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Annual Report 2019
Contents
Directors’ Report
1
14 Auditor’s Independence Declaration
15 Consolidated Statement of Profit or Loss
16 Consolidated Statement of Other Comprehensive Income
17 Balance Sheet
18 Consolidated Statement of Changes in Equity
20 Consolidated Statement of Cash Flows
21 Notes to the Consolidated Financial Statements
Summary of significant accounting policies
Significant accounting judgements, estimates and assumptions
Reconciliation of segment EBIT to statutory net profit after tax
Income tax
21 1. Corporate information
21 2.
31 3.
32 4.
33 5. Discontinued operations
35 6. Dividends
36 7. Earnings per share (EPS)
36 8. Profit from operations
38 9.
39 10. Trade and other receivables
40 11. Inventories
41 12. Investment in associates
42 13. Property, plant and equipment
43 14. Intangible assets
44 15. Trade and other payables
45 16. Financial assets and financial liabilities
49 17. Provisions
50 18. Issued capital
50 19. Non controlling interests
50 20. Reserves
51 21. Cash flow information
51 22. Information relating to HGL Limited (parent)
52 23. Related party disclosures
52 24. Commitments and contingencies
53 25. Events after the reporting period
53 26. Auditors’ remuneration
53 27. Investment in controlled entities
Independent Auditor’s Report
54 Directors’ Declaration
55
59 ASX Additional Information
60 Five Year Summary
61 Corporate Information
HGL Limited Annual Report 2019 1
Directors’
Report
for the year ended 30 September 2019
Your directors submit their report for the year ended 30 September 2019.
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.
Helen Coonan BA, LLB (Chair)
Non-executive Chair, appointed 29 July 2019. The Honourable Helen Coonan is a former Senator in the Australian
Parliament, serving from 1996 to 2011 in roles including as the Deputy Leader of the Government in the Senate, the Minister
for Communications, Information Technology and the Arts, the shareholder Minister for Telstra Corporation and Australia
Post, the Minister for Revenue and Assistant Treasurer.
Ms Coonan holds Bachelor of Arts and Bachelor of Laws degrees from the University of Sydney, and worked as a lawyer
prior to entering Parliament.
She is the inaugural Chair of the Australian Financial Complaints Authority (AFCA), and Chair of the Minerals Council of
Australia (MCA), Crown Resorts Foundation, Place Management NSW and Supervised Investments Australia Ltd. Ms Coonan
is also Non-executive Director of Snowy Hydro Ltd, Crown Resorts Ltd, a member of the J.P Morgan Advisory Council and
Co-Chair of GRACosway (a subsidiary of the Clemenger Group). She is a Non-executive Director of Obesity Australia Limited
and of the Australian Children’s Television Foundation and Chairs the Advisory Board of Allegis Partners. Ms Coonan serves
on the Corporate Council of the European Australian Business Council and the Australia-Israel Chamber of Commerce
Advisory Council. She is also a member of Chief Executive Women. Ms Coonan is an Ambassador for the Menzies School of
Health Research and of the GUT Foundation. She serves on the Advisory Council of the National Breast Cancer Foundation
and is also a mentor at start up fintech hub Stone and Chalk.
Peter Miller, FCA, FAICD (Director)
Non executive Director, 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 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.
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 and Shriro
Holdings Ltd, a director of Chartered Accountants ANZ, as well as other unlisted and not-for-profit companies.
HGL Limited Annual Report 2019 2
Directors’
Report
continued
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:
Helen Coonan
Peter Miller
Kevin Eley
Julian Constable
Cheryl Hayman
Number of
direct shares
Number of
indirect shares
–
–
107,575
14,951,756
–
1,144,338
219,353
6,538,417
–
–
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. He is currently engaged in an orderly transition
of the CEO role and will leave the HGL group during the 2020 financial year.
Chief Financial Officer & Company Secretary
Iain Thompson, BEc (Accg), Grad Dip CSP, FGIA, GAICD
Appointed CFO / Company Secretary in 2015, Iain has over 25 years experience in finance and company secretarial roles,
including over a decade at ASX listed Brickworks Ltd. He also has directorship experience in the Not For Profit sector,
focussing on early childhood intervention.
Dividends
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
Cents per share
23/07/2019
22/01/2019
0.75
1.50
$’000
459
889
Share buy-back
The Company operates an unlimited duration on-market share buy-back. During the financial year, 211,297 ordinary shares
were acquired pursuant to the on-market buy-back, at a cost of $86,127 (2018:Nil).
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 1,863,424 (2018: 1,937,877).
HGL Limited Annual Report 2019 3
Operating and financial review
Revenue from Continuing Operations for the twelve
months ending 30 September 2019 was $39.2 million
(FY18: $43.4 million), a 9.6% decrease on the prior
corresponding period.
Gross margin increased to 53.4% (FY18: 51.5%), assisted by
effective sourcing initiatives and higher gross margin levels
attributable to Pegasus Healthcare.
Operating expenses increased by $2.4 million to
$21.9 million (FY18: $19.5 million) primarily from the addition
of six months of overheads from Pegasus Healthcare
compared to the prior year, partly offset by net cost savings
in SPOS Group, JSB Lighting and HGL head office.
Equity accounted profit from Mountcastle increased to
$1.6 million, up from $1.0 million in the prior corresponding
period, with strong earnings from both the Australian
operations and the Sri Lankan manufacturing operations.
Underlying Earnings Before Interest and Tax (“EBIT”)
from Continuing Operations in FY19 of $0.6 million (FY18:
$3.9 million) is a decrease of $3.3 million on the prior
corresponding period. The decline in Underlying EBIT was
caused by a large downturn in profit contribution from JSB
Lighting, following severe organisational disruption in 2018
and slow profit recovery through FY19. The EBIT downturn
was in part offset by profit growth in Mountcastle and
six months additional profit contribution from Pegasus
Healthcare.
Statutory Net Profit After Tax for FY19 was $1.5 million
(FY18: $0.8 million), including non-cash revaluation
adjustments arising from the Pegasus Put and Call options
and the Intralux deferred royalty payments, and net
proceeds from the settlement of a legal claim.
Company Portfolio Strategy
HGL is repositioning its company portfolio, building scale
and expanding its representation in industry sectors with
long term growth prospects. Our current portfolio of
businesses, JSB Lighting, SPOS Group, Pegasus Healthcare,
BLC Cosmetics and Mountcastle, all operate in markets
with solid growth prospects.
HGL invests in and actively supports a portfolio of wholly
or partly owned wholesale and distribution companies,
bringing both operational and strategic expertise and
access to growth capital. 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.
The Group continues to pursue stand-alone and bolt on
acquisitions of value accretive businesses with performance
results which will underpin the Group’s target financial
metrics based on our equity and skills principle. Funding
for acquisitions will be through a combination of own funds,
borrowings and capital management as appropriate.
Business unit review
JSB Lighting ( JSB) is a supplier of commercial lighting
products within the Australian and New Zealand interior
design and architectural lighting markets.
JSB Lighting experienced a slowdown in sales with revenue
of $13.9 million in 2019 compared to $23.4 million in the
same period last year. As previously advised, the company
had anticipated a negative impact on sales following the
loss of a major brand and several sales executives.
In the past six months JSB has continued its recovery,
increasing its total value of sales quotes for specified
project work, while maintaining the forward order pipeline
at encouraging levels.
The acquisition of Intralux in 2018 has enabled JSB to
manufacture product lines with reduced production costs
and market-leading technical features. Sales of Intralux
product grew by 30% in 2019 underpinned by the launch
of new products in the indoor downlight space.
The growth in this business required Intralux to move
its Brisbane factory from Darra to Seventeen Mile Rocks
during November 2019 to provide additional factory
capacity for assembly and warehousing supporting
projected future volume growth.
JSB Lighting maintains it focus on providing quality service
to its extensive client base in Australia and New Zealand,
led by our company owned Intralux products and new
exclusive Illus and TAL brands. Underlying EBIT in JSB
Lighting was $0.4 million, significantly down compared to
$3.8 million in prior corresponding period.
Pegasus Healthcare is a supplier of high quality, clinically
supported alternating pressure devices (pressure
relieving beds and mattresses) sold or rented to hospitals
and aged care facilities. Pegasus’ rehabilitation division
supplies assistive technology devices, medical equipment,
consumables and services to patients being nursed at home.
Pegasus achieved sales revenue of $9.9 million in FY19,
in line with our business plan target for the initial twelve
months. The growth potential in Pegasus is strong and
the company is successfully executing its business plan,
growing market share by providing high quality services
with clinically proven products.
The company renewed its master contract with NSW
Health for a further 5 years, and subsequently secured
multiple new rental clients in NSW including a major
new contract with Western Sydney Local Health District
(WSLHD) covering hospitals including Westmead and
Blacktown. The company is expanding its operational
facilities in Wagga Wagga and Canberra, increasing its
service revenue into those areas.
