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Annual Report
30 June 2015
Hills Limited
Annual report
30 June 2015
Contents
Shareholders’ letter
Directors’ report
Auditor’s independence declaration
Financial statements
Independent auditor’s report to the members
Shareholder information
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ABN 35 007 573 417
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Hills Limited Annual Report for the year ended 30 June 2015 Shareholders’ letter
Dear Shareholder,
THE FIRST 70 YEARS
The 2015 financial year has been a
challenging one for your Company. We have
had many shareholders ask whether the
strategic direction we took 3 years ago was
the right one. To this we answer; absolutely!
When Hills started in business 70 years
ago, Australia was in a post war boom with
manufacturing growing and reaching its
highest levels in the following few decades.
In the 1970s, Asia started to emerge as a
major producer of manufactured goods and
its share of global manufacturing doubled
from 1970 to 2010, and continues to grow. In
Australia, our manufacturing industry could
not compete with Asian manufacturers.
At the same time, the Australian
Government started the reduction in trade
protection to “goods-providing industries”.
From the early 1980s, trade barriers were
progressively wound back. Consequently,
the decline of the manufacturing industry
in Australia over the following decades
continued. The loss of Australia’s motor
industry, particularly visible in South
Australia, is the latest casualty of this
change. The Hills story since 1945 is closely
linked to the Australian manufacturing
‘story’. The graph below is taken from the
Reserve Bank of Australia’s September
2010 business bulletin titled “Structural
Change in the Australian Economy”.
Employment by Industry*
%
80
70
60
50
40
30
20
10
0
l
a
t
o
t
f
o
e
r
a
h
S
Agriculture
Mining
Services
Manufacturing
1910
1930
1950
1970
1990
2010
*Data are interpolated between 1900 and 1910
Sources: ABS; RBA; Withers, Endres and Perry (1985)
Year
Source: RBA September 2010 Quarterly Bulletin “Structural Change in the Australian Economy”
by Connolly and Lewis.
4
It was against this backdrop and declining
profitability that your Board decided,
after much deliberation, that the direction
of your Company needed to change.
Accordingly, the decision was made to
“de-risk” the Company by:
• exiting low margin, capital intensive
manufacturing operations exposed to
competition from low cost products;
• using the funds from the sale of these
businesses to pay down debt and to
give your Company a sound balance
sheet for organic growth and growth by
acquisition; and
• exiting businesses and joint ventures
where we had limited customers.
Your Company has transformed from
a conglomerate dependent upon low
margin, capital intensive steel fabrication
to a higher margin value-added distributor
of Security, AV and Health Services.
Our competitive advantage is our ability to
add value for our customers by providing
a broad range of products across both
Australia and New Zealand with a bespoke
service offering.
Hills Limited Annual Report for the year ended 30 June 2015
THE STORY SO FAR
Major asset
divestments
FY13-15 – Steel
Steel (Korvest, Orrcon
and Fielders),
Hills Polymers, Cygnus,
KCare, Opticomm, LWG,
Bailey Ladders, UHS
Strategic
partnerships
Woolworths Licensing
Agreement of Hills
Home product range
Complementary
acquisitions
Hostel, LAN1, APG,
OPS, HTR, Merlon,
Questek, Intek
Consolidation
and integration
of acquired
business systems
and processes
Realising our
potential
GROWTH
In the appendix to this letter financial
data shows what Hills looked like before we
began the restructure and transformation
in 2012, and what it looks like today.
A restructure and transformation of this
magnitude over a period of 3 years is
some feat. The stark contrast between the
data as at the end of 2012 and 2015 is
self-evident and a clear indication of why
Hills embarked on this path.
We have now completed the divestment
and restructure programme. Your
Board acknowledges, however, that
the transformation and restructure
programme has not been a smooth
process. The rapid transformation and
integration of our businesses has impacted
our results and it will take us further time
to return the Company to the profitability
expected for a company of our size. The
next phase of our journey is to stabilise,
consolidate and grow.
It is in this context that the results for
FY2015 need to be considered.
THE YEAR IN REVIEW
During the 2015 financial year (FY2015) Hills:
• completed the divestment and
restructure programme;
• progressed the transformation
programme – the business moved to
a common shared services platform
referred to as ‘One Hills’. This included
the reduction in sites from approximately
124 to 39. This process impacted our
supply chain and our relationships with
our customers but we are now seeing
improvement in both of these;
• progressed the integration of the
businesses acquired over the last 3
years. These are solid businesses with
good fundamentals in growth sectors
with higher margins. However, the
integration did not go as well as it could
have and results were impacted;
• entered into a strategic partnership
with Woolworths which we see as very
important. Prior to this transaction the
Home Segment was not consistently
profitable and was not likely to return
to an acceptable level of profitability.
We now have a steady long term income
stream with limited downside risk and
uncapped potential;
• was impacted by the loss of a key
supplier. Unfortunately, Crestron our
largest supplier decided to distribute
its own product in Australia – this is
consistent with its global strategy.
The impact of this will affect our results
in FY2016, however, we have started to
replace the lost revenue with profits on
new contracts including Tyco which was
agreed in February this year;
5
Hills Limited Annual Report for the year ended 30 June 2015Shareholders’ letter Shareholders’ letter
(continued)
• was impacted by external events –
RESULTS
DIVIDENDS
Hills underlying FY2015 result was a profit
of $11M, which was in line with guidance.
The Company recorded a statutory net
loss after tax attributable to owners of
$86M for the year ended 30 June 2015.
This loss reflects the Company’s results
post the after-tax impact of asset
impairments, including the de-recognition
of deferred tax assets, costs of acquisitions
and other associated gains or losses on
the disposal of businesses as previously
advised to the market.
To explain the impairment a little further,
under accounting standards, an indicator
of impairment exists when the book value
of the net assets of a company are higher
than its market capitalisation. The drop
in Hills share price over recent months
has seen a discrepancy emerge between
the share price and book values, and the
associated impairment testing identified
that an impairment was required.
This is a non-cash accounting charge as
at 30 June 2015 with no impact on the
future operating cash flows or economics
of the business. Our Health and Building
Technologies businesses remain solid,
operating in growth sectors and our
immediate focus is on returning these
businesses to their expected growth levels.
As part of the impairment process Hills
has de-recognised $26M of deferred
tax assets. These tax benefits will
continue to be available to offset future
taxable earnings.
We completed the year with net debt at
30 June 2015 of $32M and total facilities
in place of $110M. Hills continues to
have significant headroom against all of
its banking covenants and has capacity
for further acquisitions in Australia
and New Zealand, in line with our
strategic objectives.
Having paid a dividend of 2.1 cents per
share in the first half and in the context of
a statutory loss for FY2015, there will not
be a final dividend in relation to the 2015
financial year.
The Company’s dividend policy remains
unchanged, with a target on an annual
basis of 50-75 percent of underlying
profits, subject to future acquisitions
and working capital requirements.
OUTLOOK
During the year, we received “Best
Distributor of the Year” awards from two
of our key suppliers, Axis and Genetec.
We also won a number of major contracts,
as detailed in our Annual Report. However,
we recognise that we can and must do
better and we are accelerating efforts
to stabilise, consolidate and grow our
businesses. Significant energy is being
directed to the following areas:
• Customer engagement;
• Vendor relationships;
• Training our people;
• Tight capital management;
• Margin improvement; and
• Growth both organically and by
acquisition.
This renewed focus on operational
performance will continue through
FY2016 and the Board has reaffirmed its
commitment to consolidating and growing
both organically and by acquisition within
Australia and New Zealand.
As previously advised, we have reduced
the annualised corporate costs by
approximately $10M and will continue to
focus on cost reduction into FY2016.
reduced government spending, project
deferrals across the construction,
health and mining sectors and the
declining Australian dollar have all
impacted performance. Whilst we have
taken corrective action we have been
unable to recover all of the margin
compression flowing from the decline in
the Australian dollar during the financial
year. Margin improvement is a key focus
for management in FY2016;
• completed the purchase of Audio
Products Group (APG) which
strengthened our market leading
position in our Building Technologies
business in Australia and New Zealand.
This business has now been fully
integrated with the existing Hills
AV business;
• acquired Hospital Telecommunications
Pty Ltd (Hostel) which further
strengthened our market leading
position in patient entertainment and
provided growth in the number of
facilities serviced – now 350 hospitals
and 800 aged care facilities; and
• assessed a number of potential
acquisitions locally and overseas –
the buoyant market in the health and
technology sectors meant prices for
larger acquisitions moved higher during
the year and the Company was unable
to find suitable acquisitions within
its financial capacity. Your Board is,
and remains, determined to maintain
financial discipline around mergers
and acquisitions.
During the second half of FY2015, the
Company undertook a realignment of
the management team (including making
some management changes) in order
to focus on stabilising, consolidating
and growing our business in Australia
and New Zealand. As Chairman, I am
pleased to advise that Mr Grant Logan –
the incumbent Chief Operating Officer
– was appointed CEO on 27 May 2015.
The management team under Grant’s
leadership is well qualified, has the
experience and knowledge of the Hills
business and is well placed to consolidate
and grow your Company.
6
Hills Limited Annual Report for the year ended 30 June 2015 As we:
• roll out the back-to-basics programme
to stabilise the business;
• work to replace the profit from the loss
of the Crestron contract; and
• “right size” our cost structure in light of a
significantly reduced business,
it will take further time for the businesses
to return to the profit levels we expect.
A full update will be given at the AGM in
November.
On behalf of your Board and management,
we thank you for your continued support.
Yours sincerely
Jennifer Hill-Ling
Chairman
Grant Logan
Chief Executive Officer
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Hills Limited Annual Report for the year ended 30 June 2015Shareholders’ letter
Appendix A
DE-RISKING THE BUSINESS
Hills could no longer sustain the significant fixed cost base in invested plant and equipment, working capital or staff numbers tied to
manufacturing businesses, nor could Hills accept higher debt or leverage levels in the context of such substantial change. The following
tables show the reduced investment in assets and debt levels and other operational risk items over the restructure period:
Annual fixed property costs have reduced by 66%:
FIXED PROPERTY COST PER ANNUM
Annual rental expense
Site numbers
Staff numbers have reduced by 67%:
EMPLOYEES AT YEAR END
Employees – Australia and NZ
Funds tied up in working capital have reduced by 61%:
WORKING CAPITAL
Trade receivables
Trade payables
Inventory
Total working capital
FY12
$27.240M
124
FY12
2,642
FY12
$169.539M
($51.129M)
$165.287M
$283.697M
FY15
$9.325M
39
FY15
862
FY15
$79.615M
($41.441M)
$72.446M
$110.620M
Net debt and quasi-debt has reduced by 68%; Net debt and quasi-debt per share has reduced 66% from 53c to 18c per share:
NET DEBT, BANK GUARANTEES AND LETTERS OF CREDIT
Net debt, bank guarantees and letters of credit
Shares on offer
Net debt, bank guarantees and letters of credit per share
Annual capital expenditure has reduced by 62%:
CAPITAL EXPENDITURE
Annual capital expenditure spend
FY12
$129.280M
246.017M
0.53
FY12
$28.9M
FY15
$40.958M
231.986M
0.18
FY15
$10.9M
8
Hills Limited Annual Report for the year ended 30 June 2015 Appendix A
Foreign exchange exposures have reduced by 53%:
FX EXPOSURE
Total FX exposure in AUD
Workplace injuries have reduced by 87%:
WORKPLACE INJURIES
Lost time injuries
Medical treatment injuries
Total reportable injuries
PROFITABILITY
FY12
$51.387M
FY15
$24.045M
FY12
11
56
67
FY15
6
3
9
Hills is still a profitable Company after the restructure and divestment programme, but most importantly, the earnings now come from the
technology and health sectors, where the risk-profile is substantially reduced:
Underlying NPAT is steady at 2.6% of sales both before and after the restructure:
UNDERLYING NPAT TO GROSS REVENUE
Underlying NPAT
Gross revenue
Underlying NPAT to gross revenue ratio calculation
Underlying EBITDA has improved from 6.1% of sales to 6.8% of sales after the restructure:
UNDERLYING EBITDA TO EMPLOYEES AND REVENUE
Gross revenue
Underlying EBITDA
Employees at 30 June
Underlying EBITDA to employees ratio
Underlying EBITDA to gross revenue
FY12
$28.822M
$1,082.272M
2.7%
FY12
$1,082.272M
$65.802M
2,642
24.91
6.1%
FY15
$11.045M
$427.822M
2.6%
FY15
$427.822M
$28.962M
862
33.60
6.8%
9
Hills Limited Annual Report for the year ended 30 June 2015 2015
$’000
(85,947)
2014
$’000
24,798
96,992
2,479
11,045
27,277
The Directors present their report on the
consolidated entity (referred to hereafter
as Hills or the Company) consisting of Hills
Limited and the entities it controlled at
the end of, or during, the year ended 30
June 2015 (FY2015), 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
Fiona Rosalyn Vivienne Bennett
Philip Bullock
Ian Elliot
David Moray Spence
Edward (Ted) Noel Pretty was a Director
from the beginning of the financial year
until 27 May 2015.
Director Mr Peter Stancliffe retired from
the Board at the 2014 AGM held on 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.
REVIEW OF OPERATIONS
Overview
The Company recorded a net loss after tax
attributable to owners of $85.947 million
for the year ended 30 June 2015. This loss
reflects the Company’s results post the
after tax impact of asset impairments,
including the de-recognition of deferred
tax assets, costs of acquisitions and other
associated gains or losses on the disposal
of businesses as previously advised to the
market. As part of the impairment process
Hills has de-recognised $26.100 million of
the deferred tax assets. These tax benefits
will continue to be available to be used to
offset future taxable earnings.
The Company’s underlying FY2015 result
was a profit of $11.045 million (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).
The reconciliation between statutory and
underlying profit is set out below:
Net (loss) / profit after tax attributable to the
owners of the Company
Adjust for the after tax impact of any
adjustments including asset impairments,
de-recognition of deferred tax assets
relating to tax losses, costs of acquisitions
and other associated gains or losses on the
disposal of businesses (refer note 22(c) in the
Annual Report)
Underlying net profit after tax for the year
attributable to the owners of the Company
The Year in Review
The strategy of the Company continued
to be based on creating value through a
focus on delivering technology products
and service solutions into the environments
people trust most such as homes, schools,
hospitals, aged care facilities, educational
institutions, workplaces and governments,
in growth segments such as health, security,
audio visual and access control. It has been a
challenging year due to reduced government
spending, project deferrals across the
construction, health and mining sectors as
well as the declining Australian dollar. These
factors impacted the Company’s ability to
maintain strong margins.
In December 2014, Hills announced a
strategic partnership with Woolworths
Limited to licence the Hills heritage brand,
converting the original manufacturing
and distribution business into an annuity
business. Prior to this transaction the
business was not consistently profitable
and was not likely to return to an acceptable
level of profitability. Together with the
divestment of the polymer manufacturing
10
Hills Limited Annual Report for the year ended 30 June 2015Directors’ report and SmartBar businesses, these activities
completed Hills exit from sectors exposed
to the challenges of the manufacturing
industry. In June 2015, the sale of Hills 50%
interest in joint venture company Cygnus
Satellite was also completed. The Cygnus
business had a single customer and it
made financial sense for Hills to sell its
share in that business to this customer.
During the year Hills announced
the acquisition of Hospital
Telecommunications Pty Ltd (Hostel)
which further strengthened the
Company’s market leading position
in patient entertainment offerings,
growing the number of hospital services
(now 350) and aged care facilities (now
800). To strengthen our market leading
position in the Building Technologies
business in Australia and New Zealand,
Hills completed the acquisition of Audio
Products Group (APG), which has now
been fully integrated with the existing Hills
AV business.
During the year the Board continued to
evaluate opportunities to prudently use
the balance sheet to acquire new service
revenue streams in the communications
and health sectors, both onshore and
offshore. Hills assessed a number of
potential acquisitions locally and overseas
– the buoyant market in the health and
technology sectors meant prices for larger
acquisitions moved higher during the
year and the Company was unable to find
suitable acquisitions within its financial
capacity. Your Board is, and remains,
determined to maintain financial discipline
around mergers and acquisitions.
In May 2015, the Board reviewed and
refined the Company’s strategy and
committed to consolidating its existing
businesses and growing, both organically
and by acquisition, within Australia and
New Zealand. As a result, the Board agreed
with the Group Managing Director and
Chief Executive Officer, Edward (Ted)
Pretty, that a change in the executive
leadership would be appropriate and Mr
Pretty left his position on 27 May 2015.
Mr Grant Logan, the incumbent Chief
Operating Officer, was appointed Chief
Executive Officer (CEO).
Over the past two financial years, Hills
divested businesses exposed to the
manufacturing industry, acquired
businesses to grow its Building
Technologies business and capabilities
in the health sector, and actively
consolidated its operating structure.
This has enabled Hills to operate as
an integrated business and leverage
its iconic and trusted brand across all
markets in which the Company operates.
The transformation of our existing
business and the integration of its
new businesses has taken longer than
anticipated. While the rapid change over
the last 3 years has had some impact on
Hills customers and service capability,
the Board stands behind its strategic
decision to transform the Company from a
diversified manufacturing, low margin and
capital intensive business, to a provider
of integrated technology products and
services into trusted environments. In
the last quarter of FY2015, the Company
accelerated efforts to focus on driving
excellence in the basic elements of a
value-added distribution business.
Combined with a renewed focus on
operational performance, management
have made significant cuts to the
corporate overhead as the Company
is no longer pursuing large acquisition
opportunities. Now the streamlining
of the processes and businesses
acquired through FY2014 and FY2015
has been completed, Hills is committed
to consolidating and growing both
organically and by acquisition within
Australia and New Zealand.
Strategic Review and Update
At the 2014 AGM, Hills reported that the
focus for FY2015 would be the expansion
into new markets and a strong push for
innovation. The aspirational targets that
the Company was pursuing from FY2014
through FY2016 included:
• 75% of revenues from technologies
and communications
• 20-25% of revenues from services
• Sustained earnings growth
• Return on funds employed (ROFE)
of 13-15%
While the Company succeeded in meeting
the first two of these targets, the third
and fourth objectives were not met
as operational challenges in the rapid
transformation and integration processes,
delays in project work and the declining
Australian dollar all had a significant
impact on earnings growth.
In May 2015 the Board reviewed and
refined the Company’s strategy and is
committed to:
• Delivering excellent customer service
• Taking a ‘back to basics’ approach to
supply chain management
• Consolidating and integrating the
existing businesses and processes to
drive further improvements to customer
experience
• Pursuing organic growth opportunities
• Growing scale by complementary
acquisitions within Australia and New
Zealand
Work began in the fourth quarter of FY2015
and will continue during FY2016. The Board
continues to work with management to
fine tune our strategy and objectives and
the Company intends to provide an update
to Shareholders at this year’s AGM.
Vision and Values
Hills vision is to protect, improve and
inspire people’s lives. Over the past 70
years, Hills has built a heritage of trust
launched from Australian backyards,
where our innovative spirit began. The
Company has moved with the times,
identifying new technology and service
opportunities, and will continue to seek
out new innovations to support the core
mission: To be a value-added distributor
of technology and communication
solutions that inspire, protect and improve
people’s daily lives in the environments
they trust the most: their homes, schools,
hospitals, aged care facilities, educational
institutions, workplaces and governments
across Australia and New Zealand.
11
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REVIEW OF OPERATIONS
(continued)
Hills will add value by choosing the
best products and solutions available
while delivering high quality service and
expertise for all of our stakeholders.
This will enable Hills to deliver steady
returns to shareholders.
HILLS stands for:
• HEROIC CUSTOMER SERVICE
• INNOVATION
• LEADING CHANGE
• LEARNING
• SAFE AND CONSIDERATE WORKPLACES
Debt and Funding
Hills net debt as at 30 June 2015 was
$32.030 million (2014: $8.499 million).
Gearing, measured as net debt to net debt
plus equity, stood at 19.0% at 30 June
2015 (zero at 30 June 2014). In February
2015, a new $110 million 3-year bank debt
facility was entered into on substantially
better terms and pricing than the previous
facility. Hills continues to comfortably
meet all of its banking covenants.
