NICK SCALI LIMITED — Interim / Quarterly Report 2021

Feb 3, 2021

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4 FEBRUARY 2021 Nick Scali Limited (NCK.ASX) HY21 Results Presentation

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Results Overview

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Key performance metrics for the half-year ended 31 December 2020 presented below

1H FY21 Highlights

• Written sales orders and revenue at record levels, with 58% growth in like- for-like sales orders and 24% sales revenue growth	• Sales orders:$191.1m(PY: $126.1m) • Revenue:$171.1m(PY: $137.5m)
• Gross profit margin improved by 180 basis points due to reduced SKU discounting	• Margin:64.0%(PY: 62.2%)
• Operating leverage saw sales growth lift net profit after tax by over 100%	• Underlying NPAT1:$40.5m(PY: $20.3m)
• Increase in profitability led to improved cashflows due to the negative working capital model	• Operating cashflow:$53.5m(PY: $16.6m) • Net cashflow:$24.6m(PY: $7.4m)
• $32.4m to be paid to shareholders through 40.0 cent interim dividend on 30 March 2021	• Interim dividend:40.0 cents(PY: 25.0 cents)
• Two new stores successfully opened during bringing the Nick Scali Furniture store network to 60

1Underlying net profit after tax excludes the impact of accounting for leases under AASB 16 and one-off transactions such as the sale of properties and non-recurring corporate projects. The reported results for HY21 are shown in Appendix 1, along with a reconciliation to the underlying results

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PAGE 1

Trading & Sales Orders

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Positive trading momentum continued in the half across Australia & New Zealand

Written Sales Orders $’m

Trading Commentary

• Sales momentum maintained throughout first half of financial year, with comparable store sales orders up 58% on H1 FY20

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191.1
112.3 116.2 127.1 126.1
HY17 HY18 HY19 HY20 HY21
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Comparable Sales Order Growth[1]

• Total written sales orders up 52% to $191.1m

• Exceptional growth rates repeated across all geographies and categories

• Total sales orders for New Zealand up 85% on H1 FY20

• Online represents 9% of total written sales orders in non-lounge categories & 4.5% of total written sales orders across all categories

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64.9%
59.1% 57.9%
Q4 FY20 Q1 FY21 Q2 FY21
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1Adjusted for COVID-19 related closures

PAGE 2

Sales Revenue

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Total sales revenue up 24% to $171.1m, supported by an order bank which reached an all time record high at 31 December 2020

Sales Revenue $m

Sales Commentary

• Total sales revenue up 24% to $171.1m

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171.1
118.4 128.0 141.1 137.5
HY17 HY18 HY19 HY20 HY21
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• Order bank up 146% on 1H FY20. Outstanding order bank expected to convert to sales revenue in 2H FY21

• Order bank aged days was 92 days as at 31 December 2020, up from 63 days as at 31 December 2019, primarily driven by supply chain and shipping delays.

Order Bank $’m

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1H FY21
$103.1m
1H FY20
$41.9m
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PAGE 3

Profit & Loss

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1H FY21 Underlying EBITDA of $60.2m, up 94% on 1H FY20

	1H FY21	1H FY20	Change
Sales revenue	171.1	137.5	+ 33.6
Cost of sales	(61.6)	(51.9)	- 9.7
Gross profit	109.5	85.6	+ 23.9
Other income	0.6	0.7	- 0.1
Operating expenses	(49.9)	(55.3)	+ 5.4
EBITDA	60.2	31.0	+ 29.2
Depreciation	(2.5)	(2.2)	- 0.3
EBIT	57.7	28.8	+ 28.9
Net interest expense	(0.1) (0.1) -
Profit before tax	57.6	28.7	+ 28.9
Taxation	(17.1)	(8.4)	- 8.7
Underlying net profit after tax1	40.5	20.3	+ 20.2
Gross profit margin	64.0%	62.2%
Operating expense %	29.2%	40.2%
EBITDA margin	35.2%	22.5%

Gross Margin

• Improvement in the groups gross margin resulting from reduced SKU discounting

Operating Expenses

• Opex reduced through wage subsidies, marketing expenses and headcount rationalisation further supported by a reduction in general administrative expenditure

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1.9
3.8
0.8
4.4
55.3
49.9
HY20 New Variable Covid Productivity HY21
Stores Employment Relief Initiatives
Costs
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1Underlying net profit after tax excludes the impact of accounting for leases under AASB 16 and one-off transactions such as the sale of properties and non-recurring corporate projects. The reported results for HY21 are shown in Appendix 1, along with a reconciliation to the underlying results

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PAGE 4

Cashflow

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Strong cashflow generation with 1H FY21 operating cashflow of $53.5m, up 222% on 1H FY20

