www.hrlholdings.com | ABN 99 120 896 371 | ASX Code: HRL
HRL HOLDINGS LIMITED
Appendix 4E FY2021 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 2021
Previous Corresponding Period: 30 June 2020
2.
Results for Announcement to the Market
$’000
Revenue from ordinary activities up 5% to:
34,623
Underlying net profit/(loss) for the period up 28% to:
3,228
Net profit for the period attributable to members improved to:
1,312
Refer to pages 9 to 13 of the Financial Statements for the operational and financial review of the Entity.
3.
Statement of Comprehensive income with Notes to the Statement
Refer to Page 32 of the 2021 Financial Statements and accompanying Notes.
4.
Balance Sheet with Notes to the Statement
Refer to Page 33 of the 2021 Financial Statements and accompanying Notes.
5.
Statement of Cash Flows with Notes to the Statement
Refer to Page 35 of the 2021 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 34 of the 2021 Financial Statements and accompanying Notes.
8.
Net Tangible Assets per Security
2021
$0.019
2020
$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 69 of the 2021 Financial Statements.
10.
Associates and Joint Venture Entities
Refer to Page 67 of the 2021 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 13 of the Financial Statements for the operational and financial review of the Entity.
14.
Status of Audit
The attached 2021 Financial Statements have been audited.
15.
Dispute or Qualifications if not yet audited
Not applicable.
16.
Dispute or Qualifications if audited
Not applicable.
Paul Marshall
Company Secretary
30 July 2021
HRL HOLDINGS LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
30 JUNE 2021
Index
2
CEO’s Letter
3
Directors’ Report
5
Remuneration Report
15
Auditor’s Independence Declaration
30
Additional ASX Information
31
Statement of Comprehensive Income
32
Balance Sheet
33
Statement of Changes in Equity
34
Statement of Cash Flows
35
Notes to the Financial Statements
36
Directors’ Declaration
78
Independent Auditor’s Report
79
Corporate Information
84
CEO’S LETTER
3
Dear Shareholders,
Your Directors and I have much pleasure in presenting the 2021 Annual Financial Statements for the HRL Group.
Introduction and the past year in review
HRL delivered a particularly strong performance in FY2021 exceeding full year broker consensus despite the ongoing
disruptions of COVID-19 impacting work continuity and workforce planning. Management continued to build resilience in
the operational teams which positioned us well to capitalise on improving training conditions in the second half of FY2021.
This allowed us to expand EBITDA margin as work volumes improved.
Year at a glance
AUD $M
FY2021
FY2020
% Change
Revenues
34.6
32.8
+5.5%
Underlying EBITDA 1
7.7
6.9
+11.3%
Underlying profit after tax
3.2
2.5
+27.7%
Statutory profit after tax
1.3
(2.5)
NA
Cashflow provided by operations
5.5
6.3
(12.5%)
Net cash / (borrowings)
(0.4)
(1.1)
+64.3%
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. Underlying EBITDA
includes $221,000 (FY2020: $62,000) share of profit from CAIQTest (Pacific) Limited.
Strategy
The HRL management team has managed the group through challenging business conditions before and was as well-
prepared as possible for the COVID-19 challenges. At the early stages of the pandemic the business focused on
safeguarding employees health, capital protection and realignment of the cost base to meet client demands. We maintain
a prudent and conservative capital management plan, however, continue to invest in key areas which allow the business
to benefit from improving trading conditions.
We have successfully progressed the following strategic initiatives throughout the year:
1.
Outstanding safety performance with a Total Reportable Injury Frequency Rate (TRIFR) of 0
Lost Time Injury Frequency Rate (LTIFR) of 0
Additional measures were introduced at all of our sites as part of our pandemic response
2.
Female workplace representation further increased and now reported at 49%
We updated our Diversity and Inclusion Policy in 2021, a copy of which is available on our website
3.
A total of $10M loan facilities secured
These facilities will be used to fund growth initiatives including new instrumentation, investments in joint
ventures, and acquisitions of new businesses
4.
Acquisition of New Zealand water testing laboratory
Transaction settled in March 2021 and is now fully integrated with HRL’s NZ laboratory network
CEO’S LETTER
4
5.
HRL’s joint venture in New Zealand to conduct food testing receives accreditation
Two phases of method accreditation now completed
Trading with customers has now commenced with dairy product testing
Outlook for FY2022
HRL has built a strong balance sheet with just $0.4M net debt at year end and $10M of loan facilities. Our strong operating
cashflows will be used to accelerate organic growth in both laboratory technologies and a new phase of investment in the
Software Division for client data management.
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.
Thank you
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 FY2021. I look forward to reporting a stronger FY2022 and achieving significant
progress on the execution of our Strategic Plan.
Steven Dabelstein
CEO
DIRECTORS’ REPORT
5
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 2021.
DIRECTORS
The following persons were directors of HRL Holdings Limited during the whole of the financial year and up to the date
of this report, unless otherwise stated:
Name
Position
Period of Directorship
Greg Kilmister
Non-Executive Chairman
Appointed 11 February 2019
Steve Howse
Executive Director
Appointed 1 March 2018
James Todd
Non-Executive Director
Appointed 1 March 2018
Richard Stephens
Non-Executive Director
Appointed 3 September 2020
Alex White
Non-Executive Director
Appointed 1 March 2021
Tracy Dare
Non-Executive Director
Appointed 1 November 2019, resigned 31 July 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 a 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 Key Accounts & Projects 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 New Zealand 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.
DIRECTORS’ REPORT
6
James Todd
Non-Executive Director
B Comm, LLB, FFIN, MAICD
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)
Bapcor Limited (appointed September 2020)
Richard Stephens
Non-Executive Director
B Comm, CA, MAICD
Mr Stephens is a Chartered Accountant with senior executive experience at ASX-listed companies in the Testing,
Inspection & Certification (TIC) and Banking & Finance sectors.
From 2010 to 2018 he was Chief Financial Officer of ALS Limited – the global provider of laboratory focused TIC services.
Richard has a deep knowledge of the value drivers in the industry and was heavily involved in extensive acquisition and
funding activities at ALS during that time. Previously he held senior finance roles with Suncorp and Metway Bank.
He has wide-ranging financial governance experience with businesses spanning multiple jurisdictions, with expertise in
the areas of capital management, debt and equity capital raisings, mergers and acquisitions, risk management and
financial instruments.
He has not been a Director of any other Australian listed company in the last three years.
Alex White
Non-Executive Director
BBus (EconFin)
Mr White is a Director of Richmond Hill Capital (“RH Capital”) and is jointly responsible for managing the RH High
Conviction Fund. RH Capital has been invested in HRL for six years and is HRL’s largest shareholder.
Mr White has over fourteen years of corporate and investment management experience and prior to co-founding RH
Capital, he was jointly responsible for the portfolio management of the VF High Conviction Fund at Viburnum Funds for
six years (now the RH High Conviction Fund).
Mr White joined Viburnum following over three years with Cooper Investors, a privately owned specialist investment
manager, where he focused on investment research for the successful CI Australian Equities Fund and CI Brunswick
Fund. He previously gained industry experience working for Fletcher Building as a Strategy Analyst and as a Credit
Analyst for ratings agency Standard and Poor’s.
Mr White is currently a Director of the following other ASX listed company:
MOQ Digital Limited (appointed June 2019)
DIRECTORS’ REPORT
7
Tracy Dare (resigned 31 July 2020)
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. She has not been a Director of any other
Australian listed company in the last three years.
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
Fully Paid Ordinary
Shares
Performance
Rights
Greg Kilmister
1,100,000
-
Steve Howse
7,190,297
426,105
James Todd
500,000
-
Richard Stephens
102,099
-
Alex White 1
97,654,689
-
1 Shares held by Richmond Hill Capital Pty Ltd. Mr White is a director of Richmond Hill Capital Pty Ltd and has an indirect interest as
portfolio manager.
MEETINGS OF DIRECTORS
The following table sets out the number of meetings of the Company’s Directors held during the year ended 30 June 2021
and the number of meetings attended by each Director.
Directors Meetings
Audit and Risk
Committee Meetings
People and Culture
Committee Meetings
Nomination
Committee Meetings
Meetings
attended
Eligible to
attend
Meetings
attended
Eligible to
attend
Meetings
attended
Eligible
to attend
Meetings
attended
Eligible
to attend
Greg Kilmister
14
14
5
5
3
3
2
2
Steve Howse
14
14
-
-
-
-
2
2
James Todd
14
14
5
5
3
3
2
2
Richard Stephens
12
12
4
4
-
-
1
1
Alex White
4
4
-
-
2
2
-
-
Tracy Dare
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
Richard Stephens (Chair)
James Todd (Chair)
Greg Kilmister (Chair)
Greg Kilmister
Greg Kilmister
Steve Howse
James Todd
Alex White
James Todd
Richard Stephens
Alex White
DIRECTORS’ REPORT
8
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.
Steven Dabelstein
Chief Executive Officer
BComm, CPA, Member AICD, Member CEOI
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
250 staff and greater than $30 million 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.
DIRECTORS’ REPORT
9
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Company’s operations are subject to environmental regulations in relation to its consulting and laboratory activities.
The Directors are not aware of any breaches during the period covered by this report.
REVIEW OF OPERATIONS
Water Testing Hawkes Bay Acquisition
On 1 March 2021 HRL settled the purchase of Water Testing HB (2016) Limited (WTHB) for NZD $650,000.
Water Testing Hawkes Bay is a leading regional bacteriological water-testing and analysis laboratories, focused primarily
on providing sampling and routine water-testing for the government authority and businesses in the Hasting District,
Napier City and Hawkes Bay region.
Whilst modest in size, the acquisition of WTHB is important strategically as it:
accelerates HRL’s expansion into routine water quality and environmental laboratory testing;
provides a solid recurring revenue base with approximately 80% of revenues coming from local government
authorities;
expands HRL’s geographic coverage in New Zealand to the Hawkes Bay region on the east coast;
through an integration into the Analytica Laboratories business unit, takes advantage of advanced technology and
lean operating procedures; and
provides opportunity to offer Analytica’s full range of laboratory services to a new segment of customers.
Trading Review and Outlook
Food and Environmental Laboratory Services
The Food and Environmental Laboratory division incorporates the New Zealand based Analytica business unit. Following
its acquisition on 1 March 2021 WTHB was integrated into the Analytica business unit.
FY2021 was another strong year of growth for Analytica with revenues up 15% (excluding WTHB revenues) compared
with the prior period, highlighted by:
Honey revenues up 30% on the prior year due to a combination of global demand for manuka honey as a natural
product to provide immune support, a longer tail to the 2020 production season and strong demand for testing of
glyphosate and American foul brood in honey as a consequence of changing honey export requirements.
Milk testing was weaker with revenues falling 7% on prior year with a decline in beta casein testing in the second
half.
Food and trace origin testing continues to grow with revenues up 19% on the prior year. Following some logistical
delays receiving international samples in Q2/Q3, sample numbers increased materially in Q4.
Environmental testing services (laboratory testing of air, water and soil) continued its development with revenue
growth of 17% on the prior year. Project activity in this area picked up in the second half with testing activity now
consistently exceeding pre-COVID levels.
Other services lines (asbestos, drugs of abuse and projects) increased 16% on prior year.
Water testing performed by the Hawkes Bay branch (WTHB) in the 4 months since acquisition traded slightly ahead of
expectation.
Analytica is targeting continued strong revenue growth in FY2022, primarily through the environmental testing segment.
To achieve this, Analytica will be investing in both technical staff and equipment to round out the environmental testing
suite offering and aggressively grow market share. Water testing will be an important component of this growth and
Analytica will draw upon the capabilities acquired through the WTHB acquisition and explore additional acquisitions in
this space. Revenue growth is likely to exceed profit growth in this area initially but will lead to overall higher profits and
higher margins over the coming two to three years.
DIRECTORS’ REPORT
10
Food testing services such as honey and dairy will be influenced by the underlying production seasons and the overall
demand for products, especially from international markets.
