Hills Industries Limited
ABN 35 007 573 417
Annual report
for the year ended 30 June 2010
Hills Industries Limited ABN 35 007 573 417
Annual report - 30 June 2010
Contents
Financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors' report
Corporate governance statement
Directors' declaration
Lead auditor’s independence declaration under section 307C of the Corporations Act 2001
Independent auditor's report to the members
Shareholder information
Page
2
3
4
5
6
7
72
93
99
100
101
103
These financial statements are the consolidated financial statements of the consolidated entity consisting of Hills Industries
Limited and its subsidiaries. The financial statements are presented in the Australian currency.
Hills Industries Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Hills Industries Limited
944 - 956 South Road
Edwardstown SA 5039
A description of the nature of the Group's operations and its principal activities is included in the review of operations and
activities within the Directors’ report on pages 72 - 75, which is not part of these financial statements.
The financial statements were authorised for issue by the Directors on this 10th day of September 2010. The Directors
have the power to amend and reissue the financial statements.
Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases,
financial reports and other information are available within Corporate Information on our website: www.hills.com.au.
For queries in relation to our reporting please call +61 8 8301 3200 or e-mail info@hills.com.au.
-1-
Revenue from continuing operations
Other income
Hills Industries Limited
Consolidated income statement
For the year ended 30 June 2010
Consolidated
Notes
2010
$'000
2009
$'000
3
4
1,156,326
1,192,081
1,921
2,983
1,158,247
1,195,064
Expenses, excluding finance costs
5
(1,092,778)
(1,149,134)
Results from operations
Finance income
Finance costs
Net finance expense
Profit before income tax
Income tax expense
Profit for the year
Profit is attributable to:
Owners of Hills Industries Limited
Non-controlling interests
Profit for the year
5
5
5
6
65,469
45,930
4,166
(7,575)
767
(23,438)
(3,409)
(22,671)
62,060
23,259
(18,965)
(7,604)
43,095
15,655
40,188
2,907
9,506
6,149
43,095
15,655
Cents
Cents
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
24
24
16.7
16.7
4.9
4.9
The above consolidated income statement should be read in conjunction with the accompanying notes.
-2-
Profit for the year
Other comprehensive income
Loss on revaluation of land and buildings
Changes in the fair value of cash flow hedges
Exchange differences on translation of foreign operations
Income tax relating to components of other comprehensive income
Other comprehensive income for the year, net of tax
Hills Industries Limited
Consolidated statement of comprehensive income
For the year ended 30 June 2010
Notes
22(a)
22(a)
22(a)
6(d)
Consolidated
2010
$'000
2009
$'000
43,095
15,655
-
(707)
318
212
(7,407)
329
110
2,064
(177)
(4,904)
Total comprehensive income for the year
42,918
10,751
Total comprehensive income for the year is attributable to:
Owners of Hills Industries Limited
Non-controlling interests
40,011
2,907
4,602
6,149
42,918
10,751
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
-3-
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Total current assets
Non-current assets
Investments
Property, plant and equipment
Deferred tax assets
Intangible assets
Derivative financial instruments
Total non-current assets
Total assets
LIABILITIES
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 earnings
Hills Industries Limited
Consolidated statement of financial position
As at 30 June 2010
Consolidated
Notes
2010
$'000
2009
$'000
7
8
9
14
10
11
12
13
14
15
16
17
18
14
19
20
14
56,915
186,002
181,496
800
67,978
197,480
196,569
-
425,213
462,027
2
219,658
23,771
116,300
-
2
227,494
25,828
114,326
333
359,731
367,983
784,944
830,010
128,048
1,384
10,622
33,445
262
120,902
3,852
8,186
33,835
5,924
173,761
172,699
105,684
6,318
2,682
218,498
5,975
4,318
114,684
228,791
288,445
401,490
496,499
428,520
21
22(a)
306,595
47,899
126,107
248,598
46,495
107,442
Capital and reserves attributable to owners of Hills Industries Limited
480,601
402,535
Non-controlling interests
Total equity
15,898
25,985
496,499
428,520
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
-4-
Hills Industries Limited
Consolidated statement of changes in equity
For the year ended 30 June 2010
Consolidated
Attributable to owners of Hills Industries
Limited
Contributed
equity
$'000
Reserves
$'000
Retained
earnings
$'000
Notes
Total
$'000
Non-
controlling
interests
$'000
Total
equity
$'000
Balance at 1 July 2008
223,091
51,369
133,759
408,219
21,298
429,517
Total comprehensive income for
the year
Transactions with owners in their
capacity as owners:
Contributions of equity net of
transaction costs and tax
Non-controlling interest in share
capital issued by subsidiary
Non-controlling interest on acquisition
of subsidiary
Dividends provided for or paid
Dividends paid to non-controlling
interests in subsidiaries
Executive share options - value of
employee services
Transfers to/(from) reserves
-
(4,904)
9,506
4,602
6,149
10,751
21
25,507
23
22
-
-
-
-
-
-
-
-
-
25,507
-
25,507
-
-
38
38
-
-
-
(35,863)
-
(35,863)
(83)
-
(83)
(35,863)
-
70
(40)
-
-
40
-
(1,431)
(1,431)
70
-
14
-
84
-
Balance at 30 June 2009
248,598
46,495
107,442
402,535
25,985
428,520
Balance at 1 July 2009
248,598
46,495
107,442
402,535
25,985
428,520
Total comprehensive income for
the year
Transactions with owners in their
capacity as owners:
Contributions of equity, net of
transaction costs and tax
Non-controlling interest in share
capital issued by subsidiary
Change in non-controlling interest on
acquisition of subsidiary
Dividends provided for or paid
Dividends paid to non-controlling
interests in subsidiaries
Executive share options - value of
employee services
-
(177)
40,188
40,011
2,907
42,918
21
57,997
32
23
22
-
-
-
-
-
-
-
1,551
-
-
30
-
57,997
-
57,997
-
-
640
640
-
(21,523)
1,551
(21,523)
(11,551)
-
(10,000)
(21,523)
-
-
-
(2,083)
(2,083)
30
-
30
Balance at 30 June 2010
306,595
47,899
126,107
480,601
15,898
496,499
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
-5-
Hills Industries Limited
Consolidated statement of cash flows
For the year ended 30 June 2010
Consolidated
Notes
2010
$'000
2009
$'000
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)
1,281,583
(1,160,308)
1,374,725
(1,288,577)
Cash generated from operations
Interest received
Interest paid
Income taxes paid
121,275
86,148
1,596
(7,575)
(13,748)
763
(13,318)
(11,260)
Net cash inflow from operating activities
35
101,548
62,333
Cash flows from investing activities
Payment for acquisition of subsidiary, net of cash acquired
Payment for acquisition of business operations, net of cash acquired
Payments to increase ownership interest in subsidiary
Payments for property, plant and equipment
Payments for patents, trademarks and intellectual property
Proceeds from sale of property, plant and equipment
Proceeds from disposal of asset held for sale
Rent received
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from issues of shares
Proceeds from borrowings
Repayment of borrowings
Loans (paid to) / received from other entities
Proceeds from share issues to non-controlling interests in subsidiaries
Dividends paid to Company's shareholders
Dividends paid to non-controlling interests in subsidiaries
Net cash (outflow) from financing activities
Net (decrease) increase 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
31
31
11
13
23
-
(3,953)
(10,064)
(19,094)
(3,010)
4,138
-
864
(3,980)
(619)
-
(32,047)
-
903
20,850
842
(31,119)
(14,051)
57,098
374
(115,465)
(1,058)
640
(21,523)
(2,630)
25,238
36,707
(26,865)
272
-
(35,863)
(1,431)
(82,564)
(1,942)
(12,135)
67,650
16
46,340
21,310
-
Cash and cash equivalents at the end of the financial year
7
55,531
67,650
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
-6-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
1 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for Hills
Industries Limited (the "Company" or "parent entity") and its subsidiaries (together referred to as the "Group" or
"Consolidated Entity" and individually as "Group Entities").
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards
(AASB), including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting
Standards Board, and the Corporations Act 2001.
Compliance with IFRS
The financial report of the Group also complies with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Historical cost convention
These financial statements have been prepared on the basis of historical costs, except for the following:
•
•
financial instruments at fair value through profit or loss are measured at fair value; and
land and buildings are measured at fair value.
The methods used to measure fair values are discussed further in note 30.
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 31 - business combinations
Note 13 - measurement of the recoverable amounts of cash-generating units containing goodwill
Note 25 - measurement of share-based payments
Notes 18, 20 and 28 - provisions and contingencies
Note 14 - financial instruments
Financial statement presentation
During the current year the allocation of expenses by function and the allocation of sales rebates was reviewed. The
comparative information has been adjusted to be consistent with the allocations for the current financial year.
The Group has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January
2009. The revised standard requires the separate presentation of a statement of comprehensive income and a statement
of changes in equity. All non-owner changes in equity must now be presented in the statement of comprehensive income.
As a consequence, the Group had to change the presentation of its financial statements. Comparative information has
been re-presented so that it is also in conformity with the revised standard. Since the change in accounting policy only
impacts presentation aspects, there is no impact on earnings per share.
-7-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(b) Parent entity financial information
The financial information for the parent entity, Hills Industries Limited, disclosed in note 33 has been prepared on the same
basis as the consolidated financial statements.
(c) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June
2010 and the results of all subsidiaries for the year then ended.
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial
and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence
and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the
Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated
from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group (refer to note 1(i)).
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted
by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income
statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of financial position, respectively.
Investments in subsidiaries are accounted for at cost in the separate financial statements of Hills Industries Limited.
(ii) Changes in ownership interests
The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity
owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the
controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the
amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate
reserve within equity attributable to owners of Hills Industries Limited.
When the Group ceases to have control, joint control or significant influence, any retained interest in the entity is
remeasured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the initial
carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly controlled
entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that
entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that
amounts previously recognised in other comprehensive income are reclassified to profit or loss.
If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant influence is
retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified
to profit or loss where appropriate.
(iii) Changes in accounting policy
The Group has changed its accounting policy for transactions with non-controlling interests and the accounting for loss of
control, joint control or significant influence from 1 July 2009 when a revised AASB 127 Consolidated and Separate
Financial Statements became operative. The revisions to AASB 127 contained consequential amendments to AASB 128
Investments in Associates and AASB 131 Interests in Joint Ventures.
Previously transactions with non-controlling interests were treated as transactions with parties external to the Group.
Disposals therefore resulted in gains or losses in profit or loss and purchases resulted in the recognition of goodwill. On
disposal or partial disposal, a proportionate interest in reserves attributable to the subsidiary was reclassified to profit or
loss or directly to retained earnings.
-8-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(c) Principles of consolidation (continued)
Previously when the Group ceased to have control, joint control or significant influence over an entity, the carrying amount
of the investment at the date control, joint control or significant influence ceased became its cost for the purposes of
subsequently accounting for the retained interests as associates, jointly controlled entity or financial assets.
The Group has applied the new policy prospectively to transactions occurring on or after 1 July 2009. As a consequence,
no adjustments were necessary to any of the amounts previously recognised in the financial statements, and there was no
material impact on earnings per share.
(d) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing the performance of
the operating segments, has been identified as the Group Managing Director.
Operating segments that exhibit similar long-term economic characteristics, and have similar products, processes,
customers, distribution methods and regulatory environments are aggregated.
Change in accounting policy
The Group has adopted AASB 8 Operating Segments from 1 July 2009. AASB 8 replaces AASB 114 Segment Reporting.
The new standard requires a 'management approach', under which segment information is presented on the same basis as
that used for internal reporting purposes. This has resulted in an increase in the number of reportable segments presented.
In addition, the segments are reported in a manner that is consistent with the internal reporting provided to the chief
operating decision maker. Comparatives for 2009 have been restated. Since the change in accounting policy only impacts
presentation aspects, there is no impact on earnings per share.
(e) Foreign currency translation
(i)
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency'). The consolidated financial statements are
presented in Australian dollars, which is Hills Industries Limited's functional and presentation currency and the functional
and presentation currency of the majority of the Group.
(ii) Transactions and balances
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are
retranslated to the functional currency at the foreign exchange rate at that date. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the
exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in
terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences
arising on retranslation are recognised in profit or loss.
(iii) Group companies
The results and financial position of all the Group entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
•
•
•
assets and liabilities for each statement of financial position presented are translated at the closing rate at the date
of that statement of financial position;
income and expenses for each income statement and statement of comprehensive income are translated at
average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and expenses are translated at the dates of the
transactions), and
all resulting exchange differences are recognised in other comprehensive income.
-9-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(f) Revenue recognition
Revenue is recognised for the major business activities as follows:
(i) Goods sold
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns,
trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have
been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods
can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can
be measured reliably.
(ii) Services
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at
the reporting date. The stage of completion is assessed by reference to estimates of work performed.
(iii) Rental income
Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease.
Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.
(iv) Dividends
Dividends are recognised as revenue when the right to receive payment is established. This applies even if they are paid
out of pre-acquisition profits. However, the investment may need to be tested for impairment as a consequence, refer note
1(n).
Change in accounting policy
The Group has changed its accounting policy for dividends paid out of pre-acquisition from 1 July 2009 when a revised
AASB 127 Consolidated and Separate Financial Statements became operative. Previously, dividends paid out of
pre-acquisition profits were deducted from the cost of the investment. In accordance with the transitional provisions, the
new accounting policy is applied prospectively. It was therefore not necessary to make any adjustments to any of the
amounts previously recognised in the financial statements. There is no material impact on earnings per share.
(g)
Income tax
The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the
applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company's subsidiaries and associates operate and generate taxable income.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax
is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period
and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is
settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases
of investments in foreign operations where the company is able to control the timing of the reversal of the temporary
differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
-10-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(g) Income tax (continued)
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or
directly in equity, respectively.
(i)
Tax consolidation legislation
Hills Industries Limited and its wholly-owned Australian controlled entities are part of a tax consolidated group.
The head entity, Hills Industries Limited, and the controlled entities in the tax consolidated group account for their own
current and deferred tax amounts arising from temporary differences. These tax amounts are measured as if each entity in
the tax consolidated group continues to be a stand alone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Hills Industries Limited also recognises the current tax liabilities (or
assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities
in the tax consolidated group.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts
receivable from or payable to other entities in the Group. Details about the tax funding agreement are disclosed in note 6.
(h) Leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are
classified as operating leases (note 29). Payments made under operating leases (net of any incentives received from the
lessor) are charged to the consolidated income statement on a straight-line basis over the period of the lease.
(i) Business combinations
The acquisition method of accounting is used to account for all business combinations, including business combinations
involving entities or businesses under common control, regardless of whether equity instruments or other assets are
acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets
transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes
the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the
subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the
acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree
either at fair value or at the non-controlling interest's proportionate share of the acquiree’s net identifiable assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the net
identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable
assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised
directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their
present value as at the date of exchange. The discount rate used is the Group's incremental borrowing rate, being the rate
at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified as a financial liability. Amounts are subsequently remeasured to fair value with
changes in fair value recognised in profit or loss.
Change in accounting policy
A revised AASB 3 Business Combinations became operative on 1 July 2009.
All purchase consideration is now recorded at fair value at the acquisition date. Contingent payments classified as debt are
subsequently remeasured through profit or loss. Under the Group's previous policy, contingent payments were only
recognised when the payments were probable and could be measured reliably and were accounted for as an adjustment to
the cost of acquisition.
Acquisition-related costs are expensed as incurred. Previously, they were recognised as part of the cost of acquisition and
therefore included in goodwill.
-11-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(i) Business combinations (continued)
Non-controlling interests in an acquiree are now recognised either at fair value or at the non-controlling interest's
proportionate share of the acquiree's net identifiable assets. This decision is made on an acquisition-by-acquisition basis.
Under the previous policy, the non-controlling interest was always recognised at its share of the acquiree's net identifiable
assets. There is no material impact on earnings per share.
(j)
Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets
are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating
units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the
impairment at each reporting date.
(k) Cash and cash equivalents
For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash on
hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of
three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the
consolidated statement of financial position.
(l) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 to 90 days.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written
off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used
when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of
the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the
trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying
amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows
relating to short-term receivables are not discounted if the effect of discounting is immaterial.
The amount of the impairment loss is recognised in profit or loss. When a trade receivable for which an impairment
allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance
account. Subsequent recoveries of amounts previously written off are credited against expenses in profit or loss.
(m) Inventories
Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value.
Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the
latter being allocated on the basis of normal operating capacity. Cost includes the transfer from equity of any gains/losses
on qualifying cash flow hedges relating to purchases of raw material. Costs are assigned to individual items of inventory on
the basis of the first-in-first-out principle. Costs of purchased inventory are determined after deducting rebates and
discounts. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.
-12-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(n)
Investments and other financial assets
Classification
The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the
purpose for which the assets were acquired. Management determines the classification of its investments at initial
recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at the end of each
reporting date.
(i)
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held-for-trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in the short-term. Derivatives are classified as held-for-trading
unless they are designated as hedges. Assets in this category are classified as current and non current assets on the
basis of the maturity of the underlying derivative.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for those with maturities greater than 12 months after the
reporting date which are classified as non-current assets. Loans and receivables are included in current assets - trade and
other receivables (note 8) in the consolidated statement of financial position.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on trade-date - the date on which the Group commits to
purchase or sell the asset. Financial assets carried at fair value through profit or loss are initially recognised at fair value
and transaction costs are expensed in profit or loss. Financial assets are derecognised when the rights to receive cash
flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the
risks and rewards of ownership.
Subsequent measurement
Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method.
Details on how the fair value of financial instruments is determined are disclosed in note 30.
Impairment
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group
of financial assets is impaired.
If there is evidence of impairment for any of the Group's financial assets carried at amortised cost, the loss is measured as
the difference between the asset's carrying amount and the present value of estimated future cash flows, excluding future
credit losses that have not been incurred. The cash flows are discounted at the financial asset's original effective interest
rate. The loss is recognised in profit or loss.
(o) Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value
depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of a particular risk associated with the cash flows of recognised assets
and liabilities and highly probable forecast transactions (cash flow hedges).
The Group documents at the inception of the hedging transaction the relationship between hedging instruments and
hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The
Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that
are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or
cash flows of hedged items.
-13-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(o) Derivatives and hedging activities (continued)
The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 14. Movements
in the hedging reserve in shareholders' equity are shown in note 22. The full fair value of a hedging derivative is classified
as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as
a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
(i) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income and within the hedging reserve in equity. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss.
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.
The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in
profit or loss within ‘finance income' or 'finance costs'. The gain or loss relating to the effective portion of forward foreign
exchange contracts hedging export sales is recognised in profit or loss within ‘sales'. However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets) the
gains and losses previously deferred in equity are reclassified from equity and included in the initial measurement of the
cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods sold in the case of
inventory, or as depreciation or impairment in the case of fixed assets.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in equity is immediately reclassified to profit or loss.
(ii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument
that does not qualify for hedge accounting are recognised immediately in profit or loss.
(p) Property, plant and equipment
Land and buildings are shown at fair value less subsequent depreciation for buildings. Land and buildings are
independently valued at least every four years on the basis of open market values, and in the intervening years are valued
by the Directors based on the most recent independent valuation combined with current market information. Any
accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net
amount is restated to the revalued amount of the asset. All other plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also
include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of
property, plant and equipment. The cost of self-constructed assets includes the cost of materials and direct labour, any
other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling
and removing the items and restoring the site on which they are located.
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when
replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are
incurred.
Increases in the carrying amounts arising on revaluation of land and buildings are recognised, net of tax, in other
comprehensive income and accumulated in reserves in equity. To the extent that the increase reverses a decrease
previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous
increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus
attributable to the asset; all other decreases are charged to profit or loss.
-14-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(p) Property, plant and equipment (continued)
Land is not depreciated. Depreciation on other assets is calculated using the diminishing value or straight line method as
considered appropriate to allocate their cost or revalued amounts, net of their residual values, over their estimated useful
lives, as follows:
- Buildings
- Plant and equipment
- Leasehold improvements
2010
0.75%
5.00% to 40.00%
20.00% to 66.67%
2009
0.75%
5.00% to 40.00%
20.00% to 66.67%
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater
than its estimated recoverable amount (note 1(j)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit
or loss. When revalued assets are sold, it is Group policy to transfer any amounts included in other reserves in respect of
those assets to the asset realisation reserve.
(q)
Intangible assets
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable
assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible
assets. Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or
changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing (note 13). The allocation is made to
those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination
in which the goodwill arose.
(ii) Patents and Trademarks
Patents and trademarks have a finite useful life and are carried at cost less accumulated amortisation and impairment
losses. Amortisation is calculated using the straight-line method to allocate the cost of patents and trademarks over their
estimated useful lives, which vary from 10 to 20 years.
(iii) Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the
design and testing of new or improved products) are recognised as intangible assets when it is probable that the project
will, after considering its commercial and technical feasibility, be completed and generate future economic benefits and its
costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of
materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not
meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense
are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets
and amortised from the point at which the asset is ready for use on a straight-line basis over its useful life, which is
estimated to be 5 to 20 years.
(r) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are
unpaid. The amounts are unsecured and are paid in accordance with the Group's terms of trade.
-15-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(s) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured
at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is
recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the
establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or
all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for
liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the reporting period.
(t) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated.
Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the
present obligation at the reporting date. The discount rate used to determine the present value reflects current market
assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the
passage of time is recognised as interest expense.
(i) Claims
The provision for claims is the estimated future liability of the Group’s self-insurance arrangements. The value of the
provision is determined in consultation with the Group’s actuaries or legal advisers as appropriate. The claims estimate is
based on historical claims data and a weighting of the possible outcomes against their associated probabilities.
Outstanding claims are recognised for incidences that have occurred that may give rise to a claim and are measured at the
cost that the entity expects to incur in settling the claims, discounted using a Commonwealth government bond rate with a
maturity date approximating the terms of the Group’s obligations.
