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Annual report
30 June 2014
Hills Limited
Annual report
30 June 2014
contents
Shareholders’ letter
Directors’ report
Auditor’s independence declaration
Corporate governance statement
Financial statements
Independent auditor’s report to the members
Shareholder information
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ABN 35 007 573 417
Hills Limited Annual Report for the year ended 30 June 2014
3
Dear Shareholders
Review of year
Strategic settings
Financial year 2014 has been a year of
solid performance for Hills and we have
appreciated your support during this period.
During the year we made significant
progress on our strategy as we completed
our restructuring and transformation and
undertook major non-core asset sales.
We invested some of the sale proceeds
into new growth businesses. Hills is now
firmly focused on innovation and the
provision of integrated solutions mainly
in the technology and communications
sectors including security, health,
automation, access control, lighting and AV,
audio and networking.
Results
The Hills Group of companies recorded a
statutory net profit after tax attributable to
owners of $24.8 million for the year ended
30 June 2014. This profit reflects our results
post the after tax impact of any adjustments
including costs of acquisitions and other
associated gains or losses on the disposal of
businesses which we previously advised to
the market.
The Company’s underlying FY14 result was
a profit of $27.3 million before adjustments
and other costs (note that this is a non IFRS
measure and is not subject to audit or review
but is reconciled to the equivalent IFRS
measure at note 22(c) in the Annual Report).
The Company’s underlying EPS was up
46 per cent against last year.
We completed the year with a net
cash surplus (ie no debt) of $8.5 million at
30 June 2014.
At our Annual General Meeting in November
2013 we advised that during FY14 Hills would
focus on completing the projects we started
in FY13. This included continuing to improve
the existing technology and communications
businesses which underpin our core earnings,
build out our Hills brand and product and
service positioning, seek to acquire new
businesses in key growth sectors such as
healthcare, education, public safety, security
and technology services and deliver solid
returns to our shareholders. We are pleased
to report we met these objectives.
During the year we completed the purchase
of HTR (Hospital Television Rentals) and
Merlon. In February 2014, we completed the
divestment of our Fielders and Orrcon steel
businesses to BlueScope, in March the sale
of UHS Systems to UTC and in April the sale
of OptiComm to our joint venture partner.
Consistent with our new strategy, between
March and June we acquired Open Platform
Systems, Intek Security and the majority of
the assets of Questek. These acquisitions will
strengthen our core business.
The Federal election, the first Coalition budget
and the strong Australian dollar and modest
levels of construction activity made for mixed
market conditions across our continuing
businesses during the year. However we are
pleased to report that our results displayed
strong revenue growth and steady returns.
We continued to make improvements in
operational performance and undertook cost
reductions to ensure a stronger balance
sheet, low debt and solid cash flow. This was
achieved with strong continuing cash flows
from operations and zero gearing.
At the beginning of FY14 the Hills Board
confirmed our aspirational settings to be
achieved by FY16 including:
• 75% of revenues from technologies and
communications
• 20–25% of revenues from services
• Sustained earnings growth
• Return on funds employed (ROFE)
of 13–15%
We are well on the way to meeting these
targets. In particular in FY14:
• We achieved a return on funds employed
(ROFE) in excess of 20% in the period; and
• Our revenues from technology and
communications were greater than 75%
Strategic update
Hills continues to be a company with a brand
that attracts market attention. During FY14
we focused on building on this trust.
The strategy of the Company remains based
on creating value by being focused on
delivering technology-based solutions into
trusted government, enterprise, business and
residential markets. This includes supplying
access control and video security, automation
and control, audio visual and lighting solutions
into hospitals, aged care facilities, schools,
universities, banks, retailers, public transport
and private logistic providers.
We recently completed bolt-on acquisitions
to support our core security and automation
solutions and undertook the first of a number
of anticipated acquisitions in the healthcare
segment. We have a high conviction that
security, well-being and health have strong
domestic growth potential. Our further
acquisitions in security and healthcare have
been well received, further reflecting the
trust and faith placed in us.
4
Hills Limited Annual Report for the year ended 30 June 2014Shareholders’ letter On-market buyback
During FY14, the Company acquired
12.3 million shares for a total consideration
of $22.3 million (an average price of $1.81).
This equates to 5 per cent of the issued
capital being bought back in FY14.
Your Board remains of the opinion that the
current share price does not necessarily
reflect the underlying value of our assets, our
business capability and our strong capital
position. On 15 August 2014, we announced
our intention to refresh our ability to undertake
an on-market buyback. The extension of the
buyback provides Hills with the option to
acquire shares up to ten per cent (10%) of
the issued capital during the next 12 months.
However any decision to proceed with the
buyback will be subject to cash required for
acquisitions and dividends.
The outlook for FY15 of necessity must be
based on continuing businesses (including
FY14 acquisitions and the recently acquired
business of APG). Hills current guidance is
for an underlying FY15 NPAT attributable
to owners of $22-24 million (before further
acquisitions), reflecting expectations
of underlying growth in our continuing
technologies business. Hills also intends to
seek larger acquisitions in the security and
healthcare technology sectors.
On behalf of the Board and management
we take the opportunity of thanking you, the
shareholders, for your support during the year
and assure you of our dedication to position
the Company for growth and the delivery of
superior returns and performance.
It is our intention to build for sustainable
earnings growth for the medium to longer term.
Yours sincerely
Outlook
We note the Reserve Bank’s recent
observation that notwithstanding a pick-up
in growth around the turn of 2014, GDP
growth is expected to be below trend over
the next year or so, rising gradually thereafter.
While the continuing subdued commercial
construction sector does impact building
related technologies, Hills remains very well
positioned for the year ahead.
We have entered FY15 with a very strong
balance sheet, reduced structural and
operating complexity and a lower operating
risk profile. We have ample capacity for
further acquisitions that are accretive to our
core and / or offer medium to long-term
growth opportunities.
Jennifer Hill–Ling
Chairman
Ted Pretty
Group Managing Director and
Chief Executive Officer
The Board continues with management to
fine tune our strategy and objectives and
we intend to provide an update at the
Annual General Meeting in October this year.
Hills is now well positioned for growth
with the proceeds from asset sales and
divestments providing a very strong balance
sheet. Our strategic objective for FY15 is to
make a transformational acquisition in the
health or security sectors.
Innovation
In May 2014, we opened two new innovation
centres, jointly funded by Hills and the South
Australian State Government.
The Lance Hill Design Centre and Hills
D-Shop have been created in collaboration
with UniSA, Flinders University and the
University of Adelaide to drive innovation as
well as support and foster start-ups.
Brand
Hills (Hills Hoist) was also recognised by
the Reader’s Digest Survey, for the second
consecutive year, as the Most Trusted Iconic
Brand. It is our objective that this applies
to all Hills technology based products into
the future.
Subsequent events
Since 30 June 2014 we have completed the
acquisition of Audio Products Group (APG).
Dividend payments
The Board declared a fully franked dividend
of 3.6 cents per share, which will be paid
on 26 September 2014 to registered
shareholders as at 12 September 2014.
This represents a year on year increase in
dividend per share of 40 per cent.
The Board has an intention, subject
to acquisitions and working capital
requirements, to target on an annual basis
a dividend payout ratio of 50–75 per cent
of underlying profits attributable to owners
franked to the maximum extent possible.
Given our strong balance sheet, we continued
to suspend our Dividend Reinvestment Plan
and Share Investment Plans.
5
Hills Limited Annual Report for the year ended 30 June 2014Shareholders’ letter continued Directors’
report
The Directors present their report on the
consolidated entity (referred to hereafter as
the Group or Hills) consisting of Hills Limited
(the Company) and the entities it controlled
at the end of, or during, the year ended
30 June 2014, and the independent auditor’s
report thereon.
Directors
The following persons were Directors of the
Company during the whole of the financial
year and up to the date of this report:
Jennifer Helen Hill-Ling
Edward (Ted) Noel Pretty
Fiona Rosalyn Vivienne Bennett
Ian Elliot
David Moray Spence
Peter William Stancliffe
The Board has appointed Mr Philip Bullock
as a non-executive Director of the Company,
effective 23 June 2014.
Mr Bullock was formerly Vice President of
the Systems and Technology Group, IBM
Asia Pacific, based in Shanghai, China. Prior
to that he was CEO and Managing Director
of IBM Australia and New Zealand. Mr Bullock
is a non-executive Director of Perpetual
Limited, CSG Limited and formerly of
Healthscope Limited. He has also provided
advice to the Federal Government, through
a number of organisations, most notably as
Chair of Skills Australia.
Mr Bullock will stand for election at this
year’s Annual General Meeting.
The Chairman of Hills, Ms Jennifer Hill-Ling,
also advised that long-serving Director
Mr Peter Stancliffe will retire from the Board at
the Annual General Meeting scheduled for
31 October 2014 after 11 years of service.
Principal activities
The principal activities of Hills during the
course of the year are outlined within the
Review of Operations.
6
Review of operations
Overview
The Hills Group of companies recorded a
net profit after tax attributable to owners of
$24.8 million for the year ended 30 June 2014.
This profit reflects our results post the after
tax impact of any adjustments including costs
of acquisitions and other associated gains or
losses on the disposal of businesses which
we previously advised to the market.
The Company’s underlying FY14 result was
a profit of $27.3 million before adjustments
and other costs (note that this is a non IFRS
measure and is not subject to audit or review
but is reconciled to the equivalent IFRS
measure at note 22(c) in the Consolidated
financial statements). We completed the year
with a net cash surplus (ie no debt) of
$8.5 million at 30 June 2014.
The reconciliation between statutory and
underlying profit is set out below:
2014
$’000
2013
$’000
Net profit / (loss) after tax attributable to the owners of the Company
24,798
(94,125)
Adjust for business combination acquisition transaction costs after tax
offset by one-off income tax credits associated with business sales
(refer note 22(c) in the Annual Report)
Adjust for CGU impairment, restructure and closure costs and other
associated impairments (refer note 22(c) in the Annual Report)
2,479
–
–
113,326
Underlying net profit after tax attributable to the owners of the Company
27,277
19,201
The year in review
At the Annual General Meeting in November
2013 we advised that during FY14 we would
focus on completing the projects we started
in FY13. This included continuing to improve
the existing technology and communications
businesses that underpin our core earnings,
build the Hills brand and product and
service positioning, seek to acquire new
businesses in key growth sectors such as
healthcare, education, public safety, security
and technology services and deliver solid
returns to our shareholders. We are pleased
to report we met these objectives.
Hills Limited Annual Report for the year ended 30 June 2014 Directors’ report
Review of operations
continued
During the year we completed the purchase
of HTR (Hospital Television Rentals) and
Merlon. In February 2014 we completed the
divestment of the Fielders and Orrcon steel
businesses to BlueScope, in March the sale
of UHS Systems to UTC and in April the sale
of OptiComm to the joint venture partner.
Consistent with our new strategy, between
March and June we acquired Open Platform
Systems, Intek Security and the majority of
assets of Questek. These acquisitions will
strengthen our core business.
The Federal election, the first Coalition budget
and the strong Australian dollar and modest
levels of construction activity made for mixed
market conditions across the continuing
businesses during the year. However we are
pleased to report that the results displayed
strong revenue growth and steady returns.
We continued to make improvements in
operational performance and undertook
cost reductions to ensure a stronger balance
sheet, low debt and solid cash flow. This
was achieved with strong continuing cash
flows from operations and zero gearing.
In respect of the period to 30 June 2014,
the Company achieved an Underlying NPAT
result within the revised upward market
consensus issued at the half year.
Strategic settings
At the beginning of FY14, the Hills Board
confirmed the aspirational settings to be
achieved by FY16 including:
• 75% of revenues from technologies
Strategic update
Hills values are:
• Be open – to new ideas, be innovative
and experiment, listen to others, embrace
different ways of doing things and always
ask if it can it be done better.
• Be accountable – to our customers, our
shareholders and ourselves, commit to
seeing things through, and spend every
dollar as if it were your own.
• Be safe – work safely and considerately,
think ahead, act with awareness.
• Be true – act with honesty and integrity
with everyone. And above all, stand by
your word.
• Grow – as a person, have ambition and
help to grow the business to deliver
sustained earnings to shareholders.
Debt and funding
Hills net cash as at 30 June 2014 was
$8.5 million (2013: net debt of $4.0 million).
Gearing, measured as net debt to net debt
plus equity, stood at 1.4% in 2013 and
was zero at 30 June 2014. The earliest date
for review of any of the Company’s bank
and debt facilities is August 2015. Hills
continues to comfortably meet all of its
banking covenants.
Hills continues to be a company with a brand
that attracts market attention. During FY14
we focused on building on this trust.
The strategy of the Company remains based
on creating value by being focused on
delivering technology-based solutions into
trusted government, enterprise, business and
residential markets. This includes supplying
access control and video security, automation
and control, audio visual and lighting solutions
into hospitals, aged care facilities, schools,
universities, banks, retailers, public transport
and private logistic providers.
We recently completed bolt on acquisitions
to support our core security and automation
solutions and undertook the first of a number
of anticipated acquisitions in the healthcare
segment. We have a high conviction that
security, well-being and health have strong
domestic growth potential. Our further
acquisitions in security and healthcare have
been well received and that reflects the trust
and faith placed in us.
Hills is now well positioned for growth
with the proceeds from asset sales and
divestments providing a very strong balance
sheet. Our strategic objective for FY15 is to
make a transformational acquisition in the
health or security sectors.
The Board continues with management to
fine tune our strategy and objectives and we
intend to provide an update to Shareholders
at this year’s Annual General Meeting.
and communications
Vision and values
• 20–25% of revenues from services
• Sustained earnings growth
• Return on funds employed (ROFE)
of 13–15%
We are well on the way to meeting these
targets. In particular in FY14 we achieved a
return on funds employed (ROFE) in excess
of 20 per cent in the period and our revenue
from technology and communication was
greater than 75 per cent.
Our vision is to have a Hills innovation in
every business, government and home.
Our mission is to deliver technology
driven products and services into trusted
environments. Our strategy as One Hills
is firmly focused on technology and
innovation including security, health,
automation, access control, lighting and AV,
audio and networking.
7
Hills Limited Annual Report for the year ended 30 June 2014 Dividends
Change of segments
The Board declared a fully franked dividend
of 3.6 cents per share, which will be paid
on 26 September 2014 to registered
shareholders as at 12 September 2014.
This follows the fully franked interim
dividend of 3.4 cents per share paid to Hills
Shareholders on 31 March 2014. Given that
Hills does not expect to be in a tax paying
position it is unlikely that future dividends will
be franked in the near term.
The intention of the Hills Board, subject
to acquisitions and working capital
requirements, is to target on an annual basis
a dividend payout ratio of 50–75 per cent
of underlying profits attributable to owners
franked to the maximum extent possible.
Given our strong balance sheet, we continued
to suspend our Dividend Reinvestment Plan
and Share Investment Plans.
On-market share buyback
During FY14 the Company acquired
12.3 million shares for a total consideration
of $22.3 million (an average price of
$1.81 per share). This equates to 5 per cent of
the issued capital being bought back in FY14.
Your Board remains of the opinion that the
current share price does not necessarily
reflect the underlying value of our assets, our
business capability and our strong capital
position. On 15 August 2014, we announced
our intention to refresh our ability to undertake
an on-market buyback. The extension of the
buyback provides Hills with the option to
acquire shares up to ten per cent (10%) of
the issued capital during the next 12 months.
However any decision to proceed with the
buyback will be subject to cash required for
acquisitions and dividends.
It is our intention to build for sustainable
earnings growth for the medium to longer term.
As a result of the Group’s restructure
and transformation programs and after
the disposal of its Building and Industrial
Segment, the Group reviewed the way it
presents segment information under
AASB8 Operating Segments.
The Group has determined that its chief
operating decision maker (CODM) is the
Board of Hills Limited. This is on the basis
that it is the Board of Hills Limited that
ultimately makes decisions regarding the
allocation of resources to the operating
segments of Hills and ultimately is the
Group’s “chief operating decision maker”
within the meaning of AASB8.
While Hills has a number of operating
segments, after the restructure and
transformation program, all of its remaining
operating segments have characteristics
that are so similar in nature that they can
reasonably be expected to have the same
prospects. Hills operating segments have
similar economic characteristics, provide
similar products and services, have a
similar production process, similar types of
customers, similar methods for distribution
and are subject to a similar regulatory
environment. Hills operating segments
have therefore been aggregated into one
reportable segment under AASB8 called
the Hills Technologies Segment. This is also
borne out by the fact that after its restructure
and transformation program, Hills has
actively consolidated its operating structure
into what is known as a ‘One Hills’ approach
where the business operates as an integrated
business rather than a holding company
owning disparate operations. The previously
reported Lifestyle and Sustainability segment
is no longer a material reportable segment
and has been aggregated into the Hills
Technologies Segment while the previously
reported Building and Industrial Segment has
been sold.
In terms of reviewing the Group as it has gone
through its restructuring and transformation
program, the CODM has been presented with
information that separates Hills results into its
continuing business (the Hills Technologies
Segment) and discontinuing business results
in two categories: the Discontinuing Building
and Industrial Segment (which is also the
discontinuing operations under IFRS) and
Other Discontinued Hills Businesses (which
are businesses that have been closed or
sold and regardless of whether these are
classified as discontinuing under IFRS or
not). That information ‘through the eyes of
management’ has been presented in the
Segment note in the financial statements in
accordance with the principles of AASB8.
Description of segments
The Group currently has one reportable
segment, the Hills Technologies Segment.
The following summary describes the
operations of the Group’s reportable segment:
Hills Technologies
Includes electronic security systems,
closed circuit television systems, home and
commercial automation and control systems,
professional audio products, consumer
electronic equipment, communications
related products and services, domestic
and commercial antennas, master antenna
television systems, communications
antennas, amplifiers, health technology
solutions and subscription TV installation
services. The segment also includes the
sale of lifestyle products, services and home
technology solutions. This segment contains
the continuing operations of the Group.
Other Hills businesses sold or closed
In presenting results to the CODM,
businesses that have been closed or
sold (and regardless of whether these are
classified as discontinuing under IFRS or not),
are shown separately to enable the CODM
to assess the true continuing operations of
the Group which are shown within the Hills
Technologies segment. That information
assists the CODM in making its own resource
allocation decisions. That information,
‘through the eyes of management’ has been
presented in the Segment note in accordance
with the principles of AASB8.
8
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report Building and Industrial
(Discontinued operations under IFRS)
In presenting results to the CODM, the
Building and Industrial Segment that has
been sold (and is treated as a separate
discontinuing operation under IFRS), is
shown separately to enable the CODM to
assess the true continuing operations of
the Group, which are shown within the Hills
Technologies segment. That information
assists the CODM in making its own resource
allocation decisions. That information,
‘through the eyes of management’ has
been presented in this Segment note in
accordance with the principles of AASB8.
Hills Technologies segment
The Hills Technologies segment continues
to deliver strong revenue growth, profit
margins and return on assets employed.
This reportable segment consists of the
aggregation of a number of operating
segments: Hills Electronic Security, Pacom,
Lan1, Intek, OPS, Hills SVL, Audio Products
Group, Hills Antenna & TV Systems, Hills
Signalmaster, Hills Health Solutions (Questek,
Merlon and HTR) and Hills Connection
Solutions, STEP Electronics and Cygnus
Satellite. The Hills Technologies segment
also includes the operations of Hills Home
Living on the basis that these operations are
not a separately reportable segment based
on materiality.
The Hills Technologies segment reported
revenue of $415.5 million for the year
(FY13: $356.2 million), an increase of
16.6 per cent. Segment underlying EBITDA
was $42.9 million for the year (FY13:
$30.3 million), an increase of 41.5 per cent.
Segment underlying EBITDA as a percentage
of revenue increased to 10.3 per cent in FY14
from 8.5 per cent in FY13.
Hills Electronic Security comprises
the business operations of Pacific
Communications (Pacom), Lan1, DAS,
Intek and OPS. The business unit markets
an extensive range of electronic security
products in Australia and New Zealand
ranging from simple domestic alarms to
more complicated integrated surveillance
and access control systems. The acquisition
of Intek in New Zealand and Open Platform
Systems (OPS) were completed late in
the year and have met expectations. The
domestic alarm market is now commoditising
with selling prices and margins remaining
lower than trend due to increased
competition. However we have launched
new CCTV products for the home to address
this market. During the year we sold UHS
Systems to United Technologies.
Lan1 secured a number of major contracts
including for NBN Earth Stations, Defence,
BHP mines, and Roads and Maritime
Services. DAS secured contracts for security
and access upgrades for Westpac, Logan
Hospital and Woolworths. Pacom also
secured certain key surveillance prison,
utility, banking and health projects.
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. During the
period the business produced an excellent
result largely based on good contracts for
Creston automation products. Key projects
included installations for major universities
and corporate board rooms including UTS,
Department of Premier & Cabinet, Flinders
University and Fiona Stanley Hospital (Phase
2). We are confident Hills acquisition of Audio
Products Group will strengthen our offerings
in that market.
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. STEP provides
secure communications solutions with key
deployments including an extension to
the Government DFAT Contract to supply
further equipment. STEP also won solid
Civil and Defence Satellite business during
FY14. Demand for free-to-air and satellite
equipment remained steady.
Hills Connection Solutions in Australia and
Signal Master in New Zealand provide
subscription television and fixed wireless
installation services. Local management have
improved the returns from the business in
light of the potential to secure contracts to
provide similar services to government and
commercial customers.
During the year, Hills sold its 50 per cent
owned OptiComm business, which provides
fibre to the node and fibre to the home in
new housing developments. The 50 per cent
owned Cygnus Satellite business provides
bandwidth to rural and remote markets
in Australia. Cygnus also provides Telstra
with the Iterra IP Satellite Communication
service for Telstra’s remote resource industry
customers. Performance in the period was
steady year on year.
Hills Health Solutions now comprises
the nurse call and patient infotainment
businesses of Merlon, HTR and Questek.
They are focused on the supply of nurse
call, patient infotainment and other related
solutions including security, WiFi and
telephony to the health and aged care
sectors. Results in these businesses were
on plan with key milestones and initiatives
including Merlon securing the nurse call
contract for the 800-bed new Royal Adelaide
Hospital; and HTR now has a digital patient
infotainment offering available through a
distribution agreement with Lincor, the global
leader in patient engagement technology with
40,000 beds installed across 20 countries.
The three businesses are now co-located
and sales leads are being shared across
the teams.
Hills traditional branded products business
in sprayers and clotheslines achieved
reasonable revenue growth but profitability
continued to be a challenge. Given the value
in the Hills brand the continuing support
of this relatively small division remains
important. However as the brand shifts to
new technologies and our push into the
health sector, we intend to review the
viability of some of the product lines.
Hills Polymers comprises the polymer
processing plant and SmartBar range of
frontal protection systems. The results
were not significant.
9
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportReview of operationscontinued Dividends
Dividends paid to members during the
financial year were as follows:
Dividend of 3.25 cents fully franked based on tax paid at 30%
(2013: 5.0 cents fully franked based on tax paid 30%) per fully paid share
paid on 27 September 2013 (2013: 26 September 2012)
Dividend of 3.4 cents fully franked based on tax paid at 30%
(2013: 0.0 cents) per fully paid share paid on 31 March 2014.
2014
$’000
8,000
2013
$’000
12,298
8,037
–
16,037
12,298
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 $8.420 million
(3.6 cents per fully paid share) to be paid
on 26 September 2014 out of profits for the
year ending 30 June 2014 to shareholders
on the register as at 12 September 2014.
The financial effect of these dividends has
not been brought to account in the financial
statements for the year ended 30 June 2014
and will be recognised in subsequent financial
periods. For more information regarding
dividends please refer to note 21 of the
financial statements.
Significant changes in the state of affairs
Significant changes in the state of affairs
of Hills during the financial year are set out
in the Review of Operations section of the
Directors’ report.
Likely developments and expected
results of operations
For likely developments please refer to
the Review of Operations section of the
Directors’ report.
Other Hills businesses sold or
closed segment
Businesses shown in this segment in the
current and comparative period include:
Healthcare, Baileys, Solar, LW Gemmell, ATS,
OptiComm and UHS.
The other businesses sold or closed segment
reported revenue of $32.8 million for the
year (FY13: $136.3 million), a decrease of
75.9 per cent. Segment underlying EBITDA
was $3.3 million for the year (FY13:
$5.3 million), a decrease of 37.7 per cent.
Building and Industrial Segment
(Discontinued operations under IFRS)
The Building and Industrial segment
comprised Orrcon Steel and Fielders
Australia. These businesses were previously
classified as ‘assets held for sale’. On 28
February 2014 Hills completed the divestment
of Orrcon and Fielders to BlueScope Limited.
The Building and Industrial segment reported
revenue of $288.9 million for the year (FY13:
$525.9 million), a decrease of 45.1 per cent.
Segment underlying EBITDA was $4.7 million
for the year (FY13: $11.7 million), a decrease
of 59 per cent. The reduction from year
to year was as a result of the disposal of
the segment during FY14 in line with Hills
restructure and transformation program.
Subsequent events
On 1 July 2014 the Group acquired 100 per
cent of the issued shares in EMG Finance Pty
Ltd and Audio Products Group Pty Ltd for
$15 million. The acquisition complements and
extends the Group’s building technologies
business in the specialised audio market.
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.
10
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report Directors’
report
Information on Directors
Jennifer Helen Hill–Ling
LLB (Adel) FAICD.
Edward (Ted) Noel Pretty
BA LLB (Hons).
Fiona Rosalyn Vivienne Bennett
BA (Hons) FCA FAICD FAIM.
Independent non-executive Director Age 58.
Experience and expertise
Appointed non-executive 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. She
is currently Chairman of the Victorian Legal
Services Board.
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).
Director of Beach Energy Limited
(since November 2012).
Former listed company directorships in
the past three years
None.
Special responsibilities
Chairman of the Audit, Risk and
Compliance Committee.
Interests in shares and options at the
date of this report
4,000 ordinary shares in Hills Limited.
Nil options over ordinary shares in Hills Limited.
Chairman, non-independent non-executive
Director Age 52.
Group Managing Director and Chief Executive
Officer Age 57.
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 was
formerly a director of Tower Trust Limited and
MS Limited. She is a fellow of the Australian
Institute of Company Directors.
Other current listed company directorships
None.
Former listed company directorships in
the past three years
None.
Special responsibilities
Chairman of the Board, Member of the
Remuneration Committee, Member of the
Nomination Committee.
