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Annual Report 2018
Contents
Directors’ Report
1
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 Changes in Equity
21 Consolidated Statement of Cash Flows
22 Notes to the Consolidated Financial Statements
Summary of significant accounting policies
Significant accounting judgements, estimates and assumptions
Underlying profit and segment information
22 1. Corporate information
22 2.
31 3.
32 4.
35 5. Business combinations and acquisition of non-controlling interests (continued)
35 6. Discontinued operations
37 7. Dividends
38 8. Earnings per share (EPS)
38 9. Profit from operations
40 10. Income tax
41 11. Trade and other receivables
41 12. Inventories
42 13. Investment in associates
43 14. Property, plant and equipment
44 15. Intangible assets
45 16. Trade and other payables
45 17. Financial assets and financial liabilities
50 18. Provisions
51 19. Issued capital
51 20. Non controlling interests
51 21. Reserves
52 22. Cash flow information
53 23. Information relating to HGL Limited (parent)
53 24. Related party disclosures
54 25. Commitments and contingencies
54 26. Events after the reporting period
54 27. Auditors’ remuneration
55 28. Investment in controlled entities
Independent Auditor’s Report
56 Directors’ Declaration
57
61 ASX Additional Information
62 Five Year Summary
63 Corporate Information
HGL Limited Annual Report 2018 1
Directors’
Report
for the year ended 30 September 2018
Your directors submit their report for the year ended 30 September 2018.
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 a member of the Nomination and Remuneration Committee, and of the Audit and Risk Committee.
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 was appointed Chair of the Audit
and Risk Committee on 1 May 2018. He is a director of Milton Corporation Ltd (since December 2011), EQT Holdings Ltd
(since November 2011) and Pengana Capital Group Ltd since 2017, and was a director of Po Valley Energy between 2012
and 2016, and Hunter Hall International Ltd from 2015 to 2017.
Julian Constable (Director)
Non executive Director, appointed 2003. Julian Constable has 35 years experience in the stockbroking industry, and is a
senior client advisor of Bell Potter Securities Ltd. He is a member of the Nomination and Remuneration Committee and
the Audit and Risk Committee. Julian is a director of Pengana International Equities Limited (since May 2010), and is Chair
of their Audit Committee.
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
Chair of the Nomination and Remuneration Committee. Cheryl is a director of ASX listed Clover Corporation Ltd, Chartered
Accountants ANZ, as well as other unlisted and not-for-profit companies.
Vale Dr Frank Wolf, BA (Hons), PhD
On 18 April 2018, Dr Frank Wolf passed away following a short battle with cancer. Frank joined HGL’s board of directors
in 2000 and more recently fulfilled the role of Chair of HGL’s Audit Committee. Over the course of his tenure, Frank’s deep
intellect and strong commercial acumen helped steer HGL through some challenging times. We were deeply saddened
by Frank’s passing and continue to miss his presence.
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
Kevin Eley
Julian Constable
Cheryl Hayman
Number of
direct shares
Number of
indirect shares
104,472
14,147,877
–
1,082,677
215,000
6,408,698
–
–
HGL Limited Annual Report 2018 2
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
8 January 2019, with a payment date of 22 January 2019.
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
24/07/18
23/01/18
Cents
1.50
1.50
$’000
878
860
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
HGL invests in and actively supports a portfolio of wholly or partly-owned wholesale and distribution companies with
expertise and capital. The portfolio companies are independently operated marketing and supply chain businesses, selling
or renting premium quality products, under exclusive agency or company brands, in diversified niche markets.
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 with a registered address in Australia or New Zealand, and holding more than
1,000 shares.
During the year the total number of shares issued under the DRP was 1,937,877 (2017: 1,701,662).
Operating and financial review
Revenue from Continuing Operations for the twelve months ended 30 September 2018 of $43.4 million (FY17: $40.3 million)
represents a 7.7% increase on the prior corresponding period. Continuing Operations excludes any impact from
discontinued operations covering Biante, Leutenegger and Nido Interiors, as required by accounting standards.
Underlying Earnings Before Interest and Tax (“EBIT”) from Continuing Operations in FY18 of $3.9 million (FY17: $3.6 million)
represents an 8.5% increase on the prior corresponding period.
Statutory Net Profit After Tax for FY18 was $0.8 million (FY17: $2.7 million), and includes non-underlying costs of $0.9 million
and losses from discontinued operations totalling $1.7 million.
HGL Limited Annual Report 2018 3
Group revenue, comprising Continuing Operations
and 100% of Mountcastle sales, increased by 6.6%
to $61.5 million with like-for-like sales growth recorded
for the fourth consecutive year.
Gross margin in Continuing Operations increased to
51.5% (FY17: 47.9%), reflecting effective sourcing initiatives
and higher gross margin levels contributed by Pegasus
Healthcare.
The increase in Operating expenses primarily reflects
the addition of six months of overheads from Pegasus
Healthcare, partly offset by net cost savings across SPOS
Group, JSB Lighting and BLC Cosmetics.
Underlying EBIT from Continuing Operations reflected
growth in SPOS Group and Mountcastle, plus six months
contribution from Pegasus Healthcare. Profit contribution
from JSB Lighting was slightly below last year and BLC
Cosmetic incurred a loss during FY18.
GPS Strategy Plan 2022
HGL’s mission is to build platforms of stand-alone or
integrated high-returning businesses operating in fast-
growing industries through investments in partnerships
based on our equity and skills principle.
The Group operates a two pronged business model:
Equity: HGL invests in and actively supports a portfolio
of wholly or partly-owned wholesale and distribution
companies with expertise and capital; and
Skills: Our portfolio companies are independently
operated marketing and supply chain businesses, selling
premium quality products, under exclusive agency or
company brands, in diversified niche markets.
Our current industry sectors are Architectural Lighting,
Medical Equipment, Retail Marketing, School Wear and
Personal Care products.
HGL’s key objective is to build the scale of its core
businesses and take advantage of any acquisitions that
deliver operational and revenue synergies. HGL will
also pursue stand-alone acquisitions of candidates with
performance results underpinning the Group’s financial
target metrics based on our equity and skills principle.
The continuing businesses of JSB Lighting, SPOS Group,
Mountcastle, Pegasus Healthcare and BLC Cosmetics
all operate in industries with the opportunity to grow
both organically and via strategic acquisitions. This has
been highlighted by the recent acquisitions of Pegasus
Healthcare, Intralux Australia and POSM.
Funding for acquisitions will be through a combination
of own funds, borrowings and capital management as
appropriate.
Reposition of Company Portfolio
HGL has now completed the optimisation of its company
portfolio with the disposals of Biante and Leutenegger
and closure of Nido Interiors (Nido), which are collectively
classified as discontinued operations in the financial
statements (see Note 6.1).
Leutenegger was sold in February 2018 for $2.0 million,
with $1.7 million of the consideration received by balance
date and the remaining $0.25 million due in February 2019.
The business generated $1.1 million cash for the year, with
the proceeds offsetting the operating outflows arising
from the pre-tax loss of $0.8 million.
Following the disposal of Leutenegger, HGL decided
to completely exit the homewares market and wind-
down Nido. Management formed the view that Nido
was unable to create a sustainable long-term position
in Australia’s homewares market of a scale appropriate
to the Group. The business was unable to generate
adequate profitability, and it was determined it was in the
best interest of shareholders to free up resources to be
redeployed within HGL’s core portfolio.
The wind down of Nido highlighted the challenges facing
this sector and clearance opportunities were limited.
As a result, a significant impairment was taken against
inventory values, contributing to a before tax loss of
$0.7 million for the year. Despite the impact to profit,
Nido was cash positive for FY18.
Biante model cars was divested in December 2017, with
proceeds of $2.9 million received during the period and
a final $0.1 million due in December 2018. The disposal
contributed a loss before tax of $0.9 million but generated
net cash of $2.1 million courtesy of the proceeds.
Recent Acquisitions
The acquisitions of Intralux Australia (September 2017)
and POSM (December 2018) have enhanced the product
offering in our existing Architectural Lighting and Point-of
Sale businesses, with both fully integrated into the daily
business operations of JSB Lighting and SPOS Group
respectively. The acquisitions have provided new potential
sales opportunities, and in the case of POSM, significant
operational cost synergies.
The acquisition of Pegasus Healthcare, in partnership
with the existing CEO, was HGL’s entry into the growing
healthcare market. Pegasus continues to operate
as a stand-alone business, strategically focussed
on establishing new branch offices and upgrading
infrastructure to underpin the current positive market
share trend.
The three recently acquired businesses are expected
to contribute significantly in FY19 and beyond.
HGL Limited Annual Report 2018 4
Directors’
Report
continued
Business unit review
JSB Lighting ( JSB) is a leading supplier of commercial
lighting products within the Australian and New Zealand
interior design and architectural lighting markets.
JSB achieved revenues of $23.5 million, slightly down on
the prior year, successfully providing quality service to its
extensive client base in Australia and New Zealand despite
significant organisational disruption during the year. The
company is progressing well, under the newly appointed
management team headed up by CEO Justin Penhall,
delivering strong profitability with an EBIT to Sales Margin
of 16.3% in FY18.
The acquisition of Intralux has enabled JSB to consolidate
production of its company owned product lines. Intralux
provides further capacity to develop new product ranges
with reduced production costs and market-leading
technical features to enhance JSB’s competitiveness. This
is evidenced in the company’s ability to maintain strong
gross margin levels, despite currency pressures during
the 12 months period.
JSB’s key strategic initiatives for FY19 are the introduction
of the Sammode brand, a new tubular light range
specialised for technical and architectural applications,
and the expansion of Intralux branded products to add
further market opportunities in the indoor downlight
space. The company will move its NSW-based warehouse
operations from Macquarie Park to Seven Hills in February
2019 to provide additional capacity for sub-assembly and
warehousing of selected product categories.
The renewed sales organisation is performing according
to expectations, gaining experience and increasing its
activity levels, continuing to win new project work and
building the forward order pipeline of Modular and other
key product lines.
The company anticipates a short-term impact with the new
sales team gaining traction on a daily basis. JSB has shown
operational resilience with an order bank at encouraging
levels, although down from previously unseen historical
highs during parts of FY18.
Pegasus Healthcare is a leading supplier of high quality,
clinically supported alternating pressure devices (pressure
relieving beds and mattresses) sold or rented to hospitals
and aged care facilities. Pegasus’ Rehab division supplies
assistive technology devices, medical equipment,
consumables and services to patients being nursed
at home.
