Annual Report 2021
Dream 3 Seater Lounge with Chaise.
Tropea Dining Table in Solid Australian Oak.
Joseph Fabric Dining Chair. Jameel Rug.
2
Annual Report 2021 | 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
17
20
21
22
23
44
45
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
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
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Annual Report 2021 | Nick Scali Limited
Historical Performance
Sales ($m)
Net profit after tax ($m)
373.0
84.2
42.1
42.1
250.8
232.9
268.0
262.5
41.0
37.2
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
Nick Scali Furniture showrooms
Dividends (cents per share)
65.0
47.5
45.0
58
57
61
40.0
34.0
51
45
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
4
Annual Report 2021 | Nick Scali Limited Chairman and Managing
Director’s Review
Operating Performance
We are pleased to report that Nick Scali Limited has had an
A further showroom was opened in Hastings, New Zealand, in
July 2021, and the Company continues to assess new store
exceptional year, delivering record levels of revenue and profit,
opportunities with a view to opening up to three further stores
with earnings per share doubling to 104.0 cents per share.
during the year ending 30 June 2022.
During the year, sales revenue increased by 42.0% to $373
During the year, the Company expanded its owned property
million, with the Company capitalising on an environment
portfolio with the purchase of a retail showroom in Keswick,
where consumers reallocated discretionary spending toward
South Australia which replaced the Mile End showroom
items for the home and unprecedented trading conditions were
experienced across the whole store network.
Gross margin increased by 80 basis points to 63.5%,
predominantly achieved through reduced discounting off-
setting rising freight and supply chain costs.
Despite the elevated revenues costs remain tightly controlled,
and operating expenses increased by $7.4m due to new store
openings, increased employee incentives and the impact of
one-off Covid related savings in the prior year. The Company
demonstrated its ability to drive revenue growth off its
existing infrastructure without incurring incremental costs and
consequently net profit after tax increased by 100%.
and became the flagship store for Adelaide. The Company
currently has over 37,000m2 of owned property in Australian
metro locations, and considers property acquisition a key
strategy to protect the Company from material rent elevation
over the long term.
Alongside the store network, the Company operates a
successful online business. The online business was launched
in April 2020, and has grown consistently since then as
customer awareness has increased and the Company has
developed its capability in this area.
Dividends
The Directors declared a fully franked final dividend of 25.0
The Company maintained
its effective working capital
cents per share on 5th August 2021, bringing the total dividend
management practices and generated an operating cashflow
for the year to 65.0 cents per share, representing a payout ratio
before interest and tax of $138m, returning over $50million to
of 63%. The final dividend has a record date of 4th October
shareholders in dividends during the year. The current cash
2021 and will be paid on the day of the annual general meeting
reserves and strong balance sheet leave the Company well
on 25th October 2021.
placed to continue to pursue growth initiatives and to take
advantage of any opportunities that might arise.
Outlook
The Company’s future growth will primarily be driven by the
Impact of Covid
The Covid pandemic had a significant impact on the Company,
continuation of the new store rollout and increasing online
penetration, and the Company continues to accelerate
with government mandated store closures in most regions at
initiatives to capture these opportunities.
various points in the year, ranging from a few days for certain
showrooms to three months for all showrooms in Melbourne
during August, September and October.
In the short-term, trading continues to be impacted by
government mandated lockdowns across both Australia and
New Zealand, and whilst trading remains buoyant in regions
During the year, the Company received $3.6m through the
where showrooms remain open, there is a high degree of
Federal Government’s JobKeeper wage subsidy scheme,
uncertainty in the current retail environment, due to potential
which enabled the Company to provide security of employment
future
lockdowns, supply chain challenges caused by
at the height of the pandemic and to continue to pay employees
lockdowns in sourcing countries, and the continuing escalation
throughout the government mandated closures in Melbourne
of global shipping costs.
during the first half of the year. However, the Company fully
recognised that it benefited from the increased consumer
confidence the program created, and subsequently repaid the
net benefit of the subsidy to the Federal Government in the
second half of the financial year.
Store network
Three new showrooms were opened during the year in
The Board recognises that the exceptional financial results
achieved in the last year are the result of the hard work of
our many employees and associates across Australia and
New Zealand, and we thank them for their contribution and
commitment to the Company, particularly during these
turbulent times.
The Board would also like to thank our shareholders,
Bennetts Green (NSW), Wairau Park (New Zealand) and
customers and suppliers, whose continued support is critical
Maribyrnong (Victoria). These openings brought the total
to the success of the Company.
number of Nick Scali Furniture stores at 30 June 2021 to 61.
5
Annual Report 2021 | Nick Scali Limited Directors’ Report
The directors present their report, together with the financial
The financial year ended 30 June 2021 has seen the Group
statements, on the consolidated entity (referred to hereafter as
deliver unprecedented results with sales revenue increasing by
the ‘Group’) consisting of Nick Scali Limited (referred to hereafter
42.1% to $373,040,000 and net profit after tax increasing by over
as the ‘Company’ or ‘parent entity’) and the entities it controlled at
100% to $84,241,000.
the end of, or during, the year ended 30 June 2021.
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
Carole Molyneux
Stephen Goddard
William Koeck (appointed 1 August 2020)
Anthony Scali
Principal activities
The principal activities of the Group during the year were
the sourcing and retailing of household furniture and related
accessories.
No significant change in the nature of these activities occurred
during the year.
Dividends
Dividends paid during the year were as follows:
2021
$’000
2020
$’000
Final franked dividend for 30 June 2020:
22.5 cents (2019: 20.0 cents)
18,225
16,200
Interim franked dividend for 30 June 2021:
Revenue growth was supported by improvements in gross
margins, as the Group benefited from an improved foreign
exchange environment and shallower promotional pricing activity.
The gross profit margin for financial year ended 30 June 2021
was 63.5%, an increase of 80 basis points on the prior year.
Despite the growth in revenue, operating expenses remained at
similar levels to previous years, and the Group leveraged its fixed
cost base to deliver exceptional profit growth.
The Group continues to have low debt and a strong working
capital position, and had net assets of $114,026,000 at 30 June
2021. Net cash inflows during the year were $43,855,000, an
increase of $17,102,000 on the previous year cash inflow, driven
by the strong trading result.
Showroom network
During the year, two new stores were opened in Australia at
Bennetts Green, NSW and Maribyrnong, Victoria. One new store
was opened at Wairau Park Auckland, New Zealand, bringing the
store network in New Zealand to a total of 4 stores. The Company
closed its existing store in Mile End and opened a flagship store in
the neighbouring suburb of Keswick, SA. The company has a total
store network of 61 stores across Australia and New Zealand.
In the first half of the new financial year the Company expects to
open the fifth New Zealand store at Hastings. A number of further
new store opportunities are being considered in both Australia
and New Zealand and the Company remains focused on its target
40.0 cents (2020: 25.0 cents)
32,400
20,250
of 85 stores across Australia and New Zealand.
50,625
36,450
In addition to the above dividend, since the end of the financial
year directors have declared a fully franked final dividend of 25.0
cents per fully paid ordinary share to be paid on 25 October 2021
out of retained profits at 30 June 2021.
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
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.
