Hills Limited
Annual report
for the year ended 30 June 2020
ABN 35 007 573 417
Hills Limited
Annual report
for the year ended 30 June 2020
ABN 35 007 573 417
Contents
Shareholders’ letter ....................................................................................................................................................................... 2
Directors’ report ............................................................................................................................................................................. 5
Remuneration report .................................................................................................................................................................... 15
Auditor’s independence declaration ........................................................................................................................................ 30
Consolidated financial statements ............................................................................................................................................ 31
Directors' declaration .................................................................................................................................................................. 84
Independent auditor's report to the members of Hills Limited ............................................................................................ 85
Shareholder information ............................................................................................................................................................. 90
Corporate directory .................................................................................................................................................................... 92
Annual report for the year ended 30 June 2020 Hills Limited 1
Shareholders’ letter
Dear Shareholder,
The past financial year has seen two distinct halves in the performance of your Company with the second half impacted by the
onset of COVID 19 and various one‐off costs.
We commenced financial year 2020 (FY20) on the cusp of an exciting new period for Hills with a simplified and focused business
structure that positioned us to maximise returns for shareholders.
Our key strategic focus during FY20 was to continue to:
grow the Hills Health Solutions business (HHS) by expanding our range of products and services to hospitals and
healthcare facilities such as Aged Care facilities; and
streamline the Distribution business by continuing to implement the strategic and operational initiatives outlined at our
AGM last November.
Our FY20 first half results demonstrated our ability to execute our strategies with both Health and Distribution businesses reporting
a profit and the Company reporting:
NPAT of $2.6M – up from $0.242 million in the first half (1H) 2019;
Net Debt of $20.6M (pre AASB16) ‐ a like for like reduction of 27% over the prior year; and
Operating expenses reduced by $3.3m
During the first half we also successfully divested our non‐core AV, Antenna and STEP businesses and at the commencement of the
second half of FY20, Hills was well positioned to deliver solid results for the remainder of FY20.
However, the onset of the coronavirus pandemic (COVID‐19), presented unexpected challenges in the second half (2H) unlike
anything faced in the 75‐year history of your Company. During this period the board and management of Hills focused on three
priorities:
looking after our people;
continuing to deliver the highest level of products and services to our customers and partners; and
managing the economic and social impacts caused by the COVID‐19 crisis.
Actions undertaken included:
Maintaining a strong focus on our sales, expenses and cashflow, with weekly Board and management reviews during Q4.
Implementing safeguards to ensure all our employees, have been able to operate in safe working environments without
affecting their productivity or work ethic.
Reducing salaries across the Company to preserve cashflow and mitigate the impact of COVID‐19 on the business. Further
details on this are in the Remuneration Report.
Receipt of JobKeeper assistance from the Australian Government, and similar support from the New Zealand
Government. We are very appreciative of these programs which, together with the generosity of our employees, have
played a significant role in helping Hills manage the impacts from COVID 19 on the business.
Focusing on our business continuity plans, to ensure our services and products continued to be available to all our
customers, while also protecting the safety of customers, suppliers and our employees.
Notwithstanding this action, and despite recording an improved underlying segment EBITDA of $12.6M, compared to $9.6M in the
previous year, we were disappointed that we were unable to build on the profitable performance of the prior period, recording a
statutory loss for the FY20 year of $6.2M after taking into account one‐off costs of $6.8M in non‐operating expenses largely
comprising one‐off items including FX adjustments as well as $1.2M in redundancies. This compares to a statutory loss of $8.8M in
FY19.
Pleasingly, our strong focus on our sales, expenses and cash utilisation during the year resulted in a stronger balance sheet at 30
June 2020 with:
Net Debt at $8.2M ‐ down by $20.2M from $28.4M as at June 2019 and down by $12.5M since December 2019, reflecting
strong management of inventory and debtors, and
Net Inventory of $25.2M ‐ down by $16.5M from $41.6M as at 30 June 2019, and down by $10.8M during the second
half.
Our cashflow outlook to December 2020 remains strong, but is subject to developments in Victoria, and any further COVID 19
outbreaks elsewhere in Australia for the remainder of the current financial year.
Annual report for the year ended 30 June 2020 Hills Limited 2
Hills Limited
Shareholders’ letter
For the year ended 30 June 2020
Hills Health Solutions
Our Health business reported an Underlying Segment EBITDA of $8.6M for the year compared with $11.0M in FY19. During the
period, we experienced site closures and/or restricted site access, to hospitals and Aged Care facilities, leading to:
delays and deferrals in Nurse Call projects; and
reduced revenues from our patient engagement business, coupled with the national deferral of elective surgery. This
revenue impact was somewhat mitigated by pivoting from a “user pays” to a temporary fixed rental model (hospital
pays), impacting 2,700 installed beds.
During the year we also reviewed our health inventory based on the success of our IP7500 nurse call platform resulting in
additional inventory provisions for the IP7000 series products, which will continue to be used for the expansion, maintenance and
support of current sites.
Pleasingly during the year, we delivered 6,400 new beds of our Nurse call IP7500 into Westmead, Casey Hospital Tower, Western
Health, Alfred and Royal Hobart hospitals. The team also completed the development of the New IP Series wireless platform which
is now available in market receiving initial encouraging support, but sales performance will be hampered by COVID‐19 as the target
market for this product is Aged Care facilities. During the onset of the COVID crisis our team undertook additional works at the
Royal North Shore Hospital in preparation for increased patients.
The patient entertainment business added 1,060 new beds and renewed contracts across 15 hospitals representing 3,000 beds. We
have also seen sales momentum continue to build for our GetWell Network patient engagement platform which were installed:
at the Calvary Hospital in Adelaide ‐ 400 beds installed and operating
at the Royal Hobart Hospital ‐ 350 beds installed and operating
Our key strategic focus for Hills Heath in FY21 will be driven by:
market share gains
continued investment in Nurse Call product development; and
a $175 M pipeline of orders and tenders over the next 3 years.
Hills is actively reviewing all opportunities to accelerate growth in our health business with the support of specialist health sector
advisory firm Paxton Partners. We look forward to providing more details on this review at the upcoming AGM.
Hills Distribution
Our Distribution business recorded an improved profit in FY20 reporting a profit before tax of $1.3M, compared to a loss before tax
for the year ended 3 June 2019 of $3.2M.
Pleasingly the continuing operations, (following the divestments of our AV, Antenna and STEP businesses), delivered an Underlying
Segment EBITDA improvement of $5.6M to $5.7M over the prior year where Underlying Segment EBITDA was $0.1M, reflecting a
significant reduction in operating expenses.
Overall revenue for the continuing operations was down on prior year of 7.3% as a result of a number of commercial/enterprise
projects being delayed and/or cancelled as a result of COVID 19 which was partially offset by the increase in our Small To Medium
business (SMB) over the prior year.
Following the review our Distribution inventory, we made a further provision to reflect our ongoing requirements following the
business divestments and further streamlining of the continuing businesses.
Hills Technical Services business (HTS) (formerly Hills Connection Solutions) recorded a solid result as it continued to fulfil the
contract with Ericsson to supply home installation services for NBN Co.’s fixed wireless product. Hills has been advised that this
contract will be extended until 2023 ensuring we continue to have a solid foundation on which to grow the HTS business in FY21.
Annual report for the year ended 30 June 2020 Hills Limited 3
Hills Limited
Shareholders’ letter
For the year ended 30 June 2020
Outlook
Whilst the general economic outlook remains uncertain, the Health, Security, IT and Technical Services markets in which the Group
operates, continue to experience demand for products and services. We remain confident of the Group’s ability to emerge from
this period of unprecedent disruption in a strong competitive position.
While trading in July was encouraging, the medium‐term economic outlook remains clouded by the uncertainty created by the
COVID‐19 pandemic.
The recent movement in exchange rates, however, has had an adverse impact on current foreign exchange contracts given their
scale and duration, which has caused uncertainty around FY21 financial performance. At the same time, a review has been
instigated into the circumstances relating to the foreign exchange contracts giving rise to the uncertainty.
At the commencement of FY21 we announced the appointment of David Chambers to the Board as a non‐executive director with
significant experience in the Health industry and listed Australian companies. David has been instrumental in assisting Andy Hall,
head of our Health business in leading the Strategic review of Hills Health Solutions.
At the same time, we also announced that Philip Bullock AO intends to retire from the Board at this year’s AGM. On behalf of the
Company we would like to thank Philip for his outstanding contribution as a Director and mentor over the last 6 years.
In closing we would like to acknowledge our employees who have worked tirelessly to support our customers, vendors and
suppliers during these difficult times, and we thank them for their ongoing dedication and commitment.
Please join us at the Annual General Meeting, when we will provide you with an update on the Company’s first quarter
performance.
Yours sincerely
Jennifer Hill‐Ling
Chairman
David Lenz
Chief Executive Officer & Managing Director
Annual report for the year ended 30 June 2020 Hills Limited 4
Hills Limited
Directors’ report
For the year ended 30 June 2020
Directors’ report
The Directors of Hills Limited present their report together with the consolidated financial statements of Hills Limited (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
2020 and the independent auditor's report thereon.
Operating and financial review
The operating and financial review forms part of the Directors’ report and has been prepared in accordance with section 299A of the
Corporations Act 2001(Cth). The information provided aims to assist users better understand the operations and financial position of the
Group. To assist users, financial information included in this review contains non‐IFRS financial information.
About the Group
Hills commenced business in Adelaide, South Australia in 1945 and has a long history of developing and innovating products over the years
whilst diversifying and divesting as market conditions and customer demands have changed. In December 2019 the Group exited its AV,
Antenna and STEP businesses following an Operational and Strategic business review completed during the financial year ended 30 June
2019, thereby reducing exposure to non‐performing assets and reducing the overall complexity of the business. This enabled the Company
to streamline and narrow the focus of our Distribution business and increase our investment in our Health business.
The Group operates in Australia and New Zealand and the principal activities of the Group is as a supplier of technology solutions in the
Health market and a value‐added distributor of technology products and services in the Security, Surveillance and IT markets.
Hills Health Solutions
Hills Health Solutions (HHS) is a market leader and comprises the design, 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.
We continue to undertake research and development activities in Australia to enhance and develop our Nurse Call IP ensuring our products
and solutions remain market leaders. As an Australian owned company, we are proud to manufacture our new Nurse Call platform in
Australia.
Hills Distribution
Hills Distribution is a leading value‐added provider of technology for homes, hospitals and healthcare facilities, places of learning,
entertainment venues, retail spaces, transport and infrastructure, banking and finance, workplaces and government institutions.
Together with maintaining strong vendor relationships and contracts, Hills also invests in expert resources across Australia and New
Zealand to offer products and solutions that allow customers to manage:
Access Control Solutions
Alarms & Intruder Solutions
Card Access Control
CCTV Cameras
Video Management Solutions
Wireless & Networking Solutions
Analytics software for Facial recognition & People Counting solutions
HillsTrak (asset management)
Smoke Alarms
We also provide pre and post installation services and technician management services.
Annual report for the year ended 30 June 2020 Hills Limited 5
Hills Limited
Directors’ report
For the year ended 30 June 2020
Group performance highlights
The following table provides an overview of the financial performance of the Group for the year ended 30 June 2020 as detailed in the
financial report:
Summary of Group performance
Sales Revenue
Cost of goods and services sold
Gross margin
Other operating costs
Underlying segment EBITDA(1)
Statutory net loss before tax
Tax (expense) / benefit
Statutory net loss after tax (NPAT)
Cash flows from operating activities
Net debt(3)
Total
Total(2)
30‐Jun‐20
30‐Jun‐19
% change
$million
$million
220.1
(153.9)
66.2
(53.5)
12.6
(6.2)
‐
(6.2)
22.0
8.2
267.4
(183.5)
83.9
(74.3)
9.7
(14.4)
5.6
(8.8)
(4.0)
28.4
(17.7%)
(16.1%)
(21.2%)
(27.9%)
30.9%
57.2%
>100%
29.9%
>100%
71.1%
(1) Hills' Financial Report complies with Australian Accounting Standards and International Financial Reporting Standards. The underlying (non‐IFRS) segment
EBITDA is unaudited but is derived from the audited accounts by removing the impact of non‐recurring items from the reported (IFRS) audited profit; including
restructure costs ($1.2 million), foreign exchange losses of ($4.1 million) and other items ($1.5 million). Hills believe this reflects a more meaningful measure of
the Group's underlying performance.
(2) Prior period has not been adjusted to reflect the sale of 3 business units. Further detail can be found in note 2.1, Segment information, of the audited
financial statements.
(3) Net debt excludes lease liabilities associated with the introduction of AASB16 Leases. For further information refer Note 4.6, Financial instruments:
Measurement and risk management, of the audited financial statements.
NOTE: numbers may not add due to rounding.
Annual report for the year ended 30 June 2020 Hills Limited 6
Hills Limited
Directors’ report
For the year ended 30 June 2020
Revenue
Sales revenue for the year ended 30 June 2020 was down 18%,
from $267.4 million to $220.1 million which includes the impact
of the decision to divest the AV, Antenna and STEP businesses
which were completed in December 2019, from our Distribution
business.
Sales for the continuing Distribution and Health businesses were
down $16.2 million, or 8%. as a result of COVID‐19 for both the
Health and the continuing Distribution.
The Company now has a clear focus on our streamlined
distribution business whilst investing to support further growth
in our Health business.
Net loss
The FY20 net loss of $6.2 million was impacted by a number of one‐
off items largely comprised of FX adjustments as well as
redundancies. The underlying business performance was a
continuation of improved financial results over recent years despite
the challenges impacting the business through COVID‐19.
Underlying EBITDA of $12.6 million significantly improved over prior
year.
Operating expenses, inclusive of $8.6 million depreciation and
amortisation have declined significantly during the year to $62.1
million down $18.8 million or 23% from $80.9 million with
reductions achieved across all 3 major expense areas and
includes the impact of the business exits completed in
December 2019 and the ongoing cost reduction programs.
Labour and related costs reduced by $13.5 million, or 25.6%
reflecting the impact of the business exits and cost reductions
programs, $3m in JobKeeper and $1.5m in temporary wage
reductions from employees during Q4.
Net finance expenses of $3.6 million compares favourably with prior
year ($3.3 million) when the impact of $0.7 million related to the
introduction of AASB16 Leases is excluded, reflecting the reduction
in net debt.
Financial Position
Excluding the lease liability introduced into the balance sheet on
adoption of AAB16 Leases, net debt is down to $8.2 million at 30
June 2020, from $28.4 million as at 30 June 2019. The Group
maintained a focus on managing working capital balances and
the cashflow benefits from the business exits in December.
The improved net debt position was supported by an operating
cash inflow for the year of $22.0 million, this includes the
benefit of COVID‐19 related government subsidies including
JobKeeper and $3.8 million in deferred GST payments. This net
cash inflow compares to a net cash outflow in the previous
corresponding period of $4.0 million.
s
n
o
i
l
l
i
M
$400.0
$300.0
$200.0
$100.0
$0.0
Sales Revenue ‐ FY17 to FY20
$298.1
$271.8
$267.4
$220.1
FY17
FY18
FY19
FY20
Operating expenses ‐ FY17 to FY20
$101.6
$33.2
$68.4
s
n
o
i
l
l
i
M
$120.0
$100.0
$80.0
$60.0
$40.0
$20.0
$0.0
$84.3
$30.3
$80.9
$28.1
$54.0
$52.7
$62.1
$22.8
$39.2
FY17
FY18
FY19
FY20
Labour and Related
Other
s
n
o
i
l
l
i
M
$30.0
$20.0
$10.0
$0.0
4 Year Net Debt Comparison
$28.4
$20.0
$16.9
$8.2
FY17
FY18
FY19
FY20
Net Debt
Annual report for the year ended 30 June 2020 Hills Limited 7
Hills Limited
Directors’ report
For the year ended 30 June 2020
COVID‐19
The coronavirus pandemic (COVID‐19) has presented challenges for the Group as the business environment in the markets we service
adjust to a new operating norm. During this period the board and management has focused on three priorities; looking after our people;
continuing to deliver the highest level of products and services to our customers and partners; and managing the economic and social
impacts caused by the COVID‐19 crisis. Risk mitigation strategies and actions taken include:
Implementing safeguards to ensure all our employees have safe working environments with no adverse impact on productivity or
work ethic.