HGL acquired Pegasus in April 2018 for $4.45 million,
payable as $3.8 million up front, with deferred payments
over the following three years. The business has
performed well over the six months, adding revenue scale
to the Group and an immediate contribution to earnings.
Pegasus’ revenues of $4.5 million for the six months
exceeded initial estimates, a trend which appears to be
continuing. The company delivered EBIT of $0.7 million
with a strong EBIT margin of 14.5%, underpinned by the
long-term expansion of acute, aged and primary care
sectors in Australia.
The company is successfully executing its business plan
under CEO Scott Nowland and his team, who are focussed
on growing market share by providing high quality services
with clinically proven products to assist customers with
providing the best care possible.
Pegasus secured multiple new rental contract and sales
opportunities to hospitals in NSW. The company recently
established new operational facilities in Newcastle and
Ballina to increase its service to local hospitals and
provide in-home treatments under the National Disability
Insurance Scheme.
Strategically in FY19, Pegasus is targeting several new
mattress rental contracts with major hospitals in NSW,
for which tenders have been submitted. Pegasus plans to
build additional operational facilities in NSW and expand
its operations into QLD, supported by upgrades to its IT
platform to build capacity for future transactional growth.
Pegasus recently launched a new corporate name, identity
and branding for Pegasus Health Group, which will be
implemented over the coming months. The Pegasus Rehab
division is exploring its own branded products sourced
overseas directly from manufacturers.
Pegasus’ return on investment (ROI) for the six months
is over 19% per annum, and is expected to be a strong
performing entity in the HGL Group, contributing
significant underlying earnings in FY19.
BLC Cosmetics imports and distributes high quality
skincare products and devices to beauty salons, spas,
wellness centres and skincare clinics in the Australia
Pacific region.
The company is currently undergoing significant
transformational change under the guidance of CEO Nikki
Somerset, to build scale, profitability and sustainability.
The execution of these strategic initiatives are well
underway, yielding emerging operational benefits, but not
yet delivering the expected organic performance results.
The key elements to this transformation are the renewal
of the company product portfolio and execution of a
new client service strategy, elevating promotional and
educational activities to larger, profitable, key accounts.
Sales revenue of $5.1 million in FY18 was down 16.1%
on prior period, impacted by the client rationalisation
program and enduring lost revenue in its major
brand Thalgo.
HGL Limited Annual Report 2018 5
Mountcastle continues to strengthen its market position,
increasing sales in the private and public school wear
market in Australia, recording revenue growth of 4.1%
to $18.1 million. The company maintained its strong
profitability level with an EBIT margin of 14.9% in FY18.
The partnership with The School Locker retail chain
continues to evolve, underpinning the growth in school
uniform sales. With increasing demand for school wear
and continued market share growth in Mountcastle,
the company has expanded production capacity in its
manufacturing facility in Vietnam to manage current and
future volumes.
Mountcastle has appointed a new General Manager to the
Corporate Wear business to drive new sales initiatives,
with responsibility for business development, sourcing,
production and supply chain functions to deliver quality
headwear, garments and accessories to corporate clients.
Total corporate wear sales were $3.0m in FY18 and are
anticipated to grow rapidly over the coming years.
Mountcastle’s key FY19 strategic initiatives focus on
expanding the corporate wear product offering into new
categories, implementing a new corporate identity and
branding platform for Mountcastle and Trutex school wear,
and optimising production setup in Sri Lanka and Vietnam,
with the implementation of new Enterprise Resource
Planning systems in both manufacturing facilities.
The prospect of continued increases to sales volumes in
school wear and new growth initiatives in corporate wear
provide a promising performance outlook for Mountcastle.
HGL is finalising plans to relocate its warehouse operations
from its two Macquarie Park locations into a single
facility in Seven Hills, NSW. In conjunction with a planned
new lease agreement for reduced office space in the
existing Macquarie Park tenancy, significant operational
cash savings will be generated, although the impact on
reported profit will be minimal.
JSB Lighting vs Carey & Others
JSB Lighting ( JSB) commenced legal proceedings in June
2018 against a former senior sales representative from
WA (Mathew Carey) and his associated company, BFD
Lighting. The proceedings relate to the employees’ conduct
in establishing a competing business in circumstances
where, it is alleged, the employee acted in breach of his
fiduciary duties to JSB, as well as obligations owed under
both his employment agreement with JSB, and under the
Corporations Act 2001.
The company maintained a healthy gross margin and
reduced its operating expenses by 5.3% in FY18, primarily
through the implementation of a new client servicing
strategy. Despite lower overhead expenses, BLC Cosmetics
contributed an Underlying EBIT loss of $0.3 million in FY18
as a result of reduced revenue.
The key strategic initiatives in BLC Cosmetics in FY19 are to
secure new exclusive distribution rights for complimentary
skincare and equipment brands, which includes the
launch of the new Skin Regime cosmeceutical brand from
Comfort Zone and new natural skincare brand ANDA from
Kerstin Florian. Promotional activities in 2019 will include
new website launches for Thalgo, Kerstin Florian and
Comfort Zone.
The SPOS Group is a retail marketing business
selling tailored retail display solutions in Australia and
New Zealand.
SPOS achieved sales revenue of $10.4 million and
improved underlying gross margins under the leadership
of CEO Julian Pidcock, through new sourcing partners and
cost-out activities on standard products and bespoke
custom projects. The company’s profitability continues
to improve through higher gross margins and reduced
expenses, achieving EBIT growth of 58.2% over prior
period. The EBIT to sales ratio was 11.2%, up from 6.2%
last year.
SPOS Group have completed the operational integration
of the POSM business with warehouse operations recently
transferred from Bomaderry to Macquarie Park, NSW.
Significant synergy savings derived from the integration of
POSM have been realised, and cross-selling opportunities
between SPOS and POSM customers and products will
continue to be pursued in FY19.
The key strategic initiative for SPOS Group in FY19 is
the Australian launch of Ticket-it, an automated in-store
ticket management solution sold to major retail chains
in Australia. SPOS is intensely focussed on improving its
design capabilities and offering cost-effective, bespoke
product promotions. The New Zealand operation is driving
sales initiatives of new off-the-shelf products to major
supermarket chains and custom project work for global
brands.
Over the past three years, SPOS Group has continually
elevated its competitiveness through the renewal of its
product portfolio and improved operational efficiencies,
while building a high-performance organisation of
motivated and engaged employees. This is evidenced in
the increased company profitability and employee net
promotor score measuring staff engagement.
Mountcastle, HGL’s 50% owned company in partnership
with CEO James Baldwin, is a manufacturer and distributor
of uniforms, headwear and bags to public and private
schools, government and corporate clients in Australian
and overseas.
HGL Limited Annual Report 2018 6
Directors’
Report
continued
JSB subsequently uncovered evidence that the former
CEO of JSB, Dudley Hewitt, and the former CFO of HGL
Limited, Andrew Whittles, were actively involved in the
establishment of the BFD Lighting business, including
while Mr Hewitt was employed by JSB in the position of
CEO. Mr Hewitt and Mr Whittles have been joined to the
proceedings as respondents for their alleged knowing
participation in breaches of Mr. Carey and Mr Hewitt’s
fiduciary duties, tortious interference with contractual
relations, and in the case of Mr Hewitt, breaches of his
employment contract and his duties as an officer of JSB
under the Corporations Act.
JSB has obtained injunctions against the former CEO of
JSB enforcing his contractual restraints and preventing
him from having any direct or indirect involvement with
BFD Lighting or any other business that is competitive
with JSB. JSB has applied for further court orders against
BFD Lighting and selected respondents, upholding their
customer solicitation obligations and seeking supply and
delivery restraints against BFD Lighting on several client
projects originated by JSB.
JSB is seeking significant relief against the respondents,
including orders that BFD Lighting account to JSB for
all profits it has made, as well as orders for payment of
damages, compensation and costs. Court hearings are
scheduled for late 2018, with a final hearing expected
to be scheduled the first half of calendar 2019.
Our People
HGL encourages and supports leaders at every level
to reach their full potential. We continue to invest in
leadership, talent management and staff training in our
ongoing efforts to develop high performing teams.
In FY18 we launched the new “HGL Thrive Program”
supporting our commitment to health and wellbeing for
all employees across the HGL group. The program aims
to inspire our staff to create awareness and take action
for positive health change. Also, to create a culture of
wellbeing to enhance employee engagement recognising
the important link between employee engagement and
business success.
It is encouraging to note that our annual employee
engagement survey, measuring employee net promotor
score, has revealed increased engagement levels above
the prior year in our business units based on the executed
human resource and employee development programs
over the past four years.
The board acknowledges and thanks our employees
for their effort and contribution throughout the year.
Cash flow
Operating cash generation by the continuing businesses
was strong at $2.3 million, compared to $1.6 million in
the prior corresponding period. Total operating cash
generation was $0.9 million after including the operating
outflow from the discontinued operations. Free cash flow
from continuing operations was $1.5 million.
Total business sale proceeds of $4.7 million were
reinvested in our acquisitions ($4.2 million) and capital
expenditure ($0.8 million), with a particular focus on
Pegasus, which is a more capital intensive business model
than the other HGL businesses due to its large fleet of
lessor assets.
Cash on Hand of $5.0 million and bank borrowings of
$3.1 million provide a Net Cash balance at 30 September
2018 of $2.0 million, down $0.1 million on the prior year.
Gross Gearing levels (Debt to Debt plus Equity) remain low
at 11.0%.
Balance sheet
Working capital levels have decreased substantially over
FY18, with the divestment of the group’s three capital
intensive businesses and the acquisition of Pegasus. The
balance of working capital in the group was well controlled,
maintaining levels consistent with the prior year.
The net assets of the group decreased to $26.1 million
from $28.4 million, driven by the acquisitions and
divestments during the year. A liability arising from the
potential exercise of a put option granted to our equity
partner in Pegasus has been recognised in accordance
with accounting standards. The option’s carrying value
reflects the price payable by HGL if the option were to
be exercised and the value will vary based on changes
to future EBITDA, with all subsequent changes in value
impacting the profit and loss statement. Excluding this
item, net assets increased by $1.0 million, driven by
reductions in working capital, increased Property, Plant
& Equipment acquired with the Pegasus business and
intangible assets from the completed acquisitions in FY18.
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 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.
HGL Limited Annual Report 2018 7
Key risks for the Group include:
Supplier risk – Reliance on a small number of key suppliers
is 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
drops 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
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.