In order to deliver maximum shareholder value, and to maintain
investor and consumer confidence, the Group is committed to
achieving high levels of integrity and ethical standards across all
areas of the business, and has a Code of Conduct in place to
ensure honesty, care, fair dealing, and integrity in the conduct of
% Change
all business activities.
The Group promotes workplace diversity and has zero tolerance
for discrimination and harassment, and ensures that Workplace
Health and Safety is a priority for all employees, along with that of
customers and suppliers.
42.1%
63.5%
90.4%
100.0%
100.4%
2021
$m
373.0
158.5
127.6
84.2
104.0
65.0
43.8
2020
$m
262.5
96.9
67.0
42.1
51.9
47.5
26.8
Revenue
EBITDA
EBIT
NPAT
EPS (cents)
DPS (cents)
Net cash flow
6
Annual Report 2021 | Nick Scali Limited
Directors’ Report (continued)
Covid-19 impact
Throughout the year, the Group continued to be impacted by
the issues arising from the Covid-19 pandemic, and has been
required to close various stores under government mandated
lockdowns at different times during the year. Most notably, the
Matters subsequent to the end of the financial year
Other than the dividend declared on 5 August 2021 (and discussed
above), no other matter or circumstance has arisen since 30 June
2021 that has significantly affected, or may significantly affect
the Group’s operations, the results of those operations, or the
Company was required to close eleven showrooms in Melbourne
Group’s state of affairs in future financial years.
for a period of three months.
Despite these temporary closures, trading remained extremely
buoyant throughout the year, with written sales orders growing
significantly as consumers continued to allocate a significant
proportion of discretionary spending toward items for the home.
The Group was able to negotiate rent concessions relating to the
showroom closures in the form of either rent free periods, lease
extensions or short term rent reductions.
The Group was eligible for the first phase of the Australian
Government’s JobKeeper wage subsidy scheme up until
September 2020, as well as the New Zealand Government’s
equivalent scheme for a shorter period in August 2020. The
Group received $3,565,000 in wage subsidies during the first
three months of the financial year. After assessing the increase
in consumer confidence in Australia created by the Jobkeeper
scheme, which resulted in record sales for the Group, the Board
and management decided to make a voluntary repayment to the
Federal Government of $2,471,000 (being the net benefit after tax
of the amount received in the current year).
Climate change
The Company has assessed that climate related risks do not have
a significant or material impact on the business.
Outlook
The Company’s future growth will primarily be driven by the
continuation of the new store rollout and increasing online
penetration, and the Company continues to accelerate initiatives to
capture these opportunities.
Although the existing store network is currently impacted by
government mandated lockdowns, trading remains strong and the
revenue contribution from the store network is supported by strong
online revenue growth.
The Directors are mindful that there are significant uncertainties in
the current retail environment, due to potential future lockdowns,
supply chain challenges caused by lockdowns in sourcing
countries, and the continuing escalation of global shipping costs,
but is confident that the Company is well placed to deal with these
challenges.
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the
Company during the year.
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
Group’s operations during the financial year.
John Ingram
Information on directors
Name:
Title:
Qualifications: AM, FCPA
Experience and expertise:
John was appointed to the Board as non-executive Chairman
Independent Non-Executive Chairman
on 7 April 2004. John was formerly Managing Director of Crane
Group Limited.
Other current directorships:
Non-Executive Chairman of Peter Warren Automotive Holdings
Ltd (PWR).
Former directorships (last three years):
Non-executive Chairman of Shriro Holdings Limited (SHM).
Special responsibilities:
Member of the Audit and Risk 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 in June 2014. Carole 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 and Risk Committee.
Interests in shares: 15,500.
7
Annual Report 2021 | Nick Scali Limited Directors’ Report (continued)
Stephen Goddard
Name:
Title:
Experience and expertise:
Stephen was appointed to the Board in March 2018. Stephen
Independent Non-Executive Director
is an experienced retailer having held a broad range of senior
Anthony Scali
Managing Director
Name:
Title:
Qualifications: BCom
Experience and expertise:
Anthony is Managing Director of Nick Scali Limited. Anthony
executive positions in the industry. These include Finance Director
joined the Company in 1982 after completing a Bachelor of
and Operations Director for David Jones, founding Managing
Commerce degree at the University of New South Wales and
Director of Officeworks, and various senior management roles
has almost 40 years’ experience in furniture retailing.
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 3 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 and Chief Financial Officer 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 and Risk Committee
The members of the Audit and Risk Committee are as follows:
• Stephen Goddard (Chairman)
• John Ingram
• William Koeck (appointed 1 August 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)
with Myer.
Other current directorships:
Independent Non-Executive Chairman and Chairman of
Remuneration and Nomination Committee for JB Hifi Limited
(JBH).
Independent Non-Executive Director and Chairman of the Audit
and Risk Committee for both GWA Group Limited (GWA) and
Accent Group Limited (AX1).
Former directorships (last three years):
Nil.
Special responsibilities:
Chairman of the Audit and Risk Committee.
Member of the Remuneration and Human Resources Committee.
Interests in shares: 6,000.
William (Bill) Koeck
Name:
Title:
Qualifications: LLB, LLM(Hons), Post Graduate Applied
Independent Non-Executive Director
Corporate Finance; admitted UK and
Australia
Experience and expertise:
Bill was appointed to the Board in August 2020. Bill is an
experienced legal adviser with over 40 years of experience in
mergers and acquisitions, equity capital markets, private equity,
restructuring and corporate governance. Bill is currently a
member of the Federal Governments Takeovers Panel.
Other current directorships:
Independent Non-Executive Chairman, Member of Audit Risk
and Governance Committee and Chairman of Compensation
and Nomination Committee for Coronado Global Resources Inc
(CRN).
Non-Executive Director of Poulos Bros. Group.
Former directorships (last three years):
Nil.
Special responsibilities:
Member of the Remuneration and Human Resources Committee.
Member of the Audit and Risk Committee.
Interests in shares: 5,900.
.
8
Annual Report 2021 | 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 2021, and the numbers
of meetings attended by each director, were:
John Ingram
Stephen Goddard
William Koeck
Carole Molyneux
Anthony Scali1
Directors’
Meetings
Held
10
Attended
10
Remuneration and Human
Resources Committee
Attended
1
Held
1
Audit and Risk
Committee
Held
4
Attended
4
10
10
10
10
10
10
10
10
1
1
1
–
1
1
1
–
4
4
4
–
4
4
4
–
1 Anthony Scali is not a member of the sub-committees, but was invited to attend these meetings and his attendance
was noted in the minutes.
Remuneration Report – Audited
The remuneration report details the remuneration arrangements
for the key management personnel of the Group, 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
For the year ended 30 June 2021 the key management
personnel (KMPs) of the Group consisted of the following
directors:
John Ingram
– Non-Executive Chairman
Stephen Goddard – Non-Executive Director
William Koeck
– Non-Executive Director (appointed
Carole Molyneux
Anthony Scali
on 1 August 2020)
– Non-Executive Director
– Managing Director &
Chief Executive Officer
And the following executives:
Christopher Malley – Chief Financial Officer
& Company Secretary
John Austin – Chief Operating Officer
(appointed on 1 July 2020)
2. Remuneration strategy
The quality of Nick Scali Limited’s directors and executives is
a major factor in the overall performance of the Group. To this
end, the Company believes that an appropriately structured
remuneration strategy underpins a performance based
culture which in turn drives shareholder returns. The Group’s
remuneration strategy is therefore 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 (STIs) in
the form of a cash based reward and long-term incentives
(LTIs) in the form of an equity reward.
