National Tyre & Wheel
Annual Report 2023

Plain-text annual report

ANNUAL REPORT 2023 NTAW’s vision is going further to help our businesses & customers win iii Contents Chairman’s letter Managing Director’s report Director’s report Auditor’s independence declaration Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Independent auditor’s report Shareholder information Corporate directory iii iv vi 2 20 21 22 23 24 25 72 73 77 79 Chairman’s letter Dear Shareholders The 2023 financial year has been one of contrasting halves. Your Board is able to report that your Company achieved a full year operating net profit after tax and before amortisation of $8.0 million for the 2023 financial year (2022: $15.5 million), with $6.6 million being generated in the second half Dear Shareholders of the year. The 2023 financial year has been one of contrasting halves. Your Board is able to report that your Company achieved a Your Company entered the 2023 financial year in difficult economic circumstances including full year operating net profit after tax and before amortisation of $8.0 million for the 2023 financial year (2022: $15.5 substantial increases in cost of goods and freight, as well as a disorderly supply chain environment. million), with $6.6 million being generated in the second half of the year. These factors transitioned to a positive reversal during the year, with lower supplier prices, lower international freight costs and a less erratic supply chain. This, combined with initiatives undertaken Your Company entered the 2023 financial year in difficult economic circumstances including substantial increases in by management, resulted in the improved earnings in the second half of the financial year. cost of goods and freight, as well as a disorderly supply chain environment. These factors transitioned to a positive reversal during the year, with lower supplier prices, lower international freight costs and a less erratic supply chain. Your Company restructured its Australian commercial truck and bus fleet tyre business with the This, combined with initiatives undertaken by management, resulted in the improved earnings in the second half of Tyreright network (comprising company owned and licensee stores) and the Black Rubber business the financial year. partnering to become the primary supplier of new and retreaded tyres, as well as tyre management Your Company restructured its Australian commercial truck and bus fleet tyre business with the Tyreright network services, to the Group’s commercial truck and bus fleet customers. Black Rubber’s partnership with (comprising company owned and licensee stores) and the Black Rubber business partnering to become the primary Michelin to establish new commercial retail service centres is another important element of our supplier of new and retreaded tyres, as well as tyre management services, to the Group’s commercial truck and pursuit of growth in this sector. bus fleet customers. Black Rubber’s partnership with Michelin to establish new commercial retail service centres is another important element of our pursuit of growth in this sector. As the largest independent tyre and wheel importer and wholesale distributor in Australia and New Zealand, your Company understands that success depends on providing an industry leading As the largest independent tyre and wheel importer and wholesale distributor in Australia and New Zealand, your customer experience and to that end, is constantly developing its market offering through significant Company understands that success depends on providing an industry leading customer experience and to that end, advancement of its systems, facilities and human resources. is constantly developing its market offering through significant advancement of its systems, facilities and human resources. To preserve cash to invest in working capital requirements, reduce debt levels and fund necessary projects, no dividend was declared for the 2023 financial year. Dividends in the 2024 financial year To preserve cash to invest in working capital requirements, reduce debt levels and fund necessary projects, no dividend was declared for the 2023 financial year. Dividends in the 2024 financial year will depend on profits will depend on profits generated in the year. generated in the year. Your Company’s balance sheet is strong with a net debt position of $60.2 million at 30 June 2023 and Your Company’s balance sheet is strong with a net debt position of $60.2 million at 30 June 2023 and a net debt to a net debt to equity + debt ratio of 28.9%. equity + debt ratio of 28.9%. While the economic outlook in Australia is characterised by uncertainty, National Tyre & Wheel has While the economic outlook in Australia is characterised by uncertainty, National Tyre & Wheel has actioned a actioned a range of strategic initiatives that will enable it to meet the challenges ahead with range of strategic initiatives that will enable it to meet the challenges ahead with confidence and to ensure it is well confidence and to ensure it is well positioned to enhance its brand and market position. Your positioned to enhance its brand and market position. Your Company is well placed to benefit from the structural changes occurring in the industry. Company is well placed to benefit from the structural changes occurring in the industry. Your Company is committed to executing initiatives to increase earnings, whilst maintaining an interest in new Your Company is committed to executing initiatives to increase earnings, whilst maintaining an strategic acquisitions and alliances which provide profitable growth to the business. interest in new strategic acquisitions and alliances which provide profitable growth to the business. Your Board, management and other employees have worked diligently and constructively during the year and that Your Board, management and other employees have worked diligently and constructively during the effort is appreciated. year and that effort is appreciated. I would like to thank our staff, customers, suppliers and shareholders for the support they have delivered over the I would like to thank our staff, customers, suppliers and shareholders for the support they have past year. delivered over the past year. Yours faithfully Yours faithfully Murray Boyte Chairman iv Providing an industry leading customer experience remains the focus of NTAW v Managing Director’s report Dear Shareholders Dear Shareholders Introduction Dear Shareholders Introduction NTAW has embraced a new vision, Going further to help our businesses & customers win. This vision has three key pillars: During the 2023 financial year (“FY2023”), National Tyre & Wheel Limited and its controlled entities (“NTAW” or “Company” or “Group”) navigated difficult trading conditions, responding with new initiatives and setting the Company on the path to improved profitability. During the 2023 financial year (“FY2023”), National Tyre & Wheel Limited and its controlled entities (“NTAW” or Introduction “Company” or “Group”) navigated difficult trading conditions, responding with new initiatives and setting the Company on the path to improved profitability. During the 2023 financial year (“FY2023”), National Tyre & Wheel Limited and its controlled entities (“NTAW” or “Company” or “Group”) navigated difficult trading conditions, responding with new initiatives and setting the NTAW has embraced a new vision, Going further to help our businesses & customers win. This vision has three key Company on the path to improved profitability. pillars: NTAW has embraced a new vision, Going further to help our businesses & customers win. This vision has three key • enabling entrepreneurship within each of the Group’s business units; pillars: • • building the value of product brands the Group imports and distributes exclusively. • enabling entrepreneurship within each of the Group’s business units; • • building the value of product brands the Group imports and distributes exclusively. • enabling entrepreneurship within each of the Group’s business units; • • building the value of product brands the Group imports and distributes exclusively. improving customer service; and Operations - Overview Operations - Overview improving customer service; and improving customer service; and NTAW operates 12 business units in Australia, New Zealand and South Africa specialising in wholesale and retail sales of commercial and consumer tyres and wheels. The commercial category includes heavy and light truck & bus tyres, agricultural and off-the-road tyres, industrial tyres (e.g. forklifts) and tyre and wheel original equipment packages. The consumer category includes passenger, SUV and 4WD tyres and wheels. NTAW operates 12 business units in Australia, New Zealand and South Africa specialising in wholesale and retail sales Operations - Overview of commercial and consumer tyres and wheels. The commercial category includes heavy and light truck & bus tyres, agricultural and off-the-road tyres, industrial tyres (e.g. forklifts) and tyre and wheel original equipment packages. NTAW operates 12 business units in Australia, New Zealand and South Africa specialising in wholesale and retail sales The consumer category includes passenger, SUV and 4WD tyres and wheels. of commercial and consumer tyres and wheels. The commercial category includes heavy and light truck & bus tyres, agricultural and off-the-road tyres, industrial tyres (e.g. forklifts) and tyre and wheel original equipment packages. NTAW’s FY2023 business unit revenue segmentation amongst these categories, and amongst Australia, New Zealand The consumer category includes passenger, SUV and 4WD tyres and wheels. and South Africa, can be summarised as follows: NTAW’s FY2023 business unit revenue segmentation amongst these categories, and amongst Australia, New Zealand and South Africa, can be summarised as follows: NTAW’s FY2023 business unit revenue segmentation amongst these categories, and amongst Australia, New Zealand and South Africa, can be summarised as follows: COMMERCIAL / CONSUMER Commercial / Consumer Revenue Segmentation REVENUE SEGMENTATION COMMERCIAL / CONSUMER REVENUE SEGMENTATION Consumer Retail 8% COMMERCIAL / CONSUMER REVENUE SEGMENTATION Consumer Retail 8% Consumer Retail Commercial 8% Retail 21% Commercial Retail 21% Commercial Retail 21% Commercial Wholesale 30% Commercial Wholesale 30% Commercial Wholesale 30% Consumer Wholesale 41% Consumer Wholesale 41% Consumer Wholesale 41% COUNTRY REVENUE SEGMENTATION COUNTRY REVENUE SEGMENTATION Country Revenue Segmentation South Africa 2% COUNTRY REVENUE SEGMENTATION South Africa 2% South Africa 2% New Zealand 23% New Zealand 23% New Zealand 23% Australia 75% Australia 75% Australia 75% Each business unit focusses on a winnable segment of the tyre and wheel industry, operating as a separate legal entity. Each business unit focusses on a winnable segment of the tyre and wheel industry, operating as a separate legal entity. The Australian tyre & wheel industry is estimated to generate revenue of approximately $5.6 billion in 2023 from the sale of more than 20 million tyres and wheels. The wholesale sector of the industry is estimated to generate revenue of approximately $3.7 billion. Each business unit focusses on a winnable segment of the tyre and wheel industry, operating as a separate legal The Australian tyre & wheel industry is estimated to generate revenue of approximately $5.6 billion in 2023 from the entity. sale of more than 20 million tyres and wheels. The wholesale sector of the industry is estimated to generate revenue of approximately $3.7 billion. The Australian tyre & wheel industry is estimated to generate revenue of approximately $5.6 billion in 2023 from the sale of more than 20 million tyres and wheels. The wholesale sector of the industry is estimated to generate revenue The industry is typically segmented according to vehicle type and purpose, which dictate different types of tyres & of approximately $3.7 billion. wheels (the vertical segments in the chart below) and customers based on different buying behaviours (the horizontal segments in the chart below). Each of the Group’s business units specialise in offering different products The industry is typically segmented according to vehicle type and purpose, which dictate different types of tyres & that are fit for different vehicles and provide services that meet the diverse needs of customers with distinct buying wheels (the vertical segments in the chart below) and customers based on different buying behaviours (the behaviours. horizontal segments in the chart below). Each of the Group’s business units specialise in offering different products that are fit for different vehicles and provide services that meet the diverse needs of customers with distinct buying behaviours. The industry is typically segmented according to vehicle type and purpose, which dictate different types of tyres & wheels (the vertical segments in the chart below) and customers based on different buying behaviours (the horizontal segments in the chart below). Each of the Group’s business units specialise in offering different products that are fit for different vehicles and provide services that meet the diverse needs of customers with distinct buying behaviours. vi 1 1 1 Managing Director’s report (cont) Organising Group activities according to this segmentation of the industry enables each business unit to focus Organising Group activities according to this segmentation of the industry enables each business unit to focus on a winnable segment of the market, seeking a high share of each target market segment. The Group focusses on a winnable segment of the market, seeking a high share of each target market segment. The Group focusses on business units buying well, meeting service level expectations, being easy to deal with and providing loyalty on business units buying well, meeting service level expectations, being easy to deal with and providing loyalty incentives, all essential requirements for competing effectively. incentives, all essential requirements for competing effectively. The Group’s business units are distinguished by various factors, including: The Group’s business units are distinguished by various factors, including: • Product choice & differentiation; • Operational excellence; • Expertise; • Exclusive and preferred re-seller programs; • Customer intimacy; • Tyre performance management (including retreading capability); • Access to a national distribution footprint; and • An agile and entrepreneurial culture. • Product choice & differentiation; • Operational excellence; • Expertise; • Exclusive and preferred re-seller programs; • Customer intimacy; • Tyre performance management (including retreading capability); • Access to a national distribution footprint; and • An agile and entrepreneurial culture. NTAW distributes a diversified portfolio of fit for purpose products with more than 40 brands being exclusively imported with many of these supplier relationships having existed for more than 25 years. The Group’s ability to NTAW distributes a diversified portfolio of fit for purpose products with more than 40 brands being exclusively promote brands from multiple suppliers differentiates it from major manufacturer suppliers whose product imported with many of these supplier relationships having existed for more than 25 years. The Group’s ability to offering is necessarily limited to the single brand they produce. promote brands from multiple suppliers differentiates it from major manufacturer suppliers whose product offering is necessarily limited to the single brand they produce. vii 2 2 FY23 SUPPLIER MIX BY REVENUE Managing Director’s report (cont) Cooper family (Ex. MT) FY23 Supplier Mix by Revenue Other suppliers FY23 SUPPLIER MIX BY REVENUE Mickey Thompson Cooper family (Ex. MT) Mickey Thompson Other suppliers FY23 SUPPLIER MIX BY REVENUE Cooper family (Ex. MT) Mickey Thompson Other suppliers Proprietary brands Proprietary brands Sample of Suppliers Sample of suppliers Proprietary brands Other exclusive brands Other exclusive brands Other exclusive brands Sample of suppliers Sample of suppliers DYNAMIC Wheel Co. Hottest and toughest iOE INTEGRATED OE TYRE & WHEEL SOLUTIONS The business units are supported by shared service units, comprising supply chain & logistics, innovation & IT and finance & administration. The Group employs over 850 people mainly in logistics, sales & marketing, trades and other support services. Operations - 2023 Financial Year The business units are supported by shared service units, comprising supply chain & logistics, innovation & IT and finance & administration. NTAW reported a net loss after tax and before amortisation of $0.5 million for the six months ended 31 December 2022. Your Company executed several initiatives in the second half of the financial year in response to these conditions, contributing to an improved financial performance of the Group, reporting a net profit after tax and before amortisation of $6.0 million in 2H23, totalling $5.5 million for FY2023. The Group employs over 850 people mainly in logistics, sales & marketing, trades and other support services. Operations - 2023 Financial Year NTAW reported a net loss after tax and before amortisation of $0.5 million for the six months ended 31 December 2022. Your Company executed several initiatives in the second half of the financial year in response to these conditions, contributing to an improved financial performance of the Group, reporting a net profit after tax and before amortisation of $6.0 million in 2H23, totalling $5.5 million for FY2023. The business units are supported by shared service units, comprising supply chain & logistics, innovation & IT and finance & administration. 3 The Group employs over 850 people mainly in logistics, sales & marketing, trades and other support services. viii Operations - 2023 Financial Year 3 NTAW reported a net loss after tax and before amortisation of $0.5 million for the six months ended 31 December 2022. Your Company executed several initiatives in the second half of the financial year in response to these conditions, contributing to an improved financial performance of the Group, reporting a net profit after tax and before amortisation of $6.0 million in 2H23, totalling $5.5 million for FY2023. 