Annual Report 2019
For personal use only For personal use only Padrone queen bed, bedside table
and dresser in solid Australian oak.
For personal use only Solene 3 seater with chaise lounge in 100% leather.
Ines table nest. Daddy Long Leg floor lamp. Aromer floor rug.
2
Annual Report 2019 | Nick Scali Limited
For personal use only Contents
Page
Page
Chairman and Managing Director’s Review
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of comprehensive income
Consolidated Statement of financial position
Consolidated Statement of changes in equity
Consolidated Statement of cash flows
Directors’ Declaration
Independent Auditor’s Report
Shareholder Information
Corporate Information
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51
Notes to the consolidated financial statements
Note 1. Basis of preparation
Note 2. Segment information
Note 3. Revenue
Note 4. Expenses
Note 5. Income tax expense
Note 6. Earnings per share
Note 7. Equity – Dividends
Note 8. Reconciliation of profit after income tax
to net cash from operating activities
Note 9. Current assets – Cash and cash equivalents
Note 10. Current assets – Receivables
Note 11. Current assets – Inventories
Note 12. Current assets – Other financial assets
Note 13. Non-current assets – Property, plant
and equipment
Note 14. Non-current assets – Intangibles assets
Note 15. Current liabilities – Borrowings
Note 16. Current liabilities – Payables
Note 17. Current liabilities – Deferred revenue
Note 18. Current liabilities – Provisions
Note 19. Non-current liabilities – Borrowings
Note 20. Non-current liabilities – Deferred revenue
Note 21. Non-current liabilities – Provisions
Note 22. Equity – Issued capital
Note 23. Equity – Reserves
Note 24. Financing facilities
Note 25. Financial instruments
Note 26. Fair value measurement
Note 27. Key management personnel
Note 28. Remuneration of auditors
Note 29. Contingent liabilities
Note 30. Commitments
Note 31. Related party transactions
Note 32. Events after the reporting period
Note 33. Share-based payments
Note 34. Controlled entities
Note 35. Parent entity information
Note 36. Summary of significant accounting policies
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Annual Report 2019 | Nick Scali Limited
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For personal use only
Historical Performance
Sales
Nick Scali Furniture Stores
Net profit after tax
Dividends
4
Annual Report 2019 | Nick Scali Limited
For personal use only Chairman and Managing
Director’s Review
Operating Performance
We are pleased to report that Nick Scali Limited has had
another successful year, delivering a seventh successive
year of revenue and profit growth, with earnings per share
increasing 2.8% to 52.0 cents per share. In an environment in
which same store sales growth has been depressed, earnings
growth has been driven by the continuation of our disciplined
store rollout program and further improvements in gross
margin.
Sales revenue increased by 6.9% to $268 million. A full year
of revenue contribution from the six stores opened in the year
ended 30 June 2018 and a part year contribution from the six
stores opened during the year ended 30 June 2019, off-set a
slight decline in same store sales.
The Board recognises that the continued growth of Nick Scali
Limited is the result of the dedication of our many employees
and associates across Australia and New Zealand, and we
would like to thank them for their hard work and commitment
to the Company. The Board also takes this opportunity to
thank our shareholders, customers and suppliers, whose
continuing support underpins the success of the Company.
Store network
In addition to the new store in Hamilton, New Zealand, five new
Nick Scali Furniture stores were opened in Australia during
the year. These were in Morayfield, Mackay, Brisbane Airport,
Prospect and Craigieburn. These openings brought the total
number of Nick Scali Furniture stores at 30 June 2019 to 57.
Despite the decline in the value of the Australian Dollar, gross
margin increased by 20 basis points to 62.9%, driven by new
The Company plans to open four new stores in the year to
June 2020, including two further stores in New Zealand.
product initiatives.
Operating expenses
increased
to $106 million, which
represents 39% of sales revenue, up from 38% in the
previous financial year. Costs remain tightly controlled, and
this increase in operating expenses as a percentage of sales
was due mainly to increased costs associated with new store
openings, discretionary marketing investments and non-
Alongside the Nick Scali Furniture stores, the Company
currently operates five clearance stores, in a mixture of
permanent and temporary locations, which are selected
and managed to best minimise inventory holdings in our
distribution centres.
recurring expenditure, such as the relocation of the Victorian
Dividends
distribution centre, as well as the decline in same store sales.
The Company maintained
its effective working capital
management throughout the year and as a result, operating
cash flow (before tax and interest) was $63 million, on the back
of EBITDA of $64 million. After allowing for tax and interest,
and with the Company requiring less than $5m for capital
projects, $40m was returned to shareholders in dividends
during the year. The Company expects to continue to deliver
a strong cash flow result, and with a stable, well-managed
balance sheet Nick Scali remains well placed to continue to
grow its existing business and to take advantage of any new
opportunities that may arise.
Following the opening of the first store in New Zealand in
December 2017, a second New Zealand store opened during
the year, with the New Zealand business delivering a positive
contribution to the Group for the 2019 financial year. This
provides a solid platform for the New Zealand business to
make a significant contribution to profit growth over the next
few years, as further stores are added to the network.
Other notable achievements during the year included the
relocation of our Victorian distribution centre to a new
purpose-built facility in Keysborough, the introduction of the
bedroom and bedding category in 26 of our larger stores in
December 2018, and the relocation of stores at Bundall (Qld)
and Rutherford (NSW) into larger sites.
The directors declared a fully franked final dividend of 20 cents
per share on 8th August 2019. The final dividend has a record
date of 8th October 2019 and will be paid on 29th October
2019. This brings the total dividend for the year to 45 cents
per share, representing a payout ratio of 87%, which the
directors consider appropriately balances the distribution of
profit to shareholders with the need to reinvest earnings for
future growth.
Outlook
As a furniture retailer, Nick Scali Limited is very dependent on
housing sales and renovations, which have been in decline
in recent months. Trading conditions will likely only improve
when there is an uplift in housing sales and refurbishments,
the timing of which is presently uncertain.
Although there is a potentially somewhat favourable economic
environment of very low interest rates and relatively low
unemployment, same store sales growth continues to be
challenging, and a continued period of negative same-store
sales growth presents the possibility that the profit benefit from
new stores will be offset by negative same-store trading in the
short-term.
Annual Report 2019 | Nick Scali Limited
5
For personal use only Directors’ Report
The directors present their report, together with the financial
Group Operating Results
statements, on the consolidated entity (referred to hereafter
as the ‘Group’ or ‘consolidated entity’) consisting of Nick Scali
Limited (referred to hereafter as the ‘Company’ or ‘parent
entity’) and the entities it controlled at the end of, or during,
the year ended 30 June 2019.
Directors
The names and details of the Company’s directors (referred
to hereafter as the ‘Board’) in office at any time during
the financial year or until the date of this report are as
follows. Directors were in office for this entire year unless
otherwise stated.
John Ingram
Greg Laurie
Carole Molyneux
Stephen Goddard
Anthony Scali
Principal activities
The principal activities of the Group during the year were
the sourcing and retailing of household furniture and related
accessories.
No significant change in the nature of these activities occurred
during the year.
Dividends
Dividends paid during the year were as follows:
2019
$’000
2018
$’000
Final franked dividend for 30 June 2018:
24.0 cents (2017: 20.0 cents)
19,440
16,200
Interim franked dividend for 30 June 2019:
2019
$m
2018
$m
% Change
Revenue
EBITDA
EBIT
NPAT
EPS (cents)
DPS (cents)
Net cash
268.0
250.8
64.1
59.9
42.1
52.0
45.0
2.6
62.8
59.0
41.0
50.6
40.0
2.9
6.9%
2.1%
1.5%
2.8%
2.8%
For the financial year ended 30 June 2019 the Group reported
a record NPAT result of $42.1m, up 2.8% on the previous year.
Sales revenue increased 6.9% to $268m with the increase
derived from a full year’s contribution from the six stores
opened during financial year 2018 and a smaller contribution
from six stores opened during financial year 2019. Same store
sales were flat for the first nine months of the year, with a
noticeable decline in the fourth quarter.
Although the devaluation of the Australian Dollar adversely
impacted the cost of imports, gross margins strengthened
by 20 basis points to 62.9% due to the opening of clearance
outlets which enabled the Group to dispose of excess
inventory in a cost effective manner, and the successful launch
of the Company’s own accidental damage warranty product.
Despite tight cost control and well managed store openings,
operating expenses as a percentage of sales increased due to
the decline in same store sales.
Net cash flows from operating activities during the year were
$45.4m, up 5.4% on the previous year. Net cash outflows
from all activities were $0.3m after investment in fixed assets
of $5m.
25.0 cents (2018: 16.0 cents)
20,250
12,960
The Group’s working capital position remained strong, and
39,690
29,160
positioned to take advantage of opportunities that may
with low debt and stable cash reserves, the Group is well
arise, and to remain competitive during any periods of retail
uncertainty.
In addition to the above dividend, since the end of the financial
year directors have declared a fully franked final dividend
Net assets were $85.2m as at 30 June 2019, up $1.5m on
of 20.0 cents per fully paid ordinary share to be paid on 29
last year.
October 2019 out of retained profits at 30 June 2019.
Operating and financial review
Nick Scali Limited is a furniture retailer operating in Australia
and New Zealand. Following a strategic review of the business
during the previous year, the business operates under a single
brand, Nick Scali Furniture.
Store network
During the year, the Group opened six new Nick Scali Furniture
stores in Mackay (Qld), Morayfield (Qld), Skygate (Qld),
Prospect (NSW), Craigieburn (Vic) and the second store in
New Zealand, at Hamilton.
The Group anticipates opening between four and six new
stores in financial year 2020, with at least two of these opening
in the first half of the financial year in New Zealand.
6
Annual Report 2019 | Nick Scali LimitedFor personal use only
Directors’ Report (continued)
People
The Group remains committed to delivering industry best
Matters subsequent to the end of the financial year
Apart from the dividend declared as discussed above, no
practice across all facets of the business by recruiting and
other matter or circumstance has arisen since 30 June 2019
retaining the best in the industry. All employees continue
that has significantly affected, or may significantly affect
to be developed through a suite of training and leadership
the consolidated entity’s operations, the results of those
development
programmes
combined with
detailed
operations, or the consolidated entity’s state of affairs in future
performance
assessment. Competitive
remuneration
financial years.
packages incorporating both short and long-term incentives
ensure that good performance is appropriately rewarded and
talent is retained.
The Group has a policy of equal opportunity and advocates
diversity in the workplace. The supportive culture underpins
the wellbeing of the staff and there are rigorous occupational
health and safety practices in place. The Group’s human
resource and remuneration strategies are designed to ensure
that it remains an employer of choice in its retail sector.
Outlook and risks
The Group operates in a competitive retail market which is subject
to only moderate barriers to entry and changing consumer
preferences. However, the directors continue to believe that the
Group is well placed to maintain its market leading position as
a result of the robust strategies and structures that are currently
in place.
Same store sales were flat for most of the year with a decline in
the fourth quarter. This trend has continued into the new financial
year and July same store sales growth remained negative.
