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HGL Limited CONTENTS
1
Directors’ Report
7
Remuneration Report (audited)
15 Auditor’s Independence Declaration
16 Consolidated Statement of Profit or Loss
17 Consolidated Statement of Other Comprehensive Income
18 Balance Sheet
19 Consolidated Statement of Changes in Equity
20 Consolidated Statement of Cash Flows
21 Notes to the Consolidated Financial Statements
4. Profit from Operations
1. Corporate Information
2. Summary of Significant Accounting Policies
21
21
30 3. Significant Accounting Judgements, Estimates and Assumptions
31
33 5. Income tax
34 6. Dividends Paid and Proposed
35 7. Earnings Per Share (EPS)
35 8. Trade and Other Receivables
36 9. Inventories
36 10. Investment in Associates
38 11. Property, Plant and Equipment
38 12. Intangible Assets
39 13. Trade and Other Payables
39 14. Financial Assets and Financial Liabilities
42 15. Provisions
43 16. Issued capital
43 17. Reserves
43 18. Cash flow information
45 19. Information relating to HGL Limited (parent)
46 20. Segment Information
47
47
47
48 24. Auditors’ Remuneration
48 25. Investment in Controlled Entities
49 26. Business Combinations and Acquisition of Non-controlling Interests
21. Related Party Disclosures
22. Commitments and Contingencies
23. Events after the Reporting Period
Independent Auditor’s Report
50 Directors’ Declaration
51
55 ASX Additional Information
56
Five Year Summary
57 Corporate Information
HGL Limited Annual Report 2017 HGL Limited Annual Report 2017
1
DIRECTORS’
REPORT
for the year ended 30 September 2017
Your directors submit their report for the year ended 30 September 2017.
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 Miller 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 Wolf 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 was a member of the Nomination and Remuneration Committee until 31 October 2017.
Kevin Eley, CA, F Fin, FAICD (Director)
Non executive Director, appointed 1985. Kevin Eley 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 Pengana Capital Group Ltd since 2017 (formerly Hunter Hall International Ltd from 2015 to 2017),
and was a director of Po Valley Energy between June 2012 and April 2016.
Julian Constable (Director)
Non executive Director, appointed 2003. Julian Constable 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).
Cheryl Hayman (Director)
Non executive Director, appointed 1 December 2016. Cheryl Hayman brings International experience including significant
strategic and marketing expertise derived from a 20 year corporate career which spanned local and global consumer retail
organisations. Her skills include developing marketing and business strategy across diverse industry segments, growth
orientated innovation and product development. Cheryl has expertise in traditional and digital communications, an ability
to carve out a competitive edge for business development and the ability to drive strategic brand development. Cheryl is
a director of ASX listed Clover Corporation Ltd, as well as other unlisted and not-for-profit companies.
Cheryl was appointed chair of the Nomination and Remuneration Committee as of 26 September 2017.
Interests in the shares and options of the Company and related bodies corporate
As at the date of this report, the directors held no options, and the interests of the directors in the shares of HGL Limited were:
Peter Miller
Dr Frank Wolf
Kevin Eley
Julian Constable
Cheryl Hayman
Number of
direct shares
Number of
indirect shares
51,191
12,441,565
–
–
721,038
898,040
200,000
6,210,264
–
–
2
HGL Limited Annual Report 2017
DIRECTORS’
REPORT
continued
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 over 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.
Dividends
The Directors have declared a final dividend of 1.5 cents per share fully franked. The record date for the dividend will be
9 January 2018, with a payment date of 23 January 2018.
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
19/07/17
24/01/17
Cents
1.25
1.50
$’000
708
835
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.
Participation is open to shareholders holding more than 1,000 shares.
During the year the total number of shares issued under the DRP was 1,701,662 (2016: 1,701,908).
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
For the year ended 30 September 2017 HGL reports an underlying profit of $2.3 million (2016 $3.0 million), and Statutory
Profit of $2.7 million (2016 $4.3 million). Statutory profit includes $0.7 million of deferred tax adjustments (2016 $1.5 million).
Group revenue, including 100% of Mountcastle, increased by 2% to $69.5 million with organic sales growth recorded for
the third consecutive year. Combined revenue in JSB Lighting, Mountcastle, SPOS Group and Nido Interiors increased by
$4.5 million. Sales revenue in Leutenegger, Biante and BLC Cosmetics reduced by $3.1 million. Sales revenue of the wholly
owned group was $52.1 million (2016 $52.3 million).
The overall gross margin was 44.6% (2016: 44.9%), reflecting continued cost pressures.
Despite an increase in costs in additional sales staff across most business units, and extra costs of product marketing,
operating expenses were stable at $22.0 million, following cost savings in BLC Cosmetics, Nido Interiors and HGL Head
Office.
HGL Limited Annual Report 2017
3
The Underlying EBIT of $2.3 million is attributed to diverse performance trends and market conditions across the Group,
generating significantly different outcomes.
JSB Lighting, SPOS Group, Mountcastle and Nido Interiors increased revenues, with EBIT up by $0.9 million. Leutenegger,
Biante and BLC Cosmetics had lower revenues resulting in a net loss $1.6 million below the prior year.
Corporate Strategy and Reposition of Company Portfolio
The HGL strategic plan is to position the company’s portfolio to secure representation in industry sectors with long-term
growth prospects. Our strategy targets investments in profitable companies in growth industries, with emphasis on
Building Products, Medical Devices, Personal Care, School and Corporate Wear and Retail Marketing products.
HGL is currently investigating potential opportunities in Medical Devices and Retail Marketing, and has recently completed
the acquisition of Intralux Australia in the Building Products segment.
HGL has received a number of approaches from third parties interested in acquiring businesses in the Group. Each of
these is being been assessed on merit, including consideration of the future opportunities for that particular business.
Acquisition of Intralux Australia
HGL’s wholly-owned subsidiary, JSB Lighting, completed the acquisition of Intralux Australia on 21 September 2017.
Intralux Australia is a specialist lighting company dedicated to designing and manufacturing technically advanced, energy
efficient and innovative commercial lighting products for niche market segments. The company was established in 1986
and is based in Brisbane.
The up-front investment was $0.5 million, with a trailing 7 year royalty payment based on future sales. The integration of the
Intralux operations into the JSB business structure is progressing well, with JSB expanding the brand in Australia and New
Zealand, and exploring opportunities in the global marketplace.
The Intralux acquisition provides an opportunity for JSB to expand a key brand with company owned intellectual property
in line with our strategic objective to increase sales generated from our own IP products.
Business Unit Review
JSB Lighting is a leading supplier of commercial lighting products within the Australian and New Zealand interior design
and architectural lighting markets.
JSB Lighting achieved revenue growth of 8.3% to $23.9 million, successfully expanding its market share with specific
geographical emphasis on Sydney, Melbourne and Perth, employing additional sales executives in these markets.
New sales offices were opened in Auckland and Christchurch during 2017, with three new sales executives. Although the
business is in a start-up phase, the New Zealand operations were profitable in 2017, with further positive signs for 2018.
Biante produces, imports and distributes scale model replica cars in diecast and resin formats, sold to motoring
enthusiasts, supercar fans and classic car collectors in Australia.
