Joyce Corporation
Annual Report 2020

Plain-text annual report

2020 ANNUAL REPORT ABN: 80 009 116 269 CONTENTS 2020 Highlights Chairman’s Letter CEO’s Address Who Are We? Joyce 3 4 5 6 8 KWB Group Bedshed Board of Directors Executive Team Consolidated Financial Reports 10 12 14 16 18 2 J O Y C E C O R P O R A T I O N L T D A N N U A L R E P O R T 2 0 2 0 2020 HIGHLIGHTS We are pleased to present the results for the FY20 year and to report that the Joyce group has continued to deliver increased earnings in its ongoing operations, and have strengthened our cash position considerably. This is due primarily to the commitment of our people. We have worked together to deliver on the strategic and operational initiatives that we considered would add value during these challenging times. This is testament to our Joyce Way business model. We divested Lloyds Online Auctions. Together with the Lloyds team, we grew the business threefold; the business now sits better with new owners. In the year, we have continued to enact ‘good governance’ and follow a prudent approach. This has led to a number of impairments which the Board feel are justified in the current environment (for details see notes 16 and 18 in these financial statements). SALES EBIT 87,594 11,997 CASH IN THE BUSINESS 10,643 84,205 9,969 78,092 8,554 6,975 6,215 FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20* NET REVENUE ($000s) FY18 - FY20 CAGR 5.9% EBIT ($000s) FY18 - FY20 CAGR 18.4% CASH ($000s) FY18 - FY20 CAGR 30.9% From continuing activities Excluding impairments In uncertain times a key ‘risk mitigation’ strategy is to maximise cash within the business and Joyce has delivered a significant increase with +52% increase in liquid funds year on year. 3 ANNUAL REPORT 2020JOYCE CORPORATION LTD CHAIRMAN’S LETTER We are pleased to report the Joyce Corporation has had another successful year with an increase in our Earnings Before Impairment, Interest and Tax of over 20%. It is pleasing the company was able to safely navigate the COVID-19 environmnent while improving its underlying performance. This has been a huge achievement given what the organisation has been through this year. I am mindful that in my last address I referred to an ‘Economics Insights’ article published by CommSec – the title of which read: ‘Slowest retail spending in 28 years’. Today, that environment does not feel as bad as the last six months. Despite this, our underlying earnings have increased and as a Group we have generated significant levels of cash. Delivering on key, short term initiatives has reduced our risk in these turbulent times and set the Group up to take advantage of investment opportunities in the future. This ongoing success is founded on our business model, under which we partner with business owners and for all parties to benefit from the others’ strengths. Joyce benefits from the specialised expertise, passion and drive of these business owners, and Joyce provides the structure, guidance and strategy to maximise the earnings potential of these businesses. In some circumstances, where there are clear benefits for all parties, we are able to divest so the business can continue its journey into the future and Joyce has funds to re-invest in other opportunities. In FY20, we divested Lloyds Online Auctions and that business is now in the hands of owners who are committed to its growth in a challenging environment. In the four years we partnered with Lloyds, we helped it realise the following commercial outcomes: • Grew the business to three times its original size; • Supported the establishment of many new ‘verticals’, expanding into new lines of business; • Delivered a national presence with geographic expansion into Victoria and Western Australia; and • In the past 18 months led a restructure which reduced costs by 26%. These achievements occurred while implementing an improved corporate structure, stronger governance, systems and effective reporting. We continue to have a good relationship with our now ex-partners and wish them every success in the future. Dividends On 27 March,2020, Joyce updated the market to advise that the Board had taken a prudent approach to the payment of the interim dividend, by deferring the final date of payment to 25 September, 2020. This ensured cash was maximised through a period of uncertainty thereby minimising risk for the organisation. Through this and a series of other initiatives the Group finished the financial year with 52% more cash than 12 months earlier. With this in mind, the Board has determined to pay a fully franked final dividend of 2.7c per share, payable on 16 November 2020. The Board acknowledges that this is below previous years, but believes it is prudent to preserve cash in the business whilst the uncertainty in markets related to COVID-19 remains. Acknowledgements During the second half of the financial year we have experienced a once in a lifetime disruptive event, with the arrival of the COVID-19 pandemic. This required fast and decisive action to protect the value of our business, and I would like to acknowledge the role and contribution my fellow Directors have played and making those decisions, which have seen the Company emerge with renewed resilience and with sound financial strength. Special thanks to Jeremy Kirkwood, who chaired the COVID-19 sub-committee through the peak of the crisis. All of the Directors contributed their time and leadership generously to support our Executive team, which also spent many long hours through this period focusing on ways to navigate through what is a significant global, societal and economic crisis. Over the past two years, our Chief Executive Officer Keith Smith has worked tirelessly to deliver the necessary building blocks required for Joyce to be successful, and this has been especially true during the COVID-19 crisis. Our current position and result is testament to his ability to deliver for the Group. Joyce is stronger for his delivery and now is well-positioned to step into an unfamiliar future. Keith has decided to leave Joyce in pursuit of other opportunities. Positively for us, he has agreed to be flexible and support the on-boarding of new leadership for Joyce Corporation. We wish him every success in the future. I too have chosen to step aside and pass on the role of Chair. As communicated in our announcement of 20 July 2020, this will be to Jeremy Kirkwood who is well qualified to lead the company’s future growth. I will be staying on as a Non-Executive Director. Our Divisional General Managers have delivered extraordinary outcomes in an environment that many have coined ‘extraordinary times’. We decided to close the KWB operations for a short period, and once conditions stabilised rapidly reopened. Bedshed’s team managed 32 franchisees through the pandemic, as well as managing company-owned stores, and Lloyds has reinvented its business model. It is clear we have exceptional leaders in our operating units. Finally, our wider team have gone above and beyond what I and the Board could have expected for Joyce. They have supported Management in delivering important and rapid changes, like the deployment of our e-Commerce offering, while delivering strong commercial outcomes in a very difficult environment. I thank you all for the contribution you have made to Joyce in what was a very difficult, but ultimately rewarding, FY20. With best wishes, Mike Gurry – Chairman 4 ANNUAL REPORT 2020JOYCE CORPORATION LTD CEO ADDRESS This year has been both a challenging and rewarding time to be the CEO of Joyce. COVID-19 threw up both business and personal challenges for everyone associated with the Company, including our people, our partners, our suppliers, and of course our customers. I am proud to say that we have faced these challenges with unity and strength. As a result, we have closed the year in a good position with a strong balance sheet, including in excess of $10.6m cash on hand, and the capacity to borrow further funds. Given the uncertainty in retail markets we faced at the start of 2020, we took decisive action to both preserve cash and position ourselves to be flexible so we could respond to both the constraints and opportunities of the economic effects of COVID-19. This was made possible by the dedication and flexibility of the wider team, and the leadership shown by all the Divisional General Managers. We have seen our Continuing Operations progress down a path of growth, both in sales (+4.0%) and in Earnings Before Impairment, Interest and Tax (EBIT) (+20.3%). This is consistent with what we budgeted and was achieved in spite of the economic turmoil. Our Partner Organisations KWB In FY20, the team delivered an EBIT result of $11.3 million, representing a +18.9 per cent increase on the prior financial year. There remains significant geography to expand into and drive earnings further because. KWB’s current footprint only covers 25 per cent of the Australian population. The organisation, having closed all showrooms for a short period, is currently at order levels consistent with pre-pandemic volumes. During this period of rapid change, it was identified that improvements could be made to customer engagement, and this led to the development of a central customer engagement team now facilitating seven days a week engagement with customers. On 1 July 2020 the new showroom at Tweed Heads was opened as planned. This additional presence in NSW continues the geographic expansion and further sites are planned for FY21. We believe key sites will become available in the wake of the pandemic, principally in the Northern suburbs of Sydney. Bedshed Bedshed continues to add value to Joyce with earnings in the past financial year growing by 48.2 per cent to $3.6 million1, which follows the 13 per cent growth in earnings recorded in the previous year. This result was achieved despite a significant drop off in trade during April. We made the conscious decision to continue to trade across the company-owned store and franchise network, while taking all the necessary precautions to protect the health of our people and our customers. This was in contrast to our larger competitors who closed all or large parts of their networks. This provided us with two distinct advantages - an ongoing ability to read the market, and continued engagement with our supply chain. In May and June when demand increased significantly, we were ahead of the competition and able to increase our market share. During the year the Bedshed team won the initial Large Format Retailers award for best Marketing Campaign of the Year, which is a huge accolade and a testament to the capability of the team. We also saw the rollout of our new systems across the network of 37 stores, which focuses on supply chain and managing the ‘point of sale’ experience for the customer. In addition to this we launched a new e Commerce offering, the trading performance of this route to market has already exceeded our expectations. Not surprisingly, many potential franchisees put partnership plans on hold until they understood the potential effect of COVID-19 on the retail sector. We are now starting to see these opportunities re-emerge, but we are still in the early stages of recovery and this type of growth is more likely to come in the medium term. The Bedshed team will continue to execute on its franchisee recruitment plan, exceptional marketing and utilisation of new reporting technology to maintain earnings through what we expect to be a very fluid FY21. Lloyds Having sold the investment in Lloyds Online Auctions, Joyce continues to engage and support Lloyds to ensure a seamless separation. Joyce As a Group we have followed good governance and applied a prudent approach in assessing the carrying value of the assets on the balance sheet. This has led to impairments, $4.4m in goodwill and $1.1m in assets (principally the Howe St property asset). A detailed review is supplied in Note 16 and Note 18 in these accounts. Joyce Corporation is now well placed to take advantage of organic and inorganic growth opportunities in the future. We have increased our financial strength and resilience despite the commercial impacts of the pandemic. Having delivered on what I had planned for the CEO role I see this as a natural point to hand over to a new CEO who will take Joyce on to the next phase of its journey. I would like to thank the Board, Executive, Partners and Teams for their support during my tenure and wish the Company every success in the future. Sincerely, Keith Smith 1 – excluding impairments A N N U A L R E P O R T 2 0 2 0 J O Y C E C O R P O R A T I O N L T D 5 WHO ARE WE? Joyce Corporation is a fast-growing investment Group that partners with quality, small to medium Australian businesses that have a strong potential to grow. We use our unique capability in business development and governance, and combine that with our partners’ energy and passion to create better businesses that deliver increased value for all our stakeholders. Joyce Corporation aims to deliver above average returns and a strong dividend stream to its shareholders. Our business model is built on high ethical standards and a corporate culture driven by relentless, continuous improvement. Our partners include the KWB Group, a leader in the home renovations market focusing on kitchens and wardrobes. Additionally, we have one of Australia’s most recognised brands, Bedshed, which is at the forefront of Australia’s home furnishings market. Until recently we partnered with Lloyds Online Auctions, growing that brand to become a highly recognised Australian auction house that carved out specialty niches in classic cars and art. In the four years we partnered with Lloyds we achieve the following together: • Tripled the value of annual auction Our partnership approach sales; We choose our business partners based on dynamism, energy and passion. While we commit to ongoing, year on year growth, we also look for opportunities that can deliver immediate results. • Researched and stood up multiple new streams of business-like Art which is now the third largest Art auctioneer in Australia; • Successfully restructured the organisation, removing 26% of the cost base at the time out of the organisation; and • Despite the current economic landscape, improved moral. We are constantly reviewing a range of markets for opportunities to create value for our partners and shareholders. We also take a disciplined approach to our partnerships, which are regularly reviewed to ensure that we are aligned in delivering value for all of our stakeholders. Where we can continue to add value, we will, but we do not assume that value can be added indefinitely. Where others can add greater value, we support businesses like Lloyds move to a different path. The Board and the Executive are focused on growing our current business divisions and attracting new partners to support the growth plans of the Group. 6 J O Y C E C O R P O R A T I O N L T D A N N U A L R E P O R T 2 0 2 0 50.5% MALE 49.5% FEMALE Joyce believes that a diverse workforce delivers the best outcomes for the Group, and the ability for us to access input to decisions from multiple viewpoints and backgrounds achieves the best outcomes. Our inclusive view is reflected in our gender balance. A N N U A L R E P O R T 2 0 2 0 J O Y C E C O R P O R A T I O N L T D 7 Joyce The Group entity has finalised a lot of the development projects that were underway in the year, and as a result of this the whole Group was well placed to deal with the demands of the pandemic. We had already established the capability to have large parts of our workforce work from home offices. In the year, we incurred a number of ‘one time’ costs which by their nature we do not anticipate will occur in FY21. The Executive team are focused on operating a low-cost Group which is critical for Joyce’s current size and complexity. To that end, as a part of the CEO transition, the Board have commissioned a review of the corporate structures to establish the optimal design for the Group going forwards. There remains a lot of potential for the Group. Our values Internally, we describe these as the ‘Joyce Way’ and it defines how we do business. We value business partners and staff alike, and we engage in an open and honest way with everyone we do business with. Strong values make great business sense. They help us maintain great relationships with our people, our partners and our customers. By being true to our values, we develop long term relationships with our partners to drive growth and value for all parties. By developing our culture to support these long term business outcomes, we expect to maximise future earnings despite uncertainty in the broader economic environment. 8 J O Y C E C O R P O R A T I O N L T D A N N U A L R E P O R T 2 0 2 0 A N N U A L R E P O R T 2 0 2 0 J O Y C E C O R P O R A T I O N L T D 9 FY20 BUSINESS UNIT PERFORMANCE 10 J O Y C E C O R P O R A T I O N L T D A N N U A L R E P O R T 2 0 2 0 JOHN BOURKE MANAGING DIRECTOR - KWB GROUP CHRIS PALIN FINANCIAL DIRECTOR - KWB GROUP KWB Group KWB delivers outstanding solutions to customers looking to renovate their homes. KWB’s kitchen and wardrobe showroom network of 21 sites reaches approximately 25% of Australia’s population. The economic impact of the COVID-19 pandemic and associated government restrictions saw us close our showroom network for most of April. Despite the closures, customer interest in our offering was significantly higher than expected. In response we accelerated and expanded our online and telephone channels to maximise our interaction with customers during this difficult time. By the end of April, the KWB team was confident demand would continue to be robust enough to enable a phased reopening of the showroom network. Customers rapidly re-engaged with the brand and the levels of orders increased quickly, with June orders returning to pre-COVID-19 levels. We continue to see strong demand for our high- quality products and services. We are pleased to report that as a result KWB achieved its budgeted EBIT growth, completing the FY20 year at $11.3m. This result is an improvement on the prior year of 18.9% and has been achieved despite the short-term impact of COVID-19. The KWB management team continues to focus on growing earnings into the future. Principally, this will be achieved by expanding the number of showrooms in the network. Our Tweed Heads showroom opened as planned on 1 July 2020 – an important step in growing our NSW footprint. Plans to deploy more showrooms are in place, targeting the rapidly growing northern suburbs of Sydney. Timing is being carefully considered given the uncertainty around State imposed restrictions associated with the COVID-19 pandemic. SALES 67,498 64,964 59,937 FY18 FY19 FY20 NET REVENUE ($000s) FY18 - FY20 CAGR 6.1% EBIT 11,269 9,480 8,372 FY18 FY19 FY20 EBIT ($000s) FY18 - FY20 CAGR 16.0% 11 ANNUAL REPORT 2020JOYCE CORPORATION LTD FY20 BUSINESS UNIT PERFORMANCE SALES 20,096 19,241 18,113 FY18 FY19 FY20 NET REVENUE ($000s) FY18 - FY20 CAGR 5.3% EBIT 1,998 3,593 2,424 FY18 FY19 FY20 EBIT ($000s) FY18 - FY20 CAGR 34.1% 12 J O Y C E C O R P O R A T I O N L T D A N N U A L R E P O R T 2 0 2 0 In the year we exceeded the earnings our strategic plan called for with increases to our EBIT number of 48.2%. Gavin Culmsee GENERAL MANAGER - BEDSHED Bedshed Bedshed is an Australian household name, delivering high quality bedroom furnishings. The 37-store network is run and owned by franchisees, except for five company-owned stores which operate in Queensland and Western Australia. The franchisee model has proved enormously successful for Bedshed, and we see this as the key opportunity to grow the overall Bedshed business. Additional resources were added to the team in FY20 to focus on attracting new franchisees. Significant interest had been generated by the half year and the team were engaging with over 100 live enquiries. The onset of COVID-19 has delayed new franchisees coming on board, however a good level of interest remains. At the half year, we shared the growth in earnings compared to the same period in the previous year, which was +20.9% up. Growth continued until late March, when the impacts of the pandemic were felt. The decision was made for the whole network to stay open, subject to a rigorous health and safety regime to protect our customers and staff. This was in contrast to many of our competitors who shut all or significant parts of their networks. The advantage for Bedshed was threefold: 1. By being open we could get first-hand indicators of the rapidly changing demand and react to them; 2. We could continue interaction with our supply chain and manage inventory coming into the network, as well as maintaining critical supply chain and supplier relationships, and; 3. Having staff available to close out key technology and process projects. The month of April was significantly below the same period in the prior year. Near the end of the month we experienced a significant increase in the level of orders. By being open and trading we were able to react to the change and resource our stores appropriately, and most critically, manage our supply chain. This placed us ahead of the competition and continues to be of benefit. This rapid rise in orders continued through May, resulting in a record month of sales for the organisation. This was followed by a new record for sales in June. Some of this demand is through a shift in consumer buying patterns, however we have also secured a gain in market share. The spending shift is from consumers spending less on holidays and other services, and some of those savings have been allocated to spending on consumer goods. The gain in share was supported by high quality marketing campaigns in the year, including the Bedroom Report campaign which saw Bedshed win a coveted ‘Marketing Campaign of the Year’ Large Format Retailers Association (LFRA) award. Looking forward, it is highly unlikely that demand will remain at these elevated levels. We have recently closed 10 franchisee stores in Victoria in line with the State Government’s lock down restrictions. Through these changes the team and our franchisee partners have demonstrated agility and the ability to benefit from a rapidly changing environment. We believe these capabilities will place Bedshed in the best position to navigate FY21, which will be an unpredictable year. A N N U A L R E P O R T 2 0 2 0 J O Y C E C O R P O R A T I O N L T D 13 BOARD OF DIRECTORS MIKE GURRY AM Chairman KAREN GADSBY Deputy Chair DAN SMETANA Non-Executive Director Karen was appointed Deputy Chair in May 2019 and has been a Non-Executive Director since July 2017. She has 19 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 and GMHBA (Vic). She is currently a Non-Executive Director of Talisman Mining Limited 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 was Chair of Joyce Corporation Ltd for 34 years, stepping down in Nov 2018, and he remains on the Board as a Non-Executive Director. 