The variable 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
key performance indicators (KPIs) such as profit after tax,
and non-financial activities that achieve short to medium term
objectives, while long-term incentives align employees with
shareholder interests and are based on maintaining long-term
shareholder value using performance measures such as EPS.
9
Annual Report 2021 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
3. Remuneration and Human Resources Committee
The Remuneration and Human Resources Committee
currently consists of the non-executive Board members and is
responsible for:
4.1 Non-executive directors’ remuneration
Non-executive directors are paid a fixed annual fee, which
is periodically reviewed. Non-executive directors do not
receive any variable remuneration and they are not entitled to
participate in the Executive Performance Rights Plan.
• reviewing remuneration arrangements and succession
planning of senior management, including the Managing
Non-executive chairman and directors’
fees
remained
unchanged for the year ended 30 June 2021 as reflected
Director and engaging external compensation consultants
below:
if necessary.
• reviewing and approving any discretionary component of
short and long-term incentives for the Managing Director
and senior executives.
• recommending
to
the Board any
increase
in
the
remuneration of existing senior employees of the Group for
which Board approval is required.
• recommending to the Board the remuneration of new senior
executives appointed by the Group.
• the setting of overall guidelines for Human Resources policy,
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 all
Remuneration and Human Resources Committee members
were in attendance.
4. Remuneration structure
In accordance with corporate governance best practices,
the remuneration structures for non-executive directors and
executives are separate.
2021
$
2020
$
Base fee for Non-Executive Chairman
200,000 200,000
Base fee for Non-Executive Director
100,000 100,000
Additional fee for Audit and
Risk Committee Chairman
Additional fee for Audit and Risk
17,000
17,000
Committee Member
5,000
5,000
Additional fee for Remuneration and
Human Resources Committee Chairman
7,000
7,000
Additional fee for Remuneration and
Human Resources Committee Member
3,000
3,000
The pool for non-executive directors’ fees is capped at
$750,000 per year as approved by shareholders at the
Company’s Annual General Meeting in October 2015.
4.2 Executive remuneration
The Group provides appropriate rewards to attract and retain
key personnel. Base salaries, STIs and LTIs 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 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
John Austin
Chief Operating Officer
Ongoing, commencing
1 July 2020
$300,000
3 months base salary
4.2.2 Remuneration mix
The relative proportions and components of the total remuneration opportunity for the executives considered to be key management
personnel (KMPs) for the 2021 financial year were:
Base (Fixed)
% of
$ Total
STI (Variable)
% of
$ Total
LTI (Variable)
% of
$ Total
Total
% of
$ Total
750,000
300,000
300,000
50
50
67
750,000
150,000
150,000
50
25
33
–
150,000
–
–
25
–
1,500,000
600,000
450,000
100
100
100
Name
Anthony Scali
Christopher Malley
John Austin
10
Annual Report 2021 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.2.3 Fixed remuneration – Base Salary
Fixed compensation is set to provide a base level of
of their role and its impact on the Group’s performance.
compensation which is appropriate to the position and
KPIs include profit targets and personal performance criteria
responsibility and
is competitive
in the market. Fixed
which are set to incentivise superior performance. Using KPIs
compensation is reviewed annually, with effect from 1
which include profit targets ensures that variable rewards are
September each year, by the Remuneration and Human
paid only when value is created for shareholders and Group
Resources Committee with reference to the performance of
profitability meets or exceeds a level approved by the Board.
both the business and the individual, the individuals skills and
STIs are linked to KPIs on a sliding scale which is established
experience, comparative market compensation and where
at the beginning of each financial year. The STIs are paid in
appropriate, external advice.
the form of cash bonuses and the Remuneration and Human
Resources Committee is responsible for assessing whether
The Group provides superannuation contributions in line with
the KPIs are met and the STIs are payable.
statutory obligations with benefits being contributed to the
employee’s chosen superannuation fund.
The Managing Director may also recommend to the Board
4.2.4 Variable remuneration – Short-term incentives (STI)
The Company operates annual short-term incentive programs
discretionary bonuses in exceptional circumstances to reward
contributions from high performing employees. The following
table shows the STI cash bonus target and the amount
that reward KMPs on the achievement of predetermined KPIs
achieved for each KMP in the years ended 30 June 2021 and
established each financial year, according to the accountabilities
30 June 2020:
Year ended
30 June 2021
Anthony Scali
Christopher Malley
John Austin
Year ended
30 June 2020
Anthony Scali
Christopher Malley
STI Target
STI Achieved
Financial Non Financial
KPIs %
KPIs1 %
Total $
Financial Non Financial
KPIs %
KPIs1 %
80%
100%
100%
20%
750,000
–
–
150,000
150,000
80%
100%
100%
20%
–
–
STI Target
STI Achieved
Financial Non Financial
KPIs %
KPIs1 %
Total $
Financial Non Financial
KPIs %
KPIs1 %
80%
100%
20%
–
–
–
–
–
–
–
Total $
750,000
150,000
150,000
Total $
750,000
150,000
1 Financial KPIs include net profit before tax.
4.2.5 Variable remuneration – Long-term incentives (LTI)
Long-term incentives, in the form of the share rights offered
The Board has determined earnings per share (EPS) growth to
be the most appropriate measure of long-term performance.
under the Executive Performance Rights Plan (EPRP), are
Under the EPRP, employees are granted rights to ordinary
provided to employees in order to align remuneration with the
shares that will vest after a period of three years subject to the
creation of shareholder value over the long-term. The EPRP is
achievement of specific levels of EPS growth. EPS is based on
only made available to executives and other employees who
the Group’s underlying profit after tax and before non-recurring
have been employed for more than 12 months who are able
items, as determined by the Board.
to influence the generation of shareholder value and who have
a direct impact on the Group performance against relevant
long-term performance targets.
Under the EPRP the number of rights exercisable at the end of the vesting period is dependent on the level of EPS growth achieved
by the Company, as follows:
EPS growth (CAGR, 3Yr)
Less than 5%
5%
Greater than 5%, but less than 10%
10%, or greater
Percentage of rights exercisable
Nil
50%
Pro rata between 50% and 100%
100%
11
Annual Report 2021 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
The number of rights granted is calculated by taking the
If the minimum level of EPS growth is not met or if the participant
relevant executive’s fixed annual remuneration and multiplying
ceases to be employed by the Group, any unvested rights will
it by the relevant predetermined LTI entitlement percentage
immediately lapse unless otherwise determined by the Board.
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.
Rights to ordinary shares may also be granted in accordance
with the EPRP as a retention award where the only performance
condition is continued employment with the Group at the
vesting date. No such retention rights were awarded during
the year ended 30 June 2021.
