Concise Annual
Report 2009
Contents
Directors’ Report
2009 Overview
Five Year Summary
Group Profile
Electronic Security and Entertainment
Home, Hardware and Eco
Building and Industrial
Executive Management Group
Information on Directors
Remuneration report – audited
Lead Auditor’s Independence Declaration
Corporate Governance Statement
Concise Financial Report
Income Statement
Balance Sheet
Statement of Recognised Income and Expense
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report to the Members
Shareholder Information
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9
11
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15
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18
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52
Hills Industries Limited
Concise Annual Report 2009
Principal Registered Office
944-956 South Road
Edwardstown SA 5039
Telephone: (08) 8301 3200
Facsimile: (08) 8297 4468
Email: info@hills.com.au
ABN 35 007 573 417
Share Registry
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
Shareholder enquires/change of address
Shareholders wishing to enquire about their
shareholdings, dividends or change their
address should contact the Company’s
share registry.
Relationship of the Concise Annual Financial
Report to the full Annual Financial Report
The Concise Annual Financial Report is an
extract from the full Annual Financial Report
for the year ended 30 June 2009. The financial
statements and specific disclosures included in
the Concise Annual Financial Report have been
derived from the full Annual Financial Report.
The Concise Annual Financial Report cannot
be expected to provide as full an understanding
of the financial performance, financial position
and financing and investing activities of Hills
Industries Limited and its subsidiaries (the
Group) as the full Annual Financial Report.
Further information can be obtained from the
full Annual Financial Report.
A copy of the Group’s 30 June 2009 full Annual
Financial Report, including the independent
audit report, is available to all shareholders and
will be sent to shareholders without charge
upon request or can be downloaded from
www.hills.com.au.
The 30 June 2009 full Annual Financial Report
can be requested by telephone:
Australia: (08) 8301 3200
Overseas: +61 8 8301 3200
Or via email at info@hills.com.au.
The paper used to print this
Concise Annual Report is made from
wood grown in sustainable forests.
Overview
The Hills Industries Group achieved a profit after tax (excluding
unusual and significant items) attributable to shareholders
of $28.052 million (statutory profit of $9.506 million). This was
a reduction of 41.6% compared to the previous year and was
struck on record revenues of $1.211 billion.
Overview 2009
While the growth in revenue to a record level was pleasing, the general
slowdown in economic activity around the world, and in Australia
and New Zealand in particular, saw the Group record its first reduced
operating profit for many years. As a result of the reduced profitability,
the Group undertook a number of restructuring initiatives, which
resulted in the closure of some operations, a reduction in headcount,
some improvements in our supply chain and changes to our product
offering. While these initiatives were implemented across the Group,
they were most prevalent in the Home, Hardware and Eco division,
which produced an extremely poor result.
Cash flows from operations were very strong during the period as
improvements were made to the management of our working capital.
The cash flow from operations was a record for the Group.
Our gearing (measured as debt divided by equity) was below our
stated target of 45%. Since the balance date, the company has
undertaken some important initiatives to strengthen the balance
sheet. On August 5 we completed a placement to institutional
shareholders of around $40 million. At the same time we
announced a Share Purchase Plan, which gave existing shareholders
an entitlement to purchase additional shares at the placement price.
The institutional raising introduces a number of
new shareholders to the company’s register and in the directors’ view
brings a better balance to the share register between private and
institutional investors.
The second initiative was the extending of the term of the majority
of our debt facilities to November 2011.
With the support of our shareholders and bankers Hills is well
placed to capitalise on improving economic conditions and
acquisition opportunities that may arise.
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 mitigate the
impact of short-term changes to individual markets and economies.
We aim to be product innovators and market leaders.
Our overall objective is to grow revenue and earnings through a
combination of organic growth and acquisitions. We aim to produce
superior returns on the funds invested in our businesses. 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
The impact of the global financial crisis and the resultant volatility
in commodity prices and exchange rates saw generally subdued
and difficult trading conditions in Australia and in particular in New
Zealand. Steel prices rose quite sharply early in the year and then
declined as economic activity decreased over the course of the year.
The severe and rapid devaluation of the dollar in the first half of the
year under review caused sharp increases in the cost of our imported
product, which we were unable to pass on as effectively as we would
have liked. As a result, our margins were reduced during the latter part
of the year, which contributed to the lower operating profit.
Unusual / Significant Items
In the period under review we booked a number of non-trading losses
as a result of restructuring initiatives referred to above, as well as the
mark to market adjustment on our interest rate swaps and foreign
exchange contracts. The bulk of these unusual items were non-
cash, the largest two being the write off of the goodwill in our Alquip
business and the mark to market adjustments. In addition, there
were redundancy and closure costs as a result of the restructuring
initiatives that we have undertaken.
22
Operating and Financial Review Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
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 controlled entities, for the financial
year ended 30 June 2009 and the auditor’s report thereon.
Vision and Values
Hills is a diversified company operating mainly in Australia and New
Zealand. We aim to be the market leader in the industries in which
we operate, supplying innovative quality products to our customers
and to achieve superior financial performance that provides strong
shareholder value.
To achieve this we value and promote:
• A leadership style which 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.
Dividends
During the year we announced that our previous policy of paying
100% of our after tax profits to shareholders as dividends would be
discontinued. The directors felt that in the environment of declining
availability of capital this policy was not in the long-term interests of
the company.
Over the course of the year shareholders will receive a total 10 cents
per share in fully franked dividends in respect of the year ended 30
June 2009. Earnings per share from ordinary operations for the same
period were 14.6 cents.
Shareholders
We value the support of our shareholders in a year that saw some
significant reductions in our share price. The continued support of
our Dividend Reinvestment and Share Purchase Plans helps to bolster
the company’s balance sheet.
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 for the employees, the company and
our shareholders.
While the growth in revenue to a record level was
pleasing, the general slowdown in economic
activity around the world, and in Australia and
New Zealand in particular, saw the Group record
its first reduced operating profit for many years.
Likely Developments
There continues to be much public comment and debate about the
state of global markets. Economic forecasters continue to have a wide
range of views about the timing and speed of an economic recovery
in Australia and New Zealand.
We expect trading conditions to remain subdued in the first half of
the new financial year, however, we are forecasting improved trading
conditions in the second half of the financial year. As a result of
the cost reductions and restructuring initiatives previously referred
to, we believe the company is well placed to improve profits when
economic conditions return to more normal levels. The changes that
we have made have been wide spread but have not undermined our
commitment to customer service.
Based on all of the above, we expect a modest improvement in
operating profit for the financial year ending 30 June 2010.
The Board of Directors:
Ian Elliot
Graham Lloyd Twartz
Peter William Stancliffe
Jennifer Helen Hill-Ling
Geoffrey Guild Hill
Roger Baden Flynn
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
3
Five Year Summary
Total revenue
Amount in $ millions
$1014.0
$931.8
$811.0
Net profit after tax attributable to
members (before unusual items)
Amount in $ millions
Earnings per share (before unusual items)
Amount in cents
$1184.7
$1210.8
$47.2
$48.0
$43.3
$35.5
27.6c
27.3c
25.9c
23.1c
$28.0
14.6c
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
In thousands of AUD
2005
2006
2007
2008
2009
Total revenue
Net profit after tax attributable to members
Net profit after tax attributable to members
(before unusual items)
Net profit after tax and before minority interest
Depreciation, impairment and amortisation
Net borrowing costs (before unusual items)
811,046
35,510
35,510
41,720
20,585
3,308
931,799
43,261
43,261
48,210
17,566
5,880
1,013,999
1,184,737
1,210,802
47,173
46,807
9,506
47,173
52,042
18,988
9,105
48,036
52,360
21,784
14,374
28,052
15,655
23,107
12,531
Shareholders’ equity
292,528
309,952
331,726
408,219
402,535
Operating profit attributable to members
—as a % of shareholders’ equity
15.7%
12.1%
14.0%
11.5%
2.4%
Net profit after tax and before minority interest
—as a % of total revenue
5.3%
5.1%
5.2%
4.4%
1.3%
Earnings per share (cents)
Earnings per share (before unusual items) (cents)
Dividends per share (cents)
Employees at year end
Shareholders at year end
23.1
23.1
24.0
2,694
20,270
25.9
25.9
26.0
2,956
21,748
27.6
27.6
27.5
2,999
22,837
26.6
27.3
27.5
3,140
23,841
4.9
14.6
10.0
2,608
23,716
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
5
Group Profile
Electronic Security and Entertainment
• Electronic security systems
• Closed circuit television systems
• Home and business automation
and control systems
• Satellite dishes
• Consumer electronic equipment
• Communications-related
products and services
• Domestic and commercial antennas
• Professional audio equipment
• Communications antennas
• Subscription TV installation services
• Master antenna television systems
• Fibre optic transmission solutions
• Fibre to the home / Fibre to the node
Home, Hardware and Eco
• Outdoor clothes dryers
• Laundry trolleys
• Ironing boards
• Barrier doors
• Garden sprayers
• Wheelbarrows
• Ladders
• Rehabilitation and mobility products
• Water storage solutions
• Plumbing products
Building and Industrial
• Structural, precision and
large steel tubing
• Metal roofing, flooring and fencing
• Carports and shed systems
• Steel door frames
• Cable and pipe support systems
• Hot-dip galvanising
Revenue
Amount in $ millions
Revenue
Amount in $ millions
Revenue
Amount in $ millions
$263.8
$277.2
$206.3
$343.3
$312.3
$227.5
$203.3
$191.3
$164.9
$168.9
$643.0
$663.4
$544.7
$498.2
$438.9
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
EBIT*
Amount in $ millions
EBIT*
Amount in $ millions
EBIT*
Amount in $ millions
$38.1
$13.8
$13.8
$34.0
$31.7
$12.3
$30.9
$9.6
$36.0
25.9c
$35.4
$31.8
$31.0
22.6c
$26.5
$26.8
$23.5
2005
2006
2007
2008
2009
2005
2006
2007
2008
($3.1)
2009
2005
2006
2007
2008
2009
* EBIT – Earnings before interest and tax (before unusual / significant items).
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
7
88
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
Electronic Security
and Entertainment
The Electronic Security and Entertainment
segment comprises Hills Electronic Security,
Hills Antenna & TV Systems, Hills Sound,
Vision and Lighting, Access Television Services,
Step Electronics, UHS and Opticomm.
Revenue of $343 million was 9.9% higher than
the previous year, while underlying EBIT of
$30.9 million (statutory EBIT of $30.6 million)
was 19.0% lower than 2008.
Access Television Services
Access Television Services (ATS) is the exclusive supplier of
installation services to AUSTAR Entertainment, the leading provider of
subscription TV in rural and regional Australia. The ongoing success
of AUSTAR’s marketing campaigns and product offer saw steady
volumes of work available to ATS. We continue to meet the KPIs set by
AUSTAR. We were pleased during the year to successfully transition
to be the supplier of installation services in far north Queensland.
Opticomm
Opticomm provides infrastructure and services to the Fibre to the
Node and Fibre to the Home developments. The Government’s
announcement of its proposed structure for the national broadband
network was confirmation of the business model adopted by
Opticomm. During the year we were pleased to sign a number of
further contracts with major developers, which will deliver improved
results over the next five to ten years in this rapidly growing market.
Ultra High Speed
We were delighted to acquire a 51% interest in Ultra High Speed Pty
Limited (UHS) late in the year. UHS is best known for its development
of market leading products in the electronics and wireless
communication markets, particularly in security, telemetry and
monitoring. UHS products, when combined with our security division
products, provide a compelling solution to our customers.
Hills Electronic Security
This business unit markets an extensive range of electronic security
products ranging from simple domestic alarms to complex integrated
surveillance and access control systems. We represent a number of
the world’s leading security companies, whose products we mix and
match with our own products.
The market is characterised by reasonably predictable level of
day-to-day business, supplemented by larger project opportunities.
The overall level of activity in the project market declined during the
second half of the year and our margins were reduced as a result
of the Australian dollar devaluation. We have ensured that we have
maintained market share and have set about improving our
margins in future.
We secured the exclusive distribution of Panasonic CCTV products
during the year, which complement our own EVO branded product
range, which achieved market success during the year. The transition
from a distributor of other people’s products to a developer of our
own range of products continued when we acquired the rights to the
Intellectual Property for our core range of control panels. A number of
new product launches are planned, including the recently launched
VoiceNav product.
