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Georgia Capital Plc CONTENTS
1
Directors’ Report
7
Remuneration Report (audited)
13 Auditor’s Independence Declaration
14 Consolidated Statement of Profit or Loss
15 Consolidated Statement of Other Comprehensive Income
16 Balance Sheet
17 Consolidated Statement of Changes in Equity
18 Consolidated Statement of Cash Flows
19 Notes to the Consolidated Financial Statements
19
19
27
1. Corporate Information
2. Summary of Significant Accounting Policies
3. Significant Accounting Judgements, Estimates
and Assumptions
6. Dividends Paid and Proposed
28 4. Profit from Operations
30 5. Income Tax
31
32 7. Earnings Per Share
32 8. Trade and Other Receivables
33 9. Inventories
33 10. Investment in Associates
14. Financial Assets and Financial Liabilities
35 11. Property, Plant and Equipment
36 12. Intangible Assets
36 13. Trade and Other Payables
37
39 15. Provisions
40 16. Issued Capital
40 17. Reserves
40 18. Cash Flow Information
42 19. Information Relating to HGL Limited (parent)
43 20. Segment Information
44 21. Related Party Disclosures
44 22. Commitments and Contingencies
44 23. Events after the Reporting Period
45 24. Auditors’ Remuneration
45 25. Investment in Controlled Entities
Independent Auditor’s Report
46 Directors’ Declaration
47
49 ASX Additional Information
50
Five Year Summary
51 Corporate Information
HGL Limited Annual Report 2016 1
DIRECTORS’
REPORT
for the year ended 30 September 2016
Your directors submit their report for the year ended 30 September 2016.
Directors
The names and details of the Company’s directors in office during the financial year and until the date of this report are set
out below. Directors were in office for this entire period unless otherwise stated.
Peter Miller, FCA (Chairman)
Non executive Chairman, appointed 2000. Peter is a Chartered Accountant with over 30 years experience in public
practice. He is Chairman of the Nomination and Remuneration Committee, and a member of the Audit Committee.
Dr Frank Wolf, BA (Hons), PhD (Director)
Non executive Director, appointed 2000. Frank has over 30 years experience in strategic planning, financing and corporate
advice. Dr Wolf was appointed Managing Director of the listed Abacus Property Group in 2006. He is Chairman of the
Audit Committee, and a member of the Nomination and Remuneration Committee.
Kevin Eley, CA, F Fin, FAICD (Director)
Non executive Director, appointed 1985. Kevin is a Chartered Accountant with significant executive and director
experience, including as Chief Executive Officer of HGL Ltd from 1985 to 2010. Kevin is a member of the Audit Committee.
He is a director of Milton Corporation Ltd (since December 2011), EQT Holdings Ltd (formerly Equity Trustees Ltd)
(since November 2011) and Hunter Hall International Ltd (since September 2015), and was a director of Kresta Holdings Ltd
between April 2011 and February 2014 and Po Valley Energy between June 2012 and April 2016.
Julian Constable (Director)
Non executive Director, appointed 2003. Julian has 30 years experience in the stockbroking industry, and is an authorised
representative of Bell Potter Securities Ltd. He is a member of the Nomination and Remuneration Committee. Julian is a
director of Hunter Hall Global Value Limited (since May 2010).
Interests in the shares and options of the Company and related bodies corporate
As at the date of this report, the interests of the directors in the shares and options of HGL Limited were:
Peter Miller
Dr Frank Wolf
Kevin Eley
Julian Constable
Number of
direct shares
Number of
indirect shares
48,694
11,835,015
–
–
721,038
854,258
200,000
5,907,534
Key Management Personnel
The following names and details are of the key management personnel of the Company. Key management personnel were
in office for the entire period unless otherwise stated.
Chief Executive Officer
Henrik Thorup, BSc (Econ), GAICD
Appointed CEO in 2013, Henrik has over 20 years experience in CEO and other senior executive roles across a number
of businesses, including Pandora Jewellery, Nilfisk and ISS Facility Service.
Chief Financial Officer & Company Secretary
Iain Thompson, BEc (Accg), Grad Dip CSP, FGIA, GAICD
Appointed CFO / Company Secretary in 2015, Iain has 20 years experience in finance and company secretarial roles, the
most recent being at Brickworks Ltd. He also has directorship experience in the Not For Profit sector, focussing on early
childhood intervention.
HGL Limited Annual Report 2016 2
DIRECTORS’
REPORT
continued
Chief Operating Officer (until 5 February 2016)
Julian Pidcock, BSc
Appointed COO in 2013, Julian has more than 20 years executive management and business development experience
with leading global corporations including Nestle, Pizza Hut and McPherson’s Consumer Products.
Julian was appointed to the role of CEO of Hamlon Pty Ltd (SPOS) on 5 February 2016 and ceased to be a KMP
of the Company on that date.
Dividends
The Directors have declared a final dividend of 1.5 cents per share fully franked. The record date for the dividend will
be 10 January 2017, with a payment date of 24 January 2017.
Dividends paid since the end of the previous financial year were as follows:
Interim dividend for the current year on ordinary shares
Final dividend for the previous year on ordinary shares
All dividends declared or paid are fully franked at 30%
Payment Date
19/07/16
18/12/15
Cents
1.00
1.50
$000
549
810
Dividend Reinvestment Plan
The Dividend Reinvestment Plan (DRP) was established by the directors to provide shareholders with the opportunity of
reinvesting their dividends in ordinary shares in the Company. No brokerage is payable if shares are allotted under the DRP.
During the year the total number of shares issued under the DRP was 1,701,908 (2015: NIL).
Share buy-back
The Company operates an unlimited duration on-market share buy-back. No ordinary shares were acquired pursuant
to the on-market buy-back during the current and prior years.
Principal Activities
The principal activity during the year of the entities within the consolidated group was the distribution of branded products.
Operating And Financial Review
Summary
– Group sales revenue increased by 5% to $68.0 million.
– Sales revenue from wholly owned businesses of $52.2 million
– Statutory profit $4.3 million, increase of 15.9% on prior period.
– Underlying net profit after tax $3.0 million, up 15.0%
– Cash on hand of $5.6 million, and net cash of $3.8 million
–
Final dividend of 1.5 cents per share, full year dividend 2.5 cps, up 67%
Overview
For the 2016 financial year, HGL reports an increase of 15.0% in underlying net profit after tax to $3.0 million. Statutory
Profit of $4.3 million is up from $3.7 million in the prior period. The statutory profit includes the re-recognition of $1.5 million
in previously derecognised deferred tax assets.
Total Group revenue, including Mountcastle, increased by 5% to $68.0 million. Four of our six businesses had revenue
equal to or above last year generating an increase in revenue of $5.3 million or 11.2%. JSB Lighting increased $2.2m,
Mountcastle increased $2.7m, Biante increased $0.4m and SPOS remained static. Two businesses did not achieve an
increase in revenue with BLC Cosmetics declining by $0.6m and Leutenegger declining by $1.8m. Sales revenue of the
wholly owned businesses was $52.2 million.
HGL Limited Annual Report 2016 3
The overall gross margin was stable at 44.9% (2015: 44.7%), despite cost inflations and foreign exchange rate movements.
Operating expenses were consistent with the prior period at $21.6 million, including investment in training programs and
extra sales personnel in several business units. Head office savings of $0.6 million from restructuring activities were offset
by investment in our start-up venture Nido Interiors during the year.
The improvement in underlying profit after tax reflects the early stage sales growth performance with strong gross margin
and stable expenses achieved through the continued successful implementation of our Growth, Profit and Sustainability
(GPS) Strategy Plan.
Throughout the 2016 financial year strong working capital management discipline remained a high focus. Trade debtors
are up by $1.2 million due to increased sales in the 4th quarter of the 2016 financial year. Inventory levels were up on last
year, as discontinued and slower moving stock lines were cleared for new range products. Trade creditors were reduced
by $0.4 million compared to last year to ensure that key supplier payment terms are met, while building longer term
partnership loyalty.
Dividend
The Directors have declared a final dividend of 1.5 cents per share fully franked, taking the full year dividend to 2.5 cents
per share (2015: 1.5 cents per share). The record date for the dividend is 10 January 2017, with payment to be made on
24 January 2017.
The dividend reinvestment plan will continue to be available to all shareholders with no discount.
Corporate Strategy and Operational Priorities
All business units, except the Nido Interiors start-up venture, are contributing to Group earnings. HGL is now moving into
the next growth and development phase of the GPS Strategy Plan, positioning the Group for stronger and sustainable
revenue growth to enhance future earnings and shareholder returns.
The operational activity plans in the growth and development phase are designed to deliver against six strategic objectives:
Expand product portfolio:
The Group targets organic revenue growth of 10% per annum. Three out of six business units achieved sales revenue
growth above this target in 2016.
In the past twelve months the Group introduced 3 new brands contributing to revenue growth. Exclusive rights for four
additional brands have been secured, with plans to launch in late 2016.
Superior sales execution:
Dedicated development activities has been implemented to improve the effectiveness of field sales operations, combined
with investments in additional sales force personnel across the group.
HGL maintained the same number of total employees in 2016 as in prior period, but has increased the number of client
facing positions, while reducing the number of back office positions. At year-end 59% of total staff were employed in sales
and marketing positions compared to 48% in the prior period.
Develop intellectual property:
The intellectual property (IP) development strategy varies in each business unit. Leutenegger, Nido Interiors, Biante,
Mountcastle and SPOS Group each have a high concentration of owned brands in their product portfolio and are focused
on developing innovative and competitive product lines with IP rights. JSB Lighting and BLC Cosmetics predominantly
promote exclusive agency brands in their product portfolio.
HGL’s group objective is a total split of 50% agency products and 50% owned product lines. Currently around 30%
of Group sales is derived from owned IP products and is growing year on year.
Reduce operational complexity:
Throughout the year several optimisation projects were completed to elevate operational efficiency, improve controls
and reduce expenses.
Our Macquarie Park facility, shared by SPOS Group, Leutenegger, Nido Interiors, JSB Lighting and HGL head office, has
provided opportunity for further integration of warehouse operations. In October 2016 the Biante warehouse relocated
from Perth to Macquarie Park.
During the year the consolidation of finance and administration departments enabled shared service functionality and cost
savings for multiple business units. The previously announced relocation and restructure of the HGL head office generated
operational cost savings of $0.6 million in 2016.
HGL Limited Annual Report 2016 4
DIRECTORS’
REPORT
continued
Integrate business technology:
Our continuous improvement programs incorporate the redesign of business processes and integration of uniform
information technology, where possible.
Over the past twelve months the implementation of the NetSuite enterprise resource planning system (ERP) has occurred
in Nido Interiors and Biante with plans to transition Leutenegger to the same platform in 2017. Four out of seven business
units will operate on the NetSuite platform.
Increase employee engagement:
General employee satisfaction and work place welfare are an important element in the sustained improvement in business
unit performance.
Employee engagement levels are surveyed every year and employee net promotor scores (E-NPS) are benchmarked to
develop retention strategies and staff development activities. Business unit managers are expected to achieve continually
improved E-NPS scores. Improved engagement scores were recorded in three business units directly related to dedicated
development programs rolled out this year.
Business Unit Review
Biante produce, import and distribute scale model replica cars in diecast and resin formats, sold to motoring enthusiasts,
supercar fans and classic car collectors in Australia.
Biante achieved an 8% increase in revenue, selling in excess of 45,000 units during the year. The increased volume was
generated by delivering the planned annual production schedule on time and releasing several delayed models from last
year. The company achieved EBIT to sales ratio of 5.6% in line with prior period contributing positive earnings to the Group.
Biante has signed a new exclusive partnership agreement with DJR Team Penske V8 Supercar team, allowing production
of selected Ford models in special liveries used in races during the 2016 season. In October 2016 the Tekno Racing Team
won the Bathurst 1000 and Biante will, for the first time in many years, be releasing a Bathurst winner in 2017 across
4 scales.
