Hills Industries Limited
ABN 35 007 573 417
Annual Report
30 June 2008
Contents
Directors’ report (including corporate governance statement and remuneration report)
Income statements
Balance sheets
Statements of recognised income and expense
Statements of cash flows
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
Lead auditor’s independence declaration
ASX additional information
Page
3
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25
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27
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96
97
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100
2
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
The directors present their report together with the financial report of Hills Industries Limited (“the Company”) and of
the Group, being the Company and its subsidiaries, and the Group’s interest in associates and jointly controlled entities
for the financial year ended 30 June 2008 and the auditor’s report thereon.
Contents of directors’ report
Operating and financial review
Directors
Company secretary
Officers who were previously partners of the audit firm
Directors’ meetings
Corporate governance statement
Remuneration report - audited
Principles of compensation
Directors’ and executive officers’ remuneration
Analysis of bonuses included in remuneration
Equity instruments
Options and rights over equity instruments granted as compensation
Modification of terms of equity-settled share-based payment transactions
Exercise of options granted as compensation
Analysis of options and rights over equity instruments granted as compensation
Analysis of movement in options
Payments before taking office
Principal activities
Operating and financial review
Dividends
Events subsequent to reporting date
Likely developments
Directors’ interests
Share options
Indemnification and insurance of officers and auditors
Non-audit services
Lead auditor’s independence declaration
Rounding off
Page
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17
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3
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
1. Operating and financial review
HILLS GROUP ACHIEVES 16TH CONSECUTIVE RECORD PROFIT
The Hills Industries Group achieved a Group profit after tax from ordinary operations attributable to shareholders of
$48.036 million. This was an increase of 1.8% over the previous year and represents the 16th consecutive year of
record profits for the Group. In a year of difficult economic settings the Company was able to maintain its fully franked
dividend at record levels.
OVERVIEW 2008
The growth in sales and improvement in results for the Hills Group this year were achieved primarily through organic
growth of existing businesses rather than acquisition of new businesses. Following a more difficult first half, the
second half EBIT result was an improvement of 9% on the same period in the previous year and a 5.7% increase on
the first half of this year. Notwithstanding this, profits were adversely affected in the year due to the higher costs of
freight and distribution. The continued strong performance of Electronic Security and Entertainment more than offset
the reduction in Building and Industrial Products, while the Home, Hardware and Eco Products result was flat.
Our cash flows were below our targets as we funded the increased working capital requirements of the second half.
Despite this our balance sheet gearing remains under our target levels, we have adequate banking facilities, which
have long-term tenure, and we comfortably exceed all of our banking covenants.
This year was one of great change at Hills. After 15 years as Managing Director, David Simmons announced his
retirement in March. Under David’s leadership Hills achieved an unbroken record of growth in sales and profit. Over
his time as our Managing Director the company transformed itself from a company with a high reliance on hardware
products to a major diversified company. David will continue as a consultant to the company for a further 12 months.
GROUP STRATEGY
Our strategy is to develop competitive businesses in three main industry segments being Electronic Security and
Entertainment; Building and Industrial Products and Home, Hardware and Eco Products. We are committed to
diversification in order to minimise the impact of short-term changes to individual markets and economies. We aim to
be product innovators and market leaders.
Our objective overall is to grow revenue and earnings through a combination of organic growth and acquisitions. We
aim to be good corporate citizens in all aspects of our business dealings. We look to provide a safe working
environment for all of our employees in which they can develop to their potential.
TRADING CONDITIONS
Trading conditions in the year under review were mixed. As the year progressed there was more evidence of a slow
down in the Australian economy and the New Zealand economy performed poorly. Strong economic activity in
Western Australia, Queensland and South Australia was somewhat offset by subdued activity in New South Wales and
Victoria. Steel prices began to rise late in the period under review and the Australian dollar strengthened over the
course of the year. Further information on each division is contained later in this report.
4
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
1. Operating and financial review
VISION AND VALUES
Hills Industries Limited is a diversified company operating in three industry segments namely, Electronic Security and
Entertainment; Home, Hardware and Eco and Building and Industrial Products.
We aim to be market leaders in the industries in which we operate, supplying innovative quality products to our
customers to achieve superior financial performance that provides strong shareholder value. To achieve this we value
and promote:
!
•
•
•
•
A leadership style that encourages autonomy and initiative;
Commercial acumen with a focus on profitability and value;
A never ending process of continuous improvement;
Being open, ethical and earning the trust of those we deal with; and
A culture of individual development, personal growth and safety
SHAREHOLDERS
We value the consistent support of our shareholders in a year that saw some significant fluctuations in our share price.
The very good support for our Dividend Reinvestment Plans and Share Purchase Plans enabled us to continue our
policy of paying 100% of our profits as dividends.
We continue to offer our Dividend Reinvestment Plans to shareholders at discount levels that Directors feel are
attractive for reinvestment.
We also continue our practice of ensuring that employees who meet the relevant criteria participate in our Employee
Share Scheme. We believe that widespread share ownership by our employees has many positive benefits to the
employees, the Company and our shareholders.
LIKELY DEVELOPMENTS
There has been much publicity regarding the uncertain macro-economic settings, including higher interest rates, higher
fuel and steel costs and the uncertainty surrounding capital markets. Many of our business units operate in markets
that still exhibit growth despite these factors. We expect some improvements in businesses that have
underperformed this year and the diversity of our businesses further mitigates the risks associated with these
economic settings. Hills are not heavily exposed to the domestic housing cycle and as such we expect a satisfactory
result in the year ahead.
5
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
2. Directors
The directors of the Company at any time during or since the end of the financial year are:
Name, qualifications
and independence
status
Jennifer Helen Hill-Ling
LLB(Adel)
Chairman
Non-Independent
Non-Executive Director
Graham Lloyd Twartz BA
(Adel) DipAcc (Flinders)
Group Managing Director
David James Simmons
BA (Accountancy)
Former Group Managing
Director
Ian Elliot GAICD
Independent Non-Executive
Director
Roger Baden Flynn BEng
(Hons) MBA FIE(Aust)
Independent Non-Executive
Director
6
Experience, special responsibilities and other directorships
Appointed Director in August 1985. Appointed Deputy Chairman in June 2004. Appointed
Chairman 28 October 2005.
Member of the Nomination Committee and Chairman of the Remuneration Committee.
Former Director of Tower Trust Ltd.
Jennifer Hill-Ling has extensive experience in corporate and commercial law. She
specialises in corporate and business structuring, mergers and acquisitions, joint
ventures and related commercial transactions. She has practiced law for 25 years.
Joined the Company in 1993. Appointed Director in July 1993. Appointed as Group
Managing Director 1 July 2008. Director of Korvest Ltd and Fielders Australia Pty Ltd.
Graham Twartz is the Group Managing Director and is responsible for group operations,
including business strategy and acquisitions. He was formerly the Finance Director and
Company Secretary and has over 23 years experience in his field. Mr Twartz held senior
management positions in diversified companies before joining Hills in 1993.
Joined the Company in 1984. Appointed Finance Director in July 1987. Appointed
Managing Director in December 1992. Resigned as Group Managing Director 30 June
2008.
Chairman of Korvest Ltd. Resigned as Chairman of Fielders Australia Pty Ltd 27 July
2008.
As Group Managing Director David Simmons was responsible for group operations,
including business strategy and acquisitions. Mr Simmons has extensive financial and
general management experience and was Chairman of the SA Government Economic
Development Board until 30 June 2008. He also became a Director of Codan Limited in
May 2008 and is a Board member of Thomson Playford lawyers.
Appointed Director in August 2003.
Member of the Remuneration Committee and Chairman of the Nomination Committee.
Director of Salmat Limited. Former Chairman of Promentum Limited, Zenith Media Pty
Ltd, Allied Brands Limited and Artist & Entertainment Group Limited.
Ian Elliot has spent 35 years in marketing. His speciality is brand building, with
extensive involvement in a number of icon brands. Mr Elliot is a fellow of the AICD and
graduate of the Harvard Business School Advanced Management Program.
Appointed Director in November 1999.
Member of the Audit and Compliance Committee.
Executive Chairman of Coventry Group Limited. Previously Managing Director of ION
Limited, Non-Executive Director of Wattyl Limited and Director of Longreach Group
Limited.
Name, qualifications
and independence
status
Geoffrey Guild Hill FCPA
FAICD F.S.I BEc (Syd)
MBA (NSW)
Independent Non-Executive
Director based in Hong
Kong
Peter William Stancliffe
BE(Civil) FAICD
Independent Non-Executive
Director
Experience, special responsibilities and other directorships
Roger Flynn has 40 years experience working in a range of technical and commercial
roles in manufacturing and distribution industries in Australia and the United States,
including 38 years of Board experience in ASX listed companies.
Appointed Director in February 1999. Appointed as a Director of Fielders Australia Pty Ltd
27 July 2008.
Member of the Audit and Compliance, Remuneration and Nomination Committees.
Chairman of International Pacific Securities (Group) Limited. Director Brickworks
Investments Limited, Huntley Investments Limited, Metals Finance Limited, Asian
Property Investments Limited and Heritage Gold (NZ) Limited
Former Director of Biron Corporation Limited, Undercoverwear limited, Pitt Capital
Partners and Pacific Strategic Investments Limited.
Geoffrey Hill is a merchant banker, based in Hong Kong, with over 33 years experience
in the securities industry. He has worked both in Europe and the United States and has
managed merchant banks in Australia since 1989. Mr Hill specialises in mergers and
acquisitions and corporate reconstructions and has been active in Merchant Banking
field since 1979.
Appointed Director in August 2003.
Chairman of the Audit and Compliance Committee.
Non-executive Director of Automotive Holdings Group Limited and Chairman of View
Resources Limited. Former Chairman of Deck Guardrail Australia Pty Ltd, Victorian
Regional Executives Group and Xtract Technologies Limited.
Peter Stancliffe has over 38 years experience in the management of large industrial
companies both in Australia and overseas and has held various senior management
positions, including Chief Executive Officer.
He has extensive experience in strategy development and a detailed knowledge of
modern company management practices. Mr Stancliffe is a graduate of the MIT Senior
Management Program and the AICD Company Directors’ Course.
7
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
3. Company secretary
Mr Andrew Muir, B.Ec, MBA (Adelaide) was appointed to the position of Company Secretary in July 2008. Mr Muir is
the Company's General Manager of Finance and was formerly the General Manager of Business Development for 5
years.
Mr Paul Blewett, LLB, was appointed to the position of Company Secretary in April 2008 and held this position until
July 2008. Mr Blewett previously held the role of General Counsel and Company Secretary with another listed public
company for several years and prior to that worked as Legal Counsel for other large corporations, and as a lawyer for a
major commercial legal practice.
Mr Graham Twartz, B.A, Dip Acc was Company Secretary from 1July 2007 to 31 March 2008. Mr Twartz previously
held the role of Finance Director and has over 23 years experience in his field.
4. Officers who were previously partners of the audit firm
There were no persons who were officers of the Company during the financial year and were previously partners of the
current audit firm, KPMG.
5. Directors’ meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended
by each of the directors of the Company during the financial year are:
Director
J H Hill-Ling
G L Twartz
D J Simmons
I Elliot
R B Flynn
G G Hill
P W Stancilffe
Board
Meetings
Audit
Committee
Meetings
Remuneratio
n Committee
Meetings
Non-
executive
directors
Meetings
Nomination
Committee
Meetings
A
15
15
11
15
15
14
15
B
15
15
15
15
15
15
15
A
-
-
-
-
3
2
3
B
-
-
-
-
3
3
3
A
4
-
-
4
-
3
-
B
4
-
-
4
-
4
-
A
7
-
-
7
7
6
7
B
7
-
-
7
7
7
7
A
2
-
-
2
-
2
-
B
2
-
-
2
-
2
-
A – Number of meetings attended
B – Number of meetings held during the time the director held office during the year
8
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
6. Corporate governance statement
This statement outlines the main corporate governance practices in place throughout the financial year, which comply
with the ASX Corporate Governance Council recommendations, unless otherwise stated.
The ASX Principles are set out below, along with information provided in accordance with the Guide to Reporting for
Annual Reports included in the ASX Recommendations.
Further details of the corporate governance practices of the Company are available in the Corporate Governance
section of the Company website at www.hills.com.au.
Principle 1: Lay solid foundations for management and oversight
The Company complies with the ASX recommendation of recognising and publishing the respective roles and
responsibilities of Board and management.
Principle 2: Structure the Board to add value
ASX recommends the Company has a Board of an effective composition, size and commitment to adequately
discharge its responsibilities and duties.
The Company has substantially complied with this Principle during the reporting period. There has been a departure
from the ASX Recommendation 2.2 in that the Chairman Ms Jennifer Hill-Ling is not considered an independent
Chairman. The Company considers this departure is appropriate however given:
!
The Hill-Ling family’s interest in the Hills Group; and
! Ms Hill-Ling’s considerable experience within the Hills Group.
a) Composition of the Board
The names, experience and term of the Directors of the Company in office at the date of this report are set out in
section 2 of the Directors’ Report above.
b) Independent professional advice and access to company information
There is a procedure agreed by the Board whereby each Director is able to obtain independent professional advice at
the expense of the Company should the Director require.
c) Nomination Committee
Membership of the Nomination Committee of the Company and details of meetings for the reporting period are set out
in Section 5 of the Director’s Report above.
Principle 3: Promote ethical and responsible decision-making
The Company complies with the ASX recommendation that the Company actively promote ethical and responsible
decision-making.
Principle 4: Safeguard integrity in financial reporting
The Company complies with the ASX recommendation that a structure be in place to independently verify and
safeguard the integrity of the Company’s financial reporting.
Details of the members and qualifications of the Audit and Compliance Committee of the Company, and of its meetings
during the reporting period are set out in Section 2 and 5 of the Directors Report above.
9
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
Principle 5: Make timely and balanced disclosure
The Company complies with the ASX recommendation that the Company should promote timely and balanced
disclosure of all material matters concerning the Company.
Principle 6: Respect the rights of shareholders
The Company complies with the ASX recommendation that the Company should respect the rights of shareholders and
facilitate the effective exercise of those rights.
Principle 7: Recognise and manage risk
The Company complies with the ASX recommendation that the Company should establish a sound system of risk
oversight and management and internal control.
The Audit and Compliance Committee oversees the operation of the risk management controls established by the
Company.
Principle 8: Encourage enhanced performance.
The Company complies with the ASX recommendation that the Company should fairly review and actively encourage
enhanced Board and management effectiveness.
A performance evaluation for the Board and its members has taken place in the reporting period. Each Director meets
individually with the Chairman annually to discuss their individual performance and the overall performance of the
Board.
Principle 9: Remunerate fairly and responsibly
The ASX Recommendation is that the Company should ensure that the level and composition of remuneration is
sufficient and reasonable and that its relationship to corporate and individual performance is defined.
The Company has complied with this Principle during the reporting period. For further information, see the
Remuneration Report at section 7 of this Directors’ Report
Principle 10: Recognise the legitimate interests of stakeholders
The Company complies with the ASX recommendation that the Company should recognise legal and other obligations
to all legitimate stakeholders.
10
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
7
Remuneration report
7.1 Principles of compensation
Remuneration is referred to as compensation throughout this report.
Key management personnel have authority and responsibility for planning, directing and controlling the activities of the
Company and the Group, including directors of the Company and other executives. Key management personnel
comprise the directors of the Company and executives of the Company and the Group including the five most highly
remunerated Company and Group executives.
Compensation levels for key management personnel of the Company, and key management personnel of the Group are
competitively set to attract and retain appropriately qualified and experienced directors and executives. The
remuneration committee obtains independent advice on the appropriateness of compensation packages of both the
Company and the Group given trends in comparative companies both locally and internationally, and the objectives of
the Company’s compensation strategy.
The compensation structures explained below are designed to attract suitably qualified candidates, reward the
achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The
compensation structures take into account:
•
•
•
the capability and experience of the key management personnel
the key management personnel’s ability to control the relevant segment/s’ performance
the Group’s performance including:
-
-
the Group’s earnings
the growth in share price and delivering constant returns on shareholder wealth
Compensation packages include a mix of fixed and variable compensation, and short-term and long-term performance-
based incentives.
In addition to their salaries, the Group also provides non-cash benefits to its key management personnel, and
contributes to a post-employment superannuation plan on their behalf.
Directors receive their statutory superannuation entitlements. In addition, certain non-executive Directors are entitled
to receive benefits on retirement under a scheme that has been discontinued.
Under the scheme, Directors are entitled to a maximum retirement benefit of twice their annual Directors’ fees
(calculated as an average of their fees over the last three years) accumulated over a period of eight years of service.
Since the scheme was discontinued, no new Directors have become entitled to any benefit and the benefit multiple for
existing Directors (up to a maximum of two times fees) remains fixed.
These benefits have been fully provided for in the financial statements.
Fixed compensation
Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any FBT
charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation
funds.
The remuneration committee, through a process that considers individual, segment and overall performance of the
Group, reviews compensation levels annually. In addition external consultants provide analysis and advice to ensure
the directors’ and senior executives’ compensation is competitive in the market place. A senior executive’s
compensation is also reviewed on promotion.
Performance linked compensation
Performance linked compensation includes both short-term and long-term incentives, and is designed to reward key
management personnel for meeting or exceeding their financial and personal objectives. The short-term incentive (STI)
is an ‘at risk’ bonus provided in the form of cash, while the long-term incentive (LTI) is provided as options over
11
ordinary shares of the Company under the rules of the Executive Share Option Plan (see note 26 to financial
statements).
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
7
Remuneration report
7.1 Principles of compensation (continued)
Key management personnel may receive bonuses based on the achievement of agreed outcomes relating to the
performance of the Group (including operational results). Bonuses earned are measured on a number of factors, the
most common of which is based on the achievement of the Earnings before interest and tax (EBIT) result of the
relevant business. EBIT is the chosen determinant upon which to measure bonus payments, as it is indicative of the
businesses financial achievement, which has a direct correlation to shareholder value and successful operational
business performance.
Shares issued to key management personnel are a result of the Employee Share Bonus Plan under which shares are
issued to all employees with more than a nominated period of service. Options issued to key management personnel
are a result of the Executive Share Plan. Non-executive Directors do not receive any performance related
remuneration.
The remuneration structures take into account:
- the overall level of remuneration for each key management personnel;
- the executive’s ability to control performance; and
The key management personnel receive performance-based remuneration primarily based on a percentage of divisional
EBIT. The bonuses received by DJ Simmons and GL Twartz are discretionary, decided by the Remuneration Committee
annually and based on a wide range of factors including the financial performance of the Group.
The key management personnel are not currently entitled to contractual termination payments other than those
generally applicable to all staff.
Options are issued under the Executive Share Plan, to executive Directors, made in accordance with thresholds
approved by shareholders at the AGM. The plan provides for 21 executives (22 executives in 2007) to receive options
over ordinary shares for no consideration. The ability to exercise the options is conditional on the Company achieving
certain performance outcomes. Non-executive Directors do not receive any options.
Key management personnel who acquire shares through the exercise of options are provided with 20-year interest free
loans by the Company in accordance with the rules of the Executive Share Plan approved by the Shareholders. These
loans are of a non-recourse nature. For accounting purposes these 20-year, non-recourse loans are treated as part of
options to purchase shares, until the loan is extinguished at which point the shares are recognised.
A small number of shares are issued to executive Directors and specified executives as a result of the Employee
Share Bonus Plan under which shares are issued to all employees with more than a nominated period of service.
The Board considers that the above performance-linked remuneration structure is generating the desired outcome.