The performance of the New Zealand stores has been very
encouraging with strong same store sales growth reflecting
the high level of product and brand acceptance. With the New
Likely developments and expected results
of operations
Refer to the Operating and financial review on page 6.
Environmental regulation
The Company is not subject to any significant environmental
regulation under Australian Commonwealth or State law.
The Directors are not aware of any particular or significant
environmental issues which have been raised in relation to the
consolidated entity’s operations during the financial year.
John Ingram
Information on directors
Name:
Title:
Qualifications:
Experience and expertise:
John was appointed to the Board as non-executive Chairman
Independent Non-Executive Chairman
AM, FCPA
on 7 April 2004. John was formerly Managing Director of
Crane Group Limited.
Other current directorships:
Non-executive Chairman of Shriro Holdings Limited (SHM).
Former directorships (last three years):
Independent Director of Australian Super retired on
Zealand store network increasing to four this year, this market
1 March 2017.
should make a significant contribution to profit growth in the
medium term.
Special responsibilities:
Member of the Audit Committee and the Remuneration and
Whilst there is a favourable economic environment of very low
interest rates and low unemployment combined with recent tax
cuts, there is uncertainty as to whether this will translate to an
improvement in consumer confidence. As a furniture retailer, the
Company is very dependent on housing sales and renovations
which have been in decline, and trading conditions will likely only
materially improve when there is an uplift in housing sales and
renovations.
With the store network continuing to grow, the Company has
demonstrated it can deliver a solid profit performance in an
environment of flat to negative same store sales growth.
Human Resources Committee.
Interests in shares: 360,000.
Greg Laurie
Name:
Title:
Qualifications:
Experience and expertise:
Greg was appointed to the Board on 7 April 2004. He has
Independent Non-Executive Director
BCom, FAICD
extensive experience
in manufacturing and distribution
industries, and was the Finance Director of Crane Group
Limited from 1989 until his retirement from that role in 2003.
Greg has been Chairman of various Audit and Risk Committees
since 2004.
Despite the current difficult trading conditions, the Company is
well positioned with a strong balance sheet and solid cash flow.
Other current directorships:
Independent Non-Executive Director of Shriro Holdings Limited
This will facilitate the continued growth of its store network and
(SHM).
allow the Company to explore other growth opportunities as
they arise.
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the
Company during the year.
Former directorships (last three years):
Independent Non-Executive Director of Bradken Limited and
Independent Chairman of Big River Industries Limited (BRI).
Special responsibilities:
Chairman of the Audit Committee and a member of the
Remuneration and Human Resources Committee.
Interests in shares: 30,000.
7
Annual Report 2019 | Nick Scali LimitedFor personal use only Directors’ Report (continued)
Carole Molyneux
Name:
Title:
Experience and expertise:
Carole was appointed to the Board on 26 June 2014. She
Independent Non-Executive Director
‘Other current directorships’ quoted above are current
directorships for listed entities only and exclude directorships
of all other types of entities, unless otherwise stated.
has extensive experience in retail and was the Chief Executive
‘Former directorships (last three years)’ quoted above are
Officer of Suzanne Grae, (part of the Sussan Retail Group), for
directorships held in the last three years for listed entities only
eighteen years until 2013.
and exclude directorships of all other types of entities, unless
Other current directorships:
Independent Non-Executive Director of White Ribbon Australia.
otherwise stated.
Former directorships (last three years):
None.
At the date of this report, no directors held options over
ordinary shares.
Special responsibilities:
Chairman of the Remuneration and Human Resources
Committee and member of the Audit Committee.
Interests in shares: 7,500.
Stephen Goddard
Name:
Title:
Experience and expertise:
Stephen was appointed to the Board on 1 March 2018.
Independent Non-Executive Director
Company Secretary
The Company Secretary since February 2019 is Christopher
Malley. He is a current member of the Institute of Chartered
Accountants in England and Wales and began his career in
Audit and Advisory with Deloitte in their consumer business
practices in London and Sydney. Following ten years with
Pepsico
International, Christopher’s retail career began
with MySale PLC before he joined Nick Scali as the General
Stephen is an experienced retailer having held a broad range
Manager Finance in November 2017.
of senior executive positions in the industry. These include
Finance Director and Operations Director for David Jones,
founding Managing Director of Officeworks, and various senior
management roles with Myer.
Special responsibilities of directors
Audit Committee
The members of the Audit Committee are as follows:
Other current directorships:
Independent Non-Executive Director of JB Hifi Limited (JBH),
• Greg Laurie (Chairman)
• John Ingram
GWA Group Limited (GWA) and Accent Group Limited (AX1).
• Carole Molyneux
Former directorships (last three years):
Independent Non-executive director of Pacific Brands (PBG)
• Stephen Goddard
Remuneration and Human Resources Committee
The members of the Remuneration and Human Resources
Committee are as follows:
• Carole Molyneux (Chairman)
• John Ingram
• Greg Laurie
• Stephen Goddard
and Surfstitch Group Limited (SRF).
Special responsibilities:
Member of the Audit Committee and Remuneration and
Human Resources Committee.
Interests in shares: 6,000.
Anthony Scali
Name:
Title:
Qualifications:
BCom
Experience and expertise:
Anthony is Managing Director of Nick Scali Limited. He joined
Managing Director
the Company full-time in 1982 after completing his Bachelor
of Commerce degree from the University of New South Wales.
Anthony has over 30 years’ experience in retail, and the
selection and direct sourcing of product from manufacturers
both in Australia and overseas.
Other current directorships:
None.
Former directorships (last three years):
None.
Special responsibilities:
As Managing Director, Anthony
is responsible
for the
development and implementation of the Group’s strategy for
growth, as well as the overall operation of the business.
Interests in shares: 11,039,474.
8
Annual Report 2019 | Nick Scali LimitedFor personal use only Directors’ Report (continued)
Meetings of directors
The number of meetings of the Board and of each Board committee held during the year ended 30 June 2019, and the number of
meetings attended by each director were:
John Ingram
Greg Laurie
Carole Molyneux
Stephen Goddard
Anthony Scali1
Directors’
meetings
Held
9
Attended
9
Remuneration and human
resources committee
Attended
2
Held
2
9
9
9
9
9
9
9
9
2
2
2
–
2
2
2
–
Audit
committee
Held
4
Attended
4
4
4
4
–
4
4
4
–
1 Anthony Scali is not a member of the sub-committees, but was invited to attend these meetings and his attendance
was noted in the minutes.
Remuneration Report – Audited
The remuneration report details
the key management
personnel remuneration arrangements for the consolidated
entity, in accordance with the requirements of the Corporations
Act 2001 and its Regulations. For the purposes of the report,
key management personnel are defined as those persons
having authority and responsibility for planning, directing and
controlling the major activities of the business.
1. Details of key management personnel
The key management personnel of the consolidated entity
consisted of the following directors:
– Non-Executive Chairman
John Ingram
Greg Laurie
Carole Molyneux
– Non-Executive Director
Stephen Goddard – Non-Executive Director
Anthony Scali
– Non-Executive Director
– Managing Director
And the following executives:
Kevin Fine – Chief Financial Officer & Company Secretary
(resigned on 6 February 2019)
Christopher Malley – Chief Financial Officer & Company
Secretary (appointed on 6 February 2019)
2. Remuneration strategy
The quality of Nick Scali Limited’s directors and executives is
a major factor in the overall performance of the consolidated
entity. To this end, the consolidated entity believes that an
appropriately structured remuneration strategy underpins a
performance based culture which in turn drives shareholder
returns. The remuneration strategy is designed to attract and
retain high quality and committed non-executive directors and
employees.
The executive remuneration and reward framework has two
components:
• fixed remuneration comprising of salary and superannuation
• variable at risk incentives comprising
– short-term incentives in the form of a cash based reward
– long-term incentives in the form of an equity reward
The incentives are designed to deliver value to executives
for performance against a combination of profitability and
achievement against strategic goals. Short-term incentives
motivate employees to achieve outstanding performance
and are based on current year predetermined KPIs such as
profit after tax, and non-financial activities that achieve short
to medium term objectives, while long-term incentives align
employees with shareholder interests and are based on
maintaining long-term shareholder value using performance
measures such as EPS.
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Annual Report 2019 | Nick Scali LimitedFor personal use only
Directors’ Report (continued)
Remuneration Report – Audited (continued)
3. Remuneration and Human Resources Committee
The Remuneration and Human Resources Committee
4.1 Non-executive directors’ remuneration
Non-executive directors are paid an annual fee, which is
periodically reviewed. Non-executive directors do not receive
bonuses and they are not entitled to participate in the
currently consists of the non-executive Board members and
Executive Performance Rights Plan.
is responsible for:
• reviewing remuneration arrangements and succession
planning of senior management, including the Managing
Director and engaging external compensation consultants
if necessary.
• reviewing and approving any discretionary component of
short and long-term incentives for the Managing Director
and senior executives.
• recommending to the Board any increase in the remuneration
of existing senior employees of the consolidated entity for
Non-executive chairman and directors’ fees remain unchanged
for the year ended 30 June 2019 as reflected below:
2019
$
2018
$
Base fee for Non-Executive Chairman
200,000 200,000
Base fee for Non-Executive Director
100,000 100,000
Fee for Audit Committee Chairman
17,000
17,000
Fee for Audit Committee Member
5,000
5,000
which Board approval is required.
Fee for Remuneration and
• recommending to the Board the remuneration of new senior
Human Resources Committee Chairman
7,000
7,000
executives appointed by the consolidated entity.
Fee for Remuneration and
• the setting of overall guidelines for Human Resources
policy, within which senior management determines specific
Human Resources Committee Member
3,000
3,000
policies.
The pool for non-executive directors’ fees is capped at
• reviewing the performance of the Board and its sub-
$750,000 per year as approved by shareholders at the 2015
committees, with the advice of external parties if appropriate.
Annual General Meeting.
The Committee has met twice in the last twelve months.
In addition, matters for consideration by the Committee
4.2 Executive remuneration
The Group provides appropriate rewards to attract and
have been dealt with during various Board meetings, where
retain key personnel. Base salaries and short and long-term
Remuneration and Human Resources Committee members
incentives are established by the Remuneration and Human
were in attendance.
Resources Committee for each executive having regard
to the nature of each role, the experience of the individual
4. Remuneration structure
In accordance with best practice corporate governance,
employee and the performance of the individual, and are then
approved by the Board. External consultants are engaged as
the structure of non-executive directors and executive
appropriate and market information is used to benchmark
remunerations are separate.
executive remuneration.
4.2.1 Remuneration mix
The Group’s executive remuneration is structured as a mix of fixed and variable remuneration through at risk short-term and long-term
components. The mix of these components varies for different management levels.
The relative proportion and components of the senior executives total remuneration opportunity for the 2019 financial year was:
Base (Fixed)
% of
$ Total
STI (Variable)
% of
$ Total
LTI (Variable)
% of
$ Total
Total
% of
$ Total
Anthony Scali
Kevin Fine1
Christopher Malley1
750,000
410,000
300,000
50
53
50
750,000
205,000
150,000
50
26
25
–
164,000
150,000
–
21
25
1,500,000
779,000
600,000
100
100
100
1 Amounts for Kevin Fine and Christopher Malley represent annualised amounts and are not adjusted for the period in role.