3 Managing Director’s report (cont) This lower result compared to previous years, and an unusual seasonality of earnings, reflecting a difficult operating environment in 1H23, arising from: • unprecedented increases in the cost of goods attributable to a significant rise in oil prices; • unprecedented increases in shipping costs attributable to pandemic related shortages of ships, dislocation of containers, volatile demand and higher fuel costs; supply chain disruption attributable to post pandemic supply and demand imbalance; and labour shortages having adverse impacts on costs and service levels. • • The size and cadence of increases in the cost of goods was too large to be covered, in a timely manner by higher selling prices, and gross profit margins suffered in 1H23. Unpredictable lead times meant inventory was often either too low or too high with adverse impacts on volume and revenue throughout the year. The Group’s operating environment improved in 2H23 – shipping costs fell as rapidly as they had risen, selling price rises went some way to recovering lost margin (assisted by an improvement in the AUD/USD exchange rate), oil prices declined, suppliers offered more attractive prices and labour market shortages became less severe. Operational and strategic initiatives undertaken by your Company during the year included: • entering into a partnership agreement with Michelin which, together with a new alliance between Tyres4U, Tyreright and Black Rubber, is designed to grow the Group’s commercial truck and bus fleet business; focussing on exclusive imported brands, offering products covering multiple price points; • • pursuing improved customer service via: o decentralisation of Marketing and People & Culture activities; o completing warehouse consolidation in Brisbane with the consolidation of Perth warehouses to be completed in 1H24; and o consolidated freight management arrangements for all business units; continuing the migration of all business units to the same finance & administration, data management and IT platform; continuing to roll out more sophisticated procurement processes; and further rationalisation and cost reduction via the sale/closure of Tyreright stores. • • • Your Company is fostering a culture of entrepreneurship in the operating business units, with the aim of improving customer service levels and offering a select group of exclusive, imported brands in the winnable segments of the marketplace. Financial Results – 2023 Financial Year Your Company delivered operating net profit after tax and before amortisation (“NPATA”) of $8.0 million in FY2023 (FY2022: $15.5 million). Revenue amounted to $582 million (FY2022: $556 million). Operating EBITDA1 was $38.8 million (FY2022: $44.9 million). Earnings per share was 5.7 cents based on Operating NPATA (FY2022: 12.7 cents per share). The Group’s statutory NPATA attributable to NTAW shareholders mounted to $5.5 million (FY2022: $11.1 million). Finance costs increased from the prior year due to higher debt levels for the entire financial year and rising interest rates. The following table summarises the key financial metrics for the Group: 1Refer to table on the next page. 1 Refer to table below. ix 4 Managing Director’s report (cont) Financial Highlights Financial Highlights Gross profit margin Gross profit margin Operating costs as a % of revenue Operating costs as a % of revenue EBITDA ($ million) EBITDA ($ million) EBITDA margin EBITDA margin NPATA ($ million) NPATA* ($ million) Operating NPATA ($ million) Operating NPATA** ($ million) Basic EPS (cents) Basic EPS (cents) Dividend per share (cents) Dividend per share (cents) Net debt ($ million) Net debt ($ million) Net debt:debt+equity Net debt:debt+equity NTA per share (cents) NTA per share (cents) Operating cash flow ($ million) Operating cash flow ($ million) Interest cover (times) Interest cover (times) FY23 FY23 28.1% 28.1% 21.9% 21.9% 36.3 36.3 6.2% 6.2% 5.5 5.5 8.0 8.0 2.5 2.5 - - 60.2 60.2 28.9% 28.9% 50.9 50.9 24.2 24.2 4.3x 4.3x FY22 FY22 28.7% 28.5% 21.2% 21.4% 40.5 40.5 7.3% 7.3% 11.1 11.1 15.5 15.5 7.7 7.7 4.5 4.5 60.0 60.0 28.8% 28.8% 48.8 48.8 11.8 11.8 8.1x 8.1x The following table reconciles Statutory EBITDA to Operating EBITDA, adjusting for $2.6 million of non-recurring costs in FY2023. Reconciliation of Reported EBITDA to Operating EBITDA $'000 Net profit after tax Income tax expense Net profit before tax Finance costs (net) Reported EBIT Depreciation and amortisation Reported EBITDA IT project implementation costs Store disposals and redundancy costs Warehouse consolidation costs Unrealised FX loss/(gain) Acquisition costs Operating EBITDA FY23 2,895 960 3,855 8,379 12,234 24,040 36,274 1,203 710 457 185 - 38,829 FY22 9,569 4,995 14,564 5,010 19,574 20,904 40,478 2,522 - 1,207 (85) 736 44,858 The following chart presents a bridge from 1H23 Operating NPATA to 2H23 Operating NPATA, highlighting the turnaround experienced during the year with improved gross margin (albeit with reduced sales volumes) and significant reduction in employee benefits expense. x 5 Managing Director’s report (cont) NTAW has a strong balance sheet with total assets of $376.0 million and net assets of $115.3 million at 30 June 2023 (Jun-22: $112.5 million). The net debt position at 30 June 2023 was $60.2 million (Jun-22: $60.0 million) and a net debt to Equity + debt ratio of 28.9%. No dividend has been declared for FY2023, with your Company preserving cash in a low growth environment. The Company has $19.0 million worth of available franking credits. Outlook The Group expects that deeper relationships with core brands should lead to more engagement in product development as well as more favourable pricing and terms. The Australian retail sector is dominated by small businesses owned by baby boomers approaching retirement and the Group expects this will lead to a generational change of store ownership. New owners will be particularly attuned to the role of online purchase pathways and the importance of digital assets, presenting opportunities for the Group to build deeper customer relationships via collaborations responding to these trends. Tyre consumers are becoming more knowledgeable about products, and more aware of sources of information beyond the tyre shop counter. Interrupting or informing the virtual part of the consumer purchase journey will be increasingly important and NTAW is investing in services to assist its B2B customers’ response to this trend. NTAW is positioning the Group to ensure that it can benefit from opportunities that may emerge from these market dynamics. xi 6 FY22 Financial Results Your Company delivered operating net profit after tax and before amortisation of $15.6 million in FY22 (FY211: $21.9 million). Managing Director’s report (cont) Revenue amounted to $558 million (FY21: $462 million), with recent acquisitions taking NTAW’s annualised revenue to approximately $590 million. Operating EBITDA 3 was $44.9 million (FY21: $46.7 million). Earnings per share was 12.7 cents per share based on Operating NPATA (FY21: 19.4 cents per share). NTAW’s statutory NPATA mounted to $11.1 million (FY21: $21.1 million). In particular, your Company remains focused on executing the following strategic initiatives: Depreciation increased by $5.5 million in FY22, reflecting an increase in property leases that are classified as right-of-use assets in • concentrating on exclusive, imported brands and reducing substitutable products in the Group’s portfolio; accordance with AASB 16 Leases. Following the FY22 acquisitions, NTAW now occupies 72 leased premises and only those with a • increasing revenue from the re-organisation of the Group’s commercial fleet business and leverage from term of less than 12 months are treated as occupancy costs. retreading capabilities; improving service levels to customers; The FY22 result was mixed with contributions from newly acquired businesses and strong performances from agricultural tyres, • original equipment supplies, wheels and budget tyres offset by supply chain disruption and lower gross profit margins in some • gaining cost and time efficiencies, and improve service levels, from warehouse consolidations; other business units, particularly in 2H22. • managing all discretionary expenditure; and The following table summarises key financial metrics for the Group: • optimising business structures and operating methods in a decentralised model. These initiatives are expected to underpin earnings growth for the 2024 financial year. Financial Highlights FY22 FY21 Acknowledgements Gross profit margin Operating costs as a % of revenue EBITDA ($ million) EBITDA margin NPATA* ($ million) Basic EPS (cents) Dividend per share (cents) Net debt ($ million) Net debt:debt+equity NTA per share (cents) Operating cash flow ($ million) Interest cover (times) 28.7% 21.4% 40.5 It has been a year of difficult trading conditions for your Company, particularly in the first six months, which in turn 7.3% creates new and additional challenges for our people. The workforce embraced the challenges and changes required 11.1 during the 2023 financial year, which has been critical in your Company achieving the financial result achieved, as 7.7 4.5 well as providing an excellent platform for further business improvements to come. This effort is both acknowledged 60.0 and greatly appreciated. 28.8% 48.8 11.8 8.1x NTAW employees have had to deal with an extremely challenging operating environment in FY2023, testing their The following table reconciles Statutory EBITDA to Operating EBITDA. The one-off costs include $2.5 million related to IT projects resolve and commitment. It has been very gratifying to see them pass those tests with distinction, ensuring that the and $1.2 million related to warehouse consolidation and relocations. Group finished the year on a much better trajectory. The continuing support and patience of our suppliers, customers and shareholders helped the Group navigate difficult times and that has also been very gratifying. The Group enjoys continuing support from suppliers and customers, reciprocated by enhancing customer experiences and our Group-wide commitment to building up our product brands. 29.8% 19.8% 46.1 10.0% 21.1 17.9 8.0 16.0 11.7% 64.8 22.7 15.6x Reconciliation of Reported EBITDA to Operating EBITDA The NTAW Board and senior management team is very grateful for the support received from all stakeholders. $'000 FY22 FY21 Yours faithfully Peter Ludemann Net profit after tax Depreciation and amortisation Finance costs (net) Income tax expense Reported EBITDA Gain on bargain purchase Acquisition costs One-off warehouse consolidation and IT project implementation costs Unrealised FX loss/(gain) Operating EBITDA 9,569 20,904 5,010 4,995 40,478 - 736 3,729 20,540 14,278 2,949 8,378 46,145 (596) 1,449 - (85) 44,858 (321) 46,677 The following chart presents a bridge from FY21 Statutory NPATA to FY22 Statutory NPATA, highlighting the impact of the FY22 acquisitions on EBITDA, noting that FY22 included a full year of results attributable to Tyres4U and Tyreright (11 months in FY21). 3 Refer to table on following page 6 7 xii NTAW is focussed on exclusive imported brands, offering products covering multiple price points xiii FINANCIAL REPORT National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the “Group”) consisting of National Tyre & Wheel Limited (referred to hereafter as the “Company”, “NTAW”, or “parent entity”) and the entities it controlled at the end of, or during, the year ended 30 June 2023. Directors The following persons were directors of National Tyre & Wheel Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Murray Boyte Peter Ludemann Terry Smith Bill Cook Robert Kent Non-Executive Chairman Managing Director and Chief Executive Officer Non-Independent, Non-Executive Director Non-Executive Director Non-Executive Director (July 2022 – January 2023); Executive Director (February 2023 – June 2023) Principal activities The principal activity of the Group during the financial year ended 30 June 2023 was the distribution and marketing of motor vehicle tyres, wheels, tubes and related products throughout Australia, New Zealand and South Africa. NTAW is the holding company for the following operating subsidiaries: Exclusive Tyre Distributors Pty Ltd (“ETD”); Exclusive Tyre Distributors (NZ) Limited (“ETDNZ”); • • • Dynamic Wheel Co. Pty Limited (“Dynamic”); • • • • • • • Black Rubber Pty Ltd & Black Rubber Sydney Pty Ltd (collectively “Black Rubber”); and • Integrated OE Pty Ltd (“OE”); Statewide Tyre Distribution Pty Ltd (“Statewide”); Top Draw Tyres Proprietary Limited t/a Tyrelife Solutions (“TLS”); Tyres4U Pty Ltd (“Tyres4U AU”); Tyres4U (NZ) Ltd (“Tyres4U NZ”); Tyreright Operations Pty Ltd (“TRT”); Carters Tyre Service Limited, C.O. Tire & Retreading Co Limited & Tyre Distributors New Zealand Limited (collectively “Carter’s”). There have been no other significant changes in the nature of the Group’s activities during the year. Dividends Dividends paid during the financial year were as follows: Final dividend Interim dividend 2023 $'000 1,981 - 1,981 2022 $'000 5,715 3,950 9,665 At the date of signing these financial statements, there has been no dividend’s declared in respect of the 2023 financial year by the Company and no dividend’s payable. 2 2 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Operating and financial review Review of operations NTAW experienced difficult trading conditions in 1H23 as: • • • • • the cost of goods rose dramatically in response to steep increases in the price of oil, a substantial raw material in tyre manufacture; inbound freight costs rose at an unprecedented rate; outbound freight costs also rose with higher fuel prices and a shortage of drivers; supplier lead times became unusually volatile, particularly for USA sourced products; and labour shortages had a negative impact on service levels. The Group’s selling prices increased throughout FY23 at a rate that the market could tolerate, being slower than the speed at which the cost of goods and freight rose, resulting in a substantial reduction on 1H23 earnings, compared to 1H22. NTAW responses included the aforementioned selling price rises, a review of freight management, cost savings and a shift away from digital transformation to a focus on customer service levels. In 2H23, the cost of freight fell dramatically, there was a modest decline in cost of goods, higher selling prices improved gross margins and overhead expenses reduced. As a result, NTAW’s financial performance improved in 2H23, illustrated in the following bridge analysis: 2 3 3 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Between 1H23 and 2H23, gross profit margin was 2% higher, people costs reduced by $3.9 million (despite wages growth) and Operating NPATA increased by $5.2m (370%). In FY23, NTAW achieved revenue of $582.3 million, including a full year contribution of Carter’s (6 months in FY22) and Black Rubber (8 months in FY22). Revenue from Australian wholesale operations fell due to constrained supply in 1H23 (which continued in 2H23 for USA sourced products), the volume impact of price rises and the shift to selling less at a higher gross margin. Revenue losses were mostly offset by improved gross profit margins. In July 2023, the Group announced a partnership agreement had been reached with Michelin to facilitate a re-organisation of the commercial fleet activities of Black Rubber, Tyreright and Tyres4U. This partnership is designed to enhance the value of the Group’s truck and bus fleet proposition, with a range of fit-for-purpose tyres, environmentally sustainable retread manufacture as well as related services and tyre performance management. The migration of all NTAW business units to common finance & administration and data management IT platforms continued during the year and is expected to be completed by December 2023 when all business units will be on the same platform. The Group’s gross debt of $93.2m at 30 June 2023 stayed relatively consistent during FY2023 which, with rising interest rates, saw the Group’s FY2023 finance costs increase by $3.3m (65%) compared to FY2022. Results highlights NTAW has reported total revenue of $582.3m (2022: $555.5m) for the financial year, an increase of $26.8m (4.8%) on the prior year. NTAW’s statutory profit for the Group after providing for income tax and non-controlling interests amounted to $2.9m (2022: $9.6m). NTAW has a strong balance sheet with net assets of $115.3m (Jun-22: $112.5m). The net debt position was $60.2m (Jun-22: $60.0m) and a ‘net debt to equity + gross debt’ ratio of 28.9% (Jun-22: 28.8% ). Key operating metrics Gross profit margin Operating costs as % of total revenue Reported EBITDA1 margin Operating EBITDA2 margin 1 EBITDA means earnings before interest, tax, depreciation and amortisation. 2 Refer to reconciliation between Reported EBITDA and Operating EBITDA below. FY2023 FY2022 28.1% 21.9% 6.2% 6.7% 28.5% 21.2% 7.3% 8.1% NTAW has reported a gross profit margin of 28.1% and an Operating EBITDA margin of 6.7%, with gross profit margin and Operating EBITDA margin decreasing from that achieved in the prior year. The Group’s operating costs as a percentage of sales of 21.9% was slightly greater than prior year due to the full year impact of acquired retail operations (Black Rubber and Carter’s) in FY2022 offsetting cost savings measures undertaken. Key financial results $'000 Sales revenue Gross profit Reported EBITDA Operating EBITDA NPATA attributable to NTAW 1 1 NPATA excludes non-controlling interests and amortisation on a tax effected basis. FY2023 FY2022 582,284 163,821 36,273 38,828 5,490 555,549 158,571 40,502 44,882 11,076 4 4 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Operating EBITDA The Group has reported an EBITDA of $36.3m (2022: $40.5m). The result for FY2023 includes non-recurring costs of $2.4m associated with the implementation of IT projects, disposal of retail stores and redundancy costs and the consolidation of metropolitan warehouses. Unrealised foreign exchange loss on foreign exchange contracts and foreign currency denominated suppliers of $0.2m (2022: $0.1m gain) was recognised during the year. After taking into account the above items, an Operating EBITDA of $38.8m was earned in the reporting period (FY2022: $44.9m) as shown in the following table: $'000 FY2023 FY2022 Net profit after tax Depreciation and amortisation Finance costs (net) Income tax expense Reported EBITDA IT project implementation costs Store disposal and redundancy costs Warehouse consolidation costs Acquisition costs Unrealised foreign exchange (gains)/losses Operating EBITDA 2,895 24,040 8,379 960 36,274 1,203 710 457 - 185 38,829 9,569 20,904 5,010 4,995 40,478 2,522 - 1,207 736 (85) 44,858 Financial Position Key financial information in relation to the Group’s financial position at year end is shown below: Total assets ($’000) Net assets ($’000) Net debt ($’000) Shares on issue (‘000) Dividends per security (cents) 30 June 2023 30 June 2022 376,047 115,340 60,206 133,271 - 385,673 112,466 59,968 131,936 4.50 Significant balance sheet movements during the financial year were as follows: • Net debt has increased by $0.2m; • Net assets have slightly increased by $2.9m; • 1.3m shares were issued under the dividend reinvestment plan for the FY2022 final dividend; and • No final or interim dividend has been declared in respect of the year (FY2022: 1.50 cents and 3.00 cents, respectively). 4 5 5 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Outlook NTAW has set a new vision “Going further to help our businesses and customers win” by emphasising customer service and enabling an entrepreneurial mindset amongst the Group’s businesses as they pursue distinct visions that suit the market segments in which they operate. NTAW is focused on executing the following strategic initiatives: • • • • • focusing on exclusive, imported brands and reducing substitutable products in the Group’s portfolio; increase revenue from the re-organisation of the Group’s commercial fleet business and leverage from retreading capabilities; capitalise on opportunities to negotiate lower import prices with suppliers; improve service levels and continue to provide leading technical support to customers; gain cost and time efficiencies from warehouse consolidations; • manage all discretionary expenditure; and • optimising business structures and operating methods in a decentralised model. NTAW believes these strategies and tactics are appropriate having regard to expectations for relatively low levels of economic growth and the effect that may have on demand for its products and services. Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. Likely developments and expected results of operations The Group will continue to pursue gross profit improvement and additional cost reductions in the next financial year as it seeks to leverage the diversity and scale built up in recent years. 6 6 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Material business risks The Board is committed to monitoring and mitigating business risks faced by the Group, including the following key risks that have the potential to materially impact its financial prospects: • • Supplier risk – the Group exclusively imports more than 40 brands in various product segments and many of these exclusive importation and distribution agreements have existed for more than 20 years. As these agreements do not have long-term tenure, the Group relies on meeting or exceeding supplier expectations. This strategy has served the Group well, with all supplier relationships surviving decades despite there being no formal long-term tenure with the exception of the long-term formal distribution and licence agreement with Cooper Tire & Rubber Company (“Cooper Tires”) for the supply of Cooper and Mastercraft branded products in passenger, SUV and 4WD segments. The Group owns customer relationships and controls the marketing of brands, but it relies on rights under formal long-term agreements granted by Cooper Tires to access the Cooper brand. The acquisitions in recent years introduces the Group to many new suppliers, significantly reducing the risk of supplier dependency on Cooper Tires with the Cooper family of brands (excluding Mickey Thompson) accounting for approximately 10% of revenue and 10% of gross profit for FY2023. Foreign exchange risk – a significant proportion of the Group’s costs and expenses are transacted in foreign currencies. Adverse movements between the Australian Dollar, New Zealand Dollar and South African Rand against the US Dollar increases the price at which the Group acquires its trading stock and result in volatility in profitability to the extent that the Group may or may not be able to pass on price increases to its customers (after allowing for the impact inventory cycles have on the time it takes for exchange rate movements to impact on cost of goods sold and the behaviour of competitors). The Group also seeks to use foreign exchange contracts to mitigate its foreign exchange exposures. The effect of foreign currency translation on operating results from offshore operations remains inherent in the Group’s business. • Business integration risk – the Group has acquired interests in several businesses in recent years with the successful integration and capturing of synergies from the acquisitions and managing growth being critical to the Group’s continued performance and earnings. The Group’s Board and management is experienced in acquiring and integrating businesses, conducts comprehensive due diligence and ensures an integration plan is followed. • Retention of key personnel – the Group’s future success is significantly dependent on the expertise and experience of its key personnel and management. The loss of services of key members of management, and any delay in their replacement, or the failure to attract additional key managers to new roles could have a material adverse effect on NTAW’s financial performance and ability to deliver on its growth strategies. • Customer risk – the Group is dependent on its ability to retain its existing customers and attract new customers. Although customer concentration is low, sales revenue would be adversely affected if all members of a chain or group decided not to purchase products from the Group. Although this risk has been further reduced as a consequence of the recent acquisitions, the Group proactively manages its customer relationships and has established value adding customer loyalty programs. • Risk