ANNUAL
report
Hills Limited ABN 35 007 573 417
for the year ended 30 June 2017
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3
Hills limitedShareholders‘ letter 2
Hills Limited
Annual report
for the year ended 30 June 2017
ABN 35 007 573 417
Contents
Shareholders’ letter
Directors’ report
Auditor’s independence declaration
Financial statements
Directors’ declaration
Independent auditor’s report to the members
Shareholder information
Corporate directory
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4
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34
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95
96
100
102
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Hills Limited Annual Report for the year ended 30 June 2017 4
Dear Shareholder,
Today, the Company’s spirit of innovation is focused on delivering technology products and service solutions that
connect, entertain and secure people’s lives. We have diversified and divested from clothes lines and metal products,
and expanded our product range and solutions to include Audio Visual, Communications, Security and Surveillance,
Fire, Nurse Call, Patient Engagement and asset tracking solutions, but our focus has remained constant:
We are committed to delivering technology solutions into the environments that people need and trust most: their
homes, hospitals, places of learning, entertainment venues, retail spaces, transport and infrastructure, banking and
finance, workplaces and government institutions.
Financial Year 2017 (FY17) was another busy year for everyone at Hills.
David Lenz, our CEO, has completed 12 months in the role following the planned retirement of Grant Logan. Chris
Jacka was promoted to the position of CFO and David Fox, our General Counsel and Company Secretary, was also
promoted, having previously filled the role of General Counsel for a number of years.
Net profit performance of your Company improved during the year following the impairment charges booked in the
prior year. Revenue declines within the core distribution business in part following changes in vendor portfolios did
impact overall profitability along with Hills decision to exit NBN Co satellite installations, with significant effort during
the year focused on:
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• a further reduction in corporate costs;
• selectively outsourcing some administrative functions to Cognizant;
• strengthened vendor and customer relationships;
• continued training and development of our people;
•
integration of Hills Health Solutions (HHS) into the Group and continued improvement of its profitability
in FY17;
transition of the Hills Home Living assets to AMES Australasia from Woolworths following the exit
of Woolworths from its Masters business; and
reducing net debt by $1.6 million and working capital by $8.9 million on the back of a small operating cash
outflow of $0.8 million.
•
•
It was disappointing that we recorded a net loss of $7.9 million for the year, which was in line with the market guidance
provided in June 2017, after allowing for:
•
•
•
•
•
professional costs associated with the termination of the proposed Lincor merger;
redundancy costs incurred in further reducing overheads and “right-sizing” the Company;
inventory write downs;
incurring additional costs under the satellite installation services with Ericsson/NBN; and
transition of the Hills Home Living assets to AMES Australasia from Woolworths, following the exit of
Woolworths from its Masters business.
Most importantly, during the period we continued to establish a solid platform for growth in the healthcare, security
and surveillance, communications and audio visual sectors which will have a positive impact on our profitability in
FY18 and beyond.
These projects included:
•
commencing our investment of $2-2.5 million in our market-leading Digital Platform, which will enable us to
better service our customers early in the new calendar year with:
– 24 x 7 e-commerce access;
– real-time inventory access;
– customer statements, invoices and price books;
– online payments;
– product specifications; and
– delivery information.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedShareholders‘ letter 4
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implementing annualised cost savings of $12 million in FY17, with an $8 million benefit in FY18;
•
• continued development of our own IP, including our new dementia software and the refresh of our Australian
•
Monitor portfolio;
expansion of our patient engagement by including BYOD offerings and the securing of finance options for
our healthcare customers;
• securing the sole distribution rights to UTC security and surveillance solutions; and
•
launching new technologies such as TruVision CCTV solutions to address our low end CCTV market and
HillsTrak providing our customers with an asset-tracking solution.
Hills again secured a number of large contracts, which will add to our FY18 profitability, including:
• working with Siemens to supply the security solution to Perth Stadium;
•
•
•
•
•
delivery of a unified Genetec Security Centre solution with AXIS cameras to NSW Parliament House;
supply of a Genetec Video, AXIS cameras and Dell hardware solution to Mirvac Retail Properties;
delivery of a Genetec Video and AXIS cameras solution to Transurban Limited nationally;
through Virtual Graffiti, supply of a Ruckus solution (station wifi) to Sydney Trains;
delivery of Samsung Panels through Fredon and Telstra to the Melbourne and Sydney offices of
PricewaterhouseCoopers;
supply of L’Acoustics speakers for the Asia Games Kuala Lumpur and two hall upgrades at Sydney Grammar
School;
supply of Williams Sound Hearing loops as part of an overall upgrade for Sydney Trains;
supply of the Hills IP-Series nurse call to the new Joan Kirner’s Women’s and Children’s Hospital in Victoria;
supply of a nurse call solution as part of the Stage 2 redevelopment for Blacktown Hospital in NSW;
the supply of nurse call and patient engagement services to Northern Beaches Hospital (NSW);
a five-year contract extension to provide patient engagement services to Northern Health (Victoria)
including The Northern Hospital, the Bundoora Extended Care Centre and the Broadmeadows Health
Service;
supply of patient engagement services for over 1200 beds for Sydney Local Health District – Royal Prince
Alfred, Concord, Canterbury and Balmain Hospitals; and
a patient engagement contract extension for four hospitals in Eastern Health (Victoria), including Angliss,
Box Hill, Maroondah and Peter James Centre Hospitals.
•
•
•
•
•
•
•
•
It is a tribute to the whole Hills team that we won a number of key awards again during FY17, including:
• Genetec: SDK Developer of the year APAC
• Genetec: Distributor of the year APAC
• Ruckus: Distributor of the year ANZ
Hills continues to add value by delivering high quality service and unequalled expertise to our Customers. We have
invested in a dedicated and highly experienced team of experts, specialising in sales, design, technical support,
installation, internal quality and governance. More than a distributor, Hills is a unique provider of managed services
and end to end solutions, with competencies across the sectors in which we operate that few others can match.
Whilst we still have work to do we have now established a base for a platform from which to grow and this could not
have been achieved without significant effort and commitment from all Hills employees and we thank them all for
their contribution.
Yours sincerely
Jennifer Hill-Ling
Chairman
David Lenz
Chief Executive Officer
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Shareholders‘ letterHills limited
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PRINCIPAL ACTIVITIES
The principal activities of Hills during the course of the
year are outlined within the Review of operations.
REVIEW OF OPERATIONS
Statutory Result Overview
The Company recorded a net loss after tax attributable
to owners of $7.9 million for the year ended 30 June
2017. This loss includes the impact of costs associated
with the proposed demerger of the Hills Health
Solutions business and other net costs associated with
structuring the Company in line with our future growth
opportunities.
The Directors present their report on the consolidated
entity (referred to hereafter as Hills, the Company or
the Group) consisting of Hills Limited and the entities
it controlled at the end of, or during, the year ended 30
June 2017 (FY17), 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 AO
David Moray Spence was a director from the beginning of
the period until his retirement on 20 September 2016.
Ian Elliot was a director from the beginning of the period
until his retirement on 4 November 2016.
Kenneth James Dwyer was appointed a director on 20
September 2016 and continues in office at the date of this
report.
Net loss after tax attributable to the owners of the Company
2017
$’000
2016
$’000
(7,932)
(68,305)
The net loss for the year ended 30 June 2017 includes an expense of $4.395 million relating to the impairment of
inventory (comprising inventory purchased on signing a distribution agreement with Tyco in February 2015 of $3.461
million and other exited brands of $0.934 million).
Reduced Net Debt and Working Capital
Hills net debt reduced by $1.6 million in the year, from $21.6 million at 30 June 2016 to $20.0m at 30 June 2017. This
was driven by a reduction in working capital, which was achieved through continued focus on reducing the Group’s
inventory holding and reducing aged receivables. Hills investment in net working capital decreased from $74.6 million
at 30 June 2016 to $65.7 million at 30 June 2017.
Reduced Operating Expenses
Hills reduced operating expenses by $6.4 million in the year ended 30 June 2017, a decrease of 6.3% (excluding
depreciation and amortisation and net costs not considered part of segment EBITDA). This has been achieved by
‘right sizing’ the business and the outsourcing of certain administrative functions to Cognizant. The Company expects
to see continued savings in operating expenses as a result of these changes.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedDirectors’ report 6
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REVIEW OF OPERATIONS
(continued)
Description of Operating Segment
During the year ended 30 June 2017, there were changes to elements of the business that led to a review of the
Group’s reportable operating segments. These changes included:
Lincor
merger
On 13 September 2016, Hills announced that it had entered into a conditional merger agreement
to combine its Hills Health Solutions (HHS) business with international healthcare technology
business, Lincor Solutions, to create a new ASX listed company, Lincor Limited.
As announced, the conditional merger agreement was terminated in December 2016. Following the
termination, management have integrated HHS into the operational activities of the remainder of
the Group.
Sale of Hills
Home Living
assets
The Hills Home Living (HHL) business was operated by Woolworths Limited (Woolworths) under a
licencing arrangement until October 2016, when the agreement was terminated after the decision
by Woolworths to exit its home improvement business and close its Masters stores.
In December 2016, Hills entered into an agreement with AMES Australasia (AMES) to take over the
manufacture and sale of HHL products. The transaction with AMES involved the sale of tooling
equipment and trademarks related to HHL products, which are no longer used by the continuing
Hills business.
No further revenue, expenses or profit is expected from this business.
Hills operations are now integrated into a single segment, reflective of Hills business categories, which have:
•
•
a common customer base, covering building contractors, consultants and system integrators; and
products and services sold primarily through common channels: building contractors and system
integrators.
The business operations fall into three areas:
• Hills Health Solutions
• Hills Security, Surveillance & Communication
• Hills Audio Visual
The businesses are described in detail below.
One Hills, One Vision
Today, Hills spirit of innovation is focused on delivering technology products and service solutions that connect,
entertain and secure people’s lives through our three businesses.
Hills is committed to delivering technology solutions into the environments that people need and trust most:
• their homes
• hospitals
• places of learning
• entertainment venues
• retail spaces
• transport and infrastructure
• banking and finance
• workplaces
• government institutions
Hills provides end to end solutions in the building technology sector, across all verticals, and offers shared services
like asset management and service capabilities, to complement its portfolio.
Hills adds value by delivering high quality service and unequalled expertise through a dedicated and highly
experienced team of experts, specialising in sales, technical support, installation, internal quality and governance.
More than a distributor, Hills is a unique provider of managed services, with competencies across the sector that few
others can match.
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Hills Limited Annual Report for the year ended 30 June 2017Directors’ reportHills limitedFor the year ended 30 June 2017 (continued) 8
REVIEW OF OPERATIONS
(continued)
Hills Health Solutions
Hills Health Solutions (HHS) is a market leader and comprises the supply and installation of health technology
solutions, nurse call and patient entertainment and other related solutions including security, Wi-Fi and telephony,
into the health and aged care sectors. HHS has products and services located in 400 hospitals and 570 aged care
facilities throughout Australia and New Zealand.
HHS continues to:
• maintain market leadership in patient engagement with over 18,000 beds;
• maintain its strategic distribution relationship with Lincor Inc.; and
•
invest in research and development (R&D), Nurse Call, bring your own device (BYOD), dementia software and
guest wi-fi – all Hills owned IP.
Key wins for HHS in FY17:
•
•
•
•
Joan Kirner’s Women’s and Children’s Hospital (VIC) – Hills has successfully tendered to supply the Hills
IP-Series integrated nurse call system.
Blacktown Hospital (NSW) – a $2.5 million nurse call solution as part of the hospital’s Stage 2
redevelopment project.
Northern Health (VIC) – a new five-year contract extension to provide patient engagement services
to The Northern Hospital, Bundoora Extended Care Centre and the Broadmeadows Health Service.
Sydney Local Health District (NSW) – Hills has been awarded the patient engagement services (1200+ beds)
contract for Royal Prince Alfred, Concord, Canterbury and Balmain Hospitals.
Security, Surveillance and Communications
Hills is the leading value-added provider of electronic security systems, closed circuit television systems, home and
commercial automation and control systems, consumer electronic equipment, communications related products
and services, domestic and commercial antennas, master antenna television systems, communications antennas and
amplifiers in the Australian and New Zealand market. This business has recently diversified to include Fire and Asset
Management.
Hills provides solutions to consumers and businesses across the following vertical markets in Australia
and New Zealand homes, hospitals, places of learning, entertainment venues, retail spaces, transport and
infrastructure, banking and finance, workplaces and government institutions.
Solutions offerings include:
• Integrated access
• Card access
• Intruder alert
• Cameras
• Home hub
• Locks
• Analytics software
• HillsTrak (asset management)
• Fire detectors and alarms
• Antenna, Set top boxes, Digital TV Systems
• Professional Services
• Installations
Key wins for Security, Surveillance and Communications in FY17:
• UTC Fire & Security: Hills signed a sole-distribution agreement with UTC Fire & Security, which will help the
Company to compete in the low-end CCTV market.
Perth Stadium: Hills, working with Siemens, supplied the security solution to Perth Stadium.
NSW Parliament House: Hills delivered a unified Genetec Security Centre solution with AXIS cameras.
Mirvac Retail Properties: Hills supplied a Genetec Video, AXIS cameras and Dell hardware solution.
Transurban Limited: Hills delivered a Genetec Video and AXIS cameras solution nationally.
Sydney Trains: through Virtual Graffiti, Hills supplied Ruckus solution (station wifi) to Sydney Trains.
•
•
•
•
•
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Hills Limited Annual Report for the year ended 30 June 2017Hills limitedDirectors’ reportFor the year ended 30 June 2017 (continued) 8
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REVIEW OF OPERATIONS
(continued)
Audio Visual
Hills Audio Visual provides businesses in Australia and New Zealand with the next generation of audio visual
technologies for education, infrastructure projects, businesses, sporting venues, houses of worship, enterprise and
entertainment venues.
Solutions offerings include:
• Unified Communication for Huddle and Conference spaces
• LCD Displays
• Projectors
• Hearing Augmentation
• Speakers systems to suit both indoor and outdoor applications
Key Wins for AV in FY17:
•
PricewaterhouseCoopers Office Upgrade – Hills delivered Samsung Panels through Fredon and Telstra to
the Melbourne and Sydney Offices.
• Asia Games Kuala Lumpur – Hills supplied L’Acoustics speakers
•
•
Sydney Grammar School - Hills supplied L’Acoustics speakers to two Hall upgrades
Sydney Trains – Hills supplied Williams Sound Hearing loops as part of an overall upgrade.
Hills Competitive Advantage
Hills competitive advantage in each business comes from:
Vendor
Relationships
Long term vendor relationships allow Hills to provide its customers with access to the largest
portfolios in the industry.