12
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report (continued)
For the year ended 30 June 2008
Remuneration report
7
7.2 Directors’ and executive officers’ remuneration (Company and Consolidated)
Details of the nature and amount of each major element of remuneration of each director of the Company, each of the five named Company executives and relevant Group
executives who receive the highest remuneration and other key management personnel are:
in AUD
Directors
Non-executive directors
J H Hill-Ling –Chairman **
I Elliot **
R B Flynn **
G G Hill **
P W Stancliffe **
Executive Directors
D J Simmons - Group Managing
Director**
G L Twartz – Group Finance Director**
Short-term
Salary & fees
$
STI cash
bonus
$(A)
Non-
monetary
benefits
$
Other short-
term benefits
$
Post-
employment
Super-
annuation
benefits
$
Other long
term
Share-based
payments
$
Termination
benefits
$
Options
$ (B)
Shares
$
Total
$
Proportion
of
remunerati
on
performan
ce related
%
Value of
options as
proportion of
remuneration
%
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
150,994
123,807
78,937
69,427
78,937
69,427
78,937
69,427
88,589
79,587
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,589
11,143
7,104
6,248
7,104
6,248
7,104
6,248
7,973
7,163
2008
579,526
160,000
11,952
42,813
2007
2008
2007
444,599
513,236
342,548
100,000
17,447
10,409
50,000
-
32,895
8,611
7,718
36,203
38,698
30,829
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
164,583
134,950
86,042
75,675
86,041
75,675
86,041
75,675
96,562
86,750
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38,491
1,000
833,782
19%
4.62%
37,911
1,000
647,569
25,728
1,000
637,272
25,639
1,000
440,629
15%
8%
0%
5.85%
4.04%
5.82%
13
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report (continued)
For the year ended 30 June 2008
Remuneration report
7
7.2 Directors’ and executive officers’ remuneration (Company and Consolidated)
Post-
employment
Super-annuation
benefits
$
Salary & fees
$
Short-term
in AUD
Non-
monetary
benefits
$
Other
short-term
benefits
$
STI cash
bonus
$(A)
Other long
term
Share-based payments
$
Terminatio
n benefits
$
Options $
(B)
Shares $
Total
$
Proportion
of
remuner-
ation
perfor-
mance
related %
Value of
options as
proportion
of
remuner-
ation %
320,000
320,000
211,837
197,324
239,966
215,023
259,145
263,669
-
-
148,048
112,597
148,196
191,686
190,839
190,000
39,206
190,117
171,508
140,002
89,845
48,148
75,790
120,000
25,077
120,000
87,833
146,504
218,026
29,084
3,459,959
905,401
Executives
L Andrewartha - Managing Director -
Orrcon Group
A Oliver - Group General Manager** -
Antenna and TV Systems
A Muir – General Manager – Finance**
J Easling - Managing Director –
Fielders
R Meachem General Manager –
Pacom**
D Walker – Managing Director - Team
Poly**
S Cope – Group General Manager -
Electronics, Security and
Entertainment**
R Gros – Group General Manager –
Home, Hardware & Eco Products **
D Salvaterra – General Manager -
EzyStrut
Total compensation: key
management personnel (consolidated)
Total compensation: key
management personnel (company**)
14
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
34,884
-
113,268
101,973
-
-
21,500
-
-
12,290
12,276
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32,853
30,403
19,134
16,402
19,048
20,265
8,110
6,236
10,978
9,736
6,429
4,554
3,500
2,734
9,565
3,882
9,565
28,800
28,800
23,664
17,775
21,597
19,352
23,323
23,344
20,045
10,073
19,564
17,176
27,900
5,785
27,911
23,341
23,150
21,508
340,340
271,236
265,067
197,584
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000
1,000
1,000
1,000
1,000
402,818
365,202
381,107
372,113
270,673
241,611
294,446
1,000
297,749
1,000
288,119
1,000
1,000
253,668
263,898
1,000
253,668
9%
0%
31%
27%
0%
0%
0%
0%
40%
35%
19%
26%
4.75%
4.49%
5.01%
5.45%
3.01%
2.58%
3.74%
3.27%
2.24%
1.80%
1.33%
1.00%
1,000
348,465
36%
2.75%
34%
36%
31%
90%
12%
5.25%
2.75%
1.35%
0.00%
0.00%
1,000
1,000
73,950
348,593
3,882
1,000
253,668
-
-
1,000
310,656
1,000
269,618
150,549
10,000
4,899,098
131,241
10,000
3,918,170
120,437
105,103
9,000
8,000
3,891,179
2,985,601
2,962,613
509,602
71,842
2,740,811
724,013
-
32,853
2,160,918
480,518
71,842
30,403
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
7
Remuneration report
7.2 Directors’ and executive officers’ remuneration (Company and Consolidated)
Notes in relation to the table of directors’ and executive officers remuneration
A. The short-term incentive bonus is for performance during the respective financial year using the criteria set out in
section 7.1
B. The options granted during the year expire on 31 January 2011 and each option entitles the holder to purchase one
ordinary share in the Company. The ability to exercise the options is conditional on the Group achieving certain
performance hurdles. For all options granted prior to 2008, once the option is exercised, the holder was restricted
from selling the shares for a period of three years.
The fair value of options granted to executive Directors and senior executives included above is calculated at the
grant date using the valuation methodology set out in Division 13A of the Income Tax Assessment Act, 1936. This
method has been adopted, as other methods do not reflect the number of conditions that must be met under the
plan, including those applying after the shares have been allocated. Further details of options granted during the
year are set out below.
Details of performance related remuneration
Details of the Group’s policy in relation to the proportion of remuneration that is performance related is discussed in
section 7.1
7.3 Analysis of bonuses included in remuneration
Short-term benefits are generally based on a percentage of the relevant business unit earnings before interest and tax.
Short-term incentive cash bonuses awarded as remuneration to any Director of the Company and each of the five
named Company executives and relevant group executives are detailed in the remuneration tables above.
15
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
7
Remuneration report
7.4 Equity instruments
All options refer to options over ordinary shares of Hills Industries Limited, which are exercisable on a one-for- one
basis under the Executive Share plan.
7.4.1 Options and rights over equity instruments granted as compensation
Details on options over ordinary shares in the Company that were granted as compensation to each key management
person during the reporting period and details on options that were vested during the reporting period are as follows:
Number of
options
granted during
2008
Fair value per
Exercise price
Grant date
option at grant
per option
date ($)
($)
Expiry date
Number of
options vested
during 2008
100,000
60,000
28/2/2008
28/2/2008
0.1867
0.1867
5.49
5.49
31 Jan 2031
31 Jan 2031
60,000
60,000
60,000
30,000
25,000
28/2/2008
28/2/2008
28/2/2008
28/2/2008
28/2/2008
0.1867
0.1867
0.1867
0.1867
0.1867
5.49
5.49
5.49
5.49
5.49
31 Jan 2031
31 Jan 2031
31 Jan 2031
31 Jan 2031
31 Jan 2031
-
-
-
-
-
-
-
Directors
DJ Simmons
GL Twartz
Executives
L Andrewartha
S Cope
R Gros
J Easling
A Muir
No options have been granted since the end of the financial year. The options were provided at no cost to the
recipients.
All options expire on the earlier of their expiry date or termination of the individual’s employment. The options are
exercisable three years from grant date for the options issued in 2008, or two years from grant date for options issued
prior to 2008. In addition to a continuing employment service condition, the ability to exercise options is conditional on
the Group achieving certain performance hurdles. Details of the performance criteria are included in the long-term
incentives discussion in section 6.1. For options granted in the current year, the earliest exercise date is 31 January
2011.
7.4.2 Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including options and rights granted as compensation to
a key management person) have been altered or modified by the issuing entity during the reporting period or the prior
period.
7.4.3 Exercise of options granted as compensation
During the reporting period, no shares were issued on the exercise of options previously granted as compensation to
key management personnel.
16
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
7
Remuneration report
7.4 Equity instruments
7.4.4 Analysis of options over equity instruments granted as compensation
Details of vesting profile of the options granted as remuneration to each key management person of the Group and
each of the five named Company executives and Group executives are detailed below.
Options granted
Financial years
% vested
% forfeited in
in which option
Directors
D J Simmons
G L Twartz
Executives
A R Oliver
L Andrewartha
J Easling
A Muir
D Walker
R Meachem
R Gros
Number
80,000
100,000
100,000
60,000
60,000
60,000
45,000
45,000
25,000
60,000
60,000
60,000
30,000
30,000
30,000
25,000
25,000
25,000
10,000
10,000
20,000
10,000
25,000
25,000
60,000
60,000
Date
Feb 06
Feb 07
Feb 08
Feb 06
Feb 07
Feb 08
Feb 06
Feb 07
Feb 08
Feb 06
Feb 07
Feb 08
Feb 06
Feb 07
Feb 08
Feb 06
Feb 07
Feb 08
Feb 06
Feb 07
Feb 08
Feb 06
Feb 07
Feb 08
Feb 07
Feb 08
in year
-
-
-
-
-
-
year (A)
100%
100%
100%
100%
-
-
vests
30 June 2008
30 June 2009
30 June 2011
30 June 2008
30 June 2009
30 June 2011
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
-
-
100%
-
-
100%
-
-
100%
-
-
100%
-
-
100%
-
-
-
-
30 June 2008
30 June 2009
30 June 2011
30 June 2008
30 June 2009
30 June 2011
30 June 2008
30 June 2009
30 June 2011
30 June 2008
30 June 2009
30 June 2011
30 June 2008
30 June 2009
30 June 2011
30 June 2008
30 June 2009
30 June 2011
30 June 2009
30 June 2011
(A)
The % forfeited in the year represents the reduction from the maximum number of options available to vest due
to the highest-level performance criteria as well as options that have lapsed due to termination of employment.
17
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
7
Remuneration report
7.4 Equity instruments
7.4.5 Analysis of movements in options
The movement during the reporting period, by value, of options over ordinary shares in the Company held by each key
management person, and each of the five named Company executives and Group executives is detailed below.
D J Simmons
G L Twartz
A R Oliver
L Andrewartha
J Easling
D Walker
R Meachem
R Gros
A Muir
Value of Options
Lapsed/forfeited
Granted in year
Exercised in year
$ (A)
18,670
11,202
11,202
11,202
5,601
3,734
4,668
11,202
4,668
82,149
$ (B)
-
-
-
-
-
-
-
-
-
-
in year
$ (C)
115,324
33,618
25,214
33,618
16,809
5,603
5,603
-
14,008
249,797
(A)
(B)
(C)
The value of options granted in the year is the fair value of the options calculated at grant date using the
method described above. The total value of the options granted is included in the table above. This amount is
allocated to remuneration over the vesting period.
The value of options exercised during the year is calculated as the market price of shares of the Company as at
close of trading on the date the options were exercised after deducting the price paid to exercise the option.
The value of the options that lapsed/forfeited during the year represents the benefit forgone and is calculated at
the date the option lapsed using the method described above assuming the performance criteria had been
achieved. The options issued in February 2006 lapsed during the year.
7.5 Payments to persons before taking office
There were no payments to persons before taking office.
18
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
8.
Principal activities
The principal activities of the Group during the course of the year are outlined in section 1 of the Directors’ Report
within the Overview of the Group.
Objectives
The Group’s objectives are to:
increase net profit available to shareholders;
increase earnings per share;
•
•
• maintain the current dividend policy; and
•
improve the retention rate of our outstanding people resources.
In order to meet theses objectives the following targets have been set for the 2009 financial year and beyond:
•
•
•
•
•
•
increase revenue and operating activities;
reduce operating costs;
consider further strategic acquisitions;
continue to improve our safety performance;
continue to source cost effective supplies; and
further develop our employees.
9
Dividends
Dividends paid or declared by the Company to members since the end of the previous financial year were:
Cents per share
Total amount $’000 Franked/ unfranked
Date of payment
Declared and paid during the year
2008
Interim 2008 ordinary
Interim dividend forgone for Share
Investment Plan
Final 2007 ordinary
Final dividend forgone for Share
Investment Plan
Total amount
13.5
14.0
23,579
(3,390)
24,201
(3,779)
40,611
Franked
31 March 2008
Franked
24 September 2007
Franked dividends declared as paid during the year were franked at the rate of 30 per cent.
Declared after end of year
After the balance sheet date the directors proposed the following dividends. The dividends have not been provided and
there are no income tax consequences.
In thousands of AUD
Final ordinary
Total amount
Cents per share
Total amount
14.0
26,154
26,154
Franked/
un-franked
Franked
Date of payment
29 September 2008
The financial effect of these dividends has not been brought to account in the financial statements for the year ended
30 June 2008 and will be recognised in subsequent financial reports. For more information regarding dividends please
refer to note 22.
19
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
11 Events subsequent to reporting date
There has not arisen in the interval between the end of the financial year and the date of this report any item,
transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect
significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future
financial years.
12. Likely developments
For likely developments please refer to the review of operations in section 1 of the Directors’ report.
Further information about likely developments in the operations of the Group and the expected results of those
operations in future financial years has not been included in this report because disclosure of the information would be
likely to result in unreasonable prejudice to the Group.
13. Directors’ interests
The relevant interest of each director in the shares, debentures, interests in registered schemes and rights or options
over such instruments issued by the companies within the Group and other related bodies corporate, as notified by the
directors to the Australian Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date
of this report is as follows:
Hills Industries Limited
J H Hill-Ling *
DJ Simmons
I Elliot
RB Flynn
GG Hill
PW Stancliffe
GL Twartz
Ordinary shares
15,336,811
369,898
1,000
26,296
76,056
12,121
207,100
Options over ordinary
shares
-
-
-
-
-
-
120,000
* Includes 1,057,001 shares owned by Hills Associates Ltd & Poplar Pty Ltd and 12,454,632 owned by Hills Associates
Ltd of which J H Hill-Ling is a Director
20
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
14. Share options
Options granted to directors and officers of the Company
During the financial year, the Company granted options for no consideration over unissued ordinary shares in the
Company to the following directors and to the following of the five most highly remunerated officers of the Company as
part of their remuneration:
Directors
DJ Simmons
GL Twartz
Executives
L Andrewatha
J Easling
A Muir
S Cope
R Gros
Number of options
granted
Exercise price
Expiry date
100,000
60,000
60,000
30,000
25,000
60,000
60,000
5.49
5.49
5.49
5.49
5.49
5.49
5.49
31 Jan 2031
31 Jan 2031
31 Jan 2031
31 Jan 2031
31 Jan 2031
31 Jan 2031
31 Jan 2031
All options were granted during the financial year. No options have been granted since the end of the financial year.
Unissued shares under options
At the date of this report unissued ordinary shares of the Company under option in accordance with the accounting
standards are:
Expiry date
January 2023
January 2024
January 2025
January 2026
January 2027
January 2028
January 2029
January 2031
Exercise price
$2.50
$2.90
$3.23
$3.66
$4.16
$4.83
$5.53
$5.49
Number of shares
120,000
133,000
210,000
260,000
340,000
-
465,000
515,000
2,043,000
All options expire on the earlier of their expiry date or termination of the employee’s employment. In addition, the
ability to exercise the options is conditional on the Group achieving certain performance hurdles. The performance
hurdles comprise two components, relative total shareholder return and growth in earnings per share. Further details
are included in the Remuneration Report.
These options do not entitle the holder to participate in any share issue of the Company or any other body corporate.
Shares issued on exercise of options
During or since the end of the financial year, the Company has not issued ordinary shares as a result of the exercise of
options.
21
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
15.
Indemnification and insurance of officers and auditors
Indemnification
The Company has agreed to indemnify the Directors and officers of the Company against all liabilities to another person
(other than the Company or a related body corporate) that may arise from their position as Directors of the Company
and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The
agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses.
The Company has also agreed to indemnify the current Directors of its controlled entities for all liabilities to another
person (other than the Company or a related body corporate) that may arise from their position, except where the
liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the
full amount of any such liabilities, including costs and expenses.
Insurance premiums
Since the end of the previous financial year the Company has paid insurance premiums in respect of Directors’ and
officers’ liability and legal expenses’ insurance contracts, for current and former Directors and officers, including senior
executives of the Company and Directors, senior executives and secretaries of its controlled entities. The insurance
premiums relate to:
•
•
costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and
whatever their outcome; and
other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of
duty or improper use of information or position to gain a personal advantage.
The Directors have not included details of the nature of the liabilities covered or the amount of the premiums paid in
respect of the Directors’ and officers’ liability and legal expenses’ insurance contracts as such disclosure is prohibited
under the terms of the contracts.
16. Non-audit services
During the year KPMG, the Company’s auditor, has performed certain other services in addition to their statutory
duties.
The board has considered the non-audit services provided during the year by the auditor and in accordance with written
advice provided by resolution of the audit and compliance committee, is satisfied that the provision of those non-audit
services during the year by the auditor are compatible with, and did not compromise, the auditor independence
requirements of the Corporations Act 2001 for the following reasons:
all non-audit services were subject to the corporate governance procedures adopted by the Company and have
been reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor; and
the non-audit services provided do not undermine the general principles relating to auditor independence as set out
in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the
auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate
for the Company or jointly sharing risks and rewards.
•
•
22
Hills Industries Limited 30 June 2008 Annual Financial Report
Directors’ report
For the year ended 30 June 2008
16. Non-audit services (continued)
Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit
services provided during the year are set out below. In addition, amounts paid to other auditors for the statutory audit
have been disclosed:
Audit services:
Auditors of the Company:
Audit and review of financial reports (KPMG Australia)
Audit and review of financial reports (Overseas KPMG firms)
Other auditors:
Audit and review of financial reports (non-KPMG firms)
Services other than statutory audit:
Other services
Taxation compliance services (KPMG Australia)
Taxation compliance services (Overseas KPMG firms)
Consolidated
2008
$
2007
$
377,000
41,004
418,004
3,030
3,030
134,020
26,582
160,602
350,000
53,186
403,186
12,383
12,383
122,022
12,678
134,700
17. Lead auditor’s independence declaration
The Lead auditor’s independence declaration is set out on page 99 and forms part of the directors’ report for financial
year ended 30 June 2008.
18. Rounding off
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class
Order, amounts in the financial report and directors’ report have been rounded off to the nearest thousand dollars,
unless otherwise stated.
This report is made with a resolution of the directors:
______________________________________________
J H Hill-Ling
Director
______________________________________________
G L Twartz
Director
Dated at Adelaide this 12th day of September 2008.
23
Hills Industries Limited 30 June 2008 Annual Financial Report
Income statements
For the year ended 30 June 2008
In thousands of AUD
Continuing operations
Revenue
Other income
Expenses excluding net financing costs
Results from operating activities
Finance income
Finance expenses
Net finance expense
Profit before income tax
Income tax expense
Profit for the period
Attributable to:
Equity holders of the Company
Minority interest
Profit for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Dividends per share
Ordinary shares paid
Final and interim dividend for the year ended 30
June
Consolidated
Company
Note
2008
2007
2008
2007
8
9
10
6
12
12
13
22
23
23
22
22
1,184,737
10,384
1,195,121
1,013,999
2,372
1,016,371
342,182
13,503
355,685
295,930
9,034
304,964
(1,112,247)
(934,098)
(285,695)
(271,741)
82,874
82,273
69,990
33,223
781
(15,155)
(14,374)
716
(9,821)
(9,105)
4,898
(15,733)
(10,835)
3,923
(10,671)
(6,748)
68,500
73,168
59,155
26,475
(16,140)
(21,126)
(5,397)
(5,418)
52,360
52,042
53,758
21,057
46,807
5,553
52,360
47,173
4,869
52,042
53,758
-
53,758
21,057
-
21,057
26.6¢
26.4¢
27.6¢
27.6¢
27.5¢
26.5¢
27.5¢
27.5¢
The notes on pages 28 to 95 are an integral part of these consolidated financial statements.