Delays in production and shipments arriving prior to balance date reduced sales by $1.8 million and contributed to an EBIT
loss of $0.2 million.
A new business manager was appointed in October 2017 and a number of restructuring activities have been implemented
to improve model selection and production flow on a lower operating cost base. There has been an encouraging uplift in
pre-order levels on announced new models, indicating higher sales volumes on the upcoming production schedule.
The company expects to sell more than 35,000 road and supercars over the next 12 to 18 months.
Biante is not considered a core part of the HGL Group. Regardless of the expected improved outlook, the Group is
considering an opportunity that has arisen to divest the Biante business.
BLC Cosmetics imports and distributes high quality skincare products, devices and nutritional supplements to beauty
salons, spas, wellness centres and skincare clinics in the Australia/Pacific region.
BLC Cosmetics had a 7.5% decline in sales, however solid sales growth was experienced for the Alpha-H, Comfort Zone
and Lightstim brands.
Thalgo sales were below last year consistent with an enduring decline in market demand for marine based beauty
products from consumers switching to brands offering anti-aging skincare treatment. The global product development
strategy of Thalgo is focussed specifically on the European market, with recent product rationalisation by Thalgo reducing
product categories popular in the Australian market.
4
HGL Limited Annual Report 2017
DIRECTORS’
REPORT
continued
To replace lost revenue in its major brand Thalgo, BLC Cosmetics continues to develop its emerging cosmeceutical brands
offering anti-aging solutions in the salon and spa market. The company is pursuing exclusive distribution rights for brands
with elevated formulations allowing expansion into medical skincare treatments.
BLC Cosmetics has implemented significant organisational changes with renewal of both sales and educational teams
to further lift sales. Promotional activities in 2018 includes focus on e-commerce solutions for Thalgo, Kerstin Florian and
Comfort Zone.
BLC Cosmetics relocated to HGL’s premises in Macquarie Park to reduce operational expenses and utilise the shared
services available.
The Homewares segment comprises Nido Interiors and Leutenegger.
Nido Interiors is a contemporary home interior business designing private label branded products delivered indent to
major homewares chains, specialist retailers, online sites and department stores. The product portfolio is concentrated on
indoor and outdoor cushions and bedding.
Now in its second year, Nido increased sales by 89%. Overheads reduced, however were offset by lower gross margins.
Nido’s business strategy shifted during the year to focus on supply of private label products into existing and new major
retail customers. The 2018 sales pipeline is already showing growth over 2017, which will facilitate a profitable and growing
business unit in 2018.
Leutenegger design, manufacture and promote premium fabrics, contemporary craft and needlecraft products to
specialist retailers in Australia and New Zealand.
Whilst significant investment in merchandising services and point-of-sale fixtures in major retailers increased sales,
Leutenegger did not yield the required or expected return on investment.
A review of the Leutenegger business is considering various restructuring or divestment options. The outcome of this
review is imminent.
The SPOS Group is a retail marketing business selling tailored retail display solutions in Australia and New Zealand.
SPOS achieved sales revenue of $10.5 million, up 4% on the prior period, driven by improved off-the-shelf product sales to
major retail chains as well as profitable custom projects for global brands.
The company’s performance continues to improve, maintaining gross margins and controlling expenses, with an improved
EBIT to sales ratio of 6.1%, up from 4.0% last year.
SPOS has recently won new client projects and maintained its position as a preferred supplier to Aldi supermarkets,
which is expected to contribute incremental revenue growth in 2018. The performance of the New Zealand operations is
continually improving, with an expanding pipeline of work.
Mountcastle, a 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 increased its market share in the private and public school wear market and recorded strong sales growth of
9.6% to $17.4 million.
The partnership with The School Locker, a Harvey Norman owned specialist retail chain, continues to evolve and
contributed significant uplift in public school uniform sales to $5.7 million, up from $3.0 million in the prior period.
The School Locker recently announced a merger with two other subsidiaries in the Harvey Norman group, selling
technology product and service solutions to the corporate and education sectors. With the combined product offering
and new geographical coverage in the educational sector, The School Locker is poised for significant future growth with
a sales force more than 30 staff and a support network of 150 service professionals.
On the back of the major growth in school wear this year and outlook to significantly increased demand by the School
Locker, Mountcastle is expanding capacity in its manufacturing facility in Vietnam to enable production of the required
current and future volumes.
The prospect of continued increased sales volumes of both private and public school uniforms provides a promising
performance outlook for Mountcastle cementing its position as a leading school wear supplier in Australia.
HGL Limited Annual Report 2017
5
Our People
HGL remains committed to support all employees to reach their full potential. During 2017 an additional development
program for emerging leaders was initiated. We continue to invest in leadership, talent management 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
Net operating cash outflow was $0.2 million (2016 net inflow of $0.1 million). The major impact on operating cash flow was
the performance of Leutenegger.
The Net Cash balance at 30 September 2017 was $2.1 million, down $1.7 million on the prior year. Major outflows included
$0.6 million in dividend payments and $0.5 million for the acquisition of Intralux. The banking facilities of $2.8 million were
renewed during the year.
Gross Gearing levels (Debt to Debt + Equity) remain very low, although this increased slightly to 7.3% from 6.4% in the
prior period.
Balance Sheet
The net assets of the group increased to $28.4 million from $27.2 million, largely due to the recognition of a deferred tax
asset on unused revenue losses.
Strong 4th quarter sales in 2017 compared to 2016 increased debtors at balance date.
Increases in inventory of $1.1 million over the prior year reflect $0.4 million of stock acquired through the Intralux
acquisition, plus $0.3 million of goods in transit for a one-off sale transaction completing in October 17. Small increases
across most of the business units were focussed on high turn stock items, as all businesses performed well in clearing
surplus stock at or above carrying value.
Trade creditors and accruals reduced by $0.8 million compared to last year, reflecting lower purchases in underperforming
businesses during the second half of 2017, as well as ensuring key supplier payment terms are met, building longer term
partnership loyalty.
An ongoing focus on working capital levels, and improved operational efficiencies, should result in a reduction of working
capital in future periods.
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:
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.
Currency risk – Exposure to foreign currency fluctuations (predominantly USD and Euro) is mitigated through the use of
hedging structures, and adjusting selling prices for changes in exchange rates on key contracts.
Financing risk – Access to funding for working capital and growth initiatives is important for future growth. Transparent and
positive relationships with lenders, low net 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.
6
HGL Limited Annual Report 2017
DIRECTORS’
REPORT
continued
The Environment
Although our operations have limited environmental impact, the consequences of business decisions on the environment
are seriously considered. Although we have little exposure to environmental risks, we strive to be environmentally friendly
and embrace technologies and processes that limit environmental impact.
Dividend
The Directors have declared a final dividend of 1.5 cents per share fully franked, to be paid on 23 January 2018 to
shareholders on the ordinary register at 5pm on 9 January 2018.
The full year dividend of 2.75 cents per share reflects the Directors’ confidence in the 2018 outlook for the Group.
The dividend reinvestment plan will continue to be available to all shareholders holding greater than 1,000 shares with
no discount.