4.2.2 Fixed remuneration
Fixed compensation is set to provide a base level of compensation which is appropriate to the position and responsibility and is
competitive in the market. Fixed compensation is reviewed annually with effect from 1 September each year, by the Remuneration
and Human Resources Committee by reviewing the performance of both the business and the individual, skills, experience and
comparative market compensation and where appropriate, external advice.
The Group provides superannuation contributions in line with statutory obligations with benefits being delivered to the employee’s
choice of superannuation fund.
10
Annual Report 2019 | Nick Scali LimitedFor personal use only
Directors’ Report (continued)
Remuneration Report – Audited (continued)
and the profit targets are linked to a sliding scale set at the
beginning of each financial year.
4.2.3 Variable remuneration – Short-term incentives (STI)
The Group operates short-term incentive (STI) programs that
reward key management personnel (KMP) on the achievement
of predetermined key performance indicators (KPIs) established
for each financial year, according to the accountabilities of
their role and its impact on the organisation’s performance.
KPIs include profit targets and personal performance criteria.
Using a profit target ensures variable reward is paid only when
value is created for shareholders and when profit meets or
exceeds the profit target recommended by the Remuneration
and Human Resources Committee for approval by the Board.
The STI is set as a variable annual incentive, where challenging
performance measures are set
to
incentivise superior
performance. The Managing Director may also recommend to
the Board discretionary bonuses in exceptional circumstances
to reward contributions from high performing employees.
The STIs are cash bonuses.
The Remuneration and Human Resources Committee
is responsible for assessing whether the KPIs are met.
The following table shows the STI cash bonus target and the
amount achieved for each KMP in the financial year 2019 and
There are minimum levels of performance to trigger payouts
previous year:
STI Target
Year ended
30 June 2019
Anthony Scali
Kevin Fine
Financial Non-Financial
Total $ Measures1 % Measures %
20%
80%
750,000
205,000
100%
–
Christopher Malley
1 Financial Measures for the financial year 2019 included net profit before tax (excluding STIs)
150,000
100%
–
STI Achieved
Financial Non-Financial
Total $ Measures1 % Measures %
–
–
–
–
–
–
–
–
–
Year ended
30 June 2018
Anthony Scali
STI Target
Financial Non-Financial
Total $ Measures1 % Measures %
20%
80%
750,000
STI Achieved
Financial Non-Financial
Total $ Measures1 % Measures %
100%
48%
438,000
Kevin Fine
1 Financial Measures for the financial year 2018 included net profit after tax.
205,000
100%
–
98,400
48%
–
4.2.4 Variable remuneration – Long-term incentives (LTI)
Long-term incentives, in the form of the Executive Performance
in relation to earnings per share (EPS) growth, which is not
subject to retesting. Earnings per share is based on the Group
Rights Plan (EPRP), are provided to employees in order to
total profit after tax and before non-recurring items, all as
align remuneration with the creation of shareholder value over
determined by the Board.
the long-term. The EPRP is only made available to executives
and other employees who are able to influence the generation
Rights to ordinary shares may also be granted in accordance
of shareholder value and have a direct impact on the Group
with the EPRP as a retention award where the performance
performance against relevant long-term performance hurdles.
condition is continued employment with the Group to vesting
date – no such retention rights were awarded during the 2019
To achieve this purpose, the Board has determined earnings
financial year.
per share growth over a period of time to be the most
appropriate measure of performance. The plan operates to
There is no exercise price for the shares and the employees
grant to employees rights to ordinary shares that will vest after
are able to exercise the right up to two years following vesting,
a period of three years from the effective date of the grant
after which time the right will lapse.
subject to the achievement of specific performance hurdles
The percentage of performance rights exercisable is dependent on the achievement of specific performance hurdles, as follows:
Company’s compound annual EPS growth
Percentage of rights exercisable
Below 5%
5%
Nil
50%
Greater than 5% and less than 10%
Pro rata between 50% and 100%
10%
100%
11
Annual Report 2019 | Nick Scali LimitedFor personal use only
Directors’ Report (continued)
Remuneration Report – Audited (continued)
The number of rights granted to a senior executive is then
calculated by taking the relevant executive’s fixed annual
remuneration and multiplying it by the relevant predetermined
LTI entitlement percentage of fixed remuneration and then
dividing this by the Group’s volume weighted average share
price for the four week period prior to the date of the release
of the Group’s full year results.
The LTI entitlement of executives considered KMPs is
calculated as a percentage of fixed annual remuneration as
follows:
• Anthony Scali: 0%
• Christopher Malley: 50%
If the performance hurdle is not met or if the participant
ceases to be employed by the Group, any unvested rights
will lapse unless otherwise determined by the Board. In the
event of a takeover offer for the Company, the rights may,
at the discretion of the Board, vest in accordance with an
assessment of performance with the performance period
pro-rated to the date of the takeover offer.
Employees who have been granted rights are prohibited
from entering into a transaction to limit the economic risk of
such rights whether through a derivative, hedge or similar
arrangement. In addition, employees are prohibited from
entering into any margin lending arrangements in respect of
shares in the Company where those shares are offered as
security for the lending arrangement.
4.3 Group performance
The table below sets out the financial performance of the Company over the past five years:
Revenue
EBITDA
Net profit after tax
Earnings per share
Ordinary dividends per share
Share price at financial year end
Stores
Basic earnings per share growth
2015
2016
2017
2018
2019
$m
$m
$m
Cents
Cents
$
#
%
155.7
25.9
17.1
21.1
15.0
3.10
46
19.9
203.0
232.9
250.8
268.0
40.1
26.1
32.3
23.0
4.68
47
53.1
55.7
37.2
46.0
34.0
6.09
50
42.4
62.8
41.0
50.6
40.0
6.73
55
10.1
64.1
42.1
52.0
45.0
6.26
62
2.8
CAGR
(%)
14.5
25.4
25.3
25.3
31.6
19.2
4.4 Remuneration outcomes
The tables below set out the remuneration outcomes for the KMPs for the years ended 30 June 2019 and 30 June 2018 respectively:
Year ended
30 June 2019
Non-Executive Directors:
John Ingram
Greg Laurie
Carole Molyneux
Stephen Goddard
Executive Directors:
Anthony Scali
Salary &
fees
$
182,648
109,589
102,283
98,630
Short-term
benefits
Cash
incentive3
$
Share-based
payments
Share
rights
$
Post-employment
benefits
Superannuation
$
Long-term
benefits
Long service
leave
$
Total
$
–
–
–
–
–
–
–
–
–
17,352
10,411
9,717
9,370
–
–
–
–
200,000
120,000
112,000
108,000
20,049
11,984 1,199,622
729,589
438,000
Other Key Management Personnel:
Kevin Fine1
Christopher Malley2
367,901
103,203
98,400
48,208
–
–
12,909
8,743
–
–
527,418
111,946
1,693,843
536,400
48,208
88,551
11,984 2,378,986
1 Kevin Fine resigned as Chief Financial Officer and Company Secretary on 6 February 2019.
2 Christopher Malley was appointed as Chief Financial Officer and Company Secretary on 6 February 2019. Remuneration outcomes
for Christopher Malley relate only to the period subsequent to this appointment.
3 Short-term benefits paid during the year ended 30 June 2019 comprise STIs achieved in the year ended 30 June 2018.
12
Annual Report 2019 | Nick Scali LimitedFor personal use only
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.4 Remuneration outcomes (continued)
Year ended
30 June 2018
Non-Executive Directors:
John Ingram
Greg Laurie
Carole Molyneux
Stephen Goddard1
Executive Directors:
Anthony Scali
Salary &
fees
$
200,000
109,589
102,283
30,441
Short-term
benefits
Cash
incentive2
$
Share-based
payments
Share
rights
$
Post-employment
benefits
Superannuation
$
Long-term
benefits
Long service
leave
$
Total
$
–
–
–
–
–
–
–
–
–
–
10,411
9,717
2,892
–
–
–
–
200,000
120,000
112,000
33,333
20,049
39,324 1,288,093
668,720
560,000
Other Key Management Personnel:
Kevin Fine
390,042
193,125
139,579
20,049
–
742,795
1 Stephen Goddard was appointed as Non-Executive Director on 1 March 2018.
2 Short-term benefits paid during the year ended 30 June 2018 comprise STIs achieved in the year ended 30 June 2017.
1,501,075
753,125
139,579
63,118
39,324 2,496,221
4.5 Service Agreements
Details of the service agreements between the Company and executives considered KMPs, are as follows:
Name
Title
Term of agreement
Base salary including
superannuation
Termination benefit
Anthony Scali
Managing Director
Ongoing, commencing
24 May 2004
$750,000
–
Christopher Malley
Chief Financial Officer
Ongoing, commencing
& Company Secretary
6 February 2019
$300,000
3 months base salary
4.6 Performance rights granted
The terms and conditions of each grant of performance rights to ordinary shares affecting the remuneration of key executives in this
financial year, or future reporting years, are as follows:
Grant reference
FY19/21
Grant date1
31 Aug 2018
Vesting and
exercisable
date2
Aug 2021
Expiry date
30 Jun 2023
FY18/20
FY17/19
31 Aug 2017
Aug 2020
30 Jun 2022
22 Nov 2016
Aug 2019
30 Jun 2021
Exercise
price
($)
0.00
0.00
0.00
Fair value
per right at
grant date ($)
5.39
Vested and
exercised
30 June 2019
–
Vested and
exercised
30 June 2018
–
5.00
4.36
–
–
–
–
1 The grant date is the date at which the performance rights are communicated to the employees. The effective date of the grant, from
which the performance hurdles are measured, is the first day of the financial year in which the grant is made.
2 The exact vesting and exercisable date is currently indeterminate, and depends on the date of meeting at which the Board can confirm
the achievement of the long-term performance hurdles. This is typically six to eight weeks following the end of the financial year.
4.7 Performance rights holding
The table below sets out the balance of performance rights held by KMPs:
Anthony Scali
Kevin Fine1
Christopher Malley
Anthony Scali
Kevin Fine
Balance
30 June 2018
–
106,310
_
Balance
30 June 2017
–
79,045
Granted
–
23,993
_
Granted
–
27,265
Vested and
exercised
–
(45,876)
_
Vested and
exercised
–
–
Forfeited
–
(51,258)
_
Forfeited
–
Balance
30 June 2019
–
33,169
_
Balance
30 June 2018
–
–
106,310
1 Upon his resignation on 6 February 2019, Kevin Fine held 84,427 performance rights. It was determined by the Board that only those rights
with a vesting date after 1 September 2019 would be forfeited, and all other rights would remain exercisable in August 2019.
