Annual Report 2020
Dream corner modular lounge with ottoman.
Byron queen bed, bedside table, dresser and tallboy in Australia Marri red gum.
Zeya floor rug. Cohen pendant lamp.
2
Annual Report 2020 | Nick Scali Limited
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
5
6
16
18
19
20
21
43
44
49
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. Dividends
Note 8. Reconciliation of profit after income
tax to net cash from operating activities
Note 9. Cash and cash equivalents
Note 10. Receivables
Note 11. Inventories
Note 12. Property, plant and equipment
Note 13. Leases
Note 14. Intangibles assets
Note 15. Borrowings
Note 16. Payables
Note 17. Deferred revenue
Note 18. Provisions
Note 19. Other financial assets and liabilities
Note 20. Issued capital
Note 21. Equity – Reserves
Note 22. Financing facilities
Note 23. Financial instruments
Note 24. Fair value measurement
Note 25. Key management personnel
Note 26. Remuneration of auditors
Note 27. Contingent liabilities
Note 28. Commitments
Note 29. Related party transactions
Note 30. Significant events after the reporting period
Note 31. Share-based payments
Note 32. Controlled entities
Note 33. Parent entity information
Note 34. Summary of other significant accounting policies
22
24
24
24
25
26
26
27
27
28
28
28
30
31
31
32
32
32
33
33
34
35
35
37
38
38
38
38
38
39
39
40
40
41
3
Annual Report 2020 | Nick Scali Limited
Historical Performance
Sales ($m)
Nick Scali Furniture showrooms
250.8
232.9
203.0
268.0
262.5
57
58
51
42
45
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Net profit after tax ($m)
Dividends (cents per share)
42.1
42.1
41.0
37.2
26.1
34.0
23.0
47.5
45.0
40.0
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
4
Annual Report 2020 | Nick Scali Limited Chairman and Managing
Director’s Review
Operating Performance
Despite the unprecedented challenges that the Company has
The Company plans to open two new stores in the first half of
2021 – one at Bennett’s Green, NSW and one at Wairau Park,
faced over the past few months, we are pleased to report that
on the north side of Auckland, New Zealand. Further new store
Nick Scali Limited has had another successful year, maintaining
opportunities are cautiously being considered, with a focus on
profitability at the same level as the previous financial year.
ensuring that rents remain sustainable beyond the current sales
During the year, sales revenue decreased by 2.0% to
boom.
$262.5million, with comparable store sales declining 6.7%
The Company continues to invest in infrastructure to support
due to temporary store closures in April 2020 and a subdued
the expansion of the store network, and a larger warehouse
trading environment in the first quarter of the year. Gross margin
facility was opened in New Zealand in November 2019 to better
decreased slightly by 20 basis points, as retail pricing initiatives
support growth in this market.
and support from suppliers off-set the impact of a weakened
Australian dollar.
Further, the Company has continued to expand its owned
property footprint with the purchase of a property at Auburn,
As the potential impact of Covid-19 became apparent, the
NSW in February, and the purchase of a retail showroom in
Company undertook a thorough review of its cost base, and
reduced operating expenses by $5.0million through reductions
in property, employment and marketing expenses. This exercise
Adelaide shortly after the end of the financial year. The Company
currently has over 37,000m2 of owned property in Australian
metro locations, and with interest rates at very low levels,
has left the Company well placed to deliver further profitability
anticipates making further property acquisitions in the future.
as the trading returns to normal.
The Company’s working capital position improved throughout
the year and with the high level of trading in May and June, net
cash flow was $26.8million. The Company returned $36.5million
to shareholders in dividends during the year.
Impact of Covid-19
In March and April, deliveries from international suppliers were
delayed as the initial impacts of Covid-19 were felt in China,
resulting in longer lead times for customer deliveries. The
Company worked closely with its suppliers to rectify this by the
end of May. As the pandemic spread into Australia, the Company
made the difficult decision to close all retail showrooms at the
end of March. The showrooms were progressively reopened
during April, with the exception of New Zealand showrooms
which remained closed for seven weeks. We estimate that the
Company lost approximately $10m of revenue due to the store
closures.
In order to mitigate the impact of the store closures, the
Company successfully launched an online sales channel.
The online channel has performed strongly and provides the
Company with the opportunity for further sales growth in the
near future.
Dividends
Having deferred the payment of the interim dividend by three
months in response to Covid-19, the Directors declared a fully
franked final dividend of 22.5 cents per share on 6th August
2020. This brings the total dividend for the year to 47.5 cents
per share, representing a payout ratio of over 90%. The final
dividend has a record date of 6th October 2020 and will be paid
on 27th October 2020.
Board
We are sad to report the passing of Greg Laurie in March
this year. Greg served the Company with distinction for
fifteen years as a non-executive director and Chairman of the
Audit Committee. The Board wish to take this opportunity to
acknowledge the outstanding contribution that Greg made to
the Company.
In August 2020, Mr Bill Koeck was appointed to the Board as a
non-executive director. Bill is an experienced legal adviser and
currently serves on a number of boards. We welcome Bill, and
look forward to working with him.
Outlook
As a furniture retailer, Nick Scali Limited has experienced an
As part of the cost reduction efforts, the Company received
exceptional level of growth in recent months, and expects this
wage subsidies in both Australia and New Zealand, and
to translate into profit growth in the first half of the next financial
negotiated rent concessions with most of its landlords. These
year. However, trading conditions continue to be unpredictable
initiatives enabled the store network to reopen as soon as
with the potential for government restrictions to continue to
possible.
impact stores for the foreseeable future.
Like many retailers in the furnishings and homewares sector,
The Board recognises that the success of Nick Scali Limited
Nick Scali Limited experienced a significant rebound in
is the result of the dedication of our many employees and
customer activity during May, June and July, as consumers
reallocated discretionary spending toward items for the home.
associates across Australia and New Zealand, and this has
been particularly so during the last few months. We would like
Store network
In September, a new store was opened in New Zealand in St
to take this opportunity to thank them for their hard work and
commitment to the Company. Furthermore, the Board also
takes this opportunity to thank our shareholders, customers
Lukes, Auckland. This store brought the total number of Nick
and suppliers, whose continuing support underpins the
Scali Furniture stores at 30 June 2020 to 58.
performance of the Company.
5
Annual Report 2020 | Nick Scali Limited Directors’ Report
The directors present their report, together with the financial
For the financial year ended 30 June 2020 the Group reported
statements, on the consolidated entity (referred to hereafter
NPAT of $42,076,000, in line with the previous year. Sales
as the ‘Group’ or ‘consolidated entity’) consisting of Nick Scali
revenue decreased 2.0% to $262,480,000 with negative same
Limited (referred to hereafter as the ‘Company’ or ‘parent entity’)
store sales of 6.7%, with the increase in discretionary consumer
and the entities it controlled at the end of, or during, the year
spending experienced across the homewares and furniture sector
ended 30 June 2020.
in Australia in May and June not translating into sales revenue
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 (ceased 23 March 2020)
Carole Molyneux
Stephen Goddard
William Koeck (appointed 1 August 2020)
Anthony Scali
Principal activities
The principal activities of the Group during the year were
growth until the next financial year.
Gross profit margin for the financial year was 62.7%, compared
to 62.9% in the prior year. The Company was able to work closely
with suppliers to alleviate the impact of a volatile foreign exchange
environment experienced in the period.
Due to changes in accounting for leases, EBIT and EBITDA
for 2020 and 2019 are not directly comparable. However, on
underlying basis, operating expenses were reduced and margins
improved due to reductions in full time head count, negotiated
rent concessions and the receipt of government wage subsidies.
Net cash inflows during the year were $26,753,000, an increase of
$27,054,000 on the previous year cash outflow, driven by strong
trading in May and June, and the impact of one-off property sales.
the sourcing and retailing of household furniture and related
The Group continues to have low debt and strong working capital
accessories.
No significant change in the nature of these activities occurred
during the year.
