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ItronHRL HOLDINGS LIMITED ANNUAL REPORT FOR THE YEAR ENDED 30 June 2015 Index CEO’s Letter Directors’ Report Remuneration Report Auditor’s Independence Declaration Additional ASX Information Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Corporate Information 3 6 16 27 28 30 31 32 33 34 68 69 71 Figure 1 - Asbestos Testing in the Brisbane Laboratory 2 CEO’S LETTER Dear Shareholders, Your Directors and I have much pleasure in presenting the following 2015 Annual Financial Statements for HRL Holdings. Introduction The 2014-15 financial year was an exciting transformational year for your company. A number of material events have taken place throughout this year, not least of which was a change in direction from a geothermal exploration business to a commercial environmental services business. A brief look at the timeline of events over the course of the year includes: Sep 2014 – Acquisition of OCTIEF Pty Ltd, a Brisbane based environmental consultancy and laboratory business Nov 2014 – OCTIEF expands to Darwin and opens a NATA accredited laboratory Dec 2014 – name changed to HRL Holdings Limited, reflecting the change in activities Mar 2015 – Successful capital raise of $5million and relisting on ASX Mar 2015 – Acquisition of Precise Consulting & Laboratory Limited (NZ) May 2015 – Precise expands to Wellington (NZ) and opens a IANZ accredited laboratory Jun 2015 – Precise relocates Christchurch (NZ) business to much larger and fit-for-purpose facility The environmental services are delivered through two brands, being OCTIEF operating within Australia and Precise Consulting & Laboratory operating in New Zealand. The key revenue generating activities for the group currently include: HAZMAT auditing and survey of properties to identify suspected asbestos containing materials, lead and heavy metals; Air, noise and dust environmental monitoring; Mould analysis; Contaminated land management and analysis; and Training services. The group currently delivers the above environmental services through four consulting offices and accredited laboratory facilities in Brisbane, Darwin, Christchurch and Wellington. HRL continues to hold two geothermal exploration tenements in Victoria (GEP6 and GEP8), however, there is no value attributed to these holdings within the FY2015 balance sheet. The development expenditure program remains suspended pending further announcements from the Victorian State Government regarding the moratorium on onshore drilling and fracking. Financial Result for FY2015 The environmental services operating segments of Australia and New Zealand generated profits before tax of $517,443. Australia New Zealand Unallocated Consolidated 30 June 2015 Revenue: $ $ Environmental services revenue 3,263,735 1,405,874 $ - 30,100 $ 4,669,609 30,100 - (1,953) - (1,953) - - (3,162,172) (988,041) (2,446,743) (6,596,956) 99,610 417,833 (2,416,643) (1,899,200) 315,445 (1,583,755) Interest income Expenses: Interest expense Other expenses Segment result Income tax Net Profit/(Loss) Revenue from the New Zealand segment included $418,379 generated by OCTIEF NZ which commenced trading in November and $987,495 from Precise Consulting which joined the HRL Group on 1 April 2014. 3 CEO’S LETTER Due to the complex nature of the merger and acquisition transactions undertaken throughout the financial year and the application required under accounting standards, the financial statements report a statutory loss after income tax of $1,583,755. Excluding these items, the underlying profit position has been assessed to be $29,690 in line with the following non-operating adjustments: Underlying profit after tax Non-operating adjustments (tax effected) Acquisition related expenses Listing expense arising on deemed acquisition Amortisation of intangible assets arising from acquisitions Provision arising on estimate of Precise Earn-out Initial recognition of tax losses Statutory loss after income tax 12 months ended 30 June 2015 $ 29,690 (187,851) (1,252,455) (247,237) (39,725) 113,823 (1,583,755) The results reported above include the operations of Precise for only 3 months of trading from 1 April 2015. For the period 1 July 2014 to 31 March 2015 Precise generated a profit after tax of $778k, as it is prior to the acquisition, which is not reported in the above figures. The group’s balance sheet remains strong with net assets of $6,223,208 and working capital of $864,143. The group has available an undrawn debt facility with Westpac of $3.5m to fund expansion activities. Precise and OCTIEF have secured a number of commercially successful contracts through the year, including: Canterbury University campus wide hazardous materials (“HAZMAT”) 1 year extension of contract with Ergon Energy Completion of the Northern Territory Department of Infrastructure audit of schools Chorus NZ national HAZMAT audit of 840+ assets and expansion of service to include other inspection types Dust monitoring for the Darwin Tiger Brennan Drive project Soil analysis for the Darwin Hospital and RAAF land remediation projects Operational Outlook for FY2016 The HAZMAT testing and consulting work within Australia and New Zealand continues to be the core business for HRL. There are exciting plans for the coming year, which include: Organic growth and improving market share in existing territories through an increase in sales and marketing efforts; Opportunities for geographic expansion through both green fielding operations and targeted strategic acquisitions; and Expanding laboratory testing services through installation of new equipment. HRL has been closely following the upcoming introduction of the New Zealand Asbestos Regulations to accompany the Health and Safety Reform Bill. The current document is modelled around the Australian legislation and will drive a higher level of demand for Precise services throughout New Zealand as businesses need to ensure compliance in areas such as asbestos registers, management plans, IANZ accredited laboratory testing and air monitoring during asbestos removal activities. Precise has a tender pipeline of opportunities with government agencies, councils, corporate and commercial clients. Both the OCTIEF and Precise businesses are currently tendering and negotiating major contracts for Australia and New Zealand. The business focus remains on HAZMAT compliance for major corporate clients and government agencies at all levels of government. 4 CEO’S LETTER In closing, I would like to take this opportunity to thank our Chairman and Board for their guidance over the past year and also to thank all of the HRL Group’s employees for their dedication and hard work. My thanks also to you, our shareholders for your ongoing support in FY15. I look forward to keeping you updated on our progress in FY16 and the transformation of HRL to one of Australia’s and New Zealand’s leading environmental services groups. Steven Dabelstein CEO 5 DIRECTORS’ REPORT DIRECTORS' REPORT Your Directors present their report on the Consolidated Entity consisting of HRL Holdings Limited (“HRL” or “Company”) and the entities it controlled at the end of, or during, the year ended 30 June 2015. DIRECTORS The following persons were directors of HRL Holdings Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Name Kevin Maloney Darren Anderson Mark Elliott John Taylor Position Period of Directorship Non-Executive Chairman Appointed 15 September 2014 Executive Director Appointed 15 September 2014 Non-Executive Director Appointed August 2006 Non-Executive Director Appointed 25 November 2014 Frederick Kempson Alternate Non-Executive Director Appointed 15 September 2014 Peter Barnett Michael Sandy Stephen Bizzell Former Non-Executive Director Appointed December 2007, resigned 25 November 2014 Former Non-Executive Director Appointed June 2007, resigned 15 September 2014 Former Non-Executive Director Appointed September 2009, resigned 14 August 2014 Kevin Maloney Non-Executive Chairman Mr Kevin Maloney is the founder and Chairman of the Australian investment entity Tulla Group and has built an extensive career in retail banking, finance and resources. One of Kevin's many career highlights was as founder and Executive Chairman of The MAC Services Group (The MAC), which was sold to Oil States International in 2010 for $651 million. Kevin was heavily involved in all stages of The MAC’s growth, including its move into mining services accommodation in 1996. Kevin has been involved with numerous public companies as both an executive and director. After spending 20 years with ANZ Bank, Kevin joined Elders Resources Finance Limited in 1981, progressing to Chief Executive Officer before moving on to his own business enterprises. Kevin is currently the Chairman of ASX listed Altona Mining Limited and Integrated Holdings Group Pty Ltd which is the parent company for software vendor OCTFOLIO™ Pty Ltd and previously, the holding company of environmental services group OCTIEF. Mr Maloney is currently a director of the following other ASX listed companies: Altona Mining Limited (appointed July 2009) Norseman Gold plc (appointed July 2012) Darren Anderson Executive Director Mr Darren Anderson was formerly the Executive Director and Chief Operating Officer of Diversified Mining Services Ltd, an unlisted public company that at its peak in mid-2012 had consolidated revenue in excess of $200 million and 850 personnel. Previous career highlights include 15 years spent as founder and Executive Director of the Anderson Group of Companies, which grew from a single person operation in Mackay to a company with in excess of 300 employees and 12 operating divisions across both Queensland and New South Wales that serviced the Australian and international coal industries. Darren is the Executive Director of Integrated Holdings Group Pty Ltd which is the parent company for software vendor OCTFOLIO™ Pty Ltd. Prior to the OCTIEF Acquisition, Integrated Holdings Group Pty Ltd was also the parent company of OCTIEF. 6 DIRECTORS’ REPORT He has not been a Director of any other Australian listed company in the last three years. Mark Elliott Non-Executive Director Dip App Geol., PhD, FAICD, FAusIMM(CP), FSEG Dr Elliott is a Chartered Professional (CP) geologist with over 40 years’ experience in economic geology, exploration, mining, project development and corporate management. He has extensive experience in managing companies and exploration/mining operations in a wide range of commodities including energy. He has a diploma in Applied Geology from the Ballarat School of Mines and a Doctor of Philosophy degree from the University of New South Wales. He is a Fellow of the Australian Institute of Company Directors, Australasian Institute of Mining and Metallurgy and Society of Economic Geologists. Dr Elliott is currently a director of the following other ASX listed company: Nexus Minerals Ltd (Oct 2006 – present) John Taylor Non-Executive Director LLB, Grad Dip ACG Mr Taylor is the founding partner of Taylors Solicitors, Mackay, a Senior Counsellor of the Queensland Law Society and has over 30 years’ experience in commercial and property transactions and litigation. John Taylor was, from 2006 and 2010, a director of ASX listed The MAC Services Group Limited, where he was Chair of the Remuneration and Nomination Committee and a member of the Audit and Risk Management Committee. He is also a former Chair of the Mackay Port Authority and a Board member of Tourism Mackay and Mackay Regional Economic Bureau. He has not been a Director of any other Australian listed company in the last three years. Frederick Kempson Non-Executive Alternate Director BComm Fred Kempson brings a wealth of experience to the Board of Directors from the highly-specialised spectrum of international investment banking and corporate governance. Fred has held a range of senior executive positions within the international investment banking arena including a significant period as Managing Director of ANZ’s investment bank AIFC Limited, and Vice President of Security Pacific Limited. During his time as Vice President of Security Pacific Bank, in 1992 the bank merged with San Francisco-based Bank America (now called Bank of America), in a deal that was at the time one of the largest bank mergers in history. Fred is currently also Managing Director of Kempson Capital, Chairman of Simple Trade, Chairman of Etivity Limited and holds a Bachelor of Commerce from the University of New South Wales. Mr Kempson was a director of the following other ASX listed company: Victor Group Holdings (Jan 2014 – July 2015) 7 DIRECTORS’ REPORT DIRECTOR INTERESTS IN THE SHARES AND OPTIONS OF THE CONSOLIDATED ENTITY As at the date of this report, the interests of the Directors in the shares and options of HRL Holdings Limited are shown in the table below: Director Kevin Maloney Fully Paid Ordinary Shares 45,282,988 Darren Anderson 15,863,563 Unlisted Options - - Mark Elliott John Taylor Frederick Kempson 2,848,634 423,077 923,077 - - - MEETINGS OF DIRECTORS The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2015 and the number of meetings attended by each Director. Meetings attended Eligible to attend Kevin Maloney Darren Anderson Mark Elliott John Taylor Frederick Kempson Peter Barnett Michael Sandy Stephen Bizzell 5 5 5 4 5 1 1 1 5 5 5 4 5 2 1 1 There are no committees of directors. All relevant matters are considered by the Board. SENIOR MANAGEMENT Paul Marshall Company Secretary LLB, ACA Paul Marshall holds a Bachelor of Law degree, a post Graduate Diploma in Accounting and is a Chartered Accountant. He has more than 25 years’ experience initially with Ernst & Young and subsequently fifteen years spent in commercial roles as Company Secretary and CFO for a number of listed and unlisted companies mainly in the resources sector. He has extensive experience in all aspects of company financial reporting, corporate regulatory and governance areas, business acquisition and disposal due diligence, capital raising and company listings and company secretarial responsibilities. Steven Dabelstein Chief Executive Officer BComm, CPA Mr Dabelstein has a strong financial and operational background in various roles, including most recently as General Manager Commercial and QLD Mining/Maintenance Services with Diversified Mining Services Limited. Mr Dabelstein’s experience includes public practice accounting, manufacturing, service and the construction industries. Previous roles have provided exposure to large-scale international businesses reporting through and working with companies in the US, Asia and Europe. 8 DIRECTORS’ REPORT Michael Harvey Chief Finance Officer BBus, B AppSci, Grad Dip ICAA, Grad Dip CSA, CA, GAIA Mr Harvey is a Chartered Accountant and Chartered Secretary. Michael holds Bachelor degrees in Business and Property Economics and post Graduate Diplomas in Accounting and Corporate Governance. Michael has more than 14 years in the accountancy profession in Australia, having worked for PKF for eight years in audit, and subsequently over five years in commercial roles as financial controller for a number of listed companies mainly in the property and resources sector. Michael has experience in all aspects of company financial reporting, internal control, corporate regulatory and governance areas, business acquisition and disposal, due diligence, and company secretarial responsibilities. PRINCIPAL ACTIVITIES The principal operating activities of the Group are environmental consulting and hazardous materials analytical laboratory business with offices and laboratory facilities in Brisbane, Darwin, Christchurch and Wellington. The Group offers services including industrial hygiene, asbestos and hazardous materials management, environmental services (air, water and soil including contaminated land), building contamination assessment, and specialised NATA/IANZ - accredited laboratory analysis and on-site testing and monitoring. Geothermal exploration projects have been placed on care and maintenance while the Company evaluates the best way to develop the projects held. Figure 2 – HRL Group Laboratory Locations ENVIRONMENTAL REGULATION AND PERFORMANCE The Company’s operations are subject to environmental regulations in relation to its consulting and laboratory activities. The Directors are not aware of any breaches during the period covered by this report. REVIEW OF OPERATIONS The 2015 financial year was a year of transition for HRL Holdings Limited. In 2014, the Company undertook a restructuring strategy due to difficulties facing the resource industry and, in particular, the geothermal sector, caused by contraction of investment within global capital markets and inhibiting legislative amendments being introduced. HRL subsequently sold its geothermal projects in Chile and Peru, which were not in a position to create shareholder value in the foreseeable future. Given ongoing uncertainty around Commonwealth and State government support, along with increased regulatory risks associated with decreasing electricity prices for renewable energy, the Board decided to place the remaining Australian geothermal projects on care and maintenance and pursue an expansion of its activities to provide opportunities to grow shareholder value. Acquisition of OCTIEF Pty Ltd On 15 September 2014 the Company announced the completion of the acquisition of an environment services business, OCTIEF Pty Ltd (OCTIEF). OCTIEF operates an environmental consulting and hazardous materials analytical laboratory business with offices and NATA-accredited laboratory facilities in Brisbane and Darwin. 