subject to continued employment with Joyce Corporation Ltd and to the Consolidation Entity meeting predetermined performance criteria. The details of the Long- Term Incentive (LTI) Plan which these performance rights are a component were approved by shareholders at the 2018 AGM Notice of Meeting on 27 November 2018. Details of the fair value of the performance rights issued are summarised below: Scheme Number Grant Date Fair Value of right FY18 (1) FY19 (2) 263,158 27/11/2018 272,109 27/11/2018 1.55 1.55 Weighted Average Probability (3) 0% - 100% Total Fair Value Expense to 30 June 2019 $200,000 0% - 100% $200,000 $0 $0 1. Vesting in three traches based on each milestone being met for each 30 June 2018, 30 June 2019 and 30 June 2020 reporting year; 2. Vesting in three traches based on each milestone being met for each 30 June 2019, 30 June 2020 and 30 June 2021 reporting year. 3. Refer to below for board’s assessment of probabilities applied against milestone vesting conditions. The LTI cost of performance rights will be expensed based on board’s assessment that ‘Target’ earnings (as disclosed in the AGM Notice of Meetings) will be achieved. This is at a rate of 50% of the ‘Stretch and above’ number. The FY18 Performance rights vest based on the cumulative Net profit after tax (‘NPAT’) for the financial years ended 30 June 2018, 30 June 2019 and 30 June 2020 and continued employment proportional at each reporting date. The FY19 Performance rights vest based on the cumulative Net profit after tax (‘NPAT’) for the financial years ended 30 June 2019, 30 June 2020 and 30 June 2021 and continued employment proportional at each reporting date. Details of the vesting conditions of the performance rights issued are summarised below: FY18 Performance Rights Milestone1 $000's Vesting % Probability % Fair Value $ Threshold Target Stretch and above $10,274 $11,415 $13,698 25% 25% 50% Total Expense 0% 0% 0% 0 0 0 0 FY19 Performance Rights Milestone2 % Vesting Probability Fair Value Threshold $11,610 25% Target Stretch and above $12,900 $15,480 25% 50% Total Expense 0% 0% 0% 0 0 0 0 1. Consolidated Entity achieving a cumulative NPAT for years ended 30 June 2018, 30 June 2019 and 30 June 2020; and 2. Consolidated Entity achieving a cumulative NPAT for years ended 30 June 2019, 30 June 2020 and 30 June 2021. Joyce Corporation Ltd Annual Report 2019 83 25. SHARE BASED PAYMENTS (CONTINUED) Key Management Personnel Performance Rights (Continued) Recognition and Measurement The schemes in place can only be equity-settled and are accounted for accordingly. The cost of equity- settled transactions with employees is measured using their fair value at the date which they were granted. In determining the fair value, no account is taken of any performance conditions. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which any performance conditions are met, ending on the date on which the employee becomes fully entitled to the award (vesting date). The cumulative expense recognised for these transactions at each reporting date reflects the extent to which the vesting period has expired and the proportion of the awards that are expected to ultimately vest. No expense is recognised for awards that do not ultimately vest due to a performance condition not being met. The Executive Director’s contract ended on 30 June 2019 and the Board did not renew the contract. Therefore, no amount is recorded as a share-based payment expense for the year ended 30 June 2019 because they were cancelled subsequent to reporting date. Joyce Corporation Ltd Annual Report 2019 84 26. RELATED PARTY DISCLOSURES The consolidated financial statements include the financial statements of Joyce Corporation Ltd and the subsidiaries listed in the following table. Joyce Industries Pty Ltd Sierra Bedding Pty Ltd Bedshed Franchising Pty Ltd Joyce International Pty Ltd Joyce Consolidated Holdings Pty Ltd KWB Group Pty Ltd KWB Property Holdings Pty Ltd Brisbane Investment Holdings Pty Ltd Trade Gold Installations Qld Pty Ltd Trade Gold Installations NSW Pty Ltd Trade Gold Installations SA Pty Ltd Lloyds EU Online Pty Ltd Lloyds Online Auctions Pty Ltd Lloyds Auctions & Valuers Pty Ltd LAAV Group Pty Ltd Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia % Equity interest 2018 100 100 100 100 100 51 51 51 51 51 51 - 51 51 51 2019 100 100 100 100 100 51 51 51 51 