HRL HOLDINGS LIMITED
Appendix 4E FY2020 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 2020
Previous Corresponding Period: 30 June 2019
2.
Results for Announcement to the Market
$
Revenue from ordinary activities up 7% to:
Underlying net profit/(loss) for the period up 61% to:
32,823,441
2,464,451
Net loss for the period attributable to members improved to:
(2,495,031)
Refer to pages 9 to 14 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 2020 Financial Statements and accompanying Notes.
4.
Balance Sheet with Notes to the Statement
Refer to Page 34 of the 2020 Financial Statements and accompanying Notes.
5.
Statement of Cash Flows with Notes to the Statement
Refer to Page 36 of the 2020 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 2020 Financial Statements and accompanying Notes.
8.
Net Tangible Assets per Security
2020
$0.016
2019
$0.016
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 70 of the 2020 Financial Statements.
10.
Associates and Joint Venture Entities
Refer to Page 66 of the 2020 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 9 to 14 of the Financial Statements for the operational and financial review of the Entity.
14.
Status of Audit
The attached 2020 Financial Statements have been audited.
15.
Dispute or Qualifications if not yet audited
Not applicable.
16.
Dispute or Qualifications if audited
Not applicable.
Authorised by the Board
Paul Marshall
Company Secretary
30 July 2020
www.hrlholdings.com | ABN 99 120 896 371 | ASX Code: HRL
HRL HOLDINGS LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
30 JUNE 2020
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
81
82
86
2
CEO’S LETTER
Dear Shareholders,
Your Directors and I have much pleasure in presenting the 2020 Annual Financial Statements for the HRL Group.
Introduction and the past year in review
HRL returned strong performance for the first 9 months of FY2020 ahead of internal budgets and on track to achieve full
year broker consensus at the time, however, the fourth quarter (Q4) was heavily impacted by the effects of COVID-19.
The stage 4 lockdown in New Zealand resulted in most of HRL’s New Zealand operations being unable to trade, and
demand weakened in the Australian businesses. Despite this Q4 disruption the overall financial performance of the group
was an improvement on FY2019 across all key metrics:
Revenue $32.8M (up 7%, FY2019: $30.8M)
Underlying NPAT $2.5M (up 60%, FY2019: $1.5M)
Underlying EBITDA $5.9M (up 33%, FY2019: $4.5M)
Cashflow from operations $6.6M (up 138%, FY2019: $2.7M, excluding subsidies received and vendor earnouts)
(all figures stated on a pre-AASB 16 basis)
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 partially fulfilled including:
1.
Increase organic service development with a focus on scalable laboratory-based services;
New microbiology, GLP and expanded environmental services launched in New Zealand
2.
Integrate the business units HR, IT, finance and support services;
New microbiology and HAZMAT services launched in Australia
Single HR platform implemented for the group
IT infrastructure realignment in progress
Environmental and HAZMAT laboratories now utilising same LIMS system
Finance systems fully integrated and consistent across Group
3.
Grow earnings from the data management / software division;
Software revenues have increased to $888k (up 21%, FY2019: $735k)
Underlying EBITDA has increased to $460k (up 87%, FY2019: $246k). EBITDA margin has increased to
52%
The expansion in revenue has come from both existing module take-up and releasing new software
modules
4.
Secure new laboratory facilities for HRL’s main Hamilton NZ operation to facilitate long term growth and
improve workflow efficiencies;
New laboratory areas on Hamilton campus have been negotiated
Take up of space has been deferred to minimise cost while sample volumes remain lower due to COVID-
19 uncertainty
3
CEO’S LETTER
5.
Support HRL’s JV investments and partners to realise their strategic potential;
Foodlab Pacific remains on track with green fielding the new dairy product testing laboratory. Supported
activities include laboratory establishment, method development, accreditation applications and early sales
and marketing activities. First revenues expected in calendar 2021
CAIQTest Pacific continues to develop export testing and certification of dairy powders. Supported
activities has seen increased internal development, and strong sales growth over the second half of the
year
6.
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;
HRL was on-track pre-COVID to hit the full year broker consensus figure which was equivalent to FY2018
underlying EBITDA
The Q4 COVID-19 interruptions (full shutdown of our NZ HAZMAT division, partial shutdown of NZ
laboratories and Australian weakening) has delayed the achievement of this objective
HRL has successfully improved its social responsibility focus this year with no reportable injuries in the second half. We
are proud of our diverse workforce which now includes 48% female representation. Recycling and diversion initiatives at
our laboratories continue to drive waste reduction. We have chosen three key charities to support throughout the year.
Outlook for FY2021
HRL has built a strong balance sheet with just $1.1M net debt at year end. The Analytica vendor earnout was completed
during the year, allowing for free cashflow to be used to accelerate organic growth.
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 FY2020. I look forward to reporting a stronger FY2021 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 2020.
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
Greg Kilmister
Steve Howse
James Todd
Tracy Dare
Position
Period of Directorship
Non-Executive Chairman
Appointed 11 February 2019
Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 1 November 2019
John Taylor
Non-Executive Director
Appointed 25 November 2014, Retired 18 October 2019
Darren Anderson
Non-Executive Director
Appointed 15 September 2014, Retired 7 February 2020
Greg Kilmister
Non-Executive Chairman
B Sc (Hons), FRACI, CCEO
Mr Kilmister was the Managing Director and Chief Executive Officer of ALS Limited, a 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. 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 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 was deputy chair from 2014 to 2018 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.
5
DIRECTORS’ REPORT
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)
Tracy Dare
Non-Executive Director
BBus(Accy), GradDip (AdvAccy), CAANZ, GAICD, FIML
Tracy Dare is a Chartered Accountant and a former Partner of KPMG, following which she led the Corporate Banking
team at Suncorp before moving into various senior commercial executive roles.
A senior executive with a focus on inspirational leadership, development and implementation of strategy, M&A, customer
and markets, business growth, improvement and turnarounds. She has substantial experience in customer facing sectors,
industries undergoing disruptive change and in highly capital intensive businesses.
Tracy is also an experienced non-executive director with a particular focus on strategy, governance, business growth
commercialisation and performance, risk and financial management.
She has not been a Director of any other Australian listed company in the last three years.
Darren Anderson (retired 7 February 2020)
Former Non-Executive Director
Prior to joining HRL Holdings Limited, Mr Darren Anderson was 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.
He has not been a Director of any other Australian listed company in the last three years.
John Taylor (retired 18 October 2019)
Former 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 Laws degree,
a post Graduate Diploma in Applied Corporate Governance and is a member of the Australian Institute of Company
Directors.
He has not been a Director of any other Australian listed company in the last three years.
6
DIRECTORS’ REPORT
DIRECTOR INTERESTS IN THE SHARES AND PERFORMANCE RIGHTS OF THE CONSOLIDATED ENTITY
As at the date of this report, the interests of the Directors in the shares and performance rights of HRL Holdings Limited
are shown in the table below:
Director
Greg Kilmister
Tracy Dare
Steve Howse
James Todd
Fully Paid Ordinary
Shares
1,100,000
Performance
Rights
-
90,681
12,190,297
500,000
-
226,215
-
MEETINGS OF DIRECTORS
The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2020
and the number of meetings attended by each Director.
Directors Meetings
Audit and Risk
Committee Meetings
People and Culture
Committee Meetings
Nomination
Committee Meetings
Greg Kilmister
Tracy Dare
Steve Howse
James Todd
Darren Anderson
John Taylor
Meetings
attended
15
Eligible to
attend
15
Meetings
attended
4
Eligible to
attend
4
Meetings
attended
3
Eligible
to attend
3
Meetings
attended
1
Eligible
to attend
1
11
15
15
7
3
11
15
15
8
4
3
3
4
-
1
3
3
4
-
1
2
-
3
1
1
2
-
3
1
1
1
-
1
-
-
1
-
1
-
-
COMMITTEE MEMBERSHIP
As at the date of this report, the Group has an Audit and Risk Committee, People and Culture Committee and a
Nomination Committee.
Members acting on the Committees of the Board at the date of this report were:
Audit and Risk Committee
People and Culture Committee
Nomination Committee
Tracy Dare (Chair)
James Todd (Chair)
Greg Kilmister (Chair)
Greg Kilmister
James Todd
Greg Kilmister
Tracy Dare
James Todd
Tracy Dare
SENIOR MANAGEMENT
Paul Marshall
Company Secretary
LLB, ACA
Mr Marshall holds a Bachelor of Laws 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, Member AICD
Mr Dabelstein has been the CEO for the HRL Group since 2015. Under his leadership HRL has grown from a small
Brisbane based firm to the current Australian and New Zealand testing, inspection and certification business with over
200 staff and greater than $30mil of revenues. He has experience with acquisitions, capital markets, developing strategy
and leading a diverse and high performing team.
Mr Dabelstein has a strong financial and operational background in various roles, including previously a General Manager
with Diversified Mining Services Limited. 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 20 years in the accountancy profession in Australia, having worked in audit, and commercial roles as
financial controller for several listed companies. 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.
8
DIRECTORS’ REPORT
REVIEW OF OPERATIONS
COVID-19 Impacts
New Zealand Lockdowns
FY2020 was heavily influenced by the COVID-19 pandemic. The HRL Group was impacted primarily through the
lockdowns put in place throughout New Zealand.
In late March through to the end of April, the New Zealand Government introduced strict Alert Level 4 nationwide
lockdowns. Under Level 4 only business approved as “essential services” by the New Zealand government were allowed
to open.
For HRL this meant that Precise was completely closed during Level 4 and Analytica was only allowed to operate its food
and water testing service lines (which is approximately 50% of Analytica’s turnover). Precise and Analytica staff from
non-essential service lines were stood down on reduced pay. Both Precise and Analytica received wage subsidies
totalling NZ$1.2M from the New Zealand Government to assist in covering wage costs.
Following the reduction of the COVID-19 related restrictions to Alert Level 3 in late April most New Zealand staff were
able return to work. Alert Level 3 continued to impose a range of restrictions on domestic travel and site access which
continued to impact trading conditions. Precise staff were unable to access many client sites due to ongoing health and
safety restrictions whilst Analytica’s environmental service line remained weak as its clients faced similar restrictions.
New Zealand restrictions were further relaxed to Alert Level 2 in mid-May and all Precise and Analytica staff returned to
work by early June. Precise workloads steadily improved through June but have yet to return to pre-COVID levels of
trade. Similarly, Analytica’s environmental service line saw an improvement in volumes in June, but have yet to return to
normal trading volumes.
Analytica’s food service business lines remained strong throughout the lockdown period, as it was permitted to continue
operating, however there were efficiency losses as enhanced social distancing and health and safety procedures were
put in place.
From 8 June 2020 New Zealand reverted to Alert Level 1 which saw all domestic restrictions removed.
Australian Restrictions
The bulk of HRL’s Australian operations are located in Queensland and the Northern Territory.
OCTIEF performed well during Q4 with most of its workload being from government departments and utility providers.
There were some minor access issues for remote sites, particularly in the Northern Territory. All work was carried out
following enhanced social distancing and health and safety procedures of both OCTIEF and site owners.
OCTFOLIO operations continued uninterrupted in Q4 however business development was slowed as access to clients
was limited. The OCTFOLIO team used the opportunity to focus on software development and enhancements.
OCTFOLIO staff worked remotely when possible and followed enhanced social distancing and health and safety
procedures when at the workplace.
