HGL Limited Annual Report 2022

Plain-text annual report

ANNUAL REPORT 2022 Hancock && Gore Limited (ACN: 009 657 961) H&&G Annual Report 2022H&&G ANNUAL REPORT 20221 Chairman’s Report 2 H&&G Annual Report 20223 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Chairman’s Report I am pleased to report on another year of substantial progress in the repositioning of H&&G as a diversified investment company and outline key objectives for the 2023 financial year. The 2022 annual report cover features a quiet achiever of the H&&G portfolio - the “workhorse” Consew sewing machines which have produced millions of Mountcastle products for close to 100 years. These machines have endured long past their use by date and have enabled the artisanal design team to passionately turn design ideas into reality and evolve through constant fashion cycles and changing styles. These machines and their craftspeople masters embody some of the key attributes we are striving for in our investment selections. We seek investments that can endure through economic cycles and evolution of demand, guided by passionate management teams committed to the highest level of execution who can successfully navigate opportunities and challenges. H&&G is fortunate to have Mountcastle / LW Reid as a key investment pillar contributing to annual profitability and we acknowledge the efforts of the management team in delivering another strong performance in 2022. We believe there is a significant opportunity to further develop Mountcastle during 2023 both organically and through acquisitions. H&&G was pleased to be able to increase its ownership interest in Mountcastle to 49% during the year. H&&G began 2022 with a strongly supported capital raising to further strengthen the balance sheet and allow for additional diversification of investments and investment strategies. 4 H&&G Annual Report 2022The capital raising enabled us to partner with Disruptive Packaging and their management team in the international roll-out of manufacturing facilities for their sustainable packaging products. Disruptive Packaging products have a massive global market opportunity to replace non-sustainable packaging products which dominate existing supply chains. Disruptive Packaging is making substantial progress in building international sales momentum but has been limited by constrained supply. The H&&G initial investment allows for a doubling of production capacity and we will look to further assist in financing additional capacity during 2023. We believe Disruptive Packaging has the potential to be a significant long-term underpinning investment of H&&G. 2022 was not without challenges – particularly in the second half of the financial year when inflationary pressures and interest rate rises eroded investor confidence and caused significant downturn in financial markets and repricing of risk. Additionally, investee businesses had to adapt to fluctuating operating costs, exchange rate volatility and continuing changed labour market conditions including significant staff shortages which created earnings pressure. Whilst these pressures and uncertainty and continued listed equity volatility will continue to impact on short term performance from listed equities, it is also an environment that is historically the catalyst for significant investment opportunity. We have seen an increased amount of enquiry and activity in refinancing opportunities and bridging finance and expect this will increase in 2023. H&&G will actively pursue opportunities to allocate an appropriate portion of the balance sheet to structured investments with the intention to deliver superior risk adjusted medium term returns. Notwithstanding challenges encountered during 2022, there are a number of specific highlights of the second half which warrant emphasis. The divestment of long-term investment Pegasus Healthcare in June released balance sheet capacity for H&&G to make new investments and to also pay fully franked interim, special and final dividends. Pegasus was a very successful investment for H&&G and we acknowledge the efforts of our investment partner Scott Nowland in leading the business and in execution of the sale to manufacturing partner Linet and wish them well for the future. A key objective of the repositioning of H&&G has been the development of a funds management business and increased specialist investment capabilities. It is pleasing that 2022 has seen the launch of initial investment syndicates for listed equity, private equity and property transactions and the initial public offering of H&&G High Conviction Limited. Amidst an environment of erosion of investor confidence and negative investment returns it was pleasing to see the company successfully make its debut on the ASX. It is a key intention to continue to increase our funds management size and capability during 2023. I believe the performance of H&&G in 2023 and likely 2024 will be driven by execution of a relatively small number of initiatives with significant balance sheet and profitability impact. Investment potential of Mountcastle and Disruptive Packaging alone could significantly re-shape H&&G, whilst funds management execution should contribute meaningfully. These two investments represent less than 40% of the current net assets of H&&G, and with significant balance sheet capacity we are targeting at least one new key investment pillar in 2023. I would like to thank the management team of H&&G and specifically Phil, Nick, Joseph, Michael and Arthur for their contributions and support during the year and look forward to an even stronger 2023 as the introductions, research and networking, and insights from due diligence undertaken during 2022 continue to bear fruit. I would also like to acknowledge the support of my fellow Board members Peter, Kevin, Cheryl and Joseph whose contributions have been significant and valued. Both Peter and Cheryl have announced their intentions to retire as Directors leading up to and following the AGM and I would like to acknowledge the efforts of both of them over a long period of time, and specifically Peter who served as a long time Chairman. I believe we have successfully expanded and built on the platform established in 2021 and look forward to continuing to further expand and develop on it in 2023, and hopefully like the Consew sewing machine… we produce more than expected. Sandy Beard 5 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Contents 1 2 6 Chairman’s Report Review Of Operations Review of Operations Core Capabilities of the Management Team Business Activities Review Mountcastle Group Disruptive Packaging Hyde Road Property H&&G High Conviction Limited The H&&G Opportunities Portfolio Other Unlisted Assets Strategic Listed Investments 4 10 12 14 16 18 20 22 24 26 28 H&&G Annual Report 20223 Financial Review Corporate Directory Directors Report Operating And Financial Review Renumeration Report Auditor’s Independence Declaration Financial Report Consolidated Statement of Profit and Loss and Other Comprehensive Income Consolidated Balance Sheet Consolidated Statement Of Changes In Equity Consolidated Statement Of Cash Flows Notes To The Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information 32 34 38 43 52 54 55 56 57 58 59 99 100 105 7 H&&G Annual Report 2022H&&G ANNUAL REPORT 20222 Review Of Operations 8 H&&G Annual Report 20229 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Review of Operations FY22 saw significant diversification of the balance sheet and sources of profit contribution. The 1st half was highlighted by a $15m capital raising, continued development of investee businesses and progression of transactions. Against the 2nd half backdrop of inflation, rising interest rates and significant stock market volatility, the Company realised its investment in Pegasus Health, completed a new key investment in Disruptive Packaging, saw Mountcastle achieve another record year and launched a number of key initiatives that will underpin future profitability. Highlights of the year include net profit of $5.6m, increase in Net Tangible Assets to 28.1 cents per share and payment of fully franked dividends of 1 cent per share relating to FY21, 0.5c special dividend, 0.5c interim dividend and declaration of a 1 cent final FY22 dividend. $5.6M NET PROFIT AFTER TAX 28.1cps NTA PER SHARE 2.0cps DIVIDENDS 10 H&&G Annual Report 2022DIVIDENDS KEY ACHIEVEMENTS AND INITIATIVES • Sale of Pegasus Health for $10m cash representing a profit of $5.5m on original 2018 acquisition price and $2.7m uplift on the carrying value as reported in H&&G’s 30 September 2021 balance sheet • Mountcastle recorded record revenues of $49.3m and EBITDA of $10.4m (unaudited) with capital management initiatives increasing H&&G’s stake to 49.4%. H&&G share of Mountcastle dividends during the year was $1.5m • New investment ($5.8m balance sheet, $2.5m syndicated) into Disruptive Packaging, an innovative sustainable packaging business with strong traction in The US and Australia • Initial Public Offering of H&&G High Conviction Limited externally managed by H&&G Investment Management. Establishes platform for long term investment management and performance fees • Hyde Road Trust completed arrangements for the acquisition of 1.2 ha property for $10m (H&&G $3.9m equity interest). The property is a high yielding asset with strong tenancies and substantial long term development potential • Mint Payments continues to perform well, servicing H&&G’s senior debt which is due for refinance at the end of CY2023 • Strategic shareholdings in ASX listed Anagenics (ASX:AN1) and FOS Capital (ASX:FOS) with board representation and targeting long term value enhancement H G achieved 91% external FuM growth in FY23 • H&&G Opportunities Portfolio contributed approximately 10% return in tough market conditions vs Small Ords Accumulation Index loss of 23% for the financial year • Established approx. $10m portfolio of income producing investments generating yield of greater than 10% per annum • T Shirt Ventures achieved strong revenue growth from NDIS technology services and a material growth capital raising completed at premium to H&&G initial investment valuation • Fully franked dividend payments of 2 cents per share paid during the year, and final fully franked dividend declared of 1 cent per share • Focus areas for FY2023 include: • Enhanced distribution and syndication • Further diversification into high quality income generating assets • Mountcastle M&A and evaluation of liquidity • AN1 and FOS M&A and value creation • Growth of Disruptive Packaging • Driving Returns of H&&G High Conviction Limited 1 1 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Core Capabilities of the Management Team H G’s ability to deliver long term investment returns is dependent on the skills of its management team, the quality of the investments made and the strength and skill of the management teams of the investee companies. Dealflow and ability to partner with management teams and entrepreneurs is also fundamental to the future success of H&&G as quality management teams are attracted to those that can truly partner with them for the longer term in a trusted relationship, and assist in creating value. H&&G’s approach is encapsulated in the concept of “Capital plus Skills” which is an elegant description of the marriage between leadership talent and access to capital that powers investment returns and which we are striving to deliver. There are abundant opportunities in the Australian economy that will power significant long term investment outperformance and result in building significant Australian companies. In particular we believe smaller companies, those with valuations less than $100m, are the most prospective for H&&G. These emerging companies provide the opportunity for us to offer a differentiated blend of capital and skills and to work as a preferred partner assisting investees to realise their investment aspirations. 12 The role of our investment team is to identify the strongest investment candidates and advocate H&&G’s credentials as their investment partner of choice, for the longer term. We offer the chance for them to benefit from a relationship that drives business growth, rounds out gaps in their business plan and management team and navigates any inevitable bumps in their journey. H&&G seeks to invest in businesses that have dominant founder / management ownership as we believe there is significant correlation in investment performance and ownership. The skill set of the H&&G management team encompassess a broad range of capabilities. The combined experience and diverse transaction exposure over multiple investment cycles presents a uniquely differentiated opportunity for potential investees to benefit from. In FY2022 H&&G has expanded its skill base with key hires across the investment and support teams and investment management vehicles. H&&G Annual Report 2022CORE CAPABILITIES AND EXPERIENCE INCLUDE: • Long term investment return delivery > 15% per annum • Corporate advisory skills and networks • Capital markets access • Operational management experience • Underwriting capabilities • Broad deal flow networks and access • Mentorship and insights • Strategic advice and assistance • Supply chain and distribution experience • Management of businesses through economic cycles • Divestment, merger and takeover transactions • Infrastructure investment • Venture and early stage investment capital • Debt recovery, and distressed asset turnaround • Alternative lending sources • Navigation of complex shareholder issues • Experience with growing companies and growing pains • Diverse industry experience • Renewable Energy and Sustainable Investments 3 1 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Business Activities Review In a difficult year for financial markets, H G refined and diversified its portfolio while establishing foundations for future value creation among its key assets and funds management vehicles. The key strategic objective of H&&G is to deliver long term returns to shareholders, in excess of 15% per annum on invested capital, including dividends and long-term capital growth. This objective can be achieved through a combination of short, medium and long term investment strategies which will both increase in size and overlap over time with reinvestment of profits. Short term: Listed investment trading profits, dividend income, interest income, rental income, funds management and performance fees and advisory fees Medium term: Strategic ASX investments, private equity portfolio M&A, and property investments Long term: Realisation of long term value realisation strategies including IPO or trade sales, realisation of significant planning outcomes for property investments and other significant corporate M&A activity Further detail on each of H&&G’s key assets and strategies are provided on the following pages. 14 H&&G Annual Report 20225 1 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Mountcastle Group KEY ACHIEVEMENTS • Mountcastle recorded record revenues of $49.3m and EBITDA of $10.4m (unaudited) • Paid $3.0 million dividends for FY22 ($1.5m H&&G share received) • Completed two accretive minority share buybacks (H&&G interest increased to 49.4%) • Completed the extraction of its 50% owned Hyde Road Property to shareholders on 4 October 2022 • Progressed a strong pipeline of accretive M&A opportunities The School Uniform industry in Australia is estimated at A$1bn revenue p.a. 16 H&&G Annual Report 2022OVERVIEW Mountcastle, established in 1835, is a leading Australian supplier, wholesaler, and retailer of both customized private and public-school uniforms within Australia. The School Uniform industry in Australia is estimated at A$1bn revenue p.a. and is highly fragmented. With the acquisition of LW Reid Pty Ltd in December 2019, Mountcastle became one of the largest industry players & continues to grow year on year. FY22 was another record year of revenue and profits for Mountcastle despite continued impacts of the pandemic in key regions. During the year Mountcastle completed two buybacks of minority shareholders at accretive prices, with H&&G’s ownership interest increasing to 49.4% from 39.7% at 30 September 2021. Revenue ($’millions) EBITDA ($’millions) Group’s ownership interest Group’s carrying value ($’millions) Mountcastle’s financial year end is 30 June. STRATEGY & OUTLOOK The H&&G management team continues to assist Mountcastle in progressing strategic opportunities in industry consolidation, increased operational efficiencies, access to new markets, product innovation, diversified manufacturing capability, e-commerce platforms & access to cheaper equity & debt capital. 2022 49.3 10.4 49.4% 21.1 2021 47.5 9.5 39.7% 16.7 Mountcastle has a significant acquisition pipeline and aims to complete transformational M&A during FY23. 