BLC Cosmetics import and distribute high quality skincare products, devices and nutritional supplements to beauty
salons, spa and wellness centres as well as skincare clinics in Australia.
BLC Cosmetics experienced a difficult year with revenue declining 8.8% compared to last year. The company increased
sales of its new Alpha-H, Issada and Lightstim brands launched in 2015, however, the Thalgo brand contributed lower
sales than expected with limited new product releases. Despite the overall revenue decline, the company lifted its gross
margin level and reduced expenses through efficiency gains, doubling its EBIT result compared to last year, which is an
encouraging result.
BLC Cosmetics is increasing its brand portfolio. The company has secured the exclusive distribution rights to the Comfort
Zone brand, which was launched in March 2016. A new General Manager was appointed in October 2016.
JSB Lighting is a leading supplier of commercial lighting products within the Australian and New Zealand interior design
and architectural lighting markets.
JSB Lighting continued its solid performance achieving revenue growth of 11.4% to $22.0 million on the back of significant
revenue growth last year. The company has successfully delivered on its core objective of expanding market share with
specific geographical emphasis on Sydney, Melbourne, Brisbane and Perth. The positive revenue result, achieved with
solid gross margins and managed expenditure, generated a strong EBIT to sales ratio of 17.3%.
JSB Lighting is further developing its product range. The addition of the new Lumio brand will complement its existing
architectural lighting portfolio. The company has employed five additional sales executives and opened new sales offices
in Auckland and Christchurch to expand its presence in New Zealand. The additional business development investment
is expected to contribute positively to the continued expansion of JSB Lighting in 2017.
Leutenegger and Nido Interiors design, manufacture and promote a premium portfolio of fabrics, contemporary craft
products, homewares and soft furnishing ranges.
Leutenegger continues to re-engineer its business model, rationalising unprofitable product lines and concentrating
on Australian content and own designed product ranges.
Leutenegger has secured new business development projects underpinning revenue growth opportunities in 2017.
In October 2016 the company delivered a new design and merchandising solution for needlecraft products in Spotlight
stores around the country. Furthermore, Leutenegger has obtained exclusive rights for the Florence Broadhurst
craft fabric designs and other fabric ranges made by renowned Australian quilt designers. Leutenegger is expected
to generate organic sales growth in 2017 based on these business development opportunities and the completion
of product rationalisation.
HGL Limited Annual Report 2016 5
After a twelve months start-up period, Nido Interiors is now promoting soft furnishing product lines under its own
One-Duck-Two brand and other private label brands to major homewares retailers, specialist retailers and online sites,
independent and department stores.
Combined, Leutenegger and Nido saw an 18.8% reduction in sales revenue from the prior period, negatively impacted
by deliberate product rationalisation, although this was partly offset by improved gross margins and a continued reduction
of its expense base.
SPOS Group is a retail marketing business selling tailored retail display solutions in Australia and New Zealand.
The SPOS Group achieved sales revenue of $10.0 million in line with prior period. The company continues to execute its
refocused business strategy of selling standard off-the shelf products and custom work to brand owners and national
retailers. The business is now stabilised with healthy gross margins and controlled expenses delivering an EBIT to sales
ratio of 4.0%.
Off-the-shelf product sales now account for 73% of total revenue. SPOS Group has won new projects with Coles and Aldi
supermarkets and convenience stores in Australia as well as new custom work in New Zealand. The subsidiary in New
Zealand is expanding its pipeline of work and is expected to contribute incremental revenue growth in 2017.
Mountcastle, our 50% owned company, is a manufacturer and distributor of uniforms, headwear and bags to public and
private schools, government and corporate clients in Australian and overseas.
Mountcastle continued its strong growth performance increasing sales revenue by 20.9% to $15.9 million The company
increased its market share in the private school uniform and bag market. The partnership with The School Locker
contributed significant uplift in public school uniform sales to circa $3.0 million, up from $0.7 million in the prior period.
Based on the positive revenue result, Mountcastle increased its EBIT by 12.5% in 2016.
Mountcastle is expanding its manufacturing capacity to manage the increase demand and sales volumes in both private
and public school uniforms. The company has established a new manufacturing facility in Vietnam to produce the
required product lines. Refurbishment of existing and new investment in additional production lines in Sri Lanka has
been completed in 2016.
People and the Environment
HGL is committed to supporting our employees to reach their full potential. We continue to invest in leadership,
talent management programs and staff training in our ongoing efforts to develop high performing teams. The board
acknowledges and thanks our employees for their effort and contribution throughout the year.
Cash Flow
Cash on hand at 30 September 2016 was $5.6 million, with bank borrowings of $1.8 million. The current facility remains
with a limit of $2.8 million, providing the group with capacity to fund growth initiatives.
Cash from operations was $0.1 million at 30 September 2016, with working capital increases across a number of areas.
Trade debtors increased from strong Q4 sales, plus the receipt on 30 September 2015 of a $1.0 million debtor payment
ahead of terms. Inventory volumes were marginally up on the prior year, however the carrying value increased as slow
moving line items were cleared and replaced by current range products. A conscious effort was also made to reduce
outstanding creditor balances as cash flows improved from the previous year.
Balance Sheet
The net assets of the group have increased by $3.8 million to $26.3 million during the year. The increase in net assets
was largely due to the increase in working capital to support sales growth. An ongoing focus on working capital levels,
and improved operational efficiencies, should result in a reduction of working capital in future periods.
The strength of the profit performance also resulted in the re-recognition of $1.5 million in deferred tax assets that had
been written off in prior periods.
Net tangible assets increased 8.1% to 29.0 cents per share.
Executive Incentive Plan
The Board is completing an executive incentive scheme for selected HGL executives. The scheme is designed to retain
senior management and reward shareholder value creation through achieving defined financial objectives measured on
an annual basis.
HGL Limited Annual Report 2016 6
DIRECTORS’
REPORT
continued
Risk Management
The achievement of our business objectives in HGL may be affected by internal and external incidents potentially impacting
the operational and financial performance of the business. The Group has developed an Enterprise Risk Management
and Reporting System, which identifies strategic and operational risks and specifies mitigation actions. Dedicated risk
mitigation actions, executed in each business unit, are reported quarterly to the HGL board and monitored accordingly.
Key risks for the Group include:
Currency risk – Exposure to foreign currency fluctuations (predominantly USD and Euro) is mitigated through the use
of hedging structures, and adjusting selling prices for drops in exchange rates on key contracts.
Supplier risk – Reliance on a small number of key suppliers is being managed through the use of distribution agreements
for key suppliers, ongoing development of long term supplier relationships, and the use of complimentary product range
brands to decrease percentage contribution from important suppliers.
Financing risk – Access to funding for working capital and growth initiatives is important for future growth. Transparent
and positive relationships with lenders, low debt levels, and utilisation of alternative funding sources will provide mitigation
of this risk.
WH&S risk – The HGL Group is committed to ensuring the work health and safety (WH&S) of its employees, customers
and the general public. Wherever possible manual handling is reduced or eliminated, and training is made available to staff
on safety related matters.
Although we have little exposure to environmental risks, we strive to be environmentally friendly and embrace technologies
and processes that limit environmental impact.
Board Appointment
After an independent search, the Board has approved the appointment of an additional Non-Executive Director with
a sales and marketing background. Cheryl Hayman will join the Board effective 1 December 2016, bringing extensive
strategic and marketing experience to further strengthen the future of the company.
Cheryl will retire at the 2017 Annual General Meeting in accordance with the HGL Ltd Constitution, and will seek re-election
from shareholders.
Outlook
It has been another transformative year for HGL, with the company continuing to make solid progress against its Growth,
Profit and Sustainability (GPS) strategy plan. Delivering a second year of consecutive earnings improvement, after a phase
of rebuilding its foundations, the Group is now fully focussed on growing revenue and increasing profitability.
The Board is confident in the positive outlook of the Group, albeit the continued low consumer environment prevailing,
which is underpinned by the continuing successful execution of the strategy plan and taking advantage of new growth
opportunities with clear operational plans.
Significant Changes in the State of Affairs
There have been no significant changes in the state of affairs of the Group during the year other than those referred
to in the Operating and Financial Review.
Significant Events after the Balance Date
There have been no significant events occurring after the balance date which may affect either the Group’s operations
or results of those operations or the Group’s state of affairs.
Likely Developments and Expected Results
Likely developments in the operations of the Group are detailed in the Operating and Financial Review.
HGL Limited Annual Report 2016 7
Remuneration Report (audited)
The remuneration report provides an overview of the Group remuneration policies and practices and explains the
links between rewards and Company performance. The report also gives detailed information about the remuneration
arrangements for the key management personnel of the Company. The remuneration report has been audited.
Details of Key Management Personnel
Key Management Personnel (KMP) are those individuals with authority and responsibility for planning, directing and
controlling the major activities of the Group, directly or indirectly including any director of the parent. The list below
outlines the KMP of the Group during the financial year ended 30 September 2016. Unless otherwise indicated, the
individuals were KMP for the entire financial year.
Directors
Peter Miller
Dr Frank Wolf
Kevin Eley
Julian Constable
Executives
Henrik Thorup
Iain Thompson
Julian Pidcock
Non-Executive Chair
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer & Company Secretary
Chief Operating Officer (ceased as KMP on 5 February 2016)
Remuneration Governance
Remuneration Committee
The Board has an established Nomination and Remuneration Committee which operates under the delegated authority
of the Board of Directors. A summary of the Committee charter is included on the HGL website. Membership of the
Committee is as follows:
Peter Miller
Julian Constable
Dr Frank Wolf
Non-Executive Chair
Non-Executive Director
Non-Executive Director
The main remuneration functions of the Committee are to assist the Board by making recommendations on:
1. executive remuneration and incentive policies;
2. remuneration packages of senior management, including incentive schemes and superannuation arrangements;
3. recruitment, retention and termination policies for senior management;
4. remuneration framework for directors; and
5. statutory reporting on remuneration.
The Committee is authorised by the Board to obtain external professional advice, and to secure the attendance
of outsiders with relevant experience and expertise if it considers this necessary.
HGL Limited Annual Report 2016
8
DIRECTORS’
REPORT
continued
Remuneration Report (audited) (continued)
Use of Remuneration Consultants
Where the Nomination and Remuneration Committee will benefit from external advice, it will engage directly with a
remuneration consultant, who reports directly to the Committee. In selecting a suitable consultant, the Committee
considers potential conflicts of interest and requires independence from the Group’s KMP and other executives as part
of their terms of engagement.
During the financial year, the Committee approved the engagement of Guerdon’s Associate Pty Ltd (Guerdons) as
remuneration consultants to provide information regarding potential short term and long term incentive schemes for
senior executives. The fees paid to Guerdons for the remuneration recommendations were $27,420.
Remuneration recommendations were provided to the Committee as an input into decision making only. The Committee
considered the recommendations in conjunction with other factors in making its remuneration determinations.
The Committee is satisfied the advice received from Guerdons is free from undue influence from the KMP to whom the
remuneration recommendations apply, as Guerdons were engaged by, and reported to, the Chair of the Nomination
and Remuneration Committee.
Executive Remuneration Arrangements
Principles of Remuneration
The Group’s executive remuneration strategy seeks to match the goals of the KMP to those of the shareholders. This is
achieved through combining market levels of guaranteed remuneration with incentive payments. These incentive payments
are only paid on attainment of previously agreed performance targets.
Remuneration packages are reviewed with due regard to performance and other relevant factors. In order to retain and
attract executives of sufficient calibre to facilitate the effective and efficient management of the Company’s operations the
Nomination and Remuneration Committee, when necessary, seeks the advice of external advisers in connection with the
structure of remuneration packages.
Components of Remuneration
Not at Risk Remuneration
Base remuneration is structured as a total employment package paid in cash and benefits at the executive’s discretion and
includes superannuation contributions. Base remuneration is reviewed but not necessarily increased each year. The base
remuneration is at market rates for the role and the individual. Total remuneration above the market rate can be achieved
through the attainment of previously agreed performance targets.