Hills Sound, Vision and Lighting
Hills Sound, Vision and Lighting (SVL) comprises Audio Telex,
Lighthouse Distribution and Crestron Control Solutions in Australia
and New Zealand. We are the leading supplier to the professional
audio market and through Crestron we distribute a range of advanced
control automation systems for integration control of audio, video
and data.
The results for this business were also affected by subdued project
demand, as well as a sharp fall off in demand for the company’s
products in our important European and American markets. Late
in the year we were pleased to see the launch of a number of new
Crestron products, particularly focussing on lighting control and
energy management.
Our Australian Monitor brand still represents the best value for
money products in the market and during the year we invested in the
development of a new range of digital products to be released shortly.
Hills Antenna & TV Systems
This business unit provides a full range of reception and distribution
equipment for subscription television, free to air television and the
wireless voice and data markets as well as the DGTEC range of
consumer electronics.
Sales to the subscription TV market continued at steady levels,
and this business unit produced excellent results as it entered the
consumer electronics market with a range of digital set top boxes and
personal video recorders under the DGTEC name. Furthermore, sales
of digital antennas were most pleasing as the government’s intention
to turn off the analogue free to air signal was announced.
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
9
Home, Hardware and Eco
Consumer Products
This business unit distributes a range of predominantly metal-based
branded hardware products to consumer trade customers and
government utilities. Our market leading brands include Hills, Bailey
and Oldfields Ladders.
The results from this part of the business were extremely poor during
the year. As a result of this a complete review and restructure of the
business unit was undertaken. A number of product categories were
discontinued where it was established that these products could not
meet our return on investment benchmarks. The closure of the Alquip
business was a consequence of this process.
This business unit now has a reduced and focussed product range,
improved supply chain and logistics, improved customer service
and improved quality and product benchmarks. We believe that
this business can return to making a contribution to the Hills results
effective immediately.
Team Poly
The Team Poly business is one of Australia’s largest manufacturers
of rainwater tanks. For the first part of the year demand for rainwater
tanks was quite low due to increased rainfall in eastern States
and reductions in State rebate schemes in most States. Industry
profitability was generally affected and several players in the market
experienced financial difficulties and insolvency.
In response to these market changes Team Poly undertook a
restructuring of its cost base and method of operations. Team Poly
has returned to profitability after a disappointing performance in the
first half of the year, despite the industry remaining characterised by
subdued demand and over capacity.
The Home, Hardware and Eco segment
comprises our branded Consumer Products
operations in Australia and New Zealand, the
Hills Healthcare rehabilitation and mobility business,
LW Gemmell, Hills Solar and Team Poly.
During the year revenue decreased by 10.6%
to $203.3 million, and the division produced
an underlying loss of $3.1 million (statutory loss
of $16.0 million).
Hills Healthcare
This business unit comprises K•Care, Kerry Equipment and Air
Comfort Seating Systems. The business unit manufactures a range
of mobility, rehabilitation and aged care products for domestic and
overseas markets. In the face of increasing competition from imports,
sales and profits in this business held up quite well, although margins
were difficult to maintain. We were pleased with the sales growth in
our nursing bed offer, as well as our Air Comfort Seating Systems
range of products.
LW Gemmell and Woodroffe
LW Gemmell is a specialist distributor of imported plumbing
products. Although commercial building activity was lower towards
the end of the year, LW Gemmell’s performance was in line with
our expectations. After many years of poor performance from our
traditional Woodroffe business we reached the view that we could not
achieve our benchmark returns and late in the year the closure of this
business was announced.
LW Gemmell • A division of Hills Industries Limited
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
11
Building and Industrial
The Building and Industrial segment
comprises Orrcon, Korvest and Fielders.
Revenues improved by 3.2% to $663.4 million,
however underlying EBIT was $31.8 million
(statutory EBIT of $30.9 million), a 10.4%
reduction on the previous year.
Korvest
Korvest is a publicly listed company involved in the manufacture of
cable and pipe support systems, guarding and walkway systems and
galvanising. Hills holds 46% of the shares in Korvest. The results for
this year for Korvest were very pleasing.
Orrcon
This business unit manufactures and distributes a comprehensive
range of steel tube and pipe. Orrcon’s first six months was in line with
our expectations, however, as a result of overstocking throughout the
Australian steel industry and lower product demand from our plant at
Unanderra, the second half performance was quite subdued.
The difficulties associated with the Australian steel industry in recent
times have been well publicised. The year saw volatile steel prices,
characterised by sharply increasing prices in the first half and
steadily decreasing prices over the balance of the year.
We believe that the inventory reduction programme across the steel
industry is now largely complete and so we expect improved results
from Orrcon in the coming year.
Fielders
Fielders manufactures and distributes a range of rollformed metal
building products (roof and gutter material, downpipes, steel flooring
systems, carports, sheds and purlins) for commercial and domestic
building markets throughout Australia. Fielders is a market leader in
new and innovative products in a market that is generally not known
for innovation.
Our Centenary carport and verandah business continues to expand
and the Angle Cut roofing system also continues to grow market
share. Commercial building activity was quite subdued during the
second half and continues to be so.
Fielders continues to grow market share however the level of
commercial building activity is currently low and is forecast to remain
so. We are looking for improvements in our eastern states operations
in the coming year.
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
13
13
Executive Management Group
Andrew Muir
BEc (Adel) MBA (Adel)
General Manager Finance
Age: 40
Joined the Company in July 2004 as General Manager
Business Development responsible for the Mergers and
Acquisitions activity for the Group. Andrew was appointed
General Manager Finance in May 2008 and Company
Secretary in July 2008.
Daniel Edgecombe
BComm (Adel) MBA (Adel) FCA
General Manager Business Development
Age: 36
Daniel joined the Group in April 2005 as CFO at Fielders before moving into a
national sales operations role within the business. He commenced in his current
role in January 2009. Daniel’s role involves strategy development and execution,
particularly relating to our portfolio of businesses. Daniel has previous experience in
the consumer electronics industry and as an external auditor/accountant.
Keith Middleton
BA (Flinders), Dip Corporate Management
Chief Executive Officer, Fielders
Age: 47
Keith joined Fielders Steel Roofing in 2004, appointed Chief Operating Officer
in March 2005. Keith has previously held overall responsibility for all sales
and manufacturing activities undertaken at Fielders and was appointed Chief
Executive Officer in April 2009. Keith has extensive experience at the Senior
Executive level within large customer orientated FMCG companies.
Leon Andrewartha
BEng MBA
Age: 54
Appointed Managing Director Orrcon in May 2005. Previously Director,
Manufacturing for Electrolux Australia and Executive General Manager
Manufacturing for Email Major Appliances. Prior to these roles, Leon worked
in the automotive industry for 11 years. Leon Andrewartha has over 35 years of
experience working in a range of technical, commercial and engineering roles in
product development, manufacturing and distribution industries in Australia.
Ric Gros
FAICD
Group General Manager – Home, Hardware and Eco
Age: 51
Joined the Company in June 2007 having previously been the Managing
Director of Korvest Ltd for 2 years. A Fellow of the Australian Institute of
Company Directors, Ric was born in Chile and educated in Australia, with
extensive international commercial background in servicing industrial, mining
and distribution related industries.
Stephen Cope
Group General Manager – Electronic Security and Entertainment
Age: 51
Joined the Company in April 2007 as Group General Manager, Electronic Security
and Entertainment and is responsible for all of the diverse electronics businesses in
the Hills portfolio. Stephen Cope has over 30 years experience in the management
of large technology and contracting companies in Australia and overseas and has
held various executive management positions. He has extensive experience in
technology development and commercialisation strategy. He is a graduate of the
University of Melbourne MBS LIB and MDP Programs.
Operating and Financial Review (continued) Hills Industries Limited and its Controlled Entities Directors’ Report for the year ended 30 June 2009
15
16
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Directors’ Report
Information on Directors
Jennifer Helen Hill-Ling
LLB (Adel)
Chairman, Non-Independent Non-Executive
Director
Age: 47
Ian Elliot
FAICD
Independent Non-Executive Director
Age: 55
Experience and expertise
Appointed Director in August 2003.
Ian Elliot has spent 36 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.
Other current directorships
Director of Salmat Limited.
Former directorships
Former Chairman of Promentum Limited, Zenith
Media Pty Ltd, Allied Brands Limited, Artist
& Entertainment Group Limited and Cordiant
Communications Group and former Chairman
and CEO of George Patterson Advertising.
Special responsibilities
Chairman of the nomination committee.
Member of the remuneration committee.
Interests in shares and options
at the date of this report
4,449 ordinary shares in Hills Industries Limited.
Nil options over ordinary shares in Hills
Industries Limited.
Roger Baden Flynn
BEng (Hons) MBA FIE (Aust) FAICD
Independent Non-Executive Director
(Lead Independent Director)
Age: 59
Experience and expertise
Appointed Director in November 1999.
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.
Other current directorships
Executive Chairman of Coventry Group Limited.
Former directorships in last 3 years
None.
Special responsibilities
Member of the audit and compliance committee.
Interests in shares and options
at the date of this report
31,740 ordinary shares in Hills Industries Limited.
Nil options over ordinary shares in Hills
Industries Limited.
Experience and expertise
Appointed Director in August 1985. Appointed
Deputy Chairman in June 2004. Appointed
Chairman 28 October 2005.
Jennifer Hill Ling has extensive experience in
corporate and commercial law, specialising in
corporate and business structuring, mergers
and acquisitions, joint ventures and related
commercial transactions. She has practiced law
for some 26 years.
Other current directorships
Hills Associates Limited, Argent Pty Ltd and
Hills Industries NZ Limited.
Former directorships
Tower Trust Ltd.
Special responsibilities
Chairman of the Board.
Member of the nomination committee.
Chairman of the remuneration committee.
Interests in shares and options
at the date of this report
16,343,161 ordinary shares in Hills Industries
Limited (including 1,174,550 shares owned by
Hills Associates Limited and Poplar Pty Ltd
(jointly held) and 13,313,300 shares owned by
Hills Associates Limited of which JH Hill Ling is
a Director). Nil options over ordinary shares in
Hills Industries Limited.
Graham Lloyd Twartz
BA (Adel) DipAcc (Flinders)
Group Managing Director
Age: 52
Experience and expertise
Appointed Director in July 1993. Appointed as
Group Managing Director 1 July 2008.
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 24 years experience in
his field. Mr Twartz held senior management
positions in diversified companies before joining
Hills in 1993.
Other current directorships
Director of Korvest Ltd and Fielders Australia
Pty Ltd.
Former directorships
None.
Special responsibilities
Managing Director.
Interests in shares and options
at the date of this report
211,486 ordinary shares in Hills Industries
Limited and 29,115 ordinary shares in Korvest
Ltd. 160,000 options over ordinary shares in Hills
Industries Limited.
Geoffrey Guild Hill
FCPA FAICD F.S.I BEc (Syd) MBA (NSW)
Independent Non-Executive Director based in
Hong Kong
Age: 63
Experience and expertise
Appointed Director in February 1999.
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 the Merchant Banking field since 1979.
Other current directorships
Chairman of Fielders Australia Pty Ltd,
International Pacific Securities (Group) Limited
and Metals Finance Limited. Director of
Brickworks Investments Limited, Asian Property
Investments Limited, Heritage Gold (NZ) Limited,
Centrex Metals Limited and HSW Capital.
Appointed as a Director of Fielders Australia Pty
Ltd on 27 July 2008.
Former directorships
Former Director of Biron Corporation Limited,
Undercoverwear Limited, Pacific Strategic
Investments Limited, Huntley Investments
Limited, Nine Network Limited and Bell
Resources Limited.
Special responsibilities
Member of the audit and compliance committee.
Member of the nomination committee.
Member of the remuneration committee.
Interests in shares and options
at the date of this report
87,953 ordinary shares in Hills Industries Limited.
Nil options over ordinary shares in Hills
Industries Limited.
Peter William Stancliffe
BE (Civil) FAICD
Independent Non-Executive Director
Age: 61
Experience and expertise
Appointed Director in August 2003.
Peter Stancliffe has over 39 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.
Other current directorships
Chairman of Korvest Limited. Non executive
Director of Automotive Holdings Group Limited
and Harris Scarfe Pty Ltd.
Former directorships in last 3 years
Former Chairman of View Resources Limited.
Special responsibilities
Chairman of the audit and compliance
committee.
