iv
Hills Holdings Limited
(formerly Hills lndustries Limited)
ABN 35 AA7 573 417
Annual report
for the year ended 30 June 2011
Hills Holdings Limited ABN 3s oo7 573417
Annual report - 30 June 2011
Gontents
Financial statements
Consolidated income statement
Consolidated statement of comprehensive lncome
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 lndependence Declaration under Section 307C of the Coryorations Act 2001
lndependent auditor's report to the members
Shareholder information
Page
2
3
4
5
6
7
68
94
104
105
106
108
These financial statements are the consolidated fìnancial statements of the consolidated entity consisting of Hills Holdings
Limited and its subsidiaries. The financial statements are presented in the Australian currency.
Hills Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. lts registered offìce and
principal place of business is:
Hills Holdings Limited
159 Port Road
Hindmarsh SA 5007
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 68 - 72, which is not part of these fìnancial statements.
The fìnancial statements were authorised for issue by the Directors on this 11th day of September 2O11. 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,
fìnancial reports and other information are available within Corporate lnformation on our website:
www. hillsholdings.com.au.
For queries in relation to our reporting please call +61 I 8301 3200 or e-mail info@hillsholdings.com.au.
1
Revenue from continuing operations
Other income
Expenses excluding fìnance costs
(Loss)/profìt before net finance expense and income tax
Finance income
Finance expenses
Net finance expense
(Loss)/profit before income tax
I ncome tax benefiU(expense)
(Loss)/profit for the year
(Loss)/profit is attributable to:
Owners of Hills Holdings Limited
Non-controlling interests
(Loss)/profit for the year
Earnings per share for (loss)/profit from continuing operatíons attributable
to the ordinary equity holders of the Company:
Hills Holdings Limited
Consolidated income statement
For the year ended 30 June 201 I
Consolidated
2011
Notes $'000
2010
$'000
3
4
1,095,845 1 ,156,326
1.156
1.921
5
5
5
1,097,001 1,159,247
n.171.464t (1,092,778)
Í4.463t
65.469
1,974
(6.000)
4,166
(7.575\
(4.026)
(3,409)
(78,489)
62,060
s.373
(18,965)
(73,116) 43,095
(74,955)
1.839
40,1 88
2,907
(73,1161 43,095
Cents
Cents
Basic earnings per share
Diluted earnings per share
25
25
(30.2)
(30.2)
16.7
16.7
The above consolidated income statement should be read in conjunction with the accompanying nofes.
2
Hills Holdings Limited
Consolidated statement of comprehensive income
For the year ended 30 June 201 1
Consolidated
Notes
2011
$'000
2010
$'000
(73,116)
43,095
(Loss)/profit for the year
Other com prehensive income/(loss)
Gain on revaluation of land and buildings
Changes in the fair value of cash flow hedges
Exchange differences on translation of foreign operations
lncome tax relating to components of other comprehensive income
23
23
23
6
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive (loss)/income for the year
Total comprehensive (loss)/income for the year is attributable to:
Owners of Hills Holdings Limited
Non-controlling interests
Total comprehensive (loss)/income for the year
13,480
(1,4841
(74s)
(3.512)
7.735
(707)
318
212
(177\
(65,381) 42.918
(67,686)
2.305
40,011
2.907
(65.381) 42.918
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
lnventories
Derivative financial instruments
Assets classifled as held for sale
Total current assets
Non-current assets
lnvestments
Property, plant and equipment
Deferred tax assets
lntangible assets
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 fìnancial instruments
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Capital and reserves attributable to owners of Hills Holdings Limited
Non-controlling interests
Totalequity
Hills Holdings Limited
Consolidated statement of financial position
As at 30 June 2011
Consolidated
Notes
2011
$'000
2010
$'000
7
8
I
14
15
1022
11
12
13
7,158
184,042
167,999
359,199
2,702
56,915
186,002
181 ,496
800
425,213
361.901
425.213
197,040
31,485
49.213
277.740
639.641
219,658
23,771
116,300
359,731
784,944
16
17
18
19
14
20
21
14
22
23
98,671
6,833
242
30,963
128,048
1,384
10,622
33,445
91,479
6,570
2,056
105,684
6,318
2.682
100,105 114.684
237.334 288.445
402.307 496,499
306,790
57,245
21.504
385,539
16.768
402,307
306,595
47,899
126.107
480,601
15,898
496,499
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
4
Hills Holdings Limited
Consolidated statement of changes in equity
For the year ended 30 June 201 1
Attributable to owners of Hills Holdings
Limited
Gontributed
equity
$'000
Notes
Retained
Reserves earnings
$'000
$'000
Non-
Total
$'000 $'000
controlling Total
interests equity
$'000
Consolidated
Balance at I July 2009
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 interests 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
Employee share options - value of
employee services
Balance at 30 June 2010
Balance at I July 2010
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 interests 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
Employee share options - value of
employee services
Transfer to Reserves
22
33
24
23
22
33
24
23
248,598
46,495 107,42 402,535
25,985
428,520
t177t 40.188 40.011
2.907 42.918
57,997
57,997
-
640
57,997
640
1,551
-
(21,523)
1,551
(21,523)
(1 1 ,551) (10,000)
(21,523)
-
(2,083) (2,083)
30
30
306.595
47.899 126.107
480.601 15.898
496.499
306,595
47,899 126,',107
480,601
15,898 496,499
7 _269 t74.955t
t67.686t
2.305 t65.381t
195
195
(332)
-
-
(332)
(27,273) (27,273)
-
750
'195
750
(81 1)
-
(1,143)
(27,273)
(1,37e) (1,37e)
539
Balance at 30 June 2011
306.790
34
2.375 (2.375\
21.504
57.245
34
385.539
16.768 402.307
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
5
Hills Holdings Limited
Consolidated statement of cash flows
For the year ended 30 June 2011
Consolidated
Notes $'000
20'11
2010
$'000
32
11
13
1,204,824 1,281,593
(1 .'.t70304t (1 ,160,308)
34,520
121,275
798
(5,960)
(16.378)
12.980
1,596
(7,575)
(13,748\
10't ,548
(1,143)
(26,823)
(2e3)
832
860
(26.567)
(3,s53)
(10,064)
(19,0e4)
(3,010)
4,138
864
(31 .1 I 9)
-
-
(1s,000)
I,976
300
(27,2731
(1,379)
(41.376t
57,098
374
(1 15,465)
(1,058)
640
(21,523)
(2.630)
(82,564)
(54,963)
(12,135)
55,531
67,650
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)
Cash generated from operations
lnterest received
lnterest paid
lncome taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
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
Rent received
Net cash (outflow) from investing activities
Gash flows from financing activities
Proceeds from issues of shares
Proceeds from borrowings
Repayment of borrowings
Loans received from / (paid to) 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) in cash and cash equivalents
Cash and cash equivalents at the beginning of the flnancial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
The above consolidated statement of cash flows should be rcad in conjunction with the accompanying nofes.
6
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
I Summary of s¡gn¡ficant account¡ng pol¡c¡es
The principal accounting policies adopted in the preparation of these fìnancial statements are set out below. These policies
have been consistently applied to all the years presented, unless othen¡rise stated. The financial statements are for Hills
Holdings 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 lnterpretations, other authoritative pronouncements of the Australian Accounting
Standards Board, and lhe Corporations Act 2001 .
These accounting policies have been consistently applied by each entity in the Group to all periods presented.
(i) Compliance with IFRS
The financial report of the Group also complies with lnternational Financial Reporting Standards (IFRS) as issued by the
lnternational Accounting Standards Board (IASB).
(ii) Historical cost convention
These fìnancial statements have been prepared on the basis of historical costs, except for the following:
.
.
financial instruments at fair value through profìt 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 notes 1(o), 1(p), 1 1 and 31 .
(iii) Critical accountingesfimafes
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.
Note 32 - business combinations
Note 13 - measurement of the recoverable amounts of cash-generating units containing goodwill
ln particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting
policies that have the most signifìcant effect on the amounts recognised in the financial statements are described in the
following notes:
.
¡
.
.
.
.
Notes 1 1 and '13 - measurement of the useful lives of property, plant and equipment and intangible assets
(excluding goodwill)
Notes 19,21 and 29 - provisions and contingencies
Note 26 - measurement of share-based payments
Note 14 - financial instruments
(iv) Early adoption of standards
The Group has not elected to early adopt any accounting standards or amendments.
7
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
I Summary of significant account¡ng pol¡c¡es (continued)
(b) Parent entity financial informatíon
The fìnancial information forthe parent entity, Hills Holdings Limited, disclosed in note 34 has been prepared on the same
basis as the consolidated financial statements.
(c) Principles of consolidation
(i) Subsrdranes
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June
2011 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 fìnancial
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 'l (i)).
lntercompany 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.
(¡¡) Changes in ownership rnferesfs
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 Holdings 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 profìt 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. ln 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 profìt or loss.
lf 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 profìt or loss where appropriate.
(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.
8
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
I Summary of s¡gn¡ficant accounting pol¡c¡es (continued)
(e) Foreign currency translation
(i) Functional and presentation currency
Items included in the fìnancial 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 the Company'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:
.
o
e
assets and liabilities for each statement of fìnancial 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.
(f) Revenuerecognition
Revenue is recognised for the major business activities as follows:
(i) Goods so/d
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 signifìcant 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) Rentalincome
Rental income from investment property is recognised in profìt 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.
(¡v) 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).
I
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
I Summary of s¡gn¡ficant account¡ng pol¡c¡es (continued)
(S) lncome 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 fìnancial statements However, deferred tax liabilities
are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also 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.
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. ln this case, the tax is also recognised in other comprehensive income or
directly in equity, respectively.
(i) Tax consolidation legislation
Hills Holdings Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation
legislation.
The head entity, Hills Holdings 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.
ln addition to its own current and deferred tax amounts, Hills Holdings 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 30). Payments made under operating leases (net of any incentives received from the
lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
-1 0-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
1 Summary of s¡gn¡ficant account¡ng pol¡c¡es (continued)
(i) Businesscombinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the
fairvaluesoftheassetstransferred,theliabilitiesincurredandtheequityinterestsissuedbytheGroup. Theconsideration
transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement and
the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred.
ldentifiable 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 interests in the acquiree either at fair value or at the non-controlling interests'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 overthe fair value of the Group's share of the net
identifiable assets acquired is recorded as goodwill. lf those amounts are less than the fair value of the net identifìable
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 classifìed as a fìnancial liability. Amounts are subsequently remeasured to fair value with
changes in fair value recognised in profit or loss.
ü) lmpairment of non-financial assets
Goodwill and intangible assets that have an indefìnite 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 identifìable
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 insignifìcant risk of
changes in value, and bank overdrafts and at call borrowings. Bank overdrafts and at call borrowings 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.
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.
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 diffìculties 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.
-11-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
I Summary of s¡gn¡ficant account¡ng pol¡c¡es (continued)
(l) Trade receivables (continued)
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) lnventories
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 fìrst-in-fìrst-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. 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 profìt margin based on the effort required to complete and sell the inventories.
(n) lnvestments and other financial assets
Classification
The Group classifies its financial assets in the following categories: financial assets at fair value through profìt or loss, loans
and receivables, held-to-maturity investments and available-for-sale financial assets. The classifìcation depends on the
purpose for which the investments were acquired. Management determines the classifìcation of its investments at initial
recognition and, in the case of assets classifìed as held-to-maturity, re-evaluates this designation at the end of each
reporting period.
(i) Financial assefs at fair value through profit or loss
Financial assets at fair value through profìt or loss are flnancial assets held-for-trading. A fìnancial asset is classified in this
category if acquired principally for the purpose of selling in the short-term. Derivatives are classifled as held-for{rading
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 classifìed as non-curient assets. Loans and receivables are included in current assets - trade and
other receivables (note 8) in the consolidated statement of fìnancial 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 prof¡t or loss are initially recognised at fair value
and transaction costs are expensed in profìt or loss. Financial assets are derecognised when the rights to receive cash
flows from the fìnancial assets have expired or have been transferred and the Group has transferred substantially all the
risks and rewards of ownership.
Measurement
Loans and receivables and held to maturity investments are subsequently carried at amortised cost using the effective
interest method.
Details on how the fair value of financial instruments is determined are disclosed in note 1(o).
lmpairment
The Group assesses at the end of each reporting period whether there is objective evidence that a flnancial asset or group
of fìnancial assets is impaired.
lf there is evidence of impairment for any of the Group's flnancial 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.
-12-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
1 Summary of significant account¡ng pol¡c¡es (continued)
(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.
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 23. 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.
The fair value of forward exchange contracts is based on their listed market price, if available. lf a listed market price is not
available, then fair value is estimated by discounting the difference between the contractual fonvard price and the current
fonryard 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.
(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 profìt or loss in the periods when the hedged item affects proflt 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 'fìnance costs'. The gain or loss relating to the effective portion of forward foreign
exchange contracts hedging export sales is recognised in profìt 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 reclassifìed 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. 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. 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.
-1 3-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
I Summary of significant account¡ng pol¡c¡es (continued)
(p) Property, plant and equipment (continued)
The fair value of property, plant and equipment recognised as a result of a business combination is based on market
values.
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.
lncreases 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.
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
2011
0.75%
5.00% to 40.00%
20.00% to 66.67%
2010
o.75%
5.00% to 40.00%
20.00o/o 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 1fi)).
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profìt
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) lntangible assets
(t) Goodwill
Goodwill represents the excess of the cost of a business 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. lnstead, 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. The allocation is made to those
cash-generating units or groups of cash-generating units that are expected to benefìt from the business combination in
which the goodwill arose.
(¡i) 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.
(iit) 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 benefìts 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.
-14-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
I Summary of s¡gn¡ficant account¡ng pol¡c¡es (continued)
(q) lntangible assets (continued)
(iv) Fairvalues
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.
(r) Non-current assets (or disposal groups) held for sal
Non-current assets (or disposal groups) are classifìed as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount
and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee beneflts and
fìnancial assets that are carried at fair value.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less
costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal
group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously
recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are
classified as held for sale. lnterest and other expenses attributable to the liabilities of a disposal group classified as held for
sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented
separately from the other assets in the consolidated statement of financial position. The liabilities of a disposal group
classified as held for sale are presented separately from other liabilities in the consolidated statement of fìnancial position.
(s) Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost. They
represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid.
The amounts are unsecured and are paid in accordance with the Group's terms of trade.
(0 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. 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. 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.
ln this case, the fee is deferred until the draw down occurs. To the efent 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.
(u) 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 end of each reporting period. The discount rate used to determine the present value is a pre{ax
rate that 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.
-1 5-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
I Summary of significant account¡ng pol¡c¡es (continued)
(v) Employee benefits
(i) Wages and salaies, and annual leave
Liabilities for wages and salaries, including non-monetary beneflts 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 benefìts. All other short-term
employee benefit obligations are presented as payables.
(¡i) Long service leave
The liability for long service leave is recognised in the provision for employee benefìts 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.
(ii¡) Retirementbenefitobligations
A defìned 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 Long Term lncentive Share Plan (previously the
Executive Share Option Plan) and the Employee Share Plan. lnformation relating to these schemes is set out in note 26.
Long Term lncentive Plan
The Long Term lncentive Share Plan (in previous years the Executive Share Option Plan) allows Group executives to
acquire shares of the Company.
The fair value of Performance Rights / options granted under the Long term lncentive Share Plan / Executive Share Option
Plan is recognised as an employee benefìts expense with a corresponding increase in equity. The total amount to be
expensed is determined by reference to the fair value of the Performance Rights / options granted, measured at the grant
date, which includes any market performance conditions and the impact of any non-vesting conditions but excludes the
impact of any service and non-market performance vesting conditions.
The valuation method takes into account the exercise price of the Performance Right / option, the life of the Performance
Right / 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 Performance Right / 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. lt 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 profìt-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.
-16-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
I Summary of s¡gn¡ficant account¡ng pol¡c¡es (continued)
(w) Contributed equity
Ordinary shares are classified as equity.
lncremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
lf 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.
(x) 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.
(V) 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.
lnterest 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.
(zl Earnings per share
(i) Basic eamings per share
Basic earnings per share is calculated by dividing:
o
.
the profìt 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 fìnancial year.
(i¡) Diluted eamings 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
(aa) 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. ln this case it is recognised as part of the cost of acquisition of the asset or as part
ofthe 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.
(ab) Rounding of amounts
The Group is of a kind referred to in Class Order 98/100, issued by the Australian Securities and lnvestments Commission,
relating to the "rounding off' of amounts in the financial statements. Amounts in the flnancial statements have been
rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.
-17-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
I Summary of s¡gn¡ficant account¡ng pol¡c¡es (continued)
(ac) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2011
reporting periods. The Group's assessment of the impact of new standards is set out below.
AASB 9 Financial lnstruments, AASB 2009-1 1 Amendments to Australian Accounting Standards arising from
ÁASB 9 and AASB 2010-T Amendments to Australian Accounting Sfandards arising from AASB 9 (December 2010)
(effective from 1 January 2013)
AASB 9 Financial lnstruments addresses the classifìcation, measurement and derecognition of financial assets and
fìnancial liabilities and is likely to affect the Group's accounting for its fìnancial assets and financial liabilities. 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. The Group
has not yet decided when to adopt AASB g and has not yet determined the potential effect of the standard.
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:
Electronics & Communications - includes electronic security systems, closed circuit television systems, home and
commercial automation and control systems, professional audio products, consumer electronic equipment, fìbre optic
transmission solutions, communications related products and services, domestic and commercial antennas, master
antenna television systems, communications antennas, amplifìers, and subscription W installation services.
Lifestyle & Sustainability - 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 & lndustrial - comprises the Fielders Steel Roofìng 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 businesses from a products and services perspective. The Electronics &
Communications division is managed separately by a group general manager and the Lifestyle & Sustainability division is
managed by the chief operating offlcer
The Electronics & Communications businesses meet the aggregation criteria of the Standard because of similarities of
products, markets, distribution and regulatory environments.
The Lifestyle & Sustainability 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 Lifestyle
& Sustainability as this reflects the manner in which the Group manages these businesses.
For management reporting purposes, the Building & lndustrial division comprises 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 I Operating Segmenfs, 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
Comprises sales offices and customers in New Zealand.
-1 8-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
2 Segment information (continued)
(b) Segment information provided to the Group Managing Director
2011
Total segment revenue
lnter-segment revenue
Revenue from external customers
Segment EBIT
Depreciation and amortisation
Total segment assets
Total assets include:
Additions to non-current assets
(other than fìnancial assets and
deferred tax)
$'000
$'000
Electronics &
Lifestyle & Building &
Communications Sustainability lndustrial Korvest Ltd
$'000
$'000
340,675 161,M0
553,242 67,383 1,',122,740
Q3.296\
ß.622\
317.379 160.760 549.620
28.027
9.697
e.402t
Q7.755],
67.226 1.094.985
5.556
(680)
(157\
40.878
Total
$'000
3,339
4,995
142.608 107.815 277.649
11,769
1,278
42.434
21,381
570.506
5,175
4,396
11.215
2.040
22,826
Total segment liabilities
37,846
19,900
57.047
8.974
123,767
2010
Total segment revenue
lnter-segment revenue
Revenue from external customers
Segment EBIT
Depreciation and amortisation
Total segment assets
Total assets include:
Additions to non-current assets
(other than financial assets and
deferred tax)
Electronics &
Communications Sustainability lndustrial Korvest Ltd
Lifestyle &
Building &
$'000
$'000
$'000
$ 000
Total
$'000
368,901
(19,395)
349,506
32.525
3,291
143,955
177,444
578,061
(1,133)
(3,695)
176.311 574,366
10.235
20.622
5,803
12,110
128.840 372.623
(496)
55,775 I ,180,181
Q4.719\
55,279 1.155.462
5,706
1,060
35,882
681.300
22,264
69,088
2,956
2,128
13,068
2,362
20,514
Segment liabilities
33,099
26,989
81,830
7.070
148,988
(c) Notes to, and forming part of, the segment information
(i) Accountingpolicies
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.
-19-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
2 Segment information (continued)
(ii) Segment revenue
Segment revenue reconciles to total revenue from continuing operations as follows:
Consolidated
Total segment revenue
lntersegment eliminations
Other revenue
Total revenue from continuing operations (note 3)
2010
$'000
2011
$'000
1,122,740 1,190,191
(24,719)
864
1 .095,845 1 ,1 56.326
(27,7551
860
The Group is domiciled in Australia. The amount of its revenue from external customers in Australia is $1,050.138 million
(2010: $1,1 16.159 million), and the total of revenue from external customers in other countries is $44.847 million (2010:
$39.303 million). 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.
(i¡i) Segment EBIT
Segment EBIT reconciles to (loss)/profit before income tax as follows:
Segment EBIT
lnterest revenue
lnterest expense
Fair value profit on interest rate swaps and forward exchange contracts
Goodwill impairment
lmpairment of other assets
Closure costs
Other
(Loss)/profit before income tax from continuing operations
(iv) Segment assefs
Consolidated
2011
$'000
2010
$'000
40,878
798
(5,960)
1,136
(66,182)
(43,694)
69,088
1,596
(7,575)
2,570
(1,680)
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 segments' assets are reconciled to total assets as follows:
Segment assets
Cash
Deferred tax assets
lnvestments
Derivative financial instruments
Corporate assets
Total assets as per the consolidated statement of financial position
Consolidated
2011
$'000
570,506
7,159
31,485
2
30.490
639.641
2010
$'000
681,300
56,915
23,771
2
800
22.156
784.944
The total of non-current assets other than financial instruments and deferred tax assets located in Australia is $238.629
million (2010: $327.890 million), and the total of these non-current assets located in other countries is $7.624 million (20'10:
$8.070 million). Segment assets are allocated to countries based on where the assets are located.
