HRL Holdings Limited
Appendix 4E 2018 Final Report
Results for Announcement to the Market
2 August 2018
1.
Company Details and Reporting Period
Name of Entity:
HRL Holdings Limited
ABN:
99 120 896 371
Reporting Period:
30 June 2018
Previous Corresponding Period: 30 June 2017
2.
Results for Announcement to the Market
$
Revenue from ordinary activities up 100% to:
Underlying net profit/(loss) for the period up 264% to:
27,327,530
2,873,877
Net profit/(loss) for the period attributable to members down to:
(1,503,797)
No dividends were paid or payable during the period.
Refer to pages 9 to 13 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 27 of the 2016 Financial Statements and accompanying Notes.
4.
Balance Sheet with Notes to the Statement
Refer to Page 28 of the 2017 Financial Statements and accompanying Notes.
5.
Statement of Cash Flows with Notes to the Statement
Refer to Page 30 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 29 of the 2017 Financial Statements and accompanying Notes.
8.
Net Tangible Assets per Security
2018
$0.022
2017
$0.014
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 57 of the 2018 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 9 to 13 of the Financial Statements for the operational and financial review of the Entity.
14.
Status of Audit
The attached 2018 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
2 August 2018
www.hrlholdings.com | ABN 99 120 896 370 | ASX Code: HRL
HRL HOLDINGS LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
30 JUNE 2018
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
16
25
26
27
28
29
30
31
70
71
76
2
CEO’S LETTER
Dear Shareholders,
Your Directors and I have much pleasure in presenting the 2018 Annual Financial Statements for the HRL Group.
Introduction and the past year in review
FY2018, the third full financial year for HRL as an environmental services business, was transformative in services, group
structure and financial performance. The business is now enjoying rapid growth centred around high value, high
throughput commercial laboratory testing. In last year’s annual report I wrote about the strategic objectives for this past
year and which I am pleased to report have been fulfilled including:
1.
Expanding our laboratory service lines to leverage the existing branch network
HRL now offers a range of testing services across the HAZMAT/Occupational Hygiene, Geotech,
Environmental, Food and Agriculture sectors, increasing our addressable market significantly.
2.
Moving into higher value chemistry laboratory testing
Chemistry testing services attract much higher margins due to the more technical nature and increased
cost of entry and this year contributed to 30% of turnover.
3.
Investing in high throughput techniques to offer a better level of service to our customers and grow our
businesses profitability.
Our business invested $2.5m in FY2018 in new equipment, and with net cash $4.3m and undrawn
equipment facilities of $2.7M, HRL is well poised to take advantage of emerging opportunities.
HRL’s core HAZMAT division has continued to grow over the past year - leveraging contracts and panel arrangements
to increase market share. Joint bidding with the Geotechnic division has seen pleasing growth in the contaminated land
division which performed exceptionally well this year.
The Geotechnic division, operating in South East Queensland, had a tough start to the second half of the financial year
enduring poor weather conditions which hampered site access. These weather conditions largely eased by May and
June and the business is poised for a recovery into FY2019.
The newly acquired Analytica Laboratories forms the core of our chemistry services business for food, agriculture and
environmental testing. We have worked hard on integrating this business which has delivered exciting growth into the
areas of food quality and safety testing through fast moving responses to customer demands and innovative science.
The recently developed environmental testing service lines continue to increase market share and are expected to be a
source of growth in FY2019.
The underlying EBITDA of $5.8m represents an increase of 382% on FY2017 $1.5m driven by strong performance in the
HAZMAT division and the newly acquired Analytica business.
Business scale has improved substantially with corporate costs as a percentage of revenue decreasing to just 4.8%
(FY2017 11%, FY2016 15%).
Cashflows from operations (excluding acquisition costs) were very strong at $4.6m and will be used to fund the earnout
payment obligations to the Analytica vendors, as well as to support capital spending on new equipment and staff in line
with our growth strategy.
Outlook for FY2019
The Group will continue to focus on growing its core business of providing laboratory, consulting and information services
to its customers through:
Leveraging off Analytica intellectual property and know how to enter new service lines in both Australia and New
Zealand;
Utilising new equipment, technology and software platforms to improve efficiencies and margins;
Focussed business development plans to target new customers and protect the existing customer base;
Continued focus on cross selling opportunities across all business units;
Geographical expansion into new markets when justified; and
Using the OCTFOLIO software platform to target new customers and provide enhanced service offerings to existing
customers of the other business units.
3
CEO’S LETTER
The Group will continue to evaluate acquisition opportunities of high quality businesses both within the environmental
services sector and across other complimentary industries.
In closing, I would like to take this opportunity to thank our Chairman and Board for their guidance over the past year and
also 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 FY2018.
FY2018 has been highly successful and I look forward to keeping you updated on our progress in FY2019 and the ongoing
transformation of HRL into 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 (together referred to as the “Consolidated Entity”) at the end of, or during, the year ended 30
June 2018.
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
John Taylor
Steve Howse
James Todd
Position
Period of Directorship
Non-Executive Chairman
Appointed 15 September 2014
Executive Director
Appointed 15 September 2014
Non-Executive Director
Appointed 25 November 2014
Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 1 March 2018
Mark Elliott
Non-Executive Director
Appointed 11 August 2006, Retired 23 November 2017
Frederick Kempson
Alternate Non-Executive Director
Appointed 15 September 2014, Retired 22 December 2017
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 was formerly a director of the following other ASX listed company:
Altona Mining Limited (appointed July 2009, resigned 18 April 2018)
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
John Taylor
Non-Executive Director
LLB, Grad Dip ACG, MAICD
Mr Taylor is the founding partner of Taylors Solicitors, Mackay, a member and has over 40 years’ experience in
commercial and property transactions and litigation. Mr Taylor holds a Bachelor of Law degree, a post Graduate Diploma
in Applied Corporate Governance and is a member of the Australian Institute of Company Directors.
MR 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.
Steve Howse
Executive Director
B Agr Sci Honours
Mr Howse was a former shareholder and director of the recently acquired Analytica Laboratories Limited. He continues
his role with Analytica as a General Manager with a particular responsibility for strategy, customers, and business
development.
Mr Howse has an honours degree in Agricultural Science from Massey University, and has over 25 years’ executive
experience working in NZ science and technology businesses, with a focus on agribusiness and commercial analytical
testing. He was a director of Synlait Farms Ltd leading up to its sale in 2014, and until recently has been the deputy chair
of Waikato Institute of Technology in New Zealand. He is a member of the New Zealand Institute of Directors.
He has not been a Director of any other Australian listed company in the last three years.
James Todd
Non-Executive Director
B Comm, Grad Dip FINSIA, AICD, FINSIA
Mr Todd is an experienced company director, corporate adviser and investor. He commenced his career in investment
banking, and has taken active roles with, and invested in, a range of public and private companies. He was until recently
managing director of Wolseley Private Equity, an independent private equity firm he co-founded in 1999.
Mr Todd holds a Bachelor of Commerce and Bachelor of Laws from the University of New South Wales, and a Graduate
Diploma from the Financial Services Institute of Australia (FINSIA), where he is a Fellow. He is a member of the Australian
Institute of Company Directors.
Mr Todd is currently a director of the following other ASX listed company:
IVE Group Limited (appointed June 2015)
Mark Elliott (retired 23 November 2017)
Former 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.
Dr Elliott was a director of the following other ASX listed companies:
Nexus Minerals Ltd (Oct 2006 – present)
Aruma Resources Ltd (July 2017 – present)
6
DIRECTORS’ REPORT
Frederick Kempson (retired 22 December 2017)
Former Alternate Non-Executive Director
BComm
Fred Kempson 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.
Mr Kempson was a director of the following other ASX listed company:
Victor Group Holdings (Jan 2014 – July 2015)
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
John Taylor
Steve Howse
James Todd
Fully Paid Ordinary
Shares
61,320,900
21,283,806
1,784,486
12,190,297
-
There are no options or performance rights held by Directors.
MEETINGS OF DIRECTORS
The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2018
and the number of meetings attended by each Director.
Directors Meetings
Audit and Risk
Committee Meetings
Remuneration and
Nomination
Committee Meetings
Meetings
attended
6
Eligible to
attend
6
Meetings
attended
1
Eligible to
attend
1
Meetings
attended
1
Eligible to
attend
1
6
6
2
2
2
2
6
6
2
2
2
3
-
1
-
1
-
-
-
1
-
1
-
-
1
1
-
1
-
-
1
1
-
1
-
-
Kevin Maloney
Darren Anderson
John Taylor
Steve Howse
James Todd
Mark Elliott
Frederick Kempson
COMMITTEE MEMBERSHIP
As at the date of this report, the Group has an Audit and Risk Committee and a Remuneration and Nomination Committee.
Members acting on the Committees of the Board at the date of this report were:
Audit and Risk Committee
Remuneration and Nomination Committee
James Todd (Chair)
John Taylor
Kevin Maloney
John Taylor (Chair)
James Todd
Darren Anderson
7
DIRECTORS’ REPORT
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.
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 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 laboratory service provider with offices and laboratory facilities across
Australia and New Zealand.
The Group offers services including:
analytical chemistry laboratory testing specialising in mass spectroscopy analysis to the milk, honey, drugs of
abuse and environmental markets;
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.
