GALE Pacific
Annual Report 2003

Plain-text annual report

L I M I T E D C O N T E N T S 4 - 5 C H A I R M A N ’ S R E P O R T 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 4 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 6 - 2 1 D I R E C T O R S ' R E P O R T 2 2 I N D E P E N D E N T A U D I T R E P O R T 2 4 D I R E C T O R S ’ D E C L A R A T I O N 2 6 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 2 7 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 2 8 S T A T E M E N T O F C A S H F L O W S 2 9 - 5 3 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 (cid:1) KELMATT AUSTRALIA (cid:1) ABC PRODUCTS (cid:1) ROCKLEA CANVAS (cid:1) J D & M J KNIGHT (cid:1) PORTCO (cid:1) NOLAN WAREHOUSES (cid:1) J A GRIGSON (cid:1) LOWES (cid:1) HARRIS SCARFE (cid:1) BHP COLLIERS (cid:1) ACADEMY TARPS (cid:1) PATCHS CANVAS MANUFACTURING (cid:1) SUN ‘N SURF INTERNATIONAL (cid:1) WALMART 5 4 - 5 5 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 (cid:1) MAXITRANS MANUFACTURING (cid:1) C E BARTLETT (cid:1) ICL (cid:1) TASMAN INSULATION AUSTRALIA (cid:1) DARLING DOWNS TARPAULINS (cid:1) ORCHARD SUPPLY HARDWARE (cid:1) THOR BUILDING PRODUCTS (cid:1) ABGAL (cid:1) DIXIELINE (cid:1) JAYLON INDUSTRIES (cid:1) BUNNINGS (cid:1) FRED MEYER (cid:1) N L PRODUCTS (cid:1) A MART (cid:1) HARVEY NORMAN (cid:1) JOHN DANKS & SON (cid:1) RADINS CANVAS (cid:1) K MART (cid:1) MITRE 10 (cid:1) THE HOME DEPOT (cid:1) STRATCO (cid:1) VISY (cid:1) COSTCO (cid:1) DAVID JONES (cid:1) PETS INTERNATIONAL (cid:1) WESTARP (cid:1) HOME HARDWARE (cid:1) MAGNET MART (cid:1) OASIS TENSION STRUCTURES (cid:1) 2 3 C H A I R M A N ’ S R E P O R T f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 A Y E A R O F G R O W T H A N D C H A L L E N G E Gale Pacific Limited achieved a record after tax profit for the 2002/03 financial year as a result of strong organic growth in its Australian retail business, effective integration of the Industrial Fabrics business acquired in 2001/02 from the Visy Group and the November 2002 acquisition of the business of California Sun Shades Inc. The strategic goal of lessening the Company’s dependence upon the Australian summer season has been successful. The Industrial Fabrics business and Gale’s own commercial fabrics now account for 35% of total sales. The Industrial business is positioned for organic growth with the agricultural sector poised for a much improved winter and spring season and new products and applications being launched. The acquisition of California Sun Shades provided a strong boost to our USA operation which was impacted by a late summer season and a flat market. The external window shades complement our established product range and are expected to assist in penetrating more major retail accounts in the USA. International growth was also achieved in the Middle East with strong sales and margin growth. New markets are continually being evaluated and the outlook for our commercial fabrics remains positive. Gale Pacific has unique technology for the manufacture of advanced polymer fabrics at its Braeside, Victoria plant. Productivity initiatives have been successful and production costs remain most competitive. Historically Gale has sourced the large majority of its value added retail products from third party suppliers in the Peoples Republic of China. An embryonic Chinese manufacturing operation came with the California Sun Shades acquisition. This has been expanded rapidly over the past 8 months and a major new manufacturing facility is under construction in the Ningbo industrial area south of Shanghai. It is anticipated that in the forthcoming financial year most value added products will be sourced from the Gale Pacific China operation. This initiative is of vital importance to Gale’s future as the Company can better control its own costs and enhance its position as a low cost producer. Equally importantly the major USA and European retailers are increasingly demanding to be supplied directly from the Asian manufacturers and not through third parties. F I N A N C I A L P E R F O R M A N C E Gale Pacific Limited generated an after tax profit attributable to members of $5.45 million, an increase of just over 50% over the prior year on revenues of $84.6 million ($55.7 million in prior year). This strong result was after absorbing one time net costs of $1.2million after tax which predominantly related to the integration and restructuring of the Industrial Fabrics and California Sun Shades businesses. Working capital management remains a key performance indicator and operational cash flow was $6.3 million after absorbing a substantial one-time inventory build associated with the two acquisitions and the increasing scale of production in the Chinese operation. 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 The Directors have declared a fully franked final dividend of 3.5 cents per share payable on 16 October 2003 making a full year dividend of 7 cents per share fully franked representing 55% of after tax profits attributable to members. This is in accordance with the policy announced on 30 August 2002. Having taken on additional debt in relation to the acquisition program, the Company intends to pay out approximately 50% - 55% of after tax profits, subject to the performance of the acquisitions. The Industrial Fabrics business has been successfully integrated and is trading well. Further, the acquisition of California Sun Shades and the on-going performance of our expanding Chinese operations is most pleasing. The books closure date for determining entitlements for the dividend is 25 September 2003. A Dividend Reinvestment Plan is available to all shareholders. 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 3 T H E F U T U R E The key goals for the forthcoming financial year are: • To generate organic growth in all facets of the business and in the Industrial Fabrics area in particular; • To successfully produce at low cost and on time all value added products from the Chinese operation; • To establish a foothold in the key European markets; • To enter the commercial/industrial markets in the USA with our new waterproof fabric range and fire retardant fabrics; • To continue the Company’s growth throughout the Middle East region; and • To maintain new product development and commercialisation initiatives. P E O P L E I would like to express my appreciation to all our people for the efforts over the past year which have resulted in Gale Pacific being established as a growth business with a track record of successful integration of acquisitions. 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 is enclosed with this report. A resolution is proposed to refresh shareholder approval of the Company’s Option Plan that was implemented by the Board in November, 2000. Further, Mr Theo Eversteyn retires as a Director by rotation in accordance with the constitution of the Company and, being eligible, offers himself for re-election. The Board endorses both resolutions. D R H U W G D A V I E S CHAIRMAN Dated: 19 September 2003 A key goal is to enter the commercial/industrial markets in the USA with our new waterproof fabric range and fire retardant fabrics. 