9 DIRECTORS’ REPORT OCTIEF provides services including asbestos and hazardous materials management, industrial hygiene, building and contaminated land assessment, specialised laboratory analysis and on-site testing and monitoring. Figure 3 - Brisbane Facility Figure 4 - OCTIEF Laboratory Staff Key clients of OCTIEF include government agencies, education institutions and major utilities. Acquisition of Precise Consulting and Laboratory Limited On 1 April 2015, HRL acquired Precise Consulting and Laboratory Limited (Precise Consulting). Operating out of Christchurch, New Zealand, Precise Consulting offers a number of services similar to those provided by OCTIEF, to assist companies with the identification and remediation of risks posed to health and safety of both humans and the environment. Precise Consulting provide a range of services and analysis including: contaminated land analysis; soil sampling; dust monitoring; air quality monitoring; and asbestos auditing and building contamination assessment. These studies are carried out in laboratories accredited by IANZ, which is part of the Testing Laboratory Registration Council and New Zealand’s premier accreditation body. Precise Consulting also offers a number of specialised environmental services, including the identification, monitoring and testing of asbestos materials and other occupational hygiene issues. 10 DIRECTORS’ REPORT Figure 5 - Precise new Christchurch Facilities Figure 6 - Precise laboratory staff Key clients of Precise include government agencies, construction firms and major telecommunications companies. Facility Expansion During the year, the Group opened new laboratories in Darwin (November 2014) and Wellington (April 2015). HRL now has the ability to provide its full range of services to the Northern Territory and Wellington markets, providing a new geographic source of organic growth to the Company going forward. Figure 7 - OCTIEF Darwin Facility Figure 8 - Darwin Laboratory 11 DIRECTORS’ REPORT Figure 9 - Precise Wellington Office Figure 10 - Precise Wellington Laboratory Geothermal A moratorium is currently in place on onshore gas exploration in Victoria. As a result of this moratorium, HRL is currently not able to pursue drilling programs on its GEPs in the Otway Sedimentary Basin of Victoria. HRL will not focus any further resources on its geothermal assets until it is satisfied that the projects can be commercially viable. Change of Name At the 2014 AGM shareholders approved the change of the Company’s name to HRL Holdings Limited. This new name will better reflect the expanded nature of the company and the restructure of its operations into separate business divisions. Environmental Services Trading Australia Australian operations experienced subdued trading conditions during the year. A significant portion of OCTIEF’s revenue has traditionally been derived from asbestos auditing of Queensland public sector assets, with the bulk of this work occurring in the second half of the year. The well documented delays in establishing a new Queensland Government had the negative flow on effect of placing this remediation work on hold. To date we are yet to see the Government Departments return to the previous level of workflow, however there are indications that workflow will increase towards the back end of 2015 as the Departments attempt to catch up for lost time. Since opening the new laboratory in Darwin, OCTIEF has secured a steady stream of workflow. The bulk of contracts have come from the NT Department of Infrastructure but more and more new opportunities are arising from other sources. Whilst the Darwin operation will always remain smaller than the Brisbane laboratory, it is expected to remain a profitable branch of the Group and provides geographical coverage not only around the Darwin area, but also across the more remote centres of the Northern Territory. New Zealand Recognising the slowdown in the Queensland and wider Australian market, HRL focussed on moving into the high growth New Zealand market as quickly as possible. Octief Limited (OCTIEF NZ) commenced operations in New Zealand for the first time during November, performing asbestos audits for the University of Canterbury. Following on from this success, OCTIEF NZ was awarded significant contract by Chorus New Zealand Limited to carry out HAZMAT surveys across its extensive property portfolio throughout all of New Zealand. OCTIEF NZ will conduct surveys on over 800 assets across both the North and South Islands of New Zealand. The contract, which commenced in May 2015, is expected to continue through until at least the end of 2015. Precise Consulting has been the outstanding performer for the HRL Group. Taking full advantage of the rebuild activities in the Christchurch region, Precise Consulting has greatly increased both revenue and profitability over the last 12 months. Precise Consulting recently secured new premises in Christchurch to facilitate further growth and expanded into the Wellington region for the first time. Wellington and the surrounding regions are home to a large number of commercial and government organisations. Precise Consulting has already been offered work by a number of these organisations and operations are beginning to ramp up quickly. Both the HRL and Precise team continue to evaluate further geographical expansion opportunities in New Zealand. 12 DIRECTORS’ REPORT FINANCIAL REVIEW Key financial headlines of the HRL Group’s 30 June 2015 results are: Statutory loss after tax of $1,583,755 Underlying profit after tax of $29,690 1 Net assets of $6,223,208 Working capital of $864,143 1 Underlying profit reflects statutory profit as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities of the Group, in accordance with AICD/Finsia principles of recording underlying profit. Underlying profit has not been audited. The following table summarises key reconciling items between the Group’s statutory profit and underlying profit after tax: 12 months ended 30 June 2015 13.5 months from 15 May 2013 to 30 June 2014 $ $ Underlying profit after tax 29,690 1,064,752 Non-operating adjustments (tax effected) Acquisition related expenses Listing expense arising on deemed acquisition Amortisation of intangible assets arising from acquisitions Provision arising on estimate of Precise Earn-out (Employee benefits expense) Gain on bargain purchase price Initial recognition of tax losses (187,851) (1,252,455) (247,237) (39,725) - 113,823 (336,187) - (112,686) - 128,950 - Statutory loss after income tax (1,583,755) 744,829 In the opinion of the Directors, the Group’s underlying profit reflects the results generated from ongoing operating activities and is calculated in accordance with AICD/Finsia principles. The non-operating adjustments outlined above are considered to be non-cash or non-recurring in nature. These items are included in the Group’s consolidated statutory result but excluded from the underlying result. Comparison with the Prior Period Underlying profit after tax for the year decreased by $1,035,062 compared with the prior period. The key reasons for the decrease were: The prior period results represented 13.5 months of trading whereas the FY2015 results are for 12 months; Subdued activity in Queensland as described in the Review of Operations above; Additional administration and corporate costs arising from the OCTIEF business transitioning to an ASX listed entity; Additional employee costs arising from the first time recognition of Board and Executive remuneration in the financial results. The Group has made the necessary appointments during the year to facilitate both the current level of activity across 2 countries and anticipated future expansions. Financial Impact of the Precise Consulting Acquisition HRL acquired the Precise Consulting on 1 April 2015. Accordingly the financial results for FY2015 only incorporate 3 months of trading (April 2015 to June 2015). For the period 1 July 2014 to 31 March 2015, Precise Consulting generated a profit after tax (unaudited) of $777,701. 13 DIRECTORS’ REPORT SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There following significant changes occurred during the year: Acquisition of the Australian based environmental consulting and laboratory services business OCTIEF Pty Ltd (September 2014); Acquisition of the New Zealand based environmental consulting and laboratory services business Precise Consulting and Laboratory Ltd (April 2015); Opening of 2 new laboratories in Darwin (November 2014) and Wellington (April 2015); Restructure of share capital through a 1 for 13 share consolidation (March 2015); Change of name to HRL Holdings Limited (November 2014); and Change of nature of activities to focus on environmental services, hazardous materials management and ongoing $5 million capital raising completed (March 2015); compliance solutions utilising technological platforms. LIKELY DEVELOPMENTS AND FUTURE OPERATIONS During FY2016, the Group will continue to focus on growing both the OCTIEF, OCTIEF NZ and Precise Consulting businesses through: Focussed business development plans to target new customers and protect the existing customer base; Utilising new equipment and software platforms to improved efficiencies and margins; Geographical expansion into new markets when justified; and Capitalise when possible on the introduction of new regulations surrounding the HAZMAT sector. Introduction of new service lines in the New Zealand market which have been traditionally focussed on laboratories; In addition, the Group will continue to evaluate acquisition opportunities of low cost, high quality businesses both within the environmental services sector and across other complimentary industries. INDEMNIFICATION OF OFFICERS OR AUDITOR Each of the Directors and the Secretary of the Company has entered into a Deed with the Company whereby the Company has provided certain contractual rights of access to books and records of the Company and certain indemnification to those Directors and Secretary. The Company has insured all of the Directors of HRL Holdings Limited. The contract of insurance prohibits the disclosure of the nature of the liabilities covered and amount of the premium paid. The Corporations Act 2001 does not require disclosure of the information in these circumstances. The Company has not indemnified its auditor. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purposes of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. SHARE OPTIONS Details of options issued, exercised and expired during the financial year are set out below: Expiry Date 30 November 2015* Exercise Price $0.52 1 July 2014 1,615,385 Movements Issued Exercised Expired - - - 30 June 2015 1,615,385 * Number of options and pricing adjusted for the 1:13 share consolidation Since year end no options have been exercised and as at the date of this report there were 1,615,385 options on issue. 14 DIRECTORS’ REPORT AFTER BALANCE DATE EVENTS Issue of OCTIEF Milestone Shares The Company confirms that as per Milestone 3 under the OCTIEF acquisition agreement, full year revenue for FY2015 to equal or exceed $4.25M, has not been met. If the target had been met in full then 4,934,682 shares would have been issuable to the vendors. As the target was not met in full the Company, in accordance with the agreement, will issue a reduced number of 4,353,006 shares to the OCTIEF vendors in due course. REMUNERATION REPORT The Remuneration Report set out on pages 16 to 26 provides details of the remuneration and equity holdings of the Directors and Key Management Personnel, including details of equity instruments issued or exercised during the financial year, or outstanding at the date of this report, and forms part of the Directors’ Report. DIVIDENDS No dividends were paid or declared during the financial year. AUDITOR’S INDEPENDENCE DECLARATION The Auditor’s Independence Declaration on page 27 forms part of the Directors’ Report. Signed in accordance with a resolution of the board of directors of HRL Holdings. Darren Anderson Director Brisbane, 28 August 2015 15 REMUNERATION REPORT - AUDITED This report details the nature and amount of remuneration for Directors and Key Management Personnel of the Company. Remuneration Policy The performance of the Company depends upon the quality of its Directors and Executives. To prosper, the Company must attract, motivate and retain highly skilled Directors and Executives. Remuneration Committee The Board does not have Remuneration or Nomination Committees. The full Board is responsible for determining and reviewing compensation arrangements for the Directors and the Executive team. The Board assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and Executive team. Officers are given the opportunity to receive their base emoluments in a variety of forms including cash and fringe benefits. It is intended that the manner of payments chosen will be optimal for the recipient without creating undue cost for the company. Remuneration structure It is the Company’s objective to provide maximum stakeholder benefit from the retention of a high quality Board and Executive team by remunerating Directors and other Key Management Personnel fairly and appropriately with reference to relevant employment market conditions. To assist in achieving this objective, the Board considers the nature and amount of Executive Directors’ and Officers’ emoluments alongside the company’s financial and operational performance. The expected outcomes of the remuneration structure are the retention and motivation of key Executives, the attraction of quality management to the Company and performance incentives which allow Executives to share the rewards of the success of the company. In accordance with best practice corporate governance, the structure of Executive and Non-Executive Director remuneration is separate and distinct. Non-Executive Director Remuneration The Board seeks to set aggregate remuneration at a level which provides the company with the ability to attract and retain Directors of the highest caliber, whilst incurring a cost which is acceptable to shareholders. The Constitution of HRL Holdings Limited and the ASX Listing Rules specify that the Non-Executive Directors are entitled to remuneration as determined by the Company in a General Meeting to be apportioned among them in such manner as the Directors agree and, in default of agreement, equally. The maximum aggregate remuneration currently approved by shareholders for Directors’ fees is for a total of $250,000 per annum. If a Non-Executive Director performs extra services, which in the opinion of the Directors are outside the scope of the ordinary duties of the Director, the company may remunerate that Director by payment of a fixed sum determined by the Directors in addition to or instead of the remuneration