24
Hills Industries Limited 30 June 2008 Annual Financial Report
Balance sheets
As at 30 June 2008
In thousands of AUD
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Non-current assets classified as held for sale
Total Current Assets
Non-Current Assets
Receivables
Investments
Deferred tax assets
Property, plant and equipment
Intangible assets
Total Non-Current Assets
Total Assets
Liabilities
Bank overdraft
Trade and other payables, including derivatives
Loans and borrowings
Employee benefits
Current tax payable
Provisions
Total Current liabilities
Non-Current Liabilities
Loans and borrowings
Employee benefits
Provisions
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total Equity attributable to equity holders of the
Company
Minority interest
Total Equity
Consolidated
Company
Note
2008
2007
2008
2007
21
18
17
20
18
19
16
14
15
6
21
28
24
25
16
27
24
25
27
6
22
22
22
22
21,549
244,761
180,341
-
446,651
27,434
172,655
175,507
15,946
391,542
17,285
2
16,403
226,424
114,162
374,276
820,927
-
2
30,811
173,157
111,369
315,339
706,881
239
139,921
5,952
26,716
4,317
5,544
182,689
511
133,947
1,593
25,741
12,742
7,099
181,633
203,497
4,961
263
208,721
391,410
429,517
171,582
4,574
328
176,484
358,117
348,764
223,091
51,369
133,759
178,031
26,077
127,618
408,219
331,726
21,298
429,517
17,038
348,764
1,000
292,989
41,559
-
335,548
5,940
151,968
2,518
88,322
-
248,748
584,296
8,513
54,005
10,292
9,113
2,957
4,922
89,802
203,498
4,371
-
207,869
297,671
286,625
223,091
33,575
29,959
286,625
-
286,625
3,177
224,503
37,565
6,209
271,454
-
151,212
13,849
55,076
-
220,137
491,591
-
77,879
4,125
8,595
11,833
4,474
106,906
171,498
4,300
-
175,798
282,704
208,887
178,031
14,044
16,812
208,887
-
208,887
The notes on pages 28 to 95 are an integral part of these consolidated financial statements.
25
Hills Industries Limited 30 June 2008 Annual Financial Report
Statements of recognised income and expense
For the year ended 30 June 2008
In thousands of AUD
Consolidated
Company
Note
2008
2007
2008
2007
Foreign currency translation differences for foreign
operations
Gain on revaluation of land and buildings
Deferred income tax on revaluation
Income and expense recognised directly in equity
(2,340)
40,561
(11,966)
26,255
1,442
-
-
1,442
-
28,877
(9,418)
19,459
-
-
-
-
Profit for the period
52,360
52,042
53,758
21,057
Total recognised income and expense for the
period
Attributable to:
Equity holders of the Company
Minority interest
Total recognised income and expense for the
period
22
22
22
78,615
53,484
73,217
21,057
71,968
6,647
48,615
73,217
21,057
4,869
-
-
78,615
53,484
73,217
21,057
The notes on pages 28 to 95 are an integral part of these consolidated financial statements.
26
Hills Industries Limited 30 June 2008 Annual Financial Report
Statements of cash flows
For the year ended 30 June 2008
In thousands of AUD
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest received
Interest paid
Dividends received
Income taxes paid
Net cash from (used in) operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Proceeds from disposal of asset held for sale
Proceeds from sale of investments
Disposal of subsidiaries
Acquisition of subsidiaries (net of cash acquired)
Acquisition of business operations (net of cash
acquired)
Acquisition of property, plant and equipment
Acquisition of intangible assets
Loans to other entities
Loans to controlled entities
Rent received
Net cash from (used in) investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Proceeds from borrowings
Repayment of borrowings
Repayment of borrowings to controlled entities
Dividends paid by the company
Dividends paid to minority interest
Net cash from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 July
Effect of exchange rate fluctuations on cash held
Consolidated
Company
Note
2008
2007
2008
2007
1,236,662
(1,205,856)
30,806
781
(15,143)
1
(22,459)
(6,014)
1,132,806
(1,059,403)
73,403
716
(10,585)
-
(16,712)
46,822
306,008
(276,757)
29,251
4,898
(15,733)
1
(16,289)
2,128
328,473
(299,784)
28,689
3,923
(11,441)
6,400
(8,730)
18,841
840
3,500
-
-
(356)
(7,097)
(35,366)
-
(285)
-
836
(37,928)
44,860
40,101
(3,827)
-
(40,611)
(2,387)
38,136
(5,806)
26,923
193
4,502
-
-
526
(86)
(11,422)
(38,459)
(176)
(297)
-
787
(44,625)
10,206
44,901
(3,469)
-
(37,322)
(2,343)
11,973
14,170
12,804
(51)
84
3,500
-
-
(356)
-
(10,018)
-
(285)
(50,095)
3,103
(54,067)
44,860
37,000
-
-
(40,611)
-
41,249
(10,690)
3,177
-
309
-
(8,603)
-
(86)
-
-
-
(297)
(11,613)
2,498
(17,792)
10,206
41,502
(560)
(6,906)
(37,322)
-
6,920
7,969
(4,813)
21
21b
7
7
7
22
22
22
Cash and cash equivalents at 30 June
21(a)
21,310
26,923
(7,513)
3,177
The notes on pages 28 to 95 are an integral part of these consolidated financial statements.
27
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
1.
Reporting entity
Hills Industries Limited (the “Company”) is a company domiciled in Australia. The address of the Company’s
registered office is 944-956 South Road Edwardstown SA 5039. The consolidated financial statements of the
Company as at and for the year ended 30 June 2008 comprise the Company and its subsidiaries (together
referred to as the “Group” and individually as “Group entities”). The Group primarily is involved in manufacturing
and distribution businesses as detailed in note 6.
2.
Basis of preparation
(a)
Statement of compliance
The financial report is a general purpose financial report that has been prepared in accordance with
Australian Accounting Standards (AASBs) (including Australian Interpretations) adopted by the Australian
Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial report of
the Group and the financial report of the Company comply with International Financial Reporting
Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB).
The Board of Directors approved the financial statements on 12 September 2008.
(b)
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for the
following:
•
•
The methods used to measure fair values are discussed further in note 4.
financial instruments at fair value through profit or loss are measured at fair value
land and buildings are measured at fair value.
(c)
Functional and presentation currency
These consolidated financial statements are presented in Australian dollars, which is the Company’s
functional currency and the functional currency of the majority of the Group.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance
with that Class Order, all financial information presented in Australian dollars has been rounded to the
nearest thousand unless otherwise stated.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised and in any future periods
affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in
applying accounting policies that have the most significant effect on the amount recognised in the
financial statements are described in the following notes:
•
•
•
•
note 7 – business combinations
note 15 – measurement of the recoverable amounts of cash-generating units containing goodwill
note 26 – measurement of share-based payments
note 27 and 32 – provisions and contingencies
28
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements, and have been applied consistently by Group entities.
The Company and Group have not elected to early adopt any accounting standards or amendments:
(a) Basis of consolidation
(i)
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to
govern the financial and operating policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that currently are exercisable are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from
the date that control commences until the date that control ceases. The accounting policies of
subsidiaries have been changed when necessary to align them with the policies adopted by the
Group.
In the Company’s financial statements, investments in subsidiaries are carried at cost, less any
impairment charges.
(ii)
Transactions eliminated on consolidation
Intra-group balances, and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements.
(b) Foreign currency
(i)
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group
entities at exchange rates at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are retranslated to the functional currency
at the foreign exchange rate at that date. Non-monetary assets and liabilities denominated in
foreign currencies that are measured at fair value are retranslated to the functional currency at the
exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities
that are measured in terms of historical cost are translated using the exchange rate at the date of
the transaction. Foreign currency differences arising on retranslation are recognised in profit or
loss.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising
on acquisition, are translated to Australian dollars at exchange rates at the reporting date. The
income and expenses of foreign operations are translated to Australian dollars at exchange rates
at the dates of the transactions.
Foreign currency differences are recognised directly in equity. Since 1 July 2004, the Group’s date
of transition to AASBs, such differences have been recognised in the foreign currency translation
reserve (FCTR). When a foreign operation is disposed of, in part or in full, the relevant amount in
the FCTR is transferred to profit or loss.
29
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(c)
Financial instruments
(i) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity securities, trade and other
receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at
fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial
recognition non-derivative financial instruments are measured as described below.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows
from the financial assets expire or if the Group transfers the financial asset to another party without
retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales
of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to
purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in
the contract expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are
repayable on demand and form an integral part of the Group’s cash management are included as a
component of cash and cash equivalents for the purpose of the statement of cash flows.
Accounting for finance income and expense is discussed in note 3(n).
Financial assets at fair value through profit or loss
An instrument is classified as at fair value through profit or loss if it is held for trading or is
designated as such upon initial recognition. Financial instruments are designated at fair value
through profit or loss if the Group manages such investments and makes purchase and sale
decisions based on their fair value in accordance with the Group’s documented risk management
or investment strategy. Upon initial recognition, attributable transaction costs are recognised in
profit or loss when incurred. Financial instruments at fair value through profit or loss are measured
at fair value, and changes therein are recognised in profit or loss.
Other
Other non-derivative financial instruments are measured at amortised cost using the effective
interest method, less any impairment losses.
(ii) Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of
ordinary shares and share options are recognised as a deduction from equity, net of any tax
effects.
Dividends
Dividends are recognised as a liability in the period in which they are declared.
30
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(d)
Property, plant and equipment
(i)
Land and Buildings
Land and buildings are stated at fair value. Land and buildings are independently valued at least
every four years on basis of open market values, and in the intervening years are valued by the
Directors based on the most recent independent valuation. Building improvements are carried at
cost and depreciated over the life of the building.
Increases in the carrying amounts arising on revaluation of land and buildings are credited to the
asset revaluation reserve. To the extent that the increase reverses a decrease previously
recognised in profit or loss, for an asset the increase is recognised in profit or loss. Decreases
that reverse previous increases for the same asset are first charged against the asset revaluation
reserve to the extent of the remaining reserve attributable to the asset; all other decreases are
charged directly to the income statement.
(ii) Plant and Equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and
impairment losses
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of
self-constructed assets includes the cost of materials and direct labour, any other costs directly
attributable to bringing the asset to a working condition for its intended use, and the costs of
dismantling and removing the items and restoring the site on which they are located.
Purchased software that is integral to the functionality of the related equipment is capitalised as
part of that equipment. Borrowing costs related to the acquisition or construction of qualifying
assets are recognised in profit or loss as incurred.
When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and equipment
and are recognised net within “other income” in profit or loss. When revalued assets are sold, the
amounts included in the revaluation reserve are transferred to retained earnings.
31
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(d)
Property, plant and equipment (continued)
(iii) Subsequent costs
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying
amount of the item if it is probable that the future economic benefits embodied within the part will
flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part
is derecognised. The costs of the day-to-day servicing of property, plant and equipment are
recognised in profit or loss as incurred.
(iv) Depreciation
Depreciation is recognised in profit or loss over the estimated useful lives of each part of an item
of property, plant and equipment, excluding land, taking into account estimated residual values.
The diminishing value, straight line or units of production method is used as considered appropriate
The estimated rates of depreciation for the current and comparative periods are as follows:
•
•
•
buildings
plant and equipment
leasehold improvements
0.75%
5.00% to 33.33%
20.00% to 33.33%
Depreciation methods, useful lives and residual values are reviewed at each reporting date. When
changes are made, adjustments are reflected prospectively in current and future reporting periods
only.
(e)
Intangible assets
(i) Goodwill
Goodwill arises on the acquisition of subsidiaries and business operations.
Acquisitions prior to 1 July 2004
As part of its transition to AASBs, the Group elected to restate only those business combinations
that occurred on or after 1 July 2004. In respect of acquisitions prior to 1 July 2004, goodwill
represents the amount recognised under the Group’s previous accounting framework, Australian
GAAP.
32
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(e)
Intangible assets (continued)
(i) Goodwill (continued)
Acquisitions on or after 1 July 2004
For acquisitions on or after 1 July 2004, goodwill represents the excess of the cost of the
acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is
recognised immediately in profit or loss.
Acquisitions of minority interests
Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of
the cost of the additional investment over the carrying amount of the net assets acquired at the
date of exchange.
Subsequent measurement
Goodwill is measured at cost less any accumulated impairment losses.
(ii) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or
technical knowledge and understanding, is recognised in profit or loss when incurred.
Development activities involve a plan or design for the production of new or substantially improved
products and processes. Development expenditure is capitalised only if development costs can be
measured reliably, the product or process is technically and commercially feasible, future
economic benefits are probable, and the Group intends to and has sufficient resources to complete
development and to use or sell the asset. The expenditure capitalised includes the cost of
materials, direct labour and overhead costs that are directly attributable to preparing the asset for
its intended use. Borrowing costs related to the development of qualifying assets are recognised
in profit or loss as incurred. Other development expenditure is recognised in profit or loss as
incurred.
Capitalised development expenditure is measured at cost less accumulated amortisation and
accumulated impairment losses.
(iii) Other intangible assets
Other intangible assets that are acquired by the Group, which have finite useful lives, are
measured at cost less accumulated amortisation and accumulated impairment losses.
(iv) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure, including expenditure on
internally generated goodwill and brands, is recognised in profit or loss as incurred.
(v) Amortisation
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives
of intangible assets, other than goodwill, from the date that they are available for use. The
estimated useful lives for the current and comparative periods are as follows:
•
•
patents and trademarks
capitalised development costs
10 to 20 years
20 years
33
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(f) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are
classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to
the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial
recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognised on the Group’s balance
sheet.
(g)
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based
on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production
or conversion costs and other costs incurred in bringing them to their existing location and condition. In
the case of manufactured inventories and work in progress, cost includes an appropriate share of
production overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses.
(h)
Impairment
(i)
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective
evidence that it is impaired. A financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the estimated future cash flows
of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the
difference between its carrying amount, and the present value of the estimated future cash flows
discounted at the original effective interest rate
Individually significant financial assets are tested for impairment on an individual basis. The
remaining financial assets are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognised in profit or loss. An impairment loss is reversed if the
reversal can be related objectively to an event occurring after the impairment loss was recognised.
For financial assets measured at amortised cost the reversal is recognised in profit or loss.
34
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(h)
Impairment (continued)
(ii) Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax
assets, are reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists then the asset’s recoverable amount is estimated. For
goodwill and intangible assets that have indefinite lives or that are not yet available for use,
recoverable amount is estimated at each reporting date.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and
its fair value less costs to sell. 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. For the purpose of
impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets
or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination,
for the purpose of impairment testing, is allocated to cash-generating units that are expected to
benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment
losses recognised in respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the units and then to reduce the carrying amount of the other
assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment
losses recognised in prior periods are assessed at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is reversed only
to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.
35
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(i) Non-current assets held for sale
Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be
recovered primarily through sale rather than through continuing use are classified as held for sale.
Immediately before classification as held for sale, the assets (or components of a disposal group) are
remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets (or
disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any
impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and
liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax
assets, employee benefit assets, investment property and biological assets, which continue to be
measured in accordance with the Group’s accounting policies. Impairment losses on initial classification
as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains
are not recognised in excess of any cumulative impairment loss.
(j)
Employee benefits
(i)
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution plans are recognised as a personnel
expense in profit or loss when they are due. Prepaid contributions are recognised as an asset to
the extent that a cash refund or a reduction in future payments is available.
(ii) Long-term employee benefits
The Group’s net obligation in respect of long-term service benefits is the amount of future benefit
that employees have earned in return for their service in the current and prior periods. The
obligation is calculated using expected future increases in wage and salary rates, including related
on-costs and expected settlement dates, and is discounted using the rates attached to the
Commonwealth Government bonds at the balance sheet date which have maturity dates
approximating to the terms of the Group’s obligations.
36
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(j)
Employee benefits (continued)
(v)
Short-term benefits
Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present
obligations resulting from employees’ services provided to reporting date and are calculated at
undiscounted amounts based on remuneration wage and salary rates that the Group expects to
pay as at reporting date including related on-costs, such as workers compensation insurance and
payroll tax. Non-accumulating non-monetary benefits, such as medical care, housing, cars and
free or subsidised goods and services, are expensed based on the net marginal cost to the Group
as the benefits are taken by the employees.
A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-
sharing plans if the Group has a present legal or constructive obligation to pay this amount as a
result of past service provided by the employee and the obligation can be estimated reliably.
(vi) Share-based payment transactions
The grant date fair value of options granted to employees is recognised as an employee expense,
with a corresponding increase in equity, over the period that the employees become
unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect
the actual number of share options that vest, except for those that fail to vest due to market
conditions not being met.
Employee Share Bonus Plan
The Employee Share Bonus Plan allows Group employees to acquire shares of the Company.
Shares are allotted to employees who have served a qualifying period. Up to $1,000 per year in
shares is allotted to each qualifying employee. The fair value of shares issued is recognised as an
employee expense with a corresponding increase in equity. The fair value of the shares granted is
measured using a present value method.
Executive Share Plan
The Executive Share Plan allows Group employees to acquire shares of the Company. The fair
value of options granted is recognised as an employee expense with a corresponding increase in
equity. The fair value is measured at grant date and spread over the period during which the
employees become unconditionally entitled to the options. The valuation method takes into
account the exercise price of the option, the life of the option, the current price of the underlying
shares, the expected volatility of the share price, the dividends expected of the shares and the
risk-free interest rate for the life of the option.
(k)
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be
required to settle the obligation. Provisions are determined by discounting the expected future cash flows
at a pre-tax rate that reflects current market assessments of the time value of money and the risks
specific to the liability.
(i)
Claims
A provision for claims is the estimated future liability of the Group’s self-insurance arrangements.
The value of the provision is determined in consultation with the company’s actuaries or legal
advisers as appropriate. Claims estimate is based on historical claims data and a weighting of the
possible outcomes against their associated probabilities. Outstanding claims are recognised for
incidences that have occurred that may give rise to a claim and are measured at the cost that the
entity expects to incur in settling the claims, discounted using a Commonwealth government bond
rate with a maturity date approximating the terms of the Group’s obligations.
37
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(k)
Provisions (continued)
(ii)
Provision for contingent consideration
Provision is made for contingent consideration payable on the acquisition of businesses and
controlled entities where the consideration is payable in the future subject to certain performance
measures and those measures are considered likely to be met. The estimated consideration
payable is discounted and the expiration of the discount is recognised as interest expense.
Subsequent changes to estimates of contingent consideration are adjusted against the purchase
price and goodwill in the period identified.
(l)
Revenue
(i) Goods sold
Revenue from the sale of goods is measured at the fair value of the consideration received or
receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when the
significant risks and rewards of ownership have been transferred to the buyer, recovery of the
consideration is probable, the associated costs and possible return of goods can be estimated
reliably, there is no continuing management involvement with the goods and the amount of
revenue can be measured reliably.
(ii)
Services
Revenue from services rendered is recognised in profit or loss in proportion to the stage of
completion of the transaction at the reporting date. The stage of completion is assessed by
reference to surveys of work performed.
(v)
Rental income
Rental income from investment property is recognised in profit or loss on a straight-line basis over
the term of the lease. Lease incentives granted are recognised as an integral part of the total
rental income, over the term of the lease.
(m) Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the
term of the lease. Lease incentives received are recognised as an integral part of the total lease
expense, over the term of the lease.
38
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(n) Finance income and expense
Finance income comprises interest income on funds invested and dividend income. Interest income is
recognised as it accrues in profit or loss and dividend income is recognised in profit or loss on the date
that the Group’s right to receive payment is established
Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions and
foreign currency losses. All borrowing costs are recognised in profit or loss using the effective interest
method.
Foreign currency gains and losses are reported on a net basis.