There is no exercise price for shares granted under the EPRP
and the employees are able to exercise their rights up to two
years following the vesting date, after which time the rights will
lapse. 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
The LTI entitlement of executives considered KMPs is
calculated as a percentage of fixed annual remuneration for
the year ended 30 June 2021 as follows:
KMP
Anthony Scali
Christopher Malley
John Austin
LTI entitlement of fixed
remuneration
Years of Service
LTI entitlement year
ended 30 June 2021
0%
50%
50%
39
3
1
0%
50%
0%
Employees who have been granted rights are prohibited from entering into transactions 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.
4.2.6 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
FY21/23
FY20/22
FY19/21
14 Sep 2020
13 Sep 2019
31 Aug 2018
Vesting and
exercisable
date
Aug 20232
Aug 20222
5 Aug 2021
Expiry date
30 Jun 2025
30 Jun 2024
30 Jun 2023
Exercise
price
($)
Fair value
per right at
grant date ($)
Vested and
exercised
30 June 2021 (No.)
0.00
0.00
0.00
6.61
5.17
5.39
–
–
–
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 four to six weeks
following the end of the financial year.
4.2.7 Performance rights holding
The table below sets out the balance of performance rights held by executives considered KMPs.
Anthony Scali
Christopher Malley
John Austin2
Anthony Scali
Kevin Fine1
Christopher Malley
Balance
30 June 2020
–
Granted
–
23,810
21,898
–
–
Vested and
exercised
Forfeited
Balance
30 June 2021
–
–
–
–
–
–
–
45,708
–
Balance
30 June 2019
–
33,169
Granted
–
–
–
23,810
Vested and
exercised
Forfeited
Balance
30 June 2020
–
(33,169)
_
–
–
_
–
–
23,810
1 Kevin Fine resigned as Chief Financial Officer and Company Secretary on 6 February 2019.
2 John Austin was appointed as Chief Operating Officer on 1 July 2020.
12
Annual Report 2021 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.3 Group performance
The table below sets out the financial performance of the Group over the past five years:
Revenue
EBITDA
Net profit after tax
Earnings per share
Ordinary dividends per share
Share price at financial year end
Stores
Basic earnings per share growth
2017
2018
2019
2020
2021
$m
$m
$m
Cents
Cents
$
No. of
%
232.9
55.7
37.2
46.0
34.0
6.09
45
42.4
250.8
268.0
262.5
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
373.0
158.5
84.2
104.0
65.0
11.72
61
100.4
CAGR
(%)
12.5
29.9
22.7
22.6
17.6
17.8
4.4 Remuneration outcomes
The tables below set out the remuneration outcomes for the KMPs for the years ended 30 June 2021 and 30 June 2020 respectively:
Year ended
30 June 2021
Non-Executive Directors:
John Ingram
William Koeck1
Carole Molyneux
Stephen Goddard
Executive Directors:
Anthony Scali3
Other Key Management Personnel:
Christopher Malley3
John Austin2
Salary &
fees
$
182,648
90,411
102,283
109,589
Short-term
benefits
Cash
incentive
$
Share-based
payments
Share
rights
$
Post-employment
benefits
Superannuation
$
Long-term
benefits
Long service
leave
$
Total
$
–
–
–
–
–
–
–
–
–
17,352
8,589
9,717
10,411
–
–
–
–
200,000
99,000
112,000
120,000
21,277
11,852 1,586,852
803,723
750,000
308,723
288,723
150,000
150,000
82,938
–
21,277
21,277
–
–
562,938
460,000
1,886,100
1,050,000
82,938
109,900
11,852 3,140,790
1 William Koeck was appointed as a Non-executive Director on 1 August 2020.
2 John Austin was appointed as Chief Operating Officer on 1 July 2020.
3 The voluntary 30% reduction to remuneration accepted by executives for the period 1 April 2020 to 30 June 2020, in response to the
Covid-19 crisis, was repaid as an ex-gratia payment in September 2020.
Year ended
30 June 2020
Non-Executive Directors:
John Ingram2
Greg Laurie1
Carole Molyneux2
Stephen Goddard2
Executive Directors:
Anthony Scali2
Other Key Management Personnel:
Christopher Malley2
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
27,369
21,003
–
312,266
83,641
12,007 1,518,009
1 Greg Laurie ceased to be a Non-executive Director on 23 March 2020.
2 In response to the Covid-19 crisis, Directors and executives accepted a voluntary 30% reduction to remuneration for the period
1 April 2020 to 30 June 2020.
13
Annual Report 2021 | Nick Scali Limited
Directors’ Report (continued)
Remuneration Report – Audited (continued)
4.5 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
William Koeck
Carole Molyneux
Scali Consolidated Pty Ltd1
Balance at
30 June 2020
Received as part
of remuneration
Purchases
Disposals
360,000
6,000
–
15,500
11,039,474
11,420,974
–
–
–
–
–
–
–
–
5,900
–
–
5,900
–
–
–
–
–
–
Balance at
30 June 2021
360,000
6,000
5,900
15,500
11,039,474
11,426,874
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. The directors have not
on behalf of the Company for all or part of those proceedings.
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 such disclosure is
prohibited under the terms of the contract.
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.
Officers of the Company who are former partners of
Ernst & Young
There are no officers of the Company who are former partners
of Ernst & Young.
Corporate Governance Statement
Nick Scali Limited’s Corporate Governance Statement discloses
how the Company complies with the recommendations of the
ASX Corporate Governance Council (4th 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 2021. 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 2021 | Nick Scali Limited
Directors’ Report (continued)
Non-audit services
The Company may decide to employ the Company’s auditor, or its network firms, for non-audit services where their skills and expertise
are considered relevant.
During the year ended 30 June 2021, Ernst & Young Australia performed due diligence services on a potential acquisition and provided
tax compliance services. Details of the amount paid to the auditor for non-audit services are set out below.
Tax compliance services
Due diligence
$
30,936
145,000
175,936
The directors are satisfied that the provisions of non-audit services are compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The nature and scope of all non-audit services provided was approved by the Audit
and Risk Committee, and the directors are satisfied that the services provided do not compromise the integrity and objectivity of the
Company’s auditor for the following reasons:
• none of the services required the auditor to review or audit the auditors own work
• none of the services required the auditor to act in a management or decision-making capacity for the Company
• none of the services required the auditor to act as an advocate for the Company
• none of the services involved the auditor jointly sharing in the economic risks and rewards of the Company
• a declaration required by section 307C of the Corporations Act 2001 confirming their independence has been received from
Ernst & Young Australia
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 Australia 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
5 August 2021
Sydney
Anthony Scali
Managing Director
Danni Armchair 100% Leather.
Annual Report 2021 | Nick Scali Limited
15
Cora Bed. Aix Bedside Table, Dresser. Awan Rug.
16
Annual Report 2021 | Nick Scali Limited
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 2021, 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
5 August 2021
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Annual Report 2021 | Nick Scali Limited
17
Hogarth 3 Seater Lounge 100% Natural Leather.
Cooper Console, Lamp Table. Nasiri Wool Rug.