13
Annual Report 2019 | Nick Scali LimitedFor personal use only
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.8 Additional disclosures relating to key management personnel
Interest in the Shares of the Company
The beneficial interest of each Director in the contributed equity of the Company are as follows:
Ordinary shares
John Ingram
Greg Laurie
Stephen Goddard
Billcar Pty Ltd1
Scali Consolidated Pty Ltd2
Balance at
30 June
2018
Received
as part of
remuneration
Purchases
Disposals
Balance at
30 June
2019
310,000
30,000
6,000
–
11,039,474
11,385,474
–
–
–
–
–
–
50,000
–
–
7,500
–
57,500
–
–
–
–
–
–
360,000
30,000
6,000
7,500
11,039,474
11,442,974
1 Billcar Pty Ltd is a director related entity of Carole Molyneux.
2 Scali Consolidated Pty Ltd is a director related entity of Anthony Scali.
This concludes the remuneration report, which has been audited.
Indemnity and insurance of officers
During the financial year, the Company has indemnified all
the directors and executive officers against certain liabilities
Officers of the Company who are former partners of
Ernst & Young
There are no officers of the Company who are former partners
incurred as such by a director or officer, while acting in that
of Ernst & Young.
capacity. The premiums have not been determined on an
individual director or officer basis.
Corporate Governance Statement
Nick Scali Limited’s Corporate Governance Statement discloses
The directors have not included details of the nature of the
how the Company complies with the recommendations of the
liabilities covered or the amount of the premium paid in respect
ASX Corporate Governance Council (3rd Edition) and sets
of the directors’ and officers’ liability insurance contract, as
out the Group’s main corporate governance practices. This
such disclosure is prohibited under the terms of the contract.
statement has been approved by the Board and is current as
at 30 June 2019. The Corporate Governance Statement of
No other agreement to indemnify directors or officers have
Nick Scali Limited can be found on the Company’s website:
been entered into, nor have any payments in relation to
www.nickscali.com.au/corporate-governance.
indemnification been made, during or since the end of the
financial year, by the Company.
Indemnity and insurance of auditor
To the extent permitted by law, the Company has agreed to
Rounding of amounts
The Company is of a kind referred to in Class Order 2016/191,
issued by the Australian Securities and Investments Commission,
relating to ‘rounding-off’. Amounts in this report have been
indemnify its auditors, Ernst & Young Australia (EY), as part of
rounded off in accordance with that Class Order to the nearest
the terms of audit engagement agreement against claims by
thousand dollars, or in certain cases, the nearest dollar.
third parties arising from the audit (for an unspecified amount)
– except for any loss in respect of any matters which are finally
determined to have resulted from EY’s negligent, wrongful
Non-audit services
The following non-audit services were provided by the entity’s
or wilful acts or omissions. No payment has been made to
auditor, Ernst & Young Australia. The directors are satisfied
indemnify EY during or since the financial year.
that the provisions of non-audit services is compatible with the
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the
general standard of independence for auditors imposed by the
Corporations Act 2001. The nature and scope of each type of
non-audit service provided means the auditor independence
Corporations Act 2001 for leave to bring proceedings on behalf
was not compromised.
of the Company, or to intervene in any proceedings to which
the Company is a party for the purpose of taking responsibility
Ernst & Young Australia received or are due to receive $17,500
on behalf of the Company for all or part of those proceedings.
for the provision of non-audit services relating to tax review
services.
14
Annual Report 2019 | Nick Scali LimitedFor personal use only
Directors’ Report (continued)
Auditor’s independence declaration
The Directors received the declaration from the auditor of Nick Scali Limited and is included on page 16 of the Financial Statements.
Auditor
Ernst & Young continues in office in accordance with section 327 of the Corporations Act 2001.
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
John Ingram
Chairman
8 August 2019
Sydney
Anthony Scali
Managing Director
Agoura queen bed, bedside table and dresser in full acacia.
Benjamin floor lamp. Zeya floor rug.
Annual Report 2019 | Nick Scali Limited
15
For personal use only Auditor’s Independence Declaration
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Auditor’s Independence Declaration to the Directors of Nick Scali Limited
As lead auditor for the audit of the financial report of Nick Scali Limited for the financial year ended 30
June 2019, I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Nick Scali Limited and the entities it controlled during the financial year.
Ernst & Young
Lisa Nijssen-Smith
Partner
8 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
16
16
Annual Report 2019 | Nick Scali Limited
For personal use only Alicanto console.
Annual Report 2019 | Nick Scali Limited
17
For personal use only Consolidated statement of comprehensive income
For the year ended 30 June 2019
Revenue from contracts with customers
Cost of goods sold
Gross profit
Other income
Expenses
Marketing expenses
Employment expenses
General and administration expenses
Property expenses
Distribution expenses
Depreciation and amortisation
Finance costs
Profit before income tax expense
Note
2019
$’000
2018
$’000
3
3
4
268,025
(99,385)
250,768
(93,562)
168,640
157,206
2,185
1,948
(21,390)
(38,128)
(10,739)
(33,933)
(1,679)
(4,253)
(1,053)
59,650
(19,007)
(36,255)
(9,364)
(29,935)
(1,027)
(3,780)
(928)
58,858
Income tax expense
5
(17,534)
(17,879)
Profit after income tax expense for the year attributable to the owners of
Nick Scali Limited
42,116
40,979
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Net change in the fair value of cash flow hedges taken to equity, net of tax
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to the owners of
Nick Scali Limited
7
(543)
(536)
(1)
1,404
1,403
41,580
42,382
CENTS
CENTS
Basic earnings per share
Diluted earnings per share
6
6
52.0
52.0
50.6
50.6
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
18
Annual Report 2019 | Nick Scali LimitedFor personal use only
Consolidated statement of financial position
As at 30 June 2019
Assets
Current assets
Cash and cash equivalents
Receivables
Inventories
Other financial assets
Prepayments
Total current assets
Non-current assets
Property, plant and equipment
Intangibles assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Borrowings
Payables
Deferred revenue
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Deferred revenue
Provisions
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
Note
2019
$’000
2018
$’000
9
10
11
12
13
14
15
16
17
18
19
20
21
5
22
23
36,284
1,108
37,597
679
1,869
77,537
92,664
2,378
95,042
36,585
1,863
36,175
1,453
979
77,055
91,888
2,378
94,266
172,579
171,321
13,600
17,479
26,323
362
3,405
61,169
20,062
171
5,805
189
26,227
20,362
17,658
26,397
1,308
2,953
68,678
13,300
–
4,880
800
18,980
87,396
87,658
85,183
83,663
3,364
530
81,289
85,183
3,364
1,436
78,863
83,663
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
19
Annual Report 2019 | Nick Scali LimitedFor personal use only
Consolidated statement of changes in equity
For the year ended 30 June 2019
Issued
capital
$’000
Equity
benefits
reserve
$’000
Capital
profits
reserve
$’000
Cash flow
hedge
reserve
$’000
Foreign
exchange
reserve
$’000
Retained
profits
$’000
Total
equity
$’000
Balance at 1 July 2017
3,364
284
78
(386)
Profit after income tax expense for the year
–
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Share-based payments (note 33)
Dividends paid (note 7)
–
–
–
–
–
–
–
57
–
–
–
–
–
–
–
–
67,044
70,384
40,979
40,979
–
1,404
(1)
–
1,403
1,404
(1)
40,979
42,382
–
–
–
–
–
57
(29,160)
(29,160)
Balance at 30 June 2018
3,364
341
78
1,018
(1)
78,863
83,663
Balance at 1 July 2018
3,364
341
78
1,018
(1)
78,863
83,663
Profit after income tax expense for the year
–
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Share-based payments (note 33)
Dividends paid (note 7)
–
–
–
–
–
–
–
(370)
–
–
–
–
–
–
Balance at 30 June 2019
3,364
(29)
78
475
–
–
42,116
42,116
(543)
(543)
–
–
7
7
–
–
6
–
(536)
42,116
41,580
–
(370)
(39,690)
(39,690)
81,289
85,183
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
20
Annual Report 2019 | Nick Scali LimitedFor personal use only
Consolidated statement of cash flows
For the year ended 30 June 2019
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Income taxes paid
Note
2019
$’000
2018
$’000
295,766
(232,425)
274,178
(214,555)
63,341
827
(18,805)
59,623
750
(17,323)
Net cash from operating activities
8
45,363
43,050
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from the sale of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Payment of dividends on ordinary shares
Proceeds from borrowings
Interest paid
Net cash used in financing activities
13
7
(5,283)
362
(28,821)
–
(4,921)
(28,821)
(39,690)
–
(1,053)
(29,160)
12,500
(928)
(40,743)
(17,588)
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
(301)
36,585
(3,359)
39,944
Cash and cash equivalents at the end of the financial year
9
36,284
36,585
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
21
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements
For year ended 30 June 2019
Note 1. Basis of preparation
Corporate information
Nick Scali Limited (the Company or the parent) is a for profit
The Group’s financial liabilities are classified, at initial recognition,
as financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging
company limited by shares incorporated in Australia whose,
instruments in an effective hedge, as appropriate. All financial
shares are publicly traded on the Australian Stock Exchange.
liabilities are recognised initially at fair value and, in the case of
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. These financial
statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards
Board (‘IASB’). The financial statements have been prepared
under the historical cost convention, except for derivative
financial instruments, which have been prepared at fair value.
The financial report was authorised for issue in accordance with
a resolution of the directors on 8 August 2019.
Basis of consolidation
The consolidated financial statements comprise the financial
loans and borrowings and payables, net of directly attributable
transaction costs. Financial
liabilities are subsequently
measured depending on their categorisation, as follows:
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost.
Derivatives designated as hedging instruments
The Group uses derivative financial instruments, such as
forward currency contracts to hedge its foreign currency risks.
Such derivative financial instruments are initially recognised at
fair value on the date on which a derivative contract is entered
into and are subsequently remeasured at fair value through
profit and losses.
For the purpose of hedge accounting, hedges are classified as
statements of the Company and its subsidiaries as at 30
fair value hedges when hedging the exposure to changes in the
June 2019. A subsidiary is an entity that is controlled by the
fair value of a recognised asset or liability or an unrecognised firm
Company. The Company controls an entity when it is exposed
commitment, or cash flow hedges when hedging the exposure
to, or has rights to, variable returns from its involvement with
to variability in cash flows that is attributable to a particular risk
the entity and has the ability to affect those returns through its
associated with a highly probable forecast transaction.
power over the entity.
The financial statements of the subsidiaries are included in
the consolidated financial statements from the date on which
control commences until the date on which control ceases.
Intercompany transactions, balances and unrealised gains
on transactions between the Company and its subsidiaries
are eliminated. Accounting policies of the subsidiaries are
consistent with the policies adopted by the Company.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which it
wishes to apply hedge accounting and the risk management
objective and strategy for undertaking the hedge. Hedges that
meet the qualifying criteria for hedge accounting are accounted
for as a fair value hedge or a cash flow hedge.
AASB 15 Revenue from contracts with customers
This standard was adopted by the Company on 1 July 2018.
Changes in accounting policies, accounting standards and
Revenue is recognised at an amount that reflects the
interpretations
The accounting policies adopted in the preparation of the
consideration to which the Group is expected to be entitled
in exchange for transferring goods to a customer. For each
annual financial statements are consistent with those followed
contract with a customer, the Group identifies the contract
in the preparation of the annual financial statements for the
with a customer; identifies the performance obligations in
period 30 June 2018, except as noted below.