(o)
Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or
loss except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial
recognition of assets or liabilities in a transaction that is not a business combination and that affects
neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly
controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In
addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition
of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted by
the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset current tax liabilities and assets and they relate to income taxes levied by the same tax authority
on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and
assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be
available against which the temporary difference can be utilised. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as
the liability to pay the related dividend is recognised.
39
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(o)
Income tax (continued)
(i)
Tax consolidation
The Company and its wholly-owned Australian resident entities formed a tax-consolidated group
with effect from 1 July 2003. As a consequence, all members of the tax-consolidated group are
taxed as a single entity from that date. The head entity within the tax-consolidated group is Hills
Industries Limited.
Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary
differences of the members of the tax-consolidated group are recognised in the separate financial
statements of the members of the tax-consolidated group using the “separate taxpayer within
group” approach by reference to the carrying amounts of assets and liabilities in the separate
financial statements of each entity and the tax values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the
subsidiaries is assumed by the head entity in the tax-consolidated group and are recognised by
the Company as amounts payable/(receivable) to/(from) other entities in the tax-consolidated
group in conjunction with any tax funding arrangement amounts (refer below). Any difference
between these amounts is recognised by the Company as an equity contribution or distribution.
The Company recognises deferred tax assets arising from unused tax losses of the tax-
consolidated group to the extent that it is probable that future taxable profits of the tax-
consolidated group will be available against which the asset can be utilised.
Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a
result of revised assessments of the probability of recoverability is recognised by the head entity
only.
(ii) Nature of tax funding arrangements and tax sharing arrangements
The head entity, in conjunction with other members of the tax-consolidated group, has entered into
a tax funding arrangement that sets out the funding obligations of members of the tax-
consolidated group in respect of tax amounts. The tax funding arrangements require payments
to/from the head entity equal to the current tax liability/(asset) assumed by the head entity and
any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity
recognising an inter-entity receivable/(payable) equal in amount to the tax liability/(asset)
assumed. The inter-entity receivable/(payable) is at call.
Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and
reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant
tax authorities.
The head entity in conjunction with other members of the tax-consolidated group, has also entered
into a tax sharing agreement. The tax sharing agreement provides for the determination of the
allocation of income tax liabilities between the entities should the head entity default on its tax
payment obligations. No amounts have been recognised in the financial statements in respect of
this agreement as payment of any amounts under the tax sharing agreement is considered
remote.
(p) Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST),
except where the amount of GST incurred is not recoverable from the taxation authority. In these
circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the
expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST
recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.
40
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash
flows arising from investing and financing activities that are recoverable from, or payable to, the ATO are
classified as operating cash flows.
41
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(q) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is
calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by
adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of
ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share
options granted to employees.
(r) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing related
products or services (business segment), or in providing products or services within a particular
economic environment (geographical segment), which is subject to risks and rewards that are different
from those of other segments. Segment information is presented in respect of the Group’s business and
geographical segments. The Group’s primary format for segment reporting is based on business
segments. The business segments are determined based on the Group’s management and internal
reporting structure.
Inter-segment pricing is determined on an arm’s length basis.
Segment results, assets and liabilities include items directly attributable to a segment as well as those
that can be allocated on a reasonable basis. Unallocated items comprise mainly investments (other than
investment property) and related revenue, loans and borrowings and related expenses, corporate assets
(primarily the Company’s headquarters) and head office expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and
equipment, and intangible assets other than goodwill.
(s) New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations have been identified as those
which may impact the entity in the period of initial application. They are available for early adoption at 30
June 2008, but have not been applied in preparing this financial report:
•
Revised AASB 3 Business Combinations changes the application of acquisition accounting for
business combinations and the accounting for non-controlling (minority) interests. Key changes
include: the immediate expensing of all transaction costs; measurement of contingent consideration
at acquisition date with subsequent changes through the income statement; measurement of non-
controlling (minority) interests at full fair value or the proportionate share of the fair value of the
underlying net assets; guidance on issues such as reacquired rights and vendor indemnities; and
the inclusion of combinations by contract alone and those involving mutuals. The revised standard
becomes mandatory for the Group’s 30 June 2010 financial statements. The Group has not yet
determined the potential effect of the revised standard on the Group’s financial report.
42
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
3.
Significant accounting policies (continued)
(s) New standards and interpretations not yet adopted (continued)
•
•
•
•
•
•
AASB 8 Operating Segments introduces the “management approach” to segment reporting. AASB
8, which becomes mandatory for the Group’s 30 June 2010 financial statements, will require the
disclosure of segment information based on the internal reports regularly reviewed by the Group’s
Chief Operating Decision Maker in order to assess each segment’s performance and to allocate
resources to them. Currently the Group presents segment information in respect of its business and
geographical segments (see note 6). Under the management approach, the Group will present
segment information in respect of Home, Hardware and Eco, Building and Industrial and Electronic,
Security and Entertainment.
Revised AASB 101 Presentation of Financial Statements introduces as a financial statement
(formerly “primary” statement) the “statement of comprehensive income”. The revised standard
does not change the recognition, measurement or disclosure of transactions and events that are
required by other AASBs. The revised AASB 101 will become mandatory for the Group’s 30 June
2010 financial statements. The Group has not yet determined the potential effect of the revised
standard on the Group’s disclosures.
Revised AASB 123 Borrowing Costs removes the option to expense borrowing costs and requires
that an entity capitalise borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset as part of the cost of that asset. The revised AASB 123 will become
mandatory for the Group’s 30 June 2010 financial statements and will constitute a change in
accounting policy for the Group. In accordance with the transitional provisions the Group will apply
the revised AASB 123 to qualifying assets for which capitalisation of borrowing costs commences
on or after the effective date. The Group has not yet determined the potential effect of the revised
standard on future earnings.
Revised AASB 127 Consolidated and Separate Financial Statements changes the accounting for
investments in subsidiaries. Key changes include: the remeasurement to fair value of any
previous/retained investment when control is obtained/lost, with any resulting gain or loss being
recognised in profit or loss; and the treatment of increases in ownership interest after control is
obtained as transactions with equity holders in their capacity as equity holders. The revised
standard will become mandatory for the Group’s 30 June 2010 financial statements. The Group has
not yet determined the potential effect of the revised standard on the Group’s financial report.
AASB 2008-1 Amendments to Australian Accounting Standard - Share-based Payment: Vesting
Conditions and Cancellations changes the measurement of share-based payments that contain non-
vesting conditions. AASB 2008-1 becomes mandatory for the Group’s 30 June 2010 financial
statements. The Group has not yet determined the potential effect of the amending standard on the
Group’s financial report.
AI 13 Customer Loyalty Programmes addresses the accounting by entities that operate, or
otherwise participate in, customer loyalty programmes for their customers. It relates to customer
loyalty programmes under which the customer can redeem credits for awards such as free or
discounted goods or services. AI 13, which becomes mandatory for the Group’s 30 June 2009
financial statements, is not expected to have any impact on the financial report.
43
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
4. Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or
disclosure purposes based on the following methods. Where applicable, further information about the
assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
(a) Land and Buildings
Fair value of land and buildings at 30 June 2008 is a based on an independent valuation of all freehold
land and buildings carried out during March 2008. The valuation process was managed by AON Risk
Services Australia Limited with the individual valuations being performed by various certified valuers. The
market value of property is the estimated amount for which a property could be exchanged on the date of
valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing
wherein the parties had each acted knowledgeably, prudently and without compulsion. The valuations
were determined having regard to the highest and best use of the assets for which market participants
would be prepared to pay.
Fair value at 30 June 2007 is a Directors’ valuation as at that date based on an independent valuation of
all freehold land and buildings dated 15 September 2003.
The costs of additions since the valuations are deemed to be the fair value of those assets. The
Directors are of the opinion that these bases provide a reasonable estimate of fair value.
The fair value of property, plant and equipment recognised as a result of a business combination is based
on market values.
(b)
Intangible assets
The fair value of patents and trademarks acquired in a business combination is based on the discounted
estimated royalty payments that have been avoided as a result of the patent or trademark being owned.
The fair value of other intangible assets is based on the discounted cash flows expected to be derived
from the use and eventual sale of the assets.
(e)
Inventories
The fair value of inventories acquired in a business combination is determined based on its estimated
selling price in the ordinary course of business less the estimated costs of completion and sale, and a
reasonable profit margin based on the effort required to complete and sell the inventories.
(g) Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows,
discounted at the market rate of interest at the reporting date. Cash flows relating to short-term
receivables are not discounted if the effect of discounting is immaterial.
(i) Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of
future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
(j)
Share-based payment transactions
For information regarding the fair-value of share-based payments please refer to note 26.
44
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
5.
Financial risk management
Overview
The Company and Group have exposure to the following risks from their use of financial instruments:
•
credit risk
•
liquidity risk
• market risk
The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the financial performance of the Group. The Group uses derivative
financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk
exposures. Derivatives are exclusively used for hedging purposes, ie not as trading or other speculative
instruments. The Group uses different methods to measure different types of risk to which it is exposed.
These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks,
aging analysis for credit risk.
Risk management is carried out by a central treasury department (Group Treasury) under policies approved by
the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close co-operation
with the Group’s operating units. The Board provides written principles for overall risk management, as well as
policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative
financial instruments and non-derivative financial instruments, and investment of excess liquidity.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Group’s receivables from customers and
investment securities. For the Company it also arises from receivables due from subsidiaries.
Trade and other receivables
Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and deposits with
banks and financial institutions, as well as credit exposures to wholesale and retail customers, including
outstanding receivables and committed transactions.
Management has established a credit policy under which each new customer is analysed individually for
creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s
review includes external ratings and trade references. Purchase limits are established for each customer, which
represent the maximum open amount without requiring further approval. These limits are reviewed monthly.
Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a
prepayment basis.
The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets as
summarised in note 29. In monitoring customer credit risk, customers are grouped according to their credit
characteristics, including whether they are an individual or incorporated legal entity, whether they are a
wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of
previous financial difficulties.
45
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
5.
Financial risk management (continued)
Trade and other receivables (continued)
In most cases goods are sold subject to retention of title clauses, so that in the event of non-payment the
Group may have a priority claim. The Group does not require collateral in respect of trade and other receivables.
The Company and Group have established an allowance for impairment that represents their estimate of
incurred losses in respect of trade and other receivables and investments. The main components of this
allowance are a specific loss component that relates to individually significant exposures, and a collective loss
component established for groups of similar assets in respect of losses that have been incurred but not yet
identified. The collective loss allowance is determined based on historical data of payment statistics for similar
financial assets.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The
Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the
maturity profiles of financial assets and liabilities. Due to the dynamic and diversified nature of the underlying
businesses, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available
with a variety of counterparties. Surplus funds are generally only invested in instruments that are tradeable in
highly liquid markets.
The Group has a financing facility of $264,388,000 that has been approved until November 2010. For more
information please refer to Note 24.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity
prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of
market risk management is to manage and control market risk exposures within acceptable parameters, while
optimising the return.
46
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
5.
Financial risk management (continued)
Currency risk
The Group and the parent entity operate internationally and are exposed to foreign exchange risk arising from
various currency exposures, primarily with respect to the US dollar.
Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities
denominated in a currency that is not the entity’s functional currency and net investments in foreign operations.
The risk is measured using cash flow forecasting.
Management and group treasury manage the group companies’ foreign exchange risk against their functional
currency. The group companies are required to hedge their foreign exchange risk exposure arising from future
commercial transactions and recognised assets and liabilities using forward contracts transacted with Group
Treasury.
The Group Treasury's risk management policy is to hedge between 3 months of anticipated cash flows (mainly
purchases of inventory) in US dollars.
External foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on
specific assets, liabilities or future transactions on a gross basis.
Interest rate risk
The Group's main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates
expose the Group to cash flow interest rate risk. Group policy is to maintain approximately 50 to 75% of its
borrowings at fixed rate using interest rate swaps to achieve this when necessary. During 2008 and 2007, the
Group’s borrowings at variable rate were denominated in Australian Dollars and NZ Dollars.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest
rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the
Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those
available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with
other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates
and floating-rate interest amounts calculated by reference to the agreed notional principal amounts.
Other market price risk
The Group has no material financial exposure to other market price risk as it is not exposed to either commodity
price risk or equity securities price risk.
47
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
5.
Financial risk management (continued)
Capital management
The Group and the company's objectives when managing capital are to safeguard their ability to continue as a
going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders
and to maintain an optimal capital structure to reduce the cost of capital.
The Group and the Company monitor capital on the basis of the gearing ratio in conjunction with its review of the
Group and Company’s banking covenants. This ratio is calculated as net debt divided by total equity. Net debt
is calculated as total borrowings in the balance sheet less cash and cash equivalents. Total equity is ‘equity’
as shown in the balance sheet (including minority interest).
During 2008, the Group's strategy, which was unchanged from 2007, was to maintain a target gearing ratio less
than 45%. The gearing ratios at 30 June 2008 and 30 June 2007 were as follows:
In thousands of AUD
2008
2007
2008
2007
Note
Consolidated
Company
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Gearing ratio
24
21
22
209,449
(21,310)
188,139
429,517
173,175
(26,923)
146,252
348,764
213,790
175,623
7,513
(3,177)
221,303
172,446
286,625
208,887
43.8%
41.9%
77.2%
82.6%
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
48
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
6.
Segment reporting
Business segments
The Group comprises the following main business segments:
•
Electronic Security and Entertainment: Communications related products and services, domestic and
commercial antennas, master antenna television systems, communications antennas, amplifiers,
electronic security systems, closed circuit television systems, home and commercial automation and
control systems, professional audio products, fibre optic transmission solutions and subscription TV
installation services.
•
•
Home, Hardware and Eco: Outdoor clothes driers, ladders, ironing boards, laundry trolleys, security doors,
playtime equipment, garden sprayers, wheelbarrows, scaffold systems, rehabilitation and mobility
products, water tanks and other rotationally moulded products, solar hot water products, stainless steel
products and plumbing products.
Building and Industrial: Structural, precision and large steel tubing, galvanising, cable tray and pipe
systems, steel doorframes, roll-formed metal building products, carports and shed systems.
During the current year Woodroffe Industries Pty Ltd has been reclassified for business segment reporting
purposes from Building and Industrial to Home, Hardware and Eco. The comparative numbers have also been
adjusted to reflect this change.
Geographical segments
In presenting information on the basis of geographical segments, segment revenue is based on the geographical
location of customers. Segment assets are based on the geographical location of the assets.
The Group’s business segments operate geographically as follows:
•
Australia: Manufacturing facilities and sales offices and customers in all states and territories.
•
Overseas: Manufacturing facilities and sales offices in New Zealand.
49
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
6.
Segment reporting (continued)
Business Segments
Electronic,
Security and
Entertainment
2007
2008
Home, Hardware
Building and
and Eco
Industrial
Eliminations
Consolidated
2008
2007
2008
2007
2008
2007
2008
2007
312,322
277,174
227,558
201,914
643,060
534,124
-
-
1,182,940
1,013,212
-
-
-
-
5,353
7,457
(5,353)
(7,457)
-
-
312,322
277,174
227,558
201,914
648,413
541,581
(5,353)
(7,457)
1,182,940
1,013,212
38,098
31,726
13,806
13,783
23,891
36,059
-
-
1,797
787
1,184,737
1,013,999
75,795
7,079
82,874
(14,374)
68,500
(16,140)
52,360
81,568
705
82,273
(9,105)
73,168
(21,126)
52,042
In thousands of AUD
External revenues
Inter-segment revenue
Segment revenue
Rentals
Total Revenue
Segment result
Unallocated/corporate result
Results from operating activities
Net finance costs
Profit before income tax
Income tax expense
Profit for the period
50
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
6.
Segment reporting (continued)
Business segments (continued)
In thousands of AUD
2008
2007
2008
2007
2008
2007
2008
2007
Electronic, Security and
Entertainment
Home, Hardware and Eco
Building and Industrial
Consolidated
Segment assets
Unallocated/corporate assets
Total assets
Segment liabilities
Unallocated/corporate liabilities
Total liabilities
127,940
117,506
157,189
130,374
401,814
337,095
32,239
32,312
24,235
29,344
96,287
90,113
Capital expenditure
3,908
4,597
7,965
10,004
19,148
22,125
Unallocated/corporate assets
Depreciation
2,897
3,098
6,574
5,738
10,952
9,020
Unallocated/corporate assets
686,943
133,984
820,927
152,761
238,649
391,410
31,021
4,170
35,191
20,423
1,361
21,784
584,975
121,906
706,881
151,769
206,348
358,117
36,726
1,909
38,635
17,856
1,132
18,988
Geographical segments
In thousands of AUD
2008
2007
2008
2007
2008
2007
2008
2007
Australia
Overseas
Unallocated/corporat
e
Consolidated
Revenue from external customers
1,127,552
954,953
Segment assets
Capital expenditure
665,359
566,134
30,828
36,490
55,388
21,584
193
58,259
18,841
236
1,797
787
1,184,737
1,013,999
133,984
121,906
820,927
706,881
4,170
1,909
35,191
38,635
51
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
7. Acquisitions of subsidiaries and business operations
Acquisition of subsidiaries
On 5 October 2007 the Company acquired 50% of the shares in Opticomm Co Pty Ltd (Opticomm), for
consideration of $756,000. The Company controls Opticomm by virtue of conditions contained in the
shareholders agreement. Aside from this acquisition, the Group did not acquire any other subsidiaries during the
current reporting period.
In the prior reporting period the Group paid $86,000 deferred payment in respect of the Alquip Group acquired in
January 2006. No other acquisitions of subsidiaries or payments in respect of subsidiaries were made in the
prior reporting period.
Company Name
In thousands of AUD
2008
• Opticomm
Date of
Control
Consideration
Net of Cash
Nature of Business
%
Acquired
05/10/2007
356*
Provision of fibre
networks and
infrastructure
50
Total
356
2007
• Alquip Group –
deferred
payment
Total
01/01/2006
86
86
* Excludes contingent consideration payable of $400,000 that is payable subject to certain
performance criteria being met.
Opticomm operates in the provision of fibre infrastructure to deliver high-speed voice, data and video
to homes and multi-residential developments. The acquired business contributed revenues of
$1,851,000 and net loss of $80,000 for the period from 5 October 2007 to 30 June 2008. As
Opticomm was not actively trading prior to acquisition, had the acquisition occurred on 1 July 2007,
the profit for the year ended 30 June 2008 would have been the same.
The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:
In thousands of AUD
Net identifiable assets and liabilities*
Goodwill on acquisition
Consideration paid, satisfied in cash**
Cash acquired
Net cash outflow
Note
15
Pre -
acquisition
carrying
amounts
Fair value
adjustments
Recognised
values on
acquisition
-
-
-
756
356
-
356
*
Opticomm was not trading and as such there were no assets acquired as part of the acquisition.
**
Includes legal fees of $6,000
In the prior reporting period the difference between the actual and estimated contingent consideration for the
Alquip Group resulted in a decrease of $914,000 in goodwill on consolidation.
52
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
7. Acquisitions of subsidiaries and business operations (continued)
Acquisition of business operations
Year ended 30 June 2008
On 1 March 2008 the Group acquired the business operations of L. W. Gemmell & Associates (Aust) Pty Ltd
(Gemmell) for $5,938,000 in cash. Gemmell manufactures and distributes a range of specialised plumbing
products including pressure reducing valves and backflow prevention devices. It is not practicable to estimate
the effect on the income statement had the business been acquired at 1 July 2007 nor is it practicable to
individually estimate the profit or loss since acquisition.
A deferred payment of $1,159,000 was made in respect of the Air Comfort Systems business acquired in the
previous reporting period.
The details of the acquisitions are noted in the table below.
