GALE Pacific
Annual Report 2004

Plain-text annual report

L I M I T E D A B N 8 0 0 8 2 2 6 3 7 7 8 1 4 2 L P G / A C B A N N U A L R E P O R T 2 0 0 4 L I M I T E D T A B L E O F C O N T E N T S Chairman’s Report Managing Director’s Report and Review of Operations Corporate Governance Statement Directors' Report Independent Audit Report Directors’ Declaration Statement of Financial Performance Statement of Financial Position Statement of Cash Flows Notes to the Financial Statements Additional Stock Exchange Information page 4 6 14 20 30 32 34 35 36 37 62 WALMART THE HOME DEPOT BUNNINGS LOWE’S JOHN DANKS & SON PRAKTIKER MITRE 10 METRO SAM’S CLUB SUPERSPAN GLOBUS KELMATT AUSTRALIA ABC PRODUCTS ROCKLEA CANVAS J D & M J KNIGHT PORTCO NOLAN WAREHOUSES J A GRIGSON HARRIS SCARFE BHP COLLIERS ACADEMY TARPS PATCHS CANVAS MANUFACTURING SUN ‘N SURF INTERNATIONAL MAXITRANS MANUFACTURING C E BARTLETT ICL TASMAN INSULATION AUSTRALIA DARLING DOWNS TARPAULINS ORCHARD SUPPLY HARDWARE THOR BUILDING PRODUCTS ABGAL DIXIELINE JAYLON INDUSTRIES BUNNINGS FRED MEYER N L PRODUCTS A MART HARVEY NORMAN RADINS CANVAS K MART STRATCO VISY PRICE COSTCO DAVID JONES PETS INTERNATIONAL WESTARP HOME HARDWARE MAGNET MART OASIS TENSION STRUCTURES 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 4 A YEAR OF EXPANSION FINANCIAL PERFORMANCE The Directors of Gale Pacific Limited, an Australian manufacturer and Gale Pacific generated an after-tax profit attributable to members of exporter of advanced polymer fabrics and related products, with $7.004 million, an increase of 28.5% over the previous year’s $5.451 subsidiaries in the United States of America (USA), Germany, United million on revenues of $106.4 million ($84.6 million in prior year). This Arab Emirates (UAE) and the Peoples Republic of China, have pleasure is an excellent result after absorbing one-time net costs of $1.3 million in announcing a record full year result. which predominately related to the acquisition and integration of the The Company continued its growth path following the acquisition of Jung Garten & Freizeit Vertriebsgesellschaft mbH (Jung) in Germany Working capital management remains a key focus and operational with growth in all offshore markets and improvements in our China cash flow amounted to $12.403 million after absorbing the one-time Jung operation and the utilisation of temporary premises in China. 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 4 I would also like to thank Dr Huw Davies for his contribution over the past three and a half years and welcome Mr George Richards who joined our Board in May 2004. Mr Richards brings with him extensive experience in the retail industry. ANNUAL GENERAL MEETING A notice of the annual general meeting for Monday 15 November 2004 commencing at 11.00am and a proxy form is enclosed with this report. Executive Option Plan operations. costs related to the Jung acquisition and temporary production facilities. The Company established an Executive Option Plan in November 2000, Key performance indicators such as revenues, profit and earnings per DIVIDENDS share recorded strong growth. The success in Gale developing an improved range of industrial per share payable on 18 October 2004, making a full year dividend fabrics has given the company confidence in recruiting key Product of 7.5 cents per share fully franked representing 54% of after tax The Directors have declared a fully franked final dividend of 4 cents the rules of which were amended by resolution of the independant Directors in September 2004. The independent Directors have also resolved to recommend to shareholders that an allocation of options be made to the two Executive Directors, Mr Gary Gale, the Managing Director, and Mr Peter McDonald, the Chief Operating Officer. Category and Research and Development personnel in the USA and profits attributable to members. This is in accordance with the policy The explanatory notes detailing the recent changes to the plan rules, the China respectively. This will strengthen and accelerate our entry into announced two years ago in which it was stated that the Company the industrial market in the USA and allow for the development of intended to pay out approximately 50-55% of after tax profits subject core products customised for the USA and European markets. to the performance of acquisitions. The book’s closure date for determining entitlements for the dividend is 27 September 2004. total number of options that may be issued under the plan, the terms applicable to the options, and the allocation of options to the two Executive Directors are contained in the notice paper accompanying this Annual Report. The independent Directors recommend that shareholders The Jung acquisition has brought with it access to major retailers in A dividend reinvestment plan is available to all shareholders. approve the requisite resolutions. OUTLOOK Re-election of Directors the home and garden segment in countries centred in south-east Germany. Jung, with its distribution expertise, will offer reliable and cost effective access for the Gale product range into Europe. In line with the Company’s stated goals in last year’s Annual Report, the acquisition of Jung has enabled the Company to establish a foothold into key European markets. The key objectives for the forthcoming financial year are: • To grow the industrial fabrics product sales in the United States. • To install the new manufacturing plant in the China facility and to An increase in sales in the Middle East was also realised against targets set last year. improve its productivity. • To upgrade extrusion equipment in Australia. • To develop and bring to market a range of external extendable The Company continues to invest in the development of new awnings. products and commercialisation initiatives; these are covered in • To complete at least two new business initiatives in the water the Managing Director’s Report and Review of Operations. conservation area. • To capitalise on the European distributor network by expanding The new factory in Beilun, south of Shanghai, which will officially open Jung products into the Benelux countries and France, and integrate in November, is now virtually complete. Most personnel and plant Gale core products into the Jung network. have already transferred to it from the temporary premises and as this facility comes on line there will be further opportunities for more PEOPLE efficient production. In last year’s Annual Report, we noted that the Company anticipated that by 30 June 2004, most value-added products would be sourced from the Gale Pacific China operation. I am pleased to announce that in line with this expectation, the Company now produces the majority of its products in China. 4 I would like to express my appreciation to all our personnel and my fellow Board members for their contribution over the past year which has continued to see Gale Pacific being a growth business with a track record of successful integration of acquisitions. Artists impression of our new manufacturing facility in Beilun, China. Messrs Daryl Reilly and Peter McDonald retire as Directors by rotation in accordance with the constitution of the Company and, being eligible, offer themselves for re-election. Additionally Mr George Richards having been appointed to fill a casual vacancy retires in accordance with the constitution and, being eligible, offers himself for re-election. The Board endorses the re-election of these Directors. THEO EVERSTEYN CHAIRMAN Dated: 24 September 2004 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 4 CONTINUATION OF ORGANIC GROWTH AUGMENTED BY A MAJOR ACQUISITION I am pleased to report that Gale Pacific’s world leading advanced polymer fabric range and related value-added products have again delivered a record result. This 28.5% increase in earnings to $7.004 million has been achieved after the poor weather conditions of the Australian summer. In our half yearly report, we announced that the Australian season was slow due to poor summer weather conditions but nevertheless in line with the robust performance in the previous year when we experienced excellent summer weather. The expansion of our markets has shown our strategy on market diversity to be very sound. The Middle East grew some 40.0%, Europe over 100% (in Gale core products), both from modest volumes, and the USA by 16.9% when measured in their local currencies. I am pleased to report that Gale Pacific’s world leading advanced polymer fabric range and related value-added products have again delivered a record result. Revenue for the year was up 25.8% to $106.4 million after adjusting for a further move away from independent contractors in China to our own operation, resulting in an elimination of the contractor fabric sales. This has been a year of significant change within the group with the expansion of the Company’s markets into Europe with the Jung acquisition, the continuing success of and investment in Cal-Shades’ product range in the USA, and the emergence of benefits from the continuing investment in our manufacturing operations in China. 6 Examples of Gale Pacific’s world leading advanced polymer fabrics range. 7 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 4 EUROPE / JUNG ACQUISITION During February 2004 the Company completed the acquisition of garden industry and show media. It is also pleasing to note that the cooperation between our senior team in showing our worldwide customer base these new market defining product developments Jung, a leading and well-respected supplier to major home improvement was complimented by local media representatives. retailers in Germany, Austria, Switzerland and the Czech Republic. The acquisition cost of €3.47 million (equating to $A6.4 million) was funded through a $15.2 million capital raising. The additional capital This trade show has delivered to Gale Europe significant opportunities throughout the entire product range. The Company is now focused on servicing these opportunities through the spring and summer of 2005 raised was used to fund working capital requirements, new product in Europe. development initiatives and reduce gearing. Under a share placement to institutional investors the Company received $11.0 million, with the balance of $4.2 million coming from an underwritten share purchase plan. In total 5.83 million new shares were issued at a price of $2.60 each. We were very pleased that approximately two thirds of the Company’s shareholder base participated in the share purchase plan. Jung’s results for the year have exceeded expectations, and the acquisition is enhancing Gale’s earnings per share after taking into account capital raising to fund the Jung acquisition. The Jung acquisition has already established Gale Europe with effective customer service, a distribution facility and strong established relationships with key German retailers. It has supplied Gale with a low risk platform from which to generate strong organic growth from Gale’s product range in the large European market. The procurement expertise which the Company has gained through its China operations has delivered improved margins on Jung’s established product lines. NEW PRODUCT DEVELOPMENTS AND INITIATIVES The Company continues to invest significant resources into the development of new business and product extensions within our range of existing products. The commitment to these developments has been stepped up a level to ensure all operating units are receiving adequate support and regional customisation of those enabling technologies we develop. During the year, China has experienced a dramatic increase in staffing in this area to complement our Australian team. China has delivered a large and unique expansion of our very successful window furnishing range which was launched at the European trade show at Cologne, Germany earlier this month. Further advancements continue at Gale with our commitment to products that both conserve water, an increasingly threatened resource, and also maintain the purity of potable water. The launch of Gale’s products through the Jung network has been successfully implemented in several major German retailers and catalogue customers with excellent sell-through results. It is the Company’s intention to progressively establish a customer base over 2004/05 through Jung in France, Holland, Belgium, Austria, Switzerland, Poland and Italy. Gale has completed a range of flexible water pipe trials in Griffith NSW that are being monitored by the CSIRO. The Gale product is being developed as an alternative to rigid piping and open channel irrigation. We are sufficiently satisfied by the results and are developing the specifications of the product range. We are moving closer to the commercialisation of the opportunity with relevant parties. Gale has already established distributors for its products in England, Spain, Slovakia, Slovenia, Croatia, Serbia, Romania, Finland and Greece that will be serviced directly from Gale’s manufacturing plant in China and will be supported through Gale Europe’s customer service and distribution centre. Earlier this month, the Company attended the Gafa/Spoga international trade show for garden related products. Senior representatives of Gale’s operations in China, Australia, Dubai and our recently appointed European sales managers attended the trade show. The quality of our newly released product developments featuring our unique balcony awnings and privacy screens received extensive coverage in the 5,100 4,600 4,100 3,600 x e d n I s e i r a n d r O i l l A $1.00 3,100 2,600 Jul 02 SHARE PRICE PROGRESS 2.70 Gale Pacific Share Price All Ordinaries Index Source: Australian Stock O ct 02 Jan 03 A pr 03 Jul 03 O ct 03 Jan 04 A pr 04 Jul 04 20 Sep 04 3.10 2.90 2.70 2.50 2.30 2.10 1.90 1.70 1.50 1.30 1.10 0.90 0.70 0.50 e c i r P e r a h S e a G l Geographic expansion has successfully diversified the Company’s revenue and profit streams. 