Outlook
There is an ongoing improved outlook for our businesses, and together with suitable acquisitions we are confident
of revenue, earnings and dividend growth for the year. Businesses considered outside the stated strategic direction
of HGL may be divested if appropriate.
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 2017
7
Remuneration Report (audited)
The remuneration report outlines the director and executive remuneration arrangements of the Company for the 2017
financial year, in accordance with the requirements of the Corporations Act 2001 and its Regulations. It has been audited
in accordance with section 300(A) of the Corporations Act 2001.
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 2017. Unless otherwise indicated, the
individuals were KMP for the entire financial year.
Directors
Peter Miller
Dr Frank Wolf
Kevin Eley
Julian Constable
Cheryl Hayman
Executives
Henrik Thorup
Iain Thompson
Non-Executive Chair
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer & Company Secretary
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:
Cheryl Hayman
Committee Chair
Elected to the Committee as Chair on 26 September 2017
Peter Miller
Previous Committee Chair
Ceased as Committee Chair on 26 September 2017 but
remains a member of the Committee
Julian Constable
Dr Frank Wolf
Resigned from Committee on 31 October 2017
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;
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.
8
HGL Limited Annual Report 2017
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.
Where sought, remuneration recommendations are provided to the Committee as one input into decision making
only. The Committee considers any recommendations in conjunction with other factors in making its remuneration
determinations.
Executive Remuneration Arrangements
Remuneration Policy
The Group operates from three main locations in Australia and markets its products predominantly across Australia
and New Zealand. All Executive KMP are based in Australia.
Through an effective remuneration framework, the Group aims to:
1. Provide fair and equitable rewards;
2. Align rewards to business outcomes that are linked to creation of shareholder value;
3. Stimulate a high performance culture;
4. Encourage the teamwork required to achieve business and financial objectives;
5. Attract, retain and motivate high calibre employees; and
6. Ensure that remuneration is competitive in relation to peer companies in Australia.
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 and includes salary, superannuation and other benefits,
with the allocation between salary and other benefits at the executive’s discretion. 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
During the year an Executive Incentive Scheme was introduced for the HGL CEO. The scheme provides the CEO with
the opportunity to earn an incentive payment once minimum threshold targets are achieved. The value of the maximum
incentive opportunity is 75% of fixed annual remuneration.
Key Structural Components
The variable component is assessed against targets set by the Board of Directors at the start of each financial year.
Testing is performed on completion of the audited financial statements for the same financial year, and this assessment
occurs once, with no subsequent re-testing.
Any variable component earned for the financial year is then split, with 50% payable immediately, 25% deferred for
12 months and 25% deferred for 24 months. Payment is made in cash in the December pay run of the relevant year.
The deferred payment amounts are only payable subject to ongoing employment, and can be cancelled in the event
of fraud or dishonesty. The deferred component may be paid if the CEO leaves the Company on good terms, at the
absolute discretion of the board.
HGL Limited Annual Report 2017
9
Remuneration Report (audited) (continued)
Performance hurdles for 30 September 2017
The performance measures determined by the Board are Group EPS and Return on Funds Employed (ROFE). Target levels
are set in advance by the Board.
‒ 75% of variable remuneration is based on statutory EPS as disclosed in the annual report, adjusted for extraordinary
items which are determined at the absolute discretion of the board; and
‒ The remaining 25% of variable remuneration is based on ROFE, measured as Earnings Before Interest and Tax (EBIT)
as a percentage of average funds employed.
Incentive payments are only calculated once a threshold performance level has been achieved, and are then based on a
pro rata scale. The specific targets will be determined by the Board based on a number of factors, which may include the
following:
‒
‒
‒
‘Threshold’ level (0% of total entitlement - generally equal to the prior year performance)
‘Target’ level (60% of total entitlement - expected to be equal to the approved budget)
‘Stretch’ level (maximum 100% of entitlement - board to set performance requirements)
There are no incentive scheme payments to be made in relation to the 2017 financial year, as the threshold targets were
not achieved.
There was no formal incentive scheme in place during the 2017 financial year for any other KMP. The Nomination and
Remuneration Committee has determined there will be no short term incentives paid to other KMP in relation to the 2017
financial year, due to the disappointing financial results for the Group.
There was no formal incentive scheme in place during the 2016 financial year. Short term incentives totalling $110,000
were paid in relation to the 2016 financial year.
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.
10
HGL Limited Annual Report 2017
DIRECTORS’
REPORT
continued
Remuneration Report (audited) (continued)
Executive & Board Remuneration
2017
Directors
Peter Miller
Dr Frank Wolf
100,457
63,927
Julian Constable
54,795
Kevin Eley
52,656
Cheryl Hayman (1)
45,662
Total Directors
317,497
Executives
Henrik Thorup
455,000
Iain Thompson
245,276
Total executives
700,276
Total KMP
remuneration
1,017,773
2016
Directors
Peter Miller
Dr Frank Wolf
100,457
63,927
Julian Constable
54,795
Kevin Eley
54,795
Total Directors
273,974
Executives
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
remunera
tion
%
Total
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,543
6,073
5,205
7,344
4,338
32,503
21,496
36,923
25,000
–
20,385
19,724
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,633
4,423
21,496
57,308
44,724
– 12,056
–
–
–
–
–
–
–
–
–
110,000
70,000
60,000
60,000
50,000
350,000
546,052
289,808
835,860
21,496
57,308
77,227
– 12,056
– 1,185,860
–
–
–
–
–
–
–
–
–
–
(1) C Hayman commenced as a director on 1 December 2016.
Short term benefits
Salary
& fees
$
Short term
bonus(2)
$
Non
monetary
benefits
$
Post
employment
benefits
Annual
leave
$
Super-
annuation
$
Long term benefits
Long
service
leave
$
Termination
payments
$
Long
term
incentives
$
Percentage
variable
remunera
tion
%
Total
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
119,687
303,066
–
–
–
–
–
13
–
10
23
23
Henrik Thorup
455,000
80,000
12,097
36,923
25,000
Julian Pidcock(1)
107,642
–
Iain Thompson
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
Total KMP
remuneration
1,067,231 110,000
12,097
59,298
79,312
– 11,488
_ 1,339,426
(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) Represents short term bonuses earned in relation to the 2016 Financial Year, which were paid in December 2016.
HGL Limited Annual Report 2017
11
Remuneration Report (audited) (continued)
Relationship between the Remuneration Policy and Company Performance
Short term incentives are largely determined by the underlying profit (EBIT), Earnings Per Share (EPS) and Return on
Funds Employed (ROFE) of the Group. These criteria are important among a number of factors used to determine dividend
payments, with underlying profit being a preferred indicator to assess future earnings and therefore dividend opportunities.
The Board is focused on increasing shareholder value through increasing dividends.
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.
No portion of any incentive schemes are solely linked to the HGL share price.
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
given the disappointing performance in the current year, there have been no incentive payments made to KMP in relation
to the current financial year.