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, WA Federation of PCYC and Korab Resources Limited. Dan is a Certified Practicing Accountant (FCPA) 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. Mike was appointed Chair in Dec 2018 and has been a Non- Executive Director since 2008. He has 35 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. 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. 14 ANNUAL REPORT 2020JOYCE CORPORATION LTD TIM HANTKE Non-Executive Director JEREMY KIRKWOOD Non-Executive Director TRAVIS McKENZIE Non-Executive Director Tim has been a Non-Executive Director since 2006. He has 30 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. Jeremy was appointed a Non-Executive Director in January 2020. He has extensive experience as a Director of listed and private companies. Jeremy is currently a Director of Talisman Mining Limited (Chair until July 2020), Trustee of the RE Ross Trust and Director of Hillview Quarries Pty Ltd, Nurturecare Pty Ltd and Independent Schools Victoria. He is a principal of Pilot Advisory Group and was previously a Managing Director at Credit Suisse, Morgan Stanley and Austock. He has extensive experience in corporate strategy, merger and acquisitions, investment banking and global capital markets. Travis was appointed a Non-Executive Director in July 2019. He has had 6 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. 15 ANNUAL REPORT 2020JOYCE CORPORATION LTD EXECUTIVE TEAM KEITH SMITH CEO / Company Secretary DEREK FOWLER Chief Financial Officer Derek was appointed Chief Financial Officer of Joyce Corporation in August 2019. He brings broad financial, commercial and operational experience, having led finance and commercial functions in global organisations across a multitude of industries, including Oil & Gas, Mining Services and Engineering. These include Falck, Oceaneering, and AGR. Derek holds a Bachelor of Business from Curtin University, a Certificate in Corporate Governance, is a qualified CPA and graduate of the AICD Company Directors Course. 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 to achieve their commercial and cultural goals. 16 J O Y C E C O R P O R A T I O N L T D A N N U A L R E P O R T 2 0 2 0 A N N U A L R E P O R T 2 0 2 0 J O Y C E C O R P O R A T I O N L T D 17 DIRECTORS’ REPORT DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2020 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 2020 (“the Financial Year”). DIRECTORS The names of the Company’s Directors in office during the Financial Year and until the date of this report are as stated below. Directors were in office for this entire period unless otherwise stated. Name Position Appointment date Resignation date Michael Gurry Non-Executive Director (Chair) (a) 8 May 2007 Karen Gadsby Non-Executive Director (Deputy Chair) 1 July 2017 Daniel Smetana Non-Executive Director 30 November 1984 Timothy Hantke Non-Executive Director Travis McKenzie Non-Executive Director 9 June 2006 1 July 2019 Jeremy Kirkwood Non-Executive Director (a) 14 January 2020 - - - - - - Anthony Mankarios Non-Executive Director (b) 1 July 2019 24 November 2019 (a) In the ASX announcement dated 20 July 2020, the Company communicated the planned transition of the Chair. Michael Gurry announced that he will be standing down as Chair at this year’s Annual General Meeting in November. Jeremy Kirkwood will take over as the Joyce Chair following the 2020 Annual General Meeting. Michael Gurry will stay on as a Non-Executive Director. (b) Change of role from Executive Director to Non-Executive Director as of 1 July 2019. Resigned 24 November 2019. SECRETARIES Keith Smith Anita Hollenberg Group Company Secretary (a) Company Secretary (a) In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. PRINCIPAL ACTIVITIES During the Financial Year the principal continuing activities of the Consolidated Entity consisted of being: - Majority owner of 51% of KWB Group Pty Ltd, operator of retail kitchen and wardrobe showrooms; - - Owner of five Bedshed retail stores. Franchisor of the Bedshed chain of retail bedding stores; and The significant change in the nature of the principal activity of the Consolidated Entity was the disposal in June 2020 of the 56% majority ownership of Lloyds Online Auctions Pty Ltd, an online auctioneer and valuer. REVIEW AND RESULTS OF OPERATIONS During the Financial Year, the Consolidated Entity achieved revenue from continuing operations of $87.59 million (2019: $84.20 million) and a profit from continuing operations before tax of $5.77 million (2019: $9.11 million) and after tax of $2.67 million (2019: $6.38 million). These profit numbers were after deducting $5.52 million (2019: nil) of impairments. 18 Joyce Corporation Ltd Annual Report 2020 18 ANNUAL REPORT 2020JOYCE CORPORATION LTD DIRECTORS’ REPORT Financial position YEAR ENDED 30 JUNE 2020 At 30 June 2020, the Consolidated Entity had total equity of $21.65 million (2019: $26.21 million) including non- controlling interest and dividend payments of $2.80 million in the Financial Year (2019: $3.55 million). Cash and cash equivalents increased from $6.97 million at 30 June 2019 to $10.64 million at 30 June 2020. Unused finance facilities were $4.41 million (2019: $0.28 million). Bank facilities The Consolidated Entity has a long-term debt funding facility with the Commonwealth Bank of Australia in place, in addition to a short-term debt funding facility with the National Australia Bank. Refer to Note 23 in relation to the limits and expiry dates. 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. The Bedshed business will develop through the expansion of its network of franchised stores and improving the financial performance of the five company-owned stores. The Company continues to pursue other investment opportunities. DIVIDENDS Dividends declared or paid during the Financial Year are as follows: Dividends paid or payable Ordinary shares: FY18 final fully franked dividend of 6.0 cents per share FY19 interim fully franked dividend of 5.0 cents per share FY19 second interim fully franked dividend of 1.7 cents per share FY19 final fully franked dividend of 5.0 cents per share FY20 interim fully franked dividend of 5.0 cents per share (a) Total dividends declared or paid 2020 $000 2019 $000 - - - 1,397 1,404 2,801 1,678 1,399 476 - - 3,553 (a) The FY20 interim fully franked dividend of 5.0 cents per share resolved on 25 February 2020 is payable on 25 September 2020, (deferred from 6 May 2020 due to the commercial uncertainty surrounding the COVID-19 pandemic). The Directors resolved that a FY20 final dividend of 2.7 cents per share, fully franked, be paid by Joyce Corporation Limited on 16 November 2020 to all shareholders registered as at the record date of 10 November 2020. Joyce Corporation Ltd Annual Report 2020 19 19 ANNUAL REPORT 2020JOYCE CORPORATION LTD DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2020 SIGNIFICANT CHANGES IN STATE OF AFFAIRS A significant change in the principal activity of the Consolidated Entity was the disposal in June 2020 of the 56% majority ownership of Lloyds Online Auctions Pty Ltd, an online auctioneer and valuer. During the Financial Year the KWB Group closed 30 retail kitchen showrooms for a period of up to 4 weeks in relation to concerns for the health and safety of its staff and customers during the Coronavirus (COVID-19) pandemic. The Bedshed franchising, Bedshed company-owned stores and online auctions business segments remained open and fully operational within COVID-19 health and safety precautions during the Financial Year. As a result of the COVID-19 pandemic, Directors, KMP and Executive of the Consolidated Entity agreed to modify their remuneration arrangement to defer 50% of their director fee and/or salary until the trading environment normalised. In each case, the fee and/or salary deferred during the COVID-19 pandemic period will be aggregated and paid to the KMP or Executive once the trading environment has normalised. Refer to Note 30(a) in relation to the amount owing to Directors, KMP and Executive at 30 June 2020 under this modification. 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 2020. SIGNIFICANT AFTER REPORTING DATE EVENTS The FY20 interim fully franked dividend of 5.0 cents per share resolved on 25 February 2020 is payable on 25 September 2020, (deferred from 6 May 2020 due to the commercial uncertainty surrounding the COVID-19 pandemic). In July 2020, KWB Group Pty Ltd updated the expiry date of its bank guarantee facility and business markets loan held with the National Australia Bank to 31 July 2021. All other limits and terms remain the same. In the ASX announcement dated 20 July 2020, the Company communicated the planned transition of the Chair. Michael Gurry announced that he will be standing down as Chair at this year’s Annual General Meeting in November. Jeremy Kirkwood will take over as the Joyce Chair following the 2020 Annual General Meeting. In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. In August 2020, Derek Fowler left the Company as CFO, at the end of his fixed term contract. The full impact of the COVID-19 pandemic continues to evolve at the date of this report. The Consolidated Entity is therefore uncertain as to the full impact the pandemic will have on the wider economy and as a result on its financial condition, liquidity, and future results of operations. In August 2020 the 10 Bedshed stores located in Melbourne closed to the public for 6 weeks as per the government directive, they have maintained a presence online. The Directors resolved that a FY20 final dividend of 2.7 cents per share, fully franked, be paid by Joyce Corporation Limited on 16 November 2020 to all shareholders registered as at the record date of 10 November 2020. The Consolidated Entity is actively monitoring the global and national situation and its impact on the Consolidated Entity’s financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic and government’s responses to curb its spread, at this point the Consolidated Entity is not able to estimate the effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity for the 2021 financial year. 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 the Consolidated Entity’s operations, the results of those operations, or the Consolidated Entity’s state of affairs. 20 Joyce Corporation Ltd Annual Report 2020 20 ANNUAL REPORT 2020JOYCE CORPORATION LTD YEAR ENDED 30 JUNE 2020 DIRECTORS’ REPORT INFORMATION ON DIRECTORS Michael Gurry - Chair. Age 73. 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 of the Joyce Board (will be standing down as Chair at this year’s Annual General Meeting in November). Chair of the Lloyds Board Director Bedshed until 17 December 2019 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 Member Covid-19 Sub Committee from March to May 2020 Interests in shares and options held directly, indirectly, or beneficially 56,878 ordinary shares Karen Gadsby – Deputy Chair. Age 57. Bachelor of Commerce, 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 Online Auctions Pty Ltd Board until 3 March 2020 Director Bedshed until 17 December 2019 Chair of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Member Covid-19 Sub Committee from March to May 2020 Interests in shares and options held directly, indirectly, or beneficially 20,000 ordinary shares Joyce Corporation Ltd Annual Report 2020 21 21 ANNUAL REPORT 2020JOYCE CORPORATION LTD DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2020 Daniel Smetana - Non-Executive Director, former Chair (January 1985 to November 2018). Age 76. Dip Comm, FCPA, FAIM, FAICD Other current directorships of listed companies None Former directorships of listed companies in last 3 years Korab Resources Ltd Special responsibilities Director Bedshed until 17 December 2019 Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Interests in shares and options held directly, indirectly, or beneficially 11,062,440 ordinary shares Timothy Hantke – Non-Executive Director. Age 72. 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 Online Auctions Pty Ltd Board until 3 March 2020 Director KWB Board until 28 February 2020 Chair Bedshed Member of the Audit and Risk Committee Chair of the Remuneration Committee Chair of the Nomination Committee Interests in shares and options held directly, indirectly, or beneficially 20,000 ordinary shares Travis McKenzie – Non-Executive Director (appointed 1 July 2019). Age 42. Bachelor of Law, Bachelor of Commerce, GAICD Other current directorships of listed companies None Former directorships of listed companies in last 3 years None Special responsibilities Alternate Director Bedshed from 17 December 2019 Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Interests in shares and options held directly, indirectly, or beneficially 15,086 ordinary shares 22 Joyce Corporation Ltd Annual Report 2020 22 ANNUAL REPORT 2020JOYCE CORPORATION LTD DIRECTORS’ REPORT YEAR ENDED 30 JUNE 2020 Jeremy Kirkwood – Non-Executive Director (appointed 14 January 2020). Age 57. Bachelor of Commerce ANU Other current directorships of listed entities Talisman Mining Ltd Kin Mining NL Zenitas Healthcare Ltd Former directorships of listed companies in the last 3 years Special responsibilities Chair Covid-19 Sub Committee from March to May 2020 Member of the Audit and Risk Committee Member of the Remuneration Committee Member of the Nomination Committee Interests in shares and options held directly, indirectly, or beneficially Nil Anthony Mankarios – Non-Executive Director (from 1 July 2019 to 24 November 2019). Age 53. MBA, FAICD, CFTP Other current directorships of listed companies Inventis Ltd Former directorships of listed companies in last 3 years None Special responsibilities Director Lloyds Online Auctions Pty Ltd Board until 26 August 2019 Director KWB Board until 13 August 2019 Director Bedshed until 26 August 2019 Member of the Audit and Risk Committee until 24 November 2019 Member of the Remuneration Committee until 24 November 2019 Member of the Nomination Committee until 24 November 2019 Interests in shares and options held directly, indirectly, or beneficially Nil ordinary shares SECRETARIES Keith Smith – Acting CEO (from 1 July 2019 to 30 March 2020), CEO (from 31 March 2020), Group Company Secretary. Age 54. Accounting BSc (Hons), ACA, CA ANZ, AICD, GIA (Cert) In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. Anita Hollenberg – Company Secretary (from 27 August 2019). Age 38. Bachelor of Commerce, CA ANZ, GIA (Cert) Joyce Corporation Ltd Annual Report 2020 23 23 ANNUAL REPORT 2020JOYCE CORPORATION LTD DIRECTORS’ REPORT MEETINGS OF DIRECTORS YEAR ENDED 30 JUNE 2020 The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the Financial Year, and the number of meetings attended by each Director were: Directors Board of Directors Audit & Risk Committee Remuneration Committee Nomination Committee Michael Gurry Karen Gadsby Daniel Smetana Timothy Hantke Travis McKenzie Jeremy Kirkwood Anthony Mankarios A 15 15 15 15 15 11 2 B 13 15 15 15 14 11 2 A 4 4 4 4 4 3 1 B 4 4 4 4 4 3 1 A 2 2 2 2 2 1 1 B 2 2 2 2 2 1 1 A 2 2 2 2 2 2 - B 2 2 2 2 2 2 - A = Number of meetings held during the time the Director held office or was a member of the committee during the Financial Year. B = Number of meetings attended during the time the Director held office or was a member of the committee during the Financial Year. 24 Joyce Corporation Ltd Annual Report 2020 24 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited REMUNERATION REPORT – AUDITED YEAR ENDED 30 JUNE 2020 The remuneration report is set out under the following parts: A. Principles used to determine the nature and amount of remuneration B. Service agreements C. Details of remuneration D. Share-based compensation E. Link between remuneration policy and company performance F. Voting at the 2019 Annual General Meeting G. Independent salary and incentive review H. Loans or other transactions with Directors and Key Management Personnel 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 KMP of the Consolidated Entity include: Key Management Personnel Position Held Keith Smith (a) Derek Fowler John Bourke Chris Palin Lee Hames Gavin Culmsee Acting CEO, Joyce Corporation Ltd to 30 March 2020 CEO, Joyce Corporation Ltd from 31 March 2020 Group Company Secretary, Joyce Corporation Ltd CFO, Joyce Corporation Ltd from 19 August 2019 to 7 August 2020 Managing Director, KWB Group Pty Ltd Finance Director, KWB Group Pty Ltd Director and COO, Lloyds Online Auctions Pty Ltd General Manager, Bedshed Franchising Pty Ltd (a) In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. 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 Consolidated Entity including those governing the Directors and the Key Management Personnel. 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 2020 25 25 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 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. 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 caliber 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. 26 Joyce Corporation Ltd Annual Report 2020 26 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 A. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION (CONTINUED) Executive remuneration Fixed Component The level of fixed remuneration is set 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 the Consolidated Entity, the relevant segment and individual performance. 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 cash 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 Consolidated Entity in accordance with the requirements of the Corporations Act 2001 and its regulations. For the purposes of this report, KMP are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Consolidated Entity, directly or indirectly, including any Director (whether executive or otherwise) of the Consolidated Entity. For the purposes of this report, the term "Executive" encompasses the Directors, Key Management Personnel and other senior executives of the organisation. Joyce Corporation Ltd Annual Report 2020 27 27 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 B. SERVICE AGREEMENTS (CONTINUED) Details of the Key Management Personnel (including the Executives) of the Consolidated Entity: Name Position held Michael Gurry Non-Executive Director, Chair of the Board Karen Gadsby Non-Executive Director, Deputy Chair of the Board, Chair of the Audit Committee Daniel Smetana Non-Executive Director Timothy Hantke Non-Executive Director, Chair of the Remuneration Committee Travis McKenzie Non-Executive Director from 1 July 2019 Jeremy Kirkwood Non-Executive Director from 14 January 2020 Anthony Mankarios Non-Executive Director to 24 November 2019 Keith Smith (a) Derek Fowler John Bourke Chris Palin Lee Hames Acting CEO to 30 March 2020, CEO from 31 March 2020, Group Company Secretary CFO Joyce Corporation Ltd from 19 August 2019 to 7 August 2020 Managing Director KWB Group Pty Ltd Finance Director KWB Group Pty Ltd Director and COO of Lloyds Online Auctions Pty Ltd Gavin Culmsee General Manager Bedshed Franchising Pty Ltd (a) In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. The employment conditions of all KMP are formalised in contracts. The directors and CEO are engaged by Joyce Corporation Ltd. All Executives, except for Derek Fowler (who had a fixed term contract), are permanent employees of subsidiaries within the Consolidated Entity. Contractual arrangements Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts is set out below. Term of agreement Notice period in months Termination payment in months Keith Smith Derek Fowler Chris Palin John Bourke Lee Hames Gavin Culmsee rolling 1 year rolling rolling rolling rolling 3 1 3 3 3 3 3 - 3 3 3 3 The Consolidated Entity can terminate each contract by providing the required written notice period or providing payment in lieu of the notice period (based on the fixed component of the KMP’s remuneration). The Consolidated Entity may terminate a KMP or 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. 