Receipt of $3.0 million JobKeeper assistance from the Australian government and similar assistance New Zealand government.
Reducing salaries from April to June 2020 across the Company to preserve cashflow which resulted in a saving of approximately
$1.5 million (for further information refer to the Remuneration Report).
Maintaining a strong focus on our sales, expenses and cashflow with implementation of weekly Board and management reviews.
Focusing on our business continuity plans, to ensure our services and products continued to be available to all our customers,
while also protecting the safety of customers, suppliers and our own people.
The Company has continued to trade, having been considered an essential service provider on the basis of the customers we service in the
health care and security markets. Notwithstanding the decline in sales, up to the date of this report there has been no noticeable change
in customer payment behaviour and there have been no specific instances of COVID‐19 related bad or doubtful trade receivables.
The provision for Expected Credit Loss (bad debts) and inventory provisions have been reviewed and reflect the current and expected
future economic environment and we are confident the provisions we have in place are appropriate at this time.
Outlook ‐ Opportunities and strategy
Whilst we have seen unprecedented times over the past 6 months the Company is confident its strategy to:
Continue building a health services business remains our strategic priority;
Actively explore growth opportunities informed by the strategic review that is currently underway in Health with Paxton
Partners; and
Continue to deliver further business improvement and profitability from our value‐added distribution business.
Material business risks
While trading in July was encouraging, the medium‐term economic outlook remains clouded by the significant uncertainty created by the
COVID‐19 pandemic. However, with a strong pipeline in Health and a sharpened focus on higher‐margin growth in the Distribution
business, Hills is confident of delivering sustainable earnings growth over the medium to long‐term.
As with any technology distribution business, Hills is exposed to the risk of potential loss of vendors, customers or employees; slippages
associated with contracts; supply issues; general economic conditions; and exposure to foreign exchange rate fluctuations.
Hills utilises foreign exchange contracts to cover purchases of products from overseas, usually for planned purchases over a three to four
month period. During the year, in an effort to protect Hills forward purchasing capability, finance personnel took out longer term foreign
exchange contracts; outside of both policy and practice. A full review of the circumstances is being undertaken.
Due to exchange rate movements, Hills incurred a mark‐to‐market loss of $4.085 million in FY20 on ineffective foreign exchange hedges,
with a potential for further losses or gains in FY21 depending on exchange rate movements. In response to this, management and the
Board have established strategies to mitigate further losses.
Annual report for the year ended 30 June 2020 Hills Limited 8
Hills Limited
Directors’ report
For the year ended 30 June 2020
Directors qualification and experience
The directors of the Company at any time during or since the end of the financial year are as follows:
Director
Jennifer Helen Hill‐Ling
LLB (Adel) FAICD
Chairman and
Non‐Independent Director
Special responsibilities
Chairman of the Board
Member of the Nomination and
Remuneration Committee.
Fiona Rosalyn Vivienne
Bennett
BA (Hons) FCA FAICD
Independent Non‐Executive
Director
Special responsibilities
Chairman of the Audit, Risk and
Compliance Committee.
Philip Bullock AO
BA, MBA, GAICD, Dip. Ed.
Independent Non‐Executive
Director
Special responsibilities
Chairman of the Nomination and
Remuneration Committee;
Member of the Audit, Risk and
Compliance Committee
Experience
Experience and expertise
Appointed Director in August 1985. Appointed Deputy Chairman in June 2004. Appointed
Chairman 28 October 2005.
Ms 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.
Experience and expertise
Appointed non‐executive Director on 31 May 2010.
Ms 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 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 and a director of Select Harvests Limited and BWX Limited. She was
formerly a director of Beach Energy Limited.
Other current listed company directorships
Director of BWX Limited (since November 2019)
Director of Select Harvests Limited (since July 2017)
Former listed company directorships in last 3 years
Director of Beach Energy Limited (retired in November 2017)
Experience and expertise
Appointed non‐executive Director on 23 June 2014.
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 former non‐executive director of Perpetual
Limited, Healthscope Limited and CSG 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
None.
Former listed company directorships in last 3 years
Non‐executive director of Perpetual Limited
Annual report for the year ended 30 June 2020 Hills Limited 9
Hills Limited
Directors’ report
For the year ended 30 June 2020
Director
Kenneth James Dwyer
BCom, GMQ, GAICD
Independent Non‐Executive
Director
Special responsibilities
Member of the Nomination and
Remuneration Committee;
Member of the Audit, Risk and
Compliance Committee
Experience
Experience and expertise
Appointed non‐executive Director on 20 September 2016
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
None.
David Chambers
BSC, Dip Bus Mgt
Independent Non‐Executive Director
Special responsibilities
None
Experience and expertise
Appointed non‐executive Director on 8 July 2020
Mr Chambers has more than 30 years of international experience in the healthcare and
technology sectors and recently retired as the Managing Director of Asia Pacific operations at
Allscripts Healthcare Solutions Inc., a Nasdaq‐listed global leader in healthcare information
technology.
He is a former chief executive of ASX‐listed health software business Pro Medicus Limited and
has worked in senior executive roles in Australia, the US, Europe and Asia. He is currently
chairman of ASX‐listed healthcare software provider Mach7 Technologies Ltd.
Other current listed company directorships
Chair of Mach7 Technologies Ltd.
Former listed company directorships in last 3 years
None.
David John Joseph Lenz
Executive Director
Special responsibilities
Chief Executive Officer
Experience and expertise
Appointed Managing Director 19 February 2019 and Chief Executive Officer on 1 September
2016.
Mr Lenz has over 30 years of proven experience in sales, business development, management
and operational leadership across Australia and New Zealand, Asia Pacific and the Global ICT
markets.
Mr Lenz was appointed Chief Executive Officer of Hills on 1 September 2016 and Managing
Director and Chief Executive Officer on 19 February 2018.
Other current listed company directorships
None.
Former listed company directorships in last 3 years
None.
Annual report for the year ended 30 June 2020 Hills Limited 10
Hills Limited
Directors’ report
For the year ended 30 June 2020
Company Secretary
David Robert Fox LLB/LP, BA
Mr Fox was appointed to the position of General Counsel on 11 March 2013 and as General Counsel and Company Secretary on 22
December 2016. ,As General Counsel and Company Secretary, Mr Fox is responsible for legal, risk and company secretarial matters
associated with Hills. Mr Fox is an experienced corporate lawyer. He was first admitted to practise law in 2001 and previously held the
position of Partner at a Sydney based law firm.
Directors interests
As at 30 June 2020
At the date of this report
J Hill‐Ling(1)
F Bennett
P Bullock AO
K Dwyer
D Lenz
Shares held
18,346,677
Options held
‐
Rights held
‐
Shares held
18,346,677
Options held
‐
Rights held
‐
378,444
300,000
450,000
503,787
‐
‐
‐
‐
‐
‐
‐
162,242
378,444
300,000
450,000
503,787
‐
‐
‐
‐
‐
‐
‐
162,242
(1) 18,346,677 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).
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 2020, and
the numbers of meetings attended by each Director were:
Full meetings of Directors
Audit, Risk and Compliance
Committee
Nomination & Remuneration
Committee
Held(1)
Attended
Held(1)
Attended
Held(1)
Attended
J Hill‐Ling
F Bennett
P Bullock AO
K Dwyer
D Lenz
17
17
17
17
17
17
17
17
17
17
‐
4
4
4
‐
‐
4
4
4
‐
5
‐
5
5
‐
5
‐
5
5
‐
(1) Number of meetings held during the period that the Director held office as a Director or was a member of the Committee.
Environmental regulation
Manufacturing
Hills ceased to operate a manufacturing facility at O’Sullivan Beach in South Australia from 20 February 2020, following the divestment of
the Antenna business in December 2019. No significant environmental incidents were reported during the 2020 financial year and Hills
continued to meet 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 June 2020
Annual report for the year ended 30 June 2020 Hills Limited 11
Hills Limited
Directors’ report
For the year ended 30 June 2020
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 secretary of its controlled entities.
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the
officers in their capacity as officers of entities in Hills Group of Companies, and any other payments arising from liabilities incurred by the
officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty
by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or
to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal
costs and those relating to other liabilities.
The Directors have not included details of the nature of the liabilities covered or the amount of the premiums paid in respect of the
Directors’ and officers’ liability and legal expenses insurance contracts as such disclosure is prohibited under the terms of the contracts.
Indemnification of officers
The Company has agreed to indemnify the Directors and officers of the Company against all liabilities to another person (other than the
Company or a related body corporate) that may arise from their position as Directors of the Company and its controlled entities, except
where the liability arises out of conduct involving a lack of good faith.
The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses.
The Company has also agreed to indemnify the current Directors of its controlled entities for all liabilities to another person (other than the
Company or a related body corporate) that may arise from their position, except where the liability arises out of conduct involving a lack of
good faith. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses.
Dividends
No dividend has been proposed or paid since the start of the year.
Remuneration report
The Remuneration report set out on pages 15 to 29 forms part of the Directors report for the year ended 30 June 2020.
Corporate governance statement
Details of the Company’s corporate governance practices are included in the Corporate Governance Statement set out on the Company’s
website.
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 30.
Rounding of amounts
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.
Annual report for the year ended 30 June 2020 Hills Limited 12
Hills Limited
Directors’ report
For the year ended 30 June 2020
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. 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.
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
2020
$
2019
$
263,000
43,500
306,500
‐
288,000
43,500
331,500
‐
Total remuneration for audit and other assurance services
306,500
331,500
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
900
‐
900
‐
‐
15,425
4,619
20,044
2,285
2,285
307,400
353,829
Annual report for the year ended 30 June 2020 Hills Limited 13
Hills Limited
Directors’ report
For the year ended 30 June 2020
Subsequent events
Subsequent to balance date, there have been further exchange rate movements impacting the company’s foreign exchange hedges,
amounting to a mark‐to‐market loss of $2.3 million, based on exchange rates immediately prior to the release of these financial
statements. This amount has not been adjusted in the reported consolidated statement of profit and loss. Management and the Board
have established strategies to minimise further losses.
There were no other events subsequent to balance date that would have a material effect on the Group’s financial statements at 30 June
2020.
Jennifer Hill‐Ling
Director
Sydney
31 August 2020
Philip Bullock AO
Director
Annual report for the year ended 30 June 2020 Hills Limited 14
Hills Limited
Directors’ report
For the year ended 30 June 2020
Remuneration report
Letter from the Chairman of the Nomination and Remuneration Committee
On behalf of your Board, I am pleased to present Hills’ FY20 Remuneration Report which sets out remuneration information for the Chief
Executive Officer and Managing Director (CEO and MD), the Key Management Personnel (KMP), the Non‐Executive Directors and the
broader employee group.
The Board recognises that the performance of Hills depends on the quality and motivation of its people, including our managers and
approximately 370 employees across Australia and New Zealand. Our remuneration strategy aims to appropriately reward, incentivise and
retain talent necessary to achieve our operational and strategic goals. Core to our remuneration philosophy is a strong performance
framework, where the contribution of all our employees is aligned to the interests of our shareholders. For our senior executives, this is
managed through a balanced scorecard which includes both financial and non‐financial measures. Over the last 3 years, approximately 70‐
80% of these measures have been financial as we have tried to guide Hills through a transition to a more profitable and sustainable
business.
We believe this approach provides alignment to our shareholders and importantly, clarity to our executives by setting expectations
regarding what the Board feels are acceptable targets
FY20 Remuneration Outcomes
Following the outbreak of the COVID‐19 pandemic, our full year financial objectives did not meet our expectations and hence variable
incentives payments were significantly reduced.
At the conclusion of FY19, we believed that the team had put in place a strategy that would show much improved profit performance in
FY20. In addition we were further buoyed by a strong July 2019.
Hence, in an effort to deliver a profitable 1H FY20 and cement the FY19 improvements, our FY20 scorecard included specific financial
targets for the 1H FY20 as well as full year financial and non‐financial objectives.
As it turned out our 1H FY20 delivered very positive results with a significant improvement in NPAT for the 1H, up from $0.242 million in 1H
FY19 to $2.636 million in 1H FY20. Our Distribution business returned to profit, and our Hills Health Solutions division continued to deliver
strong profit contributions. In addition, the executive had embarked on further streamlining our Distribution business with the sale of our
Audio Visual, Antenna and STEP business units.
As a result we were pleased to provide 1H bonuses to our CEO and CFO of approximately 30% of their full year potential incentive.
At the same time, while financial performance is critical, we continued to focus on our employee development during the 1H FY20, through
activities such as:
‐
‐
‐
A strategy workshop for all senior and middle managers in August 2019 to align business stakeholders and management, helping
to consolidate a high‐performance culture and to identify tactical opportunities and initiatives for immediate attention and
action.
Coaching and mentoring of senior managers as part of Hills succession and retention planning.
A schedule of ongoing compliance training for all employees was continued with the training focused on employee roles and
responsibilities. Some of the more recent compliance training programs that were completed during the abovementioned period
included:
o Workplace Bullying and Harassment
o
o
o
o
o
Code of Conduct
Travel & Entertainment
Securities Trading
Competition and Consumer Law
IT Security.
As we moved into 2H FY20 we knew we had a strong opportunity to deliver a positive NPAT, restart dividends and set Hills on a path of
greater profitability.
Unfortunately, COVID‐19 bought some challenges to Hills, just as it did for many organisations. We anticipated that our distribution
revenues would fall as new large projects were deferred or cancelled and our health business would be impacted as elective surgery was
Annual report for the year ended 30 June 2020 Hills Limited 15
Hills Limited
Directors report
For the year ended 30 June 2020
stopped and hospitals emptied in preparation for potential COVID‐19 patients. We had a choice, stand down or retrench employees or ask
our employees to take a reduction in their salaries and hopefully weather the storm.
To their enduring credit, our employees chose to take a reduction in their wages for the 3‐month period from 1st April to the 30th June.
These reductions were as follows:
‐
‐
‐
Directors, 50% reduction
Senior Executives, 35% reduction
Other employees, 25% to 10% reductions, depending on their salary (lower paid employees were not asked to reduce their
salaries).
At the same time Hills applied for and received JobKeeper support for our approximately 350 employees from the Australian Federal
Government. and support from a similar program from the New Zealand Government.
These combined measures contributed over $4 million in reduced costs during this period, and helped retain jobs for our employees
through to 30 June. We were naturally very appreciative of the support from Australian and New Zealand Governments and together with
the generosity of our employees, they played a significant role in helping Hills manage the 2H FY20 and allowed Hills to prepare for a post
COVID‐19 world as we move into FY21.
These are extraordinary times, and while Hills was not alone in reducing wages, the fact that our employees chose to reduce their take
home pay, is a great tribute to them as individuals, the culture that has developed throughout Hills and the leadership of our executives
and managers.
We could not be prouder of the team.
FY20 CEO & MD Remuneration:
With the appointment of David Lenz from September 2016, we adopted a new market‐based compensation framework. In FY2020 the
framework was as follows:
‐
‐
Base Pay (including superannuation) $350,000
Variable Pay $250,000.
The Base Pay, was set after a review of similar roles in the marketplace. It has not been adjusted since David’s appointment in September
2016. In establishing the amount of Variable Pay we seek to strongly align our CEO remuneration with the results of the Company and
hence our shareholders. After a strong turnaround in FY18, we lifted the CEO Variable Pay from $200,000 to $250,000 from 1 September
2018. As in the past, the Variable Pay to be determined as a result of the performance of Hills over the FY2019 and paid 50% in cash and
50% in Performance Rights (unless the Board determines otherwise). The performance rights vest over three years at the rate of:
‐
‐
‐
20% in year one
30% in year two
50% in year three.
The hurdles associated with the variable pay in FY20 were as follows:
Element
Financial (80%)
Non‐Financial (20%)
Measure
Net Profit After Tax (NPAT) (Full Year)
Deliver Technology Distribution Trading
Profit in 1H and H2
Reduction in Aged Inventory
Employee Engagement
Board Discretion
As outlined earlier, our 1H FY20 demonstrated a strong turnaround in NPAT, and our Distribution Business returned to profitability. We
were pleased to reward our CEO and CFO for this performance.