Total Revenue ($000)
Underlying profit ($000)
Net profit after tax ($000)
Return on Funds Employed (%)
Share price at year end ($)
Underlying Earnings Per Share (cents)
Statutory Earnings per Share (cents)
Dividends – ordinary shares (cents)
2013
2014
2015
2016
2017
68,986
(421)
(8,772)
(16.6)
0.525
(0.8)
(16.8)
4.0
50,771
533
(21,430)
(50.7)
0.490
1.0
(39.4)
2.0
52,000
52,252
52,061
2,615
3,722
19.8
0.360
4.8
6.9
1.5
3,008
4,313
19.1
0.445
5.4
7.9
2.5
2,253
2,727
10.4
0.500
3.9
4.8
2.75
Non-executive Director Remuneration Arrangements
Non-executive directors are not employed under employment contracts. Non-Executive Directors are appointed under
a letter of appointment and are subject to election and rotation requirements as set out in the ASX listing rules and the
Company’s constitution.
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.
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. Total Non-Executive Director’s remuneration including superannuation paid at the
statutory prescribed rate for the year ended 30 September 2017 was $350,000 which is within the approved amount.
Non-Executive Directors fees have not changed during the current or prior financial year, with the increase in aggregate
fees paid due to the appointment of an additional director during the 2017 financial year.
12
HGL Limited Annual Report 2017
DIRECTORS’
REPORT
continued
Remuneration Report (audited) (continued)
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 2017
Opening Balance
DRP shares
Purchases
Disposals
Closing balance
Indirect Holding
Executive directors
Peter Miller
Dr Frank Wolf
Kevin Eley
Julian Constable
Cheryl Hayman(1)
Senior executives
Henrik Thorup
Iain Thompson
11,883,709
609,047
721,038
854,258
6,107,534
–
43,782
302,730
–
–
–
–
5,323
274
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,492,756
12,441,565
721,038
898,040
721,038
898,040
6,410,264
6,210,264
–
–
5,597
–
–
–
(1) Commenced as a director on 1 December 2016
– End of Audited Remuneration Report –
HGL Limited Annual Report 2017
13
Indemnification and Insurance of Directors and Officers
During the year, the Company purchased Directors’ and Officers’ Liability Insurance to provide cover in the event a claim is
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 15.
Non-Audit Services
The following non-audit services were provided by the entity’s auditor, Deloitte Touche Tohmatsu. The directors are
satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that
auditor independence was not compromised.
Deloitte Touche Tohmatsu received or are due to receive the following amounts for the provision of non-audit services:
Tax compliance services
Tax advisory services
Consolidated
entity
$
8,750
10,000
18,750
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 any 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.
14
HGL Limited Annual Report 2017
DIRECTORS’
REPORT
continued
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
Cheryl Hayman(1)
Meetings of committees
Directors’
meetings
Audit
Nomination and
Remuneration
12
12
11
12
12
10
4
4
4
4
N/A
N/A
3
3
3
N/A
3
N/A
(1) C Hayman was appointed to the board of HGL on 1 December 2016, and to the Nomination and Remuneration Committee on
26 September 2017. Cheryl has attended every board meeting since her appointment. There were no Committee meetings held
between her appointment to the Committee and the reporting date.
Corporate Governance
The Company’s Corporate Governance Statement for the year ended 30 September 2017 is effective 21 November 2017
and was approved by the Directors on 21 November 2017. 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 Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191. 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, 21 November 2017
Dr Frank Wolf
Director
AUDITOR’S INDEPENDENCE
DECLARATION
HGL Limited Annual Report 2017
15
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Phone: +61 2 9322 7000
Deloitte Touche Tohmatsu
www.deloitte.com.au
ABN 74 490 121 060
Grosvenor Place
225 George Street
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Sydney, NSW, 2000
Australia
Australia
Independent Auditor’s Report to the
Members of HGL Limited
Phone: +61 2 9322 7000
www.deloitte.com.au
Phone: +61 2 9322 7000
www.deloitte.com.au
21 November 2017
Report on the Audit of the Financial Report
Independent Auditor’s Report
to the Shareholders of HGL Limited
HGL Limited
The Board of Directors
Opinion
Report on the Financial Report
HGL Limited
Level 2
We have audited the financial report of HGL Limited (the “Company”) and its subsidiaries (the “Group”)
68-72 Waterloo Road
We have audited the accompanying financial report of HGL Limited, which comprises the
which comprises the consolidated statement of financial position as at 30 September 2017, the consolidated
MACQUARIE PARK NSW 2113
statement of financial position as at 30 September 2016, the statement of profit or loss,
statement of profit or loss and other comprehensive income, the consolidated statement of changes in
the statement of comprehensive income, the statement of cash flows and the statement
equity and the consolidated statement of cash flows for the year then ended, and notes to the financial
of changes in equity for the year ended on that date, notes comprising a summary of
statements, including a summary of significant accounting policies and other explanatory information, and
significant accounting policies and other explanatory information, and the directors’
Dear Board Members
the directors’ declaration.
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
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
pages 1(cid:23) to (cid:23)6.
2001, including:
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
Directors’ Responsibility for the Financial Report
declaration of independence to the directors of HGL Limited.
(i)
giving a true and fair view of the Group’s financial position as at 30 September 2017 and of its financial
performance for the year then ended; and
The directors of the company are responsible for the preparation of the financial report
As lead audit partner for the audit of the financial statements of HGL Limited for the financial year
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
that gives a true and fair view in accordance with Australian Accounting Standards and
ended 30 September 2017, I declare that to the best of my knowledge and belief, there have been no
the Corporations Act 2001 and for such internal control as the directors determine is
contraventions of:
necessary to enable the preparation of the financial report that gives a true and fair view
Basis for Opinion
and is free from material misstatement, whether due to fraud or error. In Note 1, the
the auditor independence requirements of the Corporations Act 2001 in relation to the audit;
(i)
directors also state, in accordance with Accounting Standard AASB 101 Presentation of
and
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
Financial Statements,
financial statements comply with
any applicable code of professional conduct in relation to the audit.
(ii)
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
International Financial Reporting Standards.
of our report. We are independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards
Yours faithfully
Auditor’s Responsibility
Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the
Our responsibility is to express an opinion on the financial report based on our audit. We
Code.
conducted our audit in accordance with Australian Auditing Standards. Those standards
DELOITTE TOUCHE TOHMATSU
require that we comply with relevant ethical requirements relating to audit engagements
We confirm that the independence declaration required by the Corporations Act 2001, which has been given
and plan and perform the audit to obtain reasonable assurance whether the financial
to the directors of the Company, would be in the same terms if given to the directors as at the time of this
report is free from material misstatement.
auditor’s report.
the consolidated
that
An audit involves performing procedures to obtain audit evidence about the amounts and
Tara Hill
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
Partner
disclosures in the financial report. The procedures selected depend on the auditor’s
opinion.
Chartered Accountants
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
Key Audit Matters
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
Key audit matters are those matters that, in our professional judgement, were of most significance in our
effectiveness of the company’s internal control. An audit also includes evaluating the
audit of the financial report for the current period. These matters were addressed in the context of our audit
appropriateness of accounting policies used and the reasonableness of accounting
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
estimates made by the directors, as well as evaluating the overall presentation of the
opinion on these matters.