Interests in shares and options at the
date of this report
17,596,377 ordinary shares in Hills Limited
(including 1,188,918 shares owned by
Hills Associates Limited and Poplar Pty Ltd
(jointly held) and 16,239,441 shares
owned by Hills Associates Limited of
which JH Hill-Ling is a Director).
Nil options over ordinary shares in Hills Limited.
Appointed Group Managing Director and
Chief Executive Officer 3 September 2012.
Ted Pretty 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 NEXTDC Limited and Australian and New
Zealand Advisory Chairman of Tech Mahindra
and Mahindra Satyam (part of the Indian
headquartered $14 billion 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 the
ASX listed RP Data Limited, and 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 advisor 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.
Mr Pretty has a Bachelor Degree in Arts
(Economics) and First Class Honours Degree in Law.
Other current listed company directorships
Non–Executive Director of NEXTDC Limited
(since 2011).
Former listed company directorships in
the past three years
None.
Special responsibilities
Group Managing Director.
Interests in shares and options at the date
of this report
250,000 ordinary shares in Hills Limited.
1,133,332 performance rights over ordinary
shares in Hills Limited.
11
Hills Limited Annual Report for the year ended 30 June 2014 Directors’
report
Information on Directors
continued
Ian Elliot
FAICD.
David Moray Spence
B Com.
Peter William Stancliffe
BE (Civil) FAICD.
Independent non-executive Director Age 60.
Independent non-executive Director Age 62
Independent non-executive Director Age 66.
Experience and expertise
Experience and expertise
Experience and expertise
Appointed non-executive Director in
August 2003.
Appointed non-executive Director on
1 September 2010.
Appointed non-executive Director in
August 2003.
Ian Elliot has spent 39 years in marketing.
His speciality is brand building, with extensive
involvement in a number of iconic brands.
Mr Elliot is a fellow of the Australian Institute
of Company Directors (AICD) 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 Director of 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).
Director of McMillan Shakespeare Limited
(since May 2014).
Former listed company directorships in
the past three 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
51,735 ordinary shares in Hills Limited.
Nil options over ordinary shares in Hills 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.
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.
Other current listed company directorships
Chairman of Korvest Ltd (since 2009).
Director of Automotive Holdings
Group Limited (since 2005).
Former listed company directorships in
the past three years
None.
Special responsibilities
Member of the Nomination Committee,
Member of the Audit, Risk and Compliance
Committee.
Interests in shares and options at the
date of this report
50,000 ordinary shares in Hills Limited.
Nil options over ordinary shares in Hills Limited.
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 VOCUS
Communications Limited, SAI Global Limited
and of PayPal Australia Pty Ltd.
Other current listed company directorships
Chairman of VOCUS Communications Ltd
(since June 2010).
Director of SAI Global (since October 2013).
Former listed company directorships in
the past three years
None.
Special responsibilities
Chairman of the Remuneration Committee,
Member of the Audit, Risk and Compliance
Committee.
Interests in shares and options at the
date of this report
190,000 ordinary shares in Hills Limited.
Nil options over ordinary shares in Hills Limited.
12
Hills Limited Annual Report for the year ended 30 June 2014 Directors’ report
Information on Directors
continued
Philip Bullock
BA, MBA, GAICD, Dip. Ed.
Gai Stephens
BEC, LLB, LLM, GAICD, FCA, CTA, FGIA.
Independent non-executive Director Age 61
Company Secretary
Gai Stephens was appointed to the
position of Director Corporate Services on
14 November 2012 and Company Secretary
on 18 December 2012.
As Company Secretary, Ms Stephens is
responsible for all of the legal and compliance
issues associated with Hills. Previously she
held the position of Company Secretary and
General Counsel at Luxottica (formerly OPSM
Group) for 20 years from 1992 until 2012.
Ms Stephens has extensive knowledge
in intellectual property maintenance, tax
structuring, acquisitions and disposals, risk
management, company secretarial and legal.
Experience and expertise
Appointed non-executive Director on
23 June 2014.
Philip Bullock was formerly Vice President of
the Systems and Technology Group,
IBM Asia Pacific, based in Shanghai, China.
Prior to that he was CEO and Managing
Director of IBM Australia and New Zealand.
Mr Bullock is a non-executive Director of
Perpetual Limited, CSG Limited, and formerly
of Healthscope Limited. He has also provided
advice to the Federal Government, through
a number of organisations, most notably as
Chair of Skills Australia.
Other current listed company directorships
Non-executive director of Perpetual Limited
(since June 2010).
Non-executive Director of CSG Limited
(since August 2009).
Former listed company directorships in
the past three years
None.
Special responsibilities
Member of the Audit, Risk and
Compliance Committee.
Interests in shares and options at the
date of this report
5,000 ordinary shares in Hills Limited.
Nil options over ordinary shares in Hills Limited.
Meetings of Directors
The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2014,
and the number of meetings attended by each Director were:
Meetings of Committees
Full Meetings of
Directors
Audit, Risk and
Compliance
Nomination
Remuneration
J H Hill-Ling
EN Pretty
FRV Bennett
I Elliot
DM Spence
PW Stancliffe
P Bullock*
A
16
16
16
15
15
16
1
B
16
16
16
16
16
16
1
A
–
–
6
–
6
6
–
B
–
–
6
–
6
6
–
A
7
–
–
7
–
7
–
B
7
–
–
7
–
7
–
A
7
–
–
7
7
–
–
B
7
–
–
7
7
–
–
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
* = Joined as a non-executive Director
on 23 June 2014
13
Hills Limited Annual Report for the year ended 30 June 2014 Directors’
report
Remuneration report audited
This Remuneration Report explains Hills
approach to executive remuneration,
performance and remuneration outcomes
for Hills and its Key Management Personnel
(KMP) for the year ended 30 June 2014
(FY2014). It also addresses the Board’s
response to the ‘First Strike’ against the
FY2013 Remuneration Report. In this
report, ‘senior executives’ refers to the KMP
excluding non-executive Directors.
The information provided in the Remuneration
Report has been audited as required by
Section 308 (3C) of the Corporations Act 2001.
The Remuneration Report comprises the
following sections:
1.
Introduction
2.
Response to ‘First Strike’ against 2013
Remuneration Report
4. Remuneration Governance
5. Executive Remuneration
6.
7.
Executive Contracts and Termination
Arrangements
Five Year Snapshot – Business and
Remuneration Outcomes
8. Statutory Remuneration Tables
9. Non-executive Directors’ Remuneration
10. Equity Instrument Disclosures Relating
to Key Management Personnel
14
3. Key Management Personnel
Lowering the debt
1. Introduction
First Strike
In March 2013, Hills announced a new
strategy that saw the Company concentrate
more on opportunities within the technologies
and communications sectors where it was
believed higher returns were available. To
enable this, the Board set a number of
priorities for management and developed
a remuneration strategy to support the
achievement of those priorities, whilst
maintaining strong financial performance.
Many of those tasks have been completed in
FY2014 and have laid the foundation for the
Company to now focus on future growth:
Priority
Achieved
Sale of the steel assets
Commenced strategic
acquisitions in Technology
and Health
Position Hills to be able to invest
in growth
Significant change in the
cost base
Improved financial performance
ü
ü
ü
ü
ü
ü
The Board believes Hills remuneration
strategy has provided incentive to senior
executives to deliver consistent long-term
benefits to shareholders and truly aligns
executive reward to shareholder interests.
As Hills moves to the growth phase of
the business strategy, the Company’s
remuneration strategy enables the Board to
adjust the performance elements of executive
remuneration with the shift in focus from
transformation to building for the future.
At the Hills Annual General Meeting in 2013
the majority of our shareholders voted in
support of the FY2013 Annual Report,
however, having received votes against the
Remuneration Report totalling 26.5 per cent,
the Company recorded a First Strike against
the report. This matter is discussed further in
the Remuneration Report at Section 2 where
the concerns raised by some shareholders
are outlined and the actions that the Board
has taken in respect of that feedback.
The year in review – Remuneration
Committee’s update
FY2014 has seen the finalisation of significant
restructuring of the Hills businesses. The sale
of the Steel businesses was the culmination
of the significant transformation journey that
Hills has been on for the past two years.
The transformation has moved Hills from
a diversified holding company exposed to
the manufacturing and steel sectors, to
an integrated provider of technology and
communications solutions. The Company
has made a number of small acquisitions
during FY2014 to add to its technology and
communications, and healthcare businesses.
This has resulted in a cash balance and
borrowing capacity that will allow Hills to grow
and consolidate its position in the high value
technology and communications sectors. The
Company will continue to grow in FY2015
by acquisition and the addition of innovative
products and services.
Hills Limited Annual Report for the year ended 30 June 2014 Directors’ report
Remuneration report audited
continued
The delivery of this rapid transformation is
a result of the hard work and dedication of
our people. The Group Managing Director
and CEO and his executive team have been
pivotal to this success. The Hills remuneration
framework is designed to attract, motivate
and retain key executives to achieve strong
performance aligned to the business strategy
and shareholder interests. The Board is
committed to ensuring the remuneration
framework is tied to delivering the high
growth business strategy and creating
enduring shareholder value over the long
term. During the year, the Board made
a number of decisions in support of this
objective including:
• Following the First Strike, the Board
actively consulted shareholders and
shareholder representatives who
had raised issues with last year’s
Remuneration Report to seek their
feedback on Hills remuneration practices
and reporting and to understand how
this can be best represented in this
Remuneration Report. The Board has
taken their comments into consideration
when framing the remuneration policy.
This is further outlined at Section 2 of
the report. The Board has also made
changes to the format and content of
the Remuneration Report with the aim
of being clear, transparent and concise
with a greater focus on demonstrating
to shareholders the link between
remuneration strategy and performance
at Hills.
• The introduction of a long-term incentive
(LTI) plan for the Group Managing
Director and CEO, which was approved
by shareholders at the FY2013 Annual
General Meeting.
• The development of a new LTI for the
Group Managing Director and senior
executives, to be granted in FY2015,
which is strongly aligned to the
improvement in returns to shareholders,
and the growth strategy.
• Continuing to set challenging performance
measures for the FY2014 short-term
incentive (STI) plans focusing on financial
performance (80%), as well as strategic
non-financial measures (20%). This
emphasis towards financial performance
will continue for FY2015.
• The review of the overall remuneration
framework as the Hills business continues
to evolve, including a benchmarking
exercise to ensure that the salaries for the
Group Managing Director and CEO and
senior executives are competitive.
The Board hopes shareholders find the
report useful and encourages shareholders to
provide feedback on the development of Hills
remuneration practices and reporting.
2. Response to First Strike against
2013 Remuneration Report
At the Hills Annual General Meeting in 2013,
26.5 per cent of voting shareholders voted
against the Remuneration Report. As this
percentage exceeds the percentage outlined
in the Corporations Act 2001 of 25 per cent
of the votes cast by persons entitled to vote,
the Remuneration Report received a First Strike.
In these circumstances, the Corporations Act
2001 requires Hills to include in this year’s
Remuneration Report an explanation of the
Board’s proposed action in response to that
First Strike or, alternatively if the Board does
not propose any action, the Board’s reason
for such inaction.
In response to the First Strike, the Board
undertook a market review and arranged for
the Hills Chairman and the Chairman of the
Remuneration Committee to consult with a
number of institutional investors and proxy
advisors who were concerned with last
year’s Remuneration Report to understand
the main reasons why Hills received the vote
against the FY2013 Remuneration Report.
In developing the remuneration strategy for
FY2014 and beyond as outlined in this report,
the Board has taken into account feedback
from stakeholders, external advice from
its independent remuneration consultant,
market practice, and most importantly,
what the Board has identified as the key
drivers to achieve the strategic objectives
of the Company. The Board believes that
the remuneration strategy that it has
adopted is aligned with the best interests
of its shareholders.
In summary, the common themes from the
consultation process are set out below:
LTI for the Group Managing Director
and CEO
A performance rights issue was approved at
the 2013 Annual General Meeting and was
granted to the Group Managing Director
and CEO in February 2014. The Board were
committed to having the Group Managing
Director and CEO incentivised with a LTI
to encourage performance and ensure his
retention during the period of significant
transformation and renewal at Hills.
The performance hurdles for the performance
rights issued to the Group Managing Director
and CEO is an EPS of $0.28 per share, or
higher, in FY2016 and a share price hurdle of
$4 per share. While the Board believes the
share price hurdle to be a significant stretch,
some shareholders were concerned that
the share price hurdle may not represent a
sustainable increase in shareholder wealth
as vesting of 50 per cent of the rights could
occur at any time during the term of the
grant. No concern was raised with the EPS
hurdle. In addition, the testing period for the
$4 vesting was a Volume Weighted Average
Price (VWAP) calculated over a five day period
and this testing was not seen to be long
enough. A 30-day VWAP was recommended,
along with a more thorough explanation of the
valuation methodology used in the granting of
performance rights.
15
Hills Limited Annual Report for the year ended 30 June 2014 that remuneration is generally paid in line
with, or in some cases (such as the Group
Managing Director and CEO and Chief
Financial Officer) at the higher end of the
market for an entity of our size. In employing
a new Group Managing Director and CEO
and senior executive team, the Board
consciously acquired a highly talented senior
management team with the skills and
experience necessary to successfully achieve
the Company’s restructure, the completion
of the transformation and delivery of the
growth strategy. The Board recognises
that this is a transitional remuneration
position. As the Company grows and the
remuneration framework is fully implemented,
remuneration of senior executives will fall
into line with external benchmarks. In
addition, as described in Section 5.2,
a significant component of the remuneration
for senior executives is directly linked to the
performance of Hills. The Board will
continue to benchmark and monitor
against the market.
Finally, the Board has changed the format
of this year’s Remuneration Report in order
to make it more readable and informative.
We believe stakeholders will appreciate the
open disclosure and clear presentation and
we welcome any shareholder feedback and
suggestions for improvement.
This feedback was considered in the design
of the FY2015 LTI for the broader executive
team, including the Group Managing Director
and CEO, which will be rolled out with effect
from 1 July 2014. The performance hurdles
for the FY2015 LTI is the Compound Annual
Growth Rate of underlying Earnings Per Share
(EPS CAGR) of a target of 15.0 per cent and
a stretch of 19.2 per cent and Relative Total
Shareholder Return measured against the
S&P ASX Small Ordinaries Index (excluding
Resources and Financial Services). The
performance rights will be equally weighted
against these two measures. It is considered
that this performance hurdle is strongly
aligned to shareholder value creation and
represents real stretch targets, which will
incentivise high performance as we focus on
building an integrated provider of technology
and communication solutions. The
adjustment in the LTI has been made to align
executive reward with the shift as Hills moves
from transformation to a focus on growth.
STI payments for the Group Managing
Director and CEO and senior executives
The FY2013 STI performance measures
were strategic non-financial measures.
Some shareholders were of the view that the
FY2013 Remuneration Report did not provide
enough information about the nature of these
measures and what was achieved.
In FY2013 the performance hurdles for
the STI were linked to the transformational
outcomes of the Company. The Board
took this position recognising that, with the
engagement of a predominately new senior
executive team progressively through the
year and in order to achieve the significant
restructuring and transformation necessary
to reposition Hills, financial measures would
be counter-productive and maintain the
status quo rather than assist in achieving
transformational change. Accordingly,
a number of critical strategic performance
measures were implemented for the
Group Managing Director and CEO and
new senior executives.
For the FY2014 STI, with the finalisation of
the transformation and the shift of focus to
the new growth strategy, it was appropriate to
return to a strong financial focus with financial
(80%) and non-financial (20%) performance
measures as explained in this Remuneration
Report. In addition, the FY2015 STI will
continue to have a significant weighting
towards achievement of financial measures.
Remuneration strategy
With respect to the remuneration strategy,
the weighting between fixed remuneration,
STI and LTI was viewed by some shareholders
as not being in line with market practice,
and that the LTI only applied to the Group
Managing Director. In addition, it was
perceived by some shareholders that some
senior executives received remuneration
considered to be high compared to the 2013
benchmark, given the market capitalisation of
the Company in FY2013.
The Board recognises matters raised in
relation to the LTI. A FY2015 LTI for senior
executives, including the Group Managing
Director and CEO, has been developed and
will be rolled out effective from 1 July 2014.
In addition, in order to sensibly transition to
the target remuneration mix for the Group
Managing Director and CEO and senior
executives, transition will occur progressively
through the annual remuneration review
process, during which the Board will take
into account market benchmarks and
movement, growth in the size of Hills,
Company performance, and the performance
of individual senior executives. The current
and anticipated weightings between Fixed
Remuneration, STI and LTI are outlined in
section 5.2.
The Board has had the remuneration of
the Group Managing Director and CEO and
senior executives benchmarked and notes
16
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report 3. Key management personnel
Key Management Personnel (KMP)
encompasses all Directors, as well as
those senior executives who have specific
responsibility for planning, directing and
controlling material activities of Hills. As a
result of the Company’s restructure and
transformation in FY2014, there was a review
of the FY2013 KMP and some individuals are
no longer considered to be KMP.
Directors
JH Hill-Ling
Chairman, non-independent and non-executive Director
EN Pretty
Group Managing Director & Chief Executive Officer
FRV Bennett
Independent, non-executive Director
I Elliot
Independent, non-executive Director
DM Spence
Independent, non-executive Director
PW Stancliffe
Independent, non-executive Director
P Bullock 1
Independent, non-executive Director
Senior Executives
G Logan
B Newton
L Ison 2
Chief Commercial Officer and Group Chief Financial Officer
Chief Operating Officer
Chief Technology Officer
M Campbell 3
Chief of Home and Consumer
L Francis 4
Executive Director Hills Communications
M McKinstry 5
Chief Operations Officer, Building and Industrial
(1) P Bullock joined Hills as a non-executive Director on 23 June 2014
(2) L Ison commenced with Hills on 9 September 2013
(3) M Campbell ceased employment with Hills on 1 July 2014
(4) L Francis changed roles on 23 January 2014 and ceased to be KMP
(5) M McKinstry ceased employment with Hills effective 30 August 2013
Note: G Stephens was identified as KMP for FY2013, however, for FY2014, with the exception of the CFO, corporate support roles are no longer considered to be KMP
17
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued 4. Remuneration governance
4.2 Use of independent
4.3 Hills share trading policy
4.1 Role of the Remuneration Committee
remuneration consultants
The Board, with assistance from the
Remuneration Committee, is ultimately
responsible for ensuring that the Hills
remuneration framework is consistent with
the business strategy and performance
supporting increased shareholder wealth
over the long term.
The Remuneration Committee, consisting
of three non-executive Directors: David
Spence (Chairman), Jennifer Hill-Ling and Ian
Elliot, has been delegated responsibility for
reviewing the remuneration strategy annually
and advises the Board on remuneration
policies and practices generally.
The Remuneration Committee is
responsible for:
• the ongoing appropriateness and
relevance of the remuneration framework
for the Chairman, the Board Committees
and the non-executive Directors;
• Hills remuneration policy for the Group
Managing Director and CEO, his direct
reports and other senior executives,
any changes to the policy, and the
implementation of the policy including any
shareholder approvals required; and
• incentive plans for the Group Managing
Director and CEO, his direct reports and
other senior executives.
Further detail on the Remuneration
Committee’s responsibilities is set out in its
Charter, which is reviewed annually and which
is available on the Hills website at:
http://www.hills.com.au/about-us/governance.
The Remuneration Committee seeks
advice and market data from independent
remuneration consultants as required.
During FY2014, the Board engaged the
Godfrey Remuneration Group (GRG) as its
independent advisor to provide ‘remuneration
recommendations’ for the purpose of
the Corporations Act. GRG provided
remuneration benchmarking of senior
executive remuneration and advice on the
remuneration framework. The engagement
of GRG was in accordance with s206K and
s206L of the Corporations Act in relation to
receiving remuneration recommendations for
KMP. For the advice received during FY2014
GRG was paid a fee of $33,000 plus GST.
The Committee has protocols in place to
ensure that any advice is provided in an
appropriate manner and is free from undue
influence of management. In receiving
this advice, the Board is satisfied that the
arrangements it has established enable GRG
to provide its recommendation free from
influence. Key features of these protocols are:
• With the approval of the Board, the
Chairman of the Remuneration Committee
engaged GRG directly.
• The Chairman of the Remuneration
Committee arranged to receive the advice
from GRG directly.
• GRG provided the advice and
recommendations directly to the Chairman
of the Remuneration Committee.
• There was no contact between GRG and
KMP to which their recommendations
related.
• GRG provided no other kind of advice to
the Company during FY2014.
Further details on the governance
arrangements for the Remuneration
Committee are provided in the Corporate
Governance Statement.
The Hills Share Trading Policy imposes
trading restrictions on all Hills employees
who are considered to be in possession of
‘inside information’ and additional restrictions
in the form of trading windows for senior
executives. Senior executives and members
of the broader management team are
prohibited from trading in Hills shares during
specific periods prior to the announcement
of the half and full year results. This policy
applies equally to shares received as part
of remuneration. The share trading policy is
available on the Hills website at:
http://www.hills.com.au.
4.4 Hills clawback policy
To strengthen the governance of the
remuneration strategy, Hills is implementing
an executive remuneration clawback policy
during FY2015. The policy is designed to
further align the remuneration outcomes of
the Hills senior executive team with the long
term interests of Hills and its shareholders,
to ensure that excessive risk taking is not
rewarded, and to provide the Board with
the ability to clawback incentives paid in
relation to a material misstatement in Hills
Financial Statements.
5. Executive remuneration
5.1 Alignment of remuneration strategy
with business strategy
The Board has established a remuneration
strategy that supports and drives the
achievement of the Hills business strategy.
The Board is confident that the remuneration
framework aligns the remuneration of
the Group Managing Director and CEO
and senior executives with shareholder
interests. Hills is a business that is heavily
focused on key performance indicators
(KPIs) and rewards its people at all levels on
achievement of those KPIs.
18
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report Remuneration principles
The key principles on which the Hills remuneration strategy is based are:
Competitive
• Remuneration position at the appropriate level relative to the market to be competitive and attract,
retain and reward employees
Equitable and motivational
• Employees in similar roles, making similar contributions, with similar performance, receive similar rewards
• Motivates employees to deliver business results
• Differentiates, but is fair and equitable in its application
Linked to performance
Aligned
• Directly links individual and company performance to remuneration outcomes
• Employees understand what results need to be achieved
• Provides an integrated remuneration and performance system framework
• Align remuneration and incentive outcomes with business goals and results
• Support the completion of the transformation and delivery of the growth strategy
• Withstand external scrutiny
Straightforward
• Understood by all stakeholders and employees
The diagram below shows how the remuneration strategy and framework align with the achievement of Hills business strategy and ultimately
achieves sustainable long-term wealth creation for shareholders.
Hills business strategy
Integrated solutions into trusted environments
Strategic setting
75% of revenue from technology
and communications
20–25% of revenue from services
Sustained EPS growth
Return on funds employed 13–15%
Remuneration strategy
Aligning executive reward with achievement
of business strategy objectives
Motivate and reward outstanding
performance
Attract and retain key executive talent
Challenging KPIs focused on financial and
non-financial measures.
Short-term and long-term components of
remuneration ‘at risk’ are based on
performance and outcomes.
Provide competitive remuneration in order to
attract and retain senior executives with the skills
and experience to complete the transformation
and deliver the growth strategy.
Fixed remuneration
Short-term incentive
Long-term incentive
Remuneration framework & policy
Set at levels to attract a senior executive
team with the skills and experience required
to successfully complete transformation and
delivery of the growth strategy.
Aligned to the achievement of Hills business
objectives measured over the short term
(12 months).
The KPIs are based on:
• Financial performance (80%)
• Individual non-financial performance
measures (20%)
Both financial and non-financial measures
directly support achievement of the Company’s
strategic settings.
Aligned to the achievement of increased
shareholder wealth over the long term.
For FY2015, the performance measures will be:
• EPS three-year CAGR; and
• Relative TSR
Retention: three-year performance period,
with a further one-year restriction on trading.
19
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued 5.2 Remuneration mix
Senior executive remuneration is comprised
of fixed remuneration (made up of base
salary and superannuation), STI and LTI. The
following diagrams show the remuneration mix
at target performance.
The move to this remuneration mix is being
achieved by incremental adjustments through
the annual review process, in conjunction
with the introduction of the long-term
incentive plan during FY2015. Outstanding
anomalies will be addressed through future
annual reviews.
Group Managing Director and CEO
Senior Executives (Average) 6
LTI 12%
STI 41%
LTI 25%
STI 30%
LTI 9%
STI 31%
LTI 15%
STI 25%
Fixed 47%
Fixed 45%
Fixed 60%
Fixed 60%
Current
Future Market Target
Current
Future Market Target
(6) Senior executive LTI value includes G Logan’s cash based retention plan.
5.3 Group Managing Director and
CEO remuneration
Fixed remuneration FY2014
The Group Managing Director and CEO
had a fixed remuneration of $905,000
per annum, which is inclusive of
superannuation. Fixed remuneration is
reviewed annually by the Board with
reference to performance of the Company,
performance of the Group Managing Director
and CEO and market information.
Benchmarking was undertaken during
FY2014 and the Group Managing
Director and CEO’s fixed remuneration is
positioned at the higher end of comparable
market benchmark to entities of our
size. In embarking on a major company
transformation and growth strategy, the
Board recognised the need to remunerate
its Group Managing Director and CEO at
a level to enable it to attract an individual
with the skills, experience and capabilities
to lead the transformation of the Company.
The Board required the Company to
undergo a significant ‘step change’ in
restructuring and transitioning the business
from a large diversified group with a focus
on the manufacturing and steel sector to
an integrated provider of technology and
communications solutions, with a clear focus
on rebuilding shareholder value. During
FY2014 Hills market capitalisation has
increased significantly from $249 million to
$407 million (63%), which demonstrates early
success in executing the transformation and
delivery of the growth strategy.
Short-term incentive FY2014
The Group Managing Director and CEO
has a STI opportunity of up to $795,000,
which was subject to both financial (80%)
and non-financial (20%) KPIs determined
by the Board at the commencement of the
financial year. KPIs are directly related to
the Hills business strategy (see section 5.1).
The financial measures were key drivers of
achieving the Company’s strategic settings
(see section 5.1), with the individual KPIs
being a balance between operational activities
and initiatives important to completing the
Company’s transformation and delivery of
the growth strategy.