Long term employee benefits is the amount of long service leave entitlements accrued during the year.
At Risk Remuneration
There was no formal incentive scheme in place during the 2016 financial year. The Nomination and Remuneration
Committee has reviewed the performance of the KMP employed as at 30 September 2016, and short term incentives
totalling $110,000 were approved on 25th October 2016 in relation to performance during the 2016 financial year. This
amount has been accrued at balance date, however payment of cash incentives is not made until following completion
of the audit for the relevant financial year.
Short term incentives totalling $162,000 were paid in relation to the 2015 financial year.
During the financial year the Nomination and Remuneration Committee obtained advice in relation to potential formalised
incentive plans for the 2017 financial year and beyond. The Committee is in the process of finalising these plans, and will
seek shareholder approval if required.
Employment Contracts
Terms of employment are formalised in employment letters to each of the KMP. There are no fixed term contracts in
place, however personnel must give a minimum notice period. The CEO has a twelve month notice period, and the
CFO has a three month notice period. The payment of any termination benefit is at the discretion of the Nomination
and Remuneration Committee.
HGL Limited Annual Report 2016 9
Percentage
variable
remuner-
ation
%
Total
$
Executive & Board Remuneration
Short term benefits
Salary
& fees
$
Short term
bonus
$
Non
monetary
benefits
$
Post
employment
benefits
Annual
leave
$
Super-
annuation
$
Long term benefits
Long
service
leave
$
Termination
payments
$
Long
term
incentives
$
2016
Directors
Peter Miller
Dr Frank Wolf
100,457
63,927
Julian Constable
54,795
Kevin Eley
54,795
Total Directors
273,974
Executives
Total KMP
remuneration
2015
Directors
Peter Miller
Dr Frank Wolf
100,457
63,927
Julian Constable
54,795
Kevin Eley
54,795
Total Directors
273,974
Executives
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,543
6,073
5,205
5,205
26,026
–
–
–
–
–
–
–
–
–
–
–
–
–
7,653
–
3,835
–
–
–
–
–
–
–
–
110,000
70,000
60,000
60,000
300,000
–
–
–
–
–
616,673
13.0
119,687
303,066
–
9.9
Henrik Thorup
455,000
80,000
12,097
36,923
25,000
Julian Pidcock(1)
107,642
–
Iain Thompson(2)
230,615
30,000
–
–
3,144
8,901
19,231
19,385
Total executives
793,257 110,000
12,097
59,298
53,286
– 11,488
– 1,039,426
1,067,231 110,000
12,097
59,298
79,312
– 11,488
– 1,339,426
Short term benefits
Salary
& fees
$
Short term
bonus
$
Non
monetary
benefits
$
Post
employment
benefits
Annual
leave
$
Super-
annuation
$
Long term benefits
Long
service
leave
$
Termination
payments
$
Long
term
incentives
$
Percentage
variable
remuner-
ation
%
Total
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,543
6,073
5,205
5,205
26,026
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,672
5,174
–
–
–
–
–
–
–
110,000
70,000
60,000
60,000
300,000
643,490
374,288
–
142,692
346,836
–
–
–
–
15.5
11.2
–
1,601
–
132,823
15.0
Henrik Thorup
455,000 100,000
18,895
36,923
25,000
Julian Pidcock(1)
278,749
42,000
Andrew Whittles(3)
184,144
–
Iain Thompson(2)
95,320
20,000
–
–
–
23,365
25,000
–
20,000
7,944
7,958
Total Executives 1,013,213 162,000
18,895
68,232
77,958
– 14,447
142,692 1,497,437
Total KMP
remuneration
1,287,187 162,000
18,895
68,232
103,984
– 14,447
142,692 1,797,437
(1) J Pidcock ceased as KMP from 5 February 2016, however remained employed in the HGL Group. Remuneration information shown
covers the period he was considered a KMP
(2) I Thompson commenced employment on 5 May 2015 and become a KMP from 29 May 2015
(3) A Whittles ceased employment on 29 May 2015. Termination benefits include payment of accrued leave entitlements
HGL Limited Annual Report 2016 10
DIRECTORS’
REPORT
continued
Remuneration Report (audited) (continued)
Relationship between the Remuneration Policy and Company Performance
Short term incentives are largely determined by the profits of the Group so aligning the incentive of the executive with the
creation of value for the HGL shareholders. No portion of any incentive schemes are solely linked to the HGL share price.
Instead incentives are based primarily on underlying profit as an increase in the underlying profit leads to an increase in the
dividend. Underlying Profit is a non-statutory measure designed to reflect statutory profit excluding the effect of irregular
transactions that are not part of the core or ongoing business operations. A reconciliation of statutory net profit after tax
to underlying profit is shown in Note 4.5 of the financial statements. The Board is focused on increasing shareholder value
through increasing dividends.
The following table shows a number of relevant measures of Group performance over the past five years. A detailed
discussion on the current year results is included in the review of operations and is not duplicated in full here, however an
analysis of the figures below illustrates the stabilisation of performance over the last four years, including the divestment
of under-performing businesses. The last two years particularly show a return to profitability for the group before non-
underlying items. There were no incentive payments made for the financial years ended 30 September 2012 to 2014,
with the exception of a payment to Mr Thorup in 2013 for the achievement of specific elements of the strategic plan.
Total Revenue ($000)
Underlying profit ($000)
Net profit after tax ($000)
Share price at year end ($)
Underlying Earnings Per Share (cents)
Dividends – ordinary shares (cents)
2012
2013
2014
2015
2016
118,237
68,986
(457)
(4,601)
0.545
(0.9)
6.0
(421)
(8,772)
0.525
(0.8)
4.0
50,771
533
(21,430)
0.490
1.0
2.0
52,000
52,252
2,615
3,722
0.360
4.8
1.5
3,008
4,313
0.445
7.9
2.5
Non-executive Director Remuneration Arrangements
The remuneration of non-executive Directors is determined by the full Board after consideration of Group performance
and market rates for Directors’ remuneration. Non-executive Director fees are fixed each year, and are not subject to
performance-based incentives. Non-executive directors are not employed under employment contracts.
The maximum aggregate level of fees which may be paid to non-executive directors is required to be approved
by shareholders in a general meeting. This figure is currently $500,000, and was approved by shareholders at the
Annual General Meeting on 5 February 2008.
Key Management Personnel Shareholdings
The key management personnel and their relevant interest in the fully paid ordinary shares of the Company as at year end
are as follows:
30 September 2016
Opening Balance
DRP shares
Purchases
Disposals
Closing balance
Indirect Holding
Executive directors
Peter Miller
Dr Frank Wolf
Kevin Eley
Julian Constable
Senior executives
Henrik Thorup
Iain Thompson
Julian Pidcock(1)
11,271,452
612,257
721,038
809,872
5,725,625
–
44,386
310,736
–
–
–
–
123
–
–
–
–
71,173
–
5,200
–
–
–
–
–
–
–
–
11,883,709
11,835,015
721,038
854,258
721,038
854,258
6,107,534
5,907,534
–
5,323
–
–
–
–
(1) Ceased to be a Key Management Person in February 2016
End of Remuneration Report
HGL Limited Annual Report 2016 11
Indemnification and Insurance of Directors and Officers
During the year, the Company purchased Directors’ and Officers’ Liability Insurance to provide cover in respect of claims
made against the directors and officers in office during the financial year and at the date of this report, as far as is allowable
by the Corporations Act 2001. The policy also covers the Company for reimbursement of directors’ and officers’ expenses
associated with such claims if the defence to the claim is successful. The total amount of insurance premium paid and the
nature of the liability are not disclosed due to a confidentiality clause within the agreement. As at the date of this report, no
amounts have been claimed or paid in respect of this indemnity and insurance, other than the premium referred to above.
The Company’s Rules provide for an indemnity of Directors, executive officers and secretaries where liability is incurred
in connection with the performance of their duties in those roles other than as a result of their negligence, default, breach
of duty or breach of trust in relation to the Company. The Rules further provide for an indemnity in respect of legal costs
incurred by those persons in defending proceedings in which judgement is given in their favour, they are acquitted or the
Court grants them relief.
Indemnification of Auditors
To the extent permitted by law, the Company has agreed to indemnify its auditors, Deloitte Touche Tohmatsu, as part
of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified
amount). No payment has been made to indemnify Deloitte Touche Tohmatsu during or since the financial year.
Auditor Independence and Non-Audit Services
The directors have received a declaration from the auditor of HGL Limited. This has been included on page 13.
No other material services were provided by the auditor during the year.
Options
During the 2015 financial year, options over 4,350 unissued ordinary shares in Nido Interiors Pty Ltd (Nido) were granted to
CMK Home Designs Pty Ltd (CMK). If the options are exercised, Nido will issue 4,350 ordinary shares at 10c per share to
CMK. The option expires in November 2019, and does not give rights to CMK to participate in any share issue or interest
in other group entity. All options remained outstanding at the date of this report.
No other options over unissued shares or interests in HGL Limited or a controlled entity were granted during or since the
end of the financial year and there were no other options outstanding at the date of this report. No shares or interests have
been issued during or since the end of the year as a result of the exercise of any option over unissued shares or interests
in HGL or any controlled entity.
Directors’ Meetings
The number of meetings of directors (including meetings of committees of directors) held during the year and the number
of meetings attended by each director were as follows:
Number of meetings held:
Number of meetings attended:
Peter Miller
Dr Frank Wolf
Kevin Eley
Julian Constable
Meetings of committees
Directors’
meetings
Audit
Nomination and
Remuneration
11
11
11
11
11
3
3
3
3
N/A
3
3
3
N/A
3
HGL Limited Annual Report 2016 12
DIRECTORS’
REPORT
continued
Corporate Governance
The Company’s Corporate Governance Statement for the year ended 30 September 2016 is effective 22 November 2016
and was approved by the Directors on 22 November 2016. The Corporate Governance Statement is available on the HGL
Ltd website at www.hgl.com.au/about/corporate-governance.
Rounding
The amounts contained in the financial report have been rounded to the nearest $1,000 (where rounding is applicable)
where noted ($000) under the option available to the Company under ASIC Class Order 98/0100. The Company is an
entity to which the class order applies.
Signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001.
On behalf of the Directors
Peter Miller
Chairman
Sydney, 22 November 2016
Dr Frank Wolf
Director
HGL Limited Annual Report 2016
AUDITOR’S INDEPENDENCE
DECLARATION
13
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
Phone: +61 2 9322 7000
www.deloitte.com.au
22 November 2016
Independent Auditor’s Report
to the Shareholders of HGL Limited
Report on the Financial Report
The Board of Directors
HGL Limited
We have audited the accompanying financial report of HGL Limited, which comprises the
Level 2
statement of financial position as at 30 September 2016, the statement of profit or loss,
68-72 Waterloo Road
the statement of comprehensive income, the statement of cash flows and the statement
MACQUARIE PARK NSW 2113
of changes in equity for the year ended on that date, notes comprising a summary of
significant accounting policies and other explanatory information, and the directors’
declaration of the consolidated entity, comprising the company and the entities it
controlled at the year’s end or from time to time during the financial year as set out on
pages 14 to 46.
Dear Board Members
Directors’ Responsibility for the Financial Report
HGL Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
The directors of the company are responsible for the preparation of the financial report
declaration of independence to the directors of HGL Limited.
that gives a true and fair view in accordance with Australian Accounting Standards and
As lead audit partner for the audit of the financial statements of HGL Limited for the financial year ended 30
the Corporations Act 2001 and for such internal control as the directors determine is
September 2016, I declare that to the best of my knowledge and belief, there have been no contraventions
necessary to enable the preparation of the financial report that gives a true and fair view
of:
and is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of
(i)
Financial Statements,
financial statements comply with
International Financial Reporting Standards.