Dividends
The Board declared a fully franked interim
dividend of 2.1 cents per share paid to
Hills Shareholders on 30 April 2015. In the
context of the statutory loss for FY2015,
there will not be a final dividend in relation
to the 2015 financial year.
The Company’s dividend policy remains
unchanged with the Board to target, on
an annual basis, a dividend payout ratio of
50-75% of underlying profits attributable to
owners, subject to acquisitions and working
capital requirements. Given the Company’s
accumulated tax losses following
transformational activities, Hills does not
expect to be in a tax paying position and
it is unlikely that future dividends will be
franked in the near term.
Hills strong balance sheet means the
Company has continued to suspend its
Dividend Reinvestment Plan and Share
Investment Plan.
On-market Share Buyback
During FY2015 the Company acquired
2.207 million shares for a total
consideration of $3.185 million (an average
price of $1.44 per share). This equates to
0.9% of the issued capital being bought
back in FY2015.
On 25 February 2015 the Company
extended the period during which it may
undertake an on-market buyback. No
further buyback was undertaken after
this announcement to the market as
the Board, together with management,
continued to consider transformational
acquisition targets during this period and
considered it prudent to conserve cash for
this purpose.
Any decision to resume the buyback will
be subject to cash required for acquisitions
and dividends.
Change of Segments
The Company has determined that its
chief operating decision maker (CODM)
is the Board of Hills Limited. The Board of
Hills Limited ultimately makes decisions
regarding the allocation of resources
to the operating segments of Hills and
ultimately is the Company’s “chief
operating decision maker” within the
meaning of AASB 8.
Hills currently has four operating
segments. The Company’s restructure
and divestment programme has resulted
in a number of changes to the relative
characteristics of Hills segments. In
FY2014, all of Hills remaining operating
segments had characteristics that
were materially so similar in nature that
they could reasonably be expected to
have had the same prospects. These
operating segments had similar economic
characteristics, provided similar products
and services, had a similar production
process, similar types of customers,
similar methods for distribution and were
subject to a materially similar regulatory
environment. Hills operating segments
were therefore aggregated into one
reportable segment under AASB 8 called
the Hills Technologies Segment. This was
also borne out by the fact that after its
restructure and divestment programme,
Hills had 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.
In the current year, the materiality of
the Health and Home Segments are
such that these have been disaggregated
from the single reportable segment
and the comparative results have been
adjusted accordingly.
In terms of reviewing the Company as
it has gone through its restructure and
divestment programme, the CODM is
presented with information that separates
Hills results into its continuing businesses
(Building Technologies Segment, Health
Segment, Home Segment, Corporate
Segment) and discontinuing business
results in one category: the Discontinued
Businesses Segment (which contains
the results of businesses that have been
closed or sold and regardless of whether
these are classified as discontinued under
IFRS or not). That information ‘through the
eyes of management’ has been presented
in the Segment note (note 2) in accordance
with the principles of AASB 8.
Description of Segments
Hills currently has the following reportable
segments with the following summaries
describing the operations of the
Company’s reportable segments:
Building Technologies Segment
Comprising 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
and amplifiers.
12
Hills Limited Annual Report for the year ended 30 June 2015 Health Segment
Comprising the supply and installation
of health technology solutions,
nursecall and patient entertainment
systems to hospitals, aged care facilities
and similar institutions. Hills earns
ongoing revenue from patients utilising
its patient entertainment systems on a
daily rate basis.
Home Segment
Comprising the results of the Hills Home
Living business which has now been
licensed to Woolworths Limited for a
period of 7 years, extendable to 19 years.
This converted the original manufacturing
and distribution business that included
products such as garden sprayers and
clothes lines into a brand licensing
annuity stream. Prior to this transaction
the business was not consistently
profitable and was not likely to return to
an acceptable level of profitability. This
partnership means that Hills Shareholders
will receive consistency of returns by way
of an annuity which will increase as more
Hills branded product are sold through
Woolworths’ retail outlets.
Corporate Segment
Comprising the costs of running Hills
Corporate, Compliance and Shared
Services functions. In prior periods,
this cost pool was directly recharged or
allocated to Hills other segments in whole
or in part. As discontinued businesses have
ceased operations, not all of the Corporate
Segment could be recharged and while
the gross costs have reduced substantially
over the past few years, the net cost
remaining in this Segment has increased.
As outlined in February the Company
continues to reduce corporate costs.
Corporate costs have reduced by
approximately $10 million on an
annualised basis.
Discontinued Businesses
Businesses that have been closed or sold
under Hills restructure and divestment
programme (whether or not these were
classified as discontinued under IFRS),
are shown separately to enable the CODM
to assess the true continuing operations
of the Company.
Review of Operations
by Reportable Segment
Building Technologies Segment
The business unit is the market leader –
providing 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 Building Technologies Segment
reported revenue of $348.4 million for
the year (2014: $327.3 million), an increase
of 6.54%. Segment EBITDA was $26.8
million for the year (2014: $36.5 million), a
decrease of 26.6%.
The domestic alarm market is
commoditising with selling prices and
margins remaining lower than trend due
to increased competition and downward
pressure on the Australian dollar. In
response, the Company has focused on
innovative marketing initiatives to drive
sales, undertaken appropriate price book
increases and is providing additional value
added services.
During the year Crestron, the Company’s
largest supplier, advised that they were
establishing a local Australian presence
with effect from 1 July this year and
accordingly the Company’s long term
vendor agreement came to an end. In
February 2015, Hills secured distribution
rights to Tyco’s complete range of security
products for businesses, retailers and
homes including access control systems,
electronic identification tags and video
surveillance systems. Hills will replace
Tyco’s previous local distributors on a
phased basis. It was anticipated that Tyco
and other new distribution arrangements
would replace the lost revenue and margin
of Crestron in FY2016, however this is
unlikely to be fully realised before the end
of FY2016.
Hills is a distributor and as such the
winning and losing of supply agreements
is part of our ordinary business. The
Company’s aim is to be indispensable to its
suppliers. During the year Hills has been
recognised by two of its suppliers – Genetec
and Axis – as distributor of the year.
Hills Security & IT Practice secured a
number of major contracts with system
integrators including Ambulance Victoria
with Telstra SNP, Aurizon Limited with Multi
Communication Systems, Shangri La Fiji
with Global Gossip, Arrow Energy with RCS
Telecommunications, and Bendigo Hospital
with Siemens Australia, Busselton Hospital
and the New Royal Adelaide Hospital.
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.
The renewal of the Foxtel satellite dish
contract has seen the continuation of
the manufacturing facility at the
O’Sullivan Beach antenna factory in
Adelaide. The decision was taken to
move electronic and traditional antenna
manufacturing offshore, but retain the
TruRange and other hardware products
at O’Sullivan Beach.
STEP provides secure communications
solutions with key deployments including
an extension to the Government DFAT
contract to supply further equipment.
Demand for free-to-air and satellite
equipment remained steady.
The acquisition of APG completed at
the start of FY2015. During the financial
year, the Hills AV (Audio Visual) Product
Practice was formed by the integration
of the Hills SVL brand portfolio with the
brands associated with the acquisition
of APG. Combined, and following the
new distribution rights, the Hills AV
portfolio offers breadth and depth that
are unmatched in the AV industry across
Australia and New Zealand.
Most of the leading brands in the AV
portfolio enjoyed record sales during
the year, finding application in schools,
universities, commercial premises,
entertainment venues, courtrooms,
houses of worship and transportation hubs
throughout Australia and New Zealand.
13
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REVIEW OF OPERATIONS
(continued)
Hills Connection Solutions in Australia
and Signal Master in New Zealand provide
subscription television, fixed wireless
and satellite installation services. During
FY2015, Hills Connection Solutions
secured the renewal of the contract for
the installation of NBN fixed wireless for
a further 4 year period. In recognition of
the services provided by Hills Connection
Solutions, it was named as a finalist in the
communication industry’s prestigious
ACOMMS Awards. Management
continues to focus on actively tendering
for new business in the broadband and
media sectors.
During the year Hills sold its 50%
owned Cygnus Satellite business, which
provides bandwidth to rural and remote
markets in Australia to the single customer
of the business.
Health Segment
Hills Health Solutions is a market
leader and comprises the nurse call
and patient engagement businesses
of Questek, Merlon, HTR and Hostel. It
is focused on the supply of nurse call,
patient infotainment and other related
solutions including security, Wi-Fi and
telephony to the health and aged care
sectors. The acquisition of Hostel in
February 2015 further strengthened the
patient entertainment footprint, adding
a further 17 hospitals and 4,000 beds to
Hills footprint. The strategic licensing
agreement with Ireland and US based
Lincor Solutions, a global leader in patient
engagement technology and clinical
access platforms, assisted Hills in securing
the installation of a state-of-the-art
system in the new Busselton hospital in
Western Australia.
The Health Segment reported revenue
of $33.5 million for the year (2014: $22.6
million), an increase of 48.2%. Segment
EBITDA was $4.1 million for the year (2014:
$5.3 million), a decrease of 22.6%. Whilst
the fundamentals of its Health business
are the right fit for Hills, the Board is
disappointment with the trading results.
The poor results have been impacted by:
• a longer timeframe for the integration of
these businesses leading to the delayed
benefit of synergies;
• delays in the sales pipeline; and
• a diversion from the day to day business
with the focus on the former overseas
Health strategy.
The four businesses are now co-located
and sales leads are being shared across
the teams. The Health management team
is focused on improving profitability in the
Segment by realising synergies through
the completion of integration activities and
driving the sales pipeline to compensate
for project slippage and opportunities or
unsuccessful tenders.
Home Segment
During the year, Hills entered into a
strategic partnership with Woolworths
Limited to licence the Hills heritage brand,
converting the original manufacturing
and distribution business into an
annuity business. Under the terms of
the agreement, Hills will receive income
from the use of the brand and intellectual
property by way of a minimum annual
licensing fee of $2 million per annum for
a minimum of 7 years. The Segment also
included Hills Polymers comprising of the
polymer processing plant and Smart Bar
range of frontal protection systems. During
the year both these low margin, capital
intensive businesses were sold.
Corporate Segment
Hills Corporate Segment includes
the costs of running Hills Corporate,
Compliance and Shared Services
functions. In prior periods, this cost
pool was directly recharged or allocated
to Hills other segments in whole or
in part. As discontinued businesses
have ceased operations, not all of the
Corporate Segment could be recharged
and while the gross costs have reduced
substantially over the past few years, the
net cost remaining in this Segment has
increased from $4.3 million in 2014 to $8.3
million in 2015. Additionally, the Company
has entered into transitional services
14
agreements (TSAs) as part of the sale of
its businesses whereby Hills continues to
undertake back office services for the new
owners of these businesses for a service
fee. As these TSAs with buyers of legacy
businesses conclude, the Corporate
costs that would otherwise remain within
Hills ongoing operations will be reduced.
Since the start of the year Hills has
removed approximately $10 million of
Corporate costs on an annualised basis.
The continuing reduction of Corporate
overhead costs is a key imperative for the
management team in 2016.
Discontinued Businesses
Businesses that have been closed or sold
under Hills restructure and divestment
programme (whether or not these were
classified as segment discontinued under
IFRS), are shown separately to enable
the CODM to assess the true continuing
operations of the Company. The prior year
included significant trading (revenues
of $321.6 million) from discontinued
businesses, including Hills previous Steel
operations for which the sale completed at
the end of February 2014.
Subsequent Events
No matter or circumstance has occurred
subsequent to year end that has
significantly affected, or may significantly
affect, the operations of the Company, the
results of those operations or the state
of affairs of the Company in subsequent
financial years.
Hills Limited Annual Report for the year ended 30 June 2015 Dividends
Dividends paid to members during the financial year were as follows:
Dividend of 3.6 cents fully franked based on tax paid @ 30.0% (2014: 3.25 cents) per fully paid
share paid on 26 September 2014 (FY2014: 27 September 2013)
Dividend of 2.1 cents fully franked based on tax paid @ 30.0% (2014: 3.4 cents) per fully paid
share paid on 30 April 2015 (FY2014: 31 March 2014).
Total dividends provided for or paid
2015
$’000
8,400
4,872
13,272
2014
$’000
8,000
8,037
16,037
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.
15
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
INFORMATION ON DIRECTORS
Jennifer Helen Hill-Ling
LLB (Adel) FAICD
Fiona Rosalyn Vivienne Bennett
BA (Hons) FCA FAICD FAIM
Philip Bullock
BA, MBA, GAICD, Dip. Ed.
Chairman, Non-Independent
Non-Executive Director. Age 53.
Independent Non-Executive Director.
Age 59.
Independent Non-Executive Director.
Age 62.
Experience and expertise
Experience and expertise
Experience and expertise
Appointed Director in August 1985.
Appointed Deputy Chairman in June 2004.
Appointed Chairman on 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 last 3 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
18,040,423 ordinary shares in Hills Limited
(including 1,188,918 shares owned by Hills
Associates Limited and Poplar Pty Ltd
(jointly held) and 16,668,441 shares owned
by Hills Associates Limited of which
JH Hill-Ling is a Director).
Nil options over ordinary shares in
Hills Limited.
Appointed Non-Executive Director on
31 May 2010.
Appointed Non-Executive Director on
23 June 2014.
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.
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
Other current listed company
directorships
Non-Executive Director of Perpetual
Limited (since June 2010).
Director of Beach Energy Limited (since
November 2012).
Non-Executive Director of CSG Limited
(since August 2009).
Former listed company directorships
in last 3 years
Former listed company directorships
in last 3 years
Director of Boom Logistics Limited (retired
in June 2015).
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.
Special responsibilities
Member of the Audit, Risk and Compliance
Committee, Member of the Nomination
Committee.
Interests in shares and options at the date
of this report
10,000 ordinary shares in Hills Limited.
Nil options over ordinary shares in
Hills Limited.
16
Hills Limited Annual Report for the year ended 30 June 2015 Directors’ report
Ian Elliot
FAICD
David Moray Spence
B Com
Edward (Ted) Noel Pretty
BA LLB (Hons)
Independent Non-Executive Director.
Age 61.
Independent Non-Executive Director.
Age 63.
Former Group Managing Director & Chief
Executive Officer. Age 58.
Experience and expertise
Experience and expertise
Experience and expertise
Appointed Group Managing Director and
Chief Executive Officer on 3 September
2012. Ceased to be Group Managing
Director and Chief Executive Officer on 27
May 2015.
Other current listed company
directorships
None.
Former listed company directorships
in last 3 years
Non-Executive Director of Next DC Limited
(retired March 2015)
Special responsibilities
None.
Appointed Non-Executive Director in
August 2003.
Appointed Non-Executive Director on
1 September 2010.
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 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
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).
David Spence has experience in a number
of industries and more recently in the
technology and communications industry.
He has over 25 years of senior management
experience, including as Chief Financial
Officer (CFO) of Freedom Furniture and
OPSM, where he also assumed responsibility
for manufacturing and logistics. He has
been directly involved in many internet and
communications companies including the
building of Australia’s first and largest dial
up ISP, OzEmail.
Mr Spence was the Chief Executive Officer
of Unwired Australia until February 2010.
He has been involved in a number of listed
and non-listed boards including WebCentral,
uuNet, Access1, Emitch, Commander
Communications, Chaosmusic, ubowireless,
Vividwireless and is a past chairman of
the Internet Industry Association. He is
currently a Non-Executive Director of Vocus
Communications Limited, SAI Global
Limited and of PayPal Australia Pty Ltd.
Other current listed company directorships
Former listed company directorships
in last 3 years
Chairman of Vocus Communications Limited
(since June 2010).
None.
Special responsibilities
Director of SAI Global Limited (since
October 2013).
Chairman of the Nomination Committee,
Member of the Remuneration Committee.
Former listed company directorships
in last 3 years
Interests in shares and options at the date
of this report
Special responsibilities
None.
51,735 ordinary shares in Hills Limited.
Nil options over ordinary shares in
Hills Limited.
Chairman of the Remuneration Committee,
Member of the Audit, Risk and Compliance
Committee.
Interests in shares and options at the date
of this report
250,000 ordinary shares in Hills Limited.
Nil options over ordinary shares in
Hills Limited.
17
Hills Limited Annual Report for the year ended 30 June 2015 Directors’ report
INFORMATION ON DIRECTORS
(continued)
COMPANY SECRETARY
Peter William Stancliffe BE (Civil)
FAICD
Gai Stephens BEC, LLB, LLM, GAICD,
FCA, FTIA, FGIA
Former Independent Non-Executive
Director. Age 67.
Experience and expertise
Appointed Non-Executive Director
in August 2003. Ceased to be a
Non-Executive Director on 31 October 2014.
Other current listed company
directorships
Chairman of Korvest Ltd (since 2009,
retired 18 September 2014).
Director of Automotive Holdings Group
Limited (since 2005).
Former listed company directorships in
last 3 years
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
Limited. 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.
None.
Special responsibilities
None.
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 2015,
and the number of meetings attended by each Director were:
DIRECTOR ATTENDANCE
Full Meetings
of Directors
Audit, Risk
and Compliance
Nomination
Remuneration
Jennifer Helen Hill–Ling
Fiona Rosalyn Vivienne Bennett
Ian Elliot
David Moray Spence
Philip Bullock
Edward Noel Pretty*
Peter William Stancliffe**
A
16
15
16
15
16
14
6
B
16
16
16
16
16
15
6
A
–
5
–
6
3
–
2
B
–
6
–
6
3
–
3
A
2
–
2
–
2
–
–
B
2
–
2
–
2
–
–
A
3
–
3
3
–
–
–
B
3
–
3
3
–
–
–
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
* = Ceased to be a Director on 27 May 2015
** = Ceased to be a Non-Executive Director on 31 October 2014
18
Hills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
Dear Shareholders,
As your Chairman and Chief Executive
Officer have outlined the year in review
in the Report of Directors, FY2015 was a
challenging year.
As the Company starts to move out of
the restructuring phase we have seen
a realignment to a management team
focussed on consolidating and growing
our existing businesses in Australia and
New Zealand. There has been a departure
of executives who oversaw the restructure
and divestment process and Grant Logan
was appointed CEO on 27 May 2015.
Our strategy is to build our solid
continuing businesses by improving
performance and by growing organically
and by acquisition. In line with this
strategy your Board has ratified a strategic
blueprint. The strategic blueprint outlines
the focus for management in the coming
year and beyond. The blueprint has 5
pillars of focus – customer, vendor, people,
profit and capital. Each of these pillars are
tied to STIs of all employees, including the
senior executives.
2015 Remuneration Outcomes
During FY2015 the Board continued with
the implementation of the remuneration
strategy which was outlined in the
remuneration report for FY2014. This
included ensuring that there was a
strong alignment between the short term
incentive and business results.
Our short term incentive programme
for FY2015 was geared 80% towards
delivering financial outcomes and 20%
towards non-financial strategic goals.
None of the financial targets have been
met for FY2015. Accordingly, 80% of the
short term incentives were not paid. The
remaining 20% incentive was determined
on performance of individual KPIs and
only 4% of a total potential payment has
been paid to executives for FY2015.
At last year’s AGM the grant of
performance rights linked to Earnings Per
Share growth and relative TSR over a three
year period were issued to the former
Group Managing Director and CEO and
other senior executives. No performance
rights vested under this plan or earlier
plans and all performance rights relating
to terminating executives lapsed on their
departure from the Company.
With lower than expected profits your
Board took the action of reducing directors
fees by 20% until the profits of the
Company return to increased levels.
Future Remuneration Strategies
Short Term Incentives
The Board reviews the Hills remuneration
policy and practices annually. As in
previous years we have ensured that
management have a strong alignment with
the Company’s strategy. As stated above
we have introduced a strategic blueprint
which outlines management’s focus for the
medium term. The strategic blueprint links
strategic outcomes to defined measures,
focusing on the following key areas:
• Customer
– ‘Perfect Orders’ (in by 2pm,
dispatched same day)
– Average Return Per Unit per
Hospital Bed
• Vendor
– Fully developed vendor
engagement plans to be developed
for all material vendors
– Two new key vendors to partner
with Hills
• People
– Hills FY2016 Employee
Engagement Survey
• Profit
– FY2016 underlying EBITDA and NPAT
budgets are achieved
• Capital
– FY2016 Days Sales and outstanding
budget met
– FY2016 Stock turns budget met
– FY2016 Capex budget met
Long Term Incentives
Due to the current difficult trading
environment, your Board has decided
to defer the existing Long Term
Incentive Plan for FY2016. The Board
is currently reviewing the design of the
plan and appropriate hurdles to ensure
executives are motivated and shareholder
value maximised.