8 TOTAL REVENUE BY REGION Germany 22% Middle East 2% USA 12% China 8% Australasia 56% SALES PRODUCT MIX Garden Products 26% Window Furnishings 13% Structures 7% Commercial Fabrics 26% NET PROFIT AFTER TAX Retail Fabrics 28% 7,004 5,451 3,615 2001/02 2002/03 Year 2003/04 REVENUE 84,609 106,400 0 0 0 ' $ 8000 7000 6000 5000 4000 3000 2000 1000 0 120000 100000 80000 0 0 0 ' $ 60000 55,777 40000 20000 0 2001/02 2002/03 Year 2003/04 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 4 The Company has introduced the “Water Worm”, a flexible domestic Gale Europe and its Coolaroo branded products into Jung’s water tank that satisfies the Government’s tank rebate scheme for traditional customer base. Mr Jung’s in-depth knowledge of the past rainfall catchment. This product has the benefit over rigid tanks in that and current challenges within the European market is invaluable to it can be located under the house or in the garden. This product has Gale in planning and executing its further expansion in this region. been introduced at selected stores. Emma Xu, Executive Director - China Operations. In 2002 when Emma The Company has now commercialised a new light weight tube for joined the Company she was a senior lawyer based in Shanghai with mine venting and has made significant advancements in the production Lehman Lee & Xu Lawyers. Emma has significant experience with of our anti-wick PVC replacement fabrics in the industrial area. start-up businesses and providing advice to offshore corporations We have fully commercialised the Bioclip biological shearing nets and She successfully maintains the relationships the Company has with currently have received two orders each for 500,000 units for this all government authorities and was responsible for the establishment in the establishment and restructuring of their Chinese operations. product; it is now in production in our China operations. MANAGEMENT The Company has invested substantial time and funds in building and restructuring its management team to ensure the effective delivery of the Company’s objective to be the market leader in each of its product categories in each of its markets. The Company’s worldwide management team is cognisant of the issues affecting our industry and adapting to the future challenges in the rapidly changing commercial environments in which the Company operates. The Company is investing significant time and effort in preparing succession planning in all operations at all levels. This provides opportunities for advancement for Gale employees and enables the Company to attract high calibre staff. In view of the significant development of our international management team over the period I would like to introduce them to you. Doug Whyte, Vice President – Sales and Marketing of our USA operation joined Gale in 2002 having held senior sales and marketing positions with Black & Decker and Ingersoll Rand servicing the hardware and home improvement channels in the USA. Doug has cemented our relationships with all major USA accounts and is building a strong sales and marketing team to capitalise on the ranging and marketing opportunities we have in this large and important market. Elmar Jung, Co-founder of Jung and Managing Director - Gale Europe, Elmar has over the past 7 years built the business into one of the premier garden and outdoor leisure distributors to the central European market. Elmar maintains very close relationships with leading German retailers built up through Jung’s exceptional service and product innovation. Over the past 6 months he has integrated of our corporation and management of all finance and administration functions in its initial stages as CFO. Early in 2004, Emma took on the position of Director on our Chinese board. In addition she is now responsible for sales and marketing functions interfacing with the local offices of offshore and local retailers. In these capacities she maintains a stable organisational platform on which Paul Cashion can manage our manufacturing operations. Paul Cashion, General Manager Manufacturing - China Operations. Paul has had a very successful career in general management of textile operations throughout Australia, and recently joined us as General Manager Manufacturing of our Ningbo production facility. In the course of the last 6 months he has initiated significant technical upgrades to our operations and ensured a smooth transition to our new facility. Paul has adapted well to the Chinese environment and is supported significantly by Emma Xu and her team. Paul has built an excellent middle management team to effectively operate our new manufacturing facilities and manage the growth they are experiencing both now and into the future. Warehousing Sales Office/Distributor Manufacturing 10 The Company continues to invest in exciting new technology and market areas. 11 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 4 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 4 Zafar Fakroddin joined Gale in 2002 to lead our Dubai operations. This business has grown its sales rapidly and significantly improved the performance of our Middle Eastern operations. Zaf comes from Chicago, USA as principal and as senior manager of a well respected Chicago trading organisation. Zaf is presently expanding the reach of our Dubai office which is currently trading in Eastern Europe and most of the GCC countries. Even through these difficult times within the region we were able to grow our business by some 40.0% last year. I would like to take this opportunity to thank our former Chief Financial Officer, Mr Rod House, for his diligent efforts over the last two years. We wish him well. UNITED STATES OF AMERICA USD revenue in the USA increased by 16.9% on the previous year despite the loss of USD $0.870m in sales due to Kmart’s Chapter 11 bankruptcy and subsequent restructure, eliminating the category from their stores. Sales to the Home Centres of Home Depot and Lowes grew significantly due to the strong performance of the Cal-Shades range. We secured new business with Wal-Mart’s Sams Club giving us an MIDDLE EAST CASH FLOW Revenue growth in the region has been at a rapid rate. Revenues in The acquisition of Jung resulted in a significant improvement in operating USD were 40.0% ahead of last year, predominantly in our architectural cash flow from the prior year. This improvement was diminished by lower fabrics range. With the rapid expansion of investment into the UAE than anticipated sales in Australia resulting in marginally increased stock levels infrastructure and leisure industries we have further opportunities for ($0.8m). In addition higher stock levels were maintained in the Company’s growth. We are fortunately located in the environment most insulated European operation in advance of an anticipated rise in the price of steel. from the region’s conflicts, however there are a number of challenges in developing these markets. CHINA OUTLOOK The Company has positioned itself well for the medium term having well established skills in the world’s most significant markets, namely the USA, In September 2003 the Company acquired the remaining 15% equity Europe and China, while continuing to develop its important home market interest held by its joint venture partner and converted the business of Australia. into a “Wholly Foreign-Owned Enterprise” in China. Construction of the new manufacturing facility in Beilun is nearing product development and cost reduction provides the basis for greater completion for the November official opening. The facility is 32,000 confidence in the Company’s ability to continue to deliver consistent and square metres of factory, office and staff accommodation and with the significant growth in shareholder value. The investment by the Company in the last five years in market expansion, significant growth in the northern hemisphere markets the additional production capacity and product sourcing options this facility provides will be of significant benefit over the medium term. excellent base to build on for the future with this major retail account. This will allow us to more than double the current manufacturing In implementing our industrial fabric marketing strategy we employed a highly skilled and experienced Industrial Sales & Marketing Manager to execute our plans. We have already secured a new national industrial fabric distributor late in the season developing a most promising base volumes. FINANCE, BANKING AND CORPORATE GOVERNANCE for future expansion in this market. In line with the increasing globalisation of its operations, the Company is currently finalising the transition to a broader range of banking facilities with additional banking partners that have a greater presence in the overseas regions in which we operate. The Company has also increased the level of corporate governance in each jurisdiction by expanding the role and activities of local boards and ensuring open lines of communication with the parent Company board. The Company has completed the integration of the Cal-Shades product range under the “Coolaroo” brand and also its financial and administrative systems. These changes have been very well received by our major retail partners. The Cal-Shades custom shade business has significantly grown during the year. Good progress has been made on strengthening our USA management team in order that we can more aggressively attack the existing consumer markets and the emerging industrial opportunities in the USA. We have hired further sales and marketing personnel to expand our USA business. OUR PEOPLE The reduction in costs that the company presently enjoys and which are necessary for the maintenance and improvement of its competitive position could only have been made possible by the willing contribution, effort and sacrifice made by all members of the Gale team. Whilst I thank them all for their wonderful efforts we must all be aware that conditions in the market require us to continue our efforts to satisfy our customers. Maintaining customer service levels, managing costs and cash flow, continuing to improve technology and providing innovation for new products will allow access to new markets and continued growth opportunities into the future. GARY S GALE MANAGING DIRECTOR Dated: 24 September 2004 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 f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 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 ( 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 4 This statement sets out the corporate governance practices that The Board periodically reviews the functions of management and discharge of the duties of the Board and that accordingly his auditor’s internal quality review processes including second were in operation throughout the financial year for Gale Pacific the responsibilities of the Board. membership of the Board and the Audit Committee are appropriate. partner review are accepted by the Committee. Limited and its controlled entities (“the Company”) and which substantially comply with the Australian Stock Exchange Corporate 1.2 Terms of Appointment Governance Council recommendations. 