4 5 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 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 C O N T I N U A T I O N O F S T R O N G C O R E G R O W T H A U G M E N T E D B Y S T R A T E G I C A C Q U I S I T I O N S The expanding product base of Gale Pacific’s world leading advanced polymer fabric range and related value added products continues to deliver very strong growth in revenue and profits. Gale’s commitment to research and development led to a number of new product initiatives. In addition the Company’s recent acquisitions of Visy Industrial Fabrics and California Sun Shades Inc. (“CalShades”) have increased the potential for increased sales in domestic and offshore markets. With the two acquisitions fully integrated, the focus will be on geographic expansion, continued new product development and cost reduction. The CalShades acquisition enabled the Company to take a majority position in a Joint Venture (“JV”) manufacturing enterprise in the People’s Republic of China. During the year, the Company made a significant investment in skilled people and facilities, which is reducing the cost base of our core products. The combination of an improved and successful research and development program together with the ability of our Chinese plant to reduce cost has positioned the Company well for growth. Our Middle East operation has expanded significantly, both in the local United Arab Emirates market and geographically as far as the former Soviet Republic of Kazakhstan. The Company is in the process of evaluating potential expansion opportunities in the European market, with recent research indicating substantial opportunities for the Company’s shade-related products in Southern Europe, and also for coated products such as waterproof fabrics in Northern Europe. Gale is also entering new retail markets with pet beds and privacy screens for fencing utilising our core knitted fabrics, and exploring non-wicking, environmentally- friendly replacement fabrics for PVC tarpaulins. R E S U L T S The Company earned a net profit of $5.45 million attributable to members, an increase of just over 50% on the prior year. During the year, the Company incurred one time net costs of some $1.2 million after tax, predominantly relating to the Company’s acquisitions. Revenue for the year was $84.6 million, an increase of 51% on last year with a particularly strong Australian retail season and Middle East industrial volumes. The Company benefited from the contributions of the Industrial Fabric business purchased in June 2002 from Visy Industries, the November 2002 acquisition of the CalShades business together with the associated Chinese Joint Venture. The strong Australian retail performance more than offset the drought-affected industrial fabric range. This demonstrates the success of the Company’s strategy of mitigating the impact of weather on our operations. Significantly, the Company’s revenues and earnings for the year have been generated fairly equally between the first and second halves, also demonstrating the success of the Company’s strategy in developing a more balanced earnings stream through the year from the northern and southern hemisphere operations. This will be more evident in the forthcoming year. The Company has previously stated a goal of continuous improvement in working capital management and is well satisfied with this year’s result. The Company consciously built inventory prior to year end to accommodate the relocation of several of the value adding operations in China from external contractors to our own in-house manufacturing facility in Ningbo. These moves are expected to translate into improved cash flows in 2003/04. Further advances in technologies continue to strengthen our global competitiveness. 6 7 S A L E S P R O D U C T M I X D I V I D E N D S 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 ( 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 3 Window Furnishings 14% Retail Fabric 38% Structures 13% A C Q U I S I T I O N S C H I N A Commercial Fabric 35% The Company’s China JV was established with CalShades’ principal supplier owning 15% of the business. Gale has moved the large majority of its outsourced value added activities into the JV, achieving material cost and efficiency benefits. The mix of business of the JV has changed substantially and an opportunity arose to purchase our partner’s shares for approx. US$400,000 and convert the business to a wholly owned foreign enterprise in China. As a wholly owned foreign enterprise, Gale is afforded all of the same benefits from the Chinese Government that it received as a JV partner. The Company has previously announced the construction of manufacturing facilities in Beilun/Ningbo costing some US$2 million. These facilities are now starting to take shape and will be our manufacturing and administrative headquarters in China, producing at least 80% of all product sourced in China for our worldwide operations. Its first phase will be made up of some 15,000m2 for manufacturing operations, administrative offices and accommodation for 850 employees. The facility will expand to 31,000m2 as phases 2 and 3 are completed as required over the next 2 years. The sales, marketing and manufacturing functions of the Visy Industrial Fabrics business have been fully integrated into Gale’s operations. A focus on product and market development will provide ongoing growth opportunities. These include the application of newly developed fabrics for the transportation of water in large flexible pipes and applications that further manage the quality of storage water. Also, with the easing of the nationwide drought, the coming year should provide significant volume improvement in agricultural applications. The Company is now also concentrating on realising the synergies of our new operations. A recent achievement is the introduction of waterproof shadecloth. This represents a combination of our traditional light knitted fabric with a new coating that includes an ultra-violet (“UV”) blocking agent. This fabric is water proof and allows improved light penetration, while cutting UV by 99.5%. The CalShades acquisition is fully integrated and produced a solid contribution to our results this year. The addition of CalShades to Gale’s USA product range allows us to offer the USA market a “Good, Better, Best” program which will enable the retailers to consolidate their sourcing to one supplier. This integration is proving very successful and has raised Gale’s profile in major retailers such as Home Depot, Lowes and a major new account, Costco. The CalShades product range will be progressively introduced into the Australian and European markets under the Coolaroo brand. The base PVC fabrics will also be incorporated into our Industrial product offering. Gale Share Price All Ordinaries Index SHARE PRICE PROGRESS $2.80 $2.60 $2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 Gale Share Price $1.00 All Ordinaries Index $2.63 5,600.0 5,100.0 4,600.0 4,100.0 3,600.0 3,100.0 2,600.0 5-Jul-02 13-Sep-02 22-Nov-02 31-Jan-03 11-Apr-03 20-Jun-03 18-Sep-03 The Gale Share Price has continued to outperform the All Ordinaries Index since July, 2002 0 0 0 $ 0 0 0 $ 0 0 0 $ 3,500 3,000 2,500 2,000 1,500 1,000 500 9,000 8,000 7,000 6,000 5,000 4,000 3,000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 3,009 2,404 1,484 2000/01 2001/02 2002/03 Years P R O F I T B E F O R E I N C O M E T A X 7,773 5,206 4,692 2000/01 2001/02 2002/03 Years R E V E N U E 84,609 54,734 55,777 2000/01 2001/02 2002/03 Years 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 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 3 B O A R D 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 and the Company’s exposure to exchange rate fluctuations, which has successfully minimized exchange differences over the last four years. The Board’s remuneration committee meets from time to time to review performance and establish the remuneration levels for the senior executives of the Company. O U R P E O P L E I wish all our employees well in this exciting year ahead and thank them all for their sterling efforts in meeting last year’s challenges. I would also like to thank them sincerely for their efforts of support to our new Chinese team that has more than doubled our employee base. G A R Y S G A L E MANAGING DIRECTOR Dated: 19 September 2003 Our involvement in the various agribusiness sectors is adding an exciting new dimension to our growth opportunities. 