SCHOOLBLAZER LIMITED — Annual Report 2004

Nov 23, 2004

ind a shinka Article Andrewski

Incorporated in Queensland Australian Stock Exchange code: HNG

GORDER

• r. TEN YEAR PERFORMANCE
• 3 SUMMARY OF RESULTS
• 4 CHAIRMAN'S REPORT
• T. CHIEF EXECUTIVE S REVIEW
• T. SUMMARY OF 2004
• 18 BERTAN STATE AT EXTENTS

ANNUAL GENERAL MEETING

The one hundred and first Annual General Meeting of Shareholders of HCL Limited will be held in the Seminar Room, Level 8, 123 Pitt Street. Sydney NSW 2000 on 27 January 2005.

HGL invests in companies that need capital to fund growth or to buy out the current owners. Typically this happens when $\parallel$ business owners seek to retire or reduce their involvement.

Generally businesses within HGL are effectively partially owned by their management. An equity and management structure closely links our equity partners' wealth to the profitability of the business they operate, this greatly assists in focusing each enterprise on its goals.

HGL invests for the long term. We do not expect to sell operating investments in the typical three to five year timescale of other capital providers.

In the last eleven years, HGL has achieved an increase of 14.7% per annum in total shareholder returns, compared with an increase of 10.0% in the All Ordinaries Accumulation Index.

investing inbusinesses

	24163	PANEZ	P. Die P.	920 A	exetetti	n Sepa	KO 19	13.126	非常	82.22
Revenue ($000)	123.416	116,449	114,252	107,648	94.354	94.530	106,870	96.441	80,589	81.067
Earnings before interest.and tax (5000)	18,313	15,233	14,564	10.581	10,226	12,098	10.943	10,194	8,416	8.331
Profit before tax ($000)	18,692	14,873	14,372	9.625	9,382	10/73	9,762	9,340	7.575	7,410
Profit after tax andbefore minorities ($000).	13,605	12,669	10412	8.103	8,174	8,504	7998	7,598	6.356	6.414
Profit attributable toHGL shareholders ($000)	10.533	9,938	8,013	6,112	6,066	6,264	6,052	5,238	4,244	3,798
Shares on issue (000)	50.443	47,213	46.583	46.507	46.110	46.346	46,288	41.479	37.471	32,338
Shareholders' equity (sooo)	80,132	65,744	54.451	57,599	55,860	52.567	49.781	45,689	37.903	34,385
HCIL shareholders' equity ($000)	67,478	55,149	46.638	43,274	43,075	41,252	38,783	35,550	28,702	24,263
Total assets ($000)	109,808	94,923	78,897	90.148	88,108	92,843	89.689	84,195	61.351	58,234
Total interest bearing debtand leases net of cash ($'000)Total cash net of interestbearing debt and leases (5000)	7,596	8,678	÷5,968	(7,187)	(10, 719)	(16,683)÷	(16.172)	(15, 122)	(7,811)	(10, 140)
Return on shareholders' equity (%)	-19	21.	19	14	15	16	$\overline{17}$	18	18	18
Net debt to equity (%)	n/a	n/a	n/a	12	19.	32	33	33	21	30
Net debt to total assets (%)	n/a	n/s	n/a	8	$\overline{12}$	18	18	18	13	17
Earnings per share (s)	214	212	172	13.2	13.2	13.5	13.2	12.3	11.4	10.6
Dividend per share (c)	9.0	8.6	$12.0*$	$10.25*$	$10.25*$	8.0	78	6.8	6.8	6.8
Net tangible assets (c)	115	95	96.	86	85	80	74	66.	65	63

* All dividends are fully franked other than 6.5 cents in both 2000 and 2001 and 12.0 cents in 2002.

	Nora	Chairmgezet e apapapanacity e c'est	engan panga an an an an an an an an an an an an anyanın	TARAn an Airean21.5	- 101919	TIME A	NOTE:
Import and distribution businesses
Continuing businesses		8,545	26,843	32	8,446	26.007	32.
New businesses	11	3,5/6	14,848	24	901	14.617	18
Total		12,121	41,691	29	9,347	40.624	30.
Funds managementDividends	$\overline{z}$	1,198696	4,859	25	251704	1,831	14
Central items	3	1,894[2, 2.45]	16,819		955.(3,604)	11,595
Profit before tax		11,770			6.698
Tax		(3, 118)	539		(1.581)	337
Partners' equity interests		(3,072)	(12, 654)		(2,731)	(10.595)
Profit after tax and minorities before
revaluations and capital gains	$\boldsymbol{4}$	5,580	51,254		2,386	43,792
Profit on sale of Sabre and Lemarne	5.				5,817
Hunter Hall		4,407	10,506		(323)	6, 131
MMC Small Companies Fund		884	4,324		771	3,440
Other capital gains and revaluations	6	1,785	5,186		1,986	3.804
Profit before tax		7.076			8,251
Tax	7.	(2, 123)	(3,792)		(699)	(2.018)
Profit after tax from revaluations
and capital gains		4,953	16.224		7.552	11,357
Profit after tax and minority interests		10.533	67,4/8		9.938	55,149
Earnings per share (cents)Earnings per share before revaluations		214			21.2
and capital gains (cents)		11.2			51
Return on shareholders' funds %		19.1			213

New businesses comprise SPOS and Thalgo acquired during 2003. Ä

$\overline{2}$ Funds management comprises HGL's share of the pre tax profit of MMC Asset Management together with HGL's share of the net management fee income from MMC Contrarian.

• 3 Earnings comprise central costs, property income and net interest income. Capital employed mainly comprises share scheme loans, property and net cash.
• $\boldsymbol{A}$ After charging $0.42 million of goodwill amortisation (2003:$0.23 million).

Sabre and Lemarne were sold in the second half of 2003. $\overline{\mathbf{5}}$

2003 includes $0.7 million from the sale of a surplus property. 6

In 2003 the tax charge benefited by $1.1 million due to past tax losses being brought to account. The tax liability is the 7. deferred tax liability associated with the listed securities that are marked to market.

GETAR IN ANTISENTING

On behalf of your board I am pleased to present your company's annual report for the year ended 30 September 2004. The Board considers the solid result positions the company for growth into the future. The financial performance is summarised as follows:

• Profit after tax and minorities $10.5 million (2003: $9.9 million)
• Profit after tax and minorities before revaluations and capital gains $5.6 million (2003: $2.4 million)
• After tax revaluations and capital gains $4.9 million (2003: $7.5 million)
• Earnings per share 21.4 cents (2003: 21.2 cents)
• Return on shareholders' funds 19.1% (2003: 21.3%)

A continual focus of the board and management is to increase the profit performance before revaluations and capital gains. These are the recurring profits that underpin our growth, value and dividend payments. The 130% increase in these earnings to $5.6 million is laying the foundations for future increases in recurring profits and dividends.

Our listed investments are actively managed to maximise their value. The resultant revaluations and capital profits are considered an improvement to net assets rather than recurring earnings. This year we made $4.9 million after tax from these activities (2003: $7.5 million) which further increases shareholder wealth.

These impressive results and the positive outlook could not have been achieved without the efforts of our most valuable assets, our employees and our joint venture partners. On behalf of the board I thank them for their support, contributions and skills.

Acquisitions

We are pleased with the contribution from the $15 million of acquisitions made during 2003, SPOS and Thalgo generated a combined EBIT to capital employed return of 24%, this is in excess of our 20% hurdle rate. These two businesses are budgeting to further increase their profits in 2005. This demonstrates the benefits of patient investing combined with the due diligence procedures required to identify sound businesses with growth potential.

During the year we invested a further $3 million in MMC Asset Management. We now own 38% of this boutique funds manager. We are very satisfied with its performance and look forward to increased profits in the future. During the year MMC Contrarian Limited raised $200 million, the benefits of this to both HGL and MMC are detailed in the Chief Executive's review.

confinued

In my report last year I commented that we were aiming to increase our investment in import and distribution businesses where our return is likely to exceed 20%. We remain committed to this strategy and during the year management reviewed many possible acquisitions, none satisfied our due diligence procedures. Management continue to search for acquisitions that satisfy our risk and return parameters.

We have owned 50% of | Leutenegger Pty Limited since 1997. In October 2004 we acquired an additional 35% for $3.2 million and have committed to purchasing the remaining 15% during the 2007 financial year. We budget for this additional investment to earn greater than a 20% return. This business is explained in more detail in the Chief Executive's review.

Dividends

A final dividend of 4.8 cents fully franked will be paid on 17 December 2004. The total dividend for the year will be 9.0 cents a share (2003: 8.6 cents). The board policy is to maintain the dividend and in the future increase the dividend by distributing approximately 70% of the profit before revaluations and capital gains.

Outlook

As we are unable to precisely forecast the future market prices of our investments we consider it inappropriate to comment on the full profit forecast for 2005. What we do feel confident to comment on is the level of recurring profits.

Assuming the economy remains in its current state, we expect a profit after tax and minorities before revaluations and capital gains of between $6.1 million and $6.6 million for the 2005 year, this is approximately a 14% increase over 2004. We believe this is a substantial base to which the profits from new business acquisitions can be added while continuing to grow our current businesses. Your company is well placed to build on a very good year. The Board and management are focussed on improving shareholder wealth.

Peter G Miller

24 November 2004

As the Chairman explained in his report, a principal focus of the board and management is to increase the recurring profits. These profits increased by more than 130% to $5.6 million compared to $2.4 million last year. I am also pleased to report that this profit was slightly higher than the forecast range of $5.0 million to $5.5 million.

During the year we also added to shareholder value by increasing the value of our investments. There were after tax revaluations and capital gains, recognised in the profit and loss account, of $4.9 million (2003: $7.5 million). In addition there was an increase, after tax, in the value of the investment in Reinsurance Australia Corporation (ReAC) of $3.5 million. ReAC is carried on our balance sheet at its original purchase cost and so this $3.5 million increase in value is not recognised in the profit and loss account.

These two different sources of profit are detailed on page 3 and are explained and discussed in more detail in this report.

HGL owns its operating businesses in conjunction with the management of the relevant business. We refer to this as the "partnership of equity and skills". Having management with an equity interest in their business is highly effective in obtaining improved returns.

Import and distribution businesses

HGL's businesses import and distribute a wide range of mainly branded goods. The goods include beauty products, sunglasses, spectacle frames, point of sale equipment, large format printers and craft fabric to name but a few. Each business operates out of its own office and warehouse as the businesses are partially owned by their management and also to ensure each business remains focussed.

HGL's equity participation in each business is summarised on page 42. These businesses employ 455 people. More information about our businesses can be found on their websites which are detailed on the inside back cover.

The import and distribution businesses increased their earnings before interest and tax (EBIT) by 30% to $12.1 million from $9.3 million. This increase was mainly due to last year's acquisitions of SPOS and Thalgo. The EBIT of businesses owned throughout both years was reduced by about $0.6 million due to the initial set up costs associated with a significant new five year service contract won by Anitech and a change to the stock provisioning methodology in J Leutenegger. These expenses reduced the EBIT increase from an otherwise impressive 8% to 1%.

The $41 million invested generated an after goodwill EBIT to capital employed return of 29% (2003: 30%). The goodwill amortisation charge reduced the EBIT by $0.6 million.

SPOS supplies retailers and consumer brands with shelf management systems and point of sale display products. Thalgo is the importer of Thalgo natural beauty and skin care products. In August 2004 $3.0 million of deferred consideration was paid to the previous owners of SPOS and Thalgo.

The combined return from SPOS and Thalgo was 24% and exceeds our hurdle rate. This success demonstrates the value of cautious and patient investing.

To varying degrees the businesses have benefited from the continued strength of the Australian dollar. However, as the competitors to our businesses also receive the same benefit market forces tend to result in the majority of these foreign exchange gains being passed to customers. Likewise when the Australian dollar weakens market forces tend to allow price increases to occur.

We are anticipating an increase in excess of 10% in the profitability of our businesses in 2005. We remain committed to growing the profitability of our current businesses.

a sa mga mga mga mga mga mga mga

HGL Total Shareholder Return All Ordinaries Accumulation Index

The HGL Total Shareholder Return is the increase in the share price assuming reinvestment of dividend payments.

Record profit of $10.5 million

SUNTAN MOZZON

• REGULARE DIE DIE 1513 BOZ to $5.6 million
• Revaluations and capital gains of $49 million
• EBIT of Import and distribution businesses up 30% to $12.1 million
• EBIT of listed securities up 100% 1983 - Jan Kon
• Ingrease in dividend to 9 dens ľ a share fully franked
• Sound balance sheet, net cash of S 7.6 million
• Well positioned for future growth

CHIEF EXECUTIVE'S REVIEW

Funds management

cantinued

HGL has $4.9 million, valued at original cost, invested in MMC Asset Management (MMC). MMC is an unlisted boutique funds manager. In December 2003 we increased our shareholding in MMC by 17% to 38% for an additional $3 million.

MMC was runner up in the Macquarie Bank 2004 "Skilled Manager of the Year" award and also finished third in Standard and Poor's Australian Fund Awards 2004 "Boutique Fund Manager of the Year" award.

Following the move of the MMC head office from Adelaide to Sydney MMC strengthened its investment, compliance and back office teams. Funds under management were $480 million at 30 September 2004 including $220 million in MMC Contrarian which listed on the ASX in December 2003.

MMC Contrarian, a listed investment company, raised $200 million, with an additional $200 million of options exercisable at any time up to 30 June 2005. At 30 September 2004 the gross assets under management had increased to $220 million. More information about MMC Contrarian can be found on its website www.mmccontrarian.com.au.

A management fee of 1.25% of gross assets per annum is paid by MMC Contrarian for an initial term of 25 years. The management fee is paid 40% to HGL and 60% to MMC. There is also a 15% out performance fee in the same proportions; no performance fee was received in the period to 30 September 2004. The net management fee to HGL was $0.7 million.

MMC is positioning itself so it is able to increase its funds under management and profitability.

Listed securities

The direct investments of HGL in listed securities are:

• $10.5 million in 6% of Hunter Hall International Limited valued at market price
• $4.3 million in units of the MMC Small Companies fund managed by MMC, valued at market price
• $1.9 million in 7% of Reinsurance Australia Corporation Limited, valued at original cost with a market value of $8.1 million.
• $3.3 million in other listed companies, valued at market prices.

The listed securities have a combined after tax value of $21 million. Continual reviews of our investments are performed and where we believe their value will increase over time we continue to hold the investment.

Hunter Hall (ASX code: HHL) is a boutique international funds manager with funds under management of $1.1 billion. This investment is marked to market so the price of $7.20 on 30 September 2004 is also the value in our balance sheet. As the market price was $4.18 on 30 September 2003 a revaluation surplus of $4.4 million before tax has been recognised (2003: deficit $0.3 million).