Name of business
In thousands of AUD
2008
Air Comfort Seating
Systems
LW Gemmell &
Associates
Date of
Control
Consideration
Net of Cash
Nature of Business
01/05/2007
01/03/2008
1,159
5,938
7,097
Manufacturer of pressure care seating for
the aged care sector.
Distributor of specialised plumbing
products.
The acquisition of Gemmell had the following effect on the Group’s assets and liabilities on acquisition date:
In thousands of AUD
Property, plant and equipment
Inventories
Trade and other payables
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied in cash
Cash acquired
Net cash outflow
Pre -
acquisition
carrying
amounts
212
2,520
(118)
2,614
Note
14
15
Fair value
adjustments
Recognised
values on
acquisition
-
-
-
-
212
2,520
(118)
2,614
3,324
5,938
-
5,938
Pre-acquisition carrying amounts were determined based on applicable AASBs immediately before the
acquisition. The values of assets and liabilities recognised on acquisition are their estimated fair values (see
note 4 for methods used in determining fair values).
The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of the acquired
business’s work force and the synergies expected to be achieved from integrating the company into the
Group’s existing Home, Hardware and Eco business (see note 15).
53
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
7. Acquisitions of subsidiaries and business operations (continued)
Year ended 30 June 2007
During the prior reporting period the Group acquired two business operations. A contingent payment of $261,000
was also made in respect of the Australian Audio Supplies business acquired in the previous reporting period.
Provision for future contingent payments for the Australian Audio Supplies business was increased by $839,000.
This resulted in an increase in goodwill of $1,100,000. Results for the businesses since the date of their
respective acquisitions have been included in the consolidated results.
The details of the acquisitions are noted in the table below.
Name of business
In thousands of AUD
2007
Date of
Control
Consideration
Net of Cash
Nature of Business
Manufacturer of pressure care
seating for the aged care sector.
Steel distribution business based
in Bunbury in Western Australia.
• Air Comfort
01/05/2007
*6,536
Seating Systems
Impressive Steel
•
01/05/2007
• Australian Audio
Supplies –
contingent
consideration
Total
4,625
**261
11,422
* Excludes deferred payment payable of $859,000
** Excludes deferred payment payable of $839,000
Details of the individual businesses acquired in the prior period are detailed below.
In thousands of AUD
Fair value of assets acquired
Inventories
Trade and other receivables
Property, plant and equipment
Patents
Goodwill purchased
Employee benefits
Trade and other payables
Fair value of assets and liabilities acquired
Less contingent consideration
Cash flow on acquisition net of cash acquired
Air Comfort
Seating Systems
Impressive
Steel
Total
568
981
65
87
5,772
(48)
(30)
7,395
(859)
6,536
2,214
-
1,168
-
1,300
(57)
-
4,625
-
4,625
2,782
981
1,233
87
7,072
(105)
(30)
12,020
(859)
11,161
At acquisition, due diligence procedures, applying applicable AASBs, identified no difference between fair values
and the acquiree’s book values. The goodwill recognised on the acquisition is attributable mainly to
management expertise, work force, distribution channels and geographic presence.
The consideration for Air Comfort Seating Systems includes a contingent consideration of $859,000. The amount
is payable provided certain performance criteria are met. The contingent consideration of $839,000 in respect of
Australian Audio Supplies is payable provided certain performance criteria are met.
54
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
8.
Revenue
In thousands of AUD
Sales Revenue
Sales
Services
Other Revenue
Property rentals
Dividends received
Revenue
9. Other income
In thousands of AUD
Net gain on sale of property, plant and equipment
Net gain on disposal of asset held for sale
Net gain on disposal of a controlled entity
Other income
10. Expenses
In thousands of AUD
Cost of goods sold
Cost of services provided
Sales and marketing expenses
Distribution expenses
Administration expenses
Occupancy expenses
Net loss on disposal of property, plant and equipment
Other expenses
11. Personnel expenses
In thousands of AUD
Wages and salaries
Other associated personnel expenses
Increase in liability for annual leave
Increase in liability for long-service leave
Equity-settled share-based payment transactions
Consolidated
Company
2008
2007
2008
2007
1,130,531
967,435
309,078
287,032
53,369
45,777
-
-
1,183,900
1,013,212
309,078
287,032
836
1
787
3,103
-
30,001
2,498
6,400
1,184,737
1,013,999
342,182
295,930
Consolidated
Company
2008
2007
2008
2007
113
6,751
-
3,520
10,384
-
-
526
1,846
2,372
-
2,416
-
11,087
13,503
108
-
-
8,926
9,034
Consolidated
Company
2008
2007
2008
2007
782,404
44,259
133,324
82,338
49,063
20,727
64
68
646,161
37,503
117,450
69,490
44,760
17,561
347
826
185,097
-
56,333
21,989
17,578
4,567
1
130
1,112,247
934,098
285,695
180,106
-
53,207
19,712
15,145
3,499
-
72
271,741
Consolidated
2008
2007
Company
2008
2007
160,328
35,252
9,524
3,206
369
152,780
32,064
8,687
3,530
471
48,110
9,167
3,730
1,450
353
46,502
9,191
2,357
1,356
419
208,679
197,352
62,810
59,825
55
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
12. Profit from Ordinary Activities
Profit from ordinary activities is arrived after charging the following items
In thousands of AUD
Depreciation of buildings
Depreciation of plant and equipment
Total depreciation
Amortisation of patents and trademarks
Total depreciation, impairment and amortisation
Interest paid or payable
Interest received or receivable
Net financing costs
Impairment of trade receivables
Impairment of loans receivable
Impairment of intangible assets
Impairment (reversal of impairment) of inventory
Increase in provisions
Decreases in provisions
Consolidated
Company
2008
2007
2008
2007
1,034
20,176
21,210
574
21,784
15,155
(781)
14,374
2,103
-
176
2,174
253
-
19,080
731
17,650
18,381
607
18,988
9,821
(716)
9,105
291
705
-
3,544
60
(1,007)
12,698
411
5,155
5,566
-
-
15,733
(4,898)
10,835
850
-
-
(2,893)
63
-
8,855
368
5,364
5,732
-
5,732
10,671
(3,923)
6,748
300
-
-
643
-
-
7,691
The above finance income and expense include the following in respect of assets (liabilities) (not at fair value through profit or loss):
Total interest income on financial assets
Total interest expense on financial liabilities
15,155
(781)
9,821
(716)
15,733
(4,898)
10,671
(3,923)
56
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
12. Profit from Ordinary Activities (continued)
Profit for the year includes the following items that are unusual
because of their nature size or incidence:
In thousands of AUD
Gains
Gain on sale of asset held for sale
Less: Applicable income tax expense/benefit
Expenses
Impairment of Inventory – Orrcon
Less: Applicable income tax benefit
(a) Gain on sale of Asset held for sale
Consolidated
Note
2008
2007
(a)
(b)
6,750
174
6,924
11,649
(3,495)
8,154
-
-
-
-
-
-
During the period a contract was entered into for the sale of the land and building at the Hills manufacturing site
in Edwardstown South Australia. The impact of the sale of this property was a decrease in assets held for sale
of $15,946,000 and an increase in profit after tax of $6,924,000.
Tax payable on this gain was calculated after absorbing certain capital tax losses.
(b) Impairment of Inventory - Orrcon
As part of a review of the large pipe and tube business of Orrcon it was determined that certain inventory on
hand was impaired. A contract to supply water pipe to a major customer in Queensland was cancelled due to
the quality of the pipe received from our overseas supplier. Directors consider it prudent to write down the
value of the pipe to expected recoverable value. In addition, all other costs that are related to this contract
have been expensed. All of these costs are included in the impairment charge.
Since 1 July 2007, a quantity of the pipe has been sold and the remaining pipe on hand as at 30 June 2008
has been revalued to realisable value.
57
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
13.
Income tax expense
In thousands of AUD
Current tax expense
Current period
Adjustment for prior periods
Deferred tax expense
Origination and reversal of temporary differences
Change in tax rate
Expense of derecognised tax loss
Prior year adjustments
Income tax expense from continuing operations
Numerical reconciliation between tax expense and pre-tax accounting profit
In thousands of AUD
Profit for the period
Total income tax expense
Profit excluding income tax
Income tax using the Company’s domestic tax rate of 30% (2007: 30%)
Non-deductible expenses
Tax exempt income
Recognition of previously unrecognised tax losses
Under (over) provided in prior periods
Income tax recognised directly in equity
In thousands of AUD
Revaluation of land and buildings
58
Consolidated
Company
2008
2007
2008
2007
15,111
(1,413)
13,698
2,109
42
-
291
16,140
23,215
650
23,865
(2,277)
(57)
240
(645)
21,126
3,484
-
3,484
1,913
-
-
-
5,397
4,827
-
4,827
591
-
-
-
5,418
Consolidated
2008
2007
52,360
16,140
68,500
20,550
787
(1,288)
(2,787)
(1,122)
16,140
52,042
21,126
73,168
21,950
1,013
(1,829)
(13)
5
21,126
Company
2008
53,758
5,397
59,155
17,747
176
(9,879)
(2,647)
-
5,397
2007
21,057
5,418
26,475
7,943
156
(2,681)
-
-
5,418
Consolidated
Company
2008
11,966
2007
2008
2007
-
9,418
-
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
14. Property, plant and equipment
In thousands of AUD
Balance at 1 July 2006
Acquisitions through business
combinations
Additions
Disposals
Transfer to assets held for sale
Effect of movements in exchange rates
Balance at 30 June 2007
Balance at 1 July 2007
Acquisitions through business
combinations
Additions
Revaluation to fair value
Disposals
Effect of movements in exchange rates
Balance at 30 June 2008
Consolidated
Plant and
Company
Plant and
Land
Buildings –
equipment -
Land
Buildings –
equipment -
- Fair Value
Fair Value
cost
Total
- Fair Value
Fair Value
cost
Total
27,213
-
1
(1,710)
(9,585)
121
16,040
16,040
-
8
720
31,160
-
(419)
51,889
-
1,929
(3,134)
(6,532)
381
44,533
44,533
-
2,695
8,047
(24)
(527)
185,505
1,232
264,607
1,232
36,529
(7,644)
-
337
215,959
38,459
(12,488)
(16,117)
839
276,532
215,959
212
276,532
212
31,954
-
(2,860)
(433)
35,369
39,207
(2,884)
(1,379)
47,501
54,724
244,832
347,057
15,156
-
1
-
(4,305)
-
10,852
10,852
-
720
21,420
-
-
32,992
32,131
-
504
-
(1,945)
-
30,690
30,690
-
1,276
6,574
-
-
38,540
61,414
-
108,701
-
8,098
(5,848)
-
-
63,664
63,664
-
8,021
-
(938)
-
70,747
8,603
(5,848)
(6,250)
-
105,206
105,206
10,017
27,994
(938)
-
142,279
59
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
14. Property, plant and equipment (continued)
Consolidated
Company
Land
Buildings -
Plant and
Land
Buildings -
Plant and
- Fair Value
Fair Value
equipment
Total
- Fair Value
Fair Value
equipment
Total
-
-
-
-
-
-
-
-
-
-
-
-
(2,396)
(731)
256
171
(11)
(90,164)
(17,650)
7,384
-
(234)
(92,560)
(18,381)
7,640
171
(245)
(2,711)
(100,664)
(103,375)
(2,711)
(1,034)
1,354
16
9
(2,366)
(100,664)
(20,176)
-
2,252
321
(118,267)
(103,375)
(21,210)
1,354
2,268
330
(120,633)
-
-
-
-
-
-
-
-
-
-
-
(1,146)
(368)
-
40
-
(1,474)
(1,474)
(411)
883
-
-
(1,002)
(48,939)
(5,364)
5,647
-
-
(48,656)
(48,656)
(5,155)
-
856
-
(52,955)
(50,085)
(5,732)
5,647
40
-
(50,130)
(50,130)
(5,566)
883
856
-
(53,957)
Consolidated
Plant and
Company
Plant and
Land
Buildings –
equipment -
Land
Buildings –
equipment -
- Fair Value
Fair Value
cost
Total
- Fair Value
Fair Value
cost
Total
27,213
16,040
16,040
47,501
49,493
41,822
95,341
115,295
41,822
52,357
115,295
126,565
172,047
173,157
173,157
226,424
15,156
10,852
10,852
32,992
30,985
29,216
29,216
37,538
12,475
15,008
15,008
17,792
58,616
55,076
55,076
88,322
In thousands of AUD
Depreciation and impairment losses
Balance at 1 July 2006
Depreciation for the year
Disposals
Transfer to assets held for sale
Effect of movements in exchange rates
Balance at 30 June 2007
Balance at 1 July 2007
Depreciation for the year
Adjustment on revaluation to fair value
Disposals
Effect of movements in exchange rates
Balance at 30 June 2008
In thousands of AUD
Carrying amounts
At 1 July 2006
At 30 June 2007
At 1 July 2007
At 30 June 2008
60
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
15.
Intangible assets
In thousands of AUD
Costs
Balance at 1 July 2006
Acquisitions – internally developed
Reduction arising from recognition of assets not
previously recognised
Increase in provision for contingent consideration
Fully amortised eliminated against amortisation
Acquisition through business combination
Additions
Balance at 30 June 2007
Balance at 1 July 2007
Acquisitions through business combinations
Derecognised – contingent consideration not paid
Additions
Balance at 30 June 2008
Consolidated
Goodwill on
consolidation
Purchased
Goodwill
Patents and
trademarks
Development
costs
Total
Goodwill
Company
Patents and
trademarks
96,570
-
(355)
186
(85)
-
-
96,316
96,316
754
-
-
97,070
11,412
-
-
-
(1,791)
7,072
-
16,693
16,693
3,623
(839)
-
19,477
8,051
87
1
8,139
8,139
-
-
5
8,144
-
176
-
-
-
-
-
116,033
176
(355)
186
(1,876)
7,159
1
176
121,324
176
-
-
-
176
121,324
4,377
(839)
5
124,867
3,149
-
-
-
(1,791)
-
-
1,358
1,358
-
-
-
1,358
50
-
-
-
-
-
-
50
50
-
-
-
50
Total
3,199
-
-
-
(1,791)
-
-
1,408
1,408
-
-
-
1,408
61
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
15.
Intangible assets (continued)
In thousands of AUD
Amortisation and impairment losses
Balance at 1 July 2006
Amortisation for the year
Fully amortised against eliminated against cost
Balance at 30 June 2007
Balance at 1 July 2007
Amortisation for the year
Impairment loss
Balance at 30 June 2008
Carrying amounts
At 1 July 2006
At 30 June 2007
At 1 July 2007
At 30 June 2008
Consolidated
Goodwill on
Consolidation
Purchased
Goodwill
Patents and
trademarks
Development
costs
Total
Goodwill
Company
Patents and
trademarks
Total
(4,314)
-
85
(4,229)
(4,229)
-
-
(4,229)
92,256
92,087
92,087
92,841
(3,223)
-
1,791
(1,432)
(1,432)
-
-
(1,432)
8,189
15,261
15,261
18,045
(3,687)
(607)
-
(4,294)
(4,294)
(574)
-
(4,868)
4,364
3,845
3,845
3,277
-
-
-
-
-
-
(176)
(176)
-
176
176
-
(11,224)
(607)
1,876
(9,955)
(9,955)
(574)
(176)
(10,705)
104,809
111,369
111,369
114,162
(3,419)
-
1,791
(1,358)
(1,358)
-
-
(1,358)
-
-
-
-
(50)
-
-
(50)
(50)
-
-
(50)
17
-
-
-
(3,199)
-
1,791
(1,408)
(1,408)
-
-
(1,408)
17
-
-
-
Amortisation and impairment charge
The amortisation and impairment charge is recognised in operating expenses in the income statement.
62
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
15.
Intangible assets (continued)
Impairment testing for cash-generating units containing goodwill
During the year ended 30 June 2008 the Group determined that there is no impairment of any of its cash
generating units containing goodwill or intangible assets with indefinite useful lives. For the purpose of
impairment testing, goodwill is allocated to the Group’s operating units that represent the lowest level within the
Group at which the goodwill is monitored for internal management purposes.
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
In thousands of AUD
Building and Industrial
Electronic Security and Entertainment
Home, Hardware and Eco
Consolidated
2008
60,383
16,991
33,512
110,886
2007
56,760
17,076
33,512
107,348
Company
2008
2007
-
-
-
-
-
-
-
-
The cash generating unit impairment tests are based on value in use calculations. Value in use was determined
by discounting the future cash flows generated from the continuing use of the unit and was based on the
following key assumptions:
•
Cash flows have been extrapolated over periods consistent with useful lives of intangibles with finite useful
lives in each cash generating unit, using a growth rate of 3% (2007: 3%) for periods past the three year
strategic plan which is no greater than the long term average growth rate for the market to which the asset
is dedicated.
A post-tax discount rate of 11% (2007 11%), determined by reference to the Group’s weighted average
cost of capital was applied in determining the recoverable amount of the units.
•
A reasonably possible change in the key assumptions above would not have resulted in the carrying amount
exceeding the recoverable amount for any of the Group’s cash generating units.
63
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
16. Tax assets and liabilities
Current tax assets and liabilities
The current tax liability for the Group of $4,317,000 (2007: $12,742,000) and for the Company of $2,957,000
(2007: $11,833,000) represent the amount of income taxes payable in respect of current and prior financial
periods. In accordance with the tax consolidation legislation, the Company as the head entity of the Australian
tax-consolidated group has assumed the current tax liability (asset) initially recognised by the members in the
tax-consolidated group.
Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items:
In thousands of AUD
Capital tax losses
Consolidated
Company
2008
8,628
8,628
2007
11,166
11,166
2008
8,477
8,477
2007
10,814
10,814
The tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in
respect of these items because it is not probable that future capital gains will be available against which the
Group can utilise the benefits from.
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
In thousands of AUD
Property, plant and equipment
Inventories
Employee benefit plans
Receivables
Loans and borrowings
Provisions
Self insurance provisions
Other accruals
Software and prepayments
Other items
Tax assets/(liabilities)
Company
In thousands of AUD
Property, plant and equipment
Inventories
Employee benefit plans
Receivables
Loans and borrowings
Provisions
Other accruals
Software and prepayments
Other items
Tax (assets)/liabilities
Assets
Liabilities
Net
2008
2007
2008
10,677
3,414
9,908
1,752
1,218
2,100
897
897
320
606
31,789
11,489
5,386
9,320
1,956
1,218
1,627
848
953
407
699
(15,007)
(179)
86
-
-
(5)
-
(281)
-
-
33,903
(15,386)
2007
(2,828)
(339)
100
-
-
-
-
(25)
-
-
(3,092)
2008
(4,330)
3,235
9,994
1,752
1,218
2,095
897
616
320
606
2007
8,661
5,047
9,420
1,956
1,218
1,627
848
928
407
699
16,403
30,811
Assets
Liabilities
Net
2008
2007
2008
3,157
1,239
4,937
645
1,218
973
438
132
746
3,265
2,812
4,606
750
1,218
938
634
205
773
(10,967)
-
-
-
-
-
-
-
-
13,485
15,201
(10,967)
2007
(1,352)
-
-
-
-
-
-
-
-
(1,352)
2008
(7,810)
1,239
4,937
645
1,218
973
438
132
746
2007
1,913
2,812
4,606
750
1,218
938
634
205
773
2,518
13,849
64
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
16. Tax assets and liabilities (continued)
Movement in temporary differences during the year
Consolidated
In thousands of AUD
Property, plant and
equipment
Inventories
Employee benefit plans
Receivables
Loans and borrowings
Provisions
Self insurance provisions
Other accruals
Software and prepayments
Other items
Tax loss carry-forwards
recognised
Company
In thousands of AUD
Property, plant and
equipment
Inventories
Employee benefit plans
Receivavles
Loans and borrowings
Provisions
Other accruals
Software and prepayments
Other items
Tax (assets)/liabilities
Balance
1 July 2006
Recognised
in profit or
loss
Balance
30 June
2007
Recognised
in profit or
loss
Recognised
in equity
Balance
30
June 2008
8,220
441
8,661
(1,025)
(11,966)
(4,330)
2,748
9,094
1,784
1,218
1,654
1,118
521
815
660
240
2,299
326
172
-
(27)
(270)
407
(408)
39
(240)
5,047
9,420
1,956
1,218
1,627
848
928
407
699
-
(1,812)
574
(204)
-
468
49
(312)
(87)
(93)
-
-
-
-
-
-
-
-
-
-
-
3,235
9,994
1,752
1,218
2,095
897
616
320
606
-
28,072
2,739
30,811
(2,442)
(11,966)
16,403
2,201
2,068
5,201
750
1,218
1,376
528
554
544
14,140
(288)
1,913
(305)
(9,418)
(7,810)
744
(595)
-
-
(438)
106
(349)
229
(291)
2,812
4,606
750
1,218
938
634
205
773
13,849
(1,573)
331
(105)
-
35
(196)
(73)
(27)
(1,913)
-
-
-
-
-
-
-
-
(9,418)
1,239
4,937
645
1,218
973
438
132
746
2,518
65
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
17.