The following diagram shows the weighting
of each component of the STI for the Group
Managing Director and CEO:
Group Managing Director and CEO
5%
5%
20.4%
5%
5%
20.4%
39.2%
Return on Funds Employed
Group NPAT
Group EBIT
Board information
Communications
Diversity / Safety
Innovation
20
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report In addition to senior executives, other
executives and employees may be invited to
participate in the STI depending on their role
and their level within the Company.
The STI performance period was from 1 July
2013 to 30 June 2014.
The maximum STI available to each senior
executive was set at a level based on role,
responsibilities and market data for the
achievement of targets against specific KPIs.
The maximum STI opportunity for each
senior executive is listed at section 5.5 as an
absolute dollar amount and as a percentage
of the senior executive’s fixed remuneration.
The Board structured the STI with quarterly
targets, and the potential partial payment for
the first half-year based on achievement of
financial targets. This was to focus the senior
executives on building momentum early in
FY2014. The balance of the STI was payable
at the end of FY2014 based on full year
financial performance and achievement of
individual KPIs over the full year. STI payments
for FY2014 were made in February and
August 2014 after assessment by the Board
of each half year performance. This strategy
proved to be successful in maintaining
momentum and in driving high performance
across the senior executive team.
The FY2014 STI opportunity, which is
reviewed annually by the Board, was
88 per cent of fixed remuneration. In
addition to the achievement in the financial
performance of the Company, the Group
Managing Director and CEO has made
significant achievement against his
non-financial KPIs for FY2014, including:
• the sale of the steel business and other
manufacturing assets (refer to Steel Bonus
in Section 5.7);
• transition from a diversified holding
company exposed to the manufacturing
and steel sectors, to an integrated
provider of technology and
communications solutions;
• the rapid transformation to the
One Hills strategy;
• building our innovation capabilities
including establishment of the
Hills Innovation Centres;
• improvements in the representation
of women across the Company; and
• implementation of a range of employee
and customer communication initiatives.
More details of the performance against
specific KPIs is set out at section 5.5.
Long-term incentive FY2014
The Group Managing Director and CEO was
awarded an LTI of 1,133,332 performance
rights. The number of performance rights
takes into account that no grant was made
following the 2012 Annual General Meeting.
None of these performance rights vested
during FY2014.
Amounts for long-term performance rights
shown in the statutory remuneration table at
section 8.2 reflect the amortised accounting
expense for the FY2014 LTI awards which
may not vest until 30 June 2016, or earlier for
50% of the performance rights if a share price
of $4 is achieved.
5.4 Senior executive short-term
incentive FY2014
STI – how it works
The STI is an at risk component of
remuneration and is designed to reward
performance against the achievement
of KPIs, which are set annually. The Hills
FY2014 STI plan was designed to reward
senior executives for the achievement
of objectives closely aligned to the Hills
business strategy focusing on transformation
and growth, and shareholder outcomes.
Corporate senior executives
20%
30%
50%
Group NPAT
Group working capital
Individual
Business unit senior executives
20%
30%
15%
35%
Group NPAT
BU EBIT
BU working capital
Individual
21
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued The following table summarises what
would happen to potential FY2014 STI
payments should a senior executive cease
employment with Hills:
Resignation and retirement
Any entitlement to payment is subject to the participant being employed by Hills at the time of payment.
Company initiated
termination
Any entitlement to a payment will be for completed quarters, with no pro rata for partly completed quarters.
The calculation of an entitlement will be based on actual results for the quarter and paid on the scheduled date
in February or August.
Summary dismissal
If summarily dismissed, a participant will forfeit all rights to any payments under FY2014 STIP which have
not already been made.
How individual performance has
translated into STI awards
Assessment of performance & approval
of payment
KPIs use both financial and non-financial
measures of performance. KPIs are selected
based on:
• what needs to be achieved over the
12-month period; and
• to realise the business strategy over
the longer term,
and hence contribute to the creation of
increased value for shareholders.
Senior executive KPIs are aligned to the
KPIs for the Group Managing Director and
CEO and are based on a mix of day-to-day
operational KPIs and more strategic KPIs
which support the long -term business
strategy, adjusted to reflect individual roles.
The Remuneration Committee assesses
the Group Managing Director and CEO’s
performance, and individual senior executive’s
performance based on the Group Managing
Director and CEO’s recommendations,
against the KPIs set at the beginning of
the financial year. The assessment of
individual performance is combined with the
achievement of financial results to determine
the amount of payment for the Group
Managing Director and CEO and each senior
executive. The Remuneration Committee
recommends the STI payment outcome to
the Board for approval. STI payments for
FY2014 were delivered as cash payments
following approval by the Board.
22
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report 5.5 FY2014 STI performance
and outcomes
FY2014 has been a year of strong
performance and the STI outcomes reflect
this. A summary of Company performance
compared to previous years is provided in
Section 7.
Group Managing Director and CEO
The specific KPIs and the outcomes achieved
for FY2014 for the Group Managing Director
and CEO are set out in the following table.
Objective
Group EBIT
Group NPAT
Return on funds employed
(with an EBIT gateway)
Individual KPIs:
• Diversity & safety
• Governance
• Communications
with employees
• Innovation
Total
Rational link to strategy
Measurement
Weighting
Financial measures
which are drivers to
achieving the Company’s
strategic settings
Individual KPIs include
operational activities,
and key transformation
initiatives, which will support
achievement of strategic
settings in future years
Measured by reference to
FY2014 budget
Measured by reference to
FY2014 budget
Measured by reference to
FY2014 ROFE
Measured by achievement
to specified pre-determined
targets and objectives
20.4%
20.4%
39.2%
20%
Outcome
20.4%
20.4%
39.2%
15%
100%
95%
Note: The Group Managing Director’s STI was paid based on full year financial performance.
23
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued Senior executives
The KPIs for the senior executives were
aligned to the Group Managing Director and
CEO’s KPIs. The STIs received for the senior
executives for FY2014 are set out in the
following table:
Executive
Target STI
opportunity $ 7
As a %
of fixed
remuneration
Financial
outcome
(max 80%)
Non-financial
outcome
(max 20%)
Actual STI
outcome $
% Achieved
% Forfeited
EN Pretty
$795,000
G Logan
$175,437
B Newton
$288,400
L Ison
$165,857
M Campbell 8
$240,600
L Francis
$151,900
88%
32%
67%
57%
50%
54%
Total
$1,817,194
–
80%
80%
80%
80%
0%
80%
–
15%
15%
15%
15%
19%
15%
–
$755,500
$166,666
$273,980
$157,168
$45,000
$144,305
$1,542,619
95%
95%
95%
95%
19%
95%
85%
5%
5%
5%
5%
81%
5%
15%
(7) Target STI does not include Steel Bonuses which are detailed in section 5.7
(8) M Campbell had a maximum opportunity for Financial Outcome of 50% of Target and for Non-financial Outcome of 50% of target
5.6 FY2014 long-term incentive
outcomes for the Group Managing
Director and CEO
FY2014 Hills long-term incentive
award – how it works
The FY2014 LTI is designed to directly link
the Group Managing Director and CEO to
growth in long-term shareholder wealth. In
February 2014 and following approval by
shareholders at the Annual General Meeting
on 8 November 2013, the Group Managing
Director and CEO was granted 1,133,332
performance rights to acquire ordinary Hills
shares, subject to achievement of
pre-determined performance hurdles.
Termination of employment
All unvested Performance Rights will lapse on
the date that the Group Managing Director
and CEO ceases to be an employee unless
the Board determines otherwise. If the Group
Managing Director and CEO ceases to be
an employee due to his death or total and
permanent disablement, all of his unvested
Performance Rights will remain outstanding
and will vest or lapse as if he remained an
employee, unless the Board determines that
some or all of his unvested Performance
Rights should vest immediately.
The Board has the discretion to determine
that some, all or none of the Group Managing
Director and CEO’s unvested Performance
Rights will vest if the Company is the subject
of a takeover, change of control or winding-
up resolution.
How Hills performance has translated
into LTI awards
The Board selected the following
performance hurdles for the FY2014 grant:
• a share price hurdle of $4 for 50% of
the performance rights granted if this is
achieved prior to 30 June 2016; and
• an EPS of 28 cents in FY2016 for 50%, or
100% of the performance rights where the
share price hurdle has not been achieved
before 30 June 2016.
In determining the performance hurdles for
the Group Managing Director and CEO’s
performance rights, the Board considered
that an absolute share price target was
more appropriate than a relative (ie peer
comparison) share price appreciation or
total shareholder return target. This was
due to the significant degree of change in
the Company’s operations and the difficulty
in identifying logical market peers and/or
sectors over the course of the Company’s
transformation, delivery of the growth
strategy, and the LTI performance period.
No performance rights vested during FY2014.
24
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report 5.7 Bonuses paid on sale of steel assets
5.8 FY2015 incentive design
Long-term incentive plan – FY2015
The Group Managing Director and CEO and
the Chief Financial Officer each had a bonus
opportunity payable on completion of the
Hills steel divestments in FY2014. These
bonus opportunities were in addition to the
FY2014 STI, and recognised the significance
of these transactions for the Company,
if realised, in a difficult climate for the sale
of manufacturing assets.
This target was successfully reached during
FY2014 with the sale of the steel assets of
Orrcon and Fielders, unlocking significant
funds for re-investment in line with the
transformation and growth strategy of
the Company. These major transactions
required substantial commitment and
endeavour on behalf of the Group Managing
Director and CEO and the Chief Financial
Officer, and in accordance with the terms of
the Bonus, the Board approved a one-off
payment as follows:
Short-term incentive plan – FY2015
The FY2015 STI plan will continue the strong
focus on aligning senior executive reward with
the financial performance of Hills. The plan
will retain the weighting from FY2014, that is:
• Financial performance: 80%
• Individual performance: 20%
The FY2015 plan sees a shift from the
quarterly measurement and half yearly
payment structure which applied in FY2014,
to be based on the assessment of the end
of financial year results, with any payment
being made following the announcement of
the Company results in August 2015. The
FY2014 approach was important in building
momentum during a period of substantial
change within the Company, however, the
Board believes that it is now appropriate
to revert to the assessment over the full
year as Hills moves to the growth phase of
the strategy.
Name
Title
$
Mr Pretty
Mr Logan
Group
Managing
Director and
CEO
Chief
Financial
Officer
$150,000
$100,000
For FY2014, the Group Managing Director
and CEO LTI Plan included an EPS hurdle of
28 cents in FY2016. In developing this plan,
the Board was focused on the transformation
phase of the Company, through a period of
divestments and re-structuring. The focus
has moved to investment in new business
to achieve sustainable growth, and to build
momentum over future years. To achieve
this, it is important that the LTI supports the
retention of the capabilities within the team
and aligns senior executive reward with the
delivery of the growth strategy. In addition, the
Board received feedback on the design of the
FY2014 LTI for the Group Managing Director
and CEO which has been taken into account
in the design of the FY2015 LTI plan.
The FY2015 LTI plan will apply to the Group
Managing Director and CEO and those senior
executives who will be invited to participate at
the discretion of the Board. The plan will have
an EPS and a relative TSR hurdle. The EPS
hurdle represents significant stretch aligned
with the Hills growth strategy and, if achieved,
will result in substantial value creation for
shareholders, whereas the TSR hurdle
rewards relative performance versus a broad
market index of companies of similar size.
25
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued The following table provides a summary of
the design of the plan.
Instrument
Performance rights
As the Company moves to the growth phase
of its business strategy, the remuneration
strategy has enabled the performance
element of executive remuneration to be
adjusted to reflect the shift in focus from
transformation to building for the future.
The Compound Annual Growth Rate was
determined after a comprehensive budgeting
process and takes into account the delivery
of the Hills growth strategy. The ‘conviction
growth’ strategy includes Hills aim to be in the
top two in each of its product categories over
the next three years. The Company expects
that the forecast growth will be met in part
by organic growth and in part by earnings
accretive acquisitions.
Performance period
3 years (1 July 2014 to 30 June 2017)
Trading restriction
Where performance rights vest, participants will be restricted in
trading in the shares for an additional year, ie, FY2018
Performance measure
Valuation
Gateway
Tranche 1: 50% at stretch
Underlying EPS CAGR Target: 15.0%; Stretch: 19.2%
Tranche 2: 50%
Relative Total Shareholder Return equal to or greater than 50th
percentile of the Small Ordinaries Index
(excluding Resources and Financial Services)
30-day VWAP following the announcement of the
FY2014 Annual Results
Absolute TSR must be positive when performance is assessed for any
performance rights to vest
6. Executive contracts and
termination arrangements
Employment contracts
The remuneration and other terms of
employment for the Group Managing Director
and CEO and senior executives are covered
in their individual employment contracts and
are summarised in this table:
Group Managing
Director and CEO
• The contract for the Group Managing Director and CEO had
an initial period of one year and will continue until terminated.
After the initial period of one year, the Group Managing Director
and CEO’s employment may be terminated by Hills by giving six
months’ notice where such notice is provided within the twelve
month period following the initial period, and with twelve months’
notice thereafter.
• The Group Managing Director and CEO may terminate his
employment at any time after the initial period by giving Hills six
months’ written notice.
Senior executives
• There is no guaranteed base pay increases included in any senior
executive contract and no contract is for a fixed term.
• The contracts may be terminated by either party on notice
(ranging from three to six months).
• If a senior executive is retrenched there is no entitlement to
contractual termination payments except in the contract of Mr
Logan, where termination on grounds of redundancy includes a
combined total of redundancy pay and notice of four months.
• In the instance of serious misconduct, Hills may terminate
employment at any time. The senior executive will only receive
payment to the date of termination and any statutory entitlements.
• Retirement benefits comprise employer contributions to defined
contribution superannuation funds.
26
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report Chief Financial Officer (CFO)
7. Five year snapshot – business and remuneration outcomes
An underlying principle of the Hills remuneration strategy is that remuneration must be linked
to the performance of Hills.
The following is a summary of financial and share price information and safety performance
over the past five years.
Key financials
FY2014
FY2013
FY2012
FY2011
FY2010
Earnings before
interest and tax
(EBIT) ($000) 9
Shareholders’
funds ($000)
Underlying net
profit (‘$000) 9
Statutory net
profit (‘$000)
41,689
33,138
44,702
40,376
65,469
245,228
271,018
400,963
402,307
496,449
27,277
19,201
28,822
27,126
43,095
26,387
(91,387)
28,822
(73,116)
43,095
Basic earnings
per share (cents) 9 11.4
Dividends (cents)
7.0
Share price ($)
– as at 30 June
1.74
Safety (TRIFR)
1.0
7.8
5.0
1.01
5.8
10.5
10.0
1.06
10.1
10.2
10.0
1.20
19.8
16.7
12.5
2.15
34.7
(9) Underlying EBIT, profit, and earnings per share have been calculated after adjusting profit / (loss) attributable to the ordinary
equity holders of the Company for business combination acquisition transaction costs, results on disposal of businesses and the
tax effects thereof in the current year and CGU impairment, restructure and closure costs and other associated impairments in
the previous year. Underlying profit is a non IFRS measure used by the Company which is relevant because it is consistent with
measures used internally by management and by some in the investment community to assess the operating performance of the
business in light of its change program. The non IFRS measure has not been subject to audit or review.
In FY2013 the terms of employment of the
CFO, Mr Grant Logan, were amended to
include a ‘cash based LTI’, or ‘Retention
Payment’, instead of any other LTI that
may have been available to other senior
executives. As the longest serving member
of the senior executive team, Mr Logan was
offered this unique plan in recognition of
the need to retain his services through the
completion of the transformation and delivery
of the growth strategy, given his in-depth
knowledge of Hills and in order to drive future
financial performance.
The plan has two components:
• Performance component: A potential
payment of $75,000 per annum up to
and including FY2015. Actual entitlement
will be assessed against the same KPIs
as those set by the Board for the Group
Managing Director and CEO.
• Retention component: An amount of
$75,000 per annum for each of the three
years up to and including FY2015 and is
based only on service.
Any payment under this plan is subject to the
CFO being employed by Hills on the date of
the announcement of the Company results
for FY2015. Participation in this plan is limited
to the CFO and is to the exclusion of any
long-term incentive plan that may be
available to the other senior executives.
Chief Operating Officer (COO)
Mr Newton’s employment contract provides
for a LTI of $75,000 per annum. As the
Company did not implement an LTI for senior
executives other than the Group Managing
Director and CEO, this element of his
remuneration was accrued as a cash based
incentive for FY2014. The value for FY2014
was assessed at $71,250 with payment
deferred until after the completion of FY2015
and is subject to the COO being employed
at this time. For FY2015, this element of
Mr Newton’s remuneration will be addressed
through the LTI, which is being implemented
for the Group Managing Director and CEO
and other senior executives.
27
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued 8. Statutory remuneration tables
8.1 Senior executive remuneration
The following table of senior executives’
remuneration has been prepared in
accordance with accounting standards
and the Corporations Act 2001 requirements.
The amounts shown are equal to the
amounts expensed in the Company’s
financial statements.
2014
Short–term employee benefits
Post
employment
benefits
Long–term
benefits
Share based payments (D)
Name
Cash salary
and fees
$
Cash
bonus
$
Other
$
Super
annuation
$
LSL &
cash based
LTIP
$
Termination
benefits
$
Performance
rights
$
Shares
$
Total
$
Executive Director
E Pretty
879,430
905,50010
13,543
25,193
4,333
Other Senior Executives
G Logan
B Newton
L Ison 13
M Campbell 14
L Francis 15
528,033
395,973
260,317
476,630
145,410
266,66610
273,980
157,168
45,000
144,305
–
19,799
10,048
–
–
23,364
36,672
24,079
44,088
13,479
Former Senior Executive
M McKinstry 16
72,464
–
5,589
8,250
151,669
72,40412
288
–
635
–
–
–
–
–
296,208
–
–
64,22211
–
–
–
–
–
–
Total Senior
Executives
Compensation
2,758,257
1,792,619
48,979
175,125
229,329
296,208
64,222
–
–
–
–
–
–
–
–
1,892,221
969,732
798,828
451,900
861,926
303,829
86,303
5,364,739
(10) Includes Bonus payments for the sale of Steel assets for G Logan ($100,000) and E Pretty ($150,000), and STI Payments for G Logan ($166,666) and E Pretty ($755,500)
(11) Accounting Value for performance rights for Mr E Pretty represents 3% of Total Remuneration for 2014
(12) B Newton received a cash based LTI of $71,250 with payment deferred to after FY2015 in accordance with his employment arrangements
(13) L Ison Commenced with Hills 9 September 2013
(14) M Campbell ceased employment with Hills effective 1 July 2014
(15) L Francis changed roles on 23 January 2014 and ceased to be a KMP
(16) M McKinstry ceased employment with Hills effective 30 August 2013
28
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report 2013
Short–term employee benefits
Post
employment
benefits
Long–term
benefits
Share based payments (D)
Name
Cash salary
and fees
$
Cash
bonus
$
Other
$
Super
annuation
$
LSL &
cash based
LTIP
$
Termination
benefits
$
Performance
rights
$
Shares
$
Total
$
Executive Directors
E Pretty 17
M Campbell 18
G Twarz 19
713,206
273,517
137,208
Other Senior Executives
477,435
105,759
79,510
154,882
415,147
414,512
113,207
146,789
188,982
G Logan 20
B Newton 21
L Francis
G Stephens
M McKinstry
S Cope 22
R Rees 23
T Sullivan 24
A Kachellek 25
Total Senior
Executive
Compensation
618,500
–
–
175,000
64,000
43,000
75,000
50,000
–
–
15,000
35,094
17,268
2,816
51,917
14,680
58,113
5,106
7,033
15,289
22,794
1,903
2,088
–
31,193
6,483
15,848
909
–
3,881
22,592
152,366
9,536
7,174
13,966
23,349
20,936
15,473
14,796
17,222
216
108
210
–
–
–
–
–
–
–
–
–
–
–
–
–
306,412
58,715
105,506
–
–
–
–
557
–
–
–
836
139
–
–
–
–
–
–
–
–
–
–
–
16
–
–
–
1,381,076
282,816
208,854
842,630
237,624
134,898
251,091
504,621
764,809
189,298
284,179
241,298
3,220,154
1,075,594
199,007
198,568
157,690
470,633
1,532
16
5,323,193
(17) E Pretty was appointed MD & CEO 3 September 2012
(18) M Campbell commenced as a non-executive Director on 19 December 2011; was engaged as a Contractor in a senior executive role on 11 January 2013 until 31 May 2013 when he resigned as a
non-executive Director and a Contractor; and was engaged as an employee on 3 June 2013
(19) G Twartz ceased as MD on 3 September 2012
(20) G Logan remuneration includes a value of the cash based retention plan. No payment has been made under this plan, with the potential payment deferred until after FY2015
(21) ‘Other’ includes a payment to B Newton of $50,000 on his commencement with the Group. This amount was deducted from his STIP payment for FY2013
(22) S Cope ceased 1 June 2013. Includes contract redundancy benefit ($66,412) and payments made during restraint period ($240,000)
(23) R Rees resigned from role of Company Secretary on 18 December 2012 and ceased employment with Hills on 21 December 2012, entire termination benefit is payment in lieu of notice
(24) T Sullivan ceased employment 21 December 2012. Entire termination benefit is payment in lieu of notice
(25) A Kachellek remains Managing Director of Korvest but ceased being a KMP of the Group on sale of the Group’s interest in Korvest on 19 February 2013
29
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued 8.2 Remuneration components as a
proportion of total remuneration paid
or expensed
The following table reflects the fixed
remuneration, STI and LTI for FY2014
calculated in accordance with the accounting
standards as a proportion of the total.
Name
E Pretty 26
G Logan 26
B Newton
L Ison 27
M Campbell
L Francis
M McKinstry 28
Full year
potential
STI
$945,000
$275,437
$288,400
$215,000
$240,600
$151,900
$0
Pro rata
potential
STI
$945,000
$275,437
$288,400
$165,857
$240,600
$151,900
$0
Actual STI
paid/payable
$
Actual STI
paid/payable as
% of full year
potential
STI
Actual STI
paid/payable as
% of pro rata
potential
STI
STI paid/payable
as % of fixed
remuneration
$905,500
$266,666
$273,980
$157,168
$45,000
$144,305
$0
96%
97%
95%
73%
19%
95%
–
96%
97%
95%
95%
19%
95%
–
98%
42%
60%
53%
9%
90%
–
The following table reflects the fixed
remuneration, STI and LTI and total
performance based remuneration for
FY2014 calculated in accordance with
the accounting standards as a proportion
of the total remuneration.
Name
E Pretty 29
G Logan 29
B Newton
L Ison
M Campbell
L Francis
M McKinstry
Fixed remuneration
%
At risk/STI
paid or payable
%
Value of performance
rights/cash LTI
%
Total performance based
%
49%
58%
57%
65%
95%
53%
100%
48%
27%
34%
35%
5%
47%
0%
3%
15% 30
9%
0%
0%
0%
0%
51%
35%
43%
35%
5%
47%
0%
(26) Includes Bonus payments for the sale of Steel assets for G Logan ($100,000) and E Pretty ($150,000)
(27) L Ison pro rata for 9 September 2013 commencement
(28) M McKinstry ceased employment with Hills effective 30 August 2013 and was not eligible for STI
(29) Includes Bonus payments for the sale of Steel assets for G Logan ($100,000) and E Pretty ($150,000)
(30) For G Logan cash based retention plan is included as cash LTI
30
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report The following table shows the proportion
weighting of each element of remuneration
for each of the senior executives employed
at the end of the FY2014 based on maximum
potential outcome.
Name
E Pretty 31
G Logan 31 32
B Newton
L Ison
M Campbell
L Francis
M McKinstry
Fixed remuneration (%)
Maximum short-term incentive (%)
Maximum long-term incentive (%)
FY2013
FY2014
FY2013
FY2014
FY2013
FY2014
55%
63%
50%
–
67%
67%
70%
48%
64%
56%
64%
77%
51%
100%
45%
20%
50%
–
33%
33%
30%
49%
28%
35%
36%
23%
49%
0%
–
17%
–
–
–
–
–
(31) Includes Bonus payments for the sale of Steel assets for G Logan ($100,000) and E Pretty ($150,000)
(32) G Logan participates in a retention plan and is not eligible to participate in any LTI equity plan
8.3 Details of share based compensation
Group Managing Director and CEO
and bonuses
Previous long-term incentive plans:
All performance rights held by senior
executives, excluding the Group Managing
Director and CEO, that had not previously
vested, either lapsed on termination of
employment of the participating executive or
the participating executive elected to lapse
their entitlement to the performance rights
during FY2013 and they were cancelled for
no consideration on 28 June 2013.
As such there are no equity based plans to
report for these senior executives in FY2014.
At the Annual General Meeting in 2013
shareholders approved a grant of
performance rights to the Group Managing
Director and CEO. A grant of 1,133,332
performance rights was issued in February
2014 under the following conditions:
• A 3 year performance period from
1 July 2013 to 30 June 2016
• If a share price of $4.00 is reached prior
to the end of the performance period,
then 50% of the performance rights will
immediately vest, but will not be exercised
until 30 June 2016
• An EPS of 28 cents in FY2016 for 50%
where the share price hurdle has been
previously achieved prior to 30 June
2016, or 100% of the performance rights
where the share price hurdle has not been
previously achieved.
3%
8%
9%
–
–
–
–
31
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued 8.3 Details of share based compensation and
bonuses (continued)
The following table provides additional details
of the above grant of performance rights:
Grant date
exercisable 33
Expiry date
Measure
Exercise price
Date
Fair value right
at grant date
Performance
achieved
% vested
FY14
17 Feb 2014
30 June 2016
30 June 2016
EPS
17 Feb 2014
30 June 2016
30 June 2016
Share Price
$0.00
$0.00
$1.27 34
$0.34 35
NIL
NIL
0%
0%
(33) If a share price of $4.00 is reached prior to the end of the performance period, then 50% of the performance rights will immediately vest, but will not be exercised until 30 June 2016
(34) Subject to non-market hurdle - EPS
(35) Subject to market hurdle – Share Price
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:
• Non Market Hurdle EPS of $0.28 = $1.27;
Name
Measure
Number of
performance
rights
granted
during the
year
Fair value of
performance
rights at
grant date
calculated in
accordance
with AASB 2
Number of
performance
rights /
lapsed /
forfeited
during the
year
Number of
rights vested
during the
period
Value at
lapse /
cancellation /
forfeit date
Share Price
566,666
192,666
E Pretty
EPS
566,666
719,665 36
NIL
NIL
NIL
NIL
NIL
NIL
(36) This value is at grant date. Current value in the remuneration tables (Section 8.1) reflects a 0% probability of achievement of
the EPS hurdle for this plan
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.
and
• Market Hurdle Share Price Greater than or
equal to $4 = $0.34.