AASB 9 Financial Instruments
The Group early adopted the hedge accounting components of
the contract; determines the transaction price; allocates
the transaction price to the performance obligations; and
recognises revenue when or as each performance obligation is
satisfied in a manner that depicts the transfer to the customer of
the standard in relation to its forward exchange contracts on 1
the goods promised. Revenue from contracts with the Group’s
July 2016, and has adopted the standard in full on 1 July 2018.
customers is recognised when control of the related goods or
services are transferred to the customer, generally on delivery of
The Group’s financial assets are classified, at initial recognition,
the goods to the customer.
and subsequently measured at amortised cost, and fair value
through profit and loss, depending on the financial asset’s
contractual cash flow characteristics and the Group’s business
model to manage them.
The Group recognises as revenue an amount that reflects the
consideration to which it expects to be entitled in exchange for
the goods, and considers whether its contracts with customers
contain further separate performance obligations to which
a portion of the transaction price should be allocated. The
Group’s normal credit terms are payment on delivery.
22
Annual Report 2019 | Nick Scali LimitedFor personal use only Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Significant accounting judgements, estimates
AASB 16 Leases will replace existing accounting requirements
and assumptions
In
the process of applying
the Company’s accounting
of a right-of-use asset and an associated lease liability in the
for leases under AASB 117 and will result in the recognition
policies, management has made judgements, estimates and
consolidated statement of financial position in respect of each
assumptions. All judgements, estimates and assumptions
of the Group’s property leases. Subsequently, an interest
made are believed to be reasonable, based on the most
expense will be recognised in relation to the lease liabilities and
current information available to management. Actual results
depreciation will be charged for the right-of-use assets.
may differ from these judgements, estimates and assumptions.
Judgements, estimates and assumptions which have the most
The Group’s current accounting policy for leases, under
significant effect on the amounts recognised in the financial
AASB 117, requires that operating leases are recognised as
statements:
Operating Lease Commitments
The Company has entered into commercial property leases for its
stores. The Company has determined that the lessors retain all
an expense in the statement of comprehensive income on a
straight line basis over the term of the lease. This policy results
in deferred lease incentives being recorded as a liability in the
statement of financial position.
the significant risks and rewards of ownership of these properties
The new standard will be adopted by the Company on 1 July
and has thus classified the leases as operating leases.
2019, using the modified retrospective approach and will
have a material impact on the Group’s financial statements.
Impairment of goodwill
The Company determines whether goodwill is impaired on an
When adopting the new standard, the Company will measure
the right-of-use asset at the date of implementation as if the
annual basis. This requires an estimation of the recoverable
standard had been applied since the commencement date,
amount of the cash-generating unit to which the goodwill
but discounted using the company’s incremental borrowing
is allocated. The assumptions used in this estimation of
rate at the date of implementation. The cumulative effect of this
recoverable amount and the carrying amount of goodwill is
approach will be recognised as an adjustment to equity on 1
discussed in the financial report.
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on
July 2019, and the Company will not be required to restate any
of comparative information in the Group’s financial statements
for the year ended 30 June 2020.
historical experience as well as consideration of lease terms (for
At the reporting date, the Group had 59 property leases for
assets used in or affixed to leased premises) and replacement
retail stores and warehouse facilities across Australia and New
policies (for motor vehicles). In addition, the condition of the
Zealand, and the impact of the standard on the Group’s financial
assets is assessed at least once per year and considered
statements is dependent on the Group’s borrowing rate and
against the remaining useful life. Adjustments to useful lives are
management’s view of the likelihood of exercising future lease
made when considered necessary.
Net realisable value of inventory
Inventories are valued at the lower of cost and net realisable
options. The Company has assessed these factors and the
estimated impact of adopting the standard at 1 July 2019 will
be the recognition of a right-of-use asset of between $180
million and $200 million (within property, plant and equipment),
value. Weighted average cost is used to value inventories.
and an increase in lease liabilities of between $200 million and
Costs incurred in bringing each product to its present location
$220 million. The net difference between these balances, will be
and condition including freight, cartage and import duties are
recognised as an adjustment to retained profits.
included in the cost of finished goods.
Net realisable value is the estimated selling price in the ordinary
the standard is not expected to have a material impact on net
course of business, less estimated costs necessary to make
profit after tax for the year ending 30 June 2020.
Based on the Group’s current lease portfolio, the adoption of
the sale. Judgment is applied in assessing the net realisable
value.
The practical expedients that have been adopted under
this approach, and which will be used by the Group in its
New accounting standards and interpretations not yet
implementation of AASB 16, are to apply a single discount rate
to the entire portfolio of leases and to exclude initial direct costs
incurred on establishment of existing leases.
mandatory
The Groups assessment of the impact of new and revised
accounting standards, which are not yet effective, is set out
below.
AASB 16 Leases
This standard includes requirements to improve the recognition,
measurement and presentation of leases, and applies to annual
reporting periods beginning on or after 1 January 2019.
23
Annual Report 2019 | Nick Scali LimitedFor personal use only Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 2. Segment information
The Company has identified the Managing Director and the Board of Directors as the chief operating decision makers. The
Company has one reportable segment being the retailing of furniture in Australia and New Zealand.
Note 3. Revenue
Revenue
Revenue from contracts with customers
Other revenue
Rent received
Interest income
Net gain on disposal of plant and equipment
Sundry income
Total other revenue
2019
$’000
2018
$’000
268,025
250,768
1,085
827
31
242
2,185
790
750
-
408
1,948
Recognition and measurement – Revenue and income recognition
Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in
exchange for transferring goods or services to a customer. Revenue is recognised for major business activities as follows:
Sale of goods
When recognising revenue in relation to the sale of goods to customers, the key performance obligation of the consolidated entity is
considered to be the point of delivery of the goods to the customer, as this is deemed to be the time that the customer obtains control
of the promised goods.
Note 4. Expenses
Profit before income tax includes the following specific expenses:
Included within employee benefits expenses
Salaries and wages
Superannuation expense
Share-based payments
Other1
1 Other employee benefits include commissions, payroll tax, workers compensation and contract staff.
Included within property expenses
Operating lease payments
Recognition and measurement – Expenses
Leases and operating leases
2019
$’000
2018
$’000
30,376
2,751
102
4,899
38,128
28,604
2,695
280
4,676
36,255
28,224
23,975
Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so
as to reflect the risks and benefits incidental to ownership. Leases where the lessor retains substantially all the risks and benefits
of ownership of the asset are classified as operating leases. Operating leases are recognised as an expense in the statement of
comprehensive income on a straight-line basis over the lease term of the lease.
Number of employees
Number of full-time and part-time employees at balance date
2019
515
2018
468
24
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 5. Income tax expense
Income tax expense
Current income tax charge
Adjustments in respect of current income tax of previous years
Relating to origination and reversal of temporary differences
Aggregate income tax expense
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%
Adjustments in respect of current income tax of previous years
Adjustment for difference in overseas tax rates
Adjustment for share rights exercised
Other items
Income tax expense
Deferred tax recognised comprises temporary differences attributable to:
Deferred capital gains
Property, plant and equipment
Inventory
Employee entitlements
Deferred lease incentives
Lease make good provisions
Cashflow hedge (Note 24)
Future share rights
Other
Total deferred tax liability
2019
$’000
2018
$’000
17,385
(200)
349
17,401
193
285
17,534
17,879
59,650
58,858
17,895
(200)
(9)
(128)
(24)
17,657
193
1
10
18
17,534
17,879
(1,612)
(1,534)
190
1,099
1,486
166
(204)
187
33
(189)
(1,612)
(1,572)
202
1,092
1,101
156
(436)
–
269
(800)
Recognition and measurement – Income tax
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted
by the reporting date.
Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. Deferred income tax, assets and liabilities are measured at the tax rates that
are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. Deferred tax assets and
deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the
deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.
25
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 6. Earnings per share
Profit after income tax attributable to the owners of Nick Scali Limited
2019
$’000
2018
$’000
42,116
40,979
Number
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
81,000,000
81,000,000
Weighted average number of ordinary shares used in calculating diluted earnings per share
81,000,000
81,000,000
Basic earnings per share
Diluted earnings per share
Cents
52.0
52.0
Cents
50.6
50.6
Recognition and measurement – Earnings per share
Basic earnings per share
Basic earnings per share (EPS) is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other
than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share
Diluted EPS adjusts the Basic EPS to take account of the after tax effect of dividends and interest associated with dilutive potential
ordinary shares that have been recognised as expenses; and other costs associated with dilutive potential ordinary shares and the
weighted average number of shares assumed to have been issued for no consideration.
Note 7. Equity – Dividends
Dividends
Dividends paid during the financial year were as follows:
Final fully franked dividend for 30 June 2018: 24.0 cents (2017: 20.0 cents)
Interim fully franked dividend for 30 June 2019: 25.0 cents (2018: 16.0 cents)
2019
$’000
2018
$’000
19,440
20,250
39,690
16,200
12,960
29,160
In addition to the above dividend, since the end of the financial year directors have declared a final fully franked dividend of 20.0 cents
per fully paid ordinary share to be paid on 29 October 2019 out of retained profits at 30 June 2019.
Franking credits
Franking credits available at the reporting date based on a tax rate of 30%
Franking credits that will arise from the payment of the amount of the provision
for income tax at the reporting date based on a tax rate of 30%
Franking credits available for subsequent financial years based on a tax rate of 30%
32,790
30,996
114
32,904
1,488
32,484
Franking credits available for future reporting periods based on a tax rate of 30%
25,961
24,152
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
• franking credits that will arise from the payment of the amount of the provision for income tax at the reporting date
• franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
• franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date
The tax rate at which paid dividends have been franked is 30% (30 June 2018: 30%).
Dividends declared and unpaid will be franked at the rate of 30% (30 June 2018: 30%).
26
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 8. Reconciliation of profit after income tax to net cash from operating activities
Profit after income tax expense for the year
42,116
40,979
2019
$’000
2018
$’000
Adjustments for:
Depreciation of property, plant and equipment
Net gain on disposal of property, plant and equipment
Share-based payments
Interest expense classified as investing cash flows
Net foreign currency differences
Net fair value change on derivatives
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables
Increase in inventories
Decrease in deferred tax assets
(Decrease)/increase in deferred tax liabilities
Increase in prepayments
Decrease/(increase) in value of other financial asset
(Decrease)/increase in trade and other payables
Decrease in deferred revenue
(Decrease)/increase in provision for income tax
Increase in other provisions
4,253
(31)
(370)
1,053
(70)
(543)
755
(1,422)
–
(611)
(890)
774
(179)
97
(946)
1,377
3,780
–
57
928
(1)
1,404
(1,667)
(6,972)
105
800
(377)
(1,453)
3,324
–
251
1,892
Net cash from operating activities
45,363
43,050
Note 9. Current assets – Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
2019
$’000
10,600
25,684
2018
$’000
8,518
28,067
Cash at bank and on hand
36,284
36,585
Recognition and measurement – Cash and cash equivalents
Cash and short-term deposits in the statement of financial position comprise cash at bank and on hand and short-term deposits with
an original maturity of six months or less. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash
and cash equivalents as defined above.