The MMC Small Companies fund increased in value by 26% over the 12 months resulting in a revaluation surplus of $0.9 million before tax.

Reinsurance Australia (ReAC) (ASX code: RAC) is carried in our balance sheet at its book cost of 14 cents a share. At 30 September 2004 the market value of the shares was 60 cents compared to 23 cents a year ago. At 60 cents HGL has an unrecognised $6.2 million pre tax surplus on this investment. ReAC is in the process of managing the run off of its existing insurance arrangements. Following the settlement of most of its liabilities it announced it would pursue strategic objectives beyond the run off such as entering the general insurance market.

Dividend income of $0.7 million was received during the year, this mainly related to Hunter Hall.

Acquisitions

As I have already discussed during the year $3 million was invested increasing the shareholding in MMC Asset Management by 17%.

We remain committed to increasing our investment in businesses, particularly import and distribution businesses, where the return is likely to exceed our hurdle rate. During the year a number of possible acquisitions were reviewed, however none satisfied our due diligence procedures. Management continue to search for acquisitions that satisfy our risk and return parameters. We welcome suggestions on possible acquisition opportunities. Our acquisition criteria and contact details are shown on page 12.

In October 2004 an additional 35% of J Leutenegger Pty Limited was acquired from our retiring joint venture partner, lan Garrow, increasing our shareholding to 85%. The final 15% will be acquired during the 12 months to October 2007 at a price based on a multiple of the earnings for the two years to 30 September 2006.

Leutenegger is a Sydney based fabric and haberdashery importer whose product ranges include the market leading DMC and Pyrm collections. Ian has agreed to continue to support the business into the future as a director and part time employee of the company.

Property

HGL has $3.4 million invested in three properties occupied by import and distribution businesses.

Balance sheet

The balance sheet remains strong with no net debt. Noncurrent receivables increased by $5.1 million following the granting of loans to executives to acquire HGL shares pursuant to the employee share scheme. The interest rate charged on these loans is equal to the dividends paid by HGL on these shares.

Cash and outlook

At 30 September 2004 the group had net cash of $7.6 million and undrawn bank facilities of $18 million which would represent a conservative 20% debt to equity ratio if fully drawn.

We are anticipating an increase in the profitability of our import and distribution businesses and MMC Asset Management in 2005. For 2005 we are forecasting a profit after tax and minorities before revaluations and capital gains of between $6.1 million and $6.6 million, approximately a 14% increase over 2004. In addition, we are continually reviewing possible acquisitions which will increase earnings. Acquisitions can be funded using our excellent balance sheet. HGL is well positioned.

Kevin J Eley 24 November 2004

STORES IN A SERVICE OF A SERVICE OF A SERVICE Katon bili sahiji d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e kora

Typically acquisitions made by HGL are when a business owner seeks to retire or reduce their involvement.

Acquisition Criteria

HGL is seeking businesses that satisfy the following criteria:

Pre-tax profit of $1.5m or greater

HGL is seeking established businesses with a track record of profitability. Businesses with less than $1.5 million of pre tax profit are of interest where the business can be integrated into one of our existing operations. HGL does not invest in start-ups. HGL targets a return on capital employed of at least 20%.

Distribution based with a niche focus

HGL's existing equity partnerships are niche import and distribution businesses which are not capital intensive, HGL is most attracted to businesses of this type. HGL may consider a business which has a service or light manufacturing component if this aspect is easily understood.

Investment by management

HGL believes its interests are best aligned with management when they invest or retain personal capital in the business.

What makes HGL an ideal equity partner

Experience

Over 15 years experience working with our partners to solve business problems and improve financial performance.

Profitable

Strong profit history which mirrors the success of our equity partners.

Capital

Listed on the ASX with a significant and supportive shareholder base, conservative balance sheet and strong banking relationships.

Long Term Focus

HGL invests for the long term.

Do you know of a business that meets HGL's acquisition criteria and may represent an investment opportunity. If you do we would appreciate discussing it with you.

Please contact Tony Holley on (02) 9221 7155 or tonyholley@hgl.com.au.

HGL will pay an appropriate fee where a successful transaction occurs.

Statutory Reports and Haciació grégoria

for the year ended 30 September 2004

DIA ACTOR DE L'ORIGINALE
CORPORATE COVERNANCE REPORT	18
a sa katika sa katika sa mga mga mga mga mga mga mga mga mga mg	z.
STATEMENT OF FINANCIAL POSITION	P M M
STAR IN MODELLAND TO WA	z.
Salaman Management Mana	72. S
DIRECTORS DECEMBER ON	$\sim$ $\frac{1}{2}$
Kiria ada ka bandara da sa san	e g

en de la provincia de la provincia de la provincia de la provincia de la provincia de la provincia de la proviLa provincia de la provincia de la provincia de la provincia de la provincia de la provincia de la provincia d

SHARLHOLDER INFORMATION e The Directors of HGL Limited present their annual financial report for the year ended 30 September 2004.

Directors

The names and particulars of the directors of the Company during or since the end of the financial year are:

PG Miller, FCA	57, Chairman, Non executive director since 2000. A member of the Audit and Nominationand Remuneration Committees. Chartered Accountant with over 30 years experience in publicpractice.
KJ Eley, CA, ASIA	55, Chief Executive, Executive director since 1985. Chartered Accountant. Prior to joining HGLover 10 years of business experience gained in management consulting, financing and corporateadvice at a major international firm of Chartered Accountants and two investment banks.A member of the Nomination and Remuneration Committee.
FM Wolf, BA (Hons), PhD	51, Non executive director since 2000. Chairman of Audit Committee. Director of Abacus PropertyGroup with over 20 years of experience in strategic planning, financing and corporate advice.
ID Constable	45, Non executive director since 2003. A member of Audit Committee. Authorised representativeof Bell Potter Securities Limited. Over 20 years experience in the stockbroking industry.
MA Hershon	Non-executive Alternate Director for PG Miller. Resigned on 6 September 2004.

Meetings of directors

The following table sets out the number of directors' meetings, including meetings of committees of directors, held during the financial year and the number of meetings attended by each director while they were a director or committee member.

$\overline{ }$	. .Board		$\cdot$AuditCommittee		÷RemunerationCommittee		Nomination &Remuneration Committee
	Number	Attended	Number	Attended	Number	Attended	Number	Attended
PG Miller	13	13	a		4	4		3.
K Eley	13	13				4		3.
FM Wolf	13	13	а	4
ID Constable	13	13	a	4
MA Hershon*	12

*MA Hershon was an alternate director for PG Miller.

On 27 April 2004 the Nomination and Remuneration Committee was established by the Board following the effective merger of the Nomination Committee and the separate Remuneration Committee. The Remuneration Committee met four times during the year prior to the merger. The Nomination Committee did not meet prior to the merger of the two committees.

Directors' interest in securities

As at the date of this report the interest of directors in the shares of the Company are as follows:

	Beneficial Interest	Non Beneficial Interest
PG Miller	39,723	7.756.304
KJ Eley	2,905,882	$\overline{\phantom{0}}$
FM Wolf	155,392	$\overline{\phantom{0}}$
ID Constable	44.000	625

Company Secretaries

Michael Mahoney ACA (Eng & Wales), CA and Peter Caldelis CA act as joint company secretaries for the Company. Mr Mahoney has been been an employee of the Company for 17 years and has acted as company secretary for the same period. Mr Caldells has been an employee of the Company for 9 years and has acted as company secretary since 1997.

Review of operations

The Directors report a consolidated profit before income tax and outside equity interests of $18,692,000 (2003: $14,873,000). Further details are in the Chairman's Report and the Chief Executive's Review.

continued

Principal activities

The principal activities of the consolidated entity during the year were:

• · import and distribution of branded products; and
• purchase and sale of listed investments and funds management activities.

Dividends

The Directors have declared a final fully franked dividend of 4.8 cents per share (2003: 4.4 cents per share fully franked). Interim fully franked dividends of 4.2 cents per share were paid during the year (2003: 4.2 cents per share fully franked).

The board policy is to maintain the dividend and in the future increase the dividend by distributing approximately 70% of the profit before revaluations and capital gains.

Ordinary Shares	20045'000	2003$'000
Interim dividend paid 6 July 2004
(2003: paid 11 July 2003)	2.108	1.970
Final dividend payable on 17 December 2004
(2003: paid 19 December 2003)	2.421	2.102
	4.529	4.072

Dividend Reinvestment Plan

The Dividend Reinvestment Plan (DRP) was established by the Directors to provide shareholders with the opportunity of reinvesting their dividends in ordinary shares of the Company. The Directors have resolved for the final dividend payable on 17 December 2004 shares will be allotted to eligible shareholders participating in the DRP with no discount from the market price of the Company's shares as defined in the DRP (2003: discount 5%). No brokerage is payable if shares are allotted under the DRP. During the year the total number of shares issued under the DRP was 530,534 (2003: 664,081).

Share buy-back

The Company operates an on-market share buy-back under which it can purchase 4,721,276 of its share. The buy-back will be renewed for a further six months on 14 January 2005. During the year no ordinary shares were acquired pursuant to the buy-back.

Events subsequent to balance date

No matters or circumstances have arisen since the end of the financial year which have significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in subsequent financial years, other than those referred to in the Chief Executive's Review and in note 35 to the Financial Statements.

Significant changes in the state of affairs and future developments

There were no significant changes in the state of affairs of the consolidated entity other than those referred to in the Chief Executive's Review. Likely developments in operations and operating results are detailed in the Chief Executive's Review.

Directors' and executives' remuneration

Non executive Directors are remunerated by fees with the aggregate limit approved by shareholders from time to time. Currently, the aggregate amount of Directors' fees will not exceed $300,000 per annum. Directors' fees can be paid as superannuation contributions. The Nomination and Remuneration Committee recommends to the Board the remuneration framework for Directors and the Board as a whole determines the nature and amount of emoluments for non-executive Directors within the limit approved by shareholders.

The consolidated entity's executive remuneration strategy seeks to match the goals of executives to those of the shareholders. This is effected through combining conservative levels of guaranteed remuneration with attractive incentive payments. These incentive payments are only paid on attainment of previously agreed performance targets outlined below.

DIRECTORS' REPORT

cantinued

			Primary		Post Employment		Equity
Name	Office		PerformanceSalary/fees Incentive 2004	Benefits	Superannuation	Subtotal	Shares	Total
Directors
PG Miller	Chairman	72.800		-	7.200	80,000		80,000
FM Wolf	Non-executive Director	42.033		-	967	43.000	$\overline{\phantom{0}}$	43,000
ID Constable	Non-executive Director	39.775		-	3.870	43.645		43,645
MA Hershon	Alternate Director
KJ Eley	HGL CEO & Director	193.333	86.060	59.300	12.367	351.060	646.243	997.303
Executives
	MP Mahoney HGL Operations Manager	169.511	62.394	600	25.888	258.393	454.305	712,698
Al Whittles	HGL Chief Financial Officer	119,501	40.879	768	35.731	196,879	340.728	537,607
PS Caldelis	HGL Group Controller	95.452	25,818	18,835	8.713	148.818	170.364	319,182
R Morello	loint CEO of SPOS	212,000		-	18,000	230,000		230,000
M Farley	Joint CEO of SPOS	214,924		-	15,076	230,000		230,000

Performance incentives for HGL executives are determined in accordance with the HGL Bonus Scheme which will operate for the three years to 30 September 2006. The HGL Bonus Scheme is summarised as follows:

20% of the profit after tax and minorities before revaluations and capital gains above a hurdle is paid into the bonus pool; the hurdles are 2004: $5.0 million, 2005: $5.5 million and 2006: the lower of $6.05 million or the profit after tax and minorities before revaluations and capital gains for 2005. The 2006 profits will be adjusted to eliminate all the effects of the adoption of International Financial Reporting Standards. In addition 2% of the profit after tax and minorities from revaluations and capital gains are paid into the bonus pool. For 2004 the profit after tax and minorities before revaluations and capital gains was $5.6 million and the after tax revaluations and capital gains were $4.9 million, together this produced a bonus pool of $215,151. The bonus pool is allocated to the HGL executives in the following proportions, Kevin Eley 40%, Michael Mahoney 29%, Andrew Whittles 19% and Peter Caldelis 12%. The incentives are paid to the HGL executives in December each year. Incentive payments are capped at 100% of the executive's fixed package for the year.

No payments are to be made unless:

• . The aggregate after tax return from businesses acquired in the preceding 2 years is greater than 10%;
• . The return on shareholder funds is greater than 9%; and
• . There are sufficient franking credits and cash to allow a dividend of no less than 66.6% of the hurdle profits to be fully franked.

The amounts disclosed as equity are estimates of the possible value, over the next seven years, of the shares issued during the year to the executives under the Employee Share Scheme (Scheme). The 2005 and 2006 accounts will disclose additional equity amounts totalling $688,815 and $141,324 in respect of these shares. The acquisition of these shares is funded by non recourse loans from the Company to the executive. The amount disclosed as equity will never be paid to the executive by the Company. For more information on the Scheme see note 22.

As the Scheme shares and associated loans have similar characteristics to a call option the values have been estimated utilising the Black-Scholes model. There are many variables in the model however the key criteria affecting the value are the life of the non recourse loan and the volatility of the HGL share price. The directors have estimated the life of the non recourse loans to be seven years, being the earliest the company can demand repayment unless the executive dies or ceases to be an employee. The directors have estimated the volatility to be 28% being the actual volatility of HGL shares over the last seven years.

The directors believe the HGL Bonus Scheme and the Scheme will motivate the HGL executives to achieve the long term goals of the corporate plan. Put simply, these goals are:

• · Grow the profit after tax and minorities before revaluations and capital gains; and
• · Increase the investment in businesses, particularly import and distribution businesses, where the return is likely to exceed 20%.

continued

Employee Share Scheme

The Directors believe that it is important to link the remuneration the HGL executives to the long term success of the Company by supporting the acquisition of shares through the Company's Employee Share Scheme (Scheme). Approval was sought and granted at the Annual General Meeting on 20 January 2004 to amend the Scheme to help it more effectively achieve these goals. An overview of the amendments to the Scheme and the Scheme rules are posted to the HGL website, www.hgl.com.au.

During the year the company has issued the following additional shares under the Scheme:

	Issue of Shares - 1 December 2003at $1.69	Issue of Shares - 5 February 2004at $1.9256
KJ Eley	-	1,000,000
MP Mahoney	266,667	533,333
AJ Whittles	200,000	400,000
PS Caldelis	100,000	200.000
Total	566,667	2,133,333

The issue of the shares was made in accordance with the terms of the Scheme and a loan (Scheme Loan) has been made to each executive to enable them to acquire shares. The amounts repayable under the Scheme Loans in respect of all the shares issued on 1 December 2003 and 333,334 of the shares issued to Mr KJ Eley have been reduced by 7.2%.