referred to above. Non-Executive Directors are entitled to be paid travel and other expenses properly incurred by them in attending Directors or General Meetings of the Company or otherwise in connection with the business of the Company. The remuneration of Non-Executive Directors for the year ended 30 June 2015 is detailed in this Remuneration Report. Executive Directors and Senior Management Remuneration The Company aims to reward Executive Directors and Senior Management with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to: reward Executives for Company and individual performance against targets set by reference to appropriate benchmarks; align the interests of Executives with those of shareholders; link reward with the strategic goals and performance of the Company; and ensure total remuneration is competitive by market standards. The remuneration of the Executive Directors and Senior Management may from time to time be fixed by the Board. As noted above, the Board’s policy is to align Executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering long-term incentives. The level of fixed remuneration is set so as to provide 16 REMUNERATION REPORT - AUDITED a base level of remuneration which is both appropriate to the position and is competitive in the market. Fixed remuneration is reviewed annually by the Board, and the process consists of a review of company wide and individual performance, relevant comparative remuneration in the market and internal, and where appropriate, external advice on policies and practices. In relation to the payment of bonuses, options and other incentive payments, discretion is exercised by the Board, having regard to the overall performance of the Company and the performance of the individual during the year. The remuneration of the Executive Directors and Senior Management for the period ended 30 June 2015 is detailed in this Remuneration Report. Employment contracts It is the Board’s policy that employment agreements are entered into with all Directors, Executives and employees. The current employment agreement with the Executive Director and CEO has a three month notice period. All other employment agreements have one month (or less) notice periods. No current employment contracts contain early termination clauses. All Non-Executive Directors have contracts of employment. None of these contracts have termination benefits. Non-Executive Chairman Arrangements The Company entered into a service arrangement with Mr Kevin Maloney as Non-Executive Chairman of the Company commencing from 15 September 2014. The key terms of the arrangement are: Ongoing contract – no fixed term; Fee of $75,000 per annum; No notice period. Non-Executive Director Arrangements The Company entered into a service arrangement with Dr Mark Elliott and Mr John Taylor as Non-Executive Directors of the Company commencing from 15 September 2014 and 25 November 2014 respectively. The key terms of the arrangement are: Ongoing contract – no fixed term; Fee of $40,000 per annum; No notice period. Executive Director Arrangements The Company entered into an employment contract with Mr Darren Anderson as Executive Director of the Company commencing from 15 September 2014. The key terms of the contract are: Ongoing contract – no fixed term; Salary of $250,000 per annum, inclusive of statutory superannuation contributions; 6 weeks annual leave; 80% reimbursement of the lease costs of a motor vehicle; 80% reimbursement of the lease costs of apartment accommodation in Brisbane; Annual bonus of up to $50,000 per annum based on the following targets: o Operating EBIT (excluding corporate costs) of $1.5M – bonus of $20,000; o Share price of at least $0.13 at 30 June 2015 - bonus of $20,000; o Operating EBIT (excluding corporate costs) of $1.8M – bonus of $50,000; o Share price of at least $0.195 at 30 June 2015 - bonus of $50,000; 3 month notice period. 17 REMUNERATION REPORT - AUDITED Chief Executive Officer Arrangements The Company entered into an employment contract with Mr Steven Dabelstein as Chief Executive Officer of the Company commencing from 1 January 2015. The key terms of the contract are: Ongoing contract – no fixed term; Salary of $250,000 per annum, inclusive of statutory superannuation contributions; 4 weeks annual leave; Use of a company motor vehicle; Annual bonus of up to $50,000 per annum (pro-rata for service period) based on the following targets: o Operating EBIT (excluding corporate costs) of $1.5M – bonus of $20,000; o Share price of at least $0.13 at 30 June 2015 - bonus of $20,000; o Operating EBIT (excluding corporate costs) of $1.8M – bonus of $50,000; o Share price of at least $0.195 at 30 June 2015 - bonus of $50,000; 3 month notice period. Chief Finance Officer Arrangements The Company entered into a service arrangement with Mr Michael Harvey as Chief Finance Officer of the Company commencing from 15 September 2014. The key terms of the arrangement are: Ongoing contract – no fixed term; Fee of $65,700 per annum, inclusive of statutory superannuation contributions; One month notice period. Company Secretary Arrangements The Company entered into a service arrangement with Mr Paul Marshall as Company Secretary of the Company commencing from 15 September 2014. The key terms of the arrangement are: Ongoing contract – no fixed term; Fee of $52,000 per annum, inclusive of statutory superannuation contributions; One month notice period. 18 REMUNERATION REPORT - AUDITED Details of Directors and other Key Management – HRL Holdings Limited Name Directors Position Period of Service Kevin Maloney Non-Executive Chairman Appointed 15 September 2014 Darren Anderson Executive Director Appointed 15 September 2014 Mark Elliott John Taylor Non-Executive Director Appointed August 2006 Non-Executive Director Appointed 25 November 2014 Frederick Kempson Alternate Non-Executive Director Appointed 15 September 2014 Former Directors Peter Barnett Michael Sandy Stephen Bizzell Key Management Steven Dabelstein Michael Harvey Paul Marshall Former Non-Executive Director Appointed December 2007, resigned 25 November 2014 Former Non-Executive Director Appointed June 2007, resigned 15 September 2014 Former Non-Executive Director Appointed September 2009, resigned 14 August 2014 Chief Executive Officer Appointed 1 January 2015 Chief Finance Officer Company Secretary Appointed 15 September 2014 Appointed July 2007 Details of Directors and other Key Management – OCTIEF PTY LTD (for the period 15 May 2013 to 15 September 2014) Name Directors Kevin Maloney Darren Anderson Position Period of Service Non-Executive Director Appointed 15 May 2013 Executive Director Appointed 15 May 2013 Mr Kevin Maloney and Mr Darren Anderson did not receive any remuneration from OCTIEF Pty Ltd for both: The period 15 May 2013 to 30 June 2014; and The period 1 July 2014 to 15 September 2015. 19 REMUNERATION REPORT Remuneration of Directors and other Key Management Personnel – 2015 OCTIEF Pty Ltd - No remuneration was paid to key management personnel of OCTIEF Pty Ltd for the period 1 July 2014 to 15 September 2014. HRL Holdings Limited - The remuneration of the key management personnel of HRL Holdings Limited subsequent to the acquisition of OCTIEF Pty Ltd on 15 September 2014 was: Short Term Benefits Long Term Benefits Post Employment Benefits Equity based Benefits Salary/ Director fees Consulting fees Non- monetary benefits Leave benefits Superannuation Options Total Performance Related % % of bonus forfeited Directors Kevin Maloney 1 Darren Anderson 1 Mark Elliott 5 John Taylor 2 Alternate Director Frederick Kempson 1 Former Directors Peter Barnett 3 Key Management Steven Dabelstein 4 Michael Harvey 1 Paul Marshall 5 23,694 180,746 31,667 24,000 - - - - - 23,800 8,333 115,608 47,500 41,167 472,715 - - - - - - 42,713 22,837 35,681 17,170 - - - - - - - - - - - 9,738 - - - - - - 9,390 4,513 - 66,754 23,800 42,713 32,575 1 Appointed 15 September 2014. 2 Appointed 25 November 2014. 3 Resigned 25 November 2014. 4 Appointed 1 January 2015. 5 Relates to remuneration for the period 15 September 2014 to 30 June 2015. There were no termination benefits paid or accrued for the year ended 30 June 2015. - - - - - - - - - - 59,375 263,466 31,667 24,000 23,800 8,333 134,736 52,013 41,167 638,557 - - - - - - - - - - - 100% - - - - 100% - - 20 REMUNERATION REPORT Remuneration of Directors and other Key Management Personnel – 2015 (prior to acquisition of OCTIEF - 1 July 2014 to 15 September 2014) HRL Holdings Limited - The remuneration of the key management personnel of HRL Holdings Limited prior to acquisition of OCTIEF Pty Ltd on 15 September 2014 was: Long Term Benefits Post Employment Benefits Equity based Benefits Non-monetary benefits Leave benefits Superannuation Options Total Performance Related % % of bonus forfeited Directors Mark Elliott 1 2 Former Directors Peter Barnett 1 Michael Sandy 3 Stephen Bizzell 4 Key Management Paul Marshall 1 Salary/ Director fees Short Term Benefits Consulting fees 7,500 17,500 7,500 7,500 4,500 10,833 37,833 - - - - 17,500 - - - - - - - - - - - - - - - - - - - - - - - - 25,000 7,500 7,500 4,500 10,833 55,333 - - - - - - 1 Relates to remuneration for the period 1 July 2014 to 15 September 2014. 2 From 1 July 2014 to 15 September Mark Elliott in addition to his Non-Executive Director fees, provided additional consulting services to the Company totalling $17,500. 3 Resigned 15 September 2014. 4 Resigned 14 August 2014. There were no termination benefits paid or accrued for the period ended 15 September 2014. - - - - - 21 REMUNERATION REPORT Remuneration of Directors and other Key Management Personnel – 2014 OCTIEF Pty Ltd - No remuneration was paid to key management personnel of OCTIEF Pty Ltd for the period 15 May 2013 to 30 June 2014. HRL Holdings Limited - The remuneration of the key management personnel of HRL Holdings Limited for the year ended 30 June 2014 was: Salary/ Director fees Short Term Benefits Consulting fees 173,083 160,500 35,500 35,500 44,000 34,000 - 3,600 - - Directors Mark Elliott 1 Peter Barnett 2 Michael Sandy Stephen Bizzell Key Management Paul Marshall Long Term Benefits Post Employment Benefits Equity based Benefits Non-monetary benefits Leave benefits Superannuation Options Total Performance Related % - - - - - 11,468 10,961 - - - 14,851 - - - - - - - - - - 236,907 171,461 39,100 - 44,000 526,968 - - - - - - 448,583 37,600 3,505 22,429 14,851 1 Mark Elliott was employed in a full-time capacity as Executive Chairman from 1 July 2013 to 31 December 2013 at a rate of $325,000 per annum (inclusive of superannuation). Mark Elliott moved to a Non- Executive Chairman role from 1 January 2014 to 30 June 2014 at a rate of $48,000 per annum. In addition from 1 January 2014 to 30 June 2014 Mark Elliott provided consulting services to the Company totalling $34,000. 2 Peter Barnett was employed in a full-time capacity as Managing Director from 1 July 2013 to 31 December 2013 at a rate of $285,000 per annum. Peter Barnett moved to a Non-Executive Director role from 1 January 2014 to 30 June 2014 at a rate of $36,000 per annum. There were no termination benefits paid or accrued for the year ended 30 June 2014. 22 REMUNERATION REPORT Key management personnel equity holdings Shareholdings Balance 1 July 2014 Acquired through Rights Issue Derecognized on resignation Recognized on appointment Vendor Milestone Shares Issued Adjustment share consolidation Acquired through General Offer Other additions /disposals/transfers Balance 30 June 2015 Directors Kevin Maloney Darren Anderson Mark Elliott John Taylor Alternate Director Frederick Kempson Former Directors Peter Barnett Michael Sandy - - - - 25,465,782 6,366,446 - - - - - - - - - 13,050,129 6,907,911 3,262,533 (16,312,662) 1,726,978 (8,634,889) Stephen Bizzell 18,251,661 - (18,251,661) Key Management Steven Dabelstein Michael Harvey - - Paul Marshall 8,355,604 - 833,333 7,833,333 - - - 208,490,331 69,496,777 - - - - - - - 1,888,025 - 80,188,589 (266,472,849) 26,729,529 - - - - - - - - - (88,824,282) (29,383,594) - - - - - - (2,512,022) (14,943,631) 24,868,655 8,461,539 400,000 769,230 (1,791,738) 45,282,988 - - 15,863,563 2,848,634 153,847 923,077 - - - - 538,269 76,923 769,230 - - - - - - - - - - - 538,269 286,259 2,014,536 72,031,087 20,022,623 (43,199,212) 279,875,133 106,918,118 (402,136,378) 35,883,846 (1,637,891) 67,757,326 23 REMUNERATION REPORT Key management personnel equity holdings Options Balance 1 July 2014 Derecognized on resignation Recognized on appointment Adjustment share consolidation Other additions /disposals/transfers Balance 30 June 2015 Directors Kevin Maloney Darren Anderson Mark Elliott John Taylor Alternate Director Frederick Kempson Former Directors Peter Barnett Michael Sandy Stephen Bizzell Key Management Steven Dabelstein Michael Harvey Paul Marshall - - 5,500,000 - - - - - - - 5,500,000 (5,500,000) 1,000,000 (1,000,000) 1,000,000 (1,000,000) - - 1,000,000 - - - - - - - - - - - - - - (5,076,923) - - - - - - 500,000 - (461,538) (923,077) 14,000,000 (7,500,000) 500,000 (6,461,538) All of the above options have an exercise prices of $0.52 and have an expiry date of 30 November 2015. All options have vested and are exercisable. - - - - - - - - - - - - - - 423,077 - - - - - - 38,462 76,923 538,462 24 REMUNERATION REPORT Transactions with related parties Transactions with Key Management Personnel related parties Transaction Entity Rental of office space Paget Developers Association Darren Anderson Kevin Maloney 12 months ended 30 June 2015 $ 98,484 13.5 months from 15 May 2013 to 30 June 2014 $ 64,000 Underwriting $5M capital raise 1 Tulla Property Partners Kevin Maloney 250,000 - Software and hosting services Octfolio Sublet of office space to Octfolio Octfolio Darren Anderson Kevin Maloney Darren Anderson Kevin Maloney Corporate services 2 Business acquisition Integrated Holdings Group Darren Anderson Kevin Maloney Integrated Holdings Group Darren Anderson Kevin Maloney 104,141 25,899 5,610 61,538 - - - See below 1 Tulla Property Partners, an entity associated with Mr Kevin Maloney acted as Lead Underwriter for the $5 million capital raising completed in late March 2015. The Lead Underwriter then arranged for other parties to sub-underwrite part of the capital raising and will have settled these sub-underwriting fees directly with the sub-underwriters. The net underwriting fee received by Tulla Property Partners was $116,369. Included in the sub-underwriting fees paid by Tulla Property Partners was an amount of $55,342 that was paid to Integrated Holdings Group, an entity associated with Mr Kevin Maloney and Mr Darren Anderson. 