10 11 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 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 ( C O N T ’ D ) 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 Board has a policy of enabling Directors to seek independent professional advice at the Company’s expense, subject to estimated costs being approved by the Chairman in advance as being reasonable. 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; This statement sets out the corporate governance practices that were in operation throughout the financial year, which substantially comply with the ASX Corporate Governance Council recommendations. The Company has complied with the recommendations fully from the date of this report. R O L E O F T H E B O A R D 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; 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 report, the Board comprises 3 Non- executive, independent Directors and 2 Executive Directors. The names and details of the Directors are contained in the Directors’ Report. The composition of the Board is determined according to the following principles: • The maximum number of Directors is 12 or such other number as the Company by resolution determines; • An independent Non-executive Director as Chairman; • A majority of Non-executive, independent Directors. Gale Pacific Limited’s constitution provides that: • The Directors may appoint a 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 • The expectation of the Board in relation to attending and preparing for all Board Meetings and other duties; • Procedures for dealing with conflicts of interest; • Trading policy governing dealings in the Company’s securities, 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. 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. D I R E C T O R S A N D E X E C U T I V E S D E A L I N G S I N C O M P A N Y S H A R E S Directors and Executives may acquire or sell shares in the Company only under the following conditions: • Between 1 and 14 days after either the release of the Company’s half-year or annual results to the Australian Stock Exchange (“ASX”), the annual general meeting or any major announcement; and • At all other times only with the approval of the Chairman, or in his absence, the Deputy Chairman. Directors and Executives must disclose their trading in Company shares to the Board. The Company Secretary reports to each Board Meeting the details of share trading for the largest 40 shareholders and for Directors and Executives. A U D I T C O M M I T T E E The Board has an Audit Committee. The primary objective of the Audit Committee is to assist the Board in fulfilling the Board’s responsibilities relating to accounting, internal control and reporting practices of the Company and its subsidiaries. The main functions of the Audit Committee are: • To review the annual and half-year financial reports and new accounting policies to ensure compliance with Australian Accounting Standards and generally accepted accounting principles; • To monitor corporate risk assessment processes; • To review the performance of the external auditor. The external audit engagement partner is not rotated; however the auditor’s internal quality review processes including second partner review are accepted by the Committee. • To monitor the establishment of an appropriate internal control framework, and appropriate ethical standards; • To monitor the procedures to ensure compliance with the Corporations Act 2001 and the ASX Listing Rules and all other regulatory requirements; and • To address any matters outstanding with auditors, Australian Taxation Office, Australian Securities and Investments Commission, ASX and financial institutions. At the date of this report the Audit Committee consists of two independent Non-Executive Directors, Mr T. Eversteyn and Mr D. Reilly, and an Executive Director, Mr G. Gale. The Committee has access to management and the external auditors. C O N T I N U O U S D I S C L O S U R E A comprehensive policy and process is in place to identify matters that may have a material effect on the price of the Company’s securities and notify them to the ASX and post them on the Company’s web site. The CEO and the Company Secretary are responsible for interpreting the Company’s policy and where necessary informing the Board. The Company Secretary is responsible for all communications with the ASX. T H E R O L E O F S H A R E H O L D E R S The Board informs shareholders of all major developments affecting the consolidated entity’s state of affairs as follows: • The annual report is distributed to all shareholders, including relevant information about the operations of the consolidated entity during the year and changes in the state of affairs; • The half-yearly report to the ASX contains summarised financial information and a review of the operations of the consolidated entity during the period; • All major announcements to the ASX are distributed to shareholders, and posted on the Company’s website at www.galepacific.com; • Proposed major changes in the consolidated entity which may impact on share ownership rights are submitted to a vote of shareholders; 12 13 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 ( C O N T ’ D ) • The Board encourages full participation of R E M U N E R A T I O N C O M M I T T E E The Board has a Remuneration Committee consisting of two independent Non-executive Directors, Mr T. Eversteyn and Mr D. Reilly. The Committee meets once a year and as required. The Committee met twice during the year. 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 and share option schemes), superannuation, and entitlements upon retirement or termination, are reviewed with due regard to performance and other relevant factors. The Company’s remuneration policy is designed 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. Executive Directors do not receive Director’s fees and Non-executive Directors may from time to time receive additional remuneration for services performed outside their normal duties as Directors as approved by the Board from time to time. The payment of equity based remuneration is made in accordance with thresholds set in plans approved by shareholders. 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. shareholders at the annual general meeting to ensure a high level of accountability and identification with the consolidated entity’s strategy and goals. Important issues are presented to the shareholders as single resolutions; and • The Company’s auditor attends the annual general meeting. B U S I N E S S R I S K M A N A G E M E N T The Audit Committee and management advise the Board and report on the status of business risks through integrated risk management programs aimed at ensuring risks are identified, assessed and appropriately managed. The consolidated entity’s risk management policies and procedures cover environment, occupational health and safety, property, financial reporting and internal control. Each business operational unit is responsible and accountable for implementing and managing the standards required by the program. Comprehensive practices are established such that: • Capital expenditure above a certain amount requires prior Board approval; • Financial exposures are controlled, including the use of derivatives; • Occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations; and • Business transactions are properly authorised and executed. N O M I N A T I O N C O M M I T T E E The Nomination Committee consists of all members of the Board. It reviews the performance of the committees of the Board and key executives on an ongoing basis, and oversees the appointment and induction process for Directors. It reviews the composition of the Board and makes recommendations on the appropriate skill mix, personal qualities, expertise and diversity. When a vacancy exists or there is a need for particular skills, the Committee determines the selection criteria