2016 Focus on Delivering Outcomes
Following the divestments of businesses
and the restructure, your Company is
much simpler. Hills balance sheet is strong
and the Company is in a good position to
grow the continuing businesses. We remain
committed to delivering sustainable
earnings growth and optimising
shareholder value as Hills continues to
evolve and grow.
On behalf of the Board, I invite you to
review the following Remuneration Report.
David Spence
Chairman
Remuneration Committee
19
Hills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
(continued)
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 2015 (FY2015). In this report, ‘senior
executives’ refers to the KMP excluding
non-executive directors.
1. KEY MANAGEMENT PERSONNEL
Key Management Personnel (KMP)
encompasses all Directors, as well as
those senior executives who had specific
responsibility for planning, directing and
controlling material activities of Hills
during FY2015.
The information provided in the
Remuneration Report has been audited
as required by Section 308 (3C) of the
Corporations Act 2001.
List of KMP
Directors
The Remuneration Report comprises the
following sections:
1. Key Management Personnel
2. Remuneration Governance
3. Executive Remuneration
4.
5.
Executive Contracts and Termination
Arrangements
Five Year Snapshot – Business and
Remuneration Outcomes
6. Statutory Remuneration Tables
J Hill-Ling
Chairman, Non-Independent and Non-Executive Director
FRV Bennett
Independent, Non-Executive Director
P Bullock
Independent, Non-Executive Director
I Elliot
Independent, Non-Executive Director
DM Spence
Independent, Non-Executive Director
EN Pretty (1)
Former Group Managing Director & Chief Executive Officer
PW Stancliffe (2)
Former Independent, Non-Executive Director
7.
8.
Non-Executive Directors’
Remuneration
Senior Executives
G Logan (3) (4)
Chief Executive Officer
Equity Instrument Disclosures Relating
to Key Management Personnel
G Turner (5)
Chief Financial Officer
B Newton (6)
Chief Operating Officer
L Ison (7)
Chief of Health, Innovation & Growth
(1)
(2)
(3)
(4)
(5)
(6)
(7)
EN Pretty ceased as Managing Director and
Chief Executive Officer on 27 May 2015
PW Stancliffe ceased as a Non-Executive
Director on 31 October 2014
G Logan ceased as Chief Financial Officer on
2 February 2015, and was promoted to Chief
Operating Officer
G Logan was promoted to Chief Executive
Officer on 27 May 2015
G Turner was promoted to Chief Financial
Officer on 2 February 2015
B Newton ceased as Chief Operating Officer on
5 February 2015
L Ison ceased as Chief of Health, Innovation &
Growth on 10 June 2015
20
Hills Limited Annual Report for the year ended 30 June 2015 2. REMUNERATION GOVERNANCE
2.3 Hills Share Trading Policy
Remuneration Principles
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.corporate.hills.
com.au/about-us/governance.
The key principles on which the Hills
remuneration strategy is based are:
• Competitive
– Remuneration positioned 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
2.4 Hills Clawback Policy
– Differentiates, but is fair and equitable
To strengthen the governance of the
remuneration strategy, Hills has an
executive remuneration Clawback Policy
in place. 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 claw back incentives paid in
relation to a material misstatement in Hills
Financial Statements.
3. EXECUTIVE REMUNERATION
3.1 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 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.
in its application
• Linked to Performance
– 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
• Aligned
– Aligns remuneration and incentive
outcomes with business goals
and results
– Supports the completion of the
transformation and delivery of the
growth strategy
– Withstands external scrutiny
• Straightforward
– Understood by all stakeholders
and employees
2.1 Role of the Remuneration Committee
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 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 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.corporate.hills.com.au/about-
us/governance.
2.2 Use of Independent Remuneration
Consultants
In accordance with the Remuneration
Committee Charter, the Remuneration
Committee seeks advice and market
data from independent remuneration
consultants as required.
During the year no advisors were retained.
21
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
3. EXECUTIVE REMUNERATION
(continued)
The diagram below shows how the Remuneration Strategy and framework aligned with
the FY2015 Hills Business Strategy:
Hills Business Strategy
Integrated solutions into trusted environments
75% of revenue from
technology and
communications
20–25% of revenue from
services
Sustained EPS growth
Return on funds employed
13–15%
Strategic setting
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.
Remuneration framework & policy
Fixed remuneration
Short-term incentive
Long-term incentive
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:
Aligned to the achievement of increased
shareholder wealth over the long term.
For FY2015, the performance measures
will be:
• Financial performance (80%)
• EPS three-year CAGR; and
• Individual non-financial performance
measures (20%)
• Relative TSR
Both financial and non-financial measures
directly support achievement of the
Company’s strategic settings.
Retention: three-year performance
period, with a further one-year restriction
on trading.
22
Hills Limited Annual Report for the year ended 30 June 2015 3.2 Remuneration Mix
Senior executive remuneration is comprised of Fixed Remuneration (made up of base
salary and superannuation), short term incentive (STI) and long term incentive (LTI).
The following diagrams show the remuneration mix at target performance.
Group Managing Director and CEO (1)
Senior Executives (Average)
LTI 12%
STI 43%
LTI 6%
STI 25%
Fixed 69%
LTI 25%
STI 30%
LTI 9%
STI 31%
LTI 15%
STI 25%
Fixed 45%
Fixed 45%
Fixed 60%
Fixed 60%
FY2015
Mr Pretty
FY2015
Mr Logan
Future Market
Target
FY2015
Mr Pretty
Future Market
Target
(1)
Includes G Logan’s cash based retention plan
The move to the above remuneration mix is being achieved by incremental adjustments
through the annual review process. Outstanding anomalies will be addressed through
future annual reviews. A LTI was introduced for senior executives in FY2015, however,
due to the current difficult trading environment the Board has decided to defer the
existing LTI plan for FY2016. The Board is currently reviewing the design of the plan and
appropriate hurdles to ensure senior executives are motivated and shareholder value
maximised for FY2017.
23
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
3. EXECUTIVE REMUNERATION
(continued)
3.3 Former Group Managing Director and
Short Term Incentive FY2015
Long Term Incentive FY2015
CEO Remuneration – Mr Pretty
Fixed Remuneration FY2015
The former Group Managing Director
and CEO had a fixed remuneration of
$974,000 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.
The former Group Managing Director
and CEO had a STI opportunity of up
to $945,000, which was subject to both
financial (80%) and non-financial (20%)
KPIs determined by the Board at the
commencement of the financial year.
KPIs were directly related to the Hills
Business Strategy (see section 3.1), 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 former Group Managing Director
and CEO:
Former Group Managing Director and CEO
5%
16%
5%
5%
5%
32%
16%
32%
16%
Return on Funds Employed
Corporate Revenue
Corporate NPAT
Group BU EBIT
Customer
Employees
Suppliers and Service
Board Information
The FY2015 STI opportunity, which was
reviewed annually by the Board, was 97%
of Fixed Remuneration.
No payment was received by Mr Pretty for
the FY2015 STI.
24
The former Group Managing Director
and CEO was awarded an LTI of 160,555
performance rights for FY2015. None of
these performance rights vested during
FY2015.
Amounts for long term performance rights
shown in the statutory remuneration
table at section 6.1 reflect reversal of
the accounting expense for the FY2014
and FY2015 LTI awards as all unvested
performance rights (being 1,293,887
performance rights) lapsed on cessation of
employment on 27 May 2015.
3.4 Chief Executive Officer Remuneration
– Mr Logan
Mr Logan was promoted to Chief Executive
Officer on 27 May 2015 with a Fixed
Remuneration of $825,000 (inclusive of
superannuation), a STI target value of
$300,000, and a retention plan of $75,000.
The retention plan is in lieu of participation
in the LTI plan for FY2016 and is consistent
with Mr Logan’s prior retention plan
arrangements. Whilst this salary package
is at the higher end of comparable market
benchmark to entities of our size, it is lower
than the package of the former Group
Managing Director and CEO. Refer to
section 3.9 for a description of the FY2016
STI plan which will apply to the CEO.
Retention Plan – Mr Logan Prior to his
Appointment as Chief Executive Officer
In FY2013 the terms of employment of 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, given his
in-depth knowledge of Hills and in order
to drive future financial performance.
Mr Logan performed the role of Chief
Financial Officer in addition to his broader
responsibilities. In February 2015 he
ceased his CFO responsibilities, and took
on expanded operational responsibilities
across the company as the Chief
Operating Officer.
Hills Limited Annual Report for the year ended 30 June 2015 This retention plan was for the period from
1 July 2012 to 30 June 2015.
The plan had two components:
• Performance Component: A potential
payment of $75,000 per annum up
to and including FY2016. 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 year up to
and including FY2017 and is based only
on service.
Following Mr Logan’s appointment to
CEO, the retention plan was finalised and
he was paid $371,250, which represented
the full retention component and 66.7%
of the performance component of the
plan. The proportions of this payment for
FY2013 and FY2014 have been disclosed
in the respective remuneration reports.
For FY2015, he received only the retention
component of the plan and the current
year expense amount was $75,000.
3.5 Senior Executive Short Term Incentive
FY2015
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 FY2015 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.
20%
20%
60%
Corporate NPAT or EBIT
Individual
Working Capital
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 2014 to 30 June 2015.
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
3.6 as an absolute dollar amount and
as a percentage of the senior executive’s
fixed remuneration.
The following table summarises the
potential FY2015 STI payments where
a senior executive ceased employment
with Hills:
Resignation & Retirement
Any entitlement to a payment was subject to the
participant being employed by Hills at the time of
payment.
Company initiated
termination
Any entitlement to a payment would be for completed
months, with no pro-rata for partly completed months.
The calculation of an entitlement was based on actual
results for the year and paid on the scheduled date.
Summary Dismissal
If summarily dismissed, a participant forfeits all rights
to any payments under the FY2015 STI which had not
already been made.
How Individual Performance is Translated
into STI awards
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;
• what needs to be done to realise the
business strategy over the longer term;
and
• where achievement will contribute
to the creation of increased value
for shareholders.
25
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
3. EXECUTIVE REMUNERATION
(continued)
3.5 Senior Executive Short Term
Incentive FY2015 (continued)
3.6 FY2015 STI Performance
and Outcomes
Senior Executive KPIs for FY2015 were
aligned to the KPIs for the former Group
Managing Director and CEO and were
based on a mix of day to day operational
KPIs and strategic KPIs which support the
long term business strategy, adjusted to
reflect individual roles.
Assessment of Performance & Approval
of Payment
The Remuneration Committee assessed
the individual senior executive’s
performance based on the CEO’s
recommendations, against the KPIs set
at the beginning of the financial year.
The assessment of individual performance
was combined with the achievement of
financial results to determine the amount
of payment for each senior executive. The
Remuneration Committee recommended
the STI payment outcome to the Board for
approval. STI payments for FY2015 were
delivered as cash payments following
approval by the Board. Details of STI
payments are provided in section 3.6.
FY2015 has been a difficult year for the
Company which is reflected in the STI plan
results detailed in this report. A summary
of Company performance compared to
previous years is provided in Section 5.
Group Managing Director and
CEO STI Plan
The specific KPIs for FY2015 for the former
Group Managing Director and CEO are set
out in the following table.
No payment resulted from this plan
for FY2015.
Objective
Rational link to strategy
Measurement
Weighting
Group EBIT
Group NPAT
Group Revenue
Return on Funds
Employed (with an
EBIT gateway)
Individual KPIs
Financial Measures which
are drivers to achieving
the Company’s Strategic
Settings
Measured by reference to
FY2015 budget
16%
16%
16%
32%
Individual KPIs include
operational activities,
and key transformation
initiatives which will
support achievement
of strategic settings in
future years
Measured by achievement
to specified pre-
determined targets and
objectives
20%
Total
100%
26
Hills Limited Annual Report for the year ended 30 June 2015 The KPIs for the senior executives were
aligned to the former Group Managing
Director and CEO’s KPIs. The STIs
received by the former Group Managing
Director and CEO, and senior executives
for FY2015 (if any) are set out in the
following table:
Executive
Target STI
opportunity $
As a %
of fixed
remuneration
Financial
outcome
(max 80%)
Non-financial
outcome
(max 20%)
G Logan
$281,667
G Turner
$124,667
EN Pretty (1)
$787,500
B Newton (2)
$168,233
L Ison (2)
$245,667
48%
41%
81%
58%
66%
Total
$1,607,734
–
–
–
–
–
–
–
16%
16%
–
–
–
–
(1) Pro-rata value as EN Pretty ceased as Group
Managing Director and Chief Executive Officer on
27 May 2015
(2) Pro-rata values as B Newton ceased as Chief
Operating Officer on 5 February 2015 and L Ison
ceased as Chief of Health, Innovation & Growth
on 10 June 2015
% Achieved
% Forfeited
Actual STI
outcome $
$45,000
$19,947
–
–
–
16%
16%
–
–
–
$64,947
4%
84%
84%
100%
100%
100%
96%
3.7 Long Term Incentive for the former
Group Managing Director and CEO
• 33.33% vesting when the EPS of is equal
to a CAGR of 15%;
FY2015 Long Term Incentive
The FY2015 LTI was designed to directly
link the former Group Managing
Director and CEO to growth in long term
shareholder wealth. In February 2015, and
following approval by shareholders at the
Annual General Meeting on 31 October
2014, the former Group Managing Director
and CEO was granted 160,555 performance
rights to acquire ordinary Hills shares,
subject to achievement of pre-determined
performance hurdles.
The Board selected the following
performance hurdles for the FY2015 grant:
• 50% vesting when the TSR is greater
than the 50th percentile of companies
in the S&P/ASX Small ordinaries index
(excluding companies identified by S&P
as members of the materials, energy or
financials sectors); and
• an additional 16.67% vesting when the
EPS reaches a CAGR of 19.2% CAGR,
with a linear vesting scale between
15% and 19.2%.
The rights would have been able to vest
after 3 years, subject to achievement of
the above performance hurdles,
but shares received from vested rights
would have been required to be held for
an additional year.
FY2014 Long Term Incentive
In February 2014, and following approval
by shareholders at the Annual General
Meeting on 8 November 2013, the
former Group Managing Director was
granted 1,133,332 performance rights
to acquire ordinary Hills shares, subject
to achievement of pre-determined
performance hurdles.
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 former Group Managing Director’s
performance rights, the Board considered
that an absolute share price target was
more appropriate than a relative (i.e. peer
comparison) share price appreciation or
total shareholder return target. This was
due to the significant degree of change in
the Company’s operations, the difficulty
in identifying logical market peers
and/or sectors over the course of the
company’s transformation and the LTI
performance period.
27
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
3. EXECUTIVE REMUNERATION
(continued)
Weighting will be distributed across
these measures.
Long Term Incentive Plan – FY2016
Due to the current difficult trading
environment for the Company, the Board
has decided to defer the Long Term
Incentive plan for FY2016. The Board will
review the plan for FY2017.
4.
EXECUTIVE CONTRACTS AND
TERMINATION ARRANGEMENTS
Employment contracts
The remuneration and other terms
of employment for the CEO and
senior executives are covered in their
individual employment contracts and are
summarised in this table:
Chief Executive Officer
• The contract for the Chief Executive Officer
commenced on 27 May 2015 and will expire on 1
September 2016, with the ability for the parties to
agree on an extension for a further term. The Chief
Executive Officer’s employment may be terminated by
Hills giving six months’ notice.
• The Chief Executive Officer may terminate his
employment at any time by giving Hills six months’
written notice.
• The contracts may be terminated by either party on
notice by giving 3 months written notice.
• If a senior executive is retrenched there is no
entitlement to contractual termination payments.
Senior Executives
Chief Executive Officer and
Senior Executives
• There is no guaranteed base pay increases included in
any senior executive contract.
• In the instance of serious misconduct, Hills may
terminate employment at any time. The executive will
only receive payment to the date of termination and
any statutory entitlements.
• Retirement benefits comprise employer contributions
to defined contribution superannuation funds.
3.7 Long Term Incentive for the former
Group Managing Director and CEO
(continued)
FY2014 & FY2015 Long Term
Incentive Outcomes
No performance rights granted through
the above plans vested during FY2015, and
all performance rights under both plans
lapsed when Mr Pretty ceased employment.
3.8 FY2015 Long Term Incentive for
Senior Executive
In FY2015, senior executives were invited to
participate in a LTI plan on the same terms
as the grant to the former Group Managing
Director and CEO, as described in section 3.7.
Further details are provided in section 6.3.
3.9 FY2016 Incentive Design
Short Term Incentive Plan – FY2016
Looking ahead to FY2016, the Board has
conducted a review of the Short Term
Incentive (STI) to align it with the 2016
Strategic Plan. A balanced scorecard
approach has been adopted for the year
ahead focusing on the following key areas:
• Customer
– ‘Perfect Orders’ (in by 2pm, dispatched
same day)
– Average Return Per Unit per Hospital Bed
• Vendors
– Fully developed vendor
engagement plans
– Two new key vendors to partner
with Hills
• People
– Hills FY2016 Employment
Engagement Survey
• Profit
– FY2016 underlying EBITDA and
NPAT budgets
• Capital
– FY2016 Days Sales Outstanding budget
– FY2016 Stock turns budget
– FY2016 Capex budget
28
Hills Limited Annual Report for the year ended 30 June 2015 5.
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 last five years.
Key Financials
FY2015
FY2014
FY2013
FY2012
FY2011
Earnings before
interest and tax
(EBIT) ($000)
Shareholders’ funds
($000)
17,887
41,689
33,138
44,702
40,376
136,600
245,228
271,018
400,963
402,307
Underlying Net profit
(‘$000) (1)
11,045
27,277
19,201
28,822
27,126
Statutory Net profit
(‘$000)
(85,780)
26,387
(91,387)
28,822
(73,116)
Basic Earnings per
Share (cents)
Dividends (cents)
4.8
2.1
Share Price ($)
– as at 30 June
0.455
11.4
7.0
1.74
7.8
5.0
1.01
10.5
10.0
1.06
10.2
10.0
1.20
Short Term Incentive
Payments (%)
- % of Target
Opportunity
4%
85%
87%
36%
28%
(1)
Underlying net profit after tax attributable to owners has been calculated after adjusting profit / (loss)
attributable to the ordinary equity holders of the Company for the after tax impact of any adjustments
including asset impairments, de-recognition of deferred tax assets relating to tax losses, costs of
acquisitions and other associated gains or losses on the disposal of businesses and CGU impairment,
restructure and closure costs and other associated impairments in the previous year. This is as disclosed
in note 22 (c) to the Annual Report. 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
programme. The non IFRS measure has not been subject to audit or review.
29
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
(continued)
6. STATUTORY REMUNERATION TABLES
6.1 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 (and
not necessarily paid) in the Company’s
financial statements.
