HRL HOLDINGS LIMITED
Appendix 4E FY2019 Final Report
Results for Announcement to the Market
1.
Company Details and Reporting Period
Name of Entity:
HRL Holdings Limited
ABN:
99 120 896 371
Reporting Period:
30 June 2019
Previous Corresponding Period: 30 June 2018
2.
Results for Announcement to the Market
$
Revenue from ordinary activities up 13% to:
30,754,848
Underlying net profit/(loss) for the period down 47% to:
1,534,330
Net profit/(loss) for the period attributable to members down to:
(7,126,758)
Refer to pages 8 to 12 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 33 of the 2019 Financial Statements and accompanying Notes.
4.
Balance Sheet with Notes to the Statement
Refer to Page 34 of the 2019 Financial Statements and accompanying Notes.
5.
Statement of Cash Flows with Notes to the Statement
Refer to Page 36 of the 2019 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 35 of the 2019 Financial Statements and accompanying Notes.
8.
Net Tangible Assets per Security
2019
$0.016
2018
$0.022
www.hrlholdings.com | ABN 99 120 896 371 | ASX Code: HRL
9.
Entities over which Control has been Gained or Lost during the Period.
Refer to Page 72 of the 2019 Financial Statements.
10.
Associates and Joint Venture Entities
Refer to Page 69 of the 2019 Financial Statements.
11.
Other Significant Information
Not applicable.
12.
Accounting Standards used for Foreign Entities
Not applicable.
13.
Commentary on the Results for the Period
Refer to pages 8 to 12 of the Financial Statements for the operational and financial review of the Entity.
14.
Status of Audit
The attached 2019 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
9 August 2019
www.hrlholdings.com | ABN 99 120 896 371 | ASX Code: HRL
HRL HOLDINGS LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
30 JUNE 2019
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
17
31
32
33
34
35
36
37
82
83
87
2
CEO’S LETTER
Dear Shareholders,
Your Directors and I have much pleasure in presenting the 2019 Annual Financial Statements for the HRL Group.
Introduction and the past year in review
FY2019 was a challenging year for HRL. The decline in the New Zealand drugs of abuse (methamphetamine) property
testing market and challenging trading conditions in the HAZMAT and Geotechnical businesses had a material impact on
earnings for the first half of the year. In response, several market diversification and restructuring initiatives were put in
place which saw second half results improve markedly.
The business restructuring efforts are largely complete allowing us to focus on organic growth centred around high value,
high throughput commercial laboratory testing. I am pleased with the early client uptake in new services which will
become more profitable as they scale with time.
In last year’s annual report, I wrote about the strategic objectives for this past year, and I am pleased to report that those
objectives have been substantially fulfilled including:
1.
Leveraging off Analytica intellectual property and know how to enter new service lines in both Australia
and New Zealand;
HRL has expanded our laboratory offering, with key notable new services for glyphosate, beta-casein
testing extensions, PFAS in soil and water.
2.
Utilising new equipment, technology and software platforms to improve efficiencies and margins;
New technology has been installed at OCTIEF and Morrison Geotechnic delivering laboratory throughput
improvements. These are a mixture of software and laboratory instrumentation.
Analytica has been working on developing artificial intelligence (AI) for image recognition to improve
throughput for pollen identification and counting in honey samples.
3.
Focussed business development plans to target new clients and protect the existing client base;
Revenue expansion has been seen most notably in Analytica, OCTFOLIO and Morrison.
Following the laboratory restructure at Precise, the core consulting business has seen a notable increase
in projects won.
4.
Continued focus on cross selling opportunities across all business units;
OCTIEF applied for, and received, import permits to receive soil samples from New Zealand for acid
sulphate analysis and filters for crystalline silica analysis.
OCTIEF ships a small volume of samples for methamphetamine testing back to New Zealand.
OCTIEF and Precise increased their OCTFOLIO reseller activities this year resulting in an increase in new
clients in the second half
5.
Using the OCTFOLIO software platform to target new clients and provide enhanced service offerings to
existing clients of the other business units.
OCTFOLIO has launched modules this year to meet specific client demand for oil sampling, equipment
registers tracking, and hazardous material sampling for power utility assets.
Digital chain of custody apps (in beta) were launched for Analytica.
HRL has successfully increased its social responsibility focus this year with a 25% reduction in total reportable injuries
(TRI) in the second half. We are proud of our diverse workforce which now includes 47% female representation.
Recycling initiatives at our main laboratory in Hamilton NZ has seen a 40% reduction in laboratory glass/plastic waste.
We have chosen three key charities to support throughout the year.
3
CEO’S LETTER
During the year HRL entered into an agreement with MilkTestNZ to create a new 50:50 joint venture company which will
initially provide analytical testing service to the wider New Zealand dairy industry. The joint venture agreement represents
an expansion of the existing strategic alliance between HRL and MilkTestNZ, which focussed on liquid milk testing. The
JV has appointed a General Manager, secured temporary laboratory facilities, and has begun method development with
its foundation technical staff.
The underlying EBITDA of $4.45M, although disappointingly lower than FY18, was a reasonable recovery after noting
the decrease in drugs of abuse (methamphetamine) property testing earnings of circa $2.5M EBITDA contribution for the
full year.
HRL has made 75% of the earnout payments to the Analytica vendors as at 30 June 2019. The remaining 25% will be
cleared by November 2019 in accordance with the acquisition terms. Net of earnout payments, HRL produced operating
cashflow of $2.7M.
Our board of directors welcomed Greg Kilmister as Chairman to the business during the year. Greg brings highly valued
experience running international laboratory operations and has been providing excellent leadership and governance to
the business.
Outlook for FY2020
The Group will continue to focus on growing its core business of providing laboratory, sampling and information services
to its clients to:
Focus on a return to FY2018 levels of profitability by continuing to replace the earnings gap from the decline in
demand for property contamination testing;
Increase organic service development with a focus on scalable laboratory-based services;
Integrate the business units HR, IT, finance and support services;
Grow earnings from the data management / software division;
Secure new laboratory facilities for HRL’s main Hamilton NZ operation to facilitate long term growth and improve
workflow efficiencies; and
Support HRL’s JV investments and partners to realise their strategic potential.
The Group will continue to evaluate acquisition opportunities of high-quality businesses within the food, agriculture and
environmental services sectors 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 HRL Group’s employees for their dedication and hard work. My thanks also to you, our shareholders for
your ongoing support throughout FY2019. I look forward to reporting a stronger FY2020 and achieving significant
progress on the execution of our Strategic Plan.
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” or “Group”) at the end of, or during, the year
ended 30 June 2019.
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
Position
Period of Directorship
Greg Kilmister
Non-Executive Chairman
Darren Anderson
Non-Executive Director
Appointed 11 February 2019
Appointed 15 September 2014, transitioned from Executive
Director to a Non-Executive Director on 1 July 2019
Appointed 25 November 2014
John Taylor
Steve Howse
James Todd
Non-Executive Director
Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 1 March 2018
Kevin Maloney
Non-Executive Chairman
Appointed 15 September 2014, Retired 17 August 2018
Greg Kilmister
Non-Executive Chairman
B Sc (Hons), FRACI, CCEO
Mr Kilmister was the Managing Director and Chief Executive Officer of ALS Limited, the global provider of laboratory
testing, inspection, certification and verification solutions from 2005 until his retirement in July 2017. He is recognised as
the pivotal force in the growth and transformation of ALS (formerly Campbell Brothers Limited) from a diversified industrial
group to a globally respected Testing, Inspection & Certification (TIC) player and an ASX100 company. During his tenure
ALS’s market cap grew from $381 million in 2005 to over $3 billion in 2017 and the staff numbers increased from
approximately 4,000 to over 13,000 worldwide when he retired.
He has vast experience in operating laboratory focused businesses in the Environmental, Food, Pharmaceutical, Life
Sciences, Minerals, Energy and Industrial sectors in more than seventy countries in Africa, Europe, Asia, Australia, and
North and South America.
Mr Kilmister was Director of ALS Limited until retirement in July 2017.
Darren Anderson
Non-Executive Director - transitioned from Executive Director to a Non-Executive Director on 1 July 2019
Mr Darren Anderson was formerly the Executive Director and Chief Operating Officer of Diversified Mining Services
Limited, 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 of the Queensland Law Society 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, clients, 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, LLB, F FIN, MAICD, 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 companies:
IVE Group Limited (appointed June 2015)
Coventry Group Limited (appointed September 2018)
Kevin Maloney (retired 17 August 2018)
Former 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.
Mr Maloney was a director of the following other ASX listed company:
Altona Mining Limited (appointed July 2009, resigned 18 April 2018)
6
DIRECTORS’ REPORT
DIRECTOR INTERESTS IN THE SHARES AND OPTIONS OF THE CONSOLIDATED ENTITY
As at the date of this report, the interests of the Directors in the shares and options of HRL Holdings Limited are shown
in the table below:
Director
Greg Kilmister
Darren Anderson
John Taylor
Steve Howse
James Todd
Fully Paid Ordinary
Shares
250,000
21,443,806
1,964,486
12,190,297
400,000
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 2019
and the number of meetings attended by each Director.
Directors Meetings
Audit and Risk
Committee Meetings
Remuneration and
Nomination
Committee Meetings
Meetings
attended
5
Eligible to
attend
5
Meetings
attended
1
Eligible to
attend
1
Meetings
attended
2
Eligible to
attend
2
10
9
10
10
1
10
10
10
10
1
-
3
2
3
1
-
3
2
3
1
3
3
-
3
-
3
3
-
3
-
Greg Kilmister
Darren Anderson
John Taylor
Steve Howse
James Todd
Kevin Maloney
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
John Taylor (Chair)
James Todd
Darren Anderson
Greg Kilmister
James Todd (Chair)
John Taylor
Steve Howse
Greg Kilmister
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.
7
DIRECTORS’ REPORT
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 USA, 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 workplace drug testing;
environmental services (air, water and soil including contaminated land);
environmental and property management software solutions; and
specialised NATA/IANZ - accredited laboratory analysis and on-site testing and monitoring.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Company’s operations are subject to environmental regulations in relation to its consulting and laboratory activities.
The Directors are not aware of any breaches during the period covered by this report.
REVIEW OF OPERATIONS
Trading Review
FY2019 was a challenging year for HRL. The decline in the New Zealand methamphetamine testing market and tough
trading conditions in the HAZMAT and Geotechnical businesses had a material impact on earnings for the first half of the
year. In response, a number of profitability initiatives were put in place which saw second half results improve markedly.
Food and Environmental Laboratory Services
The Food and Environmental Laboratory division incorporates the New Zealand based Analytica business unit.
8
DIRECTORS’ REPORT
Analytica has continued to perform to expectations following its acquisition in December 2018. Revenues for the year
were up 15% compared with the prior period. Analytica saw a drop-off of its high margin methamphetamine testing
service line due to changing requirements of the New Zealand Government. This contraction in revenue has now been
substantially replaced by accelerated growth in environmental, dairy, honey and food origin testing service lines.