Interests in shares and options
at the date of this report
17,115 ordinary shares in Hills Industries Limited
and 1,000 ordinary shares in Korvest Limited.
Nil options over ordinary shares in Hills
Industries Limited.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
17
Directors’ Report
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.
Meetings of Directors
The numbers of meetings of the Company’s Board of Directors and
of each Board committee held during the year ended 30 June 2009,
and the numbers of meetings attended by each Director were:
Director
J Hill-Ling
G Twartz*
I Elliot^
R B Flynn
G G Hill
P W Stancliffe
Board
Meetings
Audit
Committee
Meetings
Nomination
Committee
Meetings
Remuneration
Committee
Meetings
A
17
17
12
16
17
16
B
17
17
17
17
17
17
A
–
–
–
6
4
6
B
–
–
–
6
6
6
A
1
–
1
–
1
–
B
1
–
1
–
1
–
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 or was a
member of the committee during the year
* - An executive Director
^ - Granted a leave of absence as a consequence of serious illness
Remuneration report – audited
The remuneration report is set out under the following main headings:
A Principles used to determine the nature and amount of
remuneration
B Details of remuneration
C Service agreements
D Share based compensation
E Additional information
The information provided in this remuneration report has been audited
as required by section 308(3C) of the Corporations Act 2001.
A Principles used to determine the nature
and amount of remuneration
The objective of the Group’s executive reward framework is to ensure
reward for performance is competitive and appropriate for the results
delivered. The framework aligns executive reward with achievement
of strategic objectives and the creation of value for shareholders,
and conforms with market practice for delivery of reward. The Board
ensures that executive reward satisfies the following key criteria for
good reward governance practices:
• competitiveness and reasonableness
• acceptability to shareholders
• performance linkage / alignment of executive compensation
• transparency
• capital management.
In consultation with external remuneration consultants, the Group
has structured an executive remuneration framework that is market
competitive and complimentary to the reward strategy of the
organisation. It ensures the framework is aligned with shareholders’
and program participants’ interests.
Alignment to shareholders’ interests:
• has economic profit as a core component of plan design
• focuses on sustained growth in shareholder wealth, consisting of
dividends and growth in share price, and delivering constant return
on assets as well as focusing the executive on key non financial
drivers of value
• attracts and retains high calibre executives.
Alignment to program participants’ interests:
• rewards capability and experience
• reflects competitive reward for contribution to growth in shareholder
wealth
• provides a clear structure for earning rewards
• provides recognition for contribution.
The Board has established a remuneration committee which provides
advice on remuneration and incentive policies and practices and
specific recommendations on remuneration packages and other
terms of employment for executive Directors, other senior executives
and non executive Directors. The Corporate Governance Statement
provides further information on the role of this committee.
Non-executive Directors
Fees and payments to non executive Directors reflect the demands
which are made on, and the responsibilities of, the Directors. Non
executive Directors’ fees and payments are reviewed annually by the
Board. The Board has also considered the advice of independent
remuneration consultants to ensure non executive Directors’ fees
and payments are appropriate and in line with the market. The
Chairman’s fees are determined independently to the fees of non
executive Directors based on comparative roles in the external
market. The Chairman is not present at any discussions relating to the
determination of her own remuneration.
Directors’ fees
The current base remuneration was last reviewed in August 2008 and
is inclusive of committee fees, except that non-executive Directors
who chair a committee receive additional yearly fees.
Retirement allowances for Directors
Superannuation contributions required under the Australian
superannuation guarantee legislation are made and are deducted
from the Directors’ overall fee 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.
Executive pay
The executive pay and reward framework has three components:
• base pay and benefits, including superannuation
• short term performance incentives, and
• long term incentives through participation in the Hills Executive
Share Option Plan.
18
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Directors’ Report
Remuneration report – audited (continued)
A Principles used to determine the nature
and amount of remuneration (continued)
Base pay
Structured as a total employment cost package which may be
delivered as a combination of cash and prescribed non financial
benefits at the executives’ discretion.
Executives are offered a competitive base pay that comprises the fixed
component of pay and rewards. External remuneration consultants
provide analysis and advice to ensure base pay is set to reflect the
market for a comparable role. Base pay for executives is reviewed
annually to ensure the executive’s pay is competitive with the market.
An executive’s pay is also reviewed on promotion.
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 Option
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.
There are no guaranteed base pay increases included in any
executives’ contracts.
B Details of remuneration
Amounts of remuneration
Superannuation
Retirement benefits comprise employer contributions to
superannuation funds.
Performance linked remuneration
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 ordinary shares of the Company under the rules of the
Executive Share Option Plan.
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, return on funds employed in the business,
improvements in safety and increase in earnings per share for
the Company.
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 Option 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; and
• the executive’s ability to control performance.
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 Option Plan to executive
Directors, in accordance with thresholds approved by shareholders at
the AGM. The plan provides for 14 executives (21 executives in 2008)
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.
Details of the remuneration of the Directors, the key management
personnel of the Group as defined in AASB 124 Related Party
Disclosures and specified executives of Hills Industries Limited and the
Hills Industries Limited Group are set out in the following tables.
The key management personnel of Hills Industries Limited includes the
Directors as per page 17 above and the following executive officers
who have authority and responsibility for planning, directing and
controlling the activities of the entity:
• S Cope, Group General Manager, Electronic Security
and Entertainment
• G Daher, General Manager, Direct Alarm Supplies
• R Gros, Group General Manager, Home, Hardware & Eco
• R Meacham, General Manager, Pacific Communications
• A Muir, General Manager, Finance
• A Oliver, General Manager, Antenna and TV Systems
The key management personnel of the Group are the Directors of
Hills Industries Limited (see page 17 above), those executives listed
above and those other executives that report directly to the Managing
Director being:
• L Andrewartha, Managing Director, Orrcon Operations Pty Ltd
• J Easling, Managing Director, Fielders Australia Pty Ltd
(until 22 April 2009)
• A Kachellek, Managing Director, Korvest Ltd
• K Middleton, CEO, Fielders Australia Pty Ltd (from 22 April 2009)
In addition, the following persons must be disclosed under the
Corporations Act 2001 as they are among the 5 highest remunerated
Group and/or Company executives:
• D Salvaterra, General Manager, EzyStrut, Korvest Ltd
(until 11 February 2009)
Changes since year end
There have been no changes in key management personnel since
year end.
Payments to persons before taking office
There were no payments to persons before taking office.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
19
Directors’ Report
Remuneration report – audited (continued)
B Details of remuneration (continued)
Amounts of remuneration (continued)
Key management personnel of the Group and other executives of the Company and the Group
Short-term employee benefits
Post-employment
benefits
Share-based payments (B)
Cash salary
and fees
Cash
bonus (A)
2009
$
$
Non Executive Directors
J Hill-Ling
I Elliot
R Flynn
G Hill*
P Stancliffe*
Sub-total
non-executive Directors
Executive Director
181,957
94,801
88,685
157,585
122,859
645,887
–
–
–
–
–
–
G Twartz
673,012
50,459
Other key management personnel (Group)
L Andrewartha^
330,000
52,661
S Cope^#
J Easling
G Daher
R Gros#
A Kachellek
R Meecham#
K Middleton^
A Muir#
A Oliver^#
280,833
67,954
215,290
–
185,115
82,285
273,359
33,770
210,941
105,786
188,139
80,129
314,183
16,133
259,939
32,110
218,423
92,047
Total key management
personnel compensation
(Group)
3,795,121
613,334
Other Company and Group executives
D Salvaterra^
88,390
100,849
Non-
monetary
benefits
$
Other
$
Super-
annuation
benefits
$
Termination
benefits
Options
Shares
Total
$
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,433
8,532
7,982
7,982
11,057
51,986
9,535
66,483
–
–
–
–
–
–
–
–
–
34,439
31,448
19,421
24,066
27,642
27,996
24,201
29,728
26,342
8,301
27,942
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
198,390
103,333
96,667
165,567
133,916
697,873
14,276
998
814,763
11,729
8,884
–
2,583
8,884
5,374
4,600
1,678
4,600
10,312
998
998
998
998
998
429,827
390,117
235,709
295,047
340,653
–
350,097
998
998
998
998
298,067
362,720
323,989
358,023
17,836
391,694
–
72,920
9,980
4,900,885
–
24,288
154,074
–
500
368,101
(A) The short term incentive bonus is for performance during the respective financial year using the criteria set out in section
A. 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.
(B) Share based payment remuneration comprises options in the Executive Share Option Plan and shares under the
Employee Share Plan. The options granted during the year expire on 31 January 2012 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.
^ denotes one of the 5 highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.
# denotes one of the 5 highest paid executives of the Company, as required to be disclosed under the
Corporations Act 2001.
* G Hill remuneration includes Board fees from Fielders Australia Pty Ltd and P Stancliffe remuneration includes Board fees
from Korvest Limited.
20
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Directors’ Report
Remuneration report – audited (continued)
B Details of remuneration (continued)
Amounts of remuneration (continued)
Key management personnel of the Group and other executives of the Company and the Group
Short-term employee benefits
Post-employment
benefits
Share-based
payments (B)
Cash salary
and fees
Cash
bonus (A)
2008
$
$
Non-executive Directors
Non-
monetary
benefits
$
Other
$
Super-
annuation
benefits
$
Options
Shares
Total
$
$
$
J Hill-Ling
I Elliot
R Flynn
G Hill
P Stancliffe
Sub-total
non-executive Directors
Executive Directors
150,994
78,937
78,937
78,937
88,589
476,394
–
–
–
–
–
–
D Simmons
G Twartz
579,526
160,000
513,236
50,000
Other key management personnel (Group)
L Andrewartha^
320,000
34,884
A Oliver^#
A Muir#
J Easling
R Meacham#
D Walker
S Cope^#
R Gros^#
211,837
113,268
239,966
259,145
–
–
148,048
112,597
191,686
48,148
190,000
120,000
190,117
120,000
D Salvaterra^
140,002
146,504
Total key management
personnel compensation
3,459,957
905,401
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,589
7,104
7,104
7,104
7,973
42,874
–
–
–
–
–
–
–
–
–
–
–
–
164,583
86,041
86,041
86,041
96,562
519,268
11,952
42,813
38,491
1,000
833,782
8,611
38,698
25,728
1,000
637,273
–
28,800
19,134
–
402,818
12,290
23,664
19,048
1,000
381,107
–
–
–
–
–
–
–
21,157
8,110
1,000
270,673
23,323
10,978
1,000
294,446
20,045
6,429
1,000
288,119
19,564
3,500
1,000
263,898
27,900
9,565
1,000
348,465
27,911
9,565
1,000
348,593
23,150
–
1,000
310,656
32,853
340,339
150,548
10,000
4,899,098
The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:
Fixed remuneration %
At risk – STI %
Value of options as
proportion of
remuneration %
2009
2008
2009
2008
2009
2008
Executive Directors of Hills Industries Limited
D Simmons
G Twartz
–
94
81
92
Other key management personnel of Group
L Andrewartha
S Cope
G Daher
J Easling
R Gros
A Kachellek
R Meacham
K Middleton
A Muir
A Oliver
88
83
72
91
64
–
100
100
90
71
73
96
90
74
64
–
60
–
100
69
–
6
12
17
28
–
10
29
27
4
10
26
19
8
9
36
–
–
36
–
40
–
–
31
–
1.75
2.73
2.28
0.88
–
2.58
–
1.54
0.46
1.42
2.88
4.62
4.04
4.75
2.75
–
3.74
2.75
–
2.24
–
3.01
5.01
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
21
Directors’ Report
Remuneration report – audited (continued)
C Service agreements
G Twartz, Managing Director
• Term of agreement – on going, commencing 1 July 2008
• Base salary, inclusive of superannuation, for the year ended
30 June 2009 of $800,000, to be reviewed annually by the
remuneration committee.
• Payment of a termination benefit on termination by the Company
in lieu of notice, other than for gross misconduct, equal to the three
months base salary.
Details of options over ordinary shares in the Company provided as
remuneration to each Director of Hills Industries Limited and each of
the key management personnel of the Company and the Group are
set out below. When exercisable, each option is convertible into one
ordinary share of Hills Industries Limited. Further information on the
options is set out in section A above and in note 26 to the full annual
financial report.