-20-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
2 Segment information (continued)
(v) Segmentliabilities
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:
Consolidated
2011
$'000
123,767
4,916
98,312
2,576
7.763
237.334
2010
$'000
148,988
15,646
107,068
2,944
13,799
288.445
Consolidated
2011
$'ooo
2010
$'000
61.468
1,033,517 1 ,094,540
60,922
1,094.985 1.155.462
860
864
1.095.845 1,156.326
Consolidated
2011
$'000
2010
$'000
Segment liabilities
Tax liabilities (including GST payable)
Borrowings
Derivative financial instruments
Corporate liabilities
Total liabilities as per the consolidated statement of financial position
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
-21-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
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
(Loss)/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 employee benefits expense
Equity-settled share-based payment transactions
Finance expenses
lnterest and finance charges paid/payable
lneffective portion of changes in fair value of cash flow hedges
Finance income
lnterest income
Fair value gains on derivatives
lneffective portion of changes in fair value of cash flow hedges
Net fìnance costs expensed
Rental expense relating to operating /eases
Minimum lease payments
Research and development
-22-
Consolidated
2011
$'000
2010
$'000
714,556
54,331
89,409
135,022
63,307
114.839
756,558
53,143
87,337
129,O91
64,486
2j63
1,'t71.464 1.092.778
1,769
1,644
'|'92,454
16,238
17,292
184,512
15,383
18,556
5,960
40
6,000
(7s8)
(1,176)
(.9741
4.026
7,575
7,575
(1,5e6)
(2,5O4)
(66)
(4,166)
3,409
25,191
446
22,625
467
5 Expenses (continued)
lmpairment of financial and ofher assefs
Plant and equipment
lnventories
Receivables
lntangible assets
Total impairment losses - financial and other assets
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
Gonsolidated
2011
$'ooo
2010
$'000
37,210
3,783
1,635
66.182
108.810
1,680
3,836
3,336
8,852
(Loss)/profit after tax for the year includes the following items that are unusual
because of their nature and size:
(a) lmpairment of Orrcon plant and equipment (recognised within Other expenses)
Less: Applicable income tax benefìt
(b) lmpairment of Orrcon inventory (recognised within Other expenses)
Less: Applicable income tax benefit
(c) lmpairment of Orrcon goodwill (recognised within Other expenses)
Less: Applicable income tax benefìt
(d) lmpairment of Team Poly plant and equipment (recognised within Other expenses)
Less: Applicable income tax benefit
(e) lmpairment of Team Poly goodwill (recognised within Other expenses)
Less: Applicable income tax beneflt
(f) Closure costs (recognised within Other Expenses)
Less: Applicable income tax benefit
49.590
1,748
15241
1.224
16,592
As a result of poor trading conditions during the year at Orrcon and Team Poly and the decision to close Orrcon's
Unanderra operations, the Group has undertaken a comprehensive review of the carrying values of the assets including the
goodwill of Orrcon and Team Poly. This has resulted in total non cash impairment of assets and goodwill of $109.876
million, comprising impairment to Orrcon inventory of $7.324 million, impairment in Orrcon plant and equipment of $34.622
million, impairment in Orrcon goodwill of $49.590 million, impairment in Team Poly goodwill of $16.592 million and
impairment in Team Poly assets relating to decommissioned assets of $'l .748 million. The after tax impact of these
impairments is $96.768 million.
The decision to close Orrcon's Unanderra operations was announced and communicated to affected parties in May 2011.
Costs associated with the closure totalling $4.963 million have been recognised in the financial statements at 30 June
2ü1.fhe aftertax impact of these costs is $3.474 million.
Further details on the impairment of Orrcon plant and equipment and Team Poly plant and equipment are disclosed in note
11.
Further details on the impairment of Orrcon goodwill and Team Poly goodwill are disclosed in note 13.
-23-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
6 lncome tax expense
(a) lncome tax (benefit)/expense:
Current tax
Deferred tax
Adjustments for current and deferred tax of prior periods
Deferred income tax (revenue)/expense included in income tax expense comprises:
(lncrease)/decrease in deferred tax assets (note 12)
Adjustments for deferred tax of prior periods
Consolidated
20í1
$'000
2010
$'000
8,389
(11,406)
(2.356)
(5.373)
(11,406)
(11.406)
17,659
2,795
(1,489)
18.965
2,693
102
2.795
(b) Numerical reconciliation of income tax (benefit)/expense to prima facie tax
payable
(Loss)/profit from continuing operations before income tax (benefit)/expense
Tax at the Australian tax rate of 30% (2010: 30%)
(78.489)
(23,547',)
62,060
18,618
Tax effect of amounts which are not deductible (taxable) in calculating taxable income:
Goodwill impairment
lmpairment of other assets
Depreciation of buildings
Non deductable expenses
R&D allowances
Difference in overseas tax rates
Adjustments for current and deferred tax of prior per¡ods
Tax losses not recognised
Total income tax (benefit)/expense
(c) Amounts recognised directly in equity
19,855
252
249
(s0)
28
(2,356)
236
(5.37s)
504
274
819
(1 80)
4
(1,387)
313
18.965
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)
180
(526)
(d) Tax expense / (income) relating to items of other comprehensive income
Aggregate current and deferred tax arising in the reporting period and not recognised in
net profit or loss but directly debited or credited to other comprehensive income:
Gains / (losses) on revaluation of land and buildings (note 12)
Cash flow hedges (notes 12, 23)
-24-
6 lncome tax expense (continued)
(e) Tax losses
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
Consolidated
20'11
$'000
2010
$'000
Unused capital tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 30%
41.320
12.396
29,918
8.975
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
benefìts from these items.
Revenue tax losses for which no deferred tax asset has been recognised total $2,417,000 (2010: $1 ,121,000). The
potentialdeferred tax asset not recognised totals $725,000 (2010: $336,000).
(f) Current tax assets and liabilities
The current tax liability for the Group of $242,000 (2010: $10,622,000) represents the amount of income taxes payable in
respect of current and prior financial periods
(S) 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 Holdings Limited.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Hills
Holdings Limited for any current tax payable assumed and are compensated by Hills Holdings Limited for any current tax
receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Hills Holdings
Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts
recognised in the wholly-owned entities' fìnancial 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 fìnancial 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.
7 Current assets - Cash and cash equ¡valents
Consolidated
2011
$'ooo
2010
$'000
Cash at bank and in hand
Deposits at call
-25-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
7 Gurrent assets - Cash and cash equ¡valents (continued)
(a) Reconciliation to cash at the end of the year
The above fìgures are reconciled to cash at the end of the flnancial year as shown in the consolidated statement of cash
flows as follows:
Balances as above
Bank overdrafts (note 17)
Borrowings - at call (note 17)
Balances per consolidated statement of cash flows
(b) Risk exposure
Consolidated
2011
$'ooo
2010
$'000
7,159
(1,5121
(5.000ì
56,915
(r,384)
646
55,531
The Group's exposure to interest rate risk is discussed in note 31. The maximum exposure to credit risk at the end of each
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.
I Current assets - Trade and other rece¡vables
Consolidated
2011
$'000
2010
$'000
Net trade receivables
Trade receivables
Provision for impairment of receivables (note (a))
Net other receivables
Other receivables
Prepayments
(a) lmpaired trade receivables
ïhe ageing of the Group's trade receivables at the reporting date is as follows:
180,45
(9.180)
,171.265
188,818
(9,418)
179.400
10,888
1.889
184.042
4,105
2.497
186,002
Not past due
Past due 0 - 30 days
Past due 31 - 90 days
Past due more than 90 days
96,409
55,728
18,673
9.635
180.45
-26-
Consolidated
2011
$'000
2010
$'000
103,215
60,019
16,494
9,090
188.818
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
I Current assets - Trade and other rece¡vables (continued)
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
2011
$'000
2010
$'000
(9,418)
(1,635)
1.873
(9.180)
(7,782)
(3,336)
1 ,700
(9,418)
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 $9,1 80,000 (201 0: $9,41 8,000) 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
lnformation about the Group's exposure to foreign currency risk and interest rate risk in relation to trade and other
receivables is provided in note 31 .
(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 31 for more information on the risk management policy of the Group and the credit quality of
the Group's trade receivables.
Consolidated
2011
$'000
2010
$'000
5'1,273
(5.629)
45.64
54,859
(3.152\
51,707
6,577_
5,224
9 Current assets - lnventories
Raw materials
- 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
-27-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
Consolidated
20'11
$'000
2010
$'000
22
l0 Non-current assets - lnvestments
Other listed securities
Equity securities
These financial assets are carried at cost.
11 Non-current assets - Property, plant and
equ¡pment
Consolidated
At I July 2009
Cost or fair value
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2010
Opening net book amount
Exchange differences
Acquisitions through business combinations
Additions
Disposals
lmpairment charge recognised in profìt or loss
Depreciation charge
Closing net book amount
At 30 June 2010
Cost or fair value
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 20ll
Opening net book amount
Exchange differences
Revaluation to fair value
Additions
Disposals
Transfers to assets held-for-sale
Depreciation charge
lmpairment charge recognised in profìt or loss
Closing net book amount
At 30 June 201 I
Cost or fair value
Accumulated depreciation and impairment
Net book amount
Land - Fair
Value
$'ooo
Buildings -
Fair Value
$'ooo
Plant and
equipment -
Cost & Fair
Value
$'000
Total
$'ooo
44,232
44.232
44,232
62
-
44.294
52,134
(2,859)
49.275
49,275
50
1,946
(20)
_
(.644\
49,607
252,500
348,866
(1 18,5'13) (21 .372\
'133.987
227.494
133,987
11
1,463
17,148
(3,e3e)
(1,680)
Q1.233\
227,494
123
1,463
19,094
(3,e5e)
(1,680)
(22.877\
125.757
219,658
44,294
44.294
54,072
(4,465)
49.607
258,663
357,029
(132,906) (37 .371\
125.757
219,658
44,294
(201)
10,333
49,607
(172)
3,147
1,663
(20)
(1,76e)
54.426
52.456
125,757
(2e)
25,1 60
(706)
(2,702)
(20,112)
ß7,210\
90,158
219,658
(402)
13,480
26,823
(726)
(2,702)
(21,881)
ß7.210\
197.040
54,426
54.426
57,838 230,248 342,512
(5,382) ('140,090) (45.472\
90,158
52.456
197.040
-28-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
I I Non-current assets - Property, plant and equ¡pment (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:
Consolidaúed
2011
$'ooo
2010
$'000
Property, furniture, fittings, plant and equipment
Total assets in the course of construction
(b) Valuations of land and buildings
15.732
15.732
13.023
13.023
The valuation basis of land and buildings is fair value being the amounts for which the assets could be exchanged between
willing parties in an arm's length transaction, based on current prices in an active market for similar properties in the same
location and condition. The 201 1 valuations were based on independent assessments by a member of the Australian
Property lnstitute as at 31 May 2011 and the 2010 valuations were made by the Directors as at 30 June 2010. The
revaluation surplus net of applicable deferred income taxes was credited to the asset revaluation reserve in shareholders'
equity (note 23).
(c) lmpairment loss
The impairment loss relates to certain plant and equipment within the Orrcon and Team Poly cash generating units and 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 assets.
The recoverable amount of certain plant and equipment within the Orrcon cash generating unit (Unanderra plant and
equipment) was determined on a fair value less cost to sell basis, using an independent valuation of these assets. Based
on this assessment the recoverable amount of this plant and equipment was determined to be $34.622 million lower than
its carrying amount.
The recoverable amount of certain decommissioned plant and equipment within the Team Poly cash generating unit was
determined on a fair value less cost to sell basis. Based on this assessment the recoverable amount of this plant and
equipment was determined to be $1 .748 million lower than its carrying amount.
The recoverable amount of the asset in the course of construction was determined by reference to a report provided by an
independent valuer as fair value less costs to sell based on an active market. Based on this assessment the recoverable
amount was determined to be $0.840 million lower than its carrying amount
-29-
12 Non-current assets - Deferred tax assets
The balance comprises temporary differences attributable to:
Property, plant and equipment
lnventories
Employee benefìts
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative fìnancial instruments
Other items
Net deferred tax assets
Movements - Consolidated
Property, plant and equipment
lnventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative fìnancial instruments
Other items
At 30 June 2010
Movements - Consolidated
Property, plant and equipment
lnventories
Employee benefìts
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Other items
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
Consolidated
201',\
$'000
2010
$'000
5,368
4,969
10,737
2,8'11
1,218
2,201
2,293
1,303
685
31.485
(1,921)
4,614
10,865
2,543
1,218
2,238
1,576
1,233
1.405
23.771
Balance at
I July 2009
$'000
Recognised
in profit or
loss
$'000
Recognised
in other
compre-
hensive Recognised
income
$'000
in equity
$'000
Balance at
30 June 2010
$'000
(1,921)
4,614
10,865
2,543
1,218
2,238
1,576
1,233
1.405
23.771
212
212
526
526
Recognised
in other
GOmpre-
hensive
income
$'000
(3,e57)
Recognised Balance at
in equity 30 June 201I
$'000
$'000
5,368
4,869
10,737
2,811
1,218
2,201
2,293
1,303
685
31,485
445
ß.512\
(1 80)
(180)
(1,961)
5,511
10,873
2,423
1,218
2,080
2,136
2,942
606
25,828
40
(8e7)
(8)
120
158
(560)
(1,e21)
273
Q.795\
Balance at
I July 2010
$'000
Recognised
in profit or
loss
$'000
(1,921)
4,614
10,865
2,543
1,218
2,238
1,576
1,233
1.405
23.771
11,246
255
(1 28)
268
(37)
717
(375)
(540)
11.406
-30-
l3 Non-current assets - lntangible assets
Consolidated
At 1 July 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
Year ended 30 June 20ll
Opening net book amount
Additions
lmpairment charge **
Amortisation charge "*
Closing net book amount
At 30 June 2011
Cost
Accumulated amortisation and impairment
Net book amount
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
Development
costs
$'000
Goodwill
$'000
Patents,
trademarks
and other
rights
$'000
Total
$'ooo
200
200
122,461
(11.043)
111.418
200
111,418
111.418
125,607
(1.281\
114.326
114,326
3,010
(1,036)
116,300
128,618
(2.318\
1 16,300
111,418
(66,182)
4,722
293
-
(1,158)
3,857
l'16,300
293
(66,182)
(1,198)
49.213
6,250
(2,393)
3,857
128,911
(79,698)
49.213
** The amortisation and impairment charges are recognised in expenses in the consolidated income statement.
(a) lmpairment tests for goodwill
During the year ended 30 June 201 1 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, except for goodwill relating to the Orrcon and
Team Poly CGUs. 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).
-31-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
13 Non-current assets - lntangible 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
Electronic
Building and and Commun- Lifestyle and
lndustrial ications Sustainability
$'000
$'000
$'000
Total
$'000
2011
Hills SVL
Hills Healthcare
LW Gemmell
Fielders
Orrcon
Opticomm
UHS
Team Poly
Total Group
2010
Hills SVL
Hills Healthcare
LW Gemmell
Fielders
Orrcon
Opticomm
UHS
Team Poly
Total Group
-
16,237
7,789
-
-
754
5.293
11,839
3,324
16,237
11,839
3,324
7,789
754
5,293
7 .789
22.284
15,163
45.236
7,789
49,589
1'1,839
3,324
16,237
756
5,293
57 ,378
22.286
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.
o
o
A terminal value has been determined at the end of the five year strategic plan using a growth rate of 2.5% - 3%
(2010:3o/"), 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 13.19% and 14.91o/o (2010: 14J7% and 14.77o/o), 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) lmpact of possible changes in key assumptions
With the exception of the Fielders 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 Fielders cash generating unit's recoverable amount (which exceeds its carrying value in use by approximately $16.535
million (2010: $48.454 million) is sensitive to a possible change in EBIT. The business is forecasting for EBIT to return to
2009 levels by the end of the five year model period. A decrease in forecast annual EBIT of 15% (2010:32%) could result
in an impairment.
-32-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
l3 Non-current assets - Intangible assets (continued)
(c) lmpairment charge
The recoverable amount of the Orrcon cash generating unit was estimated based on its value in use for the Orrcon
business. Theestimateofvalueinusewasdeterminedusingapretaxdiscountrateof
projections have been based on 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. The Orrcon cash generating unit recoverable amount is sensitive to a possible change in EBIT. The
Orrcon business is forecasting annualised EBIT growth of 2o/o - 3% per annum over the flve year model period. A terminal
value has been determined at the end of the five year strategic plan using a growth rate of 2.5% (2010: 3%), which is no
greater than the long term average growth rate for the market to which the assets are dedicated. Based on this
assessment assets are impaired by $49.590 million and in accordance with Accounting Standards the impairment was
allocated against goodwill.
'13.19%(2010 14.17o/o).Cashflow
The recoverable amount of the Team Poly cash generating unit was estimated based on its value in use for the Team Poly
business. The estimate of value in use was determined using a pre tax discount rate of 14.91% (2010: 14.77o/o). Cash flow
projections have been based on 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. The Team Poly cash generating unit recoverable amount is sensitive to a possible change in EBIT. The
Team Poly business is forecasting average annualised EBIT growth of 3% - 3.5% per annum over the five year model
period. A terminal value has been determined at the end of the five year strategic plan using a growth rate of 3% (2010:
3%), which is no greater than the long term average growth rate for the market to which the assets are dedicated. Based
on this assessment assets are impaired by $16.592 million and in accordance with Accounting Standards the impairment
was allocated against goodwill
Consolidated
2011
$'000
2010
$'ooo
800
800
I 4 Derivative financial instruments
Current assets
Forward foreign exchange contracts - cash flow hedges (rr)
Total current derivative financial instrument assets
Current liabilities
lnterest rate swaps - cash flow hedges (r)
Forward foreign exchange contracts - held for trading (ør)
Total current derivative fìnancial instrument liabilities
Non-current liabilities
lnterest rate swaps - cash flow hedges (i/
Total non-current derivative flnancial instrument liabilities
Total derivative fìnancial instrument liabilities
Net derivative financial instrument liabilities
-33-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
l4 Derivative financial instruments (continued)
The Group is party to derivative flnancial 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 31).
(i) lnterest rate swap contracts - cash flow hedges
Bank loans of the Group at 30 June 2011 bear an average variable interest rate of 5.O1o/" (2010: 4.75%). lt 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.
lnterest rate swaps in place at 30 June 20'l 1 cover approximately 83% (2010: 100%) of the loan principal outstanding and
are taken out with terms of between three and seven years. The fixed interest rates average 6.2% (2010:6.2%).
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.
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 or loss when the hedged item is
derecognised. ln the year ended 30 June 2011 a loss of $40,000 was reclassifìed into profit or loss (2010: gain of $66,000)
and included in fìnance cost due to hedge ineffectiveness in the current or prior year and a gain of $1,176,000 was
reclassified into profìt or loss (20'1 0: $1,998,000) to offset net interest expense paid
(ii) Forward foreign exchange contracts - cash flow hedges
The Group purchases goods and materials from overseas, principally in US dollars. ln 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.
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 201 1 a gain of $8,000 was recognised in profit or loss for the ineffective portion of these
hedging contracts (2010: loss of $1 1,000).
(iii) Forward foreign exchange contracts and interest rate swaps - held for trading
Group subsidiaries have entered into fon¡rard foreign exchange contracts which are economic hedges but do not satisfy the
requirements for hedge accounting. These contracts are subject to the same risk management policies as all other
derivative contracts, see note 31 for details. However, they are accounted for as held for trading.
(a) Risk exposures and fair value measurements
lnformation about the Group's exposure to credit risk, foreign exchange and interest rate risk and about the methods and
assumptions used in determining fair values is provided in note 31 . The maximum exposure to credit risk at the end of
each reporting period is the carrying amount of each class of derivative fìnancial assets mentioned above.
-34-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
15 Non-current assets classified as held for sale
Plant and equipment
Consolidated
2011
$'ooo
2010
$'000
2.702
As part of the restructuring of Orrcon, in May 2011 the Directors decided to close certain operations and assets previously
used in manufacturing have been classifìed as held for sale. An active programme of marketing and selling the assets is
undenaray. There are interested parties and the sales are expected to be completed during the financial year. The assets
are presented within total assets of the Building and lndustrial segment in note 2.The losses on measuring the assets at fair
value less costs to sell are presented within "impairment of property, plant and equipment" in note 5 and disclosed within
note 11.
l6 Current liabilities - Trade and other payables
Consolidated
201'1
$'ooo
2010
$'000
Trade payables
Amounts due to associates (note 28)
Other trade payables and accrued expenses
54,162
993
43.516
98.671
76,813
134
51,101
128.048
(a) Risk exposure
lnformation about the Group's exposure to foreign exchange risk is provided in note 3'1 .
l7 Gurrent liabilities - Borrowings
Bank overdrafts **
Short term money market
Other loans
Total current borrowings
1,5'12
5,000
321
6.833
Consolidated
2011
$'ooo
2010
$'000
1,384
1.384
"* Further information on the bank overdrafts and bills payable are set out in note 20.
(a) Security and fair value disclosures
lnformation about the security relating to each of the secured liabilities and the fair value of each of the borrowings is
provided in note 20.