Morrison Geotechnic experienced a sharp decline in revenues in Q4. Morrison Geotechnic is directly exposed to the
residential development sector of South East Queensland. From March several developers began to delay or postpone
planned releases of residential subdivision projects which comprise a major component of Morrison Geotechnic’s
workload. Offsetting this to a small extent was the award of some small public works projects, primarily from local
councils. The other major component of Morrison Geotechnic’s historical revenues have come from large infrastructure
projects such as highway redevelopments. The Queensland Government has now started to release tenders for these
projects.
OCTIEF and OCTFOLIO did not receive any subsidies beyond the universally available ATO cashflow boost scheme and
QLD government payroll tax refunds. Morrison Geotechnic is registered for the JobKeeper program and received the
ATO cashflow boost scheme and QLD government payroll tax refund. No staff were stood down during Q4. Morrison
Geotechnic staff took extra leave during May and June and overtime was significantly reduced to manage payroll costs.
The Group also received other COVID-19 related benefits in the form of government loans and payment deferrals. Refer
to page 13 of this report for details.
9
DIRECTORS’ REPORT
Trading Review and Outlook
Food and Environmental Laboratory Services
The Food and Environmental Laboratory division incorporates the New Zealand based Analytica business unit.
Despite the impact of COVID-19 during Q4, Analytica continues to perform well with revenue up 14% compared with the
prior period, highlighted by:
Honey revenues were up 9% on the prior year due to a combination of high production from apiaries and strong
overseas demand for Manuka honey. Honey testing continued throughout all stages of the lockdown.
Milk testing was again strong with revenues growing 17% on prior year. There was no material impact on testing
volumes due to COVID-19. Beta casein testing increased markedly with Analytica now established as the clear
market leader in this field.
Food origin testing continues to grow with revenues up 16% on the prior year. Demand for origin testing continued
through Q4 however receipt of international samples is experiencing some delays.
Environmental testing services (laboratory testing of air, water and soil) continued its development with strong
growth in revenues before the lockdowns. This service line was on track to become Analytica’s largest segment
in FY20 but was shut down during Level 4 lockdowns as it was not classed as an “essential service” by the New
Zealand government. Despite this setback revenues grew 34% on the prior year. A large portion of the testing
samples came from land redevelopment projects which may take time to return to pre-COVID levels.
Other services lines (timber and drugs of abuse) fell slightly (2 – 5%) because of the lockdowns.
The outlook for FY21 is mixed across the service lines. Food testing services such as honey and dairy held up well during
the lockdowns with little change in sample volumes. These markets will be more influenced by the underlying production
seasons and the overall demand for products, especially from international markets.
Environmental sample volumes are likely to be impacted by wider economic performance across New Zealand, especially
in housing and construction. Like many countries New Zealand is expecting a weakening in economic growth over the
short term. Government infrastructure spending will have an influence with projects expected to be announced in the
lead up to the New Zealand federal election in September.
Analytica continues to invest in new service offerings and business development initiatives to capitalise on both short-
term opportunities and secure growth over the longer term.
HAZMAT
The HAZMAT division, which incorporates the OCTIEF business unit in Australia and the Precise business in New
Zealand, had a very positive year with earnings substantially higher than prior year despite Precise being shut down for
a large part of Q4.
Up until the end of March the Precise business performed above expectations and generated strong profits. Precise was
able to return to normal operations from late May. However, demand was low as clients re-established their operations
with tendering opportunities increasing through late June and July.
Australian operations for OCTIEF also enjoyed a positive year with HAZMAT revenues up on prior year due to increased
demand from the Queensland and Northern Territory Governments and major utility providers. This demand continued
through Q4 with only minor impact from COVID-19. During the year OCTIEF undertook a large-scale asbestos and lead
paint laboratory contract from a major utility provider which was completed in February.
The outlook for FY21 is cautiously optimistic. Precise has positioned itself as the leading asbestos consulting firm in New
Zealand which gives it a strong presence in tendered opportunities and its wide branch network offers some protection
from region specific downturns. Since returning to work from lockdowns the team has re-engaged with current and
prospective clients to market its services aggressively. Precise services are tied to the housing and construction sectors
with the overall performance of those sectors impacting the asbestos and HAZMAT client demand. Government stimulus
(or lack thereof) for the housing and construction sector will also likely have an impact on the outlook for Precise.
OCTIEF revenues have remained consistent over the last six months and are likely to remain so in the immediate short-
term. A large portion of OCTIEF’s revenues are derived from the Queensland Government and Government controlled
utility providers. The Queensland elections are to be held at the end of October and changes to either the Government,
spending programs or policies may have a direct impact on OCTIEF, either positive or negative.
10
DIRECTORS’ REPORT
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 rapid growth trajectory highlighted with the securing of a 5 year, $1.5M contract with a key
government agency. Software revenues grew by 21% on the prior year. COVID-19 did impact OCTFOLIO’s ability to
engage with clients in Q4 but with restrictions easing the team is now ramping up business development activities.
The outlook for FY21 is positive, with the software platform being upgraded to target a wider range of industries and
smaller commercial operators. OCTFOLIO is cognisant that IT budgets for many businesses may be constrained in the
short-term which may moderate growth opportunities.
Geotechnical
The Geotechnical division incorporates the Morrison Geotechnic business unit in Australia. Revenues for Morrison
Geotechnic fell 15% from the prior year, largely attributed to the loss of a number of senior engineering staff late in the
first half of the year and a sharp slowdown in Q4 as many land subdivision projects were put on hold by developers.
The outlook for FY21 is flat. Project tender opportunities are down on historical levels with increased competition amongst
geotechnical firms. Of late Morrison Geotechnic has been successful in winning smaller public works programs, however
forward visibility on these programs is low. Key opportunities for Morrison Geotechnic are in upcoming large infrastructure
projects such as highway redevelopments. Queensland Government policy and the election process will dictate the
number and scale of the projects released.
Joint Ventures
CAIQTest (Pacific) Limited
The Group has 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 second half of the year was very encouraging with both revenues and profit
showing strong improvements.
Foodlab Pacific Limited
During the prior year HRL entered into an agreement with MilkTestNZ to create a new 50:50 joint venture company which
will provide analytical testing services to the New Zealand dairy products industry. The joint venture agreement represents
an expansion of the existing strategic alliance between HRL and MilkTestNZ, which focusses on liquid milk testing.
During the year, Foodlab continued method development with its foundation technical staff. This green field venture will
progressively work through method development, certification/accreditation and marketing activities, with first revenues
expected in calendar 2021.
Other Key Milestones
Analytica Earnout Completed
As part of the acquisition of Analytica Laboratories, the vendors had the opportunity to achieve an earnout payment of up
to NZ$11M. Analytica easily exceeded the maximum threshold EBITDA target of NZ$4,850,000 for the 12 months ended
30 November 2018. Payment of the remaining earn-out consideration ($2,584,092) was completed during the year.
11
DIRECTORS’ REPORT
FINANCIAL REVIEW
Key financial headlines of the HRL Group’s 30 June 2020 results are:
Revenues of $32,823,441
Underlying EBITDA of $6,866,509
Underlying profit after tax of $2,464,451 1
Statutory loss after tax of $2,495,031
Cashflow provided by operations of $6,313,486. Excluding Analytica earn-out payments and government subsidies
received, cashflows provided by operations were $7,408,851
Net cash/(borrowings) of ($1,076,750)
1 Underlying profit reflects statutory profit as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities
of the Group, in accordance with AICD/Finsia principles of recording underlying profit. Underlying profit has not been audited.
The following table summarises key reconciling items between the Group’s statutory profit and underlying profit after tax:
June 2020
(Pre AASB 16)
$
June 2019
(Pre AASB 16)
$
June 2020
(Post AASB 16)
$
Underlying EBITDA 1
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 from acquisitions
Earn-out expenses/adjustments
Lapsed expired management performance shares
Impairment of goodwill (OCTIEF ACT branch closure)
One-off restructure costs
Equity accounted share of profits/(loss)
Non-operating tax
5,903,855
(2,257,428)
(244,823)
(937,153)
2,464,451
-
(2,539,667)
(2,157,570)
(41,441)
-
-
(512,895)
292,091
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
6,866,509
(3,100,938)
(363,967)
(937,153)
2,464,451
-
(2,539,667)
(2,157,570)
(41,441)
-
-
(512,895)
292,091
Statutory profit/(loss) after income tax
(2,495,031)
(7,126,758)
(2,495,031)
1 During the period the Group transitioned to AASB 16 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 incremental borrowing rate at 1
July 2019. FY2020 EBITDA has been shown above calculated under both AASB 16 and the previous AASB 117 to provide a comparison
with FY2019.
2 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-recurring
in nature. These items are included in the Group’s consolidated statutory result but excluded from the underlying result.
12
DIRECTORS’ REPORT
Comparison with the Prior Period
Underlying profit after tax for the year increased by +61% compared with the prior year. The key reasons for the increase
were:
Factors increasing profits:
Higher earnings from Analytica on the back of 14% revenue growth;
Higher earnings from the HAZMAT division, primarily due to:
o
o
strong asbestos consulting revenues in both New Zealand and Australia; and
large-scale asbestos and lead paint laboratory contract from a major utility provider
Decreased corporate overhead costs.
Factors decreasing profits:
Lost revenues related to New Zealand COVID-19 lockdowns and weaker trade in Australia, offset in part by
government wage subsidies received;
Weaker trading conditions for Geotechnic services;
Higher borrowing costs.
COVID-19 Assistance and Support Received
Subsidies
During the year, the Group received several COVID-19 related support subsidies from Australia and New Zealand
Governments as outlined below:
Government Subsidy
Start Date
New Zealand COVID-19
Wage Subsidy
Australia JobKeeper
QLD payroll tax refund
ATO cashflow boost
25 March 2020
30 March 2020
One-time refund of 2 months
payroll tax
31 March 2020
Program
Duration
12 weeks
6 months
NA
6 months
Subsidy
FY2020
Estimated
Subsidy FY2021
1,146,331
144,000
54,396
172,729
1,517,456
-
432,000
-
170,000
602,000
Government Loans
The Group has two government support loans facilities:
QLD Government
$250,000 loan with the QLD Government with a fixed interest rate of 2.10% per annum. The loan is repayable over 10
years. The loan is secured by a $250,000 charge against OCTIEF Pty Ltd.
New Zealand Government
NZ $55,000 loan with a fixed interest rate of 3.00% per annum. The loan is repayable over 2 years. The loan is
unsecured.
13
DIRECTORS’ REPORT
Payment Deferrals
Loans
Westpac Australia has granted 6-month payment deferrals on bank bills and equipment finance leases. The amount of
loan principal and interest deferred at 30 June 2020 was $500,250. Repayments on deferred loans recommence in
October with the initial loan periods extended by 6 months.
Other Payables
The Australian Tax Office has granted 6-month payment deferrals of certain GST and PAYG employee tax liabilities due
for repayment in November 2020. The amount accrued at 30 June 2020 was $574,564.
Similarly, the QLD Office of State Revenue has granted 12-month payment deferrals of payroll tax liabilities due for
repayment in January 2021. The amount accrued at 30 June 2020 was $134,698.
Liquidity and Funding
During the financial year, Australia & New Zealand have been impacted by the worldwide pandemic, COVID-19. The
World Health Organisation (WHO) announced a global health emergency on 31 January 2020. During the year Australia
and New Zealand went into lock downs in late March 2020, where only essential businesses were able to operate during
this time. At 30 June 2020, the Group had net current liabilities of $842,116. Included in current liabilities is:
An interest only bank loan drawn to $806,180. This facility has no expiry date but is subject to annual review by
Westpac;
Contract liabilities of $170,702 representing revenue received in advance for services to be provided in the coming
year; and
Lease liabilities relating to building premises of $716,757 which will be progressively paid over the coming 12
months. These liabilities arose upon adoption of the new leasing standard AASB 16.