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.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
60
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
16
HGL Limited Annual Report 2017
CONSOLIDATED STATEMENT
OF PROFIT OR LOSS
for the year ended 30 September 2017
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
2017
$’000
2016
$’000
52,061
(28,861)
23,200
65
(9,530)
(1,555)
(2,106)
(8,842)
(134)
942
2,040
687
2,727
52,252
(28,792)
23,460
103
(9,232)
(1,404)
(2,495)
(8,459)
(133)
957
2,797
1,516
4,313
2,727
4,313
Cents
Cents
7
7
4.8
4.8
7.9
7.9
These statements should be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF
OTHER COMPREHENSIVE INCOME
for the year ended 30 September 2017
Profit for the year
Other comprehensive income
Other comprehensive (loss)/income to be reclassified to profit or loss in subsequent periods
(net of tax):
Exchange differences on translation of foreign operations
Net other comprehensive (loss)/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
HGL Limited Annual Report 2017
17
Consolidated entity
2017
$’000
2016
$’000
2,727
4,313
(31)
(31)
32
32
2,696
4,345
2,696
4,345
These statements should be read in conjunction with the accompanying notes.
18
HGL Limited Annual Report 2017
BALANCE SHEET
as at 30 September 2017
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
Total current liabilities
Non-current liabilities
Provisions
Other financial liabilities
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
2017
$’000
2016
$’000
18
8
9
10
11
12
5
13
14
15
15
14
16
17
4,381
9,754
6,950
1,445
5,626
9,137
5,813
1,180
22,530
21,756
4,994
1,261
12,066
2,817
21,138
43,668
7,687
2,250
2,795
4,852
1,410
10,166
2,065
18,493
40,249
8,386
1,800
2,560
12,732
12,746
852
1,702
2,554
15,286
28,382
38,496
(1,077)
(9,037)
28,382
1,188
–
1,188
13,934
26,315
37,582
(1,046)
(10,221)
26,315
HGL Limited Annual Report 2017
19
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
for the year ended 30 September 2017
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
Total equity
$’000
37,582
(145)
(901)
(10,221)
26,315
922
(8)
–
–
–
–
–
–
–
(31)
(31)
–
–
–
–
–
–
–
–
–
922
(8)
2,727
2,727
–
(31)
2,727
2,696
(1,543)
(1,543)
38,496
(176)
(901)
(9,037)
28,382
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
Total equity
$’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
For the year ended 30 September 2017
As at 1 October 2016
Shares issued under a 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 2017
For the year ended 30 September 2016
As at 1 October 2015
Shares issued under a 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
These statements should be read in conjunction with the accompanying notes.
20
HGL Limited Annual Report 2017
CONSOLIDATED STATEMENT
OF CASH FLOWS
for the year ended 30 September 2017
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 (used in)/from operating activities
Investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Acquisition of a subsidiary, net of cash acquired
Net cash flows used in investing activities
Financing activities
Proceeds from borrowings
Dividends paid
Net cash flows (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 October
Cash and cash equivalents at 30 September
Consolidated entity
2017
$’000
2016
$’000
Notes
56,035
57,704
(56,962)
(58,077)
63
(134)
800
(198)
3
(368)
(511)
(876)
450
(621)
(171)
(1,245)
5,626
4,381
59
(133)
550
103
40
(427)
–
(387)
1,800
(573)
1,227
943
4,683
5,626
18
11
26
18
18
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2017
21
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 30 September 2017
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.
(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 2017. 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 2017 were authorised for issue
in accordance with a resolution of the directors on
21 November 2017.
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.
22
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies (continued)
2.3 Changes in Accounting Policies, Disclosures, Standards and Interpretations (continued)
(ii)
Accounting Standards and Interpretations Issued but not yet Effective (continued)
Expected to be initially applied
in the financial year ending
Assessment of impact
AASB 9 ‘Financial Instruments’,
and the relevant amending
standards
30 September 2019
AASB 15 ‘Revenue from Contracts
with Customers’ and the relevant
amending standards
30 September 2019
AASB 16 'Leases'
30 September 2020
The main impact of this standard on the Group will be
through a simpler treatment of hedge accounting for the
group, with more hedging transactions likely to qualify for
hedge accounting through equity, and through a change
to the accounting for doubtful debt provisions, with a less
customer specific approach to accounting provisions to
be used. The Group is still determining the final impact
of this standard, however initial assessments suggest
there will not be a material impact of this standard on the
financial statements of the group.
The new revenue recognition standard will require
businesses to recognise revenue in line with the
satisfaction of separate performance obligations within a
customer contract. The Group transacts predominantly
through repeating individual sales of goods which are
not subject to supply contracts beyond standard trading
terms of sale. Whilst a project is underway to assess the
full impact of this new standard, the initial assessment
suggests there will not be a material impact of this
standard on the financial statements of the group.
The Group is a lessee under a number of arrangements
currently classified as operating leases, mainly based
around property leases. The new leasing standard
requires operating leases to be brought on balance
sheet, with the recognition of both assets and liabilities
associated with the lease. There will also be a change to
the expense pattern, with the ‘rent’ expense being split
into depreciation and interest components, increasing
both EBIT and EBITDA profit measures. With the Group’s
existing lease profile, this standard is expected to result
in a non-material increase in total assets, total liabilities,
EBIT and EBITDA.
The impact of the following relevant accounting standards, with an application date to the Group of 30 September 2018,
have been assessed as follows:
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’
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.
HGL Limited Annual Report 2017
23
2. Summary of Significant Accounting Policies
(continued)
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 2017. 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.
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.
24
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies
(continued)
2.4 Significant Accounting Policies (continued)
(b) Business Combinations and Goodwill (continued)
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.
Investment in Associates
(c)
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.
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.
HGL Limited Annual Report 2017
25
2. Summary of Significant Accounting Policies
(continued)
2.4 Significant Accounting Policies (continued)
(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 the record date of 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.
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.
26
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies
(continued)
2.4 Significant Accounting Policies (continued)
(f) Taxes (continued)
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
3 to 10 years
the lease term
(typically up to 5 years)
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.
HGL Limited Annual Report 2017
27
2. Summary of Significant Accounting Policies
(continued)
2.4 Significant Accounting Policies (continued)
(i) Leases (continued)
Group as a Lessee (continued)
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 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.
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.
28
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
2. Summary of Significant Accounting Policies
(continued)
2.4 Significant Accounting Policies (continued)
(l)
Financial Instruments - Initial Recognition
and Subsequent Measurement (continued)
(ii) Financial Liabilities (continued)
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.
Inventories
(n)
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.
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. An allowance is also made when historical
selling prices approach cost, to reflect the potential
requirement for discounting product to clear.
(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.
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.
HGL Limited Annual Report 2017
29
2. Summary of Significant Accounting Policies
(continued)
Contributions to defined contribution superannuation
plans are expensed when incurred.
2.4 Significant Accounting Policies (continued)
(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.
(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.
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
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.
30
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
Deferred Tax Assets (Note 5)
Determining the extent to which deferred tax asset
balances should be recognised requires an estimation
of future taxable profit. 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 or franked 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 Group expects
that revenue losses utilisation will increase significantly
over the 2018 financial year and beyond, as the group
profile changes.