The interest rate of the Scheme Loan is equal to the dividends paid by HGL on Scheme Shares.

As at 30 September 2004 there were 4,171,500 Scheme shares (2003: 1,361,382 Scheme shares) and Scheme Loans of $6,321,181 (2003: $1,188,645). Refer to Note 22 in the financial statements for more detail on the Scheme.

The maximum number of shares in the Scheme is restricted to 10% of HGL's total shares on issue.

Indemnification of directors and officers

During the year, the Company purchased Directors' and Officers' Liability Insurance to provide cover in respect of claims made against the directors and officers in office during the financial year and at the date of this report, as far as is allowable by the Corporations Act 2001. The policy also covers the Company for reimbursement of directors' and officers' expenses associated with such claims if the defence to the claim is successful. The total amount of insurance premium paid and the nature of the liability are not disclosed due to a confidentiality clause within the agreement. As at the date of this report, no amounts have been claimed or paid in respect of this indemnity and insurance, other than the premium referred to above.

Rounding of amounts

The consolidated entity is of a kind referred to in ASIC Class Order 98/0100 dated 10 July 1998 and in accordance with that Class Order amounts in this report, and the financial report, have been rounded off to the nearest thousand dollars.

Signed in accordance with a resolution of the Board of Directors made pursuant to section 298(2) of the Corporations Act 2001.

For and on behalf of the Board of Directors of HGL Limited:

PG Miller Chairman

Sydney 24 November 2004

Ki Elev Director

The Board of Directors of HGL Limited are responsible for the consolidated entity's corporate governance. The Board guides and monitors the business and affairs of the consolidated entity on behalf of shareholders, by whom they are elected and to whom they are accountable. To ensure the Board is well equipped to discharge its responsibilities, it has established guidelines for the nomination and selection of Directors and for the operation of the Board. Various charters and policy documents are available to shareholders on request.

Board composition and primary functions

As of the date of this report, the Board is comprised of four Directors (one Executive and three non-Executive members). Mr FM Wolf is the sole independent director, as defined by the ASX Corporate Governance Council (CGC) in their paper titled "Principles of Good Corporate Governance and Best Practice Recommendations" dated March 2003. The board does not have a majority of independent directors.

As the chairman of the board is associated with a substantial shareholder he is not deemed independent in accordance with the CGC paper referred to above. The Chairman is on the board of a substantial shareholder but he does not benefit financially from its shareholding in HGL Limited.

The Board has considered its composition and believes the current composition is in the interests of shareholders.

The Board meets on a monthly basis with its primary functions including:

• · establishment of long-term goals for the Company and strategic and operational plans to achieve those goals;
• · allocation of capital and funding;
• · review and adoption of annual strategic and operational budgets for the performance of the Company and all its operating businesses;
• · monitoring of the performance on a monthly basis of the Company and its operating businesses against its operating and strategic plans;
• · ensuring that the Company has implemented adequate systems of internal control and risk management;
• · approval of the half yearly and annual financial reports;
• · ensuring effective external disclosure policies so that the market is fully informed on all matters that may influence the share price; and
• · monitoring corporate governance.

Board responsibilities

The Board is elected to act on behalf of the Company's shareholders, and is therefore accountable to them. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The responsibility for the operation and administration of the consolidated entity is delegated by the Board to the Chief Executive and his executive team. The Board ensures that this team is appropriately qualified and experienced to discharge this responsibility. The Board is responsible for ensuring that management's objectives are aligned with the expectations and the risks identified by the Board. The Board discharges this responsibility via several mechanisms that it has in place. In addition to the Committees referred to below, these mechanisms include:

• · approval by the Board of the consolidated entity's strategic plan;
• · establishment and monitoring of key performance indicators, both financial and non-financial;
• · establishment of guidelines to report on trade practices legislation compliance, occupational health and safety and environmental issues:
• · establishment and maintenance of sound ethical standards; and
• · monitoring the Board's performance, shareholder communication and continuous disclosure.

continued

Corporate Reporting

The Chief Executive Officer and the Chief Financial Officer have made the following certifications to the Board for the year ended 30 September 2004:

• the Company's financial records and annual financial statements are in compliance with the Corporations Act and accounting standards;
• the financial records are complete and present a true and fair view, in all material respects, of the financial condition and operation of HGL Limited and the consolidated entity; and
• the above statements are founded on a sound system of internal control and risk management which implements the policies adopted by the Board and that the Company's risk management and internal control systems are operating efficiently and effectively in all material respects.

Monitoring of Board's performance, shareholder communication and continuous disclosure

The performance of the Board members is reviewed annually by the Chairman to ensure that the Board discharges its responsibilities.

The Board aims to ensure that shareholders, on whose behalf they act, are informed of all information necessary to assess the performance of the Company. Information is communicated to the shareholders through:

• compliance with Australian Stock Exchange reporting and disclosure requirements;
• the annual and interim reports; and
• the Annual General Meeting and any other meetings so called to obtain approval for Board action as appropriate.

The company secretary is responsible for communications with the Australian Stock Exchange. Details of the qualifications and experience of the company secretaries are included in the directors' report.

Audit Committee

It is the Board's ultimate responsibility to ensure that effective internal controls exist within the consolidated entity. To this end the Board established an Audit Committee. As at the date of this report, the Committee consisted of the following non-Executive Directors:

FM Wolf (Chairman) ID Constable PG Miller

The Chairman of this committee is an independent director. Committee meetings are usually held four times a year.

The functions of the Committee are to:

• consider the half yearly and annual financial reports before they are approved by the Board;
• · ensure the effectiveness of management information systems and systems of internal control;
• review the appointment of the external auditors, the terms of their engagement, the scope and quality of the audit and the auditor's independence;
• · establish and maintain the framework of internal control;
• · ensure compliance with statutory, Australian Stock Exchange and other reporting requirements;
• · review corporate governance compliance; and
• review the implementation of International Financial Reporting Standards.

The Audit Committee generally invites the Chief Executive Officer, Chief Financial Officer, Company Secretary and external auditors to attend Audit Committee meetings.

The external auditors can meet privately with the committee. The partner managing the audit was appointed in March 2001 and will be rotated after a maximum of five years. It is the policy of the external auditors to provide an annual declaration of their independence to the Committee.

cantinued

Nomination and Remuneration Committee

The Company also has a Nomination and Remuneration Committee. This Committee was established on 27 April 2004 following the effective merger of the Nomination Committee and the separate Remuneration Committee. As at the date of this report the Committee consisted of the following Directors:

PG Miller (Chairman) - appointed 27 April 2004

KJ Eley - appointed 27 April 2004

The primary functions of the Nomination and Remuneration Committee are to review:

• . the composition of the Board on a regular basis and make recommendations to the Board, when considered necessary, to ensure that the Board comprises a majority of non-Executive Directors with the appropriate mix of skills and experience; and
• . the remuneration packages of all Directors, the Chief Executive and senior HGL managers on an annual basis and make recommendations to the Board.

Remuneration packages are reviewed with due regard to performance and other relevant factors. In order to retain and attract executives of sufficient calibre to facilitate the effective and efficient management of the Company's operations the Committee, when necessary, seeks the advice of external advisers in connection with the structure of remuneration packages.

Packages contain the following key elements:

• a) salary/fees;
• b) benefits including the provision of motor vehicles, subscriptions and superannuation;
• c) performance related incentives; and
• d) employee share scheme.

Risk assessment and management

The Board is responsible for ensuring the risk management systems are effective. The Board has sole discretion to approve each proposed business acquisition. Proposed new business acquisitions are analysed by management, this includes a risk assessment and extensive due diligence. Businesses that meet the Company's return and risk parameters are presented in a formal proposal document to the Board for consideration.

Independent professional advice

All Directors have the right to seek independent legal and financial advice, at the expense of the Company, concerning any aspect of the consolidated entity's operations or undertakings. However, prior approval of the Chairman is required, which is not unreasonably withheld.

Share trading policy

The Company does not have trading windows, Directors and employees of the Company are permitted to deal in the securities of the Company at any time, subject to the insider trading provisions of the Corporations Act. The insider trading provisions of the Corporations Act have been drawn to the attention of all Directors and employees of the Company. Prior to dealing in HGL shares Directors and employees must notify the Chairman of the number of shares involved, the proposed date of the transaction and whether it is a sale or a purchase. The Directors and employees must consider any views expressed by the Chairman. Notification to the Chairman does not constitute approval. It is the responsibility of the person dealing in the HGL shares to ensure it does not constitute insider trading and to ensure the proposed dealing preserves the reputation of each of HGL, the Directors and employees and is not only fair but seen to be fair. Dealings of the Chairman must be notified to the Chairman of the Audit Committee. The share trading policy relates not only to those HGL shares held directly but also to HGL shares where the Director or employee of HGL has in substance, rather than form, the ability or power, whether direct or indirect, to dominate the decision about the trading of HGL shares.

STATEMENT OF FINANCIAL PERFORMANCE

for the Financial Year ended 30 September 2004

	Note		Consolidated		Company
		2004$'000	2003$'000	2004$'000	2003$'000
Revenue from ordinary activities	2	123.083	116,233	48,132	9,907
Share of associates' profit		333	216
Change in inventories of finished goods and work in progress		(1,637)	(3,941)
Raw materials and consumables used		(54,772)	(45, 402)
Employee benefits expense		(26, 741)	(21, 919)	(1,600)	(2, 552)
Cost of disposal of listed securities		(1,666)	(12, 421)		(71)
Cost of disposal of associate		(218)
Diminution in value of controlled entities				(13, 179)
Provision against loan to controlled entity				(3, 840)
Freight, packaging and distribution expense		(2,793)	(2,750)
Depreciation and amortisation expense		(1,490)	(1,523)	(43)	(39)
Advertising and marketing expense		(2,322)	(2,227)
Goodwill amortisation expense		(606)	(336)	44
Operating lease expense		(2, 448)	(2,080)	(111)	(106)
Borrowing costs		(422)	(825)	(815)	(1,732)
Other expenses from ordinary activities		(9,609)	(8, 152)	(1,604)	(1,067)
Profit from ordinary activities before income tax expense	2	18,692	14,873	26,940	4,340
Income tax (expense)/benefit relating to ordinary activities	4	(5,087)	(2,204)	(4,597)	299
Profit from ordinary activities after related income
tax expense		13,605	12,669	22,343	4,639
Net profit attributable to outside equity interests		(3,072)	(2,731)
Net profit attributable to members of HGL Limited		10,533	9,938	22,343	4,639
Increase/(decrease) in foreign currency translation reserve
arising on translation of self-sustaining foreign operations	18	180	(184)
Total revenue, expense and valuation adjustments attributable
to members of HGL Limited recognised directly in equity		180	(184)
Total changes in equity other than those resulting fromtransactions with owners as owners		10,713	9.754	22,343	4.639
Earnings per share based on profit after income tax		cents	cents
attributable to the members of HGL Limited		21.35	21.21
Weighted average number of ordinary shares on issue used
in the calculation of earnings per share		49, 342, 433 46, 863, 600
The diluted earnings per share is the same as basic earnings
per share as the Company does not have any potential
ordinary shares on issue.
No adjustments have been made to the net profit attributable
to members of HGL Limited when calculating earnings per share.

Notes to the financial statements are included on pages 24 to 51.

STATEMENT OF FINANCIAL POSITION

as at 30 September 2004

	Note		Consolidated		Company
		2004$'000	2003$'000	2004$'000	2003$'000
Current Assets
Cash assets		11,763	11,464	6,395	7,907
Receivables	5	23,097	23,723	2,037	1,165
Other financial assets	9	226	130	38,679	37,284
Inventories	6	42,401	33,931	up.
Current tax assets	7	1,465	1,815	556	330
Total Current Assets		78,952	71,063	47,667	46,686
Non-current Assets
Investments accounted for using the equity method	8	5,088	2,047	346
Other financial assets	9	8,262	3,730	17,748	25,913
Property, plant and equipment	10	7,965	7,830	120	164
Intangibles	11	9.541	10,253
Total Non-current Assets		30,856	23,860	18,214	26,077
Total Assets		109,808	94,923	65,881	72,763
Current Liabilities
Payables	12	18,069	20,213	1,445	1,788
Interest bearing liabilities	13	615	913	2,017	36,897
Current tax liabilities	14	859	1,401	541
Provisions	15 and 16	1,438	1,429	143	119
Total Current Liabilities		20,981	23,956	4,146	38,804
Non-current Liabilities
Interest bearing liabilities	13	3,552	1,873
Deferred tax liabilities	14	3,859	2,095	3,798
Provisions	15 and 16	1,284	1,255	179	160
Total Non-current Liabilities		8,695	5,223	3,977	160
Total Liabilities		29,676	29,179	8,123	38,964
Net Assets		80,132	65,744	57,758	33,799
Equity
Contributed equity	17	34,547	28,721	34,547	28,721
Reserves	18	(181)	(250)	$\overline{\phantom{a}}$	111.
Retained profits	19	33,112	26,678	23,211	4,967
HGL Limited equity interest		67,478	55,149	57,758	33,799
Outside equity interest
Contributed equity		4,724	4,724
Reserves		169	169
Retained profits		7,761	5,702
Outside equity interests in controlled entities		12,654	10,595	u.
Total equity		80,132	65,744	57,758	33,799

Notes to the financial statements are included on pages 24 to 51.

