HRL Holdings Limited
Appendix 4E 2017 Final Report
Results for Announcement to the Market
21 August 2017
1.
Company Details and Reporting Period
Name of Entity:
HRL Holdings Limited
ABN:
99 120 896 371
Reporting Period:
30 June 2017
Previous Corresponding Period: 30 June 2016
2.
Results for Announcement to the Market
$
Revenue from ordinary activities up 63% to:
13,648,858
Net profit for the period attributable to members up 11% to:
130,420
No dividends were paid or payable during the period.
Refer to pages 8 to 11 of the Financial Statements for the operational and financial review of the Entity.
3.
Statement of Comprehensive income with Notes to the Statement
Refer to Page 26 of the 2016 Financial Statements and accompanying Notes.
4.
Balance Sheet with Notes to the Statement
Refer to Page 27 of the 2017 Financial Statements and accompanying Notes.
5.
Statement of Cash Flows with Notes to the Statement
Refer to Page 29 of the 2017 Financial Statements and accompanying Notes.
6.
Dividends
No dividends were paid or payable during the period.
7.
Statement of Changes in Equity
Refer to Page 28 of the 2017 Financial Statements and accompanying Notes.
8.
Net Tangible Assets per Security
2017
$0.029
2016
$0.006
www.hrlholdings.com | ABN 99 120 896 370 | ASX Code: HRL
9.
Entities over which Control has been Gained or Lost during the Period.
Refer to Page 59 of the 2017 Financial Statements.
10.
Associates and Joint Venture Entities
Not applicable.
11.
Other Significant Information
Not applicable.
12.
Accounting Standards used for Foreign Entities
Not applicable.
13.
Commentary on the Results for the Period
Refer to pages 8 to 11 of the Financial Statements for the operational and financial review of the Entity.
14.
Status of Audit
The attached 2017 Financial Statements have been audited.
15.
Dispute or Qualifications if not yet audited
Not applicable.
16.
Dispute or Qualifications if audited
Not applicable.
Paul Marshall
Company Secretary
21 August 2017
www.hrlholdings.com | ABN 99 120 896 370 | ASX Code: HRL
HRL HOLDINGS LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
30 JUNE 2017
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
5
14
23
24
26
27
28
29
30
69
70
75
2
CEO’S LETTER
Dear Shareholders,
Your Directors and I have much pleasure in presenting the 2017 Annual Financial Statements for the HRL Group.
Introduction and the past year in review
2016-17 was the second full financial year for HRL as an environmental services business. It was an exciting and
transformational year for HRL as we expanded across geographical locations and service lines. The group now operates
from 12 branch locations and offers integrated services including field sampling, laboratory analysis and cloud hosted
data management.
Throughout the year Precise Consulting and OCTIEF have focussed on developing a high performing culture sustainably
expanding their business.
There has been substantial investment in organic expansion leveraging the expanded geographic coverage of the
business. Whilst these organic expansion activities come at a cost to both short term cashflows and profits, the business
is now more robust and we expect financial benefits will flow in coming periods from both increased volumes and margin
protection.
All OCTIEF and Precise Consulting & Laboratory branches now offer methamphetamine investigation services. Precise
Consulting achieved the highly regarded IANZ accreditation for field sampling work and the newest laboratory in Auckland
obtained its asbestos analysis accreditation. OCTIEF recently achieved a NATA accreditation for gravimetric dust
sampling and has begun expanding the Brisbane laboratory for additional chemistry services for soil analysis.
The key milestones achieved throughout the year include:
March 2017 – $8.5m capital raise to fund acquisitions. The raise was supported by existing shareholders, new
institutional investors and all Board and Key Management.
March 2017 – Acquisition of Morrison Geotechnic expanding HRL service offerings into engineering and
construction material laboratory testing services
April 2017 – Precise Consulting & Laboratory Auckland branch achieves IANZ laboratory accreditation
April 2017 – Acquisition of the OCTFOLIO business - a SaaS platform for managing client compliance registers
June 2017 – OCTIEF achieves NATA accreditation for gravimetric dust laboratory services
The core business of environmental services has grown substantially in the past year and is now characterised by:
12 branch locations across Australian and New Zealand, including 10 accredited laboratories
The new Geotech service line will contribute upwards of 40% of the group turnover with the balance coming from
HAZMAT and software
Business scale has improved with corporate costs as a percentage of revenue decreasing from 15% in FY2016, to
11% in FY2017. This trend is expected to continue into FY2018 with full year contribution from the Morrison and
OCTFOLIO businesses
Expanded service capabilities, including:
o
Hazardous material consulting and laboratory services (such as asbestos, lead, synthetic mineral fibres,
gravimetric dust, chemical contamination and illegal clandestine laboratory investigations);
o Geotechnical engineering and the associated laboratory construction material testing;
o
o
Environmental management (such as contaminated land investigations, water quality, dust and noise
monitoring); and
Training and technology solutions.
Outlook for FY2018
We expect the Australian HAZMAT businesses to continue their improvement into the next financial year. OCTIEF has
secured some large panel contracts within all states and territories across our existing and new branches. The New
Zealand market for HAZMAT services is still in its infancy and through the Precise brand we expect to continue to see
exciting growth in this region.
3
CEO’S LETTER
The Australian outlook for infrastructure and civil projects is positive and Morrison Geotechnic is well positioned to
capitalise on this. HRL will focus on investing in higher throughput laboratory equipment and streamlining field processes
to ensure Morrison remain a market leader in both quality and value for money.
OCTFOLIO are focussing on growing the subscription revenue for the coming year and are targeting a strong pipeline of
both government and corporate leads. All additional revenue generated from SaaS fees will contribute strongly to the
bottom line.
HRL is focused on executing the following strategic objectives for FY2018:
1.
Leverage the current branch network to expand new service lines and increase market share;
2. Expand laboratory services into higher end chemistry and environmental services through commissioning new
services or strategic acquisitions;
3.
Invest in high throughput technics for our laboratories to protect or increase margins; and
4. Continue to seek attractive new business opportunities to add to the group.
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 FY17. I look forward to keeping you updated on our progress in FY18 and the transformation
of HRL to one of Australia’s and New Zealand’s leading environmental services groups.
Steven Dabelstein
CEO
4
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 2017.
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 11 August 2006
Non-Executive Director
Appointed 25 November 2014
Frederick Kempson
Alternate Non-Executive Director
Appointed 15 September 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.
Mr Maloney is currently a director of the following other ASX listed company:
Altona Mining Limited (appointed July 2009)
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.
He has not been a Director of any other Australian listed company in the last three years.
5
DIRECTORS’ REPORT
Mark Elliott
Non-Executive Director
Dip App Geol., PhD, FAICD, FAusIMM(CP), FAIG
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 the Australian Institute of Geoscientists.
Dr Elliott is currently a director of the following other ASX listed companies:
Nexus Minerals Ltd (Oct 2006 – present)
Aruma Resources Ltd (July 2017 – 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
Alternate Non-Executive 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, Director of AHA Retail Partners Ltd a UK public company
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)
6
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
Darren Anderson
Mark Elliott
John Taylor
Frederick Kempson
Fully Paid Ordinary
Shares
61,209,491
21,172,397
3,123,634
1,673,077
-
MEETINGS OF DIRECTORS
The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2017
and the number of meetings attended by each Director.
Kevin Maloney
Darren Anderson
Mark Elliott
John Taylor
Frederick Kempson
Meetings attended
Eligible to attend
6
6
6
6
5
6
6
6
6
6
There are no committees of directors. All relevant matters are considered by the Board.
SENIOR MANAGEMENT
Paul Marshall
Company Secretary
LLB, ACA
Mr Marshall holds a Bachelor of Law degree, a post Graduate Diploma in Accounting and is a Chartered Accountant. He
has more than thirty years’ experience initially with Ernst & Young and subsequently twenty 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.
7
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. Mr Harvey holds Bachelor degrees in Business and
Property Economics and post Graduate Diplomas in Accounting and Corporate Governance.
He has more than 15 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. Mr Harvey 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 HRL Group is a diversified environmental and geotechnical service provider with offices and laboratory facilities
across Australia and New Zealand.
The Group offers services including;
industrial hygiene, with a focus on asbestos and hazardous materials management;
geotechnical testing and engineering services;
property contamination testing and work place drug testing;
environmental services (air, water and soil including contaminated land);
environmental and property management software solutions; and
specialised NATA/IANZ - accredited laboratory analysis and on-site testing and monitoring.
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
Over the last year HRL Holdings Limited has continued to focus on expanding its service capabilities. The Company has
achieved a number of key milestones:
Acquisition of Morrison Geotechnic in March 2017;
Acquisition OCTFOLIO in April 2017;
Service line expansion with a new laboratory opened in Auckland;
Below are the key highlights:
Acquisition of Morrison Geotechnic
On 31 March 2017, HRL completed the acquisition of Morrison Geotechnic Holdings Pty Ltd (Morrison Geotechnic). The
Morrison Geotechnic acquisition represents a strategic expansion into a new market for HRL.
Established for over 17 years, Morrison Geotechnic services the civil, engineering and construction industries primarily
across South East Queensland. The Company has 3 branches covering Brisbane, Gold Coast and the Sunshine Coast.
With a portfolio of over 12,000 completed projects, Morrison Geotechnic provides a breadth of engineering and laboratory
expertise across its target sectors and geography.
Morrison Geotechnic provide a range of services and analysis including:
Geotechnical investigations and studies;
Temporary works designs and inspections;
Construction phase verification;
Earthworks supervision;
Soil, concrete and aggregate testing in its NATA accredited laboratories; and
Onsite mobile laboratory testing.
8
DIRECTORS’ REPORT
Acquisition of OCTFOLIO
On 13 April 2017, HRL completed the acquisition of Integrated Holdings Group Pty Ltd (IHG) to acquire 100% of the
issued capital in IHG. IHG is the holding entity of OCTFOLIO Pty Ltd (OCTFOLIO) and has no other operations or assets.
OCTFOLIO is an Australian-based specialised software vendor focused on the development and implementation of:
Information management software solutions for asbestos and hazardous materials;
Innovative field management software solutions; and
Customised compliance solutions and applications relating to workplace health and safety.
OCTFOLIO provides the following services:
Hosting of HAZMAT compliance data and registers;
Quality management systems;
Laboratory management systems;
Field surveying tools;
On demand programming services;
Data migrations; and
Training.
OCTFOLIO is a versatile and adaptive application that provides asset owners the control and insight to their portfolio
which is currently lacking from traditional paper based systems. The OCTFOLIO suite enables HRL businesses to position
themselves as offering industry best practice solutions to our clients with larger asset portfolios – the key target market
segment for the Group.
Auckland laboratory expansion
During the year HRL commissioned and accredited laboratory facilities in its recently opened Auckland branch. The
Auckland market is the largest market in New Zealand for Precise’s major service offerings of asbestos and property
contamination testing. It is also home to New Zealand’s largest corporate, educational and government organisations –
the key target customer segments for Precise.
The accredited laboratory is a key factor in growing Precise’s operations in Auckland. Precise now offers an all in one
audit, testing and compliance management service for the Auckland market. The branch will also be targeting the external
laboratory market aggressively which is the largest by size in New Zealand.