Analytica continued to develop and roll out new tests in its recently launched environmental service line. The
environmental service line incorporates laboratory testing on air, water and soil. Revenue growth over the prior period
was 93%, and Analytica expects environmental analytical services to contribute the bulk of Analytica’s revenue growth
over the next few years. Margins on this testing are currently lower in this early phase than other more mature services
but are increasing as processes are optimised and volumes increase.
Dairy and milk testing was strong with revenues growing 16% on FY2018. M Bovis dairy testing during the first half of the
year, and continued growth in beta casein testing, provided the bulk of this growth. M Bovis testing is a DNA based test
with a high consumable component which generates lower margins than other testing types. This contributed to the lower
overall margin percentage compared with the prior year.
Despite an average production season, honey testing was pleasingly strong during the period, with revenues up 14% on
FY2018. Analytica continues to be the market leader in manuka honey testing.
As a direct result of a change in New Zealand Government guidelines, laboratory testing for drugs of abuse fell
significantly from the prior period with revenues down 48% on FY2018. Volumes have now stabilised with the majority
of samples coming from private domestic clients and insurance related testing. The bulk of the reduction can be attributed
to the fall in public housing testing.
Food origin testing continues to grow strongly with revenues up 51% on the prior period. Analytica continues to work
closely with its key clients to develop this ever-growing market.
From 1 March Analytica took control of the HRL owned Precise laboratory facilities in New Zealand which previously
operated independently of Analytica., The Precise laboratory facilities have now been rebranded as regional Analytica
facilities and fully integrated into the Analytica network. Analytica will look to explore other service line opportunities for
these regional laboratories beyond their historical focus on asbestos testing.
Analytica also holds 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 for CAIQTest (Pacific) Limited during the period was largely breakeven, as final certification from
the Chinese regulators (CNAS) was undertaken.
HAZMAT
The HAZMAT division, which incorporates the OCTIEF business unit in Australia and the Precise business in New
Zealand, had a very challenging year with earnings substantially down on FY2018 due to lower market activity and
subsequent pricing pressures.
New Zealand operations were significantly impacted by the changes in the New Zealand Government methamphetamine
guidelines. Methamphetamine testing revenue was down 77% on the prior period. Precise’s major client for this service
line was the public housing department, and work from this source has all but ceased since the release of the new
guidelines report in late May of 2018.
In response to the decline within the methamphetamine field testing market, HRL restructured its New Zealand operations.
From 1 March 2019, Analytica assumed control and rebranded Precise’s regional laboratories (Auckland, Wellington,
Christchurch and Dunedin). Moving forward Precise will focus purely on consulting and sampling services. This
restructure will allow the laboratories to target a wider range of clients and to provide those clients with the world class
service levels that Analytica is known for. Over the medium term it will also allow different service lines to be introduced
into the regional laboratories that fell outside of the testing capabilities of Precise.
The restructured Precise business has been designed to be a leaner and more agile organisation operating with a much-
reduced overhead cost base. Precise will seek to engage beyond its traditional HAZMAT client base to become a multi-
disciplined field sampling organisation. Following the restructure, Precise has experienced an immediate turnaround in
its financial performance generating strong profits from March onwards.
Australian operations for OCTIEF were softer during the period, with revenues down 20% on the prior period. The
Queensland market remained consistent for asbestos work but there was a notable slowdown in environmental consulting
projects. The Northern Territory market was weak as territory wide budget restrictions impacted the release of public
projects. Following the conclusion of the loose fill asbestos investigation (Mr Fluffy) program in the ACT and surrounding
areas, and limited growth opportunities in the region, the ACT branch was closed in April 2019.
9
DIRECTORS’ REPORT
During the final quarter of FY2019, OCTIEF secured a large-scale laboratory sampling contract from a major utility
provider. This contract is expected to run through to the end of the calendar year and will provide a boost to laboratory
revenues in the first half of FY2020.
Under the guidance of the Analytica team, OCTIEF continues to develop its high-end laboratory capabilities. This service
line is still in its infancy with modest sample volumes but represents the first step in bringing Analytica’s capability into
the Australian market.
Geotechnical
The Geotechnical division incorporates the Morrison Geotechnic business unit in Australia. Revenues for Morrison
Geotechnic increased 4% over FY2018. Pricing pressures remain throughout the sector, especially in the Gold Coast
region. In response to these pressures, Morrison Geotechnic has installed new equipment and technologies to automate
components of the geotechnical testing process and undertook other cost savings initiatives such as the consolidation of
Gold Coast operations to the OCTIEF premises at Yatala. Following these changes Morrison Geotechnic’s financial
performance improved significantly in the second half of FY2019.
Underlying civil infrastructure and large-scale commercial development activity currently remains strong across south
east Queensland and Morrison Geotechnic is actively engaging with developers to secure its future pipeline of works.
Software
The Software division incorporates the OCTFOLIO business unit which is Australian based but has existing contracts and
clients in both Australia and New Zealand. OCTFOLIO continued its focus on business development and software
enhancement during the period. OCTFOLIO has developed a range of new features and applications for its clients which
move the product beyond its original focus on asbestos data management into a range of new industries and clients.
OCTFOLIO secured several large new contracts in the second half which will continue to grow its profits through FY2020.
Other Operational Highlights
Analytica Earnout
As part of the acquisition of Analytica Laboratories, the vendors had the opportunity to achieve an earnout payment of up
to NZD 11 million if certain EBITDA hurdles were met.
Analytica exceeded the EBITDA hurdle target of NZ$4,850,000 for the 12 months ended 30 November 2018.
As at 30 June 2019, 75% of the total earn-out consideration had been paid. Payment of the remaining 25% earn-out
consideration will be completed by November 2019.
New Dairy Joint Venture
During the year HRL entered into an agreement with MilkTestNZ to create a new 50:50 joint venture company which will
initially provide analytical testing service to the wider New Zealand dairy industry. The joint venture agreement represents
an expansion of the existing strategic alliance between HRL and MilkTestNZ, which focussed on liquid milk testing.
Analytical testing in the New Zealand dairy industry targets a wide range of dairy products including:
Cheese;
Yoghurt;
Ice-creams;
Milk powders;
Infant formulas and many more.
Both HRL Holdings and MilkTestNZ currently have limited exposure to the testing of these products, with the current
focus on the testing of raw liquid milk.
The market size for dairy product testing in New Zealand is estimated to be approximately NZ$80M per annum, with half
of that attributed to in-house testing by the producers. The new joint venture will target the remaining estimated NZ$40M
market for third party contract laboratory testing.
10
DIRECTORS’ REPORT
There are a limited number of competitors in this space. The joint venture will leverage off the proven strengths of its
partners to attract market share through:
Industry leading turnaround times delivered through high-throughput innovative laboratory workflows;
Superior distribution network and logistics;
Leveraging existing clients of the joint venture partners;
High levels of service and technical support;
Attractive pricing; and
IT solutions tailored to give clients superior data.
The joint venture company will offer a full suite of testing services covering finished products, ingredients, and in-process
samples.
The joint venture company will operate independently from its partners and establish its own premises, employees and
operations.
The joint venture company will require funding of NZ$3M to establish operations, develop the necessary testing methods
and go to market, with funding to be provided over a 2-year period.
FINANCIAL REVIEW
Key financial headlines of the HRL Group’s 30 June 2019 results are:
Revenues of $30,754,848
Underlying EBITDA of $4,450,775
Underlying profit after tax of $1,534,330 1
Statutory loss after tax of $7,126,758
Cashflow used in operations of ($5,139,121). Excluding Analytica earn-out payments, cashflows provided by
operations were $2,746,561
Net cash/(borrowings) of ($3,567,003)
Net current assets of $114,352 2
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.
2 Included in current liabilities is an interest only bank loan drawn to $1,911,741. This facility has no expiry date but is
subject to annual review by Westpac. Working capital excluding this amount is $2,026,093.
11
DIRECTORS’ REPORT
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 and joint venture establishment expenses
Amortisation of intangible assets arising from acquisitions
Earn-out expenses/adjustments
Lapsed management performance shares
Impairment of goodwill (OCTIEF ACT branch closure)
One-off restructure costs (Precise regional laboratories transfer to
Analytica, Morrison Gold Coast branch relocation and closure of
OCTIEF ACT branch)
Equity accounted share of profits/(loss)
Non-operating tax
June 2019
$
4,450,775
(2,194,245)
(135,507)
(586,693)
1,534,330
(22,113)
(3,602,257)
(5,069,621)
(62,355)
(661,357)
(348,433)
2,847
1,102,201
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
Statutory profit/(loss) after income tax
(7,126,758)
(1,503,797)
In the opinion of the Directors, the Group’s underlying profit reflects the results generated from ongoing operating activities
and is calculated in accordance with AICD/Finsia principles. The non-operating adjustments outlined above are
considered to be non-cash or non-recurring in nature. These items are included in the Group’s consolidated statutory
result but excluded from the underlying result.
Comparison with the Prior Period
Underlying profit after tax for the year decreased by $1,339,547 compared with the prior year. The key reasons for the
decrease were:
Lower earnings from the HAZMAT division, primarily due to the impact of reduced methamphetamine property
testing in New Zealand;
Lower earnings from Analytica in the methamphetamine testing, although offset by growth in all other areas including
honey, dairy, and environmental; and
Increased corporate and borrowing costs.
Liquidity and Funding
As at 30 June 2019 the Group has cash reserves of $1,031,193, total borrowings of $4,598,196 and net current assets
of $114,352.
Included in current liabilities is an interest only bank loan drawn to $1,911,741. This facility has no expiry date but is
subject to annual review by Westpac.
The Group has undrawn borrowings at 30 June 2019 of $1,918,727.
All banking covenants were met during the year and there were no defaults or breaches on any of the loans.
12
DIRECTORS’ REPORT
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes during the year.
LIKELY DEVELOPMENTS AND FUTURE OPERATIONS
During FY2020, the Group will continue to focus on returning to FY2018 levels of profitability through:
Introduction of new Analytica service lines such as:
Natural products including medicinal cannabis testing;
Beta Casein (A1/A2) genotyping.
Further environmental testing services; and
Additional contract research and development services for clients to allow them to take advantage of the recently
introduced research and development tax incentive. Analytica is an approved service provider for laboratory
services with the New Zealand tax authority.
Maintaining the improved trading performance in both the HAMZAT and Geotechnical businesses resulting from
recent restructure activities;
Continued client acquisition for the OCTFOLIO software platform;
A strong focus on cost control; and
A reduction in corporate costs.
In addition, the Group will continue to evaluate acquisition opportunities of high-quality laboratory businesses.
INDEMNIFICATION OF OFFICERS OR AUDITOR
Each of the Directors and the Secretary of the Company has entered into a Deed with the Company whereby the
Company has provided certain contractual rights of access to books and records of the Company and certain
indemnification to those Directors and Secretary.
The Company has insured all of the Directors of HRL Holdings Limited. The contract of insurance prohibits the disclosure
of the nature of the liabilities covered and amount of the premium paid. The Corporations Act 2001 does not require
disclosure of the information in these circumstances.
The Company has not indemnified its auditor.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings
to which the Company is a party for the purposes of taking responsibility on behalf of the Company for all or any part of
those proceedings. The Company was not a party to any such proceedings during the year.