Working capital excluding these amounts is $851,453.
The Group has undrawn bank facilities of $4,252,520 and comfortably met all banking covenants during the period.
During the year, the Group generated operating cashflows of $6,313,486. After excluding Analytica earn-out payments
which are now complete, and COVID-19 related subsidies, cashflows provided by operations were $7,408,851.
Based upon its cash reserves, undrawn finance facilities and expected ongoing earnings, the Group is comfortable it has
sufficient funding capacity to continue to grow the business organically and meet all its obligations.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes during the year, except for the impacts of COVID-19 as discussed in this report.
LIKELY DEVELOPMENTS AND FUTURE OPERATIONS
During FY2021, the Group will focus on returning to pre-COVID levels of operations as soon as possible through:
Increasing business development at Analytica for:
Environmental testing;
Beta Casein services;
Food testing; and
GLP and other contract research and development services for clients.
Aggressive tendering for major HAZMAT projects;
Continuing enhancement OCTFOLIO software platform with a view to moving into new customer segments; and
A strong focus on cost control and working capital management.
In addition, the Group will continue to evaluate acquisition opportunities of high-quality testing, inspection and certification
businesses.
14
DIRECTORS’ REPORT
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 2019
Issued
Exercised
Expired
30 June 2020
Movements
1,600,000
1,600,000
1,600,000
4,800,000
-
-
-
-
-
-
-
-
(1,600,000)
(1,600,000)
(1,600,000)
(4,800,000)
-
-
-
-
Details of performance rights issued, exercised and expired during the financial year are set out below:
Expiry Date
Tranche
Vesting
Condition
Performance
period 1
1 July
2019
Issued
Exercised
Lapsed /
Forfeited
30 June
2020
Vested at
end of year
Movements
30 June 2022
30 June 2022
30 June 2022
30 June 2022
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2020
30 June 2020
30 June 2020
30 June 2020
30 June 2020
A
A
A
A
B
B
B
B
C
C
C
C
C
EPS
EBITDA
TSR
ROCE
Budget
EBITDA
TSR
ROCE
Budget
EBITDA
TSR
ROCE
Discretionary
3 years
3 years
3 years
3 years
2 years
2 years
2 years
2 years
1 year
1 year
1 year
1 year
1 year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,220,240
1,220,240
1,220,240
1,220,240
294,669
294,669
294,669
294,669
147,335
147,335
147,335
147,335
227,273
6,876,249
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(36,132)
1,184,108
(36,132)
1,184,108
(36,132)
1,184,108
(36,132)
1,184,108
-
-
-
-
(147,335)
(147,335)
294,669
294,669
294,669
294,669
-
-
-
-
-
-
-
-
-
-
-
-
-
147,335
147,335
(147,335)
-
-
-
227,273
227,273
(586,533)
6,289,716
374,608
1 Represents the relevant period of time to which both the performance vesting condition is measured and the period of time the recipient
must remain employed with the Group.
Refer to page 25 for details on vesting conditions.
15
DIRECTORS’ REPORT
AFTER BALANCE DATE EVENTS
There have been no events since 30 June 2020 that impact upon the financial report.
REMUNERATION REPORT
The Remuneration Report set out on pages 17 to 29 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.
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 calibre, 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 $400,000 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 2020 is detailed in this Remuneration Report.
17
REMUNERATION REPORT - AUDITED
Executive Director and Senior Management Remuneration
The Company aims to reward the Executive Director and Senior Management with a level and mix of remuneration
commensurate with their position and responsibilities within the company and 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 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 companywide 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 Director and Senior Management for the period ended 30 June 2020 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.
In solidarity with New Zealand staff who were stood down on reduced pay during the lockdowns, the HRL Board and
Executive Team elected to decrease their fees/salaries by 20% through the final quarter of the financial year.
Non-Executive Chairman Arrangements
The Company entered 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 service arrangements with Mr James Todd and Ms Tracy Dare 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
Former Non-Executive Director Arrangements
The Company had entered a service arrangement with Mr Darren Anderson and Mr John Taylor as Non-Executive
Directors of the Company. The key terms of the arrangement were:
Ongoing contract – no fixed term;
Fee of $60,000 per annum, inclusive of statutory superannuation contributions;
No retirement benefits
18
REMUNERATION REPORT - AUDITED
Executive Director Arrangement – Steve Howse
The Company entered into an employment contract with Mr Steve Howse as an 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;
Short term incentive cash bonus upon achieving certain profit targets;
Equity based long term incentive plan;
1-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;
Equity based long term incentive plan;
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;
4 weeks annual leave;
Short term incentive cash bonus upon achieving certain profit targets;
Equity based long term incentive plan;
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
Tracy Dare
Steve Howse
James Todd
Former Directors
John Taylor
Position
Period of Service
Non-Executive Chairman
Appointed 11 February 2019
Non-Executive Director
Appointed 1 November 2019
Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 1 March 2018
Non-Executive Director
Appointed 25 November 2014, Retired 18 October 2019
Darren Anderson
Non-Executive Director
Appointed 15 September 2014, Retired 7 February 2020
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Chief Executive Officer
Appointed 1 January 2015
Chief Finance Officer
Company Secretary
Appointed 15 September 2014
Appointed 2 July 2007
20
REMUNERATION REPORT - AUDITED
Remuneration of Directors and other Key Management Personnel – FY2020
Short Term
Benefits
Note
Salary/ fees
Bonus
Vehicle
allowance
55,123
33,790
168,212
57,000
21,364
17,742
285,000
190,000
57,000
885,231
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,000
-
-
20,000
1
2
3
Directors
Greg Kilmister
Tracy Dare
Steve Howse
James Todd
Darren Anderson
John Taylor
Key Management
Steven Dabelstein
Michael Harvey
Paul Marshall
Notes
1
2
3
Appointed 1 November 2019
Retired 7 February 2020
Retired 18 October 2020
Long Term
Benefits
Accrued /
(used) leave
benefits
-
-
4,568
-
-
-
9,862
5,054
-
19,484
Post Employment
Benefits
Equity based
Benefits
Superannuation
Performance
Rights
Total
Performance
Related %
% of FY20
STI bonus
forfeited
% equity
compensation
30,377
3,210
4,334
-
14,843
-
21,694
18,050
-
-
-
85,500
37,000
-
-
-
-
3,676
180,790
2%
100%
-
-
-
57,000
36,207
17,742
-
-
-
-
-
-
67,038
36,019
-
403,594
249,123
57,000
17%
14%
-
100%
100%
-
92,508
106,733
1,123,956
-
-
2%
-
-
-
17%
14%
-
The HRL Board and Executive Team elected to decrease their fees/salaries by 20% through the final quarter of the financial year.
There were no termination benefits paid or accrued for the year ended 30 June 2020.
21
REMUNERATION REPORT - AUDITED
Remuneration of Directors and other Key Management Personnel – FY2019
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.
22
REMUNERATION REPORT - AUDITED
Key management personnel equity holdings
Shareholdings
Balance
1 July 2019
Acquired on
market
Recognized on
appointment
Disposed Derecognized
on retirement
Balance
30 June 2020
Directors
Greg Kilmister
250,000
Tracy Dare
Steve Howse
James Todd
-
12,190,297
850,000
90,681
-
400,000
100,000
Former Directors
Darren Anderson
21,443,806
John Taylor
1,964,486
-
-
Key Management
Steven Dabelstein
1,701,860
159,847
Michael Harvey
Paul Marshall
801,035
2,625,945
-
-
41,377,429
1,200,528
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,100,000
90,681
12,190,297
500,000
(21,443,806)
(1,964,486)
-
-
-
-
-
1,861,707
801,035
2,625,945
(23,408,292)
19,169,665
Performance Rights
Directors
Greg Kilmister
Tracy Dare
Steve Howse 1
James Todd
Former Directors
Darren Anderson
John Taylor
Key Management
Steven Dabelstein 2
Michael Harvey 3
Paul Marshall
Notes
Balance
1 July 2019
Granted Converted
Lapsed
Balance
30 June 2020
Vested and
Exercisable
Unvested
-
-
-
-
-
-
-
-
-
-
-
226,215
-
-
2,493,719
1,269,587
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
226,215
-
-
-
-
-
-
-
-
-
226,215
-
-
(294,670)
2,199,049
234,587
1,964,462
(147,335)
1,122,252
140,021
982,231
-
-
-
-
3,989,521
-
(442,004)
3,547,516
374,608
3,172,908
1
2
3
Steve Howse was issued 226,215 Tranche A rights (refer page 25)
Steve Dabelstein was issued 1,178,678 Tranche A rights, 785,785 Tranche B rights and 529,256 Tranche C rights (refer page 25)
Michael Harvey was issued 589,339 Tranche A rights, 392,893 Tranche B rights and 287,355 Tranche C rights (refer page 25)
23
REMUNERATION REPORT - AUDITED
FY2020 – Short Term Incentive Plan
For the FY2020 financial year Steve Howse (Executive Director), Steven Dabelstein (CEO) and Michael Harvey (CFO)
had the opportunity to earn a cash bonus based upon achieving certain underlying profit targets as outlined in the table
below:
Participant
Steve Howse
Business Unit / Group
Profit Target
Analytica - NZD $4.7M
STI Bonus
Payable
NZD $22,600
Steven Dabelstein
HRL Group - AUD $5.1M
AUD $90,000
Michael Harvey
HRL Group - AUD $5.1M
AUD $50,000
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 FY2020 and no bonuses were payable.
FY2020 Long Term Incentive Plan
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 People and Culture 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.
24
REMUNERATION REPORT - AUDITED
Details of Key Management Personnel performance shares issued, vested and expired during the financial year are set
out below:
Expiry Date
Tranche
Vesting
Condition
30 June 2022
30 June 2022
30 June 2022
30 June 2022
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2020
30 June 2020
30 June 2020
30 June 2020
30 June 2020
A
A
A
A
B
B
B
B
C
C
C
C
C
EPS
EBITDA
TSR
ROCE
Budget
EBITDA
TSR
ROCE
Budget
EBITDA
TSR
ROCE
Discretionary
Performance
period 1
3 years
3 years
3 years
3 years
2 years
2 years
2 years
2 years
1 year
1 year
1 year
1 year
1 year
Movements
1 July
2019
Issued
Exercised
Expired /
Forfeited
30 June
2020
-
-
-
-
-
-
-
-
-
-
-
-
-
-
498,558
498,558
498,558
498,558
294,669
294,669
294,669
294,669
147,335
147,335
147,335
147,335
227,273
3,989,521
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(147,335)
(147,335)
498,558
498,558
498,558
498,558
294,669
294,669
294,669
294,669
-
-
-
147,335
(147,335)
-
-
227,273
(442,005)
3,547,516
1 Represents the relevant period of time to which the both the performance vesting condition is measured and the period of time the
recipient must remain employed with the Group.
Performance Vesting Conditions
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 the total applicable tranche
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.
25
REMUNERATION REPORT - AUDITED
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
More than average EBITDA margin of comparator peer
companies
Comparator companies
Nil
25% of the total applicable tranche
Bureau Veritas (France), Core Laboratories (USA),
Eurofins (France & Germany), Intertek (UK), SGS
(Switzerland), ALS (Australia), Exova (UK)
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.
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 the total applicable tranche
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 the total
applicable tranche
ROCE exceeds WACC + 7%
25% of the total applicable tranche
26
REMUNERATION REPORT - AUDITED
ROCE hurdles are 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 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.