As the Group continues to generate future taxable profits,
this deferred tax asset will be brought to account.
Acquisition Accounting (Note 26)
An assessment of the fair value of assets acquired
and liabilities assumed, on the acquisition of business
operations, requires assumptions to be made on the
future use of those assets and liabilities. In addition, the
identification of separate identifiable intangible assets,
along with their fair values, requires an assessment of the
relative components of intangible assets acquired.
Calculation of deferred contingent consideration requires
assumptions surrounding future performance of the
portion of the business acquired, potentially covering
a number of years into the future.
The key assumption for the calculation of deferred
contingent consideration relate to projected future sales
of the Intralux line of products. Estimates have been based
on historical sales levels, size of the sales force, channels
to market and size of market.
2. Summary of Significant Accounting Policies
(continued)
2.4 Significant Accounting Policies (continued)
(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. 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, and central administration costs 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:
HGL Limited Annual Report 2017
31
Notes
11
Consolidated entity
2017
$’000
2016
$’000
52,061
52,252
419
211
630
13,580
877
14,457
(57)
(138)
1,450
76
308
224
532
13,237
889
14,126
(42)
(631)
1,318
(9)
134
134
133
133
4. Profit from Operations
4.1 Revenue
Sales revenue
4.2 Expenses
Depreciation
Expensed to profit and loss
– Plant and Equipment
Depreciation – absorbed into 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 – interest expense and line fees
Total finance costs
32
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
4. Profit from Operations (continued)
4.4 Other Income
Interest
Financial Institutions
Total interest
Other income
Total other income
Consolidated entity
2017
$’000
2016
$’000
62
62
3
65
60
60
43
103
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 after tax
2,253
3,008
Non-underlying items
Non-underlying profit from equity accounted associate(1)
Restructuring costs(2)(3)
Other non-underlying items(2)
Total non-underlying items before tax
Recognition of deferred tax assets
Total non-underlying items after tax
Statutory profit after tax
(1) Disclosed in “Share of associates profit/(loss)” in statement of profit and loss
(2) Disclosed in “Administration expenses” in statement of profit and loss
(3) Disclosed in “Sales, marketing and advertising expenses” in statement of profit and loss
8
(137)
(61)
(190)
664
474
2,727
90
(238)
–
(148)
1,453
1,305
4,313
HGL Limited Annual Report 2017
33
5. Income tax
The major components of income tax expense for the years ended 30 September 2017 and 2016 are:
Consolidated statement of profit or loss
Current tax
Over provision In respect of prior years
Deferred tax
In respect of the current year
Relating to origination and reversal of temporary differences
Re-recognition of deferred tax assets
Consolidated entity
2017
$’000
2016
$’000
(23)
(23)
517
(27)
(1,154)
(664)
(63)
(63)
470
(1,923)
–
(1,453)
Total income tax expense recognised in the current year relating to continuing
operations
(687)
(1,516)
Prima facie income tax benefit on profit from ordinary activities at 30% (2016: 30%)
Differences in overseas tax rates
Equity accounted investments
Recognition of deferred tax assets
Recognition of deferred revenue losses
Non allowable expenses
Usage of previously unrecognised revenue losses
Over provision of prior years
Other
Deferred tax
Deferred tax assets comprises:
Consolidated entity
2017
Opening balance
Charged to income
Total
2016
Opening balance
Charged to income
Total
612
3
(43)
(27)
(1,154)
27
–
(23)
(82)
839
(3)
(122)
(1,923)
–
89
(328)
(63)
(5)
(687)
(1,516)
Provisions
$’000
Plant &
Equipment
$’000
1,761
(256)
1,505
611
1,150
1,761
161
(122)
39
–
161
161
Other
$’000
143
(24)
119
–
143
143
Revenue
Losses
$’000
–
1,154
1,154
–
–
–
Total
$’000
2,065
752
2,817
611
1,454
2,065
34
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
5. Income Tax (continued)
Deferred tax (continued)
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilised. As the Group is currently generating taxable profits, a deferred tax asset of
$1.154m representing $3.8 million of revenue losses has been recognised during the current financial year.
The group has a further $14.6 million of gross revenue losses, and $11.1 million of gross capital losses, which have not
been brought to account at 30 September 2017.
6. Dividends Paid and Proposed
Declared and paid during the year:
Final dividend for 2016: 1.5 cents per share (2015: 1.5 cents)
Interim dividend for 2017: 1.25 cents per share (2016: 1.0 cents)
Dividends paid in cash or satisfied by the issue of shares under the Dividend
Reinvestment Plan:
Paid in Cash
Satisfied by issue of shares under DRP
Dividends paid
Proposed dividends on ordinary shares:
Consolidated entity
2017
$’000
2016
$’000
835
708
810
549
1,543
1,359
621
922
573
786
1,543
1,359
Proposed final dividend of 1.5 cents per share not recognised as a liability as at 30 September
(2016: 1.5 cents per share)
860
835
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% (2016: 30%)
9,417
9,822
Franking debits that will arise from the payment of dividends subsequent to the end of the
financial year
(369)
9,048
(358)
9,464
Dividend reinvestment plan
Brief details of the Plan are:
shareholders are eligible to participate, except where local legislation prevents it;
‒
‒ participation is optional;
‒
‒ minimum holding requirement of 1,000 ordinary shares;
‒ payment is made through the allotment of shares, rather than cash, at a discount determined by the Directors at the date
full or partial participation is available;
of declaration of up to 7.5% on the average market 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 2017
35
7. Earnings Per Share (EPS)
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
2017
$’000
2,727
2,727
2016
$’000
4,313
4,313
2017
2016
56,487,167
54,851,549
56,487,167
54,851,549
Cents
4.8
4.8
9,471
(159)
9,312
442
9,754
Cents
7.9
7.9
9,008
(237)
8,771
366
9,137
(237)
(302)
57
21
42
23
(159)
(237)
7,806
971
272
216
206
7,032
1,351
336
145
144
9,471
9,008
36
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
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
2017
Mountcastle Pty Ltd
Createc Pty Ltd (in liquidation)
2016
Mountcastle Pty Ltd
Createc Pty Ltd (in liquidation)
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
2017
$’000
2016
$’000
6,950
5,813
Ownership
interest
%
Carrying
value
$’000
Profit
contribution
$’000
50
50
50
50
4,896
98
4,994
4,762
90
4,852
934
8
942
867
90
957
Consolidated entity
2017
$’000
11,111
747
(1,810)
(257)
9,791
50%
4,896
2016
$’000
11,720
717
(2,708)
(206)
9,523
50%
4,762
HGL Limited Annual Report 2017
37
Consolidated entity
2017
$’000
2016
$’000
1,018
(649)
(58)
17,433
1,868
800
86
39
5
800
1,149
(1,191)
–
15,900
1,735
550
74
28
5
743
10. Investment in Associates (continued)
The above amounts of assets and liabilities include the following:
Cash and cash equivalent
Current financial liabilities
Non-current financial liabilities
Revenues
Profit after income tax from continuing operations
Share of dividends paid
The above profit for the year includes the following:
Depreciation and amortisation
Interest expenses
Interest income
Income tax expense
There were no capital or lease commitments, and no contingent liabilities incurred at balance date.