STATEMENT OF CASH FLOWS

for the Financial Year ended 30 September 2004

	Note		Consolidated		Company
		2004$'000	2003$'000	2004$'000	2003$'000
Cash flows from operating activities
Receipts from customers		119,092	97,030	1,990	3,172
Payments to suppliers and employees		(108, 770)	(89, 719)	(3,936)	(2, 972)
Dividends received		1,127	3,822	563	5,139
Income tax paid		(3,353)	(1,581)	(626)	(31)
Interest received		796	465	2,909	1,398
Interest paid		(423)	(825)	(815)	(1, 732)
Net cash inflow from operating activities	32	8,469	9,192	85	4,974
Cash flows from investing activities
Payment for purchase of property, plant and equipment		(2,207)	(2,296)	(1)	(47)
Proceeds from sale of property, plant and equipment		3,623	580	ı.	1
Proceeds from sale of controlled entity	25	i.	1,863	ı.
Payment for purchase of listed securities		(2,312)	(2,895)	ш,	(180)
Payment for purchase of associate		(3,028)	(1,952)	Ĩ.
Proceeds from partial sale of associate	8	300
Payment for purchase of controlled entities	26	(3,023)	(12, 301)
Proceeds from sale of listed securities		2,469	16,289	÷	91
Loan to controlled entities				(4,575)	(16,210)
Loan repaid by controlled entities		4a		7,212	13,028
Loan to other entities		(467)	(588)	(757)	(523)
Loan repaid by other entities		88	333	54	204
Net cash inflow/(outflow) from investing activities		(4,557)	(967)	1,933	(3,636)
Cash flows from financing activities
Payment for share buy back			(41)		(41)
Proceeds from borrowings		1.470	8.589	÷	10.191
Repayment of borrowings		(404)	(9,392)	(196)	(427)
Dividends paid
Members of the parent entity		(3,334)	(3,997)	(3,334)	(3,997)
Outside equity interests		(1, 345)	(1,095)
Net cash inflow/(outflow) from financing activities		(3,613)	(5,936)	(3,530)	5,726
Net increase in cash held		299	2,289	(1, 512)	7.064
Cash at the beginning of the financial year		11,464	9.175	7,907	843
Cash at the end of the financial year		11,763	11,464	6,395	7,907

Notes to the financial statements are included on pages 24 to 51.

for the Financial Year ended 30 September 2004

1 - Summary of significant accounting policies

The principal accounting policies adopted by HGL Limited and its controlled entities are stated to assist in a general understanding of this financial report. These policies have been consistently applied by the consolidated entity except as otherwise indicated

(a) Basis of accounting

This financial report being a general purpose financial report, has been prepared on the basis of historical costs and except where stated, does not take into account current valuations of non-current assets.

The financial report has been prepared in accordance with the Corporations Act 2001, applicable Accounting Standards and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views).

(b) Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all entities controlled by HGL Limited (Company) as at 30 September 2004 and the results of all controlled entities for the year then ended. The Company and its controlled entities together are referred to in these financial statements as the "consolidated entity". The effects of all transactions between entities included in the consolidated financial statements are eliminated in full.

Outside interests in the results and equity of controlled entities are shown separately in the consolidated statement of financial performance and statement of financial position respectively.

Where controlled entities are acquired, their results are included only from the date control commenced. For controlled entities disposed of, their results are included up to the date control ceased.

(c) Goodwill

Goodwill on consolidation is recorded at the amount by which the cost of the investment in a controlled entity exceeds the fair value of its identifiable net assets at the date of acquisition.

Goodwill is amortised by systematic charges against income over the appropriate period in which benefits are expected to be received, being twenty years. The period over which goodwill is amortised is subject to annual review.

(d) Investments

The consolidated entity's interests in listed and unlisted securities, including its controlled entities, are carried at cost where the intention is for these to be long term holdings, Income is recognised in the statement of financial performance on an accruals basis.

The equity method of accounting for investments in associates has been applied in the consolidated financial statements and the cost method has been applied in the Company's financial statements.

(e) Inventories

Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials, direct labour and an appropriate portion of overheads. Cost is based on a weighted average cost, Listed securities that have previously been or are currently short term trading interests are marked to market.

(f) Land and buildings

Land and Buildings are measured at cost. The consolidated entity obtains a current valuation, for disclosure purposes, for its interests in land and buildings, periodically at intervals not exceeding three years. Note 10 discloses details of the most recent valuations.

(g) Depreciation and amortisation

Buildings are depreciated over their estimated useful lives using the straight-line method. Items of plant and equipment are depreciated over their estimated useful lives using the reducing-balance method.

The following estimated useful lives are used in the calculation of depreciation and amortisation: Buildings -40 years, Plant and equipment - 3 to 10 years; and Leased plant and equipment - 3 to 5 years.

(h) Leased assets

Operating lease payments, where the lessor effectively retains substantially all the risks and benefits incidental to ownership of the leased items, are charged to the statement. of financial performance in the period in which they are incurred.

Finance leases, which effectively transfer to the consolidated entity substantially all the risks and benefits incidental to ownership of leased items, are capitalised at the present value of the minimum lease payments, disclosed as property, plant and equipment, and amortised over the period during which the consolidated entity is expected to benefit from use of the leased assets.

for the Financial Year ended 30 September 2004 continued

(i) Employee benefits

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 are capable of being measured reliably. Employee entitlements expected to be settled within 12 months are measured at their nominal values using the remuneration rate expected to apply at time of settlement. Long service leave provisions, 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 consolidated entity in respect of services provided by employees up to the reporting date.

(i) Revenue

Service contract revenue is brought to account by reference to the stage of completion of the contract. Amounts received and receivable in relation to the unexpired period of contracts at year end are treated as deferred revenue. Revenue from the sale of goods and disposal of other assets is recognised when the consolidated entity has passed control of the goods or other assets to the buyer.

(k) General hedging transactions

Any costs or gains arising at the inception of a hedge are accounted for separately from the exchange differences on the hedging transactions. The costs or gains are deferred and recognised as assets or liabilities on entering the hedging transactions and amortised as expenses or revenues in net profit or loss over the lives of the hedging transactions.

Hedging specific commitments

In relation to transactions intended to hedge specific purchases or sales.

• (i) costs or gains arising at the time of entering into the transactions; and
• (ii) exchange differences, to the extent that they arise up to the dates of purchase or sale, are deferred and included in the measurement of the purchase or sale.

(I) Foreign currency transactions

Foreign currency transactions are translated into Australian currency at the rate of exchange at the date of the transaction. Amounts receivable or payable in foreign currencies are translated at the rates of exchange ruling at balance date. Resulting exchange differences are brought to account in determining the profit for the year, except that exchange differences on transactions entered into in order to hedge the purchase or sale of specific goods and services are deferred and included in the measurement of the purchase or sale.

Translation of foreign controlled entities

For investments in self-sustaining foreign operations, the assets and liabilities are translated into Australian currency at rates of exchange current at balance date, while their revenue and expenses are translated at the average rates. ruling during the year. Exchange differences arising on translation are taken directly to the foreign currency translation reserve.

(m) Income tax

income tax has been brought to account using the liability method of tax-effect accounting. Income tax expense has been calculated on pre-tax accounting profits after adjustment for permanent differences. The tax effect of certain timing differences, which occur when items are included or allowed for income tax purposes in a period different to that for accounting, is shown at current taxation rates in provision for deferred income tax and future income tax benefit, as applicable.

The future income tax benefit relating to tax losses is not carried forward as an asset unless the benefit can be regarded as being virtually certain of realisation.

(n) Derivative financial instruments

The consolidated entity enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risk, including forward foreign exchange contracts. Further details of derivative financial instruments are disclosed in Note 30 to the financial statements.

Foreign exchange contracts

Exchange differences on forward foreign exchange contracts to hedge the purchase or sale of specific goods and services are deferred and included in the measurement of the purchase or sale.

In the event of the early termination of a foreign currency hedge or an anticipated purchase or sale of goods and services, the deferred gains and losses that arose on the foreign exchange contract prior to its termination are:

• (i) deferred and included in the measurement of the purchase or sale when it takes place, where the anticipated transaction is still expected to occur, or
• (ii) recognised in the statement of financial performance at the date of termination, if the anticipated transaction is no longer expected to occur.

for the Financial Year ended 30 September 2004 continued

(o) Receivables

Trade receivables and other receivables are recorded at amounts due less any allowance for doubtful debts,

(p) Accounts payable

Trade payables and other accounts payable are recognised when the consolidated entity becomes obliged to make future payments resulting from the purchase of goods and services

(q) Interest bearing liabilities

Bank loans and other loans are recorded at an amount equal to the net proceeds received. Interest expense is recognised on an accruals basis.

(r) Financial instruments issued by the consolidated entity

Debt and equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement.

Interest and dividends

Interest and dividends are classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments.

(s) Cash

For purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on hand and which are used in the cash management function on a day-to-day basis, net of outstanding bank overdrafts.

(t) Recoverable amount of non-current assets

Non-current assets are written down to recoverable amounts where the carrying value of any non-current asset exceeds its recoverable amount. Recoverable amount is determined as the present value of the amount expected to be recovered through the cash inflows and outflows arising from the continued use and subsequent disposal of the noncurrent asset.

(u) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

• (i) where the amount of GST incurred is not recoverable from the taxation authority; and
• (ii) for receivables and payables which are recognised exclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

Cash flows are included in the statement of cash flows on a gross basis. 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.

(v) Provisions

Provisions are recognised when the consolidated entity has a present obligation, the future sacrifice of economic benefits is probable and the amount of the provision can be measured reliably. 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 probable that recovery will be received and the amount of the receivable can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value of those cashflows.

(w) Changes in accounting policies

In accordance with Accounting Standard AASB 1046 'Directors and Executives Disclosures by Disclosing Entities', the consolidated entity changed its policy for disclosing the remuneration of directors and specified executives. Under the new policy for each specified director and a minimum of 5 specified executives the name of the individual, the position held and the remuneration package is to be disclosed. As this is the first year of compliance it is not necessary to provide comparative information.

In accordance with AASB 1017 Related Party Disclosures' comparative amounts have been reclassified in order to comply with the presentation format.

The reclassification of comparative amounts has not resulted in a change to the aggregate amounts of current or non current assets, or equity or the net profit of the company or consolidated entity as reported in the prior year financial report.

for the Financial Year ended 30 September 2004 continued

		Consolidated		Company
	2004$'000	2003$'000	2004$'000	2003$'000
2 – Profit from ordinary activities
Profit from ordinary activities before income tax includesthe following items of revenue and expense:
a) Operating Revenue
Sales revenue - sale of goods	108,526	90,131
Dividends:
Wholly owned controlled entities			18,517	5,000
Partly owned controlled entities			626	243.
Other entities	696	3,025	20	1
interest:
Wholly owned controlled entities			132	927
Partly owned controlled entities			2,198	303.
Associates		2	ш,
Other entities	543	408	326	112
Employee Share Scheme:
Director and director-related entities	134	43	134	43
Specified executives	124	12	124	12
Proceeds from sale of property, plant and equipment	1.066	3,481		1
Proceeds from part sale of associate	300
Proceeds from sale of business	306		306
Proceeds from sale of listed securities	2.464	16,640	L.	91
Foreign exchange gain	757.	553	ши
Marking to market of listed securitiesNet income from MMC Contrarian Limited	6,009685	918	ш685
Waiver of loans from controlled entities	ш.		23,507
Investment, corporate head office and other income	1,473	1,020	1,557	3,174
Total		116,233	48,132	9,907
	123,083
All revenue is derived from operating activities.
b) Expenses
Cost of sales	56,409	49.343
Borrowing costs:
interest:
Wholly owned controlled entities			715	1,680
Partly owned controlled entities			91	25
Directors and director-related entities		2		2
Associates	44	33	÷,
Other entities	275	685	9	25
Finance charges relating to finance leases	103	105	÷
	422	825	815	1,732

for the Financial Year ended 30 September 2004 continued

	Consolidated		Company
	2004$'000	2003$'000	2004$'000	2003$'000
2 - Profit from ordinary activities (continued)
b) Expenses (continued)
Amortisation:
Agency agreement	7	7
Goodwill	606	336	$\overline{\phantom{a}}$
	613	343	$\overline{\phantom{a}}$
Depreciation:
Buildings	66	36	u.
Leased plant and equipment	387	359	u.
Leasehold improvements	140	161	5	5
Plant and equipment	890	960	38	34
	1,483	1,516	43	39
Doubtful debts arising from:
Other entities	55	63
Movement in Provisions:
Employee entitlements	38	3	43	50
Inventory write downs and other losses	1,199	798	u.
	1,292	864	43	50
Operating lease expenses:
Minimum lease payments	2,448	2,080	111	106
3 - Sale of Assets
Sale of assets in the ordinary course of business have
given rise to the following profits and losses:
Profit/(loss) on sale of property, plant and equipment	25	644	(2)	1
Profit on part sale of associate	82
Profit on sale of business	189	104	189
Profit on sale of listed securities	798	4,219		20

for the Financial Year ended 30 September 2004 continued

		Consolidated	Company
	2004$'000	2003$'000	2004$'000	2003$′000
4 - Income Tax
The prima facie income tax expense on pre-tax accountingprofit reconciles to the income tax expense in the financialstatements as follows:
Prima facie income tax expense on the operating profit at 30%(2003:30%)	5,608	4.462	8,082	1.302
Tax effect of permanent differences:
Rebatable dividends	(344)	(1,265)	(194)	(1,573)
Tax rate differential relating to overseas controlled entities	61	72
Equity share of associates' (profit)	(100)	(65)
Diminution in value of subsidiaries	سد		5.106
Prior year tax losses booked	$\overline{\phantom{a}}$	(1,092)
Utilisation of prior year unbooked future income tax benefit	(271)	(90)	ı.	(30)
Amortisation of intangibles	184	103
Amortisation and depreciation on buildings	20	10	1	1
Non-allowable expenses	23	12	5	1
Prior year (over)/underprovision	(94)	57
Impact of the tax consolidation system:
Initial recognition of deferred tax balances of subsidiaries
on implementation of the tax consolidation system			58
Consideration paid or payable to/from subsidiaries in respect
of transferred deferred tax balances			(142)
Current and deferred taxes relating to transactions, events and
balances of wholly-owned subsidiaries in the tax consolidated group			2.798
Non-assessable and non-deductible amounts related to
transactions within the tax consolidated group			(11, 117)
Income tax expense/(benefit) relating to ordinary activities	5,087	2,204	4,597	(299)

Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to consolidate and be treated as a single entity for income tax purposes was substantively enacted on 21 October 2002. The company and its wholly-owned Australian resident entities are eligible to consolidate for tax purposes under this legislation and have elected to be taxed as a single entity from 1 October 2002. The head entity within the tax-consolidated group for the purposes of the tax consolidation system is HGL Limited. No tax sharing agreements have been entered into between the head entity and any wholly-owned subsidiaries.

for the Financial Year ended 30 September 2004 continued

		Consolidated		Company
	2004$'000	2003$'000	2004$'000	2003$'000
5-Receivables
Current
Trade receivables	19,353	18,206
Less: Allowance for doubtful debts	(477)	(420)
	18,876	17,786	шL,
Other debtors and prepayments	2.145	4,111	595	209
Foreign currency hedge receivable	634	870
Loan to partnership	1,442	956	1,442	956
	23,097	23,723	2,037	1,165
6-Inventories
Current
Listed securities - at cost	5.485	4.626
Mark to market increment	12,640	6,728	u.
	18,125	11,354	ш.
Raw materials - at cost	3,120	3,058
Work in progress - at cost	448	605
Finished goods at net realisable value	20,708	18,914
	42,401	33,931	u.
7-Current Tax Assets
Future income tax benefit attributable to:
Parent entity	400	330	400	330
Entities in the tax consolidated group	156		156
Other entities not in the tax consolidated group	909	1,485	u.
	1,465	1,815	556	330

The future income tax benefit comprises short-term timing differences relating to the differing accounting and taxation treatment of expenses and provisions.