SHARE OPTIONS 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
2018
1,600,000
1,600,000
1,600,000
4,800,000
Movements
Issued
Exercised
Expired
-
-
-
-
-
-
-
-
30 June
2019
1,600,000
1,600,000
1,600,000
4,800,000
-
-
-
-
13
DIRECTORS’ REPORT
Details of performance shares issued, exercised and expired during the financial year are set out below:
Movements
Issued
Exercised
Expired /
Forfeited
30 June
2019
Expiry Date
Tranche
30 June 2019
30 June 2019
30 June 2019
30 June 2020
30 June 2021
1
1
1
2
2
Vesting
Price 1
$0.156
$0.194
$0.234
$0.234
$0.234
1 July
2018
802,422
802,422
-
-
802,421
284,287
-
-
284,287
284,288
2,407,265
852,862
-
-
-
-
-
-
(802,422)
(802,422)
(1,086,708)
(284,287)
(284,288)
(3,260,127)
-
-
-
-
-
-
Long Term Incentive Performance Share Plan – Tranche 1
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.
14
DIRECTORS’ REPORT
Long Term Incentive Performance Share Plan – Tranche 2
Primary Vesting Conditions
HRL share price remains above $0.234 for 14 consecutive trading days prior
to 30 June 2019.
Secondary Vesting Conditions
The Performance Shares will vest in proportion to the number of years’
service:
1. First 33% of the performance shares vest at 30 June 2019
2. Next 33% performance shares vest at 30 June 2020
3. Final 34% performance shares vest at 30 June 2021
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.
The pricing conditions were not met and all Performance Shares have now lapsed.
AFTER BALANCE DATE EVENTS
There have been no other events since 30 June 2019 that impact upon the financial report.
REMUNERATION REPORT
The Remuneration Report set out on pages 17 to 30 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.
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.
15
DIRECTORS’ REPORT
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 compliance services $23,610
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration on page 31 forms part of the Directors’ Report.
Signed in accordance with a resolution of the board of directors of HRL Holdings.
Darren Anderson
Director
Brisbane, 9 August 2019
16
REMUNERATION REPORT - AUDITED
This report details the nature and amount of remuneration for Directors and Key Management Personnel of the
Consolidated Entity.
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.
Non-Executive Directors do not participate in the Company’s Short Term Incentive or Long Term Incentive bonus
schemes.
The remuneration of Non-Executive Directors for the year ended 30 June 2019 is detailed in this Remuneration Report.
17
REMUNERATION REPORT - AUDITED
Executive Director and Senior Management Remuneration
The Company aims to reward Executive Director and Senior Management with a level and mix of remuneration
commensurate with their position and responsibilities within the company and so as to:
reward Executives for Company and individual performance against targets set by reference to appropriate
benchmarks;
align the interests of Executives with those of shareholders;
link reward with the strategic goals and performance of the Company; and
ensure total remuneration is competitive by market standards.
The remuneration of the Executive Director and Senior Management may from time to time be fixed by the Board. As
noted above, the Board’s policy is to align Executive objectives with shareholder and business objectives by providing a
fixed remuneration component and offering short-term and long-term incentives.
The level of fixed remuneration is set 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 2019 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 CEO and CFO have 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 Greg Kilmister as Non-Executive Chairman of the Company
commencing from 11 February 2019. The key terms of the arrangement during the financial year were:
Ongoing contract – no fixed term;
Fee of $90,000 per annum, inclusive of statutory superannuation contributions;
No retirement benefits
Non-Executive Director Arrangements
The Company has entered into a service arrangement with Mr James Todd, Mr Darren Anderson 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 $60,000 per annum, inclusive of statutory superannuation contributions;
No retirement benefits
Executive Director Arrangement – Steve Howse
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;
Director fees of $25,000 per annum, inclusive of statutory superannuation contributions;
5 weeks annual leave;
1 month notice period.
18
REMUNERATION REPORT - AUDITED
Executive Director Arrangements – Darren Anderson (until 30 June 2019)
The Company entered into an employment contract with Mr Darren Anderson as Executive Director of the Company
commencing from 1 January 2015 until 30 June 2019. Mr Anderson transitioned to a Non-Executive director role from 1
July 2019. The key terms of the contract were:
Salary of $300,000 per annum, plus statutory superannuation contributions;
6 weeks annual leave;
Use of a company motor vehicle;
Short term incentive cash bonus upon achieving certain profit targets;
3 month notice period.
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 $300,000 per annum, plus statutory superannuation contributions;
4 weeks annual leave;
Motor vehicle allowance of $20,000 per annum;
Short term incentive cash bonus upon achieving certain profit targets;
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 $200,000 per annum, plus statutory superannuation contributions;
Short term incentive cash bonus upon achieving certain profit targets;
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 $60,000 per annum, inclusive of statutory superannuation contributions;
One month notice period.
19
REMUNERATION REPORT - AUDITED
Details of Directors and other Key Management – HRL Holdings Limited
Name
Directors
Greg Kilmister
Darren Anderson 1
John Taylor
Steve Howse
James Todd
Former Directors
Kevin Maloney
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Notes
Position
Period of Service
Non-Executive Chairman
Appointed 11 February 2019
Non-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 Chairman
Appointed 15 September 2014, Retired 17 August 2018
Chief Executive Officer
Appointed 1 January 2015
Chief Finance Officer
Company Secretary
Appointed 15 September 2014
Appointed 2 July 2007
1 Mr Anderson was engaged as an Executive Director for the year ended 30 June 2019 and transitioned to a Non-Executive Director
role on 1 July 2019.
20
REMUNERATION REPORT - AUDITED
Remuneration of Directors and other Key Management Personnel – 2019
Short Term
Benefits
Long Term
Benefits
Post Employment
Benefits
Equity based
Benefits
Note
Salary/ fees
Discretionary
Bonus 3
Vehicle
allowance
Accrued /
(used) leave
benefits
Superannuation
Performance
Shares
Total
Performance
Related %
% of FY19
STI bonus
forfeited 3
% equity
compensation
1
3
2
3
3
22,606
295,531
60,000
171,692
60,000
2,764
300,000
201,583
60,000
-
-
50,000
2,500
-
-
-
-
-
-
-
-
50,000
33,000
-
10,000
-
-
1,174,176
133,000
12,500
-
(5,609)
-
3,949
-
-
1,233
1,685
-
1,258
12,148
25,008
-
4,401
-
9,424
20,520
17,417
-
-
-
-
-
-
-
34,754
367,430
60,000
180,042
60,000
12,188
-
14%
-
100%
-
-
-
-
-
-
-
-
11,644
7,452
-
393,397
261,137
60,000
16%
16%
-
100%
100%
-
88,918
19,096
1,428,948
-
-
-
-
-
3%
3%
-
Directors
Greg Kilmister
Darren Anderson
John Taylor
Steve Howse
James Todd
Kevin Maloney
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Notes
1
2
3
Appointed 11 February 2019
Retired 17 August 2018
The Board awarded discretionary bonuses to Mr Anderson, Mr Dabelstein and Mr Harvey in August 2018 in relation to their performance for the year ended 30 June 2018.
No bonuses are payable in relation to the FY2019 short term incentive (STI) plan.
There were no termination benefits paid or accrued for the year ended 30 June 2019.
21
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 FY18
STI 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
-
22
REMUNERATION REPORT - AUDITED
Key management personnel equity holdings
Balance
1 July 2018
Acquired on
market
Recognized on
appointment
Disposed Derecognized
on retirement
Balance
30 June 2019
Shareholdings
Directors
Greg Kilmister
John Taylor
Steve Howse
James Todd
Former Directors
-
-
250,000
Darren Anderson
21,283,806
1,824,486
12,190,297
160,000
180,000
-
-
400,000
Kevin Maloney
61,320,900
-
Key Management
Steven Dabelstein
1,611,770
90,090
Michael Harvey
Paul Marshall
801,035
2,625,945
-
-
-
-
(40,000)
-
-
-
-
-
-
-
250,000
21,443,806
1,964,486
12,190,297
400,000
-
(61,320,900)
-
-
-
-
-
-
-
1,701,860
801,035
2,625,945
-
-
-
-
-
-
-
-
101,658,239
830,090
250,000
(40,000)
(61,320,900)
41,377,429
Balance
1 July 2018
Granted Exercised
Lapsed
Balance
30 June 2019
Vested and
Exercisable
Performance Shares
Directors
Greg Kilmister
Darren Anderson
John Taylor
Steve Howse
James Todd
Former Directors
Kevin Maloney
-
-
-
-
-
-
Key Management
Steven Dabelstein
1,068,376
Michael Harvey
Paul Marshall
683,761
-
1,752,137
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,068,376)
(683,761)
-
-
(1,752,137)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23
REMUNERATION REPORT - AUDITED
FY2019 – Short Term Incentive Plan
For the FY2019 financial year Darren Anderson (Executive Director), Steven Dabelstein (CEO) and Michael Harvey
(CFO) had the opportunity to earn a cash bonus based upon the Group achieving certain profit targets as outlined in the
table below:
Underlying Profit
Targets
Less than $5.75M
$5.75M to $6.0M
$6.0M to $6.25M
$6.25M to $6.5M
Above $6.5M
Bonus Payable
CEO / Executive Director
$Nil
Bonus Payable
CFO
$Nil
$50,000
$75,000
$100,000
$125,000
$33,333
$50,000
$66,666
$83,333
Underlying profit is defined as consolidated statutory profit before tax from existing operations excluding:
Amortisation of intangibles that arose on the acquisition of subsidiaries;
other acquisition costs; and
other non-operating items at the Board's discretion.
None of the above profit targets were met for FY2019 and no bonuses were payable.
FY2019 – Long Term Incentive 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:
Long Term Incentive Performance Share Plan – Tranche 1
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.
24
REMUNERATION REPORT - AUDITED
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 lapsed in the current year is is set out in the below table.
Key Management
Steven Dabelstein
Michael Harvey
Value Granted
$
Value Exercised
$
Value lapsed
$
-
-
-
-
79,701
51,009
Transactions with related parties
There were no transactions with related parties.
Loans to related parties
There were no loans given to related parties.
Remuneration Consultants
In December 2018, the Remuneration and Nomination Committee engaged Egan Associates Pty Ltd to review its existing
remuneration policies and to provide recommendations on executive short-term and long-term incentive plan design.
Egan Associates Pty Ltd was paid $15,540 for these services.
Egan Associates Pty Ltd has confirmed that any remuneration recommendations have been made free from undue
influence by members of the Group’s key management personnel.
The following arrangements were made to ensure that the remuneration recommendations were free from undue
influence:
Egan Associates Pty Ltd was engaged by, and reported directly to, the chair of the Remuneration and Nomination
Committee. The agreement for the provision of remuneration consulting services was executed by the chair of the
Remuneration and Nomination Committee under delegated authority on behalf of the Board.
The report containing the Remuneration and Nomination Committee was provided by Egan Associates Pty Ltd
directly to the chair of the Remuneration and Nomination Committee; and
Egan Associates Pty Ltd did not speak to management throughout the engagement and did not provide any member
of management with a copy of their draft or final report that contained the remuneration recommendations.