(b) Risk exposures
Details of the Group's exposure to risks arising from current and non-current borrowings are set out in note 31.
-35-
l8 Gurrent liabilities - Current tax liabilities
lncome tax
l9 Gurrent liabilities - Provisions
Employee benefits
Outstanding claims
Other provisions
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
Consolidated
2011
$'ooo
2010
$'000
242
10,622
Consolidated
2011
$'ooo
2010
$'000
27,046
3,339
27,248
5,701
lnformation on non-current provisions is set out in note 21.
Outstanding claims
The provision for claims comprises the 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. 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.
Other provisions
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:
Provisionfor Outstanding
dividend
$'000
claims
$'000
Other
Provisions
$'000
Total
$'000
2011
Current & non-current
Carrying amount at start of year
Charged/(credited) to profìt or loss / retained earnings
- additional provisions recognised
- reductions from remeasurement or settlement without
cost
Amounts used during the year
Carrying amount at end of year
-
5,701
27,273
Q7.273\
(2,362)
3,339
692
269
(50)
911
4.250
-36-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
19 Current liabilities - Provisions (continued)
Contingent Provision Outstanding Other
consideration for dividend claims Provisions
$'000
$'000
$'000
$'000
Total
$'000
2010
Current & non-current
Carrying amount at start of year
Charged/(credited) to profÌt or loss / retained
earnrngs
- additional provisions recognised
- reductions from remeasurement or settlement
without cost
Amounts used during the year
Dividend foregone - SIP
Carrying amount at end of year
20 Non-current l¡ab¡lities - Borrowings
Unsecured
Bills payable
Other loans
Loans from non-controlling interests
Total unsecured non-current borrowings
Total non-current borrowrngs
(a) Bank loans and bank overdraft
Bank ove¡drafts
400
550
5,751
799
7,500
-
(400)
-
24,362
(24,1ee)
(713)
-
(65)
(42)
-
692
24,362
(515)
(24,241)
(713)
6,393
(50)
5,701
Consolidated
2011
$'000
2010
$'000
90,000
1,458
21
91.479
105,000
663
21
105.684
91,479
105,684
Bank overdrafts are denominated in both AUD and NZD. The bank overdraft of a controlled entity is secured by a
guarantee from the Company. lnterest 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 (2010: $1 ,000,000) and the Company's New Zealand subsidiary has a separate bank
overdraft facility of $1 ,737,000 (2010: $1 ,828,000).
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 AUD and NZD.
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. The bank loan facility of a controlled entity is secured by a guarantee from the Company, to the extent of the
Company's ownership interest. An assessment of the contractual maturities of fìnancial liabilities is provided in note 31.
Standby letter of credit
The standby letter of credit facility forms part of the multi option facilities negotiated with the Group's bankers.
Shotl-te rm money ma¡ket
Borrowings on the short-term money market are denominated in AUD. lnterest on the borrowings is charged at the
prevailing market rates.
-37-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
20 Non-current l¡ab¡lities - Borrowings (continued)
(b) Financingarrangements
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
Short term money market
Unused at balance date
Bank overdrafts
Unsecured bank loans
Standby letters of credit
Short term money market
(c) Fair value
The carrying amounts and fair values of borrowings at the end of reporting period are
Consolidated
2011
$'000
2010
$'000
4,437
207,088
10,869
5.000
227.394
'1,512
90,000
10,439
5.000
2,828
218,169
6,831
5.000
232.828
1,384
105,000
6,831
106.95r
113.215
2,925
117 ,088
430
1,444
1 1 3,1 69
5'000
120.443
1 19,613
-
Gonsolidated
Non-tra ded fi n an ci al Ii ab il itie s
Bank overdrafts
Short term money market
Bills payable
Other loans
(d) Risk exposures
2011
Carrying
amount Fair value
$'000
$'000
2010
Carrying
amount Fair value
$'000
$'000
1,512
5,000
1,512
5,000
1,384
1,384
105,000
684
107,068
lnformation about the Group's exposure to interest rate and foreign currency changes is provided in note 31.
For an analysis of the sensitivity of borrowings to interest rate risk and foreign exchange risk refer to note 31.
-38-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
Gonsolidated
2011
$'ooo
2010
$'000
6,237
6,122
2011
Shares'000
2010
Shares'000
2011
$'ooo
2010
$'000
248.636
247,697
306.790
306,595
Details
Number of
shares'000 $'OOO
21 Non-current liab¡lities - Provisions
Employee benefìts
Other provisions
Movements in provisions are set out in note 19.
22 Contributed equity
(a) Share capital
Ordinary shares
Fully paid
(b) Movements in ordinary share capital:
Date
1 July 2009
Opening balance
lssued under the capital raising
lssued under the Share Purchase Plan
lssued under the Dividend lnvestment Plan
lssued under the Share lnvestment Plan
lssued under the Employee Share Bonus Plan
Less: Transaction costs arising on share issue
30 June 2010
Balance
1 July 2010
Opening balance
lssued under the Employee Share Bonus Plan
Less: Movement in deferred tax asset relating to transaction costs
arising on share issue
30 June 201 1
Balance
(c) Ordinary shares
204,601
29,185
11,956
674
382
899
248,598
40,859
16,738
1,255
373
(,228\
247,697
306,595
247,697 306,595
375
939
(1 80)
248.636 306.790
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.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
(d) Dividend investment plan and share investment plan
The Dividend lnvestment Plan and the Share lnvestment Plan did not operate in respect of dividends issued during the
financial year.
-39-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
22 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
meet¡ng the service criteria were eligible to participate in the issue. The shares are issued at market value.
(f) Executive Shares, Performance Rights and Options
lnformation relating to the Long Term lncentive Share Plan and the Executive Share Plan, including details of Performance
Rights and options issued, exercised and lapsed during the financial year and Performance Rights and options outstanding
at the end of the fìnancial year, is set out in note 26.
(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 benefìts for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.
ln 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 201 1, the Group's strategy, which was unchanged from 2010, was to maintain a target gearing ratio less lhan 45o/o.
The gearing ratios at 30 June 2011 and 30 June 2010 were as follows:
Total borrowings
Less: cash and cash equivalents
Net debt
Totalequity
Gearing ratio
Gonsolidated
2011
$'000
2010
$'000
98,312
(7.1s8)
107,068
(56,915)
91,154
402,307
50,1 53
496,499
22.7olo
10.1o/o
The increase in the gearing ratio during 2011 resulted primarily from lower levels of cash generated from operations and
the decrease in total equity, due to the impairment of assets recorded.
23 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
-40-
Gonsolidated
2011
$'000
2010
$'000
47,041
(1,304)
11,954
(2,2121
647
1,219
57.245
35,634
(265)
12,019
(1,653)
613
1.551
47.899
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
23 Reserves (continued)
Movements:
Asset revaluation reserve
Balance 1 July
Revaluation - gross
Deferred tax
Transfer (to) / from retained earnings
Transfer to asset realisation reserve
Balance 30 June
Hedging reserve - cash flow hedges
Balance 1 July
Revaluation - gross
Deferred tax
Balance 30 June
Assef reallsa ti on re se ¡ve
Balance 1 July
Transfer from asset revaluation reserve
Transfer (to)/from retained earnings
Balance 30 June
F o re ign cu rre ncy trans I ation rese rue
Balance 1 July
Currency translation differences arising during the year
Disposal of foreign subsidiary
Transfer (to)/from retained earnings
Balance 30 June
Eq u ity com pen sati on rese tve
Balance I July
Long Term lncentive Share Plan and Executive Share Option Plan expense
Balance 30 June
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
2011
$'ooo
201 0
$'000
35,634
12,814
(3,757)
2,350
47.04'1
35.634
(265)
('l,4841
230
(707)
12,019
(165)
1 1.854
2,825
9,194
12.019
(l,653)
(722Ì.
(27l.
190
e.2121
613
34
647
(1,e71)
269
49
(1,653)
583
30
613
1,551(332)
1,219
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).
-41-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
23 Reserves (continued)
(ii) Hedging reserve - cash flow hedges
The hedging reserve is used to record changes in the fair value of derivative fìnancial instruments designated in a cash low
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 reseNe
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 proflt or loss when the net investment is disposed of.
(v) Equity compensation reseNe
The equity compensation reserve represents the value of Performance Rights and 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 Performance Rights and 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.
24 Dividends
(a) Ordinary shares
Final dividend for the year ended 30 June 2010 of 5.5 cents (year ended 30 June 2009:
2.0 cents) per fully paid share paid on 27 September 2010 (year ended 30 June 2009: 23
November 2009)
Fully franked based on tax paid @ 30%
Final dividend foregone for Share lnvestment Plan
lnterim dividend for the year ended 30 June 201 I of 5.5 cents (2010: 7.0 cents) per fully
paid share paid on 21 March 2011 (2010:3 March 2010)
Fully franked based on tax paid @ 30o/"
Total dividends provided for or paid
(b) Dividends and share reinvestment plan
Consolidated
2011
$'000
2010
$'000
13,623
13,623
4,917
(713)
4,204
13.650
27.273
17 .319
21.523
The Dividend lnvestment Plan and Share lnvestment Plan will not operate in respect of the proposed final dividend.
-42-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
24 Dividends (continued)
Consolidated
2011
$'000
2010
$'000
(c) Dividends not recognised at the end of the reporting period
ln addition to the above dividends, since year end the Directors have recommended the
payment of a fìnal dividend of 4.5 cents per fully paid ordinary share (2010: 5.5 cents) fully
franked based on tax paid al30%. The aggregate amount of the proposed dividend
expected to be paid on 26 September 2O11 out of retained profits at 30 June 2011, but
not recognised as a liability at year end, is
11.189
13.623
(d) Franked dividends
The franked portions of the fìnal dividends recommended after 30 June 201 1 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 2012.
Franking credits available for subsequent fìnancial years based on a tax rate of 30%
(2010:300/o)
32.713
41.240
2011
$'000
2010
$'000
franking credits that will arise from the payment of the amount of the provision for income tax;
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for:
(a)
(b)
(c)
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 the end of the reporting period, but
not recognised as a liability at the reporting date, will be a reduction in the franking account of $4,795,000 (2010:
$5,838,000).
25 Earnings per share
Consolidated
2011
Cents
2010
Cents
(a) Basic earnings per share
From (loss)/profit from continuing operations attributable to the ordinary equity holders of
the Company
From profit from continuing operations before unusual / significant items attributable to the
ordinary equity holders of the Company
(b) Diluted earnings per share
From (loss)/profit from continuing operations attributable to the ordinary equity holders of
the Company
From profìt before unusual / significant items attributable to the ordinary equity holders of
the Company
(30.2)
10.2
(30.2)
10.2
16.7
16.7
16.7
16.7
-43-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
25 Earnings per share (continued)
(c) Reconciliations of earnings used in calculating earnings per share
Consolidated
201',l
$'000
2010
$'000
Basic eamings per share
(Loss) / profit attributable to the ordinary equity holders of the Company used in
calculating basic earnings per share
(74.955)
40.188
Diluted eamings per share
(Loss) / profit attributable to the ordinary equity holders of the Company used in
calculating diluted earnings per share
(74.955)
40,188
Basic eamings per share before unusual / significant items
(Loss) / profit attributable to the ordinary equity holders of the Company used in
calculating basic earnings per share
(74,955)
40,1 88
Adjusted for unusual / significant items:
lmpairment of Orrcon plant and equipment
lmpairment of Orrcon inventory
lmpairment of Orrcon goodwill
lmpairment of Team Poly plant and equipment
lmpairment of Team Poly goodwill
Closure costs
24,235
5,127
49,590
1,224
16,592
3.474
Profit attributable to the ordinary equity holders of the Company before unusual /
significant items used in calculating basic earnings per share
25.287
40,188
(d) Weighted average number of shares used as the denominator
Consolidated
2011
2010
Number'000 Number'000
Weighted average number of ordinary shares used as the denominator in calculating
basic earnings per share
Adjustments for calculation of diluted earnings per share:
Effect of share options on issue
Weighted average number of ordinary shares and potential ordinary shares used as the
denominator in calculating diluted earnings per share
248,',171
240,481
523
248.171 241.004
-44-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
26 Share-based payments
ln 2010 the Group established the Hills Holdings Limited Long Term lncentive Share Plan (LTIP). The Plan is designed to
provide long term incentives to eligible senior employees in the Company and entitles them to acquire shares in the
Company, subject to the successful achievement of performance hurdles related to earnings per share (EPS) and total
shareholder returns (TSR).
Under the plan, eligible employees are offered Performance Rights, which enables the employee to acquire one fully paid
ordinary share in the Company for no monetary consideration, once the Performance Rights vest. The conditions attached
to the Performance Rights are measured over the three year period commencing at the beginning of the financial year in
which the Performance rights are granted. lf the performance conditions at the end of the three year period are met, in
whole or in part, all or the relevant percentage of the Performance Rights will vest.
The previous plan, the Executive Share Option Plan (ESOP), which is still operational for employees granted options under
that plan, was established in 1997. The share option plan entitled selected senior managers to acquire shares in the
Company subject to the successful achievement of performance targets related to improvements in total shareholder
returns.
The shares issued pursuant to these options are financed by an interest free loan from the Company repayable within
twenty years from the proceeds of dividends declared by the Company. These loans are of a non-recourse nature. For
accounting purposes these 2O-year loans are treated as part of the options to purchase shares, until the loan is
extinguished at which point the shares are recognised.
ln relation to the previous 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 Performance Rights and Options under the current and previous scheme are as follows:
Grant date / Exercise date
Consolidated - 2011
Current Plan - LTIP
April 2011
Previous Plan - ESOP
Feb 2001 I Jan2003
Feb2002l Jan2004
Feb 2003 I Jan2005
Feb 2004 / Jan 2006
Feb 2005 I Jan2007
Feb 2008 I Jan2011
Feb 2009 I Jan2012
Total
Balance at Granted
Expiry Exercise start of the during the
date price year
Forfeited /
Exercised lapsed Balance at
during the during the end of the
year
year
year
Number Number Number Number Number
year
June 2013
$-
209,740
209,740
Jan2023
Jan 2024
Jan2025
Jan2026
Jan 2027
Jan 2031
Jan2032
$2.50
50,000
$2.90
53,000
$3.23
80,000
$3.66
135,000
$4.16 205,000
$5.49 445,000
$3.01 525,000
50,000
53,000
80,000
(10,000) 125,000
(10,000) 195,000
(445,000)
(1 10.000) 415,000
1.493.000 209.740_______-________ (575,000) 1.127.740
-
-
-
Weighted average exercise price (Executive Share Option
Plan)
-
-
$3.96
$-
$-
$4 96
$3.33
-45-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
26 Share-based payments (continued)
Grant date / Exercise Date
Balance at
Expiry Exercise start of the
date price
year
Number
Forfeited /
Granted Exercised lapsed Balance at
during the during the during the end of the
year year
Number Number Number Number
year
year
Consolidated - 2010
Feb 2001 / Jan 2003
Feb 2002 I Jan 2004
Feb 2003 I Jan2005
Feb 2004 / Jan 2006
Feb 2005 I Jan2007
Feb 2008 I Jan2011
Feb 2009 I Jan2012
Total
(5,000) 50,000
Jan 2023 $2.50 55,000
(5,000) 53,000
Jan 2024 $2.90 58,000
(10,000) 80,000
Jan 2025 $3.23 90,000
Jan 2026 $3.66 145,000
(10,000) 135,000
Jan2027 $4.16 215,000
(10,000) 205,000
Jan 2031 $5.49 455,000
(10,000) 445,000
Jan 2032 $3.01 525,000 ________________ ________________ ________________ 525.000
1,543,000
Weighted average exercise price
$3.95
$-
$-
$3.85
$3.96
Details of options outstanding under accounting standards are as follows:
Grant Date
Consolidated -2011
February 2001
February 2002
February 2003
February 2004
February 2005
February 2008
February 2009
Total
Consolidated - 2010
February 2001
February 2002
February 2003
February 2004
February 2005
February 2008
February 2009
Total
Outstanding Outstanding
Options at balance at balance
granted date AIFRS date ASX
Number Number Number
195,000
245,000
280,000
370,000
460,000
625,000
535,000
2,710.000
50,000
53,000
80,000
125,000
195,000
415,000 415,000
918,000 415,000
195,000 50,000
245,000 s3,000
280,000 80,000
370,000 135,000
460,000 205,000
625,000 445,000 445,000
535,000 525,000 525,000
2.710.000 1,493,000 970.000
-46-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
26 Share-based payments (continued)
Fair value of Pe¡'formance Rights granted
The share price used to calculate the number of Performance Rights issued to the Managing Director and Senior
Executives was $2.31237, being the volume weighted average price of the Company's shares for the ten trading days
commencing on the day after the announcement of the Company's full year financial results for the year ended 30 June
2010.
The fair value assessed in accordance with AASB 2 Share Based Payment at grant date of Performance Rights granted
during the year ended 30 June 201 1 was 90.5 cents per Performance Right. The fair value at grant date is independently
determined using a Monte Carlo valuation methodology that takes into account the exercise price, the expected life and
vesting period of the Performance Right, the share price at grant date and expected price volatility of the underlying shares,
the expected dividend yield, the risk free interest rate for the term of the Performance Rights and the volatility of the ASX
200 lndustrials lndex.
The model inputs for the valuation of Performance Rights in accordance with AASB 2 Share Eased Payment for
Performance Rights granted during the year ended 30 June 2011 included:
(a)
(b)
(c)
(d)
(e)
(f)
(S)
(h)
(i)
exercise price: $0.00
vesting period: 3 years
grant date (for Accounting Standards) .28 April2011
expiry date: 30 June 2013
share price at grant date: $1.53
expected price volatility of the Company's shares: 35%
expected dividend yield:8.7%
risk-free interest rate:5.01%
volatility of index: 17%
(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:
Consolidated
2011
$'000
2010
$'000
Performance Rights / options issued under executive long term incentive plan / share
option plan
Shares issued under employee share scheme
53
425
478
49
418
467
-47-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
27 Key management personnel disclosures
(a) Directors
The following persons were Directors of Hills Holdings Limited during the fìnancial year and unless otheruvise indicated
were Directors for the entire period:
(¡) Chairman - non-executive
Jennifer Helen Hill-Ling
(ii) ExecutiveDirectors
Graham Lloyd Twartz (Group Managing Director)
(¡ii) Non-executive Directors
Fiona Rosalyn Vivienne Bennett
lan Elliot
Roger Baden Flynn
Geoffrey Guild Hill (retired 24 April2011)
David Moray Spence (appointed 1 September 2010)
Peter William Stancliffe
There were no changes in Directors since the end of the financial year and prior to the date when the financial report is
authorised for issue.
(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 fìnancial year and unless otherwise indicated were key management personnel for the
entire period:
Name
L Andrewartha
S Cope
Position
Managing Director
CEO
Orrcon Operations Pty Ltd
Employer/ Division
Hills Holdings Limited /
Electronics and Communications
D Edgecombe
R Gros
A Kachellek
D Lethbridge
M McKinstry
K Middleton
A Muir
T Sullivan
Hills Holdings Limited / Lifestyle
and Sustainability
General Manager Business Development Hills Holdings Limited
(untill November2010)
Group General Manager (until 4 March
2011)
Managing Director
Company Secretary
Chief Operating Officer (from 6 June
2011)
CEO
Chief Financial Officer
Group General Manager Strategy (from
11 October2010)
Hills Holdings Limited
Hills Holdings Limited
Hills Holdings Limited
Hills Holdings Limited
Korvest Ltd
Fielders Australia Pty Ltd
All of the above persons were key management persons during the year ended 30 June 201 1 , except for T Sullivan, who
commenced employment with the Group on 11 October 2010, M McKinstry, who commenced employment with the Group
on 6 June 2011 , D Edgecombe, who moved to a different position within the Group with effect from 1 November 2010 and
R Gros, who resigned from the Group with effect from 4 March 2011.
All of the above persons were also key management persons during the year ended 30 June 2010, except for D
Lethbridge, who commenced employment with the Group on 6 January 2010,T Sullivan and M McKinstry.
Since the end of the financial year A Muir resigned from the position of Chief Financial Officer on 7 July 2011 and G Logan
was appointed Chief Financial Officer for the Group on 7 July 2011 with effect from 8 August 2011.
-48-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
27 Key management personnel disclosures (cont¡nued)
(c) Key management personnel compensation
The key management personnel (KMP) compensation included in 'personnel expenses' in note 5 is as follows:
Short{erm employee beneflts
Post-employment benefi ts
Long{erm benefits
Share-based payments
Consolidated
20'11
$
2010
$
345,549
74,082
37Jt94
4,335,545 4,134,474
344,880
18,349
26,095
4.792.370 4.523.798
lnformation 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 76 to 89.
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) Rights and options provided as remuneration
Details of Rights and 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 Right or option
is convertible into one ordinary share of the Company. Further information on the Rights and options is set out in note 26
and pages 86 to 91.
Name
Directors of Hills Holdinos Limited
GL Twartz
Other kev manaqement personnel of the Group
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
M McKinstry
K Middleton
A Muir
T Sullivan
Number of Rights granted
durino the vear
2011
2010
Number of Rights / options
vested durino the vear
2010
2011
118.926
21,623
,a,rrt_
10,811
21,62;
15,134
- |
60.000
60,000
10,000
No Rights or options were held by key management person related entities.