Inventories
In thousands of AUD
Raw materials and consumables
Work in progress
Finished goods
Impairment losses included in inventory:
Impairment losses related to raw materials
Impairment losses related to finished goods
Consolidated
Company
2008
2007
2008
2007
68,923
58,101
5,810
4,421
5,214
5,017
106,204
112,389
180,341
175,507
10
10,796
10,806
331
10,495
10,826
-
35,749
41,559
-
1,350
1,350
16
33,128
37,565
-
4,243
4,243
18. Trade and other receivables
In thousands of AUD
Trade receivables
Less impairment losses
Consolidated
2008
2007
227,964
(5,528)
171,590
(5,179)
Company
2008
61,767
(2,150)
Other receivables and prepayments
Loans – other entities
Loans – controlled entities
Less impairment losses
Current
Non-Current
222,436
166,411
59,617
38,921
689
-
-
262,046
244,761
17,285
262,046
5,811
433
-
-
6,517
528
236,327
(4,060)
172,655
298,929
172,655
-
292,989
5,940
172,655
298,929
2007
46,607
(1,300)
45,307
802
433
182,021
(4,060)
224,503
224,503
-
224,503
The Company and Group’s exposure to credit and currency risks and impairment losses related to trade and
other receivables are disclosed in note 29.
19.
Investments
In thousands of AUD
Non-current investments
Listed equity securities
Investments in controlled entities - at cost
Total non-current investments
Consolidated
Company
2008
2007
2008
2007
2
-
2
2
-
2
2
151,966
151,968
2
151,210
151,212
20. Non-current assets classified as held for sale
During the period a contract was entered into for the sale of the land and building at the Hills manufacturing site
in Edwardstown South Australia. In the prior year, the Land and buildings at the manufacturing site were
reclassified from Property, Plant and Equipment to non-current assets classified as held for sale.
On 4 July 2007 a sale agreement of $24.3 million, excluding selling costs, was reached. In compliance with
AASB 5 Non-current Assets Held for Sale and Discontinued Operations the assets were measured at the lower
of their carrying value and their fair value less costs to sell. These assets have been included in the
unallocated/corporate segment.
The impact of the sale of this property was a decrease in assets held for sale of $15,946,000 and an increase in
profit after tax of $6,924,000.
66
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
21a. Cash and cash equivalents
In thousands of AUD
Bank balances
Call deposits
Cash and cash equivalents
Bank overdrafts used for cash management purposes
Cash and cash equivalents in the statement of cash flows
Consolidated
Company
2008
19,397
2,152
21,549
(239)
21,310
2007
20,349
7,085
27,434
(511)
26,923
2008
2007
-
1,000
1,000
(8,513)
(7,513)
-
3,177
3,177
-
3,177
The Company and Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are
disclosed in note 29.
21b. Reconciliation of cash flows from operating activities
In thousands of AUD
Cash flows from operating activities
Profit for the period
Adjustments for:
Depreciation
Amortisation of intangible assets
Impairment of trade receivables
Impairment (reversal of impairment) of inventory
Impairment of loans
Tax payable transferred to head entity of tax consolidated
group
Foreign exchange (gains)/losses
Dilution of interest in controlled entity
(Gain)/loss on sale of asset held for sale
(Gain)/loss on sale of property, plant and equipment
(Gain)/loss on sale of entities
Rent received
Non-cash inter-company dividend
Equity-settled share-based payment transactions
Add/(less) amounts set aside to provisions:
- Employee benefits
- Outstanding claims
- Other
Operating profit before changes in working capital
and provisions
Change in trade and other receivables
Change in inventories
Change in deferred tax assets
Change in trade and other payables
Change in income taxes payable
Change in provisions and employee benefits
Net cash from operating activities
Consolidated
Company
Note
2008
2007
2008
2007
52,360
52,042
53,758 21,057
14
15
26
21,210
574
2,103
2,174
-
-
5
-
(6,751)
(21)
-
(836)
-
369
14,412
103
235
85,937
18,381
607
291
3,544
705
-
5,566
-
850
(2,893)
-
(3,931)
5,732
-
300
643
-
(12,193)
(38)
24
-
347
(526)
787
-
471
-
-
(1,641)
-
-
(3,103)
(30,000)
353
(23)
-
-
(108)
-
(2,498)
-
419
12,217
(1,007)
60
86,331
5,180
63
271
3,713
-
-
24,473 17,042
(71,398)
(3,755)
1,205
5,128
(8,816)
(14,315)
(6,209)
(41,210)
(2,739)
16,402
7,085
(12,838)
(14,867)
(1,102)
2,146
6,061
(9,108)
(5,475)
561
(4,483)
591
2,619
8,391
(5,880)
(6,014)
46,822
2,128 18,841
25, 27
67
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
22. Capital and reserves
Reconciliation of movement in capital and reserves attributable to equity holders
Consolidated
In thousands of AUD
Balance at 1 July 2006
Total recognised income and
expense
Shares issued under the executive
Share Plan
Shares issued under the Employee
Share Bonus Plan
Shares issued under the Dividend
investment plan
Dividends to Shareholders
Minority interest in dividends paid
or payable by controlled entities
Minority interest increase in
controlled entities
Transfers from/to reserves
Share
Capital
167,525
Equity
compensati
on reserve
313
-
80
300
10,126
-
-
-
-
-
124
-
-
-
-
-
-
Translation
reserve
(1,183)
1,442
-
-
-
-
-
-
-
Asset
Revaluation
reserve
22,956
Asset
realisation
reserve
2,825
-
-
-
-
-
-
-
(400)
-
-
-
-
-
-
-
Retained
earnings
Total
Minority
Interest
Total equity
117,516
47,173
-
-
-
309,952
48,615
204
300
10,126
(37,322)
(37,322)
-
-
-
-
251
(149)
14,459
4,869
324,411
53,484
-
-
-
-
(2,343)
53
-
204
300
10,126
(37,322)
(2,343)
53
(149)
Balance at 30 June 2007
178,031
437
259
22,556
2,825
127,618
331,726
17,038
348,764
68
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
22. Capital and reserves
Reconciliation of movement in capital and reserves attributable to equity holders
Consolidated
In thousands of AUD
Balance at 1 July 2007
Total recognised income and
expense
Shares issued under the Executive
Share Plan
Shares issued under the Employee
Share Bonus Plan
Shares issued under the Dividend
Investment plan
Shares issued under the Share
Purchase plan
Dividends to Shareholders
Minority interest in dividends paid
or payable by controlled entities
Share Issue costs
Transfers from/to reserves
Share
Capital
178,031
Equity
Compensat
ion reserve
437
-
74
200
11,336
33,515
-
-
(65)
-
-
76
-
-
-
-
-
Translation
reserve
259
(2,340)
Asset
Revaluation
reserve
22,556
27,501
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
55
Asset
realisation
reserve
Retained
earnings
Total
Minority
Interest
Total equity
2,825
127,618
17,038
6,647
348,764
78,615
46,807
-
-
-
-
331,726
71,968
150
200
11,336
33,515
(40,611)
(40,611)
-
-
(55)
-
(2,387)
(65)
-
-
-
-
-
-
-
-
150
200
11,336
33,515
(40,611)
(2,387)
(65)
-
-
-
-
-
-
-
-
-
-
Balance at 30 June 2008
223,091
513
(2,081)
50,112
2,825
133,759
408,219
21,298
429,517
69
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
22. Capital and reserves (continued)
Reconciliation of movement in capital and reserves
Company
In thousands of AUD
Balance at 1 July 2006
Total recognised income and expense
Shares issued under the Executive Share
Plan
Shares issued under the Employee Share
Bonus Plan
Shares issued under the Dividend
investment plan
Dividends to equity holders
Balance at 30 June 2007
Balance at 1 July 2007
Total recognised income and expense
Shares issued under the Executive Share
Plan
Shares issued under the Employee Share
Bonus Plan
Shares issued under the Dividend
investment plan
Shares issued under the Share purchase
plan
Dividends to equity holders
Share issue costs
Transfers to/from reserves
Balance at 30 June 2008
70
Share
Capital
167,525
-
80
300
10,126
178,031
178,031
-
74
200
11,336
33,515
-
(65)
-
Equity
Compensation
reserve
Asset
Revaluation
reserve
Asset
realisation
reserve
308
-
119
-
-
-
427
427
-
72
-
-
-
-
-
-
11,763
1,854
-
-
-
-
-
-
-
-
-
-
Retained
earnings
33,077
21,057
-
-
-
Total
equity
214,527
21,057
199
300
10,126
(37,322)
(37,322)
11,763
1,854
16,812
208,887
11,763
19,459
-
-
-
-
-
-
-
1,854
-
-
-
-
-
-
-
-
16,812
53,758
-
-
-
-
(40,611)
-
-
208,887
73,217
146
200
11,336
33,515
(40,611)
(65)
-
286,625
223,091
499
31,222
1,854
29,959
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
22. Capital and reserves (continued)
Share capital
In thousands of AUD
On issue at 1 July
Issued under the Dividend Investment Plan
Issued under the Share Investment Plan
Issued under the Employee Share Bonus Plan
Issued under the Executive Share Plan
Issued under the Share Placement Plan
On issue at 30 June – fully paid
Company
Ordinary Shares
2008
2007
172,827
2,447
168,692
2,128
1,548
1,618
192
67
292
97
8,708
185,789
-
172,827
The Company made two issues of ordinary shares under the Employee Share Bonus Plan during the year. All
employees meeting the service criteria were eligible to participate in the issue. The shares are issued at market
value.
The Company issued ordinary shares under a Dividend Investment Plan and a Share Investment Plan during the
year. Under the Dividend Investment Plan, participating shareholders elected to apply dividends in whole or in
part to the purchase of ordinary shares at an issue price. Under the Share Investment Plan, participating
shareholders elected to forgo dividends in whole or in part and to substitute shares issued out of the capital
account. The issue price was at a 10% discount on the market price.
During the year the Company invited shareholders to participate in a Share Purchase Plan. Each shareholder
was entitled to purchase up to $5,000 worth of shares. The price of the shares was at a 10% discount to the
volume weighted average price of the Company’s ordinary shares for the 10 days up to and including the
closing date of 2 May 2008. The share issue price was $3.85 per share.
Shares under the Dividend Investment Plan are recognised in equity at the value of the dividends applied to
purchase those shares. The value of shares issued slightly exceeds the value of the dividends applied due to
the rounding up of shares issued to the nearest whole share. Shares issued under the Share Investment Plan
are recognised in equity at nil value as the dividends are forgone and substituted for shares issued for no
consideration.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to
one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual
assets.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial
statements of foreign operations where their functional currency is different to the presentation currency of the
reporting entity.
Revaluation reserve
The revaluation reserve relates to the revaluation of land and buildings measured at fair value in accordance
with applicable Australian Accounting Standards
Asset realisation reserve
Where a revalued asset is sold, that portion of the asset revaluation reserve that relates to that asset is
transferred to the asset realisation reserve upon settlement.
Equity compensation reserve
The equity compensation reserve represents the value of shares held by an equity compensation plan that the
Group is required to include in the consolidated financial statements. This reserve will be reversed against
share capital when the underlying shares vest in the employee. No gain or loss is recognised in profit or loss on
the purchase, sale, issue or cancellation of the Group’s own equity instruments.
71
72
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
22. Capital and reserves (continued)
Dividends
Dividends recognised in the current year by the Group are:
In thousands of AUD
2008
Interim 2008 ordinary
Interim dividend forgone for
Share Investment Plan
Final 2007 ordinary
Final dividend forgone for Share
Investment Plan
Total amount
2007
Interim 2007 ordinary
Interim dividend forgone for
Share Investment Plan
Final 2006 ordinary
Final dividend forgone for Share
Investment Plan
Total amount
Cents per share
Total
amount
Franked /
unfranked
Date of
payment
13.5
23,579
Franked
31 March 2008
14.0
13.5
13.0
(3,390)
24,201
(3,779)
40,611
23,059
(3,864)
21,930
(3,803)
37,322
Franked
24 September 2007
Franked
26 March 2007
Franked
25 September 2006
Franked dividends declared or paid during the year were franked at the tax rate of 30%.
Subsequent to 30 June 2008 the directors proposed the following dividends for 2008. The dividends have not
been provided. The declaration and subsequent payment of dividends has no income tax consequences.
In thousands of AUD
Final ordinary
Total amount
Cents per share
14.0
Total
amount
26,154
26,154
Franked /
unfranked
Franked
Date of
payment
29 September 2008
The financial effect of these dividends have not been brought to account in the financial statements for the
financial year ended 30 June 2008 and will be recognised in subsequent financial reports.
Dividend and share reinvestment plans
The Dividend Investment Plan and Share Investment Plan will operate in respect of the proposed final dividend.
Under the Dividend Investment Plan, participating shareholders elect to apply dividends in whole or in part to the
purchase of ordinary shares at an issue price. Under the Share Investment Plan, participating shareholders
elect to forgo dividends in whole or in part and to substitute shares issued out of the capital account.
A discount of 10.0% will apply under the rules of the plans.
Last date for receipt of election notice for the dividend plans: 15 September 2008
73
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
22. Capital and reserves (continued)
Dividend franking account
In thousands of AUD
Dividend franking account
30 percent franking credits available to shareholders of Hills Industries Limited for
subsequent financial years
Company
2008
2007
29,091
41,103
67,880
95,907
The above available amounts are based on the balance of the dividend franking account at year-end adjusted
for:
(a)
(b)
(c)
franking credits that will arise from the payment of the current tax liabilities;
franking debits that will arise from the payment of dividends recognised as a liability at the year end;
franking credits that will arise from the receipt of dividends recognised as receivables by the tax
consolidated group at the year end; and
(d)
franking credits that the entity may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare
dividends.
The impact on the dividend franking account of dividends proposed after the balance sheet date but not
recognised as a liability is to reduce it by $26,154 thousand (2007: 24,080 thousand) franking credits.
23. Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 30 June 2008 was based on the profit attributable to ordinary
shareholders of $46.807 million (2007: $47.173 million) and a weighted average number of ordinary shares
outstanding of 175,927 thousand (2007: 170,823 thousand), calculated as follows:
Profit attributable to ordinary shareholders
In thousands of AUD
Profit for the period
Weighted average number of ordinary shares
In thousands of shares
Issued ordinary shares at 1 July
Effect of Dividend Investment Plan
Effect of Share Investment Plan
Effect of Employee share scheme
Effect of Executive Share Plan
Effect of Share Purchase Plan
Weighted average number of ordinary shares at 30 June
Consolidated
2008
2007
46,807
47,173
Consolidated
2008
172,827
1,145
722
83
33
1,166
175,976
2007
168,692
1,068
851
174
38
-
170,823
22
22
22
22
22
74
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
23. Earnings per share (continued)
Diluted earnings per share
The calculation of diluted earnings per share at 30 June 2008 was based on profit attributable to ordinary
shareholders of $46.807 million (2007: $47.173 million) and a weighted average number of ordinary shares
outstanding after adjustment for the effects of all dilutive potential ordinary shares of 177,066 thousand (2007:
171,729 thousand), calculated as follows:
Profit attributable to ordinary shareholders (diluted)
In thousands of AUD
Profit for the period
Consolidated
2008
46,807
2007
47,173
Weighted average number of ordinary shares (diluted)
In thousands of shares
Weighted average number of ordinary shares (basic)
Effect of share options on issue
Weighted average number of ordinary shares (diluted) at 30 June
Consolidated
Note
2008
2007
175,976
170,823
26
1,090
906
177,066
171,729
75
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
24. Loans and borrowings
This note provides information about the contractual terms of the Company’s and Group’s interest-bearing loans
and borrowings. For more information about the Company’s and Group’s exposure to interest rate, foreign
currency liquidity and risk, see note 29.
In thousands of AUD
Current liabilities
Current portion of unsecured bank loans
Loans – controlled entities
Non-current liabilities
Unsecured bank loans
Other loans - secured
Loans – controlled entities
Financing facilities
In thousands of AUD
Bank overdraft
Unsecured bank loans
Standby letters of credit
Short term money market
Facilities utilised at reporting date
Bank overdraft
Unsecured bank loans
Facilities not utilised at reporting date
Bank overdraft
Unsecured bank loans
Standby letters of credit
Short term money market
Consolidated
Company
2008
2007
2008
2007
5,952
1,593
-
-
5,000
5,292
5,952
1,593
10,292
-
4,125
4,125
202,999
498
-
203,497
171,044
538
-
171,582
177,000
498
26,000
203,498
145,000
498
26,000
171,498
Consolidated
Company
2008
2007
2008
2007
1,897
264,388
300
21,000
287,585
2,945
199,903
300
21,000
224,148
1,000
225,000
-
21,000
247,000
1,000
160,000
-
21,000
182,000
239
208,952
209,191
511
172,637
173,148
8,513
182,000
190,513
-
145,000
145,000
1,658
55,436
300
21,000
78,394
2,434
27,266
300
21,000
51,000
(7,513)
43,000
-
21,000
56,487
1,000
15,000
-
21,000
37,000
76
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
24. Loans and borrowings (continued)
Bank overdrafts
Bank overdrafts are denominated in $A and $NZ. The bank overdraft of a controlled entity is secured by a
guarantee from the Company. Interest on bank overdrafts is charged at prevailing market rates. The bank
overdrafts are payable on demand and are subject to annual review. The Company and a number of its
subsidiaries have a net bank overdraft facility of $1,897,000 (disclosed above). While at 30 June 2008 the
Company overdraft was not within its limits, the overdrafts are provided as part of a financing arrangement that
assesses the Group’s overall cash position.
Unsecured bank loans
Bank loans are denominated $A and $NZ. The bank loans are Commercial Bills with interest charged at
prevailing market rates. The Company and its wholly owned subsidiaries have provided an interlocking
guarantee and indemnity to its financiers for these facilities. An assessment of the contractual maturities of
financial liabilities is provided in Note 29.
Standby letter of credit
The standby letter of credit facility is a committed facility reviewed annually. No drawdowns against this facility
had been made as at 30 June 2008.
Short term money market
Borrowings on the short-term money market are denominated in $A. Interest on the borrowings is charged at
the prevailing market rates
77
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
25. Employee benefits
Current
In thousands of AUD
Employee benefits
Non-Current
Employee Benefits
26. Share-based payments
Consolidated
Company
2008
26,716
2007
25,741
2008
2007
9,113
8,595
4,961
4,574
4,371
4,300
31,677
30,315
13,484
12,895
In October 1997, the Group established a share option plan that entitles selected senior managers to acquire
shares in the entity subject to the successful achievement of performance targets related to improvements in
total shareholder returns.
