Hills Holdings Limited
Registered Office
159 Port Road
Hindmarsh, SA 5007
Telephone: (08) 8301 3200
Facsimile: (08) 8301 3290
Email: info@hillsholdings.com.au
ABN 35 007 573 417
www.hillsholdings.com.au
ANNUAL REPORT 2012
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Better lives.
Better business.
HILLS HOLDINGS LIMITED
ABN 35 007 573 417
Annual report
for the year ended 30 June 2012
Contents
02 Operating and financial review
04 Five year summary
05 Group profile
06 Electronics & communications
06 Lifestyle & sustainability
07 Building & industrial
08 Sustainability report
13 Board of directors
17 Senior leadership team
18 Directors’ report
35 Lead auditor’s independence declaration
37 Corporate governance statement
45 Financial statements
107 Directors’ declaration
108
Independent auditor’s report to the members
110 Shareholder Information
Registered Office
159 Port Road Hindmarsh, SA 5007
Telephone: (08) 8301 3200 Facsimile: (08) 8301 3290
Email: info@hillsholdings.com.au Web: www.hillsholdings.com.au
ABN 35 007 573 417
Location of Share Registry
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street
Adelaide, SA 5000
Telephone (within Australia): 1300 556 161
Telephone (outside Australia): +61 3 9415 4000
Facsimile: (within Australia): 1300 534 987
Facsimile: (outside Australia): +61 3 9473 2408
Internet address: www.computershare.com.au
Shareholder enquires/change of address
Shareholders wishing to enquire about their shareholdings, dividends
or change their address should contact the Company’s share registry.
OPERATING AND FINANCIAL REVIEW
THE HILLS GROUP OF COMPANIES RECORDED A NET PROFIT AFTER
TAX ATTRIBUTABLE TO OWNERS OF $26.02M FOR THE YEAR ENDED
30 JUNE 2012.
THE YEAR IN REVIEW
Most businesses within the Hills’ Group
of companies produced acceptable
results in the year ended 30 June 2012
despite generally challenging trading
conditions. All business segments
produced improved results over the prior
year. There were a number of highlights
during the period including:
• Further product developments in the
Electronics and Communications
Division around the Company’s own
intellectual property
• A growth in market share for Hills SVL
• Further contract wins for Hills’
50% owned subsidiary OptiComm
• Reduced losses from Orrcon Steel
• A very strong result from Hills’
Korvest subsidiary around buoyant
infrastructure projects.
Although there were a number of very
positive developments as outlined above,
activity in the building and construction
sector continued to deteriorate during the
year, which saw lower results from Fielders
Australia.
The Company strategy is to consistently
grow shareholder value over time by
investing in businesses that deliver superior
service and innovative products and which
are exposed to high growth markets.
This approach is built on a commitment
to diversification in order to mitigate the
impacts of short term changes to
individual markets and economies.
As a result of this strategy, the focus for
growth and acquisitions remains on the
Electronics and Communications Division
where higher returns are available.
Vision and Values
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 profitable and growing
businesses. The Company values can
be summarised as follows:
• Hills cares about its people,
its customers and the environment
• Hills is in many businesses
but comes together as one team
• Innovation is Hills past present
and future – the life blood of the Company
• Hills invests the best of its time and talent
to deliver on its promises.
Funding
Hills net debt as at 30 June 2012 was
$92.4M. Gearing, measured as debt
to equity, stood at 23.0% at the end of
the period. Since year end, Hills has
announced that it has extended its banking
facilities such that the earliest date for
review of any of the debt facilities is August
2015. Hills continues to comfortably meet
all of its banking covenants.
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Hills Holdings Limited Annual Report for the year ended 30 June 2012
THE HILLS GROUP ALSO RECORDED MUCH IMPROVED CASH FLOW
FROM OPERATIONS OF $52.7M AND MAINTAINED ITS ANNUAL DIVIDEND
AT 10.0 CENTS PER SHARE.
Dividends
The Directors have announced an annual dividend of 10.0 cents per share. This dividend is fully franked and comprised an interim dividend
of 5.0 cents per share paid in March 2012 and a final dividend of 5.0 cents per share to be paid in September 2012. 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 final dividends.
On market share buy back
Given Hills’ low levels of debt and the current share price being below the net asset backing, the Board has resolved to extend the on
market buy back of its issued shares announced last year. The announcement of the buy back gives Hills the option to acquire up to 10%
of the issued shares over the next 12 months and will be earning per share accretive and will not affect Hills existing dividend policy.
Likely developments
Whilst Hills has invested in a number of new products and opportunities and continues to look for suitable acquisitions in the electronics
and communications market, the outlook for commercial building and the steel industry remains subdued. There is continuing fierce
competition from growing imports in these markets. Hills has implemented a number of cost reduction initiatives over the course of the
last year to ensure that businesses are structured in line with market conditions.
In view of the above Hills is unable at this time to provide specific profit guidance for the year ending 30 June 2013. It is expected that the
Company will be in a position to provide an update at its Annual General Meeting in November 2012.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
3
FIVE YEAR SUMMARY
Total revenue
Amount in $ millions
Net profit after tax
attributable to members¹
Amount in $ millions
Earnings per share²
Amount in cents
Dividends per share
Amount in cents
2012
$1082.3
2012
$26.0
2011
$1095.8
2011
$25.3
2010
$1156.3
2010
$40.2
2009
$1192.1
2009
$28.0
2008
$1184.7
2008
$48.0
2012
10.5c
2011
10.2c
2010
16.7c
2009
14.6c
2008
27.3c
2012
10.0c
2011
10.0c
2010
12.5c
2009
10.0c
2008
27.5c
In thousands of AUD
2008
2009
2010
2011
2012
Total revenue
1,184,737
1,192,081
1,156,326
1,095,845
1,082,272
Net profit/(loss) after tax attributable to members
46,807
9,506
40,188
(74,955)
26,021
Net profit after tax attributable to members (before cash
generating unit (CGU) impairment and closure costs)1
Net profit/(loss after tax and before non-controlling
interests
Depreciation, impairment and amortisation
Net borrowing costs
Shareholders’ equity
Net profit/(loss) after tax attributable to members
48,036
28,052
40,188
25,287
26,021
52,360
21,784
14,374
15,655
23,107
12,531
43,095
23,913
3,409
408,219
402,535
496,499
(73,116)
126,471
4,026
402,307
28,822
21,100
5,753
400,963
– as a % of shareholders’ equity
11.5%
2.4%
8.4%
(18.6%)
6.5%
Net profit/(loss) after tax and before non-controlling
interests
– as a % of total revenue
4.4%
1.3%
3.7%
(6.7%)
2.7%
Earnings per share (cents)
Earnings per share (before CGU impairment and closure
costs) (cents)²
Dividends per share (cents)
26.6
27.3
27.5
4.9
14.6
10.0
16.7
16.7
12.5
Employees at year end
Shareholders at year end
3,140
23,841
2,608
23,716
2,832
23,449
(30.2)
10.2
10.0
2,804
22,199
10.5
10.5
10.0
2,642
20,644
1. Net profit after tax attributable to members before CGU impairment and closure costs for the year ended 30 June 2011 of $25.287 million is a non-IFRS measure which has been calculated as:
loss for the year of ($74.955 million) adjusted for Orrcon and Team Poly impairment expense and closure costs of $100.242 million. Reconciliation is provided in note 5 of the financial statements.
2. Earnings per share before CGU impairment and closure costs for the year ended 30 June 2011 is a non-IFRS measure. A reconciliation is disclosed in note 24 of the financial statements.
The non-IFRS measures used by the Company are relevant because they are consistent with measures used internally by management to assess the operating performance of the business.
The non-IFRS measures have not been subject to audit or review.
4
Hills Holdings Limited Annual Report for the year ended 30 June 2012
GROUP PROFILE
Electronics & Communications
Lifestyle & Sustainability
Building & Industrial (including Korvest)
• Electronic security systems
• Closed circuit television systems
• Home and commercial automation
and control systems
• Professional audio products
• Satellite dishes
• Consumer electronic equipment
• Fibre optic transmission solutions
• Communications-related products
and services
• Domestic and commercial antennas
• Master antenna television systems
• Communications antennas
• Amplifiers
• Subscription TV installation services
Revenue
Amount in $ millions
2012
$337.1
2011
$317.4
2010
$349.5
2009
$336.0
2008
$312.3
EBIT
Amount in $ millions
2012
$29.4
$29.4
2011
$28.0
2010
$32.5
2009
$30.9
2008
$38.1
• Indoor and outdoor clothes dryers
• Laundry trolleys
• Ironing boards
• Barrier doors
• Garden sprayers
• Ladders
• Rehabilitation and mobility products
• Water storage solutions
• Plumbing products
• Structural, precision and large steel tubing
• Metal roofing, flooring and fencing
• Carports and shed systems
• Steel door frames
• Cable and pipe support systems
• Walkway systems
• Hot-dip galvanising
Revenue
Amount in $ millions
2012
$138.1
2011
$160.8
2010
$176.3
2009
$193.5
2008
$227.5
EBIT¹
Amount in $ millions
2012
2011
2010
$10.5
$9.7
$10.2
2009
($3.1)
2008
$13.8
Revenue
Amount in $ millions
2012
$606.3
2011
$616.8
2010
$629.7
2009
$661.7
2008
$643.0
EBIT¹
Amount in $ millions
2012
$5.1
2011
$3.2
2010
$26.4
2009
$31.8
2008
$35.4
1. Before CGU impairment and closure costs for the year ended 30 June 2011 as disclosed within the segment note (note 2) of the financial statements.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
5
ELECTRONICS AND
COMMUNICATIONS
The Electronics and Communications
division comprises Hills Electronic Security,
Hills SVL, Hills Antenna & TV Systems, Hills
Signalmaster, 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.
Hills Electronic Security
• Hills Electronic Security comprises the
market leading business operations of
Pacific Communications, DAS and UHS.
The business unit markets an extensive
range of electronic security products
ranging from simple domestic alarms to
more complicated integrated surveillance
and access control systems. The security
market was affected during the period
by a continuing reduction in capital
expenditure from major corporates and
governments. Despite this, volumes of
products sold increased, however selling
prices and margins were lower.
• The division won a number of important
contracts and launched the innovative
TouchNav alarm panel during the period
and was able to produce an improved
result overall.
Hills Sound Vision
& Lighting (SVL)
• Hills SVL is a leading provider of professional
audio, lighting and control systems to
a wide range of customers in Australia
and New Zealand and to export markets.
• Although parts of the SVL market were
slow during the period the business
produced an excellent result.
• Hills SVL has taken on a number of new
agencies and successfully completed
the acquisition of certain assets and the
operations of Herma Technologies Pty
Ltd in February 2012.
Hills Antenna and TV Systems
• Hills Antenna and TV Systems provides
a comprehensive range of reception and
distribution equipment for wireless and
both subscription and free-to-air television,
along with a range of products for the
distribution of internet protocol signals.
• Demand for equipment for both free-to-air
and satellite markets was steady during
the period. The business commissioned
its new antenna manufacturing plant
which produces the highly efficient
and robust range of TRU-SPEC and
TRU-BAND antenna designed to meet
the current and future demand arising
from the switch off of the analogue
television signal by the end of 2013.
• The Exterity range of IP video distribution
products won a number of contracts for
entertainment and mining applications.
Access Television Services,
SignalMaster, TechLife
• Access Television Services (ATS)
in Australia and Signal Master in New
Zealand provides subscription television
installation services to AUSTAR and
SKY TV respectively. Demand was
not constant through the period which
resulted in ATS experiencing some
challenges and cost increases.
• Techlife won a number of contracts
to provide similar services to government
and commercial customers although
the financial performance has been
below expectations.
OptiComm/Cygnus
• Hills has a strategy to continue to expand
its exposure to communications markets.
The 50% owned OptiComm business
provides fibre to the node and fibre to
the home in new housing developments.
The 50% owned Cygnus Satellite
business provides bandwidth to rural
and remote markets in Australia.
• Although both businesses are relatively
small, they are growing in line with
expectations and improved profits are
expected from the Communications
assets in the future.
LIFESTYLE & SUSTAINABILITY
The Lifestyle and Sustainability division
comprises Hills Home and Hardware
Product operations in Australia and New
Zealand, the Hills Healthcare, Rehabilitation
and Mobility business, LW Gemmell
plumbing supplies and Team Poly.
Home and Hardware Products
• The results of the Hills traditional branded
products business continued the steady
improvement shown in previous years.
• As a result of further changes in the
Australian hardware industry certain
listings of Bailey Ladders were lost during
the year; however the Company has
experienced increased market share
in sprayers and clotheslines.
• LW Gemmell provides speciality plumbing
products to the building industry. Despite
very subdued activity in the Australian
building industry during the period
a steady result was delivered by the LW
Gemmell business.
6
Hills Holdings Limited Annual Report for the year ended 30 June 2012
OPERATING AND FINANCIAL REVIEW Hills Healthcare
Fielders Australia
• Hills Healthcare is the leading manufacturer of rehabilitation,
• The Fielders roll-forming roofing and flooring business is a market
mobility and hospital equipment in Australia.
leader in new and innovative products.
• Results in this business were steady during the period due to
• The decline in both domestic and commercial building activity
the success of some innovative new products being launched,
particularly a new bed offer for nursing homes.
saw lower volumes of prices available to Fielders although market
share was held nationally.
• The deteriorating market conditions saw lower market margins
and despite significant overhead reduction initiatives the result
was disappointing.
• Late in the year Fielders launched the innovative Aramax product
which gives the opportunity for customers to design buildings
with extremely long roof spans. The Aramax product can be run
on Fielders mobile mills at customer sites giving great efficiencies
in the erection of commercial buildings.
Korvest
• Hills holds 48.6% of Korvest which comprises the market leading
Ezystrut cable and pipe support business, Korvest Galvanisers
and Indax industry access equipment. The Korvest business
recorded a very strong performance from its Ezystrut business
and consequently delivered excellent results and was able to
increase its profit and dividends to shareholders.
• As Korvest is a separately listed public company further details
are available from the Korvest website.
Team Poly/Hills Eco
• Hills operates a number of businesses in the eco and
sustainability markets. Team Poly operates in the very competitive
water tank industry which has been subject to intense
competition. Despite the launch of a new product range and
some success with the innovative Smart Bar range of frontal
protection systems the results from Team Poly continue to be
disappointing.
BUILDING AND INDUSTRIAL
The Building and Industrial Division comprises Orrcon Steel,
Fielders Australia and Korvest.
Orrcon Steel
• Orrcon Steel is a leading manufacturer and distributor of steel
tube and pipe in Australia. Orrcon specialises in the manufacture
of precision tube, structural tube and rectangular sections and
distributes a range of other steel products including oil, gas and
water pipelines.
• Whilst the results from Orrcon Steel were improved over the
previous year and included the closure of the large pipe mill at
Unanderra in September 2011, the business has not delivered a
satisfactory return on the funds employed.
• There have been ongoing changes to the structure at Orrcon
Steel designed to meet the changing market conditions, however
very low priced imported tubular products continue to set the
price in this market, making profitability extremely difficult for
Australian manufacturers.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
7
SUSTAINABILITY REPORT
People
Hills looks to operate its Electronics and
Communications, Lifestyle and Sustainability
and Building and Industrial businesses,
in ways that are socially and
environmentally responsible and designed
to ensure long term sustainable outcomes,
taking into consideration the different
needs of our stakeholders.
Hills’ sustainability efforts are centred around
four key areas:
• the importance of our people;
• ensuring the health and safety
of our workforce;
• the impact on the environment in which
we operate; and
• the communities in which we operate.
Corporate Responsibility
Hills’ sustainability program aims are,
in large part, based on acknowledging that
Hills’ stakeholders expect it to operate in a
manner that is both ethical and responsible.
Hills’ Code of Conduct sets out those matters
which Hills consider are necessary principles
and standards of personal and corporate
behaviour to ensure its ongoing success.
Key aspects of the Code are:
Attracting, developing and retaining the best
people with values that are aligned to Hills
is a key component of ensuring long term
sustainable outcomes for the Hills’ business.
As at 30 June 2012, Hills employed 2,642 staff
in full-time, part-time and casual positions
across Australia and New Zealand.
A key human resource strategy for Hills is
to maintain an environment where equality,
fairness and respect for each other, Hills’
customers, suppliers and shareholders is
simply the way things are done at Hills. In
doing so Hills provides opportunities for all
Hills’ people that enable them to grow and
perform to their full potential – it is the Hills’
way of life. Hills’ Equity and Diversity Policy
underpins this objective.
Hills adopted its gender diversity and inclusion
policy in the 2011 financial year to reflect
Hills’ commitment to diversity and equitable
dealings with all parties. Hills aims to meet its
ongoing commitment to diversity by, among
other things:
• creating an environment where women
can achieve their career aspirations and
balance their personal responsibilities;
• actively assisting women employees
• compliance with laws, policies
to achieve their full potential;
and procedures;
• integrity and equitable dealing with
third parties;
• behaviour in the work environment;
• confidentiality and privacy;
• conflicts of interest;
• use of Company assets;
• responsibility to Hills’ shareholders; and
• conduct of the business in regard
to the environment.
Any breach of the Code is taken seriously.
The Code provides that where a breach
occurs, appropriate action will be taken that
may result in termination of employment or
legal action.
• retaining Hills’ female talent and drawing
leaders from the total talent pool to give
Hills more strength and flexibility; and
• establishing Hills as an employer of
choice for women.
Hills framework for ongoing diversity
initiatives includes implementing actions that
assist gender diversity across the organisation
such as:
• having managers participate in diversity
awareness training;
• establishing a specific site on the Hills
Intranet that focuses on relevant topics
for women;
8
Hills Holdings Limited Annual Report for the year ended 30 June 2012
• providing career management training
for all high potential women;
• a mentoring program for high potential
women earmarked for senior leadership
roles; and
• creating networking opportunities for
women at Hills to network with each other
and with relevant networks outside Hills.
Details of Hills’ achievements in addressing
diversity targets are set out on page 39
in the Corporate Governance Statement.
Hills recognises the importance of work-life
balance and offers flexible work practices,
where possible, to staff. Hills’ Flexibility
at Work Policy offers a number of flexible
working solutions that enable staff to balance
personal and work commitments.
Just as Hills considers that recruiting the
best people into the business is integral
to Hills success, so too is the ongoing
learning and development of all staff. Hills
recognises that having the skills to do the job
well increases job satisfaction, productivity
and improves retention so all staff have the
opportunity to participate in a variety of
learning and development activities, including
participating in skills based, leadership and
compliance training programs, traineeships,
company funded tertiary studies, on line
learning and on the job training.
Hills’ performance management system
has a strong emphasis on targeted personal
and professional development, supporting
all people to be the best they can be today
and into the future. Because Hills’ values
are important, they also form part of Hills’
performance management system and Hills’
people are recognised for demonstrating
Hills’ values.
SUSTAINABILITY REPORT Health and safety
The health and safety of Hills’ employees
is a key priority and guides business decisions
and actions. Hills’ primary strategic health
and safety objective is to achieve Zero Harm.
This year the Hills Group achieved:
• 60% reduction in Lost Time Injury
Frequency Rate (LTIFR);
• 49% reduction in Medical Treatment
Injury Frequency Rate (MTIFR);
• 51% reduction in Total Recordable
Injury Frequency Rate (TRIFR);
• The set target of 25% reduction of TRIFR
for the group (in fact achieved 51%
reduction in the year);
• A full review of Hills Health, Safety and
Environmental (HSE) Management System
in line with the new model Workplace
Health and Safety Act and Regulations,
which instigated a split of the HSE
Management System to a Workplace
Health and Safety (WHS) Management
System, and also an Environmental
Management System (EMS).
This five step strategy seeks to:
• integrate the Hills’ health and safety
management systems;
• achieve compliance against recognised
health and safety standards consistently
across the business;
• implement a risk management
based approach to health and safety
management;
• ensure there is a high degree of awareness
and a culture of continuous improvement
throughout the business; and
• develop a customer driven health and
safety culture in Hills.
Hills’ WHS Management System policies
and procedures reflect its commitment
to providing a healthy, safe and friendly
environment for its employees. There is
a focus on hazard management and staff
are widely consulted on health and safety
matters. Staff and contractors are provided
with the information necessary to perform
their jobs safely.
• developing standards in relation to its
operations, products and services.
Hills recognises the long-term importance
of building a reputation as an environmentally
responsible company. As a business, Hills
is committed to reducing the impact of its
operations on the environment and playing
a part in influencing consumers and the
broader supply chain. In view of this, Hills is
building its capacity to monitor and address
these risks across all aspects
of its operations.
Hills holds all required environmental licences
for its manufacturing sites around Australia.
No significant environmental incidents were
reported over the 2011-12 financial year
and Hills continued to meet or exceed the
requirements specified in relevant licenses
and authorisations.
Hills has completed a review of its HSE
management system with a goal to establish
a dedicated Environmental Management
System (EMS) during the financial year
2012-13. A Group EMS will assist Hills
to identify, manage and reduce its impact
on the environment and generate reports
on environmental performance. It provides
a systematic and methodical approach
to planning, implementing and reviewing
the Group’s response to those impacts.
The National Greenhouse and Energy
Reporting (NGER) Act requires the Group
to report its annual greenhouse gas (GHG)
emissions and energy use from facilities
over which Hills has operational control.
As a result, systems and processes for
the collection and calculation of the data
required have been established.
Following review of an incident which
occurred in late 2009, a Workplace Health
and Safety Enforceable Undertaking was
entered into by a Group subsidiary, Orrcon
Operations Pty Ltd. and the Chief Executive,
Department of Justice and Attorney General
dated 2 February 2012. The Enforceable
undertaking addresses concerns raised
in the review. The Company has implemented
the proposed changes.
For those employees who do sustain
injuries in the workplace, Hills provides
an equitable claims management process
and workplace rehabilitation program
to ensure the earliest possible return
to meaningful and productive work.
Since the beginning of Hills Zero Harm
Journey, there has been a 91% reduction
in its Lost Time Injury Frequency Rate, and
an 85% reduction in the Total Recordable
Incident Frequency Rate.
There are a number of business units
that have been Lost Time Injury (LTI) and
Medical Treatment Injury (MTI) free for over
12 months, and as such are well on the path
to achieving Zero Harm.
Finally, during the 2011-12 financial year Hills
has set a new record – the longest recorded
number of months without an LTI in the Group.
At the close of the financial year, Hills had not
recorded an LTI since mid-January 2012.
Environment
Hills cares for the environment and cultural
heritage. Hills is committed to developing
systems and processes that minimise any
adverse environmental impacts by:
• providing advice to its customers on the
responsible use of its products;
• complying with all relevant environmental
laws, regulations and standards; and
Hills Holdings Limited Annual Report for the year ended 30 June 2012
9
SUSTAINABILITY REPORT (CONTINUED)
The Community
Hills has a long established culture of encouraging staff participation
in local community activities. This includes sponsorship of staff teams
in local charitable events such as the “Walk to Cure Juvenile Diabetes”,
donations of Hills’ products for fund raising events and charitable
donations.
Through the Hills Charity Support Scheme, Hills employee giving
program, staff contributions are matched dollar for dollar by Hills,
enabling donations in excess of $130,000 during the year to very
worthy charities nationally. These donations included:
• The purchase of air conditioning for Ronald McDonald’s main house
in WA;
• The purchase of dinghy covers for Sailability WA, which enables
people with disabilities to experience sailing;
• The makeover of the garden at Cara’s children’s respite facility
at Ingle Farm in SA;
• Funding for Girls on Track, a life skills program for young girls from
vulnerable families in SA;
• The purchase of a generator for Brothers in Arms, an organisation
that works with homeless children in Vic;
• The purchase of breast pumps for the Royal Women’s Hospital in Vic
for use by women with premature babies;
• The building of a sensory room and touch screen table top computer
for the William Rose School for children with disabilities in NSW; and
• The purchase of play equipment for the Camira and Bundaberg
centres of the AEIOU Foundation, which works with young children
with Autism Spectrum Disorder in Qld.
Since the Scheme’s inception some 12 years ago, Hills, together with
its people, have made donations in excess of $1,100,000.
Environment (continued)
During the financial year 2011-12, Hills submitted its first report
under the NGER Act with data collected over the 2010-11 reporting
period. The Group’s reported energy consumption was 253TJ
of energy with total GHG emissions of 34,444 tonnes of Carbon
Dioxide equivalent (tCO2-e).
Projections made utilising data collected during the 2011-12 reporting
period indicate that the Group will again trigger the legislated reporting
threshold. Total energy consumption is estimated to be approximately
241TJ while total GHG emissions are approximately 28,594tCO2-e.
This represents a 5 per cent reduction in total energy consumption
and a 17 per cent reduction in greenhouse gas emissions over
the financial year 2011-12.
On 1 July 2012 the Australian Government introduced a price on
carbon emissions that will be fixed at $23 per tonne and will rise
at 2.5 per cent each year before transitioning to an emissions
trading scheme on 1 July 2015.
Liable entities will be required to report on their emissions (through the
NGER Act) and surrender the number of carbon units which represents
its total emissions to the Clean Energy Regulator or pay a charge.
Hills is not a liable entity under the carbon pricing mechanism and is
not required to purchase carbon units in relation to its total emissions
despite reporting under the NGER Act. However, Hills does face
potential cost increases that will be passed on from suppliers
of resources, goods and services (e.g. fuel, electricity, gas and steel).
Hills’ EMS will assist its businesses to mitigate the impact of the Carbon
Pricing Mechanism by encouraging reductions in energy
consumption and waste output.
Hills is 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 impacts of packaging. Under the APC Hills has revised
its five year action plan, which will enable the Group to undertake
reviews of new and existing packaging and complete actions against
core APC Key Performance Indicators.
In the 2011-12 financial year Hills submitted its first annual report under
the APC, which has been published on its website alongside the
revised action plan and environmental policy. Hills remains compliant
in relation to all APC requirements.
10
Hills Holdings Limited Annual Report for the year ended 30 June 2012
SUSTAINABILITY REPORT HILLS LOOKS TO OPERATE ITS ELECTRONICS AND
COMMUNICATIONS, LIFESTYLE AND SUSTAINABILITY AND
BUILDING AND INDUSTRIAL BUSINESSES, IN WAYS THAT
ARE SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE
Hills Holdings Limited Annual Report for the year ended 30 June 2012
11
BUILDING AND INDUSTRIAL
ELECTRONICS AND COMMUNICATIONS
LIFESTYLE AND SUSTAINABILITY
12
Hills Holdings Limited Annual Report for the year ended 30 June 2012
BOARD OF DIRECTORS
Jennifer Helen Hill-Ling
LLB (Adel) FAICD
Chairman Non-Independent
Non-Executive Director
Age 50
Edward (Ted) Pretty
BA LLB (Hons).
Group Managing Director
(appointed 3 September 2012)
Age 54
Graham Lloyd Twartz
BA (Adel) DipAcc (Flinders)
Group Managing Director
(retired 2 September 2012)
Age 55
Experience and expertise
Experience and expertise
Experience and expertise
Appointed Director in August 1985. Appointed
Deputy Chairman in June 2004. Appointed
Chairman 28 October 2005.
Jennifer Hill-Ling has extensive experience
in corporate and commercial law, specialising
in corporate and business structuring, mergers
and acquisitions, joint ventures and related
commercial transactions. She practiced law
for some 25 years and was a senior partner in two
Sydney law firms in that time. She is also currently a
director of MS Limited, Hills Associates Limited and
Hills Holdings NZ Limited and was formerly
a director of Tower Trust Limited. She is a fellow
of the Australian Institute of Company Directors.
Other current listed company directorships
None
Former listed company directorships
in last 3 years
None
Special responsibilities
Chairman of the Board, Chairman of the
Remuneration Committee, Member of the
Nomination Committee.
Interests in shares and options
at the date of this report
15,832,484 ordinary shares in Hills Holdings
Limited (including 1,188,918 shares owned by Hills
Associates Limited and Poplar Pty Ltd (jointly held)
and 14,450,548 shares owned by Hills Associates
Limited of which JH Hill-Ling is a Director).