Dividends
Dividends paid during the year were as follows:
2020
$’000
2019
$’000
Final franked dividend for 30 June 2019:
position, and as evidenced during the current year is able to
remain competitive during periods of retail uncertainty.
Net assets were $75,414,000 as at 30 June 2020, down
$9,769,000 on last year, reflecting the recognition of lease
liabilities and associated leased assets on the balance sheet
under AASB16.
Showroom network
During the year, one new store was opened in Auckland, New
Zealand, bringing the store network in New Zealand to a total of
20.0 cents (2018: 24.0 cents)
16,200
19,440
3 stores.
Interim franked dividend for 30 June 2020:
25.0 cents (2019: 25.0 cents)
20,250
20,250
In the first half of the new financial year the Company expects to
open two stores, one being in Bennett’s Green in NSW and the
36,450
39,690
other being Nick Scali’s fourth store in New Zealand at Wairau
In addition to the above dividend, since the end of the financial
year directors have declared a fully franked final dividend
of 22.5 cents per fully paid ordinary share to be paid on
27 October 2020 out of retained profits at 30 June 2020.
Operating and financial review
Nick Scali Limited is a furniture retailer operating in Australia and
New Zealand. The business operates under a single brand, Nick
Scali Furniture.
Group operating results
2020
$m
262.5
96.9
67.0
42.1
51.9
47.5
26.8
2019
$m
268.0
64.1
59.9
42.1
52.0
45.0
(0.3)
% Change
-2.0%
51.2%
11.9%
0.0%
0.0%
Revenue
EBITDA
EBIT
NPAT
EPS (cents)
DPS (cents)
Net cash flow
6
Park, on the north side of Auckland. A number of further new
store opportunities are being cautiously considered with an
emphasis on ensuring rents are sustainable in the long term. In
May, the Company committed to purchase a retail property in
Adelaide, replacing our existing store in Mile End and becoming
Nick Scali’s flagship store in Adelaide.
The Company now has a total store network of 58 stores across
Australia and New Zealand and remains focused on its target of
80-85 stores across Australia and New Zealand.
People
The Group has a strong focus on attracting, engaging, developing
and retaining top talent to ensure it remains an employer of choice
and maximises its potential to deliver growth. Investment in training
and leadership development ensures employees are equipped to
deliver in their varied roles, and best practice short and long term
incentives are in place to reward exceptional performance.
The Group promotes workplace diversity and has zero tolerance
for discrimination and harassment. Furthermore, it ensures that
Workplace Health and Safety is a priority for all employees, along
Annual Report 2020 | Nick Scali Limited
Directors’ Report (continued)
with that of customers and suppliers – an aspect of the Group’s
policy that has been severely tested during the recent Covid-19
Matters subsequent to the end of the financial year
On 31 July 2020 the Company has completed the purchase of a
pandemic. Despite causing significant disruption to the business,
retail showroom in South Australia for $6,600,000.
the pandemic has brought about positive workplace change
through the need for both flexible work practices and improved
operational efficiencies.
Covid-19 impact
At the start of the Covid-19 crisis, the Company experienced
delays in its supply chain from Asia of up to four weeks in March
and April, and subsequently worked closely with suppliers to
ensure delivery lead times were back to normal by early May.
Following a sharp decline in store traffic in the last two weeks of
March, all Nick Scali Furniture stores were temporarily closed for
between two and four weeks in Australia, and for seven weeks
in New Zealand, in April and May 2020. The Company estimates
that these temporary closures resulted in a revenue loss of
between $9 million and $11 million.
In response to the Covid-19 crisis, the Group also successfully
launched an online sales channel during April 2020, with average
monthly sales orders of $1 million since launch.
The Company was eligible for the Australian Government’s
JobKeeper wage subsidy scheme, as well as the New Zealand
Government’s equivalent scheme, and received $3,915,000 in
wage subsidies in the year ended 30 June 2020. The Company
also secured rent concessions from over 85% of its landlords.
Contrary to the decline in sales revenue, written orders grew by
9% with same store sales orders up 4%. Following the temporary
closure of Australian stores for most of April, and up until mid-May
in New Zealand, May and June sales orders grew by 72% year
on year.
Outlook
Trading during the month of July continued to be extremely buoyant
with written sales orders growing by 75% compared to the same
period last year. This follows on from a strong May and June where
sales orders were up over 70%.
As approximately 65% of the Company’s products are made to
order with typical delivery lead times of 9-13 weeks, the recent
strong order intake performance means the Company’s opening
order book for the year ending 30 June 2021 is significantly higher
than in previous years. These orders will be delivered between July
and September 2020 and contribute to revenue in the next financial
year.
As a result of the strong sales revenue growth and after allowing for 6
weeks of further temporary closures to our Melbourne showrooms,
the Company expects significant profit growth during the first half
of the year ended 30 June 2021. This remains subject to there
being no further extensions of existing restrictions in Melbourne or
any further store closures across the network as a result of further
government imposed restrictions in the future.
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the
Company during the year.
On 1 August 2020, William Koeck was appointed an independent
non-executive director.
Other than the dividend declared on 6 August 2020 (and discussed
above), no other matter or circumstance has arisen since 30 June
2020 that has significantly affected, or may significantly affect the
consolidated entity’s operations, the results of those operations,
or the consolidated entity’s state of affairs in future financial years.
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:
Nil.
Former directorships (last three years):
Non-executive Chairman of Shriro Holdings Limited (SHM) retired
on 27 February 2020.
Special responsibilities:
Member of the Audit Committee.
Member of the Remuneration and Human Resources Committee.
Interests in shares: 360,000.
Carole Molyneux
Name:
Title:
Experience and expertise:
Carole was appointed to the Board on 26 June 2014. She has
Independent Non-Executive Director
extensive experience in retail and was the Chief Executive Officer
of Suzanne Grae, (part of the Sussan Retail Group), for eighteen
years until 2013.
Other current directorships:
Nil.
Former directorships (last three years):
Independent Non-Executive Director of White Ribbon Australia.
Special responsibilities:
Chairman of the Remuneration and Human Resources Committee.
Member of the Audit Committee.
Interests in shares: 15,500.
7
Annual Report 2020 | Nick Scali Limited Directors’ Report (continued)
Stephen Goddard
Name:
Title:
Experience and expertise:
Stephen was appointed to the Board on 1 March 2018.
Independent Non-Executive Director
Stephen is an experienced retailer having held a broad range
Anthony Scali
Name:
Title:
Qualifications:
BCom
Experience and expertise:
Anthony is Managing Director of Nick Scali Limited. He joined
Managing Director
of senior executive positions in the industry. These include
the Company full-time in 1982 after completing a Bachelor
Finance Director and Operations Director for David Jones,
of Commerce degree at the University of New South Wales.
founding Managing Director of Officeworks, and various senior
Anthony has over 30 years’ experience in furniture retailing.
management roles with Myer.
Other current directorships:
Independent Non-Executive Chairman of JB Hifi Limited (JBH),
Independent Non-Executive Director and Chairman of the Audit
and Risk Committee for both GWA Group Limited (GWA) and
Other current directorships:
Nil.
Former directorships (last three years):
Nil.
Interests in shares: 11,039,474.
‘Other current directorships’ quoted above are current
directorships for listed entities only and exclude directorships of
all other types of entities, unless otherwise stated.
‘Former directorships (last three years)’ quoted above are
directorships held in the last three years for listed entities only
and exclude directorships of all other types of entities, unless
otherwise stated.
At the date of this report, no Directors held options over ordinary
shares in the Company.
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 Manager Finance in
November 2017.
Special responsibilities of directors
Audit Committee
The members of the Audit Committee are as follows:
• Stephen Goddard (appointed Chairman 23 March 2020)
• John Ingram
• William Koeck (appointed 1 August 2020)
• Greg Laurie (Chairman, ceased 23 March 2020)
• Carole Molyneux
Remuneration and Human Resources Committee
The members of the Remuneration and Human Resources
Committee are as follows:
• Carole Molyneux (Chairman)
• Stephen Goddard
• John Ingram
• William Koeck (appointed 1 August 2020)
• Greg Laurie (ceased 23 March 2020)
Accent Group Limited (AX1).