	H1 21	H1 20	Change
Underlying EBITDA1	60.2	31.0	+ 29.2
Increase in working capital	8.3	(4.1)	+ 12.4
Tax payments	(15.0)	(9.9)	- 5.1
Non-cash items	0.1	-	+ 0.1
LTI share rights	(0.1)	(0.4)	+ 0.3
Operating cashflow2 (including lease payments)	53.5	16.6	+ 36.9
Acquisition of property	(6.6)	-	- 6.6
Disposal of property	-	9.8	- 9.8
Other capex	(3.8) (2.4) - 1.4
Dividends	(18.2)	(16.2)	- 2.0
Interest payments	(0.3)	(0.4)	+ 0.1
Net cashflow	24.6	7.4	+17.2

Cashflow commentary

• Threefold increase in operating cashflow, due to increase in EBITDA, negative working capital model and phasing of tax payments

• Retail property purchased in Keswick SA for $6.6m - new Adelaide flagship showroom (due to open February 2021)

• Other capex items focused on new store fit-outs (Castle Hill relocation, Bennetts Green & Wairau Park fit-out), minor store refurbishments (8 showrooms) and DC equipment

• Includes investment in Nick Scali’s online and digital offering

• $0.225 dividend paid in October 2020

• Net increase in cash of $24.6m

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PAGE 5

Balance Sheet

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Net assets of $110.3m at 31 December 2020, prior to adjusting for AASB16

	31 Dec 2020	30 Jun 2020	Change
Assets
Cash 87.6		63.0	+ 24.6
Inventory- In Transit	12.4	7.6	+ 4.8
Inventory- On Hand	28.3	28.7	- 0.4
Property	80.6	74.5	+ 6.1
Plant & Equipment	15.8	15.2	+ 0.6
Other assets	14.0	14.1	- 0.1
Liabilities
Borrowings	33.7	33.7	-
Payables 17.2 18.0 - 0.8
Deferred revenue	50.0	40.2	+ 9.8
Provisions 4.8 4.7 + 0.1
Tax & other financial liabilities 13.2 11.6 + 1.6
Net assets (excl. AASB16) 119.8 94.9 + 24.9
Net lease assets/liabilities (21.7) (19.5) - 2.2
Reported net assets 98.2 75.4 + 22.8

Inventory

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30
Showrooms DCs Transit
Jun
15.1 13.6 7.6
20
31
Showrooms DCs Transit
Dec
16.4 11.9 12.4
20
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Fixed Assets

• Fixed assets includes $80.6m of owned and occupied retail properties recorded at historical cost, including new store in Keswick (SA) purchased for $6.6m in August 2020

Borrowings

• Company borrowings all relate to property acquisitions and funded on a non-recourse basis solely against the property asset, at conservative loan-to-value ratios

Deferred revenue

• In line with growth of the order bank, deferred revenue (representing deposits paid by customers) has increased by over 20% since 30 June

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PAGE 6

Pro perty

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Property portfolio of 37,000sqm which is expected to be further enhanced via expansion and redevelopment opportunities

Location	State/ Territory	Date acquired	Site area (sqm)	NLA (sqm)
Auburn	NSW	December 2017	4,763	5,469
Auburn	NSW	February 2020	1,490	788
Alexandria	NSW	July 2010	1,680	1,680
Caringbah	NSW	July 2014	3,396	2,633
Fyshwick	ACT	November 2012	7,070	4,120*
Nunawading	VIC	September 2014	3,163	2,667
Macgregor	QLD	October 2015	9,701	4,839
Keswick	SA	July 2020	3,582	2,573
Joondalup	WA	March 2015	2,198	2,198
Total			37,043	26,284

Commentary

• 37,000sqm of land held by the group, predominately adjacent to main arterial corridors

• Property held on balance sheet at initial acquisition cost despite

• Development of Fyshwick property expected to commence in H2 FY21

• Currently in project tender phase

• Development approval for expansion of Nick Scali showroom and adjoining tenant/s

• The Company sees scope to further increase the number freehold properties held and enhance the existing portfolio through redevelopment

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PAGE 7

Online & Digital Offering

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Continued growth in the Company’s online offering with $8.8m of written sales orders in 1H FY21

Online Commentary

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• Online sales orders of $8.8m for 1H FY21

• Casegoods continue to represent majority of sales orders

• Average transaction value of $1,900+

• Attractive online gross margin of 66% driven by a shift in the product mix and realisation of efficiencies from the centralised distribution model

• EBIT contribution in excess of $3.5m for 1H FY21[1] , materially ahead of previous guidance of $4m for the full year

• Launch of refreshed Nick Scali transactional online offering to occur in 2H FY21

• Additional categories to launch online only

• Online lounge configuration module to launch in September 2021

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1EBIT contribution defined as gross profit less attributable employment, marketing and general administrative expenditure

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New Zealand Summary

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Strong performance in New Zealand supported by the opening of a flagship showroom in Wairau Park during the half

NZ Sales Order & Sales Revenue Growth (1H FY20 vs 1H FY21)

0% 20% 40% 60% 80% 100% 120% 140%	42% ~~4%~~ 79% 21%
	Sales Orders Sales Revenue Same-store growth Total growth