Pegasus Health Group was successful in being appointed as
an approved supplier of rental mattresses with the Victorian
Public Health Services and Hospitals (HPV). This is a major
new strategic opportunity for the business, and we are
considering the relative merits of establishing new operations
in Victoria compared to the addition of a bolt-on acquisition.
HGL Limited Annual Report 2019 4
Directors’
Report
continued
The business increased its capital expenditure investments
in the second half of FY19, strengthening its branch network
and hiring additional resources across the organisation to
support current and future growth opportunities. Pegasus
Healthcare achieved an Underlying EBIT of $0.9 million in
2019 in its first full year of operations within HGL.
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.
BLC was able to arrest its long term revenue decline,
achieving revenue growth of 1% over the prior year to
$5.1 million. The sales performance was based on growth
generated from new brand introductions combined with
improvement in Thalgo product sales.
The company launched the Linda Meredith, Skin Regimen
and Scentered candles brands into the salon and spa
market in Australia, and secured the distribution rights for
Comfort Zone in New Zealand.
BLC experienced a 3.1% decline in gross margin from
currency fluctuation and product sales mix, with Gross
Margin contribution decreasing despite same level sales
during the period. Combined with a nominal increase in
overhead expenses, BLC incurred an Underlying EBIT loss
of $0.6 million in FY19 (FY18 $0.3m).
BLC has undergone significant transformational change
in the past three years to rebuild sales performance,
but profit recovery has been slower than projected. The
company is considering its strategic options to improve
earnings, sustainability and shareholder returns.
SPOS Group is a retail marketing business selling tailored
retail display solutions in Australia and New Zealand.
SPOS Group achieved revenue of $10.3 million (FY18:
$10.4 million) consistent with same period last year. The
Australian operation performed well, while the company
was impacted by a slight downturn in sales in New Zealand.
Despite this sales decline, the New Zealand operation is
driving new sales initiatives to major supermarket chains
and custom project work for global brands and building its
sales pipeline, with an outlook of increased revenue in the
coming twelve months.
The continued depreciation of the Australian dollar against
the US dollar has negatively impacted the gross margin level
in SPOS Group. The gross margin percentage decline was
2.5% over the twelve-month period, despite the company
working hard to manage underlying gross margins, through
new sourcing partners and cost-out activities on standard
products and bespoke custom projects.
SPOS is focussed on improving its design capabilities and
offering cost-effective, bespoke product and technology
solutions. A key strategic initiative for SPOS Group in 2020
is the launch of automated product dispenser solutions and
LED marketing panels for petrol and convenience stores
and major retail chains in Australia and New Zealand.
SPOS Group invested in additional product design
capabilities and in-field sales resources in Australia and
New Zealand in 2019 to drive future sales of the new
product ranges and exclusively obtained technology
solutions.
As a result of the decline in gross margin contribution and
increased sales overheads, SPOS Group generated an
Underlying EBIT result of $0.6 million, against $1.1 million
in the prior corresponding period.
Mountcastle, a 50% owned company, is a manufacturer
and distributor of uniforms, headwear and bags to public
and private schools, government and corporate clients in
Australian and overseas.
Mountcastle continues to deliver growth compared to
the prior corresponding period with revenue up 10% to
$20.0 million (FY18: $18.1 million).
The school wear and corporate wear segments remain
attractive markets with long term growth opportunities
driving improved company profitability. Mountcastle
continues to strengthen its position in the school
wear market in Australia, underpinned by its strategic
partnership with The School Locker retail chain.
The company is pursuing new sales initiatives in the
corporate wear and headwear markets with an expanded
brand offering.
Mountcastle remains focused on optimising its production
capabilities and capacity in Sri Lanka and Vietnam. New
improvement initiatives covering business development,
sourcing, production and supply chain in Sri Lanka have
delivered significantly improved factory revenue and
profitability in 2019.
These factors have combined to deliver increased
Underlying EBIT in Mountcastle, up 33% in 2019 compared
to same period last year. The company maintained its
strong profitability level with an EBIT margin of 18.0% in
FY19.
The prospect of continued increases in sales volumes in
school wear and new growth initiatives in corporate wear
provide a promising performance outlook for Mountcastle.
CEO Transition
HGL reached an agreement with Chief Executive Officer
Henrik Thorup in October 2019 to commence a transition
process after being informed of his intention to step down
after six years in the role.
Henrik has committed to stay in the role to assist in a
smooth and orderly transition, while the Board of HGL
has engaged an external recruitment partner to conduct
a search for a successor who can execute our strategy
to build the scale of our businesses and actively pursue
bolt-on or stand-alone acquisitions.
The board acknowledges and thanks Henrik for the
contribution he has made to the Group and wish him every
future success.
HGL Limited Annual Report 2019 5
Our People
HGL continues to invest in human resource development
programs to support our employees at every level to reach
their full potential.
Recognising the important link between employee
engagement and business success, our HGL Thrive
program was rolled out across all business units aiming to
inspire our staff to create awareness and take action for
positive health changes creating a culture of wellbeing to
enhance employee engagement.
The board acknowledges and thanks our employees for
their effort and contribution throughout the year.
Cash flow and balance sheet
Operating cash generation in the Group was $1.1 million,
compared to $0.9 million in the prior corresponding
period. Free cash outflow was $0.7 million, compared
to a net $0.1 million inflow in the prior year, as Pegasus
invested heavily in growing its fleet of mattresses as a
result of contracts won.
This investment, coupled with $0.5 million deferred
acquisition payments and the dividend payments, resulted
in net cash at balance date of $0.2 million, down from the
prior year end of $2.0 million.
Gearing levels (Gross Debt : Debt plus Equity) remain low
at 9.6%, down from 10.5% at September 2018.
Working capital remains well controlled, with a reduction
seen over the year as the JSB business repositioned itself
for the reduced sales level, and the remaining working
capital from the discontinued operations was cashed.
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 Audit and
Risk Committee and monitored accordingly.
Key risks for the Group include:
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
Currency risk – Exposure to foreign currency fluctuations
(predominantly USD and Euro) is mitigated through the use
of hedging structures and adjusting selling prices for drops
in exchange rates on key contracts
Supplier risk – Reliance on a small number of key suppliers
is 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
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.
Capital management
During the period the Company conducted an on-market
share buyback which saw the purchase of 211,297 shares
at a total cost of $85,698.
The Directors have considered the cash requirements in
the group, including some potential growth opportunities
under consideration, and determined that no final
dividend will be payable in respect of the 2019 financial
year.
Outlook
Despite a difficult FY19, the board anticipates an
improvement for the new financial year as a recovery in
JSB Lighting starts to take shape, combined with current
strong growth opportunities in both Pegasus Health Group
and Mountcastle and additional order growth in SPOS. The
outcome of the strategic review of BLC is also expected to
deliver a better outcome to the group during the year.
The Company continues to identify and pursue
appropriate bolt-on acquisitions, based on our preferred
equity and skills model, with several opportunities
maturing well, potentially adding synergies and scale to
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 2019 6
Directors’
Report
continued
Remuneration report (audited)
The remuneration report outlines the director and executive remuneration arrangements of the Company for the 2019
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 2019. Unless otherwise indicated, the
individuals were KMP for the entire financial year.
Directors
Helen Coonan
Peter Miller
Kevin Eley
Julian Constable
Cheryl Hayman
Executives
Henrik Thorup
Iain Thompson
Non-Executive Chair (Appointed 29/07/2019)
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Chief Financial Officer & Company Secretary
Subsequent to the end of the financial year, the CEO advised the board he would be leaving HGL during FY20, triggering his
12 month notice period as at Oct 1 2019. The board are conducting an executive search through Allegis Partners, a global
recruitment firm, for a new CEO and are excited at the prospect of new leadership.
The Board are currently working through an orderly transition with Mr Thorup who has offered to stay as required, up until
the AGM.
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. In line with the Committee
Charter the Remuneration Committee is Chaired by an independent non executive director. Membership of the Committee
is as follows:
Cheryl Hayman
Committee Chair
Peter Miller
Julian Constable
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.
HGL Limited Annual Report 2019
Remuneration report (audited) (continued)
Use of remuneration consultants
Where the Nomination and Remuneration Committee
will benefit from external advice, it will engage directly
with a remuneration consultant, who reports directly to
the Committee. In selecting a suitable consultant, the
Committee considers potential conflicts of interest and
requires independence from the Group’s KMP and other
executives as part of their terms of engagement.
Where sought, remuneration recommendations
are provided to the Committee as one input into
decision making only. The Committee considers any
recommendations in conjunction with other factors in
making its remuneration determinations.
Remuneration packages are reviewed annually 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.
During the year ended 30 September 2019, the Committee
engaged Ernst & Young (EY) to provide executive market
remuneration data and benchmarking services at a cost
of $15,450. The Committee is satisfied there was no
influence by the KMP to the services that were delivered.