As a consequence, the board is satisfied that the recommendations were made free from undue influence from any
members of the key management personnel.
25
REMUNERATION REPORT - AUDITED
FY2020 Long Term Incentive Plan
Introduction
The previous equity-based incentive plan for senior management was introduced in FY2016. This plan expired on 30
June 2019.
In conjunction with advice from remuneration consultants, the Remuneration and Nomination Committee has revised the
long term incentive (LTI) plan which will apply from FY2020 onwards.
Whist the LTI plan rules are now finalised, plan participants and the number of instruments to be issued have not yet
been finalised. HRL expects the process will be complete by the end of August 2019 and will make a separate ASX
announcement once done.
Goals of the LTI Plan
The LTI Plan is designed to reward and motivate our senior management for superior company performance over a three
year performance period.
The principal goals of the LTI Plan are to:
Focus senior management on long term outcomes required by the Board;
Minimise risk by ensuring performance was measured across multiple factors important to shareholder value,
rather than a single measure;
Retain key, high performing management;
Align senior management’s reward with shareholders’ interests by payment in equity;
Encourage share ownership in HRL; and
Encourage teamwork through Group wide performance measures.
Remuneration Structure
Remuneration under the LTI Plan is in the form of equity-settled performance rights. Each equity-settled performance
right which vests and is exercised converts to an ordinary share in the Company at nil exercise price; the amount payable
per each vested cash-settled performance right is the VWAP of the Company’s shares over the 20 trading days following
the release of the Group’s full year results for the final year of the performance period.
The number of performance rights granted to a participate is calculated by dividing the amount of the participant’s LTI
maximum potential payment (as determined by the Remuneration and Nomination Committee) by the volume weighted
average price (VWAP) of the Company’s shares over the 20 trading days following the date of announcement of the final
full year results for the financial year preceding the period to which the grant of performance rights relate.
Vesting conditions are assessed at the end of the performance period and the performance rights become exercisable,
in whole or in part, or lapse from 1 July following the end of the performance period.
26
REMUNERATION REPORT - AUDITED
Vesting Conditions - Performance
The following information provides a guide for the performance measures to be used for testing HRL performance.
Earnings per Share (EPS) Measure
EPS MEASUREMENT
TABLE
Compound annual diluted EPS growth
Proportion of Performance Rights that may be
exercised if the EPS Performance Hurdle is met
Less than 10%
10% or higher
Nil
25% of total grant
25% of Performance Rights are subject to EPS measurement. The performance period is a period of three financial
years commencing on 1 July each year, ending 30 June three years later.
The compound growth in EPS will be measured by comparing fully diluted EPS for the financial year ending 30
June 2022 with fully diluted EPS for the financial year ended 30 June 2018 (FY2019 has not been used as a base
because of abnormally poor performance) which is the base year for these EPS calculations.
EBITDA Measure
EBITDA MEASUREMENT
TABLE
EBITDA margin of HRL relative to EBITDA margin
of comparator peer companies
Proportion of performance rights that may be
exercised if EBITDA hurdle is met
Less than average EBITDA margin of comparator
peer companies
Nil
More than average EBITDA margin of comparator
peer companies
25% of total grant
Comparator companies
Bureau Veritas (France), Core Laboratories (USA),
Eurofins (France & Germany), Intertek (UK), SGS
(Switzerland), ALS (Australia), Exova (UK)
25% of Performance Rights are subject to EBITDA measurement. The performance period is a period of three
financial years commencing on 1 July each year, ending 30 June three years later.
Based on HRL EBITDA margin over the performance period, the EBITDA Hurdle Rights will vest in accordance with
the above table. The EBITDA margin measurement is contingent upon performance of the Company against a
group of comparator peer companies.
27
REMUNERATION REPORT - AUDITED
Total Shareholder Return (TSR) Measure
TSR MEASUREMENT
TABLE
TSR relative to TSRs of companies in the ASX
Small Ordinaries Index over the performance
period
Proportion of Performance Rights that may be
exercised if the TSR Performance Hurdle is met
Below the total TSR for ASX Small Ordinaries over
the Performance Period
Nil
Above the TSR for ASX Small Ordinaries over the
Performance Period
25% of total grant
25% of Performance Rights are subject to TSR measurement. The performance period is a minimum period of
three financial years commencing on 1 July each year, ending 30 June three years later. TSR measures the growth
in the price of shares plus dividends notionally reinvested in shares.
Return on Capital Employed (ROCE) Measure
ROCE MEASUREMENT
TABLE
ROCE Performance (3 year average)
Proportion of performance rights that may be
exercised if ROCE hurdle is met
ROCE of less than WACC + 2%
Nil
ROCE of between WACC + 2% and +7%
Straight line vesting of between 0% and 25% of total
grant
ROCE exceeds WACC + 7%
25% of total grant
25% of Performance Rights are subject to Return on Capital Employed (ROCE) measurement. The performance
period is a minimum period of three financial years commencing on 1 July each year, ending 30 June three years
later. In order to provide an incentive for superior performance, the respective ROCE hurdles will be set at 2%
and 7% above the June 2019 WACC with straight line vesting in between the lower and upper hurdles below.
ROCE is calculated as Underlying Earnings before Interest and Tax (EBIT) over the three year performance
period divided by Capital Employed expressed as a percentage.
Capital Employed = Total Shareholders’ Equity + Net Debt (the sum of the simple averages of the balances at the
beginning and end of each year during the performance period *)
*If material funding transactions (for example, significant additional borrowings, equity issuances or asset impairments) occur
such that the simple average for any year during the performance period is not representative of capital actually employed, the
average capital employed for the year may be adjusted for the effect of these transactions.
28
REMUNERATION REPORT - AUDITED
Vesting Conditions - Service
Should the participant leave or be terminated from HRL:
During years 1 - 3 all unvested performance rights will be forfeited.
The participant must be employed on the vesting date (subject to EPS, EBITDA, TSR and ROCE performance
criteria being met) to be eligible for the shares.
The exception to this is termination due to death or bona fide age or disability retirement with any further
exceptions at the absolute discretion of the Board.
LTI Plan Duration
The LTI plan is a 3 year plan with performance conditions measured over a 3 year timeframe.
The Board intends that this plan will operate on a 3 year rolling basis, with a new plan offered to participants annually,
using the same performance conditions but measure on the new period. For example, the FY2020 plan will cover the
periods FY2020, FY2021 and FY2022. The FY2021 plan will cover the FY2021, FY2022 and FY2023 and so on.
29
REMUNERATION REPORT - AUDITED
Relationship between remuneration and Group 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)
2019
$
0.115
56.7
2018
$
0.185
91.3
2017
$
0.080
19.5
2016
$
0.110
17.5
2015
$
0.068
10.5
Underlying EBITDA
4,450,775
5,774,562
1,509,017
1,074,645
107,782
Net Profit/(loss) for the financial year
(7,126,758)
(1,503,797)
130,420
117,988
(1,583,755)
Director and Key Management Personnel remuneration
1,428,947
990,389
965,124
825,391
638,557
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 reflect 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.
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 2019.
No options expired during the period.
1,752,137 performance share equity instruments were issued to key management as remuneration in 2017. The
performance shares did not meet the vesting conditions and lapsed at 30 June 2019.
------------------------------ END OF REMUNERATION REPORT ------------------------------
30
AUDITOR’S INDEPENDENCE DECLARATION
Tel: +61 7 3237 5999
Fax: +61 7 3221 9227
www.bdo.com.au
Level 10, 12 Creek St
Brisbane QLD 4000
GPO Box 457 Brisbane QLD 4001
Australia
DECLARATION OF INDEPENDENCE BY T R MANN TO THE DIRECTORS OF HRL HOLDINGS LIMITED
As lead auditor of HRL Holdings Limited for the year ended 30 June 2019, 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, 9 August 2019
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.
31
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 30 July 2019.
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
282
381
207
496
209
1,575
Number of unmarketable parcels of shares
613
Twenty largest holders
HRL – Ordinary Fully Paid Shares
No. Name of Shareholder
1
2
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
TERRENCE PATRICK COONEY & JULIE ANNE COONEY & HUGH OWEN COONEY
3 NATIONAL NOMINEES LIMITED
4 UBS NOMINEES PTY LTD
5 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
6 BNP PARIBAS NOMS PTY LTD
7 HGT INVESTMENTS PTY LTD
8 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
9 CAROLYN BRAGGINS & TERENCE BRAGGINS & VOSPER TRUSTEES LIMITED
10
JNLJ COMPANY LTD
11 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
12 BNP PARIBAS NOMINEES PTY LTD
13 DARREN ANDERSON & JULIE ANDERSON
14 CRAIG ANDERSON & AMANDA ANDERSON
15 DIXSON TRUST PTY LIMITED
16 ANDERSON PROPERTY HOLDINGS PTY LTD
17 MR DARREN GEOFFREY ANDERSON & MRS JULIE ELIZABETH ANDERSON
18 DARREN G ANDERSON & GREGORY J ANDERSON & JULIE E ANDERSON
19 H K PRICE PTY LTD
20 MATARANKA PTY LTD
Voting Rights
Holding
133,361,060
% Held
27.03
36,570,891
29,833,714
24,643,000
20,642,285
18,978,280
17,854,678
16,009,609
12,190,297
12,190,297
9,793,000
9,671,230
9,430,089
7,531,997
7,312,879
4,434,307
4,050,000
3,369,410
3,330,624
3,036,486
7.41
6.05
4.99
4.18
3.85
3.62
3.24
2.47
2.47
1.98
1.96
1.91
1.53
1.48
0.90
0.82
0.68
0.68
0.62
384,234,133
77.87
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 31 July 2019:
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 107,897,466 shares (21.87%)
IOOF Holdings Limited holds an interest in 74,058,875 shares (15.01%)
32
STATEMENT OF COMPREHENSIVE INCOME
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2019
Note
2019
$
2018
$
Revenue from contracts with customers
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 and joint venture establishment expenses
Impairment of goodwill
Total Expenses
3
4
22
15
15
15
13
30,728,754
27,307,497
26,094
20,033
30,754,848
27,327,530
(5,514,983)
(16,717,824)
(3,383,735)
(14,267,367)
(1,240,694)
(530,846)
(2,622,065)
(161,601)
(2,194,245)
(3,602,257)
(62,355)
(5,257,121)
-
187,500
(22,113)
(661,357)
(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)
-
(38,399,961)
(27,911,024)
Equity accounted share of profit/(loss)
2,847
(28,477)
Profit/(loss) before income tax
(7,642,266)
(611,971)
Income tax benefit/(expense)
5
515,508
(891,826)
Profit/(loss) after income tax
(7,126,758)
(1,503,797)
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign currency translation differences for foreign operations
18
643,953
(227,001)
Income tax
Other comprehensive income for the period, net of tax
-
-
643,953
(227,001)
Total comprehensive income
(6,482,805)
(1,730,798)
Earnings/(Loss) per share
Basic and diluted earnings/(loss) per share
7
Cents
(1.4)
Cents
(0.4)
The Statement of Comprehensive Income should be read in conjunction with the Notes to the Financial Statements.
