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Crown Crafts IncA N N U A L R E P O R T 2 0 0 2 L I M I T E D A B N 8 0 0 8 2 2 6 3 7 7 8 G A L E P A C I F I C L I M I T E D C O N T E N T S K E L M A T T A U S T R A L I A R O C K L E A C A N V A S M E I J E R 4 - 5 C H A I R M A N ’ S R E P O R T A B C P R O D U C T S J D & M J K N I G H T P O R T C O N O L A N W A R E H O U S E S J A G R I G S O N L O W E S B H P C O L L I E R S H A R R I S S C A R F E F O R T U N O F F 6 - 1 0 M A N A G I N G D I R E C T O R ’ S R E P O R T A N D R E V I E W O F O P E R A T I O N S 1 2 - 1 3 C O R P O R A T E G O V E R N A N C E S T A T E M E N T 1 4 - 1 9 D I R E C T O R S ' R E P O R T N L P R O D U C T S P A T C H S C A N V A S M A N U F A C T F I N A N C I A L R E P O R T : A C A D E M Y T A R P S W A L M A R T M A X I T R A N S M A N U F A C T U R I N G S U N ‘ N S U R F C E B A R T L E T T T A S M A N I N S U L A T I O N A U S T R A L I A I C L T A R G E T D A R L I N G D O W N S T A R P A U L I N S O R C H A R D S U P P L Y H A R D W A R E T H O R B U I L D I N G P R O D U C T S A B G A L D I X I E L I N E A B C P R O D U C T S J A Y L O N I N D U S T R I E S F R E D M E Y E R B U N N I N G S A M A R T J O H N D A N K S & S O N N L P R O D U C T S H A R V E Y N O R M A N R A D I N S C A N V A S T H E H O M E D E P O T 2 K M A R T M I T R E 1 0 2 0 2 2 2 4 2 5 2 6 I N D E P E N D E N T A U D I T R E P O R T D I R E C T O R S ’ D E C L A R A T I O N S T A T E M E N T O F F I N A N C I A L P E R F O R M A N C E S T A T E M E N T O F F I N A N C I A L P O S I T I O N S T A T E M E N T O F C A S H F L O W S 2 7 - 5 2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 5 3 - 5 4 A D D I T I O N A L S T O C K E X C H A N G E I N F O R M A T I O N 3 D R H U W G D A V I E S CHAIRMAN C H A I R M A N ’ S R E P O R T C H A I R M A N ’ S R E P O R T ( c o n t ’ d ) f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 G A L E ’ S B U S I N E S S Gale Pacific Limited (Gale) is a world-leading manufacturer of advanced polymer fabrics. Gale manufactures its fabrics in Melbourne, Australia, using its unique 'two step' technology which provides a strong competitive advantage for the Company. In the past year Gale has derived 89% of its revenue from the retail sector and 11% from industrial applications. Gale's fabric that is not sold in rolls directly to retail or industrial markets is shipped to the People’s Republic of China to be converted into value-added products such as exterior window furnishings, shade sails, gazebos and umbrellas. These products are supplied to Gale operations in Australia, New Zealand, the Middle East and United States of America. W E L L P O S I T I O N E D F O R G R O W T H At our last annual general meeting the Company committed to improving manufacturing productivity and working capital management. The 2001/02 results show substantial improvements in our manufacturing operation with our recycling program now on track and our overall factory productivity significantly improved. This has resulted in improved profit margins. Operating cashflow improved by $5.2 million on the previous period. This was the result of improved inventory planning, logistics management and reduced debtor days in our Australian operations. New product innovations will be a key factor in organic growth. The Company is investing in new products that continue to differentiate Gale from its competitors in areas such as biological shearing, fabric structures that improve the quality and quantity of our drinking water in reservoirs and large tank storages, and waterproof and fire retardant commercial fabrics. I N D U S T R I A L F A B R I C S A C Q U I S I T I O N On the 28th June 2002 Gale purchased selected assets, the corresponding customer base and the ongoing business of Visy Industrial Fabrics. While details of this acquisition are dealt with in some detail in the Managing Director’s report, I can confirm that at the date of this report the administration, sales and marketing, logistics and manufacturing operations have been installed at Gale and are fully operational. There have been no significant problems experienced with the integration of the Industrial Fabrics business into Gale’s operations. Woven scrim, a key component of many Industrial Fabrics products, will be sourced offshore and we have qualified at least three suppliers in the Asian region. The move to offshore scrim will enhance margins in the second half of the financial year. As a result of the acquisition, Gale is now market leader in both retail and industrial fabric markets in Australia with further export potential existing in the USA industrial fabric market. The shift in products to a balance between retail and industrial will reduce the potential volatility of Gale’s earnings, which up until now has been heavily dependent upon hot, dry summers in its main Australian market. F I N A N C I A L P E R F O R M A N C E Gale recorded a net profit after income tax of $3.6 million, up 20% on last year, from sales of $55.8 million. This result was achieved despite a very poor summer season in Australia as well as K-Mart USA’s Chapter 11 bankruptcy, resulting in lower than anticipated sales volumes to this key account plus a significant provision in our USA accounts. Improvements in manufacturing performance delivered our most significant boost to earnings. Our US operations contributed also to our overall performance with 4.6% growth in revenue in difficult trading conditions. The Company’s strong operating cash flow limited the increase in the net debt to equity ratio post the acquisition to 0.63, from the prior year’s ratio of 0.54. Further information on the results and operating performance is contained in the Managing Director’s Report and Review of Operations. D I V I D E N D S A N D O N G O I N G D I V I D E N D P O L I C Y Directors have declared a fully franked final dividend of 3 cents per share. The total amount of the dividend is $1,259,919. The books closure date for determining entitlements for the dividend is 26 September 2002. A Dividend Reinvestment Plan is available to all shareholders. The Company, having taken on additional debt at year end, intends in future periods to adopt a dividend payout ratio of approximately 50% to 55% of after tax profits, subject to the successful integration of the Industrial Fabrics business and ongoing satisfactory trading performance. P E O P L E This year has been full of challenges and opportunities. The Board appreciates the efforts of all staff. We look forward to an equally challenging year and welcome our new employees from the Industrial Fabrics acquisition. Their skills are already adding value to our total business. A N N U A L G E N E R A L M E E T I N G A notice of the annual general meeting of the Company is enclosed with this annual report. DR HUW G DAVIES CHAIRMAN Dated: 24 September 2002 “This year has been full of challenges and opportunities. The Board appreciates the efforts of all staff.” 4 5 G A R Y S G A L E MANAGING DIRECTOR M A N A G I N G D I R E C T O R ’ S R E P O R T G A L E P A C I F I C L I M I T E D A N D R E V I E W O F O P E R A T I O N S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 P O S I T I O N E D F O R G R O W T H R E S U L T S Based on our 2001/02 performance, Gale Pacific Limited (Gale) is well positioned to take advantage of its strategy to expand globally its world leading advanced polymer fabric range and related value added products. With the addition of the Visy Industrial Fabrics acquisition and Gale’s restructuring of that business, the Company has developed a second leg of operations for global expansion with the industrial fabric range building on the success of our offshore development of our retail business. Gale is now market leader in both retail and industrial applications of its fabric in Australia. The addition of the Industrial Fabrics business will reduce our seasonality, provide significant cross selling opportunities and strong growth prospects over the next several years. While market conditions globally are weak, our product range is somewhat insulated by the expanding Do-It- Yourself phenomenon in retail. Added to this, the growth in our industrial range of products depends more on the replacement of older technologies with more competitive and innovative solutions, and less on incremental growth as markets expand. This year Gale has demonstrated its ability to improve upon the fundamentals of its business with substantial improvements in factory productivity, cost control and cash flow. We will continue to build soundly on our recent achievements, balancing our acquisition opportunities with further organic growth from our extensive R&D activities, whilst maintaining disciplined control over our operations. Our net profit for the year ended 30 June 2002 was $3.6 million. This result represents an increase of 20% on the prior year’s net profit of $3.0 million and exceeds by approximately 5% our expectations as previously foreshadowed to the market. This result was achieved notwithstanding the Company’s maintenance of extended overhead facilities in anticipation of the Industrial Fabrics acquisition, which was not completed until year end. We consider this result most satisfactory, particularly when our significant improvement in working capital is taken into account. The Company adjusted production to meet reduced sales expectations and reduced overall inventories by 13% year on year on our core business, before the impact of the acquisition of the Industrial Fabrics Division of the Visy Group. Our manufacturing and sourcing operations generated positive productivity improvements. The Company had a clear objective to improve cash flow by better management of our inventory and receivables. The improvement in inventory was complemented by a substantial reduction in debtors’ collection days outstanding in our Australian operations. These initiatives contributed significantly to the improved net operating cash flow of $5.2 million year on year, as referred to by the Chairman in his report. The Company recorded an increase in overhead costs, partly due to a prudent provision over our K-Mart USA debt, and further as a result of building management capacity for future growth. Increased R&D expenditure was substantially offset by Government support. An Enterprise Bargaining Agreement was concluded during the year, whereby 3x8 hour shifts were introduced to the Braeside, Victoria, plant, replacing the previous 2x12 hr shift configuration. This change will enhance capacity utilization in the plant through greater flexibility in scheduling and staff deployment, and permit a reduction in capital spending over the next few years. Operations in the Peoples’ Republic of China (PRC) have been augmented with new suppliers coming on line, allowing the Company to spread current offshore production requirements over a broader base. We are further assessing our opportunities in the PRC post China’s entry into the World Trade Organisation, with a view to further reducing our cost base. The addition of the Industrial Fabrics business will reduce our seasonality, provide significant cross selling opportunities and strong growth prospects over the next several years. 