Annual Report
GUD Holdings Limited
(ABN 99 004 400 891)
Year Ended 30 June 2018
Table of Contents
Directors’ Report ............................................................................................................................................................... 1
Operating and Financial Review ........................................................................................................................................ 7
Remuneration Report (Audited) ..................................................................................................................................... 22
Consolidated Financial Statements ................................................................................................................................. 34
Additional Shareholder Information and Services…………………………………………………………………………………………………… 100
Directors’ Report
The Directors of GUD Holdings Limited (the Company) present their report on the consolidated entity, being the
Company and its subsidiaries, for the year ended 30 June 2018.
Directors
The names of the Directors who held office during the financial year and details of their qualifications, experience
and special responsibilities are as follows:
M G Smith*
Dip. Business (Marketing) FAMI CPM FAIM FAICD
Appointed Non‐Executive Director on 26 May 2009 and Chairman on 15 November 2017
Mr Smith is currently a Non‐Executive Director of Australian Pharmaceutical Industries Limited (appointed 6
September 2017) and became Chairman of that company on 25 January 2018. He is a former Non‐Executive Director
and Chairman of Patties Foods Limited (retired September 2017), a former Non‐Executive Director of Toll Holdings
Limited (retired May 2015), and a former Non‐Executive Director and Chairman of Food Holdings Limited (retired
August 2011).
Mr Smith was Managing Director of Cadbury Schweppes Australia and New Zealand (2003 to 2007) and a member
of the Asia Pacific Regional Board. Over a 16‐year career with the Cadbury Schweppes group he held senior
management positions in Australia, the UK and North America. Prior to joining Cadbury Schweppes Mr Smith's career
included senior management roles with Unilever and Uncle Toby's.
A L Templeman‐Jones*
BComm MRM EMBA CA FAICD
Appointed Non‐Executive Director on 1 August 2015, and Chair of the Risk and Compliance Committee
Ms Templeman‐Jones is currently a Non‐Executive Director of Commonwealth Bank of Australia (appointed 5 March
2018), a Non‐Executive Director of Worley Parsons Limited (appointed 1 November 2017) and a Non‐Executive
Director of The Citadel Group Limited (appointed 8 September 2017), where she is Chair of the Audit, Risk and
Compliance Committee. Anne previously served as a Non‐Executive Director of HT & E Limited (formerly APN News
& Media Limited) (retired May 2018), Cuscal Limited (retired March 2018), Pioneer Credit Limited (retired November
2016), Notre Dame University (retired December 2016) and HBF Health Limited (retired October 2014).
Ms Templeman‐Jones has considerable executive experience in institutional and commercial banking, wealth
management and insurance, having previously held a number of senior executive roles within Westpac and ANZ.
G A Billings*
BCom FCA MAICD
Appointed Non‐Executive Director on 20 December 2011, and Chair of the Audit Committee
Mr Billings retired from PricewaterhouseCoopers in 2011 after 34 years, where he was head of the Melbourne
Assurance practice as well as heading the firm’s Australian and Global Industrial Products business.
Mr Billings is currently a Non‐Executive Director of Korvest Limited (appointed May 2013) and became Chairman of
that company in September 2014, a Non‐Executive Director and Chairman of Azure Healthcare Ltd (appointed 21
October 2015), a Non‐Executive Director of Clover Corporation Limited (appointed 20 May 2013) where he is Chair
of the Audit Committee, a Non‐Executive Director of DomaCom Limited (appointed 23 February 2015) where he is
Chair of the Audit Committee, and a Non‐Executive Director of Escala Partners Limited (appointed 9 March 2017).
D D Robinson*
BSc MSc
Appointed Non‐Executive Director on 20 December 2011, and Chair of the Remuneration Committee
Mr Robinson spent the past 22 years prior to joining the Board with global automotive parts, general industrial and
consumer products manufacturer and marketing company Robert Bosch GmbH.
In that time he has worked in the USA, Germany and Australia and had responsibility for sales, marketing,
engineering, manufacturing, accounting and personnel. He was President of Robert Bosch Australia and Robert
Bosch New Zealand.
1
Directors’ Report
R M Herron*
FCA FAICD
Appointed Non‐Executive Director on 17 June 2004. Appointed Chairman on 1 January 2012. Mr Herron passed
away on 13 November 2017.
Mr Herron had been a Chartered Accountant since 1973. He was a former Deputy Chairman of Coopers & Lybrand
(now PricewaterhouseCoopers) and retired as a partner of PricewaterhouseCoopers in December 2002.
He was also a Non‐Executive Director of Select Harvests Limited (since January 2005). He was formerly Non‐
Executive Director of Insurance Manufacturers Australia Ltd (retired January 2017) and Kinetic Superannuation Fund
(retired February 2017). Mr Herron was Immediate Past President and former Chairman of the Royal Automobile
Club of Victoria (RACV) Ltd (retired December 2014).
Mr Herron was appointed to the Board of the Judicial Commission of Victoria in February 2017.
J P Ling
BEng MBA FAICD
Appointed Managing Director and Chief Executive Officer on 1 August 2013. Mr Ling was appointed as a Non‐
Executive Director of Pact Group Holdings Ltd on 28 April 2014.
Mr Ling was previously CEO and Managing Director of Fletcher Building Limited (2006 to 2012). He has extensive
management experience in competitive manufacturing businesses through his senior roles with Fletcher Building
and prior roles with Pacifica, Visy and Nylex.
Mr Ling is a former Non‐Executive Director of Pacific Brands Limited (retired February 2014).
* All Non‐Executive Directors are independent.
Corporate Executives
Chief Financial Officer
M A Fraser
B Bus EMBA GAICD FCA
Mr Fraser’s early career was with Coopers & Lybrand in Australia, followed by over 25 years in senior finance and
operational roles in Asia and Europe with McIntosh Hamson Hoare Govett, Jardine Matheson Ltd and the Schindler
Group.
Company Secretary
M G Tyler
LLB BCom (Hons) MBA AGIA
Mr Tyler is an associate of Governance Institute Australia, a former partner with Freehills and general counsel with
Southcorp Limited. He has held a legal practicing certificate in Victoria for 32 years.
Directors’ Attendances at Meetings
The Board held nine meetings during the year.
Meetings are generally held monthly, with ad hoc meetings called to consider specific or urgent matters.
Directors
M G Smith
A L Templeman‐
Jones
G A Billings
D D Robinson
R M Herron1
J P Ling2
Board
Audit Committee
Risk & Compliance
Committee
Nominations
Committee
Remuneration
Committee
Held
Attended
Held Attended
Held Attended
Held
Attended
Held
Attended
9
9
9
9
3
9
9
9
9
9
2
9
4
4
4
4
1
4
4
4
4
1
4
4
4
5
2
‐
4
4
5
5
2
‐
2
2
2
2
‐
‐
2
2
2
2
‐
‐
5
5
5
5
1
‐
1 Mr Herron passed away on 13 November 2017
2 Jonathan Ling attends committee meetings by invitation
It is the Board’s practice that the Non‐Executive Directors meet regularly without the presence of Management.
5
5
5
5
1
‐
2
Directors’ Report
Directors’ Interests and Benefits
Directors are not required to hold any shares in the Company. Nevertheless, Directors do hold shares. The current
shareholdings are shown in the table below.
A L Templeman‐Jones
540
Directors
R M Herron1
M G Smith
G A Billings
D D Robinson
J P Ling
Own name
Private
company / trust
Total 30 June 2018
Total 30 June
2017
Shares held beneficially
4,502
41,000
11,250
13,000
5,042
41,000
11,250
13,000
45,223
5,042
35,373
11,250
13,000
‐
‐
‐
116,894
189,638
306,532
216,273
1 Mr Herron passed away on 13 November 2017
Corporate Governance Statement
The Corporate Governance Statement of the Directors, and the accompanying Appendix 4G, is separately lodged
with ASX, and forms part of this Directors’ Report. It may also be found on the Company’s website at
www.gud.com.au.
Principal Activities
The principal activities of the consolidated entity during the course of the financial year were the manufacture and
importation, distribution and sale of automotive products, pumps, pool and spa systems, and water pressure
systems, with operations in Australia, New Zealand, France and Spain.
Other than as referred herein and in the Operating and Financial Review set out on pages 7‐21, there were no
significant changes in the nature of the activities of the consolidated entity during the year.
Operating and Financial Review
The Operating and Financial Review for the consolidated entity during the financial year forms part of this Directors’
Report.
Significant Changes
Disposals
Oates
On 2 January 2018, the Company disposed of the shares of its subsidiary, E D Oates Pty Ltd (Oates) to Freudenberg
Household Products Pty Ltd (Freudenberg). The total consideration for the Oates sale was $80 million plus final net
working capital adjustments of $3.771 million.
For the year ended 30 June 2018, Oates contributed $36.061 million of revenue and $53.257million of EBIT gain to
the Group’s results, comprising an operational $4.706 million EBIT before significant items, $51.536 million of gain
on sale, $2.210 million of associated transaction costs and $0.775 million of transaction incentives for Oates
management.
3
Directors’ Report
Significant Changes (Continued)
Acquisitions
The following acquisitions were announced during the year ended 30 June 2018 and are expected to provide the
Group with an expanded presence in automotive aftermarket parts.
AA Gaskets Pty Ltd
On 1 December 2017, subsidiaries of the Company acquired the business and net assets of AA Gaskets Pty Ltd and
its New Zealand operation (AAG Group). The total consideration for the AAG Group was $21.4 million less the final
working capital adjustment, which decreased the final consideration to $21.013 million.
Disc Brakes Australia Pty Ltd
On 5 June 2018, GUD entered into an agreement to purchase 100% of the shares of Disc Brakes Australia Pty Ltd
(DBA), consideration for the acquisition is $20 million, with a net working capital adjustment at Completion. The
transaction completed on 2 July 2018. A completion net working capital adjustment is expected to be finalised by
31 August 2018.
Share Capital
At 30 June 2018, there were 86,185,698 (2017: 85,739,547) ordinary shares on issue.
Dividends
During and since the end of the financial year, the following dividends have been paid or declared.
A final ordinary dividend of 25 cents per share in respect of the year ended 30 June 2017 was declared on 28 July
2017, and paid on 1 September 2017 amounting to $21,546,424. This dividend was fully franked.
An interim ordinary dividend of 24 cents per share in relation to the half year ended 31 December 2017 was
declared on 31 January 2018 and paid on 2 March 2018, amounting to $20,684,568. This dividend was fully franked.
A final ordinary dividend of 28 cents per share in respect of the year ended 30 June 2018 was determined on 27
July 2018, and is payable on 31 August 2018 to shareholders registered on 17 August 2018. This dividend will be
fully franked. Shares will trade ex‐dividend on 16 August 2018. The GUD Dividend Reinvestment Plan remains
suspended for this dividend.
Auditor Independence
There is no current or former partner or director of KPMG, the Company’s auditors, who is or was at any time during
the financial year an officer of the consolidated entity.
The auditor’s independence declaration made under section 307C of the Corporations Act 2001 is set out on page
954 of the accompanying Financial Statements and forms part of this Report.
Non‐Audit Services
Details of the amounts paid or payable to the Company’s auditors, KPMG, for non‐audit services provided during the
year are shown in Note 6 to the financial statements, which accompany this Directors’ Report.
The Directors are satisfied that the provision of such non‐audit services is compatible with the general standard of
independence for auditors imposed by, and did not compromise the auditor independence requirements of, the
Corporations Act 2001 in view of both the amount and the nature of the services provided, and that all non‐audit
services were subject to the corporate governance procedures adopted by the Company and have been reviewed
by the Audit Committee to ensure they do not impact the integrity and objectivity of the auditor.
4
Directors’ Report
Options and Rights
During the year a total of 282,217 Performance Rights were granted to executives under the GUD Holdings 2020
Long Term Incentive Equity Plan. This included 52,190 Performance Rights granted to the Managing Director in
October 2017 after receiving approval of shareholders at the 2017 Annual General Meeting. As a result of meeting
TSR targets, 446,151 performance rights granted in August 2014 vested and no performance rights lapsed in relation
to the GUD Holdings 2017 Long Term Incentive Equity Plan.
In addition, as a result of executives departing the Group during the year, a total of 89,841 Performance Rights were
determined by the Board to have lapsed.
Details of the Performance Rights granted to key management personnel are included in the Remuneration Report,
which forms part of this Directors’ Report.
Except as above, no options or rights were granted during the year and no options or rights have been granted or
lapsed since the end of the financial year. No options were exercised during the financial year. There are no
unissued shares or interests under option as at the date of this Report.
Derivatives and Other Financial Instruments
It is the consolidated entity’s policy to use derivative financial instruments to hedge cash flows subject to interest
rate and foreign exchange risk according to a policy approved by the Board.
Derivative financial instruments are not held for speculative purposes. Exposures, including related derivative
hedges, are reported to the Board on a monthly basis.
Financial facilities and operating cash flows are managed to ensure that the consolidated entity is not exposed to
any adverse liquidity risks. Adequate standby facilities are maintained to provide strategic liquidity to meet cash
flows in the ordinary course of business.
Environmental Regulation
Some of the consolidated entity’s activities are subject to various environmental regulations under both
Commonwealth and State legislation. The Directors are not aware of any breaches of those environmental
regulations during the financial year. The consolidated entity endorses an Environmental Policy of compliance and
open communication on environmental issues.
Proceedings on behalf of the Company
There were no proceedings brought on behalf of the Company, nor any persons applying for leave under section 237
of the Corporations Act 2001 to bring proceedings on behalf of the Company.
Indemnity and Insurance
The Company has, pursuant to contractual arrangements, agreed to indemnify the current and a number of former
Directors of the Company against all liabilities to another person (other than the Company or a related body
corporate) that may arise from their position as a Director of the Company and its subsidiaries, except where the
liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet
the full amount of any such liabilities, including costs and expenses.
The Company has also agreed to indemnify the current Directors of its subsidiaries, the Company Secretary and
certain Senior Executives for all liabilities to another person (other than the Company or a related body corporate)
that may arise from their position, except where the liability arises out of conduct involving a lack of good faith. The
agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and
expenses.
Pursuant to this indemnification, the Company has paid a premium for an insurance policy for the benefit of
Directors, Secretaries and Executives of the Company and related bodies corporate of the Company. In accordance
with common practice, the insurance policy prohibits disclosure of the nature of the liability covered and the amount
of the premium.
The Company has not otherwise, during or since the end of the financial year, indemnified or agreed to indemnify
an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer
or auditor.
Remuneration Policy for Directors and Executives
The policy for determining the nature and amount of remuneration for Directors and Executives is described in the
Remuneration Report, which forms part of this Directors’ Report.
5
Directors’ Report
Director and Executive Benefits
Details of the benefits paid or provided to Directors and specified Executives are included in the Remuneration
Report, which forms part of this Directors’ Report, and in summary in Note 37 to the financial statements.
Rounding Off
The Company is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2017/191 and, in accordance with that Rounding Instrument, amounts in this Report and the
accompanying financial statements have been rounded off to the nearest one thousand dollars unless otherwise
stated.
Significant Events after Year End
On 2 July 2018, the Company announced that Jonathan Ling was to retire as Chief Executive Officer and Managing
Director effective 30 September 2018. The Company also announced that Mr Graeme Whickman had been
appointed as Chief Executive Officer and Managing Director effective 1 October 2018.
In the opinion of the Directors, no matters or circumstances have arisen since the end of the year which
significantly affected or may affect the operations of the consolidated entity which have not been outlined in this
report.
This Directors’ Statutory Report is signed on behalf of the Directors in accordance with a resolution of Directors
made pursuant to section 298(2) of the Corporations Act 2001.
M G Smith
Chairman of Directors
J P Ling
Managing Director
Dated at Melbourne, 27 July 2018
6
Operating and Financial Review
1. Overview
2017‐18 was characterised by further fine‐tuning of GUD’s portfolio of business activities.
This has involved essentially deepening GUD’s presence in the automotive aftermarket and other associated automotive
market segments while simultaneously stepping away from non‐automotive activities.
The related portfolio actions that occurred in 2017‐18 in support of this further fine‐tuning were the acquisition of the AA
Gaskets businesses in Australia and New Zealand (AAG) in December 2017 and the sale of the Oates cleaning products
business in January 2018.
In addition, a further automotive industry acquisition was announced late in the year, that of Disc Brakes Australia, with
this transaction completing on 2 July 2018.
The disposal of Oates followed the recent years’ divestments of Sunbeam, Dexion and Lock Focus, resulting in the
positioning of GUD as a predominantly automotive aftermarket parts business. The only remaining non‐automotive
activity in the portfolio is Davey Water Products.
GUD’s strategy planning process, which is described later in this Review, has driven this concentration into automotive
parts. This has stemmed from a deep understanding of the key factors for success in automotive aftermarkets, derived
from GUD’s long experience in the sector with the Ryco and Wesfil businesses.
GUD believes that the automotive aftermarket is an inherently attractive industry for the following reasons:
1. The market is growing – growth in this market is the result of the annual growth in vehicle numbers in both
Australia and New Zealand, underpinned by population growth. In 2017, the Australian vehicle population had
grown to 18 million vehicles and is expected to continue to grow at around 2% per annum.
2. Market share growth and share‐of‐wallet opportunities exist – part number range extension, entry into new
and associated product types, such as heavy‐duty filters and filter‐related workshop tools, and conversion of end
users to branded products, all provide every GUD automotive business with the potential to grow organically.
3.
Inter‐business synergies – synergy potential exists with the automotive businesses due to operational
commonalities. There are common customers, common suppliers and similarities in the respective supply chains,
all of which provide the potential to realise synergies which do not exist between businesses that do not share
these mutual threads. In addition, GUD’s established automotive operations have a proven set of operating
structures and disciplines that are readily applied to similar acquired businesses. These have resulted in material
uplifts in financial and market performances in the new businesses.
4. The ability to grow through acquisitions – as already proven, attractive acquisition opportunities are present in
the automotive aftermarket sector. GUD has both the internal resources and financial strength to undertake
further complementary acquisitions.
Simultaneous to the recent portfolio restructuring endeavours, all GUD group businesses have embarked on active and
structured innovation programs, complementing other organic growth initiatives.
The innovation initiative is now in its fourth year, having commenced with a group‐wide, extensive capability‐building
program across all businesses. The innovation process and disciplines are now well embedded.
The newly acquired automotive businesses, specifically IM Group (IMG) and AAG, are going through innovation process
training to equip them to identify, analyse and implement innovation opportunities in their respective categories.
More details of the recent innovation activities and outputs are provided in the Innovation and Product Development
Section of this Review.
7
Operating and Financial Review
Both the portfolio activities of 2017‐18 and the innovation endeavours over the same period have evidenced a
continuation of the same essential direction articulated by GUD in recent years.
This has resulted in GUD being positioned with most of its operations, sales and profitability in the automotive
aftermarket, a sector that offers substantial growth potential, as detailed above.
Each of GUD’s automotive businesses enjoys a strong and unique market position, with market‐leading brands enjoying
high brand equity and a healthy track record of both product and service innovation. Testament to this is Ryco being
awarded Trade Supplier of the Year at both Repco and Bapcor in 2018. In addition, BWI were awarded Repco Retail
Supplier of the Year in 2018 and Wesfil were awarded Auto One Supplier of the Year.
The stable and sizeable profit streams and cash flows from the automotive businesses, coupled with the contributions
from Davey, provide GUD with the strategic flexibility to pursue future portfolio options, which will be principally focused
on the automotive sector.
The GUD Group, through the actions taken over the last four years, is now in a much stronger strategic and financial
position.
2. Financial Performance Review
Prior to commenting on financial performance for 2017‐18, it is important to note that, following the sale of Oates, the
accounts have been presented to show Oates as a discontinued operation.
The relevant accounts for the previous financial year restate Oates to discontinued operations. Discontinued operations
in the restated 2016‐17 accounts also include Dexion and Lock Focus, both of which were sold during that year. GUD’s
businesses that remain classified as continuing operations include all the Automotive businesses and Davey.
Revenue
Total group revenue from continuing operations increased 11% on the prior year’s level. The Automotive businesses
reported revenue growth of 16% of which 9% was organic and 7% through acquisition. Davey’s revenue was down 1%.
The primary features of the continuing revenue trends in the year are detailed below.
1. A full year of revenue contribution came from IMG compared with one month’s revenue in the prior year. AAG
provided seven months of revenue in the current year, while Griffiths Equipment also provided a full year of revenue
when compared with three months’ in the prior year.
2. All businesses implemented price increases throughout the year to offset the higher cost of products from offshore
suppliers.
3. There were also some specific initiatives taken to expand each Automotive business unit’s revenue, including:
In addition to regular range extensions, Ryco introduced new categories, such as vehicle specific Fuel Water
Separator Kits and O2Rush High Performance Air Filters, the latter being designed to increase vehicle performance.
Ryco also extended its range of workshop tools developed for professional mechanics and gained further ground
through its successful customer acquisition program, whereby automotive workshops are converted to using the
market‐leading Ryco brand of automotive filters.
8
Operating and Financial Review
AAG also expanded its product offering, including kits, to extend vehicle coverage by 11%, which will position the
business well into 2018‐19.
IMG likewise extended its product range, commenced product distribution in New Zealand, and relaunched the
Goss brand of engine management products.
Wesfil introduced additional ranges, including Cooper Kleen wipes, diesel particle filters, Exelwipe windscreen
wipers, and both PK belt and Tri Power spark plug programs to its independent reseller customers to meet the
needs of that channel.
BWI had another record year in sales through product range expansions for both Narva and Projecta brands,
including an extensive LED forward lighting range. The business also introduced new planograms for distributors,
entered the Original Equipment segment as a supplier to Kenworth trucks and Toyota, co‐branded product into
new channels such as TJM, pushed further into emergency vehicle lighting with the noteworthy award of the NZ
Police tender late in the year, and commenced value‐adding product distribution of Osram and Philips lighting
products.
4. Davey reported a 1% decline in sales revenue to $101.1 million in 2017‐2018 driven by several factors including:
Weak export demand, especially from the Middle East driven by reduced demand in the construction industry in
the United Arab Emirates as well as other macro‐economic pressures in the region.
While Australia experienced growth in the irrigation and agriculture markets, reduced demand for pumps and
controllers for domestic rain water harvesting eroded the gains.
The New Zealand business grew slightly during the period, driven by new product releases into the farming and
broader agricultural industries associated with water treatment and filtration solutions, including the exciting
Microlene Dairy platform.
Profitability
Following the sale of the Oates business, in which a total gain on sale of $51.5 million was reported in the year, the Group
reported a net profit after tax of $101.8 million. This compares with the prior year’s result of a net loss after tax of $7.3
million, a period in which the result was materially affected by losses associated with the sale of the Dexion and Lock
Focus businesses.
In 2017‐18 the net result included one‐off costs of $6.6 million. Of this, $5.8 million related to the non‐cash impairment of
inventory, tooling and product development costs at Davey for products which have either come to the end of their
natural life cycle or failed to achieve market sell‐through and had to be discontinued.
Underlying net profit after tax from the continuing operations, which include the Automotive businesses and Davey,
improved by 20% on the prior year to $55.2 million.
Underlying Earnings Before Interest and Tax (underlying EBIT) from the continuing businesses improved by 12% to $83.5
million. This underlying EBIT result came about from strong growth of the Automotive businesses, a flat underlying result
at Davey, and a small increase in corporate overhead influenced by the level of acquisition and disposal activity.
The primary factors affecting the profitability of each of the reporting entities are detailed below:
1. The 13% uplift in underlying EBIT in Automotive came from a combination of organic sales growth of 8% and 5% from
acquisitions. Both the Ryco and BWI businesses generated profit growth from market‐related activities, including new
product introductions, expanding the customer base and entry into new market segments.
2. While Davey reported a 1% decline in sales revenue, it managed to grow underlying EBIT slightly over the prior year.
Many corrective actions were initiated which avoided a reduction in profitability, while addressing domestic cost
inflation on inputs and without reducing Davey’s product innovation activities.
9
Operating and Financial Review
Davey remains focused on the commercialisation of some of the exciting product development initiatives and
addressing the need to establish a pattern of sustainable revenue and profit growth.
During the year, a thorough review was conducted of several earlier Davey products introductions in the pool and water
treatment segments, which were undertaken prior to the adoption of GUD’s current product innovation processes, as
well as how Davey phases out older products which are no longer successful in the market place. As some product
initiatives had failed to gather market traction, a decision was made to impair the investment associated with those
products, including tooling, product development and inventory, and impair the inventory for other products similarly
discontinued. The total cost of these impairments was $5.8 million.
The current new product development and innovation processes no longer allow the capitalisation of product
development costs, these are now expensed as incurred, and involve critical ‘cease or proceed’ reviews during the
product development process.
Discontinued operations generated EBIT of $52.8 million in the year involving a half‐year EBIT contribution from Oates of
$4.7 million, a gain on the sale of Oates of $51.5 million, and sale transaction costs of $3.4 million. This resulted in net
profit after tax from discontinued operations of $51.4 million.
Dividends
The total dividend for 2017‐18 was 52 cents per share consisting of an interim dividend of 24 cents per share and a final
dividend of 28 cents per share. Both dividends were fully franked. This compares with total dividends of 46 cents per
share in the previous financial year.
The Dividend Reinvestment Plan remains suspended due to GUD’s ongoing strong financial position.
Cash Generation and Capital Management
Cash flow from operating activities was $59.4 million, up from $45.3 million in the prior year. This includes contributions
from the discontinued businesses.
Net debt was $92.5 million, a reduction of $68.3 million on the prior period.
Net working capital as at 30 June 2018 was maintained at similar levels to the prior year. The businesses worked on
several themes in relation to managing net working capital in 2018‐19, including:
Further rebalancing inventory levels in Automotive and Davey by reducing the level of slower moving inventory
while ensuring the businesses were well positioned to support new product introductions.
Further supporting sales growth, especially in the Automotive business, and, where necessary, extending debtor
days to selected resellers in exchange for broader ranging and sell‐through support.
The major cash outflows associated with the acquisition of both controlling and non‐controlling interests in other
companies in 2017‐18 include:
The purchase of AAG for $21.0 million.
The Griffiths Equipment earn‐out of $2.0 million, which is the maximum level of earn‐out, reflecting the strong
performance of that acquisition.
The non‐controlling interest investments in AutoGuru and Liftango of $1.8 million and $0.2 million respectively.
10
Operating and Financial Review
2017‐18 also represented the first of three earn‐out measurement periods in respect of the prior year’s acquisition of
IMG. IMG’s 2017‐18 financial performance was strong enough to trigger the first tranche of the earn‐out. A payment of
$1.6 million will be paid in the first quarter of 2018‐19.
The year also saw a major cash inflow from the sale of Oates of $83.8 million, with the associated sale costs being
reported within cash flow from operations.
External Financing
The Company is now three years into a five‐year debt financing facility involving Westpac, National Australia Bank and the
Commonwealth Bank which expires on 1 July 2020. This comprises a fixed tranche of $185 million, and an acquisition
tranche of $115 million which amortises to $52.5 million over the period of the facility.
Following the sale of Oates, GUD retains significant debt capacity to finance further acquisitions. As the unutilised portion
of the facility is subject to unused line fees, the Company has elected to accelerate the amortisation of the acquisition
tranche, which has now been amortised by a total of $58.75 million. The remaining amortisation of $3.75 million is not
due until the current facility expires in July 2020. This reduction action is not expected to limit the capacity for logical bolt‐
on acquisitions through the balance of the financing facility.