(u) Employee benefits
(i) Wages and salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12
months after the end of the period in which the employees render the related service are recognised in respect of
employees' services up to the end of the reporting period and are measured at the amounts expected to be paid when the
liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term
employee benefit obligations are presented as payables.
(ii) Long service leave
The liability for long service leave is recognised in the provision for employee benefits and measured as the present value
of expected future payments to be made in respect of services provided by employees up to the end of the reporting period.
Consideration is given to expected future wage and salary levels, experience of employee departures and periods of
service. Expected future payments are discounted using market yields at the end of the reporting period on national
government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash
outflows.
(iii) Retirement benefit obligations
A defined contribution plan is a post employment benefit plan which receives fixed contributions from Group entities' and
the Group’s legal or constructive obligation is limited to these contributions.
Contributions to defined contribution plans are recognised as an expense as they become payable.
(iv) Share-based payments
Share-based compensation benefits are provided to employees via the Executive Share Option Plan and the Employee
Share Plan. Information relating to these schemes is set out in note 25.
-16-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(u) Employee benefits (continued)
Executive Share Option Plan
The Executive Share Option Plan allows Group executives to acquire shares of the Company.
The fair value of options granted under the Executive Share Option Plan is recognised as an employee benefits expense
with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of
the options granted, measured at the grant date, which includes any market performance conditions but excludes the
impact of any service and non-market performance vesting conditions and the impact of any non-vesting conditions.
The valuation method takes into account the exercise price of the option, the life of the option, the current price of the
underlying shares, the expected volatility of the share price, the dividends expected of the shares and the risk-free interest
rate for the life of the option.
Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The
total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions
are to be satisfied. At the end of each period, the entity revises its estimates of the number of options that are expected to
vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in
profit or loss, with a corresponding adjustment to equity. No change is made for changes in market conditions.
Employee Share Bonus Plan
The Employee Share Bonus Plan allows Group employees to acquire shares of the Company. Up to $1,000 per year in
shares is allotted to employees who have served a qualifying period. The fair value of shares issued is recognised as an
employee expense with a corresponding increase in equity. The fair value of the shares granted is measured using a
present value method based upon independent advice.
(v) Profit-sharing and bonus plans
A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group
has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and
the obligation can be estimated reliably, or where there is past practice that has created a constructive obligation.
(v) Contributed equity
Ordinary shares are classified as equity (note 21).
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
If the entity reacquires its own equity instruments, for example as the result of a share buy-back, those instruments are
deducted from equity and the associated shares are cancelled. No gain or loss is recognised in profit or loss and the
consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity.
(w) Dividends
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of
the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.
(x) Finance income and expense
Finance income comprises interest income on funds invested, fair value gains on interest rate swap contracts not
accounted for using hedge accounting and the ineffective portion of cash flow hedges relating to interest rate swaps.
Interest income is recognised as it accrues in profit or loss.
Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, fair value losses on
interest rate swap contracts not accounted for using hedge accounting and the ineffective portion of cash flow hedges
relating to interest rate swaps. Borrowing costs are recognised in profit or loss using the effective interest method.
-17-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(y) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
•
•
the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary
shares;
by the weighted average number of ordinary shares outstanding during the financial year (note 24).
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
•
•
the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares;
and
the weighted average number of additional ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares.
(z) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not
recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part
of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST
recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated
statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
(aa) Rounding of amounts
The Group 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 financial statements. Amounts in the financial statements have been
rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.
(ab) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2010
reporting periods. The Group's assessment of the impact of these new standards and interpretations is set out below.
(i) AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual
Improvements Project (effective for annual periods beginning on or after 1 January 2010)
In May 2009, the AASB issued a number of improvements to existing Australian Accounting Standards. The Group will
apply the revised standards from 1 July 2010. The Group does not expect there to be any significant impact as a result of
applying the revised rules.
(ii) AASB 2009-8 Amendments to Australian Accounting Standards - Group Cash-Settled Share-based Payment
Transactions [AASB2] (effective from 1 January 2010)
The amendments made by the AASB to AASB 2 confirm that an entity receiving goods or services in a group share-based
payment arrangement must recognise an expense for those goods or services regardless of which entity in the group
settles the transaction or whether the transaction is settled in shares or cash. They also clarify how the group share-based
payment arrangement should be measured, that is, whether it is measured as an equity or a cash-settled transaction. The
Group will apply these amendments retrospectively for the financial reporting period commencing on 1 July 2010. There
will be no impact on the financial statements of the Group.
-18-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
1 Summary of significant accounting policies (continued)
(ab) New accounting standards and interpretations (continued)
(iii) AASB 2009-10 Amendments to Australian Accounting Standards - Classification of Rights Issues [AASB 132]
(effective from 1 February 2010)
In October 2009 the AASB issued an amendment to AASB 132 Financial Instruments: Presentation which addresses the
accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided
certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise
price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment must be
applied retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.
The Group will apply the amended standard from 1 July 2010. As the Group has not made any such rights issues, the
amendment will not have any effect on the Group's financial statements.
(iv) Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to Australian Accounting
Standards (effective for annual reporting periods beginning on or after 1 January 2011)
In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods
beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the
definition of a related party. The Group will apply the amended standard from 1 July 2011. It is not expected to have any
effect on the Group's related party disclosures.
(v) AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising
from AASB 9 (effective from 1 January 2013)
AASB 9 Financial Instruments addresses the classification and measurement of financial assets and is likely to affect the
Group’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early
adoption. Retrospective application is generally required, although there are exceptions, particularly if the Group adopts
the standard for the year ended 30 June 2012 or earlier. The Group has not yet decided when to adopt AASB 9 and has
not yet determined the potential effect of the standard.
(vi) AASB Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments and AASB 2009-13
Amendments to Australian Accounting Standards arising from Interpretation 19 (effective 1 July 2010)
AASB Interpretation 19 clarifies the accounting when an entity renegotiates the terms of its debt with the result that the
liability is extinguished by the debtor issuing its own equity instruments to the creditor (debt for equity swap). It requires a
gain or loss to be recognised in profit or loss which is measured as the difference between the carrying amount of the
financial liability and the fair value of the equity instruments issued. The Group will apply the interpretation from 1 July
2010. It is not expected to have any impact on the Group's financial statements since it is only retrospectively applied from
the beginning of the earliest period presented (1 July 2009) and the Group has not entered into any debt for equity swaps
since that date.
(vii) AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements
Project and AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual
Improvements Project (effective from 1 July 2010)
In June 2010, the AASB made a number of amendments to Australian Accounting Standards as a result of the IASB's
annual improvements project. The Group will apply the amendments from 1 July 2010. The Group does not expect there
to be any significant impact as a result of applying the revised rules.
-19-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
2 Segment information
(a) Description of segments
The Group has four reportable segments, based upon reports reviewed by the Group Managing Director that are used to
make strategic decisions. The following summary describes the operations in each of the Group’s reportable segments:
Electronic Security and Entertainment – includes 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 – includes outdoor clothes driers, ladders, ironing boards, laundry trolleys, security doors,
garden sprayers, rehabilitation and mobility products, water tanks and other rotationally moulded products, solar hot water
products, stainless steel products and plumbing products.
Building and Industrial – comprises the Fielders Steel Roofing and Orrcon Steel businesses and includes structural,
precision and large steel tubing, steel doorframes, roll formed metal building products, carports and shed systems.
Korvest – comprises the business of Korvest Ltd and includes electrical and cable support systems, pipe support systems,
walkway systems, steel fabrication, associated metal treatment and galvanising services.
The Group principally considers the business from a products and services perspective. The Electronic Security and
Entertainment and Home, Hardware and Eco divisions are each managed separately by Group General Managers.
The Electronic Security and Entertainment businesses meet the aggregation criteria of the Standard because of similarities
of products, markets, distribution and regulatory environments.
The Home, Hardware and Eco division comprises a number of business units, which individually would not comprise
reportable segments, however, rather than reporting these businesses as “other operations” they are reported as Home,
Hardware and Eco as this reflects the manner in which the Group manages these businesses.
In previous financial years the Building and Industrial segment comprised the operations of Orrcon, Fielders and Korvest.
These businesses are run by separate General Managers and the Group considers them separate operating segments.
However, for the purposes of disclosure under AASB 8 Operating Segments, the Orrcon and Fielders businesses meet the
aggregation criteria of the Standard because of similarities of products, markets, distribution and regulatory environments.
However, Korvest does not meet the aggregation criteria, and as a consequence is reported separately.
Although the Group's divisions are managed on a products and services basis they operate in two main geographical
areas:
Australia
Comprises manufacturing facilities and sales offices and customers in all states and territories.
Overseas
Principally comprises manufacturing facilities and sales offices in New Zealand.
-20-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
2 Segment information (continued)
(b) Segment information provided to the Group Managing Director
2010
Electronic
Security &
Entertainment
$'000
Home,
Hardware &
Eco
$'000
Building &
Industrial
$'000
Korvest Ltd
$'000
Total
$'000
Segment revenue
349,506
176,311
574,366
55,279
1,155,462
Segment EBIT
32,525
10,235
20,622
5,706
69,088
Segment assets
143,955
128,840
372,623
35,882
681,300
Segment liabilities
33,099
26,989
81,830
7,070
148,988
2009
Electronic
Security &
Entertainment
$'000
Home,
Hardware &
Eco
$'000
Building &
Industrial
$'000
Korvest Ltd
$'000
Total
$'000
Segment revenue
336,019
193,517
598,811
62,892
1,191,239
Segment EBIT
30,852
(3,106)
23,790
8,044
59,580
Total segment assets
145,299
152,544
370,783
33,712
702,338
Total segment liabilities
31,885
30,680
73,472
6,977
143,014
(c) Notes to, and forming part of, the segment information
(i) Accounting policies
Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant
portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment
and consist primarily of receivables, inventories, property, plant and equipment and goodwill and other intangible assets,
net of related provisions. Segment assets do not include income taxes.
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on a ''cost plus''
basis and are eliminated on consolidation.
(ii) Segment revenue
Segment revenue reconciles to total revenue from continuing operations as follows:
Total segment revenue
Other revenue
Total revenue from continuing operations (note 3)
Consolidated
2010
$'000
2009
$'000
1,155,462
864
1,191,239
842
1,156,326
1,192,081
The Group is domiciled in Australia. The amount of its revenue from external customers in Australia is $1,116,159,000
(2009: $1,149,652,000), and the total of revenue from external customers in other countries is $39,303,000 (2009:
$41,587,000). Segment revenues are allocated based on the country in which the customer is located.
The Group does not derive 10% or more of its revenues from any single external customer.
-21-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
2 Segment information (continued)
(iii) Segment EBIT
Segment EBIT reconciles to operating profit before income tax as follows:
Segment EBIT
Interest revenue
Interest expense
Fair value profit/(loss) on interest rate swaps and forward exchange contracts
Restructuring costs
Impairment of other assets
Other
Consolidated
2010
$'000
2009
$'000
69,088
1,596
(7,575)
2,570
-
(1,680)
(1,939)
59,580
767
(13,298)
(10,140)
(14,048)
-
398
Profit before income tax from continuing operations
62,060
23,259
(iv) Segment assets
The amounts provided to the Group Managing Director with respect to total assets are measured in a manner consistent
with that of the financial statements. These assets are allocated based on the operations of the segment and the physical
location of the asset.
Reportable segment assets are reconciled to total assets as follows:
Segment assets
Cash
Deferred tax assets
Investments
Derivative financial instruments
Corporate assets
Consolidated
2010
$'000
2009
$'000
681,300
56,915
23,771
2
800
22,156
702,338
67,978
25,828
2
333
33,531
Total assets as per the consolidated statement of financial position
784,944
830,010
The total of non-current assets other than financial instruments and deferred tax assets located in Australia is $327,890,000
(2009: $333,776,000), and the total of these non-current assets located in other countries is $8,070,000 (2009:
$8,046,000). Segment assets are allocated to countries based on where the assets are located.
(v) Segment liabilities
The amounts provided to the Group Managing Director with respect to total liabilities are measured in a manner consistent
with that of the financial statements. These liabilities are allocated based on the operations of the segment.
The Group's borrowings and derivative financial instruments are not considered to be segment liabilities but rather
managed by the treasury function.
Reportable segments' liabilities are reconciled to total liabilities as follows:
Segment liabilities
Tax liabilities (including GST payable)
Borrowings
Derivative financial instruments
Corporate liabilities
Consolidated
2010
$'000
2009
$'000
148,988
15,646
107,068
2,944
13,799
143,014
16,528
222,350
10,242
9,356
Total liabilities as per the consolidated statement of financial position
288,445
401,490
-22-
3 Revenue
From continuing operations
Sales revenue
Sale of goods
Services
Other revenue
Rents and sub-lease rentals
4 Other income
Net gain on disposal of property, plant and equipment
Foreign exchange gains (net)
Other income
5 Expenses
Classification of expenses by function
Cost of goods sold
Cost of services provided
Distribution expenses
Sales and marketing expenses
Administration expenses
Other expenses
Net loss on disposal of property plant & equipment
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
1,094,540
60,922
1,122,199
69,040
1,155,462
1,191,239
864
842
1,156,326
1,192,081
Consolidated
2010
$'000
2009
$'000
179
14
1,728
1,921
65
34
2,884
2,983
Consolidated
2010
$'000
2009
$'000
756,558
53,143
87,337
129,091
64,486
2,163
-
791,128
58,381
88,576
132,707
63,263
14,994
85
1,092,778
1,149,134
During the current year the allocation of expenses by function and the allocation of sales rebates was reviewed. The
comparative information has been adjusted to be consistent with the allocations for the current financial year.
-23-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
1,644
21,233
1,199
21,341
22,877
22,540
996
40
1,036
567
-
567
23,913
23,107
174,818
15,383
18,556
7,701
1,993
467
170,633
14,633
24,481
10,457
1,660
454
218,918
222,318
1,596
2,504
66
4,166
763
-
4
767
(7,575)
-
(13,298)
(10,140)
(7,575)
(23,438)
(3,409)
(22,671)
22,625
20,250
22,625
20,250
467
417
1,680
3,836
3,336
-
-
5,750
3,689
5,380
8,852
14,819
5 Expenses (continued)
Profit before income tax includes the following specific expenses:
Depreciation
Buildings
Plant and equipment
Total depreciation
Amortisation
Patents and trademarks
Development costs
Total amortisation
Total depreciation and amortisation
Personnel expenses
Wages and salaries
Defined contribution superannuation expense
Other associated personnel expenses
Increase in liability for annual leave
Increase in liability for long service leave
Equity-settled share-based payment transactions
Total personnel expenses
Finance income
Interest income
Fair value gains on derivatives
Ineffectiveness in fair value of cash flow hedges
Finance expenses
Interest and finance charges paid/payable
Fair value loss on derivatives
Net finance costs expensed
Rental expense relating to operating leases
Minimum lease payments
Total rental expense relating to operating leases
Research and development
Impairment of financial and other assets
Property, plant and equipment
Inventories
Receivables
Intangible assets
Total impairment losses - financial and other assets
-24-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
5 Expenses (continued)
Profit after tax for the year includes the following items that are unusual because of
their nature and size:
Financial expenses
(a) Net fair value loss on derivatives
Less: Applicable income tax benefit
Other expenses
(b) Restructuring costs
Less: Applicable income tax benefit
(a) Net fair value loss on derivatives
Consolidated
2010
$'000
2009
$'000
-
-
-
-
-
-
(10,140)
3,042
(7,098)
(14,048)
2,600
(11,448)
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. The Group does not trade in these instruments and does not speculate on
movements in rates. In the previous financial year the significant movements in the Australian dollar resulted in a non cash
fair value loss before tax on forward exchange contracts of $5,822,000 and the significant reduction in interest rates over
the previous financial year resulted in a non cash fair value loss before tax on interest rate swaps of $4,318,000.
In the current reporting period, all existing forward exchange contracts from 1 July 2009 and all new forward exchange
contracts from inception were designated into hedge relationships and hedge accounting applied. All new interest rate
swaps from inception and all existing interest rate swaps from during the first quarter of the current financial year are
designated into hedge relationships and hedge accounting applied. This is in accordance with the Group's existing
accounting policy.
(b) Restructuring costs
In the previous financial year, the Group undertook a detailed review of operations with particular emphasis on the Home,
Hardware and Eco Products division. A number of restructuring initiatives were implemented during that 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 $11,448,000, of which the cash cost was $2,564,000. Included in the non
cash costs was the impairment of the goodwill associated with the Alquip business. This totalled $5,380,000.
-25-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
6 Income tax expense
(a)
Income tax expense
Current tax
Deferred tax
Adjustments for current tax of prior periods
Deferred income tax expense (revenue) included in income tax expense comprises
(note 12)
Decrease (increase) in deferred tax assets
Adjustments for deferred tax of prior periods
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2009 - 30%)
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Goodwill impairment
Impairment of other assets
Depreciation of buildings
Non deductable expenses
Tax exempt income
Difference in overseas tax rates
Adjustments for current and deferred tax of prior periods
Tax losses not recognised
Previously unrecognised tax losses now recouped to reduce current tax expense
Consolidated
2010
$'000
2009
$'000
17,659
2,795
(1,489)
15,542
(7,333)
(605)
18,965
7,604
2,693
102
2,795
(6,916)
(417)
(7,333)
62,060
18,618
23,259
6,978
-
504
274
819
(180)
4
(1,387)
313
-
1,614
-
-
500
(650)
-
(1,022)
239
(55)
Total income tax expense
18,965
7,604
(c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period and not recognised in
net profit or loss or other comprehensive income but directly debited or credited to equity:
Net deferred tax - debited (credited) directly to equity (note 12)
(526)
-
(d) Amounts recognised in other comprehensive income
Gains / (losses) on revaluation of land and buildings (notes 12, 22)
Cash flow hedges (notes 12, 22)
-
(212)
(2,163)
99
(212)
(2,064)
-26-
6 Income tax expense (continued)
(e) Tax losses
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
Unused capital tax losses for which no deferred tax asset has been recognised
29,918
29,083
Potential tax benefit @ 30%
8,975
8,725
The tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of
these items because it is not probable that future capital gains will be available against which the Group can utilise the
benefits from these items.
Revenue tax losses for which no deferred tax asset has been recognised total $1,121,000 (2009: $1,356,000). The
potential deferred tax asset not recognised totals $336,000 (2009: $407,000).
(f) Current tax assets and liabilities
The current tax liability for the Group of $10,622,000 (2009: $8,186,000) represents the amount of income taxes payable in
respect of current and prior financial periods.
(g) Tax consolidation legislation
The Company and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The
accounting policy in relation to this legislation is set out in note 1(g).
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing
agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the case
of a default by the head entity, Hills Industries Limited.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Hills
Industries Limited for any current tax payable assumed and are compensated by Hills Industries Limited for any current tax
receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Hills Industries
Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts
recognised in the wholly-owned entities' financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head
entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require
payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are
recognised as current intercompany receivables or payables and eliminated on consolidation.
-27-
7 Current assets - Cash and cash equivalents
Cash at bank and in hand
Deposits at call
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
10,610
46,305
63,931
4,047
56,915
67,978
(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 consolidated statement of cash
flows as follows:
Balances as above
Bank overdrafts (note 16)
Balances per consolidated statement of cash flows
(b) Risk exposure
Consolidated
2010
$'000
2009
$'000
56,915
(1,384)
67,978
(328)
55,531
67,650
The Group's exposure to interest rate risk is discussed in note 30. The maximum exposure to credit risk at the end of the
reporting period is the carrying amount of each class of cash and cash equivalents mentioned above.
(c) Fair value
The carrying amount for cash and cash equivalents equals the fair value.
8 Current assets - Trade and other receivables
Consolidated
2010
$'000
2009
$'000
188,818
(9,418)
201,484
(7,782)
179,400
193,702
-
4,105
2,497
219
1,865
1,694
186,002
197,480
Net trade receivables
Trade receivables
Provision for impairment of receivables (note (a))
Net other receivables
Receivable from associates
Other receivables
Prepayments
-28-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
8 Current assets - Trade and other receivables (continued)
(a)
Impaired trade receivables
The ageing of the Group's trade receivables at the reporting date is as follows:
Not past due
Past due 0 - 30 days
Past due 31 - 90 days
Past due more than 90 days
Movements in the provision for impairment of receivables are as follows:
At 1 July
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
At 30 June
Consolidated
2010
$'000
2009
$'000
103,215
60,019
16,494
9,090
112,974
61,291
17,155
10,064
188,818
201,484
Consolidated
2010
$'000
2009
$'000
(7,782)
(3,336)
1,700
(5,528)
(3,689)
1,435
(9,418)
(7,782)
Based on historic default rates, the Group believes that no impairment allowance is necessary in respect of trade
receivables not yet past due.
The provision for impaired receivables for the Group of $9,418,000 (2009: $7,782,000) relates to receivables past due more
than 30 days, based upon a case by case assessment. Receivables past due between 0 and 30 days are not considered
impaired.
(b) Foreign exchange and interest rate risk
Information about the Group's exposure to foreign currency risk and interest rate risk in relation to trade and other
receivables is provided in note 30.
(c) Fair value and credit risk
Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.
The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned
above. The fair value of securities held for certain trade receivables is insignificant as is the fair value of any collateral sold
or repledged. Refer to note 30 for more information on the risk management policy of the Group and the credit quality of
the Group's trade receivables.
-29-
9 Current assets - Inventories
Raw materials and stores
- at cost and net realisable value
- impairment losses
Work in progress
- at cost and net realisable value
- impairment losses
Finished goods
- at cost and net realisable value
- impairment losses
10 Non-current assets - Investments
Other listed securities
Equity securities
These financial assets are carried at cost.