Honey revenues in FY2022 are expected to grow steadily. The 2021 honey production season (January to June) was
historically weak, especially in comparison to the 2020 honey production season which ran for several months longer
than usual which contributed to the strong first half revenues in FY2021. Due to this, first half revenues in FY2022 are
likely to be softer than in FY2021, but assuming an average production season in 2022, second half revenues will be
stronger. FY2022 will also benefit from a full year of glyphosate and American foul brood testing which was only
introduced mid-way through FY2021. Analytica will also explore additional automation technologies throughout the year
to reduce labour costs in this service line.
Milk testing is expected to remain steady with some potential upside from project works.
Food and trace origin testing grew strongly in the final quarter in FY2021 and this trend is expected to continue into
FY2022 through a combination of sustained higher sample numbers and additional tests offered.
The asbestos testing line, which is the cornerstone service of Analytica’s regional branch network, saw solid growth which
is expected to be maintained in FY2022. Analytica is looking to add additional testing capabilities and resources to key
regional hubs to drive further revenue growth.
Analytica’s commercial R&D projects have picked up recently and Analytica will continue to support and build strong
relationships with valuable customers in both New Zealand and overseas markets.
As always Analytica continues to explore emerging opportunities across a range of industries and remains ready to
capitalise on any commercial opportunities.
HAZMAT
The HAZMAT division, which incorporates the OCTIEF business unit in Australia and the Precise business in New
Zealand, had a very positive year despite a COVID-19 impacted Q1 in New Zealand.
The first quarter for Precise was slow as its customer base recovered from the COVID-19 slowdown but workloads quickly
increased thereafter. Precise expanded occupational hygiene services throughout the year and was awarded its first
major contract during March. Revenue growth (whilst strong) was hampered slightly in the second half due to resourcing
constraints across the whole industry.
Australian operations for OCTIEF also enjoyed another strong year with consistent workloads from the Queensland and
Northern Territory Governments and major utility providers.
The HAZMAT outlook for FY2022 is optimistic. Precise has strengthened its position as the leading asbestos consulting
firm in New Zealand. COVID-19 related travel restrictions have greatly impacted the entire industry’s ability to recruit
additional staff from traditional overseas sources. To address this structural issue in the New Zealand market and
continue growing market share, Precise has already begun a training program to bring a regular pipeline of trainees
through to full qualification across a range of HAZMAT consulting disciplines. Labour costs in the first half of FY2022 are
expected to be higher as the first round of trainees go through this process but this will allow Precise to grow revenues
more strongly from the second half onwards as the trainees become qualified.
OCTIEF consulting revenues are anticipated to remain consistent over the coming year. OCTIEF’s laboratory continues
to see modest but pleasing growth from its formative environmental test offering and OCTIEF will be investing in its
laboratory equipment to continue its expansion of capabilities.
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 revenues were flat during FY2021 with COVID-19 frustrating
OCTFOLIO’s ability to engage with clients and IT budgets for many businesses were frozen.
FY2022 will see additional investment in OCTFOLIO to target accelerated growth over the mid-term. OCTFOLIO will
internally develop a suite of tools for other HAZMAT consultants in markets where OCTIEF and Precise do not compete
to enable these consultancies to introduce their own customers to the OCTFOLIO asset management platform. By greatly
expanding the reseller network through this consultant network, OCTFOLIO expects to gain access to a larger suite of
customers and key decision makers it previously did not. The OCTFOLIO team will also begin work on development of
more mass market compliance and reporting tools.
With this focus on investment in FY2022 and beyond, OCTFOLIO’s EBITDA is expected to trade around breakeven levels
over the short term.
DIRECTORS’ REPORT
11
Geotechnical
The Geotechnical division incorporates the Morrison Geotechnic business unit in Australia. Revenues saw a sharp decline
in the first quarter due to the COVID-19 slowdown which was offset to a degree from the benefit of the JobKeeper
program. Activity was mixed through the rest of the year with south-east QLD construction sector rebounding strongly
but offset by extreme rainfall events in Q3.
The outlook for FY2022 is more promising. Planned land development and infrastructure activity across south-east QLD
is at high levels and Morrison has secured a large multi-year highway development contract which will help underpin
revenues in FY2022.
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 FY2021 was very strong with revenue growing 36% on the prior year.
Foodlab Pacific Limited
Foodlab Pacific Limited (Foodlab), a 50:50 joint venture company with MilkTestNZ, achieved a major development
milestone during the year receiving its first and second phase of accreditations from IANZ. These accreditations will now
allow Foodlab to provide an initial range of services to dairy customers.
Foodlab continues to focus on business development with customers and the remaining phases of its method
accreditation.
FINANCIAL REVIEW
Key financial headlines of the HRL Group’s 30 June 2021 results are:
Revenues of $34,623,000
Underlying EBITDA of $7,715,000 2
Underlying profit after tax of $3,228,000 1
Statutory profit after tax of $1,312,000
Cashflow provided by operations of $5,522,000
Net cash/(borrowings) of ($384,000)
1 Underlying profit reflects statutory profit as adjusted to reflect the Directors’ assessment of the result for the ongoing business activities
of the Group, in accordance with AICD/Finsia principles of recording underlying profit. Underlying profit has not been audited.
2 Underlying EBITDA includes $221,000 share of profit from CAIQTest (Pacific) Limited.
DIRECTORS’ REPORT
12
The following table summarises key reconciling items between the Group’s statutory profit and underlying profit after tax:
June 2021
June 2020
$’000
$’000
Underlying EBITDA 1
7,715
6,929
Operating depreciation and amortisation
(2,970)
(3,101)
Borrowing costs (net of interest income)
(290)
(364)
Operating tax
(1,226)
(937)
Underlying profit after tax
3,229
2,527
Non-operating adjustments
Amortisation of intangible assets from acquisitions
(809)
(2,540)
Earn-out expenses/adjustments
-
(2,158)
Lapsed expired management performance shares
-
(41)
Foodlab equity accounted share of loss
(1,019)
(575)
Non-operating tax
(89)
292
Statutory profit/(loss) after income tax
1,312
(2,495)
1 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.
Underlying EBITDA includes $221,000 share of profit from CAIQTest (Pacific) Limited.
Comparison with the Prior Period
Underlying profit after tax for the year increased by +28% compared with the prior year. The key reasons for the increase
were:
Factors increasing profits:
Higher earnings from Analytica on the back of 16% revenue growth;
Higher earnings from the HAZMAT division, primarily due to increased earnings from Precise. Lockdown impacts
in New Zealand were substantially lessened in FY2021;
Benefits of JobKeeper received by Morrison Geotechnic; and
Increased share of profits from CAIQTest (Pacific) Limited.
Factors decreasing profits:
Lower earnings from OCTFOLIO.
DIRECTORS’ REPORT
13
COVID-19 Impacts, Assistance and Support Received
Subsidies
During the year, the Group received the following material COVID-19 related support subsidies from the Australia
Government:
Government Subsidy
Entity
Program
Duration
Subsidy
FY2021
Program
End
Australia JobKeeper
Morrison Geotechnic
3 months
$635,000
September 2020
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 in May 2022. The loan is unsecured.
Payment Deferrals
There are no loans or other liabilities on deferred payment arrangements.
Liquidity and Funding
As at 30 June 2021, the Group had net current assets of $835,000.
The Group has undrawn bank facilities of $7,803,000 and comfortably met all banking covenants during the period.
During the year, the Group generated operating cashflows of $5,522,000.
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.
LIKELY DEVELOPMENTS AND FUTURE OPERATIONS
During FY2022, the Group will focus on:
Investing in Analytica to:
Increase Environmental testing capabilities and capacity;
Automate workflows to reduce labour costs;
Expand the service scope of regional networks; and
Seek other bolt-on laboratory investments.
Invest in trainee network and staff development in labour constrained services such as HAZMAT consulting;
Investment in the OCTFOLIO platform to drive aggressive revenue growth over the medium term; and
A strong focus on M&A activities targeting large acquisition opportunities of high-quality testing, inspection and
certification businesses.
DIRECTORS’ REPORT
14
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.
PERFORMANCE RIGHTS
Details of performance rights issued, exercised and expired during the financial year, and as at the date of this report
are set out below:
Movements
Expiry /
Vesting Date
Tranche
Vesting
Condition
Performance
period 1
1 July
2020
Issued
Exercised
Expired /
Forfeited
30 June
2021
30 June 2023
D
EPS
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2023
D
EBITDA
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2023
D
TSR
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2023
D
ROCE
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2022
A
EPS
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2022
A
EBITDA
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2022
A
TSR
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2022
A
ROCE
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2021
B
Budget
1 year
294,669
-
-
(136,138)
158,531
30 June 2021
B
EBITDA
2 years
294,669
-
-
-
294,669
30 June 2021
B
TSR
2 years
294,669
-
-
(294,669)
-
30 June 2021
B
ROCE
2 years
294,669
-
-
(143,799)
150,870
30 June 2020
C
TSR
1 year
147,335
-
(147,335)
-
-
30 June 2020
C
Discretionary
1 year
227,273
-
(227,273)
-
-
6,289,716
4,088,724
(374,608)
(1,547,286)
8,456,546
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 24 for details on vesting conditions.
AFTER BALANCE DATE EVENTS
There have been no events since 30 June 2021 that impact upon the financial report.
REMUNERATION REPORT
The Remuneration Report set out on pages 15 to 28 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.
REMUNERATION REPORT - AUDITED
15
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 2021 is detailed in this Remuneration Report.
REMUNERATION REPORT - AUDITED
16
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.
Payment of bonuses, performance and other incentive payments are determined by the rules of the short term and long
term incentive plans, however the Board many also use its discretion to award payments outside of these plans.
The remuneration of the Executive Director and Senior Management for the period ended 30 June 2021 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 agreements with the CEO and CFO have a three-month notice period. All other employment
agreements have one-month (or less) notice periods. No current employment contracts contain early termination clauses.
All Non-Executive Directors have contracts of employment. None of these contracts have termination benefits.
Non-Executive Chairman Arrangements
The Company entered 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, Mr Richard Stephens and Mr Alex White 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 Ms Tracy Dare as a Non-Executive Director 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
REMUNERATION REPORT - AUDITED
17
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;
Salary 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.
REMUNERATION REPORT - AUDITED
18
Details of Directors and other Key Management – HRL Holdings Limited
Name
Position
Period of Service
Directors
Greg Kilmister
Non-Executive Chairman
Appointed 11 February 2019
Steve Howse
Executive Director
Appointed 1 March 2018
James Todd
Non-Executive Director
Appointed 1 March 2018
Richard Stephens
Non-Executive Director
Appointed 3 September 2020
Alex White
Non-Executive Director
Appointed 1 March 2021
Former Director
Tracy Dare
Non-Executive Director
Appointed 1 November 2019, resigned 31 July 2020
Key Management
Steven Dabelstein
Chief Executive Officer
Appointed 1 January 2015
Michael Harvey
Chief Finance Officer
Appointed 15 September 2014
Paul Marshall
Company Secretary
Appointed 2 July 2007
REMUNERATION REPORT - AUDITED
19
Remuneration of Directors and other Key Management Personnel – FY2021
Short Term
Benefits
Long Term
Benefits
Post Employment
Benefits
Equity based
Benefits
$AUD
Note
Salary/ fees
Bonus
Vehicle
allowance
Accrued /
(used) leave
benefits
Superannuation
Performance
Rights
Total
Performance
Related %
% of FY21
STI bonus
forfeited
% equity
compensation
Directors
Greg Kilmister
58,192
-
-
-
31,808
-
90,000
-
-
-
Steve Howse
170,722
-
-
(7,286)
4,372
8,265
176,073
5%
100%
5%
James Todd
60,000
-
-
-
-
-
60,000
-
-
-
Richard Stephens
2
45,662
-
-
-
4,338
-
50,000
-
-
-
Alex White
3
20,000
-
-
-
-
-
20,000
-
-
-
Tracy Dare
1
4,566
-
-
-
434
-
5,000
-
-
-
Key Management
Steven Dabelstein
300,000
90,000
20,000
(9,862)
21,695
74,609
496,442
33%
-
15%
Michael Harvey
200,000
50,000
-
(842)
19,000
37,305
305,463
29%
-
12%
Paul Marshall
60,000
-
-
-
-
-
60,000
-
-
-
919,142
140,000
20,000
(17,990)
81,647
120,179
1,262,978
Notes
1
Resigned 31 July 2020
2
Appointed 3 September 2020
3
Appointed 1 March 2021
There were no termination benefits paid or accrued for the year ended 30 June 2021.