2 Services provided from 1 July 2014 to 15 September 2014. All of the above transactions were based on normal commercial terms and conditions. Business acquisition During the half year ended 31 December 2013 OCTIEF acquired the assets and business of Octief Consulting and Laboratory Services Pty Ltd (“OCLS”), an environmental consulting business. As disclosed in Note 4 the fair value of the net identifiable assets acquired exceeded the total consideration paid resulting in a gain on bargain purchase of $128,950. OCLS was 100% owned by Integrated Holdings Group Pty Ltd, a company that Mr Kevin Maloney and Mr Darren Anderson are directors and shareholders of. The contract was based on normal commercial terms and conditions. The acquisition was funded through a loan from Integrated Holdings Group Pty Ltd, OCTIEF’s parent entity at that time: Details of loan from Integrated Holdings Group Pty Ltd Beginning of the year Funding of acquisition of OCLS (non-cash - refer Note 4) OCLS acquisition costs funded by parent entity (refer Note 4) Loans advanced Recognition of OCTIEF tax expense (Refer Note 5) Loan repayments received Settlement of dividend liability (Refer Note 28) Loan forgiveness (Refer Note 18) End of year - - - - - - - - - - (553,327) (286,479) 1,318,750 (500,330) - (648,682) 670,068 - 25 REMUNERATION REPORT Outstanding balances with related parties Nature Entity Software and hosting services Octfolio Association Darren Anderson Kevin Maloney 30 June 2015 $ 40,046 30 June 2014 $ - Relationship between remuneration and Company performance The factors that are considered to affect shareholder return in the past 5 years are summarised below: Measures Share price at end of financial year Market capitalisation at end of financial year ($M) 2015 $ 0.068 10.51 2014 $ 0.005 1.73 2013 $ 0.008 2.76 2012 $ 0.033 7.66 2011 $ 0.04 6.25 Net Profit/(loss) for the financial year (1,583,755) 2,147,825 (7,696,487) (2,084,118) (1,610,352) Director and Key Management Personnel remuneration 638,557 526,968 897,944 703,423 761,021 Fixed remuneration is not linked to Group performance. It is set with reference to the individual’s role, responsibilities and performance and remuneration levels for similar positions in the market. Profit targets are deemed an appropriate performance measure for the granting of short and long term incentives to senior executives given that it is the key target hurdle referenced by the Board in preparing its annual budgets and measuring Group performance. Profit targets reflects the Directors’ assessment of the result for the ongoing business activities of the Group by excluding non-cash, one-off market related items that are usually out of management’s control. The annual target is determined by the Board having regard to the Group’s annual budget. The target could be higher or lower than budget, and is adjusted for the effect of material equity issues. Prior to the restructure in FY2015, the link between remuneration, Company financial performance and shareholder wealth generation was tenuous, particularly in the exploration and development stage of a geothermal company. Share prices are subject to the influence of international energy prices and market sentiment towards the sector and increases or decreases may occur independently of executive performance or remuneration. No bonuses were paid or are due to be paid to the CEO and Executive Director as the performance conditions were not met. No dividends were paid by HRL Holdings Limited nor was there any return of capital over the past 5 years. No shares were issued on exercise of options issued as part of remuneration in 2015. No options lapsed during the period due to vesting conditions not being met. No equity instruments were issued as remuneration in 2015. The Company did not engage any remuneration consultants during the financial year. ------------------------------ END OF REMUNERATION REPORT ------------------------------ 26 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY K L COLYER TO THE DIRECTORS OF HRL HOLDINGS LIMITED As lead auditor of HRL Holdings Limited for the year ended 30 June 2015, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of HRL Holdings Limited and the entities it controlled during the period. K L Colyer Director BDO Audit Pty Ltd Brisbane, 28 August 2015 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 27 ADDITIONAL ASX INFORMATION Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is as follows. The information is current as at 19 August 2015. Distribution of equity securities HRL – Ordinary Fully Paid Shares Number of Securities Held 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total No’s of holders 327 348 134 363 118 1,290 Number of unmarketable parcels of shares 729 Twenty largest holders HRL – Ordinary Fully Paid Shares J P MORGAN NOMINEES AUSTRALIA LIMITED No. Name of Shareholder 1 TULLA PROPERTY PARTNERS PTY LTD 2 3 DARREN ANDERSON & JULIE ANDERSON 4 ANDERSON PROPERTY HOLDINGS PTY LTD 5 GREG ANDERSON & NANCY ANDERSON 6 CRAIG ANDERSON & AMANDA ANDERSON 7 COWLEY SUPER PTY LTD 8 ELLIOTT NOMINEES P/L 9 ESTANZA PTY LTD 10 MR JONATHAN PAUL KERSHAW MARSHALL 11 MS AMANDA JANE ALIDENES 12 POKTON PTY LIMITED 13 MR ALEXANDER JAMES WHITE 14 HOT PROPERTY REALTY MACKAY PTY LTD 15 MR NICHOLAS DERMOTT MCDONALD 16 H K PRICE PTY LTD 17 MR LESLIE JOHN BUNT 18 MR JOHN COOPER TAYLOR & MRS SHARON MAREE TAYLOR 19 LORRAINE JEAN ZILLMAN 20 LOCANTRO SPECULATIVE INVESTMENTS PTY LTD Voting Rights All fully paid ordinary shares carry one vote per share without restriction. Substantial Shareholders The company has the following substantial shareholders as at 19 August 2015: Mr Kevin Maloney holds an interest in 45,282,958 shares (29.30%) Mr Darren Anderson holds an interest in 15,863,563 shares (10.26%) Viburum Funds Pty Ltd holds an interest in 15,745,790 shares (10.19%) Holding 45,282,988 13,844,117 8,171,255 7,692,308 7,402,024 7,402,024 3,000,000 2,646,710 2,308,000 2,011,456 2,000,000 1,538,462 1,405,000 1,400,000 1,391,538 1,140,323 1,012,540 923,077 853,847 837,902 % Held 29.30% 8.96% 5.29% 4.98% 4.79% 4.79% 1.94% 1.71% 1.49% 1.30% 1.29% 1.00% 0.91% 0.91% 0.90% 0.74% 0.66% 0.60% 0.55% 0.54% 112,263,571 72.64% 28 ADDITIONAL ASX INFORMATION Interests in Exploration Tenements Type Location Status Grant Expiry Date HRL Interest GEP 6 GEP 8 Portland Warrnambool Granted Granted 14/05/2007 14/05/2007 13/9/2019 13/9/2019 100% 100% 29 STATEMENT OF COMPREHENSIVE INCOME Consolidated Statement of Comprehensive Income For the year ended 30 June 2015 Environmental services revenue Interest revenue Costs and consumables relating to the provision of services Employee benefits expense Depreciation and amortisation expenses Finance costs Other expenses Impairment of receivables Gain on bargain purchase 12 months ended 30 June 2015 13.5 months from 15 May 2013 to 30 June 2014 Note $ $ 4,669,609 30,100 4,873,779 409 (438,496) (2,752,910) (432,465) (1,953) (1,395,610) (5,012) (286,221) (2,020,802) (221,888) (26,720) (893,106) (6,969) - 128,950 7 4 Employee benefits expense on Precise earn-out payments 16 & 7 (51,650) - Acquisition expenses 2 & 3 (268,358) (409,553) Listing expense arising on deemed acquisition Profit/(loss) before income tax Income tax benefit/(expense) Profit/(loss) after income tax Other comprehensive income Items that may be reclassified to profit or loss Foreign currency translation differences for foreign operations Income tax Other comprehensive income for the period, net of tax Total comprehensive income/(loss) Earnings per share Basic earnings per share Diluted earnings per share 2 5 8 8 (1,252,455) - (1,899,200) 1,137,879 315,445 (393,050) (1,583,755) 744,829 (509,466) - (509,466) - - - (2,093,221) 744,829 Cents Cents (0.3) (0.3) 1.7 1.7 The Statement of Comprehensive Income should be read in conjunction with the Notes to the Financial Statements. 30 BALANCE SHEET Consolidated Balance Sheet As at 30 June 2015 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Plant and equipment Intangible assets Goodwill Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Current tax liabilities Short-term provisions Borrowings TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Borrowings Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed capital Reserves Retained earnings/(Accumulated losses) TOTAL EQUITY Note 9 10 11 10 12 13 14 5 15 16 17 17 5 18 19 30 June 2015 $ 859,500 924,916 99,103 1,883,519 68,585 372,933 251,913 4,079,678 660,905 5,434,014 30 June 2014 $ 8,049 659,049 200 667,298 38,850 185,431 382,870 - 52,016 659,167 7,317,533 1,326,465 514,497 235,622 154,632 114,625 1,019,376 47,553 27,396 74,949 513,129 - 47,120 - 560,249 - - - 1,094,325 560,249 6,223,208 766,216 8,220,282 (509,466) (1,487,608) 6,223,208 670,069 - 96,147 766,216 The Balance Sheet should be read in conjunction with the Notes to the Financial Statements. 31 STATEMENT OF CHANGES IN EQUITY Consolidated Statement of Changes in Equity For the year ended 30 June 2015 Contributed Capital Retained Earnings/ (Accumulated Losses) Foreign Currency Reserve Balance at 15 May 2013 Transactions with owners in their capacity as owners Contributions of capital Dividends provided for or paid Total Comprehensive income Profit after income tax Total comprehensive income $ - $ - 670,069 - 670,069 - (648,682) (648,682) - - 744,829 744,829 Balance at 30 June 2014 670,069 96,147 Balance at 1 July 2014 670,069 96,147 Transactions with owners in their capacity as owners Deemed issue of share capital on acquisition Contributions of capital Share issue costs (net of tax) Total Comprehensive income Loss after income tax Foreign currency translation differences for foreign operations Total comprehensive income 2,899,715 5,105,240 (454,742) 7,550,213 - - - - - - - (1,583,755) Total $ - 670,069 (648,682) 21,387 744,829 744,829 766,216 766,216 2,899,715 5,105,240 (454,742) 7,550,213 (1,583,755) $ - - - - - - - - - - - - - - (509,466) (509,466) (1,583,755) (509,466) (2,093,221) Balance at 30 June 2015 8,220,282 (1,487,608) (509,466) 6,223,208 The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. 32 STATEMENT OF CASH FLOWS Consolidated Statement of Cash Flows For the year ended 30 June 2015 12 months ended 30 June 2015 Note 13.5 months from 15 May 2013 to 30 June 2014 $ $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Finance costs 5,222,936 (5,660,777) 22,754 (1,953) Net cash provided by/(used in) operating activities 20 (417,040) CASH FLOWS FROM INVESTING ACTIVITIES Payments for plant & equipment Proceeds from the sale of plant & equipment Net inflow of cash from the acquisition of OCTIEF Net outflow of cash from the acquisition of Precise Payments for deposits Loans to related parties Net cash provided by/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Contributions of capital Capital raising costs Proceeds from borrowings Repayment of borrowings Finance lease payments 2 3 22 Net cash provided/(used in) by financing activities Net increase/(decrease) in cash and cash equivalents held Net foreign exchange differences Cash and cash equivalents at the beginning of the financial period Cash and cash equivalents at the end of the financial period 9 (139,642) - 1,731,848 (4,695,229) (29,735) - (3,132,758) 5,105,240 (649,631) 115,002 (128,213) (4,332) 4,438,066 888,268 (36,817) 8,049 859,500 4,901,211 (3,416,208) 409 (26,720) 1,458,692 (86,822) 13,000 - - (38,600) (1,318,750) (1,431,172) 1 - 250,000 (250,000) (19,472) (19,471) 8,049 - - 8,049 The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements. 33 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Introduction This financial report covers the Consolidated Entity of HRL Holdings Limited (the “Company”) and its controlled entities (together referred to as the “Consolidated Entity”). HRL Holdings Limited is a listed public company, incorporated and domiciled in Australia. At the 2014 AGM shareholders approved the change of the Company’s name from Hot Rock Limited to HRL Holdings Limited. As a result of the acquisition of OCTIEF Pty Ltd (as discussed in Note 2) this financial report represents a continuation of the financial statements of OCTIEF Pty Ltd being the accounting parent entity of the Group. OCTIEF Pty Ltd was registered on 15 May 2013. As a result the comparatives shown cover the period 15 May 2013 to 30 June 2014. The accounting policies have been consistently applied, unless otherwise stated. Operations and principal activities The principal operating activities of the Group are environmental consulting and hazardous materials analytical laboratory services with offices and laboratory facilities in Brisbane, Darwin, Christchurch and Wellington. The Group offers services including industrial hygiene, asbestos and hazardous materials management, environmental services (air, water and soil including contaminated land), building contamination assessment, and specialised NATA/IANZ - accredited laboratory analysis and on-site testing and monitoring. Geothermal exploration projects have been placed on care and maintenance while the Group evaluates the best way to develop the projects held. Currency The financial report is presented in Australian dollars, rounded to the nearest dollar, which is the functional currency of the Company. Authorisation of financial report The financial report was authorised for issue on 28 August 2015. Basis of preparation The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. HRL Holdings Limited is a for-profit entity for the purpose of preparing the financial statements. The financial statements of the Consolidated Entity also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Historical cost convention The financial statements have been prepared under the historical convention, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. Critical accounting estimates and judgements The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Consolidated Entity’s accounting policies. The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on historical experiences and the best available current information on current trends and economic data, obtained both externally and within the Consolidated Entity. The estimates and judgements made assume a reasonable expectation of future events but actual results may differ from these estimates. The 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 if the revision affects only that period or in the period and future periods if the revision affects both current and future periods. The following key change in accounting estimates were made during the year: Useful life of intangible assets (licences and accreditations) reduced from 5 years to 2 years. Assuming the assets are held until the end of their estimated useful lives, amortisation in future years in relation to these assets will be decreased by the following amounts: 34 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Year ending 30 June 2016: $40,000 Year ending 30 June 2017: $40,000 Year ending 30 June 2018: $37,479 The following critical accounting estimates or judgements were made in the process of applying the entity’s accounting policies that in management’s assessment can significantly affect the amounts recognised in the financial statements: Intangibles Useful life of intangible assets estimated to be between 2 and 3 years. Goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1(p). The recoverable amounts of cash generating units have been determined based on value in use calculations. These calculations require the use of assumptions. Refer to Note 14 for details of these assumptions and the potential impact of changes to the assumptions. Provisions The Group has estimated the likely payout under the earn out payment on acquisition of Precise Consulting and Laboratory Limited (refer Note 3). This calculation requires the use of assumptions. Refer to Note 16 for details of these assumptions and the potential impact of changes to the assumptions. Accounting policies (a) Principles of Consolidation Subsidiaries are all entities (including structured entities) over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Consolidated Entity. Intercompany transactions, balances and unrealised gains on transactions between Consolidated Entity companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Consolidated Entity. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet respectively. Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. (b) Income Tax The income tax expense (benefit) for the year comprises current income tax expense (income) and deferred tax expense (income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. 35 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. The charge for current income tax expense is based on the profit/(loss) for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance date. Deferred tax is accounted for using the balance sheet method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. (c) Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value as indicated less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised in profit or loss. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(f) for details of policy for impairment). The cost of fixed assets constructed within the Consolidated Entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. 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 benefits associated with the item will flow to the Consolidated Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets is depreciated on a diminishing value basis over the asset’s useful life to the Consolidated Entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of asset is: Class of Fixed Asset Leasehold improvements Motor vehicles Office equipment Laboratory equipment Depreciation Rate 20% 25% 40% - 67% 20% - 40% 36 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation surplus relating to that asset are transferred to retained earnings. (d) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership is transferred to entities in the Consolidated Entity, are classified as finance leases. Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses on a straight-line basis over the lease term. Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term. (e) Financial Instruments Recognition and initial measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Consolidated Entity commits itself to either the purchase or sale of the asset. Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified “at fair value through profit or loss”, in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss. (i) Financial assets at fair value through profit or loss Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short- term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period. 37 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Financial Instruments (continued) (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Consolidated Entity’s intention to hold these investments to maturity. They are subsequently measured at amortised cost. Held-to-maturity investments are included in non-current assets where they are expected to mature greater than 12 months after the end of the reporting period. All other investments are classified as current assets. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not suitable to be classified into other categories of financial assets due to their nature, or they are designated as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. They are subsequently measured at fair value with changes in such fair value (ie gains or losses) recognised in other comprehensive income (except for impairment losses and foreign exchange gains and losses). When the financial asset is derecognised, the cumulative gain or loss pertaining to that asset previously recognised in other comprehensive income is reclassified into profit or loss. Available-for-sale financial assets are included in non-current assets where they are expected to be sold greater than 12 months after the end of the reporting period. All other financial assets are classified as current assets. (v) Financial liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Impairment At the end of each reporting period, the Consolidated Entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant or prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in profit or loss. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified to profit or loss at this point. Financial guarantees Where material, financial guarantees issued that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due are recognised as a financial liability at fair value on initial recognition. The guarantee is subsequently measured at the higher of the best estimate of the obligation and the amount initially recognised less, when appropriate, cumulative amortisation in accordance with AASB 118: Revenue. Where the entity gives guarantees in exchange for a fee, revenue is recognised under AASB 118. The fair value of financial guarantee contracts has been assessed using a probability-weighted discounted cash flow approach. The probability has been based on: – the likelihood of the guaranteed party defaulting in a year period; – the proportion of the exposure that is not expected to be recovered due to the guaranteed party defaulting; and – the maximum loss exposed if the guaranteed party were to default. Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are discharged, cancelled or expired. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss. 38 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Impairment of Assets At the end of each reporting period, the Consolidated Entity assesses whether there is any indication that an asset may be impaired. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs of disposal and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard. Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Consolidated Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. (g) Employee Benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly 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 liabilities are presented as current employee benefit obligations in the balance sheet. (ii) Other long-term employee benefit obligations The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore 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 of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur. Contributions to defined contribution plans are expensed when incurred. (h) Cash and Cash Equivalents For statement of cash flow presentation purposes cash and cash equivalents include cash on hand, deposits available on demand with banks, other short-term highly liquid investments with original maturities of 3 months or less, and bank overdrafts. Bank overdrafts are reported within short-term borrowings in current liabilities in the balance sheet. (i) Revenue and Other Income Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred, it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue. Revenue from the provision of services is recognised on an accruals basis in the period in which the service is provided. Revenue from the provision of these services is calculated with reference to the professional staff hours incurred on each client assignment adjusted for any time that may not be recoverable. Interest revenue is recognised using the effective interest rate method. (j) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the relevant tax authority. 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 relevant tax authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the relevant tax authority are presented as operating cash flows included in receipts from customers or payments to suppliers. 39 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Share Capital Issued and paid up capital is recognised at the fair value of the consideration received by the Consolidated Entity. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (l) Earnings per Share The Consolidated Entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. (m) Comparative Figures When required by accounting standards comparative figures have been adjusted to conform to changes in presentation for the current financial year. (n) Foreign Exchange Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedges. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of comprehensive income. Subsidiary companies The financial results and position of foreign operations whose functional currency is different from the Consolidated Entity’s presentation currency are translated as follows: - assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; - - income and expenses are translated at average exchange rates for the period; and retained earnings are translated at the exchange rates prevailing at the date of the transaction. On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. (o) Intangible Assets Customer contracts Customer contracts acquired as part of a business combination are recognised separately from goodwill. The customer contracts are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses. Amortisation is calculated based on the timing of projected cash flows of the contracts over their estimated useful lives, which currently vary from 1 to 3 years. Licenses and accreditations Licenses and accreditations acquired as part of a business combination are recognised separately from goodwill. The licenses and accreditations are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses. Amortisation is calculated based on the timing of projected cash flows of the contracts over their estimated useful lives, which is estimated at 2 years. (p) Goodwill Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes. 40 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Finance Costs Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of that asset. For non-specific borrowings, borrowing costs are capitalised using a weighted average capitalisation rate. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds. (r) New Accounting Standards The Consolidated Entity adopted all new Accounting Standards and Interpretations effective for the year ended 30 June 2015. There were no material impacts on the financial statements of the Consolidated Entity as a result of adopting these standards. (s) New Standards and Interpretations Not Yet Adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2015 reporting periods. The Consolidated Entity has decided against early adoption of these standards. The Consolidated Entity's assessment of the impact of these new standards and interpretations is set out below: AASB 9 Financial Instruments This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after 1 January 2018. This standard introduces new classification and measurement models for financial assets, using a single approach to determine whether a financial asset is measured at amortised cost or fair value. To be classified and measured at amortised cost, assets must satisfy the business model test for managing the financial assets and have certain contractual cash flow characteristics. All other financial instrument assets are to be classified and measured at fair value. This standard allows an irrevocable election on initial recognition to present gains and losses on equity instruments (that are not held-for-trading) in other comprehensive income, with dividends as a return on these investments being recognised in profit or loss. In addition, those equity instruments measured at fair value through other comprehensive income would no longer have to apply any impairment requirements nor would there be any 'recycling' of gains or losses through profit or loss on disposal. The accounting for financial liabilities continues to be classified and measured in accordance with AASB 139, with one exception, being that the portion of a change of fair value relating to the entity's own credit risk is to be presented in other comprehensive income unless it would create an accounting mismatch. The Consolidated Entity has not yet evaluated the impact adoption of this standard will have. AASB 15 Revenue from Contracts with Customers This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after 1 January 2017. This standard requires recognised revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This means that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is currently the case under IAS 18 Revenue. The Consolidated Entity has not yet evaluated the impact adoption of this standard will have. 41 NOTES TO THE FINANCIAL STATEMENTS NOTE 2 OCTIEF ACQUISITION ACCOUNTING AND SHARE BASED PAYMENT EXPENSE On 15 September 2014 the Company announced the completion of the 100% acquisition of an environment services business, OCTIEF Pty Ltd (OCTIEF). The initial consideration paid by HRL to the vendors for the purchase of 100% of OCTIEF was the issue and allotment of 320,754,355* fully paid ordinary HRL shares. This represents 50% of the total maximum consideration of the transaction. HRL agreed to issue further HRL shares to the vendors upon satisfaction of each of the three identified milestones being achieved by the respective dates as follows: Milestones Milestone shares 1. OCTIEF achieves revenue for the 6 months to 31 December 2014 which equals or exceeds $1.75m. 160,377,178* being 25% of the total consideration for the transaction. Result Achieved If revenue is less than $1.75 million for the six month period ending 31 December 2014, the Milestone One Payment will be reduced on a pro-rata basis, but cannot be less than 75% of the full entitlement. 2. OCTIEF establish a laboratory in Darwin 96,226,306* being 15% of the total consideration for the transaction. Achieved 3. OCTIEF achieves revenue for the 12 months to 30 June 2015 which equals or exceeds $4.25m. 64,150,871* being 10% of the total consideration for the transaction. If revenue is less than $4.25 million for the 12 month ending period 30 June 2015, the Milestone Three Payment will be reduced on a pro-rata basis, but cannot be less than 75% of the full entitlement. Partially achieved – 88.2% of the maximum number of shares to be issued in due course * Prior to the 1:13 share consolidation The acquisition of OCTIEF resulted in OCTIEF shareholders holding a controlling interest in HRL after the transaction. This transaction did not meet the definition of a business combination in AASB 3 Business Combinations. The transaction has therefore been accounted in accordance with AASB 2 Share-based Payment and has been accounted for as a continuation of the financial statements of OCTIEF together with a deemed issue of shares. The deemed issue of shares is, in effect, a share-based payment transaction whereby OCTIEF is deemed to have received the net assets of HRL, together with the listing status of HRL. Because the financial statements represents a continuation of the financial statements of OCTIEF, the principles and guidance on the preparation and presentation of the financial statements in a reverse acquisition set out in AASB 3 have been applied as follows: • • • • • • • fair value adjustments arising at acquisition were made to HRL’s assets and liabilities, not those of OCTIEF. As the carrying value of all assets and liabilities held by HRL at acquisition date approximated their fair value, no adjustments were required; the equity structure (the number and type of equity instruments issued) at the date of the acquisition reflects the equity structure of HRL, including the equity instruments issued to effect the acquisition; retained earnings/ (accumulated losses) and other equity balances at acquisition date are those of OCTIEF; the results for the year ended 30 June 2015 comprise the consolidated results for OCTIEF together with the results of the wider HRL group from 15 September 2014; the comparative results represent the consolidated results of OCTIEF only; the cost of the acquisition, and amount recognised as contributed equity to affect the transaction, is based on the deemed number of shares that OCTIEF would have needed to issue to give the shareholders of HRL the same shareholding percentage in the Combined Entity that results from the transaction; and a share-based payment transaction arises whereby OCTIEF is deemed to have issued shares in exchange for the net assets of HRL together with the listing status of HRL. The listing status does not qualify for recognition as an intangible asset and the relevant cost has therefore been expensed as a listing expense. The fair value of the deemed number of shares that OCTIEF would have needed to issue is estimated to be $2,899,715. The fair value of HRL’s net assets at acquisition date was $1,647,260. Deducting this from the deemed consideration results in a listing expense of $1,252,455. 42 NOTES TO THE FINANCIAL STATEMENTS NOTE 2 OCTIEF ACQUISITION ACCOUNTING AND SHARE BASED PAYMENT EXPENSE (CONT’D) The value of the transaction is as follows: Assets and liabilities acquired: Cash and cash equivalents Trade and other receivables Other current assets Property, plant and equipment Trade and other payables Other liabilities Net assets acquired Fair value of notional shares issued to affect the transaction Listing expense recognised in statement of comprehensive income 15 September 2014 $ 1,731,848 25,554 7,416 1,161 (109,719) (9,000) 1,647,260 2,899,715 1,252,455 The fair value of the shares was assessed on the basis of the market value of HRL Holdings Limited’s shares at acquisition date. Acquisition related costs Acquisition-related costs of $120,910 that were not directly attributable to the issue of shares are included in other expenses in profit or loss and in operating cash flows in the statement of cash flows. NOTE 3 PRECISE CONSULTING ACQUISITION ACCOUNTING On 1 April 2015, HRL acquired 100% of the issued capital of Precise Consulting and Laboratory Limited (Precise Consulting). The agreed purchase consideration was: initial payment of NZD$5,000,000 cash; and earn-out consideration of up to NZD$2,500,000. The amount of earn out consideration is based on Precise Consulting’s earnings before interest and taxes (EBIT) for the year 1 January 2015 to 31 December 2015: EBIT (NZD) Earn Out Consideration (NZD) Less than $1.9 million Nil $1.9 – 2.1 million $2.1m to $2.3 million $2.3m to $2.5 million More than $2.5 million $700,000 $1,300,000 $1,900,000 $2,500,000 One third of the earn-out consideration will be paid in early 2016. Payment of the remaining two thirds of the earn-out consideration will be paid in equal monthly instalments from January 2016 to March 2018. Payment of the earn-out consideration is contingent on Mr Andre Halkyard’s ongoing service with Precise Consulting. Mr Halkyard will remain General Manager of Precise Consulting for a minimum period of three years after acquisition. In the situation where Mr Halkyard’s employment is terminated prior to the minimum three year period, the earn-out consideration will be reduced proportionately to the length of time not employed. 