30 September Valuation $21.1m includes $1.1m look-through interest in Hyde Rd Property Basis for Valuation Capitalisation of future maintainable earnings H&&G Investment Date June 1997 7 1 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Disruptive Packaging KEY ACHIEVEMENTS • Completed $8 million growth capital raising provided by an H&&G managed trust • Continued international expansion and established JV partner in the US • Rapidly increasing sales, pipeline of demand and expanding supply chain capability OVERVIEW Disruptive Packaging (DP) is an Australian based inventor, manufacturer and marketer of a revolutionary sustainable technology, Unicor®. Unicor is made of 70% natural elements and is 100% recyclable with numerous commercial applications in global industries The Unicor box is a sustainable, cost- effective, high-performance solution to replace wax cardboard and polystyrene in the packaging industry. Since 2016 DP has invested significant founder capital and efforts into developing, protecting and commercializing DP’s intellectual property. H&&G funded DP’s first external growth capital raise in June 2022 to complete its manufacturing set up in Mexico and exploit rapidly growing demand from the North American customer base. With millions of units shipped, ~$5m FY22 revenue (+80% on FY21) and a significant global pipeline of customers, DP is poised for another step change in growth. H&&G’s provided DP’s growth capital through its first syndicated investment, raising $8.4 million in a H&&G-managed trust (including a net $5.8 million contribution by H&&G’s balance sheet, since syndicated further) to invest preferred equity into DP. The Group has board representation in an active sponsor role and expects Disruptive Packaging to be a key long-term investee pillar of the Group portfolio. 18 H&&G Annual Report 2022STRATEGY & OUTLOOK DP has the opportunity to become a globally relevant business, with evidenced value in their IP through significant demand across regions. Fresh produce and seafood wholesale industries in particular are large global markets requiring packaging solutions which address specific supply chain needs, with harmful materials like polystyrene and wax cardboard still prevalent. DP is making inroads with customers and the focus for FY23 is expanding manufacturing capacity to service this demand, particularly in the US and Australia. 30 September H&&G Share Valuation $5.8m Basis for Valuation Net asset backing reflecting conversion value of investment instrument H&&G Investment Date June 2022 9 1 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Hyde Road Property OVERVIEW Mountcastle’s warehouse and office property at Hyde Road, Yeronga, Brisbane was acquired by an H G managed trust on 4 October 2022. H&&G now owns 73% of the Hyde Rd property alongside other Mountcastle shareholders. The property is a high yielding asset with strong tenancies and substantial long term development potential. There is long-term upside from a potential redevelopment of the precinct. Yeronga is only 6 km from the Brisbane CBD & very close to the University of Queensland, St Lucia Campus. The site is presently included in a Strategic Inner City Industrial Area under the “Brisbane Industrial Strategy 2019”. H&&G will continue to optimise, reposition and maximise the value of the Hyde Rd property during FY23 and beyond. 30 September H&&G Share Valuation $3.9m Hyde Rd valuation is based on H&&G’s interest at settlement (4 October) and is not reflected in H&&G’s 30 September 2022 balance sheet. The Mountcastle Group valuation at 30 September 2022 prior to the extraction of Hyde Rd Property includes approximately $1.1m value attributable to the Hyde Rd Property. Basis for Valuation Cost base of investment H&&G Investment Date October 2022 20 H&&G Annual Report 20221 2 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022H&&G High Conviction Limited KEY ACHIEVEMENTS • Returned 7.2% after all fees for the 12 months ended 30 September 2022* compared to the ASX Small Ordinaries Accumulation Index’s loss of 22.6% • Hancock && Gore received $0.3m in management and performance fees from HCF during FY22, up over 100% on FY21 • Grew funds under management by 39%, to end FY22 at $18m • Post year-end, closed the IPO of H&&G High Conviction Limited (ASX: HCF), raising a further $5m *Includes H&&G High Conviction Fund unit trust until 23 June 2022 and H&&G High Conviction Limited company from 23 June 2022. HCF returned 7.2% after all fees for the 12 months ended 30 September 2022, navigating a turbulent market and significantly outperforming the ASX Small Ordinaries Accumulation Index’s –22.6%. 22 H&&G Annual Report 2022OVERVIEW H G High Conviction (HCF) had another successful year, its second under the management of H G’s wholly owned subsidiary H G Investment Management Ltd. HCF returned 7.2% after all fees for the 12 months ended 30 September 2022, navigating a turbulent market and significantly outperforming the ASX Small Ordinaries Accumulation Index’s –22.6%. HCF generated $0.3m in management and performance fees to H&&G during FY22 and funds under management grew by 39%, up over 100% on FY21. During the year, HCF investment structure was converted from a unit trust to a company, following unanimous support from unitholders, and prepared for an IPO. Post year end HCF raised $5m via IPO, which was cornerstoned by Perennial Value Management. H&&G also subscribed for shares in HCF and presently owns 5.7% of the company. HCF is an investment company that aims to maintain a concentrated portfolio of 15-25 ASX-listed micro capitalisation (microcap) companies. HCF invests in and actively engages with companies that it considers have superior fundamental prospects but are priced by the market at a discount relative to perceived inherent value, usually resulting from non-operating, external events that have led to a flight of investors. HCF seeks to minimise capital loss and focuses on long- term capital growth and income from its portfolio companies. During FY22 microcap companies suffered a large sell-off, leading to increased opportunities for investing in this segment of the market. The HCF management team intends to take advantage of this by deploying recently raised capital into microcaps over the coming months. In addition, HCF will continue to engage closely with its concentrated portfolio of investee companies to help realise value for shareholders. 3 2 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022The H&&G Opportunities Portfolio KEY ACHIEVEMENTS • Generated an absolute return in FY22 of 10% that materially outperformed the Small Ordinaries Accumulation Index return of negative 23% over the same period. • Pivoted the strategy in the 2HFY22 to fewer positions, but more concentrated strategic long-term holdings as value presented opportunities. OVERVIEW The H G Opportunities Portfolio provides the H G balance sheet with exposure to select deeply analysed core strategic listed and unlisted long-term investments. H&&G Opportunities Portfolio’s mandate is intentionally very flexible allowing it to invest across the micro & large company spectrum, including global listed and unlisted investments when compelling value arises. It also provides a source of short-term investment trading profits during times of market dislocation. During the year, the strategy delivered investment returns of 10% that materially outperformed both the All Ordinaries Accumulation Index & the Small Ordinaries Accumulation Indices that returned negative 8.6% & negative 22.6% respectively. The investment strategy is nimble and successfully pivoted in 2HFY22 to increase weighting to core long-term strategic holdings as value presented with the market sell off in the last quarter. Several new Microcap/SmallCap company investments were added to the portfolio at attractive pricing levels that provide a material margin of safety buffer against global market volatility. The H&&G group believes smaller capitalised ASX listed companies are a source of significant potential long-term investment performance and are often effectively private companies with limited liquidity and access to capital. In the current environment, where Microcap companies access to equity capital markets is effectively closed, there is abundant opportunities & a natural overlap with the HCF investment style. This presents a unique window for the broader H&&G group to work collaboratively with investee company’s management teams to find solutions. In doing so, H&&G can obtain attractive investment terms for its capital and corresponding highly valued skills offering. As we look forward to FY23, we anticipate creating value through recapitalisation solutions, active management of undervalued, counter-cyclical and undervalued strategic holdings, and strategic investee company mergers and acquisitions. 24 H&&G Annual Report 20225 2 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Other Unlisted Assets T SHIRT VENTURES T Shirt Ventures (TSV) is an innovative health tech company that helps people living with disability and long-term health needs. TSV’s key brands are Provider Choice (NDIS plan management platform launched in 2018) and HeyHubble (online marketplace for NDIS participants and providers currently in launch phase) with more solutions for those in need under development. TSV is a rapidly growing profit-for-purpose business with significant intellectual property to create solutions across multiple healthcare segments where there is potential to make lives easier. H&&G has a minority equity position in T Shirt Ventures. FY22 saw strong revenue growth from NDIS technology services and a material growth capital raising recently completed at a premium to H&&G initial investment valuation. 30 September H&&G Share Valuation $2.0m Basis for Valuation Monte Carlo valuation based on recent capital raising H&&G Investment Date March 2021 26 H&&G Annual Report 2022MINT PAYMENTS Mint is an Australian fintech institution specialising in a wide range of end-to-end payment solutions. Mint processes over $3bn transactions per annum which is expected to grow rapidly particularly in its core segment of travel as Australia continues reopening domestically and internationally. Tourism and travel was over a $120bn sector in Australia prior to COVID and has been rapidly recovering during 2022. Mint has now completed the integration of transformative acquisition IPG Group and continues to grow revenue rapidly from a profitable base. H&&G holds a senior debt instrument in Mint. 30 September H&&G Share Valuation $3.65m Basis for Valuation Loan Principal face value H&&G Investment Date September 2021 7 2 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Strategic Listed Investments ANAGENICS LIMITED Anagenics Limited (ASX:AN1) is a growing wellness, health and beauty business with a portfolio of functional skin, hair and wellness brands. Originally an IP development portfolio with limited commercialisation, AN1 was transformed in 2021 with the acquisition of BLC Cosmetics from H&&G - a beauty distribution business supporting iconic prestige brands such as Thalgo, Hydropeptide, Comfort Zone, Priori and recently Inika Organic. AN1 retains its strong developed IP in hair regrowth technology with related license and royalty streams. H&&G received an equity stake in AN1 through the BLC transaction, remaining a supportive strategic shareholder with board representation for the continued transformation AN1 with a particular focus on accretive M&A opportunities. 30 September H&&G Share Valuation $2.2m includes $1m deferred consideration owed by AN1 to HNG 30 September H&&G Interest 14.8% H&&G Investment Date November 2021 28 H&&G Annual Report 2022FOS CAPITAL FOS Capital (ASX:FOS) was established April 2019 and designs, manufactures and distributes quality lighting solutions to the commercial construction industry. Led by an experienced management team with a proven industry track record, FOS has completed 4 acquisitions since inception to create an ANZ operation. FOS is profitable, cashflow positive, debt free and has built the foundations to launch the business into its next expansion phase. FOS’s medium term stated intentions are to grow organically and by acquisition to create a +$50M revenue group that can produce net profit margins in excess of 10%. H&&G has been a shareholder in FOS Capital since its IPO in June 2021, is represented on the board and continues to support the company in M&A, capital and strategic initiatives. 30 September H&&G Share Valuation 30 September H&&G Interest $0.7m 6.5% H&&G Investment Date November 2020 9 2 H&&G Annual Report 2022H&&G ANNUAL REPORT 20223 Financial Review 30 H&&G Annual Report 20221 3 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Corporate Directory Directors Alexander (Sandy) Beard B.Com, FCA, MAICD Chair Kevin Eley CA, F Fin, FAICD Director Peter Miller FCA, FAICD Director Cheryl Hayman B Com, FAICD Director Joseph Constable BA (Hons), MPhil Director Company Secretary Michael Bower BSc (Hons) CA FCA Registered office Principal place of business Suite 803, Level 8 25 Bligh Street Sydney NSW 2000 Australia Suite 803, Level 8 25 Bligh Street Sydney NSW 2000 Australia Share registry Auditor Computershare Investor Services Pty Ltd Level 4, 60 Carrington Street Sydney NSW 2000 1300 855 080 UHY Haines Norton Sydney Level 11, 1 York Street Sydney NSW 2077 Stock exchange listings ASX: HNG (not HGL) Corporate Governance Statement https://www.hancockandgore.com.au/corporate-governance Website address www.hancockandgore.com.au 32 H&&G Annual Report 20223 3 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Directors’ Report The directors of Hancock && Gore Ltd (“the Company”) and its controlled entities (“the Group”) submit their report for the year ended 30 September 2022. Directors The names and details of Hancock && Gore Ltd (“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 the entire period unless otherwise stated. • Alexander (Sandy) Beard • Kevin Eley • Peter Miller • Cheryl Hayman • Joseph Constable Alexander (Sandy) Beard, B.Com, FCA, MAICD (Chair) Executive Chair, appointed 29 October 2020. Alexander ‘Sandy’ Beard has been a Director of numerous public and private companies over the past 25 years. He is the former Chief Executive Officer of CVC Limited (ASX:CVC). He is a professional investor and has extensive experience with investee businesses, both in providing advice, assisting in acquisitions and divestments, capital raisings and in direct management roles, especially bringing management expertise to small cap companies in driving shareholder returns. Sandy is a Director of Centrepoint Alliance Ltd (ASX:CAF), Anagenics Limited (ASX:AN1) and FOS Capital Ltd (ASX:FOS). Sandy was a director of Pure Foods Tasmania Limited (ASX:PFT), until May 2022. Kevin Eley, CA, F Fin, FAICD (Director) Non-executive Director, appointed 1985. Chair 5 June 2020 to 29 October 2020. Kevin Eley is a Chartered Accountant with significant executive and director experience, including as Chief Executive Officer of the Company from 1985 to 2010. Kevin has been the lead director on the board for Audit and Risk matters since 2018. He is a director of EQT Holdings Ltd (ASX: EQT) and Pengana Capital Group Ltd (ASX: PCG) and was a Director of Milton Ltd (ASX: MLT) until it was taken over by Washington H. Soul Pattinson in October 2021. Peter Miller, FCA, FAICD (Director) Non-executive Director, appointed 2000. Peter Miller is a Chartered Accountant with over 45 years experience in public practice. Peter was Chair of the Company for many years and was also a member of the Nomination and Remuneration Committee, and of the Audit and Risk Committee until their functions were absorbed by the full board. 34 H&&G Annual Report 2022Cheryl Hayman, B.Com, FAICD (Director) Non-executive Director, appointed 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 and business transformation. Cheryl is the lead director on the board for Nomination and Remuneration matters. Cheryl is a director of Beston Global Food Company Ltd (ASX: BFC) and Ai-Media Technologies Limited (ASX: AIM), a director of Chartered Accountants ANZ, as well as other unlisted and not-for- profit companies. She was a director of Clover Corporation Ltd (ASX: CLV) until November 2020, and of Shriro Holdings Ltd (ASX: SHM) until March 2022. Joseph Constable, BA(Hons), MPhil (Director) Executive Director, appointed 30 June 2020. Joseph has seven years experience in equity markets. He is a Portfolio manager and Responsible manager for H&&G Investment Management Ltd (formerly Supervised Investments Australia Ltd). He has previous investment experience at Hunter Hall International and UK-based Smith and Williamson. Joseph has a Bachelor of Arts with Honours from the University of Melbourne and a Master of Philosophy from the University of Oxford. Joseph brings to the board research and analytical skills in addition to knowledge of investing in public markets. Joseph is a director of H&&G High Conviction Limited (ASX: HCF) and Po Valley Energy Limited (ASX: PVE). Interests of Directors in the shares and options of the Company and related bodies corporate As at the date of this report, the interests of the directors in the shares and options of Hancock && Gore were: Number of Options Number of direct shares Number of indirect shares Alexander (Sandy) Beard 6,000,000 9,390,724 15,333,235 Kevin Eley Peter Miller Cheryl Hayman Joseph Constable - - - - - 234,469 - 425,872 3,577,240 25,549,971 744,030 - Entities related to Alexander Beard (200,000 units), Kevin Eley (100,000 units), Peter Miller (100,000 units), Cheryl Hayman (50,000 units), hold ordinary units in the DP Trust a related body corporate of the Group. 