REMUNERATION REPORT - AUDITED
20
Remuneration of Directors and other Key Management Personnel – FY2020
Short Term
Benefits
Long Term
Benefits
Post Employment
Benefits
Equity based
Benefits
$AUD
Note
Salary/ fees
Bonus
Vehicle
allowance
Accrued /
(used) leave
benefits
Superannuation
Performance
Rights
Total
Performance
Related %
% of FY20
STI bonus
forfeited
% equity
compensation
Directors
Greg Kilmister
55,123
-
-
-
30,377
-
85,500
-
-
-
Tracy Dare
1
33,790
-
-
-
3,210
-
37,000
-
-
-
Steve Howse
168,212
-
-
4,568
4,334
3,676
180,790
2%
100%
2%
James Todd
57,000
-
-
-
-
-
57,000
-
-
-
Darren Anderson
2
21,364
-
-
-
14,843
-
36,207
-
-
-
John Taylor
3
17,742
-
-
-
-
-
17,742
-
-
-
Key Management
Steven Dabelstein
285,000
-
20,000
9,862
21,694
67,038
403,594
17%
100%
17%
Michael Harvey
190,000
-
-
5,054
18,050
36,019
249,123
14%
100%
14%
Paul Marshall
57,000
-
-
-
-
-
57,000
-
-
-
885,231
-
20,000
19,484
92,508
106,733
1,123,956
Notes
1
Appointed 1 November 2019
2
Retired 7 February 2020
3
Retired 18 October 2019
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.
REMUNERATION REPORT - AUDITED
21
Key management personnel equity holdings
Shareholdings
Balance
1 July 2020
Acquired on
market
Disposed
Recognized on
appointment
Derecognized on
retirement
Performance
Rights Exercised
Balance
30 June 2021
Directors
Greg Kilmister
1,100,000
-
-
-
-
-
1,100,000
Steve Howse
12,190,297
-
(5,000,000)
-
-
-
7,190,297
James Todd
500,000
-
-
-
-
-
500,000
Richard Stephens
-
102,099
-
-
-
-
102,099
Alex White 1
-
5,023,303
-
92,631,386
-
-
97,654,689
Former Directors
Tracy Dare
90,681
-
-
-
(90,681)
-
-
Key Management
Steven Dabelstein
1,861,707
54,800
-
-
-
234,587
2,151,094
Michael Harvey
801,035
-
-
-
-
140,021
941,056
Paul Marshall
2,625,945
-
-
-
-
-
2,625,945
19,169,665
5,180,202
(5,000,000)
92,631,386
(90,681)
374,608
112,265,180
Notes
1 Shares held by Richmond Hill Capital Pty Ltd. Mr White is a director of Richmond Hill Capital Pty Ltd and has an indirect interest as portfolio manager.
REMUNERATION REPORT - AUDITED
22
Performance Rights
Balance
1 July 2020
Granted
Converted to
Ordinary Shares
Lapsed
Balance
30 June 2021
Vested and
Exercisable
Unvested
Directors
Greg Kilmister
-
-
-
-
-
-
-
Steve Howse 1
226,215
199,890
-
-
426,105
-
426,105
James Todd
-
-
-
-
-
-
-
Richard Stephens
-
-
-
-
-
-
-
Alex White
-
-
-
-
-
-
-
Former Directors
Tracy Dare
-
-
-
-
-
-
-
Key Management
Steven Dabelstein 2
2,199,049
1,088,929
(234,587)
(383,071)
2,670,320
402,714
2,267,607
Michael Harvey 3
1,122,252
544,465
(140,021)
(191,535)
1,335,161
201,356
1,133,803
Paul Marshall
-
-
-
-
-
-
-
3,547,516
1,833,284
(374,608)
(574,606)
4,431,586
604,070
3,827,515
Notes
1
Steve Howse holds 226,215 Tranche A rights and 199,890 Tranche D rights (refer page 24)
2
Steve Dabelstein holds 1,178,677 Tranche A rights, 402,714 Tranche B rights and 1,088,929 Tranche D rights (refer page 24)
3
Michael Harvey holds issued 589,339 Tranche A rights, 201,357 Tranche B rights and 544,465 Tranche D rights (refer page 24)
REMUNERATION REPORT - AUDITED
23
FY2021 – Short Term Incentive Plan
For the FY2021 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
Business Unit / Group
Profit Target
STI Bonus
Payable
Target
Met
Steve Howse
Analytica - NZD $4.22M
NZD $24,182
No
Steven Dabelstein
HRL Group - AUD $4.23M
AUD $90,000
Yes
Michael Harvey
HRL Group - AUD $4.23M
AUD $50,000
Yes
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.
FY2021 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 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.
REMUNERATION REPORT - AUDITED
24
Details of Key Management Personnel performance shares issued, vested and expired during the financial year are set
out below:
Movements
Expiry / Vesting
Date
Tranche
Vesting
Condition
Performance
period 1
1 July
2020
Issued
Exercised
Expired /
Forfeited
30 June
2021
30 June 2023
D
EPS
3 years
-
458,321
-
-
458,321
30 June 2023
D
EBITDA
3 years
-
458,321
-
-
458,321
30 June 2023
D
TSR
3 years
-
458,321
-
-
458,321
30 June 2023
D
ROCE
3 years
-
458,321
-
-
458,321
30 June 2022
A
EPS
3 years
498,558
-
-
-
498,558
30 June 2022
A
EBITDA
3 years
498,558
-
-
-
498,558
30 June 2022
A
TSR
3 years
498,558
-
-
-
498,558
30 June 2022
A
ROCE
3 years
498,558
-
-
-
498,558
30 June 2021
B
Budget
1 year
294,669
-
-
(136,138)
158,531
30 June 2021
B
EBITDA
2 years
294,669
-
-
-
294,669
30 June 2021
B
TSR
2 years
294,669
-
-
(294,669)
-
30 June 2021
B
ROCE
2 years
294,669
-
-
(143,799)
150,870
30 June 2020
C
TSR
1 year
147,335
-
(147,335)
-
-
30 June 2020
C
Discretionary
1 year
227,273
-
(227,273)
-
-
3,547,516
1,833,284
(374,608)
(574,606)
4,431,586
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%
Nil
10% or higher
25% of the total applicable tranche
Tranche A: 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.
Tranche D: The compound growth in EPS will be measured by comparing fully diluted EPS for the financial year
ending 30 June 2023 with fully diluted EPS for the financial year ended 30 June 2020.
REMUNERATION REPORT - AUDITED
25
EBITDA Measure
EBITDA MEASUREMENT
TABLE
EBITDA margin of HRL relative to EBITDA margin of
comparator peer companies
Proportion of performance rights that may be
exercised if EBITDA hurdle is met
Less than average EBITDA margin of comparator peer
companies
Nil
More than average EBITDA margin of comparator peer
companies
25% of the total applicable tranche
Comparator companies
Bureau Veritas (France), Core Laboratories (USA),
Eurofins (France & Germany), Intertek (UK), SGS
(Switzerland), ALS (Australia), AsureQuality (NZ)
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.
Budget Measure
BUDGET 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 total
grant
EBITDA is greater than budget by 10%
25% of total grant
REMUNERATION REPORT - AUDITED
26
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 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.
Discretionary Measure
The financial impacts of COVID-19 on the Group during the FY2020 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:
REMUNERATION REPORT - AUDITED
27
Inputs into pricing model for
EPS/EBITDA/ROCE/Budget vesting conditions
Tranche D -
Employees
Tranche D * –
Executive Director
Tranche A -
Employees
Tranche A –
Executive Director
Tranche B
Tranche C
Grant date
14 September 2020
22 October 2020
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Exercise price
Nil
Nil
Nil
Nil
Nil
Nil
Vesting conditions
Refer above
Refer above
Refer above
Refer above
Refer above
Refer above
Share price at grant date
$0.105
$0.115
$0.110
$0.110
$0.110
$0.110
Expiry date
30 June 2023
30 June 2023
30 June 2022
30 June 2022
30 June 2021
30 June 2020
Life of the instruments
2.8 years
2.7 years
2.8 years
2.65 years
1.8 years
0.8 years
Underlying share price volatility
77%
77%
71.5%
71.5%
71.5%
71.5%
Expected dividends
Nil
Nil
Nil
Nil
Nil
Nil
Risk free interest rate
0.24%
0.14%
0.72%
0.72%
0.72%
0.72%
Pricing model
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Fair value per instrument
$0.105
$0.115
$0.11
$0.11
$0.11
$0.11
* 199,890 Tranche D shares were issued to Steve Howse following shareholder approval on 22 October 2020.
Inputs into pricing model for
TSR vesting condition
Tranche D -
Employees
Tranche D –
Executive Director
Tranche A -
Employees
Tranche A –
Executive Director
Tranche B
Tranche C
Grant date
14 September 2020
22 October 2020
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Exercise price
Nil
Nil
Nil
Nil
Nil
Nil
Vesting conditions
Refer above
Refer above
Refer above
Refer above
Refer above
Refer above
Share price at grant date
$0.105
$0.115
$0.11
$0.12
$0.11
$0.11
Expiry date
30 June 2023
30 June 2023
30 June 2022
30 June 2022
30 June 2021
30 June 2020
Life of the instruments
2.8 years
2.7 years
2.8 years
2.65 years
1.8 years
0.8 years
S&P Small Ordinaries Index volatility
19%
19%
11.7%
11.7%
11.7%
11.7%
Correlation
0.36
0.36
0.42
0.42
0.42
0.42
Pricing model
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Fair value per instrument
$0.0743
$0.0845
$0.0790
$0.0761
$0.076
$0.0686
REMUNERATION REPORT - AUDITED
28
The value of performance rights granted, excercised and lapsed in the current year is set out in the below table.
Value Granted
$
Value Exercised
$
Value lapsed
$
Key Management
Steve Howse
21,463
-
-
Steven Dabelstein
105,980
21,738
(35,478)
Michael Harvey
52,990
13,369
(17,739)
Transactions with related parties
There were no transactions with related parties.
Loans to related parties
There were no loans given to related parties.
Remuneration Consultants
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
2021
$
2020
$
2019
$
2018
$
2017
$
Share price at end of financial year
0.115
0.110
0.115
0.185
0.080
Market capitalisation at end of financial year ($M)
56.8
54.3
56.7
91.3
19.5
Underlying EBITDA
7,715,000
6,929,000
4,451,000
5,775,000
1,509,000
Net profit/(loss) for the financial year
1,312,000
(2,495,000)
(7,127,000)
(1,504,000)
130,000
Director and Key Management Personnel remuneration
1,262,976
1,123,956
1,428,947
990,389
965,124
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.
1,833,284 performance share equity instruments were issued to key management as remuneration during the year.
574,606 performance rights lapsed during the period and 604,070 performance rights vested during the period.
------------------------------ END OF REMUNERATION REPORT ------------------------------
DIRECTORS’ REPORT
29
DIVIDENDS
No dividends were paid or declared during the financial year.
ROUNDING
The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in
the directors’ report. Amounts in the directors’ report have been rounded off in accordance with the instrument to the
nearest thousand dollars, or in certain cases, to the nearest dollar.
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
$66,000
AUDITOR’S INDEPENDENCE DECLARATION
The Auditor’s Independence Declaration on page 30 forms part of the Directors’ Report.
Signed in accordance with a resolution of the board of directors of HRL Holdings.