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. Details of the assumptions
underlying the valuation are set out in note 23
to the financial statements.
No terms of equity settled share based
payment transactions, granted as
compensation to a senior executive, have
been altered or modified by the issuing entity
during the reporting period or the prior period.
Details of performance rights over ordinary
shares in Hills provided as remuneration to the
Group Managing Director and CEO are set out
below. No other senior executive received any
allocation of equity during FY2014, nor does
any other senior executive hold performance
rights or options from previous plans. When
vested, each performance right is convertible
into one ordinary share of Hills. Further
information on the options is set out above
and in note 23 to the financial statements.
No performance rights vested during FY2014.
32
Hills Limited Annual Report for the year ended 30 June 2014Directors’ report 9. Non-executive Directors’ remuneration
9.1 Fee pool
The Board sets non-executive Director
remuneration at a level which enables the
attraction and retention of directors of the
highest calibre, while incurring a cost which is
acceptable to shareholders. The remuneration
of the non-executive Directors is determined
by the Board on recommendation from the
Remuneration Committee within a maximum
fee pool.
Non-executive Directors receive a base fee
and statutory superannuation contributions.
Non-executive Directors do not receive any
performance based pay.
The maximum amount of fees that can be
paid to non-executive Directors is capped
by a pool approved by shareholders. At
the FY2011 Annual General Meeting,
shareholders approved the current fee pool of
$1.2 million per annum which is recorded on
an accrual basis. The fee pool and the base
Directors’ fees did not change in FY2014.
9.2 Directors’ 2014 fee structure
The following table outlines the main Board
and Committee fees as at 30 June 2014.
Board
Audit and Risk Committee
Remuneration Committee
Nomination Committee
9.3 Non-executive Directors’
remuneration details
Non-executive
Directors
J Hill-Ling
FRV Bennett
I Elliot
D Spence
P Stancliffe 37
M Campbell 38
P Bullock 39
Year
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Chair Fee
$200,000
$20,000
$10,000
$10,000
Member Fee
$100,000
$10,000
Nil
Nil
Board and
Committee Fees
$
Superannuation
$
183,486
191,132
110,092
102,446
100,917
100,917
110,092
94,801
100,917
128,564
–
49,694
2,174
–
16,972
17,202
10,183
9,220
9,335
9,083
10,183
8,532
9,335
11,571
–
4,472
207
–
Total
$
200,458
208,334
120,275
111,666
110,252
110,000
120,275
103,333
110,252
140,135
–
54,166
2,381
–
(37) P Stancliffe remuneration includes Board fees from Korvest Ltd. for FY2013
(38) M Campbell was engaged as a contractor in a senior executive role on 11 January 2013 until 31 May 2013 when he resigned
as a Director of the Board
(39) P Bullock commenced with Hills on 23 June 2014
33
Hills Limited Annual Report for the year ended 30 June 2014Directors’ reportRemuneration report auditedcontinued Directors’
report
Remuneration report audited
continued
9.4 Retirement allowance for
non-executive Directors
Ms J Hill-Ling is the only Director entitled
to receive benefits on retirement under a
scheme that was discontinued on 1 August
2003. Under the scheme, Ms J Hill-Ling is
entitled to a maximum retirement benefit of
twice her annual Director’s fee (calculated as
an average of her fees over the past three
years) with a vesting period of eight years,
which has been achieved. 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.
10. Equity instrument disclosures relating
to key management personnel
10.1 Rights and options provided as
remuneration
The number 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.
Balance
at start of
the year
Granted
as
compen-
sation
Exercised
Name
Rights /
options
lapsed /
forfeited /
cancelled
Balance at
the end of
the year
Vested
and
exercise-
able
Unvested
2014 Directors
E Pretty
–
1,133,332
–
–
1,133,332
–
1,133,332
Share holdings
The numbers of shares in the Company held
during the financial year by each Director
of Hills 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.
Share disclosures for JH Hill-Ling includes
1,188,918 (2013: 1,188,918) shares owned
by Hills Associates Limited & Poplar Pty
Ltd (jointly held) and 16,239,441 (2013:
15,889,441) shares owned by Hills
Associates Limited, of which JH Hill-Ling is
a Director.
Other changes during the year for JH Hill-Ling
comprises the acquisition of 350,000
(2013: 1,438,893) shares in Hills Limited by
Hills Associates Limited.
2014
Balance at the
start of the year
Directors of Hills Limited
JH Hill-Ling
17,251,423
EN Pretty
F Bennett
I Elliot
D Spence
P Stancliffe
P Bullock 40
250,000
4,000
51,735
150,000
50,000
–
Ordinary shares
Received during
the year on
the exercise of
options / rights
Other changes
during the year
Balance at the
end of the year
–
–
–
–
–
–
–
–
350,000
17,601,423
–
–
–
40,000
–
5,000
250,000
4,000
51,735
190,000
50,000
5,000
–
1,000
Other key management personnel of the Group
M Campbell
1,000
(40) P Bullock joined Hills as a non-executive Director 23 June 2014
34
Hills Limited Annual Report for the year ended 30 June 2014 Directors’ report
Remuneration report audited
continued
10.2 Loans to key management
Environmental regulation
personnel (KMP)
Manufacturing
There were no loans outstanding at the
reporting date to key management personnel
and their related parties.
10.3 Other transactions with KMP
A number of KMP 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.
During the year, Hills purchased goods from
Korvest Ltd and provided services to Korvest
Ltd, an entity associated with P Stancliffe and
purchased goods from SAI Global, an entity
associated with D Spence. Amounts were
billed and payable under normal commercial
terms and conditions as a supplier and as
a customer.
There were no other transactions during
the financial year with key management
personnel and their related parties.
From time to time, key management
personnel of the Company or its controlled
entities, or their related entities, may purchase
goods from Hills. These purchases are on the
same terms and conditions as those entered
into by Hills employees or customers and are
trivial or domestic in nature.
Hills holds all required environmental licences,
registrations and permits for its manufacturing
sites around Australia. No significant
environmental incidents were reported over
the 2013-14 financial year and Hills 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 Hills
to report its annual greenhouse gas (GHG)
emissions and energy use from facilities over
which Hills has operational control.
Hills first triggered the NGER reporting
threshold based on its total corporate group
energy consumption during the 2010-11
financial year and has since submitted three
annual reports to the Clean Energy Regulator.
Hills did not trigger the reporting threshold of
200TJ for the 2013-14 financial year (or the
year prior) and has subsequently submitted
an application for deregistration to the Clean
Energy Regulator.
Hills will continue to capture and report on
energy consumption and GHG emissions as
a key environmental sustainability metric in its
Environmental Management System.
Australian Packaging Covenant
The Australian Packaging Covenant (APC)
is a voluntary initiative by government and
industry to reduce the environmental impact
of packaging. Hills became a signatory to the
APC in 2010 and has established a five-year
action plan aimed at optimising packaging
design, material recovery, recycling and
product stewardship. Hills remain supportive
of the goals and initiatives of the APC and
remain compliant following the submission of
its third annual report during March 2014.
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 Hills Group of Companies, 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.
35
Hills Limited Annual Report for the year ended 30 June 2014 Directors’
report
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
Hills are important.
Details of the amounts paid or payable to
the auditor of Hills, 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
• none of the services undermine
the general principles relating to
auditor independence as set out in
APES 110 Code of Ethics for
Professional Accountants.
Both audit and non-audit fees increased due
to significant additional work performed in
relation to the Company’s restructure and
transformation program and in particular the
sale of non-core businesses. Non-audit fees
will return to normal levels in 2015.
During the year the following fees were paid
or payable for services provided by the
auditor of Hills, its related practices and
non-related audit firms:
36
Audit and other assurance services
KPMG Australia – audit and review of financial statements
Overseas KPMG firms – audit and review of financial statements
Total remuneration for audit and other assurance services
Taxation services
KPMG Australia – taxation and other services
Overseas KPMG firms – taxation services
Total remuneration for taxation services
Other services
Financial advisory services
Software implementation assurance services
Other consulting services
Total remuneration for other services
Total remuneration for audit and non–audit services
2014
$
2013
$
628,000
520,000
22,140
32,610
650,140
552,610
102,520
79,641
24,367
8,772
126,887
88,413
833,235
296,516
-
40,268
12,316
65,310
873,503
374,142
1,650,530 1,015,165
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 37.
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.
Jennifer Helen Hill–Ling
Director
Edward Noel Pretty
Director
Sydney
18 August 2014
Hills Limited Annual Report for the year ended 30 June 2014
37
Hills Limited Annual Report for the year ended 30 June 2014 Corporate
governance
statement
This report sets out the Hills annual statement
on its corporate governance framework for
the year ended 30 June 2014 and should
be read in conjunction with the Directors’
Report and Remuneration Report. The Board
considers that Hills corporate governance
framework and practices continue to comply
with the requirements of the ASX Corporate
Governance Council’s Corporate Governance
Principles and Recommendations, 2nd
Edition (Principles and Recommendations)
and meet the interests of our shareholders.
Principle 1: Lay solid foundations for
management and oversight
The Board has adopted a formal Board
Charter, which sets out the roles,
responsibilities, structure and composition
of the Board of Directors of Hills. The
matters that require approval by the Board
are included. A copy of the Board Charter
is available on the Corporate Governance
section of the Hills website at
http://www.hills.com.au/about-us/governance.
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. A copy of the Constitution
is available on the Hills website at
http://www.hills.com.au/about-us/governance.
A summary of duties for the Chairman and
the Group Managing Director and CEO
are reviewed and agreed by the Board.
The Board has delegated to the Group
Managing Director and CEO the authority to
manage the day-to-day affairs of Hills. Hills
has comprehensive performance guidelines in
place. For the period, each senior executive
has had their performance assessed against
clearly defined objectives and measures
developed through the overall process of
performance management.
Principle 2: Structure the Board to
add value
Ms Jennifer Hill Ling holds the position
of Chairman and is responsible for the
leadership and effective performance of the
Board. Given the depth of her company
experience and her industry standing she
is considered to be excellently placed to
serve as Chairman, notwithstanding that
pursuant to the ASX recommendation she is
not considered an ‘Independent’ Chairman.
The Board is composed of four additional
non-executive Directors and one Executive
Director. The Board regularly assesses the
independence of each non-executive Director
and considers the remaining non-executive
Directors to be independent. Mr Ian Elliot
is the Lead Independent Director. The
non-executive Directors regularly meet
without the Group Managing Director
and CEO, who is an Executive Director,
or other management present. The
Chairman is independent of the role of
the Group Managing Director and CEO.
For these reasons the ASX recommendation
for an Independent Chairman has not
been adopted.
Hills does not consider length of tenure a
relevant disqualifying matter for independence
and values the experience gained by the
Directors in serving on the Board.
The Board has established a Nominations
Committee, which consists of a majority
of independent non-executive Directors
including Mr Ian Elliot as the Committee
Chairman. Details of other members of
the Committee are provided in the
Directors’ Report.
A copy of the Committee’s Charter is available
on Hills website at http://www.hills.com.au/
about-us/governance. The Board’s policy for
the nomination and appointment of Directors
to fulfil its responsibilities to shareholders
having regard to the law and high standards
of governance by ensuring that the Board is
comprised of individuals with an appropriate
range of skills, experience, expertise, and that
the Board benefits from diversity of gender.
The qualifications, expertise and experience
of each Director and their period in office
can be found in the Information on Directors
section of the Annual Report.
There is a procedure in place that provides
for Directors to take independent advice at
the expense of the Company.
On an annual basis the Board conducts a
review of Board, Committee and individual
member performance along with a review of
Director independence.
38
Hills Limited Annual Report for the year ended 30 June 2014 Corporate governance statement
continued
Principle 3: Promote ethical and responsible decision making
The Hills Code of Conduct (the Code) provides guidance on what is acceptable behaviour, requiring
all Directors, managers and employees to maintain the highest standards of integrity and honesty.
Hills expects its Directors, management and staff to report conduct that is dishonest, fraudulent,
corrupt or illegal, endangers health and safety, or is a suspected breach of the Code 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.
The Hills Securities Policy governs the trading in Hills shares by Directors, management and staff in
compliance with the ASX Listing Rules requirements.
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. The Board has adopted a Diversity Policy
which requires Hills to embrace differences in backgrounds, qualifications and experiences and also
differences in approach and viewpoints. It includes characteristics such as gender, age, ethnicity,
cultural background, language, disability and other areas of potential difference.
The Diversity Policy also requires the setting of specific gender diversity objectives and a range
of measures to determine achievement of those objectives. The objectives and measures are
assessed annually by the Board and the Remuneration Committee.
The diversity objectives Hills has been working towards and the performance to these objectives is
outlined in the table below:
Number of women in management positions (including Board members)
Number of women in sales and marketing positions 42
Number of women employees in the organisation
Objective 41
%
Actual at
30 June 2014
%
15
15
20
16.5
30.4
32.5
(41) Note: these objectives were amended during the year to take into account the structural changes occurring in the business.
(42) Women in sales and marketing include casual personnel.
The Board is of the view that appointment of females to senior positions in the Company is
the most effective way to encourage change in the workforce, specifically in achieving gender
balance. Accordingly, for the FY2015 year the Board has changed the categories of female
participation to include the number of women in executive positions, as a separate measure
from the number of women on the Board. The new objectives and Hills achievement of the
objectives for the period are set out in the table below:
Percentage of women on the Board
Percentage of women in executive positions
Percentage of women in the organisation
Objective
%
Actual at
30 June 2014
%
33
36
33
28
30
32.5
39
Hills Limited Annual Report for the year ended 30 June 2014 Corporate
governance
statement
continued
Principle 4: Safeguard integrity in
financial reporting
Hills is committed to maintaining a
transparent system for auditing and reporting
of Hills financial performance. The Board has
established an Audit, Risk and Compliance
Committee that performs a central function in
achieving this goal. The Chairman of the
Committee is Ms Fiona Bennett and all
members of the Committee are independent,
non-executive Directors. The composition
and structure of the Committee and
membership attendance at meetings of
the Committee are set out in the Directors’
Report. The Committee has the opportunity
to meet with external auditors without
management present as required. A copy of
the Committee’s Charter is available on the
Hills website at http://www.hills.com.au/
about-us/governance. The Company also has
an Auditor Independence Policy to ensure the
integrity of its external audit. This policy
is also available on the Hills website at
http://www.hills.com.au/about-us/governance.
Principle 5: Make timely and balanced
disclosures
Hills has established, and complies with, the
Communication and Market Disclosure Policy
to ensure the market is informed of matters
in compliance with the ASX Listing Rules
disclosure requirements.
Principle 6: Respect the rights of
shareholders
Hills provides its shareholders with high
quality, relevant, factual and useful information
in a timely manner and encourages
shareholders to access this information
primarily from the Hills website. Shareholders
are encouraged to make their views known to
Hills and to directly raise matters of concern.
The Annual General Meeting remains
the main opportunity for shareholders to
comment on, and to question, the Hills Board
and management, and shareholders are
encouraged to attend.
40
Principle 8: Remunerate fairly and
responsibly
The Remuneration Report details the Hills
Remuneration Policy and practices for
non-executive Directors and senior executives.
The Board has established a Remuneration
Committee whose primary responsibility
is to consider remuneration strategy and
policy and to make recommendations to the
Board that are in the best interests of Hills
and its shareholders. The Remuneration
Committee operates in accordance with
its Charter, which is available on the Hills
website at http://www.hills.com.au/about-
us/governance. The Committee monitors
recruitment and development policies which
encourage workplace diversity across
individual characteristics, backgrounds and
skill levels. The composition and structure of
the Committee and membership attendance
at meetings of the Committee are set out in
the Directors’ Report.
The current Chairman of the Committee is
Mr David Spence who is an Independent
Director. Details of other members of the
Committee are provided in the Directors’
Report. Further information on Directors’ and
senior executives’ remuneration, including
principles used to determine remuneration,
is set out in the Remuneration Report.
Full details of the location of the references in this statement that
set out how Hills applies each Principle and Recommendation,
and copies of the Charters and Policies referenced above, are
contained under ’Corporate Governance’ on the Hills website.
Principle 7: Recognise and manage risk
Hills has established policies for the oversight
of material business risks. These policies are
designed to ensure that strategic, operational,
compliance, reputation and financial risks
are identified, assessed, effectively and
efficiently managed and monitored to enable
achievement of Hills business objectives.
The Board has directed management to
design, assess, monitor and review the
risk management and internal control
framework in place to manage risks.
Detailed control procedures cover
management accounting, financial
reporting, project appraisal, environment,
health and safety, IT security, compliance
and other risk management functions.
The Board requires management to provide
reports during the financial year as to
effective management of material business
risks. During the financial year, the Audit
Risk and Compliance Committee, the Board
and relevant management were provided
with reports on material risks, including an
assessment of the inherent risks, and the
effectiveness of controls in place to manage
such risks where possible.
The Company has an internal audit function
that provides the Board with additional
confidence in the integrity of the Company’s
control environment. The Audit, Risk and
Compliance Committee reviews the internal
audit reports and monitors the remediation of
any control weaknesses.
The Audit, Risk and Compliance Committee
reviews the annual insurance program to
ensure Hills insurable risks are covered by
appropriate insurances.
The Group Managing Director and CEO and
the Chief Financial Officer have provided
the Board with a written declaration in
accordance with s295A of the Corporations
Act that the full year financial statements
are founded on a sound system of risk
management and internal control, which
implements the policies adopted by the
Board, and that Hills risk management
and internal control systems are operating
efficiently and effectively in all material
respects in relation to financial reporting risks.
Hills Limited Annual Report for the year ended 30 June 2014 Hills Limited ABN 35 007 573 417
Financial statements
30 June 2014
contents
Financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors' declaration
Independent auditor's report to the members
These financial statements are the consolidated financial statements of the group consisting of Hills Limited and its subsidiaries.
A list of subsidiaries is included in note 30.
The consolidated financial statements are presented in the Australian currency.
Hills Limited is a company limited by shares, incorporated and domiciled in Australia.
Its registered office is:
Hills Limited
159 Port Road
Hindmarsh SA 5007
The consolidated financial statements were authorised for issue by the Directors on 18 August 2014.
The Directors have the power to amend and reissue the consolidated financial statements.
Through the use of the internet, the Company has ensured that its corporate reporting is timely and complete. All press releases,
financial reports and other information are available within Corporate Information on the Company website: http://www.hills.com.au
For queries in relation to corporate reporting please call +61 8 8301 3200 or email info@hills.com.au
42
43
44
45
46
47
114
115
41
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Consolidated
income statement
for the year ended 30 June 2014
Continuing operations
Revenue
Other income
Expenses excluding net finance expenses
Profit / (loss) before net finance expense and income tax
Finance income
Finance expenses
Net finance expenses
Profit / (loss) before income tax
Income tax (expense) / benefit from continuing operations
Profit / (loss) from continuing operations
Profit / (loss) from discontinued operations (net of tax)
Profit / (loss) for the year
Profit / (loss) is attributable to:
Owners of Hills Limited
Non controlling interests
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
Earnings per share for profit / (loss) attributable to the ordinary
equity holders of the Company:
Basic earnings per share
Diluted earnings per share
The above consolidated income statement should be read in conjunction with the accompanying notes.
42
Notes
2014
$’000
2013
$’000
3
4
5
5
6
7
22
22
22
22
448,257
15,862
464,119
(439,922)
24,197
1,432
(4,786)
(3,354)
20,843
(2,474)
18,369
8,018
26,387
24,798
1,589
26,387
492,520
15,030
507,550
(544,507)
(36,957)
857
(3,902)
(3,045)
(40,002)
11,073
(28,929)
(62,458)
(91,387)
(94,125)
2,738
(91,387)
Cents
Cents
7.0
7.0
10.4
10.4
(12.9)
(12.9)
(38.2)
(38.2)
Hills Limited Annual Report for the year ended 30 June 2014 Consolidated
statement of
comprehensive
income
for the year ended 30 June 2014
Profit / (loss) for the year
Other comprehensive income / (loss)
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges
Exchange differences on translation of foreign operations
Income tax relating to components of other comprehensive income
Other comprehensive income for the year that may be reclassified to profit or
loss, net of tax
Items that will not be reclassified to profit or loss
(Loss) on revaluation of land and buildings to fair value
Income tax relating to components of other comprehensive income
Other comprehensive (loss) for the year that will not be reclassified to profit or
loss, net of tax
Other comprehensive (loss) for the year, net of tax
Total comprehensive income / (loss) for the year
Total comprehensive income / (loss) for the year is attributable to:
Owners of Hills Limited
Non controlling interests
Total comprehensive income / (loss) for the year attributable to owners of
Hills Limited arises from:
Continuing operations
Discontinued operations
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Notes
2014
$’000
26,387
2013
$’000
(91,387)
20
20
6
20
6
1,084
1,182
(325)
1,941
(14,227)
4,268
(9,959)
(8,018)
18,369
16,780
1,589
18,369
8,762
8,018
16,780
2,162
978
(649)
2,491
(12,595)
4,231
(8,364)
(5,873)
(97,260)
(99,998)
2,738
(97,260)
(37,540)
(62,458)
(99,998)
43
Hills Limited Annual Report for the year ended 30 June 2014 Consolidated
statement of
financial position
as at 30 June 2014
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Current tax receivables
Assets classified as held for sale
Total current assets
Non-current assets
Investments
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Derivative financial instruments
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
(Accumulated losses)
Capital and reserves attributable to owners of Hills Limited
Non-controlling interests
Total equity
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
44
Notes
2014
$’000
2013
$’000
8
9
10
15
6
7
11
12
13
14
16
17
6
18
15
7
17
18
15
19
20
30
45,482
104,479
59,351
–
–
209,312
7,800
217,112
2
47,605
83,183
56,043
186,833
403,945
75,759
1,983
1,812
36,389
472
116,415
–
61,480
84,694
42,470
703
6
189,353
146,075
335,428
2
78,748
44,784
60,395
183,929
519,357
56,818
141
–
34,611
631
92,201
75,854
116,415
168,055
35,000
6,774
528
42,302
158,717
245,228
281,624
28,900
(66,359)
244,165
1,063
245,228
65,321
12,514
2,449
80,284
248,339
271,018
303,890
32,589
(66,359)
270,120
898
271,018
Hills Limited Annual Report for the year ended 30 June 2014 Consolidated
statement of
changes in equity
for the year ended 30 June 2014
Consolidated entity
Attributable to owners of Hills Limited
Contributed
equity
$’000
Reserves
$’000
(Accumulated
losses)
$’000
Notes
Non-
controlling
interests
$’000
Total
$’000
Total
equity
$’000
Balance at 1 July 2012
303,805
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Contributions of equity, net of transaction costs and tax
Dividends provided for or paid
Dividends paid to non-controlling interests in subsidiaries
Employee share schemes value of employee services
Transfer from reserves
Disposal of subsidiary
Balance at 30 June 2013
Balance at 1 July 2013
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Share buy-back, net of transaction costs
Dividends provided for or paid
Dividends paid to non-controlling interests in subsidiaries
Share buy-back paid to non-controlling interests in subsidiaries
Acquisition of non-controlling interest
Disposal of subsidiaries
Employee share schemes – value of employee services
Transfer current period profit to profits reserve
21
20
19
21
30
23
20
–
85
–
–
–
–
–
303,890
303,890
–
–
–
–
–
–
–
–
Balance at 30 June 2014
281,624
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
43,203
(5,873)
–
–
–
46
(4,168)
(619)
32,589
32,589
(8,018)
(16,037)
–
–
(4,495)
–
63
24,798
28,900
(22,266)
–
35,896
382,904
18,059
400,963
(94,125)
(99,998)
2,738
(97,260)
–
85
(12,298)
(12,298)
–
–
85
(12,298)
–
–
4,168
–
46
–
(1,342)
(1,342)
33
–
79
–
–
(619)
(18,590)
(19,209)
(66,359)
270,120
(66,359)
270,120
898
898
271,018
271,018
24,798
16,780
1,589
18,369
–
–
–
–
–
–
–
(24,798)
(22,266)
(16,037)
–
–
(4,495)
–
63
–
–
–
(22,266)
(16,037)
(90)
(200)
(505)
(629)
–
–
(90)
(200)
(5,000)
(629)
63
–
(66,359)
244,165
1,063
245,228
45
Hills Limited Annual Report for the year ended 30 June 2014 Consolidated
statement of
cash flows
for the year ended 30 June 2014
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)
Net finance costs paid
Net income taxes received / (paid)
Net cash (outflow) / inflow from operating activities
Cash flows from investing activities
Payments for acquisitions of subsidiaries / business operations, net of cash acquired
Payments for property, plant and equipment
Payments for intangible assets
Proceeds from sale of business operations and subsidiaries
Proceeds from sale of property, plant and equipment
Proceeds from sale of assets held for sale
Proceeds from sale of intangible assets
Rent received
Net cash inflow from investing activities
Cash flows from financing activities
Proceeds from borrowings
Payments for shares bought back, inclusive of transaction costs
Repayment of borrowings
Dividends paid to the Company’s shareholders
Payments to non-controlling interests in subsidiaries
Acquisition of non-controlling interest
Net cash (outflow) from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of the year
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
46
Notes
2014
$’000
2013
$’000
795,108
1,128,303
(805,909)
(1,048,699)
(10,801)
(3,310)
(1,216)
(15,327)
(56,560)
(14,041)
(4,681)
116,421
16,197
11,433
2
1,777
70,548
460
(22,266)
(30,299)
(16,037)
(290)
(5,000)
(73,432)
(18,211)
61,480
403
43,672
79,604
(3,094)
4,870
81,380
(5,160)
(10,828)
(12,007)
38,383
9,064
–
145
790
20,387
–
–
(50,218)
(12,298)
(1,342)
–
(63,858)
37,909
23,305
266
61,480
33
29
12
13
19
21
30
8
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
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 consolidated financial statements
are for the group consisting of Hills 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 consolidated
financial statements have been prepared
in accordance with Australian Accounting
Standards (AASBs), other authoritative
pronouncements of the Australian Accounting
Standards Board, and the Corporations Act
2001. Hills Limited is a for profit entity for
the purpose of preparing the consolidated
financial statements.