Customer
Relationships
Hills adds value for its customers by providing them with a full “solution” to their security,
communications, audio visual and health needs - Hills is a market-leading “one stop shop”, which
includes pre and post installation services.
Expert
Resources
Hills has invested in a dedicated and highly experienced team of security, health and audio visual
experts across Australia and New Zealand covering sales and technical support.
Geographic
Footprint
Hills has the largest national footprint in Australia and New Zealand making its solutions accessible
for its customers.
Size
Companies like dealing with Hills because of high levels of governance, ability to extend credit and
sophisticated systems and processes.
Service Model
Hills has a unique service model – it is able to harness large teams of installers to service high
volume contracts such as the wireless rollout on behalf of NBN and satellite dishes for Foxtel.
Local
Manufacture
Hills ability to manufacture antennas and satellite dishes and consumables locally.
Intellectual
Property
Well-respected products with patent protection, Hills owns the IP for its market leading Nurse Call
solution.
Research and
development
R&D teams making sure Hills products evolve and keep ahead of competitors.
Subsequent events
There have been no events subsequent to balance date that would have a material effect on the Group’s financial
statements at 30 June 2017.
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Hills Limited Annual Report for the year ended 30 June 2017Directors’ reportHills limitedFor the year ended 30 June 2017 (continued) 10
Directors‘ report
DIVIDENDS
INFORMATION ON DIRECTORS
Year ended
30 June 2017
No dividends were paid during the year
and no final dividend has been declared.
Jennifer Helen Hill-Ling
LLB (Adel) FAICD
Year ended
30 June 2016
No dividends were paid during the year
and no final dividend was been declared.
Chairman, Non–Independent
Non–Executive Director
Age 55
For more information regarding dividends please refer to
note 16 of the financial statements.
Experience and expertise
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.
FY18 OUTLOOK
Given Hills investments, reduction of operating expenses,
strong customer and vendor management, increased
profitability of the Hills Health Solutions business and
the investment in the digital transformation project, Hills
expects to return to profitability in FY18.
As with any technology distribution business, Hills is
exposed to the risk of potential loss of vendors, potential
loss of customers, slippages associated with contracts,
supply issues and exposure to foreign exchange rate
fluctuations.
Appointed Director in August 1985.
Appointed Deputy Chairman in June 2004
Appointed Chairman 28 October 2005.
Jennifer Hill-Ling has extensive experience in corporate
and commercial law, specialising in corporate and
business structuring, mergers and acquisitions, joint
ventures and related commercial transactions. She
practiced law for some 25 years and was a senior partner
in two Sydney law firms in that time. She was formerly a
director of Tower Trust Limited and MS Limited. She is a
fellow of the Australian Institute of Company Directors.
Other current listed company directorships
None.
Former listed company directorships in last 3 years
None.
Special responsibilities
Chairman of the Board; Member of the Remuneration and
Nomination Committee.
Interests in shares and options at the date of this report
18,146,677 ordinary shares in Hills Limited (including
1,188,918 shares owned by Hills Associates Limited and
Poplar Pty Ltd (jointly held) and 16,768,441 shares owned
by Hills Associates Limited of which JH Hill-Ling is a
Director).
She does not hold any options over ordinary shares in
Hills Limited.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limited 10
Directors‘ report
INFORMATION ON DIRECTORS
(continued)
Fiona Rosalyn Vivienne Bennett
BA (Hons) FCA FAICD FIML
Philip Bullock AO
BA, MBA, GAICD, Dip. Ed.
Independent Non–Executive Director
Independent Non–Executive Director
Age 61
Experience and expertise
Age 64
Experience and expertise
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.
Other current listed company directorships
Director of Beach Energy Limited (since November 2012).
Director of Select Harvests Limited (since July 2017)
Former listed company directorships in last 3 years
Director of Boom Logistics Limited (retired in June 2015).
Special responsibilities
Mr Bullock AO 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 AO is a non-executive director of Perpetual
Limited, and formerly of CSG Limited and Healthscope
Limited. He has also provided advice to the Federal
Government, through a number of organisations, most
notably as Chair of Skills Australia.
Other current listed company directorships
Non–Executive Director of Perpetual Limited
(since June 2010)
Former listed company directorships in last 3 years
Non–Executive Director of CSG Limited
(August 2009 to November 2015).
Chairman of the Audit, Risk and Compliance Committee.
Special responsibilities
Interests in shares and options at the date of this report
88,444 ordinary shares in Hills Limited.
She does not hold any options over ordinary shares in
Hills Limited.
Chairman of the Remuneration and Nomination
Committee; Member of the Audit,
Risk and Compliance Committee
Interests in shares and options at the date of this report
100,000 ordinary shares in Hills Limited.
He does not hold any options over ordinary shares
in Hills Limited.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Hills limited 12
Directors‘ report
For the year ended 30 June 2017 (continued)
INFORMATION ON DIRECTORS
(continued)
Kenneth James Dwyer
BCom, GMQ, GAICD
Ian Elliot
FAICD
Independent Non–Executive Director
Independent Non–Executive Director
Age 59
Age 63
Experience and expertise
Experience and expertise
Mr Dwyer formerly worked in banking, including
investment banking in the US and Australia specialising
in M&A, debt and equity funding.
Mr Dwyer has established and grown two businesses in
the highly competitive audio industry in Australia and
New Zealand via a combination of organic growth
and acquisitions.
Mr Dwyer also has experience in the distribution of
premium European machinery for textile manufacturing.
Other current listed company directorships
None.
Former listed company directorships in last 3 years
Appointed non-executive Director on 1 September 2010.
Retired on 4 November 2016.
Ian Elliot has spent 39 years in marketing. His speciality
is brand building, with extensive involvement in a number
of icon brands. Mr Elliot is a fellow of the Australian
Institute of Company Directors and graduate of the
Harvard Business School Advanced Management
Program. In addition to his listed company directorships,
he was formerly Chairman of Zenith Media Pty Ltd,
Cordiant Communications Group, Allied Brands Limited,
Promentum Limited and Artist & Entertainment Group
Limited and Chairman and Chief Executive Officer of
George Patterson Advertising and director
of the National Australia Day Council.
None.
Special responsibilities
Member of the Remuneration and Nomination
Committee; Member of the Audit, Risk and Compliance
Committee.
Interests in shares and options at the date of this report
200,000 ordinary shares in Hills Limited.
He does not hold any options over ordinary shares
in Hills Limited.
Other current listed company directorships
Director of McMillan Shakespeare Limited
(since May 2014)
Former listed company directorships in last 3 years
Director of Salmat Limited
(from 2005 until November 2016).
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Hills Limited Annual Report for the year ended 30 June 2017Hills limited 12
COMPANY SECRETARY
David Fox
LLB, BA
Mr Fox was appointed to the position of General Counsel
on 11 March 2013 and, on 22 December 2016, to the
position of General Counsel and Company Secretary.
As General Counsel and Company Secretary, Mr Fox
is responsible for legal, risk and company secretarial
matters associated with Hills. Mr Fox has vast experience
in corporate law. He was first admitted to practise law
in 2001 and previously held the position of Partner at a
Sydney based law firm.
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Directors‘ report
INFORMATION ON DIRECTORS
(continued)
David Moray Spence
BCom
Independent Non–Executive Director
Age 65
Experience and expertise
Appointed non-executive Director on 1 September 2010.
Retired on 20 September 2016.
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 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 and PayPal Australia
Pty Ltd.
Other current listed company directorships
Chairman of Vocus Communications Limited
(since June 2010)
Former listed company directorships in last 3 years
Director of SAI Global.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Hills limited 14
Directors’ report
INFORMATION ON DIRECTORS
(continued)
MEETINGS OF DIRECTORS
The numbers of meetings of the Company’s Board of Directors and of each Board Committee held during the year
ended 30 June 2017, and the numbers of meetings attended by each Director were:
J Hill-Ling
F Bennett
P Bullock AO
I Elliot3
D Spence4
K Dwyer5
Full meetings of
Directors
Audit, Risk and
Compliance
Committee
Remuneration
& Nomination
Committee1
Held2
Attended
Held2
Attended
Held2
Attended
28
28
28
14
8
20
27
25
28
9
5
20
-
4
4
-
1
3
-
4
4
-
1
3
2
-
2
1
1
1
2
-
2
1
1
1
INSURANCE OF OFFICERS
Since the end of the previous financial year, the Company has paid insurance premiums in respect of Directors’ and
officers’ liability and legal expenses 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.
1 The Nomination Committee and the Remuneration Committee were amalgamated into the Remuneration and Nomination
Committee on 26 May 2017. No Nomination Committee meetings were held prior to that date.
2 Number of meetings held during the period that the Director held office or was a member of the committee during the year
3 Mr Ian Elliot retired as a director on 4 November 2016
4 Mr David Spence retired as a director on 20 September 2016
5 Mr Kenneth Dwyer was appointed a director on 20 September 2016
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limited 14
15
INFORMATION ON DIRECTORS
(continued)
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.
ENVIRONMENTAL REGULATION
Manufacturing
Hills holds all required environmental licences, registrations and permits for its sole remaining manufacturing site in
O’Sullivan Beach in South Australia. No significant environmental incidents were reported over the 2017 financial year
and Hills continued to meet or exceed the requirements specified in relevant licenses and authorisations.
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 established ongoing action plans
aimed at optimising packaging design, material recovery, recycling and product stewardship. Hills remains supportive
of the goals and initiatives of the APC and remains compliant following the submission of its annual report during
March 2017.
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 34.
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.
15
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Directors’ reportHills limited 16
16
Directors’ report
NON-AUDIT SERVICES
(continued)
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:
KPMG audit and non-audit services
Audit and other assurance services
KPMG Australia - audit and review of the financial statements
Overseas KPMG firms - audit and review of the financial statements
Total remuneration for audit services
KPMG Australia – other assurance services
Total remuneration for audit and other assurance services
Taxation services
KPMG Australia – taxation and other services
Overseas KPMG firms – taxation services
Total remuneration for taxation services
Other services
Other consulting services
Total remuneration for other services
Total remuneration of KPMG
ROUNDING OF AMOUNTS
2017
$
2016
$
298,000
343,375
42,223
39,951
340,223
383,326
165,000
-
505,223
383,326
78,238
3,967
82,250
12,816
12,816
76,239
11,605
87,844
8,342
8,342
600,244
479,512
The Company is an entity to which the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 applies. Amounts have been rounded off in accordance with the instrument to the nearest thousand dollars,
or in certain cases, the nearest dollar.
16
17
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limited
16
16
17
17
LETTER FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
Dear Shareholder,
CEO Remuneration
On behalf of your Board, I am pleased to present Hills
FY17 Remuneration Report, which sets out remuneration
information for the Chief Executive Officer (CEO), the
Key Management Personnel (KMP), the Non-Executive
Directors and the broader employee group.
FY17 Remuneration Outcomes
FY17 remained a challenging year for Hills as we
continued the task of right sizing and improving
customer service. As part of this work, we saw the
completion of the contract with the prior CEO, Grant
Logan, and the appointment of David Lenz as the new
CEO. In the process, we also transitioned to a new CFO
in Chris Jacka. These changes have provided Hills with
further opportunities to bring executive compensation
more into line with market practices for a company
of our size. Both appointments have been from within
Hills and we are extremely fortunate to have people of
their capabilities and energy leading Hills during these
challenging times.
Consistent with this approach, the organisation has
been flattened at the senior levels and we have seen a
reduction in those employees at Hills who have a base
salary above $150,000 (inclusive of superannuation) from
35 to 25. For employees earning over $150,000, increases
have only been applied as job responsibilities have
changed.
Overall Full Time Equivalent (FTE) has reduced from 665
to 557 over the period of the year.
As a result, Hills average monthly salary cost, comprised
of all employees across Australia and New Zealand, has
reduced from $5,979,172 in July 2016 to $5,242,290 in
June 2017, which is a reduction of 12%.
None of this work is easy and it requires strong leadership
from our managers and loyalty and dedication from our
staff. We are grateful for the sacrifices they have and
continue to make to help reshape the future of Hills to
become a profitable and sustainable business.
With the appointment of David Lenz, we adopted a new
market based compensation framework as follows:
• Base Pay (including superannuation): $350,000
• Variable Pay: $200,000
The Variable Pay was to be determined as a result of the
performance of Hills over FY17 and would be paid 50% in
cash and 50% in equity.
The equity would vest over three years at the rate of:
20%
30%
50%
in year one;
in year two; and
in year three.
The hurdles associated with the variable pay were as
follows:
Element
Measure
Financial
(80%)
• Net Profit After Tax (NPAT)
• Operating Cash Flow
• EBITDA / Sales
• Inventory Management
Non-financial
(20%)
• Employee Engagement
• Vendor Engagement
Given the financial performance by Hills in FY17, the
Board determined that none of the financial targets have
been met, with the exception of a reduction in inventory.
From a business perspective, it was very pleasing to see
that the Hills Health Solutions business achieved their
financial targets.
With regard to the Company non-financial targets, we
saw a concerted effort to help drive improved employee
morale and vendor alignment and loyalty. As such, the
non-financial targets have been deemed to be met by
the Board.
17
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18
Directors’ report
LETTER FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
(continued)
Board Changes
During the year, we have also continued to refresh the
Board with the appointment of Ken Dwyer. Ken was the
former owner of an audio visual distribution business
and brings with him years of experience, both in this
critical area for Hills, but also the technology distribution
industry more broadly.
At the same time, we farewelled two long serving
directors, David Spence and Ian Elliott, both of
whom made significant contributions to the ongoing
transformation of Hills.
FY18 Outlook
As we move into FY18, our main focus is the continued
alignment of reward to performance and the
establishment of market based compensation at all
levels through our organisation. This has included
an agreement to hold any increases in salary until 1
January 2018, with total salary budget to increase by
approximately the Consumer Price Index (CPI) with
continued focus on those employees earning less than
$150,000 per annum.
CEO and CFO measures are largely in line with FY17 and
are distributed as follows:
Element
Measure
Financial
(60%)
Non-financial
(40%)
• Operating Cash Flow
• Net Profit After Tax (NPAT)
• Reduce aged inventory > 180 days
• Digital Transformation
• Employee Engagement
• Customer Satisfaction
• Supplier Partnership
At the same time, we continue to look to enhance
employee morale and lift skills by focusing on programs
and activities such as the:
• Relaunch of the Hills Employee Values, after
completing a survey with our employees on the values
that they believed best represented Hills.
• Introduction of the “Hills Giveback Charity Program”
following a survey of our employees on whether they
believed it was important to participate in a Charity
program and what type of participation they were
after.