The total facility capacity now available to the Company stands at $241.25 million.
3. Strategy Review
Overview
GUD’s primary objective is to generate long‐term shareholder returns above the cost of capital, while maximising the
value of its unique portfolio of market‐leading brands.
Strategy development and execution is focused at the segment level, implying that GUD’s businesses operate with a
significant degree of autonomy in this regard. Traditionally, there has been very little overlap between the businesses in
respect of markets and customers served, hence the focus. However, in recent years, over which the portfolio has
become more concentrated on the automotive sector, there has been more coordination of strategy development and
execution across the automotive businesses.
This segment approach is overlaid with strategic portfolio analysis, which addresses the structure of the GUD Group in
relation to the types of activities the Company should be active in to meet its long‐term objectives.
The business unit and Group strategies are prepared and reviewed by the Board annually. The method adopted considers
the competitive position of each business through assessing its market position, management capabilities and business
culture, business fitness and scalability opportunities.
In addition, the attractiveness of each industry sector is evaluated along with the long‐term financial performance of each
business unit. The latter analysis includes sales and profit trends along with shareholder return history.
This approach provides a framework for assessing an activity and business unit’s prospects, from which the future
portfolio structure is developed.
Following the strategy work completed in recent years, more clearly defined criteria for GUD’s portfolio structure have
emerged. The overarching guidelines that frame the portfolio structure now and into the future are:
Industrial, trade or commercial customer base.
Business‐to‐business sales profile.
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Operating and Financial Review
Strong brands.
Product leadership in niche markets with a strong innovation track record.
An attractive market structure driving sustainable returns.
Sustainable, robust market growth record and prospects.
The elements that frame the strategy are:
1.
2.
3.
4.
Investing in innovative product and service development to deliver breakthrough new products and/or services that
address specific customer needs, through either distinctive product features, lower overall cost and/or improved
functional performance.
Investing in GUD’s brands through marketing activities and programs to maintain leading positions with each brand’s
selected audience.
Improving product and supply chain costs and efficiencies to enable each business to remain internationally
competitive in its sector.
Improving efficiency and product unit costs in operations where GUD retains a manufacturing capability.
5. Actively managing the business portfolio to optimise shareholder returns.
The focus for strategic activity in recent years, including 2017‐18, has been portfolio management and innovation.
The activities affiliated with each of these two are detailed in the following sections.
Portfolio Management
2017‐18 was characterised by further activities focused on reshaping GUD’s portfolio of businesses. The rationale for this
reshaping has been previously documented and includes:
Strengthening GUD’s automotive interests as the automotive aftermarket provides steady, consistent growth and
reliable and high‐quality profit streams.
Reducing GUD’s exposure to sectors that are not displaying the same growth potential, have volatile profitability
and where the ability to build an internationally competitive business with scale is not present.
Bearing these two factors in mind, the Group confirmed the following portfolio adjustments in the year:
1. Acquired the AAG businesses, consisting of operations in Australia and New Zealand, on 1 December 2017.
2. Announced the acquisition of Disc Brakes Australia effective on 2 July 2018.
3. Sold the Oates cleaning products business on 2 January 2018. Oates had been part of GUD’s portfolio since July
2005.
The details of these transactions follow.
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Operating and Financial Review
AA Gaskets acquisition
The AAG group consists of two entities – AA Gaskets Pty Ltd in Australia and the New Zealand‐based NZ Gaskets Limited.
The business was founded in 1954 and manufactures and imports automotive gaskets for the aftermarket.
Its customer base includes the major automotive aftermarket distributors, such as Bapcor and Repco, and engine
reconditioning supply specialists.
AAG goes to market with products under the leading Permaseal brand, which is estimated to hold a market share in
excess of 75%.
The acquisition of AAG was completed in December 2017, and since that time, GUD has negotiated a 10‐year gasket
supply agreement with the major automotive parts distributor, Bapcor. This agreement provides AAG with exclusivity of
gasket supply to Bapcor using either the Permaseal brand or the Pro‐Torque brand, which has been acquired from Bapcor
as part of the supply agreement. This agreement came in to effect from 1 July 2018.
Following the acquisition of IMG in June 2017, GUD restructured its automotive interests into three main entities, Ryco
Group Pty Ltd, Brown & Watson International Pty Ltd, and Wesfil Australia Pty Ltd. The Ryco Group was formed to
comprise essentially those businesses that provide the aftermarket with engine and car service parts – air, oil and cabin
filters, fuel pumps, engine management sensors, remanufactured engine control units, and gaskets.
AAG forms the third element of the Ryco Group, after Ryco Filters and IMG.
Since the acquisition, activities aimed at strengthening financial performance at AAG have included the following:
Broadening the product range to fill known gaps: over 2 million vehicles have been added to AAG’s product span
as a result.
Establishing stronger range collaboration between the Australia and New Zealand businesses.
Reviewing the supplier base and identifying opportunities to optimise purchasing, reduce product costs and
improve the supply chain.
Commencing the adoption of many of Ryco’s successful go‐to‐market tactics, inclusive of additional field sales calls
directly on workshops and enhanced marketing communications involving an updated website and an app.
AAG contributed revenue of $9 million and made an EBIT contribution of $1.7 million in its first seven months of GUD’s
ownership. GUD acquired AAG for a total consideration of $21 million.
Disc Brakes Australia (DBA) acquisition
The DBA acquisition was completed on 2 July 2018.
DBA operates in the automotive aftermarket through supplying a range of disc brake rotors, brake drums and disc brake
pads under the DBA brand.
With over 40 years of manufacturing experience and continued research and development, DBA has positioned itself as
the premium brand of disc brake rotors in the Australian automotive aftermarket. It is also rapidly growing its presence in
the disc brake pad segment.
Its customer base includes the major automotive industry distributors – Bapcor, Repco and Supercheap – along with
other automotive wholesalers and performance specialists.
The DBA business has an annual sales turnover of around $23 million and generates an annual EBIT of around $3 million.
Consideration for the acquisition was $20 million.
DBA will form part of the GUD Automotive business under the Ryco Group and, in combination with GUD’s Ryco, Goss,
Wesfil, Narva and Projecta brands, will be positioned as the major independent supplier of disc brake rotors to the
Australian aftermarket.
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Operating and Financial Review
Oates divestment
The Oates cleaning products business was sold to Freudenberg Household Products Pty Ltd at the start of 2018.
Oates has been a part of GUD’s diversified portfolio over a 13‐year period, having been acquired in July 2005. Oates is a
leading participant in the household and commercial cleaning products market, supplying mops, buckets, brushware,
clothes, wipes and commercial cleaning equipment, such as janitors’ trolleys, to a customer base that includes major
supermarkets, hardware chains and specialist distributors in the commercial cleaning sector.
Freudenberg has an international footprint in cleaning products through its Vileda brand, which is the top cleaning brand
in the Australian grocery sector. Oates’ relative strength in commercial cleaning was attractive to Freudenberg, as it was
under‐represented in this segment in the Australian market.
Similar to GUD’s sale of the Sunbeam appliances business to Jarden Corporation in July 2016, Oates has effectively been
acquired by its natural owner. Freudenberg has a significant international position in the cleaning hardware industry, and
through the acquisition of Oates it strengthens its position in this part of the world.
The rationale for the sale of the Oates business was that a clear path for sustained growth was not achievable in GUD’s
ownership. Additionally, the scope for scalability was limited in GUD’s portfolio, and in recent years Oates’ profitability
had plateaued and returns were declining. The Oates business has more potential to thrive and prosper in Freudenberg’s
ownership as it becomes part of a dedicated cleaning business with international scale.
In the six months that Oates was in GUD for 2017‐18 it contributed $36 million in sales and $4.7 million in EBIT to GUD’s
financial performance.
Oates was sold for proceeds of $83.8 million and generated a profit on disposal of $51.5 million.
Innovation and Product Development
Over the past four years, GUD has built an industry leading innovation program, which leverages both employee‐led
innovation and extensive external collaboration, exploring opportunities to add value to its current and future customers.
This program embraces innovation across three horizons – from incremental improvements to existing products, to
innovations that move GUD’s businesses into adjacent markets, and transformational new products that change the
markets in which they enter. As a result, GUD’s group of businesses is positioned for success in the long term.
At the heart of all innovation activity across GUD Group is a relentless focus on the customer. Accordingly, GUD has
selected and trained cross‐functional innovation specialists, known as ‘innovation champions’, in customer‐focused skills,
including how to uncover unmet customer needs, how to design innovations that are tailored to those needs, and how to
test those innovations with customers in the market.
During 2017‐18, trained innovation champions worked within and across GUD’s business units, systematically uncovering
and acting upon new opportunities to innovate.
Some of the new products developed and launched over the past year are detailed below.
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Operating and Financial Review
Davey Microlene Farm
Dairy farmers across Australia and New Zealand have a common problem: the water they use is often contaminated,
which greatly affects cow health, milk productivity and machinery operation. To solve this problem, Davey designed a
world‐first product, the ‘Microlene Farm’, a self‐contained modular unit that provides healthy water through the
filtration, purification and disinfection of a farm’s existing water supply. Davey customises each system based on a
comprehensive water test, which identifies the specific contaminants in the farm’s water supply, resulting in the
Microlene Farm unit providing superior water quality compared with all other options on the market. Microlene Farm
also allows the farmer to remotely monitor the operation of their water supply system. This unit signifies a step‐change in
Davey’s approach, moving from selling components to providing full water treatment and transfer solutions.
O2 Rush Filter Range
Ryco has expanded its range of air filters, to target the performance customer, with O2 Rush performance filters. It has
been designed incorporating strong feedback from existing and future customers. Ryco engineers deliberately involved
customers at each stage of the design, ensuring that the market would be receptive to the new range of pod, panel and
radial filters. In addition, the range was designed to exceed the performance of all other air filters in this specialised
segment, ensuring the new range delivers the quality expected from a Ryco brand filter.
Toyota Hilux ‘Rugged X’ Lighting
BWI’s team has co‐designed and delivered a world‐first integrated light bar and driving light package for the 2018 Toyota
Hilux ‘Rugged X’. BWI’s world‐first lightbar design allows for quick and efficient assembly, using a patented sealing
method that solves the industry‐wide issue of quick manufacture without the need for gluing. Adopting an iterative
experimentation process and a combination of real world photometric laboratory and software simulations, BWI have
delivered an efficient and intelligent light pattern that exceeded customers’ expectations and has received critical
acclaim.
New, revolutionary products are an important outcome from the innovation program. Just as important is the cultural
shift that has taken place across the Group. GUD’s businesses are now first and foremost customer‐focused. This shift has
occurred to such a degree, that each business unit far exceeded the Kenexa (IBM) industry norm for customer‐focus, in
the Group’s most recent employee engagement survey.
GUD supplements its staff‐led approach to innovation with an extensive external collaboration program, focused
specifically on start‐up engagement and collaboration. Start‐ups and entrepreneurs continue to shape many industries,
and GUD has elected to engage directly with these changemakers. In doing so, it ensures that it will be at the cutting edge
of changes that are affecting its markets. Of focus for this program are start‐ups and emerging businesses focused on the
following areas:
Driverless vehicles.
Connected vehicles and Internet of Things (IoT).
Electric vehicles.
Sharing economy.
As part of this program, GUD has engaged formally with many start‐ups, including those outlined below.
TeamAssurance
TeamAssurance is a start‐up that has collaboratively developed its software with the Davey operations team.
TeamAssurance’s software automates the reporting, communication and management of lean productivity improvement
and safety programs. Since implementing this software, the Davey team has captured and monitored all its lean activity in
one place – increasing engagement, clarity and planning. Davey now has its lowest injury rate on record and a work cover
premium 30% better than industry average.
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Operating and Financial Review
Liftango
The sharing economy is shifting consumer behaviour. To learn more about these changes, and its impacts on the
automotive industry, GUD has invested in Liftango, a rideshare start‐up based in Newcastle, NSW. Liftango designs and
delivers the ride‐matching and routing technology for its two complementary offerings: corporate car‐pooling and on‐
demand bus. Through this relationship, GUD continues to expand its knowledge of how shifting consumer preferences
can change markets, and is poised to benefit from such changes.
AutoGuru
AutoGuru is Australia’s leading auto service booking site, developed to make it easy for customers to book a car service
online. As the automotive markets shift increasingly online, GUD has acquired a minority share in AutoGuru. This
investment allows GUD to understand first‐hand how these changes will influence consumer behaviour in the aftermarket
industry.
Utilising both staff‐led innovation and start‐up engagement and collaboration, GUD has designed and implemented a
sustained, robust approach to innovation that will ensure the Group remains relevant and successful now and into the
future.
4. Corporate Social Responsibility
People and Culture
During the year, GUD conducted its fourth iteration of a broad‐based employee engagement survey. The purpose of the
survey is to gain insights into what each employee across the GUD Group of companies thinks about the workplace, our
leaders and the working environment. It creates the opportunity for employees to express what they like about working
in a GUD business, and what they think needs to be improved for the future success of GUD and employees’ careers and
aspirations within it.
In the most recent survey, we sought responses to gauge employee satisfaction and engagement, as well as measure
progress on strategic goals. Across each of the GUD companies, we strive for a culture of professionalism, excellence, high
performance, integrity and innovation. We want our workplaces to embody these values.
In the latest survey, as a Group, GUD is now in the top quartile of Kenexa (IBM) companies globally on many measures for
employee engagement.
High performance is part of the culture of the businesses. Individuals who have much to contribute, and show initiative,
are given the opportunity to demonstrate their abilities and gain recognition for their achievements. GUD is cultivating its
leaders of tomorrow.
Cross‐business projects and teams continue to be a significant part of GUD. While many are ongoing, the need for these
teams evolves. For instance, where the immediate purpose of a team has been addressed, it may have been disbanded or
scaled back, while new teams are established to tackle emerging risks and opportunities.
These teams develop a broader cross section of people having a greater understanding of the businesses, the risks and
opportunities, create an environment for sharing of knowledge and solutions, so creating a pool of talent with readily
transferable skills available to be applied where best utilised.
Members of GUD’s Quality & Supplier Council interact with suppliers and passionately develop organisational and
suppliers’ capabilities, as well as introducing and driving world‐class best practices that cover business
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Operating and Financial Review
systems, operational processes, supplier management and governance across GUD businesses. The aim is to deliver
quality products and services and to achieve a reputation for superior brands.
GUD seeks to ensure equality and fairness in proposing and recommending salary and career decisions for all employees.
Doing so forms the basis of ensuring sustainability into the future, in areas such as recruiting, career and succession
planning, development planning and workforce planning. The objective is to grow the pool of talent available and to
ensure that personnel with the right skills and experience are best utilised, and that all personnel are given opportunities
to succeed. GUD has seen progress on this front during the year, with personnel being transferred to recently acquired or
existing businesses advancing their careers and the opportunities available to them.
GUD businesses offer an employee assistance program, provided on a confidential basis by an independent third party.
Employees and managers are encouraged to make use of this assistance whether the matter is work‐related or personal.
In addition, throughout the year, GUD businesses have engaged an external provider in sessions designed to increase
awareness and understanding among employees, in areas of anxiety, depression and mental health.
Diversity, in particular gender diversity, is at the forefront of Board and Management thinking. GUD’s formal report,
including the GUD policy, on diversity is included in the Corporate Governance Statement, which is available on the
website at http://www.gud.com.au/corporate‐governance.
Safety
GUD’s safety culture is well entrenched. With the sale of the Dexion and Oates businesses, the Group’s remaining
operations are now predominantly a common model of warehousing and distribution, with minor elements of assembly
and manufacturing.
The fundamental drivers of improved safety are leadership, teamwork and individual accountability. Ongoing programs
and initiatives enhance safety culture, including management leadership on visible safety and employee participation at
all levels, in regular safety campaigns and safety conversations.
The GUD Safety Excellence Awards promote, encourage, recognise and reward businesses, teams and individuals who
place a high value on accident prevention and promotion of safety in the workplace. At the third annual Safety Excellence
Awards held in August 2017, Michael Massey from BWI was recognised in the individual category for his initiative in
enhancing safety in the process of unloading containers, while the team at Wesfil was recognised for significantly
contributing to an enhanced safety culture in the business, and the Davey business won an award for introducing the
Safety Champions program. The awards are being run again this year, now in conjunction with the inaugural Innovation
Awards.
This year, GUD has continued its focus on incident causation investigations to understand and learn from the factors that
contribute to an incident and the latent hazards within the workplace system and organisation. Businesses are also
concentrating on collecting and analysing ‘near miss’ statistics, to identify and act upon those seemingly innocuous
occurrences that if not attended to may one day lead to an accident or injury that could have been prevented. The
knowledge gained is shared across the businesses in monthly steering committee meetings attended by business leaders
and health and safety managers, and provides further opportunity for improvement.
GUD now runs a comprehensive program of regular inspections of its business sites by trained personnel from other
businesses within the Group. The purpose of these inspections is to assist site managers in raising and maintaining the
standards of safety, as well as providing teaching and learning experiences for personnel throughout the businesses.
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Operating and Financial Review
The results from the increased emphasis on safety across the businesses are evident in the following table.
Measure
2013‐14
2014‐15
2015‐16
2016‐17
2017‐18
Total Recordable Injury Frequency Rate
Lost Time Injury Frequency Rate
14.3
5.6
8.2
1.8
7.1
4.5
9.6
5.8
4.4
2.9
The Board and management congratulate all personnel in the businesses for achieving these outcomes, particularly
recognising the tireless efforts of the many people who have actively contributed to improving safety culture and
outcomes.
Sustainability
GUD manages its businesses to be responsive, ethical, open and accountable, promoting a relationship of respect and
trust by and with shareholders, customers, government and community, and employees. GUD businesses continue to be
aware of and plan for sustainability risks of varying degrees found across the businesses in product quality, labour, supply
reliability, health and safety, and the environment.
Ethical conduct in business is a key pillar of GUD’s sustainability. GUD has had a Code of Conduct for many years, which
includes provisions for the protection of ‘whistle‐blowers’. The Code of Conduct is complemented by online and direct
training of staff in areas of privacy, anti‐bribery and corruption, harassment and bullying, anti‐competitive conduct,
consumer protection and cyber security awareness.
GUD’s Quality & Supplier Council was established to discuss best practices and bring thought leadership to the Group in
all aspects of ethical sourcing, supplier governance, supplier risk management and sustainability. Cross‐business
improvement initiatives are identified to enhance the organisation system, supply chain processes, suppliers’ capabilities
and the knowledge of Council members in these aspects. Ethical sourcing audits have been carried out by some
businesses at selected suppliers’ premises to address the risks and opportunities for continual improvements.
In response to the introduction of the Modern Slavery Bill 2018, the Council will establish a policy statement, monitoring
and reporting processes. The supplier management system and supply chain due diligence processes will be reviewed and
improved to ensure the modern slavery risks are addressed and mitigated.
GUD’s businesses have relatively minor impact on climate change through greenhouse gas emissions and energy
consumption. Because of their nature, GUD’s operations in total continue to be well beneath the reportable thresholds
established by the National Greenhouse and Energy Reporting Act. In addition, where appropriate, GUD businesses are
signatories to the Australian Packaging Covenant Organisation (APCO) and report annually on cardboard and plastic
recycling, and work with suppliers and customers to reduce packaging materials. In 2017, BWI received an award from
APCO in the category of Hardware and Homewares.
Community
Throughout the year, GUD businesses seek to engage and enhance their relationships with all stakeholders and the
community.
In 2018, BWI’s NARVA business again sponsored and promoted the ‘Shine a Light on Road Safety’ campaign, an annual
initiative of the Road Trauma Support Services Victoria (RTSSV) that coincides with National Road Safety Week. Also
backed by the TAC, Victoria Police, VicRoads and the State Government, this campaign draws attention to loss of life and
road trauma on our roads. Road users were encouraged to take part by turning on their vehicle headlights as a highly
visible gesture to remember those impacted by and show a commitment to road safety.
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Operating and Financial Review
After the damaging effects of recent cyclones to the Pacific Islands, the team at Davey New Zealand has been engaged in
a community program in Tonga. Currently, the primary school and village exist without a constant potable clean water
supply. The people of Pelehake rely on a system that requires dangerous maintenance and operational practices. The
project will provide safe drinking water and improve safety conditions to the Pelehake community.
Davey has designed and will be installing water quality improvement and pumping systems, education and training packs
for the local school and maintenance people, guarding of existing equipment and developing safer electrical control
systems. Davey will continue to offer training and operational support to provide the community with knowledge and
skills to ensure the performance of the new systems. This project reflects Davey business values of ‘protecting and
enhancing people’s lives’.
5. Risk Review
Overview
It is the policy of GUD to ensure that there is a systematic process to identify, analyse, assess, manage and monitor risk
throughout the Group.
In a major recognition of the importance of risk management, during the year, the Board created a separate Board
committee to focus on Risk and Compliance. The Committee has endorsed recommendations from management to
enhance the risk management and compliance processes across the Group, which is embedded in the Committee’s
charter.
As in the past, an evaluation of all organisational risks at business unit level is performed regularly for presentation to the
Board for review. The risk management policy and framework has been enhanced, with specific outcomes expected of
businesses being the development of a key risks register and risk treatment plans to mitigate those identified key risks.
In addition, there are established policies and processes in relation to specific risks, such as information technology,
workplace health and safety, and financial risk management.
The regular business unit risk assessments are performed utilising a standard framework that is designed to ensure that
strategic, operational, legal, reputational, product quality, brand and technological risks are identified, assessed, managed
and monitored.
The risk management framework highlights those risks that are the priorities for mitigation actions. These risks are
material business risks that could adversely affect achievement of GUD’s strategic objectives, which are outlined in the
‘Strategy Review’ section above, and financial prospects described in the ‘Outlook’ section.
The risks identified for priority are detailed below.
Brand reputation risk due to poor product quality. GUD relies heavily on external manufacturers to supply products that
comply with GUD’s brand quality standards. Any decline in quality could cause major reputational damage and a
consequent degradation in brand equity. GUD regularly conducts independent brand health surveys to provide an
external view on customer perceptions of our brands.
Consolidation of the customer base. Further consolidation of corporate ownership of the customers served by GUD’s
businesses has driven pressures to renegotiate trading terms for GUD and to demands for additional promotional
allowances and other margin‐reducing activities. Maintaining compelling product range and market leading brands
remains our priority focus.
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Operating and Financial Review
Growing risks to IT security. Over the past year, GUD has dedicated significant resources to IT risk management and IT
fulfilment strategy. These have been focused on preventative measures, such as mitigating the potential impact of cyber
risk and securing cyber insurance on commercially attractive terms, and proactive initiatives, such as reducing the number
of IT platforms, alerting and training all staff on simple precautions and actions to reduce risk, and developing a mid‐term
IT platform road map.
Ethical business behaviour is key to GUD’s reputation. Risks of bribery and corruption are a constant threat to both
corporate and individual reputation, as well as financially and to personal liberty. The Company assessed these risks and
established policies and processes, including training of staff, to mitigate them.
GUD still considers supply chain risk, which includes supplier failure and the inability to receive products sourced from
offshore suppliers, to be a threat. GUD is heavily dependent on offshore suppliers for a substantial proportion of its
product range. The Automotive businesses predominantly import their product needs, while Davey manufactures and
assembles, as well as sources from external suppliers. There are several individual risks that can be categorised under this
topic, including supplier financial failure and country risk through sourcing and shipping predominantly from one location.
Monitoring and mitigation activities continue to reduce and manage the severity of these risks. GUD’s Quality & Supplier
Council has a particular focus on ethical sourcing, supplier governance, supplier risk management and sustainability.
Foreign Exchange Risk
The impact of foreign currency fluctuations on the purchases of goods in foreign currencies when translated back to the
functional currency of the relevant subsidiary remains a material business risk that could adversely affect achievement of
GUD’s strategy outlined in the ‘Strategy Review’ section above and financial prospects described in the following
‘Outlook’ section, unless appropriate compensating controls and risk mitigation actions are in place.
Foreign exchange exposures continue to be managed from a perspective of minimising the effects of volatility on the
value of the foreign currency cash flows of the business, and a foreign exchange policy will be applied that requires
significant purchases in foreign currencies to be hedged using either foreign exchange forward contracts, options or
collars.
A Financial Risk Management Committee, consisting of finance staff from the business units and managers from the
corporate holding company, meets monthly to monitor foreign currency transaction exposures, outstanding hedging
contracts and to determine additional hedging required to stay within policy guidelines.
In general, businesses hedge long enough into the future to align with potential repricing lead times in the event the
currency deteriorates for an extended period. This generally sees foreign currency purchasing commitments hedged out
six months, except for Davey where exports in foreign currencies provide a natural hedge.
The remaining financial statements accounts translation risk is predominately from New Zealand, with a minor exposure
in Europe. The foreign currency accounts translation risk on foreign subsidiaries is not hedged.
6. Outlook
Underlying financial performance in 2018‐19 is expected to improve on the level generated in 2017‐18.
The Automotive business is expected to continue its momentum with both organic and acquisition growth.
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Operating and Financial Review
Ryco Filters will continue with its long‐standing workshop conquest program, in which end users are converted to using
the market‐leading Ryco brand of air, fuel and oil filters. With its recent focus on growth opportunities such as in the
heavy‐duty segment, the conquest activity is also covering truck workshops and service centres.
Each year, Ryco introduces hundreds of new filters to ensure that the brand’s range maintains currency with the changing
nature of the automotive markets in Australia and New Zealand. In 2018‐19, Ryco plans to introduced around 300 new
filters in support of this objective.
Similar to the period after GUD acquired BWI, 2018‐19 for the recently acquired IMG, AAG and Disc Brakes Australia will
involve the introduction and implementation of GUD’s management philosophies and structures.
The Wesfil business, which services the independent reseller market segment in the automotive aftermarket with a varied
range of service parts based around a core filtration offer, is expected to continue its steady growth trajectory as it
introduces new parts in response to customer demand. Wesfil will also benefit from its new branch in Arndell Park in
Western Sydney, which was opened in February 2018.
BWI has become a substantial contributor to GUD’s financial position and performance. This has come about through new
product introductions. This momentum continued in 2017‐18 supporting the publication of the latest Projecta brand
catalogue. A raft of new product activity is in progress for the current financial year, while the business expects to reap
the full year benefit from the products that were introduced part way through the previous year. BWI expects to launch
the 2019 Narva catalogue in February 2019.
In addition to this new product activity, BWI has identified a number of market segments which offer growth potential for
the current year and support structures have been put in place to ensure this occurs. One such market niche is the
emergency services lighting market, in which BWI has a presence in the ‘amber’ product segment, but not in the ‘red and
blue’ (police, ambulance, etc) segment. With access to an internationally recognised product range and with specialised
resources now in place, BWI has secured its first major tender to supply the entire New Zealand police fleet over the next
four years.
Further to the organic growth in the Automotive businesses, full year contributions will come from the acquired
businesses AAG and Disc Brakes Australia.
It is expected that Davey will show an improvement in the coming year from new products recently released to the
market and ongoing operating cost reductions.
21
Remuneration Report
This report forms part of the Directors’ Report and has been audited as required by section 308(3C) of the
Corporations Act 2001, and prepared in accordance with the Corporations Act 2001.
The report is outlined in the following sections:
1. Who this report covers
2.
3.
4.
5.
6.