New Zealand Commentary

• One additional store opened in Wairau Park, New Zealand during the half, taking the total store network in New Zealand to 4 stores

• Average transaction value of $3,000+ for our New Zealand showrooms vs $2,500 in Australia

• New Zealand total written sales orders up 79% against the same comparable period

• Same store sales order growth increased 42% in the 6 months to December 31 2021[1]

• Sales revenue increased 21% despite the impact on deliveries resulting from the various government lockdowns experienced during the first half

• Same store sales revenue growth impacted by government imposed lockdowns in May 2020 which translated to revenue in 1H FY21

• Total store network opportunity of up to 14 stores identified across the North and South Island, supported by Nick Scali’s centralised distribution model

• Scale benefits will be begin to be realised in 2H FY21 as sales orders convert to delivered sales at Wairau Park and contribute positively to EBIT for the Group

• January written sales orders up 130%+ when compared to January 2020

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1Adjusted for COVID19 related closures

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Future Growth

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Nick Scali has several levers to drive sustained revenue and earnings growth

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Store Network

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Growth in the store network with further opportunities to grow targeting at least 85 showrooms across Australia and New Zealand

	Jun 20	Opened	Closed	Dec 20
Nick Scali
Australia	55	1	-	56
New Zealand	3	1	-	4
Total	58	2	-	60

Store network at 31 December 2020

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Two new NSF stores opened in HY21

• Bennetts Green (NSW)

• Wairau Park (New Zealand)

One NSF store relocated in Castle Hill (NSW)

Estimated future showroom growth (by region)

	NSW	VIC	QLD	WA	SA	TAS	NZ	Total
Showrooms	+ 4	+ 5	+ 3	+ 2	+ 1	+ 1	+ 9	+ 25

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Outlook

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Continued trading momentum during January 2021 expected to contribute to further sales revenue growth in 2H FY21

Store Network

• The company expects to open two showrooms in the second half of the financial year, taking new store openings for FY21 to 4 stores

Trading and Profitability

• Sales order growth for the Group in January 2021 was up 47% compared to the same period last year, representing the largest month of written sales orders in the Company’s history. January is traditionally the Company’s largest trading month and the sales order bank at the end of January was at an all time high (further increase on December 2020).

• New Zealand performed particularly well in January with total sales orders up 130% when compared to the prior period.

• The rate of sales revenue growth has been lower than sales orders due to the extended lead times caused by delays in raw materials to our suppliers and shipping issues which continue to be challenging. These supply chain delays make it difficult to accurately predict sales revenue growth for the second half

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Im ortant notice and Disclaimer p

Nick Scali Limited (the “Company”) advises that the information in this presentation contains general background information about the Company’s activities as at the date of the presentation. It is information given in summary form and is based on information available to the Company that has not been independently verified.

The information in the presentation contains forward looking statements which may be subject to uncertainties outside the Company’s control and therefore no representation or warranty, express or implied, is made or given as to the accuracy, reliability or completeness of the information, opinions and conclusions expressed.

The Company disclaims any obligation or undertaking to disseminate updates or revisions to any forward looking statements in this document to reflect any change in expectations in relation to any forward looking statements or any change in events, conditions or circumstances on which any such statement is based.

This presentation should not be relied upon as a recommendation or forecast by the Company.

This document should be read in conjunction with the HY21 Results Announcement and HY21 Appendix 4D.

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APPENDIX Supplementary Information [A]

Appendix A Underlying P&L Reconciliation

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Reconciliation of reported to underlying results presented below

	HY21 Underlying	AASB16	HY21 Reported		HY20 Underlying	AASB16	One-offs	HY20 Reported
Sales revenue	171.1	-	171.1		137.5	-	-	137.5
Cost of sales	(61.6)	-	(61.6)		(51.9)	-	-	(51.9)
Gross profit	109.5	-	109.5		85.6	-	-	85.6
Other income	0.6	-	0.6		0.7	-	1.8	2.5
Operating expenses	(49.9)	16.1	(33.8)		(55.3)	15.5	-	(39.8)
EBITDA	60.2	16.1	76.3		31.0	15.5	1.8	48.3
Depreciation	(2.5)	(13.0)	(15.5)		(2.2)	(12.4)	-	(14.6)
EBIT	57.7	3.1	60.8		28.8	3.1	1.8	33.7
Net interest expense	(0.1)	(2.9)	(3.0)		(0.1)	(3.3)	-	(3.4)
Profit before tax	57.6	0.2	57.8		28.7	(0.2)	1.8	30.3
Taxation	(17.1)	(0.1)	(17.2)		(8.4)	-	(0.5)	(8.9)
Net profit after tax	40.5	0.1	40.6		20.3	(0.2) 1.3		21.4

HY21 results shown in this presentation have been adjusted to exclude the impact of accounting for leases under AASB 16 and one-off transactions such as the sale of properties and non-recurring corporate projects. The reported results for HY21 are shown above, along with a reconciliation of the underlying results shown in this presentation

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