2015
Short–term employee benefits
Post-
employment
benefits
Name
Cash salary
and fees
$
Cash
bonus
$
Other
$
Super
annuation
$
Long-term
benefits
LSL &
cash based
LTIP
$
Executive Director
Share based payments
Termination
benefits
$
Performance
rights (7)
$
Shares
$
Total
$
E Pretty (1)
848,435
–
5,418
35,121
–
900,000
(64,222)
Other Senior Executives
G Logan (2)(3)
529,002
45,000
G Turner (4)
L Ison (5)
B Newton (6)
117,636
461,225
270,753
19,947
–
16,948
8,993
11,122
15,902
19,696
10,128
31,384
15,688
83,422
–
–
–
–
28,100
–
–
728
–
–
–
–
–
–
–
1,724,752
694,068
157,432
531,831
302,343
Total Senior
Executives
Compensation
2,227,051
64,947
58,383
112,017
83,422
928,100
(63,494)
–
3,410,426
(1)
E Pretty ceased as Managing Director and Chief Executive Officer on 27 May 2015. $900,000 is shown
as a termination benefit in accordance with the separation deed and calculated with reference to the
notice period and restraint in his employment contract
(2)
G Logan ceased as Chief Financial Officer on 2 February 2015, and was promoted to
Chief Operating Officer
(3) G Logan was promoted to Chief Executive Officer on 27 May 2015
(4) G Turner became a KMP when he was prompted to Chief Financial Officer on 2 February 2015
(5)
L Ison ceased as Chief of Health, Innovation & Growth on 10 June 2015. $112,001 of her cash salary
relates to a payment in lieu of notice
(6) B Newton ceased as Chief Operating Officer on 5 February 2015
(7)
The expense relating to unvested performance rights granted to key management personnel was
reversed in the current year as service conditions were not met
30
Hills Limited Annual Report for the year ended 30 June 2015 2014
Short–term employee benefits
Post-
employment
benefits
Name
Cash salary
and fees
$
Cash
(2)
bonus
$
Other
$
Super
annuation
$
Executive Director
E Pretty (1)
879,430
905,500
13,543
25,193
Other Senior Executives
G Logan
B Newton
L Ison(4)
M Campbell(5)
528,033
266,666
395,973
273,980
260,317
476,630
157,168
45,000
L Francis(6)
145,410
144,305
–
19,799
10,048
–
–
23,364
36,672
24,079
44,088
13,479
Long-term
benefits
LSL &
cash based
LTIP
$
(3)
4,333
151,669
72,404
288
–
635
Former Senior Executives
M McKinstry(7)
72,464
–
5,589
8,250
–
Share based payments
Termination
benefits
$
Performance
rights
$
Shares
$
Total
$
–
–
–
–
296,208
–
–
64,222
–
–
–
–
–
–
–
–
–
–
–
–
–
1,892,221
969,732
798,828
451,900
861,926
303,829
86,303
Total Senior
Executives
Compensation
2,758,257
1,792,619
48,979
175,125
229,329
296,208
64,222
–
5,364,739
(1) Accounting Value for performance rights for Mr E Pretty represents 3% of Total Remuneration for 2014
(2)
(3)
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)
B Newton received a cash based LTI of $71,250 with payment deferred to after FY2016 in accordance
with his employment arrangements
(4) L Ison commenced with Hills 9 September 2013
(5) M Campbell ceased employment with Hills effective 1 July 2014
(6) L Francis changed roles on 23 January 2014 and ceased to be a KMP
(7) M McKinstry ceased employment with Hills effective 30 August 2013
31
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
6. STATUTORY REMUNERATION TABLES
(continued)
6.2 Remuneration components as a
proportion of total remuneration
paid or expensed
The following table reflects the fixed
remuneration, STI and LTI for FY2015
calculated in accordance with the
accounting standards as a proportion
of the total.
Full year
potential
STI
$945,000
$280,000
$124,666
$268,000
$288,400
Pro rata
potential
STI
$787,500
$281,667
$124,667
$245,667
$168,233
Actual STI
paid/payable
$
–
$45,000
$19,947
–
–
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
–
16%
16%
–
–
–
16%
16%
–
–
–
8%
16%
–
–
Name
E Pretty
G Logan
G Turner
L Ison
B Newton
The following table reflects the fixed
remuneration, STI and LTI and total
performance based remuneration for
FY2015 calculated in accordance with the
accounting standards as a proportion of
the total remuneration.
Fixed remuneration
%
At risk/STI
paid or payable
%
Value of performance
rights/cash LTI
%
Total performance based
%
100%
83%
94%
100%
100%
–
6%
6%
–
–
–
11%
0%
–
–
–
17%
6%
–
–
Name
E Pretty
G Logan
G Turner
L Ison
B Newton
32
Hills Limited Annual Report for the year ended 30 June 2015 The following table shows the proportion
weighting of each element of remuneration
for each of the senior executives employed
during FY2015 based on maximum
potential outcome.
Fixed Remuneration
%
Maximum short-term
incentive %
Maximum long-term
incentive %
Name
E Pretty
G Logan
G Turner
L Ison
B Newton
FY2015
FY2014
FY2015
FY2014
FY2015
FY2014
53%
58%
66%
60%
63%
48%
64%
–
64%
56%
47%
27%
27%
40%
37%
49%
28%
–
36%
35%
0%
15%
7%
0%
0%
3%
8%
–
0%
9%
6.3 Details of share based compensation
and bonuses
Former Group Managing Director and CEO
FY2014 LTI Plan
At the Annual General Meeting in 2013
shareholders approved a grant of
performance rights to the former 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
would vest immediately, but could 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 had not
been previously achieved.
FY2015 LTI Plan
At the Annual General Meeting in 2014
shareholders approved a grant of
performance rights to the former Group
Managing Director and CEO. A grant of
160,555 performance rights was issued
on 27 February 2015 under the following
conditions:
• A 3 year performance period from
1 July 2014 to 30 June 2017 with the
following hurdles:
– 50% vesting if the TSR was greater
than the 50th percentile of companies
in the S&P/ASX Small ordinaries index
(excluding companies identified by
S&P as members of the materials,
energy or financials sectors);
- 33.33% vesting if the EPS was equal
to 15% CAGR; and
- An additional 16.67% vesting if the
EPS reached 19.2% CAGR, with a linear
vesting scale between 15% and 19.2%.
No performance rights vested during
FY2015, and all performance rights in both
the FY2013 and FY2014 plans lapsed when
the former Group Managing Director and
CEO ceased employment with the Company.
Senior Executives
The terms of the senior executive FY2015
LTI Plan granted on 27 February 2015 are
the same as those for the former Group
Managing Director and CEO. Details of
the performance rights granted to senior
executives is provided in section 6.3.
33
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
6. STATUTORY REMUNERATION TABLES
(continued)
6.3 Details of share based compensation
and bonuses (continued)
The following table provides additional details of the above grant of performance rights:
The numbers of performance rights granted, vested and expired / forfeited in FY2015
Name
Performance Rights
Performance Rights
Granted
Performance Rights
Vested
Performance Rights
Expired / Forfeited
E Pretty
G Logan(1)
G Turner
L Ison
B Newton
1 July 2014
1,133,332
–
–
–
–
160,555
–
19,588
42,822
–
–
–
–
–
–
(1,293,887)
–
–
(42,822)
–
Balance
30 June 2015
–
–
19,588
–
–
(1) G Logan participates in a retention plan and is not eligible to participate in any LTI equity pla
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 granted in FY2015 was:
• Non Market Hurdle EPS of $0.77; and
• Market Hurdle Relative Total Shareholder Return $0.52.
34
Hills Limited Annual Report for the year ended 30 June 2015 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 former Group Managing Director and CEO and senior executives are set out
below. 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.
The numbers of performance rights granted, vested and expired / forfeited in FY2015
Name
E Pretty
G Turner
L Ison
Fair Value @ grant date
Accounting Value
Financial Year
Measure
Number of
Perf. Rights
$ per right
Total Value
$
Exercised
during period
$
2014
2014
2015
2015
2015
2015
2015
2015
Share Price
EPS
RTSR
EPS
RTSR
EPS
RTSR
EPS
566,666
566,666
80,278
80,277
9,794
9,794
21,411
21,411
$0.34
$192,666
$1.27
$0.52
$0.77
$0.52
$0.77
$0.52
$0.77
$719,666
$41,744
$61,814
$5,093
$7,541
$11,134
$16,487
–
–
–
–
–
–
–
–
Expired /
forfeited
$
$192,666
$719,666
$41,744
$61,814
–
–
$11,134
$16,487
Shares issued on the exercise of options
No performance rights vested during FY2015. Therefore, 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.
35
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
(continued)
7.
NON-EXECUTIVE DIRECTORS’
REMUNERATION
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.
7.1 Fee Pool
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
did not change in FY2015.
7.2 Directors’ FY2015 Fee Structure
In recognition of the reduced size of the
Company and the need to focus on costs,
fees paid to Non-Executive Directors were
reduced by 20% from 1 May 2015. The
following table outlines the main Board
and Committee fees as at 30 June 2015.
Chair Fee $
Member Fee $
Pre 1 May 2015
From 1 May 2015
Pre 1 May 2015
From 1 May 2015
Board
200,000
160,000
100,000
80,000
Audit, Risk and
Compliance
Committee
Remuneration
Committee
Nomination
Committee
20,000
20,000
10,000
10,000
10,000
10,000
10,000
10,000
Nil
Nil
Nil
Nil
7.3 Non-Executive Directors’
remuneration details
Non-Executive
Directors
J Hill-Ling
FRV Bennett
P Bullock(1)
I Elliot
D Spence
P Stancliffe(2)
Total
Year
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Board and
Committee Fees
Superannuation
$
177,512
183,486
106,507
110,092
94,293
2,174
97,632
100,917
106,507
110,092
33,639
100,917
616,090
607,678
$
16,800
16,972
10,080
10,183
9,022
207
9,240
9,335
10,080
10,183
3,196
9,335
58,418
56,215
Total
$
194,312
200,458
116,587
120,275
103,315
2,381
106,872
110,252
116,587
120,275
36,835
110,252
674,508
663,893
(1) P Bullock commenced as a Non-Executive Director on 23 June 2014
(2) P Stancliffe ceased as a Non-Executive Director on 31 October 2014
36
Hills Limited Annual Report for the year ended 30 June 2015 7.4 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 last 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.
8.
EQUITY INSTRUMENT
DISCLOSURES RELATING TO KEY
MANAGEMENT PERSONNEL
8.1 Rights and options provided as
remuneration
The numbers of rights / options over
ordinary shares in the Company held
during the financial year by each
Director of the Company and other key
management personnel of the Company,
including their personally related parties,
are set out below.
Name
E Pretty
Balance at start
of the year
Granted as
compensation
Exercised
Rights / options
lapsed / forfeited /
cancelled
Balance at the
end of the year
Vested and
exerciseable
Unvested
1,133,332
160,555
–
(1,293,887)
–
–
–
2015 Directors
37
Directors’ reportHills Limited Annual Report for the year ended 30 June 2015 Directors’ report
REMUNERATION REPORT (AUDITED)
8. EQUITY INSTRUMENT DISCLOSURES RELATING
TO KEY MANAGEMENT PERSONNEL
(continued)
8.1 Rights and options provided as
remuneration (continued)
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 Company,
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 (2014: 1,188,918) shares owned
by Hills Associates Limited & Poplar
Pty Ltd (jointly held) and 17,857,359
(2014: 16,239,441) 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 429,000 (2014: 350,000) shares in Hills
Limited by Hills Associates Limited.
2015 Directors of Hills Limited
Ordinary shares
Balance at the
start of the year
Received during the
year on the exercise of
options / rights
Other changes
during the year
Balance at the
end of the year
17,601,423
250,000
4,000
5000
51,735
190,000
50,000
–
–
–
–
–
–
–
439,000
450,000
–
5,000
–
60,000
–
18,040,423
700,000
4,000
10,000
51,735
250,000
50,000
JH Hill-Ling
E Pretty(1)
F Bennett
P Bullock(2)
I Elliot
D Spence
P Stancliffe(3)
(1) E Pretty ceased to be a Director on 27 May 2015. Changes during the year include changes after the period
in which disclosure is required
(2) P Bullock commenced as a Non-Executive Director on 23 June 2014
(3) P Stancliffe ceased as a Non-Executive Director on 31 October 2014
8.2 Loans to Key Management Personnel
8.3 Other transactions with KMP
(KMP)
There were no outstanding loans to
KMP and their related parties at the
reporting date.
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.
From time to time, KMP of the Company
or its controlled entities, or their related
entities, may purchase goods or
services from Hills or make sales of goods
or services to Hills. These purchases or
sales are on the same terms and conditions
as those entered into by Hills employees,
customers or suppliers and are trivial or
domestic in nature.
38
Hills Limited Annual Report for the year ended 30 June 2015 Directors’ report
ENVIRONMENTAL REGULATION
INSURANCE OF OFFICERS
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.
Manufacturing
Hills holds all required environmental
licences, registrations and permits for its
manufacturing sites around Australia. No
significant environmental incidents were
reported over the 2014-15 financial year
and Hills continued to meet or exceed the
requirements specified in relevant licenses
and authorisations.
Greenhouse gas and energy data reporting
requirements
Due to the divestment of Building &
Industrial divisions, Hills no longer triggers
the NGER reporting threshold and is no
longer required to report to the Clean
Energy Regulator. Hills continued to
capture and report on energy consumption
and GHG emissions as a key environmental
sustainability metric in its Environmental
Management System during 2014-15.
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
fourth annual report during March 2015.
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.
39
Hills Limited Annual Report for the year ended 30 June 2015 Directors’ report
Audit services
Audit and other assurance services
KPMG Australia – audit and review of the financial statements
485,909
628,000
Overseas KPMG firms – audit and review of the financial statements
38,957
22,140
Total remuneration for audit and other assurance services
524,866
650,140
2015
$
2014
$
Taxation services
KPMG Australia – taxation and other services
Overseas KPMG firms – taxation services
Total remuneration for taxation services
Other services
Financial advisory services
Other consulting services
Total remuneration for other services
203,867
102,520
40,253
24,367
244,120
126,887
397,534
833,235
-
40,268
397,534
873,503
Total remuneration for audit and non-audit services
1,166,520 1,650,530
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 44.
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
David Moray Spence
Director
Sydney
24 August 2015
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.
Non-audit fees remained high during the
year due to significant work performed in
relation to the Company’s restructure and
divestment programme, in particular the
sale of non-core businesses. These sale
transactions were expected to complete
early in the financial year, but sales were
not complete until June 2015. Non-audit
fees will return to normal levels in 2016.
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:
40
Hills Limited Annual Report for the year ended 30 June 2015
41
Hills Limited Annual Report for the year ended 30 June 2015 This page has been left blank intentionally.
42
Hills Limited Annual Report for the year ended 30 June 2015 Hills Limited ABN 35 007 573 417
Financial statements
30 June 2015
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
44
45
46
47
48
49
115
116
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
Level 7, 130 Pitt Street
Sydney NSW 2000
The consolidated financial statements were authorised for issue by the Directors on 24 August 2015.
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 section on the Company website: http://www.hills.com.au
For queries in relation to corporate reporting please call +61 2 9216 5510 or email info@hills.com.au
Consolidated
income statement
For the year ended 30 June 2015
Continuing operations
Revenue
Other income
Expenses excluding net finance expenses
(Loss) / profit before net finance expense and income tax
Finance income
Finance expenses
Net finance expenses
(Loss) / profit before income tax
Income tax expense from continuing operations
(Loss) / profit from continuing operations
Profit from discontinued operations (net of tax)
(Loss) / profit for the year
(Loss) / profit is attributable to:
Owners of Hills Limited
Non controlling interests
Earnings per share for (loss) / profit from continuing operations
attributable to the ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
Earnings per share for (loss) / profit 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.
44
Notes
2015
$’000
2014
$’000
3
4
5
5
6
7
22
22
22
22
427,822
448,257
5,323
433,145
15,862
464,119
(488,101)
(439,922)
(54,956)
200
(3,236)
(3,036)
(57,992)
(27,788)
(85,780)
-
(85,780)
(85,947)
167
(85,780)
24,197
1,432
(4,786)
(3,354)
20,843
(2,474)
18,369
8,018
26,387
24,798
1,589
26,387
Cents
Cents
(37.0)
(37.0)
(37.0)
(37.0)
7.0
7.0
10.4
10.4
Hills Limited Annual Report for the year ended 30 June 2015 Consolidated statement
of comprehensive income
For the year ended 30 June 2015
(Loss) / profit for the year
Other comprehensive income
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
Reversal of previous revaluation of land and buildings
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 (loss) / income for the year
Total comprehensive (loss) / income for the year is attributable to:
Owners of Hills Limited
Non controlling interests
Total comprehensive (loss) / income 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
2015
$’000
(85,780)
2014
$’000
26,387
20
20
6
20
6
1,127
(710)
(338)
79
(7,534)
2,261
(5,273)
(5,194)
(90,974)
(91,141)
167
(90,974)
(91,141)
–
(91,141)
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
45
Hills Limited Annual Report for the year ended 30 June 2015 Consolidated statement
of financial position
As at 30 June 2015
ASSETS
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
Trade and other receivables
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
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.
46
Notes
2015
$’000
2014
$’000
8
9
10
15
7
9
11
12
13
14
16
17
6
18
15
17
18
15
19
20
30
18,801
92,136
72,446
606
45,482
104,479
59,351
-
183,989
209,312
-
183,989
653
3
32,822
39,237
30,833
103,548
287,537
67,690
5,831
407
27,133
310
101,371
45,000
4,566
-
49,566
150,937
136,600
278,439
10,467
(152,306)
136,600
-
136,600
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
35,000
6,774
528
42,302
158,717
245,228
281,624
28,900
(66,359)
244,165
1,063
245,228
Hills Limited Annual Report for the year ended 30 June 2015 Consolidated statement
of changes in equity
For the year ended 30 June 2015
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 2013
303,890
32,589
(66,359)
270,120
898
271,018
Total comprehensive income for the year
–
(8,018)
24,798
16,780
1,589
18,369
Transactions with owners in their capacity as owners:
Share buyback, net of transaction costs
Dividends provided for or paid
Dividends paid to non controlling interests in subsidiaries
Share buyback paid to non controlling interests in
subsidiaries
Acquisition of non–controlling interest
Disposal of non–controlling interests in subsidiaries
Employee share schemes – value of employee services
Transfer current period profit to profits reserve
Balance at 30 June 2014
Balance at 1 July 2014
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Share buyback, net of transaction costs
Dividends provided for or paid
19
21
30
23
20
19
21
Dividends paid to non controlling interests in subsidiaries
Disposal of non–controlling interests in subsidiaries
Employee share schemes – value of employee services
23
(22,266)
–
(16,037)
–
–
(4,495)
–
63
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(22,266)
(16,037)
–
–
(22,266)
(16,037)
–
–
(90)
(200)
(90)
(200)
(4,495)
(505)
(5,000)
–
63
–
(629)
(629)
–
–
63
–
24,798
(24,798)
281,624
28,900
(66,359)
244,165
1,063
245,228
281,624
28,900
(66,359)
244,165
1,063
245,228
–
(5,194)
(85,947)
(91,141)
167
(90,974)
(3,185)
–
–
–
–
–
(13,272)
–
–
33
–
–
–
–
–
(3,185)
(13,272)
–
–
33
Balance at 30 June 2015
278,439
10,467
(152,306)
136,600
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
–
–
(3,185)
(13,272)
(732)
(498)
–
–
(732)
(498)
33
136,600
47
Hills Limited Annual Report for the year ended 30 June 2015 Consolidated statement
of cash flows
For the year ended 30 June 2015
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 flows 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 and intangible assets
Proceeds from sale of assets held for sale
Rent received
Net cash flows 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 flows from financing activities
Net (decrease) 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.
Notes
2015
$’000
2014
$’000
486,657
795,108
(494,547)
(805,909)
(7,890)
(3,036)
(2,117)
33
(13,043)
(26,676)
(10,928)
(3,468)
5,970
14,029
7,570
3,149
(10,354)
15,831
(3,185)
(172)
(13,272)
(732)
–
(1,530)
(24,927)
43,672
56
18,801
12
13
19
21
30
8
(10,801)
(3,310)
(1,216)
(15,327)
(56,560)
(14,041)
(4,681)
116,421
16,199
11,433
1,777
70,548
460
(22,266)
(30,299)
(16,037)
(290)
(5,000)
(73,432)
(18,211)
61,480
403
43,672
48
Hills Limited Annual Report for the year ended 30 June 2015 Notes to the consolidated
financial statements
For the year ended 30 June 2015
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 not applied any new
accounting standards and amendments
for the first time for the annual reporting
period commencing 1 July 2014.
(iii) Early Adoption of Standards
The Group has not elected to early adopt
any new accounting standards and
amendments.
(iv) Historical Cost Convention
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.
• Note 29 – business combinations and
contingent consideration payable
(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.
The methods used to measure fair values
are discussed further in notes 1(o), 1(p), 1(q)
(v), 12 and 28.