8
DIRECTORS’ REPORT
REVIEW OF OPERATIONS
Over the last year HRL Holdings Limited has grown significantly and achieved a number of key milestones:
Acquisition of Analytica Laboratories (Analytica), a leading analytical chemistry laboratory business based in New
Zealand;
Raised $16m in new equity through an institutional placement and shareholder purchase plan to fund the Analytica
acquisition. Both the institutional placement and shareholder purchase plan were oversubscribed; and
Expanded service capability of OCTIEF in Australia with the development of 3 new service lines:
o
o
o
Acid sulphate soils;
Gravimetric dust; and
Crystalline silica.
Below are the key highlights:
Analytica Acquisition
On 30 November 2017, HRL NZ (a 100% owned subsidiary of HRL Holdings) acquired all of the issued capital in Analytica
Laboratories Limited (“Analytica”). Analytica is a New Zealand-based analytical chemistry laboratory business
specialising in mass spectroscopy analysis to the milk, honey, drugs of abuse and environmental markets.
Analytica has a strong competitive position in high-end environmental and food/agricultural testing markets with industry
leading customers/partners. Key features include:
Market leader in honey testing in New Zealand, both among industry organisations and producers/distributors
Dominant position in the liquid milk analysis and food origin testing, via strategic alliance with market leading
partners
Strong and growing exposure to the environmental testing and methamphetamine property screening market with
the recent launch of innovative testing services
Analytica has highly skilled technical and operational laboratory staff.
HRL will pay a purchase price of up to NZ$30m to the vendors of Analytica.
initial payment of NZ$13,300,000 cash (paid);
upfront HRL scrip consideration, representing 60,951,485 HRL shares, subject to a 2-year escrow period (transferred);
and
Up to NZ$11m cash earn-out consideration, based on the following criteria (not yet paid):
o
o
o
Analytica business to achieve 12-month post-settlement EBITDA in excess of NZ$3m;
Analytica Vendors to receive a 6x multiple on each NZ$1 of EBITDA greater than NZ$3m, up to a maximum
earn-out consideration of NZ$11m; and
50% of earn-out is payable 12 months post-settlement, and 50% in 12 equal monthly instalments thereafter.
Strategic Rationale
The acquisition has been transformational and positions HRL for its next stage of growth by expanding the business’
capabilities and expertise in new markets.
Highly complementary acquisition adding scale and enhancing competitive position
-
-
-
Provides rapid entry into the high value environmental and food/agriculture testing market, building on HRL’s
strategy to focus on more sophisticated and advanced analysis with higher barriers to entry
Leverages highly skilled technical and operational staff across a broader operational base
Provides ability to leverage strong existing brand and reputation when entering new markets
- Complements existing operations through advanced technology and equipment
9
DIRECTORS’ REPORT
CAIQtest (Pacific) provides a unique opportunity to support the growing export market to China
-
Incorporated joint venture led by Analytica (26% interest) and supported by the Chinese Academy of Inspection
and Quarantine
- New Zealand based laboratory, providing pre-shipment testing services for clients exporting goods from
Australasia to China assisting greatly with supply chain bottlenecks – a key concern for exporters
- Currently services the dairy export market, with a focus on infant milk formula
- CAIQtest (Pacific) developed a first mover advantage by achieving its initial accreditation with the Chinese
National Accreditation Service (August 2017) for a broad dairy testing scope – can now provide services to
commercial dairy exporters
Institutional Placement and SPP
Institutional Placement
To fund the upfront cash consideration of the Analytica acquisition price, HRL undertook a share placement raising
A$15m, issuing 176,500,000 shares at a price of A$0.085.
The Placement was strongly supported by domestic and international sophisticated and institutional investors. Following
shareholder approval of the Placement at the AGM 23 November 2017 the Placement was settled on 28 November 2017.
Securities Purchase Plan
The Company also offered eligible shareholders the opportunity to participate in the Securities Purchase Plan. The SPP
Offer was strongly supported reaching the $1m limit within a week of opening. Shares issued under the SPP were issued
on 16 November 2017.
Trading Review
Food and environmental laboratory services
The Food and Environmental Laboratory division is a new addition to the Group which incorporates the Analytica business
unit. Analytica’s trading since acquisition has gone from strength to strength and has exceeded initial expectations.
Dairy and milk testing, underpinned by strategic alliance with MilkTest NZ was very strong throughout the spring and
summer. Analytica also saw strong growth in its A1/A2 beta-casein testing services and expects this to continue in the
coming year.
In late May 2018 the New Zealand Government announced an outbreak of the cattle disease Mycoplasma bovis.
Mycoplasma bovis is a bacterium that can cause a range of quite serious conditions in cattle including mastitis that doesn’t
respond to treatment, pneumonia, arthritis and late-term abortions. The New Zealand Government has announced a
plan to eradicate the disease through culling of cattle and ongoing herd management. Analytica in conjunction with its
strategic alliance partner MilkTestNZ, have developed specialized high throughput testing programs for dairy cow
diseases such as Mycoplasma bovis using DNA testing techniques. MilkTestNZ and Analytica provide laboratory testing
and ongoing comfort over herd welfare in a timely and cost-effective manner.
Revenues from honey testing was very pleasing despite a lower levels of honey production during the season. The New
Zealand Ministry of Primary Industries recently released revised guidelines for the definition of Manuka Honey which led
to short-term demand to test Manuka honey samples under the new guidelines. Analytica is the market leader of honey
testing in New Zealand and benefited well from this regulation change.
Laboratory testing for drugs of abuse has grown significantly since its inception 2 years ago with FY2018 seeing a record
number of samples for laboratory analysis. In late May 2018 the NZ Office of the Prime Minister’s Chief Science Advisor
released a report on the management of methamphetamine testing and decontamination. The report made a number of
findings and recommendations about the health risks from methamphetamine use in houses. The report concluded that
the current thresholds for contamination as published by Standards New Zealand (mostly 1.5 µg/100 cm2) relating to
methamphetamine use are too low and recommends a new threshold of 15 µg/100 cm2. Testing is recommended when
meth lab activity or where very heavy use is suspected.
Analytica provides laboratory testing at both the initial baseline inspection phase and if remediation is required at a
subsequent clearance testing phase. The majority of laboratory test services occur at the initial baseline inspection
phase. It is only through laboratory testing that landlords and insurance companies can reliably ascertain
methamphetamine contamination levels. Whilst at this early stage there is a fair degree of uncertainty, Analytica expects
to see a reduction in ongoing demand for methamphetamine testing back to 2017 levels.
10
DIRECTORS’ REPORT
The recently launched environmental service line which incorporates laboratory testing on air, water, soil including organic
and inorganics continues to grow. A number of key clients have already been secured and there is a continual focus on
further business development. Testing methods have been accredited and the laboratory instruments and workflows are
set up to handle substantial testing volumes.
Analytica’s other service lines such as Timber and Food Origin Testing have been performing in line with expectation.
Analytica also hold a 26% interest in CAIQTest (Pacific) Limited, a New Zealand based laboratory, providing pre-shipment
testing services for clients exporting goods from Australasia to China assisting greatly with supply chain bottlenecks.
Trading results since the new infant formula regulations came into effect have been encouraging. CAIQTest (Pacific)
Limited is currently going through the final round of certification with CNAS and once approved will be able to offer a full
suite of testing services for infant formula exporters. Final certification is expected around October 2018.
HAZMAT
The HAZMAT division, which incorporates the OCTIEF and Precise businesses, continued performing with operating
profits increasing 12% over last year.
New Zealand operations were the primary contributors to this growth. Precise Consulting continues its strong
performance providing a range of services with government agencies, councils, corporate and commercial clients. The
performance of the regional branches (Palmerston North and Dunedin) was particularly impressive backed up by solid
results across the major cities (Auckland, Wellington and Christchurch). Leading up to, and after the release of the Prime
Minister’s Chief Science Advisor methamphetamine report, Precise experienced a decline in property contamination
testing revenue. Initial indications are that property contamination inspections will be around 50% lower moving forward.
Precise staff are cross skilled across a range of disciplines and any extra resources will be refocused on the range of
other HAZMAT services Precise provide.
Australian operations saw solid results during the year. The Queensland market remains strong. OCTIEF has secured
a direct contract with the QLD state government (it previously acted as a subcontractor) and has seen volumes of works
increase from the previous few years. The environmental engineering/sciences service line continued its recent growth
securing a number of large contaminated land projects during the period, several of which were direct referral from or
joint bids with Morrison Geotechnic.
The Northern Territory Department of Housing and Community Development asbestos survey program was successfully
completed in May 2018.
The NSW loose-fill asbestos insulation program remains on hold by the NSW government. After a strong start to the
year activity in the ACT branch consequently fell back to its normal operating level, with excess staff redeployed to
Queensland and the Northern Territory.
Geotechnical
Morrison Geotechnic results were hampered by large rain events across south-east Queensland during October through
early December and then again during February through April. Sites were shut down for prolonged periods which in turn
affected the number of soil tests and engineering assessment Morrison Geotechnic could conduct. Trading returned to
historical levels in May and June giving Morrison momentum leading into FY2019. The earn-out mechanism negotiated
as part of acquisition has afforded HRL downside protection from such weather events.
Morrison Geotechnic are currently investigating new equipment and technologies to automate components of the
geotechnical test process and improve margins. Other construction material laboratory testing opportunities are being
investigated which would not be weather impacted.