5 3 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Key management personnel The following names and details are of the other key management personnel of the Company. Other key management personnel were in office for the entire period unless otherwise stated. Investment Director Nicholas Atkinson, MBA, B.Com, GradDipAppFin Nicholas is Investment Director of the Group, appointed 21 June 2021. Nicholas has more than 25 years of investment experience spanning capital markets, corporate finance, and investment management. He served as the Executive Director of Institutional Equities at Morgans Financial for 14 years, where he oversaw the growth of the division's profitability. Having gained global experience in London and New York, Nicholas has expertise in the Energy, Healthcare and Small-Capitalization sectors. He has a passion for assisting companies grow organically and through acquisitions. Nicholas is a director of H&&G High Conviction Limited (ASX: HCF). Investment Director Phillip Christopher, BEc, BCom Phillip has been an Investment Director of the Group since 17 May 2021. Phillip has over 12 years of experience across private equity, capital markets and investment management. Prior to joining the Group he was a Director in Private Equity at Alceon Group and a member of the Investment Banking Division of Goldman Sachs. Phillip is a director of Anagenics Limited (ASX:AN1). Company Secretary Michael Bower BSc (Hons) CA FCA Michael was appointed Company Secretary on 29 March 2022. Michael has over 25 years' experience in finance and investment roles in Australia, the United Kingdom and New Zealand, including 17 years at CVC Limited (ASX: CVC), initially as Chief Financial Officer and Company Secretary and then as Investment Analyst and Manager. Michael is a Chartered Accountant and member of both Chartered Accountants Australia and New Zealand and the Institute of Chartered Accountants in England and Wales. Michael has a Bachelor of Science (Honours) in Chemistry from the University of Durham. Chief Financial Officer and Company Secretary Iain Thompson,BEc (Accg), CA, Grad dip CSP, FGIA, GAICD Resigned effective 29 March 2022 to take on equivalent roles at Mountcastle Group, a major investee of the Group. Iain was appointed CFO / Company Secretary in 2015, Iain has 30 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, focusing on early childhood intervention. Iain is a Chartered Accountant, a member of the Governance Institute of Australia, and a member of the Australian Institute of Company Directors. 36 H&&G Annual Report 2022Dividends During the year, the Company paid the following fully franked dividends: • • Final dividend of 1.0 cent per share for the year ended 30 September 2021 paid on 3 December 2021; Interim dividend of 0.5 cents per share for the year ended 30 September 2022 paid on 30 September 2022; and • Special dividend of 0.5 cents per share for the year ended 30 September 2022 paid on 30 September 2022. Since the end of the financial year the directors have declared a fully franked final dividend for the year ended 30 September 2022 of 1.0 cent per share to be paid on 12 December 2022. The dividend reinvestment plan will not apply to this dividend. 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 Directors determined that the DRP would not be in operation and there were no shares issued under the DRP. Share buy-back There were no shares bought back during the current financial year. Principal activities During the period the principal activities of the Group consisted of management of a diversified investment strategy with the objective to deliver consistent dividends and long term capital growth. The investment strategies include management of a portfolio of diversified assets, including ASX listed equities – both passive and strategic, unlisted equities including mature private businesses and earlier emerging companies, fixed income producing investments, funds management activities, and direct and indirect investment in property assets. The Group provides active support to those investees in which we hold a significant equity stake, including directorship capabilities, facilitation of management services and secondment of personnel. 7 3 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Operating And Financial Review Overview The Group continued to refine and expand its investment approach and capabilities during the financial year ended 30 September 2022 with a further well-supported capital raising, recruitment of additional new team members and active management of its portfolio of investments, which included the divestment of long-term investee companies and focus on owner operated businesses. Statutory Net Profit after Tax of $5.6 million was reported, which included: • Realisations from the portfolio of private equity investments; • Dividend income, recoupment of costs and other transactions with investees; • Share trading profits; • Management and performance fees from funds management activities; • Net revaluation gains on private equity investments; and • Interest income from fixed interest and convertible note investments. The Group has adopted an ‘investment entity’ accounting approach since the start of the financial year ended 30 September 2021, where investee entities are recognised on the balance sheet at fair value, with changes in the value during the reporting period recognised through profit and loss. A key profit measure adopted by the board following this change is Adjusted net profit before tax. This removes unrealised revaluation gains on unlisted investments in the period but adds back similar gains from prior periods now crystallised, and is considered to provide a better indication of distributable earnings: Net profit before income tax Less: revaluation gains on unlisted investments in the current year (*1) Add: prior year unrealised gains crystallised in respect of Pegasus Healthcare Adjusted net profit before tax 2022 $’000’s 5,703 (3,154) 3,325 5,874 2021 $’000’s 15,235 (10,634) - 4,601 *1 BLC Cosmetics is treated as realised in the prior period, as the 30 September 2021 valuation reflected an agreed sale price. Net assets at 30 September 2022 were $64.1 million. Net Tangible Assets were 28.1 cents per share. These amounts do not reflect contingent tax assets in respect of $17.7 million of carry forward tax losses which are not reflected on the balance sheet. These losses remain subject to satisfaction of the Continuity of Ownership Test or Same Business Test prior to usage. 38 H&&G Annual Report 2022Dividends and capital management The Group paid fully franked dividends of 2.0 cents per share during the financial year ended 30 September 2022. The full year 2022 performance of the Group has allowed Directors to declare a fully franked final dividend of 1.0 cent per share to shareholders to be paid on 12 December 2022. The Company was able to expand and diversify the balance sheet during the year following a strongly supported private placement announced in November 2021 which raised $15.0 million at a price of 33 cents per share. These funds have been used to invest in new and existing investments. At balance date the Group held $13.5 million in cash. Portfolio Significant changes to the portfolio of investments improved the diversification and liquidity of the portfolio during and subsequent to the end of the financial year, as follows: • The Group completed the sale of its 70% interest in Pegasus Healthcare Group for approximately $10 million cash to LINET Australia in September 2022. The sale price represents a 120% uplift from the Group’s initial investment of $4.5 million in March 2018, and an approximate $2.6 million uplift, or $2.3 million after adjusting for put and call options, on the carrying value as reported in the Group’s 30 September 2021 balance sheet; • Mountcastle completed a number of capital management initiatives, including share buybacks, during the year. The Group also invested a further $1.2 million. The combined effect increased the Group’s ownership of Mountcastle to 49.4% (up from 39.7% at 30 September 2021). Mountcastle also distributed dividends of approximately $1.5 million to The Group during the year; • The Group completed its first syndicated investment, raising $8.4 million in a Group-managed trust (including a net $5.9 million contribution by the Group) to invest growth capital (unlisted preferred equity) into Disruptive Packaging, an innovative global closed-loop recyclable packaging inventor, manufacturer and marketer. The Group has board representation in an active sponsor role and expects Disruptive Packaging to be a key long-term investee pillar of the Group portfolio; • The Group further developed its funds management business through the restructure of the H&&G High Conviction Fund into H&&G High Conviction Limited (ASX code: HCF). H&&G High Conviction Limited is managed by the Group’s wholly owned subsidiary H&&G Investment Management Ltd (HGIM). H&&G High Conviction Limited launched its IPO in September 2022, which closed following the year-end with approximately $22 million in equity, including receiving a $3m investment by funds managed by Perennial Investment Management. The listing of HCF provides the Group with a fee generating and scalable source of funds under management. • The Group completed the sale of its 100% owned subsidiary BLC Cosmetics to ASX Listed Anagenics (ASX: AN1) for $1.2 million cash and 32,786,885 million Anagenics shares in November 2021. The Group holds a substantial holding in Anagenics and has taken an active role as a supportive strategic shareholder with board representation. As part of the BLC Cosmetics transaction, the Group is entitled to earn-out consideration from Anagenics of approximately $1.05 million payable in cash and Anagenics shares (subject to Anagenics shareholders’ approval); • The Group’s ASX trading portfolio, excluding core holdings in Anagenics and FOS Capital acquired through business disposals, of approximately $10 million had a strong first half of the financial year delivering annualized returns exceeding 20% per annum. Strong market declines through April through to June significantly eroded gains made in first half, but returns significantly improved from July through to September, allowing the portfolio to finish the year with an annualized return of approximately $1 million or 10% per annum; and 9 3 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022• The Group also established a new syndicated investment through the Hyde Rd Trust to acquire a property in Brisbane occupied and previously 50% owned by Mountcastle. The transaction involved Mountcastle shareholders rolling over their look-through 50% equity interest and the Group contributing $2.8 million of new funding. Settlement occurred just after year-end, on 4 October 2022, and gives the Group a 73% equity interest in the property. The Hyde Rd property is a high yielding asset with strong tenancies and substantial long term development potential which we will actively look to reposition. A pipeline of further opportunities remain under active consideration. The Mountcastle Group, the Group’s largest investment, is a supplier of school and corporate wear. Mountcastle performed strongly during the year reporting record revenue and earnings despite the impact of COVID and associated closure of schools at times during the year. The team are excited about the opportunities available to Mountcastle and continue to work closely with management and other shareholders to develop opportunities to further enhance the value of this investment. The following table, based on unaudited management reporting for Mountcastle, for the years ended 30 June, provides further information on the Mountcastle investment: Revenue ($’millions) EBITDA ($’millions) Group’s ownership interest Group’s carrying value ($’millions) Outlook 2022 49.3 10.4 49.4% 21.1 2021 47.5 9.5 39.7% 16.7 The Board remains focused on increasing value for shareholders through a combination of: • Driving growth and value of investee companies by assisting with M&A, capital management and strategy; • Progressive realisation of portfolio investments, and redeployment of capital into new growth opportunities; • Diversification of the investment base to other asset categories; • Increasing funds under management across existing managed vehicles and new vehicles; • Continued building of the investment and support team; and • Continued dividend payments based on realised earnings. The Group believes the refinement of the portfolio over the past 12 months has positioned it well to drive realisable value from existing investments, deploy surplus cash into new investments and broaden revenue streams from off balance sheet funds under management. 40 H&&G Annual Report 2022Risk management The achievement of the Group’s business objectives may be affected by internal and external variables 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 and is reported to the board. Key risks for the Group include: Loss of value of investments risk The Group has a diversified portfolio of investments which are exposed to a variety of external inputs. It is possible that broad macro-economic changes outside the direct control of management may lead to a significant reduction in value of the investee companies. Loss of Key Management Personnel risk The Group has a small team of key executives with responsibility for assessing and deciding the allocation of capital between investments. A loss of one or more of these key persons may have a negative impact on future investment performance. Funding risk The Group has identified a significant pipeline of potential investments but has a limited capital base from which to make these investments. An inability to access future capital, whether caused by a lack of investor appetite or lack of other third-party funding options (including bank financing) could result in the Group being unable to pursue valuable opportunities. COVID-19 risk The Group’s operations are subject to disruption from Government responses to COVID-19. Further, some of the Group’s investee companies are reliant on supply chains from overseas markets that have been impacted by COVID-19. Cyber / IT risk The Group and investee companies are highly reliant on information systems for their management, including for supplier and sales processes. While many of these systems are provided by reputable third parties and hosted in safe ‘cloud’ environments, they could still be subject to failure or attack by various actors seeking to cause disruption. Environmental, sustainability and climate risks The Group is exposed to both financial and reputational risks from investing in entities that potentially cause negative environmental and sustainability impacts and/ or are exposed to climate risks. This includes impacts on the value of investments from investment community policies and regulatory responses. Regulatory risk The Group holds an Australian Financial Services Licence (“AFSL”) which allows it to conduct investment activities on behalf of third-party investors and requires the Group to comply with strict obligations. A loss of the AFSL, or changes in the regulatory environment more generally, could significantly inhibit the ability of the Group to conduct its activities and earn management, performance and other fees. The above list does not cover all the risks that could apply to the Group. 1 4 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Environmental regulation 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 responsible and embrace technologies and processes that limit environmental impact. Significant changes in the state of affairs During the period the Group undertook a further capital raising to provide additional capital to pursue a number of new investments. There have been no other significant changes in the state of affairs of the Group during the year other than those referred to in the Operating and Financial Review. Events since the end of the financial year On 4 October 2022, the Hyde Road Trust, in which the Group holds a 73% interest, acquired a property at 20 Cansdale Street & 103 Hyde Road, Yeronga, Queensland, for $10 million from the Hyde Road Partnership. The equity components of the acquisition were funded by an in-specie capital return and dividend from Mountcastle Pty Ltd of $3.2 million, of which the Group’s share was $1.6 million, and an additional contribution from the Group of $2.8 million. On 25 October 2022, H&&G High Conviction Limited (ASX: HCF), a company managed by the Group, listed on the Australian Stock Exchange. In conjunction with the listing, H&&G High Conviction Limited raised $5.2 million of which the Group subscribed $854,252 for 869,114 shares. On 24 November 2022, the Company declared a fully franked final dividend in respect of the financial year ended 30 September 2022 of 1.0 cent per share. There have been no other 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 of operations Likely developments in the operations of the Group are detailed in the Operating and Financial Review and Events subsequent to balance date. Meetings of directors The number of meetings of directors held during the year and the number of meetings attended by each director were as follows: Director: Alexander Beard Kevin Eley Peter Miller Cheryl Hayman Joseph Constable Number of Directors’ meetings held 9 Number of meetings attended: 9 9 8 9 9 Proceedings on behalf of the company There were no proceedings brought by or on behalf of the Company at any time during or since the end of the financial year. 42 H&&G Annual Report 2022Remuneration Report (audited) The remuneration report outlines the director and executive remuneration arrangements of the Company for the 2022 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 2022. Unless otherwise indicated, the individuals were KMP for the entire financial year. Directors Alexander (Sandy) Beard Executive Chair Non-Executive Director Non-Executive Director Non-Executive Director Executive Director Investment Director Investment Director Company Secretary (appointed 29 March 2022) Chief Financial Officer and Company Secretary (resigned 29 March 2022) Kevin Eley Peter Miller Cheryl Hayman Joseph Constable Executives Nicholas Atkinson Phillip Christopher Michael Bower Iain Thompson Remuneration governance Remuneration committee In July 2020, the Board resolved to absorb the function of the Nomination and Remuneration Committee (the Committee) into the remit of the full Board of directors. This decision was taken in recognition that with the size of the company, and a small Board of directors, it was less effective to have this extra layer of governance for the Group. As part of this governance restructure, the board is retaining the Committee's Charter as guidance to the Board on remuneration and nomination matters. Cheryl Hayman, who had Chaired the Committee remains the designated key director in relation to remuneration related matters. The main remuneration functions of the Board include: • Executive remuneration and incentive policies; • Remuneration packages for senior management, including incentive schemes; • Recruitment, retention and termination policies for senior management; • Remuneration framework for directors and KMP; • Statutory reporting on remuneration; and • Oversight of Company culture and performance accordingly. 