(ii)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
any applicable code of professional conduct in relation to the audit.
the consolidated
that
Auditor’s Responsibility
Yours faithfully
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. Those standards
require that we comply with relevant ethical requirements relating to audit engagements
and plan and perform the audit to obtain reasonable assurance whether the financial
DELOITTE TOUCHE TOHMATSU
report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
Tara Hill
disclosures in the financial report. The procedures selected depend on the auditor’s
Partner
judgement, including the assessment of the risks of material misstatement of the
Chartered Accountants
financial report, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control, relevant to the company’s preparation of the financial
report that gives a true and fair view, 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 company’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the
financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Member of Deloitte Touche Tohmatsu Limited
Liability limited by a scheme approved under Professional Standards Legislation.
60
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
HGL Limited Annual Report 2016
14
CONSOLIDATED STATEMENT
OF PROFIT OR LOSS
for the year ended 30 September 2016
Sales revenue
Cost of sales
Gross profit
Other income
Sales, marketing and advertising expenses
Occupancy expenses
Freight and distribution expenses
Administration and other expenses
Finance costs
Share of profit of an associate
Profit before tax
Income tax benefit
Profit for the year
Attributable to:
Equity holders of the Parent
Earnings per share
Basic
Diluted
Notes
4.1
4.4
4.3
10
5
Consolidated entity
2016
$’000
52,252
(28,792)
23,460
103
(9,232)
(1,404)
(2,495)
(8,459)
(133)
957
2,797
1,516
4,313
2015
$’000
52,000
(28,781)
23,219
189
(8,063)
(1,266)
(2,472)
(8,994)
(211)
772
3,174
548
3,722
4,313
3,722
Cents
Cents
7
7
7.9
7.9
6.9
6.9
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2016
CONSOLIDATED STATEMENT OF
OTHER COMPREHENSIVE INCOME
for the year ended 30 September 2016
Profit for the year
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss in subsequent periods
(net of tax):
Exchange differences on translation of foreign operations
Net other comprehensive income to be reclassified to profit or loss
in subsequent periods
Total comprehensive income for the year, net of tax
Total comprehensive income attributable to:
Equity holders of the Parent
15
Consolidated entity
2016
$’000
2015
$’000
4,313
3,722
32
32
23
23
4,345
3,745
4,345
4,345
3,745
3,745
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2016 16
BALANCE SHEET
as at 30 September 2016
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Total current assets
Non current assets
Investment in associates
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing loans and borrowings
Provisions
Income tax payable
Total current liabilities
Non-current liabilities
Provisions
Total non current liabilities
Total liabilities
Net assets
Equity
Issued capital
Other capital reserves
Accumulated losses
Total equity
These statements should be read in conjunction with the accompanying notes.
Notes
Consolidated entity
2016
$’000
2015
$’000
18
8
9
10
11
12
5
13
14
15
15
16
17
5,626
9,137
5,813
1,180
4,683
7,954
5,223
1,451
21,756
19,311
4,852
1,410
10,166
2,065
18,493
40,249
8,386
1,800
2,560
–
4,444
918
10,166
611
16,139
35,450
8,763
–
2,606
63
12,746
11,432
1,188
1,188
13,934
26,315
37,582
(1,046)
(10,221)
26,315
1,469
1,469
12,901
22,549
36,802
(1,078)
(13,175)
22,549
HGL Limited Annual Report 2016 CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 30 September 2016
For the year ended 30 September 2016
As at 1 October 2015
Shares issued under Dividend Reinvestment Plan
Costs associated with issues of shares
Profit for the year
Translation of overseas controlled entities
Total comprehensive income
Dividend paid (Note 6)
As at 30 September 2016
For the year ended 30 September 2015
As at 1 October 2014
Profit for the year
Translation of overseas controlled entities
Total comprehensive income
Transfer (to)/from Retained earnings
As at 1 October 2015
17
Total equity
$’000
Attributable to the equity holders of the parent
Retained
earnings/
(Accum.
losses)
$’000
Foreign
Currency
Reserve
(Note 17)
$’000
Other
Reserve
(Note 17)
$’000
Issued
capital
(Note 16)
$’000
36,802
(177)
(901)
(13,175)
22,549
786
(6)
–
–
–
–
–
–
–
32
32
–
–
–
–
–
–
–
–
–
786
(6)
4,313
4,313
–
32
4,313
4,345
(1,359)
(1,359)
37,582
(145)
(901)
(10,221)
26,315
Attributable to the equity holders of the parent
Issued
capital
(Note 16)
$’000
Foreign
Currency
Reserve
(Note 17)
$’000
Employee
Share
Scheme
Reserve
(Note 17)
$’000
Other
Reserve
(Note 17)
$’000
Retained
earnings/
(Accum.
losses)
$’000
Total equity
$’000
36,802
(200)
2,442
(901)
(19,339)
18,804
–
–
–
–
–
23
23
–
–
–
–
(2,442)
–
–
–
–
3,722
3,722
–
3,722
2,442
23
3,745
–
36,802
(177)
–
(901)
(13,175)
22,549
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2016 18
CONSOLIDATED STATEMENT
OF CASH FLOWS
for the year ended 30 September 2016
Operating activities
Cash receipts in the course of operations
Cash payments in the course of operations
Interest received
Interest paid
Dividends received from associates
Net cash flows from operating activities
Investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Net cash flows used in investing activities
Financing activities
(Repayments)/Proceeds from borrowings
Dividends paid
Net cash flows from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 October
Cash and cash equivalents at 30 September
Consolidated entity
2016
$’000
2015
$’000
Notes
57,704
58,675
(58,077)
(56,293)
59
(133)
550
103
40
(427)
(387)
1,800
(573)
1,227
943
4,683
5,626
99
(211)
555
2,825
–
(327)
(327)
(2,800)
–
(2,800)
(302)
4,985
4,683
18
11
18
18
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2016
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 30 September 2016
19
2.3 Changes in Accounting Policies, Disclosures,
Standards and Interpretations
(i) Changes in Accounting Policies, New and Amended
Standards and Interpretations
The accounting policies adopted are consistent with
those of the previous financial reporting period, and have
been consistently applied throughout the years presented
unless noted below.
The Group has adopted all of the new and revised
Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant
to their operations and effective for the current year.
There were no new and revised Standards that have had
a material impact on the financial statements beyond
changes in disclosures.
During the 2015 financial year, the Group adopted
AASB2014-9 ‘Amendments to Australian Accounting
Standards -
Equity method in separate financial statements’, which
allows the parent entity to equity account its investment
in Mountcastle Pty Ltd. There is no change to the
Consolidated financial statements as a result of adopting
this accounting standard, as the Group already uses
equity accounting for associates on consolidation.
(ii) Accounting Standards and Interpretations Issued but
not yet Effective
Certain Australian Accounting Standards and
Interpretations have recently been issued or amended
but are not yet effective and have not been adopted
by the Group for the annual reporting period ended
30 September 2016. The directors have not early
adopted any of these new or amended standards or
interpretations. The directors have not yet fully assessed
the impact of these new or amended standards (to the
extent relevant to the Group) and interpretations.
1. Corporate Information
The consolidated financial statements of HGL Limited
and its subsidiaries (collectively, the Group) for the year
ended 30 September 2016 were authorised for issue
in accordance with a resolution of the directors on 22
November 2016.
HGL Limited (the Company or the parent) is a for profit
company limited by shares incorporated in Australia
whose shares are publicly traded on the Australian
Securities Exchange.
The Group is principally engaged in the importation and
distribution of market leading branded products. The
Group’s principal place of business is Level 2, 68-72
Waterloo Road, Macquarie Park, NSW, 2113. Further
information on the nature of the operations and principal
activities of the Group is provided in the directors’ report.
2. Summary of Significant Accounting Policies
2.1 Basis of Preparation
The financial report is a general purpose financial
report, which has been prepared in accordance
with the requirements of the Corporations Act 2001,
Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards
Board. The financial report has also been prepared
on a historical cost basis, except for certain financial
instruments.
The financial report is presented in Australian dollars and
all values are rounded to the nearest thousand dollars
($000) unless otherwise stated.
The consolidated financial statements provide
comparative financial information in respect of the
previous period.
The financial statements have been prepared on the going
concern basis, which contemplates continuity of normal
business activities and the realisation of assets and
discharge of liabilities in the normal course of business.
2.2 Compliance with International Financial
Reporting Standards (IFRS)
The financial report also complies with International
Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
HGL Limited Annual Report 2016 20
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies (continued)
Effective for annual reporting
periods beginning on or after
Expected to be initially applied in
the financial year ending
AASB 9 ‘Financial Instruments’, and the relevant amending standards
1 January 2018
30 September 2019
AASB 15 ‘Revenue from Contracts with Customers’ and the relevant
amending standards
AASB 16 ‘Leases’
1 January 2018
30 September 2019
1 January 2019
30 September 2020
The impact of the following relevant accounting standards, with an application date to the Group of 30 September 2017,
have been assessed as follows:
AASB 2014-3 ‘Amendments to Australian Accounting
Standards – Accounting for Acquisitions of Interests in Joint
Operations’
AASB 2015-2 ‘Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to AASB 101’
AASB 2016-1 ‘Amendments to Australian Accounting
Standards – Recognition of Deferred Tax Assets for Unrealised
Losses’
AASB 2016-2 ‘Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to AASB 107’
No change anticipated to the financial statements
No impact on accounting policies or calculations. Some
existing disclosures within the financial statements may
change or be removed completely.
Not relevant to the group. No impact on accounting
policies or calculations.
No impact on accounting policies or calculations. Some
existing disclosures within the financial statements may
change.
2.4 Significant Accounting Policies
(a) Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at
30 September 2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
– Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
– Exposure, or rights, to variable returns from its involvement with the investee
– The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption, and when
the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:
– The contractual arrangement(s) with the other vote holders of the investee
– Rights arising from other contractual arrangements
– The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over
the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of
a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date
the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent
of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into
line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows
relating to transactions between members of the Group are eliminated in full on consolidation.
HGL Limited Annual Report 2016 21
2. Summary of Significant Accounting Policies
(continued)
A change in the ownership interest of a subsidiary,
without a loss of control, is accounted for as an equity
transaction. If the Group loses control over a subsidiary,
it derecognises the related assets (including goodwill),
liabilities, non-controlling interest and other components
of equity while any resultant gain or loss is recognised
in profit or loss. Any investment retained is recognised
at fair value.
(b) Business Combinations and Goodwill
Business combinations are accounted for using
the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value
and the amount of any non-controlling interest in the
acquiree. For each business combination, the Group
elects whether to measure the non-controlling interest
in the acquiree at fair value or at the proportionate share
of the acquiree’s identifiable net assets. Acquisition
related costs are expensed as incurred and included
in administrative expenses.
When the Group acquires a business, it assesses the
financial assets and liabilities assumed for appropriate
classification and designation in accordance with
the contractual terms, economic circumstances and
pertinent conditions as at the acquisition date. This
includes the separation of embedded derivatives in
host contracts by the acquiree.
If the business combination is achieved in stages, the
previously held equity interest is remeasured at its
acquisition date fair value and any resulting gain or loss
is recognised in profit or loss.
Any contingent consideration to be transferred by the
acquirer will be recognised at fair value at the acquisition
date. Contingent consideration classified as an asset or
liability that is a financial instrument and within the scope
of AASB 139 Financial Instruments: Recognition and
Measurement, is measured at fair value with changes
in fair value recognised either in either profit or loss or
as a change to OCI. If the contingent consideration is
not within the scope of AASB 139, it is measured in
accordance with the appropriate Australian Accounting
Standards. Contingent consideration that is classified as
equity is not remeasured and subsequent settlement is
accounted for within equity.
Goodwill is initially measured at cost, being the excess
of the aggregate of the consideration transferred and
the amount recognised for non-controlling interests,
and any previous interest held, over the net identifiable
assets acquired and liabilities assumed. If the fair value
of the net assets acquired is in excess of the aggregate
consideration transferred, the Group re-assesses whether
it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures
used to measure the amounts to be recognised at the
acquisition date. If the re-assessment still results in an
excess of the fair value of net assets acquired over the
aggregate consideration transferred, then the gain is
recognised in profit or loss.