Underlying civil infrastructure and large scale commercial development activity remains strong and Morrison Geotechnic
is seeing a consistent project pipeline.
Software
The OCTFOLIO business focussed on business development and software enhancement during the period. A number
of new opportunities across both the HAZMAT sector and other new markets are well advanced. OCTFOLIO also
focused on scoping and designing software improvements tailored to the needs of potential customers in new market
segments.
11
DIRECTORS’ REPORT
These include items such as:
Improved mobile applications;
Easily customisable client portals;
Streamlined customer onboarding and data migration; and
Back end software improvements which will reduce third party data hosting costs.
Development of these improvements is nearing completion with full commercial release expected at the end of August
2018.
FINANCIAL REVIEW
Key financial headlines of the HRL Group’s 30 June 2018 results are:
Statutory loss after tax of $1,503,797
Underlying profit after tax of $2,873,877 1
Cashflow from operations of $4,409,162
Revenues of $27,327,530
Net cash/(borrowings) of $4,277,782
Working capital of $3,229,225
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
Borrowing costs (net of interest income)
Operating tax
Underlying profit after tax
Non-operating adjustments
Acquisition related expenses
Amortisation of intangible assets arising from acquisitions
Earn-out expenses/adjustments
Management performance shares and broker options
Geothermal costs
Equity accounted share of loss – CAIQTest Pacific Limited
Non-operating tax
June 2018
$
5,774,562
(1,477,840)
(53,125)
(1,369,720)
2,873,877
(158,222)
(1,941,073)
(2,692,615)
(35,181)
-
(28,477)
477,894
June 2017
$
1,509,017
(337,216)
(99,278)
(282,739)
789,784
(86,633)
(528,975)
(62,500)
(203,636)
(16,885)
-
239,265
Statutory profit/(loss) after income tax
(1,503,797)
130,420
In the opinion of the Directors, the Group’s underlying profit reflects the results generated from ongoing operating activities
and is calculated in accordance with AICD/Finsia principles. The non-operating adjustments outlined above are
considered to be non-cash or non-recurring in nature. These items are included in the Group’s consolidated statutory
result but excluded from the underlying result.
12
DIRECTORS’ REPORT
Comparison with the Prior Period
Underlying profit after tax for the year increased by $2,084,093 compared with the prior period. The key reasons for the
movement were:
Earnings attributable to new businesses acquired in the prior 18 months – Analytica, Morrison Geotechnic and
OCTFOLIO;
Increased profitability from the HAZMAT division, primarily due to increased activity in New Zealand and
Queensland; and
Reduction in corporate and borrowing costs.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The following significant changes occurred during the year:
Acquisition of Analytica Laboratories Limited (November 2017);
Issue of 188,264,736 ordinary shares at $0.085 per share via a share placement and share purchase plan;
Issue of 60,951,485 ordinary shares to the vendors of Analytica at a deemed price of $0.105 per share.
LIKELY DEVELOPMENTS AND FUTURE OPERATIONS
During FY2019, the Group will continue to focus on growing its core business of providing laboratory, consulting and
information services to its customers:
Leveraging off Analytica intellectual property and know how to enter new service lines in both Australia and New
Zealand;
Utilising new equipment technology and software platforms to improve efficiencies and margins;
Focussed business development plans to target new customers and protect the existing customer base;
Continued focus on cross selling opportunities across all business units;
Geographical expansion into new markets when justified; and
Using the OCTFOLIO software platform to target new customers and provide enhanced service offerings to existing
customers of the other business units.
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.
13
DIRECTORS’ REPORT
SHARE OPTIONS AND PERFORMANCE SHARES
Details of options 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
2017
1,600,000
1,600,000
1,600,000
4,800,000
Movements
Issued
Exercised
Expired
-
-
-
-
-
-
-
-
30 June
2018
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
2017
1,029,556
1,029,556
1,029,555
3,088,667
Movements
Issued
Exercised
-
-
-
-
-
-
-
-
Expired /
Forfeited
(227,134)
(227,134)
(227,134)
30 June
2018
802,422
802,422
802,421
(681,402)
2,407,265
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 2018 that impact upon the financial report.
REMUNERATION REPORT
The Remuneration Report set out on pages 16 to 24 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.
14
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 – income tax return preparation and tax services
$68,238
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration on page 25 forms part of the Directors’ Report.
Signed in accordance with a resolution of the board of directors of HRL Holdings.
Darren Anderson
Director
Brisbane, 2 August 2018
15
REMUNERATION REPORT - AUDITED
This report details the nature and amount of remuneration for Directors and Key Management Personnel of the Company.
Remuneration Policy
The performance of the Company depends upon the quality of its Directors and Executives. To prosper, the Company
must attract, motivate and retain highly skilled Directors and Executives.
Remuneration Committee
The 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 2018 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.
16
REMUNERATION REPORT - AUDITED
The level of fixed remuneration is set 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 2018 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 during the financial year were:
Ongoing contract – no fixed term;
Fee of $75,000 per annum, inclusive of statutory superannuation contributions;
No notice period.
Non-Executive Director Arrangements
The Company has entered into a service arrangement with Mr James Todd and Mr John Taylor as Non-Executive
Directors of the Company. 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 $257,500 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.
The Company entered into an employment contract with Mr Steve Howse as Executive Director of the Company
commencing from 1 December 2017. The key terms of the contract are:
Ongoing contract – no fixed term;
Salary of NZ$161,216 per annum, inclusive of superannuation contributions;
5 weeks annual leave;
1 month notice period.
17
REMUNERATION REPORT - AUDITED
Chief Executive Officer Arrangements
The Company entered into an employment contract with Mr Steven Dabelstein as Chief Executive Officer of the Company
commencing from 1 January 2015. The key terms of the contract are:
Ongoing contract – no fixed term;
Salary of $257,500 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 $164,800 per annum, inclusive of statutory superannuation contributions;
Annual bonus at the Board’s discretion;
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.
18
REMUNERATION REPORT - AUDITED
Details of Directors and other Key Management – HRL Holdings Limited
Name
Directors
Kevin Maloney
Darren Anderson
John Taylor
Steve Howse
James Todd
Former Directors
Mark Elliott
Position
Period of Service
Non-Executive Chairman
Appointed 15 September 2014
Executive Director
Appointed 15 September 2014
Non-Executive Director
Appointed 25 November 2014
Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 11 August 2006, Retired 23 November 2017
Frederick Kempson
Alternate Non-Executive Director
Appointed 15 September 2014, Retired 22 December 2017
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
19
REMUNERATION REPORT - AUDITED
Remuneration of Directors and other Key Management Personnel – 2018
Short Term
Benefits
Long Term
Benefits
Post Employment
Benefits
Equity based
Benefits
Note
Salary/ Director
fees
Consulting
fees
Vehicle
allowance
Accrued /
(used) leave
benefits
Superannuation
Performance
Shares
Total
Performance
Related %
% of bonus
forfeited
% of bonus
vested
Directors
Kevin Maloney
Darren Anderson
John Taylor
Steve Howse
James Todd
Mark Elliott
Alternate Director
1
1
2
51,370
235,160
40,000
48,592
13,333
16,667
-
-
-
-
-
-
Frederick Kempson
3
-
6,300
-
-
15,000
(3,714)
23,630
22,340
-
1,458
-
-
-
-
-
-
-
-
-
-
-
(93)
-
-
-
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Notes
1
2
3
Appointed 1 March 2018
Retired 22 December 2017
Retired 23 November 2017
237,451
150,502
52,000
845,075
There were no termination benefits paid or accrued for the year ended 30 June 2018.
-
-
-
(2,971)
4,437
-
20,049
14,298
-
27,183
17,397
-
6,300
15,000
(2,341)
81,775
44,580
-
-
-
-
-
-
-
-
75,000
268,786
40,000
49,957
13,333
16,667
6,300
281,712
186,634
52,000
990,389
-
-
-
-
-
-
-
-
100%
-
-
-
-
-
10%
9%
-
100%
100%
-
-
Nil
-
-
-
-
-
Nil
Nil
-
20
REMUNERATION REPORT - AUDITED
Remuneration of Directors and other Key Management Personnel – 2017
Short Term
Benefits
Salary/ Director
fees
Consulting
fees
Long Term
Benefits
Accrued /
(used) leave
benefits
Non-
monetary
benefits
Post Employment
Benefits
Equity based
Benefits
Superannuation
Performance
Shares
Total
Performance
Related %
% of bonus
forfeited
% of bonus
vested
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%
-
-
-
-
-
-
-
-
-
-
21
REMUNERATION REPORT - AUDITED
Key management personnel equity holdings
Shareholdings
Directors
Kevin Maloney
Darren Anderson
John Taylor
Steve Howse
James Todd
Mark Elliott
Alternate Director
Frederick Kempson
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Performance Shares
Directors
Kevin Maloney
Darren Anderson
John Taylor
Steve Howse
James Todd
Mark Elliott
Alternate Director
Frederick Kempson
Balance
1 July 2017
Acquired through
capital raising
Recognized on
appointment
Derecognized
on retirement
Balance
30 June 2018
61,209,491
21,172,397
1,673,077
-
-
111,409
111,409
111,409
-
-
3,123,634
111,409
-
-
1,277,543
578,217
2,514,536
334,227
222,818
111,409
-
-
-
12,190,297
-
-
-
-
-
-
-
-
-
-
-
(3,235,043)
-
-
-
-
61,320,900
21,283,806
1,824,486
12,190,297
-
-
-
1,611,770
801,035
2,625,945
91,548,895
1,114,090
12,190,297
(3,235,043)
101,618,239
Balance
1 July 2017
Granted Exercised
Lapsed
Balance
30 June 2018
Vested and
Exercisable
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,068,376
683,761
-
1,752,137
-
-
-
-
-
-
-
-
-
-
-
22
Key Management
Steven Dabelstein
1,068,376
Michael Harvey
Paul Marshall
683,761
-
1,752,137
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.