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 22 January 2019
to shareholders on the ordinary register at 5pm on
8 January 2019.
The full year dividend of 3.0 cents per share constitutes an
increase of 9% and reflects the Directors’ confidence in the
2019 outlook for the Group.
The dividend reinvestment plan will continue to be
available to all shareholders with a registered address in
Australia or New Zealand, holding over 1,000 shares.
Outlook
Pegasus Healthcare is expected to provide incremental
contribution to full year earnings in FY19 and beyond.
The sales force transition following organisational
disruption in JSB Lighting is likely to impact short-term
sales performance, but the Directors remain confident
that JSB will return to, and improve on, the previous strong
earnings contributions to HGL.
Over the medium term, the Group expects to deliver
sustained and organic revenue, earnings and dividend
growth from its continuing operations.
The management team continues to pursue suitable bolt-
on and standalone acquisitions, based on our equity and
skill principle, that can deliver operational and revenue
synergies and add scale to its existing businesses.
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 2018 8
Directors’
Report
continued
Remuneration report (audited)
The remuneration report outlines the director and executive remuneration arrangements of the Company for the 2018
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 2018. 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 (ceased 18 April 2018)
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
Peter Miller
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.
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.
HGL Limited Annual Report 2018
9
Remuneration report (audited) (continued)
Executive remuneration arrangements
Remuneration Policy
The Group operates from multiple locations across
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 2017 financial 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 150%
of fixed annual remuneration. The same scheme was
introduced for the HGL CFO during the 2018 financial year.
The maximum opportunity for the CFO was 37.5% 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 Executive leaves the Company on good terms,
at the absolute discretion of the board.
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 (generally equal to the prior year
performance)
‘Target’ level (expected to be equal to the approved
budget)
‘Stretch’ level (board to set performance requirements)
There are no incentive scheme payments to be made in
relation to the 2018 financial year, as the threshold targets
were not achieved. There were no incentive scheme
payments paid in relation to the 2017 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.
HGL Limited Annual Report 2018 10
Directors’
Report
continued
Remuneration report (audited) (continued)
Executive & Board remuneration
Short term benefits
Salary
& fees
$
Short term
bonus
$
Non
monetary
benefits
$
Post
employment
benefits
Super-
annuation
$
Long term benefits
Long
service
leave
$
Termination
payments
$
Long
term
incentives
$
Percentage
variable
remunera-
tion
%
Total
$
2018
Directors
Peter Miller
Dr Frank Wolf (1)
Julian Constable
Kevin Eley
Cheryl Hayman (2)
100,457
37,291
54,795
54,795
54,795
Total Directors
302,133
Executives
Henrik Thorup
Iain Thompson
Total executives
483,680
255,431
739,111
Total KMP remuneration
1,041,244
(1) Dr Wolf ceased as a director on 18 April 2018.
(2) C Hayman commenced as a director on 1 December 2016.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,543
3,543
5,205
5,205
5,205
28,701
–
–
–
–
–
–
–
–
–
–
–
–
28,596
–
25,121
20,169
28,596
45,290
28,596
73,991
– 10,349
–
4,655
– 15,004
– 15,004
–
–
–
–
–
–
–
–
–
110,000
40,834
60,000
60,000
60,000
330,834
547,746
280,255
828,001
– 1,158,835
–
–
–
–
–
–
–
–
–
–
2017
Directors
Peter Miller
Dr Frank Wolf (1)
Julian Constable
Kevin Eley
Cheryl Hayman (2)
Total Directors
Executives
Henrik Thorup
Iain Thompson
Total Executives
Short term benefits
Salary
& fees
$
Short term
bonus
$
Non
monetary
benefits
$
Post
employment
benefits
Super-
annuation
$
Long term benefits
Long
service
leave
$
Termination
payments
$
Long
term
incentives
$
Percentage
variable
remunera-
tion
%
Total
$
100,457
63,927
54,795
52,656
45,662
317,497
455,000
245,276
700,276
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,543
6,073
5,205
7,344
4,338
32,503
21,496
25,000
–
19,724
21,496
44,724
21,496
77,227
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,633
4,423
– 12,056
– 12,056
–
–
–
–
–
–
–
–
–
110,000
70,000
60,000
60,000
50,000
350,000
509,129
269,423
778,552
– 1,128,552
–
–
–
–
–
–
–
–
–
–
Total KMP remuneration
1,017,773
(1) Dr Wolf ceased as a director on 18 April 2018.
(2) C Hayman commenced as a director on 1 December 2016.
HGL Limited Annual Report 2018 11
Remuneration report (audited) (continued)
Relationship between the remuneration policy and company performance
Short term incentives are largely determined by the underlying profit (EBIT) from Continuing Operations, 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 and excluding the impact of business units which
have been disposed of during the year. A reconciliation of statutory net profit after tax to underlying profit is shown in
Note 4.1 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)(1)
Underlying EBIT ($000)(1)
Net profit after tax ($000)
Return on Funds Employed (%)
Share price at year end ($)
Statutory Earnings per Share (cents)
Dividends – ordinary shares (cents)
2014
2015
2016
2017
2018
50,771
533
(21,430)
(50.7)
0.490
(39.4)
2.0
52,000
38,526
40,301
2,615
3,722
19.8
0.360
6.9
1.5
3,136
4,313
19.1
0.445
7.9
2.5
3,587
2,727
10.4
0.500
4.8
2.75
43,393
3,892
812
2.9
0.440
1.1
3.0
(1) Reported data for 2016 to 2018 represents continuing operations, 2015 & earlier is statutory result.
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 2018 was $330,834 which is within the approved amount.
Individual Non-Executive Directors fees have not changed since October 2007.
HGL Limited Annual Report 2018 12
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 2018
Executive directors
Peter Miller
Dr Frank Wolf (1)
Kevin Eley
Julian Constable
Cheryl Hayman
Senior executives
Henrik Thorup
Iain Thompson
Opening Balance
DRP shares
Purchases
Disposals
Closing balance
Indirect Holding
12,492,756
826,877
932,716
721,038
898,040
–
61,375
6,410,264
198,434
–
123,262
15,000
–
–
–
–
5,597
359
–
–
–
–
–
–
–
–
–
–
14,252,349
14,147,877
–
–
1,082,677
1,082,677
6,623,698
6,408,698
–
–
5,956
–
–
–
(1) Ceased as a director on 18 April 2018.
– End of Audited Remuneration Report –
HGL Limited Annual Report 2018 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
Consolidated
entity
$
9,450
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.
As part of the acquisition of Pegasus Healthcare on 1 April 2018, a Put and Call Option was granted to the minority
shareholder. The Put option gives the right to the minority shareholder to require HGL to acquire, and the Call option gives
HGL the right to acquire, the remaining 30% interest in the Pegasus Healthcare group. Neither option may be exercised
before 1 April 2021. The exercise price is a multiple of 4.0 or 4.3 times the average annual EBITDA of the preceding
24 month period to exercise. The option does not give rights to the minority shareholder to participate in any share issue or
interest in any other group entity. All options remained outstanding at the date of this report.
Except for the above, 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.
HGL Limited Annual Report 2018 14
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(1)
Kevin Eley
Julian Constable
Cheryl Hayman
Meetings of committees
Directors’
meetings
Audit
Nomination and
Remuneration
13
13
6
13
13
12
3
3
1
3
1
–
4
4
1
–
4
4
(1)
Dr Wolf attended all meetings held prior to 6 April 2018.
Corporate governance
The Company’s Corporate Governance Statement for the year ended 30 September 2018 is effective and was
approved by the Directors on 21 November 2018. 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
Kevin Eley
Director
Sydney, 21 November 2018
Julian Constable
Director
HGL Limited Annual Report 2018
Auditor’s Independence
Declaration
15
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
21 November 2018
The Board of Directors
HGL Limited
Level 2
68-72 Waterloo Road
MACQUARIE PARK NSW 2113
Dear Board Members
HGL Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of HGL Limited.
As lead audit partner for the audit of the financial statements of HGL Limited for the financial year ended
30 September 2018, I declare that to the best of my knowledge and belief, there have been no
contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit;
and
(ii) any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
Carlo Pasqualini
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
HGL Limited Annual Report 2018
16
Consolidated Statement
of Profit or Loss
for the year ended 30 September 2018
Continuing Operations
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 (expense) / benefit
Profit for the year from continuing operations
Loss after tax for the year from Discontinued Operations
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total Profit
Earnings per share
Basic EPS from Continuing Operations
Basic EPS from Discontinued Operations
Basic EPS from Continuing and Discontinued Operations
Diluted EPS from Continuing Operations
Diluted EPS from Discontinued Operations
Diluted EPS from Continuing and Discontinued Operations
These statements should be read in conjunction with the accompanying notes.
Notes
9.1
9.4
9.3
13
10
6
Consolidated entity
2018
$’000
2017
$’000
43,393
(21,051)
22,342
76
(8,176)
(1,535)
(2,592)
(8,094)
(197)
976
2,800
(332)
2,468
(1,656)
812
620
192
812
40,301
(20,994)
19,307
65
(7,839)
(1,211)
(1,161)
(6,664)
(134)
942
3,305
319
3,624
(897)
2,727
2,727
–
2,727
Cents
Cents
3.9
(2.8)
1.1
3.9
(2.8)
1.1
6.4
(1.6)
4.8
6.4
(1.6)
4.8
HGL Limited Annual Report 2018
Consolidated Statement
of Other Comprehensive Income
for the year ended 30 September 2018
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 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
Non-controlling interests
17
Consolidated entity
2018
$’000
812
2017
$’000
2,727
(2)
(2)
(31)
(31)
810
2,696
618
192
2,696
–
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2018 18
Balance Sheet
as at 30 September 2018
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Other current financial assets
Total current assets
Non current assets
Investment in associates
Property, plant and equipment
Intangible assets
Deferred tax assets
Other investments
Total non current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing loans and borrowings
Provisions
Other current financial liabilities
Income tax payable
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Other financial liabilities
Other financial instruments
Total non current liabilities
Total liabilities
Net assets
Equity
Issued capital
Other capital reserves
Accumulated losses
Other components of equity
Non-controlling interests
Total equity
These statements should be read in conjunction with the accompanying notes.