Former directorships (last three years):
Nil.
Special responsibilities:
Chairman of the Audit Committee.
Member of the Remuneration and Human Resources Committee.
Interests in shares: 6,000.
William (Bill) Koeck
Name:
Title:
Experience and expertise:
Bill was appointed to the Board on 1 August 2020. Bill is an
Independent Non-Executive Director
experienced legal adviser with over 40 years of experience
in mergers and acquisitions, equity capital markets, private
equity, restructuring and corporate governance. Member of the
Takeovers Panel.
Other current directorships:
Independent Non-Executive Chairman of Coronado Global
Resources Inc (CRN). Non-Executive Director of Poulos Bros.
Group.
Former directorships (last three years):
Nil.
Special responsibilities:
Member of the Audit Committee.
Member of the Remuneration and Human Resources Committee.
Interests in shares: Nil.
Greg Laurie
Name:
Title:
Qualifications:
Experience and expertise:
Greg was appointed to the Board on 7 April 2004, and ceased
Independent Non-Executive Director
BCom, FAICD
to be a director on 23 March 2020.
Other current directorships:
Nil.
Former directorships (last three years):
Independent Non-Executive Director of Shriro Holdings Limited
(SHM).
Independent Non-Executive Director of Bradken
Limited.
Independent Chairman of Big River
Industries
Limited (BRI).
Special responsibilities:
Chairman of the Audit Committee (ceased 23 March 2020).
Member of the Remuneration and Human Resources Committee
(ceased 23 March 2020).
Interests in shares: Nil.
8
Annual Report 2020 | Nick Scali Limited Directors’ Report (continued)
Meetings of directors
The numbers of meetings of the Board and of each Board sub-committee held during the year ended 30 June 2020, and the numbers
of meetings attended by each director were:
John Ingram
Stephen Goddard
William Koeck
Greg Laurie
Carole Molyneux
Anthony Scali1
Directors’
Meetings
Held
10
10
–
6
10
10
Attended
10
10
–
6
10
10
Remuneration and Human
Resources Committee
Attended
1
Held
1
Audit
Committee
Held
4
Attended
4
1
–
–
1
–
1
–
–
1
–
4
–
3
4
–
4
–
3
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
report details
The
remuneration
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:
John Ingram
– Non-Executive Chairman
Stephen Goddard – Non-Executive Director
William Koeck
– Non-Executive Director (appointed to
be a Director on 1 August 2020)
Greg Laurie
– Non-Executive Director (ceased to be
a Director on 23 March 2020)
Carole Molyneux
Anthony Scali
– Non-Executive Director
– Managing Director
And the following executive:
Christopher Malley – Chief Financial Officer
& Company Secretary
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 incentives comprising short-term incentives (STI) in
the form of a cash based reward and long-term incentives
(LTI) in the form of an equity reward
The incentives are designed to deliver value to executives for
performance against a combination of company 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 longterm shareholder value using performance
measures such as EPS.
9
Annual Report 2020 | Nick Scali Limited
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 is
Executive Performance Rights Plan.
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
Non-executive chairman and directors’ fees remain unchanged
for the year ended 30 June 2020 as reflected below:
2020
$
2019
$
short and long-term incentives for the Managing Director
Base fee for Non-Executive Chairman
200,000 200,000
and senior executives.
Base fee for Non-Executive Director
100,000 100,000
• recommending to the Board any increase in the remuneration
Fee for Audit Committee Chairman
17,000
17,000
of existing senior employees of the consolidated entity for
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,
Human Resources Committee Member
3,000
3,000
within which Senior Management determines specific
policies.
• reviewing the performance of the Board and its sub-
committees, with the advice of external parties if appropriate.
The Committee has met once in the last twelve months. In
addition, matters for consideration by the Committee have
been dealt with during various Board meetings, where
Remuneration and Human Resources Committee members
were in attendance.
4. Remuneration structure
In accordance with best practice corporate governance,
the structure of non-executive directors and executive
remunerations are separate.
The pool for non-executive directors’ fees is capped at
$750,000 per year as approved by shareholders at the 2015
Annual General Meeting.
In response to the Covid-19 crisis, the directors accepted a
voluntary 30% reduction to the fees in the above table for the
period from 1 April 2020 to 30 June 2020.
4.2 Executive remuneration
The Group provides appropriate rewards to attract and
retain key personnel. Base salaries and short and long-term
incentives are established by the Remuneration and Human
Resources Committee for each executive having regard
to the nature of each role, the experience of the individual
employee and the performance of the individual, and are then
approved by the Board. External consultants are engaged as
appropriate and market information is used to benchmark
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 2020 financial year was:
Base (Fixed)
% of
$ Total
STI (Variable)
% of
$ Total
LTI (Variable)
% of
$ Total
Total
% of
$ Total
Anthony Scali
Christopher Malley
750,000
300,000
50
50
750,000
150,000
50
25
–
150,000
–
25
1,500,000
600,000
100
100
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.
In response to the Covid-19 crisis, the executives accepted a voluntary 30% reduction to fixed renumeration for the period from
1 April 2020 to 30 June 2020.
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 2020 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
trigger payouts 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 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 Group’s performance.
KPIs include profit targets and personal performance criteria.
Using a profit target ensures variable rewards are 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. There are minimum levels of performance to
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 years ended 30 June
2020 and 30 June 2019:
STI Target
Financial Non Financial
Total $ Measures1 % Measures %
STI Achieved
Financial Non Financial
Total $ Measures1 % Measures %
Christopher Malley
1 Financial measures for the financial year 2020 included net profit before tax
150,000
100%
750,000
80%
20%
–
–
–
–
–
–
–
STI Target
Financial Non Financial
Total $ Measures1 % Measures %
STI Achieved
Financial Non Financial
Total $ Measures1 % Measures %
750,000
205,000
80%
100%
20%
–
–
–
–
–
–
–
–
–
–
–
Christopher Malley
1 Financial Measures for the financial year 2019 included net profit after tax.
150,000
100%
Year ended
30 June 2020
Anthony Scali
Year ended
30 June 2019
Anthony Scali
Kevin Fine
4.2.4 Variable remuneration – Long-term incentives (LTI)
Long-term incentives, in the form of the Executive Performance
subject to the achievement of specific performance hurdles in
relation to earnings per share growth, which is not subject to
Rights Plan (EPRP), are provided to employees in order to
retesting. Earnings per share is based on the Group total profit
align remuneration with the creation of shareholder value over
after tax and before non-recurring items, all as determined by
the long-term. The EPRP is only made available to executives
the Board.
and other employees who are able to influence the generation
of shareholder value and have a direct impact on the Group
performance against relevant long-term performance hurdles.
To achieve this purpose, the Board has determined earnings
Rights to ordinary shares may also be granted in accordance
with the EPRP as a retention award where the performance
condition is continued employment with the Group to vesting
date. No such retention rights were awarded during the year
per share (EPS) growth over a period of time to be the most
ended 30 June 2020.
appropriate measure of performance. The plan operates to
grant to employees rights to ordinary shares that will vest after
a period of three years from the effective date of the grant
There is no exercise price for the shares and the employees
are able to exercise the right up to two years following vesting,
after which time the right will lapse.