Details of options over ordinary shares in the company provided as remuneration to each director of HRL Holdings Limited
and each of the key management personnel of the parent entity and the group are set out below. When exercisable, each
option is convertible into one ordinary share of HRL Holdings Limited. Further information on the options is set out in note
22 to the financial statements. Value granted in the current year is nil. Value granted in the 2017 financial year is set out
in the below table.
Key Management
Steven Dabelstein
Michael Harvey
Value Granted
$
Value Exercised
$
Value forfeited
$
79,701
51,009
-
-
-
-
23
REMUNERATION REPORT - AUDITED
Transactions with related parties
Transactions with Key Management Personnel related parties
Transaction
Entity
Rental of office space 1
Paget Developers
Software and hosting services 2
Octfolio
Sublet of office space to Octfolio 2 Octfolio
Association
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
1 Services provided from 1 July 2017 to 30 November 2017.
2 Services provided from 1 July 2016 to 13 April 2017.
All of the above transactions were based on normal commercial terms and conditions.
Loans to related parties
There were no loans given to related parties.
2018
$
44,000
-
-
2017
$
107,369
322,725
33,773
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)
2018
$
0.185
91.3
2017
$
0.080
19.5
2016
$
0.110
17.5
2015
$
0.068
10.5
Underlying EBITDA
5,774,562
1,509,017
1,074,645
107,782
2014
$
0.005
1.7
NA
Net Profit/(loss) for the financial year
(1,503,797)
130,420
117,988
(1,583,755)
2,147,825
Director and Key Management Personnel remuneration
990,389
965,124
825,391
638,557
526,968
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 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.
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 2018.
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 ------------------------------
24
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 2018, 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, 2 August 2018
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.
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 23 July 2018.
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
291
330
141
479
221
1,462
Number of unmarketable parcels of shares
490
Twenty largest holders
HRL – Ordinary Fully Paid Shares
No. Name of Shareholder
1
2
3
J P MORGAN NOMINEES AUSTRALIA LIMITED
TULLA PROPERTY PARTNERS PTY LTD
TERRENCE PATRICK COONEY & JULIE ANNE COONEY & HUGH OWEN COONEY
4 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
5 UBS NOMINEES PTY LTD
6 HGT INVESTMENTS PTY LTD
7 CITICORP NOMINEES PTY LIMITED
8 NATIONAL NOMINEES LIMITED
9 BNP PARIBAS NOMS PTY LTD
10 CAROLYN JOY BRAGGINS & TERENCE JOHN BRAGGINS & VOSPER TRUSTEES LTD
11
JNLJ COMPANY LTD
12 DARREN ANDERSON & JULIE ANDERSON
13 CRAIG ANDERSON & AMANDA ANDERSON
14 BNP PARIBAS NOMINEES PTY LTD
15 DIXSON TRUST PTY LIMITED
16 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
17 ANDERSON PROPERTY HOLDINGS PTY LTD
18 DARREN G ANDERSON & GREGORY J ANDERSON & JULIE E ANDERSON
19 H K PRICE PTY LTD
20 ELLIOTT NOMINEES P/L
Voting Rights
Holding
% Held
110,455,928
61,320,900
36,570,891
23,370,207
18,823,000
15,854,678
14,861,246
12,661,445
12,596,606
12,190,297
12,190,297
10,580,089
9,735,858
7,440,596
7,312,879
6,491,474
4,434,307
3,369,410
3,330,624
3,033,119
22.39
12.43
7.41
4.74
3.81
3.21
3.01
2.57
2.55
2.47
2.47
2.14
1.97
1.51
1.48
1.32
0.90
0.68
0.68
0.61
389,523,851
78.95%
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 23 July 2018:
Mr Kevin Maloney holds an interest in 61,320,900 shares (12.43%)
Terrence Cooney, Julie Cooney and Hugh Cooney as trustees for the Kingsley Investment Trust holds an interest
in 36,570,891 shares (7.41%)
Viburnum Funds Pty Ltd holds an interest in 82,868,178 shares (19.16%)
Adam Smith Asset Management holds an interest in 25,900,000 shares (5.25%)
IOOF Holdings Limited holds an interest in 50,602,199 shares (10.26%)
26
STATEMENT OF COMPREHENSIVE INCOME
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2018
Service revenue
Interest revenue
Total Revenue
Costs and consumables relating to the provision of services
Employee expenses
Rent and property expenses
Travel and business development expenses
Other expenses
Finance costs
Depreciation and amortisation of plant and equipment and software
Amortisation of acquisition intangible assets
Employee and consulting expense – share based payments
Employee benefits expense on Analytica earn-out payment
Morrison earn-out (expense)/adjustment
Adjustment to OCTFOLIO earn-out payment
Acquisition expenses
Total Expenses
Note
2018
$
2017
$
3
4
22
15
15
15
27,307,497
13,646,447
20,033
2,411
27,327,530
13,648,858
(3,383,735)
(14,267,367)
(1,086,720)
(599,480)
(2,195,633)
(73,158)
(1,477,840)
(1,941,073)
(35,181)
(2,942,615)
62,500
187,500
(158,222)
(2,186,035)
(7,228,818)
(688,715)
(471,639)
(1,579,108)
(101,690)
(337,217)
(528,974)
(203,636)
-
(62,500)
-
(86,633)
(27,911,024)
(13,474,965)
Equity accounted share of loss – CAIQTest Pacific Limited
(28,477)
-
Profit/(loss) before income tax
(611,971)
173,893
Income tax benefit/(expense)
5
(891,826)
(43,473)
Profit/(loss) after income tax
(1,503,797)
130,420
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign currency translation differences for foreign operations
18
(227,001)
(36,064)
Income tax
Other comprehensive income for the period, net of tax
-
-
(227,001)
(36,064)
Total comprehensive income
(1,730,798)
94,356
Earnings/(Loss) per share
Basic and diluted earnings/(loss) per share
7
Cents
(0.4)
Cents
0.1
The Statement of Comprehensive Income should be read in conjunction with the Notes to the Financial Statements.
27
BALANCE SHEET
Consolidated Balance Sheet
As at 30 June 2018
Note
2018
$
2017
$
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Trade and other receivables
Equity accounted investments
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
Accumulated losses
TOTAL EQUITY
6
9
10
9
20
11
12
13
5
14
15
16
15
16
5
17
18
5,392,742
4,247,652
558,101
140,710
10,339,205
267,467
608,894
6,954,257
7,751,097
16,884,462
1,287,748
33,753,925
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
44,093,130
18,830,508
1,539,245
745,171
4,070,760
754,804
7,109,980
45,941
360,156
1,348,542
1,754,639
1,308,692
286,605
969,172
615,576
3,180,045
240,044
220,773
77,654
538,471
8,864,619
3,718,516
35,228,511
15,111,992
38,162,084
(190,576)
(2,742,997)
35,228,511
16,349,948
1,244
(1,239,200)
15,111,992
The Balance Sheet should be read in conjunction with the Notes to the Financial Statements.
28
STATEMENT OF CHANGES IN EQUITY
Consolidated Statement of Changes in Equity
For the year ended 30 June 2018
Contributed
Capital
Accumulated
Losses
Share Based
Payment Reserve
Foreign Currency
Reserve
Balance at 1 July 2016
8,220,282
(1,369,620)
$
$
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
$
-
-
-
203,636
203,636
$
Total
$
(166,328)
6,684,334
-
-
-
-
8,528,338
(398,672)
203,636
8,333,302
8,528,338
(398,672)
-
8,129,666
-
-
-
-
-
-
-
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
Balance at 1 July 2017
16,349,948
(1,239,200)
203,636
(202,392)
15,111,992
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
22,402,408
(590,272)
-
21,812,136
-
-
-
-
-
-
-
(1,503,797)
-
(1,503,797)
-
-
35,181
35,181
-
-
-
-
-
-
-
22,402,408
(590,272)
35,181
21,847,317
-
(227,001)
(227,001)
(1,503,797)
(227,001)
(1,730,798)
Balance at 30 June 2018
38,162,084
(2,742,997)
238,817
(429,393)
35,228,511
The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements.
29
STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows
For the year ended 30 June 2018
Note
2018
$
2017
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Income tax paid
Acquisition costs
Finance costs
30,458,183
(24,891,069)
8,045
(942,617)
(158,222)
(65,158)
Net cash provided by/(used in) operating activities
6
4,409,162
14,713,803
(14,038,709)
2,411
(523,004)
(86,633)
(101,690)
(33,822)
(327,133)
-
(49,214)
-
(3,483,988)
(2,730,081)
-
-
(1,517,395)
13,119
(218,505)
34,721
-
-
(11,974,018)
(217,896)
(13,879,974)
(6,590,416)
16,002,503
(843,245)
(416,692)
(480,596)
14,261,970
8,528,338
(569,531)
(928,208)
(70,543)
6,960,056
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant & equipment
Proceeds from the sale of plant & equipment
Payments for intangible assets
Security deposit refund
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 Analytica
Distribution of pre-acquisition earnings to Analytica
vendors
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions of capital
Capital raising costs
Repayment of borrowings
Finance lease payments
Net cash provided by financing activities
19
16
16
Net increase/(decrease) in cash and cash equivalents held
4,791,158
335,818
Net foreign exchange differences
(126,581)
(516)
Cash and cash equivalents at the beginning of the financial period
728,165
392,863
Cash and cash equivalents at the end of the financial period 6
5,392,742
728,165
The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.