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
54,859
(3,152)
48,649
(1,213)
51,707
47,436
5,224
-
5,224
4,665
(2)
4,663
147,293
(22,728)
165,369
(20,899)
124,565
144,470
181,496
196,569
Consolidated
2010
$'000
2009
$'000
2
2
-30-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
11 Non-current assets - Property, plant and equipment
Consolidated
At 1 July 2008
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2009
Land - Fair
Value
$'000
Buildings -
Fair Value
$'000
Plant and
equipment -
Cost & Fair
Value
$'000
Total
$'000
47,501
-
47,501
54,743
(2,384)
247,860
(121,296)
350,104
(123,680)
52,359
126,564
226,424
Opening net book amount
Exchange differences
Revaluation to fair value
Acquisitions through business combinations
Additions
Disposals
Depreciation charge
47,501
36
(3,305)
-
-
-
-
52,359
33
(4,102)
-
2,192
(8)
(1,199)
126,564
7
-
73
29,599
(915)
(21,341)
226,424
76
(7,407)
73
31,791
(923)
(22,540)
Closing net book amount
44,232
49,275
133,987
227,494
At 30 June 2009
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2010
Opening net book amount
Exchange differences
Revaluation to fair value
Acquisition through business combinations
Additions
Disposals
Impairment charge recognised in profit and loss
Depreciation charge
Closing net book amount
At 30 June 2010
Cost or fair value
Accumulated depreciation
Net book amount
44,232
-
44,232
44,232
62
-
-
-
-
-
-
44,294
44,294
-
44,294
52,134
(2,859)
252,500
(118,513)
348,866
(121,372)
49,275
133,987
227,494
49,275
50
-
-
1,946
(20)
-
(1,644)
133,987
11
-
1,463
17,148
(3,939)
(1,680)
(21,233)
227,494
123
-
1,463
19,094
(3,959)
(1,680)
(22,877)
49,607
125,757
219,658
54,072
(4,465)
258,663
(132,906)
357,029
(137,371)
49,607
125,757
219,658
-31-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
11 Non-current assets - Property, plant and equipment (continued)
(a) Assets in the course of construction
The carrying amounts of the assets disclosed above include the following expenditure recognised in relation to property,
plant and equipment which is in the course of construction:
Property, furniture, fittings, plant and equipment
Total assets in the course of construction
(b)
Impairment loss
Consolidated
2010
$'000
2009
$'000
13,023
18,548
13,023
18,548
The impairment loss relates to property, plant and equipment in the course of construction. The whole amount was
included in profit or loss, as there was no amount previously included in the asset revaluation reserve relating to the
relevant asset. The recoverable amount of the asset was determined by reference to a report provided by an independent
valuer as fair value less cost to sell based on an active market.
12 Non-current assets - Deferred tax assets
The balance comprises temporary differences attributable to:
Employee benefits
Property, plant and equipment
Inventories
Receivables
Loans and borrowings
Provisions
Self insurance provisions
Other accruals
Software and prepayments
Derivative financial instruments
Other items
Net deferred tax assets
Consolidated
2010
$'000
2009
$'000
10,865
(1,921)
4,614
2,543
1,218
2,155
83
1,576
439
1,233
966
10,873
(1,961)
5,511
2,423
1,218
1,997
83
2,136
385
2,942
221
23,771
25,828
-32-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
12 Non-current assets - Deferred tax assets (continued)
Movements - Consolidated
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Self insurance provisions
Other accruals
Software and prepayments
Derivative financial instruments
Other items
Movements - Consolidated
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Self insurance provisions
Other accruals
Software and prepayments
Derivative financial instruments
Other items
Balance at
1 July 2008
$'000
Recognised
in profit or
loss
$'000
Recognised
in equity
$'000
Acquisition
of
subsidiary
$'000
Balance at
30 June
2009
$'000
Recognised
in other
compre-
hensive
income
$'000
(4,330)
3,235
9,994
1,752
1,218
2,095
897
616
320
-
606
206
2,276
800
671
-
(98)
(814)
1,520
65
3,041
(334)
2,163
-
-
-
-
-
-
-
-
(99)
-
16,403
7,333
2,064
-
-
-
-
-
-
-
-
-
-
-
-
-
-
79
-
-
-
-
-
-
-
(51)
(1,961)
5,511
10,873
2,423
1,218
1,997
83
2,136
385
2,942
221
28
25,828
Balance at
1 July 2009
$'000
Recognised
in profit or
loss
$'000
Recognised
in equity
$'000
Acquisition
of
subsidiary
$'000
Balance at
30 June
2010
$'000
Recognised
in other
compre-he
nsive
income
$'000
(1,961)
5,511
10,873
2,423
1,218
1,997
83
2,136
385
2,942
221
40
(897)
(8)
120
-
158
-
(560)
54
(1,921)
219
-
-
-
-
-
-
-
-
-
212
-
25,828
(2,795)
212
-
-
-
-
-
-
-
-
-
-
526
526
-
-
-
-
-
-
-
-
-
-
-
(1,921)
4,614
10,865
2,543
1,218
2,155
83
1,576
439
1,233
966
-
23,771
-33-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Development
costs
$'000
Goodwill
$'000
Patents,
trademarks
and other
rights
$'000
Total
$'000
13 Non-current assets - Intangible assets
Consolidated
At 1 July 2008
Cost
Accumulated amortisation and impairment
176
(176)
116,549
(5,663)
8,144
(4,868)
124,869
(10,707)
Net book amount
-
110,886
3,276
114,162
Year ended 30 June 2009
Opening net book amount
Acquisitions through business combinations
Impairment charge **
Amortisation charge **
Derecognised on disposal
Closing net book amount
At 30 June 2009
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2010
Opening net book amount
Additions
Amortisation charge **
Closing net book amount
At 30 June 2010
Cost
Accumulated amortisation and impairment
Net book amount
-
200
-
-
-
200
200
-
200
200
-
(40)
160
200
(40)
160
110,886
5,912
(5,380)
-
-
111,418
122,461
(11,043)
111,418
3,276
-
-
(567)
(1)
2,708
2,946
(238)
2,708
114,162
6,112
(5,380)
(567)
(1)
114,326
125,607
(11,281)
114,326
111,418
-
-
111,418
2,708
3,010
(996)
4,722
114,326
3,010
(1,036)
116,300
122,461
(11,043)
111,418
5,957
(1,235)
128,618
(12,318)
4,722
116,300
** The amortisation and impairment charge is recognised in expenses in the income statement.
(a)
Impairment tests for goodwill
During the year ended 30 June 2010 the Group determined that there is no impairment of any of its cash generating units
(CGU) containing goodwill or intangible assets with indefinite useful lives. For the purpose of impairment testing, goodwill is
allocated to the Group’s operating units that represent the lowest level within the Group at which the goodwill is monitored
for internal management purposes (cash generating units).
-34-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
13 Non-current assets - Intangible assets (continued)
The aggregate carrying amounts of goodwill allocated to each cash generating unit, analysed at a segment level, are as
follows:
Cash generating unit
2010 & 2009
Hills SVL
Hills Healthcare
LW Gemmell
Fielders
Orrcon
Opticomm
UHS
Team Poly
Total Group
Building and
Industrial
$'000
Electronic
Security and
Entertainment
$'000
Home,
Hardware and
Eco
$'000
Total
$'000
-
-
-
7,789
49,589
-
-
-
57,378
16,237
-
-
-
-
756
5,293
-
22,286
-
11,839
3,324
-
-
-
-
16,591
31,754
16,237
11,839
3,324
7,789
49,589
756
5,293
16,591
111,418
The cash generating unit impairment tests are based on value in use calculations which were determined by discounting
the future cash flows generated from the continuing use of the unit and were based on the following key assumptions:
Cash flow projections have been based on the coming year's budget and Board agreed forecasts with key assumptions for
future years relating to sales, gross margins and expenses. Sales are based on management assessments with allowances
for future growth based upon assessments of growth rates in the markets to which the assets belong. Gross margins and
expense levels are based on past experience.
A terminal value has been determined at the end of the five year strategic plan using a growth rate of 3% (2009: 3%), which
is no greater than the long term average growth rate for the market to which the asset is dedicated.
A pre-tax discount rate of between 14.17% and 14.77% (2009: 13.57% and 14.68%), determined by reference to the
Group’s weighted average cost of capital and specific industry factors was applied in determining the recoverable amount
of the units.
(b)
Impact of possible changes in key assumptions
With the exception of the Orrcon and the Team Poly cash generating units, a reasonably possible change in the key
assumptions above would not have resulted in the carrying amount exceeding the recoverable amount for any of the
Group’s cash generating units.
The Orrcon cash generating unit's recoverable amount (which exceeds its carrying value in use by approximately $53.6
million (2009: $15.2 million) is sensitive to a possible change in EBIT. The business is forecasting for annualised EBIT
growth of 20% per annum over the five year model period. A decrease in forecast annual EBIT of 21% (2009: 3%) could
result in an impairment.
The Team Poly cash generating unit's recoverable amount (which exceeds its carrying value in use by approximately $9.3
million (2009: $5.9 million) is sensitive to a possible change in EBIT. The business is forecasting for EBIT over the five year
period to return to levels consistent with 2007. A decrease in forecast annual EBIT of 21% (2009: 5%) could result in an
impairment.
(c)
Impairment charge
The impairment charge of $5,380,000 recorded in the previous financial year arose as a result of the closure of the Alquip
business. The decision to close the business and subsequent sale of assets resulted in the goodwill associated with this
cash generating unit being impaired.
-35-
14 Derivative financial instruments
Current assets
Forward foreign exchange contracts - cash flow hedges
Total current derivative financial instrument assets
Non-current assets
Interest rate swaps - cash flow hedges
Total non-current derivative financial instrument assets
Total derivative financial instrument assets
Current liabilities
Interest rate swaps - cash flow hedges
Forward foreign currency contracts - held for trading
Total current derivative financial instrument liabilities
Non-current liabilities
Interest rate swaps - cash flow hedges
Interest rate swaps - held for trading
Total non-current derivative financial instrument liabilities
Total derivative financial instrument liabilities
Net derivative financial instrument liabilities
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
800
800
-
-
800
250
12
262
2,682
-
2,682
-
-
333
333
333
-
5,924
5,924
-
4,318
4,318
2,944
10,242
(2,144)
(9,909)
The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to
fluctuations in interest and foreign exchange rates in accordance with the Group's financial risk management policies (refer
to note 30).
(i) Interest rate swap contracts - cash flow hedges
Bank loans of the Group at 30 June 2010 bear an average variable interest rate of 4.75% (2009: 3.26%). It is the Group's
policy to manage exposure to increasing interest rates by hedging a proportion of the Group's exposure to variable rate
bank loans. Accordingly, the Group has entered into interest rate swap contracts under which it is obliged to receive
interest at variable rates and to pay interest at fixed rates.
Interest rate swaps in place at 30 June 2010 cover approximately all (2009: 56%) of the loan principal outstanding and are
taken out with terms of between three and seven years. The fixed interest rates average 6.2% (2009: 6.1%).
The contracts require net settlement of the interest receivable or payable each 90 days. The settlement dates coincide with
the dates on which interest is payable on the underlying debt.
In the current financial year, all existing interest rate swaps were, during the first quarter of the financial year, designated
into hedge relationships and hedge accounting applied. All new interest rate swaps are, from inception, designated into
hedge relationships and hedge accounting applied.
The gain or loss from remeasuring the hedging instruments at fair value is recognised in other comprehensive income in
the hedging reserve, to the extent that the hedge is effective, and reclassified into profit and loss when the hedged item is
derecognised. In the year ended 30 June 2010 a gain of $66,000 was reclassified into profit and loss (2009: gain of
$4,000) and included in finance cost due to hedge ineffectiveness in the current or prior year and a gain of $1,998,000 was
reclassified into profit and loss (2009: nil) to offset net interest expense paid.
-36-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
14 Derivative financial instruments (continued)
(ii) Forward exchange contracts - cash flow hedges
The Group purchases goods and materials from overseas, principally in US dollars. In order to protect against exchange
rate movements, the Group has entered into forward exchange contracts to purchase US dollars.
These contracts are hedging highly probable forecasted purchases for approximately the next two to three months.
In the current financial year, all existing forward exchange contracts from 1 July 2009 and all new forward exchange
contracts from inception are designated into hedge relationships and hedge accounting applied.
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other
comprehensive income. When the cash flows occur, the Group adjusts the initial measurement of the component
recognised in the statement of financial position by removing the related amount from other comprehensive income.
During the year ended 30 June 2010 a gain of $nil (2009: $nil) was reclassified from other comprehensive income and
included in the cost of inventories and subsequently in profit and loss within cost of goods sold. A loss of $11,000 was
recognised in profit or loss for the ineffective portion of these hedging contracts (2009: $nil).
(iii) Forward exchange contracts and interest rate swaps - held for trading
In previous financial years the Group had entered into forward exchange contracts and interest rate swap contracts which
did not satisfy the requirements for hedge accounting. In the current financial year Group subsidiaries entered into a small
number of forward exchange contracts. These contracts are subject to the same risk management policies as all other
derivative contracts, see note 30 for details. However, they are accounted for as held for trading.
(a) Risk exposures
Information about the Group's exposure to credit risk, foreign exchange and interest rate risk is provided in note 30. The
maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of derivative
financial assets mentioned above.
15 Current liabilities - Trade and other payables
Trade payables
Amounts due to associates (note 27)
Other loans
Other trade payables and accrued expenses
(a) Risk exposure
Information about the Group's exposure to foreign exchange risk is provided in note 30.
Consolidated
2010
$'000
2009
$'000
76,813
134
-
51,101
77,077
-
165
43,660
128,048
120,902
-37-
16 Current liabilities - Borrowings
Bank overdrafts **
Loans from related parties*
Bills payable **
Total current borrowings
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
1,384
-
-
1,384
328
1,059
2,465
3,852
* Further information relating to loans from related parties (which include loans from minority shareholders) is set out in
note 27.
** Further information on the bank overdrafts and bills payable are set out in note 19.
(a) Security and fair value disclosures
Information about the security relating to each of the secured liabilities and the fair value of each of the borrowings is
provided in note 19.
(b) Risk exposures
Details of the Group's exposure to risks arising from current and non-current borrowings are set out in note 30.
17 Current liabilities - Current tax liabilities
Consolidated
2010
$'000
2009
$'000
10,622
8,186
Consolidated
2010
$'000
2009
$'000
27,248
-
-
5,701
496
26,563
400
550
5,751
571
33,445
33,835
Income tax
18 Current liabilities - Provisions
Employee benefits
Contingent consideration
Provision for dividend
Outstanding claims
Site restoration
Information on non current provisions is set out in note 20.
-38-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
18 Current liabilities - Provisions (continued)
(i) Outstanding claims
The provision for claims comprises amounts set aside for estimated claims, as well as the estimated future liability of the
Group’s self-insurance arrangements. The value of the provision is determined in consultation with the Group’s actuaries or
legal advisers as appropriate.
(ii) Contingent consideration
The contingent consideration provision represents the present value of the estimated consideration payable, on acquisition
of subsidiaries or business operations, if the acquiree meets certain performance criteria over a specified period of time.
(iii) Provision for dividend
The provision for dividend remaining unpaid at the end of the previous financial year is an amount recognised on the
acquisition of a subsidiary.
(iv) Site restoration
Other provisions comprise mainly a provision for site restoration and safety upgrades.
(a) Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Contingent
consideration
$'000
Provision for
dividend
$'000
Outstanding
claims
$'000
Site
restoration
$'000
Total
$'000
2010
Current & non current
Carrying amount at start of year
Charged/(credited) to profit or loss / retained
earnings
- additional provisions recognised
- reductions from remeasurement or
settlement without cost
Amounts used during the year
Dividend foregone - SIP
400
550
5,751
799
7,500
-
24,362
-
-
24,362
(400)
-
-
-
(24,199)
(713)
(50)
-
-
(65)
(42)
-
(515)
(24,241)
(713)
-
-
5,701
692
6,393
4,971
452
5,807
42,025
-
(35,753)
(6,272)
550
550
780
-
-
-
-
5,751
435
21
(109)
-
43,240
37
(35,862)
(6,272)
-
799
550
7,500
Carrying amount at end of year
-
2009
Current & non current
Carrying amount at start of year
Charged/(credited) to profit or loss / retained
earnings
- additional provisions recognised
- other movements
Amounts used during the year
Dividend foregone - SIP
Amounts recognised on acquisition of
subsidiary
Carrying amount at end of year
384
-
16
-
-
-
400
-39-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
19 Non-current liabilities - Borrowings
Unsecured
Bills payable
Other loans
Loans from non-controlling interests
Total unsecured non-current borrowings
Total non-current borrowings
(a) Financing arrangements
The Group had access to the following undrawn borrowing facilities at the reporting date:
Facilities
Bank overdraft
Unsecured bank loans
Standby letters of credit
Short term money market
Used at balance date
Bank overdrafts
Unsecured bank loans
Standby letters of credit
Unused at balance date
Bank overdrafts
Unsecured bank loans
Standby leters of credit
Short term money market
Consolidated
2010
$'000
2009
$'000
105,000
663
21
218,000
498
-
105,684
218,498
105,684
218,498
Consolidated
2010
$'000
2009
$'000
2,828
218,169
6,831
5,000
1,900
263,585
16,126
16,000
232,828
297,611
1,384
105,000
6,831
328
220,465
331
113,215
221,124
1,444
113,169
-
5,000
1,572
43,120
15,795
16,000
119,613
76,487
(b) Bank loans and bank overdraft
Bank overdrafts
Bank overdrafts are denominated in both $A and $NZ. The bank overdraft of a controlled entity is secured by a guarantee
from the Company. Interest on bank overdrafts is charged at prevailing market rates. The bank overdrafts are payable on
demand and are subject to annual review. The Company and a number of its subsidiaries have a net bank overdraft facility
of $1,000,000 (2009: $1,900,000) and the Company's New Zealand subsidiary has a separate bank overdraft facility of
$1,828,000.
-40-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
19 Non-current liabilities - Borrowings (continued)
Unsecured bank loans
The Group has a number of multi option facilities with its bankers. Generally, these facilities can be utilised for a
combination of bank loans, guarantees and standby letters of credit. Bank loans are denominated in both $A and $NZ. The
bank loans are Commercial Bills and Fully Drawn Advances with interest charged at prevailing market rates. The Company
and its wholly owned subsidiaries have provided an interlocking guarantee and indemnity to its financiers for these facilities.
An assessment of the contractual maturities of financial liabilities is provided in note 30.
Standby letter of credit
The standby letter of credit facility forms part of the multi option facilities negotiated with the Group's bankers.
Short term money market
Borrowings on the short-term money market are denominated in $A. Interest on the borrowings is charged at the prevailing
market rates.
(c) Fair value
The carrying amounts and fair values of borrowings at the end of reporting period are:
Consolidated
Non-traded financial liabilities
Bank overdrafts
Bills payable
Other loans
(d) Risk exposures
2010
2009
Carrying
amount
$'000
Fair value
$'000
Carrying
amount
$'000
Fair value
$'000
1,384
105,000
684
1,384
105,000
684
328
220,465
1,557
328
220,465
1,557
107,068
107,068
222,350
222,350
Information about the Group's exposure to interest rate and foreign currency changes is provided in note 30.
For an analysis of the sensitivity of borrowings to interest rate risk and foreign exchange risk refer to note 30.
20 Non-current liabilities - Provisions
Employee benefits
Site restoration and safety upgrades
Movements in provisions are set out in note 18.
Consolidated
2010
$'000
2009
$'000
6,122
196
6,318
5,747
228
5,975
-41-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
2010
Shares '000
2009
Shares '000
2010
$'000
2009
$'000
247,697
204,601
306,595
248,598
Details
Number of
shares '000
$'000
185,789
4,648
3,006
554
320
10,284
-
223,091
9,342
-
270
1,022
14,912
(39)
204,601
248,598
204,601
29,185
11,956
674
382
899
-
248,598
40,859
16,738
1,255
-
373
-
(1,228)
247,697
306,595
21 Contributed equity
(a) Share capital
Ordinary shares
Fully paid
(b) Movements in ordinary share capital:
Date
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 Purchase Plan
Less: Transaction costs arising on share issue
30 June 2009
Balance
1 July 2009
Opening balance
Issued under the capital raising
Issued under the Share Purchase Plan
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
Less: Transaction costs arising on share issue
30 June 2010
Balance
(c) Ordinary shares
During the year the Company conducted a placement of ordinary fully paid shares to institutional and sophisticated
investors. The share issue price was $1.40 per share.
Following completion of the institutional placement the Company invited shareholders to participate in a Share Purchase
Plan. Each shareholder was entitled to purchase up to $5,000 worth of shares at a share issue price of $1.40 per share, the
same as the issue price for the institutional placement. The Share Purchase Plan was oversubscribed and shares allotted
were scaled back by approximately 50%.
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 5%
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.
-42-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
21 Contributed equity (continued)
(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 25.
(g) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, so that
it 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 Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio in conjunction with its review of the Group'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 statement of financial position less cash and cash equivalents. Total equity is equity as shown in the statement of
financial position (including non-controlling interests).
During 2010, the Group's strategy, which was unchanged from 2009, was to maintain a target gearing ratio less than 45%.
The gearing ratios at 30 June 2010 and 30 June 2009 were as follows:
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Gearing ratio
Consolidated
2010
$'000
2009
$'000
107,068
(56,915)
222,350
(67,978)
50,153
154,372
496,499
428,520
10.1%
36.0%
The decrease in the gearing ratio during 2010 resulted primarily from the capital raising and from cash from operations
generated during the year.
The Group is not subject to externally imposed capital requirements.