6 7 M A N A G I N G D I R E C T O R ’ S R E P O R T G A L E P A C I F I C L I M I T E D A N D R E V I E W O F O P E R A T I O N S ( c o n t ’ d ) f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 Gale has successfully transferred the customer interface from Visy to Gale, with all sales of the new products having been dispatched and invoiced from Gale’s Braeside operations from the first week of July. All regional warehouses and sales operations have been transferred to Gale and have been operating through Gale’s systems from the second week of July. This transition of the business has progressed efficiently and without any significant problems. We have also achieved a successful re-commissioning and resumption of coating activities in our Braeside site. Gale has hired the majority of the Visy sales, marketing and administration teams as well as key technical and operational personnel. All staff have been cross-trained in the expanded range of products. This will assist in achieving early sales growth. In this transaction Gale did not acquire Visy’s weaving operations but has contracted the use of this plant over the near term whilst product is outsourced from offshore. This outsourcing program is now nearing completion with three offshore manufacturers producing the majority of our current requirements. The evident co-operative effort between our new industrial team and our existing team has been rewarding with strong empathy and a common philosophical approach. This bodes well for the results this co-operation can deliver to our shareholders. I N D U S T R I A L F A B R I C S A C Q U I S I T I O N The acquisition included the fabric coating manufacturing unit and all related inventories. The purchase price related to assets only, and did not include goodwill. In addition, a substantial supply agreement was completed with Visy to supply coatings for their paper products used in the Australian and USA markets. Gale anticipates that the acquisition will add in excess of $20 million p.a. in revenue from the fabric coating operation as well as revenue from the Visy paper coating supply agreement. The Industrial Fabrics business has developed unique and patented technologies that allowed it to grow into Australia’s largest manufacturer of coated industrial fabrics and to achieve solid market positions in most of its product categories. The business supplies industrial markets nationally, particularly the agricultural, mining, transport and construction industries. Gale believes that there are also several areas of potential co-operation with Visy in the long term management of Australia’s water resources. This acquisition provides Gale with the opportunity to substantially strengthen its industrial sales team in parallel to its retail operations. This will allow Gale to further expand the opportunities for its newly patented range of shade enhanced fabrics with fire retardant properties, ready for launch into the Australian, USA and Middle East markets. As a result of the acquisition, Gale has access to a broader spectrum of markets with a range of advanced coated fabrics. Most of these fabrics will be manufactured at Gale’s Braeside site using the newly acquired and sophisticated extrusion coating equipment. The Industrial Fabrics acquisition has diversified the Company’s revenue base Pre-acquisition Product Mix Post-acquisition Product Mix Window Furnishings 13% Retail Fabric 34% Structures 26% Window Furnishings 9% Commercial/Industrial Fabric 11% Structures 18% Retail Fabric 50% Commercial/Industrial Fabric 39% Revenue Profit Before Income Tax Dividends 54,734 55,777 39,285 60,000 55,000 50,000 45,000 0 0 0 $ 40,000 35,000 30,000 25,000 20,000 1999/00 2000/01 Years 20001/02 Share Price Progress Gale Share Price $0.51 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 0 0 0 $ 5,500 5,000 4,500 4,000 3,500 3,000 5,206 2,500 2,404 4,692 4,476 1,484 0 0 0 $ 2,000 1,500 1,000 500 1999/00 2000/01 Years 20001/02 2000/01 20001/02 Years Gale Share Price All Ordinaries Index All Ordinaries Index $1.30 4200 4000 3800 3600 3400 3200 3000 2800 2-Jul-01 24-Aug-01 18-Oct-01 12-Dec-01 5-Feb-02 1-Apr-02 24-May-02 18-Jul-02 17-Sep-02 The Gale share price has outperformed the All Ordinaries Index since 2 July 2001 8 9 M A N A G I N G D I R E C T O R ’ S R E P O R T G A L E P A C I F I C L I M I T E D A N D R E V I E W O F O P E R A T I O N S ( c o n t ’ d ) f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 O U T L O O K O U R B O A R D A high priority for the Company is to effectively manage the integration of the Industrial Fabrics division into our existing business and to deliver upon not only the business plans of both Retail and Industrial businesses but to maximize the synergies that this opportunity brings. Management’s clear focus last year was on improving our manufacturing efficiencies and cash flow. These efforts will continue to drive down our cost base and more efficiently manage our working capital requirements. Both the Retail and the Industrial businesses will benefit from the benefits of our R&D efforts of the past year, as follows: • The launch and sale of our fire-retardant Commercial 98 fabric in Australia, USA and the Middle East. • The expansion of the Company’s retail range in the USA market. • The implementation of the Bioclip (biological shearing) program that is now commercialised. • The launch and sale of fabric covers over reservoirs of potable water to eradicate problems of algae bloom. • The further development and sale of Polypropylene and Polyethylene fabrics that can replace environmentally harmful PVC coated polyester fabrics. It is anticipated that the full benefits of new product developments, ongoing productivity improvements and of the Industrial Fabrics acquisition will be generated in the second half of 2002/03. The audit committee of the Board includes two non-executive Directors and one executive Director and has the responsibility of monitoring the group’s accounting and reporting practices, including its system of internal controls. The Board’s remuneration committee meets from time to time to establish the remuneration levels for the senior executives of the Company. Finally, the treasury committee of the Board meets regularly to monitor the Company’s exposure to exchange rate fluctuations, and has successfully minimized exchange differences over the last three years. At the annual general meeting our Chairman, Dr Huw Davies, will retire as a Director of the Company by rotation in accordance with the constitution of the Company and, being eligible, offers himself for re-election. O U R P E O P L E During the year we have reviewed our operations both internally and externally, and challenged our staff to improve the fundamentals of our business. Our people have responded positively to the changes we have initiated from these reviews, from the shift changes in our plant delivering production flexibility, to the new logistics group who have contributed to our forecasting and inventory management. During the year we have stretched the capabilities of our organisation and our people, and we have invested in building our team in preparation for the future. Our people are both challenged and excited by the growth ahead and have integrated well with our new team from Visy. The Directors join me in thanking all staff for their contributions in 2001/02. We now look forward together to the challenges of 2002/03. GARY S GALE MANAGING DIRECTOR Dated: 24 September 2002 Biological shearing has become viable through the economic capture of wool using a specially designed Gale disposable net. 1 0 1 1 C O R P O R A T E G O V E R N A N C E C O R P O R A T E G O V E R N A N C E S T A T E M E N T S T A T E M E N T ( c o n t ’ d ) The Directors are responsible for the corporate governance practices of the Company. This statement sets out the main corporate governance practices that were in operation throughout the financial year, except where otherwise indicated. The Board of Directors ('the Board') is responsible for Gale Pacific Limited and its controlled entities including: • Setting and monitoring of objectives, goals and strategic direction for management with a view to maximising shareholder wealth; • Accepting an annual budget and the monitoring of financial performance; • Ensuring adequate internal controls exist and are appropriately monitored for compliance; • Ensuring significant business risks are identified and appropriately managed; • Selecting, appointing and reviewing the performance of the Chief Executive Officer; • Selecting and appointing new Directors; and • Maintaining the highest business standards and ethical behaviour. C O M P O S I T I O N O F T H E B O A R D At the date of this statement, the Board comprises 3 Non-executive Directors and 2 Executive Directors. The names and details of the Directors are contained in the Directors’ Report. Gale Pacific Limited’s Constitution provides that: • The maximum number of Directors is 12 or such other number as the Company by resolution determines; • The Directors may appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed, other than the Managing Director, only holds office until the next general meeting and then must retire from office. A Director who so retires is eligible for re-election; • At each annual general meeting one third of the Directors or, if their number is not 3 or a multiple of 3, then the number nearest to one third, who has held office for 3 years or more must retire from office. A Director who so retires is eligible for re-election; • In determining the number of Directors to retire at an annual general meeting, no account is to be taken of a Director appointed by the Directors to fill a casual vacancy or as an addition to the existing Directors and who only holds office until the next general meeting, or the Managing Director, who is exempted from retirement by rotation; and • The number of Directors necessary to constitute a quorum at a Directors’ meeting is 2, or such other number the Directors may fix. The Directors should bring characteristics to the Board that will provide a mix of qualifications, skills and experience, both nationally and internationally. When a vacancy exists or whenever it is considered that the Board would benefit from the services of a new Director with particular skills, the Board selects one or more candidates with the appropriate expertise and experience. Having regard to the size of the Board, it has not been considered necessary to appoint a nomination committee. T E R M S A N D C O N D I T I O N S O F A P P O I N T M E N T A N D R E T I R E M E N T O F N O N - E X E C U T I V E D I R E C T O R S The terms and conditions of the appointment and retirement of any new non-executive Directors will be set out in a letter of appointment which prescribes: • Remuneration; • The term of appointment, subject to shareholder approval; • The expectation of the Board in relation to attending and preparing for all Board Meetings; • Procedures for dealing with conflicts of interest; and • The