3 4 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022 Use of remuneration consultants Where the Committee or the Board will benefit from external advice, it is authorised to 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 Committee, when necessary, seeks the advice of external advisers in connection with the structure of remuneration packages. Executive remuneration arrangements Remuneration Policy The Company and its KMP are all based in Australia, with each of the current portfolio of investee companies operating predominantly in Australia and New Zealand. Through an effective remuneration framework, the Group aims to: • Provide fair and equitable rewards; • Stimulate a high performance culture; • Encourage the teamwork required to achieve business and financial objectives; • Attract, retain and motivate high calibre employees; and • Ensure that remuneration is competitive in relation to peer companies in Australia. Principles of remuneration The responsibilities of the Board 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 incentives (STI) (bonus) and share-based long term incentives (LTI); • 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 KMP 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 in driving value creation. 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, unless the Board considers a discretionary bonus is appropriate. 44 H&&G Annual Report 2022Components 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 the appropriate level of market rate for the role and the individual and in consideration of the size of the Company. Long term employee benefits are the amount of long service leave entitlements accrued during the year. At risk remuneration Certain executives are eligible for STI payments and have access to an LTI in the form of a Loan Funded Share Plan (ELFSP) and performance rights. Short term incentives Key Management Personnel have the opportunity to earn an STI based on their performance during any given year. In most instances, performance will be assessed against Key Performance Indicators set prior to the commencement of a financial year and will include factors tied to Group earnings, individually driven strategic outcomes and, in some circumstances, board discretion based on specific achieved outcomes. The maximum STI opportunity for any KMP is 100% of base salary. Long term incentives The LTI is designed to enable a strategic focus on the longer term sustainability and growth of the Group and aligns executive incentives with shareholder objectives through the use of the Company’s shares via the ELFSP and performance rights. ELFSP Under the ELFSP, selected KMP are issued a quantity of shares at an issue price, determined at the sole discretion of the board. Factors determining the issue price include the current market value of the Company’s shares and any recent or potential capital raising. The value of the shares issued under the ELFSP is offset by an unsecured, interest free loan from the Company. The loans are limited recourse, meaning that if the market value of the Shares is less than the loan value at the end of the term of the loan, the Participant will not need to repay the remaining loan balance out of their own funds. The loans are repayable in full on the earlier of 5 years from the date the loan is made, the shares being acquired by a third party under a takeover bid or similar, the Participant ceasing employment with the Group or becoming insolvent or subject to bankruptcy proceedings, or on the date the Participant and the Company otherwise agree. 5 4 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Performance rights In addition to the ELFSP, the Company has granted performance rights to Nick Atkinson (9,000,000 rights) and Phillip Christopher (4,500,000 rights) as an additional component of their LTI. The rights granted to each KMP are split into 3 equal tranches which vest on the 3rd, 4th and 5th anniversary of the KMP’s commencement date. Upon vesting, each eligible right will convert to one fully paid ordinary share. Vesting of each tranche of rights is subject to Total Shareholder Returns (TSR) on the Company’s shares, calculated on a compounding basis from a starting point of 20 cents per share (being the issue price of shares under the capital raising in April 2021). Vesting is calculated in line with the following table: TSR Up to 10% Vesting amount At the Board's discretion Between 10% and 15% Pro rata between nil and 50% of Rights 15% 50% of Rights Between 15% and 25% Pro rata between 50% and 100% of Rights 25% and above 100% of Rights Employment contracts Terms of employment of executives are generally 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: • Joseph Constable has a three month notice period • The Investment Directors have a three month notice period. • The previous CFO and Company Secretary had a three month notice period. Following the appointment of Sandy Beard as Chair in October 2020, the Chair's fee was reduced to $50,000 per annum. In September 2022, it was announced that the role and remuneration of the Executive Chair were being reset and formalised as follows: • • the fee would increase to $300,000 plus minimum statutory superannuation; and the notice period would be six months. The Company Secretary has no formal contract and is employed on a casual basis with a notional two week notice period. Aside from statutory requirements, the payment of any negotiated termination benefit is at the discretion of the Board. 46 H&&G Annual Report 2022Executive and Board remuneration splits: l S a a r y a n d f e e s ( a ) b e n e f i t s ( a ) N o n - m o n e t a r y S h o r t - t e r m b o n u s ( a ) S u p e r a n n u a t i o n ( b ) L o n g - t e r m i n c e n t i v e s ( c ) l e a v e ( c ) L o n g s e r v c e i i T e r m n a t i o n p a y m e n t s ( c ) T o t a l r e m u n e r a t i o n P e r c e n t a g e v a r i a b e l $ $ $ $ $ $ $ $ % 30 September 2022 Directors Alexander Beard Kevin Eley Peter Miller Cheryl Hayman 67,579 43,836 43,836 43,836 - - - - Joseph Constable 152,295 43,000 Total directors 351,382 43,000 Executives Nicholas Atkinson 286,926 - Phillip Christopher 279,045 100,000 Michael Bower (1) Iain Thompson (2) 108,000 94,295 - - Total Executives 768,266 100,000 Total KMP remuneration 1,119,648 143,000 30 September 2021 Directors Alexander Beard (3) Kevin Eley Peter Miller Cheryl Hayman Joseph Constable (4) Total directors Executives 42,203 46,271 43,836 43,836 96,916 273,062 Gregory Timar (5) 77,279 - - - - - - - - - - - - - - - - - - - - - - - - - - 73,986 48,274 48,274 48,274 - - - - 219,918 19.6 438,726 - 6,407 4,438 4,438 4,438 19,487 39,208 - - - - - - 23,999 226,332 23,999 126,264 - - 9,820 4,272 57,818 356,868 - - - - 5,136 5,136 5,991 6,354 - (594) 11,751 97,026 356,868 16,887 4,066 4,451 4,219 4,219 9,395 26,350 - - - - - - - - - - 12,823 12,823 - - - - - - - - - - - - - - - - - 543,248 535,662 108,000 107,793 1,294,703 1,733,429 46,269 50,722 48,055 48,055 119,134 312,235 41.7 42.2 - 4.0 - - - - - - 7.5 11.3 43.4 27.1 16,271 25,821 (4,074) 230,000 345,297 Iain Thompson 273,956 30,000 1,416 22,163 8,262 4,299 Nicholas Atkinson (6) Phillip Christopher (7) 70,594 96,625 - - - - 6,617 121,816 8,790 87,927 1,177 1,606 - - - 340,096 200,204 194,948 Total Executives 518,454 30,000 1,416 53,841 243,826 3,008 230,000 1,080,545 Total KMP remuneration 791,516 30,000 1,416 80,191 243,826 15,831 230,000 1,392,780 (a) (b) (c) (1) (2) (3) (4) (5) (6) (7) Short-term benefits Post-employment benefits Long-term benefits Appointed as Company Secretary on 29 March 2022. Resigned as Chief Financial Officer and Company Secretary on 29 March 2022 to take-up a full-time position at Mountcastle Pty Ltd. Previously Iain had been combining roles at the Group and Mountcastle. Remuneration shown is gross and has not been reduced for $62,500 (2021: $68,750) recharged by the Group to Mountcastle for services. Appointed 29 October 2020. Joseph Constable ceased drawing Directors fees upon the acquisition of Supervised Investments Australia Ltd on 24 March 2021, of which he was an employee. Joseph's remuneration is now entirely related to his employment relationship with the Group and he has received no Director Fees since April 2021. Resigned 22 December 2020. Appointed 21 June 2021. Appointed 17 May 2021. 7 4 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022 Remuneration under COVID-19 During FY20 non-executive Directors took a 20% reduction in fees in response to the uncertainty arising from COVID-19. Apart from minor superannuation changes, in line with movements in statutory rates, directors fees have remained at this reduced level throughout the entire 2021 and 2022 financial years. During FY22, companies within the Group received no JobKeeper payments (FY21: $189,000). Relationship between remuneration policy and company performance Short term incentives are largely determined with reference to net profit before tax of the Group, excluding unrealised revaluation gains. This criteria is important as it is one of the key factors used to determine dividend payments, with this profit measure approximating cash profits of the Group which would be available for distribution. This measurement basis is also reflective of Group performance under the Investment Entity basis of accounting adopted during the current financial year. No portion of any incentive schemes are currently solely linked to the Company’s share price. There are currently no non-financial Key Performance Indicators (KPIs) which give rise to incentive payments. With the change in basis of accounting in FY21 to investment entity basis, accounting profit comparisons with earlier years are difficult. Key measures for determining performance of the current year results are included in the review of operations and is not repeated in full here. Financial Year 2018 2019 2020 2021 2022 Statutory NPAT ($000) Share price at year end ($) Dividends declared in relation to the year (cents) Statutory Earnings per Share (cents) 812 0.44 3.00 1.1 1,461 0.32 0.75 1.9 0.16 - (19.3) Total Shareholder Returns (6%) (22%) (50%) 0.29 1.00 11.6 81% 0.30 2.00 2.7 11% (12,699) 15,599 5,600 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 directors’ remuneration including superannuation paid at the statutory prescribed rate for the year ended 30 September 2022 was $144,822 which is within the approved amount. Individual non-executive director’s fees have not increased since October 2007, and during 2020 in response to COVID-19 fees were temporarily reduced to $48,000 per annum. Subject to minor changes for statutory superannuation changes, fees remain at this level at the date of this report. 48 H&&G Annual Report 2022Key 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 2022 Directors Opening balance Purchases Disposals Changes in Closing Of which KMPs balance Indirect interest Alexander Beard 19,265,724 5,458,235 Kevin Eley Peter Miller Cheryl Hayman Joseph Constable Executives Nicholas Atkinson Phillip Christopher Michael Bower Iain Thompson 2,971,180 606,060 25,784,440 441,000 274,357 - 303,030 151,515 4,194,070 1,055,930 2,000,000 484,811 - 689,117 - - - - - - - - - - - - - - - - - - 24,723,959 15,333,235 3,577,240 3,577,240 25,784,440 25,784,440 744,030 425,872 744,030 - 5,250,000 4,250,000 2,484,811 1,000,000 100,000 (689,117) 100,000 - - - The key management personnel and their relevant interest in the unquoted options of the Company as at year end are as follows: 30 September 2022 Directors Opening balance Alexander Beard 6,000,000 Kevin Eley Peter Miller Cheryl Hayman Joseph Constable Executives Nicholas Atkinson Phillip Christopher Michael Bower Iain Thompson - - - - 500,000 - - - Purchases Disposals Changes in Closing Of which KMPs balance Indirect interest - - - - - - - - - - - - - - - - - - - - - - - - - - - 6,000,000 6,000,000 - - - - - - - - 500,000 500,000 - - - - - - The key management personnel and their relevant interest in the unquoted performance rights of the Company as at year end are as follows: 30 September 2022 Opening Purchases Disposals Changes in Closing Of which balance KMPs balance Indirect interest Directors Alexander Beard Kevin Eley Peter Miller Cheryl Hayman Joseph Constable Executives Nicholas Atkinson Phillip Christopher Michael Bower Iain Thompson - - - - - 9,000,000 4,500,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 9,000,000 4,500,000 - - End of Audited Remuneration Report - - - - - - - - - 9 4 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Indemnification and insurance of directors and officers 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. 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. Auditors Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, UHY Haines Norton, 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 UHY Haines Norton during or since the financial year. Auditor independence and non-audit services The directors have received a declaration signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001, a copy of which can be found on page 53. Non-audit services The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor's expertise and experience with the Company and/or the Group are important. A total of $56,971 has been charged by UHY Haines Norton for the provision of non-audit services during the year in respect of taxation services and the IPO of H&&G High Conviction Limited. 50 H&&G Annual Report 2022Options As part of the acquisition of Pegasus Healthcare on 1 April 2018, a Put and Call option was granted to the minority shareholder. With the sale of Pegasus Healthcare during the year the options terminated. On 15 April 2021, the Company signed an agreement granting the management of SPOS Group an option to purchase SPOS from the Company. The payment of an option fee of $250,000 granted management an option to acquire the business at any time over the next 5 years for $2.09 million less the amount of distributions made by SPOS to the Group. In addition, the shareholder loan balances owed to the Group remain payable. The value of SPOS in note 3 of the financial statements as at 30 September 2022 reflects the value of the current purchase price. At the AGM on 24 February 2021 shareholders approved the issuance of 8,000,000 options to various parties who had participated in the Private Placement announced on 21 October 2020. Each option grants the holder the right to subscribe for 1 fully paid ordinary share in exchange for 15.0 cents cash, at any point prior to 24 February 2024. The options hold no voting or dividend rights. At balance date, 1.0 million of the options had been exercised. 