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated
to each of the Group’s cash-generating units that are
expected to benefit from the combination, irrespective
of whether other assets or liabilities of the acquiree are
assigned to those units.
Where goodwill has been allocated to a cash-generating
unit and part of the operation within that unit is disposed
of, the goodwill associated with the disposed operation
is included in the carrying amount of the operation
when determining the gain or loss on disposal. Goodwill
disposed in these circumstances is measured based
on the relative values of the disposed operation and the
portion of the cash-generating unit retained.
(c) Investment in Associates
An associate is an entity over which the Group has
significant influence. Significant influence is the power to
participate in the financial and operating policy decisions
of the investee, but is not control or joint control over
those policies.
The Group’s investments in its associate are accounted
for using the equity method.
Under the equity method, the investment in an associate
is initially recognised at cost. The carrying amount of
the investment is adjusted to recognise changes in the
Group’s share of net assets of the associate since the
acquisition date. Goodwill relating to the associate is
included in the carrying amount of the investment and is
neither amortised nor individually tested for impairment.
The statement of profit or loss reflects the Group’s
share of the results of operations of the associate. Any
change in OCI of those investees is presented as part
of the Group’s OCI. In addition, when there has been a
change recognised directly in the equity of the associate,
the Group recognises its share of any changes, when
applicable, in the statement of changes in equity.
Unrealised gains and losses resulting from transactions
between the Group and the associate are eliminated
to the extent of the interest in the associate.
The aggregate of the Group’s share of profit or loss
of an associate is shown on the face of the statement
of profit or loss outside operating profit and represents
profit or loss after tax and non-controlling interests in
the subsidiaries of the associate.
HGL Limited Annual Report 2016 22
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies
(continued)
After application of the equity method, the Group
determines whether it is necessary to recognise an
impairment loss on its investment in its associate or joint
venture. At each reporting date, the Group determines
whether there is objective evidence that the investment
in the associate or joint venture is impaired. If there is such
evidence, the Group calculates the amount of impairment
as the difference between the recoverable amount of
the associate or joint venture and its carrying value, then
recognises the loss as ‘Share of profit of an associate
and a joint venture’ in the statement of profit or loss.
Upon loss of significant influence over the associate or
joint control over the joint venture, the Group measures
and recognises any retained investment at its fair value.
Any difference between the carrying amount of the
associate or joint venture upon loss of significant influence
or joint control and the fair value of the retained investment
and proceeds from disposal is recognised in profit or loss.
(d) Foreign Currency Translation
The Group’s consolidated financial statements are
presented in Australian dollars ($), which is also the
parent’s functional currency. For each entity the Group
determines the functional currency and items included
in the financial statements of each entity are measured
using that functional currency.
Transactions and Balances
Foreign currency transactions are translated into
Australian currency (the functional currency) at the rate
of exchange at the date of the transaction. Amounts
receivable or payable in foreign currencies are translated
at the rates of exchange ruling at balance date. The
resulting exchange differences are brought to account
in determining the profit or loss for the year.
Group Companies
On consolidation, the assets and liabilities of foreign
operations are translated into Australian dollars at
the rate of exchange prevailing at the reporting date
and their statements of profit or loss are translated at
average exchange rates during the year. The exchange
differences arising on translation for consolidation purpose
are recognised in other comprehensive income. On
disposal of a foreign operation, the components of other
Comprehensive Income relating to that particular foreign
operation is recognised in Profit or Loss.
(e) Revenue Recognition
Revenue is recognised to the extent that it is probable
that the economic benefits will flow to the Group and the
revenue can be reliably measured, regardless of when
the payment is received. Revenue is measured at the fair
value of the consideration received or receivable, taking
into account contractually defined terms of payment and
excluding taxes or duty.
Sale of Goods
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods
have passed to the buyer, usually on delivery of the
goods. Revenue from the sale of goods is measured at
the fair value of the consideration received or receivable,
net of returns and allowances, trade discounts and
volume rebates.
Rendering of Services
Service contract revenue is brought to account by
reference to the expired period of the contract. Amounts
received and receivable in relation to the unexpired period
of contracts at year end are treated as deferred revenue.
Interest Income
Interest revenue is recognised on a time proportionate
basis that takes into account the effective yield on the
financial asset.
Dividends
Revenue is recognised from dividends when the Group’s
right to receive the dividends payment is established,
which is generally when shareholders approve the
dividend.
(f) Taxes
Current Income Tax
Current income tax assets and liabilities for the current
period 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, at the reporting
date in the countries where the Group operates and
generates taxable income.
Current income tax relating to items recognised directly
in equity is recognised in equity and not in the statement
of profit or loss.
Deferred Tax
Deferred tax is provided using the liability method on
temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes at the reporting date.
Deferred tax assets and liabilities are not recognised if the
temporary differences giving rise to them arise from the
initial recognition of assets and liabilities (other than as a
result of a business combination) which affects neither
taxable income nor accounting profit. Furthermore, a
deferred tax liability is not recognised in relation to taxable
temporary differences arising from goodwill.
Deferred tax assets are recognised for all deductible
temporary differences, the carry forward of unused tax
credits and any unused tax losses, to the extent that it is
probable that taxable profit will be available for utilisation.
HGL Limited Annual Report 2016 23
2. Summary of Significant Accounting Policies
(continued)
The carrying amount of deferred tax assets is reviewed
at each reporting date and reduced to the extent that it
is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be
utilised. Unrecognised deferred tax assets are reassessed
at each reporting date and are recognised to the extent
that it has become probable that future taxable profits will
allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in 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.
Deferred tax assets and deferred tax liabilities are offset
if a legally enforceable right exists to set off current tax
assets against current tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation
authority.
Tax benefits acquired as part of a business combination,
but not satisfying the criteria for separate recognition at
that date, are recognised subsequently if new information
about facts and circumstances change. The adjustment
is either treated as a reduction to goodwill (as long as it
does not exceed goodwill) if it was incurred during the
measurement period or recognised in profit or loss.
Tax Consolidation Legislation
HGL Limited and its wholly-owned Australian controlled
entities have implemented tax consolidation, and entered
into tax funding and tax sharing agreements.
The head entity, HGL Limited and the controlled entities
in the tax consolidated group continue to account for
their own current and deferred tax amounts. These
tax amounts are measured as if each entity in the tax
consolidated group continues to be a stand alone
taxpayer in its own right, adjusted for intercompany
transactions.
In addition to the current and deferred tax amounts, HGL
Limited also recognises the current tax liabilities (or assets)
and the deferred tax assets from unused tax losses and
unused tax credits assumed from controlled entities in
the tax consolidated group.
Assets or liabilities, recorded at the tax equivalent
amount, arising under tax funding agreements with the
tax consolidated entities are recognised as amounts
receivable from or payable to other entities in the group.
Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the
amount of GST, except:
– When the GST incurred on a sale or purchase of assets
or services is not payable to or recoverable from the
taxation authority, in which case the GST is recognised
as part of the revenue or the expense item or as part of
the cost of acquisition of the asset, as applicable
– When receivables and payables 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
is classified as part of operating cash flows.
(g) Cash Dividend and Non-cash Distribution to Equity
Holders of the Parent
The Company recognises a liability to pay cash or make
non-cash distributions to equity holders of the parent
when the distribution is authorised and the distribution
is no longer at the discretion of the Company. A
corresponding amount is recognised directly in equity.
(h) Property, Plant and Equipment
Plant and equipment, leasehold improvements and
equipment under finance lease are stated at cost less
accumulated depreciation and impairment losses. Cost
includes expenditure that is directly attributable to the
acquisition of the item.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
Depreciation
Items of plant and equipment are depreciated over
their estimated useful lives using the straight line and
reducing balance method, or over their expected units
of production where the assets are identified as relating
to specific products for sale. The estimated useful lives
and depreciation method is reviewed at the end of each
reporting period.
The cost of improvements to or on leasehold properties
is depreciated over the lesser of the period of the lease
or the estimated useful life of the improvement.
The following estimated useful lives are used in the
calculation of depreciation:
– Plant and equipment
–
Leased plant and equipment
(typically 3 to 5 years)
3 to 10 years
the lease term
HGL Limited Annual Report 2016 24
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies
(continued)
Leased Assets
Finance leases, which effectively transfer to the Group
substantially all the risks and benefits incidental to
ownership of leased items, are capitalised at the lower
of fair value or present value of the minimum lease
payments, disclosed as property, plant and equipment
and amortised over the period during which the Group
is expected to benefit from use of the leased assets.
Operating lease payments, where the lessor effectively
retains substantially all the risks and benefits incidental to
ownership of the leased items, are charged to the profit or
loss statement in the period in which they are incurred.
(i) Leases
The determination of whether an arrangement is,
or contains, a lease is based on the substance of
the arrangement at the inception of the lease. The
arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset
or assets or the arrangement conveys a right to use the
asset or assets, even if that right is not explicitly specified
in an arrangement.
Group as a Lessee
A lease is classified at the inception date as a finance
lease or an operating lease. A lease that transfers
substantially all the risks and rewards incidental to
ownership to the Group is classified as a finance lease.
An operating lease is a lease other than a finance lease.
Finance leases are capitalised at the commencement
of the lease at the inception date fair value of the leased
property or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned
between finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges
are recognised in finance costs in the statement of
profit or loss.
A leased asset is depreciated over the useful life of the
asset. However, if there is no reasonable certainty that the
Group will obtain ownership by the end of the lease term,
the asset is depreciated over the shorter of the estimated
useful life of the asset and the lease term.
Operating lease payments are recognised as an operating
expense in the statement of profit or loss on a straight-line
basis over the lease term.
(j) Borrowing Costs
Borrowing costs are expensed in the period in which they
occur. Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing
of funds.
(k) Intangible Assets
Intangible assets acquired separately are measured on
initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value
at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment losses.
The useful lives of intangible assets are assessed as either
finite or indefinite.
Intangible assets with finite lives are amortised over
the useful economic life and assessed for impairment
whenever there is an indication that the intangible
asset may be impaired. The amortisation period and
the amortisation method for an intangible asset with a
finite useful life are reviewed at least at the end of each
reporting period. Changes in the expected useful life or
the expected pattern of consumption of future economic
benefits embodied in the asset are considered to modify
the amortisation period or method, as appropriate,
and are treated as changes in accounting estimates
and adjusted on a prospective basis. The amortisation
expense on intangible assets with finite lives is recognised
in the statement of profit or loss as the expense category
that is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not
amortised, but are tested for impairment annually,
either individually or at the cash-generating unit level.
The assessment of indefinite life is reviewed annually
to determine whether the indefinite life continues to be
supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.
(l) Financial Instruments – Initial Recognition and
Subsequent Measurement
A financial instrument is any contract that gives rise
to a financial asset of one entity and a financial liability
or equity instrument of another entity.
(i) Financial Assets
Initial Recognition and Measurement
Financial assets are classified, at initial recognition,
as financial assets at fair value through profit or loss,
loans and receivables, held-to-maturity investments,
Available for Sale (AFS) financial assets, or as derivatives
designated as hedging instruments in an effective hedge,
as appropriate.
The Group has only had financial assets classified as
loans and receivables during the current and prior
financial year.
Loans and Receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. After initial measurement, such financial
assets are subsequently measured at amortised cost
less impairment.
This category generally applies to trade and other
receivables. For more information on receivables,
refer to Note 8.
HGL Limited Annual Report 2016 25
2. Summary of Significant Accounting Policies
(continued)
Impairment of Financial Assets
Financial Assets carried at Amortised Cost
For financial assets carried at amortised cost, the Group
first assesses whether impairment exists individually
for financial assets that are individually significant, or
collectively for financial assets that are not individually
significant. If the Group determines that no objective
evidence of impairment exists for an individually assessed
financial asset, whether significant or not, it includes the
asset in a group of financial assets with similar credit
risk characteristics and collectively assesses them
for impairment. Assets that are individually assessed
for impairment and for which an impairment loss is,
or continues to be, recognised are not included in a
collective assessment of impairment.