27
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 10. Current assets – Receivables
Trade debtors
Other debtors
2019
$’000
289
819
1,108
2018
$’000
379
1,484
1,863
Trade receivables are initially recognised at fair value, less any allowance for expected credit losses. Trade receivables are generally
due for settlement within 30 days. The consolidated entity had no expected credit losses at reporting date.
Other debtors includes contributions from landlords and claims due from suppliers. These are non-interest bearing and have repayment
terms of up to 240 days.
Note 11. Current assets – Inventories
Finished goods – at net realisable value
Stock in transit – at cost
2019
$’000
32,017
5,580
2018
$’000
30,993
5,182
37,597
36,175
During the year ended 30 June 2019, $38,000 (2018: expense of $156,000) was recognised as a reduction in cost of goods sold for
inventories carried at net realisable value.
Recognition and measurement – Inventories
Inventories are valued at the lower of cost and net realisable value. Weighted average cost is used to value inventories. Costs incurred
in bringing each product to its present location and condition includes purchase price plus freight, cartage and import duties. Net
realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.
Note 12. Current assets – Other financial assets
Derivative hedge receivable (Note 25)
2019
$’000
2018
$’000
679
1,453
28
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 13. Non-current assets – Property, plant and equipment
Land and buildings – at cost
Less: Accumulated depreciation
Leasehold improvements – at cost
Less: Accumulated depreciation
Fixtures and fittings – at cost
Less: Accumulated depreciation
Motor vehicles – at cost
Less: Accumulated depreciation
Office equipment – at cost
Less: Accumulated depreciation
2019
$’000
81,496
(4,461)
77,035
18,019
(8,536)
9,483
953
(690)
263
673
(322)
351
11,994
(6,462)
5,532
2018
$’000
80,610
(2,978)
77,632
15,229
(6,437)
8,792
2,770
(2,241)
529
815
(538)
277
10,619
(5,961)
4,658
92,664
91,888
Reconciliations
Reconciliation of the carrying amounts of property, plant & equipment at the beginning and end of the financial year:
Consolidated
Balance at 1 July 2017
Additions
Impairment of assets
55,212
23,243
59
Depreciation expense
(882)
Balance at 30 June 2018
Additions
Disposals
Exchange fluctuation
Transfers
77,632
239
–
–
230
Depreciation expense
(1,066)
Land &
buildings
$’000
Leasehold
improvements
$’000
Fixtures &
fittings
$’000
Motor
vehicles
$’000
Office
equipment
$’000
6,717
3,653
14
(1,592)
8,792
2,400
(185)
68
(77)
(1,515)
493
269
–
(233)
529
41
(3)
–
(207)
(97)
283
68
–
(74)
277
186
(34)
1
–
(79)
4,142
1,588
–
(1,072)
4,658
2,417
(109)
3
54
(1,491)
(4,248)
Total
$’000
66,847
28,821
73
(3,853)
91,888
5,283
(331)
72
–
Balance at 30 June 2019
77,035
9,483
263
351
5,532
92,664
Land and buildings totalling $75.7m (2018: $76.5m) are used to secure bank loans relating to their purchase.
29
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 13. Non-current assets – Property, plant and equipment (continued)
Recognition and measurement – Property, plant and equipment
All classes of property, plant and equipment are measured at cost, less accumulated depreciation and any impairment in value.
Depreciation is provided on a straight line basis on all property, plant and equipment.
Major depreciation periods are:
Buildings
Leasehold improvements
Furniture and fittings
Motor vehicles
Office equipment (including IT)
20 – 40 years
5 – 15 years
3 – 15 years
6 years
3 – 12 years
The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.
Leasehold improvements are depreciated at the shorter of the useful life or the term of the lease. Land is not depreciated.
An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Company.
Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate
the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which it belongs. If any such indication exists and where the carrying values
exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.
Note 14. Non-current assets – Intangibles assets
Goodwill on acquisition of stores in Adelaide
2019
$’000
2018
$’000
2,378
2,378
Goodwill acquired through business combinations has been allocated to the Adelaide stores and related distribution centre for
impairment testing. The recoverable amount of the Adelaide stores and related distribution centre has been determined based on a
value in use calculation using cash flow projections.
The key assumptions used in determining the value in use are as follows:
Long-term growth rate
Weighted average cost of capital
2019
2.0%
10.3%
2018
2.0%
10.3%
It would require a significant adverse change in these assumptions to impact the existing assessment and such change is not expected.
Recognition and measurement – Intangible assets
Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at
cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes
in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of
the cash-generating unit to which the goodwill relates.
When goodwill forms part of a cash-generating unit and an operation within that unit is disposed of, the goodwill associated with
the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this manner is measured based on the relative values of the operation disposed of and the portion
of the cash-generating unit retained.
30
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 15. Current liabilities – Borrowings
Commercial bills payable
2019
$’000
2018
$’000
13,600
20,362
Recognition and measurement – Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest
method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans
and borrowings. Borrowing costs are recognised as an expense when incurred, unless they are directly attributable to the acquisition,
construction or production of a qualifying asset whereby they are capitalised.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at
least twelve months after the reporting date.
Note 16. Current liabilities – Payables
Trade creditors
Other creditors and accruals
2019
$’000
11,194
6,285
17,479
2018
$’000
11,578
6,080
17,658
Trade creditors are non-interest bearing financial instruments and are normally settled on 30 day terms.
Other creditors are non-interest bearing financial instruments and are normally settled on 30 to 60 day terms.
Recognition and measurement – Payables
Trade and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent
liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the
Company becomes obliged to make future payments in respect of the purchase of these goods and services.
Note 17. Current liabilities – Deferred revenue
Customer deposits
Accidental damage warranties
2019
$’000
26,276
47
2018
$’000
26,397
–
26,323
26,397
Customer deposits are amounts received from customers for orders not yet completed. A customer deposit is recognised as revenue
when the customer accepts delivery of the order. The opening balance of customer deposits was all recognised as revenue in the
current financial year.
Accidental damage warranties are purchased by the customer in conjunction with the purchase of a piece of furniture and are
recognised as revenue over the life of the warranty. Amounts classified as current will be recognised as revenue within twelve months
of the reporting date.
31
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 18. Current liabilities – Provisions
Employee entitlements
Deferred lease incentives
Recognition and measurement – Provisions
Employee entitlements
2019
$’000
2,784
621
3,405
2018
$’000
2,723
230
2,953
Liabilities for annual leave and long service leave expected to be settled within twelve months of the reporting date are measured as
the amounts to be paid when the liabilities are settled and are discounted to net present value.
Deferred lease incentive
The Company has received financial incentives from the lessor of certain properties. These are recorded as a liability and amortised
over the term of the lease.
Note 19. Non-current liabilities – Borrowings
Commercial bills payable
2019
$’000
2018
$’000
20,062
13,300
Recognition and measurement – Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest
method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans
and borrowings. Borrowing costs are recognised as an expense when incurred, unless they are directly attributable to the acquisition,
construction or production of a qualifying asset whereby they are capitalised.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting date.
Note 20. Non-current liabilities – Deferred revenue
Accidental damage warranties
2019
$’000
2018
$’000
171
–
Accidental damage warranties have a life of up to five years from the date of purchase. The non-current deferred revenue relates to the
portion of revenue which will be recognised more than twelve months after the reporting date.
32
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 21. Non-current liabilities – Provisions
Deferred lease incentives
Employee entitlements
Lease make good
Recognition and measurement
Deferred lease incentives
2019
$’000
4,367
883
555
5,805
2018
$’000
3,441
919
520
4,880
The Company has received financial incentives contributions from the lessor of certain properties. These are recorded as a liability and
amortised over the term of the lease.
Employee entitlements
Liabilities for annual leave and long service leave not expected to be settled within twelve months of the reporting date are measured
as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date
using the projected unit credit method. Consideration is given to the 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 corporate
bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Lease make good
A provision has been made for the present value of anticipated costs of future restoration of leased properties. The provision includes
future cost estimates associated with restoring the premises to its condition at the time the Company initially leased the premises,
subject to fair wear and tear.
2019
Shares
2018
Shares
2019
$’000
2018
$’000
Note 22. Equity – Issued capital
Authorised and fully paid ordinary shares
81,000,000
81,000,000
3,364
3,364
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.
Capital risk management
The Board policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The Board seeks to maintain a balance between the higher returns that might be possible with higher
levels of borrowings and the advantages and security afforded by a sound capital position. There were no changes in the Company’s
approach to capital management during the year.
The Company may look to raise capital when an opportunity to invest in a business is seen as value adding. The Company has
established specific borrowing facilities in relation to property purchases, which are secured over those specific properties. The
Company may consider using external equity when required for specific investments.
The Company pays dividends at the discretion of the Board. The dividend amount is based on market conditions and the profitability
of the Company.
Recognition and measurement
Ordinary share capital is recognised at the fair value of the consideration received by the Company.
Any transaction cost arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds
received, net of tax.
33
Annual Report 2019 | Nick Scali LimitedFor personal use only
2018
$’000
78
1,018
(1)
341
1,436
Total
$’000
(24)
1,430
(602)
576
(1)
57
1,436
(774)
257
27
(525)
7
102
530
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 23. Equity – Reserves
Capital profits reserve
Cash flow hedge reserve
Foreign exchange reserve
Equity benefits reserve
Movements in reserves
Balance at 1 July 2017
Amounts recognised for cash flow hedges
2019
$’000
78
475
6
(29)
530
Equity
benefits
reserve
$’000
284
Capital
profits
reserve
$’000
78
Cash flow
hedge
reserve
$’000
(386)
Foreign
exchange
reserve
$’000
–
Income tax on items taken directly to or transferred from equity
Amounts transferred to non-financial assets
Foreign exchange reserve
Share-based payment
Balance at 30 June 2018
Amounts recognised for cash flow hedges
Income tax on items taken directly to or transferred from equity
Amounts transferred to non-financial assets
Purchase of shares under executive plan
Foreign exchange reserve
Share-based payment
–
–
–
–
57
341
–
53
–
(525)
–
102
–
–
–
–
–
78
–
–
–
–
–
–
1,430
(602)
576
–
–
1,018
(774)
204
27
–
–
–
Balance at 30 June 2019
(29)
78
475
–
–
–
(1)
–
(1)
–
–
–
–
7
–
6
Equity benefits reserve
This reserve is used to record the value of share-based payments provided to employees as part of their remuneration. Refer to Note
33 for further details of these plans.
Capital profits reserve
This reserve is comprised wholly of the surplus on disposal of assets that were acquired prior to the introduction of Capital Gains Tax
provisions.
Cash flow hedge reserve
This reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an
effective hedge.
Foreign exchange reserve
This reserve is used to recognise where assets and liabilities denominated in foreign currencies are translated at the functional currency
spot rates of exchange at the reporting date.