The services were provided directly to the Remuneration
Committee Chair without KMP involvement.
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.
7
Principles of remuneration
The responsibilities of the Nomination and Remuneration
Committee include developing remuneration frameworks
for senior management which incorporate the following
considerations:
–
–
The structure of the total remuneration package
(TRP) including base salary, other benefits, short term
incentive (bonus) and share-based long term incentive;
The mechanism to be used to review and benchmark
the competitiveness of the TRP;
–
The Key Performance Indicators (KPIs) to be set;
– Changes in the amounts of different components of
the TRP following annual performance reviews;
– Decisions on whether the Long Term Incentive Plan
will be offered for any year; the structure of equity to
be awarded to the CEO and subsequently specified
Executives under this plan when offered; and setting
of associated performance indicators for future
assessment;
– Determination of the amount of equity and the
associated vesting at the end of each agreed
assessment period of the Long Term Incentive Plan,
based on financial performance indicators previously
established; and
The remuneration and any other benefits of the Non-
Executive Directors.
–
The Group’s executive remuneration strategy seeks to
match the goals of the KMP to those of the shareholders.
This is achieved through combining appropriate market
levels of guaranteed remuneration with incentive
payments. These incentive payments are only paid on
attainment of previously agreed annual performance
targets which are developed against the business’ strategic
and financial goals.
Components of remuneration
Guaranteed fixed base remuneration
Base remuneration, which is not at risk, is structured
as a total employment package and includes salary,
superannuation and other benefits, with the allocation
between salary and other sacrificing benefits at the
executive’s discretion. Base remuneration is annually
reviewed but not necessarily increased each year. The
base remuneration is set at market rates for the role and
the individual.
Long term employee benefits is the amount of long service
leave entitlements accrued during the year.
At risk remuneration
An Executive Incentive Scheme is operational for the
HGL CEO and CFO. The scheme provides the opportunity
to earn an incentive payment once minimum threshold
targets are achieved. Currently, the value of the maximum
incentive opportunity for the CEO is 150% of fixed annual
remuneration, and 37.5% for the CFO.
HGL Limited Annual Report 2019 8
Directors’
Report
continued
Remuneration report (audited) (continued)
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, subject
to attainment of the KPIs, may be paid if the Executive
leaves the Company on good terms, at the absolute
discretion of the board.
For the 2019 year performance measures determined by
the Board were set as Group EPS and Return on Funds
Employed (ROFE). The Target levels are set in advance by
the Board and stem from Budget achievement.
–
–
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 2019 financial year, as the threshold targets
were not achieved. There were no incentive scheme
payments paid in relation to the 2018 financial year.
Employment contracts
Terms of employment are formalised in employment letters
to each of the KMP. There are currently no fixed term
contracts in place, however personnel must adhere to a
minimum notice period as stipulated in their contracts of
employment. The current 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.
Chief Executive Officer
HGL’s CEO, Henrik Thorup, has given notice which was
effective from October 1, 2019. His employment contract
has a 12 month notice period which the Board have
acknowledged. The terms by which he is departing the
Company will see Henrik Thorup continuing as the CEO
in a full time working capacity, offered and agreed at the
Board’s discretion until the HGL Annual General Meeting
in February 2020, subject to the appointment and
commencement of a full time replacement into the role.
The board has engaged Allegis Partners to assist their
recruitment of the new CEO. The new CEO will be
appointed under a salary package including base salary,
superannuation and other benefits, plus the opportunity
to earn both a short term incentive (cash) and long term
incentive (equity). The specific details of the plan will be
negotiated upon the selection of the new CEO.
HGL Limited Annual Report 2019 9
Percentage
variable
remunera-
tion
%
Total
$
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
$
2019
Directors
The Hon. Helen Coonan(1)
Peter Miller
Julian Constable
Kevin Eley
Cheryl Hayman
Total Directors
Executives
Henrik Thorup
Iain Thompson
Total executives
16,274
92,846
54,795
54,795
54,795
273,505
504,151
274,951
779,102
Total KMP remuneration
1,052,607
(1) Helen Coonan was appointed on 29/07/2019.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,546
8,820
5,205
5,205
5,205
25,981
–
–
–
–
–
–
–
–
–
–
–
–
20,487
25,000
–
20,649
20,487
45,649
20,487
71,630
– 10,350
–
5,684
– 16,034
– 16,034
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17,820
101,666
60,000
60,000
60,000
299,486
559,988
301,284
861,272
– 1,160,758
Note: there are no additional Director fees for Committee Chairs.
2018
Directors
Peter Miller
Dr Frank Wolf(2)
Julian Constable
Kevin Eley
Cheryl Hayman
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
37,291
54,795
54,795
54,795
302,133
483,680
255,431
739,111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
Total KMP remuneration
1,041,244
(2) Dr Wolf ceased as a director on 18 April 2018.
HGL Limited Annual Report 2019 10
Directors’
Report
continued
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 currently 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)
2015
2016
2017
2018
2019
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
39,220
605
1,461
5.9
0.320
1.9
0.75
(1) Reported data for 2016 to 2019 represents continuing operations, 2015 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 2019 was $299,486 which is within the approved amount.
On 29 July 2019 The Hon. Helen Coonan was appointed to the board, taking the role as Chair. Under the agreed package,
the Chair will be paid fixed Director Fees of $100,000 per annum. Subject to shareholder approval at the 2020 Annual
General Meeting, the Chair will also receive 1,000,000 options, exercisable at 45 cents, with an expiry date three years from
appointment. Full details of the proposed options will be provided in the explanatory information for the Annual General
Meeting.
Individual Non-Executive Directors fees have not changed since October 2007.
There are no additional fees paid to Committee Chairs.
HGL Limited Annual Report 2019 11
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 2019
Executive directors
The Hon. Helen Coonan(1)
Peter Miller
Kevin Eley
Julian Constable
Cheryl Hayman
Senior executives
Henrik Thorup
Iain Thompson
(1) Appointed on 29/07/2019.
Opening Balance
DRP shares
Purchases
Disposals
Closing balance
Indirect Holding
–
–
14,252,349
806,982
1,082,677
6,623,698
61,661
134,072
–
–
–
–
5,956
340
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15,059,331
14,951,756
1,144,338
1,144,338
6,757,770
6,538,417
–
–
6,296
–
–
–
End of Audited Remuneration Report
HGL Limited Annual Report 2019 12
Directors’
Report
continued
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 14.
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
$
10,500
Options
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.
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 will lapse at the end of 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.
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 2019 13
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:
Helen Coonan (1)
Peter Miller
Kevin Eley
Julian Constable
Cheryl Hayman
Meetings of committees
Directors’
meetings
Audit and Risk
Nomination and
Remuneration
16
3
14
16
16
16
4
–
3
4
4
–
7
–
5
–
7
7
(1)
Helen Coonan attended all meetings held since her appointment.
Corporate governance
The Company’s Corporate Governance Statement for the year ended 30 September 2019 is effective and was approved
by the Directors on 28 November 2019. 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
Helen Coonan
Chair
Sydney, 28 November 2019
Kevin Eley
Director
HGL Limited Annual Report 2019
14
Auditor’s Independence
Declaration
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
28 November 2019
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 2019, 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 Asia Pacific Limited and the Deloitte Network.
23
HGL Limited Annual Report 2019
Notes
8.1
8.1
8.4
8.3
12
9
5.3
15
Consolidated entity
2019
$’000
2018
$’000
33,791
5,429
40,748
2,645
(18,280)
(21,051)
20,940
22,342
843
(7,672)
(2,032)
(3,360)
(9,515)
1,506
(205)
1,564
2,069
(610)
1,459
2
1,461
1,145
316
1,461
76
(8,176)
(1,535)
(2,592)
(8,094)
–
(197)
976
2,800
(332)
2,468
(1,656)
812
620
192
812
Cents
Cents
1.9
0.0
1.9
1.9
0.0
1.9
3.9
(2.8)
1.1
3.9
(2.8)
1.1
Consolidated Statement
of Profit or Loss
for the year ended 30 September 2019
Continuing Operations
Sales revenue
Rental revenue
Cost of sales
Gross profit
Other income
Sales, marketing and advertising expenses
Occupancy expenses
Freight and distribution expenses
Administration and other expenses
Changes in fair value of financial instruments
Finance costs
Share of profit of an associate
Profit before tax
Income tax expense
Profit for the year from continuing operations
Profit/(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.
HGL Limited Annual Report 2019
16
Consolidated Statement
of Other Comprehensive Income
for the year ended 30 September 2019
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 income/(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
Consolidated entity
2019
$’000
1,461
6
6
1,467
1,151
316
2018
$’000
812
(2)
(2)
810
618
192
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2019 Balance Sheet
as at 30 September 2019
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepayments
Other current financial assets
Current tax receivable
Total current assets
Non current assets
Investment in associates
Property, plant and equipment
Intangible assets
Deferred tax assets
Other financial 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
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Other financial liabilities
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.