51 51 45 56 56 56 Joyce Corporation Ltd is the ultimate parent of the Consolidated Entity. a) Related Party Transactions Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. Transactions with related parties: (i) Disclosures relating to KMP: - Those Directors or their Director-related entities received dividend payments, which were made on the same basis as those made to other shareholders, during the year ended 30 June 2019. (ii) Transactions entered into during the year between the Company and its controlled entities and Directors of the Company and their Director-related entities were within normal customer or employee relationships on terms and conditions no more favourable than those available to other customers or employees. (iii) The Executive Directors fees for Anthony Mankarios were paid to Starball Pty Ltd, a company in which Anthony has significant influence - $448,209 (2018: $538,201). As at year end the amount owing to this related party was $nil (2018: $26,773). (iv) Key management personnel compensation Short Term Benefits Post-Employment Benefits CONSOLIDATED 2019 $000 2,349 191 2,540 2018 $000 2,417 176 2,593 Detailed remuneration disclosures are provided in the remuneration report on pages 24 to 33. Joyce Corporation Ltd Annual Report 2019 85 26. RELATED PARTY DISCLOSURES (CONTINUED) (v) Loans to key management personnel There were no loans to key management personnel during the financial year (2018: Nil). (vi) Loans from key management personnel During FY19 an unsecured loan from Dan Smetana of $400k was entered into, with an interest rate of 7.22% pa. This was repaid in full in March 2019. In FY18 an unsecured loan for the same amount was received, of which $371k was repaid in July 2018 and the remaining $29k loan balance was subsequently used by Dan Smetana as the final payment towards the partly paid shares. The loan of $85k from Andrew Webber, outstanding as the final earn out balance of the Lloyds business acquisition settlement, which was contingent on the Lloyds Group 2017 financial performance. (vii) During the year ended 30 June 2019, LAAV Management Pty Ltd, a company of which Andrew Webber is a director, was paid $240k by Lloyds Online Auctions Pty Ltd for the provision of management services by Andrew Webber and other designated employees of LAAV Management Pty Ltd. This amount is in addition to the remuneration disclosed in the key management personnel remuneration disclosures. (b) Non-Controlling Interest The effect on the equity attributable to the owner of Joyce Corporation Limited during the year as follows: Carrying amount of non-controlling interests acquired Transactions with non-controlling interests Profits attributable to non-controlling interests Dividends paid to non-controlling interest Closing carrying amount of non-controlling interest 2019 $000 3,073 448 3,285 (3,609) 3,197 2018 $000 1,930 - 3,203 (2,060) 3,073 On 22 January 2019, Joyce Corporation Limited acquired an additional 5% of the issued capital in Lloyds Online Auctions for $1,155k. The consideration for the acquisition was offset against the loan owed by Lloyds Online Auctions to the Company. Immediately prior to the purchase, the carrying amount of the existing 49% non-controlling interest was $1,064k. Set out below is summarised financial information for each subsidiary that has non-controlling interests that are material to the Consolidated Entity. The amounts disclosed for each subsidiary are before inter- company eliminations. Statement of financial position KWB Consolidated Group Lloyds Consolidated Group Current assets Current liabilities Current net assets Non-current assets Non-current liabilities Non-current net assets Net assets Accumulated NCI 2019 $000 6,129 (10,062) (3,933) 13,475 (6,283) 7,192 3,259 1,597 2018 $000 6,395 (9,478) (3,083) 13,203 (6,135) 7,068 3,985 1,860 2019 $000 2,626 (2,560) 66 4,063 (493) 3,570 3,636 1,600 2018 $000 2,557 (3,407) (850) 3,538 (182) 3,356 2,506 1,213 Joyce Corporation Ltd Annual Report 2019 86 26. RELATED PARTY DISCLOSURES (CONTINUED) (b) Non-Controlling Interest (continued) Statement of financial performance KWB Consolidated Group Lloyds Consolidated Group (including discontinued operations) Revenue Profit for the period Total comprehensive income Profit allocated to NCI Dividends paid to NCI 2019 $000 64,964 6,642 6,642 3,255 (3,609) 2018 $000 