1. BOARD OF DIRECTORS The Board has settled a form of letter of appointment to be provided to potential new non-executive directors which prescribes: 1.1 Responsibilities • Remuneration. The names of the Directors in office at the date of this Report, the • To review the annual and half-year financial reports and to ensure compliance with Australian Accounting Standards year of appointment and their status as non-executive, independent and generally accepted accounting principles. or executive directors is set out on page 20 of the Directors’ Report. • To monitor the establishment of an appropriate internal 2.2 Chairman The role and responsibilities of the Board include the following: • The expectation of the Board in relation to attending and since May 2004 and was, at the date of his appointment and continues • The term of appointment, subject to shareholder approval. The Chairman, Mr T. Eversteyn has been chairman of the Company • Setting and monitoring of objectives, goals and strategic direction for management with a view to maximising preparing for all Board Meetings and other duties. • Procedures for dealing with conflicts of interest. • Trading policy governing dealings in the Company’s shareholder wealth. securities. • Accepting an annual budget and the monitoring of • The availability of independent professional advice. financial performance. • Approving and monitoring the progress of major capital Non-executive directors are remunerated for their services from expenditure, capital management and acquisitions and the maximum aggregated amount approved by shareholders for divestments. that purpose. • Overseeing the Company’s processes for disclosure and communications. • Ensuring adequate internal controls exist and are appropriately monitored for compliance. • Ensuring significant business risks are identified and appropriately managed. • Maintaining the highest business standards and ethical behaviour. In addition to matters expressly required by law to be approved by the Board, the powers specifically reserved for the Board are as follows: 2. BOARD STRUCTURE AND COMPOSITION 2.1 Independence At the date of this report, the Board comprises 3 non-executive independent directors and 2 executive directors. The Directors considered by the Board to constitute independent directors are: T. Eversteyn, D. Reilly and G. Richards. The test to determine independence which is used by the Company is whether a Director is independent of management and any business or other relationship to be, independent. The Chairman leads the Board and is responsible for the efficient organisation and conduct of the Board’s functions. 2.3 Committees of the Board The Board has established three permanent committees to assist in the execution of its responsibilities. These are the Nomination Committee, the Audit Committee, and the Remuneration Committee. Nomination Committee The Nomination Committee now consists of T. Eversteyn, G. Gale and D. Reilly. 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. • Selecting, appointing and reviewing the performance of with the group that could materially interfere with – or could reasonably Audit Committee the Chief Executive Officer and determining his/her terms be perceived to materially interfere with – the exercise of their The primary role of the Audit Committee is to assist the Board of engagement and remuneration. unfettered and independent judgement. All of the non-executive in fulfilling its responsibilities relating to the accounting, internal • Approval of transactions, expenditure or other matters in directors are considered independent. excess of discretionary authorities delegated to the Chief Executive Officer from time to time. • Approval of significant changes in organisational structure. • The issue of any securities or equity instruments. In reaching this conclusion, the Board specifically noted and sought advice with respect to the fact that Mr T. Eversteyn is the only non- executive director who has in the past three years, been a principal control and reporting practices of the Company and its subsidiaries. The Audit Committee now consists of only non-executive, independent directors and it has an independent chairman who is not the chairman of the Board. Mr D. Reilly is the Chairman of the Audit Committee. of an adviser to the Group. Up to April 2004, the Company’s tax The Committee’s responsibilities include: control framework, and appropriate ethical standards. • To monitor the procedures to ensure compliance with the Corporations Act 2001 and the Australian Stock Exchange Listing Rules and all other regulatory requirements. • To address any matters outstanding with auditors, Australian Taxation Office, Australian Securities and Investments Commission, Australian Stock Exchange and financial institutions. Whilst during the year the Managing Director was a member of the Audit Committee at the date of this report the Audit Committee consists of three independent non-executive directors, Mr T. Eversteyn, Mr D. Reilly and Mr G. Richards. The Committee has access to management and the external auditors. The Committee has adopted a formal charter. Remuneration Committee 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 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. Payment of bonuses, stock options and other incentive payments are made at the discretion of the committee based predominantly on an objective review of the Company’s financial performance, the individuals’ achievement of stated financial and non financial targets and any other factors the committee deems relevant. In carrying out its responsibilities and powers, the Board recognises advisory firm was Bentleys MRI, a firm of which Mr T. Eversteyn, the its overriding responsibility to act honestly, diligently and in Company’s Chairman, is a partner. Bentleys MRI ceased providing tax accordance with the law in the best interests of the Company’s advice to the Company in April 2004 and notwithstanding that Mr shareholders while also having regard to the interests of its other T. Eversteyn is a partner in this firm, the Board has concluded that stakeholders, including its customers and employees. he retains independence of character and judgement. The Board considers Mr Eversteyn’s financial expertise to be important to the 14 • To recommend to the Board the appointment and dismissal of the external auditors and setting the appropriate fee. • To evaluate the performance of the external auditors, including their independence and objectivity. The external audit engagement partner is not rotated; however the 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. 15 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 ) f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 4 Non-Executive Directors receive directors’ fees and do not participate in performance based remuneration. 4. FINANCIAL REPORTING The payment of equity-based remuneration is made in accordance with thresholds set in plans approved by shareholders. The Board is currently documenting the existing functions, roles and resposibilities of the committee. 3. ETHICAL AND RESPONSIBLE DECISION-MAKING 3.1 Ethical Standards The Company’s policy is that all Directors and staff maintain the highest ethical standards of conduct. Gale Pacific Limited is an equal opportunity employer. The Company is in the process of documenting its code of conduct so as to guide the Directors, management and all staff as to the practices necessary to maintain confidence in the Company’s integrity and the responsibility and accountability of individuals for reporting and investigating allegations of unethical practices. A summary of the main provisions of this code will be posted on the Company’s web site as soon as it is available. 3.2 Share ownership and dealing 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, the annual general meeting or any major announcement; and • At all other times only with the approval of the Chairman, or in his absence, another non-executive director. • Directors and Executives must disclose their trading in Company shares to the Board. The Company does not impose any restrictions of trading in the Company’s securities on employees unless they are executives of the Company. 4.1 Management Accountability The Directors are committed to the preparation of financial statements that present a balanced and clear assessment of the Group’s financial position and prospects. The Board requires the Managing Director and the Chief Financial Officer to state in writing to the Board that the Company’s financial reports present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. 4.2 Audit Committee The Audit Committee reviews the Company’s half yearly and annual financial statements and makes recommendations to the Board. The role of the Committee in the preparation and reporting of the financial information of the Group is set out in principle 2.3 of this statement. 5. MARKET DISCLOSURE The Company has established procedures designed to ensure compliance with Australian Stock Exchange Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance. The Managing Director, the Chief Financial Officer 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 Australian Stock Exchange. The purpose of the procedures for identifying information for disclosure is to ensure timely and accurate information is provided equally to all shareholders and market participants. The Company is in the process of documenting this policy. 6. SHAREHOLDER RIGHTS The Board informs shareholders of all major developments affecting the Company’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 Australian Stock Exchange contains summarised financial information and a review of the operations of the consolidated entity during the period. 16 New consumer products are being developed using our fabrics for many new market applications. 