AUDITOR’S INDEPENDENCE DECLARATION
30
DECLARATION OF INDEPENDENCE BY C R JENKINS TO THE DIRECTORS OF HRL HOLDINGS LIMITED
As lead auditor of HRL Holdings Limited for the year ended 30 June 2021, 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 year.
C J Jenkins
Director
BDO Audit Pty Ltd
Brisbane, 30 July 2021
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
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.
ADDITIONAL ASX INFORMATION
31
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 16 July 2021.
Distribution of equity securities
HRL – Ordinary Fully Paid Shares
Number of Securities Held
No’s of holders
1 to 1,000
285
1,001 to 5,000
351
5,001 to 10,000
174
10,001 to 50,000
310
50,001 to 100,000
110
100,001 and over
235
Total
1,465
Number of unmarketable parcels of shares
593
Twenty largest holders
No.
Name of Shareholder
Holding
% Held
1
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
170,359,917
34.50
2
NATIONAL NOMINEES LIMITED
85,185,032
17.25
3
HGT INVESTMENTS PTY LTD
22,276,868
4.51
4
UBS NOMINEES PTY LTD
21,573,000
4.37
5
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
19,689,967
3.99
6
TERRENCE PATRICK COONEY & JULIE ANNE COONEY & HUGH OWEN COONEY
16,670,891
3.38
7
CITICORP NOMINEES PTY LIMITED
11,489,524
2.33
8
DIXSON TRUST PTY LIMITED
7,312,879
1.48
9
CAROLYN JOY BRAGGINS & TERENCE JOHN BRAGGINS & VOSPER TRUSTEES
7,190,297
1.46
10
JNLJ COMPANY LTD
7,190,297
1.46
11
H K PRICE PTY LTD
3,330,624
0.67
12
CUSTODIAL SERVICES LIMITED
3,268,570
0.66
13
MATARANKA PTY LTD
3,036,486
0.61
14
ELLIOTT NOMINEES PTY LTD
3,033,119
0.61
15
MR JONATHAN PAUL KERSHAW MARSHALL
2,622,865
0.53
16
MR CRAIG ANTHONY ANDERSON & MRS AMANDA MARIE ANDERSON
2,445,528
0.50
17
MR GREGORY JOHN ANDERSON & MRS NANCY JOY ANDERSON
2,326,667
0.47
18
ESTANZA PTY LTD
2,308,000
0.47
19
BNP PARIBAS NOMS PTY LTD
2,131,334
0.43
20
DENBASS PTY LTD
2,000,000
0.41
395,441,865
80.09
Voting Rights
All fully paid ordinary shares carry one vote per share without restriction.
Substantial Shareholders
The company has received the following substantial shareholder notices as at 16 July 2021:
Richmond Hill Capital Pty Ltd holds an interest in 97,654,689 shares (19.78%)
Perennial Value Management Limited holds an interest in 51,983,334 shares (10.53%)
AustralianSuper Pty Ltd has an interest in 43,869,466 shares (8.88%)
Viburnum Funds Pty Ltd holds an interest in 43,163,039 shares (8.74%)
National Nominees Ltd ACF Australian Ethical Investment holds an interest in 28,800,000 shares (5.83%)
STATEMENT OF COMPREHENSIVE INCOME
32
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2021
2021
2020
Note
$’000
$’000
Revenue from contracts with customers
3
34,612
32,806
Interest revenue
11
17
Total Revenue
34,623
32,823
Costs and consumables relating to the provision of services
(5,824)
(5,501)
Employee expenses
4
(17,492)
(16,221)
Travel and business development expenses
(401)
(429)
Other expenses
(3,204)
(3,637)
Finance costs
(301)
(381)
Depreciation & amortisation – equipment, software and leased assets
(2,970)
(3,100)
Amortisation of acquisition intangible assets
(809)
(2,540)
Employee benefits expense – share based payments
24
(197)
(193)
Employee benefits expense on Analytica earn-out payment
17
-
(2,158)
Total Expenses
(31,198)
(34,160)
Equity accounted share of profit/(loss)
22
(798)
(513)
Profit/(loss) before income tax
2,627
(1,850)
Income tax benefit/(expense)
6
(1,315)
(645)
Profit/(loss) after income tax
1,312
(2,495)
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign currency translation differences for foreign operations
20
(58)
(478)
Income tax
-
-
Other comprehensive income for the period, net of tax
(58)
(478)
Total comprehensive income
1,254
(2,973)
Earnings/(Loss) per share
Cents
Cents
Basic and diluted earnings/(loss) per share
8
0.3
(0.5)
The Consolidated Statement of Comprehensive Income should be read in conjunction with the Notes to the Financial Statements.
BALANCE SHEET
33
Consolidated Balance Sheet
As at 30 June 2021
2021
2020
Note
$’000
$’000
CURRENT ASSETS
Cash and cash equivalents
7
1,585
2,854
Trade and other receivables
10
4,645
3,810
Inventories
11
742
475
Other current assets
59
27
TOTAL CURRENT ASSETS
7,031
7,166
NON-CURRENT ASSETS
Trade and other receivables
10
224
309
Equity accounted investments
22
1,035
699
Plant and equipment
12
6,877
5,922
Intangible assets
13
1,329
1,766
Goodwill
14
16,776
16,572
Right-of-use assets
15
1,892
3,075
Deferred tax assets
6
1,040
1,412
TOTAL NON-CURRENT ASSETS
29,173
29,755
TOTAL ASSETS
36,204
36,921
CURRENT LIABILITIES
Trade and other payables
16
2,895
2,699
Current tax liabilities
850
748
Short-term provisions
17
1,197
1,178
Lease liabilities
15
1,202
1,239
Borrowings
18
52
2,144
TOTAL CURRENT LIABILITIES
6,196
8,008
NON-CURRENT LIABILITIES
Long-term provisions
17
23
40
Lease liabilities
15
1,163
1,970
Borrowings
18
1,339
689
Deferred tax liabilities
6
4
186
TOTAL NON-CURRENT LIABILITIES
2,529
2,885
TOTAL LIABILITIES
8,725
10,893
NET ASSETS
27,479
26,028
EQUITY
Contributed capital
19
38,197
38,162
Reserves
20
(94)
(112)
Accumulated losses
(10,624)
(12,022)
TOTAL EQUITY
27,479
26,028
The Consolidated Balance Sheet should be read in conjunction with the Notes to the Financial Statements.
STATEMENT OF CHANGES IN EQUITY
34
Consolidated Statement of Changes in Equity
For the year ended 30 June 2021
Contributed
Capital
Accumulated
Losses
Share Based
Payment Reserve
Foreign Currency
Reserve
Total
$’000
$’000
$’000
$’000
$’000
Balance at 1 July 2019
38,162
(9,569)
-
215
28,808
Transactions with owners in their capacity as owners
Share based payments
-
-
193
-
193
Transfer of expired performance rights
-
42
(42)
-
-
Total
-
42
151
-
193
Comprehensive income
Loss after income tax
-
(2,495)
-
(2,495)
Foreign currency translation differences for foreign operations
-
-
-
(478)
(478)
Total comprehensive income
-
(2,495)
-
(478)
(2,973)
Balance at 30 June 2020
38,162
(12,022)
151
(263)
26,028
Balance at 1 July 2020
38,162
(12,022)
151
(263)
26,028
Transactions with owners in their capacity as owners
Share based payments
-
-
197
-
197
Conversion of performance rights
35
-
(35)
-
-
Transfer of expired performance rights
-
86
(86)
-
-
Total
35
86
76
-
197
Comprehensive income
Profit/(loss) after income tax
-
1,312
-
-
1,312
Foreign currency translation differences for foreign operations
-
-
-
(58)
(58)
Total comprehensive income
-
1,312
-
(58)
1,254
Balance at 30 June 2021
38,197
(10,624)
227
(321)
27,479
The Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements.
STATEMENT OF CASH FLOWS
35
Consolidated Statement of Cash Flows
For the year ended 30 June 2021
Note
2021
2020
$’000
$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
38,080
37,392
Payments to suppliers and employees
(31,884)
(28,932)
Interest received
4
2
Income tax paid
(1,012)
(672)
COVID-19 wage subsidies received
635
1,489
Analytica earn out payments
-
(2,584)
Finance costs
(301)
(381)
Net cash provided by/(used in) operating activities
7
5,522
6,313
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for plant & equipment
(2,091)
(1,734)
Proceeds from the sale of plant & equipment
219
35
Payments for intangible assets
(190)
(242)
Security bond payments
24
-
Net cash outflow on acquisition of Water Testing Hawkes Bay
21
(502)
-
Investment in Food Lab Pacific Limited
22
(1,137)
(559)
Net cash used in investing activities
(3,677)
(2,499)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
7
4,395
5,258
Repayment of borrowings
7
(6,263)
(5,699)
Lease principal payments
7
(1,305)
(1,496)
CAIQTest (Pacific) Limited loan repayment
10
65
-
Net cash provided by/(used in) financing activities
(3,108)
(1,937)
Net increase/(decrease) in cash and cash equivalents held
(1,263)
(1,877)
Net foreign exchange differences
(6)
(54)
Cash and cash equivalents at the beginning of the financial period
2,854
1,031
Cash and cash equivalents at the end of the financial period 6
1,585
2,854
The Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
36
NOTES TO THE FINANCIAL STATEMENTS INDEX
Note
Page Number
Summary of Significant Accounting Policies
37
Financial Performance Notes
Segment Reporting
40
Revenue
43
Expenses
44
COVID-19 Assistance and Support
44
Income Tax
45
Cash Flow Information
49
Earnings Per Share
50
Dividends
50
Financial Position Notes
Trade and Other Receivables
51
Inventories
52
Plant and Equipment
53
Intangible Assets
54
Goodwill
56
Leases
58
Trade and Other Payables
60
Provisions
61
Borrowings
61
Contributed Capital
63
Reserves
64
Group Structure Notes
Water Testing Hawkes Bay Acquisition
64
Equity Accounted Investments
66
Parent Entity Information
68
Other Disclosure Notes
Share Based Payments
70
Related Party Transactions
74
Financial Risk Management
75
Commitments
77
Contingent Liabilities
77
Auditors Remuneration
77
Events After Balance Sheet Date
77
NOTES TO THE FINANCIAL STATEMENTS
37
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 and rounding
The financial report is presented in Australian dollars which is the functional currency of the Company.
The Company is a kind referred to in Australian Securities & Investment Commission (ASIC) Corporations Instrument
2016/191, and in accordance with that instrument all financial information presented in Australian Dollars has been rounded
to the nearest thousand dollars unless otherwise stated.
Authorisation of financial report
The financial report was authorised for issue on 30 July 2021.
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 Group’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:
NOTES TO THE FINANCIAL STATEMENTS
38
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 $724,000 (2020: $1,181,000) 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. 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.
NOTES TO THE FINANCIAL STATEMENTS
39
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
New Accounting Standards
The accounting policies adopted are consistent with those of the previous financial year. Several other amendments and
interpretations applied for the first time during the year but these changes did not have an impact on the Consolidated
Entity’s financial statements and hence, have not been disclosed. The Consolidated Entity has not early adopted any
standards, interpretations or amendments that have been issued but are not yet effective.
New Standards and Interpretations Not Yet Adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2021
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 Consolidated Entity in the current or future reporting periods and on foreseeable future transactions.
NOTES TO THE FINANCIAL STATEMENTS
40
NOTE 2 SEGMENT REPORTING
Reportable Segments
For the year ended 30 June 2021 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
industrial hygiene, with a focus on asbestos and hazardous materials management;
o
property contamination testing and workplace drug testing;
o
environmental testing services (air, water and soil including contaminated land);
o
environmental and property management software solutions; and
o
specialised NATA/IANZ - on-site testing and monitoring.
Food and environmental laboratory services including:
o
honey laboratory testing;
o
milk and dairy laboratory testing;
o
food origin testing;
o
drugs of abuse laboratory testing;
o
asbestos laboratory analysis;
o
environmental laboratory testing (air, water, soil including organic and inorganics); and
o
other laboratory research and development.