Trading Review
New Zealand
New Zealand operations were strong in FY2017.
OCTIEF Limited (NZ) successfully completed its second large scale survey works project for Chorus New Zealand Limited
(Chorus) across the North and South Islands of New Zealand.
Precise Consulting continued its strong performance with the Wellington, Dunedin and Palmerston North branches all
performing above expectations.
With laboratory accreditation granted in late April, the Auckland branch can now focus on capturing work across the
largest external laboratory market in New Zealand.
Earthquake rebuild activities in Christchurch have now tapered off. Anticipating this Precise has spent the last 6 months
transitioning resources and focusing business development on its other branches.
Australia
Australian activity saw significant improvement during the year.
The Queensland market was especially strong in the second half of the year. Asbestos audits for state based assets
operate on a 3-year cycle. Q3 FY2017 represented the start of this cycle and this trend should continue across the
remainder of this calendar year. The environmental engineering/sciences service line continued its recent growth securing
a number of large contaminated land projects during the year.
9
DIRECTORS’ REPORT
Activity in the ACT branch remained strong with work continuing on NSW loose-fill asbestos insulation program. This
work is expected to continue through calendar 2017 and will compliment normal ongoing work from ACT based projects.
OCTIEF was recently awarded a significant contract by the Northern Territory Department of Housing and Community
Development to carry out asbestos surveys across a range of public housing assets throughout the Darwin, Casuarina
and Palmerston regions of the Northern Territory. The contract is expected to be completed over a 6 month period and
will be serviced out of the Darwin branch. The project commenced in early August 2017.
In the 3 months since acquisition, Morrison Geotechnic has performed very well contributing $2.3M to group revenues.
Morrison Geotechnic has a strong pipeline of works already secured focusing on civil works (roads and bridges), large
property developments and industrial projects.
OCTFOLIO joined the group in mid-April. Since then it has won a new contract with South32. South32 will utilise the
OCTFOLIO software platform for its asbestos registers on their Cannington and Groote Eylandt assets in Queensland
and the Northern Territory respectively.
FINANCIAL REVIEW
Key financial headlines of the HRL Group’s 30 June 2017 results are:
Statutory profit after tax of $130,420
Underlying profit after tax of $789,784 1
Revenues of $13,646,447
Net assets of $15,111,992
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:
Underlying EBITDA
Operating depreciation and amortisation
Interest
Operating tax
Underlying profit after tax
Non-operating adjustments
Acquisition related expenses
Amortisation of intangible assets arising from acquisitions
Morrison Geotechnic earn out
Precise earn out
Management performance shares & broker options
Geothermal costs
Non-operating tax
June 2017
June 2016
$
$
1,509,017
(337,216)
(99,278)
(282,739)
789,784
(86,633)
(528,975)
(62,500)
1,074,645
(179,386)
(81,719)
(225,686)
587,854
(91,378)
(307,598)
-
-
(239,552)
(203,636)
(16,884)
239,265
-
-
168,662
Statutory profit after income tax
130,420
117,988
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
10
DIRECTORS’ REPORT
result but excluded from the underlying result.
Comparison with the Prior Period
Underlying profit after tax for the year increased by $201,930 compared with the prior period. The key reasons for the
movement were:
The additional revenue and profit resulting from the acquisition of Morrison Geotechnic from 31 March 2017;
The additional revenue and profit resulting from the acquisition of OCTFOLIO from 13 April 2017;
Decline in activity in Christchurch;
Additional employee, administration and corporate costs reflecting the increase in the size of the Group.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The following significant changes occurred during the year:
Acquisition of Morrison Geotechnic Holdings Pty Ltd (March 2017);
Acquisition of Integrated Holdings Group Pty Ltd (April 2017); and
Issue of 85,283,375 ordinary shares at $0.10 per share via a rights issue and share placement.
LIKELY DEVELOPMENTS AND FUTURE OPERATIONS
During FY2018, the Group will continue to focus on growing its HAZMAT, geotechnical and software businesses:
Focussed business development plans to target new customers and protect the existing customer base;
Utilising new equipment and software platforms to improve efficiencies and margins;
Continued focus on cross selling opportunities across the HAZMAT and geotechnical businesses;
Development of new service lines in the Australian market;
Geographical expansion into new markets when justified; and
Development of new functionality for the OCTFOLIO software platform and aggressive targeting of new customers.
In addition, the Group will continue to evaluate acquisition opportunities of 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.
11
DIRECTORS’ REPORT
SHARE OPTIONS AND PERFORMANCE SHARES
Details of options issued, exercised, and expired during the financial year are set out below:
Expiry Date
31 December 2019
31 December 2019
31 December 2019
Exercise
Price
$0.18
$0.20
$0.23
1 July
2016
Movements
Issued
Exercised
Expired
-
-
-
-
1,600,000
1,600,000
1,600,000
4,800,000
-
-
-
-
30 June
2017
1,600,000
1,600,000
1,600,000
4,800,000
-
-
-
-
Details of performance shares issued, exercised and expired during the financial year are set out below:
Expiry Date
30 June 2019
30 June 2019
30 June 2019
Exercise
Price
$Nil
$Nil
$Nil
Vesting
Price 1
$0.156
$0.194
$0.234
1 July
2016
Movements
Issued
Exercised
Expired
-
-
-
-
1,029,556
1,029,556
1,029,555
3,088,667
-
-
-
-
30 June
2017
1,029,556
1,029,556
1,029,555
3,088,667
-
-
-
-
1 Vesting Conditions
Primary Vesting Condition
From the 30 day VWAP of HRL’s share price at 1 July 2016, any of the following increases occur:
HRL share price increases 33% within 1 year; or
HRL share price increases 66% within 2 years; or
HRL share price increases 100% within 3 years.
The HRL share price must remain above the nominated target for the relevant period for 14 consecutive trading days.
Secondary Vesting Condition
The Performance Shares will vest in proportion to the number of years’ service after the plan is implemented:
First 33% of the performance shares vest after 1 year of service from plan commencement;
Next 33% performance shares vest after 2 years of service from plan commencement;
Final 34% performance shares vest after 3 years of service from plan commencement.
The Performance Shares will lapse if none of the pricing conditions are met or the participant does not meet the service conditions.
AFTER BALANCE DATE EVENTS
There have been no other events since 30 June 2017 that impact upon the financial report.
REMUNERATION REPORT
The Remuneration Report set out on pages 14 to 22 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.
12
DIRECTORS’ REPORT
NON-AUDIT SERVICES
The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the
auditor's expertise and experience with the Company and/or the Group are important. Details of the amounts paid or
payable to the auditor (BDO Audit Pty Ltd and its associated entities) for non-audit services provided during the year are
set out below.
The Board of Directors has considered the position and, in accordance with advice received from the Audit Committee,
is satisfied that the provision of the non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the
auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for
the following reasons:
all non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality
and objectivity of the auditor
none of the services undermines the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants.
During the year, the following fees were paid or payable for non-audit services provided by the auditor of the parent entity,
its related practices and non-related audit firms:
Taxation services
$26,927
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration on page 23 forms part of the Directors’ Report.
Signed in accordance with a resolution of the board of directors of HRL Holdings.
Darren Anderson
Director
Brisbane, 21 August 2017
13
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 2017 is detailed in this Remuneration Report.
Executive Director and Senior Management Remuneration
The Company aims to reward Executive Director 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 Director 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 short-term and long-term incentives. The level of fixed remuneration is set
14
REMUNERATION REPORT - AUDITED
so as to provide 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 2017 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;
motor vehicle allowance;
Annual bonus at the Board’s discretion;
3 month notice period.
15
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 at the Board’s discretion.
3 month notice period.
Chief Finance Officer Arrangements
The Company entered into an employment contract with Mr Michael Harvey as Chief Finance Officer of the Company
commencing from 1 September 2016. The key terms of the arrangement are:
Ongoing contract – no fixed term;
Fee of $160,000 per annum, inclusive of statutory superannuation contributions;
4 weeks annual leave;
3 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;
One month notice period.
16
REMUNERATION REPORT - AUDITED
Details of Directors and other Key Management – HRL Holdings Limited
Name
Directors
Kevin Maloney
Darren Anderson
Mark Elliott
John Taylor
Position
Period of Service
Non-Executive Chairman
Appointed 15 September 2014
Executive Director
Appointed 15 September 2014
Non-Executive Director
Appointed 11 August 2006
Non-Executive Director
Appointed 25 November 2014
Frederick Kempson
Alternate Non-Executive Director
Appointed 15 September 2014
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Chief Executive Officer
Appointed 1 January 2015
Chief Finance Officer
Company Secretary
Appointed 15 September 2014
Appointed 2 July 2007
17
REMUNERATION REPORT
Remuneration of Directors and other Key Management Personnel – 2017
Short Term
Benefits
Long Term
Benefits
Post Employment
Benefits
Equity based
Benefits
Salary/ Director
fees
Consulting
fees
Non-
monetary
benefits
Leave
benefits
Superannuation
Performance
Shares
Total
Performance
Related %
% of bonus
forfeited
Directors
Kevin Maloney
Darren Anderson
Mark Elliott
John Taylor
Alternate Director
Frederick Kempson
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
47,780
228,310
40,000
40,000
-
-
10,000
-
-
13,205
-
-
17,606
(2,885)
27,220
21,690
-
-
-
-
-
-
-
-
-
962
5,538
-
3,615
-
-
-
-
-
-
-
-
19,615
12,724
-
40,874
26,159
-
81,249
67,033
230,384
133,942
52,000
772,416
-
-
-
23,205
17,606
There were no termination benefits paid or accrued for the year ended 30 June 2017.
75,000
264,721
50,000
40,000
13,205
291,835
178,363
52,000
965,124
-
-
-
-
-
-
100%
-
-
-
14%
15%
-
100%
-
-
18
REMUNERATION REPORT
Remuneration of Directors and other Key Management Personnel – 2016
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
Darren Anderson
Mark Elliott
John Taylor
Alternate Director
Frederick Kempson
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
43,668
228,417
40,000
40,000
-
-
5,850
-
-
17,150
230,692
71,833
52,000
706,610
-
-
-
-
-
28,895
(5,769)
31,332
21,583
-
-
-
-
-
-
-
-
-
(8,017)
2,665
-
-
-
-
19,308
5,784
-
78,007
There were no termination benefits paid or accrued for the year ended 30 June 2016.
