Annual Report 2017 Chifley 100% Leather 3 Seater Dual-Electric Recliner; Provence Console; Provence Dining Table and Primo Dining Chair; Harley Armchair; Laurie Coffee Tables; Libertine Floor Rug Nick...

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Annual Report 2017
Chifley 100% Leather 3 Seater Dual-Electric Recliner;
Provence Console; Provence Dining Table and Primo Dining Chair;
Harley Armchair; Laurie Coffee Tables; Libertine Floor Rug
Nick Scali Limited Annual Report 20172
Turin 100% Leather 4 Seater Lounge;
Inma Coffee Table; Yolmen Pendant Lamps;
Berta Floor Rug
Nick Scali Limited Annual Report 2017 3
Page
Chairman and Managing Director’s Review 5
Directors’ Report 6
Auditor’s Independence Declaration 16
Statement of Comprehensive Income 18
Statement of Financial Position 19
Statement of Changes in Equity 20
Statement of Cash Flows 21
Directors’ Declaration 42
Independent Auditor’s Report 44
Shareholder Information 48
Corporate Information 51
Page
Notes to the financial statements
Note 1. Basis of preparation 22
Performance for the yea
Note 2. Segment Information 23
Note 3. Revenue 23
Note 4. Expenses 24
Note 5. Income tax expense 25
Note 6. Earnings per share 26
Note 7. Equity – Dividends 26
Note 8. Reconciliation of profit after income tax
to net cash from operating activities 27
Operating assets and liabilities
Cu
ent assets
Note 9. Cu
ent assets – Cash and cash equivalents 28
Note 10. Cu
ent assets – Receivables 28
Note 11. Cu
ent assets – Inventories 28
Note 12. Cu
ent assets – Other financial assets 28
Non-cu
ent assets
Note 13. Non-cu
ent assets – Property, Plant
and Equipment 29
Note 14. Non-cu
ent assets – Intangibles assets 30
Cu
ent liabilities
Note 15. Cu
ent liabilities – Payables 31
Note 16. Cu
ent liabilities – Provisions 31
Non-cu
ent liabilities
Note 17. Non-cu
ent liabilities – Bo
owings 31
Note 18. Non-cu
ent liabilities – Provisions 32
Capital structure and finance cost
Note 19. Equity – Issued capital 33
Note 20. Financial instruments 33
Note 21. Fair value measurement 35
Other Notes
Note 22. Equity – Reserves 36
Note 23. Key management personnel disclosures 37
Note 24. Remuneration of auditors 37
Note 25. Contingent liabilities 37
Note 26. Commitments 37
Note 27. Related party transaction 38
Note 28. Events after the reporting period 38
Note 29. Share-based payments 38
Note 30. Parent entity information 39
Note 31. Controlled Entities 40
Note 32. Summary of significant accounting policies 40
Contents
Nick Scali Limited Annual Report 20174
Cooper Dining Table and Vansu Dining Chai
Nick Scali Limited Annual Report 2017 5
Operating Performance
We are delighted to report that Nick Scali has had another
excellent year, delivering a net profit after tax increase of 42.4%
on the previous year with earnings per share increasing from
32.3 cents per share to 46.0 cents per share. This result was
driven by a combination of sales growth, solid gross margins
and our low cost of doing business, underpinned by our
continued new store rollout.
Sales revenue increased 14.7% to $232.9 million for the year,
esulting from same store sales growth of 10.1%, two new
stores which opened during FY16 and traded for the full 2017
financial year plus some contribution from the four new stores
which opened in FY17, thus only trading for part of the year.
Operating expenses decreased as a percentage of sales from
41.3% last year to 38.9%. The Company maintains tight cost
control and the percentage decrease was assisted by the ability
of the Company to leverage new store growth off its existing
infrastructure. The Company’s gross margin strengthened
to 62.5% from 60.8% with volume growth in certain product
categories contributing to the higher margins.
Four Nick Scali Furniture stores were opened and one was
closed during the year,
inging the total number of Company
stores at 30 June 2017 to 51. Two new stores opened during
the first half of the fiscal year, at Geelong (Victoria) and Hobart,
which was our first store in Tasmania. A further two new stores
opened in the second half - at Jandakot (our fifth store in
Western Australia) and at Preston in Victoria. The Company
expects to open up to ten new stores during FY18. This
includes the first New Zealand store which is planned to open in
Auckland in December 2017. A new, custom built, warehouse
facility for NSW was completed in June 2017 to support the
growth of the business. Supply chain efficiencies will benefit
from this investment and from a new warehouse management
system introduced at the same time.

Cash flow generation remained strong, with operating cash
flow of $42.9m up $10.9m (34.0%) on the prior financial year.
Nick Scali maintained its disciplined approach to financial
management and maintained its robust balance sheet.