(i) Compliance with IFRS
The consolidated 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
The Group has applied the following
accounting standards and amendments for
the first time for the annual reporting period
commencing 1 July 2013:
• AASB 10 Consolidated Financial
Statements, AASB 11 Joint Arrangements,
AASB 12 Disclosure of Interests in
Other Entities, AASB 128 Investments
in Associates and Joint Ventures, AASB
127 Separate Financial Statements and
AASB 2011-7 Amendments to Australian
Accounting Standards arising from the
Consolidation and Joint Arrangements
Standards.
• AASB 2012-10 Amendments to Australian
Fair value measurement
Accounting Standards – Transition
Guidance and other Amendments
which provides an exemption from the
requirement to disclose the impact of
the change in accounting policy on the
current period.
• AASB 13 Fair Value Measurement and
AASB 2011-8 Amendments to Australian
Accounting Standards arising from
AASB 13.
• AASB 119 Employee Benefits (September
2011) and AASB 2011-10 Amendments to
Australian Accounting Standards arising
from AASB 119 (September 2011).
• AASB 2012-5 Amendments to Australian
Accounting Standards arising from Annual
Improvements 2009 – 2011 Cycle; and
• AASB 2012-2 Amendments to Australian
Accounting Standards – Disclosures –
Offsetting Financial Assets and
Financial Liabilities.
The nature and effect of the changes are
further explained below:
Subsidiaries
As a result of AASB 10, the Group has
changed its accounting policy for determining
whether it has control over and consequently
whether it consolidates its investees. AASB
10 introduces a new control model that
is applicable to all investees, by focusing
on whether the Group has power over an
investee, exposure or rights to variable
returns from its involvement with the investee
and ability to use its power to affect those
returns. In particular, AASB 10 requires the
Group to consolidate investees that it controls
on the basis of de facto circumstances.
In accordance with the transitional provisions
of AASB 10, the Group reassessed the
control conclusion for its investees at
1 July 2013. No differences were found
and therefore no adjustments to any of the
carrying amounts in the consolidated
financial statements are required as a result
of the adoption of AASB 10.
AASB 13 establishes a single framework for
measuring fair value and making disclosures
about fair value measurements, when such
measurements are required or permitted
by other AASBs. In particular, it unifies the
definition of fair value as the price at which
an orderly transaction to sell an asset or to
transfer a liability would take place between
market participants at the measurement date.
It also replaces and expands the disclosure
requirements about fair value measurements
in other AASBs, including AASB 7 Financial
Instruments: Disclosures.
In accordance with the transitional provisions
of AASB 13, the Group has applied the
new fair value measurement guidance
prospectively, and has not provided any
comparative information for new disclosures.
Previously the fair value of financial liabilities
(including derivatives) was measured on
the basis that the financial liability would be
settled or extinguished with the counterparty.
The adoption of AASB 13 has clarified that
fair value is an exit price notion, and as such,
the fair value of financial liabilities should be
determined based on a transfer value to a
third party market participant. As a result
of this change the fair value of derivative
liabilities has changed on transition to AASB
13, mainly due to incorporating credit risk into
the valuation. Notwithstanding the above,
other than disclosure items, the change had
no significant impact on the measurements of
the Group’s assets and liabilities.
Employee benefits
AASB 119 now requires that if the Group
does not expect all annual leave to be taken
within 12 months of the respective service
being provided, annual leave obligations are
to be measured as long-term benefits.
This change has had no significant impact
on the Group’s measurement of its annual
leave obligations.
(iii) Early adoption of standards
The Group elected to early adopt AASB
2013-3 Amendments to AASB 136 –
Recoverable Amount Disclosures for
Non-Financial Assets, which had a small
impact on the impairment disclosures.
47
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
(iv) Historical cost convention
• Notes 18 and 25 – provisions
The consolidated financial statements have
been prepared on the basis of historical
costs, except for the following:
• Financial instruments (derivatives) at fair
value through profit or loss are measured
at fair value;
• Assets held for sale are measured at fair
value less costs of disposal;
• Land and buildings are measured at fair
value; and
• Contingent consideration assumed in a
business combination is measured at
fair value.
The methods used to measure fair values
are discussed further in notes 1(o), 1(p),
12 and 28.
(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 consolidated
financial statements are described in the
following notes:
• Note 7 – assets and disposal groups held
for sale and discontinued operations
• Notes 12 and 13 – valuation of land and
buildings and measurement of the useful
lives of property, plant and equipment and
intangible assets
• Note 13 – measurement of the recoverable
amounts of cash generating units
containing goodwill
48
and contingencies
• Note 23 – measurement of share based
payments
• Note 28 – measurement of fair value
• Note 29 – business combinations and
Non-controlling interests in the results and
equity of subsidiaries are shown separately
in the consolidated income statement,
consolidated statement of comprehensive
income, consolidated statement of changes
in equity and consolidated statement of
financial position respectively.
contingent consideration payable
(ii) Changes in ownership interests
(b) Parent entity financial information
The financial information for the parent entity,
Hills, disclosed in note 31 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
2014 and the results of all subsidiaries for
the year then ended.
Subsidiaries are all entities over which the
Group has control. The Group controls an
entity when the Group is exposed to, or has
rights to, variable returns from its involvement
with the entity and has the ability to affect
those returns through its power to direct
the activities of the 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 an impairment of the asset transferred.
Accounting policies of subsidiaries have
been changed where necessary to ensure
consistency with the policies adopted by
the Group.
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.
When the Group ceases to have control,
joint control or significant influence, any
retained interest in the entity is remeasured
to its fair value with the change in carrying
amount recognised in profit or loss. This fair
value becomes 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.
(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 Board of Directors.
Operating segments that exhibit similar
long-term economic characteristics,
and have similar products, processes,
customers, distribution methods and
regulatory environments are aggregated.
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
1 Summary of significant accounting policies
continued
(e) Foreign currency translation
(i) Functional and presentation currency
Items included in the consolidated 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 using 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.
(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
offset and intends either to settle on a net
basis, or to realise the asset and settle the
liability simultaneously.
49
Hills Limited Annual Report for the year ended 30 June 2014 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 interest in the
acquired entity either at fair value or at the
non-controlling interest’s proportionate share
of the acquired entity’s net identifiable assets.
The excess of the consideration transferred
and the amount of any non-controlling
interest in the acquired entity 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
remeasured to fair value with changes in fair
value recognised in profit or loss.
(j) Impairment of assets
Goodwill and intangible assets that have
an indefinite useful life are not subject to
amortisation and are tested annually for
impairment, or more frequently if events
or changes in circumstances indicate that
they might be impaired. Other assets are
tested for impairment whenever events or
changes in circumstances indicate that the
carrying amount may not be recoverable.
An impairment loss is recognised for the
amount by which the asset’s carrying
amount exceeds its recoverable amount.
The recoverable amount is the higher of
an asset’s fair value less costs to sell and
value-in-use. For the purposes of assessing
impairment, assets are grouped at the
lowest levels for which there are separately
identifiable cash inflows which are largely
independent of the cash inflows from
other assets or groups of assets
(cash-generating units). Non-financial
assets other than goodwill that suffered
an impairment are reviewed for possible
reversal of the impairment at the end of
each reporting period.
(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.
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.
Hills Limited and its wholly owned Australian
controlled entities have implemented the tax
consolidation legislation.
The head entity, Hills 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 standalone taxpayer in its
own right.
In addition to its own current and deferred
tax amounts, Hills 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.
(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 26).
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
50
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
1 Summary of significant accounting policies
continued
(l) Trade receivables
(m) Inventories
(ii) Loans and receivables
Trade receivables are recognised initially at
fair value and subsequently measured at
amortised cost using the effective interest
method, less provision for impairment. Trade
receivables are generally due for settlement
within 30 to 90 days. They are presented
as current assets unless collection is not
expected for more than 12 months after
the reporting date.
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.
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 reclassification
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. Costs of purchased inventory
are determined after deducting rebates
and discounts. Net realisable value is the
estimated selling price 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.
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 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.
(n) Investments and other financial assets
Measurement
The Group measures a financial asset at
its fair value. Loans and receivables are
subsequently carried at amortised cost
using the effective interest method.
Details on how the fair value of financial
instruments is determined are disclosed in
note 28.
Classification
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. 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.
51
Hills Limited Annual Report for the year ended 30 June 2014 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 measured
at amortised cost, the loss is measured as
the difference between the asset’s carrying
amount and the present value of estimated
future cash flows, excluding future credit
losses that have not been incurred. The cash
flows are discounted at the financial asset’s
original effective interest rate. The loss is
recognised in profit or loss.
(o) Derivatives and hedging activities
Derivatives are initially recognised at fair value
on the date a derivative contract is entered
into and are subsequently remeasured to their
fair value at the end of each reporting period.
The accounting for subsequent changes in
fair value depends on whether the derivative
is designated as a hedging instrument, and
if so, the nature of the item being hedged.
The Group designates certain derivatives as
hedges of a particular risk associated with the
cash flows of recognised assets and liabilities
and highly probable forecast transactions
(cash flow hedges).
The Group documents at the inception of the
hedging transaction the relationship between
hedging instruments and hedged items,
as well as its risk management objective
and strategy for undertaking various hedge
transactions. The Group also documents its
assessment, both at hedge inception and on
an ongoing basis, of whether the derivatives
that are used in hedging transactions have
been and will continue to be highly effective in
offsetting changes in fair values or cash flows
of hedged items.
The fair values of various derivative financial
instruments used for hedging purposes are
disclosed in note 15. Movements in the
hedging reserve in shareholder’s equity
are shown in note 20. 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. Trading derivatives are classified
as a current asset or liability.
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.
(i) Cash flow hedge
The effective portion of changes in the fair
value of derivatives that are designated and
qualify as cash flow hedges is recognised in
other comprehensive income and within the
hedging reserve in equity. The gain or loss
relating to the ineffective portion is recognised
immediately in profit or loss.
Amounts accumulated in equity are
reclassified to profit or loss in the periods
when the hedged item affects profit or loss.
The gain or loss relating to the effective
portion of interest rate swaps hedging
variable rate borrowings is recognised in profit
or loss within ‘finance income’ or ‘finance
costs’. The gain or loss relating to the
effective portion of forward foreign exchange
contracts hedging export sales is recognised
in profit or loss within ‘sales’. However,
when the forecast transaction that is hedged
results in the recognition of a non-financial
asset (for example, inventory or plant and
equipment) 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 plant and equipment.
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
52
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
1 Summary of significant accounting policies
continued
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 (current and comparative periods):
• Buildings
0.75%
• Plant and equipment
5.0% to 40.0%
• Leasehold improvements 20.0% to 66.67%
The assets’ residual values and useful lives
are reviewed, and adjusted if appropriate, at
the end of each reporting period.
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
the 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 profits reserve.
(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. 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, identified
according to operating segments (note 2).
(ii) Patents and trademarks, customer
relationships and brands
Patents and trademarks, customer
relationships and brands 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 over their
estimated useful lives, which vary from:
• Patents and trademarks
10 to 20 years
• Customer relationships and brands
2 to 5 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. Amortisation is calculated on
a straight-line basis over periods generally
ranging from 3 to 10 years.
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.
53
Hills Limited Annual Report for the year ended 30 June 2014 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.
A discontinued operation is a component
of the entity that has been disposed of
or is classified as held for sale and that
represents a separate major line of business
or geographical area of operations, is part of
a single co-ordinated plan to dispose of such
a line of business or area of operations, or is
a subsidiary acquired exclusively with a
view to resale. The results of discontinued
operations are presented separately in the
consolidated income statement.
(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. Trade and other
payables are presented as current liabilities
unless payment is not due within 12 months
after the reporting period.
(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 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.
(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 five to 20 years.
(v) Fair value
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
and discontinued operations
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.
54
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
1 Summary of significant accounting policies
continued
(u) Provisions
(ii) Other long-term employee
Long-term incentive plan
Provisions for legal claims, service warranties
and make good obligations 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. Warranty provisions are
recognised when the underlying products or
services are sold. Restructuring provisions are
recognised when the Group has approved a
detailed and formal restructuring plan, and
the restructuring has either commenced or
been announced publicly. 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 the 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) Short-term obligations
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.
benefit obligations
The liability for long service leave and annual
leave which is not expected to be settled
within 12 months after the end of the period
in which the employees render the related
service 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 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 and the employee share
plan. Information relating to these schemes is
set out in note 23.
The long-term incentive share plan (LTI)
allows Group executives to acquire shares
of the Company.
The fair value of performance rights granted
under the LTI share 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 granted, measured at the grant date,
which includes any market performance
conditions and the impact of any non vesting
conditions but includes the probability
of meeting any service and non market
performance vesting conditions.
The valuation method takes into account the
exercise price of the performance right, the life
of the performance right, 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.
Non-market vesting conditions are included
in assumptions about the number of rights
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 that
are expected to vest based on the
non-market vesting conditions. It recognises
the impact of the revision to original
estimates, if any, in profit or loss, with
a corresponding adjustment to equity.
No change is made for changes in
market conditions.
Employee share bonus plan
The employee share bonus plan allows
Group employees to acquire shares of the
Company. Up to $1,000 per year in shares
is allotted to employees who have served
a qualifying period. The fair value of shares
issued is recognised as an employee expense
with a corresponding increase in equity.
The fair value of the shares granted is
measured using a present value method
based upon external advice.
55
Hills Limited Annual Report for the year ended 30 June 2014 (v) Profit-sharing and bonus plans
(ii) Diluted earnings per share
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 Company reacquires its own equity
instruments, for example as the result of
a share buyback, 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) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated
by dividing:
• the profit attributable to owners of the
Company, excluding any costs of servicing
equity other than ordinary shares, and
• by the weighted average number of
ordinary shares outstanding during the
financial year.
Diluted earnings per share adjusts the figures
used in the determination of basic earnings
per share to take into account:
• the after income tax effect of interest and
other financing costs associated with
dilutive potential ordinary shares, and
• the weighted average number of additional
ordinary shares that would have been
outstanding assuming the conversion of
all dilutive potential ordinary shares.
(z) 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.
(aa) Borrowing costs
Borrowing costs incurred for the construction
of any qualifying asset are capitalised during
the period of time that is required to complete
and prepare the asset for its intended use or
sale. Other borrowing costs are expensed.
(ab) 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.
(ac) 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 consolidated financial statements.
Amounts in the consolidated financial
statements have been rounded off in
accordance with that Class Order to the
nearest thousand dollars, or in certain cases,
the nearest dollar.
(ad) New accounting standards and
interpretations not yet adopted
Certain new accounting standards and
interpretations have been published that are
not mandatory for 30 June 2014 reporting
periods and have not been early adopted
by the Group. The Group’s assessment
of the impact of these new standards and
interpretations is set out below.
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. Since December 2013 it
also sets out new rules for hedge accounting.
The standard is applicable for financial years
beginning on or after 1 January 2017 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.
IASB 15 Revenue from Contracts with
Customers replaces AASB 118 Revenues
and applies to contracts with customers.
The standard is effective for annual periods
beginning on or after 1 January 2017, with
early adoption permitted. The Group has not
yet decided when to adopt AASB 15 and
has not yet determined the potential effect
of the standard.
56
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the
consolidated
financial
statements
2 Segment information
(a) Change of segments
As a result of the Group’s restructure and
transformation programs and after the
disposal of its Building and Industrial
Segment, the Group reviewed the way
it presents segment information under
AASB8 Operating Segments.
The Group has determined that its chief
operating decision maker (CODM) is the
Board of Hills Limited. This is on the basis
that it is the Board of Hills Limited that
ultimately makes decisions regarding the
allocation of resources to the operating
segments of Hills and ultimately is the Group’s
‘chief operating decision maker’ within the
meaning of AASB8.
While Hills has a number of operating
segments, after the restructure and
transformation program, all of its remaining
operating segments have characteristics
that are so similar in nature that they can
reasonably be expected to have the same
prospects. Hills operating segments have
similar economic characteristics, provide
similar products and services, have a
similar production process, similar types of
customers, similar methods for distribution
and are subject to a similar regulatory
environment. Hills operating segments
have therefore been aggregated into one
reportable segment under AASB8 called
the Hills Technologies Segment. This is also
borne out by the fact that after its restructure
and transformation program, Hills has actively
consolidated its operating structure into what
is known as a ‘One Hills’ approach where
the business operates as an integrated
business rather than a holding company
owning disparate operations. The previously
reported Lifestyle and Sustainability segment
is no longer a material reportable segment
and has been aggregated into the Hills
Technologies segment while the previously
reported Building and Industrial segment has
been sold.
In terms of reviewing the Group as it has gone
through its restructuring and transformation
program, the CODM has been presented with
information that separates Hills results into its
continuing business (the Hills Technologies
segment) and discontinuing business results
in two categories: the Discontinuing Building
and Industrial segment (which is also the
discontinuing operations under IFRS) and
Other Discontinued Hills Businesses (which
are businesses that have been closed or
sold and regardless of the whether these
are classified as discontinuing under IFRS
or not). That information, ‘through the eyes
of management’ has been presented in
this segment note in accordance with the
principles of AASB8.
(b) Description of segments
The Group currently has one reportable
segment, the Hills Technologies segment.
The following summary describes the
operations of the Group’s reportable segment:
Hills Technologies
Includes electronic security systems,
closed circuit television systems, home and
commercial automation and control systems,
professional audio products, consumer
electronic equipment, communications
related products and services, domestic
and commercial antennas, master antenna
television systems, communications
antennas, amplifiers, health technology
solutions and subscription TV installation
services. The segment also includes the
sale of lifestyle products, services and home
technology solutions. This segment contains
the continuing operations of the Group.
Other Hills businesses sold or closed
In presenting results to the CODM,
businesses that have been closed or sold
(and regardless of whether these are
classified as discontinuing under IFRS or not),
are shown separately to enable the CODM
to assess the true continuing operations of
the Group, which are shown within the Hills
Technologies segment. That information
assists the CODM in making its own resource
allocation decisions. That information,
‘through the eyes of management’ has been
presented in this segment note in accordance
with the principles of AASB8.
Building and Industrial
(Discontinued operations under IFRS)
In presenting results to the CODM, the
Building and Industrial segment that has
been sold (and is treated as a separate
discontinuing operation under IFRS), is shown
separately to enable the CODM to assess
the true continuing operations of the Group,
which are shown within the Hills Technologies
segment. That information assists the
CODM in making its own resource allocation
decisions. That information, ‘through the
eyes of management’ has been presented
in this segment note in accordance with the
principles of AASB8.
Although the Group’s divisions are managed
on a products and services basis they
operate in two main geographical areas:
Australia – comprises manufacturing facilities
in South Australia and Victoria and sales
offices and customers in all states and
territories. Overseas – comprises sales
offices and customers in New Zealand and
customers in Europe, the Middle East,
South Africa and North America.
57
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
2 Segment information
continued
(b) Information about reportable segments
Hills Technologies
segment
Other Hills businesses
sold or closed
Building and Industrial
(Discontinued
operations under IFRS)
2014
$’000
2013
$’000
2014
$’000
2013
$’000
2014
$’000
2013
$’000
Total
2014
$’000
Total
2013
$’000
Total segment revenue
Inter–segment revenue
415,529
356,207
32,728
136,313
288,908
525,917
737,165
1,018,437
–
–
–
–
–
–
–
–
Revenue from external customers
415,529
356,207
32,728
136,313
288,908
525,917
737,165
1,018,437
Segment EBITDA
Segment assets
Additions to non-current assets (other than
financial assets and deferred tax)
42,871
30,301
3,343
257,875
190,346
15,454
5,079
Segment liabilities
87,023
88,959
5,322
21,912
–
5,035
4,677
11,651
50,891
47,274
–
–
–
128,838
257,875
341,096
2,827
15,454
7,906
57,042
87,023
151,036
–
–
–
(c) Other segment information
(i) Segment revenue
There are no sales between segments. The revenue from external parties reported to the
CODM is measured in a manner consistent with that in the consolidated income statement.
Segment revenue reconciles to total revenue per note 3.
The Group is domiciled in Australia. The amount of its revenue (including revenue from
discontinued operations) from external customers in Australia is $702.855 million
(2013: $975.467 million), and the total of revenue from external customers in other countries
is $34.310 million (2013: $42.180 million). Segment revenues are allocated based on the
country in which the customer is located.
The Group does not derive 10 per cent or more of its revenues from any single external customer.
58
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
2 Segment information
continued
(ii) Segment EBITDA
The CODM assesses performance based on a measure of underlying EBITDA. 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 and business combination acquisition
transaction costs which, although expensed under IFRS, are considered to otherwise distort
the operational view of the business. 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 underlying EBITDA reconciles to profit / (loss) before income tax as follows:
Segment EBITDA
Depreciation and amortisation
Finance income
Finance expenses
Net costs not considered part of underlying profit
Other
2014
$’000
2013
$’000
50,891
47,274
(9,197)
(15,577)
1,432
857
(4,786)
(3,902)
(5,869)
(154,578)
–
1,701
Less discontinued operations profit before tax and restructuring costs
(11,628)
(13,559)
Add back restructuring and impairment costs relating to discontinued
operations
–
97,782
Profit / (loss) before income tax from continuing operations
20,843
(40,002)
(iii) Segment assets
The amounts provided to the CODM with respect to total assets are measured in a manner
consistent with that of the consolidated 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
Unallocated assets:
Cash assets
Current tax assets
Deferred tax assets
Derivative financial instruments
Investments
Corporate assets
2014
$’000
2013
$’000
257,875
341,096
45,482
61,480
–
6
56,043
60,395
–
2
703
2
44,543
55,675
Total assets as per the consolidated statement of financial position
403,945
519,357
The total of non-current assets other than
financial instruments and deferred tax assets
located in Australia is $126.999 million
(2013: $126.679 million), and the total of these
non-current assets located in other countries
is $3.791 million (2013: $0.462 million).
Segment assets are allocated to countries
based on where the assets are located.
Additions to non-current assets (other than
financial assets and deferred tax) for the Group
totalled $18.722 million (2013: $22.835 million).
This comprised $15.454 million (2013: $7.906
million) allocated to segments and
$3.268 million (2013: $14.929 million) not
allocated to segments and corporate additions.
Depreciation and amortisation expense for the
Group totalled $9.197 million (2013: $15.577
million). This comprised $9.035 million (2013:
$13.658 million) allocated to segments and
$0.162 million (2013: $1.919 million) related
to corporate assets.
59
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
2 Segment information
continued
(iv) Segment liabilities
The amounts provided to the CODM with
respect to total liabilities are measured
in a manner consistent with that of the
consolidated financial statements.
These liabilities are allocated based
on the operations of the segment.
Reportable segments’ liabilities are reconciled
to total liabilities as follows:
Segment liabilities
Unallocated liabilities:
Tax liabilities (including GST payable)
Borrowings
Derivative financial instruments
Corporate liabilities
2014
$’000
2013
$’000
87,023
151,036
4,439
5,129
36,983
65,462
1,000
3,080
29,272
23,632
Total liabilities as per the consolidated statement of financial position
158,717
248,339
3 Revenue
Revenue from continuing operations
Sales revenue
Sale of goods
Services
Other revenue
Rents and sub-lease rentals
Total revenue from continuing operations
Revenue from discontinued operations
Sales revenue – sale of goods
Total revenue
4 Other income
Net gain on disposal of property, plant and equipment
Net gain on disposal of businesses
Other income
60
2014
$’000
2013
$’000
409,713
422,046
36,767
69,684
446,480
491,730
1,777
790
448,257
492,520
288,908
525,917
737,165 1,018,437
2014
$’000
239
2013
$’000
127
14,596
13,462
1,027
1,441
15,862
15,030
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
5 Expenses
Classification of expenses by function
Cost of goods sold
Cost of services provided
Other expenses from ordinary activities:
Sales and marketing expenses
Distribution expenses
Administration expenses
Other expenses
2014
$’000
2013
$’000
261,509
263,585
17,607
57,594
72,950
74,121
23,169
27,123
44,222
51,826
20,465
70,258
439,922
544,507
Profit / (loss) before income tax includes the following specific expenses:
Depreciation
Buildings
Plant and equipment
Total depreciation
Amortisation
Patents and trademarks
Research and development
Customer contracts, relationships and brands
Software
Total amortisation
Total depreciation and amortisation
Employee benefit expenses
Wages and salaries
Defined contribution superannuation expense
Other employee benefit expenses
Equity-settled share-based payment transactions
Total employee benefits expenses
Finance expenses
Interest and finance charges paid/payable
Wind-back of discount on provisions
Finance income
Interest income
Fair value gains on derivatives
Finance costs expensed
173
5,529
5,702
61
61
1,436
1,937
3,495
9,197
1,471
12,791
14,262
978
303
–
34
1,315
15,577
78,341
166,250
6,285
5,737
64
14,682
15,694
167
90,427
196,793
(4,440)
(3,902)
(346)
-
(4,786)
(3,902)
1,130
302
1,432
703
154
857
(3,354)
(3,045)
61
Hills Limited Annual Report for the year ended 30 June 2014 Profit / (loss) after tax includes the
following items that were significant
because of their nature or size:
Current Year
Prior Year
Acquisition costs relating to the acquisitions
of businesses and the costs of searching for
businesses, totalling $4.978 million before tax
($4.978 million after tax) and net losses on
disposal of businesses (net of impairments,
provisions and restructuring costs related
to those disposals) totalling $0.891 million
before tax (gain of $2.499 million after tax)
were included within Other Income and
Other Expenses at 30 June 2014.
Asset impairment, restructuring and closure
costs totalling $154.578 million before tax
($113.326 million after tax) were included
within Other Expenses at 30 June 2013.
Disclosure of the expenses recorded in the
previous year are included in the Group’s
30 June 2013 Annual Financial Statements
and are summarised below.