(ii) Rights and options provided as remuneration and shares rssued on exercise of such Rights / options
Details of rights / options provided as remuneration and shares issued on the exercise of such Rights / options, together
with terms and conditions of the Rights / options, can be found in the Remuneration report on pages 79 to 80 and 86 to 89.
(iii) Rights / option holdings
The numbers of Rights / options over ordinary shares in the Company held during the fìnancial year by each Director of the
Company and other key management personnel of the Group, including their personally related parties, are set out below.
-49-
27 Key management personnel disclosures (continued)
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
Options Balance at
lapsed / end ofthe Vested and
forfeited year exercisable Unvested
(60,000) 421,926 203,000 218,926
(60,000) 141,623 60,000 81,623
(60,000) 81,623
81,623
(25,000)
(120,000)
-
-
10,81 1
-
10,81 1
(20,000) 46,623
(25,000) 80,000 20,000
15,134
-
46,623
60,000
15,134
Balance at Granted as
start of the compen-
yeil
sation Exercised
363,000 118,926
of the Group
180,000 21,623
120,000 21,623
25,000
'120,000
-
10,81 1
45,000 21,623
105,000
-
15,134
Balance at Granted as
start of the compen-
year sation Exercised
Options Balance at
lapsed / end ofthe Vested and
forfeited year exercisable Unvested
363,000
of the Group
180,000
120,000
25,000
120,000
45,000
105,000
363,000 203,000 160,000
180,000 60,000 120,000
120,000
120,000
25,000
25,000
120,000
120,000
-
-
-
45,000
105,000 20,000
45,000
85,000
2011
Name
Directors of Hills Holdings Limited
G Twartz
Other key management personnel
L Andrewatha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
M McKinstry
K Middleton
A Muir
T Sullivan
2010
Name
Directors of Hills Holdings Limited
G Twartz
Other key management personnel
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
A Muir
(¡v) Share holdings
The numbers of shares in the Company held during the financial year by each Director of Hills Holdings 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 lnternational 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 (2010.1,188,918) shares owned by Hills Associates & Poplar Pty Ltd
(ointly held) and 13,455,689 (2010: 13,455,689) shares owned by Hills Associates Ltd, of which J H Hill-Ling is a Director.
Other changes during the year for JH Hill-Ling are a consequence of JH Hill-Ling ceasing to be one of a number of
shareholders in a private company that is a trustee of a trust that holds voting shares in the Company. The transfer of the
shares in the private company was part of the finalisation of an estate. There has been no change in the underlying
benefìcial interest in the ownership of the Company's shares. JH Hill-Ling did not have a beneficial interest in those
Company shares.
Other changes during the year for G Hill comprises the removal of the disclosure of his shareholdings in the Company, as
G Hill ceased to be a Director of the Company on24 April 201 1
-50-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
27 Key management personnel disclosures (cont¡nued)
Granted during Received during
Balance at the reporting year the year on the
start ofthe
as
year
Balance at
exercise of Other changes the end of
compensation Rights/options during the year the year
2011
2010
16,512,469
9,036
4,000
6,235
35,665
92,505
19,104
Name
Directors of Hills Holdings Limited
Ordinary shares
J Hill-Ling
G Twartz
F Bennett
I Elliot
R Flynn
G H¡II
P Stancliffe
D Spence
Other key management personnel of the Group
Ordinary shares
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
M McKinstry
K Middleton
A Muir
T Sullivan
1,228
459
2,690
4,047
2,790
4,759
519
519
256
256
519
519
(1,694,798)
(4,6e4)
14,817,671
4,342
4,000
6,235
35,665
(e2,505)
19,000
(2,e46)
(4,303)
1 9,1 04
19,000
1,747
978
3,309
5,278
Granted during Received during
Balance at the reporting year the year on the
start of the
as
Balance at
exercise of Other changes the end of
year compensation options during the year the year
Name
Directors of Hills Holdings Limited
Ordinary shares
J Hill-Ling
G Twartz
F Bennett
I Elliot
R Flynn
G H|II
P Stancliffe
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
(e) Loans to key management personnel
16,343,161
8,486
4,449
31,740
87,953
17,115
411
-
421
1,802
520
2,514
459
459
459
459
459
459
459
-
-
-
-
-
-
-
-
_
_
-
-
169,308 16,512,469
9,036
4,000
6,235
35,665
92,505
19,104
91
4,000
1,786
3,925
4,552
1,989
358
.l
,810
1,786
1,811
1,786
1,228
459
2,690
4,O47
2,790
4,759
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.
-51-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
27 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 signiflcant influence over the financial or operating policies of those entities.
There were no other transactions during the financial year with key management personnel and their related parties.
There were no amounts receivable from or payable to key management personnel at reporting date arising from these
transactions (201 0: $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.
28 Related party transactions
(a) Parent entities
The parent entity within the Group and the ultimate parent entity is Hills Holdings Limited.
(b) Subsidiaries
lnterests in subsidiaries are set out in note 33.
(c) Key management personnel
Disclosures relating to key management personnel are set out in note 27.
(d) Transactions with other related parties
The following transactions occurred with related parties:
Subsrdranþs
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 within the Group, that eliminated with cost of goods sold and services provided amounted to
$27,755,000 (201 o: $24,7 19,000).
Loans and borrowings with Australian wholly owned controlled entities are interest free and payable on demand while loans
to or from non-wholly owned subsidiaries are charged interest at rates no more favourable than current market rates. lnter
entity interest paid and received during the year was $431 ,000 (2010: $2,681 ,000).
Entities within the Group rent properties to or from other entities within the Group at rentals that are market related.
Property rentals within the Group during the year were $2,234,000 (2010: $2,223,000).
Group entities charge an administration fee for services rendered which during the year was $11 ,967,000 (201 0:
$10,451 ,000).
lnter entity dividends paid and received during the year amounted to $13,236,000 (2010: $15,502,000).
Key management persons related pafties
For details of these transactions refer to key management personnel related disclosures in note 27.
Other related pafties
Contributions to superannuation funds on behalf of employees are disclosed in note 5.
-52-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
28 Related party transactions (continued)
(e) Loans to/from related parties
Subsrdranes
Group entity trading transactions and borrowings result in balances arising in respect of current and non-current assets and
liabilities. At 30 June 201 1 the Group current assets and liabilities that were eliminated were $258,907,000 (2010:
$272,047,O00) and the Group non-current assets and liabilities that were eliminated were $426,000 (2010: $441,000).
Other related pafties
Loans (from) / to associated entities amounted to ($993,000) (2010: ($134,000)).
29 Contingent liabilities
(a) Gontingentliabilities
The Group had contingent liabilities at 30 June 2O11 in respect of:
(i) CIaims
Responding to a request from the Environmenlal Protection Authority, the extent of groundwater contamination potentially
originating from the Company's former Edwardstown site is being assessed by the Company. The Company has provided
for the anticipated cost of ongoing assessment. At this time the possibility of or cost of potential claims is unknown and no
provision has been made.
(ii) Guarantees
(a) Letters of credit established in favour of suppliers / creditors amounting to $10,439,000 (2010: $6,831,000).
(b) Bank guarantees in favour of customers and suppliers amounting to $19,302,000 (2010: $18,557,000).
The Group has various commercial legal claims common to businesses of its type which constitute contingent liabilities, no
one of which is material to Hills' fìnancial position.
The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a
future sacrifìce of economic benefìts will be required.
(b) Contingent assets
There are no contingent assets where the probability of future receipts is not considered remote.
30 Gommitments
(a) Capitalcommitments
Capital expenditure contracted for at the end of each reporting period but not recognised as liabilities is as follows:
Consolidated
2011
$'ooo
2010
$'ooo
Property, plant and equipment
Payable:
Within one year
(b) Lease commitments: Group as lessee
12.938
9.129
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 the consumer price index, local capital city consumer
price indices or a fixed percentage.
-53-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
30 Commitments (continued)
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
2011
$'ooo
2010
$'000
25,557
22,408
55,904
6',1,249
37.429
32.096
124.235 110.408
(c) Lease commitments: where a Group company is the lessor
The future minimum lease payments receivable under non cancellable operating leases are as follows:
Consolidated
2011
$'000
2010
$'000
Within one year
Later than one year and not later than five years
3l Financial risk management
143
143
944
157
1,101
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 identifìes, 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
lnvestments
Financial liabilities
Trade and other payables
Borrowings
Derivative fi nancial instruments
7,159
184,042
2
191.202
98,671
98,312
2.576
199.559
-54-
Gonsolidated
2011
$'ooo
2010
$'000
56,915
186,002
800
2
243.719
128,048
107,068
2.944
238,060
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
3l Financial risk management (continued)
(a) Market risk
(¡) Foreign exchange risk
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
The Group Treasury's risk management policy is to hedge approximately three months of anticipated cash flows (mainly
purchases of inventory) in US dollars.
The Group's exposure to foreign currency risk at the reporting date, was as follows:
USD
$'000
30 June 201 I
NZD euro
$'000 '000
30 June 2010
JPY USD NZD euro
'000 $'000 $'000 '000
JPY
'000
Trade receivables
Cash at bank
Bank loans
Trade payables
Fonryard exchange contracts
- buy foreign currency (cash flow
hedges)
Forward exchange contracts - buy
foreign currency (FVTPL)
Group sensitivity
1,052
35
(12,933)
5,699
3
(1,958)
(3,080)
(31,514)
(1,096)
-
-30
933
6,509
tr oãl (66,57;) t¿,sg8l
(1,704)
(1,e04)
raõr
(2,350)
(2e,460)
(875)
Based on the financial instruments held at 30 June 2011,had the Australian dollarweakened / strengthened by 10%
against other currencies with all other variables held constant, the Group's pre-tax profit for the year would have been
$1,130,000 lower / $918,000 higher (2010: $13,000 higher/$5,000 lower), 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 more
sensitive to movements in the Australian dollar / US dollar exchange rates in 201 1 than 2010 because of the increased
amount of US dollar denominated trade creditors.
Other components of equity would have been $2,856,000 higher / $3,077,000 lower (20'10: $3,813,000 higher / $3,125,000
lower) had the Australian dollar weakened / strengthened by 10% against the US dollar, arising from forward foreign
exchange contracts designated as cash flow hedges.
(i¡) Price isk
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 enler 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 2011 and 2010, the Group's borrowings at variable rate
were denominated in Australian Dollars and NZ Dollars.
-55-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
31 Financial risk management (continued)
The Group manages its cash flow interest rate risk by using floating{o-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 fìxed 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 specifìed intervals
(mainly quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to
the agreed notional principal amounts
At the end of the reporting period the interest rate profìle of the Group's variable rate borrowings and interest rate swap
contracts was:
Consolidated
Bank overdrafts and bank loans
Cash and cash equivalents
Other loans
lnterest rate swaps (notional principal amount)
An analysis by maturities is provided in (c) below.
Sensitivity
30 June 201 I
30 June 2010
Weighted
average
interest rate
ot
TO
Balance
$'000
Weighted
average
interest rate
o/o
Balance
$'000
5.3%
4.3%
3.9%
6.2%
(96,512)
7,158
(1,2811
75.000
4.8o/o (106,384)
44%
56,915
- o/o
6.2%
105.000
At 30 June 20111 , rt 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 profìt for the year would have been $946,000 higher / $1,839,000 lower (2010:
$547,000 higher / $1,064,000 lower), mainly as a result of higher / lower interest income from cash and cash equivalents
and higher / lower interest expense from borrowings. Other components of equity would have been $1,733,000 higher /
$909,000 lower (20'l 0: $2,466,000 higher / $2,064,000 lower) mainly as a result of a decrease in the fair value of the cash
flow hedges of borrowings.
(iv) Summaised sensitivity analysis
The following table summarises the sensitivity of the Group's fìnancial assets and fìnancial liabilities to interest rate risk and
foreign exchange risk.
Consolidated
30 June 201 1
Financial assets
Cash and cash equivalents
Trade and other receivables
Total ¡ncrease/(decrease) in financial assets
Financial liabilities
Derivatives - cash flow hedges
Derivatives - fair value through profit or loss
Trade and other payables
Borrowings
Total increase/(decrease) in financial liabilities
Total increase/ (decrease)
lnterest rate risk
-1 00bps
+1 00bps
Foreign exchange risk
+'lOVo
-10o/o
Amount Profit Equity Profit Equity Profit Equity Profit Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
7,158
184.042
1s
19
-
-
(re)
(19)
5-(4)
ø94\
-
(6) (3,077)
(2,474) (93r )
(102)
(98,671)
ß8.312\ ß2n _
(909) 38 1 ,733
(1) 2,856
158
(1 ,723)
(168)
-
-
(129)
1 ,410
927
-
137 _____________:_
(1,858) (909) 965 1.733 (.734\ 2.856 1.412 (3.077\
(1,839) (909) 946 1.733 (1.130) 2.856 918 (3,077)
-56-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
3l Financial risk management (continued)
Consolidated
30 June 2010
Financial assets
Cash and cash equívalents
Trade and other receivables
Derivatives - cash flow hedges
lnterest rate risk
-1 00bps
+1 00bps
Foreign exchange risk
-1Ùo/o
+1oo/o
Amount Profit Equity Profìt Equity Profit Equity Profit Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
56,915
186,002
800
Total increase/(decrease)
in financial assets
569-(569)-729
3 813 1591ì t3 1251
Financial liabilities
Derivatives - cash flow hedges
Derivatives - fair value through profit or loss
Trade and other payables
Borrowings
Total increase/(decrease)
in financial liabilities
Total increase/ (decrease)
(b) Credit risk
(2,e32) (569) (2,064)
52 2,466
(12)
(128,048)
(107.068) (1 ,064)
-
201
(763)
-
-
(164)
624
1,064 ___________:_ (154) ___________:_ 126 _____________:_
(1.633) (2,064) 1.116 2.466 __(Zl_Ù
í.064) (2,0641 547 2.466 13 3.813 (5) (3.125)
----5€0-
-
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and
financial institutions, favourable derivative financial instruments 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.
ln 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 fìnancial diffìculties.
ln 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. Depending upon the Group's assessment of industry or company risk, the Group requires personal
guarantees from customer company directors and charging clauses over real property.
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 specifìc 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 identifÌed. The collective loss allowance is determined based on historical data of
payment statistics for similar fìnancial assets.
The ageing 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 fìnancial 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
profilesoffinancial assetsandliabilities. Duetothedynamicanddiversifiednatureoftheunderlyingbusinesses,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.
-57-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
3l Financial risk management (continued)
The Group has multi option financing facilities totalling $225,000,000 (2010: $225,000,000) of which $65,000,000 has been
approved until 30 June 2013, a further $80,000,000 has been approved until 30 July 2013 and the remainder of the facility
has been approved until 30 November 2013. For more information please refer to note 20 (bank loans and standby letters
of credit).
Matuities of financial liabilities
The tables below analyse the Group's financial liabilities including derivative fìnancial 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.
Gontractual maturities of
financial liabilities
Less than
6 months
Consolidated - at 30 June 2011
$'000
6 - 12 Between I Between 2 Over 5 Total Carrying
years contract- Amount
months and2
ual cash (assets)/
flows liabilities
$'000 $'000 $'000 $'000 $'000 $'ooo
yeañs years
and 5
Non-derivatives
Non-interest bearing
Variable rate
Fixed rate
Total non-derivatives
Derivatives
Net settled (interest rate swaps and
forward exchange contracts)
Consolidated - at 30 June 2010
Non-derivatives
Non-interest bearing
Variable rate
Fixed rate
Total non-derivatives
Derivatives
Net settled (interest rate swaps and
forward exchange contracts)
(d) Fair value measurements
Fair value measurement hierarchy
98,671
8,935 2,256
212
108.226 2.468
620
425
48,781 45,188
177
49,206 45,365
519 99,190 99,190
- 105,160 96,512
1.434
-
1,281
519 205.784 196,983
781
343
624
463
2.211
2.576
128,048
3,905 2,491
64p8; 46,02; uu1
128,732 128,732
117,405 106,384
13'1,953 2.491 64.982 46.027
684 246.137 235.116
(43\
595
851
1,300
ø7\
2,556
2.144
AASB 7 Financial lnstruments: Drsc/osures requires disclosure of fair value measurements by level of the following fair
value measurement hierarchy:
(a)
(b)
(c)
Level I - 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 financial liabilities measured and recognised at fair value at
30 June 2011 and 30 June 2010.
-58-
3l Financial risk management (continued)
At 30 June 201 I
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Total liabilities
At 30 June 2010
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Total liabilities
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
Level I
$'000
Level 2
$'000
Level 3
$'ooo
Total
$'000
2.576
2.576
2.576
2.576
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'ooo
800
800
2.944
2.944
The fair value of financial instruments that are not traded in an active market (for example derivatives used for hedging) is
determined using valuation techniques. These valuation techniques maximise the use of observable market data where it
is available and rely as little as possible on entity specifìc estimates. All signifìcant inputs required to fair value derivatives
used for hedging are observable, and hence the instruments are included in level 2.
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.
32 Business combinat¡on
Current period
There were no acquisitions of subsidiaries or business operations in the current reporting period.
Prior 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:
-59-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2011
(continued)
32 Business combination (continued)
Purchase consideration
Cash paid
Total purchase consideration
Fair value of net identifiable assets acquired (refer to (b) below)
Goodwill
(b) Assets and liabilities acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
lnventories
Property, plant and equipment
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
Outflow of cash - investing activities
Ac q u i s iti o n -relafed cosfs
3.558
Consolidated
2011
$'000
2010
$'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.
-60-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
33 Subsidiaries
(a) lnvestments in subsidiaries
The consolidated flnancial 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
Country of
incorporation Class of shares
Equity holding
20'|'1
of
to
2010
%
Hills Finance Pty Ltd
Hills lndustries NZ Limited
Korvest Limited (i) (note (b))
Hills Hoists Pty Ltd
Bailey Aluminium Products Pty Ltd
Australia
New Zealand
Australia
Australia
Australia
Zen 99 Pty Ltd
Hills lndustries Pty Ltd (formerly Triton Manufacturing
& Design Co Pty Ltd)
Orrcon Holdings Pty Ltd
Fielders Mobile Mill Pty Ltd
Orrcon Operations Pty Ltd
Orrcon Tubing Pty Ltd
Australia
Registered
branch in
ACN 089 622 622 Pty Ltd (formerly Triton Workshop United
Systems (UK) Pty Ltd)
Kingdom
Woodroffe lndustries Pty Ltd
Australia
Fielders Australia Pty Ltd
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Team Poly Pty Ltd
KDB Engineering Pty Ltd
Kerry Equipment (Aust) Pty Ltd
Step Electronics 2005 Pty Ltd (i)
Greenwattle lnvestments Pty Ltd
Access Scaffolding (Aust) Pty Ltd
Greenwattle Equipment Pty Ltd
ACN 095 224 O34 Pty Ltd (formerly Alquip (Holdings)
Pty Ltd)
ACN 009 696 084 Pty Ltd (formerly Alquip Pty Ltd)
Access Television Services Pty Ltd
Techlife Solutions Pty Ltd (shelved)
Audio Telex Communications Pty Ltd
Crestron Control Solutions Pty Ltd
Pathfìnder (Edwardstown) Pte Ltd (liquidated)
Hills Nominees Pty Ltd
DAS Security Wholesalers Pty Ltd
Pacifìc Communications (PACOM) 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
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
100
100
49
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
50
51
100
50
100
100
46
100
100
100
100
100
100
100
100
100
100
r00
100
't00
100
100
100
100
100
50
100
100
'100
100
100
100
100
100
100
100
100
100
50
51
100
50
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.
-61-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
33 Subsidiar¡es (continued)
(b) Transactions with non-controlling interests
On 23 August 2010, the Group increased its shareholding in Korvest Ltd from 45.9Yo to 48.8% through an on market
acquisition of 250,000 shares at $4.56. The total consideration paid was $1.143 million.
ln the previous flnancial year, on 16 November 2009, the Group increased its shareholding in Fielders Australia Pty Ltd
from 60% lo 74.9% through a rights issue and conversion of debt to equity. The consideration paid was $19.955 million.
On 6 April 2010 the Group acquired the remaining25.1% of Fielders Australia Pty Ltd by way of a $10.0 million selective
share buy back.
2011
$'ooo
2010
$'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
811
nJ'ßl
(332)
11,551
(10,000)
1.551
34 Parent ent¡ty financial information
(a) Summary financial information
The individual financial statements for the Company show the following aggregate amounts:
Company
2011
$'000
2010
$'000
340,124 359,661
272.425 260,983
612.549 620.644
137,846
98.641
236.487
142,551
1 13,480
256,031
306,790
306,595
45,034
(1,303)
I,855
620
23.066
37,517
(265)
1,855
592
18,319
376.062
364,613
32.020
38.497
32.711
32,216
Statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Shareholders' equity
Contributed equity
Reserves
Asset revaluation reserve
Hedging reserve - cash flow hedges
Asset realisation reserve
Equity compensation reserve
Retained earnings
Total shareholder's equity
Profit for the year
Total com prehensive income
-62-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
34 Parent ent¡ty financial information (continued)
(b) Guarantees entered into by the Company
Bank guarantees given by the Company in favour of customers and suppliers amounted to $8,723,000 (2010: 7,486,000).
Cross guarantees are given by the Company and its wholly owned subsidiaries as described in note 35. 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 $260,277 ,000 (201 0: $289,252,000). No material deficiency in net tangible assets
exists in these companies at reporting date with net tangible assets amounting to $296,171,000 (2010: $329,736,000).