30
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
Inventories
Plant and Equipment
Intangible Assets
Goodwill
Trade and Other Payables
Provisions
Borrowings
Contributed Capital
Reserves
Group Structure Notes
Analytica Laboratories Acquisition
Equity Accounted Investments
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
32
35
38
38
39
43
44
44
45
46
46
47
49
51
52
54
56
56
57
59
60
62
64
65
69
69
69
69
31
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;
analytical chemistry laboratory testing specialising in mass spectroscopy analysis to the milk, honey, drugs of abuse
and environmental markets;
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 2 August 2018.
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:
32
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 Analytica Laboratories 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 Non-Financial 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.
33
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
2018. 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 2018
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 evaluated the impact on adoption of this standard and determined there will be no material
impacts in the current or future reporting periods and on foreseeable future transactions.
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 evaluated the impact adoption of this standard and determined there will be no material
impacts in the current or future reporting periods and on foreseeable future transactions.
AASB 16 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
AASB 117 Leases and related interpretations. AASB 16 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 evaluated the impact on adoption of this standard. Upon adoption of this standard, it is the
Consolidated Entity’s intention to transition using the modified retrospective approach, where the right-of-use asset is
recognised at the date of initial application at an amount equal to the lease liability, using the entity’s current incremental
borrowing rate. Comparative figures are not restated.
Based on the transition approach and the entity’s current leasing arrangements the entity has determined there will be no
material impacts in the current or future reporting periods and on foreseeable future transactions.
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.
34
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING
Reportable Segments
For the year ended 30 June 2018 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 testing 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.
Food and environmental laboratory services including:
o
honey laboratory testing;
o milk and dairy laboratory testing;
o
o
o
o
food origin testing;
drugs of abuse laboratory testing;
environmental laboratory testing (air, water, soil including organic and inorganics); and
other laboratory research and development.
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 Food and environmental laboratory services segment reflects the activities of Analytica Laboratories for the 7 months
since acquisition on 30 November 2017.
Unallocated amounts reflect corporate costs incurred by the 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.
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 was $13,199,307 (2017: $6,345,317) Total revenues from
customers domiciled in New Zealand was $14,108,190 (2017: $7,301,130).
The amount of non-current assets other than financial instruments and deferred tax assets located in Australia is
$8,617,618 (2017: $7,952,123). Total non-current assets other than financial instruments and deferred tax assets located
in New Zealand was $23,581,093 (2017: $5,170,316).
35
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2018
HAZMAT Geotechnical
$
$
Food/Enviro
Laboratory
$
Software
Unallocated Consolidated
$
$
$
10,866,751
7,733,170
8,206,032
501,544
-
27,307,497
-
-
-
-
-
-
-
-
20,033
20,033
(73,158)
(73,158)
(8,876,570)
(7,575,214)
(5,032,949)
(320,405)
(1,260,558)
(23,065,696)
-
-
(28,477)
-
-
(28,477)
1,990,181
157,956
3,144,606
181,139
(1,313,683)
4,160,199
Revenue:
Services revenue
Interest income
Expenses:
Interest expense
Other expenses
Equity accounted share of loss
Segment result before acquisition
related expenses
Acquisition related expenses
Acquisition costs
Earn-out (expense)/adjustments
-
-
(8,000)
(139,722)
(10,500)
62,500
(2,942,615)
187,500
-
-
-
(158,222)
(2,692,615)
(1,921,333)
Amortisation of acquisition intangibles
(184,464)
(415,733)
(1,004,469)
(316,667)
Segment result before tax
1,805,717
(203,277)
(942,200)
41,472
(1,313,683)
(611,971)
Income tax
Net Profit
-
-
-
-
-
(891,826)
(1,503,797)
Non-cash and other significant items:
Depreciation and amortisation
555,775
620,170
1,915,903
319,582
7,483
3,418,913
Impairment of receivables
1,696
11,900
Share based payments
Acquisition expenses
Earn-out (expense)/adjustments
-
-
-
-
6,734
-
-
-
8,000
139,722
10,500
62,500
(2,942,615)
187,500
-
35,181
-
-
20,330
35,181
158,222
(2,692,615)
Assets:
Segment assets
Liabilities:
Segment liabilities
Segment acquisitions:
9,238,653
5,338,263
22,651,244
2,932,131
3,932,839
44,093,130
1,158,052
1,391,959
5,194,811
255,750
864,047
8,864,619
Acquisition of plant and equipment
871,601
262,981
6,970,760
411
2,174
8,107,927
Acquisition of intangibles
Acquisition of goodwill
-
-
-
-
5,917,738
218,506
8,780,845
Details on non-current assets:
Trade and other receivables
72,403
13,703
181,361
Plant and equipment
1,171,254
764,086
4,990,565
6,680
21,672
6,954,257
Intangibles
Goodwill
124,204
1,248,333
5,001,231
1,377,329
4,887,339
1,770,810
8,860,393
1,365,920
Equity accounted investment
Deferred tax assets
-
-
-
-
608,894
-
-
-
-
-
-
7,751,097
16,884,462
608,894
1,287,748
1,287,748
6,255,200
3,796,932
19,642,444
2,749,929
1,309,420
33,753,925
36
-
-
-
-
-
6,136,244
8,780,845
267,467
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
Segment acquisitions:
Acquisition of 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
-
-
(359,069)
1,579,807
-
(23,322)
(62,500)
(63,311)
-
(103,933)
(65,972)
-
-
-
205,109
(73,892)
(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
327,859
49,214
-
-
1,768,000
1,550,000
-
1,770,810
1,365,920
108,916
693,664
329,117
13,703
728,738
-
9,525
1,664,067
1,484,028
5,049,536
1,770,810
1,365,920
-
-
-
-
27,034
-
-
-
-
-
1,170,288
327,859
3,367,214
3,136,730
122,619
1,458,961
3,477,212
8,186,266
1,170,288
6,181,233
4,177,318
2,859,473
1,197,322
14,415,346
37
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3
REVENUE
Services Revenue
HAZMAT service revenue
Geotechnical service revenue
Food and environmental laboratory revenue
Software service revenue
Total service revenue
2018
$
2017
$
10,866,751
11,247,858
7,733,170
8,206,032
501,544
2,289,196
-
109,393
27,307,497
13,646,447
Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade
discounts and volume rebates allowed.
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
Remuneration expense on Analytica earn-out
22
15
15
Contributions to defined contribution plans are expensed when incurred.
900,376
13,366,991
14,267,367
35,181
(62,500)
2,942,615
262,985
6,965,833
7,228,818
118,166
62,500
-
Rental expense relating to operating leases
Minimum lease payments
1,053,029
791,320
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 gain on disposal of plant and equipment
8,961
-
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.
38
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
Benefit arising from the impact of future income tax rate changes
Total deferred tax expense/(benefit)
2018
$
2017
$
1,010,412
43,109
1,053,521
46,447
(325,210)
117,068
(161,695)
395,122
(11,277)
383,845
(204,996)
(135,376)
-
(340,372)
Total income tax expense/(benefit)
891,826
43,473
Reconciliation of income tax expense to prima facie tax payable:
Profit/(loss) before tax, excluding loss for equity accounted investments
(583,494)
173,893
Prima facie tax at 30%
(175,048)
52,168
Tax effect of not deductible (taxable) amounts in calculating taxable income:
Entertainment expenses
Analytica earn-out expense
Adjustment to OCTFOLIO earn-out payment
Share based payments
Other items
Difference in overseas tax rate
Benefit arising from the impact of future income tax rate changes
Adjustments for tax of prior periods
Total income tax expense
9,862
823,932
56,250
-
14,433
729,429
2,220
117,068
43,109
891,826
2,409
-
-
25,641
(2,158)
78,060
(23,310)
-
(11,277)
43,473
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.
39
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:
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
Provision for doubtful debts
Vendor earn-outs
Lease liabilities
Carried forward tax losses
Set-off of deferred tax liabilities
Net deferred tax assets
2018
2017
$
-
252,973
252,973
24,666
272,562
8,021
-
193,523
1,461,099
1,959,871
(672,123)
1,287,748
$
-
170,859
170,859
24,587
230,200
2,503
18,750
125,957
1,450,512
1,852,509
(682,221)
1,170,288
A deferred tax asset has been recognised as the consolidated entity is forecasting to generate taxable profits in its
Australian tax group over the next three years.