Notes
Consolidated entity
2018
$’000
2017
$’000
22
11
12
6
13
14
15
10
16
17
18
17
17
18
17
17
19
21
20
5,044
7,529
4,639
453
350
4,381
9,754
6,950
1,445
–
18,015
22,530
4,897
3,284
14,507
3,335
4
26,027
44,042
6,859
3,162
2,334
500
(32)
4,994
1,261
12,066
2,817
–
21,138
43,668
7,687
2,250
2,795
–
–
12,823
12,732
178
416
1,195
3,349
5,138
17,961
26,081
39,408
(1,079)
(10,155)
(3,349)
1,256
26,081
–
852
1,702
–
2,554
15,286
28,382
38,496
(1,077)
(9,037)
–
–
28,382
HGL Limited Annual Report 2018
19
Total equity
$’000
28,382
919
(7)
812
(2)
810
(1,738)
–
–
–
–
–
–
–
–
–
–
192
–
192
–
–
(3,349)
(3,349)
1,064
1,256
–
1,064
(3,349)
26,081
Consolidated Statement
of Changes in Equity
for the year ended 30 September 2018
Attributable to the equity holders of the parent
Issued capital
(Note 19)
$’000
Foreign
Currency
Reserve
(Note 21 )
$’000
Other
Reserve
(Note 21)
$’000
Retained
Earnings /
Accumulated
losses
$’000
Non-
controlling
interests
$’000
Other
component of
equity
$’000
As at 1 October 2017
38,496
(176)
(901)
(9,037)
Shares issued under a Dividend
Reinvestment Plan
Costs associated with issues of
shares
919
(7)
Profit for the year
Translation of overseas
controlled entities
Total comprehensive income
Dividend paid (Note 7)
Acquisition of a subsidiary
(Note 5)
Non-controlling interest arising
on a business combination
(Note 5)
–
–
–
–
–
–
–
–
–
(2)
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
620
–
620
(1,738)
–
–
As at 30 September 2018
39,408
(178)
(901)
(10,155)
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2018 20
Consolidated Statement
of Changes in Equity
for the year ended 30 September 2017
Attributable to the equity holders of the parent
Foreign
Currency
Reserve
(Note 21 )
$’000
Other
Reserve
(Note 21)
$’000
Retained
Earnings /
Accumulated
losses
$’000
Issued capital
(Note 19)
$’000
Total equity
$’000
As at 1 October 2016
37,582
(145)
(901)
(10,221)
26,315
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 7)
As at 30 September 2017
922
(8)
–
–
–
–
–
–
–
(31)
(31)
–
–
–
–
–
–
–
–
–
922
(8)
2,727
2,727
–
2,727
(1,543)
(31)
2,696
(1,543)
38,496
(176)
(901)
(9,037)
28,382
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2018 Consolidated Statement
of Cash Flows
for the year ended 30 September 2018
Operating activities
Cash receipts in the course of operations
Cash payments in the course of operations
Interest received
Interest paid
Income tax paid
Dividends received from associates
Net cash flows from/(used in) operating activities
Investing activities
Proceeds from sale of property, plant and equipment
Purchase of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Proceeds from disposal of subsidiaries
Net cash flows used in investing activities
Financing activities
Proceeds from borrowings
Dividends paid
Net cash flows from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 October
Effect of exchange rate changes on the balance of cash
Cash and cash equivalents at 30 September
21
Consolidated entity
2018
$’000
2017
$’000
Notes
54,946
56,035
(54,520)
(56,962)
59
(195)
(433)
1,073
930
19
(795)
(4,161)
4,667
(270)
825
(819)
6
666
4,381
(3)
63
(134)
–
800
(198)
3
(368)
(511)
–
(876)
450
(621)
(171)
(1,245)
5,626
–
5,044
4,381
22
14
5
6
7
22
22
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2018 22
Notes to the Consolidated
Financial Statements
for the year ended 30 September 2018
1. Corporate information
The consolidated financial statements of HGL Limited
and its subsidiaries (collectively, the Group) for the year
ended 30 September 2018 were authorised for issue
in accordance with a resolution of the directors on
21 November 2018.
HGL Limited (the Company) is a for profit company limited
by shares incorporated in Australia whose shares are
publicly traded on the Australian Securities Exchange
(ASX Code HNG).
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 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.
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 2018. The directors have not early
adopted any of these new or amended standards or
interpretations.
AASB 9 Financial Instruments
This standard is applicable to the Group for the reporting
period commencing 1 October 2018.
The Group has determined there will not be a material
impact of this standard on the financial statements of
the group.
AASB 9 introduces new classification and measurement
models for financial assets. A financial asset shall be
measured at amortised cost, if it is held within a business
model whose objective is to hold assets in order to
collect contractual cash flows, which arise on specified
dates and solely principal and interest. All other financial
instrument assets are to be classified and measured at
fair value through profit or loss unless the entity makes an
irrevocable election on initial recognition to present gains
and losses on equity instruments (that are not held-for-
trading) in OCI. For financial liabilities at fair value, the
standard requires the portion of the change in fair value
that relates to the entity’s own credit risk to be presented
in OCI (unless it would create an accounting mismatch).
New simpler hedge accounting requirements are intended
to more closely align the accounting treatment with the
risk management activities of the entity. New impairment
requirements will use an ‘expected credit loss’ model
to recognise an allowance. The standard introduces
additional new disclosures.
HGL Limited Annual Report 2018 23
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)
AASB 15 Revenue from Contracts with Customers
This standard is applicable to the Group for the reporting
period commencing 1 October 2018.
The Group has assessed that there will not be a material
impact of this standard on the financial statements of
the group. The Group transacts predominantly through
repeating individual sales of goods which are not subject
to supply contracts beyond standard trading terms of sale.
The core principle of this standard is that an entity will
recognise revenue to depict the transfer of promised
goods or services to customers in an amount that reflects
the consideration to which the entity expects to be
entitled in exchange for those goods or services.
The standard requires contracts and their included
separate performance obligations to be identified, the
determination of the transaction price in the contract,
and the allocation of the transaction price to the separate
performance obligations identified as if each obligation
was standalone. Revenue is then recognised when each
performance obligation is satisfied. Credit risk will be
presented separately as an expense rather than adjusted
to revenue. For goods, the performance obligation would
be satisfied when the customer obtains control of the
goods. For services, the performance obligation is satisfied
when the service has been provided, typically for promises
to transfer services to customers. For performance
obligations satisfied over time, an entity would select
an appropriate measure of progress to determine how
much revenue should be recognised as the performance
obligation is satisfied.
AASB 16 Leases
This standard is applicable to the Group for the reporting
period commencing 1 October 2019.
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.
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 2018. 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; and
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;
and
The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an
investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control.
Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the
Group loses control of the subsidiary. Assets, liabilities,
income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated
financial statements from the date the Group gains control
until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive
income (OCI) are attributed to the equity holders of the
parent of the Group and to the non-controlling interests,
even if this results in the non-controlling interests having
a deficit balance. When necessary, adjustments are made
to the financial statements of subsidiaries to bring their
accounting policies into line with the Group’s accounting
policies. All intra-group assets and liabilities, equity,
income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full
on consolidation.
HGL Limited Annual Report 2018 24
Notes to the Consolidated
Financial Statements
continued
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(a) Basis of consolidation (continued)
A change in the ownership interest of a subsidiary, without
a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities, non-
controlling interest and other components of equity while
any resultant gain or loss is recognised in profit or loss.
Any investment retained is recognised at fair value.
(b) Business combinations and goodwill
Business combinations are accounted for using the
acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred,
measured at acquisition date fair value and the amount
of any non-controlling interest in the acquiree. For each
business combination, the Group elects whether to
measure the non-controlling interest in the acquiree at
fair value or at the proportionate share of the acquiree’s
identifiable net assets. Acquisition related costs are
expensed as incurred and included in administrative
expenses.
When the Group acquires a business, it assesses the
financial assets and liabilities assumed for appropriate
classification and designation in accordance with the
contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts
by the acquiree.
If the business combination is achieved in stages, the
previously held equity interest is remeasured at its
acquisition date fair value and any resulting gain or loss
is recognised in profit or loss.
Any contingent consideration to be transferred by the
acquirer is recognised at fair value at the acquisition
date. Contingent consideration classified as an asset
or liability that is a financial instrument and within the
scope of AASB 139 Financial Instruments: Recognition and
Measurement, is measured at fair value with changes in
fair value recognised either in either profit or loss or as a
change to OCI. If the contingent consideration is not within
the scope of AASB 139, it is measured in accordance with
the appropriate Australian Accounting Standards.
Contingent consideration that is classified as equity
is not remeasured and subsequent settlement is
accounted for within equity.
Goodwill is initially measured at cost, being the excess of
the aggregate of the consideration transferred and the
amount recognised for non-controlling interests, and any
previous interest held, over the net identifiable assets
acquired and liabilities assumed. If the fair value of the net
assets acquired is in excess of the aggregate consideration
transferred, the Group re-assesses whether it has
correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition
date. If the re-assessment still results in an excess of
the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognised in
profit or loss.
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each
of the Group’s cash-generating units that are expected
to benefit from the combination, irrespective of whether
other assets or liabilities of the acquiree are assigned
to those units.
Where goodwill has been allocated to a cash-generating
unit and part of the operation within that unit is disposed
of, the goodwill associated with the disposed operation
is included in the carrying amount of the operation
when determining the gain or loss on disposal. Goodwill
disposed in these circumstances is measured based on
the relative values of the disposed operation and the
portion of the cash-generating unit retained.
(c) Investment in associates
An associate is an entity over which the Group has
significant influence. Significant influence is the power to
participate in the financial and operating policy decisions
of the investee, but is not control or joint control over
those policies.
The Group’s investments in its associate are accounted
for using the equity method.
Under the equity method, the investment in an associate
is initially recognised at cost. The carrying amount of the
investment is adjusted to recognise changes in the Group’s
share of net assets of the associate since the acquisition
date. Goodwill relating to the associate is included in
the carrying amount of the investment and is neither
amortised nor individually tested for impairment.
The statement of profit or loss reflects the Group’s share
of the results of operations of the associate. Any change in
OCI of those investees is presented as part of the Group’s
OCI. In addition, when there has been a change recognised
directly in the equity of the associate, the Group
recognises its share of any changes, when applicable, in
the statement of changes in equity. Unrealised gains and
losses resulting from transactions between the Group and
the associate are eliminated to the extent of the interest in
the associate.
The aggregate of the Group’s share of profit or loss of an
associate is shown on the face of the statement of profit or
loss outside operating profit and represents profit or loss
after tax and non-controlling interests in the subsidiaries
of the associate.