of competition – the tyre and wheel wholesale market is highly competitive. Competition is based on factors including price, service, quality, performance standards, range and the ability to provide customers with an appropriate range of quality products in a timely manner. A failure by the Group to effectively compete with its competitors would adversely affect the Group’s future financial performance and position. Environmental regulation The Group is not subject to any significant environmental regulation under Australian Commonwealth or State law. 6 7 7 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Information on Directors Name: Title: Experience and expertise: Other current directorships: Murray Boyte Independent, Non-Executive Chairman Mr Boyte has over 35 years' experience in merchant banking and finance, undertaking company reconstructions, mergers and acquisitions in Australia, New Zealand, North America and Hong Kong. In addition, he has held executive positions and Directorships in the transport, horticultural, financial services, investment, health services and property industries. Eureka Group Holdings Limited (ASX: EGH) (appointed 24 November 2017); Hillgrove Resources Limited (ASX: HGO) (appointed 10 May 2019); Eumundi Group Limited (ASX: EBG) (appointed 1 March 2021) Former directorships (last 3 years): Abano Healthcare Group Limited (NZX: ABA) (resigned 22 December 2021) Special responsibilities: Member of Audit and Risk Committee; Member of Remuneration and Nominations Committee 245,211 ordinary shares Nil Interests in shares: Interests in options and rights: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options and rights: Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options and rights: Peter Ludemann Chief Executive Officer (“CEO”) and Managing Director Degrees in Law and Commerce (Marketing) from University of New South Wales Mr Ludemann joined the Group as a director in 2012 and became full time CEO of NTAW in July 2013. He has worked as a commercial lawyer, a director of numerous private companies, the Managing Director of a Life Science Investment firm and as a Private Equity Investment Manager at AMP Capital. He has been the driving force behind the evolution of NTAW from a closely held family trust carrying on a niche 4WD tyre wholesale business to a more widely held entity operating in many tyre and wheel segments. He has managed the acquisition and integration of all the subsidiaries in that time and was responsible for the execution of a succession plan for NTAW founders, the creation of a public company corporate structure, the IPO and listing of NTAW as well as generational change within the Group. Nil Nil Nil 2,817,425 ordinary shares 350,000 options and 228,590 rights Terry Smith Non-Independent, Non-Executive Director Mr Smith has over 40 years' experience in tyre importing, wholesaling and retailing. Terry’s career is one of successful entrepreneurship, as he and wife Susanne, were responsible for taking Exclusive Tyre Distributors from a start-up business to one of the largest independent national tyre wholesalers in Australia. Mr Smith is a Non-Executive Director but is not considered independent as he is a substantial holder of the Company. Nil Nil Member of Remuneration and Nominations Committee 27,891,171 ordinary shares Nil 8 8 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Name: Title: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options and rights: Name: Title: Qualifications: Experience and expertise: Other current directorships: Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options and rights: Bill Cook Independent, Non-Executive Director Mr Cook is an Independent Non-Executive Director of NTAW. Mr Cook commenced his career at Ford Motor Company in finance. He worked for Consolidated Press Holdings with the late Kerry Packer from 1983 to 1996 as Head of M&A and worldwide reporting. After two years as General Manager of Qantas Flight Catering’s Sydney business he undertook Private Equity investment consulting roles, and subsequently joined AMP Capital as an investment manager in the Private Equity team. Since leaving AMP, Mr Cook has served as non-executive director for a number of companies, including NTAW since 2013. Nil Nil Chair of Audit and Risk Committee; Member of Remuneration and Nominations Committee 460,427 ordinary shares Nil Robert Kent Independent, Non-Executive Director (July 2022 – January 2023); Executive Director (February 2023 – June 2023) Bachelor of Business (Marketing) from Queensland University of Technology and is a Graduate of the Australian Institute of Company Directors. Mr Kent was Managing Director of Publicis Mojo (Queensland), part of the global Publicis Groupe, from 2000 to 2017. During this time he was also a member of the Publicis National Board of Management. Mr Kent is a career advertising and marketing executive who has managed innumerable campaigns involving sales promotion and brand building across both traditional and digital channels. Concurrently with his advertising role, Mr Kent was Managing Director of leading digital marketing businesses, Personalised Plates Queensland from 2013 to 2017 and KiwiPlates (NZ) from 2016 to 2017, after winning the tender to operate each. Mr Kent is currently the Chair of the Company’s Remuneration and Nominations Committee and a member of the Audit and Risk Committee. Mr Kent provided consulting services to ETD during the 2023 financial year (commencing in February 2023 and ceasing in August 2023) and as such was not considered an Independent Non-Executive Director of the Company for that period of the financial year. Mr Kent reverted to being a Non-Executive Director at the end of his consulting services. Nil Nil Chair of Remuneration and Nominations Committee; Member of Audit and Risk Committee 331,500 ordinary shares Nil 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 8 9 9 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Company secretaries Jason Lamb Mr Lamb is the Chief Financial Officer and joint Company Secretary. Mr Lamb has over 20 years’ accountancy experience. He is a Certified Practicing Accountant with a Bachelor of Commerce (Accounting) and a Bachelor of Economics from The University of Queensland. Mr Lamb was responsible for setting up the financial accounting systems for NTAW. He has also been responsible for all financial due diligence work relating to business acquisitions and the establishment of financial reporting systems for those operating entities. He participates in all Board meetings for NTAW and each operating entity as well as overseeing the production of financial reports for all entities. Hugh McMurchy Mr McMurchy is the Group Financial Controller and joint Company Secretary. Mr McMurchy is a Chartered Accountant with a Bachelor of Commerce (Accounting and Finance) from The University of Queensland. Mr McMurchy has over 10 years’ experience in public accounting before joining NTAW in 2020. Meetings of directors The number of meetings of the Company's Board of Directors (“the Board”) and of each Board committee held during the year ended 30 June 2023, and the number of meetings attended by each director were: Board Remuneration and Nominations Committee Audit and Risk Committee Attended Held Attended Held Attended Held Murray Boyte Peter Ludemann Terry Smith Bill Cook Robert Kent 14 14 13 13 14 14 14 14 14 14 2 1* 2 2 2 2 2* 2 2 2 3 3* 3* 3 3 3 3* 3* 3 3 *Attended by invitation only Remuneration Report (audited) The remuneration report details the key management personnel (“KMP”) remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and Corporations Regulations 2001. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: a) Principles used to determine the nature and amount of remuneration b) Details of remuneration c) Relationship between remuneration and Company performance d) Service agreements e) Share-based compensation f) Equity instruments held by key management personnel g) Other transactions with key management personnel 10 10 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) (a) Principles used to determine the nature and amount of remuneration The objective of the Group's executive remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive remuneration with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform with accepted market practice for remuneration and reward. The Board of Directors ensures that executive remuneration satisfies the following key criteria for good remuneration governance practices: • • • • competitiveness and reasonableness; acceptability to shareholders; performance linkage / alignment of executive compensation; and transparency. The Remuneration and Nominations Committee is responsible for reviewing remuneration arrangements for its directors and executives and making recommendations to the Board for consideration and approval. The performance of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high-quality personnel. The Remuneration and Nominations Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Group, as determined by the Board. The reward framework is designed to align executive reward to shareholders' interests. The Board considers that it should seek to enhance 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 or increasing return on assets as well as focusing the executive on key non-financial drivers of value; and attracting and retaining high calibre executives. Additionally, the reward framework should seek to enhance executives' interests by: • • • rewarding capability and experience; reflecting competitive reward for contribution to growth in shareholder wealth; and providing a clear structure for earning rewards. Since the Company’s listing on the Australian Securities Exchange (“ASX”), in accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors' remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors' fees and payments are reviewed annually by the Remuneration and Nominations Committee. The chairman's fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. The non-executive directors do not receive share options or other incentives. Under NTAW’s constitution, the directors decide the total amount paid to all directors as remuneration for their services. However, under the ASX listing rules, the aggregate non-executive directors' remuneration (i.e. excluding the Managing Director and executive directors, if any) for a financial year must not exceed the amount fixed by the Company in general meeting. This amount has been fixed at $750,000 per annum. Any changes to the aggregate remuneration will be put to a general meeting where the shareholders will be asked to approve a maximum annual aggregate remuneration. The annual base non-executive director fees paid by the Company are $131,808 per annum (2022: $125,000) for the chairman and $84,366 per annum (2022: $80,000) for other non-executive directors. An additional fee of $12,644 per annum (2022: $12,000) has been paid to the chairman of each Board committee. Directors may also be reimbursed for all travelling and other expenses incurred in connection with their Company duties. Total annual fees payable to non-executive directors for FY2023 is $313,185 (FY2022: $413,369), noting that Robert Kent is considered executive for FY2023. 10 11 11 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) Executive director remuneration Fees and payments to executive directors reflect the demands and responsibilities of their role. Executive directors' fees and payments are reviewed annually by the Remuneration and Nominations Committee. Executive remuneration The Group aims to reward executives based on their position and responsibilities, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration framework includes the following components: • • • Fixed remuneration – comprising base salary, superannuation contributions and other benefits, having regard to comparable market benchmarks. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the Group and provides additional value to the executive; Short-term incentive (“STI”) program – an ‘at risk’ component of remuneration where, if individual, business unit and Group performance measures are met, senior executives will be awarded cash bonuses equal to a percentage of their fixed remuneration. Performance measures include a financial gateway hurdle and non-financial key performance indicators (“KPIs”). The percentage of fixed remuneration received is capped, but may vary, between individuals and depending on the level of performance achieved; and Long-term incentive (“LTI”) program – an ‘at risk’ component of remuneration where senior executives are awarded rights which are subject to a total shareholder return (“TSR”) performance condition and a service condition. The number of rights to be awarded will be determined by the Board having regard to the overall amount of executive remuneration and the annual profit impact of the rights awarded. The combination of these comprises an executive's total remuneration. The Board believes this remuneration framework ensures that remuneration outcomes link to Company performance and the long-term interests of Shareholders. 2023 STI Program During FY2023, senior executives’ entitlement to an STI was based on achievement of agreed performance objectives including: • Financial performance; • Operational performance; • Strategy and innovative initiatives; • Workplace health and safety; and • Stakeholder satisfaction. Actual performance criteria varied between executives, having regard to their roles and responsibilities. The Board applies the following general principles when determining and measuring performance targets and any STI incentive: STI Pool The size of the STI pool is determined by the Board, upon advice from the Remuneration and Nominations Committee, having regard to individual employment contracts. In consultation with the Remuneration and Nominations Committee, the Board assesses the Group’s financial performance and the performance of key management personnel against agreed performance objectives. The STI available is split between the achievement of financial gateway hurdles (at a group and/or individual operating entity level) and non-financial KPIs. The proportion of the STI between financial and non-financial varies between key management personnel. The financial gateway hurdles are based on Operating EBITDA which the Board believes is an acceptable proxy for overall operating performance. Operating EBITDA is calculated by adjusting Reported EBITDA for the impact of the adoption of AASB 16 Leases and non-operational related items. The achievement of financial and non-financial KPIs vary between key management personnel. The Board retains discretion in relation to the impact that non-recurring or unusual items may have on achievement of the STIs. Structure Achievement The actual amount received by key management personnel, as a result of achieving the pre-determined financial hurdles and non- financial KPIs, are listed in the remuneration tables below. 12 12 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) 2023 LTI Program Rights may be granted under the Employee Equity Plan (“EEP”) which was adopted on 3 November 2021. Each right entitles the participant to receive one ordinary share in the Company on exercising. The specific terms relevant to the grant of rights are set out in an offer from the Company to the Eligible Person which contains details of the application price (which must not be for more than nominal consideration), the expiry date, the exercise price, the vesting date, any applicable performance conditions and other specific terms relevant to those options. No rights were granted to any key management personnel or other senior executives during FY2023. (b) Details of remuneration The key management personnel of the Group in FY2023 consisted of the following directors of National Tyre & Wheel Limited: Peter Ludemann – Managing Director and Chief Executive Officer Terry Smith – Non-Independent, Non-Executive Director • Murray Boyte – Non-Executive Chairman • • • Bill Cook – Non-Executive Director • Robert Kent – Non-Executive Director (July 2022 – January 2023); Executive Director (February 2023 – June 2023) And the following persons: • Jason Lamb – Chief Financial Officer and Joint Company Secretary Amounts of remuneration Details of the remuneration of key management personnel of the Group are set out in the following tables. Short-term benefits3 Cash salary and fees1 $ Cash Bonus $ 2023 Non-Executive Directors: M Boyte T Smith W Cook 119,283 76,350 87,792 Executive Directors: P Ludemann R Kent 678,863 87,792 Other Key Management Personnel: J Lamb 403,041 1,453,121 - - - - - Post- employment benefits Super- annuation $ Long-term benefits Share-based payments Long service leave $ Equity- settled $ 12,525 8,017 9,218 - - - - - - Other2 $ - - - Total $ 131,808 84,367 97,010 - 102,773 25,385 9,218 30,804 - 130,510 - 865,562 199,783 20,000 20,000 - 102,773 25,439 89,802 32,909 63,713 78,475 208,985 559,864 1,938,394 1 Including movement in annual leave provisions. 2 The Group engaged in consulting services by R Kent in FY2023. 3 There were no non-monetary benefits paid during FY2023. 12 13 13 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) Short-term benefits Cash salary and fees1 $ Cash bonus $ Non- monetary $ Post- employment benefits Super- annuation $ Long-term benefits Share-based payments Long service leave $ Equity- settled $ 2022 Non-Executive Directors: M Boyte T Smith W Cook R Kent 113,637 95,027 83,636 83,636 Executive Director: P Ludemann 581,321 Other Key Management Personnel: J Lamb C Skead 343,804 337,175 1,638,236 1 Including movement in annual leave provisions. - - - - - - - - - - - - - - - - Total $ 125,000 104,530 92,000 91,839 11,363 9,503 8,364 8,203 - - - - - - - - 27,500 32,318 90,310 731,449 26,935 25,913 117,781 25,510 3,846 61,674 60,906 59,015 210,231 457,155 425,949 2,027,922 The relative proportion of the total remuneration opportunity of key management personnel of the Group is as follows: Name Non-Executive Directors: M Boyte T Smith W Cook Executive Directors: P Ludemann R Kent Fixed remuneration 2022 2023 At risk - STI At risk - LTI 2023 2022 2023 2022 100% 100% 100% 59% 100% 100% 100% 100% 61% 100% - - - - - - 29% - 30% - - - - 12% - - - - 9% - Other Key Management Personnel: J Lamb 61% 62% 27% 28% 12% 10% Name Executive Director: P Ludemann Other Key Management Personnel: J Lamb 1 Forfeited cash bonuses are not accrued in the relevant year’s result. Cash bonus paid/payable 2023 2022 Cash bonus forfeited1 2022 2023 - 11% - - 100% 100% 89% 100% 14 14 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) (c) Relationship between remuneration and Company performance The table below summarises the Group’s performance and correlates it to the total key management personnel remuneration for the financial year: Metric FY2023 FY2022 FY2021 FY2020 FY2019 Sales revenue ($’000) NPAT attributable to shareholders ($’000) Operating EBITDA ($’000) Share price at end of year ($) Basic earnings per share (cents) Dividends paid (cents per share) 582,284 3,331 38,828 0.57 2.51 - 555,549 9,398 44,882 0.97 7.65 4.50 461,533 20,255 46,677 1.06 17.90 8.00 158,857 4,551 11,786 0.38 4.12 1.25 168,365 6,391 12,728 0.37 6.22 4.80 (d) Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements with no fixed tenure requirements. Details of these agreements for FY2023 were as follows: Name: Title: Details: Name: Title: Details: Peter Ludemann Managing Director and Chief Executive Officer Mr Ludemann has an annual total fixed remuneration (TFR) of $624,947 consisting of base salary, superannuation and car allowance. Under the terms of his employment contract, he is eligible to receive short term incentives (STI) with a maximum opportunity of 50% of TFR per annum (at maximum performance levels). The STI will be in the form of an annual cash bonus, subject to the achievement of key performance indicators as determined by the Board. Subject to shareholder approval, Mr Ludemann will also be awarded long term incentives (LTI) under NTAW’s Employee Equity Plan. He has statutory leave entitlements and is entitled to 5 weeks annual leave per year. Either party may terminate the contract on 6 months’ notice. In the case of termination by NTAW, NTAW may provide payment in lieu of notice. Mr Ludemann’s employment contract does not contain any express redundancy provisions. Mr Ludemann’s contract contains a 5 year non-compete restraint within Australia and New Zealand and a 12-month non-solicitation of employees, contractors and clients who deal with NTAW. Jason Lamb Chief Financial Officer and joint Company Secretary Mr Lamb has an annual total fixed remuneration (TFR) of $415,631, consisting of base salary and superannuation. Under the terms of his employment contract, he is eligible to receive short term incentives (STI) with a maximum opportunity of 45% of TFR per annum (at maximum performance levels). The STI will be in the form of an annual cash bonus, subject to the achievement of key performance indicators as determined by the Board. Mr Lamb will also be awarded long term incentives (LTI) under NTAW’s Employee Equity Plan. He is eligible for short term incentives as determined by the Board. Mr Lamb has statutory leave entitlements. Either party may terminate the contract on 6 months’ notice. In the case of termination by NTAW, NTAW may provide payment in lieu of notice. He is entitled to redundancy pay in accordance with NTAW’s legal obligations. Mr Lamb’s contract contains a 6 month non-compete restraint within Australia and a 6-month non- solicitation of employees, contacts and clients with whom he has contact with, or influence over. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. 14 15 15 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) All key management personnel are required to keep information obtained during their employment confidential, both during their employment and after their employment ends. Employment contracts contains an assignment of intellectual property created during the course of their employment. (e) Share-based compensation There were no shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2023 (2022: nil). (f) Equity instruments held by key management personnel Shareholding The number of shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year Ceased to be KMP Additions - Share Purchase Plan Additions - Dividend Reinvestment Plan (“DRP”) Additions/ (Disposals) - On-market Balance at the end of the year Ordinary shares M Boyte T Smith B Cook R Kent P Ludemann J Lamb C Skead1 240,206 27,321,966 451,032 324,734 2,759,928 75,418 3,500 - - - - - - (3,500) 31,176,784 (3,500) 1 No longer classified as key management personnel effective 1 July 2022. - - - - - - - - 5,005 569,205 9,395 6,766 57,497 - - 647,868 - - - - - - - - 245,211 27,891,171 460,427 331,500 2,817,425 75,418 - 31,821,152 16 16 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) Options The number of options over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Options M Boyte T Smith B Cook R Kent P Ludemann1 J Lamb2 C Skead3 Balance at the start of the year - - - - 350,000 320,000 305,000 Ceased to be KMP Granted / Lapsed Exercised - - - - - - (305,000) - - - - - - - - - - - - - - - - 975,000 (305,000) 1 On 30 September 2022, 180,000 options which were granted on 8 November 2019 had vested. These remain exercisable at 30 June 2023 and at the date of this report. 2 On 30 September 2022, 160,000 options which were granted on 8 November 2019 had vested. These remain exercisable at 30 June 2023 and at the date of this report. 3 No longer classified as key management personnel effective 1 July 2022. Rights The number of Rights to ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below Balance at the end of the year - - - - 350,000 320,000 - 670,000 Balance at the end of the year - - - - 228,590 114,295 - 342,885 Rights M Boyte T Smith B Cook R Kent P Ludemann J Lamb C Skead1 Balance at the start of the year - - - - 228,590 114,295 114,295 Ceased to be KMP Granted / Lapsed Exercised - - - - - - (114,295) - - - - - - - - - - - - - - - - All Rights on issue remain unvested as at 30 June 2023. 457,180 (114,295) 16 17 17 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 Remuneration report (audited) (continued) (g) Other transactions with key management personnel Related party transactions During the reporting period, the Group leased business premises from a KMP member. The lease expires on 28 February 2025 with no renewal options. Rent payments for FY2023 totalled $276,276 (2022: $92,092), with $nil outstanding at 30 June 2023 (2022: $nil.) The Group also engaged in consulting services of $102,773 from a KMP member which has been included as a short term benefit in section (b) above (2022: $nil). Loans to/from key management personnel At 30 June 2023 and 30 June 2022, there were no loans to and/or from KMP. This concludes the Remuneration Report, which has been audited. Shares under option There were 3,475,000 unissued ordinary shares of National Tyre & Wheel Limited under option outstanding at the date of this report. These options were issued in three tranches with 1,635,000, 1,680,000 & 160,000 options outstanding, respectively; have an exercise price of $0.3735, $0.5745 & $0.5745, respectively; and expire on 07/11/2024, 30/09/2025 & 30/09/2025, respectively. The option holders have no right to participate in any share issue prior to exercising the options. There were 1,002,364 unquoted rights to unissued ordinary shares of National Tyre & Wheel Limited outstanding at the date of this report. These rights have a nil exercise price and expire on 30/09/2026. Shares issued on the exercise of options During the year and in accordance with their terms, 140,000 options with an expiry date of 7 November 2024 were exercised. As a result, 90,996 of the 140,000 options were net settled and the remaining 49,004 options were exercised, resulting in the issuance of 49,004 ordinary shares. Indemnity and insurance of officers The Company has indemnified the directors and executives of the Group for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Group against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Group or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. 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 Group, or to intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings. 18 18 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Directors' report 30 June 2023 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 31 to the financial statements. 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 31 to the financial statements 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 (including Independence Standards) 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 Group, acting as advocate for the Group or jointly sharing economic risks and rewards. Officers of the Company who are former partners of Pitcher Partners There are no officers of the Company who are former partners of Pitcher Partners. Rounding of amounts The Group is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. 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 immediately after this directors' report. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors _____________________ Murray Boyte Chairman 29 August 2023 Brisbane 18 19 19 Directors’ report 30 June 2023 The Directors National Tyre & Wheel Limited Level 2, 385 MacArthur Avenue HAMILTON QLD 4007 Auditor’s Independence Declaration In relation to the independent audit for the year ended 30 June 2023, to the best of my knowledge and belief there have been: (i) (ii) No contraventions of the auditor independence requirements of the Corporations Act 2001; and No contraventions of APES 110 Code of Ethics for Professional Accountants (including Independence Standards). This declaration is in respect of National Tyre & Wheel Limited and the entities it controlled during the year. PITCHER PARTNERS ANDREW ROBIN Partner Brisbane, Queensland 29 August 2023 Brisbane Sydney Newcastle Melbourne Adelaide Perth Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. pitcher.com.au NIGEL FISCHER MARK NICHOLSON PETER CAMENZULI JASON EVANS KYLIE LAMPRECHT NORMAN THURECHT BRETT HEADRICK WARWICK FACE COLE WILKINSON SIMON CHUN JEREMY JONES TOM SPLATT JAMES FIELD DANIEL COLWELL ROBYN COOPER FELICITY CRIMSTON CHERYL MASON KIERAN WALLIS MURRAY GRAHAM ANDREW ROBIN KAREN LEVINE EDWARD FLETCHER ROBERT HUGHES 20 Directors’ report 30 June 2023 National Tyre & Wheel Limited and its controlled entities Statement of profit or loss and other comprehensive income For the year ended 30 June 2022 Statement of profit or loss and other comprehensive income for the year ended 30 June 2023 National Tyre & Wheel Limited and its controlled entities Statement of profit or loss and other comprehensive income For the year ended 30 June 2023 2022 $'000 Note 2021 $'000 Revenue from contracts with customers Other income Gain on bargain purchase Revenue from contracts with customers Expenses Other income Cost of goods sold Employee benefits and other related costs Expenses Depreciation and amortisation Cost of goods sold Occupancy Employee benefits and other related costs Computer and software costs Depreciation and amortisation Motor vehicle costs Occupancy Marketing Computer and software costs Motor vehicle costs Insurance Marketing Professional fees and acquisition costs Insurance Other Professional fees and acquisition costs Finance costs Other Finance costs Profit before income tax expense Profit before income tax expense Income tax expense Income tax expense Profit after income tax expense Profit after income tax expense Other comprehensive income Note 5 6 7 7 8 Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Items that may be reclassified subsequently to profit or loss: Foreign currency translation Other comprehensive income for the year, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year Profit for the year is attributable to: Non-controlling interest Profit for the year is attributable to: Owners of National Tyre & Wheel Limited Non-controlling interest Owners of National Tyre & Wheel Limited Total comprehensive income for the year is attributable to: Total comprehensive income for the year is attributable to: Non-controlling interest Non-controlling interest Owners of National Tyre & Wheel Limited Owners of National Tyre & Wheel Limited Basic earnings per share Basic earnings per share Diluted earnings per share Diluted earnings per share 25 25 25 25 5 6 30 7 7 557,909 461,533 2023 $'000 2022 $'000 805 - 1,357 596 582,284 555,549 370 (397,802) (77,856) (20,904) (9,139) (6,956) (5,584) (4,316) (3,824) (2,904) (9,774) (5,091) (418,463) (84,407) (24,040) (7,763) (6,705) (6,686) (5,187) (4,104) (2,137) (10,885) (8,422) 14,564 811 (324,023) (58,612) (14,278) (7,984) (3,733) (3,715) (6,178) (3,070) (3,530) (6,439) (3,006) (396,978) (77,856) (20,904) (9,139) (6,956) (5,584) (4,316) (3,824) (2,904) (8,244) (5,091) 28,918 8 3,855 (4,995) 14,564 (8,378) (960) 9,569 (4,995) 20,540 2,895 9,569 (2,853) (2,853) 6,716 305 305 (2,853) (2,853) 740 740 21,280 3,200 6,716 171 9,398. 9,569. (436) 3,331. 2,895 171 6,545 6,716. Cents 7.65 7.41 (436) 3,636 3,200. Cents 2.51 2.42 285. 20,255. 20,540. 285. 20,995. 21,280. Cents 17.90 17.56 171 9,398 9,569 171 6,545 6,716 Cents 7.65 7.41 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 22 21 21 21 Statement of financial position National Tyre & Wheel Limited and its controlled entities Statement of financial position As at 30 June 2023 as at 30 June 2023 Note 2023 $'000 2022 $'000 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Prepayments Current tax asset Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Other financial assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Lease liabilities Provisions Current tax liability Total current liabilities Non-current liabilities Payables Borrowings Lease liabilities Provisions Deferred tax Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Equity attributable to the owners of National Tyre & Wheel Limited Non-controlling interest Total equity 9 10 11 12 13 14 15 12 16 17 18 19 16 17 18 19 8 20 21 33,040 76,743 129,788 1,550 4,111 - 245,232 16,791 61,216 51,265 1,543 130,815 35,826 78,472 127,266 1,576 5,154 1,216 249,510 16,831 65,081 53,764 487 136,163 376,047 385,673 83,055 4,961 15,902 11,339 129 115,386 - 88,285 51,000 2,250 3,786 145,321 86,245 7,550 16,016 13,238 - 123,049 2,600 88,244 51,581 2,047 5,686 150,158 260,707 273,207 115,340 112,466 94,068 (1,093) 19,291 112,266 3,074 93,122 (2,107) 17,941 108,956 3,510 115,340 112,466 The above statement of financial position should be read in conjunction with the accompanying notes The above statement of financial position should be read in conjunction with the accompanying notes 22 22 Statement of changes in equity National Tyre & Wheel Limited and its controlled entities Statement of changes in equity For the year ended 30 June 2023 for the year ended 30 June 2023 Foreign currency translation reserve $'000 Issued capital $'000 Share-based payments reserve $'000 Retained earnings $'000 Non- controlling interest $'000 Total equity $'000 Balance at 1 July 2021 70,204 (174) 236 18,208. 3,339 91,813 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year - - - - (2,853) (2,853) Transactions with owners in their capacity as owners: Shares issued (note 20) Share-based payments (note 24) Dividends paid (note 22) 22,401 - 517 - - - Balance at 30 June 2022 93,122 (3,027) - - - - 684 - 920 9,398 - 9,398 - - (9,665) 171 - 171 - - - 9,569 (2,853) 6,716 22,401 684 (9,148) 17,941 3,510 112,466 Balance at 1 July 2022 93,122 (3,027) 920 17,941 3,510 112,466 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Redemption of share options (note 20) Share-based payments (note 24) Dividends paid (note 22) - - - 20 - 926 - 305 305 - - - - - - 3,331 (436) 2,895 - - 305 3,331 (436) 3,200 (20) 729 - - - (1,981) - - - - 729 (1,055) Balance at 30 June 2023 94,068 (2,722) 1,629 19,291 3,074 115,340 22 The above statement of changes in equity should be read in conjunction with the accompanying notes The above statement of changes in equity should be read in conjunction with the accompanying notes 23 23 Statement of cash flows National Tyre & Wheel Limited and its controlled entities Statement of cash flows For the year ended 30 June 2023 for the year ended 30 June 2023 Note 2023 $'000 2022 $'000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payment of deferred consideration Payment for purchase of business, net of cash acquired Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Transfers to term deposits Net cash used in investing activities Cash flows from financing activities Proceeds from share issue Payment of capital raising costs Proceeds from borrowings Repayment of borrowings Repayment of lease liabilities Dividends paid Net cash (used in)/from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents 23 30 656,716 (622,900) 33,816 43 (8,172) (1,515) 630,440 (606,844) 23,596 81 (4,855) (6,985) 24,172 11,837 (2,600) - (4,110) 687 (226) - (48,496) (5,132) 1,548 (483) (6,249) (52,563) -. - 4,292 (4,500) (16,774) (1,055) 19,904. (585) 51,568. (3,500) (13,376) (9,148) (18,037) 44,863 (114) 32,776 (83) 4,137 28,451 188 Cash and cash equivalents at the end of the financial year 9 32,579 32,776 The above statement of cash flows should be read in conjunction with the accompanying notes The above statement of cash flows should be read in conjunction with the accompanying notes 24 24 Notes to the financial statements National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 1. General information Note 2. Significant accounting policies Note 3. Critical accounting judgements, estimates and assumptions Note 4. Operating segments Note 5. Revenue from contracts with customers Note 6. Other income Note 7. Expenses Note 8. Income tax Note 9. Cash and cash equivalents Note 10. Trade and other receivables Note 11. Inventories Note 12. Other financial assets Note 13. Property, plant and equipment Note 14. Right-of-use assets Note 15. Intangible assets Note 16. Trade and other payables Note 17. Borrowings Note 18. Lease liabilities Note 19. Provisions Note 20. Issued capital Note 21. Reserves Note 22. Dividends Note 23. Cash flow information Note 24. Share-based payments Note 25. Earnings per share Note 26. Key management personnel disclosures Note 27. Related party transactions Note 28. Financial instruments Note 29. Fair value measurement Note 30. Business combinations Note 31. Remuneration of auditors Note 32. Contingent liabilities Note 33. Interests in subsidiaries Note 34. Parent entity information Note 35. Deed of cross guarantee Note 36. Events after the reporting period for the year ended 30 June 2023 26 26 35 36 36 36 37 38 39 39 39 40 40 41 42 45 45 47 48 49 50 50 51 52 58 59 59 61 65 65 67 67 68 68 69 71 24 25 25 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 1. General information The financial statements cover National Tyre & Wheel Limited as a Group consisting of National Tyre & Wheel Limited (“Company” or “Parent Entity”) and the entities it controlled at the end of, or during, the year (“Group” or "NTAW”). The financial statements are presented in Australian Dollars (“AUD”), which is National Tyre & Wheel Limited's functional and presentation currency. National Tyre & Wheel Limited is a for-profit listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 2, 385 MacArthur Avenue Hamilton QLD 4007 A description of the nature of the Group's operations and its principal activities are included in the directors' report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 29 August 2023. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation These general-purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”) and the Corporations Act 2001, as appropriate for for-profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”). Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board that are mandatory for the current reporting period. The new accounting standards, interpretations and amendments that are relevant to the activities of the Group have not had a material impact on the financial statements of the Group. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 34. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of National Tyre & Wheel Limited as at 30 June 2023 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. 26 26 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Non-controlling interest in the results and equity of subsidiaries are shown separately in the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity of the Group. Losses incurred by the Group are attributed to the non-controlling interest in full, even if that results in a deficit balance. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Operating segments Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers (“CODM”). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. Foreign currency translation Foreign currency transactions Foreign currency transactions are translated into Australian Dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian Dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian Dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency translation reserve in equity. The foreign currency translation reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue recognition The Group recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. 26 27 27 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Sale of goods Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the goods, which is generally at the time of delivery. Services revenue Revenue from services performed is recognised when the services are rendered. No services performed include multiple deliverables. Other income Interest income and finance income on the net investment in leases Interest income and finance income on the net investment in leases is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Other income Other income is recognised when it is received or when the right to receive payment is established. Income tax The income tax expense or benefit for the period is the tax payable on that period's taxable income based on the applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities attributable to temporary differences, unused tax losses and the adjustment recognised for prior periods, where applicable. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: • When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or • When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. 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. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. National Tyre & Wheel Limited (the 'head entity') and its wholly owned Australian subsidiaries (Exclusive Tyre Distributors Pty Ltd, Dynamic Wheel Co Pty Limited, Integrated OE Pty Ltd, Statewide Tyre Distribution Pty Ltd, Tyres4U Pty Ltd, Tyreright Operation Pty Ltd, Black Rubber Pty Ltd, Black Rubber Sydney Pty Ltd, Solid Plus Operations Pty and NTAW Logistics Pty Ltd), have formed an income tax consolidated group under the tax consolidation regime. In FY2023, NTAW Holdings (NZ) Ltd (the ‘head entity’) and its wholly owned New Zealand subsidiaries (Exclusive Tyres Distributors (NZ) Limited, Tyres4U (NZ) Ltd, Carters Tyre Service Limited, C.O. Tire & Retreading Co Limited and Tyre Distributors New Zealand Limited) formed an income tax consolidated group under the tax consolidation regime. In both consolidated income tax groups, the head entity and subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. 28 28 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Cash and cash equivalents Cash and cash equivalents includes 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. For the statement of cash flows presentation purposes, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings in current liabilities on the statement of financial position. Trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach under AASB 9 Financial Instruments to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Expected credit losses are based on a review of receivable balances and identification of specific debtors, based on historical credit loss experience, and adjusted for factors that are specific to the receivable balance, as well as current and forward-looking economic conditions affecting the ability of the customers to settle the receivables. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. Inventories Finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Stock in transit is stated at the lower of cost and net realisable value. Cost comprises of purchase and delivery costs, net of rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. 