Budgeted EBITDA (Budget) Measure
BUDGET EBITDA MEASUREMENT
TABLE
HRL EBITDA vs BUDGET
Proportion of performance rights that may be
exercised if hurdle is met
EBITDA is less than budget by 5%
Nil
EBITDA vs budget is between -5% and +10%
Straight line vesting of between 0% and 25% of the total
applicable tranche
EBITDA is greater than budget by 10%
25% of the total applicable tranche
Discretionary Measure
The financial impacts of COVID-19 on the Group during the financial year rendered certain measurement targets of the
1-year plan (Tranche C) effectively unachievable. The Board utilised its discretion under the LTI plan rules to vest 227,273
performance rights to participants automatically.
Fair value of performance rights granted
The assessed fair value at the date of grant of performance shares issued is determined using an option pricing model
that takes into account the exercise price, the underlying share price at the time of issue, the term of the performance
right, the underlying share’s expected volatility, expected dividends and the risk free interest rate for the expected life of
the instrument.
Details of performance rights 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 performance right is convertible into one ordinary share of HRL Holdings Limited.
The value of the performance rights were calculated using the inputs shown below:
27
REMUNERATION REPORT - AUDITED
Inputs into pricing model for
EPS/EBITDA/ROCE/Budget vesting
conditions
Tranche A -
Employees
Tranche A * –
Executive Director
Tranche B
Tranche C
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
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Nil
Nil
Nil
Nil
Refer above
Refer above
Refer above
Refer above
$0.11
$0.11
$0.11
$0.11
30 June 2022
30 June 2022
30 June 2021
30 June 2020
2.8 years
2.65 years
1.8 years
0.8 years
71.5%
Nil
0.72%
71.5%
Nil
0.72%
71.5%
Nil
0.72%
71.5%
Nil
0.72%
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Fair value per instrument
$0.11
$0.11
$0.11
$0.11
* 226,215 Tranche A shares were issued to Steve Howse following shareholder approval on 17 October 2019.
Inputs into pricing model for
TSR vesting condition
Tranche A -
Employees
Tranche A –
Executive Director
Tranche B
Tranche C
Grant date
Exercise price
Vesting conditions
Share price at grant date
Expiry date
Life of the instruments
S&P Small Ordinaries Index volatility
Correlation
Pricing model
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Nil
Nil
Nil
Nil
Refer above
Refer above
Refer above
Refer above
$0.11
$0.12
$0.11
$0.11
30 June 2022
30 June 2022
30 June 2021
30 June 2020
2.8 years
2.65 years
1.8 years
0.8 years
11.7%
0.42
11.7%
0.42
11.7%
0.42
11.7%
0.42
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Fair value per instrument
$0.0790
$0.0761
$0.076
$0.0686
The value of performance rights granted, excercised and lapsed in the current year is is set out in the below table.
Key Management
Steve Howse
Steven Dabelstein
Michael Harvey
Value Granted
$
Value Exercised
$
Value lapsed
$
16,910
189,621
97,311
-
-
-
-
(21,609)
(10,805)
Transactions with related parties
There were no transactions with related parties.
Loans to related parties
There were no loans given to related parties.
28
REMUNERATION REPORT - AUDITED
Remuneration Consultants
The Company did not engage any remuneration consultants during the year.
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)
2020
$
0.110
54.3
2019
$
0.115
56.7
2018
$
0.185
91.3
2017
$
0.080
19.5
2016
$
0.110
17.5
Underlying EBITDA
5,903,855
4,450,775
5,774,562
1,509,017
1,074,645
Net Profit/(loss) for the financial year
(2,495,031)
(7,126,758)
(1,503,797)
130,420
117,988
Director and Key Management Personnel remuneration
1,123,956
1,428,947
990,389
965,124
825,391
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 performance rights issued as part of remuneration during the year.
3,989,521 performance share equity instruments were issued to key management as remuneration during the year.
442,005 performance rights lapsed during the period and 374,608 performance rights vested during the period.
------------------------------ END OF REMUNERATION REPORT ------------------------------
29
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.
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 $75,014
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.
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 2020, 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, 30 July 2020
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 17 July 2020.
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 50,000
50,001 to 100,000
100,001 and over
Total
No’s of holders
286
374
186
345
125
222
1,538
Number of unmarketable parcels of shares
665
Twenty largest holders
HRL – Ordinary Fully Paid Shares
No. Name of Shareholder
1
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
2 NATIONAL NOMINEES LIMITED
3
TERRENCE PATRICK COONEY & JULIE ANNE COONEY & HUGH OWEN COONEY
4 HGT INVESTMENTS PTY LTD
5 UBS NOMINEES PTY LTD
6 CAROLYN JOY BRAGGINS & TERENCE JOHN BRAGGINS & VOSPER TRUSTEES
7
JNLJ COMPANY LTD
8 CITICORP NOMINEES PTY LIMITED
9 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
10 DIXSON TRUST PTY LIMITED
11 MR DARREN GEOFFREY ANDERSON & MRS JULIE ELIZABETH ANDERSON
12 CUSTODIAL SERVICES LIMITED
13 DARREN G ANDERSON & GREGORY J ANDERSON & JULIE E ANDERSON
14
MR DARREN GEOFFREY ANDERSON & MRS JULIE ELIZABETH ANDERSON & MR
GREGORY JOHN ANDERSON
15 H K PRICE PTY LTD
16 MATARANKA PTY LTD
17 ELLIOTT NOMINEES PTY LTD
18 MR JONATHAN PAUL KERSHAW MARSHALL
19 MR CRAIG ANTHONY ANDERSON & MRS AMANDA MARIE ANDERSON
20 ESTANZA PTY LTD
Voting Rights
All fully paid ordinary shares carry one vote per share without restriction.
Substantial Shareholders
Holding
% Held
154,136,759
76,644,879
36,570,891
22,276,868
21,823,000
12,190,297
12,190,297
10,333,016
9,875,603
7,312,879
4,350,000
3,889,219
3,369,410
3,346,200
3,330,624
3,036,486
3,033,119
2,622,865
2,445,528
2,308,000
31.24
15.53
7.41
4.51
4.42
2.47
2.47
2.09
2.00
1.48
0.88
0.79
0.68
0.68
0.68
0.62
0.61
0.53
0.50
0.47
395,085,940
80.07
The company has received the following substantial shareholder notices as at 30 July 2020:
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 118,968,445 shares (24.11%)
Perennial Value Management Limited holds an interest in 73,941,951 shares (14.99%)
AustralianSuper Pty Ltd has an interest in 37,537,221 shares (7.61%)
32
STATEMENT OF COMPREHENSIVE INCOME
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
Note
2020
$
2019
$
Revenue from contracts with customers
Interest revenue
Total Revenue
Costs and consumables relating to the provision of services
Employee expenses
Travel and business development expenses
Other expenses
Finance costs
Depreciation & amortisation – equipment, software and leased assets
Amortisation of acquisition intangible assets
Employee and consulting expense – share based payments
Employee benefits expense on Analytica earn-out payment
Adjustment to OCTFOLIO earn-out payment
Acquisition and joint venture establishment expenses
Impairment of goodwill
Total Expenses
Equity accounted share of profit/(loss)
3
4
23
17
17
14
21
32,806,137
30,728,754
17,304
26,094
32,823,441
30,754,848
(5,501,257)
(16,220,594)
(428,618)
(3,637,861)
(381,270)
(3,100,938)
(2,539,667)
(192,740)
(2,157,570)
-
-
-
(5,514,983)
(16,717,824)
(530,846)
(3,862,759)
(161,601)
(2,194,245)
(3,602,257)
(62,355)
(5,257,121)
187,500
(22,113)
(661,357)
(34,160,515)
(38,399,961)
(512,895)
2,847
Profit/(loss) before income tax
(1,849,969)
(7,642,266)
Income tax benefit/(expense)
6
(645,062)
515,508
Profit/(loss) after income tax
(2,495,031)
(7,126,758)
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign currency translation differences for foreign operations
20
(478,245)
643,953
Income tax
Other comprehensive income for the period, net of tax
-
-
(478,245)
643,953
Total comprehensive income
(2,973,276)
(6,482,805)
Earnings/(Loss) per share
Basic and diluted earnings/(loss) per share
8
Cents
(0.5)
Cents
(1.4)
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 2020
Note
2020
$
2019
$
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
Right-of-use assets
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Current tax liabilities
Short-term provisions
Lease liabilities
Borrowings
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Long-term provisions
Lease liabilities
Borrowings
Deferred tax liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed capital
Reserves
Accumulated losses
TOTAL EQUITY
7
10
11
10
21
12
13
14
15
6
16
17
15
18
17
15
18
6
19
20
2,854,004
3,809,608
475,370
26,968
7,165,950
308,582
699,430
5,922,434
1,765,477
16,572,289
3,074,638
1,411,705
29,754,555
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
36,920,505
37,904,283
2,699,357
748,242
1,178,396
1,238,511
2,143,560
8,008,066
39,605
1,970,268
688,992
186,049
2,884,914
1,918,323
318,265
1,356,576
-
3,038,686
6,631,850
32,405
-
1,559,510
872,457
2,464,372
10,892,980
9,096,222
26,027,525
28,808,061
38,162,084
(112,386)
(12,022,173)
26,027,525
38,162,084
214,560
(9,568,583)
28,808,061
34
The Balance Sheet should be read in conjunction with the Notes to the Financial Statements.
STATEMENT OF CHANGES IN EQUITY
Consolidated Statement of Changes in Equity
For the year ended 30 June 2020
Balance at 1 July 2018
38,162,084
(2,742,997)
238,817
(429,393)
35,228,511
Contributed
Capital
$
Accumulated
Losses
$
Share Based
Payment Reserve
$
Foreign Currency
Reserve
$
Total
$
Transactions with owners in their capacity as owners
Share based payments
Transfer of expired performance rights
Total
Comprehensive income
Loss after income tax
Foreign currency translation differences for foreign operations
Total comprehensive income
-
-
-
-
-
(7,126,758)
-
(7,126,758)
Balance at 30 June 2019
38,162,084
(9,568,583)
Balance at 1 July 2019
38,162,084
(9,568,583)
-
301,172
301,172
62,355
(301,172)
(238,817)
-
-
-
62,355
-
62,355
-
-
-
-
-
-
643,953
643,953
(7,126,758)
643,953
(6,482,805)
214,560
28,808,061
214,560
28,808,061
Transactions with owners in their capacity as owners
Share based payments
Transfer of expired performance rights
Total
Comprehensive income
Loss after income tax
Foreign currency translation differences for foreign operations
Total comprehensive income
-
-
-
-
-
-
-
41,441
41,441
192,740
(41,441)
151,299
-
-
-
192,740
-
192,470
(2,495,031)
-
(2,495,031)
-
-
-
(478,245)
(478,245)
(2,495,031)
(478,245)
(2,973,276)
Balance at 30 June 2020
38,162,084
(12,022,173)
151,299
(263,685)
26,027,525
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 2020
Note
2020
$
2019
$
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Income tax paid
COVID-19 wage subsidies received
Analytica earn out payments
Acquisition and joint venture establishment costs
Finance costs
Net cash provided by/(used in) operating activities
7
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant & equipment
Proceeds from the sale of plant & equipment
Payments for intangible assets
Security deposit payments
Investment in Food Lab Pacific Limited
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of borrowings
Repayment of borrowings
Lease principal payments
Net cash provided by financing activities
21
7
7
7
37,391,662
(28,931,986)
1,974
(671,529)
1,488,727
(2,584,092)
-
(381,270)
6,313,486
(1,733,669)
35,045
(241,979)
-
(558,780)
34,015,027
(30,098,597)
20,747
(1,006,902)
-
(7,885,682)
(22,113)
(161,601)
(5,139,121)
(874,758)
116,756
(266,984)
(24,584)
(47,414)
(2,499,383)
(1,096,984)
5,258,067
(5,699,013)
(1,495,770)
(1,936,716)
4,896,924
(2,033,915)
(1,019,824)
1,843,185
Net increase/(decrease) in cash and cash equivalents held
1,877,387
(4,392,920)
Net foreign exchange differences
(54,576)
31,371
Cash and cash equivalents at the beginning of the financial period
1,031,193
5,392,742
Cash and cash equivalents at the end of the financial period 6
2,854,004
1,031,193
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
COVID-19 Assistance and Support
Income Tax
Cash Flow Information
Earnings Per Share
Dividends
Financial Position Notes
Trade and Other Receivables
Inventories
Plant and Equipment
Intangible Assets
Goodwill
Leases
Trade and Other Payables
Provisions
Borrowings
Contributed Capital
Reserves
Group Structure Notes
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
42
45
46
46
47
51
52
52
53
54
55
56
58
60
62
63
64
66
66
66
69
71
77
77
77
80
80
80
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 “Group” or 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 30 July 2020.