HGL Limited Annual Report 2018 25
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(c) Investment in associates (continued)
After application of the equity method, the Group
determines whether it is necessary to recognise an
impairment loss on its investment in its associate. At each
reporting date, the Group determines whether there is
objective evidence that the investment in the associate is
impaired. If there is such evidence, the Group calculates
the amount of impairment as the difference between the
recoverable amount of the associate and its carrying value,
then recognises the loss as ‘Share of profit of an associate’
in the statement of profit or loss.
Upon loss of significant influence over the associate, the
Group measures and recognises any retained investment
at its fair value. Any difference between the carrying
amount of the associate upon loss of significant influence
and the fair value of the retained investment and proceeds
from disposal is recognised in profit or loss.
(d) Foreign currency translation
The Group’s consolidated financial statements are
presented in Australian dollars ($), which is also the
parent’s functional currency. For each entity the Group
determines the functional currency and items included
in the financial statements of each entity are measured
using that functional currency.
Transactions and balances
Foreign currency transactions are translated into
Australian currency (the functional currency) at the rate
of exchange at the date of the transaction. Amounts
receivable or payable in foreign currencies are translated
at the rates of exchange ruling at balance date. The
resulting exchange differences are brought to account
in determining the profit or loss for the year.
Group companies
On consolidation, the assets and liabilities of foreign
operations are translated into Australian dollars at the
rate of exchange prevailing at the reporting date and
their statements of profit or loss are translated at average
exchange rates during the year. The exchange differences
arising on translation for consolidation purpose are
recognised in OCI. On disposal of a foreign operation,
the components of OCI 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.
Rental Income
Revenue from the rental of equipment is recognised
daily in line with the period over which the customer has
physical possession of the goods.
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 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.
HGL Limited Annual Report 2018 26
Notes to the Consolidated
Financial Statements
continued
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(f) Taxes (continued)
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.
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;
and
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 or
reducing balance methods. The estimated useful lives and
depreciation methods are 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
Lessor assets
Leased plant and equipment
3 to 10 years
2 to 7 years
the lease term
(typically up to 5 years)
HGL Limited Annual Report 2018 27
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(h) Property, plant and equipment (continued)
Leased assets
Finance leases, which effectively transfer to the Group
substantially all the risks and benefits incidental to
ownership of leased items, are capitalised at the lower
of fair value or present value of the minimum lease
payments, disclosed as property, plant and equipment
and amortised over the period during which the Group
is expected to benefit from use of the leased assets.
Operating lease payments, where the lessor effectively
retains substantially all the risks and benefits incidental to
ownership of the leased items, are charged to the profit or
loss statement in the period in which they are incurred.
(i) Leases
The determination of whether an arrangement is,
or contains, a lease is based on the substance of
the arrangement at the inception of the lease. The
arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset or
assets or the arrangement conveys a right to use the asset
or assets, even if that right is not explicitly specified in an
arrangement.
Group as a lessee
A lease is classified at the inception date as a finance lease
or an operating lease. A lease that transfers substantially
all the risks and rewards incidental to ownership to the
Group is classified as a finance lease. An operating lease is
a lease other than a finance lease.
Finance leases are capitalised at the commencement of
the lease at the inception date fair value of the leased
property or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned
between finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges
are recognised in finance costs in the statement of
profit or loss.
A leased asset is depreciated over the useful life of the
asset. However, if there is no reasonable certainty that the
Group will obtain ownership by the end of the lease term,
the asset is depreciated over the shorter of the estimated
useful life of the asset and the lease term.
Operating lease payments are recognised as an operating
expense in the statement of profit or loss on a straight-line
basis over the lease term.
(j) Borrowing costs
Borrowing costs are expensed in the period in which they
occur. Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing
of funds.
(k) Intangible assets
Intangible assets acquired separately are measured on
initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value
at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment losses.
The useful lives of intangible assets are assessed as either
finite or indefinite.
Intangible assets with finite lives are amortised over
the useful economic life and assessed for impairment
whenever there is an indication that the intangible
asset may be impaired. The amortisation period and
the amortisation method for an intangible asset with a
finite useful life are reviewed at least at the end of each
reporting period. Changes in the expected useful life or
the expected pattern of consumption of future economic
benefits embodied in the asset are considered to modify
the amortisation period or method, as appropriate,
and are treated as changes in accounting estimates and
adjusted on a prospective basis. The amortisation expense
on intangible assets with finite lives is recognised in the
statement of profit or loss as the expense category that is
consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not
amortised, but are tested for impairment annually,
either individually or at the cash-generating unit level.
The assessment of indefinite life is reviewed annually
to determine whether the indefinite life continues to be
supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis.
(l)
Financial instruments - initial recognition and
subsequent measurement
A financial instrument is any contract that gives rise to
a financial asset of one entity and a financial liability or
equity instrument of another entity.
(i) Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments, Available
for Sale 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.
HGL Limited Annual Report 2018 28
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)
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 11.
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
Effective Interest Rate (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, loans and borrowings, contingent consideration
and Put Option liabilities.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Loans and borrowings
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 to Note 17.
Fair value through Profit and Loss
This category relates to contingent consideration payable
on the acquisition of business combinations. After an initial
assessment of the estimated future variable consideration,
a reassessment of this consideration is made at each
subsequent balance date, with gains or losses recognised
in the profit or loss in the period.
Put Option Liabilities
Where the acquisition of a non-wholly owned subsidiary
includes a put option for the minority shareholder
to require the Group to purchase some or all of the
remaining shares, a liability is recognised equal to the
expected future purchase price payable under the terms
of the option agreement. Subsequent movements in the
estimated fair value of the liability are taken directly to
profit or loss.
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.
HGL Limited Annual Report 2018 29
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(n) Inventories
Inventories are valued at the lower of cost and net
realisable value.
Cost is calculated with reference to purchase price,
including freight and other associated costs, and is
based on a weighted average cost. Net realisable value
represents the estimated selling price less all estimated
costs to be incurred in marketing, selling and distribution.
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.
(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.
HGL Limited Annual Report 2018 30
Notes to the Consolidated
Financial Statements
continued
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(q) Provisions (continued)
Onerous contracts provisions
Present obligations arising under onerous contracts are
recognised and measured as provisions. An onerous
contract is considered to exist where the Group has a
contract under which the unavoidable costs of meeting
the obligations under the contract exceed the economic
benefits expected to be received from the contract.
(r) Employee benefits
Provision is made for benefits accruing to employees
in respect of wages and salaries, annual leave and long
service leave when it is probable that settlement will be
required and are capable of being measured reliably.
Employee benefits expected to be settled wholly within
12 months are measured at their nominal values using the
remuneration rate expected to apply at time of settlement.
Employee benefit provisions, which are not expected to
be settled wholly within 12 months, are measured at the
present value of the estimated future cash outflows to
be made by the Group in respect of services provided
by employees up to the reporting date.
Contributions to defined contribution superannuation
plans are expensed when incurred.
(s) Fair value measurement
The Group measures financial instruments such as
derivatives at fair value at each balance sheet date.
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability
takes place either:
–
–
In the principal market for the asset or liability; or
In the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market must be
accessible to the Group.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant’s ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate
in the circumstances and for which sufficient data is
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.
(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.
HGL Limited Annual Report 2018 31
Deferred tax assets (Note 10)
Determining the extent to which deferred tax asset
balances should be recognised requires an estimation
of future taxable profits. The key assumptions in the
estimation of future profitability are sales growth rates,
changes in selling margins, and future expenses. The
amount of profits from non-taxable 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
time, as the group profile changes.
As the Group continues to generate future taxable profits,
this deferred tax asset will be brought to account.
Intangible assets (Note 15)
The assessment of the carrying value of indefinite useful
life intangibles, including Goodwill, requires assumptions
surrounding the future performance of the CGU which
holds the intangible, covering up to 5 years into the future.
The inputs to the DCF valuation process used to assess
the future cash flows incorporate the key assumptions
made, including projected future sales, gross margins
and expenses of the CGU, long term growth rates of
the relevant industry, future capex requirements, and
appropriate discount rates.
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:
Acquisition accounting (Note 5)
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 for Intralux relates to projected
future sales of Intralux developed products. Estimates
have been based on historical sales levels, size of the sales
force, channels to market and size of market.
HGL Limited Annual Report 2018 32
Notes to the Consolidated
Financial Statements
continued
4.
Underlying profit and segment information
4.1 Significant items
The board manages the business using Underlying EBIT from continuing operations, 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 for continuing operations 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 Underlying EBIT from
continuing operations to reported net profit after tax is as follows:
Underlying EBIT from continuing operations
Non-underlying items before tax(1)
Interest expense
Net profit before tax from Continuing Operations
Tax (expense) / benefit
Net profit after tax from continuing operations
Net profit after tax from discontinued operations
Statutory profit after tax
Consolidated entity
2018
$’000
2017
$’000
3,892
3,587
(894)
(197)
2,801
(333)
2,468
(1,656)
812
(148)
(134)
3,305
319
3,624
(897)
2,727
(1) Non-underlying items include legal fees, business acquisition costs, restructuring costs and other costs.
4.2 Segment information
Revenue
Depreciation
EBIT
30 September
2018
$’000
30 September
2017
$’000
30 September
2018
$’000
30 September
2017
$’000
30 September
2018
$’000
30 September
2017
$’000
Continuing Operations
Retail Marketing
Building Products
Personal care
Healthcare
Total
10,365
23,409
5,110
4,509
10,358
23,850
6,093
–
43,393
40,301
17
232
74
279
602
9
203
40
–
252
Continuing segment EBIT
Share of profit from equity accounted investments
Finance costs
Significant items
Other unallocated expenses
Net profit before tax from Continuing Operations
1,164
3,821
(314)
655
643
4,208
43
–
5,326
4,894
5,326
4,894
976
(197)
(894)
(2,410)
2,801
942
(134)
(148)
(2,249)
3,305
HGL Limited Annual Report 2018 33
4.
Underlying profit and segment information (continued)
4.2 Segment information (continued)
Revenue
Depreciation
EBIT
30 September
2018
$’000
30 September
2017
$’000
30 September
2018
$’000
30 September
2017
$’000
30 September
2018
$’000
30 September
2017
$’000
Discontinued Operations
(Note 6)
Homewares
Collectables
Total
Discontinued Segment EBIT
Finance costs
4,195
1,022
5,217
7,771
3,989
11,760
100
6
106
69
87
156
(1,480)
(912)
(2,392)
(1,122)
(143)
(1,265)
(2,392)
(1,265)
(3)
(2,395)
406
–
(1,265)
2,040
Loss before income tax from Discontinued Operations
Profit / (Loss) before income tax
The reported revenue represents revenue generated from external customers. There were no inter-segment sales during
the year.