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 2020 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
The number of rights granted to a senior executive is 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
Nick Scali Furniture showrooms
Basic earnings per share growth
2016
2017
2018
2019
2020
$m
$m
$m
Cents
Cents
$
#
%
203.0
40.1
26.1
32.3
23.0
4.68
42
53.1
232.9
250.8
268.0
262.5
55.7
37.2
46.0
34.0
6.09
45
42.4
62.8
41.0
50.6
40.0
6.73
51
10.1
64.1
42.1
52.0
45.0
6.26
57
2.8
96.9
42.1
51.9
47.5
6.48
58
0.4
CAGR
(%)
6.6
24.7
12.7
12.6
19.9
8.5
4.4 Remuneration outcomes
The tables below set out the remuneration outcomes for the KMPs for the years ended 30 June 2020 and 30 June 2019 respectively:
Year ended
30 June 2020
Non-Executive Directors:
John Ingram
Greg Laurie1
Carole Molyneux
Stephen Goddard
Executive Directors:
Anthony Scali
Other Key Management Personnel:
Christopher Malley
Salary &
fees
$
Short-term
benefits
Cash
incentive
$
Share-based
payments
Share
rights
$
Post-employment
benefits
Superannuation
$
Long-term
benefits
Long service
leave
$
Total
$
168,950
82,192
94,612
92,511
692,833
263,894
1,394,992
–
–
–
–
–
–
–
–
–
–
–
–
16,050
7,808
8,988
8,789
–
–
–
–
185,000
90,000
103,600
101,300
21,003
12,007
725,843
27,369
21,003
–
312,266
27,369
83,641
12,007 1,518,009
1 Greg Laurie ceased to be a Director on 23 March 2020.
12
Annual Report 2020 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.4 Remuneration outcomes (continued)
Year ended
30 June 2019
Non-Executive Directors:
John Ingram
Greg Laurie
Carole Molyneux
Stephen Goddard
Executive Directors:
Anthony Scali
Salary &
fees
$
Short-term
benefits
Cash
incentive
$
Share-based
payments
Share
rights
$
Post-employment
benefits
Superannuation
$
Long-term
benefits
Long service
leave
$
Total
$
182,648
109,589
102,283
98,630
–
–
–
–
729,589
438,000
–
–
–
–
–
17,352
10,411
9,717
9,370
–
–
–
–
200,000
120,000
112,000
108,000
20,049
11,984 1,199,622
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.
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
$300,000
3 months base salary
4.6 Performance rights granted
The terms and conditions of each grant of performance rights to ordinary shares affecting the remuneration of employees in this financial
year or future reporting years are as follows:
Grant reference
Grant date1
FY20/22
FY19/21
FY18/20
FY17/19
13 Sep 2019
31 Aug 2018
31 Aug 2017
22 Nov 2016
Vesting and
exercisable
date
Aug 20222
Aug 20212
Aug 2020
Aug 2019
Expiry date
30 Jun 2024
30 Jun 2023
30 Jun 2022
30 Jun 2021
Exercise
price
($)
Fair value
per right at
grant date ($)
Vested and
exercised
30 June 2020 (No.)
0.00
0.00
0.00
0.00
5.17
5.39
5.00
4.36
–
–
–
33,169
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 for rights that have not yet vested 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.
13
Annual Report 2020 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
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 Fine1
Balance
30 June 2019
–
33,169
Granted
–
–
–
23,810
Balance
30 June 2018
–
Granted
–
Vested and
exercised
–
(33,169)
_
Vested and
exercised
–
Forfeited
Balance
30 June 2020
–
–
_
–
–
23,810
Forfeited
–
Balance
30 June 2019
–
106,310
23,993
(45,876)
(51,258)
33,169
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.
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
Stephen Goddard
Greg Laurie
Carole Molyneux
Scali Consolidated Pty Ltd1
Balance at
30 June 2019
Received as part
of remuneration
Purchases
Disposals
360,000
6,000
30,000
7,500
11,039,474
11,442,974
–
–
–
–
–
–
–
–
–
8,000
–
–
–
(30,000)
–
–
8,000
(30,000)
Balance at
30 June 2020
360,000
6,000
–
15,500
11,039,474
11,420,974
1 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
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the
the directors and executive officers against certain liabilities
Corporations Act 2001 for leave to bring proceedings on behalf
incurred as such by a director or officer, while acting in that
of the Company, or to intervene in any proceedings to which
capacity. The premiums have not been determined on an
the Company is a party for the purpose of taking responsibility
individual director or officer basis.
on behalf of the Company for all or part of those proceedings.
The directors have not included details of the nature of the
liabilities covered or the amount of the premium paid in respect
of the directors’ and officers’ liability insurance contract, as
Officers of the Company who are former partners of
Ernst & Young
There are no officers of the Company who are former partners
such disclosure is prohibited under the terms of the contract.
of Ernst & Young.
No other agreement to indemnify directors or officers have
been entered into, nor have any payments in relation to
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
indemnify its auditors, Ernst & Young Australia (EY), as part of
the terms of audit engagement agreement against claims by
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
or wilful acts or omissions. No payment has been made to
indemnify EY during or since the financial year.
Corporate Governance Statement
Nick Scali Limited’s Corporate Governance Statement discloses
how the Company complies with the recommendations of the
ASX Corporate Governance Council (3rd Edition) and sets
out the Group’s main corporate governance practices. This
statement has been approved by the Board and is current as
at 30 June 2020. The Corporate Governance Statement of
Nick Scali Limited can be found on the Company’s website:
www.nickscali.com.au/corporate-governance.
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.
14
Annual Report 2020 | Nick Scali Limited
Directors’ Report (continued)
Non-audit services
The following non-audit services were provided by the entity’s auditor, Ernst & Young Australia and its network firms. The directors
are satisfied that the provision of non-audit services is compatible with 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 that auditor independence
was not compromised.
Ernst & Young Australia and its network firms received or are due to receive
the following amounts for the provision of non-audit services:
Tax compliance services
Assurance related services
$
27,532
6,500
34,032
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
6 August 2020
Sydney
Anthony Scali
Managing Director
Bobbi and Coobi dining chairs.
Annual Report 2020 | Nick Scali Limited
15
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 2020, 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
6 August 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
16
Annual Report 2020 | Nick Scali Limited Amos swivel chair and ottoman in 100% leather.
Links floor rug. Danni armchair in 100% leather.
Aix buffet, console. Estella dining chair. Lobby floor lamp.
Annual Report 2020 | Nick Scali Limited
17
Consolidated statement of comprehensive income
For the year ended 30 June 2020
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
2020
$’000
2019
$’000
3
3
4
4
262,480
(97,817)
268,025
(99,385)
164,663
168,640
4,790
2,185
(18,498)
(37,411)
(10,795)
(3,543)
(1,635)
(29,987)
(7,432)
60,152
(21,390)
(38,128)
(10,739)
(33,933)
(1,679)
(4,253)
(1,053)
59,650
Income tax expense
5
(18,076)
(17,534)
Profit after income tax expense for the year attributable to the owners of
Nick Scali Limited
42,076
42,116
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
(10)
(4,235)
(4,245)
7
(543)
(536)
37,831
41,580
CENTS
CENTS
Basic earnings per share
Diluted earnings per share
6
6
51.9
51.9
52.0
52.0
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
18
Annual Report 2020 | Nick Scali Limited
Consolidated statement of financial position
As at 30 June 2020
Assets
Current assets
Cash and cash equivalents
Receivables
Inventories
Other financial assets
Prepayments
Total current assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Deferred tax
Intangibles assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Borrowings
Payables
Lease liabilities
Deferred revenue
Current tax liabilities
Provisions
Other financial liabilities
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Deferred revenue
Provisions
Deferred tax
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
Note
2020
$’000
2019
$’000
9
10
11
19
12
13
5
14
15
16
13
17
18
19
15
13
17
18
5
20
21
63,037
2,571
36,273
–
2,091
103,972
89,669
161,734
7,041
2,378
260,822
36,284
1,108
37,597
679
1,869
77,537
92,664
–
–
2,378
95,042
364,794
172,579
2,300
18,020
23,434
40,243
5,587
3,222
5,371
98,177
31,362
157,769
620
1,452
–
191,203
13,600
17,479
–
26,323
362
3,405
–
61,169
20,062
–
171
5,805
189
26,227
289,380
87,396
75,414
85,183
3,364
(4,038)
76,088
75,414
3,364
530
81,289
85,183
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
19
Annual Report 2020 | Nick Scali Limited
Consolidated statement of changes in equity
For the year ended 30 June 2020
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 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
Employee share rights recognised
under EPRP (Note 31)
Dividends paid (Note 7)
–
–
–
–
–
–
–
(370)
–
–
–
–
–
–
(543)
(543)
–
–
Balance at 30 June 2019
3,364
(29)
78
475
–
–
42,116
42,116
7
7
–
–
6
–
(536)
42,116
41,580
–
(39,690)
(370)
(39,690)
81,289
85,183
Balance at 1 July 2019
3,364
(29)
78
475
6
81,289
85,183
Adjustment to opening balance
for adoption of AASB16
–
–
–
–
–
(10,827)
(10,827)
Adjusted opening balance
at 1 July 2019
3,364
(29)
78
475
Profit after income tax expense for the year
–
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Employee share rights recognised
under EPRP (Note 31)
Dividends paid (Note 7)
–
–
–
–
–
–
–
(323)
–
–
–
–
–
–
6
–
70,462
74,356
42,076
42,076
–
(4,235)
(10)
–
(4,245)
(4,235)
(10)
42,076
37,831
–
–
–
–
–
(323)
(36,450)
(36,450)
Balance at 30 June 2020
3,364
(352)
78
(3,760)
(4)
76,088
75,414
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
20
Annual Report 2020 | Nick Scali Limited
Consolidated statement of cash flows
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Income tax payments
Note
2020
$’000
2019
$’000
304,490
(199,183)
295,766
(232,425)
105,307
501
(13,630)
63,341
827
(18,805)
Net cash from operating activities
8
92,178
45,363
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Net cash from investing activities
Cash flows from financing activities
Payment of dividends on ordinary shares
Repayment of lease liabilities
Interest payments – lease liabilities
Interest payments – borrowings
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
12
7
13
13
(8,645)
9,768
(5,283)
362
1,123
(4,921)
(36,450)
(22,796)
(6,512)
(790)
(39,690)
–
–
(1,053)
(66,548)
(40,743)
26,753
36,284
(301)
36,585
Cash and cash equivalents at the end of the financial year
9
63,037
36,284
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
21
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements
For year ended 30 June 2020
Note 1. Basis of preparation
Corporate information
Nick Scali Limited (the Company or the parent) is a for profit
The new standard was adopted using the modified retrospective
approach and had a material impact on the Group’s financial
statements. The Company measured the right-of-use asset
company limited by shares incorporated in Australia whose
at the date of adoption as if the standard had been applied
shares are publicly traded on the Australian Stock Exchange.