-43-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
$'000
2009
$'000
35,634
(265)
12,019
(1,653)
613
1,551
44,828
230
2,825
(1,971)
583
-
47,899
46,495
44,828
-
-
-
(9,194)
50,112
(7,407)
2,163
(40)
-
35,634
44,828
230
(707)
212
(265)
-
329
(99)
230
(1,971)
269
49
(2,081)
110
-
(1,653)
(1,971)
2,825
9,194
12,019
2,825
-
2,825
583
30
613
513
70
583
22 Reserves
(a) Reserves
Asset revaluation reserve
Hedging reserve - cash flow hedges
Asset realisation reserve
Foreign currency translation reserve
Equity compensation reserve
Non-controlling interests acquisition reserve
Movements:
Asset revaluation reserve
Balance 1 July
Revaluation - gross (note 11)
Deferred tax (note 12)
Transfer (to) / from retained earnings
Transfer to asset realisation reserve
Balance 30 June
Hedging reserve - cash flow hedges
Balance 1 July
Revaluation - gross (note 14)
Deferred tax (notes 6 and 12)
Balance 30 June
Foreign currency translation reserve
Balance 1 July
Currency translation differences arising during the year
Disposal of foreign subsidiary
Balance 30 June
Asset realisation reserve
Balance 1 July
Transfer from asset revaluation reserve
Balance 30 June
Equity compensation reserve
Balance 1 July
Executive share option plan expense
Balance 30 June
-44-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
22 Reserves (continued)
Non-controlling interests acquisition reserve
Balance 1 July
Adjustment to non-controlling interest upon increase in Group shareholding
Balance 30 June
(b) Nature and purpose of reserves
(i) Asset revaluation reserve
Consolidated
2010
$'000
2009
$'000
-
1,551
1,551
-
-
-
The asset revaluation reserve is used to record increments and decrements on the revaluation of property, plant and
equipment, as described in note 1(p).
(ii) Hedging reserve - cash flow hedges
The hedging reserve is used to record changes in the fair value of derivative financial instruments designated in a cash flow
hedge relationship that are recognised in other comprehensive income, as described in note 1(o). Amounts are reclassified
to profit or loss when the associated hedged transaction affects profit or loss.
(iii) 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.
(iv) Foreign currency translation reserve
Exchange differences arising on translation of the financial statements of a foreign controlled entity are recognised in other
comprehensive income as described in note 1(e) and accumulated in a separate reserve within equity. The cumulative
amount is reclassified to profit or loss when the net investment is disposed of.
(v) Equity compensation reserve
The equity compensation reserve represents the value of options 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 options are exercised and 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.
(vi) Non-controlling interests acquisition reserve
The non controlling interests acquisition reserve arises upon changes in the Group's ownership interest in subsidiaries after
control is obtained. The reserve represents the difference between the fair value of consideration paid or received, and the
amount of the change in the non controlling interest's share of net assets of the subsidiary.
-45-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
23 Dividends
(a) Ordinary shares
Final dividend for the year ended 30 June 2009 of 2.0 cents (year ended 30 June 2008:
14.0 cents) per fully paid share paid on 23 November 2009 (year ended 30 June 2008: 29
September 2008)
Fully franked based on tax paid @ 30%
Final dividend foregone for Share Investment Plan
Interim dividend for the year ended 30 June 2010 of 7.0 cents (2009: 8.0 cents) per fully
paid share paid on 3 March 2010 (2009: 7 April 2009)
Fully franked based on tax paid @ 30%
Interim dividend foregone for Share Investment Plan
Total dividends provided for or paid
(b) Dividends and share reinvestment plan
Company
2010
$'000
2009
$'000
4,917
(713)
26,149
(3,993)
4,204
22,156
17,319
-
15,986
(2,279)
17,319
13,707
21,523
35,863
The Dividend Investment Plan and Share Investment Plan will not operate in respect of the proposed final dividend.
Company
2010
$'000
2009
$'000
(c) Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have recommended the
payment of a final dividend of 5.5 cents per fully paid ordinary share (2009: 2.0 cents) fully
franked based on tax paid at 30%. The aggregate amount of the proposed dividend
expected to be paid on 27 September 2010 out of retained profits at 30 June 2010, but
not recognised as a liability at year end, is
13,623
4,876
(d) Franked dividends
The franked portions of the final dividends recommended after 30 June 2010 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 2011.
Company
2010
$'000
2009
$'000
Franking credits available for subsequent financial years based on a tax rate of 30%
(2009: 30%)
41,240
19,505
-46-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
23 Dividends (continued)
The above amounts represent the balance of the franking account as at the reporting date, adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of the amount of the provision for income tax;
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
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 $5,838,000 (2009: $2,090,000).
24 Earnings per share
(a) Basic earnings per share
Profit attributable to the ordinary shareholders of the Company
Profit before unusual / significant items attributable to the ordinary shareholders of the
Company
(b) Diluted earnings per share
Profit attributable to the ordinary shareholders of the Company
Profit before unusual / significant items attributable to the ordinary shareholders of the
Company
(c) Reconciliations of earnings used in calculating earnings per share
Consolidated
2010
Cents
2009
Cents
16.7
16.7
16.7
16.7
4.9
14.6
4.9
14.6
Consolidated
2010
$'000
2009
$'000
Basic earnings per share
Profit attributable to the ordinary shareholders of the Company used in calculating basic
earnings per share
40,188
9,506
Diluted Earnings per share
Profit attributable to the ordinary shareholders of the Company used in calculating diluted
earnings per share
40,188
9,506
Basic earnings per share before unusual / significant items
Profit attributable to the ordinary shareholders of the Company used in calculating basic
earnings per share
Adjusted for unusual / significant items:
Fair value loss on derivatives
Restructuring costs
40,188
9,506
-
-
7,098
11,448
Profit attributable to the ordinary shareholders of the Company before unusual / significant
items used in calculating basic earnings per share
40,188
28,052
-47-
24 Earnings per share (continued)
(d) Weighted average number of shares used as the denominator
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
Consolidated
2010
2009
Number '000 Number '000
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share
240,481
192,623
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
523
703
241,004
193,326
25 Share-based payments
In October 1997, the Group established a share option plan that entitles selected senior managers to acquire shares in the
Company subject to the successful achievement of performance targets related to improvements in total shareholder
returns.
Previously the options were exercisable if the total shareholder return (measured as share price growth plus dividends
paid) over a two-year period from the grant date exceeded ten percent plus CPI per annum. Once exercised the shares
were forfeited if the holder ceased to be an employee of the Group within a further three-year period.
The shareholders approved an amendment to this plan as part of the 2007 Annual General Meeting such that the option
period over which the shareholder return must be achieved was extended to three years. The three-year period during
which the shares were restricted has now been removed. This amendment is applicable for all share options granted after
the resolution was passed. No changes were made to the rules governing options already granted.
The shares issued pursuant to these options are financed by an interest free loan from the holding Company repayable
within twenty years from the proceeds of dividends declared by the holding Company. These loans are of a non-recourse
nature. For accounting purposes these 20-year loans are treated as part of the options to purchase shares, until the loan is
extinguished at which point the shares are recognised.
The options are offered only to selected senior managers and executives. In relation to the financial year ended 30 June
2010, the Board suspended the long term incentive bonus scheme and accordingly no long term incentive bonus was
allocated to the Managing Director or senior executives. Details of the options are as follows:
Grant Date / Expiry Date
Exercise
date
Exercise
price
Balance at
start of the
year
Number
Granted
during the
year
Number
Exercised
during the
year
Number
Forfeited /
lapsed
during the
year
Number
Balance at
end of the
year
Number
Consolidated - 2010
Feb 2001 / Jan 2003
Feb 2002 / Jan 2004
Feb 2003 / Jan 2005
Feb 2004 / Jan 2006
Feb 2005 / Jan 2007
Feb 2008 / Jan 2011
Feb 2009 / Jan 2012
Total
Jan 2023
Jan 2024
Jan 2025
Jan 2026
Jan 2027
Jan 2031
Jan 2032
$2.50
$2.90
$3.23
$3.66
$4.16
$5.49
$3.01
55,000
58,000
90,000
145,000
215,000
455,000
525,000
1,543,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
(5,000)
53,000
(5,000)
(10,000)
80,000
(10,000) 135,000
(10,000) 205,000
(10,000) 445,000
525,000
-
(50,000) 1,493,000
Weighted average exercise price
$3.95
$-
$-
$3.85
$3.96
-48-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
25 Share-based payments (continued)
Grant Date / Expiry Date
Exercise
date
Exercise
price
Balance at
start of the
year
Number
Granted
during the
year
Number
Exercised
during the
year
Number
Forfeited /
lapsed
during the
year
Number
Balance at
end of the
year
Number
Consolidated - 2009
Feb 2001 / Jan 2003
Feb 2002 / Jan 2004
Feb 2003 / Jan 2005
Feb 2004 / Jan 2006
Feb 2005 / Jan 2007
Feb 2007 / Jan 2009
Feb 2008 / Jan 2011
Feb 2009 / Jan 2012
Total
Jan 2023
Jan 2024
Jan 2025
Jan 2026
Jan 2027
Jan 2029
Jan 2031
Jan 2032
$2.50
$2.90
$3.23
$3.66
$4.16
$5.53
$5.49
$3.01
120,000
133,000
210,000
260,000
340,000
465,000
515,000
-
-
-
-
-
-
-
-
535,000
(65,000)
(65,000)
(90,000)
(80,000)
(80,000)
-
55,000
58,000
(10,000)
(30,000)
90,000
(35,000) 145,000
(45,000) 215,000
-
(60,000) 455,000
(10,000) 525,000
(465,000)
-
-
-
2,043,000
535,000
(380,000) (655,000) 1,543,000
Weighted average exercise price
$4.47
$3.01
$3.34
$5.15
$3.95
Details of options outstanding under accounting standards are as follows:
Grant Date
Consolidated - 2010
February 2001
February 2002
February 2003
February 2004
February 2005
February 2008
February 2009
Total
Consolidated - 2009
February 2001
February 2002
February 2003
February 2004
February 2005
February 2007
February 2008
February 2009
Total
Options
granted
Number
Outstanding
at balance
date AIFRS
Number
Outstanding
at balance
date ASX
Number
195,000
245,000
280,000
370,000
460,000
625,000
535,000
50,000
53,000
80,000
135,000
205,000
445,000
525,000
-
-
-
-
-
445,000
525,000
2,710,000
1,493,000
970,000
195,000
245,000
280,000
370,000
460,000
595,000
625,000
535,000
55,000
58,000
90,000
145,000
215,000
-
455,000
525,000
-
-
-
-
-
-
455,000
525,000
3,305,000
1,543,000
980,000
Fair value of options granted
The model inputs for options granted during the year ended 30 June 2010 included:
(a) options are granted for no consideration
(b) exercise price: $n/a (2009: $3.01)
(c) grant date: not granted (2009: 4 February 2009)
(d) expiry date: not applicable (2009: 31 January 2012)
(e) share price at grant date: $n/a (2009: $1.99)
The fair value of services received in return for share options granted during the year was $nil (2009: $nil). This amount is
amortised over the life of the option (and the three year holding period for those options issued prior to 2008). The estimate
of the fair value of the services received is based on a model that includes the length of the option period and the
relationship between the market price at the date of the grant of the option and the strike price of the option. This method
has been applied consistently.
-49-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
25 Share-based payments (continued)
(a) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit
expense were as follows:
Options issued under executive share option plan
Shares issued under employee share scheme
26 Key management personnel disclosures
(a) Directors
Consolidated
2010
$'000
2009
$'000
49
418
467
168
308
476
The following persons were Directors of Hills Industries Limited during the financial year and unless otherwise indicated
were Directors for the entire period:
(i) Chairman - non-executive
Jennifer Helen Hill-Ling
(ii) Executive Directors
Graham Lloyd Twartz (Group Managing Director)
(iii) Non-executive Directors
Ian Elliot
Roger Baden Flynn
Geoffrey Guild Hill
Peter William Stancliffe
Fiona Rosalyn Vivienne Bennett (appointed 31 May 2010)
The only change in key management personnel since the end of the financial year and prior to the date when the financial
report is authorised for issue was that David Moray Spence was appointed as a non-executive Director on 1 September
2010.
(b) Other key management personnel
The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group,
directly or indirectly, during the financial year and unless otherwise indicated were key management personnel for the
entire period:
Name
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
Position
Employer / Division
Managing Director
Group General Manager
General Manager Business Development
Group General Manager
Managing Director
Company Secretary
CEO
General Manager Finance
-50-
Orrcon Operations Pty Ltd
Hills Industries Limited / Electronic
Security and Entertainment
Hills Industries Limited
Hills Industries Limited / Home, Hardware
and Eco
Korvest Limited
Hills Industries Limited
Fielders Australia Pty Ltd
Hills Industries Limited
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
26 Key management personnel disclosures (continued)
All of the above persons were key management persons during the year ended 30 June 2010, except for D Lethbridge,
who commenced employment with the Group on 6 January 2010.
All of the above persons were also key management persons during the year ended 30 June 2009, except for D
Lethbridge, K Middleton who was appointed CEO on 22 April 2009 and D Edgecombe who became a key management
person on 1 July 2009. In addition, J Easling was a key management person during the year ended 30 June 2009, until he
ceased employment on 22 April 2009.
During the year the Group conducted a review of executives classified as key management personnel and determined that
only those personnel that report directly to the Managing Director should be classified as key management personnel.
Accordingly, G Daher, R Meacham and A Oliver, who were classified as key management personnel during the year ended
30 June 2009, are not classified as key management personnel in the year ended 30 June 2010.
(c) Key management personnel compensation
The key management personnel (KMP) compensation included in 'personnel expenses' in note 5 is as follows:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Consolidated
2010
$
2009
$
4,134,474
344,880
18,349
26,095
4,449,841
391,694
-
82,900
4,523,798
4,924,435
Information regarding individual Directors' and Executives' compensation and some equity instruments disclosures as
permitted by Corporations Regulations 2M.3.03 are provided in the Remuneration report on pages 79 to 88.
Apart from the details disclosed in this note, no Director has entered into a material contract with the Group since the end of
the previous financial year and there were no material contracts involving Directors' interests existing at year end.
(d) Equity instrument disclosures relating to key management personnel
(i) Options provided as remuneration
Details of options over ordinary shares in the Company provided as remuneration to each key management person of the
Group and held, directly, indirectly or beneficially, are set out below. When exercisable, each option is convertible into one
ordinary share of the Company. Further information on the options is set out in note 25.
Name
Directors of Hills Industries Limited
GL Twartz
Other key management personnel of the Group
L Andrewartha
S Cope
J Easling
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
Number of options granted
during the year
Number of options vested
during the year
2010
2009
2010
2009
-
-
-
-
-
-
-
-
-
-
100,000
60,000
60,000
60,000
60,000
-
25,000
60,000
-
-
25,000
60,000
60,000
-
-
-
-
-
-
-
10,000
-
-
10,000
-
-
-
-
-
10,000
No options were held by key management person related entities.
-51-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
26 Key management personnel disclosures (continued)
(ii) Options provided as remuneration and shares issued on exercise of such options
Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and
conditions of the options, can be found in the Remuneration report on page 86-88.
(iii) Option holdings
The numbers of options over ordinary shares in the Company held during the financial year by each Director of the
Company and other key management personnel of the Group, including their personally related parties, are set out below.
2010
Balance at
start of the
year
Granted as
compen-
sation
Options
lapsed /
forfeited
Balance at
end of the
year
Vested and
exercisable Unvested
Exercised
363,000
Name
Directors of Hills Industries Limited
G Twartz
Other key management personnel of the Group
L Andrewatha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
2009
180,000
120,000
25,000
120,000
-
-
45,000
105,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
363,000
203,000
160,000
180,000
120,000
25,000
120,000
-
-
45,000
105,000
60,000
-
-
-
-
-
-
20,000
120,000
120,000
25,000
120,000
-
-
45,000
85,000
Balance at
start of the
year
Granted as
compen-
sation
323,000
Name
Directors of Hills Industries Limited
G Twartz
Other key management personnel of the Group
L Andrewartha
S Cope
G Daher
J Easling
R Gros
A Kachellek
R Meacham
K Middleton
A Muir
A Oliver
180,000
120,000
35,000
110,000
120,000
-
70,000
30,000
70,000
260,000
100,000
60,000
60,000
25,000
-
60,000
-
25,000
25,000
60,000
25,000
Options
lapsed /
forfeited
Balance at
end of the
year
Vested and
exercisable Unvested
Exercised
-
-
-
-
-
-
-
-
-
-
-
(60,000)
363,000
143,000
220,000
(60,000)
(60,000)
(15,000)
(110,000)
(60,000)
-
(25,000)
(10,000)
(25,000)
(45,000)
180,000
120,000
45,000
-
120,000
-
70,000
45,000
105,000
240,000
-
-
-
-
-
-
10,000
-
10,000
145,000
180,000
120,000
45,000
-
120,000
-
60,000
45,000
95,000
95,000
(iv) Share holdings
The numbers of shares in the Company held during the financial year by each Director of Hills Industries Limited and other
key management personnel of the Group, including their personally related parties, are set out below. There were no
shares granted during the reporting period as compensation aside from those issued to the Executives as part of the
employee share scheme.
The analysis does not include options exercised, as options subject to a non-recourse loan for the purchase of shares are
not recognised as exercised by International Financial Reporting Standards, until the loan is extinguished at which point the
shares are recognised.
Share disclosures for JH Hill-Ling includes 1,188,918 (2009: 1,174,550) shares owned by Hills Associates & Poplar Pty Ltd
(jointly held) and 13,455,689 (2009: 13,313,300) shares owned by Hills Associates Ltd, of which J H Hill-Ling is a Director.
-52-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
26 Key management personnel disclosures (continued)
2010
Balance at the
start of the
year
16,343,161
8,486
4,449
31,740
87,953
17,115
-
Name
Directors of Hills Industries Limited
Ordinary shares
J Hill-Ling
G Twartz
I Elliot
R Flynn
G Hill
P Stancliffe
F Bennett
Other key management personnel of the Group
Ordinary shares
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
411
-
421
1,802
-
-
520
2,514
2009
Balance at the
start of the
year
15,336,811
4,100
1,000
26,296
76,056
12,121
Name
Directors of Hills Industries Limited
Ordinary shares
J Hill-Ling
G Twartz
I Elliot
R Flynn
G Hill
P Stancliffe
Other key management personnel of the Group
Ordinary shares
L Andrewartha
S Cope
G Daher
J Easling
R Gros
A Kachellek
R Meacham
K Middleton
A Muir
A Oliver
-
-
6,137
5,905
1,391
-
6,894
1,391
3,402
42,901
Granted during
reporting year
as
compensation
Received during
the year on the
exercise of
options
Other changes
during the year
Balance at
the end of
the year
-
459
-
-
-
-
-
459
459
459
459
-
-
459
459
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
169,308 16,512,469
9,036
6,235
35,665
92,505
19,104
4,000
91
1,786
3,925
4,552
1,989
4,000
358
-
1,810
1,786
-
-
1,811
1,786
1,228
459
2,690
4,047
-
-
2,790
4,759
Granted during
reporting year
as
compensation
Received during
the year on the
exercise of
options
Other changes
during the year
Balance at
the end of
the year
-
411
-
-
-
-
411
-
411
411
411
-
411
411
411
411
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,006,350 16,343,161
8,486
4,449
31,740
87,953
17,115
3,975
3,449
5,444
11,897
4,994
-
-
673
(6,316)
-
-
755
(1,282)
(1,299)
4,641
411
-
7,221
-
1,802
-
8,060
520
2,514
47,953
(e) Loans to key management personnel
There were no loans outstanding at the reporting date to key management personnel and their related parties. Option loans
are not recognised as loans as they are included in the fair value of the options as required by IFRS.
-53-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
26 Key management personnel disclosures (continued)
(f) Other transactions with key management personnel
A number of key management persons, or their related parties, hold positions in other entities that result in them having
control or significant influence over the financial or operating policies of those entities.
A number of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions
with key management persons and their related parties were no more favourable than those available, or which might
reasonably be expected to be available, on similar transactions to non key management personnel related entities on an
arm’s length basis.
The aggregate amounts recognised during the year relating to key management personnel and their related parties were as
follows:
•
•
The Group rents certain property from a company in which J Easling is a shareholder and director. Amounts were
billed based on normal market rentals and were due and payable under normal payment terms. The total amount
recognised as an expense during the period that he was a key management person was $nil (2009: $889,456).
Minibrook Pty Ltd and Elliot & Kellard, entities associated with I Elliot, have provided brand consulting and
presentation skills training to the Group. Amounts were billed and payable under normal commercial terms and
conditions. The total amount recognised as an expense during the year was $nil (2009: $151,000).
There were no amounts receivable from and payable to key management personnel at reporting date arising from these
transactions (2009: $nil).
From time to time, key management personnel of the Company or its controlled entities, or their related entities, may
purchase goods from the Group. These purchases are on the same terms and conditions as those entered into by other
Group employees or customers and are trivial or domestic in nature.
27 Related party transactions
(a) Parent entities
The parent entity within the Group and the ultimate parent entity is Hills Industries Limited.
(b) Subsidiaries
Interests in subsidiaries are set out in note 32.
(c) Key management personnel
Disclosures relating to key management personnel are set out in note 26.
(d) Transactions with other related parties
The following transactions occurred with related parties:
Subsidiaries
All transactions with partly owned controlled entities are on normal commercial terms and conditions. Transactions with
controlled entities are determined on a cost basis.
Sales of goods and services that eliminated with cost of goods sold and services provided amounted to $24,719,000 (2009:
$32,943,000) for the Group.
Loans and borrowings with Australian wholly owned controlled entities are interest free and payable on demand while loans
to or from non-wholly owned subsidiaries are charged interest at rates no more favourable than current market rates. Inter
entity interest paid and received during the year was $2,681,000 (2009: $8,433,000) for the Group.
Entities within the Group rent properties to or from other entities within the Group at rentals that are market related.
Property rentals during the year were $2,223,000 (2009: $2,142,000) for the Group.
-54-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
27 Related party transactions (continued)
Group entities charge an administration fee for services rendered which during the year was $10,451,000 (2009:
$10,490,000) for the Group.
Inter entity dividends paid and received during the year amounted to $15,502,000 (2009: $14,828,000) for the Group.
Key management persons related parties
For details of these transactions refer to key management personnel related disclosures in note 26.