Continuing segments:
– Retail marketing segment (SPOS) provides standard and customised shelving product solutions to brand owners and
retailers
– Building product segment ( JSB Lighting) distributes architectural lighting for the commercial market
–
Personal care segment (BLC Cosmetics) distributes cosmetics and skincare products through salon, spa and retail
markets
– Healthcare segment (Pegasus) rents and distributes medical equipments into hospitals, aged care facilities and the
retail market
Discontinued segments:
– Collectables segment (Biante) distributes collectable model cars
– Homewares segment (Leutenegger and Nido) distributes homewares and traditional sewing and crafts supplies
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 $3.1 million (2017: $4.2 million)
HGL Limited Annual Report 2018 34
Notes to the Consolidated
Financial Statements
continued
5. Business combinations and acquisition of non-controlling interests
Acquisitions in 2018
POSM Solution
On 4 December 2017, the Group acquired the business and assets of POSM, a distributor of point of sale solutions.
The acquisition was complementary to the SPOS business, providing additional sales revenue while generating
significant synergies.
The purchase price was settled though the payment of $662,000 cash, plus contingent amounts payable on achievement of
agreed Gross Margin contribution over six and twelve month periods. The fair value of the obligation at acquisition date was
$555,000, with the fair value of remaining future consideration at balance date $300,000.
Upon acquisition, POSM was operationally integrated within the existing Retail Marketing segment, making it impractical
to separate profit contribution for the year. Sales between acquisition and balance date were $1,218,000.
Assets acquired and liabilities assumed
Purchase consideration
Cash paid
Contingent consideration
Total consideration
Assets and liabilities
Inventories
Net DTA
Fair value of net assets acquired
Goodwill arising on acquisition
Fair value of net assets acquired
$’000
662
555
1,217
162
4
166
1,051
1,217
The acquisition accounting has been finalised at balance date.
The Group incurred acquisition costs of $14,000, which are included in administration and other expenses.
Pegasus Healthcare
On 1 April 2018, the Group acquired 70% of the business and assets of Pegasus Healthcare, a provider of medical
equipment to hospitals, aged care facilities and retail customers, on a hire or sale basis. Pegasus has been consolidated into
HGL’s accounts from that date.
Up front consideration of $3.8 million was funded through an additional $1.9 million cash advance provided by HGL’s
bankers, with the balance through internal funding. Further consideration totalling $0.65 million cash is payable over 3 years
subject to any warranty claims on the business.
HGL Limited Annual Report 2018 5. Business combinations and acquisition of non-controlling interests (continued)
Assets acquired and liabilities assumed (continued)
Purchase consideration
Cash paid
Contingent consideration
Total consideration
Assets and liabilities
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Goodwill
Other intangible assets
Available for sale financial assets
Trade and other creditors
Provisions
Income tax payable
Interest bearing loans and borrowings
Non Controlling Interest
Fair value of net assets acquired
35
$’000
3,800
650
4,450
464
1,240
526
2,543
624
1,687
4
(699)
(329)
(284)
(262)
(1,064)
4,450
The acquisition accounting has been prepared on a provisional basis. A portion of the Intangible assets acquired has been
recognised as Goodwill, after separating other identifiable intangibles. Goodwill is recognised as the acquisition of Pegasus
gives HGL access to the strong growth sectors of acute, aged and primary care, providing an expansion of the industry
footprint of HGL.
Sales between acquisition and balance date were $4,509,000, and NPAT contribution was $606,000.
The Group incurred acquisition costs of $280,000, which are included in administration and other expenses, and
recognised as non-underlying expenses.
6. Discontinued operations
6.1 Classification
A business is classified as a Discontinued Operation when a decision is made to dispose of, or close down, the whole or a
substantial part of that business unit. Assets and liabilities of the business unit are subsequently measured at anticipated
selling price, less estimated costs to sell.
The operating profit or loss, plus any impairment of asset values associated with the discontinuation of the business, is
recorded separately on the Statement of Profit and Loss. Comparative information is restated to reflect the same treatment,
notwithstanding that the business was considered a Continuing Operation at the prior balance date.
Profit from Continuing Operations will therefore reflect the performance of the Group’s ongoing business units, providing
financial statement users with better information regarding potential future performance.
HGL Limited Annual Report 2018
36
Notes to the Consolidated
Financial Statements
continued
6. Discontinued operations (continued)
6.1 Classification (continued)
Biante
On 4 December 2017, the group disposed of the business operations and assets of Biante Pty Ltd, being the whole of
the Collectables segment of the business. The disposal was considered an opportunity to release cash from a non-core
business unit, and at the same time removing the need for significant future cash investment in production opportunities.
Disposal proceeds of $1.75 million were received on completion, plus further payments of $1.5 million over the twelve
months to December 2018 subject to future winding out of stock purchase commitments of $1.4 million over a similar
period, plus any potential sale warranties. At balance date, a receivable of $0.1 million is recognised on the balance sheet
in relation to deferred consideration receivable.
Leutenegger
On 12 February 2018, the group disposed of the business operations and assets of J. Leutenegger Pty Ltd, a distributor
of traditional sewing and craft supplies, and part of the Homewares segment. The disposal followed a strategic review
of the business which identified it did not have sufficient scale to profitably compete in this sector.
Disposal proceeds of $1.2 million were received on completion, plus further payments of $0.75 million over the twelve
months to February 2019 subject to any potential sale warranties. At balance date, a receivable of $0.25 million is
recognised on the balance sheet in relation to deferred consideration receivable.
Nido Interiors
Following the disposal of Leutenegger, HGL decided to completely exit the homewares segment and wind-down Nido
Interiors Pty Ltd (Nido). The company determined that Nido did not have the scale to create a sustainable long-term
position in Australia’s homewares market. The business was unable to generate an adequate return and it’s in the best
interest of shareholders to free-up invested capital to be redeployed within HGL’s core portfolio.
HGL will cease its funding of Nido after fulfilling any remaining customer orders, and expects to have finalised the wind-
down by March 2019.
6.2 Other financial assets
Current
Deferred consideration receivable
Consolidated entity
2018
$’000
2017
$’000
350
–
6.3 Financial performance
A summary of the financial performance of the discontinued businesses for the period is shown below.
Cash flows from discontinued operations
Operating cash flow
Investing cash flow
Financing cash flow(1)
Net cash (outflow)/inflow
(1,351)
4,655
(3,617)
(313)
(1,802)
(298)
2,162
62
(1) Financing cash flows reflect transfer of funds and dividends between the discontinued operations and other wholly owned Group entities
HGL Limited Annual Report 2018 6. Discontinued operations (continued)
6.3 Financial performance (continued)
Profit/(Loss) for the year from discontinued operations
Revenue
Expenses
Operating profit/(loss) from discontinued operations
Loss on disposal of discontinued operations
Profit/(Loss) before tax from discontinued operations
Tax from Discontinued Operations
Profit/(Loss) for the year from discontinued operations
7. Dividends
7.1 Dividends paid and proposed
Declared and paid during the year:
Final dividend for 2017: 1.5 cents per share (2016: 1.5 cents)
Interim dividend for 2018: 1.5 cents per share (2017: 1.25 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:
Proposed Final dividend of 1.5 cents per share not recognised as a liability as
at 30 September (2017: 1.5 cents per share)
7.2 Franking account balance
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% (2017: 30%)
Franking debits that will arise from the payment of dividends subsequent to the end of the
financial year
37
Consolidated entity
2018
$’000
2017
$’000
5,217
11,761
(7,501)
(13,025)
(2,284)
(1,264)
(111)
–
(2,395)
(1,264)
739
(1,656)
367
(897)
860
878
835
708
1,738
1,543
819
919
621
922
1,738
1,543
889
860
9,090
9,417
(381)
8,709
(369)
9,048
HGL Limited Annual Report 2018 38
Notes to the Consolidated
Financial Statements
continued
7. Dividends (continued)
7.3 Dividend reinvestment plan
Brief details of the Plan are:
–
shareholders with a minimum holding requirement of 1,000 ordinary shares and a registered address in Australia
or New Zealand are eligible to participate;
– participation is optional;
–
– payment is made through the allotment of shares, rather than cash, at a discount determined by the Directors
full or partial participation is available;
at the date 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.
8. Earnings per share (EPS)
The following reflects profit and share data used in the computation of EPS.
There were no dilutive or potentially dilutive equity items during or since the financial year, hence there is no adjustments
between Basic and Diluted EPS.
Net Profit after tax
Profit attributable to Non-Controlling Interests
Profit attributable to equity holders of the parent
Loss from discontinued operations
Profit from continuing operations
Consolidated entity
2018
$’000
812
192
620
(1,656)
2,276
2017
$’000
2,727
–
2,727
(897)
3,623
Weighted average number of ordinary shares
58,302,520
56,487,167
Basic Earnings per Share from Continuing and Discontinued Operations
Diluted Earnings per Share from Continuing and Discontinued Operations
9. Profit from operations
9.1 Revenue
Sales revenue
Cents
1.1
1.1
Cents
4.8
4.8
Consolidated entity
2018
$’000
2017
$’000
43,393
40,301
HGL Limited Annual Report 2018 39
Consolidated entity
2018
$’000
2017
$’000
591
28
619
12,333
809
13,142
18
43
1,173
(83)
177
20
197
59
59
17
76
265
–
265
10,834
680
11,514
13
8
1,450
(46)
134
–
134
62
62
3
65
9. Profit from operations (continued)
9.2 Expenses
Depreciation and Amortisation
Expensed to profit and loss
– Plant and Equipment
– Intangibles
Total depreciation and amortisation
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
9.3 Finance costs
Financial institutions - interest expense and line fees
Finance charges payable under finance leases and hire purchase contracts
Total finance costs
9.4 Other income
Interest
Financial Institutions
Total Interest
Other income
Total other income
HGL Limited Annual Report 2018 40
Notes to the Consolidated
Financial Statements
continued
10. Income tax
The major components of income tax expense for the years ended 30 September 2018 and 2017 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
Total income tax expense recognised in the current year relating to
continuing operations
Prima facie income tax benefit on profit from ordinary activities at 30% (2017: 30%)
Differences in overseas tax rates
Equity accounted investments
Recognition of deferred revenue losses
Non allowable expenses
Over provision of prior years
Other
Total Income Tax
Deferred tax
Deferred tax assets comprises:
Consolidated entity
2018
Opening balance
Charged to income
Total
2017
Opening balance
Charged to income
Total
Provisions
$’000
Plant &
Equipment
$’000
1,505
(345)
1,160
1,761
(256)
1,505
39
(17)
22
161
(122)
39
Other
$’000
119
299
418
143
(24)
119
Consolidated entity
2018
$’000
2017
$’000
(41)
(41)
1,068
(114)
(581)
373
332
840
2
–
(8)
(8)
880
(37)
(1,154)
(311)
(319)
991
3
(43)
(581)
(1,154)
98
(41)
14
332
Revenue
Losses
$’000
1,154
581
1,735
–
1,154
1,154
25
(8)
(133)
(319)
Total
$’000
2,817
518
3,335
2,065
752
2,817
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.