since the commencement date of each lease, but discounted
Basis of preparation
These general purpose financial statements have been prepared
using the Company’s incremental borrowing rate at the date of
adoption. The cumulative effect of this approach is recognised
as an adjustment to equity on 1 July 2019, and the Company
in accordance with Australian Accounting Standards and
has not restated any comparative information in the Group’s
Interpretations issued by the Australian Accounting Standards
financial statements for the year ended 30 June 2020.
Board (‘AASB’) and the Corporations Act 2001. These financial
statements also comply with International Financial Reporting
The practical expedients that have been adopted by the Group
Standards as issued by the International Accounting Standards
in its adoption of AASB 16, are to apply a single discount rate
Board (‘IASB’). The financial statements have been prepared
to the entire portfolio of leases and to exclude initial direct costs
under the historical cost convention, except for derivative
incurred on establishment of existing leases. Further, all leases
financial instruments, which have been prepared at fair value.
with lease terms less than 12 months have been excluded
The financial report was authorised for issue in accordance with
under the short-term leases exemption.
a resolution of the directors on 6 August 2020.
Basis of consolidation
The consolidated financial statements comprise the financial
Impact of adoption
At the date of the adoption of the standard the Group had
59 property leases for retail showrooms and warehouse facilities
statements of the Company and its subsidiaries as at
across Australia and New Zealand, and the impact of adoption
30 June 2020. A subsidiary is an entity that is controlled by the
on retained profits at 1 July 2019 was as follows:
Company. 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
Recognition of right-of-use assets
power over the entity.
Recognition of current lease liabilities
Recognition of non-current lease liabilities
The financial statements of the subsidiaries are included in
Reversal of provisions for deferred lease incentives
the consolidated financial statements from the date on which
Deferred tax effect of above adjustments
control commences until the date on which control ceases.
$’000
174,312
(23,467)
(171,297)
4,988
4,637
Intercompany transactions, balances and unrealised gains
Reduction in retained profits as at 1 July 2019
10,827
on transactions between the Company and its subsidiaries
are eliminated. Accounting policies of the subsidiaries are
consistent with the policies adopted by the Company.
Right-of-use assets
A right-of-use asset is recognised at the commencement date
of a lease. The right-of-use asset is measured at cost and
Changes in accounting policies, accounting standards and
depreciated on a straight-line basis over the unexpired term of
interpretations
The accounting policies adopted in the preparation of the
annual financial statements are consistent with those followed
the lease. Right-of-use assets are subject to impairment and
adjusted for any remeasurement of lease liabilities.
in the preparation of the annual financial statements for the
The Group has elected not to recognise a right-of-use asset
and corresponding lease liability for short-term leases with
terms of 12 months or less. Lease payments on these assets
are expensed to the profit and loss as incurred.
period 30 June 2019, except as noted below.
AASB 16 Leases
This standard was adopted by the Company on 1 July 2019.
AASB 16 Leases replaced accounting requirements for leases
under AASB 117 and resulted in the recognition of a right-of-
use asset and an associated lease liability in the consolidated
statement of financial position in respect of each of the Group’s
property leases. Subsequently, an interest expense has been
recognised in relation to the lease liabilities and depreciation
has been charged for the right-of-use assets.
22
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Lease liabilities
A lease liability is recognised at the commencement date of
a lease. The lease liability is initially recognised at the present
Significant accounting judgements, estimates
and assumptions
In
the process of applying
the Company’s accounting
value of the lease payments to be made over the term of the
policies, management has made judgements, estimates and
lease. The carrying amount of the lease is remeasured if there
assumptions. All judgements, estimates and assumptions
is a change in future lease payments (arising from a change in
made are believed to be reasonable, based on the most
index or a rate used), the residual guarantee or the lease term.
current information available to management. Actual results
The remeasurement is an adjustment to the corresponding
may differ from these judgements, estimates and assumptions.
right-of-use asset or to profit and loss.
Judgements, estimates and assumptions which have the most
significant effect on the amounts recognised in the financial
The lease liabilities at 1 July 2019 can be reconciled to the
statements:
operating lease commitments at 30 June 2019 as follows:
Operating lease commitments at 30 June 2019
$000
126,984
Impairment of goodwill
The Company determines whether goodwill is impaired on an
annual basis. This requires an estimation of the recoverable
Discounted operating lease commitments
amount of the cash-generating unit to which the goodwill
at 30 June 2019
Add:
Payments in lease option periods not
recognised as operating lease commitments
at 30 June 2019
110,136
is allocated. The assumptions used in this estimation of
recoverable amount and the carrying amount of goodwill is
discussed in the financial report.
84,628
Lease term of contracts with renewable options
The Company determines the lease term to be the non-
Lease liabilities as at 1 July 2019
194,764
cancellable term of the lease, together with any periods covered
by an option to extend the lease if it is reasonably certain that
the option will be exercised. In assessing the likelihood of a
Covid-19 related rent concessions
The Company has adopted the practical expedient for rent
lease option being exercised, the Company considers the
costs of termination, the extent of any leasehold improvements,
concessions negotiated as a consequence of Covid-19. This
the strategic importance of the lease location and the current
allows the company to elect not to account for changes in
market rent for the site.
lease payments as a lease modification where a change in
lease payments to the revised consideration are substantially
the same or less than the consideration for the lease preceding
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on
the change, the reductions only affects payments which fall
historical experience as well as consideration of lease terms (for
due before 30 June 2021 and there has been no substantive
assets used in or affixed to leased premises) and replacement
change in terms and conditions. Where the practical expedient
policies (for motor vehicles). In addition, the condition of the
has been applied, rent concessions are accounted for as a
assets is assessed at least once per year and considered
reduction in property costs.
against the remaining useful life. Adjustments to useful lives are
made when considered necessary.