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. Alexander (Sandy) Beard Director 24 November 2022 1 5 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Auditor’s Independence Declaration 52 H&&G Annual Report 2022Level 11 | 1 York Street | Sydney | NSW | 2000 GPO Box 4137 | Sydney | NSW | 2001 t: +61 2 9256 6600 | f: +61 2 9256 6611 sydney@uhyhnsyd.com.au www.uhyhnsydney.com.au Auditor’s Independence Declaration Under Section 307C of the Corporations Act 2001 To the Directors of Hancock & Gore Limited As lead auditor for the audit of the financial report of Hancock & Gore Limited for the year ended 30 September 2022, I declare that to the best of my knowledge and belief, there have been: (i)(cid:3) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii)(cid:3) No contraventions of any applicable code of professional conduct in relation to the audit. Mark Nicholaeff Partner Sydney Dated: 24 November 2022 UHY Haines Norton Chartered Accountants An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. Passion beyond numbers 3 5 H&G Annual Report 2022H&G ANNUAL REPORT 2022 Financial Report 54 H&&G Annual Report 2022Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 September Note 2022 $'000 2021 $'000 Dividend income Finance income Funds management and other fee revenue Rental income Revenue from continuing operations Fair value gains on financial instruments at fair value through profit or loss Other income Administration and other expenses Depreciation and amortisation expense Employee benefit expenses Finance costs Occupancy expenses Professional fees Profit from continuing operations before income tax Income tax (expense)/ benefit Profit from continuing operations after income tax 10 2 10 10 10 10 11 2,611 579 821 418 1,522 - 475 479 4,429 2,476 5,864 - (707) (232) (1,792) (26) (180) (1,653) 5,703 (103) 5,600 14,261 1,473 (485) (230) (1,593) (61) (193) (413) 15,235 364 15,599 Other comprehensive income, net of tax Total comprehensive income from continuing operations - - 5,600 15,599 Profit from continuing operations after income tax is attributable to: Owners of Hancock && Gore Ltd Non-controlling interests Total comprehensive income from continuing operations is attributable to: Owners of Hancock && Gore Ltd Non-controlling interests 5,600 15,599 - - 5,600 15,599 5,600 15,599 - - 5,600 15,599 Earnings per share attributable to the ordinary equity holders of the Cents Cents Company: Basic earnings per share Diluted earnings per share 5 5 2.7 2.6 11.6 11.1 5 5 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Consolidated Balance Sheet as at 30 September Note 2022 $'000 2021 $'000 Assets Current assets Cash and cash equivalents Trade and other receivables Related party receivables Prepayments Financial assets at fair value through profit and loss Financial assets at amortised cost Total current assets Non-current assets Property, plant and equipment Right-of-use assets Intangible assets Financial assets at fair value through profit and loss Financial assets at amortised cost Other financial assets Deferred tax assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Related party payables Lease liabilities Provisions Other financial liabilities Total current liabilities Non-current liabilities Lease liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Reserves Accumulated losses Other components of equity Equity interests of owners of Hancock & Gore Ltd Non-controlling interests Total equity 56 9 12 12 3 3 13 17 14 3 3 3 11 15 15 17 16 3 17 16 11 6 18 26 13,508 1,367 1,295 113 11,098 503 27,884 39 206 712 32,689 3,650 - - 37,296 7,367 425 902 145 8,379 202 17,420 81 396 712 26,932 - 3,581 234 31,936 65,180 49,356 667 60 262 60 - 1,049 23 34 - 57 390 - 245 127 204 966 281 42 285 608 1,106 1,574 64,074 47,782 72,623 19,451 (24,651) (3,349) 64,074 - 64,074 58,274 17,508 (24,651) (3,349) 47,782 - 47,782 H&&G Annual Report 2022Consolidated Statement of Changes in Equity for the years ended 30 September I s s u e d C a p i t a l P r o f i t R e s e r v e O p t i o n R e s e r v e R e s e r v e i F o r e g n C u r r e n c y S c h e m e R e s e r v e l E m p o y e e S h a r e O t h e r R e s e r v e s L o s s e s A c c u m u a t e d l C o m p a n y O w n e r s o f t h e o f E q u i t y O t h e r C o m p o n e n t s A t t r i b u t a b e t o l I n t e r e s t s N o n - C o n t r o l l i n g T o t a l E q u i t y $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Balance at 30 September 2020 42,477 Profit for the period Total comprehensive income for the period - - Transactions with owners in their capacity as owners: Issue of Share Capital Costs associated with issues of shares 17,546 (1,749) Share based payments in respect of issue of shares - 15,797 - - - - - - Transfer to profit reserves Deconsolidation adjustments on change of accounting basis - 15,599 - - - - - - 1,296 - 1,296 - - Balance at 30 September 2021 58,274 15,599 1,296 Profit for the period Total comprehensive income for the period - - Transactions with owners in their capacity as owners: Issue of Share Capital 15,150 Costs associated with issues of shares Share based payments in respect of issue of shares Dividends paid (801) - - - - - - - (4,018) Transfer to profit reserves Balance at 30 September 2022 14,349 (4,018) - 5,600 72,623 17,181 1,296 - - - - - - - - (159) 41 (1,017) (23,369) (3,349) 14,624 1,884 16,508 - - - - - - - - - - - 307 307 - - - - - - 15,599 15,599 - - - - - 1,282 (16,881) 159 - - - - - - - - - - - 15,599 15,599 17,546 (453) 307 17,400 - - - - - - - - 15,599 15,599 17,546 (453) 307 17,400 - 159 (1,884) (1,725) - - - - - - - - - - 348 265 (24,651) (3,349) 47,782 - 47,782 - - - - 361 - - - - 5,600 - 5,600 - - - - - - - - - - - (5,600) - - - - - - - - 5,600 5,600 15,140 (801) 361 (4,018) 10,681 - - - - - - - - - 5,600 5,600 15,140 (801) 361 (4,018) 10,681 - 709 265 (24,651) (3,349) 64,074 - 64,074 7 5 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022 Consolidated Statement of Cash Flows for the years ended 30 September Note 2022 $'000 2021 $'000 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Dividends received Interest received Interest paid Net cash outflow from operating activities Cash flows from investing activities Proceeds from disposals of investments Purchase of investments Loans provided Loans repaid Payments for property, plant and equipment Net cash outflow from investing activities Cash flows from financing activities Proceeds from issue of shares and before issue costs Share issues costs Dividends paid Repayment of borrowings Payment of lease liabilities Loans with related parties Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash derecognised on deconsolidation of subsidiaries Cash and cash equivalents at end of the period 1,295 (3,797) 2,611 572 (17) 664 33,709 (37,695) (5,294) 5,000 - (4,280) 15,150 (801) (4,018) - (241) (333) 9,757 6,141 7,569 - 909 (3,338) 1,522 - (35) (942) 10,867 (17,544) - - (14) (6,691) 16,826 (453) - (1,553) - 338 15,158 7,525 3,858 (3,814) 13,710 7,569 9 6 6 9 9 58 H&&G Annual Report 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate information The consolidated financial statements of Hancock && Gore Ltd (the Company) and its subsidiaries (the Group) for the year ended 30 September 2022 were authorised for issue in accordance with a resolution of the directors on 24 November 2022. Hancock && Gore Ltd is a for profit, limited liability, public company, incorporated in Australia, whose shares are publicly traded on the Australian Securities Exchange (ASX Code HNG). The Group is principally engaged in investing in diversified asset categories, either as principal or as investment manager. The Company seeks to actively engage and support its investees. The Group's principal place of business is Suite 803, Level 8, 25 Bligh St, Sydney, NSW, 2000, Australia. Further information on the nature of the operations and principal activities of the Group is provided in the Directors' report. 9 5 H&&G Annual Report 2022H&&G ANNUAL REPORT 20222. Material profit or loss items Significant profit and loss items The Group has identified items which may be considered significant for providing a better understanding of the financial performance of the Group, due to their nature and/or amount. a) Fair value gains on financial instruments at fair value through profit or loss Fair value gains on financial instruments at fair value through profit or loss, as shown in the statement of profit or loss, includes both realised and unrealised gains on both listed and unlisted assets and liabilities. Given its size and nature, further information is provided below: Realised gains/ (losses) on disposals of unlisted investments Pegasus Healthcare Mint Payments convertible notes (1) JSB Lighting (2) Realised gains/ (losses) on disposals of listed investments Unrealised gain/ (losses) on revaluation of unlisted investments (3) Mountcastle Group (4) Pegasus Healthcare BLC Cosmetics SPOS Group (5) T-Shirt Ventures/ Provider Choice Other unlisted financial instruments Unrealised gains/ (losses) on listed investments Total fair value gains on financial instruments at fair value through profit or loss 2022 $'000 2,310 650 - 2,960 (216) 3,196 - - (1,124) 1,000 82 3,154 (34) 5,864 2021 $'000 - - (1,155) (1,155) 1,150 8,535 2,847 2,560 407 - - 14,349 (83) 14,261 1. 2. 3. 4. 5. A $650,000 gain was recognised on the restructuring of a $3.0 million convertible note investment with Mint Payments into a $3.65 million loan receivable. $1,118,000 from JSB Lighting debt forgiveness was included within other income in the year ended 30 September 2021, substantially offsetting the fair value loss. Unrealised gains/ (losses) on revaluation of unlisted investments in the year ended 30 September 2021 reflected amounts arising during the year but also amounts arising on the initial change to investment entity accounting. In addition, included within dividends received was $1,483,000 (2021: $897,000) from Mountcastle Group. The Group has granted a purchase option over the equity in SPOS Group under which the option price decreases with dividends paid to the Group. Included with dividends receivable is $1,050,000 (2021: $250,000) of dividend income from SPOS Group, substantially offsetting the fair value loss above. b) Other significant profit or loss items During the year the Group incurred costs of $658,000 in relation to the restructure of the H&&G High Conviction Fund and the initial public offering of H&&G High Conviction Limited. 60 H&&G Annual Report 20223. Financial assets and financial liabilities (a) Categories of financial instruments Details of financial assets and liabilities contained in the consolidated financial statements are as follows: Financial assets Cash and cash equivalents Trade and other receivables Related party receivables Financial assets at fair value through profit and loss Financial assets at amortised cost Other financial assets Financial liabilities Trade and other payables Related party payables Lease liabilities Other financial liabilities b) Financial assets at fair value through profit or loss Current assets Listed equities Other listed equity securities Unlisted equities Non-current assets Unlisted equities Unlisted convertible notes Note 9 12 12 3b 3c 3d 15 15 17 3e Note 3f 3f 3f 3f 2022 $'000 13,508 1,367 1,295 43,787 4,153 - 64,110 667 60 295 - 1,022 2022 $'000 10,722 - 376 11,098 31,114 1,575 32,689 2021 $'000 7,367 425 902 35,311 202 3,581 47,788 390 - 526 204 1,120 2021 $'000 4,225 31 4,123 8,379 26,932 - 26,932 Amounts recognised in profit or loss Changes in fair value of financial assets at fair value through profit or loss are recorded in the Statement of Profit or Loss in their own category. Refer Note 2. 43,787 35,311 1 6 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Fair value The fair value of the listed securities is based on their closing prices in an active market. Unlisted securities, units and convertible notes are not traded in inactive markets. Directors use a variety of methods to determine fair value based on the characteristics and circumstances surrounding each investment. External expert valuation advice may also be sought. Methods applied and adopted in these financial statements include reference to: • • • observable transaction valuations where equity in the investee has recently traded or is expected to be traded; known transaction values where the Company has entered, or expects to enter, into a contract of sale; reported net asset value pricing; and • Capitalisation of Future Maintainable Earnings (CFME). Risk exposure and fair value measurements Information about the Group's exposure to risk is provided in note 3(h). For further information about the methods and assumptions used in determining fair value refer to note 3(f). c) Financial assets at amortised cost Current assets Term deposit Loan receivables Non-current assets Loan receivables d) Other financial assets at fair value Non-current assets Call option asset Convertible note securities Note Note 2022 $'000 202 301 503 3,650 4,153 2022 $'000 - - - 2021 $'000 202 - 202 - 202 2021 $'000 581 3,000 3,581 As part of the acquisition of the Group’s investment in Pegasus Healthcare, a call option was granted over the remaining interest not held by the Group. During the year the Group sold its investment in Pegasus Healthcare and the option terminated. Convertible note securities were acquired just prior to the year-end and were valued at their cost price. 62 H&&G Annual Report 2022e) Other financial liabilities at fair value Non-current liabilities Put option liability Note 2022 $'000 2021 $'000 - 204 As part of the acquisition of Pegasus Healthcare, a Put option was granted over the remaining interest not held by the Parent entity. During the year the Group sold its investment in Pegasus Healthcare and the option terminated. f) Fair value measurements of financial instruments Fair value hierarchy To provide an indication about the reliability of the inputs used in determining fair value, the Group classifies its financial instruments into the three levels prescribed under the accounting standards. AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy (consistent with the hierarchy applied to financial assets and financial liabilities): • • quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and • inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the last sale price. These instruments are included in level 1. Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the- counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If any of the significant inputs are not based on observable market data, the instrument is included in level 3.The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. There were no transfers between the levels of the fair value hierarchy during the financial year. 3 6 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Assets and liabilities at fair value by hierarchy as at 30 September 2022 Financial assets at fair value at 30 September 2022: Listed equities Unlisted equities Convertible note securities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 10,722 - - 10,722 - 376 1,575 1,951 - 31,114 - 31,114 10,722 31,490 1,575 43,787 There were no financial liabilities at fair value at 30 September 2022. Fair value measurements using significant unobservable inputs (level 3) Specific valuation techniques Specific valuation techniques used to value used to determine fair values of level 3 assets include: • • • • shares in unlisted entities with a history of generating profits have been revalued based on a capitalisation of future maintainable earnings methodology, having regard to observable comparable transactions or quoted prices for similar enterprises; net asset values based on the conversion valuation mechanisms of convertible securities; discounted cash flows for expected distribution and loan repayment streams; valuations of all financial assets and liabilities are finally cross-checked in light of any subsequent specific valuation information arising, including: • • • latest pricing inherent in capital raising activity by an investee; latest pricing inherent in actual or proposed transactions in the financial instruments of an investee; and changes in circumstances affecting the investee. Valuation processes Key level 3 inputs used by the Group in measuring the fair value of financial instruments have been derived and evaluated as follows: • Future maintainable earnings: these are assessed based on historical earnings performance and board approved budgets and forecasts, after adjusting for non-recurring or significant one-off items, and typically are only up to 12 months in advance • Capitalisation rates: these are determined using a comparator group of publicly available transactions, adjusted for relevant factors such as control premiums or minority discounts, liquidity discounts and market size. 64 H&&G Annual Report 2022 Valuation inputs and relationships to fair value The following table summarises the quantitative information about the material significant unobservable inputs used in level 3 fair value measurements for the unlisted shares as at 30 September 2022: Investment Valuation Basis of $’000’s Valuation Material Unobservable Inputs Inputs Used Relationship of unobservable inputs to fair value Mountcastle 21,120 Capitalisation of future Future maintainable $9.0m +/- 10% change would result Group (49% interest) maintainable earnings, earnings in a change in fair value of +/- adjusted for net debt and surplus assets. $2.3m Disruptive Packaging Trust (70% interest) T-Shirt Ventures (<5%) Capitalisation multiple 5.2x A change in the multiple of +/- 0.5x would result in a change in fair value of +/- $2.2m 5,773 Net asset backing reflecting conversion value of investment Conversion valuation of underlying operating $45m A 10% decrease would have $nil effect on fair value due instrument. business to a ratchet mechanism on conversion in the instrument. A 10% increase would increase valuation by $0.6m 2,000 Monte Carlo simulation Volatility 100% A change of the Volatility % of equity valuation using conversion price mechanism in capital raising. to 120% or 80% would result in a change in fair value of +/- $0.5m Time to conversion 3 years Changing the time by +/- 1 year would result in a change in fair value of +/- $0.3m QRT Finance 1,659 Net asset backing reflecting Future profit $Nil A $2.0 million profit Trust (<5%) carrying value of investment participation. instrument and income and profit participation entitlements participation entitlement would increase the valuation by $0.1m SPOS Group (100% interest) 562 Discounted cash flow value of Discount rate 5% Increasing the rate by +/- 5% expected receipts under option deed. (1) would result in a change in fair value of +/- $0.1m Total 31,114 1. Included within related party receivables is an additional amount of $783,000 that must be repaid for the option to be exercised. 5 6 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022 g) Maturities of Financial liabilities 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. Trade and Related party Finance lease Put option Total other payables $'000 payables $’000 liabilities $'000 liability $'000 $'000 2022 Less than 1 year 1 - 2 year 2 - 3 years Total 2021 Less than 1 year 1 - 2 year 2 - 3 years Total 667 - - 667 391 - - 391 60 - - 60 - - - - 274 23 - 297 245 259 22 526 - - - - 204 - - 204 1,001 23 - 1,024 840 259 22 1,121 Trade and other payables, related party payables and the put option liability are not interest bearing. The weighted average interest rate inherent in the finance lease liabilities is 4.0% (2021: 4.0%). h) Capital management The Group seeks to manage its capital to ensure that it has sufficient funding to pursue its preferred investment opportunities, without holding excessive low yielding cash balances, and thereby deliver increased value to shareholders. 