33
BALANCE SHEET
Consolidated Balance Sheet
As at 30 June 2019
Note
2019
$
2018
$
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
1,031,193
4,992,317
690,159
32,533
6,746,202
305,923
665,446
7,471,822
4,287,177
16,774,730
1,652,983
31,158,081
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
37,904,283
44,093,130
1,918,323
318,265
1,356,576
3,038,686
6,631,850
32,405
1,559,510
872,457
2,464,372
1,539,245
745,171
4,070,760
754,804
7,109,980
45,941
360,156
1,348,542
1,754,639
9,096,222
8,864,619
28,808,061
35,228,511
38,162,084
214,560
(9,568,583)
28,808,061
38,162,084
(190,576)
(2,742,997)
35,228,511
The Balance Sheet should be read in conjunction with the Notes to the Financial Statements.
34
STATEMENT OF CHANGES IN EQUITY
Consolidated Statement of Changes in Equity
For the year ended 30 June 2019
Contributed
Capital
$
Accumulated
Losses
$
Share Based
Payment Reserve
$
Foreign Currency
Reserve
$
Total
$
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
Balance at 1 July 2018
38,162,084
(2,742,997)
238,817
(429,393)
35,228,511
Transactions with owners in their capacity as owners
Share based payments
Transfer of expired performance shares
Total
Comprehensive income
Profit after income tax
Foreign currency translation differences for foreign operations
Total comprehensive income
-
-
-
-
-
Balance at 30 June 2019
38,162,084
(9,568,583)
-
301,172
301,172
62,355
(301,172)
(238,817)
-
-
-
62,355
-
62,355
(7,126,758)
-
(7,126,758)
-
-
-
-
-
643,953
643,953
(7,126,758)
643,953
(6,482,805)
214,560
28,808,061
The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements.
35
STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows
For the year ended 30 June 2019
Note
2019
$
2018
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Income tax paid
Analytica earn out payments
Acquisition and joint venture establishment costs
Finance costs
34,015,027
(30,098,597)
20,747
(1,006,902)
(7,885,682)
(22,113)
(161,601)
Net cash provided by/(used in) operating activities
6
(5,139,121)
30,458,183
(24,891,069)
8,045
(942,617)
-
(158,222)
(65,158)
4,409,162
(1,517,395)
13,119
(218,505)
34,721
-
(11,974,018)
(874,758)
116,756
(266,984)
(24,584)
(47,414)
-
-
(217,896)
(1,096,984)
(13,879,974)
-
-
4,896,924
(2,033,915)
(1,019,824)
1,843,185
16,002,503
(843,245)
-
(416,692)
(480,596)
14,261,970
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant & equipment
Proceeds from the sale of plant & equipment
Payments for intangible assets
Security deposit refunds/(payments)
Investment in Food Lab Pacific Limited
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
Proceeds of borrowings
Repayment of borrowings
Finance lease payments
Net cash provided by financing activities
19
16
16
16
Net increase/(decrease) in cash and cash equivalents held
(4,392,920)
4,791,158
Net foreign exchange differences
31,371
(126,581)
Cash and cash equivalents at the beginning of the financial period
5,392,742
728,165
Cash and cash equivalents at the end of the financial period 6
1,031,193
5,392,742
The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.
36
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
38
43
46
47
48
52
53
53
54
55
56
57
58
61
61
64
66
66
67
69
71
73
76
77
81
81
81
81
37
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 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 workplace 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 9 August 2019.
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:
38
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.
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.
Recognition of deferred tax asset for carried forward losses
The deferred tax assets include an amount of $1,640,765 which relates to carried forward tax losses and other tax
deductions arising from previous capital raising costs of the Australian entities. The Australian tax group includes all
corporate costs related to the parent company, HRL Holdings Limited which does not generate income. The Australian
trading subsidiaries all generate taxable profits.
The Group has concluded that the deferred assets will be recoverable using the estimated future taxable income based
on the approved business plans and budgets for the subsidiaries. The Australian trading subsidiaries are expected to
generate sufficient taxable income to offset the expected taxable loss of the parent entity, with carried forward tax losses
expected to reduce from FY2020 onwards. The losses can be carried forward indefinitely and have no expiry date.
Change in accounting estimates
Intangibles
During the period the Group reassessed the useful lives of the following intangible assets:
OCTFOLIO software platform useful life reduced from 5 years to 3 years. OCTFOLIO has recently released the
next version of its software which offers its clients a range of benefits including:
o
o
o
o
Improved mobile applications and support for Android;
Easily customisable client portals;
Lower costs of hosting;
Streamlined client onboarding and data migration.
OCTFOLIO anticipates all of its existing clients will be migrated to the new software platform within the next 12
months and consequently the original software’s useful life has been reduced in line with this.
As part of the acquisition of Morrison Geotechnic, $1,302,000 of purchase value was allocated to existing client
contracts and relationships. Over the last 12 months Morrison Geotechnic has experienced much higher
competition and higher price sensitivity from clients.
Taking into account these factors, the useful lives of the customer contracts and relationships intangible asset
has been reduced from 5 years to 3 years.
Accounting policies
(a) Financial Instruments
Recognition and initial measurement
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 or amortised cost using the effective interest rate method.
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.
39
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(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 the applicable 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.
New Accounting Standards
A number of new or amended standards became applicable for the current reporting period and the Group had to change
its accounting policies as a result of adopting the following standards:
AASB 9 Financial Instruments; and
AASB 15 Revenue from Contracts with Customers.
The impact of the adoption of these standards and the new accounting policies are disclosed below. The other standards did
not have any impact on the Group’s accounting policies and did not require retrospective adjustments.
a) AASB 15 Revenue from Contracts with Customers – Impact of adoption
The Group has adopted AASB 15 Revenue from Contracts with Customers for the first time. In accordance with the
transition provisions in AASB 15, the Group has adopted the new rules retrospectively however there was no material
impact on the amounts disclosed previously and as a result there has been no restatement required as a result of
reclassification or remeasurement.
b) AASB 9 Financial Instruments – Impact of adoption
AASB 9 replaces the provisions of AASB 139 that relate to the recognition, classification and measurement of financial
assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.
The adoption of AASB 9 Financial Instruments from 1 July 2018 resulted in changes in accounting policies. The new
accounting policies are set out in note below. In accordance with the transitional provisions in AASB 9, comparative figures
have not been restated.
(i) Classification and Measurement
On 1 July 2018 (the date of initial application of AASB 9), the Group’s management has assessed which business models
apply to the financial assets held by the Group and has classified its financial assets into the appropriate AASB 9
categories. There were no changes to the classification and measurement of financial assets.
40
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(ii) Impairment of financial assets
The Group has one type of financial asset that is subject to AASB 9’s new expected credit loss model, being trade and
other receivables.
The Group was required to revise its impairment methodology under AASB 9 to a forward looking model. There was no
material impact of the change in impairment methodology on the Group’s retained earnings and equity.
While cash and cash equivalents are also subject to the impairment requirements of AASB 9, there was no material
impairment loss identified.
AASB 9 Financial Instruments – Accounting policies applied from 1 July 2018
Classification
From 1 July 2018, the Group classifies its financial assets in the following measurement categories:
those to be measured subsequently at fair value (either through OCI, or through profit or loss); and
those to be measured at amortised cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of
the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in
equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election
at the time of initial recognition to account for the equity investment at fair value through other comprehensive income
(FVOCI).
The Group reclassifies debt investments when and only when its business model for managing those assets changes.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair
value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows
are solely payment of principal and interest.
Debt instruments
Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the
cash flow characteristics of the asset. The Group classifies its debt instruments as amortised cost instruments. These
are assets that are held for collection of contractual cash flows where those cash flows represent solely payments of
principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance
income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit
or loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are
presented as separate line item in the statement of profit or loss.
Impairment
From 1 July 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt
instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime
losses to be recognised from initial recognition of the receivables.
41
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
New Standards and Interpretations Not Yet Adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2019
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 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-of-use asset
and a lease liability will be recognised, with the right-of-use asset being depreciated and the lease 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. The expected impact is as follows:
As at the reporting date, the Group has non-cancellable operating lease commitments of $1,246,348 (refer Note 25). For
these lease commitments the Group expects to recognise right-of-use assets and lease liabilities of approximately
$1,593,116.
Overall net assets will be remain the same however net current assets will be $737,562 lower due to the presentation of a
portion of the liability as a current liability.
The Group expects that net profit before tax will decrease by approximately $37,103 for FY2020 as a result of adopting
the new rules. EBITDA is expected to increase by approximately $805,471, as the operating lease payments were included
in EBITDA, but the amortisation of the right-of-use assets and interest on the lease liability are excluded from this measure.
Operating cash flows will increase and financing cash flows decrease by approximately $737,562 as repayment of the
principal portion of the lease liabilities will be classified as cash flows from financing activities.
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.
42
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING
Reportable Segments
For the year ended 30 June 2019 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 - on-site testing and monitoring.
Food and environmental laboratory services including:
honey laboratory testing;
o
o milk and dairy laboratory testing;
o
o
o
o
o
food origin testing;
drugs of abuse laboratory testing;
asbestos laboratory analysis;
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.
For the year ended 30 June 2018, 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 $12,781,805 (2018: $13,199,307) Total revenues from
customers domiciled in New Zealand was $17,946,949 (2018: $14,108,190).
The amount of non-current assets other than financial instruments and deferred tax assets located in Australia is
$6,552,689 (2018: $8,617,618). Total non-current assets other than financial instruments and deferred tax assets located
in New Zealand was $22,646,486 (2018: $23,581,093).
Transfer of New Zealand regional labs goodwill
From 1 March 2019, Analytica Laboratories Limited assumed control and rebranded of all of Precise Limited’s regional
laboratories (Auckland, Wellington, Christchurch and Dunedin). Moving forward Precise Limited will focus purely on
sampling and consulting activities.
From March 2019 onwards, Group reporting lines were modified to reflect this restructure. Precise laboratory staff became
employees of Analytica and the regional labs were put under the control of Analytica management.