(c) Contingent liabilities of the Company
The parent entity had a contingent liability in respect of claims, as disclosed in note 29. For information about guarantees
given by the parent entity, please see above.
(d) Contractual commitments for the acquisition of property, plant or equipment
As at 30 June 2011, the Company had contractual commitments for the acquisition of property, plant and equipment
totalling $8,479,000 (2010: $1 ,530,000). These commitments are not recognised as liabilities as the relevant assets have
not yet been received.
35 Deed of cross guarantee
Pursuant to ASIC Class Order 9811418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries listed below
are relieved from the Coryorations Act 2001 requirements for preparation, audit and lodgement of fìnancial reports, and
Director's 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 lhe Coryorations Act 2001 . lÍ 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 lndustries Pty Ltd
Hills lndustries Pty Ltd (Formerly Triton Manufacturing & Design Co Pty Ltd)
Orrcon Operations Pty Ltd
Orrcon Holdings Pty Ltd
Greenwattle lnvestments 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 lnvestments 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.
-63-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
35 Deed of cross guarantee (continued)
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 lnvestments 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 Holdings Limited is the Holding Company and Pacom Security Pty Ltd is the Trustee under the Deed.
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 Holdings 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 201 I and a consolidated statement of flnancial
position as at 30 June 2011 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, consolidated statement of comprehensive income and summary of
movements in consolidated retained earnings
2011
$'ooo
2010
$'000
993,991 1,062,568
1,217
(3,566)
fl.074.0171 (1,003,351)
2,873
(3,964)
(81,1171
56,868
7.543
fl3.5741
(5.726\
41.142
(73,574]-
41,142
12,250
('l,4841
(3.230ì
7,536
(707)
212
(495)
(66.038)
40.647
101,403
(73,574].
(s33)
64,954
40,044
Co n so I i dated i ncom e state m ent
Revenue from continuing operations
Other income
Finance costs
Other expenses
(Loss)/profït before income tax
lncome tax benefit / (expense)
(Loss)/profit for the year
Consolidated statement of comprehensive income
(Loss)/profit for the year
Other comprehensive income
Gain on revaluation of land and buildings
Changes in the fair value of cash flow hedges
lncome tax relating to components of other comprehensive income
Other comprehensive income/(loss) for the year, net of tax
Total comprehensive (loss)/income for the year
Summary of movements in consolidated retained earnings
Retained earnings at the beginning of the financial year
(Loss)/profìt for the year
Transfers to and from reserves
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
-64-
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
35 Deed of cross guarantee (continued)
(b) Gonsolidated statement of financial position
2011
$'ooo
2010
$'000
2,669
210,750
154,093
51,476
191 ,943
165,982
800
367.512 410.201
12,453
174,009
33,322
32.503
252.287
11,140
195,515
25,443
99.561
331.659
619,799
741 ,860
118,040
13,467
104
29,023
125,674
8,1 91
9,917
31,151
91,458
5,711
2.056
99.225
105,663
5,724
2.682
114,069
260.277 289.252
359.522 452,608
306,790 306,595
52,709
44,610
101 ,403
359.522 452,608
Current assets
Cash and cash equivalents
Trade and other receivables
lnventories
Derivative financial instruments
Total current assets
Non-current assets
lnvestments
Property, plant and equipment
Deferred tax assets
lntangible assets
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 fi nancial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Totalequity
-65-
36 Reconciliation of (loss)/profit after income tax to net cash inflow from operating activities
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 1
(continued)
(Loss)/profit for the year
Depreciation and amortisation
lmpairment 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 profìt or loss on disposal of
subsidiary
lmpairment of trade receivables
lmpairment of inventories
lmpairment of property, plant and equipment
Rent received
Amounts set aside to provisrons
Change in operating assets and liabilities, net of effects from purchase of controlled
entities and business operations:
(lncrease)/decrease in trade and other receivables
Decrease in inventories
(lncrease)/decrease in deferred tax assets
(Decrease)/increase in trade and other creditors
(Decrease)/increase in provision for income taxes payable
(Decrease) in other provrsrons
Net cash inflow from operating activities
37 Remunerat¡on of auditors
Consolidated
2011
$'000
(73,116)
23,079
66,182
478
(106)
(l,054)
(27l-
1,635
3,783
37,2',10
(860)
13,726
2010
$'000
43,095
23,913
395
467
(17e)
(8,471)
49
3,336
3,836
1,680
(864)
'16,833
(1 03)
9,508
(10,884)
(29,648)
(10,883)
(15.940)
12.980
8,059
13,670
2,289
7,053
2,944
(16.557)
101 ,548
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 flnancial 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 non-audit services
-bb-
Consolidated
2011
$
2010
$
488,500 450,000
31.768
31,905
520.268 481,905
113,838
126,354
26.824
140.662
10.542
136,896
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 201 I
(continued)
38 Events occurr¡ng after the report¡ng per¡od
On 23 August 2011 the Company announced an on-market buy-back which will give Hills the option to acquire up to 10% of
its issued ordinary shares. The buy-back is for ongoing capital management purposes and will take place over the twelve
months from the date of the announcement.
Apart from the matter noted above, no other matter or circumstance has occurred subsequent to year end that has
significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of
affairs of the Group in subsequent financial years.
-67-
Hills Holdings Limited
Directors' report
30 June 201 1
Directors' report
The Directors present their report on the consolidated entity (referred to hereafter as the Group or Hills) consisting of Hills
Holdings Limited (the Company) and the entities it controlled at the end of, or during, the year ended 30 June 201 1, 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
lan Elliot
Roger Baden Flynn
Peter William Stancliffe
Fiona Rosalyn Vivienne Bennett
David Moray Spence was appointed as a Director on 1 September 2010 and continues in office at the date of this report.
Geoffrey Guild Hill was a Director from the beginning of the fìnancial year until his retirement on 24 April 2011.
Review of operations
Overview
The Hills Group of companies achieved an underlying profit after tax before unusual/signifìcant items from ordinary
activities attributable to shareholders of $25.287 million, which was a 37.1o/o decline compared to the previous year's
results. After recording a number of unusual impairment losses, comprising the impairment of goodwill and certain assets
of Orrcon Steel and Team Poly, the loss after tax attributable to members was $74.955 million. A reconciliation of
underlying profit to the reported loss after tax attributable to members is provided in note 25 to the financial statements.
The year in review
Despite generally satisfactory performances from many of the Hills business units, in particular those in the Lifestyle &
Sustainability and Electronics & Communications divisions, very poor trading conditions in the building, construction and
steel markets, and to a lesser extent, the DGTEC consumer electronics and Team Poly businesses, saw the Company
produce a lower profit from ordinary activities before unusual / significant items this year. These unusual / signifìcant items
are discussed later in this report. As a result of this reduced profìt the full year dividend of 10.0 cents per share fully
franked was lower than the prior year by 2.5 cents per share. The Directors resolved to increase the percentage of the
earnings of the Company to be paid as dividends to the top end of the targeted range, which is between 50% and 100o/o of
profits. Whilst debt levels were increased during the year, the balance sheet remains conservatively geared with debt to
equity at balance date of 22.7%.
There were a number of highlights during the period, including:
¡
¡
the introduction of a number of new products during the year in Hills' Electronics & Communications Division;
the launch of a number of new products during the year in the traditional home hardware businesses, including a
new range of clotheslines and ladders;
increased profitability from Hills Electronic Security;
the successful completion by OptiComm of projects in the fibre market that were undertaken with the National
Broadband Network in Tasmania, the new Westfield property in Sydney and a record number of new greenfields
project signings;
gaining further contracts to provide digital television services under a Federal Government program in South
Australia, Victoria and Queensland;
the launch of Cygnus Satellite, a joint venture business which provides bandwidth to remote locations, including the
mining sector; and
an increase in Hills SVL's share of the sound vision and lighting markets.
o
¡
r
¡
.
Group strategy
The Company's 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 diversiflcation in order to mitigate the impacts of short term changes to individual
markets and economies.
-68-
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
Review of operations (continued)
Unusual items
As a result of the well publicised diffìculties in the Australian steel industry and in the market for rain water tanks, the
Directors have booked impairment write downs of $100.242 million after tax.
Orrcon Steel
As a result of losses incurred by Orrcon during the year and the increasing market share held by imports, the Directors
reviewed the carrying value of the Orrcon business in line with accounting standards and announced a non-cash
impairment of goodwill after tax of $49.590 million.
ln addition, as a result of a deteriorating market for the pipeline industry, it was decided to close the large pipe and tube
manufacturing business of Orrcon Steel at Unanderra. This closure was announced in May 2011 and resulted in
non-operating costs of $30.0 million after tax, including after tax cash costs of $3.5 million.
Team Poly
Trading conditions in the water tank market continued to be depressed during the period as a result of above average
rainfall across much of Australia and the continued lack of Government subsidies.
There have been a number of insolvencies of water tank manufacturers and although management have continued to
implement a number of profit improvement initiatives, which are expected to deliver profits in the future, the Directors
reviewed the carrying value of the Team Poly business and announced a non-cash impairment of goodwill and fixed assets
of $17.816 million after tax.
Vision and values
Hills cares about its people, its customers and the environment;
Hills is a diversified company operating mainly in Australia and New Zealand. The Company's aim is to be recognised as a
superior investment by delivering a portfolio of profìtable and growing businesses. The Company's values can be
summarised as follows:
o
o
.
.
lnnovation is Hills past, present and future - the lifeblood of the company;
Hills invests the best of its time and talent to deliver on its promises.
Hills is in many businesses but comes together as one team;
Funding
Hills net debt at 30 June 2011 was $91.2 million. Gearing, measured as debt to equity, stood at 22.7o/o al the end of the
period. Hills bank facilities have been extended such that the earliest date for review of any of the debt facilities is June
2013. Hills continues to comfortably meet all of its banking covenants.
Dividends
The Directors have announced an annual dividend of 'l 0.0 cents per share. This dividend is fully franked and comprised an
interim dividend of 5.5 cents per share paid in March 2011 and a final dividend of 4.5 cents per share to be paid in
September 201 1 . This represents a payout ratio of slightly under 100% for the year.
Given Hills strong balance sheet position, the Dividend Reinvestment Plans have remained suspended for both the interim
and fìnal dividends.
On market share buy-back
Given Hills' low levels of debt and the current share price at below net asset backing, the Board resolved to undertake an
on market buy-back of its issued shares. The announcement of the buy back gives Hills the option to acquire up to 10% of
the issued Hills shares and will be earnings per share accretive and will not affect Hills' existing dividend policy.
-69-
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
Review of operations (continued)
Likely developments
While future trading conditions are forecast to remain difficult in many of the markets in which Hills operates in Australia
and New Zealand, Hills'strategy remains focused on growth sectors and investing in the Electronics & Communications
Divison and those profitable businesses in the Lifestyle & Sustainability Division. The Group is currently evaluating a
number of potential acquisitions, focussing on high growth markets.
Hills has implemented a number of overhead reduction initiatives to reflect the current demand for its products and services
to improve performance.
The outlook for the commercial building and the steel industry remains subdued and increased competition from imports
continues across those sectors.
ln view of the above, and the current market volatility, the Company is unable at this time to provide specific profìt guidance
for the year ending 30 June 2012.
The recent appointments of Mike McKinstry as Chief Operating Officer and Grant Logan as Chief Financial Officer have
strengthened the Company's senior management team, and will enable the Company to apply the resources and focus to
the implementation of its strategic plans and restructuring initiatives.
El ectron ics & Com m u n ication s
The Electronics & Communications division comprises Hills Electronic Security, Hills Antenna & TV Systems, Hills
Signalmaster, Hills Sound, Vision and Lighting, Access Television Services, Techlife, Step Electronics, UHS, OptiComm
and Cygnus Satellite. The Division continues to produce the highest profit margins and return on assets employed within
any of the Hills divisions. Revenue of $317.4 million was 9.2% below the previous year while the EBIT of $28.0 million was
13.8% below 2010.
Hills Electronic Security
.
Hills Electronic Security comprises the market leading business operations of Pacific Communications, Direct
Alarm Supplies and Ultra High Speed. Demand for security products remained at acceptable levels, although with
the strength of the Australian dollar, selling prices continued to decrease across the period. This business unit
markets an extensive range of electronic security products, ranging from simple domestic alarms to complex
integrated surveillance and access control systems.
o
Although the level of large project work remained subdued, the business continued to release a range of new
products made specifically for the Australian and New Zealand markets and has delivered an improved result for
the year despite a lower profit from UHS as a result of poor export sales to the UK.
Hills Antenna & TV Systems
.
Hills Antenna & TV Systems 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 DGTEC consumer electronic
equipment.
.
.
Demand from the subscription television and free-to-air television markets was good during the period.
Furthermore, the business continues to look for opportunities as a result of the Australian Federal Government's
decision to progressively shut down the analogue television signal.
ln the previous year, the DGTEC range of consumer electronics experienced good growth and contributed to
profit. The appreciation in the Australian dollar, price deflation and fierce competition adversely affected the
DGTEC business during the year. As a result, this business produced a loss of $3.4 million (before tax). The
business and its product range have been restructured to ensure that these losses are not repeated.
Access Television Services
¡
Access Television Services (ATS) in Australia and Signalmaster in New Zealand provide subscription television
installation services to AUSTAR and SkyTV respectively. Demand from subscription television providers, in
particular AUSTAR, was strong in the second half. The Techlife Solutions business has been successful in
winning further contracts to provide installation services to non-subscription television providers.
.
Of particular note was the successful conclusion to the Mildura, regional South Australia and regional Victoria
Federal Government funded project to install digital television solutions for certain qualifying customers. ln
addition, Techlife Solutions has won installation contracts in rolling out fibre to the home networks, including Stage
1 of the National Broadband Network in Tasmania.
-70-
Hills Holdings Limited
Directors'report
30 June 201 I
(continued)
Review of operations (continued)
Hills SVL
.
Hills Sound Vision and Lighting (SVL) is the leading provider of professional audio, lighting and control systems to
a wide range of customers in Australia and New Zealand and to a number of export markets. SVL's results from
its Australian and New Zealand operations during the period were pleasing on the back of a range of new products
launched under the Crestron and Australian Monitor brands. Unfortunately, the key export markets of the USA
and Europe were weak due to the strength of the Australian dollar and very weak demand as a result of poor
economic conditions in those markets. We continue to look for acquisitions and complementary products to add to
our range.
OptiComm/Cygnus
o
Hills' strategy to expand its exposure to communications markets continued with the establishment of Cygnus
Satellite, a new 50% joint venture to offer satellite bandwidth to rural and remote markets in Australia. This
complements Hills' other 50% owned joint venture, OptiComm, which provides fibre to the node and fibre to the
home in new housing developments. OptiComm's open platform offer is generally the preferred solution for
customers and developers. The Company is forecasting improving profìtability as the number of homes connected
continues to increase.
OptiComm completed Stage 1 of the National Broadband Network's rollout in Tasmania and continues to operate
the network operation centre for NBN Tasmania in Hobart. The business was pleased to sign a number of new
greenfìelds estates to the OptiComm solution as a result of delays in the NBN offer. Also, during the period,
OptiComm completed the fibre network in the new Westfield shopping centre in Pitt Street, Sydney. This was a
fìrst for OptiComm and for the Australian retail shopping centre market.
ln both cases, all costs associated with the start-up of operations have been expensed. As a result, Cygnus
generated an EBIT loss of $0.8 million (before tax) in the period under review. These losses are not forecast to
continue.
Lifestyle & Sustai nabi lity
The Lifestyle & Sustainability division comprises our branded Home and Hardware Products operations in Australia and
New Zealand, the Hills Healthcare rehabilitation and mobility business, LW Gemmell plumbing supplies, Hills Solar and
Team Poly. During the year revenue declined by 8.8% to $160.8 million and the division produced EBIT of $9.7 million,
which was 5.3% below the prior year.
Home & Hardware Products
.
The results of Hills' traditional Hills Branded Products business continued the improvement of the previous year.
The business has focussed on a smaller range of products and looks to achieve operational excellence in its
supply chain and customer service. The rise in the Australian dollar has helped margins and the Directors were
pleased with the solid contribution from the LW Gemmell plumbing distribution business. Since year end, the
business has launched a new range of clotheslines with additional features designed to increase market share. ln
addition, the new range of 150k9 Bailey Professional ladders has been launched.
Hills Healthcare
o
Hills Healthcare is the leading manufacturer of rehabilitation, mobility and hospital equipment in Australia. The
business achieved a small improvement in profit during the period as a result of some additional nursing home
construction activity, compared to the prior period, but also as a result of the higher Australian dollar. The
Directors believe this business is well placed to grow over the next few years.
Team Poly/Hills Eco
¡
Team Poly is one of Australia's leading manufacturers of rotationally moulded polyethylene water tanks. As a
result of significant and widespread rainfall, the level of activity in the water tank industry remains at historically
very low levels. During the period, other market players experienced financial diffìculties including insolvency.
Revenue was reduced this year compared to the prior comparable period. A number of profìt improvement
initiatives within Team Poly, focussing on improvements in supply chain and the manufacturing process have
continued to be undertaken. The other Hills Eco business, Hills Solar, suffered from changes to government
subsidies and delays in its products launch programme.
These businesses delivered an operating loss of around $2.0 million (before tax) for the year. Profìt improvement
initiatives are expected to deliver better results in a difficult market.
Building & lndustrial
TheBuildingandlndustrial DivisioncomprisesOrrconSteel,FieldersandKorvest. Revenuesdeclinedby2%to$616.8
million while EBIT declined by 88o/o to $3.2 million.
-71-
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
Review of operations (continued)
Orrcon Steel
.
Orrcon Steel is a leading manufacturer and distributor of steel tube and pipe in Australia, specialising in the
manufacture of precision tube, structural tube, rectangular hollow sections and water, oil and gas pipelines. After
delivering an improved result in the prior year, demand for Orrcon Steel's products fell signifìcantly below
expectations.
The strengthening of the Australian dollar has led to increased competition for steel and tube products in a weak
market and this, combined with very low priced imported product, has contributed to a greater market share for
imported tube. ln addition, inventory reductions by Orrcon Steel customers and a decline in demand for steel tube
saw lower sales for Orrcon Steel.
ln particular, a number of pipeline projects were deferred or sourced with imported product, which has adversely
affected the results from Orrcon Steel's Pipeline and lnfrastructure operation. ln response to deteriorating market
conditions, Hills undertook a restructure and cost reduction program in the Structural and Precision tube
businesses, and after an unsuccessful process to sell the large pipe business, the Board announced in May the
closure of the Unanderra plant. lt is expected that all customer requirements will be met to enable a final closure
in September 201 1. The losses incurred by this operation, of around $7.0 million (before tax) and which are
included in profit from operations, will not recur this year.
While profit improvement initiatives have been initiated as a result of these lower levels of activity, volumes are not
forecast to improve in the near term. This is consistent with information from other industry participants The
Orrcon Steel business will focus more on the domestic structural and precision markets, and will continue
contracting for large major projects with imported product in the coming year.
Fielders
.
Korvest
r
The Fielders rollforming business is a market leader in new and innovative products in a market that is not
generally known for innovation.
While Fielders sales to domestic customers remained strong, the level of commercial building activity remained
low, affecting the overall result for Fielders. Despite this, Fielders' national market share grew over the year, but in
a contracting market.
During the period, the New South Wales operation relocated to new premises, and the business is seeing
improved results from its New South Wales and Queensland operations.
Since balance date, activity in both the commercial and domestic construction markets has further deteriorated.
As a result, a number of cost reduction initiatives have been implemented in Fielders.
Hills holds 48 8% of Korvest which comprises the market leading EzyStrut cable and pipe support business,
Korvest Galvanisers and lndax industrial access equipment. The Korvest business recorded increased revenue
but reduced profìt during the period. Korvest is a separately listed public company and further details of its results
are obtainable from Korvest's website.
lnformation on Directors
Jennifer Helen Hill-Ling LLB (Adel) FAICD. Chairman Non-lndependent Non-Executive Director. Age 49.
Experience and expeftise
Appointed Director in August 1985. Appointed Deputy Chairman in June 2004. Appointed Chairman 28 October 2005.
Jennifer Hill-Ling has extensive experience in corporate and commercial law, specialising in corporate and business
structuring, mergers and acquisitions, joint ventures and related commercial transactions. She practiced law for some 25
years and was a senior partner in two Sydney law firms in that time. ln addition to any listed company directorships she is
also currently a director of Hills Associates Limited and Hills lndustries NZ Limited and was formerly a director of Tower
Trust Limited. She is a fellow of the Australian lnstitute of Company Directors.
Other current listed company directorshíps
None
Former listed company directorships in lasú 3 years
None
S p eci a I responsiöiliÍies
Chairman of the Board, Chairman of the Remuneration Committee, Member of the Nomination Committee.
lnteresús in shares and options at the date of this report
15,602,477 ordinary shares in Hills Holdings Limited (including 1 ,188,918 shares owned by Hills Associates Limited and
Poplar Pty Ltd (ointly held) and 14,24O,495 shares owned by Hills Associates Limited of which JH Hill-Ling is a Director).
Nil options over ordinary shares in Hills Holdings Limited.
-72-
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
lnformation on Directors (continued)
Graham Lloyd TwarÞ BA (Adel) DipAcc (Flinders). Group Managing Director. Age 54.
Experi en ce and expertise
Appointed Director in July 1993. Appointed as Group Managing Director 1 July 2008.
Graham Twa¡12 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 25 years experience in his fìeld.
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.