Createc Pty Ltd
During the 2017 financial year, Createc Pty Ltd was placed in voluntary liquidation by the members. The carrying value at
30 September 2017 reflects the expected distribution to shareholders on winding up.
Current assets
Current liabilities
Net Assets
Ownership Interest
Carrying amount of the investment
197
–
197
50%
98
217
(17)
200
50%
90
38
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
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
Acquisitions of a subsidiary (Note 26)
Transfers from prepayments
Depreciation expense
Exchanges differences
Net book value at the end of the financial year
12. Intangible Assets
Goodwill
At cost
Reconciliation of carrying amounts at the beginning and the end of the year
Goodwill
Cost or valuation
At 1 October
Acquisition of business (provisionally accounted) (Note 26)
At 30 September
Consolidated entity
2017
$’000
2016
$’000
3,243
(1,982)
1,261
2,879
(1,469)
1,410
1,410
368
44
72
(630)
(3)
1,261
918
427
–
599
(533)
(1)
1,410
12,066
12,066
10,166
10,166
10,166
1,900
12,066
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.
HGL Limited Annual Report 2017
39
12. Intangible Assets (continued)
Key Assumptions
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.
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 13.6% (2016: 13.8%) was applied to the cash flow projections.
Long term growth rates used were between 2.5% (sales) and 5% (costs) (2016: 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
The average credit period on purchases is generally 30-60 days.
14. Financial Assets and Financial Liabilities
14.1 Financial Liabilities, Interest-Bearing Loans and Borrowings
Secured bank loan
Current
Secured at amortised cost
Variable rate bank loans
Consolidated entity
2017
$’000
2016
$’000
7,687
8,386
2,250
1,800
The borrowing facility is a $2.8 million cash advance and trade finance 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 Bank Bill Rate at each drawdown.
The carrying amounts of borrowings reasonably approximate fair value.
Other financial liabilities
Non current
Contingent consideration (Note 3)
1,702
–
As part of the purchase agreement with the previous owner of Intralux Australia, an amount of contingent consideration
has been agreed. The consideration is dependant on the sales of Intralux during a 7 year period (see Note 26). There has
been no change in the fair value of the contingent consideration since the acquisition date.
40
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
14. Financial Assets and Financial Liabilities (continued)
14.1 Financial Liabilities, Interest-Bearing Loans and Borrowings (continued)
The contingent consideration was estimated using the discounted cash flow method to capture the present value of the
expected future cash outflows arising from the transaction. Future royalty payments to the vendor are based on sales
revenues from branded product ranges over a base level of sales. Probability-adjusted revenues range from a low point
of $1,500,000 in the first year to a high of $8,000,000 in the final year of the agreement. Reasonably foreseeable variations
in the sales forecasts, and their associated probabilities used, could result in a material increase in 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
Creditors and accruals
Borrowings - Variable rate loans
Contingent consideration
Notes
18
8
13
14.1
Consolidated entity
2017
$’000
2016
$’000
4,381
9,471
5,626
9,008
13,852
14,634
7,687
2,250
1,702
8,386
1,800
–
11,639
10,186
Fair values of financial assets and liabilities are disclosed in the notes to the accounts where those items are listed.
HGL Limited Annual Report 2017
41
14. Financial assets and financial liabilities (continued)
14.2 Financial Risk Management Objectives and Policies (continued)
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
2017
$’000
2,800
2,741
59
2016
$’000
2,800
1,800
1,000
The Group has a $2.8 million (2016: $2.8 million) cash advance and trade finance 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
7,687
7,687
8,386
8,386
%
–
%
–
4.16
4.17
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 $2,621,000 (2016: $2,544,000) of foreign currencies monetary liabilities mainly in USD and Euro.
The Group has $1,629,000 (2016: $555,000) of foreign currencies monetary assets mainly in USD and NZD.
In addition the Group has $1,879,000 (2016: $2,629,000) of foreign currency forward contracts outstanding at balance
date, in a net liability fair value position of $25,000 (2016: $22,000) 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 2017 and 2016 net
outstanding foreign currency exposure.
42
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
14. Financial assets and financial liabilities (continued)
14.2 Financial Risk Management Objectives and Policies (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 $19,000 higher or lower respectively (2016: $18,000).
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
2017
$’000
2016
$’000
2,316
479
2,795
523
329
852
2,081
479
2,560
389
799
1,188
Surplus
lease
provisions
2017
$’000
1,278
(470)
808
479
329
808
HGL Limited Annual Report 2017
43
16. Issued capital
Ordinary shares issued and fully paid
Number
$’000
Number
$’000
2017
2016
Balance at the beginning of the financial year
55,657,919
37,582
53,956,011
36,802
Allotted pursuant to HGL dividend reinvestment plan
1,701,662
Costs associated with shares issued
–
922
(8)
1,701,908
–
786
(6)
Balance at the end of the financial year
57,359,581
38,496
55,657,919
37,582
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
2017
$000
(176)
(901)
2016
$000
(145)
(901)
(1,077)
(1,046)
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
4,381
4,381
5,626
5,626
44
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
18. Cash Flow Information (continued)
Reconciliation of cash flow from operations with operating profit after income tax
Profit after tax from continuing operations
2,727
4,313
Consolidated entity
2017
$’000
2016
$’000
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 (used in)/from operating activities
633
(3)
(142)
(618)
(715)
(265)
(754)
(736)
–
155
(480)
(198)
533
(40)
(407)
(1,182)
(590)
(327)
(1,453)
(355)
(63)
(54)
(272)
103
HGL Limited Annual Report 2017
45
Parent entity
2017
$’000
600
19,128
19,728
2,419
45
2,464
17,264
38,496
381
2016
$’000
683
16,057
16,740
2,205
3,280
5,485
11,255
37,582
380
(59,220)
(59,220)
37,607
17,264
6,641
32,513
11,255
(1,190)
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/(loss) of the Parent entity
As noted above, there is a working capital deficiency of $1,864,000 (2016: $1,522,000). 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.
Consolidation entries recorded in the prior year in respect of the stand-alone parent entity were not correct, and as a
consequence, the comparative figures in the parent entity note have been restated to ensure compatibility and consistency
with the current year.
The restatement resulted in a decrease in non-current assets of $4,317,000, a decrease in retained earnings of $3,127,000,
an increase in accumulated losses of $1,191,000, and a decrease in total comprehensive income of $3,560,000 as at
ended 30 September 2016.
The restatement did not impact the consolidated financial statements for the year ended 30 September 2017.