Nil options over ordinary shares in Hills
Holdings Limited.
Appointed as Group Managing Director and Chief
Executive Officer 3 September 2012.
Appointed Director in July 1993. Appointed
as Group Managing Director 1 July 2008.
Graham Twartz is the Group Managing Director and
Chief Executive Officer 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 field. Mr Twartz
held senior management positions in diversified
companies before joining Hills in 1993. He is
currently a director of Hills Associates Limited and
Hills Holdings NZ Limited.
Other current listed company directorships
Director of Korvest Ltd (since 1999).
Former listed company directorships
in last 3 years
None.
Special responsibilities
Managing Director.
Interests in shares and options
at the date of this report
207,342 ordinary shares in Hills Holdings Limited
and 29,115 ordinary shares in Korvest Ltd.
348,859 Performance rights over ordinary shares
in Hills Holdings Limited.
Mr Pretty is a leading business executive and
director with significant experience particularly in
telecommunications and information technology
innovation and product development.
He is Australian and New Zealand Advisory
Chairman of Tech Mahindra and Mahindra Satyam
(part of the Indian headquartered $14bn diversified
Mahindra Group). He spent two years in the Middle
East during his tenure at Gulf Finance House
as its Group Chief Executive Officer. Prior to his time
at Gulf Finance, Mr Pretty was Chairman of Fujitsu
Australia Limited, Chairman of then ASX listed RP
Data Limited, an Executive Director at Macquarie
Capital Advisers and a member of the Visy
Industries Advisory Board.
Prior to those roles, he was an Executive at
Telstra Corporation Limited, in a number of
Group Managing Director positions including
Technology Innovation and Product. Mr Pretty has
also served as an adviser to and director of Optus
Communications and Optus Vision and as a Partner
at Media and Telecommunications Law Firm, Gilbert
& Tobin prior to joining Telstra.
Other current listed company directorships
Non-Executive Director of NextDC Limited
(since 2011).
Former listed company directorships
in last 3 years
None
Special responsibilities
Managing Director.
Interests in shares and options
at the date of this report
Nil ordinary shares in Hills Holdings Limited.
Nil Performance rights over ordinary shares in Hills
Holdings Limited.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
13
Fiona Rosalyn Vivienne Bennett
BA (Hons) FCA FAICD FAIM
Independent Non-Executive Director
Age 56
Experience and expertise
Appointed Director on 31 May 2010.
Fiona Bennett is a Chartered Accountant with
over 30 years' experience in business and
financial management, corporate governance, risk
management and audit. She has previously held
senior executive positions at BHP Billiton Limited
and Coles Group Limited and has been a Chief
Financial Officer at several organisations
in the health sector.
Ms Bennett is a graduate of The Executive Program
at the University of Virginia's Darden Graduate
School and the AICD Company Directors' course.
Other current listed company directorships
Director of Boom Logistics Limited
(since March 2010)
Former listed company directorships
in last 3 years
None
Special responsibilities
Chairman of the Audit, Risk and
Compliance Committee.
Interests in shares and options
at the date of this report
Matthew Arnold Campbell
Ian Elliot FAICD
Independent Non-Executive Director
Age 58
Independent Non-Executive Director
Age 58
Experience and expertise
Experience and expertise
Appointed Director on 19 December 2011.
Matthew Campbell has over thirty years’
experience with leading retailers and wholesalers
within Australia and New Zealand. Appointments
have included General Manager Merchandise with
The Warehouse (New Zealand), executive roles
with Rebel Sport (General Manager Merchandise,
General Manager Retail and Executive Group
General Manager of Supply Chain), Managing
Director of Epic Records and Group General
Manager of Brashs.
Mr Campbell has specialist expertise in driving
sustainable growth through development and
execution of business strategy, cost productivity and
business ‘turn around’ programs.
Other current listed company directorships
None
Former listed company directorships
in last 3 years
None
Special responsibilities
Member of the Audit, Risk and
Compliance Committee.
Interests in shares and options
at the date of this report
Appointed Director in August 2003. Appointed Lead
Independent Director in December 2011.
Ian Elliot has spent 39 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 Institute of Company
Directors and graduate of the Harvard Business
School Advanced Management Program.
In addition to his listed company directorships
he was formerly Chairman of Zenith Media Pty
Ltd, Cordiant Communications Group, Allied
Brands Limited, Promentum Limited and Artist &
Entertainment Group Limited and Chairman and
Chief Executive Officer (CEO) of George Patterson
Advertising and the National Australia Day Council.
He is a current Director of the Australian Rugby
League Commission.
Other current listed company directorships
Director of Salmat Limited (since 2005)
Former listed company directorships
in last 3 years
None
Special responsibilities
Chairman of the Nomination Committee,
Member of the Remuneration Committee.
Interests in shares and options
at the date of this report
6,235 ordinary shares in Hills Holdings Limited.
Nil options over ordinary shares in Hills
Holdings Limited.
4,000 ordinary shares in Hills Holdings Limited.
1,000 ordinary shares in Hills Holdings Limited.
Nil options over ordinary shares in Hills
Holdings Limited.
Nil options over ordinary shares in Hills
Holdings Limited.
14
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Roger Baden Flynn
BEng (Hons) MBA FIE (Aust)
FAICD
Independent Non-Executive Director
Age 62
Experience and expertise
Appointed Director in November 1999. Retired
as Director 4 November 2011
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 Institute of
Company Directors.
Other current listed company directorships
Executive Chairman of Coventry Group Limited
(since 2001).
Former listed company directorships
in last 3 years
None
Special responsibilities
None
Interests in shares and options
at the date of this report
None
David Moray Spence
B Com
Peter William Stancliffe
BE (Civil) FAICD
Independent Non-Executive Director
Age 60
Independent Non-Executive Director
Age 64
Experience and expertise
Appointed Director on 1 September 2010.
Experience and expertise
Appointed Director in August 2003.
Peter Stancliffe has over 40 years’ experience in the
management of large industrial companies both
in Australia and overseas and has held various
senior management positions, including Chief
Executive Officer. He has extensive experience
in strategy development and a detailed knowledge
of modern company management practices.
Mr Stancliffe is a graduate of the MIT Senior
Management Program and the AICD Company
Directors’ Course. In addition to his listed
company directorships he is a director of Harris
Scarfe Pty Ltd.
Other current listed company directorships
Chairman of Korvest Ltd (since 2009). Director of
Automotive Holdings Group Limited (since 2005).
Former listed company directorships
in last 3 years
Former Chairman of View Resources Limited (from
2006 to 2009).
Special responsibilities
Member of the Nomination Committee.
Interests 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.
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
Chief Financial Officer (CFO) of Freedom Furniture
and OPSM, where he also assumed responsibility
for manufacturing and logistics. He has been directly
involved in many internet and communications
companies including the building of Australia’s first
and largest dial up ISP, OzEmail.
Mr Spence was the chief executive officer
of Unwired Australia until February 2010.
He has been involved in a number of listed and
non-listed boards including WebCentral, uuNet,
Access1, Emitch, Commander Communications,
Chaosmusic, ubowireless, Vividwireless and is a
past chairman of the Internet Industry Association.
He is currently a non-executive Director of AWA
Limited and of PayPal Australia Pty Ltd.
Other current listed company directorships
Chairman of VOCUS Communications Ltd
(since June 2010).
Former listed company directorships
in last 3 years
None.
Special responsibilities
Member of the Audit, Risk and
Compliance Committee, Member of
the Remuneration Committee.
Interests 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.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
15
HILLS IS IN MANY BUSINESSES BUT COMES TOGETHER AS ONE TEAM.
HILLS INVESTS THE BEST OF ITS TIME AND TALENT TO DELIVER ON
ITS PROMISES.
16
Hills Holdings Limited Annual Report for the year ended 30 June 2012
SENIOR
LEADERSHIP TEAM
Ted Pretty
BA LLB (Hons)
Group Managing Director
Age: 54
Ted was appointed Group Managing Director
and Chief Executive Officer on 3 September 2012.
He is a leading business executive and director
with significant experience particularly in
telecommunications and information technology
innovation and product development. He is a non
Executive Director of Korvest Limited, NextDC Limited
and Australian and New Zealand Advisory Chairman
of Tech Mahindra and Mahindra Satyam (part of the
Indian headquartered $14bn diversified Mahindra
Group). He spent two years in the Middle East during
his tenure at Gulf Finance House as its Group Chief
Executive Officer. Prior to his time at Gulf Finance,
Mr Pretty was Chairman of Fujitsu Australia Limited,
Chairman of then ASX listed RP Data Limited, an
Executive Director at Macquarie Capital Advisers and
a member of the Visy Industries Advisory Board.
Prior to those roles, he was an Executive at Telstra
Corporation Limited, in a number of Group Managing
Director positions including Technology Innovation
and Product. Ted has also served as an adviser to and
director of Optus Communications and Optus Vision
and as a Partner at Media and Telecommunications
Law Firm, Gilbert & Tobin prior to joining Telstra.
Mike McKinstry
B Econ and Marketing (Strathclyde, UK)
Chief Operating Officer
Age: 51
Mike joined the Group in May 2011 in his current
role and is responsible for the businesses within
the Building and Industrial and Lifestyle and
Sustainability Divisions. Previously Mike was with
the AMCOR group where he held positions as
Group General Manager of both the Beverage
Cans and Closures and Corrugated Box divisions.
He is a former Managing Director of Alcoa Australia
Rolled Products, and has held senior executive
and operational positions in Australia and the
USA with the PBR International brake products
manufacturing and supplies group. Prior to coming
to Australia he was for many years with the Rover
Group motor vehicle conglomerate in the UK,
culminating in his appointment as Director, Sales
and Marketing Operations.
Grant Logan
B Commerce and Administration (VUW, NZ) CA (NZ)
Chief Financial Officer
Age: 60
Grant joined the Group in August 2011 as Chief
Financial Officer. Previously Grant was the Chief
Financial Officer and an executive director
of Corporate Express. He was also a CFO with
leading corporations including ASX-listed foods
group, Goodman Fielder, Philips Electronics
Australia/NZ and Bayer Australia, and has held
numerous directorships with public and private
companies. Grant is a former Chairman of the
Electrical Lamp Manufacturing Association Ltd,
Radio Rentals (SA) Pty Ltd, Philips Electronics
Australia, Philips Electronics NZ, Atos Origin Pty Ltd
and Blue Sky Designs.
Steve Cope
CEO – Electronics & Communications
Age: 53
Steve joined the Company in April 2007 as Group
General Manager, Electronics & Communications
and is responsible for all of the diverse electronics
businesses in the Hills portfolio. Steve has over
30 years experience in the management of
large technology and contracting companies
in Australia and overseas and has held various
executive management positions. He has extensive
experience in technology development and
commercialisation strategy. He is a graduate
of the University of Melbourne MBS LIB and MDP.
Tony Sullivan
B. E. (Civil) (Auckland, NZ) MBA
(Cranfield School of Management, UK)
Group General Manager Strategy
Age: 59
Tony joined the Group in October 2010
and is responsible for Group strategy and
portfolio management including acquisitions
and divestments. Previously Tony was General
Manager Strategy & Business Development at
Alesco Corporation Limited, the Group Planning
and Development Manager for the OPSM Group
Limited and has also held positions across a
number of companies and industries in growth and
development roles including private equity.
Rachel Rees
B.Bus (Acc), Grad Dip CSA, MAICD, FCA, FTIA, FCIS,
Company Secretary
Age: 43
Rachel joined the Group in February 2012 and
is responsible for all of the legal and compliance
issues associated with Hills. Previously she was a
Director and CFO/Company Secretary of Uranium
One for seven years. She assisted the company
in developing Australia’s fourth uranium mine,
Honeymoon. Prior to working for Uranium One,
Rachel was the Taxation Partner of a Chartered
Accounting firm. She is the Chair – Institute of
Chartered Company Secretaries – SA & NT
State Council and is also a member of the South
Australian Regional Council for the Institute of
Chartered Accountants in Australia.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
17
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
2012, AND THE INDEPENDENT AUDITOR’S REPORT THEREON.
Directors
Company secretary
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 2012, and the numbers of meetings
attended by each Director were:
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
Fiona Rosalyn Vivienne Bennett
Ian Elliot
David Moray Spence
Peter William Stancliffe
Matthew Arnold Campbell was appointed
as a Director on 19 December 2011 and
continues in office at the date of this report.
Roger Baden Flynn was a Director from
the beginning of the financial year until his
retirement on 4 November 2011.
Review of operations
Refer Operating and Financial Review
on pages 2 to 7.
Information on Directors
Refer to Board of Directors on pages 13 to 15.
Rachel Rees, B.Bus (Acc), Grad Dip CSA,
MAICD, FCA, FTIA, FCIS, was appointed
to the position of Company Secretary on
1 February 2012.
As Company Secretary, Rachel is responsible
for all of the legal and compliance issues
associated with Hills. Previously Ms Rees
was a Director and CFO/Company Secretary
of Uranium One for seven years. She assisted
the company in developing Australia’s fourth
uranium mine, Honeymoon. Prior to working
for Uranium One, Ms Rees was the Taxation
Partner of a Chartered Accounting firm.
Ms Rees is the Chair – Institute of Chartered
Company Secretaries – SA & NT State
Council and is also a member of the South
Australian Regional Council for the Institute
of Chartered Accountants in Australia.
David Lethbridge, LLB (Otago, NZ), Grad
Dip ACG, FCIS, GAICD was appointed to the
position of Company Secretary in January
2010 and held this position until 1 February
2012. 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.
18
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited Annual Report for the year ended 30 June 2012
19
DIRECTORS’ REPORT
Jennifer Helen Hill-Ling
Graham Lloyd Twartz*
Fiona Rosalyn Vivienne Bennett
Matthew Arnold Campbell~
Ian Elliot
Roger Baden Flynn^
David Moray Spence
Peter William Stancliffe#
Meetings of committees
Full meetings of
Directors
A
16
16
16
7
14
7
15
16
B
16
16
16
7
16
7
16
16
Audit, Risk and
Compliance
B
A
–
–
10
4
–
–
10
6
–
–
10
4
–
–
10
6
Nomination
Remuneration
A
5
–
–
–
5
–
–
5
B
5
–
–
–
5
–
–
5
A
8
–
–
–
8
–
8
–
B
8
–
–
–
8
–
8
–
A = Number of meetings attended
B = Number of meetings held during the time the Director held office or was a member of the committee during the year
* = An executive Director
~ = Commenced as a Director on 19 December 2011 and commenced as a member of the Audit, Risk and Compliance Committee on 30 March 2012
^ = Retired 4 November 2011
# = Resigned as a member of the Audit, Risk & Compliance Committee on 10 February 2012
Remuneration report-audited
The Directors of Hills Holdings Limited present this Remuneration report for the Group for the year ended 30 June 2012. This Remuneration report
forms part of the Directors’ report and has been prepared in accordance with section 300A 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 2012.
Directors and other key management personnel disclosed in this report
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.
The key management personnel of the Group includes the Directors as per pages 13 to 15 of the Directors’ report 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
Nonexecutive and executive directors – see pages 13 to 15 of the Directors’ report.
Other key management personnel
S Cope
A Kachellek
D Lethbridge
G Logan
M McKinstry
A Muir
R Rees
T Sullivan
Chief Executive Officer – Electronics and Communications Division
Managing Director – Korvest Ltd
Company Secretary (until 1 February 2012)
Chief Financial Officer (from 8 August 2011)
Chief Operating Officer
Chief Financial Officer (until 7 July 2011)
Company Secretary (from 1 February 2012)
Group General Manager Strategy
Changes since the end of the reporting period
None
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 Committee
Information 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.hillsholdings.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.
20
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Principles used to determine
the nature and amount of
remuneration (continued)
The Committee’s responsibilities include
developing, reviewing and making
recommendations to the Board on:
• the remuneration framework for the
Non-Executive Directors and Board
Committees;
• the remuneration policy for the Managing
Director and senior executives; and
• remuneration incentive schemes for the
Managing Director and senior executives.
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) Use of remuneration consultants
During 2012, Hills’ Remuneration Committee
employed the services of Godfrey
Remuneration Group Pty Ltd to review its
existing remuneration policies and to provide
recommendations in respect of benchmarking
salaries and executive short-term and
long-term incentive plan design. These
recommendations also covered the Group’s
key management personnel. Under the terms of
the engagement, Godfrey Remuneration Group
provided remuneration recommendations as
defined in section 9B of the Corporations Act
2001 and was paid $33,600 for these services.
The following arrangements were
made to ensure that the remuneration
recommendations were free from
undue influence:
• Godfrey Remuneration Group was
engaged by, and reported directly to, the
Chairman of the Remuneration Committee.
The agreement for the provision
of remuneration consulting services
was executed by the Chairman of the
Remuneration Committee under delegated
authority on behalf of the Board.
• The report containing the remuneration
recommendations was provided
by Godfrey Remuneration Group directly
to the Chairman of the Remuneration
Committee; and
• Godfrey Remuneration Group was
permitted to speak to management
throughout the engagement to
understand Company processes,
practices and other business issues
and obtain management perspectives.
However, Godfrey Remuneration Group
was not permitted to provide any member
of management with a copy of their draft
or final report that contained the
remuneration recommendations.
DIRECTORS’ REPORT
Remuneration report-audited (continued)
As a consequence, the Board is satisfied that
the recommendations were made free from
undue influence from any members of the key
management personnel.
• Fixed remuneration, being base pay,
superannuation and other benefits;
• Short term incentives (STI) and
• Long term incentives(LTI).
(c) Voting and comments made at the
Company’s 2011 Annual General Meeting
Hills received more than 87% of "yes" votes
cast on its Remuneration report for the 2011
financial year.
(d) Executive remuneration 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:
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 set out in the table below.
The weightings are calculated on the basis
that the "at risk" components (STI and LTI) are
at their maximum.
Fixed
STI
LTI
45%
40%
15%
Managing
Director
Other key
management
personnel
(i)Market competitive and fair:
Range
48% -
75%
17% -
45%
6% -
10%
• 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:
• Incentive plans and performance
measures are aligned with Hills’ short
and long term success.
(e) Executive remuneration framework
The executive remuneration framework has
a mix of fixed and variable ("at risk") pay. It has
three components:
Average
62%
30%
8%
(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 an
Industrial and Service Market Comparator
Group comprised of a group of ASX listed
companies of similar size to HIlls in terms
of market capitalisation and business
characteristics and it also takes into account
an individual’s responsibilities, performance,
qualifications and experience. In some cases,
experience, superior performance or strong
market demands for specific job categories
may justify above median fixed remuneration.
Structured as a total employment cost
package, the base pay may be delivered
as a combination of cash and prescribed
non-financial benefits at the executives'
discretion.
There are no guaranteed base pay increases
included in any executives' contracts.
The fixed component of remuneration for
all continuing key management personnel
is frozen at levels set in 2011, except where
competitive market forces have forced
a review or there has been a change in
responsibilities.
Retirement benefits comprise employer
contributions to defined contribution
superannuation funds.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
21
DIRECTORS’ REPORT
Remuneration report-audited (continued)
Principles used to determine
the nature and amount of
remuneration (continued)
(ii) Short term incentives
and increase shareholder value by providing
rewards for achievement of business
financial performance goals and individual
performance goals which are focussed on
non-financial performance.
management personnel. KPIs generally
include measures relating to the Group, the
relevant business segment and the individual,
and may include a mix of financial and
non-financial performance measures.
Hills’ executives all participate in an STI Plan
which is designed to drive individual and team
performance to deliver annual business plans
Each year the Remuneration Committee
recommends to the Board the key
performance indicators (KPIs) for the key
Features of all executives’ STI plans for FY 2012 are as follows:
Frequency and timing
Participation is determined on an annual basis with performance measured over
the financial year ending 30 June.
Financial measures used
Non-financial measures
Assessment of performance
Service condition
A principal focus of Hills is earnings before interest and tax (EBIT), net profit after tax (NPAT),
returns on funds employed (ROFE) which measures effective utilisation of assets, earnings
per share (EPS) and working capital.
The measures used in the STI plan are:
• for senior executive roles with corporate responsibility: a combination of ROFE, NPAT
and working capital;
• for senior executives with divisional responsibility: EBIT and ROFE; and
• for the Managing Director: ROFE, NPAT and EPS.
Non-financial measures vary with position and responsibility and are chosen because they
are critical to Hills’ short term and long term success, and are aligned to the business plan.
The measures typically cover areas including:
• Safety;
• Strategic outcomes;
• Operational improvements;
• Succession planning;
• Diversity;
• Restructuring and rationalisation; and
• Other discretionary performance targets.
At the end of the financial year each senior executive’s performance is assessed based on the
actual performance of the Group and the relevant segment and individual performance overall
and against KPIs set at the beginning of the financial year.
The Managing Director makes recommendations in respect of each senior executive to the
Remuneration Committee who in turn makes recommendations to the Board in relation to the
payment of individual short term bonuses.
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 financial year.
In terms of the targets set by the Board for FY 2012, 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
STI awarded in FY 2012
some of the financial targets set;
• The Building and Industrial and Lifestyle and Sustainability divisions did not meet
the financial targets set;
• Certain strategy and succession planning targets were met; and
• The Group’s safety targets were exceeded.
(iii) Long term incentives
(a) Long Term Incentive Plan (LTIP)
In 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 specified performance conditions)
(performance rights);
22
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Principles used to determine
the nature and amount of
remuneration (continued)
• 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 dependent 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;
• 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;
Participation
Executive participation is determined by the Board.
DIRECTORS’ REPORT
Remuneration report-audited (continued)
• 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’ 2011 Annual General Meeting,
shareholder approval was obtained for the
Managing Director to be issued with 229,933
(at Hills 2010 Annual General Meeting:
118,926) performance rights under the LTIP.
Following the approval given at the 2011
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 the
following table and the table on page 30
of this Report.
Performance conditions
Performance measures
The performance conditions attaching to the performance rights will be measured over a three year period
commencing from 1 July 2011 (performance rights issued in the previous financial year are measured over the three
year period commencing from 1 July 2010). If 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 Hills’ three year strategic and financial
objectives and TSR measures growth in the price of Hills’ shares and dividends against the ASX 200 Industrial
Accumulation Index.
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 Industrial
Accumulation Index (Index) which is applicable to the other 50% of the performance rights.
Performance testing
The performance hurdles will be tested at 30 June 2014 (performance rights issued in the previous financial year will
be tested at 30 June 2013). No further testing will occur.
Vesting schedule
The vesting schedule for the performance rights issued in the 2012 financial year is:
EPS hurdle:
• EPS compound annual growth rate of less than 15%, with a starting EPS of 19.2 cents – 0% vested
• EPS compound annual growth rate of 15% or more, with a starting EPS of 19.2 cents – 25% vested
• EPS compound annual growth rate of 20% or more, with a starting EPS of 20.0 cents – 50% vested
TSR hurdle:
• Hills’ TSR compound annual growth rate less than 20%, with a starting share price of $3.00 – 0% vested
• Hills’ TSR compound annual growth rate of 20% or more, with a starting share price of $3.00 – 25% vested
• Hills’ TSR compound annual growth rate of 25% or more, with a starting share price of $3.00 – 25% vested
The vesting schedule for the performance rights issued in the 2011 financial year is:
EPS hurdle:
• EPS compound annual growth rate of less than 15% – 0% vested
• EPS compound annual growth rate of 15% or more – 25% vested
• EPS compound annual growth rate of 20% or more – 50% vested
TSR hurdle:
• Hills’ TSR less than Index – 0% vested
• Hills’ TSR outperforms Index – 25% vested
• Hills’ TSR outperforms Index by 15% or more – 25% vested
Trading restrictions
There are no restrictions on trading the performance shares once issued.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
23
DIRECTORS’ REPORT
Remuneration report-audited (continued)
Principles used to determine
the nature and amount of
remuneration (continued)
(b) Prior long-term Incentive Plans
Until the 2010 financial year, long term
incentives were provided 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 entitled 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.
In accordance with Hills’ Securities
Trading Policy, participants in equity based
remuneration plans are not permitted to enter
into any transactions that would limit the
economic risk of options or other
unvested entitlements.
(iv) 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
otherwise determined by the Directors.
(v)
Link between remuneration and
Group performance
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
financial and non-financial. The key financial
measures are NPAT, EBIT, ROFE and EPS,
at a business unit and divisional level for
some executives and at a Group level for
other executives. The non-financial measures
include safety, strategic outcomes, diversity,
operational improvements, restructuring
and rationalisation and other discretionary
performance targets.
In the financial year ended 30 June 2012 the
Group performance improved on the prior
year, with EBIT (before CGU impairment and
closure costs in the year ended 30 June 2011)
increasing 11% to $44.702 million¹ and net
profit after tax (before CGU impairment and
closure costs in the year ended 30 June 2011)
increasing 6% to $28.822 million.2
In difficult trading conditions, some of the
businesses within the Electronics and
Communications division achieved their
budget EBIT results. However, the Lifestyle
and Sustainability division and the Building
and Industrial division businesses of Orrcon
and Fielders did not meet the EBIT thresholds
set by the Board. As a consequence, STI
payments related to financial measures
were low.
Non-financial STIs were achieved where
executives achieved their strategic,
operational or other discretionary targets.
Pleasingly, and as reported elsewhere in this
report, Hills continues to drive down the total
reportable incident frequency rate (TRIFR)
to 10.1, a 47% improvement on the prior
year. Most executives achieved the safety
component of their non-financial STI's.
The following table summarises financial
and share price information and safety
performance over the last five years:
Key financials
Earnings before interest and tax (EBIT) ($’000) 1
Shareholders’ funds ($’000)
Return on funds employed (ROFE) based on year end
Funds Employed
Net profit ($’000) 2
Net profit ($’000)
Basic earnings per share (cents) 3
Dividends (cents)
Share price ($)
Safety (TRIFR)
FY12
44,702
400,963
FY11
40,376
402,307
FY10
65,469
496,499
FY09
59,978
FY08
87,772
428,520
429,517
9.1%
8.2%
12.0%
10.3%
14.2%
28,822
28,822
10.5
10.0
1.06
10.1
27,126
(73,116)
10.2
10.0
1.20
19.8
43,095
43,095
16.7
12.5
2.15
34.7
34,201
15,655
14.6
10.0
1.57
41.4
53,589
52,360
27.3
27.5
3.34
65.1
1. EBIT before CGU impairment and closure costs in the year ended 30 June 2011 of $40.376M is a non-IFRS measure calculated as: EBIT loss for the year of $74.459M adjusted for Orrcon and
Team Poly impairment and Orrcon closure costs of $114.839M.
2. Net profit after tax (NPAT) before CGU impairment and closure costs for the year ended 30 June 2011 of $27.126M is a non-IFRS measure calculated as: NPAT loss of $73.116M adjusted for
Orrcon and Team Poly impairment and Orrcon closure costs of $100.242M.
3. Basic earnings per share before CGU impairment and closure costs for the year ended 30 June 2011 is a non-IFRS measure calculated using NPAT attributable to owners of $74.955M adjusted
for Orrcon and Team Poly impairment and Orrcon closure costs of $100.242M.
The non-IFRS measures used by the Company are relevant because they are consistent with measures used internally by management to assess the operating performance of the business.
The non-IFRS measures have not been subject to audit or review.
24
Hills Holdings Limited Annual Report for the year ended 30 June 2012
DIRECTORS’ REPORT
Remuneration report-audited (continued)
Principles used to determine the nature and amount of remuneration (continued)
(f) Non-executive Director remuneration
Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors.
Non-Executive Directors’ fees and payments are reviewed annually by the Board. Non-Executive Directors do not receive performance
based pay. The Board has also considered the advice of independent remuneration consultants to ensure Non-Executive Directors’ fees
and payments are appropriate and in line with the market.
The Chairman’s fees are determined independently to the fees of Non-Executive Directors based on comparative roles in the external market.