• Launch of the FY18 strategy to all managers at
a company sponsored workshop held on the
5th and 6th of July 2017, at which all managers
across Australia and New Zealand with people
responsibilities were brought together to hear the
18
direction for FY18 and plan on how to deliver on the
key outcomes as “one team”.
• Compliance with the Workplace Gender Equality Act
(2012) Act, whereby all non-public sector employers
with 100 or more employees are required to submit
a report by 31 May each year for the preceding
12-month period (1 April – 31 March reporting period).
• Continuation of flexible, family friendly work options
and practices where there is a need for our employees
to meet changing work and personal requirements.
To augment our flexible work options, we also offer
employees the opportunity to purchase up to 4 weeks
of additional leave via salary sacrifice.
This is particularly helpful for working parents that need
more than their 4 weeks of annual leave to assist with
family responsibilities or for employees that need to plan
for a longer paid holiday.
• Investing in the capabilities of our sales and customer
service employees by commencing two programs in
August 2017:
– Hills Dynamic Sales Training – for all Account
Managers, Business Development Managers and
Sales Managers across all our business areas and
across both Australia and NZ operations.
– Hills Customer Service Excellence Program –
offering our employees engaged in customer
service qualifications in Business Management
and Leadership & Management via a Registered
Training Organisation.
Thank you for taking the time to review the FY17
Remuneration Report. We have made progress in terms
of better alignment of compensation to the market,
however we must remain focused on talent development
more broadly to help our people have the skills that they
require in this new world. With this in mind, it is fitting
to close by thanking the employees of Hills for their
ongoing loyalty and dedication to our customers and
suppliers; they have and continue to make a significant
difference for Hills in the marketplace.
Yours sincerely
Philip Bullock AO
Chairman
Remuneration and Nomination Committee
19
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18
19
19
REMUNERATION REPORT (AUDITED)
(continued)
REMUNERATION REPORT (AUDITED)
This Remuneration Report explains Hills’ approach to executive remuneration, performance and remuneration
outcomes for Hills and its Key Management Personnel (KMP) for the year ended 30 June 2017 (FY2017). In this report,
‘senior executives’ refers to the KMP excluding non–executive directors.
The information provided in the Remuneration Report has been audited as required by Section 308 (3C) of the
Corporations Act 2001.
The Remuneration Report comprises the following sections:
1. Key Management Personnel
2. Remuneration Governance
3. Executive Remuneration
4. Executive Contracts and Termination Arrangements
5. Five Year Snapshot - Business and Remuneration Outcomes
6. Statutory Remuneration Tables
7. Non–Executive Directors’ Remuneration
1 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 FY17.
Name
Position
Directors
Term as KMP in FY17
J Hill-Ling
Chairman, Non-Independent and Non-Executive Director
Full Year
F Bennett
Independent, Non-Executive Director
P Bullock AO Independent, Non-Executive Director
Full Year
Full Year
K Dwyer
Independent, Non-Executive Director
Commenced September 2016
Former Directors
D Spence
Independent, Non-Executive Director
Ceased September 2016
I Elliot
Independent, Non-Executive Director
Ceased November 2016
Senior Executives
D Lenz
Chief Executive Officer
Commenced September 2016
C Jacka
Chief Finance Officer
Commenced November 2016
D Fox
Company Secretary & General Counsel
Commenced December 2016
D Osborne
Head of Hills Health Solutions
Commenced January 2017
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20
REMUNERATION REPORT (AUDITED)
(continued)
Name
Position
Former Senior Executives
Term as KMP in FY17
G Logan1
Chief Executive Officer
Ceased September 2016
G Turner2
Chief Financial Officer
Ceased November 2016
G Stephens
Company Secretary, Legal & Risk
Ceased December 2016
D McKim-Smith
Head of Hills Health Solutions
Ceased November 2016
2 REMUNERATION GOVERNANCE
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 non-executive directors: Philip Bullock AO (Chairman), Jennifer Hill-
Ling, and Ken Dwyer have 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.
2.3 Hills Share Trading Policy
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 Security Policy is available on the Hills website at:
http://www.corporate.hills.com.au/about-us/governance.
1 G Logan provided consultancy to the Board and CEO until February 2017
2 G Turner became CFO of Lincor Limited in November 2016 and subsequently left Hills in January 2017 when the merger between
Hills Health Solutions and Lincor did not proceed.
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21
REMUNERATION REPORT (AUDITED)
(continued)
2.4 Hills Clawback Policy
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, where there has been 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.
Remuneration principles
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 &
Motivational
•
Employees in similar roles, making similar contributions, with similar performance, received
similar rewards
• Motivates employees to deliver business results
• Differentiates, but is fair and equitable in its application
Linked to
Performance
Aligned
• Directly links individual and company performance to remuneration outcomes
• Employees understand what results needed to be achieved
• Provides an integrated remuneration and performance system framework
•
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
3.2 Remuneration mix
Senior executive remuneration is comprised of Fixed Remuneration (made up of base salary and superannuation), and
Variable Incentive.1
1
Includes G. Logan’s cash based retention plan.
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REMUNERATION REPORT (AUDITED)
(continued)
3.3 Chief Executive Officer Remuneration
The Board appointed David Lenz to the position of CEO on 1 September 2016. This appointment followed the
retirement of Grant Logan at the end of his employment contract.
Mr Lenz has a fixed remuneration of $350,000 per annum (inclusive of superannuation).
Fixed Remuneration is reviewed annually by the Board with reference to performance of the Company, performance of
the CEO and market information.
Variable Incentive FY17
Mr Lenz has a variable incentive opportunity of up to $200,000.
The variable incentive for FY17 adopts a balanced scorecard approach which is aligned to the Company’s strategic
plan. The balanced scorecard focuses on the following key areas:
23
Element
Measure
Financial
(80%)
• NPAT
• Operating Cash Flow
• EBITDA / Sales
• Inventory Management
Non-financial
(20%)
• Employee Engagement
• Vendor Engagement
Weighting is distributed across these measures.
The variable incentive is paid 50% as cash and 50% as Performance Rights (unless the Board determines otherwise),
with vesting to take place over a 3-year period in the following manner:
20%
vest after one year
30%
vest after two years, and
50%
vest after three years.
The amount of equity that will be awarded will be determined by 50% of the total Variable incentive divided by the
Company’s share price. The share price will be determined by the 30-day volume weighted average price of the
shares immediately following the announcement of the full year results.
In addition, Mr Lenz was awarded an initial sign-on bonus of 200,000 Hills Performance Rights on 1 September 2016.
The first tranche of 100,000 shares are to be awarded on or around 1 September 2017 and the second tranche in
September 2018.
The first 50% of Performances Rights will convert to shares on the first anniversary of Mr Lenz’s Commencement
Date as CEO, irrespective of whether Mr Lenz remains employed by the Company. The vesting of the second 50% of
Performance Rights is subject to Mr Lenz being employed by Hills at time of vesting and will occur on the second
anniversary of his commencement date. The fair value of performance rights was 34.0 cents per performance right,
based on the quoted share price at grant.
22
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REMUNERATION REPORT (AUDITED)
(continued)
3.4 Senior Executive Short Term Incentive FY17
Variable Incentive – How It Works
The variable incentive is an at risk component of remuneration and is designed to reward performance against the
achievement of a balanced scorecard that is aligned to the Company’s strategic plan. Senior executive variable
incentives are determined on the same measures as the CEO.
Each senior executive has specific KPIs in each of these areas to achieve the results in the balanced scorecard.
The variable incentive performance period was from 1 July 2016 to 30 June 2017.
The maximum variable incentive 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 variable incentive opportunity
for each senior executive is listed at section 3.5 as an absolute dollar amount and as a percentage of the senior
executive’s fixed remuneration.
The following table summarises the potential FY17 variable incentive payments where a senior executive ceased employment
with Hills:
Resignation and
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 FY17 variable
incentive which had not already vested or been made.
Assessment of Performance and 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 variable incentive payment outcome to the Board
for approval. Details of Variable Incentive payments are provided in section 3.5.
23
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24
REMUNERATION REPORT (AUDITED)
(continued)
3.5 FY17 Variable Incentive Performance and Outcomes
FY17 has been a difficult year for the Company which is reflected in the variable incentive plan results detailed in this
report. A summary of Company performance compared to previous years is provided in section 5.
The KPIs for the senior executives were aligned to the CEO’s KPIs. The variable incentives payable to the CEO and
senior executives for FY17 (if any) are set out in the following table:
Target
Variable
Incentive
opportunity
(pro-rata)
$50,000
$200,000
$58,178
$62,740
$71,268
$41,863
Name
G Logan1
D Lenz2
G Turner3
C Jacka4
G Stephens5
D Fox6
D McKim-Smith7
$26,667
D Osborne8
$49,589
% of fixed
remuneration
Financial
outcome
Non-
financial
outcome
Actual
Variable
Incentive
outcome
%
Achieved
31%
57%
32%
35%
26%
29%
14%
31%
-
-
-
$20,000
$40,000
$60,000
-
$25,000
$25,000
$10,000
$30,000
$40,000
-
$5,000
$5,000
$4,000
$20,000
$24,000
-
-
-
$32,400
$6,850
$39,250
%
Forfeited
100%
70%
57%
36%
93%
43%
100%
21%
66%
0%
30%
43%
64%
7%
57%
0%
79%
34%
TOTAL
$560,305
34%
$66,400
$126,850
$193,250
3.6 FY18 Variable Incentive Design for CEO
Variable Incentive Plan – FY18
For FY18, it has been decided to continue the variable incentive plan which involves remunerating the CEO on his
annual performance by cash and shares which vest over a 3-year period according to the following vesting scale:
20%
vest after one year
30%
vest after two years; and
50%
vest after three years.
1 G Logan was CEO up to 1 September 2016.
2 D Lenz was promoted to CEO from 1 September 2016. Prior to that he was Chief Operating Officer and a KMP; actual variable
incentive vests in accordance with the requirements set out in section 3.3.
3 G Turner was CFO, Hills Limited up to 14 November 2016. From 14 November 2016 he was CFO Lincor Limited and then
subsequently left Hills on 10 January 2017.
4 C Jacka became CFO on 14 November 2016, replacing G Turner.
5 G Stephens was Company Secretary and Head of Legal and Risk up to 22 December 2016.
6 D Fox became Company Secretary and General Counsel from 22 December 2016.
7 D McKim-Smith ceased as Head of Hills Health Solutions on 1 November 2016.
8 D Osborne became Head of Hills Health Solutions on 1 January 2017.
24
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25
REMUNERATION REPORT (AUDITED)
(continued)
The annual performance against which the CEO will be measured is in accordance with the balanced scorecards
which has the following measures:
Element
Measure
1.
Financial Measures
60% of Variable Incentive
2.
Non-financial Measures
40% of Variable Incentive
(a) Budgeted NPAT
(b) Budgeted Operating Cash Flow
(c) Budgeted Aged Inventory > 180 days
(a) Digital Transformation delivered on
time and on budget
(b) Customer Satisfaction
(c) Employee Engagement
(d) Vendor Commitment
Weighting will be distributed across these measures.
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 1 September 2016 for an initial term
of 12 months, following which the Chief Executive Officer will continue to be employed until
either party provides notice.
• Hills or the Chief Executive Officer may terminate his employment at any time by giving three
months’ written notice.
Senior
Executives
Chief Executive
Officer
and Senior
Executives
• The contracts may be terminated by either party by giving 3 months written notice.
• There are 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.
25
Hills Limited Annual Report for the year ended 30 June 2017Directors’ reportHills limitedFor the year ended 30 June 2017 (continued) 26
REMUNERATION REPORT (AUDITED)
(continued)
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 performance and share price information over the last five years.
Key Financials
FY17
FY16
FY15
FY14
FY13
Shareholders’ funds
$000
60,931
69,077
136,600
245,228
271,018
Statutory net (loss) / profit
$000
(7,932)
(68,305)
(85,780)
26,387
(91,387)
Basic (loss) / earnings per share
Dividends
Share Price – as at 30 June
Short Term Incentive Payments
– % of Target Opportunity
cents
cents
$
%
(3.4)
(29.4)
(37.0)
-
-
2.1
0.155
0.245
0.455
29%
19%
4%
10.4
7.0
1.74
85%
(38.2)
5.0
1.01
87%
27
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedDirectors’ report 26
27
FY17
$
Name
Senior Executives
D Lenz3
C Jacka4
D Fox5
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.
Short-term benefits
Post-
employment
benefits
Long term
benefits
Share
based
payments
Cash
salary
& fees
Cash
bonus
Other
Super-
annuation
Term-
ination
benefits2
Perfor-
mance
rights
LSL1
TOTAL
310,818
30,000
8,606
26,491
2,237
161,581
40,000
1,984
12,897
498
128,827
24,000
2,465
10,156
2,830
D Osborne6
138,448
39,250
4,906
13,163
2,015
Former Senior Executives
G Logan7
G Turner8
130,400
-
12,484
18,286
105,543
25,000
-
15,232
G Stephens9
130,125
5,000
6,938
20,468
D McKim-Smith10
102,002
-
-
17,889
-
-
-
-
-
-
-
-
-
48,167
426,319
-
-
-
-
216,960
168,278
197,782
161,170
63,765
(2,911)
206,629
115,525
(4,756)
273,300
65,407
-
185,298
Total Senior
Executives
1,207,744
163,250
37,383
134,582
7,580
244,697
40,500
1,835,736
1 Long Service Leave.
2 In accordance with statutory and legal obligations.
3 D Lenz became CEO on 1 September 2016. Prior to that he was Chief Operating Officer.
4 C Jacka became CFO on 14 November 2016.
5 D Fox became Company Secretary & General Counsel on 22 December 2016.
6 D Osborne became Head of Hills Health Solutions effective 1 January 2017.
7 G Logan ceased as CEO on 1 September 2016.
8 G Turner ceased as CFO and KMP at Hills 14 November 2016.
9 G Stephens ceased as Company Secretary on 22 December 2016.
10 D McKim-Smith ceased as Head of Hills Health Solutions on 1 November 2016.
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28
REMUNERATION REPORT (AUDITED)
(continued)
FY16
$
Short-term benefits
Post-
employment
benefits
Long term
benefits
Share-based
payments
Name
and fees Cash bonus
Other
Cash salary
Super-
annuation
LSL &
Cash LTIP
Perfor-
mance
rights
TOTAL
Senior Executives
G Logan
G Turner
D Lenz
826,059
45,000
288,044
60,000
18,110
6,529
262,276
25,000
15,030
D McKim-Smith1
178,149
12,000
10,432
6,428
94,382
-
989,979
23,889
24,699
15,883
3,907
684
3,905
2,183
384,552
-
-
327,689
216,638
G Stephens
263,401
18,688
-
25,607
174
3,567
315,168
Total
1,817,929
160,688
50,101
96,506
103,052
5,750
2,234,026
6.2 Remuneration components as a proportion of total remuneration paid or expensed
The following table reflects the fixed remuneration and Variable Incentive for FY17 calculated in accordance with the
accounting standards as a proportion of the total.