23,000
28,895
(11,121)
-
-
-
-
-
-
-
-
-
75,000
273,126
45,850
40,000
17,150
241,983
80,282
52,000
825,391
-
-
-
-
-
-
-
-
-
100%
-
-
-
100%
-
-
19
REMUNERATION REPORT - AUDITED
Key management personnel equity holdings
Shareholdings
Directors
Kevin Maloney
Darren Anderson
Mark Elliott
John Taylor
Alternate Director
Frederick Kempson
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Performance Shares
Directors
Kevin Maloney
Darren Anderson
Mark Elliott
John Taylor
Alternate Director
Frederick Kempson
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Balance
1 July 2016
Acquired through
capital raising
Acquired on
market
Other additions
/disposals/transfers
Balance
30 June 2017
47,459,491
16,589,064
2,848,634
923,077
13,750,000
4,583,333
275,000
750,000
-
-
680,500
286,259
2,014,536
597,043
291,958
500,000
70,801,561
20,747,334
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
61,209,491
21,172,397
3,123,634
1,673,077
-
1,277,543
578,217
2,514,536
91,548,895
Balance
1 July 2016
Granted
Exercised
Lapsed
Balance
30 June 2017
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,068,376
683,761
-
1,752,137
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,068,376
683,761
-
1,752,137
20
REMUNERATION REPORT - AUDITED
Performance Shares Details
The performance shares granted under the long term incentive plan focuses on long term shareholder wealth creation
and retention of key personnel. Participants receive Performance shares with the following terms and conditions:
From the 30 day VWAP of HRL’s share price at 1 July 2016, any of the
following increases occur:
1. HRL share price increases 33% within 1 year; or
Primary Vesting Conditions
2. HRL share price increases 66% within 2 years; or
3. HRL share price increases 100% within 3 years.
The HRL share price must remain above the nominated target for the
relevant period for 14 consecutive trading days
The Performance Shares will vest in proportion to the number of years’
service after the plan is implemented:
1. First 33% of the performance shares vest after 1 year of service from plan
commencement;
2. Next 33% performance shares vest after 2 years of service from plan
commencement;
3. Final 34% performance shares vest after 3 years of service from plan
commencement.
Secondary Vesting Conditions
Exercise Price
$Nil
The Performance Shares will lapse if:
Forfeiture
- None of the pricing conditions are met; or
-
the participant does not meet the service conditions.
Change of Control Event
In the event a bona fide Takeover Bid is declared unconditional and the
bidder has acquired a relevant interest of at least 50.1%, the Performance
Share vest immediately, irrespective of any unmet vesting conditions.
Fair value of performance shares granted
The assessed fair value at the date of grant of performance shares issued is determined using a option pricing models
that takes into account the exercise price, the underlying share price at the time of issue, the term of the performance
share, the underlying share’s expected volatility, expected dividends and the risk free interest rate for the expected life of
the instrument.
Transactions with related parties
Transactions with Key Management Personnel related parties
Transaction
Entity
Rental of office space
Paget Developers
Software and hosting services 1
Octfolio
Sublet of office space to Octfolio 1 Octfolio
1 Services provided from 1 July 2016 to 13 April 2017.
Association
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
2017
$
2016
$
107,369
101,979
322,725
249,253
33,773
30,858
All of the above transactions were based on normal commercial terms and conditions.
21
REMUNERATION REPORT - AUDITED
Trade payable balances with related parties
Nature
Entity
Software and hosting services
Octfolio
Association
Darren Anderson
Kevin Maloney
2017
$
NA
2016
$
31,573
Loans to related parties
There were no loans given to related parties.
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)
2017
$
0.08
19.53
2016
$
0.11
17.48
2015
$
0.068
10.51
2014
$
0.005
1.73
2013
$
0.008
2.76
Net Profit/(loss) for the financial year
130,420
117,988
(1,583,755)
2,147,825
(7,696,487)
Director and Key Management Personnel remuneration
965,124
825,391
638,557
526,968
897,944
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.
Both the CEO and Executive Director had the opportunity to earn up to 50% of their base salary each upon the Group
meeting certain profit targets. No bonuses were paid or are due to be paid as the profit targets 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 2017.
No options expired during the period.
1,752,137 performance share equity instruments were issued to key management as remuneration in 2017.
The Company did not engage any remuneration consultants during the financial year.
------------------------------ END OF REMUNERATION REPORT ------------------------------
22
AUDITOR’S INDEPENDENCE DECLARATION
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 T R MANN TO THE DIRECTORS OF HRL HOLDINGS LIMITED
As lead auditor of HRL Holdings Limited for the year ended 30 June 2017, 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.
T R Mann
Director
BDO Audit Pty Ltd
Brisbane, 21 August 2017
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.
23
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 14 August 2017.
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
300
318
105
316
160
1,199
Number of unmarketable parcels of shares
633
Twenty largest holders
HRL – Ordinary Fully Paid Shares
No. Name of Shareholder
1 TULLA PROPERTY PARTNERS PTY LTD
2
J P MORGAN NOMINEES AUSTRALIA LIMITED
3 DARREN ANDERSON & JULIE ANDERSON
4 CRAIG ANDERSON & AMANDA ANDERSON
5 GREG ANDERSON & NANCY ANDERSON
6 DIXSON TRUST PTY LIMITED
7 ANDERSON PROPERTY HOLDINGS PTY LTD
8 HGT INVESTMENTS PTY LTD
9 BNP PARIBAS NOMS PTY LTD
10 DARREN G ANDERSON & GREGORY J ANDERSON & JULIE E ANDERSON
11 H K PRICE PTY LTD
12 CITICORP NOMINEES PTY LIMITED
13 G4 INVESTORS PTY LTD
14 ELLIOTT NOMINEES P/L
15 MATARANKA PTY LTD
16 MR JONATHAN PAUL KERSHAW MARSHALL
17 ESTANZA PTY LTD
18 NOVUS CAPITAL NOMINEES PTY LIMITED
19 DENBASS PTY LTD
20 MERRIWEE PTY LTD
Holding
61,209,491
33,646,457
13,480,089
11,160,858
10,937,711
5,075,585
4,322,898
3,979,269
3,791,556
3,369,410
3,330,624
3,292,947
2,924,419
2,921,710
2,633,077
2,511,456
2,308,000
2,000,000
2,000,000
% Held
25.07%
13.78%
5.52%
4.57%
4.48%
2.08%
1.77%
1.63%
1.55%
1.38%
1.36%
1.35%
1.20%
1.20%
1.08%
1.03%
0.95%
0.82%
0.82%
1,819,842
176,715,399
0.75%
72.37%
Voting Rights
All fully paid ordinary shares carry one vote per share without restriction.
Substantial Shareholders
The company has received the following substantial shareholder notices as at 14 August 2017:
Mr Kevin Maloney holds an interest in 61,209,491 shares (25.07%)
Mr Darren Anderson holds an interest in 21,172,397 shares (8.67%)
Viburnum Funds Pty Ltd holds an interest in 29,928,178 shares (12.26%)
24
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
13/09/2019
13/09/2019
100%
100%
25
STATEMENT OF COMPREHENSIVE INCOME
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2017
Note
3
4
15 & 4
2017
$
2016
$
13,646,447
8,385,178
2,411
4,888
(2,186,035)
(7,228,818)
(866,191)
(101,690)
(688,715)
(471,639)
(1,553,495)
(25,613)
(983,578)
(4,425,802)
(486,984)
(81,719)
(451,177)
(372,568)
(1,076,713)
(5,583)
-
(79,119)
(62,500)
(118,166)
(85,470)
(86,633)
(160,433)
-
-
(91,378)
173,893
175,012
5
(43,473)
(57,024)
130,420
117,988
Services revenue
Interest revenue
Costs and consumables relating to the provision of services
Employee benefits expense
Depreciation and amortisation expenses
Finance costs
Rent and property expenses
Travel and business development expenses
Other expenses
Impairment of receivables
Settlement expense
Employee benefits expense on earn-out payments
Employee benefits expense – share based payments
Consulting expense – share based payments
Acquisition expenses
Profit before income tax
Income tax expense
Profit after income tax
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign currency translation differences for foreign operations
(36,064)
343,138
Income tax
Other comprehensive income for the period, net of tax
-
-
(36,064)
343,138
Total comprehensive income
94,356
461,126
Earnings per share
Basic earnings per share
Diluted earnings per share
Cents
Cents
7
7
0.07
0.07
0.07
0.07
The Statement of Comprehensive Income should be read in conjunction with the Notes to the Financial Statements.
26
BALANCE SHEET
Consolidated Balance Sheet
As at 30 June 2017
Note
2017
$
2016
$
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
Long-term provisions
Borrowings
Deferred tax liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed capital
Reserves
Retained earnings/(Accumulated losses)
TOTAL EQUITY
6
9
10
9
11
12
13
5
14
15
16
15
16
5
17
18
728,165
3,418,836
268,161
4,415,162
122,619
1,458,961
3,477,212
8,186,266
1,170,288
14,415,346
392,863
1,354,351
4,771
1,751,985
122,861
672,956
646,418
5,054,138
875,167
7,371,540
18,830,508
9,123,525
1,308,692
286,605
969,172
615,576
3,180,045
240,044
220,773
77,654
538,471
671,034
199,354
120,962
491,856
1,483,206
-
878,189
77,796
955,985
3,718,516
2,439,191
15,111,992
6,684,334
16,349,948
1,244
8,220,282
(166,328)
(1,239,200)
(1,369,620)
15,111,992
6,684,334
The Balance Sheet should be read in conjunction with the Notes to the Financial Statements.
27
STATEMENT OF CHANGES IN EQUITY
Consolidated Statement of Changes in Equity
For the year ended 30 June 2017
Contributed
Capital
Accumulated
Losses
Share Based
Payment Reserve
Foreign Currency
Reserve
Balance at 1 July 2015
8,220,282
(1,487,608)
$
$
Transactions with owners in their capacity as owners
Contributions of capital
Share issue costs (net of tax)
Total
Comprehensive income
Profit after income tax
Foreign currency translation differences for foreign operations
Total comprehensive income
Balance at 30 June 2016
Balance at 1 July 2016
Transactions with owners in their capacity as owners
Contributions of capital
Share issue costs (net of tax)
Share based payments
Total
Comprehensive income
Profit after income tax
Foreign currency translation differences for foreign operations
Total comprehensive income
$
-
-
-
-
-
-
-
-
-
$
Total
$
(509,466)
6,223,208
-
-
-
-
-
-
-
343,138
343,138
117,988
343,138
461,126
(166,328)
6,684,334
(166,328)
6,684,334
-
-
-
-
-
-
-
-
-
117,988
-
117,988
8,220,282
(1,369,620)
8,220,282
(1,369,620)
8,528,338
(398,672)
-
8,129,666
-
-
-
-
-
-
203,636
203,636
-
-
-
-
8,528,338
(398,672)
203,636
8,333,302
-
-
-
130,420
-
130,420
-
-
-
-
(36,064)
(36,064)
130,420
(36,064)
94,356
Balance at 30 June 2017
16,349,948
(1,239,200)
203,636
(202,392)
15,111,992
The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements.
28
STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows
For the year ended 30 June 2017
Note
2017
$
2016
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Income tax paid
Acquisition costs
Precise earn-out payments
Settlement payment
Finance costs
Net cash provided by/(used in) operating activities
6
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant & equipment
Payments for intangible assets
Payments for security deposits
Net outflow of cash from the acquisition of Morrison
Net outflow of cash from the acquisition of IHG
Net outflow of cash from the acquisition of AAC
Net outflow of cash from the acquisition of RJL
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions of capital
Capital raising costs
Proceeds/(repayment) of borrowings
Finance lease payments
Net cash provided by financing activities
19
20
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 6
14,713,803
(14,038,708)
2,411
(523,004)
(86,633)
-
-
(101,690)
(33,822)
(327,133)
(49,214)
-
(3,483,988)
(2,730,081)
-
-
(6,590,416)
8,528,338
(569,531)
(928,208)
(70,543)
6,960,056
335,818
(516)
392,863
728,165
9,254,475
(8,211,447)
11,461
(459,770)
(91,378)
(214,067)
(50,000)
(81,719)
157,555
(249,689)
-
(93,126)
-
-
(992,203)
(461,979)
(1,796,997)
-
-
1,170,608
(17,669)
1,152,939
(468,503)
19,866
859,500
392,863
The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.