Primarily, because of the COVID‐19 environment, our second half and full year financial objectives were not met. In addition, Hills had
benefitted from Government support, as a result management and the Board agreed that no 2H bonuses or unpaid full year bonuses would
be paid.
Annual report for the year ended 30 June 2020 Hills Limited 16
Hills Limited
Directors report
For the year ended 30 June 2020
Despite the challenges of FY20, the Board was extremely grateful for the tireless effort and leadership displayed by our executive team.
Finally, there are no plans to amend the CEO Base Pay nor Variable Incentive components of his remuneration for FY21.
Non‐Executive Director Remuneration:
Effective 1 July 2019, Non‐Executive Director (NED) compensation was reduced by approximately 25‐40% per annum as follows:
‐
‐
‐
‐
‐
Company Chair from $160,000 to $100,000
Non‐executive director from $80,000 to $60,000
Audit Chair from $16,000 to $10,000
The Remuneration and Nomination Committee Chair Fee of $16,000 was removed.
The Audit Committee Membership fee of $6,000 was removed.
With the outbreak of COVID‐19 the Board agreed to reduce its fees by 50% from 1 April 2020. For example non‐executive fees would
reduce from $60,000 to $30,000 p.a.
FY21 Outlook
Setting targets in a COVID‐19 environment is a difficult process as the marketplace is changing and the “new business” conditions are not
clear. As a result, we have opted to put in place the full year framework (scorecard), as we have done in prior years and will revisit its
appropriateness at the conclusion of 1H FY21.
Hence the scorecard for our CEO is as follows:
Element
Financial (80%)
Non‐Financial (20%)
Measure
FY2021 Net Profit After Tax (NPAT)
Reduce Working Capital
Reduce Aged Inventory
Board Discretion
Improve Employee Engagement
The variable incentive targets for our CFO are closely linked with those of the CEO but also include a focus on reducing our debtors
outstanding. Division Heads are rewarded primarily on profit contribution for their division.
Thank you for taking the time to review the FY20 Remuneration Report.
This is my last report prior to stepping down from the Hills Board and retiring from all public company boards and I wanted to thank our
shareholders for taking the time to read these reports, their feedback and importantly the patience they have shown.
Finally I would like to conclude by thanking my fellow Committee members for their support and a special message of thanks to the
employees of Hills for their ongoing loyalty and dedication to our customers and suppliers, you have and continue to make a significant
difference for Hills in the marketplace.
Thank you.
Philip Bullock AO
Chairman
Annual report for the year ended 30 June 2020 Hills Limited 17
Directors report
Remuneration report (Audited)
For the year ended 30 June 2020
Remuneration report
The directors of Hills Ltd (“Hills” the “Company”, or the “consolidated entity”) present the Remuneration Report prepared in accordance
with section 300A of the Corporations Act 2001 (“the Act”) for the consolidated entity for the year ended 30 June 2020.
This Remuneration Report which forms part of the Directors Report outlines the remuneration strategy, framework and practices adopted
by Hills in accordance with the requirements of the Act and its regulations. The information provided in the Remuneration Report has
been audited as required by Section 308 (3C) of the Corporations Act 2001.
This report details remuneration information pertaining to directors and executives who are the “Key Management Personnel” (“KMP”) of
Hills. KMP are defined as those persons having authority and responsibility for planning directing and controlling the activities of the
consolidated entity.
The Remuneration Report comprises the following sections:
1 Key Management Personnel
2 Remuneration Governance
3 Executive Remuneration
4 Executive Contracts and Termination Arrangements
5 Remuneration Outcomes of MD & CEO and Senior Executives
6 Remuneration Outcomes of Non‐Executive Directors’
7 Equity Instrument Disclosures Relating to Key Management Personnel
Abbreviations used in this report
Act
AGM
ASX
CEO &
MD
CFO
ED
Corporations Act 2001 (cth)
Annual General Meeting
Australian Stock Exchange
Chief Executive Officer & Managing
Director
FY
1H
2H
Financial year
First Half
Second Half
KMP
Key Management Personnel
Chief Finance Officer
Executive director
KPI
NED
Key Performance Indicator
Non‐executive director
Annual report for the year ended 30 June 2020 Hills Limited 18
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
1.
The following non‐executive directors (“NEDs”) and executives have been identified as KMP for the purpose of this report.
Key Management Personnel
Name
Position
Non‐executive directors
Term as KMP in FY20
J Hill‐Ling
Chairman, Non‐Independent and Non‐Executive
Director
Full Year
F Bennett
Independent, Non‐Executive Director
Full Year
P Bullock AO
Independent, Non‐Executive Director
Full Year. Retirement will be
effective at the conclusion of the
Hills 2020 AGM.
K Dwyer
Independent, Non‐Executive Director
Full Year
Executive director and senior executives
D Lenz
C Jacka
D Fox
Chief Executive Officer & Managing Director
Full Year
Chief Finance Officer
Company Secretary & General Counsel
Full Year
Full Year
R Edgar
Head of Security, Surveillance, IT and ATV
Commenced 5 July 2018. Resigned
7 May 2020
A Hall
Head of Health Solutions
Full Year
Annual report for the year ended 30 June 2020 Hills Limited 19
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
2.
Remuneration Governance
2.1 Role of the Nomination and Remuneration Committee
The Board, with assistance from the Nomination and 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 & Nomination Committee, consisting of non‐executive directors: Philip Bullock (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 Nomination and 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 & MD, 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 & MD, his direct reports and other senior executives.
Further detail on the Nomination and 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 Nomination and Remuneration Committee Charter, the Committee seeks advice and market data from independent
remuneration consultants as required.
During the year no advisors were retained.
Hills Share Trading Policy
2.3
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. Board members, 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 Securities Policy is available on
the Hills website at: http://www.corporate.hills.com.au/about‐us/governance.
Hills Clawback Policy
2.4
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.
Annual report for the year ended 30 June 2020 Hills Limited 20
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
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.
3.2 Remuneration Mix
To achieve this alignment, senior executive remuneration is comprised of Fixed Remuneration (made up of base salary and
superannuation), and variable incentive.
The CEO & MD remuneration is 58% Fixed remuneration and 42% Variable Incentive. Variable Incentive is assessed against financial
measures (80%) and non‐financial measures (20%) as illustrated below:
Remuneration mix
Variable incentive
Fixed remuneration
58%
42%
Other executives have a split of approximately 60‐80% Fixed Remuneration and 20‐40% Variable Incentive, dependent on their role.
3.3 Chief Executive Officer and Managing Director Remuneration
Fixed Remuneration is reviewed annually by the Board with reference to performance of the Company, performance of the CEO & MD, and
market information.
The CEO & MD, Mr David Lenz has a fixed remuneration of $350,000 per annum (inclusive of superannuation). There have been no changes
to his base salary since his appointment on 1st September 2016. However, for the 3 months ended 30 June 2020, Mr Lenz took a 35%
temporary salary reduction in response to the COVID‐19 pandemic.
Variable Incentive FY20
Mr Lenz had a variable incentive opportunity of up to $250,000. The variable incentive for FY20 adopted a balanced scorecard approach
which was aligned to the Company’s strategic plan. The balanced scorecard focused on the following key areas:
Element
Financial (80%)
Measure
Net Profit After Tax (NPAT) (1H and Full Year)
Deliver Technology Distribution Trading Profit in 1H and
Non‐Financial (20%)
Full Year
Reduction in Aged Inventory
Employee Engagement
Board Discretion
Weighting is distributed across these measures.
Annual report for the year ended 30 June 2020 Hills Limited 21
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
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% after 1 year;
30% after 2 years; and
50% after 3 years.
3.4 Senior Executive Remuneration FY20
There were no changes to the fixed remuneration of the named senior executives; however, in immediate response to the COVID‐19
pandemic, for the 3‐month period ended 30 June 2020 each executive took a 35% temporary salary reduction.
Variable Incentive FY20
The variable incentive is an at‐risk component of remuneration and is designed to reward performance against the achievement of a
balanced scorecard which is aligned to the Company’s strategic plan. Each senior executive has specific objectives which a relevant to the
divisions in which they operate or tied to the overall company performance.
The variable incentive performance period was from 1 July 2019 to 30 June 2020.
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 FY20 variable incentive payments where a senior executive ceased employment with Hills:
Resignation
and
retirement
Company
initiated
termination
Any entitlement to a payment was subject to the participant being employed by
Hills at the time of payment.
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
FY20 variable incentive which had not already vested or been made.
Assessment of Performance and Approval of Payment
The Remuneration & Nomination Committee assessed the individual senior executive’s performance based on the CEO & MD’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 & Nomination
Committee recommended the variable incentive payment outcome to the Board for approval. Variable incentive payments for FY20 were
delivered as cash payments following approval by the Board. Details of Variable Incentive payments are provided in section 3.5.
3.5 FY20 Variable Incentive Performance and Outcomes
FY20 has been a year of contrasting performances as we moved from 1H to 2H due to the impact of COVID‐19.
At the conclusion of 1H FY20:
NPAT for the first half was up from $0.242 million (1H FY19) to $2.636 million (1H FY20) (>100%)
The distribution business had returned to profitability
‐
‐
‐ We had further stream‐lined the Distribution business with the sale of the Audio Visual, Antenna and STEP businesses and,
‐
Hills Health and Hills Technical Service continued to deliver strong profit outcomes.
Annual report for the year ended 30 June 2020 Hills Limited 22
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
However, our 2H FY results did not perform to our expectations. This was due largely to the COVID‐19 pandemic. Our distribution business
was impacted through deferral or cancellation of larger projects and our Health Solutions business saw revenues decline through lower
numbers of elective surgery and the deferral and cancellation of some Nurse Call projects.
As a result, while our FY20 EBITDA showed stronger year on year results our major FY financial targets (NPAT and inventory reductions)
were not achieved, thus reducing the level of variable incentive paid. Specifically, given the overall 2H performance and the level of
Government support, the Board and Management agreed that no 2H bonuses nor any unpaid FY bonuses would be paid.
Target
Variable
Incentive
opportunity
% of fixed
remuneration
Financial
outcome
Non‐financial
outcome
$
%
$
Executive Director
D Lenz
250,000
71%
75,000
Senior Executive
C Jacka
D Fox
A Hall
R Edgar
Total
150,000
80,000
137,500
72,000
689,500
61%
29%
50%
30%
45,000
‐
‐
28,800
148,800
$
‐
‐
‐
‐
‐
‐
Total
variable
Incentive
outcome
Achieved
Forfeited
$
%
%
75,000
45,000
‐
‐
28,800
148,800
30%
30%
‐
‐
40%
70%
70%
100%
100%
60%
Please Note:
1.
The financial outcome of the variable incentive presented in the table above is inclusive of compulsory superannuation
contributions.
Incentives paid to the CEO and CFO relate to performance achieved in the first half of FY20.
2.
Further details of variable incentive payments are set out in section 5.1.
3.6 Five Year Snapshot – Business and Remuneration Outcomes
As described above in section 3.1, 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
Shareholder funds
Statutory net (loss) / profit
Basic (loss) / earnings per share
Dividends
Share price ‐ as at 30 June
Variable Incentive Payments ‐ % of Target
Opportunity(1)
FY20
44,640
(6,156)
(2.7)
‐
0.165
FY19
52,357
(8,826)
(3.8)
‐
0.180
FY18
61,308
359
0.2
‐
0.230
$000
$000
cents
cents
$
FY17
60,931
(7,932)
(3.4)
‐
0.155
FY16
FY15
69,077
(68,305)
(29.4)
‐
0.245
136,600
(85,780)
(37.0)
2.1
0.455
%
22%
40%
30%
29%
19%
4%
(1) The FY19 variable incentive payment % was driven by a significant over achievement in our Health Solutions segment. The CEO
variable incentive payment was 17% of the potential for FY19.
Annual report for the year ended 30 June 2020 Hills Limited 23
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
3.7 FY21 Variable Incentive Design for CEO & MD and senior executives
For FY2021 it has been decided to continue the variable incentive plan which involves remunerating selected executives on their annual
performance by cash and in the case of the CEO & MD 50% cash and 50% Performance Rights (unless determined otherwise by the Board).
The Performance Rights vest over a 3‐year period according to the following vesting scale:
20% after 1 year;
30% after 2 years; and
50% after 3 years.
The annual performance against which the CEO & MD will be measured is in accordance with the balanced scorecard which has the
following measure.
Element
Financial
80% of variable incentive
Non‐financial
20% of variable Incentive
Measure
(a) FY21 Net Profit After Tax (NPAT)
(b) Reduce Working Capital
(c) Reduce Aged Inventory
(a) Employee Engagement – 5%‐point improvement on prior
year
(b) Board Discretion
Other executives had similar scorecards which reflect their specific roles.
Annual report for the year ended 30 June 2020 Hills Limited 24
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
Executive Contracts and Termination Arrangements
4.
The remuneration and other terms of employment for the CEO & MD, and senior executives are covered in their individual employment
contracts and are summarised in this table:
Chief Executive Officer &
Managing Director
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 till either
party provides notice.
Hills or the Chief Executive Officer & Managing Director may
terminate employment at any time by giving three months’ written
notice.
Senior Executives
The contracts may be terminated by either party by giving 3 months
Chief Executive Officer and
Senior Executives
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.
Annual report for the year ended 30 June 2020 Hills Limited 25
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
5.
5.1
Remuneration Outcomes of MD and CEO and Senior Executives
Remuneration tables
Details of the nature and amount of each element of remuneration of the Managing Director and each of the named senior executives are
as follows:
Short‐term benefits
Long‐term
benefits
Post‐
employment
benefits
Share‐based
payments
Salary
package(1)
$
Cash Bonus(2)
$
Other short‐
term benefits(3)
$
Long service
leave(4)
$
Superannuation
benefits(5)
$
Performance
Rights(6)
$
Total
remuneration
$
Proportion of
remuneration
that is
performance
based
%
Proportion of
remuneration
that consists of
rights
%
2020
D Lenz
C Jacka
D Fox
A Hall
R Edgar (7)
2019
D Lenz
C Jacka
D Fox
A Hall
R Edgar
303,415
209,529
227,756
244,310
215,070
75,000
41,096
‐
‐
26,301
1,200,080
142,397
328,100
229,001
245,338
266,057
247,115
1,315,611
38,000
30,250
12,800
180,000
11,250
272,300
13,541
8,016
7,555
3,198
‐
32,310
‐
‐
9,407
5,000
8,443
22,850
10,442
4,742
16,255
4,081
‐
35,520
7,802
3,786
19,382
2,921
242
34,133
24,494
24,596
22,747
24,588
23,096
10,686
‐
‐
‐
‐
437,578
287,980
274,312
276,177
264,467
119,521
10,686
1,540,514
21,689
22,393
23,888
20,310
22,476
13,378
‐
‐
‐
‐
408,969
285,430
310,815
474,288
289,526
110,756
13,378
1,769,028
17%
14%
‐
‐
0
9%
9%
11%
4%
38%
4%
15%
`
‐
‐
‐
‐
1%
3%
‐
‐
‐
‐
1%
Notes in relation to the remuneration table above.
1. Salary package amounts include salary sacrificed superannuation.
2. Cash bonus represents a variable incentive payment for performance during the respective financial year. It is paid in cash for all executives; in the
case of the CEO and MD, 50% of the incentive payment is paid in Performance Rights which vest over a 3‐year period (unless the Board determines
otherwise). In FY20, the Board determined that incentive payments for the CEO and CFO would be paid in cash, based upon 1H performance. Further
details about the variable incentive payments are set out in section 3 of this Remuneration report. The cash bonus amount is net of any
superannuation required to be contributed by the Company.
3. Other short‐term benefits represent annual leave accrued but not taken.
4. Long service leave accrued but not taken.
5. Superannuation benefits include the amount required to be contributed by the Company and exclude amounts salary sacrificed.
6. Performance right represents the value of the share rights expensed over the 3‐year vesting period. Further details are set out below in section 5.2.
The value does not represent cash received.
7. Roger Edgar resigned on 7th May 2020.
Annual report for the year ended 30 June 2020 Hills Limited 26
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
5.2
Variable performance benefits – Performance Rights
As described in section 3.3 above, the variable incentive opportunity available to the CEO & MD is generally paid 50% cash and 50%
Performance Rights (unless the Board determines otherwise), with vesting to take place over a 3‐year period in the following manner:
20% after 1 year;
30% after 2 years; and
50% after 3 years.