29
Full Year
Potential
Variable
Incentive
Pro-rata
Potential
Variable
Incentive
Actual
Variable
Incentive paid
/ payable
Actual
Variable
Incentive paid
/ payable as
% of Full Year
Potential
Actual
Variable
Incentive paid
/ payable as %
of Pro-rata
Variable
Incentive paid
/ payable as
% of Fixed
Remuneration
Name
Senior Executives
D Lenz
C Jacka
D Fox
$200,000
$200,000
$30,000
$100,000
$62,740
$40,000
$80,000
$41,863
$24,000
D Osborne
$100,000
$49,589
$39,250
Former Senior Executives
G Logan
G Turner
$300,000
$50,000
$0
$155,000
$58,178
$25,000
G Stephens
$149,500
$71,268
$5,000
D McKim-Smith
$80,000
$26,667
$0
1 D McKim-Smith was appointed on 30 November 2015.
28
15%
40%
30%
39%
0%
16%
3%
0%
15%
64%
57%
79%
0%
43%
7%
0%
9%
23%
17%
25%
0%
14%
2%
0%
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedDirectors’ report 28
29
REMUNERATION REPORT (AUDITED)
(continued)
6.2 Remuneration components as a proportion of total remuneration paid or expensed (continued)
The following table reflects the fixed remuneration, Variable Incentive and total performance based remuneration for
FY17 calculated in accordance with the accounting standards as a proportion of the total remuneration.
Fixed remuneration
%
At risk Variable
Incentive paid or
payable %
Value of
performance rights
%
Total performance
based %
Name
Senior Executives
D Lenz
C Jacka
D Fox
D Osborne
Former Senior Executives
G Logan
G Turner
G Stephens
D McKim-Smith
82%
82%
86%
80%
100%
89%
100%
100%
7%
18%
14%
20%
0%
12%
2%
0%
11%
0%
0%
0%
0%
-1%
-2%
0%
18%
18%
14%
20%
0%
11%
0%
0%
The following table shows the proportion weighting of each element of remuneration for each of the senior executives
employed during FY17 based on maximum potential outcome.
Name
Fixed
remuneration %
Maximum
Variable Incentive %
Maximum Long Term
Incentive %
FY17
FY16
FY17
FY16
FY17
FY16
Senior Executives
D Lenz
C Jacka
D Fox
D Osborne
Former Senior Executives
G Logan
G Turner
G Stephens
D McKim-Smith
58%
74%
78%
76%
76%
77%
80%
87%
67%
-
-
-
70%
68%
65%
72%
17%
26%
22%
24%
24%
24%
21%
13%
33%
25%
-
-
-
24%
32%
34%
28%
-
-
-
-
-1%
-1%
-
-
-
-
-
6%
-
1%
-
29
Hills Limited Annual Report for the year ended 30 June 2017Directors’ reportHills limitedFor the year ended 30 June 2017 (continued) 31
30
REMUNERATION REPORT (AUDITED)
(continued)
6.3 Number of performance rights granted, vested and expired / forfeited in FY17
Name
At 1 July 2016
Granted
Vested
Forfeited
At 30 June
2017
Senior Executives
D Lenz
-
200,000
Former Senior Executives
G Turner
G Stephens
19,588
32,010
-
-
-
-
-
-
200,000
(19,588)
(32,010)
-
-
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. The Non-Executive Directors’ fees were reduced by
20% in FY15 and have not been increased in FY17.
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 FY11 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 FY17.
7.2 Directors’ FY17 Fee structure
The following table outlines the main Board and Committee fees as at 30 June 2017.
Board
Audit and Risk Committee
Remuneration and Nomination Committee
Chair fee $
Member fee $
160,000
16,000
16,000
80,000
8,000
Nil
30
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedDirectors’ report 30
31
REMUNERATION REPORT (AUDITED)
(continued)
7.3 Non–Executive Directors’ remuneration details
Non–Executive
Directors
J Hill-Ling
F Bennett
P Bullock AO1
K Dwyer2
I Elliot3
D Spence4
TOTAL
Board and Committee
fees
$
Superannuation
$
146,119
146,119
87,671
87,671
94,050
82,507
63,056
-
49,905
80,366
17,928
85,096
458,729
481,759
13,881
13,881
8,329
8,329
8,935
8,312
5,990
-
4,741
7,634
1,703
8,084
43,579
46,241
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Total
$
160,000
160,000
96,000
96,000
102,985
90,820
69,046
-
54,646
88,000
19,631
93,180
502,308
528,000
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.
1 P Bullock AO was appointed Chair of the Remuneration and Nominations Committee, effective September 2016.
2 K Dwyer was appointed as director, effective September 2016.
3 I Elliot retired as a director, effective November 2016. Following his retirement, Mr Elliot was retained on a consultancy basis until
February 2017.
4 D Spence resigned as a director, effective September 2016.
31
Hills Limited Annual Report for the year ended 30 June 2017Directors’ reportHills limitedFor the year ended 30 June 2017 (continued) 33
33
32
32
REMUNERATION REPORT (AUDITED)
(continued)
8 EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL
8.1 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.
During the year, and as announced at the 2016 AGM, the Company has introduced a policy requiring directors to hold
a minimum number of shares. Specifically, directors are required to hold a minimum of shares and are required to
attain this shareholding within a 3-year period.
Balance at 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
Ordinary shares
Directors
J Hill-Ling
F Bennett
P Bullock AO
K Dwyer
Former Directors
I Elliot
D Spence
Former Senior Executives
G Logan
G Turner
G Stephens
18,146,677
88,444
100,000
95,000
51,735
442,272
228,409
50,000
1,011,408
-
-
-
-
-
-
-
-
-
-
-
-
105,000
18,146,677
88,444
100,000
200,000
-
-
-
-
-
n/a1
n/a1
n/a1
n/a1
n/a1
8.2 Loans to Key Management Personnel
There were no outstanding loans to KMP or their related parties at the reporting date.
8.3 Other transactions with Key Management Personnel
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 and domestic in nature.
1 No longer a KMP at 30 June 2017.
32
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedDirectors’ report 32
32
Directors’ report
This report is made in accordance with a resolution of Directors.
Jennifer Helen Hill-Ling
Director
Philip Bullock AO
Director
Sydney
29 August 2017
33
33
33
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Hills limited 34
35
34
35
Hills Limited Annual Report for the year ended 30 June 2017 34
Hills limited
Consolidated financial
statements
For the year ended 30 June 2017
Contents
FINANCIAL STATEMENTS
Consolidated statement of profit or loss
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
For the year ended 30 June 2017 (continued)
Section A: About this report
35
Page 36
Page 37
Page 38
Page 39
Page 40
Page 41
SECTION B: BUSINESS PERFORMANCE
SECTION C: OPERATING ASSETS & LIABILITIES
1 Segment information
2 Revenue
3 Other income
4 Expenses
5
Income tax
6 Loss per share
Page 44
Page 47
Page 47
Page 48
Page 50
Page 54
7 Cash and cash equivalents
8 Trade and other receivables
9
Inventories
10 Trade and other payables
11 Property, plant and equipment
12 Intangible assets
13 Provisions
SECTION D: CAPITAL AND FINANCING
SECTION E: GROUP STRUCTURE
14 Contributed equity
15 Reserves
16 Dividends
17 Borrowings
18 Derivative financial instruments
Page 68
Page 69
Page 70
Page 71
Page 72
19 Capital and financial risk management
Page 74
20 Fair value measurements
Page 80
21 Interests in other entities
22 Related party transactions
23 Parent entity financial information
24 Deed of cross guarantee
SECTION F: UNRECOGNISED ITEMS
SECTION G: OTHER
25 Contingencies
26 Commitments
27 Events after the reporting period
Page 89
Page 89
Page 90
28 Share-based payments
29 Remuneration of auditors
30 Other accounting policies
SIGNED REPORTS
Directors’ declaration
Independent auditor’s report
ASX INFORMATION
Shareholders information
Corporate directory
Page 57
Page 58
Page 60
Page 60
Page 61
Page 64
Page 66
Page 82
Page 83
Page 85
Page 86
Page 91
Page 93
Page 93
Page 95
Page 96
Page 100
Page 102
Hills Limited Annual Report for the year ended 30 June 2017
35
36
Consolidated statement of profit or loss
Continuing operations
Revenue
Other income
Expenses excluding net finance expenses
Cost of goods sold (inventories)
Direct costs of services provided
Labour and related expenses
Operational and equipment expenses
Property expenses
Depreciation and amortisation
Other expenses
Loss before net finance expense and income tax
Finance income
Finance expenses
Net finance expenses
Loss before income tax
Income tax benefit / (expense) from continuing operations
Loss from continuing operations
Loss for the year, attributable to owners of Hills Limited
NOTES
2017
$ ’000
2016
$ ’000
2
3
4b
4a
4
5
298,068
328,913
13,100
311,168
3,192
332,105
(172,095)
(187,482)
(38,205)
(31,972)
(68,430)
(75,595)
(7,867)
(7,865)
(7,072)
(8,517)
(8,172)
(9,444)
(14,348)
(55,886)
(4,714)
(44,963)
66
305
(3,356)
(3,659)
(3,290)
(3,354)
(8,004)
(48,317)
72
(19,988)
(7,932)
(68,305)
(7,932)
(68,305)
Cents
Cents
Loss per share for loss from continuing operations attributable
to the ordinary equity holders of the Company:
Basic and diluted loss per share
6
(3.4)
(29.4)
The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes.
36
37
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limited 36
Consolidated statement of comprehensive income
Loss for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges
Exchange differences on translation of foreign operations
Income tax relating to components of other comprehensive income
Other comprehensive (loss) / income for the year, net of tax
NOTES
2017
$ ’000
2016
$ ’000
(7,932)
(68,305)
15
15
5
(328)
(20)
98
(250)
(113)
945
34
866
Total comprehensive loss for the year, attributable to owners of Hills Limited
(8,182)
(67,439)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes.
37
37
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Hills limited
38
Consolidated statement of financial position
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax assets
Derivative financial instruments
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
Provisions
Derivative financial instruments
Total current liabilities
Non current liabilities
Borrowings
Provisions
Total non current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
NOTES
2017
$ ’000
2016
$ ’000
7
8
9
5
18
8
11
12
5
10
17
13
18
17
13
14
15
8,651
59,489
46,460
229
-
3,994
69,346
55,617
183
103
114,829
129,243
-
2
534
2
16,600
19,948
2,578
10,917
753
10,808
30,097
32,045
144,926
161,288
40,266
50,400
295
10,556
287
472
12,512
-
51,404
63,384
28,395
4,196
32,591
83,995
60,931
25,130
3,697
28,827
92,211
69,077
278,439
278,439
11,035
11,249
(228,543)
(220,611)
60,931
69,077
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
38
39
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limited 38
Consolidated statement of changes in equity
Attributable to owners of Hills Limited
Notes
Contributed
equity
$'000
Reserves
$'000
Accumulated
losses
$'000
Total
$'000
Balance at 1 July 2015
278,439
10,467
(152,306)
136,600
Total comprehensive income / (loss) for the year
Transactions with owners in their
capacity as owners:
Employee share schemes
Balance at 30 June 2016
Balance at 1 July 2016
Total comprehensive (loss) for the year
Transactions with owners in their
capacity as owners:
Employee share schemes
Balance at 30 June 2017
-
-
278,439
278,439
-
-
866
(68,305)
(67,439)
(84)
11,249
11,249
(250)
-
(220,611)
(220,611)
(7,932)
(84)
69,077
69,077
(8,182)
36
-
36
278,439
11,035
(228,543)
60,931
29
29
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
39
39
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Hills limited 40
Consolidated statement of cash flows
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
345,464
386,190
Payments to suppliers and employees (inclusive of goods and services tax)
(343,007)
(372,974)
NOTES
2017
$ ’000
2016
$ ’000
Net finance costs paid
Net income taxes received / (paid)
Net cash flows (used in) / 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 property, plant and equipment and intangible assets
Rent received
7
11
12
2,457
13,216
(3,255)
(3,354)
13
(785)
(486)
9,376
-
(2,653)
(1,507)
(2,249)
6,701
4
(4,247)
(3,244)
6,902
1,526
Net cash flows from / (used in) investing activities
2,949
(1,716)
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Net cash flows from financing activities
Net increase / (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
8,004
46,510
(5,522)
(69,175)
2,482
(22,665)
4,646
3,994
11
(15,005)
18,801
198
Cash and cash equivalents at end of the year
7
8,651
3,994
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
40
41
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limited
40
41
Section A: About this report
These 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").
The notes to the consolidated financial statements that follow present information relevant to understanding the
Group’s:
• business performance;
• operating assets and liabilities;
• capital and financing arrangements, including the Group’s approach to risk;
•
• unrecognised items at the end of the reporting period.
structure, including related party transactions and parent entity information; and
Other information that is required to be disclosed to comply with the accounting standards, the Corporations Act
2001 or the Corporations Regulations, but are not considered significant to understand the financial performance or
financial position of the Group are provided at the end of the notes.
Hills Limited is a for profit company limited by shares, incorporated and domiciled in Australia.
The consolidated financial statements were authorised for issue by the Directors on 29 August 2017. The Directors
have the power to amend and reissue the consolidated financial statements.
Basis of preparation
These general purpose consolidated financial statements:
• are presented in Australian dollars;
• have been prepared in accordance with Australian Accounting Standards (AASBs), other authoritative
pronouncements of the Australian Accounting Standards Board, and the Corporations Act 2001;
• comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting
•
Standards Board (IASB); and
have been prepared on the basis of historical costs, except for financial instruments (derivatives) at fair
value. The methods used to measure fair values are discussed further in note 20.
41
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 42
Key accounting estimates
In preparing these financial statements, management are required 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 2
Note 5
Recognition of revenue accounted for using the percentage of completion method
Tax losses for which no deferred tax asset has been recognised
Notes 11 and 12 Measurement of the useful lives of property, plant and equipment and intangible assets
43
Notes 13 and 25 Provisions and contingencies
Note 20
Measurement of fair value
Principles of consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30
June 2017 and the results of all subsidiaries for the year then ended. A list of subsidiaries is included in note 21.
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 was obtained by 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.
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 statement
of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of financial position respectively.
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.
42
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 42
43
Foreign currency translation
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 Australian
dollar is the Company's functional and presentation currency and the functional and presentation currency of the
majority of the Group.