18
Annual Report 2021 | Nick Scali Limited
Annual Report 2021 | Nick Scali Limited
19
Consolidated statement of comprehensive income
For the year ended 30 June 2021
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
2021
$’000
2020
$’000
3
3
4
4
373,040
(136,285)
262,480
(97,817)
236,755
164,663
1,582
4,790
(16,217)
(46,124)
(10,417)
(5,216)
(1,322)
(30,870)
(6,958)
121,213
(18,498)
(37,411)
(10,795)
(3,543)
(1,635)
(29,987)
(7,432)
60,152
Income tax expense
5
(36,972)
(18,076)
Profit after income tax expense for the year attributable to the owners of
Nick Scali Limited
84,241
42,076
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
13
4,858
4,871
(10)
(4,235)
(4,245)
89,112
37,831
CENTS
CENTS
Basic earnings per share
Diluted earnings per share
6
6
104.0
104.0
51.9
51.9
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
20
Annual Report 2021 | Nick Scali Limited
Consolidated statement of financial position
As at 30 June 2021
Assets
Current assets
Cash and cash equivalents
Receivables
Inventories
Other financial assets
Prepayments
Total current assets
Non-current assets
Land and buildings
Plant and equipment
Right-of-use assets
Deferred tax
Intangibles
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
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained profits
Total equity
Note
2021
$’000
2020
$’000
9
10
11
19
12
12
13
5
14
15
16
13
17
18
19
15
13
17
18
20
21
106,892
1,694
46,733
1,565
2,382
159,266
83,413
15,215
170,904
5,334
2,691
277,557
63,037
2,571
36,273
–
2,091
103,972
74,488
15,134
161,734
7,041
2,425
260,822
436,823
364,794
15,500
22,075
27,309
51,895
15,588
3,593
–
135,960
18,162
166,009
1,272
1,394
186,837
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
322,797
289,380
114,026
75,414
3,364
958
109,704
114,026
3,364
(4,038)
76,088
75,414
The above consolidated statement of financial position should be read in conjunction with the accompanying notes
21
Annual Report 2021 | Nick Scali Limited
Consolidated statement of changes in equity
For the year ended 30 June 2021
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 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 2020
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
Balance at 1 July 2020
3,364
(352)
78
(3,760)
(4)
76,088
75,414
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)
–
–
–
–
–
–
–
125
–
–
–
–
–
–
–
–
84,241
84,241
4,858
13
–
4,871
4,858
13
84,241
89,112
–
–
–
–
9
–
125
(50,625)
(50,625)
109,704 114,026
Balance at 30 June 2021
3,364
(227)
78
1,098
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
22
Annual Report 2021 | Nick Scali Limited
Consolidated statement of cash flows
For the year ended 30 June 2021
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Income tax payments
Note
2021
$’000
2020
$’000
426,170
(258,777)
167,393
367
(27,332)
304,490
(199,183)
105,307
501
(13,630)
Net cash from operating activities
8
140,428
92,178
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
(15,637)
22
(8,645)
9,768
(15,615)
1,123
7
13
13
(50,625)
(36,450)
(23,594)
(22,796)
(6,208)
(531)
(6,512)
(790)
(80,958)
(66,548)
43,855
63,037
26,753
36,284
Cash and cash equivalents at the end of the financial year
9
106,892
63,037
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes
23
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements
For year ended 30 June 2021
Note 1. Basis of preparation
Corporate information
Nick Scali Limited (the Company or the parent) is a for profit
Significant accounting judgements, estimates
and assumptions
In
the process of applying
the Company’s accounting
company limited by shares incorporated in Australia whose
policies, management has made judgements, estimates and
shares are publicly traded on the Australian Stock Exchange.
assumptions. All judgements, estimates and assumptions
Basis of preparation
These general purpose financial statements have been prepared
made are believed to be reasonable, based on the most
current information available to management. Actual results
may differ from these judgements, estimates and assumptions.
in accordance with Australian Accounting Standards and
Judgements, estimates and assumptions which have the most
Interpretations issued by the Australian Accounting Standards
significant effect on the amounts recognised in the financial
Board (‘AASB’) and the Corporations Act 2001. These financial
statements:
statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards
Board (‘IASB’). The financial statements have been prepared
Impairment of goodwill
The Company determines whether goodwill is impaired on an
under the historical cost convention, except for derivative
annual basis. This requires an estimation of the recoverable
financial instruments, which have been prepared at fair value.
amount of the cash-generating unit to which the goodwill
The financial report was authorised for issue in accordance with
is allocated. The assumptions used in this estimation of
a resolution of the directors on 5 August 2021.
recoverable amount and the carrying amount of goodwill is
discussed in the financial report.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries as at 30
Lease term of contracts with renewable options
The Company determines the lease term to be the non-
June 2021. A subsidiary is an entity that is controlled by the
cancellable term of the lease, together with any periods covered
Company. The Company controls an entity when it is exposed
by an option to extend the lease if it is reasonably certain that
to, or has rights to, variable returns from its involvement with
the option will be exercised. In assessing the likelihood of a
the entity and has the ability to affect those returns through its
lease option being exercised, the Company considers the
power over the entity.
costs of termination, the extent of any leasehold improvements,
the strategic importance of the lease location and the current
The financial statements of the subsidiaries are included in
market rent for the site.
the consolidated financial statements from the date on which
control commences until the date on which control ceases.
Intercompany transactions, balances and unrealised gains
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on
on transactions between the Company and its subsidiaries
historical experience as well as consideration of lease terms (for
are eliminated. Accounting policies of the subsidiaries are
assets used in or affixed to leased premises) and replacement
consistent with the policies adopted by the Company.
policies (for motor vehicles). In addition, the condition of the
assets is assessed at least once per year and considered
Changes in accounting policies, accounting standards and
against the remaining useful life. Adjustments to useful lives are
interpretations
The accounting policies adopted in the preparation of the
annual financial statements are consistent with those followed
in the preparation of the annual financial statements for the
period 30 June 2020.
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
The Group is currently assessing the impact of the recently
and condition including freight, cartage and import duties are
published IFRIC agenda decision which was published in June
included in the cost of finished goods.
2021 in relation to the accounting treatment when determining
net realisable value of inventories. Based on preliminary analysis
Net realisable value is the estimated selling price in the ordinary
performed, the Group expects the impact of the adoption of
course of business, less estimated costs necessary to make
the IFRIC agenda decision to be immaterial. The Group expects
the sale. Judgment is applied in assessing the net realisable
to complete the implementation of the above IFRIC agenda
value.
decision by 31 December 2021.
24
Annual Report 2021 | Nick Scali Limited Notes to the consolidated financial statements for year ended 30 June 2021 (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
2021
$’000
2020
$’000
373,040
262,480
14
–
783
367
418
1,582
1,794
1,073
1,154
501
268
4,790
Recognition and measurement – Revenue and income recognition
Revenue from contracts with customers is recognised at an amount that reflects the consideration to which the Group is expected to
be entitled in exchange for transferring goods or services to a customer. Contracts with customers provide for both the sale of goods
and the provision of accidental damage warranties, and the timing of the recognition of revenue of these separate components is as
follows:
Sale of goods
When recognising revenue in relation to the sale of goods to customers, the key performance obligation of the Group is considered to
be the delivery of the goods to the customer, and revenue is recognised at the time of delivery of the goods to the customer.