Directors’ fees
The aggregate amount of remuneration paid to Non-Executive Directors is $1,200,000.
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 three 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.
Ms J Hill-Ling is the only Director entitled to receive benefits on retirement under a scheme that has since been discontinued. Under the scheme,
Ms J Hill-Ling is entitled to a maximum retirement benefit 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
benefit and the benefit multiple (up to a maximum of two times fees) remains fixed. The benefit is fully provided for in the financial statements.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
25
DIRECTORS’ REPORT
Remuneration report-audited (continued)
Details of remuneration
Amounts of remuneration
Details of the remuneration paid or payable to the Directors and the key management personnel of the Group
(as defined in AASB 124 Related Party Disclosures) are set out in the following tables.
Cash
salary
and fees
$
192,661
100,917
49,347
100,917
31,971
91,743
148,576
716,132
2012
Name
Non-Executive Directors
J Hill-Ling+
F Bennett
M Campbell
I Elliot
R Flynn
D Spence
P Stancliffe*
Subtotal Non-Executive Directors
Executive Director
G Twartz
Other key management personnel (Group)
S Cope
A Kachellek
D Lethbridge¹
G Logan²
M McKinstry
A Muir³
R Rees4
T Sullivan
Total key management personnel
compensation (Group)
Short-term employee benefits
Post -
employment
benefits
Long -
term
benefits
Share - based
payments (D)
Cash
bonus (A)
Other (B)
Super
annuation
Long
service
leave (C)
Perfor-
mance
rights &
options
Shares
Total
$
-
-
-
-
-
-
-
-
$
$
5,600
-
-
-
-
-
-
5,600
17,339
9,083
4,441
9,083
2,877
8,257
13,372
64,452
$
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
803,211
40,000
67,230
46,789
34,656
13,822
321,101
250,005
131,462
358,451
430,214
6,189
95,566
284,307
75,252
138,622
10,000
37,500
20,000
-
5,000
-
3,884
350
12,314
1,409
14,753
2,169
7,301
-
28,952
33,472
11,832
32,309
38,719
557
8,601
25,588
20,920
26,033
-
824
1,358
10,560
213
1,755
2,513
41,168
628
279
418
-
-
1,759
$
-
-
-
-
-
-
-
-
-
210
-
-
-
-
-
-
-
$
215,600
110,000
53,788
110,000
34,848
100,000
161,948
786,184
1,005,708
452,832
489,650
166,236
430,772
505,462
19,475
116,681
313,409
3,396,638
326,374
115,010
291,271
96,319
60,587
210
4,286,409
+ J Hill-Ling remuneration includes a dividend of $5,600 (2011: $5,600) paid as a shareholder of Hills Associates Limited.
* P Stancliffe remuneration includes Board fees from Korvest Ltd.
1. D Lethbridge ceased employment on 14 February 2012.
2. G Logan commenced employment on 8 August 2011.
3. A Muir ceased employment on 7 July 2011.
4. R Rees commenced employment on 1 February 2012.
(A) The short-term incentive bonus is for
performance during the respective
financial year using the criteria
set out above.
(B) Other comprises dividends paid to
shareholders of Hills Associates Limited,
annual leave accrued in excess of
annual leave taken in the year and
payment in compensation for transferring
from the Company's previous defined
contribution scheme.
(C) The long service leave component
of remuneration represents the expense
relating to the provision for long service
leave calculated in accordance with
accounting standard AASB 119 Employee
Benefits. It does not represent cash
payments or statutory obligations.
(D) Share based payment remuneration
comprises performance rights in the Long
Term Incentive 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 lapsed during the current financial
year as the conditions were not met. The
ability to exercise the performance rights
is conditional on the Group achieving certain
performance hurdles.
26
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Details of remuneration (continued)
The fair value of performance rights granted
to the Managing Director and senior executives included above is described in the Long Term Incentives discussion below.
Further details of performance rights granted during the year are set out below.
DIRECTORS’ REPORT
Remuneration report-audited (continued)
$
-
-
-
-
-
-
-
-
-
999
999
599
599
-
-
-
999
999
-
$
215,600
105,834
110,000
100,000
81,349
83,334
160,484
856,601
1,023,279
395,621
420,029
92,642
297,667
362,973
260,175
37,000
389,262
424,649
232,472
2011
Name
Non-Executive Directors
J Hill-Ling+
F Bennett
I Elliot
R Flynn
G Hill
D Spence
P Stancliffe*
Subtotal Non-Executive Directors
Executive Director
G Twartz
Cash
salary
and fees
$
192,661
97,095
100,917
91,743
74,632
76,453
147,233
780,734
Short-term employee benefits
Post
employment
benefits
Long
term
benefits
Share based
payments (D)
Cash
bonus (A)
Other (B)
Super
annuation
Long
service
leave
Perfor-
mance
rights &
options
Shares
Total
$
-
-
-
-
-
-
-
-
$
$
5,600
-
-
-
-
-
-
5,600
17,339
8,739
9,083
8,257
6,717
6,881
13,251
70,267
$
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
779,816
75,000
65,508
70,183
19,495
13,277
Other key management personnel (Group)
L Andrewartha^
S Cope#^
D Edgecombe
R Gros
A Kachellek^
D Lethbridge
M McKinstry
K Middleton^
A Muir#^
T Sullivan
348,624
321,101
76,453
218,721
240,005
211,009
31,845
349,197
316,605
190,584
10,000
60,664
-
32,926
87,039
25,000
-
10,000
20,000
10,000
1,400
5,091
8,709
24,748
350
4,058
2,289
700
8,598
13,171
31,376
28,952
6,881
19,685
29,944
18,991
2,866
25,803
23,448
17,153
-
-
-
-
-
-
-
-
54,587
-
3,222
3,222
-
988
5,635
1,117
-
2,563
412
1,564
Total key management personnel
compensation (Group)
Other Company and Group executives
G Daher#
R Meacham#
A Oliver#
3,864,694
330,629
140,222
345,549
74,082
32,000
5,194
4,792,370
211,271
208,627
230,856
75,155
93,508
69,153
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
^,# denotes one of the 5 highest paid executives of the Group(^) and/or Company (#), as required (prior to 1 July 2011) to be disclosed under the Corporations Act 2001.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
27
DIRECTORS’ REPORT
Remuneration report-audited (continued)
Details of remuneration (continued)
The relative proportions of remuneration for the year ended 30 June 2012 as set out in the remuneration table
above that are linked to performance and that are fixed are as follows:
Name
G Twartz
Other key management personnel of Group
S Cope
A Kachellek
D Lethbridge
G Logan
M McKinstry
A Muir
R Rees
T Sullivan
Fixed remuneration
%
At risk STI paid /
payable
%
Value of performance
rights / options
as proportion of
remuneration
%
2012
94.6%
82.8%
63.3%
93.6%
91.2%
96.0%
100.0%
95.7%
99.4%
2012
4.0%
16.6%
28.3%
6.0%
8.7%
3.9%
0.0%
4.3%
0.0%
2012
1.4%
0.6%
8.4%
0.4%
0.1%
0.1%
0.0%
0.0%
0.6%
The total potential and actual STI, and the proportion of actual STI compared to fixed remuneration are as follows:
Name
G Twartz
Other key management personnel of Group
S Cope
A Kachellek
D Lethbridge
G Logan
M McKinstry
R Rees
T Sullivan
Service agreements
Executives
Potential STI
$
Actual STI paid /
payable
$
Actual STI paid /
payable as % of
potential STI
STI paid / payable
as % of fixed
remuneration
750,000
40,000
5.3%
325,000
138,622
55,000
200,000
200,000
115,000
70,000
75,252
138,622
10,000
37,500
20,000
5,000
-
23.2%
100.0%
18.2%
18.8%
10.0%
4.3%
0.0%
4.2%
20.1%
44.7%
6.4%
9.5%
4.1%
4.5%
0.0%
The details of the contracts of Hills’ senior executives named in the remuneration tables (excluding the Managing Director) can be summarised
as follows:
• All executives have ongoing contracts of no fixed term;
• The period of notice required to be given to terminate a contract varies depending upon an executive’s contract, with an executive’s period
of notice to the Company ranging from three to six months, and the Company’s period of notice to an executive ranging from three to six months
or payment in lieu of that notice;
• Upon termination, executives are entitled to payment of annual and long service leave;
• If an executive is retrenched, the executive is not entitled to contractual termination payments other than those generally applicable to all staff.
Managing Director
Graham Twartz was appointed as Managing Director effective 1 July 2008. The details of the Managing Director’s contract and the remuneration
package for the financial year are as follows:
28
Hills Holdings Limited Annual Report for the year ended 30 June 2012
DIRECTORS’ REPORT
Remuneration report-audited (continued)
Service agreements (continued)
The contract is for indefinite duration.
Term
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 2012 of $850,000.
An annual maximum STI opportunity of $750,000.
Short-term incentive
Long-term incentive
The performance of the Managing Director against performance measures is assessed and the payment
determined by the Board.
An annual maximum LTI opportunity of $275,000, based upon the price of the shares on the date of issue
of the rights.
The details of the LTIP are set out in the discussion above.
Share-based compensation
Performance rights 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 4 Feb 2009
Performance rights 30 April 2011
Performance rights 19 Dec 2011
31 Jan 2012
30 June 2013
30 June 2014
31 Jan 2032
30 June 2013
30 June 2014
$3.01
$0.00
$0.00
Value per right /
option at grant
date
$0.00
$0.905
$0.45
Performance
achieved
%
Vested
No
n/a
n/a
0%
n/a
n/a
The maximum value of the performance rights represents their fair value as at their grant date, determined in accordance with AASB 2 Share Based
Payment. The fair value for each performance rights hurdle was:
EPS hurdle: $0.86 (2011: $1.19)
TSR hurdle: $0.04 (2011: $0.62)
The fair value at grant date is independently determined using a BlackScholes methodology for the non-market hurdles and a Monte Carlo valuation
methodology for the market hurdles. Details of the assumptions underlying the valuation are set out in note 25 to the financial statements.
No performance rights have been granted since the end of the financial year. The performance rights were provided at no cost to the recipients.
All performance rights expire on the earlier of their expiry date or termination of the individual’s employment. The performance rights will vest
on 30 June 2014 for the rights issued in the current financial year and on 30 June 2013 for the rights issued in the previous financial year. In addition
to a continuing employment service condition, the ability for performance rights to vest is conditional on the Group achieving certain performance
hurdles. Details of the performance criteria are included in the long-term incentives discussion above.
The options issued in 2009 lapsed during the current financial year due to performance hurdles not being met.
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 the Company and
each of the key management personnel of the Company and the Group are set out below. When vested, each performance right is convertible into
one ordinary share of Hills Holdings Limited. Further information on the options is set out above and in note 25 to the financial statements.
No performance rights or options vested during the financial year.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
29
DIRECTORS’ REPORT
Remuneration report-audited (continued)
Share-based compensation (continued)
Name
Directors of Hills Holdings Limited
Number of
performance
rights granted
during the year
Fair value of
performance
rights at grant
date calculated in
accordance with
AASB 2
Value of
performance
rights using the
share price of
$1.1960 *
Number of
performance
rights / options
lapsed / forfeited
during the year
Value at lapse /
forfeit date **
G Twartz
229,933
$103,470
$275,000
100,000
$114,000
Other key management personnel of the Group
S Cope
D Lethbridge
G Logan
M McKinstry
A Muir
T Sullivan
41,806
20,903
41,806
62,709
-
29,264
$18,813
$9,406
$18,813
$28,219
$0
$13,169
$50,000
$25,000
$50,000
$75,000
$0
$35,000
60,000
31,714
-
-
80,000
-
$68,400
$34,251
$0
$0
$98,800
$0
* The share price used to calculate the number of performance rights issued to the Managing Director and Senior Executives was $1.1960, 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 2011.
** The value at lapse date of rights / options that were granted as part of remuneration and that were forfeited or 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.
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.
Additional information
Details of remuneration: Bonuses and share-based compensation benefits
For each grant of rights included in the tables on pages 26-27 and 29-30, the percentage of the available grant that vested in the financial year, and
the percentage that was forfeited because the person did not meet the service criteria is set out below. The performance rights / options vest after
three years, provided the vesting conditions are met (see page 23 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 percentage (%) of rights / options forfeited in the year represents the reduction from the maximum number of rights / options available to vest due
to the highest level performance criteria not being met as well as rights / options that have lapsed due to termination of employment.
Name
G Twartz
S Cope
D Lethbridge
G Logan
M McKinstry
A Muir
T Sullivan
Share-based compensation benefits (rights / options)
Financial year
granted
Vested
%
2009
2011
2012
2009
2011
2012
2011
2012
2012
2012
2009
2011
2012
-
-
-
-
-
-
-
-
-
-
-
-
-
Lapsed /
forfeited
%
100
-
-
100
-
-
100
100
-
-
100
-
-
Financial
years in
which rights /
options may
vest
2012
2013
2014
2012
2013
2014
2013
2014
2014
2014
2012
2013
2014
Minimum total
value of grant
yet to vest
$
-
-
-
-
-
-
-
-
-
-
-
-
-
Maximum
total value of
grant yet to
vest
$
-
83,050
101,937
-
15,100
18,534
-
-
18,534
27,801
-
10,569
12,974
30
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Principal activities
The principal activities of the Group during the course of the year are outlined within the Review of Operations of the Group.
DIRECTORS’ REPORT
Objectives
The Group’s objectives are to:
• provide a safe, challenging and rewarding workplace;
• deliver superior returns to shareholders;
• increase earnings per share;
• represent quality, reliable and value for money products; and
• improve the retention rate of our outstanding people resources.
In order to meet these objectives the following targets were set for the 2012 financial year and beyond:
• increase revenue, operating activities, profits, earnings per share and return on funds employed;
• reduce operating costs;
• achieve strategic objectives;
• continue to improve our safety performance;
• continue to source cost effective supplies; and
• further develop our employees.
Dividends
Dividends paid to members during the financial year were as follows:
Final ordinary dividend for the year ended 30 June 2011 of 4.5 cents (year ended 30 June 2010:
5.5 cents) per fully paid share paid on 26 September 2011 (Year ended 30 June 2010:
26 September 2010)
Interim ordinary dividend for the year ended 30 June 2012 of 5.0 cents (2011: 5.5 cents) per fully
paid share paid on 30 March 2012 (2011: 21 March 2011)
Consolidated
2012
$’000
11,190
12,293
23,483
2011
$’000
13,623
13,650
27,273
In addition to the above dividends, since the
end of the financial year the Directors have
recommended the payment of a final ordinary
dividend of approximately $12.301 million (5.0
cents per fully paid share) to be paid
on 26 September 2012 out of retained profits
at 30 June 2012. The financial effect of these
dividends has not been brought to account
in the financial statements for the year
ended 30 June 2012 and will be recognised
in subsequent financial periods. For more
information regarding dividends please refer
to note 23 of the financial statements.
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 13 August 2012 the Company entered into
an agreement to acquire the business of Lan
1. Completion is expected by 30 September
2012, subject to conditions precedent being
satisfied.
On 16 August 2012 the Company renewed its
banking facilities jointly with Commonwealth
Bank, National Australia Bank and Westpac
Banking Corporation through a Common
Deed. The total facility is $196 million,
comprising Tranche A $81 million, expiring
in 3 years (16 August 2015), Tranche B $69
million, expiring in 4 years (16 August 2016),
and Tranche C $46 million, expiring in 3 years
(16 August 2015), but subject to annual review.
Tranches A and B comprise bank loans and
Tranche C comprises bank guarantees, letters
of credit and cash advances.
Mr Twartz will retire as Chief Executive Officer
and Managing Director on 2 September
2012 and will cease to be an employee on 30
November 2012. Mr Ted Pretty will commence
as Chief Executive Officer and Managing
Director on 3 September 2012.
Apart from the matters noted above, there
has not arisen in the interval between the
end of the financial year and the date of this
report any other item, transaction or event
of a material and unusual nature likely, in the
opinion of the Directors of the Company,
to affect significantly the operations of the
Group, the results of those operations, or
the state of affairs of the Group, in future
financial years.
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 report because the
Directors believe it would be likely to result
in unreasonable prejudice to the Group.
Environmental regulation
Manufacturing
The Group holds all required environmental
licences for its manufacturing sites around
Australia. No significant environmental
incidents were reported over the 2012
financial year and the Group continued to
meet or exceed the requirements specified in
relevant licenses and authorisations.
Greenhouse gas and energy data
reporting requirements
The National Greenhouse and Energy
Reporting Act 2007 (NGER Act) requires the
Group to report its annual greenhouse gas
(GHG) emissions and energy use from
Hills Holdings Limited Annual Report for the year ended 30 June 2012
31
DIRECTORS’ REPORT
Environmental regulation
(continued)
facilities over which Hills has operational
control. As a result, systems and processes
for the collection and calculation of the data
required have been established.
During the 2012 financial year, Hills submitted
its first report under the NGER Act with data
collected over the 2010-11 reporting period.
The Group’s reported energy consumption
was 253TJ of energy with total GHG
emissions of 34,444 tonnes of Carbon Dioxide
equivalent (tCO2-e).
Projections made utilising data collected
during the 2011-12 reporting period
indicate that the Group will again trigger the
legislated reporting threshold. Total energy
consumption is estimated to be approximately
241TJ while total GHG emissions are
approximately 28,594tCO2-e.
This represents a 5 per cent reduction in
total energy consumption and a 17 per cent
reduction in greenhouse gas emissions over
the 2012 financial year.
National Packaging Covenant
Hills is 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 impacts of packaging. Under
the APC Hills has revised its five year action
plan, which will enable the Group to undertake
reviews of new and existing packaging and
complete actions against core Covenant KPIs.
In the 2012 financial year Hills submitted its
first annual report under the APC, which has
been published on its website alongside the
revised action plan and environmental policy.
Hills remains compliant in relation to
all Covenant requirements.
Shares under performance rights
/ options
Unissued ordinary shares of the
Company under performance rights / option
in accordance with accounting standards
at the date of this report are as follows:
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. In 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.
Date performance rights / options granted
February 2001
February 2002
February 2003
February 2004
February 2005
April 2011
December 2011
Expiry date
January 2023
January 2024
January 2025
January 2026
January 2027
June 2013
June 2014
Exercise price of
shares
Number under right
/ option
$2.50
$2.90
$3.23
$3.66
$4.16
$ -
$ -
50,000
53,000
80,000
115,000
185,000
198,929
405,518
1,087,447
Shares issued on the exercise of
options
During or since the end of the financial year,
the Company has not issued ordinary shares
as a result of the exercise of rights / options.
Insurance of officers
Since the end of the previous financial year
the Company has paid insurance premiums
in respect of Directors’ and officers’ liability
and legal expenses’ insurance contracts, for
current and former Directors and officers,
including senior executives of the Company
and Directors, senior executives and
secretaries of its controlled entities.
The liabilities insured are legal costs that
may be incurred in defending civil or criminal
proceedings that may be brought against
the officers in their capacity as officers of
entities in the Group, and any other payments
arising from liabilities incurred by the officers
in connection with such proceedings. This
does not include such liabilities that arise from
conduct involving a wilful breach of duty by
the officers or the improper use by the officers
of their position or of information to gain
advantage for themselves or someone else or
to cause detriment to the Company. It is not
possible to apportion the premium between
amounts relating to the insurance against
legal costs and those relating to
other liabilities.
The Directors have not included details of
the nature of the liabilities covered or the
amount of the premiums paid in respect of
the Directors’ and officers’ liability and legal
expenses’ insurance contracts as such
disclosure is prohibited under the terms of
the contracts.
Indemnification of officers
The Company has agreed to indemnify the
Directors and officers of the Company against
all liabilities to another person (other than the
Company or a related body corporate) that
may arise from their position as Directors
of the Company and its controlled entities,
except where the liability arises out of conduct
involving a lack of good faith. The agreement
stipulates that the Company will meet the full
amount of any such liabilities, including costs
and expenses.
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.
32
Hills Holdings Limited Annual Report for the year ended 30 June 2012
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, Risk and Compliance
Committee, is satisfied that the provision of
the non-audit services is compatible with
the general standard of independence for
auditors imposed by the Corporations Act
2001. The Directors are satisfied that the
provision of non-audit services by the
auditor, as set out below, did not
compromise the auditor independence
requirements of the Corporations Act 2001
for the following reasons:
• all non-audit services have been reviewed
by the Audit, Risk and Compliance
Committee to ensure they do not impact
the impartiality and objectivity of the
auditor; and
1. Audit services
KPMG Australia:
Audit and review of financial reports
Overseas KPMG firms-audit and review of financial reports
Total remuneration for audit services
2. Non-audit services
Other assurance services
KPMG Australia:
Software implementation assurance services
Forensic accounting services
Other consulting services
Total remuneration for other assurance services
Taxation services
KPMG Australia:
Taxation and other services
Overseas KPMG firms-taxation services
Total remuneration for taxation services
Total remuneration for non-audit services
DIRECTORS’ REPORT
• none of the services undermine the general
principles relating to auditor independence
as set out in APES 110 Code of Ethics for
Professional Accountants.
During the year the following fees were paid or
payable for services provided by the auditor
of the Group, its related practices and non-
related audit firms:
Consolidated
2011
$’000
498,500
31,768
530,268
-
-
-
-
113,838
26,824
140,662
140,662
2012
$’000
492,000
32,909
524,909
76,257
46,179
40,504
162,940
141,015
14,316
155,331
318,271
Hills Holdings Limited Annual Report for the year ended 30 June 2012
33
DIRECTORS’ REPORT
Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on
page 35.
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.
JH Hill-Ling
Director
GL Twartz
Director
Dated at Sydney
this 31st day of August 2012
34
Hills Holdings Limited Annual Report for the year ended 30 June 2012
ABCD
Lead Auditor’s Independence Declaration 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 belief, in relation to the audit for the financial
year ended 30 June 2012 there have been:
(i)
(ii)
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
KPMG
N T Faulkner
Partner
Adelaide
31 August 2012
Hills Holdings Limited Annual Report for the year ended 30 June 2012
35
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
Liability limited by a scheme approved under
(“KPMG International”), a Swiss entity.
Professional Standards Legislation
THIS REPORT SETS OUT HILLS HOLDINGS LIMITED’S (HILLS) ANNUAL
STATEMENT ON ITS CORPORATE GOVERNANCE FRAMEWORK FOR
THE YEAR ENDED 30 JUNE 2012.
36
Hills Holdings Limited Annual Report for the year ended 30 June 2012
CORPORATE GOVERNANCE STATEMENT
The Board is 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)
Corporate Governance Principles and
Recommendations, 2nd Edition (Principles
and 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 Principles and Recommendations.
Full details of the location of the references
in this statement which specifically sets
out how Hills applies each Principle and
Recommendation are contained in the
corporate governance section within the
Hills’ website which can be found at www.
hillsholdings.com.au. This website also
contains copies of the charters and policies
referred to in this report.
1 Principle 1:
Lay solid foundations for
management and oversight
1.1 Role of the Board
The Board’s role is to represent shareholders’
interests and it is accountable to them for
creating and delivering value through effective
governance of the Hills’ business. 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.
By providing the overall strategic direction for
Hills, the Board ensures that Hills’ activities
comply with its constitution, and with all legal
and regulatory requirements, and defines 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:
• Strategy and Planning – reviewing and
approving Hills’ business strategies and
monitoring their implementation;
• Oversight of management – the
appointment, and if appropriate, the removal
of the Managing Director, setting the
Managing Director’s terms and conditions
of employment, approving the remuneration
policies and practices for all Hills’
employees, monitoring the performance of
the Managing Director and reviewing on a
regular basis executive succession planning;
• Financial and Capital Management –
reviewing and approving Hills’ annual and
half yearly financial reports, monitoring
Hills’ financial position on an ongoing
basis, overseeing Hills’ accounting and
financial systems, reviewing the progress
of major capital expenditures and other
significant corporate projects including
any acquisitions or divestments, approving
capital management decisions and the
dividend policy;
• Shareholders – overseeing effective
communication with and reporting to
shareholders;
• Other stakeholders – overseeing and
approving policies that govern the
relationship with other stakeholders;
• Ethics and sustainability – monitoring
Hills’ culture and its ethics, overseeing
and approving Hills’ Code of Conduct,
enhancing and protecting the reputation of
the Company and monitoring progress in
achieving the Company’s objectives and
compliance with its diversity policy; 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 financial goals, safety
performance and business excellence.
This performance assessment for senior
executives was undertaken during the
reporting period.
2 Principle 2:
Structure the Board to add value
2.1 Board composition
The Board charter states:
• the Board will consist of a majority of Non-
Executive independent Directors; and
• the Chairman is a Non-Executive Director
appointed by the Board.
The lead independent Director will act in the
Chairman’s place where the Chairman is
unable to act, or it is otherwise not appropriate
for the Chairman to act.
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,
expertise and diversity 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:
• is a substantial shareholder of Hills or an
officer of, or otherwise associated directly
with, a substantial shareholder of Hills;
• is or has been employed in an executive
capacity by Hills or any other Group
member, within three years before
commencing to serve on the Board;
• within the last three years, has been a
principal of a material professional adviser
or a material consultant to Hills or any other
Group member, or an employee materially
associated with the service provided;
• is a material supplier or customer of Hills or
any other Group member, or an officer of or
otherwise associated directly or indirectly
with a material supplier or customer; and
• has a material contractual relationship with
Hills or a controlled entity other than as a
Director of the Group.
In determining whether a relationship
between a Director and Hills is considered to
be material, the Board assesses a range of
quantitative and qualitative matters including
the proportion the transactions represent to
both Hills and the Director and the value or
strategic importance of the relationship to
both Hills and the Director.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
37
CORPORATE GOVERNANCE STATEMENT
2 Principle 2:
Structure the Board to add value
(continued)
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, qualifications,
term of office, relationships affecting their
independence and their independent status
are set out in the Directors' report under the
heading "Information on Directors". At the
date of signing the Directors' report, there is
one executive Director and 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 Non-executive Directors
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
Independence
The Chairman, Ms Jennifer Hill-Ling is not
considered to be an independent Director.
Hills considers this departure from ASXCGC
Recommendation 2.2 appropriate however
given:
• The Hill-Ling family’s interest in Hills; and
• Ms Hill-Ling’s considerable experience
within Hills.
The Chairman is responsible for leadership
and effective performance of the Board. The
Chairman is independent of the role of the
Managing Director of Hills.
strategies, operations and risk management
policies. It 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 16 Board meetings and an
additional corporate strategy workshop
during the year. Five of these meetings were
held at operational sites of Hills, some of
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 2012 and the number of meetings
attended by each Director is disclosed on
page 20 of the Annual Report.
2.9 Conflicts of interest
Directors whose business dealings may
conflict with the interests of Hills declare those
interests in such dealings and take no part in
decisions relating to them.
2.10 Independent 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.
2.11 Performance assessment
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
2.6 Term of office
• the individual performance of the Chairman
Hills’ constitution specifies that all Non-
Executive Directors must retire from office no
later than the third annual general meeting
(AGM) following their last election. A Director
may stand for re-election.
2.7 Induction
The induction provided to new Directors and
senior managers enables them to actively
participate in Board decision-making as soon
as possible. It ensures that they have a full
understanding of Hills’ financial position,
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.
38
Hills Holdings Limited Annual Report for the year ended 30 June 2012
The results and action plans are documented
and agreed. An assessment carried out in
accordance with this process was undertaken
during November 2011.
Descriptions of the process for performance
assessment for the Board and senior
executives are available on the Company’s
website.
2.12 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, Risk
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’ qualifications, skills and experience.
Each standing committee is comprised of:
• only Non-Executive Directors; and
• at least three members, the majority of
whom are independent.
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 specific 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.
2.13 Nomination committee
The Nomination Committee consists of the
following Non-Executive Directors (a majority
of whom are independent):
I Elliot (Chairman)
J H Hill-Ling
P Stancliffe
Details of these Directors' attendance at
Nomination Committee meetings are set
out in the Directors' report on page 20 of the
Annual Report.