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 any borrowings less cash and cash equivalents, and total equity, which includes issued capital (Note 6), reserves (Note 18) and accumulated losses/retained earnings. Financial risk management The activities of the Group expose it to a variety of financial risks, primarily related to liquidity risk, market risk and credit risk. The Group’s risk management program works to minimise material potential negative impacts on the financial performance of the Group. 66 H&&G Annual Report 2022 Liquidity risk Liquidity risk represents the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Group's major cash payments are the purchase of investments and operating expenses (which are managed by executives) and dividends paid to shareholders (which are determined by the Board). Major cash receipts are dependent upon the level of sales of securities and any dividends and interest receivable, or other capital management initiatives that may be implemented by the Board from time to time such as capital raisings. Senior management monitors the Group's cash flow requirements by reference to known sales and purchases of securities, dividends, and interest to be paid or received. The Group seeks to ensure it always holds sufficient cash to enable it to meet all payments. Furthermore, the Group maintains a portfolio of ASX listed equities including liquid stocks which can generally be sold on market when and if required. Market risk Market risk is the risk that changes in market prices, such as interest rates and other price risks, will affect the fair value or future cash flows of the Company's financial instruments. By its nature, as a company that invests in tradable securities, the Company will always be subject to market risk, as the market price of these securities can fluctuate. Other price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As a significant proportion of the Company's investments are carried at fair value with fair value changes recognised in profit or loss, all changes in market conditions can directly affect net investment income. The Group seeks to manage and reduce price risk by diversification of the investment portfolio across numerous stocks and multiple industry sectors. However, there are no formalised parameters which specify a maximum amount of the portfolio that can be invested in a single company or sector. The Group has minimal exposure to direct movements in interest rates. Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge a contracted obligation. The maximum exposure to credit risk on financial assets, excluding investments of the Company which have been recognised on the Balance Sheet, is the carrying amount net of any expected credit losses. Credit risk is not considered to be a major risk to the Company as the cash held by the Company is invested with major Australian banks. In addition, credit risk on trading in listed securities is minimised due to these trades primarily occurring ‘on market’ on the Australian Securities Exchange. 7 6 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022i) Accounting policies Financial instruments Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Debt instruments, with cash flows that are solely payments of principal and interest, are classified at amortised cost unless they are designated at fair value through profit or loss on initial recognition where doing so eliminates, or significantly reduces, an accounting mismatch. Financial assets at fair value through profit or loss are carried in the consolidated statement of financial position at fair value with net changes in fair value recognised in the consolidated statement of comprehensive income within the profit and loss. Financial assets All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets. Derivative assets and liabilities Where the acquisition of an investment includes a put or call option for the Group to acquire the shares of a minority shareholder, an asset or liability is recognised equal to the fair value of the option calculated under the Binomial method. Movements in the value of the option are taken directly to profit or loss. Impairment of financial assets The Group recognises a loss allowance for expected credit losses on investments in debt instruments that are measured at amortised cost, lease receivables, trade receivables and contract assets, as well as on financial guarantee contracts. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group recognises lifetime expected credit losses for trade receivables, contract assets and lease receivables. The expected credit losses on these financial 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. 68 H&&G Annual Report 2022Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. 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. 9 6 H&&G Annual Report 2022H&&G ANNUAL REPORT 20224. Dividends (a) Dividends paid during the year: Fully franked final dividend of 1.0 cent per share for the year ended 30 September 2021 paid on 3 December 2021 Fully franked interim dividend of 0.5 cents per share for the year ended 30 September 2022 paid on 30 September 2022 Fully franked special dividend of 0.5 cents per share for the year ended 30 September 2022 paid on 30 September 2022 Total dividends Amounts retained on employee loan funded share plans Dividends paid (b) Dividends proposed but not recognised as a liability as at 30 September: 2022 $'000 2021 $'000 1,789 1,127 1,127 4,043 (25) 4,018 - - - - - - 2022 $'000 2021 $'000 Fully franked final dividend of 1.0 cent per share for the year ended 30 September 2022 payable on 12 December 2022 2,254 - Fully franked final dividend of 1.0 cent per share for the year ended 30 September 2021 paid on 3 December 2021 - 1,789 (c) Franking account The amount of franking credits available for the subsequent financial year are: Franking account balance as at the end of the financial year at 25% (2021 - 26%) Franking debits that will arise from the payment of dividends subsequent to the end of financial year 2022 $'000 8,271 (751) 7,519 2021 $'000 9,234 (596) 8,638 70 H&&G Annual Report 2022(d) Dividend reinvestment plan The Company has a 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; the DRP will apply to dividends at the discretion of the board; 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, calculated for the five days beginning on the day the shares are first quoted for sale on an ex-dividend basis in respect of the relevant dividend; 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. The Directors determined that the dividend reinvestment plan would not be in operation for all of the dividends paid during the year. (e) Accounting policies 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. 5. Earnings per share Basic earnings per share From continuing operations attributable to the ordinary equity holders of the company Total basic earnings per share attributable to the ordinary equity holders of the Company Diluted earnings per share From continuing operations attributable to the ordinary equity holders of the company Total diluted earnings per share attributable to the ordinary equity holders of the Company 2022 Cents 2021 Cents 2.7 2.7 2.6 2.6 11.6 11.6 11.1 11.1 1 7 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022(a) Reconciliations of earnings used in calculating earnings per share Earnings used in calculating Basic earnings per share Profit from continuing operations after income tax Deduct profit attributable to non-controlling interests 2022 $'000 2021 $'000 5,600 15,599 - - Profit from continuing operations after income tax attributable to equity holders of the parent 5,600 15,599 Earnings used in calculating Diluted earnings per share Used in calculating basic earnings per share Add back: costs not incurred for share-based payments Earnings used in calculating diluted earnings per share (b) Weighted average number of shares used as the denominator 5,600 361 5,961 15,599 117 15,716 2022 Number 2021 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 210,246,017 134,600,230 Adjustments for calculation of diluted earnings per share: • Options issued not exercised • Performance rights and employee loan funded share plan 3,523,079 2,979,889 14,343,821 4,167,123 Weighted average number of ordinary and potential ordinary shares used as the denominator in calculating diluted earnings per share 228,112,917 141,747,242 Further information on the potentially dilutive equity instruments can be found in note 6. 72 H&&G Annual Report 20226. Issued capital (a) Movements in ordinary shares Number of shares Total $’000 Balance as at 30 September 2020 75,622,581 42,477 Issued under Capital raising announced 21 October 2020 Issued for the acquisition of H&&G Investment Management Ltd in March 2021 Issued under Capital raising announced 22 March 2021 Shares issued to employees Costs associated with shares issued Options issued as fund raising expenses 37,085,208 3,000,000 59,200,000 4,000,000 - - 4,586 720 11,840 400 (453) (1,296) Balance as at 30 September 2021 178,907,789 58,274 Issued under Capital raising announced 26 November 2021 45,454,536 15,000 Costs associated with shares issued Options exercised - 1,000,000 (801) 150 Balance as at 30 September 2022 225,362,325 72,623 (b) Movements in ordinary shares during the year On 26 November 2021, the Company announced a capital raising at 33 cents per share comprising: an initial private placement and a conditional placement, subject to shareholder approval. The company raised $7.41 million before costs from the issue of 22,451,514 shares through the initial private placement, and $7.59m before costs from the issue of 23,003,022 shares through the conditional placement. On 16 September 2022, the Company issued 1,000,000 new shares upon the exercise of 1,000,000 options at 15 cents per share. (c) Ordinary shares Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and on a poll each share is entitled to one vote. (d) Employee Loan Funded Share Plan (ELFSP) The Company has established an Employee Loan Funded Share Plan (ELFSP). Under the plan, selected executives are invited to join the ELFSP whereby they are issued with ordinary shares in the Company, offset by an unsecured, interest free loan from the Company. The loans are limited recourse, meaning that if the market value of the Shares is less than the loan value at the end of the term of the loan, the Participant will not need to repay the remaining loan balance out of their own funds. 3 7 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022The loans are repayable in full on the earlier of: 5 years from the date the loan is made; the shares being acquired by a third party under a takeover bid or similar; the Participant ceasing employment with the Group or becoming insolvent or subject to bankruptcy proceedings; or on the date the Participant and the Company otherwise agree. A summary of the movement in the number of shares held and the value of loans outstanding under the ELFSP during the year ended 30 September 2022 is as follows: Balance as at 30 September 2021 Loan repayments from dividends retained Balance as at 30 September 2022 Number of shares 2,328,125 - 2,328,125 Total $’000 473 (25) 448 As the loans are limited recourse, no amounts are recognised within receivables or shares capital at issue of the ELFSP shares and they are not included within the calculation of Basic Earnings per Share. The ELFSP shares are included in the calculation of Diluted Earnings Per Share. (e) Options On 24 February 2021, the Company issued 8,000,000 options to various parties who had participated in the private placement announced on 21 October 2020. Each option grants the holder the right to subscribe for 1 fully paid ordinary share in exchange for 15.0 cents cash, at any point prior to 24 February 2024. The options hold no voting or dividend rights. On 16 September 2022, the Company issued 1,000,000 new shares upon the exercise of 1,000,000 options. At balance date, 7,000,000 of the options remain unexercised. The options are included in the calculation of Diluted Earnings Per Share. (f) Performance Rights The Company has granted 13,500,000 performance rights in total to two employees. The rights hold no voting or dividend rights. The rights granted to each employee are split into 3 equal tranches which vest on the 3rd, 4th and 5th anniversary of the employee’s commencement date (being May/June of each of 2024, 2025 and 2026 respectively). Upon vesting, each eligible right will convert to one fully paid ordinary share. Vesting of each tranche of rights is subject to Total Shareholder Returns (TSR) on the Company’s shares, calculated on a compounding basis from a starting point of 20 cents per share. Vesting is calculated in line with the following table: TSR Up to 10% Vesting Amount At the Board’s discretion Between 10% and 15% Pro rata between nil and 50% (for example at 12% TSR - 20% of Rights would vest) 15% 50% of Rights Between 15% and 25% Pro rata between 50% and 100% (for example at 20% TSR - 75% of Rights would vest) 25% and above 100% of Rights No performance rights were exercised or lapsed during the year ended 30 September 2022. The performance rights are included in the calculation of Diluted Earnings Per Share. 74 H&&G Annual Report 2022(g) Share-based payments: Total expenses arising from share-based payment transactions, recognised during the year as part of employee benefit expense, were as follows: Employer loan funded share plan Performance rights Share discount 7. Business combinations 2022 $ 65,112 296,028 - 2021 $ 56,763 117,062 70,000 361,149 243,825 (a) Changes in controlled entities within the investment entity The Group reports as an investment entity, as defined in the accounting standards. Accordingly, only those controlled entities whose main purpose and activities relate to the investment activities of the Group are consolidated, and other controlled entities are instead shown as investments held at fair value. During the prior period, on 23 March 2021, the Company acquired all of the equity in H&&G Investment Management Ltd (formerly: Supervised Investments Australia Ltd). Details of controlled entities that are not consolidated as part of the investment entity are included in Note 25. (b) Accounting policy 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. 8. Events occurring after the reporting period On 4 October 2022, the Hyde Road Trust, in which the Group holds a 73% interest, acquired a property at 20 Cansdale Street & 103 Hyde Road, Yeronga, Queensland, for $10 million from the Hyde Road Partnership. Mountcastle Pty Ltd, a company in which the Group holds a 49% interest, was a 50% partner in The Hyde Road Partnership and the property is its main Queensland operating site. The equity components of the acquisition were funded by an in-specie capital return and dividend from Mountcastle Pty Ltd of $3.2 million, of which the Group’s share was $1.6 million, and an additional contribution from the Group of $2.8 million. The Group funded the payment of a deposit of $0.5 million by the Hyde Road Trust before year-end which is included in related party receivables and paid the balance of the additional contribution on 4 October 2022. 5 7 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022 On 25 October 2022, H&&G High Conviction Limited (ASX: HCF), a company managed by the Group, listed on the Australian Stock Exchange. In conjunction with the listing, H&&G High Conviction Limited raised $5.2 million of which the Group subscribed $854,252 for 869,114 shares. On 24 November 2022, the Company declared a fully franked final dividend in respect of the financial year ended 30 September 2022 of 1.0 cents per share. There have been no other 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. 9. Cash flow information (a) Cash and cash equivalents For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise the following: Cash at banks and on hand Term deposit 2022 $’000 13,508 202 2021 $’000 7,367 202 Cash and cash equivalents 13,710 7,569 (b) Reconciliation of profit after income tax to net cash inflow from operating activities: Profit from continuing operations after income tax 2022 $’000 5,600 2021 $’000 15,599 Adjustments to reconcile profit before tax to net cash flows: Net (gains) on assets and liabilities at fair value through profit or loss (5,864) (14,261) Debt forgiven Non-cash employee benefits expense - share-based payments Depreciation and amortisation Net loss on sale of property, plant and equipment Changes in assets and liabilities: (Increase)/decrease in trade receivables (Increase)/decrease in prepayment (Increase)/decrease in deferred tax assets Increase/(decrease) in trade creditors Increase/(decrease) in other provisions Increase/(decrease) in lease liabilities Net cash (outflow) from operating activities 76 - 361 232 - 152 32 (51) 277 (75) - 664 (1,118) 242 230 1 (481) (1) (364) (673) 74 (190) (942) H&&G Annual Report 2022(c) Non-cash investing and financing activities: Material non-cash investing and financing activities during the year included: • Receipt of 32,786,885 shares in Cellmid Ltd (since renamed Anagenics Limited, ASX: AN1), at a valuation, at 6.1 cents per share, of $2.0 million, and recognition of $0.9 million in deferred consideration for the sale of shares in BLC Cosmetics Ltd; and • restructure of $3.0 million convertible note investment into a $3.65 million loan receivable with Mint Payments. (d) Accounting policies 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. 