The cost of these equity settled transactions is determined by reference to the fair value at the date at which they are granted. The
expense recognised for these equity settled performance rights is recognised over the vesting period.
No Performance Rights were awarded in respect of the current financial year. For the financial year ended 30 June 2019, Performance
Rights to the value of $19,000 were awarded; this represented 78,649 Rights. The grant date for this 2019 award was 30 August 2019. The
first tranche, representing 20% of the award of the 2019 award vested on 30 June 2020 and the remaining tranches will vest on 30 June
2021 (30%) and 30 June 2022 (50%).
Performance Rights
Opening balance
Granted(1)
Vested(2)
Forfeited
Closing balance
2020
2019
D Lenz
D Lenz
238,493
78,649
(154,900)
227,322
198,646
(187,475)
‐
‐
162,242
238,493
(1) The FY2019 grant of 78,649 performance rights is granted subsequent to year end and consequently the grant is recorded in the current financial
year.
(2) The performance rights which vested during the current financial year are a comprises grants from the financial years, 2017, 2018 and 2019.
The Performance Rights which vested in the current financial year include grants from the 3 previous years as follows:
Performance Rights which vested during the year
Total grant
% vested
Number vested
2020
2019
FY2017 grant
FY2018 grant
FY2019 grant
FY2016 grant
FY2017 grant(1)
FY2018 grant(1)
159,152
198,646
78,649
200,000
159,152
198,646
50%
30%
20%
50%
30%
20%
79,576
59,594
15,730
154,900
100,000
47,746
39,729
187,475
(1)
Subject to the terms and conditions of the Plan Rules, these performance rights, representing the 2nd Tranche of the FY17 performance rights and
the 1st Tranche of the FY18 performance rights, representing 87,475 rights were converted into 87,475 shares in the Company. (Refer section 7.1,
Share Holdings for a reconciliation of 87,475 rights which converted into 87,475 shares).
Annual report for the year ended 30 June 2020 Hills Limited 27
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
Remuneration Outcomes of Non‐Executive Directors
6.
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 Nomination and Remuneration Committee within a maximum fee pool.
Non‐executive directors receive a fee which includes any statutory superannuation contributions. Non‐executive directors do not receive
any performance‐based pay.
Fee Pool and Board fee reduction
6.1
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 which is recorded on an accrual basis.
Board fee reductions were adopted in FY20; however, in response to the economic downturn due to the COVID‐19 pandemic, an additional
50% fee reduction was agreed commencing 1 April 2020. The table below sets out the reductions to Board and committee fees:
Chair fee
$
Member fee
$
Chair fee
$
Member fee
$
Chair fee
$
Member fee
$
From 1st
April 2020
From 1st
April 2020
1 Jul 2019
to
31 Mar 2020
1 Jul 2019
to
31 Mar 2020
2019
2019
50,000
5,000
30,000
‐
100,000
10,000
60,000
‐
160,000
16,000
80,000
8,000
‐
‐
‐
‐
16,000
‐
Board
Audit and Risk Committee
Nomination and Remuneration
Committee
6.2
Non‐executive Directors’ remuneration details
2020
2019
J Hill‐Ling
F Bennett
P Bullock AO
K Dwyer
J Hill‐Ling
F Bennett
P Bullock AO
K Dwyer
A Kinkade(1)
Fees
80,611
58,869
48,367
48,859
236,706
146,120
87,672
94,978
80,366
22,761
431,897
Non‐monetary
benefits
$
Superannuation
$
Total
remuneration
$
Proportion of
remuneration that consists
of rights
%
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
25,000
3,009
4,595
4,642
37,246
13,880
8,328
9,022
7,634
2,162
41,026
105,611
61,878
52,962
53,501
273,952
160,000
96,000
104,000
88,000
24,923
472,923
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
(1) Mr Kinkade resigned from the Board 19 June 2019.
Retirement Allowance for Non‐Executive Directors
6.3
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.
Annual report for the year ended 30 June 2020 Hills Limited 28
Directors report
Remuneration report (Audited) – continued
For the year ended 30 June 2020
7.
7.1
The number 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.
Equity Instrument Disclosures Relating to Key Management Personnel
Share Holdings
Effective 1 July 2018. The Board has adopted a practice requiring each Director to acquire (directly or indirectly) Hills securities over a
reasonable period having regard to fluctuations in share price to an approximate value equivalent to one year’s director’s fees (post tax).
For newly appointed directors, this period will commence from the date of appointment.
Ordinary shares
Non‐executive directors
J Hill‐Ling
F Bennett
P Bullock AO
K Dwyer
Senior‐executives
D Lenz(1)
D Fox
C Jacka
A Hall
Balance at
start of the
year
18,246,677
178,444
300,000
350,000
19,075,121
231,830
833,888
‐
‐
1,065,718
Received during the year
on the exercise of rights
Other changes during
the year
Balance at the
end of the year
‐
‐
‐
‐
‐
87,475
‐
‐
‐
87,475
100,000
200,000
‐
100,000
400,000
184,482
666,112
50,000
393,246
1,293,840
18,346,677
378,444
300,000
450,000
19,475,121
503,787
1,500,000
50,000
393,246
2,447,033
(1) The shares acquired during the year on exercise of Performance rights relate to the conversion of the 2nd Tranche of the FY17 performance rights and
the 1st Tranche of the FY18 performance rights. Refer to section 5.2 for further details.
7.2
Loans to Key Management Personnel
There were no outstanding loans to KMP or their related parties at the reporting date.
Other Transactions with Key Management Personnel
7.3
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.
Annual report for the year ended 30 June 2020 Hills Limited 29
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Hills Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Hills Limited for the
financial year ended 30 June 2020 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001
in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Paul Cenko
Partner
Adelaide
31 August 2020
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved
under Professional Standards
Legislation.
Consolidated financial statements
for the year ended 30 June 2020
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
Section 1: Basis of preparation
Page 32
Page 33
Page 34
Page 35
Page 36
Page 37
Section 2: Business performance
Section 3: Operating assets and liabilities
2.1 Segment information
2.2 Revenue
2.3 Other income
2.4 Expenses
2.5 Finance income and expenses
2.6 Income tax
2.7 Earnings per share
Section 4: Capital and financing
4.1 Contributed equity
4.2 Reserves
4.3 Dividends
4.4 Borrowings
4.5 Derivative financial instruments
4.6 Financial instruments: Measurement and
financial risk management
Section 6: Unrecognised items
Page 39
Page 41
Page 41
Page 42
Page 44
Page 45
Page 49
Page 59
Page 60
Page 61
Page 61
Page 63
Page 65
6.1 Contingencies
6.2 Commitments
Page 77
Page 77
Signed reports
Directors’ declaration
Independent auditor’s report
ASX information
3.1 Cash and cash equivalents
3.2 Trade and other receivables
3.3 Inventories
3.4 Trade and other payables
3.5 Property, plant and equipment
3.6 Leases
3.7 Intangible assets
3.8 Provisions
Section 5: Group structure
5.1 Interests in other entities
5.2 Parent entity financial information
5.3 Deed of cross guarantee
Section 7: Other
7.1 Share‐based payments
7.2 Related party transactions
7.3 Events after the reporting period
7.4 Remuneration of auditors
7.5 New and amended accounting standards and
interpretations
Page 84
Page 85
Page 50
Page 51
Page 53
Page 53
Page 54
Page 55
Page 57
Page 58
Page 73
Page 74
Page 75
Page 79
Page 80
Page 81
Page 81
Page 82
Shareholder information Page 90
Corporate directory Page 92
Annual report for the year ended 30 June 2020 Hills Limited 31
Consolidated statement of profit or loss
For the year ended 30 June 2020
Revenue
Cost of sales
Gross Margin
Other income
Expenses excluding net finance expenses
Labour and related expenses
Operational and equipment expenses
Property expenses
Depreciation and amortisation
Other expenses
Expenses excluding net finance expenses
Loss before net finance expense and income tax
Finance income
Finance expenses
Net finance expenses
Loss before income tax
Income tax benefit / (expense)
Loss after tax
Notes
2.2
2.4
2020
$'000
220,083
(153,919)
66,164
2019
$'000
267,362
(183,488)
83,874
2.3
115
551
2.4
2.4
2.4
2.4, 3.5
2.4
2.5
2.5
2.5
2.6
(39,239)
(3,664)
(1,427)
(8,554)
(15,964)
(68,848)
(2,569)
51
(3,638)
(3,587)
(6,156)
‐
(6,156)
(52,733)
(6,322)
(7,596)
(6,617)
(22,306)
(95,574)
(11,149)
121
(3,386)
(3,265)
(14,414)
5,588
(8,826)
Total loss for the year attributable to members of the Company
(6,156)
(8,826)
Earnings per share
Basic and diluted profit/(loss) per share
2.7
Cents
(2.65)
Cents
(3.80)
The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes.
Annual report for the year ended 30 June 2020 Hills Limited 32
Consolidated statement of comprehensive income
For the year ended 30 June 2020
Other comprehensive income
Loss for the year
Items that may be reclassified subsequently to profit or loss
Foreign operations ‐ foreign currency translation differences
Cash flow hedges ‐ effective portion of changes in fair value
Income tax relating to components of other comprehensive income
Other comprehensive (loss) / income for the year, net of tax
Total comprehensive income / (loss) for the year, attributable to
owners of Hills Limited
Notes
2.6
2020
$'000
(6,156)
(400)
(387)
175
(612)
2019
$'000
(8,826)
260
(198)
‐
62
(6,768)
(8,764)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Annual report for the year ended 30 June 2020 Hills Limited 33
Consolidated statement of financial position
As at 30 June 2020
Notes
2020
$'000
2019
$'000
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Total current assets
Non‐current assets
Investments
Property, plant and equipment
Right‐of‐use asset
Intangible assets
Deferred tax assets
Total non‐current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Lease liabilities
Borrowings
Provisions
Derivative financial instruments
Total current liabilities
Non‐current liabilities
Lease liabilities
Borrowings
Provisions
Total non‐current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
3.1
3.2
3.3
3.5
3.6
3.7
2.6
3.4
3.6
4.4
3.8
4.5
3.6
4.4
3.8
4.1
4.2
12,236
40,136
25,178
77,550
2
12,276
10,821
3,749
16,744
43,592
10,867
59,194
41,636
111,697
2
15,281
‐
2,072
16,733
34,088
121,142
145,785
29,262
40,646
4,258
6,113
5,627
4,578
49,838
9,645
14,300
2,719
26,664
76,502
44,640
‐
15,927
8,731
106
65,410
‐
23,331
4,687
28,018
93,428
52,357
278,439
10,527
278,439
11,128
(244,326)
(237,210)
44,640
52,357
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
Annual report for the year ended 30 June 2020 Hills Limited 34
Consolidated statement of changes in equity
For the year ended 30 June 2020
Notes
Contributed
equity
$'000
278,439
Attributable to owners of Hills Limited
Equity
compensation
reserve
Translation &
other
reserves
Accumulated
losses
$'000
738
$'000
$'000
10,315
(228,184)
Balance at 1 July 2018
Adjustment on initial application of AASB9
Loss for the year ended 30 June 2019
Other comprehensive income
Foreign currency translation differences for foreign
operations
Net change in fair value of hedges net of tax
Employee share schemes
Balance at 30 June 2019
Balance at 1 July 2019
2.4
Adjustment on initial application of AASB16
7.5
Loss for the year ended 30 June 2020
Other comprehensive income
Foreign currency translation differences
Net change in fair value of hedges net of tax
Employee share schemes
Balance at 30 June 2020
2.4
‐
‐
‐
‐
‐
‐
278,439
278,439
‐
‐
‐
‐
‐
278,439
‐
‐
‐
‐
‐
13
751
751
‐
‐
‐
‐
11
762
‐
‐
‐
260
(198)
‐
10,377
10,377
‐
‐
(400)
(212)
‐
(200)
(8,826)
‐
‐
‐
‐
(237,210)
(237,210)
(960)
(6,156)
‐
‐
‐
Total
$'000
61,308
(200)
(8,826)
‐
260
(198)
13
52,357
52,357
(960)
(6,156)
(400)
(212)
11
9,765
(244,326)
44,640
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Annual report for the year ended 30 June 2020 Hills Limited 35
Consolidated statement of cash flows
For the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)
264,302
292,109
Payments to suppliers and employees (inclusive of goods and services
tax)
(239,216)
(293,324)
Notes
2020
$’000
2019
$’000
Net finance costs paid
Net income taxes paid
Net cash flows from / (used in) operating activities
3.1
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intangible assets
Proceeds from sale of property, plant and equipment and intangible
assets
Proceeds from sale of business operations
Net cash flows from / (used in) investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payment of lease liabilities
Net cash flows (used in) / 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
Cash and cash equivalents at end of the year
3.1
25,086
(3,099)
‐
21,987
(1,670)
(2,494)
43
7,324
3,203
2,506
(20,765)
(4,535)
(22,794)
2,396
10,867
73
12,236
(1,215)
(2,775)
(14)
(4,004)
(2,646)
(3,019)
24
‐
(5,641)
7,650
(3,000)
‐
4,650
(4,995)
15,783
79
10,867
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Annual report for the year ended 30 June 2020 Hills Limited 36
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Reporting entity
Section 1: Basis of Preparation
1.1.
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")for the year ended 30 June 2020 and
were authorised for issue in accordance with a resolution of the Directors on 31 August 2020.
Hills Limited is a for profit company limited by shares, incorporated and domiciled in Australia whose shares are publicly traded on the
Australian Securities Exchange.
The Group operates in Australia and New Zealand and the Principal activities of the Group is as a supplier of technology solutions in the
Health market and a value‐added distributor of technology products and services in the Security, Surveillance and IT markets.
1.2.
These general purpose consolidated financial statements:
Basis of accounting
are presented in Australian dollars, which is the Company’s functional and presentation currency;
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 4.6.
1.3. What’s new in this report
AASB16 Leases has been applied for the first time; the impact of which is described in notes 3.6 Leases and 7.5 New and
amended accounting standards and interpretations.
Segment information has been restated to align with reports used by the Chief Operating Decision Maker’s (CODM) to assess
business performance, determine the allocation of resources and strategic decision making within the Group. The segments,
Hills Health Solutions, Hills Distribution and Corporate are described in note 2.1, Segment information. Prior period
information has been restated where relevant.
Going Concern
1.4.
The consolidated financial statements have been prepared on a going concern basis. The Company’s existing $18.3 million facility with
AssetSecure (the Facility) expires on 31 July 2021. The Company is in advanced discussions with the existing financier and alternate
financiers to either extend or refinance the Facility. The Board are confident the Facility will be extended or refinanced with similar
terms and conditions before its expiry
Key accounting estimates
1.5.
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 2.6
Note 3.3
Notes 3.6 & 7.5
Notes 3.5 and 3.7
Notes 3.8 and 6.1
Note 4.6
Tax losses for which a deferred tax asset has been recognised
Net realisable value of inventory
Leases and New and amended accounting standards and interpretations
Measurement of the useful lives of property, plant and equipment and intangible assets
Provisions and contingencies
Financial instruments: Measurement and financial risk management
Annual report for the year ended 30 June 2020 Hills Limited 37
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
1.6.
Principles of consolidation
Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 June 2020 and the
results of all subsidiaries for the year then ended. A list of subsidiaries is included in note 5.1.
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.
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.
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.
1.7.
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
1.8.
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.
Annual report for the year ended 30 June 2020 Hills Limited 38
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Section 2: Business performance
This section contains information relevant to understanding the results and performance of the Group during the reporting period:
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.1.
Segment information
Revenue
Other income
Expenses
Finance income and expenses
Income tax
Earning per share
Segment information
Description of segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses. The operating segments operating results are reviewed regularly by the Chief Operating Decision Maker (CODM) to assess
performance of the business and to make decisions about resources to be allocated to the segment.
Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated
on a reasonable basis. The Group has three reportable segments as summarised below:
Hills Health Solutions
A market leader and comprises the design, supply and installation of health technology solutions, nurse
call and patient engagement and other related solutions including security, Wi‐Fi and telephony into the
health and aged care sectors.
Hills Distribution
The Distribution business provides a diverse range of products and solutions to assist our customers
support end users within the Antenna, Audio Visual, Satellite, Security, Surveillance and IT markets.