Geotechnical services including:
o
Geotechnical investigations and studies;
o
Temporary works designs and inspections;
o
Construction phase verification;
o
Earthworks supervision;
o
Soil, concrete and aggregate testing; and
o
Onsite mobile laboratory testing.
Software services including:
o
Information management software solutions for asbestos and hazardous materials;
o
Innovative field management software solutions; and
o
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 Company is domiciled in Australia.
The amount of revenue from external customers in Australia was $11,368,000 (2020: $12,420,000). Total revenues from
customers domiciled in New Zealand was $23,244,000 (2020: $20,386,000).
The amount of non-current assets other than financial instruments and deferred tax assets located in Australia is
$9,850,000 (2020: $9,954,000). Total non-current assets other than financial instruments and deferred tax assets located
in New Zealand was $17,996,000 (2020: $18,080,000).
NOTES TO THE FINANCIAL STATEMENTS
41
NOTE 2 SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2021
HAZMAT
Geotechnical
Food/Enviro
Laboratory
Software
Unallocated
Consolidated
$’000
$’000
$’000
$’000
$’000
$’000
Revenue:
Contracts with customers
9,420
6,060
18,280
852
-
34,612
Interest income
-
-
-
-
11
11
Expenses:
Interest expense
-
-
-
-
(301)
(301)
Other expenses
(7,906)
(5,543)
(14,583)
(598)
(1,458)
(30,088)
Equity accounted share of loss
-
-
(798)
-
-
(798)
Segment result before acquisition
related expenses
1,514
517
2,899
254
(1,748)
3,436
Acquisition related expenses
Amortisation of acquisition intangibles
-
-
(809)
-
-
(809)
Segment result before tax
1,514
517
2,090
254
(1,748)
2,627
Income tax
-
-
-
-
-
(1,315)
Net loss
1,312
Non-cash and other significant items:
Depreciation and amortisation
664
401
2,556
117
41
3,779
Impairment of receivables
5
(32)
29
2
-
4
Share based payments
26
-
52
6
113
197
Gain on sale of plant and equipment
21
91
192
-
-
304
Assets:
Segment assets
5,248
4,278
23,915
1,936
827
36,204
Liabilities:
Segment liabilities
2,470
1,240
2,547
147
2,321
8,725
Segment acquisitions:
Acquisition of plant and equipment
177
531
2,266
1
4
2,979
Acquisition of intangibles
-
-
6
184
-
190
Acquisition of right of use assets
147
-
105
-
-
252
Details on non-current assets:
Trade and other receivables
47
14
145
-
18
224
Plant and equipment
554
875
5,436
6
6
6,877
Right of use assets
708
318
828
-
38
1,892
Intangibles
6
-
895
428
-
1,329
Goodwill
1,762
1,771
11,877
1,366
-
16,776
Equity accounted investment
-
-
1,035
-
-
1,035
Deferred tax assets
-
-
-
-
1,040
1,040
3,077
2,978
20,216
1,800
1,102
29,173
NOTES TO THE FINANCIAL STATEMENTS
42
NOTE 2 SEGMENT REPORTING (CONT’D)
Segment Revenues and Results
30 June 2020
HAZMAT
Geotechnical
Food/Enviro
Laboratory
Software
Unallocated
Consolidated
$’000
$’000
$’000
$’000
$’000
$’000
Revenue:
Contracts with customers
8,666
6,828
16,424
888
-
32,806
Interest income
-
-
-
-
17
17
Expenses:
Interest expense
-
-
-
-
(381)
(381)
Other expenses
(7,248)
(6,767)
(13,040)
(511)
(1,516)
(29,082)
Equity accounted share of loss
-
-
(513)
-
-
(513)
Segment result before acquisition
related expenses
1,418
61
2,871
377
(1,880)
2,847
Acquisition related expenses
Earn-out expense
-
-
(2,158)
-
-
(2,156)
Amortisation of acquisition intangibles
-
(442)
(1,812)
(285)
-
(2,540)
Segment result before tax
1,418
(381)
(1,099)
92
(1,880)
(1,850)
Income tax
-
-
-
-
-
(645)
Net loss
(2,495)
Non-cash and other significant items:
Depreciation and amortisation
705
827
3,715
369
25
5,641
Impairment of receivables
86
62
84
-
-
232
Share based payments
12
6
27
3
144
193
Earn-out expense/(adjustments)
-
-
2,158
-
-
2,158
Assets:
Segment assets
4,755
4,232
24,315
1,895
1,724
36,920
Liabilities:
Segment liabilities
3,118
1,624
2,344
200
3,607
10,893
Segment acquisitions:
Acquisition of plant and equipment
138
102
1,487
5
1
1,734
Acquisition of intangibles
73
169
242
Acquisition of right of use assets
259
-
990
-
-
1,250
Details on non-current assets:
Trade and other receivables
74
14
204
-
17
309
Plant and equipment
429
316
5,166
8
4
5,922
Right of use assets
1,208
805
985
-
76
3,075
Intangibles
17
-
1,390
359
-
1,765
Goodwill
1,769
1,771
11,667
1,366
-
16,572
Equity accounted investment
-
-
699
-
-
699
Deferred tax assets
-
-
-
-
1,412
1,412
3,496
2,905
20,111
1,733
1,509
29,755
NOTES TO THE FINANCIAL STATEMENTS
43
NOTE 3
REVENUE FROM CONTRACTS WITH CUSTOMERS
2021
2020
$’000
$’000
Services Revenue
HAZMAT service revenue
9,420
8,666
Geotechnical service revenue
6,060
6,828
Food and environmental laboratory revenue
18,280
16,424
Software service revenue
852
888
Total service revenue
34,612
32,806
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.
NOTES TO THE FINANCIAL STATEMENTS
44
NOTE 4
EXPENSES
2021
2020
$’000
$’000
Employee benefits expenses
Note
Defined contribution superannuation expense
931
929
Other employee benefits expenses
17,196
16,810
Government employment subsidies received
5
(635)
(1,517)
Total employee benefits expenses
17,492
16,221
Employee benefits expense – share based payments
24
197
193
Remuneration expense on Analytica earn-out
17
-
2,158
Contributions to defined contribution plans are expensed when incurred.
Net gain/(loss) on disposal of plant and equipment
304
(45)
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 the following material COVID-19 related support subsidies from the Australia
Government:
Government Subsidy
Entity
Program
Duration
Subsidy
FY2021
Program
End
Australia JobKeeper
Morrison Geotechnic Pty Ltd
3 months
$635,000
September 2020
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 in May 2022. The loan is unsecured.
Payment Deferrals
Loans and Other Payables
There are no loans or other liabilities on deferred payment arrangements.
NOTES TO THE FINANCIAL STATEMENTS
45
NOTE 6
INCOME TAX
2021
2020
$’000
$’000
Income tax expense:
Current tax
Current tax on profit/loss for the year
1,394
1,075
Adjustments for current tax of prior periods
(29)
15
Total current tax expense
1,365
1,090
Deferred tax
Movement in deferred tax assets
541
208
Movement in deferred tax liabilities
(591)
(653)
Total deferred tax expense/(benefit)
(50)
(445)
Total income tax expense/(benefit)
1,315
645
Reconciliation of income tax expense to prima facie tax payable:
Profit/(loss) before tax, excluding profit/(loss) for equity accounted investments
3,424
(1,337)
Prima facie tax at 26% (2020: 27.5%)
890
(368)
Tax effect of not deductible (taxable) amounts in calculating taxable income:
Entertainment expenses
13
13
Analytica earn-out expense
-
604
Share based payments
53
52
Other items
209
335
1,165
636
Difference in overseas tax rate
54
(6)
Deferred tax expense arising on income tax changes
125
-
Adjustments for tax of prior periods
(29)
15
Total income tax expense/(benefit)
1,315
645
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.
NOTES TO THE FINANCIAL STATEMENTS
46
NOTE 6
INCOME TAX (CONT’D)
Amounts recognised directly in equity:
Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss or other
comprehensive income but directly debited or credited to equity during the period was $Nil (2020: $Nil).
2021
2020
$’000
$’000
Deferred tax assets:
Balance comprises temporary differences attributable to:
Employee benefits payable
14
16
Employee leave provisions
319
337
Provision for doubtful debts
55
68
Other payables
100
76
Inventories
40
28
Lease liabilities
508
676
Carried forward tax losses
724
1,181
1,760
2,382
Set-off of deferred tax liabilities
(720)
(970)
Net deferred tax assets
1,040
1,412
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 (in $’000):
Year ended June 2021
1 July 2020
Charged to
Profit or Loss
Acquisition of
subsidiary
Change in
future tax rate
30 June
2021
Employee benefits payable
16
(1)
-
(1)
14
Employee leave provisions
337
(6)
9
(21)
319
Provision for doubtful debts
68
(12)
-
(1)
55
Other payables
76
32
-
(8)
100
Inventories
28
12
-
-
40
Lease liabilities
676
(209)
67
(26)
508
Carried forward tax losses
1,181
(358)
-
(99)
724
2,382
(542)
76
(156)
1,760
Year ended June 2020
1 July 2019
Charged to Profit
or Loss
Recognised on
adoption of
AASB 16
30 June 2020
Employee benefits payable
14
2
-
16
Employee leave provisions
263
74
-
337
Provision for doubtful debts
13
55
-
68
Other payables
-
76
76
Inventories
-
28
-
28
Lease liabilities
184
16
476
676
Carried forward tax losses
1,641
(460)
-
1,181
2,115
(209)
476
2,382
NOTES TO THE FINANCIAL STATEMENTS
47
NOTE 6
INCOME TAX (CONT’D)
2021
2020
$’000
$’000
Deferred tax liabilities:
Balance comprises temporary differences attributable to:
Intangibles assets
234
359
Leased assets
460
777
Other amounts
30
21
724
1,156
Set-off of deferred tax assets
720
(970)
Net deferred tax liabilities
4
186
Movements during the period (in $’000):
Year ended June 2021
1 July 2020
Charged to
Profit or Loss
Acquisition of
subsidiary
Change in
future tax rate
30 June 2021
Intangible assets
358
(226)
102
-
234
Leased assets
777
(373)
25
31
460
Other amounts
21
9
-
-
30
1,156
(590)
127
31
724
Year ended June 2020
1 July 2019
Charged to Profit
or Loss
Recognised on
adoption of
AASB 16
30 June 2020
Intangible assets
1,076
(718)
-
358
Leased assets
242
59
476
777
Other amounts
16
5
-
21
1,334
(654)
476
1,156
Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability,
where there is no effect on accounting or taxable profit or loss.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is
realised or the liability is settled and their measurement also reflects the manner in which management expects to recover
or settle the carrying amount of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is
probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.
Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures,
deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be
controlled and it is not probable that the reversal will occur in the foreseeable future.
Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net
settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets
and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities
relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities
where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will
occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or
settled.
Deferred tax is accounted for using the balance sheet method in respect of temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
48
NOTE 6
INCOME TAX (CONT’D)
Tax consolidation
HRL Holdings Limited and its wholly-owned Australian controlled entities have formed a tax-consolidated group. HRL
Holdings NZ Limited (a wholly-owned subsidiary of HRL Holdings Limited) and its wholly-owned New Zealand controlled
entities have formed a tax-consolidated group. The entities in the tax group have entered into a tax sharing agreement to
limit the joint and several liability of the wholly-owned entities in the case of a default by the relevant Head Entity.
A tax funding agreement where the wholly-owned entities fully compensate the Head Entity for any current tax receivable
and deferred tax assets related to unused tax losses or unused tax credits that are transferred to the Head Entity under
the tax consolidation legislation has also been entered into. The transfer of such amounts to the Head Entity is recognised
as inter-company receivables or payables.
Each entity in the tax-consolidated group continues to account for its own current and deferred tax amounts. These tax
amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own
right.
In addition to its own current and deferred tax amounts, each relevant Parent entity also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled
entities in the tax consolidated group.