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 (CONT’D)
Goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated
in Note 14. The recoverable amounts of cash generating units have been determined based on value in use calculations.
These calculations require the use of assumptions. Refer to Note 14 for details of these assumptions and the potential
impact of changes to the assumptions.
Recognition of deferred tax asset for carried forward losses
The deferred tax assets include an amount of $1,174,877 (2019: $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 continue to reduce from FY2020 onwards. The losses can be carried forward indefinitely and have no expiry
date.
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.
(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.
39
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
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 standard:
AASB 16 Leases
Interpretation 23 Uncertainty over Income Tax Treatments
The impact of the adoption of AASB 16 and the new accounting policies are disclosed below.
AASB 16 Leases
This standard and its consequential amendments were applied from 1 July 2019, replacing the 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 most
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 transitioned to AASB 16 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 adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the Balance Sheet immediately before the date of initial
application, using the entity’s incremental borrowing rate at the date of initial application. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 5.50%. Comparative figures are not restated.
For leases previously classified as finance leases the entity recognised the carrying amount of the right-of-use asset and
the lease liability at the date of initial application. The measurement principles of AASB 16 are only applied after that date.
There was no re-measurement adjustments for these leases immediately after the date of initial application.
Initial measurement of lease liabilities:
Operating lease commitments disclosed as at 30 June 2019
Additional future lease payments for expected extension options
Discounted using the entity’s incremental borrowing rate
Add: finance lease liabilities recognised as at 30 June 2019
Lease liability recognised as at 1 July 2019
Adjustments recognised in the balance sheet on 1 July 2019:
Plant and equipment decreased by
Right-of-use assets increased by
Borrowings decreased by
Lease liabilities increased by
1,246,348
631,533
1,877,881
1,719,856
1,735,188
3,455,044
1,433,215
3,153,071
1,735,188
3,455,044
There was no impact on accumulated losses upon adoption of AASB 16.
In applying AASB 16 for the first time, the group has used the following practical expedients permitted by the standard:
The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
The use of hindsight in determining the lease term where the contract contains options to extend of terminate the
lease;
The accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as
short-term leases; and
The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application.
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.
40
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
New Standards and Interpretations Not Yet Adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2020
reporting periods. The Consolidated Entity has decided against early adoption of these standards. The Consolidated Entity
has assessed the impact of these new standards and interpretations and does not expect that there would be a material
impact on the entity in the current or future reporting periods and on foreseeable future transactions.
Liquidity and Funding
During the financial year, Australia & New Zealand have been impacted by the worldwide pandemic, COVID-19. The World
Health Organisation (WHO) announced a global health emergency on 31 January 2020. During the year Australia and
New Zealand went into lock downs in late March 2020, where only essentially businesses were able to operate during this
time. At 30 June 2020, the Group had net current liabilities of $842,116. Included in current liabilities is:
An interest only bank loan drawn to $806,180. This facility has no expiry date but is subject to annual review by
Westpac.
Contract liabilities of $170,702 representing revenue received in advance for services to be provided in the coming
year; and
Lease liabilities relating to building premises of $716,757 which will be progressively paid over the coming 12 months.
These liabilities arose upon adoption of the new leasing standard AASB 16.
Working capital excluding these amounts is $851,453.
The Group has undrawn bank facilities of $4,252,520 and comfortably met all banking covenants during the period.
During the year, the Group generated operating cashflows of $6,313,486. After excluding Analytica earn-out payments
which are now complete, and COVID-19 related subsidies, cashflows provided by operations were $7,408,851.
Based upon its cash reserves, undrawn finance facilities and expected ongoing earnings, the Group is comfortable it has
sufficient funding capacity to continue to grow the business organically and meet all its obligations.
41
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING
Reportable Segments
For the year ended 30 June 2020 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 workplace 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.
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 $12,420,467 (2019: $12,781,805). Total revenues
from customers domiciled in New Zealand was $20,385,670 (2019: $17,946,949).
The amount of non-current assets other than financial instruments and deferred tax assets located in Australia is
$9,954,488 (2019: $6,552,689). Total non-current assets other than financial instruments and deferred tax assets located
in New Zealand was $18,079,780 (2019: $22,646,486).
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.
42
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2020
HAZMAT Geotechnical
$
$
Food/Enviro
Laboratory
$
Revenue:
Contracts with customers
8,666,310
6,827,739
16,423,940
888,148
Software
Unallocated Consolidated
$
$
-
$
32,806,137
17,304
17,304
(381,270)
(381,270)
-
-
-
-
-
-
-
-
Interest income
Expenses:
Interest expense
Other expenses
Equity accounted share of loss
Segment result before acquisition
related expenses
Acquisition related expenses
Earn-out expense
Amortisation of acquisition intangibles
(7,247,667)
(6,767,131)
(13,040,204)
(511,258)
(1,515,748)
(29,082,008)
-
-
(512,895)
-
-
(512,895)
1,418,643
60,608
2,870,841
376,890
(1,879,714)
2,847,268
-
-
-
(2,157,570)
-
(442,000)
(1,812,440)
(285,227)
-
-
(2,157,570)
(2,539,667)
Segment result before tax
1,418,643
(381,392)
(1,099,169)
91,663
(1,879,714)
(1,849,969)
Income tax
Net loss
-
-
-
-
-
(645,062)
(2,495,031)
Non-cash and other significant items:
Depreciation and amortisation
705,197
826,735
3,715,393
368,546
24,734
5,640,605
Impairment of receivables
Share based payments
Earn-out expense/(adjustments)
86,199
11,898
-
61,502
6,306
84,226
27,165
-
-
2,873
144,498
231,927
192,740
-
2,157,570
-
-
2,157,570
Assets:
Segment assets
Liabilities:
Segment liabilities
Segment acquisitions:
4,754,695
4,231,548
24,314,913
1,894,958
1,724,391
36,920,505
3,118,335
1,623,532
2,344,161
199,877
3,607,075
10,892,980
Acquisition of plant and equipment
137,892
102,143
1,487,203
5,001
1,430
1,733,669
Acquisition of intangibles
72,779
169,200
Acquisition of right of use assets
259,085
-
990,420
241,979
-
1,249,505
17,326
308,582
-
-
203,547
5,166,096
7,968
3,909
5,922,434
985,479
-
76,468
3,074,638
74,006
428,896
1,207,900
16,685
13,703
315,565
804,791
1,768,845
1,770,810
11,666,714
1,365,920
-
1,390,163
358,629
-
-
-
1,765,477
16,572,289
699,430
1,411,705
1,411,705
3,496,332
2,904,869
20,111,429
1,732,517
1,509,408
29,754,555
43
Details on non-current assets:
Trade and other receivables
Plant and equipment
Right of use assets
Intangibles
Goodwill
Equity accounted investment
Deferred tax assets
-
-
-
-
699,430
-
-
-
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
1,926,862
1,732,292
31,158,081
44
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
2020
$
2019
$
8,666,310
6,827,739
7,762,331
8,028,091
16,423,940
14,203,699
888,148
734,633
32,806,137
30,728,754
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 (usually 1 to 3 years). The client pays a fixed amount monthly 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 10 and 16.
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.
45
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4
EXPENSES
Employee benefits expenses
Note
Defined contribution superannuation expense
Other employee benefits expenses
Government employment subsidies received
Total employee benefits expenses
Employee benefits expense – share based payments
Remuneration expense on Analytica earn-out
5
23
17
Contributions to defined contribution plans are expensed when incurred.
2020
$
2019
$
928,542
16,809,503
(1,517,456)
16,220,589
795,025
15,922,799
-
16,717,824
192,740
2,157,570
62,355
5,257,121
Net gain/(loss) on disposal of plant and equipment
(45,025)
55,364
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.
NOTE 5
COVID-19 ASSISTANCE AND SUPPORT BY GOVERNMENTS AND OTHERS
Subsidies
During the year, the Group received several COVID-19 related support subsidies from Australia and New Zealand
Governments as outlined below:
Government Subsidy
Start Date
New Zealand COVID-19
Wage Subsidy
Australia JobKeeper
QLD payroll tax refund
ATO cashflow boost
25 March 2020
30 March 2020
One-time refund of 2
months payroll tax
31 March 2020
Program
Duration
12 weeks
6 months
NA
6 months
Subsidy
FY2020
Estimated
Subsidy FY2021
1,146,331
144,000
54,396
172,729
1,517,456
-
432,000
-
170,000
602,000
Government Loans
The Group has two government support loans facilities:
QLD Government
$250,000 loan with the QLD Government with a fixed interest rate of 2.10% per annum. The loan is repayable over 10
years. The loan is secured by a $250,000 charge against OCTIEF Pty Ltd.
New Zealand Government
NZ $55,000 loan with a fixed interest rate of 3.00% per annum. The loan is repayable over 2 years. The loan is unsecured.
Payment Deferrals
Loans
Westpac Australia has granted 6-month payment deferrals on bank bills and equipment finance leases. The amount of
loan principal and interest deferred at 30 June 2020 was $500,250. Repayments on deferred loans recommence in
October with the initial loan periods extended out by 6 months.
46
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5
COVID-19 ASSISTANCE AND SUPPORT BY GOVERNMENTS AND OTHERS (CONT’D)
Other Payables
The Australian Tax Office has granted 6-month payment deferrals of certain GST and PAYG employee tax liabilities due
for repayment in November 2020. The amount of these amounts accrued at 30 June 2020 was $574,564.
Similarly, the QLD Office of State Revenue has granted 12-month payment deferrals of payroll tax liabilities due for
repayment in January 2021. The amount of these amounts accrued at 30 June 2020 was $134,698.
NOTE 6
INCOME TAX
Income tax expense:
Current tax
Current tax on profit/loss for the year
Adjustments for current tax of prior periods
Total current tax expense
Deferred tax
Movement in deferred tax assets
Movement in deferred tax liabilities
Total deferred tax expense/(benefit)
2020
$
2019
$
1,075,037
15,155
1,090,192
208,376
(653,506)
(445,130)
386,909
(61,097)
325,812
(154,668)
(686,652)
(841,320)
Total income tax expense/(benefit)
645,062
(515,508)
Reconciliation of income tax expense to prima facie tax payable:
Profit/(loss) before tax, excluding profit/(loss) for equity accounted investments
(1,337,074)
(7,645,113)
Prima facie tax at 27.5% (2019: 27.5%)
(367,695)
(2,102,406)
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
Adjustments for tax of prior periods
Total income tax expense/(benefit)
12,694
604,120
-
51,570
-
334,881
635,570
(5,663)
15,155
645,062
12,351
1,471,994
(51,563)
17,148
181,873
43,257
(427,346)
(27,065)
(61,097)
(515,508)
47
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6
INCOME TAX (CONT’D)
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.