No. of options
granted
during
the year
No. of options
vested
during
the year
2009
2008
2009
2008
D Share based compensation
Directors of Hills Industries Limited
Options
All options refer to options over ordinary shares of the Company,
which are exercisable on a one for one basis under the Executive
Share Option Plan.
The terms and conditions of each grant of options affecting
remuneration in the previous, this or future reporting periods
are as follows:
D Simmons
– 100,000
–
240,000
G Twartz
100,000
60,000
60,000
40,000
Other key management personnel of the Group
L Andrewartha 60,000
60,000
S Cope
60,000
60,000
G Daher
25,000
20,000
–
–
–
–
–
–
J Easling
–
30,000
10,000
10,000
Date
exercis-
able
and
vested
Grant
date
Value
per
option
at grant
date
Expiry
date
Exercise
price
Per-
formance
achieved
%
vested
R Gros
60,000
60,000
A Kachellek
–
–
–
–
R Meacham
25,000
25,000
10,000
28/2/04
31/1/06 /
31/1/26
$3.66
$0.42
Yes
61%
K Middleton
25,000
20,000
–
–
–
–
–
–
A Muir
A Oliver
60,000
25,000
10,000
25,000
25,000
45,000
40,000
Shares provided on exercise of remuneration options
During the reporting period, no shares were issued on the exercise
of options previously granted as compensation to key management
personnel.
31/1/09
28/2/05
31/1/07 /
31/1/27
$4.16
$0.48
Yes
31/1/10
28/2/06
31/1/08 /
31/1/28
$4.83
$0.56
31/1/11
28/2/07
31/1/09 /
31/1/29
$5.53
$0.64
31/1/12
28/2/08
31/1/11
31/1/31
$5.49
$0.19
4/2/09
31/1/12
31/1/32
$3.01
$0.00
No
No
n/a
n/a
0%
0%
0%
n/a
n/a
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 from 2008 onwards, 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 A. For options granted in the
current year, the earliest exercise date is 31 January 2012.
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.
22
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Directors’ Report
Remuneration report – audited (continued)
E Additional information
Details of remuneration: cash bonuses and options
Cash bonus
Options
Vested
2009 %
Forfeited
2009 %
Year
granted
Vested %
Forfeited %
Financial
years
in which
options may
vest
Minimum
total value
of grant
yet to vest
$
Maximum
total value
of grant
yet to vest
$
Name
G Twartz
18
82
L Andrewartha
45
55
86
14
75
25
–
100
28
72
S Cope
G Daher
J Easling
R Gros
J Easling
75
25
K Middleton
A Muir
A Oliver
100
–
75
25
79
21
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
100
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
2009
2011
2012
2009
2011
2012
2009
2011
2012
2009
2011
2012
2009
2011
2012
2009
2011
2012
2009
2011
2012
2009
2011
2012
2009
2011
2012
2009
2011
2012
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,976
–
–
1,976
–
–
1,976
–
–
559
–
–
–
–
–
1,976
–
–
823
–
–
659
–
–
823
–
–
823
–
The minimum value of options yet to vest is nil as the performance criteria may not be met and consequently the option
may not vest.
The maximum value of options yet to vest has been determined as the amount of the grant date fair value of the options
that is yet to be expensed.
The % of options 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.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
23
Directors’ Report
Remuneration report – audited (continued)
Principal activities
E Additional information
Share-based compensation: 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.
Value of options
A
Value at
grant date
$
B
Value at
exercise date
$
C
Value at
lapse date
$
G Twartz
L Andrewartha
S Cope
G Daher
J Easling
R Gros
A Kachellek
R Meachem
K MIddleton
A Muir
A Oliver
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
38,490
38,490
38,490
6,415
22,209
38.490
–
16,038
6,415
16,038
28,868
(A) The value at grant date calculated in accordance with AASB 2
Share based Payment of options granted during the year as
part of remuneration. 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.
(B) The value at exercise date of options that were granted as part
of remuneration and were 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.
(C) The value at lapse date of options that were granted as part of
remuneration and that lapsed during the year because a vesting
condition was not satisfied. The value is determined at the time
of lapsing, but assuming the condition was satisfied. 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 2007
lapsed during the year.
The principal activities of the Group during the course of the year are
outlined within the Overview of the Group.
Objectives
The Group’s objectives are to:
• provide a safe, challenging and rewarding workplace;
• deliver superior returns to shareholders;
• increase earnings per share;
• represent quality, reliable and value for money products; and
• improve the retention rate of our outstanding people resources.
In order to meet theses objectives the following targets have been
set for the 2010 financial year and beyond:
• increase revenue, operating activities, profits,
earnings per share and return on funds employed;
• reduce operating costs;
• achieve strategic objectives;
• consider further strategic acquisitions;
• continue to improve our safety performance;
• continue to source cost effective supplies; and
• further develop our employees.
Dividends – Hills Industries Limited
Dividends paid to members during the financial year were as follows:
2009
$’000
Final ordinary dividend for the year ended 30 June 2008 of
26,149
14.0 cents per fully paid share paid on 29 September 2008
Final dividend foregone for Share Investment Plan
(3,993)
Interim ordinary dividend for the year ended 30 June 2009 of
15,986
8.0 cents per fully paid share paid on 7 April 2009
Interim dividend forgone for Share Investment Plan
Total Amount
(2,279)
35,863
In addition to the above dividends, since the end of the financial year
the Directors have recommended the payment of a final ordinary
dividend of approximately $4,876,000 (2.0 cents per fully paid share)
to be paid on 23 November 2009 out of retained profits at 30 June
2009. The financial effect of these dividends has not been brought to
account in the financial statements for the year ended 30 June 2009
and will be recognised in subsequent financial periods. For more
information regarding dividends please refer to note 9.
Significant changes in the state of affairs
There were no significant changes in the state of affairs of the Group
during the financial year.
Matters subsequent to the end of the financial year
On 5 August 2009 the Company announced an underwritten
share placement to institutional and sophisticated investors and
subsequently raised $39.3 million, issuing 28,113,259 shares at
$1.40 per share. In addition, on 21 August 2009 the Company
announced the details of a Share Purchase Plan (SPP), offering eligible
shareholders the opportunity to apply for up to $5,000 of fully paid,
ordinary shares at an issue price of $1.40 per share. The Company
reserves the right to scale the offer back. The SPP will open on 28
August 2009 and close on 11 September 2009. In total the Company
plans to raise a maximum of around $50 million.
Since the end of the financial year the Company has extended the
term of the majority of its debt facilities to November 2011.
Apart from the above, there has not arisen in the interval between the
end of the financial year and the date of this report any other 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.
24
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Directors’ Report
Dividends – Hills Industries Limited (continued)
Likely developments and expected results of operations
For likely developments please refer to the Review of Operations
section of the Directors’ report.
Shares under option
Unissued ordinary shares of Hills Industries Limited under option in
accordance with accounting standards at the date of this report are
as follows:
Further information on likely developments in the operations of the
Group and the expected results of operations have not been included
in this annual financial report because the Directors believe it would be
likely to result in unreasonable prejudice to the Group.
Environmental regulation
Greenhouse gas and energy data reporting requirements
The Group is subject to the reporting requirements of the National
Greenhouse and Energy Reporting Act 2007.
The National Greenhouse and Energy Reporting Act 2007 requires
the Group to report its annual greenhouse gas emissions and energy
use. The first measurement period for this Act is dependent upon
productivity levels and at this stage is likely to run from 1 July 2009 to
30 June 2010. The Group has implemented systems and processes
for the collection and calculation of the data required and expects to
be able to prepare and submit its initial report to the Greenhouse and
Energy data Officer by 31 October 2010.
Share options granted to Directors and the most highly
remunerated officers
Options over unissued ordinary shares of Hills Industries Limited
granted during the financial year for no consideration to the Directors
and the five most highly remunerated officers of the Company and the
Group as part of their remuneration were as follows:
Directors
G Twartz, Group Managing Director
Other Executives of Hills Industries Limited
S Cope, Group General Manager -
Electronic Security and Entertainment
R Gros, Group General Manager - Home, Hardware & Eco
R Meacham, General Manager, Pacific Communications
A Muir, General Manager, Finance
A Oliver, General Manager, Antenna and TV Systems
Options
granted
100,000
100,000
60,000
60,000
25,000
60,000
25,000
230,000
Other Executives of Hills Industries Limited
L Andrewartha, Managing Director - Orrcon Operations Pty Ltd
60,000
J Easling, Managing Director - Fielders Australia Pty Ltd
(until 22 April 2009)
A Kachellek, Managing Director - Korvest Ltd
K Middleton, CEO - Fielders Australia Pty Ltd
D Salvaterra, General Manager - EzyStrut, Korvest Ltd
(until 11 February 2009)
–
–
25,000
–
85,000
The options were granted under the Hills Industries Limited Executive
Share Option Plan during the financial year and have an exercise price
of $3.01 and an expiry date of 31 January 2032. Details of options
granted to the Directors and the five most highly remunerated officers
of the Company and the Group can be found in section D of the
Remuneration Report on page 22. No options have been granted
since the end of the financial year.
Date Options
Granted
Expiry date
Issue price
of shares
Number
under option
February 2001
January 2023
February 2002
January 2024
February 2003
January 2025
February 2004
January 2026
February 2005
January 2027
February 2006
January 2028
February 2007
January 2029
February 2008
January 2031
February 2009
January 2032
$2.50
$2.90
$3.23
$3.66
$4.16
$4.83
$5.53
$5.49
$3.01
55,000
58,000
90,000
145,000
215,000
–
–
455,000
525,000
1,543,000
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 the 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.
Insurance of officers
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 liabilities insured are legal costs that may be incurred in defending
civil or criminal proceedings that may be brought against the officers
in their capacity as officers of entities in the Group, and any other
payments arising from liabilities incurred by the officers in connection
with such proceedings. This does not include such liabilities that arise
from conduct involving a wilful breach of duty by the officers or the
improper use by the officers of their position or of information to gain
advantage for themselves or someone else or to cause detriment to
the Company. It is not possible to apportion the premium between
amounts relating to the insurance against legal costs and those
relating to other liabilities.
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.
Indemnification of officers
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.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
25
Directors’ Report
Dividends – Hills Industries Limited (continued)
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under
section 307C of the Corporations Act 2001 is set out on page 27.
Rounding of amounts
The Company is of a kind referred to in Class Order 98/100, issued
by the Australian Securities and Investments Commission, relating
to the ‘’rounding off’’ of amounts in the Directors’ report. Amounts in
the Directors’ report have been rounded off in accordance with that
Class Order to the nearest thousand dollars, or in certain cases, to the
nearest dollar.
This report is made in accordance with a resolution of Directors.
G Twartz
Director
J Hill-Ling
Director
Dated at Adelaide this 11th day of September 2009
Indemnification of officers (continued)
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.
Non-audit services
The Company may decide to employ the auditor on assignments
additional to their statutory audit duties where the auditor’s expertise
and experience with the Company and/or the Group are important.
Details of the amounts paid or payable 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.
The Board of Directors has considered the position and, in
accordance with advice received from the audit and compliance
committee, is satisfied that the provision of the non audit services is
compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The Directors are satisfied that
the provision of non audit services by the auditor, as set out below,
did not compromise the auditor independence requirements of the
Corporations Act 2001 for the following reasons:
• all non audit services have been reviewed by the audit and
compliance committee to ensure they do not impact the
impartiality and objectivity of the auditor
• none of the services undermine the general principles relating
to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
During the year the following fees were paid or payable for services
provided by the auditor of the Company, its related practices and non
related audit firms:
Audit services:
KPMG Australia:
audit and review of financial reports
Overseas KPMG firms –
audit and review of financial reports
Non-KPMG firms –
audit and review of financial reports
Total remuneration for audit services
Taxation services
KPMG Australia:
Tax compliance services
Overseas KPMG firms –
Tax compliance services
Total remuneration for taxation services
Other Advisory services
KPMG Australia:
Risk management consulting services
Hedge accounting consulting services
Total remuneration for other services
Consolidated
2009
2008
400,000
377,000
36,458
41,004
–
436,458
3,030
421,034
157,048
134,020
30,430
187,478
26,582
160,602
39,195
15,000
54,195
–
–
–
Total remuneration for non-audit
services
241,673
160,602
26
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Lead Auditor’s Independence Declaration
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 2009 there have been:
(a) no contraventions of the auditor independence requirements as set
out in the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional conduct
in relation to the audit.