The amount of any impairment loss identified is measured
as the difference between the asset’s carrying amount
and the present value of estimated future cash flows
(excluding future expected credit losses that have not
yet been incurred). The present value of the estimated
future cash flows is discounted at the financial asset’s
original EIR.
(ii) Financial Liabilities
Initial Recognition and Measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as
hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables,
net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other
payables and loans and borrowings.
Subsequent Measurement
The measurement of financial liabilities depends on their
classification, as described below:
Loans and Borrowings
This is the category most relevant to the Group. After
initial recognition, interest bearing loans and borrowings
are subsequently measured at amortised cost using the
EIR method. Gains and losses are recognised in the profit
or loss when the liabilities are derecognised as well as
through the EIR amortisation process.
Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that
are an integral part of the EIR. The EIR amortisation is
included in finance costs in the statement of profit or loss.
This category generally applies to interest-bearing loans
and borrowings. For more information refer Note 14.
De-recognition
A financial liability is de-recognised when the obligation
under the liability is discharged or 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 the de-
recognition of the original liability and the recognition of
a new liability. The difference in the respective carrying
amounts is recognised in the statement of profit or loss.
(m) Derivative Financial Instruments and Hedge
Accounting
Initial Recognition and Subsequent Measurement
The Group uses derivative financial instruments, such as
forward currency contracts to hedge its foreign currency
risks. 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.
Any gains or losses arising from changes in the fair value
of derivatives are taken directly to profit or loss.
(n) Inventories
Inventories are valued at the lower of cost and net
realisable value.
Cost is calculated with reference to purchase price,
including freight and other associated costs, and is
based on a weighted average cost. Net realisable value
represents the estimated selling price less all estimated
costs to be incurred in marketing, selling and distribution.
(o) Impairment of Non-financial Assets
The Group assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If
any indication exists, or when annual impairment testing
for an asset is required, the Group estimates the asset’s
recoverable amount. An asset’s recoverable amount is
the higher of an asset’s or cash-generating unit’s (CGU)
fair value less costs of disposal and its value in use.
Recoverable amount is determined for an individual asset,
unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups
of assets. When the carrying amount of an asset or CGU
exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset.
In determining fair value less costs to sell, recent market
transactions are taken into account.
HGL Limited Annual Report 2016 26
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies
(continued)
Impairment losses of continuing operations, including
impairment on inventories, are recognised in the statement
of profit or loss in expense categories consistent with the
function of the impaired asset.
For assets excluding goodwill, an assessment is made
at each reporting date to determine whether there is any
indication that previously recognised impairment losses
may no longer exist or may have decreased. If such
indication exists, the Group estimates the asset’s or CGUs
recoverable amount. A previously recognised impairment
loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable
amount since the last impairment loss was recognised.
The reversal is limited so that the carrying amount of
the asset does not exceed its recoverable amount,
nor exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss
been recognised for the asset in prior years.
Goodwill is tested for impairment annually as at 30
September and when circumstances indicate that the
carrying value may be impaired.
Impairment is determined for goodwill by assessing the
recoverable amount of each CGU (or group of CGUs)
to which the goodwill relates. When the recoverable
amount of the CGU is less than its carrying amount, an
impairment loss is recognised in the statement of profit
or loss. Impairment losses relating to goodwill cannot
be reversed in future periods.
(p) Cash and Short-term Deposits
For purposes of the cash flow statement, cash includes
deposits at call which are readily convertible to cash
on hand and which are used in the cash management
function on a day-to-day basis, net of outstanding bank
overdrafts.
For the purpose of the consolidated statement of cash
flows, cash and cash equivalents consist of cash and
short-term deposits, as defined above, net of outstanding
bank overdrafts as they are considered an integral part
of the Group’s cash management.
(q) Provisions
General
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 Group 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 statement of profit or loss net of any
reimbursement.
Restructuring Provisions
Restructuring provisions are recognised by the Group only
when a detailed formal plan identifies the business or part
of the business concerned, the location and number of
employees affected, a detailed estimate of the associated
costs, and an appropriate timeline and the employees
affected have been notified of the plan’s main features.
Onerous Contracts Provisions
Present obligations arising under onerous contracts are
recognised and measured as provisions. An onerous
contract is considered to exist where the Group has a
contract under which the unavoidable costs of meeting
the obligations under the contract exceed the economic
benefits expected to be received from the contract.
(r) Employee Benefits
Provision is made for benefits accruing to employees
in respect of wages and salaries, annual leave and long
service leave when it is probable that settlement will be
required and are capable of being measured reliably.
Employee benefits expected to be settled wholly within
12 months are measured at their nominal values using the
remuneration rate expected to apply at time of settlement.
Employee benefit provisions, which are not expected to
be settled wholly within 12 months, are measured at the
present value of the estimated future cash outflows to be
made by the Group in respect of services provided by
employees up to the reporting date.
Contributions to defined contribution superannuation
plans are expensed when incurred.
(s) Fair Value Measurement
The Group measures financial instruments such as
derivatives at fair value at each balance sheet date.
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability
takes place either:
–
–
In the principal market for the asset or liability; or
In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be
accessible to the Group.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant’s ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant
that would use the asset in its highest and best use.
HGL Limited Annual Report 2016 27
2. Summary of Significant Accounting Policies
(continued)
The Group uses valuation techniques that are appropriate
in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of
relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorised
within 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 (unadjusted) market prices in active
markets 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
There are no level 3 categorised items in the Group.
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Group
determines whether transfers have occurred between
Levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each
reporting period.
There were no transfers between category levels during
the current or prior financial year.
(t) Operating Segments
An operating segment is a component of an entity that
engages in business activities from which it may earn
revenues and incur expenses, and for which discrete
financial information is available. Operating segments are
based on products, having been identified based on the
information provided to the Board of Directors.
Segment EBIT represents the profit before interest and
tax earned by each segment after allocation of central
administration costs. This is the measure reported to the
Board of Directors for the purposes of resource allocation
and assessment of segment performance.
Some items which are not attributable to specific
segments, such as finance costs and some other
expenses, are listed separately in the segment note
as ‘unallocated’ items.
The accounting policies used by the Group in reporting
segments internally are the same as those used by the
Group in these consolidated financial statements.
3. Significant Accounting Judgements, Estimates
and Assumptions
The preparation of the Group’s consolidated financial
statements requires management to make judgements,
estimates and assumptions about carrying values of
assets and liabilities that are not readily apparent from
other sources. The estimates and associated assumptions
are based on historical experience and various other
factors that are believed to be reasonable under the
circumstance, the results of which form the basis of
making the judgements.
Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
if the revision affects only that period, or in the period of
the revision and future periods if the revision affects both
current and future periods.
Information about significant areas of estimation,
uncertainty and critical judgements in applying
accounting policies for the Group are set out below:
Deferred Tax Assets (Note 5)
Determining the extent to which deferred tax asset
balances should be recognised requires an estimation
of future taxable profits. The key assumptions in the
estimation of future profitability are sales growth rates,
changes in selling margins, and future expenses.
The amount of profits from non-taxable sources is
also considered.
The amount of taxable income created, and the
consistency of generating taxable income over a
number of historical periods, is a key consideration in
the recognition of deferred tax assets associated with
revenue losses available to the group. The accounting
profit generated over the last two periods has been offset
by the deductibility of available timing differences, resulting
in a net increase in revenue losses over that period.
As the Group generates future taxable profits, this
deferred tax asset will be brought to account.
Inventories (Note 9)
The Group’s inventories are analysed by business unit
each reporting period for recoverability of the carrying
value. This involves judgements around physical stock
levels, sell through rates on specific product lines, and
recent selling prices achieved.
An allowance is made against the cost of inventory items
where evidence indicates that product ranges are no
longer on range, or volumes on hand exceed reasonable
sale periods (generally 3-4 months). An allowance is
also made when historical selling prices approach
cost, to reflect the potential requirement for discounting
product to clear.
HGL Limited Annual Report 2016 28
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
3. Significant Accounting Judgements, Estimates and Assumptions (continued)
Intangibles (Note 12)
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which
goodwill has been allocated. The value in use calculation requires estimation of the future cash flows expected to arise
from the cash generating unit, and application of a suitable discount rate to calculate present value.
The key assumptions for the value in use calculations are those regarding discount rates, long term growth rates, expected
changes in margins and expenses. The assumptions regarding long term growth rates, together with changes in margins
and expenses are based on past experience and expectations of changes in the market. Note 12 (Intangible assets)
contains details of the specific assumptions made in calculating the value in use.
The key assumptions will be closely monitored and adjustments made in future periods if such adjustments are
appropriate.
4. Profit from Operations
4.1 Revenue
Sales revenue
4.2 Expenses
Depreciation
Expensed to profit and loss – Plant and Equipment
Absorbed to inventory
Total depreciation
Employee benefit expenses
Salary and wages
Defined contribution superannuation expense
Bad debts
Write down of inventories to net realisable value
Operating lease expenses – minimum lease payments
Foreign exchange loss/(gain)
4.3 Finance Costs
Financial institutions
Total finance costs
Notes
11
Consolidated entity
2016
$’000
2015
$’000
52,252
52,000
309
224
533
13,237
889
14,126
(42)
(631)
1,318
(9)
288
–
288
13,371
873
14,244
16
(39)
1,433
(100)
133
133
211
211
HGL Limited Annual Report 2016 4. Profit from Operations (continued)
4.4 Other Income
Interest
Associate (Note 10)
Financial Institutions
Total interest
Dividends
Other income
Other income
Total other income
29
Consolidated entity
2016
$’000
2015
$’000
–
60
60
–
43
43
16
83
99
55
35
90
103
189
4.5 Significant Items
The board manages the business using underlying profit, which is a non-statutory measure designed to reflect statutory
profit excluding the effect of irregular transactions that are not part of the core or ongoing business operations. Underlying
profit is a key consideration used by the board when determining short term incentive payments for key management
personnel, and also when determining the level of any dividends declared. A summary of the items considered to be
non-underlying, and a reconciliation from reported net profit after tax to underlying profit after tax is as follows:
Underlying profit
Non-underlying items
Surplus lease provisions(2)
Non-underlying profit from equity accounted associate(1,3)
Restructuring costs(1)
Total non-underlying items before tax
Recognition of deferred tax assets
Total non–underlying items before tax
Statutory profit after tax
(1) Disclosed in “Administration expenses” in statement of profit and loss
(2) Disclosed in “Occupancy expenses” in statement of profit and loss
(3) Disclosed in “Share of associates profit/(loss)” in statement of profit and loss
3,008
2,615
–
90
(238)
(148)
1,453
1,305
4,313
200
728
(432)
496
611
1,107
3,722
HGL Limited Annual Report 2016 30
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
5. Income Tax
The major components of income tax expense for the years ended 30 September 2016 and 2015 are:
Consolidated statement of profit or loss
Current tax
In respect of the current year
In respect of prior years
Deferred tax
In respect of the current year
Reversals of previous write-downs of deferred tax assets
Consolidated entity
2016
$’000
2015
$’000
–
(63)
(63)
470
(1,923)
(1,453)
63
–
63
–
(611)
(611)
Total income tax expense recognised in the current year
relating to continuing operations
(1,516)
(548)
Prima facie income tax benefit on profit from ordinary activities at 30% ( 2015: 30%)
Differences in overseas tax rates
Equity accounted investments
Recognition of deferred tax assets
Current year temporary differences not brought to account
Non allowable expenses
Recognition of previously unrecognised tax losses
839
(3)
(122)
(1,923)
–
89
(328)
(63)
(5)
948
4
(232)
(611)
(627)
137
(167)
–
–
(1,516)
(548)
Over provision
Other
Deferred tax
Deferred tax assets comprises
Consolidated entity
2016
Opening balance
Charged to income
Total
2015
Charged to income
Total
Provisions
$000
Plant &
Equipment
$000
Other
$000
Total
$000
611
1,150
1,761
611
611
–
161
161
–
–
–
143
143
–
–
611
1,454
2,065
611
611
Accounting standards require probable use for deferred tax assets. Following the improved financial performance of the
group during the year, deferred tax assets of $1.5 million were recognised this year relating to tax temporary differences.