17
Consolidated entity
2019
$’000
2018
$’000
3,097
5,587
4,768
297
–
354
5,044
7,529
4,639
453
350
32
14,103
18,047
5,961
4,095
14,869
2,439
1,019
11
28,394
42,497
6,473
3,008
1,437
276
4,897
3,284
14,878
2,963
–
4
26,026
44,073
6,858
3,162
2,334
500
11,194
12,854
172
494
3,781
4,447
15,641
26,856
40,064
(1,073)
(10,358)
(3,349)
1,572
26,856
178
416
4,544
5,138
17,992
26,081
39,408
(1,079)
(10,155)
(3,349)
1,256
26,081
Notes
21
10
11
5.2
12
13
14
9
16.3
15
16.1
17
16.2
16.1
17
16.2, 16.3
18
20
19
HGL Limited Annual Report 2019
18
Consolidated Statement
of Changes in Equity
for the year ended 30 September 2019
Attributable to the equity holders of the parent
Issued capital
(Note 18)
$’000
Foreign
Currency
Reserve
(Note 20)
$’000
Other
Reserve
(Note 20)
$’000
Retained
Earnings /
Accumulated
losses
$’000
Non-
controlling
interests
$’000
Other
components of
equity
$’000
Total equity
$’000
As at 1 October 2018
39,408
(178)
(901)
(10,155)
1,256
(3,349)
26,081
Shares issued under a Dividend
Reinvestment Plan
Shares bought back and
cancelled under on-market
buy-back
Costs associated with issues of
shares
Profit for the year
Translation of overseas
controlled entities
Total comprehensive income
Dividends (Note 6)
749
(86)
(7)
–
–
–
–
–
–
–
–
6
6
–
–
–
–
–
–
–
–
–
–
–
1,145
–
1,145
(1,348)
–
–
–
316
–
316
–
–
–
–
–
–
–
–
749
(86)
(7)
1,461
6
1,467
(1,348)
As at 30 September 2019
40,064
(172)
(901)
(10,358)
1,572
(3,349)
26,856
These statements should be read in conjunction with the accompanying notes.
HGL Limited Annual Report 2019 19
Total equity
$’000
28,382
919
(7)
812
(2)
810
(1,738)
(3,349)
–
–
–
192
–
192
–
–
–
–
–
–
–
–
–
(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 18)
$’000
Foreign
Currency
Reserve
(Note 20)
$’000
Other
Reserve
(Note 20)
$’000
Retained
Earnings /
Accumulated
losses
$’000
Non-
controlling
interests
$’000
Other
components 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
Profit for the year
Translation of overseas
controlled entities
Total comprehensive income
Dividend paid (Note 6)
Acquisition of a subsidiary
Non-controlling interest arising
on a business combination
919
(7)
–
–
–
–
–
–
–
–
–
(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 2019 20
Consolidated Statement
of Cash Flows
for the year ended 30 September 2019
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 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
Purchase of investment
Net cash flows used in investing activities
Financing activities
Payment of finance lease liabilities(1)
Proceeds from borrowings
Repayment of borrowings
Buyback of shares
Dividends paid
Net cash flows (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 October
Effect of exchange rate changes on the balance of cash
Cash and cash equivalents at 30 September
(1) Payment for obligations under finance leases.
These statements should be read in conjunction with the accompanying notes.
Consolidated entity
2019
$’000
2018
$’000
Notes
44,271
54,946
(43,041)
(54,520)
34
(205)
(469)
500
21
1,090
–
(1,718)
(500)
234
(7)
(1,991)
(142)
1,500
(1,725)
(86)
(599)
(1,052)
(1,953)
5,044
6
13
5.3
6.1
21
21
3,097
5,044
59
(195)
(433)
1,073
930
19
(795)
(4,161)
4,667
–
(270)
–
825
–
–
(819)
6
666
4,381
(3)
HGL Limited Annual Report 2019 21
Notes to the Consolidated
Financial Statements
for the year ended 30 September 2019
1. Corporate information
The consolidated financial statements of HGL Limited and its subsidiaries (collectively, the Group) for the year ended
30 September 2019 were authorised for issue in accordance with a resolution of the directors on 28 November 2019.
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
Changes in accounting policies, new and amended standards and interpretations
(i)
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.
AASB 9 Financial Instruments
This standard was applicable for the Group from 1 October 2018. IFRS 9 Financial instruments introduces new
requirements for classification and measurement of financial assets and financial liabilities, impairment of financial assets,
and general hedge accounting.
On 1 October 2018 the Group assessed the business model it applies to its existing financial assets and evaluated whether
the returns on those financial assets represent solely payments of principle and interest. As a result of its assessment it has
classified its financial assets into appropriate AASB 9 categories: amortised cost, fair value through other comprehensive
income or fair value through profit or loss.
The adoption of AASB 9 has not materially impacted the carrying value of financial assets but has resulted in classification
changes on initial application at 1 October 2018 which is shown in the following table:
Original classification
under AASB 139
New classification under AASB 9
Trade receivables
Other receivables
Loans and receivables
Amortised cost
Loans and receivables
Amortised cost
Available for sale financial asset
Available for sale
Fair value through profit and loss (FVTPL)
Financial assets at amortised cost are initially recognised at fair value, plus or minus transaction costs, and subsequently
at amortised cost using the effective interest rate method less any allowance under the Expected Credit Loss (ECL) model.
HGL holds these financial assets in order to collect the contractual cash flows, and the contractual terms are solely
payments of the outstanding principal amount.
HGL Limited Annual Report 2019 22
Notes to the Consolidated
Financial Statements
continued
2.
Summary of significant accounting
policies (continued)
2.3 Changes in accounting policies, disclosures,
standards and interpretations (continued)
(i)
Changes in accounting policies, new and
amended standards and interpretations
(continued)
Financial assets at fair value through profit and loss
(FVTPL) are initially and subsequently measured at fair
value, with changes in fair value recognised in profit or
loss.
All financial liabilities are measured subsequently at
amortised cost using the effective interest method or at
FVTPL. Financial liabilities are classified at FVTPL when
the financial liability is (i) contingent consideration of an
acquirer in a business combination, (ii) held for trading
or (iii) it is designated as at FVTPL. Accordingly, there is
no change to the classification of HGL’s payables and
borrowings on adoption of AASB 9.
AASB 9 replaces the ‘incurred loss’ impairment model
in AASB 139 with an ECL impairment model for financial
assets. The new impairment model applies to the group’s
financial assets measured at amortised cost. Under AASB 9,
credit losses are recognised earlier than under AASB 139.
The Group recognises lifetime ECL for trade receivables.
Lifetime ECL represents the expected credit losses that will
result from all possible default events over the expected
life of a financial instrument. The expected credit losses
on these assets are estimated using a provision matrix
based on the Group’s historical credit loss experience,
adjusted for factors that are specific to the debtors,
general economic conditions and an assessment of both
the current as well as the forecast direction of conditions
at the reporting date, including time value of money where
appropriate. The amount of expected credit losses is
updated at each reporting date to reflect changes in credit
risk since initial recognition of the financial asset
HGL has assessed the impact of the adoption of an ECL
model under AASB 9 using the full retrospective method
of adoption, however there have been no material changes
arising from its application.
AASB 15 Revenue from Contracts with Customers
This standard is applicable to the Group for the reporting
period commencing 1 October 2018.
The requirements of AASB 15 Revenue from contracts with
customers replace AASB 118 Revenue. AASB 15 is based
on the principle that revenue is recognised when control of
goods is transferred to a customer. An entity will recognise
revenue to depict the transfer of promised goods to
customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange
for those goods.
The standard introduces a 5-step model for revenue
recognition which the group applies to its contracts with
customers except where they are in the scope of another
standard, for example: leases or financial instruments.
The standard requires contracts and 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.
Revenue is recognised over time if:
–
–
–
the customer simultaneously receives and consumes
the benefits as the entity performs;
the customer controls the asset as the entity creates or
enhances it; or
the seller’s performance does not create an asset for
which the seller has an alternative use and there is a
right to payment for performance to date.
Where the above criteria is not met, revenue is recognised
at a point in time.
Sales of goods
The Group derives its revenue from the transfer of goods
at a point in time, predominantly through individual
sales of goods which are not subject to supply contracts
beyond standard trading terms of sale. For sales of goods
to customers, revenue is recognised when control of the
goods has transferred, being at the point the customer
takes delivery of the goods. Payment of the transaction
price is usually due within 30 to 60 days from the point the
customer purchases the goods.
Under the Group’s standard contract terms, customers
have a right of return within 30 days. At the point of sale, a
refund liability and a corresponding adjustment to revenue
is recognised for those products expected to be returned.
Changes in accounting policy resulting from the adoption
of AASB 15 have been applied retrospectively. There has
been no material impact on HGL’s previously reported
financial performance as a result of the adoption AASB 15.