The AV, Antenna and STEP businesses were divested in December 2019.
Corporate
This includes Group costs not allocated to Health or Distribution.
Segment information
Segment revenue
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 2.2.
Major customers
The Group did not derive 10% or more of its revenues from any 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.
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.
Annual report for the year ended 30 June 2020 Hills Limited 39
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Information about reportable segments
Distribution
Health
Corporate
Total Continuing
operations
Operations divested
(the "Disposal
group")
Total operations
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Sales revenue
164,169
175,966
33,723
38,103
‐
‐
197,892
214,069
22,191
53,293
220,083
267,362
Underlying segment
EBITDA
Depreciation and
amortisation
Redundancy, restructure
and transformation costs
Onerous lease provision
Inventory provision
Impairment of non‐current
assets
Foreign exchange losses
Other income
Other expense
Net financing expense
Net profit /(loss) before
income tax
5,738
129
8,553
10,974
(2,649)
(2,664)
11,642
8,439
999
1,180
12,641
9,619
(5,418)
(4,284)
(3,114)
(2,102)
‐
‐
(8,532)
(6,386)
(22)
(231)
(8,554)
(6,617)
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
(1,197)
(1,902)
(1,197)
(1,902)
‐
‐
‐
(2,500)
(3,800)
(6,500)
‐
‐
‐
(2,500)
(3,800)
(6,500)
(4,085)
‐
(4,085)
‐
115
551
115
551
(1,489)
‐
(1,489)
‐
(3,587)
(3,265)
(3,587)
(3,265)
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
(1,197)
(1,902)
‐
‐
‐
(2,500)
(3,800)
(6,500)
(4,085)
‐
115
551
(1,489)
(3,587)
(3,265)
320
(4,155)
5,439
8,872
(12,892)
(20,080)
(7,133)
(15,363)
977
949
(6,156)
(14,414)
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Segment assets
Trade and other
receivables
35,300
42,315
4,836
7,671
Inventory
20,158
27,014
5,020
7,047
Property plant and
equipment
3,064
3,585
9,212
11,102
Intangible assets
2,420
872
1,329
1,200
60,942
73,786
20,397
27,020
Corporate and unallocated
assets
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
40,136
49,986
25,178
34,061
12,276
14,687
3,749
2,072
81,339
100,806
39,803
27,602
39,803
27,602
Total assets
60,942
73,786
20,397
27,020
39,803
27,602
121,142
128,408
‐
‐
‐
‐
‐
‐
‐
9,208
40,136
59,194
7,575
25,178
41,636
594
12,276
15,281
‐
3,749
2,072
17,377
81,339
118,183
‐
39,803
27,602
17,377
121,142
145,785
Note:
Prior period segment information has been restated to ensure consistency with current operating segments; Hills Health Solutions, Hills
Distribution and Corporate.
As a result of AASB16, corporate assets include Right of Use Assets of $10.821 million (2019: nil).
Divested Operations
In December 2019 the Group divested three businesses within the Hills Distribution segment; AV, Antenna Business and STEP
businesses (collectively the Disposal Group) thereby reducing exposure to non‐performing assets and reducing the overall complexity
of the business. The businesses sold were not a major line of business and do not represent a discontinued operation.
The sale of the Disposal Group comprised sale of specific assets and liabilities, with Hills retaining the trade receivable and trade
creditor balances at the disposal date. The sale resulted in a net loss of $0.250 million, which is incorporated within Other Expenses
(refer note 2.4).
There were no divestments in the prior period.
Annual report for the year ended 30 June 2020 Hills Limited 40
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
2.2.
Revenue
Sales revenue
Sale of goods
Services
2020
$’000
172,430
47,653
220,083
2019
$’000
215,133
52,229
267,362
Recognition and measurement
Revenue is recognised when performance obligations are satisfied, and the control of goods or services is transferred.
The major sources of the Group’s revenue are from the sale of goods and rendering of services, which are each considered below:
Sale of goods
Revenue associated with the sale of goods is recognised when the performance obligation of the sale has been fulfilled and control of the
goods has transferred to the customer, which occurs at the point of sale or when the goods are collected / delivered.
Rendering of services
The Group generates revenue from the provision of various services including design and installation of health technology solutions,
information technology, audio visual and customer support services. Revenue relating to design, installation, IT, and AV services is
principally recognised on a point in time basis, which occurs upon completion of the service given the short time period over which the
services are provided. Revenue relating to longer term installation services and customer support services is recognised at the point the
performance obligation is completed. Amounts collected for services not yet provided are recorded as deferred revenue in the balance
sheet.
2.3.
Other income
Net gain/(loss) on disposal of non‐current assets
Other income
2020
$’000
44
71
115
2019
$’000
(12)
563
551
Net loss on disposal of non‐current assets
The net gain on disposal of non‐current assets for the year ended 30 June 2020 relates to gains on the sale of motor vehicles as well as
furniture and fittings.
The net loss on disposal of non‐current assets for the year ended 30 June 2019 related to the disposal of company owned vehicles.
Annual report for the year ended 30 June 2020 Hills Limited 41
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
2.4.
Profit / (loss) before income tax includes the following specific expenses:
Expenses
Cost of Sales
Cost of goods sold (inventories)
Direct cost of services provided
Total cost of sales
Employee benefits expenses
Wages and salaries
Superannuation contributions
Other employee benefit expense
Equity settled share‐based payment transactions
Temporary staff and other costs
Total employee benefit expenses
Operational and equipment expenses
Repairs and maintenance
Freight
Consumables / other
Property expenses
Occupancy Costs
Utilities
Total property expenses
Depreciation
Plant and equipment
Right of use assets
Total depreciation
Amortisation
Software
Development costs
Total amortisation
Total depreciation and amortisation
Other
General and administrative expenses
Restructuring expenses
Loss on disposal of business
Foreign exchange losses ‐ ineffective portion of changes in fair value
Other costs
Total Other
2020
$’000
2019
$’000
135,037
18,882
163,657
19,831
153,919
183,488
31,647
41,811
2,351
1,956
11
3,274
39,239
816
2,309
539
3,664
860
567
1,427
3,830
4,278
8,108
391
55
446
8,554
8,946
1,197
247
4,085
1,489
15,964
2,999
1,975
13
5,935
52,733
1,712
3,663
947
6,322
6,779
817
7,596
4,350
‐
4,350
2,202
65
2,267
6,617
7,598
502
‐
‐
14,206
22,306
Annual report for the year ended 30 June 2020 Hills Limited 42
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Information on expenses
Accounting standards require that an analysis of expenses is presented using a classification based on either their nature or their function.
The Group presents expenses classified by nature in order to provide information that is relevant and consistent with how management
monitors business performance.
Further information on expenses as shown in the Consolidated statement of profit and loss is provided below:
Cost of goods sold
(inventories)
Cost of goods sold include expenses relating to the change in inventories of finished goods and work in
progress, and raw materials used.
Direct costs of services
provided
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
Labour and related expenses include employee benefits expenses and other labour and related
expenses such as third‐party logistics, labour hire, employee training and recruitment. The benefit of
JobKeeper ($3.190 million) and wage reduction ($1.200 million) offset current year labour and related
expenses.
Operational and
equipment expenses
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
leased by the Group.
Depreciation and
amortisation
Other expenses
Refer note 3.5 and 3.7.
General and administrative expenses include overhead expenses (such as insurance, advertising and
marketing, professional and consulting fees, telecommunications and information technology related
expenses).
Other costs include legal fees. Prior year Other costs of $14.708 million include an impairment expense
of $6.500 million related to non‐current assets, additional inventory provisions of $3.800 million, an
onerous lease provision of $2.500 million as well as redundancy and restructure costs of $1.902 million.
Annual report for the year ended 30 June 2020 Hills Limited 43
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
2.5.
Finance income and expenses
Interest and finance charges paid / payable
Amortisation of deferred borrowing costs
Lease finance costs
Other financing costs
Unwinding discount on provisions
Total finance expenses
Finance income
Interest income
2020
$’000
(2,216)
(489)
(678)
(228)
(27)
2019
$’000
(2,018)
(489)
‐
(879)
‐
(3,638)
(3,386)
51
121
Net finance costs expensed
(3,587)
(3,265)
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.
Annual report for the year ended 30 June 2020 Hills Limited 44
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
2.6.
Income tax
Income tax expense
Income tax expense:
Income tax (benefit) / expense comprises:
Current tax
Deferred tax
Numerical reconciliation of income tax (benefit) / expense to prima
facie tax payable:
Profit / (loss) from continuing operations before income tax expense
Tax at the Australian tax rate of 30% (2019: 30%)
Tax effect of amounts which are not deductible / (taxable) in
calculating taxable income:
Non‐deductible expenses
Acquisition costs
(Recognition) / derecognition of deferred tax assets
Tax losses for which no deferred tax asset is recognised
Total income tax expense / (benefit)
Difference in overseas tax rates
Total income tax expense / (benefit)
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:
Income / (losses) on cash flow hedges
Aggregate income tax benefit
Income tax receivable / (payable)
Income tax receivable / (payable) is nil. (2019: nil)
2020
$’000
‐
‐
‐
2019
$’000
‐
(5,588)
(5,588)
(6,156)
(14,414)
(1,847)
(4,324)
58
‐
(4,480)
6,269
‐
‐
‐
2020
$’000
181
1
(1,739)
292
(5,589)
1
(5,588)
2019
$’000
175
175
‐
‐
Annual report for the year ended 30 June 2020 Hills Limited 45
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Deferred tax assets and liabilities
Balance at
1 July
Recognised
in profit or
loss
$’000
$'000
Recognised in
other
comprehensive
income
$'000
Movements 2019
Property, plant and equipment
Inventories
Employee benefits
Receivables
Provisions
Other accruals
Derivative financial instruments
Exchange differences
Movements 2020
Property, plant and equipment
Inventories
Employee benefits
Receivables
Payables
Provisions
Other accruals
Derivative financial instruments
Other
Tax losses
2,953
4,768
1,665
120
1,263
381
(28)
‐
2,739
1,324
‐
26
1,163
(67)
60
343
11,122
5,588
5,692
6,092
1,665
146
‐
(2,065)
(2,930)
(321)
(301)
(225)
2,426
(1,249)
314
32
366
‐
16,733
(27)
1,166
321
5,467
(164)
Balance at
30 June
$'000
5,692
6,092
1,665
146
2,426
314
32
366
16,733
3,627
3,162
1,344
(155)
(225)
1,177
287
1,373
687
5,467
‐
‐
‐
‐
‐
‐
‐
23
23
‐
‐
‐
‐
‐
‐
175
‐
‐
175
16,744
Annual report for the year ended 30 June 2020 Hills Limited 46
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Unrecognised tax losses
The Company has estimated tax losses across the Group as follows:
Non‐recognised tax losses ‐ revenue items
Balance at the beginning of the period
Movement during the period
Balance at the end of the period
Non‐recognised tax losses ‐capital items
Balance at the beginning of the period
Movement during the period
Balance at the end of the period
Total revenue and capital losses not recognised
Total potential tax benefit
Jurisdiction
Australia
New
Zealand
$AUD'000
$NZD'000
206,943
(293)
206,650
31,012
‐
31,012
237,662
71,299
775
2,925
3,700
‐
‐
‐
3,700
1,036
Rate of income tax
30%
28%
Revenue and capital tax losses do not expire under current legislation but must continue to satisfy the requirements of the relevant tax
legislation relating to continuity of ownership and same business test.
Revenue losses Deferred tax assets related to revenue losses have been recognised in respect of the period over which the Group
expects to utilise the benefits of these losses; which is a 3‐year to 5‐year time horizon.
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.
Tax consolidation legislation
Tax sharing 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.
Tax funding agreement
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.
Annual report for the year ended 30 June 2020 Hills Limited 47
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
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.
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.
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.
Annual report for the year ended 30 June 2020 Hills Limited 48
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
2.7.
Earnings per share
Earnings used in calculating earnings per share
Basic and diluted loss ‐ attributable to the ordinary equity holders of
the Company
Weighted average number of shares used as denominator
Issued ordinary shares
Effect of performance rights on issue
Weighted average number of ordinary shares used as the
denominator
2020
$’000
2019
$’000
(6,156)
(8,826)
2020
Number
2019
Number
231,985,526
231,985,526
‐
‐
231,985,526
231,985,526
2020
Cents
2019
Cents
Basic and diluted earnings per share
Attributable to the ordinary equity holders of the Company
(2.65)
(3.80)
Recognition and measurement
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 on issue 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 on issue assuming the conversion of all dilutive
potential ordinary shares
Annual report for the year ended 30 June 2020 Hills Limited 49
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Section 3: Operating assets and liabilities
This section provides information on the operating assets used and the operating liabilities incurred by the Group:
Inventories
3.1 Cash and cash equivalents
3.2 Trade and other receivables
3.3
3.4 Trade and other payables
3.5 Property, plant and equipment
3.6
3.7
3.8 Provisions
Leases
Intangible assets
3.1.
Cash and cash equivalents
Cash at bank and in hand
Short term deposits
Reconciliation of cash flows from operating activities
Loss for the period
Adjustments to reconcile loss to net cash flows:
Depreciation and amortisation
Net loss / (gain) on sale of non‐current assets
Impairment of property plant and equipment / intangibles
Impairment of inventories
Share‐based payments
Amortisation of capitalised borrowing costs
Fair value adjustment on derivatives
Unwinding of discount on provisions
Other non‐cash items
Change in operating assets and liabilities:
Decrease / (increase) in trade and other receivables
Decrease / (increase) in inventories
Decrease in trade and other payables
Increase in provisions
(Increase) / decrease in deferred tax assets
Net cash flows from/(used in) operating activities
2020
$’000
3,752
8,484
2019
$’000
6,427
4,440
12,236
10,867
(6,156)
(8,826)
8,554
(44)
‐
(390)
11
489
4,085
27
(210)
20,129
8,396
(10,239)
(2,665)
‐
21,987
6,617
12
6,500
3,800
13
489
‐
‐
3,900
(392)
(1,720)
(8,163)
(633)
(5,601)
(4,004)
There has been a significant decrease in trade and other receivables, inventory and payables. This is principally due to the divestment of
three business units as described in note 2.1 Segment information and lower receivables correlating with the lower sales in the fourth
quarter of FY20 as a result of the COVID‐19 pandemic.
Recognition and measurement
Cash and cash equivalents
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.
Annual report for the year ended 30 June 2020 Hills Limited 50
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
3.2.
Trade and other receivables
Trade receivables
Less: Provision for impairment of receivables
Other receivables
Prepayments
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
Total trade receivables
Movements in the provision for impairment of receivables are as follows:
At 1 July
Adjustments on adoption of AASB 9
Provision for impairment recognised / (released)
Receivables written off during the period as uncollectable
At 30 June
Trade receivables
Impairment
The provision for impaired receivables for the Group is $0.683 million (2019: $0.487 million).
2020
$’000
31,137
(683)
30,454
8,477
1,205
40,136
17,719
6,168
4,613
2,637
31,137
487
‐
313
(117)
683
2019
$’000
50,682
(487)
50,195
7,092
1,907
59,194
31,136
8,067
8,016
3,463
50,682
402
200
(27)
(88)
487
The Group uses an allowance for credit loss matrix to measure the Expected Credit Loss (ECL) of trade receivables which incorporates
an aging analysis as well as case by case assessment of receivables where appropriate.
Management has specifically reassessed trade receivables and the adequacy of the ECL in light of the COVID‐19 pandemic and its
expected future economic impact. Up to the 30 June 2020 reporting date, management has not observed any material change in the
payment behaviour of customers and the ageing profile of trade receivables, consequently COVID‐19 has not had a significant impact
on the ECL provisions. The Group has however anticipated in its ECL provision calculations, the possibility of a future adverse impact.
Credit insurance has been in place for several years, which should if required reduce any impact of COVID‐19 related default.
Transfer of trade receivables
The Group has entered a Receivables Purchase Facility, as described in note 4.4 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 shown below:
Carrying amount of trade receivables transferred
Amount drawn down under facility
2020
$’000
20,210
(18,305)
2019
$’000
36,708
(32,303)
The amount drawn down under the Asset Secure facility forms part of total borrowings (Note 4.4).