28 29 29 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group has not satisfied the documentation, designation and effectiveness tests required by Australian Accounting Standards, as such they do not qualify for hedge accounting and gains or losses arising from changes in fair value are recognised immediately in profit or loss. Derivatives are classified as current or non-current depending on the expected period of realisation. Property, plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a diminishing value basis to write off the net cost of each item of property, plant and equipment over their expected useful lives as follows: Leasehold improvements Plant and equipment Motor vehicles 2.5% to 15% 5% to 60% 13.5% to 30% The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements are depreciated over the shorter of the unexpired period of the lease or the estimated useful life of the assets. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. 30 30 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Lease liabilities Lease liabilities are recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Brand names Brand names are assessed as having an indefinite useful life on the basis of brand strength, ongoing expected profitability and continuing support. Brand names are not amortised, but are instead tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Customer relationships Customer relationships acquired in a business combination are amortised on a straight-line basis over the period of their expected benefit, being their finite useful life of 7 to 10 years. Importation rights Importation rights acquired are amortised on a straight-line basis over the term of the distribution agreement, being 9 years. Importation rights are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the rights might be impaired (e.g. compliance with the terms of the rights agreement including achieving minimum annual purchase volume levels). Accreditations Accreditations acquired in a business combination are assessed as having an indefinite useful life on the basis the accreditation is maintained. Accreditations are not amortised, but are instead tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. 30 31 31 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Impairment of non-financial assets Goodwill and other 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 non-financial 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. Recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit (“CGU”) to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash- generating unit. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled. Other long-term employee benefits The liability for annual leave and long service leave not expected to be settled wholly within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high-quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Share-based payments Equity-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, which are provided to employees in exchange for the rendering of services. 32 32 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using either the Binomial or Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Issued capital Ordinary shares are classified as equity. 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. 32 33 33 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 2. Significant accounting policies (continued) Dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of National Tyre & Wheel Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Goods and Services Tax (“GST”) and other similar taxes Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the tax authority, are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority. Comparative information Comparatives have been reclassified, where applicable, to align with current year presentation. There was no impact on the results or financial position of the Group. Rounding of amounts The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. New Accounting Standards and Interpretations not yet mandatory or early adopted No Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have been early adopted by the Group for the annual reporting period ended 30 June 2023. These Standards and Interpretations are not expected to have a material impact on the Group in the current of future reporting periods and on foreseeable future transactions. 34 34 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Recognition of identifiable intangible assets on acquisition Brand names, importation rights, customer relationships and accreditations have been recognised on the acquisition of subsidiaries in the prior period. The valuation of these assets is based on the acquisition date present value of expected future cash flows associated with the brand and the recurring current customers covering a period of 5 to 12 years. These cash flows have been calculated using annual growth rates of between 2.0%-6.3% , a terminal growth rate of 2.0%-2.5% and a pre-tax discount rate between 13.0%-20.0%. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows (refer to note 15). Impairment of non-financial assets other than goodwill and other indefinite life intangible assets The Group assesses impairment of non-financial assets other than goodwill and other indefinite life intangible assets at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an impairment trigger exists, the recoverable amount of the asset is determined. This involves value-in-use calculations, which incorporate a number of key estimates and assumptions. Share-based payment transactions The Group 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. The fair value is determined by using the Binomial model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share- based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Share-based payments expense under the employee share option plan has been recognised over the expected vesting period of the options. The share-based payment expense incurred is equal to the value of the options and management have assessed the fair value of the options using a Binominal model with the following key criteria: pre-determined exercise price, share price at grant date based on estimated enterprise value of the company, risk-free rate, volatility of share price and assumed vesting period from grant date (refer to note 24 for further details of each group of options issued). Warranty provision In determining the level of provision required for warranties the Group has made judgements in respect of the expected performance of the products, the number of customers who will actually claim under the warranty and how often, and the costs of fulfilling the conditions of the warranty (refer to note 19). Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on the Group's current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made (refer to note 8). 34 35 35 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 4. Operating segments Identification of reportable operating segments The Group's operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers (“CODM”)) in assessing performance and in determining the allocation of resources. The Directors are of the opinion that there is one reportable segment in the Group as the CODM reviews results, assesses performance and allocates resources at a Group level. As the information reported to the CODM is the consolidated results of the Group, the segment results are shown throughout these financial statements and are not duplicated here. Non-current assets As at 30 June 2023, $112,331,000 (2022: $116,524,000) of the Group's non-current assets (excluding deferred taxes) were held in Australia, with $18,152,000 held in New Zealand (2022: $19,650,000) and $333,000 (2022: $343,000) held in South Africa, respectively. Major customers During FY2023, none of the Group's external revenue was derived from sales of greater than 10% to any customer (2022: none). Note 5. Revenue from contracts with customers Sale of goods and services revenue Disaggregation of revenue The disaggregation of revenue from contracts with customers by geographic region is as follows: Australia New Zealand South Africa 2023 $'000 2022 $'000 582,284 555,549 582,284 555,549 441,587 130,948 9,749 439,339 104,771 11,439 582,284 555,549 During the 2023 and 2022 financial years, all revenue from sale of goods was recognised as the goods were transferred at a point in time and revenue from services was recognised as the service was performed over time. Note 6. Other income Recovery of bad debts Interest income Finance income on the net investment in the lease Other income 15 30 13 312 370 217 81 - 513 811 36 36 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 7. Expenses Profit before income tax includes the following specific expenses: Depreciation Leasehold improvements Plant and equipment Motor vehicles Right-of-use assets Total depreciation Amortisation Customer relationships Importation rights Total amortisation Total depreciation and amortisation Finance costs Interest and finance charges paid/payable for financial liabilities Interest and finance charges paid/payable for lease liabilities Other interest and finance charges paid/payable Finance costs expensed Foreign exchange loss Realised foreign exchange loss Unrealised foreign exchange loss/(gain) Net foreign exchange loss Expense relating to leases Expense relating to short-term leases Expense relating to leases of low value assets 2023 $'000 2022 $'000 282 1,957 1,288 17,655 180 1,600 1,460 15,494 21,182 18,734 2,330 528 2,858 1,641 529 2,170 24,040 20,904 6,282 2,105 35 8,422 1,804 185 1,989 1,385 - 1,385 3,288 1,784 19 5,091 1,530 (85) 1,445 1,382 - 1,382 Superannuation expense Defined contribution superannuation expense 5,120 4,928 36 37 37 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 8. Income tax Income tax expense Current tax Deferred tax (Over)/under provision in prior years Income tax expense Deferred tax included in income tax expense comprises: (Increase)/decrease in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible in calculating taxable income: Sundry items Adjustment recognised for prior periods Difference in overseas tax rates Income tax expense Deferred tax Net deferred tax comprises temporary differences attributable to: Capital raising costs Acquisition costs Provisions Property, plant and equipment Intangibles Right-of-use assets Other Lease liabilities Foreign currency exchange Deferred tax liabilities Movements: Opening balance Recognition of deferred taxes on acquisition (note 30) Credited/(charged) to profit or loss (Under)/over provision in prior year Foreign exchange differences Closing balance 38 38 2023 $'000 2,857 (1,075) (822) 960 2022 $'000 4,714 168 113 4,995 (1,075) 168 3,855 1,156 14,556 4,367 703 623 1,859 4,990 (822) (77) 960 - (7) 4,471 (3,355) (6,304) (18,110) (421) 19,940 - 113 (108) 4,995 10 19 4,613 (3,940) (6,603) (18,949) (377) 19,822 (281) (3,786) (5,686) (5,686) - 1,075 822 3 2,076 (5,697) (168) (1,881) (16) (3,786) (5,686) Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 9. Cash and cash equivalents Cash at bank 2023 $'000 2022 $'000 33,040 35,826 33,040 35,826 Reconciliation to cash and cash equivalents at the end of the financial year The above figures are reconciled to cash and cash equivalents at the end of the financial year as shown in the statement of cash flows as follows: Balances as above Bank overdraft (note 17) Balance as per statement of cash flows Note 10. Trade and other receivables Trade receivables Less: Allowance for expected credit losses Other receivables 33,040. (461) 35,826. (3,050) 32,579 32,776. 77,220 (1,304) 75,916 78,565 (1,197) 77,368 827 1,104 76,743 78,472 Allowance for expected credit losses The Group has recognised a net loss of $358,000 (2022: $487,000) in profit or loss in respect of the expected credit losses. Trade receivables past due but not impaired amount to $11,509,000 (2022: $11,408,000). At 30 June 2023 an ageing analysis of those trade receivables are as follows: Not overdue 1 to 30 days overdue 31 to 60 days overdue 61 plus days overdue Refer to note 28 for further information on financial instruments. Note 11. Inventories Finished goods - at cost Less: Provision for impairment Stock in transit - at cost 65,711 9,055 1,180 1,274 67,157 8,237 1,675 1,496 77,220 78,565 118,232 (612) 117,620 115,761 (737) 115,024 12,168 12,242 129,788 127,266 38 39 39 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 12. Other financial assets Current Term deposits Net investment in leases Forward foreign exchange contracts Non-Current Term deposits Net investment in leases 2023 $'000 151 1,128 271 1,550 76 1,467 1,543 2022 $'000 136 115 1,325 1,576 487 - 487 The Group subleases a warehouse that it commenced leasing in 2015. The Group has classified the sublease as a finance lease because the sublease is for a significant portion of the remaining term of the head lease. The following table sets out a maturity analysis of the lease receivables, showing the undiscounted lease payments to be received after the reporting date. Less than one year One to two years Two to three years Total undiscounted lease payments receivable Unearned finance income Net investment in leases Note 13. Property, plant and equipment Leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation 1,238 1,297 224 2,759 (164) 2,595 2,227 (931) 1,296 24,008 (14,296) 9,712 21,806 (16,023) 5,783 115 - - 115 - 115 1,786 (429) 1,357 22,191 (12,283) 9,908 19,675 (14,109) 5,566 16,791 16,831 40 40 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 13. Property, plant and equipment (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Leasehold improvements $'000 Plant and equipment $'000 Motor vehicles $'000 6,016 3,661 2,780 (722) (1,600) (227) 9,908 2,203 (469) (1,957) 27 3,719 2,193 1,572 (339) (1,460) (119) 5,566 1,609 (153) (1,288) 49 Total $'000 10,167 6,225 5,146 (1,250) (3,240) (217) 16,831 4,110 (706) (3,527) 83 9,712 5,783 16,791 2023 $'000 89,246 (32,375) 56,871 1,145 (399) 746 5,461 (1,862) 3,599 2022 $'000 90,148 (29,881) 60,267 1,128 (332) 796 5,258 (1,240) 4,018 61,216 65,081 432 371 794 (189) (180) 129 1,357 298 (84) (282) 7 1,296 Balance at 30 June 2021 Additions as part of acquisition (note 30) Additions Disposals Depreciation expense Foreign exchange differences Balance at 30 June 2022 Additions Disposals Depreciation expense Foreign exchange differences Balance at 30 June 2023 Note 14. Right-of-use assets Land and buildings - right-of-use Less: Accumulated depreciation Plant and equipment - right-of-use Less: Accumulated depreciation Motor vehicles - right-of-use Less: Accumulated depreciation 40 41 41 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 14. Right-of-use assets (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current year are set out below: Balance at 30 June 2021 Additions as part of acquisition (note 30) Additions Depreciation expense Foreign exchange differences Balance at 30 June 2022 Additions Disposals Depreciation expense Foreign exchange differences Balance at 30 June 2023 Note 15. Intangible assets Goodwill Less: Accumulated impairment loss Customer relationships Less: Accumulated amortisation and impairment loss Importation rights Less: Accumulated amortisation and impairment loss Brand names Accreditations Land and buildings $'000 Plant and equipment $'000 Motor vehicles $'000 Total $'000 31,833 12,808 30,561 (14,500) (435) 60,267 20,700 (8,039) (16,268) 211 56,871 407 89 613 (188) (125). 796 191 (27) (208) (6) 746 1,304 2,949 694 (806) (123) 4,018 817 (102) (1,179) 45 33,544 15,846 31,868 (15,494) (683). 65,081 21,708 (8,168) (17,655) 250 3,599 61,216 2023 $'000 30,556 (1,311) 29,245 17,212 (5,993) 11,219 12,106 (9,880) 2,226 2022 $'000 30,311 (1,311) 29,000 17,484 (3,984) 13,500 12,106 (9,352) 2,754 8,375 8,310 200 200 51,265 53,764 42 42 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 15. Intangible assets (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Goodwill $'000 Customer relationships $'000 Importation rights $'000 Brand Names $'000 Accreditations $'000 Total $'000 Balance at 30 June 2021 Additions (note 30) Amortisation expense Foreign exchange differences Balance at 30 June 2022 Amortisation expense Foreign exchange differences 7,567 22,023 - (590) 29,000 - 245 2,455 12,817 (1,641) (131) 13,500 (2,330) 49 Balance at 30 June 2023 29,245 11,219 3,283 - (529) - 2,754 (528) - 2,226 2,393 6,077 - (160) 8,310 - 65 8,375 - 200 - - 200 - - 200 15,698 41,117 (2,170) (881) 53,764 (2,858) 359 51,265 Impairment testing For the purpose of impairment testing, goodwill and brand names are allocated to the respective cash-generating units: Goodwill CGU: - Tyres and wheels - OE - Black Rubber - Carter’s Brand names CGU: - OE - Black Rubber - Carter’s 2023 $'000 2022 $'000 6,002 2,339 7,680 13,224 29,245 2,393 2,400 3,582 8,375 6,002 2,339 7,680 12,979 29,000 2,393 2,400 3,517 8,310 The Group tests whether goodwill and brand names have suffered any impairment on an annual basis. The recoverable amount of the CGUs was determined based on value-in-use calculations which require the use of assumptions. The calculations are conducted using a discount cash flow methodology based on financial budgets approved by the Board of Directors for the 2024 financial year. The FY2024 cashflow budgets have then been extrapolated using estimated annual growth rates, together with terminal growth rates. These growth rates are considered reasonable in light of the 2023 base cashflows and are consistent with forecasts included in industry reports specific to the industry in which each CGU operates. 42 43 43 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 15. Intangible assets (continued) The following table sets out the key assumptions for those CGUs that have significant goodwill and brand names allocated to them, which have not been impaired during the year: Tyres and wheels % 2.0% 2.5% 11.6% Tyres and wheels % 2.0% 2.0% 13.3% 2023 Black Rubber Carter’s % % 2.0% 2.5% 15.4% 2.0% 2.5% 14.6% 2022 Black Rubber Carter’s % % 2.0% 2.0% 14.1% 2.0% 2.0% 15.8% OE % 2.0% 2.5% 15.7% OE % 2.0% 2.0% 15.3% Average annual growth rate (%) Terminal growth rate (%) Pre-tax discount rate (%) Average annual growth rate (%) Terminal growth rate (%) Pre-tax discount rate (%) Management has determined the value assigned to each of the above key assumptions as follows: Assumption Approach used to determine values Annual growth rate Terminal growth rate Discount rate Average annual growth rate over the five-year forecast period beyond the 2024 financial year is based on the cashflow budgets, past performance and management’s expectations of market development. Terminal growth rate was based on the 2024 forecast cashflows and management’s expectations of long-term growth. A post-tax estimate based on NTAW’s weighted average cost of capital. Significant estimate: Impact of possible changes in key assumptions A sensitivity analysis was performed on key assumptions in the 2023 and 2022 financial years, as follows: • Average annual growth rates – reduction • No impairment in any CGU. by 1% Terminal growth rate – reduction by 1% • • Discount rate – increase by 1% • No impairment in any CGU. • No impairment in any CGU. 44 44 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 16. Trade and other payables Current Trade payables Accruals and other payables Deferred consideration Non-current Deferred consideration Refer to note 28 for further information on financial instruments. Note 17. Borrowings Current Bank overdraft Bank facility Non-current Bank facility Total secured liabilities The total secured liabilities are as follows: Bank overdraft Bank facility The bank facility has an expiry date of 28 October 2024. Refer to note 28 for further information on financial instruments. 2023 $'000 2022 $'000 61,286 19,169 2,600 58,954 24,691 2,600 83,055 86,245 - - 2,600 2,600 461 4,500 4,961 3,050 4,500 7,550 88,285 88,244 88,285 88,244 461 92,785 3,050 92,744 93,246 95,794 Assets pledged as security The bank facility is secured over the assets of National Tyre & Wheel Limited and all subsidiaries except Top Draw Tyres Proprietary Limited t/a Tyrelife Solutions (“TLS”). The total value of TLS’ assets as at 30 June 2023 is $10,430,000. Compliance with loan covenants The Group has complied with the financial covenants of its borrowing facility during the 2023 and 2022 reporting period. 44 45 45 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 17. Borrowings (continued) Financing arrangements Unrestricted access was available at the reporting date to the following lines of credit: Total facilities Bank overdraft Bank facility Bank guarantee Used at the reporting date Bank overdraft Bank facility1 Bank guarantee 1 Includes lease liabilities which were funded by the bank facility. Unused at the reporting date Bank overdraft Bank facility Bank guarantee 2023 $'000 2022 $'000 2,961 101,750 10,000 114,711 461 94,298 8,277 103,036 3,514 104,000 10,000 117,514 3,050 94,718 8,305 106,073 2,500 7,452 1,723 11,675 464 9,282 1,695 11,441 46 46 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 18. Lease liabilities Current Property leases Equipment leases Motor vehicle leases Non-current Property leases Equipment leases Motor vehicle leases 2023 $'000 14,438 265 1,199 2022 $'000 14,655 301 1,060 15,902 16,016 48,213 320 2,467 48,355 272 2,954 51,000 51,581 The Group has leases for warehouse and office facilities, warehouse equipment and motor vehicles. Leases are either non- cancellable or may only be cancelled by incurring a substantive termination fee. All variable payments are linked to an index. The lease liabilities are secured by the related underlying asset. Leasing activities The table below describes the nature of the Group’s leasing activities by type of right-of-use asset. Right-of-use asset No. of leases Range of remaining term (yrs) Average remaining term (yrs) No. of leases with extension options No. of leases with purchase options No. of leases with variable payments linked to an index No. of leases with termination options Land and buildings Plant and equipment Motor vehicles 63 10 60 0.1 – 9.7 0.1 – 4.3 0.4 – 6.8 3.0 2.2 2.7 49 - - - 1 31 39 - - - - - The total cash outflow for leases in the 2023 financial year was $19,881,000 (2022: $15,160,000). 