KPMG
N Faulkner
Partner
Dated at Adelaide this 11th day of September 2009
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
27
Corporate Governance Statement
Hills Industries Limited (the Company) and its controlled entities (the
Group) and the Board are committed to achieving and demonstrating
the highest standards of corporate governance. The Board continues
to review the framework and practices to ensure they meet the
interests of shareholders.
A description of the Company’s main corporate governance practices
is set out below. All these practices, unless otherwise stated, were
in place for the entire year. They comply with the August 2007
ASX Principles of Good Corporate Governance and Best Practice
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 Board is responsible to shareholders for the performance of the
Company in both the short and the longer term and it seeks to balance
sometimes competing objectives in the best interests of the Group as
a whole. Its focus is to enhance the interests of shareholders and other
key stakeholders and to ensure the Group is properly managed.
The Board Charter, including a statement of the Board’s roles and
responsibilities, is available on the Company’s website.
The Board remains responsible for overseeing the performance of
the management team on behalf of shareholders, but delegates
responsibility for the day to day management of the Company to
the Group Managing Director and senior executives. The Board
has formally delegated a range of authorities to management and a
statement of matters delegated to management is available on the
Company’s website.
As part of overseeing the performance of senior executives, the
Board has established a process of annual performance review and
goal planning, whereby each executive is evaluated against a range
of criteria, including achievement of strategic and financial goals,
safety performance and business excellence. All senior executives
participated in this evaluation, which was conducted in accordance
with the prescribed process, during the year ended 30 June 2009.
Principle 2: Structure the Board to add value
Board composition
The Board is structured such that it comprises Directors from a
variety of business and professional backgrounds who bring a range
of commercial, operational, financial and legal skills and experience
relevant to the Company. In addition, the Board seeks to ensure
that, at any point in time, its membership represents an appropriate
balance between Directors with experience and knowledge of the
Group and Directors with an external perspective.
Directors’ independence
In assessing whether a Director is independent the Board considers
whether there are any, or the extent of any business or other
relationships, between the Director and the Company and whether
such relationships could, or could reasonably be perceived to,
materially interfere with the Director’s independent exercise of their
judgement.
In determining whether a relationship between a Director and the
Company is considered to be material, the Board assesses a range
of quantitative and qualitative matters including the proportion the
transactions represent to both the Company and the Director and the
value or strategic importance of the relationship to both the Company
and the Director.
Board members
Details of the members of the Board, their experience, expertise,
qualifications, term of office, relationships affecting their independence
and their independent status are set out in the Directors’ Report
under the heading ‘’Information on Directors’’. At the date of signing
the Directors’ Report, there is one Executive Director and five Non
Executive Directors, four of whom have no relationships adversely
affecting independence and so are deemed independent under the
principles set out above.
Ms Jennifer Hill-Ling is not defined as an independent Director as
she is, or in her capacity as an officer of or associated directly with, a
substantial shareholder of the Company.
Chairman and Managing Director
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 Company; and
• Ms Hill-Ling’s considerable experience within the Company.
The Board charter specifies that the role of Chairman and the role of
Managing Director are separate roles to be undertaken by separate
people. The role of Managing Director is undertaken by Mr Graham
Twartz.
Independent professional advice
Directors and Board Committees have the right, in connection with
their duties and responsibilities, to seek independent professional
advice at the Company’s expense, subject to approval of cost by the
Chairman.
Performance assessment
The Chairman undertakes a regular annual assessment of the
performance of individual Directors, the Board as a whole and its
Committees and meets privately with each Director to discuss this
assessment. Descriptions of the process for performance assessment
for the Board and senior executives are available on the Company
website.
A performance evaluation for the Board and its members and
committees has taken place in the reporting period. This was
conducted in accordance with the process described above.
Nomination committee
The Board has established a Nomination Committee. Membership of
the Nomination Committee of the Company and details of meetings
for the reporting period are set out in the Directors’ Report above.
When a new Director is to be appointed the Committee reviews the
range of skills, experience and expertise on the Board, identifies its
needs and prepares a short list of candidates with appropriate skills
and experience.
The full Board then appoints the most suitable candidate who must
stand for election at the next Annual General Meeting of the Company.
The Committee’s nomination of existing Directors for reappointment
is not automatic and is contingent on their past performance,
contribution to the Company and the current and future needs of the
Board and Company. The Board and the Committee are also aware of
the advantages of Board renewal and succession planning.
Details of the nomination, selection and appointment processes are
available on the Company website.
28
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Corporate Governance Statement
Principle 3: Promote ethical and responsible decision making
The Company has a formal Code of Conduct which supports a
foundation of honesty and integrity and adopts a Corporate Creed
which requires that at all times all Company personnel act with the
utmost integrity, objectivity and in compliance with the letter and the
spirit of the law and Company policies.
The Code encourages all staff and other stakeholders to report any
breaches of the Code to the Chairman of the Board, who is required to
investigate and report on all such matters.
The Board has adopted a share dealing policy that specifically
precludes Directors and Officers from buying or selling shares within
45 days prior to the announcement of the Annual or Half Year results,
the day of and the day after the announcement and if in possession of
price sensitive information not generally available to the public.
Principle 7: Recognise and manage risk
The Board, through the Audit Committee, is responsible for
ensuring there are adequate policies in relation to risk management,
compliance and internal control systems.
The Board has required management to design and implement a risk
management and internal control system to manage the Company’s
material business risks and to report to it on whether those risks are
being managed effectively. Management has reported to the Board
as to the effectiveness of the Company’s management of its material
business risks.
In summary, the Company policies are designed to ensure strategic,
operational, legal, reputation and financial risks are identified,
assessed, effectively and efficiently managed and monitored to enable
achievement of the Group’s business objectives.
A copy of the Code and the trading policy are available on the
Company’s website.
The Company’s policies in relation to oversight and management of
material business risks are disclosed on the Company website.
Principle 4: Safeguard integrity in financial reporting
Audit committee
The Board has established an Audit and Compliance Committee
which is responsible for reviewing the financial accounts and
other financial information distributed externally, monitoring the
adequacy of risk management and internal control systems and
monitoring procedures in place to ensure compliance with statutory
responsibilities. The Company has adopted an Audit and Compliance
Committee Charter which is set out on the Company website.
The names of the members of the Audit and Compliance Committee
together with details of their qualifications and attendance at meetings
are set out in the Directors’ Report. The Committee consists of three
Directors, all of whom are non executive and independent.
External auditors
The Company and Audit Committee policy is to appoint external
auditors who clearly demonstrate quality and independence. The
performance of the external auditor is reviewed annually.
It is KPMG policy to rotate audit engagement partners on listed
companies at least every five years. The Board requires that adequate
handover occurs in the year prior to rotation of an audit partner to
ensure an efficient and effective audit under the new partner.
Principles 5 and 6: Make timely and balanced disclosures and
respect the rights of shareholders
Continuous disclosure and shareholder communication
The Company has written policies and procedures on information
disclosure that focus on continuous disclosure of any information
concerning the Company that a reasonable person would expect to
have a material effect on the price of the Company’s securities. These
policies and procedures also include the arrangements the Company
has in place to promote communication with shareholders and
encourage effective participation at general meetings. A summary of
these policies and procedures is available on the Company’s website.
The Managing Director and Company Secretary are responsible for
compliance with the Company’s continuous disclosure policy.
The Board has received assurance from the Managing Director and
CFO that, in their opinion:
• The Company’s financial reports are complete and present a true
and fair view, in all material respects, of the financial condition
and operational results of the Company and Group and are in
accordance with relevant accounting standards.
• The above statement is founded on a sound system
of risk management and internal compliance and control
which implements the policies adopted by the Board and that the
Company’s risk management and internal compliance and control
is operating efficiently and effectively in all material respects in
relation to financial reporting risks.
Principle 8: Remunerate fairly and responsibly
The Board has established a Remuneration Committee which
comprises three Non Executive Directors. Details of the names of the
members of the Remuneration Committee and their attendance at
Directors’ meetings are set out in the Directors’ Report.
The Remuneration Report, within the Director’s Report, sets out the
Company’s policies for remunerating Directors, Executive Directors
and senior executives.
Details of the existence and terms of any schemes of retirement
benefits other than superannuation, for Non Executive Directors is set
out in the Remuneration Report within the Directors’ Report.
The following information is available on the Company’s website:
• The Remuneration Committee charter; and
• The Company’s security trading policy, which prohibits
transactions in associated products which limit the risk of
participating in unvested entitlements under any equity based
remuneration scheme.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
29
Income Statement
For the year ended 30 June 2009
In thousands of AUD
Revenue from continuing operations
Other income
Expenses excluding net financing costs
Results from operating activities
Financial income
Financial expenses
Net finance expense
Profit before income tax
Income tax expense
Profit for the year
Profit is attributable to:
Equity holders of Hills Industries Limited
Minority interest
Profit for the year
Earnings per share for profit from continuing operations
attributable to the ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
Dividends per share:
Dividends paid on ordinary shares during the year ended 30 June
Final and interim dividend for the year ended 30 June
Note
4
5
10
10
9
9
Consolidated
2009
2008
1,210,802
2,983
1,213,785
(1,167,855)
45,930
767
(23,438)
(22,671)
23,259
(7,604)
15,655
9,506
6,149
15,655
4.9¢
4.9¢
22.0¢
10.0¢
1,184,737
10,384
1,195,121
(1,112,247)
82,874
781
(15,155)
(14.374)
68,500
(16,140)
52,360
46,807
5,553
52,360
26.6¢
26.4¢
27.5¢
27.5¢
The above consolidated income statement should be read in conjunction with the accompanying notes.
30
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Discussion and Analysis of the Income Statement
For the year ended 30 June 2009
The Group’s total revenue (excluding financial revenues) for 2009
increased by 2.2% to $1,210.8 million. Group underlying profit after
tax (before unusual / significant items) attributable to shareholders
decreased by 41.6% to $28.1 million (statutory profit of $15.7 million).
Details of revenue and results by segment are set out in Note 3. A brief
summary of the performance of Hills key operating divisions for the
year ended 30 June 2009 is as follows:
• Electronic Security and Entertainment revenue increased by 9.9%
to $343.3 million. Underlying profit before interest and tax (EBIT) of
$30.9 million (statutory profit of $30.6 million) was 19.0% lower than
2008. These results are attributable to:
– Margins reduced due to cost increases associated with a rapid
devaluation of the Australian dollar late in the first half of the
financial year;
– Slowdown in the volume of projects awarded due to the
general reduction in capital expenditure undertaken by
Australian businesses;
– Export markets for the Hills Sound, Vision and Lighting Group were
subdued due to economic conditions in the UK and Europe; and
– The Antenna and TV Systems business performed very well during
the year with the progressive switching off of analogue television
signals across Australia resulting in increased demand for digital
antennas and digital set top boxes and demand for subscription
TV remaining buoyant.
• Home, Hardware and Eco Products revenue decreased by 10.6%
to $203.3 million while underlying EBIT decreased by 122.5% to a
loss of $3.1 million (statutory loss of $16.0 million). These results are
attributable to:
– Results for our traditional Home and Hardware Products
business were very poor during the period. As a result of this
poor performance a complete review and restructure of this
business unit was undertaken. A number of product categories
were discontinued where it was felt that these products could not
meet our return on investment benchmarks and supply chain and
logistics, customer service, quality and product benchmarks were
improved. The restructure included the closure of the
Alquip business;
– Team Poly results were adversely affected by changes to
government subsidies and rainfall in Queensland and New South
Wales resulting in a dramatic reduction in industry volumes and
demand for rainwater tanks. In response to these market changes,
Team Poly undertook a restructuring of its cost base and method of
operations, resulting in the closure of the Toowoomba
branch operation;
– After many years of poor performance we reached the view that we
could not achieve our benchmark returns in the Woodroffe business
and the decision was taken to close this operation;
– The LW Gemmell business performed in line with expectations
during the year; and
– The Hills Healthcare business unit performed reasonably well
during the year, however the steel price increases and Australian
dollar devaluation caused some margin compression during
the period.