The Directors estimate that the potential income tax benefit at 30 September 2004 in respect of past tax losses not brought to account is $nil (2003: $449,000).

Timing differences, the benefits of which are not assured beyond any reasonable doubt, not brought to account are $20,000 (2003: $50,000).

The income tax benefit will only be obtained if:

• (a) the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses and timing differences to be realised;
• (b) the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation; and
• (c) no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deductions for the losses or timing differences.

for the Financial Year ended 30 September 2004 continued

8 - Investments Accounted for Using the Equity Method

		Ownership interestConsolidated			Carrying AmountConsolidated	Carrying AmountCompany
Name of Entity	PrincipalActivity	2004₩	2003%	2004$'000	2003$'000	2004$'000	2003$'000
Charmant AustraliaPty Limited (i)	Optical FrameDistribution	25.0	25.0	154	180
MMC Asset Management Funds ManagerLimited (ii)		38.1	23.2	4.859	1.831	306
Other immaterial associates				5.01375	2.01136	30640
				5,088	2.047	346

(i) The reporting date of Charmant Australia Pty Limited is 31 December.

(ii) The reporting date of MMC Asset Management Limited is 30 June.

Equity accounted investments

Equity accounted amount of investment at the beginning of the
financial year	2.047	252
Share of profit from ordinary activities before income tax	586	312
Share of income tax	(253)	(96)
Share of dividend	(449)	(373)
Acquisition of additional interest in associates	3.375	1,952
Sale of interest in associates	(218)
Equity accounted amount of investment at the end of the financial year	5,088	2.047
Summarised financial position of material associates
Current assets
Cash	2,200	1.398
Receivables	1.545	1,247
Inventories	1.573	1,625
Current tax assets	133	86
Non-current assets
Receivables	73
Investments	60
Property, plant and equipment	303	260
Intangibles	765
Current liabilities
Payables	(1, 540)	(548)
Interest bearing liabilities	(1,331)	(1,631)
Current tax payables	(45)	236
Provisions	(115)	(48)
Non-current liabilities
Interest bearing liabilities	(18)	(78)
Provisions	(61)	(54)
Net assets	3.542	2.493
Net Profit	1.274	1.046

During the year 1.7% of MMC Asset Management Limited was sold to a member of its management team for cash proceeds of $300,000. This resulted in a profit of $82,000.

for the Financial Year ended 30 September 2004 continued

Note	Consolidated		Company
	2004$'000	2003$'000	2004$'000	2003$'000
	$\overline{\phantom{a}}$	$\overline{\phantom{a}}$	38,362	37,002
	226	130	317	282
	226	130	38.679	37,284

At 30 September 2004 HGL Limited has $17,806,000 (2003:$18,598,000) of interest bearing loans outstanding to import and distribution businesses. Interest charged on the loans during the year amounted to $2,315,000 (2003: $1,199,000).

Non-current
At cost:
Listed securities	1.891	2,021
Shares in controlled entities	-	-	11,377	24,556
Unlisted securities	$\overline{\phantom{a}}$	118	$\rightarrow$	118
Partnership investment at cost	50	402	50	50
	1.941	2.541	11.427	24,724
Interest bearing loans:
22Loan to Director	2,899	914	2,899	914
22Loan to employees	3,422	275	3,422	275
	6,321	1,189	6,321	1,189
	8.262	3,730	17.748	25.913

The market value of listed securities was $8,104,000 (2003: $3,327,000) to the consolidated entity at 30 September 2004.

The Company has a 24.5% (2003: 24.5%) interest in Safilo Australia partnership which contributed $685,000 (2003: $321,000) to the after-tax profit of the consolidated entity for the year ended 30 September 2004. The principal activity of the partnership is the distribution of imported spectacle frames and sunglasses. From 1 January 2005 HGL's interest in the Safilo Australia partnership will fall from 24.5% to 19.5%. The consideration given to HGL for the reduction in its partnership interest was a deferral of the exercise date of the call option held by Safint, a wholly owned subsidiary of Safilo S.p.A., under which Safint can acquire all of HGL's interest in the Safilo Australia partnership. Following the deferral, the earliest date that the call option can now be exercised is 1 January 2010 and the amount payable to HGL on exercise of the call option would be 19.5% of the sum of:

• $4.412 million; and
• 60% of the average net profit before tax of the partnership for the five years prior to the date on which the call option is exercised.

for the Financial Year ended 30 September 2004 continued

	$L$ and $\delta r$Buildings*$'000	LeaseholdImprovements$'000	ConsolidatedPlant &Equipment$'000	Leased Plant &Equipment$'000	Total$'000
10 - Property, Plant and Equipment
Gross Carrying Amount
Balance at 30 September 2003	3,461	723.	4.785	2,269	11,238
Additions		117	1,349	1,009	2,475
DisposalsNet foreign currency exchange differences arising on			(1,230)	(1, 119)	(2, 349)
translation of financial statements of self-sustaining
foreign operations	154	21	103		278
Balance at 30 September 2004	3,615	861	5,007	2,159	11,642
Accumulated Depreciation
Balance at 30 September 2003	(161)	(467)	(1, 975)	(805)	(3,408)
Disposals			629	679	1,308
Depreciation expense	(66)	(140)	(890)	(387)	(1, 483)
Net foreign currency exchange differences arising on
translation of financial statements of self-sustainingforeign operations	(12)	(15)	(67)	u.	(94)
Balance at 30 September 2004	(239)	(622)	(2,303)	(513)	(3,677)
Net Book Value
As at 30 September 2004	3,376	239	2,704	1.646	7,965
As at 30 September 2003	3,300	256	2,810	1,464	7,830
	$L$ and $\delta$	Leasehold	CompanyPlant &	Leased Plant &
	Buildings*	Improvements	Equipment	Equipment	Total
	$'000	$'000	$'000	$'000	$'000
Gross Carrying Amount
Balance at 30 September 2003		171	340	u.	511
AdditionsDisposals	u.	ш.	1(201)		1(201)
	u.	171	140	u.	311
Balance at 30 September 2004
Accumulated Depreciation
Balance at 30 September 2003Disposals	u.	(131)	(216)199	u.	(347)199
Depreciation expense	u.	(5)	(38)	÷	(43)
Balance at 30 September 2004	u.	(136)	(55)	÷	(191)
Net book value
As at 30 September 2004		35	85	÷	120
As at 30 September 2003	-	40	124	-	164

Current values based on independent valuations made by Bristow Barbour & Walker Ltd (SL Doyle, ANZPI, B. Prop) inSeptember 2003, of interests in land and buildings, were $2,149,000 compared to a written down value of $1,3 In June 2003 Fitzroys Pty Limited (CB Mason AAPI) and Carritt Taylor Valuations Pty Limited (C Taylor FAPI) carried out the independent valuation of the interests in land and buildings relating to the Thalgo acquisition. The property was valued at $2,095,000 compared to a written down value of $2,065,000.

Aggregate depreciation allocated during the year is recognised as an expense and disclosed in note 2 to the financial statements.

for the Financial Year ended 30 September 2004 continued

	Note	Consolidated		Company
		2004$'000	2003$'000	2004$'000	2003$'000
11 - Intangibles
Agency agreement - at cost		136	136
Less: Accumulated amortisation		(98)	(92)
		38	44	u.
Goodwill		11,385	11,427
Less: Accumulated amortisation		(1, 882)	(1,218)	u.
		9,503	10,209	÷.
		9,541	10,253	ш.
12 - Payables
Trade payables and accruals		16,845	15,769	1.432	1,779
Foreign currency hedge payable		634	870
Goods and services tax (GST) payable		590	398	13	9
Deferred consideration	26	ш.	3,176	ш.
		18,069	20,213	1,445	1,788
13 - Interest bearing liabilities
Current (unsecured)
Loan from controlled entities				2,017	36,822
Other borrowings		ı.	75		75
		ш.	75	2,017	36.897
Current (secured)
Lease liabilities**	20	615ш,	638
Other borrowings***			200
		615	838	u.
		615	913	2,017	36,897
Non-current (secured)Bank loans*	31	2,499
Lease liabilities**	20	1,053	1,158715	u.
		3,552	1,873	$\overline{\phantom{a}}$

Bank facilities are secured by a mortgage over properties. $\ast$

** Lease liabilities are secured by the respective assets acquired.

*** Second registered mortgage charge over the assets of Mountcastle Pty Ltd.

14 - Tax liabilities

Current income tax liabilities
Parent entity	302	$\overline{\phantom{a}}$	302	$\overline{\phantom{0}}$
Entities in the tax consolidated group	-239	1.028	239
Other entities not in the tax consolidated group	318	373	SALE
	859	1.401	541

for the Financial Year ended 30 September 2004 continued

Note		Consolidated		Company
	2004$'000	2003$'000	2004$'000	2003$'000
14 - Tax liabilities (continued)
Non-current deferred tax liabilities
Parent entity			يبد
Entities in the tax consolidated group	3,798	2,033	3,798
Other entities not in the tax consolidated group	61	62
	3,859	2.095	3,798
15 - Provisions
Dividend
Balance at 30 September 2003		2,997		2,795
Adjustment to retained profits on initial application of AASB 1044		(2,997)	$\ddot{}$	(2,795)
Additional provisions recognised	4,210	2,997	4,210	2,795
Reductions arising from payments	(4,210)	(2,997)	(4,210)	(2,795)
Balance at 30 September 2004

The provision for dividends represents the aggregate amount of dividends declared, determined or publicly recommended on or before the reporting date, which remain undistributed as at reporting date, regardless of the extent to which they are expected to be paid in cash.

16 - Employee Benefits

Provision for employee benefits
Current	1.438	1,429	143	119
Non-current	1.284	1,255	179	160
	2.722	2.684	322	279
Employee numbers	Number	Number	Number	Number
Number of employees at end of financial year	465	433	10	10

17 - Contributed equity

issued share capital
50,443,301 (2003: 47,212,767) fully paid ordinary shares	34.547	28.721	34.547	28.721
		Consolidated		Consolidated
	2004Number	2004$'000	2003Number	2003$'000
During the year the following changes occurred in fully paid shares:
Balance at beginning of financial year	47,212,767	28,721	46,582,668	27.994
Allotted pursuant to HGL Dividend Reinvestment Plan	530.534	876	664.081	768
22Issue of Shares	2.700.000	4,950
Cancellation of capital pursuant to the on-market share buy-back*			(33,982)	(41)
Balance at end of financial year	50,443.301	34.547	47,212,767	28,721

for the Financial Year ended 30 September 2004 continued

17 - Contributed equity (continued)

$\ast$ The company currently operates an on-market share buy-back under which it can purchase 4,721,276 of its shares. The buy-back will be renewed for a further six months on 14 January 2005. During the year no ordinary shares were purchased pursuant to the on-market share buy-back.

Under the HGL Employee Share Scheme (Scheme) there were 1,799,999 shares issued at $1.9256 which are subject to conditions that have not yet been satisfied. Note 22 contains the details of the Scheme.

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Details of the HGL Dividend Reinvestment Plan are disclosed in the Shareholder Information on page 55.

18 - Reserves

	Note		Consolidated	Company
		2004$'000	2003$'000	2004$'000	2003$'000
Asset realisation reserve			96		96
Asset revaluation reserve			15	m.	15
Foreign currency translation reserve		(181)	(361)	$\overline{\phantom{a}}$
		(181)	(250)	÷	111
Asset realisation reserve
Opening balance		96	96	96	96
Transfer of asset realisation reserve to retained profits	19	(96)	$\overline{\phantom{0}}$	(96)
Closing balance			96	$\overline{\phantom{a}}$	96
Asset revaluation reserve
Opening balance		15	15	15	15
Transfer of asset revaluation reserve to retained profits	19	(15)		(15)
Closing balance			15	$\overline{\phantom{a}}$	15
Foreign currency translation reserve
Opening balance		(361)	(177)
Translation of overseas controlled entities		180	(184)
Closing balance		(181)	(361)

The foreign currency translation reserve arises on the retranslation of the opening net assets of overseas subsidiaries, at year end rates of exchange.

19 - Retained profits

Balance at beginning of financial year		26.678	18.710	4.967	2,298
Write-back of prior year dividend provision		$\ddot{}$	2.997	$\overline{\phantom{a}}$	2.795
Net profit		10.533	9.938	22.343	4,639
Transfer of asset realisation reserve	18	96		96	$\overline{\phantom{a}}$
Transfer of asset revaluation reserve	18	15		15
Dividends provided for or paid	24	(4.210)	(4.967)	(4.210)	(4, 765)
Balance at end of financial year		33,112	26.678	23.211	4,967

for the Financial Year ended 30 September 2004 continued

	Note		Consolidated	Company
		2004$'000	2003$'000	2004$'000	2003$'000
20-Lease Commitments
Finance leasesPlant and equipment		1,849	1,482
Payable not later than one year		639	689
Payable later than one, not later than five years		1,210	793
		1.849	1,482
Less: Future finance charges		(181)	(129)
Provided for in the financial statements		1,668	1,353
Representing lease liabilities:
Current	13	615	638
Non-current	13	1,053	715
		1,668	1,353

The finance leases are for motor vehicles for employees. The leases expire at various future dates up to five years.

Aggregate lease expenditure contracted for at balance date but not provided for in the financial statements:

Operating leases
Land and buildings	9.542	5,922	158	269
Motor vehicles	275	47	-
	9.817	5.969	158	269
Payable not later than one year	2.641	2.062	111	108
Payable later than one, not later than five years	7.176	3.907	47	161
	9.817	5,969	158	269

The land and building operating leases are in respect of warehouses and offices occupied by group companies. The leases expire at various future dates and a number contain option provisions.

21 - Directors' and Executives' Remuneration

The director and executive information has been prepared in accordance with AASB 1046 'Directors and Executives Disclosures by Disclosing Entities'. The standard requires remuneration details to be disclosed for each specified director and specified executive of the consolidated entity. A specified executive is determined on the basis of those, excluding directors, whom have the greatest authority for managing the consolidated entity.

Non executive Directors are remunerated by fees with the aggregate limit approved by shareholders from time to time. Currently, the aggregate amount of Director's fees will not exceed $300,000 per annum. Directors' fees can be paid as superannuation contributions. The Nomination and Remuneration Committee recommends to the Board the remuneration framework for Directors and the Board as a whole determines the nature and amount of emoluments of non-executive Directors within the limit approved by shareholders.

The consolidated entity's executive remuneration strategy seeks to match the goals of executives to those of the shareholders. This is effected through combining conservative levels of guaranteed remuneration with attractive incentive payments. These incentive payments are only paid on attainment of previously agreed performance targets.