Spec ial responsibi I ities
Managing Director.
lnterests in shares and options at the date of this report
207 ,342 ordinary shares in Hills Holdings Limited and 29,115 ordinary shares in Korvest Ltd.
118,926 Performance Rights and 100,000 options over ordinary shares in Hills Holdings Limited.
lan Elliot FAICD. lndependent Non-Executive Director. Age 57.
Experience and ex pertise
Appointed Director in August 2003.
lan Elliot has spent 38 years in marketing. His speciality is brand building, with extensive involvement in a number of icon
brands. Mr Elliot is a fellow of the Australian lnstitute of Company Directors and graduate of the Harvard Business School
Advanced Management Program. ln 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, Promentum Limited and 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 Íast 3 years
None.
Specral responsibi lities
Chairman of the Nomination Committee, Member of the Remuneration Committee.
/nferests in shares and options at the date of this repoñ
6,235 ordinary shares in Hills Holdings Limited.
Nil options over ordinary shares in Hills Holdings Limited.
Roger Baden Flynn BEng (Hons) MBA FIE (Aust) FAICD. lndependent Non-Executive Director. Age 61.
Experience and experti se
Appointed Director in November 1999 (Lead independent Director).
Roger Flynn has extensive experience in manufacturing and distribution industries in Australia, Asia 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. Mr Flynn is a fellow of the Australian lnstitute of Company Directors.
Other current listed company directorships
Executive Chairman of Coventry Group Limited (since 2001).
Former listed company directorships rn lasú 3 years
None.
Spec ial responsibi lities
Lead independent non-executive Director.
Interests in shares and options at the date of this repoft
35,665 ordinary shares in Hills Holdings Limited.
Nil options over ordinary shares in Hills Holdings Limited.
-73-
Hills Holdings Limited
Directors' report
30 June 201 1
(continued)
lnformation on Directors (continued)
Peter William Stancliffe BE (Civil) FAICD. lndependent Non-Executive Director. Age 63.
Experience and expeñise
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. ln 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 rn lasf 3 years
Former Chairman of View Resources Limited (from 2006 to 2009).
Special responsi bi lities
Member of the Audit and Compliance Committee, Member of the Nomination Committee.
/nferesfs in shares and options at the date of this report
19,104 ordinary shares in Hills Holdings Limited and 1,000 ordinary shares in Korvest Ltd.
Nil options over ordinary shares in Hills Holdings Limited.
Fiona Rosalyn Vivienne Bennett BA (Hons) FCA FAICD FAIM. /ndependent Non-Executive Director. Age 55.
Experience and expeñise
Appointed Director on 3'1 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 rn last 3 years
None
Special responsibi lities
Chairman of the Audit and Compliance Committee.
lnferesfs in shares and options at the date of this repoft
4,000 ordinary shares in Hills Holdings Limited.
Nil options over ordinary shares in Hills Holdings Limited.
David Moray Spence B Com CA (SA). Independent Non-Executive Director. Age 59.
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 lSP, OzEmail.
Mr Spence was the chief executive officer of Unwired Australia until February 2010. He has been involved in a number of
listed and non-listed boards including WebCentral, uuNet, Accessl, Emitch, Commander Communications, Chaosmusic,
ubowireless, Vividwireless and is a past chairman of the lnternet lndustry 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
None.
-74-
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
lnformation on Directors (continued)
Specraf responsiöilífies
Member of the Audit and Compliance Committee, Member of the Remuneration Committee.
lnúeresús in shares and options at the date of this report
19,000 ordinary shares in Hills Holdings Limited.
Nil options over ordinary shares in Hills Holdings Limited.
Geoffrey Guild Hill FCPA FAICD F.S.l BEc (Syd) MBA (NSW). Independent Non-Executive Director. Age 65.
Experience and expeftise
Appointed Director in February 1999, retired as Director on 24 April 2011.
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 fìeld
since 1979. ln addition to his listed company directorships he is the Chairman of lnternational Pacifìc Securities (Group)
Limited and Asian Property lnvestments Limited and was formerly the Chairman of Fielders Australia Pty Ltd. He was
formerly a Director of Biron Apparel Limited and Pacific Strategic lnvestments Limited.
Other current listed company directorships
Chairman of Metals Finance Limited (Director since 2007) and Heritage Gold NZ Limited (Director since '1999).
Former listed company directorships in last 3 years
Former Director of Brickworks lnvestment Company Limited (from 2005 to 2009), Huntley lnvestment Company Limited
(from 1998 to 2009), Centrex Metals Limited (from 2008 to December 20'10) and Outback Metals Limited (until November
201 0).
Specraf responsi bilities
None
lnúeresfs rn sf¡ares and options at the date of this report
None.
Company secretary
David Lethbridge, LLB (Otago, NZ), Grad Dip ACG, FCIS, GAICD was appointed to the position of Company Secretary in
January 20'l 0. 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.
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 2011, and the numbers of meetings attended by each Director were:
Meetings of committees
Full meetings Audit &
of Directors Gompliance Nomination Remuneration
A
B
Jennifer Helen Hill-Ling
Graham Lloyd Twartz *
lan Elliot
Roger Baden Flynn
Geoffrey Guild Hill ^
Peter William Stancliffe
Fiona Rosalyn Vivienne Bennett
David Moray Spence
'18
18
16
16
13
18
18
12
18
18
18
18
14
18
18
15
3
1
7
4
4
A = Number of meetings attended
B = Number of meetings held during the time the Director held offìce or was a member of the committee during the year
*
= An executive Director
^ = Retired 24 April2011
-75-
Hills Holdings Limited
Directors' report
30 June 201 1
(continued)
Remuneration report - audited
The Directors of Hills Holdings Limited present this Remuneration report for the Group for the year ended 30 June 201 1.
This Remuneration repoft forms part of the Directors' report and has been prepared in accordance with section 3004 of the
Corporations Act 2001(Cth) (Corporations Act) for the Group. The information provided in this Remuneration report has
been audited as required by section 308(3C) of the Corporations Act 2001. Below is a summary of Hills Holdings Limited's
(Hills or the Group) executive and non executive Director remuneration arrangements in place for the year ended 30 June
2011.
Directors and executives drsc/osed rn this repoft
The Remuneration report sets out the remuneration arrangements that apply to the non executive Directors, the Managing
Director and other senior executives who are the key management personnel of the Group for the purposes of the
Corporations Act and Accounting Standards. They include the fìve highest remunerated executives of the Group and the
Company during the reporting period.
The key management personnel of the Group includes the Directors as per pages 72 to 75 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:
Name
Position
Non-executive and executive Directors - see pages 72 to 75 above.
Other key management personnel
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
M McKinstry
K Middleton
A Muir
T Sullivan
Managing Director - Orrcon Operations Pty Ltd
CEO - Electronics and Communications Division
General Manager - Business Development (until 31 October
2010)
Group General Manager - Lifestyle and Sustainability Division
(until 4 March 201 1)
Managing Director - Korvest Ltd
Company Secretary
Chief Operating Offìcer (from 6 June 201 1)
CEO - Fielders Australia Pty Ltd
Chief Financial Offìcer
Group General Manager Strategy (from 11 October 2010)
In addition, the following persons are among the 5 highest remunerated Group and / or Company executives:
G Daher
R Meacham
A Oliver
General Manager - Direct Alarm Supplies
General Manager - Pacific Communications
General Manaqer - Antenna and TV Svstems
Changes since the end of the reporting period
Since the end of the reporting period Mr A Muir resigned from the position of Chief Financial Officer on 7 July 2011 and Mr
G Logan was appointed Chief Financial Officer for the Group on 7 July 2011 with effect from 8 August 201'1.
Payments to persons before taking office
There were no payments to persons before taking office.
Principles used to determine the nature and amount of remuneration
(a) Role of the Remuneration Commiltee
lnformation on the composition and functions of the Remuneration Committee ("the Committee") is 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. h i llsholdi n gs. com. au.
The Committee assists and makes recommendations to the Board on remuneration policies, strategies and practices for
the Board, its Committees, the Managing Director, the direct reports to the Managing Director, senior executives and other
management as appropriate.
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.
-76-
Remuneration report - audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
the remuneration framework for the Non-Executive Directors and Board Committees;
The Committee's responsibilities include developing, reviewing and making recommendations to the Board on:
¡
.
.
remuneration incentive schemes for the Managing Director and senior executives.
the remuneration policy for the Managing Director and senior executives; and
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 rem.rneration policy
Hills' remuneration strategy is designed to attract, motivate and retain senior executives and Hills' employees generally.
Given the diversified nature of the Group, the Board has developed a remuneration framework which reflects this diversity
and is structured to reward executives for performance both at the Group level and at the operating divisional level.
¡
The key principles on which the Hills' remuneration strategy is based are as follows:
(i) Market competitive and fair:
.
.
Executive remuneration is reviewed annually;
Hills' aim, in attracting and retaining the best people for the job, is to provide market competitive remuneration
against jobs of comparable size and responsibility, with an opportunity for highly competitive total remuneration for
superior performance; and
External remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a
comparable role.
(ii) Performance driven:
.
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; and
The variable components of the remuneration are driven by targets that focus on external and internal measures
of financial and non financial performance.
¡
¡
(iii) Alignment with shareholder interests:
o
(c) Executive remuneration framework
lncentive plans and performance measures are aligned with Hills' short and long term success.
The executive remuneration framework has a mix of fìxed and variable ("at risk") pay. lt has three components:
.
.
r
Fixed remuneration, being base pay, superannuation and other short term benefìts;
Short term incentives; and
Long term incentives.
The combination of these comprises an executive's total remuneration. The Board considers that the performance linked
remuneration structure generates the desired outcome for Hills.
The relative weightings of the three components comprising an executive's total remuneration are typically between 60% -
7Oo/o fixed remuneration ,20o/o - 25% short term incentives and 10% long term incentives. The weightings are calculated on
the basis that the "at risk" components (STl and LTI) are at therr maxrmum.
(i) Fixed remuneration
Fixed remuneration is targeted at or above the median of the market for jobs of comparable size and responsibility in
companies in the ASX 200 and it also takes into account an individual's responsibilities, performance, qualifications and
experience. ln some cases, experience, superior performance or strong market demands for specifìc job categories may
justiff 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.
Retirement benefits comprise employer contributions to defined contribution superannuation funds.
-77-
Hills Holdings Limited
Directors' report
30 June 201 1
(continued)
Remuneration report - audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
(ii) Short term incentives
Hills' executives all participate in an STI Plan which is designed to drive individual and team performance to deliver annual
business plans and increase shareholder value by providing rewards for achievement of business financial performance
goals and individual performance goals which are focussed on non-fìnancial performance.
Each year the Remuneration Committee recommends to the Board the key performance indicators (KPls) for the key
management personnel. KPls generally include measures relating to the Group, the relevant business segment and the
individual, and may include a mix of fìnancial and non financial performance measures. Typically, the STI plan is weighted
75o/olo financial metrics and25o/o to individual metrics.
Features of all executive's STI plans for FY 2011 are as follows:
Frequency and timing
Financial measures used
Participation is determined on an annual basis with performance measured over
the financial year ending 30 June.
A principal focus of Hills is earnings before interest and tax (EBIT) and returns on
funds employed (ROFE) which measures effective utilisation of assets and
earnings per share (EPS).
Non financial measures
Assessment of performance
Service condition
STI awarded in FY 2011
for senior executive roles with corporate responsibility: EPS;
for senior executives with divisional responsibility: EBIT and ROFE; and
for the Managing Director: ROFE and EPS.
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:
.
o
o
.
¡
o
At the end of the financial year each senior executive's performance is assessed
based on the actual peformance of the Group and the relevant segment and
individual performance overall and against KPls set at the beginning of the
financial year.
Safety;
Strategic outcomes;
Operational improvements;
Succession planning;
Restructuring and rationalisation; and
Other discretionary performance targets.
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.
At the Board's discretion, 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 fìnancial year.
ln terms of the targets set by the Board for FY 2011, the annual STI awarded to
the Senior Executives reflected the following:
¡
The overall financial performance for the Group did not meet the financial
targets set;
¡
¡
The overall financial performance for the Electronics and Communications
division met or exceeded the financial targets set;
The Building and lndustrial and Lifestyle and Sustainability divisions did not
meet the financial targets set;
¡ Certain strategy and succession planning targets were met; and
o The Group's safety targets were exceeded.
-78-
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
Remuneration report - audited (continued)
Principles used fo determine the nature and amount of remuneration (continued)
(iii) Long term incentives
(a) Long Term lncentive Plan (LTIP)
ln 2010, consistent with Hills' remuneration strategy of rewarding executives for performance against business plans and
longer term shareholder returns to a level that is appropriate for the results delivered, Hills established the LTIP. The aim
of the LTIP is to incentivise senior executives by aligning their long term incentives with the interests of shareholders.
General features of the Plan are as follows:
.
eligible employees may be offered shares in Hills (which will be held in trust pending the satisfaction of specified
performance conditions) (Deferred Shares) or a right to receive shares in the Company in the future (subject to the
satisfaction of specifìed performa nce conditions) (Performance R i ghts) ;
o
.
.
.
¡
o
.
the Board imposes performance conditions on Deferred Shares or Performance Rights at the time at which an
offer is made in respect of such Deferred Shares or Performance Rights;
except in special circumstances, Deferred Shares or Performance Rights do not vest unless the performance
conditions attaching to them have been satisfied within the prescribed period;
Performance Rights or Deferred Shares which have not vested will lapse or be forfeited (respectively) if an eligible
employee ceases to be employed by Hills before vesting has occurred (unless the Board determines otherwise),
or in the Board's opinion, the eligible employee has acted fraudulently, dishonestly, or committed an act of
harassment or discrimination or brought the Company into disrepute;
with the Board's approval, the eligible employee may nominate someone else to hold the Deferred Share or
Performance Right (generally a relative or dependant or entity under the eligible employee's control);
the Board may impose disposal restrictions on trading Performance Shares (that is shares received by the eligible
employee or their nominee on vesting of a Performance Right) or Deferred Shares for up to a maximum of seven
years although this is not currently proposed;
no payment is required for the grant of a Performance Right (unless the Board specifies otherwise) and the Board
may determine the price (if any) at which Deferred Shares will be offered;
an eligible employee will receive all dividends paid by the Company in respect of Deferred Shares which have not
yet vested. However, the eligible employee will not be entitled to any dividends in respect of Performance Rights
which have not yet vested.
At Hills' 2010 Annual General Meeting, shareholder approval was obtained for the Managing Director to be issued with
1 '1 8,926 Performance Rights under the LTIP.
Following the approval given at the 2010 AGM, certain senior executives were also invited to participate in Hills' LTIP and
receive Performance Rights under the LTIP.
The details of the LTIP Performance Rights allocations made to the Managing Director and senior executives are set out in
this table and the table set out on page 87 of this Report.
-79-
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
Remuneration report - audited (continued)
Principles used fo determine the nature and amount of remuneration (continued)
Participation
Executive participation is determined by the Board.
Performance Conditions
Performance Measures
Performance Testing
Vesting Schedule
The performance conditions attaching to the Performance Rights will be
measured over a three year period commencing from 1 July 2010. lf the
relevant performance conditions at the end of that three year period have been
met, in whole or in part, all or the relevant percentage of the Performance
Rights (as applicable) will vest. The senior executive (or nominees) will be
entitled to be issued or transferred one ordinary share in the Company for each
Performance Right that has vested.
Vesting of the Performance Rights will be determined by reference to EPS and
TSR performance conditions. These performance conditions have been
chosen as EPS focuses attention on the Hill's three year strategic and fìnancial
objectives and TSR measures growth in the price of Hills' shares and dividends
against the ASX 200 lndustrial Accumulation lndex.
The principles used in setting the performance conditions are as follows:
(a) the EPS hurdle - a compound annual growth rate in Hills' EPS which is
applicable to 50% of the Performance Rights;
(b) the TSR hurdle - the TSR performance achieved by Hills in comparison to
the TSR of the ASX 200 lndustrial Accumulation lndex (lndex) which is
applicable to the other 50% of the Performance Rights.
The peformance hurdles will be tested at 30 June 2013. No further testing will
occur.
EPS compound annual growth rate of less than 15o/o - 0o/o vested
EPS compound annual growth rate of 15% or more - 25% vested
EPS compound annual growth rale of 20o/o or more - 50% vested
EPS Hurdle:
o
o
o
TSR Hurdle:
o Hills TSR less than lndex - 0% vested
o Hills TSR outperforms lndex - 25% vested
o Hills TSR outperforms lndex by 15% or more - 25% vested
Trading Restrictions
There are no restrictions on trading the Performance Shares once issued.
(b) Prior long-term Incentive Plans
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 Hills'TSR 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.
ln relation to the flnancial 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.
-80-
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
Remuneration report - audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
ln 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 up to $1 ,000 of Hills' ordinary shares
for no consideration. Shares are allotted under the plan in two tranches, (usually in March/April and 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, or as othen¡rise determined by the Directors.
Link between remuneration and Group pertormance
A key underlying principle of the executive reward strategy is that remuneration should be linked to performance.
As discussed earlier, STI payments are based on a variety of performance conditions, both flnancial and non financial. The
key financial measures are EBIT, ROFE and EPS, at a business unit and divisional level for some executives and at a
Group level for other executives. The non fìnancial measures include safety, strategic outcomes, operational
improvements, restructuring and rationalisation and other discretionary performance targets.
ln the financial year ended 30 June 201 1 the Group performance declined on the prior year, with EBIT (before unusual /
significant items) decreasing 38% to $40.376 million and net profit after tax (before unusual / signiflcant items) decreasing
37% to $27 .126 million.
ln difficult trading conditions, some of the businesses within the Electronics and Communications and Lifestyle and
Sustainability divisions achieved their budget EBIT results. However, the Building and lndustrial division businesses of
Orrcon and Fielders did not meet the EBIT thresholds set by the Board. Accordingly, the executives of those businesses
(Messrs Andrewartha and Middleton) did not qualify for a financial STI payment. As a consequence, STI payments related
to financial measures were overall lower than the previous year.
Non fìnancial STls were achieved where executives achieved their strategic, operational or other discretionary targets.
Pleasingly, and as reported elsewhere in this report, Hills continues to drive down the total reportable incident frequency
rate flRIFR) to 'l 9.8, a 43% improvement on the prior year. Accordingly, all executives achieved the safety component of
their non fìnancial STI's.
The following table summarises fìnancial and share price information and safety performance over the last flve years:
Key financials
FY1 1
FYlO
FYO9
FYOS
FYOT
Earnings before interest and tax (EBIT) ($'000) before
unusual / significant items
Shareholders' funds ($'0OO¡
Return on funds employed (ROFE) based on year end
Funds Employed
Net profit before unusual / signifìcant items ($'OOO¡
Net profit after unusual / signifìcant items ($'000)
Basic earnings per share before unusual / significant
items (cents)
Dividends (cents)
Share price ($)
Safety IRIFR)
40,376
65,469
59,978
87,772
82,273
402,307
496,499
428,520
429,517
348,764
8.2o/o
12.O%
10.3o/o
14.2o/o
16.6%
27,126
(73,116)
10.2
10.0
1.20
'19.8
43,095
43,095
16.7
34,201
15,655
14.6
53,589
52,360
27.3
52,042
52,042
27.6
12.5
2.15
34.7
10.0
1.57
41.4
27.5
3.34
65.1
27.5
5.33
71.6
-81-
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
Remuneration report - audited (continued)
Principles used úo determine the nature and amount of remuneration (continued)
(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
At Hills' 2010 Annual General meeting shareholders approved an increase in the aggregate amount of remuneration paid to
non-executive Directors to $1,200,000. This increase was considered necessary in order to pay the retirement benefit to
Mr G Hill and to allow Hills to continue to pay fees to non-executive Directors at an appropriate market rate in the future.
Non executive Directors who chair a committee receive an additional $10,000 per annum. Directors' fees were not
increased during the period and have been frozen for the past two years.
The following fees have applied:
Base fees
Chairman
Other non-executive Directors
Additional fees
Committee - Chairman
Current fees
$200,000
$100,000
$10,000
Retirement allowances for non-executive Directors
Superannuation contributions required under the Australian superannuation guarantee legislation are made and are
deducted from the Directors' overall fee entitlements.
With the retirement of Mr G Hill on 24 April 2011, Ms J Hill-Ling is the remaining Director entitled to receive benefìts on
retirement under a scheme that has since been discontinued. Under the scheme, Ms J Hill-Ling is entitled to a maximum
retirement benefìt of twice her annual Directors' fees (calculated as an average of her 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 beneflt and the benefit multiple (up to a maximum of two times fees) remains fìxed.
Upon retirement, Mr G Hill was paid $187,000 in accordance with the retirement scheme. This benefìt was fully provided for
in previous years fìnancial statements and the benefit for Ms J Hill-Ling is also fully provided for in the financial statements.
D eta i I s of re m u nerati o n
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.