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. 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. 7 7 H&&G Annual Report 2022H&&G ANNUAL REPORT 202210. Other income and expense items (a) Other income Debt forgiven Option fee income Other income (b) Expenses information Depreciation and amortisation expensed to profit and loss Plant and equipment Right of use asset Employee benefit expenses Salary and wages Defined contribution superannuation expense Directors’ fees Share based payments Other 2022 $’000 - - - - 2021 $’000 1,118 250 105 1,473 2022 $’000 2021 $’000 42 190 232 1,104 90 219 361 18 1,792 40 190 230 755 74 217 244 303 1,593 Lease expenses Lease expenses 116 193 78 H&&G Annual Report 2022(c) Finance income and costs Finance income Finance institutions Financial assets at amortised cost Other Finance costs Finance institutions - interest expenses and line fees Interest on lease liabilities Finance costs expensed Net finance income/ (costs) (d) Accounting policies 2022 $’000 2021 $’000 26 499 54 579 9 17 26 553 - - - - 35 26 61 (61) Revenue is measured at the fair value of the consideration received or receivable, taking into account any discounts, allowances and GST. Dividend income Dividend income is recognised on receipt. Finance income Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset. Funds management income Funds management income includes establishment, management, performance and other fees. Establishment fees are recognised when an investment vehicle has been formally established and the right to the income is achieved. Management fees are recognised on a monthly basis as they accrue. Performance fees are recognised based on the amounts that would be payable at a reporting date if it was the end of each performance fee calculation period. Rental income Rental income is recognised on a daily basis on a straight-line basis. 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. 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. Borrowing costs Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs are expensed in the period in which they occur. 9 7 H&&G Annual Report 2022H&&G ANNUAL REPORT 202211. Income tax (a) Income tax expense Current tax Current tax on profits for the year Adjustments for current tax of prior periods Total current tax expense Deferred income tax Decrease/(increase) in deferred tax assets (Decrease)/increase in deferred tax liabilities Total deferred tax expense/(benefit) Total income tax expense /(benefit) Income tax expense is attributable to: Profit from continuing operations (b) Numerical reconciliation of income tax expense to prima facie tax payable 2022 $’000 2021 $’000 - 154 154 234 (285) (51) 103 (286) - (286) (3,262) 3,184 (78) (364) 103 (364) 2022 $’000 2021 $’000 Profit from continuing operations before income tax expense 5,703 15,234 Tax at the Australian tax rate of 25% (2021 - 26%) Adjustments for prior periods Impact of future tax rate reduction Non allowable expenses Other assessable income Non assessable items Fully franked dividends received Non-assessable revaluation gains Revenue losses recognised during year Capital losses recognised during year Deferred tax items recognised during year 1,426 154 - 94 91 (39) (386) - (320) (293) (624) 3,961 - 4 328 - (26) (331) (3,714) (738) (3,840) 3,992 Income tax expense /(benefit) 103 (364) 80 H&&G Annual Report 2022 (c) Deferred tax Deferred tax comprises: Deferred tax assets Deferred tax liabilities Net deferred taxes (d) Movements in net deferred tax Movements in net deferred taxes during the year were: 2022 $’000 - - - 2021 $’000 234 (285) (51) i P r o v s o n s i I n v e s t m e n t s l P a n t a n d i e q u p m e n t a s s e t s i R g h t o f u s e L e a s e l i a b i l i t i e s f o r w a r d c a r r i e d T a x l o s s e s O t h e r T o t a l $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 30 September 2020 164 Deconsolidation (164) - - (683) 683 - - Other (charges)/credits to profit or loss 42 (4,027) Balance at 30 September 2021 42 (4,027) (Charges)/credits to profit or loss (42) (424) Balance at 30 September 2022 - (4,451) - - - - (e) Tax losses 195 454 (259) (129) (195) (454) (99) 131 3,840 259 62 129 (51) (99) 131 3,840 62 (51) 47 (60) 592 (62) (52) 71 4,432 - 51 - The Group has a further $17.7 million of tax losses which have not been brought to account at 30 September 2022. These losses are subject to utilisation rules in future periods such as the Continuity of Ownership Test or Same Business Test. (f) Significant estimates Tax benefit includes $4.4 million from the recognition of gross Deferred Tax Assets (DTA) on the balance sheet. It is a key assumption that the Group will be able to manage the timing of the reversal of deferred tax liabilities to offset with the deferred tax assets, or continue to generate ongoing taxable income to be able to utilise this DTA, and that, in particular, any tax losses recognised on the balance sheet will remain available for use across future periods, including by ongoing satisfaction of Income Tax rules such as the Continuity of Ownership Test or Same Business Test. 1 8 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022 (g) Accounting Policies Current income tax Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the statement of profit or loss. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses, to the extent that it is probable that taxable profit will be available for utilisation. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in profit or loss. Tax consolidation legislation The Company and its wholly-owned Australian controlled entities have implemented tax consolidation, and entered into tax funding and tax sharing agreements. The head entity, Hancock && Gore Ltd 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, the Company 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. 82 H&&G Annual Report 202212. Trade and other receivables Current: Trade receivables Provision for expected credit losses Trade receivables Deferred consideration receivable Other Other receivables Trade and other receivables Loans to related parties Total receivables 2022 $’000 2021 $’000 272 (29) 243 1,050 74 1,124 1,367 1,295 2,662 248 - 248 - 177 177 425 902 1,327 Further information relating to loans to related parties and key management personnel is set out in note 20. (a) Classification as trade receivables Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 30 days and are therefore all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. (b) 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 Group has not experienced a material change in credit losses arising from COVID-19 impacts on our customers. (c) Deferred consideration receivable As part of the sale of BLC Cosmetics to Anagenics Limited (ASX: AN1), the Group is entitled to deferred consideration based on the results of BLC Cosmetics in the year to 30 September 2022. The first $700,000 is payable in cash with Anagenics having the right to pay the excess in Anagenics shares, subject to necessary approvals. 3 8 H&&G Annual Report 2022H&&G ANNUAL REPORT 202213. Property, plant and equipment Plant and equipment Gross value Accumulated depreciation Net carrying value (a) Movements during the year Net book amount at 30 September 2020 Derecognition on deconsolidation Additions Disposals Depreciation charge Net book amount at 30 September 2021 Depreciation charge Net book amount at 30 September 2022 (b) Accounting policies 2022 $’000 2021 $’000 183 (144) 39 Plant and equipment Rental equipment $’000 $’000 1,105 (997) 14 (1) (40) 81 (42) 39 3,432 (3,432) - - - - - - 183 (102) 81 Total $’000 4,537 (4,429) 14 (1) (40) 81 (42) 39 Plant and equipment and rental equipment 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. Revaluation, depreciation methods and useful lives Items of plant and equipment are depreciated over their estimated useful lives using the straight line or reducing balance methods. The estimated useful lives and depreciation methods are reviewed at the end of each reporting period. The cost of improvements to or on leasehold properties is depreciated over the lesser of the period of the lease or the estimated useful life of the improvement. The following estimated useful lives are used in the calculation of depreciation: • Plant and equipment 3 to 10 years • Rental equipment 1 to 7 years 84 H&&G Annual Report 2022 14. Intangible assets Intangible assets Goodwill Impairment Net carrying value of Goodwill (a) Movements during the year Net book amount at 30 September 2020 Derecognition on deconsolidation Additions Net book amount at 30 September 2021 Net book amount at 30 September 2022 (b) Allocation of goodwill 2022 $’000 2021 $’000 712 - 712 Goodwill Other intangibles $’000 $’000 2,499 (2,499) 712 712 712 1,170 (1,170) - - - 712 - 712 Total $’000 3,669 (3,669) 712 712 712 Goodwill at 30 September 2022 relates solely to the acquisition of Supervised Investments Australia Ltd (now H&&G Investment Management Ltd (H&&GIM)) on 24 March 2021. (c) Impairment testing Determining whether goodwill is impaired requires an estimation of the value in use (VIU) of the cash generating units (CGU) to which goodwill has been allocated. The VIU 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 Company has undertaken an impairment assessment to compare the recoverable amount of each CGU to its carrying value, using a VIU approach. The key assumption for the impairment assessment is the growth of Funds under Management (FUM) over the forecast period through investment performance and new investor subscriptions in existing and new investment entities. Following its acquisition by the Group, H&&GIM has launched two new unlisted investment trusts and restructured the H&&G High Conviction Fund to H&&G High Conviction Limited (ASX: HCF), which listed post year end. These initiatives combined with strong investment returns in the funds, have seen both management and performance fees generated exceed initial estimates. A pre-tax discount rate of 15.0% has been used for the calculation. The impairment calculation is most sensitive to the assumption of investment performance. If investment performance was only 70% of forecast the carrying value of goodwill would approximate fair value per the VIU calculation. 5 8 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022(d) Accounting policies 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. Goodwill 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. Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. 86 H&&G Annual Report 2022Impairment 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. 15. Trade and other payables Current: Trade payables and other payables Loans from related parties Total payables 2022 $’000 2021 $’000 667 60 727 391 - 391 Trade payables are unsecured and are usually paid within 30 days of recognition. The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature. Further information relating to loans to related parties and key management personnel is set out in note 20. 7 8 H&&G Annual Report 2022H&&G ANNUAL REPORT 202216. Provisions Current Employee benefits Restoration provision Non-current Employee benefits (a) Restoration provision Balance at start of the financial year Derecognition on deconsolidation Balance at end of the financial year (b) Accounting policies 2022 $’000 2021 $’000 60 - 60 34 34 2022 $’000 - - - 127 - 127 42 42 2021 $’000 53 (53) - 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. A provision is recognised at the present value of the estimated expenditure required to remove any leasehold improvements. 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. Restoration provision Provisions for the costs to restore leased plant assets to their original condition, as required by the terms and conditions of the lease, are recognised when the obligation is incurred, either at the commencement date or as a consequence of having used the underlying asset during a particular period of the lease, at the directors’ best estimate of the expenditure that would be required to restore the assets. Estimates are regularly reviewed and adjusted as appropriate for new circumstances. 88 H&&G Annual Report 2022 17. Leases (a) Right of use assets Property leases Accumulated depreciation 2022 $’000 776 (570) 206 2021 $’000 776 (380) 396 (b) Movements in right of use assets during the year Property leases Vehicle leases Equipment leases $’000 $’000 $’000 Total $’000 3,919 (2,084) (1,281) (158) 396 (190) 206 Net book amount at 30 September 2020 Derecognition on deconsolidation Derecognition on change of assumption Depreciation charge Net book amount at 30 September 2021 Depreciation charge Net book amount at 30 September 2022 (c) Lease liabilities Current Non-current (d) Amounts recognised in statement of profit or loss Interest expense on lease liabilities (included in finance costs) Expense relating to short-term leases and low value assets (included in administration and other expenses 338 (338) 120 (120) - - - - - - - - - - 2022 $’000 262 23 258 2022 $’000 17 40 4,377 (2,542) (1,281) (158) 396 (190) 206 2021 $’000 245 281 526 2021 $’000 26 3 9 8 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022(e) Accounting policies Right-of-use-assets The Group recognises right-of-use assets at the commencement of the lease (i.e. the date the underlying asset is available for use). The initial measurement of right-of-use assets includes the amount of liabilities recognised and lease payments made at or before the commencement date, less any incentives received. Right-of-use assets are subsequently measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. Unless the Group is reasonably certain to obtain the ownership of the leased asset at the end of the lease term, the right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment assessments under AASB 136 Impairments of Assets. Lease liabilities At the commencement of a lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or rate, and amounts expected to be paid under residual value guarantees. The lease payments also include renewal periods where the Group is reasonably certain to exercise the renewal option. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Variable lease payments include rent concessions in the form of rent forgiveness or a waiver as a direct consequence of the COVID-19 pandemic. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. The Group has made use of the practical expedient available on transition to AASB16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with AASB117 and interpretation 4 will continue to be applied to those leases entered or changed before 1 October 2019. Short-term lease and leases of low-value assets The Group applies a recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies a recognition exemption to leases that are considered of low value. Lease payments on short-term and low-value leases are recognised as expense on a straight-line basis over the lease term. Judgements in determining the lease term of contracts with renewal options The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After initial recognition, the Group reassesses the lease term if there is a significant event or change in circumstances that are within its control and affects its ability to exercise (or not to exercise) the option to renew. 90 H&&G Annual Report 2022 (f) Extension and termination options Extension and termination options are included in the property leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The extension and termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The extension option in the remaining office and warehouse lease has not been included in the lease liability as the Group no longer occupies the premises. 18. Reserves Profit reserve Option reserve Share based payments reserve Other reserves 2022 $’000 17,181 1,296 709 265 2021 $’000 15,599 1,296 348 265 19,451 17,508 The Profit reserve represents amounts appropriated from annual profits and kept segregated to allow for ongoing dividend payments. The Option reserve represents the fair value of options granted over Company shares as payment for capital raising services. The Share Based Payments reserve represents the expense recognised in relation to share related dealings with employees, including Performance Rights and the Employee Loan Funded Share Plan. Other reserves include 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, and the Group’s share of movements in the reserves of equity accounted associates. 