availability of independent professional advice. Non-executive Directors are remunerated for their services from the maximum aggregated amount approved by shareholders for that purpose. Their compensation is reviewed by the Board. It is the practice of the Directors that when a potential conflict of interest may arise, the Director concerned does not receive a copy of the relevant Board paper and withdraws from the Board Meeting whilst such a matter is being considered. The Board has a policy of enabling Directors to seek independent professional advice at the Group’s expense, subject to estimated costs being approved by the Chairman in advance as being reasonable. In order to retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the Company’s operations, the remuneration committee seeks the advice of external advisors in connection with the structure of remuneration packages. A P P R O A C H T O C O R P O R A T E C O M P L I A N C E A N D R I S K I D E N T I F I C A T I O N A N D M A N A G E M E N T In relation to identifying areas of significant business risk and putting in place arrangements to manage such risk the Board relies on the advice and expertise of senior management acting in consultation with the Company’s external advisers. Where appropriate the Board obtains advice directly from external advisers. The Board has not considered it appropriate to appoint a separate Corporate Governance Committee and responsibility for developing and monitoring corporate governance policies and practices in areas outside the scope of the functions of the Audit Committee is retained and exercised directly at Board level. C O N T I N U O U S D I S C L O S U R E The Board has established compliance procedures to ensure that the Company complies with its continuous disclosure obligations under the ASX Listing Rules and the continuous disclosure provisions of the Corporations Law. E T H I C A L S T A N D A R D S The Group’s policy is that all Directors and staff maintain the highest ethical standards of conduct. Gale Pacific Limited is an equal opportunity employer. A U D I T C O M M I T T E E The Board has an established Audit Committee. The primary objective of the Audit Committee is to assist the Board in fulfilling the Board’s responsibilities relating to accounting and reporting practices of the Company and it’s subsidiaries. The main functions of the Audit Committee are: • To act as a committee of the Board of Directors in discharging the Board’s responsibilities as they relate to financial reporting policies and practices, accounting policies and management and internal controls; • To provide through regular meetings a forum for communication between the Board, senior financial management and external auditors; and • To enhance the credibility and objectivity of the Company’s financial reports. The responsibilities of the Audit Committee include monitoring compliance with requirements of the Corporations Law, Stock Exchange Listing Rules, Australian Securities Commission, taxation legislation and other laws as they apply to the subject matter of the Audit Committee’s functions (for example internal accounting, external auditing, financial reporting and taxation compliance). The members of the Audit Committee are Mr T. Eversteyn, Mr D. Reilly, Mr G. Gale and Mr R. House. The Audit Committee is able to obtain independent professional advice as required and also has access at all times to the Executive Directors and other management personnel. R E M U N E R A T I O N C O M M I T T E E The Board has an established remuneration committee consisting of two non-executive Directors, Mr T. Eversteyn and Mr D. Reilly. The Remuneration Committee reviews the remuneration policies applicable to all Directors and Executive Officers on an annual basis and makes recommendations on remuneration packages and terms of employment to the Board. Remuneration packages, which consist of base salary, fringe benefits, incentive schemes (including performance-related bonuses), superannuation, and entitlements upon retirement or termination, are reviewed with due regard to performance and other relevant factors. 1 2 1 3 D I R E C T O R S ’ R E P O R T G A L E P A C I F I C L I M I T E D f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 The Directors present their report together with the financial report of Gale Pacific Limited ('the Company') and the consolidated financial statements of the economic entity, being the Company and its controlled entities, for the year ended 30 June 2002 and the Independent Audit Report thereon. D I R E C T O R S The Directors in office at any time during or since the end of the year to the date of this report are: MR GARY STEPHEN GALE MANAGING DIRECTOR - age 50 D R H U W G E R A I N T D A V I E S CHAIRMAN BSc, PhD. - age 61 Huw Davies is the Chairman of Vic Power Trading and Gascor Limited. He is a Director of Snowy Hydro Limited and a member of the Board of the Goulburn Broken Catchment Management Authority. Dr Davies held senior executive positions with ACI International and BTR Nylex from 1968 to 1997. Appointed Director on 9 October 2000. MR THEO JOHN EVERSTEYN DEPUTY CHAIRMAN FCA, Grad Dip Industrial Accounting and Bus. Admin. - age 61 Theo Eversteyn has been a partner of the Chartered Accounting firm Bentleys MRI since 1973. During his career Theo has focused on manufacturing and distribution businesses and obtained postgraduate diploma qualifications in Industrial Accounting and Business Administration. He is also the non- executive chairman of Valcorp Fine Foods Pty Ltd and the Joval Group. Mr Eversteyn was a director of the Alzheimer’s Association of Victoria for the period 1990 to 2002, and is currently a director of Bentleys Australia Pty Ltd, the national licensor for Bentleys MRI. Appointed Director on 8 April 1998. Gary Gale was responsible for the restructuring of the Gale Group both in Australia and the United States in 1996/97. He was also responsible for Gale entering the advanced polymer fabric industry as a manufacturer in 1977. Mr Gale studied textile engineering in Germany, and is the son of the founder of the Gale business. Appointed Director on 8 April 1998. MR PETER RONALD MCDONALD CHIEF OPERATING OFFICER/GENERAL MANAGER Bachelor of Business (Marketing) - age 36 Peter McDonald has been the Chief Operating Officer/General Manager of the Gale Group since 1997. He joined the Gale Group in 1988 and has held the position of Product Manager followed by National Marketing and National Sales and Marketing Manager. Mr McDonald is responsible for the day-to-day operations of the business including the United States and Middle East businesses. Appointed Director on 7 July 1998. MR DARYL EDWARD JAMES REILLY DIRECTOR Graduate Diploma of Business (Accounting), CPA, ACIS, MAICD, FTMA - age 48 Daryl Reilly is an Executive Director and principal of the venture capital management company, Advent Management Group Limited ('AMG') and has been AMG’s Chief Financial Officer and Company Secretary since its formation in 1984. He is Secretary of the AMG investment funds, the publicly listed Advent Limited, Advent III Private Equity Limited and of Advent IV Private Equity Fund. Appointed Director on 17 July 1998. Warehousing Sales Office Manufacturing Expanding in a global market. The Company’s ongoing investment in research and development provides a technical edge. 1 4 1 5 D I R E C T O R S ’ R E P O R T ( c o n t ’ d ) G A L E P A C I F I C L I M I T E D f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 P R I N C I P A L A C T I V I T I E S The principal activities of the economic entity during the course of the financial year were the manufacture and marketing of advanced durable knitted polymer fabrics and value-added structures made from these fabrics. On 28 June 2002 the economic entity acquired selected assets and corresponding customer base of Visy Industries Pty Ltd’s industrial fabrics business. R E S U L T S The consolidated profit of the economic entity for the financial year attributable to the members of Gale Pacific Limited was $3,614,553. R E V I E W O F O P E R A T I O N S A comprehensive review of the operations of the economic entity during the financial year and the results thereof is contained in the accompanying Chairman’s Report and the Managing Director’s Report and Review of Operations commencing on page 6 of this Annual Report. S T A T E O F A F F A I R S In the opinion of the Directors there were no significant changes in the state of affairs of the Company and its controlled entities that occurred during the financial year under review not otherwise disclosed in this report or the accompanying financial report. E V E N T S S U B S E Q U E N T T O B A L A N C E D A T E There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors to significantly affect or may significantly affect the operations of the economic entity, the result of those operations, or the state of affairs of the economic entity in subsequent financial years. L I K E L Y D E V E L O P M E N T S Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. E N V I R O N M E N T A L R E G U L A T I O N A N D P E R F O R M A N C E The economic entity’s operations are not subject to any significant environmental regulations under the Commonwealth or State legislation. However, the Directors believe that the economic entity has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the economic entity. D I V I D E N D S Dividends paid or declared by the Company in respect of the current financial year were: $ As proposed and provided for in last year’s report and paid on 18 October 2001: - An ordinary dividend of 3.0 cents per share (fully franked to 30%) 1,141,178 Interim dividend in respect of the year ended 30 June 2002 paid on 18 April 2002: - An ordinary dividend of 3.0 cents per share (fully franked to 30%) 1,144,118 The final dividend determined by the Directors of the Company in respect of the year ended 30 June 2002, to be paid on 17 October 2002: - An ordinary dividend of 3.0 cents per share (fully franked to 30%) Total dividends provided for or paid in respect of the year ended 30 June 2002 O P T I O N S 1,259,919 2,404,037 The Company has entered into an executive option agreement to grant options to specified option holders over unissued shares in the Company. The options are exercisable upon achievement of certain conditions. The number of options that have been granted at the date of this report or are available to be granted are as follows: Issued Options issued (refer 'Directors' Shareholdings’ below) Future Options available to be granted 760,785 760,755 The issue price of each option is zero. Each option entitles the option holder to 1 ordinary share in Gale Pacific Limited in the event that the option is exercised. The exercise price for the issued options is $1.00. Options are not exercisable before 1 December 2002 or after 1 December 2004. From cost-effective water management technologies to agriculture and mining - Gale’s position in non-retail markets has significantly strengthened. 