43 NOTES TO THE FINANCIAL STATEMENTS NOTE 3 PRECISE CONSULTING ACQUISITION ACCOUNTING (CONT’D) As the earn-out consideration is contingent on Mr Andre Halkyard’s ongoing service, the principles and guidance as set out in AASB 3 require that any earn-out consideration be expensed as an employment cost in the relevant period the service was provided. Consequently the earn-out consideration does not form part of the part of purchase consideration when accounting for the business combination. Refer to Note 16 for details of the accounting for the earn-out provision. The assets and liabilities recognised as a result of the acquisition are as follows: Purchase consideration: Cash payment of $5,000,000 NZD Fair value of assets and liabilities acquired: Cash and cash equivalents Trade and other receivables Property, plant and equipment Intangibles – licences and accreditations Trade and other payables Tax payable Deferred tax liabilities Employee provisions Borrowings Net identifiable assets acquired Goodwill on acquisition Net assets acquired 1 April 2015 $AUD 4,895,721 200,492 395,805 110,695 244,786 (231,410) (106,074) (68,540) (12,736) (148,790) 384,228 4,511,493 4,895,721 The goodwill is attributable to the location, reputation, workforce and the high profitability of the acquired business. It will not be deductible for tax purposes. No other intangible assets, such as customer contractual arrangements were able to be identified based on Precise Consulting’s systems and processes at acquisition date. Revenue and profit contribution Precise Consulting contributed revenues of $987,495 and net profit of $476,531 to the group for the period from 1 April 2015 to 30 June 2015. If the acquisition had occurred on 1 July 2014 and the operations of Precise been included from that date then the consolidated pro-forma revenue and loss for the year ended 30 June 2015 would have been $6,975,140 and ($806,054) respectively. Outflow of cash to acquire Precise Consulting, net of cash acquired Cash consideration Less: cash and cash equivalents acquired Net outflow of cash – investing activities Acquisition related costs 1 April 2015 $AUD 4,895,721 (200,492) 4,695,229 Acquisition-related costs of $147,448 that were not directly attributable to the issue of shares are included in other expenses in profit or loss and in operating cash flows in the statement of cash flows. 44 NOTES TO THE FINANCIAL STATEMENTS NOTE 4 OCTIEF CONSULTING AND LABORATORY ACQUISITION ACCOUNTING On 7 June 2013 OCTIEF Pty Ltd acquired the assets and business of Octief Consulting & Laboratory Services, an environmental consulting business. The assets and liabilities recognised as a result of the acquisition are as follows: Purchase consideration: Payable to Integrated Holdings Group Pty Ltd Fair value of assets and liabilities acquired: Property, plant and equipment Trade and other receivables Intangibles – customer contracts Intangibles – licences and accreditations Intangibles – other Trade and other payables Deferred taxes Employee provisions Net identifiable assets acquired Gain on bargain purchase Revenue and profit contribution 7 June 2013 $AUD 553,327 187,171 73,800 320,000 200,000 23,850 (19,472) (55,264) (47,808) 682,277 128,950 The acquired business contributed revenues of $4,874,188 and net profit of $1,414,897 to the group for the period from 7 June 2013 to 30 June 2014. As the acquisition occurred less than 1 month after OCTIEF Pty Ltd was registered (on 15 May 2013) the difference between the revenue and profit that would have been recognised had the acquisition occurred on 15 May 2013 is considered immaterial. Purchase consideration – cash outflow The acquisition was funded through a loan from OCTIEF Pty Ltd's former parent entity - Integrated Holdings Group Pty Ltd on behalf of OCTIEF Pty Ltd. As a result there was no cash outflow associated with the purchase of the business. No cash was acquired in the acquisition. Acquisition related costs Acquisition-related costs of $409,553 are included in profit or loss. Included in this amount were $283,113 of legal settlement costs relating to a dispute with the vendor. $286,479 of these amounts were paid for by OCTIEF Pty Ltd's former parent entity - Integrated Holdings Group Pty Ltd on behalf of OCTIEF Pty Ltd through an intercompany loan account (refer note 22). 45 NOTES TO THE FINANCIAL STATEMENTS NOTE 5 INCOME TAX Income tax expense: Current tax Current tax on profit/loss for the year Adjustments for current tax of prior periods Total current tax expense Deferred tax Movement in deferred tax assets Movement in deferred tax liabilities Total deferred tax expense/(benefit) 12 months ended 30 June 2015 13.5 months from 15 May 2013 to 30 June 2014 $ $ 139,700 500,330 - - 139,700 500,330 (455,116) (31) (60,545) (46,735) (455,145) (107,280) Total income tax expense/(benefit) (315,445) 393,050 Reconciliation of income tax expense to prima facie tax payable: Profit/(loss) before tax Prima facie tax at 30% Tax effect of not deductible (taxable) amounts in calculating taxable income: Entertainment expenses Transaction and legal costs Amortisation of intangible assets Listing expense arising on deemed acquisition Other items Gain on bargain purchase Settlement payment Difference in overseas tax rate Previously unrecognised tax losses used to reduce deferred tax expense Total income tax expense Amounts recognised directly in equity: (1,899,200) 1,137,879 (569,760) 341,363 3,414 28,183 96,497 375,737 456 - - (65,473) (7,040) (242,932) (315,445) 2,939 37,933 - - - (38,685) 49,500 393,050 - - 393,050 Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly debited or credited to equity: Current tax: share issue costs Deferred tax: share issue costs - 194,889 194,889 - - - 46 NOTES TO THE FINANCIAL STATEMENTS NOTE 5 INCOME TAX (CONT’D) 12 months ended 30 June 2015 13.5 months from 15 May 2013 to 30 June 2014 $ $ Unrecognised temporary differences: Temporary differences of $Nil (2014 – $Nil) have arisen as a result of the translation of the financial statements of the group’s subsidiaries in New Zealand. However, a deferred tax liability has not been recognised as the liability will only eventuate in the event of disposal of the subsidiary, and no such disposal is expected in the foreseeable future. Deferred tax assets: Balance comprises temporary differences attributable to: Customer contracts Employee benefits payable Employee leave provisions Accrued expenses Share issue costs Provision for doubtful debts Precise earn-out provision Lease liabilities Carried forward tax losses Other amounts Set-off of deferred tax liabilities Net deferred tax assets - 8,909 30,540 13,818 194,889 4,587 14,462 16,967 425,662 654 710,488 (49,583) 660,905 1,499 43,032 14,136 - - - - - - 1,818 60,485 (8,469) 52,016 A deferred tax asset has been recognised as the consolidated entity is forecasting to generate taxable profits over the next five years. The loss in the current year has been impacted by the acquisitions that occurred and the consolidated entity expects to return to profit and utilise the losses recognised. Movements during the period: Year ended June 2015 1 July 2014 Charged/credited to Profit or Loss Other Comp. Income Directly to equity Customer contracts Employee benefits payable Employee leave provisions Accrued expenses Share issue costs Provision for doubtful debts Precise earn-out provision Lease liabilities Carried forward tax losses 1,499 43,032 14,136 - - - - - - Other amounts 1,818 (1,499) (34,123) 16,404 13,818 - 4,587 14,462 16,967 425,662 (1,163) 60,485 455,115 - - - - - - - - - - - - - - - 194,889 - - - - - - Acquisition of subsidiary - - - - - - - - - - - 30 June 2015 - 8,909 30,540 13,818 194,889 4,587 14,462 16,967 425,662 654 710,488 47 NOTES TO THE FINANCIAL STATEMENTS NOTE 5 INCOME TAX (CONT’D) Period ended June 2014 1 July 2014 Charged/credited to Profit or Loss Other Comp. Income Directly to equity Customer contracts Employee benefits payable Employee leave provisions Other amounts - - - - - 1,499 43,032 14,136 1,818 60,485 - - - - - Acquisition of subsidiary - - - - - 30 June 2015 1,499 43,032 14,136 1,818 60,485 - - - - - 12 months ended 30 June 2015 13.5 months from 15 May 2013 to 30 June 2014 $ $ Deferred tax liabilities: Balance comprises temporary differences attributable to: Licences and accreditations Other intangibles Plant and equipment Other amounts Set-off of deferred tax assets Net deferred tax liabilities Movements during the period: Year ended June 2015 1 July 2014 Licences and accreditations Other intangibles Plant and equipment Other amounts 7,567 902 - - 8,469 Profit or Loss (15,233) (902) 13,901 2,204 (30) Charged/credited to Other Comp. Income Directly to equity - - - - - Period ended June 2014 1 July 2014 Charged/credited to Profit or Loss Other Comp. Income Directly to equity Licences and accreditations Other intangibles - - - 7,567 902 8,469 - - - 60,874 - 13,901 2,204 76,979 (49,583) 27,396 7,567 902 - - 8,469 (8,469) - Acquisition of subsidiary 68,540 - - - - 30 June 2015 60,874 - 13,901 2,204 76,979 Acquisition of subsidiary - - - 30 June 2015 7,567 902 8,469 - - - - - - - - 48 NOTES TO THE FINANCIAL STATEMENTS NOTE 5 INCOME TAX (CONT’D) Tax consolidation HRL Holdings Limited and its wholly-owned Australian controlled entities have formed a tax-consolidated group. HRL Holdings NZ Limited (a wholly-owned subsidiary of HRL Holdings Limited) and its wholly-owned New Zealand controlled entities have formed a tax-consolidated group. The entities in the tax group have entered into a tax sharing agreement to limit the joint and several liability of the wholly-owned entities in the case of a default by the relevant Head Entity. A tax funding agreement where the wholly-owned entities fully compensate the Head Entity for any current tax receivable and deferred tax assets related to unused tax losses or unused tax credits that are transferred to the Head Entity under the tax consolidation legislation has also been entered into. The transfer of such amounts to the Head Entity is recognised as inter-company receivables or payables. Each entity in the tax-consolidated group continues to account for its own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, each relevant Parent entity 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. NOTE 6 AUDITOR’S REMUNERATION Audit services – BDO Audit Pty Ltd Audit and review of financial reports Audit and review of Precise Consulting financial reports Independent account reports for prospectus documents Total audit services Non-audit services – BDO Audit Pty Ltd Assistance with the preparation of the financial report Total non-audit services 12 months ended 30 June 2015 13.5 months from 15 May 2013 to 30 June 2014 $ $ 49,000 23,500 32,000 104,500 - - 20,000 - - 20,000 2,000 2,000 Prior to the acquisition of OCTIEF Pty Ltd by the Company BDO prepared an Investigating Experts Report in relation to the OCTIEF Pty Ltd acquisition. The amount charged for this engagement was $48,594. As these accounts present a continuation of the financial statements of OCTIEF Pty Ltd the amount charged is not included in profit or loss. NOTE 7 EXPENSES Employee benefits expenses Defined contribution superannuation expense Other employee benefits expenses Remuneration expense on Precise Consulting earn-out 16 Total employee benefits expenses 113,559 2,639,351 51,650 138,335 1,882,467 - 2,804,560 2,020,802 Rental expense relating to operating leases Minimum lease payments 275,051 220,444 Net loss on disposal of plant and equipment 22,351 6,443 49 NOTES TO THE FINANCIAL STATEMENTS NOTE 8 EARNINGS PER SHARE Earnings 12 months ended 30 June 2015 $ 13.5 months from 15 May 2013 to 30 June 2014 $ Earnings used to calculate basic and diluted EPS (1,583,755) 744,829 Weighted average number of shares and options Weighted average number of ordinary shares outstanding during the period, used in calculating basic earnings per share Weighted average number of dilutive options outstanding during the period Weighted average number of ordinary shares and potential ordinary shares outstanding during the period, used in calculating diluted earnings per share Number of shares Number of shares 570,096,440 44,412,141 - - 570,096,440 44,412,141 Weighted average number of ordinary shares outstanding during the current period has been calculated using: The number of ordinary shares outstanding from the beginning of the current period to the acquisition date computed on the basis of the weighted average number of ordinary shares of OCTIEF Pty Ltd (accounting acquirer) outstanding during the period multiplied by the exchange ratio of 1 OCTIEF Pty Ltd share to 577,357,839 HRL Holdings Limited shares; and The number of ordinary shares outstanding from the acquisition date to the end of that period being the actual number of ordinary shares of HRL Holdings Limited (the accounting acquiree) outstanding during the period. The basic earnings per share for the comparative period before the acquisition date presented in the consolidated financial statements has been calculated using OCTIEF Pty Ltd’s historical weighted average number of ordinary shares outstanding multiplied by the exchange ratio of 1 OCTIEF Pty Ltd share to 577,357,839 HRL Holdings Limited shares adjusted for the impact of the 1:13 share consolidation that occurred in March 2015. Options are not considered dilutive as they are currently out of the money. Options may become dilutive in the future. NOTE 9 CASH AND CASH EQUIVALENTS Cash at bank and on hand Cash on deposit 579,500 280,000 859,500 8,049 - 8,049 50 NOTES TO THE FINANCIAL STATEMENTS NOTE 10 TRADE AND OTHER RECEIVABLES CURRENT Trade receivables Provision for impairment Accrued income Other receivables NON-CURRENT Bonds and other deposits June 2015 $ June 2014 $ 835,236 523,481 - 835,236 15,570 74,110 924,916 - 523,481 135,540 28 659,049 68,585 38,850 Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade receivables are generally due for settlement within 30 days and therefore are all classified as current. Other receivables generally arise from transactions outside the usual operating activities of the group. The non-current bonds and other deposits receivables are due and payable within three years from the end of the reporting period. Impairment of receivables The Group recognised a loss of $5,012 during the year (2014: $Nil) in relation to impaired receivables. Movement in the provision for impairment of receivables was: Opening balance Impaired receivables provided for during the period Receivables written off during the year as uncollectible Closing balance Past due but not impaired - 5,012 (5,012) - - 6,969 (6,969) - Customers with balances past due but with no provision for impairment at 30 June 2015 were $117,164 (2014: $328,769). The Group did not consider a credit risk on the aggregate balances after review credit terms of customers based on recent collection history. The ageing of receivables past due but not provided for is: Past due 0-30 days Past due 30-60 days Past due > 60 days 95,944 20,917 303 321,310 7,459 - 117,164 328,769 51 NOTES TO THE FINANCIAL STATEMENTS June 2015 $ June 2014 $ 99,103 200 NOTE 11 OTHER ASSETS CURRENT Prepaid expenses NOTE 12 PLANT AND EQUIPMENT Leasehold improvements at cost Accumulated depreciation Motor