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:
2020
2019
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
Other payables
Inventories
Lease liabilities
Carried forward tax losses
Set-off of deferred tax liabilities
Net deferred tax assets
$
-
-
-
16,133
337,088
68,173
75,648
28,257
675,829
1,180,973
2,382,101
(970,396)
1,411,705
$
-
-
-
13,621
263,387
13,059
-
-
183,707
1,640,765
2,114,539
(461,556)
1,652,983
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 2020
1 July 2019
Charged to Profit
or Loss
Recognised on
adoption of
AASB 16
30 June 2020
Employee benefits payable
Employee leave provisions
Provision for doubtful debts
Other payables
Inventories
Lease liabilities
Carried forward tax losses
13,621
263,387
13,059
-
-
183,707
1,640,765
2,114,539
2,512
73,701
55,114
75,648
28,257
16,184
(459,792)
(208,376)
-
-
-
-
475,938
-
475,938
16,133
337,088
68,173
75,648
28,257
675,829
1,180,973
2,382,101
48
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6
INCOME TAX (CONT’D)
Year ended June 2019
1 July 2018
Charged to Profit
or Loss
30 June 2019
Employee benefits payable
Employee leave provisions
Provision for doubtful debts
Lease liabilities
Carried forward tax losses
24,666
272,562
8,021
193,523
1,461,099
1,959,871
(11,045)
(9,175)
5,038
(9,816)
179,666
154,668
13,621
263,387
13,059
183,707
1,640,765
2,114,539
Deferred tax liabilities:
Balance comprises temporary differences attributable to:
Intangibles assets
Leased assets
Other amounts
Set-off of deferred tax assets
Net deferred tax liabilities
2020
$
2019
$
358,509
776,862
21,074
1,156,445
(970,396)
186,049
1,076,241
242,054
15,718
1,334,013
(461,556)
872,457
Movements during the period:
Year ended June 2020
1 July 2019
Charged to Profit
or Loss
Recognised on
adoption of
AASB 16
30 June 2020
Intangible assets
Leased assets
Other amounts
1,076,241
242,054
15,718
1,334,013
(717,732)
58,870
5,356
-
475,938
-
358,509
776,862
21,074
(653,506)
475,938
1,156,445
Year ended June 2019
1 July 2018
Charged to Profit
or Loss
30 June 2019
Intangible assets
Leased assets
Other amounts
1,760,485
(684,244)
1,076,241
245,204
14,976
(3,150)
742
242,054
15,718
2,020,665
(686,652)
1,334,013
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.
49
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6
INCOME TAX (CONT’D)
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.
50
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7
CASH FLOW INFORMATION
Reconciliation of cash flows from operations with profit after tax
Profit/(loss) after income tax
(2,495,031)
(7,126,758)
2020
$
2019
$
Non-cash items in profit/(loss) after income tax
Depreciation and amortisation
(Gain)/loss 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
5,640,605
5,796,502
45,025
231,927
-
192,740
512,895
-
(15,330)
895,569
214,790
416,052
1,000,230
(299,519)
(26,467)
(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)
Net cash provided by/ (used in) operating activities
6,313,486
(5,139,121)
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 did not acquire any plant and equipment through finance leases during the year (2019: $1,597,702).
Cash and Cash Equivalents
Cash at bank and on hand
Cash on deposit
2,764,712
89,292
941,051
90,142
2,584,004
1,031,193
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.
51
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7
CASH FLOW INFORMATION (CONT’D)
Reconciliation of cash and non-cash movements in borrowings from financing activities
Year ended 30 June 2020
Leases
Bank loans
Insurance financing
Opening
Balance
Recognised on
adoption of
AASB 16
Cash flows
Non-cash
additions
Closing
Balance
1,735,188
2,863,009
-
1,719,856
(1,495,770)
1,249,505
3,208,779
-
-
(30,456)
(410,490)
-
2,832,553
410,490
-
4,598,197
1,719,856
(1,936,716)
1,659,995
6,041,332
Year ended 30 June 2019
Leases
Bank loans
Opening
Balance
Cash flows
Non-cash
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
NOTE 8 EARNINGS PER SHARE
Earnings
2020
$
2019
$
Earnings used to calculate basic and diluted EPS
(2,495,031)
(7,126,758)
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
493,402,627
-
-
493,402,627
493,402,627
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 9
DIVIDENDS
No dividends were paid during the financial year ended 30 June 2020 (2019: Nil) and no dividend is recommended for
the current year.
52
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 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
2020
$
2019
$
3,732,732
(179,837)
3,552,895
247,629
9,084
4,729,810
(47,119)
4,682,691
296,809
12,817
3,809,608
4,992,317
105,035
203,547
308,582
111,464
194,459
305,923
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 $231,927 during the year (2019: $39,742) 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 2020
2020
$
47,119
231,927
(99,209)
179,837
2019
$
28,815
39,472
(21,168)
47,119
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%
2.50%
5.00%
7.50%
15.00%
30.00%
50.00%
20.00%
315,642
2,703,956
586,833
34,706
22,518
35,734
33,343
247,629
3,980,361
-
67,599
29,342
2,603
3,378
10,720
16,672
49,523
179,837
53
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 TRADE AND OTHER RECEIVABLES (CONT’D)
Loss Allowance – 30 June 2019
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%
0.5%
1.00%
2.50%
5.00%
10.00%
40.00%
0.05%
884,806
2,983,781
550,503
194,947
48,096
30,634
37,043
296,809
5,026,619
-
14,928
5,505
4,874
2,405
3,063
14,817
1,527
47,119
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.
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. For the year ended 30 June 2020, the Group has substantially increased the expected loss rates
above prior period due to the uncertain economic environment arising from the COVID-19 pandemic. All ageing profiles
have been increased by around 3 – 5 times the historical rates. In particular contract assets which will likely due fall due
for payment around the of Q1 FY21 have been heavily impaired due to expected heightened liquidity risks across Australian
businesses at that time.
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.
NOTE 11
INVENTORIES
CURRENT
Laboratory consumables
2020
$
2019
$
475,370
690,159
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. 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 $2,832,201 (2019: $2,268,515).
54
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 PLANT AND EQUIPMENT
Leasehold improvements at cost
Accumulated depreciation
Motor vehicles at cost
Accumulated depreciation
Office furniture and equipment at cost
Accumulated depreciation
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
2020
$
461,487
(158,817)
302,670
262,955
(158,984)
103,971
747,996
(449,853)
298,143
2019
$
430,961
(117,844)
313,117
1,884,407
(591,690)
1,292,717
758,893
(405,299)
353,594
8,845,454
7,990,102
(3,627,804)
(2,477,708)
5,217,650
5,512,394
10,317,892
(4,395,458)
5,922,434
11,064,363
(3,592,541)
7,471,822
Balance at 1 July 2019
Leasehold
Improvements
313,117
Motor
Vehicles
1,292,717
Office Furniture
and Equipment
Lab and field
Equipment
Total
353,594
5,512,394
7,471,822
Transfers to leased assets
(32,422)
(1,145,267)
-
(255,526)
(1,433,215)
Additions
Disposals
Foreign exchange movements
Depreciation
Balance at 30 June 2020
98,056
-
3,272
(79,353)
302,670
23,661
(5,495)
(8,329)
(53,316)
103,971
137,692
(11,871)
(13,158)
1,474,260
1,733,669
(27,989)
(45,355)
(110,070)
(128,285)
(168,114)
(1,375,419)
(1,676,202)
298,143
5,217,650
5,922,434
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
55
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 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 13
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 2020
Balance at 1 July 2019
Additions
Foreign exchange movements
Amortisation
Balance at 30 June 2020
2020
$
2019
$
3,628,860
3,639,333
(2,755,891)
(2,020,642)
872,969
1,618,691
4,857,744
4,879,491
(4,450,323)
(2,959,086)
407,421
1,920,405
2,360,083
2,110,927
(1,874,996)
(1,403,627)
485,087
707,300
120,502
(120,502)
-
120,502
(79,721)
40,781
1,765,477
4,287,177
Software
Other
Intangibles
Total
707,300
241,979
7,177
40,781
4,287,177
-
(329)
241,979
(25,372)
Customer
Contracts
1,618,691
Licences and
Accreditations
1,920,405
-
(21,747)
-
(10,473)
(735,249)
872,969
(1,491,237)
(471,369)
(40,452)
(2,738,307)
407,421
485,087
-
1,765,477
56
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13
INTANGIBLE ASSETS (CONT’D)
Year ended 30 June 2019
Balance at 1 July 2018
Additions
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
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.
57
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 GOODWILL
Opening balance
Impairment of AAC Environmental goodwill
Foreign exchange movements
Impairment tests for goodwill
2020
$
2019
$
16,774,730
16,884,462
-
(202,441)
(661,357)
551,625
16,572,289
16,774,730
Goodwill is monitored by management at the Company level for Precise Limited, Analytica Laboratories Limited, Morrison
Geotechnic Pty Ltd and OCTFOLIO 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.
During the prior period, following 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 prior 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 was impaired down to $Nil during
the year ended 30 June 2019.
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.
During the prior year, 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:
30 June 2019
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
58
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14 GOODWILL (CONT’D)
The calculations use cash flow projections based on financial budgets covering a five-year period. Each CGU’s underlying cash flow projections have been adjusted downwards for the expected
impact of COVID-19 over the 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%
1.0%
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%
1% Average annual growth rate over the five-year forecast period based on current industry trends
Fixed costs per annum
$1.0M
$3.2M
$1.9M
$0.4M
Annual capital expenditure
$100,000
$1,300,000
$75,000
$100,000
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
19%
18%
18%
20%
Goodwill attributable to CGU
$1,768,845
$11,666,714
$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.
59
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 LEASES
The Group leases various offices, equipment and vehicles. Rental contracts are typically made for fixed periods of 1 to 5
years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the
leased assets that are held by the lessor.
Until the 2020 financial year, leases of property, plant and equipment were classified as either finance leases or operating
leases. From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which
the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease Liabilities
Lease liabilities include the net present value of the following lease payments:
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the
commencement date;
amounts expected to be payable by the Group under residual value guarantees;
the exercise price of a purchase option if the group is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the
liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
determined, which is generally the case for leases that relate to building premises, the entity’s incremental borrowing rate
is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of
similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group uses recent third-party financing received by the individual lessee
as a starting point, adjusted to reflect changes in financing conditions since third party financing was received, making
adjustments specific to the lease (e.g. term, country, currency and security).
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not
included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take
effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the
lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use Assets
Right-of-use assets are measured at cost comprising the following:
the amount of the initial measurement of lease liability
any lease payments made at or before the commencement date less any lease incentives received
any initial direct costs, and
restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-
line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the
underlying asset’s useful life.
Low Value Assets
Payments associated with leases of low value assets are recognised on a straight-line basis as an expense in profit or
loss. Low value assets comprise small items of office equipment.
60
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 LEASES (continued)
Extension Options
Extension options are included in a number of building premises leases across the Group. These are used to maximise
operational flexibility in terms of managing the assets used in the Group’s operations. The extension and termination
options held are exercisable only by the Group and not by the respective lessor.