1 6 1 7 D I R E C T O R S ’ R E P O R T ( c o n t ’ d ) D I R E C T O R S ’ R E P O R T ( c o n t ’ d ) f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 I N D E M N I F I C A T I O N O F O F F I C E R S A N D A U D I T O R S D I R E C T O R S ’ A N D E X E C U T I V E S ’ R E M U N E R A T I O N During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company (as named above), the Company Secretary, Mr R L House, and all executive officers of the Company and of any related body corporate against a liability incurred as a Director, Secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The remuneration committee reviews the remuneration packages of all Directors and executive officers on an annual basis and makes recommendations to the Board. Remuneration packages are reviewed with due regard to performance and other relevant factors, and advice is sought from external advisors in relation to their structure. Remuneration packages contain the following key elements: The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as an officer or auditor. a) Salary/fees; D I R E C T O R S ’ M E E T I N G S 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. D I R E C T O R S ’ M E E T I N G S A U D I T C O M M I T T T E E M E E T I N G S R E M U N E R A T I O N C O M M I T T E E M E E T I N G S H E L D A T T E N D E D H E L D A T T E N D E D H E L D A T T E N D E D DIRECTORS G S Gale P R McDonald H G Davies T J Eversteyn D E J Reilly 23 23 23 23 23 23 21 21 21 22 2 - - 2 2 2 - - 2 2 - - - 1 1 - - - 1 1 D I R E C T O R S ’ S H A R E H O L D I N G S The following table sets out each Director’s relevant interest in shares and options in shares of the Company as at the date of this report: N A M E F U L L Y P A I D O R D I N A R Y S H A R E S E X E C U T I V E O P T I O N S G S Gale P R McDonald H G Davies T J Eversteyn D E J Reilly 15,731,134 470,510 15,576 185,000 88,267 427,942 332,843 - - - b) Benefits, including the provision of motor vehicles and superannuation; and c) Incentive schemes, including share options under the executive share option plan as disclosed in Note 19 to the financial statements. The following table discloses the remuneration of the Directors of the Company: N A M E S A L A R Y / F E E S B E N E F I T S T O T A L EXECUTIVE DIRECTORS G S Gale P R McDonald NON-EXECUTIVE DIRECTORS H G Davies T J Eversteyn D E J Reilly 271,526 219,635 40,000 30,000 30,000 91,712 37,024 - - - 363,238 256,659 40,000 30,000 30,000 In addition to the above amounts, Messrs Gale and McDonald hold options over 427,942 and 332,843 shares respectively. The value of these options is conditional on future events. Details of these options are disclosed in Note 19 to the Financial Statements. The following table discloses the remuneration of the executive of the Company and the consolidated entity: N A M E R L House S A L A R Y 141,309 B E N E F I T S 29,210 T O T A L 170,519 P R O C E E D I N G S O N B E H A L F O F T H E C O M P A N Y No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Dated this 24th day of September 2002. Signed in accordance with a resolution of Directors. 1 8 DR. HUW G DAVIES DIRECTOR GARY S GALE DIRECTOR 1 9 I N D E P E N D E N T A U D I T R E P O R T G A L E P A C I F I C L I M I T E D t o t h e m e m b e r s o f G a l e P a c i f i c L i m i t e d S C O P E A U D I T O P I N I O N We have audited the financial report of Gale Pacific Limited for the financial year ended 30 June 2002 comprising of the Directors’ Declaration, Statement of Financial Performance, Statement of Financial Position, Statement of Cash Flows and Notes to the Financial Statements. The financial report includes the consolidated financial statements of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. The Company’s Directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the Company. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. 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. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements in Australia and the Corporations Act 2001 so as to present a view which is consistent with our understanding of the Company’s and consolidated entity’s financial position and performance as represented by the results of their operations and their cash flows. The audit opinion expressed in this report has been formed on the above basis. In our opinion, the financial report of Gale Pacific 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 June 2002 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. PITCHER PARTNERS M W PRINGLE PARTNER Melbourne 24 September 2002 2 0 2 1 Pitch covers at the Melbourne Cricket Ground and a range of horticultural applications; Gale’s industrial fabrics withstand a variety of weather extremes. D I R E C T O R S ’ D E C L A R A T I O N G A L E P A C I F I C L I M I T E D The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 24 to 52 are in accordance with the Corporations Act 2001 including:- (a) compliance with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) providing a true and fair view of the financial position as at 30 June 2002 and of the performance, as represented by the results of the operations and the cash flows, of the Company and economic entity for the year ended on that date. 2. In the Directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors. DR HUW G DAVIES GARY S GALE DIRECTOR DIRECTOR Dated this 24th day of September 2002 2 2 2 3 The Company’s Coolaroo brand is strengthening around the world. S T A T E M E N T O F F I N A N C I A L S T A T E M E N T O F F I N A N C I A L P E R F O R M A N C E f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 P O S I T I O N f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 E C O N O M I C E N T I T Y P A R E N T E N T I T Y E C O N O M I C E N T I T Y P A R E N T E N T I T Y Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ Revenue from ordinary activities 2 55,777,021 54,734,117 49,186,535 48,231,167 Expenses from ordinary activities, excluding borrowing costs expense: - Changes in inventories of finished goods and work in progress - Raw materials and consumables used (1,039,322) 1,705,124 (50,656) (5,797) (21,650,609) (25,050,120) (21,868,915) (22,553,358) - Employee benefits expense (9,323,401) (9,333,182) (7,819,293) (8,058,498) - Depreciation and amortisation expenses - Operating overheads - Other expenses from ordinary activities Borrowing costs expense Profit from ordinary activities before income tax expense Income tax expense relating to ordinary activities Net profit from ordinary activities after income tax Net profit from ordinary activities after income tax expense attributable to the members of the parent entity Net exchange difference on translation of financial reports of self-sustaining foreign operations Total valuation adjustment attributable to members of the parent entity recognised directly in equity Total changes in equity other than those resulting from transactions with owners as owners Basic earnings per share (cents per share) Diluted earnings per share (cents per share) (2,588,936) (10,448,221) (4,376,214) (1,144,662) (2,183,010) (9,953,843) (3,753,747) (1,472,910) (2,324,450) (1,975,797) (7,352,197) (6,943,655) (3,638,210) (2,980,643) (1,144,662) (1,481,282) 3 4 5,205,656 4,692,429 4,988,152 4,232,137 (1,591,103) (1,682,915) (1,557,099) (1,419,393) 3,614,553 3,009,514 3,431,053 2,812,744 21 3,614,553 3,009,514 3,431,053 2,812,744 (407,181) 106,660 (407,181) 106,660 - - - - 22 32 32 3,207,372 3,116,174 3,431,053 2,812,744 9.46 9.28 9.25 8.61 CURRENT ASSETS Cash assets Receivables Inventories Other TOTAL CURRENT ASSETS NON-CURRENT ASSETS Receivables Other financial assets Plant and equipment Intangible assets Deferred tax assets Other 5 6 7 8 6 9 10 11 12 8 TOTAL NON-CURRENT ASSETS 23(e) TOTAL ASSETS CURRENT LIABILITIES Payables Interest-bearing liabilities Current tax liabilities Provisions Other TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Payables Interest-bearing liabilities Deferred tax liabilities Provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained profits TOTAL EQUITY 13 14 15 16 17 13 14 15 16 19 20 21 22 526,482 11,933,743 15,201,585 415,893 28,077,703 - - 24,827,286 3,081,437 106,952 752,574 28,768,249 56,845,952 5,244,674 7,170,497 793,346 1,748,870 239,189 5,205,576 10,300,861 11,394,641 639,264 27,540,342 - - 20,641,544 2,994,242 121,128 728,595 24,485,509 52,025,851 5,238,640 10,429,232 54,756 1,854,861 975,798 7,450 6,585,551 12,080,458 326,112 4,157,366 5,034,510 7,285,030 420,636 18,999,571 16,897,542 5,653,479 3,441,323 10,133,031 462,769 24,078,692 19,811,566 3,019,048 2,920,399 - 752,574 36,945,116 55,944,687 4,608,205 7,170,497 777,371 1,734,989 239,189 - 728,595 34,056,360 50,953,902 4,593,847 10,429,232 42,993 1,827,816 975,798 15,196,576 18,553,287 14,530,251 17,869,686 - 10,720,362 2,894,624 590,323 14,205,309 29,401,885 27,444,067 20,858,448 (298,287) 6,883,906 27,444,067 - 7,117,959 2,922,047 100,424 10,140,430 28,693,717 23,332,134 17,549,850 108,894 5,673,390 23,332,134 - 10,720,362 2,730,631 590,323 14,041,316 28,571,567 27,373,120 49,250 7,117,959 2,779,077 100,424 10,046,710 27,916,396 23,037,506 20,858,448 17,549,850 - - 6,514,672 5,487,656 27,373,120 23,037,506 2 4 T h e a c c o m p a n y i n g n o t e s f o r m p a r t o f t h e s e f i n a n c i a l s t a t e m e n t s T h e a c c o m p a n y i n g n o t e s f o r m p a r t o f t h e s e f i n a n c i a l s t a t e m e n t s 2 5 S T A T E M E N T O F C A S H F L O W S N O T E S T O T H E F I N A N C I A L f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 106,747 103,392 106,747 103,392 (a) Principles of Consolidation E C O N O M I C E N T I T Y P A R E N T E N T I T Y Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ CASH FLOW FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Borrowing costs paid Income tax paid Net cash provided by operating activities 56,258,585 54,555,921 49,666,748 49,798,585 (47,350,513) (49,877,651) (42,234,614) (42,073,135) 21,451 (1,144,662) (769,237) 17,941 (1,371,370) (1,544,801) 13,261 - (1,144,662) (1,405,494) (769,237) (1,476,389) 23(b) 7,015,624 1,780,040 5,531,496 4,843,567 CASH FLOW USED IN INVESTING ACTIVITIES Proceeds from sale of plant and equipment Proceeds from sale of other non-current assets Payment for plant and equipment Payment for acquisition of business Payment for other non-current assets Amounts advanced to related parties Proceeds from repayment of related party receivables - 22,500 - - (2,758,417) (4,900,000) (821,901) - - (5,590,776) (2,581,188) (5,421,687) - (4,900,000) - (521,137) (821,901) (615,601) - - - (3,367,789) 1,451,745 - Net cash used in investing activities (8,373,571) (5,986,021) (6,744,597) (9,301,685) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from share issue Repayment of capital Proceeds from borrowings Repayment of principal on finance leases Repayment of principal on hire purchases Dividends paid Net cash provided by/(used in) financing activities Net increase/(decrease) in cash held Cash at beginning of year Effects of exchange rate changes on the balance of cash held in foreign currencies Cash at end of year 23(a) - - 944,074 13,693,037 (7,145,583) 8,728,814 - - 13,693,037 (7,145,583) 944,074 8,716,917 (1,411,492) (1,280,202) (1,411,492) (1,280,202) (584,675) (1,976,737) (3,028,830) (4,386,777) 5,131,794 (384,332) 360,685 (581,923) (798,860) 12,615,283 8,409,302 (3,277,508) (584,675) (1,976,737) (581,923) (798,860) (3,028,830) 12,603,386 (4,241,931) 8,145,268 4,083,584 (4,061,684) - - - 5,131,794 (158,347) 4,083,584 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES The financial report is a general purpose financial report that has been prepared in accordance with Accounting Standards, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers Gale Pacific Limited as an individual parent entity and Gale Pacific Limited and controlled entities as an economic entity. Gale Pacific Limited is a company limited by shares, incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair value of consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. A controlled entity is any entity controlled by Gale Pacific Limited. Control exists where Gale Pacific Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Gale Pacific Limited to achieve the objectives of Gale Pacific Limited. Details of the controlled entities are contained in Note 30. All intercompany balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Where a controlled entity has entered or left the economic entity during the year its operating results have been included from the date control was obtained or until the date control ceased. (b) Income Tax The economic entity adopts the liability method of tax-effect accounting whereby the income tax expense shown is based on the profit from ordinary activities adjusted for any permanent differences between taxable and accounting income. Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable. Future income tax benefits are not brought to account unless realisation of the asset is assured beyond any reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit. The tax effect of capital losses are not recorded unless realisation is virtually certain. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. 2 6 T h e a c c o m p a n y i n g n o t e s f o r m p a r t o f t h e s e f i n a n c i a l s t a t e m e n t s 2 7 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (c) Inventories (e) Leases (cont’d) Inventories are measured at the lower of cost and net realisable value. Costs are assigned on a first- in first-out basis and include direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenses. (d) Plant and Equipment Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation. Plant and equipment Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to present values in determining recoverable amounts. The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour and an appropriate proportion of fixed and variable overheads. Depreciation The depreciable amount of all fixed assets including capitalised leased assets are depreciated on a straight line basis over their estimated useful lives to the entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. Depreciation and amortisation rates are reviewed annually for appropriateness. When changes are made, adjustments are reflected in current and future periods only. The depreciation rates used for each class of assets are: Class of fixed asset Depreciation rates Depreciation basis Leasehold improvements Plant and equipment Leased plant and equipment Motor vehicles Office equipment Furniture, fixtures and fittings Computer equipment and software Determined by lease term 6.7% - 20.0% 6.7% - 20.0% 20.0% 20.0% 14.3% 33.0% - 50.0% Straight Line Straight Line Straight Line Straight Line Straight Line Straight Line Straight Line (e) Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the entities within the economic entity are classified as finance leases. Finance leases are capitalised, recording at the inception of the lease an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the economic entity will obtain ownership of the asset or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives received under operating leases are recognised as a liability. (f) Investments Controlled Entities Investments in controlled entities are carried in the holding company’s financial statements at cost less amounts written off to recognise any permanent diminution in value. Dividends are brought to account in the statement of financial performance when they are proposed by the controlled entities. (g) Foreign Currency Transactions and Balances Foreign currency transactions during the year are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange ruling at that date. The gains and losses from conversion of short term assets and liabilities, whether realised or unrealised, are included in profit from ordinary activities as they arise. The assets and liabilities of overseas controlled entities, which are self-sustaining, are translated at year end rates and operating results are translated at rates ruling at the end of each month. Gains and losses arising on translation are taken directly to the foreign currency translation reserve. Exchange differences arising on hedged transactions undertaken to hedge foreign currency exposures, other than those for the purchase and sale of goods and services, are brought to account in the profit from ordinary activities when the exchange rates change. Any material gain or loss arising at the time of entering into hedge transactions is deferred and brought to account in the profit from ordinary activities over the lives of the hedges. Costs or gains arising at the time of entering hedged transactions for the purchase and sale of goods and services, and exchange differences that occur up to the date of purchase or sale are deferred and included in the measurement of the purchase or sale. (h) Employee Entitlements Provision is made for the economic entity’s liability for employee entitlements arising from services rendered by employees to balance date. Employee entitlements expected to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at their nominal amount. Other employee entitlements payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those entitlements. Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. 2 8 2 9 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (i) Research and Development Expenditure Research and Development costs are charged to profit from ordinary activities before income tax as incurred or deferred where it is expected beyond any reasonable doubt that sufficient future benefits will be derived so as to recover those deferred costs. Deferred Research and Development expenditure is amortised on a straight-line basis over the period during which the related benefits are expected to be realised, once commercial production is commenced but not exceeding three years. (j) Cash For the purposes of the statement of cash flows, cash includes cash on hand and at call, deposits with banks or financial institutions, investments in money market instruments maturing within less than two months and net of bank overdrafts. (k) Comparative Figures Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year. (l) Revenue Revenue from the sale of goods is recognised upon the delivery of goods to customers. Where a Government grant is received or receivable relating to research and development costs that have been expensed, the grant is recognised as revenue. Where a grant is received or receivable relating to research and development costs that have been deferred, the grant is deducted from the carrying amount of the deferred costs. Other revenue is recognised when the right to receive the revenue has been established. All revenue is stated net of the amount of goods and services tax (GST). (m) Intangibles Goodwill Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Both purchased goodwill and goodwill on consolidation are amortised on a straight-line basis over the period of 20 years. The balances are reviewed annually and any balance representing future benefits for which the realisation is considered to be no longer profitable is written off. Patents and Trademarks Patents and trademarks are valued in the accounts at cost of acquisition and are amortised over the period in which the benefits are expected to be realised, but not exceeding 20 years. NOTE 2: REVENUE Operating activities - Sale of goods - SIP income - Interest income – other parties - Proceeds from disposals of non-current assets - Other revenue Total revenue NOTE 3: PROFIT FROM ORDINARY ACTIVITIES Profit from ordinary activities before income tax expense has been determined after: Cost of sales Borrowing costs - Other persons Depreciation of non-current assets: - Leasehold improvements - Plant and equipment - Motor vehicles - Office Equipment Amortisation of non-current assets: - Leased plant and equipment - Leased motor vehicles - Goodwill - Patents and trademarks Research and Development expenditure: - Capitalised and amortised - Expensed as incurred Formation costs written off Patents, trademarks and licenses written off Increase in provision for obsolete inventory Bad and doubtful debts: - Bad debts written off - trade debtors - Movement in provisions for doubtful debts: trade debtors Net expense of bad and doubtful debts E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ 53,692,970 1,780,090 21,451 106,747 175,763 54,230,755 47,110,674 47,745,746 344,505 17,941 125,892 15,024 1,780,090 13,261 106,747 175,763 344,505 - 125,892 15,024 55,777,021 54,734,117 49,186,535 48,231,167 31,085,033 31,377,720 29,595,896 30,528,478 1,144,662 1,472,910 1,144,662 1,481,282 15,659 1,549,297 81,546 205,549 367,113 76,215 165,000 43,784 84,773 39,563 - - 33,000 319,171 (41,214) 277,957 14,973 1,271,410 50,989 184,884 389,571 91,068 165,000 15,114 119,747 68,967 32,328 22,500 - 715 25,446 26,161 13,300 12,988 1,347,779 1,111,671 81,546 149,098 367,113 76,215 165,000 39,626 84,773 39,563 - - 33,000 80,623 (41,214) 39,409 50,989 143,479 389,571 91,068 165,000 11,031 119,747 68,967 - 22,500 - - 25,446 25,446 3 0 3 1 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 3: PROFIT FROM ORDINARY ACTIVITIES (cont’d) E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ Remuneration of the auditors of parent entity for: - Auditing the financial report - Other services Remuneration of other auditors of controlled entities – audit services Total Remuneration of Auditors Foreign currency translation losses (gains) Net loss on disposal of non-current assets - Plant and equipment Operating lease rental expense NOTE 4: INCOME TAX EXPENSE The prima facie income tax payable on profit from ordinary activities is reconciled to the income tax expense as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30% (2001 – 34%) Add: Tax effect of: - Amortisation of intangible assets - Foreign currency translation differences - Other non-allowable/non- assessable items Less: Tax effect of: 66,641 31,555 37,906 136,102 80,250 113,135 64,221 257,606 66,641 31,555 80,250 113,135 - - 98,196 193,385 17,180 (1,928) 17,180 (2,772) 9,619 1,310,189 8,415 1,148,548 9,619 8,415 1,230,942 1,051,111 1,561,697 1,595,426 1,496,446 1,438,927 49,500 - 83,994 1,695,191 59,851 48,138 49,500 59,851 - - (15,166) 1,688,249 9,283 16,882 1,555,229 1,515,660 - Deductible IPO Costs - 19,849 - 19,849 (Under)/over provision for income tax in prior year Individually significant income tax item Restatement of deferred tax balance due to change in company tax rate Income tax expense attributable to profit from ordinary activities 104,088 (40,995) (1,870) 49,938 - 26,480 - 26,480 1,591,103 1,682,915 1,557,099 1,419,393 NOTE 5: CASH ASSETS Cash on hand Cash at bank Deposits at call NOTE 6: RECEIVABLES CURRENT Trade debtors Less provision for doubtful debts Other debtors NON-CURRENT Amounts receivable from: - Controlled entities NOTE 7: INVENTORIES CURRENT Raw materials at cost Work in progress at cost Finished goods at cost Less provision for obsolescence E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ 2,628 234,620 289,234 526,482 9,137,878 (40,559) 9,097,319 2,836,424 2,450 887,036 4,316,090 5,205,576 8,558,996 (81,773) 8,477,223 1,823,638 11,933,743 10,300,861 1,450 6,000 - 7,450 2,450 154,916 4,000,000 4,157,366 3,789,686 3,315,262 (40,559) (81,773) 3,749,127 2,836,424 6,585,551 3,233,489 1,801,021 5,034,510 - - 5,653,479 10,133,031 339,513 918,379 14,006,693 (63,000) 834,460 818,391 9,771,790 (30,000) 339,513 918,379 834,460 818,391 10,885,566 5,662,179 (63,000) (30,000) 15,201,585 11,394,641 12,080,458 7,285,030 3 2 3 3 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ NOTE 8: OTHER ASSETS CURRENT Prepayments NON-CURRENT 415,893 639,264 326,112 420,636 Research & development at cost 752,574 728,595 752,574 728,595 Reconciliation of Other Non-Current Assets R E S E A R C H A N D D E V E L O P M E N T E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 728,595 781,420 (84,773) (672,668) 752,574 2001/02 $ 728,595 781,420 (84,773) (672,668) 752,574 Balance at the beginning of the year Additions Amortisation Accrued SIP Grant Carrying amount at the end of the year NOTE 9: OTHER FINANCIAL ASSETS E C O N O M I C E N T I T Y P A R E N T E N T I T Y Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ NON-CURRENT Shares in controlled entities at cost 30 - - 3,441,323 462,769 NOTE 10: PLANT AND EQUIPMENT Plant and equipment At cost Less accumulated depreciation Under lease At cost Less accumulated amortisation Leasehold Improvements At cost Less accumulated depreciation Motor vehicles At cost Less accumulated depreciation Under lease At cost Less accumulated amortisation Office equipment At cost Less accumulated depreciation 23,039,877 (4,341,849) 18,698,028 5,914,133 (1,162,104) 4,752,029 208,863 (53,303) 155,560 646,353 (146,819) 499,534 198,265 (89,094) 109,171 1,310,519 (697,555) 612,964 18,082,571 (2,776,309) 15,306,262 4,921,447 (864,832) 4,056,615 206,660 (38,031) 168,629 286,878 (62,931) 223,947 444,418 (163,812) 280,606 1,116,728 (511,243) 605,485 22,032,134 17,135,371 (3,888,145) (2,481,413) 18,143,989 14,653,958 5,914,133 4,921,447 (1,162,104) (864,832) 4,752,029 4,056,615 198,141 (48,986) 149,155 611,381 (144,487) 466,894 198,265 (89,094) 109,171 1,015,223 (557,769) 457,454 194,716 (35,686) 159,030 286,878 (62,931) 223,947 444,418 (163,812) 280,606 850,790 (413,380) 437,410 Total plant and equipment 24,827,286 20,641,544 24,078,692 19,811,566 3 4 3 5 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 11: INTANGIBLE ASSETS Goodwill on consolidation at cost Less accumulated amortisation Patents, trademarks and licenses at cost Less accumulated amortisation Reconciliation of Intangible Assets E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ 3,161,193 (655,148) 2,506,045 648,374 (72,982) 575,392 3,161,193 (490,148) 2,671,045 379,467 (56,270) 323,197 3,161,193 3,161,193 (655,148) (490,148) 2,506,045 2,671,045 570,388 (57,385) 513,003 292,592 (43,238) 249,354 3,081,437 2,994,242 3,019,048 2,920,399 G O O D W I L L P A T E N T S , T R A D E M A R K S & L I C E N C E S E C O N O M I C E N T I T Y P A R E N T E N T I T Y E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2001/02 $ 2001/02 $ 2001/02 $ Balance at the beginning of the year 2,671,045 2,671,045 Additions through business acquired Other Additions Amortisation expense Carrying amount at the end of the year - - - - (165,000) 2,506,045 (165,000) 2,506,045 323,197 250,000 45,979 (43,784) 575,392 249,354 250,000 53,275 (39,626) 513,003 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 10: PLANT AND EQUIPMENT (cont’d) Movements in Carrying Amounts Movement in the carrying amounts for each class of plant and equipment between the beginning and the end of the year: L E A S E H O L D I M P R O V E M E N T S P L A N T & E Q U I P M E N T E C O N O M I C E N T I T Y P A R E N T E N T I T Y E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 168,629 - 2,590 - (15,659) 155,560 2001/02 $ 159,030 - 3,425 - (13,300) 149,155 2001/02 $ 2001/02 $ 15,306,262 14,653,958 2,575,000 2,420,371 2,575,000 2,317,118 (54,308) (54,308) (1,549,297) (1,347,779) 18,698,028 18,143,989 L E A S E D P L A N T & E Q U I P M E N T M O T O R V E H I C L E S E C O N O M I C E N T I T Y P A R E N T E N T I T Y E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 4,056,615 1,360,128 (297,601) (367,113) 4,752,029 2001/02 $ 4,056,615 1,360,128 (297,601) (367,113) 4,752,029 2001/02 $ 223,947 357,133 - (81,546) 499,534 2001/02 $ 223,947 324,493 - (81,546) 466,894 O F F I C E E Q U I P M E N T L E A S E D M O T O R V E H I C L E S E C O N O M I C E N T I T Y 2001/02 $ 605,485 233,890 (20,862) (205,549) 612,964 P A R E N T E N T I T Y 2001/02 $ 437,410 190,004 (20,862) (149,098) 457,454 E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2001/02 $ 280,606 280,606 - (95,220) (76,215) 109,171 - (95,220) (76,215) 109,171 Balance at the beginning of the year Additions through business acquired Other Additions Disposals Depreciation expense Carrying amount at the end of the year Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year 3 6 3 7 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 E C O N O M I C E N T I T Y P A R E N T E N T I T Y E C O N O M I C E N T I T Y P A R E N T E N T I T Y Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ NOTE 12: DEFERRED TAX ASSETS The future income tax benefits comprise: - Timing differences NOTE 13: PAYABLES CURRENT Unsecured liabilities Trade creditors Sundry creditors and accruals NON-CURRENT Unsecured liabilities Amounts payable to: - Wholly owned entities NOTE 14: INTEREST-BEARING LIABILITIES 106,952 121,128 - - 3,743,371 1,501,303 5,244,674 3,658,729 1,579,911 5,238,640 3,414,555 1,193,650 4,608,205 3,353,772 1,240,075 4,593,847 - - - 49,250 CURRENT Secured liabilities Bank overdrafts Bank loans Commercial Bills Finance lease liability Hire purchase liability NON-CURRENT Secured liabilities Commercial Bills Finance lease liability Hire purchase liability 23(e) 23(e) 23(e) 27(a) 27(b) 23(e) 27(a) 27(b) 165,797 3,680,927 1,400,000 1,318,498 605,275 7,170,497 7,900,000 1,108,827 1,711,535 10,720,362 73,782 4,070,691 4,500,000 1,256,120 528,639 165,797 3,680,927 1,400,000 1,318,498 605,275 73,782 4,070,691 4,500,000 1,256,120 528,639 10,429,232 7,170,497 10,429,232 4,300,000 1,278,951 1,539,008 7,117,959 7,900,000 1,108,827 1,711,535 10,720,362 4,300,000 1,278,951 1,539,008 7,117,959 NOTE 15: INCOME TAX LIABILITIES CURRENT Income tax NON-CURRENT Deferred income tax 793,346 54,756 777,371 42,993 2,894,624 2,922,047 2,730,631 2,779,077 NOTE 16: PROVISIONS CURRENT Dividends Employee entitlements 16(a) NON-CURRENT 1,259,919 488,951 1,748,870 1,141,178 713,683 1,854,861 1,259,919 1,141,178 475,070 686,638 1,734,989 1,827,816 Employee entitlements 16(a) 590,323 100,424 590,323 100,424 (a) Aggregate employee entitlements liability (b) Number of employees at year end NOTE 17: OTHER LIABILITIES CURRENT Hedge Payable NOTE 18: NON-HEDGED FOREIGN CURRENCY BALANCES The Australian dollar equivalents of foreign currency balances included in the financial statements that are not effectively hedged are as follows: US Dollars Payables Current Non-current Receivables Current Non-current 1,079,274 814,107 1,065,393 787,062 136 133 128 122 239,189 975,798 239,189 975,798 8,160,252 12,712,605 7,523,784 12,075,754 - - - 49,250 8,160,252 12,712,605 7,523,784 12,125,004 1,518,561 5,561,612 7,080,173 6,304,024 - 6,304,024 1,731,980 5,653,479 7,385,459 1,060,283 10,133,031 11,193,314 3 8 3 9 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 19: CONTRIBUTED EQUITY Paid up Capital 41,997,296 fully paid ordinary shares (2001: 38,039,269) Movement in Share Capital Shares issued at the beginning of the financial year 3,529,412 shares issued as part of the consideration for acquisition of a business 428,615 shares issued under Dividend Reinvestment Plan Exercise of 2,933,337 options Share split – rounding adjustment 15,145,583 shares issued under the prospectus 7,145,583 shares bought back and cancelled Costs incurred in share issue E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ 20,858,448 17,549,850 20,858,448 17,549,850 17,549,850 11,002,396 17,549,850 11,002,396 3,000,000 308,598 - - - - - - - 29,333 (6) 15,145,583 (7,145,583) (1,481,873) 3,000,000 308,598 - - - - - - - 29,333 (6) 15,145,583 (7,145,583) (1,481,873) 20,858,448 17,549,850 20,858,448 17,549,850 Fully paid ordinary shares carry one vote per share and carry the right to dividends. A dividend reinvestment plan was established on 5 September 2001, and is available to all shareholders. Options The Company has entered into an executive option agreement to grant options to specified option holders over unissued shares in the Company. The options are exercisable upon achievement of certain conditions. The number of options that have been granted at the date of this report or are available to be granted are as follows: Issued Options 760,785 issued Future Options 760,755 available to be granted No options were issued, exercised or lapsed during the current financial year. The issue price of each option is zero. Each option entitles the option holder to 1 ordinary share in Gale Pacific Limited in the event that the option is exercised. The exercise price for the issued options is $1.00. Options are not exercisable before 1 December 2002 or after 1 December 2004. NOTE 20: RESERVES Foreign currency reserve Movement during the year: Opening balance Foreign currency gain/(loss) on consolidation Closing balance E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ (298,287) 108,894 108,894 2,234 (407,181) (298,287) 106,660 108,894 - - - - - - - - Exchange differences relating to foreign currency monetary items forming part of the net investment in a self-sustaining foreign operation and the translation of self-sustaining foreign controlled entities are brought to account by entries made directly to the foreign currency translation reserve, as described in Note 1(g). NOTE 21: RETAINED PROFITS Retained profits at the beginning of the financial year Net profit attributable to members of the entity Dividends provided for or paid Retained profits at reporting date NOTE 22: EQUITY Total equity at the beginning of the financial year Total changes in equity recognised in the Statement of Financial Performance Movement in contributed capital Transactions with owners as owners - Dividends - Share buy back and cancellation Total equity at reporting date 5,673,390 4,147,856 5,487,656 4,158,892 