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.
NOTES TO THE FINANCIAL STATEMENTS
49
NOTE 7
CASH FLOW INFORMATION
2021
2020
$’000
$’000
Reconciliation of cash flows from operations with profit after tax
Profit/(loss) after income tax
1,312
(2,495)
Non-cash items in profit/(loss) after income tax
Depreciation and amortisation
3,779
5,641
(Gain)/loss on sale of plant and equipment
(304)
45
Impairment of receivables
4
231
Share based payments
197
193
Equity accounted share of profit/(loss)
798
513
Accrued interest revenue
(7)
(15)
Movements in operating assets and liabilities
Trade and other receivables
(728)
896
Inventories
(220)
215
Other assets
398
416
Trade and other payables
15
1,000
Provisions
(25)
(300)
Tax balances
303
(27)
Net cash provided by/ (used in) operating activities
5,522
6,313
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 (2020: $Nil).
Plant and equipment totalling $889,000 was acquired through trade-ins (2020: $Nil)
Cash and Cash Equivalents
Cash at bank and on hand
1,494
2,765
Cash on deposit
91
89
1,585
2,584
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.
NOTES TO THE FINANCIAL STATEMENTS
50
NOTE 7
CASH FLOW INFORMATION (CONT’D)
Reconciliation of cash and non-cash movements in borrowings from financing activities (in $’000)
Year ended 30 June 2021
Opening
Balance
Cash inflows /
(outflows)
Business
combinatio
n
Non-cash
additions
Closing
Balance
Leases
3,208
(1,305)
237
225
2,365
Bank loans
2,833
(1,442)
-
-
1,391
Insurance financing
-
(426)
-
426
-
6,041
(3,173)
237
651
3,756
Year ended 30 June 2020
Opening
Balance
Recognised on
adoption of
AASB 16
Cash
outflows
Non-cash
additions
Closing
Balance
Leases
1,735
1,720
(1,497)
1,250
3,208
Bank loans
2,863
-
(30)
-
2,833
Insurance financing
-
-
(410)
410
-
4,598
1,720
(1,937)
1,660
6,041
NOTE 8
EARNINGS PER SHARE
2021
2020
$’000
$’000
Earnings
Earnings used to calculate basic and diluted EPS
1,312
(2,495)
Weighted average number of shares and options
Number of
shares
Number of
shares
Weighted average number of ordinary shares outstanding during the period,
used in calculating basic earnings per share
493,747,472
493,402,627
Weighted average number of dilutive options outstanding during the period
8,500,593
-
Weighted average number of ordinary shares and potential ordinary shares
outstanding during the period, used in calculating diluted earnings per share
502,248,065
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.
NOTE 9
DIVIDENDS
No dividends were paid during the financial year ended 30 June 2021 (2020: Nil) and no dividend is recommended for
the current year.
NOTES TO THE FINANCIAL STATEMENTS
51
NOTE 10
TRADE AND OTHER RECEIVABLES
2021
2020
$’000
$’000
CURRENT
Trade receivables
4,510
3,733
Provision for expected credit losses
(192)
(180)
4,318
3,553
Contract assets
291
248
Other receivables
37
9
4,645
3,810
NON-CURRENT
Bonds and other deposits
79
105
Loan receivable from CAIQTest Pacific Limited
145
204
224
309
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 is repayable by December 2025 and accrues interest at a rate of 5.77%.
Impairment of trade receivables and contract assets
The Group recognised a loss of $4,000 during the year (2020: $232,000) in relation to impaired receivables.
Movements during the year – Provision for expected credit loss
2021
2020
$’000
$’000
Opening balance
180
47
Impaired receivables provided for during the period
4
232
Receivables written off during the year as uncollectible
-
(99)
Foreign exchange movements
8
-
Closing balance
192
180
Loss Allowance – 30 June 2021
Expected loss rate
Gross Receivables
Loss Allowance
Government agencies and national utilities
0%
721
-
Current
2.50%
2,813
70
Less than 1 month past due
5.00%
704
35
More than 1 month past due
7.50%
83
6
More than 2 months past due
10.00%
61
6
More than 3 months past due
25.00%
42
10
Older
40.00%
86
37
Contract assets - current
9.50%
291
28
Total
4,801
192
NOTES TO THE FINANCIAL STATEMENTS
52
NOTE 10
TRADE AND OTHER RECEIVABLES (CONT’D)
Loss Allowance – 30 June 2020
Expected loss rate
Gross Receivables
Loss Allowance
Government agencies and national utilities
0%
316
-
Current
2.50%
2,704
67
Less than 1 month past due
5.00%
587
29
More than 1 month past due
7.50%
35
3
More than 2 months past due
15.00%
23
3
More than 3 months past due
30.00%
36
11
Older
50.00%
33
17
Contract assets - current
20.00%
248
50
Total
3,982
180
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 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 2021, the Group has slightly eased the expected loss rates from the
prior period due to improved economic environment since the worst of the COVID-19 pandemic experienced in FY2020,
however expected loss rates across all ageing profiles still remain substantially higher than pre-COVID 19 historical rates.
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
2021
2020
$’000
$’000
CURRENT
Laboratory consumables
742
475
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 $2,870,000 (2020: $2,832,000).
NOTES TO THE FINANCIAL STATEMENTS
53
NOTE 12
PLANT AND EQUIPMENT
2021
2020
$’000
$’000
Leasehold improvements at cost
550
461
Accumulated depreciation
(221)
(158)
329
303
Motor vehicles at cost
1,000
263
Accumulated depreciation
(309)
(160)
691
103
Office furniture and equipment at cost
965
748
Accumulated depreciation
(655)
(450)
310
298
Lab and field equipment at cost
10,896
8,845
Accumulated depreciation
(5,349)
(3,627)
5,547
5,218
Total plant and equipment at cost
13,411
10,318
Total accumulated depreciation
(6,534)
(4,396)
Total plant and equipment
6,877
5,922
Movements during the year (in $’000)
Leasehold
Improvements
Motor
Vehicles
Office Furniture
and Equipment
Lab and field
Equipment
Total
Balance at 1 July 2021
303
103
298
5,218
5,922
Transfers from leased assets
-
280
-
74
354
Additions
80
464
200
2,235
2,979
Disposals
-
(5)
-
(742)
(747)
Business combinations (Note 21)
16
-
11
85
112
Foreign exchange movements
(8)
(1)
6
(19)
(22)
Depreciation
(62)
(150)
(205)
(1,304)
(1,721)
Balance at 30 June 2021
329
691
310
5,547
6,877
Leasehold
Improvements
Motor
Vehicles
Office Furniture
and Equipment
Lab and field
Equipment
Total
Balance at 1 July 2019
313
1,293
354
5,512
7,472
Transfers to leased assets
(32)
(1,145)
-
(256)
(1,433)
Additions
98
24
138
1,474
1,734
Disposals
-
(5)
(12)
(28)
(45)
Foreign exchange movements
3
(11)
(14)
(108)
(130)
Depreciation
(79)
(53)
(168)
(1,375)
(1,676)
Balance at 30 June 2020
303
103
298
5,218
5,922
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.
NOTES TO THE FINANCIAL STATEMENTS
54
NOTE 12
PLANT AND EQUIPMENT (CONT’D)
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
Depreciation Rates
Leasehold improvements
20%
Motor vehicles
15% -25%
Office furniture and equipment
20% - 67%
Laboratory and field equipment
15% - 40%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date.
NOTE 13
INTANGIBLE ASSETS
2021
2020
$’000
$’000
Customer contracts at cost
3,855
3,629
Accumulated amortisation
(3,143)
(2,756)
712
873
Licences and accreditations at cost
4,998
4,858
Accumulated amortisation
(4,873)
(4,451)
125
407
Software at cost
2,549
2,360
Accumulated amortisation
(2,057)
(1,874)
492
486
Total intangible assets
1,329
1,766
Movements during the year (in $’000)
Year ended 30 June 2021
Customer
Contracts
Licences and
Accreditations
Software
Total
Balance at 1 July 2020
873
407
486
1,766
Additions
-
-
190
190
Business combinations (Note 21)
225
141
-
366
Foreign exchange movements
-
-
(1)
(1)
Amortisation
(386)
(423)
(183)
(992)
Balance at 30 June 2021
712
125
492
1,329
NOTES TO THE FINANCIAL STATEMENTS
55
NOTE 13
INTANGIBLE ASSETS (CONT’D)
Year ended 30 June 2020
Customer
Contracts
Licences and
Accreditations
Software
Other
Intangibles
Total
Balance at 1 July 2019
1,619
1,920
707
41
4,287
Additions
-
-
242
-
242
Foreign exchange movements
(9)
(22)
7
(1)
(25)
Amortisation
(737)
(1,491)
(470)
(40)
(2,738)
Balance at 30 June 2020
873
407
486
-
1,766
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.
NOTES TO THE FINANCIAL STATEMENTS
56
NOTE 14
GOODWILL
2021
2020
$’000
$’000
Opening balance
16,572
16,774
Business combinations (Note 21)
240
-
Foreign exchange movements
(36)
(202)
16,776
16,572
Impairment tests for goodwill
Goodwill is monitored by management at the Company level for Precise Limited, Analytica Laboratories Limited, Morrison
Geotechnic Pty Ltd and OCTFOLIO Pty Ltd. Water Testing HB (2016) Limited was acquired during the period and has
been integrated into the wider Analytica Laboratories Limited cash generating unit.
Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances
indicate that it might be impaired, and is carried at cost less accumulated impairment losses. The Group tests whether
goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is
determined based on value-in-use calculations which require the use of assumptions.
The calculations use cash flow projections based on financial budgets covering a five-year period. Cash flows beyond the
five-year period are extrapolated using the estimated growth rates stated below. These growth rates are consistent with
forecasts included in industry reports specific to the industry in which each CGU operates. Refer to Note 2 for the segment
level of goodwill. The following table sets out the key assumptions for the value in use:
NOTES TO THE FINANCIAL STATEMENTS
57
NOTE 14
GOODWILL (CONT’D)
Assumption
Precise
Analytica
Morrison
OCTFOLIO
Approach
Sales volume annual growth
1.5%
1.5%
1.0%
3.0%
Average annual growth rate over the five-year forecast period based on management’s expectations of
market development.
Sales price annual growth
1.0%
1.0%
1.0%
1.0%
Average annual growth rate over the five-year forecast period based on current industry trends
Fixed costs per annum
$1.7M
$4.3M
$1.5M
$0.5M
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.
Annual capital expenditure
$150,000
$1,800,000
$75,000
$75,000
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.
Long term growth rate
2%
2%
2%
2%
This is the weighted average growth rate used to extrapolate cash flows beyond the budget period.
The rates are consistent with forecasts included in industry reports.
Pre-tax discount rate
16%
15%
16%
18%
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.
Goodwill attributable to CGU
$1,762,000
$11,877,000
$1,771,000
$1,366,000
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.
NOTES TO THE FINANCIAL STATEMENTS
58
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.
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.
NOTES TO THE FINANCIAL STATEMENTS
59
NOTE 15
LEASES (CONT’D)
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 2021, potential
future cash outflows of $1,746,000 (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.
2021
2020
$’000
$’000
Amounts recognised in the Balance Sheet
Right-of-use assets
Leased buildings – right-of-use
1,561
2,059
Leasehold improvements
18
25
Motor vehicles
209
775
Lab and field equipment
104
216
1,892
3,075
Additions to the right of use assets during the period was $225,000 (2020: $1,250,000).
