McPHERSON’S LIMITED
ANNUAL REPORT 2015
49
(Z) ROUNDING OF AMOUNTS
The Company is of a kind referred to in Class Order 98/100, issued by the
Australian Securities and Investments Commission, relating to the ‘rounding
off’ of amounts in the financial statements. Amounts in the financial
statements have been rounded off in accordance with that Class Order to
the nearest thousand dollars, or in certain cases, the nearest dollar.
(AA) NEW ACCOUNTING STANDARDS AND
INTERPRETATIONS
Certain new accounting standards and interpretations have been
published that are not mandatory for the 30 June 2015 reporting
period. The Group has considered the new standards and none of these
standards are expected to have a material effect on the Group in future
reporting periods or on foreseeable future transactions.
(AB) PARENT ENTITY FINANCIAL INFORMATION
The financial information for the parent entity, McPherson’s Limited,
disclosed in Note 38 has been prepared on the same basis as the
consolidated financial statements, except as set out below.
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial
statements of McPherson’s Limited. Dividends received from
subsidiaries are recognised in the parent entity’s profit or loss when its
right to receive the dividend is established.
(AC) CRITICAL ACCOUNTING ESTIMATES AND
ASSUMPTIONS
The preparation of financial statements requires the use of certain critical
accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group’s accounting policies.
The areas involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant are discussed below.
Estimated recoverable amount of goodwill and
indefinite lived brandnames
The Group tests goodwill and indefinite lived brandnames annually for
impairment, or more frequently if events or changes in circumstances
indicate that they might be impaired. In calculating the recoverable
amount of these assets the use of assumptions is required. Refer to
Note 16 for details of these assumptions.
Estimated carrying value of provision for
contingent consideration
A number of the Group’s recent business and asset acquisitions have
included a contingent consideration arrangement whereby the Group may
be required to pay the vendors a variable amount of money depending on
the performance of the acquired business or brand over a set period post
acquisition. In accordance with Australian Accounting Standards,
management is required to estimate how much of the contingent
consideration it is expecting to pay in the future. The actual payout amount
may differ to what has been estimated. Refer to Note 31 for further details.
Estimated carrying value of put/call option
associated with the Housewares disposal
During the year the Group divested 51% of its Australian, Hong Kong and
Singapore Housewares business to the Fackelmann Group. The Group also
formally agreed to divest 51% of its New Zealand Housewares business to
the Fackelmann Group on 1 July 2015. The sale agreements associated
with these divestments include reciprocal put/call option arrangements
that can be exercised by either party after 31 December 2015. The final
amount to be received by the Group upon sale of its remaining shares will
be dependent upon the earnings before interest and tax (EBIT) generated
by the joint ventures in the financial year prior to when the option is
exercised. The actual amounts received by the Group may significantly
differ to what has been estimated. Refer to Note 14(A) for further details.
NOTE 2. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to financial risks such as currency risk,
interest rate risk, credit risk and liquidity risk. In order to minimise any
adverse effects on the financial performance of the Group, derivative
financial instruments, such as foreign exchange and interest rate hedge
contracts are used to hedge certain risk exposures. Derivatives are
used exclusively for hedging purposes and not as trading or other
speculative instruments.
Risk management is predominantly controlled by a central treasury
department under policies approved by the Board of Directors. The
central treasury department identifies, evaluates and hedges financial
risks in close co-operation with the Group’s operating units.
Whilst the Group’s hedging policy only allows for highly effective
hedge relationships to be established, at times some hedge
ineffectiveness can arise. The key sources of hedge ineffectiveness for
the hedged risks are:
Foreign exchange risk – if the timing of the hedged highly probable
forecast transaction changes from what was originally estimated; if the
amount of the hedged highly probable forecast transaction decreases
to an amount below the associated hedging instrument amount; or if
differences arise between the credit risk inherent within the hedged
item and the hedging instrument.
Interest rate risk – if the underlying interest rate inherent within the
Group’s borrowing arrangements differs from the underlying interest
rate included within the hedging instrument; if the Group’s outstanding
borrowings reduce to an amount below that included within the
hedging instrument; if the time period of the hedging instrument goes
beyond the maturity date of the related borrowings and it is unlikely
that the Group would refinance its borrowings for a further period; or if
differences arise between the credit risk inherent within the hedged
item and the hedging instrument.
The Group holds the following financial instruments:
2015
$’000
2014
1
$’000
Financial assets
Cash and cash equivalents (Note 10)
11,283
4,120
Trade and other receivables (Note 11)
55,009
60,729
Derivative financial instruments (Note 13)
1,951
-
Put option (Note 14(A))
2,587
-
70,830
64,849
Financial liabilities
Trade and other payables (Note 18)
60,427
50,627
Borrowings (Notes 19 and 21)
88,475
78,820
Derivative financial instruments (Note 13)
2,812
4,832
Contingent consideration (Note 20)
6,637
12,885
158,351
147,164
1. See Note 1(A) for details regarding the restatement as a result of an error
The fair value measurements of the derivative financial instruments,
put option and contingent consideration from the above table are
shown in Note 2(E).