Net realisable value of inventory
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 including freight, cartage and import duties are
included in the cost of finished goods.
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs necessary to make
the sale. Judgment is applied in assessing the net realisable
value.
23
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (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 income
Net gain on disposal of property, plant and equipment
Net gain on disposal of right-of-use asset and remeasurement of lease liability
Rental income
Interest income
Sundry income
Total other revenue
2020
$’000
2019
$’000
262,480
268,025
1,794
1,073
1,154
501
268
4,790
31
–
1,085
827
242
2,185
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 expenses
Salaries and wages
Government wage subsidies received as a consequence of Covid-19
Superannuation contributions
Share-based payments
Included within property expenses
Operating lease payments
Rent concessions received as a consequence of Covid-19
Number of employees
Number of full-time and part-time employees at balance date
2020
$’000
2019
$’000
32,493
(3,915)
2,972
120
817
(2,263)
2020
477
30,376
–
2,751
102
28,224
–
2019
515
24
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (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:
Right-of-use assets
Lease liabilities
Deferred capital gains
Property, plant and equipment
Employee entitlements
Deferred lease incentives
Cashflow hedge
Other
2020
$’000
2019
$’000
18,501
(105)
(320)
17,385
(200)
349
18,076
17,534
60,152
59,650
18,045
17,895
(105)
(3)
(133)
272
(200)
(9)
(128)
(24)
18,076
17,534
(48,059)
54,055
(1,612)
(1,135)
1,023
–
1,611
1,158
–
–
(1,612)
(1,534)
1,099
1,486
(204)
576
Total deferred tax asset/(liability)
7,041
(189)
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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 6. Earnings per share
Profit after income tax attributable to the owners of Nick Scali Limited
2020
$’000
2019
$’000
42,076
42,116
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
51.9
51.9
Cents
52.0
52.0
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. Dividends
Dividends
Dividends paid during the financial year were as follows:
Final fully franked dividend for 30 June 2019: 20.0 cents (2018: 24.0 cents)
Interim fully franked dividend for 30 June 2020: 25.0 cents (2019: 25.0 cents)
2020
$’000
2019
$’000
16,200
20,250
36,450
19,440
20,250
39,690
In addition to the above dividend, since the end of the financial year directors have declared a final fully franked dividend of 22.5 cents
per fully paid ordinary share to be paid on 27 October 2020 out of retained profits at 30 June 2020.
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%
30,726
32,790
5,425
36,151
114
32,904
Franking credits available for future reporting periods based on a tax rate of 30%
28,340
25,961
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 2019: 30%).
Dividends declared and unpaid will be franked at the rate of 30% (30 June 2019: 30%).
26
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 8. Reconciliation of profit after income tax to net cash from operating activities
Profit after income tax expense for the year
42,076
42,116
2020
$’000
2019
$’000
Adjustments for:
Depreciation expense
Net gain on disposal of property, plant and equipment
Share-based payments
Interest expense
Net foreign currency differences
Net fair value change on derivatives
Change in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
Decrease/(increase) in inventories
Increase in deferred tax
Increase in prepayments
Increase in value of other financial liability and decrease of other financial asset
Increase/(decrease) in trade and other payables
Increase in deferred revenue
Increase/(decrease) in provision for income tax
Increase in other provisions
29,987
23
(323)
790
177
(4,235)
(1,463)
1,324
(2,593)
(222)
6,050
541
14,369
5,225
452
4,253
(31)
(370)
1,053
(70)
(543)
755
(1,422)
(611)
(890)
774
(179)
97
(946)
1,377
Net cash from operating activities
92,178
45,363
Note 9. Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
2020
$’000
18,053
44,984
2019
$’000
10,600
25,684
Cash at bank and on hand
63,037
36,284
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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 10. Receivables
Trade debtors
Other debtors
2020
$’000
140
2,431
2,571
2019
$’000
289
819
1,108
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.
During the year ended 30 June 2020, $35,756 (2019: $Nil) was recognised as an expense for expected credit losses.
Other debtors includes receivables from suppliers and the government wage subsidies. These are non-interest bearing and are due
for settlement within 30 days.
Note 11. Inventories
Finished goods – at net realisable value
Stock in transit – at cost
2020
$’000
28,576
7,697
2019
$’000
32,017
5,580
36,273
37,597
During the year ended 30 June 2020, $746,000 (2019: gain of $38,000) was recognised as an expense 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. 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
28
2020
$’000
80,084
(5,596)
74,488
19,484
(10,122)
9,362
956
(729)
227
684
(381)
303
13,036
(7,747)
5,289
89,669
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
92,664
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 12. Property, plant and equipment (continued)
Reconciliations
Reconciliation of the carrying amounts of property, plant & equipment at the beginning and end of the financial year:
Total
$’000
91,888
5,283
(331)
72
–
Consolidated
Balance at 1 July 2018
Additions
Disposals
Foreign currency translation
Transfers
77,632
239
–
–
230
Land &
buildings
$’000
Leasehold
improvements
$’000
Fixtures &
fittings
$’000
Motor
vehicles
$’000
Office
equipment
$’000
8,792
2,400
(185)
68
(77)
(1,515)
529
41
(3)
–
(207)
(97)
277
186
(34)
1
–
(79)
4,658
2,417
(109)
3
54
Depreciation expense
(1,066)
(1,491)
(4,248)
Balance at 30 June 2019
77,035
9,483
263
351
5,532
92,664
Reclassification of make good
asset to right-of-use asset
Additions
Disposals
Foreign currency translation
Depreciation expense
–
5,307
(6,719)
–
(1,135)
(332)
2,171
(113)
(47)
(1,800)
Balance at 30 June 2020
74,488
9,362
–
6
–
–
(42)
227
–
75
(34)
(1)
(88)
–
1,086
(12)
(7)
(1,310)
(332)
8,645
(6,878)
(55)
(4,375)
303
5,289
89,669
Land and buildings totalling $74.5m (2019: $75.7m) are used to secure bank loans relating to their purchase.
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.
29
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
2020
$’000
2019
$’000
Note 13. Leases
Lease liabilities
Lease liabilities – current
Lease liabilities – non current
Total lease liabilities
Reconciliation of lease liabilities
Opening lease liabilities recognised on adoption of AASB 16 on 1 July 2019
Lease modifications agreed during the year
Additional leases entered into during the year
Leases terminated during the year
Net reduction in future lease payments agreed as a consequence of Covid-19
Interest accrued
Lease repayments
Foreign currency translation
Balance at 30 June 2020
Right-of-use assets
Right-of-use assets – at cost
Less: Accumulated depreciation
Total right-of-use assets
Reconciliation of right-of-use assets
Opening right-of-use asset on adoption of AASB 16 on 1 July 2019
Transfer of make good asset from leasehold improvements
Lease modifications agreed during the year
Additional right-of-use assets relating to leases entered into during the year
Disposal of right-of-use assets relating to leases terminated during the year
Depreciation
Foreign currency translation
Balance at 30 June 2020
Recognition and measurement – Leases
Lease liabilities
23,434
157,769
181,203
263,488
(101,754)
161,734
–
–
–
194,764
6,026
11,838
(6,674)
(1,135)
6,510
(29,824)
(302)
181,203
–
–
–
174,312
332
6,026
12,445
(5,591)
(25,499)
(291)
161,734
The Group enters into non-cancellable leases for retail showrooms and warehouse facilities in Australia and New Zealand. Leases
are entered into for varying terms and rent reviews are based on CPI increases or fixed increases. A lease liability is recognised at the
commencement date of a lease at the present value of the lease payments to be made over the term of the lease.
A number of the leases contain options to renew in favour of the Group. These options are negotiated by management to provide
flexibility in managing the leased-asset portfolio and align with the Group’s business needs. Management exercises judgement in
determining whether these extension options are reasonably certain to be exercised. The present value of the lease payments to
be made under options considered reasonably certain to be exercised have been included in the lease liability balance at 30 June
2020. The undiscounted potential future payments under options that are not considered reasonably certain to be exercised is
$110,112,000, which includes those that have an exercise date within the next five years of $17,199,000.