The Nomination Committee operates in
accordance with its charter. The main
responsibilities of the Committee are to assist
and make recommendations to the Board on:
CORPORATE GOVERNANCE STATEMENT
3.3 Whistle-blower Protection Policy
Hills encourages its Directors, employees
and contractors to report conduct that is
dishonest, fraudulent, corrupt or illegal,
endangers health and safety, is a suspected
breach of Hills’ Code of Conduct or any
Hills’ policy. Hills has adopted a whistle-
blower protection policy to ensure concerns
regarding unacceptable conduct can be
raised on a confidential basis without fear of
reprisal, dismissal or discriminatory conduct.
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’
Diversity Policy can be found on our 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. In 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
2 years as positions become vacant and
appropriately skilled candidates are available.
2 Principle 2:
Structure the Board to add value
(continued)
• Director selection and appointment
practices;
• Board composition and tenure;
• succession 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 shortlist 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 recognises the
advantages of Board renewal and
succession planning.
Notices of meetings for the election of
Directors comply with the Principles and
Recommendations.
New Directors are provided with a letter of
appointment setting out Hills’ expectations,
their responsibilities, rights and the terms
and conditions of their employment. All new
Directors participate in a comprehensive,
formal induction program which covers
the operation of the Board, its committees
and financial, strategic, operations and risk
management issues.
3 Principle 3:
Promote ethical and responsible
decision making
3.1 Code of Conduct
Hills has developed a Code of Conduct (the
Code) which has been approved by the Board
and applies to all Hills Directors, officers,
employees, contractors, consultants and
associates (collectively Hills’ Employees).
The Code is regularly reviewed and updated
as necessary to ensure it reflects the highest
standards of behaviour and professionalism
and the practices necessary to maintain
confidence in Hills’ integrity and to take into
account legal obligations and reasonable
expectations of Hills’ stakeholders.
In summary, the Code sets out the
standards of behaviour Hills expects from
Hills’ Employees and informs them of their
responsibilities to Hills’ shareholders,
customers, employees, suppliers and the
broader community.
From time to time the Internal Auditor may
review and will report directly to the Audit, Risk
and Compliance Committee on compliance
with the Code and the trading policy. Upon
receiving a complaint, the Chairman and
Managing Director will determine who
will investigate the matter. An internal report
on the outcome of any such investigation,
including recommendations, will be prepared
by the authorised officer. These matters are
reported to the Audit, Risk and Compliance
Committee.
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
“blackout 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.
Number of women in senior management positions
Number of women in sales and marketing positions
Number of women employees in the whole organisation
Objective by 2014
Actual as at 2012
Number
95
191
552
%
20
25
20
Number
66
122
459
%
15.4
21.6
19.6*
*The ongoing review and restructure of our organisation has resulted in the achievement of the percentage target for the overall number of women in our organisation in 12 months.
This has been achieved because of improved retention and attraction of women combined with the reduction of employee numbers across the Group.
A discussion of the gender diversity framework to support the diversity initiatives is set out in the Sustainability section of the Annual Report.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
39
CORPORATE GOVERNANCE STATEMENT
4 Principle 4:
Safeguard integrity
in financial reporting
4.1 Audit, Risk and Compliance
Committee
The Audit, Risk and Compliance Committee
consists of the following Non-Executive
Directors:
F Bennett (Chairman)
M Campbell
D Spence
Details of these Directors' qualifications and
attendance at Audit, Risk and Compliance
Committee meetings are set out in the
Directors' report on pages 13-15 and 20
of the Annual Report.
The majority of members of the Audit,
Risk and Compliance Committee are
financially literate and have an appropriate
understanding of the industries in which the
Group operates.
The Audit, Risk and Compliance Committee
operates in accordance with a charter. The
role of the Committee is to assist the Board in:
• Reviewing Hills’ financial statements and
financial information distributed externally;
• Monitoring the internal control framework,
procedures that are designed to ensure
compliance with statutory responsibilities
and other external reporting requirements,
the activities of internal audit, and the
adequacy of Hills’ risk management
framework; and
• Liaison with the external auditor.
In fulfilling its responsibilities, the Committee:
• Receives regular reports from management,
the internal auditor and the external auditors;
• Regularly meets with the internal auditor and
external auditors;
• Reviews the processes the Managing
Director and CFO have in place to support
their certifications to the Board;
• Reviews any significant disagreements
between the auditors and management,
irrespective of whether they have been
resolved;
• Meets separately with the external auditors
and the internal auditor at least once a year
without the presence of management; and
• Provides the internal auditor and external
auditors with a clear line of direct
communication at any time to either the
Chairman of the Audit, Risk and Compliance
Committee or the Chairman of the Board.
The Audit, Risk 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 External auditors
Hills’ policy is to appoint external auditors
who clearly demonstrate quality and
independence. The performance of the
external auditor is reviewed annually. KPMG
is Hills’ current external auditor. It is KPMG's
policy to rotate audit engagement partners on
listed companies at least every five years.
An analysis of fees paid to the external
auditors, including a breakdown of fees
for non-audit services, is provided in the
Directors’ report and in note 36 to the financial
statements. It is the policy of the external
auditors to provide an annual declaration
of their independence to the Board and the
Audit, Risk 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 Principle 5: Make timely and
balanced disclosures
5.1 Continuous disclosure
Hills has a Communications and Market
Disclosure Policy which is consistent with
the continuous disclosure obligations under
the Corporations Act and ASX Listing Rules.
The Policy 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.
The Company Secretary, in conjunction with
the Managing Director is responsible for
ensuring compliance with the continuous
disclosure requirements in the ASX Listing
Rules and has primary responsibility for
communications with the ASX.
Directors and staff are required to ensure
that they are familiar with the Policy and
report material information to the Company
Secretary or Managing Director to allow
a view to be formed as to whether the
information requires disclosure. In addition,
the Board is actively and regularly involved
in discussing disclosure obligations in respect
of all major matters that comes before it.
Specific processes adopted by Hills in relation
to its continuous disclosure responsibilities
are as follows:
• All information released to the ASX
is posted on the Investor Information section
of the Hills’ website as soon as practicable
after release;
• Communications with the media, share
analysts and the market generally in relation
to Hills’ activities will normally be undertaken
only by the Chairman, the Managing Director
or the Chief Financial Officer;
• No media release of a material nature is to
be issued unless it has first been sent to the
ASX; and
• Hills will ensure that when conducting
analyst and investor briefings, no price-
sensitive information will be disclosed
at these briefings unless previously or
simultaneously released to the market;
questions relating to price-sensitive
information not previously disclosed will
not be answered and any inadvertent
disclosure of price and sensitive information
will be immediately released to the ASX and
disclosed on the Hills website.
6 Principle 6:
Respect the rights
of shareholders
6.1 Shareholder communication
The rights of Hills’ shareholders are set
out in the constitution, legal and regulatory
requirements. Hills’ Communication and
Market Disclosure Policy allows shareholders
to effectively exercise these rights through the
provision of high quality, relevant and useful
information in a timely manner. In this regard
shareholders are informed about strategic
objectives and major developments through:
• ASX announcements;
• Company publications including
the Annual Report;
• The Annual General Meeting;
• The Company website (www.hillsholdings.
com.au); and
• The website of Hills’ share register,
Computershare Investor Services Pty
Limited, including a facility for shareholders
to amend their particulars.
Hills encourages shareholders to utilise
its website as their primary tool to access
shareholder information and disclosures.
Shareholders are encouraged to make their
views known to the Company and to directly
raise matters of concern. Shareholders are
encouraged to attend the Annual General
Meeting and use this opportunity to ask
questions. The Annual General Meeting
remains the main opportunity for shareholders
to comment and to question Hills’ Board
and management.
40
Hills Holdings Limited Annual Report for the year ended 30 June 2012
CORPORATE GOVERNANCE STATEMENT
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" on pages
20 to 30. In accordance with Hills’ Securities
Trading Policy, participants in equity-based
remuneration plans are not permitted to enter
into any transactions that would limit the
economic risk of options or other unvested
entitlements. Details of this policy can be
found on Hills’ website.
9 ASX Corporate Governance
Council Recommendations
Checklist
This table cross-references the Principles and
Recommendations to the relevant sections of
the Corporate Governance Statement and the
Remuneration Report.
6 Principle 6:
Respect the rights
of shareholders (continued)
The external auditor attends the Annual
General Meeting and is available to answer
shareholder questions about the conduct of
the audit and the preparation and content of
the auditor’s report.
7 Principle 7:
Recognise and manage risk
7.1 Recognise and manage risk
The Board, through the Audit, Risk and
Compliance Committee, is responsible
for ensuring there are adequate policies in
relation to risk management compliance and
internal control systems. In summary, Hills’
policies are designed to ensure strategic,
operational, legal, reputation and financial
risks are identified, assessed, effectively and
efficiently managed and monitored to enable
achievement of Hills’ business objectives.
Considerable importance is placed on
maintaining a strong control environment.
There is an organisation structure with clearly
drawn lines of accountability and delegation
of authority.
Detailed control procedures cover
management accounting, financial reporting,
project appraisal, environment, health and
safety, IT security, compliance and other
risk management issues. Internal audit
carries out regular systematic monitoring of
control activities and reports to both relevant
business unit management and the Audit,
Risk and Compliance Committee.
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, Risk 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,
financial and compliance categories at the
enterprise and at the business level.
The Board and the Audit, Risk and
Compliance Committee have received reports
from the Risk Committee and management as
to the effectiveness of the 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.
7.2 Corporate reporting
In complying with ASXCGC Recommendation
7.3, the Board has received a declaration from
the Managing Director and the Chief Financial
Officer, that:
• Hills’ financial reports are complete and
present a true and fair view, in all material
respects, of the financial condition and
operational results of the Group and are
in accordance with relevant accounting
standards; and
• 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 efficiently and effectively in all
material respects in relation to financial
reporting risks.
8 Principle 8:
Remunerate fairly
and responsibly
8.1 Remuneration Committee
The Remuneration Committee consists of the
following Non-Executive Directors (a majority
of whom are independent):
J H Hill-Ling (Chairman)
I Elliot
D Spence
Details of these Directors' attendance at
Remuneration Committee meetings are set
out in the Directors' report on page 20 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, given the role the Chairman
of the Board has in developing and 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 recommendations
to the Board on the remuneration framework
for the Chairman, the Board Committees,
Non-Executive Directors, Hills’ remuneration
and incentive policies and practices for the
Hills Holdings Limited Annual Report for the year ended 30 June 2012
41
CORPORATE GOVERNANCE STATEMENT
ASX Corporate Governance Council Recommendations
Reference
Comply
Principle 1:
Lay solid foundations for management and oversight
1.1
1.2
1.3
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.
Companies should provide the information indicated in Guide to Reporting on Principle 1.
Remuneration
report
1.1, 1.2,
Remuneration
report
2.1, 2.2
2.5
2.5
2.12
2.10
2.1, 2.2, 2.3,
2.5, 2.9, 2.10,
2.11, 2.12
Principle 2:
Structure the Board to add value
2.1
2.2
2.3
2.4
2.5
2.6
A majority of the Board should be independent Directors.
The chairman should be an independent Director.
The roles of chairman 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.
Principle 3:
Promote ethical and responsible decision-making
3.1
3.2
3.3
3.4
3.5
Companies should establish a code of conduct and disclose the code or summary of the
code as to:
• the practices necessary to maintain confidence in the company’s 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 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.
Companies should disclose in each annual report the measurable objectives for achieving
gender diversity set by the Board in accordance with the diversity policy and progress
towards achieving them.
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.
3.1
3.4
3.4
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
4.3
4.4
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 chairman, who is not chairman 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.
4.1
4.1
4.1
4.1
42
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Y
Y
Y
Y
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
CORPORATE GOVERNANCE STATEMENT
ASX Corporate Governance Council Recommendations
Reference
Comply
Principle 5:
Make timely and balanced disclosure
5.1
5.2
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
6.1
6.2
Companies should design a communications policy for promoting 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.
Principle 7:
Recognise and manage risk
7.1
7.2
7.3
Companies should establish policies for the oversight and management of material business
risks and disclose a summary of those policies.
The Board should require management to design and implement 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 financial officer (or equivalent) that the declaration provided in
accordance with section 295A 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.
5.1
5.1
6.1
6.1
7.1
7.1
7.2
7.4
Companies should provide the information indicated in Guide to Reporting on Principle 7.
7.1, 7.2
Principle 8:
Remunerate fairly and responsibly
8.1
8.2
8.3
8.4
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 chairman; and
• has at least three members.
8.1
8.1
Companies should clearly distinguish the structure of non-executive Directors’ remuneration
from that of the executive Directors and senior executives.
Remuneration
report
Companies should provide the information indicated in Guide to Reporting on Principle 8.
8.1,
Remuneration
report
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
Y
Y
Hills Holdings Limited Annual Report for the year ended 30 June 2012
43
44
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Contents
45 Financial statements
46 Consolidated income statement
47 Consolidated statement of comprehensive income
48 Consolidated statement of financial position
49 Consolidated statement of changes in equity
50 Consolidated statement of cash flows
51 Notes to the consolidated financial statements
107 Directors’ declaration
108
Independent auditor’s report to the members
110 Shareholder Information
These financial statements are the consolidated financial 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. Its registered office 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 2-7, which is not part of these financial statements.
The financial statements were authorised for issue by the Directors on 31 August
2012. The Directors have the power to amend and reissue the financial statements.
Through the use of the internet, we have ensured that our corporate reporting is
timely and complete. All press releases, financial reports and other information are
available within Corporate Information on our website: www.hillsholdings.com.au.
For queries in relation to our reporting please call +61 8 8301 3200 or
e-mail info@hillsholdings.com.au.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
45
Hills Holdings Limited
Consolidated income statement
For the year ended 30 June 2012
Revenue from continuing operations
Other income
Expenses excluding finance costs
Profit / (loss) before net finance expense and income tax
Finance income
Finance expenses
Net finance expense
Profit / (loss) before income tax
Income tax (expense) / benefit
Profit / (loss) for the year
Profit / (loss) is attributable to:
Owners of Hills Holdings Limited
Non-controlling interests
Profit / (loss) for the year
Notes
3
4
5
5
6
Consolidated
2012
$’000
2011
$’000
1,082,272
1,095,845
2,614
1,156
1,084,886
1,097,001
(1,040,184)
(1,171,464)
44,702
(74,463)
810
(6,563)
(5,753)
1,974
(6,000)
(4,026)
38,949
(78,489)
(10,127)
5,373
28,822
(73,116)
26,021
2,801
28,822
(74,955)
1,839
(73,116)
Cents
Cents
Earnings per share for profit / (loss) from continuing operations
attributable to the ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
24
24
10.5
10.5
(30.2)
(30.2)
The above Consolidated income statement should be read in conjunction with the accompanying notes.
46
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Consolidated statement of comprehensive income
For the year ended 30 June 2012
Notes
22
22
22
6
Consolidated
2012
$’000
2011
$’000
28,822
(73,116)
(917)
(2,295)
191
792
(2,229)
13,480
(1,484)
(749)
(3,512)
7,735
Profit / (loss) for the year
Other comprehensive income / (loss)
(Loss) / gain on revaluation of land and buildings
Changes in the fair value of cash flow hedges
Exchange differences on translation of foreign operations
Income tax relating to components of other comprehensive income
Other comprehensive (loss) / income for the year, net of tax
Total comprehensive income / (loss) for the year
26,593
(65,381)
Total comprehensive income / (loss) for the year is attributable to:
Owners of Hills Holdings Limited
Non-controlling interests
Total comprehensive income / (loss) for the year
23,792
2,801
26,593
(67,686)
2,305
(65,381)
The above Consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
47
Hills Holdings Limited
Consolidated statement of financial position
As at 30 June 2012
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivables
Assets classified as held for sale
Total current assets
Non-current assets
Investments
Property, plant and equipment
Deferred tax assets
Intangible 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 financial instruments
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Notes
Consolidated
2012
$’000
2011
$’000
7
8
9
6(f)
15
10
11
12
13
16
17
6(f)
18
14
19
20
14
21
22
24,638
177,482
165,287
5,692
373,099
-
7,158
184,042
167,999
-
359,199
2,702
373,099
361,901
2
188,027
21,905
65,444
275,378
2
197,040
31,485
49,213
277,740
648,477
639,641
87,725
1,333
-
33,239
606
98,671
6,833
242
30,963
520
122,903
137,229
115,677
4,828
4,106
124,611
247,514
91,479
6,570
2,056
100,105
237,334
400,963
402,307
303,805
43,203
35,896
306,790
57,245
21,504
382,904
385,539
18,059
400,963
16,768
402,307
Capital and reserves attributable to owners of Hills Holdings Limited
Non-controlling interests
Total equity
The above Consolidated statement of financial position should be read in conjunction with the accompanying notes.
48
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Consolidated statement of changes in equity
For the year ended 30 June 2012
Consolidated
Attributable to owners of Hills Holdings Limited
Contributed
equity
Reserves
Retained
earnings
Total
Notes
$’000
$’000
$’000
$’000
Non-
controlling
interests
$’000
Total
equity
$’000
Balance at 1 July 2010
306,595
47,899
126,107
480,601
15,898
496,499
Total comprehensive income for the year
-
7,269
(74,955)
(67,686)
2,305
(65,381)
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 interests 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
Balance at 30 June 2011
Balance at 1 July 2011
33
23
22
Contributions of equity, net of
transaction costs and tax
Buy-back of shares, net of tax
Non-controlling interests in share capital
issued by subsidiary
Dividends provided for or paid
Dividends paid to non-controlling
interests in subsidiaries
Employee share options – value of
employee services
Transfer from reserves
Balance at 30 June 2012
21
21
22
23
22
-
-
(332)
-
-
34
-
-
(48)
-
-
89
195
-
-
-
-
-
-
128
(3,113)
-
-
-
-
-
-
-
-
195
-
-
750
195
750
(332)
(811)
(1,143)
(27,273)
(27,273)
-
(27,273)
-
(1,379)
(1,379)
34
-
5
-
39
-
2,375
(2,375)
306,790
57,245
21,504
385,539
16,768
402,307
306,790
57,245
21,504
385,539
16,768
402,307
-
-
-
128
(3,113)
-
-
128
(3,113)
(48)
118
70
(23,483)
(23,483)
-
(23,483)
-
(1,698)
(1,698)
89
-
70
-
159
-
(11,854)
11,854
303,805
43,203
35,896
382,904
18,059
400,963
-
-
-
-
Total comprehensive income for the year
-
(2,229)
26,021
23,792
2,801
26,593
Transactions with owners in their capacity as owners:
The above Consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
49
Hills Holdings Limited
Consolidated statement of cash flows
For the year ended 30 June 2012
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)
1,196,701
(1,132,491)
1,204,824
(1,170,304)
Notes
Consolidated
2012
$’000
2011
$’000
Cash generated from operations
Interest received
Interest paid
Income 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 software development and other intangible assets
Proceeds from sale of property, plant and equipment
Proceeds from sale of assets classified as held for sale
Rent received
Net cash (outflow) from investing activities
Cash flows from financing activities
Payments for shares bought back
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 increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
32
31
11
13
21
23
Cash and cash equivalents at the end of the financial year
7
The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes.
64,210
520
(6,426)
(5,635)
52,669
(2,011)
-
(12,881)
(16,066)
1,830
2,702
787
(25,639)
(3,113)
25,000
-
(1,066)
-
(23,483)
(1,698)
(4,360)
22,670
646
(11)
23,305
34,520
798
(5,960)
(16,378)
12,980
-
(1,143)
(26,823)
(293)
832
-
860
(26,567)
-
-
(15,000)
1,976
300
(27,273)
(1,379)
(41,376)
(54,963)
55,531
78
646
50
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements
30 June 2012
1
Summary of significant
accounting policies
The principal accounting policies adopted in the preparation
of these consolidated financial statements are set out below.
These policies have been consistently applied to all the years
presented, unless otherwise stated. The financial statements
are for Hills 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
Interpretations, other authoritative pronouncements of
the Australian Accounting Standards Board, and the
Corporations Act 2001. Hills Holdings Limited is a for-profit
entity for the purpose of preparing the financial statements.
These accounting policies have been consistently applied by
each entity in the Group to all periods presented .
(i) Compliance with IFRS
The financial statements of the Group also comply with
International Financial Reporting Standards (IFRS) as issued
by the international Accounting Standards Board (IASB).
(ii) New and amended standards adopted by the Group
None of the new standards and amendments to standards
that are mandatory for the first time for the financial
year beginning 1 July 2011 affected any of the amounts
recognised in the current period or any prior period and are
not likely to affect future periods.
(iii) Early adoption of standards
The Group has not elected to early adopt any accounting
standards or amendments.
(iv) Historical cost convention
These financial statements have been prepared on the basis
of historical costs, except for the following:
• financial instruments at fair value through profit or loss are
measured at fair value; and
• land and buildings are measured at fair value.
The methods used to measure fair values are discussed
further in notes 1 (o), 1 (p), 11 and 30.
(v) Critical accounting estimates
The preparation of financial statements requires
management to make judgements, estimates and
assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and
in any future periods affected.
In particular, information about significant areas of estimation,
uncertainty and critical judgements in applying accounting
policies that have the most significant effect on the amounts
recognised in the financial statements are described in the
following notes:
• Note 31 – business combinations
• Note 13 – measurement of the recoverable amounts of
cash-generating units containing goodwill
• Note 25 – measurement of share-based payments
• Notes 18, 20 and 28 – provisions and contingencies
• Note 14 – derivative financial instruments
• Notes 11 and 13 – measurement of the useful lives of
property, plant and equipment and intangible assets
(vi) Changes to presentation
During the current year the comparative information on
inventory impairment losses was reallocated between
impairment losses and inventory at cost to match the
allocations made in the current financial year.
(b) Parent entity financial information
The financial information for the 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) Subsidiaries
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of the Company
as at 30 June 2012 and the results of all subsidiaries
for the year then ended.
Subsidiaries are all entities (including special purpose
entities) over which the Group has the power to govern the
financial and operating policies, generally accompanying
a shareholding of more than one-half of the voting rights.
The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when
assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group. They are de-consolidated
from the date that control ceases.
The acquisition method of accounting is used to account for
business combinations by the Group (refer to note 1(i)).
Intercompany transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies
adopted by the Group.
Non-controlling interests in the results and equity of
subsidiaries are shown separately in the Consolidated
income statement, Consolidated statement of
comprehensive income, Consolidated statement of changes
Hills Holdings Limited Annual Report for the year ended 30 June 2012
51
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(c) Principles of consolidation (continued)
in equity and Consolidated statement of financial
position respectively.
(ii) Changes in ownership interests
The Group treats transactions with non-controlling interests
that do not result in a loss of control as transactions with
equity owners of the Group. A change in ownership interest
results in an adjustment between the carrying amounts of
the controlling and non-controlling interests to reflect their
relative interests in the subsidiary. Any difference between
the amount of the adjustment to non-controlling interests
and any consideration paid or received is recognised in a
separate reserve within equity attributable to owners of Hills
Holdings Limited.
When the Group ceases to have control, joint control
or significant influence, any retained interest in the entity is re-
measured to its fair value with the change in carrying amount
recognised in profit or loss. The fair value is the initial carrying
amount for the purposes of subsequently accounting for
the retained interest as an associate, jointly controlled
entity or financial asset. In addition, any amounts previously
recognised in other comprehensive income
in respect of that entity are accounted for as if the Group had
directly disposed of the related assets or liabilities.
This may mean that amounts previously recognised in other
comprehensive income are reclassified to profit or loss.
If the ownership interest in a jointly-controlled entity or an
associate is reduced but joint control or significant influence
is retained, only a proportionate share of the amounts
previously recognised in other comprehensive income
are reclassified to profit or loss where appropriate.
(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.
(e) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(‘the functional currency’). The consolidated financial
statements are presented in Australian dollars, which
is 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 translated to the functional
currency at the exchange rate at the date that the fair value
was determined. Non-monetary assets and liabilities that
are measured in terms of historical cost are translated using
the exchange rate at the date of the transaction. Foreign
currency differences arising on retranslation are recognised
in profit or loss.
(iii) Group companies
The results and financial position of all the Group
entities that have a functional currency different from
the presentation currency are translated into the
presentation currency as follows:
• assets and liabilities for each statement of financial
position presented are translated at the closing rate
at the date of that statement of financial position;
• income and expenses for each income statement and
statement of comprehensive income are translated at
average exchange rates (unless this is not a reasonable
approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the
transactions), and
• all resulting exchange differences are recognised in other
comprehensive income.
(f) Revenue recognition
Revenue is recognised for the major business activities
as follows:
(i) Sale of goods
Revenue from the sale of goods is measured at the fair value
of the consideration received or receivable, net of returns,
trade discounts and volume rebates. Revenue is recognised
when the significant risks and rewards of ownership have
been transferred to the buyer, recovery of the consideration is
probable, the associated costs and possible return of goods
can be estimated reliably, there is no continuing management
involvement with the goods and the amount of revenue can
be measured reliably.
(ii) Services
Revenue from services rendered is recognised in profit
or loss in proportion to the stage of completion of the
transaction at the reporting date. The stage of completion is
assessed by reference to estimates of work performed.
52
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
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. In 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.
In 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 29). 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.
(i) Business combinations
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
fair values of the assets transferred, the liabilities incurred and
the equity interests issued by the Group. The consideration
transferred also includes the fair value of any 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. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are,
with limited exceptions, measured initially at their fair values
at the acquisition date. On an acquisition-by-acquisition
basis, the Group recognises any non-controlling interests
in the acquiree either at fair value or at the non-controlling
interests’s proportionate share of the acquiree’s net
identifiable assets.
1
Summary of significant
accounting policies (continued)
(f) Revenue recognition (continued)
(iii) Rental income
Rental income from investment property is recognised in
profit or loss on a straight-line basis over the term of the
lease. Lease incentives granted are recognised as an integral
part of the total rental income, over the term of the lease.
(iv) Dividends
Dividends are recognised as revenue when the right to
receive payment is established. This applies even if they are
paid out of pre-acquisition profits. However, the investment
may need to be tested for impairment as a consequence,
refer note 1(n).
(g) Income tax
The income tax expense or revenue for the period is the tax
payable on the current period’s taxable income based on the
applicable income tax rate for each jurisdiction adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of
the tax laws enacted or substantively enacted at the end of
the reporting period in the countries where the Company’s
subsidiaries operate and generate taxable income.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. However, 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
Hills Holdings Limited Annual Report for the year ended 30 June 2012
53
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(i) Business combinations (continued)
The excess of the consideration transferred and the amount
of any non-controlling interest in the acquiree over the fair
value of the net identifiable assets acquired is recorded as
goodwill. If those amounts are less than the fair value of
the net identifiable assets of the subsidiary acquired and
the measurement of all amounts has been reviewed, the
difference is recognised directly in profit or loss as a bargain
purchase.
Where settlement of any part of cash consideration is
deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The
discount rate used is a pre-tax rate that reflects current
market assessments of the time value of money and the risks
specific to the liability.
Contingent consideration is classified as a financial liability.
Amounts are subsequently re-measured to fair value with
changes in fair value recognised in profit or loss.
(j) Impairment of non-financial assets
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually
for impairment, or more frequently if events or changes
in circumstances indicate that they might be impaired.
Other assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognised for
the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of
an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash
inflows which are largely independent of the cash inflows
from other assets or groups of assets (cash-generating
units). Non-financial assets other than goodwill that suffered
an impairment are reviewed for possible reversal of the
impairment at each reporting date.
(k) Cash and cash equivalents
For the purpose of presentation in the Consolidated
statement of cash flows, cash and cash equivalents includes
cash on hand, deposits held at call with financial institutions,
other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible
to known amounts of cash and which are subject to an
insignificant risk of changes in value, and bank overdrafts and
at call borrowings. Bank overdrafts and at call borrowings
are shown within borrowings in current liabilities in the
Consolidated statement of financial position.