46 47 47 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 19. Provisions Current Employee benefits Warranties Make-good Non-current Employee benefits Warranties Make-good 2023 $'000 10,504 716 119 2022 $'000 12,089 754 395 11,339 13,238 641 822 787 836 861 350 2,250 2,047 Amounts not expected to be settled within the next 12 months The current provision for employee benefits includes all unconditional entitlements where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the Group does not have an unconditional right to defer settlement. Based on past experience, the Group expects all employees to take the full amount of accrued leave or require payment within the next 12 months. Warranties The provision represents the estimated warranty claims in respect of products sold which are still under warranty at the reporting date. The provision is estimated based on historical warranty claim information, sales levels and any recent trends that may suggest future claims could differ from historical amounts Make-good The provision represents the present value of the estimated expenditure required to restore leased premises to their original condition at the end of the lease term. These costs have been capitalised as part of the cost right-of-use assets once a reliable estimate of the cost can be made and are amortised over the term of the lease. Movements in provisions Movements in each class of provision (current and non-current) during the current financial year, other than employee benefits, are set out below: Warranties Carrying amount at the start of the year Additional provisions recognised Amounts used Carrying amount at the end of the year Make-good Carrying amount at the start of the year Additional provisions recognised Amounts used Carrying amount at the end of the year 48 48 2023 $'000 1,615 689 (766) 1,538 745 435 (273) 907 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 20. Issued capital 2023 Shares 2022 Shares 2023 $'000 2022 $'000 Ordinary shares - fully paid 133,271,318 131,936,002 94,068 93,122 Movements in ordinary share capital Details Balance Shares issued per Dividend Reinvestment Plan Shares issued as consideration in Black Rubber acquisition (note 30) Shares issued per Placement, net of capital raising costs Shares issued as consideration in Carter’s acquisition (note 30) Shares issued per Share Purchase Plan, net of capital raising costs Shares issued per Dividend Reinvestment Plan Date Shares Issue price $'000 1 Jul 2021 114,294,863 15 Oct 2021 2 Nov 2021 188,447 1,071,430 21 Dec 2021 7 Jan 2022 6,666,666 1,394,222 $1.0900 $1.1200 $1.3500 $1.4300 70,204 205 1,200 8,507 1,882 28 Jan 2022 8,077,023 $1.3500 10,812 8 Apr 2022 243,351 $1.2805 312 Balance 30 June 2022 131,936,002 Shares issued per Dividend Reinvestment Plan Redemption of share options (note 24) Redemption of share options (note 24) 7 Oct 2022 14 Oct 2022 22 June 2023 1,286,312 29,752 19,252 $0.7200 $0.3735 $0.3735 Balance 30 June 2023 133,271,318 93,122 926 10 10 94,068 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. By way of a poll each share shall have one vote at a meeting. Share buy-back There is no current on-market share buy-back. Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current Company's share price at the time of the investment. The Group is actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The capital risk management policy remains unchanged from the 30 June 2022 Annual Report. 48 49 49 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 21. Reserves Foreign currency translation reserve Share-based payments reserve 2023 $'000 (2,722) 1,629 2022 $'000 (3,027) 920 (1,093). (2,107). Foreign currency translation reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian Dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Share-based payments reserve The share-based payments reserve is used to recognise the value of equity benefits provided to employees as part of their remuneration. Share-based payments reserve is transferred to share capital upon exercising of options and is transferred to retained earnings upon lapsing or forfeiture of options. Note 22. Dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2022 (2022: 30 June 2021) of 1.50 cents (2022: 5.00 cents) per ordinary share Interim dividend for the year ended 30 June 2023 (2022: 30 June 2022) of $nil (2022: 3.00 cents) per ordinary share 1,981 - 1,981 5,715 3,950 9,665 Refer to note 20 for details of shares issued pursuant to the Company's Dividend Reinvestment Plan during the 2023 financial year. At the date of signing these financial statements, there has been no dividend’s declared by the Company and no dividend’s payable. Franking credits Franking credits available for subsequent financial years based on a tax rate of 30% 19,027 19,364 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for franking credits or debits that will arise from the payment or refund of the amount of the provision for income tax or income tax refundable at the reporting date. 50 50 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 23. Cash flow information Reconciliation of profit after income tax to net cash from operating activities: Profit after income tax expense for the year Adjustments for: Depreciation and amortisation Share-based payments Impairment of receivables Net loss/(gain) on disposal of property, plant and equipment Foreign exchange differences Change in operating assets and liabilities: Decrease/(increase) in trade and other receivables Decrease/(increase) in inventories Decrease/(increase) in other assets Increase/(decrease) in trade and other payables Increase/(decrease) in provisions Increase/(decrease) in current tax liability/asset Decrease/(increase) in deferred tax liabilities 2023 $'000 2,895 24,040 729 358 39 2,063 1,370 (2,522) 1,042 (3,190) (2,097) 1,337 (1,892) 2022 $'000 9,569 20,904 684 487 (299) (2,041) 3,738 (12,448) (424) (5,506) (837) (4,139) 2,149 Net cash from operating activities 24,172 11,837 Liabilities from financing activities: Borrowings and Lease liabilities Balance at the start of the year Net cash flows Recognition of lease liabilities Derecognition of lease liabilities Lease liabilities assumed as part of acquisition (note 30) Foreign exchange differences Balance at the end of the year Non-cash investing and financing activities disclosed in other notes are: • Acquisition of right-of-use assets (note 14) • • Dividends satisfied by the issue of shares under the DRP (note 20) Shares issued as consideration in acquisitions (note 30) 160,341 (16,982) 21,036 (4,980) - 272 78,408 34,692 32,109 - 15,829 (697) 159,687 160,341 50 51 51 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 24. Share-based payments Employee Equity Plan (“EEP”) The Company adopted an employee equity plan on 3 November 2021. The details of the EEP are summarised as follows: Under the Plan, eligible employees or contractors of a group company, directors (including non-executive directors) and other persons who are declared by the Board to be eligible to receive awards and who otherwise meet the criteria of an eligible participant under ASIC Class Order 14/1000 may be offered rights, options, exempt share awards, salary sacrifice share awards and performance share awards. Participation in the EEP is at the Board’s discretion and no individual has a contractual right to participate in it or to receive any guaranteed benefits. Rights, options and performance share awards are non-transferable. Rights and/or options may only be exercised if: • • the rights and/or options vest in accordance with the applicable performance conditions; and the exercise conditions (if any) have been met. Any right or option that has not vested may not be exercised, unless (subject to applicable laws) the Board exercises its absolute discretion, in circumstances where the Board considers it to be in the best interests of the Company to: • • vary or waive the relevant performance conditions and/or exercise conditions, and declare the rights and/or options to have vested; or bring forward the date upon which rights and/or options may be exercised. Performance share awards may only vest in accordance with the applicable performance conditions (if any), unless (subject to applicable laws) the Board exercises its absolute discretion, in circumstances where it considers it to be in the best interests of the Company, to: • • vary or waive the relevant performance conditions, and declare the performance share awards to have vested; or bring forward the date upon which the performance share awards may vest. If instructed to do so in writing by the Board, each participant will take all necessary actions and enter into all necessary documentation to give effect to the re designation of a performance share award that has vested to be a share. An invitation may only be made under the EEP if the number of shares that may be acquired on exercise of the awards to which the invitation relates, when aggregated with: • • the number of shares which could be issued if each outstanding invitation or award under the EEP or any other employee equity incentive scheme of the Company (covered by the Class Order or an individual instrument made by ASIC in terms similar to the Class Order) was accepted or exercised; and the number of shares issued during the previous three years pursuant to the EEP or any other employee equity incentive scheme of the Company (covered by the Class Order or an individual instrument made by ASIC in terms similar to the Class Order), but disregarding any invitation given, award acquired or share issued by way of or as a result of: • • • an offer to a person situated outside of Australia at the time of receipt of the offer; an offer which did not require disclosure to investors under the Corporations Act; or an offer made under a disclosure document (within the meaning of the Corporations Act), does not exceed 5% of the total number of issued shares at the time the invitation was made. A right or an option may only be exercised if at the time of exercise: • • • The right or option has become vested under the EEP; The right or option has not lapsed or been forfeited under the EEP; and The exercise price (if any) has been paid to the Company in such manner approved by the Board 52 52 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 24. Share-based payments (continued) Any right, option or performance share held by a participant will not give any right to the participant: • • to receive any dividends declared by the Company; or to receive notice of, or to vote or attend at, a meeting of the shareholders of the Company, until the participant's shares are issued or transferred (as the case requires) to, and registered in the name of, the participant before the record date for determining entitlements to the dividend or the date of the meeting of shareholders (as the case may be). The Company may grant share awards for no consideration or at a purchase price that is a discount to the then market value of shares, with the intention that up to $1,000 (or such other amount that is exempted from tax under the Income Tax Assessment Act 1997 (Cth) as applicable and amended from time-to-time) of the total value or discount received by each participant will be exempt from tax. The Company must offer the share awards on a non-discriminatory basis in accordance with Division 83A of the Income Tax Assessment Act 1997 (Cth) as amended from time-to-time. Share awards may be offered under a salary sacrifice arrangement in accordance with the terms of the invitation. Any participant’s share may be subject to a holding lock of up to a maximum of 10 years from the grant date at the Board’s absolute discretion. The Board may remove the holding lock applying to a participant’s shares at its discretion. Rights and options will lapse, and performance share awards will be forfeited, if those awards have not vested (and have not otherwise been forfeited) by the last date on which awards are able to vest as specified under the invitation to a participant. The Board may waive any vesting conditions where a participant ceases to be employed by the Company or its related bodies corporate as the result of a qualifying event, being either death, serious injury or illness that prohibits continued employment, retirement, retrenchment, or such other circumstances that result in a participant leaving the employment of the Company or its related bodies corporate and that the Board determines (in its absolute discretion) is a qualifying event. Rights, options and performance share awards will be forfeited where: • • the Board determines in its absolute discretion that a participant has acted fraudulently or dishonestly, or is in material breach of his or her obligations to the Company or its related bodies corporate; or a participant ceases to be employed by the Company or its related bodies corporate other than as a result of a qualifying event, whether or not those awards have vested. Rights and options that have vested and that have not been exercised will lapse on the date specified on the invitation to a participant as the last date on which awards are able to be exercised unless those awards have otherwise been forfeited or unless that date has been extended. Each participant’s shares issued under an award granted pursuant to the EEP will rank equally in all respects with all existing shares from the date of issue. A participant will have a vested and indefeasible entitlement to any dividends declared and distributed by the Company on participant’s shares that, at the books closing date for determining entitlement to those dividends, are standing to the account of the participant. A participant may exercise any voting rights attaching to a participant’s shares registered in the participant’s name or, in the case of exempt share awards or salary sacrifice share awards, registered in the name of a trustee, once those share awards are allocated to the participant. A participant has the right to participate in rights issues and bonus issues by the Company: • • in relation to a participant’s shares that are registered in the participant’s name; or in the case of exempt share awards or salary sacrifice share awards, that are registered in the name of a trustee, once those share awards are allocated. The EEP may be suspended or terminated at any time by resolution of the Board. Suspension or termination of the EEP will not prejudice the accrued rights of participants. 52 53 53 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 24. Share-based payments (continued) The Board will: • • reduce the exercise price of rights and/or options (if any) in the event of a new issue; and/or change the number of underlying shares to which awards relate in the event of a bonus issue, in accordance with the ASX Listing Rules. In the event of a reorganisation of the Company’s share capital, the Board will review and modify the terms of the awards if required by, and in accordance with, the ASX Listing Rules. Subject to the ASX Listing Rules and the law, the Board may at any time by resolution amend or add to the rules of the EEP. However, no amendment to the rules may be made which materially reduces the rights of participants in respect of Awards which they have accepted prior to the amendment (except for certain changes, including changes for the purpose of complying with laws or the ASX Listing Rules). Employee Share Option Plan (“ESOP”) The Company adopted an employee share option plan on 6 November 2017. The details of the ESOP are summarised as follows: Options may be granted under the ESOP to any person who is, or is proposed to be, a full-time or part-time employee, a non- executive director, a contractor (40% full-time equivalent (“FTE”)) or a casual employee (40% FTE) of the Company or any of its associated bodies corporate, and whom the Board determines to be an eligible person for the purposes of participation in the ESOP (referred to as an 'Eligible Person'). An option may not be granted under the ESOP if, immediately following its grant, the shares to be received on exercise of the option, when aggregated with the number of shares which would be issued if each unvested option granted under the ESOP or any other employee incentive scheme of the Company were to vest and be exercised and the number of shares issued in the previous 3 years under the ESOP or any other employee incentive scheme of the Company, exceeds 5% of the total number of issued shares at the time of grant (or any varied limit if permitted under the Corporations Act 2001, ASX Listing Rules and ASIC instruments). Certain offers of options may be excluded from calculation as permitted under Class Order 14/1000, including excluded offers under section 708 of the Corporations Act 2001 and offers under a disclosure document. Each option entitles the participant to subscribe for one ordinary share in the Company. The specific terms relevant to the grant of options are set out in an offer from the Company to the Eligible Person which contains details of the application price (if any) (which must not be for more than nominal consideration), the expiry date, the exercise price, the vesting date, any applicable performance conditions and other specific terms relevant to those options. Unless otherwise specified in the offer of an option, if a “Change of Control Event” occurs before the vesting date of an option, that option immediately vests and ceases to be subject to any performance condition to which it was subject. A Change of Control Event means the occurrence of one or more of the following events: • • • • a person who has offered to acquire all shares in the Company acquires Control (as defined in section 50AA of the Corporations Act 2001) of the Company; any other event occurs which causes a change in Control of the Company; unless the Board determines otherwise, a takeover bid is recommended by the Board or a scheme of arrangement which would have a similar effect to a full takeover bid is announced by the Company; and any other event which the Board reasonably considers should be regarded as a Change of Control Event. Options may only be transferred: • • to a legal personal representative on the death of the participant or to the participant’s trustee in bankruptcy on the bankruptcy of the participant; or pursuant to an off-market takeover bid, in various compulsory acquisition scenarios under Chapter 6A of the Corporations Act 2001, under a creditor’s scheme of arrangement under section 411 of the Corporations Act 2001 or if approved by the Board. 