Performance related incentives for HGL executives are determined in accordance with the HGL Bonus Scheme which was established for all participants from 1 October 2003 and will operate for the three years to September 2006. The HGL Bonus Scheme is summarised as follows:

21 - Directors' and Executives' Remuneration (continued)

20% of the profit after tax and minorities before revaluations and capital gains above a hurdle is paid into the bonus pool; the hurdles are 2004: $5.0 million, 2005: $5.5 million and 2006: the lower of $6.05 million or the profit after tax and minorities before revaluations and capital gains for 2005. The 2006 profits will be adjusted to eliminate all the effects of the adoption of International Financial Reporting Standards. In addition 2% of the profit after tax and minorities from revaluations and capital gains are paid into the bonus pool. For 2004 the profit after tax and minorities before revaluations and capital gains was $5.6 million and the after tax revaluations and capital gains were $4.9 million, together this produced a bonus pool of $215,151. The bonus pool is allocated to the HGL executives in the following proportions, Kevin Eley 40%, Michael Mahoney 29%, Andrew Whittles 19% and Peter Caldelis 12%. The incentives are paid to the HGL executives in December each year. Incentive payments are capped at 100% of the executive's fixed package for the year.

No payments are to be made unless:

• The aggregate after tax return from businesses acquired in the preceding 2 years is greater than 10%;
• The return on shareholder funds is greater than 9%; and
• There are sufficient franking credits and cash to allow a dividend of no less than 66.6% of the hurdle profits to be fully franked.

The Directors believe the HGL Bonus Scheme and the Employee Share Scheme (see note 22) will motivate the HGL executives to achieve the long term goals of the corporate plan. Put simply, these goals are:

• Grow the profit after tax and minorities before revaluations and capital gains; and

• increase the investment in business, particularly import and distribution businesses, where the return is likely to exceed 20%. The specified directors of HGL Limited during the year were:

			Primary		Post Employment		Equity
Name	Office		PerformanceSalary/fees Incentive 2004	Benefits	Superannuation	Subtotal	Shares	Total
PG Miller	Chairman, non executive	72.800		-	7.200	80.000		80,000
KJ Eley	Chief Executive Officer	193.333	86.060	59,300	12,367	351,060	646.243	997,303
FM Wolf	Non executive	42.033		$\overline{\phantom{0}}$	967	43.000		43,000
	ID Constable Non executive	39.775		-	3.870	43.645		43,645
	MA Hershon* Non executive			┙

* MA Hershon resigned on 6 September 2004

The specified directors of HGL Limited during the year were:

		Primary			Post Employment		Equity
Name	Office		PerformanceSalary/fees Incentive 2004	Benefits	Superannuation	Subtotal	Shares	Total
MP Mahoney	HGL Operations Manager	169.511	62.394	600	25.888	258.393	454.305	712,698
AW Whittles	HGL Chief Financial Officer	119.501	40.879	768.	35.731	196.879	340.728	537,607
PS Caldelis	HGL Group Controller	95.452	25.818	18.835	8.713	148.818	170.364	319,182
R Morello	Joint CEO of SPOS	212,000		$\overline{\phantom{0}}$	18.000	230.000	-	230,000
M Farley	Joint CEO of SPOS	214,924		-	15.076	230.000		230,000

KJ Eley, MP Mahoney, AJ Whittles and PS Caldelis are employed on contracts with no fixed terms, their base salaries are reviewed annually by the Nomination and Remuneration Committee, their bonuses are calculated in accordance with the HGL Bonus Scheme and the payment of any termination benefit is at the discretion of the Nomination and Remuneration Committee. R Morello and M Farley are employed on contracts with 3 year terms. The base salaries are fixed for the terms of the contracts and there are no termination benefits. There are no contracts in place with the Directors of HGL Limited.

21 - Directors' and Executives' Remuneration (continued)

The amounts disclosed as equity are estimates of the possible value, over the next seven years, of the shares issued during the year to the executives under the Employee Share Scheme (Scheme). The 2005 and 2006 accounts will disclose additional equity amounts totalling $688,815 and $141,324 in respect of these shares. The acquisition of these shares is funded by non recourse loans from the Company to the executive. The amount disclosed as equity will never be paid to the executive by the Company. For more information on the Scheme see note 22.

As the Scheme shares and associated loans have similar characteristics to a call option the values have been estimated utilising the Black-Scholes model. There are many variables in the model however the key criteria affecting the value are the life of the non recourse loan and the volatility of the HGL share price. The directors have estimated the life of the non recourse loans to be seven years, being the earliest the company can demand repayment unless the executive dies or ceases to be an employee. The directors have estimated the volatility to be 28% being the actual volatility of HGL shares over the last seven years.

22 - Employee Share Scheme

The Directors believe it is important to link the remuneration of HGL's executives to the long term success of the Company by supporting the acquisition of shares through the Employee Share Scheme (Scheme). To support this aim the HGL Employee Share Scheme (1999) was amended following shareholder approval at the Annual General Meeting held on 20 January 2004. Under the terms of the Scheme, eligible employees may acquire HGL shares, with the cost being financed by a non-recourse, interest bearing loan from HGL. The amending of the Scheme resulted in $65,000 of expenses included in the current period. The Scheme is available to be viewed in full on the HGL website, www.hgl.com.au.

During the financial year the Company issued the following shares under the Scheme. On 1 December 2003 MP Mahoney was issued 266,667 shares, AJ Whittles 200,000 shares and PS Caldelis 100,000 shares at the market price of $1.69. On 5 February 2004 KJ Eley was issued 1,000,000 shares, MP Mahoney 533,333 shares, AJ Whittles 400,000 shares and PS Caldelis 200,000 shares at the market price of $1.9256. The issue of the shares was made in accordance with the terms of the Scheme and a loan (Scheme Loan) has been made to the participant at an amount equal to the issue price of the shares offered.

The amount repayable under the Scheme Loans in respect of the shares issued on 1 December 2003 and the first 333,334 shares issued to KJ Eley were reduced by 7.2% of the issue price. The reduction to the toans will not be available to the executive if their loan becomes repayable after they are dismissed without notice for serious misconduct. There is no discount on the interest charges. No loan reduction was applied to the balance of the shares issued to the executives under the Scheme.

The shares issued on 5 February 2004 to MP Mahoney, AJ Whittles and PS Caldelis and 666,666 of the shares issued to KJ Eley were issued subject to conditions designed to encourage the executives to remain with the Company. One half of the shares issued to each executive at this date are subject to the requirement that the executive remain employed by the Company until 5 February 2005 and the other half are subject to the condition that the executive remain employed by the Company until 5 February 2006.

Under the terms of the Scheme, the Scheme shares have the same rights as apply to the other shares of HGL, including rights to dividends and voting. If the Scheme Shares are subject to a condition that has not been satisfied the participant is unable to:

• elect to reinvest dividends under the dividend reinvestment plan (DRP); or

• repay any of the Scheme Loan

The interest rate on the Scheme Loans is equivalent to the dividend rate. The interest is required to be paid by the participant within 5 days of the receipt of a dividend. If the Scheme shares are free from any conditions and the participant elects to reinvest dividends using the DRP then the Company capitalises interest up to the amount reinvested. Any interest so capitalised will be added to the principal of the participants Scheme Loan and bear interest accordingly. In addition any benefit of franking credits must be paid by the participant to the Company.

Repayments are made on the last day of each calendar year. At this time an amount equal to the sum of franking credits received under the Scheme multiplied by one minus the top tax rate (including the Medicare levy) and profit from sales of any such shares shall be used in partial discharge of the Scheme Loan.

22 - Employee Share Scheme (continued)

No demand for repayment of the principal shall be made before the earliest to occur of:

• (a) The expiration of six months after the participant ceases, for any reason other than death, to be an employee of the Company or controlled entity;
• (b) The expiration of twelve months after death; and
• (c) the seventh anniversary of the making of the Scheme Loan.

If all the Scheme Shares have been sold, and the proceeds are insufficient to discharge the Scheme Loan, the participant has no further liability to repay the Scheme Loan and the amount outstanding is written off as an equity adjustment, there is no effect on the profit and loss. If a participant has more than one Scheme Loan each Scheme Loan is treated separately from any other Scheme Loan.

The Company retains a holding lock in respect of the Scheme shares registered in the name of the participant.

Summary of Share Loans and Scheme Shares movements during the financial year:

	Note	2004SchemeShares (No)	2004SchemeLoans ($'000)	2003SchemeShares (No)	2003SchemeLoans ($'000)
Balance at beginning of financial year		1,361,382	1.189	1,263,161	1.146
DRP participation and capitalised interest		110,118	182	112.655	55
Interest on Scheme Loans		-	76
Interest repaid on Scheme Loans			(76)
Shares issued during the year	17	2.700.000	4.950
Repayment of Scheme Shares				(14.434)	(12)
Balance at end of financial year	9	4.171.500	6.321	1,361,382	1.189

Details of Scheme Shares and Scheme Loans as at 30 September 2004

		Ki Elev			MP Mahoney			Al Whittles
	SchemeShares (No)	SchemeLoans ($)	Market Value30.09.04 ($)	SchemeShares (No)	SchemeLoans ($)	Market Value30.09.04 ($)	SchemeShares (No)	SchemeLoans ($)	Market Value30.09.04 ($)
Loan 1	699.543	616.124	1.364,109	242,957	215,311	473,766
Loan 2	416,396	389,871	811,972	74.561	86,026	145,394
Loan 3	341.374	609.653	665,679	280,786	441.468	547,533	210.589	331.100	410.649
Loan 4	333,333	641.866	649.999	266,666	513,492	519.999	200.000	385.120	390,000
Loan 5	333.333	641.866	649.999	266.667	513.494	520.001	200,000	385.120	390,000
	2,123,979	2,899,380	4.141.758	1.131.637	1.769.791	2,206,693	610,589	1.101.340	1,190,649

		PS Caldelis		Total
	SchemeShares (No)	SchemeLoans ($)	Market Value30.09.04 ($)	SchemeShares (No)	SchemeLoans ($)	Market Value30.09.04(5)
Loan 1			-	942,500	831.435	1,837,875
Loan 2			−	490,957	475.897	957,366
Loan 3	105.295	165,550	205,325	938.044	1.547.771	1.829.186
Loan 4	100.000	192,560	195,000	899.999	1,733,038	1.754.998
Loan 5	100.000	192.560	195,000	900.000	1.733.040	1,755,000
	305,295	550,670	595,325	4.171.500	6.321.181	8.134.425

The market value of HGL shares as at 30 September 2004 was $1.95 (2003: $1.60).

$\cdots$

22 - Employee Share Scheme (continued)

Details of Scheme Shares and Scheme Loans as at 30 September 2003

	KJ Elev			MP Mahoney			Total
	SchemeShares (No)	SchemeLoans ($)	Market Value30.09.04 ($)	SchemeShares (No)	Scheme$Loans({eta)$	Market Value30.09.04 ($)	SchemeShares (No)	Scheme$Loans({5)$	Market Value30.09.04(5)
Loan 1	664.821	558.907	1.063.714	230,740	195.195	369,184	895.561	754.102	1,432,898
Loan 2	395.010	354.691	632.016	70.811	79.852	113.298	465.821	434.543	745.314
	1.059.831	913.598	1.695.730	301.551	275,047	482.482	1.361.382	.188.645	2.178.212

The Scheme Shares and Scheme Loans outstanding at 30 September 2003 were issued pursuant to the HGL Limited Employee Share Scheme (1999). There are no conditions placed on these shares. These balances were calculated as follows:

• Under the 1999 Employee share scheme a loan of $543,000 (909,000 shares) was made to Kj Eley to enable repayment of the loan balances under the previous share scheme. To 30 September 2003 KJ Eley had been lent an additional $426,000 to purchase 356,000 shares and had repaid $55,000 (205,000 shares).
• Under the 1999 Employee share scheme a loan of $192,000 (283,000 shares) was made to MP Mahoney to enable repayment of the loan balances under the previous share scheme. To 30 September 2003 MP Mahoney had been lent an additional $127,000 to purchase 80,000 shares and had repaid $44,000 (61,000 shares).

23 - Auditors' Remuneration

		сопсоноатес	company
	2004	2003	2004	2003
Auditing the financial report
Company auditor	268,606	241,252	94,400	86,066
Other auditors	54,214	44.407	--
	322.820	285,659	94.400	86,066
Other services
Company auditor	142.450	143.997	96.950	109,847
Other auditors	16,528	9.257
	158,978	153.254	96.950	109.847

24 - Dividends - Company

	2004$'000	2003$'000
Ordinary Shares
Interim dividend paid 6 July 2004
4.2 cents 100% franked at 30% (2003: 4.2 cents 100% franked at 30%)	2.108	1.970
Final 2003 dividend paid 19 December 2003
4.4 cents 100% franked at 30%	2.102
Total dividends paid	4,210	1.970

Company

for the Financial Year ended 30 September 2004 continued

	2004$'000	2003.$'000
24 - Dividends - Company (continued)
Final dividend providedIn accordance with AASB 1044, HGL Limited has not provided for the final dividend.The final dividend of 4.8 cents 100% franked at 30% will be payable on 17 December 2004(2003: 4.4 cents 100% franked at 30%)
Dividends actually paid or satisfied by the issue of shares under the Dividend Reinvestment Planduring the year ended 30 September 2004 were as follows:
Paid in cash	3.334	3.997
Satisfied by issue of shares	876	768
Dividends actually paid	4.210	4.765
In accordance with Australian Tax Law the company maintains the franking account on a tax paid basis. The consolidated

Company

entity has $3,794,000 franking credits (2003: $4,220,000).

25 - Investment in Controlled Entities

	Country of	Equity Holding
	Incorporation/Formation	2004%	2003%
Company
HGL Limited	Australia
Import & Distribution Businesses
BLC Cosmetics Pty Limited (trading as Thalgo)	Australia	60	60
BOC Ophthalmic Instruments Unit Trust	Australia	50**	50
Createc Pty Limited (trading as Anitech)	Australia	50**	50
Hamion Pty Limited (trading as Sydney Point of Sale (SPOS))	Australia	100	100
The Point-of-Sale Centre (New Zealand) Ltd (SPOS)*	ΝZ	100	100
Kinsole Pty Limited (trading as XLN Fabrics)	Australia	50**	50
J Leutenegger Pty Limited	Australia	50**	50
Radda Pty Limited	Australia	50**	50
Mountcastle Pty Limited	Australia	50**	50
OP's Optical Products Unit Trust	Australia	50**	50
Aarque Graphics New Zealand Limited*	ΝZ	50**	50
Head Office Entities
HGL Company Six Pty Limited	Australia	100	100
HGL Group Pty Limited	Australia	100	100

• Controlled entities of which Deloitte Touche Tohmatsu has not acted as auditors.
• ** These entities are controlled by the Company as the Directors believe that the Company has the capacity to dominate decision making in relation to the financial and operating policies of the entity, in order to pursue the objectives of the Company.