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.
Group entities
The results and financial position of all Group Entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
Closing rate
Assets and liabilities for each statement of financial position
Average rate
Income and expenses for each income statement: average rates, unless this is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transactions dates (in which
case, the rates on the transaction dates are used)
All resulting exchange differences are recognised in other comprehensive income.
Rounding
The Company is an entity to which the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 applies. Amounts have been rounded off in accordance with the instrument to the nearest thousand dollars,
or in certain cases, the nearest dollar.
43
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 45
44
Section B: Business performance
This section contains information relevant to understanding the results and performance of the Group during the
reporting period:
1. Segment information
2. Revenue
3. Other income
4. Expenses
5. Income Tax
6. Loss per share
1
SEGMENT INFORMATION
During the year ended 30 June 2017, there were changes to elements of the business that led to a review of the
Group’s reportable operating segments. These changes include:
Lincor
merger
On 13 September 2016, Hills announced that it had entered into a conditional merger agreement
to combine its Hills Health Solutions (HHS) business with international healthcare technology
business, Lincor Solutions, to create a new ASX listed company, Lincor Limited.
As announced, the conditional merger agreement was terminated in December 2016. Following the
termination, management have integrated HHS into the operational activities of the remainder of
the Group.
Sale of Hills
Home Living
assets
The Hills Home Living (HHL) business was operated by Woolworths Limited (Woolworths) under a
licencing arrangement until October 2016, when the agreement was terminated after the decision
by Woolworths to exit its home improvement business and close its Masters stores.
In December 2016, Hills entered into an agreement with AMES Australasia (AMES) to take over the
manufacture and sale of HHL products. The transaction with AMES involved the sale of tooling
equipment and trademarks related to HHL products, which are no longer used by the continuing
Hills business.
No further revenue, expenses or profit is expected from this business.
In light of the above changes, the Board of Directors (being the Chief Operating Decision Maker) consider that there is
only one reportable segment for the year ended 30 June 2017.
Although the Group’s divisions are managed on a products and services basis, they operate in two main geographical
areas:
Australia
Overseas
Comprises manufacturing facilities in South Australia and Victoria and sales offices and customers
in most states and territories.
Comprises sales offices and customers in New Zealand and customers in the Pacific Islands, the
Middle East, Europe, Asia and North America.
44
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 44
(a) Information about reportable segments
Reportable segment
Hills Limited
Total segment result2
(b) Other segment information
Segment revenue
Revenue
EBITDA1
2017
$ ’000
2016
$ ’000
(restated)
2017
$ ’000
2016
$ ’000
(restated)
298,068
328,913
298,068
328,913
6,353
6,353
11,749
11,749
45
The revenue from external customers reported to the CODM is measured in a manner consistent with that in the
consolidated income statement. There are no sales between segments. Segment revenue reconciles to total revenue
per note 2.
The Group derived revenue of $29.828 million from a single external customer during the period. The Group did not
derive 10% or more of its revenues from any other single external customer.
Segment EBITDA
The CODM assesses performance based on a measure of EBITDA. This excludes the effects of non-recurring
expenditure from the operating segments such as restructuring costs and goodwill and other intangible asset
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.
Segment EBITDA reconciles to the loss before income tax as follows:
Segment EBITDA
Depreciation and amortisation
Net finance expenses
Net costs not considered part of segment EBITDA1
Loss before income tax from continuing operations
NOTES
4
4
2017
$ ’000
6,353
(7,072)
(3,290)
2016
$ ’000
11,749
(9,444)
(3,354)
(3,995)
(47,268)
(8,004)
(48,317)
1 Earnings before interest, tax, depreciation, amortisation and impairment of intangible assets, goodwill and other receivables
(EBITDA) is a non-IFRS measure not subject to audit or review. Segment EBITDA excludes the impact of costs associated with
the proposed demerger of the Hills Health Solutions business and other net costs associated with structuring the Company
in line with its future growth opportunities. This non-IFRS measure is relevant because it is consistent with the measures used
internally by management and some in the investment community to assess the operating performance of the business.
2 Total segment revenue represents revenue from external customers.
45
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 47
46
Net costs not considered part of segment EBITDA comprise:
Costs related to proposed demerger of business
(Reversal of impairment) / impairment of property, plant and equipment
Impairment of goodwill
Impairment of intangible assets
Impairment of other receivables
2017
$ ’000
2,207
(30)
-
-
-
Other net costs related to the Company’s restructure and transformation program
1,818
2016
$ ’000
-
3,786
26,435
12,685
2,900
1,462
Segment assets and liabilities
The assets and liabilities of the reportable operating segment are as shown in the balance sheet.
Geographical information
Segment revenue and non-current assets (excluding financial instruments and deferred tax assets) by geographical
location are shown below. Segment revenues are allocated based on the country in which the customer is located.
Segment assets are allocated based on where the assets are located.
3,995
47,268
Australia
Other countries
Revenue
Non-current assets
2017
$ ’000
2016
$ ’000
2017
$ ’000
2016
$ ’000
273,651
302,606
20,423
20,203
24,417
26,307
715
1,034
298,068
328,913
21,138
21,237
Recognition and measurement
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker (CODM). The CODM, 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.
46
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 46
2 REVENUE
Sales revenue
Sale of goods
Services
Other revenue
Rents and sub-lease rentals
Licence fee revenue
Total revenue from continuing operations
Recognition and measurement
Revenue
47
2017
$ ’000
2016
$ ’000
231,154
264,169
66,410
61,218
297,564
325,387
4
500
1,526
2,000
298,068
328,913
Revenue is recognised for the major business activities as follows:
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.
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.
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.
Licence fee revenue
Licence fee revenue is recognised on an accrual basis in accordance with the substance of the relevant licence
agreement when it is probable that the economic benefits associated with the transaction will flow to the Group and
the amount of revenue can be measured reliably.
3 OTHER INCOME
Net gain on disposal of non-current assets
Other income
2017
$ ’000
6,435
6,665
13,100
2016
$ ’000
155
3,037
3,192
47
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 48
Net gain on disposal of non-current assets
The net gain on disposal of non-current assets for the year ended 30 June 2017 includes a gain on the sale of Hills
Home Living assets (comprising intellectual property of $4 million and tooling, goodwill and other assets of $2.4
million), to AMES Australasia.
Other income
Other income for the year ended 30 June 2017 includes income of $6 million received from Woolworths on termination
of the licence arrangement in relation to Hills Home Living products. Deferred costs of $0.651 million have been
reflected in operating expenses for the period.
Other income in the prior year included income relating to the termination of Hills’ distribution agreement with
Crestron, which ceased during the year ended 30 June 2016.
4 EXPENSES
49
(a) Loss before income tax includes the following specific expenses:
Depreciation
Plant and equipment
Buildings
Total depreciation
Amortisation
Software
Development costs
Customer contracts, relationships and brands
Patents and trademarks
Total amortisation
Total depreciation and amortisation
Employee benefits 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
Unwinding of discount on provisions
Finance income
Interest income
Net finance costs expensed
48
2017
$ ’000
2016
$ ’000
5,889
-
5,889
1,144
39
-
-
1,183
7,072
6,652
13
6,665
1,253
213
1,310
3
2,779
9,444
52,360
59,587
4,532
3,485
36
5,294
4,231
(84)
60,413
69,028
(3,321)
(3,659)
(35)
-
(3,356)
(3,659)
66
66
305
305
(3,290)
(3,354)
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 48
49
(b) Information on expenses
Accounting standards require that an analysis of expenses is presented using a classification based on either their
nature or their function. For the year ended 30 June 2017, the Group has presented expenses classified by nature
in order to provide information that is more relevant and consistent with how management monitor business
performance. Comparative information has been reclassified on the same basis (total expenses reported for the
comparative period have not changed from the prior year).
Further information on expenses as shown in the Consolidated statement of profit and loss is provided below:
Cost of
goods sold
(inventories)
Direct costs
of services
provided
Labour and
related
expenses
Operational
and equipment
expenses
Cost of goods sold include expenses relating to the change in inventories of finished goods and
work in progress, and raw materials used.
Included in this balance for the year ended 30 June 2017 is an expense of $4.395 million relating to
the impairment of inventory (comprising inventory purchased on signing a distribution agreement
with Tyco in February 2015 of $3.461 million and other exited brands of $0.934 million).
Direct costs of services provided include subcontractor costs, commissions and subscriptions
payable, and other direct costs associated with provision of services by Group entities. This
balance does not include internal labour costs related to carrying out services, which are included
in Labour and related expenses.
Labour and related expenses include employee benefits expenses of $60.413 million (as shown in
note 4a above) and other labour and related expenses such as third party logistics, labour hire,
employee training and recruitment.
Operational and equipment expenses include costs of freight, consumables, motor vehicle and
other equipment expenses, repairs and maintenance.
Property
expenses
Property expenses include rent, rates, utilities, cleaning and security expenses related to
properties leases by the Group.
Other expenses Other expenses include overhead expenses (such as insurance, advertising and marketing,
professional and consulting fees, telecommunications and information technology related
expenses) and other net costs not considered part of segment EBITDA of $3.995 million (2016:
$47.268 million) (as shown in note 1b).
Recognition and measurement
Depreciation and amortisation
Refer to notes 11 and 12 for recognition and measurement of depreciation and amortisation.
Employee benefits expense
Refer to note 13 for information relating to employee benefits expense.
Finance income and expense
Finance income comprises interest income on funds invested. Interest income is recognised in profit or loss as it
accrues. Finance expenses comprise interest expense on borrowings and unwinding of the discount on provisions.
Borrowing costs are recognised in profit or loss using the effective interest method.
49
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 51
50
5
INCOME TAX
a) Income tax (benefit) / expense
Current tax
Deferred tax
2017
$ ’000
2016
$ ’000
(60)
(12)
(72)
(100)
20,088
19,988
(b) Numerical reconciliation of income tax (benefit) / expense
to prima facie tax payable
Loss from continuing operations before income tax expense
(8,004)
(48,317)
Tax at the Australian tax rate of 30% (2016: 30%)
(2,401)
(14,495)
Tax effect of amounts which are not deductible / (taxable) in calculating taxable income:
Goodwill and other intangible assets impairment
Non-deductible expenses
Acquisition costs
Utilisation of previously unrecognised capital losses
Capital losses for which no deferred tax asset is recognised
(Recognition) / derecognition of deferred tax assets
Tax losses for which no deferred tax asset is recognised
Tax effect of prior year adjustments
Difference in overseas tax rates
Total income tax (benefit) / expense
(c) Income tax expense relating to items of other comprehensive income
Aggregate current and deferred tax arising in the reporting period and not recognised in
net profit or loss but directly debited or credited to other comprehensive income:
Losses on cash flow hedges
Aggregate income tax benefit
-
153
175
(1,464)
-
(5,289)
20,599
(11,850)
(77)
5
(72)
7,930
223
(304)
-
805
20,282
-
5,526
19,967
21
19,988
2017
$ ’000
2016
$ ’000
(98)
(98)
(34)
(34)
50
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 50
(d) Tax losses
At the end of the reporting period, the Group had unused tax losses in respect of revenue items of $194.3 million
(2016: $125.6 million) and capital items of $49.5 million (2016: $54.4 million).
Revenue
Capital items
2017
$ ’000
2016
$ ’000
2017
$ ’000
2016
$ ’000
Unused losses for which no deferred tax asset has been
recognised
194,276
125,613
49,522
54,398
Potential tax benefit
58,283
37,684
14,856
16,319
Revenue and capital tax losses do not expire under current legislation.
Revenue losses Deferred tax assets have not been recognised in respect of revenue tax losses because the period
over which the Group expects to utilise the benefits of these items extends beyond 3 years (the
time horizon during which their recovery is considered probable).
Capital losses
Deferred tax assets have not been recognised in respect of capital losses because it is not
probable that future capital gains will be available against which the Group can utilise the benefits
from these items.
(e) Current tax assets and liabilities
The current tax asset for the Group of $0.229 million (2016: $0.183 million) represents the amount of income taxes
refundable in respect of current and prior financial periods.
51
(f) Deferred tax
The balance comprises temporary differences attributable to:
Property, plant and equipment
Inventories
Employee benefits
Receivables
Provisions
Other accruals
Derivative financial instruments
2017
$ ’000
2016
$ ’000
450
5,614
2,054
178
2,039
515
67
149
9,009
1,283
16
16
366
(31)
10,917
10,808
51
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 53
52
Balance at
1 July
$'000
Recognised
in profit or
loss
$'000
Recognised
in other
compre-
hensive
income
$'000
Balance at
30 June
$'000
3,559
2,503
2,865
846
1,218
5,471
66
(65)
16,014
(2,327)
683
-
(3,410)
6,506
(1,582)
(830)
(1,218)
(5,455)
300
-
(16,014)
2,327
(683)
(29)
30,833
(20,088)
149
9,009
1,283
16
16
366
(31)
-
10,808
301
(3,395)
771
162
2,023
149
-
1
12
-
-
-
-
-
-
-
34
-
-
-
29
63
-
-
-
-
-
-
98
(1)
97
149
9,009
1,283
16
-
16
366
(31)
-
-
-
-
10,808
450
5,614
2,054
178
2,039
515
67
-
10,917
Movements 2016
Property, plant and equipment
Inventories
Employee benefits
Receivables
Loans and borrowings
Provisions
Other accruals
Derivative financial instruments
Tax losses
Software & other intangible assets
Other
Exchange differences
Movements 2017
Property, plant and equipment
Inventories
Employee benefits
Receivables
Provisions
Other accruals
Derivative financial instruments
Exchange differences
52
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 52
53
(g) Tax consolidation legislation
The Company and its wholly owned Australian controlled entities have implemented the tax consolidation legislation.
Tax sharing
agreement
Tax funding
agreement
On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered
into a tax sharing agreement that, 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 reporting period. 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.
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.
Recognition and measurement
Income tax
The income tax expense or revenue for the period is the tax payable on the current period's taxable income based
on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end
of the reporting period in the countries where the Company's subsidiaries operate and generate taxable income.
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.
Deferred tax
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.
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.
53
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 55
54
Offsetting
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.
Tax consolidation
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.
Key estimate: unrecognised deferred tax assets
Deferred tax assets are only recognised for deductible temporary differences and tax losses to the extent that
it is probable that taxable profits will be available to utilise them. The financial projections used in assessing the
probability of taxable profits are inherently subject to management judgement.