2013
$’000
49,492
(10,842)
38,650
57,034
(15,163)
41,871
9,313
(2,794)
6,519
7,671
(222)
7,449
6,298
(1,889)
4,409
(a) Fielders impairment, restructuring and closure costs
Less: Applicable income tax benefit
(b) Orrcon impairment, restructuring and closure costs
Less: Applicable income tax benefit
(c) Team Poly impairment, restructuring and closure costs
Less: Applicable income tax benefit
(d) Heathcare impairment
Less: Applicable income tax benefit
(e) Antenna impairment, restructuring and closure costs
Less: Applicable income tax benefit
62
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
5 Expenses
continued
(f) Home and Hardware impairment, restructuring and closure costs
Less: Applicable income tax benefit
(g) Hills Solar impairment, restructuring and closure costs
Less: Applicable income tax benefit
(h) Group impairment, restructuring and closure costs, net of gains on sale of businesses
Less: Applicable income tax benefit
Total cash generating unit impairment, restructure and closure costs and other
associated impairments net of gains on disposal of businesses
Less: Applicable income tax benefit
2013
$’000
3,853
(1,156)
2,697
3,252
(976)
2,276
17,665
(8,210)
9,455
154,578
(41,252)
113,326
Discussion of significant items in
the prior year
As reported in the prior year, the Group
undertook a comprehensive review of all
operations, including a review of the carrying
value of assets and goodwill. The Group also
commenced various transformation initiatives
and sold the Korvest, Healthcare and Bailey
businesses. This resulted in total impairment,
restructuring and closure costs (net of
gains on sale of businesses) of $154.578
million as detailed in the table above. The
after tax impact is $113.326 million. Where
impairments of assets were determined on
a fair value less costs to sell basis, fair values
were determined using the best market
information available.
Total impairment, restructuring and closure
costs (net of gains on sale of businesses)
of $154.578 million, comprised goodwill
impairment $16.719 million, plant and
equipment and other intangibles impairment
$71.647 million, inventory $31.658 million,
other assets $3.510 million, redundancies
$12.201 million, onerous lease and make
good $19.880 million, warranty $3.501 million
and other costs of $8.924 million. Gains on
sale of businesses were $13.462 million.
63
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
6 Income tax expense
(a) Income tax expense / (benefit)
Current tax
Deferred tax
Adjustments for current and deferred tax of prior periods
Income tax expense / (benefit) is attributable to:
Profit / (loss) from continuing operations
Profit / (loss) from discontinued operations
Aggregate income tax expense / (benefit)
2014
$’000
2013
$’000
2,044
4,040
1,135
(33,872)
–
(101)
6,084
(32,838)
2,474
3,610
6,084
(11,073)
(21,765)
(32,838)
(b) Numerical reconciliation of income tax (benefit) / expense
to prima facie tax payable
Profit / (loss) from continuing operations before income tax expense / (benefit)
20,843
(40,002)
Profit / (loss) from discontinuing operations before income tax expense / (benefit)
11,628
(84,223)
Tax at the Australian tax rate of 30.0% (2013: 30.0%)
Tax effect of amounts which are not deductible / (taxable) in
calculating taxable income:
Goodwill impairment
Non-deductible expenses
Research and development allowances
Acquisition costs
Gains on sale of businesses
Impairment of land and buildings
Derecognition of deferred tax assets on provisions associated
with assets held for sale
Difference in overseas tax rates
Adjustments for current tax of prior periods
Previously unrecognised capital losses
Total income tax expense / (benefit)
32,471
(124,225)
9,741
(37,267)
–
484
(80)
1,071
5,016
767
(261)
–
(5,090)
(1,185)
–
–
528
3,616
6,126
(28,786)
(42)
–
–
(45)
(101)
(3,906)
6,084
(32,838)
64
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
6 Income tax expense
continued
(c) Tax (benefit) / expense relating to items of other
comprehensive income
Aggregate current and deferred tax arising in the reporting period and not
recognised in net profit or loss but directly debited or credited to other
comprehensive income:
(Losses) / gains on revaluation of land and buildings
Gains / (losses) on cash flow hedges
Aggregate income tax expense / (benefit)
(d) Tax losses
Unused capital tax losses for which no deferred tax asset
has been recognised
Potential tax benefit
2014
$’000
2013
$’000
(4,268)
(4,231)
325
649
(3,943)
(3,582)
34,206
24,138
10,262
7,241
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.
(f) 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).
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.
Revenue tax losses for which no deferred
tax asset has been recognised total $0.925
million (2013: $0.943 million). The potential
deferred tax asset not recognised totals
$0.278 million (2013: $0.283 million).
Revenue tax losses for which a deferred tax
asset has been recognised total $31.067
million (2013: $5.551 million).
(e) Current tax assets and liabilities
The current tax liability / (asset) for the Group
of $1.812 million (2013: ($0.006 million))
represents the amount of income taxes
payable / (receivable) in respect of current
and prior financial periods.
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 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
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.
65
Hills Limited Annual Report for the year ended 30 June 2014 7 Assets and liabilities classified as held
for sale and discontinued operations
In the previous financial year the significant
operations of Fielders Australia Pty Ltd
(Fielders) and Orrcon Operations Pty Ltd
(Orrcon) were presented as disposal groups
held for sale and as discontinued operations,
and the operations of LW Gemmell and UHS
were presented as disposal groups held
for sale. The assets of Fielders and Orrcon
were presented within the total assets of the
Building and Industrial segment in note 2.
The assets of LW Gemmell were presented
within the total assets of the Lifestyle and
Sustainability segment in note 2. The assets
of UHS were presented within the total assets
of the Electronics and Communications
segment in note 2. Fielders and Orrcon were
sold effective 28 February 2014, LW Gemmell
was sold effective 31 August 2013 and UHS
was sold effective 31 March 2014.
Certain land and buildings were classified as
held for sale at 30 June 2013 and were sold
during the year ended 30 June 2014. Land
and buildings classified as held for sale at
30 June 2014 will be sold during the year
ending 30 June 2015.
(a) Assets classified as held for sale
Disposal group held for sale (discontinued operation – see (c) on following page):
Trade and other receivables
Inventories
Property, plant and equipment
Goodwill
Total assets of disposal group held for sale
Non-current assets held for sale:
Land and buildings
Total assets classified as held for sale
(b) Liabilities directly associated with
assets classified as held for sale
Disposal group held for sale (discontinued operation – see (c) on following page):
Trade and other payables
Provisions
Total liabilities directly associated with assets classified
as held for sale
2014
$’000
2013
$’000
–
–
–
–
–
70,827
56,771
234
6,875
134,707
7,800
11,368
7,800
146,075
2014
$’000
2013
$’000
–
–
–
49,911
25,943
75,854
66
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
7 Assets and liabilities classified as held for sale
and discontinued operations
continued
(c) Discontinued operations
(i) Description
Fielders and Orrcon
As set out in (a) on the previous page,
in the previous financial year, the Group
announced its intention to sell the operations
of Fielders and Orrcon, with the sale
concluded during the current financial
year. Accordingly they are reported in
these consolidated financial statements as
discontinued operations. Financial information
relating to the discontinued operations for
the previous financial year and the current
financial year is set out below.
Korvest Ltd
In the previous financial year the
Group sold its shares in Korvest Ltd
(as at 19 February 2013). Korvest Ltd
is reported in these consolidated financial
statements as a discontinued operation.
Financial information relating to the
discontinued operation for the previous
financial period to the date of disposal is
set out here.
(ii) Financial performance and
cash flow information
The financial performance and cash flow
information presented is for the period
to 28 February 2014 (Fielders and Orrcon)
(2014 column) and the period to
19 February 2013 (Korvest) and year
ended 30 June 2013 (Fielders and Orrcon)
(2013 column).
Revenue (note 3)
Expenses
Other income
Finance income
Profit / (loss) before income tax
Income tax (expense) / benefit
Profit / (loss) after income tax of discontinued operation
Net cash (outflow) / inflow from operating activities
Net cash inflow / (outflow) from investing activities
Net cash (outflow) from financing activities
Net (decrease) / increase in cash generated by the
discontinued operations
In the previous financial year an after tax
impairment loss of $21.273 million on the
remeasurement of the disposal groups to the
lower of their carrying amounts and fair value
less costs to sell was included in loss from
discontinued operations in the consolidated
income statement (see note 5).
There are no cumulative income or expenses
included in other comprehensive income
relating to the disposal groups.
2014
$’000
2013
$’000
288,908
525,917
(277,522)
(610,342)
235
7
96
106
11,628
(84,223)
(3,610)
21,765
8,018
(62,458)
(25,529)
31,547
85,289
(82,450)
(1,839)
(9,604)
(22,690)
20,104
67
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
7 Assets and liabilities classified as held for sale
and discontinued operations
continued
(iii) Details of the sales
The effect of the disposals of Fielders
and Orrcon (2014 column) and Korvest
(2013 column) on the financial position
of the Group is:
Consideration received or receivable – cash
Carrying amount of net assets sold
Gain on sale before income tax
Income tax (benefit) / expense
Gain on sale after income tax
There was no income tax expense in relation
to the disposals in the previous financial year
as a result of the Group utilising carry forward
capital losses that had not been recognised.
The carrying amounts of assets and liabilities
as at the dates of sale were:
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Tax assets
Total assets
Trade and other payables
Provisions
Tax liabilities
Total liabilities
Net assets
2014
$’000
2013
$’000
84,923
26,166
(84,785)
(16,655)
138
(41)
97
9,511
–
9,511
28 February 2014
$’000
19 February 2013
$’000
–
65,707
56,643
1,008
–
123,358
(29,101)
(9,472)
–
(38,573)
84,785
6,120
11,137
8,742
17,082
1,167
44,248
(3,674)
(2,291)
(2,392)
(8,357)
35,891
In the previous financial year the Group’s share of the net assets of Korvest Ltd
was $16.655 million.
(d) Disposal of businesses
During the current financial year the Group sold its interests in two of its partially owned
subsidiaries, UHS Systems Pty Ltd (partially owned until January 2014) (31 March 2014)
and OptiComm Co Pty Ltd (30 April 2014) and its LW Gemmell operations (31 August 2013) as
a continuation of its strategy to dispose of non-core businesses. In the previous financial year the
Group sold the Healthcare and Bailey businesses. None of these businesses were reclassified as
discontinued operations as they were not significant separate major lines of business. Gains on
sale are disclosed in note 4.
68
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
8 Current assets – Cash and cash equivalents
Cash at bank and in hand
Deposits at call
(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
Balances per consolidated statement of cash flows
(b) Risk exposure
The Group’s exposure to interest rate
risk is discussed in note 27. 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 its fair value.
2014
$’000
42,482
3,000
45,482
2013
$’000
45,407
16,073
61,480
2014
$’000
45,482
(1,810)
43,672
2013
$’000
61,480
–
61,480
69
Hills Limited Annual Report for the year ended 30 June 2014 9 Current assets –
trade and other receivables
Trade receivables
Provision for impairment of receivables (a)
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 uncollectable
Decrease on business disposal
Transferred to held for sale
At 30 June
2014
$’000
2013
$’000
(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 27.
(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 27 for more information on the
risk management policy of the Group and the
credit quality of the Group’s trade receivables.
90,059
(2,750)
87,309
13,912
3,258
82,951
(3,332)
79,619
3,409
1,666
104,479
84,694
2014
$’000
58,892
19,726
9,166
2,275
2013
$’000
48,234
20,498
9,697
4,522
90,059
82,951
2014
$’000
3,332
835
(1,286)
(131)
-
2,750
2013
$’000
6,770
4,546
(2,507)
(1,182)
(4,295)
3,332
Based on low 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 $2.750 million (2013: $3.332 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.
70
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the
consolidated
financial
statements
10 Current assets – inventories
Raw materials and stores
Work in progress
Finished goods
(a) Inventory expense
Write downs of inventories to net realisable
value recognised as an expense during
the year amounted to $2.117 million
(2013: $31.886 million). The expense has
been included in cost of sales $2.117 million
(2013: $0.228 million) and other expenses
or expenses of discontinued operations
$nil (2013: $31.658 million).
2014
$’000
4,071
631
2013
$’000
3,280
1,591
54,649
59,351
37,599
42,470
11 Non-current assets – investments
Equity securities
2014
$’000
2
2013
$’000
2
71
Hills Limited Annual Report for the year ended 30 June 2014 12 Non-current assets –
property, plant and equipment
At 1 July 2012
Cost or fair value
Accumulated depreciation
Net book amount
Year ended 30 June 2013
Opening net book amount
Exchange differences
Revaluation to fair value
Land
$’000
Buildings
$’000
Plant &
equipment
$’000
Total
$’000
53,938
58,741
234,205
346,884
–
(6,852)
(152,005)
(158,857)
53,938
51,889
82,200
188,027
53,938
51,889
82,200
188,027
98
45
(3,530)
(9,065)
–
38
–
4
181
(12,595)
4
3,962
6,866
10,828
(1,791)
(3,437)
(8,922)
(9,071)
(13,789)
(30,707)
Acquisition through business combinations
Additions
Disposals
Assets included in a disposal group classified as
held for sale and other disposals
–
–
(3,694)
(7,847)
Depreciation charge
Impairment loss
–
(1,471)
(12,791)
(14,262)
(1,760)
(2,951)
(49,095)
(53,806)
Closing net book amount
37,205
31,547
9,996
78,748
At 30 June 2013
Cost
37,783
34,974
77,045
149,802
Accumulated depreciation and impairment
(578)
(3,427)
(67,049)
(71,054)
Net book amount
37,205
31,547
9,996
78,748
Year ended 30 June 2014
Opening net book amount
Exchange differences
Revaluation to fair value
Acquisition through business combinations
Additions
Disposals
37,205
31,547
9,996
78,748
–
–
(5,839)
(8,388)
55
–
55
(14,227)
–
–
–
3,163
3,163
2,253
11,788
14,041
(10,413)
(4,562)
(983)
(15,958)
Assets included in a disposal group classified as
held for sale and other disposals
(3,150)
(4,650)
–
(7,800)
Other disposals
Depreciation charge
Impairment charge
Reclassification
–
–
–
–
Closing net book amount
17,803
–
(290)
(290)
(173)
(5,529)
(5,702)
–
(3,045)
12,982
(936)
(444)
16,820
(936)
(3,489)
47,605
At 30 June 2014
Cost
17,803
12,991
84,200
114,994
Accumulated depreciation and impairment
–
(9)
(67,380)
(67,389)
Net book amount
17,803
12,982
16,820
47,605
72
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
12 Non-current assets – Property, plant and equipment
continued
2014
$’000
184
2013
$’000
113
As at 30 June 2014 independent valuers
reassessed the fair value of land and buildings
taking into consideration current market
assessments and property offers received
and the asset class was revalued. The
Directors reviewed the assessment and
determined a further revaluation decrement
of $14.227 million was appropriate. This
amount was debited to the asset revaluation
reserve in shareholders’ equity.
(c) Impairment losses
Property, plant and equipment impairment
losses are discussed in note 5.
(a) Assets in the course of construction
The carrying amounts of the assets
disclosed above include the following
expenditure recognised in relation to
property, plant and equipment which
is in the course of construction:
Furniture, fittings, plant and equipment
(b) Valuations of land and buildings
Land and buildings are recognised at 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 nearby locations
using an estimated rate per m2 for freehold
land and buildings, adjusted for the condition
of the asset.
During the previous financial year, valuations
were undertaken for land and buildings
based on independent assessments by a
member of the Australian Property Institute
as at 31 December 2012. The revaluation
decrement recorded at that time of
$7.959 million was credited to the asset
revaluation reserve in shareholders’ equity.
The revaluation decrement of $578,000
on one property exceeded the previous
revaluation surplus carried in the asset
revaluation reserve and was charged to
profit or loss. At 30 June 2013, the Directors
considered the fair value of land and
buildings in accordance with the December
2012 valuation and subsequent market
assessments and the asset class was
revalued. This resulted in a further revaluation
decrement of $3.918 million, which was
credited to the asset revaluation reserve
in shareholders’ equity. The revaluation
decrement exceeded the revaluation surplus
by $1.182 million and this amount was
charged to profit or loss. As a result of
the Group’s restructuring, a property was
transferred to be held for sale.
73
Hills Limited Annual Report for the year ended 30 June 2014 Patents,
trademarks &
other rights
$’000
Goodwill
$’000
121,858
(75,306)
46,552
6,267
(3,517)
2,750
46,552
2,750
–
14,342
–
(16,719)
(4,909)
(6,617)
32,649
107,336
(74,687)
32,649
2
–
(978)
–
(721)
(14)
1,039
3,355
(2,316)
1,039
32,649
1,039
–
32,190
–
–
(754)
–
64,085
132,243
(68,158)
64,085
–
2
(61)
–
(760)
–
220
343
(123)
220
Distribution
agreements,
customer
contracts &
brands
$’000
Software*
$’000
Development
costs
$’000
Total
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,346
(1,436)
–
–
–
11,910
13,346
(1,436)
11,910
14,962
–
14,962
14,962
12,005
117
(34)
(16,587)
–
–
10,463
27,095
(16,632)
10,463
10,463
3,258
1,200
(1,937)
(10,475)
–
3,489
5,998
41,728
(35,730)
5,998
1,300
(120)
1,180
1,180
–
–
(303)
–
–
(244)
633
800
(167)
633
633
1,423
–
(61)
–
(1,025)
–
970
1,023
(53)
970
144,387
(78,943)
65,444
65,444
12,007
14,459
(1,315)
(33,306)
(5,630)
(6,875)
44,784
138,586
(93,802)
44,784
44,784
4,681
46,738
(3,495)
(10,475)
(2,539)
3,489
83,183
188,683
(105,500)
83,183
13 Non-current assets – intangible assets
At 1 July 2012
Cost or fair value
Accumulated amortisation and impairment
Net book amount
Year ended 30 June 2013
Opening net book amount
Additions
Acquisition through business combinations
Amortisation charge
Impairment charge
Derecognised on disposal
Derecognised on transfer to assets held for sale
Closing net book amount
At 30 June 2013
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2014
Opening net book amount
Additions
Acquisition through business combinations
Amortisation charge
Impairment charge
Derecognised on disposal
Reclassification
Closing net book amount
At 30 June 2014
Cost
Accumulated depreciation and impairment
Net book amount
* Software includes capitalised development
costs being an internally generated
intangible asset. Borrowing costs
capitalised during the year were
$0.0 million (2013: $0.872 million).
74
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
13 Non-current assets – Intangible assets
continued
(a) Impairment tests for goodwill
During the year ended 30 June 2014,
the Group determined that there was no
impairment to any of its cash generating
units (CGU) containing goodwill or intangible
assets with indefinite useful lives. During
the year ended 30 June 2013, the Group
recognised an impairment of goodwill in
relation to the Fielders and Healthcare.
For the purpose of impairment testing,
goodwill is allocated to the Group’s operating
units that represent the lowest level within the
Group at which the goodwill is monitored for
internal management purposes.
The aggregate carrying amounts of goodwill
allocated to each cash generating unit,
analysed at a segment level, are as follows:
Hills SVL
OptiComm
Lan 1
Health Solutions
Security
Hills Technologies
2014
$’000
Total
2014
$’000
Hills Technologies
2013
$’000
Total
2013
$’000
17,553
17,553
17,553
17,553
–
14,342
25,248
6,942
64,085
–
14,342
25,248
6,942
64,085
754
754
14,342
14,342
–
–
–
–
32,649
32,649
The cash generating unit impairment tests
are based on value in use calculations,
which were determined by discounting
the future cash flows generated from the
continuing use of the unit and were based
on the following key assumptions:
• Cash flow projections have been based
on the coming year’s budget and Board
agreed forecasts with key assumptions
for the five-year forecast period relating to
sales, gross margins and expenses. Sales
are based on management assessments
with allowances for future growth based
upon assessments of growth rates in the
markets to which the assets belong. Gross
margins and expense levels are based on
past experience.
• A terminal value has been determined at
(b) Impairment charge
the end of the five year strategic plan using
a growth rate of 3.0% (2013: 3.0%), which
is no greater than the long-term average
growth rate for the market to which the
asset is dedicated.
• A pre tax discount rate of 15.29% (2013:
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.
As set out in note 5, during the year ended
30 June 2013, the goodwill totalling
$16.719 million was impaired, predominantly
in relation to Fielders and Healthcare.
Further explanation is provided in that note.
Following the sale of Healthcare effective
31 January 2013, the remaining Healthcare
goodwill was derecognised.
(c) Impact of possible changes in key
assumptions
A reasonably possible change in any of the
key assumptions would not cause the
carrying amount of the CGUs to exceed their
recoverable amount.
75
Hills Limited Annual Report for the year ended 30 June 2014 14 Non-current assets –
Deferred tax assets
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
Software & other intangible assets
Other
2014
$’000
2013
$’000
2,510
1,864
3,399
1,096
1,218
8,163
1,044
274
31,067
5,218
190
18,022
7,389
5,430
2,313
1,228
10,754
4,029
599
5,551
4,980
100
56,043
60,395
76
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
14 Non-current assets – deferred tax assets
continued
Balance
at 1 July
$’000
Recognised in
profit or loss
$’000
Recognised
in other
comprehensive
income
$’000
Acquisition /
disposal of
businesses /
subsidiaries
$’000
Balance
at 30 June
$’000
Movements 2013
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Tax losses
Software
Other
Movements 2014
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Tax losses
Software & other intangible assets
Other
(2,136)
2,086
10,965
2,030
1,265
1,455
1,100
1,384
2,868
–
888
13,842
5,349
(4,984)
625
(37)
9,409
2,929
(136)
2,683
4,980
(788)
21,905
33,872
18,022
(19,749)
7,389
5,430
2,313
1,228
10,754
4,029
599
5,551
4,980
100
60,395
(5,396)
(2,181)
(1,214)
(10)
(2,611)
(3,102)
–
25,516
4,617
90
(4,040)
4,231
–
–
–
–
–
–
(649)
–
–
–
3,582
4,268
–
–
–
–
–
–
(325)
–
–
–
3,943
2,085
(46)
(551)
(342)
–
(110)
–
–
–
–
–
18,022
7,389
5,430
2,313
1,228
10,754
4,029
599
5,551
4,980
100
1,036
60,395
(31)
(129)
150
(3)
–
20
117
–
–
(4,379)
–
(4,255)
2,510
1,864
3,399
1,096
1,218
8,163
1,044
274
31,067
5,218
190
56,043
77
Hills Limited Annual Report for the year ended 30 June 2014 15 Derivative financial instruments
Current assets
Forward foreign exchange contracts - cash flow hedges
Total current derivative financial instrument assets
Current liabilities
Interest rate swap contracts - cash flow hedges
Forward foreign exchange contracts - cash flow hedges
Forward foreign exchange contracts - held for trading
Total current derivative financial instrument liabilities
Non-current liabilities
Interest rate swap contracts - cash flow hedges
Total non-current derivative financial instrument liabilities
Total derivative financial instrument liabilities
Net derivative financial instrument liabilities
2014
$’000
2013
$’000
–
–
(44)
(340)
(88)
(472)
703
703
(551)
–
(80)
(631)
(528)
(528)
(1,000)
(1,000)
(2,449)
(2,449)
(3,080)
(2,377)
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 27).
(a) Instruments used by the Group
(i) Interest rate swap contracts –
cash flow hedges
Bank loans to the Group at 30 June 2014
bear an average variable interest rate of 2.8
per cent (2013: 2.8 per cent). 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 2014
cover 57 per cent (2013: 100 per cent) of the
loan principal outstanding and are taken out
with terms of between three and seven years.
The fixed interest rates average 4.4 per cent
(2013: 6.0 per cent).
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 2014, a profit of $70,000 was
reclassified into profit or loss (2013: $49,000)
and included in finance cost due to hedge
ineffectiveness in the current or prior year and
a gain of $232,000 was reclassified into profit
or loss (2013: $105,000) to offset net interest
expense paid.
(ii) Forward exchange contracts –
cash flow hedges
The Group purchases goods and materials
from overseas, principally in US dollars.
In order to protect against exchange rate
movements, the Group has entered into
forward exchange contracts to purchase
US dollars.
These contracts are hedging highly probable
forecasted purchases for approximately the
next two to three months.
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.
78
During the year ended 30 June 2014 a gain
of $2,000 was recognised in profit or loss
for the ineffective portion of these hedging
contracts (2013: $1,000).
(iii) Forward exchange contracts –
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 27 for details. However,
they are accounted for as held for trading.
(b) 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 27. 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.
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the
consolidated
financial
statements
16 Current liabilities –
trade and other payables
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 27.
(b) Fair value
The carrying amount of trade and other
payables are assumed to be the same as
their fair values, due to their short-term nature.
17 Borrowings
Unsecured
Bank overdrafts
Other loans
Bills payable
Total unsecured borrowings
Total borrowings
2014
$’000
35,363
40,396
75,759
2013
$’000
19,091
37,727
56,818
2014
2013
Current
$’000
Non-current
$’000
Total
$’000
Current
$’000
Non-current
$’000
Total
$’000
1,810
173
–
1,983
1,983
–
–
35,000
35,000
35,000
1,810
173
35,000
36,983
36,983
–
141
–
141
141
–
321
65,000
65,321
65,321
–
462
65,000
65,462
65,462
(a) Bank loans and bank overdraft
Bank overdrafts
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 million (2013: $1.000
million), the Company’s New Zealand
subsidiary has a separate bank overdraft
facility of $2.091 million (2013: $1.895 million)
and in the previous financial year a partially
owned subsidiary had a bank overdraft facility
of $0.500 million.
Unsecured bank loans
The Group has 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 1 years (16 August 2015),
Tranche B $69 million, expiring in 2 years
(16 August 2016), and Tranche C $46
million, expiring in 1 years (but subject to
annual review) (16 August 2015). Tranches
A and B comprise bank loans and Tranche
C comprises bank guarantees, letters of
credit and cash advances. 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.
An assessment of the contractual maturities
of financial liabilities is provided in note 27.
Standby letter of credit
The standby letter of credit facility forms
part of the 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.
79
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
17 Borrowings
continued
(b) Fair value
The carrying amounts and fair values of
borrowings at the end of the reporting
period are:
On-balance sheet
Non-traded financial liabilities
Bank overdrafts
Bills payable
Other loans
Carrying
amount
2014
$’000
Fair
value
2014
$’000
Carrying
amount
2013
$’000
Fair
value
2013
$’000
1,810
35,000
173
1,810
35,000
173
–
65,000
65,000
462
462
36,983
36,983
65,462
65,462
(c) Risk exposures
Information about the Group’s exposure
to interest rate and foreign exchange risk
is provided in note 27.
18 Provisions
Employee benefits
Outstanding claims
Restructuring costs
Contingent consideration
Other provisions
2014
Current
$’000
Non-current
$’000
Total
$’000
11,045
6,963
19,556
4,450
1,149
1,605
1,078
3,466
–
625
6,774
43,163
9,440
5,885
16,090
4,450
524
36,389
(a) Description of provisions
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.
Restructuring costs
The restructuring costs provision comprises
onerous lease costs, redundancy costs
and other costs of closing and restructuring
businesses. For further detail, see note 5.