17 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 ) f o r t h e y e a r e n d e d 3 0 J u n e 2 0 0 4 • All major announcements to the Australian Stock Exchange The Board is provided with the information it needs to efficiently are distributed to shareholders, and posted on the discharge its responsibilities. The Board has a policy of enabling Company’s website at www.galepacific.com. Directors to seek independent professional advice at the Company’s • Proposed major changes in the consolidated entity which expense, subject to estimated costs being approved by the may impact on share ownership rights are submitted to Chairman in advance as being reasonable. All Directors have access a vote of shareholders. to the Company Secretary and the appointment and removal of the • The Board encourages full participation of shareholders Company Secretary is a matter for decision by the Board as a whole. at the annual general meeting to ensure a high level of accountability and identification with the consolidated 9. REMUNERATION entity’s strategy and goals. The Company’s auditor attends the annual general meeting. non-executive) are set out on page 28 of the Directors’ Report. Details of the remuneration paid to the Directors (executive and 7. RISK MANAGEMENT 10. CORPORATE SOCIAL RESPONSIBILITY The Board has responsibility for monitoring risk oversight and The Company’s Board and management are committed to ensuring management and ensures that the Managing Director and the the Company conducts its business in a way which reflects its Chief Financial Officer report on the status of business risks through health, safety, environment and community responsibilities. risk management programs aimed at ensuring risks are identified, assessed and appropriately managed. The Company’s compliance with the Principles of Good Governance and Best Practice Recommendations published by the Australian Management has established and implemented a system for Stock Exchange Corporate Governance Council in March 2003 is identifying, assessing, monitoring and managing material risk described in this Annual Report including the Corporate Governance throughout the organisation. The Company’s risk management Statement, the Directors’ Report and the Financial Statements. procedures cover environment, occupational health and safety, The Listing Rules of the Australian Stock Exchange require listed property, financial reporting and internal control. The Company’s companies to report on the extent to which they comply with the risk management policy and internal compliance and control system is currently being documented and will be posted on the Company’s web site as soon as it is available. Best Practice recommendations. These requirements take effect for reporting periods ending on or after 30 June 2004. The Company complies with the majority of the recommendations, and where it does not, it has indicated so in this Corporate Governance Statement. The Managing DIrector and the Chief Financial Officer are required to state to the Board in writing that the integrity of the financial While the Board of the Company is satisfied with its level of statements is founded on a sound system of risk management compliance with the new governance requirements, it recognises and internal compliance and control and that the Company’s risk and acknowledges that the Company’s practices and procedures should be constantly reviewed. The Board has commenced a program of review which will continue throughout the year and which will aim at further improving the Company’s corporate governance policies and procedures. management and internal compliance and control system is operating efficiently and effectively in all material respects. 8. BOARD AND MANAGEMENT PERFORMANCE APPRAISAL The Nomination Committee takes responsibility for evaluating the Board’s performance and the Company’s key executives. A performance evaluation for the Board and its members has taken place in the reporting period. The Board is currently reviewing the requirement for evaluation of the performance of each Director and the process for same, if any, to be formally adopted. 18 Water management and crop protection continue to be important areas of focus for the business. 19 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 4 The Directors of Gale Pacific Limited present their annual financial report of the Company for the financial year ended 30 June 2004. DIRECTORS The Directors in office at any time during or since the end of the year to the date of this report are: MR THEO JOHN EVERSTEYN Chairman FCA, Graduate Diploma Industrial Accounting and Bus. Admin. age - 63 Mr Eversteyn joined the Board in 1998 in a non-executive capacity. Mr Eversteyn has been a partner of the Chartered Accounting firm Bentleys MRI since 1973 and was appointed Chairman of the Melbourne partnership on 1 July 2004. During his career he has focused on manufacturing and distribution businesses. He is also the non-executive chairman of Valcorp Fine Foods Pty Ltd, MR DARYL EDWARD JAMES REILLY Non-Executive Director - Chairman Audit Committee Graduate Diploma of Business (Accounting), CPA, ACIS, FTMA, AICD age - 50 Mr Reilly joined the Board in 1998. He was previously an Executive Director and principal of Advent Management Group Limited (“AMG”) and was AMG’s Chief Financial Officer and Company Secretary between 1984 and 2004. During his twenty year career in private equity, he has been a Director on the boards of numerous companies involved in a diverse range of areas including manufacturing, business to business, information technology, tourism, leisure and hospitality and communications, in addition to his funds management role within AMG. He remains a significant shareholder of AMG. MR GEORGE HENRY RICHARDS Non-Executive Director Endeavour Wines Pty Ltd and the Joval Pty Ltd Group. Mr Eversteyn CPA, ACIS age - 58 was a director of the Alzheimer’s Association of Victoria for the period 1990 to 2000 and Bentleys MRI Australia Ltd for the period 2000 to 2004. MR GARY STEPHEN GALE Managing Director age - 51 Mr Gale was responsible for the restructuring of the Gale Group both in Australia and the USA in 1996/97 and was appointed as an Executive Director of the Board in 1998. He was also responsible for the Company entering the advanced polymer fabric industry as a manufacturer in 1977. Mr Gale studied textile engineering in Germany, and is the son of the founder of the Gale business. Mr Richards joined the Board in 2004. He was the Chief Executive of Mitre 10 South West Ltd from 1990 to 2000 and was previously the Managing Director of Cooper Tools, a market leader in hand tools manufacture and distribution. Mr Richards has had over 40 years experience in retail, marketing, manufacturing and distribution. He was also formerly president of the Hardware Federation of Australia and is a board member of The Alfred Foundation, a Director of Magnet Mart Pty Ltd, Associate Member of the Australian Institute of Company Directors and Australian Institute of Management. DR HUW GERAINT DAVIES Non-Executive Director MR PETER RONALD MCDONALD BSc, PhD age - 63 Chief Operating Officer Bachelor of Business (Marketing) age - 38 Mr McDonald joined the Gale Group in 1988 and was appointed as an Executive Director of the Company in 1998. Mr McDonald has held the position of Product Manager, National Marketing Manager and National Sales and Marketing Manager. Mr McDonald is responsible for the day-to-day operations of the business including the USA and Middle East businesses. Former Chairman and Non-Executive Director. Mr Davies joined the Board in 2000. The above named Directors held office during and since the end of the financial year except for: Mr H. G. Davies – resigned 17 May 2004 Mr G. H. Richards – appointed 17 May 2004 20 Raw material development is critical to our on-going market success. 21 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 4 Principal Activities Events Subsequent to Balance Date The consolidated entity’s principal activities in the course of the Subsequent to the end of the financial year, capital expenditure was financial year were the manufacture and exporting of advanced approved for the purchase of plant and equipment for the wholly polymer fabrics and related products. With the acquisition of the owned Chinese entity, Gale Pacific Textiles Company Limited German subsidiary Jung, the Group now has a European distribution ("GPST"). facility with strong established relationships with key European retailers. This has provided the Group with a platform from which Other than the approval for capital expenditure mentioned above to generate strong organic growth from Gale’s product range in there has not arisen in the interval between the end of the financial the large European market. Results year and the date of this report any item, transaction or event of a material and unusual nature that, in the opinion of the Directors has significantly affected or may significantly affect the operations of the economic entity, the result of those operations, or the state of The consolidated profit of the economic entity for the financial affairs of the economic entity in subsequent financial years. year attributable to the members of Gale Pacific Limited was $7.004 million. Review of Operations Likely Developments Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years A comprehensive review of the operations of the economic entity and the expected results of those operations is likely to result in during the financial year and the results thereof is contained in the unreasonable prejudice to the consolidated entity. Accordingly, accompanying Chairman’s Report and the Managing Director’s this information has not been disclosed in this Report. Report and Review of Operations of this Annual Report. State of Affairs Environmental Regulation and Performance In the opinion of the Directors there were no significant changes The economic entity’s operations are not subject to any significant in the state of affairs of the Company and its controlled entities environmental regulations under the Commonwealth or State that occurred during the financial year under review not otherwise legislation. However, the Directors believe that the economic disclosed in this report or the accompanying financial report. entity has adequate systems in place for the management of its Resolutions will be put to the shareholders at the annual general meeting to amend the terms of the share option plan for subsequent issues of options. environmental requirements and is not aware of any breach of those environmental requirements as they apply to the economic entity. 22 From domestic backyards to large scale commercial projects, our products span a breadth of applications. 23 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 4 Dividends In respect of the financial year ended 30 June 2003, a final dividend 427,942 options have vested prior to this financial year. An additional 45% vest when the share price reaches $3.20. A further 30% vest when the share price reaches $3.60 and 25% vest when of 3.5 cents per share franked to 100% at the 30% corporate income the share price reaches $3.95. tax rate was paid to the holders of fully paid ordinary shares on 16 October 2003. In respect of the financial year ended 30 June 2004, an interim dividend of 3.5 cents per share franked to 100% at the 30% During the financial year no options vested. As set out in the accounting standard AABS 1046 and the revised ASIC guidelines, the Company has valued the issued options. The Binomial option pricing model was used and this model takes into account the corporate income tax rate was paid to the holders of fully paid following inputs: ordinary shares on 17 April 2004. • Current price of the underlying shares as at the grant date. In respect of the financial year ended 30 June 2004, the Directors • Exercise price. have declared a final dividend of 4.0 cents per share franked to 100% at the 30% corporate income tax rate to be paid to the holders of fully paid ordinary shares on 18 October 2004. Share Options • Expected volatility of the share price over the expected life of the options. • First exercisable date. • Expected life. • Expected dividend yield. The Company has entered into an option agreement to grant options to specified option holders over unissued shares in the Company. The Company has utilised the Black-Scholes methodology as a The options are exercisable upon achievement of certain conditions. comparison to the values using the Binomial methodology and there was a plus or minus 5% correlation between the values During the financial year, 50,000 options over 50,000 ordinary achieved under the two methodologies which is not unreasonable. • Risk free interest rate for the expected life of the options. shares were granted to Ms Emma Xu by the Company. Further details of the option plan are disclosed in note 18 to the The number of unissued ordinary shares under option as at the date Financial Statements. of this report is 477,942. 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 427,942 of the issued options is $1.00 and the remaining 50,000 have an exercise price of $1.50. The first 427,942 options are not exercisable after 1 December 2004 and the remaining 50,000 options are not exercisable after 1 December 2006. 24 The Coolaroo brand is becomming more and more recognised in consumer markets. 