(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
2019. The directors have not early adopted any of these
new or amended standards or interpretations.
HGL Limited Annual Report 2019 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 16 Leases
This standard is applicable to the Group for the reporting
period commencing 1 October 2019.
AASB 16 introduces a single, on balance sheet lease
accounting model for lessees. A lessee recognises a right
of use asset representing its right to use the underlying
asset, and a lease liability representing its obligation to
make lease payments. There are recognition exemptions
for short term leases and leases of low value items.
The Group is a lessee under a number of arrangements
currently classified as operating leases, mainly based
around property leases of offices and warehouses. The
Group will recognise new assets and liabilities for these
leases, and there will be a change to the expense pattern
associated with the leases, with the ‘rent’ expense
recognised under the previous lease standard now being
split into depreciation and interest components, increasing
both EBIT and EBITDA profit measures.
The Group has yet to complete a detailed assessment
on the potential impact on its consolidated financial
statements resulting from the application of AASB 16;
however, the following impacts are expected:
–
–
–
The total assets and liabilities on the balance sheet
will increase with a gross up of assets and liabilities of
approximately $3.3 million at transition date (1 October
2019), due to the recognition of the right of use asset
and lease liability for leases previously classified as
operating leases. These balance sheet items will
reduce at different rates due to the depreciation of
right of use assets being on a straight-line basis whilst
the lease liability reduces by the principal amount of
repayments;
Interest expense will increase due to the unwinding of
the effective interest rate implicit in the lease liability.
Interest expense will be greater earlier in a lease’s
life, due to the higher principal value, causing profit
variability over the term of lease. This effect may be
partially mitigated due to the number of leases held by
the Group at various stages of their terms; and
Operating cash flows will be higher and financing
cash flows will be lower, as repayment of the principal
portion of all lease liabilities will be classified as
financing activities
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 2019. 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 2019 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 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 2019 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.
(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 when control of the asset has
passed to the buyer 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 any discounts,
allowances and GST.
Sale of goods
The Group derives its revenue from the transfer of goods
at a point in time, predominantly through repeating
individual sales of goods which are not subject to supply
contracts beyond standard trading terms of sale.
Revenue from the sale of goods is recognised when
control of the goods has passed to the customer, usually
on delivery of the goods. The despatch of goods to
the customer reflects satisfaction of the performance
obligation attached to the sale. There are no financing
components incorporated within the sale terms, and
payment is generally due within 30 to 60 days from
delivery.
Under the Group’s standard contract terms, customers
have a right of return within 30 days. At the point of sale, a
refund liability and a corresponding adjustment to revenue
is recognised for those products expected to be returned.
Revenue by operating segment / Cash Generating Unit
(CGU) can be found within the Segment note. The split of
revenue and profit by CGU depicts categories of revenue
grouped by similar economic factors, such as customers,
product ranges, risks, etc.
The nature of the sales of goods means that there are no
contract assets or liabilities required to be recognised on
the balance sheet.
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.
Interest income
Interest revenue is recognised on a time proportionate
basis that takes into account the effective yield on the
financial asset.
(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 2019 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.
HGL Limited Annual Report 2019 27
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(h) Property, plant and equipment (continued)
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)
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.
–
–
Customer relationships
Patent
10 years
8 years
(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.
HGL Limited Annual Report 2019
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)
Call Option Assets
Where the acquisition of a non-wholly owned subsidiary
includes a call option enabling the Group to acquire the
shares of the minority shareholder, an asset is recognised
equal to the incremental fair value of those shares
compared to the value payable under the call option.
Movements in the value of the call option asset are taken
directly to profit or loss.
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 10.
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 16.
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.
HGL Limited Annual Report 2019 29
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.
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(m) Derivative financial instruments and hedge
accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as
forward currency contracts to hedge its foreign currency
risks. Such derivative financial instruments are initially
recognised at fair value on the date on which a derivative
contract is entered into and are subsequently remeasured
at fair value. Derivatives are carried as financial assets
when the fair value is positive and as financial liabilities
when the fair value is negative.
Any gains or losses arising from changes in the fair value of
derivatives are taken directly to profit or loss.
(n) Inventories
Inventories are valued at the lower of cost and net
realisable value.
Cost is calculated with reference to purchase price,
including freight and other associated costs, and is
based on a weighted average cost. Net realisable value
represents the estimated selling price less all estimated
costs to be incurred in marketing, selling and distribution.
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.
HGL Limited Annual Report 2019 30
Notes to the Consolidated
Financial Statements
continued
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(q) Provisions
General
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of
the obligation. When the Group expects some or all of
a provision to be reimbursed, for example, under an
insurance contract, the reimbursement is recognised as
a separate asset, but only when the reimbursement is
virtually certain. The expense relating to any provision
is presented in the statement of profit or loss net of any
reimbursement.
Restructuring provisions
Restructuring provisions are recognised by the Group only
when a detailed formal plan identifies the business or part
of the business concerned, the location and number of
employees affected, a detailed estimate of the associated
costs, and an appropriate timeline and the employees
affected have been notified of the plan’s main features.
Onerous contracts provisions
Present obligations arising under onerous contracts are
recognised and measured as provisions. An onerous
contract is considered to exist where the Group has a
contract under which the unavoidable costs of meeting
the obligations under the contract exceed the economic
benefits expected to be received from the contract.
(r) Employee benefits
Provision is made for benefits accruing to employees
in respect of wages and salaries, annual leave and long
service leave when it is probable that settlement will be
required and are capable of being measured reliably.
Employee benefits expected to be settled wholly within
12 months are measured at their nominal values using the
remuneration rate expected to apply at time of settlement.
Employee benefit provisions, which are not expected to
be settled wholly within 12 months, are measured at the
present value of the estimated future cash outflows to
be made by the Group in respect of services provided by
employees up to the reporting date.
Contributions to defined contribution superannuation
plans are expensed when incurred.
(s) Fair value measurement
The Group measures financial instruments such as
derivatives at fair value at each balance sheet date.
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability
takes place either:
–
–
In the principal market for the asset or liability; or
In the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market must be
accessible to the Group.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant’s ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant that
would use the asset in its highest and best use.
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.
HGL Limited Annual Report 2019 31
Deferred tax assets (Note 9)
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 14)
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.
2.
Summary of significant accounting
policies (continued)
2.4 Significant accounting policies (continued)
(t) Operating segments
An operating segment is a component of an entity that
engages in business activities from which it may earn
revenues and incur expenses, and for which discrete
financial information is available. Operating segments are
based on products, having been identified based on the
information provided to the Board of Directors.
Segment EBIT represents the profit before interest and
tax earned by each segment. This is the measure reported
to the Board of Directors for the purposes of resource
allocation and assessment of segment performance.
Some items which are not attributable to specific
segments, such as finance costs and some other
expenses, and central administration costs are listed
separately in the segment note as ‘unallocated’ items.
The accounting policies used by the Group in reporting
segments internally are the same as those used by the
Group in these consolidated financial statements.
3.
Significant accounting judgements,
estimates and assumptions
The preparation of the Group’s consolidated financial
statements requires management to make judgements,
estimates and assumptions about carrying values of
assets and liabilities that are not readily apparent from
other sources. The estimates and associated assumptions
are based on historical experience and various other
factors that are believed to be reasonable under the
circumstance, the results of which form the basis of
making the judgements.
Actual results may differ from these estimates. The
estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
if the revision affects only that period, or in the period of
the revision and future periods if the revision affects both
current and future periods.
Information about significant areas of estimation,
uncertainty and critical judgements in applying accounting
policies for the Group are set out below:
HGL Limited Annual Report 2019 32
Notes to the Consolidated
Financial Statements
continued
4.
Reconciliation of segment EBIT to statutory net profit after tax
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
Changes in fair value of financial instruments(1)
Legal claims / (expenses)(2)
Acquisition costs(3)
Other non-underlying items(4)
Total non-underlying items before tax
Interest expense
Net profit before tax from Continuing Operations
Tax expense
Net profit after tax from continuing operations
Net profit / (loss) after tax from discontinued operations
Statutory profit after tax
Consolidated entity
2019
$’000
605
1,506
508
(186)
(159)
1,669
(205)
2,069
(610)
1,459
2
1,461
2018
$’000
3,892
–
(367)
(205)
(322)
(894)
(197)
2,801
(333)
2,468
(1,656)
812
(1)
Changes in fair value of financial instruments includes revaluation adjustments to Other Financial Assets and Liabilities (Note 16.2 and 16.3) and
are non-cash adjustments.
(2) Legal claim includes settlement proceeds less costs associated with pursuing the claim and other matters arising from the legal claim.
(3) Acquisition costs includes costs associated with both the successful and abandoned pursuit of acquisition targets.