43
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2019
HAZMAT Geotechnical
$
$
Food/Enviro
Laboratory
$
Revenue:
Contracts with customers
7,762,331
8,028,091
14,203,700
734,632
Software
Unallocated Consolidated
$
$
-
$
30,728,754
26,094
26,094
(161,601)
(161,601)
-
-
-
-
-
-
-
-
(7,754,692)
(7,661,383)
(11,106,077)
(534,256)
(2,487,961)
(29,544,369)
-
-
2,847
-
-
2,847
7,639
366,708
3,100,470
200,376
(2,623,468)
1,051,725
Interest income
Expenses:
Interest expense
Other expenses
Equity accounted share of profit
Segment result before acquisition
related expenses
Acquisition related expenses
Food Lab JV establishment costs
Earn-out (expense)/adjustments
-
-
-
-
(22,113)
-
(5,257,121)
187,500
-
-
-
(22,113)
(5,069,621)
(3,602,257)
Amortisation of acquisition intangibles
(102,169)
(806,333)
(1,811,621)
(882,134)
Segment result before tax
(94,530)
(439,625)
(3,990,385)
(494,258)
(2,623,468)
(7,642,266)
Income tax
Net loss
-
-
-
-
-
515,508
(7,126,758)
Non-cash and other significant items:
Depreciation and amortisation
536,885
1,013,312
3,308,875
927,265
10,165
5,796,502
Impairment of receivables
Impairment of goodwill
Share based payments
Food Lab JV establishment costs
Earn-out expense/(adjustments)
13,745
661,357
-
-
-
9,135
16,592
-
-
22,113
5,257,121
(187,500)
-
-
62,355
-
-
39,472
661,357
62,355
22,113
5,069,621
Assets:
Segment assets
Liabilities:
Segment liabilities
5,539,615
4,822,908
23,800,462
1,965,649
1,775,649
37,904,283
2,392,239
1,242,092
1,129,497
124,790
4,207,604
9,096,222
Segment acquisitions:
Acquisition of plant and equipment
Acquisition of intangibles
Transfer of goodwill
616,192
31,500
(2,601,255)
344,235
1,406,796
451
62,115
2,429,789
131,735
103,749
2,601,255
-
-
-
-
-
-
Details on non-current assets:
Trade and other receivables
74,935
13,703
194,459
Plant and equipment
1,305,703
889,099
5,215,348
5,189
Intangibles
Goodwill
30,476
442,000
3,258,948
555,753
1,809,592
1,770,810
11,828,408
1,365,920
Equity accounted investment
Deferred tax assets
-
-
-
-
665,446
-
-
-
-
-
266,984
-
22,826
56,483
-
-
-
305,923
7,471,822
4,287,177
16,774,730
665,446
1,652,983
1,652,983
-
-
-
-
-
-
3,220,706
3,115,612
21,162,609
1,962,862
1,732,292
31,158,081
44
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2
SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2018
HAZMAT Geotechnical
$
$
Food/Enviro
Laboratory
$
Revenue:
Contracts with customers
10,866,751
7,733,170
8,206,032
501,544
Software
Unallocated Consolidated
$
$
-
$
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
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
45
-
-
-
-
-
6,136,244
8,780,845
267,467
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3
REVENUE FROM CONTRACTS WITH CUSTOMERS
Services Revenue
HAZMAT service revenue
Geotechnical service revenue
Food and environmental laboratory revenue
Software service revenue
Total service revenue
2019
$
2018
$
7,762,331
8,028,091
14,203,699
734,633
10,866,751
7,733,170
8,206,032
501,544
30,728,754
27,307,497
The Group provides a range of HAZMAT and Geotechnical consulting services to its clients. Individual contracts are
typically short term in nature and relate to a discrete project or asset. Revenue is recognised in the accounting period in
which the services are rendered. For fixed-price contracts, revenue is recognised over time based on the actual service
provided to the end of the reporting period as a proportion of the total services to be provided. This is determined based
on the actual labour hours spent relative to the total expected labour hours. Estimates of revenues, costs or extent of
progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated
revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision
become known by management.
The Group provides a range of laboratory testing services. Laboratory tests are typically short term in nature, with service
turnaround usually within a week. Laboratory revenue is recognised in the accounting period in which the laboratory
testing is performed.
Software service revenue incorporates design, implementation and support services of the OCTFOLIO software platform
and ongoing fixed-price monthly access subscription software as a service style contracts (SAAS).
For design and implementation revenue, contracts are entered into with clients to provide a defined outcome. As part of
the onboarding process, OCTFOLIO typically customises the software for its clients and provides a data migration
services. Revenue is recognised upon completion of the single performance obligation.
In the case of SAAS monthly subscription contracts, agreements are entered with clients to provide ongoing access to
the OCTFOLIO software over a fixed period of time (usually 1 to 3 years). The client pays a fixed amount on a monthly
basis in line with SAAS contract. If the services rendered by the Consolidated Entity exceed the payment, a contract asset
is recognised. If the payments exceed the services rendered, a contract liability is recognised.
The opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers are
disclosed in Notes 9 and 14.
Performance Obligations
Information about the Group’s performance obligations are summarised below:
HAZMAT and Geotechnical consulting services
The performance obligation is satisfied over-time as the consulting works are completed and payment is generally due
within 30 days from completion of the services. Consulting services are generally short term in nature with most contracts
completed within 30 days.
Laboratory revenue
The performance obligation is satisfied upon completion of the laboratory tests and delivery of results to the client. Payment
is generally due within 30 days from completion of the services.
Software revenue
The performance obligation for design and implementation revenue is the delivered product to the end client.
The performance obligation for ongoing software subscriptions revenue is the provision of access to the platforms to the
end client.
Payment is generally due within 30 days from completion of the services.
46
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4
EXPENSES
Employee benefits expenses
Note
Defined contribution superannuation expense
Other employee benefits expenses
Total employee benefits expenses
2019
$
2018
$
795,025
15,922,799
16,717,824
900,376
13,366,991
14,267,367
Employee benefits expense – share based payments
Remuneration expense on Morrison Geotechnic earn-out
Remuneration expense on Analytica earn-out
22
15
15
62,355
-
35,181
(62,500)
5,257,121
2,942,615
Contributions to defined contribution plans are expensed when incurred.
Rental expense relating to operating leases
Minimum lease payments
1,081,855
1,053,029
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
55,364
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.
47
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)
2019
$
2018
$
386,909
(61,097)
325,812
(154,668)
(686,652)
-
(841,320)
1,010,412
43,109
1,053,521
46,447
(325,210)
117,068
(161,695)
Total income tax expense/(benefit)
(515,508)
891,826
Reconciliation of income tax expense to prima facie tax payable:
Profit/(loss) before tax, excluding profit/(loss) for equity accounted investments
(7,645,113)
(583,494)
Prima facie tax at 27.5% (2018: 30%)
(2,102,406)
(175,048)
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
Impairment of goodwill
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/(benefit)
12,351
1,471,994
(51,563)
17,148
181,873
43,257
(427,346)
(27,065)
-
(61,097)
(515,508)
9,862
823,932
56,250
-
-
14,433
729,429
2,220
117,068
43,109
891,826
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.
48
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
Lease liabilities
Carried forward tax losses
Set-off of deferred tax liabilities
Net deferred tax assets
2019
2018
$
-
-
-
13,621
263,387
13,059
183,707
1,640,765
2,114,539
(461,556)
1,652,983
$
-
252,973
252,973
24,666
272,562
8,021
193,523
1,461,099
1,959,871
(672,123)
1,287,748
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 2019
1 July 2018
Charged/credited to
Profit or
Loss
Directly to
equity
Acquisition of
subsidiary
Change in
future tax
rate
30 June 2019
Employee benefits payable
24,666
(11,045)
Employee leave provisions
Provision for doubtful debts
Lease liabilities
Carried forward tax losses
272,562
8,021
193,523
1,461,099
1,959,871
(9,175)
5,038
(9,816)
179,666
154,668
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,621
263,387
13,059
183,707
1,640,765
2,114,539
49
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5
INCOME TAX (CONT’D)
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
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:
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
2019
$
2018
$
1,076,241
1,760,485
242,054
15,718
1,334,013
(461,556)
872,457
245,204
14,976
2,020,665
(672,123)
1,348,542
Year ended June 2019
1 July 2018
Charged/credited to
Profit or
Loss
Directly to
equity
Acquisition of
subsidiary
Intangible assets
1,760,485
(684,244)
Plant and equipment
Other amounts
245,204
14,976
(3,150)
742
2,020,665
(686,652)
-
-
-
-
-
-
-
-
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
30 June 2019
-
-
-
-
1,076,241
242,054
15,718
1,334,013
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
50
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 did not yet qualify for a reduction in tax rates during the year ended 30 June 2018 as its aggregated
turnover for the year ended 30 June 2018 exceeded $25 million. HRL Holdings Limited did qualify for the year ended 30
June 2019 when the threshold increased to $50 million. Accordingly, while there is no change to the tax rate used to
calculate current tax in 2018, there was 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.
51
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
(7,126,758)
(1,503,797)
2019
$
2018
$
Non-cash items in profit/(loss) after income tax
Depreciation and amortisation
Gain on sale of plant and equipment
Impairment of receivables
Impairment of goodwill
Share based payments
Equity accounted share of profit/(loss)
Earnout adjustment
Accrued interest revenue
Movements in operating assets and liabilities
Trade and other receivables
Inventories
Other assets
Trade and other payables
Provisions
Tax balances
5,796,502
3,418,913
(55,364)
39,472
661,357
62,355
(2,847)
(187,500)
(5,347)
(684,636)
(132,058)
108,177
450,157
(2,540,221)
(1,522,410)
(8,961)
20,330
-
35,181
28,477
(187,500)
(11,988)
231,932
(558,101)
151,771
(55,849)
2,899,545
(50,791)
Net cash provided by/ (used in) operating activities
(5,139,121)
4,409,162
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 $1,597,702 through finance leases during the year (2018: $988,532).
Cash and Cash Equivalents
Cash at bank and on hand
Cash on deposit
941,051
90,142
1,031,193
3,430,315
1,962,427
5,392,742
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.
52
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 EARNINGS PER SHARE
Earnings
2019
$
2018
$
Earnings used to calculate basic and diluted EPS
(7,126,758)
(1,503,797)
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
493,402,627
391,037,807
-
-
493,402,627
391,037,807
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 2019 (2018: Nil) and no dividend is recommended for
the current year.
53
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9
TRADE AND OTHER RECEIVABLES
CURRENT
Trade receivables
Provision for expected credit losses
Contract assets
Other receivables
NON-CURRENT
Bonds and other deposits
Loan receivable from CAIQTest Pacific Limited
2019
$
2018
$
4,729,810
(47,119)
4,682,691
296,809
12,817
4,026,906
(28,815)
3,998,091
240,882
8,679
4,992,317
4,247,652
111,464
194,459
305,923
86,106
181,361
267,467
Trade receivables and contract assets are amounts due from customers for goods sold or services performed in the
ordinary course of business and are generally due for settlement within 30 days and therefore are all classified as current.
If the Group performs services to a customer before the customer pays consideration or before payment is due, a contract
asset is recognised. If the customer pays consideration or the Group has a right to an amount of consideration that is
unconditional before the Group transfers a good or service to the customer, a contract liability is recognised.
Other receivables generally arise from transactions outside the usual operating activities of the Group. Non-current bonds
and other deposits receivables are due and payable within three years from the end of the period. The loan receivable
from CAIQTest Pacific Limited has no fixed repayment date and accrues interest at a rate of 5.77%.
Impairment of trade receivables and contract assets
The Group recognised a loss of $39,472 during the year (2018: $20,330) in relation to impaired receivables.