25 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 4 INDEMNIFICATION OF OFFICERS AND AUDITORS During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary 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 officer or auditor of the Company or of any related body corporate against a liability incurred as an officer or auditor. DIRECTORS’ MEETINGS 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 COMMITTEE MEETINGS REMUNERATION COMMITTEE MEETINGS NOMINATION COMMITTEE No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED 18 17 18 18 18 1 16 17 18 15 18 1 2 - 2 - 2 - 1 - 2 - 2 - 1 - - - 1 - 1 - - - 1 - 3 - 3 - 3 - 3 - 3 - 3 - DIRECTORS T J Eversteyn (i) H G Davies (ii) G S Gale P R McDonald D E J Reilly (iii) G H Richards (i) (i) Mr T Eversteyn was appointed Chairman of the Board and Mr G Richards was appointed as a Director of the Board on 17 May 2004. (ii) Mr H Davies resigned from the Board on 17th May 2004. (iii) Mr D Reilly was appointed Chairman of the Audit Committee on 17 May 2004, replacing Mr Eversteyn. DIRECTORS’ SHAREHOLDINGS 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 T J Eversteyn G S Gale P R McDonald D E J Reilly G H Richards 175,000 14,790,104 235,966 270,612 10,000 - 427,942 - - - 26 The Company’s waterproof fabric range is being expanded into new market areas. 27 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 4 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 4 DIRECTORS’ AND EXECUTIVES’ REMUNERATION 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: • Primary benefits – salary/fees; • Benefits, including the provision of motor vehicles and superannuation; and • Incentive schemes, including share options under the executive share option plan as disclosed in Note 18 and Note 25 to the financial statements. The following table discloses the remuneration of the Directors of the Company: SALARY & FEES $ PRIMARY BONUS $ NON- SUPER- MONETARY ANNUATION $ $ POST EMPLOYMENT PRESCRIBED BENEFITS $ 2004 Executive Directors G S Gale P R McDonald 322,498 252,961 120,000 75,000 66,500 36,037 11,002 11,002 Non-Executive Directors 49,583 60,554 47,500 6,167 T J Eversteyn H G Davies D E J Reilly G H Richards 2003 Executive Directors - - - - - - - - - - - - G S Gale P R McDonald 265,504 235,537 90,000 60,000 61,364 19,926 11,002 11,002 Non-Executive Directors T J Eversteyn H G Davies D E J Reilly 41,250 55,000 41,250 - - - - - - - - - - - - - - - - - - - - EQUITY OPTIONS $ OTHER $ OTHER BENEFITS $ TOTAL $ - - - - - - - - - - - 33,889 26,358 - - - - 33,889 26,358 - - - - - - - - - - - - - - 553,889 401,358 49,583 60,554 47,500 6,167 461,759 352,823 41,250 55,000 41,250 PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied for leave of a 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. ROUNDING OFF OF AMOUNTS 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. Signed in accordance with a resolution of Directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the Directors THEO EVERSTEYN GARY S GALE CHAIRMAN MANAGING DIRECTOR Dated: 24 September 2004 The following table discloses the remuneration of the 5 highest remunerated executives of the Company and the consolidated entity. SALARY & FEES $ 162,307 139,373 262,272 219,855 170,000 PRIMARY BONUS $ 30,000 - 33,660 - - R. House (i) P. Cashion (ii) D. Whyte (iii) E. Jung (iv) S. Carroll NON- SUPER- MONETARY ANNUATION POST EMPLOYMENT PRESCRIBED BENEFITS $ $ 19,026 62,629 31,116 - 14,608 - - - 25,000 15,300 $ - - - - - EQUITY OTHER OPTIONS $ $ 10,000 17,465 - - - - - - - - OTHER BENEFITS $ - - - - - TOTAL $ 253,406 202,002 327,048 219,855 210,300 (i) Mr House received a $10,000 eligible termination payment on 27 July 2004. (ii) Mr Cashion is based in China and is principally remunerated in US dollars converted to Australian dollars in the table above. (iii) Mr Whyte is based in the USA and remunerated in US dollars converted to Australian dollars in the table above. (iv) Mr Jung is based in Germany and remunerated in Euro converted to Australian dollars in the table above. The company’s fabrics are being used in organic growing applications, as well as grain and water storage. 28 29 I N D E P E N D E N T A U D I T 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 4 SCOPE AUDIT OPINION We have audited the financial report of Gale Pacific Limited for In our opinion, the financial report of Gale Pacific Limited is in the financial year ended 30 June 2004 comprising of the Directors' accordance with: Declaration, Statement of Financial Performance, Statement of Financial Position, Statement of Cash Flows and Notes to the (a) the Corporations Act 2001, including: Financial Statements. The financial report includes the consolidated financial statements of the consolidated entity comprising the Company and the entities • giving a true and fair view of the Company's and consolidated entity's financial position as at 30 June 2004 and of their performance for the year ended on that date; it controlled at the year's end or from time to time during the and financial year. The Company's Directors are responsible for the • complying with Accounting Standards in Australia and the financial report. We have conducted an independent audit of this Corporations Regulations 2001; and (b) other mandatory professional reporting requirements in Australia. PITCHER PARTNERS 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 PARTNER M W PRINGLE above basis. Melbourne 24 September 2004 30 The company continues to build a reputation for quality and innovation. 31 D I R E C T O R S ’ D E C L A R A 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 4 The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 34 to 61 are in accordance with the Corporations Act 2001 including:- • compliance with Accounting Standards in Australia and the Corporations Regulations 2001; and • providing a true and fair view of the financial position as at 30 June 2004 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. THEO EVERSTEYN GARY S GALE CHAIRMAN MANAGING DIRECTOR Dated this 24 day of September 2004 32 The Company’s position in commercial markets around the world continues to grow. 33 STATEMENT OF FINANCIAL PERFORMANCE STATEMENT OF FINANCIAL POSITION F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 A S A T 3 0 J U N E 2 0 0 4 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 2003/04 $ ’000 Revenue from ordinary activities 2 106,400 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 20 19 22 31 31 2002/03 $ ’000 84,609 4,349 (41,554) (15,622) (3,345) (14,889) (4,050) (1,725) 7,773 (2,220) 5,553 (102) 2003/04 $ ’000 2002/03 $ ’000 71,942 76,519 1,051 (33,326) (12,276) (3,669) (13,348) (2,051) (2,313) 3,156 (40,281) (13,561) (2,956) (11,450) (3,062) (1,725) 6,010 6,640 (1,882) (2,182) 4,128 4,458 - - (14,273) (32,309) (16,542) (4,677) (23,492) (3,085) (2,398) 9,624 (2,615) 7,009 (5) 7,004 5,451 4,128 4,458 - - - - 1,223 (1,198) 1,223 (1,198) 8,227 15.20 15.05 4,253 12.73 12.42 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 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest bearing liabilities Deferred tax liabilities Provisions Note 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 5 6 7 8 6 9 10 11 12 8 13 14 15 16 14 15 16 18 19 20 21 22 6,710 28,605 34,093 1,058 70,466 - - 32,168 9,641 346 1,382 43,537 114,003 15,942 20,783 724 989 38,438 18,046 4,213 110 22,369 60,807 53,196 38,899 (273) 14,576 53,202 (6) 53,196 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 2,513 8,932 16,886 512 28,843 22,348 15,397 25,036 3,190 - 1,381 67,352 96,195 6,557 17,386 - 936 849 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 24,879 19,703 18,046 3,923 110 22,079 46,958 49,237 38,899 - 10,338 49,237 - 49,237 13,872 3,327 110 17,309 37,012 32,283 22,798 - 9,485 32,283 - 32,283 4,128 4,458 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained profits PARENT ENTITY INTEREST Outside equity interests TOTAL EQUITY 34 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 35 STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 C O N S O L I D A T E D C O M P A N Y NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING (b) Income Tax Note 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 POLICIES The economic entity adopts the liability method of tax-effect 107,418 (90,458) 45 (2,398) (2,204) 83,227 (73,280) 67 (1,725) (1,977) 61,190 (50,673) 282 (2,313) (1,986) 75,193 (66,389) 66 (1,725) (1,938) The financial report is a general purpose financial report that has accounting whereby the income tax expense shown is based been prepared in accordance with Accounting Standards, Urgent on the profit from ordinary activities adjusted for any Issues Group Consensus Views and other authoritative permanent differences between taxable and accounting pronouncements of the Australian Accounting Standards Board income. and the Corporations Act 2001. The financial report covers Gale Pacific Limited as an individual periods in which items of revenue and expense are included parent entity and Gale Pacific Limited and controlled entities as in the determination of accounting profit and taxable income Timing differences which arise due to the different accounting 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 23(b) 12,403 6,312 6,500 5,207 an economic entity. Gale Pacific Limited is a company limited by are brought to account as either a provision for deferred CASH FLOW USED IN INVESTING ACTIVITIES Proceeds from sale of plant and equipment Payment for plant and equipment Payment for acquisition of business 23(c) 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 8 (6,459) (5,233) - (55) (2,972) - - 95 (6,225) (3,305) - (787) (763) - - Net cash used in investing activities (14,711) (10,985) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from/(repayment of) borrowings Proceeds from issue of equity securities Repayment of principal on finance leases Proceeds from/(repayment of principal on) hire purchases Dividends paid Proceeds/(repayment) from outside equity interest Net cash provided by financing activities Net increase in cash held Cash at beginning of year Effects of exchange rate changes on items denominated in foreign currencies Cash at end of year 23(a) (5,811) 15,461 (108) (1,011) (2,635) (706) 5,190 2,882 1,457 1,091 5,430 2,812 - (1,719) 6,592 (2,058) 592 6,219 1,546 361 (450) 1,457 8 (2,182) (5,522) (1,979) (55) (2,974) (14,655) - (27,359) 9,526 15,461 (108) (1,011) (2,635) - 21,233 374 849 - 1,223 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 shares, incorporated and domiciled in Australia. income tax or as a future income tax benefit at the rate of The financial report has been prepared on an accruals basis and is be received or the liability will become payable. based on historical costs and does not take into account changing money values or, except where stated, current valuations of non- Future income tax benefits are not brought to account unless current assets. Cost is based on the fair value of consideration realisation of the asset is assured beyond any reasonable income tax applicable to the period in which the benefit will given in exchange for assets. The following is a summary of the material accounting policies 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 adopted by the economic entity in the preparation of the financial not recorded unless realisation is virtually certain. report. The accounting policies have been consistently applied, 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. 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 29. 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. 36 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 37 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING The depreciation rates used for each class of assets are: NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING Contributions are made by the economic entity to an POLICIES (cont’d) (c) Inventories Class of fixed asset Depreciation rates Depreciation basis Inventories are measured at the lower of cost and net Leasehold Determined by Straight Line realisable value. Net realisable value is determined on the improvements lease term 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 Plant and equipment 6.7% - 20.0% Straight Line variable and fixed overhead expenses. (d) Plant and Equipment Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation. Plant and equipment Plant and equipment are measured on the cost basis. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the 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. Leased plant 6.7% - 20.0% Straight Line and equipment Motor vehicles 20.0% Straight Line Office equipment 14.3% - 50.0% Straight Line (e) Leases Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the entities within the economic entity are classified as finance leases. Finance leases are capitalised, recording at the inception of the lease an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely that the economic entity will obtain ownership of the asset or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives received under operating leases are recognised as a liability. (f) Investments Controlled Entities Investments in controlled entities are carried in the holding company's financial statements at cost less amounts written off to recognise any permanent diminution in value. Dividends are brought to account in the statement of financial performance when they are proposed by the controlled entities. POLICIES (cont’d) employee superannuation fund and are charged as expenses (g) Foreign Currency Transactions and Balances when incurred. Foreign currency transactions during the year are converted (i) Research and Development Expenditure to Australian currency at the rates of exchange applicable Research and Development costs are charged to profit from at the dates of the transactions. Amounts receivable and ordinary activities before income tax as incurred or deferred payable in foreign currencies at balance date are converted where it is expected beyond any reasonable doubt that at the rates of exchange ruling at that date. sufficient future benefits will be derived so as to recover The gains and losses from conversion of short-term assets those deferred costs. and liabilities, whether realised or unrealised, are included Deferred Research and Development expenditure is in profit from ordinary activities as they arise. amortised on a straight-line basis over the period during The assets and liabilities of overseas controlled entities, which the related benefits are expected to be realised, once commercial production is commenced but not exceeding which are self-sustaining, are translated at year-end rates three years. and operating results are translated at rates ruling at the end of each month. Gains and losses arising on translation are (j) Cash taken directly to the foreign currency translation reserve. For the purposes of the statement of cash flows, cash Exchange differences arising on hedged transactions undertaken to hedge foreign currency exposures, other than 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 those for the purchase and sale of goods and services, are net of bank overdrafts. brought to account in the profit from ordinary activities when the exchange rates change. Any material gain or loss arising (k) Comparative Figures at the time of entering into hedge transactions is deferred Where required by Accounting Standards comparative figures and brought to account in the profit from ordinary activities have been adjusted to conform with changes in presentation over the lives of the hedges. for the current financial year. Costs or gains arising at the time of entering hedged (l) Revenue transactions for the purchase and sale of goods and services, Revenue from the sale of goods is recognised upon the and exchange differences that occur up to the date of delivery of goods to customers. purchase or sale are deferred and included in the measurement of the purchase or sale. (h) Employee Entitlements 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. Provision is made for the economic entity's liability for Where a grant is received or receivable relating to research employee entitlements arising from services rendered by and development costs that have been deferred, the grant employees to balance date. Employee entitlements expected is deducted from the carrying amount of the deferred costs. to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave Other revenue is recognised when the right to receive the which will be settled after one year, have been measured at revenue has been established. 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. All revenue is stated net of the amount of goods and services tax (GST). 38 39 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING The key differences in accounting policies that are expected POLICIES (cont’d) to arise from adopting Australian equivalents to IFRS are (m) Intangibles Goodwill detailed below: Income taxes Goodwill and goodwill on consolidation are initially recorded Under IFRS, a balance sheet approach will be adopted under at the amount by which the purchase price for a business or which temporary differences are identified for each asset and for an ownership interest in a controlled entity exceeds the liability rather than accounting for the effect of timing and fair value attributed to its net assets at date of acquisition. permanent differences between taxable income and Both purchased goodwill and goodwill on consolidation are accounting profit. 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. Goodwill Amortisation of goodwill will cease on adoption of IFRS. Under IFRS, goodwill will be subject to impairment testing. Patents and Trademarks Intangible Assets 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 Patents, Trademarks & Licences are classified as internally generated identifiable intangible assets and will be derecognised if they do not satisfy the identifiability or 20 years. (n) International Financial Reporting Standards The company is currently: recognition criteria. Impairment of Assets The recoverable amount test under Australian GAAP will be replaced by impairment testing, whereby recoverable amount is determined as the higher of fair value less costs to sell and • Evaluating the key differences in accounting policies; value in use. Value in use incorporates the use of discounted • Identifying the changes to the company's financial cash flows. reporting systems; and • Commencing evaluation of the financial impact The effects of changes in foreign exchange rates arising from key differences in accounting policies Under IFRS, foreign subs will no longer be classified as that are expected to arise from adopting Australian self-sustaining/integrated entities. Different translation equivalents of IFRS. rules will apply. C O N S O L I D A T E D C O M P A N Y Note 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 NOTE 2: REVENUE 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 NOTE 3: PROFIT FROM ORDINARY ACTIVITIES Profit from ordinary activities before income tax expense has been determined after: Cost of sales Borrowing costs - Other persons Depreciation of non-current assets: - - Leasehold improvements Plant and equipment - Motor vehicles - Office Equipment Amortisation of non-current assets: - - Leased plant and equipment Leased motor vehicles - Goodwill - Patents and trademarks Research and Development expenditure: - - Capitalised and amortised Expensed as incurred 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 104,963 1,086 286 57 8 106,400 81,767 2,562 68 117 95 84,609 70,508 1,086 283 57 8 71,942 73,678 2,562 67 117 95 76,519 59,955 49,517 46,192 48,233 2,398 1,725 2,313 1,725 32 2,926 267 483 (10) 20 489 119 351 1 366 1 - 405 17 1,858 125 344 273 38 295 107 288 4 34 53 - 8 18 2,471 225 305 (10) 20 193 96 351 1 (5) 1 - (27) 14 1,670 110 267 273 38 205 91 288 3 34 - (8) 8 40 41 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 C O N S O L I D A T E D C O M P A N Y Note 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 NOTE 3: PROFIT FROM ORDINARY ACTIVITIES (cont’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 / (gains) Net loss on disposal of non-current assets Plant and equipment Operating lease rental expense NOTE 4: INCOME TAX EXPENSE The prima facie income tax payable on profit from ordinary activities is reconciled to the income tax expense as follows: Prima facie tax payable on profit from ordinary activities before income tax at 30% Add: Tax effect of: Amortisation of intangible assets Less: (Under)/over provision for income tax in prior year - Attributed CFC income - Other non-allowable/non-assessable items Tax rate differentials in foreign countries Income tax expense attributable to profit from ordinary activities 83 20 60 163 (211) 51 2,703 90 63 69 222 53 9 2,565 83 20 60 163 (211) 51 2,510 90 63 69 222 53 9 2,565 2,887 2,332 1,803 1,992 120 3,007 - (28) (325) (39) 2,615 87 2,419 (13) - 38 (224) 2,220 56 1,859 60 2,052 - 28 (5) - - 100 30 - 1,882 2,182 NOTE 5: CASH ASSETS Cash on hand Cash at bank NOTE 6: RECEIVABLES CURRENT Trade debtors Less provision for doubtful debts Other debtors NON-CURRENT Amounts receivable from: Controlled entities NOTE 7: INVENTORIES CURRENT Raw materials at cost Work in progress at cost Finished goods at cost Less provision for obsolescence NOTE 8: OTHER ASSETS CURRENT Prepayments NON-CURRENT Research & development 26 6,684 6,710 21,882 (437) 21,445 7,160 28,605 6 1,451 1,457 10,837 (32) 10,805 2,615 13,420 2 2,511 2,513 5,266 (5) 5,261 3,671 8,932 2 847 849 5,436 (32) 5,404 2,276 7,680 - - 22,348 7,693 2,136 3,364 29,056 (463) 34,093 1,058 1,382 1,381 2,186 16,350 (97) 19,820 359 597 613 2,772 13,593 (92) 16,886 512 1,381 1,034 1,724 13,174 (97) 15,835 237 597 NOTE 9: OTHER FINANCIAL ASSETS NON-CURRENT Shares in controlled entities at cost 29 - - 15,397 7,066 42 43 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 10: PLANT AND EQUIPMENT Plant and equipment At cost Less accumulated depreciation Under lease At cost Less accumulated amortisation Leasehold Improvements At cost Less accumulated depreciation Motor vehicles At cost Less accumulated depreciation Under lease At cost Less accumulated amortisation Office equipment At cost Less accumulated depreciation Total plant and equipment C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 37,727 (10,397) 27,330 1,501 (210) 1,291 309 (101) 208 1,488 (467) 1,021 126 (80) 46 3,688 (1,416) 2,272 32,168 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 31,417 (9,418) 21,999 1,501 (210) 1,291 274 (82) 192 1,200 (408) 792 126 (80) 46 1,820 (1,104) 716 25,036 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 NOTE 10: PLANT AND EQUIPMENT (cont’d) Movements in Carrying Amounts Movement in the carrying amounts for each class of plant and equipment between the beginning and the end of the year: 2003/04 Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year 2003/04 Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year 2003/04 Balance at the beginning of the year Additions Asset - business acquired Disposals Depreciation expense Carrying amount at 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 $ ’000 216 24 - (32) 208 208 2 - (18) 192 25,202 5,131 (77) (2,926) 27,330 23,239 1,231 - (2,471) 21,999 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 1,007 274 - 10 1,291 1,007 274 - 10 1,291 904 428 (44) (267) 1,021 767 294 (44) (225) 792 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 $ ’000 901 618 1,238 (2) (483) 2,272 642 381 - (2) (305) 716 79 - - (13) (20) 46 79 - - (13) (20) 46 44 45 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 11: INTANGIBLE ASSETS Goodwill on consolidation at cost Less accumulated amortisation Patents, trademarks and licenses at cost Less accumulated amortisation RECONCILIATION OF INTANGIBLE ASSETS 2003/04 Balance at the beginning of the year Additions Amortisation expense Carrying amount at the end of the year C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 10,445 (1,439) 9,006 934 (299) 635 9,641 7,511 (950) 6,561 863 (180) 683 7,244 3,829 (1,053) 2,776 659 (245) 414 3,190 3,800 (860) 2,940 604 (148) 456 3,396 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 6,561 2,934 (489) 9,006 2,940 29 (193) 2,776 683 71 (119) 635 455 55 (96) 414 C O N S O L I D