The Group has approximately $18.0 million of gross revenue losses, and $11.1 million of gross capital losses, which have
not been brought to account at 30 September 2016.
HGL Limited Annual Report 2016 31
Consolidated entity
2016
$’000
2015
$’000
810
549
1,359
573
786
1,359
–
–
–
–
–
–
6. Dividends Paid and Proposed
Declared and paid during the year:
Final dividend for 2015: 1.5 cents per share (2014: nil)
Interim dividend for 2016: 1.0 cents per share (2015: nil)
Dividends paid in cash or satisfied by the issue of shares under the Dividend Reinvestment Plan:
Paid in Cash
Satisfied by issue of shares
Dividends paid
Proposed dividends on ordinary shares:
Proposed final dividend of 1.5 cents per share not recognised as a liability
as at 30 September (2015: 1.5 cents per share)
835
810
Franking credit balance
The amount of franking credits available for the subsequent financial year are:
Franking account balance as at the end of the financial year at 30% (2015: 30%)
9,822
10,168
Franking debits that will arise from the payment of dividends subsequent to the end of the
financial year
(358)
9,464
(347)
9,821
Dividend reinvestment plan
Brief details of the Plan are:
shareholders are eligible to participate, except where local legislation prevents it;
–
– participation is optional;
–
– payment is made through the allotment of shares, rather than cash, at a discount of up to 7.5% on the average market
full or partial participation is available;
price of the Company’s ordinary shares;
no brokerage, commission, stamp duty, or administration costs are payable by shareholders; and
–
– participants may withdraw from the plan at any time by notice in writing to the Registry.
HGL Limited Annual Report 2016 32
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
7. Earnings Per Share
The following reflects the income and share data used in the basic and diluted EPS computations:
Profit attributable to ordinary equity holders of basic EPS
Profit attributable to ordinary equity holders for diluted EPS
Weighted average number of ordinary shares for basic EPS
Weighted average number of ordinary shares for diluted EPS
Basic Earnings per Share
Diluted Earnings per Share
8. Trade and Other Receivables
Trade receivables
Allowance for doubtful debts
Net trade receivables
Other debtors
Total receivables
Movement in allowance for doubtful debts
Opening balance
Additional provisions
Amounts written off
Trade receivables past due
Not yet due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due greater than 90 days
Consolidated entity
2016
$’000
4,313
4,313
2015
$’000
3,722
3,722
Number
Number
54,851,549
53,956,011
54,851,549
53,956,011
Cents
7.9
7.9
Consolidated entity
2016
$’000
9,008
(237)
8,771
366
9,137
(302)
42
23
(237)
7,032
1,351
336
145
144
Cents
6.9
6.9
2015
$’000
7,816
(302)
7,514
440
7,954
(329)
(16)
43
(302)
6,527
818
208
101
162
9,008
7,816
HGL Limited Annual Report 2016 33
8. Trade and Other Receivables (continued)
Trade receivables and other debtors have carrying amounts that reasonably approximate fair value.
Trade receivables are non-interest bearing and are generally on terms of 30 days.
An allowance for doubtful debts is recognised when there is objective evidence that the customer will not be able to pay.
As the concentration of credit risk is limited due to the customer base being large and unrelated, there is no further credit
provision required in excess of the allowance for doubtful debts.
9. Inventories
Finished goods (at lower of cost or net realisable value)
10. Investment in Associates
2016
Mountcastle Pty Ltd
Createc Pty Ltd
2015
Mountcastle Pty Ltd
Createc Pty Ltd
Mountcastle Pty Ltd
The principal activity of Mountcastle was headwear and uniform distribution.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net Assets
Ownership interest
Carrying amount of the investment
Consolidated entity
2016
$’000
2015
$’000
5,813
5,223
Ownership
interest
%
Carrying
value
$’000
Profit
contribution
$’000
50
50
50
50
4,762
90
4,852
4,444
–
4,444
867
90
957
772
–
772
Consolidated entity
2016
$’000
11,720
717
(2,708)
(206)
9,523
50%
4,762
2015
$’000
10,176
749
(1,833)
(203)
8,889
50%
4,444
HGL Limited Annual Report 2016
34
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
10. Investment in Associates (continued)
The above amounts of assets and liabilities include the following:
Cash and cash equivalent
Current financial liabilities
Revenues
Profit after income tax from continuing operations
Dividends received
The above profit for the year includes the following:
Depreciation and amortisation
Interest expenses
Interest income
Income tax expense
Consolidated entity
2016
$’000
1,149
(1,191)
15,900
1,735
550
74
28
5
743
2015
$’000
497
(272)
13,154
1,544
500
75
16
5
640
There were no capital or lease commitments, and no contingent liabilities incurred at balance date.
Createc Pty Ltd
The principal activity of Createc was wide format printing distribution. In September 2014 Createc sold its business and
most of its assets. No cash was received by HGL at that time. During 2015, HGL received $55,000 in cash following
release of warranties in relation to the sale. All warranties provided at the time of the sale have now been released,
with $0.2 million of deferred consideration (HGL share $0.1 million) received during the current year.
Current assets
Current liabilities
Net Assets/(Liabilities)
Ownership Interest
Carrying amount of the investment
217
(17)
200
50%
90
(2)
(18)
(20)
50%
–
The carrying value of the investment reflects the expected distribution available to the group in the event of liquidation
of Createc.
HGL Limited Annual Report 2016 10. Investment in Associates (continued)
The above amounts of assets and liabilities include the following:
Cash and cash equivalent
Profit after income tax from continuing operations
Dividends received
There were no capital or lease commitments, and no contingent liabilities incurred at balance date.
11. Property, Plant and Equipment
Plant and equipment
At cost
Accumulated depreciation
Net carrying value
Reconciliation of carrying amounts at the beginning and the end of the year
Plant and equipment
Written down value
Net book value at the beginning of the financial year
Additions
Transfers from prepayments
Disposals
Depreciation expense
Exchanges differences
Net book value at the end of the financial year
35
Consolidated entity
2016
$’000
2015
$’000
182
220
–
7
–
55
2,879
(1,469)
1,410
1,704
(786)
918
918
427
599
–
(533)
(1)
1,410
1,016
327
–
(137)
(288)
–
918
HGL Limited Annual Report 2016 36
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
12. Intangible Assets
Goodwill
At cost
Consolidated entity
2016
$’000
2015
$’000
10,166
10,166
10,166
10,166
Allocation of Goodwill
The carrying value remaining of goodwill is allocated to the building products segment. The original cost of goodwill for all
other segments has been fully written down in prior periods.
Impairment Testing
Impairment testing is conducted at Cash Generating Unit (CGU) level, and considers both value in use and fair value less
costs of disposal calculations.
Impairment Charges
There were no impairment charges in the current or previous financial year.
Key Assumptions
The value in use calculations use cash flow projections based on the financial budgets approved by the board for the
following year, and extrapolated over five years using a combination of reasonably anticipated revenue and cost changes
in year two, and future growth rates appropriate for the markets in which the businesses operate. These forecasts are
extrapolated beyond five years based on estimated long term growth rates.
A pre tax discount rate, based on the pre-tax WACC, of 13.8% (2015: 14.8%) was applied to the cash flow projections.
Long term growth rates used were between 2.5% (sales) and 5% (costs) (2015: 2.5% and 5%).
There are no reasonably foreseeable changes in assumptions which would result in an impairment to the carrying value
of goodwill.
13. Trade and Other Payables
Trade payables and accruals
Payables have carrying amounts that reasonably approximate fair value.
The average credit period on purchases is generally 30-60 days.
8,386
8,763
HGL Limited Annual Report 2016 37
14. Financial Assets and Financial Liabilities
14.1 Borrowings
Current
Secured at amortised cost
Variable rate bank loans
Notes
Consolidated entity
2016
$’000
2015
$’000
1,800
–
Secured Bank Loan
The borrowing facility is a $2.8 million cash advance facility with an annual review in January each year, secured under
a fixed and floating charge over all present and future assets, undertakings and unpaid or uncalled capital of the Group.
The values of assets pledged as security are as presented on the balance sheet.
Interest is payable based on floating rates determined with reference to the BBR rate at each drawdown.
The carrying amounts of borrowings reasonably approximate fair value.
14.2 Financial Risk Management Objectives and Policies
Capital Management
HGL manages its capital to ensure that the underlying business units will have funding to expand through organic growth
and acquisitions. The capital structure is reviewed regularly and is balanced through the payment of dividends and on-
market share buy backs as well as the level of debt.
The capital structure consists of net debt, which includes borrowings (Note 14.1) less cash and cash equivalents, and total
equity, which includes issued capital (Note 16), reserves (Note 17) and accumulated losses/retained earnings.
Financial Risk Management
The activities of the Group expose it to a variety of financial risks, primarily to the risk of changes in foreign exchange
rates, and to a lesser extent credit risk of third parties with which the underlying businesses trade. HGL’s risk management
program works to minimise material potential negative impacts on the financial performance of the Group.
Foreign exchange contracts are used to manage currency risk, but must be used within the scope of the policy approved
by the Board. The policy prohibits the use of financial instruments for speculative purposes.
Significant Accounting Policies
A summary of the significant accounting policies adopted in relation to financial instruments are disclosed in Note 2 to the
financial statements. Information regarding the significant terms and conditions of each significant category of financial
instruments are included within the relevant note for that category.
Categories of Financial Instruments
Details of consolidated financial assets and liabilities contained in the financial statements are as follows:
Financial assets
Cash at bank and on hand
Trade receivables
Financial liabilities
Trade and other payables
Borrowings - Variable rate loans
8
13
14.1
5,626
9,008
4,683
7,816
14,634
12,499
8,386
1,800
8,763
–
10,186
8,763
HGL Limited Annual Report 2016
38
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
14. Financial Assets and Financial Liabilities (continued)
Fair values of financial assets and liabilities are disclosed in the notes to the accounts where those items are listed.
Liquidity Risk
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate
risk management framework for the management of the Group’s short, medium and long term funding and liquidity
management requirements.
Details of credit facilities available to the Group, and the amounts utilised under those facilities, are as follows:
Credit facilities
Amount utilised
Unused credit facility
Consolidated entity
2016
$’000
2,800
1,800
1,000
2015
$’000
2,800
–
2,800
The Group has a $2.8 million (2015: $2.8 million) cash advance facility with the Australia and New Zealand Banking Group
Limited (ANZ), which is subject to an annual review. The facility is subject to covenant testing at specific measurement
dates.
The following table details the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn
up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be
required to pay, and includes both principal and interest cash flows.
Maturing in 1 year or less
Trade payables and accruals
Weighted average interest rate
Trade payables and accruals
Borrowings - Variable rate loans
8,386
8,386
%
–
4.17
8,763
8,763
%
–
–
Currency Risk
The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate
fluctuations arise.
Exchange rate exposure is managed utilising forward foreign exchange contracts and foreign exchange bank accounts.
At year end the Group has $2,544,000 (2015: $3,080,000) of foreign currencies monetary liabilities mainly in USD and Euro.
The Group has $555,000 (2015: $1,207,000) of foreign currencies monetary assets mainly in USD and Euro.
In addition the Group has $2,629,000 (2015: $623,000) of foreign currency forward contracts outstanding at balance
date, in a net liability fair value position $22,000 (2015: net asset fair value $14,000) that were classed as level 2 financial
instruments.
The average contract length approximates 50 days, and is generally in accordance with payment terms.
The Group used a 10% sensitivity analysis and concluded there was no material impact on the 2016 and 2015 net
outstanding foreign currency exposure.