Remuneration governance
Senior Executive remuneration strategy and structure
Remuneration for the Managing Director and Senior Executives
Link between performance and remuneration outcomes
Service agreements
7. Non‐Executive Directors’ remuneration
8. Other KMP transactions
1. Who this Report Covers
This report outlines the remuneration arrangements for the Group’s Key Management Personnel (KMP).
The following individuals had authority and responsibility for planning, directing and controlling the activities of the
Group for all or part of the financial year ended 30 June 2018:
Name
Role
Non‐Executive Directors
R M Herron
Non‐Executive Director and Former Chairman (Passed away 13 November 2017)
M G Smith
Non‐Executive Director and Chairman (Appointed Chairman on 15 November 2017)
A L Templeman‐
Jones
Non‐Executive Director and Chairman of Risk and Compliance Committee
G A Billings
Non‐Executive Director and Chairman of Audit Committee
D D Robinson
Non‐Executive Director and Chairman of Remuneration Committee
Managing Director
J P Ling
Managing Director
Senior Executives
M Fraser
G Davies
D Chin
R Pattison
G Nicholls
D Worley
T Cooper
Chief Financial Officer
Chief Executive
Officer
Chief Executive
Officer
Chief Executive
Officer
Chief Executive
Officer
Chief Executive
Officer
Managing
Director
Brown & Watson
International
(Appointed 1 August 2017)
E D Oates
(Oates exited the Group 2 January 2018)
GUD Automotive
Division
Ryco Group
Davey
Wesfil
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Remuneration Report
2.
Remuneration Governance
The Remuneration Committee is responsible for making recommendations to the Board on remuneration policies
and packages applicable to the Managing Director and Senior Executives (collectively, Senior Executives).
The Remuneration Committee consists of the four Non‐Executive Directors and is responsible for determining a
framework and broad policy for remuneration. It advises the Board on remuneration policies and practices in
general, and makes specific recommendations on fees, remuneration packages, incentives and other terms of
employment for Senior Executives.
A copy of the Remuneration Committee Charter is available under the Governance section of the Company’s
website.
The Senior Executives do not participate in any decision relating to their own remuneration.
3.
Senior Executive Remuneration Strategy and Structure
Remuneration Strategy
Our remuneration strategy is designed to attract, retain and motivate appropriately qualified and experienced Senior
Executives. Our strategy ensures we are well positioned to deliver reasonable and market competitive rewards in a
way that supports a clear performance focus and is aligned with the long‐term goals of the Group.
In determining the Senior Executives’ remuneration, we have developed remuneration guiding principles to assist in
decision‐making:
The remuneration structure is relevant and simple for Senior Executives and shareholders to
understand.
Our remuneration practices support the delivery of long‐term business strategy and provide a clear link
between Group performance and remuneration outcomes.
Remuneration levels are sufficient to attract and retain key talent and be competitive.
We have clearly defined and disclosed remuneration processes and structures that reflect shareholder
views and objectives.
Our incentive plans are carefully designed to balance the twin imperatives of short‐term performance
and long‐term enhancement of shareholder value, and are regularly reviewed to ensure alignment with
corporate governance principles.
The Remuneration Committee is committed to continuing to review and refine the remuneration
strategy to ensure it meets the changing needs of the Group and remains aligned to shareholder
interests.
Remuneration Structure
The remuneration framework provides a mix of fixed and variable remuneration and has five components:
Fixed remuneration;
Other employment related benefits; and
“at risk” remuneration including:
Short‐term incentives (STI);
Long‐term incentives (LTI); and
Special incentives.
These comprise the total remuneration paid to Senior Executives.
Our approach is to position the maximum “at risk” components of Senior Executives’ remuneration relative to total
maximum remuneration, to around 45 per cent, and 50 per cent in the case of the Managing Director.
In the absence of any special incentives, the remuneration mix for the Senior Executives is as follows:
23
Remuneration Report
Fixed Remuneration and Other Employment Related Benefits
The remuneration packages for the Senior Executives contain a fixed amount that is not performance linked. The
fixed remuneration consists of base salary, as well as employer contributions to superannuation funds.
Fixed remuneration for Senior Executives is determined by reference to the scope of their positions and the
knowledge, experience and skills required to perform their roles. Periodically, independent consultants provide
benchmark information, analysis and/or advice to the Remuneration Committee to ensure the packages are
competitive in the market with comparable roles. We have adopted a desired market positioning around the median
of the peer group. The Company has not received remuneration recommendations from an independent consultant
during the year ended 30 June 2018 and 30 June 2017.
The Remuneration Committee, through a process that considers individual, business unit and overall Group
performance, reviews fixed remuneration annually. Fixed remuneration levels are generally not adjusted during the
year unless the individual is promoted or there is a substantial change in market rates.
Senior Executives receive non‐cash benefits in the form of salary continuance insurance and other benefits, refer
table 4.1 for further information. In addition, Senior Executives receive annual and long service leave.
Short Term Incentive (STI)
The Board considers that basing the STI payments on Cash Value Added (CVA) performance aligns the interests of
the Senior Executives with the interests of shareholders in the businesses being operated profitably. The current
STI plan provides an annual bonus for achieving or exceeding an agreed CVA target and is paid following the
announcement of the Group’s year‐end results. CVA targets are set with reference to agreed underlying EBIT targets
and the weighted average cost of capital employed.
CVA measures a true level of performance of the business by comparing trading profit performance (being reported
profit adjusted for non‐recurring items) with the return required on the net assets used by the businesses, generally
a measure of weighted average cost of capital. This requires management to drive both trading profit and carefully
manage the balance sheet.
Acquisition and disposal costs are excluded from the CVA calculation due to their one‐off nature, which can be
difficult to budget with certainty and consequently including them could discourage growing shareholder value
through business portfolio changes.
For each financial year:
In respect of business unit executives – STI bonuses will only be paid where business unit CVA
performance exceeds the CVA performance of the prior year and the CVA target for the relevant
business unit.
In respect of Group executives – STI bonuses will only be paid where Group CVA performance exceeds
the Group CVA performance of the prior year and the Group CVA target.
CVA targets for each business unit and for the Group overall will be established by the Remuneration
Committee in the first quarter of the financial year.
The Remuneration Committee determines the Senior Executive actual STI bonuses after the conclusion of the
financial year in accordance with the plan rules.
The Board continues to view CVA as the most appropriate annual performance measure.
STI bonuses are calculated as a percentage of fixed remuneration. When the CVA target is achieved, the target STI
bonus is paid in full. If the CVA target is exceeded, the STI bonus increases up to a ceiling of no more than 150 per
cent of the target STI bonus, generally upon achieving 120 per cent of CVA target. No STI is paid where CVA
performance falls below the CVA target.
Bonuses as a per cent of fixed rem uneration
Managing Director
Senior Executives
STI
STI
Threshold
perform ance
Stretch
perform ance
26.67
35.00
40.00
52.50
% of salary at
LTI
60.00
30.00
Details of the CVA STI bonuses payable to the Senior Executives for the year ended 30 June 2018 are set out in
section four of this Report.
From and including the financial year commencing 1 July 2018, the Remuneration Committee and the Board have
included two qualifying performance thresholds for STI bonuses to be awarded. Firstly, the business CVA dollars
24
Remuneration Report
achieved must be no less than the prior year, and secondly, the underlying EBIT dollars must grow over the prior
year by hurdle growth rates endorsed by the Board on an annual basis.
Long Term Incentive (LTI)
The Board considers that measuring Executives’ performance for LTI purposes by reference to the Group’s total
shareholder return (TSR) relative to a comparator group closely aligns the LTI component of their remuneration with
the interests of shareholders.
The comparator group is the Standard and Poor’s ASX Small Ordinaries index, of which the Group forms part,
modified to exclude stocks in the mining, materials and energy industries. It was chosen on the basis that it is the
most effective way to measure and reward the extent to which shareholder returns are generated relative to the
performance of companies that compete with the Group for capital and employees. The comparator group typically
comprises over 100 companies.
LTI bonuses are provided as performance rights, granted at the commencement of the relevant three‐year
performance measurement period, which will convert to an equivalent number of GUD shares if the performance
hurdle is achieved over the relevant three‐year performance measurement period. No amount is payable for the
issue of performance rights, or for the shares received upon vesting of those performance rights. The plan is in line
with market norms, supports the delivery of the Group’s long‐term strategy and ensures that the Senior Executives
hold an exposure to equity. The maximum number of performance rights granted is set as a percentage of the Senior
Executives’ fixed remuneration on grant, re‐stated as a number of performance rights, determined by applying the
share price, being the Volume Weighted Average Price over the month of June immediately prior to the
commencement of the relevant year of grant.
Participation in the plan is subject to Remuneration Committee recommendation and Board approval. In the case of
the Managing Director, shareholder approval is also required, and is sought at the Annual General Meeting prior to
the Board formally granting the performance rights to the Managing Director.
After the cessation of employment of a participating executive, the Board has the discretion whether to allow a pro
rata portion of the granted performance rights to remain ‘on foot’ subject to the plan rules and the performance
criteria. The remaining performance rights of a departing Executive lapse in accordance with plan rules.
Following the end of the performance measurement period, the Board receives an independent calculation of the
Company’s TSR performance against the comparator group over the performance measurement period. The vesting
schedule for performance rights equity‐based awards is as follows:
TSR performance
% of LTI that vests
TSR below 50th percentile
TSR at 50th percentile
Nil
50
TSR between 50th and 75th percentile
Progressive vesting from 50 to 100
TSR at 75th percentile and above
100
Under prevailing accounting standards, the potential cost to the Company from granting performance rights is
calculated as the fair value of those performance rights at grant and that amount is accrued over the three‐year
performance measurement period.
The rules of the LTI plan include provisions that prohibit participants entering into transactions (whether through
the use of derivatives or otherwise) which limit the economic risk of participating in the scheme.
In respect of LTI grants made from and including the financial year commencing 1 July 2018, the Remuneration
Committee and the Board have included an additional performance threshold; that the Company’s absolute TSR
performance over the performance measurement period must be positive.
25
Remuneration Report
Special Incentives
From time to time the Remuneration Committee may approve a special incentive to a selected employee aligned to
the attainment of particular outcomes which align with shareholder interests and value. Special incentives may be
paid as performance rights or other salary.
During the year ended 30 June 2018, the Company divested its entire interest in E D Oates Pty Ltd (Oates). The sale
process required significant time and input from Oates’ Chief Executive Officer, Mr David Chin. Mr Chin was integral
to the sale process and dedicated additional hours and effort to its execution. The success of the sale was largely
assisted by the managerial continuity through the process. Considering Mr Chin’s experience and depth of
knowledge of Oates, the Remuneration Committee considered it appropriate to incentivise Mr Chin to remain with
the company until successful completion of the sale. As such, Mr Chin received an incentive bonus of $450,000,
(being $300,000 plus one per cent of the sale price over $65 million). Completion of the sale occurred on 2 January
2018 and the incentive bonus was paid on 17 January 2018.
26
Remuneration Report
4.1 Remuneration of Senior Executives
Details of the nature and amount of each major element of remuneration of the Executive Directors and Senior Executives are:
Short-term employment benefits
Long-term benefits
Salary 1 and
fees
STI bonus
Leave entitle-
m ents
Incom e
protection
prem ium
Other
benefits
Year
$
$
$
$
$
Managing Director
Equity fair
value of
perform ance
rights 2
Long service
leave
Superan-
nuation
$
$
$
Total
$
Proportion of
total risk
related
rem uneration
Value of equity
rem uneration as
a proportion of
total
rem uneration
%
%
Total
$
J P Ling
2018 1,108,000
414,541
(5,371)
4,122 -
1,521,292
21,273 395,919
25,000
1,963,484 41.3
20.2
2017 1,065,000
311,559
(24,846)
3,809 -
1,355,522
22,608 325,015
35,000
1,738,145 36.6
18.7
Senior Executives
M Fraser
2018 564,416
283,047
(2,135)
1,094 -
846,422
(1,421)
93,472
25,000
963,473 39.1
9.7
2017 537,249
212,705
30,623
1,011 -
781,588
12,129 80,030
35,000
908,747 32.2
8.8
D Chin 3
2018 647,211
72,100 - - -
719,311
- 18,905
12,740
750,956 12.1
2.5
2017 251,961 -
14,594 - -
266,555
4,153 21,239
23,936
315,883 6.7
6.7
R Pattison
2018 535,000
279,332
21,580
2,204 -
838,116
11,308 84,918
25,000
959,342 38.0
8.9
2017 470,363
265,316
23,455
2,035 -
761,169
5,083 66,689
35,000
867,941 38.3
7.7
G Davies 4
2018 395,000
209,939
24,945
353
34,470
664,707
(25,990)
41,739
25,000
705,456 35.7
5.9
2017
G Nicholls
2018 475,000
235,107
(6,085)
353 -
704,375
20,934 71,863
25,000
822,172 37.3
8.7
2017 390,000
220,500
6,020
326 -
616,846
14,689 49,954
30,000
711,489 38.0
7.0
D Worley
2018 466,727 -
1,880
1,212 -
469,819
8,972 45,080
25,000
548,871 8.2
8.2
2017 442,405 -
(4,262)
1,119 -
439,262
7,859 68,272
35,000
550,393 12.4
12.4
T Cooper
2018 475,000
197,652
36,209
2,204 -
711,065
3,654 74,007
25,000
813,726 33.4
9.1
2017 389,360
182,984
434
2,035 -
574,813
12,036 60,329
35,000
682,178 35.7
8.8
Total rem uneration of the Managing Director and Senior Executives of the Group
2018 4,666,354
1,691,718
71,023
11,542
34,470
6,475,107
38,730 825,903
187,740
7,527,480
2017 3,546,338
1,193,064
46,018
10,335 -
4,795,755
78,557 671,528
228,936
5,774,776
Total rem uneration of Non-Executive Directors
2018 744,389 - - - -
744,389
- -
70,104
814,493
2017 733,392 - - - -
733,392
- -
69,671
803,063
Total rem uneration (com pensation of key m anagem ent personnel of the Group)
2018 5,410,743
1,691,718
71,023
11,542
34,470
7,219,496
38,730 825,903
257,844
8,341,973
2017 4,279,730
1,193,064
46,018
10,335 -
5,529,147
78,557 671,528
298,607
6,577,839
1 Salary includes base and other salary.
2 The fair value of performance rights granted under the 2018, 2019 and 2020 performance rights plans are subject to achievement of TSR hurdles and were calculated by independent experts using a Monte‐Carlo simulation valuation. The fair value is allocated
to each reporting period evenly from the date of grant to the vesting date. The value disclosed in the Remuneration table above is the portion of the fair value of the performance rights expensed during the year ended 30 June 2018.
3 David Chin left the GUD Group as a result of the sale of Oates on 2 January 2018. The table above discloses his remuneration for the period to 2 January 2018. As a result of the sale of Oates on 2 January 2018 Mr Chin received a $450,000 incentive payment for
successfully completing the sale of the Oates business which occurred on 2 January 2018 (Note 33b). The incentive bonus was paid on 17 January 2018 and is reported as part of salary.
4 George Davies was appointed Chief Executive Officer of Brown & Watson International Pty Ltd on 1 August 2017.
27
Remuneration Report
4.2
Non‐Statutory Compensation Received by Senior Executives
The table on the previous page provides a breakdown of the Company’s Senior Executive remuneration in
accordance with statutory obligations and accounting standards. However, the Board is aware that the format in
which the Company is required to present this information may make it difficult for shareholders to understand the
total remuneration actually earned by Senior Executives from the various components of their remuneration in
respect of the year ended 30 June 2018.
The following table represents non‐International Financial Reporting Standards information. It sets out fixed
remuneration, non‐monetary benefits, STI payable in relation to the year ended 30 June 2018, as well as any LTI or
special incentive that has been earned as a result of performance that vested during the year ended 30 June 2018
or shortly after 30 June 2018. As a general principle, the Australian Accounting Standards require the fair value of
share based payments to be calculated at the time of grant and accrued over the performance period. This may not
reflect what Senior Executives actually received or became entitled to during the financial year. The figures in the
table below have not been prepared in accordance with the Australian Accounting Standards. They provide
additional and different disclosures to the previous statutory table.
Not at risk
At risk
Year
Salary and
super 1
Other non-
m onetary
benefits 3
Perform ance
rights vested
w ith respect to
the year 4
Total
rem uneration
STI bonus 2
$
$
$
$
$
Managing Director
J P Ling
2018 1,133,000
20,024
414,541
888,710
2,456,275
2017 1,100,000
1,571
311,559
1,165,244
2,578,374
Senior Executives
M Fraser
2018 589,416
(2,462)
283,047
227,877
1,097,878
2017 572,249
43,763
212,705
314,216
1,142,933
D Chin
2018 659,951 -
72,100 -
732,051
2017 275,897
18,747
- -
294,644
R Pattison
2018 560,000
35,092
279,332
204,909
1,079,333
2017 505,363
30,573
265,316
234,407
1,035,659
G Davies
2018 420,000
33,778
209,939 -
663,717
2017 - -
- - -
G Nicholls
2018 500,000
15,202
235,107
151,951
902,260
2017 420,000
21,035
220,500
143,107
804,642
D Worley
T Cooper
2018 491,727
12,064
-
197,320
701,111
2017 477,405
4,716
-
272,440
754,561
2018 500,000
42,067
197,652
173,602
913,321
2017 424,360
14,505
182,984
239,803
861,652
Total rem uneration of the Managing Director and Senior Executives of the Group
2018 4,854,094
155,765
1,691,718
1,844,369
8,545,946
2017 3,775,274
134,910
1,193,064
2,369,217
7,472,465
1.
2.
Salary and super includes base and other salary and employer superannuation contributions. In the case of David Chin, his
salary includes a special incentive paid as a consequence of the sale of Oates.
The STI bonus column reflects the STI cash bonus paid in respect of performance during the year ended 30 June 2018 and
paid in late July 2018 following the announcement of the Group’s year‐end results.
3. Non‐monetary benefits includes leave entitlements, income protection premiums, long service leave and certain personal
4.
expenses.
LTI performance rights granted in July and October 2015 vested in full as a result of meeting TSR targets on 30 June 2018. The
Remuneration Committee approved vesting of the performance rights on 26 July 2018. The value assigned to the vested
performance rights, that is, the value of shares received by the Executive, has been calculated using the Company’s closing
share price on 29 June 2018 of $14.16.
28
Remuneration Report
4.3 GUD Holdings Limited Equity Interests Held by the Senior Executives
Senior Executives have exposure to equity in GUD either directly in the form of shares, or indirectly through holding
performance rights in the Company. Details of Senior Executives equity interests follow.
Performance Rights Granted During the Year
Details of performance rights over ordinary shares in the Company that were granted to Senior Executives under the
LTI plan during the reporting period are set out in the following table:
Rights
granted
during
the year
ended
30 June 2018
Fair
value per
perform ance
right at
grant date
$
Fair value
of rights
granted
during the
year ended
30 June 2018
$
Grant
date
Vesting
date
52,190
26 October 2017
30 June 2020 5.68 296,439
13,575
26 July 2017
30 June 2020 8.89 120,682
9,489
26 July 2017
30 June 2020 8.89 84,357
12,897
26 July 2017
30 June 2020 8.89 114,654
7,198
26 July 2017
30 June 2020 8.89 63,990
2,474 20 September 2017
30 June 2020 6.05 14,968
11,515
26 July 2017
30 June 2020 8.89 102,368
11,325
26 July 2017
30 June 2020 8.89 100,679
11,515
26 July 2017
30 June 2020 8.89 102,368
Managing Director
J P Ling
Senior Executives
M Fraser
D Chin
R Pattison
G Davies
G Davies
G Nicholls
D Worley
T Cooper
Total
132,178
1,000,505
A minimum level of performance must be achieved before any performance rights vest. Therefore the minimum
possible total value of the LTI for future financial years is nil.
The following factors were used in determining the fair value of performance rights granted during the year:
Grant date
Vesting period date
right Exercise price
Fair value per
perform ance
Price of
shares on
grant date
Estim ated
volatility
Risk free
interest
rate
Dividend
yield
Grant to Managing
Director
26 October 2017
30 June 2020 5.68 -
12.00
28.00
$
$
$
%
%
1.94
Grant to G Davies
20 September 2017
30 June 2020 6.05 -
10.95
28.00
2.08
Grant to Senior
Executives
Grant of Special
Incentives
26 July 2017
30 June 2020 8.89 -
12.18
28.00
1.94
-
%
6.0
6.0
6.0
Performance Rights Holdings of Senior Executives
The following table discloses changes in the performance rights holdings of Senior Executives in the Company. The
related parties of Senior Executives do not hold any performance rights.
29
Remuneration Report
Managing Director
J P Ling
Senior Executives
M Fraser
D Chin
R Pattison
G Davies
G Nicholls
D Worley
T Cooper
Rights
granted
during the
year
Rights
vested
during the
year
Rights
lapsed
during the
year
Balance at
1 July 2017
Balance at
30 June 2018
Rights
vested
w ith
respect to
the year 1
Rights
lapsed
w ith
respect to
the year 1
Balance at
the date of
this report
227,530
52,190
(90,259)
189,461
(62,762)
-
126,699
59,812
13,575
(24,339)
49,048
(16,093)
-
32,955
13,546
9,489
(14,622)
8,413 - -
8,413
49,372
12,897
(18,157)
44,112
(14,471)
-
29,641
9,672
9,672 - -
9,672
36,040
11,515
(11,085)
36,470
(10,731)
-
25,739
51,206
11,325
(21,103)
41,428
(13,935)
-
27,493
45,207
11,515
(18,575)
38,147
(12,260)
-
25,887
Total
482,713
132,178
(183,518)
(14,622)
416,751
(130,252)
-
286,499
1 Performance rights granted under the 2018 performance rights plan vested [at the maximum] on the basis of the Company exceeding the 75th
percentile TSR hurdle as at 30 June 2018. The vesting was approved by the Remuneration Committee on 26 July 2018 and the rights have therefore
been included in the table above as if the vesting were effective 30 June 2018.
GUD Holdings Limited Shares Held by the KMPs
The following table discloses changes in the shareholdings of KMPs and their related parties in the Company.
Shares
issued from
vested
perform ance
rights 1
Balance at
1 July 2017
Shares
purchased
Shares
sold
Balance at
30 June 2018
Number of shares
Shares to be
issued from
vested
perform ance
rights 2
Balance at
the date of
this report
For the year ended 30 June 2018
Non-Executive Directors
R M Herron
45,223 - -
(45,223)
- -
-
A L Templeman-Jones
5,042 -
- 5,042 - 5,042
M G Smith
G A Billings
D D Robinson
35,373 - 5,627 - 41,000 - 41,000
11,250 - - - 11,250 - 11,250
13,000 - - - 13,000 - 13,000
For the year ended 30 June 2018
Managing Director
J P Ling 3
Senior Executives
M Fraser 3
D Chin
R Pattison
G Davies
G Nicholls
T Richards
D Worley
T Cooper
Shares
issued from
vested
perform ance
rights 1
Balance at
1 July 2017
Shares
purchased
Shares
sold
Balance at
30 June 2018
Number of shares
Shares to be
issued from
vested
perform ance
rights 2
Balance at
the date of
this report
216,273 90,259 - - 306,532 62,762 369,294
100,225 24,339 - - 124,564 16,093 140,657
- - -
- -
-
22,153 18,157 -
(10,477)
29,833 14,471 44,304
- - - - - -
-
10,960 11,085 - - 22,045 10,731 32,776
- - - - - -
-
1,562 21,103 -
(18,500)
4,165 13,935 18,100
20,360 18,575 - - 38,935 12,260 51,195
481,421 183,518 5,627
(74,200)
596,366 130,252 726,618
1 Performance rights granted under the 2017 performance rights plan vested at the maximum on the basis of the Company exceeding the 75th
percentile TSR hurdle as at 30 June 2017. The issue of shares was approved by the Remuneration Committee on 26 July 2017 (as disclosed in the
Remuneration Report for the year ended 30 June 2017) and were allotted on 4 August 2017.
2 Performance rights granted under the 2018 performance rights plan vested at the maximum on the basis of the Company exceeding the 75th
percentile TSR hurdle as at 30 June 2018. The vesting was approved by the Remuneration Committee on 26 July 2018 and the rights have therefore
been included in the table above as if the vesting were effective 30 June 2018.
3 Some Executives’ holdings include shares held either directly, or through other entities in which the Executive has a trustee role or controlling
interest.
30
Remuneration Report
5.
Link between Performance and Remuneration Outcomes
The remuneration and incentive framework, which has been put in place by the Board, has ensured that the
Managing Director and Senior Executives are focused on both maximising short‐term operating performance and
long‐term strategic growth.
The Board continues to review and monitor the remuneration and incentive framework to ensure that performance
is fairly rewarded and encouraged, and to attract, motivate and retain a high quality Senior Executive team.
STI
In the current year, the following businesses in the consolidated entity exceeded CVA targets: GUD Automotive,
Wesfil and Brown & Watson International. As a result, Executives of those business units received an STI bonus
payment based on achieving or exceeding the business unit CVA performance. Corporate Executives, including the
Managing Director and Chief Financial Officer, received a bonus upon achieving the Group CVA target.
STI bonus payable for the year ended 30 June 2018
$
$
%
%
Maxim um STI
opportunity
Actual STI
bonus
paym ent 1
Actual STI
bonus paym ent
as a % of
m axim um STI
Forfeited
Managing Director
J P Ling
Senior Executives
M Fraser
D Chin 2
R Pattison
G Nicholls
G Davies
D Worley
T Cooper
453,200 414,541 91 9
309,443 283,047 91 9
108,150 72,100 67 33
294,000 279,332 95 5
262,500 235,107 90 10
209,939 209,939 100
-
258,157
-
- 100
262,500 197,652 75 25
1
2
A minimum level of performance, including exceeding the previous year’s CVA, must be achieved before any STI bonus is payable.
D Chin left the Group with the sale of Oates on 2 January 2018.
The payments relate to STI bonus earned in the year ended 30 June 2018, approved by the Remuneration Committee
on the 26 July 2018.
The Remuneration Committee periodically reviews the design and operation of the STI plans to ensure that they
focus rewards on achieving targets that represent strong performance of the business units, which will ultimately
support shareholder returns. As in prior years the Board has tasked the Remuneration Committee to undertake such
a review in the first quarter of the forthcoming financial year before any STI targets are confirmed for that year. The
review will focus on the target setting and thresholds for minimum and maximum STI rewards rather than the
quantum of potential rewards.
LTI
The following table summarises key Company performance and shareholder wealth statistics over the past five
years.
TSR measures the return a shareholder obtains from ownership of shares in a company in a defined period, and
takes into account various matters such as changes in the market value of the shares, as well as dividends on those
shares.
The absolute TSR performance for the three years ending 30 June 2018 was 74.27%
Underlying
EBIT 1
Underlying
basic EPS 1 Total DPS 2
Opening
share
price
Closing
share
price
Dividend
yield
Financial year
$m
Cents
Cents
$
$
%
TSR percentile
rank for the
3 year period
ending
30 June 2014
49.0
43.5
36.0
5.99
6.22
5.8
35.6
30 June 2015
51.6
45.2
42.0
6.22
8.84
4.8
56.8
30 June 2016
78.6
52.0
43.0
8.84
9.11
4.7
71.3
30 June 2017
83.6
60.5
46.0
9.11
12.91
3.6
91.2
30 June 2018
83.4
64.1
52.0
12.91
14.16
3.7
80.0
1 Underlying EBIT and underlying basic EPS are presented before significant one‐off items and are from continuing operations as reported in each year.