Other related parties
Contributions to superannuation funds on behalf of employees are disclosed in note 5.
(e) Loans to/from related parties
Subsidiaries
Group entity trading transactions and borrowings result in balances arising in respect of current and non-current assets and
liabilities. At 30 June 2010 the Group current assets and liabilities were $272,047,000 (2009: $193,795,000) and the Group
non-current assets and liabilities were $441,000 (2009: $126,489,000).
Other related parties
Loans (from) / to associated entities amounted to ($134,000) (2009: $219,000).
28 Contingencies
(a) Contingent liabilities
The Group had contingent liabilities at 30 June 2010 in respect of:
Guarantees
(a) Letters of credit established in favour of suppliers / creditors amounting to $6,831,000 (2009: $331,000).
(b) Bank guarantees in favour of customers and suppliers amounting to $18,557,000 (2009: $13,721,000).
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.
Claims
Other than guarantees listed above, the Group did not have any contingent liabilities as at 30 June 2010. At 30 June 2009,
certain legal claims for damages had been made against 413 King William Street Pty Ltd (a company in which Hills
Industries Limited has a 50% interest) and the Company in relation to a property development for the Hills head office in
Adelaide. These claims were settled during the year ended 30 June 2010.
(b) Contingent assets
There are no contingent assets where the probability of future receipts is not considered remote.
-55-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
29 Commitments
(a) Capital commitments
Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows:
Property, plant and equipment
Payable:
Within one year
Consolidated
2010
$'000
2009
$'000
9,129
9,129
6,068
6,068
(b) Lease commitments: Group as lessee
The Group leases a number of warehouse and factory facilities under operating leases.
The leases run for a period ranging from 1 to 15 years with the majority running for a period of 5 years, with an option to
renew the lease after that date. Lease payments are increased each renewal period to reflect market rentals. Some leases
provide for additional rent payments that are based on changes in a local price index.
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
Consolidated
2010
$'000
2009
$'000
22,408
55,904
32,096
26,667
64,216
23,023
110,408
113,906
(c) Lease commitments: where a Group company is the lessor
The future minimum lease payments receivable under non cancellable operating leases are as follows:
Within one year
Later than one year and not later than five years
Later than five years
Consolidated
2010
$'000
2009
$'000
944
157
-
807
942
-
1,101
1,749
-56-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
30 Financial risk management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price
risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses
derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk
exposures. Derivatives are exclusively used for risk minimisation purposes, ie not as trading or other speculative
instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods
include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and aging analysis for credit
risk.
Risk management is carried out by a central treasury department (Treasury) under policies approved by the Board of
Directors. Treasury identifies, evaluates and minimises financial risks in close co-operation with the Group's operating
units. The Board provides written principles for overall risk management, as well as policies covering specific areas, such
as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial
instruments, and investment of excess liquidity.
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Investments
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
(a)
Market risk
(i)
Foreign exchange risk
Consolidated
2010
$'000
2009
$'000
56,915
186,002
800
2
67,978
197,480
333
2
243,719
265,793
128,048
107,068
2,944
120,902
222,350
10,242
238,060
353,494
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the US dollar.
Foreign exchange risk arises when future commercial transactions and recognised financial assets and financial liabilities
are denominated in a currency that is not the Group's functional currency. The risk is measured using sensitivity analysis
and cash flow forecasting.
Management and Group Treasury manage the Group's foreign exchange risk against their functional currency. The
companies and business units within the Group are required to hedge their foreign exchange risk exposure arising from
future commercial transactions and recognised assets and liabilities using forward contracts transacted by Group Treasury.
Forward contracts, transacted by Group Treasury, are used to manage foreign exchange risk. Group Treasury is
responsible for managing exposures in each foreign currency by using external forward currency contracts.
The Group Treasury's risk management policy is to hedge approximately three months of anticipated cash flows (mainly
purchases of inventory) in US dollars.
External foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific assets,
liabilities or future transactions on a gross basis.
-57-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
30 Financial risk management (continued)
The Group's exposure to foreign currency risk at the reporting date, was as follows:
USD
$'000
30 June 2010
euro
NZD
'000
$'000
JPY
'000
USD
$'000
30 June 2009
euro
NZD
'000
$'000
JPY
'000
Trade receivables
Cash at bank
Bank loans
Trade payables
Forward exchange contracts
- buy foreign currency (cash flow
hedges)
Forward exchange contracts - buy
foreign currency (FVTPL)
Group sensitivity
933
30
6,509
-
-
(1,704)
(4,398) (1,904)
-
-
-
-
-
-
(80) (2,350) (7,795)
1,217
752
(758) (2,010)
(106)
1,498
-
-
-
-
-
-
-
(309) (41,577)
(29,460)
(875)
-
-
-
-
-
-
- (35,025)
-
-
-
-
-
-
Based on the financial instruments held at 30 June 2010, had the Australian dollar weakened / strengthened by 10%
against other currencies with all other variables held constant, the Group's pre-tax profit for the year before the impact of
forward foreign exchange contracts would have been $204,000 lower / $167,000 higher (2009: $1,017,000 lower/$832,000
higher), mainly as a result of foreign exchange gains / losses on translation of US dollar denominated financial assets and
liabilities as detailed in the above table. Profit is less sensitive to movements in the Australian dollar / US dollar exchange
rates in 2010 than 2009 because of the reduced amount of US dollar denominated trade creditors and borrowings. The
forward foreign exchange contract impact on pre-tax profit for the year of a 10% weakening / strengthening in the Australian
dollar would have been $217,000 higher / $172,000 lower (2009: $5,052,000 higher / $4,133,000 lower). Profit is less
sensitive to movements in the Australian dollar / US dollar exchange rates in 2010 than 2009 because of the reduced
amount of US dollar denominated forward foreign exchange contracts and the hedging of the Australian portfolio of forward
foreign exchange contracts. Other components of equity would have been $3,813,000 higher / $3,125,000 lower (2009:
$nil higher / $nil lower) had the Australian dollar weakened / strengthened by 10% against the US dollar, arising from
forward foreign exchange contracts designated as cash flow hedges. Forward foreign exchange contracts were not
designated as cash flow hedges in 2009.
(ii) Price risk
The Group has no material financial exposure to other market price risk as it is not exposed to equity securities price risk.
The Group does not enter into commodity contracts other than to meet the Group's expected usage requirements.
(iii) Cash flow and fair value interest rate risk
The Group's main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. Group policy is to maintain approximately 50% to 75% of its borrowings at fixed rate
using interest rate swaps to achieve this when necessary. During 2010 and 2009, the Group’s borrowings at variable rate
were denominated in Australian Dollars and NZ Dollars.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps
have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long term
borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at
fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals
(mainly quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to
the agreed notional principal amounts.
-58-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
30 Financial risk management (continued)
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Consolidated
Bank overdrafts and bank loans
Cash and cash equivalents
Loans to / (from) minority shareholders
Interest rate swaps (notional principal amount)
An analysis by maturities is provided in (c) below.
Sensitivity
30 June 2010
30 June 2009
Weighted
average
interest rate
%
Balance
$'000
Weighted
average
interest rate
%
Balance
$'000
4.8%
4.4%
- %
6.2%
(106,384)
56,915
-
105,000
3.3%
2.8%
6.2%
6.1%
(220,465)
67,978
(1,059)
122,000
At 30 June 2010, if interest rates had increased by 100 or decreased by 100 basis points from the year end rates with all
other variables held constant, pre-tax profit for the year before the impact of unhedged interest rate swaps would have
been $547,000 higher / $1,064,000 lower (2009: $1,535,000 lower/$1,535,000 higher), mainly as a result of higher / lower
interest expense from borrowings. Other components of equity would have been $2,466,000 higher / $2,064,000 lower
(2009: $1,174,000 higher / $1,242,000 lower) mainly as a result of an increase / decrease in the fair value of the cash flow
hedges of borrowings. The unhedged interest rate swap impact of a + 100/- 100 basis point change on pre-tax profit for the
year would have been $nil higher / $nil lower (2009: $2,336,000 higher / $2,442,000 lower).
(iv) Summarised sensitivity analysis
The following table summarises the sensitivity of the Group's financial assets and financial liabilities to interest rate risk and
foreign exchange risk.
Consolidated
30 June 2010
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives - cash flow hedges
Financial liabilities
Derivatives - cash flow hedges
Derivatives - fair value through profit or loss
Trade and other payables
Borrowings
Interest rate risk
-100bps
+100bps
Foreign exchange risk
+10%
-10%
Amount
$'000
Profit Equity Profit Equity Profit Equity Profit Equity
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
56,915
186,002
800
569
-
-
-
-
-
(569)
-
-
-
-
-
4
709
-
-
16 3,813
(3)
(580)
-
-
(8) (3,125)
(2,932)
-
(12)
(128,048)
-
(107,068) (1,064)
52 2,466
(569) (2,064)
-
-
-
-
-
-
-
- 1,064
-
201
(763)
(154)
-
-
-
-
-
(164)
624
126
-
-
-
-
Total increase/ (decrease)
(1,064) (2,064)
547 2,466
13 3,813
(5) (3,125)
Consolidated
30 June 2009
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives - cash flow hedges
Financial liabilities
Derivatives - fair value through profit or loss
Trade and other payables
Borrowings
Interest rate risk
-100bps
+100bps
Foreign exchange risk
+10%
-10%
Amount
$'000
Profit Equity Profit Equity Profit Equity Profit Equity
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
67,978
197,480
333
-
(680)
-
-
(5) (1,242)
-
680
-
-
4 1,174
104
302
-
-
-
-
(85)
(247)
-
(10,242) (2,442)
(120,902)
-
(222,350) 2,219
- 2,336
-
-
- (2,219)
- 5,052
- (1,244)
(179)
-
- (4,133)
- 1,018
146
-
-
-
-
-
-
-
-
Total increase/ (decrease)
(908) (1,242)
801 1,174 4,035
- (3,301)
-59-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
30 Financial risk management (continued)
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and
financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and
committed transactions.
Management has established a credit policy under which each new customer is analysed individually for creditworthiness
before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external
ratings and trade references. Purchase limits are established for each customer, which represent the maximum open
amount without requiring further approval. These limits are reviewed monthly. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group only on a prepayment basis.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they
are an individual or incorporated legal entity, whether they are a wholesale, retail or end-user customer, geographic
location, industry, aging profile, maturity and existence of previous financial difficulties.
In most cases goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have
a priority claim. In certain circumstances the Group requires collateral in respect of trade and other receivables.
The Group has established an allowance for impairment that represents the estimate of incurred losses in respect of trade
and other receivables and investments. The main components of this allowance are a specific loss component that relates
to individually significant exposures, and a collective loss component established for groups of similar assets in respect of
losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of
payment statistics for similar financial assets.
The aging of the Group's trade receivables is analysed in note 8.
(c) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the
Group’s reputation.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity
profiles of financial assets and liabilities. Due to the dynamic and diversified nature of the underlying businesses, Group
Treasury aims at maintaining flexibility in funding by keeping committed credit lines available with a variety of
counterparties. Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets.
The Group has mulit otpion financing facilities totalling $225,000,000 (2009: $263,585,000) of which $80,000,000 has been
approved until 30 June 2012, a further $80,000,000 has been approved until 30 November 2012 and the remainder of the
facility has been approved until 30 June 2013. For more information please refer to note 19 (bank loans and standby letters
of credit).
Maturities of financial liabilities
The tables below analyse the Group's financial liabilities including derivative financial instruments into relevant maturity
groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in
the table are the contractual undiscounted cash flows. For interest rate swaps the cash flows have been estimated using
forward interest rates applicable at the reporting date.
-60-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
30 Financial risk management (continued)
Contractual maturities of financial
liabilities
Less than
6 months
6 - 12
months
Between
1 and 2
years
Between
2 and 5
years
Over 5
years
Consolidated - at 30 June 2010
$'000
$'000
$'000
$'000
$'000
Total
contract-
ual cash
flows
$'000
Carrying
Amount
(assets)/
liabilities
$'000
Non-derivatives
Non-interest bearing
Variable rate
Fixed rate
128,048
3,905
-
-
-
-
2,491 64,982 46,027
-
-
-
684 128,732 128,732
- 117,405 106,384
-
-
-
Total non-derivatives
131,953
2,491 64,982 46,027
684 246,137 235,116
Derivatives
Net settled (interest rate swaps and forward
exchange contracts)
Consolidated - at 30 June 2009
(143)
595
851
1,300
(47)
2,556
2,144
Non-derivatives
Non-interest bearing
Variable rate
Fixed rate
120,902
5,871
-
-
-
5,178 73,813 152,038
-
-
-
-
498 121,400 121,400
- 236,900 221,852
-
-
-
Total non-derivatives
126,773
5,178 73,813 152,038
498 358,300 343,252
Derivatives
Net settled (interest rate swaps and forward
exchange contracts)
(d) Fair value measurements
7,517
1,544
2,982
4,980
905 17,928 10,242
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based
on the following methods. Where applicable, further information about the assumptions made in determining fair values is
disclosed in the notes specific to that asset or liability.
(a) Land and buildings
Fair value at 30 June 2010 is based on a Directors’ valuation as at 30 June 2010, which itself was based on a Directors'
valuation at 30 June 2009 and an independent valuation of all freehold land and buildings dated March 2008 and updated
based upon the Directors' assessments of changes in market conditions affecting the components of those valuations.
Fair value of land and buildings at 30 June 2008 was based on an independent valuation of all freehold land and buildings
carried out during March 2008. The valuation process was managed by AON Risk Services Australia Limited with the
individual valuations being performed by various certified valuers. The market value of property is the estimated amount for
which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length
transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
The valuations were determined having regard to the highest and best use of the assets for which market participants
would be prepared to pay.
The costs of additions since the valuations are deemed to be the fair value of those assets. The Directors are of the
opinion that these bases provide a reasonable estimate of fair value.
The fair value of property, plant and equipment recognised as a result of a business combination is based on market
values.
-61-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
30 Financial risk management (continued)
(b) Intangible assets
The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty
payments that have been avoided as a result of the patent or trademark being owned. The fair value of other intangible
assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
(c) Inventories
The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the
ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the
effort required to complete and sell the inventories.
(d) Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the
market rate of interest at the reporting date. Cash flows relating to short-term receivables are not discounted if the effect of
discounting is immaterial.
(e) Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest at the reporting date.
(f) Derivatives
The fair value of forward exchange contracts is based on their listed market pice, if available. If a listed market price is not
available, then fair value is estimated by discounting the difference between the contractual forward price and the current
forward price for the residual maturity of the contract using a risk free interest rate (based on government bonds).
The fair value of interest rate swaps is determined by discounting estimated future cash flows based on the terms and
maturity of each contract and using market rates at the measurement date.
(g) Share-based payment transactions
For information regarding the fair value of share-based payments refer to note 25.
(h) Fair value measurement heirachy
As of 1 July 2009, the Group has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires
disclosure of fair value measurements by level of the following fair value measurement hierarchy:
(a)
(b)
(c)
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The following table presents the Group’s financial assets and liabilities carried at fair value at 30 June 2010. Comparative
information has not been provided as permitted by the transitional provisions of the new rules.
At 30 June 2010
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Total liabilities
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
-
-
-
-
800
800
2,944
2,944
-
-
-
-
800
800
2,944
2,944
The carrying amounts of cash and cash equivalents, trade receivables and trade payables are assumed to approximate
their fair values due to their short term nature. The fair value of borrowings approximates their carrying amount, as the
impact of discounting is not significant.
-62-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
31 Business combination
Current period
(a) Summary of acquisition
On 31 May 2010 the Group acquired certain assets of the operations of The Steel Barn Pty Ltd in Queensland.
Details of the purchase consideration and the net assets and liabilities acquired are as follows:
Purchase consideration
Cash paid
Total purchase consideration
Fair value of net identifiable assets acquired (refer to (b) below)
Goodwill (refer to (b) below and note 13)
(b) Assets and liabilities acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Inventories
Property, plant and equipment (note 11)
Other assets
Provision for employee benefits
Net identifiable assets acquired
Add: goodwill
Net assets acquired
(c) Purchase consideration - cash outflow
Outflow of cash to acquire business operation
Cash consideration
Direct costs relating to acquisition (note 35)
Outflow of cash - investing activities
Acquisition-related costs
$'000
3,558
3,558
3,558
-
Fair value
$'000
2,359
1,463
12
(276)
3,558
-
3,558
Consolidated
2010
$'000
2009
$'000
3,558
395
3,953
-
-
-
Acquisition-related costs of $395,000 are included in expenses in profit or loss and in investing cash flows in the statement
of cash flows.
-63-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
31 Business combination (continued)
Prior period
(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.
Purchase consideration (refer to (b) below):
Cash paid
Direct costs relating to the acquisition
Total purchase consideration
Fair value of net identifiable assets acquired
Goodwill note 13)
(b) Cash flow information
Outflow of cash to acquire business, net of cash acquired
Cash consideration
Less cash balances acquired
Outflow of cash - investing activities
(c) Assets and liabilities acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Cash and cash equivalents
Receivables
Inventories
Plant and equipment (note 11)
Net deferred tax asset (note 12)
Intangible assets: research and development (note 13)
Payables
Borrowings
Employee benefit liabilities, including superannuation
Current tax liability
Provision for dividend
Net identifiable assets acquired
Add: goodwill
Net assets acquired
$'000
5,100
107
5,207
(86)
5,293
Consolidated
2010
$'000
2009
$'000
-
-
-
5,100
1,120
3,980
Fair value
$'000
1,120
3,016
1,111
73
28
200
(1,789)
(2,863)
(221)
(211)
(550)
(86)
5,293
5,207
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 Group's
existing Electronic Security and Entertainment business.
-64-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
32 Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 1(c):
Name of entity
incorporation Class of shares
Equity holding
Country of
2010
%
2009
%
Hills Finance Pty Ltd
Hills Industries NZ Limited
Korvest Limited (i) (ii)
Korvest NZ Limited (iii)
Hills Hoists Pty Ltd
Bailey Aluminium Products Pty Ltd
ACN 000 195 951 Pty Ltd (formerly Triton
Manufacturing & Design Co Pty Ltd)
ACN 089 622 622 Pty Ltd (formerly Triton
Workshop Systems (UK) Pty Ltd)
Woodroffe Industries Pty Ltd
Fielders Australia Pty Ltd (note (a))
Fielders Mobile Mill Pty Ltd
Zen 99 Pty Ltd
Orrcon Holdings Pty Ltd
Orrcon Operations Pty Ltd
Orrcon Tubing Pty Ltd
Access Television Services Pty Ltd
Techlife Solutions Pty Ltd (shelved)
Audio Telex Communications Pty Ltd
Crestron Control Solutions Pty Ltd
Team Poly Pty Ltd
KDB Engineering Pty Ltd
Kerry Equipment (Aust) Pty Ltd
Step Electronics 2005 Pty Ltd (i)
Greenwattle Investments Pty Ltd
Access Scaffolding (Aust) Pty Ltd
Greenwattle Equipment Pty Ltd
ACN 095 224 034 Pty Ltd (formerly Alquip (Holdings)
Pty Ltd)
Alquip Pty Ltd
Pathfinder (Edwardstown) Pte Ltd
Hills Nominees Pty Ltd
DAS Security Wholesalers Pty Ltd
Pacific Communications Pty Ltd
Pacom Security Pty Ltd
CBS Hardware Pty Ltd
Step Electronics Pty Ltd
Opticomm Co Pty Ltd (i)
UHS Systems Pty Ltd
UHS Pty Ltd
Cygnus Satellite Pty Ltd (i)
Australia
New Zealand
Australia
New Zealand
Australia
Australia
Australia
Registered
branch in
United
Kingdom
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
46
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
50
51
100
50
100
100
46
100
100
100
100
100
100
60
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
50
51
100
-
Names inset indicate shares held by the company immediately above the inset.
(i)
These companies are controlled by virtue of the Company’s control of the company’s Board through the
chairman’s casting vote, effective management of the company and exposure to the risks and benefits of
ownership, or control of voting rights through the dilution of the minority shareholders.
-65-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
32 Subsidiaries (continued)
(ii)
During the year Korvest Ltd issued 19,920 (2009: 26,352) ordinary shares pursuant to its Employee Share Bonus
Plan for no consideration. Hills Industries Ltd does not participate in this plan. As a result of this transaction Hills
Industries Ltd decreased its interest in Korvest Ltd.
(iii)
Korvest NZ Limited was deregistered on 28 August 2009.
(a) Transactions with non-controlling interests
On 16 November 2009, the Group increased its shareholding in Fielders Australia Pty Ltd from 60% to 74.9% through a
rights issue and conversion of debt to equity. The consideration paid was $19,955,000. On 6 April 2010 the Group
acquired the remaining 25.1% of Fielders Australia Pty Ltd by way of a $10,000,000 selective share buy back.
2010
$'000
2009
$'000
Carrying amount of non-controlling interests acquired
Consideration paid to non-controlling interests
Excess consideration paid recognised in the transactions with non-controlling interests
reserve within equity
11,551
(10,000)
1,551
-
-
-
33 Parent entity financial information
(a) Summary financial information
The individual financial statements for the Company show the following aggregate amounts:
Statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Contributed equity
Reserves
Asset revaluation reserve
Hedging reserve - cash flow hedges
Asset realisation reserve
Equity compensation reserve
Retained earnings
Total shareholders' equity
Profit for the year
Total comprehensive income
-66-
Company
2010
$'000
2009
$'000
359,661
408,704
260,983
269,586
620,644
678,290
142,551
154,597
113,480
227,794
256,031
382,391
306,595
248,598
37,517
(265)
1,855
592
18,319
37,517
-
1,855
568
7,131
364,613
295,669
32,711
13,035
32,216
9,095
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
33 Parent entity financial information (continued)
(b) Guarantees entered into by the Company
Bank guarantees given by the Company in favour of customers and suppliers amounted to $7,486,000 (2009: 7,949,000).