(c) Principles of Consolidation
(i) Subsidiaries
(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 6 – tax losses for which no deferred
tax asset has been recognised
• 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
• Notes 18 and 25 – provisions
and contingencies
• Note 23 – measurement of share
based payments
• Note 28 – measurement of fair value
The consolidated financial statements
incorporate the assets and liabilities of all
subsidiaries of the Company as at 30 June
2015 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.
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.
49
Hills Limited Annual Report for the year ended 30 June 2015 Notes to the consolidated
financial statements
For the year ended 30 June 2015
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(continued)
(c) Principles of Consolidation
(e) Foreign Currency Translation
(continued)
(ii) Changes in Ownership Interests
The Group treats transactions with non-
controlling interests that do not result
in a loss of control as transactions with
equity owners of the Group. A change in
ownership interest results in an adjustment
between the carrying amounts of the
controlling and non-controlling interests
to reflect their relative interests in the
subsidiary. Any difference between
the amount of the adjustment to non-
controlling interests and any consideration
paid or received is recognised in a separate
reserve within equity attributable to
owners of Hills.
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.
(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 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).
50
Hills Limited Annual Report for the year ended 30 June 2015 (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.
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.
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.
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 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.
51
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(continued)
(i)
Business Combinations
(continued)
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.
(l) Trade Receivables
Trade receivables are recognised initially
at fair value and subsequently measured at
amortised cost using the effective interest
method, less provision for impairment.
Trade receivables are generally due for
settlement within 30 to 90 days. 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.
(m) Inventories
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.
(n) Investments and Other
Financial Assets
Classification
The Group classifies its financial assets in
the following categories: financial assets
at fair value through profit or loss 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.
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
(ii) Loans and Receivables
Loans and receivables are non-derivative
financial assets with fixed or determinable
payments that are not quoted in an active
market. They are included in current
52
Hills Limited Annual Report for the year ended 30 June 2015 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.
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.
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.
53
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(continued)
(p) Property, Plant and Equipment
Land and buildings are shown at fair
value less subsequent depreciation
for buildings. Land and buildings are
independently valued at least every four
years on the basis of open market values,
and in the intervening years are valued
by the Directors based on the most
recent independent valuation combined
with current market information. Any
accumulated depreciation at the date of
revaluation is eliminated against the gross
carrying amount of the asset and the net
amount is restated to the revalued amount
of the asset. The costs of additions since
the valuations are deemed to be the fair
value of those assets. The Directors are
of the opinion that these bases provide
a reasonable estimate of fair value. All
other plant and equipment is stated at
historical cost less depreciation. Historical
cost includes expenditure that is directly
attributable to the acquisition of the
items. Cost may also include transfers
from equity of any gains or losses on
qualifying cash flow hedges of foreign
currency purchases of property, plant and
equipment. The cost of self-constructed
assets includes the cost of materials and
direct labour, any other costs directly
attributable to bringing the asset to a
working condition for its intended use, and
the costs of dismantling and removing the
items and restoring the site on which they
are located.
Purchased software that is integral to the
functionality of the related equipment is
capitalised as part of that equipment.
The fair value of property, plant and
equipment recognised as a result of
a business combination is based on
market values.
When parts of an item of property, plant
and equipment have different useful lives,
they are accounted for as separate items
(major components) of property, plant
and equipment.
Subsequent costs are included in the
asset’s carrying amount or recognised as a
separate asset, as appropriate, only when it
is probable that future economic benefits
associated with the item will flow to the
Group and the cost of the item can be
measured reliably. The carrying amount of
any component accounted for as a separate
asset is derecognised when replaced. All
other repairs and maintenance are charged
to profit or loss during the reporting period
in which they are incurred.
Increases in the carrying amounts arising
on revaluation of land and buildings
are recognised, net of tax, in other
comprehensive income and accumulated
in reserves in equity. To the extent that the
increase reverses a decrease previously
recognised in profit or loss, the increase is
first recognised in profit or loss. Decreases
that reverse previous increases of the
same asset are first recognised in other
comprehensive income to the extent of
the remaining surplus attributable to the
asset; all other decreases are charged to
profit or loss.
Land is not depreciated. Depreciation
on other assets is calculated using the
diminishing value or straight line method
as considered appropriate to allocate
their cost or revalued amounts, net of
their residual values, over their estimated
useful lives, as follows (current and
comparative periods):
• Buildings
0.75%
• Plant and equipment, including
leasehold improvements
5.0% to 66.7%
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, Distribution Agreements
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, distribution
agreements 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
54
Hills Limited Annual Report for the year ended 30 June 2015 costs of employees’ time spent on the
project. Amortisation is calculated on a
straight-line basis over periods generally
ranging from 3 to 5 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.
(iv) Research and Development
Research expenditure is recognised as
an expense as incurred. Costs incurred
on development projects (relating to the
design and testing of new or improved
products) are recognised as intangible
assets when it is probable that the project
will, after considering its commercial and
technical feasibility, be completed and
generate future economic benefits and
its costs can be measured reliably. The
expenditure capitalised comprises all
directly attributable costs, including costs
of materials, services, direct labour and
an appropriate proportion of overheads.
Other development expenditures that do
not meet these criteria are recognised
as an expense as incurred. Development
costs previously recognised as an
expense are not recognised as an asset
in a subsequent period. Capitalised
development costs are recorded as
intangible assets and amortised from the
point at which the asset is ready for use
on a straight line basis over its useful life,
which is estimated to be 5 to 20 years.
(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.
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 twelve 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.
55
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(continued)
(u) Provisions
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.
(ii) Other Long Term Employee
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
56
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 corporate bonds
rates 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. Information relating
to this scheme is set out in note 23.
Long Term Incentive Plan
The Long Term Incentive Share Plan
allows Group executives to acquire
shares of the Company.
The fair value of performance rights
granted under the Long term Incentive
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.
(v) Profit-sharing and Bonus Plans
A liability is recognised for the amount
expected to be paid under short term
cash bonus or profit sharing plans if the
Group has a present legal or constructive
obligation to pay this amount as a result of
past service provided by the employee and
the obligation can be estimated reliably,
or where there is past practice that has
created a constructive obligation.
(w) Contributed Equity
Ordinary shares are classified as equity.
Incremental costs directly attributable
to the issue of new shares or options are
shown in equity as a deduction, net of tax,
from the proceeds.
If the 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
Hills Limited Annual Report for the year ended 30 June 2015 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
• by the weighted average number of
ordinary shares outstanding during the
financial year.
(ii) Diluted Earnings Per Share
Diluted earnings per share adjusts the
figures used in the determination of basic
earnings per share to take into account:
• the after income tax effect of interest
and other financing costs associated
with dilutive potential ordinary shares,
and
• the weighted average number of
additional ordinary shares that would
have been outstanding assuming the
conversion of all dilutive potential
ordinary shares.
(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 2015
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 sets out new
rules for hedge accounting. It is likely
to affect the Group’s accounting for its
financial assets and financial liabilities. The
standard is applicable for financial years
beginning on or after 1 January 2018 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.
AASB 15 Revenue from Contracts with
Customers replaces AASB 118 Revenues
and applies to contracts with customers.
The standard is applicable for financial
years 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.
AASB 2015-2 Amendments to Australian
Accounting Standards – Disclosure
Initiative: Amendments to AASB 101
is applicable for financial years
beginning on or after 1 January 2016.
The amendments do not require any
significant changes to current practice
but facilitate improved reporting.
57
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 2 SEGMENT INFORMATION
(a) Change of Segments
The Group has determined that its
chief operating decision maker (CODM)
is the Board of Hills Limited. The Board
of Hills Limited 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 AASB 8.
Hills has a number of operating
segments. The Company’s restructure
and transformation programme has
resulted in a number of changes to the
relative characteristics of Hills segments.
In the prior year, all of its remaining
operating segments had characteristics
that were materially so similar in nature
that they could reasonably be expected
to have had the same prospects. These
operating segments had similar economic
characteristics, provided similar products
and services, had a similar production
process, similar types of customers,
similar methods for distribution and
were subject to a materially similar
regulatory environment. Hills operating
segments were therefore aggregated into
one reportable segment under AASB 8
called the Hills Technologies Segment.
This was also borne out by the fact that
after its restructure and transformation
programme, Hills had 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.
In the current year, the materiality of the
Health and Home Segments were now
such that these have been disaggregated
from the single reportable segment
and the comparative results have been
adjusted accordingly.
In terms of reviewing the Group as it
has gone through its restructuring and
transformation programme, the CODM is
presented with information that separates
Hills results into its continuing businesses
(Building Technologies Segment, Health
58
Segment, Home Segment, Corporate
Segment) and discontinuing business
results in one category: the Discontinued
businesses Segment (which contains
the results of businesses that have been
closed or sold and regardless of whether
these are classified as discontinued under
IFRS or not). That information, ‘through the
eyes of management’ has been presented
in this Segment note in accordance with
the principles of AASB 8.
cost pool was directly recharged
or allocated to Hills other segments
in whole or in part. As discontinued
businesses have ceased operations,
not all of the Corporate Segment could
be recharged and while the gross costs
have reduced substantially over the past
few years, the net cost remaining in this
Segment has increased.
Discontinued Businesses
Businesses that have been closed or sold
under Hills restructure and transformation
programme (whether or not these were
classified as discontinued under IFRS), are
shown separately to enable the CODM to
assess the true continuing operations of
the Group.
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.
(b) Description of Segments
The Group currently has the following
reportable segments with the following
summaries describing the operations of
the Group’s reportable segments:
Building Technologies Segment
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 and amplifiers.
Health Segment
Includes the supply and installation of
health technology solutions, nursecall
and patient entertainment systems
to hospitals, aged care facilities and
similar institutions. Hills earns ongoing
revenue from patients utilising its
patient entertainment systems on a
daily rate basis.
Home Segment
Includes the results of the Hills Home
Living business which has now been
licensed to Woolworths Limited for a
period of 7 years, extendable to 19 years.
This converted the original manufacturing
and distribution business that included
products such as garden sprayers and
washing lines into a brand licensing
annuity stream.
Corporate Segment
This includes the costs of running Hills
Corporate, Compliance and Shared
Services functions. In prior periods, this
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) (b) Information about reportable segments
Building
Technologies
Segment
Health Segment
Home Segment Corporate Segment
Discontinued
businesses
Total
2015
$’000
2014
(restated)*
$’000
2015
$’000
2014
(restated)*
$’000
2015
$’000
2014
(restated)*
$’000
2015
$’000
2014
(restated)*
$’000
2015
$’000
2014
(restated)*
$’000
2015
$’000
2014
(restated)*
$’000
348,380 327,329
33,530
22,600
42,763
65,600
3,149
1,777
- 319,859
427,822
737,165
348,380 327,329
33,530
22,600
42,763
65,600
3,149
1,777
- 319,859
427,822
737,165
Total segment
revenue
Revenue
from external
customers
Segment EBITDA
26,789
36,471
4,083
5,300
6,365
5,400
(8,275)
(4,300)
Segment Assets
187,716
172,735
33,784
74,126
2,981
11,014
12,813
44,543
10,817
11,340
2,862
2,469
175
1,644
542
3,268
Additions to
non-current
assets (other than
financial assets
and deferred tax)
Segment liabilities
65,844
62,313
6,199
10,800
3,439
13,910
19,715
29,272
*During the year the Group has changed its internal organisation and composition of its reportable segments.
Accordingly, the Group has restated the operating segment information for the year ended 30 June 2014
-
-
-
-
8,020
28,962
50,891
-
-
237,294 302,418
14,396
18,722
-
95,197
116,295
(c) Other Segment Information
(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.
(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
$392.085 million (2014: $702.855million),
and the total of revenue from external
customers in other countries is $35.737
million (2014: $34.310 million). Segment
revenues are allocated based on the
country in which the customer is located.
The Group does not derive 10% or
more of its revenues from any single
external customer.
59
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
2
SEGMENT INFORMATION
(continued)
(c) Other Segment Information
(ii) Segment EBITDA (continued)
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
Less discontinued operations profit before tax and restructuring costs
(Loss) / profit before income tax from continuing operations
Net costs not considered part of
underlying profit comprise:
Current Year
Impairment of goodwill
Impairment of intangible assets
Impairment of land and buildings, net of plant and equipment release of impairment
Impairment of inventories and inventory write offs
Costs relating to the acquisitions of businesses (for transactions completed and terminated)
Loss and costs incurred on sale of properties and assets held for sale
Net loss on sale, closure or licensing of business operations and subsidiaries
Costs relating to departure of the previous Chief Executive Officer
Other net costs arising as a result of the Company’s restructure and transformation programme
Prior Year
Net costs totalling $5.869 million
comprised acquisition costs relating to
the acquisitions of businesses and due
diligence costs, totalling $4.978 million
and net losses on disposal of businesses
(net of impairments, provisions and
restructuring costs related to those
disposals) totalling $0.891 million and
were included within Other Income and
Other Expenses at 30 June 2014.
60
Notes
5
5
5
2015
$’000
28,962
(11,075)
200
(3,236)
(72,843)
–
(57,992)
2014
$’000
50,891
(9,197)
1,432
(4,786)
(5,869)
(11,628)
20,843
$’000
55,353
5,661
1,053
3,222
3,885
1,229
464
913
1,063
72,843
Hills Limited Annual Report for the year ended 30 June 2015 (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
Deferred tax assets
Derivative financial instruments
Investments
2015
$’000
2014
$’000
237,294
302,418
18,801
45,482
30,833
56,043
606
3
–
2
Total Assets as per the Consolidated Statement of Financial Position
287,537
403,945
The total of non-current assets other than
deferred tax assets located in Australia
is $67.972 million (2014: $126.999 million),
and the total of these non-current assets
located in other countries is $4.743 million
(2014: $3.791 million). Segment assets are
allocated to countries based on where the
assets are located.
Depreciation and amortisation expense
for the Group totalled $11.075 million
(2014: $9.197 million) which was fully
allocated to segments.
61
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
2
SEGMENT INFORMATION
(continued)
(c) Other 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
2015
$’000
2014
$’000
95,197
116,295
4,599
4,439
50,831
36,983
310
1,000
Total Liabilities as per the Consolidated Statement of Financial Position
150,937
158,717
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 plant and equipment
Net gain on disposal of businesses
Other income
62
2015
$’000
2014
$’000
354,969
409,713
69,704
36,767
424,673
446,480
3,149
1,777
427,822
448,257
–
288,908
427,822
737,165
2015
$’000
522
1,074
3,727
2014
$’000
239
14,596
1,027
5,323
15,862
Hills Limited Annual Report for the year ended 30 June 2015 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
2015
$’000
2014
$’000
225,682
261,509
52,576
17,607
77,959
72,950
20,718
23,169
38,323
44,222
72,843
20,465
488,101
439,922
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
66
5,654
5,720
72
86
3,021
2,176
173
5,529
5,702
61
61
1,436
1,937
5,355
3,495
11,075
9,197
70,148
78,341
6,150
4,956
33
6,285
5,737
64
81,287
90,427
(3,236)
(4,440)
-
(346)
(3,236)
(4,786)
200
-
200
1,130
302
1,432
(3,036)
(3,354)
63
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 6
INCOME TAX EXPENSE
(a) Income Tax Expense
Current tax
Deferred tax
Income tax expense is attributable to:
Profit from continuing operations
Profit from discontinued operations
Aggregate income tax expense
(b) Numerical Reconciliation of
Income Tax Expense to
Prima Facie Tax Payable
2015
$’000
2014
$’000
789
2,044
26,999
4,040
27,788
6,084
27,788
–
2,474
3,610
27,788
6,084
(Loss) / profit from continuing operations before income tax expense
(57,992)
20,843
Profit from discontinuing operations before income tax expense
–
11,628
Tax at the Australian tax rate of 30.0% (2014: 30.0%)
Tax effect of amounts which are not deductible / (taxable) in
calculating taxable income:
Goodwill and other intangible assets impairment
Non-deductible expenses
Research and development allowances
Acquisition costs
Gains on sale of assets
Impairment of land and buildings
De-recognition of deferred tax assets
Difference in overseas tax rates
Total income tax expense
(57,992)
32,471
(17,398)
9,741
18,090
212
(60)
497
-
484
(80)
1,071
(282)
(5,090)
662
26,123
27,844
(56)
-
-
6,126
(42)
27,788
6,084
64
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) (c) Tax (benefit) 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) on revaluation of land and buildings
Gains on cash flow hedges
Aggregate income tax (benefit)
(d) Tax losses
Capital items
2015
$’000
2014
$’000
(2,262)
(4,268)
338
325
(1,924)
(3,943)
Unused capital tax losses for which no deferred tax asset
has been recognised
Potential tax benefit
29,212
34,206
8,764
10,262
The capital tax losses do not expire under
current tax legislation. Deferred tax assets
have not been recognised in respect of
these items because it is not probable
that future capital gains will be available
against which the Group can utilise the
benefits from these items.
Revenue items
Revenue tax losses for which no deferred tax asset
has been recognised
Potential tax benefit
The revenue tax losses do not expire under
current tax legislation. Deferred tax assets
have not been recognised in respect of
these items because the period over which
the Group can utilise the benefits from
these items extends beyond 7 years (the
time horizon during which their recovery is
considered probable).
Revenue losses for which a deferred tax
asset has been recognised total $16.0
million (2014: $31.067 million).
2015
$’000
2014
$’000
104,733
925
31,420
278
65
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
6
INCOME TAX EXPENSE
(continued)
(e) Current Tax Assets and Liabilities
7
ASSETS AND LIABILITIES
CLASSIFIED AS HELD FOR SALE AND
DISCONTINUED OPERATIONS
(a) Assets Classified as Held for Sale
Certain land and buildings were classified
as held for sale at 30 June 2014 and were
sold during the year ended 30 June 2015.
Non-current assets held for sale:
Land and buildings
Total assets classified as held for sale
2015
$’000
2014
$’000
–
–
7,800
7,800
The current tax liability for the Group
of $0.407 million (2014: $1.812 million)
represents the amount of income taxes
payable in respect of current and prior
financial periods.
(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).
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
tax losses or unused tax credits that are
transferred to the Company under the
tax consolidation legislation. The funding
amounts are determined by reference
to the amounts recognised in the wholly
owned entities’ financial statements.
The amounts receivable / payable under
the tax funding agreement are due upon
receipt of the funding advice from the
head entity, which is issued as soon as
practicable after the end of each financial
year. The head entity may also require
payment of interim funding amounts
to assist with its obligations to pay tax
instalments. The funding amounts are
recognised as current intercompany
receivables or payables and eliminated
on consolidation.
66
Hills Limited Annual Report for the year ended 30 June 2015 (b) Discontinued Operations
(i) Description
Fielders and Orrcon
In the previous financial year the significant operations of Fielders Australia Pty Ltd
(Fielders) and Orrcon Operations Pty Ltd (Orrcon) were presented as discontinued
operations. Fielders and Orrcon were sold effective 28 February 2014. Financial information
relating to the discontinued operations for the previous financial year is set out below.
(ii) Financial Performance and
Cash Flow Information
The financial performance and cash flow information presented are for the period to
28 February 2014.
Revenue (note 3)
Expenses
Other income
Finance income
Profit before income tax
Income tax expense
Profit after income tax of discontinued operation
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Net decrease in cash generated by the discontinued operations
2014
$’000
288,908
(277,522)
235
7
11,628
(3,610)
8,018
(25,529)
85,289
(82,450)
(22,690)
There are no cumulative income or expenses included in other comprehensive income
relating to the disposal groups.
(iii) Details of the sales
The effect of the disposals of Fielders and Orrcon on the financial position of the Group was:
Consideration received or receivable – cash
Carrying amount of net assets sold
Gain on sale before income tax
Income tax expense
Gain on sale after income tax
2014
$’000
84,923
(84,785)
138
(41)
97
67
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
7
ASSETS AND LIABILITIES
CLASSIFIED AS HELD FOR SALE AND
DISCONTINUED OPERATIONS
(continued)
(b) Discontinued Operations
(iii) Details of the Sales (continued)
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 date of sale were:
Trade and other receivables
Inventories
Property, plant and equipment
Total assets
Trade and other payables
Provisions
Total liabilities
Net assets
(c) Disposal of Businesses
$’000
65,707
56,643
1,008
123,358
(29,101)
(9,472)
(38,573)
84,785
During the current financial year the Group sold its Smartbar business (1 September
2014), Hills Polymers operations (30 April 2015) and its interest in its partly owned
subsidiary Cygnus Satellite Pty Ltd (25 June 2015) as a continuation of its strategy to
dispose of non-core businesses. During the previous 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). 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 2015 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
2015
$’000
2014
$’000
13,800
42,482
5,001
3,000
18,801
45,482
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
2015
$’000
2014
$’000
18,801
45,482
–
(1,810)
18,801
43,672
(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.