A T E D C O M P A N Y Note 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 NOTE 12: DEFERRED TAX ASSETS The future income tax benefits comprise: Timing differences 346 204 - - NOTE 13: PAYABLES CURRENT Unsecured liabilities Trade creditors Sundry creditors and accruals NOTE 14: INTEREST BEARING LIABILITIES CURRENT Secured liabilities Bank overdrafts Bank loans Commercial bills Finance lease liability Hire purchase liability NON-CURRENT Secured liabilities Commercial bills Finance lease liability Hire purchase liability 23(e) 23(e) 23(e) 27(a) 27(b) 23(e) 27(a) 27(b) NOTE 15: INCOME TAX LIABILITIES CURRENT Income tax NON-CURRENT Deferred income tax 8,387 7,555 15,942 1,280 15,525 1,500 310 2,168 20,783 11,700 615 5,731 18,046 724 4,213 4,335 3,401 7,736 - 7,893 1,500 328 2,143 11,864 6,400 705 6,767 13,872 502 3,515 3,651 2,906 6,557 1,290 12,118 1,500 310 2,168 17,386 11,700 615 5,731 18,046 4,062 2,417 6,479 - 7,893 1,500 328 2,143 11,864 6,400 705 6,767 13,872 - 425 3,923 3,327 46 47 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 16: PROVISIONS CURRENT Employee entitlements NON-CURRENT Employee entitlements (a) Aggregate employee entitlements liability (b) Number of employees at year end NOTE 17: NON-HEDGED FOREIGN CURRENCY BALANCES The Australian dollar equivalents of foreign currency balances included in the financial statements that are not effectively hedged are as follows: US Dollars & Euro Payables Current - $US Current - Euro Non-current – Euro Receivables Current - $US Current - Euro Non-current - $US Non-current - Euro 48 C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 989 968 936 935 50,358,425 fully paid ordinary shares (2003: 43,459,282) 38,899 22,798 NOTE 18: CONTRIBUTED EQUITY Paid up Capital 110 1,099 427 110 1,078 329 110 1,046 200 110 1,045 198 17,470 8,918 2,114 28,502 19,850 342 - - 10,252 14,593 8,995 - - - - - - 10,252 14,593 8,995 7,248 - - - - 342 11,475 10,893 22,710 1,507 - 7,624 - 9,131 20,192 7,248 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 1,602,601 shares issued as part of the Company Share Purchase Plan 4,230,769 shares issued to Institutional Investors 237,930 shares issued under Dividend Reinvestment Plan 827,843 shares issued under the Company option scheme 487,175 shares issued under Dividend Reinvestment Plan 22,798 - 4,167 10,466 640 828 - 38,899 20,858 1,250 - - - - 690 22,798 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. A Share Purchase Plan available to all shareholders and a share placement with institutional investors was made to fund the acquisition of the German based company, Jung Garten & Freizeit Vertriebsgesellschaft mbH, as well as Gales’ working capital requirements and new product initiatives, and to reduce gearing. 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 of the 427,942, issued options is $1.00 and the remaining 50,000 options have an exercise price of $1.50. The vesting of options is determined by the performance of the Company’s share price over time. The first 427,942 options are not exercisable after 1 December 2004 and the remaining 50,000 options are not exercisable after 1 December 2006. Options carry no rights to dividends and no voting rights. Balance at the beginning of the financial year Granted during the financial year (20 May 2004) Options Exercised during the financial year Lapsed during the financial year (Issued 18 December 2002) 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 2004, 427,942 options on issue had vested. No. No. 1,310,785 760,785 50,000 (827,843) (55,000) - - - - - 650,000 (100,000) 477,942 1,310,785 49 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 19: RESERVES Foreign currency reserve Movement during the year: Opening balance Foreign currency loss on consolidation Closing balance C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 (273) (1,496) (1,496) 1,223 (273) (298) (1,198) (1,496) - - - - - - - - Exchange differences relating to foreign currency monetary items forming part of the net investment in a self-sustaining foreign operation and the translation of self-sustaining foreign controlled entities are brought to account by entries made directly to the foreign currency translation reserve, as described in Note 1(g). NOTE 20: RETAINED PROFITS Retained profits at the beginning of the financial year 10,847 Net profit attributable to members of the entity Dividends paid Retained profits at reporting date NOTE 21: OUTSIDE EQUITY INTERESTS Outside equity in controlled entities comprises: Opening balance (Proceeds from outside entity)/payment Net profit attributable to outside interest 7,004 (3,275) 14,576 694 (705) 5 (6) 6,884 5,451 (1,488) 10,847 - 592 102 694 9,485 4,128 (3,275) 10,338 6,515 4,458 (1,488) 9,485 NOTE 22: EQUITY Total equity at the beginning of the financial year 32,843 27,444 32,283 27,373 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 8,227 (700) 16,101 (3,275) 53,196 4,253 694 1,940 (1,488) 32,843 4,128 - 16,101 (3,275) 49,237 4,458 - 1,940 (1,488) 32,283 C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 26 6,684 (1,280) 5,430 6 1,451 - 1,457 2 2,511 (1,290) 1,223 2 847 - 849 NOTE 23: CASH FLOW INFORMATION (a) Reconciliation of cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash on hand Cash at bank Bank overdrafts (b) Reconciliation of cash flow from operations with profit from ordinary activities Profit from ordinary activities after income tax 7,009 5,553 4,128 4,458 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 Decrease in other assets (Increase) in inventories Increase/(decrease) in payables and accruals Increase in income tax payable Net cash provided by operations 608 351 3,718 106 (1,086) 1,983 2,575 (1,596) (1,675) 410 12,403 402 288 2,655 8 (1,315) 74 500 (4,349) 2,252 244 6,312 289 351 3,029 21 (1,086) 143 1,532 (1,051) (752) (104) 6,500 296 288 2,372 8 (1,315) 125 871 (3,755) 1,612 247 5,207 50 51 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 NOTE 24: COMPANY DETAILS The registered office of the company is: Gale Pacific Limited 145 Woodlands Drive Braeside Victoria 3195 NOTE 23: CASH FLOW INFORMATION (cont’d) (c) Acquisition of business During the financial year a business was acquired. Details of the acquisition are as follows: Consideration Cash Ordinary shares Fair value of net assets acquired Current assets Cash Inventories Receivables Other assets Non-current assets Plant and equipment Intellectual property Goodwill Current Liabilities Creditors & Accruals Non-current liabilities Interest Bearing Liabilities Net assets acquired Less Cash acquired Foreign currency reserve Balance payable 20 August 2004 Net cash outflow on acquisition (d) Non-cash financing and investing activities Plant and equipment 6,351 - 6,351 256 11,537 9,660 6,029 1,189 - 2,939 (8,202) (17,057) 6,351 (256) (33) (829) 5,233 3,305 1,250 4,555 - 269 - - 130 223 3,933 - - 4,555 - - - 3,305 6,351 - 6,351 256 11,537 9,660 6,029 1,189 - 2,939 (8,202) (17,057) 6,351 - - (829) 5,522 - - - - - - - - - - - - - - - - - During the financial year the economic entity acquired plant and equipment with an aggregate fair value of $274,000 (2003: $325,000) 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 $33,450,000 as at 30 June 2004 (2003 $19,800,000), leaving an unused facility of $3,445,000 (2003: $2,017,000). 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. 52 NOTE 25: DIRECTORS’ AND EXECUTIVES’ REMUNERATION The Specified Directors of the economic entity who held office during the year were: TJ Eversteyn (Chairman, non-executive) H G Davies (Non-executive), resigned 17 May 2004 G S Gale (Chief Executive Officer) D E J Reilly (Non-executive) P R McDonald (Chief Operating Officer) G H Richards (Non-executive), appointed 17 May 2004 The Specified Executives of the economic entity at the date of this report are: S Carroll (Gale Australasian Sales & Marketing Manager) P Cashion (Gale China Operations - General Manager Manufacturing) L Doddridge (Chief Financial Officer) E Jung (Jung/Gale Europe, Managing Director) D Whyte (Gale USA Vice President Sales & Marketing) Specified Directors and Specified Executives’ remuneration 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 advisers 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 18 to the Financial Statements. 2004 SPECIFIED DIRECTORS SALARY & FEES $ PRIMARY BONUS $ Executive Directors POST EMPLOYMENT PRESCRIBED NON- SUPER- MONETARY ANNUATION BENEFITS $ $ $ G S Gale 322,498 120,000 66,500 11,002 P R McDonald 252,961 75,000 36,037 11,002 Non-Executive Directors T J Eversteyn H G Davies D E J Reilly G H Richards 49,583 60,554 47,500 6,167 - - - - - - - - - - - - Total 739,263 195,000 102,537 22,004 No options have vested in the current year. - - - - - - - EQUITY OTHER $ OPTIONS $ OTHER BENEFITS $ TOTAL $ - - - - - - - 33,889 26,358 - - - - 60,247 - - - - - - - 553,889 401,358 49,583 60,554 47,500 6,167 1,119,051 53 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 25: DIRECTORS’ AND EXECUTIVES’ REMUNERATION (cont’d) NOTE 25: DIRECTORS’ AND EXECUTIVES’ REMUNERATION (cont’d) 2003 SPECIFIED DIRECTORS SALARY & FEES $ PRIMARY BONUS $ Executive Directors POST EMPLOYMENT PRESCRIBED NON- SUPER- MONETARY ANNUATION BENEFITS $ $ $ EQUITY OTHER $ OPTIONS $ OTHER BENEFITS $ G S Gale P R McDonald 265,504 235,537 90,000 60,000 61,364 19,926 11,002 11,002 Non-Executive Directors 41,250 55,000 41,250 - - - - - - - - - 638,541 150,000 81,290 22,004 - - - - - - T J Eversteyn H G Davies D E J Reilly Total 2004 SPECIFIED EXECUTIVES SALARY & FEES $ PRIMARY BONUS $ POST EMPLOYMENT PRESCRIBED NON- SUPER- MONETARY ANNUATION BENEFITS $ $ $ Specified Executives L. Doddridge (i) 5,105 R. House P. Cashion (ii) D. Whyte (iii) E. Jung (iv) S. Carroll Total 162,307 139,373 262,272 219,855 170,000 958,912 - 30,000 - 33,660 - - 775 19,026 62,629 31,116 - 25,000 63,660 138,546 459 14,608 - - - 15,300 30,367 - - - - - - - - - - - - - OTHER $ 33,889 26,358 - - - 60,247 EQUITY OPTIONS $ - - 10,000 17,465 - - - - - - - - 10,000 17,465 TOTAL $ 461,759 352,823 41,250 55,000 41,250 952,082 - - - - - - OTHER BENEFITS $ TOTAL $ - - - - - - - 6,339 253,406 202,002 327,048 219,855 210,300 1,218,950 (i) Mr. L Doddridge was appointed as Chief Financial Officer on 22 June 2004 and therefore the details of his remuneration for the reporting period shown cover eight working days. (ii) Mr Cashion is based in China and is remunerated in US dollars converted to Australian dollars in the table above. (iii) Mr Whyte is based in the USA and is remunerated in US dollars converted to Australian dollars in the table above. (iv) Mr Jung is based in Germany and is remunerated in Euro converted to Australian dollars in the table above. FULLY PAID ORDINARY SHARES BALANCE 1 JULY 2003 RECEIVED AS REMUNERATION OPTIONS EXERCISED NET CHANGE (i) BALANCE 30 JUNE 2004 Executive Directors G S Gale P R Mc Donald Non-Executive Directors T J Eversteyn D E J Reilly G H Richards Specified Executives None Total 14,771,134 360,510 185,000 214,507 - - 15,531,151 - - - - - - - - 332,843 - - - - 13,846 54,766 5,000 45,105 10,000 14,784,980 415,276 190,000 259,612 10,000 - - 332,843 128,717 15,659,868 (i) Net change refers to purchases and sales during the year. 54 SHARE OPTIONS BALANCE 1 JULY 2003 RECEIVED AS REMUNERATION OPTIONS EXERCISED BALANCE 30 JUNE 2004 VESTED TOTAL TOTAL 30 JUNE 2004 EXERCISABLE Executive Directors G S Gale P R Mc Donald Non Executive Directors None Specified Executives None Total 427,942 332,843 - - 760,785 - - - - - - 427,942 427,942 427,942 (332,843) - - - - - - - - - - - (332,843) 427,942 427,942 427,942 Directors acquired shares through the Dividend Reinvestment Plan on the same terms and conditions available to other shareholders. REMUNERATION PRACTICES The Company’s policy for determining the nature and amounts of emoluments of the board members and senior executives is as follows. The remuneration structure for executive officers, including executive directors, is based on a number of factors including length of service, particular experience of the individual concerned, and overall performance of the Company. The contracts of service between the Company and Specified Directors and Executives are on a continuing basis the terms of which are not expected to change in the imediate future. Upon retirement, Specified Directors and Executives are paid employee benefit entitlements accrued to date of retirement. Payment of bonuses, stock options and other incentive payments are made at the discretion of the Remuneration Committee based predominantly on an objective review of the Company’s financial performance, the individual’s achievement of stated financial and non financial targets and any other factors the Committee deems relevant. NOTE 26: DIVIDENDS Ordinary Shares Interim dividend – fully franked Final dividend – fully franked Adjusted franking account balance Cents per Share 3.5 3.5 2 0 0 3 / 0 4 2 0 0 2 / 0 3 Total $ ’000 1,751 1,524 3,275 3,889 Cents per Share Total $ ’000 3.5 - 1,488 - 1,488 4,693 Since the end of the financial year, Directors have declared a fully franked final dividend of 4.0 cents per share, amounting to $2,014,000. The final dividend for the year ended 30 June 2004 has not been recognised in this financial report because the final dividend was declared subsequent to 30 June 2004. 