2 The DPS presented does not include special dividends. The following special dividend has been paid in the five‐year period: 10 cents paid on 3 September 2013.
31
Remuneration Report
The TSR rank for the year ended 30 June 2018 is within the top quartile of the comparator group. Consequently, in
accordance with the plan rules, on 26 July 2018 the Board approved the maximum vesting of the performance rights
which were due to vest in respect of the period ended 30 June 2018.
6.
Service Agreements
Remuneration and other terms of employment for Executives are formalised in a service agreement.
The essential terms of the Managing Director and Senior Executives’ contracts are shown below:
Name
J P Ling
Notice periods/termination payment
Unlimited in term.
A notice period of six months by either party applies, except in the case of termination by the
Company for cause.
On termination, Mr Ling is entitled to receive his statutory entitlements of accrued annual and
long service leave.
Senior
Executives
Unlimited in term.
One or three months’ notice by either party (or payment in lieu), except as noted below.
On termination, Senior Executives are entitled to receive their statutory entitlements of accrued
annual and long service leave.
Mr Cooper is employed under a contract entered into in September 1996. That contract provides
for 12 months’ notice of termination by either party.
Apart from Mr Cooper, no current Senior Executive contract includes termination benefits
additional to the notice period and statutory entitlements described above.
7.
Non‐Executive Directors’ Remuneration
Non‐Executive Directors’ fees are not ‘at risk’, to reflect the nature of their responsibilities.
Remuneration Policy
Non‐Executive Director fees recognise the demands made on, and responsibilities of, Non‐Executive Directors in
performing their roles. Non‐Executive Directors receive a base fee and a fee for chairing a Board Committee. The
Chairman of the Board receives no extra remuneration for chairing committees.
Fees payable to Non‐Executive Directors are determined within the maximum aggregate amount that is approved
by shareholders. The current maximum aggregate fee amount is $1,300,000, approved by shareholders at the 2017
Annual General Meeting.
In determining the level of fees, external professional advice and available data on fees payable to non‐executive
Directors of similar sized companies are taken into account. The Board, through its Remuneration Committee, will
continue to review its approach to Non‐Executive Director remuneration to ensure it remains in line with general
industry practice and principles of good corporate governance.
Non‐Executive Directors do not receive bonuses or any other incentive payments, and are not eligible to participate
in any of the Executive or employee share acquisition plans established by the Company.
Fees
Board and Committee fees are set with reference to advice from external advisers and market data, with regard to
factors such as the responsibilities and risks associated with the role.
The fees paid to Non‐Executive Directors in the year ended 30 June 2018 are set out in the table below:
Board
Audit
Com m ittee
Risk and
Com pliance
Com m ittee
Rem uneration
Com m ittee
Nom inations
Com m ittee
Chairman of
277,299 15,000 15,000 15,000
Members of
110,919 5,000 5,000 5,000
Nil
Nil
In accordance with rule 36 of the Constitution, Directors are permitted additional fees for special services or
exertions. No such fees were paid during the year. Directors are also entitled to be reimbursed for all business‐
related expenses, including travel on Company business, as may be incurred in the discharge of their duties.
32
Remuneration Report
Equity Participation
Non‐Executive Directors do not receive shares or options as part of their remuneration, and there is no provision for
Non‐Executive Directors to convert a percentage of their prospective fees into GUD shares.
Nevertheless, all Directors hold shares, either directly or indirectly, in the Company. Details of Directors’
shareholdings may be found earlier in this Report.
Superannuation
The Company pays superannuation in line with statutory requirements to eligible Non‐Executive Directors.
Remuneration
Details of the nature and amount of each element of the remuneration of Non‐Executive Directors for the year
ended 30 June 2018 are set out in the table below.
Non-Executive Directors
R M Herron
Directors’ Fees Superannuation 1
Year
$
$
Total
$
2018 116,101 10,417 126,518
2017 270,536 25,701 296,237
A L Templeman-Jones
2018 135,919 12,912 148,831
M G Smith
G A Billings
2017 123,214 11,705 134,919
2018 224,281 21,307 245,588
2017 108,214 10,280 118,494
2018 135,919 12,912 148,831
2017 123,214 11,705 134,919
D D Robinson
2018 132,169 12,556 144,725
2017 108,214 10,280 118,494
Total Rem uneration of Non-Executive Directors
2018 744,389 70,104 814,493
2017 733,392 69,671 803,063
1 Superannuation contributions on behalf of Non‐Executive Directors to satisfy the Company’s obligations under applicable Superannuation Guarantee
legislation.
8.
Other KMP Transactions
Loans to KMPs
There were no loans to KMPs at 30 June 2018 (2017: nil).
Other KMP Transactions with the Group
Wesfil Australia Pty Ltd leases its Sydney premises from an entity related to Terry Cooper, a Director of Wesfil
Australia Pty Ltd on terms no less favourable than arm’s length commercial terms. Net rental expense was $432,930
excluding GST (2017: $432,368 excluding GST).
Apart from the details disclosed in this Remuneration Report, no KMP has entered into a material contract with the
Company or entities in the Group since the end of the previous financial year and there were no material contracts
involving a KMP's Interest at year end.
A number of KMP, or their related parties, hold positions in other entities that result in them having control or
significant influence over the financial or operating policies of those entities. A number of these entities transacted
with the Company or its subsidiaries in the reporting period. The terms and conditions of the transactions with KMPs
and their related parties were no more favourable than those available, or which might reasonably be expected to
be available, on similar transactions to non‐KMP related entities on an arms‐length basis.
From time to time, KMPs of the Company or its subsidiaries, or their related parties, may purchase goods from the
Group. These purchases are on the same terms and conditions as those entered into by other group employees or
customers and are trivial or domestic in nature.
33
GUD Holdings Limited and subsidiaries
Consolidated Financial Statements
Consolidated Income Statement ..................................................................................................................................... 35
Consolidated Statement of Comprehensive Income....................................................................................................... 36
Consolidated Balance Sheet ............................................................................................................................................ 37
Consolidated Statement of Changes in Equity ................................................................................................................ 38
Consolidated Cash Flow Statement ................................................................................................................................ 39
1.
Basis of preparation ............................................................................................................................................... 40
Results for the Year ......................................................................................................................................................... 43
2.
Revenue .................................................................................................................................................................. 43
Expenses ................................................................................................................................................................. 43
3.
4. Net finance costs .................................................................................................................................................... 45
5.
Earnings per share .................................................................................................................................................. 45
6. Auditors' remuneration .......................................................................................................................................... 46
7.
Segment information ............................................................................................................................................. 46
Working Capital ............................................................................................................................................................... 49
Trade and other receivables ................................................................................................................................... 49
8.
Inventories.............................................................................................................................................................. 50
9.
10. Other assets ............................................................................................................................................................ 51
11. Trade and other payables ....................................................................................................................................... 51
12. Employee benefits .................................................................................................................................................. 51
13. Restructuring provisions ......................................................................................................................................... 52
14. Warranty provisions ............................................................................................................................................... 53
15. Other provisions ..................................................................................................................................................... 53
Tangible and Intangible Assets ........................................................................................................................................ 54
16. Goodwill ................................................................................................................................................................. 54
17. Other intangible assets ........................................................................................................................................... 54
18. Property, plant and equipment .............................................................................................................................. 56
19.
Impairment testing ................................................................................................................................................. 57
20. Commitments for expenditure ............................................................................................................................... 58
Capital Structure and Financing Costs ............................................................................................................................. 60
21. Cash and cash equivalents ...................................................................................................................................... 60
22. Borrowings ............................................................................................................................................................. 61
23. Derivatives .............................................................................................................................................................. 63
24. Other financial instruments .................................................................................................................................... 65
25. Financial instruments ............................................................................................................................................. 66
26. Financial risk management ..................................................................................................................................... 70
27. Share Capital .......................................................................................................................................................... 74
28. Reserves ................................................................................................................................................................. 74
29. Retained earnings ................................................................................................................................................... 76
30. Dividends ................................................................................................................................................................ 76
Taxation .......................................................................................................................................................................... 77
31. Current tax ............................................................................................................................................................. 77
32. Deferred tax ........................................................................................................................................................... 78
Business Combinations ................................................................................................................................................... 81
33.
Investment in subsidiaries ...................................................................................................................................... 81
34. Non‐controlling interests........................................................................................................................................ 88
35. Other Investments .................................................................................................................................................. 88
Other Notes .................................................................................................................................................................... 88
36. Superannuation commitments ............................................................................................................................... 88
37. Key management personnel ................................................................................................................................... 89
38. Related parties ....................................................................................................................................................... 90
39. Parent entity disclosures ........................................................................................................................................ 91
40. Contingent liabilities ............................................................................................................................................... 92
41. Subsequent events ................................................................................................................................................. 92
Directors’ Declaration ..................................................................................................................................................... 93
Lead Auditor’s Independence Declaration ...................................................................................................................... 94
Independent Auditor’s Report ........................................................................................................................................ 95
34
GUD Holdings Limited and subsidiaries
Consolidated Income Statement
For the year ended 30 June 2018
Revenue
Cost of goods sold
Gross Profit
Other income
Marketing and selling
Product development and sourcing
Logistics expenses and outward freight
Administration
Other expenses:
Loss on revaluation of contingent consideration payable
Impairment of inventory, product development and tooling assets
Other
Results from operating activities
Net finance cost
Profit before tax
Income tax expense
Profit from continuing operations, net of income tax
Profit/(loss) from discontinued operation
Profit/(loss) from operations, net of income tax
Non‐controlling interests
Profit/(loss) attributable to owners of the Company
Earnings per share from continuing operations:
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Earnings per share from discontinuing operations:
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
2018
$'000
396,689
(200,580)
196,109
321
(50,820)
(12,166)
(21,766)
(27,681)
(101)
(5,783)
(1,257)
76,856
(6,660)
70,196
(19,723)
50,473
51,372
101,845
‐
101,845
58.6
58.1
59.6
59.1
2017^
Restated
$'000
356,866
(186,744)
170,122
154
(48,330)
(7,961)
(17,231)
(21,619)
‐
‐
(501)
74,634
(10,340)
64,294
(18,635)
45,659
(53,003)
(7,344)
‐
(7,344)
53.3
52.7
(61.9)
(61.2)
Note
2
2
3
3, 7
3, 7
4
31
33b
34
5
5
5
5
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
contribution of businesses discontinued in the current year.
The notes on pages 40 to 92 are an integral part of these consolidated financial statements.
35
GUD Holdings Limited and subsidiaries
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2018
2018
$'000
2017^
Restated
$'000
Note
Profit for the year from continuing operations
50,473
45,659
Other comprehensive income
Items that may be reclassified subsequently to profit and loss
Exchange differences on translating results of foreign operations
Net fair value adjustments recognised in the hedging reserve
Net change in fair value of cash flow hedges transferred to inventory
Transfers within equity on disposal
Equity settled share based payment transactions
Revaluation of contingent consideration receivable
Income tax on items that may be reclassified subsequently to profit or loss
Other comprehensive income / (loss) for the year, net of tax
28
28
28
28
28
31
31
(16)
5,228
(961)
‐
1,823
‐
(1,280)
4,794
(1,085)
3,570
26
618
1,631
(3,284)
1,364
2,840
Total comprehensive income from continuing operations, net of tax
55,267
48,499
Profit/(loss) from discontinued operation, net of tax
Total comprehensive Profit/(loss) attributable to owners of the Company
Non‐controlling interests
Total comprehensive Profit/(loss)
33b
34
51,372
106,639
‐
106,639
(53,003)
(4,504)
‐
(4,504)
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
contribution of businesses discontinued in the current year.
All of the above items may subsequently be recognised in the Income Statement.
The notes on pages 40 to 92 are an integral part of these consolidated financial statements.
36
GUD Holdings Limited and subsidiaries
Consolidated Balance Sheet
As at 30 June 2018
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative assets
Other financial assets
Current tax receivable
Other assets
Total current assets
Non‐current assets
Goodwill
Other intangible assets
Property, plant and equipment
Derivative assets
Other financial assets
Deferred tax assets
Investments
Total non‐current assets
Total assets
Current liabilities
Trade and other payables
Employee benefits
Restructuring provisions
Warranty provisions
Other provisions
Borrowings
Derivative liabilities
Other financial liabilities
Current tax payable
Total current liabilities
Non‐current liabilities
Employee benefits
Borrowings
Derivative liabilities
Other financial liabilities
Other non‐current liabilities
Total non‐current liabilities
Total liabilities
Net assets
Equity
Share Capital
Reserves
Retained earnings
Total equity attributable to owners of the Company
Non‐controlling interests
Total equity
Note
21
8
9
23
24
10
16
17
18
23
24
32
35
11
12
13
14
15
22
23
24
12
22
23
24
27
28
29
34
The notes on pages 40 to 92 are an integral part of these consolidated financial statements.
2018
$'000
50,610
96,687
87,500
3,677
516
4
4,685
2017
$'000
10,238
91,970
93,080
15
3,182
58
4,008
243,679
202,551
124,375
110,431
10,638
10
1,284
7,927
2,021
256,686
500,365
56,398
10,127
‐
1,052
754
72
2
1,625
16,517
86,547
1,916
142,992
1,080
2,427
81
148,496
235,043
265,322
112,880
32,793
119,649
265,322
‐
265,322
119,438
118,099
13,075
48
1,800
6,284
3
258,747
461,298
55,311
11,022
38
1,214
1,750
15,092
878
2,022
9,485
96,812
1,931
155,957
1,525
4,053
106
163,572
260,384
200,914
112,880
26,591
61,443
200,914
‐
200,914
37
GUD Holdings Limited and subsidiaries
Consolidated Statement of Changes in Equity
For the year ended 30 June 2018
Balance at the beginning of the period
Comprehensive Income
Profit for the period attributable to owners of the Company
Other Comprehensive Income attributable to owners of the Company
Equity settled share based payment transactions
Total Comprehensive Income attributable to owners of the Company
Transactions with owners recognised in equity
Dividends paid
Total transactions with owners
Non‐controlling interests
De‐recognition of non‐controlling interests with change in control
Profit for the period attributable to non‐controlling interests
Total changes in ownership interests
Note
2018
$'000
2017
$'000
200,914
274,641
28
29
34
34
101,845
2,971
1,823
106,639
(7,344)
1,209
1,631
(4,504)
(42,231)
(42,231)
(37,712)
(37,712)
‐
‐
‐
(31,511)
‐
(31,511)
Balance at the end of the period
265,322
200,914
The amounts recognised directly in equity are net of tax.
The notes on pages 40 to 92 are an integral part of these consolidated financial statements.
38
Note
2018
$'000
2017
$'000
GUD Holdings Limited and subsidiaries
Consolidated Cash Flow Statement
For the year ended 30 June 2018
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of controlled entity, net of cash acquired
Acquisition of non‐controlling interests
Proceeds from sale of investments, net of cash disposed of
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for intangible assets and product development costs
Net cash provided by investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Proceeds on loans receivable
Interest received
Interest paid
Dividends paid
Net cash used in financing activities
Net increase in cash held
Cash at the beginning of the year
Effects of exchange rate changes on the balance of cash held in foreign currencies
Cash at the end of the year
453,943
(378,942)
(15,642)
59,359
(23,036)
(2,018)
83,771
(3,605)
‐
‐
55,112
82,479
(110,209)
3,182
132
(7,197)
(42,231)
(73,844)
40,627
10,238
(255)
50,610
21
33a
35
33b
18
17
29
22
21
The notes on pages 40 to 92 are an integral part of these consolidated financial statements.
621,828
(556,540)
(19,982)
45,306
(33,198)
‐
38,283
(5,363)
343
(22)
43
101,420
(111,508)
2,401
123
(9,723)
(37,712)
(54,999)
(9,650)
19,961
(73)
10,238
39
GUD Holdings Limited and subsidiaries
1. Basis of preparation
This section sets out the Group’s accounting policies that relate to the financial statements as a whole. Where an
accounting policy is specific to one note, the policy is described in the note to which it relates.
Reporting Entity
GUD Holdings Limited (the ‘Company’) is a for profit company domiciled in Australia. The consolidated financial
statements of the Company as at and for the year ended 30 June 2018 comprise the Company and its subsidiaries
(together referred to as the ‘Group’).
The Group is primarily involved in manufacture and importation, distribution and sale of cleaning products,
automotive products, pumps, pool and spa systems, and water pressure systems, with operations in Australia, New
Zealand, France and Spain (Note 7).
The consolidated annual financial statements of the Group as at and for the year ended 30 June 2018 are available
on request from the Company’s registered office at 29 Taras Avenue, Altona North, Victoria, 3025 or at
www.gud.com.au.
Basis of Accounting
The consolidated financial statements are general purpose financial statements which have been prepared in
accordance with the Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB)
and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting
Standards (IFRS) adopted by the International Accounting Standards Board (IASB).
The consolidated financial statements were authorised for issue by the Directors on 27 July 2018.
Rounding off
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2017/191 and in accordance with the Rounding Instrument, amounts in the financial statements have been rounded
off to the nearest thousand dollars, unless otherwise stated.
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following items
which have been measured at fair value:
Derivatives (Note 23)
Other financial instruments (Note 24)
Use of estimates and judgements
In preparing these consolidated financial statements, management has made judgements, estimates and
assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised
prospectively.
Information about estimation, uncertainty and critical judgements in applying accounting policies that have the most
significant effects on the amounts recognised in the consolidated financial statements is included in the following
notes:
Goodwill (Note 16) and other intangible assets (Notes 17, 33)
Inventories (Note 9)
Financial instruments (Note 25)
Other financial instruments – contingent consideration (Note 24)
40
GUD Holdings Limited and subsidiaries
1. Basis of preparation (continued)
Foreign currency
Functional and presentation currency
These consolidated financial statements are presented in Australian dollars which is the Company’s functional
currency and the functional currency of the majority of the Group.
Foreign currency transactions
Transactions in foreign currency are translated to the respective functional currencies of Group companies at the
exchange rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currency are translated to the functional currency at the
exchange rates prevailing at the reporting date.
Non‐monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the
functional currency at the exchange rate when the fair value was determined. Foreign currency differences are
generally recognised in profit or loss. Non‐monetary items that are measured based on historical cost in a foreign
currency are not translated.
However, foreign currency differences arising from the translation of the following items are recognised in other
comprehensive income:
Qualifying cash flow hedges to the extent the hedges are effective (Note 28), and
Exchange differences on translating foreign operations (Note 28).
New standards and interpretations adopted in the year
A number of new standards and amendments to standards are effective for annual periods beginning after 1 July
2018 and earlier application is permitted. However, the Group has not applied the following new or amended
standards in preparing these consolidated financial statements.
a) AASB 9 Financial instruments
AASB 9 replaces the existing guidance in AASB 139 Financial Instruments; Recognition and Measurement. AASB 9
includes revised guidance on the classification and measurement of financial instruments, including a new expected
credit loss model for calculating impairment on financial assets, and the new general hedge accounting
requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from
AASB 139. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption
permitted.
The Group has undertaken a detailed assessment of the classification and measurement impacts of the new
standard and it has estimated the following impacts:
The Group does not expect the new standard to have impact on the classification of its financial assets;
The Group does not hold any financial liabilities at fair value through profit and loss and as such there is no
impact of the new standard on financial liabilities.
The Group has determined that existing hedge relationships will qualify under AASB 9. The Group’s financial
risk policies and underlying hedge documentation and policies have been aligned with AASB 9;
AASB 9 will require extensive new disclosures, surrounding hedge accounting, credit risk and expected credit
losses;
The Group will adopt the practical expedient for low credit risk financial assets, which will allow impairment
of trade receivable balances to be measured on a 12‐month expected credit losses (‘ECL’) model. To
implement the Group will use a provision matrix using the ageing profiles of debtor balances and apply an
expected default rate based on its historical observed default rate, adjusted for forward looking estimates.
Historically, default rates have been low, therefore management does not expect trade receivable balances
to be impacted significantly by adopting the ECL model.
b) AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is
recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction
Contracts and IFRIC 13 Customer Loyalty Programmes. It provides a five‐step model that applies to all customer
contracts and it aims to better reflect the consideration that an entity expects to receive from customers in exchange
for its goods and services. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018,
with early adoption permitted.
41
GUD Holdings Limited and subsidiaries
1. Basis of preparation (continued)
New standards and interpretations adopted in the year – Continued
b) AASB 15 Revenue from Contracts with Customers continued
In the current year, a project team was established containing members from the business units and revenue
subject matter experts, to review the potential impacts of the new standard to the Group. As part of the impact
review the Group has reviewed a representative sample of sales contracts to identify potential changes in timing of
revenue recognition, measurement of the amount of revenue and note disclosures required under the new
standard. The following points were noted.
Most of the Group’s revenue is earned by distributing finished product to customers and as such the Group
has concluded there will be no material adjustments to profit or retained earnings on adoption of AASB 15
Some of Davey’s revenue is derived from providing its customers with custom water solutions. Under AASB
118 this revenue was recognised over time, these contracts have not straddled reporting periods, and as such,
no material adjustments have been required to reflect the percentage of completion of these contracts.
Income derived from Davey water solution projects meets the criteria set out in AASB 15 for revenue to be
recognised over time, on the basis that; water solutions are bespoke solutions, i.e. disassembly of the solution
would require a significant amount of work, which would result in the alternate sale of the product being
uneconomical and terms and conditions include an enforceable right to payment for work completed,
including a reasonable profit margin.
A number of the Group’s contracts offer its customers sales with right of return and marketing/co‐operative
rebates, which under AASB 118 are estimated using historical average return rates and are recorded as a
reduction in transaction price. The Group will continue to measure return provisions based on historical
average returns, on the basis that it is the best method to estimate expected future returns, therefore no
material impact is expected. In relation to marketing/co‐operative rebates the Group will be required to assess
nature of transaction and determine whether it should be treated as a general marketing expense or reduction
in transaction price. There will be no material impact to profit.
Transition
The Group plans to adopt AASB 15 using the cumulative effect method, with the effect of initially applying the
standard recognised at the date of initial application, 1 July 2019. As a result, the Group will not apply the
requirements of AASB 15 to comparative period.
c) AASB 16 Leases
AASB 16 replaces existing leases guidance, including AASB 117 Leases, IFRIC 4 Determining whether an Arrangement
contains a Lease, SIC‐15 Operating Leases – Incentives and SIC‐27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease AASB 16 introduces a single, on‐balance sheet lease accounting model for lessees. A lessee
recognises a right‐of‐use asset representing its right to use the underlying asset and a lease liability representing its
obligation to make lease payments. There are recognition exemptions for short‐term leases and leases of low‐value
items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance
or operating leases. The standard removes the classification of leases as either operating leases or finance leases for
the lessee, effectively treating all leases as finance leases. This will effectively move all off‐balance sheet operating
leases onto the balance sheet that is similar to current finance lease accounting. The application date of this
standard is 1 January 2019. Early adoption is permitted but only in conjunction with adopting AASB 15.
The Group has identified all material leases to the Group and is in the process of assessing applicable lease term
periods (likelihood of taking option extensions) and the discount rate to be applied. Under the expected transition
option, lease payments will be discounted using incremental borrowing rates at 1 July 2019. On transition, the Group
expects to apply the modified retrospective, which does not require restating of comparative periods.
The Group does not plan to adopt these standards early.
42
GUD Holdings Limited and subsidiaries
Results for the Year
This section focuses on the Group’s performance. Disclosures in this section includes analysis of the Group’s profit
before tax by reference to the activities performed by the Group and analysis of key revenues and operating costs,
segmental information, net finance costs and earnings per share.
In the segment information, the Group reports underlying Earnings Before Interest and Tax (“EBIT”) and before
exceptional items. This is a non IFRS measure of performance which reflects how the business is managed and how
the Directors assess the performance of the Group.
2. Revenue
Accounting policies
Sale of goods
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer,
recovery of the consideration is probable, the associated costs and possible return of goods can be estimated
reliably, there is no continuing management involvement with the goods, and the amount of the revenue can be
measured reliably. Revenue is measured net of returns and allowances, trade discounts and volume rebates.
Contract revenue
Contract revenue includes the initial amount agreed in the contract plus any variations in contract work to the extent
that it is probable that they will result in revenue and can be measured reliably. When the outcome of a contract
can be estimated reliably, contract revenue is recognised in the income statement in proportion to the stage of
completion of the contract. Otherwise, contract revenue is recognised only to the extent of contract costs incurred
that are likely to become recoverable.
Contract expenses are recognised as incurred unless they create an asset related to future contract activity. An
expected loss on a contract is recognised immediately in profit or loss.
Dividend income
Dividend income is not part of finance income and is recognised when the right to receive payment is established.
Goods and services tax
Revenues are recognised net of the amount of goods and services tax (GST).
This table summarises revenue from continuing operations:
Revenue
Sale of goods
Total revenue
Other income
Other
2018
$'000
396,689
396,689
2017^
Restated
$'000
356,866
356,866
321
154
154
Total other income
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
321
contribution of businesses discontinued in the current year.
3. Expenses
Accounting policies
Depreciation
Depreciation is charged to the income statement to reflect annual wear and tear and the reduced value of the asset
over time. Depreciation is provided on property, plant and equipment, including freehold buildings but excluding
land. Depreciation is calculated on a straight line basis over the estimated useful life of each asset to its estimated
residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life,
whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation
method are reviewed at the end of each annual reporting period.
The following estimated useful lives for current and prior periods used in the calculation of depreciation:
Plant and equipment
Equipment under finance lease
3 to 12 years
3 to 12 years
43
GUD Holdings Limited and subsidiaries
3. Expenses (continued)
Amortisation
The value of intangible assets, with the exception of goodwill, and indefinite life intangible assets reduces over the
number of years the Group expects to use the asset, via an amortisation charge. Amortisation is recognised in the
income statement over the following number of years:
Patents, licences, Product development and distribution rights
Customer relationships
Software
3 to 5 years
5 to 15 years
5 to 7 years
Operating leases
Operating lease payments are recognised as an expense on a straight‐line basis over the lease term.
Goods and services tax
Expenses are recognised net of the amount of goods and services tax (GST), except where the amount of GST
incurred is not recoverable from the taxation authority, it is recognised as part of an item of expense.
Expenses by nature
This table summarises expenses by nature from continuing operations:
Profit before income tax has been arrived at after
charging the following expenses:
Write‐Up/(write‐back) to value of inventory obsolescence provision
Loss/(gain) on sale of plant and equipment
Operating lease rental expense: Minimum lease payments
Net foreign exchange (gain)/loss
Employee benefits:
Wages and salaries (including on‐costs)
Contributions to defined contribution plans
Movements in provisions for employee benefits
Equity settled share based payment expense
Depreciation and amortisation:
Amortisation and impairment of product development costs
Amortisation of customer relationships
Amortisation of other intangibles
Depreciation of plant and equipment
Depreciation of leased plant and equipment
Total depreciation and amortisation
Product development and sourcing costs
Non‐underlying costs:
Transaction expenses
Restructuring expenses
Impairment of inventory
Impairment of product development costs
Impairment of tooling assets
Loss on revaluation of contingent consideration
Note
28
17
17
17
18
18
9
2018
$'000
607
1,539
8,334
247
72,865
2,618
(1,040)
1,823
‐
392
1
3,491
11
3,895
12,166
289
450
2,373
1,726
1,684
101
2017^
Restated
$'000
523
488
6,984
1,296
62,668
2,602
(1,170)
1,315
264
222
49
2,767
11
3,313
7,961
192
39
‐
‐
‐
‐
231
Total non‐underlying costs
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
6,623
contribution of businesses discontinued in the current year.