46
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
20. Segment Information
2017
Revenue from sales to external
customers
Depreciation
Segment EBIT
2016
Revenue from sales to external
customers
Depreciation
Segment EBIT
Reconciliation of Profit or Loss
Building
products
$’000
Collectables
$’000
Health
& beauty
$’000
Homewares
$’000
Retail
marketing
$’000
Aggregated
segments
$’000
23,850
203
4,208
3,989
6,093
87
(145)
40
43
7,771
69
(1,080)
10,358
52,061
9
643
408
3,669
22,018
204
3,806
5,849
6,587
49
329
28
158
7,747
6
(380)
10,051
52,252
8
402
295
4,315
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
2017
$’000
2016
$’000
3,669
4,315
942
(134)
(190)
(2,247)
2,040
867
(73)
(148)
(2,164)
2,797
‒ 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 $4.2 million (2016: $2.8 million)
HGL Limited Annual Report 2017
47
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
Total compensation paid to key management personnel
Consolidated entity
2017
$
2016
$
1,096,577
1,248,626
77,227
12,056
79,312
11,488
1,185,860
1,339,426
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
2017
$’000
1,459
1,365
2,824
2016
$’000
1,491
2,449
3,940
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.
48
HGL Limited Annual Report 2017
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
continued
24. Auditors’ Remuneration
The auditor of HGL Limited is Deloitte Touche Tohmatsu.
Consolidated entity
2017
$
2016
$
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
244,600
237,600
Other non-audit services in relation to the entity and any other entity in the consolidated group
18,750
–
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
Country of incorporation
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
Ownership interest
2017
%
100
100
100
100
100
100
100
100
2016
%
100
100
100
100
100
100
100
100
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 2017
49
26. Business Combinations and Acquisition of Non-controlling Interests
Acquisitions in 2017
Intralux Australia
On 21 September 2017, the Group acquired the business and assets of Intralux Australia, a manufacturer of high quality
lighting solutions. The purchase price was settled through the payment of $511,000 of cash and contingent amounts are
also payable based upon a percentage of revenue above an agreed revenue target for the financial years 2018 to 2024.
The fair value of the obligation at acquisition date is $1,702,000.
The acquisition of Intralux gives the building products segment access to products that fills a potential gap in the Group’s
product offering, as well as opening up previously unavailable export markets.
Assets acquired and Liabilities Assumed
Purchase consideration
Cash Paid
Contingent consideration
Total consideration
Assets and liabilities
Inventories
Property, plant and equipment (Note 11)
Deferred tax assets
Employee entitlements assumed
Goodwill (a)
Fair value of net assets acquired
$’000
511
1,702
2,213
423
44
68
(222)
1,900
2,213
Upon acquisition the acquired business was integrated within the existing building products segment. There were no sales
of Intralux products recognised between acquisition and balance date.
(a) Provisional Accounting
Given the proximity to year end, the acquisition accounting has been prepared on a provisional basis. The assets for
which final accounting has not been completed include intellectual property intangible assets.
(b) Acquisition Cost
The Group incurred acquisition costs of $6,000. These costs have been included in Administration and other expenses.
50
HGL Limited Annual Report 2017
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 2017 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 2017 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 2017.
On behalf of the board
Peter Miller
Chairman
Sydney, 21 November 2017
Dr Frank Wolf
Director
INDEPENDENT
AUDITOR’S REPORT
to the members of HGL Limited
HGL Limited Annual Report 2017
51
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
Independent Auditor’s Report to the
Members of HGL Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of HGL Limited (the “Company”) and its subsidiaries (the “Group”)
which comprises the consolidated statement of financial position as at 30 September 2017, the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of changes in
equity and the consolidated statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other explanatory information, and
the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as at 30 September 2017 and of its financial
performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
of our report. We are independent of the Group in accordance with the auditor independence requirements of
the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards
Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the
Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given
to the directors of the Company, would be in the same terms if given to the directors as at the time of this
auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report for the current period. These matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
52
HGL Limited Annual Report 2017
INDEPENDENT
AUDITOR’S REPORT
to the members of HGL Limited continued
Key Audit Matter
How the scope of our audit responded to the
Key Audit Matter
Recognition of Deferred Tax Assets
As disclosed in Notes 3 and 5 at 30
September 2017, the Group has recognised
$2.8 million of deferred tax assets, of which
$1.2m relate to unused tax losses, in the
consolidated statement of financial position.
We have identified the recognition of deferred
tax assets as a key audit matter due to the
management judgment involved in
determining the extent to which deferred tax
assets should be recognised in relation to
unused tax losses. Management’s judgement
is based on a number of factors, including the
estimate of taxable profits available in future
periods to support recognition.
Accounting for Acquisitions
As disclosed in Note 26 ‘Business
Combinations’, the Group made an acquisition
on 21 September 2017 which was accounted
for on a provisional basis.
Accounting for this transaction is complex,
requiring management to estimate the fair
value of the total purchase consideration.
One of the components of the purchase
consideration is contingent in nature and
judgement is required to calculate the future
amount payable.
As a result the assessment of the accounting
for the acquisition was a key audit matter.
Our procedures performed in conjunction with our
taxation specialists, included, amongst others:
Obtaining an understanding of the process
management and the directors had undertaken
to determine the extent to which deferred tax
assets should be recognised in respect of unused
tax losses;
Evaluating the reasonableness of management’s
operating budgets, including an assessment of
the historical accuracy;
Challenging the significant tax adjustments made
to reconcile the taxable profit forecasts to
management’s operating budgets; and
Assessing the appropriateness of the disclosures
included in Notes 3 and 5.
Our procedures performed in conjunction with our
valuation specialists, included, amongst others:
Understanding the process that management
and the directors have undertaken to
provisionally account for the transaction;
Understanding the terms and conditions of the
purchase contract to enable us to critically
assess management’s accounting treatment
including the determination of the composition of
the purchase consideration;
Evaluating the methodology used by
management to calculate the contingent
consideration including assessment as to the
reasonableness of key assumptions being
projected future sales volumes and the discount
rate applied;
Assessing managements provisional purchase
price allocation, relating specifically to any likely
identified intangibles; and
Assessing the appropriateness of the disclosures
included in Note 26.
Other Information
The directors are responsible for the other information. The other information comprises the information
included in the Group’s annual report for the year ended 30 September 2017, but does not include the financial
report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
HGL Limited Annual Report 2017
53
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we
have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of this
financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement
and maintain professional scepticism throughout the audit.
We also:
Identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial report or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to cease to continue as a going concern.
54
HGL Limited Annual Report 2017
INDEPENDENT
AUDITOR’S REPORT
to the members of HGL Limited continued
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are responsible
for the direction, supervision and performance of the Group’s audit. We remain solely responsible for
our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most significance
in the audit of the financial report of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages (cid:26) to 1(cid:21) of the Directors’ Report for the year
ended 30 September 2017.
In our opinion, the Remuneration Report of HGL Limited, for the year ended 30 September 2017, complies
with section 300A of the Corporations Act 2001.
Responsibilities
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.
DELOITTE TOUCHE TOHMATSU
Tara Hill
Partner
Chartered Accountants
Sydney, 21 November 2017
HGL Limited Annual Report 2017
55
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 2017.
(a) Distribution of equity Securities
(i) Ordinary share capital
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10.001 - 100,000
100,001 and over
Total
‒ 57,359,581 fully paid ordinary shares are held by 1,516 individual shareholders
‒ Number of shareholders holding less than a marketable parcel (1,087 shares) is 532.
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
Armada Trading Pty Limited
Kitwood Pty Limited
ANZ Trustees Limited
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