Movement in the provision for impairment of trade receivables and contract assets was:
Opening balance
Impaired receivables provided for during the period
Receivables written off during the year as uncollectible
Closing balance
Loss Allowance – 30 June 2019
2019
$
28,815
39,472
(21,168)
47,119
2018
$
8,609
20,330
(124)
28,815
Expected loss rate
Gross Receivables
Loss Allowance
Government agencies and national utilities
Current
Less than 1 month past due
More than 1 month past due
More than 2 months past due
More than 3 months past due
Older
Contract assets - current
Total
0%
0.05%
1.00%
2.50%
5.00%
10.00%
40.00%
0.05%
883,039
2,983,781
550,503
194,947
48,096
30,634
37,043
296,809
5,026,619
-
11,459
5,505
4,874
2,405
3,063
14,817
1,527
47,119
54
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9
TRADE AND OTHER RECEIVABLES (CONT’D)
The Group applies the AASB 9 simplified approach to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables and contract assets.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit
risk characteristics and the days past due. The contract assets relate to the Group’s right to consideration for performance
complete to date before payment is due and have substantially the same risk characteristics as the trade receivables for
the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a
reasonable approximation of the loss rates for the contract assets.
The expected loss rates are based on the payment profiles of sales over the last 3 years. The historical loss rates are
adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers
to settle the receivables. The Group has identified the GDP, country specific unemployment rates and the outlook for
customer industries as the most relevant factors, and accordingly adjusts the historical loss rates based on expected
changes in these factors.
Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that
there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment
plan with the Group, and a failure to make contractual payments for a period of greater than 120 days past due.
Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit.
Subsequent recoveries of amounts previously written off are credited against the same line item.
Impairment before 1 July 2018
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.
Impact on receivables upon transition to AASB 9
The Group adopted AASB 9 from 1 July 2018. The key impact upon adoption of AASB 9 was the change in impairment
model applicable to trade receivables balances. For trade receivables and contract assets that do not contain a significant
financing component in accordance with AASB 15 (so generally trade receivables and contract assets with a maturity of
12 months or less), lifetime expected credit losses are required to be recognised.
The Group has applied the lifetime expected credit loss model to its receivable balances at 1 July 2018. The calculated
opening provision for expected credit losses was $46,775. Given the calculated expected credit losses at 1 July 2018 is
immaterial, no transitional adjustments have been made in these financial statements.
NOTE 10
INVENTORIES
CURRENT
Laboratory consumables
2019
$
2018
$
690,159
558,101
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 $2,268,515 (2018: $655,906).
55
NOTES TO THE FINANCIAL STATEMENTS
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
2019
$
430,961
(117,844)
313,117
1,884,407
(591,690)
1,292,717
758,893
(405,299)
353,594
2018
$
412,443
(65,446)
346,997
1,370,689
(356,376)
1,014,313
578,604
(246,638)
331,966
7,990,102
6,329,110
(2,477,708)
(1,068,129)
5,512,394
5,260,981
11,064,363
(3,592,541)
7,471,822
8,690,846
(1,736,589)
6,954,257
Balance at 1 July 2018
Additions
Disposals
Foreign exchange movements
Leasehold
Improvements
346,997
Motor
Vehicles
1,014,313
28,843
-
1,573
589,781
(31,874)
11,812
Office Furniture
and Equipment
Lab and field
Equipment
Total
331,966
171,409
-
18,308
5,260,981
6,954,257
1,639,756
2,429,789
(35,749)
195,989
(67,623)
227,682
Depreciation
(64,296)
(291,315)
(168,089)
(1,548,583)
(2,072,283)
Balance at 30 June 2019
313,117
1,292,717
353,594
5,512,394
7,471,822
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
56
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11 PLANT AND EQUIPMENT (CONT’D)
Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and
impairment losses. In the event the carrying amount of plant and equipment is greater than the estimated recoverable
amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are
recognised in profit or loss. A formal assessment of recoverable amount is made when impairment indicators are present.
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
Total intangible assets
Movements during the year
Year ended 30 June 2019
Balance at 1 July 2018
Additions
2019
$
3,639,333
(2,020,642)
1,618,691
2018
$
3,644,891
(871,873)
2,773,018
4,879,491
4,891,183
(2,959,086)
(1,444,805)
1,920,405
3,446,378
2,110,927
(1,403,627)
707,300
120,502
(79,721)
40,781
1,836,319
(416,893)
1,419,426
181,622
(69,347)
112,275
4,287,177
7,751,097
Customer
Contracts
2,773,018
Licences and
Accreditations
3,446,378
Software
Other
Intangibles
Total
1,419,426
112,275
7,751,097
Foreign exchange movements
(5,558)
(11,692)
7,624
-
-
266,984
-
2,941
266,984
(6,685)
Amortisation
(1,148,769)
(1,514,281)
(986,734)
(74,435)
(3,724,219)
Balance at 30 June 2019
1,618,691
1,920,405
707,300
40,781
4,287,177
57
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12
INTANGIBLE ASSETS (CONT’D)
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
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
Foreign exchange movements
Amortisation
Balance at 30 June 2018
73
(633,791)
2,773,018
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.
58
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 GOODWILL
Opening balance
Goodwill arising on acquisition of Analytica
Impairment of AAC Environmental goodwill
Foreign exchange movements
Impairment tests for goodwill
2019
$
16,884,462
-
(661,357)
551,625
2018
$
8,186,266
8,780,845
-
(82,649)
16,774,730
16,884,462
Goodwill is monitored by management at the Company level for Precise Limited, Analytica Laboratories Limited, Morrison
Geotechnic Pty Ltd and OCTFOLIO Pty Ltd and at the geographic branch level for AAC Environmental (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.
With the conclusion of the loose fill asbestos investigation (Mr Fluffy) program in the ACT and surrounding areas, and the
limited growth opportunities in the region, the Company closed the OCTIEF ACT branch during the period. The OCTIEF
ACT operations were acquired through the acquisition of AAC Environmental (renamed to OCTIEF ACT Pty Ltd). With the
closure of this branch, the goodwill related to this CGU has been impaired down to $Nil.
Transfer of New Zealand regional labs goodwill
From 1 March 2019, Analytica Laboratories Limited assumed control and rebranded of all of Precise Limited’s regional
laboratories (Auckland, Wellington, Christchurch and Dunedin). Moving forward Precise Limited will focus purely on
sampling and consulting activities.
From March 2019 onwards, Group reporting lines were modified to reflect this restructure. Precise laboratory staff became
employees of Analytica and the regional labs were put under the control of Analytica management.
A reallocation of goodwill originally attributed to Precise was performed at the date of reorganisation based up a relative
value approach which determined the value of the transferred regional laboratories and the remaining sampling and
consulting business:
Opening balance
Transfer of goodwill attributable to regional laboratories
Foreign exchange movements
Goodwill
Analytica
$
8,860,393
2,601,255
366,760
11,828,408
Goodwill
Precise
$
4,225,982
(2,601,255)
184,865
1,809,592
59
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
Morrison
OCTFOLIO
Approach
Sales volume annual growth
1.5%
1.5%
1%
8%
Average annual growth rate over the five-year forecast period based on management’s expectations of
market development.
Sales price annual growth
1%
1%
1%
2% Average annual growth rate over the five-year forecast period based on current industry trends
Fixed costs per annum
$1.3M
$2.8M
$1.6M
$0.3M
Annual capital expenditure
$100,000
$1,500,000
$150,000
$10,000
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.
Long term growth rate
2%
2%
2%
2%
The rates are consistent with forecasts included in industry reports.
Pre-tax discount rate
20%
18%
18%
20%
Goodwill attributable to CGU
$1,809,592
$11,828,408
$1,770,810
$1,365,920
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.
60
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 TRADE AND OTHER PAYABLES
CURRENT
Trade payables
Contract liabilities
Other payables and accrued expenses
2019
$
2018
$
686,028
338,058
894,237
1,918,323
592,987
-
946,258
1,539,245
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
Analytica earn-out
OCTFOLIO contingent consideration at fair value
NON-CURRENT
Employee benefits
Employee Benefit Provisions
918,483
438,093
-
1,356,576
940,645
2,942,615
187,500
4,070,760
32,405
45,941
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.
61
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 PROVISIONS (CONT’D)
OCTFOLIO contingent consideration at fair value
On 13 April 2017, HRL acquired 100% of the issued capital of Integrated Holdings Group Limited. The agreed purchase
consideration was:
initial payment on completion of the IHG acquisition of $2,750,000 in cash; and
earn-out consideration of up to $750,000 in cash.
The amount of earn out consideration is based on OCTFOLIO’s earnings before interest and taxes (EBIT) for the 24 months
after settlement:
Tranche 1
12 Months
Post-Acquisition EBIT
Earn Out Consideration
Less than $300,000
Nil
More than $300,000
$375,000
Tranche 2
13 Months to 24 Months
Post-Acquisition EBIT
Earn Out Consideration
Less than $450,000
Nil
More than $450,000
$375,000
Payment of the earn-out consideration is not contingent on any individual providing ongoing service. As per the principles
and guidance as set out in AASB 3, the value of the estimated earn-out is reflected as an increase in the total consideration
paid for 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 $450,000 for the 12 months ended 13 April 2019. Accordingly, the previously
recognised provision of $187,500 has been reversed in profit or loss.
62
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 PROVISIONS (CONT’D)
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. Analytica exceeded an EBITDA of NZ$4,850,000 for the 12 months ended 30
November 2018, resulting in an available earn-out of NZ$11,000,000.
As at 30 June, the vendors had performed 19 months of the 24-month service period (79.17%). Accordingly, an amount
of NZ$5,500,000 (AUD $5,257,121) has been recognised in profit or loss for this year.
Movements during the year
Opening balance
Morrison Geotechnic earn-out expense/(adjustment)
OCTFOLIO earn-out recognition/(adjustment)
Analytica earn-out expense recognised
Analytica earn-out payments made
Foreign exchange movements
2019
$
3,130,115
-
(187,500)
5,257,121
(7,885,682)
124,039
438,093
2018
$
437,500
(62,500)
(187,500)
2,942,615
-
-
3,130,115
63
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 BORROWINGS
CURRENT
Finance leases
Bank loans
NON-CURRENT
Finance leases
Bank loans
2019
$
759,011
2,279,675
3,038,686
2018
$
754,804
-
754,804
976,177
583,333
220,773
-
1,559,510
220,773
Bank loans and insurance financing
Bank loans (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 loans are secured against all current and non-current assets of the Group by floating charge. The Group has two
bank loans facilities:
$3M interest only facility with a variable interest rate of 4.575% per annum on the drawn balance and a facility line
fee of 1% on the total available balance. The facility has no expiry date but is subject to annual review by Westpac.
$1M 3 year amortising bank bill facility with a variable interest rate of 5.060% per annum. The facility expires in March
2022.
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 4.57% - 5.95% per annum and expire between July 2019 and February 2024.
Reconciliation of cash and non-cash movements in borrowings from financing activities
Year ended 30 June 2019
Finance leases
Bank loans
Opening
Balance
Cash flows
Non-cash Finance
lease additions
Closing
Balance
1,114,960
(1,019,824)
1,640,052
-
1,114,960
2,863,009
1,843,185
-
1,640,052
1,735,188
2,863,009
4,598,197
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
64
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
Bank loans
Facilities used at balance date
Finance leases and equipment financing
Bank loans
Unused facilities at balance date
Finance leases and equipment financing
Bank loans
Covenants
The bank loans are subject to the below covenants:
Debt Service Cover Ratio greater than 1
2019
$
2018
$
2,565,657
3,951,267
6,516,924
1,735,188
2,863,009
4,598,197
830,469
1,088,258
1,918,727
3,811,262
-
3,811,262
1,114,960
-
1,114,960
2,696,302
-
2,696,302
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 3.5 months of 30 June and 31 December a compliance certificate (and relevant supporting
information as set out in the agreement) that states both the above covenants have been met.