29
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS INDEX
Note
Page Number
Summary of Significant Accounting Policies
Financial Performance Notes
Segment Reporting
Revenue
Expenses
Income Tax
Cash Flow Information
Earnings Per Share
Dividends
Financial Position Notes
Trade and Other Receivables
Other Assets
Plant and Equipment
Intangible Assets
Goodwill
Trade and Other Payables
Provisions
Borrowings
Contributed Capital
Reserves
Group Structure Notes
Morrison Geotechnic Holdings Acquisition
Integrated Holdings Group Acquisition
Parent Entity Information
Other Disclosure Notes
Share Based Payments
Related Party Transactions
Financial Risk Management
Commitments
Contingent Liabilities
Auditors Remuneration
Events After Balance Sheet Date
31
34
37
37
38
42
43
43
44
45
45
46
48
49
49
51
53
53
54
56
58
60
62
63
67
67
68
68
30
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.
The accounting policies have been consistently applied, unless otherwise stated.
Operations and principal activities
The HRL Group is a diversified environmental and geotechnical service provider with offices and laboratory facilities across
Australia and New Zealand.
The Group offers services including;
industrial hygiene, with a focus on asbestos and hazardous materials management;
geotechnical testing and engineering services;
property contamination testing and work place drug testing;
environmental services (air, water and soil including contaminated land);
environmental and property management software solutions; and
specialised NATA/IANZ - accredited laboratory analysis and on-site testing and monitoring.
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 21 August 2017.
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 critical accounting estimates or judgements were made in the process of applying the Consolidated Entity’s
accounting policies that in management’s assessment can significantly affect the amounts recognised in the financial
statements:
31
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated
in Note 13. 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 13 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 Morrison Geotechnic Holdings
Limited and Integrated Holdings Pty Ltd (refer Note 15). This calculation requires the use of assumptions. Refer to Note
15 for details of these assumptions and the potential impact of changes to the assumptions.
Accounting policies
(a) 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.
(b)
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.
(c) 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.
32
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Accounting Standards
The Consolidated Entity adopted all new Accounting Standards and Interpretations effective for the year ended 30 June
2017. There were no material impacts on the financial statements of the Consolidated Entity as a result of adopting these
standards.
New Standards and Interpretations Not Yet Adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2017
reporting periods. 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 2018. 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.
AASB16 Leases
This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after
1 January 2019. When effective, this standard will replace the current accounting requirements applicable to leases in
AASB117 Leases and related interpretations. AASB16 introduces a single lessee accounting model that eliminates the
requirement for leases to be classified as operating or finance leases. This means that for all leases, a right-to-use asset
and a liability will be recognised, with the right-to-use asset being depreciated and the liability being unwound in principal
and interest components over the life of the lease. The Consolidated Entity has not yet evaluated the impact adoption of
this standard will have.
There are no other standards that are not yet effective and that would be expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable future transactions.
Comparative Figures
When required by accounting standards comparative figures have been adjusted to conform to changes in presentation
for the current financial year.
33
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING
Reportable Segments
For the period ended 30 June 2017 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:
HAZMAT services including:
o
o
o
o
o
industrial hygiene, with a focus on asbestos and hazardous materials management;
property contamination testing and work place drug testing;
environmental services (air, water and soil including contaminated land);
environmental and property management software solutions; and
specialised NATA/IANZ - accredited laboratory analysis and on-site testing and monitoring.
Geotechnical services including:
o Geotechnical investigations and studies;
o
o
o
o
o Onsite mobile laboratory testing.
Temporary works designs and inspections;
Construction phase verification;
Earthworks supervision;
Soil, concrete and aggregate testing; and
Software services including:
o
o
o
Information management software solutions for asbestos and hazardous materials;
Innovative field management software solutions; and
Customised compliance solutions and applications relating to workplace health and safety.
The Geotechnical services segment reflects the activities of Morrison Geotechnic for the 3 months since acquisition on 31
March 2017.
The Software services segment reflects the activities of OCTFOLIO for the 2.5 months since acquisition on 13 April 2017.
Unallocated amounts reflect corporate costs incurred by the HRL Holdings Limited parent entity as well as the financing
activities of the Group.
Reported segment results include any acquisition costs and amortisation of intangible assets that arose on acquisition that
are applicable to that segment.
Change to reportable segments
For the year ended 30 June 2016 and the prior comparative period the Group identified the operating segments based on
internal reports that were reviewed and used by the executive team in assessing performance and determining the
allocation of resources. The internal reports and operating segments were based on branded locations (OCTIEF and
Precise) for the year ended 30 June 2016.
With the addition of the Morrison Geotechnic and OCTFOLIO to the Group in the current year, the operating segments
have been changed to reflect the distinctive business units of the Group. OCTIEF and Precise, which provide a similar
suite of services have now been merged into the HAZMAT service segment. The comparatives have been restated.
No geotechnical or software services were provided for the year ended 30 June 2016.
Geographical Information
Segment revenue is based on the geographical location of customers and segment assets are based on the geographical
location of the assets. The entity is domiciled in Australia
The amount of its revenue from external customers in Australia is $6,345,317 (2016: $2,795,007) Total revenues from
customers domiciled in New Zealand is $7,301,130 (2016: $5,553,524).
The amount of non-current assets other than financial instruments and deferred tax assets located in Australia is
$7,952,123 (2016: $1,125,213). Total non-current assets other than financial instruments and deferred tax assets located
in New Zealand is $5,170,316 (2016: $5,248,299).
34
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2017
HAZMAT Geotechnical
Software Unallocated Consolidated
Revenue:
Services revenue
Interest income
Expenses:
Interest expense
$
$
$
11,247,858
2,289,196
109,393
-
-
-
-
-
-
$
-
$
13,646,447
2,411
2,411
(101,690)
(101,690)
Other expenses
Segment result before acquisition related
expenses
(9,308,982)
(1,894,332)
(54,002)
(1,437,852)
(12,695,168)
1,938,876
394,864
55,391
(1,537,131)
852,000
Acquisition related expenses
Acquisition costs
Earn-out expenses
Amortisation of acquisition intangibles
Segment result before tax
Income tax
Net Profit
Non-cash and other significant items:
Depreciation and amortisation
Impairment of receivables
Share based payments
Acquisition expenses
Earnout expenses
Assets:
Segment assets
Liabilities:
Segment liabilities
-
-
(359,069)
1,579,807
-
(23,322)
(62,500)
(63,311)
-
(103,933)
(65,972)
-
-
-
205,109
(73,891)
(1,537,131)
-
-
-
637,234
25,613
-
-
-
152,887
66,900
-
-
23,322
62,500
-
-
63,311
-
9,170
-
203,636
-
-
(86,633)
(62,500)
(528,974)
173,893
(43,473)
130,420
866,191
25,613
203,636
86,633
62,500
8,534,953
5,594,611
3,072,558
1,628,386
18,830,508
1,524,076
1,705,331
399,795
89,314
3,718,516
Segment acquisitions:
Acquisition of property, plant and equipment
Acquisition of intangibles
Acquisition of goodwill
327,859
49,214
-
-
1,768,000
1,550,000
-
1,770,810
1,365,920
-
-
-
-
-
-
327,859
3,367,214
3,136,730
122,619
1,458,961
3,477,212
8,186,266
1,170,288
108,916
693,664
329,117
13,703
728,738
-
9,525
27,034
1,664,067
1,484,028
5,049,536
1,770,810
1,365,920
-
-
-
1,170,288
6,181,233
4,177,318
2,859,473
1,197,322
14,415,346
35
Details on non-current assets:
Trade and other receivables
Plant and equipment
Intangibles
Goodwill
Deferred tax assets
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2016
Revenue:
Services revenue
Interest income
Expenses:
Interest expense
Other expenses
HAZMAT
Unallocated
Consolidated
$
8,385,178
$
-
4,888
$
8,385,178
4,888
-
(81,179)
(81,179)
(6,136,667)
(1,178,680)
(7,495,347)
Segment result before acquisition related expenses
2,068,511
(1,254,971)
813,540
Acquisition related expenses
Acquisition costs
Settlement expenses
Earn-out expenses
Amortisation of acquisition intangibles
Segment result before tax
Income tax
Net Profit
Non-cash and other significant items:
Depreciation and amortisation
Impairment of receivables
Settlement expenses
Acquisition expenses
Earnout expenses
Assets:
Segment assets
Liabilities:
Segment liabilities
Segment acquisitions:
Acquisition of property, plant and equipment
Acquisition of intangibles
Acquisition of goodwill
Details on non-current assets:
Trade and other receivables
Plant and equipment
Intangibles
Goodwill
Deferred tax assets
(91,378)
(79,119)
(160,433)
(307,598)
-
-
-
-
1,429,983
(1,254,971)
-
-
474,620
12,364
5,583
79,119
91,378
160,433
-
-
-
-
(91,378)
(79,119)
(160,433)
(307,598)
175,012
(57,024)
117,988
486,984
5,583
79,119
91,378
160,433
8,077,054
1,046,471
9,123,525
1,294,739
1,144,452
2,439,191
249,689
693,143
661,357
122,861
637,326
646,418
5,054,138
7,544
6,468,287
-
-
-
-
35,630
-
-
867,623
903,253
249,689
693,143
661,357
122,861
672,956
646,418
5,054,138
875,167
7,371,540
36
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3
REVENUE
Services Revenue
HAZMAT service revenue
Geotechnical service revenue
Software service revenue
Total service revenue
2017
$
2016
$
11,247,858
8,385,178
2,289,196
109,393
-
-
13,646,447
8,385,178
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.
NOTE 4
EXPENSES
Employee benefits expenses
Note
Defined contribution superannuation expense
Other employee benefits expenses
Total employee benefits expenses
Employee benefits expense – share based payments
Remuneration expense on Morrison Geotechnic earn-out
21
15
262,985
6,965,833
7,228,818
118,166
62,500
144,520
4,281,282
4,425,802
-
-
Remuneration expense on Precise Consulting earn-out
-
160,433
Contributions to defined contribution plans are expensed when incurred.
Rental expense relating to operating leases
Minimum lease payments
791,320
360,695
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.
Net loss on disposal of plant and equipment
-
29,119
Gains and losses on plant and equipment disposals are determined by comparing proceeds with the carrying amount.
These gains and losses are included in the statement of comprehensive income.