-82-
Name
Non-executive
Directors
J Hill-Ling+
F Bennett
I Elliot
R Flynn
G Hill*
D Spence
P Stancliffe*
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^
M McKinstry
K Middleton^
A Muir#^
T Sullivan
Total key
management
personnel
compensation
lGrnunì
Other Gompany and
Group executives
G Daher #
R Meacham #
A Oliver #
Remuneration report - audited (continued)
Details of remu neration (continued)
Amounts of remuneration (continued)
2011
Short-term employee benefits
POSt-
employ-
ment
benefits
çasn
salary and
fees
ç
Cash
bonus (A)
s
Non
monetary
benefits
ß
Other
s
Super-
annuation
s
192,661
97,095
100,917
91 ,743
74,632
76,453
147,233
780.734
5,600
'17,339
8,739
9,083
8,257
6,717
6,881
13,251
5.600
70.267
Hills Holdings Limited
Directors' report
30 June 201 1
(continued)
Long-
term
benefits
Long
servrce
leave
$
Share-
based
payments (B)
Henorm-
lnce rights
& options
s
Shares
s
Total
$
215,600
'105,834
1 10,000
100,000
81,349
83,334
160 484
856.601
779,816
75,000
65,508
70, I 83
19,495
13,277
1,023,279
348,624
321,101
76,453
218,721
211,009
240,005
31,845
349,197
3r 6,605
190,584
10,000
60,664
32,926
25,000
87,039
10,000
20,000
10,000
1,400
5,091
8,709
24,748
4,058
350
2,289
700
8,598
13,171
31,376
28,952
6,881
19,685
18,991
29,944
2,866
25,803
23,448
17 153
54,587
3,222
3,222
988
1,117
5,635
2,563
412
1 564
999
999
599
un:
999
999
395,621
420,029
92,642
297,667
260,175
362,973
37,000
389,262
424,645
232 472
3.864.694
330.629
140.222
345.549
74.082
32,000
5.194
4.792.370
211,271
208,627
230 856
75,1 55
93,508
69,1 53
6,650
5,646
16.694
21,960
18,829
20,779
3 500
3 546
3 917
329
412
412
999
999
999
319,864
331,567
342,810
(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 Performance Rights in the Long Term lncentive Plan, options in the
former Executive Share Option Plan and shares under the Employee Share Plan.
Performance Rights were granted to various executives during the year. No options were granted during the year. Options
granted in 2009 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 Performance Rights and 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 Performance Rights granted to the Managing Director and senior executives included above is described
in the Long Term lncentives discussion below. 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 134 of the
lncome 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 Performance Rights granted during the year are set out below.
-83-
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
Remuneration report - audited (continued)
Details of remuneration (continued)
Amounts of remuneration (continued)
^ 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 Coryorations Acf
2001.
* P Stancliffe remuneration includes Board fees from Korvest Ltd and G Hill remuneration in the previous financial year
included Board fees from Fielders Australia Pty Ltd (Chairman untilApril20l0).
+ J Hill-Ling remuneration includes a dividend of $5,600 (2010: $5,600) paid as a shareholder of Hills Associates Limited.
2010
Shortterm employee benefits
Name
Non-executive
Directors
J Hill-Ling+
I Elliot
R Flynn
G Hiil-
P Stancliffe*
F Bennett
Sub-total
non-executive
Directors
Executive Director
G Twartz
Other key
management
personnel (Qroup)
L Andrewartha"
S Cope^#
D Edgecombe
R Gros#^
D Lethbridge
A Kachellek
K Middleton^
A Muir#
Total key
management
personnel
compensation
lGrouoì
Other Company
and Group
executives
G Daher#
A Oliver#^
Cash
salary and
fees
$
Cash
bonus (A)
$
Non
monetary
benefits
$
192,661
100,917
91,743
199,743
150,917
I 009
743.990
Other
$
5,600
Post-
employ-
ment
benefits
Super-
annuation
s
Long-
term
benefits
Long
servrce
leave
$
17,339
9,083
8,257
8,257
13,583
72'l
5,600
57,240
Share-based payments
(B)
Options
s
Shares
$
Total
$
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 /,-q7
1,400
1,400
350
1,400
350
700
1 400
33,356
33,399
21,468
30,183
8,6s0
25,587
33,413
2q ?Aq
3,399
1,976
1,976
5,635
659
'1 060
999
999
999
999
998
999
qqq
422,456
397,683
266,375
377,386
112,248
320,813
408,282
350 903
3.573.2't3
519.539
13.113
28.609
344.880
18.349
't8.'t04
7.991
4.523.798
197,693
227.581
73,843
1 11.'150
3,150
15.849
23,733
28.295
3,269
3.640
659
1.890
999
999
303,346
389 404
-84-
Hills Holdings Limited
Directors' report
30 June 201 1
(continued)
Remuneration report - audited (continued)
Deta i ls of rem u neration (conti n u ed)
Amou nts of re m u n e rati on (conti n u ed)
The relative proportions of remuneration for the year ended 30 June 201 1 (30 June 2010) as set out above that are linked
to performance and that are fixed are as follows:
Name
Paid / payable
Fixed remuneration %
Executive Directors of Hills Holdinqs Limited
G Twartz
Other kev management personnel of Group
L Andrewartha
S Cope
D Edgecombe
R Gros
D Lethbridge
A Kachellek
M McKinstry
K Middleton
A Muir
T Sullivan
Other Companv and Group executives
G Daher
R Meacham
A Oliver
201'l
91%
97%
85%
100o/o
89%
90%
74%
'100%
97%
95%
95%
76%
72%
80%
2010
80%
89%
85%
98%
85%
100%
79%
-%
89%
93o/o
-o/o
76%
o/_
7 1o/o
Paid / payable
At risk -STl %
2011
2010
9o/o
3%
1s%
of
'l'l%
10%
26%
ot
-fo
3%
5%
5%
24%
28%
20%
2jo/o
11%
15o/o
2o/o
15%
-o/o
21o/o
-o/o
1 1o/o
7%
-%
24o/o
-o/o
29o/o
Service agreements
Executives
Value of Performance
Rights / options as
proportion of
remuneration 7o
2010
2011
'1.51%
0.33%
0.81%
0.77%
ol-to
0.33%
0.43%
'|'.55%
ot-to
0.66%
0.10%
0.67%
0.10o/o
0.12%
0.12o/o
0.81%
0.50%
-%
0.53%
-o/o
1.760/o
-/o
0.16%
0.30%
-%
0.22%
-%
O.49o/o
The details of the contracts of Hills' senior executives named in the remuneration tables (excluding the Managing Director)
can be summarised as follows:
.
.
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;
All executives have ongoing contracts of no fixed term;
.
.
Upon termination, executives are entitled to payment of annual and long service leave; and
lf 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 fìnancial year are as follows:
Term
The contract is for indefìnite duration.
The contract can be terminated by the Company or the Managing Director giving
three month's notice to the other.
Fixed remuneration
The Managing Director has received an annual base salary, inclusive of
superannuation, for the year ended 30 June 201 1 of $850,000.
Short-term incentive
An annual maximum STI opportunity of $375,000.
The performance of the Managing Director against performance measures is
assessed and the payment determined by the Board.
-85-
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
Remuneration report - audited (continued)
Share-öased compensati on
Performance Rþhfs and Options
The terms and conditions of each grant of Performance Rights under the LTIP and options under the Executive Share
Option Plan affecting remuneration in the current or a future reporting period are as follows:
Grant date
Date
exercisable /
vested
Expiry date
Exercise
price
Options 28 Feb 2008
31 Jan2011
31 Jan 2031
31 Jan2012
31 Jan2032
Options 4 Feb 2009
Performance Rights
30 April 2011
30 June 2013
30 June 201 3
$-
$0.905
Value per
option /
Right at
qrant date
$0.19
$-
$5.49
$3.01
Performance
achieved
of
fo
Vested
No
nla
nla
Oo/o
nla
nla
The maximum value of the Performance Rights represents their fair value as at their grant date, determined in accordance
with AASB 2 Share Eased Payment. The fair value for each hurdle in the Performance Rights was:
.
.
EPS hurdle: $1 .19
TSR hurdle: $0.62
Monte Carlo simulation was used to determine the value of the Performance Rights granted. Details of the assumptions
underlying the valuation are set out in note 26 to the fìnancial statements.
No Performance Rights have been granted since the end of the fìnancial year. The Performance Rights were provided at
no cost to the recipients.
All Performance Rights and options expire on the earlier of their expiry date or termination of the individual's employment.
The Performance Rights will vest on 30 June 2013 and 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. ln addition to a continuing
employment service condition, the ability for Performance Rights to vest or 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 Performance Rights and options over ordinary shares in the Company provided as remuneration to each Director
of Hills Holdings Limited and each of the key management personnel of the Company and the Group are set out below.
When vested or exercisable, each Performance Right or option is convertible into one ordinary share of Hills Holdings
Limited. Further information on the options is set out above and in note 26 to the financial statements.
No Performance Rights or options vested during the financial year.
-86-
Remuneration report - audited (continued)
Share-þased compensation (continued)
Number of
Performance
Rights
granted
during the
vear
1 18.926
21,623
21,623
Name
Directors of Hills Holdinqs Limited
G Twartz
Other kev manaqement personnel of the Group
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
M McKinstry
A Muir
T Sullivan
Other Group and Comoanv executives
G Daher
R Meacham
A Oliver
10,811
21,623
15_134
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
Fair value of
Performance
Rights at
grant date
calculated in
accordance
with AASB 2
Value of
Performance
Rights using
the share
price of
82.3',t237',
Number of
Performance
Rights /
options
lapsed /
forfeited
during the
veer
$107.628
$275,000
60,000
$50,000
$50,000
$-
$-
$-
$25,000
$50,000
$-
$-
$35,000
$19,569
$19,569
$-
$-
$-
$9,784
$19,569
$-
$-
$13,696
$-
$-
$-
60,000
60,000
25,000
120,000
20,000
25,000
20,000
25,000
25,000
Value at lapse
/ forfeit date
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
$-
* The share price used to calculate the number of Performance Rights issued to the Managing Director and Senior
Executives was $2.31237, being the volume weighted average price of the Company's shares for the ten trading days
commencing on the day after the announcement of the Company's full year fìnancial results for the year ended 30 June
2010.
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.
Additi on al i nformation
Details of remuneration: Bonuses and share-based compensation benefits
For each cash bonus and grant of rights included in the tables on pages 83 - 84 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 Performance Rights / options vest after three years, provided the vesting conditions are met (see pages 79 -
80 and 86 above). No Performance Rights / options will vest if the conditions are not satisfied, hence the minimum value of
the Performance Rights / options yet to vest is $nil.
The maximum value of the Performance Rights / options yet to vest has been determined as the amount of the grant date
fair value of the Performance Rights / 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 not being met as well as options that have lapsed due to termination of
employment.
The bonus percentages comprise the percentage of the available bonus that was paid / payable in relation to the fìnancial
year, and the percentage that was forfeited because the person did not meet the performance criteria.
-87-
Hills Holdings Limited
Directors'report
30 June 201 1
(continued)
Remuneration report - audited (continued)
Share-based co m pen sati o n (co nti n u ed)
Details of remuneration: Bonuses and share-based compensation benefits (continued)
STI
Share-based compensation benefits (Rights / options)
Name
G Twartz
Paid /
Payable
2011
of
fo
20%
Forfeited
2011
ol
to
80%
L Andrewartha
7o/o
93o/o
S Cope
46%
54%
D Edoecombe -
R Gros
A Kachellek
D Lethbridqe
K Middleton
A Muir
T Sullivan
G Daher
R Meacham
A Oliver
-%
25%
100%
45%
10%
-%
75%
-%
55o/o
9Oo/o
20%
80%
14%
100%
100%
100%
860/o
-o/o
-%
-%
Year
granted
Vested
of
to
Lapsed /
Forfeited
ot
fo
Financial years ir
which Rights /
options may vesf
Minimum
lotal value
of grant
¡et to vesl
s
Maximum
lotal value
of grant
yet to vest
$
2008
2009
2011
2008
2009
2011
2008
2009
2011
2009
2008
2009
2011
2008
2009
2011
2008
2009
2011
2008
2009
2008
2009
2008
2009
100
100
100
100
100
100
100
100
100
100
100
2011
2012
2013
2011
2012
2013
2011
2012
2013
2012
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2011
2012
2011
2012
95,339
17,334
17.334
8.667
17.334
12j32
*
D Edgecombe's total remuneration did not include an STI component.
Säare-öased compensation: Pertormance Rights / Options
The movement during the reporting period, by value, of Performance Rights / 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.
-88-
Remuneration report - audited (continued)
Share-öased com pe n sati o n (conti n u ed)
Name
G Twartz
L Andrewartha
S Cope
D Edgecombe
R Gros
A Kachellek
D Lethbridge
K Middleton
M McKinstry
A Muir
T Sullivan
G Daher
R Meacham
A Oliver
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
B
Value at
exercise date
$
A
Performance
Rights value
at grant date
$
107,628
19,569
19,569
9,784
19,569
13,696
c
Options value
at lapse /
forfeit date
$
111,600
111,600
111,600
46,500
223,200
37,200
46,500
A = The value at grant date calculated in accordance with AASB 2 Share-based Payment of rights granted during the year
as part of remuneration.
B = The value at exercise date of Performance Rights / 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 Performance Rights / options were exercised after deducting the price paid to exercise the option. No Performance
Rights / options were exercised in the current year.
C = The value at lapse date of Performance Rights / 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 Performance Rights / options that lapsed/forfeited during the
year represents the benefìt forgone and is calculated at the date the Performance Rights / options lapsed using the
method described in B above assuming the performance criteria had been achieved. The 2008 options lapsed during
the year. There were no Performance Rights 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:
r
¡
.
o
.
provide a safe, challenging and rewarding workplace;
deliver superior returns to shareholders;
increase earnings per share;
rêpresent quality, reliable and value for money products; and
improve the retention rate of our outstanding people resources.
ln order to meet these objectives the following targets were set for the 2011 financial year and beyond:
.
r
o
o
o
o
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.
-89-
Dividends - Hills Holdings Limited
Dividends paid to members during the financial year were as follows:
Final ordinary dividend for the year ended 30 June 2010 of 5.5 cents (year ended 30 June
2009: 2.0 cents) per fully paid share paid on 27 September 2010 (year ended 30 June
2009:23 November 2009)
Final dividend foregone for Share lnvestment Plan
lnterim ordinary dividend for the year ended 30 June 201 1 of 5.5 cents (2010: 7.0 cents)
per fully paid share paid on 21 March 2011 (2010:3 March 20'10)
Hills Holdings Limited
Directors' report
30 June 2011
(continued)
2011
$'000
2010
$'000
13,623
13.650
27.273
4,917
(713)
17 ,319
21,523
ln 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 $1 1,189,000 (4.5 cents per fully paid share) to be paid on 26 September 2011 out
of retained profìts at 30 June 201 1. The financial effect of these dividends has not been brought to account in the fìnancial
statements for the year ended 30 June 201'l and will be recognised in subsequent flnancial periods. For more information
regarding dividends please refer to note 24.
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the financial year are set out in the Review of Operations
section of the Directors' report.
Matters subsequent to the end of the financial year
On 23 August 201 1 the Company announced an on-market buy-back which will give Hills the option to acquire up to 10% of
its issued ordinary shares. The buy-back is for ongoing capital management purposes and will take place over the twelve
months from the date of the announcement.
Apart from the matter noted above, there has not arisen in the interval between the end of the fìnancial 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 f nancial report because the Directors believe it would be likely to result in unreasonable
prejudice to the Group.
Envi ronmental regulation
Manufacturing
The Group holds or is in the process of obtaining or renewing all required environmental licences for its manufacturing sites
around Australia.
Greenhouse gas and energy data reporting requirements
The Group is subject to the reporting requirements of the National Greenhouse and Energy Reporting Act 2007.
fhe National Greenhouse and Energy Repofting Act 2007 requires the Group to report its annual greenhouse gas
emissions and energy use. Hills has implemented systems and processes for the collection and calculation of the data
required. Hills triggered the corporate energy consumption threshold legislated under the National Greenhouse and Energy
Reporting Act 2007 for the year ended 30 June 201 1 and will submit its initial report to the Greenhouse and Energy Data
Offìcer in October 2011.
-90-
Hills Holdings Limited
Directors' report
30 June 201 1
(continued)
Environmental regulation (continued)
National Packaging Covenant
During September 2010, Hills became a signatory to the Australian Packaging Covenant (APC), which is the successor to
the National Packaging Covenant (NPC). The APC is a voluntary initiative, by Government and industry, to reduce the
environmental effects of packaging. Hills is working towards key performance indicators set in a fìve year action plan aimed
at optimising packaging design, recovery, recycling and product stewardship.
Share Rights / options granted to Directors and the most highly remunerated officers
Directors
G Twartz, Group Managing Director
Other executives of Hills Holdings Limited
S Cope, CEO - Electronics and Communications
D Lethbridge - Company Secretary
T Sullivan - Group General Manager Strategy
Other executives of the Group
L Andrewartha, Managing Director - Orrcon Operations Pty Ltd
K Middleton, CEO- Fielders Australia Pty Ltd
Performance
Rights granted
1 18.926
118.926
21,623
10,81 I
15,134
47.568
21,623
21.623
43.246
No Performance Rights have been granted since the end of the fìnancial year.
Shares under Rights / options
Unissued ordinary shares of the Company under Rights / option in accordance with accounting standards at the date of this
report are as follows:
Date Rights / options granted
Expiry date
Exercise price of Number under
Rights / option
shares
February 2001
February 2002
February 2003
February 2004
February 2005
February 2009
April 2011
January 2023
January 2024
January 2025
January 2026
January 2027
January 2032
June 2013
$2.50
$2.90
$3.23
$3.66
$4.1 6
$3.01
$-
50,000
53,000
80,000
125,000
195,000
415,000
209.740
1.127.740
No Rights / option holder has any right under the Rights / options to participate in any other share issue of the Group or any
other entity.
All Rights / options expire on the earlier of their expiry date or termination of the employee's employment. ln addition, the
ability to exercise the Rights / options is conditional on the Group achieving certain performance hurdles. Further details are
included in the Remuneration report.
Shares issued on the exercise of Rights / options
During or since the end of the flnancial year, the Company has not issued ordinary shares as a result of the exercise of
Rights / options.
-91-
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
lnsurance 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 offìcers, 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 offìcers in their capacity as offìcers 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. lt 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
I ndem nification of officers
The Company has agreed to indemnifo 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 Corpo rations 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 Coryorations Act 2001 lor
the following reasons:
o
¡
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
norìê of the services undermine the general principles relating to auditor independence as set out in APES 1 10
Code of Ethics forProfessional Accountants.
-92-
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 fìrms:
Hills Holdings Limited
Directors' report
30 June 201 I
(continued)
1. Audit services
KPMG Australia:
Audit and review of fìnancial reports
Overseas KPMG firms - audit and review of financial reports
Total remuneration for audit seruices
2. Non-audit services
Taxation services
KPMG Australia:
Taxation and other services
Overseas KPMG firms - taxation services
Total remuneratíon for taxation seryices
Auditor's independence declaration
Consolidated
20'l'l
$
2010
$
488,500 450,000
3t,768
31,905
s20.268 481,905
113,838
26.824
140.662
126,354
10.542
136.896
A copy of the auditor's independence declaration as required under section 307C of the Coryorations Act 2001 is set out on
page 105.
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.
Dated at Adelaide
this 11th day of September 2O11
-93-
Hills Holdings Limited
Corporate governance statement
30 June 2011
Corporate governance statement
This report sets out Hills Holdings Limited's (Hills) annual statement on its corporate governance framework for the year
ended 30 June 201 1.
Hills and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The
Board considers that Hills' corporate governance framework and practices continue to comply with the requirements of the
ASX Corporate Governance Council's (ASXCGC) Principles of Good Corporate Governance Principles 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 which specifically sefs ouf how Hills applies each ASXCGC
Principle and Recommendation are contained in the corporate govemance secfion within the Hills website which can be
found at vvvvw.hillsholdings.com.au. Ifls websife also contains copies of the chañers and policies referred to in this repoft.
1 Principle 1: Lay solid foundations for management and oversight
1.1 Role of the Board
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 defìne 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.
1.2 Responsibilities of the Board
The responsibilities of the Board include:
¡
.
o
o
o
o
r
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 flnancial reports,
monitoring Hills'flnancial 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 Hills' 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 fìnancial
goals, safety performance and business excellence. This performance assessment for senior executives was undertaken
during the reporting period.
-94-
Hills Holdings Limited
Corporate governance statement
30 June 201 1
(continued)
2 Principle 2: Structure the Board to add value
2.1 Board composition
The Board charter states:
o
.
the Board will consist of a majority of non-executive independent Directors; and
the Chairman is a non-executive Director appointed by the Board.
The Board seeks to ensure that it has, at any point in time, a board of Directors with an appropriate range of skills,
experience, expertise and who have an understanding and competence to deal with current and emerging issues in Hills'
business. Hills' succession plans are designed to maintain that appropriate balance of skills, experience and expertise on
the Board.
2.2 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:
r
.
o
¡
o
is a substantial shareholder of Hills or an officer of, or othenryise 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 offìcer of or othenivise 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
ln 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.
The Board regularly assesses the independence of each Director in light of the interests disclosed by them. Each Director
is required to provide the Board with all relevant information for this purpose.
2.3 Board members
Details of the members of the Board, their experience, expertise, qualiflcations, term of offìce, relationships affecting their
independence and their independent status are set out in the Directors' report under the heading "lnformation on Directors".
At the date of signing the Directors' report, there is one executive Director and six non-executive Directors, five of whom
have no relationships adversely affecting independence and so are deemed independent under the principles set out
above.
2. 4 N on-ex ec utive D i recto rs
The six non-executive Directors meet regularly during the year, prior to the commencement of scheduled Board meetings
without the presence of management, to discuss the operation of the Board and a range of other matters. Relevant matters
arising from these meetings are shared with the Managing Director.