There were no breaches of covenants during the period.
Assets pledged as security
Finance leases are secured by mortgage over the relevant assets which at 30 June 2019 had carrying values of $1,981,884
(2018: $933,621).
Defaults and breaches
During the current and prior year, there were no defaults or breaches on any of the loans.
65
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17 CONTRIBUTED CAPITAL
2019
$
2018
$
493,402,627 fully paid ordinary shares (June 2018: 493,402,627)
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
2019
Number
2018
Number
2019
$
2018
$
493,402,627
244,186,406
38,162,084
16,349,948
-
-
-
-
11,764,736
176,500,000
-
60,951,485
-
-
-
-
1,000,002
15,002,500
(590,272)
6,399,906
Balance at end of period
493,402,627
493,402,627
38,162,084
38,162,084
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
2019
$
214,560
-
214,560
2018
$
(429,393)
238,817
(190,576)
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.
66
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.
67
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
clients/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 clients.
FY2018 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.
68
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 comprehensive income 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.
Movements during the year
Opening balance
Acquired through business combinations
Investment in Food Lab Pacific Limited
Share of profits/(loss)
Foreign exchange movements
Closing balance
CAIQTest (Pacific) Limited
2019
$
608,894
-
47,414
2,847
6,291
665,446
2018
$
-
636,248
-
(28,477)
1,123
608,894
As part of the Analytica acquisition in the prior year, 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
Foreign exchange movements
Carrying amount
1,295,353
518,541
1,813,894
420,533
1,640,130
2,060,663
(64,160)
695,828
(455)
631,213
756,072
457,896
1,213,968
130,561
1,309,519
1,440,080
(58,789)
667,683
-
608,894
69
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20
EQUITY ACCOUNTED INVESTMENTS (CONT’D)
Revenue
Cost of sales
Other expenses
Finance costs
Profit/(loss) before tax
Income tax
Profit/(loss) after tax
12 months
ended
June 2019
$
2,492,288
(879,470)
(1,514,392)
(35,326)
63,100
7 months
ended
June 2018
$
1,057,767
(505,248)
(670,505)
(34,132)
(152,118)
-
42,591
63,100
(109,527)
HRL’s share of profit/(loss) (26%)
16,406
(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 2019.
CAIQTest (Pacific) Limited had no contingent liabilities or capital commitments as at 30 June 2019.
Food Lab Pacific Limited
During the period HRL entered into an agreement with MilkTestNZ to create a new joint venture company which will initially
provide analytical testing service to the wider New Zealand dairy industry. The joint venture agreement represents an
expansion of the existing strategic alliance between HRL and MilkTestNZ, which is currently focussed on liquid milk testing.
The following table illustrates the summarised financial information of the Group’s investment in Food Lab Pacific Limited:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities (shareholder loans)
Total liabilities
Equity
HRL’s share of equity (50%)
Foreign exchange movements
Carrying amount
Other expenses
Loss after tax
Income tax
Loss after tax
HRL’s share of loss (50%)
2019
$
56,521
11,337
67,858
27,589
-
27,589
20,135
14,098
34,233
(27,118)
(27,118)
-
(27,118)
(13,559)
70
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20
EQUITY ACCOUNTED INVESTMENTS (CONT’D)
Food Lab Pacific Limited requires a board resolution to distribute its profits. No dividends were paid or declared for the
financial period ending 30 June 2019.
Food Lab Pacific Limited had no contingent liabilities or capital commitments as at 30 June 2019.
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
2019
$
2018
$
8,835
32,975,215
32,984,050
2,409,093
606,022
3,015,115
677,593
34,316,310
34,993,903
117,294
-
117,294
29,968,935
34,876,609
49,200,617
-
(15,363,081)
49,200,617
35,181
(14,359,189)
29,968,935
34,876,609
(4,934,848)
411,889
-
-
(4,934,848)
411,889
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.
71
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
2019
%
100%
100%
-
100%
100%
100%
-
100%
-
100%
100%
2018
%
100%
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.
72
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:
Movements
Issued
Exercised
Expired /
Forfeited
30 June
2019
Expiry Date
Tranche Exercise
30 June 2019
30 June 2019
30 June 2019
30 June 2020
30 June 2021
1
1
1
2
2
Price
$Nil
$Nil
$Nil
$Nil
$Nil
Vesting
Price 1
$0.156
$0.194
$0.234
$0.234
$0.234
1 July
2018
802,422
802,422
-
-
802,421
284,287
284,287
284,288
2,407,265
852,862
-
-
-
-
-
(802,422)
(802,422)
(1,086,708)
(284,287)
(284,288)
(3,260,127)
-
-
-
-
-
-
The performance shares have the following key terms and conditions:
Long Term Incentive Performance Share Plan – Tranche 1
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:
Secondary Vesting Conditions
1. First 33% of the performance shares vest at 30 June 2019
2. Next 33% performance shares vest at 30 June 2020
3. Final 34% performance shares vest at 30 June 2021
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.
73
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 SHARE BASED PAYMENTS (CONT’D)
Long Term Incentive Performance Share Plan – Tranche 2
Primary Vesting Conditions
HRL share price remains above $0.234 for 14 consecutive trading days prior
to 30 June 2019.
The Performance Shares will vest in proportion to the number of years’
service after the plan is implemented:
Secondary Vesting Conditions
1. HRL share price increases 33% within 1 year; or
2. HRL share price increases 66% within 2 years; or
3. HRL share price increases 100% within 3 years.
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.
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
Tranche 2
15 August 2018
$Nil
See above table
$0.18
3 years
65%
Nil
1.75%
Binomial
$0.1394
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.
74
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 SHARE BASED PAYMENTS (CONT’D)
Options
During FY2017, 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
2018
1,600,000
1,600,000
1,600,000
4,800,000
Movements
Issued
Exercised
Expired
-
-
-
-
-
-
-
-
30 June
2019
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 0.5 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:
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
2019
$
2018
$
Performance shares issued to senior management
62,355
35,181
75
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23
RELATED PARTY TRANSACTIONS
Key Management Personnel Compensation
Short-term benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
1,319,676
88,918
1,258
-
19,096
1,428,948
866,375
81,775
(2,341)
-
44,580
990,389
Detailed remuneration disclosures are provided in the remuneration report on pages 17 to 30.
Transactions with related parties
Transaction
Entity
Rental of office space 1
Paget Developers
Association
Darren Anderson
Kevin Maloney
1 Services provided from 1 July 2017 to 30 November 2017.
All of the above transactions were based on normal commercial terms and conditions.
2019
$
-
2018
$
44,000
76
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 2019. 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
2019
$
2018
$
1,031,193
4,682,691
309,626
194,459
5,392,742
3,998,091
249,561
181,361
6,217,969
9,821,755
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.
77
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
FINANCIAL RISK MANAGEMENT (CONT’D)
The remaining contractual maturities of the financial liabilities are:
30 June 2019
Trade payables
Other payables
Bank Loans
Finance leases
30 June 2018
Trade payables
Other payables
OCTFOLIO contingent
consideration
Finance leases
Market Risk
Fixed
rate
-
Floating
rate
-
1 year or less
$
686,028
1 to 5 years
$
-
Over 5 years
$
-
-
-
-
894,237
4.90%
2,279,675
5.08%
-
827,866
4,687,806
-
583,333
1,044,773
1,628,106
-
-
-
-
Total
$
686,028
894,237
2,863,008
1,872,639
6,315,912
Fixed
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
-
-
374,030
374,030
-
-
-
-
Total
$
592,987
946,261
187,500
1,160,243
2,886,991
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)
2019
$
2018
$
(13,984)
13,984
24,292
(24,292)
78
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)
2019
$
2018
$
744,230
3,015,535
3,759,765
596,079
443,958
1,040,037
3,424,528
2,813,701
6,238,229
531,266
411,262
942,528
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
2019
$
2018
$
271,973
(271,973)
529,570
(529,570)
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).
79
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
FINANCIAL RISK MANAGEMENT (CONT’D)
Recurring fair value measurements
The following financial instruments are subject to recurring fair value measurements:
Contingent consideration – level 3
2019
$
-
2018
$
187,500
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
187,500
375,000
-
(187,500)
-
-
(187,500)
187,500
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.
80
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
2019
$
2018
$
700,578
545,770
1,246,348
893,423
1,127,484
2,020,907
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)
827,866
1,044,773
1,872,639
(137,451)
1,735,188
786,213
374,030
1,160,243
(45,283)
1,114,960
759,011
976,177
754,804
360,156
1,735,188
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 $55,825 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 – Taxation Services
Australia taxation services - BDO (QLD) Pty Ltd
New Zealand taxation services - BDO Auckland
Total non-audit services
NOTE 28 EVENTS AFTER BALANCE DATE
There have been no other events since 30 June 2019 that impact upon the financial report.
2019
$
97,664
97,664
20,150
3,460
23,160
2018
$
86,845
86,845
68,238
-
68,238
81
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 2019 and of its
performance for the financial year ended on that date; and
the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1 to the
consolidated financial statements; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
(b)
(b)
The directors have been given the declarations by the chief executive officer and chief financial officer required by section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of directors.
Darren Anderson
Director
Brisbane
9 August 2019
82
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 2019, 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)
Giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its
financial performance for the year ended on that date; and
(ii)
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.
83
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.
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 2019 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 and a reallocation of goodwill between
CGUS’s occurred during the year.
Our procedures included, amongst others:
Assessing management’s allocation of
goodwill and assets and liabilities, including
corporate assets to Cash Generating Units
("CGU's") including an assessment of the
reallocation of goodwill that had occurred
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.
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.
84
Revenue recognition and measurement
Key audit matter
How the matter was addressed in our audit
The Group’s disclosures about revenue recognition
are included in Note 3, which details the
accounting policies applied following the
implementation of AASB 15 Revenue from
Contracts with Customers.
The assessment of revenue recognition was
significant to our audit because revenue is a
material balance in the financial statements for
the year ended 30 June 2019 and the Group was
required to change its accounting policies to align
with the new standard.
The assessment of revenue recognition and
measurement required significant auditor effort.
Our procedures included, amongst others:
Assessing the revenue recognition policy for
compliance with AASB 15 Revenue from
Contracts with Customers
Documenting the processes and assessing the
internal controls relating to revenue
processing and recognition
Tracing a sample of revenue transactions to
supporting documentation
Performing cut-off testing to ensure that
revenue transactions around year end have
been recorded in the correct reporting
period
Assessing the adequacy of the Group's
disclosures within the financial statements
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 2019, 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.
85
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 17 to 30 of the directors’ report for the
year ended 30 June 2019.
In our opinion, the Remuneration Report of HRL Holdings Limited, for the year ended 30 June 2019,
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, 9 August 2019
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.
86
HRL HOLDINGS LIMITED CORPORATE INFORMATION
DIRECTORS
Greg Kilmister (Non-executive Chairman)
Darren Anderson (Non-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
87