37
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)
2017
$
2016
$
395,122
(11,277)
383,845
(204,996)
(135,376)
(340,372)
412,305
10,572
422,877
(309,268)
(56,585)
(365,853)
Total income tax expense/(benefit)
43,473
57,024
Reconciliation of income tax expense to prima facie tax payable:
Profit before tax
Prima facie tax at 30%
Tax effect of not deductible (taxable) amounts in calculating taxable income:
Entertainment expenses
Amortisation of intangible assets
Share based payments
Other items
Difference in overseas tax rate
Adjustments for tax of prior periods
Total income tax expense
173,893
175,012
52,168
52,504
2,409
-
25,641
(2,158)
78,060
(23,310)
(11,277)
43,473
2,887
17,381
-
-
72,772
(26,321)
10,573
57,024
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.
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.
38
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5
INCOME TAX (CONT’D)
Amounts recognised directly in equity:
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:
2017
2016
Current tax: share issue costs
Deferred tax: share issue costs
Deferred tax assets:
Balance comprises temporary differences attributable to:
Employee benefits payable
Employee leave provisions
Accrued expenses
Provision for doubtful debts
Vendor earn-outs
Lease liabilities
Carried forward tax losses
Set-off of deferred tax liabilities
Net deferred tax assets
$
-
170,859
170,859
24,587
230,200
-
2,503
18,750
125,897
1,450,512
1,852,449
(682,221)
1,170,288
$
-
-
-
10,975
35,248
9,472
3,604
60,432
14,265
885,760
1,019,756
(144,589)
875,167
A deferred tax asset has been recognised as the consolidated entity is forecasting to generate taxable profits over the next
five years.
Movements during the period:
Year ended June 2017
1 July 2016
Charged/credited to
Profit or
Loss
Other Comp.
Income
Directly to
equity
Employee benefits payable
Employee leave provisions
Accrued expenses
Provision for doubtful debts
Vendor earn-out provision
Lease liabilities
10,975
35,248
9,472
3,604
60,432
14,265
13,612
19,898
(9,472)
(1,101)
(41,682)
(7,282)
Carried forward tax losses
885,760
231,023
1,019,756
204,996
-
-
-
-
-
-
-
-
-
-
-
-
-
-
170,859
170,859
Acquisition
of subsidiary
-
175,054
-
-
-
30 June 2017
24,587
230,200
-
2,503
18,750
118,914
162,870
125,897
1,450,512
456,838
1,852,449
39
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5
INCOME TAX (CONT’D)
Year ended June 2016
1 July 2015
Charged/credited to
Profit or
Loss
Other Comp.
Income
Directly to
equity
Employee benefits payable
Employee leave provisions
Accrued expenses
Provision for doubtful debts
Precise earn-out provision
Lease liabilities
8,909
30,540
13,818
4,587
14,462
16,966
2,066
4,708
(4,346)
(983)
45,970
(2,701)
Carried forward tax losses
620,551
265,209
Other amounts
654
(655)
710,488
309,268
-
-
-
-
-
-
-
-
-
Deferred tax liabilities:
Balance comprises temporary differences attributable to:
Intangibles assets
Plant and equipment
Other amounts
Set-off of deferred tax assets
Net deferred tax liabilities
Movements during the period:
Acquisition
of subsidiary
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2017
$
594,013
140,188
25,674
759,875
(682,221)
77,654
30 June 2016
10,975
35,248
9,472
3,604
60,432
14,265
885,760
-
1,019,756
2016
$
181,440
10,426
30,519
222,385
(144,589)
77,796
Year ended June 2017
1 July 2016
Intangible assets
Plant and equipment
Other amounts
181,440
10,426
30,519
Profit or
Loss
(132,827)
2,296
(4,845)
222,385
(135,376)
Year ended June 2016
1 July 2015
Intangible assets
Plant and equipment
Other amounts
60,874
13,901
2,204
Profit or
Loss
(81,425)
(3,475)
28,315
76,979
(56,585)
Charged/credited to
Other Comp.
Income
Directly to
equity
-
-
-
-
Charged/credited to
Other Comp.
Income
Directly to
equity
-
-
-
-
Acquisition
of subsidiary
545,400
127,466
-
672,866
Acquisition
of subsidiary
201,991
-
-
30 June 2017
594,013
140,188
25,674
759,875
30 June 2016
181,440
10,426
30,519
201,991
222,385
-
-
-
-
-
-
-
-
40
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5
INCOME TAX (CONT’D)
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.
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.
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.
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.
41
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6
CASH FLOW INFORMATION
Reconciliation of cash flows from operations with profit after tax
Profit after income tax
130,420
117,988
2017
$
2016
$
Non-cash items in profit/(loss) after income tax
Depreciation and amortisation
Loss on sale of plant and equipment
Impairment of receivables
Share based payments
Movements in operating assets and liabilities
Trade and other receivables
Other assets
Trade and other payables
Provisions
Tax balances
866,191
-
25,613
203,636
(459,857)
(128,163)
(321,873)
129,742
(479,531)
486,984
29,119
5,583
-
(108,907)
101,491
(30,339)
(41,618)
(402,746)
Net cash provided by/ (used in) operating activities
(33,822)
157,555
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.
Non-cash Investing and Financing Activities
There were no non-cash investing and financing activities during the year (2016: $Nil).
Cash and Cash Equivalents
Cash at bank and on hand
Cash on deposit
608,029
120,136
728,165
317,413
75,450
392,863
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.
42
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 EARNINGS PER SHARE
Earnings
2017
$
2016
$
Earnings used to calculate basic and diluted EPS
130,420
117,988
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
179,593,908
158,903,031
-
-
179,593,908
158,903,031
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.
Options and performance shares could potentially dilute basic earnings per share in the future but were not included in the
calculation of diluted earnings per share for 2017 as they were anti-dilutive.
NOTE 8
DIVIDENDS
No dividends were paid during the financial year ended 30 June 2017 (2016: nil) and no dividend is recommended for the
current year.
43
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9
TRADE AND OTHER RECEIVABLES
CURRENT
Trade receivables
Provision for impairment
Accrued income
Other receivables
NON-CURRENT
Bonds and other deposits
2017
$
2016
$
3,035,283
(8,609)
3,026,674
330,142
62,020
1,173,562
(5,583)
1,167,979
146,536
39,836
3,418,836
1,354,351
122,619
122,861
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 $25,163 during the year (2016: $5,583) 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
2017
$
5,583
25,613
(22,587)
8,609
2016
$
-
5,583
-
5,583
Customers with balances past due but with no provision for impairment at 30 June 2017 were $81,586 (2016: $85,744).
Based on payments received after 30 June 2017 from these customers, recent collection history and other relevant factors,
no impairment was necessary for these customer balances.
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
31,422
37,513
12,651
81,586
63,888
11,801
10,055
85,744
At the end of each reporting period, the Group assesses whether there is objective evidence that a receivable has been
impaired. Impairment losses are recognised in profit or loss.
44
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 OTHER ASSETS
CURRENT
Prepaid expenses
NOTE 11 PLANT AND EQUIPMENT
Leasehold improvements at cost
Accumulated depreciation
Motor vehicles at cost
Accumulated depreciation
Office furniture and equipment at cost
Accumulated depreciation
Lab and field 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 2017
Balance at 1 July 2016
Additions
Business combinations
Foreign exchange movements
Depreciation
Balance at 30 June 2017
Year ended 30 June 2016
Balance at 1 July 2015
Additions
Additions – leases
Business combinations
Disposals
Foreign exchange movements
Depreciation
Balance at 30 June 2016
Leasehold
Improvements
51,546
9,038
-
(4)
(15,251)
45,329
Leasehold
Improvements
24,613
37,815
-
-
-
687
(11,569)
51,546
2017
$
2016
$
268,161
4,771
72,368
(27,039)
45,329
953,170
(158,561)
794,609
342,960
(158,338)
184,623
644,181
(209,780)
434,401
2,012,679
(553,718)
1,458,961
Motor
Vehicles
Office Furniture
and Equipment
Lab and field
Equipment
63,279
(11,733)
51,546
353,370
(62,435)
290,935
164,402
(71,104)
93,298
329,994
(92,817)
237,177
911,045
(238,089)
672,956
Total
672,956
327,859
787,163
1,692
290,935
11,154
601,779
(8,904)
(100,355)
794,609
93,298
143,659
23,492
7,742
(83,568)
184,623
237,177
164,008
161,892
2,858
(131,534)
(330,708)
434,401
1,458,962
Motor
Vehicles
Office Furniture
and Equipment
Lab and field
Equipment
141,549
34,546
49,934
151,760
(29,119)
3,767
(61,502)
290,935
Total
372,933
249,689
49,934
60,423
42,799
-
146,348
134,529
-
20,237
27,076
199,073
-
5,932
(36,093)
93,298
-
(29,119)
(554)
9,832
(70,222)
(179,386)
237,177
672,956
45
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11
PLANT AND EQUIPMENT (CONT’D)
Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and
impairment losses.
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.
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.
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%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date.
NOTE 12
INTANGIBLE ASSETS
Customer contracts at cost
Accumulated amortisation
Licences and accreditations at cost
Accumulated amortisation
Software at cost
Accumulated amortisation
Other intangibles at cost
Accumulated amortisation
2017
$
1,740,619
(238,082)
1,502,537
937,356
(485,189)
452,167
1,549,214
(69,062)
1,480,152
64,038
(21,682)
42,356
2016
$
389,377
(43,264)
346,113
471,356
(228,085)
243,271
-
-
-
64,164
(7,129)
57,034
Total intangible assets
3,477,212
646,418
46
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12
INTANGIBLE ASSETS (CONT’D)
Movements during the year
Year ended 30 June 2017
Balance at 1 July 2016
Additions
Customer
Contracts
346,113
-
Licences and
Accreditations
243,271
Software
Other
Intangibles
-
57,034
-
49,214
Total
646,418
49,214
3,318,000
-
-
Business combinations
1,352,000
466,000
1,500,000
Foreign exchange movements
Amortisation
Balance at 30 June 2017
Year ended 30 June 2016
Balance at 1 July 2015
Additions
Business combinations
Disposals
Foreign exchange movements
Amortisation
Balance at 30 June 2016
Customer contracts
(758)
(194,818)
1,502,537
Customer
Contracts
57,937
-
380,450
-
7,693
(99,967)
346,113
-
(54)
(125)
(937)
(257,104)
(69,008)
(14,553)
(535,483)
452,167
1,480,152
42,356
3,477,212
Licences and
Accreditations
193,976
-
250,000
-
-
(200,705)
243,271
Other
Intangibles
Total
-
-
251,913
-
62,693
693,143
-
1,267
(6,926)
57,034
-
8,960
(307,598)
646,418
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 2 to 5 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 to 3 years.
Software
Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs
that are directly attributable to the design and testing of identifiable and unique software products controlled by the group
are recognised as intangible assets when the following criteria are met:
it is technically feasible to complete the software so that it will be available for use
management intends to complete the software and use or sell it
there is an ability to use or sell the software
it can be demonstrated how the software will generate probable future economic benefits
adequate technical, financial and other resources to complete the development and to use or sell the software are
available, and
the expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include employee costs and an appropriate portion of
relevant overheads.
Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready
for use.
