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Nick Scali Limited – Additional Figures and Ratios 2017 2018 2019 Market price per share (financial year end) $6.09 $6.73 $6.26 Average settlement period for debtors (days) 0.31 0.42 0.45 EPS $0.460 $0.506 $0.520 Acid-test ratio (times) 0.89 0.58 0.62 Dividends per share (interim + final) $0.340 $0.400 $0.450 Gross profit margin 62.50% 62.69% 62.92% P/E ratio (times) 13.24 13.30 12.04 Sales revenue to capital employed (times) 2.66 2.55 2.50 Return on capital employed 61.57% 60.89% 56.72% Average settlement period for creditors (days) 28.94 37.41 41.82 Source: Market price per share from Morningstar DatAnalysis database; EPS from Nick Scali Limited 2019 and 2017 Annual Reports: Consolidated Statements of Profit and Loss; all other figures based on author calculations using data from Nick Scali Limited 2019 and 2017 Annual Reports, Financial Statements and Notes. Annual Report 2019 Padrone queen bed, bedside table and dresser in solid Australian oak. Annual Report 2019 | Nick Scali Limited2 Solene 3 seater with chaise lounge in 100% leather. Ines table nest. Daddy Long Leg floor lamp. Aromer floor rug. Annual Report 2019 | Nick Scali Limited 3 Page Chairman and Managing Director’s Review 5 Directors’ Report 6 Auditor’s Independence Declaration 16 Consolidated Statement of comprehensive income 18 Consolidated Statement of financial position 19 Consolidated Statement of changes in equity 20 Consolidated Statement of cash flows 21 Directors’ Declaration 43 Independent Auditor’s Report 44 Shareholder Information 48 Corporate Information 51 Page Notes to the consolidated financial statements Note 1. Basis of preparation 22 Note 2. Segment information 24 Note 3. Revenue 24 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 Note 9. Current assets – Cash and cash equivalents 27 Note 10. Current assets – Receivables 28 Note 11. Current assets – Inventories 28 Note 12. Current assets – Other financial assets 28 Note 13. Non-current assets – Property, plant and equipment 29 Note 14. Non-current assets – Intangibles assets 30 Note 15. Current liabilities – Borrowings 31 Note 16. Current liabilities – Payables 31 Note 17. Current liabilities – Deferred revenue 31 Note 18. Current liabilities – Provisions 32 Note 19. Non-current liabilities – Borrowings 32 Note 20. Non-current liabilities – Deferred revenue 32 Note 21. Non-current liabilities – Provisions 33 Note 22. Equity – Issued capital 33 Note 23. Equity – Reserves 34 Note 24. Financing facilities 35 Note 25. Financial instruments 35 Note 26. Fair value measurement 37 Note 27. Key management personnel 38 Note 28. Remuneration of auditors 38 Note 29. Contingent liabilities 38 Note 30. Commitments 38 Note 31. Related party transactions 39 Note 32. Events after the reporting period 39 Note 33. Share-based payments 39 Note 34. Controlled entities 40 Note 35. Parent entity information 40 Note 36. Summary of significant accounting policies 41 Contents Annual Report 2019 | Nick Scali Limited4 Historical Performance Sales Nick Scali Furniture Stores Net profit after tax Dividends Annual Report 2019 | Nick Scali Limited 5 Operating Performance We are pleased to report that Nick Scali Limited has had another successful year, delivering a seventh successive year of revenue and profit growth, with earnings per share increasing 2.8% to 52.0 cents per share. In an environment in which same store sales growth has been depressed, earnings growth has been driven by the continuation of our disciplined store rollout program and further improvements in gross margin. Sales revenue increased by 6.9% to $268 million. A full year of revenue contribution from the six stores opened in the year ended 30 June 2018 and a part year contribution from the six stores opened during the year ended 30 June 2019, off-set a slight decline in same store sales. Despite the decline in the value of the Australian Dollar, gross margin increased by 20 basis points to 62.9%, driven by new product initiatives. Operating expenses increased to $106 million, which represents 39% of sales revenue, up from 38% in the previous financial year. Costs remain tightly controlled, and this increase in operating expenses as a percentage of sales was due mainly to increased costs associated with new store openings, discretionary marketing investments and non- recurring expenditure, such as the relocation of the Victorian distribution centre, as well as the decline in same store sales. The Company maintained its effective working capital management throughout the year and as a result, operating cash flow (before tax and interest) was $63million, on the back of EBITDA of $64 million. After allowing for tax and interest, and with the Company requiring less than $5m for capital projects, $40m was returned to shareholders in dividends during the year. The Company expects to continue to deliver a strong cash flow result, and with a