Annual report for the year ended 30 June 2020 Hills Limited 51
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Other receivable and prepayments
Other receivables include $1.200 million in respect of the JobKeeper subsidy.
Prepayments of $1.205 million relates to insurance, subscriptions and software licences.
Financial risk
Refer note 4.6 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 are non‐derivative financial instruments that 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.
Annual report for the year ended 30 June 2020 Hills Limited 52
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
3.3.
Inventories
Raw materials and work in progress
Finished goods
Total inventory
Less provision
Net inventory
Movements in the provision for impairment of inventory is as
follows:
At 1 July
Provision for impairment recognised
Provision utilised during the period
At 30 June
2020
$’000
1,755
26,842
28,597
(3,419)
25,178
(8,260)
(2,868)
7,709
(3,419)
2019
$’000
3,060
46,836
49,896
(8,260)
41,636
(4,370)
(4,150)
260
(8,260)
Key estimate: Carrying value of inventory
The assessment of the carrying value of inventory requires management judgement based on experience and industry practice.
Management reassess the carrying value when there are indications of a change in economic circumstances that may impact the inventory.
Recognition and measurement
Inventories
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.
3.4.
Trade and other payables
Trade payables
Other payables and accrued expenses
2020
$’000
19,576
9,686
29,262
2019
$’000
29,095
11,551
40,646
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.
Annual report for the year ended 30 June 2020 Hills Limited 53
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
3.5.
Property, plant and equipment
Property plant and equipment ‐ at cost
Less accumulated depreciation
Total property plant and equipment
Reconciliation of movement
Opening balance
Additions
Depreciation
Disposals
Exchange differences
Impairment
Closing balance
2020
$’000
54,740
(42,464)
12,276
15,281
1,202
(3,830)
(104)
31
(304)
12,276
2019
$’000
65,796
(50,515)
15,281
14,915
5,193
(4,350)
(36)
63
(504)
15,281
Impairment testing
The Group has undertaken impairment testing over its cash generating units at 30 June 2020. The Group has two cash generating units
being Hills Health Solutions and Hills Distribution. The recoverable value of cash generating units was determined in accordance with
the value in use methodology. Cash flows are forecast for five years after which a terminal value calculated. No impairment has been
identified at 30 June 2020. Significant assumptions used to determine value in use are:
Forecast cash‐flows are based on Board approved budgets.
Post tax discount rate: 10.2%
Terminal growth rate: 2.5%
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
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.
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
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.
Depreciation
Depreciation 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):
Plant and equipment, including leasehold improvements
5.0% to 66.7%
Impairment
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.
Annual report for the year ended 30 June 2020 Hills Limited 54
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
3.6.
Leases
Amounts recognised in the statement of financial position
Right‐of‐use asset
Buildings
Plant, machinery and equipment
Total right‐of‐use assets
Reconciliation of movement
Opening balance
Balance on adoption of AASB16 with effect from 1 July 2019
Transfer: Onerous lease provision on transition
Transfer: Lease incentive on transition
Additions
Depreciation charge for the year
Closing balance
Lease liabilities
Current
Non‐current
Total lease liabilities
Maturity analysis ‐ undiscounted
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities at 30 June 2020
Amounts recognised in the statement of profit or loss
Interest on lease liabilities
Depreciation of right‐of‐use asset
Lease payments relating to leases of low value and short‐term leases not
included in lease liabilities
Amounts recognised in the statement cash flows
Total cash outflow for leases
The Group leases various offices, warehouses, equipment and vehicles.
Year end
Transition
30/06/2020
1/07/2019
$’000
$’000
9,500
1,321
10,821
‐
17,221
(1,814)
(1,110)
802
(4,278)
10,821
4,258
9,645
13,903
4,258
9,904
‐
14,162
2020
$’000
(678)
(4,278)
(193)
2020
$’000
(4,535)
15,293
1,928
17,221
5,580
12,601
18,181
2019
$’000
‐
‐
‐
2019
$’000
‐
Prior to adoption of AASB16 Leases on 1 July 2019. leases were accounted for by applying the principles of AASB117 Leases, which
classified arrangements as either finances leases or operating leases.
On 1 July 2019, the Group transitioned to AASB16 Leases using the modified retrospective approach and therefore the comparative
information has not been restated and the cumulative effect of initial application is recognised in retained earnings at 1 July 2019.
When measuring lease liabilities for leases that were previously classified as operating leases, the Group discounted lease payments using a
borrowing rate of 4.6%.
In the comparative period the Group applied AASB117 Leases and only lease arrangements that the Group had were considered to be
operating leases and therefore the lease payments were recognised in profit and loss on a straight‐line basis over the term of the lease.
Annual report for the year ended 30 June 2020 Hills Limited 55
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Impact on transition
. Further information regarding the impact of the transition to AASB16 on the Group is disclosed in Note 7.5.
Policy applicable from 1 July 2019
At the inception of a lease arrangement, the Group assesses whether a contract is, or contains, a lease which will be the case if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
At inception or modification of a contract that contains a lease the Group recognises a right‐of‐use asset and a lease liability. The right‐
of‐use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made
at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the
underlying assets or to restore the site on which it is located, less any lease incentives received.
The right‐of‐use asset is subsequently depreciated using the straight‐line method from the commencement date to the end of the lease
term. The estimated useful lives of right‐of‐use assets are determined on the same basis as those of property and equipment. In
addition, the right‐of‐use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate.
Generally, the Group uses its incremental borrowing rate as the discount rate and the Group determined its incremental borrowing rate by
obtaining indicative interest rates from its lenders.
The lease liability is subsequently measured at amortised cost using the effective interest rate method. It is remeasured when there is a
change in future lease payments arising from a change in index or rate or if the Group changes its assessment of whether it will exercise
an extension option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right‐of‐use
asset, or is recorded in profit or loss if the carrying amount of the right‐of use asset has been reduced to zero.
Short term and low value leases
The Group has elected to not recognise a right‐of‐use asset and lease liability for short term and low value leases. For these leases the
Group recognises the lease payments as an expense on a straight‐line basis over the lease term. (refer note 6.2, Commitments).
Key estimate: lease term and discount rate
The assessment of the lease term and discount rate requires management judgement based on past experience and industry practice.
Management reassess the lease terms and discount rates when there are indications of a change in economic circumstances that may
impact the assets.
Annual report for the year ended 30 June 2020 Hills Limited 56
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
3.7.
Intangible assets
Intangible assets ‐ at cost
Less accumulated amortisation
Total intangible assets
Reconciliation of movement
Opening balance
Additions
Amortisation
Disposals
Impairment
Closing balance
Comprising
Software
Development
Closing net book value
2020
$’000
25,728
(21,979)
3,749
2,072
2,566
(446)
(393)
(50)
3,749
1,801
1,948
3,749
2019
$’000
27,317
(25,245)
2,072
6,267
4,068
(2,267)
‐
(5,996)
2,072
219
1,853
2,072
Additions of $2.566 million (2019 $4.068 million) include $1.300 million related to the Digital transformation of Hills website to offer
customers online sales, product information, customer portals etc. Other additions included Microsoft Dynamics software to enhance sale
and customer experience, an upgrade to the Inventory management systems and other Business intelligence tools.
Key estimate: useful lives of intangible assets
The assessment of the useful lives of intangible assets 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
IT development and software
Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to future period
financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include
external direct costs of materials and service and direct payroll and payroll related costs of employees' time spent on the project.
Amortisation is calculated on a straight‐line basis over periods generally ranging from 3 to 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 2 to 5 years.
Annual report for the year ended 30 June 2020 Hills Limited 57
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
3.8.
Provisions
Current
Employee benefits
Warranty claims
Restructuring
Environmental and other
Total provisions ‐ current
Non‐current
Employee benefits
Warranty claims
Restructuring
Environmental and other
Total provisions ‐ non‐current
Total provisions
Reconciliation of movement ‐ Employee benefits
Opening net book amount
Provisions made during the year
Provisions used during the year
Total employee benefits provision
Reconciliation of movement ‐ Warranty claims
Opening net book amount
Provisions made during the year
Provisions used during the year
Write back of unused provisions
Total outstanding warranty claims provision
Reconciliation of movement ‐ Restructuring
Opening net book amount
Provisions made during the year
Provisions used during the year
Write back of unused provisions
Total restructuring provision
Reconciliation of movement ‐ Environmental and other
Opening net book amount
Provisions made during the year
Provisions used during the year
Transfer of onerous lease to Right of Use Asset
Write back of unused provisions
Total environmental and other provisions
Total provisions
2020
$’000
3,779
436
1,194
218
5,627
569
142
44
1,964
2,719
8,346
5,261
8,568
(9,481)
4,348
924
‐
(165)
(181)
578
1,956
931
(1,649)
‐
1,238
5,277
57
(1,338)
(1,814)
‐
2,182
8,346
2019
$’000
4,657
573
1,672
1,829
8,731
604
351
284
3,448
4,687
13,418
5,562
9,990
(10,291)
5,261
1,205
245
(83)
(443)
924
786
1,885
(320)
(395)
1,956
2,588
3,247
(290)
‐
(268)
5,277
13,418
Employee provisions
Provisions for employee benefits include liabilities for annual leave and long service leave.
Warranty claims
Warranty provisions includes amounts set aside for estimated warranty claims associated
with the existing product range of $0.150 million as well as legacy products of $0.427 million.
Restructuring provision
Includes $0.931 million related to redundancy and outplacement services and other costs
associated with closing and restructuring businesses.
Environmental and other provisions
Includes environmental monitoring and clean‐up costs associated with several sites in South
Australia.
Annual report for the year ended 30 June 2020 Hills Limited 58
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Recognition and measurement
Provisions
Provisions for service warranties and make good obligations are recognised when the Group has a present legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been
reliably estimated. Warranty provisions are recognised when the underlying products or services are sold. Restructuring provisions are
recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or been
announced publicly.
Provisions are 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.
Annual report for the year ended 30 June 2020 Hills Limited 59
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Section 4: Capital and financing
This section provides information on how the Group manages its capital structure and financing, including its exposure to financial risk:
4.1 Contributed equity
4.2 Reserves
4.3 Dividends
4.4 Borrowings
4.5 Derivative financial instruments
4.6
Financial instruments: Measurement and financial risk management
4.1.
Contributed equity
Ordinary shares ‐ fully paid
231,985,526
231,985,526
278,439
278,439
2020
Number
2019
Number
2020
$’000
2019
$’000
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.
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.
Annual report for the year ended 30 June 2020 Hills Limited 60
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
4.2.
Reserves
Hedging reserve ‐ cash flow hedges
Equity compensation reserve
Foreign currency translation reserve
Profits reserve
Total reserves
Reconciliation of movement
Hedging reserve – cash flow hedges
Opening balance
Revaluation
Closing balance
Equity compensation reserve
Opening balance
Employee share plan expense / (credit)
Closing balance 30 June
Foreign currency translation reserve
Opening balance
Currency translation differences arising during the year
Closing balance
Profits reserve
Opening balance 1 July
Closing balance
2020
$’000
(345)
762
(23)
10,133
10,527
(133)
(212)
(345)
751
11
762
377
(400)
(23)
2019
$’000
(133)
751
377
10,133
11,128
65
(198)
(133)
738
13
751
117
260
377
10,133
10,133
10,133
10,133
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.
Annual report for the year ended 30 June 2020 Hills Limited 61
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
4.3.
Dividends
Dividends
Franking credits available
2020
$’000
‐
2019
$’000
‐
1,787
1,787
No dividends were paid during the year and no final dividend has been declared.
Franking credits available for subsequent reporting periods are based on an income tax rate of 30% (2019: 30%). The franking credits
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.
4.4.
Borrowings
Current
Borrowings
Total current borrowings
Non‐current
Borrowings
Less capitalised borrowing costs
Total non‐current borrowings
Total borrowings
Reconciliation of movement
Opening balance
Proceeds from loans and borrowings
Repayment of borrowings
Amortisation of capitalised borrowing costs
New finance leases
Closing balance
2020
$’000
6,113
6,113
14,725
(425)
14,300
20,413
39,258
2,506
(21,840)
489
‐
20,413
2019
$’000
15,927
15,927
24,245
(914)
23,331
39,258
32,696
7,650
(3,000)
489
1,423
39,258
Capitalised transaction costs are directly attributable to the borrowings, as at 30 June 2020, unamortised borrowing costs totalled
$0.425 million (2019: $0.914 million).
The Group has its financing facilities with Commonwealth Bank of Australia (CBA) through a Bilateral Facility and Recfin Nominees Pty Ltd
through a Receivables Purchase Facility.
Annual report for the year ended 30 June 2020 Hills Limited 62
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Bilateral Facility
The CBA facility was amended in May 2020 and now comprises a facility for contingent liabilities
(bank guarantees / letter of credit), with the following limits (denominated in AUD):
Contingent liabilities: $2.600 million.
Interest is charged at prevailing market rates plus a fixed margin.
Receivables Purchase
Facility
The Recfin Nominees Pty Ltd facility totals $27.000 million (denominated in AUD), with funding
provided based upon the Group’s accounts receivable book. 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 facility expires on 31 July 2021, discussions are however progressing with multiple financiers with
a view to extending the current facility or replacing it with a new facility.
DLL Financing
The DDL financing facility was established to provide finance within the Hills Health Solutions
business for patient entertainment equipment at hospital locations. The facility incorporates a
Progressive Payment Agreement (PPA), an interest only facility to support cashflow as the equipment
is installed.
Upon installation of the equipment, the PPA is replaced by a set term Chattel Mortgage which is
repaid progressively over a 5‐year term.
At 30 June 2020, the Group had drawn down $2.302 million. (2019: $3.374 million)
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 4.6, 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 date.
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.
Annual report for the year ended 30 June 2020 Hills Limited 63
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Derivative financial instruments
4.5.
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 4.6).
Derivative financial instruments
Comprising
Cash flow hedge
Foreign exchange loss
Closing balance
Reconciliation of movement
Opening balance
Foreign exchange movements
Closing balance
2020
$’000
(4,578)
(400)
(4,178)
(4,578)
(106)
(4,472)
(4,578)
2019
$’000
(106)
(106)
‐
(106)
93
(199)
(106)
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 2020, no gain or loss was recognised in profit or loss for the
ineffective portion of these hedging contracts (2019: nil), however $0.212 million loss, net of
tax (2019: loss of $0.198 million) was recognised in the statement of comprehensive income.
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. Changes in the fair value of these
contracts is taken directly to the profit and loss.
During the year, foreign exchange contracts beyond the normal three to four month time frame
were taken out for the purpose of mitigating exchange fluctuations.
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
Annual report for the year ended 30 June 2020 Hills Limited 64
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
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.
Annual report for the year ended 30 June 2020 Hills Limited 65
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
4.6.
Financial instruments: Measurement and Financial risk management
Classification and measurement
The carrying values of financial assets and liabilities of the Group approximate their fair value.
The Group measures and recognises in the statement of financial position on a recurring basis certain assts and liabilities at fair value in
accordance with AASB 13 Fair Value Measurement. The fair value must be estimated for recognition and measurement in accordance
with the following hierarchy:
Level 1
Level 2
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).
Level 3
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:
As at 30 June 2020
Assets
Derivatives financial instruments
Liabilities
Derivatives financial instruments
As at 30 June 2019
Assets
Derivatives financial instruments
Liabilities
Derivatives financial instruments
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
‐
‐
‐
‐
‐
‐
‐
(4,578)
(4,578)
‐
(106)
(106)
‐
‐
‐
‐
‐
‐
‐
(4,578)
(4,578)
‐
(106)
(106)
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.
Annual report for the year ended 30 June 2020 Hills Limited 66
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Financial risk management
Framework
The Group is involved in activities which expose it to a variety of financial risks including:
i.
ii.
iii.
iv.
Capital risk management,
Credit risk,
Liquidity risk, and
Market risk related currency fluctuations, interest rates and commodity pricing.
The Board has overall responsibility for the establishment and oversight of the financial risk management framework of the Group. 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.
Management identifies, evaluates and manages financial risks in close cooperation with the Group's business units. under policies
approved by the Board.
The objective of the financial risk management strategy is to minimise the impact of volatility in financial markets on the financial
performance, cash flows and shareholder returns. This requires the identification and analysis of relevant financial risks and possible
impact on the achievement of the Groups objectives.