44
GUD Holdings Limited and subsidiaries
4. Net finance costs
Accounting policies
Finance income
Finance income is comprised of interest income, fair value gains on interest rate hedging instruments and gains on
disposals of available for sale financial assets. Interest income is recognised on a time proportionate basis that takes
into account the effective yield on the financial asset.
Finance costs
Finance costs are classified as expenses consistent with the balance sheet classification of the related debt or equity
instruments. Finance costs are comprised of interest expense on borrowings and fair value losses on interest rate
hedging instruments through the income statement. Interest expense on borrowings is recognised on an effective
interest basis.
This table summarises net finance costs from continuing operations:
Finance costs:
Interest income
Interest expense
Financial assets / liabilities measured at fair value through the profit and loss
Net foreign exchange (gain) / loss
Unwinding of discount on contingent consideration payable
2018
$'000
(132)
7,156
(208)
(201)
45
2017^
Restated
$'000
(122)
9,099
548
51
764
10,340
Net finance costs
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
6,660
contribution of businesses discontinued in the current year.
The ineffective portion of cash flow hedges that is recognised in the income statement is nil (2017: nil).
5. Earnings per share
Earnings per share ('EPS') is the amount of profit attributable to each share. Basic EPS is calculated on the Group
profit for the year attributable to equity shareholders divided by the weighted average number of shares on issue
during the year.
Diluted EPS reflects any commitments the Group has to issue shares in the future, such as issued upon vesting of
performance rights.
Profit / (loss) for the period
Weighted average number of ordinary shares used as
the denominator for basic EPS
Effect of balance of performance rights outstanding at
30 June 2018
Weighted average number of ordinary shares used as
the denominator for diluted EPS
EPS
Continuing operations
2017^
Restated
$'000
2018
$'000
Discontinuing operations
2017^
Restated
$'000
2018
$'000
50,473
Number
45,659
Number
51,372
Number
(53,003)
Number
86,149,028
85,692,094
86,149,028
85,692,094
738,745
939,951
738,745
939,951
86,887,773
86,632,045
86,887,773
86,632,045
Cents per share Cents per share Cents per share Cents per share
(61.9)
Basic EPS
Diluted EPS
(61.2)
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
58.6
58.1
59.6
59.1
53.3
52.7
contribution of businesses discontinued in the current year.
45
GUD Holdings Limited and subsidiaries
6. Auditors' remuneration
This table summarises auditors’ remuneration incurred in relation to continuing operations:
Audit and review services:
The auditor of GUD Holdings Limited
‐ audit and review of financial reports
Other auditors:
‐ audit and review of financial reports
Other services:
The auditor of GUD Holdings Limited
‐ in relation to other assurance, advisory, taxation and due diligence services 1
Other auditors:
‐ in relation to other assurance, advisory, taxation and due diligence services 2
2018
$
2017
$
573,020
690,038
‐
573,020
21,860
711,898
409,900
422,778
‐
‐
409,900
422,778
1
In relation to services rendered in conjunction with the acquisition of AA Gaskets (Note 33a) and the disposal of Oates (Note 33b).
7. Segment information
Segment reporting is presented in respect of the Group’s business and geographical segments. Operating segments
are presented using the ‘management approach’, where the information presented is on the same basis as the
internal reports provided to the Managing Director (Chief Operating Decision Makers ‐ ‘CODM’). The CODM is
responsible for the allocation of resources to operating segments and assessing their performance. Segment results,
assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items comprise mainly corporate assets, corporate expenses, interest and tax,
corporate borrowings, and deferred tax balances.
Business segments
The following summary describes the operations in each of the Group’s reportable segments:
Automotive
Automotive and heavy duty filters for cars, trucks, agricultural and mining equipment, fuel pumps and associated
products for the automotive after‐market.
Davey
Pumps and pressure systems for household and farm water, water transfer pumps, swimming pool products, spa
bath controllers and pumps and water purification equipment.
Discontinued operations
Discontinued operations consist of the Oates business sold 2 January 2018, the Dexion business sold 1 June 2017,
Lock Focus business sold on 1 December 2016 and the Sunbeam business sold on 1 July 2016.
Geographical segments
The Group operates primarily in two geographical segments; Australia and New Zealand.
Geographical Information
Sales to external customers
Geographical non‐current assets
2018
$’000
347,467
43,199
6,023
396,689
2017
^ Restated
$’000
312,804
38,313
5,749
356,866
2018
$’000
235,611
20,303
772
256,686
2017
^ Restated
$’000
231,452
21,149
6,146
258,747
Australia
New Zealand
Other
^Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
contribution of businesses discontinued in the current year.
46
GUD Holdings Limited and subsidiaries
7. Segment information (continued)
Business segments
Total segment revenue (external)
Underlying EBITDA pre impairment costs
Less: Depreciation
Less: Amortisation and impairment of intangibles
Underlying EBIT pre impairment costs
Loss of revaluation of contingent consideration payable
Transaction costs 1
Profit/(Loss) on sale of subsidiaries 2
Integration and Oates sale incentives
Impairment of inventory, product development and tooling
assets
Segment result (EBIT)
Interest income
Interest expense
Profit / (loss) before tax
Tax expense
Profit / (loss)
Non‐controlling interest
Profit / (loss) attributable to owners of the Company
Segment assets
Segment liabilities
Segment capital expenditure
Automotive
$'000
295,602
85,431
(1,729)
(518)
83,184
‐
(141)
‐
(92)
‐
82,951
214
(92)
83,073
(24,926)
58,147
‐
58,147
366,688
51,563
1,866
For the year ended 30 June 2018
Unallocated
$'000
Continuing
operations
$'000
396,689
Discontinued
operations
$'000
36,060
(8,866)
(9)
(1)
(8,876)
(101)
(148)
‐
(358)
‐
(9,483)
‐
(6,828)
(16,311)
6,644
(9,667)
‐
(9,667)
30,342
164,217
163
87,146
(3,148)
(519)
83,479
(101)
(289)
‐
(450)
(5,783)
76,856
410
(7,070)
70,196
(19,723)
50,473
‐
50,473
500,093
234,930
3,704
5,003
(354)
(8)
4,641
‐
(2,442)
51,536
(930)
‐
52,805
16
(43)
52,778
(1,406)
51,372
‐
51,372
272
113
59
Davey
$'000
101,087
10,581
(1,410)
‐
9,171
‐
‐
‐
‐
(5,783)
3,388
196
(150)
3,434
(1,441)
1,993
‐
1,993
103,063
19,150
1,675
Total
$'000
432,749
92,149
(3,502)
(527)
88,120
(101)
(2,731)
51,536
(1,380)
(5,783)
129,661
426
(7,113)
122,974
(21,129)
101,845
‐
101,845
500,365
235,043
3,763
1
2
Transaction costs in the Automotive segment relate to the acquisitions of AA Gaskets (Note 33a). Transaction costs incurred in discontinued operations relate to the disposals of Oates (Note 33b) and Dexion ($0.232 million).
Gain on sale of Oates ($51.536 million).
47
GUD Holdings Limited and subsidiaries
7. Segment information (continued)
Business segments
Total segment revenue (external)
Underlying EBITDA pre impairment costs
Less: Depreciation
Less: Amortisation and impairment of intangibles
Underlying EBIT pre impairment costs
Transaction costs
Loss on sale of subsidiary
Restructuring
Segment result (EBIT)
Interest income
Interest expense
Share of profit of equity accounted investees
Profit / (loss) before tax
Tax expense
Profit / (loss)
Non‐controlling interest
Profit / (loss) attributable to owners of the Company
Segment assets
Segment liabilities
Segment capital expenditure
For the year ended 30 June 2017
Unallocated
$'000
(19)
Continuing
operations
^ Restated
$'000
356,866
Discontinued
operations
^ Restated
$'000
215,748
(8,055)
(4)
(49)
(8,108)
‐
‐
‐
(8,108)
117
(9,616)
‐
(17,607)
5,401
(12,206)
‐
(12,206)
(1,347)
189,563
16
78,178
(2,778)
(535)
74,865
(192)
‐
(39)
74,634
131
(10,471)
‐
64,294
(18,635)
45,659
‐
45,659
419,208
248,461
3,061
9,110
(2,845)
(308)
5,957
(3,057)
(50,683)
(3,794)
(51,577)
850
(1,399)
3,993
(48,133)
(4,870)
(53,003)
‐
(53,003)
42,090
11,923
2,324
Davey
$'000
102,462
10,522
(1,129)
(264)
9,129
‐
‐
‐
9,129
1
(222)
‐
8,908
(2,667)
6,241
‐
6,241
101,111
16,239
1,262
Total
$'000
572,614
87,288
(5,623)
(843)
80,822
(3,249)
(50,683)
(3,833)
23,057
981
(11,870)
3,993
16,161
(23,505)
(7,344)
‐
(7,344)
461,298
260,384
5,385
Automotive
$'000
254,423
75,711
(1,645)
(222)
73,844
(192)
‐
(39)
73,613
13
(633)
‐
72,993
(21,369)
51,624
‐
51,624
319,444
42,659
1,783
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the contribution of businesses discontinued in the current year.
1
2
Transaction costs in the Automotive segment relate to the acquisitions of GEL ANZ and IMG (Note 33a). Transaction costs incurred in discontinued operations relate to the disposals of Dexion and Lock Focus (Note 33b).
Losses on sale of subsidiaries comprises a losses on sale of Dexion ($45.252 million), Lock Focus of ($3.935 million) and Sunbeam ANZ ($1.496 million).
48
GUD Holdings Limited and subsidiaries
Working Capital
Working capital represents the assets and liabilities the Group generates through its trading activity. The Group
therefore defines working capital as inventory, trade and other receivables, trade and other payables and provisions.
Careful management of working capital ensures that the Group can meet its trading and financing obligations within
its ordinary operating cycle.
This section provides further information regarding working capital management and analysis of the elements of
working capital.
8. Trade and other receivables
Accounting policies
Trade receivables
Trade and other receivables are non‐derivative financial instruments that are initially recognised at fair value plus
any directly attributable costs. Subsequent to initial recognition, they are measured at amortised cost using the
effective interest method, less identified impairment.
Goods and services tax
Trade receivables are recognised inclusive of the amount of goods and services tax (GST) which is payable to taxation
authorities. The net amount of GST payable to the taxation authority is included as part of payables.
This table summarises trade and other receivables related to continuing operations at 30 June 2018 and all
operations at 30 June 2017:
Current
Trade receivables
Less: Allowance for doubtful debts
Net trade receivables
2018
$'000
97,372
(685)
96,687
2017
$'000
92,667
(697)
91,970
An allowance has been made for estimated irrecoverable amounts from the sale of goods and services, determined
by a specific review of debtors. The movement in the allowance for doubtful debts was recognised in the income
statement in the current financial year.
Movement in allowance for doubtful debts
Balance at the beginning of the year
Acquisitions through business combinations
Disposed through business combinations
Doubtful debts recognised
Amounts written off as uncollectible
Balance at the end of the year
2018
$'000
(697)
(6)
(145)
163
(685)
2017
$'000
(829)
‐
161
(508)
479
(697)
Amounts are written off as uncollectible only after it is determined that the debts are no longer collectible either by
notification from an administrator to the debtor or because the debtor has demonstrated an inability to pay. Where
applicable, insurance proceeds are received to partially mitigate the loss and the net uncollectible amount is
reflected above.
49
GUD Holdings Limited and subsidiaries
8. Trade and other receivables (continued)
Receivables that are past due but not impaired are those receivables the Directors believe to be fully recoverable
and as a result, have not recognised any amount in the doubtful debt provision for them.
2018
Ageing of trade receivables
Not past due
Past due 1 ‐ 60 days
Past due 61 ‐ 120 days
Past due 121 ‐ 365 days
Past due more than one year
Total trade receivables
2017
Ageing of trade receivables
Not past due
Past due 1 ‐ 60 days
Past due 61 ‐ 120 days
Past due 121 ‐ 365 days
Past due more than one year
Total trade receivables
Gross
$'000
82,061
10,422
3,757
977
155
97,372
Gross
$'000
80,024
11,077
1,308
157
101
92,667
Impairment
$'000
(35)
(169)
(105)
(333)
(43)
(685)
Impairment
$'000
(25)
(465)
(115)
(12)
(80)
(697)
Net
$'000
82,026
10,253
3,652
644
112
96,687
Net
$'000
79,999
10,612
1,193
145
21
91,970
Additional information relating to credit risk is included in Note 26.
9.
Inventories
Accounting policies
Inventories
Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed
and variable overhead expenses, are assigned to inventory by the method most appropriate to each particular class
of inventory, with the majority being valued on a weighted average basis. Net realisable value represents the
estimated selling price less all estimated costs of completion and selling costs.
Goods and services tax
Non‐financial assets such as inventories are recognised net of the amount of goods and services tax (GST), except
where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost
of acquisition of the asset.
This table summarises inventories related to continuing operations at 30 June 2018 and all operations at 30 June
2017:
Current
Raw materials and stores
Work in progress
Finished goods
Inventory – at cost
Less: Provision for slow moving inventory
Total inventory
2018
$'000
11,219
677
83,015
94,911
(7,411)
87,500
2017
$'000
10,669
908
85,799
97,376
(4,296)
93,080
Inventories have been reduced by $7.411 million (2017: $4.296 million) because of the write‐down to net realisable
value. Such write‐down was recognised in significant cost ($2.373 million), and as an expense for the remaining
balance during 2018. Inventories disclosed above are net of the provision for obsolescence. Increases or write‐backs
of the provision are recognised in cost of goods sold (Note 3).
50
GUD Holdings Limited and subsidiaries
10. Other assets
This table summarises other assets related to continuing operations at 30 June 2018 and all operations at 30 June
2017:
Current
Prepayments
Other
11. Trade and other payables
Accounting policies
Payables
2018
$'000
2,874
1,811
4,685
2017
$'000
3,026
982
4,008
Trade payables and other accounts payable are non‐derivative financial instruments measured at cost.
Goods and services tax
Trade payables are recognised inclusive of the amount of goods and services tax (GST) which is recoverable from
taxation authorities. The net amount of GST recoverable from the taxation authority is included as part of
receivables.
This table summarises trade and other payables related to continuing operations at 30 June 2018 and all operations
at 30 June 2017:
Current
Accrued expenses
Trade payables
Trade payables and accrued expenses
No interest is incurred on trade payables.
12. Employee benefits
Accounting policies
Employee benefits
2018
$'000
15,164
41,234
56,398
2017
$'000
20,174
35,137
55,311
Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service
leave, and sick leave when it is probable that settlement will be required and they are capable of being measured
reliably.
Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their
nominal values using the remuneration rate expected to apply at the time of settlement and including on‐costs
associated with employment.
Provisions made in respect of employee benefits which are not expected to be settled within 12 months are
measured as the present value of the estimated future cash outflows to be made by the Group in respect of services
provided by employees up to reporting date. Expected future payments are discounted using market yields at the
reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows.
Defined contribution plans
Contributions to defined contribution superannuation plans are expensed when incurred.
51
GUD Holdings Limited and subsidiaries
12. Employee benefits (continued)
This table summarises employee provisions related to continuing operations at 30 June 2018 and all operations at
30 June 2017:
Current
Non‐current
Accrued wages and salaries
Accrued wages and salaries are included in accrued expenses in Note 11.
13. Restructuring provisions
Accounting policies
Restructuring
2018
$'000
10,127
1,916
12,043
2,253
14,296
2017
$'000
11,022
1,931
12,953
642
13,595
A provision for restructuring is recognised when the Group has developed a detailed formal plan for the restructuring
and has raised a valid expectation in those affected that it will carry out the restructuring by:
starting to implement the plan; or
announcing its main features to those affected by it.
Onerous contracts
An onerous contract is considered to exist where the Group has a contract under which the unavoidable cost of
meeting the contractual obligations exceed the economic benefits estimated to be received. Present obligations
arising under onerous contracts are recognised as a provision to the extent that the present obligations exceed the
economic benefits estimated to be received.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount
of the receivable can be measured reliably.
This table summarises restructuring provisions related to continuing operations at 30 June 2018 and all operations
at 30 June 2017:
Current
Non‐current
Carrying amount at beginning of year
Provisions recognised
Payments made during the year
Disposed through divestments
Net foreign currency difference arising on translation of foreign operations
Carrying amount at end of year
Note
2018
$'000
‐
‐
‐
38
‐
(38)
‐
‐
‐
The payments made against the provision for restructuring represents the costs of redundancies.
2017
$'000
38
‐
38
37
38
‐
(37)
‐
38
52
GUD Holdings Limited and subsidiaries
14. Warranty provisions
Accounting policy
Warranties
Provisions for warranty costs are recognised at the date of sale of the relevant products, at the Directors’ best
estimate of the expenditure required to settle the Group’s liability.
The provision for warranty claims represents the present value of the Directors' best estimate of the future sacrifice
of economic benefits that will be required under the Group's warranty program. The estimate has been made on
the basis of historical warranty trends and may vary as a result of new materials, altered manufacturing processes
or other events affecting product quality.
Warranty provisions are all current.
This table summarises warranty provisions related to continuing operations at 30 June 2018 and all operations at 30
June 2017:
Carrying amount at beginning of year
Provisions recognised
Payments made during the year
Reclassification as liabilities held for sale
Disposed through divestments
Net foreign currency difference arising on translation of foreign operations
Carrying amount at end of year
15. Other provisions
Accounting policy
Other
2018
$'000
1,214
‐
(158)
‐
‐
(4)
1,052
2017
$'000
731
4,364
(3,839)
‐
(40)
(2)
1,214
Other provisions are recognised at the date a commitment is made, at the Directors’ best estimate of the future
sacrifice of economic benefits that will be required under that commitment.
This table summarises other provisions related to continuing operations at 30 June 2018 and all operations at 30
June 2017:
Carrying amount at beginning of year
Provisions recognised
Payments made during the year
Carrying amount at end of year
2018
$'000
1,750
‐
(996)
754
2017
$'000
16
1,750
(16)
1,750
53
GUD Holdings Limited and subsidiaries
Tangible and Intangible Assets
The following section shows the tangible and intangible assets used by the Group to operate the business.
Intangible assets include brands, customer relationships, patents, licences, software development, distribution
rights and goodwill.
This section explains the accounting policies applied and the specific judgements and estimates made by the
Directors in arriving at the net book value of these assets.
16. Goodwill
Accounting policies
Goodwill
Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable assets, liabilities
and contingent liabilities acquired.
Goodwill is recognised as an asset and not amortised, but tested for impairment annually and whenever there is an
indication that the goodwill may be impaired. Any impairment is recognised immediately in the income statement
and is not subsequently reversed.
This table summarises the movement in goodwill:
Gross carrying amount
Balance at the beginning of the year
Acquisitions through business combinations
Disposed through divestments
Transfer to brand names
Net foreign currency difference arising on translation of
financial statements of foreign operations
Balance at the end of the year
17. Other intangible assets
Accounting policies
Product development costs
Note
33a
33b
2018
$'000
119,438
14,072
(5,166)
(3,650)
(319)
124,375
2017
$'000
110,394
14,371
(5,300)
‐
(27)
119,438
Expenditure on research activities is recognised as an expense in the income statement period in which it is incurred.
Where no internally‐generated intangible asset can be recognised, development expenditure is recognised as an
expense in the income statement in the period as incurred. An intangible asset arising from development (or from
the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated:
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use
or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly
attributable to preparing the asset for its intended use.
Product development assets are stated at cost less accumulated amortisation and impairment, and are amortised
on a straight‐line basis over their useful lives, which is up to a maximum of 5 years (Note 3).
54
GUD Holdings Limited and subsidiaries
17. Other intangible assets (continued)
Brand names and trademarks
Acquired brand names and trademarks are recorded at cost. The carrying value is tested annually for impairment
as part of the annual testing of cash generating units (Note 19).
The Group holds a number of brand names that are considered to have an indefinite useful life. The indefinite
useful life reflects the Directors' view that these brands are assets that provide ongoing market access advantages
for both new and existing product sales in the markets that the businesses operate. The current understanding of
the industries and markets that the businesses operate in indicates that demand for products will continue in a
sustainable manner, that changes in technology are not seen as a major factor impacting the brands future value,
and, the brands have proven long lives in their respective markets.
Other intangible assets
Other intangible assets that are acquired by the Group, which have finite lives, are measured at cost less
accumulated amortisation (Note 3) and accumulated impairment losses.
The carrying value is tested for impairment as part of the annual testing of cash generating units (Note 19).
This table summarises other intangible assets related to continuing operations at 30 June 2018 and all operations at
30 June 2017:
Product
Development
Costs
Note
Brand,
Business
Names &
Trademarks
Patents,
Licences &
Distribution
Rights
Software
Customer
Relationships
$'000
Gross carrying amount
Balance at 30 June 2016
Additions from business combinations
Disposed through divestments
Additions from internal developments
Additions
Transfers
Foreign currency movements
Balance at 30 June 2017
Additions from business combinations
Disposed through divestments
Additions
Impairment
Transfers
Foreign currency movements
Balance at 30 June 2018
Accumulated amortisation
Balance at 30 June 2016
Amortisation expense
Disposed through divestments
Foreign currency movements
Balance at 30 June 2017
Amortisation expense
Disposed through divestments
Impairment
Balance at 30 June 2018
Carrying amount
As at 30 June 2017
33a
33b
33b
7,175
‐
(4,422)
4
‐
144
‐
2,901
(676)
‐
(2,225)
‐
‐
123,942
182
(12,323)
‐
‐
‐
(4)
111,797
3,698
(8,900)
‐
‐
‐
(15)
272
139
‐
‐
‐
‐
‐
411
‐
‐
‐
‐
‐
‐
7,544
‐
(7,388)
‐
18
‐
(29)
145
‐
‐
4
‐
‐
‐
5,890
‐
(1,449)
‐
‐
‐
‐
4,441
‐
‐
‐
‐
‐
‐
‐
106,580
411
149
4,441
111,581
(4,895)
(12,327)
(272)
(6,402)
(1,449)
(25,345)
(289)
4,227
‐
(957)
‐
672
293
8
1,944
‐
12,323
4
‐
‐
‐
‐
‐
111,797
106,580
‐
‐
‐
(272)
(127)
‐
‐
(399)
139
12
(332)
6,575
14
(145)
‐
‐
‐
(145)
‐
4
(222)
1,449
‐
(222)
(392)
‐
‐
(614)
4,219
3,827
As at 30 June 2018
8
Amortisation is recognised as an expense in Note 3.
Refer to Note 7 for allocation of the carrying amount of brand names to segments.
Total
144,823
321
(25,582)
4
18
144
(33)
119,695
3,698
(9,576)
4
(2,225)
(16)
(843)
24,574
18
(1,596)
(519)
672
293
(1,150)
118,099
110,431
55
GUD Holdings Limited and subsidiaries
18. Property, plant and equipment
Accounting policies
Property, plant and equipment
Property, plant and equipment and leasehold improvements are stated at cost less accumulated depreciation (Note
3) and impairment.
Cost includes expenditure that is directly attributable to the acquisition of the item.
If there has been a technological change or decline in business performance the Directors review the value of the
assets to ensure they have not fallen below their depreciated value. If an asset's value falls below its depreciated
value an additional one‐off impairment charge is made against profit.
Leased assets
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are
initially recognised at their fair value or, if lower, at amounts equal to the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the
balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction
of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged directly to the income statement.
Subsequent to their initial recognition, finance leased assets are amortised over their estimated useful life.
This table summarises the movement in gross carrying amount, accumulated amortisation and written down value
of property, plant and equipment:
Gross carrying amount
Balance at 30 June 2016
Additions from business combinations
Disposed through divestments
Additions
Disposals
Transfers
Foreign currency movements
Balance at 30 June 2017
Additions from business combinations
Disposed through divestments
Additions
Disposals
Foreign currency movements
Balance at 30 June 2018
Note
33a
33b
33a
33b
Leased assets
$'000
Plant and Equipment
$'000
100
113
‐
‐
‐
(100)
‐
113
‐
‐
‐
‐
‐
113
85,928
1,726
(40,986)
5,363
(3,974)
100
(242)
47,915
407
(7,145)
3,605
(2,693)
(76)
42,013
Total
$'000
86,028
1,839
(40,986)
5,363
(3,974)
‐
(242)
48,028
407
(7,145)
3,605
(2,693)
(76)
42,126
56
GUD Holdings Limited and subsidiaries
18. Property, plant and equipment (continued)
Note
33a
33b
33b
Accumulated depreciation and amortisation
Balance at 30 June 2016
Additions from business combinations
Disposed through divestments
Depreciation expense
Disposals
Transfers
Foreign currency movements
Balance at 30 June 2017
Disposed through divestments
Depreciation expense
Disposals
Transfers
Foreign currency movements
Balance at 30 June 2018
Carrying amount
As at 30 June 2017
As at 30 June 2018
Leased assets Plant and Equipment
$'000
$'000
(42)
(15)
‐
(11)
‐
53
‐
(15)
‐
(11)
‐
‐
1
(25)
98
88
(52,691)
(1,040)
21,223
(5,612)
3,143
(53)
92
(34,938)
5,821
(3,491)
1,071
‐
74
(31,463)
12,977
10,550
Total
$'000
(52,733)
(1,055)
21,223
(5,623)
3,143
‐
92
(34,953)
5,821
(3,502)
1,071
‐
75
(31,488)
13,075
10,638
Depreciation is recognised as an expense in Note 3.
Acquisition include the acquisition of AA Gaskets (Note 33a). Disposal includes the sale of Oates (Note 33b).
19. Impairment testing
Accounting policies
Impairment of property, plant, equipment and intangible assets
Tangible and intangible assets are tested for impairment annually and whenever there is an indication that the asset
may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any).
Assets that cannot be tested individually are grouped together into cash‐generating units (CGUs) which are the
smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash
flows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been
allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which
goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to
groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount
of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the income
statement immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the
revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset
(or CGU) in prior years. A reversal of an impairment loss (other than goodwill) is recognised in the income statement
immediately. Any impairment of goodwill is not subsequently reversed.
57
GUD Holdings Limited and subsidiaries
19. Impairment testing (continued)
Results
The Group’s CGUs comprise the operating segments disclosed in Note 7.
All intangible assets with indefinite lives (goodwill and brand names), have been allocated for impairment testing
purposes to CGUs (or groups of units).
Each CGU's recoverable amount has been tested on the basis of its value in use. The value in use calculation uses
assumptions including cash flow projections based on Board approved budgets for the 2019 (2017: based on 2018
budget) year and forecasts for a further 4 years which are extrapolated in perpetuity using a long term average
growth rate (average of next five years) and terminal value growth rate of 3% consistent with the sectors in which
the CGUs operate. The values assigned reflect past experience or, if appropriate, are consistent with external sources
of information.
The following summarises the pre‐tax discount rates applied to cash flows of each CGU for the years ended 30 June
2017 and 2018:
Automotive
Davey
2018
12.8 – 13.2%
12.7 – 13.5%
2017
13.2‐14.0%
13.0‐13.9%
With regards to all the CGU’s, management have determined that, given the significant excess of future cash flows
over asset carrying value (headroom), there are no reasonable possible changes in key assumptions which could
occur to cause the carrying amount of these CGU’s to exceed its recoverable amount.