based on the skills deemed necessary. Potential candidates are identified by the Committee with advice from an external consultant. The company’s on-going investment in research and development continues to provide a technical edge. 14 15 1977. Mr Gale studied textile engineering in Germany, and is the son of the founder of the Gale business. Mr Gale is a member of the Audit Committee of the Board. Appointed Director on 8 April 1998. M R P E T E R R O N A L D M C D O N A L D C h i e f O p e r a t i n g O f f i c e r / G e n e r a l M a n a g e r B a c h e l o r o f B u s i n e s s ( M a r k e t i n g ) a g e – 3 7 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. M R D A R Y L E D W A R D J A M E S R E I L L Y D i r e c t o r G r a d u a t e D i p l o m a o f B u s i n e s s ( A c c o u n t i n g ) , C P A , A C I S , F T M A , A I C D a g e – 4 9 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. Mr Reilly is a member of the Audit and Remuneration Committees of the Board. Appointed Director on 17 July 1998. D I R E C T O R S ’ R E P O R T f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 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 2003 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: D R H U W G E R A I N T D A V I E S C h a i r m a n B S c , P h D a g e – 6 2 Huw Davies is the Chairman of Vic Power Trading and Gascor Limited. He is a Director of Snowy Hydro Limited, Boom Logistics Limited and Administrator of the SECV. Dr Davies held senior executive positions with ACI International and BTR Nylex from 1968 to 1994. Appointed Director on 9 October 2000. M R T H E O J O H N E V E R S T E Y N D e p u t y C h a i r m a n F C A , G r a d D i p I n d u s t r i a l A c c o u n t i n g a n d B u s . A d m i n . a g e – 6 2 Theo Eversteyn has been a partner of the Chartered Accounting firm Bentleys MRI since 1973. During his career he 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, Endeavour Wines 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 MRI Australia Limited, the national licensor for Bentleys MRI. Mr Eversteyn is a member of the Audit and Remuneration Committees of the Board. Appointed Director on 8 April 1998. M R G A R Y S T E P H E N G A L E M a n a g i n g D i r e c t o r a g e – 5 1 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 The Company’s products are finding ever increasing support worldwide. Warehousing Sales Office/Distributor Manufacturing 16 17 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 3 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 during or since the end of the financial year were: $ As proposed and provided for in last year’s report and paid on 17 October 2002: • An ordinary dividend of 3.0 cents per share (fully franked to 30%) 1,259,919 Interim dividend in respect of the year ended 30 June 2003 paid on 17 April 2003: • An ordinary dividend of 3.5 cents per share (fully franked to 30%) 1,487,531 The final dividend determined by the Directors of the Company in respect of the year ended 30 June 2003, to be paid on 16 October 2003: • An ordinary dividend of 3.5 cents per share (fully franked to 30%) 1,521,075 Total dividends provided for or paid in respect of the year ended 30 June 2003 3,008,606 S H A R E O P T I O N S The Company has entered into an option agreement to grant options to specified option holders over unissued shares in the Company. The options are exercisable upon achievement of certain conditions. During the financial year, 100,000 options over 100,000 ordinary shares were granted to Mr R L House by the Company. The number of unissued ordinary shares under option as at the date of this report is 1,165,785. 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 after 1 December 2004. Further details of the option plan are disclosed in note 19 to the Financial Statements. 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 polymer fabrics and value-added products made from these fabrics. On 25 November 2002 the economic entity acquired the business and customer base of California Sun Shades Inc., located in the USA. 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 $5,451,000. 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 4 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 18 Innovative new materials and exciting new product uses are continually emerging as the Company’s technologies improve. 19 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 3 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 3 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 Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an auditor of the Company or of any related body corporate against a liability incurred as an auditor. 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. DIRECTORS’ MEETINGS AUDIT REMUNERATION COMMITTEE MEETINGS COMMITTEE MEETINGS DIRECTORS HELD ATTENDED HELD ATTENDED HELD ATTENDED G S Gale P R McDonald H G Davies T J Eversteyn D E J Reilly 14 14 14 14 14 14 13 13 14 12 3 - - 3 3 3 - - 3 3 - - - 2 2 - - - 2 2 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: NAME FULLY PAID SHARE OPTIONS ORDINARY SHARES G S Gale 14,771,134 P R McDonald 360,510 427,942 332,843 H G Davies T J Eversteyn D E J Reilly 16,278 185,000 224,507 - - - 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: a) Salary/fees; 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: NAME SALARY/FEES $ Executive Directors G S Gale P R McDonald Non-Executive Directors H G Davies T J Eversteyn D E J Reilly 265,504 235,537 55,000 41,250 41,250 BENEFITS $ 162,366 90,928 - - - TOTAL $ 427,870 326,465 55,000 41,250 41,250 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 Company Secretary: NAME R L House SALARY $ 166,859 BENEFITS OTHER NON-CASH BENEFITS TOTAL $ 43,815 $ 17,355 $ 228,029 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. R O U N D I N G O F F O F A M O U N T S The Company is a Company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars. Dated this 19th day of September 2003 Signed in accordance with a resolution of Directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the Directors 20 D R H U W G D A V I E S DIRECTOR G A R Y S G A L E DIRECTOR 21 I N D E P E N D E N T A U D I T R E P O R T 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 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 2003 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. P I T C H E R P A R T N E R S M W P R I N G L E PARTNER Melbourne 19 September 2003 We have audited the financial report of Gale Pacific Limited for the financial year ended 30 June 2003 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. People, plants, even pets all benefit from the remarkable environmental attributes of Gale’s Coolaroo fabrics. 22 23 D I R E C T O R S ’ D E C L A R A T I O N The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 26 to 53 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 2003 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. Dated this 19th day of September 2003 D R H U W G D A V I E S DIRECTOR G A R Y S G A L E DIRECTOR The company continues to focus heavily on water management technologies. 