(4) Other non-underlying items includes other one-off costs not directly attributable to ongoing profit performance, including restructuring costs
4.2 Segment information
Continuing Operations
Retail Marketing
Building Products
Health & Beauty
Healthcare
Total
Revenue
Depreciation
EBIT
30 September
2019
$’000
30 September
2018
$’000
30 September
2019
$’000
30 September
2018
$’000
30 September
2019
$’000
30 September
2018
$’000
10,264
13,918
5,114
9,924
10,365
23,409
5,110
4,509
51
220
94
702
39,220
43,393
1,067
17
232
74
279
602
568
384
(573)
893
1,164
3,821
(314)
655
1,272
5,326
Continuing segment EBIT
Share of profit from equity accounted investments
Finance costs
Significant items
Other unallocated expenses
Net profit before tax from Continuing Operations
1,272
1,564
(205)
1,669
(2,231)
2,069
5,326
976
(197)
(894)
(2,410)
2,801
HGL Limited Annual Report 2019 33
4.
Reconciliation of segment EBIT to statutory net profit after tax (continued)
4.2 Segment information (continued)
Revenue
Depreciation
EBIT
30 September
2019
$’000
30 September
2018
$’000
30 September
2019
$’000
30 September
2018
$’000
30 September
2019
$’000
30 September
2018
$’000
Discontinued Operations
(Note 5)
Homewares
Collectables
Total
Discontinued Segment EBIT
Finance costs
441
–
441
4,195
1,022
5,217
–
–
–
100
6
106
Profit / (Loss) before income tax from Discontinued Operations
Profit before income tax
131
(67)
64
64
(1)
63
2,132
(1,480)
(912)
(2,392)
(2,392)
(3)
(2,395)
406
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 $4.3 million (2018: $3.1 million).
5. Discontinued operations
5.1 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.
During the 2018 Financial Year, the group disposed of the Biante and Leutenegger businesses, and closed the Nido Interiors
businesses. There were minimal business operations remaining in these businesses in the current period.
HGL Limited Annual Report 2019 34
Notes to the Consolidated
Financial Statements
continued
5. Discontinued operations (continued)
5.2 Other financial assets
Current
Deferred consideration receivable
Consolidated entity
2019
$’000
2018
$’000
–
350
5.3 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)
(226)
234
(418)
(410)
(1,351)
4,655
(3,617)
(313)
(1) Financing cash flows reflect transfer of funds and dividends between the discontinued operations and other wholly owned Group entities
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
Consolidated entity
2019
$’000
441
(378)
63
–
63
(61)
2
2018
$’000
5,217
(7,501)
(2,284)
(111)
(2,395)
739
(1,656)
HGL Limited Annual Report 2019 6. Dividends
6.1 Dividends paid and proposed
Declared and paid during the year:
Final dividend for 2018 : 1.5 cents per share (2017: 1.5 cents)
Interim dividend for 2019 : 0.75c cents per share (2018: 1.5 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:
There is no proposed final dividend for the year ended 30 September 2019
(2018: 1.5 cents per share)
6.2 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% (2018: 30%)
Franking debits that will arise from the payment of dividends subsequent to the
end of the financial year
35
Consolidated entity
2019
$’000
2018
$’000
889
459
860
878
1,348
1,738
599
749
819
919
1,348
1,738
–
889
8,727
9,090
–
8,727
(381)
8,709
6.3 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;
full or partial participation is available;
payment is made through the allotment of shares, rather than cash, at a discount determined by the Directors 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.
HGL Limited Annual Report 2019 36
Notes to the Consolidated
Financial Statements
continued
7. 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
Profit / (Loss) from discontinued operations
Profit from continuing operations
Weighted average number of ordinary shares
Basic Earnings per Share from Continuing and Discontinued Operations
Diluted Earnings per Share from Continuing and Discontinued Operations
8. Profit from operations
8.1 Revenue
Sales revenue
Rental revenue
Total revenue
Consolidated entity
2019
$’000
1,461
316
1,145
2
1,143
2018
$’000
812
192
620
(1,656)
2,276
60,089,466
58,302,520
Cents
Cents
1.9
1.9
1.1
1.1
Consolidated entity
2019
$’000
33,791
5,429
39,220
2018
$’000
40,748
2,645
43,393
HGL Limited Annual Report 2019 37
Consolidated entity
2019
$’000
2018
$’000
1,070
61
1,131
12,921
927
13,848
86
(309)
1,703
13
184
21
205
34
34
809
843
591
28
619
12,333
809
13,142
18
43
1,173
(83)
177
20
197
59
59
17
76
8. Profit from operations (continued)
8.2 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 (back) / down of inventories to net realisable value
Operating lease expenses - minimum lease payments
Foreign exchange gain / (loss)
8.3 Finance costs
Financial institutions - interest expense and line fees
Finance charges payable under finance leases and hire purchase contracts
Total finance costs
8.4 Other income
Interest
Financial Institutions
Total Interest
Other income
Total other income
HGL Limited Annual Report 2019 38
Notes to the Consolidated
Financial Statements
continued
9. Income tax
The major components of income tax expense for the years ended 30 September 2019 and 2018 are:
Consolidated statement of profit or loss
Current tax
In respect of the current year
Prior year under / (over) provision
Deferred tax
In respect of the current year
Prior year under / (over) statement of DTA
Effect of change in tax rate
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 expense on profit from ordinary activities at 27.5% (2018: 30%)
Differences in overseas tax rates
Equity accounted investments
Recognition of deferred revenue losses
Non allowable expenses
Non assessable items
Over provision of prior years
Current year tax loss not recognised in DTA
Other
Total Income Tax
Deferred tax
Deferred tax assets
Deferred tax liability
Net deferred tax assets
Consolidated entity
2019
$’000
2018
$’000
113
32
145
141
52
272
–
–
465
610
568
2
(293)
–
157
(759)
52
929
(46)
610
Consolidated entity
2019
$’000
2,810
(371)
2,439
–
(41)
(41)
1,068
–
–
(114)
(581)
373
332
840
2
–
(581)
98
–
(41)
–
14
332
2018
$’000
3,335
(371)
2,964
HGL Limited Annual Report 2019 9. Income tax (continued)
Deferred tax assets comprises:
Consolidated entity
2019
Opening balance
Effect of change in tax rate
Charged to income
Total
2018
Opening balance
Charged to income
Total
Deferred tax liability comprises:
Consolidated entity
2019
Opening balance
Total
2018
Opening balance
Business acquisition
Total
Provisions
$’000
Plant &
Equipment
$’000
1,160
(89)
(381)
690
1,505
(345)
1,160
22
(3)
(275)
(256)
39
(17)
22
Provisions
$’000
Plant &
Equipment
$’000
–
–
–
–
–
–
–
–
–
–
Other
$’000
418
(35)
161
544
119
299
418
Other
$’000
(371)
(371)
–
(371)
(371)
Revenue
Losses
$’000
1,735
(145)
242
1,832
1,154
581
1,735
Revenue
Losses
$’000
–
–
–
–
–
39
Total
$’000
3,335
(272)
(253)
2,810
2,817
518
3,335
Total
$’000
(371)
(371)
–
(371)
(371)
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 $17.3 million of gross revenue losses, and $10.2 million of gross capital losses, which have not been
brought to account at 30 September 2019.
10. Trade and other receivables
Trade receivables
Allowance for expected credit losses
Net trade receivables
Other debtors
Total receivables
Consolidated entity
2019
$’000
5,143
(140)
5,003
584
5,587
2018
$’000
7,451
(129)
7,322
207
7,529
The average credit period on sales of goods is 30 to 60 days. No interest is charged on outstanding trade receivables.
HGL Limited Annual Report 2019 40
Notes to the Consolidated
Financial Statements
continued
10. Trade and other receivables (continued)
Allowance for expected credit losses
The group measures the loss allowance for trade receivables at an amount equal to the lifetime expected credit loss. The
expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience
and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors and general
economic conditions of the industry in which the debtors operate.
There has been no change in the estimation techniques or significant assumptions made during the current reporting period.
The group has historically had immaterial levels of credit losses which have resulted in non-recovery of amounts
outstanding from trade receivables. Recognition of an expected credit loss in the provision for doubtful debts is based
predominantly on the estimated recoverability of specific long overdue debtor balances. A provision is raised against
debtors to reflect historical loss experience on debtors with similar characteristics.The trade receivable is retained on the
balance sheet net of the expected credit loss provision pending the outcome of any recovery activities.
The group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty
and there is no realistic prospect of recovery e.g when the debtor has been placed under liquidation or has entered into
bankruptcy proceedings, or when the trade receivables are over two years past due, whichever occurs earlier. None of the
trade receivables that have been written off remain subject to enforcement activities.