The directors have assessed that no impairment charge is required in relation to the intangible assets for the year
ended 30 June 2018.
20. Commitments for expenditure
Plant & equipment
Future contracted capital expenditure not provided for and payable are as follows:
Within 1 year
Between 1 and 5 years
Later than 5 years
2018
$'000
2,048
1,156
472
3,676
2017
^Restated
$'000
722
‐
‐
722
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
contribution of businesses discontinued in the current year.
Operating leases
Future non‐cancellable operating lease commitments not provided for and payable are as follows:
Within 1 year
Between 1 and 5 years
Later than 5 years
2018
Buildings
$'000
6,538
24,331
12,292
43,161
2018
Other
$'000
1,996
4,916
4,450
11,362
2017
^Restated
Buildings
$'000
6,405
20,107
9,662
36,174
2017
^Restated
Other
$'000
979
997
‐
1,976
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
contribution of businesses discontinued in the current year.
The Group leases a number of premises throughout Australia and New Zealand. The rental period of each individual
lease agreement varies between one and ten years with renewal options ranging from one to five years. The
majority of lease agreements are subject to rental adjustments in line with movements in the Consumer Price Index
or market rentals. The leases do not include an option to purchase the leased assets at the expiry of the lease period.
The Group leases the majority of its motor vehicles from external suppliers over a lease period of up to four years
with monthly payments. At the end of the lease period there are a number of options available with respect to the
motor vehicles, none of which include penalty charges.
58
GUD Holdings Limited and subsidiaries
20. Commitments for expenditure (continued)
Finance leases
The Group leases production plant and equipment under finance leases expiring from three to five years. At the end
of the lease term, the Group has the option to purchase the equipment at the agreed residual amount or renegotiate
an extension to the finance lease.
Future non‐cancellable finance lease commitments not provided for and payable are as follows:
Minimum future lease payments:
Within 1 year
Between 1 and 5 years
Later than 5 years
Total finance lease commitment
Less: Future finance lease charges
Finance lease liability
Present value of minimum future lease payments:
Within 1 year
Between 1 and 5 years
Later than 5 years
2018
$'000
2017
^Restated
$'000
72
‐
‐
72
‐
72
72
‐
‐
72
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
^ Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the
contribution of businesses discontinued in the current year.
Lease liabilities provided for in the consolidated financial statements are disclosed in Note 22.
59
GUD Holdings Limited and subsidiaries
Capital Structure and Financing Costs
This section outlines how the Group manages its capital structure and related financing costs, including its balance
sheet liquidity and access to capital markets.
The directors determine the appropriate capital structure of the Group, how much is realised from shareholders and
how much is borrowed from financial institutions to finance the Group’s activities now and in the future.
This section details the interest income generated on the Group's cash and other financial assets and the interest
expense incurred on borrowings and other financial assets and liabilities. The presentation of these net financing
costs in this note reflects income and expenses according to the classification of the financial instruments.
21. Cash and cash equivalents
Accounting policies
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net
of outstanding bank overdrafts and non‐derivative financial instruments and are principally held with the same
financial institutions who provide borrowing facilities to the company.
Bank overdrafts, where they occur, are included as a component of cash and cash equivalents for the purpose of the
statement of cash flows.
Cash flows are included in the cash flow statement on a gross basis inclusive of GST. The GST component of cash
flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority
is classified as operating cash flows.
Current
Cash and cash equivalents in the balance sheet
Total cash and cash equivalents
Note
25
Reconciliation of profit after income tax to net cash provided by operating activities
Profit / (loss) from operations, net of income tax
Share of loss of equity accounted investees
Profit / loss on sale of subsidiaries
Depreciation and amortisation
Impairment of goodwill
Impairment of brand names
Impairment of inventory
Impairment of product development
Loss on revaluation of contingent consideration payable
Unwind of discount on contingent consideration payable
Interest received
Interest paid
Loss on sale of property, plant and equipment
Changes in working capital assets and liabilities:
Increase/(decrease) in net tax liability
(Increase)/decrease in inventories
(Increase)/decrease in trade receivables
(Increase)/decrease in other assets
Increase/(decrease) in provisions
Increase/(decrease) in payables
Increase/(decrease) in derivatives
Net cash provided by/(used in) operating activities
2018
$'000
50,610
50,610
2018
$'000
101,845
‐
(51,536)
3,896
‐
‐
‐
1,932
‐
45
(132)
7,197
(1,508)
‐
5,443
5,580
(4,717)
(677)
(2,107)
(957)
(4,945)
59,359
2017
$'000
10,238
10,238
2017
$'000
(7,344)
(3,993)
50,683
6,466
‐
‐
‐
‐
‐
764
(123)
9,723
488
‐
3,522
(7,564)
(4,403)
128
675
(2,263)
(1,453)
45,306
60
GUD Holdings Limited and subsidiaries
22. Borrowings
Accounting policies
Borrowings
Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings
are measured at amortised cost with any difference between the initial recognised amount and the redemption
value being recognised in the income statement over the period of the borrowing using the effective interest rate
method.
Bank overdrafts
The unsecured bank overdraft facilities are subject to annual review. As part of these facilities, GUD Holdings Limited
and all of its subsidiaries have entered into a deed of cross guarantee. GUD Holdings Limited has a contingent liability
to the extent of the bank overdraft debt incurred by its controlled entities. Interest on bank overdrafts is charged
at prevailing market rates. The weighted average interest rate for all overdrafts as at 30 June 2018 is 4.44% (2017:
4.44%).
Unsecured bank loans
The two tranches of the unsecured bank loan in accordance with the Common Terms Deed are summarised below:
Tranche A – 5 year facility
Tranche B – 5 year facility
Facilities as at 30 June 2018
Facilities as at 30 June 2017
Amount
$ million
185.0
56.25
Maturity
1 July
2020
2020
Amount
$ million
185.0
97.5
Maturity
1 July
2020
2020
The Tranche B facility amortises from 31 March 2016 to maturity. The facility has amortised a further $41.25 million
during the year ended 30 June 2018 (2017: $12.5 million).
Both tranches are subject to variable interest rates which as at 30 June 2018 are 3.80% and 3.78%, respectively
(2017: 4.12% and 4.34%, respectively). Tranche B reduces by a further $3.75 million in July 2020 in accordance with
facility agreements entered into in conjunction with the Common Terms Deed (as amended). The facilities expire in
July 2020.
Money market facility
The unsecured money market facilities are payable on demand and may be withdrawn unconditionally. Interest on
draw‐downs is charged at prevailing market rates.
This table summarises Borrowings relating to continuing operations at 30 June 2018 and all operations at 30 June
2017:
Current
Unsecured bank loans
Secured finance lease liabilities (1)
Non‐current
Unsecured bank loans
(1) Secured by the assets leased (Note 18).
Note
25
25
2018
$'000
‐
72
72
2017
$'000
15,092
‐
15,092
142,992
142,992
155,957
155,957
61
GUD Holdings Limited and subsidiaries
22. Borrowings (continued)
Financing facilities
This table summarises facilities available, used and not utilised related to continuing operations at 30 June 2018 and
all operations at 30 June 2017:
Total facilities available:
Unsecured bank overdrafts
Unsecured bank loans
Unsecured money market facilities
Facilities used at balance date:
Unsecured bank overdrafts
Unsecured bank loans
Unsecured money market facilities
Facilities not utilised at balance date:
Unsecured bank overdrafts
Unsecured bank loans
Unsecured money market facilities
2018
$'000
4,917
245,000
5,000
254,917
155
142,992
‐
2017
$'000
5,001
282,500
5,000
292,501
‐
171,049
‐
143,147
171,049
4,762
102,008
5,000
111,770
5,001
111,451
5,000
121,452
Reconciliation of movements of liabilities to cash flows arising from financing activities
Note
Other
loans and
borrowings
Bank
overdraft
s used
for cash
manage
ment
purposes
Interest
Rate
Swaps /
Forward
exchange
contracts
used for
hedging ‐
asset
Interest
Rate Swaps
/ Forward
exchange
contracts
used for
hedging ‐
Liabilities
Reserves
Retained
Earnings
Total
Balance at 1 July 2017
Changes from financing cash
flows
Proceeds from borrowings
Proceeds
receivable
from
loans
Repayment of borrowings
Dividend paid
Interest paid
Interest received
Total changes from
financing cash flows
The effect of changes in
foreign exchange rates
Other changes
Change in bank overdraft
Interest received
Interest expense
Total other changes
Balance at 30 June 2018
‐
‐
‐
‐
‐
‐
‐
155
‐
155
155
166,067
63
2,403
26,591
61,443
256,567
82,479
3,182
(110,209)
(7,197)
132
(31,613)
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
82,479
3,182
‐
(110,209)
(42,231)
(42,231)
(7,197)
132
‐
(42,231)
(73,844)
(255)
3,614
(850)
(16)
‐
2,493
‐
‐
(132)
7,197
7,065
10
(471)
6,218
100,437
106,194
‐
‐
‐
‐
‐
‐
‐
‐
155
(132)
7,197
10
(471)
6,218
100,437
113,414
141,264
3,687
1,082
32,793
119,649
298,630
62
GUD Holdings Limited and subsidiaries
23. Derivatives
Accounting policies
Derivative financial instruments
To manage its exposure to interest rate and foreign exchange rate risk, the Group may enter into a variety of
derivatives including forward foreign exchange contracts, interest rate swaps, options and collars.
Derivatives are recognised initially at fair value and any directly attributed transaction costs are recognised in profit
or loss as they are incurred. Subsequent to initial recognition, derivatives are recognised at fair value, and changes
are generally recognised in profit or loss unless designated and effective as cash flow hedging instruments.
Cash flow hedges
The Group designates certain derivatives as hedges of highly probable forecast transactions (cash flow hedges).
When a derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of derivatives
is recognised in other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of
changes in fair value of the derivative is recognised immediately in the profit or loss.
The amounts are accumulated in other comprehensive income and reclassified in the profit or loss in the same period
when the impact of the hedged item affects profit or loss.
When the forecast transaction that is hedged results in the recognition of a non‐financial asset or a non‐financial
liability, gains and losses previously deferred in equity are transferred from equity and included in the initial
measurement of the cost of the asset or liability.
Hedge accounting is discontinued on a prospective basis when the hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge accounting. At this time, gain or losses accumulated in other
comprehensive income are reclassified to profit or loss.
An interest rate swap is an instrument to exchange a fixed rate of interest for a floating rate, or vice versa, or one
type of floating rate for another.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative
instruments that do not qualify for hedge accounting are recognised immediately in the income statement.
A derivative is a type of financial instrument typically used to manage risk. A derivative's value changes over time in
response to underlying variables such as exchange rates or interest rates and is entered into for a fixed period. A
hedge is where a derivative is used to manage an underlying exposure.
The Group is exposed to changes in interest rates on its net borrowings and to changes in foreign exchange rates on
its foreign currency transactions and net assets. In accordance with Board approved policies. The Group uses
derivatives to hedge these underlying exposures.
Derivative financial instruments are initially included in the balance sheet at their fair value, either as assets or
liabilities, and are subsequently remeasured at fair value or 'marked to market' at each reporting date. Movements
in instruments measured at fair value are recorded in the income statement in net finance costs.
Analysis of the derivatives used by the Group to hedge its exposure and the various methods used to calculate their
respective fair values are detailed in this section.
63
GUD Holdings Limited and subsidiaries
23. Derivatives (continued)
Derivative assets
This table summarises derivative assets related to continuing operations at 30 June 2018 and all operations at 30
June 2017:
Current
Derivatives ‐ Foreign currency forward contracts
Current derivative assets
Non‐current
Derivatives ‐ Foreign currency forward contracts
Derivatives ‐ Interest rate swaps
Non‐current derivative assets
Derivative liabilities
Note
25
25
25
2018
$'000
3,677
3,677
‐
10
10
2017
$'000
15
15
4
44
48
This table summarises derivative liabilities related to continuing operations at 30 June 2018 and all operations at 30
June 2017:
Current
Derivatives ‐ Foreign currency forward contracts
Derivatives ‐ Interest rate swaps at fair value
Current derivative liabilities
Non‐current
Derivatives ‐ Interest rate swaps at fair value
Non‐current derivative liabilities
Note
25
25
25
2018
$'000
‐
2
2
1,080
1,080
2017
$'000
850
28
878
1,525
1,525
The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to
occur and impact profit or loss and the carrying amounts of the related hedging instruments.
2018
2017
Expected cash flow and impact to profit or loss
Expected cash flow and impact to profit or loss
Carrying
amount
Total
1‐6
months
6‐12
months
Carrying
amount
Total
1‐6
months
6‐12
months
More
than
one
year
rate
Interest
swaps
Assets
Liabilities
Forward
exchange
contracts
Assets
Liabilities
Total
10
10
(1,082)
(1,082)
‐
(2)
‐
‐
10
44
44
(1,080)
(1,553)
(1,553)
‐
(28)
3,677
3,677
3,203
‐
‐
‐
474
‐
‐
‐
19
19
(850)
(850)
2,605
2,605
3,201
474
(1,070)
(2,340)
(2,340)
15
(738)
(751)
‐
‐
‐
(112)
More
than
one
year
44
(1,525)
4
‐
(112)
(1,477)
64
GUD Holdings Limited and subsidiaries
24. Other financial instruments
Accounting policies
Other financial instruments
Financial assets and liabilities are recognised on the date when they are originated or at trade date.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire
or if the Group transfers the financial asset to another party without retaining control or substantially all risks and
rewards of the asset.
Financial liabilities are derecognised if the Group’s obligations specified in the contract are discharged, expire or are
cancelled.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when,
and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or
to realise the asset and settle the liability simultaneously.
Loans receivable
Loans receivable are non‐derivative financial instruments and are initially recognised at fair value plus any directly
attributable costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest
method, less identified impairment.
Contingent consideration
Any contingent consideration receivable or payable is measured at fair value at the acquisition date. If the
contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within
equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or
loss.
Other financial assets
This table summarises other financial assets related to continuing operations at 30 June 2018 and all operations at
30 June 2017:
Current
Loans receivable ‐ third parties
Contingent consideration receivable
Other current financial assets
Non‐current
Loans receivable ‐ third parties
Other non‐current financial assets
Note
25
25
25
2018
$'000
516
‐
516
1,284
1,284
2017
$'000
516
2,666
3,182
1,800
1,800
65
GUD Holdings Limited and subsidiaries
24. Other financial instruments (continued)
Other financial liabilities
This table summarises other financial liabilities at 30 June 2018 and all operations at 30 June 2017:
Current
Contingent consideration payable
Other consideration payable
Non current
Contingent consideration payable
Note
2018
$'000
1,625
‐
2017
$'000
1,850
173
2,427
4,052
Total other financial liabilities
25
4,052
6,075
Contingent consideration payable included in other financial liabilities is measured at fair value. Consideration
payable at 30 June 2018 includes the contingent consideration payable to the vendors of IMG.
25. Financial instruments
Fair value hierarchy below analyses financial instruments carried at fair value, by valuation method. The different
levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable market values for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following tables show the valuation techniques used in measuring Level 2 and Level 3 fair values for financial
instruments measured at fair value in the statement of financial position, as well as the significant unobservable
inputs used.
Type
Valuation technique
Contingent
consideration
Interest rate
swaps
Foreign exchange
contracts
Discounted cash flows: The valuation model
considers the present value of the expected
future payments, discounted using a risk‐
adjusted discount rate. The expected payment is
determined by considering the possible
scenarios of forecast revenue and EBITDA, the
amount to be paid under each scenario and the
probability of each scenario.
Swap models: The fair value calculated as the
present value of the estimated future cash
flows. Estimates of future floating‐rate cash
flows are based on quoted swap rates, futures
prices and interbank borrowing rates. Estimated
cash flows are discounted using a yield curve
constructed from similar sources and which
reflects the relevant benchmark interbank rate
used by market participants for this purpose
when pricing interest rate swaps. The fair value
estimate is subject to a credit risk adjustment
that reflects the credit risk of the Group and of
the counterparty; this is calculated based on
credit spreads derived from current credit
default swap or bond prices.
Forward pricing: The fair value is determined
using quoted forward exchange rates at the
reporting date and present value calculations
based on high credit quality yield curves in the
respective currencies.
Significant unobservable
inputs
Inter‐relationship between
significant unobservable inputs
and fair value
‐ The probability attached to
each scenario
The estimated fair value would
increase (decrease) if:
‐ Forecast EBIT growth (2018:
0‐30%)
‐ The EBITDA growth is lower/
(higher)
‐ Risk adjusted discount rate
(2018: 8.0%)
‐ The risk adjusted discount rate
moves lower (higher).
Not applicable.
Not applicable.
Not applicable.
Not applicable.
66
GUD Holdings Limited and subsidiaries
25. Financial instruments (continued)
Derivative financial instruments
Level 2 fair values for simple over‐the‐counter derivative financial instruments are based on valuations from banks.
These are tested for reasonableness by discounting expected future cash flows using market interest rate for a
similar instrument at the measurement date.
Other financial assets ‐ Contingent consideration payable
Level 3 fair values are based on the present value of expected receipt discounted using a risk adjusted discount rate.
There were no transfers between any of the levels of the fair value hierarchy during the years ended 30 June 2018
or 2017.
Contingent consideration payable
Changes in fair value of the contingent consideration payable is summarised below:
Opening balance
Contingent consideration (paid) / payable – acquisition of 100% of Brown & Watson
Contingent consideration payable – acquisition of 100% of GEL ANZ
Contingent consideration payable – acquisition of 100% of IMG
Unwinding of discount
Unrealised fair value loss included in profit and loss
Closing balance
Note
2018
$'000
5,902
‐
(2,022)
101
71
‐
4,052
2017
$'000
19,367
(20,000)
1,794
3,951
790
‐
5,902
67
GUD Holdings Limited and subsidiaries
25. Financial instruments (continued)
As at 30 June 2018
Financial assets measured at fair value
Derivatives ‐ Foreign currency forward contracts
Derivatives ‐ Interest rate swaps at fair value
Total financial assets measured at fair value
Financial assets not measured at fair value
Cash and cash equivalents a
Trade and other receivables a
Other financial assets a
Total financial assets not measured at fair value
Total financial assets
Financial liabilities measured at fair value
Derivatives ‐ Interest rate swaps at fair value
Other financial liabilities
Total financial liabilities measured at fair value
Financial liabilities not measured at fair value
Borrowings and loans a
Total financial liabilities not measured at fair value
Carrying value
Non‐current
$'000
Current
$'000
3,677
‐
3,677
50,610
96,687
516
147,813
151,490
2
1,625
1,627
72
72
‐
10
10
‐
‐
1,284
1,284
1,294
1,080
2,427
3,507
142,992
142,992
Total
$'000
3,677
10
3,687
50,610
96,687
1,800
149,097
152,784
1,082
4,052
5,134
143,064
143,064
Level 1
$'000
Level 2
$'000
Level 3
$'000
Fair value
Total
$'000
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
3,677
10
3,687
‐
‐
‐
‐
3,687
1,082
‐
1,082
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
4,052
4,052
‐
‐
Total financial liabilities
a.
146,499
The Group has not disclosed the fair values for financial instruments such as cash and cash equivalents, short term trade receivables and payables, because their carrying amounts are a reasonable approximation of fair value
148,198
1,699
1,082
4,052
‐
3,677
10
3,687
‐
‐
‐
‐
3,687
1,082
4,052
5,134
‐
‐
5,134
68
GUD Holdings Limited and subsidiaries
25. Financial instruments (continued)
Financial assets measured at fair value
Derivatives ‐ Foreign currency forward contracts
Derivatives ‐ Interest rate swaps at fair value
Other financial assets
Total financial assets measured at fair value
Financial assets not measured at fair value
Cash and cash equivalents a
Trade and other receivables a
Other financial assets
Total financial assets not measured at fair value
Total financial assets
Financial liabilities measured at fair value
Derivatives ‐ Foreign currency forward contracts
Derivatives ‐ Interest rate swaps at fair value
Other financial liabilities
Total financial liabilities measured at fair value
Financial liabilities not measured at fair value
Borrowings and loans a
Total financial liabilities not measured at fair value
Total financial liabilities
As at 30 June 2017
Carrying value
Non‐current
$'000
Current
$'000
15
‐
2,666
2,681
10,238
91,970
516
102,724
105,405
850
28
2,023
2,901
15,092
15,092
17,993
4
44
48
‐
‐
1,800
1,800
1,848
‐
1,525
4,052
5,577
155,957
155,957
161,534
Total
$'000
19
44
2,666
2,729
10,238
91,970
2,316
104,524
107,253
850
1,553
6,075
8,478
171,049
171,049
179,527
Level 1
$'000
Level 2
$'000
Level 3
$'000
Fair value
Total
$'000
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
19
44
63
‐
‐
‐
‐
63
850
1,553
‐
2,403
‐
‐
‐
‐
2,666
2,666
‐
‐
‐
‐
19
44
2,666
2,729
‐
‐
‐
‐
2,666
2,729
‐
‐
6,075
6,075
‐
‐
850
1,553
6,075
8,478
‐
‐
2,403
6,075
8,478
a.
The Group has not disclosed the fair values for financial instruments such as cash and cash equivalents, short term trade receivables and payables, because their carrying amounts are a reasonable approximation of fair value
69
GUD Holdings Limited and subsidiaries
26. Financial risk management
Overview
The Group's activities expose it to a variety of financial risks: market risks (including currency risk, interest rate risk
and price risk), credit risk and liquidity risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial
performance. The Group uses derivative financial instruments within its policies described below as hedges to
manage certain risk exposures.
Treasury policies have been approved by the Board for managing each of these risks including levels of authority on
the type and use of financial instruments. Transactions are only undertaken if they relate to underlying exposures,
i.e. the Group does not use derivatives to speculate. The treasury function reports regularly to the Audit Committee
and treasury operations are subject to periodic reviews.
The Group has exposure to the following risks from their financial instruments:
credit risk
liquidity risk
market risk
This note provides additional information about the Group’s exposures to the above risks, its objectives, policies and
processes for measuring and managing the identified risk. It also outlines the objectives and approach to capital
management.
Financial risk management objectives
The Group's Corporate Treasury function provides services to the business, co‐ordinates access to domestic and
international markets, and manages the financial risks relating to the operations of the Group.
The Group does not enter into or trade in financial instruments, including derivative financial instruments, for
speculative purposes.
The use of financial derivatives is governed by the Group's policies approved by the Board of Directors, which provide
written principles on the use of financial derivatives. Compliance with policies and exposure limits is reviewed by
the Financial Risk Management committee chaired by the Chief Financial Officer. Each month the Chief Financial
Officer provides the Board of Directors with a report outlining financial exposures, hedging levels, and, financial risk
management policy compliance.
The Group's activities expose it primarily to the financial risks associated with changes in foreign currency exchange
rates, interest rates and commodity prices.
There has not been any change to the objectives, policies and processes for managing risk during the current year.
Credit risk
Credit risk refers to the risk that a financial loss may be experienced by the Group if a customer or counterparty to
a financial instrument fails to meet its contractual obligations. The Group’s risk is primarily in relation to receivables
from customers and hedging transactions with third party counterparties.
The Group’s exposure to credit risk is characterised by the following:
the majority of customer sales transactions are domestic in nature,
trade receivables are non‐interest bearing and domestic trade receivables are generally on 30 to 90 day terms,
the Group as a whole is exposed in a material way to several large Automotive parts resellers who are
members of publicly listed companies and a number of significant customers with individual businesses in the
water and automotive aftermarket sectors,
new customers are subjected to credit assessment by the specific business within the Group that they wish to
transact with and are allocated credit limits which are managed according to the needs of the customer and
the risk assessment of the relevant business,
most businesses within the Group maintain credit insurance to lessen the credit risk,
ageing of customer receivables is reviewed in detail each month by businesses within the Group and by the
Company in an oversight capacity.
70
GUD Holdings Limited and subsidiaries
26. Financial risk management (continued)
In order to manage credit risk, goods are sold subject to retention of title clauses and where considered appropriate
registered under the Personal Properties Securities Act, so that in the event of non‐payment, the Group may have a
secured claim.
The Group maintains a provision account, described in the consolidated financial statements as an allowance for
doubtful debts, which represents the estimated value of specific trade receivables that may not be recovered. A
general provision for doubtful debts is not maintained. Uncollectible trade receivables are charged to the allowance
for doubtful debts account. Identified bad debts are submitted to the Board of Directors for approval for write off
in December and June of each year. Credit insurance is maintained to partially mitigate uncollectable amounts.
The maximum exposure to credit risk is the sum of cash and cash equivalents (Note 21), the total value of trade
debtors and other receivables (Note 8) and other financial assets (Note 24). The majority of credit risk is within
Australia and New Zealand.
A material exposure arises from forward exchange contracts, options and collars that are subject to credit risk in
relation to the relevant counterparties. The maximum credit risk exposure on foreign currency contracts, options
and collars is the full amount of the foreign currency the Group pays when settlement occurs should the
counterparty fail to pay the amount which it is committed to pay the Group. To address this risk the Group restricts
its dealings to financial institutions with appropriate credit ratings.
Liquidity risk
Liquidity risk refers to the risk that the Group will not be able to meet its financial obligations as they fall due. The
Group undertakes the following activities to ensure that there will be sufficient funds available to meet obligations:
prepare budgeted annual and monthly cash flows;
measurement of actual Group cash flows on a regular basis with comparison to budget on a monthly basis;
maintenance of standby money market facilities; and
maintenance of a committed borrowing facility in excess of budgeted usage levels.
The contractual maturities of financial liabilities, including estimated interest payments on bank loans, are as follows:
2018
Financial liabilities
Trade and other payables
Derivatives
Unsecured bank loans
Contingent consideration
2017
Financial liabilities
Trade and other payables
Derivatives
Unsecured bank loans
Contingent consideration
Carrying
amount
$'000
Contractual
cash flows
$'000
Less than
1 year
$'000
56,398
1,082
142,992
4,052
204,524
56,398
1,082
149,387
4,875
211,742
56,398
2
2,308
1,625
60,333
Carrying
amount
$'000
Contractual
cash flows
$'000
Less than
1 year
$'000
55,311
2,403
171,049
6,075
234,838
55,311
2,403
181,920
6,897
246,531
55,311
878
18,354
2,022
76,565
1 to 2
years
$'000
‐
1,080
2,308
3,250
6,638
1 to 2
years
$'000
‐
1,525
18,354
3,250
23,129
2 to 5
years
$'000
Beyond 5
years
$'000
‐
‐
144,771
‐
144,771
‐
‐
‐
‐
‐
2 to 5
years
$'000
Beyond 5
years
$'000
‐
‐
145,212
1,625
146,837
‐
‐
‐
‐
‐
The inflows/(outflows) disclosed in the above table represent the contractual undiscounted cash flows relating to
derivative financial liabilities held for risk management purposes and which are not usually closed out before
contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash‐settled and gross
cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement.
As disclosed in Notes 22, the Group has an unsecured bank loan that contains a loan covenant. A future breach of
covenant may require the Group to repay the loan earlier than indicated in the above table. Under the agreement,
the covenant is monitored on a regular basis by the treasury department and regularly reported to management to
ensure compliance with the agreement.
71
GUD Holdings Limited and subsidiaries
26. Financial risk management (continued)
Market risk
Market risk for the Group refers to the risk that changes in foreign exchange rates or interest rates will affect the
Group’s income or equity value.