3,614,553 (2,404,037) 6,883,906 3,009,514 (1,483,980) 5,673,390 3,431,053 2,812,744 (2,404,037) (1,483,980) 6,514,672 5,487,656 23,332,134 15,152,486 23,037,506 15,161,288 3,207,372 3,308,598 3,116,174 13,693,037 3,431,053 3,308,598 2,812,744 13,693,037 (2,404,037) - 27,444,067 (1,483,980) (7,145,583) 23,332,134 (2,404,037) (1,483,980) - (7,145,583) 27,373,120 23,037,506 4 0 4 1 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ NOTE 23: CASH FLOW INFORMATION (a) Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash on hand Cash at bank At call deposits with financial institutions Bank overdrafts (b) Reconciliation of cash flow from operations with profit from ordinary activities Profit from ordinary activities after income tax Non-cash flows in profit from ordinary activities: 2,628 234,620 289,234 (165,797) 360,685 2,450 887,036 4,316,090 (73,782) 5,131,794 1,450 6,000 2,450 154,916 - 4,000,000 (165,797) (158,347) (73,782) 4,083,584 3,614,553 3,009,514 3,431,053 2,812,744 Amortisation of leased assets 443,364 480,639 443,364 480,639 Amortisation of other non-current assets Depreciation Doubtful Debts Unrealised foreign exchange movements Losses on sale of plant and equipment Accrued SIP income Changes in assets and liabilities: (Increase)/decrease in receivables (Increase) in other assets (Increase)/decrease in inventories Increase/(decrease) in payables and accruals Increase/(decrease) in income tax payable Increase/(decrease) in provisions Net Cash provided by operations 293,557 1,852,051 (41,214) 214,053 1,522,256 25,446 289,399 176,031 1,591,723 1,318,973 (41,214) 25,446 - 831,349 - 725,010 9,619 (1,107,422) 1,041,045 (645,955) 1,493,056 8,415 - 9,619 (1,107,422) 8,415 - (3,060,661) (475,400) (2,206,823) 1,145,504 (1,410,821) (797,252) 504,572 (308,953) (495,902) (695,193) 1,418,328 (680,478) 1,382,760 821,865 (63,702) 7,015,624 (200,342) 213,266 1,780,040 787,862 (45,234) (56,996) 186,221 5,531,496 4,843,567 NOTE 23: CASH FLOW INFORMATION (cont’d) (c) Acquisition of business During the financial year a business was acquired. Details of the acquisition are as follows: Consideration Cash Ordinary shares Fair value of net assets acquired Current assets Inventories Non-current assets Plant and equipment Patents Non-current liabilities Provisions Net assets acquired Net cash outflow on acquisition Cash consideration 4,900,000 3,000,000 7,900,000 5,300,000 2,575,000 250,000 (225,000) 7,900,000 4,900,000 - - - - - - - - - 4,900,000 3,000,000 7,900,000 5,300,000 2,575,000 250,000 (225,000) 7,900,000 4,900,000 - - - - - - - - - (d) Non-cash financing and investing activities Plant and equipment During the financial year the economic entity acquired plant and equipment with an aggregate fair value of $1,303,746 (2001: $275,320) by means of finance leases. These acquisitions are not reflected in the Statement of Cash Flows. (e) Credit stand-by arrangement and loan facilities Multi Option Facility and Bills Discount Facility The Company has access to a Multi Option Facility (including an AUD overdraft, USD overdraft, commercial bills, fixed rate trade advances, documentary credit and trade finance), a Bills Discount Facility and a Bank Guarantee facility to a maximum of $18,950,000 as at 30 June 2002 (2001 $14,450,000), leaving an unused facility of $3,653,276 (2001: $997,949). This facility is secured by a First Ranking Registered Equitable Mortgage by Gale Pacific Limited over all its assets and undertakings including uncalled capital, a First Ranking Registered Equitable Mortgage by Gale Pacific USA Inc over all its assets and undertakings including uncalled capital, and a First Ranking Registered Equitable Mortgage by Gale Pacific Inc. 4 2 4 3 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 24: COMPANY DETAILS The registered office of the company is: Gale Pacific Limited 145 Woodlands Drive Braeside Victoria 3195 NOTE 25: DIRECTORS’ AND EXECUTIVES’ REMUNERATION The Directors of the parent entity who held office during the year were: Dr Huw Geraint Davies Peter Ronald McDonald Gary Stephen Gale Theo John Eversteyn Daryl Edward James Reilly Total income paid or payable to all Directors of the economic entity by the parent entity and any related parties: The number of Directors whose total income from the Company and related bodies corporate falls within each successive $10,000 band of income: $0 $20,000 $30,000 $40,000 - - - - $9,999 $29,999 $39,999 $49,999 $160,000 - $169,999 $250,000 - $259,999 $360,000 - $369,999 $720,000 - $729,999 $960,000 - $969,999 Aggregate remuneration of executive officers of the Company working mainly in Australia and receiving $100,000 or more from the Company The number of executive officers whose remuneration falls within each successive $10,000 band of income: $170,000 - $179,999 $240,000 - $249,999 E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ 719,897 1,919,360 719,897 1,919,360 No. No. No. No. - - 2 1 - 1 1 - - $ 1 2 - - 1 - - 1 1 $ - - 2 1 - 1 1 - - $ 1 2 - - 1 - - 1 1 $ 170,519 249,659 170,519 249,659 No. 1 - No. - 1 No. 1 - No. - 1 NOTE 26: DIVIDENDS Ordinary Shares Interim dividend – franked to 30% (2001: 34%) Final dividend – franked to 30% (2001: 30%) Premier Shares Interim dividend – franked to 34% Preference Shares Interim dividend – franked to 34% Adjusted franking account balance 2 0 0 1 / 0 2 2 0 0 0 / 0 1 C E N T S P E R S H A R E T O T A L $ C E N T S P E R S H A R E T O T A L $ 3.0 3.0 - - 1,144,118 1,259,919 - - 2,404,037 4,021,982 2.98 3.0 54,654 1,141,178 2.98 137,822 2.98 150,326 1,483,980 2,921,594 E C O N O M I C E N T I T Y P A R E N T E N T I T Y Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ NOTE 27: CAPITAL AND LEASING COMMITMENTS (a) Finance Leasing Commitments Payable - not later than one year - later than one year and not later than five years Minimum lease payments Less future finance charges Total lease liability Represented by: Current liability Non-current liability 14 14 1,567,088 1,437,906 1,567,088 1,437,906 1,351,359 2,918,447 491,122 2,427,325 1,318,498 1,108,827 2,427,325 1,366,349 2,804,255 269,184 2,535,071 1,256,120 1,278,951 2,535,071 1,351,359 2,918,447 491,122 1,366,349 2,804,255 269,184 2,427,325 2,535,071 1,318,498 1,108,827 2,427,325 1,256,120 1,278,951 2,535,071 The consolidated entity leases production plant and equipment under finance leases expiring from one to five years. At the end of the lease term the consolidated entity has the option to purchase the equipment deemed to be a bargain purchase option. 4 4 4 5 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 E C O N O M I C E N T I T Y P A R E N T E N T I T Y Note 2001/02 $ 2000/01 $ 2001/02 $ 2000/01 $ NOTE 27: CAPITAL AND LEASING COMMITMENTS (cont’d) (b) Hire purchase commitments Payable - not later than one year - later than one year and not later than five years Minimum hire purchase payments Less future finance charges Total hire purchase liability Represented by: Current liability Non-current liability 14 14 (c) Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the accounts: Payable - not later than one year - later than one year and not later than five years - later than five years 801,724 697,144 801,724 697,144 1,953,178 2,754,902 438,092 2,316,810 605,275 1,711,535 2,316,810 1,791,052 2,488,196 420,549 2,067,647 528,639 1,539,008 2,067,647 1,953,178 2,754,902 438,092 1,791,052 2,488,196 420,549 2,316,810 2,067,647 605,275 1,711,535 2,316,810 528,639 1,539,008 2,067,647 2,527,139 1,310,189 2,470,098 1,230,942 8,750,795 1,445,454 12,723,388 5,228,458 2,752,731 9,291,378 8,640,278 1,445,454 12,555,830 5,042,125 2,752,731 9,025,798 The company leases property under operating leases expiring in 1 to 6 years. Leases of property generally provide the Company with a right of renewal at which time all lease are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on the consumer price index. NOTE 28: CONTINGENT LIABILITIES Estimates of the maximum amounts of contingent liabilities that may become payable: - 450,000 - 450,000 NOTE 29: RELATED PARTY TRANSACTIONS (a) Equity Investments in Controlled Entities Details of the percentage of ordinary shares held in controlled entities are disclosed in Note 30 to the financial statements. (b) Directors’ Remuneration Details of Directors’ remuneration are disclosed in Note 25. (c) Directors’ Equity Holdings F U L L Y P A I D O R D I N A R Y S H A R E S P O S T - F L O A T S H A R E O P T I O N S P R E - F L O A T O P T I O N S P R E M I E R S H A R E S 2002 2001 2002 2001 2002 2001 2002 2001 Opening balance held by Directors and their Director-related entities in the controlling entity: Issues during the financial year to Directors and their Director-related entities by the controlling entity: Conversion of shares held by a Director-related entity in the controlling entity: Exercise of pre-float share options by Directors and their Director-related entities in the controlling entity: Split of Ordinary shares held by Directors and their Director-related entities in the controlling entity: Buyback and cancellation of shares held by Directors and their Director- related entities in the controlling entity: Acquisition of shares through the share market, the Dividend Reinvestment Plan and the Initial Public Offer by Directors and their Director-related entities in the controlling entity: Held as at the reporting date by Directors and their Director-related entities in the controlling entity: 17,750,646 1,711,208 760,785 - - - - - - - 4,625,000 2,370,737 9,403,501 (478,400) 41,841 118,600 - - - - - - 760,785 - - - - - 17,792,487 17,750,646 760,785 760,785 - - - 800,001 - 4,625,000 1,570,736 - - - - (4,625,000) - (2,370,737) - - - - - - - - - - - - - - - - - - All ordinary shares and executive share options issued to the Directors during 2000/01 were made in accordance with the provisions of the executive share option plan. Further details of the executive share option plan are contained in the Directors’ Report and Note 19 to the financial statements. (d) Transactions with Directors and Director-related entities The following amounts were payable to Directors as at the reporting date: E C O N O M I C E N T I T Y P A R E N T E N T I T Y 2001/02 $ 10,000 2000/01 $ 19,000 2001/02 $ 10,000 2000/01 $ 19,000 The 2000/01 contingent liability was in relation to a Government Grant received by the business prior to its acquisition. The grant was subject to performance criteria, and the contingent liability no longer exists. Current 4 6 4 7 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 29: RELATED PARTY TRANSACTIONS (cont’d) NOTE 31: SEGMENT REPORTING Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Inter-segment pricing is predominantly determined on an arm’s length basis. Geographical segment In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. The consolidated entity comprises the following main geographical segments, based on the consolidated entity’s management reporting system: Asia/Pacific Manufacturing and distribution facilities are located in Victoria, Australia. Sales offices are located in all states in Australia and through distribution agreements in New Zealand. USA The main sales office is located