28 Joyce Corporation Ltd Annual Report 2020 28 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 B. SERVICE AGREEMENTS (CONTINUED) Contractual arrangements (continued) As a result of the COVID-19 pandemic, Directors, KMP and Executive of the Consolidated Entity agreed to modify their remuneration arrangement to defer 50% of their director fee and/or salary until the trading environment normalised. In each case, the fee and/or salary deferred during the COVID-19 pandemic period will be aggregated and paid to the KMP or Executive once the trading environment has normalised. Refer to part H in relation to the amount owing to Directors, KMP and Executive at 30 June 2020 under this modification. Refer to part C in relation to base salary and superannuation. Related party transactions with Key Management Personnel Refer to part H in relation to transactions with Key Management Personnel. Joyce Corporation Ltd Annual Report 2020 29 29 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 C. DETAILS OF REMUNERATION The remuneration summary of Key Management Personnel for the Financial Year is set out below. Short-term benefits Post employment benefit Other Long-term benefits Salary & Fees Cash Bonus Non-Cash Super LSL & AL Share-based payment (e) Performance rights Total % relating to performance 132,429 80,667 80,667 80,667 35,650 30,893 353,386 794,359 794,359 - - - - - - - - - (a) (b) (c)(d) - - - - - - - - - 296,347 154,545 361,492 284,831 171,923 270,320 120,000 - 98,084 77,518 47,620 59,270 - - - - 7,057 - 12,581 7,663 7,663 7,663 3,387 2,935 8,305 50,197 50,197 28,153 14,682 43,660 34,509 14,745 25,680 - - - - - - - - - 24,869 12,821 - - - 27,552 1,539,458 402,492 7,057 161,429 65,242 - - - - - - 189,474 189,474 189,474 - - - - - - - - - - - - - - - - 145,010 88,330 88,330 88,330 39,037 33,828 551,165 - - - - - - - 1,034,030 1,034,030 0.0% 0.0% - - - - - 19,833 469,369 182,048 503,236 396,858 241,345 402,655 25.6% - 19.5% 19.5% 19.7% 19.6% 19,833 2,195,511 19.2% 2020 Non-executive Directors Michael Gurry Karen Gadsby Daniel Smetana Timothy Hantke Travis McKenzie Jeremy Kirkwood Anthony Mankarios Total Non-Executive Directors Total Directors Other Key Management Personnel Keith Smith Derek Fowler John Bourke Chris Palin Lee Hames Gavin Culmsee Total Other Key Management Personnel Total Remuneration 2,333,817 402,492 7,057 211,627 65,242 189,474 19,833 3,229,541 13.1% (a) Appointed 1 July 2019. (b) Appointed 14 January 2020. (c) Change of role from Executive Director to Non-Executive Director as of 1 July 2019. Resigned 24 November 2019. (d) Salary & fees being: - Termination payment of $245,966 - Non-Executive Director fees of $107,420. (e) Refer to Remuneration Report Part (D) in relation to details of the share-based payment. 30 Joyce Corporation Ltd Annual Report 2020 30 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 C. DETAILS OF REMUNERATION (CONTINUED) The remuneration summary of Key Management Personnel for the prior financial year is set out below. Short-term benefits Post employment benefit Other Long-term benefits Non-Cash Super LSL & AL Share-based payment Performance rights 2019 Michael Gurry Karen Gadsby Daniel Smetana Timothy Hantke Total Non-Executive Directors Executive Director Anthony Mankarios Total Directors Other Key Management Personnel Keith Smith Keith Gray John Bourke Chris Palin Andrew Webber Lee Hames Gavin Culmsee Total Other Key Management Personnel Salary & Fees Cash Bonus 115,982 86,073 120,772 86,073 408,900 - - - - - (a) 321,572 730,472 120,000 120,000 - - - - - - - 242,149 114,003 326,946 258,393 50,000 185,433 236,210 - 19,752 94,767 74,897 - - 61,683 - - - - - 4,099 - (b) (c) (c) (d) (e) (b) 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 - - - - - - - 15,781 48,383 - - - 4,183 26,750 1,413,134 251,099 4,099 149,868 95,097 Total Remuneration 2,143,606 371,099 4,099 195,350 95,097 Total % relating to performance 127,000 94,250 132,245 94,250 - - - - 447,745 0.0% 448,209 895,954 26.8% 13.4% 280,934 193,211 461,776 364,953 54,750 209,609 348,064 - 10.2% 20.5% 20.5% - - 17.7% 1,913,297 13.1% 2,809,251 13.2% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (a) 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 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. (b) 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. (c) 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. (d) Andrew Webber's consultancy company, was paid $190k for consulting services performed by his staff members for the Lloyds Online group of companies. (e) Lee Hames is a Director and COO of Lloyds Online Auctions Pty Ltd. Joyce Corporation Ltd Annual Report 2020 31 31 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 C. DETAILS OF REMUNERATION (CONTINUED) Achievement of the short-term employment benefits STI - Cash Bonus The achievement of the short-term employment benefits of Key Management Personnel for the Financial Year is set out below. 2020 Non-executive Directors Michael Gurry Karen Gadsby Daniel Smetana Timothy Hantke Travis McKenzie Jerermy Kirkwood Anthony Mankarios Total Non-Executive Directors Total Directors Other Key Management Personnel Keith Smith Derek Fowler John Bourke Chris Palin Lee Hames Gavin Culmsee Total Other Key Management Personnel Short-term employment benefits - Cash bonus 100% level STI $000 % financial conditions % non- financial conditions STI financial condition $000 STI non- financial condition $000 % of the financial condition achieved % of the non- financial condition achieved STI payable $000 - - - - - - - - - 120,000 - 98,084 77,518 47,620 72,280 415,502 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 100% 100% 100% 76% 100% - - - - 24% - - 98,084 77,518 47,620 54,933 120,000 - - - - 17,347 - - 100% 100% 100% 100% 100% - - - - 25% 278,155 137,347 - - - - - - - - - 120,000 - 98,084 77,518 47,620 59,270 402,492 402,492 Total Cash Bonus 415,502 278,155 137,347 The original STI targets set for Keith Smith became redundant as the Financial Year progressed. These were updated multiple times, however by the year end all iterations had been superseded by the changing circumstances of the business environment and his role requirements. The Board of the Company concluded a specific fixed sum rewarding Keith Smith was more appropriate than attempting to allocate the STI based on the multiple iterations of the targets. The non-financial targets set in Gavin Culmsee’s STI related to onboarding new franchisees into the network and improving reporting to more effectively manage the Bedshed operations. 32 Joyce Corporation Ltd Annual Report 2020 32 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 C. DETAILS OF REMUNERATION (CONTINUED) Achievement of the short-term employment benefits STI - Cash Bonus The achievement of the short-term employment benefits of Key Management Personnel for the prior financial year is set out below. Short-term employment benefits - Cash bonus 2019 100% level STI $000 % financial conditions % financial conditions STI financial condition $000 STI financial condition $000 % of the financial condition achieved % of the non- financial condition achieved STI payable $000 Non-executive Directors Michael Gurry Karen Gadsby Daniel Smetana Timothy Hantke Total Non-Executive Directors Executive Director Anthony Mankarios Total Directors Other Key Management Personnel Keith Smith Keith Gray John Bourke Chris Palin Lee Hames Gavin Culmsee Total Other Key Management Personnel - - - - - - - - - 120,000 120,000 100% - - - - - - - - - - - - - - - - - - - - - 120,000 120,000 100% - 100% 100% 100% - 88% - - - - - 12% - 19,752 94,767 74,897 - 70,095 259,511 - 19,752 94,767 74,897 - 61,683 - - - - - 8,411 251,099 8,411 - 100% 100% 100% - 100% Total Cash Bonus 379,511 251,099 128,411 - - - - - - - - - - - 0% - - - - - 120,000 120,000 - 19,752 94,767 74,897 - 61,683 251,099 371,099 Joyce Corporation Ltd Annual Report 2020 33 33 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 D. SHARE-BASED COMPENSATION Performance rights granted as compensation During the Financial Year, 137,032 performance rights were issued to Keith Smith and 76,387 issued to Gavin Culmsee. These are subject to continued employment and meeting predetermined performance criteria. During the previous financial year, 263,158 ‘FY18 performance rights’ and 272,109 ‘FY19 performance rights’ were granted to Anthony Mankarios as compensation. Recognition and measurement The agreements 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, where non-market-based conditions are attached, 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. On conversion the performance right converts to one ordinary share which carries no voting or dividend rights. Terms and conditions Details of the performance rights on issue are summarised below. Beneficiary Number of Rights Granted Fair Value per right Total fair value Grant date Expected vesting date Vesting conditions No. of rights expected to vest Expense recorded Keith Smith (a) Gavin Culmsee 137,032 $1.55 $212,400 76,387 $1.55 $118,400 1 July 2019 30 June 2022 (3 years) Profit metric over 3 years as described below. Nil $Nil 38,194 $19,733 (a) In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. 34 Joyce Corporation Ltd Annual Report 2020 34 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 D. SHARE-BASED COMPENSATION (CONTINUED) Performance rights granted as compensation (continued) Reconciliation of performance rights The reconciliation of the performance rights is set out below. Year granted Balance at start of year Number Number Number % Granted during year Vested Rights to deferred shares Anthony Mankarios Anthony Mankarios Keith Smith Gavin Culmsee FY18 263,158 FY19 272,109 - - FY20 FY20 - - 137,032 76,387 - - - - - - - - Forfeited Number % 263,158 100% 272,109 100% Balance at end of year Number Maximum value yet to vest $ nil nil nil nil - - - - 137,032 $212,400 76,387 $98,667 In the ASX announcement dated 24 July 2019 the Company communicated the Performance Rights allocated to Anthony Mankarios at the 2018 AGM had been cancelled. Keith Smith and Gavin Culmsee share-based payment The expense recognised in respect of the performance rights is based on the Board’s assessment of the probability that certain milestone earnings will be achieved, measured cumulatively over the three-year period commencing 1 July 2019 and ending 30 June 2022. There are three milestones: “threshold”; “target”; and “stretch and above”. Meeting these milestones results in, respectively, 25%, an additional 25%, and the final 50% of the rights vesting into ordinary shares. Keith Smith - 137,032 performance rights (a) Consolidated Entity net profit after tax cumulative over 3 years greater than ($000): Threshold Target Stretch and above No. vesting (%) 25% 25% 50% Expected Probability of occurring (%) 0% 0% 0% Total number expected to vest Nil Nil Nil $32,184 $35,760 $42,912 Total expense expected to be recorded over the three-year vesting period $Nil (a) In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. Gavin Culmsee - 76,387 performance rights Bedshed EBIT cumulative over 3 years greater than ($000): Threshold Target Stretch and above No. vesting (%) 25% 25% 50% Expected Probability of occurring (%) 100% 100% 0% Total number expected to vest 19,097 19,097 Nil $6,570 $7,300 $8,760 Total expense expected to be recorded over the three-year vesting period $59,200 Joyce Corporation Ltd Annual Report 2020 35 35 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 D. SHARE-BASED COMPENSATION (CONTINUED) Anthony Mankarios fully paid ordinary share-based payment In the 2019 Annual General Meeting on 25 November 2019, the members approved the issue of 131,579 fully paid ordinary shares to Starball Pty Ltd. Starball Pty Ltd is an entity controlled by Anthony Mankarios, the former Joyce Corporation Ltd Executive Director who held that position for nine years. In recognition of the effort that Anthony Mankarios has put into the Consolidated Entity over that period, the members resolved it was appropriate to issue 131,579 ordinary shares in the Company to Starball Pty Ltd. The shares rank equally with the ordinary shares already on issue by the Company. No funds were received or applied in the issue, as the shares were issued in recognition of Anthony Mankarios’ contribution to the Company. The fair value of the shares is determined as per the spot rate on grant date, being $1.44 on 25 November 2019. The cost of the share-based payment is recognised, together with a corresponding increase in equity, in the period in which the shares were issued (December 2019). An expense of $189,474 was recognised in the Consolidated Statement of Profit or Loss. Option and holding rights granted as compensation During the Financial Year no options were granted or vested as equity compensation benefits to any Director or Executive of the Consolidated Entity (2019: nil). Option holdings as compensation During the Financial Year there were no options on issue to any Director or Executive of the Consolidated Entity (2019: nil). Partly paid ordinary shares as compensation There were no partly paid ordinary shares held or granted during the Financial Year as compensation (2019: nil). 36 Joyce Corporation Ltd Annual Report 2020 36 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 D. SHARE-BASED COMPENSATION (CONTINUED) Share holdings The number of shares in the Company held during the Financial Year by each Director and KMP of the Consolidated Entity, including their personally related parties, are set out below. During the Financial Year, 131,579 shares were granted as compensation to Anthony Mankarios (2019: nil). 2020 Michael Gurry Karen Gadsby Balance 1 July 2019 56,878 20,000 Daniel Smetana (a) 10,254,129 Granted as remuneration - On exercise of options - Timothy Hantke Travis McKenzie Jeremy Kirkwood Anthony Mankarios (b) Keith Smith Derek Fowler John Bourke Chris Palin Lee Hames Gavin Culmsee TOTAL - - - - - 131,579 - - - - - - 20,000 - - 741,323 40,000 - 65,359 - - 10,000 11,207,689 131,579 Other net change - Balance 30 June 2020 56,878 - 20,000 772,311 11,026,440 - 15,086 - (872,902) 22,500 - - - - 20,000 15,086 - - 62,500 - 65,359 - - 10,000 20,000 (53,005) 11,286,263 - - - - - - - - - - - - - (a) The Other net change reflects changes in indirect holdings of associated parties. (b) Anthony Mankarios resigned on 24 November 2019. E. 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 revenue, profit and dividends for the last five years for the Consolidated Entity, as well as the share price at the end of the respective financial year. The dividend includes ordinary and special dividends paid or payable in respect of each financial year. FY20 $000 FY19 $000 FY18 $000 FY17 $000 FY16 $000 Revenue from continuing operations (a) 87,594 84,205 78,093 64,726 56,544 Profit from continuing operations after tax (a) 2,674 6,385 6,204 3,794 3,460 Share price at year-end $ Dividends (cents) paid or payable 1.10 10.0 1.53 12.7 1.42 11.0 1.60 11.5 1.01 16.0 (a) Revenue and profit exclude discontinued operations. Joyce Corporation Ltd Annual Report 2020 37 37 ANNUAL REPORT 2020JOYCE CORPORATION LTD Remuneration REPORT – audited YEAR ENDED 30 JUNE 2020 F. VOTING AT THE 2019 ANNUAL GENERAL MEETING ON THE REMUNERATION REPORT The Remuneration Report in the 2019 Annual Report to shareholders was voted on in the November 2019 Annual General Meeting, 58.40% of the eligible votes were cast against the resolution, being the first strike against the Company. G. INDEPENDENT SALARY AND INCENTIVE REVIEW During the prior financial year, the Company undertook an independent review of executive salary and incentive levels to benchmark against market. The review was undertaken by the independent professional firm of Godfrey Remuneration Group. The majority of the recommendations were enacted with the remaining changes being the subject of an ongoing project. H. LOANS OR OTHER TRANSACTIONS WITH DIRECTORS AND KEY MANAGEMENT PERSONNEL There are no loans outstanding with any Director as at 30 June 2020 (2019: $nil). During the Financial Year the entities of the Consolidated Entity entered into the following transactions with related parties who are not members of the group: Key Management Personnel Type of transaction (i) Key Management Personnel Received dividend payments totalling $600,625. (ii) Key Management Personnel Director fee and/or salary deferred due to the COVID-19 pandemic. Amount owing to KMP and Executive at 30 June 2020 totalling $47,681. Other than the items disclosed above, there are no other material transactions with KMP not in the ordinary course of business. End of Audited Remuneration Report. 38 Joyce Corporation Ltd Annual Report 2020 38 ANNUAL REPORT 2020JOYCE CORPORATION LTD directors’ REPORT INSURANCE OF OFFICERS YEAR ENDED 30 JUNE 2020 During the Financial Year, Joyce Corporation Ltd paid a premium to insure the Directors, Secretaries and KMP 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 Ltd 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 Details of the amounts paid or payable to the auditor for non-audit services provided during the Financial Year by the auditor are outlined in Note 33. The Directors are satisfied that the provision of non-audit services during the Financial Year, by the auditor (or by another person or firm on the auditor's behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in Note 33 do not compromise the external auditor's independence requirements of the Corporations Act 2001 for the following reasons: - All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and - None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. AUDITOR'S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 41. Joyce Corporation Ltd Annual Report 2020 39 39 ANNUAL REPORT 2020JOYCE CORPORATION LTD directors’ REPORT ROUNDING OF AMOUNTS YEAR ENDED 30 JUNE 2020 The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Signed in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001. M A Gurry Chair Perth, 27 August 2020 40 Joyce Corporation Ltd Annual Report 2020 40 ANNUAL REPORT 2020JOYCE CORPORATION LTD auditor’s independance report YEAR ENDED 30 JUNE 2020 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 St at ion St reet Subiaco, WA 6008 PO Box 700 West Pert h WA 6872 Aust ralia DECLARATION OF INDEPENDENCE BY NEIL SMITH TO THE DIRECTORS OF JOYCE CORPORATION LTD As lead auditor of Joyce Corporation Lt d for t he year ended 30 June 2020, I declare t hat , t o t he best of my knowledge and belief , t here have been: 1. No cont ravent ions of t he audit or independence requirement s of t he Corporat ions Act 2001 in relat ion t o t he audit ; and 2. No cont ravent ions of any applicable code of professional conduct in relat ion t o t he audit . This declaration is in respect of Joyce Corporation Lt d and t he ent it ies it cont rolled during t he period. Neil Smit h Direct or BDO Audit (WA) Pt y Lt d Pert h, 27 August 2020 BDO Audit (WA) Pt y Lt d ABN 79 112 284 787 is a member of a nat ional associat ion of independent ent it ies which are all members of BDO Aust ralia Lt d ABN 77 050 110 275, an Australian company limit ed by guarant ee. BDO Audit (WA) Pt y Lt d and BDO Aust ralia Ltd are members of BDO Int ernat ional Lt d, a UK company limit ed by guarant ee, and form part of t he int ernat ional BDO network of independent member firms. Liabilit y limit ed by a scheme approved under Professional St andards Legislat ion. 41 ANNUAL REPORT 2020JOYCE CORPORATION LTD directors’ REPORT CORPORATE GOVERNANCE STATEMENT YEAR ENDED 30 JUNE 2020 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 2020 corporate governance policy and statement reflects the corporate governance practices in place throughout the 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. 