Lease liabilities
CURRENT
Leases for equipment – bank financed
423
522
Leases for building premises
779
717
1,202
1,239
NON-CURRENT
Leases for equipment – bank financed
154
576
Leases for building premises
1,009
1,394
1,163
1,970
NOTES TO THE FINANCIAL STATEMENTS
60
NOTE 15
LEASES (CONT’D)
Amounts recognised in the Statement of Comprehensive Income
2021
2020
$’000
$’000
Depreciation and amortisation
Buildings premises
792
844
Leasehold improvements
8
7
Motor vehicles
229
335
Lab and field equipment
37
40
1,066
1,226
Interest expense on leases (included in finance costs)
Buildings premises
106
119
Equipment leases – bank financed
43
66
149
185
Amounts recognised in the Statement of Cash Flows
Lease principal repayments - buildings premises
784
829
Lease principal repayments - equipment leases
521
637
Interest payments - buildings premises
106
118
Interest payments - equipment leases
43
66
1,454
1,650
NOTE 16
TRADE AND OTHER PAYABLES
CURRENT
Trade payables
977
595
Contract liabilities
134
171
Other payables and accrued expenses
1,784
1,933
2,895
2,699
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.
NOTES TO THE FINANCIAL STATEMENTS
61
NOTE 17
PROVISIONS
2021
2020
$’000
$’000
CURRENT
Employee benefits
1,197
1,178
NON-CURRENT
Employee benefits
23
40
Employee Benefit Provisions
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months
after the end of the period in which the employees render the related service are recognised in respect of employees’
services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities
are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
Other long-term employee benefit obligations
The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the end
of the period in which the employees render the related service. They are therefore measured as the present value of
expected future payments to be made in respect of services provided by employees up to the end of the reporting period.
Consideration is given to expected future wage and salary levels, experience of employee departures and periods of
service. Expected future payments are discounted using market yields at the end of the reporting period of corporate bonds
with terms and currencies that match, as closely as possible, the estimated future cash outflows.
NOTE 18
BORROWINGS
2021
2020
$’000
$’000
CURRENT
Government support loans
52
51
Bank loans
-
2,092
52
2,143
NON-CURRENT
Government support loans
254
250
Bank loans
1,085
439
1,339
689
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.
NOTES TO THE FINANCIAL STATEMENTS
62
NOTE 18
BORROWINGS (CONT’D)
The bank loans are secured against all current and non-current assets of the Group by floating charge. The Group has
three bank loan facilities:
$3M interest only facility with a variable interest rate of 2.86% 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.
$4.5M 4-year amortising bank bill facility with a variable interest rate of 3.03% per annum. The facility expires in June
2025.
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 4.73% - 4.94% per annum and expire between July 2021 and February 2024.
Financing Facilities
The Group has access to the following lines of credit:
2021
2020
$’000
$’000
Total facilities available
Leases - equipment financing
1,965
2,530
Government support loans
306
301
Bank loans
7,500
5,352
9,771
8,183
Facilities used at balance date
Leases - equipment financing
577
1,098
Government support loans
306
301
Bank loans
1,085
2,531
1,968
3,930
Unused facilities at balance date
Finance leases and equipment financing
1,388
1,432
Government support loans
-
-
Bank loans
6,415
2,821
7,803
4,253
NOTES TO THE FINANCIAL STATEMENTS
63
NOTE 18
BORROWINGS (CONT’D)
Covenants
The bank loans are subject to the below covenants:
Debt Service Cover Ratio greater than 1.5
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 2021 had carrying values of
$497,000 (2020: $1,539,000).
NOTE 19
CONTRIBUTED CAPITAL
2021
2020
$’000
$’000
493,777,235 fully paid ordinary shares (June 2020: 493,402,627)
38,197
38,162
Ordinary Shares
2021
2020
2021
2020
$’000
$’000
#
#
At the beginning of the year
38,162
38,162
493,402,627
493,402,627
Performance rights vested
35
-
374,608
-
At reporting date
38,197
38,162
493,777,235
493,402,627
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.
NOTES TO THE FINANCIAL STATEMENTS
64
NOTE 20
RESERVES
2021
2020
$’000
$’000
Foreign currency translation reserve
(321)
(263)
Share based payment reserve
227
151
(94)
(112)
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 WATER TESTING HB (2016) LIMITED ACQUISITION ACCOUNTING
On 1 March 2021, HRL Holdings NZ Limited (a 100% owned subsidiary of HRL Holdings) acquired 100% of the issued
capital of Water Testing HB (2016) Limited (“WTHB”). WTHB is a bacteriological water-testing and analysis laboratory,
focused primarily on providing sampling and routine water-testing for the government authority and businesses in the
Hasting District, Napier City and Hawkes Bay region.
The agreed purchase consideration was NZD$650,000. No deferred consideration, contingent consideration or earn-outs
are payable. Under the agreement WTHB was required to have a minimum working capital position of NZD$100,000, with
the purchase price reduced by the amount of any working capital shortfall.
The assets and liabilities recognised as a result of the acquisition are as follows:
1 March 2021
$000’s
Purchase consideration:
Cash payment after working capital shortfall adjustment
545
Fair value of assets and liabilities acquired:
Cash and cash equivalents
42
Trade and other receivables
123
Inventories
47
Other assets
3
Plant and equipment
112
Right-of-use assets
90
Intangibles – customer contracts and relationships
225
Intangibles – licences and accreditations
140
Trade and other payables
(160)
Employee provisions
(27)
Lease liabilities
(237)
Deferred tax liabilities
(53)
Net identifiable assets acquired
305
Goodwill on acquisition
240
Net assets acquired
545
Goodwill is not deductible for tax purposes. The fair value of trade and other receivables is $123,000. The gross contractual
amount for trade receivables due is $124,000, of which $1,000 is expected to be uncollectible.
NOTES TO THE FINANCIAL STATEMENTS
65
NOTE 21
WATER TESTING HB (2016) LIMITED ACQUISITION ACCOUNTING (CONT’D)
Factors contributing to the WTHB goodwill are:
accelerates HRL’s expansion into routine water quality and environmental laboratory testing;
provides a solid recurring revenue base with approximately 80% of revenues coming from local government
authorities;
expands HRL’s geographic coverage in New Zealand to the Hawkes Bay region on the east coast;
through an integration into the Analytica Laboratories business unit, takes advantage of advanced technology and
lean operating procedures; and
provides opportunity to offer Analytica’s full range of laboratory services to a new segment of customers.
FY2021 Revenue and profit contribution
WTHB contributed revenues of $507,000 to the Group for the period from 1 March 2021 to 30 June 2021. If the acquisition
had occurred on 1 July 2020 and the operations of WTHB been included from that date, then the consolidated pro-forma
revenue for the period ended 30 June 2021 would have been $1,497,000.
Upon purchase, the WTHB’s employee and other key operational functions were integrated with Analytica. Consequently
it is not possible to determine WTHB direct contributed net profit to the Group since acquisition and it is not possible to
determine the pro-forma profit contribution to the HRL Group if the acquisition had occurred on 1 July 2020 and the
operations of WTHB had been included from that date.
Outflow of cash to acquire WTHB, net of cash acquired
1 March 2021
$000’s
Cash consideration
545
Less: cash and cash equivalents acquired
(42)
Net outflow of cash – investing activities
503
Acquisition related costs
Acquisition-related costs of $20,000 are included in ‘Other expenses’ in the statement of comprehensive income and in
operating cash flows in the statement of cash flows.
NOTES TO THE FINANCIAL STATEMENTS
66
NOTE 22
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
2021
2020
$’000
$’000
Opening balance
699
665
Investment in Food Lab Pacific Limited
1,137
559
Share of profits/(loss)
(798)
(513)
Foreign exchange movements
(3)
(12)
Closing balance
1,035
699
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:
2021
2020
$’000
$’000
Current assets
2,116
1,375
Non-current assets
443
484
Total assets
2,559
1,859
Current liabilities
735
225
Non-current liabilities (shareholder loans)
1,158
1,603
Total liabilities
1,893
1,828
Equity
HRL’s share of equity (26%)
173
16
Goodwill
651
680
Foreign exchange movements
86
(6)
Carrying amount
910
690
NOTES TO THE FINANCIAL STATEMENTS
67
NOTE 22
EQUITY ACCOUNTED INVESTMENTS (CONT’D)
2021
2020
$’000
$’000
Revenue
4,102
3,084
Cost of sales
(1,317)
(1,053)
Other expenses
(1,805)
(1,792)
Finance costs
(53)
-
Profit before tax
927
239
Income tax
(78)
-
Profit after tax
849
239
HRL’s share of profit (26%)
221
62
CAIQTest (Pacific) Limited requires a board resolution to distribute its profits. No dividends were paid or declared for the
financial period ending 30 June 2021.
CAIQTest (Pacific) Limited had no contingent liabilities or capital commitments as at 30 June 2021.
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:
2021
2020
$’000
$’000
Current assets
232
105
Non-current assets
1,571
959
Total assets
1,803
1,064
Current liabilities
614
1,045
Non-current liabilities
940
-
Total liabilities
1,554
1,045
Equity
HRL’s share of equity (50%)
124
9
Foreign exchange movements
-
-
Carrying amount
124
9
NOTES TO THE FINANCIAL STATEMENTS
68
NOTE 22
EQUITY ACCOUNTED INVESTMENTS (CONT’D)
2021
2020
$’000
$’000
Revenue
102
-
Other expenses
(2,092)
(1,129)
Finance costs
(48)
(21)
Loss before tax
(2,038)
(1,150)
Income tax
-
-
Loss after tax
(2,038)
(1,150)
HRL’s share of loss (50%)
(1,019)
(575)
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 2021.
Food Lab Pacific Limited had no contingent liabilities or capital commitments as at 30 June 2021.
NOTE 23
PARENT ENTITY INFORMATION
The legal Parent Entity of the Consolidated Entity is HRL Holdings Limited.
2021
2020
$’000
$’000
Parent Entity Financial Information
Current assets
6
2
Non-current assets
30,765
30,029
Total assets
30,771
30,031
Current liabilities
404
2,301
Non-current liabilities
5,429
2,890
Total liabilities
5,833
5,191
Net assets
24,938
24,840
Issued capital
49,236
49,201
Reserves
116
151
Accumulated losses
(24,414)
(24,512)
Total equity
24,938
24,840
Profit/(loss) after income tax
98
(9,191)
Other comprehensive income
-
-
Total comprehensive income
98
(9,191)
NOTES TO THE FINANCIAL STATEMENTS
69
NOTE 23
PARENT ENTITY INFORMATION (CONT’D)
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 28. The Parent Entity has no contingent assets or
guarantees at balance date.
Controlled Entities of the Parent Entity
Percentage Owned
Country of Incorporation
2021
2020
%
%
OCTIEF Pty Ltd
100%
100%
Australia
HRL Holdings NZ Limited
100%
100%
New Zealand
Octief Limited
100%
100%
New Zealand
Precise Consulting and Laboratory Limited
100%
100%
New Zealand
Morrison Geotechnic Pty Ltd
100%
100%
Australia
OCTFOLIO Pty Ltd
100%
100%
Australia
Analytica Laboratories Limited
100%
100%
New Zealand
Water Testing HB (2016) Limited
100%
-
New Zealand
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.
NOTES TO THE FINANCIAL STATEMENTS
70
NOTE 24
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:
Movements
Expiry /
Vesting Date
Tranche
Vesting
Condition
Performance
period 1
1 July
2020
Issued
Exercised
Expired /
Forfeited
30 June
2021
30 June 2023
D
EPS
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2023
D
EBITDA
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2023
D
TSR
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2023
D
ROCE
3 years
-
1,022,181
-
(89,615)
932,566
30 June 2022
A
EPS
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2022
A
EBITDA
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2022
A
TSR
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2022
A
ROCE
3 years
1,184,108
-
-
(153,555)
1,030,553
30 June 2021
B
Budget
1 year
294,669
-
-
(136,138)
158,531
30 June 2021
B
EBITDA
2 years
294,669
-
-
-
294,669
30 June 2021
B
TSR
2 years
294,669
-
-
(294,669)
-
30 June 2021
B
ROCE
2 years
294,669
-
-
(143,799)
150,870
30 June 2020
C
TSR
1 year
147,335
-
(147,335)
-
-
30 June 2020
C
Discretionary
1 year
227,273
-
(227,273)
-
-
6,289,716
4,088,724
(374,608)
(1,547,286)
8,456,546
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 rights outstanding at the end of the year was 1.48 years.