69
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 9 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
2015
2014
Current
$’000
Non–current
$’000
Current
$’000
Non–current
$’000
81,096
(1,481)
79,615
7,930
4,591
92,136
–
–
–
–
653
653
Total
$’000
81,096
(1,481)
79,615
7,930
5,244
90,059
(2,750)
87,309
13,912
3,258
92,789
104,479
Total
$’000
90,059
(2,750)
87,309
13,912
3,258
104,479
–
–
–
–
–
–
2015
$’000
42,930
20,883
12,466
4,817
2014
$’000
58,892
19,726
9,166
2,275
81,096
90,059
2015
$’000
2,750
314
2014
$’000
3,332
835
Receivables written off during the year as uncollectable
(1,583)
(1,286)
Decrease on business disposal
At 30 June
–
1,481
(131)
2,750
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 $1.481 million (2014: $2.750
million) relates to receivables past due
more than 30 days, based upon a case
by case assessment. Receivables past
due between 0 and 30 days are not
considered impaired.
(b) Foreign Exchange and
Interest Rate Risk
Information about the Group’s exposure to
foreign currency risk and interest rate risk
in relation to trade and other receivables is
provided in note 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 re-pledged. 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.
70
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) 2015
$’000
2014
$’000
2,046
4,071
136
631
70,264
54,649
72,446
59,351
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 $3.722 million
(2014: $2.117 million). The expense has been
included in cost of sales $0.501 million
(2014: $2.117 million) and other expenses
$3.222 million (2014: $nil million).
11 NON-CURRENT ASSETS – INVESTMENTS
Equity securities
2015
$’000
2014
$’000
3
2
71
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 12
NON-CURRENT ASSETS –
PROPERTY, PLANT AND EQUIPMENT
Land
$’000
Buildings
$’000
Plant &
equipment
$’000
Total
$’000
Year ended 30 June 2014
Opening net book amount
37,205
31,547
9,996
78,748
Exchange differences
Revaluation to fair value
Acquisition through business combinations
Additions
Disposals
Assets included in a disposal group classified
as held for sale and other disposals
Other disposals
Depreciation charge
Impairment charge
Reclassification
–
–
(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)
(3,150)
(4,650)
–
(7,800)
–
–
–
–
–
(290)
(290)
(173)
(5,529)
(5,702)
–
(936)
(936)
(3,045)
(444)
(3,489)
Closing net book amount
17,803
12,982
16,820
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
Year ended 30 June 2015
Opening net book amount
17,803
12,982
16,820
47,605
Exchange differences
–
–
(67)
(67)
Revaluation to fair value
(4,762)
(2,772)
–
(7,534)
Acquisition through business combinations
Additions
Disposals
Depreciation charge
Impairment charge
–
–
–
30
3,268
3,268
10,898
10,928
(4,825)
(7,286)
(2,494)
(14,605)
–
(66)
(5,654)
(5,720)
(1,375)
(831)
–
(2,206)
Reversal of impairment charge
–
–
1,153
1,153
Closing net book amount
6,841
2,057
23,924
32,822
At 30 June 2015
Cost
6,841
2,057
73,414
82,312
Accumulated depreciation and impairment
–
–
(49,490)
(49,490)
Net book amount
6,841
2,057
23,924
32,822
72
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) (a) Assets in the Course of Construction
The carrying amounts of the assets
disclosed above and in note 13 Intangible
assets include the following expenditure
recognised in relation to non current
assets (principally plant and equipment,
leasehold improvements and software
development) which is in the course
of construction:
Plant and equipment, leasehold improvements
and software development
(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.
As at 30 June 2014, independent valuers
provided informal advice as to 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
that a revaluation decrement of $14.227
million was appropriate. This amount was
debited to the asset revaluation reserve in
shareholders’ equity.
2015
$’000
2014
$’000
3,102
184
As at 31 December 2014 and again as
at 30 June 2015, independent valuers
provided updated informal advice as
to 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 that revaluation decrements
totalling $9.740 million was appropriate.
Of this total decrement, $7.534 million was
debited to the asset revaluation reserve in
shareholders’ equity with the balance of
$2.206 million recognised in profit and loss.
73
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Patents,
trademarks &
other rights
$’000
Goodwill
$’000
32,649
1,039
–
32,190
–
–
(754)
–
64,085
132,243
(68,158)
64,085
64,085
(154)
–
17,702
–
(55,353)
–
26,280
145,896
(119,616)
26,280
–
2
(61)
–
(760)
–
220
343
(123)
220
220
–
106
–
(72)
–
–
254
449
(195)
254
Distribution
agreements,
customer
contracts &
brands
$’000
–
–
13,346
(1,436)
–
–
–
11,910
13,346
(1,436)
11,910
11,910
–
–
1,779
(3,021)
(4,710)
–
5,958
15,125
(9,167)
5,958
13
NON-CURRENT ASSETS –
INTANGIBLE ASSETS
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
Year ended 30 June 2015
Opening net book amount
Exchange differences
Additions
Acquisition through business combinations
Amortisation charge
Impairment charge
Derecognised on disposal
Closing net book amount
At 30 June 2015
Cost
Accumulated depreciation and impairment
Net book amount
* Software includes capitalised development costs
being an internally generated intangible asset.
74
Software*
$’000
Development
costs
$’000
10,463
3,258
1,200
(1,937)
(10,475)
633
1,423
–
(61)
–
–
(1,025)
–
970
Total
$’000
44,784
4,681
46,738
(3,495)
(10,475)
(2,539)
3,489
83,183
3,489
5,998
41,728
(35,730)
5,998
5,998
(18)
2,623
534
(2,176)
(951)
(232)
5,778
21,761
(15,983)
5,778
1,023
188,683
(53)
970
970
–
739
–
(86)
–
(656)
967
967
–
967
(105,500)
83,183
83,183
(172)
3,468
20,015
(5,355)
(61,014)
(888)
39,237
184,198
(144,961)
39,237
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) (a) Impairment Tests for Goodwill
As part of the financial year end process,
the Group carried out a comprehensive
review of the carrying value of its assets
having due consideration to the Group’s
market capitalisation, market growth
assumptions and cash flows from ongoing
operations. Cash Generating Unit (CGU)
impairment tests were based on value in
use calculations which were determined
by discounting the future cash flows
generated from the continuing use of
the unit and based on the following
key assumptions:
• Cash flow projections have been based
on the coming year’s Board-approved
budget
• An explicit five year forecast period
detailing projected sales, gross margins,
operating expenses, capital expenditure
and investment in working capital and
other assets.
• 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, operating expenses and
capital expenditure and working capital
investment levels are based on past
experience along with CGU-specific
assumptions about the future.
• A terminal value has been determined
at the end of the five year strategic plan
using a growth rate of 3.0% (2014: 3.0%),
which is no greater than the long term
average growth rate for the market to
which the asset is dedicated.
Pre-tax discount rates of 18.7% (2014:
15.3%) for the Health Segment and 16.3%
(2014:15.3%) for the Building Technologies
Segment were used in the value in use
calculations. These were determined by
reference to the Group’s weighted average
cost of capital and specific industry factors
applied in determining the recoverable
amount of the units. Where a range of
outputs were established, the mid-point
of the range was used.
The following key Capital Asset Pricing
Model (CAPM) assumption inputs were used
in arriving at the applicable discount rates:
• Risk free rate: 3% throughout
• Asset Betas: 0.8 – 0.9 in Health;
0.9 – 1.0 in Building Technologies
• Equity Betas: 0.94 – 1.01 in Health;
0.97 – 1.08 in Building Technologies
• Equity Market Risk Premium:
6.5% throughout
• Alpha risk adjustment for company
size: 4% - 5% in Health; 2% in Building
Technologies
• Alpha risk adjustment for company
specific factors: 1% in Health;
0% - 1% in Building Technologies
• Long term debt to value ratio: 20% - 15%
in Health; 10% in Building Technologies
• Long term cost of debt: 6% - 7%
in Health; 5.5% - 6.5% in Building
Technologies
• Long term tax rate: 30% throughout
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.
For the purposes of completing the
value in use calculations, Hills Corporate
Segment costs are allocated to the Health
and Building Technologies segments on
a rational basis (directly where a direct
utilisation is apparent, or otherwise on a
relative revenue mix basis).
Hills Home Segment has zero allocation of
goodwill. The carrying value of the Home
Segment CGU consists almost entirely of
net monetary items (receivables, payables
and accruals) that are virtually certain of
recovery from Woolworths Limited. In
addition, Hills receives a minimum $2m
per annum license fee contribution from
Woolworths in relation to this business.
The carrying value of this CGU was
therefore considered to be fully
recoverable with reference to that
counterparty analysis rather than with
reference to a separate discounted cash
flow calculation.
75
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
13 NON-CURRENT ASSETS –
INTANGIBLE ASSETS
(continued)
(b) Impairment Charges
Impairment of Goodwill
During the current year, it was determined
that the carrying values of the Health and
Building Technologies Segments exceeded
their recoverable amounts with reference
to the value in use calculations described
above and an impairment charge was
recognised in the profit and loss statement.
The aggregate carrying amounts of
goodwill allocated to each CGU before and
after impairment charges are as follows:
Goodwill before impairment charge
Building Technologies
Health
2015
$’000
50,061
2014
$’000
38,837
2015
$’000
31,572
2014
$’000
25,248
Total
2015
$’000
81,633
Impairment charge
(25,929)
–
(29,424)
–
(55,353)
2014
$’000
64,085
–
Carrying value of Goodwill after
impairment charge
24,132
38,837
2,148
25,248
26,280
64,085
Growth Rate at the Start of the 5-Year
Explicit Review Period (holding the
discount rate and other inputs the same)
• A decrease in the growth rate from 4%
to 2% would increase impairment in the
Building Technologies Segment by
$15.4 million.
• A decrease in the growth rate from 6%
to 4% would increase impairment in the
Health Segment by $12.6 million.
Impairment of Other Intangible Assets
(c) Impact of Possible Changes in
At the same time as performing the CGU
value in use calculation, the carrying values
of separately identified other intangible
assets were reviewed. These assets include
patents, trademarks and other similar
rights, distribution agreements, customer
contracts and brands, internally generated
software and development costs. During
the current year, it was determined that the
carrying values of $4.359 million of Health
and $0.589 million of Building Technologies
separately identified other intangible
assets were impaired with reference to
specific asset-by-asset considerations and
an impairment charge was recognised in
the profit and loss statement. In addition,
during the current year $0.400 million
of Home segment and $0.313 million of
Corporate segment intangible assets,
being internally generated software, were
impaired. These are expensed within other
expenses in note 5.
In the prior year, $10.475 million of internally
generated software was impaired.
Key Assumptions
During the process of performing the value
in use calculations, the assumptions that
the models were the most sensitive to were
established as the discount rate and the
growth rate used at the start of the 5-year
explicit review period.
A reasonably possible change in these
key assumptions would cause the
carrying amount of the CGU’s to exceed
their recoverable amount and would
therefore generate the following additional
impairment charges:
Discount Rate (holding the growth rate
and other inputs the same)
• An increase in the discount rate (post-
tax) from 11.4% to 12.2% would increase
impairment in the Building Technologies
Segment by $9.6 million.
• An increase in the discount rate (post-
tax) from 13.1% to 14.5% would increase
impairment in the Health Segment by
$3.8 million.
76
Hills Limited Annual Report for the year ended 30 June 2015
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
2015
$’000
2014
$’000
3,559
2,503
2,865
846
1,218
5,471
66
(65)
2,510
1,864
3,399
1,096
1,218
8,163
1,044
274
16,014
31,067
(2,327)
683
5,218
190
30,833
56,043
77
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
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
18,022
7,389
5,430
2,313
1,228
10,754
4,029
599
5,551
4,980
100
(19,749)
(5,396)
(2,181)
(1,214)
(10)
(2,611)
(3,102)
–
25,516
4,617
90
4,268
–
–
–
–
–
–
(325)
–
–
–
(31)
(129)
150
(3)
–
20
117
–
–
(4,379)
–
60,395
(4,040)
3,943
(4,255)
2,510
1,864
3,399
1,096
1,218
8,163
1,044
274
31,067
5,218
190
(1,211)
648
(880)
(268)
–
(2,890)
(976)
(1)
(15,053)
(6,860)
492
2,262
–
–
–
–
–
–
(338)
–
–
–
56,043
(26,999)
1,924
(2)
(9)
346
18
–
198
(2)
–
–
(685)
1
(135)
2,510
1,864
3,399
1,096
1,218
8,163
1,044
274
31,067
5,218
190
56,043
3,559
2,503
2,865
846
1,218
5,471
66
(65)
16,014
(2,327)
683
30,833
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
Movements 2015
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Tax losses
Software & other intangible assets
Other
78
Hills Limited Annual Report for the year ended 30 June 2015
15
DERIVATIVE FINANCIAL INSTRUMENTS
Current assets
Forward foreign exchange contracts – cash flow hedges
Forward foreign exchange contracts – held for trading
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
2015
$’000
2014
$’000
526
80
606
(310)
–
–
(310)
–
–
–
–
–
(44)
(340)
(88)
(472)
(528)
(528)
Total derivative financial instrument liabilities
Net derivative financial instrument assets / (liabilities)
(310)
(1,000)
296
(1,000)
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 2015
bear an average variable interest rate of
2.1% (2014: 2.8%). 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.
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 2015 a profit of $nil
was reclassified into profit or loss (2014:
$70,000) and included in finance cost due
to hedge ineffectiveness in the current or
prior year and a gain of $nil was reclassified
into profit or loss (2014: $232,000) to offset
net interest expense paid.
(ii) Forward exchange contracts – cash
flow hedges
Interest rate swaps in place at 30 June
2015 cover 22% (2014: 57%) of the loan
principal outstanding and are taken out
with terms of between three and seven
years. The fixed interest rates average
5.6% (2014: 4.4%).
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.
During the year ended 30 June 2015 a gain
of $1,000 was recognised in profit or loss
for the ineffective portion of these hedging
contracts (2014: $2,000).
79
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
15 DERIVATIVE FINANCIAL INSTRUMENTS
(continued)
(a) Instruments Used by the Group
(continued)
16
CURRENT LIABILITIES –
TRADE AND OTHER PAYABLES
(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 on previous page.
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.
2015
$’000
2014
$’000
41,441
35,363
26,249
40,396
67,690
75,759
80
Hills Limited Annual Report for the year ended 30 June 2015
17 BORROWINGS
2015
2014
Unsecured
Bank overdrafts
Other loans
Bills payable
Total unsecured borrowings
Total borrowings
Current
$’000
Non-current
$’000
Total
$’000
Current
$’000
Non-current
$’000
Total
$’000
–
5,831
–
5,831
5,831
–
–
–
5,831
45,000
45,000
45,000
45,000
50,831
50,831
1,810
173
–
1,983
1,983
–
–
1,810
173
35,000
35,000
35,000
35,000
36,983
36,983
(a) Bank Loans and Bank Overdraft
Standby Letter of Credit
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 (2014: $1.000
million), the Company’s New Zealand
subsidiary has a separate bank overdraft
facility of $1.992 million (2014: $2.091 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
facility totals $110 million, and consists of
a $90 million cash revolver tranche and a
$20 million multi-option facility tranche,
expiring on 27 February 2018. The cash
revolver tranche comprises bank loans and
the multi-option facility tranche comprises
bank guarantees, letters of credit and cash
advances. Bank loans are denominated
in AUD. 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.
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.
(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
2015
$’000
Fair
value
2015
$’000
Carrying
amount
2014
$’000
Fair
value
2014
$’000
–
–
1,810
1,810
45,000
45,000
35,000
35,000
5,831
5,831
173
173
50,831
50,831
36,983
36,983
(c) Risk Exposures
Information about the Group’s exposure to
interest rate and foreign exchange risk is
provided in note 27.
81
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 18 PROVISIONS
Employee benefits
Outstanding claims
Restructuring costs
Contingent consideration
Other provisions
2015
2014
Current
$’000
Non-current
$’000
Total
$’000
Current
$’000
Non-current
$’000
8,882
3,846
11,273
3,048
84
27,133
1,418
10,300
–
2,484
–
664
3,846
13,757
3,048
748
9,440
5,885
16,090
4,450
524
1,605
1,078
3,466
–
625
4,566
31,699
36,389
6,774
43,163
Total
$’000
11,045
6,963
19,556
4,450
1,149
(a) Description of Provisions
Outstanding Claims
Restructuring Costs
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.
The restructuring costs provision
comprises onerous lease costs,
redundancy costs and other costs of
closing and restructuring businesses.
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.
82
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) (b) Movements in Provisions
Movements in each class of provision
during the financial year, other than
employee benefits, are set out below:
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
Outstanding
claims
$’000
Restructuring
costs
$’000
Contingent
consideration
$’000
Other
$’000
Total
$’000
5,399
–
4,206
–
–
16,297
12,785
–
3,614
–
10,607
1,288
33,591
–
–
–
(427)
–
–
–
–
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
–
(20)
–
–
4,450
–
–
–
Carrying amount at end of year
6,963
19,556
4,450
1,149
4,450
(20)
32,118
Movements 2015
Carrying amount at the start of the year
Charged/(credited) to profit or loss – additional
provisions recognised
6,963
(948)
19,556
4,450
1,149
32,118
5,782
–
(185)
4,649
Amounts used during the year
(2,169)
(12,240)
(3,200)
(216)
(17,825)
Increase through acquisition of businesses / subsidiaries
Carrying amount at end of year
–
3,846
659
13,757
1,798
3,048
–
748
2,457
21,399
83
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 19
CONTRIBUTED EQUITY
(a) Share Capital
2015
Shares ‘000
2014
Shares ‘000
2015
$‘000
2014
$‘000
Ordinary shares – fully paid
231,986
233,913
278,439
281,624
(b) Movements in Ordinary Share Capital
Date
Details
1 July 2013
Opening balance
Share buyback
30 June 2014
Closing balance
1 July 2014
Opening balance
Share buyback
Executive share options forfeited
30 June 2015
Closing balance
Number of
shares
’000
$’000
246,220 303,890
(12,307)
(22,266)
233,913
281,624
233,913
281,624
(2,207)
(3,185)
280
–
231,986
278,439
(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.
84
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) 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 2015, the Group’s strategy, which
was unchanged from 2014, was to maintain
a target gearing ratio (calculated as net
debt divided by net debt plus equity) of
less than 40%.
The gearing ratios at 30 June 2015 and
30 June 2014 were as follows:
Notes
17
8
2015
$’000
2014
$’000
50,831
36,983
(18,801)
(45,482)
32,030
(8,499)
136,600
245,228
19.0%
0.0%
(e) Employee Share Scheme
(h) Capital Risk Management
The Group’s objectives when managing
capital are to safeguard the Group’s ability
to continue as a going concern, so that it can
continue to provide returns for shareholders
and benefits for other stakeholders and
to maintain an optimal capital structure to
reduce the cost of capital.
In order to maintain or adjust the capital
structure, the Group may adjust the
amount of dividends paid to shareholders,
return capital to shareholders, issue new
shares or sell assets to reduce debt.
The Group monitors capital on the basis
of the gearing ratio in conjunction with its
review of the Group’s banking covenants.
This ratio is calculated as net debt
divided by net debt plus total capital.
Total borrowings
Less: cash and cash equivalents
Net (funds) / debt
Total equity
Gearing ratio
The Employee Share Plan did not operate
in the current or previous financial year.
(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, lapsed and forfeited 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 2.207 million shares
at an average price of $1.44 per share,
with prices ranging from $1.33 to $1.63
per share. The total cost of $3.185 million,
including transaction costs of $0.013
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% of its issued ordinary shares.