80
2013
Current
$’000
Non-current
$’000
11,511
4,069
13,708
4,657
666
34,611
2,023
1,330
2,589
5,950
622
12,514
Total
$’000
13,534
5,399
16,297
10,607
1,288
47,125
Contingent consideration
The contingent consideration provision
relates to the acquisition of subsidiaries and
businesses. For further detail, see note 29.
Other provisions
Other provisions comprise mainly provisions
for site restoration.
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
18 Provisions
continued
(b) Movements in provisions
Movements in each class of provision during
the financial year, other than employee
benefits, are set out below:
Outstanding
claims
$’000
Restructuring
costs
$’000
Contingent
consideration
$’000
Other
$’000
Total
$’000
Movements 2013
Carrying amount at the start of the year
Charged/(credited) to profit or loss – additional provisions recognised
Amounts used during the year
Transferred to liabilities associated with assets held for sale
Decrease through disposal of business
Carrying amount at end of year
Movements 2014
Carrying amount at the start of the year
Transfer from liabilities associated with assets held for sale
Charged/(credited) to profit or loss – additional provisions recognised
Included in fair value less costs to sell on disposal of businesses
Charged / (credited) to profit or loss – unwinding discount and
provisions released
3,538
4,742
(2,601)
(280)
–
5,399
5,399
–
4,206
–
–
–
41,749
(12,667)
(12,785)
–
–
1,194
10,607
–
–
–
490
(63)
–
(333)
1,288
16,297
10,607
16,297
12,785
–
3,614
–
10,607
1,288
–
–
–
(427)
–
–
–
–
4,732
57,588
(15,331)
(13,065)
(333)
33,591
33,591
12,785
4,206
3,614
(427)
Amounts used during the year
(2,622)
(13,140)
(10,180)
(139)
(26,081)
Increase through acquisition of businesses / subsidiaries
Decrease through disposal of business
Carrying amount at end of year
–
(20)
6,963
–
–
4,450
–
–
–
4,450
(20)
19,556
4,450
1,149
32,118
81
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
19 Contributed equity
(a) Share capital
Ordinary shares - fully paid
233,913
246,220
281,624
303,890
2014
Shares
‘000
2013
Shares
‘000
2014
$‘000
2013
$‘000
(b) Movements in ordinary share capital
Date
Details
1 July 2012
Opening balance
Exercise of executive share options
Issued under the employee share bonus scheme
30 June 2013
Closing balance
1 July 2013
Opening balance
Share buy-back
30 June 2014
Closing balance
Number of
shares
’000
$’000
246,017
303,805
61
142
62
23
246,220
303,890
246,220
303,890
(12,307)
(22,266)
233,913
281,624
(c) Ordinary shares
(d) Dividend reinvestment plan
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.
The Company does not have a limited
amount of authorised capital.
The dividend reinvestment plan and the
share investment plan did not operate in
respect of dividends issued during the
financial year.
82
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
19 Contributed equity
continued
(e) Employee share scheme
(h) Capital risk management
The employee share plan did not operate
in the financial year. In the previous financial
year the Company made one issue of
ordinary shares under the employee share
bonus plan. All employees meeting the service
criteria were eligible to participate in the issue.
The shares were issued at market value.
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
Total borrowings
Less: cash and cash equivalents
Net (funds) / debt
Total equity
Gearing ratio
(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 23.
(g) Share buyback
During the current financial year the Company
bought back 12.307 million shares at an
average price of $1.81 per share, with prices
ranging from $1.56 to $1.91 per share.
The total cost of $22.266 million, including
transaction costs of $0.088 million, was
deducted from shareholders equity. The
Company originally announced an on market
buyback on 23 August 2011, giving the
Company the option to acquire up to 10 per
cent of its issued ordinary shares. The buyback
was for ongoing capital management
purposes and was to take place over the
12 months from the date of the announcement.
The on market buyback was extended on
13 August 2012, again on 6 August 2013
and again on 15 August 2014. No shares
were bought back during the FY13 year.
is calculated as net debt divided by net debt
plus 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 2014, the Group’s strategy, which
was unchanged from 2013, was to maintain
a target gearing ratio (calculated as net debt
divided by net debt plus equity) of less than
40 per cent. The gearing ratios at 30 June 2014
and 30 June 2013 were as follows:
Notes
17
8
2014
$’000
2013
$’000
36,983
65,462
(45,482)
(61,480)
(8,499)
3,982
245,228
271,018
0.0%
1.4%
83
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
20 Reserves
(a) Reserves
Asset revaluation reserve
Hedging reserve – cash flow hedges
Equity compensation reserve
Non-controlling interests acquisition reserve
Foreign currency translation reserve
Profits reserve
Movements:
Asset revaluation reserve
Opening balance 1 July
Revaluation – gross
Deferred tax
Reserves reduction on disposal of subsidiary
Transfer to profits reserve
Closing balance 30 June
Hedging reserve – cash flow hedges
Opening balance 1 July
Revaluation – gross
Deferred tax
Closing balance 30 June
Equity compensation reserve
Opening balance 1 July
Employee share plan expense
Reserves reduction on disposal of subsidiary
Closing balance 30 June
Non-controlling interests acquisition reserve
Opening balance 1 July
Adjustment to non-controlling interest upon change in Group shareholding
Transfer to profits reserve
Closing balance 30 June
Foreign currency translation reserve
Opening balance 1 July
Currency translation differences arising during the year
Closing balance 30 June
Profits reserve
Opening balance 1 July
Transfer of current year profit
Dividends paid
Transfers from other reserves
Closing balance 30 June
84
2014
$’000
18,385
(638)
721
–
139
10,293
28,900
2013
$’000
32,820
(1,397)
658
1,551
(1,043)
–
32,589
32,820
46,227
(14,227)
(12,595)
4,268
–
(4,476)
18,385
4,231
(875)
(4,168)
32,820
(1,397)
(2,910)
1,084
(325)
(638)
2,162
(649)
(1,397)
658
63
–
721
1,551
(4,495)
2,944
736
46
(124)
658
1,171
380
–
–
1,551
(1,043)
(2,021)
1,182
978
139
(1,043)
–
24,798
(16,037)
1,532
10,293
–
–
–
–
–
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
20 Reserves
continued
(b) Nature and purpose of reserves
(iv) Non-controlling interests
(i) Asset revaluation reserve
The asset revaluation reserve is used to
record increments and decrements on
the revaluation of property 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) 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.
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.
(v) Foreign currency translation
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.
(vi) Profits reserve
Current year and realised profits are
transferred from retained earnings and other
reserves to the profits reserve and dividends
are paid out of the profits reserve.
85
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
21 Dividends
(a) Ordinary shares
Dividend of 3.25 cents fully franked based on tax paid @ 30% (2013: 5.0 cents fully franked based on tax paid 30%) per fully
paid share paid on 27 September 2013 (2013: 26 September 2012)
2014
$’000
8,000
2013
$’000
12,298
Dividend of 3.4 cents fully franked based on tax paid @ 30.0% (2013: 0.0 cents) per fully paid share paid on 31 March 2014.
8,037
–
Total dividends provided for or paid
16,037
12,298
2014
$’000
2013
$’000
8,420
8,011
2014
$’000
4,839
2013
$’000
7,011
(b) Dividends not recognised at
the end of the reporting period
In addition to the above dividends, since year end the Directors have recommended the payment of a final dividend of 3.6 cents
per fully paid ordinary share (2013: interim dividend for the year ended 30 June 2014 of 3.25 cents), fully franked based on tax
paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 26 September 2014, but not recognised
as a liability at year end, is:
The dividend reinvestment plan and share
investment plan will not operate in respect
of the proposed final dividend.
(c) Franked dividends
The franked portions of the final dividends
recommended after 30 June 2014 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 2015.
Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2013: 30.0%)
The above amounts represent the balance of the franking account as at the end of the
reporting period, adjusted for:
(a) franking credits that will arise from the payment of the amount of the provision for income tax
(b) franking debits that will arise from the payment of dividends recognised as a liability at the
reporting date, and
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the
reporting date.
The consolidated amounts include franking credits that would be available to the Company if
distributable profits of subsidiaries were paid as dividends. The impact on the franking account
of the dividend recommended by the Directors since 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 $3.608 million (2013: $3.433 million).
86
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
22 Earnings per share
(a) Basic earnings per share
From profit / (loss) from continuing operations attributable to the ordinary
equity holders of the Company
From discontinued operations
2014
Cents
2013
Cents
7.0
3.4
(12.9)
(25.3)
Earnings per share for profit / (loss) attributable to the ordinary equity holders
of the Company
10.4
(38.2)
From underlying profit attributable to the ordinary equity holders of
the Company 1
11.4
7.8
(b) Diluted earnings per share
From profit / (loss) from continuing operations attributable to the ordinary
equity holders of the Company
From discontinued operations
7.0
3.4
(12.9)
(25.3)
Earnings per share for profit / (loss) attributable to the ordinary equity holders
of the Company
10.4
(38.2)
From underlying profit attributable to the ordinary equity holders of
the Company 1
11.4
7.8
(1) Underlying profit has been calculated after adjusting profit / (loss) attributable to the ordinary equity holders of the Company for business combination acquisition transaction costs,
adjusted for business combination acquisition transaction costs after tax offset by one-off income tax credits associated with business sales and CGU impairment, restructure and closure costs
and other associated impairments in the previous year. Underlying profit is a non IFRS measure used by the Company which is relevant because it is consistent with measures used internally
by management and by some in the investment community to assess the operating performance of the business in light of its change program. The non IFRS measure has not been subject to
audit or review.
87
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
22 Earnings per share
continued
(c) Reconciliation 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
From discontinued operation
Profit / (loss) used in calculating basic earnings per share
Diluted earnings per share
Profit / (loss) attributable to the ordinary equity holders of the Company used in calculating basic earnings per share
From discontinued operation
Profit / (loss) used in calculating diluted earnings per share
Underlying profit earnings per share
Profit / (loss) attributable to the ordinary equity holders of the Company used in calculating basic earnings per share
Items not considered part of underlying profit 1
Underlying profit attributable to the ordinary equity holders of the Company used in calculating basic and diluted
earnings per share 1
2014
$’000
2013
$’000
16,780
(31,667)
8,018
(62,458)
24,798
(94,125)
16,780
(31,667)
8,018
(62,458)
24,798
(94,125)
24,798
(94,125)
2,479
113,326
27,277
19,201
(1) Underlying profit has been calculated after adjusting profit / (loss) attributable to the ordinary equity holders of the Company for business combination acquisition transaction costs,
adjusted for business combination acquisition transaction costs after tax offset by one-off income tax credits associated with business sales and CGU impairment, restructure and closure costs
and other associated impairments in the previous year. Underlying profit is a non IFRS measure used by the Company which is relevant because it is consistent with measures used internally
by management and by some in the investment community to assess the operating performance of the business in light of its change program. The non IFRS measure has not been subject to
audit or review.
(d) Weighted average number of shares used as denominator
Adjustments for calculation of diluted earnings per share:
Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share
238,983
246,186
Effect of share options and rights on issue
Weighted average number of ordinary and potential ordinary shares used as the denominator in calculating
diluted earnings per share
–
–
238,983
246,186
2014
$’000
2013
$’000
The 280,000 (2013: 280,000) 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 2014 (and year ended 30 June 2013). These options could potentially dilute basic
earnings per share in the future.
88
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
23 Share-based payments
(a) Employee performance rights and
option plans
In 2010 the Group established the Hills
Holdings Limited long-term incentive share
plan (LTIP). The plan was designed to
provide long-term incentives to eligible senior
employees in the Group and entitled 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).
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 20 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 performance rights and options
under the current and previous scheme
are as follows:
Exercise
price
Balance at
start of
the year
number
Granted
during
the year
number
Exercised
during
the year
number
Forfeited/
cancelled
during the year
number
Balance at
end of
the year
number
Vested and
exercisable
at end of
the year
number
Grant date
Expiry date
2014
Performance rights
17 Feb 2014
30 Jun 2016
$–
–
1,133,332
Executive share options *
1 Feb 2001
1 Feb 2002
1 Feb 2003
1 Feb 2004
1 Feb 2005
1 Jan 2023
1 Jan 2024
1 Jan 2025
1 Jan 2026
1 Jan 2027
Total executive share options
Totals
$2.50
$2.90
$3.23
$3.66
$4.16
25,000
35,000
40,000
55,000
125,000
280,000
–
–
–
–
–
–
280,000
1,133,332
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,133,332
25,000
35,000
40,000
55,000
125,000
280,000
1,413,332
–
–
–
–
–
–
–
–
Weighted average exercise price
$3.62
$–
$–
$–
$3.62
$–
* Relates to a small numbers of employees who are not key management personnel.
89
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
23 Share-based payments
continued
Grant date
Expiry date
2013
Performance rights
28 Apr 2011
30 Jun 2013
19 Dec 2011
30 Jun 2014
Executive share options
1 Feb 2001
1 Feb 2002
1 Feb 2003
1 Feb 2004
1 Feb 2005
1 Jan 2023
1 Jan 2024
1 Jan 2025
1 Jan 2026
1 Jan 2027
Total executive share options
Totals
Weighted average exercise price
Exercise
price
Balance at
start of
the year
number
Granted
during
the year
number
Exercised
during
the year
number
Forfeited/
cancelled
during the year
number
Balance at
end of
the year
number
Vested and
exercisable
at end of
the year
number
$–
$–
$2.50
$2.90
$3.23
$3.66
$4.16
198,929
405,518
50,000
53,000
80,000
115,000
185,000
483,000
1,087,447
$3.58
–
–
–
–
–
–
–
–
–
$–
–
–
(25,000)
–
–
–
–
(25,000)
(25,000)
$2.50
(198,929)
(405,518)
–
(18,000)
(40,000)
(60,000)
(60,000)
(178,000)
(782,447)
$3.66
–
–
–
–
25,000
35,000
40,000
55,000
125,000
280,000
280,000
$3.62
25,000
35,000
40,000
55,000
125,000
280,000
280,000
$3.62
Fair value of options granted
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 2014 was 34.0 cents
per performance right. The fair value at grant
date was independently determined using
a Black Scholes methodology for the non
market hurdles and a Monte Carlo valuation
methodology for the market hurdles, that took
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.
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 2014 included:
• exercise price: $0.00
• vesting period: 3 years
• service period: commencing 1 July 2013
• grant date (for Accounting Standards): 17 February 2014
• expiry date: 30 June 2016
• share price at grant date: $1.75
• expected price volatility of the Company’s shares: 40%
• expected dividend yield: 11.3%
• risk free interest rate: 2.99%
90
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
23 Share-based payments
continued
(b) Employee share scheme
The Hills employee share bonus plan
provides that eligible employees may
receive up to $1,000 of Hills ordinary shares
for no consideration. In the current financial
year no shares were allotted. In the previous
financial year one allotment of shares was
made. Participants were issued with
100 shares, based on the weighted average
market price of $0.76. 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
2 November 2012
2014
’000
2013
’000
–
142
(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 issued under long-term incentive plans
Shares issued under employee share bonus plan
2014
$’000
2013
$’000
64
–
64
121
46
167
91
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
24 Related party transactions
(a) Parent entities
The parent entity within the Group and the
ultimate parent entity is Hills Limited.
(b) Subsidiaries
Interests in subsidiaries are set out in note 30.
(c) Key management personnel
2014
$’000
2013
$’000
Short-term employee benefits (fixed and STI remuneration)
5,207,533 5,162,309
Post-employment benefits (superannuation)
Long-term benefits (cash LTI and accrued long service leave)
Termination benefits
231,340
258,648
229,329
157,690
296,208
470,632
Share-based payments (LTI expense and employee share bonus plan expense)
64,222
1,548
6,082,632 6,050,827
Detailed remuneration disclosures are provided in the Remuneration Report.
(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 $7.746 million
(2013: $15.585 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
$0.366 million (2013: $0.185 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 $0.976 million (2013: $1.749 million).
Inter entity dividends paid and received
during the year amounted to $33.906 million
(2013: $4.405 million).
Other related parties
Contributions to superannuation funds on
behalf of employees are disclosed in note 5.
Transactions with Director related entities
A number of KMP 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.
During the year Hills purchased goods from
Korvest Ltd and provided services to Korvest
Ltd, an entity associated with P Stancliffe
and purchased goods from SAI Global,
an entity associated with D Spence.
Amounts were billed and payable under
normal commercial terms and conditions
as a supplier and as a customer.
There were no other transactions during
the financial year with key management
personnel and their related parties.
From time to time, key management
personnel of the Company or its controlled
entities, or their related entities, may purchase
goods from Hills. These purchases are on
the same terms and conditions as those
entered into by Hills employees or customers
and are trivial or domestic in nature.
(e) Loans to / from related parties
Subsidiaries
Group entity trading transactions and
borrowings result in balances arising in
respect of current and non current assets
and liabilities. At 30 June 2014 the Group
current assets and liabilities that were
eliminated were $167.622 million (2013:
$224.114 million) and the Group non-current
assets and liabilities that were eliminated
were $0.0 million (2013: $3.211 million).
92
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
25 Contingencies
26 Commitments
(a) Contingent liabilities
(a) Capital commitments
The Group had contingent liabilities at
30 June 2014 in respect of:
(i) Claims
In consultation with the Environmental
Protection Authority, ground water
contamination potentially originating from
the Company’s Edwardstown site, continues
to be monitored by the Company. It is
anticipated that ongoing monitoring will
be required to be undertaken by Hills.
The Company has provided for the
anticipated costs of ongoing assessments.
(ii) Guarantees
(a) Letters of credit established in favour
of suppliers / creditors amounting to
$0.0 million (2013: $1.036 million).
(b) Bank guarantees in favour of
customers and suppliers amounting to
$11.273 million (2013: $13.216 million).
The Group has various commercial legal
claims common to businesses of its type,
which constitute contingent liabilities,
none 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.
(iii) Acquisitions
For contingent liabilities relating to acquisitions
refer to note 29.
(b) Contingent assets
There are no contingent assets where
the probability of future receipts is not
considered remote.
Capital expenditure contracted for at the reporting date but not recognised
as liabilities is as follows:
Property, plant and equipment
2,423
2,827
2014
$’000
2013
$’000
(b) Lease commitments: group as lessee
(i) Non-cancellable operating leases
The Group leases a number of warehouse
and factory facilities under operating leases.
The leases run for a period ranging from
One to 10 years with the majority running for
a period of five 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
(c) Lease commitments: where a
Group Company is the lessor
The future minimum lease payments receivable under non-cancellable
operating leases are as follows:
Within one year
Later than one year but not later than five years
Later than five years
2014
$’000
2013
$’000
8,396
15,364
4,813
28,573
21,750
49,197
16,523
87,470
2014
$’000
2013
$’000
895
2,424
–
3,319
679
2,718
170
3,567
93
Hills Limited Annual Report for the year ended 30 June 2014
27 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 cooperation 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:
2014
$’000
2013
$’000
45,482
104,479
–
2
61,480
84,694
703
2
149,963
146,879
75,759
36,983
1,000
4,450
56,818
65,462
3,080
10,607
118,192
135,967
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Investments
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Contingent consideration
94
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
27 Financial risk management
continued
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising
from various currency exposures, primarily with respect to the US dollar.
Foreign exchange risk arises when future commercial transactions and recognised financial
assets and financial liabilities are denominated in a currency that is not the Group’s functional
currency. The risk is measured using sensitivity analysis and cash flow forecasting.
Management and Group Treasury manage the Group’s foreign exchange risk against their
functional currency. The companies and business units within the Group are required to
hedge their foreign exchange risk exposure arising from future commercial transactions
and recognised assets and liabilities using forward contracts transacted by Group Treasury.
The Group Treasury’s risk management policy is to hedge approximately three months’
of anticipated cash flows (mainly purchases of inventories) in US dollars.
The Group’s exposure to foreign currency risk at the reporting date, expressed in
Australian dollars, was as follows:
30 June 2014
30 June 2013
USD
$’000
1,128
1,024
Euro
$’000
JPY
$’000
GBP
$’000
–
12
–
–
–
–
Total
$’000
1,128
1,036
USD
$’000
2,395
(283)
NZD
$’000
Euro
’000
JPY
’000
GBP
$’000
–
–
8
–
–
–
273
6
Total
$’000
2,676
(277)
(12,962)
(582)
(202)
(197)
(13,943)
(24,346)
(59)
(627)
(151)
(219)
(25,402)
(25,058)
(330)
–
–
–
–
–
–
(25,058)
(17,948)
(330)
(1,621)
–
–
–
–
–
–
–
–
(17,948)
(1,621)
Trade receivables
Cash at bank
Trade payables
Forward exchange contracts:
– buy foreign currency
(cash flow hedges)
– buy foreign currency
(FVTPL) 43
(43) Fair Value Through Profit and Loss
Sensitivity
The sensitivity of profit or loss to changes in exchange rates arises mainly from US dollar
denominated financial instruments and the impact on other components of equity arises
from foreign forward exchange contracts designated as cash flow hedges.
Foreign exchange risk – decrease 10%
(1,183)
(2,155)
Impact on
pre tax profit
2014
$’000
2013
$’000
Impact on
other components
of equity
2014
$’000
2,959
2013
$’000
1,989
Foreign exchange risk – increase 10%
968
1,764
(2,419)
(1,677)
Profit is less sensitive to movements in the Australian dollar / US dollar exchange rates in
2014 than 2013 because of the reduced amount of US dollar denominated trade receivables
and payables. Other components of equity is more sensitive to movements in the Australian
dollar / US dollar exchange rates in 2014 than 2013 because of the increased amount of
US dollar denominated forward exchange contracts.
95
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
27 Financial risk management
continued
(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 per cent to 75 per cent of
its borrowings at fixed rate using interest rate
swaps to achieve this when necessary. During
2014 and 2013, 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
96
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. As at the end of the reporting
period, the Group had the following variable
rate borrowings and interest rate swap
contracts outstanding:
2014
2013
Weighted
average
interest rate
%
2.8%
2.4%
13.1%
Balance
$’000
(36,810)
45,482
(173)
4.4%
20,000
Weighted
average
interest rate
%
2.8%
2.9%
2.6%
6.0%
Balance
$’000
(65,000)
61,480
(462)
65,000
Bank overdrafts and bank loans
Cash and cash equivalents
Other loans
Interest rate swaps
(notional principal amount)
An analysis by maturities is provided in
note 27(c) on page 98.
Sensitivity
Profit or loss is sensitive to higher / lower
interest income and interest expense from
cash and cash equivalents and borrowings
respectively, as a result of changes in interest
rates. Other components of equity change as
a result of an increase / decrease in the fair
value of the cash flow hedges of borrowings.
Interest rates – decrease by 100 basis points
Interest rates – increase by 100 basis points
Profit is more sensitive to movements in interest
rates in 2014 than 2013 mainly as a result of
higher interest income from cash and cash
equivalents. Other components of equity is
less sensitive mainly as a result of reduction in
interest rate swaps.
Impact on
pre tax profit
Impact on
other components
of equity
2014
$’000
(122)
122
2013
$’000
(40)
40
2014
$’000
(250)
246
2013
$’000
(948)
928
Hills Limited Annual Report for the year ended 30 June 2014
Notes to the consolidated financial statements
27 Financial risk management
continued
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.
Interest rate risk
Foreign exchange risk
–100 bps
+100 bps
–10%
+10%
Carrying
amount
‘000
Profit
$’000
Other
equity
$’000
Profit
$’000
Other
equity
$’000
Profit
$’000
Other
equity
$’000
Profit
$’000
Other
equity
$’000
2014
Financial assets
Cash and cash equivalents
45,482
(450)
Trade and other receivables
104,479
Total increase / (decrease) in financial assets
Financial liabilities
Derivatives – cash flow hedges
Derivatives – fair value through profit or loss
Trade payables
Borrowings
Total increase / (decrease) in financial liabilities
Total increase / (decrease)
2013
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives – cash flow hedges
Total increase / (decrease) in financial assets
Financial liabilities
Derivatives – cash flow hedges
Derivatives – fair value through profit or loss
Trade payables
Borrowings
Total increase / (decrease) in financial liabilities
Total increase / (decrease)
(912)
(88)
(75,759)
(36,983)
61,480
84,694
703
(3,000)
(80)
(56,818)
(65,462)
–
(450)
–
–
–
328
328
(122)
615
–
–
615
–
–
–
(655)
(655)
(40)
–
–
–
(250)
–
–
–
(250)
(250)
–
–
–
–
(948)
–
–
–
(948)
(948)
450
–
450
–
–
–
(328)
(328)
122
(615)
–
–
(615)
–
–
–
655
655
40
–
–
–
246
–
–
–
246
246
–
–
–
–
928
–
–
–
928
928
115
127
242
–
124
(1,549)
–
(1,425)
(1,183)
(31)
267
60
296
–
371
(2,822)
–
(2,451)
(2,155)
–
–
–
(94)
(104)
(198)
–
–
–
2,959
–
(2,419)
–
–
–
(102)
1,268
–
–
–
–
2,959
2,959
1,166
(2,419)
968
(2,419)
–
–
1,989
1,989
–
–
–
–
–
1,989
25
(218)
–
–
(48)
(1,677)
(241)
(1,677)
–
(304)
2,309
–
2,005
1,764
–
–
–
–
–
(1,677)
97
Hills Limited Annual Report for the year ended 30 June 2014 (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.
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 9.
(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.
Financing arrangements
At 30 June 2014, the Group had banking
facilities totalling $196 million, through a
Common Deed with Commonwealth Bank,
National Australia Bank and Westpac Banking
Corporation. The facility comprises Tranche
A $81 million, expiring in one year (16 August
2015), Tranche B $69 million, expiring in
two years (16 August 2016), and Tranche C
$46 million, expiring in one year (subject to
annual review) (16 August 2015). Tranches A
and B comprise bank loans and Tranche C
comprises bank guarantees, letters of credit
and cash advances.
The Group had access to the following
undrawn borrowing facilities at the end
of the reporting period:
Floating rate
Expiring within one year (bank overdraft and short term money market)
Expiring beyond one year (bank loans and standby letters of credit)
2014
$’000
2013
$’000
38,444
115,000
39,437
83,964
153,444
123,401
98
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
27 Financial risk management
continued
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.