Accidental damage warranties
When recognising revenue in relation to ADWs, the key performance obligation of the Group extends over the term of the warranty, and
consequently revenue is recognised over the term of warranty, weighted according to the expected occurrence of the performance
obligations.
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
Voluntary repayment of government wage subsidies
Superannuation contributions
Share-based payments
Included within property expenses
Short-term and low value 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
2021
$’000
2020
$’000
33,805
(3,565)
2,471
3,265
210
697
(624)
2021
541
32,493
(3,915)
–
2,972
120
817
(2,263)
2020
477
25
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (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
Adjustment for voluntary repayment of government wage subsidies
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
Cashflow hedge (Note 23)
Other
Total deferred tax asset
2021
$’000
2020
$’000
37,527
(94)
(461)
18,501
(105)
(320)
36,972
18,076
121,213
60,152
36,369
18,045
(94)
(23)
(105)
741
84
(105)
(3)
(133)
–
272
36,972
18,076
(50,812)
57,480
(1,612)
(1,550)
1,153
(469)
1,144
(48,059)
54,055
(1,612)
(1,135)
1,023
1,611
1,158
5,334
7,041
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.
26
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 6. Earnings per share
Profit after income tax attributable to the owners of Nick Scali Limited
2021
$’000
2020
$’000
84,241
42,076
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
Recognition and measurement – Earnings per share
Basic earnings per share
Cents
104.0
104.0
Cents
51.9
51.9
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 2020: 22.5 cents (2019: 20.0 cents)
Interim fully franked dividend for 30 June 2021: 40.0 cents (2020: 25.0 cents)
2021
$’000
2020
$’000
18,225
32,400
50,625
16,200
20,250
36,450
In addition to the above dividend, since the end of the financial year directors have declared a final fully franked dividend of 25.0 cents
per fully paid ordinary share to be paid on 25 October 2021 out of retained profits at 30 June 2021.
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%
36,011
30,726
15,457
51,468
5,425
36,151
Franking credits available for future reporting periods based on a tax rate of 30%
42,789
28,340
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 2020: 30%).
Dividends declared and unpaid will be franked at the rate of 30% (30 June 2020: 30%).
27
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 8. Reconciliation of profit after income tax to net cash from operating activities
Profit after income tax expense for the year
84,241
42,076
2021
$’000
2020
$’000
Adjustments for:
Depreciation and amortisation 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:
Decrease/(increase) in trade and other receivables
(Increase)/decrease in inventories
Decrease/(increase) in deferred tax
Increase in prepayments
(Increase) in value of other financial asset and decrease of other financial liability
Increase/(decrease) in trade and other payables
Increase in deferred revenue
Increase in provision for income tax
Increase/(decrease) in other provisions
30,870
145
29,987
(1,794)
105
6,739
(323)
4,291
140
177
4,858
(4,235)
877
(1,463)
(10,460)
1,324
1,707
(291)
(6,936)
5,813
12,304
10,001
315
(2,593)
(222)
6,050
(537)
14,369
5,225
(154)
Net cash from operating activities
140,428
92,178
Note 9. Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
2021
$’000
50,045
56,847
2020
$’000
18,053
44,984
106,892
63,037
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 three 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.
28
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 10. Receivables
Trade debtors
Other debtors
2021
$’000
189
1,505
1,694
2020
$’000
140
2,431
2,571
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 2021, $2,160 (2021: $35,756) was recognised as an expense for expected credit losses.
Other debtors includes receivables from suppliers and GST paid in advance as required in New Zealand. These are non-interest bearing
and are due for settlement between 30 and 90 days.
Note 11. Inventories
Finished goods
Stock in transit – at cost
2021
$’000
34,987
11,746
2020
$’000
28,576
7,697
46,733
36,273
During the year ended 30 June 2021, $620,000 (2020: expense of $746,000) was recognised as reduction in cost of goods sold for
inventories carried at net realisable value.
Recognition and measurement – Inventories
Inventories are valued at the lower of cost and net realisable value. Weighted average cost is used to value inventories. Costs incurred
in bringing each product to its present location and condition includes purchase price plus freight, cartage and import duties. Net
realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.
Note 12. 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
2021
$’000
90,164
(6,751)
83,413
21,215
(11,243)
9,972
950
(755)
195
747
(419)
328
12,794
(8,074)
4,720
98,628
2020
$’000
80,084
(5,596)
74,488
19,484
(10,122)
9,362
956
(729)
227
684
(381)
303
12,183
(6,941)
5,242
89,622
29
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 12. Property, plant and equipment (continued)
Reconciliations
Reconciliation of the carrying amounts of property, plant and equipment at the beginning and end of the financial year:
Consolidated
Land &
buildings
$’000
Leasehold
improvements
$’000
Fixtures &
fittings
$’000
Motor
vehicles
$’000
Office
equipment
$’000
Total
$’000
Balance at 1 July 2019
77,035
9,483
263
351
5,532
92,664
Reclassification of make good
asset to right-of-use asset
Reclassification of website
to intangibles
Additions
Disposals
Foreign currency translation
Depreciation expense
Balance at 30 June 2020
Additions
Disposals
Foreign currency translation
–
–
5,307
(6,719)
–
(1,135)
74,488
10,080
–
–
(332)
–
2,171
(113)
(47)
(1,800)
9,362
2,896
–
(8)
Depreciation expense
(1,155)
(2,278)
Balance at 30 June 2021
83,413
9,972
–
–
6
–
–
(42)
227
4
–
–
(36)
195
–
–
75
(34)
(1)
(88)
303
126
(6)
–
(95)
–
(332)
(47)
1,086
(12)
(7)
(1,310)
5,242
682
–
(1)
(47)
8,645
(6,878)
(55)
(4,375)
89,622
13,788
(6)
(9)
(1,203)
(4,767)
328
4,720
98,628
Land and buildings totalling $83.4m (2020: $74.5m) 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 equipment)
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.
30
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 13. Leases
Lease liabilities
Lease liabilities – current
Lease liabilities – non current
Reconciliation of lease liabilities
Opening lease liabilities
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
Right-of-use assets
Right-of-use assets – at cost
Less: Accumulated depreciation
Reconciliation
Opening right-of-use asset
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
2021
$’000
2020
$’000
27,309
166,009
193,318
23,434
157,769
181,203
181,203
194,764
8,934
26,509
–
–
6,207
(29,472)
(63)
6,026
11,838
(6,674)
(1,135)
6,510
(29,824)
(302)
193,318
181,203
270,663
(99,759)
263,488
(101,754)
170,904
161,734
161,734
–
8,934
26,509
(160)
(26,057)
(56)
174,312
332
6,026
12,445
(5,591)
(25,499)
(291)
170,904
161,734
Recognition and measurement – Leases
Lease liabilities
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
2021. The undiscounted potential future payments under options that are not considered reasonably certain to be exercised is
$121,385,000, which includes those that have an exercise date within the next five years of $21,106,000.
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 14 years dependent on the term of the lease and the
likelihood of the Company exercising any lease extension options in its favour.