34
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 24. Financing facilities
Unrestricted access was available on the following lines of credit at the reporting date:
Total facilities:
Bank loans expiring within 12 months
Bank loans expiring in greater than 12 months
Bank guarantees
Interchangeable facilities, including letters of credit
Facilities used at reporting date:
Bank loans expiring within 12 months
Bank loans expiring in greater than 12 months
Bank guarantees
Interchangeable facilities, including letters of credit
Facilities unused at reporting date:
Bank loans expiring within 12 months
Bank loans expiring in greater than 12 months
Bank guarantees
Interchangeable facilities, including letters of credit
2019
$’000
2018
$’000
14,500
20,062
2,000
5,000
41,562
13,600
20,062
1,706
–
35,368
900
–
294
5,000
6,194
21,262
13,300
2,000
5,000
41,562
20,362
13,300
1,477
223
35,362
900
–
523
4,777
6,200
Note 25. Financial instruments
Financial risk management objectives
The Company has exposure to foreign exchange risk, interest rate risk, credit risk and liquidity risk.
The Company’s financial risk management policies are established to identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Company’s activities.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.
The Board of Directors has established an Audit Committee, which is responsible for developing and monitoring the Company’s risk
management policies. The Committee provides regular reports to the Board of Directors on its activities.
The Company’s principal financial instruments comprise bank loans, and cash and short-term deposits. The main purpose of these
financial Instruments is to raise finance for and fund the Company’s operations. The Company has various other financial instruments
such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the year, the Company’s
policy that no trading in financial instruments is undertaken.
Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates and interest rates will affect the Company’s income
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control exposure within
acceptable parameters while maximising return.
Foreign currency risk
All of the Company’s sales are denominated in either Australian dollars or New Zealand dollars, whilst the majority of inventory purchases
are denominated in currencies other than Australian dollars, primarily US dollars. Where appropriate the Company uses forward currency
contracts and options to manage its currency exposures; and where the qualifying criteria are met, these are designated as hedging
instruments for the purposes of hedge accounting.
As at 30 June 2019, the Company has trade payables of $3,145,000 (2018: $3,557,000) denominated in US dollars and stock in
transit of $5,580,000 (2018: $5,182,000) denominated in US dollars, all of which are covered by designated cash flow hedges. As a
result, the sensitivity to a reasonably possible change in the US dollar exchange rate is minimal. The cash flows relating to cash flow
hedge positions held at year end are expected to occur in July 2019 through to November 2019, and the profit and loss is expected
to be affected through cost of sales as the hedged items (inventory) are sold to customers. All forecast transactions subject to hedge
accounting have occurred or are highly likely to occur.
35
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 25. Financial instruments (continued)
During the year, the Company designated foreign currency forward contracts as hedges of highly probable purchases of inventory in US
dollars. The forecast purchases are expected to occur during July 2019 through to November 2019.
The terms of the foreign currency forward contracts have been negotiated to match the terms of the forecasted transactions. Both
parties of the contract have fully cash collateralised the foreign currency forward contracts, and therefore, effectively eliminated any
credit risk associated with the contracts (both the counter-party’s and the Company’s own credit risk). Consequently, the hedges were
assessed to be highly effective. As at 30 June 2019, an unrealised loss of $543,000 (30 June 2018: an unrealised gain of $1,403,000)
is recorded in other comprehensive income.
Interest rate risk
Financial instruments utilised that are subject to interest, and therefore interest rate risk, are cash and commercial bills. Management
continually monitor the exposure to interest rate risk. The following table sets out the carrying amount by maturity of the financial
instruments exposed to interest rate risk at reporting date.
The fair value of the cash and commercial bills shown below are based on the face value of those financial instruments.
2019
2018
Weighted
average
interest rate
%
2.36
2.73
3.31
Weighted
average
interest rate
%
2.19
3.28
3.28
Balance
$’000
36,284
(13,600)
(20,062)
2,622
Balance
$’000
36,582
(20,362)
(13,300)
2,920
Floating rate
Cash – Assets less than one year
Commercial Bills – Liabilities less than one year
Commercial Bills – Liabilities between one and five years
Net exposure to cash flow interest rate risk
A reasonably possible increase/(decrease) in the interest rate of 100 basis points would result in an increase/(decrease) of profit of
$18,000 (2018: $29,000).
Credit risk
Credit risk refers to the risk that a counter-party will default on its contractual obligations resulting in a financial loss to the Company.
In most cases, the Company requires full and final payment either prior to, or upon delivery of the goods to the customer. In limited
cases where credit is provided, the Company trades on credit terms with recognised, creditworthy third parties. Customers who wish
to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing
basis with the result that the Company’s exposure to bad debts is not significant. There are no significant concentrations of credit risk
within the Company.
With respect to credit risk arising from financial assets of the Company, which comprise of cash and cash equivalents and receivables,
the Company’s maximum exposure to credit risk, excluding the value of any collateral or other security, at reporting date to recognised
financial assets is in the carrying amount, net of any provisions for doubtful debts, as disclosed in the statement of financial position
and notes to the financial statements. Cash and cash equivalents are only invested with corporations which are approved by the Board.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions.
The Company 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.
The following tables detail the Company’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.
36
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 25. Financial instruments (continued)
2019
Non-derivatives
Non-interest bearing
Trade creditors
Other creditors
Interest bearing – variable
Borrowings
Total non-derivatives
Less than
3 months
$’000
3 to 12
months
$’000
11,194
6,285
–
–
1 to 5
years
$’000
–
–
5,538
23,017
8,260
8,260
21,584
21,584
Over 5
years
$’000
Remaining
contractual
maturities
$’000
–
–
–
–
11,194
6,285
35,382
52,861
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
2018
Non-derivatives
Non-interest bearing
Trade Creditors
Other creditors
Interest bearing – variable
Borrowings
Total non-derivatives
Less than
3 months
$’000
3 to 12
months
$’000
11,578
6,080
–
–
1 to 5
years
$’000
–
–
277
17,935
21,177
21,177
14,988
14,988
Over 5
years
$’000
Remaining
contractual
maturities
$’000
–
–
–
–
11,578
6,080
36,442
54,100
Note 26. Fair value measurement
Fair value hierarchy
All financial instruments for which fair value is recognised or disclosed are categorised with the fair value hierarchy, described as
follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly
observable
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
At the reporting date the fair value of derivative financial instrument represented a derivative hedge receivable of $679,000 (2018:
$1,453,000). All foreign currency forward contracts were measured at fair value using the Level 2 method. Unless otherwise stated,
the carrying amounts of financial instruments reflect their fair value.
Recognition and measurement – 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. Recognition of the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument and the nature of the item being hedged.
As appropriate, the Company designates derivatives as either hedges of the fair value of recognised assets or liabilities of firm
commitments (fair value hedges) or hedges of highly probable forecast transactions (cash flow hedges).
Recognition and measurement – Fair value measurement
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 year 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.
37
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 27. Key management personnel
The aggregate compensation made to directors and other members of
key management personnel of the Company is set out below:
Short-term employee benefits
Long-term employee benefits
Post-employment benefits
Share-based payments
Note 28. Remuneration of auditors
During the financial year the following fees were paid or payable for services
provided by Ernst & Young, the auditor of the Company, and its network firms:
Audit services
Audit or review of the financial statements
Other services
Tax review services
New Zealand legal and tax advice
Note 29. Contingent liabilities
There are no contingent liabilities as at 30 June 2019 (2018: Nil).
Note 30. Commitments
Operating lease commitments
Committed at the reporting date but not recognised as liabilities, payable:
Within one year
One to five years
More than five years
2019
$
2018
$
2,230,243
2,254,200
11,984
88,551
48,208
39,324
63,118
139,579
2,378,986
2,496,221
2019
$
2018
$
150,000
149,000
17,500
–
17,500
17,500
42,540
60,040
167,500
209,040
2019
$’000
2018
$’000
27,585
80,578
18,821
22,570
65,305
13,875
126,984
101,750
Operating leases commitments exist in respect of the Group’s leased premises. Leases are entered into for varying terms and rent
reviews are based on CPI increases or fixed increases. In some cases there are market reviews, particularly when exercising renewal
options. A number of the leases contain options to renew in favour of the Group.
Capital Commitments
At 30 June 2019, the Group had capital commitments of $1,118,000 (2018: $945,000) relating to the fit out of a new showroom and
warehouse in New Zealand and solar panels to upgrade energy efficiency to owned stores in Australia.
38
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 31. Related party transactions
Other related party transactions
Dealings between the Company and the directors and personally-related entities were made during the year in the ordinary course
of business on normal commercial terms and conditions. The nature of these dealings were primarily the reimbursement of personal
expenses incurred on Company paid credit cards and the purchase of products for their own use.
Receivable from and payable to related parties
There were no trade receivables from or trade payables to related parties at the current and previous reporting date.
Loans to/from related parties
There were no loans to or from related parties at either the current or previous reporting date.
Note 32. Events after the reporting period
Apart from the dividend declared as disclosed in Note 7, no other matter or circumstance has arisen since 30 June 2019 that has
significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Company’s state of
affairs in future financial years.
Note 33. Share-based payments
The Company has an Executive Performance Rights Plan which is provided for executives and other employees. In accordance with
the provisions of the plan, executives and employees are awarded rights to ordinary shares that will vest after a period of three years
subject to the achievement of specific performance hurdles in relation to earnings per share (EPS) growth. There is no exercise price for
the shares and the employees are able to exercise the right for up to two years following vesting, after which time the right will lapse.
In the year ended 30 June 2019 rights to ordinary shares were issued which include performance hurdles requiring compound annual
EPS growth of between 5% and 10%. Under the grant, 50% of the rights are exercisable on the achievement of 5% EPS growth,
100% on the achievement of 10% EPS growth, and for the achievement of between 5% and 10% EPS growth the number of rights
exercisable is calculated on a pro-rata basis.
The expense recognised in relation to employee share rights during the year was $102,250 (2018: $280,480).
The following table reconciles the outstanding employee share rights granted under the Executive Performance Rights Plan at the
beginning and end of the financial year:
Balance at the start of the year
Granted
Exercised
Forfeited
Balance at the end of the year
2019
2018
207,375
52,375
(78,241)
(51,258)
177,621
64,172
(34,418)
–
130,251
207,375
Fair value of rights granted
The fair value of rights at grant date is valued under risk neutral conditions. Under these conditions the value of the right is equivalent
to the share price reduced by the present value of dividends payable on the shares until vesting. The present value of the dividends is
deducted from the share price because the right holder is not entitled to dividends until the rights are exercised. The valuation assumes
that the rights are exercised as they vest.
The key assumptions used for determining fair value at grant date are as follows:
Share price at grant date
Dividend yield
Franking rate
Implied pre-tax effective dividend yield
2019
$6.85
5.8%
30.0%
8.3%
2018
$6.40
6.0%
30.0%
8.6%
39
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 33. Share-based payments (continued)
Recognition and measurement – Share-based payments
Share-based payments are measured at the fair value of the rights at grant date and are expensed on a straight line basis over the
vesting period, with a corresponding increase in equity, based on the Company’s estimate of the number of shares that will eventually
vest, giving consideration to the likelihood of employee turnover and the likelihood of non-market performance conditions being met.
At each reporting date the Company revises its estimate of the number of rights expected to vest. The impact of the revision of the
original estimates, if any, is recognised in profit or loss over the remaining vesting period, along with the reversal of any previous charges
relating to rights which may have lapsed.