Certain immaterial entities have not been disclosed in the above listing of controlled entities.

Sale of business

In December 2002 consideration of $1,500,000 was received on the disposal of 50% of AarqueAnitech Pty Ltd business sold in September 2002 and $363,000 was received when 4.5% of Aarque Graphics New Zealand Limited was sold to members of its management team.

26 - Acquisition of Businesses

On 3 April 2003 HGL acquired 100% of SPOS a supplier of price ticketing, shelf management systems, merchandising and promotional display products. HGL has introduced Mike Farley and Remy Morello as joint CEO's. Mike Farley is a sales and marketing business builder with approximately 30 years experience in Australia and the USA. Remy Morello, CPA, has over 30 years experience in finance and general management. HGL has structured SPOS so that the joint CEO's each have a 20% equity interest in the increase in value of SPOS if the value is crystalised by a sale or similar event.

On 1 July 2003 HGL acquired 60% of BLC Cosmetics. BLC is the Australian distributor of Thalgo products a worldwide brand of beauty and skin care products. HGL has introduced Sol Caganoff as a 40% shareholder and CEO of BLC. Sol was previously Managing Director and co founder, together with HGL, of Luxottica Australia. From a small base that company became the market leader in the import and distribution of high quality branded spectacle frames and sunglasses to the professional optometry market in Australia.

There were no acquisitions during the current year.

The fair value of assets and liabilities acquired in SPOS as at 31 March 2003 and BLC Cosmetics as at 30 June 2003 are shown below:

	SPOS$'000	BLC Cosmetics$'000	Total$'000
Consideration	7,088	9,633	16.721
Cost of acquisition	245	257	502
Less cash in business on acquisition	(2,741)	(1,281)	(4,022)
Less equity from partner		(900)	(900)
	4,592	7,709	12,301
Estimate for deferred consideration	924	2,252	3,176
Less adjustment to deferred consideration	(153)		(153)
Deferred consideration paid	771	2,252	3,023
Total consideration	5,363	9,961	15,324
Net assets acquired:
Current Assets
Receivables	2,072	1,550	3.622
Inventories	1.706	1,332	3,038
Current tax assets	247	24	271
Non-current Assets
Property, plant and equipment	312	2,418	2,730
Current Liabilities
Payables	(1,231)	(512)	(1,743)
Provisions	(104)	(23)	(127)
Non-current Liabilities
Provisions	(126)	(57)	(183)
Net Assets	2,876	4,732	7,608
Estimate of goodwill	2,640	6,129	8,769
Adjustment to goodwill estimate	(153)		(153)
Goodwill	2,487	6.129	8,616
Minority interest		(900)	(900)
	5,363	9,961	15,324

26 - Acquisition of Businesses (continued)

The comparative figures above reflect the final deferred consideration payment for SPOS and BLC Cosmetics. In August 2004 $771,000 was paid to settle the SPOS deferred consideration, compared with a provision of $924,000. The payment resulted in a reduction to goodwill of $153,000. The BLC Cosmetics deferred consideration payment was paid in July 2004. There was no revision of the goodwill amount as the consideration paid was the same as the provision raised.

27 - International financial reporting standards (IFRS)

The Australian Accounting Standards Board (AASB) is adopting IFRS for application to reporting periods beginning on or after 1 January 2005. The AASB has issued equivalents to IFRS (A-IFRS) and Urgent Issues Group abstracts corresponding to International Financial Reporting Interpretation adopted by the International Accounting Standards Board. The adoption of A-IFRS will be reflected in the financial statements for the half year ending 31 March 2006 and the year ending 30 September 2006. Management are overseeing the transition process and reporting periodically to the Audit Committee.

The Company is reviewing the IFRS to evaluate the impact of the transition to the Company. The actual impacts will depend on the particular circumstances and conditions prevailing at the time of application of A-IFRS. For these reasons it is not yet possible to fully quantify the impact of the transition to A-IFRS on the Company. However based on the work completed to date the following key impacts have been identified:

• a) Accounting for acquisitions under IFRS results in a number of recognition and measurement differences in relation to assets and liabilities acquired particularly intangible assets and restructuring provisions. AASB 3 "Business Combinations" will result in all acquired intangibles being recognised separately from goodwill. Goodwill is not amortised but instead is assessed for impairment at least annually.
• b) The consolidated entity currently values some listed securities at cost with no recognition of any unrealised gains or losses. Under A-IFRS any listed securities classified as held for trading, will be required to be measured at their fair value and any resulting gain or loss is to be recognised in the profit and loss. Any listed securities classified as available for sale will be required to be measured at their fair value and any resulting gain or loss is recognised through equity.
• c) Share based payments forms part of the remuneration of executives of the Company as disclosed in note 22. The consolidated entity does not recognise an expense for any share based payments granted. Under A-IFRS the company is required to recognise an expense measured at the fair value of the share based payment determined at grant date and recognised over the expected vesting period of the shares.
• d) Under A-IFRS, deferred taxes are measured by reference to the 'temporary differences' determined as the difference between the carrying amount and the tax base of assets and liabilities recognised in the balance sheet. Adjustments to the recognised amounts of deferred taxes may result as a consequence of adjustments to the carrying amounts of assets and liabilities resulting from the adoption of A-IFRS. The likely impact of these changes on deferred tax balances has not currently been determined.
• e) Various voluntary and mandatory exemptions are available to the consolidated entity on first-time adoption, which will not be available on an ongoing basis. The exemptions provide relief from retrospectively accounting for certain balances, instruments and transactions in accordance with A-IFRS, and includes relief from having to restate past business combinations, expense share-based payments granted before 7 November 2002, and permits the identification of a 'deemed cost' for property, plant and equipment.

for the Financial Year ended 30 September 2004 continued

28 - Segment Reporting

	Import &Distribution$ 000	FundsManagement$'000	Segment$000	Total Unallocated*$'000	Consolidated$ 000
Business segments
30 September 2004
Revenue
Segment Revenue - External Sales	108,526		108,526	m	108,526
Segment Revenue - Other	3,250	10,839	14,089	801	14,890
	111,776	10,839	122.615	801	123,416
Segment Result
Profit before income tax	12,121	8,816	20,937	(2,245)	18,692
Income tax		u.		(5,087)	(5,087)
Profit/(Loss) after income tax	12,121	8,816	20,937	(7, 332)	13,605
Segment assets	60,563	24,872	85,435	24,373	109,808
Segment liabilities	(18, 872)		(18, 872)	(10, 804)	(29, 676)
Net assets	41,691	24,872	66,563	13,569	80,132
Other disclosures:
Depreciation expense	1,447	÷.	1,447	43	1,490
Goodwill amortisation	606	u.	606	÷,	606
Acquisition of segment assets	2,478	up.	2.478	1	2.479
Carrying value of equity investments	189	4,859	5,048	40	5,088
Share of associates (loss)/profit	(26)	359	333	шu.	333
Profit on sale of listed securities		798	798		798
Profit on part sale of associate		82	82		82
Profit on sale of business	ш.	189	189	and in	189
Net income from MMC Contrarian Limited		685	685	шu.	685
Other significant revenue:
Sale of listed securities		2.464	2.464	سند	2.464
Dividends		696	696	in a	696
Marking to market of listed securities	ш.	6,009	6,009	aas.	6,009
Partial sale of associate	ш,	300	300	î.	300
Proceeds from sale of business		306	306	ш.	306
Other significant expenses:
Stock obsolescence	1,199		1.199		1.199

Unallocated refers to tax assets, tax liabilities and tax expenses, cash, properties, head office items and the employee share scheme.

The import and distribution businesses obtain branded products mainly from overseas and distribute these products mainly within Australia. Funds management comprises the listed investments, the equity accounted investment in MMC Asset Management Limited, net management fee income from MMC Contrarian Limited and the investment in the units of the MMC Small Companies Fund. The consolidated entity's main business is carried on in Australia. There are no material geographical segments to report.

for the Financial Year ended 30 September 2004 continued

	Import &Distribution$'000	FundsManagement$'000	Segment$'000	Total Unallocated*$'000	Consolidated$'000
Business segments (continued)
30 September 2003
Revenue
Segment Revenue - External sales	90,131		90,131		90,131
Segment Revenue - Other	2,485	20,718	23,203	3,115	26,318
	92,616	20,718	113,334	3,115	116,449
Segment Result
Profit before income tax	9,347	8,297	17,644	(2,771)	14,873
Income tax		$\qquad \qquad -$	$\overline{\phantom{0}}$	(2,204)	(2, 204)
Profit after income tax	9.347	8,297	17,644	(4.975)	12,669
Segment assets	57,814	15,206	73,020	21,903	94,923
Segment liabilities	(17, 190)		(17,190)	(11,989)	(29,179)
Net assets	40,624	15,206	55,830	9,914	65,744
Other disclosures:
Depreciation expense	1,484		1,484	39	1,523
Goodwill amortisation	336	$\overline{\phantom{0}}$	336	$\overline{\phantom{0}}$	336
Acquisition of segment assets	2,275	$\overline{\phantom{0}}$	2,275	47	2,322
Assets of businesses acquired	2,730	$\overline{\phantom{0}}$	2,730	$\overline{\phantom{0}}$	2,730
Carrying value of equity investments	216	1,831	2,047		2,047
Share of associates profit/(loss)	40	176	216		216
Other significant revenue:
Sale of property				2,650	2,650
Sale of listed securities		16,640	16,640		16,640
Dividends		3,025	3,025		3,025
Marking to market of listed securities		918	918		918
Other significant expenses:
Stock obsolescence	798		798		798

28 - Segment Reporting (continued)

Unallocated refers to tax assets, tax liabilities and tax expenses, cash, properties, head office items and the employee share $\ast$ scheme.

The import and distribution businesses obtain branded products mainly from overseas and distribute these products mainly within Australia. Funds management comprises the listed investments, the equity accounted investment in MMC Asset Management Limited, net management fee income from MMC Contrarian Limited and the investment in the units of the MMC Small Companies Fund. The consolidated entity's main business is carried on in Australia. There are no material geographical segments to report.

29 - Related Party and Specified Executive Disclosures

Specified directors

The names of persons who were Directors of the Company at any time during the financial year and their relevant interest in the securities of the Company as at year end are as follows:

	Number of Ordinary shares held
		Non-	Direct	Indirect
	Beneficially	beneficially	Interest	Interest
PG Miller	39.723	7.756.304	39.723	7.756.304
KJ Elev	2.905.882	$\overline{\phantom{a}}$	2.905.882	جمد
FM Wolf	155.392	معهد		155.392
D Constable	44.000	625	44.625	-
resigned 6 September 2004MA Hershon	ممد			-

The changes to directors' shareholdings during the year were the issue of 7,814 shares to FM Wolf and 64,149 shares to KJ Eley under the DRP and the issue of 1,000,000 shares to KJ Eley under the Scheme.

Loans to specified directors and specified executives

The following table outlines the total loans made to specified directors and specified executives as at 30 September 2004.

	Balance at thebeginning of period	Interestcharged	Balance at theend of period	Number ingroup
Specified directors	913,598	134.398	2,899,380	-4
Specified executives	275.047	123.289	3.421.801	5
Total	1.188.645	257.687	6.321.181	9

Loans made to specified directors and specified executives were advanced in accordance with the terms of the Employee Share Scheme (Scheme) which have been disclosed in note 22 to the financial statements. They are non-recourse and interest rate is equivalent to the dividend rate.

Loans in excess of $100,000 that were outstanding as at 30 September 2004 were issued to the following specified directors and executives

	Balance at thebeginning of period	Interestcharged	Balance at theend of period	Highestin period	Interestrate
Specified directors
KJ Elev	913.598	134.398	2.899.380	2.899.380	$6.0%$
Specified executives
MP Mahoney	275.047	71.935	1.769.791	1.769.791	5.5%
AJ Whittles		34.236	1,101,340	1,101,340	4.4%
PS Caldelis		17,118	550.670	550,670	4.4%

Movement in shareholdings of specified executives

	Number of shares atbeginning of period	Scheme sharesissued	DRP sharesissued	Number of sharesat end of period
MP Mahoney	301.551	800.000	30.086	1.131.637
AI Whittles	ana.	600.000	10.589	610.589
PS Caldelis	$\overline{\phantom{a}}$	300.000	5.295	305.295

Other transactions with specified directors

(1) Directors received or were entitled to receive dividends from the Company during the year ended 30 September 2004 on shares held in the Company in their own names and their associated entities. These transactions were on the same basis as with other shareholders.

29 - Related Party and Specified Executives Disclosures (continued)

Other transactions with specified directors (continued)

• (2) The aggregate number of shares acquired by Directors and their related entities through the Employee Share Scheme was 1,000,000 (2003: Nil). The aggregate number of shares acquired through the Dividend Reinvestment Plan by Directors and their related entities in the Company was 71,963 (2003: 99,914).
• (3) During the year, HGL Limited traded in listed securities through Bell Potter, the firm where JD Constable works as a broker. Brokerage fees were paid in the ordinary course of business, totalling $2,919 (2003: $16,250) for listed security trades. As there were no on-market buy-backs during the year no brokerage fees were paid (2003: $224).

Transactions with other related parties

(1) During the prior year, the Company received monies on deposit from the following parties:

	Interest paidduring the year		Amountoutstanding
	2004	2003	2004	2003
Jancon Pty Limited (related entity of RJ Constable)	معد	1,580	$\overline{\phantom{a}}$

• (2) Transactions between the Company, its controlled entities and its associated entities relate to inter-entity loan account balances which carry interest at commercial rates. The amount of interest has been disclosed in Note 2 and balances at year end are disclosed in Notes 5 and 13.
• (3) Transactions between the Company and its controlled entities and amongst the various controlled entities consist of the payment and receipt of dividends, the transfer of funds amongst the entities for day-to-day financing and investment of surplus funds, and the payment and receipt of interest on inter-entity balances. Such balances are secured and carry interest at commercial rates.

30 - Financial Instruments

Significant Accounting Policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements.

(a) Forward Foreign Exchange Contracts

It is the policy of the consolidated entity to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts. The consolidated entity also enters into forward foreign exchange contracts to manage the risk associated with anticipated transactions out to 6 months and longer.

The following table details the forward foreign exchange contracts outstanding as at the reporting date.