31
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 14. Intangibles
Website – at cost
Less: Accumulated amortisation
Goodwill – at cost
2021
$’000
1,165
(852)
313
2,378
2,691
2020
$’000
853
(806)
47
2,378
2,425
For the purposes of impairment testing, goodwill has been wholly allocated to the cash generating unit (CGU) comprising the Group’s
South Australian operations. The recoverable amount of the South Australia CGU is based on its value in use determined by discounting
the future cash flows expected to be generated by the continued use of this CGU. The key assumptions used in determining the value
in use are as follows:
Long-term growth rate
Weighted average cost of capital
2021
2.0%
8.0%
2020
2.0%
8.0%
No impairment losses have been recognised and it would require a significant adverse change in these assumptions to impact the
assessment that the recoverable amount of the South Australia CGU exceeds its carrying amount and such change is not expected.
Recognition and measurement – Intangibles
Goodwill
Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the Group’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 CGU to which the goodwill relates.
Website costs
The direct costs of developing the Group’s websites are measured at cost, less accumulated amortisation and any impairment in value.
The Group determines that the website will generate probable future economic benefits and recognises both internal expenditure and
external expenditure on website content as an intangible. The website costs are determined to have a finite life of between 3 and 5
years and amortisation is provided on a straight line basis over the useful life.
Note 15. Borrowings
Current
Bank loans
Non-current
Bank loans
2021
$’000
2020
$’000
15,500
2,300
18,162
31,362
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 30 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.
32
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 16. Payables
Trade creditors
Other creditors and accruals
2021
$’000
11,542
10,533
22,075
2020
$’000
11,027
6,993
18,020
Trade creditors are non-interest bearing financial instruments and are normally settled within 30 days.
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 goods and services received.
Note 17. Deferred revenue
Current
Customer deposits
Accidental damage warranties
Non-current
Accidental damage warranties
2021
$’000
2020
$’000
51,418
477
51,895
40,045
198
40,243
1,272
620
Recognition and measurement – Deferred revenue
Customer deposits
Customer deposits represent amounts received from customers for orders not yet completed. Deposits received from customers are
recognised as revenue at the point of delivery of the goods to the customer. Orders are typically completed within three months and
deposits are therefore considered short-term in nature and are not discounted.
Accidental damage warranties
Accidental damage warranties are purchased by customers in conjunction with the purchase of goods and are initially measured based
on an allocation of the purchase price between the fair value of the goods and the warranty. Amounts deferred are recognised as
revenue over the term of the warranty. Accidental damage warranties are classified as current and will be recognised as revenue within
12 months of the reporting date.
Note 18. Provisions
Current
Employee entitlements
Lease make good
Non-Current
Lease make good
Employee entitlements
2021
$’000
3,462
131
3,593
1,007
387
1,394
2020
$’000
3,083
139
3,222
1,122
330
1,452
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.
33
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 18. Provisions (continued)
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.
Note 19. Other financial assets and liabilities
Other financial assets
Derivative hedge payable
Other financial liabilities
Derivative hedge receivable
2021
$’000
2020
$’000
–
5,371
1,565
–
Foreign exchange forward contracts are held as hedging instruments against forecast purchases in USD. The notional amount for
the contracts held at 30 June 2021 totalled $USD39,760,000 which covers between 75% and 100% of highly probable purchases
for the six months to 31 December 2021 (30 June 2020 $USD40,560,000). The average rate of the forward contracts is $USD0.77
(30 June 2020 $USD0.65).
The net gain or loss recognised as other comprehensive income is equal to the change in fair value of the hedging instruments. The
ineffective portion if applicable is 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.
2021
Shares
2020
Shares
2021
$’000
2020
$’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 share capital
Ordinary share capital is recognised at the fair value of the consideration received by the Company.
Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds
received, net of tax.
34
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 21. Equity – Reserves
Capital profits reserve
Cash flow hedge reserve
Foreign exchange reserve
Equity benefits reserve
Movements in reserves
Equity
benefits
reserve
$’000
Capital
profits
reserve
$’000
Balance at 1 July 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 currency translation differences
Share-based payments
Balance at 30 June 2020
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 currency translation differences
Share-based payments
Balance at 30 June 2021
(29)
–
–
–
(443)
–
120
(352)
–
21
–
(105)
–
209
(227)
2021
$’000
78
1,098
2020
$’000
78
(3,760)
9
(4)
(227)
(352)
958
(4,038)
Cash flow
hedge
reserve
$’000
475
(6,050)
1,815
–
–
–
–
(3,760)
6,937
(2,079)
–
–
–
–
78
–
–
–
–
–
–
78
–
–
–
–
–
–
78
1,098
Foreign
exchange
reserve
$’000
6
–
–
–
–
(10)
–
Total
$’000
530
(6,050)
1,815
–
(443)
(10)
120
(4)
(4,038)
–
–
–
–
13
–
9
6,937
2,058
–
(105)
13
251
958
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 the 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 on cash flow hedge instruments that are determined to be an
effective hedge.
Foreign exchange reserve
This reserve is used to recognise differences arising where assets and liabilities denominated in foreign currencies are translated at the
functional currency exchange rate prevailing at the reporting date.
35
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (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
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
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
Interchangeable facilities, including letters of credit
2021
$’000
2020
$’000
15,500
18,162
3,015
36,677
15,500
18,162
1,312
34,974
–
–
1,703
1,703
2,300
31,362
3,015
36,677
2,300
31,362
1,312
34,974
–
–
1,703
1,703
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 and Risk 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 2021, the Company had trade payables of $3,318,000 (2020: $1,528,000) denominated in US dollars and stock in transit
of $11,746,000 (2020: $7,697,000) 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 2021 through to March 2022, 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.
36
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (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 of inventory for which designated foreign currency forward contracts were in place at 30 June 2021 are
expected to occur during July 2021 through to March 2022.
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 2021, an unrealised gain of $4,858,000 (30 June 2020: an unrealised loss of $4,235,000)
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. All financial instruments exposed to interest rate risk are exposed to a variable
interest rate.
The fair value of the cash and commercial bills shown below are based on the face value of those financial instruments.
2021
2020
Weighted
average
interest rate
%
0.20
1.54
1.49
Weighted
average
interest rate
%
0.71
1.45
1.78
Balance
$’000
106,892
(15,500)
(18,162)
73,230
Balance
$’000
63,037
(2,300)
(31,362)
29,375
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
$45,000 (2020: $148,000 on 50 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.
37
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 23. Financial instruments (continued)
2021
Interest bearing
Bank loans
Lease liabilities
Non-interest bearing
Trade creditors
Other creditors
Current tax liabilities
Total
Less than
3 months
$’000
–
8,509
11,542
10,533
15,588
46,172
3 to 12
months
$’000
15,613
24,928
–
–
–
1 to 5
years
$’000
18,609
94,094
–
–
–
Over 5
years
$’000
–
16,583
–
–
–
Remaining
contractual
maturities
$’000
34,222
144,114
11,542
10,533
15,588
40,541
112,703
16,583
215,999
The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.
2020
Interest bearing
Bank loans
Lease liabilities
Non-interest bearing
Trade creditors
Other creditors
Other financial liabilities
Current tax liabilities
Total
Less than
3 months
$’000
2,308
7,770
11,027
6,993
2,134
5,587
35,819
3 to 12
months
$’000
–
23,305
–
–
3,237
–
1 to 5
years
$’000
32,288
99,104
–
–
–
–
Over 5
years
$’000
–
22,723
–
–
–
–
Remaining
contractual
maturities
$’000
34,596
152,902
11,027
6,993
5,371
5,587
26,542
131,392
22,723
216,476
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 receivable of $1,565,000 (2020:
payable of $5,371,000). 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 – Financial instruments
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).