Previously the options were exercisable if the total shareholder return (measured as share price growth plus
dividends paid) over a two-year period from the grant date exceeds ten percent plus CPI per annum. Once
exercised the shares were forfeited if the holder ceased to be an employee of the Group within a further three-
year period.
The shareholders approved an amendment to this plan as part of the 2007 Annual General Meeting such that the
option period over which the shareholder return must be achieved was extended to three years. The three-year
period during which the shares were restricted has now been removed. This amendment is applicable for all
share options granted after the resolution was passed. No changes were made to the rules governing options
already granted.
The shares issued pursuant to these options are financed by an interest free loan from the holding company
repayable within twenty years from the proceeds of dividends declared by the holding company. These loans
are of a non-recourse nature. For accounting purposes these 20-year loans are treated as part of the options to
purchase shares, until the loan is extinguished at which point the shares are recognised.
The options are offered only to selected senior managers. Details of the options are as follows:
Grant date
February 2001
February 2002
February 2003
February 2004
February 2005
February 2006
February 2007
February 2008
Number of
options
Number
outstandin
g at
balance
date
AIFRS
Number
outstanding
at balance
date
ASX
195,000
245,000
280,000
370,000
460,000
510,000
595,000
625,000
120,000
133,000
210,000
260,000
340,000
-
465,000
515,000
-
-
-
-
-
-
465,000
515,000
980,000
Total share options
3,280,000
2,043,000
Options subject to a non-recourse loan for the purchase of shares are not recognised as shares exercised by
International Financial Reporting Standards, until the loan is extinguished at which point the shares are then
recognised.
78
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
26. Share-based payments (continued)
The number and weighted average exercise prices of share options is as follows:
Grant
date
Exercise
date
Expiry
date
Exercise price
Consolidated and Company 2008
Number of
Options at
Beginning
of Year
Options
granted
Options
lapsed
Options
exercised
Number of
options at
end of year
on issue
Jan 2023
Feb 01
Jan 2024
Feb 02
Jan 2025
Feb 03
Jan 2026
Feb 04
Jan 2027
Feb 05
Jan 2028
Feb 06
Feb 07
Jan 2029
Feb 08 Jan 2031
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 11
Weighted average exercise price
$2.50
$2.90
$3.23
$3.66
$4.16
$4.83
$5.53
$5.49
120,000
133,000
210,000
270,000
360,000
420,000
595,000
-
2,108,000
$4.35
-
-
-
-
-
-
-
625,000
625,000
$5.49
-
-
-
-
-
(420,000)
(130,000)
(110,000)
(660,000)
-
-
-
(10,000)
(20,000)
-
-
-
120,000
133,000
210,000
260,000
340,000
-
465,000
515,000
(30,000) 2,043,000
$5.08
$3.99
$4.47
Grant
date
Exercise
date
Expiry
date
Exercise price
Consolidated and Company 2007
Feb 01
Feb 02
Feb 03
Feb 04
Feb 05
Feb 06
Feb 07
Jan 2023
Jan 2024
Jan 2025
Jan 2026
Jan 2027
Jan 2028
Jan 2029
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Weighted average exercise price
$2.50
$2.90
$3.23
$3.66
$4.16
$4.83
$5.53
Number of
Options at
Beginning
of Year
155,000
195,000
270,000
360,000
450,000
510,000
-
1,940,000
$3.83
Options
granted
Options
lapsed
Options
exercised
Number of
options at
end of year
on issue
-
-
-
-
-
-
595,000
595,000
$5.53
-
-
(60,000)
(90,000)
(90,000)
(90,000)
-
(330,000)
(35,000)
(62,000)
-
-
-
-
-
120,000
133,000
210,000
270,000
360,000
420,000
595,000
(97,000) 2,108,000
$4.04
$2.76
$4.35
79
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
26. Share-based payments (continued)
The fair value of services received in return for share options granted during the year was $117,000 (2007:
$382,000), This amount is amortised over the life of the option (and the three year holding period for those
options issued prior to 2008). The estimate of the fair value of the services received is based on a model that
includes the length of the option period and the relationship between the market price at the date of the grant of
the option and the strike price of the option. This method has been applied consistently.
Employee expenses
In thousands of AUD
Share options granted in 2002 – equity settled
Share options granted in 2003 – equity settled
Share options granted in 2004 – equity settled
Share options granted in 2005 – equity settled
Share options granted in 2006 – equity settled
Share options granted in 2007 – equity settled
Share options granted in 2008 – equity settled
Expense arising from employee share scheme
Total expense recognised as employee costs
Consolidated
Company
2008
-
10
12
26
41
49
15
216
369
2007
8
3
4
23
42
50
-
341
471
2008
-
10
12
26
41
49
15
200
353
2007
8
3
4
23
42
39
-
300
419
80
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
27. Provisions
In thousands of AUD
Outstanding
claims
Contingent
consideratio
n
Site
restoration
Total
Consolidated
Balance at 1 July 2007
Acquired in a business
combination
Provisions made during the
period
Provisions used during the period
Provisions reversed during the
period
Balance at 30 June 2008
Non-current
Current
Company
Balance at 1 July 2007
Acquired in a business
combination
Provisions made during the
period
Provisions used during the period
Provisions reversed during the
period
Balance at 30 June 2008
Non-current
Current
Outstanding claims
5,112
-
103
(244)
-
4,971
-
4,971
4,971
4,474
-
64
-
-
4,538
-
4,538
4,538
1,698
617
7,427
384
150
637
(859)
(839)
(315)
-
(1,418)
(839)
384
-
384
384
-
-
384
-
-
384
-
384
384
452
263
189
452
-
-
-
-
-
-
-
-
-
5,807
263
5,544
5,807
4,474
-
448
-
-
4,922
-
4,922
4,922
The provision for claims is the estimated future liability of the Group’s self-insurance arrangements. The value of
the provision is determined in consultation with the company’s actuaries or legal advisers as appropriate.
Contingent consideration
The contingent consideration provision represents present value of the component, on acquisition of subsidiaries
or business operations, of consideration payable only if the acquiree meets certain performance criteria over a
specified period of time.
Other
Other provisions comprise mainly a provision for site restoration.
81
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
28. Trade and other payables
Consolidated
Company
In thousands of AUD
Trade payables
Other trade payables and accrued
expenses
Loans from controlled entities
Other loans – secured
Note
2008
98,765
40,991
-
165
2007
101,289
2008
2007
20,374
21,451
32,493
-
165
14,429
19,202
-
54,005
12,795
43,633
-
77,879
139,921
133,947
The Company and Group’s exposure to currency and liquidity risk related to trade and other payables is
disclosed in note 29.
The Company has entered into a Deed of Cross Guarantee with certain subsidiaries as described in note 37.
Details of the consolidated financial position of the Company and subsidiaries party to the Deed are set out in
note 37.
29. Financial instruments
Credit risk
Exposure to credit risk
The carrying amount of the Group and Company’s financial assets represents the maximum credit exposure.
The maximum exposure to credit risk at the reporting date is summarised below:
In thousands of AUD
Cash and cash equivalents
Trade and other receivables
Investments at fair value
Investments in controlled entities - at cost
Note
21
18
19
19
Consolidated
Company
2008
21,310
262,046
2
-
2007
26,923
172,655
2
-
2008
(7,513)
298,929
2
151,966
2007
3,177
224,503
2
151,210
82
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
29. Financial instruments (continued)
Impairment losses
The aging of the Group and Company’s trade receivables at the reporting date was:
Group
In thousands of AUD
Not past due
Past due 0-30 days
Past due 31-90 days
More than 91 days
Company
In thousands of AUD
Not past due
Past due 0-30 days
Past due 31-90 days
More than 91 days
Gross
2008
126,529
73,290
20,795
7,350
227,964
Gross
2008
32,787
17,657
7,473
3,810
61,727
Impairment
2008
-
-
-
(5,528)
(5,528)
Impairment
2008
-
-
-
(2,150)
(2,150)
Gross
2007
96,824
56,490
13,089
5,187
171,590
Gross
2007
25,615
16,005
3,687
1,300
46,607
Impairment
2007
-
-
-
(5,179)
(5,179)
Impairment
2007
-
-
-
(1,300)
(1,300)
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Group
In thousands of AUD
Balance at 1 July
Impairment loss recognised
Balance at 30 June
Company
In thousands of AUD
Balance at 1 July
Impairment loss recognised
Balance at 30 June
2008
(5,179)
(349)
(5,528)
2008
(1,300)
(850)
(2,150)
2007
(4,888)
(291)
(5,179)
2007
(1,000)
(300)
(1,300)
Based on historic default rates, the Group believes that no impairment allowance is necessary in respect of
trade receivables not yet past due, or loans to/ investments in Group companies.
83
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
29. Financial instruments (continued)
Liquidity risk
The following are the contractual maturities of financial assets and liabilities, including estimated interest
payments. The amounts disclosed are the contractual undiscounted cash flows (inflows shown as positive,
outflows as negative).
Consolidated
30 June 2008
In thousands of AUD
Financial assets
Non-interest bearing
Fixed rate
Variable rate
Financial liabilities
Non-interest bearing
Variable rate*
Carrying
amount
Contractual
cash flows
6 months or
less
6-12 months
1-2 years
2-5 years
More than 5
years
262,046
2,152
19,397
262,046
2,280
20,095
244,761
2,280
20,095
283,595
284,421
267,136
-
-
-
-
17,285
-
-
17,285
-
-
-
-
(140,418)
(209,191)
(140,418)
(263,167)
(139,920)
(15,632)
-
(16,311)
-
(16,393)
-
(214,830)
(349,609)
(403,585)
(155,552)
(16,311)
(16,393)
(214,830)
-
-
-
-
(498)
-
(498)
* Variable rate financing consists of commercial bills that are drawn under a facility agreement entitling the
Group and Company to financing until November 2010.
Consolidated
30 June 2007
In thousands of AUD
Financial assets
Non-interest bearing
Fixed Rate
Variable rate
Financial liabilities
Non-interest bearing
Variable rate
Carrying
amount
Contractual
cash flows
6 months or
less
6-12 months
1-2 years
2-5 years
More than 5
years
172,655
7,085
20,349
172,655
7,292
20,942
172,655
7,292
20,942
200,089
200,889
200,889
-
-
-
-
-
-
(134,485)
(173,148)
(134,485)
(184,429)
(133,947)
(6,167)
-
(5,626)
-
(172,637)
(307,633)
(318,914)
(140,114)
(5,626)
(172,637)
-
-
-
-
-
-
-
-
-
(538)
-
(538)
84
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
29. Financial instruments (continued)
Company
30 June 2008
In thousands of AUD
Financial assets
Non-interest bearing
Non-interest bearing -
Loans to controlled
entities
Fixed rate
Financial liabilities
Non-interest bearing
Variable rate –
intercompany
Variable rate – external
30 June 2007
In thousands of AUD
Financial assets
Non-interest bearing
Loans to controlled
entities
Fixed rate
Financial liabilities
Non-interest bearing
Variable rate –
intercompany
Variable rate – external
Carrying
amount
Contractual
cash flows
6 months or
less
6-12 months
1-2 years
2-5 years
More than 5
years
66,662
232,267
66,662
232,267
60,722
232,267
1,000
1,072
1,072
299,929
300,001
294,061
-
-
-
-
5,940
-
-
5,940
-
-
-
-
-
-
-
-
(54,503)
(31,292)
(54,503)
(46,543)
(54,005)
(1,592)
-
(1,592)
-
(3,183)
-
(40,177)
(498)
-
(190,513)
(239,363)
(22,811)
(14,298)
(14,298)
(187,957)
-
(276,308)
(340,409)
(78,408)
(15,890)
(17,481)
(228,134)
(498)
Carrying
amount
Contractual
cash flows
6 months or
less
6-12 months
1-2 years
2-5 years
More than 5
years
46,542
177,961
46,542
177,961
46,542
177,961
3,177
3,245
3,245
227,680
227,748
227,748
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(78,377)
(30,125)
(78,377)
(43,798)
(77,879)
(1,341)
-
(5,466)
-
(2,314)
-
(6,942)
(498)
(27,736)
(145,000)
(154,367)
(4,684)
(4,684)
(145,000)
-
-
(253,502)
(276,542)
(83,903)
(10,149)
(147,314)
(6,942)
(28,234)
85
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
29. Financial instruments (continued)
Currency risk
Exposure to currency risk
The Group’s exposure to foreign currency risk at balance date was as follows:
In thousands
USD
NZD
euro
JPY
USD
NZD
euro
JPY
Trade receivables
Secured bank loans
Trade payables
Gross balance sheet
exposure
30 June 2008
30 June 2007
483
-
(2,078)
6,813
(1,200)
(2,894)
-
-
(67)
-
-
(14,809)
(1,595)
2,719
(67)
(14,809)
-
-
-
-
11,594
(2,520)
(5,541)
3,533
-
-
-
-
-
-
-
-
The Company’s exposure to foreign currency risk was as follows:
In thousands
USD
NZD
euro
JPY
USD
NZD
euro
JPY
30 June 2008
30 June 2007
435
(920)
(485)
-
-
-
-
(21)
-
(14,807)
(21)
(14,807)
-
-
-
-
-
-
-
-
-
-
-
-
Trade receivables
Trade payables
Gross balance sheet
exposure
Sensitivity analysis
A 5 percent strengthening/weakening of the Australian dollar against the above currencies at 30 June would not
have materially increased/(decreased) equity and profit or loss in the current or prior year. This analysis
assumes that all other variables, in particular interest rates remain constant.
Interest rate risk
Profile
At the reporting date the interest rate profile of the Company’s and the Group’s interest-bearing financial
instruments was:
In thousands of AUD
Fixed rate instruments
Financial assets
Variable rate instruments
Financial assets
Financial liabilities
Consolidated
Carrying amount
Company
Carrying amount
2008
2007
2008
2007
2,152
7,085
1,000
3,177
19,397
(209,191)
(187,642)
20,349
(173,148)
(145,714)
-
(221,805)
(220,805)
-
(175,125)
(171,948)
Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss,
and the Group does not designate derivatives (interest rate swaps) as hedging. Therefore a change in interest
rates at the reporting date would not materially affect profit or loss.
86
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
29. Financial instruments (continued)
Cash flow sensitivity analysis for variable rate instruments
A change of 50 basis points in interest rates at the reporting date would have increased (decreased) equity and
profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign
currency rates, remain constant. The analysis is performed on the same basis for 2007.
Group
Effect in thousands of AUD
30 June 2008
30 June 2007
Company
Effect in thousands of AUD
30 June 2008
30 June 2007
Fair values
Profit or loss
Equity
50bp
increase
50bp
decrease
50bp
increase
50bp
decrease
(929)
929
(929)
929
(725)
725
(725)
725
Profit or loss
Equity
50bp
increase
50bp
decrease
50bp
increase
50bp
decrease
(790)
790
(790)
790
(709)
709
(709)
709
Fair values versus carrying amounts
The carrying values of financial assets and liabilities as shown in the balance sheet are a reasonable
approximation of fair value.
The basis for determining fair values is disclosed in note 4.
30. Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
More than five years
Consolidated
Company
2008
2007
2008
2007
14,010
31,737
3,156
48,903
13,785
33,828
5,814
53,427
1,208
1,448
-
2,656
1,904
2,562
-
4,466
The Group leases a number of warehouse and factory facilities under operating leases.
The leases run for a period ranging from 1 to 15 years with the majority running for a period of 5 years, with an
option to renew the lease after that date. Lease payments are increased each renewal period to reflect market
rentals. Some leases provide for additional rent payments that are based on changes in a local price index.
87
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
31. Capital and other commitments
In thousands of AUD
Capital expenditure commitments
Plant and equipment
Contracted but not yet provided for and payable:
Within one year
Consolidated
2007
2008
Company
2008
2007
11,864
11,827
1,636
1,272
32. Contingencies
The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable
that a future sacrifice of economic benefits will be required or the amount is not capable of reliable
measurement.
In thousands of AUD
Contingent liabilities not considered remote
Consolidated
Company
2008
2007
2008
2007
Guarantees
(i) Under the terms of a Deed of Cross Guarantee the Company and
its wholly owned subsidiaries, have guaranteed the bank facilities in
each other’s companies. The amounts shown are the bank
guarantees. No material deficiency in net assets exists in these
companies at reporting date.
-
- 276,420 193,168
(ii) Letters of credit established in favour of suppliers/creditors.
38
27,701
-
(iii) Bank guarantees in favour of customers and suppliers
18,493
18,170
9,892
8,514
There are no contingent assets where the probability of future
receipts is not considered remote.
88
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
33. Related parties
Key management personnel
The following were key management personnel of the Group at any time during the reporting period and unless
otherwise indicated were key management personnel for the entire period:
Non-executive Directors
Jennifer Helen Hill-Ling (Chairman)
Ian Elliot
Roger Baden Flynn
Geoffrey Guild Hill
Peter William Stancliffe
Executive Directors
David James Simmons (Group Managing Director, resigned 30 June 2008)
Graham Lloyd Twartz (Group Finance Director, appointed Group Managing Director 1 July 2008)
Executives
L Andrewatha (Managing Director - Orrcon Group)
A Muir (General Manger - Business Development, appointed Group Finance Manager 28 March 2008)
J Easling (Managing Director - Fielders)
S Cope (Group General Manager – Electronics, Security and Entertainment)
R Gros (Group General Manger – Home, Hardware & Eco Products)
A Oliver - Group General Manager - Antenna and TV Systems
R Meachem General Manager – Pacom
D Salvaterra – General Manager - EzyStrut
Key management personnel compensation
The key management personnel (KMP) compensation included in ‘personnel expenses’ (see note 11) is as
follows
In AUD
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Consolidated
Company
2008
4,398,212
340,340
-
150,549
4,889,101
2007
2,930,011
224,779
291,068
258,993
3,704,851
2008
3,497,677
265,067
-
120,437
3,883,181
2007
2,087,001
149,294
291,068
161,768
2,689,131
Individual directors and executives compensation disclosures
Information regarding individual directors and executives compensation and some equity instruments
disclosures as permitted by Corporations Regulations 2M.3.03 are provided in the Remuneration Report section
7 of the Directors’ Report.
Apart from the details disclosed in this note, no director has entered into a material contract with the Company
or the Group since the end of the previous financial year and there were no material contracts involving
directors’ interests existing at year-end.
89
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
33. Related parties (continued)
Loans to key management personnel and their related parties
There were no loans outstanding at the reporting date to key management personnel and their related parties.
Option loans detailed in prior year reports are no longer recognised as loans as they are included in the fair
value of the options as required by AIFRS.
Other key management personnel transactions
A number of key management persons, or their related parties, hold positions in other entities that result in
them having control or significant influence over the financial or operating policies of those entities.
A number of these entities transacted with the Company or its subsidiaries in the reporting period. The terms
and conditions of the transactions with management persons and their related parties were no more favourable
than those available, or which might reasonably be expected to be available, on similar transactions to non-
director related entities on an arm’s length basis.
The aggregate amounts recognised during the year relating to key management personnel and their related
parties were as follows:
In AUD
Key management person
J Easling
Transactions value
year ended 30 June
Note
2008
2007
(i)
1,135,180
899,047
Transactio
n
Property
Rental
(i)
The Group rents certain property from a company in which J Easling is a shareholder. Amounts were
billed based on normal market rentals and were due and payable under normal payment terms.
There were no amounts receivable from and payable to key management personnel at reporting date arising
from this transaction. (2007: $nil)
From time to time, key management personnel of the Company or its controlled entities, or their related entities,
may purchase goods from the Group. These purchases are on the same terms and conditions as those entered
into by other Group employees or customers and are trivial or domestic in nature.