HGL Limited Annual Report 2016 39
14. Financial Assets and Financial Liabilities (continued)
Credit Risk
The Group has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, or
other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group measures
credit risk on a fair value basis. The Group does not have any significant credit risk exposure to any single counterparty
or any group of counterparties having similar characteristics.
Interest Rate Risk
The Group is exposed to interest rate risk as funds are borrowed at floating interest rates. The Group manages interest
rate risk by maintaining an appropriate mix between fixed and floating rate borrowings.
If interest rates had been +/- 1% per annum throughout the year, with all other variables held constant, the operating
profit after income tax would have been $18,000 higher or lower respectively (2015: $28,000).
15. Provisions
Current
Employee benefits
Surplus lease and make good provisions
Non current
Employee benefits
Surplus lease and make good provisions
Balance at beginning of financial year
Reductions arising from payments
Balance at the end of financial year
Current
Non-current
Consolidated entity
2016
$’000
2015
$’000
2,081
479
2,560
389
799
1,188
2,135
471
2,606
202
1,267
1,469
Surplus
lease
provisions
2016
$’000
1,738
(460)
1,278
479
799
1,278
HGL Limited Annual Report 2016 40
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
16. Issued Capital
2016
2015
Ordinary shares issued and fully paid
Number
$’000
Number
$’000
Balance at the beginning of the financial year
53,956,011
36,802
53,956,011
36,802
Allotted pursuant to HGL dividend reinvestment plan
1,701,908
Costs associated with shares issued
–
786
(6)
–
–
–
–
Balance at the end of the financial year
55,657,919
37,582
53,956,011
36,802
During the current and prior year no ordinary shares were purchased pursuant to the on market share buy back.
Details of the HGL Limited Dividend Reinvestment Plan are disclosed in Note 6.
17. Reserves
Foreign currency translation reserve
Other reserve
Consolidated entity
2016
$’000
(145)
(901)
2015
$’000
(177)
(901)
(1,046)
(1,078)
The Foreign currency translation reserve arises on the retranslation of the opening net assets of overseas subsidiaries, at
year end rates of exchange, net of tax.
The Other reserve represents the excess of the purchase consideration over the share of net assets acquired on the
increase in equity interests, classified as common controlled transactions under AASB 3 Business Combinations.
18. Cash Flow Information
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise the following at
30 September:
Cash at banks and on hand
Cash and cash equivalents
5,626
5,626
4,683
4,683
HGL Limited Annual Report 2016
18. Cash Flow Information (continued)
41
Consolidated entity
2016
$’000
2015
$’000
Reconciliation of cash flow from operations with operating profit after income tax
Profit before tax from continuing operations
4,313
3,722
Adjustments to reconcile profit before tax to net cash flows:
Depreciation
Losses / (profits) on sale of property, plant and equipment
Share of profits of associates not received as dividends
Changes in assets and liabilities
(Increase) / decrease in trade and term debtors
(Increase) / decrease in inventories
(Increase) / decrease in prepayments
(Increase) / decrease in deferred taxes
Increase / (decrease) in trade creditors and accruals
Increase / (decrease) in provision for income tax
Increase / (decrease) in other current provisions
Increase / (decrease) in other non-current provisions
Net cash flows from operating activities
533
(40)
(407)
(1,182)
(590)
(327)
(1,453)
(355)
(63)
(54)
(272)
103
288
137
(272)
809
(1,122)
(81)
(611)
(395)
63
928
(641)
2,825
HGL Limited Annual Report 2016 42
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
19. Information Relating to HGL Limited (parent)
Current assets
Non current assets
Total assets
Current liabilities
Non current liabilities
Total liabilities
Net assets
Issued capital
Reserves
Accumulated losses
Retained earnings
Total equity
Total comprehensive income of the Parent entity
Parent entity
2016
$’000
683
20,374
21,057
2,205
3,280
5,485
15,572
37,582
380
2015
$’000
233
15,651
15,884
544
2,316
2,860
13,024
36,802
380
(58,030)
(58,030)
35,640
15,572
2,169
33,872
13,024
5,001
As noted above, there is a working capital deficiency of $1,522,000 (2015: $311,000). The Group has undistributed profits
within wholly owned subsidiaries which will be received by the Parent entity in the form of cash dividends subsequent to
balance date.
HGL Limited Annual Report 2016 43
20. Segment Information
2016
Revenue from sales to external
customers
Depreciation
Segment EBIT
2015
Revenue from sales to external
customers
Depreciation
Segment EBIT
Reconciliation of Profit or Loss
Retail
marketing
$’000
10,051
8
402
Homewares
$’000
Collectables
$’000
Building
products
$’000
Health &
beauty
$’000
Aggregated
segments
$’000
7,747
6
(380)
5,849
49
329
22,018
204
3,806
6,587
52,252
28
158
295
4,315
10,066
9,537
5
801
1
161
5,411
50
323
19,761
197
3,668
7,225
52,000
12
99
265
5,052
Segment Earnings Before Interest and Tax (EBIT)
Unallocated items of income and expenditure
Share of profit from equity accounted investments
Finance costs
Significant items
Other unallocated expenses
Profit before tax
2016
$’000
2015
$’000
4,315
5,251
867
(73)
(148)
(2,164)
2,797
772
(112)
496
(3,233)
3,174
– Retail marketing segment (SPOS) provides standard and customised shelving product solutions to brand owners and
retailers
– Homewares segment (Leutenegger and Nido) distributes homewares and traditional sewing and crafts supplies
– Collectables segment (Biante) distributes collectable model cars
– Building product segment (JSB Lighting) distributes architectural lighting for the commercial market
– Health & beauty segment (BLC Cosmetics) distributes cosmetics and skincare products through salon, spa and retail
markets
The Group has a large number of customers to which it provides products. There are no individual customers that account
for more than 10% of external revenues. The Group operates predominately in Australia with some operations in New
Zealand. Total revenues from sales outside Australia for the financial year were $2.8 million (2015: $3.2 million).
HGL Limited Annual Report 2016 44
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
21. Related Party Disclosures
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have
been eliminated on consolidation and are not disclosed in this note.
There were no loans to other related parties at any time during the financial year.
Directors and their related entities are able, with all staff members, to purchase goods distributed by the Group on terms
and conditions no more favourable than those available to other customers.
There were no other transactions with key management personnel during the period.
Compensation of Key Management Personnel of the Group
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Total compensation paid to key management personnel
Consolidated entity
2016
$
2015
$
1,248,626
1,536,314
79,312
11,488
103,984
14,447
–
142,692
1,339,426
1,797,437
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key
management personnel.
22. Commitments and Contingencies
Operating Lease Commitments – Group as Lessee
Within one year
After one year but not more than five years
Consolidated entity
2016
$000
1,491
2,449
3,940
2015
$000
1,386
2,362
3,748
The operating leases are in respect of warehouses and offices occupied by Group companies. The leases expire at various
future dates and a number contain option provisions.
Capital Commitments
There are no significant capital expenditure commitments at balance date.
Contingent Liabilities
There are no significant contingent liabilities at balance date.
23. Events after the Reporting Period
There have been no significant events occurring after the balance date which may affect either the Group’s operations or
results of those operations or the Group’s state of affairs.
HGL Limited Annual Report 2016 45
Consolidated entity
2016
$
2015
$
237,600
244,600
Ownership interest
2016
%
100
100
100
100
100
100
100
100
2015
%
100
100
100
100
100
N/A
100
N/A
24. Auditors’ Remuneration
The auditor of HGL Limited is Deloitte Touche Tohmatsu.
Amounts received or due and receivable by Deloitte Touche Tohmatsu for:
An audit or review of the financial report of the entity and any other entity in the
consolidated group
25. Investment in Controlled Entities
Significant Controlled Entities
Baker & McAuliffe Holdings Pty Limited (trading as JSB Lighting)
Biante Pty Limited
BLC Cosmetics Pty Limited
Hamlon Pty Limited (trading as SPOS)
J Leutenegger Pty Limited
Nido Interiors Pty Ltd(1)
The Point-of-Sale Centre (New Zealand) Limited
JSB Lighting (New Zealand) Limited(2)
(1) Incorporated 11 June 2015
(2) Incorporated 2 June 2016
Country of incorporation
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Certain immaterial entities have not been disclosed in the above listing of controlled entities. All wholly owned entities
within the Group have been consolidated into these financial statements.
HGL Limited Annual Report 2016 46
DIRECTORS’
DECLARATION
In accordance with a resolution of the directors of HGL Limited, we state that:
1. In the opinion of the directors:
a. the consolidated financial statements and notes of HGL Limited for the financial year ended 30 September 2016 are
in accordance with the Corporations Act 2001, including:
i. giving a true and fair view of the consolidated entity’s financial position as at 30 September 2016 and of its
performance for the year ended on that date; and
ii. complying with Accounting Standards and the Corporations Regulations 2001;
b. the consolidated financial statements and notes also comply with International Financial Reporting Standards as
disclosed in Note 2.2; and
c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
2. This declaration has been made after receiving the declarations required to be made to the directors by the chief
executive officer and chief financial officer in accordance with section 295A of the Corporations Act 2001 for the financial
year ended 30 September 2016.
On behalf of the board
Peter Miller
Chairman
Sydney, 22 November 2016
Dr Frank Wolf
Director
HGL Limited Annual Report 2016
INDEPENDENT
AUDITOR’S REPORT
to the members of HGL Limited
47
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
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Independent Auditor’s Report
to the Shareholders of HGL Limited
Report on the Financial Report
We have audited the accompanying financial report of HGL Limited, which comprises the
statement of financial position as at 30 September 2016, the statement of profit or loss,
the statement of comprehensive income, the statement of cash flows and the statement
of changes in equity for the year ended on that date, notes comprising a summary of
significant accounting policies and other explanatory information, and the directors’
declaration of the consolidated entity, comprising the company and the entities it
controlled at the year’s end or from time to time during the financial year as set out on
pages 14 to 46.
Directors’ Responsibility 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 Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of
Financial Statements,
financial statements comply with
International Financial Reporting Standards.
the consolidated
that
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. Those standards
require that we comply with relevant ethical requirements relating to audit engagements
and plan and perform the audit to obtain reasonable assurance whether the financial
report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material misstatement of the
financial report, whether due to fraud or error. In making those risk assessments, the
auditor considers internal control, relevant to the company’s preparation of the financial
report that gives a true and fair view, 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 company’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the
financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Member of Deloitte Touche Tohmatsu Limited
Liability limited by a scheme approved under Professional Standards Legislation.
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HGL Limited Annual Report 2016 48
INDEPENDENT
AUDITOR’S REPORT
to the members of HGL Limited continued
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001. We confirm that the independence declaration required by the
Corporations Act 2001, which has been given to the directors of HGL Limited, would be in
the same terms if given to the directors as at the time of this auditor’s report.
Opinion
In our opinion:
(a) the financial report of HGL Limited is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30
September 2016 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001; and
(b) the consolidated financial statements also comply with International Financial
Reporting Standards as disclosed in Note 2.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 7 to 10 of the directors’
report for the year ended 30 September 2016. The directors of the company are
responsible for the preparation and presentation of the Remuneration Report in
accordance with section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Opinion
In our opinion the Remuneration Report of HGL Limited for the year ended 30 September
2016, complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Tara Hill
Partner
Chartered Accountants
Sydney, 22 November 2016
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HGL Limited Annual Report 2016 49
ASX ADDITIONAL
INFORMATION
Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows.
The information is current as at 31 October 2016.
(a) Distribution of equity securities
(i) Ordinary share capital
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
– 55,657,919 fully paid ordinary shares are held by 1,712 individual shareholders
– Number of shareholders holding less than a marketable parcel (1,112 shares) is 665.
All issued ordinary shares carry one vote per share and carry the rights to dividends.
(b) Twenty largest holders of quoted equity securities
Sery Pty Limited
IJV Investments Pty Ltd
J P Morgan Nominees Australia Limited
LPO Investments Pty Limited
Kitwood Pty Ltd
ANZ Trustees Limited
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