42 Joyce Corporation Ltd Annual Report 2020 42 ANNUAL REPORT 2020JOYCE CORPORATION LTD ANNUAL FINANCIAL REPORT Annual Financial Report YEAR ENDED 30 JUNE 2020 Joyce Corporation Ltd AND CONTROLLED ENTITIES ABN: 80 009 116 269 Annual Financial Report For the Year Ended 30 June 2020 Joyce Corporation Ltd Annual Report 2020 43 43 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2020 Note 6 6 6 6 6 6 6 6 6 8 7 Continuing operations Revenue Cost of sales Gross Profit Other revenue Variable costs Contribution Margin Expenses from continuing operations Employment expenses Occupancy expenses Marketing expenses Administration expenses Profit before depreciation, impairment, interest, tax Depreciation and amortisation Profit before impairment, interest, tax Impairment of non-financial assets Profit before interest, tax Net interest Profit before tax Income tax expense Profit for the year from continuing operations (Loss) / profit for the year from discontinued operations Profit for the year Profit is attributable to: Continuing operations: Ordinary equity holders of the company Non-controlling interests Discontinued operations: Ordinary equity holders of the company Non-controlling interests * Refer to Note 2 in relation to details of restatement. YEAR ENDED 30 JUNE 2020 Consolidated 2019 restated * $000 84,205 (41,373) 42,832 1,545 (4,277) 40,100 (19,161) (1,299) (2,779) (2,706) 14,155 (4,186) 9,969 - 9,969 (850) 9,119 (2,734) 6,385 126 2020 $000 87,594 (42,557) 45,037 3,938 (4,838) 44,137 (19,828) (1,444) (2,654) (3,608) 16,603 (4,606) 11,997 (5,526) 6,471 (699) 5,772 (3,098) 2,674 (2,319) 355 6,511 (1,107) 3,781 2,674 (1,655) (664) (2,319) 3,281 3,104 6,385 70 56 126 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 51 to 114. 44 Joyce Corporation Ltd Annual Report 2020 44 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2020 (Loss) / earnings per share (cents per share) for (loss) / profit attributable to ordinary equity holders of the Company: Basic (loss) / earnings per share: (Loss) / earnings from continuing operations (Loss) / earnings from discontinued operations Diluted (loss) / earnings per share: (Loss) / earnings from continuing operations (Loss) / earnings from discontinued operations Basic earnings / (loss) per share excluding impairment expense amount: Earnings from continuing operations Earnings from discontinued operations Note 10 10 10 * Refer to Note 2 in relation to details of restatement. Consolidated 2019 restated * $000 11.73 0.25 11.98 11.73 0.25 11.98 11.73 0.25 11.98 2020 $000 (3.95) (5.90) (9.85) (3.95) (5.90) (9.85) 15.76 (5.90) 9.86 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 51 to 114. Joyce Corporation Ltd Annual Report 2020 45 45 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 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 Note Consolidated 2019 restated * $000 6,511 - - 2020 $000 355 - - Total comprehensive income for the year 355 6,511 Total comprehensive income for the year arises from: Continuing operations Discontinued operations Total comprehensive income for the year Total comprehensive income for the year attributable to: Continuing operations: Ordinary equity holders of the company Non-controlling interests Discontinued operations: Ordinary equity holders of the company Non-controlling interests * Refer to Note 2 in relation to details of restatement. 7 2,674 (2,319) 355 (1,107) 3,781 2,674 (1,655) (664) (2,319) 6,385 126 6,511 3,281 3,104 6,385 70 56 126 The consolidated statement of comprehensive income is to be read in conjunction with the notes to the consolidated financial statements set out on pages 51 to 114. 46 Joyce Corporation Ltd Annual Report 2020 46 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020 ASSETS Current assets Cash and cash equivalents Trade receivables Inventories Other receivables and prepayments Other financial assets Total current assets Non-current assets Other receivables and prepayments Deferred tax assets Right-of-use assets Property, plant and equipment Investment property Intangible assets Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Dividend payable Provisions Loans and borrowings Lease liabilities Provision for income tax Total current liabilities Non-current liabilities Loans and borrowings Lease liabilities Deferred tax liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Reserve Retained (losses) / earnings Parent entity interest Non-controlling interest TOTAL EQUITY Note 11 12 13 14 15 14 8 9 16 17 18 19 20 21 22 9 8 22 9 8 21 24 29(ii) 30(b) Consolidated 2019 restated * $000 6,975 2,355 3,185 1,459 31 14,005 399 6,202 12,503 11,501 9,623 18,369 58,597 72,602 14,197 - 1,751 694 4,401 128 21,171 9,622 10,069 4,508 1,016 25,215 46,386 26,216 18,090 - 5,258 23,348 2,868 26,216 2020 $000 10,643 886 2,974 4,168 179 18,850 157 5,564 10,195 8,807 9,623 7,510 41,856 60,706 12,774 1,405 1,575 521 3,370 484 20,129 5,230 8,587 3,851 1,256 18,924 39,053 21,653 18,280 20 (305) 17,995 3,658 21,653 * Refer to Note 2 in relation to details of restatement. The consolidated statement of financial position is to be read in conjunction with the notes to the consolidated financial statements set out on pages 51 to 114. Joyce Corporation Ltd Annual Report 2020 47 47 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 Cash flows from / (used in) operating activities Receipts from customers Payments to suppliers and employees Income tax paid Interest paid Net cash flows from operating activities Cash flows from / (used in) investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of discontinued operations Proceeds from sale of property, plant and equipment Net cash flows from / (used in) investing activities Cash flows from / (used in) financing activities Dividends paid Dividends paid to non-controlling interests Proceeds from partly paid shares Payment of lease liabilities Proceeds from related party loan Repayment of related party loan Repayment of borrowings Proceeds from borrowings Net cash flows (used in) financing activities Net increase 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 relating to continuing operations Cash at bank and in hand relating to discontinued operation Total cash at bank and in hand * Refer to Note 2 in relation to details of restatement. Note 34 11 7 11 Refer to Note 7 in relation to the cash flows from the discontinued operations. Consolidated 2019 restated * $000 85,513 (68,482) (3,363) (850) 12,818 (1,250) - 60 (1,190) (3,552) (3,609) 30 (3,692) 400 (400) (575) 509 (10,889) 739 6,120 6,859 6,859 116 6,975 2020 $000 91,117 (73,525) (3,535) (700) 13,357 (645) (180) 1,957 67 1,199 (1,398) (1,465) - (3,711) - - (16,498) 12,300 (10,772) 3,784 6,859 10,643 10,643 - 10,643 The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements set out on pages 51 to 114. 48 Joyce Corporation Ltd Annual Report 2020 48 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Contributed Equity Reserves $000 $000 Note Retained Earnings / (Losses) $000 Non- Controlling Interest $000 Total Equity $000 Balance at 1 July 2018 (as previously reported) Adjustment on adoption of AASB 9 Adjustment on adoption of AASB 16 Restated total equity at the beginning of the financial year * 2 Total comprehensive income / (loss) for the year: Profit attributable to members of the parent entity Profit attributable to non- controlling interests Total comprehensive income / (loss) for the year Transactions with owners in their capacity as owners: Transactions with non-controlling interests 30(b) Payment for partly paid shares Dividends paid or provided for 24 30(b), 31 Balance at 30 June 2019 restated * * Refer to Note 2 in relation to details of restatement. 18,060 - - 18,060 - - - - 30 - 18,090 - - - - - - - - - - - 6,975 3,073 28,108 (95) (961) - (215) (95) (1,176) 5,919 2,858 26,837 3,351 - 3,351 - 3,160 3,160 3,351 3,160 6,511 (459) 459 - - (3,553) - (3,609) 30 (7,162) 5,258 2,868 26,216 The consolidated statement of cash flows is to be read in conjunction with the notes to the consolidated financial statements set out on pages 51 to 114. Joyce Corporation Ltd Annual Report 2020 49 49 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Note Contributed Equity $000 18,090 Reserves $000 - Retained Earnings / (Losses) $000 5,258 Non- Total Controlling Interest $000 2,868 Equity $000 26,216 Balance at 1 July 2019 Total comprehensive income / (loss) for the year: Loss attributable to members of the parent entity Profit attributable to non- controlling interests Total comprehensive income / (loss) for the year Transactions with owners in their capacity as owners: Carrying value of non-controlling interests disposed Shares issued Share-based payments Dividends paid or provided for Balance at 30 June 2020 7, 30(b) 24 29(i) 30(b), 31 - - - - 190 - - 18,280 - - - - - 20 - 20 (2,762) - (2,762) - 3,117 3,117 (2,762) 3,117 355 - - - (862) (862) - - 190 20 (2,801) (1,465) (4,266) (305) 3,658 21,653 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 51 to 114. 50 Joyce Corporation Ltd Annual Report 2020 50 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. CORPORATE INFORMATION The consolidated financial statements of Joyce Corporation Ltd (“the Company”) for the financial year ended 30 June 2020 were authorised for issue in accordance with a resolution of the Directors of the Company dated 27 August 2020. 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 the notes following. (a) Basis of preparation These general-purpose financial statements for the financial year ended 30 June 2020 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 year 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 16 Leases; and - AASB Interpretation 23 Uncertainty over Income Tax Treatments. The impact of the adoption of these standards and the new accounting policies is disclosed below. Joyce Corporation Ltd Annual Report 2020 51 51 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New or revised standards and interpretations that are first effective in the current reporting year (continued) (i) AASB 16 Leases AASB 16 Leases replaces AASB 117 Leases and IFRIC 4 Determining whether an Arrangement Contains a Lease. In accordance with the transitional provisions of AASB 16, the Consolidated Entity has elected to adopt AASB 16 using the Full Retrospective approach, with the date of initial application being 1 July 2019. AASB 16 is applied retrospectively to each prior reporting period presented. Lessor accounting under AASB 16 is substantially unchanged from AASB 117. Lessors will continue to classify leases as either operating or finance leases using similar principles as in AASB 117. Therefore, AASB 16 does not have an effect for leases where the Consolidated Entity is the lessor. Consolidated Entity as lessee All leases are accounted for by recognising a right-of-use asset and a lease liability except for: - - Leases of low value assets; and Leases with a term of 12 months or less. Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Consolidated Entity’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: - Amounts expected to be payable under any residual value guarantee; - The exercise price of any purchase option granted in favour of the Consolidated Entity if it is reasonably certain to exercise that option; and - Any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of the termination option being exercised. 52 Joyce Corporation Ltd Annual Report 2020 52 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New or revised standards and interpretations that are first effective in the current reporting year (continued) (i) AASB 16 Leases (continued) Right-of-use-assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: - - - Lease payments made at or before commencement of the lease; Initial direct costs incurred; and The amount of any provision recognised where the Consolidated Entity is required to dismantle, remove or restore the leased asset. Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset, if rarely, this is judged to be shorter than the lease term. When the Consolidated Entity revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to be made over the revised term, which are discounted using a revised discount rate (being the interest rate implicit in the lease for the remainder of the lease term or, if that cannot be readily determined, the Consolidated Entity’s incremental borrowing rate at the re-assessment date). An equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. The carrying value of lease liabilities is also revised when the variable element of future lease payments dependent on a rate or index is revised or there is a revision to the estimate of amounts payable under a residual value guarantee. In both cases an unchanged discount rate is used. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. When the Consolidated Entity renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification: - - - If the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy; In all other cases where the renegotiation increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount; and If the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial of full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure the carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets are items such as IT-equipment and small items of office furniture. Joyce Corporation Ltd Annual Report 2020 53 53 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New or revised standards and interpretations that are first effective in the current reporting year (continued) (i) AASB 16 Leases (continued) Consolidated Entity as lessor Leases in which the Consolidated Entity does not transfer substantially all the risks and rewards incidental to ownership of an asset (or of a right-of-use asset) are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. The effect of adopting AASB 16 is as follows: 54 Joyce Corporation Ltd Annual Report 2020 54 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New or revised standards and interpretations that are first effective in the current reporting year (continued) (ii) AASB 16 Leases (continued) Impact on the consolidated statement of profit and loss and other comprehensive income (increase / (decrease)): Cost of sales Gross profit Other revenue Contribution margin Occupancy expenses Earnings before depreciation, impairment, interest, tax Depreciation and amortisation Earnings before impairment, interest, tax Earnings before interest and tax Net interest expense Earnings before tax Income tax expense Profit / (loss) from continuing operations after tax Profit / (loss) from discontinued operations Profit / (loss) for the year Profit is attributable to: Continuing operations Ordinary equity holders of the Company Non-controlling interests Discontinued operations 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: Basic earnings per share Earnings from continuing operations Earnings from discontinued operations Diluted earnings per share Earnings from continuing operations Earnings from discontinued operations 2019 restated $000 (381) 381 19 400 (3,174) 3,574 3,190 384 384 669 (285) - (285) - (285) (145) (140) (285) - - - (0.52) - (0.52) (0.52) - (0.52) Joyce Corporation Ltd Annual Report 2020 55 55 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual Financial Report YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New or revised standards and interpretations that are first effective in the current reporting year (continued) (i) AASB 16 Leases (continued) Impact on the consolidated statement of financial position (increase / (decrease)): Current assets Other receivables and prepayments Total current assets Non-current assets Deferred tax assets Right-of-use assets Property, plant & equipment Total non-current assets Total assets Current liabilities Interest bearing loans and borrowings Lease liabilities Provision for income tax Total current liabilities Non-current liabilities Interest bearing loans and borrowings Lease liabilities Deferred tax liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Retained (losses) / earnings Parent entity interests Non-controlling interests Total equity 30 June 2019 restated $000 1 July 2018 restated $000 (126) (126) 4,660 12,503 (394) 16,769 (13) (13) 4,960 13,185 - 18,145 16,643 18,132 (198) 4,401 (3) 4,200 (187) 10,069 3,939 26 13,847 - 3,852 - 3,852 - 11,227 4,236 (7) 15,456 18,047 19,308 (1,404) (1,176) (1,075) (1,075) (329) (1,404) (961) (961) (215) (1,176) 56 Joyce Corporation Ltd Annual Report 2020 56 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New or revised standards and interpretations that are first effective in the current reporting year (continued) (i) AASB 16 Leases (continued) Impact on the consolidated statement of changes in equity: Contributed equity $000 18,060 - - At 1 July 2018 (as previously reported) Adjustment on adoption of AASB 9 (net of tax) Adjustment on adoption of AASB 16 (net of tax) At 1 July 2018 (as restated) 18,060 Retained earnings $000 Non- controlling interest $000 Reserves $000 Total $000 - - - - 6,975 3,073 28,108 (95) - (95) (961) (215) (1,176) 5,919 2,858 26,837 Impact on the consolidated statement of cash flows (increase / (decrease)): Cash flows from / (used in) operating activities Payments to suppliers and employees Interest paid Net cash flows (used in) operating activities Cash flows from / (used in) financing activities Payment of lease liabilities Net cash flows from financing activities 2019 restated $000 (12,582) 892 (11,753) 4,334 4,334 Joyce Corporation Ltd Annual Report 2020 57 57 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New or revised standards and interpretations that are first effective in the current reporting year (continued) (ii) AASB Interpretation 23 Uncertainty over Income Tax Treatments AASB Interpretation 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation requires: - - - The Consolidated Entity to contemplate whether uncertain tax treatments should be considered separately, or together as a Consolidated Entity, based on which approach provides better predictions of the resolution; The Consolidated Entity to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. The adoption of AASB Interpretation 23 has not resulted in a change to the tax liabilities of the Consolidated Entity. $Nil effect was recorded in retained earnings at the date of application being 1 July 2019. 58 Joyce Corporation Ltd Annual Report 2020 58 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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. Refer to Note 30 in relation to the list of controlled entities. 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-group 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 Bedshed ‘Marketing Fund’ and Bedshed ‘Approved Purposes Fund’ are not funds of the Consolidated Entity and have not been consolidated. (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 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. 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 accounting standards, comparative figures have been adjusted to conform with classification and presentation for the current financial year. Joyce Corporation Ltd Annual Report 2020 59 59 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Rounding of amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with the instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. (g) Functional and presentation currency Items included in the financial statements of each of the Consolidated Entity’s entities are measured using the currency of the primary economic environment in which the entity operation (‘the functional currency’). The consolidated financial statements are presented in Australian dollar ($), which is the Company’s functional and presentation currency. (h) 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. (i) Presentation of government grants Government grants relating to JobKeeper are recognised in profit or loss in other revenue over the period necessary to match them with the costs that they are intended to compensate. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Consolidated Entity will comply with all attached conditions. 60 Joyce Corporation Ltd Annual Report 2020 60 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 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 CFO 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 receivables Other receivables Other financial assets Financial liabilities Trade and other payables Loans and borrowings Dividend payable Lease liabilities Note 11 12 14 15 19 22 20 9 Consolidated 2019 restated $000 6,975 2,355 724 31 10,085 14,197 10,316 - 14,470 38,983 2020 $000 10,643 886 3,240 179 14,948 12,774 5,751 1,405 11,957 31,887 Joyce Corporation Ltd Annual Report 2020 61 61 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (a) Market risk (i) Foreign exchange risk The Consolidated Entity’s exposure to foreign currency risk is not material. It is principally limited to purchases of goods 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’s 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. As at the reporting date, the Consolidated Entity had the following variable and fixed rate financial instruments: 2020 Average interest rate Fixed Variable 2019 restated Average interest rate Fixed Variable $000 Financial assets Cash and cash equivalents Financial liabilities St George commercial bill CBA market rate loan 1 CBA market rate loan 2 CBA business loan 0.01% - 10,643 0.03% - 3.12% 3.08% - - - - - - 4,751 1,000 - 5,751 4.73% - - 3.77% - - - - - $000 6,975 4,716 - - 5,600 10,316 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 2020 is at a variable interest rate (see above). On balances held at 30 June 2020, 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 $0.05 million higher or lower (2019: $0.07 million). 