90
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
33. Related parties (continued)
Options and rights over equity instruments
The movement during the reporting period in the number of options over ordinary shares in the Company held,
directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Held at 1
July
2007
Granted as
compen-
sation
Exercised
Other
changes*
Held at
30 June
2008**
Vested
during the
year
Vested and
exercisable
at 30
June
2008
540,000
323,000
100,000
60,000
280,000
180,000
110,000
70,000
30,000
55,000
60,000
60,000
25,000
60,000
30,000
25,000
20,000
25,000
60,000
60,000
-
-
-
-
-
-
-
-
-
-
(280,000)
(60,000)
360,000
323,000
240,000
40,000
360,000
83,000
(45,000)
(60,000)
(30,000)
(25,000)
(10,000)
(10,000)
-
-
260,000
180,000
110,000
70,000
40,000
70,000
120,000
120,000
40,000
-
10,000
-
-
-
-
-
100,000
-
10,000
-
-
-
-
-
Held at
Granted as
1 July
2006
compen-
sation
Exercised
Other
changes*
Vested and
Held at
30 June
2007**
Vested
exercise-able
during the
at 30 June
year
2007
440,000
280,000
100,000
60,000
-
(17,000)
-
-
540,000
323,000
280,000
235,000
100,000
120,000
80,000
-
-
45,000
-
45,000
-
60,000
30,000
60,000
60,000
25,000
(60,000)
-
(20,000)
-
-
-
(220,000)
-
(80,000)
-
-
-
-
-
-
-
-
280,000
-
180,000
110,000
60,000
60,000
70,000
80,000
60,000
60,000
45,000
20,000
60,000
25,000
-
-
10,000
120,000
43,000
60,000
60,000
20,000
-
-
-
-
-
Directors
D J Simmons
G L Twartz
Executives
A Oliver
L Andrewatha
J Easling
A Muir
D Walker
R Meachem
S Cope
R Gros
Directors
D J Simmons
G L Twartz
Executives
M Canny
A Oliver
P Mellino
L Andrewatha
J Easling
S Cope
R Gros
A Muir
* Other changes represent options that lapsed or were forfeited during the year.
**Options are subject to a non-recourse loan for the purchase of shares. The shares are not recognised as
exercised by International Financial Reporting Standards, until the loan is extinguished.
No options were held by key management person related parties.
91
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
33. Related parties (continued)
Movement in shares
The movement during the reporting period in the number of ordinary shares in the Company held, directly,
indirectly or beneficially, by each key management person, including their related parties, is as follows
Received
on
exercise of
options
Employee
Share
Bonus
Plan
Sales
Purchases
Held at
1 July
2007
14,782,908
9,706
1,000
70,482
24,407
10,202
2,609
553,903
-
-
5,574
1,889
1,919
1,299
40,264
-
5,383
1,911
1,416
6,315
-
-
2,445
-
330
1,299
4,421
387
-
1,299
Received
on
exercise
of
options
Purchases
541,494
-
-
3,778
1,309
548
-
-
2,150
-
-
281
-
-
-
-
-
-
-
17,000
60,000
-
20,000
-
-
-
Held at
1 July
2006
14,289,414
9,500
1,000
66,704
23,098
9,654
12,403
28,976
37,908
5,306
-
4,896
1,705
Held at
30 June
2008
15,336,811
9,898
1,000
76,056
26,296
12,121
4,100
42,901
-
5,905
3,402
6,029
6,894
-
1,391
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Held at
30 June
2007
14,782,908
9,706
1,000
70,482
24,407
10,202
2,609
39,504
40,264
25,437
-
5,383
1,911
Sales
(48,000)
-
-
-
-
-
(27,000)
(49,678)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
192
-
-
-
-
192
192
-
192
192
192
192
-
92
Employee
Share
Bonus Plan
-
206
-
-
-
-
206
206
206
131
-
206
206
Directors
J H Hill-Ling*
D J Simmons
I Elliot
GG Hill
R B Flynn
P W Stancliffe
G L Twartz
Executives
A Oliver
L Andrewatha
J Easling
A Muir
D Walker
R Meachem
S Cope
R Gros
Directors
J H Hill-Ling*
D J Simmons
I Elliot
G G Hill
R B Flynn
P W Stancliffe
G L Twartz
Executives
M Canny**
A Oliver
P Mellino**
L Andrewartha
J Easling
A Muir
* Includes 1,057,001 (2007: 996,714) shares owned by Hills Associates & Poplar Pty Ltd and 12,454,632
(2007: 11,970,195) owned by Hills Associates Ltd in which J H Hill-Ling is a Director
92
**Held at the date of cessation of classification of KMP.
93
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
33. Related parties (continued)
Movements in shares (continued)
The above analysis does not include options exercised as options subject to a non-recourse loan for the
purchase of shares are not recognised as exercised by International Financial Reporting Standards, until the
loan is extinguished at which point the shares are recognised.
No shares were granted to key management personnel during the reporting period as compensation in 2007 or
2008 aside from those issued to the executives as part of the employee share scheme.
Changes in key management personnel in the period after the reporting date and prior to the
date when the financial report is authorised for issue
On the 30th of June 2008 David Simmons retired as Managing Director and as a Director of the Company.
Graham Twartz was appointed Managing Director on 1 July 2008. David will continue as a consultant to the
company for a further 12 months.
Subsidiaries
All transactions with partly owned controlled entities are on normal terms and conditions. Transactions with
controlled entities are determined on a cost basis. Sales of goods and services that eliminated with cost of
goods sold and services provided amounted to $14,117,000 (2007: $32,756,000). Loans and borrowings with
Australian wholly owned controlled entities are interest free and payable on demand while loans to or from non-
wholly owned subsidiaries are charged interest at rates no more favourable than current market rates. Inter
entity interest paid and received during the year was $9,189,000 (2007: $7,978,000). Entities within the group
rent properties to or from other entities within the group at rentals that are market related. Property rentals
during the year were $2,299,000 (2007: $1,711,000). Group entities charge an administration fee for services
rendered which during the year was $10,566,000 (2007: $8,296,000). Inter entity dividends paid and received
during the year amounted to $35,713,000 (2007: $11,434,000).
Group entity trading transactions and borrowings result in balances arising in respect of current and non-current
assets and liabilities. At 30 June 2008 the current assets and liabilities were $128,285,000 (2007: $150,592,000)
and the non-current assets and liabilities were $184,914,000 (2007: $137,158,000).
Other related parties
Key management persons related parties
For details of these transactions refer to key management personnel related disclosures.
Other related parties
Contributions to superannuation funds on behalf of employees are disclosed in note 11.
94
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
34. Group entities
Parent and ultimate controlling party
The consolidated financial statement’s incorporate the assets, liabilities and results of the following subsidiaries
in accordance with the accounting policy described in note 3(a).
Country of Incorporation
Note
Ownership
interest
2008
2007
Parent entity
Hills Industries Limited
Subsidiaries
Hills Finance Pty Ltd
Hills Industries Limited
Spraygen Sprayers Limited (deregistered)
Korvest Ltd
Korvest NZ Limited
Hills Hoists Pty Ltd
Bailey Aluminium Products Pty Ltd
ACN 000195 951 Pty Ltd (Formerly Triton
Manufacturing & Design Co Pty Ltd)
ACN 089 622 622 Pty Ltd (Formerly Triton
Workshop Systems (UK) Pty Ltd)
Woodroffe Industries Pty Ltd
Fielders Australia Pty Ltd
Fielders Mobile Mill Pty Ltd (Formerly Aveso Pty Ltd)
Zen 99 Pty Ltd
Orrcon Holdings Pty Ltd
Orrcon Operations Pty Ltd
Orrcon Tubing Pty Ltd
Precision Tube Company Ltd (deregistered)
Tube Specialist Pty Ltd (deregistered)
Access Television Services Pty Ltd (Formerly ATS 2005 Pty
Ltd)
ATS 2004 Pty Ltd (deregistered)
Universal Communications Corp Pty Ltd
(deregistered)
ACN 089 140 134 Pty Ltd (deregistered)
Techlife Solutions Pty Ltd (Formerly Access Television
Services Pty Ltd (Shelved))
Audio Telex Communications Pty Ltd
Crestron Control Solutions Pty Ltd
Team Poly Pty Ltd
KDB Engineering Pty Ltd
Kerry Equipment (Aust) Pty Ltd
Step Electronics 2005 Pty Ltd
Greenwattle Investments Pty Ltd
Access Scaffolding (Aust) Pty Ltd
Greenwattle Equipment Pty Ltd
Alquip Holdings Pty Ltd
Alquip Pty Ltd
Pathfinder (Edwardstown) Pty Ltd
Hills Nominees Pty Ltd
DAS Security Wholesalers Pty Ltd
Pacific Communications Pty Ltd
Pacom Security Pty Ltd
Australia
Australia
New Zealand
United kingdom
Australia
New Zealand
Australia
Australia
(a) (b)
(a)
Australia
Registered branch in United
Kingdom
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Australia
Australia
Australia
Australia
(a)
100
100
-
46.4
46.4
100
100
100
100
100
46.4
46.4
100
100
100
100
100
100
60
100
100
100
100
100
-
-
100
-
-
-
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
60
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
95
96
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
34. Group entities (continued)
Country of Incorporation
CBS Hardware Pty Ltd
Step Electronics Pty Ltd
Opticomm Co Pty Ltd
Australia
Australia
Australia
(a)
Ownership
interest
2008
100
100
50
2007
100
100
-
All shares are ordinary shares. Names inset indicate shares held by the company immediately above the
inset. The percentage shown is the interest of Hills Industries Limited.
(a) These companies are controlled by virtue of the parent entity’s control of the company’s Board
through the chairman’s casting vote, effective management of the company and exposure to the
risks and benefits of ownership, or control of voting rights through the dilution of the minority
shareholders.
(b) During the year Korvest Ltd issued 15,604 (2007: 19,553) ordinary shares pursuant to its
Employee Share Bonus Plan for no consideration. Hills Industries Limited does not participate in
this plan. As a result of this transaction Hills Industries Limited decreased its interest in Korvest
Ltd.
35. Subsequent event
There have been no events subsequent to balance date that would have a material effect on the Group’s
financial statements at 30 June 2008.
36. Auditors’ remuneration
In AUD
Audit services
Auditors of the Company
KPMG Australia:
Consolidated
Company
2008
2007
2008
2007
Audit and review of financial reports
377,000
350,000
261,000
291,500
Overseas KPMG Firms:
Audit and review of financial reports
Other auditors
Audit and review of financial reports
Other services
Auditors of the Company
KPMG Australia
41,004
418,004
53,186
403,186
-
261,000
-
291,500
3,030
421,034
12,383
415,569
-
261,000
-
Taxation and other services
134,020
122,022
128,770
117,522
Overseas KPMG Firms:
Taxation services
26,582
160,602
12,678
134,700
-
128,770
-
117,522
97
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
37. Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries
listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of
financial reports, and directors’ report.
It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross
Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt
in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a
winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six
months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event
that the Company is wound up.
The subsidiaries subject to the Deed are:
KDB Engineering Pty Ltd
Kerry Equipment (Aust) Pty Ltd
• Hills Finance Pty Ltd
• Hills Hoists Pty Ltd
• Bailey Aluminium Products Pty Ltd
•
•
• Woodroffe Industries Pty Ltd
• ACN 000 195 951 Pty Ltd (Formerly Triton Manufacturing & Design Co Pty Ltd)
• Orrcon Operations Pty Ltd
• Orrcon Holdings Pty Ltd
• Greenwattle Investments Pty Ltd (Alquip)
• Audio Telex Communications Pty Ltd
•
Team Poly Pty Ltd
All of the subsidiaries except KDB Engineering Pty Ltd, Orrcon Operations Pty Ltd and Orrcon Holdings Pty Ltd
became a party to the deed on 15 April 2004 by virtue of a Deed of Assumption.
Orrcon Holdings Limited and Orrcon Operations Pty Ltd became parties to the deed on 23 June 2006, by virtue
of a Deed of Assumption. Greenwattle Investments Pty Ltd (Alquip) and Audio Telex Communications Pty Ltd
became parties to the deed on 25 June 2007. Team Poly Pty Ltd became a party to the deed on 14 May 2008.
Hills Industries Limited is the Holding Company and Pacom Security Pty Ltd is the Trustee under the Deed.
A consolidated income statement and consolidated balance sheet, comprising the Company and controlled
entities that are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross
Guarantee, at 30 June 2008 is set out as follows:
Summarised income statement and retained profits
In thousands of AUD
Profit before tax
Income tax expense
Profit after tax
Retained profits at beginning of year
Transfers to and from reserves
Adjustment to retained profits at the beginning of the year on inclusion of
addition company in the Class Order
Dividends recognised during the year
Retained profits at end of year
Attributable to:
Equity holders of the Company
Minority interest
Profit for the period
98
Consolidated
2008
2007
49,929
9,656
40,273
96,488
135
3,115
54,564
11,590
42,974
86,127
251
4,458
(40,611)
99,400
(37,322)
96,488
99,400
-
99,400
96,488
-
96,488
Hills Industries Limited 30 June 2008 Annual Financial Report
Notes to the financial statements
37. Deed of cross guarantee (continued)
Balance sheet
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Assets classified as held for sale
Total Current Assets
Investments
Deferred tax assets
Property, plant and equipment
Intangible assets
Total Non-Current Assets
Total Assets
Liabilities
Bank overdraft
Trade and other payables
Loans and borrowings
Employee benefits
Current tax payable
Provisions
Total Current Liabilities
Loans and borrowings
Employee benefits
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total equity
Consolidated
2008
2007
19,929
260,152
141,774
-
421,855
9,514
11,440
181,154
95,888
297,946
719,851
10,271
94,404
10,842
17,292
2,957
5,176
140,942
203,498
4,677
208,175
349,117
12,593
179,774
127,490
15,946
335,803
21,046
24,103
130,664
86,986
262,799
598,602
-
84,766
4,125
15,977
11,833
6,209
122,910
171,498
4,319
175,817
298,727
370,504
299,875
223,091
48,013
99,400
370,504
178,031
25,356
96,488
299,875
99
Directors’ declaration
1
In the opinion of the directors of Hills Industries Limited (‘the Company’):
(a)
the financial statements and notes set out on pages 24 to 95, and the Remuneration report in the
Directors' report, set out on pages 11 to 18, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company’s and the Group’s financial position as at 30 June 2008 and
of their performance, for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001;
(b)
the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a);
(c)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they
become due and payable.
There are reasonable grounds to believe that the Company and the group entities identified in note 37 will be
able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of
Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418.
The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the
chief executive officer and chief financial officer for the financial year ended 30 June 2008.
2
3
Signed in accordance with a resolution of the directors:
Dated at Adelaide on this 12th day of September 2008.
G L Twartz
Director
100
Independent audit report to the members of
Hills Industries Limited 30 June 2008 Annual Financial Report
Report on the financial report
We have audited the accompanying financial report of Hills Industries Limited (the Company), which comprises the
balance sheets as at 30 June 2008, and the income statements, statements of recognised income and expense and
cash flow statements for the year ended on that date, a description of significant accounting policies and other
explanatory notes [x to y] and the directors’ declaration of the Group comprising the company and the entities it
controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation and fair presentation of the financial report in
accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the
preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in
the circumstances. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101
Presentation of Financial Statements, that the financial report, comprising the financial statements and notes, complies
with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial report 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in
accordance with the Corporations Act 2001 and Australian Accounting Standards (including the Australian Accounting
Interpretations), a view which is consistent with our understanding of the Company’s and the Group’s financial position
and of their performance
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
101
Independent audit report to the members of
Hills Industries Limited 30 June 2008 Annual Financial Report
Auditor’s opinion
In our opinion:
(a) the financial report of Hills Industries Limited is in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Company’s and the Group’s financial position as
at 30 June 2008 and of their performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a).
Report on the remuneration report
We have audited the Remuneration Report included in paragraphs 11 to 18 of the directors’ report for the year ended
30 June 2008. The directors of the company are responsible for the preparation and presentation of the remuneration
report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the
remuneration report, based on our audit conducted in accordance with auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of Hills Industries Limited for the year ended 30 June 2008, complies with
Section 300A of the Corporations Act 2001.
KPMG
G Savage
Partner
Adelaide
Dated this the 12th day of September 2008
102
Lead auditor’s independence declaration under Section 307C of the
Corporations Act 2001
To: the directors of Hills Industries Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2008
there have been:
(i)
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in
relation to the audit; and
(ii)
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
G Savage
Partner
Adelaide
Dated this the 12th day of September 2008
103
ASX additional information
Additional information required by the ASX Limited Listing Rules and not disclosed elsewhere in this report is set out
below.
Shareholdings (as at 22 August 2008)
Substantial shareholders
The number of shares held by substantial shareholders and their associates are set out below:
Shareholder
Poplar Pty Limited
Hills Associates Limited
Voting rights
Ordinary shares
Number
17,955,072
12,454,632
On a show of hands, every person present in one or more of the following capacities, namely, that of a member or the
proxy attorney or representative of a member, shall have one vote.
On a poll, every member present in person or by proxy attorney or representative shall have one vote for every
ordinary share held.
Direct payment to shareholders’ accounts
Dividends may be paid directly to bank, building society or credit union accounts in Australia. Payments are
electronically credited on the dividend date and confirmed by mailed payment advice. Shareholders who want their
dividends paid this way should advise the Company’s share register in writing.
Distribution of equity security holders
As at 13 August 2008
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,000 - 100,000
100,000 and over
Number of equity
security holders
Ordinary
shares
Options
4,730
11,516
4,712
2,816
64
23,838
-
-
-
15
7
22
The number of shareholders holding less than a marketable parcel of ordinary shares is 768.
Securities Exchange
The Company is listed on the Australian Securities Exchange. The Home exchange is Adelaide.
Other information
Hills Industries Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
104
ASX additional information (continued)
On-market buy-back
There is no current on-market buy-back.
Twenty largest shareholders
Name
Number of ordinary shares
held
Percentage of
capital held
Poplar Pty Limited
Hills Associates Limited
Jacaranda Pastoral Pty Ltd
Australian Foundation Investment Company Limited
Argo Investments Ltd
Donald Cant Pty Ltd
National Nominees Limited
Colleen Sims Nominees Pty Ltd
Milton Corporation Limited
J P Morgan Nominees Australia Limited
Hills Associates Limited & Poplar Pty Ltd
Choiseul Investments Limited
ANZ Nominees Limited
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Tamarisk Pty Limited
Queensland Investment Corporation
Mr David James Simmons
RBC Dexia Investor Services Australia Nominees Pty Limited
S Kidman & Co Ltd
Offices and officers
Company Secretary
Mr Andrew Muir, B.Ec, MBA
Principal Registered Office
944-956 South Road
Edwardstown SA 5039
Telephone: (08) 8301 3200
Facsimile: (08) 8297 4468
Web: www.hills.com.au
Locations of Share Registries
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street
Adelaide, SA 5000
Telephone (within Australia): 1300 556 161
Telephone (outside Australia): +61 3 9415 4000
Facsimile: (08) 8236 2305
Email: web.queries@computershare.com.au
Internet address: www.computershare.com
17,955,072
12,454,632
5,665,250
4,262,130
4,088,006
1,832,426
1,733,223
1,693,012
1,615,648
1,528,457
1,057,001
801,039
705,425
703,424
653,172
571,062
477,978
360,000
307,858
298,000
58,762,815
9.61
6.67
3.03
2.28
2.19
0.98
0.93
0.91
0.86
0.82
0.57
0.43
0.38
0.38
0.35
0.31
0.26
0.19
0.16
0.16
31.47
105