Dividends
The Directors have declared a fully franked final dividend of
20 cents per share,
inging the total dividend for the year
to 34 cents per share. The final dividend has a record date
of 4th October 2017 and will be paid on 25th October 2017.
The Directors consider that the dividend payout ratio of 74%
appropriately balances the distribution of profit to shareholders
and the reinvestment of earnings for future growth.
Board
During 2016, Mr Nick Scali advised the Board of his intention
to retire and not seek re-election at the October 2016 AGM
and as a result, Nick ceased to be a director on 27 October
2016. Nick founded the Company over 55 years ago and is
widely recognised as a leader and visionary in the furniture
industry. On behalf of the Board, Staff and Shareholders, the
Directors thank Nick for his service and unique contribution to
the success of the Company, in particular as a member of the
Board since listing in 2004. We all join together in wishing Nick
a long and well deserved retirement and hope that he enjoys it
in good health and happiness.
Outlook
The furniture market is directly influenced by consumer
confidence, interest rates, unemployment levels and the
volume of home renovations and housing sales. Given an
expected slowdown in housing sales, the Company believes
that same store sales order growth will be challenging.
Whilst the Company is planning to open around 10 new stores
in FY18, the benefit to earnings will be generated mainly in
FY19 and beyond, due to the associated new store start-up
costs and their staggered starting dates.
Nick Scali has a strong balance sheet, with a healthy net cash
position, enabling the Company to continue its growth strategy
and take advantage of any other opportunities that may arise.
Finally, on behalf of the Board, we thank the Management
team and our many Nick Scali team members around the
country, for their dedication and hard work. We also thank
our shareholders, customers and suppliers, whose continuing
support underpins the ongoing success of the Company.
Chairman and Managing
Director’s Review
Nick Scali Limited Annual Report 20176
The directors present their report, together with the financial
statements, on the consolidated entity (refe
ed to hereafter
as the ‘consolidated entity’) consisting of Nick Scali Limited
(refe
ed to hereafter as the ‘company’ or ‘parent entity’) and
the entities it controlled at the end of, or during, the year ended
30 June 2017.
Directors
The names and details of the Company’s Directors 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 period
unless otherwise stated.
John W Ingram
Nick D Scali (resigned on 27 October 2016)
Greg R Laurie
Carole A Molyneux
Anthony J Scali

Principal activities
The principal activities of the consolidated entity during the
period were the sourcing and retailing of household furniture
and related accessories.
No significant change in the nature of these activities occu
ed
during the period.
Dividends
Dividends paid during the financial year were as follows:
XXXXXXXXXX
$’000 $’000
Final franked dividend for 30 June 2016:
14.0 cents (2015: 8.0 cents) 11,340 6,480
Special franked dividend for 30 June 2016:
3.0 cents (2015: Nil) 2,430
Interim franked dividend for 30 June 2017:
14.0 cents (2016: 9.0 cents) 11,340 7,290
25,110 13,770
In addition to the above dividend, since the end of the financial
year directors have declared a fully franked final dividend
of 20.0 cents per fully paid ordinary share to be paid on
25 October 2017 out of retained profits at 30 June 2017.
Operating and financial review
Nick Scali Limited is a furniture retailer operating in Australia.
The Company operates two
ands; the Nick Scali
and
with forty six stores and Sofas2Go with five stores. The two
ands operate under the same infrastructure provided by the
Company but are positioned differently to capture somewhat
different customers within the furniture market, which is heavily
fragmented.
Key profitability drivers are the ability to continue to grow sales
and market share through a store network with appropriate
each and to manage the style, quality and cost of the furniture
to maintain margins.
Group Operating Results
XXXXXXXXXX % Change
$m $m

Revenue XXXXXXXXXX%
EBITDA XXXXXXXXXX%
EBIT XXXXXXXXXX%
NPAT XXXXXXXXXX%
EPS (cents XXXXXXXXXX%
DPS (cents XXXXXXXXXX%
Net Cash XXXXXXXXXX%
For the financial year ended 30 June 2017 the Company
eported a record NPAT result of $37.2m, up 42.4% on the
previous year. This strong profit result was generated from
Sales Revenue of $232.9m which was up 14.7% on last
year. Comparable store sales growth was a healthy 10%.
The result was driven by the opening of two new stores in the
2016 financial year, a further four new stores during the 2017
financial year and supported by strong marketing activity.
The continued focus on product, price and co
esponding
ange management led to gross margin increasing to 62.5%,
higher than during the last five years when it ranged between
60% and 61%.
Operating expenses decreased as a percentage of sales from
41.3% in FY16 to 38.9% for FY17. The Company continues
to maintain tight cost control and the sales increase off the
existing infrastructure, leveraged this further.
Net cash flows from operating activities during the year were
$42.9m, up 34.0% on the previous year. Net cash inflows from
all
Answered Same DayAug 21, 2021ACC00724Southern Cross University

Answer To: Annual Report 2017 Chifley 100% Leather 3 Seater Dual-Electric Recliner; Provence Console; Provence...