6 LOSS PER SHARE
(a) Basic and diluted loss per share
2017
Cents
2016
Cents
From loss attributable to the ordinary equity holders of the Company
(3.4)
(29.4)
(b) Reconciliation of earnings used in calculating loss per share
Loss attributable to the ordinary equity holders of the Company
used in calculating basic loss per share
(c) Weighted average number of shares used as denominator
Weighted average number of ordinary shares used as the denominator in calculating
basic loss per share
Effect of performance rights on issue
Weighted average number of ordinary and potential ordinary shares used as the
denominator in calculating diluted loss per share
2017
$ ’000
2016
$ ’000
(7,932)
(68,305)
2017
Shares
$ ’000
2016
Shares
$ ’000
231,986
231,986
-
-
231,986
231,986
Performance rights have not been included in the weighted average number of shares for diluted loss per share as no
shares are expected to be issued to satisfy performance rights.
54
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 54
Recognition and measurement
Earnings per share
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 reporting period.
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.
55
55
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 56
Section C: Operating assets and liabilities
This section provides information on the operating assets used and the operating liabilities incurred by the Group:
7. Cash and cash equivalents
8. Trade and other receivables
9. Inventories
10. Trade and other payables
11. Property, plant and equipment
12. Intangible assets
13. Provisions
57
56
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 56
57
7 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Deposits
(a) Reconciliation of loss after income tax to net cash flow from operating activities
Loss for the period
Depreciation and amortisation
Net gain on sale of non-current assets
(Reversal of impairment) / impairment of property, plant and equipment
Impairment of goodwill
Impairment of other receivables
Impairment of intangible assets
Non-cash employee benefits expense / (credit) - share-based payments
Rent received
Fair value adjustment to derivatives
Unwinding of discount on provisions
Other non-cash items
Change in operating assets and liabilities:
Decrease in trade and other receivables
Decrease in inventories
Decrease in trade and other payables
Decrease in provisions
Increase in provision for income taxes receivable
(Increase) / decrease in deferred tax assets
Net cash flows from operating activities
Recognition and measurement
Cash and cash equivalents
2017
$ ’000
2016
$ ’000
5,360
3,291
8,651
3,994
-
3,994
(7,932)
(68,305)
7,072
(6,435)
(30)
-
-
-
36
(4)
62
35
(7)
9,444
(141)
3,786
26,435
2,900
12,685
(84)
(1,526)
82
-
-
11,008
9,126
17,893
17,204
(9,900)
(17,632)
(3,756)
(12,868)
(48)
(12)
(593)
20,096
(785)
9,376
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 that are subject to an insignificant risk of changes in value.
57
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 59
58
8 TRADE AND OTHER RECEIVABLES
Trade receivables
Provision for impairment of receivables (a)
Other receivables
Prepayments
2017
Non-
current
$ ’000
-
-
-
-
-
-
Current
$ ’000
52,914
(594)
52,320
5,271
1,898
59,489
Total
$ ’000
Current
$ ’000
52,914
(594)
61,319
(1,275)
52,320
60,044
5,271
1,898
6,573
2,729
2016
Non-
current
$ ’000
-
-
-
534
-
Total
$ ’000
61,319
(1,275)
60,044
7,107
2,729
59,489
69,346
534
69,880
Unamortised borrowing costs, which were included in prepayments in the prior year, have been reclassified to
borrowings. The amount at 30 June 2016 of $2.565 million is shown in note 17.
(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 period
Receivables written off during the period as uncollectable
At 30 June
2017
$ ’000
2016
$ ’000
36,781
11,441
3,307
1,385
39,462
13,819
5,610
2,428
52,914
61,319
1,275
283
(964)
594
1,481
389
(595)
1,275
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 $0.594 million (2016: $1.275 million) relates to receivables
past due more than 30 days, on a case by case assessment. Receivables past due between 0 and 30 days are not
considered impaired.
58
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 58
59
(b) Transfer of trade receivables
The Group has entered into a Receivables Purchase Facility, as described in note 17, under which trade receivables
have been sold with recourse. These receivables have not been derecognised from the statement of financial position
as the Group retains substantially all of the risks and rewards (primarily credit risk).
The carrying amount of transferred trade receivables not derecognised is show below:
Carrying amount of trade receivables transferred
Carrying amount of associated liabilities
(c) Financial risk
2017
$ ’000
2016
$ ’000
35,597
31,907
(30,353)
(27,695)
See note 19 for information about the Group’s exposure to foreign currency risk, interest rate risk and credit risk in
relation to trade and other receivables.
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.
Recognition and measurement
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. 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.
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9
INVENTORIES
Raw materials and work in progress
Finished goods
Recognition and measurement
Inventories
2017
$ ’000
2016
$ ’000
2,343
44,117
46,460
3,028
52,589
55,617
61
Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value.
Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead
expenditure, the latter being allocated on the basis of normal operating capacity. Cost includes the reclassification
from equity of any gains/losses on qualifying cash flow hedges relating to purchases of inventory.
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.
10 TRADE AND OTHER PAYABLES
Trade payables
Other payables and accrued expenses
2017
$ ’000
2016
$ ’000
25,940
14,326
29,538
20,862
40,266
50,400
Other payables and accrued expenses include amounts payable in respect of employee benefits (including wages
and salaries, superannuation / pension contributions, commissions and bonuses, payroll tax), Goods and Services Tax
(GST), customer rebates and other sundry accrued expenses.
Recognition and measurement
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 reporting period that
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.
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61
11 PROPERTY, PLANT AND EQUIPMENT
Year ended 30 June 2016
Opening net book amount
Exchange differences
Additions
Disposals
Depreciation charge
Impairment charge
Closing net book amount
At 30 June 2016
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2017
Opening net book amount
Exchange differences
Additions
Disposals
Depreciation charge
Impairment reversal
Closing net book amount
At 30 June 2017
Cost
Accumulated depreciation and impairment
Net book amount
Land
$ ’000
Buildings
$ ’000
Plant &
Equip-
ment
$ ’000
Total
$ ’000
6,841
2,057
23,924
32,822
-
-
-
-
(5,625)
(593)
100
4,247
(552)
100
4,247
(6,770)
-
(13)
(6,652)
(6,665)
(1,216)
(1,451)
(1,119)
(3,786)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,948
19,948
73,350
73,350
(53,402)
(53,402)
19,948
19,948
19,948
19,948
(7)
2,770
(252)
(7)
2,770
(252)
(5,889)
(5,889)
30
30
16,600
16,600
59,834
59,834
(43,234)
(43,234)
16,600
16,600
Additions include an amount of $1.263 million (2016: nil) for the estimated costs to remove leasehold improvements
from properties leased by the Group and restore the premises on which they are located. These estimated costs have
been capitalised in accordance with AASB 116 Property, Plant and Equipment as an element of cost of the leasehold
improvement assets. Payments for property, plant and equipment of $1.507 million as shown in the Consolidated
statement of cash flows do not include these non-cash additions.
During the year ended 30 June 2017, fully depreciated assets with a cost of $13.8 million were written off.
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63
62
(a) Assets in the course of construction
The carrying amounts of the assets disclosed above and in note 12 Intangible assets include the following expenditure
recognised in relation to non-current assets (principally plant and equipment, leasehold improvements and software
development), which are in the course of construction:
2017
$ ’000
2016
$ ’000
Plant and equipment, leasehold improvements and software development
3,626
2,284
Key estimate: useful lives of property, plant and equipment
The assessment of the useful lives of property, plant and equipment requires management judgement based on past
experience and industry practice. Management reassess the useful lives when there are indications of a change in
economic circumstances that may impact the assets.
Recognition and measurement
Property, plant and equipment
Land and buildings
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.
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.
Plant and equipment
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.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 62
Depreciation
Land is not depreciated. Depreciation on other assets is calculated using the 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
Plant and equipment, including leasehold improvements
Impairment
2.5%
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.
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.
63
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64
12 INTANGIBLE ASSETS
Year ended 30 June 2016
Opening net book amount
Exchange differences
Additions
Transfers between categories
Amortisation charge
Impairment charge
Closing net book amount
At 30 June 2016
Cost
Accumulated amortisation and
impairment
Net book amount
Year ended 30 June 2017
Opening net book amount
Exchange differences
Additions
Disposals
Amortisation charge
Closing net book amount
At 30 June 2017
Cost
Accumulated amortisation and
impairment
Patents,
trademarks
& other
rights
$ ’000
Distribution
agreements,
customer
contracts &
brands
$ ’000
Goodwill
$ ’000
Software1
$ ’000
Devel-
opment
costs
$ ’000
Total
$ ’000
26,280
155
-
-
-
(26,435)
-
146,131
(146,131)
-
-
-
-
-
-
-
254
-
-
(208)
(3)
(43)
-
58
(58)
-
-
-
-
-
-
-
5,958
-
-
-
5,778
16
2,871
-
967
39,237
-
373
208
171
3,244
-
(1,253)
(1,310)
(213)
(2,779)
(4,705)
(6,723)
(1,214)
(39,120)
-
632
121
753
15,125
23,234
1,779
186,327
(15,125)
(22,602)
(1,658)
(185,574)
-
-
-
-
-
-
-
632
121
753
632
-
2,874
(4)
(1,144)
2,358
121
-
140
(2)
753
-
3,014
(6)
(39)
(1,183)
220
2,578
145,634
(145,634)
58
(58)
15,125
17,238
1,895
179,950
(15,125)
(14,880)
(1,675)
(177,372)
Net book amount
-
-
-
2,358
220
2,578
Additions for the year include $0.765 million (2016: nil) incurred but not yet paid at the end of the period. Payments
for intangible assets of $2.249 million as shown in the Consolidated statement of cash flows do not include these
additions.
During the year ended 30 June 2017, fully amortised or impaired intangible assets with a cost of $8.7 million were
written off. Fully impaired goodwill of $0.497 million was derecognised on the deregistration of Audio Products Group
Pty Limited (see note 21).
1 Software includes capitalised development costs, being an internally generated intangible asset
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65
Recognition and measurement
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 but is tested for impairment annually, or more frequently
if events or changes in circumstances indicate that it might be impaired. It 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.
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. The Group’s intangible assets were fully impaired at 31 December
2015.
To that date, amortisation was calculated using the straight line method to allocate the cost over their estimated
useful lives, which varied from:
Patents and trademarks:
Customer relationships, distribution agreements and brands
IT development and software
10 to 20 years
2 to 5 years
Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will
contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to
software and systems. Costs capitalised include external direct costs of materials and service and direct payroll and
payroll related costs of employees' time spent on the project. Amortisation is calculated on a straight-line basis over
periods generally ranging from 3 to 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.
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.
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66
13 PROVISIONS
Employee benefits
Outstanding claims
Restructuring costs
Other provisions
(a) Description of provisions
2017
Non-
current
$ ’000
695
660
802
Current
$ ’000
6,170
866
2,336
1,184
2,039
Total
$ ’000
Current
$ ’000
6,865
1,526
3,138
3,223
7,040
2,188
3,200
84
2016
Non-
current
$ ’000
926
954
1,153
664
Total
$ ’000
7,966
3,142
4,353
748
10,556
4,196
14,752
12,512
3,697
16,209
Employee
benefits
Provisions for employee benefits include liabilities for annual leave and long service leave.
Outstanding
claims
The provision for claims comprises the amounts set aside for estimated warranty claims. In the
prior year, it also included the estimated future liability of the Group’s self-insurance arrangements.
Restructuring
costs
The restructuring costs provision comprises redundancy costs and other costs of closing and
restructuring businesses (including onerous lease and make-good costs related to properties
affected by restructure).
Other
provisions
Other provisions comprise provisions for environmental monitoring of a site, make good
obligations, onerous lease costs and other provisions as required.
(b) Movements in provisions
Movements in each class of provision during the reporting period, other than employee benefits, are set out below:
Movements 2017
Carrying amount at the start of the year
Additional provisions made during the period
Amounts used (incurred or charged against provision)
Unused amounts reversed during the period
Unwinding of discount
Carrying amount at the end of the year
Outstanding
claims
$'000
Restructuring
costs
$'000
Other
$'000
Total
$'000
3,142
32
(684)
(964)
-
1,526
4,353
748
8,243
2,289
(3,482)
(22)
-
2,471
(31)
-
35
4,792
(4,197)
(986)
35
3,138
3,223
7,887
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67
Recognition and measurement
Provisions
Provisions for legal claims, service warranties, make good obligations and onerous leases 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.
Employee benefits
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.
Other long term employee benefits obligations
The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end
of the period in which the employees render the related service is recognised in the provision for employee benefits
and measured as the present value of expected future payments to be made in respect of services provided by
employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels,
experience of employee departures and periods of service.
Expected future payments are discounted using market yields at the end of the reporting period on 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.
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.
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.
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68
Section D: Capital and financing
This section provides information on how the Group manages its capital structure and financing, including its
exposure to financial risk:
14. Contributed equity
15 Reserves
16 Dividends
17 Borrowings
18 Derivative financial instruments
19 Capital and financial risk management
20 Fair value measurements
14 CONTRIBUTED EQUITY
(a) Share capital
2017
Shares
2016
Shares
2017
$ ’000
2016
$ ’000
Ordinary shares - fully paid
231,985,526
231,985,526
278,439
278,439
(b) About share capital
Ordinary shares 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. Ordinary shares have no par value. The
Company does not have a limited amount of ordinary share capital.
Performance
rights
Information relating to the Long Term Incentive Share Plan, including details of performance
rights issued, exercised, lapsed and forfeited during the reporting period and performance rights
outstanding at the end of the reporting period, is set out in note 28.
Recognition and measurement
Contributed equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
If the Company reacquires its own equity instruments, for example as the result of a share buyback, those
instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in
profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is
recognised directly in equity.
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15 RESERVES
Hedging reserve - cash flow hedges
Equity compensation reserve
Foreign currency translation reserve
Profits reserve
(a) Movements in reserves
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 / (credit)
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
Closing balance 30 June
69
2017
$ ’000
2016
$ ’000
(158)
706
354
72
670
374
10,133
10,133
11,035
11,249
72
(328)
98
(158)
670
36
706
374
(20)
354
151
(113)
34
72
754
(84)
670
(571)
945
374
10,133
10,133
10,133
10,133
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 71
70
(b) Nature and purpose of reserves
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.
Amounts are reclassified to profit or loss when the associated hedged transaction affects profit or
loss.
Equity
compensation
reserve
The equity compensation reserve represents the value of performance rights held by an equity
compensation plan of the Group. This reserve will be reversed against share capital when the
underlying performance rights 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.
Foreign
currency
translation
reserve
Exchange differences arising on translation of the financial statements of a foreign controlled
entity are recognised in other comprehensive income and accumulated in this reserve. The
cumulative amount is reclassified to profit or loss when the net investment is disposed of.
Profits reserve Current period and realised profits are transferred from retained earnings and other reserves to the
profits reserve and dividends are paid out of the profits reserve.