Right-of-use assets
Right-of-use assets are measured at cost at commencement of the lease, and depreciated on a straight-line basis over the effective
life of the asset. The right-of-use assets have an effective life of between 3 and 18 years dependent on the term of the lease and the
likelihood of the Company exercising any lease extension options in its favour.
30
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 14. Intangibles assets
Goodwill on acquisition of stores in Adelaide
2020
$’000
2019
$’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
2020
2.0%
8.0%
2019
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.
Note 15. Borrowings
Bank loan – current
Bank loan – non current
2020
$’000
2,300
31,362
33,662
2019
$’000
13,600
20,062
33,662
The effective interest rates of the current and non-current loans are included at Note 23. The maturities of the non-current loans are
between 12 months and 27 months.
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.
31
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 16. Payables
Trade creditors
Other creditors and accruals
2020
$’000
11,027
6,993
18,020
2019
$’000
11,194
6,285
17,479
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. Deferred revenue
Customer deposits
Accidental damage warranties – current
Deferred revenue – current
Accidental damage warranties – non current
2020
$’000
40,045
198
40,243
620
2019
$’000
26,276
47
26,323
171
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.
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 12 months of the reporting date.
Note 18. Provisions
Employee entitlements
Lease make good
Deferred lease incentives
Provisions – current
Deferred lease incentives
Lease make good
Employee entitlements
Provisions – non current
2020
$’000
3,083
139
–
3,222
–
1,122
330
1,452
2019
$’000
2,784
–
621
3,405
4,367
555
883
5,805
Recognition and measurement – Provisions
Employee entitlements
Liabilities for annual leave and long service leave expected to be settled within 12 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.
Liabilities for annual leave and long service leave not expected to be settled within 12 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.
32
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 19. Other financial assets and liabilities
Derivative hedge payable
Derivative hedge receivable
2020
$’000
5,371
–
2019
$’000
–
679
Foreign exchange forward contracts are held as hedging instruments against forecast purchases in USD. The notional amount for the
contracts held at 30 June 2020 totalled USD40,560,000 which covers between 75% and 100% of highly probably purchases for the
nine months to 31 March 2021(30 June 2019 USD5,417,000). The average rate of the forward contracts is 0.65 (30 June 2019 0.72).
The net gain or loss recognised as other comprehensive income is equal to the change in fair value of the hedging instruments. There
is no ineffectiveness recognised in profit or loss.
Recognition and measurement – Other financial assets and liabilities
The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity
contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. 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. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the
fair value is negative.
2020
Shares
2019
Shares
2020
$’000
2019
$’000
Note 20. 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 – Issued capital
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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 21. Equity – Reserves
Capital profits reserve
Cash flow hedge reserve
Foreign exchange reserve
Equity benefits reserve
Movements in reserves
2020
$’000
78
(3,760)
(4)
(352)
(4,038)
2019
$’000
78
475
6
(29)
530
Equity
benefits
reserve
$’000
Capital
profits
reserve
$’000
Cash flow
hedge
reserve
$’000
Foreign
exchange
reserve
$’000
Total
$’000
341
–
53
–
(525)
–
102
78
–
–
–
–
–
–
(29)
78
Balance at 1 July 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 EPRP
Foreign exchange reserve
Share-based payments
Balance at 30 June 2019
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 EPRP
Foreign exchange reserve
Share-based payments
Balance at 30 June 2020
–
–
–
(443)
–
120
(352)
–
–
–
–
–
–
1,018
(774)
204
27
–
–
–
475
(6,050)
1,815
–
–
–
–
(1)
1,436
–
–
–
–
7
–
6
–
–
–
–
(10)
–
(774)
257
27
(525)
7
102
530
(6,050)
1,815
–
(443)
(10)
120
78
(3,760)
(4)
(4,038)
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
31 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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 22. Financing facilities
Unrestricted access was available to the following credit facilities 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 and bank guarantees
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 and bank guarantees
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
2020
$’000
2019
$’000
2,300
31,362
–
3,015
36,677
2,300
31,362
–
1,312
34,974
–
–
–
1,703
1,703
14,500
20,062
2,000
5,000
41,562
13,600
20,062
1,706
–
35,368
900
–
294
5,000
6,194
Note 23. 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 2020, the Company has trade payables of $1,528,000 (2019: $3,145,000) denominated in US dollars and stock in transit
of $7,697,000 (2019: $5,580,000) 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 2020 through to March 2021, 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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 23. 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 2020 through to March 2021.
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 2020, an unrealised loss of $4,235,000 (30 June 2019: an unrealised loss of $543,000)
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.
2020
2019
Weighted
average
interest rate
%
0.71
1.45
1.78
Weighted
average
interest rate
%
2.36
2.73
3.31
Balance
$’000
63,037
(2,300)
(31,362)
29,375
Balance
$’000
36,284
(13,600)
(20,062)
2,622
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 50 basis points would result in an increase/(decrease) of profit of
$148,000 (2019: $18,000 on 100 basis points movement).
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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 23. Financial instruments (continued)
2020
Less than
3 months
$’000
Interest-bearing loans and borrowings
2,308
3 to 12
months
$’000
–
1 to 5
years
$’000
32,288
Over 5
years
$’000
Remaining
contractual
maturities
$’000
–
34,596
Non-interest bearing
Lease liabilities
Trade creditors
Other creditors
Other financial liabilities
Current tax liabilities
Total
7,770
11,027
6,993
2,134
5,587
35,819
23,305
99,104
22,723
–
–
3,237
–
–
–
–
–
–
–
–
–
152,902
11,027
6,993
5,371
5,587
26,542
131,392
22,723
216,476
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
2019
Less than
3 months
$’000
Interest-bearing loans and borrowings
5,538
Non-interest bearing
Trade creditors
Other creditors
Total
11,194
6,285
23,017
3 to 12
months
$’000
8,260
–
–
1 to 5
years
$’000
21,584
–
–
8,260
21,584
Over 5
years
$’000
–
–
–
–
Remaining
contractual
maturities
$’000
35,382
11,194
6,285
52,861
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 instruments represented a derivative hedge payable of $5,371,000 (2019:
receivable of $679,000). 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).
Note 24. Fair value measurement
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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 25. Key management personnel
The aggregate compensation made to directors and other
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 26. 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
Auditing the statutory financial report of the parent covering the group and
auditing the statutory financial reports of any controlled entities
Other assurance and agreed-upon procedure services under other legislation
or contractual arrangements where there is discretion as to whether the service
2020
$
2019
$
1,394,992
2,230,243
12,007
83,641
27,369
11,984
88,551
48,208
1,518,009
2,378,986
2020
$
2019
$
205,567
150,000
is provided by the auditor or another firm
6,500
6,500
Other services
Tax compliance
Note 27. Contingent liabilities
There are no contingent liabilities at 30 June 2020 (2019: Nil).
27,532
17,500
239,599
174,000
Note 28. Commitments
At 30 June 2020, the Group had capital commitments of $9,464,200 (2019: $1,118,000) relating to the purchase of a property in
South Australia and the fitout or renovation of four showrooms.
Note 29. 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.
38
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 30. Significant events after the reporting period
On 31 July 2020 the Company has completed the purchase of a retail showroom in South Australia.
On 1 August 2020, William Koeck was appointed as an independent non-executive director of the Company.
Other than the dividend declared on 6 August 2020 (see Note 7), no other matter or circumstance has arisen since 30 June 2020
that has significantly affected, or may significantly affect the consolidated entity’s operations, the results of those operations, or the
consolidated entity’s state of affairs in future financial years.
Note 31. Share-based payments
The Company has an Executive Performance Rights Plan (EPRP) 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 2020 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 $120,340 (2019: $102,250).