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 difficulties of
the debtor, probability that the debtor will enter bankruptcy
or financial reorganisation, and default or delinquency in
payments (more than 30 days overdue) are considered
indicators that the trade receivable is impaired. The amount
of the impairment allowance is the difference between
the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the
original effective interest rate.
The amount of the impairment loss is recognised in profit
or loss. When a trade receivable for which an impairment
allowance had been recognised becomes uncollectible in
a subsequent period, it is written off against the allowance
account. Subsequent recoveries of amounts previously
written off are credited against expenses in profit or loss.
(m) Inventories
Raw materials and stores, work in progress and finished
goods are stated at the lower of cost and net realisable
value. Cost comprises direct materials, direct labour and
an appropriate proportion of variable and fixed overhead
expenditure, the latter being allocated on the basis of normal
operating capacity. Cost includes the transfer from equity of
any gains/losses on qualifying cash flow hedges relating to
purchases of raw material. Costs are assigned to individual
items of inventory on the basis of weighted average costs or
the first-in-first-out principle. Costs of purchased inventory
are determined after deducting rebates and discounts. Net
realisable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion
and the estimated costs necessary to make the sale. The
fair value of inventories acquired in a business combination
is determined based on its estimated selling price in the
ordinary course of business less the estimated costs of
completion and sale, and a reasonable profit margin based
on the effort required to complete and sell the inventories.
(n) Investments and other financial assets
Classification
(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.
The Group classifies its financial assets in the following
categories: financial assets at fair value through profit or loss
and loans and receivables. The classification depends on the
purpose for which the investments were acquired.
54
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(n) Investments and other financial assets (continued)
Management determines the classification of its investments
at initial recognition.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are
financial assets held-for-trading. A financial asset is classified
in this category if acquired principally for the purpose of
selling in the short-term. Derivatives are classified as held-for-
trading unless they are designated as hedges. Assets in this
category are classified as current and non-current assets on
the basis of the maturity of the underlying derivative.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. They are included in current assets, except
for those with maturities greater than 12 months after the
reporting date which are classified as non-current assets.
Loans and receivables are included in current assets – trade
and other receivables (note 8) in the Consolidated statement
of financial position.
Recognition and derecognition
Regular purchases and sales of financial assets are
recognised on trade-date – the date on which the Group
commits to purchase or sell the asset. Financial assets
carried at fair value through profit or loss are initially
recognised at fair value and transaction costs are expensed
in profit or loss. Financial assets are derecognised when
the rights to receive cash flows from the financial assets
have expired or have been transferred and the Group
has transferred substantially all the risks and rewards of
ownership.
Measurement
(o) Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
re-measured 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 22. The full fair value of a hedging derivative is classified
as a non-current asset or liability when the remaining maturity
of the hedged item is more than 12 months; it is classified as
a current asset or liability when the remaining maturity of the
hedged item is less than 12 months.
The fair value of forward exchange contracts is based on
their listed market price, if available. If a listed market price
is not available, then fair value is estimated by discounting
the difference between the contractual forward price and
the current forward price for the residual maturity of the
contract using a risk free interest rate (based on government
bonds). The fair value of interest rate swaps is determined by
discounting estimated future cash flows based on the terms
and maturity of each contract and using market rates at the
measurement date.
Loans and receivables are measured at amortised cost using
the effective interest method.
(i) Cash flow hedge
Details on how the fair value of financial instruments is
determined are disclosed in note 1(o).
Impairment
The Group assesses at the end of each reporting period
whether there is objective evidence that a financial asset or
group of financial assets is impaired.
If there is evidence of impairment for any of the Group’s
financial assets carried at amortised cost, the loss is
measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows,
excluding future credit losses that have not been incurred.
The cash flows are discounted at the financial asset’s original
effective interest rate. The loss is recognised in profit or loss.
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges is
recognised in other comprehensive income and within the
hedging reserve in equity. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss.
Amounts accumulated in equity are reclassified to profit
or loss in the periods when the hedged item affects profit
or loss. The gain or loss relating to the effective portion
of interest rate swaps hedging variable rate borrowings is
recognised in profit or loss within ‘finance income’ or ‘finance
costs’. The gain or loss relating to the effective portion of
forward foreign exchange contracts hedging export sales is
recognised in profit or loss within ‘sales’.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
55
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(o) Derivatives and hedging activities (continued)
However, when the forecast transaction that is hedged
results in the recognition of a non-financial asset (for
example, inventory or fixed assets) the gains and losses
previously deferred in equity are reclassified from equity and
included in the initial measurement of the cost of the asset.
The deferred amounts are ultimately recognised in profit
or loss as cost of goods sold in the case of inventory, or as
depreciation or impairment in the case of fixed assets.
When a hedging instrument expires or is sold or terminated,
or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity
at that time remains in equity and is recognised when the
forecast transaction is ultimately recognised in profit or loss.
When a forecast transaction is no longer expected to occur,
the cumulative gain or loss that was reported in equity is
immediately reclassified to profit or loss.
(ii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge
accounting. Changes in the fair value of any derivative
instrument that does not qualify for hedge accounting are
recognised immediately in profit or loss.
(p) Property, plant and equipment
Land and buildings are shown at fair value less subsequent
depreciation for buildings. Land and buildings are
independently valued at least every four years on the basis of
open market values, and in the intervening years are valued
by the Directors based on the most recent independent
valuation combined with current market information. Any
accumulated depreciation at the date of revaluation is
eliminated against the gross carrying amount of the asset
and the net amount is restated to the revalued amount of
the asset. 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.
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.
Increases in the carrying amounts arising on revaluation
of land and buildings are recognised, net of tax, in other
comprehensive income and accumulated in reserves in
equity. To the extent that the increase reverses a decrease
previously recognised in profit or loss, the increase is first
recognised in profit or loss. Decreases that reverse previous
increases of the same asset are first recognised in other
comprehensive income to the extent of the remaining surplus
attributable to the asset; all other decreases are charged to
profit or loss.
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
2012
0.75%
5.00% to
40.00%
20.00% to
66.67%
2011
0.75%
5.00% to
40.00%
20.00% to
66.67%
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount (note 1(j)).
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in profit
or loss. When revalued assets are sold, it is Group policy to
transfer any amounts included in other reserves in respect
of those assets to the asset realisation reserve. Amounts
transferred to the asset realisation reserve may subsequently
be transferred to retained earnings.
(q) Intangible assets
(i) 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.
56
Hills Holdings Limited Annual Report for the year ended 30 June 2012
1
Summary of significant
accounting policies (continued)
(q) Intangible assets (continued)
Goodwill on acquisitions of subsidiaries is included in
intangible assets. Goodwill is not amortised. Instead,
goodwill is tested for impairment annually, or more frequently
if events or changes in circumstances indicate that it
might be impaired, and is carried at cost less accumulated
impairment losses. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the
entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those cash-
generating units or groups of cash-generating units that are
expected to benefit from the business combination in which
the goodwill arose.
(ii) Patents and Trademarks
Patents and trademarks have a finite useful life and
are carried at cost less accumulated amortisation and
impairment losses. Amortisation is calculated using the
straight-line method to allocate the cost of patents and
trademarks over their estimated useful lives, which vary from
10 to 20 years.
(iii) IT development and software
Costs incurred in developing products or systems and
costs incurred in acquiring software and licenses that will
contribute to future period financial benefits through revenue
generation and/or cost reduction are capitalised to software
and systems. Costs capitalised include external direct costs
of materials and service and direct payroll and payroll related
costs of employees’ time spent on the project.
IT development costs include only those costs directly
attributable to the development phase and are only
recognised following completion of technical feasibility and
where the Group has an intention and ability to use the asset.
(iv) Research and development
Research expenditure is recognised as an expense as
incurred. Costs incurred on development projects (relating
to the design and testing of new or improved products) are
recognised as intangible assets when it is probable that the
project will, after considering its commercial and technical
feasibility, be completed and generate future economic
benefits and its costs can be measured reliably. The
expenditure capitalised comprises all directly attributable
costs, including costs of materials, services, direct labour
and an appropriate proportion of overheads. Other
development expenditures that do not meet these criteria are
recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as
an asset in a subsequent period. Capitalised development
costs are recorded as intangible assets and amortised from
the point at which the asset is ready for use on a straight-line
basis over its useful life, which is estimated to be 5 to 20 years.
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
(v) Fair values
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 sale
Non-current assets (or disposal groups) are classified as held
for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use
and a sale is considered highly probable. 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 benefits and financial 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. Interest 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 financial 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.
(t) 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
Hills Holdings Limited Annual Report for the year ended 30 June 2012
57
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(t) Borrowings (continued)
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. In this case, the fee is deferred until the draw
down occurs. To the extent there is no evidence that it is
probable that some or all of the facility will be drawn
down, the fee is capitalised as a prepayment for liquidity
services and amortised over the period of the facility
to which it relates.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
(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-tax 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.
(v) Employee benefits
(i) Wages and salaries, and annual leave
Liabilities for wages and salaries, including non-monetary
benefits and annual leave expected to be settled within 12
months after the end of the period in which the employees
render the related service are recognised in respect of
employees’ services up to the end of the reporting period
and are measured at the amounts expected to be paid
when the liabilities are settled. The liability for annual leave is
recognised in the provision for employee benefits. All other
short-term employee benefit obligations are presented
as payables.
(ii) Long service leave
The liability for long service leave is recognised in the
provision for employee benefits and measured as the present
value of expected future payments to be made in respect
of services provided by employees up to the end of the
reporting period. Consideration is given to expected future
wage and salary levels, experience of employee departures
and periods of service. Expected future payments are
discounted using market yields at the end of the reporting
period on national government bonds with terms to maturity
and currency that match, as closely as possible, the
estimated future cash outflows.
The obligations are presented as current liabilities in the
Consolidated statement of financial position if the Group
does not have an unconditional right to defer settlement for
at least twelve months after the reporting date, regardless of
when the actual settlement is expected to occur.
(iii) Retirement benefit obligations
A defined contribution plan is a post employment benefit plan
which receives fixed contributions from Group entities
and the Group’s legal or constructive obligation is limited
to these contributions.
Contributions to defined contribution plans are recognised
as an expense as they become payable.
(iv) Share-based payments
Share-based compensation benefits are provided to
employees via the Long Term Incentive Share Plan
(previously the Executive Share Option Plan) and the
Employee Share Plan. Information relating to these
schemes is set out in note 25.
Long Term Incentive Plan
The Long Term Incentive 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 Incentive Share Plan / Executive Share Option
Plan is recognised as an employee benefits expense with
a corresponding increase in equity. The total amount to be
expensed is determined by reference to the fair value of the
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 rights / 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 rights / options
that are expected to vest based on the non-market vesting
conditions. It recognises the impact of the revision to original
estimates, if any, in profit or loss, with a corresponding
adjustment to equity. No change is made for changes in
market conditions.
58
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(z) Earnings per share
(i) Basic earnings per share
(v) Employee benefits (continued)
Basic earnings per share is calculated by dividing:
Employee Share Bonus Plan
The Employee Share Bonus Plan allows Group employees
to acquire shares of the Company. Up to $1,000 per year in
shares is allotted to employees who have served a qualifying
period. The fair value of shares issued is recognised as an
employee expense with a corresponding increase in equity.
The fair value of the shares granted is measured using a
present value method based upon independent advice.
(v) Profit-sharing and bonus plans
A liability is recognised for the amount expected to be paid
under short-term cash bonus or profit-sharing plans if the
Group has a present legal or constructive obligation to pay
this amount as a result of past service provided by
the employee and the obligation can be estimated
reliably, or where there is past practice that has created
a constructive obligation.
(w) Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of
new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.
If the entity reacquires its own equity instruments, for
example as the result of a share buy-back, those instruments
are deducted from equity and the associated shares are
cancelled. No gain or loss is recognised in profit or loss and
the consideration paid including any directly attributable
incremental costs (net of income taxes) is recognised
directly in equity.
(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.
(y) Finance income and expense
Finance income comprises interest income on funds
invested, fair value gains on interest rate swap contracts not
accounted for using hedge accounting and the ineffective
portion of cash flow hedges relating to interest rate swaps.
Interest income is recognised as it accrues in profit or loss.
Finance expenses comprise interest expense on borrowings,
unwinding of the discount on provisions, fair value losses
on interest rate swap contracts not accounted for using
hedge accounting and the ineffective portion of cash flow
hedges relating to interest rate swaps. Borrowing costs are
recognised in profit or loss using the effective
interest method.
• the profit attributable to owners of the Company,
excluding any costs of servicing equity other than
ordinary shares;
• by the weighted average number of ordinary shares
outstanding during the financial year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into
account:
• the after income tax effect of interest and other
financing costs associated with dilutive potential
ordinary shares; and
• the weighted average number of additional ordinary
shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.
(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. In this case it is
recognised as part of the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated inclusive of the
amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the taxation authority
is included with other receivables or payables in the
Consolidated statement of financial position.
Cash flows are presented on a gross basis. The GST
components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the
taxation authority, are presented as operating cash flows.
(ab) Rounding of amounts
The Group is of a kind referred to in Class Order 98/100,
issued by the Australian Securities and Investments
Commission, relating to the “rounding off” of amounts in the
financial statements. Amounts in the financial statements
have been rounded off in accordance with that Class Order
to the nearest thousand dollars, or in certain cases, the
nearest dollar.
(ac) New accounting standards and interpretations
Certain new accounting standards and interpretations have
been published that are not mandatory for 30 June 2012
reporting periods. The Group’s assessment of the impact of
these new standards and interpretations is set out below.
(i) AASB 9 Financial Instruments, AASB 2009-11
Amendments to Australian Accounting Standards arising
from AASB 9 and AASB 2010-7 Amendments to
Hills Holdings Limited Annual Report for the year ended 30 June 2012
59
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(ac)
New accounting standards and interpretations
(continued)
Australian Accounting Standards arising from AASB 9
(December 2010) (effective from 1 January 2015)
AASB 9 Financial Instruments addresses the classification,
measurement and derecognition of financial assets
and financial liabilities and is likely to affect the Group’s
accounting for its financial assets and financial liabilities.
The standard is not applicable until 1 January 2015 but is
available for early adoption. The Group has not yet decided
when to adopt AASB 9 and has not yet determined the
potential effect of the standard.
(ii) AASB 10 Consolidated Financial Statements, AASB
11 Joint Arrangements, AASB 12 Disclosure of Interests
in Other Entities, revised AASB 127 Separate Financial
Statements and AASB 128 Investments in Associates
and Joint Ventures and AASB 2011-7 Amendments
to Australian Accounting Standards arising from the
Consolidation and Joint Arrangements Standards
(effective 1 January 2013)
In August 2011, the AASB issued a suite of five new and
amended standards which address the accounting for
joint arrangements, consolidated financial statements and
associated disclosures.
AASB 10 replaces all of the guidance on control and
consolidation in AASB 127 Consolidated and Separate
Financial Statements, and Interpretation 12 Consolidation
– Special Purpose Entities. The core principle that a
consolidated entity presents a parent and its subsidiaries as
if they are a single economic entity remains unchanged, as
do the mechanics of consolidation. However the standard
introduces a single definition of control that applies to all
entities. It focuses on the need to have both power and
rights or exposure to variable returns before control is
present. Power is the current ability to direct the activities
that significantly influence returns. Returns must vary and
can be positive, negative or both. There is also new guidance
on participating and protective rights and on agent/principal
relationships. While the Group does not expect the new
standard to have a significant impact on its composition, it
has yet to perform a detailed analysis of the new guidance
in the context of its various investees that may or may not be
controlled under the new rules.
AASB 11 introduces a principles based approach to
accounting for joint arrangements. The focus is no longer
on the legal structure of joint arrangements, but rather on
how rights and obligations are shared by the parties to
the joint arrangement. Based on the assessment of rights
and obligations, a joint arrangement will be classified as
either a joint operation or a joint venture. Joint ventures are
accounted for using the equity method, and the choice to
proportionately consolidate will no longer be permitted.
Parties to a joint operation will account for their share of
revenues, expenses, assets and liabilities in much the same
way as under the previous standard. AASB 11 also provides
guidance for parties that participate in joint arrangements
but do not share joint control. The Group does not expect
the new standard to have a material impact on the amounts
recognised in the financial statements.
AASB 12 sets out the required disclosures for entities
reporting under the two new standards, AASB 10 and AASB
11, and replaces the disclosure requirements currently found
in AASB 127 and AASB 128. Application of this standard by
the Group will not affect any of the amounts recognised in the
financial statements, but will impact the type of information
disclosed in relation to the Group’s investments.
The Group does not expect to adopt the new standards
before their operative date. They would therefore be first
applied in the financial statements for the annual reporting
period ending 30 June 2014.
(iii) AASB 13 Fair Value Measurement and AASB 2011-8
Amendments to Australian Accounting Standards arising
from AASB 13 (effective 1 January 2013)
AASB 13 was released in September 2011. It explains
how to measure fair value and aims to enhance fair
value disclosures. The Group does not use fair value
measurements extensively. It is therefore unlikely that the
new rules will have a significant impact on any of the amounts
recognised in the financial statements. However, application
of the new standard will impact the type of information
disclosed in the notes to the consolidated financial
statements. The Group does not intend to adopt the new
standard before its operative date, which means that
it would be first applied in the annual reporting period
ending 30 June 2014.
(iv) Revised AASB 119 Employee Benefits, AASB 2011-10
Amendments to Australian Accounting Standards arising
from AASB 119 (September 2011) and AASB 2011-11
Amendments to AASB 119 (September 2011) arising
from Reduced Disclosure Requirements (effective
1 January 2013)
In September 2011, the AASB released a revised standard on
accounting for employee benefits. It requires the recognition
of all remeasurements of defined benefit liabilities/assets
immediately in other comprehensive income and the
calculation of a net interest expense or income by applying
the discount rate to the net defined benefit liability or asset.
This replaces the expected return on plan assets that
is currently included in profit or loss. The standard also
introduces a number of additional disclosures for defined
benefit liabilities/assets and could affect the timing of the
recognition of termination benefits. Since the Group does not
have any defined benefit obligations, the amendments will
not have any impact on the Group’s financial statements. The
Group intends to adopt the new standard from 1 July 2013.
(v) AASB 2011-9 Amendments to Australian
Accounting Standards – Presentation of Items of Other
Comprehensive Income (effective 1 July 2012)
60
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
1
Summary of significant
accounting policies (continued)
(ac)
New accounting standards and interpretations
(continued)
In September 2011, the AASB made an amendment to
AASB 101 Presentation of Financial Statements which
requires entities to separate items presented in other
comprehensive income into two groups, based on whether
they may be recycled to profit or loss in the future. It will not
affect the measurement of any of the items recognised in the
Consolidated statement of financial position or the profit or
loss in the current period. The Group intends to adopt the
new standard from 1 July 2012.
(vi) AASB 2011-4 Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirements
(effective 1 July 2013)
In July 2011 the AASB decided to remove the individual key
management personnel (KMP) disclosure requirements from
AASB 124 Related Party Disclosures, to achieve consistency
with the international equivalent standard and remove a
duplication of the requirements with the Corporations Act
2001. While this will reduce the disclosures that are currently
required in the notes to the financial statements, it will
not affect any of the amounts recognised in the financial
statements. The amendments apply from 1 July 2013 and
cannot be adopted early. The Corporations Act requirements
in relation to remuneration reports will remain unchanged for
now, but these requirements are currently subject to review
and may also be revised in the near future.
There are no other standards that are not yet effective and
that are expected to have a material impact on the Group in
the current or future reporting periods and on foreseeable
future transactions.
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, fibre optic transmission solutions,
communications related products and services, domestic
and commercial antennas, master antenna television
systems, communications antennas, amplifiers, and
subscription TV installation services.
Lifestyle & Sustainability
Includes indoor and 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, and
plumbing products.
Building & Industrial
Comprises the Fielders Steel Roofing and Orrcon Steel
businesses and includes structural, precision and large steel
tubing, steel doorframes, roll formed metal building products,
carports and shed systems.
Korvest
Comprises the business of Korvest Ltd and includes
electrical and cable support systems, pipe support systems,
walkway systems, steel fabrication, associated metal
treatment and galvanising services.
The Group principally considers the businesses from
a products and services perspective. The Electronics
& Communications division is managed separately by
a divisional CEO and the Lifestyle & Sustainability division
is managed by the Chief Operating Officer.
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 &
Industrial division comprises the operations of Orrcon,
Fielders and Korvest. The Group considers these businesses
to be separate operating segments. However, for the
purposes of disclosure under AASB 8 Operating Segments,
the Orrcon and Fielders businesses meet the aggregation
criteria of the Standard because of similarities of products,
markets, distribution and regulatory environments. However,
Korvest does not meet the aggregation criteria, and as a
consequence is reported separately.
Although the Group’s divisions are managed on a products and
services basis they operate in two main geographical areas:
Australia
Comprises manufacturing facilities and sales offices and
customers in all states and territories.
Overseas
Comprises sales offices and customers in New Zealand
and customers in Europe, Middle East, South Africa and
North America.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
61
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
2
Segment information (continued)
(b) Segment information provided to the Group Managing Director
2012
Total segment revenue
Intersegment revenue
Revenue from external customers
Segment EBIT
Depreciation and amortisation
Total segment assets
Total assets includes:
Additions to noncurrent assets (other
than financial assets and deferred tax)
Electronics &
Communications
$’000
Lifestyle &
Sustainability
$’000
Building &
Industrial
$’000
537,439
(3,401)
Korvest Ltd
Total
$’000
$’000
72,323
1,106,402
(102)
(24,917)
138,810
(695)
138,115
534,038
72,221
1,081,485
10,473
3,871
(2,791)
10,095
7,925
1,542
45,008
19,235
106,107
255,170
40,813
550,867
357,830
(20,719)
337,111
29,401
3,727
148,777
5,418
2,549
8,263
1,801
18,031
Total segment liabilities
44,595
16,263
46,860
7,062
114,780
2011
Electronics &
Communications
Lifestyle &
Sustainability
Building &
Industrial
Korvest Ltd
Total
Total segment revenue
Intersegment revenue
Revenue from external customers
Segment EBIT
Depreciation and amortisation
Total segment assets
Total assets includes:
Additions to noncurrent assets (other
than financial assets and deferred tax)
Total segment liabilities
$’000
340,675
(23,296)
317,379
28,027
3,339
142,608
5,175
37,846
$’000
161,440
(680)
160,760
9,697
4,995
$’000
553,242
(3,622)
549,620
(2,402)
11,769
$’000
$’000
67,383
1,122,740
(157)
(27,755)
67,226
1,094,985
5,556
1,278
40,878
21,381
107,815
277,649
42,434
570,506
4,396
11,215
2,040
22,826
19,900
57,047
8,974
123,767
(c) Notes to, and forming part of, the segment information
(i) Accounting policies
Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion
that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist
primarily of receivables, inventories, property, plant and equipment and goodwill and other intangible assets, net of related
provisions. Segment assets do not include income taxes.
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on a “cost plus”
basis and are eliminated on consolidation.
(ii) Segment revenue
Segment revenue reconciles to total revenue from continuing operations as follows:
Total segment revenue
Intersegment eliminations
Other revenue
Total revenue from continuing operations (note 3)
62
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Consolidated
2012
$’000
1,106,402
(24,917)
787
1,082,272
2011
$’000
1,122,740
(27,755)
860
1,095,845
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
2
Segment information (continued)
(c) Notes to, and forming part of, the segment information (continued)
The Group is domiciled in Australia. The amount of its revenue from external customers in Australia is $1,039.758 million (2011:
$1,050.138 million), and the total of revenue from external customers in other countries is $41.727 million (2011: $44.847 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.
(iii) Segment EBIT
The Group Managing Director assesses the performance of the operating segments based on a measure of adjusted EBIT.
This measurement basis excludes the effects of non-recurring expenditure from the operating segments such as restructuring
costs and goodwill impairments when the impairment is the result of an isolated, non-recurring event. Interest income and
expenditure are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the
cash position of the Group.
Segment EBIT reconciles to profit / (loss) before income tax as follows:
Segment EBIT
Interest revenue
Interest expense
Fair value profit on interest rate swaps and forward exchange contracts
Goodwill impairment
Impairment of other assets
Closure costs
Other
Profit / (loss) before income tax
(iv) Segment assets
Consolidated
2011
$’000
40,878
798
(5,960)
1,136
(66,182)
(43,694)
(4,963)
(502)
(78,489)
2012
$’000
45,008
520
(6,426)
153
-
-
-
(306)
38,949
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
Current tax receivables
Deferred tax assets
Investments
Corporate assets
Total assets as per the Consolidated statement of financial position
Consolidated
2011
$’000
570,506
7,158
-
31,485
2
30,490
639,641
2012
$’000
550,867
24,638
5,692
21,905
2
45,373
648,477
The total of non-current assets other than financial instruments and deferred tax assets located in Australia is $246.620 million
(2011: $238.629 million), and the total of these non-current assets located in other countries is $6.851 million (2011: $7.624
million). Segment assets are allocated to countries based on where the assets are located.
(v) Segment liabilities
The amounts provided to the Group Managing Director with respect to total liabilities are measured in a manner consistent with
that of the financial statements. These liabilities are allocated based on the operations of the segment.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
63
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
2
Segment information (continued)
(c) Notes to, and forming part of, the segment information (continued)
The Group’s borrowings and derivative financial instruments are not considered to be segment liabilities but rather managed by
the treasury function.
Reportable segments’ liabilities are reconciled to total liabilities as follows:
Segment liabilities
Tax liabilities (including GST payable)
Borrowings
Derivative financial instruments
Corporate liabilities
Total liabilities as per the Consolidated statement of financial position
3 Revenue
Revenue from continuing operations
Sales revenue
Sale of goods
Services
Other revenue
Rents and sublease rentals
4 Other income
Net gain on disposal of property, plant and equipment
Other income
Consolidated
2011
$’000
123,767
4,916
98,312
2,576
7,763
237,334
2012
$’000
114,780
5,116
117,010
4,712
5,896
247,514
Consolidated
2012
$’000
2011
$’000
1,014,121
67,364
1,081,485
787
1,082,272
2012
$’000
560
2,054
2,614
1,033,517
61,468
1,094,985
860
1,095,845
Consolidated
2011
$’000
106
1,050
1,156
64
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
Consolidated
5 Expenses
Classification of expenses by function
Cost of goods sold
Cost of services provided
Other expenses from ordinary activities:
Distribution expenses
Sales and marketing expenses
Administration expenses
Other expenses
Profit / (loss) 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
Interest and finance charges paid/payable
Ineffective portion of changes in fair value of cash flow hedges
Finance income
Interest income
Fair value gains on derivatives
Net finance costs expensed
Rental expense relating to operating leases
Minimum lease payments
Net foreign exchange losses
Research and development
Impairment of financial and other assets
Plant and equipment
Inventories
Receivables
Intangible assets
2012
$’000
689,764
60,591
90,372
136,713
62,744
-
1,040,184
1,911
18,008
19,919
1,141
40
1,181
21,100
186,459
16,266
16,742
264
219,731
6,426
137
6,563
(520)
(290)
(810)
5,753
27,240
35
123
-
(2,030)
2,069
-
2011
$’000
714,556
54,331
89,409
135,022
63,307
114,839
1,171,464
1,769
20,112
21,881
1,158
40
1,198
23,079
192,454
16,238
17,292
479
226,463
5,960
40
6,000
(798)
(1,176)
(1,974)
4,026
25,191
29
446
37,210
3,783
1,635
66,182
Hills Holdings Limited Annual Report for the year ended 30 June 2012
65
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
5 Expenses (continued)
Profit / (loss) after tax for the prior year included the following items that were
significant because of their nature or size:
(a) Impairment of Orrcon plant and equipment (recognised within Other expenses)
Less: Applicable income tax benefit
(b) Impairment of Orrcon inventory (recognised within Other expenses)
Less: Applicable income tax benefit
(c) Impairment of Orrcon goodwill (recognised within Other expenses)
Less: Applicable income tax benefit
(d) Impairment of Team Poly plant and equipment (recognised within Other expenses)
Less: Applicable income tax benefit
(e) Impairment of Team Poly goodwill (recognised within Other expenses)
Less: Applicable income tax benefit
(f) Closure costs (recognised within Other Expenses)
Less: Applicable income tax benefit
Total cash generating unit impairment and closure costs
Less: Applicable income tax benefit
Consolidated
2012
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2011
$’000
34,622
(10,387)
24,235
7,324
(2,197)
5,127
49,590
-
49,590
1,748
(524)
1,224
16,592
-
16,592
4,963
(1,489)
3,474
114,839
(14,597)
100,242
Commentary on impairment recorded in year ended 30 June 2011:
As a result of poor trading conditions during the previous financial year at Orrcon and Team Poly and the decision to close
Orrcon’s Unanderra operations, the Group undertook a comprehensive review of the carrying values of the assets including
the goodwill of Orrcon and Team Poly. This 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 $1.748 million. The after tax impact of these impairments was $96.768 million
in the previous financial year.