Cross guarantees are given by the Company and its wholly owned subsidiaries as described in note 34. Under the terms
of the Deed of Cross Guarantee the Company and its wholly owned subsidiaries have guaranteed the debt in each other's
companies. Guarantees amount to $289,252,000 (2009: $354,165,000). No material deficiency in net tangible assets
exists in these companies at reporting date with net tangible assets amounting to $329,736,000 (2009: $257,504,000).
(c) Contractual commitments for the acquisition of property, plant or equipment
As at 30 June 2010, the Company had contractual commitments for the acquisition of property, plant or equipment totalling
$1,530,000 (2009: $1,273,000). These commitments are not recognised as liabilities as the relevant assets have not yet
been received.
34 Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries listed below
are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and
Directors’ reports.
It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee.
The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding
up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other
provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in
full. The subsidiaries have also given similar guarantees in the event that the Company is wound up.
The subsidiaries subject to the Deed are:
Hills Finance Pty Ltd
Hills Hoists Pty Ltd
Bailey Aluminium Products Pty Ltd
KDB Engineering Pty Ltd
Kerry Equipment (Aust) Pty Ltd
Woodroffe Industries Pty Ltd
ACN 000 195 951 Pty Ltd (Formerly Triton Manufacturing & Design Co Pty Ltd)
Orrcon Operations Pty Ltd
Orrcon Holdings Pty Ltd
Greenwattle Investments Pty Ltd (Alquip)
Audio Telex Communications Pty Ltd
Team Poly Pty Ltd
Fielders Australia Pty Ltd
Access Television Services Pty Ltd
All of the subsidiaries except KDB Engineering Pty Ltd, Kerry Equipment (Aust) Pty Ltd, Orrcon Operations Pty Ltd, Orrcon
Holdings Pty Ltd, Greenwattle Investments Pty Ltd, Audio Telex Communications Pty Ltd, Team Poly Pty Ltd, Fielders
Australia Pty Ltd and Access Television Services Pty Ltd became a party to the deed on 15 April 2004 by virtue of a Deed
of Assumption.
KDB Engineering Pty Ltd, Kerry Equipment (Aust) Pty Ltd, Orrcon Holdings Pty Ltd and Orrcon Operations Pty Ltd became
parties to the deed on 23 June 2006, by virtue of a Deed of Assumption. Greenwattle Investments Pty Ltd (Alquip) and
Audio Telex Communications Pty Ltd became parties to the deed on 25 June 2007. Team Poly Pty Ltd became a party to
the deed on 14 May 2008. Fielders Australia Pty Ltd and Access Television Services Pty Ltd became parties to the deed on
29 June 2010.
Hills Industries Limited is the Holding Company and Pacom Security Pty Ltd is the Trustee under the Deed.
-67-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
34 Deed of cross guarantee (continued)
The above companies represent a ‘closed group' for the purposes of the Class Order, and as there are no other parties to
the Deed of Cross Guarantee that are controlled by Hills Industries Limited, they also represent the ‘extended closed
group'.
Set out below is a consolidated income statement, a consolidated statement of comprehensive income, a summary of
movements in consolidated retained earnings for the year ended 30 June 2010 and a consolidated statement of financial
position as at 30 June 2010 of the Company and controlled entities that are a party to the Deed, after eliminating all
transactions between parties to the Deed of Cross Guarantee.
(a) Consolidated income statement, statement of comprehensive income and summary of movements in
consolidated retained earnings
2010
$'000
2009
$'000
1,062,568
1,217
(3,566)
(1,003,351)
773,930
-
(19,689)
(752,015)
56,868
2,226
(15,726)
(919)
41,142
1,307
40,044
1,098
1,307
-
41,142
1,307
41,142
1,307
-
(707)
212
(6,837)
329
1,951
(495)
(4,557)
40,647
(3,250)
64,954
40,044
99,400
1,307
17,928
(21,523)
-
(35,753)
101,403
64,954
Income statement
Revenue from continuing operations
Other income
Finance costs
Other expenses
Profit before income tax
Income tax expense
Profit for the year
Profit is attributable to:
Owners of the Company
Non-controlling interests
Profit for the year
Statement of comprehensive income
Profit for the year
Other comprehensive income
Gain on revaluation of land and buildings
Changes in the fair value of cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Summary of movements in consolidated retained earnings
Retained earnings at the beginning of the financial year
Profit for the year
Adjustment to retained profits at the beginning of the year on inclusion of additional
companies in the Class Order
Dividends provided for or paid
Retained earnings at the end of the financial year
-68-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
34 Deed of cross guarantee (continued)
(b) Consolidated statement of financial position
2010
$'000
2009
$'000
51,476
191,943
165,982
800
53,349
199,743
157,790
-
410,201
410,882
11,140
195,515
25,443
99,561
-
15,473
175,174
19,726
89,757
333
331,659
300,463
741,860
711,345
125,674
8,191
9,917
31,151
250
84,416
6,931
5,845
22,933
5,822
175,183
125,947
105,663
5,724
2,682
218,498
5,402
4,318
114,069
228,218
289,252
354,165
452,608
357,180
306,595
44,610
101,403
248,597
43,629
64,954
452,608
357,180
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Total current assets
Non-current assets
Investments
Property, plant and equipment
Deferred tax assets
Intangible assets
Derivative financial instruments
Total non-current assets
Total assets
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 earnings
Total equity
-69-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
35 Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year
Depreciation and amortisation
Impairment of goodwill
Acquisition costs relating to business operations acquired
Non-cash employee benefits expense - share-based payments
Net (gain) loss on sale of non-current assets
Fair value (gain) loss on derivatives
Foreign currency translation reserve recycled through profit or loss on disposal of
subsidiary
Impairment of trade receivables
Impairment of inventories
Impairment of property, plant and equipment
Rent received
Amounts set aside to provisions
Change in operating assets and liabilities, net of effects from purchase of controlled
entities and business operations:
Decrease / (increase) in trade and other receivables
Decrease / (increase) in inventories
Decrease / (increase) in deferred tax assets
Increase / (decrease) trade and other creditors
Increase / (decrease) in provision for income taxes payable
(Decrease) / increase in other provisions
Net cash inflow (outflow) from operating activities
Consolidated
2010
$'000
2009
$'000
43,095
15,655
23,913
-
395
467
(179)
(8,471)
49
3,336
3,836
1,680
(864)
16,833
23,107
5,380
-
343
20
10,136
-
3,699
1,981
-
(842)
17,763
8,059
13,670
2,289
7,053
2,944
(16,557)
42,482
(17,101)
(7,374)
(20,183)
3,658
(16,391)
101,548
62,333
-70-
Hills Industries Limited
Notes to the consolidated financial statements
30 June 2010
(continued)
36 Remuneration of auditors
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:
(a) Audit services
KPMG Australia:
Audit and review of financial reports
Overseas KPMG Firms:
Audit and review of financial reports
Total remuneration for audit and other assurance services
(b) Non-audit services
Taxation services
KPMG Australia:
Taxation and other services
Overseas KPMG Firms:
Taxation services
Total remuneration for taxation services
Other services
KPMG Australia:
Consulting services
Total remuneration for other services
Consolidated
2010
$
2009
$
450,000
400,000
31,905
36,458
481,905
436,458
126,354
157,048
10,542
30,430
136,896
187,478
-
-
54,195
54,195
37 Events occurring after the reporting period
No matter or circumstance has occurred subsequent to year end that has significantly affected, or may significantly affect,
the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial
years.
-71-
Hills Industries Limited
Directors' report
30 June 2010
Directors' report
Your Directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of Hills
Industries Limited (the Company) and the entities it controlled at the end of, or during, the year ended 30 June 2010, and
the independent auditor's report thereon.
Directors
The following persons were Directors of the Company during the whole of the financial year and up to the date of this
report:
Jennifer Helen Hill-Ling
Graham Lloyd Twartz
Ian Elliot
Roger Baden Flynn
Geoffrey Guild Hill
Peter William Stancliffe
Fiona Rosalyn Vivienne Bennett and David Moray Spence were appointed as Directors on 31 May 2010 and 1 September
2010 respectively and continue in office at the date of this report.
Review of operations
Overview
The Hills Group of companies achieved a profit after tax attributable to shareholders of $40.2 million, which was a
43.3% improvement compared to the previous year’s result (excluding unusual and significant items).
The year in review
The much-improved 2009-2010 result - including solid contributions from all of our operating divisions - was achieved
despite trading conditions remaining difficult in a number of markets during the year.
Most pleasing was the turnaround in the Home, Hardware and Eco division as a result of significant and successful
restructuring initiatives implemented in the prior year.
Your Directors were pleased to increase the full year dividend by 25% to a total of 12.5 cents per share fully franked.
Cash flows from operations were at record levels during the year due to a more disciplined and focussed approach on the
control of working capital, and a reduction in capital expenditure.
The capital raisings during the year, combined with the strong operating cash flows, resulted in our gearing (measured as
debt divided by equity) significantly lower at just over 10% at balance date. The very strong nature of our balance sheet
provides us with confidence that we can implement our growth initiatives for the benefit of Hills shareholders.
Group strategy
Our strategy is to consistently grow shareholder value over time by investing in businesses that deliver superior service
and/or innovative products, and which are exposed to high growth markets.
This approach is built on a commitment to diversification in order to mitigate the impact of short-term changes to individual
markets and economies.
Consistent with this overall strategy, we are seeking approval at the upcoming Annual General Meeting to change the
Company’s name to Hills Holdings Limited. This proposed change reflects the transition of the Hills Group from an
industrial company to a diversified investment company.
Trading conditions
The impact of the global financial crisis continued during the year under review and led to quite patchy trading conditions
across Australia and New Zealand. The New Zealand economy remained generally weak, while Australia performed
relatively well compared to other global economies. The at times subdued conditions in the commercial building sector led
to a reluctance on the part of corporations to commit to certain projects, which in turn affected demand in our electronics
businesses and some of our building and industrial operations.
-72-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Review of operations (continued)
Vision and values
Hills is a diversified company operating mainly in Australia and New Zealand. We aim for the company to be recognised as
a superior investment by developing a portfolio of profitable and growing businesses. To achieve this we value and
promote:
•
•
•
•
•
A culture of individual development, personal growth and safety;
Being open, ethical and earning the trust of those we deal with;
An emphasis on commercial acumen designed to deliver superior shareholder returns;
A leadership style that encourages autonomy and initiative; and
A never ending process of continuous improvement designed to deliver reliable, quality and innovative products
and services.
Dividends
Given the increased full-year profit, the Hills Board was pleased to announce a 25% increase in the annual dividend to a
fully franked 12.5 cents per share. This comprised an interim dividend of 7.0 cents per share paid in March 2010 and a
final dividend of 5.5 cents per share to be paid in September 2010. This represents 75% of the earnings per share for the
year.
Given Hills’ strong balance sheet position, the Dividend Reinvestment Plans have remained suspended for both the interim
and final dividend.
Shareholders
We value the support of our shareholders at all times, and in particular during the more difficult environment of recent
years.
We have continued our practice of offering employees who meet the relevant criteria to participate in our Employee Share
Plan. This is in line with our belief that widespread share ownership by our employees has many positive benefits for the
employees, the Company and all of our shareholders.
Likely developments
The outlook for the new financial year continues to revolve around much comment and debate on the timing and recovery
of local and global economies. We expect trading conditions to remain fragile in the current year as we continue to
experience subdued activity in the Australian large contract market and the commercial building sector.
Notwithstanding these challenges, we have a number of growth initiatives in place and remain focussed on retaining the
business improvements successfully implemented in the past two years. We expect to deliver a modest improvement in
profits in the current year.
Electronic Security & Entertainment
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. Our ongoing strategy for this expanding business is to
develop the core range of products including our own intellectual property, while at the same time representing many of the
world’s leading electronic security companies. We believe this mix of products provides us with a sustainable competitive
advantage.
The market is characterised by a reasonably predictable level of day to day sales supplemented by larger project
opportunities. While the overall level of activity in the project market continued to be subdued during the year, the steady
improvement in the Australian Dollar in the second half of the year saw margins return to historic levels.
Highlights of the year included the successful launch of our EVO range of camera domes and monitors in the CCTV market
as well as the market success of our VoiceNav security control panel. We also benefited from the first full year of our
majority ownership of Ultra High Speed Pty Ltd (UHS), and although UHS export markets were quiet as a result of trading
conditions in Europe, we were very pleased with their contribution to this business unit.
-73-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Review of operations (continued)
Hills Sound, Vision and Lighting
Hills Sound, Vision and Lighting (SVL) is the leading supplier to the professional audio markets in Australia and New
Zealand. This includes our distribution of a range of advanced control automation systems under the Crestron brand for the
integrated control of audio, video and data. During the year, we launched our range of Australian Monitor Revolution
Series digital audio products, and also added new products to become the one-stop-shop for all of our customers’ needs.
Overall, despite a quite weak market, Hills SVL grew its market share and profitability during the course of the year.
Hills Antenna & TV Systems
This business unit provides a full range of reception and distribution equipment for:
•
•
•
•
Subscription television;
Free to air television;
The wireless voice and data market; and
The DGTEC range of consumer electronics.
The unit increased its market share during the year and capitalised on product opportunities as a result of the Australian
Federal Government’s decision to progressively shut down the analogue television signal. We continue to develop
innovative new products, and partner with leading overseas suppliers to provide the most comprehensive range of
television reception equipment to the market.
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. During the past year, the ATS contract to provide services to
AUSTAR was renewed for a further three years and we were also successful in obtaining a Federal Government contract to
install digital television solutions for certain qualifying customers as part of the Government’s plan to close the analogue
spectrum over the next three years. ATS has further diversified its business to provide installation services in the rollout of
Fibre to the Home networks, including Stage 1 of the National Broadband Network in Tasmania.
OptiComm
OptiComm provides infrastructure and services to the Fibre to the Node and Fibre to the Home market. Our open platform
offer is generally the preferred solution for customers and developers and we were particularly pleased during the period to
open our network operation centre in Hobart in support of NBN Tasmania’s Stage 1 rollout of its network. During the year,
we also signed further contracts with major developers, which will deliver improved results over the medium-term for the
OptiComm business.
Home, Hardware & Eco
Consumer Products
Our market leading brands - including Hills, Bailey and Oldfield Ladders – are among a range of predominantly metal based
branded hardware products distributed by this business unit to our consumer and trade customers. The Home, Hardware
and Eco business unit, which produced a much-improved and most pleasing result during the period, is now focussed on a
smaller range of products and has achieved significant efficiencies and improvements in supply chain and customer
service. There were small but pleasing contributions from Hills Solar and LW Gemmell businesses during the year.
Hills Healthcare
Hills Healthcare, which manufactures a range of mobility, rehabilitation and aged care products for domestic and overseas
markets, comprises K•Care, Kerry Equipment and Air Comfort Seating Systems. Both sales and profitability were affected
during the year by a very low level of activity in the building of new nursing homes. The results and outlook for Hills
Healthcare improved towards the end of the year and we have continued with our strategy of introducing new products in
this growing market sector.
Team Poly
Team Poly is Australia’s leading manufacturer or rotationally moulded polyethylene water tanks. The level of activity in the
water tank industry remains below historical levels as a result of wide-spread rainfall and a significant reduction in
Government subsidies. We note that a number of market players have experienced financial difficulties during the period,
including insolvency.
As a result of lower sales volumes, we have since the end of the past year implemented further restructuring initiatives, with
profit improvement plans in place.
-74-
Review of operations (continued)
Hills Industries Limited
Directors' report
30 June 2010
(continued)
-75-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Information on Directors (continued)
Graham Lloyd Twartz BA (Adel) DipAcc (Flinders). Group Managing Director. Age 53.
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 listed company directorships
Director of Korvest Ltd (since 1999).
Former listed company directorships in last 3 years
None.
Special responsibilities
Managing Director.
Interests in shares and options at the date of this report
212,036 ordinary shares in Hills Industries Limited and 29,115 ordinary shares in Korvest Ltd.
60,000 options over ordinary shares in Hills Industries Limited.
Ian Elliot FAICD. Independent Non-Executive Director. Age 56.
Experience and expertise
Appointed Director in August 2003.
Ian Elliot has spent 37 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. In
addition to his listed company directorships he was formerly a director of Zenith Media Pty Ltd and Cordiant
Communications Group and former Chairman of Allied Brands Limited, Artist & Entertainment Group Limited and Chairman
and CEO of George Patterson Advertising.
Other current listed company directorships
Director of Salmat Limited (since 2005).
Former listed company directorships in last 3 years
Former Chairman of Promentum Limited (2003 - 2007).
Special responsibilities
Chairman of the Nomination Committee, Member of the Remuneration Committee.
Interests in shares and options at the date of this report
6,235 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. Age 60.
Experience and expertise
Appointed Director in November 1999 (Lead independent Director).
Roger Flynn has extensive experience in manufacturing and distribution industries in Australia and the United States,
including over 40 Board years of experience in ASX listed companies. He has been Managing Director of four ASX listed
companies over an 18 year period.
Other current listed company directorships
Executive Chairman of Coventry Group Limited (since 2001).
Former listed company 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
35,665 ordinary shares in Hills Industries Limited.
Nil options over ordinary shares in Hills Industries Limited.
-76-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Information on Directors (continued)
Geoffrey Guild Hill FCPA FAICD F.S.I BEc (Syd) MBA (NSW). Independent Non-Executive Director. Age 64.
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. In addition to his listed company directorships he is the Chairman of International Pacific Securities (Group)
Limited and Asian Property Investments Limited and was formerly the Chairman of Fielders Australia Pty Ltd. He was
formerly a Director of Biron Apparel Limited and Pacific Strategic Investments Limited.
Other current listed company directorships
Chairman of Metals Finance Limited (Director since 2006), Heritage Gold NZ Limited (Director since 1998) and Centrex
Metals Limited (Director since 2008). Director of Outback Metals Limited (since 2010).
Former listed company directorships in last 3 years
Former Director of Undercoverwear Limited (from 2006 to 2007), Brickworks Investment Company Limited (from 2005 to
2009) and Huntley Investment Company Limited (from 1998 to 2009).
Special responsibilities
Member of the Audit and Compliance Committee, the Nomination Committee and the Remuneration Committee.
Interests in shares and options at the date of this report
92,505 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 62.
Experience and expertise
Appointed Director in August 2003.
Peter Stancliffe has over 40 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. In addition to his listed
company directorships he is a director of Harris Scarfe Pty Ltd.
Other current listed company directorships
Chairman of Korvest Ltd (since 2009). Director of Automotive Holdings Group Limited (since 2005).
Former listed company directorships in last 3 years
Former Chairman of View Resources Limited (from 2006 to 2009).
Special responsibilities
Chairman of the Audit and Compliance Committee.
Interests in shares and options at the date of this report
19,104 ordinary shares in Hills Industries Limited and 1,000 ordinary shares in Korvest Ltd.
Nil options over ordinary shares in Hills Industries Limited.
Fiona Rosalyn Vivienne Bennett BA (Hons) FCA FAICD FAIM. Independent Non-Executive Director. Age 54.
Experience and expertise
Appointed Director on 31 May 2010.
Fiona Bennett is a Chartered Accountant with over 30 years experience in business and financial management, corporate
governance, risk management and audit. She has previously held senior executive positions at BHP Billiton Limited and
Coles Group Limited and has been a Chief Financial Officer at several organisations in the health sector.
Ms Bennett is a graduate of The Executive Program at the University of Virginia's Darden Graduate School and the AICD
Company Directors' course.
Other current listed company directorships
Director of Boom Logistics Limited (since March 2010).
Former listed company directorships in last 3 years
None
Special responsibilities
None
Interests in shares and options at the date of this report
4,000 ordinary shares in Hills Industries Limited.
Nil options over ordinary shares in Hills Industries Limited.
-77-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Information on Directors (continued)
David Moray Spence B Com CA (SA). Independent Non-Executive Director. Age 58.
Experience and expertise
Appointed Director on 1 September 2010.
David Spence has experience in a number of industries and more recently in the technology and communications industry.
He has over 25 years of senior management experience, including as CFO of Freedom Furniture and OPSM, where he
also assumed responsibility for manufacturing and logistics. He has been directly involved in many internet and
communications companies including the building of Australia's first and largest dial up ISP, OzEmail.
Mr Spence was the chief executive officer of Unwired Australia until February this year. He has been involved in a number
of listed and non-listed boards including WebCentral, uuNet, Access1, Emitch, Commander Communications, Chaosmusic,
ubowireless, Vividwireless and is a past chairman of the Internet Industry Association. He is currently a non-executive
Director of AWA Limited.
Other current listed company directorships
Chairman of VOCUS Communications Ltd (since June 2010).
Former listed company directorships in last 3 years
Director Unwired Group Limited (to December 2007).
Special responsibilities
None.
Interests in shares and options at the date of this report
19,000 ordinary shares in Hills Industries Limited.
Nil options over ordinary shares in Hills Industries Limited.
Company secretary
Mr David Lethbridge, LLB (Otago, NZ), Grad Dip ACG, FCIS, GAICD was appointed to the position of Company Secretary
in January 2010. Mr Lethbridge was previously the company secretary of NIB Holdings Limited and prior to that was Board
Secretary and Legal Counsel for the New Zealand Apple and Pear Marketing Board.
Mr Andrew Muir, BEc, MBA (Adelaide) was appointed to the position of Company Secretary in July 2008 and held this
position until January 2010. Mr Muir is the Company's General Manager of Finance and was formerly the General
Manager of Business Development for five years.
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 2010, and the numbers of meetings attended by each Director were:
Jennifer Helen Hill-Ling
Graham Lloyd Twartz *
Ian Elliot ^
Roger Baden Flynn
Geoffrey Guild Hill
Peter William Stancliffe
Fiona Rosalyn Vivienne Bennett
Full meetings
of Directors
Meetings of committees
Audit &
Compliance Nomination Remuneration
A
B
A
B
A
B
A
B
19
19
15
19
16
19
2
19
19
19
19
19
19
2
-
-
-
5
3
5
-
-
-
-
5
5
5
-
7
-
7
-
7
-
-
7
-
7
-
7
-
-
6
-
6
-
5
-
-
6
-
6
-
6
-
-
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
-78-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Remuneration report - audited
Below is a summary of Hills Industries Limited's (Hills or the Group) executive and non-executive Director remuneration
arrangements in place for the year ended 30 June 2010.