24 25 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 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 a s a t 3 0 J u n e 2 0 0 3 C O N S O L I D A T E D C O M P A N Y C O N S O L I D A T E D C O M P A N Y Note 2002/03 $ ’000 Revenue from ordinary activities 2 84,609 Expenses from ordinary activities, excluding borrowing costs expense: - Changes in inventories of finished goods and work in progress - Raw materials and consumables used - Employee benefits expense - 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 attributable to outside equity interests 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) 3 4 21 20 23 32 32 2001/02 $ ’000 55,777 (1,039) (21,651) (9,323) (2,589) (12,198) (2,626) (1,145) 5,206 (1,591) 3,615 - 2002/03 $ ’000 2001/02 $ ’000 76,519 49,186 3,156 (40,281) (13,561) (2,956) (11,450) (3,062) (1,725) (51) (21,869) (7,819) (2,324) (9,104) (1,886) (1,145) 6,640 4,988 (2,182) (1,557) 4,458 3,431 - - 4,349 (41,554) (15,622) (3,345) (14,889) (4,050) (1,725) 7,773 (2,220) 5,553 (102) 5,451 3,615 4,458 3,431 - - - - (1,198) (1,198) 4,253 12.73 12.42 (408) (408) 3,207 9.46 9.28 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 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Payables Interest-bearing liabilities Current tax liabilities Provisions Other TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing liabilities Deferred tax liabilities Provisions Note 2002/03 $ ’000 2001/02 $ ’000 2002/03 $ ’000 2001/02 $ ’000 5 6 7 8 6 9 10 11 12 8 13 14 15 16 17 14 15 16 19 20 21 22 23 1,457 13,420 19,820 359 35,056 - - 28,309 7,244 204 597 36,354 71,410 7,736 11,864 502 968 - 21,070 13,872 3,515 110 17,497 38,567 32,843 22,798 (1,496) 10,847 32,149 694 32,843 526 11,934 15,202 416 28,078 - - 24,827 3,081 107 753 28,768 56,846 5,245 7,171 793 1,749 239 15,197 10,720 2,895 590 14,205 29,402 27,444 20,858 (298) 6,884 27,444 - 27,444 849 7,680 15,835 237 24,601 7,693 7,066 25,942 3,396 - 597 44,694 69,295 6,479 11,864 425 935 - 7 6,586 12,081 326 19,000 5,653 3,441 24,078 3,019 - 753 36,944 55,944 4,608 7,171 777 1,735 239 19,703 14,530 13,872 3,327 110 17,309 37,012 32,283 22,798 - 9,485 32,283 - 32,283 10,720 2,731 590 14,041 28,571 27,373 20,858 - 6,515 27,373 - 27,373 4,458 3,431 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained profits PARENT ENTITY INTEREST Outside equity interests TOTAL EQUITY 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 26 27 S T A T E M E N T O F C A S H F L O W 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 3 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 3 C O N S O L I D A T E D C O M P A N Y N O T E 1 : S T A T E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S Note 2002/03 $ ’000 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 83,227 (73,280) 67 (1,725) (1,977) 2001/02 $ ’000 56,259 (47,351) 22 (1,145) (769) 2002/03 $ ’000 2001/02 $ ’000 75,193 (66,389) 66 (1,725) (1,938) 49,667 (42,235) 13 (1,145) (769) 24(b) 6,312 7,016 5,207 5,531 CASH FLOW USED IN INVESTING ACTIVITIES Proceeds from sale of plant and equipment Payment for plant and equipment Payment for acquisition of business Investment in controlled entity Payment for intangible assets Payment for other non-current assets Amounts advanced to related parties Proceeds from repayment of related party receivables 95 (6,225) (3,305) - (787) (763) - - 107 (2,759) (4,900) - (33) (789) - - Net cash used in investing activities (10,985) (8,374) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from borrowings Repayment of principal on finance leases Proceeds from/(repayment of principal on) hire purchases Dividends paid Proceeds from outside equity interest 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 items denominated in foreign currencies Cash at end of year 24(a) 2,812 (1,719) 6,592 (2,058) 592 6,219 1,546 361 (450) 1,457 944 (1,411) (585) (1,977) - (3,029) (4,387) 5,132 (384) 361 95 (4,014) - (2,375) (730) (763) (2,040) - (9,827) 2,812 (1,719) 6,592 (2,058) - 5,627 1,007 (158) - 849 107 (2,581) (4,900) - (33) (789) - 1,452 (6,744) 944 (1,411) (585) (1,977) - (3,029) (4,242) 4,084 - (158) 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) Principles of Consolidation 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 inter-company 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. (c) Inventories Inventories are measured at the lower of cost and net realisable value. Net realisable value is determined on the basis of each inventory line’s normal selling pattern. 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. 28 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 29 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 1 : S T A T E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T ’ D ) N O T E 1 : S T A T E M E N T O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S ( C O N T ’ D ) (d) Plant and Equipment (e) Leases 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 asset’s 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 amounts 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. 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. The depreciation rates used for each class of assets are: (g) Foreign Currency Transactions and Balances CLASS OF FIXED ASSET DEPRECIATION RATES DEPRECIATION BASIS Leasehold improvements Determined by lease term Straight Line Plant and equipment Leased plant and equipment 6.7% - 20.0% Straight Line 6.7% - 20.0% Straight Line Motor vehicles 20.0% Straight Line Office equipment 14.3% - 50.0% Straight Line 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. (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 (including SIP income) 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). Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. (m) Intangibles Goodwill (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. 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. 30 31 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 2 : R E V E N U E Operating activities - Sale of goods - SIP income - Interest income – other parties - Other revenue Outside operating activities - Proceeds from disposals of non-current assets Total revenue C O N S O L I D A T E D C O M P A N Y 2002/03 $ ’000 2001/02 $ ’000 2002/03 $ ’000 2001/02 $ ’000 81,767 2,562 68 117 95 84,609 53,693 1,780 21 176 107 55,777 73,678 2,562 67 117 95 76,519 47,110 1,780 13 176 107 49,186 N O T E 3 : P R O F I T F R O M O R D I N A R Y A C T I V I T I E S 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 Increase in provision for obsolete inventory Bad and doubtful debts: - Bad debts written off - trade debtors - Bad debt recoveries - trade debtors - Movement in provisions for doubtful debts - trade debtors Net expense of bad and doubtful debts 49,517 31,085 48,233 29,596 1,725 17 1,858 125 344 273 38 295 107 288 4 34 53 - 8 61 1,145 16 1,549 82 206 367 76 165 44 85 40 33 319 - (41) 278 1,725 1,145 14 1,670 110 267 273 38 205 91 288 3 34 - (8) 8 - 13 1,348 82 149 367 76 165 40 85 40 33 80 - (41) 39 C O N S O L I D A T E D C O M P A N Y 2002/03 $ ’000 2001/02 $ ’000 2002/03 $ ’000 2001/02 $ ’000 N O T E 3 : P R O F I T F R O M O R D I N A R Y A C T I V I T I E S ( C O N T ’ D ) 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 Net loss on disposal of non-current assets - Plant and equipment Operating lease rental expense 90 63 69 222 53 9 2,565 67 31 38 136 17 10 1,310 90 63 - 153 53 9 2,508 67 31 - 98 17 10 1,231 N O T E 4 : I N C O M E T A X E X P E N S E 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% Add: Tax effect of: - Amortisation of intangible assets - Tax rate differentials in foreign countries - Attributed CFC income - Other non-allowable/non-assessable items 87 (224) - 38 2,233 Less: (Under)/over provision for income tax in prior year 13 Income tax expense attributable to profit from ordinary activities N O T E 5 : C A S H A S S E T S Cash on hand Cash at bank Deposits at call 2,220 6 1,451 - 1,457 2,332 1,562 1,992 1,496 50 - - 83 1,695 104 1,591 3 234 289 526 60 - 100 30 50 - - 9 2,182 1,555 - (2) 2,182 1,557 2 847 - 849 1 6 - 7 32 33 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 C O N S O L I D A T E D C O M P A N Y Note 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 C O N S O L I D A T E D C O M P A N Y 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 N O T E 1 0 : P L A N T A N D E Q U I P M E N T N O T E 6 : R E C E I V A B L E S CURRENT Trade debtors Less provision for doubtful debts Other debtors NON-CURRENT Amounts receivable from: - Controlled entities N O T E 7 : I N V E N T O R I E S CURRENT Raw materials at cost Work in progress at cost Finished goods at cost Less provision for