The Group normally uses derivative financial instruments such as foreign exchange contracts exclusively for risk mitigation and not as
trading or other speculative instruments. During the year, foreign exchange contracts beyond the normal three to four month time
frame were taken out to mitigate exchange rate fluctuations.
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
Trade and other receivables
Investments
Financial liabilities
Trade and other payables
Lease liabilities
Borrowings
Derivative financial instruments
2020
$’000
12,236
40,136
2
52,374
29,262
13,903
20,413
4,578
68,156
2019
$’000
10,867
59,194
2
70,063
40,646
‐
39,258
106
80,010
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).
The identified financial risks are discussed below.
Annual report for the year ended 30 June 2020 Hills Limited 67
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
(i) 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 equity
Net debt
Total borrowings as shown in the consolidated statement of financial
position less cash and cash equivalents
Total equity
Equity as shown in the consolidated statement of financial position
(including non‐controlling interests)
The Group continues to maintain a strategy of a target gearing ratio of less than 40%. For comparability purposes the gearing ratio set
out below as at 30 June 2020 has been calculated inclusive and exclusive of the additional lease liabilities introduced into the balance
sheet following the adoption of AASB16 Leases (refer to notes 3.6 and 7.5):
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Gearing ratio ‐ excluding impact of AASB16 Lease
Total lease liabilities
Net debt adjusted to include lease liabilities
Gearing ratio ‐ including lease liabilities calculated under
AASB16
Note
4.4
3.1
3.6
2019
$’000
39,258
(10,867)
28,391
35.2%
2020
$’000
20,413
(12,236)
8,177
44,640
15.5%
13,903
22,080
33.1%
(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 including external credit risk ratings before the
Group’s standard terms and conditions are offered.
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 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.
The ageing of the Group’s trade receivables is analysed in note 3.2.
Annual report for the year ended 30 June 2020 Hills Limited 68
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
(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 4.4. The Group had access to the following undrawn borrowing facilities from
its bankers at the end of the reporting period:
Floating rate
Expiring within one year (bank overdraft)
Expiring beyond one year (loans)
Note
2020
$’000
‐
1,904
1,904
2019
$’000
‐
3,697
3,697
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.
At 30 June 2020
Trade and other payables
Borrowings
Lease liabilities
Derivative financial instruments
Total
At 30 June 2019
Trade and other payables
Borrowings
Derivative financial instruments
Total
Less than 6
months
$’000
6 – 12
months
$’000
Between 1
and 2 years
$’000
Between 2
and 5 years
$’000
29,262
864
2,129
3,243
35,498
40,646
1,878
79
42,603
‐
5,703
2,129
1,335
9,167
‐
1,878
‐
1,878
‐
13,835
3,328
‐
17,163
‐
38,235
‐
38,235
‐
2,877
6,576
‐
9,453
‐
2,807
‐
2,807
Total
contractual
cash flows
$’000
29,262
23,279
14,162
4,578
71,281
40,646
44,798
79
85,523
Carrying
amount
$’000
29,262
20,413
13,903
4,578
68,156
40,646
39,258
106
80,010
Annual report for the year ended 30 June 2020 Hills Limited 69
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
(iv) Market risk
Price risk
Foreign exchange risk
The Group has no material financial exposure to other market price risk as it is not exposed to
equity securities price risk. The Group does not enter into commodity contracts other than to
meet the Group's expected usage requirements.
Foreign exchange risk arises when future commercial transactions and recognised financial assets
and financial liabilities are denominated in currencies other than the Group's functional currency.
The risk is measured using sensitivity analysis and cash flow forecasting.
The Group’s main foreign exchange risk exposure is to US dollars.
Group Entities and business units are required to hedge their foreign exchange risk exposure
using forward exchange contracts.
The Group’s policy is to hedge approximately three to four months of anticipated cash flows
(mainly purchases of inventories) in US dollars. During the year, foreign exchange contracts
beyond this time frame were taken out to mitigate exchange rate fluctuations.
Interest rate risk
Borrowings issued at variable rates expose the Group to interest rate risk. See details of the
Group’s borrowings in note 4.4.
Foreign exchange risk
The Group's exposure to foreign exchange risk at the reporting date, expressed in Australian dollars at the closing exchange rates,
was:
30‐Jun‐20
30‐Jun‐19
Cash at bank
Trade receivables
Trade payables
Forward exchange contracts(1)
Cash at bank
Trade receivables
Trade payables
Forward exchange contracts
Note
USD
A$'000
1,851
103
(10,960)
(59,608)
33
663
(11,424)
(9,421)
EUR
$'000
‐
‐
(419)
‐
‐
‐
(314)
‐
GBP
$'000
‐
‐
(11)
‐
‐
‐
(36)
‐
Total
$'000
1,851
103
(11,390)
(59,608)
33
663
(11,774)
(9,421)
(1) Forward exchange contracts are presented at the gross cash flow amount and these USD contracts will be consumed over the next
6 to 9 months by USD purchases.
Annual report for the year ended 30 June 2020 Hills Limited 70
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Interest rate risk
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 2020 and 2019, 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:
2020
2019
Weighted
average
interest
rate
%
4.38%
0.17%
2.33%
Weighted
average
interest
rate
%
5.82%
1.32%
3.06%
Balance
$’000
(20,413)
12,236
(234)
Balance
$’000
(38,446)
10,867
(812)
Bank overdrafts and loans
Cash and cash equivalents
Other loans
An analysis by maturities is provided in section (iii) above.
Annual report for the year ended 30 June 2020 Hills Limited 71
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Sensitivity analysis
Foreign exchange rates
Interest 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.
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 sensitivity of the Group’s profit and loss and Other equity to a possible 100 basis point change in interest rates and a possible 5%
strengthening or weakening in the US dollar exchange rate are shown in the table below. The analysis assumes that all other variables
remain constant.
30‐Jun‐20
Financial assets
Cash and cash equivalents
Trade and other receivables
Total increase / (decrease) in financial assets
Financial liabilities
Trade & other payables
Borrowings
Derivatives ‐ cash flow hedges
Total increase / (decrease) in financial liabilities
Total increase / (decrease)
30‐Jun‐19
Financial assets
Cash and cash equivalents
Trade and other receivables
Total increase / (decrease) in financial assets
Financial liabilities
Trade & other payables
Borrowings
Derivatives ‐ cash flow hedges
Total increase / (decrease) in financial liabilities
Total increase / (decrease)
Carrying
amount
$'000
12,236
40,136
(29,262)
(20,413)
(4,578)
10,867
59,194
(40,646)
(39,258)
(106)
Interest rate risk
‐100 bps
+100 bps
Profit
$'000
Profit
$'000
(22)
(22)
‐
219
219
197
(103)
‐
(103)
‐
275
‐
275
172
155
155
‐
(219)
(219)
(64)
148
‐
148
‐
(275)
‐
(275)
(127)
‐5%
Profit
$'000
206
12
218
(1,265)
‐
2,492
1,227
1,445
4
74
78
(1,317)
‐
‐
(1,317)
(1,239)
Foreign exchange risk
Other
equity
$'000
‐
‐
‐
‐
422
422
422
‐
‐
‐
‐
‐
1,135
1,135
1,135
+5%
Profit
$'000
(169)
(9)
(178)
1,035
(2,255)
(1,220)
(1,398)
(3)
(60)
(63)
1,078
‐
‐
1,078
1,015
Other
equity
$'000
‐
‐
‐
‐
(382)
(382)
(382)
‐
‐
‐
‐
‐
(784)
(784)
(784)
Annual report for the year ended 30 June 2020 Hills Limited 72
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Section 5: Group structure
This section provides information on the Hills Limited Group structure, including business acquisitions and disposals, controlled entities and
related parties:
Interests in other entities
5.1
5.2 Parent entity financial information
5.3 Deed of cross guarantee
Interests in other entities
5.1.
Investments in subsidiaries
The controlled entities of the Group listed below were wholly owned during the current and prior year, unless otherwise stated.
New Zealand
Hills NZ Limited
Australia
Hills Finance Pty Ltd
Hills Group Operations Pty Ltd
Hills Integrated Solutions 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
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
Step Electronics 2005 Pty Ltd
Lan 1 Pty Ltd
Woodroffe Industries Pty Ltd
ACN 091 954 442 Pty Ltd
ACN 099 403 139 Pty Ltd
Zen 99 Pty Ltd
ACN 010 853 817 Pty Ltd
ACN 094 103 090 Pty Ltd
ACN 093 760 895 Pty Ltd
Access Television Services Pty Ltd
ACN 614 478 090 Pty Ltd
These controlled entities are a party to a Deed of Cross Guarantee between those group entities and the Company pursuant to ASIC Corporations (wholly owned
Companies) Instrument 2016/785 and are not required to prepare and lodge financial statements and directors report (refer note 5.3). The Company and those
group entities are the “Closed Group’.
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.
Annual report for the year ended 30 June 2020 Hills Limited 73
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Parent entity financial information
5.2.
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
Total equity
Loss for the year
Total comprehensive income
2020
$’000
77,550
44,702
122,252
45,064
32,547
77,611
44,641
2019
$’000
97,660
42,924
140,584
81,665
39,549
121,214
19,370
278,439
278,439
(423)
762
32,859
(134)
751
32,859
(266,996)
(292,545)
44,641
(6,438)
(25,549)
19,370
(15,447)
(15,245)
Parent entity guarantees, contingent liabilities and commitments
Guarantees
Bank guarantees given by the Company in favour of customers and suppliers amounted to $2.062 million
(2019: $2.466 million).
Cross guarantees are given by the Company and its wholly owned subsidiaries as described in note 5.3. 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.
Contingent
liabilities
The parent entity had a contingent liability in respect of claims, as disclosed in note 6.1. For information about
guarantees given by the parent entity, please see above.
Contractual
commitments
As at 30 June 2020, the Company had $nil contractual commitments for the acquisition of plant, equipment or
intangible assets (2019: $2.061 million). These commitments are not recognised as liabilities as the relevant
assets have not yet been received.
Annual report for the year ended 30 June 2020 Hills Limited 74
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Deed of cross guarantee
5.3.
The Company and each of the wholly owned subsidiaries identified in note 5.1 are relieved from the Corporations Act 2001
requirements for preparation, audit and lodgement of their financial report pursuant to ASIC Corporations (Wholly‐owned Companies)
Instrument 2016/785.
The Company and each of these subsidiaries have entered 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.
A summarised consolidated income statement, a summarised consolidated statement of comprehensive income, a summary of
movements in consolidated retained earnings for the year ended 30 June 2020 and a summarised consolidated statement of financial
position as at 30 June 2020 of the Company and controlled entities that are a party to the Deed (the Closed Group), after eliminating all
transactions between parties is set out as follows:
Summarised consolidated income statement
Revenue from continuing operations
Other income
Finance costs
Other expenses
Loss before income tax
Income tax expense
Profit/ (Loss) for the year
Summarised 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 profit / (loss) for the period, net of tax
Total comprehensive profit / (loss) for the year
Summary of movements in consolidated retained earnings
2020
$’000
209,905
67
(3,532)
2019
$’000
251,566
533
(3,273)
(209,441)
(262,472)
(3,001)
(13,646)
‐
(3,001)
5,603
(8,043)
(387)
175
(212)
(3,213)
(198)
‐
(198)
(8,241)
Accumulated losses at the beginning of the reporting period
(241,029)
(232,786)
Adjustment on initial application of AASB 9
Adjustment on initial application of AASB 16
Profit / (Loss) for the year
‐
(842)
(3,001)
(200)
‐
(8,043)
Accumulated losses at the end of the reporting period
(244,872)
(241,029)
Annual report for the year ended 30 June 2020 Hills Limited 75
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Summarised statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Total current assets
Non‐current assets
Investments
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non‐current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
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
2020
$’000
10,952
39,187
22,359
72,498
814
12,118
3,745
16,322
32,999
2019
$’000
9,935
56,693
37,879
104,507
814
14,969
2,069
16,295
34,147
105,497
138,654
31,757
6,113
5,399
4,578
47,847
12,896
2,510
15,406
63,253
42,244
41,407
15,299
8,522
106
65,334
22,555
4,478
27,033
92,367
46,287
278,439
8,677
278,439
8,877
(244,872)
(241,029)
42,244
46,287
Annual report for the year ended 30 June 2020 Hills Limited 76
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Section 6: 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.
6.1 Contingencies
6.2 Commitments
6.1.
The Group had contingent liabilities at 30 June 2020 in respect of:
Contingencies
Claims
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.
Three claims are the subject of legal expenses and these form part of Other costs as disclosed in note 2.4 to
these financial statements. One claim relates to a dispute concerning a third‐party contract. The other two
claims are employee related. In all cases liability is denied and the Group is defending the claims.
Based on legal advice, 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 or the amount of the
obligation cannot be measured with sufficient reliability.
In consultation with the Environmental Protection Authority, ground water contamination potentially originating
from two of the Company’s former Adelaide sites 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.
Guarantees
Bank guarantees in favour of customers and suppliers totalling $2.062million (2019: $2.466million).
6.2.
Commitments
Capital commitments
Plant, equipment and intangible assets
Lease commitments ‐ Group as Lessee
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
Lease commitments ‐ Group as Lessor
Within one year
Later than one year but not later than five years
2020
$’000
2019
$’000
‐
58
175
45
‐
220
‐
‐
‐
5,938
13,939
978
20,855
368
185
553
Lease commitments due within one year represent short term and low value lease liabilities for which the Group elected to not recognise a
right‐of‐use asset and lease liability. For these leases, the Group recognises the lease payments as an expense on a straight‐line basis over
the lease term.
Annual report for the year ended 30 June 2020 Hills Limited 77
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Until the end of the comparative period, leases were accounted for by applying the principles of AASB117 Leases, which classified
arrangements as either finances leases or operating leases and accordingly future lease commitments were disclosed. From 1 July 2019,
the Group accounting policy changed so that leases are recognised by applying the principles of AASB16 Leases. Under the new standard,
leases are recognised as right‐of‐use assets with a corresponding lease liability.
Refer to note 3.6 for further information.
Annual report for the year ended 30 June 2020 Hills Limited 78
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Section 7: Other information
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:
Share‐based payments
7.1
7.2 Related party transactions
7.3 Events after the reporting period
7.4 Remuneration of auditors
7.5 New and amended accounting standards and interpretations
Share‐based payments
7.1.
Employee performance rights
In 2010, the Group established the Incentive Share Plan. The Incentive Share Plan 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).
The only current participant is the CEO and MD, Mr David Lenz.
Details of performance rights under the Incentive Share Plan are as follows:
Grant date
Expiry
date
2020
31/7/17
27/8/18
30/8/19
2019
1/9/16
31/7/17
27/8/18
30/6/20
30/6/21
30/8/22
1/9/18
30/6/20
30/6/21
Total
Total
Share
price at
grant
date
$
0.195
0.195
0.195
0.340
0.195
0.195
Balance at
start of
the year
Number
Granted
during the
year
Number
Exercised/vested
during the year
Number
Forfeited /
cancelled
during the
year
Number
Balance at
the end of
the year
Number
Vested &
exercisable
at the end
of the year
Number
79,576
158,917
‐
238,493
100,000
127,322
‐
227,322
‐
‐
78,649
78,649
‐
‐
198,646
198,646
(79,576)
(59,594)
(15,730)
(154,900)
(100,000)
(47,746)
(39,729)
(187,475)
‐
‐
‐
‐
‐
‐
‐
‐
‐
99,323
62,919
162,242
‐
79,576
158,917
238,493
‐
‐
‐
‐
‐
‐
‐
The fair value is assessed in accordance with AASB 2 Share Based Payments at the grant date of the performance rights.
Expenses arising from share‐based payment transactions
Total expense arising from share‐based payment transactions recognised during the period as part of employee benefit expense were
$10,686 (2019: $13,378), as disclosed in note 2.4.
Recognition and measurement
Share‐based payments
Share based compensation benefits are provided to employees via the Incentive Share Plan – see below:
Incentive Share Plan
The Incentive Share Plan allows Group executives to acquire shares of the Company.
The fair value of performance rights granted under the 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
Annual report for the year ended 30 June 2020 Hills Limited 79
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
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 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.
7.2.