56,324 6,146 6,146 3,088 (2,060) 2019 $000 2018 $000 17,139 19,194 69 69 30 - 235 235 115 - Statement of cash flow KWB Consolidated Group Lloyds Consolidated Group Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Net increase/(decrease) in cash and cash equivalents 2019 $000 8,549 (1,216) (7,366) 2018 $000 7,951 (1,326) (4,205) 2019 $000 (261) (1,082) 1,384 2018 $000 1,019 (2,647) - (33) 2,420 41 (1,628) 27. DIVIDENDS Dividends declared or paid during the financial year are as follows: Distributions paid or payable Final fully franked ordinary dividend of 3.0 cents per share (Paid 22 November 2017) Special fully franked dividend of 3.0 cents per share (Paid 22 November 2017) Interim fully franked dividend of 5.0 cents per share (Paid 11 April 2018) Final fully franked ordinary dividend of 6.0 cents per share (Paid 21 November 2018) Interim fully franked dividend of 5.0 cents per share (Paid 10 April 2019) Second interim fully franked dividend of 1.7 cents per share (Paid 28 June 2019) 2018 $000 839 839 1,399 2019 $000 1,678 1,399 475 3,552 3,077 On 27 August 2019, the directors declared the payment of a final dividend of 5.0 cents out of retained profits and will continue to monitor performance and review resources and liquidity to determine future dividend payments. Joyce Corporation Ltd Annual Report 2019 87 28. EVENTS SUBSEQUENT TO REPORTING DATE A fully franked dividend of 5.0 cents per share was declared on 27 August 2019 and payable 18 November 2019. The Consolidated Entity has contracted to transition loan facilities from St George to Commonwealth Bank on a date subsequent to the signing of these accounts. KWB Property Holdings Pty Ltd entered into contractual arrangements with the National Australia Bank to transition loan facilities over from the Commonwealth Bank, however the transition date was not set by the date the accounts were signed. In the ASX announcement dated 24 July 2019 the Company communicated the following payments and arrangements with the former Executive Director, Anthony Mankarios: • $245,966 (plus GST) will be paid to Starball Pty Ltd (a private company Mr Mankarios has substantial influence over) in addition to payments for services up to when the contract with Starball ceased. • All of Starball Pty Ltd's and Mr Mankarios' Short Term Incentive Plan participation and performance rights have been cancelled (including those approved at the 2018 Joyce AGM); • The Board will propose a resolution for the shareholders to consider at the upcoming 2019 AGM to issue 131,579 fully paid ordinary Joyce shares to Starball Pty Ltd in recognition of Mr Mankarios’ contribution. Other than disclosed above no event has occurred since the reporting date to the date of this report that has significantly affected, or may significantly affect: (i) (ii) the Consolidated Entity’s operations, or the results of those operations, or (iii) the Consolidated Entity’s state of affairs. 29. AUDITOR’S REMUNERATION Amounts received or due and receivable by the auditor’s for: Audit or review of the financial report of the Consolidated Entity CONSOLIDATED 2019 $000 115 115 2018 $000 110 110 Joyce Corporation Ltd Annual Report 2019 88 30. RECONCILIATION OF NET PROFIT AFTER TAX TO NET CASH FLOWS FROM OPERATIONS Reconciliation of net profit/(loss) after tax to the net cash flows from operations Net profit after taxation Adjustments for: Depreciation and amortisation Net loss / (profit) on disposal of plant and equipment Property investment revaluation Changes in assets and liabilities (increase)/decrease in inventories (increase)/decrease in trade and other receivables (increase)/decrease in other assets (increase)/decrease in net deferred tax assets and liabilities (decrease)/increase in trade and other payables (decrease)/increase in provisions CONSOLIDATED 2019 $000 2018 $000 6,738 6,583 1,713 (4) - 292 (330) 37 (82) 2,116 (484) 1,043 41 (933) (1,171) 1,284 484 3,013 (879) (440) Net cash flows from operating activities 9,996 9,025 31. PARENT ENTITY DISCLOSURES a. Financial position Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net Assets Equity Issued capital Retained earnings Net Equity b. Financial performance Profit for the year Total comprehensive profit As at 30 June 2019 $000 1,001 23,619 24,620 1,083 4,097 5,180 2018 $000 379 24,414 24,793 480 4,945 5,425 19,440 19,368 18,090 1,350 19,440 18,060 