obsolescence N O T E 8 : O T H E R A S S E T S CURRENT Prepayments NON-CURRENT Research & development 10,837 (32) 10,805 2,615 13,420 9,138 (40) 9,098 2,836 11,934 5,436 (32) 5,404 2,276 7,680 3,790 (40) 3,750 2,836 6,586 - - 7,693 5,653 1,381 2,186 16,350 (97) 19,820 359 597 340 918 14,007 (63) 15,202 416 753 1,034 1,724 13,174 (97) 15,835 237 597 340 918 10,886 (63) 12,081 326 753 N O T E 9 : O T H E R F I N A N C I A L A S S E T S NON-CURRENT Shares in controlled entities at cost 30 - - 7,066 3,441 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 Total plant and equipment 32,673 (7,471) 25,202 1,227 (220) 1,007 286 (70) 216 1,103 (199) 904 139 (60) 79 1,839 (938) 901 28,309 23,040 (4,342) 18,698 5,914 (1,162) 4,752 209 (53) 156 646 (147) 499 198 (89) 109 1,311 (698) 613 24,827 30,186 (6,947) 23,239 1,227 (220) 1,007 271 (63) 208 950 (183) 767 139 (60) 79 1,440 (798) 642 25,942 22,032 (3,888) 18,144 5,914 (1,162) 4,752 198 (49) 149 611 (144) 467 198 (89) 109 1,015 (558) 457 24,078 34 35 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 1 0 : P L A N T A N D E Q U I P M E N T ( C O N T ’ 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 Consolidated $’000 Company $’000 Consolidated $’000 Company $’000 2002/03 Balance at the beginning of the year Additions Transfers from leased plant & equipment Depreciation expense Carrying amount at the end of the year 156 77 - (17) 216 149 73 - (14) 208 18,698 4,789 3,573 (1,858) 25,202 18,144 3,192 3,573 (1,670) 23,239 L E A S E D P L A N T A N D E Q U I P M E N T M O T O R V E H I C L E S Consolidated $’000 Company $’000 Consolidated $’000 Company $’000 2002/03 Balance at the beginning of the year Additions Disposals Transfers to plant & equipment Depreciation expense Carrying amount at the end of the year 4,752 101 - (3,573) (273) 1,007 4,752 101 - (3,573) (273) 1,007 499 599 (69) - (125) 904 467 479 (69) - (110) 767 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 Consolidated $’000 Company $’000 Consolidated $’000 Company $’000 2002/03 Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year 613 641 (9) (344) 901 457 461 (9) (267) 642 109 34 (26) (38) 79 109 34 (26) (38) 79 N O T E 1 1 : I N T A N G I B L E A S S E T S Goodwill on consolidation at cost Less accumulated amortisation Patents, trademarks and licenses at cost Less accumulated amortisation C O N S O L I D A T E D C O M P A N Y 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 7,511 (950) 6,561 863 (180) 683 7,244 3,161 (655) 2,506 648 (73) 575 3,081 3,800 (860) 2,940 604 (148) 456 3,396 3,161 (655) 2,506 570 (57) 513 3,019 R E C O N C I L I A T I O N O F I N T A N G I B L E A S S E T S 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 Consolidated $’000 Company $’000 Consolidated $’000 Company $’000 2002/03 Balance at the beginning of the year Additions Amortisation expense Carrying amount at the end of the year 2,506 4,350 (295) 6,561 2,506 639 (205) 2,940 575 215 (107) 683 513 34 (91) 456 36 37 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 C O N S O L I D A T E D C O M P A N Y C O N S O L I D A T E D C O M P A N Y Note 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 Note 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 N O T E 1 2 : D E F E R R E D T A X A S S E T S The future income tax benefits comprise: - Timing differences 204 107 - - N O T E 1 3 : P A Y A B L E S CURRENT Unsecured liabilities Trade creditors Sundry creditors and accruals 4,335 3,401 7,736 N O T E 1 4 : I N T E R E S T B E A R I N G L I A B I L I T I E S 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 24(e) 24(e) 24(e) 28(a) 28(b) 24(e) 28(a) 28(b) - 7,893 1,500 328 2,143 11,864 6,400 705 6,767 13,872 N O T E 1 5 : I N C O M E T A X L I A B I L I T I E S CURRENT Income tax NON-CURRENT Deferred income tax 502 3,515 3,744 1,501 5,245 165 3,682 1,400 1,319 605 7,171 7,900 1,109 1,711 10,720 793 2,895 4,062 2,417 6,479 - 7,893 1,500 328 2,143 11,864 6,400 705 6,767 13,872 3,414 1,194 4,608 165 3,682 1,400 1,319 605 7,171 7,900 1,109 1,711 10,720 425 777 3,327 2,731 N O T E 1 6 : P R O V I S I O N S CURRENT Dividends Employee entitlements 16(a) NON-CURRENT Employee entitlements 16(a) (a) Aggregate employee entitlements liability (b) Number of employees at year end N O T E 1 7 : O T H E R L I A B I L I T I E S CURRENT Hedge Payable - 968 968 110 1,078 329 1,260 489 1,749 590 1,079 136 - 935 935 110 1,045 198 1,260 475 1,735 590 1,065 128 - 239 - 239 N O T E 1 8 : N O N - H E D G E D F O R E I G N C U R R E N C Y B A L A N C E S 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 Receivables Current Non-current 10,252 10,252 7,248 - 7,248 8,160 8,160 7,080 - 7,080 8,995 8,995 1,507 7,624 9,131 7,524 7,524 1,732 5,653 7,385 38 39 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 C O M P A N Y 2002/03 $’000 2001/02 $’000 C O N S O L I D A T E D C O M P A N Y 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 N O T E 1 9 : C O N T R I B U T E D E Q U I T Y Paid up Capital 43,459,282 fully paid ordinary shares (2002: 41,997,296) 22,798 20,858 Movement in Share Capital Shares issued at the beginning of the financial year 974,811 shares issued as part of the consideration for acquisition of a business 3,529,412 shares issued as part of the consideration for acquisition of a business 487,175 shares issued under Dividend Reinvestment Plan 428,615 shares issued under Dividend Reinvestment Plan 20,858 1,250 - 690 - 17,550 - 3,000 - 308 22,798 20,858 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 maintains an option scheme for certain staff and executives, including executive Directors, as approved by shareholders at an annual general meeting. The issue price of each option is zero. Each option entitles the option holder to 1 ordinary share in the Company in the event that the option is exercised. The exercise price for the issued options is $1.00. The vesting of options is determined by the performance of the Company’s share price over time. No options are exercisable after 1 December 2004. Options carry no rights to dividends and no voting rights. Balance at the beginning of the financial year (issued 13 November 2000) Granted during the financial year (18 December 2002) Lapsed during the financial year (Issued 18 December 2002) Balance at the end of the financial year At 30 June 2003, 773,089 options on issue had vested. No. 760,785 650,000 (100,000) 1,310,785 No. 760,785 - - 760,785 N O T E 2 0 : R E S E R V E S Foreign currency reserve Movement during the year: Opening balance Foreign currency (loss) on consolidation Closing balance (1,496) (298) (1,198) (1,496) (298) 110 (408) (298) - - - - - - - - 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). N O T E 2 1 : R E T A I N E D P R O F I T S 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 6,884 5,451 (1,488) 10,847 N O T E 2 2 : O U T S I D E E Q U I T Y I N T E R E S T S Outside equity in controlled entities comprises: Contributed equity Retained profits N O T E 2 3 : E Q U I T Y 592 102 694 5,673 3,615 (2,404) 6,884 - - - 6,515 4,458 (1,488) 9,485 5,488 3,431 (2,404) 6,515 Total equity at the beginning of the financial year 27,444 23,332 27,373 23,037 Total changes in equity recognised in the Statement of Financial Performance Movement in outside equity interest Movement in contributed capital Transactions with owners as owners - Dividends Total equity at reporting date 4,253 694 1,940 (1,488) 32,843 3,207 - 3,309 (2,404) 27,444 4,458 - 1,940 (1,488) 32,283 3,431 - 3,309 (2,404) 27,373 40 41 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 2 4 : C A S H F L O W I N F O R M A T I O N N O T E 2 4 : C A S H F L O W I N F O R M A T I O N ( C O N T ’ D ) C O N S O L I D A T E D C O M P A N Y 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 C O N S O L I D A T E D C O M P A N Y 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 (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 