The share price at the date of exercise of Tranche C performance rights was $0.11.
604,070 Tranche B performance rights were exercisable at 30 June 2021.
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:
NOTES TO THE FINANCIAL STATEMENTS
71
NOTE 24
SHARE BASED PAYMENTS (CONT’D)
Inputs into pricing model for
EPS/EBITDA/ROCE/Budget vesting conditions
Tranche D -
Employees
Tranche D * –
Executive Director
Tranche A -
Employees
Tranche A –
Executive Director
Tranche B
Tranche C
Grant date
14 September 2020
22 October 2020
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Exercise price
Nil
Nil
Nil
Nil
Nil
Nil
Vesting conditions
Refer above
Refer above
Refer above
Refer above
Refer above
Refer above
Share price at grant date
$0.105
$0.115
$0.110
$0.110
$0.110
$0.110
Expiry date
30 June 2023
30 June 2023
30 June 2022
30 June 2022
30 June 2021
30 June 2020
Life of the instruments
2.8 years
2.7 years
2.8 years
2.65 years
1.8 years
0.8 years
Underlying historical share price volatility
77%
77%
71.5%
71.5%
71.5%
71.5%
Expected dividends
Nil
Nil
Nil
Nil
Nil
Nil
Risk free interest rate
0.24%
0.14%
0.72%
0.72%
0.72%
0.72%
Pricing model
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Trinomial lattice
Fair value per instrument
$0.105
$0.115
$0.11
$0.11
$0.11
$0.11
* 199,890 Tranche D shares were issued to Steve Howse following shareholder approval on 22 October 2020.
Inputs into pricing model for
TSR vesting condition
Tranche D -
Employees
Tranche D –
Executive Director
Tranche A -
Employees
Tranche A –
Executive Director
Tranche B
Tranche C
Grant date
14 September 2020
22 October 2020
5 September 2019
17 October 2019
5 September 2019
5 September 2019
Exercise price
Nil
Nil
Nil
Nil
Nil
Nil
Vesting conditions
Refer above
Refer above
Refer above
Refer above
Refer above
Refer above
Share price at grant date
$0.105
$0.115
$0.11
$0.12
$0.11
$0.11
Expiry date
30 June 2023
30 June 2023
30 June 2022
30 June 2022
30 June 2021
30 June 2020
Life of the instruments
2.8 years
2.7 years
2.8 years
2.65 years
1.8 years
0.8 years
S&P Small Ordinaries Index volatility
19%
19%
11.7%
11.7%
11.7%
11.7%
Correlation
0.36
0.36
0.42
0.42
0.42
0.42
Pricing model
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Fair value per instrument
$0.0743
$0.0845
$0.0790
$0.0761
$0.076
$0.0686
NOTES TO THE FINANCIAL STATEMENTS
72
NOTE 24
SHARE BASED PAYMENTS (CONT’D)
Inputs into pricing model for discretionary vesting condition
The financial impacts of COVID-19 on the Group during the FY2021 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%
Nil
10% or higher
25% of the total applicable tranche
Tranche A: 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.
Tranche D: The compound growth in EPS will be measured by comparing fully diluted EPS for the financial year
ending 30 June 2023 with fully diluted EPS for the financial year ended 30 June 2020.
EBITDA Measure
EBITDA MEASUREMENT
TABLE
EBITDA margin of HRL relative to EBITDA margin of
comparator peer companies
Proportion of performance rights that may be
exercised if EBITDA hurdle is met
Less than average EBITDA margin of comparator peer
companies
Nil
More than average EBITDA margin of comparator peer
companies
25% of the total applicable tranche
Comparator companies
Bureau Veritas (France), Core Laboratories (USA),
Eurofins (France & Germany), Intertek (UK), SGS
(Switzerland), ALS (Australia), AsureQuality (NZ)
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.
NOTES TO THE FINANCIAL STATEMENTS
73
NOTE 24
SHARE BASED PAYMENTS (CONT’D)
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.
Budget Measure
BUDGET 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 total
grant
EBITDA is greater than budget by 10%
25% of total grant
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
NOTES TO THE FINANCIAL STATEMENTS
74
NOTE 24
SHARE BASED PAYMENTS (CONT’D)
ROCE hurdles are set at 2% and 7% above the 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.
Expenses arising from share-based payment transactions
2021
2020
$’000
$’000
Performance shares (long-term incentive plan)
197
151
Previous performance share plan (expired)
-
42
197
193
NOTE 25
RELATED PARTY TRANSACTIONS
Key Management Personnel Compensation
2021
2020
$
$
Short-term benefits
1,079,142
905,231
Post-employment benefits
81,647
92,508
Long-term benefits
(17,990)
19,484
Termination benefits
-
-
Share-based payments
120,179
106,733
1,262,978
1,123,956
Detailed remuneration disclosures are provided in the remuneration report on pages 15 to 28.
Transactions with related parties
There were no transactions with related parties during the year (2020: Nil).
NOTES TO THE FINANCIAL STATEMENTS
75
NOTE 26
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 2021. 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
2021
2020
$’000
$’000
Summary exposure
Cash and cash equivalents
1,585
2,854
Trade receivables
4,317
3,553
Other receivables
328
257
Loan receivable from CAIQTest Pacific Limited
145
204
6,375
6,868
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.
30 June 2021
1 year or less
$000’s
1 to 5 years
$000’s
Over 5 years
$000’s
Total
$000’s
Trade payables
977
-
-
977
Other payables
1,783
-
1,783
Bank loans
-
1,084
-
1,084
Government support loans
57
123
156
336
Lease liabilities
1,251
1,260
-
2,511
4,068
2,467
156
6,691
NOTES TO THE FINANCIAL STATEMENTS
76
NOTE 26
FINANCIAL RISK MANAGEMENT (CONT’D)
30 June 2020
1 year or less
$000’s
1 to 5 years
$000’s
Over 5 years
$000’s
Total
$000’s
Trade payables
595
-
-
595
Other payables
1,933
-
-
1,933
Bank loans
2,092
439
-
2,531
Government support loans
52
93
192
337
Lease liabilities
1,363
2,258
-
3,621
6,035
2,790
192
9,017
Market Risk
Market risk arises from the use of interest bearing, tradeable and foreign currency financial instruments. It is the risk that
the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate
risk), foreign exchange rates (currency risk) or other market factors (other price risk).
Interest rate risk
Interest rate risk is managed by constant monitoring of interest rates.
Interest rates over the 12 month period were analysed and a sensitivity determined to show the effect on profit and equity
after tax if the interest rates at reporting date had been 100 basis points higher or lower, with all other variables held
constant. This level of sensitivity was considered reasonable given the current level of both short-term and long-term
Australian and New Zealand interest rates. The following sensitivity analysis is based on the interest rate risk exposures
in existence at the balance sheet date.
Cash term deposits, finance leases and insurance financing have fixed interest rates. All other cash assets and the repaid
bank loan have floating interest rates. At 30 June, if interest rates had moved, as illustrated in the table below, with all
other variables held constant, post-tax profit and equity would have been affected as follows:
2021
2020
$’000
$’000
Impact on profit and equity
+1.00% (100 basis points)
3
(2)
-1.00% (100 basis points)
(3)
2
Foreign Currency Risk
Foreign currency risk arises as a result of having assets/cash flows denominated in a currency other than the home
currency in which they are reported. At 30 June, the Group had the following exposure to foreign currency, shown in
Australian Dollars:
2021
2020
$’000
$’000
Financial assets
Cash and cash equivalents (NZD)
1,352
2,424
Trade and other receivables (NZD)
3,103
2,548
4,455
4,972
Financial liabilities
Trade and other payables (NZD)
1,618
1,166
Leases for equipment – bank financed (NZD)
248
341
1,866
1,507
NOTES TO THE FINANCIAL STATEMENTS
77
NOTE 26
FINANCIAL RISK MANAGEMENT (CONT’D)
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:
2021
2020
$’000
$’000
Impact on equity
+10.00%
259
346
-10.00%
(259)
(346)
Capital Risk Management
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.
NOTE 27
COMMITMENTS
The Group did not have any commitments for expenditure (2020: $Nil).
NOTE 28
CONTINGENT LIABILITIES
The Consolidated Entity has arranged bank guarantees of $18,000 as security for rental premises.
NOTE 29
AUDITOR’S REMUNERATION
2021
2020
$
$
Audit services – BDO Audit Pty Ltd
Audit and review of financial reports
109,000
97,559
Total audit services
109,000
97,559
Non-audit services – Taxation Services
Australia taxation services - BDO Audit Pty Ltd
45,196
29,286
New Zealand taxation services - BDO Auckland
20,529
45,728
Total non-audit services
65,725
75,014
NOTE 30 EVENTS AFTER BALANCE DATE
There have been no events since 30 June 2021 that impact upon the financial report.
DIRECTORS’ DECLARATION
78
DIRECTORS' DECLARATION
In the Directors opinion:
(a)
the attached consolidated financial statements and notes and the remuneration report in the Directors’ Report are
in accordance with the Corporations Act 2001 and other mandatory professional reporting requirements, including:
(i)
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(ii)
giving a true and fair view of the Consolidated Entity's financial position as at 30 June 2021 and of its
performance for the financial year ended on that date; and
(b)
the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1 to the
consolidated financial statements; and
(b)
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 Finance Officer required by
section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of Directors.
79
INDEPENDENT AUDITOR'S REPORT
To the members of HRL Holdings Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of HRL Holdings Limited (the Company) and its subsidiaries (the
Group), which comprises the consolidated balance sheet as at 30 June 2021, 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 2021 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.
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
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.
80
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 2021 is
material to the financial statements.
•
In addition, management’s assessment
process is complex and highly
judgmental and is based on
assumptions, specifically forecast future
cash flows, growth rate and discount
rate, which are affected by expected
future market or economic conditions.
Our procedures included, amongst others:
•
Assessing management’s allocation of goodwill and
assets and liabilities, including corporate assets to
Cash Generating Units ("CGU's").
•
Evaluating the inputs used in the value in use
calculation including the growth rates, discount
rates and underlying cash flows applied by
management.
•
Assessing the sensitivity of the assumptions used by
management on the value-in-use calculation.
•
Involving our internal specialists to assess the
discount rates against comparable market
information.
•
Assessing the disclosures related to the goodwill
and the impairment assessment by comparing
these disclosures to our understanding of the
matter and the applicable accounting standards.
Recoverability of Deferred Tax Assets
Key audit matter
How the matter was addressed in our audit
•
The Group’s disclosures about deferred tax
assets are included in Note 6.
•
Australian accounting standards require
deferred tax assets to be recognised only to
the extent that it is probable that sufficient
future taxable profits will be generated in
order for the benefits of the deferred tax
assets to be realised. These benefits are
realised by reducing tax payable on future
taxable profits.
•
This was a key audit matter as the assessment
of the future taxable profits involves
significant judgement by management and
required significant auditor effort.
Our procedures included, amongst others:
•
Evaluating management’s forecast of future
taxable profits and assessing whether it is
probable that there will be sufficient future
profits to utilise the deferred tax assets
recognised.
•
Assessing the key assumptions used in the
forecast period including revenue,
expenditure and growth rates applied
against actual results achieved.
•
Assessing the disclosures related to the
recognition of the deferred tax assets and
unrecognised deferred tax assets.
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.
81
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 2021, 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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf
This description forms part of our auditor’s 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.
82
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 15 to 28 of the directors’ report for the year
ended 30 June 2021.
In our opinion, the Remuneration Report of HRL Holdings Limited, for the year ended 30 June 2021,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing
Standards.
BDO Audit Pty Ltd
C R Jenkins
Director
Brisbane, 30 July 2021
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
HRL HOLDINGS LIMITED CORPORATE INFORMATION
DIRECTORS
Greg Kilmister (Non-Executive Chairman)
Steve Howse (Executive Director)
James Todd (Non-Executive Director)
Richard Stephens (Non-Executive Director)
Alex White (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