stable, well-managed balance sheet Nick Scali remains well placed to continue to grow its existing business and to take advantage of any new opportunities that may arise. Following the opening of the first store in New Zealand in December 2017, a second New Zealand store opened during the year, with the New Zealand business delivering a positive contribution to the Group for the 2019 financial year. This provides a solid platform for the New Zealand business to make a significant contribution to profit growth over the next few years, as further stores are added to the network. Other notable achievements during the year included the relocation of our Victorian distribution centre to a new purpose-built facility in Keysborough, the introduction of the bedroom and bedding category in 26 of our larger stores in December 2018, and the relocation of stores at Bundall (Qld) and Rutherford (NSW) into larger sites. The Board recognises that the continued growth of Nick Scali Limited is the result of the dedication of our many employees and associates across Australia and New Zealand, and we would like to thank them for their hard work and commitment to the Company. The Board also takes this opportunity to thank our shareholders, customers and suppliers, whose continuing support underpins the success of the Company. Store network In addition to the new store in Hamilton, New Zealand, five new Nick Scali Furniture stores were opened in Australia during the year. These were in Morayfield, Mackay, Brisbane Airport, Prospect and Craigieburn. These openings brought the total number of Nick Scali Furniture stores at 30 June 2019 to 57. The Company plans to open four new stores in the year to June 2020, including two further stores in New Zealand. Alongside the Nick Scali Furniture stores, the Company currently operates five clearance stores, in a mixture of permanent and temporary locations, which are selected and managed to best minimise inventory holdings in our distribution centres. Dividends The directors declared a fully franked final dividend of 20 cents per share on 8th August 2019. The final dividend has a record date of 8th October 2019 and will be paid on 29th October 2019. This brings the total dividend for the year to 45 cents per share, representing a payout ratio of 87%, which the directors consider appropriately balances the distribution of profit to shareholders with the need to reinvest earnings for future growth. Outlook As a furniture retailer, Nick Scali Limited is very dependent on housing sales and renovations, which have been in decline in recent months. Trading conditions will likely only improve when there is an uplift in housing sales and refurbishments, the timing of which is presently uncertain. Although there is a potentially somewhat favourable economic environment of very low interest rates and relatively low unemployment, same store sales growth continues to be challenging, and a continued period of negative same-store sales growth presents the possibility that the profit benefit from new stores will be offset by negative same-store trading in the short-term. Chairman and Managing Director’s Review Annual Report 2019 | Nick Scali Limited6 The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘Group’ or ‘consolidated entity’) consisting of Nick Scali Limited (referred to hereafter as the ‘Company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2019. Directors The names and details of the Company’s directors (referred to hereafter as the ‘Board’) in office at any time during the financial year or until the date of this report are as follows. Directors were in office for this entire year unless otherwise stated. John Ingram Greg Laurie Carole Molyneux Stephen Goddard Anthony Scali Principal activities The principal activities of the Group during the year were the sourcing and retailing of household furniture and related accessories. No significant change in the nature of these activities occurred during the year. Dividends Dividends paid during the year were as follows: 2019 2018 $’000 $’000 Final franked dividend for 30 June 2018: 24.0 cents (2017: 20.0 cents) 19,440 16,200 Interim franked dividend for 30 June 2019: 25.0 cents (2018: 16.0 cents) 20,250 12,960 39,690 29,160 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 29 October 2019 out of retained profits at 30 June 2019. Operating and financial review Nick Scali Limited is a furniture retailer operating in Australia and New Zealand. Following a strategic review of the business during the previous year, the business operates under a single brand, Nick Scali Furniture. Group Operating Results 2019 2018 % Change $m $m Revenue 268.0 250.8 6.9% EBITDA 64.1 62.8 2.1% EBIT 59.9 59.0 1.5% NPAT 42.1 41.0 2.8% EPS (cents) 52.0 50.6 2.8% DPS (cents) 45.0 40.0 Net cash 2.6 2.9 For the financial year ended 30 June 2019 the Group reported a record NPAT result of $42.1m, up 2.8% on the previous year.