6 1,451 - - 1,457 3 235 288 (165) 361 2 847 - - 849 1 6 - (165) (158) Profit from ordinary activities after income tax 5,553 3,615 4,458 3,431 Non-cash flows in profit from ordinary activities: Amortisation of intangible assets Amortisation of other non-current assets Depreciation and amortisation of plant and equipment Other Accrued SIP income Changes in assets and liabilities: Decrease in receivables (Increase)/decrease in other assets (Increase)/decrease in inventories Increase/(decrease) in payables and accruals Increase in income tax payable Net cash provided by operations 402 288 2,655 8 (1,315) 74 500 (4,349) 2,252 244 6,312 185 85 2,319 (31) (1,107) 1,039 (645) 1,493 (759) 822 7,016 296 288 2,372 8 (1,315) 125 871 (3,755) 1,612 247 5,207 443 289 1,592 (34) (1,107) 1,146 (797) 505 (725) 788 5,531 (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 Intellectual property Goodwill Non-current liabilities Provisions Net assets acquired Net cash outflow on acquisition Cash consideration (d) Non-cash financing and investing activities Plant and equipment 3,305 1,250 4,555 269 130 223 3,933 - 4,555 3,305 4,900 3,000 7,900 5,300 2,575 250 - (225) 7,900 4,900 - - - - - - - - - - 4,900 3,000 7,900 5,300 2,575 250 - (225) 7,900 4,900 During the financial year the economic entity acquired plant and equipment with an aggregate fair value of $325,000 (2002: $1,303,746) by means of finance leases. These acquisitions are not reflected in the Statement of Cash Flows. (e) 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 $19,800,000 as at 30 June 2003 (2002 $18,950,000), leaving an unused facility of $2,017,000 (2002: $3,653,000). This facility is secured by a First Ranking Registered Equitable Mortgage by Gale Pacific Limited over all its assets and undertakings including uncalled capital, and a First Ranking Registered Equitable Mortgage by Gale Pacific USA Inc over all its assets and undertakings including uncalled capital. 42 43 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 2 5 : C O M P A N Y D E T A I L S The registered office of the Company is: Gale Pacific Limited 145 Woodlands Drive Braeside Victoria 3195 N O T E 2 6 : 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 The Directors of the parent entity who held office during the year were: Huw Geraint Davies Peter Ronald McDonald Gary Stephen Gale Daryl Edward James Reilly Theo John Eversteyn 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: $30,000 – $39,999 $40,000 – $49,999 $50,000 – $59,999 $250,000 – $259,999 $320,000 – $329,999 $360,000 – $369,999 $420,000 – $429,999 C O N S O L I D A T E D C O M P A N Y 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 892 No. - 2 1 - 1 - 1 720 No. 2 1 - 1 - 1 - 892 720 No. No. - 2 1 - 1 - 1 2 1 - 1 - 1 - $’000 $’000 $’000 $’000 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 $210,000 – $219,999 228 No. - 1 171 No. 1 - 228 171 No. - 1 No. 1 - N O T E 2 7 : D I V I D E N D S Ordinary Shares Interim dividend – franked to 30% Final dividend – franked to 30% Adjusted franking account balance 2 0 0 2 / 0 3 2 0 0 1 / 0 2 Cents Per Share Total $’000 Cents Per Share Total $’000 3.5 -* 1,488 - 1,488 4,693 3.0 3.0 1,144 1,260 2,404 4,022 *Since the end of the financial year, Directors have declared a fully franked final dividend of 3.5 cents per share, amounting to $1,521,000, payable on 16 December 2003. The final dividend for the year ended 30 June 2003 has not been recognised in this financial report because the final dividend was declared subsequent to 30 June 2003. On the basis that Directors will continue to declare dividends subsequent to reporting date, in future financial reports the amount disclosed as ‘recognised’ will be the final dividend in respect of the prior financial year, and the interim dividend in respect of the current financial year. C O N S O L I D A T E D C O M P A N Y Note 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 N O T E 2 8 : C A P I T A L A N D L E A S I N G C O M M I T M E N T S (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 14 433 833 1,266 233 1,033 328 705 1,033 1,567 1,351 2,918 490 2,428 1,319 1,109 2,428 433 833 1,266 233 1,033 328 705 1,033 1,567 1,351 2,918 490 2,428 1,319 1,109 2,428 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. 44 45 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 C O N S O L I D A T E D C O M P A N Y Note 2002/03 $’000 2001/02 $’000 2002/03 $’000 2001/02 $’000 N O T E 2 8 : C A P I T A L A N D L E A S I N G C O M M I T M E N T S ( C O N T ’ 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 2,490 8,450 10,940 2,030 8,910 2,143 6,767 8,910 2,808 8,353 - 11,161 802 1,953 2,755 439 2,316 605 1,711 2,316 2,527 8,751 1,445 12,723 2,490 8,450 10,940 2,030 8,910 2,143 6,767 8,910 2,663 8,269 - 10,932 802 1,953 2,755 439 2,316 605 1,711 2,316 2,470 8,641 1,445 12,556 The company leases property under operating leases expiring in 1 to 5 years. Leases of property generally provide the Company with a right of renewal at which time all leases are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on the consumer price index. N O T E 2 9 : R E L A T E D P A R T Y T R A N S A C T I O N S (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 26. (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 S H A R E O P T I O N S 2002/03 No. 2001/02 No. 2002/03 No. 2001/02 No. 17,792,487 17,750,646 760,785 760,785 (2,243,019) 41,841 - - 15,549,468 17,792,487 760,785 760,785 Opening balance held by Directors and their Director-related entities in the controlling entity: Net acquisitions and disposals of shares through the share market and acquisitions through the Dividend Reinvestment Plan 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: Directors acquired shares through the Dividend Reinvestment Plan on the same terms and conditions available to other shareholders. (d) Transactions with Directors and Director-related entities The following amounts were payable to Directors and their Director-related entities as at the reporting date: Current C O N S O L I D A T E D C O M P A N Y 2002/03 $’000 30 2001/02 $’000 10 2002/03 $’000 2001/02 $’000 30 10 46 47 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 2 9 : R E L A T E D P A R T Y T R A N S A C T I O N S ( C O N T ’ D ) (d) Transactions with Directors and Director-related entities (cont’d) Theo Eversteyn is a Partner of the Chartered Accounting firm Bentleys MRI. In addition to Directors fees received (and disclosed in Note 26) Bentleys MRI have provided taxation and other business advice during the year ended 30 June 2003 to Gale Pacific Limited. The value of services provided was $151,688 (2002: $169,407). 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) Transactions Within the Wholly-Owned Group The wholly-owned group includes: - The ultimate parent entity in the wholly-owned group; and - Wholly-owned controlled entities. N O T E 3 0 : C O N T R O L L E D E N T I T I E S 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 entities in the wholly-owned group are disclosed in Note 6. 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 20%. - Reimbursement of certain operating costs. (f) Transactions With Non-wholly Owned Controlled Entity Transactions that occurred during the financial year with a non-wholly owned controlled entity were: - Net Sales of goods at cost of $342,210. - Reimbursement of certain operating costs of $41,568. - Sale of plant and equipment at net book value of $83,907. Parent Entity: Gale Pacific Limited Controlled Entities: Gale Pacific USA Inc. Gale Pacific FZE Gale Pacific Special Textiles Company Limited Aquaspan Pty Ltd 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 % 2002/03 2002/03 Australia - - USA United Arab Emirates China Australia 100% 100% 85% 50% 100% 100% - - Gale Pacific Special Textiles Company Limited was formed on 21 November 2002, and manufactures advanced durable polymer fabrics and value added structures made from these fabrics. Aquaspan Pty Ltd was formed on 14 October 2002 and manufactures and erects structures for water management applications. N O T E 3 1 : S E G M E N T R E P O R T I N G 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 segments 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: Australia/New Zealand 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. China A Manufacturing facility is located in Ningbo, which supplies products to Australia and the USA. USA Sales offices are located in Florida and California which service 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 woven polymer fabrics and value added structures made from these fabrics. 