vehicles at cost Accumulated depreciation Office furniture and equipment at cost Accumulated depreciation Laboratory equipment at cost Accumulated depreciation Total plant and equipment at cost Total accumulated depreciation Total plant and equipment Movements during the year Year ended 30 June 2015 Balance at 1 July 2014 Additions Additions – leases Business combinations Disposals Foreign exchange movements Depreciation Balance at 30 June 2015 28,435 (3,822) 24,613 219,767 (78,218) 141,549 104,641 (44,218) 60,423 177,204 (30,856) 146,348 530,047 (157,114) 372,933 Motor Vehicles Office Furniture and Equipment Laboratory Equipment Leasehold Improvements 2,313 25,910 - - - - 126,951 - 52,852 - - - (3,610) 24,613 (38,254) 141,549 25,126 107,761 - 53,854 (11,616) (7,931) 31,041 5,970 - 56,841 (10,735) (5,252) (17,442) 60,423 Motor Vehicles Office Furniture and Equipment Laboratory Equipment Period ended 30 June 2014 Balance at 15 May 2013 Additions Business combinations Disposals Depreciation Balance at 30 June 2014 Leasehold Improvements - 2,525 - - (212) 2,313 - 50,559 137,845 (19,443) (42,010) 126,951 - 22,433 16,537 - (7,929) 31,041 2,525 (212) 2,313 166,915 (39,964) 126,951 38,970 (7,929) 31,041 35,883 (10,757) 25,126 244,293 (58,862) 185,431 Total 185,431 139,641 52,852 110,695 (22,351) (13,183) (20,846) (80,152) 146,348 372,933 Total - 86,822 187,171 (27,654) (60,908) - 11,305 32,879 (8,211) (10,757) 25,126 185,431 52 NOTES TO THE FINANCIAL STATEMENTS NOTE 13 INTANGIBLE ASSETS Customer contracts at cost Accumulated amortisation Licences and accreditations at cost Accumulated amortisation Other intangibles at cost Accumulated amortisation June 2015 $ June 2014 $ 320,000 (262,063) 57,937 421,356 (227,380) 193,976 - - - 320,000 (113,388) 206,612 200,000 (42,521) 157,479 23,850 (5,071) 18,779 Total intangible assets 251,913 382,870 Movements during the year Year ended 30 June 2015 Balance at 1 July 2014 Additions Business combinations Disposals Foreign exchange movements Amortisation Balance at 30 June 2015 Customer Contracts 206,612 Licences and Accreditations 157,479 Other Intangibles Total 18,779 382,870 - - - - (148,675) 57,937 - 244,786 - (23,430) (184,859) 193,976 - - - - (18,779) - - - - 244,786 - (23,430) (352,313) 251,913 Total - - Period ended 30 June 2014 Balance at 15 May 2013 Additions Customer Contracts Licences and Accreditations - - - - Other Intangibles Business combinations 320,000 200,000 23,850 543,850 Disposals Amortisation Balance at 30 June 2014 - (113,388) 206,612 - (42,521) 157,479 - (5,071) 18,779 - (160,980) 382,870 53 NOTES TO THE FINANCIAL STATEMENTS NOTE 14 GOODWILL Opening balance Goodwill arising on acquisition of Precise Consulting Foreign exchange movements June 2015 $ June 2014 $ - 4,511,493 (431,815) 4,079,678 - - - - Impairment tests for goodwill Goodwill is monitored by management at the Company level for Precise Consulting. The group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates are consistent with forecasts included in industry reports specific to the industry in which each CGU operates. The following table sets out the key assumptions for the value in use: Assumption Variable Approach Sales volume annual growth 2.5% Average annual growth rate over the five-year forecast period based on management’s expectations of market development. Sales price annual growth 2.5% Average annual growth rate over the five-year forecast period based on current industry trends and including long term inflation forecasts for New Zealand Fixed costs per annum $1.2M Annual capital expenditure $50,000 Long term growth rate 3% Pre-tax discount rate 20% Fixed costs of the Company, which do not vary significantly with sales volumes or prices. Management forecasts these costs based on the current structure of the business, adjusting for inflationary increases but not reflecting any future restructurings or cost saving measures. The amounts disclosed are the average operating costs for the five-year forecast period. Expected capital cash costs based on the historical experience of management, and the planned refurbishment expenditure. No incremental revenue or cost savings are assumed in the value-in-use model as a result of this expenditure. This is the weighted average growth rate used to extrapolate cash flows beyond the budget period. The rates are consistent with forecasts included in industry reports. Reflects specific risks relating to the relevant segments and the countries in which they operate. In performing the value-in-use calculations for each CGU, the group has applied post-tax discount rates to discount the forecast future attributable post-tax cash flows. There is sufficient headroom in the value in use calculation such that in management’s opinion a reasonably possible change in a key assumption on which management has based its determination of the cash generating unit’s recoverable amount would not cause the cash generating unit’s carrying amount to exceed its recoverable amount. 54 NOTES TO THE FINANCIAL STATEMENTS NOTE 15 TRADE AND OTHER PAYABLES CURRENT Trade payables Other payables and accrued expenses Payables to Directors – outstanding wages and fees June 2015 $ June 2014 $ 198,271 296,226 20,000 514,497 87,704 425,425 - 513,129 Trade payables are amounts due to suppliers for goods purchased or services provided in the ordinary course of business. Trade payables are generally due for settlement within 30 days and therefore are all classified as current. Other payables and accrued expenses generally arise from normal transactions within the usual operating activities of the group and comprise items such as employee taxes, employee on costs, GST and other recurring items. NOTE 16 PROVISIONS CURRENT Employee benefits Precise Consulting earn-out 102,982 51,650 154,632 47,120 - 47,120 Precise Consulting Earn-out Provision On 1 April 2015, HRL acquired 100% of the issued capital of Precise Consulting and Laboratory Limited (Precise Consulting). The agreed purchase consideration was: initial payment of NZD$5,000,000 cash; and earn-out consideration of up to NZD$2,500,000. The amount of earn out consideration is based on Precise Consulting’s earnings before interest and taxes (EBIT) for the year 1 January 2015 to 31 December 2015: EBIT (NZD) Earn Out Consideration (NZD) Less than $1.9 million Nil $1.9 – 2.1 million $2.1m to $2.3 million $2.3m to $2.5 million More than $2.5 million $700,000 $1,300,000 $1,900,000 $2,500,000 One third of the earn-out consideration will be paid in early 2016. Payment of the remaining two thirds of the earn-out consideration will be paid in equal monthly instalments from January 2016 to March 2018. Payment of the earn-out consideration is contingent on Mr Andre Halkyard’s ongoing service with Precise Consulting. Mr Halkyard will remain General Manager of Precise Consulting for a minimum period of three years after acquisition. In the situation where Mr Halkyard’s employment is terminated prior to the minimum three year period, the earn-out consideration will be reduced proportionately to the length of time not employed. As the earn-out consideration is contingent on Mr Andre Halkyard’s ongoing service, the principles and guidance as set out in AASB 3 require that any earn-out consideration be expensed as an employment cost in the relevant period the service was provided. 55 NOTES TO THE FINANCIAL STATEMENTS NOTE 16 PROVISIONS (CONT’D) HRL estimates that Precise Consulting will exceed an EBIT of $1,900,000 NZD for the 12 months ended 31 December 2015, resulting in an estimated earn-out of $700,000 NZD. As at 30 June 2015, Mr Andre Halkyard had performed 3 months of the 36 month service period (8.33%). Accordingly an amount of $51,650 (being 8.33% of $700,000 NZD [$51,650 AUD]) has been recognised in profit or loss. Movements during the year June 2015 $ June 2014 $ Opening balance Precise Consulting earn-out expense recognised NOTE 17 BORROWINGS CURRENT Finance leases Insurance financing NON-CURRENT Finance leases - 51,650 51,650 9,003 105,622 114,625 47,553 47,553 - - - - - - - - The finance lease is secured over the individual motor vehicle that the lease relates to. The lease has an interest rate of 5.10% per annum and expires in December 2018. Insurance financing is unsecured. The facility has an interest rate of 4.67% per annum and expires in May 2016. Financing Facilities The Group has access to the following lines of credit: Total facilities available Finance leases Insurance financing Bank loans Overdraft Facilities used at balance date Finance leases Insurance financing Bank loans Overdraft 56,556 105,622 3,500,000 250,000 3,912,178 56,556 105,622 - - 162,178 - - - 250,000 250,000 - - - - - 56 NOTES TO THE FINANCIAL STATEMENTS NOTE 17 BORROWINGS (CONT’D) Unused facilities at balance date Finance leases Insurance financing Bank loans Overdraft June 2015 $ June 2014 $ - - 3,500,000 250,000 3,750,000 - - - 250,000 250,000 Restrictions as to use or withdrawal The bank loan facility is subject to the Group complying with covenants listed below. Covenants The bank loan facility is subject to the below covenants: Debt Service Cover Ratio greater than 1 Debt Service Cover Ratio means: EBITDA divided by the total principal and interest payments for that period. This ratio will be assessed every 6 months. Gearing Ratio of less than 65% at June 2015 and 60% at June 2016 Gearing ratio means: Total liabilities divided by total tangible assets (including goodwill and other acquisition based intangibles). This ratio will be assessed every 12 months. Provision of bi-annual compliance certificates HRL must provide within 60 days of 30 June and 31 December a compliance certificate (and relevant supporting information as set out in the agreement) that states both the above covenants have been met. There were no breaches of covenants during the period. Assets pledged as security In accordance with the security arrangements of the bank loans, all current and non-current assets of the Group are secured by floating charge. Finance leases are also secured by mortgage over the relevant motor vehicle which at 30 June 2015 had a carrying value of $46,336. Defaults and breaches During the current and prior year, there were no defaults or breaches on any of the loans. Terms and conditions The bank overdraft facilities may be drawn at any time. Bank loan facilities may be drawn at any time and have a maturity of 3 years. The bank loan facilities are principal and interest and amortise equally over the loan period. 57 NOTES TO THE FINANCIAL STATEMENTS NOTE 18 CONTRIBUTED CAPITAL 154,550,025 fully paid ordinary shares (30 June 2014: 1) 8,025,393 670,069 June 2015 $ June 2014 $ June 2015 Number June 2014 Number Movements during the period Balance at beginning of period Issue of shares in OCTIEF Pty Ltd Loan forgiveness 1 Reversal of existing share on acquisition HRL shares on acquisition of OCTIEF Shares issued to OCTIEF vendors on acquisition (refer Note 2) Rights issue shortfall shares issued (0.5c per share) Shares issued to OCTIEF vendors on achieving Milestone 1 & 2 (refer Note 2) Share consolidation – 1:13 1 - - (1) 414,244,896 320,754,355 17,539,914 256,603,484 (931,515,701) General offer of shares (6.5c per share) 76,923,077 Share issue costs (net of tax) - Balance at end of period 154,550,025 - 1 - - - - - - - - - 1 June 2015 $ 670,069 - - - - 2,899,715 105,240 - - 5,000,000 (454,742) 8,220,282 June 2014 $ - 1 670,068 - - - - - - - - 670,069 1 Prior to acquisition of OCTIEF by the Company (refer Note 2) OCTIEF had a loan balance payable to its parent entity – Integrated Holdings Group Pty Ltd of $670,068. This loan was forgiven prior to the acquisition and has been treated as a contribution of capital. Ordinary shares participate in dividends and the proceeds on winding up of the Company in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. Options Details of options issued, exercised and expired during the financial year are set out below: Expiry Date 30 November 2015* Exercise Price $0.52 1 July 2014 1,615,385 Movements Issued Exercised Expired - - - 30 June 2015 1,615,385 * Number of options and pricing adjusted for the 1:13 share consolidation The weighted average remaining contractual life of share options outstanding at year end was 0.42 years. 58 NOTES TO THE FINANCIAL STATEMENTS June 2015 $ June 2014 $ NOTE 19 RESERVES Foreign currency translation reserve (509,466) The foreign currency translation reserve records exchange rate differences arising from the translation of the financial statements of foreign subsidiaries. Movements during the year Opening balance Foreign exchange differences Closing balance - (509,466) (509,466) - - - - NOTE 20 CASH FLOW INFORMATION Reconciliation of cash flows from operations with profit/(loss) after tax Profit/(loss) after income tax (1,583,755) 744,829 Non-cash items in profit/(loss) after income tax Depreciation and amortisation Loss on sale of plant and equipment Gain on bargain purchase Impairment of receivables Listing expense arising on deemed acquisition Movements in operating assets and liabilities Trade and other receivables Other assets Trade and other payables Provisions Tax balances 432,465 22,351 - 5,012 1,252,455 66,400 (52,537) (234,763) (9,223) (315,445) 221,888 6,443 (128,950) - - (592,248) (450) 1,315,148 (688) (107,280) Net cash provided by/ (used in) operating activities (417,040) 1,458,692 Non-cash investing and financing activities Shares issued for OCTIEF acquisition (refer Note 18) Forgiveness of loan from parent entity (refer Note 18) Settlement of dividend liability (refer Note 28) Funding of acquisition of OCLS (refer Note 4) NOTE 21 SHARE BASED PAYMENTS 2,899,715 - - - 670,068 648,682 553,328 During the year ended 30 June 2015, HRL entered into a contract with Integrated Holdings Group Pty Ltd (“IHG”) to acquire 100% of the equity of OCTIEF Pty Ltd. Further details of the acquisition and the share based payment involved are included in Note 2. 59 NOTES TO THE FINANCIAL STATEMENTS NOTE 22 RELATED PARTY TRANSACTIONS Key Management Personnel Compensation Short-term benefits Post-employment benefits Long-term benefits Termination benefits Share-based payments June 2015 $ June 2014 $ 539,228 36,225 66,754 - - 489,688 - 22,429 - - 638,557 526,968 Detailed remuneration disclosures are provided in the remuneration report on pages 12 to 22. Transactions with related parties Transactions with Key Management Personnel related parties Transaction Entity Association Rental of office space Paget Developers Darren Anderson Kevin Maloney 12 months ended 30 June 2015 $ 98,484 13.5 months from 15 May 2013 to 30 June 2014 $ 64,000 Underwriting $5M capital raise 1 Tulla Property Partners Kevin Maloney 250,000 - Software and hosting services Octfolio Sublet of office space to Octfolio Octfolio Darren Anderson Kevin Maloney Darren Anderson Kevin Maloney Corporate services 2 Business acquisition Integrated Holdings Group Darren Anderson Kevin Maloney Integrated Holdings Group Darren Anderson Kevin Maloney 104,141 25,899 5,610 61,538 - - - See below 1 Tulla Property Partners, an entity associated with Mr Kevin Maloney acted as Lead Underwriter for the $5 million capital raising completed in late March 2015. The Lead Underwriter then arranged for other parties to sub-underwrite part of the capital raising and will have settled these sub-underwriting fees directly with the sub-underwriters. The net underwriting fee received by Tulla Property Partners was $116,369. Included in the sub-underwriting fees paid by Tulla Property Partners was an amount of $55,342 that was paid to Integrated Holdings Group, an entity associated with Mr Kevin Maloney and Mr Darren Anderson. 2 Services provided from 1 July 2014 to 15 September 2014. All of the above transactions were based on normal commercial terms and conditions. Business acquisition During the year ended 30 June 2014 OCTIEF acquired the assets and business of Octief Consulting and Laboratory Services Pty Ltd (“OCLS”), an environmental consulting business. As disclosed in Note 4 the fair value of the net identifiable assets acquired exceeded the total consideration paid resulting in a gain on bargain purchase of $128,950. OCLS was 100% owned by Integrated Holdings Group Pty Ltd, a company that Mr Kevin Maloney and Mr Darren Anderson are directors and shareholders of. At that date Integrated Holdings Group Pty Ltd was the parent entity of OCTIEF. The contract was based on normal commercial terms and conditions. 