	Average Exchange Rate		Principal Amount
	2004	2003	2004$'000	2003$'000
Buy US Dollars
Less than 3 months	0.7052	0.6493	28	263
3 to 6 months	$\overline{\phantom{a}}$	0.6625	$\overline{\phantom{a}}$	70
			28	333
Buy Euros
Less than 3 months	0.5718	0.5759	331	375
Buy Japanese Yen
Less than 3 months	78.40	77.29	275	162

30 - Financial Instruments (continued)

(b) Interest Rate Risks

The following table details the consolidated entity's exposure to interest rate risk as at the balance date:

	Fixed Interest Rate Maturity
	Average	Variable	Less than	1 to 5	Non-interest
	Interest Rate%	Interest Rate$'000	1 year$'000	years$'000	Bearing$'000	Total$'000
Year 2004
Financial Assets
Cash	4.70	11,763	سد	$\overline{\phantom{a}}$		11,763
Receivables	ш,			÷,	21,655	21,655
Loan to Director	5.98	2,899				2,899
Loan to employees and other entities	5.12	3,648	سد	44	aqa.	3.648
Advance to partnership			سد		1,442	1,442
		18,310	i.	÷,	23,097	41,407
Financial Liabilities
Trade payables and accruals					18,069	18,069
Bank loans	6.53	2,499	عبد	محد		2,499
Finance lease liabilities	9.20		615	1,053	$\ddot{}$	1,668
Employee entitlements			ш.	$\overline{a}$	2,722	2,722
		2.499	615	1,053	20,791	24,958
Year 2003
Financial Assets
Cash	4.25	11,464				11,464
Receivables					22,767	22,767
Loan to Director	12.48	914	$\overline{\phantom{0}}$			914
Loan to other entities	5.55	405				405
Advance to partnership		$\overline{\phantom{0}}$		$\overline{\phantom{a}}$	956	956
		12,783	$\overline{\phantom{0}}$	$\overline{\phantom{0}}$	23,723	36,506
Financial Liabilities
Trade payables and accruals					20,213	20,213
Bank loans	7.52	1.158	$\overline{\phantom{0}}$			1,158
Other borrowings	4.00	275				275
Finance lease liabilities	8.30		638	715		1,353
Employee entitlements		$\overline{\phantom{0}}$	$\overline{\phantom{000000000000000000000000000000000000$	$\overline{\phantom{0}}$	2,684	2,684
		1.433	638	715	22,897	25,683

(c) Credit Risk

The consolidated entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The consolidated entity measures credit risk on a fair value basis.

The consolidated entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.

The carrying value of financial assets recorded in the financial report, net of any provision for losses, represents the consolidated entity's maximum exposure to credit risk.

30 - Financial Instruments (continued)

(d) Net Fair Value

Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements.

The net fair value of financial assets and financial liabilities detailed in the following table have been determined as the net fair value of financial assets traded on active liquid markets and determined with reference to quoted market prices.

2004$'000	2003$'000	2004$'000	2003
			$'000
1.891	2.021	8.104	3,327

31 - Financing Arrangements

	Consolidated
		2004$'000	2003$'000
Unrestricted access was available at balance dateto the following lines of credit:
Total facilities
Bank overdrafts			88
Bank bill facilities - non-current		20,499	19,158
		20,499	19,246
Utilised
Bank bill facilities - non-current	13	2,499	1,158
		2,499	1,158
Unused at balance date
Bank overdrafts			88
Bank bill facilities - non-current		18,000	18,000
		18,000	18,088

Subject to compliance with the Bank's terms and conditions, the bank bill facilities may be drawn at any time. The maturity period for the bills is subject to the annual review of the consolidated entity's banking facilities. The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Interest rates on all facilities are variable at prevailing market rates.

for the Financial Year ended 30 September 2004 continued

	Consolidated		Company
	2004$'000	2003$1000	2004$'000	2003$1000
32 - Reconciliation of Operating Profit afterIncome Tax to Net Cash Inflow fromOperating Activities
Profit from ordinary activities	13.605	12,669	22,343	4,639
Share of associates' (profit)	(333)	(216)
Depreciation and amortisation expense	1.490	1.523	43	39
Goodwill amortisation	606	336
Mark to market of listed securities	(6,009)	(918)
(Profit) on foreign currency translation	(45)	(504)
	9.314	12.890	22,386	4.678
(Profit)/loss on sale of investments, property, plant and
equipment and provision for investment	(1,094)	(4,967)	(184)	(21)
(Increase)/decrease in receivables and other assets	3.361	1.153	(381)	156
(Increase)/decrease in inventories	(2, 157)	(672)	÷,
Increase/(decrease) in accounts payable	(3,069)	1,448	(329)	161
Increase/(decrease) in deferred tax provisions	2,114	(660)	3,598
(Decrease) in intercompany creditors			(42, 024)
Diminution in value of controlled entities			13,179
Provision against loan to controlled entity			3.840
	249	1,269	(22, 117)	317
Net cash inflow from operating activities	8,469	9.192	85	4.974

33 - Non-cash Financing and Investing Activities

Acquisition of plant and equipment by means of finance leases	1.009	672	AMA
Dividend satisfied by the issue of shares under the
Dividend Reinvestment Plan	876	768	876	768

34 - Contingent Liabilities and Capital Commitments

The acquisition of SPOS was structured so that the joint CEO's each have a 20% equity interest in the increase in value of SPOS if the value is crystalised by a sale or similar event. At September 2004 the Directors estimate the total contingent liability to be $0.4 million.

HGL has guaranteed bank loans for an associate to the value of $0.8 million.

35 - Subsequent Events

On 4 August 2004 HGL announced that it was to acquire the 50% of J Leutenegger Pty Ltd that it did not already own. The acquisition will be in two stages 35% was purchased for $3.2m in October 2004 and the final 15% will be acquired during the 12 months to October 2007 at a price based on a multiple of earnings for the two years to 30 September 2006.

The Directors declare that:

(a) the attached financial statements and notes thereto comply with Accounting Standards;

• (b) the attached financial statements and notes thereto give a true and fair view of the financial position and performance of the Company and the consolidated entity,
• (c) in the Directors' opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, and
• (d) in the Directors' opinion, at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Directors made pursuant to section 295(5) of the Corporations Act 2001. On behalf of the Directors:

PG Miller Chairman

K| Eley Director

Sydney 24 November 2004

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cashflows, accompanying notes to the financial statements, and the directors' declaration for both HGL Limited (the disclosing entity) and the consolidated entity, for the financial year ended 30 September 2004 as set out on pages 21 to 52. The consolidated entity comprises the disclosing entity and the entities it controlled at the year's end or from time to time during the financial year.

The directors of the disclosing entity are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We have conducted an independent audit of the financial report in order to express an opinion on it to the members of the disclosing entity. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal controls, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with the Corporations Act 2001 and Accounting Standards and other mandatory professional reporting requirements in Australia so as to present a view which is consistent with our understanding of the disclosing entity's and the consolidated entity's financial position, and performance as represented by the results of their operations and their cash flows.

Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

The audit opinion expressed in this report has been formed on the above basis.

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit opinion

In our opinion, the financial report of HGL Limited is in accordance with:

• (a) the Corporations Act 2001, including:
  • (i) giving a true and fair view of the company's and consolidated entity's financial position as at 30 September 2004 and of their performance for the year ended on that date; and
  • (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
• (b) other mandatory professional reporting requirements in Australia.

Stilvite Tascha Tohmatsu

DELOITTE TOUCHE TOHMATSU

Margaret Dreyer Partner Chartered Accountants

Sydney 24 November 2004

The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the Accountant's Scheme under the Professional Standards Act 1994 (NSW).

On 12 November 2004 there were 2,430 shareholders. All of the shares of the company are ordinary and fully paid carrying one vote.

Distribution of shareholders

Category	Numberof shareholders	Numberof shares
1.000	582	290,228
1.001$-5000$	931	2.574,200
5,00110.000	404	3,072.614
10.001100,000ш	453	10.989.864
100,001and over	60	33,516,395
	2.430	50.443,301

Number of shareholders holding less than a marketable parcel (239 shares) is 155. Percentage of the total holdings of the 20 largest shareholders is 57.21%.

Twenty largest ordinary shareholders

Name		Numberof shares held	% of totalissued capital
4	Sery Pty Ltd	6,426,187	12.74
2	Constable Investments Group Limited	5,717,153	11.33
3.	Kevin Eley	2,905,882	5.76
4.	Knarsdale Pty Ltd	1,500.001	2.98
Б	LPO Investments Pty Ltd	1,297,809	2.57
6	jancon Pty Ltd	1,150,000	2.28
7	Michael Mahoney	1,131637	2.24
8.	Jancon Pty Ltd	1,080,000	2,14
9	Westpac Custodian Nominees Limited	977.004	194
-10	ANZ Executors and Trustee Company Limited	929,088	1.84
-11	Extra Edge Pty Ltd	822,063	1.63
12	National Nominees Limited	701.345	1.39
13	Mr Michael Edward Constable	630,782	1.25
14.	Andrew Whittles	610,589	1.21
15.	Estate Late Berenice Mary McDonnell	601.301	119
16.	Ida Lichter	600,000	1.19
$\frac{17}{2}$	Kitwood Pty Limited	487.634	0.97
18	George Edward Curphey	479,603	0.95
19	Jennifer Anne Drummond	437.642	0.87
20	Australasian & General Securities Ltd	372, 11	0.74
		28,857,831	57.21

mmmmm

mmann

.......................................

SHAREHOLDER INFORMATION

continued

Substantial shareholders

The following information is extracted from the Company's Register of Substantial Shareholders as at 16 November 2004:

Name	Numberof shares
Sery Pty Limited and its associates	8.233.669
Constable investments Group Limited and its associates	6.160.456
Kevin Elev	2905882
Jancon Pty Limited and its associates	2 7 2 1 5 3 6

Security holder information Security holder

Voting rights

Subject to the Articles of Association:

• a) at meetings of shareholders each shareholder is entitled to vote in person, by proxy, by attorney, or by representative;
• b) on a show of hands each shareholder present in person, by proxy, by attorney, or by representative has one vote; and c) on a poll each shareholder present in person, by proxy, by attorney, or by representative shall have one vote for every share
• held by the shareholder.

In the case of joint holdings, only one joint holder may vote.

Voting by proxy

Voting by proxy is a way shareholders can vote without attending a meeting in person.

All shareholders are encouraged to complete and return the proxy form that accompanies the Notice of Meeting enclosed with this Annual Report.

If you appoint a proxy and attend the meeting, you automatically revoke your proxy.

Shareholders may appoint a proxy or attorney to represent them at the meeting.

A corporate shareholder may appoint a representative, the instrument of appointment must be under common seal of the company where necessary.

Payment direct to a bank, building society or credit union

Security holders may have their dividend entitlements paid directly into any bank, building society or credit union within Australia. The necessary form is available from the Registry. Once your payment details have been recorded on your holding, they will remain in force until you notify the Registry of their alteration or cancellation.

Dividend reinvestment plan

Brief details of the Plan are:

• (a) shareholders are eligible to participate, except where local legislation prevents it;
• (b) participation is optional,
• (c) full or partial participation is available;
• (d) payment is made through the allotment of shares, rather than cash, at a discount of up to 7.5% on the average market price of the Company's ordinary shares;
• (e) no brokerage, commission, stamp duty, or administration costs are payable by shareholders, and
• (f) participants may withdraw from the plan at any time by notice in writing to the Registry. Shareholders wanting to participate should contact the Company's registry for an explanatory booklet and an application form.

SHAREHOLDER INFORMATION

continued

Change of address

All changes of address or other particulars for issuer-sponsored holders, must be notified in writing to the Registry. Broker sponsored holders must advise all changes directly to their broker. Your securityholder reference number should always be quoted in either case.

Removal from annual report mailing list

Shareholders who would prefer not to receive the HGL Limited Annual Report (or who are receiving more than one copy and would like to receive fewer) should advise the Registry in writing, quoting their securityholder reference number.

Share registry

Computershare Investor Services Pty Limited Ph: toll free 1300 855 080 Ph: international +61 3 9415 4000 Facsimile: 02 8234 5050 Level 3, 60 Carrington Street, Sydney NSW 2000

Stock exchange listing

HGL Limited is traded on the Australian Stock Exchange (ASX). The symbol under which the shares are traded is HNG (note: not HGL). Details of trading activity are usually published in most daily newspapers under the HNG abbreviation. HGL Limited is a participant in the ASX's Flexible Accelerated Security System (FAST).

Requests for publications and media and public relations enquiries should be directed to:

Jenny Dinneen, HCL Limited Tel: (02) 9221 7155 Fax: (02) 9233 2713 Email: hgl@hgl.com.au Level 5, 34 Hunter Street, Sydney NSW 2000 GPO Box 4406, Sydney NSW 2001

A ANG ANG ANG ANG ANG ANG ANG ANG ANG AN

DE REDUCES Remiller (ex (change)

Kindy evidence (dispersive)

HE SOLARI DIS

DI INANGI PENGEBARAN

CALL COMPANY SERVICE STATE

kano (omborg) se storany and Constitution in So MP Sahoney Ack the EWERSTON

Sistema Sistem A Whinley A A (sig & Macs)

1967 - John Berger, p 1924 angleški p

Henrik Antibon (Albumo 16V: 1324 Alline & Geo STEEP ALSO PROOF GRO BACK ADE START IN SWIZED I RIODEZZOLE I Reformance Email: hgl@ngl.com.auWeb site: www.hgl.com.au

sta kommunist Holloway WANA KATARAT a markan WATER TESTING Grasophen fan Mei Verdoosestati nganaya WINSTON COTO IV TELEVILLE Encamperation A CHANG CHANGE Kanadian (1994)

1988 - Andrew Sterlingen, s STATIONALIST PROPERTY an de la facta

Gramman Stagna Tumakinishin (Shah Complications investor Savices as a sun de Level 3 60 Campaton Street, States In 1980 Ph roll free 1300 855 030 Pr. htemadonal 161 3 9415 4000

Alban San DA BINGBOLIS SHIRTIGH.

START TO BE AV ASHRINGARDISHINGA

SKA STAND Abort in tealigne bilist filter deling

1999 - Johann Barnson, mark Alban ibn Stockholmen Constitution of the Constitution

a a componente de la componente de la componente de la componente de la componente de la componente de la compLa componente de la componente de la componente de la componente de la componente de la componente de la compo

Concept Company THE DESIGNATION CONTROL

Anne Centrolic And 24 Genera 2002

e a serie de la ATALIAN AND STATE

Bath Kar Nobert en av 1952

Inches College TIME SE

a a shekara Teknologiya (183

RANGE BRA DA AMBARATA

ASX code: HNG

HGL LIMITED

ABN 25 009 657 961

Level 5, 34 Hunter Street Sydney NSW 2000

GPO Box 4406 Sydney NSW 2001

Phone: +612 9221 7155 Fax: +612 9233 2713

Email: hgl@hgl.com.au Web: www.hgl.com.au