• Building and Industrial Products revenue increased by 3.2%
to $663.4 million while underlying EBIT decreased by 10.4% to
$31.8 million (statutory profit of $30.9 million). These results are
attributable to:
– Results for the Orrcon steel tube and pipe business, after a very
strong first half, were quite subdued. Steel prices, which had risen
strongly in the first part of the financial year, declined steadily as
world stockpiles increased and demand decreased. In the second
half of the financial year the industry reacted to the falling level of
demand by reducing inventory holdings, resulting in a reduction in
the volume of product sold across the industry. In addition, volumes
through the Unanderra Pipe and Tube Mill were reduced as there
was less project work available;
– The Fielders roll forming business performed strongly during the
year. The Centenary Carport and Verandah business continues to
expand and the Angle Cut roofing system continues to grow market
share; and
– The Korvest business, which comprises the market leading
EzyStrut cable and pipe support business, Korvest Galvanisers and
Indax, achieved increased sales and profits during the period.
Unusual / Significant Items
During the year the Group booked a number of non-trading items
as a result of the restructuring initiatives referred to above as well as
the mark to market adjustment for interest rate swaps and foreign
exchange contracts. Further details of unusual / significant items are
provided in Note 5 of the financial report.
Earnings per share before unusual / significant items decreased
from 27.3¢ to 14.6¢.
Dividends per share decreased from 27.5¢ to 10.0¢.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
31
Balance Sheet
As at 30 June 2009
In thousands of AUD
Current Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Total Current Assets
Non-Current Assets
Receivables
Other financial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Derivative financial instruments
Total Non-Current Assets
Note
Consolidated
2009
2008
6
67,978
197,480
196,569
462,027
–
2
227,494
25,828
114,326
333
368,983
21,549
244,761
180,341
446,651
17,285
2
226,424
16,403
114,162
–
374,276
Total Assets
830,010
820,927
Current Liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Derivative financial instruments
Total Current Liabilities
Non-Current Liabilities
Borrowings
Provisions
Derivative financial instruments
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Contributed equity
Reserves
Retained profits
Capital and reserves attributable to equity holders
of Hills Industries Limited
Minority interest
Total Equity
7
8(a)
8(b)
120,902
3,852
8,816
33,835
5,924
172,699
218,498
5,975
4,318
228,791
401,490
428,520
248,598
46,495
107,442
402,535
25,985
428,520
28¢
28¢
27¢
28¢
139,921
6,191
4,317
32,260
–
182,689
203,497
5,224
–
208,721
391,410
429,517
223,091
51,369
133,759
408,219
21,298
429,517
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
32
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Discussion and Analysis of the Balance Sheet
As at 30 June 2009
During the year the Group’s net assets decreased by 0.2% to
$428.5 million.
The movement in intangibles related to acquisitions of $6.1 million, the
impairment of goodwill associated with the Alquip business of $5.4
million and amortisation of patents and trademarks of $0.6 million.
The increase in the Group’s total assets of $9.1 million to $830.0
million principally comprises:
The increase in the Group’s total liabilities of $10.1 million to $401.5
million principally comprises:
• An increase in cash of $46.4 million due to the implementation
• An increase in loans and borrowings of $12.7 million due to an
of a number of working capital initiatives in the second half of the
financial year and the receipt of proceeds from the sale of the
Edwardstown property;
• A decrease in total receivables of $64.6 million of which $20.8
million related to the receipt of proceeds on the sale of the
Edwardstown site. The remaining reduction resulted from a
reduction in net trade receivables due to improved collections and
declining sales volumes and a lack of project revenue in the later
part of the year;
• An increase in the value of inventories of $16.2 million due to general
inflation particularly in relation to steel products; and
• An increase in net deferred tax assets of $9.5 million due to
the partial reversal of deferred tax liabilities associated with the
revaluation of the Group’s land and buildings, increase in provisions
for inventory and receivables, and accruals generally and the
recognition of a deferred tax asset in relation to derivatives.
increase in the Hills facility borrowings and borrowings in relation to
the business acquired during the period;
• A decrease in trade and other payables of $19.0 million due to lower
volume of activity in the latter part of the year;
• An increase in current tax liabilities of $3.9 million due to the timing
of payments; and
• An increase in derivative financial instruments of $10.2 million
as a result of recording the mark to market adjustment on interest
rate swaps and foreign exchange contracts at the end of the
financial year.
Issued capital increased by $25.5 million owing to shares issued under
the Dividend Investment Plan and shares issued under the Share
Purchase Plan.
Reserves decreased by $4.8 million primarily due to the decrease in the
asset revaluation reserve from the revaluation of land and buildings to
fair value, net of the deferred tax recognised directly in equity.
Statement of recognised income and expense
For the year ended 30 June 2009
In thousands of AUD
Note
Consolidated
Revaluation of land and buildings, net of tax
Changes in the fair value of cash flow hedges, net of tax
Exchange differences on translation of foreign operations
Net income
8
8
8
Profit for the year
Total recognised income and expense for the year
Total recognised income and expense for the year is attributable to:
Equity holders of Hills Industries Limited
Minority interest
2009
(5,244)
230
110
(4,904)
15,655
10,751
4,602
6,149
10,751
2008
28,595
–
(2,340)
26,255
52,360
78,615
71,968
6,647
78,615
The above consolidated statement of recognised income and expense should be read in conjunction with the accompanying notes.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
33
Statement of Cash Flows
For the year ended 30 June 2009
In thousands of AUD
Note
Consolidated
2009
2008
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
1,374,725
(1,288,577)
1,236,662
(1,205,856)
Cash generated from operations
Interest received
Interest paid
Dividends received
Income taxes paid
Net cash inflow (outflow) from operating activities
Cash flows from investing activities
Payment for purchase of business operations, net of cash acquired
Payments for acquisition of subsidiaries, net of cash acquired
Payments for property, plant and equipment
Loans to other entities
Proceeds from sale of property, plant and equipment
Proceeds from disposal of assets held for sale
Rent received
Net cash (outflow) inflow from investing activities
Cash flows from financing activities
Proceeds from the issue of shares
Proceeds from borrowings
Repayment of borrowings
Dividends paid to the Company’s shareholders
Dividends paid to minority interests in subsidiaries
Net cash inflow (outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
12
12
7
9
6
86,148
763
(13,318)
–
(11,260)
62,333
(619)
(3,980)
(32,047)
272
903
20,850
842
(13,779)
25,238
36,707
(26,865)
(35,863)
(1,431)
(2,214)
46,340
21,310
–
67,650
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
30,806
781
(15,143)
1
(22,459)
(6,014)
(7,097)
(356)
(35,366)
(285)
840
3,500
836
(37,928)
44,860
40,101
(3,827)
(40,611)
(2,387)
38,136
(5,806)
26,923
193
21,310
34
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Discussion and Analysis of the Statement of Cash Flows
For the year ended 30 June 2009
Cash flows provided by operating activities increased by $68.3 million
to $62.3 million (2008: ($6.0 million)). This is primarily due to working
capital reduction initiatives in the second half of the financial year, a
reduction in interest paid due to lower debt levels and lower interest
rates and a reduction in tax paid.
The outflow of cash flows from investing activities decreased by
$24.1 million to $13.8 million due to a combination of a reduction in
payments for the acquisition of property, plant and equipment of $3.3
million, a reduction in the amount spent to acquire businesses and
subsidiaries of $2.9 million and the receipt of the proceeds on sale of
the Edwardstown site of $20.8 million (increase on 2008 of
$17.3 million).
Cash flows from financing activities reduced by $40.3 million due to a
combination of a reduction in the proceeds received on share issues
of $19.6 million, a net increase in the repayment of borrowings of $19.6
million, partially offset by a reduction in dividend payments of
$5.7 million.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
35
Notes to the Financial Statements
1. Basis of preparation
3. Segment Information
(a) Description of segments
The Group comprises the following main business segments:
Electronic Security and Entertainment
Electronic security systems, closed circuit television systems, home
and commercial automation and control systems, professional audio
products, consumer electronic equipment, fibre optic transmission
solutions, communications related products and services, domestic
and commercial antennas, master antenna television systems,
communications antennas, amplifiers, and subscription TV installation
services.
Home, Hardware and Eco
Outdoor clothes driers, ladders, ironing boards, laundry trolleys,
security doors, garden sprayers, wheelbarrows, 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.
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.
The concise financial report has been prepared in accordance with
the Corporations Act 2001 and Accounting Standard AASB 1039
Concise Financial Reports (AASB 1039). The financial statements and
specific disclosures required by AASB 1039 have been derived from
the Group’s full financial report for the financial year. Other information
included in the concise financial report is consistent with the Group’s
full financial report. The concise financial report does not, and cannot
be expected to, provide as full an understanding of the financial
performance, financial position and financing and investing activities of
the Group as the full financial report.
The financial report is prepared on the basis of historical costs except
the following assets are stated at their fair values: financial instruments
at fair value through profit or loss and land and buildings at fair value.
A full description of the accounting policies adopted by the Group may
be found in the Group’s full financial report.
These accounting policies have been consistently applied by each
entity in the Group to all periods presented.
The presentation currency is Australian dollars.