54 54 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 24. Share-based payments (continued) An option does not confer any rights to participate in a new issue of shares by the Company. If the Company conducts a rights issue, the exercise price of options will be adjusted in accordance with the adjustment formula for pro rata issues set out in the Listing Rules. If the Company makes a bonus issue of securities to holders of shares, the rights of a holder in respect of an unexercised option will be modified such that the participant will receive, upon exercise of an option, one Share plus such additional securities which the participant would have received had the participant exercised the option immediately before the record date for that bonus issue and participated in the bonus issue as the holder of the share. Any shares issued under the ESOP rank equally in all respects with the Shares of the same class on issue, subject to the restrictions on the transfer of shares. Shares issued on exercise of options are not transferable for the period (if any) specified in the offer from the Company to the Eligible Person. The Rules of the ESOP allow participants to utilise a cashless exercise facility where a Participant can set-off the Exercise Price against the number of shares which the participant is entitled to receive upon exercise of the participant’s options. By using the cashless exercise facility, the participant will receive shares to the value of the surplus after the exercise price has been set-off. If a participant elects to use the cashless exercise facility, the participant will only be issued that number of shares (rounded down to the nearest whole number) as are equal to the value of the difference between the exercise price otherwise payable for the options and the then market value of the shares at the time of exercise (which is determined as the volume weighted average price of Shares on the ASX over the five trading days prior to exercise). An unvested option lapses upon the first to occur of the following: • • • • • • its expiry date; any applicable performance condition not being satisfied prior to the end of any prescribed performance period; a transfer or purported transfer of the option in breach of the rules; 30 days following the day the participant ceases to be employed or engaged by the Company or an associated body corporate by resigning voluntarily and not recommencing employment with the Company or an associated body corporate before the expiration of that 30 days; 30 days following the day the participant ceases to be employed or engaged by the Company or an associated body corporate by reason of his or her death, disability, bona fide redundancy, or any other reason with the approval of the Board and the participant has not recommenced employment with the Company or an associated body corporate before the expiration of those 30 days, however the Board has a discretion to deem all or any of the options to have vested; or termination of the participant’s employment or engagement with the Company or an associated body corporate on the basis the participant acted fraudulently, dishonestly, in breach of the participant’s obligations or otherwise for cause. A vested but unexercised option lapses upon the first to occur of the following: • • • its expiry date; a transfer or purported transfer of the option in breach of the rules; or termination of the participant’s employment or engagement with the Company or an associated body corporate on the basis the participant acted fraudulently, dishonestly, in breach of the participant’s obligations or otherwise for cause. Subject to the ASX Listing Rules and the law, the Board may at any time by resolution amend or add to the rules of the ESOP. However, the consent of a participant is required for any change to the rules or option terms which prejudicially affects the rights of the participant in relation to the option (except for certain changes, including changes to benefit the administration of the Plan or to comply with laws, ASX Listing Rules or regulations). 54 55 55 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 24. Share-based payments (continued) Set out below are summaries of outstanding options granted on 8 November 2019, 25 February 2021 and 24 September 2021 and outstanding rights granted on 17 December 2021: 2023 Grant date Expiry date Exercise price Balance at start of year Granted Lapsed Exercised1 17/12/2021 24/09/2021 25/02/2021 08/11/2019 30/09/2026 30/09/2025 30/09/2025 07/11/2024 $0.0000 $0.5745 $0.5745 $0.3735 1,125,802 240,000 1,680,000 1,775,000 4,820,802 - - - - - (123,438) (80,000) - - - - - (140,000) Balance at end of year 1,002,364 160,000 1,680,000 1,635,000 (203,438) (140,000) 4,477,364 1 During FY2023 and in accordance with the terms, 140,000 options were exercised by two option holders, 70,000 each. As a result, 90,996 options were net settled and the remaining 49,004 options were converted into ordinary shares. This resulted in a lower dilution of the issued capital of the Company on conversion. The weighted average share price at the date of exercise of Options during FY2023 was $0.5975 (FY2022: not applicable). 2022 Grant date Expiry date Exercise price Balance at start of year Granted Lapsed Exercised 17/12/2021 24/09/2021 25/02/2021 08/11/2019 30/09/2026 30/09/2025 30/09/2025 07/11/2024 $0.0000 $0.5745 $0.5745 $0.3735 - - 1,680,000 1,775,000 1,125,802 320,000 - - - (80,000) - - At 30 June 2023, 1,635,000 options were exercisable at an exercise price of $0.3735 (2022: nil). 3,455,000 1,445,802 (80,000) - - - - - Balance at end of year 1,125,802 240,000 1,680,000 1,775,000 4,820,802 The weighted average remaining contractual life of rights and options outstanding at the end of the financial year was 1.91 years (2022: 3.12 years). The weighted average exercise price of the rights and options outstanding at the end of the financial year was $0.3725 (2022: $0.3663). Options lapsed during the reporting period as the performance conditions were not met. The performance conditions for the rights granted on 17 December 2021 were as follows: 1. Total shareholder return (“TSR”) condition – the Compound Annual Growth Rate (“CAGR”) in the Company’s Total Shareholder Return will be tested on the Vesting Date and the Rights will vest in accordance with the following TSR CAGR hurdles: TSR CAGR Less than 7% At least 7% but less than 10% p.a. At least 10% but less than 15% p.a. At least 15% p.a. % of Rights to vest 0% 50% 70% to 100% on a straight-line basis 100% • • • TSR CAGR means the TSR compound annual growth rate as against the Base VWAP. TSR means the total shareholder return to a shareholder of the Company, inclusive of Share Price Appreciation, capital returns and dividends. Share Price Appreciation means the difference between the Base VWAP and Vesting VWAP. 56 56 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 24. Share-based payments (continued) • Base VWAP means the volume weighted average price of Shares over the 10 Trading Days (as that term is defined in the Listing Rules) immediately before and 10 Trading Days immediately after the release of the Company’s 2021 financial report. The 2021 financial report was released on 31 August 2021 and the Base VWAP has been calculated at $1.25. • Vesting VWAP means the volume weighted average price of Shares over the 10 Trading Days (as that term is defined in the Listing Rules) immediately before and 10 Trading Days immediately after the release of the Company’s 2024 financial report, expected to be on or about 30 August 2024. 2. Service condition – continuous employment of the employee with NTAW or one of its subsidiaries from the Grant Date until the Vesting Date. The performance conditions for the options granted on 25 February 2021 and 24 September 2021 were as follows: 1. Earnings per share (“EPS”) condition – the Company’s earnings per share for the year ended 30 June 2021 is at least 10% higher than its EPS for the year ended 30 June 2020 or if this is not achieved, the Company’s EPS for the year ended 30 June 2022 is at least 10% higher than its EPS for the year ended 30 June 2020. Calculation of the EPS growth rate is based upon the EPS results reported in NTAW’s financial statements for the above years. The base EPS for the year ended 30 June 2020 will be 5.51 cents per share. This is based upon the Company’s 2020 net profit after providing for income tax and non-controlling interests and excluding amortisation (NPATA) attributable to Shareholders of $5.665 million. The target EPS based on NPATA attributable to Shareholders for the 2021 year or if this is not achieved, the 2022 year is, therefore, 6.06 cents per share. The EPS results to be used for the 2021 and 2022 years will be based upon the Company’s audited financial statements for that year. However, the EPS may be adjusted for items which the Board, in its discretion, considers should be included in, or excluded from, this result. The EPS condition will be measured over two years if required to allow for uncertainty regarding the ongoing impact of COVID-19 on execution of the Company’s growth strategies and the timing of synergies to be realised from the acquisition of Tyres4U in August 2020. 2. Service condition – continuous employment of the employee with NTAW or one of its subsidiaries from the Grant Date until the Vesting Date. The performance conditions for the options granted on 8 November 2019 were as follows: 1. Earnings per share condition – Company’s EPS for the year ended 30 June 2021 was to be at least 10% higher than its EPS for the year ended 30 June 2019. Calculation of the EPS growth rate is based upon the EPS results reported in NTAW’s audited financial statements for the above years. The Basic EPS reported may be adjusted for items which the Board, in its discretion, considers should be included in, or excluded from, the result. The Board determined that the FY2019 base EPS for the Options would be 7.74 cents per share. This was based upon the Company’s 2019 NPATA attributable to NTAW shareholders. The target EPS for the 2021 financial year (based upon the Company’s NPATA attributable to NTAW shareholders) is 8.51 cents per share. 2. Service condition – continuous employment of the employee with NTAW or one of its subsidiaries from the Grant Date until the Vesting Date. 56 57 57 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 24. Share-based payments (continued) Valuation model inputs The valuation model inputs used to determine the fair value at the grant date for the rights and options below, are as follows: Grant date Expiry date Share price at grant date Exercise price Expected Volatility1 Dividend yield Risk-free interest rate Fair value at grant date 17/12/2021 24/09/2021 30/09/2026 30/09/2025 $1.4300 $1.1200 $0.0000 $0.5745 56.90% 58.10% 5.59% 7.14% 1.00% 0.02% $1.2236 $0.5635 1 The expected volatility is based on the historic volatility (based on the period from the date the Company listed on the ASX to the relevant grant date), adjusted for any expected changes to future volatility due to publicly available information. Expenses recognised from share-based payment transactions The expense recognised in relation to the share-based payment transactions was recognised within employee benefit expense within the statement of profit or loss as follows: Rights issued under the Employee Equity Plan and Options issued under the Employee Share Option Plan Total expense recognised from share-based payment transactions Note 25. Earnings per share Profit after income tax Non-controlling interest Profit after income tax attributable to the owners of National Tyre & Wheel Limited 2023 $'000 729 729 2,895 436 3,331 2022 $'000 684 684 9,569 (171) 9,398 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: Weighted number of Options over ordinary shares 132,898,616 122,775,176 4,553,098 4,071,326 Weighted average number of ordinary shares used in calculating diluted earnings per share 137,451,714 126,846,502 Basic earnings per share Diluted earnings per share Cents 2.51 2.42 Cents 7.65 7.41 58 58 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 26. Key management personnel disclosures The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term benefits1 Post-employment benefits Long-term benefits Share-based payments 2023 $ 1,575,894 89,802 63,713 208,985 2022 $ 1,638,236 117,781 61,674 210,231 1,938,394 2,027,922 1 The Group engaged in consulting services from a KMP member. Consulting fees for FY2023 totalled $102,773 (2022: $nil), with $29,700 outstanding at 30 June 2023 (2022: $nil). Note 27. Related party transactions Parent entity National Tyre & Wheel Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 33. Key management personnel Disclosures relating to key management personnel remuneration are set out in note 26. Options The number of options over ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Options M Boyte T Smith B Cook R Kent P Ludemann1 J Lamb2 C Skead3 Balance at the start of the year - - - - 350,000 320,000 305,000 Ceased to be KMP Granted / Lapsed Exercised - - - - - - (305,000) - - - - - - - - - - - - - - - - 975,000 (305,000) Balance at the end of the year - - - - 350,000 320,000 - 670,000 1 On 30 September 2022, 180,000 options which were granted on 8 November 2019 had vested. These remain exercisable at 30 June 2023 and at the date of this report. 2 On 30 September 2022, 160,000 options which were granted on 8 November 2019 had vested. These remain exercisable at 30 June 2023 and at the date of this report. 3 No longer classified as key management personnel effective 1 July 2022. 58 59 59 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 27. Related party transactions (continued) Rights The number of Rights to ordinary shares in the Company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below Rights M Boyte T Smith B Cook R Kent P Ludemann J Lamb C Skead1 Balance at the start of the year - - - - 228,590 114,295 114,295 Ceased to be KMP Granted / Lapsed Exercised - - - - - - (114,295) - - - - - - - - - - - - - - - - Balance at the end of the year - - - - 228,590 114,295 - 342,885 457,180 (114,295) 1 No longer classified as key management personnel effective 1 July 2022. All Rights on issue remain unvested as at 30 June 2023. Transactions with related parties During the reporting period, the Group leased business premises from a KMP member. The lease expires on 28 February 2025 with no renewal options. Rent payments for FY2023 totalled $276,276 (2022: $92,092), with $nil outstanding at 30 June 2023 (2022: $nil.) The Group also engaged in consulting services of $102,773 from a KMP member which has been included as part of the FY2023 short term benefits disclosed in note 26 (2022: $nil). Receivable from and payable to related parties There were no trade receivables from related parties at the current reporting date (2022: $nil). Loans to/from related parties At 30 June 2023 and 30 June 2022, there were no loans to and/or from related parties. Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 60 60 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 28. Financial instruments Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group'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 Group. The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, i.e. not as trading or other speculative instruments. The Group 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 ageing analysis for credit risk. Risk management is carried out by senior finance executives (“finance”) under policies approved by the Board of Directors. These policies include identification and analysis of the risk exposure of the Group and appropriate procedures, controls and risk limits. Finance identifies, evaluates and hedges financial risks within the Group's operating units. Finance reports to the Board on a monthly basis. The Group holds the following financial instruments: Financial assets Cash and cash equivalents (a) Trade and other receivables (a) Other financial assets (a)(b) Financial liabilities Trade and other payables (c) Borrowings (c) Lease liabilities (c) Note 9 10 12 16 17 18 2023 $‘000 33,040 76,743 3,093 112,876 82,672 93,246 67,285 243,203 2022 $‘000 35,826 78,472 2,063 116,361 88,845 95,794 67,597 252,236 (a) Financial assets at amortised cost (b) Forward foreign exchange contract assets at fair value through profit and loss (c) Other financial liabilities at amortised cost Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. Foreign exchange risk arises from future commercial transactions and recognised financial assets and financial liabilities denominated in a currency that is not the entity's functional currency. The risk is measured using sensitivity analysis and cash flow forecasting. In order to protect against exchange rate movements, the Group has entered into forward foreign exchange contracts. These contracts are hedging highly probable forecasted cash flows for the ensuing financial year. Most of the Group’s transactions are carried out in AUD. Exposures to currency exchange rates arise from the Group’s overseas purchases, which are primarily denominated in US Dollars (“USD”). To mitigate the Group’s exposure to foreign currency risk, non-AUD cash flows are monitored, and forward exchange contracts are entered into in accordance with the Group’s risk management policies. The usual length of forward contracts entered into are short term and cover known USD exposures. Where the amounts to be paid and received in a specific currency are expected to largely offset one another, no further hedging activity is undertaken. 60 61 61 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 28. Financial instruments (continued) At 30 June 2023, the Group had forward foreign exchange contracts to acquire USD $25,916,000 (2022: USD $19,141,000). These are due to mature within 4 months of balance date. The fixed exchange rates on these contracts ranged from 0.6078 to 0.6800 (2022: 0.6891 to 0.7718). The Group's exposure to foreign currency risk at the end of the reporting period, expressed in AUD, was as follows: Cash Trade payables Buy foreign currency (held for trading) 2023 USD 2022 USD 2023 $’000 10 (34,761) 271 2022 $’000 237 (25,324) 1,336 (34,480) (23,751) AUD weakened Effect on profit before tax Effect on equity AUD strengthened Effect on profit before tax % change Effect on equity % change 10% 3,135 2,194 10% (3,831) (2,682) AUD strengthened Effect on profit before tax % change Effect on equity % change AUD weakened Effect on profit before tax Effect on equity 10% 2,159 1,511 10% (2,639) (1,847) The percentage change is the expected overall volatility of the significant currencies, which is based on management's assessment of reasonable possible fluctuations. The actual foreign exchange loss for the year ended 30 June 2023 was $1,989,000 (2022: loss of $1,455,000). Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group's main interest rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose the Group to interest rate risk. Borrowings obtained at fixed rates expose the Group to fair value interest rate risk. As at the reporting date, the Group had the following variable rate borrowings outstanding: Bank overdraft Bank facility 2023 $'000 461 93,117 2022 $'000 3,050 93,325 Net exposure to cash flow interest rate risk 93,578 96,375 62 62 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 28. Financial instruments (continued) An analysis by remaining contractual maturities in shown in 'liquidity risk below. The outstanding bank facility at 30 June 2023, totalling $93,117,000, is comprised of a trade finance facility ($68,367,000) and a loan ($24,750,000) (2022: $93,325,000 bank facility). An official increase/decrease in interest rates of 100 (2022: 100) basis points would have an adverse/favourable effect on profit before tax of $928,000 (2022: $933,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts’ forecasts. Minimum principal repayments of $4,500,000 (2022: $4,500,000) are due during the subsequent 12-month period. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has a strict code of credit, including obtaining agency credit information, confirming references and setting appropriate credit limits. The Group obtains guarantees where appropriate to mitigate credit risk. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. Cash and cash equivalents are held with Commonwealth Bank of Australia, ASB Bank (New Zealand) and Nedbank Limited (South Africa), all of which has a short-term Standard & Poor’s credit rating of A-1+. Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts is the net fair value of these contracts. The credit risk for net investment in leases relates to the ability of the lessee to pay the contractual cash flows stipulated within the lease. Liquidity risk Vigilant liquidity risk management requires the Group to maintain sufficient liquid assets (mainly cash and cash equivalents) and available borrowing facilities to be able to pay debts as and when they become due and payable. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Financing arrangements Unused borrowing facilities at the reporting date: Bank overdraft Bank facility Bank guarantee 2023 $'000 2,500 7,452 1,723 2022 $'000 464 9,282 1,695 11,675 11,441 62 63 63 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 28. Financial instruments (continued) The bank overdraft facility trade finance facility may be drawn at any time and terminates on 28 October 2024. The bank guarantee facilities may be drawn at any time and have a weighted average maturity of 3.02 years (2022: 4.26 years). Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the Statement of financial position. 2023 $'000 $'000 $'000 $'000 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years Remaining contractual maturities $'000 80,455 2,600 461 92,785 271 271 Remaining contractual maturities $'000 83,645 5,200 3,050 93,325 Non-derivatives Non-interest bearing Trade and other payables Deferred consideration Interest-bearing - variable Bank overdraft Bank facility Interest-bearing - fixed rate Lease liability Total non-derivatives Non-derivatives Non-interest bearing Trade and other payables Deferred consideration Interest-bearing - variable Bank overdraft Bank facility Interest-bearing - fixed rate Lease liability Total non-derivatives 80,455 2,600 461 4,500 - - - - - 4,500 - 83,785 - - - - 16,758 104,774 14,461 18,961 27,133 110,918 13,786 13,786 72,138 248,439 Derivatives Forward foreign exchange contracts net settled Total derivatives 271 271 - - - - - - 2022 $'000 $'000 $'000 $'000 1 year or less Between 1 and 2 years Between 2 and 5 years Over 5 years 83,645 2,600 3,050 4,500 - 2,600 - 4,500 - - - 84,325 - - - - 18,819 112,614 15,999 23,099 28,793 113,118 11,273 11,273 74,884 260,104 Derivatives Forward foreign exchange contracts net settled Total derivatives 1,336 1,336 - - - - - - 1,336 1,336 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. 