The group has a further $13.8 million of gross revenue losses, and $11.1 million of gross capital losses, which have not been
brought to account at 30 September 2018.
HGL Limited Annual Report 2018 41
2017
$’000
9,471
(159)
9,312
442
9,754
(237)
57
21
(159)
7,806
971
272
216
206
Consolidated entity
2018
$’000
7,451
(129)
7,322
207
7,529
(159)
(18)
48
(129)
3,932
2,555
496
308
160
11. 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
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.
7,451
9,471
12. Inventories
Raw materials (at cost)
Finished goods (at lower of cost or net realisable value)
910
3,729
4,639
–
6,950
6,950
HGL Limited Annual Report 2018 42
Notes to the Consolidated
Financial Statements
continued
13. Investment in associates
2018
Mountcastle Pty Ltd
2017
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
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
Share of dividends paid
The above profit for the year includes the following:
Depreciation and amortisation
Interest expenses
Interest income
Income tax expense
Ownership
interest
%
Carrying
value
$’000
Profit
contribution
$’000
50
50
50
4,897
4,897
4,896
98
4,994
Consolidated entity
2018
$’000
11,198
810
(2,017)
(197)
9,794
50%
4,897
815
(491)
(42)
976
976
934
8
942
2017
$’000
11,111
747
(1,810)
(257)
9,791
50%
4,896
1,018
(649)
(58)
18,150
17,433
1,952
975
1,868
800
73
25
7
741
86
39
5
800
There were no capital or lease commitments, and no contingent liabilities incurred at balance date.
HGL Limited Annual Report 2018
43
13. Investment in associates (continued)
Createc Pty Ltd
During the 2017 financial year, Createc Pty Ltd was placed into voluntary liquidation by the members and was deregistered
on 21 March 2018. The carrying value at 30 September 2017 reflected the expected distribution to shareholders on winding
up, and this amount was received in cash during the 2018 financial year.
Current assets
Net Assets
Ownership Interest
Carrying amount of the investment
14. Property, plant and equipment
Plant and equipment
At cost
Accumulated depreciation
Net carrying value
Rental equipment
At cost
Accumulated depreciation
Net carrying value
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
Expensed to COGS
Disposals
Depreciation expense
Exchange differences
Net book value at the end of the financial year
Rental equipment
Written down value
Additions
Acquisitions of a subsidiary
Depreciation expense
Net book value at the end of the financial year
Consolidated entity
2018
$’000
–
–
–
3,555
(2,381)
1,174
3,992
(1,882)
2,110
3,284
1,261
466
529
(31)
(589)
(464)
2
1,174
329
2,014
(233)
2,110
2017
$’000
197
197
50%
98
3,243
(1,982)
1,261
–
–
–
1,261
1,410
368
44
72
–
(630)
(3)
1,261
–
–
–
–
HGL Limited Annual Report 2018
44
Notes to the Consolidated
Financial Statements
continued
15. Intangible assets
Intangible Assets
Goodwill
Other intangible assets
Designs with definite useful life
Accumulated amortisation
Carrying amount of patent
Net carrying amount
Reconciliation of carrying amounts at the beginning and the end of the year
Goodwill
At 1 October
Acquisition of business
Changes in goodwill
Net book value at 30 September
Designs with definite useful life
Acquisition of business
Amortisation
Net book value at 30 September
Other intangible assets
Acquisition of business
Net book value at 30 September
Consolidated entity
2018
$’000
2017
$’000
12,417
1,943
175
(28)
147
12,066
–
–
–
–
14,507
12,066
12,066
1,739
(1,388)
10,166
1,900
–
12,417
12,066
175
(28)
147
1,943
1,943
–
–
–
–
–
Other intangible assets include customer contracts and trademarks.
Allocation of Goodwill
The carrying value of goodwill is allocated to the building products, retail marketing and healthcare segments. 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 2018 45
15. 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 16.0% (2017: 13.6%) was applied to the cash flow projections.
Long term growth rates used were between 2.5% (sales) and 5% (costs) (2017: 2.5% and 5%).
There are no reasonably foreseeable changes in assumptions which would result in an impairment to the carrying value
of goodwill.
16. Trade and other payables
Trade payables and accruals
Payables have carrying amounts that reasonably approximate fair value.
The average credit period on purchases is generally 30-60 days.
17. Financial assets and financial liabilities
17.1 Interest-bearing loans and borrowings
Secured bank loan
Current
Secured at amortised cost
Obligations under finance leases and hire purchase contracts
Variable rate bank loans
Total current
Non-current
Secured at amortised cost
Obligations under finance leases and hire purchase contracts
Total non-current
Consolidated entity
2018
$’000
2017
$’000
6,859
7,687
87
3,075
3,162
–
2,250
2,250
178
178
–
–
HGL Limited Annual Report 2018 46
Notes to the Consolidated
Financial Statements
continued
17. Financial assets and financial liabilities (continued)
17.1 Interest-bearing loans and borrowings (continued)
The borrowing facilities comprise of a $2.3 million (2017: $2.8 million) cash advance and trade finance facility with an annual
review in January each year, and $1.775 million (2017: Nil) reducing limit floating rate loan facility, which amortises quarterly
until expiry on 5 April 2021.
The facilities are secured under a fixed and floating charge over all present and future assets, undertakings and unpaid or
uncalled capital of the wholly owned 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.
17.2 Other financial liabilities
Contingent consideration
Current
Contingent consideration
Non current
Contingent consideration
Total contingent consideration
Consolidated entity
2018
$’000
2017
$’000
500
–
1,195
1,695
1,702
1,702
POSM
As part of the purchase agreement with the previous owners of POSM, an amount of contingent consideration has been
agreed. The consideration is dependent on the Gross Margin contribution of POSM during the period from acquisition to
30 November 2018 (see Note 5).
The final deferred consideration payment is due for payment no later than 31 December 2018, and the maximum remaining
consideration under the purchase agreement is $450,000. There are no reasonably foreseeable circumstances which could
result in a material change in fair value.
Pegasus Healthcare
As part of the purchase agreement with the previous owners of Pegasus Healthcare, a portion of the consideration is
deferred over a 3 year period from completion, ending on 1 April 2021. The payments are subject to any warranty claims
arising under the purchase agreement.
Intralux
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 following acquisition.
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 $6,500,000 in the final year of the agreement. Reasonably foreseeable variations in
the sales forecasts, and their associated probabilities used, could result in a material change in fair value.
The fair value of future contingent consideration has been adjusted during the year to reflect lower sales over the period,
reflecting a conservative approach following the establishment of a new competitor in the lighting market.
HGL Limited Annual Report 2018 47
17. Financial assets and financial liabilities (continued)
17.3 Other financial instruments
As part of the acquisition of Pegasus Healthcare, a Put and Call Option was granted over the remaining interest not held by
the Parent entity. Under the terms of the agreement, the Put option gives the right to the minority shareholder to require
HGL to acquire the remaining 30% interest in the Pegasus Healthcare group, with an exercise price based on a multiple of
4.0 times the average annual EBITDA of the preceding 24 month period to exercise date.
The option may not be exercised prior to 1 April 2021, and the carrying value of the liability represents the fair value of the
potential purchase price of the NCI on the earliest date the option can be exercised.
Non-current
Put option liability
Consolidated entity
2018
$’000
2017
$’000
3,349
–
17.4 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 17.1) less cash and cash equivalents, and total
equity, which includes issued capital (Note 19), reserves (Note 21) 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.
HGL Limited Annual Report 2018 48
Notes to the Consolidated
Financial Statements
continued
17. Financial assets and financial liabilities (continued)
17.4 Financial risk management objectives and policies (continued)
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
Other investments
Other current financial assets
Financial liabilities
Creditors and accruals
Borrowings - Variable rate loans
Lease Liabilities
Contingent consideration
Derivative financial instruments
Consolidated entity
Notes
2018
$’000
2017
$’000
22
11
6
16
17.1
17.1
17.2
17.3
5,044
7,451
4
350
12,849
6,859
3,075
265
1,695
3,349
4,381
9,471
–
–
13,852
7,687
2,250
–
1,702
–
15,243
11,639
Fair values of financial assets and liabilities are disclosed in the notes to the accounts where those items are listed.
Liquidity risk
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate
risk management framework for the management of the Group’s short, medium and long term funding and liquidity
management requirements.
Details of credit facilities available to the Group, and the amounts utilised under those facilities, are as follows:
Credit facilities
Amount utilised
Unused credit facility
Consolidated entity
2018
$’000
4,075
3,075
1,000
2017
$’000
2,800
2,741
59
The Group has a $2.3 million (2017: $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, and a $1.775 million (2017: Nil) reducing limit floating
rate loan facility, which amortises quarterly until expiry on 5 April 2021. The facilities are subject to covenant testing at
specific measurement dates.
In addition to the above, Pegasus Healthcare has a standalone $1.0 million multi-purpose facility with ANZ, which is subject
to an annual review. The Group acts as a Guarantor for the facility. At balance date this facility was drawn to $0.3 million,
used to fund finance leases.
HGL Limited Annual Report 2018 49
17. Financial assets and financial liabilities (continued)
17.4 Financial risk management objectives and policies (continued)
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.