The buyback was for ongoing capital
management purposes and was to take
place over the twelve 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 and 25 February 2015. During
the previous financial year, the Company
bought back 12.307 million shares for a
total cost of $22.266 million, including
transaction costs of $0.088 million. The
average price was $1.81 per share, with
prices ranging from $1.56 to $1.91 per share.
The average price paid over the entire
period of the buyback was $1.75 per share.
85
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 20 RESERVES
Asset revaluation reserve
Hedging reserve – cash flow hedges
Equity compensation reserve
Foreign currency translation reserve
Profits reserve
Closing balance 30 June
Movements
Asset revaluation reserve
Opening balance 1 July
Revaluation – gross
Deferred tax
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
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
Transfers from other reserves
Dividends paid
Closing balance 30 June
86
2015
$’000
2014
$’000
–
18,385
151
754
(571)
(638)
721
139
10,133
10,293
10,467
28,900
18,385
32,820
(7,534)
(14,227)
2,261
4,268
(13,112)
(4,476)
–
18,385
(638)
(1,397)
1,127
(338)
151
721
33
754
1,084
(325)
(638)
658
63
721
–
–
–
–
1,551
(4,495)
2,944
–
139
(1,043)
(710)
(571)
1,182
139
10,293
–
–
24,798
13,112
1,532
(13,272)
(16,037)
10,133
10,293
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (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 Reserve
Exchange differences arising on
translation of the financial statements of a
foreign controlled entity are recognised in
other comprehensive income as described
in note 1(e) and accumulated in a separate
reserve within equity. The cumulative
amount is reclassified to profit or loss
when the net investment is disposed of.
(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.
87
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 21 DIVIDENDS
(a) Ordinary Shares
Dividend of 3.6 cents fully franked based on tax paid @ 30% (2014: 3.25 cents) per fully paid share paid on 26 September
2014 (2014: 27 September 2013)
2015
$’000
2014
$’000
8,400
8,000
Dividend of 2.1 cents fully franked based on tax paid @ 30.0% (2014: 3.4 cents) per fully paid share paid on 30 April 2015
(2014: 31 March 2014).
4,872
8,037
Total dividends provided for or paid
(b) Dividends Not Recognised at
the End of the Reporting Period
A final dividend has not been declared for the year ended 30 June 2015.
In the previous financial year a dividend of 3.6 cents, fully franked based on tax paid at 30% was declared.
The aggregate amount of the proposed dividend which was paid on 26 September 2014, but not recognised
as a liability at year end, was:
(c) Franked dividends
Franking credits available for subsequent reporting periods based on a tax rate of 30% (2014: 30.0%)
The above amounts represent the balance
of the franking account as at the end of the
reporting period, adjusted for:
The consolidated amounts include
franking credits that would be available
to the Company if distributable profits of
subsidiaries were paid as dividends.
13,272
16,037
2015
$’000
2014
$’000
-
8,420
2015
$’000
2014
$’000
1,787
4,839
(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.
88
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued) 22 EARNINGS PER SHARE
(a) Basic earnings per share
From (loss) / profit from continuing operations attributable to the
ordinary equity holders of the Company
From discontinued operations
2015
Cents
2014
Cents
(37.0)
–
7.0
3.4
Earnings per share for (loss) / profit attributable to the ordinary equity
holders of the Company
(37.0)
10.4
From underlying profit attributable to the ordinary equity holders of
the Company 1
4.8
11.4
(b) Diluted earnings per share
From (loss) / profit from continuing operations attributable to the
ordinary equity holders of the Company
From discontinued operations
(37.0)
–
7.0
3.4
Earnings per share for (loss) / profit attributable to the ordinary equity
holders of the Company
(37.0)
10.4
From underlying profit attributable to the ordinary equity holders of
the Company 1
4.8
11.4
1 Underlying profit has been calculated after adjusting profit / (loss) attributable to the ordinary equity
holders of the Company for the after tax impact of asset impairments, de-recognition of deferred tax
assets relating to tax losses, costs of acquisitions and other associated gains or losses on the disposal
of businesses and CGU impairment, restructure and closure costs and other associated impairments.
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 programme. The non IFRS measure has not
been subject to audit or review.
89
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
22 EARNINGS PER SHARE
(continued)
(c) Reconciliation of earnings used in calculating earnings per share
2015
$’000
2014
$’000
Basic earnings per share
(Loss) / profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share
(85,947)
16,780
From discontinued operation
(Loss) / profit used in calculating basic earnings per share
Diluted earnings per share
–
8,018
(85,947)
24,798
(Loss) / profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share
(85,947)
16,780
From discontinued operation
(Loss) / profit used in calculating diluted earnings per share
Underlying profit earnings per share
–
8,018
(85,947)
24,798
(Loss) / profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share
(85,947)
24,798
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
96,992
2,479
11,045
27,277
1 Underlying profit has been calculated after adjusting profit / (loss) attributable to the ordinary equity holders of the Company for the after tax impact of asset
impairments, de-recognition of deferred tax assets relating to tax losses, costs of acquisitions and other associated gains or losses on the disposal of businesses and
CGU impairment, restructure and closure costs and other associated impairments. 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 programme. The non IFRS measure has not been subject to audit or review.
(d) Weighted average number of shares used as denominator
2015
$’000
2014
$’000
Adjustments for calculation of diluted earnings per share:
Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share
232,215
238,983
Effect of performance rights on issue
52
–
Weighted average number of ordinary and potential ordinary shares used as the denominator in calculating
diluted earnings per share
232,267
238,983
In the previous financial year the 280,000 share options granted between 2003 and 2007
were not included in the calculation of diluted earnings per share because they were
antidilutive for the year ended 30 June 2014.
90
Hills Limited Annual Report for the year ended 30 June 2015
23 SHARE-BASED PAYMENTS
(a) Employee Performance Rights
and Option Plans
In 2010 the Group established the 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), was still operational
for employees granted options under
that plan. The shares issued pursuant to
these options were financed by an interest
free loan from the Company repayable
within twenty years from the proceeds
of dividends declared by the Company.
These loans were of a non-recourse nature.
For accounting purposes these 20 year
loans were treated as part of the options
to purchase shares, until the loan was
extinguished at which point the shares
were recognised. The remaining options
under the ESOP were forfeited during the
current financial year.
Details of performance rights and options
under the current and previous scheme
are as follows:
Grant date
Expiry date
2015
Performance rights
17 Feb 2014
30 Jun 2016
27 Feb 2015
30 Jun 2017
Executive share options
1 Feb 2001
1 Jan 2023
1 Feb 2002
1 Jan 2024
1 Feb 2003
1 Jan 2025
1 Feb 2004
1 Jan 2026
1 Feb 2005
1 Jan 2027
Total executive share options
$–
$–
$2.50
$2.90
$3.23
$3.66
$4.16
1,133,332
–
–
389,410
25,000
35,000
40,000
55,000
125,000
280,000
–
–
–
–
–
–
Totals
1,413,332
389,410
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
Exercise
price
Vested and
exercisable
at end of
the year
number
–
–
–
–
–
–
–
–
–
(1,133,332)
–
(267,398)
122,012
(25,000)
(35,000)
(40,000)
(55,000)
(125,000)
(280,000)
–
–
–
–
–
–
(1,680,730)
122,012
–
–
–
–
–
–
–
–
–
91
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
23 SHARE-BASED PAYMENTS
(continued)
(a) Employee Performance Rights
and Option Plans (continued)
Grant date
Expiry date
2014
Performance rights
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
Exercise
price
Vested and
exercisable
at end of
the year
number
17 Feb 2014
30 Jun 2016
$–
–
1,133,332
Executive share options*
1 Feb 2001
1 Jan 2023
1 Feb 2002
1 Jan 2024
1 Feb 2003
1 Jan 2025
1 Feb 2004
1 Jan 2026
1 Feb 2005
1 Jan 2027
Total executive share options
$2.50
$2.90
$3.23
$3.66
$4.16
25,000
35,000
40,000
55,000
125,000
280,000
–
–
–
–
–
–
Totals
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 number of employees who are not key management personnel.
Fair value of performance rights 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 2015 was 52.0 cents
per performance right for the performance
rights subject to market hurdles and
77.0 cents per performance right for the
performance rights subject to non market
hurdles. 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 2015 included:
• exercise price: $0.00
• life: 2.3 years
• grant date (for Accounting Standards):
27 February 2015
• expiry date: 30 June 2017
• share price at grant date: $0.88
• expected price volatility of the
Company’s shares: 40%
• expected dividend yield: 5.7%
• risk free interest rate: 1.8%
(b) 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:
2015
$’000
2014
$’000
33
64
Performance rights
issued under Long
Term Incentive Plans
92
Hills Limited Annual Report for the year ended 30 June 2015
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
2015
$’000
2014
$’000
Short-term employee benefits (fixed and STI remuneration)
2,966,471 5,207,533
Post-employment benefits (superannuation)
170,435
231,340
Long term benefits (cash LTI and accrued long service leave)
83,422
229,329
Termination benefits
Share-based payments (LTI expense and employee share
bonus plan expense)
928,100
296,208
(63,494)
64,222
4,084,934 6,028,632
Detailed remuneration disclosures are provided in the Remuneration Report.
(d) Transactions with Other
Related Parties
Property rentals within the Group during
the year were $nil (2014: $0.976 million).
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
$19.162 million (2014: $7.746 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 $0.219
million (2014: $0.366 million).
In the previous financial year, entities
within the Group rented properties to or
from other entities within the Group at
rentals that are market related.
Inter entity dividends paid and received
during the year amounted to $0.735 million
(2014: $33.906 million).
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 the following related party
transactions with director related entities
took place:
• Hills purchased goods from Korvest Ltd
and provided services to Korvest Ltd,
an entity associated with P Stancliffe.
Korvest was considered a related
party until 18 September 2014 when
P Stancliffe retired as a director of
Korvest. Services provided to Korvest
in this time totalled $0.060 million and
goods purchased totalled $0.012 million.
• Hills purchased goods from SAI
Global, an entity associated with
D Spence. Goods purchased totalled
$0.003 million.
• Hills purchased goods from CSG, an
entity associated with P Bullock. Goods
purchased totalled $0.127 million.
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 KMP and their
related parties.
From time to time, KMP of the Company
or its controlled entities, or their related
entities, may purchase goods or services
from Hills or make sales of goods or
services to Hills. These purchases or sales
are on the same terms and conditions as
those entered into by Hills employees,
customers or suppliers 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 2015 the Group
current assets and liabilities that were
eliminated were $50.066 million (2014:
$167.622 million).
93
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements 25 CONTINGENCIES
26 COMMITMENTS
(a) Contingent Liabilities
(a) Capital Commitments
The Group had contingent liabilities at
30 June 2015 in respect of:
Capital expenditure contracted for at
the reporting date but not recognised as
liabilities is as follows:
(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.
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.
(ii) Guarantees
Plant and equipment
(b) Lease Commitments: Group as Lessee
(i) Non-cancellable Operating Leases
The Group leases a number of office,
warehouse and factory facilities under
operating leases.
The leases run for a period ranging from 1
to 10 years with the majority running for a
period of 3 to 5 years, with an option to renew
the lease after that date. Lease payments
are increased each renewal period to reflect
market rentals. Some leases provide for
additional rent payments that are based on
changes in the consumer price index, local
capital city consumer price indices or a
fixed percentage.
Commitments for minimum lease payments
in relation to non-cancellable operating
leases are payable as follows:
Bank guarantees in favour of customers
and suppliers amounting to $9.224 million
(2014: $11.273 million).
Within one year
Later than one year but not later than five years
(iii) Acquisitions
Later than five years
For contingent liabilities relating to
acquisitions refer to note 29.
(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
94
2015
$’000
2014
$’000
2,335
2,423
2015
$’000
2014
$’000
6,958
8,396
11,166
15,364
1,214
4,813
19,338
28,573
2015
$’000
2014
$’000
1,884
4,133
6,017
895
2,424
3,319
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statementsFor the year ended 30 June 2015 (continued)
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:
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
programme 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.
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
2015
$’000
2014
$’000
18,801
45,482
87,545
101,221
606
3
–
2
106,955
146,705
67,690
75,759
50,831
36,983
310
1,000
3,048
4,450
121,879
118,192
95
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
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.
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.
Management and Group Treasury manage
the Group’s foreign exchange risk against
their functional currency.
The Group’s exposure to foreign currency
risk at the reporting date, expressed in
Australian dollars, was as follows:
30 June 2015
30 June 2014
USD
$’000
Euro
$’000
JPY
$’000
NZD
$’000
GDP
$’000
Total
$’000
USD
$’000
Euro
’000
JPY
’000
GBP
$’000
Total
$’000
Trade receivables
Cash at bank
257
1,145
–
3
–
–
–
–
–
–
257
1,128
1,148
1,024
–
12
–
–
–
–
1,128
1,036
Trade payables
(7,201)
(828)
(55)
(23)
(156)
(8,263)
(12,962)
(582)
(202)
(197)
(13,943)
Forward exchange contracts:
– buy foreign currency
(cash flow hedges)
– buy foreign currency
(FVTPL)1
1 Fair Value Through Profit and Loss
(21,848)
(2,197)
–
–
–
–
–
–
–
(21,848)
(25,058)
–
(2,197)
(330)
–
–
–
–
– (25,058)
–
(330)
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.
Impact on
pre tax profit
Impact on
other components
of equity
2015
$’000
2014
$’000
2015
$’000
2014
$’000
Foreign exchange risk – decrease 10%
162
(1,183)
3,680
2,959
Foreign exchange risk – increase 10%
(127)
968
(2,054)
(2,419)
Profit is less sensitive to movements in the Australian dollar / US dollar exchange rates
in 2015 than 2014 because of the reduced amount of US dollar denominated trade
receivables and payables. There is no significant change in the sensitivity of other
components of equity.
96
Hills Limited Annual Report for the year ended 30 June 2015
(ii) Price Risk
The Group has no material financial
exposure to other market price risk as it is
not exposed to equity securities price risk.
The Group does not enter into commodity
contracts other than to meet the Group’s
expected usage requirements.
(iii) Cash Flow And Fair Value Interest
Rate Risk
The Group’s main interest rate risk arises
from long term borrowings. Borrowings
issued at variable rates expose the Group
to cash flow interest rate risk. Group
policy is to maintain approximately 50%
to 75% of its borrowings at fixed rate using
interest rate swaps to achieve this when
necessary. During 2015 and 2014, the
Group’s borrowings at variable rate were
denominated in Australian Dollars and
NZ Dollars.
The Group manages its cash flow interest
rate risk by using floating to fixed interest
rate swaps. Such interest rate swaps
have the economic effect of converting
borrowings from floating rates to fixed rates.
Generally, the Group raises long term
borrowings at floating rates and swaps
them into fixed rates that are lower than
those available if the Group borrowed at
fixed rates directly.
Under the interest rate swaps, the Group
agrees with other parties to exchange,
at specified intervals (mainly quarterly),
the difference between fixed contract
rates and floating rate interest amounts
calculated by reference to the agreed
notional principal amounts.
As at the end of the reporting period,
the Group had the following variable
rate borrowings and interest rate swap
contracts outstanding:
2015
2014
Weighted
average
interest
rate %
Weighted
average
interest
rate %
Balance
$’000
Balance
$’000
2.1%
(45,000)
2.8%
(36,810)
1.7%
0.0%
18,801
(5,830)
2.4%
13.1%
45,482
(173)
5.6%
10,000
4.4%
20,000
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) below.
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
Impact on
pre tax profit
Impact on
other components
of equity
2015
$’000
322
(322)
2014
$’000
2015
$’000
2014
$’000
(122)
122
(235)
(250)
286
246
Profit is more sensitive to movements in interest rates in 2015 than 2014 mainly as a
result of higher levels of borrowings. There is no significant change in the sensitivity of
other components of equity.
97
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
27 FINANCIAL RISK MANAGEMENT
(continued)
(iii) Cash Flow And Fair Value
Interest Rate Risk (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
2015
Financial assets
Cash and cash equivalents
18,801
(186)
Trade and other receivables
Derivatives – cash flow hedges
Derivatives – fair value through
profit or loss
Total increase / (decrease)
in financial assets
Financial liabilities
Derivatives – cash flow hedges
Trade payables
Borrowings
Contingent consideration
Total increase / (decrease)
in financial liabilities
Total increase / (decrease)
2014
Financial assets
Total increase / (decrease) in
financial assets
Financial liabilities
Derivatives – cash flow hedges
Derivatives – fair value through
profit or loss
Trade payables
Borrowings
Contingent consideration
Total increase / (decrease)
in financial liabilities
Total increase / (decrease)
98
87,545
526
80
(310)
(67,690)
(50,831)
(3,048)
–
–
–
(186)
–
–
508
–
–
–
–
–
–
186
–
–
–
186
(235)
–
–
–
–
–
(508)
–
508
(235)
(508)
322
(235)
(322)
–
–
–
(250)
–
–
–
–
450
–
450
–
–
–
(328)
–
(450)
–
–
–
328
–
328
(912)
(88)
(75,759)
(36,983)
(4,450)
–
–
–
–
–
286
–
–
–
286
286
–
–
–
127
918
–
28
–
–
(104)
(751)
–
–
3,680
–
(2,054)
–
(23)
–
1,073
3,680
(878)
(2,054)
–
(911)
–
–
(911)
–
–
–
–
–
–
751
–
–
751
–
–
–
–
–
162
3,680
(127)
(2,054)
115
127
242
–
–
–
(94)
(104)
(198)
–
–
–
246
–
2,959
–
(2,419)
–
–
–
–
124
(1,549)
–
–
–
–
–
–
(102)
1,268
–
–
–
–
–
–
(250)
(328)
246
(1,425)
2,959
1,166
(2,419)
(122)
(250)
122
246
(1,183)
2,959
968
(2,419)
Cash and cash equivalents
45,482
(450)
Trade and other receivables
104,479
–
Hills Limited Annual Report for the year ended 30 June 2015
(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 also carries insurance
for the majority of its outstanding debtors.
The Group has established an allowance
for impairment that represents the
estimate of incurred losses in respect of
trade and other receivables. 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 2015 the Group had banking
facilities totalling $110 million, through
a Common Deed with Commonwealth
Bank, National Australia Bank and Westpac
Banking Corporation. The facility consists
of a $90 million cash revolver tranche and
a $20 million multi-option facility tranche
and expires on 27 February 2018. The cash
revolver tranche comprises bank loans and
the multi-option facility tranche 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)
2015
$’000
2014
$’000
1,000
38,444
54,746
115,000
55,746
153,444
99
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
27 FINANCIAL RISK MANAGEMENT
(continued)
(c) Liquidity Risk (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.
At 30 June 2015
Non-derivatives
Trade payables
Borrowings
Contingent consideration
Total non-derivatives
Derivatives
Interest rate swaps
At 30 June 2014
Non-derivatives
Trade payables
Borrowings
Contingent consideration
Total non-derivatives
Derivatives
Less than 6
months
$’000
6 to 12
months
$’000
Between
1 & 2 years
$’000
Between
2 & 5 years
$’000
Total
contractual
cash flows
$’000
Over
5 years
$’000
Carrying
amount
liabilities
$’000
67,690
6,305
3,048
77,043
–
474
–
474
–
–
948
45,629
–
–
948
45,629
168
175
75,759
2,516
2,950
81,225
–
478
–
478
–
–
35,120
1,500
36,620
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
67,690
67,690
53,356
50,831
3,048
3,048
124,094
121,569
343
310
75,759
75,759
38,114
4,450
118,323
36,983
4,450
117,192
1,038
1,000
Interest rate swaps and forward exchange
contracts
590
180
268
100
Hills Limited Annual Report for the year ended 30 June 2015
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
The following table presents the Group’s
financial assets and financial liabilities
measured and recognised at fair value:
30 June 2015
Assets
Derivatives used for hedging
Total assets
Liabilities
Derivatives used for hedging
(c) Level 3 – inputs for the asset or liability
Contingent consideration payable
that are not based on observable
market data (unobservable inputs).