60 NOTES TO THE FINANCIAL STATEMENTS NOTE 22 RELATED PARTY TRANSACTIONS (CONT’D) Outstanding balances with related parties from sales/purchases of goods and services The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: Nature Software and hosting services (included in trade payables) Entity Octfolio Association Darren Anderson Kevin Maloney 30 June 2015 $ 40,046 30 June 2014 $ - Loans to/ (from) related parties (Integrated Holdings Group Pty Ltd – parent entity of OCTIEF Pty Ltd until 15 September 2014) June 2015 $ June 2014 $ Beginning of the year Funding of acquisition of OCLS (non-cash - refer Note 4) OCLS acquisition costs funded by parent entity (refer Note 4) Loans advanced Recognition of OCTIEF tax expense (Refer Note 5) Loan repayments received Settlement of dividend liability (Refer Note 28) Loan forgiveness (Refer Note 18) Balance at end of year - - - - - - - - - - (553,327) (286,479) 1,318,750 (500,330) - (648,682) 670,068 - NOTE 23 FINANCIAL RISK MANAGEMENT The Consolidated Entity's financial instruments consist mainly of deposits with banks and accounts receivable and payable. The main risk arising from the financial instruments is credit risk and foreign exchange risk. The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for day to day management of these risks to the Chief Finance Officer. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: Credit Risk Credit risk is the risk that the other party to a financial instrument will fail to discharge their obligation resulting in the Consolidated Entity incurring a financial loss. This usually occurs when debtors fail to settle their obligations owing to the Consolidated Entity. It arises from exposure to customers as well as through deposits with financial institutions. The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. There is no collateral held as security at 30 June 2015. Credit risk is reviewed regularly by the Board. The Group does not have any material credit risk exposure to any single counterparty, except for its holdings of cash which is held with the Westpac Bank. 61 NOTES TO THE FINANCIAL STATEMENTS NOTE 23 FINANCIAL RISK MANAGEMENT (CONT’D) Maximum exposure to credit risk Summary exposure Cash and cash equivalents Trade receivables Other receivables Liquidity risk June 2015 $ June 2014 $ 859,500 835,236 89,680 1,784,416 8,049 523,481 135,568 667,098 Liquidity risk is the risk that the Group may encounter difficulties raising funds to meet financial obligations as they fall due. Liquidity risk is reviewed regularly by the Board. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources are maintained. Refer to Note 17 for the Group’s financing facilities available at balance date: Remaining contractual maturities The tables below reflects the contractual maturity of fixed and floating rate financial liabilities. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at period end. The amounts disclosed represent undiscounted cash flows. The tables include both interest and principal cash flows and therefore the totals may differ from their carrying amount in the balance sheet. The remaining contractual maturities of the financial liabilities are: 30 June 2015 Trade payables Other payables Insurance financing Finance lease 30 June 2014 Trade payables Other payables Market Risk Fixed interest rate - 1 year or less $ 198,271 1 to 2 years $ - Over 2 years $ - - 4.67% 5.10% Interest rate - - 316,226 108,104 11,677 634,278 - - 11,677 11,677 - - 40,452 40,452 1 year or less $ 87,704 1 to 2 years $ - Over 2 years $ - 425,425 513,129 - - - - Total $ 198,271 316,226 108,104 63,806 686,407 Total $ 87,704 425,425 513,129 Market risk arises from the use of interest bearing, tradeable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). Interest rate risk Interest rate risk is managed by constant monitoring of interest rates. Interest rates over the 12 month period were analysed and a sensitivity determined to show the effect on profit and equity after tax if the interest rates at reporting date had been 100 basis points higher or lower, with all other variables held constant. This level of sensitivity was considered reasonable given the current level of both short-term and long-term Australian and New Zealand interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. 62 NOTES TO THE FINANCIAL STATEMENTS NOTE 23 FINANCIAL RISK MANAGEMENT (CONT’D) All interest bearing liabilities have fixed interest rates so the sensitivity analysis has no impact. All cash assets have floating interest rates. At 30 June, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit and equity would have been affected as follows: Impact on profit and equity +1.00% (100 basis points) -1.00% (100 basis points) Foreign Currency Risk June 2015 $ June 2014 $ 6,102 (6,102) 80 (80) Foreign currency risk arises as a result of having assets/cash flows denominated in a currency other than the home currency in which they are reported. At 30 June, the Group had the following exposure to foreign currency, shown in Australian Dollars: Financial assets Cash and cash equivalents (NZD) Trade and other receivables (NZD) Financial liabilities Trade and other payables (NZD) 373,482 533,125 906,607 122,853 122,853 - - - - - Exchange rates over the 12 month period were analysed and a sensitivity determined to show the effect on profit and equity after tax if the NZD:AUD exchange rates at reporting date had been 10% basis higher or lower, with all other variables held constant. The following sensitivity analysis is based on the foreign currency risk exposures in existence at the balance sheet date: Impact on equity +10.00% -10.00% Capital Risk Management (78,375) 78,375 - - The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of ordinary shares and retained earnings of the Group. The Board of Directors monitors the return on capital as well as considers the potential of future dividends to ordinary shareholders. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. As part of complying with its borrowing covenants, the Group has an externally imposed requirement to maintain a Gearing Ratio of less than 65% at June 2015 and 60% at June 2016. Gearing ratio is defined as: Total liabilities divided by total tangible assets (including goodwill and other acquisition based intangibles). The actual gearing ratio at 30 June 2015 was 15%. Fair Values The fair values of financial assets and liabilities approximate their carrying value. No financial assets or liabilities are readily traded on organised markets in standardised form. 63 NOTES TO THE FINANCIAL STATEMENTS NOTE 24 COMMITMENTS Operating leases Minimum lease payments: Payable within one year Payable within one year and five years Total contracted at balance date June 2015 $ June 2014 $ 335,161 685,022 1,020,183 150,955 364,305 515,260 The Group leases various properties and motor vehicles under non-cancellable operating leases expiring within one to five years. The property leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Finance leases Future minimum lease payments: Payable within one year Payable between one year and five years Less future interest payments Present value of minimum lease payments: Current (Note 17) Non-Current (Note 17) 11,677 52,129 63,806 (7,250) 56,556 9,003 47,553 56,556 - - - - - - - Finance leases relate to vehicle with a written down value of $46,336. Under the lease terms, the Group does not have the right to acquire the leased asset at the end of the lease. Future exploration Exploration obligations to be undertaken: Payable within one year Payable between one year and five years 800,000 18,500,000 19,300,000 - - - The Group has certain obligations to expend minimum amounts on exploration in tenement areas. Failure to meet these obligations may result in the Group having to relinquish these tenements. It is HRL’s intention to not focus any further resources on its geothermal assets until it is satisfied that the projects can be commercially viable. NOTE 25 CONTINGENT LIABILITIES The Consolidated Entity has arranged bank guarantees of $30,000 to the Victorian Government as security over the granted geothermal tenement. No liability has been recognised by the Group as bank deposits totalling $30,000 are in place to satisfy any obligation to the bank. Upon relinquishment of the tenements, the Victorian Government will release the security. 64 NOTES TO THE FINANCIAL STATEMENTS NOTE 26 SEGMENT REPORTING Reportable Segments The Group has identified the operating segments based on internal reports that are reviewed and used by the executive team in assessing performance and determining the allocation of resources: Australia New Zealand New Zealand operations were established throughout the year ended 30 June 2015 and accordingly for the period ended 30 June 2014, the Group only had one reportable segment, being environmental services in Australia. Environmental services revenue 3,263,735 1,405,874 Australia New Zealand Unallocated Consolidated $ $ - (1,953) - - (3,162,172) (988,041) (2,446,743) (6,596,956) 99,610 417,833 (2,416,643) (1,899,200) Segment Revenues and Results 30 June 2015 Revenue: Interest income Expenses: Interest expense Other expenses Segment result Income tax Net Profit/(Loss) Non-cash and other significant items included in loss above: Depreciation and amortisation Impairment of receivables Loss on disposal of plant and equipment Listing expense arising on deemed acquisition Acquisition expenses 384,659 5,012 22,351 - - 39,807 7,999 - - - - Assets: Segment assets Liabilities: Segment liabilities Segment acquisitions: 1,983,500 5,334,034 605,587 488,738 Acquisition of property, plant and equipment 64,778 74,863 Details on non-current assets: Trade and other receivables Plant and equipment Intangibles Goodwill Deferred tax assets 38,480 213,945 57,937 30,105 158,988 193,976 - 4,079,678 660,905 971,267 - 4,462,747 $ - 30,100 $ 4,669,609 30,100 - (1,953) 315,445 (1,583,755) 432,465 5,012 22,351 - - 1,252,455 1,252,455 268,358 268,358 - - - - - - - - 7,317,534 1,094,325 139,641 68,585 372,933 251,913 4,079,678 660,905 5,434,014 65 NOTES TO THE FINANCIAL STATEMENTS NOTE 26 SEGMENT REPORTING (CONT’D) Unallocated segment - other expense reconciliation Employee benefits expense Depreciation and amortisation expenses Other expenses Acquisition expenses Listing expense arising on deemed acquisition NOTE 27 PARENT ENTITY INFORMATION The legal Parent Entity of the Consolidated Entity is HRL Holdings Limited. Parent Entity Financial Information Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Issued capital Reserves Accumulated losses Total equity Profit/(loss) after income tax Other comprehensive income Total comprehensive income June 2015 $ June 2014 $ 747,474 8,352 170,104 268,358 1,252,455 2,446,743 465,253 5,614,874 6,080,127 262,859 47,553 310,412 - - - - - - 1,624,003 31,912 1,655,915 29,806 - 29,086 6,390,539 1,626,109 19,258,814 165,400 (12,868,275) 14,298,986 165,400 (12,838,277) 6,390,539 1,626,109 (29,998) 2,455,888 - - (29,998) 2,455,888 Commitments, Contingencies and Guarantees of the Parent Entity The Parent Entity has commitments for the motor vehicle finance lease and the geothermal exploration commitments (refer Note 24). The Parent Entity’s exposure to contingent liabilities is detailed in Note 25. The Parent Entity has no contingent assets or guarantees at balance date. Controlled Entities of the Parent Entity Percentage Owned Country of Incorporation OCTIEF Pty Ltd Hot Rock Geothermal Pty Ltd HRL Holdings NZ Limited Octief Limited Precise Consulting and Laboratory Limited 2015 % 100% 100% 100% 100% 100% 2014 % - - - - - Australia Australia New Zealand New Zealand New Zealand 66 NOTES TO THE FINANCIAL STATEMENTS NOTE 28 DIVIDENDS Dividends Un-franked dividends June 2015 $ June 2014 $ - - 648,682 648,682 The dividend in the prior year was from OCTIEF to its parent entity Integrated Holdings Group Pty Ltd. The dividend was offset against a loan receivable owed to OCTIEF from Integrated Holdings Group Pty Ltd and as a result there was no cash outflow related to the dividend. Refer Note 20 for details of non-cash investing and financing activities. In the prior year OCTIEF Pty Ltd was a member of a tax consolidated group and did not have a franking account. Franked Dividends Franking credits available for subsequent financial years based on a tax rate of 30% (2014: 30%) - - The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for any: (a) (b) (c) (d) (e) franking credits that will arise from the payment of the current tax liability; franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; franking credits that may be prevented from being distributed in subsequent financial years; and franking credits acquired with subsidiaries that form a tax consolidated group with the parent entity. NOTE 29 EVENTS AFTER BALANCE DATE Issue of OCTIEF Milestone Shares The Company confirms that as per Milestone 3 under the OCTIEF acquisition agreement, full year revenue for FY2015 to equal or exceed $4.25M, has not been met. If the target had been met in full then 4,934,682 shares would have been issuable to the vendors. As the target was not met in full the Company, in accordance with the agreement, will issue a reduced number of 4,353,006 shares to the OCTIEF vendors in due course. 67 DIRECTORS’ DECLARATION DIRECTORS' DECLARATION In the Directors opinion: (a) the attached consolidated financial statements and notes and the remuneration report in the Directors’ Report are in accordance with the Corporations Act 2001 and other mandatory professional reporting requirements, including: (i) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (ii) giving a true and fair view of the Consolidated Entity's financial position as at 30 June 2015 and of its performance for the financial year ended on that date; and the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1 to the consolidated financial statements; and there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (b) (b) The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of directors. Darren Anderson Director Brisbane 28 August 2015 68 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR’S REPORT To the members of HRL Holdings Limited Report on the Financial Report We have audited the accompanying financial report of HRL Holdings Limited, which comprises the consolidated balance sheet as at 30 June 2015, the consolidated statement comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 69 Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of HRL Holdings Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of HRL Holdings Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2015 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 16 to 26 of the directors’ report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of HRL Holdings Limited for the year ended 30 June 2015 complies with section 300A of the Corporations Act 2001. BDO Audit Pty Ltd K L Colyer Director Brisbane, 28 August 2015 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 70 CORPORATE INFORMATION HRL HOLDINGS LIMITED CORPORATE INFORMATION DIRECTORS Kevin Maloney (Chairman) Darren Anderson (Executive Director) Mark Elliott (Non-executive Director) John Taylor (Non-executive Director) Frederick Kempson (Alternate Non-executive Director) COMPANY SECRETARY Paul Marshall REGISTERED OFFICE HopgoodGanim Lawyers 1 Eagle Street Brisbane QLD 4000 Phone: + 61 7 3105 5960 SOLICITORS HopgoodGanim Lawyers 1 Eagle Street Brisbane QLD 4000 Phone: + 61 7 3024 0000 SHARE REGISTRY Link Market Services Limited Level 15 324 Queen Street Brisbane QLD 4000 Phone: 1300 554 474 AUDITORS BDO Audit Pty Ltd Level 10, 12 Creek Street Brisbane QLD 4000 Phone:+ 61 7 3237 5999 COUNTRY OF INCORPORATION Australia STOCK EXCHANGE LISTING Australian Securities Exchange Limited ASX Code: HRL INTERNET ADDRESS www.hrlholdings.com AUSTRALIAN BUSINESS NUMBER ABN 99 120 896 371 71
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