Movements during the period:
Year ended June 2018
1 July 2017
Charged/credited to
Profit or
Loss
Directly to
equity
Acquisition of
subsidiary
Employee benefits payable
Employee leave provisions
Provision for doubtful debts
24,587
230,200
2,503
2,321
(8,232)
2,613
Vendor earn-out provision
18,750
(18,750)
Lease liabilities
125,957
85,160
Carried forward tax losses
1,450,512
(109,559)
1,852,509
(46,447)
-
-
-
-
-
252,973
252,973
Change in
future tax
rate
(2,242)
(18,417)
(234)
-
30 June 2018
24,666
272,562
8,021
-
(17,594)
193,523
(132,827)
1,461,099
-
69,011
3,139
-
-
-
72,211
(171,313)
1,959,871
40
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5
INCOME TAX (CONT’D)
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
118,974
162,870
125,957
1,450,512
456,898
1,852,509
2018
$
2017
$
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:
1,760,485
245,204
14,976
2,020,665
(672,123)
1,348,542
594,013
140,188
25,674
759,875
(682,221)
77,654
Year ended June 2018
1 July 2017
Charged/credited to
Profit or
Loss
Directly to
equity
Acquisition of
subsidiary
Intangible assets
594,013
(441,818)
Plant and equipment
140,188
127,306
Other amounts
25,674
(10,698)
759,875
(325,210)
-
-
-
-
1,640,245
-
-
Change in
future tax
rate
(31,955)
(22,290)
30 June 2018
1,760,485
245,204
14,976
1,640,247
(54,245)
2,020,665
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)
Charged/credited to
Other Comp.
Income
Directly to
equity
-
-
-
-
Acquisition
of subsidiary
545,400
127,466
-
672,866
-
-
-
-
30 June 2017
594,013
140,188
25,674
759,875
41
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.
Changes to Australia tax rate
The Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 (Act) reduces the Australian company tax rate to 27.5%
for smaller companies carrying on a business where aggregate turnover does not exceed:
$25 million for the income tax year ending 30 June 2018
$50 million for the income tax year ending 30 June 2019
HRL Holdings Limited does not yet qualify for a reduction in tax rates as its aggregated turnover for the year ended 30
June 2018 exceeded $25 million. HRL Holdings Limited does expect to qualify for the year ended 30 June 2019 when the
threshold increases to $50 million. Accordingly, while there is no change to the tax rate used to calculate current tax in
2018, there are changes to deferred tax calculations because these will be recovered or settled at the reduced 2019 tax
rate. The impact of this change resulted in additional income tax expense of $117,068 for the year ended 30 June 2018.
42
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6
CASH FLOW INFORMATION
Reconciliation of cash flows from operations with profit after tax
Profit/(loss) after income tax
(1,503,797)
130,420
2018
$
2017
$
Non-cash items in profit/(loss) after income tax
Depreciation and amortisation
Gain on sale of plant and equipment
Impairment of receivables
Share based payments
Equity accounted share of loss
Accrued interest revenue
Movements in operating assets and liabilities
Trade and other receivables
Inventories
Other assets
Trade and other payables
Provisions
Tax balances
3,418,913
866,191
(8,961)
20,330
35,181
28,477
(11,988)
231,932
(558,101)
151,771
(55,849)
2,712,045
(50,791)
-
25,613
203,636
-
-
(459,857)
-
(128,163)
(321,873)
129,742
(479,531)
Net cash provided by/ (used in) operating activities
4,409,162
(33,822)
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
The Group acquired plant and equipment totalling $988,532 through finance leases during the year (2017: $Nil).
Cash and Cash Equivalents
Cash at bank and on hand
Cash on deposit
3,430,315
1,962,427
5,392,742
608,029
120,136
728,165
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.
43
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 EARNINGS PER SHARE
Earnings
2018
$
2017
$
Earnings used to calculate basic and diluted EPS
(1,503,797)
130,420
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
391,037,807
179,593,908
-
-
391,037,807
179,593,908
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 as they were anti-dilutive.
NOTE 8
DIVIDENDS
No dividends were paid during the financial year ended 30 June 2018 (2017: nil) and no dividend is recommended for the
current year.
44
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
Loan receivable from CAIQTest Pacific Limited
2018
$
2017
$
4,026,906
(28,815)
3,998,091
240,882
8,679
3,035,283
(8,609)
3,026,674
330,142
62,020
4,247,652
3,418,836
86,106
181,361
267,467
122,619
-
122,619
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. The loan receivable from CAIQTest Pacific Limited has no fixed repayment date and accrues interest at a rate of
5.77%.
Impairment of receivables
The Group recognised a loss of $20,330 during the year (2017: $25,163) 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
2018
$
8,609
20,330
(124)
28,815
2017
$
5,583
25,613
(22,587)
8,609
Customers with balances past due but with no provision for impairment at 30 June 2018 were $1,430,696 (2017: $81,586).
Based on payments received after 30 June 2018 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
1,351,492
69,382
9,822
1,430,696
31,422
37,513
12,651
81,586
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.
45
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10
INVENTORIES
CURRENT
Laboratory consumables
2018
$
558,101
2017
$
-
Inventories are laboratory consumables that are utilised in providing laboratory testing services to customers.
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and selling expenses.
The cost of inventories is based on the weighted average method and includes expenditure incurred in acquiring the
inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
The amount of laboratory consumables recognised as an expense during the period was $655,906 (2017: $Nil).
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
412,443
(65,446)
346,997
1,370,689
(356,376)
1,014,313
578,604
(246,638)
331,966
6,329,110
(1,068,129)
5,260,981
8,690,846
(1,736,589)
6,954,257
72,368
(27,039)
45,329
953,170
(158,561)
794,609
342,960
(158,338)
184,622
644,181
(209,780)
434,401
2,012,679
(553,718)
1,458,961
Balance at 1 July 2017
Additions
Disposals
Business combinations
Foreign exchange movements
Leasehold
Improvements
45,329
255,518
(1,298)
86,092
-
Motor
Vehicles
Office Furniture
and Equipment
Lab and field
Equipment
Total
794,609
493,473
(40,943)
9,505
-
184,622
56,214
(1,438)
434,401
1,458,961
1,743,498
2,548,703
-
(43,679)
182,868
4,143,592
4,422,057
-
(1,830)
(1,830)
Depreciation
(38,644)
(242,331)
(90,300)
(1,058,680)
(1,429,955)
Balance at 30 June 2018
346,997
1,014,313
331,966
5,260,981
6,954,257
46
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11 PLANT AND EQUIPMENT (CONT’D)
Year ended 30 June 2017
Balance at 1 July 2016
Additions
Business combinations
Foreign exchange movements
Depreciation
Balance at 30 June 2017
Leasehold
Improvements
51,546
9,038
-
(4)
(15,251)
45,329
Motor
Vehicles
Office Furniture
and Equipment
Lab and field
Equipment
290,935
11,154
601,779
(8,904)
(100,355)
794,609
93,298
143,659
23,492
7,741
(83,568)
184,622
Total
672,956
327,859
787,163
1,691
237,177
164,008
161,892
2,858
(131,534)
(330,708)
434,401
1,458,961
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.
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 furniture and equipment
Laboratory and field 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
2018
$
3,644,891
(871,873)
2,773,018
4,891,183
(1,444,805)
3,446,378
1,836,319
(416,893)
1,419,426
181,622
(69,347)
112,275
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
Total intangible assets
7,751,097
3,477,212
47
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12
INTANGIBLE ASSETS (CONT’D)
Movements during the year
Year ended 30 June 2018
Balance at 1 July 2017
Additions
Customer
Contracts
1,502,537
Licences and
Accreditations
452,167
Software
Other
Intangibles
Total
1,480,152
42,356
3,477,212
-
-
218,502
117,972
336,474
Business combinations
1,904,199
3,953,827
Foreign exchange movements
Amortisation
Balance at 30 June 2018
73
(633,791)
2,773,018
Year ended 30 June 2017
Balance at 1 July 2016
Additions
Customer
Contracts
346,113
-
59,712
8,945
-
5,917,738
(387)
8,631
-
(959,616)
(347,885)
(47,666)
(1,988,958)
3,446,378
1,419,426
112,275
7,751,097
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
(758)
(194,818)
1,502,537
-
(54)
(125)
(937)
(257,104)
(69,008)
(14,553)
(535,483)
452,167
1,480,152
42,356
3,477,212
Customer contracts
Customer contracts acquired as part of a business combination are recognised separately from goodwill. The customer
contracts are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses.
Amortisation is calculated based on the timing of projected cash flows of the contracts over their estimated useful lives,
which currently vary from 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.
Amortisation is calculated based on the timing of projected cash flows of the contracts over their estimated useful lives,
which is estimated at 3 to 5 years.
48
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 GOODWILL
Opening balance
Goodwill arising on acquisition of Analytica
Goodwill arising on acquisition of Morrison Geotechnic
Goodwill arising on acquisition of OCTFOLIO
Foreign exchange movements
Impairment tests for goodwill
2018
$
8,186,266
8,780,845
-
-
(82,649)
16,884,462
2017
$
5,054,138
-
1,770,810
1,365,920
(4,602)
8,186,266
Goodwill is monitored by management at the Company level for Precise Consulting and Laboratory Limited, Analytica
Laboratories Limited, Morrison Geotechnic Pty Ltd and OCTFOLIO Pty Ltd and at the geographic branch level for AAC
(OCTIEF ACT Pty Ltd). 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.
49
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 GOODWILL (CONT’D)
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 2 for the segment level of goodwill.