2. Critical accounting estimates
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 12 – business combinations
• Note 14 of the Full Financial Report – measurement of the
recoverable amounts of cash generating units containing goodwill
• Note 26 of the Full Financial Report – measurement of share
based payments
• Note 19 of the Full Financial Report and note 11 – provisions
and contingencies
36
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Notes to the Financial Statements
3. Segment Information (continued)
(b) Primary reporting format – business segments
2009
In thousands of AUD
Segment revenue
Electronic
Security and
Entertainment
Home,
Hardware
and Eco
Building and
Industrial
Eliminations
Consolidated
Sales to external customers
343,279
203,313
Intersegment sales
Total sales revenue
–
–
343,279
203,313
Unallocated / corporate revenue
–
–
663,368
3,475
666,843
–
–
1,209,960
(3,475)
(3,475)
–
–
1,209,960
842
Total segment revenue
343,279
203,313
666,843
(3,475)
1,210,802
30,572
(15,960)
30,920
Segment result
Segment result
Net finance expense
Unallocated/corporate revenue less
unallocated/corporate expenses
Profit before income tax
Income tax expense
Profit for the year
Segment assets and liabilities
Segment assets
145,299
152,544
404,495
Unallocated/corporate assets
Total assets
Segment liabilities
Unallocated/corporate liabilities
Total liabilities
Other segment information
Acquisitions of property, plant and
equipment, intangibles and other
non current segment assets
Unallocated/corporate assets
Total aquisitions
Depreciation and
amortisation expense
Unallocated/corporate expense
Total depreciation and
amortisation
Impairment of goodwill
31,885
30,680
80,449
3,678
4,400
22,545
2,700
7,018
12,308
–
5,380
–
–
–
–
–
–
–
45,532
(22,671)
398
23,259
(7,604)
15,655
702,338
127,672
830,010
143,014
258,476
401,490
30,623
1,424
32,047
22,026
1,081
23,107
5,380
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
37
Notes to the Financial Statements
3. Segment information (continued)
2008
In thousands of AUD
Segment revenue
Electronic
Security and
Entertainment
Home,
Hardware
and Eco
Building and
Industrial
Eliminations
Consolidated
Sales to external customers
312,322
227,558
Intersegment sales
Total sales revenue
–
–
312,322
227,558
Unallocated / corporate revenue
–
–
643,060
5,353
648,413
–
–
1,182,940
(5,353)
(5,353)
–
–
1,182,940
1,797
Total segment revenue
312,322
227,558
648,413
(5,353)
1,184,737
38,098
13,806
23,891
Segment result
Segment result
Net finance expense
Unallocated/corporate revenue less
unallocated/corporate expenses
Profit before income tax
Income tax expense
Profit for the year
Segment assets and liabilities
Segment assets
127,940
157,189
401,814
Unallocated/corporate assets
Total assets
Segment liabilities
32,239
24,235
96,287
Unallocated/corporate liabilities
Total liabilities
Other segment information
Acquisitions of property, plant and
equipment, intangibles and other
non current segment assets
Unallocated/corporate assets
Total aquisitions
Depreciation and
amortisation expense
Unallocated/corporate expense
Total depreciation and
amortisation
3,908
7,965
19,148
2,897
6,574
10,952
–
–
–
–
–
75,795
(14,374)
7,079
68,500
(16,140)
52,360
686,943
133,984
820,927
152,761
238,649
391,410
31,021
4,170
35,191
20,423
1,361
21,784
38
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Notes to the Financial Statements
3. Segment information (continued)
2009
In thousands of AUD
Segment result including
unusual / significant items
EBITDA (pre unusual / significant items)
Depreciation & amortisation
EBIT (pre unusual / significant items)
Unusual / significant items – restructuring costs
EBIT
Net finance expenses
(pre unusual / significant items)
Unusual / significant items – financial expenses
Net finance expense
Profit before income tax
Income tax expense
Profit for the year
2008
In thousands of AUD
Segment Result including
unusual / significant items
EBITDA (pre unusual / significant items)
Depreciation & amortisation
EBIT (pre unusual / significant items)
Unusual / significant items
EBIT
Net finance expenses
(pre unusual / significant items)
Unusual / significant items – financial expenses
Net finance expense
Profit before income tax
Income tax expense
Profit for the year
Electronic
Security and
Entertainment
Home,
Hardware
and Eco
Building and
Industrial
Corporate /
Unallocated
Consolidated
33,552
(2,700)
30,852
(280)
30,572
3,912
(7,018)
(3,106)
(12,854)
(15,960)
44,142
(12,308)
31,834
(914)
30,920
1,479
(1,081)
398
–
398
(12,531)
(10,140)
(22,671)
83,085
(23,107)
59,978
(14,048)
45,930
(12,531)
(10,140)
(22,671)
23,259
(7,604)
15,655
Electronic
Security and
Entertainment
Home,
Hardware
and Eco
Building and
Industrial
Corporate /
Unallocated
Consolidated
40,995
(2,897)
38,098
–
20,380
(6,574)
13,806
–
38,098
13,806
46,492
(10,952)
35,540
(11,649)
23,891
1,690
(1,361)
329
6,750
7,079
109,557
(21,784)
87,773
(4,899)
82,874
(14,374)
(14,374)
–
(14,374)
–
(14,374)
68,500
(16,140)
52,360
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
39
Notes to the Financial Statements
3. Segment information (continued)
(c) Secondary reporting format – geographical segments
In thousands of AUD
Australia
Overseas
Segment revenues
from sales to
external customers
Segment
assets
Acquisitions of
property, plant and
equipment, intangibles
and other non current
segment assets
2009
2008
2009
2008
2009
2008
1,168,373
1,127,552
695,776
665,359
30,367
30,828
41,587
55,388
6,562
21,584
256
1,424
193
4,170
Unallocated/corporate
842
1,797
127,672
133,984
4. Revenue
In thousands of AUD
From continuing operations
Sales revenue
Sale of goods
Other revenue
Services
Rents and sub-lease rentals
Dividends
1,210,802
1,184,737
830,010
820,927
32,047
35,191
Consolidated
2009
2008
1,140,920
1,130,531
69,040
53,369
842
–
836
1
69,882
54,206
1,210,802
1,184,737
5. Profit from Ordinary Activities
Profit after tax for the year includes the following items that are unusual because of their nature, size or incidence:
In thousands of AUD
Financial expenses
(a) Net fair value loss on interest rate swaps and forward exchange contracts
Less: Applicable income tax benefit
Losses & Gains
(b) Restructuring costs
Less: Applicable income tax benefit
(c) Gain on sale of asset held for sale
Less: Applicable income tax benefit
(d) Impairment of inventory – Orrcon
Less: Applicable income tax benefit
Consolidated
2009
2008
(10,140)
3,042
(7,098)
(14,048)
2,600
–
–
–
–
(11,448)
–
–
–
–
–
6,750
174
(11,649)
3,495
(1,230)
40
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Notes to the Financial Statements
5. Profit from Ordinary Activities (continued)
(a) Net fair value loss on interest rate swaps and forward exchange contracts
The Group manages its financial risk relating to interest rates and currency through the use of fixed interest rate swaps and
forward exchange contracts respectively. In previous financial years the net fair value gains relating to these contracts have not
been brought to account on the basis of materiality. The Group does not trade in these instruments and does not speculate on
movements in rates. In the current financial year the significant movements in the Australian dollar resulted in a non cash fair value
loss before tax on forward exchange contracts of $5.822 million and the significant reduction in interest rates over the financial
year resulted in a non cash fair value loss before tax on interest rate swaps of $4.318 million.
(b) Restructuring costs
Over the course of 2009, the Company has undertaken a detailed review of operations with particular emphasis on the Home,
Hardware and Eco Products division. A number of restructuring initiatives were implemented during the year, including a
reduction in headcount in all businesses, the closure of the Alquip business and satellite manufacturing operations of Team Poly
in Toowoomba. Furthermore, a number of non performing product lines were rationalised and discontinued. The total after tax
cost of these restructuring initiatives was $11.448 million, of which the cash cost was $2.564 million. Included in the non cash
costs was the impairment of the goodwill associated with the Alquip business. This totalled $5.38 million.
(c) Gain on sale of Asset held for sale
During the previous financial year 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 million
and an increase in profit after tax of $6.924 million. Tax payable on this gain was calculated after absorbing certain capital tax
losses.
(d) Impairment of Inventory – Orrcon
As part of a review in the previous financial year 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 considered 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 the impairment was recognised, a quantity of the pipe has been sold and the remaining
pipe on hand as at 30 June 2009 has been valued at estimated realisable value.
6. Current assets – Cash and cash equivalents
In thousands of AUD
Cash at bank and in hand
Deposits at call
Consolidated
2009
2008
63,931
4,047
67,978
19,397
2,152
21,549
(a) Reconciliation to cash at the end of the year
The above figures are reconciled to cash at the end of the financial year as shown in the statement of cash flows as follows:
In thousands of AUD
Balances as above
Bank overdrafts (note 17 of the Full Financial Report)
Balances per statement of cash flows
Consolidated
2009
2008
67,978
21,549
(328)
(239)
67,650
21,310
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
41
Notes to the Financial Statements
7. Contibuted equity
(a) Share capital
Ordinary shares fully paid
(b) Movements in ordinary share capital
Date
Details
1 July 2007
Opening balance
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
Less: Transaction costs arising on share issue
30 June 2008 Balance
1 July 2008
Opening balance
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
Less: Transaction costs arising on share issue
Company
Company
2009
2008
Shares ’000
Shares ’000
2009
$’000
2008
$’000
204,601
185,789
248,598
223,091
Number of
shares ‘000
172,827
2,447
1,548
192
67
8,708
–
$‘000
178,031
11,336
–
200
74
33,515
(65)
185,789
223,091
185,789
223,091
4,648
3,006
554
320
10,284
–
9,342
–
270
1,022
14,912
(39)
30 June 2009 Balance
204,601
248,598
(c) Ordinary shares
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 the date prior to the closing date of 25 February 2009. The share issue price was $1.45 per share.
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.
(d) Dividend investment plan and share investment plan
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.
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.
(e) Employee share scheme
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.
(f) Executive Shares and Options
Information relating to the Executive Share Plan, including details of options issued, exercised and lapsed during the financial year and options
outstanding at the end of the financial year, is set out in note 27 of the Full Financial Report.
(g) Capital risk management
The Company’s and the Group’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.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
42
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Notes to the Financial Statements
7. Contributed equity (continued)
(g) Capital risk management (continued)
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 as shown in the balance sheet
less cash and cash equivalents. Total equity is equity as shown in the balance sheet (including minority interest).
During 2009, the Group’s strategy, which was unchanged from 2008, was to maintain a target gearing ratio less than 45%. The gearing ratios at
30 June 2009 and 30 June 2008 were as follows:
In thousands of AUD
Total borrowings (notes 17 and 20 of the Full Financial Report)
Less: cash and cash equivalents (note 6)
Net debt
Total equity
Gearing ratio
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
8. Reserves and retained profits
In thousands of AUD
(a) Reserves
Asset revaluation reserve
Hedging reserve – cash flow hedges
Foreign currency translation reserve
Asset realisation reserve
Equity compensation reserve
Movements
Asset revaluation reserve
Balance 1 July
Revaluation – gross (note 12 of the full Financial Report)
Deferred tax (note 13 of the full Financial Report)
Transfers to / from reserves
Balance 30 June
Hedging reserve – cash flow hedges
Balance 1 July
Revaluation – gross (note 15 of the Full Financial Report)
Deferred tax (note 13 of the full Financial Report)
Balance 30 June
Foreign currency translation reserve
Balance 1 July
Currency translation differences arising during the year
Balance 30 June
Asset realisation reserve
Balance 1 July
Balance 30 June
Equity compensation reserve
Balance 1 July
Executive share option plan expense
Balance 30 June
Consolidated
2009
2008
222,350
209,449
(67,978)
(21,310)
154,372
428,520
188,139
429,517
36.0%
43.8%
Consolidated
2009
44,828
230
(1,971)
2,825
583
2008
50,112
–
(2,081)
2,825
513
46,495
51,369
50,112
(7,407)
2,163
(40)
44,828
–
329
(99)
230
(2,081)
110
(1,971)
2,825
2,825
513
70
583
22,556
39,467
(11,966)
55
50,112
–
–
–
–
259
(2,340)
(2,081)
2,825
2,825
437
76
513
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
43
Notes to the Financial Statements
8. Reserves and retained profits (continued)
(b) Retained profits
Movements in retained profits were as follows:
In thousands of AUD
Opening retained earnings
Net profit for the year
Dividends
Transfers to/from reserves
Balance 30 June
(c) Nature and purpose of reserves
(i) Asset revaluation reserve
Consolidated
2009
133,759
9,506
2008
127,618
46,807
(35,863)
(40,611)
40
(55)
107,442
133,759
The asset revaluation reserve is used to record increments and decrements on the revaluation of non current assets, as described in note
1(p) of the Full Financial Report. The balance standing to the credit of the reserve may be used to satisfy the distribution of bonus shares to
shareholders and is only available for the payment of cash dividends in limited circumstances as permitted by law.
(ii) Hedging reserve – cash flow hedges
The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity, as
described in note 1(o) of the Full Financial Report. Amounts are recognised in profit and loss when the associated hedged transaction affects
profit and loss.
(iii) Foreign currency translation reserve
Exchange differences arising on translation of the foreign operations are taken to the foreign currency translation reserve, as described in note
1(d) of the Full Financial Report. The reserve is recognised in profit and loss when the net investment is disposed of.
(iv) 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.
(v) 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.
44
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Notes to the Financial Statements
9. Dividends
In thousands of AUD
(a) Ordinary shares
Final dividend for the year ended 30 June 2008 of 14.0 cents (2007: 14.0 cents) per fully paid share
paid on 29 September 2008 (2007: 24 September 2007)
Fully franked based on tax paid @ 30%
Final dividend foregone for Share Investment Plan
Interim dividend for the year ended 30 June 2009 of 8.0 cents (2008: 13.5 cents)
per fully paid share paid 7 April 2009 (2008: 31 March 2008)
Fully franked based on tax paid @ 30%
Final dividend foregone for Share Investment Plan
Total dividends provided for or paid
Company
2009
2008
26,149
(3,993)
22,156
15,986
(2,279)
13,707
35,863
24,201
(3,779)
20,422
23,579
(3,390)
20,189
40,611
(b) Dividends and share reinvestment plan
The Dividend Investment Plan and Share Investment Plan will operate in respect of the proposed final dividend (refer (c) below).
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 5.0% will apply under the rules of the plans.
Last date for receipt of election notice for the dividend plans: 9 November 2009.
c) Dividends not recognised at year end
In thousands of AUD
In addition to the above dividends, since year end the Directors have recommended the payment of a
final dividend of 2.0 cents per fully paid ordinary share (2008: 14.0 cents) fully franked based on tax paid
at 30%. The aggregate amount of the proposed dividend expected to be paid on 23 November 2009
out of retained profits at 30 June 2009, but not recognised as a liability at year end, is
(d) Franked dividends
The franked portions of the final dividends recommended after 30 June 2009 will be franked out of existing
franking credits or out of franking credits arising from the payment of income tax in the year ending 30 June 2010.
In thousands of AUD
Company
2009
2008
4,876
26,154
Company
2009
2008
Franking credits available for subsequent financial years based on a tax rate of 30% (2008: 30%)
19,505
29,091
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
(a) franking credits that will arise from the payment of the amount of the provision for income tax;
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the Company if distributable profits
of subsidiaries were paid as dividends.
The impact on the franking account of the dividend recommended by the Directors since year end, but not
recognised as a liability at year end, will be a reduction in the franking account of $2,090,000 (2008: $11,209,000).