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 $0.05 million higher or lower (2019: $0.07 million), for the same reasons. 62 Joyce Corporation Ltd Annual Report 2020 62 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 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 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 Trade receivables Other receivables Other financial assets AA- Non-rated Non-rated Non-rated Consolidated 2020 $000 10,643 886 3,240 179 14,948 2019 restated $000 6,975 2,355 724 31 10,085 Joyce Corporation Ltd Annual Report 2020 63 63 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 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. Financing arrangements Refer to Note 23 in relation to the financing facilities available at reporting date. 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. Year ended 30 June 2020 Consolidated financial assets Cash and cash equivalents Trade receivables Other receivables Other financial assets Consolidated financial liabilities Trade and other payables Loans and borrowings Dividend payable Lease liabilities Net maturity ≤ 6 months $000 6-12 months $000 1-5 years $000 >5 years $000 10,643 886 3,083 179 14,791 12,774 521 1,405 1,786 16,486 (1,695) - - - - - - - 157 - 157 - - - 1,584 1,584 (1,584) - 5,230 - 8,531 13,761 (13,604) - - - - - - - - 56 56 (56) Total $000 10,643 886 3,240 179 14,948 12,774 5,751 1,405 11,957 31,887 (16,939) 64 Joyce Corporation Ltd Annual Report 2020 64 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk (continued) Year ended 30 June 2019 Consolidated financial assets Cash and cash equivalents Trade receivables Other receivables Other financial assets Consolidated financial liabilities Trade and other payables Loans and borrowings Lease liabilities Net maturity ≤ 6 months $000 6-12 months $000 1-5 years $000 >5 years $000 Total restated $000 6,975 2,355 325 31 9,686 14,197 694 2,267 17,158 (7,472) - - - - - - - 399 - 399 - - - - - - - 2,133 2,133 (2,133) - 9,622 9,287 18,909 (18,510) - - 782 782 (782) 6,975 2,355 724 31 10,085 14,197 10,316 14,469 38,982 (28,897) Joyce Corporation Ltd Annual Report 2020 65 65 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (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, dividends 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 Consolidated Entity and that are believed to be reasonable under the circumstances. 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) Leases Determining the incremental borrowing rate Where the interest rate implicit in a lease is not known, the Consolidated Entity is required to determine the incremental borrowing rate, being the rate of interest the Consolidated Entity would have to pay to borrow a similar amount, over a similar term, with similar security to obtain an asset of similar value in a similar economic environment. As this information may not be readily available, the Consolidated Entity is required to estimate its incremental borrowing rate, using such information as is available, and making adjustments to reflect the particular circumstances of each lease. Determining the lease term The Consolidated Entity has in place, a number of leases of property with terms that can be renewed for an additional term, equal to the period of the original lease. In determining the lease term, the Consolidated Entity is required to determine: - Whether there is an actual or implied extension or renewal option. An implied extension or renewal option will exist if both the lessee and lessor would incur a more than insignificant penalty if the lease were not extended or renewed; and - Whether the Consolidated Entity is reasonably certain to exercise any actual or implied extension options, taking into account, all facts and circumstances relating to the lease. (b) Nature of leasing activities As a lessee The Consolidated Entity leases a number of properties. The lease contracts provide for payments to increase each year by a fixed percentage, to increase each year by inflation, to be reset periodically to market rental rates, or to remain fixed over the lease term. 66 Joyce Corporation Ltd Annual Report 2020 66 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) (c) Share-based payments The Consolidated Entity initially measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share- based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model as well as an assessment of the probability of achieving non-market based vesting conditions. The probability of achieving non-market based vesting conditions of performance options is assessed at each reporting period. (d) Impairment of non-financial assets 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 and judgements or fair value less cost of disposal. (e) Determining control of subsidiaries (AASB 10) In determining whether the Consolidated Entity 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 non-controlling interest’s share of net assets acquired, fair value of consideration transferred and subsequent period movements in value thereof, are disclosed as outside equity interest. (f) Net realisable value of inventory In determining the number of write-downs required for inventory, the Consolidated Entity 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. Joyce Corporation Ltd Annual Report 2020 67 67 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) (g) 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 18 in relation to the recognition of intangible assets. (h) Treatment of investment property in Lytton, QLD The property located at 97 Trade Street, Lytton, QLD has the majority of the site rented to a third party at market rates. KWB occupy a minority of the site (42%). The Consolidated Entity has determined the occupation of the majority of the site by a third party is the key factor in determining its treatment as an investment property. (i) Revaluation of investment property The Consolidated Entity values the investment property at fair value. The fair value in the financial statements is informed by valuation performed by either an independent external valuation or a Management valuation. The market value of the investment property has been adopted as the fair value of that investment property in the financial statements of the Consolidated Entity. (j) Expected credit loss Debtors in each part of the Consolidated Entity have been reviewed for the potential of non-recovery. The review is based on, the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience, historical collection rates, the impact of the COVID-19 pandemic and forward-looking information that is available. The allowance for expected credit losses, as disclosed in Note 12 and 14, is calculated based on the information available at the time of preparation. The actual credit losses in future years may be higher or lower. The Consolidated Entity assessed the various circumstances of each group of debtors and determined that full recovery has a high likelihood. In assessing the debtor in relation to the disposal of Lloyds Online Auctions Pty Ltd, the Consolidated Entity has recognised an expected credit loss of $0.21 million (2019: nil). (k) COVID-19 pandemic Judgement has been exercised in considering the impacts the COVID-19 pandemic has had, or may have, on the Consolidated Entity based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Consolidated Entity operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Consolidated Entity unfavourably as at the reporting date or subsequently as a result of COVID- 19. (l) Disposal transaction Judgement has been exercised in treatment of the Lloyds Online Auctions Pty Ltd disposal on 2 March 2020 and 17 June 2020 as a single transaction due to the one commercial outcome intended. 68 Joyce Corporation Ltd Annual Report 2020 68 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 5. SEGMENT INFORMATION (a) 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 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 showrooms; and - Operation of valuation, online and physical auction sites (became a discontinued operation on 17 June 2020). Transfer prices between operating segments are set on an arms-length basis and in a manner consistent with transactions with third parties. Joyce Corporation Ltd Annual Report 2020 69 69 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 5. SEGMENT INFORMATION (CONTINUED) (a) 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 2020. Continuing operations Continuing operations Discontinued operations Bedshed Franchise $000 2020 Retail Bedding Stores $000 2020 Retail Kitchen Showrooms $000 2020 5,833 - 5,833 140 5,693 5,833 14,263 - 14,263 14,263 - 14,263 67,498 - 67,498 67,498 - 67,498 1,992 (201) 11,269 Year Ended Revenue Revenue Inter-segment sales Total segment 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/(loss) for the year Total $000 2020 87,594 - 87,594 81,901 5,693 87,594 - 87,594 13,060 (7,288) (3,098) 2,674 Total $000 2020 15,595 - 15,595 15,595 - 15,595 - 15,595 (1,700) (1,060) 441 (2,319) As at Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities 30 Jun 2020 30 Jun 2020 30 Jun 2020 30 Jun 2020 30 Jun 2020 8,417 10,148 30,613 2,002 7,703 22,123 49,178 11,528 60,706 31,828 7,225 39,053 - - - - - - Other segment information for the year ended Capital expenditure on PPE and intangibles Depreciation and amortisation 30 Jun 2020 30 Jun 2020 30 Jun 2020 30 Jun 2020 30 Jun 2020 191 21 41 1,285 588 3,201 820 4,507 - 1,250 70 Joyce Corporation Ltd Annual Report 2020 70 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 5. SEGMENT INFORMATION (CONTINUED) (a) 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 2019. Continuing operations Continuing operations Discontinued operations Year Ended Revenue Revenue Inter-segment sales Total segment 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/(loss) for the year As at Assets and liabilities Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Other segment information for the year ended Capital expenditure on PPE and intangibles Depreciation and amortisation Bedshed Franchise Retail Bedding Stores Retail Kitchen Showrooms $000 2019 5,465 - 5,465 146 5,319 5,465 $000 2019 $000 2019 13,776 64,964 - - 13,776 64,964 13,776 64,964 - - 13,776 64,964 1,645 779 9,480 Total $000 2019 84,205 - 84,205 78,886 5,319 84,205 - 84,205 11,904 (2,785) (2,734) 6,385 Total $000 2019 19,499 - 19,499 19,499 - 19,499 - 19,499 415 (228) (61) 126 30 Jun 2019 30 Jun 2019 30 Jun 2019 30 Jun 2019 30 Jun 2019 7,376 11,245 30,972 1,295 6,562 24,448 49,593 7,330 56,923 32,305 9,371 41,676 14,959 720 15,679 4,269 441 4,710 30 Jun 2019 30 Jun 2019 30 Jun 2019 30 Jun 2019 30 Jun 2019 23 20 90 1,363 1,074 2,695 1,187 4,078 1,127 1,060 Joyce Corporation Ltd Annual Report 2020 71 71 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 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 2020 (2019: none). 6. REVENUE, INCOME AND EXPENSES (a) Revenue from continuing operations Revenue from contracts with customers Sale of goods Franchise revenue Other revenue Rental revenue Freight recovered Gain / (loss) on lease modification Other revenue Government grants Consolidated 2020 $000 83,598 3,996 87,594 569 189 45 435 2,700 3,938 2019 restated $000 80,748 3,457 84,205 438 142 - 965 - 1,545 Government grants There are no unfulfilled conditions or other contingencies attaching to these grants. The Consolidated Entity did not benefit directly from any other forms of government assistance. Disaggregation of revenue The Executive review the business at the level of disaggregation shown as per Note 5 Segment Information. The disaggregation of revenue follows the operating segments identified, being revenue from the following activities and arrangements: - - Franchising, the majority of revenue is earnt through payments made by the Franchisees for the services Bedshed provide in connection with the Franchise; and Retail Bedding Stores and Retail Kitchen Showrooms, revenue is earnt at the point of product delivery. In understanding the segments, the organisation rarely considers the geographic location of the customer as being the driver to an increased understanding. 72 Joyce Corporation Ltd Annual Report 2020 72 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 6. REVENUE, INCOME AND EXPENSES (CONTINUED) (a) Revenue from continuing operations (continued) Disaggregation of revenue (continued) In the Bedshed company-owned-stores entity, we have three trading locations in Queensland and two in Western Australia. Their location is not the driver of understanding the business, greater insight comes from consideration of the broader macro-economic factors in play that would influence demand, and in the case of company-owned stores this would be the mining and resource cycle, housing market and consumer confidence. KWB, an operator of retail kitchen and wardrobe showrooms is exposed to fluctuations in overall consumer renovation spend. There were no new revenue streams during the financial year ended 30 June 2020 (2019: nil). The following table lays out the facts and circumstances that pertain to the Company’s contracts for continuing operations with customers and depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Bedshed Franchise Franchise revenue - Retail Bedding Stores Sale of goods - Retail Kitchen Showrooms Sale of goods Operating segment / Factor Nature of the revenue Market - Economic drivers of revenue - - Franchising in specialty retail Consumer confidence; and - Growth in disposable - income. Contractual arrangements Specific revenue recognition criteria Contractual assets or liabilities Standard form contract Recognition based on business written sales from franchised stores Nil Specialty retail - Renovations Consumer confidence; - Consumer confidence; - Growth in disposable income; and - Mining cycle. Standard form contract Recognition at the point of product delivery - - Growth in disposable income; and Consumer-spend on renovations. Standard form contract Recognition at the point of product delivery Bank guarantees, customer deposits Bank guarantees, customer deposits Joyce Corp Rental revenue Commercial real estate Property cycle. - - - Lease agreement Recognition is monthly as defined in the relevant lease agreement Nil The recognition of revenue for lease income from the investment property in Lytton, QLD and the office/warehouse in Osborne Park, WA is made in line with the contractual terms laid out in the leasing arrangements, principally paid on the first of the month in advance. Joyce Corporation Ltd Annual Report 2020 73 73 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 6. REVENUE, INCOME AND EXPENSES (CONTINUED) (b) Expenses from continuing operations Cost of sales Cost of goods Cost of services Total cost of sales Variable costs Freight Wages - commissions Warranty costs Total variable costs Employment expenses Superannuation contributions Payroll tax Wages and other employee benefits Total employment expenses Impairment of non-financial assets Bedshed Joondalup goodwill (Note 18) Lloyds Online Auctions Pty Ltd goodwill (Note 18) Howe St property (Note 16) Total impairment of non-financial assets Net interest income / (expense) Interest income Interest expense Net interest expense Depreciation and amortisation Depreciation – property, plant & equipment Amortisation – Right-of-use asset Total depreciation and amortisation Consolidated 2020 $000 (41,385) (1,172) (42,557) (190) (3,738) (910) (4,838) (1,690) (1,053) (17,085) (19,828) (1,820) (2,557) (1,149) (5,526) 30 (729) (699) (1,346) (3,260) (4,606) 2019 restated $000 (40,147) (1,226) (41,373) (239) (3,240) (798) (4,277) (1,675) (1,049) (16,437) (19,161) - - - - 86 (936) (850) (989) (3,197) (4,186) 74 Joyce Corporation Ltd Annual Report 2020 74 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 6. REVENUE, INCOME AND EXPENSES (CONTINUED) (b) Expenses from continuing operations (continued) Administration expenses IT, communications and network costs Bank charges Consultancy fees Travel expenses Postage and stationery Insurance Accounting and audit fees Motor vehicle expenses Legal fees (Loss) / profit on sale of fixed assets Other administration expenses Expected credit loss (Note 14) Low value asset lease expense Total administration expenses Consolidated 2020 $000 (1,001) (527) (130) (400) (79) (243) (319) (62) (60) (14) (562) (210) (1) (3,608) 2019 restated $000 (893) (461) (195) (488) (104) (214) (174) (61) 12 10 (138) - - (2,706) Lease payments and other expenses included in the statement of profit or loss and other comprehensive income – continuing operations Lease payments Minimum lease payments - operating lease Consolidated 2020 $000 (3,711) 2019 restated $000 (3,693) Joyce Corporation Ltd Annual Report 2020 75 75 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 7. DISCONTINUED OPERATIONS During the Financial Year the Consolidated Entity ceased ownership of its Online Auctions segment. The subsidiary was sold in multiple transactions with effect from 17 June 2020 and is reported in the current year as discontinued operations. The comparative year, 30 June 2019 has been restated as a discontinued operation for comparability. Disposal of 10% interest On 2 March 2020, Joyce Corporation Ltd sold 10% of its interest in Lloyds Online Auctions Pty Ltd to the Lloyds Legacy Trust for $1.44 million. Disposal of 46% interest On 17 June 2020, Joyce Corporation Ltd sold its remaining 46% interest in Lloyds Online Auctions Pty Ltd to Jacqst Enterprises Pty Ltd as trustee for the Sarkis Family Trust No 6 (being an entity controlled by Steve Sarkis, a Director of Lloyds Online Auctions Pty Ltd), for $3.80 million. The material terms the transaction for the sale of the 46% interest are set out below: - - - Joyce Corporation Ltd through its wholly owned subsidiary, Joyce International Pty Ltd has agreed to sell 3,151,830 fully paid ordinary shares in Lloyds Online Auctions Pty Ltd (representing a 46% shareholding in Lloyds Online Auctions Pty Ltd) to Jacqst Enterprises Pty Ltd as trustee for the Sarkis Family Trust No 6 (“the Buyer”). The Buyer must pay an aggregate consideration of $3.80 million for the acquisition of the shares: - A $0.50 million non-refundable deposit was payable by the Buyer to Joyce (“Deposit”) on execution of the sale agreement. - The remaining $3.30 million of the purchase price is payable by the Buyer to an escrow account, with the full amount being payable by 24 September 2020. The $3.3 million will be released to Joyce on completion of the transaction. The receivable amount is secured via the share investment. At reporting date, a total of $1.95 million had been received according to the payment schedule, being: - - $1.44 million relating to the 10% interest; and $0.51 million relating to the 46% interest. These multiple transactions have been treated as a single event in the Financial Statements, as they were all designed to achieve a single overall commercial effect. 