During the year, with the assistance of external advisers, Hills undertook a review of the executive remuneration strategy
and the remuneration framework to ensure the approach meets Hills’ business needs, shareholder expectations and
contemporary market practice. The outcomes of this review are set out in this report in Section A (e).
This Remuneration report forms part of the Directors Report and has been prepared in accordance with section 300A of the
Corporations Act 2001 for the Group. The information provided in this Remuneration report has been audited as required
by section 308(3C) of the Corporations Act 2001.
For the purposes of this report, the remuneration arrangements disclosed in this report apply to the non-executive
Directors, the Managing Director and other senior executives set out below and include the five highest remunerated
executives of the Group and the Company during the reporting period.
The following sections covered in this Remuneration report are:
A
B
C
D
E
Principles used to determine the nature and amount of remuneration
Details of remuneration
Service agreements
Share-based compensation
Additional information.
A Principles used to determine the nature and amount of remuneration
(a) Role of the Remuneration Committee
Information on the composition and functions of the Remuneration Committee ("the Committee") are set out in the
Corporate Governance Statement in this Annual Report. The charter of the Committee is available from the Hills' internet
site at www.hills.com.au.
As an overview, the Board established the Committee to provide advice to the Board 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 Board regularly reviews the remuneration strategy and framework to assess its effectiveness in achieving its
objectives. As part of these reviews, the Board relies on external and independent remuneration consultants.
(b) Executive remuneration policy
Hills’ remuneration strategy is designed to attract, motivate and retain senior executives and Hills' employees generally.
The key principles on which the Hills' remuneration strategy is based are as follows:
Market competitive and fair
Executive remuneration is reviewed annually.
Performance driven
Hills’ aim is to provide market competitive remuneration against jobs of
comparable size and responsibility. External remuneration consultants provide
analysis and advice to ensure base pay is set to reflect the market for a
comparable role.
Remuneration is designed to reward executives for performance against
business plans and longer term shareholder returns to a level that is
appropriate for the results delivered.
A portion of the executive remuneration is at risk and performance dependent.
The variable components of the remuneration are driven by targets that focus
on external and internal measures of financial and non financial performance.
Alignment with shareholder interests
Incentive plans and performance measures are aligned with Hills’ short and
long term success.
-79-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Remuneration report - audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
(c) Executive remuneration framework
The executive pay and reward framework has the following components:
Fixed remuneration:
Variable remuneration:
• Base pay
• Superannuation
• Other short term benefits
• Short-term incentives
• Long-term incentives (suspended for the time being from the commencement of the
2009 / 2010 financial year)
The combination of these comprises an executive’s total remuneration. The Board considers that the performance linked
remuneration structure is generating the desired outcome for Hills.
Fixed remuneration
Fixed remuneration is targeted at or above the median of the market for jobs of comparable size and responsibility. In
some cases, superior performance or strong market demands for specific job categories may justify above median fixed
remuneration.
Structured as a total employment cost package, the base pay may be delivered as a combination of cash and prescribed
non-financial benefits at the executives' discretion.
There are no guaranteed base pay increases included in any executives' contracts.
Salaries of all senior executives have been frozen across the Group since 1 October 2008, except in accordance with
promotions or limited special circumstances.
Retirement benefits comprise employer contributions to superannuation funds.
Short- term incentives
Hills’ executives all participate in an short-term incentive (STI) Plan. The plan is broadly the same for all executives.
Features of all executive’s STI plans are as follows:
Purpose of the STI plan
Frequency and timing
Performance measures used
Financial measures used
Non financial measures
To drive individual and team performance to deliver annual business plans and
increase shareholder value.
Participation is determined on an annual basis with performance measured over the
financial year ending 30 June.
Payment is usually made in September following the release of the annual results to
the market.
Each year the Remuneration Committee recommends to the Board the key
performance indicators (KPIs) for the key management personnel. KPIs generally
include measures relating to the Group, the relevant business segment and the
individual, and may include a mix of financial and non financial performance
measures. These performance measures are chosen to drive divisional and individual
performance designed to deliver value to shareholders.
For senior executive roles: EBIT and return on funds employed (ROFE); and
For the Managing Director: ROFE and earnings per share (EPS).
A principal focus of Hills is earnings before interest and tax (EBIT). The measures
used in the STI plan are;
•
•
Non financial measures vary with position and responsibility and are chosen because
they are critical to Hills’ short term and long term success, and are aligned to the
business plan. The measures typically cover areas including:
•
•
•
•
•
Safety;
Strategic outcomes;
Operational improvements;
Restructuring and rationalisation; and
Other discretionary performance targets.
-80-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Remuneration report - audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
Achievement levels
The percentage of variable remuneration awarded as an STI varies depending on the
role and responsibility of the senior executives.
Assessment of performance
Service condition
Long-term incentives
At the end of the financial year each executive’s performance is assessed based on
the actual performance of the Group and the relevant segment and individual
performance overall and against KPIs set at the beginning of the financial year. The
Managing Director makes recommendations in respect of each senior executive to the
Remuneration Committee who in turn makes recommendations to the Board in
relation to the payment of individual short term bonuses.
New executives may be eligible to participate in the STI plan on a pro-rata entitlement
basis. The Board retains the discretion in awarding payment to executives who retire,
die or are retrenched during the financial year. No payments are made to executives
who have their employment terminated for inadequate performance or misconduct,
before the end of the financial year.
Long-term incentives have been provided in previous years to certain employees as options over ordinary shares of the
Company under the rules of the Executive Share Option Plan. The Group established a share option plan in October 1997
that entitles selected senior managers and executives to acquire shares in the Company subject to the successful
achievement of performance targets related to improvements in total shareholder returns.
Prior to 2008 the options were exercisable if the total shareholder return (measured as share price growth plus dividends
paid) over a two-year period from the grant date exceeded ten percent plus CPI per annum. Once exercised the shares
were forfeited if the holder ceased to be an employee of the Group within a further three-year period.
The shareholders approved an amendment to this plan as part of the 2007 Annual General Meeting (AGM) such that the
option period over which the shareholder return must be achieved was extended to three years. The three-year period
during which the shares were restricted has now been removed. This amendment is applicable for all share options
granted after the resolution was passed. No changes were made to the rules governing options already granted.
Executives who acquired shares through the exercise of options were 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.
In relation to the financial year ended 30 June 2010, the Board suspended the long term incentive bonus scheme and
accordingly no long term incentive bonus was allocated to the Managing Director or senior executives.
The Board has determined to establish a new long term incentive plan (see Section (e) for more details).
In accordance with Hills’ Securities Trading Policy, participants in equity-based remuneration plans are not permitted to
enter into any transactions that would limit the economic risk of options or other unvested entitlements.
Employee share plan
The Hills Employee Share Bonus Plan provides that eligible employees may receive $1,000 of Hills' ordinary shares for no
consideration. Shares are allotted under the plan in two tranches, (one of $400 usually in March/April and one of $600 in
September/October). Shares issued under the Hills Employee Share Bonus Plan cannot be sold until seven years after
issue. The number of Hills Shares each eligible employee receives is the value of the allotment divided by the weighted
average price at which the Company’s shares are traded on the ASX on the five business days prior to the date of the
allotment, rounded down to the nearest whole share.
Link between remuneration and Group performance
As mentioned above, a key underlying principle of the executive reward strategy is that remuneration should be linked to
performance.
Also as discussed earlier, STI payments are based on a variety of performance conditions, both financial and non financial.
The key financial measures are EBIT and ROFE, at a business unit and divisional level for some executives and at a Group
level for other executives. The non financial measures include safety, strategic outcomes, operational improvements,
restructuring and rationalisation and other discretionary performance targets.
In the financial year ended 30 June 2010 the Group performance improved on the prior year, with EBIT (before significant
items) increasing 9.2% to $65.469 million and net profit after tax (before significant items) increasing 26% to $43.095
million. Individual division results varied though, with the Home, Hardware and Eco division increasing EBIT whilst EBIT
declined in the Building and Industrial division.
-81-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Remuneration report - audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
As a result, the STI payments in relation to financial performance for the year ended 30 June 2010, either increased or
decreased depending upon whether each executive was measured on business unit, divisional or Group EBIT and ROFE
results.
The following table summarises financial and share price information over the last five years:
Key financials
FY10
FY09
FY08
FY07
FY06
Earnings before interest and tax
(EBIT) ($'000)
65,469
59,978
87,772
82,273
73,265
Shareholders' funds ($'000)
496,499
428,520
429,517
348,764
324,411
Return on funds employed
(ROFE) based on year end Funds
Employed
Net profit before significant items
($'000)
Net profit after significant items
($'000)
Basic earnings per share before
significant items (cents)
12.0%
10.3%
14.2%
16.6%
16.5%
43,095
34,201
53,589
52,042
48,210
43,095
15,655
52,360
52,042
48,210
16.7
14.6
27.3
27.6
25.9
Dividends (cents)
Share price ($)
12.5
2.15
10.0
1.57
27.5
3.34
27.5
5.33
26.0
4.80
(d) Non-executive Director remuneration
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. Non-executive Directors do
not receive performance-based pay. 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.
Directors' fees
The current base remuneration for Directors was last reviewed in August 2008. Non-executive Directors who chair a
committee receive an additional $10,000 per annum. Directors’ fees were not increased during the period.
Non-executive Directors’ fees are determined within an aggregate Directors’ fee pool limit, which is periodically
recommended for approval by shareholders. The maximum currently stands at $950,000 per annum, and was last
approved by shareholders at the annual general meeting on 31 October 2008.
The following fees have applied:
Base fees
Chairman
Other non-executive directors
Additional fees
Committee - Chairman
Retirement allowances for directors
$200,000
$100,000
$10,000
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 since
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.
-82-
Remuneration report - audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
(e) Outcomes of the review of executive remuneration
Hills Industries Limited
Directors' report
30 June 2010
(continued)
A review of the Hills' remuneration framework was undertaken in order to improve alignment of reward with business goals
and shareholder expectations. In particular the objectives of the review included developing a remuneration strategy that:
•
•
•
•
•
•
reinforces the key objectives set by the Hills' business plans;
facilitates the attainment of the Hills' commercial goals;
reinforces the corporate values and behaviours identified as core to a successful culture at Hills;
is logical, transparent and easily understood by all levels of staff and stakeholders;
is proactive by incorporating market trends rather than reacting to lagging indicators; and
is flexible for future business opportunities.
The outcomes of the review are proposed to be implemented from 1 July 2010 onwards, including the establishment of a
new long term incentive scheme for nominated senior executives.
B Details of remuneration
Amounts of remuneration
Details of the remuneration of the Directors, the key management personnel of the Company and the Group (as defined in
AASB 124 Related Party Disclosures) and the five highest paid executives of the Company and the Group are set out in the
following tables.
The key management personnel of the Group includes the Directors as per pages 75 to 78 above and the following
executive officers who report directly to the Managing Director and have authority and responsibility for planning, directing
and controlling the activities of the Group:
•
•
•
•
•
•
•
•
L Andrewartha - Managing Director - Orrcon Operations Pty Ltd
S Cope - Group General Manager - Electronic Security and Entertainment
D Edgecombe - General Manager - Business Development (from 1 July 2009)
R Gros - Group General Manager - Home, Hardware & Eco
A Kachellek - Managing Director - Korvest Ltd
D Lethbridge - Company Secretary (from 6 January 2010)
K Middleton - CEO - Fielders Australia Pty Ltd
A Muir - General Manager - Finance
During the year the Group conducted a review of executives classified as key management personnel and determined that
only those personnel that report directly to the Managing Director should be classified as key management personnel.
Accordingly, G Daher, R Meacham and A Oliver, who were classified as key management personnel during the year ended
30 June 2009, are not classified as key management personnel in the year ended 30 June 2010.
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:
•
•
G Daher - General Manager - Direct Alarm Supplies
A Oliver - General Manager - Antenna and TV Systems
Changes since the end of the reporting period
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.
-83-
Remuneration report - audited (continued)
Details of remuneration (continued)
Key management personnel of the Group and other executives of the Company and the Group
Hills Industries Limited
Directors' report
30 June 2010
(continued)
2010
Short-term employee benefits
Post-
employment
benefits
Cash
salary and
fees
$
Cash
bonus (A)
$
Non
monetary
benefits
$
Other
$
Super-
annuation
$
Long-
term
benefits
Long
service
leave
$
Share-
based
payments (B)
Options
$
Shares
$
Total
$
Name
Non-executive
Directors
J Hill-Ling +
I Elliot
R Flynn
G Hill*
P Stancliffe*
F Bennett
Sub-total
non-executive
Directors
Executive Director
G Twartz
Other key
management
personnel (Group)
L Andrewartha^
S Cope#^
D Edgecombe
R Gros#^
D Lethbridge
A Kachellek
K Middleton^
A Muir#
Total key
management
personnel
compensation
(Group)
Other Company and
Group executives
G Daher#
A Oliver#^
192,661
100,917
91,743
199,743
150,917
8,009
743,990
-
-
-
-
-
-
-
-
-
-
-
-
-
5,600
-
-
-
-
-
17,339
9,083
8,257
8,257
13,583
721
-
5,600
57,240
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 215,600
- 110,000
- 100,000
- 208,000
- 164,500
8,730
-
- 806,830
724,943 211,795
13,113
16,009
72,215
18,349
3,399
999 1,060,822
335,079
299,393
239,061
285,539
103,598
221,129
326,903
293,578
48,223
60,516
4,497
57,289
-
67,114
45,608
24,497
-
-
-
-
-
-
-
-
1,400
1,400
375
1,400
-
350
700
1,400
33,356
33,399
21,468
30,183
8,650
25,587
33,413
29,369
-
-
-
-
-
-
-
-
3,399
1,976
-
1,976
-
5,635
659
1,060
999 422,456
999 397,683
999 266,375
999 377,386
- 112,248
998 320,813
999 408,282
999 350,903
3,573,213 519,539
13,113
28,609 344,880
18,349
18,104
7,991 4,523,798
197,693
73,843
227,581 111,150
-
-
3,150
15,849
23,733
28,295
3,269
3,640
659
1,890
999 303,346
999 389,404
(A) The short-term incentive bonus is for performance during the respective financial year using the criteria set out above.
(B) Share based payment remuneration comprises options in the Executive Share Option Plan and shares under the
Employee Share Plan.
No options were granted during the year. Options granted in the previous two years expire three years after the grant date
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 (Chairman until April 2010) and P Stancliffe
remuneration includes Board fees from Korvest Ltd.
+ J Hill-Ling remuneration includes a dividend of $5,600 paid as a shareholder of Hills Associates Limited.
-84-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Remuneration report - audited (continued)
Details of remuneration (continued)
2009
Short-term employee benefits
Post-emp-
loyment
benefits
Share-based payments
(B)
Name
Non-executive
Directors
J Hill-Ling
I Elliot
R Flynn
G Hill
P Stancliffe
Sub-total
non-executive
directors
Executive Director
G Twartz
Other key
management
personnel (Group)
L Andrewartha^
S Cope^#
G Daher
J Easling
R Gros#
A Kachellek
R Meacham#
K Middleton^
A Muir#
A Oliver^#
Total key
management
personnel
compensation
(Group)
Other Group
executives
D Salvaterra^
Cash
salary and
fees
$
Cash
bonus (A)
$
Non
monetary
benefits
$
Other
$
Super-
annuation
$
Termination
benefits
$
Options
$
Shares
$
Total
$
181,957
94,801
88,685
157,585
122,859
-
-
-
-
-
-
-
-
-
-
- 16,433
8,532
-
7,982
-
-
7,982
- 11,057
-
-
-
-
-
-
-
-
-
-
- 198,390
- 103,333
- 96,667
- 165,567
- 133,916
645,887
-
-
- 51,986
-
-
- 697,873
673,012
50,459
23,550
9,535
66,483
- 14,276
998
838,313
330,000
280,833
185,115
215,290
273,359
210,941
188,139
314,183
259,939
218,423
52,661
67,954
82,285
-
33,770
105,786
80,129
16,133
32,110
92,047
-
-
-
-
-
-
-
-
-
-
- 34,439
- 31,448
- 24,066
- 19,421
- 27,642
- 27,996
- 24,201
- 29,728
- 26,342
27,942
8,301
-
- 11,729
8,884
-
-
2,583
-
8,884
-
5,374
-
4,600
-
1,678
-
-
4,600
- 10,312
998
998
998
998
998
998
998
998
998
429,827
390,117
295,047
235,709
344,653
- 350,097
298,067
362,720
323,989
358,023
3,795,121
613,334
23,550 17,836
391,694
- 72,920
9,980
4,924,435
88,390
100,849
-
- 24,288
154,074
-
500
368,101
The relative proportions of remuneration for the year ended 30 June 2010 (30 June 2009) as set out above that are linked
to performance and that are fixed are as follows:
Name
Fixed remuneration %
At risk -STI %
2010
2009
2010
2009
Executive Directors of Hills Industries Limited
G Twartz
Other key management personnel of Group
L Andrewartha
S Cope
J Easling
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
Other Company and Group executives
G Daher
R Meacham
A Oliver
80
89
85
-
98
85
79
100
89
93
76
-
71
20
11
15
-
2
15
21
-
11
7
24
-
29
6
12
17
-
-
10
29
-
4
10
28
27
26
94
88
83
100
-
90
71
-
96
90
72
73
74
-85-
Value of options as
proportion of
remuneration %
2009
2010
0.33
0.81
0.50
-
-
0.53
1.76
-
0.16
0.30
0.22
-
0.49
1.75
2.73
2.28
-
-
2.58
-
-
0.46
1.42
0.88
1.54
2.88
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Remuneration report - audited (continued)
C Service agreements
Executives
The details of the contracts of Hills’ senior executives named in the remuneration tables (excluding the Managing Director)
can be summarised as follows:
•
•
•
•
All executives have ongoing contracts of no fixed term;
The period of notice required to be given to terminate a contract varies depending upon an executive’s contract,
with an executive’s period of notice to the Company ranging from one to six months, and the Company’s period of
notice to an executive ranging from three to six months or payment in lieu of that notice;
Upon termination, executives are entitled to payment of annual and long service leave;
If an executive is retrenched, the executive is not entitled to contractual termination payments other than those
generally applicable to all staff.
Managing Director
Graham Twartz was appointed as Managing Director effective 1 July 2008. The details of the Managing Director’s contract
and the remuneration package for the financial year are as follows:
Term
Fixed remuneration
Short-term incentive
D Share-based compensation
Options
The contract is for indefinite duration.
The contract can be terminated by the Company or the Managing Director giving
three month’s notice to the other.
The Managing Director has received an annual base salary, inclusive of
superannuation, for the year ended 30 June 2010 of $800,000.
The Managing Director’s remuneration has been fixed since 1 October 2008.
An annual maximum STI opportunity of $325,000.
The performance of the Managing Director against performance measures, as
discussed in Section A, is assessed and the payment determined by the Board.
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 current or a future reporting period are as
follows:
Grant date
Date exercisable / vested
Expiry date
Exercise
price
28 Feb 2005
28 Feb 2006
28 Feb 2007
28 Feb 2008
4 Feb 2009
31 Jan 2007 / 31 Jan 2010
31 Jan 2008 / 31Jan 2011
31 Jan 2009 / 31 Jan 2012
31 Jan 2011 / 31 Jan 2011
31 Jan 2012 / 31 Jan 2012
31 Jan 2027
31 Jan 2028
31 Jan 2029
31 Jan 2031
31 Jan 2032
$4.16
$4.83
$5.53
$5.49
$3.01
Value per
option at
grant date
$0.48
$0.56
$0.64
$0.19
$0.00
Performance
achieved
%
Vested
Yes
No
No
n/a
n/a
55%
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 above.
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.
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. The options that vested during the financial
year related to the options issued in February 2005. Further information on the options is set out above and in note 25 to
the financial statements.
-86-
Remuneration report - audited (continued)
Share-based compensation (continued)
Number of
options
granted during
the year
-
Name
Directors of Hills Industries Limited
G Twartz
Other key management personnel of the Group
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
Other Group and Company executives
G Daher
A Oliver
-
-
-
-
-
-
-
-
-
-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Value of
options at
grant date
Number of
options
vested during
the year
Number of
options
lapsed /
forfeited
during the
year
Value at lapse
/ forfeit date
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
60,000
60,000
-
-
-
-
-
-
10,000
-
45,000
-
-
-
-
-
-
-
-
-
-
-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
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.
E Additional information
Details of remuneration: Bonuses and share-based compensation benefits
For each cash bonus and grant of options included in the tables on pages 84 - 85 and 86 - 87, the percentage of the
available bonus or grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because
the person did not meet the service and performance criteria is set out below. No part of the bonus is payable in future
years. The options vest after three years, provided the vesting conditions are met (see page 86 above). No options will
vest if the conditions are not satisfied, hence the minimum value of the option yet to vest is nil. The maximum value of the
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.
Cash Bonus
Paid /
Year
granted Vested
Name
G Twartz
L Andrewartha
S Cope
D Edgecombe
R Gros
D Lethbridge
K Middleton
A Muir
G Daher
A Oliver
Payable Forfeited
%
65
93
86
45
100
-
100
61
94
92
%
35
7
14
55
-
-
-
39
6
8
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
Financial years in
which options
may vest
Share-based compensation benefits (options)
Minimum
total value
of grant
yet to vest
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Lapsed /
Forfeited
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Maximum
total value
of grant
yet to vest
$
988
-
988
-
988
-
-
-
988
-
-
-
330
-
412
-
330
-
412
-
-87-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
Remuneration report - audited (continued)
Additional information (continued)
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.