47
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 GOODWILL
Opening balance
Goodwill arising on acquisition of Morrison Geotechnic
Goodwill arising on acquisition of OCTFOLIO
Goodwill arising on acquisition of AAC
Foreign exchange movements
Impairment tests for goodwill
2017
$
5,054,138
1,770,810
1,365,920
-
(4,602)
2016
$
4,079,678
-
-
661,357
313,103
8,186,266
5,054,138
Goodwill is monitored by management at the Company level for Precise Consulting, Morrison Geotechnic and OCTFOLIO
and at the geographic branch level for AAC. 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. 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. Refer to Note 3 for the segment
level of goodwill. The following table sets out the key assumptions for the value in use:
Assumption
Precise
AAC Morrison
OCTFOLIO
Approach
Sales volume annual
growth
2.5%
1%
1%
18%
Average annual growth rate over the five-year forecast
period based on management’s expectations of market
development.
Sales price annual
growth
2.5%
1%
1%
2%
Average annual growth rate over the five-year forecast
period based on current industry trends
Fixed costs per
annum
$2.1M
$0.3M
$2.4M
$0.4M
Annual capital
expenditure
$100,000
$25,000
$200,000
$10,000
Long term growth
rate
2%
2%
2%
1%
Pre-tax discount rate
18%
18%
18%
18%
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. The
equivalent pre-tax rates are disclosed in the table.
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.
48
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 TRADE AND OTHER PAYABLES
CURRENT
Trade payables
Other payables and accrued expenses
Payables to Directors – outstanding wages and fees
2017
$
509,375
789,317
10,000
1,308,692
2016
$
293,262
357,772
20,000
671,034
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 15 PROVISIONS
CURRENT
Employee benefits
Morrison earn-out
OCTFOLIO contingent consideration at fair value
NON-CURRENT
Employee benefits
OCTFOLIO contingent consideration at fair value
719,172
62,500
187,500
969,172
52,544
187,500
240,044
120,962
-
-
120,962
-
-
-
Employee Benefit Provisions
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.
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 corporate bonds
with terms and currencies that match, as closely as possible, the estimated future cash outflows.
Morrison Geotechnic Earn-out Provision
On 31 March 2017, HRL acquired 100% of the issued capital of Morrison Geotechnic Holdings Limited. The agreed
purchase consideration was:
initial payment of $3,750,000 cash; and
earn-out consideration of up to $750,000.
49
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 PROVISIONS (CONT’D)
The amount of earn out consideration is based on Morrison Geotechnic’s earnings before interest and taxes (EBIT) for the
year 1 April 2017 to 31 March 2018:
EBIT
Earn Out Consideration
Less than $1.1 million
Nil
$1.1 – 1.3 million
$1.3 – 1.5 million
$250,000
$500,000
More than $1.5 million
$750,000
If applicable, one half of the earn-out consideration will be paid 12 months after settlement. Payment of the remaining half
of the earn-out consideration will be paid in 12 equal monthly instalments thereafter.
Payment of the earn-out consideration is contingent on the four vendor’s ongoing service with Morrison Geotechnic. The
vendors will remain employed with Morrison Geotechnic for a minimum period of two years after acquisition. In the situation
where employment is terminated prior to completing one year of service, no earn-out is payable. If employment is
terminated after one but before the minimum two-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 the vendors’ ongoing service, the principles and guidance as set out in
AASB 3 Business Combinations require that any earn-out consideration be expensed as an employment cost in the
relevant period the service was provided. HRL estimates that Morrison Geotechnic will exceed an EBIT of $1,300,000 for
the 12 months ended 31 March 2017, resulting in an estimated earn-out of $500,000.
As at 30 June 2017, the vendors had performed 3 months of the 24 month service period (12.5%). Accordingly, an amount
of $62,500 (being 12.5% of $500,000) has been recognised in profit or loss.
OCTFOLIO contingent consideration at fair value
On 13 April 2017, HRL acquired 100% of the issued capital of Integrated Holdings Group Limited. The agreed purchase
consideration was:
initial payment on completion of the IHG acquisition of $2,750,000 in cash; and
earn-out consideration of up to $750,000 in cash.
The amount of earn out consideration is based on OCTFOLIO’s earnings before interest and taxes (EBIT) for the 24 months
after settlement:
Tranche 1
12 Months
Post-Acquisition EBIT
Earn Out Consideration
Less than $300,000
Nil
More than $300,000
$375,000
Tranche 2
13 Months to 24 Months
Post-Acquisition EBIT
Earn Out Consideration
Less than $450,000
Nil
More than $450,000
$375,000
Payment of the earn-out consideration is not contingent on any individual providing ongoing service. As per the principles
and guidance as set out in AASB 3, the value of the estimated earn-out is reflected as an increase in the total consideration
paid for the entity. Any subsequent changes in the estimate earn-out will be reflected in profit or loss.
HRL estimates that there is 50% probability of OCTFOLIO’s meeting the EBIT targets for both tranches. Accordingly, a
total liability of $375,000 has been recognised as a provision.
50
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 PROVISIONS (CONT’D)
Movements during the year
Opening balance
Morrison Geotechnic earn-out expense recognised
OCTFOLIO earn-out provision recognised
Precise Consulting earn-out expense recognised
Foreign exchange movements
Payment of Precise Consulting earn-out
NOTE 16 BORROWINGS
CURRENT
Finance leases
Bank loans
Insurance financing
NON-CURRENT
Finance leases
Bank loans
2017
$
-
62,500
375,000
-
-
-
437,500
198,884
287,334
129,358
615,576
220,773
-
220,773
2016
$
51,650
-
-
160,433
1,984
(214,067)
-
25,856
466,000
-
491,856
67,959
810,230
878,189
Bank loans and insurance financing
Bank loans and insurance financing (excluding financial guarantees) are measured at amortised cost. Amortised cost is
the amount at which the financial liability is measured at initial recognition less principal repayments and adjusted for any
cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective
interest method.
The effective interest method is used to allocate 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 liability.
The bank loan is secured against all current and non-current assets of the Group by floating charge. The facility has a
variable interest rate of 4.535% per annum on the drawn balance and a facility line fee of 1% on the total available balance.
The bank loan expires in September 2019.
Insurance financing is unsecured. The facilities have an average interest rate of 5.51% per annum and expire between
July 2017 and March 2018.
Finance 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.
The finance leases are secured over the individual motor vehicles that the lease relates to. The leases have interest rates
of 4.35% - 7.37% per annum and expire between July 2017 and June 2021.
51
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 BORROWINGS (CONT’D)
Financing Facilities
The Group has access to the following lines of credit:
Total facilities available
Finance leases and equipment financing
Insurance financing
Bank loans
Facilities used at balance date
Finance leases and equipment financing
Insurance financing
Bank loans
Unused facilities at balance date
Finance leases and equipment financing
Insurance financing
Bank loans
2017
$
2016
$
852,220
129,358
1,332,953
2,315,531
419,657
129,358
287,334
836,349
547,553
-
2,307,856
2,855,409
93,815
-
1,276,230
1,370,045
433,563
453,738
-
1,045,619
1,479,182
-
1,031,626
1,485,364
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: Operating EBITDA divided by the total minimum principal and interest payments for
that period.
This ratio will be assessed every 12 months.
Gearing Ratio of less 60%
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 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.
52
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 BORROWINGS (CONT’D)
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 2017 had a carrying value
of $467,293 (2016: $79,536).
Defaults and breaches
During the current and prior year, there were no defaults or breaches on any of the loans.
Terms and conditions
Bank loan facilities may be drawn at any time and have a remaining maturity of 2.25 years. The bank loan facilities are
principal and interest and amortise equally over the loan period.
2017
$
2016
$
NOTE 17 CONTRIBUTED CAPITAL
244,186,406 fully paid ordinary shares (June 2016: 158,903,031)
16,349,948
8,220,282
June
2017
Number
June
2016
Number
Movements during the period
Balance at beginning of period
158,903,031
154,550,025
Rights issue – issued at $0.10 per share
Placement – issued at $0.10 per share
57,783,375
27,500,000
Share issue costs (net of tax)
Shares issued to OCTIEF vendors on
achieving Milestones
-
-
-
-
-
4,353,006
June
2017
$
8,220,282
5,783,338
2,750,000
(398,672)
-
June
2016
$
8,220,282
-
-
-
-
Balance at end of period
244,186,406
158,903,031
16,349,948
8,220,282
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. Ordinary shares do not have a par value.
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.
NOTE 18 RESERVES
Foreign currency translation reserve
Share based payment reserve
2017
$
2016
$
(202,392)
203,636
(166,328)
-
1,244
(166,328)
The foreign currency translation reserve records exchange rate differences arising from the translation of the financial
statements of foreign subsidiaries.
The share based payments reserve is used to record the value of share based payments provided to employees as part
of their remuneration and to consultants for services provided.
53
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 RESERVES (CONT’D)
Movements during the year
Opening balance
Foreign exchange differences
Share based payments
Closing balance
2017
$
(166,328)
(36,064)
203,636
1,244
2016
$
(509,466)
343,138
-
(166,328)
NOTE 19
MORRISON GEOTECHNIC HOLDINGS PTY LTD ACQUISITION ACCOUNTING
On 31 March 2017, HRL acquired 100% of the issued capital of Morrison Geotechnic Holdings Pty Ltd (Morrison
Geotechnic). Established for over 17 years, Morrison Geotechnic services the civil, engineering and construction industries
primarily across South East Queensland. The Company has 3 branches covering Brisbane, Gold Coast and the Sunshine
Coast.
The agreed purchase consideration was:
initial payment of $3,750,000 cash; and
earn-out consideration of up to $750,000.
The amount of earn out consideration is based on Morrison’s earnings before interest and taxes (EBIT) for the year 1 April
2017 to 31 March 2018:
EBIT
Earn Out Consideration
Less than $1.1 million
Nil
$1.1 – $1.3 million
$1.3m to $1.5 million
More than $1.5 million
$250,000
$500,000
$750,000
If applicable, half of the earn-out consideration will be paid 12 months after settlement. Payment of the remaining half of
the earn-out consideration will be paid in 12 equal monthly instalments thereafter.
Payment of the earn-out consideration is contingent on the four vendor’s ongoing service with Morrison Geotechnic. The
vendors will remain employed with Morrison Geotechnic for a minimum period of two years after acquisition. In the situation
where employment is terminated prior to completing one year of service, no earn-out is payable. If employment is
terminated after one but before the minimum two-year period, the earn-out consideration will be reduced proportionately
to the length of time not employed.
54
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19
MORRISON GEOTECHNIC HOLDINGS PTY LTD ACQUISITION ACCOUNTING (CONT’D)
The assets and liabilities recognised as a result of the acquisition are as follows:
Purchase consideration:
Cash payment
Fair value of assets and liabilities acquired:
Cash and cash equivalents
Trade and other receivables
Other assets
Property, plant and equipment
Deferred tax assets
Intangibles – customer contracts and relationships
Intangibles – licences and accreditations
Trade and other payables
Employee provisions
Finance leases
Borrowings – insurance financing
Income tax payable
Deferred tax liabilities
Net identifiable assets acquired
Goodwill on acquisition
Net assets acquired
Revenue and profit contribution
31 March 2017
$
3,750,000
266,012
1,539,457
120,607
776,510
293,413
1,302,000
466,000
(833,810)
(581,663)
(396,381)
(68,670)
(246,419)
(657,866)
1,979,190
1,770,810
3,750,000
Morrison Geotechnic contributed revenues of $2,289,457 and net profit of $276,587 to the group for the period from 1 April
2017 to 30 June 2017.