2.5 Chairman and Managing Director
The Chairman, Ms Jennifer Hill-Ling is not considered to be an independent Director. Hills considers this departure from
ASXCGC Recommendalion 2.2 appropriate however g iven :
¡
.
Ms Hill-Ling's considerable experience within Hills.
The Hill-Ling family's interest in Hills; and
The Chairman is responsible for the leadership and effective performance of the Board. The Chairman is independent of
the role of the Managing Director of Hills.
2.6 Term of office
Hills' constitution specifìes 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.
-95-
Hills Holdings Limited
Corporate governance statement
30 June 201 1
(continued)
2 Principle 2: Structure the Board to add value (continued)
2.7 lnduction
The induction provided to new Directors and senior managers enables them to actively participate in Board
decision-making as soon as possible lt ensures that they have a full understanding of Hills' fìnancial position, strategies,
operations and risk management policies. lt also explains the respective rights, duties, responsibilities and roles of the
Board and senior executives and Hills' meeting arrangements
2.8 Commitment
The Board held 18 Board meetings and an additional corporate strategy workshop during the year. Seven of these
meetings were held at operational sites of Hills which included a tour of the facilities and presentations from local
management as part of the meeting.
The number of meetings of the Company's Board of Directors and of each Board Committee held during the year ended 30
June 201 1 and the number of meetings attended by each Director is disclosed on page 75 of the Annual Report.
2.9 lndependent professional advice
Board Committees have the appropriate resources to discharge their duties and responsibilities, including authority to
engage counsel, accountants or other experts as it considers appropriate. Following consultation with the Chairman,
Directors are entitled to seek independent professional advice at Hills' expense. Generally, this advice is available to all
Directors.
2. 1 0 P e rfo rmance assessmenf
The Board undertakes a regular annual assessment of its collective performance and that of individual Directors and its
Committees. The Board performance evaluation process is conducted by way of questionnaires to effectively review:
.
the performance of the Board and each of its Committees against the requirements of their respective charters;
and
¡
the individual performance of the Chairman and each Director.
Management are invited to contribute to this appraisal process. The questionnaires are completed by each Director. The
reports on the Board and Committee performance are provided to all Directors and discussed by the Board. The report on
the Chairman's performance is discussed with the Chairman of the Nomination Committee. The Chairman of the Board
meets with each Director to discuss his/her individual assessment. From time to time the Board engages external
consultants to assist in this process.
The results and action plans are documented and agreed. An assessment carried out in accordance with this process was
undertaken during November 20'l 0.
Descriptions of the process for performance assessment for the Board and senior executives are available on the
Company's website.
2.11 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. Currently the Board has three standing committees; these are the Nomination,
Remuneration and Audit and Compliance Committees.
The committees operate principally in a review or advisory capacity. 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. All matters determined by committees are submitted to the
full Board as recommendations for Board decisions.
Membership of the committees is based on Directors' qualifìcations, skills and experience. Each standing committee is
comprised of:
.
¡
at least three members, the majority of whom are independent.
only non-executive Directors; and
All Directors are entitled to attend meetings of the standing committees. Minutes of committee meetings are tabled at the
subsequent Board meeting. Additional requirements for specifìc reporting by the committees to the Board are addressed in
the charter of the individual committees.
Ad hoc committees are convened to consider matters of special importance or to exercise the delegated authority of the
Board.
-96-
Hills Holdings Limited
Corporate governance statement
30 June 201 1
(continued)
2 Principle 2: Structure the Board to add value (continued)
2. 1 2 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
P Stancliffe
Details of these Directors' attendance at Nomination Committee meetings are set out in the Directors' report on page 75 of
the Annual Report.
The Nomination Committee operates in accordance with its cha¡ter. The main responsibilities of the Committee are to
assist and make recommendations to the Board on:
r
r
¡
o
Director selection and appointment practices;
Board composition and tenure;
succ€ssion planning for the Board, and
Hills' diversity obligations.
When a new Director is to be appointed, the Committee reviews the range of skills, diversity, 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 fìnancial, strategic, operations and risk management issues.
3 Principle 3: Promote ethical and responsible decision making
3.1 Code ofconduct
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.
ln 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.
3.2 Security Trading Policy
Hills has adopted a securities trading policy 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.
The policy is aligned to recent amendments to the ASX Listing Rules on trading policies.
3. 3 Wh istl e bl ower P rote cti on Pol i cy
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.
-97-
Hills Holdings Limited
Corporate governance statement
30 June 201 I
(continued)
3 Principle 3: Promote ethical and responsible decision making (continued)
3.4 Diversity Policy
Hills is committed to creating a diverse workplace that is fair and flexible, promotes personal and professional growth and
enables employees to enhance their contribution to Hills by drawing from their different backgrounds, beliefs and
experiences. Hills has developed a diversity policy, a copy of which can be found on Hills' website.
The policy provides guidance for the development and implementation of relevant plans, programs and initiatives to
recognise and promote gender workforce diversity across all areas of Hills' businesses.
The Hills Board is responsible for setting specific gender diversity objectives and a range of metrics designed to measure
the achievement of those objectives.
The Board and the Nomination Committee are responsible for assessing, on an annual basis, the objectives and the
progress of the achievement against Hills' gender diversity objectives. ln accordance with this policy and the ASX
Corporate Governance Principles, the Board has established the following objectives in relation to gender diversity. The
aim is to achieve these objectives over the coming 3 years as positions become vacant and appropriately skilled
candidates are available.
Number of women in senior
management positions
Number of women in sales and
marketing positions
Number of women employees in
the whole orga nisation
'
Objective
%
20
Number
95
191
Ãr
552
25
20
Actual
Number
6g
137
461
%
14.4
j7.g
16'7
A discussion of the gender diversity framework to support the diversity initiatives is set out in the Sustainability section of
the Concise Annual Report.
4 Principle 4: Safeguard integrity in financial reporting
4.1 Audit and Compliance Commiftee
The Audit and Compliance Committee consists of the following non-executive Directors:
F Bennett (Chair)
D Spence
P Stancliffe
Details of these Directors' qualifications and attendance at Audit and Compliance Committee meetings are set out in the
Directors'report on pages 72 -75 oÍ the Annual Report.
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 its charter. The role of the Committee is to assist the
Board in:
o
¡
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
Reviewing Hills'financial statements and financial information distributed externally;
¡
Liaison with the external auditor.
-98-
Hills Holdings Limited
Corporate governance statement
30 June 201 I
(continued)
4 Principle 4: Safeguard integrity in financial reporting (continued)
ln fulfilling its responsibilities, the Committee:
o
o
.
¡
.
r
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; and
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.
4.2 Extemal 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. lt 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 37 to the fìnancial statements. lt 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.
5 Principles 5 and 6: Make timely and balanced disclosures and respect the rights of shareholders
5.1 Continuous drsc/osure and shareholder communication
Hills has a Communications 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 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. The website also enables users to provide feedback and has an option for shareholders to register their email
address for direct email updates on Company matters.
6 Principle 7: Recognise and manage risk
6.1 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. ln summary, Hills' policies are designed to ensure
strategic, operational, legal, reputation and financial risks are identifìed, assessed, effectively and effìciently 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, lT security, compliance and other risk management issues. lnternal audit carries out regular systematic monitoring
of control activities and reports to both relevant business unit management and the Audit and Compliance Committee.
_oo_
Hills Holdings Limited
Corporate governance statement
30 June 201 1
(continued)
Principle 7: Recognise and manage risk (continued)
Hills' Risk Committee consisting of the Managing Director, senior executives from the executive management group and a
non executive Director assists and makes 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. Risks are considered under
strategic, operational, fìnancial and compliance categories at the enterprise and at the business level.
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.
During the year the Board;
.
Reviewed the framework and methodology for risk identification and the degree of risk Hills is willing to accept;
and
.
Considered Hills'strategic objectives in the context of the enterprise risks.
6.2 Co rporate reporting
ln complying with ASXCGC Recommendation 7.3, the Board has received a declaration from the Managing Director, who,
for the purposes of Section 295A of lhe Coryorations Act 2001 , has performed the chief executive function and for the
period from 8 July 201 1, the chief fìnancial officer function, that:
.
o
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
That the above statement is founded on a sound system of risk management and internal compliance and
control which implements the policies adopted by the Board and that Hills' risk management and internal
compliance and control is operating effìciently and effectively in all material respects in relation to financial
reporting rísks.
7 Principle 8: Remunerate fairly and responsibly
7.1 Remuneration Committee
The Remuneration Committee consists of the following non-executive Directors (a majority of whom are independent):
J H Hill-Ling (Chair)
I Elliot
D Spence
Details of these Directors'attendance at Remuneration Committee meetings are set out in the Directors' Report on page 75
of the Annual Report.
The current Chairman of the Committee, Ms Jennifer Hill-Ling is not considered to be an independent Director. Hills
considers this departure from ASXCGC Recommendation 8.2 appropriate however given the role the Chairman of the
Board has in developing and the leading the implementation of the remuneration strategy and framework for Hills.
The Remuneration Committee operates in accordance with its charter. The Remuneration Committee is responsible for
developing and making recommendation to the Board on remuneration for the Chairman, the Board Committees, non
executive Directors, 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". ln 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. Details of this policy can be found on Hills' website.
-100-
Hills Holdings Limited
Corporate governance statement
30 June 201 I
(continued)
I ASX Corporate Governance Council Recommendations Checklist
This table cross-references the ASXCGC Recommendations to the relevant sections of the Corporate Governance
Statement and the Remuneration report.
ASX Corporate Governance Council Recommendations Reference
Comply
Principle 1:
Lay solid foundations for management and oversight
11
12
13
Companies should establish the functions reserved to the Board
and those delegated to senior executives and disclose those
functions.
1.1 , 1.2
Companies should disclose the process for evaluating the
performance of senior executives.
Remuneration Y
report
Companies should provide the information indicated in Guide to
Reporting on Principle 1.
1.1 , 1.2,
Remuneration
report
Principle 2:
Structure the Board to add value
21
2.2
24
2.5
26
A majority of the Board should be independent Directors.
2.1,2.2
The chair should be an independent Director.
The roles of chair and chief executive officer should not be
exercised by the same individual.
The Board should establish a Nomination Committee.
Companies should disclose the process for evaluating the
performance of the Board, its Committees and individual Directors.
Companies should provide the information indicated in Guide to
Reporting on Principle 2.
25
2.5
2.12
210
2.1 ,2.2,2.3,
2.5,2.9,2.10,
2.11,2.12
Y
Principle 3:
31
Promote ethical and responsible decision-making
Companies should establish a code of conduct and disclose the
code or summary of the code as to:
. the practices necessary to maintain confìdence in the company's
3.1
integrity;
. the practices necessary to take into account their legal
obligations and the reasonable expectations of their
stakeholders; and
. the responsibility and accountability of individuals for reporting
32
33
and investigating reports of unethical practices.
Companies should establish a policy concerning diversity and
disclose the policy or summary of that policy. The policy should
include requirements for the Board to establish measurable
objectives for achieving gender diversity and for the Board to
assess annually both the objectives and progress in achieving them.
3.4
Companies should disclose in each annual report the measurable 3.4
objectives for achieving gender diversity set by the Board in
accordance with the diversity policy and progress towards achieving
them.
-101-
ASX Corporate Governance Council Recommendations Reference
Comply
Hills Holdings Limited
Corporate governance statement
30 June 2011
(continued)
34
35
Companies should disclose in each annual report the proportion of
women employees in the whole organisation, women in senior
executive positions and women on the Board.
3.4
Companies should provide the information indicated in Guide to
Reporting on Principle 3.
3.1 ,3.4
Principle 4:
Safeguard integrity in financial reporting
4.1
4.2
43
44
The Board should establish an Audit Committee.
The Audit Committee should be structured so that it:
. consists only of non-executive Directors;
. consists of a majority of independent Directors;
. is chaired by an independent chair, who is not chair of the Board;
. has at least three members.
The Audit Committee should have a formal charter.
Companies should provide the information indicated in Guide to
Reporting on principle 4.
Principle 5:
Make timely and balanced disclosure
5.1
52
Companies should establish written policies designed to ensure
compliance with ASX Listing Rule disclosure requirements and to
ensure accountability at a senior executive level for that compliance
and disclose those policies or a summary of those policies.
Companies should provide the information indicated in Guide to
Reporting on Principle 5.
Principle 6:
Respect the rights of shareholders
41
41
4.1
4.1
5.1
5.1
6.1
62
Companies should design a communications policy for promoting 5.1
effective communication with shareholders and encouraging their
participation at general meetings and disclose their policy or a
summary of that policy.
Companies should provide the information indicated in Guide to
Reporting on Principle 6.
5.1
-102-
Hills Holdings Limited
Corporate governance statement
30 June 201 I
(continued)
ASX Corporate Governance Council Recommendations Reference Comply
Principle 7:
Recognise and manage risk
71
72
73
74
Companies should establish policies for the oversight and
management of material business risks and disclose a summary of
those policies.
6.1
The Board should require management to design and implement 6.'l
the risk management and internal control systems to manage the
company's material business risks and report to it on whether those
risks are being managed effectively. The Board should disclose that
management has reported to it as to the effectiveness of the
company's management of its material business risks.
The Board should disclose whether it has received assurance from
the chief executive officer (or equivalent) and the chief fìnancial
offlcer (or equivalent) that the declaration provided in accordance
with section 2954 of the Corporations Act is founded on a sound
system of risk management and internal control and that the system
is operating effectively in all material respects in relation to financial
reporting risks.
6.2
Companies should provide the information indicated in Guide to
Reporting on Principle 7.
6.1 ,6.2
Principle 8:
Remunerate fairly and responsibly
81
82
83
84
The Board should establish a remuneration committee
The remuneration committee should be structured so that it:
. consists of a majority of independent Directors;
. is chaired by an independent chair; and
. has at least three members.
71
7.1
Companies should clearly distinguish the structure of non-executive Remuneration Y
Directors' remuneration from that of the executive Directors and
senior executives.
report
Companies should provide the information indicated in Guide to
Reporting on Principle 8.
7.1 ,
Remuneration
report
-1 03-
Hills Holdings Limited
Di rectors' declaration
30 June 2011
ln the opinion of the Directors' of Hills Holdings Limited (the Company):
(a)
the consolidated financial statements and notes set out on pages 2lo 67 and the Remuneration report in the
Directors' report, set out on pages 76 to 89, are in accordance with lhe Corporations Act 2001, including:
(¡)
complying with Australian Accounting Standards (including the Australian Accounting lnterpretations) and
lhe Coryorations Regulations 2001; and
(b)
(c)
(ii)
giving a true and fair view of the Group's financial position as at 30 June 201 1 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 35 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 9811418
Note 1(a) confìrms that the fìnancial statements also comply with lnternational Financial Reporting Standards as issued by
the lnternational Accounting Standards Board.
The Directors have been given the declaration required by Section 2954 of the Corporations Act 2001 for the financial year
ended 30 June 201 1, from the chief executive offìcer, who has performed the chief executive function and for the period
from 8 July 2011 , the chief financial officer function.
This declaration is made in accordance with a resolution of the Directors.
Dated at Adelaide
this 11th day of September 2011
-104-
Lead Auditor's Independence Declsration under Section 307C of the Corporations Act 2001
To:the Directors of Hills Holdings Limited
I declare that, to the best of my knowledge and beliet in relation to the audit for the financial
year ended 30 June 201 1 there have been:
(i)
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
(ii) no contraventions ofany applicable code ofprofessional conduct in relation to the
audit.
//aç
KPMG
Partner
Adelaide
l1 September 2011
KPMG, an Australian partnership and a member firm of the KPMG network
of independent member fìrms affìliated with KPMG lnternational Cooperative
("KPMG lnternatìonal"), a Swiss entity
105
Independent auditor's report to the members of Hills Holdings Limited
Report on the financial report
'We
have audited the accompanying financial report of Hills Holdings Limited (the 'Company'),
which comprises the consolidated statement of financial position as at 30 June 2011, and
consolidated income statement and consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the
year ended on that date, Notes 1 to 38 comprising a summary of signihcant accounting policies
and other explanatory information and the Directors' declaration of the Group comprising the
Company and the entities it controlled at the year's end or from time to time during the financial
year.
Directors ' responsibility for the financial report
The Directors of the Company are responsible for the preparation of the financial report that
gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001 and for such internal controls as the Directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether due
to fraud or error. In Note 1(a), the Directors also state, in accordance with Australian Accounting
Standard AASB 101 Presentation of Financial Statements, that the financial statements of the
Group comply with International Financial Reporting Standards.
Auditor's respons ibility
Our responsibility is to express an opinion on the financial report based on our audit.
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the financial
report is free from material misstatement.
'We
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor's judgernent,
including the assessment of the risks of rnaterial misstatement of the fìnancial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal controls
relevant to the entity's preparation of the financial report that gives a true and fair view in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal controls. An audit also
includes evaluating the appropriateness ofaccounting policies used and the reasonableness of
accounting estimates made by the Directors, as well as evaluating the overall presentation of the
financialrepoft.
lùy'e performed the procedures to assess whether in all material respects the financial leporl
presents fairly, in accordance with lhe Corporations Act 2001 and Australian Accounting
Standards, a true and fair view which is consistent with our understanding of the Group's
financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
KPMG, an Australian partnershìp and a member firm of the KPMG network
of independent member fìrms aff iliated with KPMG lnternational Cooperative 106
("KPMG lnternational"), a Swiss entity
Independence
In conducting our audit, we have complied with the independence requirements of the
Corporations Acr 2001.
Auditor's opinion
In our opinion:
(a) the financial repoft of the Group is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group's financial position as
at 30 June 20 I I and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001.
(b) the financial report also complies with International Financial Reporting Standards as
disclosed in Note 1(a).
Report on the remuneration report
We have audited the remuneration report included in pages 76 to 89 of the Directors' report for
the year ended 30 June 201 I . The Directors of the Comp any are responsible for the preparation
and presentation of the remuneration report in accordance with Section 3004 of the
Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report,
based on our audit conducted in accordance with auditing standards.
Auditor's opinion
In our opinion, the remuneration report of Hills Holdings Limited for the year ended 30 June
2011, complies with Section 3004 of the Corporations Act 2001.
/luf
KPMG
Faulkner
Adelaide
1 1 September 2011
107
Hills Holdings Limited
Shareholder information
30 June 201 I
The shareholder information set out below was applicable as at 25 August 2011.
A. Distribution of equity securities
Analysis of numbers of equity security holders by size of holding:
Holding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Ordinary shares
Shares Rights/Options
4,902
9J22
4,525
3,402
þ
There were 2,41 t holders of less than a marketable parcel of ordinary shares.
B. Equity security holders
Twenty largest quoted equity secuity holders
The names of the twenty largest holders of quoted equity securities are listed below:
Name
Ordinary shares
RBC Dexia lnvestor Services Australia Nominees Pty Limited (PIPOOLED A/C)
Poplar Pty Limited
Hills Associates Limited
JP Morgan Nominees Australia Limited
National Nominees Limited
Jacaranda Pastoral Pty Ltd
HSBC Custody Nominees (Australia) Limited
UBS Nominees Pty Ltd
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
Milton Corporation Ltd
Queensland lnvestment Corporation
Donald Cant Pty Ltd
Colleen Sims Nominees Pty Ltd
Gwynvill Trading Pty Limited
RBC Dexia lnvestor Services Australia Nominees Pty Limited (PllC A/C)
Hills Associates Limited & Poplar Pty Ltd
Warbont Nominees Pty Ltd (Accumulation Entrepot A/C)
JP Morgan Nominees Australia Limited (Cash lncome A/C)
AMP Life Limited
Percentage of
Number held issued shares
9.06
8.14
5.40
3.92
3.01
2.40
2.13
1.88
1.44
1.07
1.01
0.93
0.79
0.68
0.56
0.53
0.48
0.44
0.44
0.37
22,581,156
20,286,335
13,455,689
9,774,212
7,510,239
5,968,699
5,308,789
4,671,979
3,577,667
2,658,851
2,520,299
2,313,056
1,979,060
1,694,798
1,400,000
1,297,293
1,188,918
1,103,958
1,088,099
932.871
111,311,968
44.68
C. Substantialholders
Substantial holders in the Company are set out below:
Name
RBC Dexia lnvestor Services Australia Nominees Pty Limited (PIPOOLED A/C)
Poplar Pty Limited
Hills Associates Limited
Ordinary shares
Percentage of
Number held issued shares
9.06%
8.14%
5.400/o
22,581,156
20,286,335
13,455,689
-1 08-
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.
Hills Holdings Limited
Shareholder information
30 June 2011
(continued)
E.
F.
G.
H.
l.
Options
No voting rights.
On-market buy-back
An on-market buy-back was announced on 23 August 2011, as disclosed in note 38 to the financial statements.
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.
Securities Exchange
The Company is listed on the Australian Securities Exchange. The Home exchange is Adelaide.
Other information
Hills Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
Offices and Officers
Company Secretary
Mr David Lethbridge
Registered Office
159 Port Road Hindmarsh SA 5007
Telephone: (08) 8301 3200
Facsimile: (08) 8301 3290
Web: www. h il lshold ings.com. au
Location of Share Registry
Computershare Investor Services Pty Limited
Level 5, 1 15 Grenfell Street Adelaide, SA 5000
Telephone (within Australia): 1300 556 161
Telephone (outside Australia): +61 3 9415 4000
Facsimile (within Australia): 1300 534 987
Facsimile (outside Australia): +61 3 9473 2408
I nternet address: www.computershare.com.au
-1 09-