Additionally, costs associated with the closure totalling $4.963 million were recognised in the financial statements at 30 June
2011. The after tax impact of these costs was $3.474 million in the financial year ended 30 June 2011.
Further details on the impairment of Orrcon plant and equipment and Team Poly plant and equipment in the previous
financial year are disclosed in note 11.
Further details on the impairment of Orrcon goodwill and Team Poly goodwill in the previous financial year and the update
for the current financial year are disclosed in note 13.
66
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
6 Income tax expense
Consolidated
(a) Income tax expense / (benefit):
Current tax
Deferred tax
Adjustments for current and deferred tax of prior periods
Deferred income tax expense / (revenue) included in income tax expense comprises:
Decrease / (increase) in deferred tax assets (note 12)
(b) Numerical reconciliation of income tax expense / (benefit) to prima facie tax payable
Profit / (loss) from continuing operations before income tax expense / (benefit)
Tax at the Australian tax rate of 30% (2011: 30%)
Tax effect of amounts which are not deductible / (taxable) in calculating taxable income:
Goodwill impairment
Impairment of other assets
Non deductible expenses
Research and Development allowances
Difference in overseas tax rates
Adjustments for current tax of prior periods
Tax losses not recognised
Total income tax expense / (benefit)
(c) Amounts recognised directly in equity
2012
$’000
1,946
10,433
(2,252)
10,127
10,433
10,433
38,949
11,685
-
-
646
(30)
(53)
(2,252)
131
10,127
2011
$’000
8,389
(11,406)
(2,356)
(5,373)
(11,406)
(11,406)
(78,489)
(23,547)
19,855
252
249
(90)
28
(2,356)
236
(5,373)
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)
(d) Tax expense / (income) relating to items of other comprehensive income
(61)
180
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:
Losses / (gains) on revaluation of land and buildings (note 12)
Cash flow hedges (notes 12, 22)
(e) Tax losses
Unused capital tax losses for which no deferred tax asset has been recognised
Potential tax benefit @ 30%
(103)
(689)
(792)
41,320
12,396
3,957
(445)
3,512
41,320
12,396
The tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these
items because it is not probable that future capital gains will be available against which the Group can utilise the benefits from
these items.
Revenue tax losses for which no deferred tax asset has been recognised total $4.929 million (2011: $2.417 million).
The potential deferred tax asset not recognised totals $1.479 million (2011: $0.725 million).
Revenue tax losses for which a deferred tax asset has been recognised total $2.868 million (2011: $nil).
(f) Current tax assets and liabilities
The current tax asset for the Group of $5.692 million (2011: liability of $0.242 million) represents the amount of income taxes
receivable (2011: payable) in respect of current and prior financial periods.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
67
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
6 Income tax expense (continued)
(g) Tax consolidation legislation
The Company and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.
The accounting policy in relation to this legislation is set out in note 1(g).
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing
agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the
case of a default by the head entity, Hills Holdings Limited.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate the
Company for any current tax payable assumed and are compensated by the Company for any current tax receivable and
deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Company under the tax
consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned
entities’ financial statements.
The amounts receivable / payable under the tax funding agreement are due upon receipt of the funding advice from the head
entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of
interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current
intercompany receivables or payables and eliminated on consolidation.
7
Current assets – Cash and cash equivalents
Cash at bank and in hand
Deposits at call
Consolidated
2012
$’000
12,983
11,655
24,638
2011
$’000
6,396
762
7,158
(a) Reconciliation to cash at the end of the year
The above figures are reconciled to cash at the end of the financial year as shown in the Consolidated statement of cash flows
as follows:
Balances as above
Bank overdrafts (note 17)
Borrowings at call (note 17)
Balances per Consolidated statement of cash flows
(b) Risk exposure
Consolidated
2011
$’000
7,158
(1,512)
(5,000)
646
2012
$’000
24,638
(1,333)
-
23,305
The Group’s exposure to interest rate risk is discussed in note 30. The maximum exposure to credit risk at the end of the
reporting period is the carrying amount of each class of cash and cash equivalents mentioned above.
(c) Fair value
The carrying amount for cash and cash equivalents equals the fair value.
68
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
8
Current assets – Trade and other receivables
Net trade receivables
Trade receivables
Provision for impairment of receivables
Net other receivables
Other receivables
Prepayments
(a) Impaired trade receivables
The ageing of the Group’s trade receivables at the reporting date is as follows:
Not past due
Past due 0–30 days
Past due 31– 90 days
Past due more than 90 days
Movements in the provision for impairment of receivables are as follows:
At 1 July
Provision for impairment recognised during the year
Receivables written off during the year as uncollectible
At 30 June
Consolidated
2011
$’000
180,445
(9,180)
171,265
10,888
1,889
184,042
Consolidated
2011
$’000
96,409
55,728
18,673
9,635
180,445
Consolidated
2011
$’000
(9,418)
(1,635)
1,873
(9,180)
2012
$’000
176,309
(6,770)
169,539
5,667
2,276
177,482
2012
$’000
87,839
59,346
16,737
12,387
176,309
2012
$’000
(9,180)
(2,069)
4,479
(6,770)
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 $6.770 million (2011: $9.180 million) relates to receivables past
due more than 30 days, based upon a case by case assessment. Receivables past due between 0 and 30 days
are not considered impaired.
(b) Foreign exchange and interest rate risk
Information about the Group’s exposure to foreign currency risk and interest rate risk in relation to trade and other
receivables is provided in note 30.
(c) Fair value and credit risk
Due to the short-term nature of these receivables, their carrying amount is assumed to approximate their fair value.
The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned
above. The fair value of securities held for certain trade receivables is insignificant as is the fair value of any collateral sold
or repledged. Refer to note 30 for more information on the risk management policy of the Group and the credit quality
of the Group’s trade receivables.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
69
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
9 Current assets – Inventories
Consolidated
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
10 Non-current assets – Investments
Other listed securities
Equity securities
These financial assets are carried at cost.
11 Non-current assets – Property, plant and equipment
2012
$’000
39,815
(574)
39,241
6,064
-
6,064
129,188
(9,206)
119,982
165,287
2012
$’000
2
2011
$’000
46,524
(881)
45,643
6,577
-
6,577
133,277
(17,498)
115,779
167,999
Consolidated
Consolidated
At 1 July 2010
Cost or fair value
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2011
Opening net book amount
Exchange differences
Revaluation to fair value
Additions
Disposals
Transfers to assets held-for-sale
Depreciation charge
Impairment charge recognised in profit or loss
Closing net book amount
At 30 June 2011
Cost or fair value
Accumulated depreciation and impairment
Net book amount
Land–Fair Value
Buildings
–Fair Value
$’000
$’000
Plant and
equipment–Cost
and Fair Value
$’000
44,294
-
44,294
44,294
(201)
10,333
-
-
-
-
-
54,426
54,426
-
54,426
54,072
(4,465)
49,607
49,607
(172)
3,147
1,663
(20)
-
(1,769)
-
52,456
57,838
(5,382)
52,456
258,663
(132,906)
125,757
125,757
(29)
-
25,160
(706)
(2,702)
(20,112)
(37,210)
90,158
230,248
(140,090)
90,158
70
Hills Holdings Limited Annual Report for the year ended 30 June 2012
2011
$’000
2
Total
$’000
357,029
(137,371)
219,658
219,658
(402)
13,480
26,823
(726)
(2,702)
(21,881)
(37,210)
197,040
342,512
(145,472)
197,040
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
11 Non-current assets – Property, plant and equipment (continued)
Consolidated
Year ended 30 June 2012
Opening net book amount
Exchange differences
Revaluation to fair value
Acquisition through business combinations
Additions
Disposals
Depreciation charge
Closing net book amount
At 30 June 2012
Cost or fair value
Accumulated depreciation and impairment
Net book amount
(a) Assets in the course of construction
Land–Fair Value
Buildings
–Fair Value
$’000
$’000
Plant and
equipment–Cost
and Fair Value
$’000
54,426
60
(548)
-
-
-
-
53,938
53,938
-
53,938
52,456
39
(369)
-
2,138
(464)
(1,911)
51,889
58,741
(6,852)
51,889
90,158
9
-
104
10,743
(806)
(18,008)
82,200
234,205
(152,005)
82,200
Total
$’000
197,040
108
(917)
104
12,881
(1,270)
(19,919)
188,027
346,884
(158,857)
188,027
The carrying amounts of the assets disclosed above include the following expenditure recognised in relation to property, plant
and equipment which is in the course of construction:
Property, furniture, fittings, plant and equipment
Total assets in the course of construction
Consolidated
2012
$’000
6,878
6,878
2011
$’000
15,732
15,732
(b) Valuations of land and buildings
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. Fair value at 30 June 2012
for land and buildings in Australia is based on a Directors’
valuation of the assets at that date. This is based upon an
independent valuation of all freehold land and buildings
dated May 2011 and updated based upon the Directors’
assessments of changes in market conditions affecting the
components of those valuations. The 2011 valuations were
based on independent assessments by a member of the
Australian Property Institute as at 31 May 2011. Fair value
at 30 June 2012 for land and buildings in New Zealand is
based upon an independent valuation. In the current and
previous financial year the revaluation (deficit) / surplus net of
applicable deferred income taxes was (debited) / credited to
the asset revaluation reserve in shareholders’ equity.
(c) Impairment loss recorded in year ended
30 June 2011
The impairment loss in the previous financial year 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.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
71
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
12 Non-current assets – Deferred tax assets
Consolidated
The balance comprises temporary differences attributable to:
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Tax losses
Other items
Net deferred tax assets
2012
$’000
(2,136)
2,086
10,965
2,030
1,265
1,455
1,100
1,384
2,868
888
21,905
2011
$’000
5,368
4,869
10,737
2,811
1,218
2,201
2,293
1,303
-
685
31,485
Movements – Consolidated
Balance at
1 July 2010
Recognised
in profit or loss
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Other items
$’000
(1,921)
4,614
10,865
2,543
1,218
2,238
1,576
1,233
1,405
23,771
$’000
11,246
255
(128)
268
-
(37)
717
(375)
(540)
11,406
Movements – Consolidated
Balance at
1 July 2011
Recognised
in profit or loss
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Tax loss carry-forwards recognised
Other items
$’000
5,368
4,869
10,737
2,811
1,218
2,201
2,293
1,303
-
685
31,485
$’000
(7,607)
(2,783)
228
(781)
47
(746)
(1,193)
(608)
2,868
142
(10,433)
Recognised
in other
comprehensive
income
$’000
(3,957)
-
-
-
-
-
-
445
-
(3,512)
Recognised
in other
comprehensive
income
$’000
103
-
-
-
-
-
-
689
-
-
792
Recognised
in equity
Balance at
30 June 2011
$’000
-
-
-
-
-
-
-
-
(180)
(180)
$’000
5,368
4,869
10,737
2,811
1,218
2,201
2,293
1,303
685
31,485
Recognised
in equity
Balance at
30 June 2012
$’000
-
-
-
-
-
-
-
-
-
61
61
$’000
(2,136)
2,086
10,965
2,030
1,265
1,455
1,100
1,384
2,868
888
21,905
72
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
13 Non-current assets – Intangible assets
Consolidated
At 1 July 2010
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2011
Opening net book amount
Additions
Impairment charge **
Amortisation charge **
Closing net book amount
At 30 June 2011
Cost
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2012
Opening net book amount
Additions
Acquisitions through business combinations
Amortisation charge **
Derecognised on disposal
Closing net book amount
At 30 June 2012
Cost
Accumulated amortisation and impairment
Net book amount
Development
costs
Goodwill
$’000
$’000
Patents,
trademarks
and other
rights
$’000
Software *
Total
$’000
$’000
200
(40)
160
160
-
-
(40)
120
200
(80)
120
120
1,100
-
(40)
-
1,180
1,300
(120)
1,180
122,461
(11,043)
111,418
111,418
-
(66,182)
-
45,236
122,461
(77,225)
45,236
45,236
-
1,316
-
-
46,552
121,858
(75,306)
46,552
5,957
(1,235)
4,722
4,722
293
-
(1,158)
3,857
6,250
(2,393)
3,857
3,857
4
57
(1,141)
(27)
2,750
6,267
(3,517)
2,750
-
-
-
-
-
-
-
-
-
-
-
-
14,962
-
-
-
14,962
14,962
-
14,962
128,618
(12,318)
116,300
116,300
293
(66,182)
(1,198)
49,213
128,911
(79,698)
49,213
49,213
16,066
1,373
(1,181)
(27)
65,444
144,387
(78,943)
65,444
* Software includes capitalised development costs being an internally generated intangible asset.
** The amortisation and impairment charges are recognised in expenses in the Consolidated income statement.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
73
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
13 Non-current assets – Intangible assets (continued)
(a) Impairment tests for goodwill
During the year ended 30 June 2012 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. During the previous financial year the Group determined that
there was 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).
The aggregate carrying amounts of goodwill allocated to each cash generating unit, analysed at a segment level, are as follows:
Cash generating unit
Building and
Industrial
$’000
Electronics and
Communications
$’000
Lifestyle and
Sustainability
$’000
2012
Hills SVL
Hills Healthcare
LW Gemmell
Fielders
Orrcon
Opticomm
UHS
Team Poly
2011
Hills SVL
Hills Healthcare
LW Gemmell
Fielders
Orrcon
Opticomm
UHS
Team Poly
-
-
-
7,789
-
-
-
-
7,789
-
-
-
7,789
-
-
-
-
7,789
17,553
-
-
-
-
754
5,293
-
23,600
16,237
-
-
-
-
754
5,293
-
22,284
-
11,839
3,324
-
-
-
-
-
15,163
-
11,839
3,324
-
-
-
-
-
15,163
Total
$’000
17,553
11,839
3,324
7,789
-
754
5,293
-
46,552
16,237
11,839
3,324
7,789
-
754
5,293
-
45,236
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:
• A pre-tax discount rate of between 13.7% and 14.91%
(2011: 13.19% and 14.91%), 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.
• 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.
(b) Impact of possible changes in key assumptions for
the current year assessment
With the exception of the Fielders, Orrcon and Team Poly
cash generating units, a reasonably possible change
in the key assumptions above would not have resulted in the
carrying amount of assets allocated to the cash generating
unit exceeding the recoverable amount for any of the Group’s
cash generating units.
• A terminal value has been determined at the end of the
five year strategic plan using a growth rate of 2.5%-3.0%
(2011: 2.5%-3.0%), which is no greater than the long
term average growth rate for the market to which the
asset is dedicated.
The Fielders cash generating unit’s recoverable amount
(which exceeds its carrying value in use by approximately
$11.080 million 2011: $16.535 million)) is sensitive to a
possible change in EBIT. The business is forecasting for
EBIT to return to 2005 levels by the end of the five year
model period.
74
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
In the previous financial year, 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%. Cash flow projections were based
on Board agreed forecasts with key assumptions for future
years relating to sales, gross margins and expenses. Sales
were 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 were based on past experience. The Team
Poly cash generating unit recoverable amount is sensitive
to a possible change in EBIT. The Team Poly business was
forecasting average annualised EBIT growth of 3%-3.5% per
annum over the five year model period. A terminal value was
determined at the end of the five year strategic plan using a
growth rate of 3%, which was no greater than the long term
average growth rate for the market to which the assets were
dedicated. Based on this assessment assets were impaired
by $16.592 million and in accordance with Accounting
Standards the impairment was allocated against goodwill.
13 Non-current assets – Intangible assets
(continued)
A decrease in forecast annual EBIT across the five year
forecast period of 12% (2011: 15%) could result in an
impairment.
The Orrcon cash generating unit’s recoverable amount
(which exceeds its carrying value in use by approximately
$14.974 million (2011: impairment of $49.590 million
recorded)) is sensitive to a possible change in EBIT.
A decrease in forecast annual EBIT across the five
year forecast period of 13% (2011: nil) could result
in an impairment.
The Team Poly cash generating unit’s recoverable amount
(which exceeds its carrying value in use by approximately
$9.563 million (2011: impairment of $16.592 million
recorded)) is sensitive to a possible change in EBIT.
A decrease in forecast annual EBIT across the five
year forecast period of 34% (2011: nil) could result
in an impairment.
(c) Impairment charge recorded in the year ended
30 June 2011
In the previous financial year, the recoverable amount of the
Orrcon cash generating unit was estimated based on its
value in use for the Orrcon business. The estimate of value in
use was determined using a pre-tax discount rate of 13.19%.
Cash flow projections were based on Board agreed forecasts
with key assumptions for future years relating to sales, gross
margins and expenses. Sales were 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 were
based on past experience. The Orrcon cash generating
unit recoverable amount is sensitive to a possible change in
EBIT. The Orrcon business was forecasting annualised EBIT
growth of 2%-3% per annum over the five year model period.
A terminal value was determined at the end of the five year
strategic plan using a growth rate of 2.5%, which was no
greater than the long term average growth rate for the market
to which the assets are dedicated. Based on this assessment
assets were impaired by $49.590 million and in accordance
with Accounting Standards the impairment was allocated
against goodwill.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
75
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
14 Derivative financial instruments
Current liabilities
Interest rate swaps – cash flow hedges (i)
Forward foreign exchange contracts – cash flow hedges (ii)
Forward foreign exchange contracts – held for trading (iii)
Total current derivative financial instrument liabilities
Noncurrent liabilities
Interest rate swaps – cash flow hedges (i)
Total non – current derivative financial instrument liabilities
Total derivative financial instrument liabilities
The Group is party to derivative
financial instruments in the normal
course of business in order to hedge
exposure to fluctuations in interest and
foreign exchange rates in accordance
with the Group’s financial risk
management policies (refer to note 30).
(i)
Interest rate swap contracts –
cash flow hedges
Bank loans of the Group at 30 June
2012 bear an average variable interest
rate of 3.8% (2011: 5.0%). It is the
Group’s policy to manage exposure to
increasing interest rates by hedging a
proportion of the Group’s exposure to
variable rate bank loans. Accordingly,
the Group has entered into interest
rate swap contracts under which it is
obliged to receive interest at variable
rates and to pay interest at fixed rates.
Interest rate swaps in place at 30 June
2012 cover approximately 57% (2011:
83%) of the loan principal outstanding
and are taken out with terms of
between three and seven years.
The fixed interest rates average 6.0%
(2011: 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.
In the year ended 30 June 2012 a
loss of $137,000 was reclassified
into profit or loss (2011: $40,000)
and included in finance cost due to
hedge ineffectiveness in the current
or prior year and a gain of $290,000
was reclassified into profit or loss
(2011: $1,176,000) 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. In order to protect against
exchange rate movements, the Group
has entered into forward exchange
contracts to purchase US dollars.
These contracts are hedging highly
probable forecasted purchases for
approximately the next two to three
months.
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
Consolidated statement of financial
position by removing the related
amount from other comprehensive
income.
Consolidated
2011
$’000
8
410
102
520
2,056
2,056
2,576
2012
$’000
-
507
99
606
4,106
4,106
4,712
During the year ended 30 June 2012
a gain of $3,000 was recognised in
profit or loss for the ineffective portion
of these hedging contracts (2011:
$8,000).
(iii) Forward foreign exchange
contracts and interest rate
swaps – held for trading
Group subsidiaries have entered into
forward 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 30 for details.
However, they are accounted for as
held for trading.
(a) Risk exposures and fair
value measurements
Information 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 30. The maximum
exposure to credit risk at the end of the
reporting period is the carrying amount
of each class of derivative financial
assets mentioned above.
76
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
15 Non-current assets classified as held for sale
Plant and equipment
Consolidated
2012
$’000
-
2011
$’000
2,702
In the previous financial year and as part of the restructuring of Orrcon, in May 2011 the Directors decided to close certain
operations and assets previously used in manufacturing were classified as held for sale. An active programme of marketing and
selling the assets was initiated and the asset was sold during the current financial year. The assets were presented within total
assets of the Building and Industrial segment in note 2. The losses on measuring the assets at fair value less costs to sell were
presented within “impairment of property, plant and equipment” in note 5 and disclosed within note 11.
16 Current liabilities – Trade and other payables
Consolidated
Trade payables
Other trade payables and accrued expenses
(a) Risk exposure
Information about the Group’s exposure to foreign exchange risk is provided in note 30.
17 Current liabilities – Borrowings
Bank overdrafts**
Short term money market
Other loans
Total current borrowings
** Further information on the bank overdrafts and bills payable are set out in note 19.
(a) Security and fair value disclosures
2012
$’000
51,129
36,596
87,725
2012
$’000
1,333
-
-
1,333
2011
$’000
54,162
45,509
98,671
2011
$’000
1,512
5,000
321
6,833
Consolidated
Information about the security relating to each of the secured liabilities and the fair value of each of the borrowings is provided
in note 19.
(b) Risk exposures
Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in note 30.
18 Current liabilities – Provisions
Employee benefits
Outstanding claims
Other provisions
Information on non-current provisions is set out in note 20.
Consolidated
2011
$’000
27,046
3,339
578
30,963
2012
$’000
29,160
3,538
541
33,239
Hills Holdings Limited Annual Report for the year ended 30 June 2012
77
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
18 Current liabilities – Provisions (continued)
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 provisions 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:
2012
Current & non–current
Carrying amount at start of year
Charged/(credited) to profit or loss / retained earnings
– additional provisions recognised
Amounts used during the year
Carrying amount at end of year
2011
Current & non–current
Carrying amount at start of year
Charged/(credited) to profit or loss / retained earnings
– additional provisions recognised
– reductions from remeasurement or settlement
without cost
Amounts used during the year
Carrying amount at end of year
19 Non-current liabilities – Borrowings
Unsecured
Bills payable
Other loans
Loans from non–controlling interests
Total unsecured non–current borrowings
Total non–current borrowings
(a) Bank loans and bank overdraft
Bank overdrafts
Provision for
dividend
$’000
Outstanding
claims
$’000
Other
Provisions
$’000
-
23,483
(23,483)
-
-
27,273
3,339
199
-
3,538
5,701
-
-
(2,362)
(27,273)
-
-
3,339
911
367
(84)
1,194
692
269
-
(50)
911
Total
$’000
4,250
24,049
(23,567)
4,732
6,393
27,542
(2,362)
(27,323)
4,250
Consolidated
2011
$’000
90,000
1,458
21
91,479
91,479
2012
$’000
115,000
556
121
115,677
115,677
Bank overdrafts are denominated in both AUD and NZD. The bank overdraft of a controlled entity is secured by a guarantee
from the Company. Interest on bank overdrafts is charged at prevailing market rates. The bank overdrafts are payable on
demand and are subject to annual review. The Company and a number of its subsidiaries have a net bank overdraft facility of
$1,000,000 (2011: $1,000,000), the Company’s New Zealand subsidiary has a separate bank overdraft facility of $1,762,000
(2011: $1,737,000) and a partially owned subsidiary has a bank overdraft facility of $500,000 (2011: $1,700,000).
78
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
19 Non-current liabilities – Borrowings (continued)
Unsecured bank loans
The Group has a number of multi-option facilities with its bankers. Generally, these facilities can be utilised for a combination
of bank loans, guarantees and standby letters of credit. Bank loans are denominated in both 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 its ownership interest.
An assessment of the contractual maturities of financial liabilities is provided in note 30.
Subsequent to the end of the financial year, the Group has renewed its banking facilities jointly with Commonwealth Bank,
National Australia Bank and Westpac Banking Corporation through a Common Deed. The total facility is $196 million,
comprising Tranche A $81 million, expiring in 3 years (16 August 2015), Tranche B $69 million, expiring in 4 years (16 August
2016), and Tranche C $46 million, expiring in 3 years (16 August 2015), but subject to annual review. Tranches A and B
comprise bank loans and Tranche C comprises bank guarantees, letters of credit and cash advances.
Standby letter of credit
The standby letter of credit facility forms part of the multi-option facilities negotiated with the Group’s bankers.
Short term money market
Borrowings on the short-term money market are denominated in $AUD. Interest on the borrowings is charged at the prevailing
market rates.
(b) Financing arrangements
The Group had access to the following undrawn borrowing facilities at the reporting date:
Consolidated
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 leters of credit
Short term money market
2012
$’000
3,262
185,031
19,955
5,000
213,248
1,333
115,000
19,955
-
136,288
1,929
70,031
-
5,000
76,960
2011
$’000
4,437
207,088
10,869
5,000
227,394
1,512
90,000
10,439
5,000
106,951
2,925
117,088
430
-
120,443
Hills Holdings Limited Annual Report for the year ended 30 June 2012
79
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
19 Non-current liabilities – Borrowings (continued)
(c) Fair value
The carrying amounts and fair values of borrowings at the end of reporting period are:
Consolidated
Non-traded financial liabilities
Bank overdrafts
Short term money market
Bills payable
Other loans
(d) Risk exposures
2012
Carrying
amount
$’000
1,333
-
115,000
677
117,010
Fair value
$’000
1,333
-
115,000
677
117,010
2011
Carrying
amount
$’000
1,512
5,000
90,000
1,800
98,312
Fair value
$’000
1,512
5,000
90,000
1,800
98,312
Information about the Group’s exposure to interest rate and foreign exchange risk is provided in note 30.
For an analysis of the sensitivity of borrowings to interest rate risk and foreign exchange risk refer to note 30.
20 Non-current liabilities – Provisions
Employee benefits
Other provisions
Movements in provisions are set out in note 18.
21 Contributed equity
(a) Share capital
Ordinary shares fully paid
(b) Movements in ordinary share capital:
Consolidated
2012
$’000
4,175
653
4,828
2011
$’000
6,237
333
6,570
2012
Shares
’000
2011
Shares
’000
2012
2011
$’000
$’000
246,017
248,636
303,805
306,790
Details
Number
of shares ’000
Date
1 July 2010
Opening balance
Issued under the Employee Share Bonus Plan
Movement in deferred tax asset relating to transaction
costs arising on share issue
247,697
939
-
248,636
248,636
283
(2,902)
-
246,017
$’000
306,595
375
(180)
306,790
306,790
67
(3,113)
61
303,805
30 June 2011
Balance
1 July 2011
Opening balance
Issued under the Employee Share Bonus Plan
Share buy–back
Movement in deferred tax asset relating to transaction
costs arising on share issue
30 June 2012
Balance
80
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
21 Contributed equity (continued)
(c) Ordinary shares
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 Investment Plan and the Share Investment Plan did not operate in respect of dividends issued during
the financial year.
(e) Employee share scheme
The Company made two issues of ordinary shares under the Employee Share Bonus Plan during the year. All employees
meeting the service criteria were eligible to participate in the issue. The shares are issued at market value.
(f) Executive Shares, Performance Rights and Options
Information relating to the Long Term Incentive 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 financial year, is set out in note 25.