If the acquisition had occurred on 1 July 2016 and the operations of Morrison Geotechnic been included from that date
then the consolidated pro-forma revenue and profit for the year ended 30 June 2017 would have been $9,434,982 and
$804,637 respectively.
Outflow of cash to acquire Morrison Geotechnic, net of cash acquired
Cash consideration
Less: cash and cash equivalents acquired
Net outflow of cash – investing activities
Acquisition related costs
31 March 2017
$
3,750,000
(266,012)
3,483,988
Acquisition-related costs of $23,322 that were not directly attributable to the issue of shares are included in ‘Acquisition
expenses’ profit or loss and in operating cash flows in the statement of cash flows.
55
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20
INTEGRATED HOLDINGS GROUP ACQUISITION ACCOUNTING
On 13 April 2017, HRL acquired 100% of the issued capital of Integrated Holdings Group Pty Ltd (IHG). IHG is the holding
entity of OCTFOLIO Pty Ltd (OCTFOLIO) and has no other operations or assets. OCTFOLIO is an Australian-based
specialised software vendor focused on the development and implementation of:
Information management software solutions for asbestos and hazardous materials;
Innovative field management software solutions; and
Customised compliance solutions and applications relating to workplace health and safety.
The agreed purchase consideration was:
initial payment on completion of the IHG acquisition of $2,750,000 in cash; and
earn-out consideration of up to $750,000 in cash.
The amount of earn out consideration is based on OCTFOLIO’s earnings before interest and taxes (EBIT) for the 24 months
after settlement:
Tranche 1
12 Months
Post-Acquisition EBIT
Less than $300,000
More than $300,000
Tranche 2
13 Months to 24 Months
Post-Acquisition EBIT
Less than $450,000
More than $450,000
Earn Out Consideration
Nil
$375,000
Earn Out Consideration
Nil
$375,000
Payment of the earn-out consideration is not contingent on any individual providing ongoing service. As per the principles
and guidance as set out in AASB 3, the value of the estimated earn-out is reflected as an increase in the total consideration
paid for the entity. Any subsequent changes in the estimate earn-out will be reflected in profit or loss. HRL estimates that
there is 50% probability of OCTFOLIO’s meeting the EBIT targets for both tranches. Accordingly, a total liability of $375,000
has been recognised as a provision.
56
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20
INTEGRATED HOLDINGS GROUP ACQUISITION ACCOUNTING (CONT’D)
The assets and liabilities recognised as a result of the acquisition are as follows:
Purchase consideration:
Cash payment
Contingent consideration recognised
Fair value of assets and liabilities acquired:
Cash and cash equivalents
Trade and other receivables
Other assets
Property, plant and equipment
Intangibles – customer contracts and relationships
Intangibles – software
Deferred tax assets
Trade and other payables
Deferred tax liabilities
Employee provisions
Net identifiable assets acquired
Goodwill on acquisition
Net assets acquired
Revenue and profit contribution
13 April 2017
$
2,750,000
375,000
3,125,000
19,919
107,094
8,409
10,653
50,000
1,500,000
163,425
(83,571)
(15,000)
(1,849)
1,759,080
1,365,920
3,125,000
OCTFOLIO contributed revenues of $109,394 and net profit of $38,775 to the group for the period from 14 April 2017 to
30 June 2017.
If the acquisition had occurred on 1 July 2016 and the operations of OCTFOLIO been included from that date then the
consolidated pro-forma revenue and profit for the year ended 30 June 2017 would have been $556,965 and $198,950
respectively.
Outflow of cash to acquire IHG, net of cash acquired
Cash consideration
Less: cash and cash equivalents acquired
Net outflow of cash – investing activities
Acquisition related costs
13 April 2017
$
2,750,000
(19,919)
2,730,081
Acquisition-related costs of $63,311 that were not directly attributable to the issue of shares are included in ‘Acquisition
expenses’ profit or loss and in operating cash flows in the statement of cash flows.
57
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21 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
Loss after income tax
Other comprehensive income
Total comprehensive income
2017
$
2016
$
106,931
13,262,940
13,369,871
520,720
28,113
548,833
88,635
6,938,519
7,027,154
564,067
848,310
1,412,377
12,821,038
5,614,777
27,388,480
203,636
(14,771,078)
12,821,038
19,258,814
-
(13,644,037)
5,614,777
(1,127,041)
(957,762)
-
-
(1,127,041)
(957,762)
Commitments, Contingencies and Guarantees of the Parent Entity
The Parent Entity has no material commitments for the acquisition of property, plant and equipment.
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.
58
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21 PARENT ENTITY INFORMATION (CONT’D)
Controlled Entities of the Parent Entity
Percentage Owned
Country of Incorporation
OCTIEF Pty Ltd
OCTIEF ACT Pty Ltd
Hot Rock Geothermal Pty Ltd
HRL Holdings NZ Limited
Octief Limited
Precise Consulting and Laboratory Limited
Morrison Geotechnic Holdings Pty Ltd
Morrison Geotechnic Pty Ltd
Integrated Holdings Pty Ltd
OCTFOLIO Pty Ltd
Principles of Consolidation
2017
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2016
%
100%
-
100%
100%
100%
100%
-
-
-
-
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
Australia
Australia
Australia
Australia
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.
59
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 SHARE BASED PAYMENTS
Performance Shares
The Company has granted performance shares to incentivise senior management. The performance shares were granted
for nil consideration and are not quoted on the ASX. Performance shares granted carry no dividend or voting rights. When
vested, each performance share is convertible into one ordinary share.
Details of performance shares issued, exercised and expired during the financial year are set out below:
Expiry Date
30 June 2019
30 June 2019
30 June 2019
1 July
2016
Vesting
Price
$0.156
$0.194
$0.234
Movements
Issued
Exercised
Expired
-
-
-
-
1,029,556
1,029,556
1,029,555
3,088,667
-
-
-
-
30 June
2017
1,029,556
1,029,556
1,029,555
3,088,667
-
-
-
-
The remaining contractual life of performance shares outstanding at the end of the prior period was 2 years.
The performance shares have the following key terms and conditions:
From the 30 day VWAP of HRL’s share price at 1 July 2016, any of the
following increases occur:
1. HRL share price increases 33% within 1 year; or
Primary Vesting Conditions
2. HRL share price increases 66% within 2 years; or
3. HRL share price increases 100% within 3 years.
Secondary Vesting Conditions
The HRL share price must remain above the nominated target for the relevant
period for 14 consecutive trading days
The Performance Shares will vest in proportion to the number of years’ service
after the plan is implemented:
1. First 33% of the performance shares vest after 1 year of service from plan
commencement;
2. Next 33% performance shares vest after 2 years of service from plan
commencement;
3. Final 34% performance shares vest after 3 years of service from plan
commencement.
Exercise Price
$Nil
Forfeiture
The Performance Shares will lapse if:
- None of the pricing conditions are met; or
-
the participant does not meet the service conditions.
Change of Control Event
In the event a bona fide Takeover Bid is declared unconditional and the bidder
has acquired a relevant interest of at least 50.1%, the Performance Share vest
immediately, irrespective of any unmet vesting conditions.
60
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 SHARE BASED PAYMENTS (CONT’D)
Fair value of performance shares granted
The assessed fair value at the date of grant of performance shares issued is determined using a option pricing models that
takes into account the exercise price, the underlying share price at the time of issue, the term of the performance share,
the underlying share’s expected volatility, expected dividends and the risk free interest rate for the expected life of the
instrument.
The value of the performance shares was calculated using the inputs shown below:
Inputs into pricing model
Grant date
Exercise price
Vesting conditions
Share price at grant date
Life of the instruments
Underlying share price volatility
Expected dividends
Risk free interest rate
Pricing model
Fair value per instrument
Tranche 1
31 August 2016
$Nil
See above table
$0.12
3 years
52%
Nil
1.52%
Binomial
$0.0746
The expected price volatility is based on the historic volatility (based on the remaining life of the performance shares),
adjusted for any expected changes to future volatility due to publicly available information.
Options
During the period the Company granted performance options to its capital advisors, Canaccord Genuity (Australia) Limited
in connection with the ongoing capital markets strategy requirements of the Company. The performance shares were
granted for nil consideration and are not quoted on the ASX. Options granted carry no dividend or voting rights. When
exercised, each option converts into one ordinary share.
Details of options issued, exercised and expired during the financial year are set out below:
Expiry Date
31 December 2019
31 December 2019
31 December 2019
Exercise
Price
$0.18
$0.20
$0.23
1 July
2016
Movements
Issued
Exercised
Expired
-
-
-
-
1,600,000
1,600,000
1,600,000
4,800,000
-
-
-
-
30 June
2017
1,600,000
1,600,000
1,600,000
4,800,000
-
-
-
-
The remaining contractual life of options outstanding at the end of the prior period was 2.5 years. The weighted average
exercise price of the options is $0.203.
Fair value of options granted
The assessed fair value at the date of grant of options issued is determined using a option pricing models that takes into
account the exercise price, the underlying share price at the time of issue, the term of the option, the underlying share’s
expected volatility, expected dividends and the risk free interest rate for the expected life of the instrument.
The value of the options was calculated using the inputs shown below:
61
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 SHARE BASED PAYMENTS (CONT’D)
Inputs into pricing model
Tranche A - $0.18
Tranche B - $0.20
Tranche C - $0.23
Grant date
Exercise price
Vesting conditions
Share price at grant date
Life of the instruments
Underlying share price volatility
Expected dividends
Risk free interest rate
Pricing model
Fair value per instrument
2 June 2017
2 June 2017
2 June 2017
$0.18
Nil
$0.10
$0.18
Nil
$0.10
$0.18
Nil
$0.10
2.5 years
2.5 years
2.5 years
59%
Nil
1.55%
Binomial
$0.02054
59%
Nil
1.55%
Binomial
$0.01800
59%
Nil
1.55%
Binomial
$0.01488
The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any
expected changes to future volatility due to publicly available information.
Expenses arising from share-based payment transactions
Performance shares issued to senior management
Options issued to capital advisors
NOTE 23
RELATED PARTY TRANSACTIONS
Key Management Personnel Compensation
Short-term benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
2017
$
118,166
85,470
203,636
813,227
81,249
3,615
-
67,033
965,124
2016
$
-
-
-
758,505
78,007
(11,121)
-
-
825,391
Detailed remuneration disclosures are provided in the remuneration report on pages 14 to 22.
Transactions with related parties
Transaction
Entity
Rental of office space
Paget Developers
Software and hosting services 1
Octfolio
Sublet of office space to Octfolio 1 Octfolio
1 Services provided from 1 July 2016 to 13 April 2017.
Association
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
2017
$
2016
$
107,369
101,979
322,725
249,253
33,773
30,858
All of the above transactions were based on normal commercial terms and conditions.
62
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23
RELATED PARTY TRANSACTIONS (CONT’D)
Trade payable balances with related parties
Nature
Entity
Software and hosting services
Octfolio
Association
Darren Anderson
Kevin Maloney
2017
$
NA
2016
$
31,573
NOTE 24
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 2017. 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.