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rates and
foreign currency risk, including:
forward foreign exchange contracts, options and collars to hedge the exchange risk arising from the importation
and sale of goods purchased in foreign currency (principally US dollars); and
interest rate swaps, options and collars to partially mitigate the risk of rising interest rates.
Foreign exchange risk management
The Group undertakes transactions denominated in foreign currencies, hence exposures to exchange rate
fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward
foreign exchange contracts, options and collars. The Board of Directors reviews the Group’s foreign currency
exposure on a monthly basis. The process includes a review of a rolling 12 month estimate of foreign currency
exposure, an analysis of financial instruments contracted, an analysis of positions in relation to policy compliance
and an analysis of the Group’s sensitivity to movements in the exchange rates on an annualised basis.
Forward foreign exchange contracts provide certainty as specific rates are agreed at the time the contract is agreed.
Purchased foreign currency options require a premium to be paid and provide a minimum (or maximum) rate at
which the entity transacting will purchase (or sell) foreign currency. Foreign currency collars, being a combination
of bought call and sold put options, provide the transacting entity with a minimum rate of exchange (call) and a
maximum rate of exchange (put). The Group’s policy is to enter into forward foreign exchange contracts, options
and collars to cover specific and anticipated purchases, specific and anticipated sales and committed capital
expenditure, principally in US dollars. The terms of the Group's commitments are rarely more than one year.
At 30 June 2018, the Group is exposed to $6.3million (2017: $3.3 million) of US$ denominated net trade liabilities,
$3.1 million of NZ$ net trade liabilities (2017: $6.5 million net trade receivables), $1.8 million of Euro net trade
receivables (2017: $2.4 million) and $2.4 million of trade liabilities (2017: $1.6 million).
Forward foreign exchange contracts
The following table summarises the significant forward foreign currency contracts outstanding as at the reporting
date:
Buy
Average
Exchange Rate 1
2017
2018
Foreign Currency
2017
2018
FC'000
FC'000
Contract Value
2017
$'000
2018
$'000
United States Dollars
Chinese Renminbi
Australian Dollars (NZ entities)
0.7995
5.1733
‐
0.7517
5.2312
0.9555
33,800
13,500
‐
35,525
5,940
1,435
42,376
2,610
‐
44,986
47,263
1,135
1,502
49,900
1 Represents weighted average hedge exchange rates in the foreign currency contracts
Sensitivity Analysis ‐ foreign exchange AUD/USD
For every 1c decrease in AUD:USD rate, total exposures increase by:
Income statement
Equity
2018
$'000
919
(382)
2018
$'000
3,541
136
‐
3,677
Fair Value
2017
$'000
(837)
(3)
5
(835)
2017
$'000
545
92
72
GUD Holdings Limited and subsidiaries
26. Financial risk management (continued)
Interest rate risk management
The Group is exposed to interest rate risk as it borrows funds at variable interest rates. The risk is managed by
maintaining an appropriate mix between fixed and floating interest rates through the use of interest rate derivatives,
swap contracts, options and forward interest rate swap contracts.
The Group, from time to time, enters into interest rate swaps and options, with expiration terms ranging out to three
years, to protect part of the loans from exposure to increasing interest rates. Interest rate swaps allow the Group to
swap floating rate borrowings into fixed rates. Maturities of swap contracts are principally between one and three
years. The Group determines the level of hedging required each year based on an estimate of the underlying core
debt which is represented by forecast June debt levels. The core debt level is hedged to levels ranging from a
maximum of 80% in year one to a minimum of 20% in year three. The hedging of the core debt level is reviewed
monthly by the Financial Risk Management committee. These hedges are treated as cash flow hedges.
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate
interest amounts calculated on agreed notional principal amounts. These contracts enable the Group to partially
mitigate the risk of changing interest rates. The fair values of interest rate swaps are based on counterparty exit
values at the reporting date.
The following table summarises the sensitivity of the Group as at the reporting date to movements in interest rates
and does not take into account the offsetting impact of any hedging in place. It is important to note that this interest
rate sensitivity analysis assumes that all other economic variables remain constant. The information presented
includes the type of sensitivity analysis used when reporting to the Board of Directors. The table illustrates the
impact of a change in rates of 100 basis points, a level that management believes to be a reasonably possible
movement.
Sensitivity Analysis ‐ interest rates
For every 100 basis points increase in interest rates:
Income statement
Equity
2018
$'000
(924)
‐
2017
$'000
(1,607)
‐
The following table details the notional principal amounts and remaining terms of interest rate swap and option
contracts outstanding at the reporting date.
Outstanding floating for fixed contracts
Less than 1 year
1 to 2 years
2 to 5 years
Average contracted
Fixed interest rate
Notional principal
amount
2018
%
‐
‐
2.91
2017
%
‐
‐
2.91
2018
$'000
‐
‐
80,000
80,000
2017
$'000
‐
‐
80,000
80,000
Fair value
2017
$'000
‐
‐
(1,481)
(1,481)
2018
$'000
‐
‐
(1,174)
(1,174)
Capital management
The Board’s policy is to maintain a strong capital base for the Group. This policy is predicated on the need to continue
to present the Group favourably to various stakeholders including investors, employees, banks, suppliers and
customers. This enables the Group to access capital markets, attract talented staff and negotiate favourable terms
and conditions with suppliers and customers. Capital is defined as total debt and equity of the Group.
The Group uses a Cash Value Added (CVA) approach when measuring returns achieved by each business. This
approach involves comparing the cash profit achieved to the cost of the capital utilised by each business. This cost
of capital represents a weighted average cost of debt and equity and allows a single measure to assess business
performance. The Group has consistently achieved CVA returns in excess of its weighted average cost of capital
resulting in positive shareholder returns.
The Group is not subject to any externally imposed capital requirements. The terms and the conditions of the main
debt facilities contain four financial covenants: minimum interest cover, maximum debt to earnings, and Australia
and NZ subsidiaries to Group asset and earnings ratios. All covenants have been satisfied during the 2017 and 2018
financial years.
There were no changes to the Group’s approach to capital management during the year.
73
GUD Holdings Limited and subsidiaries
27. Share Capital
Accounting policies
Share capital
The Company’s fully paid ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of or repurchase (buy‐back) of ordinary shares are recognised as
a deduction from equity, net of any tax effects. Ordinary shares bought back by the Company are cancelled in
accordance with the law.
2018
$'000
2018
Number
2017
$'000
2017
Number
Balance at the beginning of the year
112,880
85,739,547
286,160
85,327,114
Capital restructure
Performance share rights vested
Balance at the end of the year
‐
‐
‐
(173,280)
‐
446,151
‐
412,433
112,880
86,185,698
112,880
85,739,547
During the year, the Company issued 446,151 shares (2017: 412,433 shares) as a result of the vesting of performance
rights as follows:
446,151 shares issued pursuant to the vesting component of the 2017 performance rights plan;
During the year no shares were bought back on market and cancelled by the Group (2017: nil). The dividend
reinvestment plan has been suspended from the 2013 financial year. The Company does not have par value in
respect of its issued shares, hence the $ values above represent historical amounts contributed (if any) on the new
issue of shares, amounts allocated to or from retained earnings, and any amount paid on the repurchase (buy back)
of ordinary shares. Fully paid ordinary shares carry one vote per share and carry the right to dividends.
At the financial year ended 30 June 2017, following the disposal of Sunbeam ANZ, Lock Focus and Dexion, in
accordance with company policy, $173.280 million was reclassified from retained earnings to share capital to address
the permanent diminution in equity arising from those business (Note 29).
28. Reserves
Accounting policies
Hedging reserve
The effective portion of changes in the fair value (net of tax) of derivatives designated as hedges of highly probable
forecast transactions (cash flow hedges) is recognised in other comprehensive income and accumulated in the
hedging reserve and reclassified to the profit or loss in the same period when the impact of the hedged item affects
profit or loss.
When the forecast transaction that is hedged results in the recognition of a non‐financial asset or a non‐financial
liability, gains and losses previously deferred in the hedging reserve are transferred and included in the initial
measurement of the cost of the asset.
Gains or losses accumulated in the hedging reserve are reclassified to profit or loss on a prospective basis when
hedge accounting is discontinued, when the hedging instrument expires or is sold, terminated, or exercised, or no
longer qualifies for hedge accounting.
Equity compensation reserve
The Performance Rights Plan grants shares in the Company to certain employees. The fair value of performance
rights granted under the Performance Rights Plan is recognised as an employee expense with a corresponding
increase in the equity compensation reserve. The fair value is measured at grant date and is spread over the vesting
period which is the period from the grant date to the end of the plan period. The fair value of the performance rights
granted is measured using a Monte Carlo simulation model, taking into account the terms and conditions upon which
the performance rights were granted.
74
GUD Holdings Limited and subsidiaries
28. Reserves (continued)
Translation reserve
Assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated into the Group’s reporting currency at exchange rates at the reporting date. The income and expenses
of foreign operations are translated into the Group’s reporting currency at exchange rates at the dates of the
transactions.
Foreign currency differences are recognised in other comprehensive income and accumulated in the translation
reserve, except to the extent that the translation difference is allocated to non‐controlling interests.
When a foreign operation is disposed of in its entirety such that control or significant influence is lost, the cumulative
amount in the translation reserve related to the foreign operation is reclassified to profit or loss as part of the gain
or loss on disposal. If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant
proportion of the cumulative amount is reattributed to non‐controlling interests. When the Group disposes of only
part of an associate while retaining significant influence, the relevant proportion of the cumulative amount is
reclassified to profit or loss.
If settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to
occur in the foreseeable future, then foreign currency differences arising from such items form part of the net
investment in the foreign operation. Accordingly, such differences are recognised in other comprehensive income
and accumulated in the translation reserve.
Dividend reserve
The Company may from time to time set aside amounts in the dividend reserve for dividends. Any amounts set aside
which are not applied to dividends are carried forward and may be applied to future dividends.
This table summarises the movement in reserves:
Hedging Reserve
Balance at the beginning of the year
Transfers within equity on disposal
Fair value adjustments transferred to equity ‐ net of tax
Amounts transferred to inventory ‐ net of tax
Balance at the end of the year
Equity Compensation Reserve
Balance at the beginning of the year
Equity settled share based payment transactions
Balance at the end of the year
Translation Reserve
Balance at the beginning of the year
Exchange differences on translating foreign operations
Balance at the end of the year
Dividend Reserve
Balance at the beginning of the year
Transfer to retained earnings
Amounts set aside for dividends
Balance at the end of the year
Reserves at the end of the year
2018
$'000
(1,544)
3,660
(673)
1,443
5,911
1,823
7,734
1,224
(16)
1,208
21,000
(21,000)
22,408
22,408
32,793
2017
$'000
(4,679)
618
2,499
18
(1,544)
4,280
1,631
5,911
2,309
(1,085)
1,224
‐
21,000
21,000
26,591
During the year, the company set aside a dividend reserve. In accordance with company policy, any balance in the
reserve may be considered to be applied to dividends as and when declared by the board.
75
GUD Holdings Limited and subsidiaries
29. Retained earnings
This table summarises the movement in retained earnings:
Balance at the beginning of the year
Profit for the period
Capital restructure
Transfer to dividend reserve
Transfer from dividend reserve
Transactions with owners, net of tax
Dividends paid
Balance at the end of the year
30. Dividends
Accounting policies
Dividends
2018
$'000
61,443
101,845
‐
(22,408)
21,000
‐
(42,231)
119,649
2017
$'000
(44,940)
(7,344)
173,280
(21,000)
(841)
(37,712)
61,443
Dividends paid are classified as distributions of profit consistent with the balance sheet classification of the related
debt or equity instruments.
Recognised amounts
Cents
per
share
Total
amount
Percentage
$'000
Date of payment
Tax rate
franked
2018
Final dividend in respect of the 2017 financial year
Interim dividend in respect of the 2018 financial year
25
24
Total dividends
2017
Final dividend in respect of the 2016 financial year
Interim dividend in respect of the 2017 financial year
23
21
1 September 2017
2 March 2018
2 September 2016
3 March 2017
21,546
20,685
42,231
19,707
18,005
37,712
30%
30%
30%
30%
100%
100%
100%
100%
Total dividends
Unrecognised amounts
Fully Paid Ordinary Shares
2018
Final dividend in respect of the 2018
financial year
Cents Total amount
$'000
per share
Date of payment
Tax rate
Percentage
franked
28
24,122
31 August 2018
30%
100%
The Company operates a Dividend Reinvestment Plan (DRP) which allows eligible shareholders to elect to invest
dividends in ordinary shares which rank equally with GUD ordinary shares. This has been suspended for all dividends
from the 2013 interim dividend onwards.
Dividend franking account
The available amounts are based on the balance of the dividend franking account at the reporting date adjusted for
franking credits that will arise from the payment of the current tax liability.
30% (2017: 30%) franking credits available to shareholders of
GUD Holdings Limited for subsequent financial years
2018
$'000
2017
$'000
44,619
46,121
76
GUD Holdings Limited and subsidiaries
Taxation
This section outlines the tax accounting policies, current and deferred tax impacts, a reconciliation of profit before
tax to the tax charge and the movements in deferred tax assets and liabilities.
31. Current tax
Accounting policies
Current and deferred tax expense
Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable
profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively
enacted by the reporting date. Current and deferred tax is recognised as an expense or income in the income
statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is
also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which
case it is taken into account in the determination of goodwill. Current tax for current and prior periods is recognised
as a liability (or asset) to the extent that it is unpaid (or refundable).
Tax consolidation
The Company and its wholly‐owned Australian resident subsidiaries have formed a tax‐consolidated group under
Australian taxation law and taxed as a single entity with effect from 1 July 2003. The head entity within the tax‐
consolidated group is GUD Holdings Limited. The members of the tax consolidated group are identified in Note 33c.
Nature of tax funding arrangements and tax sharing agreements
Entities within the tax‐consolidated group have entered into a tax funding arrangement and a tax‐sharing agreement
with the head entity. Under the terms of the tax funding arrangement, GUD Holdings Limited and each of the entities
in the tax consolidated group have agreed to pay a tax equivalent payment to or from the head entity, based on the
current liability or current asset of the entity. The tax sharing agreement entered into between members of the tax‐
consolidated group provides for the determination of the allocation of income tax liabilities between the entities
should the head entity default on its payment obligations. No amounts have been recognised in the consolidated
financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is
considered remote.
Income tax expense recognised in the income statement
Prima facie income tax expense calculated at 30% (2017: 30%) on profit
Increase/(decrease) in income tax expense / (benefit) due to :
Non‐deductible expenditure
(Over)/under provision of income tax in prior year
Research and development incentives
Tax incentives not recognised in profit or loss
Non‐assessable income
Income tax expense
Tax expense / (benefit) comprises:
Current tax expense
Adjustments recognised in the current year in relation to tax of prior years
Deferred tax expense from origination and reversal of temporary differences
Total tax expense
2018
$'000
2017
^Restated
$'000
21,059
19,288
3,972
(416)
(310)
(490)
(4,092)
19,723
22,664
(416)
(2,525)
19,723
1,331
(256)
(457)
(448)
(824)
18,635
19,381
(256)
(490)
18,635
^
Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose
the contribution of businesses discontinued in the current year.
77
GUD Holdings Limited and subsidiaries
31. Current tax (continued)
Income tax expense recognised in other comprehensive income
2018
Income tax on items that may be subsequently reclassified to profit or loss:
Exchange differences on translating results of foreign operations
Fair value adjustments transferred to hedging reserve
Net change in fair value of cash flow hedges transferred to inventory
2017
Income tax on items that may be subsequently reclassified to profit or loss:
Exchange differences on translating results of foreign operations
Fair value adjustments transferred to hedging reserve
Net change in fair value of cash flow hedges transferred to inventory
Revaluation of contingent receivable
32. Deferred tax
Accounting policies
Deferred tax
Before tax
Tax (expense)
/ benefit
Net of tax
(16)
5,228
(961)
4,251
‐
(1,568)
288
(1,280)
(16)
3,660
(673)
2,971
Before tax
Tax (expense)
/ benefit
Net of tax
(1,085)
3,570
26
(3,284)
(773)
‐
(1,071)
(8)
2,443
1,364
(1,085)
2,499
18
(841)
591
Deferred tax is recognised in respect of temporary differences between the carrying amount of assets and liabilities
in the consolidated financial statements and the corresponding tax base of those items.
Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available
against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However,
deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the
initial recognition of assets and liabilities (other than as a result of a business combination) which affect neither
taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable
temporary differences arising from goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the
asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Company/subsidiary expects, at the reporting date,
to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when
they relate to income taxes levied by the same taxation authority and the Company/subsidiary intends to settle its
current tax assets and liabilities on a net basis.
78
GUD Holdings Limited and subsidiaries
32. Deferred tax (continued)
Recognised
in Profit or Loss from
Opening balance
$'000
Acquisition
through business
combinations
$'000
Continuing
operations
$'000
Discontinuing
operations
$'000
Recognised
in Equity
$'000
580
‐
‐
‐
‐
‐
‐
‐
‐
‐
580
‐
‐
‐
‐
‐
‐
‐‐
‐
(860)
(12)
(49)
(4)
947
(98)
(378)
200
1,117
181
1,044
‐
‐
(110)
(855)
(153)
(174)
3
(1,289)
‐
3
‐
‐
(1)
51
30
‐
‐
‐
(75)
8
‐
‐
‐
0
(2)
‐
‐
(2)
‐
‐
‐
‐
‐
‐
‐
(18)
‐
‐
‐
(18)
‐
‐
‐
‐
‐
1,262
‐
1,262
‐
3,884
12
363
224
1,360
934
720
41
1,128
364
9,030
(2,746)
6,284
147
870
1,553
19
157
2,746
(2,746)
‐
6,284
Closing balance
$'000
3,607
‐
314
219
2,358
866
324
241
2,245
470
10,644
(2,717)
7,927
37
15
1,398
1,107
160
2,717
(2,717)
‐
7,927
2018
Deferred tax assets
Employee benefit provisions
Restructuring provisions
Warranty provisions
Doubtful debts
Inventory
Accrued expenses
Derivative liabilities
Property, plant and equipment
Other intangible assets
Other
Set off of tax
Deferred tax liabilities
Property, plant and equipment
Capitalised product development
Other intangible assets
Derivative assets
Other
Set off of tax
Net deferred tax
assets/(liabilities)
The disposals of Oates have given rise to estimated net capital gain of $48.998 million. These gains have been offset by capital losses derived in prior years.
79
GUD Holdings Limited and subsidiaries
32. Deferred tax (continued)
Recognised
in Profit or Loss from
Discontinuing
operations
^Restated
$'000
(429)
(11)
9
7
(239)
301
(373)
‐
‐
(689)
(1,424)
‐
2017
Deferred tax assets
Employee benefit provisions
Restructuring provisions
Warranty provisions
Doubtful debts
Inventory
Accrued expenses
Derivative liabilities
Property, plant and equipment
Other intangible assets
Other
Set off of tax
Deferred tax liabilities
Property, plant and equipment
Capitalised product development
Other intangible assets
Derivative assets
Other
Set off of tax
Net deferred tax
assets/(liabilities)
^
Opening balance
$'000
Acquisition
through business
combinations
$'000
124
‐
‐
‐
‐
‐
‐
‐
‐
‐
124
‐
‐
‐
‐
‐
‐
‐
4,722
10
217
245
1,882
1,229
2,135
140
1,088
978
12,646
(3,431)
9,215
1,746
1,541
1,042
62
556
4,947
(3,431)
1,516
7,699
Continuing
operations
^Restated
$'000
(533)
13
137
(28)
(283)
(596)
(267)
(99)
40
75
(1,541)
‐
(1,387)
(673)
511
(313)
(399)
(2,261)
Recognised
in Equity
$'000
Closing balance
$'000
‐
‐
‐
‐
‐
‐
(775)
‐
‐
‐
(775)
‐
3,884
12
363
224
1,360
934
720
41
1,128
364
9,030
(2,746)
6,284
147
870
1,553
19
157
2,746
(2,746)
‐
6,284
(212)
2
‐
(34)
‐
‐
‐
‐
304
(244)
304
Prior year comparatives have been restated in accordance with the requirements of Australian Accounting Standards to separately disclose the contribution of businesses discontinued in the current year.
80
GUD Holdings Limited and subsidiaries
Business Combinations
This section outlines the Group’s structure and changes thereto.
33. Investment in subsidiaries
Accounting policies
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the
Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable
net assets acquired. Any goodwill that arises is tested annually for impairment (Note 19). Any gain on a bargain
purchase is recognised in profit or loss immediately. Transaction costs are expensed an incurred, except if related to
the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre‐existing relationships. Such
amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent
consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and
settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at
each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit
or loss.
Basis of consolidation
These consolidated financial statements are the financial statements of all the entities that comprise the Group,
being the Company and its subsidiaries as defined in Accounting Standard AASB 10 Consolidated Financial
Statements.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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
over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from
the date on which control commences until the date on which control ceases.
Transactions eliminated on consolidation
Intra‐group balances and transactions arising from intra‐group transactions are eliminated.
Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any
related non‐controlling interest and other components of equity. Any resulting gain or loss is recognised on profit
or loss. Any interest retained in the former subsidiary is measured at fair value when the control is lost.
Discontinued operation
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be
clearly distinguished from the rest of the Group and which:
represents a separate major line of business or geographic area of operations;
is part of a single co‐ordinated plan to dispose of a separate major line of business or geographic area of
operations; or
is a subsidiary acquired exclusively with a view to re‐sale.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria
to be classified as held‐for‐sale.
When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is
re‐presented as if the operation had been discontinued from the start of the comparative year.
81
GUD Holdings Limited and subsidiaries
33. Investments in subsidiaries (continued)
33a Acquisitions
Acquisition of AA Gasket
On 1 December 2017, subsidiaries of the Company acquired the business and net assets of AA Gaskets Pty Ltd and
its New Zealand operation (“AAG Group”). The total estimated consideration for the AAG Group was $21.4 million
less the final working capital adjustment, which decreased the final consideration to 21.013 million.
The Group will focus on improving AAG Group’s market presence by expanding and refining its product offering in
the automotive aftermarket segment.
For the year ended 30 June 2018, the AA Group contributed $ 9 million of revenue and $ 1.6 million of PBT to the
Group’s results. If the acquisition had occurred on 1 July 2017, management estimates that the AA Group would
have contributed $ 15.4 million of revenue and $ 2.74 million of PBT to the Group’s results for the year ended 30
June 2018.
Acquisition‐related costs
During the year ended 30 June 2018, the Company incurred approximately $93,000 of acquisition related costs
including legal fees, due diligence and other advisory fees. This amount has been included in administrative
expenses.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of
acquisition.
Trade and other receivables
Deferred tax assets
Inventories
Property, plant and equipment
Trade and other payables
Provisions
Total identifiable net assets acquired
Fair values measured on a provisional basis
AAG ANZ
$'000
3,735
580
3,295
407
(367)
(709)
6,941
All assets and liabilities acquired have been determined on a provisional basis and the Company is in the process of
finalising the assessment of fair value for specific assets and liabilities. Inventories fair value is determined based on
the estimated selling price in the ordinary course of business less the estimated cost of completion and sale, and a
reasonable profit margin based on the effort required to complete and sell the inventories.
If new information obtained within one year of the date of acquisition about facts and circumstances that existed at
the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the
date of acquisition, then the accounting for the acquisition will be revised.
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
Total cash consideration
Less Fair value of identifiable net assets
Goodwill
$'000
21,013
6,941
14,072
The goodwill is attributable to the knowledge, skills and talent of AAG Group and the synergies from integration with
the group’s existing businesses.
82
GUD Holdings Limited and subsidiaries
33. Investments in subsidiaries (continued)
Acquisition of IMG
On 1 June 2017, a subsidiary of the Company acquired 100% of the shares in Innovative Mechatronics Group Pty Ltd
(“IMG”) with business operations in Australia. The total cash consideration for IMG was $10.247 million.
Fair values measured on a provisional basis
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of
acquisition with subsequent adjustment for identified intangible assets arising from the purchase price allocation
exercise:
30 June 2017
Fair value
adjustments
31 December
2017
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Brand names
Leased assets
Deferred tax assets
Trade and other payables
Income tax payable
Finance lease
Provisions
Borrowings
Total identifiable net assets acquired
$'000
249
1,066
2,496
482
‐
98
101
(1,213)
(12)
(92)
(336)
(376)
2,463
$'000
3,698
(52)
3,646
$'000
249
1,066
2,496
482
3,698
98
101
(1,213)
(12)
(92)
(388)
(376)
6,109
Goodwill
Goodwill has been adjusted as a result of the identified intangible assets as follows:
Total cash consideration
Less Subsequent adjustment to consideration
Less Fair value of identifiable net assets
Goodwill
Acquisition of GEL
$'000
10,247
161
6,109
3,977
During the financial year, Griffiths Equipment Limited (GEL) achieved an EBIT growth in excess of the initial EBIT
target stipulated in the Share Purchase Agreement, resulting in full pay out of the associated contingent
consideration of $2.022 million.
83
GUD Holdings Limited and subsidiaries
33. Investments in subsidiaries (continued)
33b Disposals
Disposal of Oates
On 2 January 2018, the Company disposed of the shares of its subsidiary, E D Oates Pty Ltd (“Oates”) to Freudenberg
Household Products Pty Ltd (“Freudenberg”). The total consideration for the Oates sale was $80 million plus net
working capital adjustments.
For the year ended 30 June 2018, Oates contributed $36.061 million of revenue and $ 53.257 million of PBT gain to
the Group’s results, comprising $4.706 million PBT before significant items, $51.536 million of gain on sale, $2.210
million of transaction costs and $0.775 million of restructuring costs.
Consideration
Consideration is made up of $80 million plus a net cash adjustment of $ 3.771 million.
Consideration received
Total consideration of 83.771 million was received as follows:
Proceeds of $80 million was received on 2 January 2018; and
Net cash adjustment of $3.771 million was received on 8 February 2018.
Disposal‐related costs
During the year ended 30 June 2018, the Company incurred approximately $2.210 million of disposal related costs
for Oates, and $232,000 for Dexion, including legal fees, due diligence and other advisory fees.
Identifiable assets acquired and liabilities disposed
The following table summarises the net assets disposed as at 2 January 2018:
Cash and cash equivalents
Trade and other receivables
Inventories
Goodwill
Brand, business names and trademarks
Property, plant and equipment
Deferred tax assets
Other assets
Assets held for sale
Trade and other payables
Employee benefits
Deferred tax liabilities
Liabilities held for sale
2 January 2018
$'000
4,415
8,903
12,244
5,166
8,904
1,324
916
344
42,216
(7,648)
(1,954)
(379)
(9,981)
The results of discontinued operations and cash flow include prior year disposals of the following business units;
Sunbeam ANZ, Lock Focus and Dexion. Further information of the respective results and cashflow impact of the
disposals can be accessed in the 2017 Financial Report.