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
45
Notes to the Financial Statements
10. Earnings per share
In cents
(a) Basic earnings per share
Profit from continuing operations attributable to the ordinary equity holders of the Company
Profit from continuing operations before unusual / significant items attributable to the ordinary
equity holders of the Company
(b) Diluted earnings per share
Profit from continuing operations attributable to the ordinary equity holders of the Company
Profit from continuing operations before unusual / significant items attributable to the ordinary
equity holders of the Company
(c) Reconciliations of earnings used in calculating earnings per share
In thousands of AUD
Basic Earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating basic earnings per share from continuing operations
Diluted Earnings per share
Profit attributable to the ordinary equity holders of the Company used in
calculating diluted earnings per share
Basic Earnings per share before unusual / significant items
Profit from continuing operations attributable to the ordinary equity holders of the
Company used in calculating basic earnings per share
Adjusted for unusual / significant items
Fair value loss on derivatives
Restructuring costs
Gain on sale of asset held for sale
Impairment of inventory – Orrcon
Profit attributable to the ordinary equity holders of the Company before
unusual / significant items used in calculating basic earnings per share
(d) Weighted average number of shares used as the denominator
In thousands of shares
Weighted average number of ordinary shares used as the denominator
in calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Effect of share options on issue
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
Consolidated
2009
2008
4.9
14.6
4.9
14.6
26.6
27.3
26.4
27.3
Consolidated
2009
2008
9,506
46,807
9,506
46,807
9,506
46,807
7,098
11,448
–
–
–
–
(6,924)
8,154
28,052
48,037
Consolidated
2009
2008
192,623
175,956
703
1,090
193,326
177,066
46
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Notes to the Financial Statements
11. Contingencies
(a) Contingent liabilities
The Company and Group had contingent liabilities at 30 June 2009 in respect of:
Guarantees
(a) Under the terms of a Deed of Cross Guarantee the Company and its wholly owned subsidiaries have guaranteed the debt in each other’s
companies. Guarantees amount to $354,165,000 (2008: $349,297,000). No material deficiency in net tangible assets exists in these
companies at reporting date with net tangible assets amounting to $257,504,000 (2008: $276,420,000).
(b) Letters of credit established in favour of suppliers / creditors amounting to $331,000 (2008: $38,000).
(c) Bank guarantees in favour of customers and suppliers amounting to $13,721,000 (2008: $18,493,000) for the Group and $7,949,000 (2008:
$9,892,000) for the Company.
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.
Claims
Certain legal claims for unspecified damages have been made against 413 King William Street Pty Ltd (a company in which Hills Industries
Limited has a 50% interest) and Hills Industries Limited in relation to a property development for the new Hills head office in Adelaide. Both 413
King William Street Pty Ltd and Hills Industries Limited have received separate legal advice that these claims can be defended. These claims
will be vigorously defended and the Directors believe no provision is required.
(b) Contingent assets
There are no contingent assets where the probability of future receipts is not considered remote.
12. Business combinations
Acquisition of subsidiaries
(a) Summary of acquisition
On 1 April 2009 the Company acquired 51% of the issued share capital of UHS Systems Pty Ltd (UHS).
The acquired business contributed revenues of $3,857,000 and net profit after tax of $280,000 for the period from 1 April 2009 to 30 June 2009.
Had the business been acquired at the beginning of the reporting period it would have contributed revenues of approximately $10,500,000 and
net profit of approximately $1,500,000.
Details of the fair value of the assets and liabilities acquired and goodwill are as follows:
In thousands of AUD
Purchase consideration
Cash paid
Fair value of shares issued
Direct costs relating to the acquisition
Total purchase consideration
Fair value of net identifiable assets acquired (refer to (c) below)
Goodwill (refer to (c) below and note 14 of the Full Financial Report)
5,100
–
107
5,207
(86)
5,293
The goodwill recognised on the acquisition is attributable mainly to the skills, technical talent and product portfolio of the acquired business
and its workforce and to the synergies expected to be achieved from integrating UHS into the Hills Group’s existing Electronic Security and
Entertainment business.
(b) Cash flow information
In thousands of AUD
Outflow of cash to acquire business, net of cash acquired
Cash consideration
Less: Balances acquired
Cash
Outflow of cash
5,100
1,120
3,980
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
47
Notes to the Financial Statements
12. Business combination (continued)
(b) Assets and liabilities acquired
The assets and liabilities arising from the aquisition are as follows:
In thousands of AUD
Cash and cash equivalents
Receivables
Inventories
Property, plant and equipment
Net deferred tax asset
Payables
Borrowings
Employee benefit liabilities, including superannuation
Current tax liability
Provisions
R&D capitalised
Net assets
Add: Goodwill
Net identifiable assets acquired
1,120
3,016
1,111
73
28
(1,789)
(2,863)
(221)
(211)
(550)
200
(86)
5,293
5,207
Acquisition of subsidiaries in the prior reporting period
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.
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.
Details of the fair value of the assets and liabilities acquired and goodwill are as follows:
The purchase consideration was $756,000 with cash consideration of $350,000, contingent consideration of $400,000 and acquisition
costs of $6,000.
Opticomm was not trading and as such there were no assets acquired as part of the acquisition. Accordingly, the entire acquisition price was
attributable to goodwill.
48
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Notes to the Financial Statements
12. Business combination (continued)
Acquisition of business operations
Summary of acquisition
There were no acquisitions of business operations in the current reporting period.
During the current reporting period an amount of $619,000 was paid under a deferred payment arrangement for inventory in relation to the
acquisition of the business of Impressive Steel. This business was acquired on 1 May 2007.
Acquisition of business operations in the prior reporting period.
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.
Details of the fair value of the assets and liabilities acquired and goodwill are as follows:
The purchase consideration was $5,938,000 and comprised cash consideration.
The fair value of net identifiable assets acquired was $2,614,000 with goodwill of $3,324,000
Net assets acquired, at fair value comprised inventory $2,520,000, plant and equipment $212,000 and trade payables $118,000.
Preacquisition 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.
The goodwill recognised on the acquisition was 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.
13 Events occurring after the reporting period
On 5 August 2009 the Company announced an underwritten share placement to institutional and sophisticated investors and subsequently
raised $39,358,000, issuing 28,113,259 shares at $1.40 per share. In addition, on 21 August 2009 the Company announced the details of a
Share Purchase Plan (SPP), offering eligible shareholders the opportunity to apply for up to $5,000 of fully paid, ordinary shares at an issue
price of $1.40 per share. The Company reserves the right to scale the offer back. The SPP will be open on 28 August 2009 and close on 11
September 2009. In total the Company plans to raise a maximum of around $50 million.
Since the end of the financial year the Company has extended the term of the majority of its debt facilities to November 2011.
Apart from the matter noted above, no other matter or circumstance has occurred subsequent to year end that has significantly affected,
or may significantly affect, the operations of the Company or Group, the results of those operations or the state of affairs of the Company or
Group in subsequent financial years.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
49
Director’s Declaration
1. In the opinion of the Directors of Hills Industries Limited
(‘the Company’):
(a) the concise financial statements and notes set out on pages
30 to 49, and the Remuneration report in the Directors’ Report of
the Group, comprising Hills Industries Limited and the entities it
controlled during the financial year ended 30 June 2009, set out
on pages 18 to 24, are in accordance with the Corporations Act
2001, including:
(i) have been derived from or is consistent with the full financial
report for the financial year; and
(ii) complies with Australian Accounting Standard AASB 1039
Concise Financial Reports.
Signed in accordance with a resolution of the Directors:
G Twartz
Director
Dated at Adelaide on this 11th day of September 2009.
50
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Independent Audit Report to the Members of Hills Industries Limited
Report on the Remuneration Report
The following paragraphs are copied from our Report on the
remuneration report for the year ended 30 June 2009.
We have audited the remuneration report included in pages 18 to 24 of
the Directors’ report for the year ended 30 June 2009. 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 2009, complies with section 300A of the
Corporations Act 2001.
KPMG
N Faulkner
Partner
Dated at Adelaide on this 11th day of September 2009.
Report on the concise financial report
The accompanying concise financial report of the Group comprising
Hills Industries Limited (the Company) and its controlled entities
comprises the balance sheet as at 30 June 2009, the income
statement, statement of recognised income and expenses and
statement of cash flows for the year then ended and related notes 1 to
13 derived from the audited financial report of Hills Industries Limited
for the year ended 30 June 2009 and the discussion and analysis. The
concise financial report does not contain all the disclosures required
by Australian Accounting Standards.
Directors’ responsibility for the concise financial report
The Directors of the Company are responsible for the preparation
and presentation of the concise financial report in accordance with
Australian Accounting Standard 1039 Concise Financial Reports and
the Corporations Act 2001. This responsibility includes establishing
and maintaining internal control relevant to the preparation of
the concise financial report; selecting and applying appropriate
accounting policies; and making accounting estimates that are
reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on the concise financial
report based on our audit procedures. We have conducted an
independent audit in accordance with Australian Auditing Standards,
of the financial report of Hills Industries Limited for the year ended
30 June 2009. Our audit report on the financial report was signed
on 11 September 2009 and was not subject to any modification.
The Australian 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 for the year is free of material misstatement.
Our procedures in respect of the concise financial report include
testing that the information in the concise financial report is derived
from, and is consistent with, the financial report for the year, and
examination on a test basis, of evidence supporting the amounts,
discussion and analysis, and other disclosures which were not directly
derived from the financial report for the year. These procedures have
been undertaken to form an opinion whether, in all material respects,
the concise financial report complies with Australian Accounting
Standard AASB 1039 Concise Financial Reports and whether the
discussion and analysis complies with the requirements laid down
in Australian Accounting Standard AASB 1039 Concise Financial
Reports. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence
requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion, the concise financial report, including the discussion
and analysis, of Hills Industries Limited and its controlled entities for
the year ended 30 June 2009 complies with Australian Accounting
Standard AASB 1039 Concise Financial Reports.
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
51
Shareholder Information
The shareholder information set out below was applicable as at 21 August 2009.
A Distribution of equity security holders
Analysis of numbers of equity security holders by size of holding:
Holding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Ordinary shares
Shares
Options
4,829
10,989
4,918
3,345
85
24,166
_
_
_
12
6
18
There were 1,464 holders of less than a marketable parcel of ordinary shares.
B Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted securities are listed below:
Name
Poplar Pty Limited
Hills Associates Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Jacaranda Pastoral Pty Limited
National Nominees Limited
RBC DEXIA Investor Services Australia Nominees Pty Limited (PIPOOLED A/C)
Australian Foundation Investment Company Limited
Argo Investments Limited
Citicorp Nominees Pty Limited
RBC DEXIA Investor Services Australia Nominees Pty Limited (PIIC A/C)
Donald Cant Pty Limited
Milton Corporation Limited
Colleen Sims Nominees Pty Limited
ANZ Nominees Limited
Hills Associates Limited & Poplar Pty Limited
Queensland Investment Corporation
AMP Life Limited
Choiseul Investments Limited
Citicorp Nominees Pty Ltd (CFSIL CFS WS Small Comp A/C)
C Substantial Shareholders
Substantial holders in the Company are set out below:
Name
Poplar Pty Limited
Hills Associates Limited
52
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
Ordinary shares
Number held
19,007,978
13,313,300
8,094,226
8,081,018
5,968,699
4,972,427
4,852,514
4,262,130
4,208,604
2,999,155
2,356,348
1,979,060
1,719,260
1,693,012
1,189,408
1,174,550
1,130,577
802,837
801,039
724,292
Percentage of
issued shares
8.14
5.70
3.47
3.46
2.56
2.13
2.08
1.83
1.80
1.28
1.01
0.85
0.74
0.73
0.51
0.50
0.48
0.34
0.34
0.31
89,330,434
38.26
Number
held
19,007,978
13,313,300
Percentage
8.14
5.70
Shareholder Information
D Voting rights
The voting rights attaching to each class of equity
securities are set out below:
(a) Ordinary shares
On a show of hands every member present at a
meeting in person or by proxy shall have one vote and
upon a poll each share shall have one vote.
(b) Options
No voting rights.
E On market buy back
There is no current on market buy back.
F Direct payment to shareholder 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.
G Securities Exchange
The Company is listed on the Australian Securities
Exchange. The Home exchange is Adelaide.
H Other information
Hills Industries Limited, incorporated and domiciled in
Australia, is a publicly listed company limited by shares.
I 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
Email: info@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
Hills Industries Limited and its Controlled Entities Concise Annual Report for the year ended 30 June 2009
53