In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to
exercise an extension option. When exercising lease extensions of building premises, the Group considers the following
factors:
any termination and make-good penalties;
value of leasehold improvements;
cost of disruption to the business to relocate; and
availability and cost other suitable properties.
Extension options are only included in the lease term if the lease is reasonably certain to be extended.
Most extension options on building premises leases have been included in the lease liability. As at 30 June 2020, potential
future cash outflows of $1,902,998 (undiscounted) have not been included in the lease liability because it is not reasonably
certain that the leases will be extended.
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise
(or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in
circumstances occurs, which affects this assessment, and that is within the control of the lessee.
In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified
as ‘finance leases’ under AASB 117 Leases. The assets were presented in property, plant and equipment and the liabilities
as part of the Group’s borrowings. For adjustments recognised on adoption of AASB 16 on 1 July 2019, refer to Note 1.
2020
$
2019
$
Amounts recognised in the Balance Sheet
Right-use-assets
Leased buildings – right-of-use
Leasehold improvements
Motor vehicles
Lab and field equipment
Additions to the right of use assets during the period was $1,249,505.
Lease liabilities
CURRENT
Leases for equipment – bank financed
Leases for building premises
NON-CURRENT
Leases for equipment – bank financed
Leases for building premises
2,058,726
25,224
775,075
215,613
3,074,638
521,754
716,757
1,238,511
576,447
1,393,821
1,970,268
-
-
-
-
-
-
-
-
-
-
-
61
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 LEASES (continued)
Amounts recognised in the Statement of Comprehensive Income
2020
$
2019
$
Depreciation and amortisation
Buildings premises
Leasehold improvements
Motor vehicles
Lab and field equipment
Interest expense on leases (included in finance costs)
Buildings premises
Equipment leases – bank financed
Amounts recognised in the Statement of Cash Flows
Lease principal repayments - buildings premises
Lease principal repayments - equipment leases
Interest payments - buildings premises
Interest payments - equipment leases
NOTE 16 TRADE AND OTHER PAYABLES
CURRENT
Trade payables
Contract liabilities
Other payables and accrued expenses
843,510
7,198
335,478
39,913
1,226,099
119,144
65,581
184,725
828,784
636,986
119,114
65,581
1,650,465
-
-
-
-
-
-
-
-
-
-
-
-
-
2020
$
2019
$
595,445
170,702
1,933,210
2,699,357
686,028
338,058
894,237
1,918,323
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.
As part of the COVID-19 business support measures, the Australian Tax Office has granted 6-month payment deferrals of
certain GST and PAYG employee tax liabilities due for repayment in November 2020. The amount of these amounts
accrued at 30 June 2020 was $574,564.
Similarly, the QLD Office of State Revenue has granted 12-month payment deferrals of payroll tax liabilities due for
repayment in January 2021. The amount of these amounts accrued at 30 June 2020 was $134,698.
62
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17 PROVISIONS
CURRENT
Employee benefits
Analytica earn-out
NON-CURRENT
Employee benefits
Employee Benefit Provisions
1,178,396
-
918,483
438,093
1,178,396
1,356,576
39,605
32,405
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.
Analytica Earn-out Provision
On 30 November 2017, HRL acquired 100% of the issued capital of Analytica Laboratories Limited (Analytica).
As part of the purchase consideration the vendors had the opportunity to earn 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 the following 12 months.
The earn-out was achieved in full. Half of the earn-out consideration was paid in February 2019. The remaining half of
the earn-out consideration was paid in 10 equal monthly instalments thereafter.
As the earn-out consideration was 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.
Earn-out provision movements during the period
Opening balance
OCTFOLIO earn-out recognition/(adjustment)
Analytica earn-out expense recognised
Analytica earn-out payments made
Foreign exchange movements
2020
$
438,093
-
2,157,570
2019
$
3,130,115
(187,500)
5,257,121
(2,584,092)
(7,885,682)
(11,571)
-
124,039
438,093
63
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 BORROWINGS
CURRENT
Finance leases - equipment
Government support loans
Bank loans
NON-CURRENT
Finance leases - equipment
Government support loans
Bank loans
2020
$
-
51,387
2,092,173
2,143,560
2019
$
759,011
-
2,279,675
3,038,686
-
976,177
250,437
438,555
688,992
-
583,333
1,559,510
Bank and government support loans
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
four bank loan facilities:
$3M interest only facility with a variable interest rate of 2.94% 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 3.03% per annum. The facility expires in March
2022.
$1M 3-year amortising bank bill facility with a variable interest rate of 3.54% per annum. The facility expires in
February 2023.
NZ $1M 2-year amortising bank bill facility with a variable interest rate of 3.40% per annum. The facility expires in
November 2021.
The Group has two government support loan facilities:
$250,000 loan with the QLD Government with a fixed interest rate of 2.10% per annum. The loan is repayable over
10 years. The loan is secured by a $250,000 charge against OCTIEF Pty Ltd.
NZ $55,000 loan with a fixed interest rate of 3.00% per annum. The loan is repayable over 2 years. The loan is
unsecured.
Finance leases - equipment
From 1 July 2019 finance leases over equipment and motor vehicles have been transferred to lease liabilities (refer Note
15)
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% - 4.94% per annum and expire between November 2020 and February 2024.
64
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 BORROWINGS (CONT’D)
Financing Facilities
The Group has access to the following lines of credit:
Total facilities available
Leases - equipment financing
Government support loans
Bank loans
Facilities used at balance date
Leases - equipment financing
Government support loans
Bank loans
Unused facilities at balance date
Finance leases and equipment financing
Government support loans
Bank loans
Covenants
The bank loans are subject to the below covenants:
Debt Service Cover Ratio greater than 1.5
2020
$
2019
$
2,529,897
301,824
5,351,552
8,183,273
1,098,201
301,824
2,530,728
3,930,753
2,565,657
-
3,951,267
6,516,924
1,735,188
-
2,863,009
4,598,197
1,431,696
830,469
-
2,820,824
4,252,520
-
1,088,258
1,918,727
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 6 months on a 12-month rolling result.
Debt to EBITDA ratio of less than 200%
Gearing ratio means: Total financial debt divided by operating EBITDA. This ratio will be assessed every 6 months on a
12-month rolling result.
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.
Defaults and breaches
During the period there were no defaults or breaches on any of the loans.
Assets pledged as security
Equipment leases are secured by mortgage over the relevant assets which at 30 June 2020 had carrying values of
$1,539,364 (2019: $1,984,884).
65
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 CONTRIBUTED CAPITAL
2020
$
2019
$
493,402,627 fully paid ordinary shares (June 2019: 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 20 RESERVES
Foreign currency translation reserve
Share based payment reserve
2020
$
(263,685)
151,299
(112,386)
2019
$
214,560
-
214,560
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.
NOTE 21
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
Investment in Food Lab Pacific Limited
Share of profits/(loss)
Foreign exchange movements
Closing balance
2020
$
665,446
558,780
(512,895)
(11,901)
699,430
2019
$
608,894
47,414
2,847
6,291
665,446
66
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21
EQUITY ACCOUNTED INVESTMENTS (CONT’D)
CAIQTest (Pacific) Limited
As part of the Analytica acquisition, the Group acquired a 26% interest in CAIQTest (Pacific) Limited, a New Zealand based
laboratory, providing pre-shipment testing services for clients exporting goods from Australasia to China.
The following table illustrates the summarised financial information of the Group’s investment in CAIQTest (Pacific) Limited:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities (shareholder loans)
Total liabilities
Equity
HRL’s share of equity (26%)
Goodwill
Foreign exchange movements
Carrying amount
Revenue
Cost of sales
Other expenses
Finance costs
Profit before tax
Income tax
Profit after tax
2020
$
1,375,362
484,482
1,859,844
224,716
1,603,199
1,827,915
15,964
680,160
(6,115)
690,009
2019
$
1,295,353
518,541
1,813,894
420,533
1,640,130
2,060,663
(64,160)
695,828
(455)
631,213
3,084,099
(1,053,483)
(1,791,816)
-
238,800
2,492,288
(879,470)
(1,514,392)
(35,326)
63,100
-
-
238,800
63,100
HRL’s share of profit (26%)
62,088
16,406
CAIQTest (Pacific) Limited requires a board resolution to distribute its profits. No dividends were paid or declared for the
financial period ending 30 June 2020.
CAIQTest (Pacific) Limited had no contingent liabilities or capital commitments as at 30 June 2020.
67
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21
EQUITY ACCOUNTED INVESTMENTS (CONT’D)
Food Lab Pacific Limited
During the prior 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
Total liabilities
Equity
HRL’s share of equity (50%)
Foreign exchange movements
Carrying amount
Revenue
Other expenses
Finance costs
Loss before tax
Income tax
Loss after tax
2020
$
105,094
959,074
1,064,168
1,045,327
1,045,327
9,421
-
9,421
105
(1,129,131)
(20,940)
(1,149,966)
2019
$
56,521
11,337
67,858
27,589
27,589
20,135
14,098
34,233
-
(27,118)
-
(27,118)
-
-
(1,149,966)
(27,118)
HRL’s share of loss (50%)
(574,983)
(13,559)
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 2020.
Food Lab Pacific Limited had no contingent liabilities or capital commitments as at 30 June 2020.
68
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 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
2020
$
2019
$
1,555
30,028,984
30,030,539
2,300,790
2,890,100
5,190,890
8,835
32,975,215
32,984,050
2,409,093
606,022
3,015,115
24,839,649
29,968,935
49,200,617
151,291
49,200,617
-
(24,512,259)
(19,231,862)
24,839,649
29,968,935
(9,190,619)
(4,934,848)
-
-
(9,190,619)
(4,934,848)
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.
69
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 PARENT ENTITY INFORMATION (CONT’D)
Controlled Entities of the Parent Entity
Percentage Owned
Country of Incorporation
2020
%
100%
-
100%
100%
100%
100%
100%
100%
2019
%
100%
100%
100%
100%
100%
100%
100%
100%
Australia
Australia
New Zealand
New Zealand
New Zealand
Australia
Australia
New Zealand
OCTIEF Pty Ltd
OCTIEF ACT Pty Ltd 1
HRL Holdings NZ Limited
Octief Limited
Precise Consulting and Laboratory Limited
Morrison Geotechnic Pty Ltd
OCTFOLIO Pty Ltd
Analytica Laboratories Limited
1 Deregistered during the year.
Principles of Consolidation
Subsidiaries are all entities (including structured entities) over which the Consolidated Entity has control. The Consolidated
Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the Consolidated Entity. They are deconsolidated
from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Consolidated Entity.
Intercompany transactions, balances and unrealised gains on transactions between Consolidated Entity companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the
transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Consolidated Entity.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of
comprehensive income, statement of changes in equity and balance sheet respectively.
Business combinations
Business combinations occur where an acquirer obtains control over one or more businesses.
A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities
or businesses under common control. The business combination will be accounted for from the date that control is attained,
whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is
recognised (subject to certain limited exemptions).
When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent
consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity
is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an
asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss,
unless the change in value can be identified as existing at acquisition date.
All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive
income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase.
70
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23 SHARE BASED PAYMENTS
Performance Rights (Long Term Incentive Plan)
The Company has granted performance rights to senior management under a long term incentivise plan. 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
performance rights are not quoted on the ASX. Performance shares granted carry no dividend or voting rights.