Total liabilities
30 June 2014
Liabilities
Derivatives used for hedging
Contingent consideration payable
Total liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
–
–
606
606
310
–
310
–
–
–
3,048
3,048
606
606
310
3,048
3,358
1,000
–
1,000
–
4,450
4,450
1,000
4,450
5,450
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 fair value of financial instruments that
are not traded in an active market (for
example derivatives used for hedging) is
determined using valuation techniques.
These valuation techniques maximise the
use of observable market data where it is
available and rely as little as possible on
entity specific estimates. All significant
inputs required to fair value derivatives
used for hedging are observable, and
hence the instruments are included in
level 2. There have been no movements
between levels during the year ended
30 June 2015.
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.
101
Hills Limited Annual Report for the year ended 30 June 2015Notes to the consolidated financial statements Notes to the consolidated
financial statements
For the year ended 30 June 2015
28 FAIR VALUE MEASUREMENTS
(continued)
(a) Fair Value Measurements for Financial
Assets and Liabilities (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:
A discussion on the unobservable inputs
is included within Note 29. The valuation
of contingent consideration considers the
possible scenarios of expected contracts
to be signed, revenue and claims, the
amount to be paid under each scenario
and the probability of each scenario. The
estimated fair value would increase /
(decrease) if revenue growth is higher /
(lower), the number of contracts signed
increases / (decreases) and the number
and value of agreed claims (increases) /
decreases. Reasonably possible changes
to the significant unobservable inputs,
holding other inputs constant would have
the following effect upon profit:
Balance at 1 July
Unwinding discount on provision
Release of contingent consideration
Contingent consideration
2015
$’000
2014
$’000
4,450
10,607
–
798
346
(773)
Payment of contingent consideration (note 29 (c))
(3,200)
(10,180)
Arising from business combination
Balance at 30 June
1,000
3,408
4,450
4,450
Revenue (5% movement)
EBIT (5% movement)
Profit or loss 2015
Profit or loss 2014
Increase
$’000
Decrease
$’000
Increase
$’000
Decrease
$’000
–
–
195
–
–
(300)
195
300
(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:
30 June 2015
Land and buildings
• 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 2015. An explanation of
each level is provided in (a) above.
Total non-financial assets and liabilities
30 June 2014
Land and buildings
Assets and disposal groups held for sale
Total non-financial assets and liabilities
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
–
–
–
–
8,898
8,898
8,898
8,898
30,785
30,785
7,800
7,800
38,585
38,585
102
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
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 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:
Land and
buildings 2015
$’000
Land and
buildings 2014
$’000
Assets and disposal
groups held for sale 2015
$’000
Assets and disposal
groups held for sale 2014
$’000
Balance at 1 July
Disposals
Revaluation
Additions at cost
Depreciation charges
Transfer to assets held for sale
Balance at 30 June
30,785
(12,111)
(7,534)
30
(2,272)
–
8,898
65,706
(14,975)
(14,227)
2,254
(173)
(7,800)
30,785
7,800
(7,800)
–
–
–
–
–
70,221
(70,221)
–
–
–
7,800
7,800
29 BUSINESS COMBINATION
(a) Current Year
Summary of Acquisition
On 1 July 2014 the Group acquired 100%
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. The contribution
of revenues and net profit to the Group
is not separately determinable because
APG has been integrated into the Building
Technologies segment during the year.
On 6 February 2015 the Group acquired
100% of the issued shares in Hospital
Communications Pty Ltd (“Hostel”). The
acquisition is consistent with Hills stated
strategy to be the number one provider
of interactive patient care solutions
to hospitals and aged care facilities in
Australia. Hostel contributed revenues
of $1.7 million and net profit of $0.330
million from the date of acquisition. If
the acquisition had been on 1 July 2014,
consolidated revenue and consolidated
loss for the year ended 30 June 2015 would
have been $430.422 million and $85.350
million respectively.
Details of the purchase consideration,
the net assets acquired and goodwill is
set out below. The acquisition accounting
for Hostel is classified as provisional as the
measurement period has not ended.
APG
$’000
Hostel
$’000
Purchase consideration
Cash paid
Contingent consideration / retention
Total purchase consideration
Fair value of net identifiable assets acquired (refer below)
Goodwill (refer below)
13,692
1,000
14,692
5,418
9,274
The goodwill is attributable to the
synergies expected to arise within the
Hills Technologies division.
9,311
–
9,311
4,567
4,744
103
Hills Limited Annual Report for the year ended 30 June 2015 Notes to the consolidated
financial statements
For the year ended 30 June 2015
29 BUSINESS COMBINATION
(continued)
(a) Current Year (continued)
Assets and Liabilities Acquired
The 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
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
APG
$’000
Fair value
Hostel
$’000
247
4,147
3,589
315
–
–
(2,389)
(4)
613
(1,100)
5,418
9,274
14,692
66
687
157
2,953
534
1,779
(786)
–
(626)
(197)
4,567
4,744
9,311
Contingent Consideration
(b) Previous Year
Contingent consideration comprises
retention and is payable to the former
owners of APG twelve months after the
acquisition was completed. The amount
of retention payable is reduced by the
value of agreed claims as defined in the
sale agreement. Contingent consideration
recorded has been determined on the
basis of the probability of agreed
claims arising.
Acquisition Related Costs
Acquisition related costs of $0.948 million
relating to legal fees and due diligence
costs are included in other expenses in
profit or loss and in operating cash flows in
the consolidated statement of cash flows.
Summary of Acquisitions
In the previous financial year the Group
acquired the following businesses:
On 4 September 2013 the Group acquired
two healthcare technology businesses.
100% 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 acquired the majority of the assets
and business of a healthcare technology
business, Questek Pty Ltd (“Questek”).
On 31 March 2014 the Group acquired the
assets and business of a security solutions
business, Open Platform Systems Pty Ltd
(“OPS”) and on 31 May 2014 the Group
acquired the assets and business of a New
Zealand based security solutions business,
Intek Ltd (“Intek).
Details of the purchase consideration,
the net assets acquired and goodwill is
set out on following page.
104
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
Purchase consideration
Cash paid
Contingent consideration / retention
Total purchase consideration
Fair value of net identifiable assets acquired (refer below)
HTR &
Merlon
$’000
32,137
548
32,685
9,321
Goodwill (refer below)
23,364
3,466
Contingent / Deferred Consideration
Contingent consideration is payable to
the former owners of Merlon, subject to
certain contracts being signed. Additional
contracts were signed compared to
provisional estimates and as a result
contingent consideration has been revised
up from nil to $0.548 million. Contingent
consideration is payable to the former
owners of Questek subject to material
contracts being signed and subject to any
claims arising. Contingent consideration
has been revised down from $0.950 million
to nil. Contingent consideration was
payable to the former owners of OPS if
certain EBITDA results were achieved for
the year ended 30 June 2014 and if certain
revenue targets are achieved for the year
ending 30 June 2015. Consideration paid
has been revised up from $5.244 million to
$8.444 million.
Assets and Liabilities Acquired
The assets and liabilities recognised as a
result of the acquisitions are as follows:
Questek
$’000
OPS
$’000
Intek
$’000
3,312
–
3,312
(154)
8,444
1,500
9,944
3,623
6,321
5,700
–
5,700
2,978
2,722
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
–
1,871
323
268
345
–
1,926
1,233
120
–
1,995
3,053
–
–
–
1,092
1,902
577
47
–
–
(1,661)
(4,046)
(1,617)
(581)
(1,184)
(2,382)
(771)
9,321
23,364
32,685
–
(447)
(463)
(154)
3,466
3,312
–
(841)
(251)
3,623
6,321
9,944
–
2
(61)
2,978
2,722
5,700
105
Hills Limited Annual Report for the year ended 30 June 2015 Notes to the consolidated
financial statements
For the year ended 30 June 2015
29 BUSINESS COMBINATION
(continued)
(b) Previous Year (continued)
Assets and Liabilities Acquired (continued)
During the period since acquisition date
the Company has undertaken reviews
of the fair values attributed to assets
and liabilities assumed as part of the
acquisition. As a result of those reviews
the following adjustments were identified:
• Merlon and HTR – provision for income
tax initially recognised at $1.356 million
was reassessed at $1.184 million,
resulting in the value of net assets
acquired increasing from $9.149 million
to $9.321 million.
• Questek – trade and other receivables
initially recognised at $2.130 million was
reassessed at $1.871 million, inventory
initially recognised at $0.565 million was
reassessed at $0.323 million and trade
and other payables initially recognised
at $2.391 million was reassessed at
$4.046 million. This results in the value
of net assets acquired reducing from
$2.002 million to $(0.154 million).
• OPS – inventory initially recognised at
$1.818 million was reassessed at $1.233
million and net deferred tax liabilities
initially recognised at $0.836 million
was reassessed at $0.841 million. This
resulted in the value of net assets
acquired reducing from $4.213 million
to $3.623 million.
• Intek – inventory initially recognised at
$2.038 million was reassessed at $1.902
million and net deferred tax liabilities
initially recognised at $0.053 million
was reassessed at $0.002 million. This
resulted in the value of net assets
acquired reducing from $3.165 million
to $2.978 million.
Goodwill
Impact on goodwill as a result of
post-acquisition information received:
Opening balance
Adjustment to purchase consideration
Adjustment to fair value of net assets acquired
Total
HTR & Merlon
Final
$’000
Questek
Final
$’000
22,988
548
(172)
23,364
2,260
(950)
2,156
3,466
OPS
Final
$’000
4,531
1,200
590
6,321
Intek
Final
$’000
2,411
124
187
2,722
106
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
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
Hills Finance Pty Ltd
Hills NZ Limited (formerly Hills Holdings NZ Limited)
Audio Products Group Limited
Hills Group Operations Pty Ltd
Hills Integrated Solutions Pty Ltd (formerly DAS Security Wholesalers Pty Ltd)
Audio Products Group Pty Ltd
EMG Finance Pty Ltd
Pacific Communications (PACOM) Pty Ltd
Pacom Security Pty Ltd
Hills Health Solutions Pty Ltd (formerly Hills Health Solutions
Australia Pty Ltd, CBS Hardware Pty Ltd)
New-Tone (Aust) Pty Ltd
T.V Rentals Pty Ltd
Hospital Telecommunications Pty Ltd
Hills Polymers Pty Ltd
Hills Hoists Pty Ltd
Hills Share Plans Pty Ltd (formerly ACN 089 622 622 Pty Ltd)
Step Electronics 2005 Pty Ltd (i)
Cygnus Satellite Pty Ltd (i)
Lan 1 Pty Ltd
Woodroffe Industries Pty Ltd
ACN 091 954 442 Pty Ltd (formerly Fielders Australia Pty Ltd)
ACN 099 403 139 Pty Ltd (formerly Fielders Mobile Mill Pty Ltd)
Zen 99 Pty Ltd
ACN 010 853 817 Pty Ltd (formerly Orrcon Holdings Pty Ltd)
ACN 094 103 090 Pty Ltd (formerly Orrcon Operations Pty Ltd)
ACN 093 760 895 Pty Ltd (formerly Orrcon Tubing Pty Ltd)
Access Television Services Pty Ltd
Country of
incorporation
Class of
shares
Australia
Ordinary
New Zealand
Ordinary
New Zealand
Ordinary
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
(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.
Equity holding
2015
%
2014
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
–
100
100
100
100
100
100
100
100
100
100
100
–
100
100
–
–
100
100
100
100
100
–
100
100
100
50
50
100
100
100
100
100
100
100
100
100
107
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
For the year ended 30 June 2015
30 INTERESTS IN OTHER ENTITIES
(continued)
(b) Non-controlling Interests (NCI)
Assets and Liabilities Acquired
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
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 (decrease) / increase in cash and cash equivalents
(c) Transactions with Non-controlling Interests
On 25 June 2015 the Group sold its interest in Cygnus Satellite Pty Ltd.
In the previous financial year, on 2 January 2014 the Group acquired the remaining 49%
of UHS Systems Pty Ltd, for consideration of $5.000 million.
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
2015
$’000
–
–
–
2014
$’000
505
(5,000)
(4,495)
108
2015
$’000
2014
$’000
–
–
–
–
–
–
–
–
3,867
2,591
1,276
834
–
834
2,110
1,063
8,544
31,809
333
333
167
732
(558)
(139)
(1,603)
(2,300)
3,419
3,419
1,589
90
3,314
(242)
(226)
2,846
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
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
(Loss) / profit for the year
Total comprehensive income
2015
$’000
2014
$’000
109,233
219,292
97,300
153,530
206,533
372,822
31,308
139,106
49,506
41,555
80,814
180,661
125,719
192,161
278,439
281,624
–
15,809
151
754
(638)
721
32,859
35,613
(186,484)
(140,968)
125,719
192,161
(45,530)
47,876
(50,724)
40,335
(b) Guarantees Entered into by the
Parent Entity
Bank guarantees given by the Company
in favour of customers and suppliers
amounted to $9.224 million (2014:
$6.719 million).
guaranteed the debt in each other’s
companies. Guarantees amount to
$149.255 million (2014: $150.143 million).
No material deficiency in net tangible
assets exists in these companies at
reporting date with net tangible assets
amounting to $53.297 million (2014:
$91.946 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
(c) Contingent Liabilities of the Parent Entity
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 Plant or Equipment
As at 30 June 2015, the Company had
contractual commitments for the
acquisition of plant or equipment totalling
$2.126 million (2014: $2.348 million). These
commitments are not recognised as
liabilities as the relevant assets have not
yet been received.
109
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
For the year ended 30 June 2015
(continued)
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
Director’s reports.
It is a condition of the Class Order that
the Company and each of the subsidiaries
enter into a Deed of Cross Guarantee.
The effect of the Deed is that the Company
guarantees to each creditor payment in
full of any debt in the event of winding up
of any of the subsidiaries under certain
provisions of the Corporations Act 2001. If
a winding up occurs under other provisions
of the Act, the Company will only be
liable in the event that after six months
any creditor has not been paid in full.
The subsidiaries have also given similar
guarantees in the event that the Company
is wound up.
The subsidiaries subject to the Deed are:
Subsidiary
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
Hills Integrated Solutions Pty Ltd
Audio Products Group Pty Ltd
Hospital Telecommunications Pty Ltd
Date of becoming a
party to the Deed
15 April 2004
15 April 2004
15 April 2004
23 June 2006
23 June 2006
14 May 2008
29 June 2010
29 June 2010
25 June 2014
25 June 2014
25 June 2014
25 June 2014
25 June 2014
25 June 2014
31 March 2015
31 March 2015
15 May 2015
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
2015 and a Consolidated statement of
financial position as at 30 June 2015 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.
110
Hills Limited Annual Report for the year ended 30 June 2015 Notes to the consolidated
financial statements
(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
(Loss) / profit before income tax
Income tax expense
Profit from discontinued operations
(Loss) / profit for the year
Consolidated statement of comprehensive income
(Loss) / profit 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 for the year that may be reclassified to
profit or loss, net of tax
Items that will not be reclassified to profit or loss
Reversal of previous revaluations 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 (loss) / income for the year
Summary of movements in consolidated retained earnings
2015
$’000
2014
$’000
384,208
386,692
5,183
1,032
(3,239)
(3,580)
(445,673)
(373,148)
(59,521)
10,996
(27,032)
–
(584)
8,018
(86,553)
18,430
(86,553)
18,430
1,127
(338)
789
1,084
(325)
759
(7,534)
(14,227)
2,261
4,268
(5,273)
(9,959)
(4,484)
(9,200)
(91,037)
9,230
Accumulated losses at the beginning of the financial year
(81,228)
(93,177)
Adjustment for subsidiaries entering the deed of cross guarantee
–
11,949
(Loss) / profit for the year
Transfer to profits reserve
Accumulated losses at the end of the financial year
(86,553)
18,430
–
(18,430)
(167,781)
(81,228)
111
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
For the year ended 30 June 2015
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
Trade and other receivables
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 liabilities
Provisions
Derivative financial instruments
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Derivative financial instruments
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
112
2015
$’000
2014
$’000
16,044
40,649
86,106
93,222
66,867
52,687
526
–
169,543
186,558
–
7,800
169,543
194,358
653
1,102
–
1,301
31,471
45,430
35,845
80,725
30,460
55,614
99,531
183,070
269,074
377,428
66,873
70,867
5,831
–
172
686
26,675
36,977
310
384
99,689
109,086
45,000
35,000
4,566
5,530
–
527
49,566
41,057
149,255
150,143
119,819
227,285
278,439
281,624
9,161
26,889
(167,781)
(81,228)
119,819
227,285
Hills Limited Annual Report for the year ended 30 June 2015
Notes to the consolidated
financial statements
33 RECONCILIATION OF PROFIT AFTER
INCOME TAX TO NET CASH INFLOW
FROM OPERATING ACTIVITIES
(Loss) / profit for the year
Depreciation and amortisation
Impairment of goodwill
Impairment of trade receivables
Impairment of inventories
Impairment of property, plant and equipment
Impairment of intangible assets
Net (gains) on disposal of businesses
2015
$’000
2014
$’000
(85,780)
26,387
11,075
9,197
55,353
314
3,722
1,053
–
835
2,117
936
5,662
10,475
(1,853)
(14,596)
Non-cash employee benefits expense – share-based payments
33
63
Net (gain) loss on sale of non-current assets (including assets held for
sale)
(292)
(303)
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:
Decrease / (increase) in trade and other receivables
(Increase) in inventories
Decrease in deferred tax assets
(Decrease) / increase in trade and other creditors
(Decrease) / increase in provision for income taxes payable
(Decrease) in other provisions
Net cash flows from operating activities
(169)
–
(302)
346
(3,149)
(1,777)
13,944
(14,955)
(16,854)
(18,313)
27,014
4,071
(9,994)
(1,374)
625
797
(11,748)
(20,930)
(13,043)
(15,327)
113
Hills Limited Annual Report for the year ended 30 June 2015 Notes to the consolidated
financial statements
For the year ended 30 June 2015
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:
Audit services
Audit and other assurance services
2015
$
2014
$
KPMG Australia – audit and review of the financial statements
485,909
628,000
Overseas KPMG firms – audit and review of the financial statements
38,957
22,140
Total remuneration for audit and other assurance services
524,866
650,140
Taxation services
KPMG Australia – taxation and other services
Overseas KPMG firms – taxation services
Total remuneration for taxation services
Other services
Financial advisory services
Other consulting services
Total remuneration for other services
203,867
102,520
40,253
24,367
244,120
126,887
397,534
833,235
-
40,268
397,534
873,503
Total remuneration for audit and non-audit services
1,166,520 1,650,530
35 EVENTS OCCURRING AFTER THE
REPORTING PERIOD
No matter or circumstance has occurred
subsequent to year end that has signifi-
cantly 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.
114
Non-audit fees remained high during the
year due to significant work performed in
relation to the Company’s restructure and
transformation programme, in particular
the sale of non-core businesses. These sale
transactions were expected to complete
early in the financial year, but sales were
not complete until June 2015. Non-audit
fees will return to normal levels in 2016.
Hills Limited Annual Report for the year ended 30 June 2015
Directors’
declaration
In the opinion of the Directors of Hills Limited (the Company):
(a) the consolidated financial statements and notes set out on pages 43 to 114 and the
Remuneration Report on pages 19 to 38 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 2015
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.
David Spence
Director
Sydney
24 August 2015
115
Hills Limited Annual Report for the year ended 30 June 2015
116
Hills Limited Annual Report for the year ended 30 June 2015 117
Hills Limited Annual Report for the year ended 30 June 2015 Shareholder
information
The shareholder information set out below was applicable as at 19 August 2015.
A. Distribution of equity securities
Analysis of numbers of equity security
holders by size of holding:
Holding
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
There were 3,620 holders of less than a marketable parcel of ordinary shares.
Class of equity security
Ordinary shares
Percentage of issued shares
4,171
6,797
3,112
2,862
125
17,067
B. Equity Security Holders
The names of the twenty largest holders of quoted equity securities are listed below:
Ordinary shares
Name
J P Morgan Nominees Australia Limited
Hills Associates Limited
Poplar Pty Limited
Citicorp Nominees Pty Limited
Hsbc Custody Nominees (Australia) Limited
Jacaranda Pastoral Pty Ltd
Cariste Pty Ltd
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