Related party transactions
Non‐Key management personnel disclosures
The Group has a related party relationship with its controlled entities (Note 5.1). The Company and its controlled entities engage in a
variety of related party transactions in the ordinary course of business. These transactions are conducted on normal terms and
conditions.
Loans
Group entity trading transactions and borrowings result in balances arising in respect of current and non‐current assets and liabilities.
These balances are eliminated in full on consolidation.
Transactions
Amounts for any related party transactions are billed and payable under normal commercial terms and conditions as a supplier and as a
customer.
Key management personnel disclosures
Key remuneration disclosures
Short‐term employee benefits (fixed and variable incentive
remuneration)
Post‐employment benefits (superannuation)
Long term benefits (cash variable component under the Incentive
Share Plan and accrued long service leave)
Termination benefits
Share‐based payments (performance rights variable component
under the Incentive Share Plan and employee share bonus plan
expense)
Detailed remuneration disclosures are provided in the Remuneration Report.
Loans and other transactions with Key Management Personnel
No KMP have loans to or from the Group (2019: nil).
2020
$
2019
$
1,611,493
2,042,928
156,767
151,886
35,520
34,133
‐
‐
10,686
13,378
1,814,466
2,242,325
During the current financial year, there were no related party transactions with KMP or their related entities (2019: nil).
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.
Annual report for the year ended 30 June 2020 Hills Limited 80
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Events after the reporting period
7.3.
Subsequent to balance date, there have been further exchange rate movements impacting the company’s foreign exchange hedges,
amounting to a mark‐to‐market loss of $2.3 million, based on exchange rates immediately prior to the release of these financial
statements. This amount has not been adjusted in the reported consolidated statement of profit and loss. Management and the Board
have established strategies to minimise further losses.
There were no other events subsequent to balance date that would have a material effect on the Group’s financial statements at 30
June 2020.
Remuneration of auditors
7.4.
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
2020
$
2019
$
263,000
43,500
306,500
‐
288,000
43,500
331,500
‐
Total remuneration for audit and other assurance services
306,500
331,500
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
900
‐
900
‐
‐
15,425
4,619
20,044
2,285
2,285
307,400
353,829
Annual report for the year ended 30 June 2020 Hills Limited 81
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
New and amended accounting standards and interpretations
7.5.
Newly effective standards for the year ended 30 June 2020 adopted by the Group
The following standards and interpretations became effective and were applied for the first time during the year ended 30 June 2020:
AASB2018‐7 Amendments
to accounting standards –
Definition of material.
Clarifies the definition of material and its application across AASB Standards and other
pronouncements. The principle amendments are to AASB101 Presentation of Financial
Statements.
AASB2019 ‐1 Conceptual
Framework
The Conceptual Framework for Financial Reporting is the foundation on which the IASB develops
new accounting standards. The revised framework includes some new concepts, provides
updated definitions and recognition criteria for assets and liabilities and clarifies some important
concepts. The changes may affect the application of accounting standards in situations where no
standard applies to a particular transaction or event.
AASB16 Leases
Effective 1 July 2019, the group adopted AASB16 Leases. As described in note 3.6, AASB16
introduced a comprehensive model for the identification and accounting treatments of lease
arrangements for both lessors and lessees. AASB16 superseded AASB 117 Leases and the related
interpretations when it became effective on 1 July 2019. AASB16 requires the recognition of lease
liabilities and right of use assets in relation to leases which had previously been classified as
operating leases under AASB117.
Short‐term leases (less than 12 months) and leases of low value assets (such as personal
computers) are exempt from the lease accounting requirements.
Except for AASB16 Leases, these had no material impact on the Group’s consolidated financial statements. The impact of ASSB16 Leases
is detailed below.
Adoption of AASB16 Leases – Impact
Right‐of‐use asset
Retained earnings‐ AASB16 transition adjustment
Lease Liabilities
Operating lease commitments at 30 June 2019 as disclosed in the Group’s
consolidated financial statements
Discounted using the incremental borrowing rate at 1 July 2019
Right‐of‐use assets
Balance at 1 July 2019
Onerous lease adjustment
Lease incentive
Depreciation of right of use asset
Additions
Balance at 30 June 2020
Lease liabilities
Balance at 1 July 2019
Reduction in liability
Balance at 30 June 2020
Comprising:
Current lease liability
Non‐current lease liability
Balance at 30 June 2020
Property
$’000
15,293
(1,814)
(1,110)
(3,640)
771
9,500
Cars and
forklifts
$’000
1,928
‐
‐
(638)
31
1,321
Transition
1/07/2019
$’000
17,221
960
(18,181)
20,855
18,181
Total
$’000
17,221
(1,814)
(1,110)
(4,278)
802
10,821
Total
$’000
18,181
(4,278)
13,903
4,258
9,645
13,903
When measuring lease liabilities for leases that were previously classified as operating leases, the Group discounted lease payments using a
borrowing rate of 4.6%.
Annual report for the year ended 30 June 2020 Hills Limited 82
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
New accounting standards and interpretations not yet adopted by the Group
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020 reporting periods and
have not been early adopted by the Group. The impact of these new standards and interpretations is not considered material.
Annual report for the year ended 30 June 2020 Hills Limited 83
Notes to the consolidated financial statements (continued)
For the year ended 30 June 2020
Directors' declaration
For the year ended 30 June 2020
In the opinion of the Directors of Hills Limited (the Company):
(a)
the consolidated financial statements and notes set out on pages 31 to 83 and the Remuneration Report on pages 16 to 29
are in accordance with the Corporations Act 2001, including:
(i)
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
giving a true and fair view of the Group's financial position as at 30 June 2020 and of its performance for the
financial year ended on that date; and
(b)
(c)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable; and
there are reasonable grounds to believe that the Company and the Group Entities identified in note 5.1 will be able to meet
any obligations or liabilities to which they are, or may become, subject to by virtue of the Deed of Cross Guarantee between
the Company and those Group Entities pursuant to ASIC Corporations (Wholly‐owned Companies) Instrument 2016/785.
Section 1 of the notes confirms that the consolidated financial statements also comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer & Managing Director, and Chief Financial Officer required
by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Jennifer Hill‐Ling
Director
Sydney
31 August 2020
Philip Bullock AO
Director
Annual report for the year ended 30 June 2020 Hills Limited 84
Independent Auditor’s Report
To the shareholders of Hills Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of
Hills Limited (the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance with
the Corporations Act 2001, including:
giving a true and fair view of the Group's
financial position as at 30 June 2020 and
of its financial performance for the year
ended on that date; and
The Financial Report comprises:
Consolidated statement of financial position as at 30
June 2020;
Consolidated statement of profit or loss, consolidated
statement of comprehensive income, consolidated
statement of changes in equity and consolidated
statement of cash flows for the year ended 30 June
2020;
Notes including a summary of significant accounting
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
policies; and
Directors' Declaration.
The Group consists of the Company and the entities it
controlled at the year end or from time to time during the
financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of
the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the
Code.
KPMG, an Australian partnership and a member
firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved
under Professional Standards
Legislation.
Key Audit Matters
The Key Audit Matters we identified are:
• Valuation of finished goods inventory;
•
Impairment assessment of non-financial
assets; and
• Revenue cut-off.
Key Audit Matters are those matters that, in our
professional judgement, were of most significance
in our audit of the Financial Report of the current
period.
These matters were addressed in the context of
our audit of the Financial Report as a whole, and in
forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Valuation of finished goods inventory (Finished goods - $26.842 million, inventory provision
$3.419 million)
Refer to Note 3.3 to the Financial Report
The key audit matter
How the matter was addressed in our audit
Valuation of finished goods inventory is a key audit
matter due to the:
Size of the finished goods inventory balance,
which is significant to the Group’s financial
position (22% of total assets).
Group’s broad range of technology products
that are at risk of being superseded by
technological advances or have been sourced
under specific distribution arrangements, or
for a specific customer.
Extent of judgement involved in determining
the recoverable value, particularly in relation to
slow moving and obsolete inventory.
The most significant areas of judgement we
focused on was in assessing the Group’s:
Expected selling price of inventory.
Ageing of inventory.
Future inventory usage.
We involved our senior audit team members in
assessing this key audit matter.
Our procedures included:
We assessed the appropriateness of the
Group's accounting policies for the valuation of
finished goods inventory against the
requirements of the accounting standards and
our understanding of the business.
We attended cyclical stocktakes in significant
locations which included observing the
stocktake procedures, and the process of
identifying slow moving and potentially obsolete
inventory.
We used current year selling price and resulting
gross margin for each product to identify
evidence of negative gross margin products. We
compared these negative gross margin products
to the inventory obsolescence provision.
We obtained the calculation of the inventory
provision and compared it to the Group’s
accounting policies, the Group’s analysis of slow
moving inventory and current year actual sales
and usage.
We assessed the level of provision in light of
our understanding of the business and
knowledge of the industry in which the Group
operates.
Impairment assessment of non-financial assets
Refer to Note 3.5 to the Financial Report
The key audit matter
How the matter was addressed in our audit
Our procedures included:
We considered the appropriateness of the value
in use method applied by the Group to perform
impairment testing against the requirements of
the accounting standards.
We assessed the integrity of the value in use
models, including the accuracy of the underlying
calculations.
We compared the forecast cash flows contained
in the value in use models to Board approved
forecasts.
We checked the consistency of the Group’s
forecast cash flows to the Group’s stated plans
and strategy.
We assessed the accuracy of previous Group
forecasts to inform our evaluation of forecasts
included in the value in use models.
We considered the sensitivity of the value in
use models by varying key assumptions such as
forecast operating cash flows and growth rates
within a reasonably possible range, to identify
those assumptions at higher risk of bias and to
focus our further procedures.
Working with our valuation specialists we
independently developed a discount rate range
considered comparable using publicly available
market data for comparable entities.
We assessed the Group’s disclosures against
the requirements of Australian Accounting
Standards.
The impairment assessment using AASB 136
Impairment of non-financial assets is a key audit
matter given the carrying amount of the net assets
of the Group exceeded the Group’s market
capitalisation at year end, increasing the possibility
of non-financial assets being impaired.
The Group has incurred a loss during the year, as a
result of COVID-19 trading conditions, foreign
exchange adjustments and inventory provisions.
COVID-19 trading conditions have impacted the
Group through a reduction in the demand for
products and services and project deferrals.
We focussed on the significant forward looking
assumptions the Group applied in their value in
use models, including:
Forecast operating cash flows, growth rates
and terminal growth rates - the Group have
not met prior forecasts, and has incurred a
loss in the current year, raising our concern
over reliability of current forecasts. The
current economic conditions increase the risk
of inaccurate forecasts for us to consider.
Forecast growth rates - the Group's models
are sensitive to small changes in these
assumptions, reducing available headroom.
This drives additional audit effort specific to
their feasibility and consistency of application
given the Group's strategy.
Discount rate - the Group's modelling is
sensitive to small changes in the discount
rate. We involve our valuations specialists in
the assessment.
The VIU models are internally developed and use a
range of internal and external data as inputs.
Forward looking assumptions may be prone to
greater risk of potential bias or error.
We involved valuation specialists to supplement
our senior team members in assessing this key
audit matter.
Revenue cut-off (Revenue - $220.083 million)
Refer to Note 2.2 to the Financial Report
The key audit matter
How the matter was addressed in our audit
Revenue cut-off is a key audit matter due to the:
Our procedures included:
The high number of transactions.
Extent of judgement involved in recording
revenue in the appropriate financial period.
This includes consideration of when a
customer obtains control of the goods, or in
proportion to the stage of completion for
services rendered.
We involved our senior audit team members in
assessing this key audit matter.
We assessed the appropriateness of the
Group's accounting policies for the recognition
of revenue against the requirements of the
accounting standards and our understanding of
the business.
We sample tested significant sales recorded pre
and post balance date to verify they had been
recorded in the correct financial period.
We checked the percentage of completion at
balance date for a sample of projects where the
performance obligation is satisfied over time, by
obtaining customer confirmation.
We assessed the disclosures in the financial
report using our understanding obtained from
our testing and against the requirements of the
accounting standard.
Other Information
Other Information is financial and non-financial information in Hills Limited’s annual reporting which is
provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the
Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and
will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001;
implementing necessary internal control to enable the preparation of a Financial Report that gives a
true and fair view and is free from material misstatement, whether due to fraud or error; and
assessing the Group and Company's ability to continue as a going concern and whether the use of the
going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless they either intend to
liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing
and Assurance Standards Board website: http://www.auasb.gov.au/auditors_responsibilities/ar1_2020.pdf.
This description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report
of Hills Limited for the year ended 30
June 2020, complies with Section 300A
of the Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report in
accordance with Section 300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included in pages
19 to 30 of the Directors’ report for the year ended 30 June
2020.
responsibility
Our
the
Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
to express an opinion on
is
KPMG
Paul Cenko
Partner
Adelaide
31 August 2020
Shareholder information
The shareholder information set out below was applicable as at 6 August 2020.
Distribution of equity securities
Analysis of numbers of ordinary shareholders by size of holding:
Size of holding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and Over
Total
There were 7,099 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:
Name
Hills Associates Limited
Poplar Pty Limited
Greybox Holdings Pty Ltd
Cariste Pty Ltd (CARISTE PTY LTD S/FUND A/C)
Jacaranda Pastoral Pty Ltd
Ace Property Holdings Pty Limited
Cambrose Pty Limited
Mr Keith Knowles
Mr Alan Richard Bignell & Mrs Glenda Ellen Bignell
Hart Capital Partners Ltd
V M Nominees Pty Ltd
Mr Rahmon Charles Coupe & Mrs Julia Deborah Coupe
Wilson Asset Management
Mr John Gassner
JMID Pty Ltd
AcomeA
Troca Enterprises Pty Ltd
Mrs Penelope Alice Fox
Mr Peter Howells
Mr Joseph Zanca & Mrs Szerenke Zanca (ZANACORP SUPER FUND A/C)
Substantial shareholders
Substantial holders in the Company are set out below:
Name
Poplar Pty Ltd (1)
Hills Associates Limited
Number of holders
3,679
4,731
1,766
1777
247
12,200
Percentage
30.16%
38.78%
14.48%
14.57%
2.02%
100%
Number of shares
% of shares issued
16,668,441
16,550,845
7,373,738
6,891,872
5,868,699
4,700,000
4,676,510
4,500,000
3,653,530
2,392,343
2,250,000
2,009,000
1,900,000
1,673,751
1,542,549
1,503,972
1,500,000
1,500,000
1,463,564
1,450,000
7.19%
7.13%
3.18%
2.97%
2.53%
2.03%
2.02%
1.94%
1.57%
1.03%
0.97%
0.87%
0.82%
0.72%
0.66%
0.65%
0.65%
0.65%
0.63%
0.63%
Number held % of shares issued
17,845,724
16,668,441
7.69%
7.19%
(1) The total number of shares held includes the joint shareholding held by Poplar Pty Ltd and Hills Associates Limited and the
shareholding held by Ling Nominees Pty Ltd
Annual report for the year ended 30 June 2020 Hills Limited 90
Shareholder information (continued)
Voting rights
The voting rights attaching to each class of equity securities are set out as follows:
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 maybe 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 registry in writing.
Securities exchange
The Company is listed on the Australia Securities Exchange. The home exchange is Sydney.
Annual report for the year ended 30 June 2020 Hills Limited 91
Corporate directory
Registered office
Unit 1, Building F, 3‐29 Birnie Avenue, Lidcombe, NSW 2141
Telephone: (02) 9216 5510
Facsimile: (02) 9216 5999
Web: http://www.hills.com.au
Executives
David John Joseph Lenz, Chief Executive Officer and Managing Director
Christopher Stuart Jacka, Chief Financial Officer
Non‐executive directors
Jennifer Helen Hill‐Ling
Fiona Rosalyn Vivienne Bennett
Philip Bullock AO
Kenneth James Dwyer
David Chambers
Company secretary
David Robert Fox
Share registry
Link Market Services Limited
Locked Bag A14, Sydney South, NSW 1235, Australia
Telephone
Facsimile
Australia and International: +61 2 9287 0303
Australia: +61 1300 554 474
ASX code: HIL
Email: registrars@linkmarketservices.com.au
Web: www.linkmarketservices.com.au
Annual report for the year ended 30 June 2020 Hills Limited 92