(g) Share buy-back
On 23 August 2011 the Company announced an on-market buy-back giving the Company the option to acquire up to 10%
of its issued ordinary shares. The buy-back was for ongoing capital management purposes and was to take place over the
twelve months from the date of the announcement. Between that date and 16 December 2011 the Company bought back
2.902 million shares at an average price of $1.07 per share, with prices ranging from $0.98 to $1.155 per share. The total cost
of $3.113 million, including transaction costs of $12,000, was deducted from shareholders equity. The Directors subsequently
resolved to suspend the share buy-back. On 13 August 2012, the Directors resolved to extend the on-market buy-back by a
further twelve months.
(h) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern,
so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital on the basis of the gearing ratio in conjunction with its review of the Group’s banking
covenants. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings as shown
in the Consolidated statement of financial position less cash and cash equivalents. Total capital is equity as shown in the
Consolidated statement of financial position (including non-controlling interests).
During 2012, the Group’s strategy, which was unchanged from 2011, was to maintain a target gearing ratio less than 45%.
The gearing ratios at 30 June 2012 and 30 June 2011 were as follows:
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Gearing ratio
Consolidated
2011
$’000
98,312
(7,158)
91,154
402,307
22.7%
2012
$’000
117,010
(24,638)
92,372
400,963
23.0%
Hills Holdings Limited Annual Report for the year ended 30 June 2012
81
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
22 Reserves
(a) Other reserves
Asset revaluation reserve
Hedging reserve – cash flow hedges
Asset realisation reserve
Foreign currency translation reserve
Equity compensation reserve
Non-controlling interests acquisition reserve
Movements:
Asset revaluation reserve
Balance 1 July
Revaluation–gross
Deferred tax
Transfer from retained earnings
Balance 30 June
Hedging reserve – cash flow hedges
Balance 1 July
Revaluation–gross
Deferred tax
Balance 30 June
Asset realisation reserve
Balance 1 July
Transfer to retained earnings
Balance 30 June
Foreign currency translation reserve
Balance 1 July
Currency translation differences arising during the year
Disposal of foreign subsidiary
Transfer from retained earnings
Balance 30 June
Equity compensation reserve
Balance 1 July
Long Term Incentive 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 change in Group shareholding
Balance 30 June
Consolidated
2011
$’000
47,041
(1,304)
11,854
(2,212)
647
1,219
57,245
35,634
12,814
(3,757)
2,350
47,041
(265)
(1,484)
445
(1,304)
12,019
(165)
11,854
(1,653)
(722)
(27)
190
(2,212)
613
34
647
1,551
(332)
1,219
2012
$’000
46,227
(2,910)
-
(2,021)
736
1,171
43,203
47,041
(917)
103
-
46,227
(1,304)
(2,295)
689
(2,910)
11,854
(11,854)
-
(2,212)
191
-
-
(2,021)
647
89
736
1,219
(48)
1,171
82
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
22 Reserves (continued)
(b) Nature and purpose of other
reserves
(i) Asset revaluation reserve
The asset revaluation reserve is used to
record increments and decrements on
the revaluation of property, plant and
equipment, as described in note 1(p).
(ii) Hedging reserve – cash flow
hedges
The hedging reserve is used to record
changes in the fair value of derivative
financial instruments designated in a
cash flow hedge relationship that are
recognised in other comprehensive
income, as described in note 1(o).
Amounts are reclassified to profit or
loss when the associated hedged
transaction affects profit or loss.
(iii) Asset realisation reserve
Where a revalued asset is sold, that
portion of the asset revaluation reserve
23 Dividends
that relates to that asset is transferred
to the asset realisation reserve upon
settlement. Amounts transferred to
the asset realisation reserve may
subsequently be transferred to retained
earnings. During the financial year the
Board resolved to transfer the balance
of the asset realisation reserve to
retained earnings.
(iv) Foreign currency translation
reserve
Exchange differences arising on
translation of the financial statements
of a foreign controlled entity are
recognised in other comprehensive
income as described in note 1(e) and
accumulated in a separate reserve
within equity. The cumulative amount
is reclassified to profit or loss when the
net investment is disposed of.
(v) Equity compensation reserve
The equity compensation reserve
represents the value of 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.
Consolidated
2012
$’000
2011
$’000
Final ordinary dividend for the year ended 30 June 2011 of 4.5 cents
(year ended 30 June 2010: 5.5 cents) per fully paid share paid on 26
September 2011 (Year ended 30 June 2010: 27 September 2010)
Fully franked based on tax paid @ 30%
11,190
13,623
Interim ordinary dividend for the year ended 30 June 2012 of 5.0 cents
(2011: 5.5 cents) per fully paid share paid on 30 March 2012 (2011: 21
March 2011)
Fully franked based on tax paid @ 30%
Total dividends provided for or paid
12,293
23,483
13,650
27,273
(a) Dividends and share reinvestment plan
The Dividend Investment Plan and Share Investment Plan will not operate in respect of the proposed final dividend.
(b) Dividends not recognised at the end of the reporting period
In addition to the above dividends, since the end of the financial year the
Directors have recommended the payment of a final dividend of 5.0
cents per fully paid ordinary share (2011: 4.5 cents) fully franked based
on tax paid at 30%.
The aggregate amount of the proposed dividend expected to be paid on
26 September 2012 out of retained profits at 30 June 2012, but not
recognised as a liability at year end, is
Consolidated
2012
$’000
2011
$’000
12,301
11,189
Hills Holdings Limited Annual Report for the year ended 30 June 2012
83
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
23 Dividends (continued)
(c) Franked dividends
The franked portions of the final dividends recommended after 30 June 2012 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 2013.
Franking credits available for subsequent financial years
based on a tax rate of 30% (2011: 30%)
2012
$’000
17,405
2011
$’000
32,713
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for:
(a)
(b)
(c)
franking credits that will arise from the payment of the amount of the provision for income tax;
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the Company if distributable profits of
subsidiaries were paid as dividends.
The impact on the franking account of the dividend recommended by the Directors since 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 $5.272 million (2011: $4.795 million).
24 Earnings per share
Consolidated
(a) Basic earnings per share
From profit / (loss) from continuing operations attributable to the ordinary equity
holders of the Company
From profit from continuing operations before CGU impairment and closure
costs attributable to the ordinary equity holders of the Company
(b) Diluted earnings per share
From profit / (loss) from continuing operations attributable to the ordinary equity
holders of the Company
From profit before CGU impairment and closure costs attributable to the
ordinary equity holders of the Company
2012
Cents
10.5
10.5
10.5
10.5
2012
$’000
Consolidated
2011
Cents
(30.2)
10.2
(30.2)
10.2
2011
$’000
(c) Reconciliations of earnings used in calculating earnings per share
Basic earnings per share
Profit / (loss) attributable to the ordinary equity holders of the Company used
in calculating basic earnings per share
Diluted earnings per share
26,021
(74,955)
Profit / (loss) attributable to the ordinary equity holders of the Company used
in calculating diluted earnings per share
26,021
(74,955)
Basic earnings per share before CGU impairment and closure costs
Profit / (loss) attributable to the ordinary equity holders of the Company used
in calculating basic earnings per share
Adjusted for CGU impairment and closure costs:
Impairment of Orrcon plant and equipment
Impairment of Orrcon inventory
Impairment of Orrcon goodwill
Impairment of Team Poly plant and equipment
Impairment of Team Poly goodwill
Closure costs
26,021
(74,955)
-
-
-
-
-
-
24,235
5,127
49,590
1,224
16,592
3,474
25,287
Profit attributable to the ordinary equity holders of the Company before CGU
impairment and closure costs used in calculating basic earnings per share
26,021
84
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
24 Earnings per share (continued)
(d) Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share
Adjustments for calculation of diluted earnings per share:
Consolidated
2012
Number ’000
2011
Number ’000
246,764
248,171
Effect of share options and rights on issue
285
-
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
247,049
248,171
The 483,000 share options granted between 2003 and 2007 are not included in the calculation of diluted earnings per share
because they are antidilutive for the year ended 30 June 2012. These options could potentially dilute basic earnings per
share in the future.
25 Share-based payments
(a) Executive share plan
In 2010 the Group established the Hills Holdings Limited Long Term Incentive Share Plan (LTIP). The Plan is designed to
provide long term incentives to eligible senior employees in the Group 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. If 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 20-year loans are treated as part of the options to purchase shares, until the loan is extinguished at which point
the shares are recognised.
Details of the performance rights and options under the current and previous scheme are as follows:
Grant Date / Exercise date
Consolidated 2012
Current Plan LTIP
April 2011 / June 2013
Dec 2011 / June 2014
Previous Plan ESOP
Feb 2001 / Jan 2003
Feb 2002 / Jan 2004
Feb 2003 / Jan 2005
Feb 2004 / Jan 2006
Feb 2005 / Jan 2007
Feb 2009 / Jan 2012
Total
Expiry
date
Exercise
price
Balance at
start of the
year
Granted
during the
year
Exercised
during the
year
Number
Number
Number
Forfeited
/ lapsed
during the
year
Number
Balance at
end of the
year
Number
June 2013
June 2014
Jan 2023
Jan 2024
Jan 2025
Jan 2026
Jan 2027
Jan 2032
$0.00
$0.00
$2.50
$2.90
$3.23
$3.66
$4.16
$3.01
209,740
-
-
426,421
50,000
53,000
80,000
125,000
195,000
415,000
-
-
-
-
-
-
1,127,740
426,421
-
-
-
-
-
-
-
-
-
(10,811)
(20,903)
198,929
405,518
-
-
-
(10,000)
(10,000)
(415,000)
50,000
53,000
80,000
115,000
185,000
-
(466,714)
1,087,447
Weighted average exercise price (ESOP)
$3.33
$0.00
$0.00
$3.05
$3.58
Hills Holdings Limited Annual Report for the year ended 30 June 2012
85
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
25 Share-based payments (continued)
Grant Date / Exercise Date
Consolidated 2011
Current Plan LTIP
April 2011 / June 2013
Previous Plan ESOP
Feb 2001 / Jan 2003
Feb 2002 / Jan 2004
Feb 2003 / Jan 2005
Feb 2004 / Jan 2006
Feb 2005 / Jan 2007
Feb 2008 / Jan 2011
Feb 2009 / Jan 2012
Total
Expiry
date
Exercise
price
Balance at
start of the
year
Granted
during the
year
Exercised
during the
year
Number
Number
Number
Forfeited
/ lapsed
during the
year
Number
Balance
at end of
the year
Number
June 2013
$0.00
-
209,740
Jan 2023
Jan 2024
Jan 2025
Jan 2026
Jan 2027
Jan 2031
Jan 2032
$2.50
$2.90
$3.23
$3.66
$4.16
$5.49
$3.01
50,000
53,000
80,000
135,000
205,000
445,000
525,000
-
-
-
-
-
-
-
1,493,000
209,740
-
-
-
-
-
-
-
-
-
-
209,740
-
-
-
(10,000)
(10,000)
(445,000)
(110,000)
50,000
53,000
80,000
125,000
195,000
-
415,000
(575,000)
1,127,740
Weighted average exercise price (ESOP)
$3.96
$0.00
$0.00
$4.96
$3.33
Details of options under the ESOP outstanding under accounting standards are as follows:
Grant Date
Consolidated – 2012
February 2001
February 2002
February 2003
February 2004
February 2005
February 2009
Total
Consolidated – 2011
February 2001
February 2002
February 2003
February 2004
February 2005
February 2008
February 2009
Total
Options
granted
Number
Outstanding
at balance
date AIFRS
Number
Outstanding
at balance
date ASX
Number
195,000
245,000
280,000
370,000
460,000
535,000
2,085,000
195,000
245,000
280,000
370,000
460,000
625,000
535,000
2,710,000
50,000
53,000
80,000
115,000
185,000
-
483,000
50,000
53,000
80,000
125,000
195,000
-
415,000
918,000
-
-
-
-
-
-
-
-
-
-
-
-
-
415,000
415,000
Fair value of Performance Rights granted
The share price used to calculate the number of performance rights issued to the Managing Director and Senior Executives
was $1.1960 (2011: $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 2011
(2011: 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 2012 was 45.0 cents (2011: 90.5 cents) per performance right. The fair value at grant date
is independently determined using a Black-Scholes methodology for the non-market hurdles and a Monte Carlo valuation
methodology for the market hurdles, that take 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 and the risk free interest rate for the term of the performance rights.
86
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
25 Share-based payments (continued)
The model inputs for the valuation of performance rights in accordance with AASB 2 Share Based Payment for performance
rights granted during the year ended 30 June 2012 included:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
exercise price: $0.00 (2011: $0.00)
vesting period: 3 years (2011: 3 years)
grant date (for Accounting Standards): 19 December 2011 (2011: 28 April 2011)
expiry date: 30 June 2014 (2011: 30 June 2013)
share price at grant date: $1.11 (2011: $1.53)
expected price volatility of the Company’s shares: 40% (2011: 35%)
expected dividend yield: 9.0% (2011: 8.7%)
risk-free interest rate: 3.01% (2011: 5.01%)
(b) Employee share bonus 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 otherwise determined by the Directors.
Number of shares issued under the plan to participating
employees on 30 September 2011 (2011: 22 September 2010)
Number of shares issued under the plan to participating
employees on 26 March 2012 (2011: 29 March 2011)
Consolidated
2012
Number ’000
2011
Number ’000
153
151
304
457
462
919
Each participant was issued with 100 shares in each tranche, (2011: shares worth $1,000 in total for the financial year) based
on the weighted average market price of $1.09 (March 2012 issue) and $1.01 (September 2011 issue) (2011: $1.52 (March 2011
issue) and $2.34 (September 2010 issue)).
(c) 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:
Performance rights / options issued under the Long Term Incentive Plan
/ Executive Share Option Plan
Shares issued under Employee Share Bonus Plan
26 Key management personnel disclosures
(a) Directors
Consolidated
2011
$’000
53
425
478
2012
$’000
170
119
289
The following persons were Directors of Hills Holdings Limited during the financial year and unless otherwise indicated were
Directors for the entire period:
(i) Chairman – Non-Executive
Jennifer Helen Hill-Ling
(ii) Executive Directors
Graham Lloyd Twartz (Group Managing Director)
Hills Holdings Limited Annual Report for the year ended 30 June 2012
87
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
26 Key management personnel disclosures (continued)
(iii) Non-Executive Directors
Fiona Rosalyn Vivienne Bennett
Matthew Arnold Campbell (appointed 19 December 2011)
Ian Elliot
Roger Baden Flynn (retired 4 November 2011)
David Moray Spence
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 financial year and unless otherwise indicated were key management personnel for the
entire period:
Name
S Cope
D Lethbridge
A Kachellek
G Logan
M McKinstry
A Muir
R Rees
T Sullivan
Position
Employer / Division
Chief Executive Officer –
Electronics & Communications Division
Hills Holdings Limited / Electronics
and Communications
Company Secretary (until 1 February 2012)
Hills Holdings Limited
Managing Director
Korvest Ltd
Chief Financial Officer (from 8 August 2011)
Hills Holdings Limited
Chief Operating Officer
Hills Holdings Limited
Chief Financial Officer (until 7 July 2011)
Hills Holdings Limited
Company Secretary (from 1 February 2012)
Hills Holdings Limited
Group General Manager Strategy
Hills Holdings Limited
All of the above persons were key management persons throughout the year ended 30 June 2012, except for G Logan, who
commenced employment with the Group on 8 August 2011, R Rees, who commenced employment with the Group
on 1 February 2012, A Muir, who resigned from the Group with effect from 7 July 2011 and D Lethbridge, who resigned
from the Group with effect from 14 February 2011.
All of the above persons were also key management persons during the year ended 30 June 2011, 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, G Logan and R Rees. In addition, following a restructure, L Andrewartha and K Middleton, who were
key management personnel during the year ended 30 June 2011 are not key management personnel for the year ended
30 June 2012.
(c) Key management personnel compensation
The key management personnel (KMP) compensation included in ‘personnel expenses’ in note 5 is:
Short-term employee benefits (fixed and STI remuneration)
Post-employment benefits (superannuation)
Long-term benefits (accrued long service leave)
Share-based payments (LTI expense and employee share bonus
plan expense)
2012
$’000
3,838,022
291,271
96,319
60,797
4,286,409
Consolidated
2011
$’000
4,335,545
345,549
74,082
37,194
4,792,370
Information regarding individual Directors’ and Executives’ compensation and some equity instruments disclosures
as permitted by Corporations Regulations 2M.3.03 are provided in the Remuneration report on pages 20 to 30.
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.
88
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
26 Key management personnel disclosures (continued)
(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 25 and in
the Remuneration report on pages 29 to 30.
Name
Number of Rights
granted during the year
Number of Rights / options
vested during the year
2012
2011
2012
2011
Directors of Hills Holdings Limited
GL Twartz
229,933
118,926
Other key management personnel of the Group
L Andrewartha
S Cope
D Lethbridge
G Logan
M McKinstry
K Middleton
T Sullivan
-
41,806
20,903
41,806
62,709
-
29,264
21,623
21,623
10,811
-
-
21,623
15,134
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
No Rights or options were held by key management person related entities.
(ii) Rights and options provided as remuneration and shares issued 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 22 to 24 and 29 to 30.
(iii) Rights / option holdings
The numbers of rights / options over ordinary shares in the Company held during the financial year by each Director of the
Company and other key management personnel of the Group, including their personally related parties, are set out below.
2012
Name
Directors of Hills Holdings
Limited
G Twartz
Other key management
personnel of the Group
S Cope
D Lethbridge
G Logan
M McKinstry
A Muir
T Sullivan
Balance
at start of
the year
Granted
as compen-
sation
Exercised
Rights /
options
lapsed /
forfeited
Balance
at end of
the year
Vested and
exercisable
Unvested
421,926
229,933
81,623
10,811
-
-
80,000
15,134
41,806
20,903
41,806
62,709
-
29,264
-
-
-
-
-
-
-
(100,000)
551,859
203,000
348,859
(60,000)
(31,714)
-
-
(80,000)
-
63,429
-
41,806
62,709
-
44,398
-
-
-
-
-
-
63,429
-
41,806
62,709
-
44,398
Hills Holdings Limited Annual Report for the year ended 30 June 2012
89
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
26 Key management personnel disclosures (continued)
2011
Name
Balance at
start of the
year
Granted
as compen-
sation
Exercised
Options
lapsed /
forfeited
Balance at
end of the
year
Vested and
exercisable
Unvested
Directors of Hills Holdings Limited
G Twartz
Other key management
personnel of the Group
L Andrewartha
S Cope
D Edgecombe
R Gros
D Lethbridge
K Middleton
A Muir
T Sullivan
363,000
118,926
180,000
120,000
25,000
120,000
-
45,000
105,000
-
21,623
21,623
-
-
10,811
21,623
-
15,134
-
-
-
-
-
-
-
-
-
(60,000)
421,926
203,000
218,926
(60,000)
(60,000)
(25,000)
(120,000)
-
(20,000)
(25,000)
-
141,623
81,623
-
-
10,811
46,623
80,000
15,134
60,000
-
-
-
-
-
-
-
81,623
81,623
-
-
10,811
46,623
80,000
15,134
(iv) 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 International Financial Reporting Standards, until the loan is extinguished at which
point the shares are recognised.
Share disclosures for JH Hill-Ling includes 1,188,918 (2011: 1,188,918) shares owned by Hills Associates Limited
& Poplar Pty Ltd (jointly held) and 14,450,548 (2011: 13,455,689) shares owned by Hills Associates Limited, of which
J H Hill-Ling is a Director.
Other changes during the year for JH Hill-Ling comprises the acquisition of 994,859 shares in Hills Holdings Limited by Hills
Associates Limited. In the previous financial year other changes for JH Hill-Ling were as 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 beneficial 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 R Flynn comprises the removal of the disclosure of his shareholdings in the Company, as
R Flynn ceased to be a Director of the Company on 4 November 2011. In the previous financial year other changes during the
year for G Hill comprised the removal of the disclosure of his shareholdings in the Company, as G Hill ceased to be a Director of
the Company on 24 April 2011.
90
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
26 Key management personnel disclosures (continued)
2012
Name
Directors of Hills Holdings Limited
Ordinary shares
J Hill-Ling
G Twartz
F Bennett
M Campbell
I Elliot
R Flynn
D Spence
P Stancliffe
Other key management personnel of the Group
Ordinary shares
S Cope
A Muir
2011
Name
Directors of Hills Holdings Limited
Ordinary shares
J Hill-Ling
G Twartz
F Bennett
I Elliot
R Flynn
G Hill
D Spence
P Stancliffe
Other key management personnel of the Group
Ordinary shares
L Andrewartha
S Cope
D Edgecombe
R Gros
K Middleton
A Muir
Balance
at the start
of the year
Granted during
reporting
year as
compensation
Received
during the
year on the
exercise
of options
Other
changes
during the
year
Balance
at the end
of the year
14,817,671
4,342
4,000
-
6,235
35,665
19,000
19,104
-
-
-
-
-
-
-
-
978
5,278
200
-
-
-
-
-
-
-
-
-
-
-
Balance
at the start
of the year
Granted during
reporting
year as
compensation
Received
during the
year on the
exercise
of options
994,859
-
-
1,000
-
(35,665)
-
-
15,812,530
4,342
4,000
1,000
6,235
-
19,000
19,104
-
(5,278)
Other
changes
during the
year
1,178
-
Balance
at the end
of the year
16,512,469
9,036
4,000
6,235
35,665
92,505
-
19,104
1,228
459
2,690
4,047
2,790
4,759
-
-
-
-
-
-
-
-
519
519
256
256
519
519
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,694,798)
(4,694)
-
-
-
(92,505)
19,000
-
14,817,671
4,342
4,000
6,235
35,665
-
19,000
19,104
-
-
(2,946)
(4,303)
-
-
1,747
978
-
-
3,309
5,278
Hills Holdings Limited Annual Report for the year ended 30 June 2012
91
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
26 Key management
personnel disclosures
(continued)
(e) Loans to key management
personnel
There were no loans outstanding at
the reporting date to key management
personnel and their related parties.
Option loans are not recognised as
loans as they are included in the fair
value of the options as required by
IFRS.
(f) Other transactions with key
management personnel
A number of key management persons,
or their related parties, hold positions in
other entities that result in them having
control or significant influence over the
financial or operating policies of those
entities.
Alfred Health, an entity associated
with F Bennett, has purchased goods
during the year from the Hills Group.
Amounts were billed and payable
under normal commercial terms
and conditions. The total amount
recognised as an expense during the
year was $30,977 (2011: $nil).
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 (2011: $nil).
From time to time, key management
personnel of the Company or its
controlled entities, or their related
entities, may purchase goods from the
Group. These purchases are on the
same terms and conditions as those
entered into by other Group employees
or customers and are trivial or domestic
in nature.
27 Related party
transactions
(a) Parent entities
The parent entity within the Group
and the ultimate parent entity is Hills
Holdings Limited.
(b) Subsidiaries
(e) Loans to/from related parties
Interests in subsidiaries are set
out in note 33.
(c) Key management personnel
Disclosures relating to key
management personnel are set
out in note 26.
(d) Transactions with other related
parties
The following transactions occurred
with related parties:
Subsidiaries
All transactions with partly owned
controlled entities are on normal
commercial terms and conditions.
Transactions with controlled entities are
determined on a cost basis.
Sales of goods and services within
the Group, that eliminated with cost
of goods sold and services provided
amounted to $24.917 million (2011:
$27.755 million).
Loans and borrowings with Australian
wholly owned controlled entities are
interest free and payable on demand
while loans to or from non-wholly
owned subsidiaries are charged
interest at rates no more favourable
than current market rates. Inter-entity
interest paid and received during the
year was $ 0.410 million (2011: $0.431
million).
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 $2.278
million (2011: $2.234 million).
Group entities charge an administration
fee for services rendered which during
the year was $14.277 million (2011:
$11.967 million).
Inter entity dividends paid and received
during the year amounted to $16.168
million (2011: $13.236 million).
Other related parties
Contributions to superannuation funds
on behalf of employees are disclosed
in note 5.
Subsidiaries
Group entity trading transactions and
borrowings result in balances arising
in respect of current and non-current
assets and liabilities. At 30 June 2012
the Group current assets and liabilities
that were eliminated were $265.682
million (2011: $258.907 million) and the
Group non-current assets and liabilities
that were eliminated were $0.336
million (2011: $0.426 million).
Other related parties
Loans (from) Hills Associates Limited
amounted to ($0.665 million) (2011:
($0.993 million)).
28 Contingent liabilities
(a) Contingent liabilities
The Group had contingent liabilities at
30 June 2012 in respect of:
(i) Claims
Responding to a request from the
Environmental 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 or
remediation cannot be reliably
estimated and no provision has been
made.
(ii) Guarantees
(a)
(b)
(c)
Letters of credit established in
favour of suppliers / creditors
amounting to $19.955 million
(2011: $10.439 million).
Bank guarantees in favour
of customers and suppliers
amounting to $16.953 million
(2011: $19.302 million).
Performance guarantees have
been given to a customer of
a partially owned subsidiary.
Should that subsidiary fail to
perform under the contracts,
the Company will assume
responsibility for performance
of current work-in-progress.
92
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
28 Contingent liabilities (continued)
The Group has various commercial legal claims common to businesses of its type which constitute contingent liabilities, no
one of which is material to the Group’s financial 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
sacrifice of economic benefits will be required.
(b) Contingent assets
There are no contingent assets where the probability of future receipts is not considered remote.
29 Commitments
(a) Capital commitments
Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Property, plant and equipment
Payable:
Within one year
Consolidated
2012
$’000
2011
$’000
4,866
12,938
(b) Lease commitments: Group as lessee
The Group leases a number of warehouse and factory facilities under operating leases.
The leases run for a period ranging from 1 to 15 years with the majority running for a period of 5 years, with an option to renew
the lease after that date. Lease payments are increased each renewal period to reflect market rentals. Some leases provide for
additional rent payments that are based on changes in the consumer price index, local capital city consumer price indices or a
fixed percentage.
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
$’000
25,557
61,249
37,429
124,235
2012
$’000
24,865
60,972
29,410
115,247
(c) Lease commitments: where a Group Company is the lessor
The future minimum lease payments receivable under non-cancellable operating leases are as follows:
Within one year
Consolidated
2012
$’000
187
2011
$’000
143
Hills Holdings Limited Annual Report for the year ended 30 June 2012
93
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
30 Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and price
risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative
financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures. Derivatives
are exclusively used for risk minimisation purposes, ie not as trading or other speculative instruments. The Group uses different
methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of
interest rate, foreign exchange and other price risks and aging analysis for credit risk.
Risk management is carried out by a central treasury department (Treasury) under policies approved by the Board of Directors.
Treasury identifies, evaluates and minimises financial risks in close co-operation with the Group’s operating units.
The Board provides written principles for overall risk management, as well as policies covering specific areas, such
as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial
instruments, and investment of excess liquidity.
The Group holds the following financial instruments:
Consolidated
Financial assets
Cash and cash equivalents
Trade and other receivables
Investments
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
(a) Market risk
(i) Foreign exchange risk
2012
$’000
24,638
175,206
2
199,846
87,725
117,010
4,712
209,447
2011
$’000
7,158
182,153
2
189,313
98,671
98,312
2,576
199,559
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:
Trade receivables
Cash at bank
Trade payables
Forward exchange contracts
– buy foreign currency (cash flow hedges)
USD
$’000
1,419
331
(23,672)
(47,060)
Forward exchange contracts–buy foreign
currency (FVTPL)
(4,327)
30 June 2012
30 June 2011
NZD
$’000
-
-
(211)
-
-
euro
’000
-
-
(226)
JPY
’000
-
-
(22,867)
-
-
-
-
USD
$’000
1,052
35
(12,933)
(31,514)
(1,096)
NZD
$’000
-
3
(181)
-
-
euro
’000
-
-
(103)
JPY
’000
-
-
(66,574)
-
-
-
-
94
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
30 Financial risk management (continued)
Group sensitivity
Based on the financial instruments held at 30 June 2012, had the Australian dollar weakened / strengthened by 10% against
other currencies with all other variables held constant, the Group’s pre-tax profit for the year would have been $1,880,000
lower / $1,537,000 higher (2011: $1,202,000 lower / $977,000 higher), mainly as a result of foreign exchange gains / losses on
translation of US dollar denominated financial assets and liabilities as detailed in the above table. Profit is more sensitive to
movements in the Australian dollar / US dollar exchange rates in 2012 than 2011 because of the increased amount of US dollar
denominated trade creditors.