38
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
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.
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
2021
$
2020
$
2,936,100
1,394,992
11,852
109,900
82,938
12,007
83,641
27,369
3,140,790
1,518,009
2021
$
2020
$
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 Company and its controlled
entities and auditing the statutory financial reports of any controlled entities
195,315
205,567
Other assurance and agreed-upon procedure services under other legislation
or contractual arrangements where there is discretion as to whether the service
is provided by the auditor or another firm
–
6,500
Other services
Due diligence services
Tax compliance
Note 27. Contingent liabilities
There are no contingent liabilities at 30 June 2021 (2020: Nil).
145,000
30,936
–
27,532
371,251
239,599
39
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 28. Commitments
Land and buildings
Leasehold improvements
Plant and equipment
Intangibles – Website
2021
$
4,453
253
41
244
4,991
2020
$
8,330
1,100
34
–
9,464
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.
Receivables from and payables to related parties
There were no trade receivables from or trade payables to related parties at 30 June 2021 (2020: Nil).
Loans to or from related parties
There were no loans to or from related parties at 30 June 2021 (2020: Nil).
Note 30. Significant events after the reporting period
Other than the dividend declared on 5 August 2021 (see Note 7), no other matter or circumstance has arisen since 30 June 2021
that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state
of affairs in future financial years.
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 rights
lapse.
In the year ended 30 June 2021 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 $209,450 (2020: $120,340).
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
Share rights exercised
Share rights forfeited
2021
114,827
56,569
(12,469)
(12,469)
2020
130,251
61,508
(64,962)
(11,970)
Outstanding share rights at the end of the year
146,459
114,827
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.
40
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 31. Share-based payments (continued)
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
2021
$8.75
6.5%
30.0%
9.3%
2020
$6.95
6.5%
30.0%
9.3%
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.
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
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
2021
%
100
100
2020
%
100
100
Parent
2021
$’000
2020
$’000
83,481
4,858
88,339
154,199
257,504
411,703
112,801
185,869
298,670
41,908
(4,235)
37,673
102,320
235,939
338,259
91,375
171,690
263,065
113,033
75,194
3,364
78
1,098
(227)
108,720
113,033
3,364
78
(3,760)
(352)
75,864
75,194
41
Annual Report 2021 | Nick Scali Limited
Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 33. Parent entity information (continued)
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 2021 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 Group.
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 Group. They are de-
consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
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.
42
Annual Report 2021 | Nick Scali Limited Notes to the consolidated financial statements for year ended 30 June 2021 (continued)
Note 34. Summary of other significant accounting policies (continued)
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.
Rent concessions
The practical expedient to AASB16 Covid-19 Related Rent Concessions has been adopted. This allows for an election to not account
for changes in 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 the change, the reductions only affect payments which fall due before
30 June 2021 and there has been no substantive change in terms and conditions. Where the practical expedient has been applied,
rent concessions are accounted for as a reduction in property costs.
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.
43
Annual Report 2021 | 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 2021 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
5 August 2021
Sydney
Anthony Scali
Managing Director
Andes TV Unit. Agoura Console.
Stuzo Armchair and Ottoman.
Nasiri Wool Rug.
44
Annual Report 2021 | Nick Scali Limited
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 2021, 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 2021
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
Annual Report 2021 | Nick Scali Limited
45
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 2021, the Group held $46.7
million in inventories representing 11% 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.
- Assessed the application of inventory costing
methodologies, specifically in relation to
freight and customs duties, and whether this
was consistent with Australian Accounting
Standards.
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 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.
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 2021 Annual Report but does not include 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 accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
46
Annual Report 2021 | Nick Scali Limited
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
►
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
► Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
► Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
► Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
► Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
47
Annual Report 2021 | Nick Scali Limited
Independent Auditor’s Report to the Members of Nick Scali Limited (continued)
► Obtain sufficient appropriate audit evidence regarding the financial information of the business
activities within the Group to express an opinion on the financial report. We are responsible for
the direction, supervision and performance of the audit. We remain solely responsible for our
audit opinion
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, 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 14 of the directors' report for the
year ended 30 June 2021.
In our opinion, the Remuneration Report of Nick Scali Limited for the year ended 30 June 2021,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Group 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
5 August 2021
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
48
Annual Report 2021 | 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 2021.
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
2,546
1,972
447
328
27
5,320
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
Citicorp Nominees Pty Limited
Scali Consolidated Pty Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
Gragher Retail Securities Pty Ltd
Molvest Pty Ltd
BNP Paribas Nominees Pty Ltd
Netwealth Investments Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
28421 Pty Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
BNP Paribas Nominees (NZ) Ltd
McNiven & Co Pty Ltd
Brispot Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd
Substantial holders
Substantial holders in the Company are set out below:
Scali Consolidated Pty Limited
Magellan Financial Group Limited
Commonwealth Bank of Australia
Voting rights
Ordinary shares
All ordinary shares carry one vote per share without restriction.
There are no other classes of equity securities.
14,989,244
14,483,234
11,039,474
9,704,192
4,598,563
2,527,570
1,200,000
1,200,000
645,273
417,992
412,163
363,500
283,349
211,500
201,154
172,964
144,580
142,500
133,848
128,349
18.51
17.88
13.63
11.98
5.68
3.12
1.48
1.48
0.80
0.52
0.51
0.45
0.35
0.26
0.25
0.21
0.18
0.18
0.17
0.16
62,999,449
77.80
Number held
% of total shares issued
Ordinary shares
11,039,474
5,161,144
4,176,370
20,376,988
13.63
6.37
5.16
25.16
49
Annual Report 2021 | Nick Scali Limited
Padrone Bedroom Range in Solid Australian Oak.
Pemba Rug.
5050
Annual Report 2021 | Nick Scali Limited
Corporate Information
Nick Scali Limited
ABN 82 000 403 896
Store Locations
New South Wales
Alexandria
Auburn
Bankstown
Belrose
Bennetts Green
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
Victoria
Chirnside
Craigieburn
Essendon
Frankston
Geelong
Maribyrnong
Moorabbin
Nunawading
Queensland
Aspley
Bundall
Cairns
Fortitude Valley
Jindalee
Macgregor
Mackay
Maroochydore
Morayfield
North Lakes
Oxley Clearance
Robina
South Australia
Gepps Cross
Glynde
Keswick
Marion
Western Australia
Cannington
Jandakot
Joondalup
Midland
O’Connor
Osborne Park
Nunawading Clearance
Skygate (Brisbane Airport)
Osborne Park Clearance
Preston
Richmond
South Wharf
Springvale
Taylors Lakes
Toowoomba
Townsville
Tasmania
Hobart
New Zealand
Hamilton
Hastings
Mt Wellington
St Lukes
Wairau Park
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
Monday 25th October 2021
https://agmlive.link/NCK21
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
Annual Report 2021 | Nick Scali Limited
51