Creditors and
accruals
$’000
Bank
borrowings
$’000
Contingent
consideration
$’000
Finance
lease
liabilities
$’000
Put option
liability
$’000
2018
Financial Maturity table
Less than 1 year
6,858
1 - 2 year
2 - 3 years
3 - 4 years
4 - 5 years
Longer than 5 years
Total
2017
Financial Maturity table
Less than 1 year
Total
Weighted average interest rate
Trade payables and accruals
Borrowings - Variable rate loans
Finance lease
1,850
700
525
–
–
–
505
237
324
93
110
427
87
91
87
–
–
–
–
–
3,349
–
–
–
–
–
–
–
–
6,858
3,075
1,696
265
3,349
15,243
7,687
7,687
2,250
2,250
–
–
–
–
–
–
9,937
9,937
Consolidated entity
2018
%
–
4.82
4.75
2017
%
–
4.16
–
Total
$’000
9,300
1,028
4,285
93
110
427
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 $1,668,000 (2017: $2,621,000) of foreign currencies monetary liabilities mainly in USD and Euro. The
Group has $1,652,000 (2017: $1,629,000) of foreign currencies monetary assets mainly in USD and NZD.
In addition the Group has $874,000 (2017: $1,879,000) of foreign currency forward contracts outstanding at balance date, in
a net asset fair value position of $6,000 (2017: $25,000 net liability) 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 2018 and 2017 net
outstanding foreign currency exposure.
HGL Limited Annual Report 2018 50
Notes to the Consolidated
Financial Statements
continued
17. Financial assets and financial liabilities (continued)
17.4 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 $ 21,000 higher or lower respectively (2017: $19,000).
18. Provisions
Current
Employee benefits
Surplus lease and make good provisions
Non current
Employee benefits
Surplus lease and make good provisions
Surplus lease provisions
Balance at beginning of financial year
Additional lease provisions recognised
Reductions arising from payments
Balance at the end of financial year
Consolidated entity
2018
$’000
2017
$’000
1,960
374
2,334
365
51
416
2,316
479
2,795
523
329
852
2018
$’000
808
87
(470)
425
HGL Limited Annual Report 2018 51
19. Issued capital
Ordinary shares issued and fully paid
2018
2017
Number
$’000
Number
$’000
Balance at the beginning of the financial year
57,359,581
38,496
55,657,919
37,582
Allotted pursuant to HGL dividend reinvestment plan
1,937,877
Costs associated with shares issued
–
919
(7)
1,701,662
–
922
(8)
Balance at the end of the financial year
59,297,458
39,408
57,359,581
38,496
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 7.3.
20. Non controlling interests
Non controlling interests from acquisition
Profit attributable to non controlling interests
21. Reserves
Foreign currency translation reserve
Other reserve
Consolidated entity
2018
$’000
1,064
192
1,256
Consolidated entity
2018
$’000
(178)
(901)
2017
$’000
–
–
–
2017
$’000
(176)
(901)
(1,079)
(1,077)
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.
HGL Limited Annual Report 2018 52
Notes to the Consolidated
Financial Statements
continued
22. Cash flow information
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise the following:
Consolidated entity
Cash at banks and on hand
Cash and cash equivalents
Reconciliation of cash flow from operations with operating profit after income tax
Profit after tax from continuing operations
Profit/(loss) after tax from discontinued operations
Operating profit after income tax
Adjustments to reconcile profit before tax to net cash flows:
Depreciation
Losses / (profits) on sale of property, plant and equipment
Profit on disposal of controlled entity
Share of profits of associates not received as dividends
Changes in assets and liabilities
(Increase) / decrease in trade and term debtors
(Increase) / decrease in inventories
(Increase) / decrease in prepayments
(Increase) / decrease in deferred taxes
Increase / (decrease) in trade creditors and accruals
Increase / (decrease) in provision for income tax
Increase / (decrease) in other current provisions
Increase / (decrease) in other non-current provisions
Net cash flows from/(used in) operating activities
2018
$’000
5,044
5,044
2,468
(1,656)
812
757
(41)
(111)
97
3,470
(816)
172
(523)
(1,404)
(316)
(606)
(561)
930
2017
$’000
4,381
4,381
3,624
(897)
2,727
633
(3)
–
(142)
(618)
(715)
(265)
(754)
(736)
–
155
(480)
(198)
HGL Limited Annual Report 2018
53
Parent entity
2018
$’000
1,495
23,265
24,760
4,186
1,355
5,541
2017
$’000
600
19,128
19,728
2,419
45
2,464
19,219
17,264
39,408
38,496
381
381
(58,030)
(59,220)
37,460
19,219
2,782
37,607
17,264
6,641
23. 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 $2,691,000 (2017: $1,864,000). 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.
24. 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.
An amount is included in other creditors of $0.2 million payable to the NCI in Pegasus arising from completion of the
acquisition. There is no fixed repayment date.
There were no other loans to 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
2018
$
2017
$
1,069,840
1,039,269
73,991
15,004
77,227
12,056
1,158,835
1,128,552
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key
management personnel.
HGL Limited Annual Report 2018 54
Notes to the Consolidated
Financial Statements
continued
25. Commitments and contingencies
25.1 Contingent Assets
The Group, through its wholly owned subsidiary Baker & McAuliffe Holdings Pty Ltd (“JSB”), is currently the Applicant in
ongoing proceedings in the Federal Court against a number of former employees of the Group, in relation to alleged
breaches of duties owed to JSB by those employees. The actions of these employees has caused significant operational
disruption to JSB, and there have been a number of impacts on the financial results for 30 September 2018.
Legals costs to date have been expensed as non-underlying costs in the Profit and Loss statement, which the Company will
be seeking to recover as part of the proceedings. HGL is cautiously optimistic of its chances of recovering these costs in any
settlement, however due to the inherent uncertainty surrounding court proceedings and the unknown financial situation of
the defendants no asset has been recorded in the balance sheet at balance date.
As a result of the actions of the defendants, a reassessment was made of the potential short term performance of JSB. The
Company believes there is been no impairment on the carrying value of any of the assets in the Building Products CGU,
however the headroom in the fair value calculations has been significantly reduced as a result of the potential impact of
these actions. This reassessment has, however, resulted in a reduction in the initial assessment of deferred consideration
payable in relation to the Intralux acquisition, with a corresponding decrease in goodwill arising from this acquisition.
The Group remains very positive for the medium to long term outlook of JSB, notwithstanding the actions giving rise to the
court case.
25.2 Operating lease commitments - Group as lessee
Within one year
After one year but not more than five years
Consolidated entity
2018
$’000
1,173
698
1,871
2017
$’000
1,459
1,365
2,824
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.
25.3 Capital commitments
There are no significant capital expenditure commitments at balance date.
25.4 Contingent liabilities
There are no significant contingent liabilities at balance date.
26. 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.
27. Auditors’ remuneration
The auditor of HGL Limited is Deloitte Touche Tohmatsu.
Amounts received or due and receivable by Deloitte Touche Tohmatsu for:
An audit or review of the financial report of the entity and any other entity in the
consolidated group
Other non-audit services in relation to the entity and any other entity in the
consolidated group
Consolidated entity
2018
$
2017
$
238,220
244,600
9,450
18,750
HGL Limited Annual Report 2018 55
2017
%
100
100
100
100
100
100
0
0
100
100
28. Investment in controlled entities
Significant controlled entities
Baker & McAuliffe Holdings Pty Limited (trading as JSB Lighting)
ACN 067 134 409 Pty Limited (formerly Biante Pty Limited)
BLC Cosmetics Pty Limited
Hamlon Pty Limited (trading as SPOS)
ACN 056 414 647 Pty Limited (formerly J Leutenegger Pty Limited)
Nido Interiors Pty Ltd
Eniax Pty Ltd
Certitude Healthcare Trust
The Point-of-Sale Centre (New Zealand) Limited
JSB Lighting (New Zealand) Limited
Ownership Interest
Country of
Incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
2018
%
100
100
100
100
100
100
70
70
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 2018 56
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 2018 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 2018 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 2018.
On behalf of the board
Kevin Eley
Director
Sydney, 21 November 2018
Julian Constable
Director
HGL Limited Annual Report 2018
Independent
Auditor’s Report
to the members of HGL Limited
57
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
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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 balance sheet as at 30 September 2018, the consolidated statement of profit or
loss, the consolidated statement of 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)
giving a true and fair view of the Group’s financial position as at 30 September 2018 and of its
financial performance for the year then ended; and
(ii)
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
HGL Limited Annual Report 2018
58
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
Accounting for Acquisitions
As disclosed in Note 5 Business Combinations
and Acquisition of Non-controlling Interests,
the Group acquired:
A controlling interest in Pegasus Healthcare
Group on 1 April 2018, which was
accounted for on a provisional basis; and
The assets and business of Point of Sales
Material on 4 December 2017.
Accounting for acquisitions is a complex and
judgemental exercise, requiring management
to determine:
the fair value of the total purchase
consideration, including any deferred or
contingent amounts; and
the fair value of call and put options
included in the acquisition agreement.
In addition, the Group is required to reassess
the fair value of contingent consideration
outstanding in relation to previous acquisitions.
Our procedures included, but were not limited to:
Understanding the process that management and
the directors have undertaken to account for the
acquisitions;
Critically assessing management’s accounting
treatment, including the determination of
contingent consideration, by obtaining a detailed
understanding of the terms and conditions of the
purchase contracts;
Challenging the reasonableness of the valuation
methods used, in conjunction with our valuation
specialists;
Challenging the assumptions used in
management forecasts and the discount rate
applied to calculate the fair value of the call and
put options, and contingent consideration; and
Assessing management’s provisional purchase
price allocation, relating specifically to any likely
identified intangibles.
We also assessed the appropriateness of the
disclosures included in Note 5.
Other Information
The directors are responsible for the other information. The other information comprises the Director’s Report
included in the Group’s annual report for the year ended 30 September 2018, 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.
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.
HGL Limited Annual Report 2018
59
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.
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.
HGL Limited Annual Report 2018
60
Independent
Auditor’s Report
to the members of HGL Limited continued
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 8 to 12 of the Directors’ Report for the year
ended 30 September 2018.
In our opinion, the Remuneration Report of HGL Limited, for the year ended 30 September 2018, 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
Carlo Pasqualini
Partner
Chartered Accountants, 21 November 2018
HGL Limited Annual Report 2018 61
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 2018.
(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
–
–
59,297,458 fully paid ordinary shares are held by 1,307 individual shareholders
Number of shareholders holding less than a marketable parcel (1,334 shares) is 411.
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
J P Morgan Nominees Australia Limited
IJV Investments Pty Ltd
LPO Investments Pty Limited
HSBC Custody Nominees (Australia) Limited
Kitwood Pty Limited
ANZ Trustees Limited
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