Other components of equity would have been $5,125,000 higher / $4,193,000 lower (2011: $2,856,000 higher / $3,077,000
lower) had the Australian dollar weakened / strengthened by 10% against the US dollar, arising from forward foreign exchange
contracts designated as cash flow hedges.
(ii) Price risk
The Group has no material financial exposure to other market price risk as it is not exposed to equity securities price risk. The
Group does not enter into commodity contracts other than to meet the Group’s expected usage requirements.
(iii) Cash flow and fair value interest rate risk
The Group’s main interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to
cash flow interest rate risk. Group policy is to maintain approximately 50% to 75% of its borrowings at fixed rate using interest
rate swaps to achieve this when necessary. During 2012 and 2011, the Group’s borrowings at variable rate were denominated
in Australian Dollars and NZ Dollars.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps
have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long term
borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed
rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly
quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed
notional principal amounts.
At the end of the reporting period the interest rate profile 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
Interest rate swaps (notional principal amount)
An analysis by maturities is provided in (c) below.
Sensitivity
30 June 2012
30 June 2011
Weighted
average
interest rate
%
3.8 %
3.2 %
2.6 %
6.0 %
Balance
$’000
(116,333)
24,638
(556)
65,000
Weighted
average
interest rate
%
5.3%
4.3%
3.9%
6.2%
Balance
$’000
(96,512)
7,158
(1,281)
75,000
At 30 June 2012, if interest rates had increased by 100 basis points or decreased by 100 basis points from the year end rates
with all other variables held constant, pre-tax profit for the year would have been $1,159,000 higher / $925,000 lower (2011:
$946,000 higher / $1,839,000 lower), mainly as a result of lower interest income from cash and cash equivalents and higher
interest expense from borrowings. Other components of equity would have been $1,300,000 higher / $1,586,000 lower (2011:
$1,733,000 higher / $909,000 lower) mainly as a result of a decrease in the fair value of the cash flow hedges of borrowings.
(iv) Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial liabilities to interest rate risk and
foreign exchange risk.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
95
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
30 Financial risk management (continued)
Consolidated
2012
Financial assets
Cash and cash equivalents
Trade and other receivables
Total increase/ (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
Interest rate risk
-100bps
+100bps
Foreign exchange risk
+10%
-10%
Amount
$’000
Profit Equity
$’000
$’000
Profit Equity
$’000
$’000
Profit Equity
$’000
$’000
Profit Equity
$’000 $’000
24,638
175,206
(4,613)
(99)
239
-
239
-
-
(87,725)
(117,010)
-
(1,164)
-
-
-
(239)
-
(239)
-
-
-
39
164
203
-
-
-
(32)
(134)
(166)
-
-
-
(1,586)
234
1,300
-
5,125
(1)
(4,193)
-
-
-
-
-
1,164
-
-
-
595
(2,678)
-
-
-
-
(487)
2,191
-
-
-
-
(1,164)
(1,586)
1,398
1,300
(2,083)
5,125
1,703
(4,193)
Total increase/ (decrease)
(925)
(1,586)
1,159
1,300
(1,880)
5,125
1,537
(4,193)
Consolidated
2011
Financial assets
Cash and cash equivalents
Trade and other receivables
Total increase/(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
Interest rate risk
Foreign exchange risk
-100bps
+100bps
-10%
+10%
Amount
$’000
Profit Equity
$’000
$’000
Profit Equity
$’000
$’000
Profit Equity
$’000
$’000
Profit Equity
$’000 $’000
7,158
182,153
19
-
19
-
-
-
(19)
-
(19)
-
-
-
5
110
115
-
-
-
(4)
(90)
(94)
-
-
-
(2,474)
(931)
(909)
38
1,733
(1)
2,856
(6)
(3,077)
(102)
-
(98,671)
(98,312)
-
(927)
-
-
-
-
-
927
-
-
-
158
(1,474)
-
-
-
-
(129)
1,206
-
-
-
-
(1,858)
(909)
965
1,733
(1,317)
2,856
1,071
(3,077)
Total increase/ (decrease)
(1,839)
(909)
946
1,733
(1,202)
2,856
977
(3,077)
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks and
financial institutions, 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.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they
are an individual or incorporated legal entity, whether they are a wholesale, retail or end-user customer, geographic location,
industry, aging profile, maturity and existence of previous financial difficulties.
96
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
30 Financial risk
management (continued)
In most cases goods are sold subject
to retention of title clauses, so that in
the event of non-payment the Group
may have a priority claim. 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
specific loss component that relates to
individually significant exposures, and a
collective loss component established
for groups of similar assets in respect
of losses that have been incurred but
not yet identified. The collective loss
allowance is determined based on
historical data of payment statistics for
similar financial assets.
The 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 financial
obligations as they fall due. The
Group’s approach to managing liquidity
is to ensure, as far as possible, that
it will always have sufficient liquidity
to meet its liabilities when due, under
both normal and stressed conditions,
without incurring unacceptable
losses or risking damage to the
Group’s reputation.
The Group manages liquidity risk
by continuously monitoring forecast
and actual cash flows and matching
the maturity profiles of financial
assets and liabilities. Due to the
dynamic and diversified nature of
the underlying businesses, Group
Treasury aims at maintaining flexibility
in funding by keeping committed
credit lines available with a variety
of counterparties. Surplus funds are
generally only invested in instruments
that are tradeable in highly liquid
markets.
At 30 June 2012 the Group had multi-
option financing facilities totalling
$220.0 million (2011: $225.0 million) of
which $65.0 million had been approved
until 1 July 2013, a further $75.0 million
had been approved until 30 July 2013
and the remainder of the facility had
been approved until 30 November
2013. For more information, including
details of banking facilities renewed
since the end of the financial year
please refer to note 19 (unsecured bank
loans and standby letters
of credit).
Maturities of financial liabilities
The tables below analyse the Group’s
financial liabilities including derivative
financial instruments into relevant
maturity groupings based on the
remaining period at the reporting date
to the contractual maturity date. The
amounts disclosed in the table are
the contractual undiscounted cash
flows. For interest rate swaps the
cash flows have been estimated using
forward interest rates applicable at the
reporting date.
Contractual maturities of financial liabilities
Less than
6 months
6 – 12
months
Between
1 and 2
years
Between
2 and 5
years
Over 5
years
Total
contractual
cash flows
Consolidated at 30 June 2012
$’000
$’000
$’000
$’000
$’000
$’000
Carrying
Amount
(assets)/
liabilities
$’000
Non-derivatives
Non-interest bearing
Variable rate
Fixed rate
87,725
3,553
212
-
2,185
212
-
115,969
177
Total non-derivatives
91,490
2,397
116,146
-
-
-
-
121
-
-
121
87,846
121,707
601
87,846
116,333
556
210,154
204,735
Derivatives
Net settled (interest rate swaps and
forward exchange contracts)
1,376
997
1,773
959
-
5,105
4,712
Consolidated at 30 June 2011
$’000
$’000
$’000
$’000
$’000
$’000
Less than
6 months
6 – 12
months
Between
1 and 2
years
Between
2 and 5
years
Over 5
years
Total
contractual
cash flows
Carrying
Amount
(assets)/
liabilities
$’000
Non-derivatives
Non-interest bearing
Variable rate
Fixed rate
98,671
-
-
-
519
99,190
99,190
8,935
2,256
48,781
45,188
620
212
425
177
-
-
105,160
96,512
1,434
1,281
Total non-derivatives
108,226
2,468
49,206
45,365
519
205,784
196,983
Derivatives
Net settled (interest rate swaps and
forward exchange contracts)
781
343
624
463
-
2,211
2,576
Hills Holdings Limited Annual Report for the year ended 30 June 2012
97
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
30 Financial risk management (continued)
(d) Fair value measurements
Fair value measurement hierarchy
AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
(a)
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
(b)
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
(c)
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 2012 and 30 June 2011:
At 30 June 2012
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Total liabilities
At 30 June 2011
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Total liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
-
-
-
-
Level 1
$’000
-
-
-
-
-
-
4,712
4,712
Level 2
$’000
-
-
2,576
2,576
-
-
-
-
Level 3
$’000
-
-
-
-
Total
$’000
-
-
4,712
4,712
Total
$’000
-
-
2,576
2,576
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 specific estimates. All significant inputs required to fair value derivatives used
for hedging are observable, and hence the instruments are included in level 2. There have been no movements between levels
during the year ended 30 June 2012.
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.
98
Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
31 Business combination
Current Period
(a) Summary of acquisition
On 1 February 2012 the Group acquired certain assets of the operations of Herma Technologies Pty Ltd.
The acquired business contributed revenues of $1.628 million and net profit of $0.074 million to the Group for the period from
1 February 2012 to 30 June 2012. If the acquisition had occurred on 1 July 2011, consolidated revenue and consolidated profit
for the year ended 30 June 2012 would have been $1,084.550 million and $28.925 million respectively. These amounts have
been calculated using the Group’s accounting policies.
Details of the purchase consideration and the net assets and liabilities acquired are as follows:
Purchase consideration (refer to (c) below):
Cash paid
Direct costs relating to the acquisition
Total purchase consideration
Fair value of net identifiable assets acquired (refer to (b) below)
Goodwill (refer to (b) below and note 13)
(b) Assets and liabilities acquired
The assets and liabilities recognised as a result of the acquisition are as follows:
Inventories
Property, plant and equipment
Other assets
Intangible assets: patents and trademarks
Provision for employee benefits
Net identifiable assets acquired
Add: goodwill
Net assets acquired
$’000
2,068
(57)
2,011
695
1,316
Fair value
$’000
575
104
27
57
(68)
695
1,316
2,011
The goodwill is attributable to the synergies expected to arise following the Group’s acquisition, including the extension of the
range of products offered by Hills SVL.
(c) Purchase consideration – cash outflow
Outflow of cash to acquire business operation:
Cash consideration
Outflow of cash investing activities
Acquisition-related costs
Consolidated
2012
$’000
2,011
2,011
2011
$’000
-
-
Acquisition-related costs of $57,000 are included in expenses in profit or loss and in operating cash flows in the Consolidated
statement of cash flows.
Prior Period
There were no acquisitions of subsidiaries or business operations in the previous financial year.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
99
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
32 Reconciliation of profit / (loss) after income tax to net cash inflow
from operating activities
Consolidated
Profit / (loss) for the year
Depreciation and amortisation
Impairment of goodwill
Gain on repayment of government loans at net present value
Non-cash employee benefits expense-share-based payments
Net (gain) loss on sale of non-current assets
Fair value (gain) loss on derivatives
Foreign currency translation reserve recycled through profit or loss on
disposal of subsidiary
Impairment of trade receivables
Impairment of inventories
Impairment of property, plant and equipment
Rent received
Amounts set aside to provisions
Change in operating assets and liabilities, net of effects from purchase of
controlled entities and business operations:
Decrease / (increase) in trade and other receivables
Decrease in inventories
Decrease / (increase) in deferred tax assets
(Decrease) in trade and other creditors
(Decrease) in provision for income taxes payable
(Decrease) in other provisions
Net cash inflow from operating activities
2012
$’000
28,822
21,100
-
(386)
289
(533)
(161)
-
2,069
(2,030)
-
(787)
16,562
4,632
5,371
10,427
(10,667)
(5,935)
(16,104)
52,669
2011
$’000
(73,116)
23,079
66,182
-
478
(106)
(1,054)
(27)
1,635
3,783
37,210
(860)
13,726
(103)
9,508
(10,884)
(29,648)
(10,883)
(15,940)
12,980
100 Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
33 Subsidiaries and transactions with non-controlling interests
(a) Investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries in
accordance with the accounting policy described in note 1(c).
Name of entity
Country of
incorporation
Class of
shares
Equity holding
2012
%
2011
%
Hills Finance Pty Ltd
Hills Industries NZ Limited
Korvest Limited (i) (note (b))
Hills Hoists Pty Ltd
Bailey Aluminium Products Pty Ltd
Hills Industries Pty Ltd (formerly ACN 000 195 951 Pty Ltd
and formerly Triton Manufacturing & Design Co Pty Ltd)
ACN 089 622 622 Pty Ltd (formerly Triton
Workshop Systems (UK) Pty Ltd)
Australia
New Zealand
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Australia
Ordinary
Australia
Ordinary
Woodroffe Industries Pty Ltd
Fielders Australia Pty Ltd
Fielders Mobile Mill Pty Ltd
Zen 99 Pty Ltd
Orrcon Holdings Pty Ltd
Orrcon Operations Pty Ltd
Orrcon Tubing Pty Ltd
Access Television Services Pty Ltd
Techlife Solutions Pty Ltd (shelved)
Audio Telex Communications Pty Ltd
Crestron Control Solutions Pty Ltd
Team Poly Pty Ltd
KDB Engineering Pty Ltd
Kerry Equipment (Aust) Pty Ltd
Step Electronics 2005 Pty Ltd (i)
Greenwattle Investments Pty Ltd
Access Scaffolding (Aust) Pty Ltd
Greenwattle Equipment Pty Ltd
ACN 095 224 034 Pty Ltd (formerly Alquip (Holdings) Pty Ltd)
ACN 009 696 084 Pty Ltd (formerly Alquip Pty Ltd)
Hills Nominees Pty Ltd
DAS Security Wholesalers Pty Ltd
Pacific Communications Pty Ltd
Pacom Security Pty Ltd
CBS Hardware Pty Ltd
Step Electronics Pty Ltd
Opticomm Co Pty Ltd (i)
UHS Systems Pty Ltd
UHS Pty Ltd
Cygnus Satellite Pty Ltd (i)
Names inset indicate shares held by the company immediately above the inset.
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
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
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
(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.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
101
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
33 Subsidiaries and transactions with non-controlling interests (continued)
(b) Transactions with non-controlling interests
During the year Korvest made two issues of shares to its employees under its employee share plan. These issues had the effect
of diluting the Company’s shareholding in Korvest. The shares were issued for no consideration.
In the previous financial year, on 23 August 2010, the Group increased its share-holding in Korvest Ltd from 45.9% to 48.8%
through an on market acquisition of 250,000 shares at $4.56. The total consideration paid was $1.143 million.
2012
$’000
(48)
-
(48)
Carrying amount of non-controlling interests diluted / acquired
Consideration paid to non-controlling interests
Impact of dilution / excess consideration paid recognised in the
transactions with non-controlling interests reserve within equity
34 Parent entity financial information
(a) Summary financial information
The individual financial statements for the Company show the following aggregate amounts:
2011
$’000
811
(1,143)
(332)
2011
$’000
340,124
272,425
612,549
137,846
98,641
236,487
376,062
Company
2012
$’000
343,821
285,059
628,880
120,825
121,339
242,164
386,716
303,805
306,790
45,034
(2,910)
-
643
40,144
386,716
38,706
37,099
45,034
(1,303)
1,855
620
23,066
376,062
32,020
38,497
Statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Contributed equity
Reserves
Asset revaluation reserve
Hedging reserve-cash flow hedges
Asset realisation reserve
Equity compensation reserve
Retained earnings
Total shareholders’ equity
Profit or loss for the year
Total comprehensive income
102 Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
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
2012 and a Consolidated statement
of financial position as at 30 June
2012 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.
34 Parent entity financial
information (continued)
(b) Guarantees entered into
by the Company
Bank guarantees given by the
Company in favour of customers and
suppliers amounted to $8.696 million
(2011: $8.723 million).
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 $241.339 million
(2011: $260.277 million). No material
deficiency in net tangible assets exists
in these companies at reporting date
with net tangible assets amounting
to $288.815 million (2011: $296.171
million).
(c) Contingent liabilities
of the Company
The parent entity had a contingent
liability in respect of claims, as
disclosed in note 28. 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 2012, the Company
had contractual commitments for
the acquisition of property, plant
or equipment totalling $3.030
million (2011: $8.479 million). 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 98/1418
(as amended) dated 13 August
1998, the wholly-owned subsidiaries
listed below are relieved from the
Corporations Act 2001 requirements
for preparation, audit and lodgement
of financial reports, and 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
the Corporations Act 2001. If a winding
up occurs under other provisions of
the Act, the Company will only be
liable in the event that after six months
any creditor has not been paid in
full. The subsidiaries have also given
similar guarantees in the event that the
Company is wound up.
The subsidiaries subject to the
Deed are:
Hills Finance Pty Ltd
Hills Hoists Pty Ltd
Bailey Aluminium Products Pty Ltd
KDB Engineering Pty Ltd
Kerry Equipment (Aust) Pty Ltd
Woodroffe Industries Pty Ltd
Hills Industries Pty Ltd (Formerly ACN
000 195 951 Pty Ltd and formerly Triton
Manufacturing & Design Co Pty Ltd)
Orrcon Operations Pty Ltd
Orrcon Holdings Pty Ltd
Greenwattle Investments Pty Ltd
(Alquip)
Audio Telex Communications Pty Ltd
Team Poly Pty Ltd
Fielders Australia Pty Ltd
Access Television Services Pty Ltd
All of the subsidiaries except KDB
Engineering Pty Ltd, Kerry Equipment
(Aust) Pty Ltd, Orrcon Operations
Pty Ltd, Orrcon Holdings Pty Ltd,
Greenwattle Investments Pty Ltd,
Audio Telex Communications Pty Ltd,
Team Poly Pty Ltd, Fielders Australia
Pty Ltd and Access Television Services
Pty Ltd became a party to the deed
on 15 April 2004 by virtue of a Deed of
Assumption.
KDB Engineering Pty Ltd, Kerry
Equipment (Aust) Pty Ltd, Orrcon
Holdings Pty Ltd and Orrcon
Operations Pty Ltd became parties to
the deed on 23 June 2006, by virtue
of a Deed of Assumption. Greenwattle
Investments Pty Ltd (Alquip) and Audio
Telex Communications Pty Ltd became
parties to the deed on 25 June 2007.
Team Poly Pty Ltd became a party to
Hills Holdings Limited Annual Report for the year ended 30 June 2012
103
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
35 Deed of cross guarantee (continued)
(a) Consolidated income statement, Consolidated statement of comprehensive income and summary
of movements in consolidated retained earnings
Consolidated income statement
Revenue from continuing operations
Other income
Finance costs
Other expenses
Profit / (loss) before income tax
Income tax (expense) / benefit
Profit / (loss) for the year
Consolidated statement of comprehensive income
Profit / (loss) for the year
Other comprehensive income
Gain on revaluation of land and buildings
Changes in the fair value of cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive (loss) / income for the year, net of tax
Total comprehensive income / (loss) for the year
Summary of movements in consolidated retained earnings
Retained earnings at the beginning of the financial year
Profit / (loss) for the year
Transfers from / (to) reserves
Dividends provided for or paid
Retained earnings at the end of the financial year
2012
$’000
967,166
4,853
(5,835)
(934,545)
31,639
(7,009)
24,630
2011
$’000
993,991
2,873
(3,964)
(1,074,017)
(81,117)
7,543
(73,574)
24,630
(73,574)
-
(2,296)
689
(1,607)
23,023
23
24,630
11,757
(23,483)
12,927
12,250
(1,484)
(3,230)
7,536
(66,038)
101,403
(73,574)
(533)
(27,273)
23
104 Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
35 Deed of cross guarantee (continued)
(b) Consolidated statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax receivables
Assets classified as held–for–sale
Total current assets
Non-current assets
Investments
Property, plant and equipment
Deferred tax assets
Intangible 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 financial instruments
Total non–current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2012
$’000
16,448
177,426
149,625
6,984
-
350,483
12,453
162,605
23,429
48,469
246,956
597,439
79,351
7,138
-
32,419
507
119,415
115,557
2,261
4,106
121,924
241,339
356,100
303,805
39,368
12,927
356,100
2011
$’000
2,669
210,750
154,093
-
2,702
370,214
12,453
171,307
33,322
32,503
249,585
619,799
118,040
13,467
104
29,023
418
161,052
91,458
5,711
2,056
99,225
260,277
359,522
306,790
52,709
23
359,522
Hills Holdings Limited Annual Report for the year ended 30 June 2012
105
Hills Holdings Limited
Notes to the consolidated financial statements (continued)
30 June 2012
36 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the Company, its related
practices and non-related audit firms:
(a) Audit services
KPMG Australia:
Audit and review of financial reports
Overseas KPMG Firms:
Audit and review of financial reports
Total remuneration for audit and other assurance services
(b) Non-audit services
(i) Other assurance services:
Software implementation assurance services
Forensic accounting services
Other consulting services
(ii) Taxation services:
Taxation and other services
(iii) Overseas KPMG Firms:
Taxation services
Total remuneration for non-audit services
Consolidated
2012
$
2011
$
492,000
488,500
32,909
524,909
76,257
46,179
40,504
31,768
520,268
-
-
141,015
113,838
14,316
318,271
26,824
140,662
37 Events occurring after the reporting period
On 13 August 2012 the Company entered into an agreement to acquire the business of Lan 1. Completion is expected by 30
September 2012, subject to conditions precedent being satisfied.
On 16 August 2012 the Company renewed its banking facilities jointly with Commonwealth Bank, National Australia Bank and
Westpac Banking Corporation through a Common Deed. The total facility is $196 million, comprising Tranche A $81 million,
expiring in 3 years (16 August 2015), Tranche B $69 million, expiring in 4 years (16 August 2016), and Tranche C $46 million,
expiring in 3 years (16 August 2015), but subject to annual review. Tranches A and B comprise bank loans and Tranche C
comprises bank guarantees, letters of credit and cash advances.
Mr Twartz will retire as Chief Executive Officer and Managing Director on 2 September 2012 and will cease to be an employee
on 30 November 2012. Mr Ted Pretty will commence as Chief Executive Officer and Managing Director on 3 September 2012.
Apart from the matters 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.
106 Hills Holdings Limited Annual Report for the year ended 30 June 2012
Hills Holdings Limited
Directors’ declaration
30 June 2012
In the opinion of the Director’s of Hills Holdings Limited (the Company):
(a) the consolidated financial statements and notes set out on pages 45 to 106 and the Remuneration report on pages
20 to 30 in the Directors’ report are in accordance with the Corporations Act 2001, including:
(i)
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(ii)
giving a true and fair view of the Group’s financial position as at 30 June 2012 and of its performance for the financial
year ended on that date; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable, and
(c) 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 98/1418.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
The Directors have been given the declarations by the chief executive officer and the chief financial officer required by Section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
GL Twartz
Director
Dated at Sydney
this 31st day of August 2012.
Hills Holdings Limited Annual Report for the year ended 30 June 2012
107
ABCD
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 2012, 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 37 comprising a summary of significant 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 responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We
conducted our audit in accordance with Australian Auditing Standards. These Auditing
Standards require that we comply with relevant ethical requirements relating to audit
engagements and plan and perform the audit to obtain reasonable assurance whether the
financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal 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 of accounting policies used and the reasonableness of
accounting estimates made by the Directors, as well as evaluating the overall presentation of the
financial report.
We performed the procedures to assess whether in all material respects the financial report
presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting
Standards, 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 partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation
108 Hills Holdings Limited Annual Report for the year ended 30 June 2012
ABCD
Independence
In conducting our audit, we have complied with the independence requirements of the
Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a)
the financial report of the Group is in accordance with the Corporations Act 2001,
including:
(i)
(ii)
giving a true and fair view of the Group’s financial position as
at 30 June 2012 and of its performance for the year ended on that date; and
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 20 to 30 of the Directors’ report for
the year ended 30 June 2012. The Directors of the Company are responsible for the preparation
and presentation of the remuneration report in accordance with Section 300A of the
Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report,
based on our audit conducted in accordance with auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of Hills Holdings Limited for the year ended 30 June 2012,
complies with Section 300A of the Corporations Act 2001.
KPMG
N T Faulkner
Partner
Adelaide
31 August 2012
Hills Holdings Limited Annual Report for the year ended 30 June 2012
109
Hills Holdings Limited
Shareholder information
30 June 2012
The shareholder information set out below was applicable as at 21 August 2012.
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
4,492
8,626
4,120
3,234
83
20,555
-
-
-
3
2
5
There were 470 holders of less than a marketable parcel of ordinary shares.
B.
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
Name
RBC Investor Services Australia Nominees Pty Limited (PI POOLED A/C)
Poplar Pty Limited
Hills Associates Limited
National Nominees Limited
JP Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Jacaranda Pastoral Pty Ltd
UBS Nominees Pty Ltd
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd (Master Cust DRP)
Donald Cant Pty Ltd
Colleen Sims Nominees Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Limited (PIIC A/C)
Gwynvill Trading Pty Limited
Hills Associates Limited & Poplar Pty Ltd
Queensland Investment Corporation
Tamarisk Pty Ltd
Portman Trading Pty Ltd
Mr Clifford Christian Dahl
Mr John Gassner + Mr Nathan Rothchild
Ordinary shares
Number
held
Percentage
of issued shares
21,469,533
20,286,335
14,450,548
13,463,688
10,049,135
7,303,273
5,968,699
4,281,294
3,496,185
2,774,189
1,979,060
1,694,798
1,373,574
1,260,000
1,188,918
948,393
603,865
580,000
383,000
375,751
8.71
8.23
5.86
5.46
4.08
2.96
2.42
1.74
1.42
1.13
0.80
0.69
0.56
0.51
0.48
0.38
0.24
0.24
0.16
0.15
113,930,238
46.22
110 Hills Holdings Limited Annual Report for the year ended 30 June 2012
C.
Substantial holders
Substantial holders in the Company are set out below:
Name
Perpetual Limited
Poplar Pty Limited 1, 2
Hills Associates Limited 2
Hills Holdings Limited
Shareholder information
30 June 2012
Ordinary shares
Number
held
Percentage
of issued shares
29,652,196
21,475,253
14,450,548
12.03
8.71
5.86
1 The total number of shares held includes the joint shareholding held by Poplar Pty Ltd and Hills Associates Limited.
2 In addition, various other minor parties associated with Poplar Pty Ltd and Hills Associates Limited hold a further 0.4% of issued shares.
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.
Rights / Options
No voting rights.
E.
On-market buy-back
Details of the on-market buy-back are disclosed in note 21.
F.
Direct payment to shareholder accounts
Dividends may be paid directly to bank, building society or credit union accounts in Australia. Payments are
electronically credited on the dividend date and confirmed by mailed payment advice. Shareholders who want their
dividends paid this way should advise the Company’s share register in writing.
G.
Securities Exchange
The Company is listed on the Australian Securities Exchange. The Home exchange is Adelaide.
H.
Other information
Hills Holdings Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
I.
Offices and Officers
Company Secretary
Ms Rachel Rees
Principal Registered Office
159 Port Road Hindmarsh, SA 5007
Telephone: (08) 8301 3200
Facsimile: (08) 8301 3290
Web: www.hillsholdings.com.au
Locations of Share Registries
Computershare Investor Services Pty Limited
Level 5, 115 Grenfell Street Adelaide, SA 5000
Telephone (within Australia): 1300 556 161
Telephone (outside Australia): +61 3 9415 4000
Facsimile (within Australia): 1300 534 987
Facsimile (outside Australia): +61 3 9473 2408
Internet address: www.computershare.com.au
Hills Holdings Limited Annual Report for the year ended 30 June 2012
111
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Hills Holdings Limited
Registered Office
159 Port Road
Hindmarsh, SA 5007
Telephone: (08) 8301 3200
Facsimile: (08) 8301 3290
Email: info@hillsholdings.com.au
ABN 35 007 573 417
www.hillsholdings.com.au
ANNUAL REPORT 2012
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