1,308 19,368 Year ended 30 June 2019 $000 2,586 2,586 2018 $000 2,057 2,057 Joyce Corporation Ltd Annual Report 2019 89 31. PARENT ENTITY DISCLOSURES (CONTINUED) c. Guarantees entered into by the parent entity in relation to the debts of its subsidiaries No such guarantees existed at 30 June 2019 (30 June 2018: Nil). d. Contingent liabilities of the parent entity. No contingent liabilities existed within the parent entity as at 30 June 2019 (30 June 2018: Nil). e. Commitments for the acquisition of property plant and equipment by the parent entity No commitments existed for the acquisition of property plant and equipment by the parent entity as at 30 June 2019 (30 June 2018: Nil). Joyce Corporation Ltd Annual Report 2019 90 32. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED The following new/amended accounting standards and interpretations have been issued but are not mandatory for financial years ended 30 June 2019. They have not been adopted in preparing the financial statements for the year ended 30 June 2019. Of those standards that are not yet effective, AASB 16 is expected to have a material impact on the Consolidated Entity’s financial statements in the period of initial application. a) AASB 16 Leases The Consolidated Entity is required to adopt AASB 16 Leases from 1 July 2019 and has assessed the estimated impact that initial application of AASB 16 will have on its consolidated financial statements as described below. The actual impacts of adopting the standard on 1 July 2019 may change because: - - The Consolidated Entity has not finalised the testing and assessment of controls over its lease accounting system; The new accounting policies are subject to change until the Consolidated Entity presents its first financial statements that include the date of initial application. AASB 16 eliminates the operating and finance lease classifications for lessees currently accounted for under AASB 117 Leases. It instead requires an entity to bring most leases into its statement of financial position in a similar way to how existing finance leases are treated under AASB 117. An entity will be required to recognise a lease liability and a right-of- use asset in its statement of financial position for most leases. There are some optional exemptions for leases with a period of 12 months or less and for low value leases. Lessor accounting remains largely unchanged from AASB 117. To the extent that the Consolidated Entity, as lessee, has significant operating leases outstanding at the date of initial application, 1 July 2019, right-of-use assets will be recognised for the amount of the unamortised portion of the useful life, and lease liabilities will be recognised at the present value of the outstanding lease payments. Thereafter, earnings before interest, depreciation, amortisation and tax (EBITDA) will increase because operating lease expenses currently included in EBITDA will be recognised instead as amortisation of the right-of-use asset, and interest expense on the lease liability. However, there will be an overall reduction in net profit before tax in the early years of a lease because the amortisation and interest charges will exceed the current straight-line expense incurred under AASB 117 Leases. This trend will reverse in the later years. There will be no change to the accounting treatment for short-term leases less than 12 months and leases of low value items, which will continue to be expensed on a straight-line basis. The Consolidated Entity has not yet determined the impact on its financial statements. Joyce Corporation Ltd Annual Report 2019 91 32. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED (CONTINUED) b) Other standards The following amended standards and interpretations are not expected to have a significant impact on the Consolidated Entity’s consolidated financial statements. - AASB 17 Insurance Contracts. - AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments (AASB 1 impact only). - AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation. - AASB 2017-7 Amendments to Australian Accounting Standards - Long-term Interests in Associates and Joint Ventures. - AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015- 2017 Cycle. - AASB 2018-2 Amendments to Australian Accounting Standards – Plan Amendment, Curtailment or