Soumyadeep answered on Aug 24 2021
60 Votes
ACCOUNTING FOR MANAGERS: ACC00724
Assessment 2: Financial Analysis of Nick Scali Limited
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Table of Contents
Company Overview    3
Cash Flow Analysis    3
Calculation of Ratios    4
Working Capital Management Analysis    4
Further Company Analysis    5
Conclusion    7
References    8
Appendix……………………………………………………………………………………………………………………………………………9
Company Overview
Nick Scali Limited is in the furniture retail space, based out of Australia. The company sources and retails household furniture and related accessories. The
most popular
and Nick Scali
and, operates over 40 stores, and then Sofas2Go, operates with 5 stores. Stores are spread across Queensland, New South Wales, South Australia, West Australia, Victoria and Australian Capital Te
itory. The company also has an e-commerce division with website, www.nickscalionline.com.au, which sells replica and designer furniture.
Cash Flow Analysis
The company generated EBITDA of almost 63 million in 2019 which increased marginally by 1.87% from 61.6 million in 2018. EBITDA margin decreased by 115 bps to 23.42%. This EBITDA, partially offset by cash outflow due to increase in inventory, interest and tax payments, resulted in a cash flow of operations being an inflow of 45.3 million which increased by 5.4% from last year’s cash flow from operations. Capital expenditure was 5 million and hence free cash flow 40.3 million which increased from last year’s free cash flow of 14 million. According to Brush, Bromiley and Hendrickx (2000), free cash flow is a true and effective measure of a firm’s efficiency and growth prospects from an investor’s perspective. The fact that Nick Scali has a positive free cash after deducting capital expenditure means that it can generate discretionary cash which investors value most. Apart from mandatory debt repayments, it will enable the company’s management to decide on future high-return projects and pay out dividends that can potentially increase shareholder value. Also a growth in the free cash flow signals that the cu
ent operations of the business is financially strong ca
ying good future prospects and high returns for investors. Cash flow was also aided by the opening of six new Nick Scali Furniture stores including one store in New Zealand, at Hamilton.
The company paid out dividends worth 39.69 million which included final fully franked dividend for worth 20.0 cents per share and interim fully franked dividend of 25.0 cents per share. This
ings the total dividend for the year to 45 cents per share (up from 40 cents in 2018), representing a payout ratio of 87%, which is considered to be appropriately balancing the distribution of profit to shareholders with the need to reinvest earnings for future growth. Here lies the importance of free cash flow. Eventually the overall cash balance ended up decreasing by 301k as of 30 June 2019, but the company had the luxury of free cash flow to afford the distribution of dividends. Companies are not obligated to pay dividends; companies take a call on whether it is right for the business. Even during financial distress, if a company chooses to continue to pay dividends, it indirectly communicates to investors that it is optimistic about the future outlook and growth prospects even though the cu
ent performance is under hardship. If a stable company with a long-lasting history of consistent dividend payments suddenly cuts the dividend, it is more likely to result in scepticism and pessimism about its future financial prospects to the shareholders and potential investors. Nick Scali, being a company that is willing to pay a steady dividend communicates to the stakeholders that it has the necessary financial prowess to manage consistent distribution of a part of its earnings to the shareholders. Also the dividends are increasing steadily which signifies confidence and positive expectation on behalf of the management. This encourages investors to stay loyal to the customers and also increased demand for the stock.
Calculation of Ratios
Working Capital Management Analysis
    Working Capital Management Ratios
    2019
    2018
    2017
    Receivables Turnove
    180.43
    243.58
    1185.28
    Inventory Turnove
    2.69
    2.87
    3.18
    Payables Turnove
    5.66
    3.09
    2.18
    Receivables Turnover Period
    2
    1
    0
    Inventory Turnover Period
    135
    127
    115
    Payables Turnover Period
    65
    118
    167
    Cash Conversion Cycle
    73
    11
    -52
Receivables turnover period represents the average number of days it takes credit sales to be converted into cash or how long it takes a company to collect its account receivables. Since the receivables turnover period is very low at 1 or 2 days, it means almost all of the company’s sales are cash sales and not credit sales. Inventory turnover period is 135 days which is worse than the peer median value of 85 days. Since inventory forms a major part of the business, inventory management becomes an important metric and higher than average inventory turnover period signifies that the company is inefficient or slower than most of its peers in converting inventory into sales. Over the years, inventory turnover period has also increased which shows that the company is facing some issues in converting inventory into sales. Payables turnover period represents the average number of days a company takes to pay its suppliers. Payables turnover period has decreased from 167 days in 2017 to 65 days in 2019. This has two effects; on hand it quickens the rate of cash outflow of the business. But on the other hand, it also signifies that the company is making an effort to pay its suppliers more quickly. Suppliers in the retail...
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