64 64 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 29. Fair value measurement Fair value hierarchy The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three-level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: • • • Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability 2023 Forward foreign exchange contracts - derivatives Total assets 2022 Forward foreign exchange contracts - derivatives Total assets Level 1 $'000 - - Level 1 $'000 - - Level 2 $'000 271 271 Level 2 $'000 1,336 1,336 Level 3 $'000 - - Level 3 $'000 - - Total $'000 271 271 Total $'000 1,336 1,336 There were no transfers between levels during the financial year. The carrying amounts of cash, trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The carrying amounts of borrowings and lease liabilities are assumed to approximate their fair values given they were entered into at market rates and the borrowings are at variable rates. Valuation techniques for fair value measurements categorised within level 2 and level 3 Derivative financial instruments have been valued using third party quoted rates, adjusted as appropriate. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. Note 30. Business combinations 2023 There were no business combinations during the 2023 financial year. 2022 Black Rubber On 2 November 2021, the Group acquired 100% of the issued capital of Black Rubber Pty Ltd and Black Rubber Sydney Pty Ltd (collectively, “Black Rubber”). Total consideration for the acquisition was $27,928,000, including $21,377,000 in cash consideration, $5,351,000 in deferred consideration and $1,200,000 in Company shares, issued at time of the acquisition. The acquired business has contributed revenue of $32,491,000 and profit before tax of $3,099,000 to the Group from the date of acquisition to 30 June 2022. If the acquisition occurred on 1 July 2021, the full year FY2022 contribution would have been revenue of $46,445,000 and profit before tax of $4,454,000. Transaction costs of $263,000 were incurred during FY2022 in relation to the acquisition. These costs are included in Professional fees expenditure in the Statement of profit or loss and other comprehensive income. To assist with this acquisition and the acquisition of Carter’s (refer below), the Company renegotiated its debt facilities with Commonwealth Bank of Australia increasing the total debt facility to $116,500,000. 64 65 65 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 30. Business combinations (continued) Carter’s On 7 January 2022, the Group acquired 100% of the issued capital of Carters Tyre Service Limited, C.O. Tire & Retreading Co Limited and Tyre Distributor New Zealand Limited (collectively, “Carter’s”). Total consideration for the acquisition was $30,602,000, including $28,717,000 in cash consideration and $1,886,000 in Company shares, issued at time of the acquisition. The acquired business has contributed revenue of $34,405,000 and profit before tax of $1,939,000 to the Group from the date of acquisition to 30 June 2022. If the acquisition occurred on 1 July 2021, the full year FY2022 contribution would have been revenue of $72,413,000 and profit before tax of $3,755,000. Transaction costs of $416,000 were incurred during FY2022 in relation to the acquisition. These costs are included in Professional fees expenditure in the Statement of profit or loss and other comprehensive income. To assist with this acquisition and the acquisition of Black Rubber (refer above), the Company renegotiated its debt facilities with Commonwealth Bank of Australia increasing the total debt facility to $116,500,000. Details of the acquisition are as follows: Cash and cash equivalents Trade and other receivables Inventories Other assets Property, plant & equipment Right-of-use assets Customer relationships Brand names Accreditations Trade and other payables Current tax liabilities Lease liabilities Provisions Deferred tax liability Net assets acquired Goodwill Black Rubber Fair value $'000 Carter’s Fair value $'000 1,847 6,329 5,921 442 3,216 4,759 9,800 2,400 200 (3,993) (1,341) (4,592) (600) (4,140) 20,248. 7,680) 872 9,103 7,438 16 2,969 11,087 3,017 3,677 - (6,659) (463) (11,237) (1,229) (1,557) 17,034. 13,569 Acquisition-date fair value of total consideration 27,928 30,603 Representing: Cash paid Deferred consideration Shares issued (note 20) Total consideration Cash used to acquire business; net of cash acquired: Total consideration Less: cash and cash equivalents acquired Less: deferred consideration Less: shares issued Net cash used 21,377 5,351 1,200 28,720 - 1,882 27,928 30,602 27,928 (1,847) (5,351) (1,200) 30,602 (872) - (1,882) 19,530 27,848 66 66 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 30. Business combinations (continued) On 30 November 2021, the Group acquired certain assets (inventories of $307,000 and plant and equipment of $40,000) and the workforce from Alacad Pty Ltd t/a Access Alloys. Total consideration for the acquisition was $1,121,000, paid in cash. The acquired assets have been incorporated in Dynamic Wheel Co. Goodwill of $774,000 has been recognised in relation to the acquisition. Note 31. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Pitcher Partners, the auditor of the Company, and its network firms: Audit services - Pitcher Partners Audit or review of the financial statements Other services - Pitcher Partners Transaction services Tax compliance services 2023 $ 2022 $ 350,000 369,035 - 36,670 100,250 58,785 36,670 159,035 Total remuneration of services provided by Pitcher Partners 386,670 528,070 Audit services - network firms Audit or review of the financial statements Other services - network firms Transaction services Tax compliance services Total remuneration of services provided by Pitcher Partner’s network firms Note 32. Contingent liabilities 8,565 16,323 - 22,809 116,723 50,436 22,809 167,159 31,374 183,482 The Group has given bank guarantees as at 30 June 2023 of $8,277,000 (2022: $9,269,000) to various landlords and suppliers for standby letters of credit. 67 67 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 33. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Ownership interest Name Exclusive Tyres Distributors Pty Ltd Dynamic Wheel Co. Pty Limited Integrated OE Pty Ltd Statewide Tyre Distribution Pty Ltd Tyres4U Pty Ltd Tyreright Operations Pty Ltd Black Rubber Pty Ltd Black Rubber Sydney Pty Ltd Solid Plus Operations Pty Ltd NTAW Logistics Pty Ltd NTAW Holdings (NZ) Ltd Exclusive Tyres Distributors (NZ) Limited Tyres4U (NZ) Ltd Carters Tyre Service Limited C.O. Tire & Retreading Co Limited Tyre Distributors New Zealand Limited Top Draw Tyres Proprietary Limited Note 34. Parent entity information Principal place of business / Country of incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand New Zealand New Zealand New Zealand South Africa Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Reserves Retained earnings Total equity 68 68 2023 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 2022 % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% Parent Entity 2023 $’000 295 295 2022 $’000 8,372 8,372 7,617 5,372 198,367 204,899 5,771 11,116 95,254 103,559 94,068 1,629 7,416 93,122 920 7,298 103,113 101,340 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 34. Parent entity information (continued) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had a deed of cross guarantee in place in relation to certain subsidiaries at 30 June 2023 and 30 June 2022. Refer to note 35. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2023 and 30 June 2022. Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2023 and 30 June 2022. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: • • • Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Investments in associates are accounted for at cost, less any impairment, in the parent entity. indicator of an impairment of the investment. Note 35. Deed of cross guarantee The following entities are party to a deed of cross guarantee under which each company guarantees the debts of the others: Exclusive Tyres Distributors Pty Ltd; Exclusive Tyres Distributors (NZ) Limited; Integrated OE Pty Ltd; Statewide Tyre Distribution Pty Ltd; Tyres4U Pty Ltd; Tyreright Operations Pty Ltd; • National Tyre & Wheel Limited; • • • Dynamic Wheel Co. Pty Limited; • • • • • Black Rubber Pty Ltd; • Black Rubber Sydney Pty Ltd; • Solid Plus Operations Pty Ltd; • NTAW Logistics Pty Ltd; • NTAW Holdings (NZ) Ltd (not party to the deed in the prior year); • • • • Tyres4U (NZ) Ltd (not party to the deed in the prior year); Carters Tyre Service Limited (not party to the deed in the prior year); C.O. Tire & Retreading Co Limited (not party to the deed in the prior year); and Tyre Distributors New Zealand Limited (not party to the deed in the prior year). By entering into the deed, the Australian wholly owned entities have been relieved from the requirement to prepare financial statements and directors' report under Corporations Instrument 2016/785 issued by the Australian Securities and Investments Commission. The above companies represent a 'Closed Group' for the purposes of the Corporations Instrument, and as there are no other parties to the deed of cross guarantee that are controlled by National Tyre & Wheel Limited, they also represent the 'Extended Closed Group'. 69 69 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 35. Deed of cross guarantee (continued) Set out below is a consolidated statement of profit or loss and other comprehensive income and statement of financial position of the 'Closed Group'. Closed Group Statement of profit or loss and other comprehensive income Revenue Other income Cost of goods sold Employee benefits and other related costs Depreciation and amortisation Occupancy Computer and software costs Motor vehicle costs Marketing Insurance Professional fees and acquisition costs Other Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Other comprehensive income Foreign currency translation Other comprehensive income for the year, net of tax Total comprehensive income for the year Equity – retained earnings Retained earnings at the beginning of the financial year Profit after income tax expense Dividends paid Opening retained earnings of entities joining the Closed Group 2023 $'000 572,535 327 (409,917) (83,365) (23,991) (7,714) (6,655) (6,598) (4,786) (4,004) (2,084) (10,672) (8,349) 4,727 (960) 3,767 856 856 4,623 15,897 3,767 (1,981) 3,240 2022 $'000 458,911 714 (329,890) (65,045) (16,966) (8,245) (6,500) (4,132) (3,194) (3,161) (2,742) (9,957) (3,769) 6,024 (2,634) 3,390 (194) (194) 3,196 21,405 3,390 (9,665) 767 Retained earnings at the end of the financial year 20,923 15,897 70 70 Notes to the financial statements 30 June 2023 National Tyre & Wheel Limited and its controlled entities Notes to the financial statements 30 June 2023 Note 35. Deed of cross guarantee (continued) Statement of financial position Current assets Cash and cash equivalents Trade and other receivables Inventories Other financial assets Prepayments Current tax asset Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Other financial assets Total assets Current liabilities Trade and other payables Borrowings Lease liabilities Provisions Current tax liability Non-current liabilities Trade and other payables Borrowings Lease liabilities Provisions Deferred tax Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Closed Group 2023 $'000 2022 $'000 32,681 75,153 121,688 1,537 4,094 - 235,153 16,468 61,210 51,265 5,712 134,655 26,071 67,653 100,268 1,287 3,373 1,731 200,383 11,477 52,227 34,587 56,965 155,256 369,808 355,639 77,348 4,500 15,895 11,265 129 109,137 - 88,285 51,000 2,250 3,837 145,372 77,795 6,537 11,963 11,471 - 107,766 2,600 88,244 42,481 2,047 2,893 138,265 254,509 246,031 115,299 109,608 94,068 308 20,923 93,122 589 15,897 115,299 109,608 Note 36. Events after the reporting period No matter or circumstance has arisen since 30 June 2023 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. 71 71 Notes to the financial statements 30 June 2023 Directors’ declaration National Tyre & Wheel Limited and its controlled entities Directors' declaration 30 June 2023 In the directors' opinion: 30 June 2023 • • • • • the attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; the attached financial statements and notes give a true and fair view of the Group's financial position as at 30 June 2023 and of its performance for the financial year ended on that date; 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 at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 35 to the financial statements. The directors have been given the declarations required by section 295A of the Corporations Act 2001. On behalf of the directors _______________________ Murray Boyte Chairman 29 August 2023 Brisbane 72 7272 Notes to the financial statements 30 June 2023 Independent Auditor’s Report to the Shareholders of National Tyre & Wheel Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of National Tyre & Wheel Limited (“the Company”) and its controlled entities (“the Group”), which comprises the consolidated statement of financial position as at 30 June 2023, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes to the financial statements including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) (b) giving a true and fair view of the Group’s financial position as at 30 June 2023 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) “the Code” that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 7272 73 73 73 Brisbane Sydney Newcastle Melbourne Adelaide Perth Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. pitcher.com.au NIGEL FISCHER MARK NICHOLSON PETER CAMENZULI JASON EVANS KYLIE LAMPRECHT NORMAN THURECHT BRETT HEADRICK WARWICK FACE COLE WILKINSON SIMON CHUN JEREMY JONES TOM SPLATT JAMES FIELD DANIEL COLWELL ROBYN COOPER FELICITY CRIMSTON CHERYL MASON KIERAN WALLIS MURRAY GRAHAM ANDREW ROBIN KAREN LEVINE EDWARD FLETCHER ROBERT HUGHES Key Audit Matter Impairment of goodwill and separately identifiable intangible assets How our audit addressed the key audit matter Refer to Note 15: Intangible assets As part of business combinations completed during prior years, the Group recognised goodwill and other intangible assets valued at $29.245 million and $22.020 million respectively. These intangible assets relate to the acquisition of various subsidiaries of National Tyre & Wheel Limited, with these subsidiaries being the basis of management’s determination of Cash-Generating Units (“CGU”) in the Group. The carrying amount of goodwill and the intangible assets is supported by value-in-use calculations prepared by management which are based on budgeted future cash flows, key estimates and significant judgements such as the annual growth rates, discount rate and terminal value growth rate. This is a key area of audit focus as the value of the intangible assets is material and the evaluation of the recoverable amount of these assets requires significant judgement in determining the key estimates supporting the expected future cash flows of the CGUs and the utilisation of the relevant assets. Our procedures included amongst others:  Understanding and evaluating the design and implementation of management’s processes and controls;  Assessing management’s determination of the Group’s CGUs based on our understanding of the nature of the Group’s business and the identifiable groups of cash generating assets;  Comparing the cash flow forecasts used in the value-in-use calculations to Board approved budgets for the 2024 financial year and the Group’s historic actual performance;  Assessing the significant judgements and key estimates used for the impairment assessment, in particular, the annual growth rates, discount rate and terminal value growth rate;  Checking the mathematical accuracy of the impairment testing model and agreeing relevant data to the latest budgets;  Performing sensitivity analysis by varying significant judgements and key estimates, including the annual growth rates, discount rate and terminal value growth rate, for the CGUs to which goodwill and indefinite useful life intangible assets relate; and  Assessing the adequacy of the Group’s disclosures in respect of impairment testing of goodwill and indefinite useful life intangible assets. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s directors’ report for the year ended 30 June 2023, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. 74 Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 74 75 Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 18 of the directors’ report for the year ended 30 June 2023. In our opinion, the Remuneration Report of National Tyre & Wheel Limited, for the year ended 30 June 2023, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PITCHER PARTNERS ANDREW ROBIN Partner Brisbane, Queensland 29 August 2023 Pitcher Partners is an association of independent firms. An Independent Queensland Partnership ABN 84 797 724 539. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. 76 Shareholder information National Tyre & Wheel Limited and its controlled entities Shareholder information 30 June 2023 The shareholder information set out below was applicable as at 15 August 2023. Distribution of equitable securities Analysis of number of equitable security holders by size of holding: 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Holding less than a marketable parcel Equity security holders Twenty largest quoted equity security holders The names of the twenty largest security holders of quoted equity securities are listed below: ST Corso Pty Ltd EM Australia 2021 Pty Ltd (The TWA A/C) Sandhurst Trustees Ltd (Collins St Value Fund A/C) Strategic Value Pty Ltd (Tal Super A/C) BNP Paribas Nominees Pty Ltd (IB AU Noms Retailclient DRP) Mr Roshan Charles Chelvaratnam Mr John Peter Ludemann J P Morgan Nominees Australia Pty Limited SCJ Pty Limited (Jermyn Family A/C) National Nominees Limited Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Exldata Pty Ltd Narlack Pty Ltd (Piperoglou Pension A/C) Exldata Pty Ltd Mr Stephen Criag Jermyn (Jermyn Family S/Fund A/C) G R Hari Trustee Limited & Garry Paul Carter & Robynn Janet Carter Micpip Nominees Pty Ltd (Micpip Super Fund A/C) Mrs Christine Lorraine Hummer Mr Christopher John Hummer 30 June 2023 Number of holders of ordinary shares % of total shares issued 279 536 304 561 116 1,796 189 0.1 1.1 1.8 13.4 83.6 100.0 0.0 Ordinary shares Number held % of total shares issued 27,307,594 10,697,389 10,023,791 5,201,332 3,451,507 3,201,034 2,643,884 2,515,867 2,500,000 2,343,000 2,178,119 1,960,755 1,699,788 1,637,114 1,507,735 1,500,000 1,394,222 1,221,219 1,071,152 1,048,928 20.49 8.03 7.52 3.90 2.59 2.40 1.98 1.89 1.88 1.76 1.63 1.47 1.28 1.23 1.13 1.13 1.05 0.92 0.80 0.79 85,104,430 63.87 76 77 77 Notes to the financial statements 30 June 2023 Shareholder information National Tyre & Wheel Limited and its controlled entities Shareholder information 30 June 2023 30 June 2023 Unquoted equity securities There are 3,475,000 unquoted unissued ordinary shares of National Tyre & Wheel Limited under option at the date of this report. There are 1,002,364 unquoted rights to unissued ordinary shares of National Tyre & Wheel Limited at the date of this report. Substantial holders Substantial holders in the Company are set out below: Ordinary shares Number held % of total shares issued ST Corso Pty Ltd atf the Smith Trading Trust, Terence Smith & Susanne Smith (together Smith Group) EM Australia 2021 Pty Ltd (TWA A/C) Anthony Young Sandhurst Trustees Ltd (Collins St Value Fund A/C) Ryan Young 27,891,171 20.93 10,697,389 10,341,891 10,023,791 8,725,225 8.03 7.76 7.52 6.55 Voting rights The voting rights attached to ordinary shares are by way of a poll each share shall have one vote at a meeting. There are no other classes of equity securities on issue at the date of this report. There are no equity securities subject to voluntary escrow at the date of this report. 78 78 National Tyre & Wheel Limited and its controlled entities Corporate directory 30 June 2023 Directors Murray Boyte - Chairman Peter Ludemann - Managing Director and Chief Executive Officer Terry Smith Bill Cook Robert Kent Company secretaries Jason Lamb Hugh McMurchy Registered office and principal place of business Level 2 385 MacArthur Avenue Hamilton QLD 4007 Telephone: (07) 3212 0950 Facsimile: (07) 3212 0951 Share register Auditor Solicitors Bankers Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 Telephone: 1300 787 272 Pitcher Partners Level 38 345 Queen Street Brisbane QLD 4000 Bentleys Legal (NSW) Level 14 60 Margaret Street Sydney NSW 2000 Commonwealth Bank of Australia Ground Floor, Tower 1 201 Sussex Street Sydney NSW 2000 Stock exchange listing National Tyre & Wheel Limited shares are listed on the Australian Securities Exchange (ASX code: NTD) Website https://ntaw.com.au Corporate Governance Statement The Company’s directors and management are committed to conducting the Group’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted and substantially complies with the ASX Corporate Governance Principles and Recommendations (4th Edition) (“Recommendations”) to the extent appropriate to the size and nature of the Group’s operations. The Company has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation since listing, identifies any Recommendations that have not been followed, and provides reasons for not following such Recommendations. The Company’s Corporate Governance Statement and policies, which is approved at the same time as the Annual Report, can be found on its website: https://ntaw.com.au/investors-asx-announcements/corporate-governance 79 79 Corporate directory 30 June 2023 

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