16 DIVIDENDS
(a) Ordinary shares
Year ended 30
June 2017
Year ended 30
June 2016
No dividends were paid during the year and no final dividend has been declared.
No dividends were paid during the year and no final dividend has been declared.
(b) Franked dividends
Franking credits available for subsequent reporting periods
based on a tax rate of 30% (2016: 30.0%)
2017
$ ’000
2016
$ ’000
1,787
1,787
The above amounts represent the balance of the franking account as at the end of the reporting period, adjusted for
franking credits that will arise from:
• the payment of the amount of the provision for income tax;
• the payment of dividends recognised as a liability at the reporting date; and
• the receipt of dividends recognised as receivables at the reporting date.
The consolidated amounts include franking credits that would be available to the Company if distributable profits of
subsidiaries were paid as dividends.
Recognition and measurement
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.
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71
17 BORROWINGS
Loans
Transaction costs
Total borrowings
Current
$ ’000
2017
Non-
current
$ ’000
Total
$ ’000
Current
$ ’000
2016
Non-
current
$ ’000
Total
$ ’000
295
30,353
30,648
472
27,695
28,167
-
(1,958)
(1,958)
-
(2,565)
(2,565)
295
28,395
28,690
472
25,130
25,602
Non-current borrowings include transactions costs directly attributable to the issue of the borrowings. At 30 June
2017, unamortised borrowing costs totalled $1.958 million (2016: $2.565 million).
(a) Loans
The Group has its financing facilities with Commonwealth Bank of Australia (CBA) through a Bilateral Facility and with
Recfin Nominees Pty Ltd through a Receivables Purchase Facility.
Bilateral Facility The CBA facility was amended in December 2016 and now comprises a facility for an overdraft
and contingent liabilities (bank guarantees / letter of credit), with the following sub limits
(denominated in AUD):
• Overdraft: $3 million (nil drawn at 30 June 2017)
• Contingent liabilities: $4.472 million.
Interest is charged at prevailing market rates plus a fixed margin.
CBA hold a fixed and floating charge over the assets of the Group (excluding Accounts
Receivable). The facility expires on 13 November 2017.
Receivables
Purchase
Facility
The Recfin Nominees Pty Ltd facility totals $36 million (denominated in AUD), with funding
provided based upon the Group’s accounts receivable book. The facility expires on 13 May 2021.
The facility is secured on the Group’s Accounts Receivable book, with a second mortgage over the
other assets of the Group.
Interest is charged at prevailing market rates plus a fixed margin.
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 19,
together with details of undrawn borrowing facilities at the period end.
Recognition and measurement
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 capitalised as a prepayment 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.
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.
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72
18 DERIVATIVE FINANCIAL INSTRUMENTS
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 19).
Current assets
Forward foreign exchange contracts - cash flow hedges
Total current derivative financial instrument assets
Current liabilities
Forward foreign exchange contracts - cash flow hedges
Forward foreign exchange contracts – held for trading
Total current derivative financial instrument liabilities
Net derivative financial instrument assets / (liabilities)
(a) Instruments used by the Group
2017
$ ’000
2016
$ ’000
-
-
(225)
(62)
(287)
(287)
103
103
-
-
-
103
Forward
exchange
contracts:
cash flow
hedges
The Group purchases goods and materials from overseas, principally in US dollars. In order
to protect against exchange rate movements, the Group has entered into forward exchange
contracts to purchase US dollars. These contracts are hedging highly probable forecasted
purchases for approximately the following 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 2017, no gain or loss was recognised in profit or loss for the
ineffective portion of these hedging contracts (2016: loss of $5,000).
Forward
exchange
contracts:
held-for-trading
Group Entities have entered into forward foreign exchange contracts that 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 19 for details. However, they
are accounted for as held for trading.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 72
73
Recognition and measurement
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 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.
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.
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.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 75
74
19 CAPITAL AND FINANCIAL RISK MANAGEMENT
(a) Capital risk management
The Group's objective when managing capital is to safeguard its ability to continue as a going concern to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
To maintain or adjust the capital structure, the Group may vary the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce debt.
The Group monitors capital by assessing its gearing ratio. The gearing ratio is calculated as:
Net debt
Net debt
Total borrowings as shown in the consolidated statement of financial
position less cash and cash equivalents
net debt + total equity
Total equity
Equity as shown in the consolidated statement of financial position
(including non-controlling interests)
During 2017, the Group's strategy 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 2017 and 30 June 2016 were as follows:
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Gearing ratio
(b) Financial risk management
Notes
2017
$ ’000
2016
$ ’000
17
7
28,690
25,602
(8,651)
(3,994)
20,039
21,608
60,931
69,077
24.7%
23.8%
Management manages the Group’s exposure to financial risks under policies approved by the Board. Management
identifies, evaluates and manages financial risks in close cooperation with the Group's business 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 financial instruments and investment of excess liquidity.
The risk management approach 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 exclusively for risk mitigation and
not as trading or other speculative instruments.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 74
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivative financial instruments
Investments
Financial liabilities
Trade and other payables
Borrowings
Derivative financial instruments
75
2017
$ ’000
2016
$ ’000
8,651
57,591
-
2
3,994
67,151
103
2
66,244
71,250
40,266
50,400
28,690
25,602
287
-
69,243
76,002
The Group uses different methods to measure different types of risk, including sensitivity analysis (for interest rate,
foreign exchange and other price risks) and aging analysis (for credit risk).
(i) Market risk
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.
Foreign
exchange risk
Foreign exchange risk arises when future commercial transactions and recognised financial assets
and financial liabilities are denominated in currencies other than the Group's functional currency.
The risk is measured using sensitivity analysis and cash flow forecasting.
The Group’s main foreign exchange risk exposure is to US dollars.
Group Entities and business units are required to hedge their foreign exchange risk exposure
using forward exchange contracts.
The Group’s policy is to hedge approximately three months’ of anticipated cash flows (mainly
purchases of inventories) in US dollars.
Cash flow
and fair value
interest rate risk
Borrowings issued at variable rates expose the Group to cash flow interest rate risk. See details of
the Group’s borrowings in note 17.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 77
76
Foreign exchange risk
The Group's exposure to foreign exchange risk at the reporting date, expressed in Australian dollars at the closing
exchange rates, was:
30 June 2016
Cash at bank
Trade receivables
Trade payables
Forward exchange contracts
• buy foreign currency (cash flow hedges)
• buy foreign currency (FVTPL )
30 June 2017
Cash at bank
Trade receivables
Trade payables
Forward exchange contracts
• buy foreign currency (cash flow hedges)
• buy foreign currency (FVTPL )
Cash flow interest rate risk
USD
$'000
EUR
$'000
GBP
$'000
Total
$'000
703
1,126
-
-
-
-
703
1,126
(8,986)
(234)
(14)
(9,234)
(22,955)
-
129
823
-
-
-
-
-
-
-
-
(22,955)
-
129
823
(5,518)
(147)
(11)
(5,676)
(14,612)
(1,118)
-
-
-
-
(14,612)
(1,118)
The Group’s financing arrangement is principally a Receivables Purchase Facility, where the balance outstanding
changes daily. Accordingly, the Group does not use interest rate swaps to hedge cash flow interest rate risk.
During 2017 and 2016, the Group's cash and borrowings at variable rate were denominated in Australian Dollars and NZ
Dollars.
As at the end of the reporting period, the Group had the following variable rate cash and borrowings outstanding:
2017
2016
Weighted
average
interest
rate
%
Balance
$ ’000
Weighted
average
interest
rate
%
Balance
$ ’000
5.46%
(28,395)
5.71%
(25,130)
1.16%
7.63%
8,651
(295)
0.67%
8.33%
3,994
(472)
Bank overdrafts and loans
Cash and cash equivalents
Other loans
76
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 76
77
Sensitivity analysis
Foreign
exchange rates
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
forward exchange contracts designated as cash flow hedges.
Interest rates
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.
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
30 June 2016
Financial assets
Cash and cash equivalents
3,994
(22)
Trade and other receivables
Derivatives - cash flow hedges
67,151
103
Total increase / (decrease)
in financial assets
Financial liabilities
Trade & other payables
Borrowings
Total increase / (decrease)
in financial liabilities
Total increase / (decrease)
(50,400)
(25,602)
-
-
(22)
-
282
282
260
-
-
-
-
-
-
-
-
44
-
-
44
-
(282)
(282)
(238)
-
-
-
-
-
-
-
-
78
125
-
-
(64)
(102)
-
-
-
2,601
-
(2,045)
203
2,601
(166)
(2,045)
(1,039)
-
(1,039)
-
-
-
850
-
850
-
-
-
(836)
2,601
684 (2,045)
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited
79
78
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
30 June 2016
Financial assets
Cash and cash equivalents
8,651
(81)
Trade and other receivables
57,591
-
Total increase / (decrease)
in financial assets
Financial liabilities
(81)
Trade & other payables
(40,266)
-
Borrowings
(28,690)
306
Derivatives - cash flow hedges
Derivatives - FVTPL
Total increase / (decrease)
in financial liabilities
Total increase / (decrease)
(225)
(62)
-
-
306
225
-
-
-
-
-
-
-
-
-
110
-
110
-
(306)
-
-
(306)
(196)
-
-
-
-
-
-
-
-
-
14
91
105
(640)
-
-
68
-
-
-
-
-
1,253
(12)
(75)
(87)
524
-
-
-
-
-
-
-
(1,631)
-
(147)
-
(572)
1,253
377
(1,631)
(467)
1,253
290 (1,631)
(ii) Credit risk
Nature
of the risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations and arises principally from the Group’s
customers.
Risk
management
Credit risk is managed at a Group level through a credit policy and trade credit insurance, which is
carried for the majority of Group debtors.
Each new customer is assessed for creditworthiness before the Group’s standard payment and
delivery terms and conditions are offered. The assessment considers external credit risk ratings.
Purchase limits are established for each customer, which represent the maximum open amount
without requiring further approval. These limits are reviewed periodically and credit worthiness is
continually monitored. Limits in excess of $150,000 must be endorsed by the trade credit insurer.
Customers that fail to comply with the terms of the Trade Credit Insurance Policy or meet the
Group’s benchmark creditworthiness may only transact with the Group on a prepayment basis.
In most cases, goods are sold subject to retention of title clauses and this security is registered on
the Personal Property Securities Register, 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
may require personal guarantees from customer company directors and charging clauses over
real property. Failure to pay Hills in accordance with the account terms may result in cessation of
supply, loss of credit facilities, and/or recovery and legal action.
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78
(iii) Liquidity risk
Nature
of the 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.
Risk
management
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities. Surplus funds are generally only
invested in instruments that are tradeable in highly liquid markets.
Financing arrangements
Details of the Group’s borrowings are discussed in note 17. The Group had access to the following undrawn borrowing
facilities from its bankers at the end of the reporting period:
79
Floating rate
- Expiring within one year (bank overdraft)
- Expiring beyond one year (loans)
2017
$ ’000
2016
$ ’000
3,000
5,244
8,244
-
4,212
4,212
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.
Less than
6 months
$'000
6-12
months
$'000
Between
1 and 2
years
$'000
Between
2 and 5
years
$'000
Total
contractual
cash flows
$'000
Carrying
amount
liabilities
$'000
At 30 June 2016
Trade and other payables
Borrowings
Total
At 30 June 2017
Trade and other payables
Borrowings
Derivative financial instruments
Total
50,400
810
51,210
40,266
1,025
383
42,674
-
1,282
1,282
-
948
-
948
-
1,581
1,581
-
50,400
50,400
32,187
32,187
35,860
86,260
25,602
76,002
-
-
40,266
1,656
33,402
37,031
-
-
383
40,266
28,690
287
1,656
33,402
77,680
69,243
79
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 81
80
20 FAIR VALUE MEASUREMENTS
(a) Fair value measurements for financial assets and liabilities
The fair values of cash and cash equivalents, trade receivables, trade payables and borrowings approximate their
carrying amounts due to their short term nature and the impact of discounting not being significant.
The Group measures and recognises derivative financial assets at fair value on a recurring basis.
AASB 13 requires disclosure of fair value measurements by reference to the following fair value measurement
hierarchy:
Level 1
Level 2
Level 3
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
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).
Inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
The Group's financial assets and financial liabilities at fair value are as follows:
Level 1
$'000
Level 2
$'000
Level 4
$'000
Total
$'000
30 June 2016
Assets
Derivatives financial instruments
Total assets
30 June 2017
Liabilities
Derivatives financial instruments
Total liabilities
-
-
-
-
103
103
(287)
(287)
-
-
-
-
103
103
(287)
(287)
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 2017.
80
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 80
Section E: Group structure
This section provides information on the Hills Limited Group structure, including business acquisitions and disposals,
controlled entities and related parties:
21 Interests in other entities
22 Related party transactions
23 Parent entity financial information
24 Deed of cross guarantee
81
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 83
82
21 INTERESTS IN OTHER ENTITIES
(a) Investments in subsidiaries
The controlled entities of the Group listed below were wholly owned during the current and prior year, unless
otherwise stated.
Australia
Hills Finance Pty Ltd ▲
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 ●
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 ▲
Lincor Limited ◆
New Zealand
Hills NZ Limited (formerly Hills Holdings NZ Limited)
Audio Products Group Pty Limited ■
▲ These entities are party to a Deed of Cross Guarantee – see note 24.
● 50% ownership interest. Step Electronics 2005 Pty Ltd is controlled by virtue of the Company's control of this entity’s Board
through the Chairman’s casting vote, effective management of the entity and exposure to the risks and benefits of ownership, or
control of voting rights through the dilution of the minority shareholders. This is a dormant entity.
■ Audio Products Group Pty Limited was liquidated and removed from the Register of companies in New Zealand on 10 April 2017.
◆ Lincor Limited was incorporated on 29 August 2016 for the proposed merger of the Hill Health Solutions business with Lincor
Solutions.
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83
(b) Non-controlling interests (NCI)
There is no individual subsidiary that has non-controlling interests that are material to the Group in either the current
or the prior reporting period.
22 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 21.
(c) Key management personnel
Short-term employee benefits (fixed and STI remuneration)
Post-employment benefits (superannuation)
Long term benefits (cash LTI and accrued long service leave)
Termination benefits2
2017
$
2016
$
1,867,106
2,510,910
178,595
142,314
7,850
103,052
244,697
-
Share-based payments (LTI expense and employee share bonus plan expense)
40,500
5,750
2,338,478
2,762,026
Detailed remuneration disclosures are provided in the Remuneration Report.
(d) 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 2017 the Group current assets and liabilities that were eliminated totalled $32.651
million (2016: $37.355 million).