76 Joyce Corporation Ltd Annual Report 2020 76 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 7. DISCONTINUED OPERATIONS (CONTINUED) The financial performance and cash flow information are for the period 1 July 2019 to 17 June 2020 (2020 column) and the year ended 30 June 2019. Discontinued operations Revenue Expenses (Loss) / profit before income tax benefit / (expense) Income tax benefit / (expense) (Loss) / profit of discontinued operation after income tax (Loss) on disposal of the division after income tax (a) (Loss) / profit from discontinued operations Consolidated 2019 restated $000 19,499 (19,312) 187 (61) 126 - 126 2020 $000 15,595 (17,463) (1,868) 358 (1,510) (809) (2,319) The net cash flows of the discontinued division, which have been incorporated into the statement of cash flows, are as follows: Net cash inflow from operating activities Net cash (outflow) from investing activities Net cash (outflow) from financing activities Net increase in cash generated by the discontinued division (a) Details of the disposal of the division: Consideration received or receivable: Received Deferred Total disposal consideration Carrying amount of net assets sold (b) Carrying amount of non-controlling interest Goodwill (Loss) on sale before income tax Income tax (expense) / benefit (Loss) on sale after income tax Consolidated 2019 restated $000 1,511 (1,078) (413) 20 2020 $000 1,147 (198) (309) 640 1,957 3,290 5,247 2,775 (862) 4,226 (892) 83 (809) Joyce Corporation Ltd Annual Report 2020 77 77 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 7. DISCONTINUED OPERATIONS (CONTINUED) (b) The carrying amount of assets and liabilities as at the date of disposal (17 June 2020) were: Current assets Current liabilities Current net assets / (liabilities) Non-current assets Non-current liabilities Non-current net assets / (liabilities) Net assets $000 2,698 (3,956) (1,258) 5,104 (1,071) 4,033 2,775 78 Joyce Corporation Ltd Annual Report 2020 78 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 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 financial year ended 30 June are: 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 Income tax expense relating to continuing operations Income tax (benefit) / expense relating to discontinued operations Income tax expense relating to overall operations Consolidated 2020 $000 2019 restated $000 3,619 2,822 (531) 26 (16) 3,098 (136) 37 11 2,734 (441) 61 2,657 2,795 Joyce Corporation Ltd Annual Report 2020 79 79 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 8. INCOME TAX (CONTINUED) 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 financial years ended 30 June 2020 and 30 June 2019 is as follows: Profit before income tax – continuing operations Income tax expense calculated at the statutory income tax rate of 30% (2019: 30%) Impairment expense Other items not allowed / (not assessable) for income tax purposes (Under) / over provision in respect of prior years Income tax expense recognised in profit or loss – continuing operations Consolidated 2020 $000 5,772 2019 restated $000 9,119 1,732 2,736 1,658 (34) (258) 3,098 - (2) - 2,734 Tax consolidation Joyce Corporation Ltd and its 100% Australian owned subsidiaries are a tax group. Members of the group 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 group is Joyce Corporation Ltd. Measurement method adopted under UIG 1052 Tax Consolidation Accounting The head entity and the controlled entities in the tax group continues to account for their own current and deferred tax amounts. The group has applied the group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax group. The current and deferred tax amounts are measured in a systematic manner that is consistent with the broad principles in AASB 112 Income Taxes. 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 group. Tax consolidation contributions / (distributions) The Consolidated Entity has recognised no consolidation contribution or distribution adjustments. Taxation of financial arrangements 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 2020 (2019: $nil). 80 Joyce Corporation Ltd Annual Report 2020 80 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 8. INCOME TAX (CONTINUED) Deferred income tax Deferred income tax at 30 June 2020 relates to the following: De- recognition of Lloyds Online Auctions Pty Ltd $000 Consolidated Closing balance 30 June 2020 $000 Opening balance 1 July 2019 $000 Recognised in profit or loss statement $000 Deferred tax liabilities Investment property Trade & other receivables Fair value gains on other intangible assets Right-of-use asset Balance at 30 June 2020 Deferred tax assets Property, plant and equipment Trade and other payables Pensions and other employer obligations Provisions Lease liabilities Other Unused Tax losses Balance at 30 June 2020 (304) (5) (260) (3,939) (4,508) 324 155 842 162 4,660 4 55 6,202 (28) (179) - 643 436 563 (30) 197 (20) (774) (40) 543 439 - (20) - 241 221 - - (245) - (306) 72 (598) (1,077) (332) (204) (260) (3,055) (3,851) 887 125 794 142 3,580 36 - 5,564 The Consolidated Entity has accounted for all deferred tax assets and liabilities. Joyce Corporation Ltd Annual Report 2020 81 81 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 8. INCOME TAX (CONTINUED) Deferred income tax (continued) Deferred income tax at 30 June 2019 relates to the following: Consolidated Opening balance 1 July 2018 restated Recognised in profit or loss statement Closing balance 30 June 2019 restated $000 $000 $000 (291) (3) (260) (4,237) (4,791) 251 241 753 91 4,825 5 103 6,269 (13) (2) - 298 283 73 (86) 89 71 (165) (1) (48) (67) (304) (5) (260) (3,939) (4,508) 324 155 842 162 4,660 4 55 6,202 Deferred tax liabilities Investment property Trade & other receivables Fair value gains on other intangible assets Right-of-use asset Balance at 30 June 2019 Deferred tax assets Property, plant and equipment Trade and other payables Pensions and other employer obligations Provisions Lease liabilities Other Unused Tax losses Balance at 30 June 2019 82 Joyce Corporation Ltd Annual Report 2020 82 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 8. INCOME TAX (CONTINUED) Provision for income tax Provision for income tax relates to the following: Balance at 30 June 9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES Right-of-use assets relates to the following: Year ended 30 June 2020 At 1 July 2019, net of accumulated amortisation (restated) Additions Amortisation charge for the year (a) Modifications to lease terms Variable lease payment adjustments Disposals At 30 June 2020, net of accumulated amortisation (a) Relates solely to continuing operations. Year ended 30 June 2019 At 1 July 2018, net of accumulated amortisation (restated) Additions Amortisation charge for the year (a) Variable lease payment adjustments At 30 June 2019, net of accumulated amortisation Consolidated 2020 $000 484 2019 restated $000 128 Property and buildings $000 Plant and equipment $000 Total $000 12,129 374 12,503 2,780 (3,246) (164) (327) (1,024) 10,148 - (14) - - (313) 47 2,780 (3,260) (164) (327) (1,337) 10,195 Property and buildings $000 Plant and equipment $000 Total $000 13,185 2,206 (3,538) 276 12,129 - 13,185 497 (123) - 374 2,703 (3,661) 276 12,503 (a) Being continuing operations of $3.20 million and discontinued operations of $0.46 million. Joyce Corporation Ltd Annual Report 2020 83 83 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 9. RIGHT-OF-USE ASSETS (CONTINUED) The following amounts relating to leased assets have been included as income or expense in the consolidated statement of profit or loss and other comprehensive income during the year: Rental income (included in Other income) Gain / (loss) on lease modification (included in Other income) Interest expense (included in Net interest expense) Expense relating to short term leases (included in Occupancy expenses) Expense relating to leases of low value assets that are not short- term leases (included in Administration expenses) Expense relating to variable lease payments not included in lease liabilities (included in Occupancy expenses Lease liabilities relates to the following: Current Lease liabilities Non-current Lease liabilities Consolidated 2020 $000 569 45 593 3 1 - 2019 restated $000 439 - 671 - - - Consolidated 2020 $000 2019 restated $000 3,370 4,401 8,587 10,069 84 Joyce Corporation Ltd Annual Report 2020 84 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 10. EARNINGS / (LOSS) PER SHARE Basic and diluted earnings per share are calculated based on a weighted average of any shares issued during the financial year. The following reflects the income and share numbers used in the continuing operations basic and diluted earnings per share computations: Consolidated 2020 2019 restated Basic earnings per share: Net (loss) / profit attributable to ordinary Joyce shareholders from continuing operations $000 (1,107) 3,281 Weighted average number of ordinary shares including partly paid shares Number 28,047,202 27,968,255 (Loss) / earnings per share Cents per share (3.95) 11.73 Diluted earnings per share: Net (loss) / profit attributable to ordinary Joyce shareholders from continuing operations $000 (1,107) 3,281 Weighted average number of ordinary shares including partly paid shares (a) Number 28,047,202 27,968,255 (Loss) / earnings per share Cents per share (3.95) 11.73 Basic earnings per share excluding impairment expense amount: Net profit attributable to ordinary Joyce shareholders from continuing operations excluding impairment expense amount $000 4,419 3,281 Weighted average number of ordinary shares including partly paid shares Number 28,047,202 27,968,255 Earnings per share Cents per share 15.76 11.73 (a) The Performance Rights have not been included in the denominator of the diluted shares. (Loss) / earnings per share are included at the foot of the Consolidated Statement of Profit or Loss. Movement in number of shares In the 2019 Annual General Meeting on 25 November 2019, the members approved the issue of 131,579 fully paid ordinary shares to Starball Pty Ltd. Refer to Note 29(i) in relation to details of the shared-based payment. Joyce Corporation Ltd Annual Report 2020 85 85 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 11. 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 in relation to the management of financial risks of cash. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. Funds held in Trust 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 Financial Assets. At 30 June 2020, the total of this balance was $0.18 million (2019: $0.03 million). For the purposes of the statement of cash flows, cash and cash equivalents are comprised of the following: Cash at bank and in hand 12. TRADE RECEIVABLES Current Trade receivables Allowance for expected credit loss Total current trade receivables Consolidated 2020 $000 10,643 2019 $000 6,975 Consolidated 2020 $000 892 (6) 886 2019 restated $000 2,375 (20) 2,355 Trade and other receivables are non-interest bearing. Trade and other receivables are recognised at amortised cost, less an allowance for expected credit loss. Each operating segment’s policy requires customers to pay in accordance within agreed payment terms. Depending on the customer segment, trade receivables are generally due for settlement within 30 days. An allowance for the expected credit loss of $6,000 (2019: $20,000) has been recognised by the Consolidated Entity in the Financial Year for trade and other receivables. This amount has been included in the other expenses line item in the Consolidated Statement of Profit and Loss. 86 Joyce Corporation Ltd Annual Report 2020 86 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 12. TRADE RECEIVABLES (CONTINUED) At 30 June, the ageing analysis of current trade receivables is as follows: Within one year Consolidated 2019 restated $000 2,355 2020 $000 886 At reporting date, trade receivables with a carrying amount of $0.17 million (2019: $0.32 million) were past due but not considered impaired. 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 debtors and is satisfied that payment will be received in full. Other balances within trade and other receivables are neither impaired nor past due. It is expected that these other balances will be received when due. Movements in the allowance for expected credit loss for trade and other receivables were as follows: At 1 July (Credit) / charge for the year At 30 June Consolidated 2019 restated $000 6 14 20 2020 $000 20 196 216 Joyce Corporation Ltd Annual Report 2020 87 87 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 13. 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) Consolidated 2020 $000 3,092 (118) 2,974 2019 restated $000 3,283 (98) 3,185 (a) Write-downs of inventories to net realisable value recognised as an expense during the Financial Year amounted to $20,000 (2019: $nil). 88 Joyce Corporation Ltd Annual Report 2020 88 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 14. OTHER RECEIVABLES AND PREPAYMENTS Current Debtor – disposal of Lloyds Online Auctions Pty Ltd (a) Allowance for expected credit loss (b) Accrued revenue Prepayments Other receivables Total current other assets Non-current Other receivables (c) Consolidated 2020 $000 3,290 (210) 877 208 3 4,168 2019 restated $000 - - 807 327 325 1,459 157 399 (a) Refer to Note 7 in relation to the material terms of the disposal transaction. (b) This allowance is for the expected credit loss associated with any shortfall on the debtor for the Lloyds Online Auctions Pty Ltd sale made on 17 June 2020. The assumptions applied to this amount include historical collection rates, the impact of the COVID-19 pandemic and forward-looking information that is available. (c) Non-current other receivables are cash-backed rental deposits for the KWB Group. 15. OTHER FINANCIAL ASSETS Current Funds held in trust (Note 11) 16. PROPERTY, PLANT AND EQUIPMENT Consolidated 2020 $000 179 2019 restated $000 31 Land and buildings are shown at carrying value/cost, based on periodic, but at least triennial, valuations by external, professionally qualified 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. In June 2020 an independent valuation was obtained for the land & buildings. 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. Refer to Note 28 in relation to the fair value measurement and valuation technique used. Joyce Corporation Ltd Annual Report 2020 89 89 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 16. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) 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. Consolidated Property and buildings (a) $000 Plant and equipment $000 Leasehold improvements $000 Total $000 6,709 2,557 2,235 11,501 - (1,149) - (60) 337 - (336) (672) 308 - (507) (615) 645 (1,149) (843) (1,347) 5,500 1,886 1,421 8,807 6,845 (196) (1,149) 5,500 4,269 (2,383) - 1,886 3,777 (2,356) - 1,421 14,891 (4,935) (1,149) 8,807 Year ended 30 June 2020 At 1 July 2019At 1 July 2018, At 1 July 2019, net of depreciation (restated) Additions Impairment Disposals Depreciation charge for the year (b) At 30 June 2020, net of accumulated depreciation At 30 June 2020 Cost Accumulated depreciation Accumulated impairment Net carrying amount (a) Property and buildings – leased includes an office/warehouse property which is owned by the Company and is partially leased to unrelated third parties. (b) Relates solely to continuing operations. 90 Joyce Corporation Ltd Annual Report 2020 90 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT 16. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) YEAR ENDED 30 JUNE 2020 Consolidated Year ended 30 June 2019 At 1 July 2019At 1 July 2018, At 1 July 2018, net of depreciation (restated) Additions Impairment Disposals Depreciation charge for the year (b) At 30 June 2019, net of accumulated depreciation At 30 June 2019 Cost Accumulated depreciation and impairment Property and buildings (a) $000 Plant and equipment $000 Leasehold improvements $000 Total $000 6,768 2,013 1,965 10,746 6 - - (65) 914 - (56) (314) 880 - - (610) 1,800 - (56) (989) 6,709 2,557 2,235 11,501 6,844 3,973 4,063 14,880 (135) (1,416) (1,828) (3,379) Net carrying amount 6,709 2,557 2,235 11,501 (a) Property and buildings – leased includes property which is owned by the Company and is leased to unrelated third parties. (b) Relates solely to continuing operations. Joyce Corporation Ltd Annual Report 2020 91 91 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 17. INVESTMENT PROPERTY Balance at 30 June Consolidated 2020 $000 9,623 2019 $000 9,623 In accordance with AASB 140 Investment Property, the KWB property located in Lytton, QLD is 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. Fair value measurement The investment property is subject to an annual review to fair market value at each reporting period by either an independent expert valuation or Management’s valuation. The aim of the valuation process is to ensure that the investment property is held at fair value and the Consolidated Entity is compliant with applicable accounting standards. The independent valuation is performed by an external, professionally qualified valuer who holds a recognised relevant professional qualification and has specialised expertise in the property being valued. For the financial year ended 30 June 2020, the Directors of the Company performed an internal Management valuation. Refer to Note 28 in relation to the fair value measurement and valuation technique used. 18. INTANGIBLE ASSETS Software development Goodwill Total intangible assets Consolidated 2020 $000 180 7,330 7,510 2019 $000 2,437 15,932 18,369 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. 92 Joyce Corporation Ltd Annual Report 2020 92 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 18. INTANGIBLE ASSETS (CONTINUED) 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. 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 as at 30 June 2020 are as follows: - - Bedshed Franchising cash generating unit; and KWB Group Pty Ltd cash generating unit. 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. Joyce Corporation Ltd Annual Report 2020 93 93 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 18. INTANGIBLE ASSETS (CONTINUED) Impairment of non-financial assets (continued) An analysis of intangible assets is presented below. Goodwill Software Development Consolidated 2019 restated $000 2020 $000 2019 restated $000 2020 $000 2020 $000 2019 restated $000 15,933 15,933 2,436 2,230 18,369 18,163 - (4,377) (4,226) - - - - - 180 - (2,436) - 528 - - (322) 180 (4,377) (6,662) - 528 - - (322) 7,330 15,933 180 2,436 7,510 18,369 17,778 (4,226) (6,222) - 7,330 17,778 - (1,845) - 15,933 2,616 (2,436) - - 180 2,758 - - (322) 2,436 20,394 (6,662) (6,222) - 7,510 20,536 - (1,845) (322) 18,369 Year ended 30 June Net of accumulated impairment and amortisation at 1 July Additions Impairment Disposals Amortisation (a) Net of accumulated impairment and amortisation at 30 June At 30 June Cost (gross carrying amount) Disposals Accumulated impairment Accumulated amortisation (a) Net carrying amount (a) Relates to discontinued operations. Goodwill Goodwill Goodwill as at 30 June 2020 reflects the value of the Bedshed Franchising Pty Ltd activities, purchased in 2006 and the interest in the KWB Group, acquired in October 2014. Software development Software development as at 30 June 2020 reflects the value of the HarmoniQ point of sale system in the Bedshed Franchise and Retail Bedding Stores segments. As at 30 June 2019 software development reflects the value of the Auctionator platform, Lead Generation Platform and the European Union Bidding Platform in the Online Auctions segment. Impairment 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. Impairment of $4.38 million (2019: $nil) has been recognised in respect of goodwill and impairment of $nil (2019: $nil) has been recognised in respect of software development for the year ended 30 June 2020. 94 Joyce Corporation Ltd Annual Report 2020 94 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 18. INTANGIBLE ASSETS (CONTINUED) Allocation of goodwill Goodwill is allocated to cash-generating units which are based on the Consolidated Entity’s operating segments: Consolidated Bedshed Franchising segment Bedshed Stores segment (a) Kitchen Showrooms segment Online Auctions segment (b) Total goodwill 2020 $000 6,307 - 1,023 - 7,330 2019 $000 6,307 1,820 1,023 6,783 15,933 (a) Refer to ‘impairment of goodwill’ for movement during the Financial Year. The Bedshed Stores segment was impaired by an amount of $1.82 million (2019: $nil). (b) Refer to Note 7 in relation to the disposal of the Online Auctions segment and discontinued operation. The Online Auctions segment was impaired by an amount of $2.56 million (2019: $nil), prior to disposal of the balance of goodwill of $4.22 million on 17 June 2020. Impairment of goodwill 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 Showrooms segment Online Auctions segment (a) Pre –tax Discount Rate 2020 9.7% 9.7% 9.7% - Pre –tax Discount Rate 2019 10.7% 10.7% 10.7% 10.7% Sales Growth Rate 2020 2.0% 2.0% 5.0% - Sales Growth Rate 2019 5.0% 5.0% 5.0% 5.0% Expense Growth Rate 2020 1.5% 1.5% 1.5% - Expense Growth Rate 2019 1.5% 1.5% 1.5% 1.5% (a) Refer to Note 7 in relation to the disposal of the Online Auctions segment and discontinued operation. The Online Auctions segment was assessed in the year ended 30 June 2019 using the discounted cashflow method. For the year ended 30 June 2020, the fair value less cost of disposal method was used. 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 two to eight times earnings (Bedshed Stores 2, Franchising 3 and Kitchen Showrooms 8) before interest, taxation, depreciation and amortisation for the financial year ended 30 June 2020. Impairment of Goodwill for the financial year ended 30 June 2020 was $4.38 million (2019: $nil), due to changes in the estimates of future results and terminal value for the Bedshed Stores segment and the sale of the majority ownership of Lloyds Online Auctions Pty Ltd. Joyce Corporation Ltd Annual Report 2020 95 95 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 18. INTANGIBLE ASSETS (CONTINUED) Impact of possible changes in key assumptions Sensitivity analysis was conducted on all CGU’s, from this the Bedshed Franchising segment was identified as having the lowest headroom and is the only one reported. For the Bedshed Franchising segment: - - If the pre-tax discount rate applied was 10% higher than used in the Consolidated Entity’s estimates, then the Consolidated Entity would recognise an impairment of $nil. If the growth rate applied was 10% lower than used in the Consolidated Entity’s estimates, then the Consolidated Entity would recognise an impairment of $nil. The discount rate above which an impairment could occur is 12.96%, which is above the rate used in both FY19 and FY20. 19. 