Name
G Twartz
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
G Daher
A Oliver
A
Value at grant
date
$
-
-
-
-
-
-
-
-
-
-
-
B
Value at
exercise date
$
-
-
-
-
-
-
-
-
-
-
-
C
Value at lapse
/ forfeit date
$
-
-
-
-
-
-
-
-
-
-
-
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. No options were granted in the current year as the Executive Share Option Plan is
currently suspended.
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. No options were exercised in the current year.
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.
There were no options that lapsed during the year.
Principal activities
The principal activities of the Group during the course of the year are outlined within the Review of Operations 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 were 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;
continue to improve our safety performance;
continue to source cost effective supplies; and
further develop our employees.
-88-
Dividends - Hills Industries Limited
Dividends paid to members during the financial year were as follows:
Final ordinary dividend for the year ended 30 June 2009 of 2.0 cents per fully paid share
paid on 23 November 2009
Final dividend foregone for Share Investment Plan
Interim ordinary dividend for the year ended 30 June 2010 of 7.0 cents per fully paid
share paid on 3 March 2010
Hills Industries Limited
Directors' report
30 June 2010
(continued)
2010
$'000
4,917
(713)
17,319
21,523
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 $13,623,000 (5.5 cents per fully paid share) to be paid on 27 September 2010 out
of retained profits at 30 June 2010. The financial effect of these dividends has not been brought to account in the financial
statements for the year ended 30 June 2010 and will be recognised in subsequent financial periods. For more information
regarding dividends please refer to note 23.
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the financial year were as follows:
Contributed equity increased by $57,997,000 (from $248,598,000 to $306,595,000) principally as a result of a capital
raising with institutional and sophisticated investors (raising $40,859,000) and a share purchase plan with existing
shareholders (raising $16,738,000). Details of the changes in contributed equity are disclosed in note 21.
The net cash received from the increase in contributed equity was used to repay borrowings and will be used over time to
finance further acquisitions.
The Group increased its shareholding in Fielders Australia Pty Ltd from 60% to 100% through a rights issue and conversion
of debt to equity (increasing its shareholding from 60% to 74.9%) followed by a selective share buy back (increasing its
shareholding from 74.9% to 100%). Details of these transactions are disclosed in note 32.
Matters subsequent to the end of the financial year
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.
Likely developments and expected results of operations
For likely developments please refer to the Review of Operations section of the Directors’ report.
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.
-89-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
-90-
Hills Industries Limited
Directors' report
30 June 2010
(continued)
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.
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 Group are important.
Details of the amounts paid or payable to the auditor of the Group, 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; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
-91-
Non-audit services (continued)
During the year the following fees were paid or payable for services provided by the auditor of the Group, its related
practices and non-related audit firms:
Hills Industries Limited
Directors' report
30 June 2010
(continued)
1. Audit services
KPMG Australia:
Audit and review of financial reports
Overseas KPMG firms - audit and review of financial reports
Total remuneration for audit services
2. Non-audit services
Taxation services
KPMG Australia:
Tax compliance services
Overseas KPMG firms - tax compliance services
Total remuneration for taxation services
Consulting services
Total remuneration for other services
Total remuneration for non-audit services
Auditor's independence declaration
Consolidated
2010
$
2009
$
450,000
400,000
31,905
36,458
481,905
436,458
126,354
157,048
10,542
30,430
136,896
187,478
-
-
54,195
54,195
136,896
241,673
A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on
page 100.
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.
-92-
Hills Industries Limited
Corporate governance statement
30 June 2010
Corporate governance statement
This report sets out Hills Industries Limited’s (Hills) annual statement on its corporate governance framework for the year
ended 30 June 2010.
Hills and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The
Board undertook a detailed review of Hills’ corporate governance framework and practices during 2010 to ensure that they
continue to comply with the requirements of the ASX Corporate Governance Council’s (ASXCGC) 2007 Principles of Good
Corporate Governance and Best Practice Recommendations and meet the interests of shareholders.
A description of Hills’ main corporate governance practices is set out below. All these practices, unless otherwise stated,
were in place for the entire year and comply with the ASXCGC Corporate Governance Principles and Recommendations.
Full details of the location of the references in this statement (and elsewhere in this Annual Report) which specifically sets
out how Hills applies each ASXCGC Principle and Recommendation are contained in the corporate governance section
within the Hills website which can be found at www.hills.com.au. This website also contains copies of the charters and
policies referred to in this report.
ASXCGC Principle 1: Lay solid foundations for management and oversight
The Board operates in accordance with the broad principles set out in its Board charter. The charter details the roles and
responsibilities of the Board, as well as the membership and operation of the Board.
The Board’s role is to provide the overall strategic direction for Hills, ensure that Hills’ activities comply with its constitution
and with all legal and regulatory requirements, and define the powers to be reserved to the Board and those that are
delegated to its committees and management.
The Board is responsible to the shareholders for the performance of Hills in both the short and the longer term and seeks to
balance sometimes competing objectives in the best interests of Hills as a whole.
The responsibilities of the Board include:
•
•
•
•
•
•
•
Strategy and planning - reviewing and approving Hills’ business strategies and monitoring their implementation;
Oversight of management - the appointment, and if appropriate, the removal of the Managing Director, setting
the Managing Director's terms and conditions of employment, approving the remuneration policies and practices
for all Hills employees, monitoring the performance of the Managing Director and reviewing on a regular basis
executive succession planning;
Financial and Capital Management – reviewing and approving Hills annual and half yearly financial reports,
monitoring Hills’ financial position on an ongoing basis, overseeing Hills’ accounting and financial systems,
reviewing the progress of major capital expenditures and other significant corporate projects including any
acquisitions or divestments, approving capital management decisions and the dividend policy;
Shareholders – overseeing effective communication with and reporting to shareholders;
Other stakeholders – overseeing and approving policies that govern the relationship with other stakeholders;
Ethics and sustainability – monitoring Hills’ culture and its ethics, overseeing and approving Hills’ Code of
Conduct; and
Compliance and risk management - overseeing Hillls’ systems for corporate governance, internal control and risk
management.
The Board has delegated to the Managing Director the authority to manage the day to day affairs of Hills and the authority
to control the affairs of Hills in relation to all matters delegated by the Board in the Hills’ Delegation of Authority. These
delegations are reviewed on an annual basis.
As part of the oversight of management, 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. This performance assessment for senior executives was undertaken
during the reporting period.
ASXCGC Principle 2: Structure the Board to add value
Board composition
The Board charter states:
•
•
the Board will consist of a majority of non-executive independent Directors; and
the Chairman is a non-executive Director appointed by the Board.
-93-
Hills Industries Limited
Corporate governance statement
30 June 2010
(continued)
ASXCGC Principle 2: Structure the Board to add value (continued)
The Board seeks to ensure that it has a board of Directors with an appropriate range of skills, experience, expertise and
who have the understanding and competence to deal with current and emerging issues in Hills’ business.
Directors' independence
The Board has adopted specific principles in relation to Directors' independence. These state that when determining
independence, the Board should consider whether the Director:
•
•
•
•
•
is a substantial shareholder of Hills or an officer of, or otherwise associated directly with, a substantial
shareholder of Hills;
is or has been employed in an executive capacity by Hills or any other group member within three years before
commencing to serve on the Board;
within the last three years has been a principal of a material professional adviser or a material consultant to Hills
or any other group member, or an employee materially associated with the service provided;
is a material supplier or customer of Hills or any other group member, or an officer of or otherwise associated
directly or indirectly with a material supplier or customer; and
has a material contractual relationship with Hills or a controlled entity other than as a Director of the Group.
In determining whether a relationship between a Director and Hills is considered to be material, the Board assesses a
range of quantitative and qualitative matters including the proportion the transactions represent to both Hills and the
Director and the value or strategic importance of the relationship to both Hills 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 seven non-executive Directors,
six of whom have no relationships adversely affecting independence and so are deemed independent under the principles
set out above.
Chairman and Managing Director
The Chairman, Ms Jennifer Hill-Ling is not considered an independent Chairman. Hills considers this departure is
appropriate however given:
•
•
The Hill-Ling family’s interest in Hills; and
Ms Hill-Ling’s considerable experience within Hills.
The Chairman is independent of the role of the Managing Director of Hills.
Term of office
Hills’ constitution specifies that all non-executive Directors must retire from office no later than the third annual general
meeting (AGM) following their last election. A Director may stand for re-election.
Induction
The induction provided to new Directors enables them to actively participate in Board decision-making as soon as possible.
It ensures that they have a full understanding of Hills’ financial position, strategies, operations and risk management
policies. It also explains the respective rights, duties, responsibilities and roles of the Board and senior executives.
Commitment
The Board held 19 Board meetings and an additional corporate strategy workshop during the year.
The number of meetings of the Company's Board of Directors and of each Board Committee held during the year ended 30
June 2010, and the number of meetings attended by each Director is disclosed on page 78.
Independent professional advice
Following consultation with the Chairman, Directors are entitled to seek independent professional advice at Hills’ expense.
-94-
Hills Industries Limited
Corporate governance statement
30 June 2010
(continued)
ASXCGC Principle 2: Structure the Board to add value (continued)
Performance assessment
The Board undertakes a regular annual assessment of its performance and that of individual Directors. 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.
Board committees
The Board has established a number of committees to assist in the execution of its duties and to allow detailed
consideration of complex issues. Current committees of the Board are the Nomination, Remuneration and Audit and
Compliance Committees. Each is comprised entirely of non-executive Directors. The committee structure and membership
is reviewed on an annual basis.
Each committee has its own written charter setting out its role and responsibilities, composition, structure, membership
requirements and the manner in which the committee is to operate. All of these charters are reviewed on an annual basis
and are available on Hills’ website. All matters determined by committees are submitted to the full Board as
recommendations for Board decisions.
Minutes of committee meetings are tabled at the subsequent Board meeting. Additional requirements for specific reporting
by the committees to the Board are addressed in the charter of the individual committees.
Nomination committee
The Nomination Committee consists of the following non-executive Directors (a majority of whom are independent):
I Elliot (Chair)
J H Hill-Ling
G G Hill
Details of these Directors' attendance at Nomination Committee meetings are set out in the Directors' Report on page 78.
The Nomination Committee operates in accordance with its charter which is available on Hills’ website. The main
responsibilities of the Committee are to assist and make recommendations to the Board on:
•
•
•
Director selection and appointment practices;
Board composition and tenure; and
succession planning for the Board.
When a new Director is to be appointed, the Committee reviews the range of skills, experience and expertise of candidates
and prepares a short-list of candidates for consideration by the Board. Advice is sought from independent search
consultants as required.
The Board then appoints the most suitable candidate who must stand for election at the next annual general meeting of
Hills. The Board’s nomination of existing Directors for reappointment is not automatic and is contingent on their past
performance, the requirements of Hills and shareholder approval. The Board is also aware of the advantages of Board
renewal and succession planning.
Notices of meetings for the election of directors comply with the ASX Corporate Governance Council's best practice
recommendations.
New Directors are provided with a letter of appointment setting out Hills’ expectations, their responsibilities, rights and the
terms and conditions of their employment. All new Directors participate in a comprehensive, formal induction program
which covers the operation of the Board, its committees and financial, strategic, operations and risk management issues.
ASXCGC Principle 3: Promote ethical and responsible decision making
Code of conduct
Hills has developed a Code of conduct (the Code) which has been approved by the Board and applies to all Hills Directors,
officers, employees, contractors, consultants and associates (collectively Hills employees). The Code is regularly reviewed
and updated as necessary to ensure it reflects the highest standards of behaviour and professionalism and the practices
necessary to maintain confidence in Hills’ integrity and to take into account legal obligations and reasonable expectations of
Hills’ stakeholders.
In summary, the Code sets out the standards of behaviour Hills expects from Hills Employees and informs them of their
responsibilities to Hills’ shareholders, customers, employees, suppliers and the broader community.
The Code is available on Hills’ website.
-95-
Hills Industries Limited
Corporate governance statement
30 June 2010
(continued)
ASXCGC Principle 3: Promote ethical and responsible decision making (continued)
Security Trading Policy
Hills has adopted a securities trading policy, available on Hills’ website, which sets out Hills’ policy regarding buying and
selling Hills shares and complying with the law on insider trading. The policy applies to all Hills Directors, officers and
employees within the Hills group and provides that where a person possesses inside information relating to Hills shares,
that person must not deal in Hills shares, procure another person to deal in the shares or pass the inside information to
another person.
The policy also restricts Directors and senior employees from dealing in shares during “black out periods” commencing at
midnight on 31 December for the Hills half yearly results and midnight on 30 June for the Hills annual results and continuing
until midnight (Adelaide time) on the next ASX trading day after the day on which the Hills results are released to the ASX.
Whistleblower Protection Policy
Hills encourages its Directors, employees and contractors to report conduct that is dishonest, fraudulent, corrupt or illegal,
endangers health and safety, is a suspected breach of Hills’ Code of Conduct or any Hills policy. Hills has adopted a
whistleblower protection policy to ensure concerns regarding unacceptable conduct can be raised on a confidential basis
without fear of reprisal, dismissal or discriminatory conduct.
The Whistleblower Protection Policy is available on Hills’ website.
ASXCGC Principle 4: Safeguard integrity in financial reporting
Audit and Compliance Committee
The Audit and Compliance Committee consists of the following non-executive Directors:
P Stancliffe (Chair)
R B Flynn
G G Hill
Details of these Directors' qualifications and attendance at Audit and Compliance Committee meetings are set out in the
Directors' report on pages 75 - 78.
All members of the Audit and Compliance Committee are financially literate and have an appropriate understanding of the
industries in which Hills operates.
The Audit and Compliance Committee operates in accordance with a charter which is available on Hills’ website. The role
of the Committee is to assist the Board in:
•
•
•
Reviewing Hills’ financial statements and financial information distributed externally;
Monitoring the internal control framework, procedures that are designed to ensure compliance with statutory
responsibilities and other external reporting requirements, the activities of internal audit, and the adequacy of
Hills’ risk management framework; and
Liaison with the external auditor.
In fulfilling its responsibilities, the Committee:
•
•
•
•
•
•
Receives regular reports from management, the internal auditor and the external auditors;
Regularly meets with the internal auditor and external auditors;
Reviews the processes the Managing Director and CFO have in place to support their certifications to the Board;
Reviews any significant disagreements between the auditors and management, irrespective of whether they
have been resolved;
Meets separately with the external auditors and the internal auditor at least once a year without the presence of
management;
Provides the internal auditor and external auditors with a clear line of direct communication at any time to either
the Chair of the Audit and Compliance Committee or the Chair of the Board.
The Audit and Compliance Committee has authority, within the scope of its responsibilities, to seek any information it
requires from any employee or external party.
-96-
Hills Industries Limited
Corporate governance statement
30 June 2010
(continued)
External auditors
Hills policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the
external auditor is reviewed annually. KPMG is Hills’ current external auditor. It is KPMG's policy to rotate audit
engagement partners on listed companies at least every five years.
An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the
Directors' Report and in note 36 to the financial statements. It is the policy of the external auditors to provide an annual
declaration of their independence to the Board and the Audit and Compliance Committee.
The external auditor will attend the annual general meeting and be available to answer shareholder questions about the
conduct of the audit and the preparation and content of the audit report.
ASXCGC Principles 5 and 6: Make timely and balanced disclosures and respect the rights of shareholders
Continuous disclosure and shareholder communication
Hills has a Communication and Market Disclosure Policy that focuses on continuous disclosure of any information
concerning Hills that a reasonable person would expect to have a material effect on the price of Hills securities. This policy
also includes the arrangements Hills has in place to promote communication with shareholders and encourage effective
participation at general meetings. The Communication and Market Disclosure Policy is available on Hills’ website.
The Company Secretary’s role includes responsibility for ensuring compliance with the continuous disclosure requirements
in the ASX Listing Rules. All information disclosed to the ASX is posted on Hills’ website as soon as it is disclosed to the
ASX.
ASXCGC Principle 7: Recognise and manage risk
The Board, through the Audit and Compliance Committee, is responsible for ensuring there are adequate policies in
relation to risk management compliance and internal control systems. In summary, Hills’ policies are designed to ensure
that strategic, operational, legal, reputational and financial risks are identified, assessed, effectively and efficiently managed
and monitored to enable achievement of Hills’ business objectives.
Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with
clearly drawn lines of accountability and delegation of authority.
Detailed control procedures cover management accounting, financial reporting, project appraisal, environment, health and
safety, IT security, compliance and other risk management issues. Internal audit carries out regular systematic monitoring
of control activities and reports to both relevant business unit management and the Audit and Compliance Committee.
In April 2010 the Board established a Risk Committee consisting of the Managing Director, senior executives from the
executive management group and a non-executive Director. The Risk Committee’s role is to assist and make
recommendations to the Audit and Compliance Committee on the design of the risk management framework, the manner in
which it is implemented, the measures used to assess the framework’s effectiveness and, through continuous
improvement, how the framework can be enhanced.
The Board and the Audit and Compliance Committee have received reports from the Risk Committee and management as
to the effectiveness of Hills’ management of material risks that may impede meeting business objectives.
Corporate reporting
The Board has received:
•
•
Declarations from the Managing Director and Chief Financial Officer required in accordance with Section 295A of
the Corporations Act 2001 that Hills’ financial reports are complete and present a true and fair view, in all
material respects, of the financial condition and operational results of the Group and are in accordance with
relevant accounting standards; and
Assurance from the Managing Director and Chief Financial Officer that the Section 295A declaration was
founded on a sound system of risk management and internal compliance and control which implements the
policies adopted by the Board and that Hills’ risk management and internal compliance and control is operating
efficiently and effectively in all material respects in relation to financial reporting risks.
-97-
Hills Industries Limited
Corporate governance statement
30 June 2010
(continued)
ASXCGC Principle 8: Remunerate fairly and responsibly
Remuneration committee
The Remuneration Committee consists of the following non-executive Directors (a majority of whom are independent):
J H Hill-Ling (Chair)
G G Hill
I Elliott
Details of these Directors' attendance at Remuneration Committee meetings are set out in the Directors' Report on page
78.
The Remuneration Committee operates in accordance with its charter which is available on Hills’ website. The
Remuneration Committee is responsible for developing and making recommendations to the Board on the remuneration
framework for the Chairman, the Board Committees, non-executive Directors, and Hills’ remuneration and incentive policies
and practices for the Managing Director, direct reports to the Managing Director and other senior executives.
Further information on Directors' and executives' remuneration, including principles used to determine remuneration, is set
out in the Directors' Report under the heading "Remuneration report". In accordance with Hills’ Securities Trading Policy,
participants in equity-based remuneration plans are not permitted to enter into any transactions that would limit the
economic risk of options or other unvested entitlements.
-98-
Hills Industries Limited
Directors' declaration
30 June 2010
In the opinion of the Directors' of Hills Industries Limited (the Company):
(a)
the consolidated financial statements and notes set out on pages 1 to 71 and the Remuneration report in
the Directors' report, set out on pages 79 to 88, are in accordance with the Corporations Act 2001,
including:
(i)
(ii)
complying with Australian Accounting Standards (including the Australian Accounting Intepretations) and,
the Corporations Regulations 2001; and
giving a true and fair view of the Group's financial position as at 30 June 2010 and of its performance for
the financial year ended on that date; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable; and
There are reasonable grounds to believe that the Company and the group entities identified in note 34 will be able
to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross
Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418.
(b)
(c)
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by
the International Accounting Standards Board.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief
executive officer and the chief financial officer for the financial year ended 30 June 2010.
This declaration is made in accordance with a resolution of the Directors.
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The shareholder information set out below was applicable as at 27 August 2010.
A.
Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
Hills Industries Limited
Shareholder information
30 June 2010
Holding
1
1,001
5,001
10,001
100,001
1,000
5,000
10,000
100,000
-
-
-
-
and over
Ordinary shares
Shares
5,034
10,175
4,996
3,565
80
23,850
Options
-
-
-
10
6
16
There were 220 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 equity securities are listed below:
Name
Poplar Pty Limited
Hills Associates Limited
JP Morgan Nominees Australia Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
Jacaranda Pastoral Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited (PIPOOLED A/C)
Australian Foundation Investment Company Limited
Argo Investments Ltd
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
AMP Life Limited
ANZ Nominees Limited
Donald Cant Pty Ltd
Milton Corporation Ltd
Colleen Sims Nominees Pty Ltd
Bond Street Custodians Limited
Queensland Investment Corporation
Hills Associates Limited & Poplar Pty Ltd
Gwynvill Trading Pty Limited
C.
Substantial holders
Substantial holders in the Company are set out below:
Name
Poplar Pty Limited
Hills Associates Limited
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Ordinary shares
Number held
Percentage of
issued shares
20,286,335
13,455,689
11,470,273
8,828,009
8,785,871
5,968,699
4,791,830
4,262,130
4,208,604
3,806,905
2,712,801
2,445,555
2,246,288
1,979,060
1,719,260
1,694,798
1,493,795
1,341,327
1,188,918
1,100,000
8.17
5.42
4.62
3.56
3.54
2.40
1.93
1.72
1.70
1.53
1.09
0.99
0.90
0.80
0.69
0.68
0.60
0.54
0.48
0.44
103,786,147
41.80
Ordinary shares
Number
held
Percentage of
issued shares
20,286,335
13,455,689
8.17%
5.42%
Hills Industries Limited
Shareholder information
30 June 2010
(continued)
D.
Voting rights
The voting rights attaching to each class of equity securities are set out below:
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.
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 David Lethbridge
Principal Registered Office
944-956 South Road Edwardstown SA 5039
Telephone: (08) 8301 3200
Facsimile: (08) 8297 4468
Web: www.hills.com.au
Locations of Share Registries
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street Adelaide, SA 5000
Telephone (within Australia): 1300 556 161
Telephone (outside Australia): +61 3 9415 4000
Facsimile: (08) 8236 2305
Email: web.queries@computershare.com.au
Internet address: www.computershare.com
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