(e) Transactions with other related parties
The following transactions occurred with related parties:
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:
Entity
Association
Details
CSG Limited
Associated with P Bullock AO
Goods and services purchased by the Group from CSG
totalled $0.080 million (2016: $0.102 million)
Vocus
Communications
Associated with D Spence
Goods and services purchased by the Group from Vocus
totalled $0.018 million (2016: nil).
2 Table footnote
83
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 84
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 reporting period 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.
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
Sales of goods and services within the Group, that eliminated with cost of goods sold and services
provided amounted to $3.767 million (2016: $13.757 million).
Loans and
borrowings
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 and overseas wholly
controlled entities are charged interest at rates no more favourable than current market rates.
Intragroup interest paid and received during the year was $0.013 million (2016: $0.152 million).
Dividends
Intragroup dividends paid and received during the year amounted to $1.278 million
(2016: $3.837 million).
85
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 84
85
23 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
Hedging reserve - cash flow hedges
Equity compensation reserve
Profits reserve
Retained earnings
Loss for the year
Total comprehensive income
2017
$ ’000
2016
$ ’000
96,410
42,496
107,667
44,816
138,906
152,483
66,809
32,388
57,486
28,827
99,197
86,313
39,709
66,170
278,439
278,439
(158)
706
72
670
32,859
32,859
(272,138)
(245,870)
39,709
66,170
(26,268)
(59,384)
(26,498)
(59,463)
(b) Guarantees, contingent liabilities and commitments of the parent entity
Guarantees
Bank guarantees given by the Company in favour of customers and suppliers amounted to $2.778
million (2016: $5.788 million).
Cross guarantees are given by the Company and its wholly owned subsidiaries as described in note
25. Under the terms of the Deed of Cross Guarantee the Company and its wholly owned subsidiaries
have guaranteed the debt in each other's companies. Guarantees amount to $81.480 million (2016:
$89.741 million). No material deficiency in net tangible assets exists in these companies at reporting
date with net tangible assets amounting to $41.435 million (2016: $49.551 million).
Contingent
liabilities
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.
Contractual
commitments
As at 30 June 2017, the Company had contractual commitments for the acquisition of plant,
equipment or intangible assets totalling $2.000 million (2016: $0.426 million). These commitments
are not recognised as liabilities as the relevant assets have not yet been received.
85
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 86
Recognition and measurement
Parent entity financial information
The financial information for the parent entity has been prepared on the same basis as the consolidated financial
statements.
24 DEED OF CROSS GUARANTEE
The wholly owned subsidiaries identified with a ‘▲’ in note 21 are relieved from the Corporations Act 2001 requirements
for preparation, audit and lodgement of financial reports and Directors’ reports, under ASIC Corporations (Wholly-
owned Companies) Instrument 2016/785.
The Company and each of these subsidiaries have entered into a Deed of Cross Guarantee (the “Deed”), under which
each company guarantees the debt of the others. No entities have become a party to the Deed during the reporting
period.
Hills Limited is the Holding company and Pacom Security Pty Ltd is the Trustee under the Deed.
The entities identified with a ‘▲’ in note 21 represent a ‘closed group' for the purposes of the ASIC Instrument, and as
there are no other parties to the Deed 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 2017 and a consolidated statement
of financial position as at 30 June 2017 of the Company and controlled entities that are a party to the Deed, after
eliminating all transactions between parties.
87
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 86
87
(a) Consolidated statement of profit or loss and other comprehensive income and summary of movements in
consolidated retained earnings
Consolidated statement of profit or loss and other comprehensive income
Revenue from continuing operations
Other income
Finance costs
Other expenses
Loss before income tax
Income tax expense
Loss for the year
Other comprehensive income
Items that may be reclassified to profit or loss:
Changes in the fair value of cash flow hedges
Income tax relating to these items
Other comprehensive loss for the period, net of tax
Total comprehensive loss for the year
Summary of movements in consolidated retained earnings
Accumulated losses at the beginning of the reporting period
Loss for the year
Accumulated losses at the end of the reporting period
2017
$ ’000
2016
$ ’000
278,512
309,809
13,045
(3,295)
2,949
(3,514)
(294,363)
(348,003)
(6,101)
(38,759)
-
(20,282)
(6,101)
(59,041)
(328)
98
(230)
(113)
34
(79)
(6,331)
(59,120)
(226,822)
(167,781)
(6,101)
(59,041)
(232,923)
(226,822)
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 89
88
(b) Consolidated statement of financial position
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
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
Provisions
Derivative financial instruments
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Total non current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
88
2017
$ ’000
2016
$ ’000
5,921
57,494
42,802
-
2,666
65,376
50,987
103
106,217
119,132
-
814
15,884
2,578
10,311
534
814
18,915
753
10,212
29,587
31,228
135,804
150,360
38,622
48,306
295
9,950
225
472
12,136
-
49,092
60,914
28,395
3,993
32,288
81,480
54,324
25,130
3,697
28,827
89,741
60,619
278,439
278,439
8,808
9,002
(232,923)
(226,822)
54,324
60,619
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 88
89
Section F: Unrecognised items
This section contains information about items that are not recognised in the financial statements but may have a
significant impact on the Group’s financial position or performance.
25 Contingencies
26 Commitments
27 Events after the reporting period
25 CONTINGENCIES
(a) Contingent liabilities
The Group had contingent liabilities at 30 June 2017 in respect of:
Claims
In consultation with the Environmental Protection Authority, ground water contamination
potentially originating from the Company’s former 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 that constitute
contingent liabilities, none of which are deemed 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 outflow of economic benefits will be required.
Guarantees
Bank guarantees in favour of customers and suppliers totalling $2.778 million (2016: $5.788 million).
The decrease from 30 June 2016 is due to bank guarantees no longer required being cancelled
during the year ended 30 June 2017.
26 COMMITMENTS
(a) Capital commitments
Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows:
Plant, equipment and intangible assets
(b) Lease commitments: Group as lessees
Non-cancellable operating leases
2017
$ ’000
2,000
2016
$ ’000
426
The Group leases a number of office, warehouse and factory facilities under operating leases.
The leases run for a period from 1 to 12 years with the majority running for a period of 3 to 5 years, with options 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.
The Group also leases motor vehicles and materials handling equipment under operating leases.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 91
90
Commitments for minimum lease payments in relation to non-cancellable operating
leases are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
2017
$ ’000
2016
$ ’000
6,312
9,289
-
6,914
8,294
478
15,601
15,686
(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
Recognition and measurement
Leases
2017
$ ’000
2016
$ ’000
104
78
182
375
-
375
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. 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.
27 EVENTS AFTER THE REPORTING PERIOD
There have been no events subsequent to balance date that would have a material effect on the Group’s financial
statements at 30 June 2017.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements
90
91
Section G: Other
This section contains disclosures required for the Group to comply with the accounting standards and other
pronouncements, the Corporations Act 2001 or the Corporations Regulations but are not considered to be significant
in understanding the financial position or performance of the Group:
28 Share-based payments
29 Remuneration of auditors
30 Other accounting policies
28 SHARE-BASED PAYMENTS
(a) Executive share options
All executive share options were forfeited or cancelled during the previous reporting period.
(b) Employee performance rights
In 2010, the Group established the Long Term Incentive Share Plan (LTIP). The LTIP was designed to provide long
term incentives to eligible senior employees of 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).
Details of performance rights under the LTIP are as follows:
Expiry
date
Exercise
price
Balace at
start of the
year
Granted
during
the
year
Exercised
during
the
year
Forfeited /
cancelled
during
the year
Balance
at the
end of
the year
Vested
& exercis-
able at the
end of the
year
Number
Number
Number
Number
Number
Number
Grant
date
2016
Performance Rights
27 Feb 2015
30 Jun 2017
-
122,012
Total
2017
Performance Rights
27 Feb 2015
30 Jun 2017
1 Sep 2016
1 Sep 2017
1 Sep 2016
1 Sep 2018
Total
-
-
-
Fair value of performance rights granted
-
-
-
122,012
83,608
-
-
100,000
100,000
83,608
200,000
-
-
-
-
-
-
(38,404)
83,608
(38,404)
83,608
(83,608)
-
-
-
100,000
100,000
(83,608)
200,000
-
-
-
-
-
-
The fair value assessed in accordance with AASB 2 Share Based Payments at grant date of performance rights granted
on 1 September 2016 was 34.0 cents per performance right, based on the quoted share price at grant.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited
93
92
The fair value of performance rights granted on 27 Feb 2015 was assessed as 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 granted during the
year ended 30 June 2015 included:
Exercise price
Life
$0.00
2.3 years
Grant date (for Accounting Standards)
27 February 2015
Expiry date
30 June 2017
Share price at grant
Expected price volatility
Expected dividend yield
Risk free interest rate
$0.88
40%
5.7%
1.8%
(c) Expenses arising from share-based payment transactions
Total expense / (credit) arising from share-based payment transactions recognised during the period as part of
employee benefit expense were as follows:
Performance rights issued under Long Term Incentive Share Plan
Recognition and measurement
Share-based payments
2017
$ ’000
2016
$ ’000
36
(84)
Share based compensation benefits are provided to employees via the Long Term Incentive Share Plan – see below:
Long Term Incentive Share 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.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 92
93
29 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:
KPMG audit and non-audit services
Audit and other assurance services
KPMG Australia – audit and review of the financial statements
Overseas KPMG firms – audit and review of the financial statements
Total remuneration for audit and other assurance services
KPMG Australia – other assurance services
Total remuneration for audit and other assurance services
Taxation services
KPMG Australia – taxation and other services
Overseas KPMG firms – taxation services
Total remuneration for taxation services
Other services
Other consulting services
Total remuneration for other services
2017
$ ’000
2016
$ ’000
298,000
343,375
42,223
39,951
340,223
383,326
165,000
-
505,223
383,326
78,238
3,967
82,205
12,816
12,816
76,239
11,605
87,844
8,342
8,342
Total remuneration of KPMG
600,244
479,512
30 OTHER ACCOUNTING POLICIES
(a) 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 30 June 2017.
(b) Early adoption of standards
The Group has not elected to early adopt any new accounting standards and amendments.
(c) New accounting standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2017
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.
93
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 95
94
Title
Effective date
(reporting periods beginning on or after…)
Details
AASB 9
1 January 2018
Financial
Instruments
(early adoption permitted)
Hills Group: Applicable for the year ending 30
June 2019
AASB 15
1 January 2018
Revenue from
Contracts with
Customers
AASB 16
Leases
1 January 2018
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, with an increase in the provision for
impairment against trade receivables expected
under AASB 9. The Group does not expect to
early adopt AASB 9.
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, with an increase in the provision for
impairment against trade receivables expected
under AASB 9. The Group does not expect to
early adopt AASB 9.
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, with an increase in the provision for
impairment against trade receivables expected
under AASB 9. The Group does not expect to
early adopt AASB 9.
(d) 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 that are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 94
Directors' declaration
95
95
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Hills limited 96
97
96
94
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 96
97
97
95
95
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 98
99
98
96
Hills Limited Annual Report for the year ended 30 June 2017 98
99
97
99
Hills Limited Annual Report for the year ended 30 June 2017 101
100
Shareholder information
The shareholder information set out below was applicable as at 25 July 2017.
Distribution of equity securities
Analysis of numbers of ordinary shareholders by size of holding:
Size of holding
1 - 1000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of holders
3,953
5,690
2,410
2,409
193
There were 7,248 holders of less than a marketable parcel of ordinary shares.
Twenty largest shareholders
The names of the 20 largest holders of ordinary shares are listed below:
Size of holding
Number of holders
% of shares issued
Hills Associates Limited
Poplar Pty Ltd
Dimensional Fund Advisors
Mr Peter J Roach
McGrath Family
Realindex Investments
Mr Gregory V Shalit
Greybox Holdings Pty Ltd
Mr John R Homewood
Hart Capital Partners
Mr Brian S Blythe
16,768,441
16,550,845
6,950,000
6,891,872
5,968,699
4,877,837
4,676,510
4,550,042
2,800,000
2,662,949
2,280,000
Norges Bank Investment Mgt
2,193,901
AcomeA
Mr Jack G Mordes & Ms Leanne J
Howard
2,100,000
1,633,828
Mr Leonard A Milner
1,500,000
Mr Gregory V Shalit & Ms Miriam Faine
1,435,000
Mr & Mrs Donald P Cant
1,337,578
100
7.23
7.13
3.00
2.97
2.57
2.10
2.02
1.96
1.21
1.15
0.98
0.95
0.91
0.70
0.65
0.62
0.58
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limitedNotes to the consolidated financial statements 100
101
Size of holding
Number of holders
% of shares issued
Mr & Mrs Robert E Purves
Mr John Gassner
Mr & Mrs Joseph Zanca
Poplar Pty Ltd3
Hills Associates Limited
Voting rights
1,255,000
1,250,001
1,250,000
17,775,724
16,768,441
0.54
0.54
0.54
7.66
7.23
The voting rights attaching to each class of equity securities are set out below:
Ordinary shares
On a show of hands every member present at
a meeting in person or by proxy shall have one
vote and upon a poll each share shall have one
vote.
Rights/options
No voting rights.
On-market buyback
There is no current on-market buyback in place.
Direct payment to shareholder accounts
Dividends may be paid directly to bank, building society or credit union accounts in Australia. Payments are
electronically credited on the dividend date and confirmed by mailed payment advice. Shareholders who want their
dividends paid this way should advise the Company’s share register in writing.
Securities exchange
The Company is listed on the Australian Securities Exchange. The home exchange is Sydney.
101
Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017 (continued)Notes to the consolidated financial statementsHills limited 102
Corporate directory
Registered office
Level 7, 130 Pitt Street, Sydney NSW 2000
Telephone: (02) 9216 5510
Facsimile: (02) 9216 5999
Web: http://www.hills.com.au
Executives
David Lenz, Chief Executive Officer
Chris Jacka , Chief Financial Officer
Non–executive Directors
Jennifer Helen Hill-Ling
Fiona Rosalyn Vivienne Bennett
Philip Bullock AO
Kenneth James Dwyer
Company secretary
David Fox
Share registry
Link Market Services Limited
Level 12, 680 George Street, Sydney NSW 2000
Telephone
• Australia: 1300 554 474
• International: +61 2 8280 7100
Facsimile
• Australia and International: +61 2 9287 0303
Web: www.linkmarketservices.com.au
102
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Hills Limited Annual Report for the year ended 30 June 2017For the year ended 30 June 2017Hills limited 102
103
Hills Limited
Registered Office
Level 7
130 Pitt Street
Sydney NSW 2000
t + 61 2 9216 5510
f + 61 2 9216 5599
e info@hills.com.au
w hills.com.au
ABN 35 007 573 417
ABN 35 007 573 417
hills.com.au