Details of performance rights issued, exercised and expired during the financial year are set out below:
Expiry Date
Tranche
Vesting
Condition
Performance
period 1
1 July
2019
Issued
Exercised
Lapsed /
Forfeited
30 June
2020
Vested at
end of year
Movements
30 June 2022
30 June 2022
30 June 2022
30 June 2022
30 June 2021
30 June 2021
30 June 2021
30 June 2021
30 June 2020
30 June 2020
30 June 2020
30 June 2020
30 June 2020
A
A
A
A
B
B
B
B
C
C
C
C
C
EPS
EBITDA
TSR
ROCE
Budget
EBITDA
TSR
ROCE
Budget
EBITDA
TSR
ROCE
Discretionary
3 years
3 years
3 years
3 years
2 years
2 years
2 years
2 years
1 year
1 year
1 year
1 year
1 year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,220,240
1,220,240
1,220,240
1,220,240
294,669
294,669
294,669
294,669
147,335
147,335
147,335
147,335
227,273
6,876,249
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(36,132)
1,184,108
(36,132)
1,184,108
(36,132)
1,184,108
(36,132)
1,184,108
-
-
-
-
(147,335)
(147,335)
294,669
294,669
294,669
294,669
-
-
-
-
-
-
-
-
-
-
-
-
-
147,335
147,335
(147,335)
-
-
-
227,273
227,273
(586,533)
6,289,716
374,608
1 Represents the relevant period of time to which the both the performance vesting condition is measured and the period of time the
recipient must remain employed with the Group.
The weighted average remaining contractual life of performance shares outstanding at the end of the year was 1.80 years.
Fair value of performance rights granted
The assessed fair value at the date of grant of performance rights issued is determined using an option pricing model that
takes into account the exercise price, the underlying share price at the time of issue, the term of the performance right 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 rights were calculated using the inputs shown below:
Inputs into pricing model for
EPS/EBITDA/ROCE/Budget vesting
conditions
Tranche A -
Employees
Tranche A * –
Executive Director
Tranche B
Tranche C
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
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Nil
Nil
Nil
Nil
Refer below
Refer below
Refer below
Refer below
$0.11
$0.11
$0.11
$0.11
30 June 2022
30 June 2022
30 June 2021
30 June 2020
2.8 years
2.65 years
1.8 years
0.8 years
71.5%
Nil
0.72%
71.5%
Nil
0.72%
71.5%
Nil
0.72%
71.5%
Nil
0.72%
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Fair value per instrument
$0.11
$0.11
$0.11
$0.11
* 226,215 Tranche A shares were issued to Steve Howse following shareholder approval on 17 October 2019.
71
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23 SHARE BASED PAYMENTS (CONT’D)
Inputs into pricing model for
TSR vesting condition
Tranche A -
Employees
Tranche A –
Executive Director
Tranche B
Tranche C
Grant date
Exercise price
Vesting conditions
Share price at grant date
Expiry date
Life of the instruments
S&P Small Ordinaries Index volatility
Correlation
Pricing model
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Nil
Nil
Nil
Nil
Refer below
Refer below
Refer below
Refer below
$0.11
$0.12
$0.11
$0.11
30 June 2022
30 June 2022
30 June 2021
30 June 2020
2.8 years
2.65 years
1.8 years
0.8 years
11.7%
0.42
11.7%
0.42
11.7%
0.42
11.7%
0.42
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Fair value per instrument
$0.0790
$0.0761
$0.076
$0.0686
Inputs into pricing model for discretionary vesting condition
The financial impacts of COVID-19 on the Group during the financial year rendered certain measurement targets of the 1-
year plan (Tranche C) effectively unachievable. The Board utilised its discretion under the LTI plan rules to vest 227,273
performance rights to participants automatically. The fair value of these performance rights was deemed to be the market
value of HRL share price ($0.11) at the time of the Board decision.
Performance Vesting Conditions
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 the total applicable tranche
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
More than average EBITDA margin of comparator peer
companies
Comparator companies
Nil
25% of the total applicable tranche
Bureau Veritas (France), Core Laboratories (USA),
Eurofins (France & Germany), Intertek (UK), SGS
(Switzerland), ALS (Australia), Exova (UK)
72
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23 SHARE BASED PAYMENTS (CONT’D)
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.
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 the total applicable tranche
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 the total
applicable tranche
ROCE exceeds WACC + 7%
25% of the total applicable tranche
ROCE hurdles are 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 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.
73
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23 SHARE BASED PAYMENTS (CONT’D)
Budgeted EBITDA (Budget) Measure
BUDGET EBITDA MEASUREMENT
TABLE
HRL EBITDA vs BUDGET
Proportion of performance rights that may be
exercised if hurdle is met
EBITDA is less than budget by 5%
Nil
EBITDA vs budget is between -5% and +10%
Straight line vesting of between 0% and 25% of the total
applicable tranche
EBITDA is greater than budget by 10%
25% of the total applicable tranche
Discretionary Measure
The financial impacts of COVID-19 on the Group during the financial year rendered certain measurement targets of the 1-
year plan (Tranche C) effectively unachievable. The Board utilised its discretion under the LTI plan rules to vest 227,273
performance rights to participants automatically.
Advisor Options (expired)
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
Fair value of options granted
1 July 2019
Issued
Exercised
Expired
30 June 2020
Movements
1,600,000
1,600,000
1,600,000
4,800,000
-
-
-
-
-
-
-
-
(1,600,000)
(1,600,000)
(1,600,000)
(4,800,000)
-
-
-
-
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.
74
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23 SHARE BASED PAYMENTS (CONT’D)
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.
Previous Performance Share Pan (expired)
In previous years the Company had 3,260,127 granted performance shares to incentivise senior management. These
performance shares lapsed in full at 30 June 2019. As the vesting period for Tranche 1 of these performance shares
continued until 30 June 2021, the value of these instrument is still being recognised in FY2021 and FY2022.
The performance shares had the following key terms and conditions:
Performance Share Plan – Tranche 1 (expired)
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.
75
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23
SHARE BASED PAYMENTS (CONT’D)
Performance Share Plan – Tranche 2 (expired)
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 an 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 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.
The value of the performance shares was calculated using the inputs shown below:
Inputs into pricing model
Tranche 1
Tranche 2
Grant date
Exercise price
31 August 2016
15 August 2018
$Nil
$Nil
Vesting conditions
See above table
See above table
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
$0.12
3 years
52%
Nil
1.52%
Binomial
$0.0746
$0.18
3 years
65%
Nil
1.75%
Binomial
$0.1394
Expenses arising from share-based payment transactions
Performance shares (long-term incentive plan)
Advisor options (expired on 31 December 2019)
Previous performance share plan (expired on 30 June 2019)
2020
$
151,299
-
41,441
192,740
2019
$
-
-
62,355
62,355
76
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
RELATED PARTY TRANSACTIONS
Key Management Personnel Compensation
Short-term benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
905,231
92,508
19,484
-
106,733
1,123,956
1,319,676
88,918
1,258
-
19,096
1,428,948
Detailed remuneration disclosures are provided in the remuneration report on pages 17 to 29.
Transactions with related parties
There were no transactions with related parties during the year (2019: Nil).
NOTE 25
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 2020. 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 and National Australia Bank.
Maximum exposure to credit risk
Summary exposure
Cash and cash equivalents
Trade receivables
Other receivables
Loan receivable from CAIQTest Pacific Limited
2020
$
2019
$
2,854,004
3,552,895
256,713
203,547
1,031,193
4,682,691
309,626
194,459
6,867,159
6,217,969
77
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25
FINANCIAL RISK MANAGEMENT (CONT’D)
Liquidity risk
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 18 for the Group’s financing facilities available at balance date.
Remaining contractual maturities
The tables below reflects the contractual maturity of fixed and floating rate financial liabilities. Cash flows for financial
liabilities without fixed amount or timing are based on the conditions existing at period end. The amounts disclosed
represent undiscounted cash flows. The tables include both interest and principal cash flows and therefore the totals
may differ from their carrying amount in the balance sheet.
The remaining contractual maturities of the financial liabilities are:
30 June 2020
Trade payables
Other payables
Bank loans
Government support loans
Lease liabilities
30 June 2019
Trade payables
Other payables
Bank Loans
Finance leases - equipment
Market Risk
1 year or less
$
595,445
1 to 5 years
$
-
Over 5 years
$
-
1,933,210
2,092,173
51,908
1,363,486
6,036,222
-
438,555
93,158
2,258,489
2,790,202
Total
$
595,445
1,933,210
2,530,728
-
-
191,573
336,639
-
3,621,975
191,573
9,017,997
1 year or less
$
686,028
1 to 5 years
$
-
Over 5 years
$
-
894,237
2,279,675
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
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.
78
NOTES TO THE FINANCIAL STATEMENTS
NOTE 25
FINANCIAL RISK MANAGEMENT (CONT’D)
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)
Foreign Currency Risk
2020
$
2019
$
(1,674)
1,674
(13,984)
13,984
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)
2020
$
2019
$
2,423,892
2,547,787
4,971,679
1,166,393
341,543
1,507,936
744,230
3,015,535
3,759,765
596,079
443,958
1,040,037
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
2020
$
2019
$
346,374
(346,374)
271,973
(271,973)
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.
79
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26
COMMITMENTS
Operating leases
Minimum lease payments:
Payable within one year
Payable within one year and five years
Total contracted at balance date
2020
$
2019
$
-
-
-
700,578
545,770
1,246,348
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. From 1 July 2019, the group has recognised right-of-use assets for these leases (refer Note 15).
NOTE 27
CONTINGENT LIABILITIES
The Consolidated Entity has arranged bank guarantees of $55,825 as security for rental premises.
NOTE 28
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 29 EVENTS AFTER BALANCE DATE
There have been no events since 30 June 2020 that impact upon the financial report.
2020
$
97,559
97,559
29,286
45,728
75,014
2019
$
97,664
97,664
20,150
3,460
23,610
80
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)
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
giving a true and fair view of the Consolidated Entity's financial position as at 30 June 2020 and of its
performance for the financial year ended on that date; and
(b)
(b)
the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1 to the
consolidated financial statements; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
The directors have been given the declarations by the chief executive officer and chief financial officer required by section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of directors.
81
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 (the Company) and its subsidiaries (the Group),
which comprises the consolidated balance sheet as at 30 June 2020, 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 2020 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 (including Independence Standards) (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.
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.
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.
82
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 14, 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 2020 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.
The impact of COVID-19 on inputs used in
management’s assessment required
significant auditor attention.
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.
Going Concern
Key audit matter
How the matter was addressed in our audit
The Group’s disclosures around liquidity and
funding are included in Note 1, which details
the facts leading to the net current liability
position and the impact that COVID-19 had on
the Group.
The accounts are prepared on a going
concern basis. Given the above factors going
concern was considered a key audit matter
due to there being significant judgement
involved and requiring significant auditor
effort.
Our procedures included, amongst others:
Obtaining and evaluating management’s
assessment of the group’s ability to continue
as a going concern
Evaluating management’s cash-flow
forecasts and challenging management’s
assumptions applied around future sales,
gross margin, operating costs, and resulting
cash flows
Assessing management’s assumptions in the
cash flow forecasts to assess whether
current cash levels along with expected cash
inflows and expenditure can sustain the
operations of the Group for a period of at
least 12 months from the date of this audit
report.
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
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 2020, 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.
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 on pages 17 to 29 of the directors’ report for the
year ended 30 June 2020.
In our opinion, the Remuneration Report of HRL Holdings, for the year ended 30 June 2020, complies
with section 300A of the Corporations Act 2001.
BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO
Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of
BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member
firms. Liability limited by a scheme approved under Professional Standards Legislation.
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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, 30 July 2020
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
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
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