The following table sets out the key assumptions for the value in use:
Assumption
Precise
Analytica
AAC
Morrison
OCTFOLIO
Approach
Sales volume annual growth
1%
3%
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
1%
2%
0%
1%
2% Average annual growth rate over the five-year forecast period based on current industry trends
Fixed costs per annum
$1.9M
$1.6M
$0.3M
$1.9M
$0.4M
Annual capital expenditure
$150,000
$1,500,000
$25,000
$200,000
$10,000
Long term growth rate
2%
2%
2%
2%
1%
Pre-tax discount rate
18%
18%
18%
18%
20%
Goodwill attributable to CGU
$4,225,982
$8,860,393
$661,357
$1,770,810
$1,365,920
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.
50
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
2018
$
592,987
946,258
-
2017
$
509,375
789,317
10,000
1,539,245
1,308,692
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
Analytica earn-out
OCTFOLIO contingent consideration at fair value
NON-CURRENT
Employee benefits
OCTFOLIO contingent consideration at fair value
940,645
-
2,942,615
187,500
4,070,760
719,172
62,500
-
187,500
969,172
45,941
-
45,941
52,544
187,500
240,044
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.
51
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 PROVISIONS (CONT’D)
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.
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
More than $1.5 million
$250,000
$500,000
$750,000
Payment of the earn-out consideration was 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.
Morrison Geotechnic did not exceed an EBIT of $1,100,000 for the 12 months ended 31 March 2018. Accordingly, the
previously recognised provision of $62,500 has been reversed in profit and 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
52
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 PROVISIONS (CONT’D)
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 by the entity. Any subsequent changes in the estimated earn-out will be reflected in profit or loss.
OCTFOLIO did not exceed an EBIT of $300,000 for the 12 months ended 13 April 2018. Accordingly, the previously
recognised provision of $187,500 has been reversed in profit and loss.
HRL estimates that there is 50% probability of OCTFOLIO’s meeting the Tranche 2 EBIT targets. Accordingly, a total
liability of $187,500 has been recognised as a provision for this tranche.
Analytica Earn-out Provision
On 30 November 2017, HRL acquired 100% of the issued capital of Analytica Laboratories Limited (Analytica).
The agreed purchase consideration was:
initial payment of NZ$13,300,000 cash
upfront HRL scrip consideration, representing 60,951,485 HRL shares, subject to a 2-year escrow period; and
Up to NZ$11m cash earn-out consideration, based on the following criteria:
o
o
o
Analytica business to achieve 12-month post-settlement EBITDA in excess of NZ$3m;
Analytica Vendors to receive a 6x multiple on each NZ$1 of EBITDA greater than NZ$3m, up to a maximum earn-
out consideration of NZ$11m; and
50% of earn-out is payable 12 months post-settlement, and 50% in 12 equal monthly instalments thereafter.
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 vendor’s ongoing service with Analytica. The vendors will
remain employed with Analytica 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 to that individual vendor. 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 for that individual vendor.
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 Analytica will exceed an EBITDA of NZ$4,850,000 for the
12 months ended 30 November 2018, resulting in an estimated earn-out of NZ$11,000,000.
As at 30 June, the vendors had performed 7 months of the 24-month service period (29.17%). Accordingly, an amount of
NZ$3,208,333 (AUD $2,942,615) has been recognised in profit or loss.
Movements during the year
Opening balance
Morrison Geotechnic earn-out expense/(adjustment)
OCTFOLIO earn-out recognition/(adjustment)
Analytica earn-out expense recognised
2018
$
437,500
(62,500)
(187,500)
2,942,615
3,130,115
2017
$
-
62,500
375,000
-
437,500
53
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 BORROWINGS
CURRENT
Finance leases
Bank loans
Insurance financing
NON-CURRENT
Finance leases
2018
$
754,804
-
-
754,804
2017
$
198,884
287,334
129,358
615,576
360,156
220,773
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 was secured against all current and non-current assets of the Group by floating charge. The facility had 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 was repaid in full during the period and the facility closed.
Insurance financing was unsecured. The facilities had an average interest rate of 5.51% per annum and were repaid in full
during the period.
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 and equipment 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.
Reconciliation of cash and non-cash movements in borrowings from financing activities
Year ended 30 June 2018
Opening
Balance
Cash flows
Non-cash Finance
lease additions
Closing
Balance
Finance leases
Bank loans
Insurance financing
419,657
287,334
129,358
836,349
(480,596)
(287,334)
(129,358)
(897,288)
1,175,899
1,114,960
-
-
-
-
1,175,899
1,114,960
Year ended 30 June 2017
Finance leases
Bank loans
Insurance financing
Non-cash changes
Opening
Balance
93,819
1,276,230
-
1,370,049
Cash flows
Finance lease
additions
(70,543)
(988,896)
60,688
(998,751)
-
-
-
-
Business
Combinations
396,381
-
68,670
465,051
Closing
Balance
419,657
287,334
129,358
836,349
54
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
Covenants
2018
$
2017
$
3,811,262
-
-
3,811,262
1,114,960
-
-
1,114,960
852,220
129,358
1,332,953
2,315,531
419,657
129,358
287,334
836,349
2,696,302
433,563
-
-
2,696,302
-
1,045,619
1,479,182
The bank loan was repaid in full during the period and the facility closed. Prior to closure, the bank loan was 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.
Assets pledged as security
Finance leases are secured by mortgage over the relevant assets which at 30 June 2018 had carrying values of $933,621
(2017: $467,293).
Defaults and breaches
During the current and prior year, there were no defaults or breaches on any of the loans.
55
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17 CONTRIBUTED CAPITAL
2018
$
2017
$
493,402,627 fully paid ordinary shares (June 2017: 244,186,406)
38,162,084
16,349,948
Movements during the period
Balance at beginning of period
Share purchase plan – issued at $0.085 per
share
Placement – issued at $0.085 per share
Share issue costs (net of tax)
Shares issued to Analytica vendors– issued
at $0.105 per share
2018
Number
2017
Number
2018
$
2017
$
244,186,406
158,903,031
16,349,948
8,220,282
11,764,736
57,783,375
1,000,002
5,778,338
176,500,000
27,500,000
15,002,500
-
60,951,485
-
-
(590,272)
6,399,906
2,750,000
(398,672)
-
Balance at end of period
493,402,627
244,186,406
38,162,084
16,349,948
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
2018
$
(429,393)
238,817
(190,576)
2017
$
(202,392)
203,636
1,244
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.
Movements during the year
Opening balance
Foreign exchange differences
Share based payments
Closing balance
1,244
(166,328)
(227,001)
35,181
(190,576)
(36,064)
203,636
1,244
56
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 ANALYTICA LABORATORIES LIMITED ACQUISITION ACCOUNTING
On 30 November 2017, HRL NZ (a 100% owned subsidiary of HRL Holdings) acquired 100% of the issued capital of
Analytica Laboratories Limited (Analytica). Analytica is a New Zealand-based analytical chemistry laboratory business
specialising in mass spectroscopy analysis to the milk, honey, drugs of abuse and environmental markets.
The agreed purchase consideration was:
initial payment of NZ$13,300,000 cash
upfront HRL scrip consideration, representing 60,951,485 HRL shares, subject to a 2-year escrow period; and
Up to NZ$11m cash earn-out consideration, based on the following criteria:
o
o
o
Analytica business to achieve 12-month post-settlement EBITDA in excess of NZ$3m;
Analytica Vendors to receive a 6x multiple on each NZ$1 of EBITDA greater than NZ$3m, up to a maximum earn-
out consideration of NZ$11m; and
50% of earn-out is payable 12 months post-settlement, and 50% in 12 equal monthly instalments thereafter.
Payment of the earn-out consideration is contingent on the vendor’s ongoing service with Analytica. The vendors will
remain employed with Analytica 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 to that individual vendor. 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 for that individual vendor. Refer to Note 15 for details of accounting for the earn out
consideration.
The assets and liabilities recognised as a result of the acquisition are as follows:
Purchase consideration:
Cash payment
HRL shares at fair value based on HRL share price on
acquisition date
Fair value of assets and liabilities acquired:
Cash and cash equivalents
Trade and other receivables
Other assets
Property, plant and equipment
Computer software
Equity accounted investment – CAIQTest Pacific Limited
Deferred tax assets
Intangibles – customer contracts and relationships
Intangibles – licences and accreditations
Trade and other payables
Employee provisions
Income tax payable
Deferred tax liabilities
Net identifiable assets acquired
Goodwill on acquisition
Net assets acquired
30 November
2017
$AUD
12,088,711
6,399,906
18,488,617
114,693
1,286,670
24,320
4,422,057
59,712
636,248
72,211
1,904,199
3,953,827
(672,401)
(195,440)
(257,897)
(1,640,427)
9,707,772
8,780,845
18,488,617
Goodwill is not deductible for tax purposes. The fair value of trade and other receivables is $1,286,670. The gross
contractual amount for trade receivables due is $1,297,879, of which $11,209 is expected to be uncollectible.
57
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19
ANALYTICA LABORATORIES LIMITED ACQUISITION ACCOUNTING (CONT’D)
Factors contributing to the Analytica goodwill are:
a strong competitive position in high-end environmental and food/agricultural testing markets with industry leading
customers/partners;
Market leader in honey testing in New Zealand, both among industry organisations and producers/distributors;
Dominant position in the liquid milk analysis and food origin testing, via strategic alliance with market leading
partners;
Strong and growing exposure to the environmental testing market;
Advantageous proximity to key agricultural markets and customers.