1 9 H&&G Annual Report 2022H&&G ANNUAL REPORT 202219. Parent entity financial information Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Issued capital Reserves • • • • Profit reserve Option reserve Share based payment reserve Other reserves 2022 $’000 27,757 36,518 2021 $’000 16,789 31,457 64,275 48,246 438 300 738 335 315 650 63,537 47,596 72,623 58,274 34,976 33,745 1,296 709 265 1,296 348 265 Retained profits and accumulated losses (46,332) (46,332) Total equity Profit or loss Profit or loss for the financial year Total comprehensive income for the financial year 63,537 47,596 5,248 5,248 18,147 18,147 92 H&&G Annual Report 202220. Related party transactions (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments 2022 $ 2021 $ 1,262,648 822,932 97,026 16,887 - 356,868 80,191 15,831 230,000 243,826 1,733,429 1,392,780 Detailed remuneration disclosures are provided in the remuneration report on pages 10 to 15. (b) Other transactions with key management personnel Entities related to Alexander Beard (200,000 units), Kevin Eley (100,000 units), Peter Miller (200,000 units), Cheryl Hayman (50,000 units), Phillip Christopher (100,000 units) and Nicholas Atkinson (70,000 units), subscribed for ordinary units at $1 per unit in the DP Trust. Entities related to Phillip Christopher (1,000 units) and Nicholas Atkinson (250 units) subscribed for B Class units in the DP Trust at $1 per unit. An entity related to Phillip Christopher subscribed for 10 shares in Mulga Capital Pty Ltd for $10. There were no other transactions with key management personnel during the period. (c) Transactions with other related parties The Group reports an investment entity. Accordingly, only those controlled entities whose main purpose and activities relate to the investment activities of the Group are consolidated. Transactions with related parties not forming part of the consolidated Group, during the year, are as follows: The Group received dividends from Mountcastle Pty Ltd of $1,483,291 and Hamlon Pty Ltd of $1,050,000. These parties may have dividend payment restrictions imposed on them from time to time, by the related party's financiers, which could limit the ability of the Group to receive future distribution income. The Group holds the head lease of premises used by related parties for warehousing and office space. Rent and occupancy costs of $302,000 were charged to Hamlon for the full financial year and $10,250 to BLC Cosmetics Pty Ltd for the period whilst it was a related party of the Group. The Group and Hamlon share IT support and telecommunications services. $63,972 was recharged by the Group to Hamlon for costs paid by the Group. Prior to resigning as Chief Financial Officer and Company Secretary of the Group to take-up a full-time position at Mountcastle group, Iain Thompson had been combining these roles at the Group and Mountcastle group. During the year, $62,500 was charged by the Group to Mountcastle for these services and Mountcastle recharged the Group $49,604 for leave entitlements assumed by Mountcastle on the transition. DP Trust a unit trust set up by the Group during the year, and which is owned 70% by the Group, paid the Group $160,000 and $35,178 in establishment and management fees respectively during the year. The Group loaned $500,000 to the Hyde Road Trust, a newly established trust which is owned 73% by the Group to pay a deposit on a property that settled after the year-end. 3 9 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022(d) Loans to/from related parties Loan balances at the beginning of the year Movement in year-end outstanding accounts receivables and payables Loans advanced to related parties Loan balances at the end of the year Shown on the balance sheet as: Loans to related parties Loans from related parties 21. Commitments and contingencies (a) Commitments Note 12 15 2022 $ 902,217 (167,267) 500,000 1,234,950 1,294,707 (59,757) 1,234,950 There are no significant lease commitments at balance date except those associated with the Right of Use Assets as outlined in note 17. There are no significant capital expenditure commitments at balance date. At balance date the Group had investment commitments of $2,695,000 including $2,285,000 to the Hyde Road Trust, as outlined in note 8. (b) Contingent liabilities There are no significant contingent liabilities at balance date. 22. Summary of significant accounting policies (a) 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. Compliance with Australian Accounting Standards The consolidated financial statements of the Hancock && Gore Ltd Group have been prepared in accordance with Australian Accounting Standards Board (AASB) and interpretations issued by the AASB Interpretations Committee (AASB IC) applicable to companies reporting under AASB. The financial statements comply with 94 H&&G Annual Report 2022AASB as issued by the Australian Accounting Standards Board (AASB). (b) Basis of consolidation During the prior year, the Group adopted the "Investment Entity" basis of accounting as outlined in paragraph 27 of AASB10: Consolidated Financial Statements, whereby the fair value of each investee business unit is recognised as a single investment value in the balance sheet. Subsequent movements in the assessed fair value of the businesses are recognised within “Fair value gains on financial instruments at fair value through profit or loss” in the statement of profit or loss. Group revenue arising from these businesses now reflects distributions made to the Group in its capacity as a shareholder of that business, rather than the underlying trading income and profits previously shown. An entity that is not considered a standalone investee company, where the activities of the entity are substantially those of investing, will be consolidated into the Group in accordance with AASB10: Consolidated Financial Statements. The consolidated financial statements comprise the financial statements of the Group and those controlled subsidiaries deemed to be carrying on investment activities as at 30 September 2022. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with an entity and has the ability to affect those returns through its power over the entity. Specifically, the Group controls an entity if and only if the Group has: • Power over the entity (i.e. existing rights that give it the current ability to direct the relevant activities of the entity); • Exposure, or rights, to variable returns from its involvement with the entity; and • The ability to use its power over the entity 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 entity, the Group considers all relevant facts and circumstances in assessing whether it has power over an entity, including: • The contractual arrangement(s) with the other vote holders of the entity; • 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 entity 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, unless this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value. 5 9 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022(c) New accounting standards and interpretations 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 2022. The directors have not early adopted any of these new or amended standards or interpretations. The directors have not finalised their assessment of these accounting standards on the Group and its financial reports, however on initial consideration they do not consider it likely there will be a material impact on the financial statements in future periods. 23. Remuneration of auditors The auditor of the Group is UHY Haines Norton Sydney who were appointed at the AGM of the Company on 24 February 2021. (a) Amounts paid or due and payable to UHY Haines Norton Sydney and related network firms 2022 $ 2021 $ Audit or review of the financial report of the entity and any other entity in the consolidated group 101,053 80,000 Other non-audit services in relation to the entity and any other entity in the consolidated group 56,971 - 158,024 80,000 Other non-audit services related to taxation services ($14,086) and an independent accountant’s report for the prospectus of H&&G High Conviction Limited ($42,885). It is the Group's policy to engage the Group's auditors on assignments additional to their statutory audit duties where the auditor's expertise and experience with the Group are considered important. (b) Other auditors and their related network firms H&&G Investment Management Ltd paid $5,206 to Rothsay Audit & Assurance Pty Ltd for the audit of its 30 September 2021 financial report and has provided $8,000 to the same company for the audit of the 30 September 2022 financial report. 24. Segment information Since the Group adopted the investment entity basis of accounting for an investment entity during the previous financial year, all income and expenses for the Group are considered derived from and incurred for the generation of investment income. As a result, and with effect from 1 October 2020, the Group operates as a single segment, Investing, and there are no separate reportable operating segments for the current or prior periods. 96 H&&G Annual Report 202225. Interest in other entities (a) Categories of controlled entities As described in Note 7, the Group has adopted the "Investment Entity" basis of accounting, and only those entities where the activities of the entity are substantially those of investing, are consolidated in the Group financial statements. Certain immaterial entities have not been disclosed in the lists of controlled entities below. (b) Controlled entities consolidated into these financial statements as an investment entity Name of entity Country of Incorporation Ownership interest Ownership interest held Hancock && Gore Ltd HGL Logistics Pty Ltd HGL Investments Pty Ltd H&&G Investment Management Ltd Mulga Capital Pty Ltd held by the Group 2022% by the Group 2021% Australia Australia Australia Australia Australia 100 100 100 100 80 100 100 100 100 - (c) Controlled entities accounted for as an investee and not consolidated into these financial statements Name of entity Country of Incorporation Ownership interest Ownership interest held by the Group held by the Group 2022% 2021% Hamlon Pty Limited (trading as SPOS) Australia The Point-of-Sale Centre (New Zealand) Limited New Zealand Hyde Road Trust DP Trust (*) Pegasus Health Group Certitude Healthcare Trust BLC Cosmetics Pty Limited Australia Australia Australia Australia Australia BLC Cosmetics (NZ) Limited New Zealand 100 100 73 70 - - - - 100 100 - - 70 70 100 100 (*) DP Trust has ordinary and B class units. The Group holds 70% of the ordinary units. The B class units convert into ordinary units on the occurrence of prescribed conversion events at 10% of the outperformance of the Trust compared to a 10% hurdle return. The Group holds 75% of the B class units with others held by Key Management Personnel of the Group. 7 9 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022(d) Changes in controlled entities In respect of controlled entities forming part of the investment entity: • • on 26 June 2022, the Group incorporated a new entity, Mulga Capital Pty Ltd; and during the prior period, on 23 March 2021, the Company acquired all of the equity in H&&G Investment Management Ltd. In respect of controlled entities that were not consolidated but accounted for as investments: • • during the period the Group disposed of its interests in Pegasus Healthcare Group and Certitude Healthcare Trust, on 16 September 2022, and BLC Cosmetics Pty Limited and BLC Cosmetics (NZ) Limited, on 2 November 2021; and during the prior period, the Company disposed of its interests in Baker & McAuliffe Holdings Pty Limited (trading as JSB Lighting) and JSB Lighting (New Zealand) Limited. 26. Non-controlling interests Balance at beginning of the financial year Derecognised on deconsolidation Profit attributable to non-controlling interests Balance at beginning of the financial year (a) Accounting policies 2022 $’000 - - - - 2021 $’000 1,884 (1,884) - - Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation, may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non- controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company 98 H&&G Annual Report 2022Directors’ Declaration Directors’ declaration In the directors’ opinion: a) the consolidated financial statements and notes set out on pages 18 to 53 are in accordance with the Corporations Act 2001, including: i) ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and giving a true and fair view of the consolidated entity’s financial position as at 30 September 2022 and of its performance for the financial year ended on that date, and b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed Group will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee. Note 22(a) confirms that the consolidated financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Alexander (Sandy) Beard Director 24 November 2022 9 9 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Independent Auditor’s Report 100 H&&G Annual Report 2022INDEPENDENT AUDITOR’S REPORT To the Members of Hancock & Gore Limited Report on the Audit of the Financial Report Opinion Level 11 | 1 York Street | Sydney | NSW | 2000 GPO Box 4137 | Sydney | NSW | 2001 t: +61 2 9256 6600 | f: +61 2 9256 6611 sydney@uhyhnsyd.com.au www.uhyhnsydney.com.au We have audited the financial report of Hancock & Gore Limited and the entities it controlled (together the Group) for the year-ended 30 September 2022, which comprises the consolidated statement of financial position as at 30 September 2022, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: i.(cid:3) giving a true and fair view of the Group’s financial position as at 30 September 2022 and of its financial performance for the year ended on that date; and ii.(cid:3) 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 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 of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. Passion beyond numbers 1 0 1 H&G Annual Report 2022H&G ANNUAL REPORT 2022 Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 September 2022, 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 accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. 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 Group 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 have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (cid:121)(cid:3) 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. An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. Passion beyond numbers H&G Annual Report 2022 (cid:121)(cid:3) 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. (cid:121)(cid:3) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. (cid:121)(cid:3) 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. (cid:121)(cid:3) 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. (cid:121)(cid:3) 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 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, actions taken to eliminate threats or safeguards applied. 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 year 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. An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. Passion beyond numbers 3 0 1 H&G Annual Report 2022H&G ANNUAL REPORT 2022 Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 15 of the directors’ report for the year ended 30 September 2022. In our opinion, the Remuneration Report of Hancock & Gore Limited for the year ended 30 September 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Group 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. Mark Nicholaeff Partner Sydney 24 November 2022 UHY Haines Norton Chartered Accountants An association of independent (cid:386) rms in Australia and New Zealand and a member of UHY International, a network of independent accounting and consulting (cid:386) rms. UHY Haines Norton—ABN 85 140 758 156 NSWBN 98 133 826 Liability limited by a scheme approved under Professional Standards Legislation. Passion beyond numbers H&G Annual Report 2022 Shareholder Information The shareholder information set out below was applicable as at 11 January 2023. Distribution of equity securities The number of equity security holders by size of holding and the total percentage of securities in that class held by the holders in each category: (a) Ordinary shares Holding 1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over (b) Options Holding 1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over (c) Performance Rights Holding 1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Number of holders Securities held 317 321 152 336 176 127,366 844,423 1,194,157 12,528,913 210,667,466 1,302 225,362,325 Number of holders Securities held - - - 2 3 5 - - - 200,000 6,800,000 7,000,000 Number of holders Securities held % 0.06 0.37 0.53 5.56 93.48 100.00 % - - - 2.86 97.14 100.00 % - - - - - - - - - - - - 2 2 13,500,000 13,500,000 100.00 100.00 5 0 1 H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Ordinary shares No. Name 1 2 3 4 5 6 6 6 9 10 11 12 13 14 15 16 17 18 19 Sery Pty Limited National Nominees Limited Dr Ida Constable Alexander Damien Harry Beard Alexander Beard + Maire Beard Aus Confec Pty Ltd Green Family Pty Ltd TSL Super Pty Ltd IJV Investments Pty Ltd Mr Alexander Damien Harry Beard + Mrs Pascale Marie Beard Cannington Corporation Pty Ltd BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd HSBC Custody Nominees (Australia) Limited BNP Paribas Nominees Pty Ltd KJE Superannuation Pty Ltd Citicorp Nominees Pty Limited Merrill Lynch (Australia) Nominees Pty Limited Donus Australia Foundation Limited LPO Investments Pty Limited 20 Mrs Jennifer Ann Hershon Substantial holders Securities held % 22,065,555 14,888,097 10,750,000 9,390,724 8,300,000 8,230,000 8,230,000 8,230,000 8,172,240 7,033,235 4,780,240 3,958,483 3,758,349 3,719,062 3,577,240 3,412,755 3,182,932 2,900,000 2,879,070 2,682,052 9.79 6.61 4.77 4.17 3.68 3.65 3.65 3.65 3.63 3.12 2.12 1.76 1.67 1.65 1.59 1.51 1.41 1.29 1.28 1.19 140,140,034 62.18 The names of the substantial shareholders as disclosed in substantial shareholder notices received by the Company: Name Sery Group Constable Group Date of last notice Votes held Voting % 14 February 2022 29,374,067 09 December 2021 22,932,634 13.09% 11.40% 10.95% 6.45% AD & MP Beard ATF AD & MP Beard Superannuation Fund 14 February 2022 24,567,239 Perennial Value Management Limited 28 June 2022 14,465,979 Unmarketable parcels The number of shareholders holding less than a marketable parcel (1,667 shares) is 399. 106 H&&G Annual Report 2022 Page intentionally left blank. H&&G Annual Report 2022H&&G ANNUAL REPORT 2022Hancock && Gore Suite 803 Level 8, 25 Bligh Street Sydney NSW 2000 T: +612 8667 4660 E: info@hng.com.au H&&G Annual Report 2022

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