Settlement. - AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business. - AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material. Joyce Corporation Ltd Annual Report 2019 92 DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of Joyce Corporation Ltd, I state that: (a) in the Directors’ opinion, the financial statements and notes thereto of the Consolidated Entity have been prepared in accordance with the Corporations Act 2001, including that they: (i) comply with Australian Accounting Standards and Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) give a true and fair view of the financial position of the Consolidated Entity as at 30 June 2019 and of its performance as represented by the results of its operations and its cash flows for the year ended on that date; and (b) the Directors have been given the declarations by the Acting CEO and Group Financial Controller required by Section 295A; (c) 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; and (d) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(a). Signed in accordance with a resolution of the Directors made pursuant to s.295 (5) of the Corporations Act 2001. M A Gurry Chair Perth, 27 August 2019 Joyce Corporation Ltd Annual Report 2019 93 Joyce Corporation Ltd Annual Report 2019 94 Joyce Corporation Ltd Annual Report 2019 95 Joyce Corporation Ltd Annual Report 2019 96 Joyce Corporation Ltd Annual Report 2019 97 ASX ADDITIONAL INFORMATION AS AT 25 AUGUST 2019 Additional information is required by the Australian Securities Exchange Limited Listing Rules and not disclosed elsewhere in this report. The information is provided below: (a) Distribution of Shareholders Category As at 23 August 2019 1 - 1,000 1,001 – 5,000 5,001 - 10,000 10,001 – 100,000 100,001 – and over Total Holders 252 201 97 185 30 765 Fully Paid Ordinary Shares 95,805 530,006 760,788 5,687,568 20,894,088 27,968,255 % 0.34 1.90 2.72 20.34 74.41 100.00 (b) Shareholdings - Substantial Shareholdings The number of shares held or controlled at the report date by substantial shareholders were as follows: Ordinary Shareholder 1. Mr. Dan Smetana * 2. John Roy Westwood Total Fully Paid Ordinary Shares 11,234,829 2,650,000 % 40.2 9.5 13,884,829 49.7 *As at 25 August 2019 Mr. Smetana has beneficial interest in 10,254,129 fully paid ordinary shares (2018: 9,874,129). On 16 July 2018, 380,000 partly paid shares were converted to fully paid ordinary shares. (c) Voting Rights The voting rights attached to each class of equity security are as follows: Ordinary shares Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. Joyce Corporation Ltd Annual Report 2019 98 ASX ADDITIONAL INFORMATION (CONTINUED) AS AT 25 AUGUST 2019 (a) Shareholdings - Twenty Largest Holders of Quoted Equity Securities - ungrouped The number of shares held at the report date by the twenty largest holders of quoted equity securities: Ordinary Shareholder ADAMIC PTY LTD UFBA PTY LTD PEDUNCLE PTY LTD ONE MANAGED INVT FUNDS LTD <1 A/C> TRAFALGAR PLACE NOMINEES PTY LTD 1 2 3 4 5 6 MR DONALD TEO 7 MR DAN SMETANA 8 MR DANIEL ALEXANDER SMETANA 9 10 11 12 13 STARBALL PTY LTD TREASURE ISLAND HIRE BOAT COMPANY PTY LTD VANWARD INVESTMENTS LIMITED CONARD HOLDING PTY LTD FARROW RD PTY LTD 14 MARTEHOF PTY LTD 15 MAN INVESTMENTS (NSW) PTY LTD 16 EPIC TRUSTEES LIMITED 17 MR FELIX SMETANA 18 19 20 DMX CAPITAL PARTNERS LIMITED FLINGMO PTY LTD LOG-IT PTY LTD Fully paid Ordinary Shares 7,711,568 % 27.57 2,328,000 1,948,312 1,000,000 990,233 990,000 734,022 563,726 534,031 504,291 488,056 347,940 300,000 223,300 207,292 201,695 190,050 174,362 167,106 166,666 8.32 6.97 3.58 3.54 3.54 2.62 2.02 1.91 1.80 1.60 1.24 1.07 0.80 0.74 0.72 0.68 0.62 0.60 0.60 Totals: Top 20 holders of ORDINARY FULLY PAID SHARES Total Remaining Holders Balance 19,730,650 8,237,605 70.55 29.45 Joyce Corporation Ltd Annual Report 2019 99 ASX ADDITIONAL INFORMATION (CONTINUED) AS AT 27 AUGUST 2019 (b) Company Secretary Mr. Keith Smith (c) Registered Office 75 Howe Street, Osborne Park, WA, AUSTRALIA, 6017 Tel: +61 8 9445 1055 (d) Share Registry Computershare Investor Services Pty Limited Level 11, 172 St Georges Terrace Perth, WA 6000 (Within Australia) 1300 850 505 (Outside Australia) +61 3 9415 4000 (e) Auditors BDO Australia – Perth 38 Station Street Subiaco, WA 6008 Tel: +61 8 6382 4600 Joyce Corporation Ltd Annual Report 2019 100 

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