Less than 6
months
$’000
6 to 12
months
$’000
Between
1 and 2
years
$’000
Between
2 and 5
years
$’000
Over
5 years
$’000
Total
contractual
cash flows
$’000
Carrying
amount
(assets)/
liabilities
$’000
At 30 June 2014
Non-derivatives
Trade payables
Borrowings
Total non-derivatives
Derivatives
75,759
2,516
78,275
–
478
478
–
35,120
35,120
Interest rate swaps and forward exchange contracts
590
180
268
At 30 June 2013
Non-derivatives
Trade payables
Borrowings
Total non-derivatives
Derivatives
56,818
1,115
57,933
–
938
938
–
1,877
1,877
–
–
–
–
–
65,235
65,235
–
–
–
–
75,759
38,114
75,759
36,983
113,873
112,742
1,038
1,000
–
320
320
56,818
69,485
56,818
65,462
126,303
122,280
Interest rate swaps and forward exchange contracts
1,070
1,037
1,040
196
–
3,343
3,080
99
Hills Limited Annual Report for the year ended 30 June 2014 28 Fair value measurements
(a) Fair value measurements for financial
assets and liabilities
The Group measures and recognises the
following financial assets and financial
liabilities at fair value on a recurring basis:
• Derivative financial instruments
• Contingent consideration payable
AASB 13 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 2014 and 30 June 2013:
30 June 2014
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
Contingent consideration payable
Total liabilities
30 June 2013
Assets
Derivatives for hedging
Total assets
Liabilities
Derivatives used for hedging
Contingent consideration payable
Total liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
–
–
–
–
–
–
1,000
–
1,000
703
703
3,080
–
3,080
–
–
–
4,450
4,450
–
–
1,000
4,450
5,450
–
–
–
10,607
10,607
703
703
3,080
10,607
13,687
The Group recognises transfers between
levels of the fair value hierarchy as of the
end of the reporting period during which the
transfer has occurred. There were no transfers
between levels 1, 2 and 3 for recurring fair
value measurements during the year.
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 2014.
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.
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.
100
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
28 Financial risk management
continued
The following table shows a reconciliation
from the beginning balances to the ending
balances for fair value measurements in
Level 3 of the fair value hierarchy:
Balance at 1 July
Unwinding discount on provision
Release of contingent consideration
Payment of contingent consideration (note 29 (c))
Arising from business combination
Balance at 30 June
A discussion on the unobservable inputs
is included within Note 29. The valuation
of contingent consideration considers the
possible scenarios of expected EBIT,
revenue and contracts to be signed,
the amount of contingent consideration to
be paid under each scenario and the
probability of each scenario. The estimated
fair value would increase / (decrease) if
EBIT is higher / (lower), revenue growth is
(lower) and the number of contracts signed
(decreases). Reasonably possible changes
to the significant unobservable inputs,
holding other inputs constant would have
the following effect upon profit:
Revenue (5% movement)
EBIT (5% movement)
Contingent consideration
2014
$’000
10,607
346
(773)
(10,180)
4,450
4,450
2013
$’000
–
–
–
10,607
10,607
Profit or loss
Increase
$’000
Decrease
$’000
–
(300)
195
300
101
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
28 Fair value measurements
continued
(b) Fair value measurements for
non-financial assets and liabilities
The Group measures and recognises the
following non-financial assets and financial
liabilities at fair value:
• Land and buildings
• Assets and disposal groups held for sale
The following table presents the Group’s
non-financial assets and non-financial
liabilities measured and recognised at fair
value at 30 June 2014. An explanation of
each level is provided in (a) above.
30 June 2014
Land and buildings
Assets and disposal groups held for sale
Total non-financial assets and liabilities
The Group recognises transfers between
levels of the fair value hierarchy as of the
end of the reporting period during which the
transfer has occurred. There were no transfers
between levels 1, 2 and 3 for recurring fair
value measurements during the year.
The valuation techniques used to determine
Level 2 and Level 3 fair values and details of
significant unobservable inputs is set out
in note 12.
The following table shows a reconciliation
from the beginning balances to the ending
balances for fair value measurements in
Level 3 of the fair value hierarchy:
Balance at 1 July 2013
Disposals
Revaluation
Additions at cost
Depreciation charges
Transfer to assets held for sale
Balance at 30 June 2014
102
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
30,785
30,785
7,800
7,800
38,585
38,585
Land and
buildings
$’000
Assets and disposal
groups held for sale
$’000
65,706
(14,975)
(14,227)
2,254
(173)
(7,800)
30,785
70,221
(70,221)
–
–
–
7,800
7,800
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
29 Business combination
(a) Current year
Summary of acquisitions
On 4 September 2013, the Group announced
the acquisition of two healthcare technology
businesses. One hundred per cent of the
issued shares in New Tone Pty Ltd (including
TV Rentals Pty Ltd) (“HTR”) were acquired
with an effective date of 1 September 2013
and the assets and business of Merlon
Technology NSW Pty Limited, Merlon
Healthcare Communications Pty Limited
and Statewide Communications Australia
Pty Limited, (collectively known as “Merlon”)
were acquired with an effective date of
1 October 2013. On 31 March 2014, the
Group announced the acquisition of the
majority of the assets and business of a
healthcare technology business, Questek
Pty Ltd (“Questek”). The acquisitions continue
the development of interactive patient care
solutions, including to hospitals, aged care,
retirement living and home care.
Purchase consideration
Cash paid
Contingent consideration / retention
Total purchase consideration
Fair value of net identifiable assets acquired
(refer below)
On 31 March 2014, the Group announced
the acquisition of the assets and business
of a security solutions business, Open
Platform Systems Pty Ltd (“OPS”) and on
31 May 2014, the Group announced the
acquisition of the assets and business of
a New Zealand based security solutions
business, Intek Ltd (“Intek”). The acquisitions
complement and extend the Group’s security
solutions business.
The acquired businesses contributed
revenues of $29.069 million and net profit
of $3.367 million from the dates of
acquisition. If the acquisitions had occurred
on 1 July 2013, consolidated revenue and
consolidated profit for the year ended
30 June 2014 would have been $487.750
million and $28.979 million respectively.
Details of the purchase consideration, the net
assets acquired and goodwill are as follows:
HTR &
Merlon
$’000
32,137
–
32,137
Questek
$’000
OPS
$’000
Intek
$’000
3,312
950
4,262
5,244
3,500
8,744
5,576
–
5,576
9,149
2,002
4,213
3,165
Goodwill (refer below)
22,988
2,260
4,531
2,411
The goodwill relating to the acquisitions
is attributable to the future non-contracted
growth opportunities, the assembled
workforce and synergies (both revenue
and cost) applicable within the Hills
Technologies division.
103
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
29 Business combination
continued
Assets and liabilities acquired
The provisional assets and liabilities
recognised as a result of the acquisitions
are as follows:
Cash / (overdraft)
Trade and other receivables
Inventories
Plant and equipment
Intangible assets: software
Intangible assets: customer contracts /
relationships / brands
Intangible assets: patents and trademarks
Trade creditors and other liabilities
Provision for income tax
Deferred tax liability (net)
Provision for employee benefits
Net identifiable assets acquired
Add: goodwill
Net assets acquired
Fair value
HTR &
Merlon
$’000
Fair value
Questek
$’000
Fair value
OPS
$’000
Fair value
Intek
$’000
(111)
1,702
2,388
2,233
807
8,298
2
(1,661)
(1,356)
(2,382)
(771)
9,149
22,988
32,137
–
2,130
565
268
345
–
1,926
1,818
120
–
1,995
3,053
–
–
–
1,092
2,038
577
47
–
–
(2,391)
(1,617)
(581)
–
(447)
(463)
2,002
2,260
4,262
–
(836)
(251)
4,213
4,531
8,744
–
53
(61)
3,165
2,411
5,576
Contingent / deferred consideration
Acquisition related costs
Acquisition related costs of $4.978 million
are included in other expenses in profit
or loss and in operating cash flows in the
consolidated statement of cash flows.
Contingent consideration is payable to the
former owners of OPS if certain EBITDA
results are achieved for the year ended 30
June 2014 and if certain revenue targets
are achieved for the year ending 30 June
2015. Contingent consideration recorded has
been determined using the latest available
forecasts. Contingent consideration is
payable to the former owners of Questek
in the year ending 30 June 2015, subject
to material contracts being signed and
consideration withheld subject to any claims
arising, is payable to the former owners of
Questek 12 months from acquisition date.
Contingent consideration recorded has been
determined based on the best estimates of
contracts signed.
104
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
29 Business combination
continued
(b) Prior period – Lan1 Pty Ltd
On 26 October 2012 the Group acquired 100 per cent of the issued shares in Lan1 Pty Ltd.
The acquisition complements the Group’s Electronics, Video and Security division within
the Electronics and Communications segment.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration (refer to (c) below):
Cash paid
Contingent consideration
Total purchase consideration
The assets and liabilities recognised as a result of the acquisition are as follows:
Sundry receivables
Inventories
Plant and equipment
Deferred tax asset
Intangible assets: software
Provision for employee benefits
Net identifiable assets acquired
Add: goodwill
Net assets acquired
$’000
5,160
10,606
15,766
$’000
6
1,417
4
51
117
(171)
1,424
14,342
15,766
The goodwill is attributable to the synergies expected to arise within the Electronics,
Video and Security division.
Contingent consideration
In the event that earnings before interest, tax, depreciation and amortisation (EBITDA) exceeds
$2.012 million in the first 12 months post acquisition an amount calculated as 25 per cent of
five times EBITDA less debt funding is payable to the former owners. In the event that EBITDA
in the second 12 months post acquisition exceeds $2.012 million and EBITDA achieved in the
previous year, an amount calculated as 25 per cent of five times second year EBITDA less debt
funding is payable to the former owners. If these conditions are not met a lower amount payable
is calculated. The maximum amount of the payment in each year is dependent upon EBITDA.
Contingent consideration of $10.180 million was paid in the financial year ended 30 June 2014.
Acquisition-related costs
Acquisition related costs of (2013: $0.392 million) are included in expenses in profit or loss and
in operating cash flows in the Consolidated statement of cash flows.
(c) Purchase consideration – cash outflow
Outflow of cash to acquire subsidiaries and business operations,
net of cash acquired:
Cash consideration
Bank overdraft
Payment of contingent consideration
2014
$’000
2013
$’000
46,269
5,160
111
10,180
56,560
–
–
5,160
105
Hills Limited Annual Report for the year ended 30 June 2014 30 Interests in other entities
(a) Investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the
following subsidiaries in accordance with the accounting policy described in note 1(c):
Name of entity
Country of
incorporation
Class of
shares
Equity holding
2014
%
2013
%
Australia
Hills Finance Pty Ltd
New Zealand
Hills NZ Limited (formerly Hills Holdings NZ Limited)
Australia
Hills Group Operations Pty Ltd
Australia
Hills Integrated Solutions Pty Ltd (formerly DAS Security Wholesalers Pty Ltd)
Australia
Pacific Communications (PACOM) Pty Ltd
Pacom Security Pty Ltd
Australia
Hills Health Solutions Pty Ltd (formerly Hills Health Solutions Australia Pty Ltd, CBS Hardware Pty Ltd) Australia
Australia
New–Tone (Aust) Pty Ltd
Australia
TV Rentals Pty Ltd
Australia
Hills Polymers Pty Ltd
Australia
Hills Hoists Pty Ltd
Australia
ACN 000 733 979 Pty Ltd (formerly Bailey Aluminium Products Pty Ltd)
Australia
ACN 000 192 951 Pty Ltd (formerly Hills Industries Pty Ltd)
Australia
Hills Share Plans Pty Ltd (formerly ACN 089 622 622 Pty Ltd)
Australia
Step Electronics 2005 Pty Ltd (i)
Australia
Cygnus Satellite Pty Ltd (i)
Australia
Lan 1 Pty Ltd
Australia
ACN 159 817 955 Pty Ltd
Australia
Woodroffe Industries Pty Ltd
Australia
ACN 091 954 442 Pty Ltd (formerly Fielders Australia Pty Ltd)
Australia
ACN 099 403 139 Pty Ltd (formerly Fielders Mobile Mill Pty Ltd)
Australia
Zen 99 Pty Ltd
Australia
ACN 010 853 817 Pty Ltd (formerly Orrcon Holdings Pty Ltd)
Australia
ACN 094 103 090 Pty Ltd (formerly Orrcon Operations Pty Ltd)
Australia
ACN 093 760 895 Pty Ltd (formerly Orrcon Tubing Pty Ltd)
Australia
Access Television Services Pty Ltd
Australia
ACN 116 849 613 Pty Ltd (formerly Techlife Solutions Pty Ltd)
Australia
ACN 001 345 482 Pty Ltd (formerly Audio Telex Communications Pty Ltd)
Australia
ACN 109 172 965 Pty Ltd (formerly Crestron Control Solutions Pty Ltd)
Australia
K.D.B.E. Pty Ltd (formerly KDB Engineering Pty Ltd)
Australia
K.E.A.P.L. Pty Ltd (formerly Kerry Equipment (Aust) Pty Ltd)
Australia
ACN 097 253 060 Pty Ltd (formerly Greenwattle Investments Pty Ltd)
Australia
ACN 097 252 812 Pty Ltd (formerly Access Scaffolding (Aust) Pty Ltd)
Australia
ACN 097 253 202 Pty Ltd (formerly Greenwattle Equipment Pty Ltd)
Australia
ACN 095 224 034 Pty Ltd
Australia
ACN 009 696 084 Pty Ltd
Australia
ACN 007 584 527 Pty Ltd (formerly Hills Nominees Pty Ltd)
Australia
ACN 008 160 843 Pty Ltd (formerly Step Electronics Pty Ltd)
Australia
OptiComm Co Pty Ltd
Australia
UHS Systems Pty Ltd
Australia
UHS Pty Ltd
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100
100
100
100
100
100
100
100
100
100
100
–
–
100
50
50
100
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
–
100
100
100
100
–
–
100
100
100
100
100
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
51
51
(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.
106
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the consolidated financial statements
30 Interests in other entities
continued
(b) Non-controlling interests (NCI)
There is no individual subsidiary that has non-controlling interests that are material to the Group
in either the current or the prior financial year. Accordingly, summarised financial information is
provided in aggregate for all subsidiaries with non-controlling interests. The amounts disclosed
are before intercompany eliminations.
Summarised statement of financial position
Current assets
Current liabilities
Current net assets
Non–current assets
Non–current liabilities
Non–current net assets
Net assets
Accumulated NCI
Summarised statement of comprehensive income
Revenue
Profit for the period
Other comprehensive income
Total comprehensive income
Profit allocated to NCI
Dividends paid to NCI
Summarised cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net increase / (decrease) in cash and cash equivalents
2014
$’000
2013
$’000
3,867
2,591
1,276
834
–
834
2,110
1,063
11,969
11,949
20
2,181
394
1,787
1,807
898
31,809
70,618
3,419
5,459
–
3,419
1,589
90
3,314
(242)
(226)
2,846
–
5,459
2,738
1,341
3,772
(1,116)
(2,080)
576
(c) Transactions with non-controlling interests
On 2 January 2014, the Group acquired the remaining 49% of UHS Systems Pty Ltd,
for consideration of $5.000 million.
During the previous financial year in the period that Korvest was part of the Group, Korvest
made one issue 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.
Carrying amount of non-controlling interests acquired / (diluted)
Consideration paid to non-controlling interests
Impact of acquisition / dilution recognised in the transactions with
non-controlling interests reserve within equity
2014
$’000
505
(5,000)
(4,495)
2013
$’000
(9)
–
(9)
107
Hills Limited Annual Report for the year ended 30 June 2014 31 Parent entity financial information
(a) Summary financial information
The individual financial statements for
the parent entity show the following
aggregate amounts:
Balance sheet
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
Equity compensation reserve
Profits reserve
Retained earnings
Profit or loss for the year
Total comprehensive income
2014
$’000
2013
$’000
219,292
246,815
153,530
174,483
372,822
421,298
139,106
153,341
41,555
77,892
180,661
231,233
192,161
190,065
281,624
303,890
15,809
(638)
721
35,613
27,882
(1,397)
658
-
(140,968)
(140,968)
192,161
190,065
47,876
(178,869)
40,335
(184,222)
(b) Guarantees entered into by the
(c) Contingent liabilities of the
parent entity
parent entity
Bank guarantees given by the Company in
favour of customers and suppliers amounted
to $6.719 million (2013: $5.245 million).
Cross guarantees are given by the Company
and its wholly owned subsidiaries as described
in note 32. 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 $150.143 million (2013: $246.335
million). No material deficiency in net tangible
assets exists in these companies at reporting
date with net tangible assets amounting to
$91.946 million (2013: $167.791 million).
The parent entity had a contingent liability in
respect of claims, as disclosed in note 25.
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 2014, the Company had
contractual commitments for the acquisition
of property, plant or equipment totalling
$2.348 million (2012: $2.047 million).
These commitments are not recognised
as liabilities as the relevant assets have
not yet been received.
108
Hills Limited Annual Report for the year ended 30 June 2014Notes to the consolidated financial statements Notes to the
consolidated
financial
statements
32 Deed of cross guarantee
Pursuant to ASIC Class Order 98/1418 (as
amended) dated 13 August 1998, the wholly
owned subsidiaries listed below are relieved
from the Corporations Act 2001 requirements
for preparation, audit and lodgement of
financial reports, and Directors’ reports.
It is a condition of the Class Order that the
Company and each of the subsidiaries enter
into a Deed of Cross Guarantee. The effect of
the Deed is that the Company guarantees to
each creditor payment in full of any debt in the
event of winding up of any of the subsidiaries
under certain provisions of the Corporations
Act 2001. If a winding up occurs under other
provisions of the Act, the Company will only
be liable in the event that after six months
any creditor has not been paid in full. The
subsidiaries have also given similar guarantees
in the event that the Company is wound up.
The subsidiaries subject to the Deed are:
Hills Finance Pty Ltd
Hills Hoists Pty Ltd
Woodroffe Industries Pty Ltd
ACN 010 853 817 Pty Ltd (formerly Orrcon
Holdings Pty Ltd)
ACN 094 103 090 Pty Ltd (formerly Orrcon
Operations Pty Ltd)
Hills Polymers Pty Ltd
ACN 091 954 442 Pty Ltd (formerly Fielders
Australia Pty Ltd)
Access Television Services Pty Ltd
Hills Health Solutions Pty Ltd
Hills Group Operations Pty Ltd
New-Tone (Aust) Pty Ltd
TV Rentals Pty Ltd
Zen 99 Pty Ltd
Lan 1 Pty Ltd
All of the subsidiaries except ACN 010 853
817 Pty Ltd (formerly Orrcon Holdings Pty Ltd),
ACN 094 103 090 Pty Ltd (formerly Orrcon
Operations Pty Ltd), Hills Polymers Pty Ltd,
ACN 091 954 442 Pty Ltd (formerly 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.
ACN 010 853 817 Pty Ltd (formerly Orrcon
Holdings Pty Ltd) and ACN 094 103 090
Pty Ltd (formerly Orrcon Operations Pty Ltd)
became parties to the deed on 23 June
2006, by virtue of a Deed of Assumption. Hills
Polymers Pty Ltd became a party to the deed
on 14 May 2008. ACN 091 954 442 Pty Ltd
(formerly Fielders Australia Pty Ltd)and Access
Television Services Pty Ltd became parties to
the deed on 29 June 2010.
Hills Health Solutions Pty Ltd, Hills Group
Operations Pty Ltd, New-Tone (Aust) Pty Ltd,
TV Rentals Pty Ltd, Zen 99 Pty Ltd and Lan 1
Pty Ltd became parties to the deed on
25 June 2014.
Hills 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
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 2014 and a
Consolidated statement of financial position
as at 30 June 2014 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.
109
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
32 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) from discontinued operations
Profit / (loss) for the year
Consolidated statement of comprehensive income
Profit / (loss) for the year
Other comprehensive income:
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges
Income tax relating to these items
Other comprehensive income / (loss) for the year that may be
reclassified to profit or loss, net of tax
Items that will not be reclassified to profit or loss
(Loss) on revaluation of land and buildings
Income tax relating to these items
Other comprehensive (loss) for the year that will not be reclassified
to profit or loss, net of tax
Other comprehensive loss for the period, 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
Adjustment for subsidiaries entering the deed of cross guarantee
Profit / (loss) for the year
Transfers from reserves
Dividends provided for or paid
Transfer to profits reserve
Retained earnings at the end of the financial year
2014
$’000
2013
$’000
386,692
408,731
1,032
(3,580)
28,695
(3,045)
(373,148)
(475,126)
10,996
(40,745)
(584)
12,111
8,018
(64,770)
18,430
(93,404)
18,430
(93,404)
1,084
(325)
759
2,162
(649)
1,513
(14,227)
(11,186)
4,268
3,524
(9,959)
(7,662)
(9,200)
(6,149)
9,230
(99,553)
(93,177)
12,927
11,949
–
18,430
(93,404)
–
–
(398)
(12,302)
(18,430)
–
(81,228)
(93,177)
110
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the consolidated financial statements
32 Deed of cross guarantee
continued
(b) Consolidated statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Assets classified as held for sale
Total current assets
Non-current assets
Investments
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabiilties
Provisions
Derivative financial instruments
Liabilities associated with assets held for sale
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
2014
$’000
2013
$’000
40,649
93,222
52,687
–
53,630
84,921
34,588
703
186,558
173,842
7,800
139,074
194,358
312,916
1,301
45,430
80,725
55,614
21,940
76,973
19,379
59,472
183,070
177,764
377,428
490,680
70,867
58,603
172
686
141
–
36,977
42,333
384
551
109,086
101,628
–
73,975
109,086
175,603
35,000
65,000
5,530
527
3,283
2,449
41,057
70,732
150,143
246,335
227,285
244,345
281,624
303,890
26,889
33,632
(81,228)
(93,177)
227,285
244,345
111
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
33 Reconciliation of profit after
income tax to net cash inflow
from operating activities
Profit / (loss) for the year
Depreciation and amortisation
Impairment of goodwill
Impairment of trade receivables
Impairment of inventories
Impairment of property, plant and equipment
Impairment of software
Net (gains) on disposal of businesses
Non-cash employee benefits expense – share-based payments
Net (gain) loss on sale of non-current assets (including assets held for sale)
Fair value adjustment to derivatives
Wind back of discounts on provisions
Rent received
Change in operating assets and liabilities, net of effects from
purchases and sales of controlled entities and business operations:
(Increase) / decrease in trade and other receivables
(Increase) / decrease in inventories
Decrease / (increase) in deferred tax assets
Increase in trade and other creditors
Increase in provision for income taxes payable
(Decrease) / increase in other provisions
Net cash (outflow) / inflow from operating activities
2014
$’000
2013
$’000
26,387
(91,387)
9,197
–
835
2,117
936
10,475
15,577
16,719
4,547
31,886
53,806
16,587
(14,596)
(13,462)
63
(303)
(302)
346
(1,777)
167
(272)
(173)
–
(790)
(14,955)
6,119
(18,313)
19,296
4,071
(33,891)
625
797
(20,930)
(15,327)
22,589
5,918
28,144
81,380
112
Hills Limited Annual Report for the year ended 30 June 2014 Notes to the
consolidated
financial
statements
34 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:
2014
$
2013
$
KPMG audit and non–audit services
Audit and other assurance services
KPMG Australia – audit and review of the financial statements
628,000
520,000
Overseas KPMG firms – audit and review of the financial statements
22,140
32,610
Total remuneration for audit and other assurance services
650,140
552,610
Taxation services
KPMG Australia – taxation and other services
Overseas KPMG firms – taxation services
Total remuneration for taxation services
Other services
Financial advisory services
Software implementation assurance services
Other consulting services
Total remuneration for other services
Total remuneration of KPMG
102,520
79,641
24,367
8,772
126,887
88,413
833,235
296,516
–
40,268
12,316
65,310
873,503
374,142
1,650,530 1,015,165
Both audit and non-audit fees increased due
to significant additional work performed in
relation to the Company’s restructure and
transformation program and in particular the
sale of non-core businesses. Non-audit fees
will return to normal levels in 2015.
35 Events occurring after the reporting period
On 1 July 2014, the Group acquired 100 per cent of the issued shares in EMG Finance Pty Ltd
and Audio Products Group Pty Ltd (together “APG”). The acquisition complements and
extends the Group’s building technologies business in the specialised audio market.
Details of the consideration transferred are:
Purchase consideration
Cash paid
Total purchase consideration
The provisionally determined fair values of the assets and liabilities as at the date of
acquisition are as follows:
Trade and other receivables
Inventories
Plant and equipment
Trade and other payables
Provision for employee benefits
Net identifiable assets acquired
Add: goodwill
Net assets acquired
$’000
15,000
15,000
$’000
4,592
3,755
315
(1,723)
(1,102)
5,837
9,163
15,000
The goodwill is attributable to the synergies
expected to arise within the building
technologies division.
Acquisition related costs of approximately
$0.5 million were included in other expenses
in profit or loss.
At the time the financial statements were
authorised for issue, the Group had not yet
finalised the accounting for the acquisition
and accordingly the numbers disclosed
above are provisional.
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.
113
Hills Limited Annual Report for the year ended 30 June 2014 Directors’
declaration
In the opinion of the Directors’ of Hills Limited (the Company):
(a) the consolidated financial statements and notes set out on pages 41 to 113
and the Remuneration Report on pages 14 to 35 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 2014
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 32 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 consolidated 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 Chief
Financial Officer required by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Edward Noel Pretty
Director
Sydney
18 August 2014
114
Hills Limited Annual Report for the year ended 30 June 2014
115
Hills Limited Annual Report for the year ended 30 June 2014 116
Hills Limited Annual Report for the year ended 30 June 2014 Shareholder
information
The shareholder information set out below
was applicable as at 14 August 2014.
A. Distribution of equity securities
Analysis of numbers of equity security holders
by size of holding:
B. Equity security holders
The names of the 20 largest holders of
quoted equity securities are listed below:
Class of equity security
ordinary shares
Name
Ordinary shares
Number held
Percentage
of issued
shares
Holding
1 – 1000
1,001 –
5,000
5,001 –
10,000
10,001 –
100,000
100,001
and over
Shares
Options
4,340
7,256
3,256
2,611
91
17,554
–
–
–
3
2
5
There were 1,522 holders of less than a
marketable parcel of ordinary shares.
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
Poplar Pty Limited
Hills Associates Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Jacaranda Pastoral Pty Ltd
21,604,950
17,038,059
16,550,845
16,239,441
10,921,397
7,749,111
5,968,699
RBC Investor Services Australia Nominees Pty Limited
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