The following table reconciles the outstanding employee share rights granted under the EPRP at the beginning and end of the
financial year:
Outstanding share rights at the start of the year
Share rights granted under EPRP
Share rights exercised under EPRP
Share rights forfeited under EPRP
2020
130,251
61,508
(64,962)
(11,970)
2019
207,375
52,375
(78,241)
(51,258)
Outstanding share rights at the end of the year
114,827
130,251
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
2020
$6.95
6.5%
30.0%
9.3%
2019
$6.85
5.8%
30.0%
8.3%
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.
39
Annual Report 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 32. 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 33. Parent entity information
Statement of comprehensive income
Profit after income tax expense
Other comprehensive income
Total comprehensive income for the year attributable
Statement of financial position
Current assets
Non current assets
Total assets
Current liabilities
Non current liabilities
Total liabilities
Net assets
Equity
Issued capital
Capital profits reserve
Cash flow hedge reserve
Equity benefits reserve
Retained profits
Total equity
Equity holding
2020
%
100
100
2019
%
100
100
Parent
2020
$’000
2019
$’000
41,908
(4,235)
37,673
102,320
235,939
41,663
(536)
41,127
76,478
93,243
338,259
169,721
91,375
171,690
263,065
75,194
3,364
78
(3,760)
(352)
75,864
75,194
59,034
25,931
84,965
84,756
3,364
78
475
(29)
80,868
84,756
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 2020 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 2020 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 34. 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.
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions
will be complied with. When the grant relates to an expense item, it is recognised as a reduction of the expense to which it relates.
41
Annual Report 2020 | Nick Scali Limited Notes to the consolidated financial statements for year ended 30 June 2020 (continued)
Note 34. 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 2020 | Nick Scali Limited 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 2020 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
6 August 2020
Sydney
Anthony Scali
Managing Director
Tanami round dining table with
lazy susan in Australian Oak.
Tanami 2 door buffet, round coffee table.
Padrone dining chairs. Atlanta 3.5 seater lounge.
Ball multi pendant lamp. Zeya floor rug.
Annual Report 2020 | Nick Scali Limited
43
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 2020, 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 2020
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
(including Independence Standards) (the Code) that are relevant to our audit of the financial report in
Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.
We 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 2020 | Nick Scali Limited 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 2020, the Group held $36.3
million in inventories representing 10% 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 duties, 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
to value inventory below cost. In doing so, we
examined sales margins achieved, the
process for identifying specific slow moving
inventories, historical inventory turnover and
expected future sales.
Adoption of Australian Accounting Standard AASB 16 - Leases
Why significant
How our audit addressed the key audit matter
The 30 June 2020 financial year was the first
year of adoption of Australian Accounting
Standard AASB 16 – Leases. The Group has
entered into a significant volume of leases by
number and value, over showrooms and
distribution centres as a lessee.
Given the financial significance to the Group of
its leasing arrangements, the complexity and
judgements involved in the application of AASB
16, and the transition requirements of the
standard, this was considered to be a key audit
matter.
In addition, the complexity in the modelling of
the accounting for the leases including the
calculation of the incremental borrowing rate and
the judgement involved in the treatment of
renewal options is significant.
Upon transition, a lease liability of $194.8m,
right of use asset of $174.3m and reversal of
Our audit procedures assessed the existence,
completeness and valuation of AASB 16 lease
balances and the related financial report disclosures.
These procedures included the following:
-
-
-
Considered whether the Group’s new
accounting policies as set out in Note 1,
satisfied the requirements of AASB 16
including the adoption of any practical
expedients selected by the Group as part of
the transition process
Assessed the integrity of the Group’s
AASB 16 lease calculation model used,
including the accuracy of the underlying
calculation formulas
For a sample of leases, we agreed the
Group’s inputs in the AASB 16 lease
calculation model in relation to those leases
such as, key dates, fixed and variable rent
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
45
Annual Report 2020 | Nick Scali Limited
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
provisions for deferred lease incentives of $5.0m
including the deferred tax effect was recorded on
the statement of financial position.
payments, renewal options and incentives, to
the relevant terms of the underlying signed
lease agreements
- We considered the Group’s assumptions in
relation to the treatment of lease renewal
options
-
-
-
Assessed whether the Group had addressed
all of its leases after considering the
reconciliation of the operating lease
commitments disclosure in the prior year
financial report to the transition disclosures
and new leases entered during the year.
Assessed the internal borrowing rate used to
discount future lease payments to present
value for reasonableness by performing
sensitivities using interest rates obtained
during the period for property loans
Assessed the adequacy of the financial
report disclosures contained in Note 14
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 2020 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.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
46
Annual Report 2020 | Nick Scali Limited
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
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.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
47
Annual Report 2020 | Nick Scali Limited
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated 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 2020.
In our opinion, the Remuneration Report of Nick Scali Limited for the year ended 30 June 2020, 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
6 August 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
4848
Annual Report 2020 | Nick Scali Limited
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 2020.
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
Number of holders of ordinary shares
1,499
1,389
379
310
26
3,603
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest security holders of quoted equity securities are listed below:
Number held
% of total shares issued
Ordinary shares
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
Scali Consolidated Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
Molvest Pty Ltd
Citicorp Nominees Pty Limited
Grahger Retail Securities Pty Ltd
Anacacia Pty Limited
BNP Paribas Nominees Pty Ltd
Netwealth Investments Limited
Neweconomy Com Au Nominees Pty Limited
BNP Paribas Nominees (NZ) Ltd
Brispot Nominees Pty Limited
UBS Nominees Pty Limited
28421 Pty Limited
Mr Yonatan Widjaya & Mrs Mela Widjaya
BNP Paribas Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Substantial holders
Substantial holders in the Company are set out below:
Scali Consolidated Pty Limited
Perpetual Investments
Voting rights
Ordinary shares
All ordinary shares carry one vote per share without restriction.
There are no other classes of equity securities.
17,946,002
12,494,780
11,867,872
11,039,474
4,249,736
2,358,694
1,200,000
1,139,331
1,000,000
522,748
414,544
411,944
389,011
344,425
314,608
240,286
211,500
157,800
145,002
126,660
22.16
15.43
14.65
13.63
5.25
2.91
1.48
1.41
1.23
0.65
0.51
0.51
0.48
0.43
0.39
0.30
0.26
0.19
0.18
0.16
66,574,417
82.21
Number held
% of total shares issued
Ordinary shares
11,039,474
4,217,281
15,256,755
13.63
5.21
18.84
Annual Report 2020 | Nick Scali Limited
49
Azrou queen bed. Provence bedside table.
Hitchcock floor lamp. Gallon floor rug.
50
Annual Report 2020 | Nick Scali Limited
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
Fortitude Valley Clearance
Jindalee
Macgregor
Mackay
Maroochydore
Morayfield
North Lakes
Robina
South Australia
Gepps Cross
Glynde
Marion
Mile End
Western Australia
Cannington
Jandakot
Joondalup
Midland
O’Connor
Osborne Park
Nunawading Clearance
Skygate (Brisbane Airport)
Osborne Park Clearance
Preston
Richmond
Springvale
South Wharf
Taylors Lakes
Toowoomba
Townsville
Tasmania
Hobart
New Zealand
Hamilton
Mt Wellington
St Lukes
Registered Office
Level 7, Triniti 2
39 Delhi Road
Auditors
Ernst & Young
Share Registry
Link Market Services Limited
Annual General Meeting
The Annual General Meeting
Ernst & Young Building
Level 12, 680 George Street
will be held online at 12H00 on
North Ryde NSW 2113
Telephone: 02 9748 4000
Website: www.nickscali.com.au
200 George Street
Sydney NSW 2000
Sydney NSW 2000
Tuesday 27th October 2020
https://agmlive.link/NCK20
Company Secretary
Christopher Malley
Solicitors
Ashurst
Stock Exchange
Nick Scali Limited shares are
Level 11, 5 Martin Place
listed on the Australian
Sydney NSW 2000
Securities Exchange
The home exchange is Sydney
ASX code: NCK
51
Annual Report 2020 | Nick Scali Limited Ceres dining table with ceramic top and metal base.
Bobbi dining chairs. Nuvola corner modular lounge.
Ceres buffet, coffee table. Benjamin pendant lamp.