Note 34. Controlled entities
Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the
accounting policy described in this financial report.
Name of entity
Country of incorporation
Class of shares
Nick Scali (New Zealand) Limited
New Zealand
Nick Scali Employee Share Scheme Pty Ltd
Australia
Ordinary
Ordinary
Note 35. Parent entity information
Set out below is the supplementary information about the parent entity.
Statement of comprehensive income
Profit after income tax expense
Total comprehensive income
Statement of financial position
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Issued capital
Capital profits reserve
Cash flow hedge reserve
Equity benefits reserve
Retained profits
Total equity
Equity holding
2019
%
100
100
2018
%
100
–
Parent
2019
$’000
41,663
41,127
76,478
169,721
59,034
84,965
3,364
78
475
(29)
80,868
2018
$’000
41,010
42,414
77,556
170,297
67,636
86,602
3,364
78
1,017
341
78,895
84,756
83,695
Recognition and measurement – Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Nick Scali Limited (‘Company’ or ‘parent
entity’) as at 30 June 2019 and the results of all subsidiaries for the year then ended. Nick Scali Limited and its subsidiaries together
are referred to in these financial statements as the ‘consolidated entity’.
Subsidiaries are all those entities over which the Company has control. The Company controls an entity when it 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 consolidated entity. They
are de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
40
Annual Report 2019 | Nick Scali LimitedFor personal use only
Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 36. Summary of other significant accounting policies
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 normal operating
cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting year; 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
year. All other assets are classified as non-current.
A liability is classified as current when: it is either expected to be settled in normal operating cycle; it is held primarily for the purpose
of trading; it is due to be settled within 12 months after the reporting year; or there is no unconditional right to defer the settlement of
the liability for at least 12 months after the reporting year. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
Other taxes
Revenues, expenses and assets are recognised net of the amount of Goods and Services Tax (‘GST’) except:
•
when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST
is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
•
receivables and payables, which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the
statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing
and financing activities, which is recoverable from, or payable to the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
Foreign currency translation
The financial statements are presented in Australian dollars, which is Nick Scali Limited’s functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions
or at the hedged rate if qualifying financial instruments have been used to reduce exposure. Monetary assets and liabilities denominated
in foreign currencies are retranslated at the financial year-end exchange rates and recognised in profit or loss.
All exchange differences are recognised in the statement of comprehensive income, except when deferred in equity as qualifying cash
flow hedges.
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 reserve in equity.
41
Annual Report 2019 | Nick Scali LimitedFor personal use only Notes to the consolidated financial statements for year ended 30 June 2019 (continued)
Note 36. Summary of other significant accounting policies (continued)
Derecognition of financial assets and financial liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
•
•
the rights to receive cash flows from the asset have expired;
the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party under a ‘pass-through’ arrangement; or
•
the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks
and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially
all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s
continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured
at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Company could
be required to repay.
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying amounts is recognised in profit or loss.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
When the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement
is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is
presented in the income statement net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific
to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.
Dividends
Dividends are recognised when declared during the financial year and no longer at the discretion of the Company.
Rounding of amounts
The Company is of a kind referred to in Class Order 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 Class Order to the nearest thousand
dollars, or in certain cases, the nearest dollar.
42
Annual Report 2019 | Nick Scali Limited
For personal use only Directors’ Declaration
In the directors’ opinion:
• 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 1 to the financial statements;
• the attached financial statements and notes give a true and fair view of the Company’s financial position as at 30 June 2019 and
of its performance for the financial year ended on that date; and
• there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001.
On behalf of the directors
John Ingram
Chairman
8 August 2019
Sydney
Anthony Scali
Managing Director
Aix dining table in black American
Smoked Oak and Ash.
Fifi and Fleur dining chairs.
Aromer floor rug.
Annual Report 2019 | Nick Scali Limited
43
For personal use only
Independent Auditor’s Report
to the Members of Nick Scali Limited
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent Auditor’s Report to the Members of Nick Scali Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Nick Scali Limited (the Company) and its subsidiaries (collectively
the Group), which comprises the consolidated statement of financial position as at 30 June 2019, the
consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, notes to the financial statements, including
a summary of significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June 2019
and of its consolidated financial performance for the year ended on that date; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
44
Annual Report 2019 | Nick Scali LimitedFor personal use only
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
Inventory valuation
Why significant
How our audit addressed the key audit matter
As at 30 June 2019, the Group held $37.6
million in inventories representing 22% of total
assets.
Our audit procedures assessed the valuation of
inventories and the related financial report
disclosures. These procedures included the following:
As detailed in Note 11 of the financial report,
inventories are valued at the lower of cost and
net realisable value. There is judgement involved
in determining the cost of inventories and in
assessing net realisable value.
The cost of inventories includes elements
relating to the costs of freight and customs
duties. Judgements were involved in the process
of allocating these costs to inventories.
There is judgement in estimating the value of
inventory which may be sold below cost and
determining the net realisable value of this
inventory. Such judgements include expectations
for future sales and inventory clearance plans.
-
-
-
Assessed the application of inventory costing
methodologies, specifically in relation to
freight and customs clearance, and whether
this was consistent with Australian
Accounting Standards.
Assessed the effectiveness of relevant
controls in relation to the inventory costing
process and assessed the accuracy of the
Group’s inventory valuation model, on a
sample basis.
Assessed the basis by which the Group
ensures inventory was recorded at the lower
of cost and net realisable value, including the
rationale for recording specific adjustments.
In doing so, we examined the ageing profile
of inventories, sales margin achieved, the
process for identifying specific slow moving
inventories and historical inventory turnover.
Information other than the Financial Statements and Auditor’s Report
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2019 Annual Report other than the financial report and our auditor’s report
thereon. We obtained the Directors’ Report that is to be included in the Annual Report, prior to the date
of this auditor’s report, and we expect to obtain the remaining sections of the Annual Report after the
date of this auditor’s report.
Our opinion on the financial report does not cover the other information and we do not and will not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
45
Annual Report 2019 | Nick Scali LimitedFor personal use only
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
46
Annual Report 2019 | Nick Scali LimitedFor personal use only
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 9 to 15 of the directors' report for the year
ended 30 June 2019.
In our opinion, the Remuneration Report of Nick Scali Limited for the year ended 30 June 2019, complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
Lisa Nijssen-Smith
Partner
Sydney
8 August 2019
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
47
Annual Report 2019 | Nick Scali LimitedFor personal use only
Shareholder Information
Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows.
The information is current as at 15 July 2019.
Distribution of equitable securities
Analysis of number of equitable security holders by size of holding:
Shareholders Category
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and Over
Total
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
HSBC Custody Nominees (Australia) Limited
Scali Consolidated Pty Limited
Kuka Investment and Management Co. Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Grahger Retail Securities Pty Limited
BNP Paribas Nominees Pty Limited
Molvest Pty Limited
Citicorp Nominees Pty Limited
Ecapital Nominees Pty Limited
Little Blue Porsche Pty Limited
Netwealth Investments Limited
Lan Trading Capital Pty Limited
Grahger Capital Securities Management Pty Limited
Urb Investments Limited
Mr Nicholas Debenham & Mrs Annette Debenham
BNP Paribas Nominees Pty Limited
28421 Pty Limited
Mr Yonatan Widjaya & Mrs Mela Widjaya
Number of holders
of ordinary shares
1,304
1,452
390
275
27
3,448
Ordinary shares
Number held
15,837,318
11,039,474
11,039,473
10,536,567
6,866,778
3,859,970
2,200,000
1,427,076
1,300,000
619,859
492,185
450,000
411,944
337,471
330,000
248,907
225,913
212,540
211,500
168,000
% of total
shares issued
19.55
13.63
13.63
13.01
8.48
4.77
2.72
1.76
1.60
0.77
0.61
0.56
0.51
0.42
0.41
0.31
0.28
0.26
0.26
0.21
67,814,975
83.75
48
Annual Report 2019 | Nick Scali Limited
For personal use only
Shareholder Information (continued)
Substantial holders
Substantial holders in the Company are set out below:
Scali Consolidated Pty Limited
Kuka Investment and Management Co. Limited
Perpetual Investments
Ethical Partners
Colonial First State
Voting rights
Ordinary shares
All ordinary shares carry one vote per share without restriction.
There are no other classes of equity securities.
Ordinary shares
% of total
shares issued
Number held
11,039,474
11,039,473
6,100,232
5,081,527
4,834,268
38,094,974
13.63
13.63
7.53
6.27
5.97
47.03
Carlina TV unit with a natural
timber frame and marble top.
Annual Report 2019 | Nick Scali Limited
49
For personal use only
Karma dining table with acacia frame
and Italian Carrara marble top.
Karma buffet, console. Pippin dining chair
in 100% leather. Zeya floor rug. Benjamin pendant lamps.
50
Annual Report 2019 | Nick Scali Limited
For personal use only Corporate Information
Nick Scali Limited
ABN 82 000 403 896
Store Locations
New South Wales
Alexandria
Auburn
Bankstown
Belrose
Campbelltown
Campbelltown Clearance
Caringbah
Castle Hill
Casula
Kotara
Marsden Park
Moore Park
Penrith
Prospect
Prospect Clearance
Rutherford
Tuggerah
Warrawong
West Gosford
Australian Capital
Territory
Fyshwick
Fyshwick Clearance
Victoria
Chirnside
Craigieburn
Essendon
Frankston
Geelong
Moorabbin
Nunawading
Queensland
Aspley
Bundall
Cairns
Fortitude Valley
Jindalee
Macgregor
Mackay
Maroochydore
South Australia
Gepps Cross
Glynde
Marion
Mile End
Tasmania
Hobart
Maroochydore Clearance
Morayfield
North Lakes
Robina
Western Australia
Cannington
Jandakot
Joondalup
Nunawading Clearance
Skygate (Brisbane Airport)
Midland
Preston
Richmond
Springvale
South Wharf
Taylors Lakes
Toowoomba
Townsville
O’Connor
Osborne Park
New Zealand
Hamilton
Mt Wellington
Registered Office
Level 7, Triniti 2
39 Delhi Road
North Ryde NSW 2113
Telephone: 02 9748 4000
Website: www.nickscali.com.au
Company Secretary
Christopher Malley
Auditors
Ernst & Young
200 George Street
Sydney NSW 2000
Share Registry
Link Market Services Limited
Annual General Meeting
The Annual General Meeting
Level 12, 680 George Street
will be held at 12H00 on
Sydney NSW 2000
Tuesday 29th October 2019
at Nick Scali Limited Head Office
Solicitors
Ashurst
Level 11, 5 Martin Place
Stock Exchange
Nick Scali Limited shares are
Sydney NSW 2000
listed on the Australian
Securities Exchange
The home exchange is Sydney
ASX code: NCK
Annual Report 2019 | Nick Scali Limited
51
For personal use only Savoy 2.5 seater electric recliner with chaise in 100% leather. Trista armchair.
Tanami coffee table and buffet in Australian oak. Chill floor lamp. Kerson floor rug.
For personal use only For personal use only For personal use only