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. The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature. Unsecured liabilities Trade payables Sundry creditors Contract liabilities (a) Accruals and other payables Consolidated 2020 $000 2,227 35 7,980 2,532 12,774 2019 restated $000 3,771 98 6,351 3,977 14,197 (a) These are deposits from customers for goods and services to be provided by the Consolidated Entity after reporting date. 20. DIVIDEND PAYABLE Dividend payable at 30 June Consolidated 2020 $000 1,405 2019 $000 - The FY20 interim fully franked dividend of $1.40 million resolved on 25 February 2020 is payable on 25 September 2020, (deferred from 6 May 2020 due to the commercial uncertainty surrounding the COVID-19 pandemic). The Directors resolved that a FY20 final dividend of 2.7 cents per share, fully franked, be paid by Joyce Corporation Limited on 16 November 2020 to all shareholders registered as at the record date of 10 November 2020. 96 Joyce Corporation Ltd Annual Report 2020 96 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 21. 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. Provision for fixed assets used in KWB showrooms The provision relates to assets used in KWB’s retail kitchen and wardrobe showrooms and is reduced in value over five years and at the time of sale. Provision for employee benefits 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. 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 of corporate bonds at the reporting date, with terms to maturity and currency that match as closely as possible, the estimated future cash outflows. Provisions are comprised of the following: Current Make good provision Employee benefits Non-current Make good provision Employee benefits Consolidated 2020 $000 60 1,515 1,575 288 968 1,256 2019 restated $000 - 1,751 1,751 240 776 1,016 Joyce Corporation Ltd Annual Report 2020 97 97 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 21. PROVISIONS (CONTINUED) Provision for employee benefits (continued) Calculation of 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. Movement in provisions The movement in provisions during the Financial Year is set out in the table below. Opening balance at 1 July 2019 Additional / (amount released) Closing balance at 30 June 2020 22. LOANS AND BORROWINGS Current Bank loans Non-current Bank loans Total loans and borrowings Employee Benefits $000 2,528 (45) 2,483 Make good provision $000 240 108 348 Total $000 2,768 63 2,831 Consolidated 2020 $000 2019 restated $000 521 694 5,230 5,751 9,622 10,316 Secured liabilities and assets pledged as security 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 23 in relation to facility details. Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in the event of default. Refer to Note 9 in relation to lease liabilities. Compliance with loan covenants The Consolidated Entity has complied with the financial covenants of its borrowing facilities during the Financial Year. The financier assesses the financial covenants bi-annually based on the audited annual report and reviewed half-yearly report. There are no breaches of the facility as of the date of this report. 98 Joyce Corporation Ltd Annual Report 2020 98 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 23. FINANCING FACILITIES AVAILABLE At reporting date, the following financing facilities had been negotiated and were available: Total facilities: CBA market rate loan 1 CBA market rate loan 2 CBA multi option facility St George commercial bill NAB business loan CBA business loan Total available facilities Facilities used at reporting date: CBA market rate loan 1 CBA market rate loan 2 CBA multi option facility St George commercial bill NAB business loan CBA business loan Total used facilities Facilities unused at reporting date: CBA market rate loan 1 CBA market rate loan 2 CBA multi option facility St George commercial bill NAB business loan CBA business loan Total unused facilities Key terms of finance facilities Facility CBA market rate loan 1 CBA market rate loan 2 CBA multi option facility NAB business loan Consolidated 2020 $000 4,751 1,000 415 - 4,000 - 10,166 4,751 1,000 - - - - 5,751 - - 415 - 4,000 - 4,415 2019 restated $000 - - - 5,000 - 5,600 10,600 - - - 4,716 - 5,600 10,316 - - - 284 - - 284 Loan term 2 years 2 years 2 years 1 year Expiry date 27/09/2021 27/09/2021 27/09/2021 31/07/2020 (a) (a) Refer to Note 32 in relation to the extension of the expiry date after reporting date. Joyce Corporation Ltd Annual Report 2020 99 99 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 24. ISSUED CAPITAL 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) Fully paid ordinary shares issued during the year Closing share capital Movement in ordinary shares on issue: At 1 July 2019 Final payment on partly paid ordinary shares (a) Fully paid ordinary shares issued during the year At 30 June 2020 Consolidated 2020 $000 18,090 190 18,280 2019 $000 18,090 - 18,090 Number 27,968,255 131,579 28,099,834 Consolidated $000 18,090 190 18,280 Unmarketable share sale facility During the Financial Year, the Company offered a share sale facility of ordinary shares for holders of unmarketable parcels, to assist those holders to sell their shares without having to use a broker or pay brokerage. The final number of shares sold under the facility was 17,274 shares from 89 holders, which represents approximately 11.6% of the total number of shareholders who held shares in the company prior to disposal of the unmarketable parcels of shares. 25. CASH FLOW STATEMENT RECONCILIATIONS Reconciliation of non-cash investing and financing activities Consolidated 2020 $000 - 2019 restated $000 377 Acquisition of property, plant and equipment by means of finance leases Non-cash investing and financing activities disclosed in other notes are: - Acquisition of right-of-use assets, refer to Note 9. 100 Joyce Corporation Ltd Annual Report 2020 100 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 25. CASH FLOW STATEMENT RECONCILIATIONS (CONTINUED) Reconciliation of net debt Cash and cash equivalents Loans and borrowings - repayable within one year Loans and borrowings - repayable after one year Net debt Cash and liquid investments Gross debt - floating Net debt Consolidated 2020 $000 10,643 (521) (5,230) 4,892 10,643 (5,751) 4,892 2019 restated $000 6,975 (694) (9,622) (3,341) 6,975 (10,316) (3,341) Reconciliation of net cash flow to movement in net debt: Net debt at beginning of year (3,341) (4,276) Increase / (decrease) in cash Net repayment of / (increase) in short-term loans Net repayment of / (increase) in long-term loans Net repayment of / (increase) under finance leases Other non-cash movements Movements in net debt 3,668 - 4,565 - - 8,233 760 - 175 - - 935 Net debt at end of year 4,892 (3,341) Reconciliation of lease liability Current lease liability Loans and borrowings - repayable within one year Net debt Reconciliation of net cash flow to movement in lease liability: Lease liability at beginning of year Lease (payments) in cash s) in cash Interest Lease additions Variable lease payment adjustments and modifications to leases Leases associated with discontinued operations Movements in lease liabilities Consolidated 2020 $000 3,370 8,587 11,957 2019 restated $000 4,401 10,069 14,470 14,470 15,078 (3,711) 583 2,754 (533) (1,606) (2,513) (4,334) 783 2,666 277 - (608) Lease liabilities at end of year 11,957 14,470 Joyce Corporation Ltd Annual Report 2020 101 101 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 26. CAPITAL AND LEASING COMMITMENTS There have been significant changes to commitments during the Financial Year. These are driven by the following changes: Retail Kitchen Showrooms segment: - One new showroom lease; - - The renewal of 3 leases for existing showrooms; and The extension of 8 leases for existing showrooms related to agreements reached for rent assistance during COVID-19 negotiations. There were no significant changes to capital and leasing commitments in the Retail Bedding and Franchising segments. 27. 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: - - - The likelihood of the guaranteed party defaulting in a year period; The proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and The maximum loss exposed if the guaranteed party were to default. At 30 June 2020, the Consolidated Entity had entered into the following guarantees: (a) Bedshed Franchise and Bedshed Retail Stores have bank guarantees relating to payment of lease obligations as at 30 June 2020 for $0.83 million (30 June 2019: $0.68 million). (b) KWB Group has retail lease bank guarantees held against the equity in the 97 Trade Street, Lytton property as at 30 June 2020 of $0.62 million (30 June 2019: $0.55 million). No provision has been made in the financial statements in respect of these contingencies as the possibility of a probable outflow under these guarantees is considered remote. The KWB Group also has cash backed rental deposits supporting showroom leases as at 30 June 2020 of $98,000 (30 June 2019: $190,000). Refer to Note 14 in relation to the cash-backed rental deposits. 102 Joyce Corporation Ltd Annual Report 2020 102 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 28. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS Fair value hierarchy The Consolidated Entity uses various methods in estimating the fair value of instruments. The methods comprise: 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. The fair value measurement, valuation technique and inputs used in fair valuing the non-financial instruments are set out as follows: Class of property Property and buildings Office and warehouse, Osborne Park WA Fair value hierarchy Fair value June 2020 $000 Level 2 5,500 Valuation technique Key unobservable inputs Range of unobservable inputs Independent expert valuation Capitalisation rate 5.25%-5.75% Investment property Office and factory, Lytton QLD Level 2 9,623 Management valuation Capitalisation rate 7.75% The Consolidated Entity has a number of financial instruments which are not measured at fair value in the Statement of Financial Position. The carrying amount of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. For the loans and borrowings, the fair values are not materiality different to their carrying values, since their interest payable on these borrowings are wither close to market rates. Joyce Corporation Ltd Annual Report 2020 103 103 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 29. SHARE-BASED PAYMENTS (i) Starball Pty Ltd share-based payment In the 2019 Annual General Meeting on 25 November 2019, the members approved the issue of 131,579 fully paid ordinary shares to Starball Pty Ltd. Starball Pty Ltd is an entity controlled by Anthony Mankarios, the former Joyce Corporation Ltd Executive Director who held that position for nine years. In recognition of the effort that Anthony Mankarios has put into the Consolidated Entity over that period, the members resolved it was appropriate to issue 131,579 ordinary shares in the Company to Starball Pty Ltd. The shares rank equally with the ordinary shares already on issue by the Company. No funds were received or applied in the issue, as the shares were issued in recognition of Anthony Mankarios’ contribution to the Company. The fair value of the shares is determined as per the spot rate on grant date, being $1.44 on 25 November 2019. Recognition and measurement The cost of the share-based payment is recognised, together with a corresponding increase in equity, in the period in which the shares were issued (December 2019). An expense of $189,474 was recognised in the Consolidated Statement of Profit or Loss. (ii) Key Management Personnel performance rights The performance rights offered are designed to provide long-term incentives for Key Management Personnel to deliver long-term shareholder returns. Under the agreement, participants are granted options which only vest if certain performance standards are met. Details of the performance rights issued are summarised below. Beneficiary Number of Rights Granted Fair Value per right Total fair value Commencement date Expected vesting date Vesting conditions No. of rights expected to vest Expense recorded at reporting date Keith Smith (a) 137,032 $1.55 $212,400 Gavin Culmsee 76,387 $1.55 $118,400 1 Jul 2019 30 June 2022 (3 years) Profit metric over 3 years as described below. Nil $Nil 38,194 $19,833 (a) Refer to Note 32 in relation to significant events after reporting date. 104 Joyce Corporation Ltd Annual Report 2020 104 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 29. SHARE-BASED PAYMENTS (CONTINUED) (ii) Key Management Personnel performance rights (continued) The expense recognised in respect of the performance rights is based on the Board’s assessment of the probability that certain milestone earnings will be achieved, measured cumulatively over the three-year period commencing 1 July 2019 and ending 30 June 2022. There are three milestones: “threshold”; “target”; and “stretch and above”. Meeting these milestones results in, respectively, 25%, an additional 25%, and the final 50% of the rights vesting into ordinary shares. Keith Smith - 137,032 performance rights (a) Consolidated Entity net profit after tax cumulative over 3 years greater than ($000): Threshold Target Stretch and above $32,184 $35,760 $42,912 No. vesting (%) Expected Probability of occurring (%) Total number expected to vest 25% 25% 50% 0% 0% 0% Total expense expected to be recorded over the three-year vesting period Nil Nil Nil $Nil (a) In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. Gavin Culmsee - 76,387 performance rights Bedshed EBIT cumulative over 3 years greater than ($000): Threshold Target Stretch and above $6,570 $7,300 $8,760 No. vesting (%) 25% 25% 50% Expected Probability of occurring (%) 100% 100% 0% Total number expected to vest 19,097 19,097 Nil Total expense expected to be recorded over the three-year vesting period $59,200 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. Joyce Corporation Ltd Annual Report 2020 105 105 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 30. RELATED PARTY DISCLOSURES Ultimate controlling entity The ultimate controlling entity of the Consolidated Entity is Joyce Corporation Ltd. Shares held by Joyce Corporation Ltd The consolidated financial statements include the financial statements of Joyce Corporation Ltd and the subsidiaries listed in the following table. Joyce International Pty Ltd Sierra Bedding Pty Ltd Bedshed Franchising Pty Ltd Joyce Investments 1 Pty Ltd (previously named Joyce Industries Pty Ltd) Joyce Investments 2 Pty Ltd Joyce Investments 3 Pty Ltd Joyce Investments 4 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 % Equity interest Australia Australia Australia 2020 100 100 100 2019 100 100 100 Australia 100 100 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 51 51 51 51 51 51 - - - - - - - 100 51 51 51 51 51 51 45 56 56 56 (a) (b) (b) (b) (c) (c) (c) (c) (a) These entities were renamed on 29 July 2020. (b) These entities were incorporated on 17 June 2020. (c) These entities form the Lloyds Online Auctions Pty Ltd consolidated group. Joyce Corporation Ltd sold its majority ownership of Lloyds Online Auctions Pty Ltd on 17 June 2020. Refer to Note 7 in relation to the transaction details. 106 Joyce Corporation Ltd Annual Report 2020 106 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 30. RELATED PARTY DISCLOSURES (CONTINUED) (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. During the Financial Year the entities of the Consolidated Entity entered into the following transactions with related parties who are not members of the group: Key Management Personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments (Note 29) Amounts owing at 30 June 2020 2020 $ 2019 $ 2,743,365 2,518,804 211,627 65,242 209,307 195,350 95,097 - 3,229,541 2,809,251 As at 30 June 2020 an amount of $0.04 million (2019: $nil) was owing to Directors and Key Management Personnel. As a result of the COVID-19 pandemic, Directors, KMP and Executive of the Consolidated Entity agreed to modify their remuneration arrangement to defer 50% of their director fee and/or salary until the trading environment normalised. In each case, the fee and/or salary deferred during the COVID-19 pandemic period will be aggregated and paid to the KMP or Executive once the trading environment has normalised. Other transactions Dividends paid to KMP 2020 $ 2019 $ 600,625 1,423,376 Other than the items disclosed above, there are no other material related party transactions during the Financial Year. Joyce Corporation Ltd Annual Report 2020 107 107 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 30. RELATED PARTY DISCLOSURES (CONTINUED) (b) Non-controlling interest The effect on the equity attributable to the owners of Joyce Corporation Ltd during the year is as follows: Carrying amount of non-controlling interests acquired Transactions with non-controlling interests Profits attributable to non-controlling interests Carrying value of non-controlling interests disposed (Note 7) Dividends paid to non-controlling interest Closing carrying amount of non-controlling interest 2020 $000 2,868 - 3,117 (862) (1,465) 3,658 2019 restated $000 2,860 458 3,159 - (3,609) 2,868 Acquisitions On 22 January 2019, Joyce Corporation Ltd acquired an additional 5% of the issued capital in Lloyds Online Auctions Pty Ltd for $1.15 million. The consideration for the acquisition was offset against the loan owed by Lloyds Online Auctions Pty Ltd to the Company. Immediately prior to the purchase, the carrying amount of the existing 49% non-controlling interest was $1.06 million. Disposals Refer to Note 7 in relation to the Consolidated Entity’s discontinued operations. 108 Joyce Corporation Ltd Annual Report 2020 108 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 30. RELATED PARTY DISCLOSURES (CONTINUED) (b) Non-controlling interest (continued) 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-group 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 2020 $000 6,820 (13,122) (6,302) 22,769 (9,001) 13,768 2019 restated $000 6,129 (12,214) (6,085) 23,818 (14,993) 8,825 7,466 2,740 3,658 1,343 2020 $000 - - - - - - - - 2019 restated $000 2,619 (3,456) (837) 5,558 (1,255) 4,303 3,466 1,525 Statement of financial performance KWB Consolidated Group Lloyds Consolidated Group (including discontinued operations) Revenue Profit / (loss) for the year Total comprehensive income 2020 $000 67,498 7,717 7,717 2019 restated $000 64,964 6,335 6,335 2020 $000 15,595 (1,510) (1,510) Profit allocated to NCI 3,781 3,104 (664) Dividends paid to NCI (1,465) (3,609) - 2019 restated $000 19,499 126 126 55 - Statement of cash flow KWB Consolidated Group Lloyds Consolidated Group Cash flow from operating activities Cash flow (used in) investing activities Cash flow (used in) financing activities Net increase / (decrease) in cash and cash equivalents 2020 $000 11,769 (702) (10,940) 2019 restated $000 10,837 (1,507) (9,363) 127 (33) 2020 $000 1,147 (198) (309) 640 2019 restated $000 1,511 (1,078) (413) 20 Joyce Corporation Ltd Annual Report 2020 109 109 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 31. DIVIDENDS Dividends declared or paid during the Financial Year are as follows: Dividends paid or payable Ordinary shares: FY18 final fully franked dividend of 6.0 cents per share FY19 interim fully franked dividend of 5.0 cents per share FY19 second interim fully franked dividend of 1.7 cents per share FY19 final fully franked dividend of 5.0 cents per share FY20 interim fully franked dividend of 5.0 cents per share (a) Total dividends declared or paid 2020 $000 - - - 1,397 1,404 2,801 2019 $000 1,678 1,399 476 - - 3,553 (a) The FY20 interim fully franked dividend of 5.0 cents per share resolved on 25 February 2020 is payable on 25 September 2020, (deferred from 6 May 2020 due to the commercial uncertainty surrounding the COVID-19 pandemic). The Directors resolved that a FY20 final dividend of 2.7 cents per share, fully franked, be paid by Joyce Corporation Limited on 16 November 2020 to all shareholders registered as at the record date of 10 November 2020. Franking account balance The amount franking credits available for subsequent financial years from continued operations are: Franking credits available for subsequent financial years at 30% 2020 $000 5,539 Consolidated Parent entity 2019 restated $000 2020 $000 2019 $000 3,639 2,384 2,330 110 Joyce Corporation Ltd Annual Report 2020 110 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 32. SIGNIFICANT AFTER REPORTING DATE EVENTS The FY20 interim fully franked dividend of 5.0 cents per share resolved on 25 February 2020 is payable on 25 September 2020, (deferred from 6 May 2020 due to the commercial uncertainty surrounding the COVID-19 pandemic). In July 2020, KWB Group Pty Ltd updated the expiry date of its bank guarantee facility and business markets loan held with the National Australia Bank to 31 July 2021. All other limits and terms remain the same. In the ASX announcement dated 20 July 2020, the Company communicated the planned transition of the Chair. Michael Gurry announced that he will be standing down as Chair at this year’s Annual General Meeting in November. Jeremy Kirkwood will take over as the Joyce Chair following the 2020 Annual General Meeting. In the ASX announcement dated 5 August 2020, the Company communicated that Keith Smith has advised his intention to step down as Joyce CEO (and Group Company Secretary) later in the 2020 year. In August 2020, Derek Fowler left as CFO at the end of his fixed term contract. The full impact of the COVID-19 pandemic continues to evolve at the date of this report. The Consolidated Entity is therefore uncertain as to the full impact the pandemic will have on the wider economy and as a result on its financial condition, liquidity, and future results of operations. In August 2020 the 10 Bedshed stores located in Melbourne closed to the public for 6 weeks as per the government directive, they have maintained a presence online. The Directors resolved that a FY20 final dividend of 2.7 cents per share, fully franked, be paid by Joyce Corporation Limited on 16 November 2020 to all shareholders registered as at the record date of 10 November 2020. Management is actively monitoring the global and national situation and its impact on the Consolidated Entity’s financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 pandemic and government’s responses to curb its spread, at this point the Consolidated Entity is not able to estimate the effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity for future financial years. 