The aging of the receivables and allowance for expected credit losses provided for above are as follows:
Consolidated entity
2019
Not overdue
1 to 30 days overdue
31 to 60 days overdue
Over 60 days overdue
11. Inventories
Raw materials (at cost)
Finished goods (at lower of cost or net realisable value)
Expected
credit
loss rate
%
Carrying
amount
$’000
Allowance for
expected
credit losses
$’000
0.1
0.1
0.4
29.4
3,277
1,107
300
459
5,143
Consolidated entity
2019
$’000
744
4,024
4,768
3
1
1
135
140
2018
$’000
910
3,729
4,639
HGL Limited Annual Report 2019 41
Ownership
interest
%
Carrying
value
$’000
Profit
contribution
$’000
50
50
5,961
5,961
1,564
1,564
4,897
4,897
976
976
12. Investment in associates
2019
Mountcastle Pty Ltd
2018
Mountcastle Pty Ltd
Mountcastle Pty Ltd
The principal activity of Mountcastle was headwear and uniform distribution.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interest
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
There were no capital commitments, and no contingent liabilities incurred at balance date.
Consolidated entity
2019
$’000
13,364
3,101
(3,417)
(183)
(943)
11,922
50%
5,961
2018
$’000
11,198
810
(2,017)
(197)
–
9,794
50%
4,897
2,204
(1,229)
–
815
(491)
(42)
22,599
18,150
3,128
500
122
116
6
861
1,952
975
73
25
7
741
HGL Limited Annual Report 2019
42
Notes to the Consolidated
Financial Statements
continued
13. 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
Net book value at the beginning of the financial year
Additions
Acquisitions of a subsidiary
Disposals
Depreciation expense
Net book value at the end of the financial year
Consolidated entity
2019
$’000
2018
$’000
4,318
(2,772)
1,546
4,991
(2,442)
2,549
4,095
1,174
881
–
–
(3)
(505)
(1)
1,546
2,110
1,013
–
(9)
(565)
2,549
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
HGL Limited Annual Report 2019 14. Intangible assets
Intangible Assets
Goodwill
Other intangible assets
Accumulated amortisation
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
At 1 October
Acquisition of business
At 1 October
Amortisation for the period
Net book value at 30 September
Other intangible assets
At 1 October
Acquisition of business
Amortisation for the period
43
Consolidated entity
2019
$’000
2018
$’000
13,177
1,606
13,125
1,606
(40)
175
(49)
126
–
175
(28)
147
14,869
14,878
13,125
12,066
52
–
2,447
(1,388)
13,177
13,125
175
–
(28)
(21)
126
1,606
–
(40)
1,566
–
175
–
(28)
147
–
1,606
–
1,606
Other intangible assets include customer contracts and trademarks.
On 1 April 2018 the Group acquired 70% of the business and assets of Pegasus Healthcare.
During the current period, the acquisition accounting was finalised. There was no impact on the profit and loss account, and
the only impact on the balance sheet was a reclassification within intangible assets, to reflect the final valuation report of the
key customer relationships held at acquisition, which has been adjusted in the 30 September 2018 comparative information.
This change resulted in the carrying value of “Other Intangibles” decreasing from $1.687 million to $1.350 million, the carrying
value of “Goodwill” increasing from $0.624 million to $1.332 million and “DTL” increasing from Nil to $0.371 million.
Allocation of Goodwill
The carrying value of goodwill is allocated to the building products ($10.7 million), retail marketing ($1.1 million) and healthcare
CGU ($1.3 million).
HGL Limited Annual Report 2019 44
Notes to the Consolidated
Financial Statements
continued
14. Intangible assets (continued)
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. Testing is performed annually, or where the Directors assess there have been changes in the
results or operating environment of a CGU which suggest a review of the carrying value of the goodwill allocated to that
CGU is warranted.
During the period there has been a material reduction in sales revenue within JSB Lighting (Building Products CGU). As a
result of these changes, testing of the carrying value of goodwill has been completed in accordance with the assumptions
and sensitivities outlined below.
There were no impairment charges in the current or previous financial year in relation to any CGU.
Key assumptions and sensitivities – Building Products CGU
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, and
expected changes in Earnings before Interest, Tax Depreciation and Amortisation (EBITDA). The assumptions regarding long
term growth rates are based on past experience and expectations of changes in the market.
The value in use calculations at 30 September 2019 have used cash flow projections based on EBITDA forecasts adopted
by the board for the following five years, using a combination of reasonably anticipated revenue and cost changes as the
business recovers from the short term impact of the changes to the operating environment of JSB Lighting. These forecasts
are extrapolated beyond five years based on estimated long term growth rates.
A pre tax discount rate, based on the pre-tax Weighted Average Cost of Capital (WACC), of 16.4% (2018: 16.0%) was applied
to the cash flow projections. A long term growth rate (LTGR) of 2.5% (2018 2.0%) has been applied to the terminal value
EBITDA forecast used in the calculation.
The Group has conducted an analysis of the sensitivity of the impairment test to changes in the key assumptions used to
determine the recoverable amount of goodwill.
If there are reasonably possible adverse changes in the key assumptions on which the recoverable amount is based, the
recoverable amount calculated for the CGU may equal the carrying value. The adverse movements in these assumptions
required, each considered in isolation, to result in the carrying amount being equal to the recoverable amount of the CGU
are outlined in the table below.
Should profitability deteriorate further than forecast, or there be a combination of adverse changes noted below, it may
cause the carrying amount of the CGU to be lower than recoverable amount at a future date, which may result in an
impairment
Assumptions
WACC
LTGR
Annual cashflow and terminal value EBITDA
15. 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.
Movement
0.29% increase
0.45% decrease
1.63% decrease
Consolidated entity
2019
$’000
2018
$’000
6,473
6,858
HGL Limited Annual Report 2019 45
Consolidated entity
2019
$’000
2018
$’000
158
2,850
3,008
87
3,075
3,162
172
172
178
178
16. Financial assets and financial liabilities
16.1 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
The borrowing facilities comprise $3.3 million (2018: $2.3 million). Cash advance, trade finance and asset finance facilities
with an annual review in January each year, and $1.05 million (2018:$1.775 million) 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.
16.2 Other financial liabilities
Contingent and deferred consideration
Contingent consideration
Current
Contingent consideration
Non current
Contingent consideration
Total contingent consideration
Deferred consideration
Current
Deferred consideration
Non current
Deferred consideration
Total deferred consideration
Consolidated entity
2019
$’000
2018
$’000
76
1,123
1,199
200
250
450
–
745
745
500
450
950
HGL Limited Annual Report 2019 46
Notes to the Consolidated
Financial Statements
continued
16. Financial assets and financial liabilities (continued)
16.2 Other financial liabilities (continued)
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, ending on 1 April 2021. The payments are subject to any warranty claims arising under the
purchase agreement. At balance date, a maximum of $450,000 remains outstanding.
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
$2,750,000 in the first year to a high of $5,500,000 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.
Non-cash movement in the carrying value of the contingent consideration are recognised in profit and loss as non-
underlying items.
16.3 Other financial assets and liabilities
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. Under the call option, HGL has the
right to acquire the remaining 30% interest in the Pegasus Healthcare Group with an exercise price based on a multiple of
4.3 times the average annual EBITDA of the preceding 24 month period to exercise date.
Neither the put or the call option may be exercised prior to 1 April 2021, and the carrying value of the assets and liability
represents the fair value of the potential purchase price of the NCI on the earliest date the option can be exercised.
Movement in carrying value of the asset and liability are recognised in profit and loss as non-underlying items.
Non-current
Put option liability
Call option assets
Consolidated entity
2019
$’000
2018
$’000
(2,408)
1,019
(3,349)
–
16.4 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 16.1) less cash and cash equivalents, and total
equity, which includes issued capital (Note 18), reserves (Note 20) 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.
HGL Limited Annual Report 2019 47
16. Financial assets and financial liabilities (continued)
16.4 Financial risk management objectives and policies (continued)
Significant accounting policies
A summary of the significant accounting policies adopted in relation to financial instruments are disclosed in Note 2 to the
financial statements. Information regarding the significant terms and conditions of each significant category of financial
instruments are included within the relevant note for that category.
Categories of financial instruments
Details of consolidated financial assets and liabilities contained in the financial statements are as follows:
Financial assets
Cash at bank and on hand
Trade receivables
Other investments
Deferred consideration
Other non current financial assets
Financial liabilities
Creditors and accruals
Borrowings - Variable rate loans
Lease Liabilities
Other financial liability
Notes
21
10
16.3
15
16.1
16.1
16.2, 16.3
Consolidated entity
2019
$’000
2018
$’000
3,097
5,143
11
–
1,019
9,270
6,473
2,850
330
4,057
5,044
7,451
4
350
–
12,849
6,858
3,075
265
5,044
13,710
15,242
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
2019
$’000
4,350
3,180
1,170
2018
$’000
4,075
3,075
1,000
The group has $2.3 million (2018: $2.3 million) cash advance, trade finance and asset finance with the Australia and
New Zealand Banking Group Limited (ANZ), which is subject to annual review, and a $1.050 million (2018: $1.775 million)
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 $0.8 million,
used to fund finance lease and other equipment purchases.