84
GUD Holdings Limited and subsidiaries
33. Investments in subsidiaries (continued)
33b Disposals (continued)
Results of discontinued operation
Revenue
Cost of goods sold
Gross Profit
Other income
Transaction costs
Gain/ (loss) on sale of subsidiary
Restructuring
Expenses
Results from operating activities
Net finance expense
Share of profit of equity accounted investees
Profit before tax
Income tax expense
Profit / (loss) from discontinued operations, net of income
tax
Cash flows from (used in) discontinued operation
For the year ended 30
June 2018
$'000
36,060
(21,926)
14,134
18
(2,442)
51,536
(930)
(9,511)
52,805
(27)
52,778
(1,406)
51,372
For the year ended
30 June 2017
$’000
215,748
(156,120)
59,628
133
(3,057)
(50,683)
(3,794)
(53,804)
(51,577)
(549)
3,993
(48,133)
(4,870)
(53,003)
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net cash flows for the period
Tax capital loss
For the year ended 30
June 2018
For the year ended
30 June 2017
$'000
2,742
(52)
(961)
1,729
$’000
1,991
(1,571)
(1,444)
(1,024)
The disposal of the Oates business gives rise to a $48.848 million (before tax) capital gain for the Company which
was offset by capital losses realised in prior years from the sale of Lock Focus, Dexion and Sunbeam ANZ.
85
GUD Holdings Limited and subsidiaries
33. Investments in subsidiaries (continued)
33c Shareholdings
Country of incorporation
% ownership interest
2018
2017
Australia
Australia
Parent entity
GUD Holdings Limited (1)
Subsidiaries
ACN 006 864 848 Pty Ltd (formerly Appliance and Homewares
International Pty Ltd) (2) (3)
AA Gaskets Pty Ltd(2) (3)
Australia
Brown & Watson International Pty Ltd (2) (3)
Australia
Davey Water Products Pty Ltd (2) (3)
Australia
ED Oates Pty Ltd (2) (3) (4)
Australia
Hong Kong
GUD (HK) Limited
New Zealand
Griffiths Equipment Limited
Griffiths Equipment Pty Ltd (2) (3)
Australia
Ryco Group Pty Ltd (2) (3)
Australia
United Kingdom
GUD Europe Limited
New Zealand
GUD NZ Holdings Limited
Innovative Mechatronics Group Pty Ltd (2) (3)
Australia
ACN 004 930 385 Pty Ltd (formerly Lock Focus Pty Ltd) (2) (3) (4) Australia
Davey Water Products S.A.S. (formerly Monarch Pool Systems
Europe S.A.S.)
Davey Water Products S.L. (formerly Monarch Pool Systems
Iberica S.L.)
Narva New Zealand Limited
Wesfil Australia Pty Ltd (2) (3)
New Zealand
Australia
France
Spain
100
100
100
100
‐
100
100
100
100
100
100
100
100
100
100
100
100
100
‐
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
All overseas subsidiaries except for GUD (HK) Limited, Monarch Pool Systems Europe and Monarch Pool Systems
Iberica are audited by an associate firm of KPMG Australia. All entities carry on business only in the country of
incorporation.
(1) GUD Holdings Limited is the head entity within the Australian Tax Consolidated group.
(2) Member of the Australian Tax Consolidated group while 100% owned directly or indirectly by GUD Holdings Limited.
(3) Relieved from the need to prepare audited financial reports under Australian Securities Commission Class Order 98/1418 as party to a deed
of cross guarantee with GUD Holdings Limited, while 100% owned directly or indirectly by GUD Holdings Limited.
(4) The net assets and business of ACN 004 930 385 Pty Ltd (formerly Lock Focus Pty Ltd) were sold on 1 December 2016, however the legal
entity has been retained and will be wound up in due course. ED Oates Pty Ltd was sold on 2 January 2018 (Note 33b).
86
GUD Holdings Limited and subsidiaries
33. Investments in subsidiaries (continued)
Deed of Cross Guarantee
Set out below are the financial statements for the group entities which form the 'closed group' under the Deed of
Cross Guarantee:
Income Statement
Revenue
Net finance costs
Other expenses
Profit before income tax
Income tax expense
Profit
Profit/(loss) from discontinued operations, net of tax
Profit for the year
Retained earnings at the beginning of the year
Retained earnings of members leaving the group
Capital restructure
Transfer to dividend reserve
Dividends paid
Retained earnings at the end of the year
Balance Sheet
Current assets
Cash and cash equivalents
Trade and other receivables
Other assets
Inventories
Total current assets
Non‐current assets
Other financial assets
Property, plant and equipment
Deferred tax assets
Goodwill
Other intangible assets
Total non‐current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax payables
Provisions
Other financial liabilities
Total current liabilities
Non‐current liabilities
Borrowings
Other financial liabilities
Provisions
Total non‐current liabilities
Total liabilities
Net assets
Share Capital
Reserves
Retained earnings
Total equity
2018
$'000
368,445
(5,909)
(297,222)
65,314
(18,163)
47,151
51,372
98,523
72,166
(19,830)
‐
(22,408)
(42,231)
86,220
2017
$'000
343,867
(9,186)
(298,822)
35,859
(21,667)
14,192
(41,316)
(27,124)
(47,548)
32,270
173,280
(21,000)
(37,712)
72,166
50,265
89,075
7,708
76,075
9,037
85,610
6,751
82,343
223,123
183,741
33,762
10,099
7,211
102,020
110,243
263,335
486,458
53,887
72
15,688
11,365
4,052
85,064
127,400
1,087
1,878
130,365
215,429
271,029
112,880
71,929
86,220
271,029
32,294
12,616
5,900
96,764
117,778
265,352
449,093
52,635
15,092
9,113
13,534
4,957
95,331
139,100
1,631
1,931
142,662
237,993
211,100
112,880
26,054
72,166
211,100
87
GUD Holdings Limited and subsidiaries
34. Non‐controlling interests
Accounting policies
Non‐controlling interests
For each business combination, the Group elects to measure any non‐controlling interests in the acquiree either:
At fair value; or
At their proportionate share of the acquiree’s identifiable net assets, which are generally at fair value.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity
transactions with owners in their capacity as owners. Adjustments to non‐controlling interests are based on a
proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss
is recognised in profit or loss.
Ownership interests
The following table summarises the changes in the group’s ownership interest in Sunbeam ANZ.
Non‐controlling interests at the beginning of the period
Recognition of non‐controlling interests without change in control
Share of comprehensive income
De‐recognition of non‐controlling interests with change in control
Non‐controlling interests at the end of the period
35. Other Investments
The Group has invested in the following innovative businesses:
Auto Guru
2018
$'000
‐
‐
‐
‐
‐
2017
$'000
31,511
‐
‐
(31,511)
‐
On 20 February 2018, the company acquired a minority interest of 843,015 shares for $1.838 million from existing
shareholders of AutoGuru Australia Pty Ltd. representing 9.2 % of the total share on issue. The total consideration
was paid in total on 5 April 2018.
Liftango
On 6 October 2017, the company acquired a minority interest of 100,000 shares for $180,000 representing 7.2 % of
the total share on issue.
Other Notes
36. Superannuation commitments
The Group contributes to a number of defined contribution superannuation funds (the accumulating benefit type)
for which no actuarial assessments are required to be made and which were established to provide benefits for
employees or their dependants on retirement, resignation, disablement or death. Benefits are provided in the form
of lump sum payments subject to applicable preservation rules. The Group contributes a percentage of individual
employees' gross income and employees may make additional contributions on a voluntary basis. The Group has no
further obligations beyond the payment of the contributions which have been settled on time.
88
GUD Holdings Limited and subsidiaries
37. Key management personnel
The key management personnel (including Non‐Executive Directors) of GUD Holdings Ltd, and its subsidiaries, during
the year have been identified as the following persons:
R.M. Herron (Chairman, Non‐executive) Passed away on 13 November 2017)
A. L. Templeman‐Jones (Non‐executive)
M.G. Smith (Appointed Chairman on 15 November 2017), Non‐executive)
G.A. Billings (Non‐executive)
D.D. Robinson (Non‐executive)
J.P. Ling (Managing Director)
M.A. Fraser (Chief Financial Officer)
D. Chin (Chief Executive – E D Oates Pty Ltd, appointed 24 October 2016) (Resigned 2 January 2018)
G. Nicholls (Chief Executive – Ryco Group Pty Ltd)
R. Pattison (Chief Executive – GUD Automotive Division, appointed 9 May 2017)
D. Worley (Chief Executive – Davey Water Products Pty Ltd)
G. Davies (Chief Executive – Brown and Watson International Pty Ltd, appointed 1 August 2017)
T. Cooper (Managing Director – Wesfil Australia Pty Ltd)
Key management personnel compensation policy
The aggregate compensation of the key management personnel of the Group is set out below:
Short‐term employment benefits
Long‐term benefits
Post‐employment benefits
Share based payments
2018
$
2017
$
7,219,471
6,887,315
38,730
257,844
825,903
97,127
366,912
745,052
8,341,948
8,096,406
Compensation of the Group’s key management personnel includes salaries, short term and long‐term incentives,
and contributions to post‐employment defined contribution superannuation plans.
Performance rights arrangements
Long Term Incentive bonuses are provided as performance rights, granted at the commencement of the relevant
three‐year performance measurement period, which will convert to an equivalent number of GUD shares if the
performance hurdle is achieved over the relevant three‐year performance measurement period. No amount is
payable for the issue of performance rights, or for the shares received upon vesting of those performance rights.
The grant‐date fair value of performance rights granted to employees is generally recognised as an expense, with a
corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is
adjusted to reflect the number of awards for which the related service and non‐market performance conditions are
expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the
related service and non‐market performance conditions at the vesting date. The valuation of rights was completed
by an independent consultant using a hybrid trinomial option pricing model with a relative TSR hurdle.
89
GUD Holdings Limited and subsidiaries
37. Key management personnel (continued)
The inputs used in the measurement of the fair values at grant date of the equity‐settled share‐based payment plans
were as follows.
Fair value at grant date
Share price at grant date
Exercise price
Performance rights programme
Managing Director
Senior Executives
2018
5.68
12.00
‐
2017
6.12
10.19
‐
2018
8.89
12.18
‐
2017
5.17
9.66
‐
Expected volatility (weighted average)
28.00%
28.00%
28.00%
28.00%
Expected dividends
Risk free interest rate (based on government bonds)
6.00%
1.94%
5.70%
1.68%
6.00%
1.94%
5.70%
1.51%
Expected volatility has been based on an evaluation of the historical volatility of the Company’s share price,
particularly over the historical period commensurate with the expected term. The expected term of the instruments
has been based on historical experience and general option holder behaviour.
The number of performance rights outstanding as at 30 June 2018 under the performance rights programme were
as follows:
Managing
Director
Senior
Executives
2018
Other
Total
2017
Managing
Director
Senior
Executives
Other
Total
Outstanding as at 1 July
227,530
315,081
645,118
1,187,729
231,694
515,017 623,578 1,370,289
Cha nge i n s ta tus
‐ 59,898
59,898
‐
Gra nted duri ng the yea r
52,190
79,988
394,726
526,904
74,509
127,433 267,437 469,379
Ves ted duri ng the yea r
‐ 90,259 ‐ 93,259 ‐ 262,633 ‐ 446,151 ‐ 72,851 ‐ 115,325 ‐ 205,936 ‐ 394,112
Forfei ted duri ng the yea r
‐ 14,622 ‐ 346,873 ‐ 361,495 ‐ 5,822 ‐ 212,044 ‐ 39,961 ‐ 257,827
Outstanding at 30 June
189,461
227,290
490,236
906,987
227,530
315,081 645,118 1,187,729
Ri ghts ves ted wi th res pect to the yea r
‐ 62,762 ‐ 67,490 ‐ 170,022 ‐ 300,274 ‐ 90,259 ‐ 121,654 ‐ 234,238 ‐ 446,151
La ps ed i n res pect of the yea r
‐ ‐ ‐
‐
‐
‐
‐
Balance at the date of this report
126,699 159,800
320,214
606,713
137,271
193,427
410,880 741,578
Expense recognised in profit or loss
For details of the related employee benefit expenses, see Note 3.
38. Related parties
Directors
Details of Directors' compensation is disclosed in Note 37.
Transactions with key management personnel and their related parties
The Group's policy is that the sale and purchase of goods and services with key management personnel are made
under normal customer and supplier relationships and on normal commercial terms and conditions. The sale of
goods to key management personnel are on terms no more favourable than made available to other employees.
At 30 June 2018, key management personnel held directly, indirectly or beneficially 596,366 ordinary shares (2017:
486,249) in the Group. Performance rights issued under the 2018 plan will fully vest and, as a result, key
management personnel will be issued an additional 132,178 (2017: 211,913) shares.
Transactions with entities in the wholly‐owned Group
GUD Holdings Limited is the ultimate parent entity in the wholly‐owned group comprising the Company and its
wholly‐owned subsidiaries, as disclosed in Note 33c.
90
GUD Holdings Limited and subsidiaries
38. Related parties (Continued)
Entities in the wholly‐owned group advanced and repaid loans, paid and received dividends, provided marketing,
product sourcing, accounting and administrative assistance and sold and purchased goods to other group companies
during the current and previous financial years.
The Group's policy is that these transactions are on commercial terms and conditions with the exception of loans
between Australian entities and loans between New Zealand entities which are not interest bearing. Loans between
entities in the wholly‐owned group are repayable on demand.
Other related party transactions with entities in the wholly‐owned Group
Wesfil Australia Pty Ltd leases its Sydney premises from an entity related to a Director of Wesfil Australia Pty Ltd.
Net rental expense was $432,930 excluding GST (2017: $432,368 excluding GST). The Group's policy is that related
party lease arrangements are undertaken with commercial terms and conditions.
39. Parent entity disclosures
As at and for the financial year ending 30 June 2018 the parent company of the Group was GUD Holdings Limited.
GUD Holdings Limited
Results of the parent entity
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Financial position of the parent entity at the year end
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Total equity of the parent entity comprising of:
Share capital
Retained earnings / (accumulated losses)
Other reserves
Total equity
2018
$'000
55,301
‐
55,301
51,888
337,605
22,043
150,573
187,032
112,880
44,728
29,424
187,032
2017
$'000
(37,364)
‐
(37,364)
46,455
344,785
32,107
172,967
171,818
112,880
33,066
25,872
171,818
The profit for the year includes transaction costs and gains on disposal of Oates. The results of these disposals in
the parent entity profit for the year ended 30 June 2018 differ to the consolidated income statement as investments
were impaired in previous periods in the parent entity.
During the year, the company set aside $22.4 million from retained earnings to a dividend reserve (Note 28).
GUD Holdings Limited
Parent entity contingencies
Contingent liabilities
2018
$'000
2017
$'000
64,856
65,026
The parent entity is party to two guarantees relating to subsidiaries. The bank borrowing facility described in Note
22 requires the parent entity to guarantee the bank borrowings of GUD NZ Holdings Limited which in turn guarantees
the obligations of the parent entity, i.e. a cross guarantee. No liability is recognised by the parent entity as GUD NZ
Holdings Limited is expected to be able to meet its debts as they fall due.
The parent entity is also party to a deed of cross guarantee as described in Note 33c. There is no expectation of a
liability to the parent entity as a result of this guarantee.
As a result of the above assessments, the fair value has been deemed to be nil and no liability has been recorded.
Other than noted above the parent entity has no material contingent liabilities at 30 June 2018.
91
GUD Holdings Limited and subsidiaries
40. Contingent liabilities
The Group had no material contingent liabilities at 30 June 2018 (2017: Nil).
41. Subsequent events
GUD acquires Disc Brakes Australia
GUD has entered into an agreement to purchase 100% of the shares of Disc Brakes Australia Pty Ltd (“DBA”).
Consideration for the acquisition is $20 million, with a net working capital adjustment as at Completion. The
transaction was completed on 2 July 2018.
Other
Other than the final dividend for the year being declared and the matter noted above, no matters or circumstances
have arisen since the end of the financial period that have significantly affected or may significantly affect the
operating results or state of affairs of the Group.
92
GUD Holdings Limited and subsidiaries
Directors’ Declaration
In the opinion of the directors of GUD Holdings Limited (the “Company”):
(a) the consolidated financial statements and notes and the remuneration disclosures that are contained in the
Remuneration Report included in the Directors’ report are in accordance with the Corporations Act 2001,
including:
1. giving a true and fair view of the financial position of the Group as at 30 June 2018 and of its performance
for the financial year ended on that date;
2. complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become
due and payable.
There are reasonable grounds to believe that the Company and the group entities identified in Note 33c will be able
to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross
Guarantee between the Company and those group entities pursuant to ASIC Class order 98/1418.
The Directors’ draw attention to the basis of preparation (Note 1) of the consolidated financial statements, which
includes a statement of compliance with International Financial Reporting Standards.
The Directors have been given the declarations required by section 295A of the Corporations Act 2001 from the
Managing Director and the Chief Financial Officer for the financial year ended 30 June 2018.
Signed in accordance with a resolution of the Directors pursuant to section 295(5) of the Corporations Act 2001.
On behalf of the Directors
M.G. Smith
Chairman
J.P. Ling
Managing Director
Melbourne, 27 July 2018
93
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of GUD Holdings Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of GUD Holdings
Limited (the “company”) for the financial year ended 30 June 2018 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit.
PM_INI_01
KKPM
PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01
KPMG
Chris Sargent
Partner
Melbourne
27 July 2018
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
94
Independent Auditor’s Report
To the shareholders of GUD Holdings Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report
of GUD Holdings Limited (the
Company).
In our opinion, the accompanying
Financial Report of the Company is in
accordance with the Corporations Act
2001, including:
giving a true and fair view of the
Group’s financial position as at 30
June 2018 and of its financial
performance for the year ended on
that date; and
complying with Australian
Accounting Standards and the
Corporations Regulations 2001.
Basis for opinion
The Financial Report comprises:
Consolidated Balance Sheet as at 30 June 2018
Consolidated Income Statement, Consolidated
Statement of comprehensive income,
Consolidated Statement of changes in equity, and
Consolidated Statement of cash flows for the
year then ended
Notes including a summary of significant
accounting policies
Directors’ Declaration.
The Group consists of the Company and the entities
it controlled at the year-end or from time to time
during the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial
Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the
Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
Liability limited by a scheme approved under
International Cooperative (“KPMG International”), a Swiss entity.
Professional Standards Legislation.
95
Key Audit Matters
The Key Audit Matters we identified
are:
Recoverability of goodwill and other
intangible assets
Valuation of inventory
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.
Recoverability of goodwill ($124.4 million) and other intangible assets ($110.4
million)
Refer to Note 16 Goodwill, Note 17 Other intangible assets and Note 19 Impairment testing to
the Financial Report.
The key audit matter
How the matter was addressed in our audit
The carrying value of goodwill and other
intangible assets is considered with reference
to the Group’s analysis of future cash flows for
the respective Cash Generating Units (CGUs)
or individual assets (as applicable).
The recoverability of these assets is a key
audit matter due to the inherent complexity
associated with auditing the forward looking
assumptions incorporated in the Group’s
“value in use” (VIU) models.
and
internally
The Group’s VIU models are
developed, and use a range of internal and
external data as
inputs. Forward-looking
assumptions may be prone to greater risk for
inconsistent
potential bias, error
application. Significant judgement is involved
in establishing these assumptions. The key
assumptions
include
forecast cash flows, terminal values, growth
rates and discount rates. Where the Group has
not met prior year forecasts in relation to a
specific CGU or asset we factor this into our
assessment of forecast assumptions.
in the VIU models
Our procedures included:
assessing the Group’s VIU models and key
assumptions by:
- evaluating the appropriateness of the VIU
models against accounting standard
requirements;
- comparing inputs into the relevant cash
flow forecasts to the Board approved
budgets;
- comparing forecast cash flows to historical
trends and performance and assessing the
impact of business changes;
- using our industry knowledge to challenge
and assess the reasonableness of key
increased
assumptions. We
scepticism to forecasts in the areas where
previous forecasts were not achieved; and
applied
- assessing
the
reasonableness of
the
discount rates by considering comparable
market information and evaluating the
economic assumptions relating to cost of
debt and cost of equity. We also evaluated
the scope, competence and objectivity of
the valuation specialist engaged by the
Group.
considering the sensitivity of the models by
varying key assumptions, such as forecast
growth rates, terminal values and discount
96
rates, within a reasonably possible range, to
identify those assumptions at higher risk of
bias or inconsistency in application. We also
assessed the related impairment breakeven
points for these assumptions in order to
identify those assets at higher risk of
impairment and
further
procedures; and
focus our
to
considering the disclosures in the financial
report using our understanding of the
recoverability assessment obtained from our
testing and against the requirements of the
accounting standards.
Valuation of inventory ($87.5 million)
Refer to Note 9 Inventories to the Financial Report.
The key audit matter
How the matter was addressed in our audit
At 30 June 2018, the Group held inventory
with a net carrying value of $87.5 million.
The audit of inventory valuation is a key audit
matter due to the extent of judgement
involved in assessing the recoverable value,
particularly in relation to any slow moving or
excessive stock.
The Group has a diverse and broad product
range, and sells to different market segments,
which increases the amount of judgement
required in assessing the carrying value of
inventory.
Our procedures included:
assessing the appropriateness of inventory
valuation accounting policies applied by the
different segments within the Group against
the requirements of accounting standards;
understanding processes and testing key
controls relating to inventory movements,
standard costing and valuation;
evaluating the completeness of at-risk slow
moving or excess stock items identified by
the Group, by comparing inventory listings
against historical sales information to identify
any additional at-risk items;
comparing inventory values against current
selling prices for products to identify items
selling for less than their carrying value to
check products are recorded at lower of cost
or net realisable value; and
inventory
challenging the Group's judgements relating
to the provision for stock obsolescence
(including slow moving or excess stock), by
comparing current
to
historical and forecast sales. We assessed
the
light of our
knowledge of the industry and businesses
the Group operates in, the Group’s business
strategy with respect to maintaining a wide
range of products and from further inquiries
level of provision
levels
in
97
with key personnel.
Other Information
Other Information is financial and non-financial information in GUD Holdings Limited’s annual
reporting which is provided in addition to the Financial Report and the Auditor’s Report. The
Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we
do not express an audit opinion or any form of assurance conclusion thereon, with the exception
of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other
Information. In doing so, we 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.
We are required to report if we conclude that there is a material misstatement of this Other
Information, and based on the work we have performed on the Other Information that we
obtained prior to the date of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
preparing the Financial Report that gives a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001;
implementing necessary internal control to enable the preparation of a Financial Report
that gives a true and fair view and is free from material misstatement, whether due to
fraud or error; and
assessing the Group and Company’s ability to continue as a going concern and whether
the use of the going concern basis of accounting is appropriate. This includes disclosing,
as applicable, matters related to going concern and using the going concern basis of
accounting unless they either intend to liquidate the Group and Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
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 Australian Auditing Standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users
98
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 at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report
of GUD Holdings Limited for the year
ended 30 June 2018 complies with
Section 300A of the Corporations Act
2001.
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 responsibilities
We have audited the Remuneration Report included
in the Directors’ Report for the year ended 30 June
2018.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
KPM_INI_01
KPMG
Chris Sargent
Partner
Melbourne
27 July 2018
99
Additional Shareholder Information
The issued shares of the Company are of the one class with equal voting rights and are all quoted on the ASX.
Distribution of Shareholdings as at 17 August 2018
Shares held
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
No. of Shareholders
3,108
4,336
1,030
589
23
%
34.20
47.73
11.34
6.48
0.25
Shares
1,527,422
10,988,743
7,345,256
11,355,504
55,269,047
There are 382 shareholders holding less than a marketable parcel of shares. A marketable parcel is $500.00.
Twenty Largest Shareholders as at 17 August 2018
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Argo Investments Limited
BNP Paribas Nominees Pty Ltd
RBM Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
AMP Life Limited
Morgan Stanley Australia Securities (Nominee) Pty Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Warbont Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited‐GSCO ECA
Woodross Nominees Pty Ltd
Australian Executor Trustees Limited
HSBC Custody Nominees (Australia) Limited – A/c 2
Merrill Lynch (Australia) Nominees Pty Limited
Mr Jonathan Peter Ling
Maddy and Co Pty Ltd
No. of Shares
25,774,650
9,729,127
6,979,134
3,966,954
1,772,013
824,836
823,199
789,163
596,654
572,200
568,374
484,531
410,261
372,750
292,005
209,819
187,204
180,870
179,656
163,110
%
1.77
12.71
8.49
13.13
63.90
%
29.80
11.25
8.07
4.59
2.05
0.95
0.95
0.91
0.69
0.66
0.66
0.56
0.47
0.43
0.34
0.24
0.22
0.21
0.21
0.19
Total Twenty Largest Shareholders of Ordinary Fully Paid Shares
Total Remaining Holders Balance
54,876,510
31,609,462
63.45
36.55
Substantial Shareholders of GUD Holdings Limited
As at 17 August 2018, the current notices of substantial shareholders were:
Marathon Asset Management LLP
No. of Shares
6,908,288
%
8.02
100
Shareholder Services and Information
Dividends/Dividend Reinvestment Plan (DRP)
The GUD Holdings Limited DRP Plan is currently suspended.
Direct Payments to a Bank, Building Society or Credit Union
Shareholders are encouraged to have cash dividends paid directly into any bank, building society or credit union account in
Australia. You can update your account details by accessing the share registry Investor Centre at www.investorcentre.com.
Uncertificated Issuer Sponsored Holdings
The Company register contains uncertificated holdings under the Australian Securities Exchange (ASX) CHESS system. Share
certificates are not issued and shareholders receive regular statements of their holdings under the Company‐sponsored scheme.
Stock Exchange Listing
GUD is listed on the ASX under the name GUD Holdings Limited and under the code GUD.
Change of Address or Name
It is important that shareholders notify the share registry or their broker in writing immediately when there is a change in their
address or name.
For issuer sponsored holdings: please notify the share registry in writing and indicate the details of your new/previous name, your
new/previous address and your security reference number (SRN), or change the details online at their website at
www.investorcentre.com.
For CHESS/broker sponsored holdings: please notify your broker in writing if you change your name and/or address.
Shareholding Consolidation
Shareholders are encouraged to consolidate shareholding into one name and identification number. Please download a ‘Request
to Consolidate Holdings’ form from the share registry Investor Centre at www.investorcentre.com under Company Information.
Alternatively, an application should be made to the share registry – Computershare Investor Services Pty Limited (see address
below). Shareholders with broker sponsored holdings must contact their broker.
Annual Report Mailing List
Shareholders are encouraged to access and view the Company’s Annual Report online at www.gud.com.au. Shareholders who do
not wish to receive reports should advise the share registry in writing or by accessing the share registry Investor Centre at
www.investorcentre.com. Shareholders can select the method by which they receive shareholder information, including dividend
advice, Notice of Annual General Meeting and Proxy.
Tax File Number (TFN)
While it is not compulsory for shareholders to provide a TFN, the Company is obliged to deduct tax from non‐fully franked
dividends paid to residents in Australia who have not supplied such information. Shareholders can update their TFN by accessing
the share registry Investor Centre at www.investorcentre.com.
Continuous Disclosure
The Company complies with the requirements of the ASX Listing Rules. Shareholders may view all Company announcements at
www.asx.com.au. Shareholders may also obtain updated information and recent announcements concerning the Company by
visiting the Company’s website at www.gud.com.au.
Enquiries
Shareholders with questions about their shareholding should contact Computershare Investor Services Pty Limited who maintains
the share register on behalf of the Company.
Enquiries should be addressed to:
Computershare Investor Services Pty Limited
Postal Address – GPO Box 2975, Melbourne Vic 3001
Yarra Falls, 452 Johnston Street, Abbotsford Vic 3067
Enquiries Within Australia – 1300 850 505
Enquiries Outside Australia – 61 3 9415 4000
Investor Enquiries Facsimile Number – 61 3 9473 2500
Website – www.investorcentre.com
Email – www.investorcentre.com/contact
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