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 the Consolidated Entity’s operations, the results of those operations, or the Consolidated Entity’s state of affairs. 33. AUDITOR’S REMUNERATION Auditors of the Consolidated Entity Audit or review of the financial statements: Group Total audit or review of the financial statements Non-audit services: Consulting services Total non-audit services Total services provided by BDO Consolidated 2020 $000 2019 $000 118 118 10 10 128 115 115 - - 115 Joyce Corporation Ltd Annual Report 2020 111 111 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 34. RECONCILIATION OF NET PROFIT AFTER TAX TO NET CASH FLOWS FROM CONTINUING OPERATIONS Reconciliation of net profit / (loss) after tax to the net cash flows from continuing operations Net profit after taxation Adjustments for: Depreciation and amortisation Issue of shares Impairment of Howe St Impairment of goodwill Share-based payment Changes in assets and liabilities: Decrease in inventories (Increase) in trade and other receivables (excluding receivable for discontinued operations) (Increase) / decrease in other assets Decrease / (increase) in net deferred tax assets and liabilities (Decrease) / increase in trade and other payables Increase / (decrease) in provisions Consolidated 2020 $000 2019 restated $000 2,674 6,385 4,606 190 1,149 4,377 20 172 (282) (148) (437) (87) 1,123 4,186 - - - - 758 (213) 37 (629) 2,168 126 Net cash flows from operating activities 13,357 12,818 112 Joyce Corporation Ltd Annual Report 2020 112 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 35. 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 Reserve Retained earnings Net equity b. Financial performance Profit for the year Total comprehensive profit As at 30 June 2020 $000 2,356 26,701 29,057 2,560 5,233 7,793 2019 restated $000 1,001 23,726 24,727 1,136 4,024 5,160 21,264 19,567 18,280 20 2,964 21,264 18,090 - 1,477 19,567 Year ended 30 June 2020 $000 2,817 2,817 2019 restated $000 2,962 2,962 c. Guarantees entered into by the parent entity in relation to the debts of its subsidiaries No such guarantees existed at 30 June 2020 (2019: $nil). d. Contingent liabilities of the parent entity No contingent liabilities existed within the parent entity as at 30 June 2020 (2019: $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 2020 (2019: $nil). Joyce Corporation Ltd Annual Report 2020 113 113 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 36. 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 year ended 30 June 2020. They have not been adopted in preparing the financial statements for the financial year ended 30 June 2020. 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; and - AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material. 114 Joyce Corporation Ltd Annual Report 2020 114 ANNUAL REPORT 2020JOYCE CORPORATION LTD Annual financial REPORT YEAR ENDED 30 JUNE 2020 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 2020 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 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 section 295(5) of the Corporations Act 2001. M A Gurry Chair Perth, 27 August 2020 Joyce Corporation Ltd Annual Report 2020 115 115 ANNUAL REPORT 2020JOYCE CORPORATION LTD auditor’s report YEAR ENDED 30 JUNE 2020 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 St at ion St reet Subiaco, WA 6008 PO Box 700 West Pert h WA 6872 Aust ralia INDEPENDENT AUDITOR'S REPORT To t he members of Joyce Corporat ion Lt d Report on t he Audit of t he Financial Report Opinion We have audit ed t he f inancial report of Joyce Corporat ion Lt d (t he Company) and it s subsidiaries (t he Group), which comprises t he consolidated st at ement of financial posit ion as at 30 June 2020, t he consolidat ed st at ement of profit or loss, t he consolidat ed st at ement of comprehensive income, t he consolidat ed st at ement of changes in equity and t he consolidat ed st at ement of cash f lows for t he year t hen ended, and not es t o t he financial report , including a summary of significant account ing policies and t he direct ors’ declarat ion. In our opinion t he accompanying financial report of t he Group, is in accordance wit h t he Cor porat ions Act 2001, including: (i) Giving a t rue and fair view of t he Group’ s financial posit ion as at 30 June 2020 and of it s financial performance for t he year ended on t hat date; and (ii) Complying wit h Aust ralian Account ing St andards and t he Cor porat ions Regulat ions 2001. Basis for opinion We conduct ed our audit in accordance wit h Aust ralian Audit ing St andards. Our responsibilit ies under t hose st andards are furt her described in t he Audit or’ s responsibilit ies for t he audit of t he Financial Report sect ion of our report . We are independent of t he Group in accordance wit h t he Corporat ions Act 2001 and the et hical requirement s of t he Account ing Professional and Et hical St andards Board’ s APES 110 Code of Et hics f or Prof essional Account ant s (including Independence St andards) (t he Code) t hat are relevant t o our audit of t he financial report in Aust ralia. We have also fulfilled our ot her et hical responsibilit ies in accordance wit h t he Code. We confirm t hat t he independence declarat ion required by t he Corporat ions Act 2001, which has been given to t he direct ors of t he Company, would be in the same t erms if given t o t he direct ors as at t he t ime of t his audit or’ s report . We believe t hat t he audit evidence we have obt ained is sufficient and appropriate t o provide a basis for our opinion. Key audit mat t ers Key audit mat t ers are t hose mat t ers t hat , in our professional j udgement , were of most signif icance in our audit of t he financial report of t he current period. These mat t ers were addressed in t he cont ext of our audit of t he financial report as a whole, and in forming our opinion t hereon, and we do not provide a separate opinion on t hese matt ers. BDO Audit (WA) Pt y Lt d ABN 79 112 284 787 is a member of a nat ional associat ion of independent ent it ies which are all members of BDO Aust ralia Lt d ABN 77 050 110 275, an Australian company limit ed by guarant ee. BDO Audit (WA) Pt y Lt d and BDO Aust ralia Ltd are members of BDO Int ernat ional Lt d, a UK company limit ed by guarant ee, and form part of t he int ernat ional BDO network of independent member firms. Liabilit y limit ed by a scheme approved under Professional St andards Legislat ion. 116 ANNUAL REPORT 2020JOYCE CORPORATION LTD auditor’s report YEAR ENDED 30 JUNE 2020 Adoption of AASB 16 Leases Key audi t mat t er How t he mat t er was addr essed i n our audi t On 1 July 2019, the Group adopted AASB 16 Leases Our procedures included, but were not limit ed t o, t he (“ AASB 16” ) which replaced AASB 117 Leases (“ AASB following: 117” ). As disclosed in notes 2, 4 and 9 in t he financial st at ement s, t he Group applied the retrospective met hod on adopt ion. We considered t he adopt ion of AASB 16 t o be a key audit mat t er due t o t he quantum of t he balances recognised, it s significance t o t he Group, and t he complexit ies inherent in t he new account ing st andard, including: · · · · Det ermining whether cont ract ual arrangement s const itut e a lease under t he st andards; Det ermining the appropriate discount rat e t o be applied in the calculat ion of right -of-use asses and lease liabilit ies; The likelihood of exercise of any lease renewal options; and Det ermining whether any rental concessions received meet the pract ical expedient requirement s. · · · · · · Assessing t he appropriateness of key assumpt ions applied in calculat ing the right - of-use asset s and lease liabilit y, including discount rates applied and the expected lease period; Verifying t he accuracy of t he underlying lease calculat ions by agreeing a sample of leases t o supporting document at ion; Assessing t he mat hemat ical accuracy of t he AASB 16 calculat ions for each lease sampled t hrough recalculat ion of t he expect ed right - of-use asset and lease liability; Assessing t he accuracy of t he related int erest and depreciat ion expense; Assessing t he underlying nat ure of any rent al concessions grant ed and t he account ing t reat ment applied; and Assessing t he appropriateness of t he disclosures in notes 2, 4 and 9 in the financial st at ement s. 117 ANNUAL REPORT 2020JOYCE CORPORATION LTD auditor’s report YEAR ENDED 30 JUNE 2020 Account ing for t he disposal of subsidiary Key audi t mat t er How t he mat t er was addr essed i n our audi t During t he year ended 30 June 2020, t he Group disposed Our procedures included, but were not limit ed t o, t he of it s int erest s in it s controlled ent ity, Lloyds Online following: Auct ions Pt y Lt d and it s controlled ent it ies (“ Lloyds” ). As disclosed in notes 4 and 7 in t he financial st atement s, t he Group complet ed t he disposal in t wo t ransact ions (“ t ransact ions” ) and present ed t he business unit ’ s financial performance as a discontinued operat ion. In addit ion, under t he transact ion t erms, considerat ion is receivable by t he Group under a deferred payment arrangement . We considered account ing for t he disposal of Lloyds t o be a key audit mat ter due t o: · · · The significance of t he t otal balances disposed; The significance of t he receivable recognised at 30 June 2020 in relat ion t o the deferred payment arrangement ; The det erminat ion of whet her t he t wo disposal t ransact ions were complet ed for a common commercial outcome and t herefore eligible for recognition as one t ransaction under t he requirement s of AASB 10 Consolidat ed Financial St at ement s (“ AASB 10” ); and · The level of procedures undert aken t o evaluate · · · · · · · Reviewing key execut ed transact ion document s t o understand the key t erms and conditions of t he t ransactions; Agreeing t he cash considerat ion received t o respect ive bank statement s; Evaluat ing management ’ s assessment of t he considerat ion received for t he disposal, t he carrying amount of t he net asset s sold, including any non-cont rolling int erest s, and t he gain on disposal; Evaluat ing t he appropriateness of t he t ransact ions t o be recognised as a single account ing t ransact ion; Evaluat ing t he reasonableness of t he discontinued operat ion crit eria sat isfact ion det ermined by management ; Evaluat ing t he reasonableness of management ’ s expected credit loss assessment for the receivable recognised; and Assessing t he appropriateness of t he management ’ s application of t he requirement s of disclosures in notes 4 and 7 in t he financial AASB 5 Non-Current Asset s Held-f or-Sale and st at ement s. Discont inued Operat ions (“ AASB 5” ). 118 ANNUAL REPORT 2020JOYCE CORPORATION LTD auditor’s report YEAR ENDED 30 JUNE 2020 Carrying Value of Goodwill and Other Assets Key audit matter How the matter was addressed in our audit The Group is required under Australian Accounting Our procedures included, but were not limited to the Standard AASB 136 Impairment of Assets (“AASB 136”), to following: perform an annual impairment test of the carrying value of goodwill.  Evaluating the Group’s categorisation of CGUs and the allocation of goodwill and For the year ended 30 June 2020, impairment charges other assets to the carrying value of the have been recognised by the Group. CGUs based on our understanding of the As set out in notes 4, 16 and 18 in the financial Group’s businesses; and statements, the Directors’ assessment of the  Assessing the appropriateness of the recoverability of goodwill using the value in use (“VIU”) disclosures in notes 4, 16 and 18 in the methodology requires the exercise of significant financial statements. judgement, in particular in estimating future growth rates, discount rates and the expected cash flows of cash generating units (“CGUs”) to which the goodwill has been allocated. In addition, where management applied the fair value less cost to sell (“FVLCS”) methodology, significant estimation is required. For CGUs and individual assets supported by a VIU model, our procedures included, but were not limited to the following:  Evaluating management’s ability to accurately forecast cash flows by assessing the precision of the prior year forecasts against actual outcomes;  Comparing the Group’s forecast cash flows to the board approved budget;  Using our valuation specialists to assess management’s discount rates based on external data available;   Performing sensitivity analysis on the growth and discount rates; and Testing the mathematical accuracy of the impairment models. For CGUs and individual assets supported by valuations at a FVLCS, our procedures included, but were not limited to the following:   Agreeing the FVLCS of particular CGUs and business units to underlying valuations; and Assessing the Directors’ valuations at reporting date, as supported by external independent valuations for reasonableness. 119 ANNUAL REPORT 2020JOYCE CORPORATION LTD auditor’s report YEAR ENDED 30 JUNE 2020 Ot her informat ion The direct ors are responsible for t he ot her informat ion. The ot her informat ion comprises t he informat ion in t he Group’ s annual report for t he year ended 30 June 2020, but does not include t he financial report and the auditor’ s report t hereon. Our opinion on t he financial report does not cover t he ot her informat ion and we do not express any form of assurance conclusion t hereon. In connect ion wit h our audit of t he financial report , our responsibilit y is t o read t he ot her informat ion and, in doing so, consider whet her t he ot her informat ion is mat erially inconsist ent wit h the financial report or our knowledge obt ained in t he audit or ot herwise appears t o be materially misst at ed. If , based on t he work we have performed, we conclude t hat t here is a mat erial misst at ement of t his ot her informat ion, we are required t o report t hat fact . We have not hing t o report in t his regard. Responsibilities of t he direct ors for t he Financial Report The direct ors of t he Company are responsible for t he preparat ion of t he f inancial report t hat gives a t rue and fair view in accordance wit h Aust ralian Account ing St andards and t he Corpor at ions Act 2001 and for such int ernal cont rol as t he direct ors det ermine is necessary t o enable t he preparat ion of t he financial report t hat gives a t rue and fair view and is free f rom mat erial misst at ement , whet her due t o fraud or error. In preparing t he financial report , t he direct ors are responsible f or assessing t he ability of t he group t o cont inue as a going concern, disclosing, as applicable, mat t ers relat ed to going concern and using t he going concern basis of account ing unless t he direct ors eit her int end t o liquidat e t he Group or t o cease operat ions, or has no realist ic alt ernat ive but t o do so. Audit or’ s responsibilit ies for t he audit of t he Financial Report Our obj ect ives are t o obtain reasonable assurance about whet her t he financial report as a whole is free from mat erial misst at ement , whet her due t o fraud or error, and t o issue an audit or’ s report t hat includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarant ee t hat an audit conduct ed in accordance wit h t he Aust ralian Audit ing St andards will always det ect a mat erial misst at ement when it exist s. Misst at ement s can arise f rom fraud or error and are considered mat erial if, individually or in t he aggregat e, t hey could reasonably be expect ed t o influence t he economic decisions of users t aken on t he basis of t his financial report . A furt her descript ion of our responsibilit ies for t he audit of t he financial report is locat ed at the Audit ing and Assurance St andards Board websit e (ht t p:/ / www.auasb.gov.au/ Home.aspx) at : ht t ps:/ / www.auasb.gov.au/ admin/ file/ cont ent 102/ c3/ ar1_2020.pdf This descript ion forms part of our audit or’ s report . 120 ANNUAL REPORT 2020JOYCE CORPORATION LTD auditor’s report YEAR ENDED 30 JUNE 2020 Report on t he Remunerat ion Report Opinion on t he Remunerat ion Report We have audit ed t he Remunerat ion Report included in pages 25 t o 38 of t he direct ors’ report for t he year ended 30 June 2020. In our opinion, t he Remunerat ion Report of Joyce Corporat ion Lt d, for t he year ended 30 June 2020, complies wit h sect ion 300A of t he Corporat ions Act 2001. Responsibilities The direct ors of t he Company are responsible for t he preparat ion and present at ion of t he Remunerat ion Report in accordance wit h sect ion 300A of t he Corporat ions Act 2001. Our responsibilit y is t o express an opinion on t he Remunerat ion Report , based on our audit conduct ed in accordance wit h Aust ralian Audit ing St andards. BDO AUDIT (WA) PTY LTD Neil Smit h Director Pert h, 27 August 2020 121 ANNUAL REPORT 2020JOYCE CORPORATION LTD asx additional information YEAR ENDED 30 JUNE 2020 ASX ADDITIONAL INFORMATION AS AT 27 AUGUST 2020 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 xx August 2020 1 - 1,000 1,001 – 5,000 5,001 - 10,000 10,001 – 100,000 100,001 – and over Rounding Total (b) Substantial shareholdings Holders 192 228 108 176 30 Fully Paid Ordinary Shares 93,434 614,214 878,398 5,161,594 21,352,194 734 28,099,834 % 0.33 2.19 3.13 18.37 75.99 -0.01 100.00 The number of shares held or controlled at the report date by substantial shareholders were as follows: Ordinary Shareholder Daniel Smetana (a) UFBA – John Roy Westwood Total Fully Paid Ordinary Shares 11,171,579 2,350,000 13,521,579 % 39.76 8.36 48.12 (a) As at 27 August 2020 Daniel Smetana has a direct interest in 10,254,129 fully paid ordinary shares (2019: 10,254,129). (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. 122 Joyce Corporation Ltd Annual Report 2020 117 ANNUAL REPORT 2020JOYCE CORPORATION LTD asx additional information YEAR ENDED 30 JUNE 2020 ASX ADDITIONAL INFORMATION (CONTINUED) AS AT 27 AUGUST 2020 (d) 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 DONALD TEO DANIEL SMETANA STARBALL PTY LTD VANWARD INVESTMENTS LIMITED DANIEL ALEXANDER SMETANA TREASURE ISLAND HIRE BOAT COMPANY PTY LTD KEITH KNOWLES CONARD HOLDING PTY LTD J P MORGAN NOMINEES AUSTRALIA PTY LIMITED MARTEHOF PTY LTD MAN INVESTMENTS (NSW) PTY LTD EPIC TRUSTEES LIMITED FELIX SMETANA DMX CAPITAL PARTNERS LIMITED FLINGMO PTY LTD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Totals: Top 20 holders of ORDINARY FULLY PAID SHARES Total Remaining Holders Balance Fully paid Ordinary Shares 7,711,568 2,328,000 1,948,312 1,000,000 990,233 990,000 734,022 665,610 607,474 1.60 563,726 504,291 354,501 347,940 220,005 213,800 207,292 201,695 190,050 174,362 167,106 20,119,987 7,979,847 % 27.44 8.28 6.93 3.56 3.52 3.52 2.61 2.37 2.16 2.01 1.79 1.26 1.24 0.78 0.76 0.74 0.72 0.68 0.62 0.59 71.60 28.40 Joyce Corporation Ltd Annual Report 2020 118 123 ANNUAL REPORT 2020JOYCE CORPORATION LTD asx additional information YEAR ENDED 30 JUNE 2020 ASX ADDITIONAL INFORMATION (CONTINUED) AS AT 27 AUGUST 2020 (e) Secretary Keith Smith Anita Hollenberg Group Company Secretary Company Secretary (f) Registered Office 75 Howe Street Osborne Park, WA 6017 Tel: +61 8 9445 1055 (g) 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 (h) Auditors BDO Audit (WA) Pty Ltd 38 Station Street Subiaco, WA 6008 Tel: +61 8 6382 4600 124 Joyce Corporation Ltd Annual Report 2020 119 ANNUAL REPORT 2020JOYCE CORPORATION LTD 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

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