HGL Limited Annual Report 2019 48
Notes to the Consolidated
Financial Statements
continued
16. Financial assets and financial liabilities (continued)
16.4 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
2019
Financial Maturity table
Less than 1 year
6,210
Total
$’000
8,981
3,457
141
144
149
591
–
–
–
–
–
–
–
–
–
–
2,325
525
–
–
–
–
276
361
128
144
149
591
170
163
13
–
–
–
-
2,408
–
–
–
–
6,210
2,850
1,649
346
2,408
13,463
1,850
700
525
–
–
–
505
237
324
93
110
427
87
91
87
–
–
–
–
–
3,349
–
–
–
9,300
1,028
4,285
93
110
427
6,858
3,075
1,696
265
3,349
15,243
Consolidated entity
2019
%
–
4.12
4.75
2018
%
–
4.82
4.75
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
2018
1 - 2 year
2 - 3 years
3 - 4 years
4 - 5 years
Longer than 5 years
Total
Weighted average interest rate
Trade payables and accruals
Borrowings - Variable rate loans
Finance lease
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 $1,743,000 (2018: $1,668,000) of foreign currencies monetary liabilities mainly in USD and Euro. The
Group has $1,353,000 (2018: $1,652,000) of foreign currencies monetary assets mainly in USD and NZD.
In addition the Group has $852,000 (2018: $874,000) of foreign currency forward contracts outstanding at balance date, in
a net liability fair value position of $368 (2018: $6,000 net asset) that were classed as level 2 financial instruments.
The average contract length approximates 50 days, and is generally in accordance with payment terms.
HGL Limited Annual Report 2019 49
16. Financial assets and financial liabilities (continued)
16.4 Financial risk management objectives and policies (continued)
The Group used a 10% sensitivity analysis and concluded there was no material impact on the 2019 and 2018 net
outstanding foreign currency exposure.
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 $32,000 higher or lower respectively (2018: $21,000).
17. 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
2019
$’000
2018
$’000
1,428
9
1,437
419
75
494
1,960
374
2,334
365
51
416
2019
$’000
425
(55)
(286)
84
HGL Limited Annual Report 2019 50
Notes to the Consolidated
Financial Statements
continued
18. Issued capital
Ordinary shares issued and fully paid
2019
2018
Number
$’000
Number
$’000
Balance at the beginning of the financial year
59,297,458
39,408
57,359,581
38,496
Allotted pursuant to HGL dividend reinvestment plan
Shares bought back and cancelled
Costs associated with shares issued and share buyback
1,863,424
(211,297)
–
749
(86)
(7)
1,937,877
–
–
919
–
(7)
Balance at the end of the financial year
60,949,585
40,064
59,297,458
39,408
During the current and prior year no ordinary shares were purchased pursuant to the on market share buy back.
Details of the HGL Limited Dividend Reinvestment Plan are disclosed in Note 6.3.
19. Non controlling interests
Balance at beginning of financial year
Non controlling interests from acquisition
Profit attributable to non controlling interests
20. Reserves
Foreign Currency Reserve
Other Reserve
Consolidated entity
2019
$’000
1,256
–
316
1,572
2018
$’000
–
1,064
192
1,256
Consolidated entity
2019
$’000
(172)
(901)
2018
$’000
(178)
(901)
(1,073)
(1,079)
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 2019 51
21. 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
Amortisation and impairment of intangible assets
Profit on disposal of controlled entity
Share of profits of associates not received as dividends
Change in fair value of financial instruments
Changes in assets and liabilities
(Increase) / decrease in trade and term debtors
(Increase) / decrease in inventories
(Increase) / decrease in prepayments
(Increase) / decrease in deferred taxes
Increase / (decrease) in trade creditors and accruals
Increase / (decrease) in provision for income tax
Increase / (decrease) in other current provisions
Increase / (decrease) in other non-current provisions
Net cash flows from operating activities
22. 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
2019
$’000
3,097
3,097
1,459
2
1,461
1,070
12
61
–
(1,064)
(1,506)
2,315
(129)
155
524
(669)
(322)
(896)
78
1,090
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
Parent entity
2019
$’000
476
24,577
25,053
3,390
4,351
7,741
2018
$’000
1,495
23,265
24,760
4,186
1,355
5,541
17,312
19,219
40,064
381
39,408
381
(58,030)
(58,030)
34,897
17,312
(1,217)
37,460
19,219
2,782
HGL Limited Annual Report 2019 52
Notes to the Consolidated
Financial Statements
continued
22. Information relating to HGL Limited (parent) (continued)
As noted above, there is a working capital deficiency of $2,914,000 (2018: $2,691,000). 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.
23. 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
2019
$
2018
$
1,073,094
1,069,840
71,630
16,034
73,991
15,004
1,160,758
1,158,835
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key
management personnel.
24. Commitments and contingencies
24.1 Operating lease commitments - Group as lessee
Within one year
After one year but not more than five years
Consolidated entity
2019
$’000
958
2,590
3,548
2018
$’000
1,173
698
1,871
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.
24.2 Capital commitments
There are no significant capital expenditure commitments at balance date.
24.3 Contingent liabilities
There are no significant contingent liabilities at balance date.
HGL Limited Annual Report 2019 53
25. 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.
26. 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
27. Investment in controlled entities
Significant controlled entities
Baker & McAuliffe Holdings Pty Limited (trading as JSB Lighting)
BLC Cosmetics Pty Limited
Hamlon Pty Limited (trading as SPOS)
Eniax Pty Ltd
Certitude Healthcare Trust
The Point-of-Sale Centre (New Zealand) Limited
JSB Lighting (New Zealand) Limited
BLC Cosmetics (NZ) ltd
Consolidated entity
2019
$
2018
$
150,000
238,220
10,500
9,450
Ownership Interest
Country of
Incorporation
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
2019
%
100
100
100
70
70
100
100
100
2018
%
100
100
100
70
70
100
100
0
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 2019 54
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 2019 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 2019 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 2019.
On behalf of the board
Helen Coonan
Chair
Sydney, 28 November 2019
Kevin Eley
Director
HGL Limited Annual Report 2019
Independent
Auditor’s Report
to the members of HGL Limited
55
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney, NSW, 2000
Australia
Phone: +61 2 9322 7000
www.deloitte.com.au
Independent Auditor’s Report to
the Members of HGL Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of HGL Limited (the “Company”) and its subsidiaries (the “Group”)
which comprises the consolidated statement of financial position as at 30 September 2019, the
consolidated statement of profit or loss and other comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, and notes to
the financial statements, including a summary of significant accounting policies and other explanatory
information, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 September 2019 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 Asia Pacific Limited and the Deloitte Network.
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HGL Limited Annual Report 2019
56
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
Carrying Value of Goodwill
As at 30 September 2019 the Group has
recognised goodwill amounting to A$13.2
million, contained within three cash
generating units (CGUs).
Disclosed in Note 14 ‘Non-Current Assets -
Intangibles’, in relation to JSB CGU,
management has specifically identified that a
change in key assumptions used in the value
in use impairment model could result in an
impairment charge to goodwill.
As at 30 September 2019, $10,7 million of
goodwill was attributable to the JSB CGU.
The determination of the net present value of
future cash flows involves significant
judgement. For the JSB CGU, significant
judgement was required in determining
certain assumptions used in the value in use
model including the discount rate applied and
the forecast EBITDA growth rate.
•
•
•
•
•
In conjunction with valuation specialists, our
procedures included, but were not limited to:
•
Understanding and evaluating management’s
impairment process, including the controls in
respect of the preparation and review of
forecasts;
Evaluating the discounted cash flow model
developed by management to assess the
recoverable value of the JSB CGU. This included
assessing the following key assumptions used
within the model:
o
o
discount rate - through comparison with an
independently calculated discount rate; and
forecast EBITDA, with reference to historical
performance;
Testing the mathematical accuracy of the value
in use model for the JSB CGU;
Assessing the historical accuracy of
management’s cash flow forecasts;
Performing sensitivity analysis on a number of
assumptions, in particular discount rates,
expected EBITDA growth, and
Assessing the appropriateness of disclosures
included in the notes to the financial statements.
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 2019, 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.
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.
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HGL Limited Annual Report 2019
57
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.
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.
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HGL Limited Annual Report 2019
58
Independent
Auditor’s Report
to the members of HGL Limited continued
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 6 to 11 of the Directors’ Report for the year
ended 30 September 2019.
In our opinion, the Remuneration Report of HGL Limited, for the year ended 30 September 2019, 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
Sydney, 28 November 2019
76
HGL Limited Annual Report 2019 59
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 2019.
(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
–
–
60,949,585 fully paid ordinary shares are held by 1,236 individual shareholders
Number of shareholders holding less than a marketable parcel (1,516 shares) is 432.
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
Kitwood Pty Ltd
HSBC Custody Nominees (Australia) Limited
ANZ Trustees Limited
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