Revenue and profit contribution
Analytica contributed revenues of $8,213,712 and net profit after tax of $2,284,269 to the group for the period from 1
December 2017 to 30 June 2018.
If the acquisition had occurred on 1 July 2017 and the operations of Analytica been included from that date, then the
consolidated pro-forma revenue and loss for the period ended 30 June 2018 would have been $31,468,033 and $888,779
respectively.
Outflow of cash to acquire Analytica, net of cash acquired
Cash consideration
Less: cash and cash equivalents acquired
Net outflow of cash – investing activities
Acquisition related costs
30 November
2017
$
12,088,711
(114,693)
11,974,018
Acquisition-related costs of $139,722 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.
58
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20
EQUITY ACCOUNTED INVESTMENTS
An equity accounted associate is an entity over which the Group has significant influence. Significant influence is the power
to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those
policies.
Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying
amount of the investment is adjusted to recognise changes in the Consolidated Entity’s share of net assets of the associate
or joint venture since the acquisition date. The statement of profit or loss reflects the Consolidated Entity’s share of the
results of operations of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting period as the Consolidated
Entity. When necessary, adjustments are made to bring the accounting policies in line with those of the Consolidated Entity.
CAIQTest (Pacific) Limited
As part of the Analytica acquisition, the Group acquired a 26% interest in CAIQTest (Pacific) Limited, a New Zealand based
laboratory, providing pre-shipment testing services for clients exporting goods from Australasia to China.
The following table illustrates the summarised financial information of the Group’s investment in CAIQTest (Pacific) Limited:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities (shareholder loans)
Total liabilities
Equity
HRL’s share of equity (26%)
Goodwill
Carrying amount
7 months ended
Revenue
Cost of sales
Other expenses
Finance costs
Loss after tax
Income tax
Loss after tax
HRL’s share of loss (26%)
2018
$
756,072
457,896
1,213,968
130,561
1,309,519
1,440,080
(58,789)
667,683
608,894
June 2018
$
1,057,767
(505,248)
(670,505)
(34,132)
(152,118)
42,591
(109,527)
(28,477)
CAIQTest (Pacific) Limited requires a board resolution to distribute its profits. No dividends were paid or declared for the
financial period ending 30 June 2018.
CAIQTest (Pacific) Limited had no contingent liabilities or capital commitments as at 30 June 2018.
59
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20
EQUITY ACCOUNTED INVESTMENTS (CONT’D)
Movements during the year
Opening balance
Acquired through business combinations
Share of profits/(loss)
Foreign exchange movements
Closing balance
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
Profit/(loss) after income tax
Other comprehensive income
Total comprehensive income
2018
$
2017
$
-
636,248
(28,477)
1,123
608,894
-
-
-
-
-
2018
$
2017
$
677,593
34,316,310
34,993,903
117,294
-
117,294
106,931
13,262,940
13,369,871
520,720
28,113
548,833
34,876,609
12,821,038
49,200,617
35,181
(14,359,189)
27,388,480
203,636
(14,771,078)
34,876,609
12,821,038
411,889
(1,127,041)
-
-
411,889
(1,127,041)
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 26. The Parent Entity has no contingent assets or
guarantees at balance date.
60
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
Analytica Laboratories Limited
Principles of Consolidation
2018
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2017
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
Australia
Australia
Australia
Australia
New Zealand
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.
61
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
Vesting
Price
$0.156
$0.194
$0.234
1 July 2017
Issued
Movements
Exercised
1,029,556
1,029,556
1,029,555
3,088,667
-
-
-
-
-
-
-
-
Expired /
Forfeited
(227,134)
(227,134)
(227,134)
(681,402)
30 June
2018
802,422
802,422
802,421
2,407,265
Vested and
exercisable
-
-
-
-
The remaining contractual life of performance shares outstanding at the end of the period was 1 year.
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.
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;
Secondary Vesting Conditions
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.
62
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
2017
1,600,000
1,600,000
1,600,000
4,800,000
Movements
Issued
Exercised
Expired
-
-
-
-
-
-
-
-
30 June
2018
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 1.5 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:
63
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
Expiry 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
$0.20
Nil
$0.10
$0.23
Nil
$0.10
31 December 2019
31 December 2019
31 December 2019
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
2018
$
35,181
-
35,181
866,375
81,775
(2,341)
-
44,580
990,389
Detailed remuneration disclosures are provided in the remuneration report on pages 16 to 24.
Transactions with related parties
Transaction
Entity
Rental of office space 1
Paget Developers
Software and hosting services 2
Octfolio
Sublet of office space to Octfolio 2 Octfolio
Association
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
Darren Anderson
Kevin Maloney
2018
$
44,000
-
-
1 Services provided from 1 July 2017 to 30 November 2017.
2 Services provided from 1 July 2016 to 13 April 2017.
All of the above transactions were based on normal commercial terms and conditions.
2017
$
118,166
85,470
203,636
813,227
81,249
3,615
-
67,033
965,124
2017
$
107,369
322,725
33,773
64
NOTES TO THE FINANCIAL STATEMENTS
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 2018. 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, National Australia Bank and ANZ.
Maximum exposure to credit risk
Summary exposure
Cash and cash equivalents
Trade receivables
Other receivables
Loan receivable from CAIQTest Pacific Limited
Liquidity risk
2018
$
2017
$
5,392,742
3,998,091
249,561
181,361
728,165
3,026,674
392,162
-
9,821,755
4,147,001
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.
65
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
FINANCIAL RISK MANAGEMENT (CONT’D)
The remaining contractual maturities of the financial liabilities are:
30 June 2018
Trade payables
Other payables
OCTFOLIO contingent
consideration
Finance leases
30 June 2017
Trade payables
Other payables
OCTFOLIO contingent
consideration
Bank loan
Insurance financing
Finance leases
Market Risk
Fixed interest
rate
-
1 year or less
$
592,987
1 to 5 years
$
-
Over 5 years
$
-
-
-
4.72%
946,261
187,500
786,213
2,512,961
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
-
-
374,030
374,030
1 to 5 years
$
-
-
187,500
-
-
233,718
421,218
-
-
-
-
Over 5 years
$
-
-
-
-
-
-
-
Total
$
592,987
946,261
187,500
1,160,243
2,886,991
Total
$
509,375
799,317
375,000
287,334
129,358
448,734
2,549,118
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.
Cash term deposits, finance leases and insurance financing have fixed interest rates. All other cash assets and the repaid
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)
2018
$
24,292
(24,292)
2017
$
3,155
(3,155)
66
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)
Finance leases (NZD)
2018
$
2017
$
3,424,528
2,813,701
6,238,229
531,266
411,262
942,528
348,378
873,497
1,221,875
273,338
-
273,338
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
2018
$
2017
$
(529,570)
529,570
(94,854)
94,854
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.
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).
67
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:
2018
$
2017
$
Contingent consideration – level 3
187,500
375,000
The fair value of the contingent consideration of $187,500 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
Recognised on business combination
Adjusted through the income statement (refer note 15)
Closing balance
Valuation processes for level 3 fair values
375,000
-
-
375,000
(187,500)
187,500
-
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.
68
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
2018
$
2017
$
893,423
1,127,484
2,020,907
771,972
1,123,115
1,895,087
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)
786,213
374,030
1,160,243
(45,283)
1,114,960
754,804
360,156
1,114,960
The Group finance leases relates to motor vehicles and laboratory equipment.
NOTE 26
CONTINGENT LIABILITIES
The Consolidated Entity has arranged bank guarantees of $38,500 as security for rental premises.
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
NOTE 28 EVENTS AFTER BALANCE DATE
There have been no other events since 30 June 2018 that impact upon the financial report.
2018
$
86,845
86,845
68,238
68,238
215,016
233,718
448,734
(29,077)
419,657
198,884
220,773
419,657
2017
$
69,026
69,026
26,927
26,927
69
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 2018 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
2 August 2018
70
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 2018, 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 2018 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.
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.
Accounting for the acquisition of Analytica Laboratories Limited
Key audit matter
How the matter was addressed in our audit
The Group’s disclosures about the acquisition of
Analytica Laboratories Limited (Analytica) 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 Analytica 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 and 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.
Our procedures included, amongst others:
Assessing management’s determination of
whether the acquisition was a business
combination or an asset acquisition
Evaluating management’s assessment of the
purchase consideration including contingent
consideration arrangements
Evaluating management’s assessment of the fair
value of the identifiable assets and liabilities
acquired including:
o Obtaining management's external
valuation of the identifiable assets and
liabilities acquired
o Assessing the professional competence
and objectivity of the valuer
o
Evaluating the appropriateness of the
methods and assumptions used
o Challenging management in relation to
the inputs and assumptions used by the
valuer
o
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.
Valuation of goodwill
Key audit matter
How the matter was addressed in our audit
The Group’s disclosures about goodwill impairment
are 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 goodwill as of 30
June 2018 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.
Our procedures included, amongst others:
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 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 2018, 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
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.
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.
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 16 to 24 of the directors’ report for the
year ended 30 June 2018.
In our opinion, the Remuneration Report of HRL Holdings Limited, for the year ended 30 June 2018,
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, 2 August 2018
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.
HRL HOLDINGS LIMITED CORPORATE INFORMATION
DIRECTORS
Kevin Maloney (Chairman)
Darren Anderson (Executive Director)
Steve Howse (Executive Director)
John Taylor (Non-executive Director)
James Todd (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 21
10 Eagle 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
76