48 49 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 3 1 : S E G M E N T R E P O R T I N G ( C O N T ’ D ) N O T E 3 2 : E A R N I N G S P E R S H A R E C O M P A N Y 2002/03 2001/02 Earnings used in the calculations of basic and diluted earnings per share $5,451,000 $3,615,000 Weighted average number of ordinary shares used in the calculation of basic earnings per share Number of share options on issue Weighted average number of Share Options issued during the year Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share 42,832,976 38,204,041 760,785 293,836 760,785 - 43,887,597 38,964,826 N O T E 3 3 : F I N A N C I A L I N S T R U M E N T S (a) Financial instruments 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. Primary Reporting – Geographical Segments AUST/NZ CHINA USA MIDDLE ELIMINATIONS CONSOLIDATION $’000 $’000 - 84,609 $’000 $’000 $’000 2003 Revenue outside the economic entity Inter-segment revenue Total revenue Segment operating profit Income tax expense Operating Profit after tax Depreciation and Amortisation Individually significant items: Reimbursement of R&D expenditure Segment Assets Unallocated Assets Total Assets 66,925 9,595 76,520 6,606 (2,083) 4,523 2,903 2,562 55,172 - 3,264 3,264 761 - 761 51 - 3,299 15,911 - 15,911 310 (94) 216 285 - 12,525 EAST $’000 1,773 - 1,773 294 (88) 206 16 - 598 Segment Liabilities 35,790 210 1,088 125 (44) Unallocated Liabilities Total Liabilities Acquisition of non-current assets 6,458 1,711 3,619 - 2002 Revenue outside the economic entity Inter-segment revenue Total revenue Segment operating profit Income tax expense Operating Profit after tax Depreciation and Amortisation Individually significant items: Reimbursement of R&D expenditure Segment Assets Unallocated Assets Total Assets 39,037 9,340 48,377 4,988 (1,557) 3,431 2,322 1,780 46,851 Segment Liabilities 25,841 Unallocated Liabilities Total Liabilities Acquisition of non-current assets 6,414 - - - - - - - - - - - 15,648 - 15,648 432 (34) 398 258 - 9,339 641 188 (12,859) (12,859) (198) 45 (153) 90 - (388) - - (9,340) (9,340) (215) - (215) - - 1,092 - 1,092 1 - 1 6 - 766 (217) 25 35 - - - 84,609 7,773 (2,220) 5,553 3,345 2,562 71,206 204 71,410 37,169 2,919 40,088 11,788 55,777 - 55,777 5,206 (1,591) 3,615 2,586 1,780 56,739 107 56,846 26,507 2,895 29,402 6,637 50 51 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 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 3 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 3 N O T E 3 3 : F I N A N C I A L I N S T R U M E N T S ( C O N T ’ D ) N O T E 3 4 : S U B S E Q U E N T E V E N T S Subsequent to the end of the financial year, the parent entity acquired the 15% outside equity interest in a controlled entity, Gale Pacific Special Textiles Company Limited (“GPST”) for approx. $600,000. GPST also entered a contract for $2,470,000 for the construction of a factory in China. (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: WEIGHTED AVERAGE INTEREST RATE FLOATING INTEREST RATE $’000 FIXED INTEREST RATE $’000 NON INTEREST BEARING $’000 NOTE MATURING TOTAL $’000 1 YEAR OR LESS $’000 1 TO 5 MORE THAN YEARS $’000 5 YEARS $’000 30 June 2003 Financial Assets Cash assets Receivables Financial Liabilities Payables 5 6 13 Bank overdrafts and loans 14 Commercial bills Commercial bills Lease liabilities Hire purchase liabilities Employee entitlements 30 June 2002 Financial Assets Cash assets Receivables Financial Liabilities Payables 14 14 14 14 16 5 6 13 Bank overdrafts and loans 14 Commercial bills Commercial bills Lease liabilities Hire purchase liabilities Hedge payable Dividends payable Employee entitlements 14 14 14 14 17 16 16 4.65% - - 3.3% 6.9% 5.9% 8.3% 8.4% - 2.0% - - 4.2% 6.9% 5.5% 8.8% 8.2% - - - 847 - 847 - 7,893 - - - - - - - - - - 3,700 4,200 1,033 8,910 - 7,893 17,843 289 - 289 - 3,847 - - - - - - 4,300 5,000 - - - - - - 2,428 2,316 - - - 8,847 9,044 610 13,420 14,030 7,736 - - - - - 1,079 8,815 237 11,934 12,171 5,245 - - - - - 239 1,260 1,079 7,823 1,457 13,420 14,877 7,736 7,893 3,700 4,200 1,033 8,910 1,079 - - - - - 600 900 328 2,143 - - - - - - 2,400 3,300 705 6,767 - - - - - - 700 - - - - 34,551 3,971 13,172 700 526 11,934 12,460 5,245 3,847 4,300 5,000 2,428 2,316 239 1,260 1,079 - - - - - 600 800 1,319 605 239 - - - - - - - 2,400 4,200 1,109 1,711 - - - - - - - - 1,300 - - - - - - 25,714 3,563 9,420 1,300 52 53 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 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 1 5 S e p t e m b e r 2 0 0 3 a s a t 1 5 S e p t e m b e r 2 0 0 3 Number of Holdings of Equity Securities Twenty Largest Holders of Quoted Equity Securities The fully paid issued capital of the Company consisted of 43,549,282 ordinary fully paid shares held by 1,043 shareholders. Each share entitles the holder to one vote. Seven option holders hold 1,165,785 options over ordinary shares. Options do not carry a right to vote. Distribution of Holders of Equity Securities SIZE OF SHAREHOLDING FULLY PAID ORDINARY SHARES OPTIONS OVER ORDINARY SHARES NUMBER OF SHAREHOLDERS 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 Commonwealth Bank of Australia 111 414 251 235 32 1,043 24 Number 13,799,134 13,799,134 13,799,134 5,547,541 2,904,809 2,445,405 - - - 5 2 7 - % 31.7% 31.7% 31.7% 12.7% 6.7% 5.6% The substantial shareholding of Thorney Holdings Pty Ltd includes holdings of Invia Custodian Pty Ltd, being numbers 9 and 11 on the schedule of Twenty Largest Holders of Quoted Equity Securities following. Ordinary Shareholders 1. Gale Australia Pty Ltd 2. Thorney Holdings Pty Ltd 3. National Nominees Limited 4. Citicorp Nominees Pty Limited 5. Equity Trustees Limited 6. National Nominees Limited 7. Ms Anne Gale 8. Equity Trustees Limited 9. Invia Custodian Pty Limited 10. Thorney Holdings Pty Ltd 11. Invia Custodian Pty Limited 12. Benefund Limited 13. Invia Custodian Pty Limited 14. Cogent Nominees Pty Limited 15. Mrs Diane Kay Riddell 16. Commonwealth Custodial Services Limited 17. Malla Pty Ltd 18. Carnethy Investments Pty Ltd 19. Queensland Investment Corporation 20. Westpac Custodian Nominees Limited Number 13,799,134 3,616,289 2,904,809 2,530,354 1,632,198 1,179,017 936,000 875,913 765,252 666,000 458,100 450,000 411,294 365,679 319,600 305,746 300,000 236,163 234,677 218,900 % 31.7% 8.3% 6.7% 5.8% 3.7% 2.7% 2.1% 2.0% 1.8% 1.5% 1.1% 1.0% 0.9% 0.8% 0.7% 0.7% 0.7% 0.5% 0.5% 0.5% Total 32,205,125 74.0% The twenty members holding the largest number of shares together held a total of 74.0% of the issued capital. F I N A N C I A L R E P O R T Following completion of the Financial Report, the Statement of Financial Position has been amended from the ASX Appendix 4E Preliminary Final Report to exclude the final dividend provision of $1,521,000 which was declared subsequent to year end, in accordance with a new accounting standard. Further, an amount of $596,000 was reallocated between current and non-current tax liabilities. O T H E R I N F O R M A T I O N : 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 54 55 L I M I T E D A B N 8 0 0 8 2 2 6 3 7 7 8 l 1 2 0 P G / A C B 

Continue reading text version or see original annual report in PDF format above