Maximum exposure to credit risk
Summary exposure
Cash and cash equivalents
Trade receivables
Other receivables
Liquidity risk
2017
$
2016
$
728,165
3,026,674
392,162
4,147,001
392,863
1,167,979
186,372
1,747,214
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 16 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.
63
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
FINANCIAL RISK MANAGEMENT (CONT’D)
The remaining contractual maturities of the financial liabilities are:
30 June 2017
Trade payables
Other payables
OCTFOLIO contingent
consideration
Bank loan
Insurance financing
Finance leases
Fixed interest
rate
-
1 year or less
$
509,375
-
-
-
5.51%
4.90%
799,317
187,500
287,334
129,358
215,016
2,127,900
1 to 5 years
$
-
-
187,500
-
-
233,718
233,718
Over 5 years
$
-
-
-
-
-
-
-
30 June 2016
Trade payables
Other payables
Bank loan
Finance leases
Market Risk
Fixed interest
rate
-
1 year or less
$
293,262
1 to 2 years
$
-
Over 2 years
$
-
-
-
4.73%
377,772
774,000
31,239
1,476,273
-
502,230
31,239
533,469
-
-
40,186
40,186
Total
$
509,375
799,317
375,000
287,334
129,358
488,734
2,589,118
Total
$
293,262
377,772
1,276,230
102,664
2,049,928
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.
All cash assets and the bank loan 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)
2017
$
3,155
(3,155)
2016
$
(9,588)
9,588
64
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
FINANCIAL RISK MANAGEMENT (CONT’D)
Foreign Currency Risk
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)
2017
$
2016
$
348,378
873,497
258,843
864,052
1,221,875
1,122,895
273,338
273,338
361,600
361,600
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
2017
$
2016
$
(94,854)
94,854
(76,130)
76,130
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 60% at June 2017. Gearing ratio is defined as: Total liabilities divided by total tangible assets (including
goodwill arising from the Precise Consulting acquisition). The actual gearing ratio at 30 June 2017 was 31%.
Fair Values
The fair values of financial assets and financial liabilities approximate their carrying values due to their short term nature.
No financial assets or liabilities are readily traded on organised markets in standardised form.
Fair value hierarchy
AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level in the fair value measurement
hierarchy as follows:
Level 1 - the instrument has quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 - a valuation technique is used using inputs other than quoted prices within level 1 that are observable for
the financial instrument, either directly (i.e. as prices), or indirectly (i.e. derived from prices)
Level 3 - a valuation technique is used using inputs that are not observable based on observable market data
(unobservable inputs).
65
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
FINANCIAL RISK MANAGEMENT (CONT’D)
Recurring fair value measurements
The following financial instruments are subject to recurring fair value measurements:
Contingent consideration – level 3
2017
$
375,000
2016
$
-
The fair value of the contingent consideration of $375,000 has been estimated by calculating the present value of the future
expected cash outflows.
Reconciliation of level 3 movements
The following table sets out the movements in level 3 fair values for contingent consideration payable.
Opening balance 1 July 2017
Recognised on business combination
Payments of contingent consideration
Closing balance 30 June 2017
Valuation processes for level 3 fair values
-
375,000
-
375,000
-
-
-
-
The following table sets out the valuation techniques used to measure fair value within Level 3, including details of the
significant unobservable inputs used and the relationship between unobservable inputs and fair value.
Description
Valuation approach
Contingent
consideration
Expected EBIT is estimated based on
the terms of the sale contract (see Note
20) and the entity’s knowledge of the
business and how the current economic
environment is likely to impact it.
Unobservable
inputs
Expected EBIT of
OCTFOLIO
Risk adjusted
discount rate
Relationship between
unobservable inputs and fair
value
The higher the expected EBIT
the higher the fair value of the
liability.
The lower the risk adjusted
discount rate the higher the fair
value of the liability.
66
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25
COMMITMENTS
Operating leases
Minimum lease payments:
Payable within one year
Payable within one year and five years
Total contracted at balance date
2017
$
2016
$
771,972
1,123,115
1,895,087
482,862
806,376
1,286,238
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 16)
Non-Current (Note 16)
Future exploration
Exploration obligations to be undertaken:
Payable within one year
Payable between one year and five years
215,016
233,718
448,734
(29,077)
419,657
198,884
220,773
419,657
31,239
71,425
102,664
(9,149)
93,515
25,856
67,959
93,515
-
-
-
800,000
18,500,000
19,300,000
The Group has certain obligations to expend minimum amounts on exploration in tenement areas. On 29 June 2017
entered into an agreement to transfer its interest in Geothermal Exploration Permit 8 to a third party. HRL informed the
Victorian Government that it would relinquish Geothermal Exploration Permit 6. As a result of these events HRL no longer
has any ongoing exploration obligations.
The Group has previously impaired the value of these tenement areas to $Nil in prior periods with all subsequent costs
immediately expensed through the statement of comprehensive income.
NOTE 26
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 transfer or relinquishment of the tenements, the Victorian Government
will release the security.
The Consolidated Entity has arranged bank guarantees of $38,500 as security for rental premises.
67
NOTES TO THE FINANCIAL STATEMENTS
NOTE 27 AUDITOR’S REMUNERATION
Audit services – BDO Audit Pty Ltd
Audit and review of financial reports
Total audit services
Non-audit services – BDO (QLD) Pty Ltd
Taxation services
Total non-audit services
2017
$
69,026
69,026
26,927
26,927
2016
$
59,500
59,500
2,500
2,500
NOTE 28 EVENTS AFTER BALANCE DATE
There have been no other events since 30 June 2017 that impact upon the financial report.
68
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 2017 and of its
performance for the financial year ended on that date; and
(b)
(b)
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.
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
21 August 2017
69
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 Audit of the Financial Report
Opinion
We have audited the financial report of HRL Holdings Limited (the Company) and its subsidiaries (the
Group), which comprises the consolidated balance sheet as at 30 June 2017, the consolidated
statement of comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and notes to the financial report,
including a summary of significant accounting policies and the directors’ declaration.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
(ii)
Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its
financial performance for the year ended on that date; and
Complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations
Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our 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.
70
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Acquisition of Morrison Geotechnic Holdings Pty Ltd (Morrison)
Key audit matter
How the matter was addressed in our audit
The Group’s disclosures about the acquisition of
Our procedures included, amongst others:
Morrison Geotechnic Holdings Pty Ltd (Morrison) are
included in Note 19, which details the key events that
occurred in the transaction including the consideration
transferred and assets and liabilities acquired.
The acquisition of Morrison is considered a significant
transaction for the group. The presentation,
measurement and disclosures around this transaction
are important in the users’ understanding of the
financial statements. The transaction is material in the
context of the audit and involved significant auditor
effort, and was therefore key to our audit.
Management have completed a process to determine
the purchase consideration and the fair value of the
identifiable net assets acquired, including customer
contracts, customer relationships and licenses and
accreditations and the allocation of the difference to
goodwill. This process involved estimation and
judgement to calculate both the consideration and the
fair value of identified intangible assets.
•
•
Assessing management’s determination of
whether the acquisition was a business
combination or an asset acquisition
Evaluating management’s assessment of the
fair value of the identifiable assets and
liabilities acquired including:
•
•
•
•
•
Obtaining management's external
valuation of the identifiable assets
and liabilities acquired
Assessing the professional
competence and objectivity of the
valuer
Evaluating the appropriateness of
the methods and assumptions used
Challenging management in relation
to the inputs and assumptions used
by the valuer
Providing the external valuation to
the internal experts to assess the
reasonableness of the structure and
assumptions applied in the model
including the discount rate.
•
Assessing the disclosures related to the
acquisition to ensure they are in compliance
with applicable accounting standards.
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.
71
Acquisition of Integrated Holdings Group Pty Ltd (IHG)
Key audit matter
How the matter was addressed in our audit
The Group’s disclosures about the acquisition of
Our procedures included, amongst others:
Integrated Holdings Group Pty Ltd (IHG), and its
subsidiary OCTFOLIO Pty Ltd (OCTFOLIO), are included
in Note 20, which details the key events that occurred
in the transaction including the consideration
transferred and assets and liabilities acquired.
•
•
The acquisition of IHG is considered a significant
transaction for the group. The presentation,
measurement and disclosures around this transaction
are important in the users’ understanding of the
financial statements. The transaction is material in the
context of the audit and involved significant auditor
effort, and was therefore key to our audit.
Management have completed a process to determine
the purchase consideration and the fair value of the
identifiable net assets acquired, including customer
contracts, customer relationships and software and the
allocation of the difference to goodwill. This process
involved estimation and judgement to calculate both
the consideration (including contingent consideration)
and the fair value of identified intangible assets.
Assessing management’s determination of
whether the acquisition was a business
combination or an asset acquisition
Challenging management’s calculation of
contingent consideration in accordance with
requirements of AASB 3 Business
Combinations.
•
Evaluating management’s assessment of the
fair value of the identifiable assets and
liabilities acquired including:
•
•
•
•
Obtaining management's internal
valuation of the identifiable assets
and liabilities acquired
Evaluating the appropriateness of
the methods and assumptions used
Challenging management in relation
to the inputs and assumptions used
in the valuation
Providing the internal valuation to
the internal experts to assess the
reasonableness of the structure and
assumptions applied in the model
including the discount rate.
•
Critically assessing the disclosures related to
the acquisition to ensure they are in
compliance with applicable accounting
standards.
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.
72
Valuation of goodwill
Key audit matter
How the matter was addressed in our audit
The Group’s disclosures about goodwill impairment are
Our procedures included, amongst others:
included in Note 13, which details the allocation of
goodwill to the groups various CGU’s, sets out the key
assumptions for value-in-use calculations and the
impact of possible changes in these assumptions.
This annual impairment test was significant to our
audit because the balance of $8,186,266 as of 30 June
2017 is material to the financial statements. In
addition, management’s assessment process is complex
and highly judgmental and is based on assumptions,
specifically forecast future cash flows, growth rate,
and discount rate, which are affected by expected
future market or economic conditions.
•
Assessing management’s allocation of
goodwill and assets and liabilities, including
corporate assets to Cash Generating Units
("CGU's")
•
Evaluating the inputs used in the value in use
•
•
•
calculation including the growth rates,
discount rates and underlying cash flows
applied by management
Assessing the sensitivity of the assumptions
used by management on the value in use
calculation
Involving our internal specialists to assess the
discount rates and terminal growth rates
against comparable market information
Assessing the disclosures related to the
goodwill and the impairment assessment by
comparing these disclosures to our
understanding of the matter and the
applicable accounting standards.
Other information
The directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 30 June 2017, but does not include the
financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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
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.
73
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 preparing the financial report, the directors are responsible for assessing the ability of the group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our auditor’s report.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 14 to 22 of the directors’ report for the
year ended 30 June 2017.
In our opinion, the Remuneration Report of HRL Holdings Limited, for the year ended 30 June 2017,
complies with section 300A of the Corporations Act 2001.
Responsibilities
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.
BDO Audit Pty Ltd
T R Mann
Director
Brisbane, 21 August 2017
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.
74
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
75