in Florida which services the North American region. Middle East A sales office is located in the United Arab Emirates which services the region. Business Segment The consolidated entity operates predominantly in one business segment, being the advanced polymer fabrics industry. The consolidated entity manufactures and markets advanced durable knitted and coated polymer fabrics and value added structures made from these fabrics. (d) Transactions with Directors and Director-related entities (cont’d) Gale Pacific USA Inc leased office space from Gary and Anne Gale in 2001. This lease was terminated prior to the Company’s listing on 14 December 2000. Lease rentals paid were zero in 2002 (2001 $US48,000). Theo Eversteyn is a Partner of the Chartered Accounting firm Bentleys MRI. In addition to Directors fees received (and disclosed in Note 25) Bentleys MRI have provided taxation and other business advice during the year ended 30 June 2002 to Gale Pacific Limited. The value of services provided was $169,407 (2001 $91,503). Daryl Reilly is a director of Advent Management Group Limited (“Advent”). In addition to Directors fees paid (and disclosed in Note 25), in 2001 Advent was paid $30,000 (2002 nil) by the Company for services provided by Mr Reilly in relation to the Initial Public Offering. During the financial year, Directors and their Director-related entities purchased goods, which were domestic or trivial in nature, from the Company on the same terms and conditions available to other employees and customers. (e) Transaction Within the Wholly-Owned Group The wholly-owned group includes: - The ultimate parent entity in the wholly-owned group; and - Wholly-owned controlled entities. The ultimate parent entity in the wholly-owned group is Gale Pacific Limited, which is also the parent entity in the economic entity. Amounts receivable from and payable to entities in the wholly-owned group are disclosed in the Notes 6 and 13. These amounts are repayable at call, and no interest is charged on outstanding balances. Transactions that occurred during the financial year between entities in the wholly owned group were: - Sale and purchase of goods at cost plus mark up of up to 30%. - Sales commission of 10%. - Reimbursement of certain operating costs. NOTE 30: CONTROLLED ENTITIES Parent Entity: Gale Pacific Limited Controlled Entities: Gale Pacific USA Inc. Gale Pacific FZE C O U N T R Y O F I N C O R P O R A T I O N O W N E R S H I P I N T E R E S T ( % ) 2001/02 2000/01 Australia - - USA United Arab Emirates 100% 100% 100% 100% 4 8 4 9 N O T E S T O T H E F I N A N C I A L N O T E S T O T H E F I N A N C I A L S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 NOTE 31: SEGMENT REPORTING (cont’d) NOTE 32: EARNINGS PER SHARE A S I A / P A C I F I C U S A M I D D L E E A S T E L I M I N A T I O N S C O N S O L I D A T I O N $’000 $’000 $’000 $’000 $’000 Primary Reporting Geographical Segments 2002 Revenue outside the economic entity Inter-segment revenue Total revenue Segment operating profit Income tax expense Operating profit after tax Depreciation and amortisation Non-cash expenses other than depreciation and amortisation Individually significant items: Reimbursement of R&D expenditure Segment assets Unallocated assets Total assets 15,648 - 15,648 1,092 - 1,092 39,037 9,340 48,377 4,988 (1,557) 3,431 2,324 378 1,780 432 (34) 398 259 - - 46,851 9,339 Segment liabilities Unallocated liabilities Total liabilities Acquisition of non-current assets 25,841 641 6,414 188 2001 Revenue outside the economic entity Inter-segment revenue Total revenue Segment operating profit Income tax expense Operating profit after tax Depreciation and amortisation Non-cash expenses other than depreciation and amortisation Individually significant items: Reimbursement of R&D expenditure Segment assets Unallocated assets Total assets 38,823 8,469 47,292 4,232 (1,419) 2,813 1,975 212 345 14,954 - 14,954 349 (264) 85 207 - - 40,821 11,046 Segment liabilities Unallocated liabilities Total liabilities Acquisition of non-current assets 25,100 637 6,463 374 1 - 1 6 10 - 766 25 35 957 - 957 24 - 24 1 17 - 501 35 21 - (9,340) (9,340) (215) - (215) - - - (217) - - - (8,469) (8,469) 87 - 87 - - - (463) - - 55,777 - 55,777 5,206 (1,591) 3,615 2,589 388 1,780 56,739 107 56,846 26,507 2,895 29,402 6,637 54,734 - 54,734 4,692 (1,683) 3,009 2,183 229 345 51,905 121 52,026 25,772 2,922 28,694 6,858 Earnings used in the calculations of basic and diluted earnings per share Weighted average number of ordinary shares used in the calculation of basic earnings per share Share options on issue Share options exercised Share options issued Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share NOTE 33: FINANCIAL INSTRUMENTS (a) Financial instruments C O N S O L I D A T E D 2001/02 2000/01 $3,614,553 $3,009,514 38,204,041 32,543,216 760,785 6,101,340 - - (4,112,136) 427,290 38,964,826 34,959,710 Derivative Financial Instruments Derivative financial instruments may be used by the economic entity to hedge exposure to exchange rate risk associated with foreign currency borrowings. The derivative financial instruments are recognised in the financial statements. Transactions for hedging purposes are undertaken without the use of collateral as the Company only deals with reputable institutions with sound financial positions. (b) Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount of those assets, net of any provisions for doubtful debts of those assets, as disclosed in the statement of financial position and notes to the financial statements. Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts is the net fair value of these contracts. The economic entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the economic entity. (c) Net Fair Values The net fair value of assets and liabilities approximates their carrying value. No financial assets and financial liabilities are readily traded on organised markets in standardised form other than forward exchange contracts and interest rate swaps. 5 0 5 1 N O T E S T O T H E F I N A N C I A L A D D I T I O N A L S T O C K E X C H A N G E S T A T E M E N T S f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 2 I N F O R M A T I O N a s a t 2 4 S e p t e m b e r 2 0 0 2 NOTE 33: FINANCIAL INSTRUMENTS (cont’d) Number of Holdings of Equity Securities (d) Interest Rate Risk The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: 30 JUNE 2002 NOTE Financial Assets Cash assets Receivables Financial Liabilities Payables Bank overdrafts and loans Commercial bills Commercial bills Lease liabilities Hire purchase liabilities Hedge payable Dividends payable Employee entitlements 5 6 13 14 14 14 14 14 17 16 16 30 JUNE 2001 NOTE Financial Assets Cash assets Receivables Financial Liabilities Payables Bank overdrafts and loans Commercial bills Commercial bills Lease liabilities Hire purchase liabilities Hedge payable Dividends payable Employee entitlements 5 6 13 14 14 14 14 14 17 16 16 WEIGHTED FLOATING INTEREST AVERAGE RATE INTEREST $‘000 RATE FIXED INTEREST RATE $‘000 NON INTEREST BEARING $‘000 MATURING TOTAL $‘000 1 YEAR OR LESS $‘000 1 TO 5 MORE THAN YEARS $‘000 5 YEARS $‘000 2.0% - - 4.2% 6.9% 5.5% 8.8% 8.2% - - - 289 - 289 - 3,847 - 5,000 - - - - - 8,847 - - - 237 11,934 12,171 526 11,934 12,460 - - 4,300 - 2,427 2,317 - - - 9,044 5,245 - - - - - 239 1,260 1,079 7,823 5,245 3,847 4,300 5,000 2,427 2,317 239 1,260 1,079 25,714 - - - - - 600 800 1,318 605 239 - - 3,562 - - - - - 2,400 4,200 1,109 1,712 - - - 9,421 - - - - - 1,300 - - - - - - 1,300 WEIGHTED FLOATING INTEREST AVERAGE RATE INTEREST $‘000 RATE FIXED INTEREST RATE $‘000 NON INTEREST BEARING $‘000 MATURING TOTAL $‘000 1 YEAR OR LESS $‘000 1 TO 5 MORE THAN YEARS $‘000 5 YEARS $‘000 5.0% - - 4.4% 6.9% 5.6% 8.9% 7.7% - - - 5,203 - 5,203 - 4,144 - 4,000 - - - - - 8,144 - - - 3 10,301 10,304 5,206 10,301 15,507 - - 4,800 - 2,535 2,068 - - - 9,403 5,239 - - - - - 976 1,141 814 8,170 5,239 4,144 4,800 4,000 2,535 2,068 976 1,141 814 25,717 - - - - - 500 4,000 1,256 529 737 - - 7,022 - - - - - 2,400 - 1,279 1,539 239 - - 5,457 - - - - - 1,900 - - - - - - 1,900 The fully paid issued capital of the Company consisted of 41,997,296 ordinary fully paid shares held by 710 shareholders. Each share entitles the holder to one vote. Two option holders hold 760,785 options over ordinary shares. Options do not carry a right to vote. Distribution of Holders of Equity Securities S I Z E O F S H A R E H O L D I N G N U M B E R O F S H A R E H O L D E R S F U L L Y P A I D O R D I N A R Y S H A R E S O P T I O N S O V E R O R D I N A R Y S H A R E S 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Holdings less than a marketable parcel Substantial Shareholders Shareholder Gale Australia Pty Ltd Gary Stephen Gale Barbara Gale Thorney Holdings Pty Ltd Equipsuper Pty Ltd Warrakiri Asset Management Pty Ltd Perpetual Trustees Consolidated Limited 35 259 204 190 22 710 11 2 2 - % 35.1% 35.1% 35.1% 11.5% 7.5% 5.9% 5.6% Number 14,759,134 14,759,134 14,759,134 4,828,682 3,132,579 2,472,469 2,338,440 The substantial shareholding of Thorney Holdings Pty Ltd includes the holding of Invia Custodian Pty Ltd, (No. 9 on the schedule of Twenty Largest Holders of Quoted Equity Securities following). 5 2 5 3 A D D I T I O N A L S T O C K E X C H A N G E I N F O R M A T I O N a s a t 2 4 S e p t e m b e r 2 0 0 2 Twenty Largest Holders of Quoted Equity Securities Ordinary Shareholders 1. Gale Australia Pty Ltd 2. Thorney Holdings Pty Ltd 3. National Nominees Limited 4. National Nominees Limited 5. 6. 7. Perpetual Trustees Consolidated Limited St George Development Capital Limited Equity Trustees Limited 8. Ms Anne Gale 9. Invia Custodian Pty Limited 10. Permanent Trustee Australia Limited 11. Benefund Limited 12. Mrs Diane Kay Riddell 13. Mr Peter R McDonald 14. McRoss Developments Pty Ltd 15. Carnethy Investments Pty Ltd 16. Michetyn Pty Ltd 17. Karen Lynette McDonald 18. Guardian Trust Australia Ltd 19. Barr Pty Ltd 20. Perpetual Custodians Limited Total Number 14,759,134 4,179,412 3,253,062 2,777,465 2,338,440 1,437,599 1,254,676 936,000 649,270 500,000 450,000 319,600 291,200 258,500 250,000 185,000 179,310 150,000 125,000 125,000 % 35.1% 10.0% 7.7% 6.6% 5.6% 3.4% 3.0% 2.2% 1.5% 1.2% 1.1% 0.8% 0.7% 0.6% 0.6% 0.4% 0.4% 0.4% 0.3% 0.3% 34,418,668 82.0% The twenty members holding the largest number of shares together held a total of 82.0% of the issued capital. Other information: The name of the Company Secretary is Mr R L House. The address of the principal registered office in Australia, and the principal administrative office, is: 145 Woodlands Drive, Braeside, Vic, 3195, Tel: (03) 9518 3333 The Company is listed on the Australian Stock Exchange. The home exchange is Melbourne. Registers of securities are held by: Computershare Investor Services Pty Ltd Level 12, 565 Bourke Street, Melbourne, Victoria, 3000 Ph (03) 9611 5711 Fax (03) 9275 7925 THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY. 5 4 5 5 THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY. THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY. 5 6 5 7 L I M I T E D WAW GPL823
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