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. 55 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 C O N S O L I D A T E D C O M P A N Y Note 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 NOTE 27: CAPITAL AND LEASING COMMITMENTS (cont’d) C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 NOTE 27: CAPITAL AND LEASING COMMITMENTS (a) Finance Leasing Commitments Payable not later than one year later than one year and not later than five years Minimum lease payments Less future finance charges Total lease liability Represented by: Current liability Non-current liability 14 14 363 669 1,032 107 925 310 615 925 433 833 1,266 233 1,033 328 705 1,033 363 669 1,032 107 925 310 615 925 433 833 1,266 233 1,033 328 705 1,033 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. C O N S O L I D A T E D C O M P A N Y Note 2003/04 $ ’000 2002/03 $ ’000 2003/04 $ ’000 2002/03 $ ’000 (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 2,447 6,067 8,514 615 7,899 2,168 5,731 7,899 2,490 8,450 10,940 2,030 8,910 2,143 6,767 8,910 2,447 6,067 8,514 615 7,899 2,168 5,731 7,899 2,490 8,450 10,940 2,030 8,910 2,143 6,767 8,910 56 (c) Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the accounts: Payable - - - not later than one year 3,411 later than one year and not later than five years 7,908 later than five years 2,999 14,318 2,808 8,353 - 11,161 2,685 5,502 - 8,187 2,663 8,269 - 10,932 The Company leases property under operating leases expiring in 1 to 10 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. NOTE 28: RELATED PARTY TRANSACTIONS (a) Equity Investments in Controlled Entities Details of the percentage of ordinary shares held in controlled entities are disclosed in Note 29 to the financial statements. (b) Directors’ Remuneration Details of Directors’ remuneration are disclosed in Note 25. (c) Directors’ Equity Holdings Details of Directors’ equity holdings are disclosed in Note 25. (d) Transactions with Directors and Director-related entities Current C O N S O L I D A T E D C O M P A N Y 2003/04 $ ’000 25 2002/03 $ ’000 30 2003/04 $ ’000 25 2002/03 $ ’000 30 Mr T Eversteyn is a Partner of the Chartered Accounting firm Bentleys MRI. In addition to Directors fees received (and disclosed in Note 25) Bentleys MRI have provided taxation and other business advice during the year ended 30 June 2004 to Gale Pacific Limited. The value of services provided was $166,863 (2003:$ 151,688). 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. The current year closing balance of $25,000 is represented by director’s fees payable as follows; Mr T Eversteyn Mr D Reilly Mr G Richards 7,083 13,750 4,167 25,000 (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. 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 $412,000. 57 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 29: CONTROLLED ENTITIES 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 ( % ) Parent Entity: Gale Pacific Limited Controlled Entities: Gale Pacific USA Inc. Gale Pacific FZE Gale Pacific Special Textiles Company Limited Aquaspan Pty Ltd Jung Garten & Freizeit Vertriebsgesellschaft mbH Australia USA United Arab Emirates China Australia Germany 2003/04 2002/03 - - 100% 100% 100% 50% 100% 100% 100% 85% 50% - 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. During September 2003 Gale Pacific Limited purchased the remaining 15% share and obtained the relevant Chinese Government approval to operate as a wholly foreign owned enterprise in China. On 20 February 2004, Gale Pacific Limited acquired 100% of the issued shares in Jung. NOTE 30: SEGMENT REPORTING China Segment results, assets and liabilities include items directly A Manufacturing facility is located in Ningbo, which supplies attributable to a segment as well as those that can be allocated products to Australia and the USA. on a reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, interest-bearing loans, USA borrowings and expenses, and corporate assets and expenses. Sales offices are located in Florida and California which service the North American region. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used Middle East for more than one period. A sales office is located in the United Arab Emirates which Inter-segment pricing is predominantly determined on an arm's length basis. Geographical segment In presenting information on the basis of geographical segments, services the region. Germany A sales and distribution facility is located in Western Germany to service the European markets segment revenue is based on the geographical location of Business Segment customers. Segment assets are based on the geographical location of the assets. The consolidated entity operates predominantly in one business segment, being the advanced polymer fabrics industry. The The consolidated entity comprises the following main consolidated entity manufactures and markets advanced durable geographical segments, based on the consolidated entity's knitted and woven polymer fabrics and value added structures 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. made from these fabrics. With the acquisition of “Jung” the company now markets domestic garden products to the home hardware sector in Europe. 58 AUST/NZ $’000 CHINA $’000 USA $’000 MIDDLE EAST GERMANY ELIMINATIONS CONSOLIDATION $’000 $’000 $’000 $’000 60,685 11,439 72,124 6,024 (1,886) 4,138 3,675 1,086 68,757 - 15,842 2,125 28,160 (412) 106,400 10,466 10,466 - - 15,842 2,125 971 - 971 320 - 78 42 120 303 - 94 - 94 14 - - 28,160 2,855 (1,141) 1,714 69 - (21,905) (22,317) (398) 370 (28) 296 - 106,400 9,624 (2,615) 7,009 4,677 - 1,086 9,578 14,522 1,562 26,357 (7,119) 113,657 47,003 2,949 1,413 139 9,230 (4,140) NOTE 30: SEGMENT REPORTING (cont’d) Primary Reporting – Geographical Segments 2004 Revenue outside the economic entity Inter-segment revenue Total revenue Segment operating profit Income tax expense Operating Profit after tax Depreciation and Amortisation Reimbursement of R&D expenditure Segment Assets Unallocated Assets Total Assets Segment Liabilities Unallocated Liabilities Total Liabilities 2003 Revenue outside the economic entity Inter-segment revenue Total revenue Segment operating profit Income tax expense Operating Profit after tax Depreciation and Amortisation Reimbursement of R&D expenditure Segment Assets Unallocated Assets Total Assets Segment Liabilities Unallocated Liabilities Total Liabilities Acquisition of non-current assets 2,183 3,893 298 85 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 - - 15,911 1,773 - - 15,911 1,773 310 (94) 216 285 - 294 (88) 206 16 - 598 3,299 12,525 35,790 210 1,088 125 Acquisition of non-current assets 6,458 1,711 3,619 - - - - - - - - - - - - - - - (12,859) (12,859) (198) 45 (153) 90 - (388) (44) - 346 114,003 56,594 4,213 60,807 6,459 84,609 - 84,609 7,773 (2,220) 5,553 3,345 2,562 71,206 204 71,410 37,169 1,398 38,567 11,788 59 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4 NOTE 31: EARNINGS PER SHARE NOTE 32: FINANCIAL INSTRUMENTS (cont’d) C O M P A N Y 2003/04 2002/03 Earnings used in the calculations of basic and diluted earnings per share $7,004,000 $5,451,000 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 46,064,420 42,832,976 477,942 5,738 760,785 293,836 shares used in the calculation of diluted earnings per share 46,548,100 43,887,597 NOTE 32: FINANCIAL INSTRUMENTS (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. (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 FLOATING INTEREST AVERAGE RATE INTEREST $‘000 RATE 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 2004 Financial Assets Cash assets Receivables Financial Liabilities Payables Bank overdrafts and loans Commercial bills Commercial bills Commercial bills Commercial bills Lease liabilities Hire purchase liabilities Employee entitlements 30 June 2003 Financial Assets Cash assets Receivables Financial Liabilities Payables Bank overdrafts and loans Commercial bills Commercial bills Lease liabilities Hire purchase liabilities Employee entitlements 5 6 13 14 14 14 14 14 14 14 16 5 6 13 14 14 14 14 14 16 2.5% 6.9% 6.0% 6.0% 6.0% 7.5% 8.2% 4.65% 3.3% 6.9% 5.9% 8.3% 8.4% - - - - - 2,500 2,400 6,600 200 615 5,731 110 - - - - - - - - - - - - - - - - - - - - - - - 5.15% 6,710 - - - - - 3,100 3,300 6,600 200 925 7,899 - 6,710 6,710 28,605 28,605 28,605 28,605 35,315 35,315 15,942 15,942 15,942 - - - - - - - 16,805 16,805 3,100 3,300 6,600 200 925 7,899 1,099 600 900 - - 310 2,168 989 - 6,710 - 16,805 - - - - - - - - 1,099 16,805 22,024 17,041 55,870 37,714 18,156 847 - 847 - 7,893 - - - - - - - - - - 3,700 4,200 1,033 8,910 - 7,893 17,843 610 1,457 1,457 13,420 14,030 13,420 13,420 14,877 14,877 7,736 7,893 3,700 4,200 1,033 8,910 1,078 7,736 7,893 600 900 328 2,143 968 7,736 - - - - - 1,078 8,814 2,400 3,300 705 6,767 110 700 - - - - 34,550 20,568 13,282 700 60 NOTE 33: SUBSEQUENT EVENTS Subsequent to the end of the financial year, capital expenditure was approved for the purchase of plant and equipment for the wholly owned Chinese entity, Gale Pacific Textiles Company Limited ("GPST"). 61 ADDITIONAL STOCK EXCHANGE INFORMATION ADDITIONAL STOCK EXCHANGE INFORMATION A S A T 2 0 S E P T E M B E R 2 0 0 4 A S A T 2 0 S E P T E M B E R 2 0 0 4 Number of Holdings of Equity Securities Twenty Largest Holders of Quoted Equity Securities The fully paid issued capital of the Company consisted of 50,358,425 ordinary fully paid shares held by 1,460 shareholders. Each share entitles the holder to one vote. Two option holders hold 477,942 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 Commonwealth Bank of Australia Equipsuper Pty Ltd 170 572 365 317 36 1,460 32 No. 14,790,104 14,790,104 14,790,104 5,894,342 3,511,402 2,904,809 - - - 1 1 2 - % 29.4% 29.4% 29.4% 11.7% 7.0% 5.8% Ordinary Shareholders 1. Gale Australia Pty Ltd 2. Thorney Holdings Pty Ltd 3. Citicorp Nominees Pty Limited 4. National Nominees Limited ( Equipsuper Account ) 5. National Nominees Limited 6. Equity Trustees Limited (SGH PI Smaller Co’s Fund) 7. J P Morgan Nominees Australia Limited 8. Equity Trustees Limited (JM Asset Management) 9. Mrs Anne Lesley Gale 10. Westpac Custodian Nominees 11. Invia Custodian Pty Ltd (White A/C) 12. Thorney Holdings Pty Ltd 13. Invia Custodian Pty Ltd (Thirty Five A/C) 14. Cognet Nominees Pty Ltd 15. Benefund Limited 16. Guardian Trust Australia Ltd 17. RBC Global Services Australia 18. ANZ Nominees Limited 19. Mrs Diane Kay Riddell 20. Malla Pty Ltd Total No. 13,816,181 3,663,785 3,092,963 2,904,809 2,306,123 1,353,869 1,012,148 1,000,786 973,923 963,403 776,838 676,335 514,086 472,258 450,000 371,456 364,512 360,203 319,600 300,000 % 27.4% 7.3% 6.1% 5.8% 4.6% 2.7% 2.0% 2.0% 1.9% 1.9% 1.5% 1.3% 1.0% 0.9% 0.9% 0.7% 0.7% 0.7% 0.6% 0.6% 35,693,278 70.6% The substantial shareholding of Thorney Holdings Pty Ltd includes holdings of Invia Custodian Pty Ltd, being numbers 11 and 13 on the schedule of Twenty Largest Holders of Quoted Equity Securities and includes a holding outside of the top twenty holdings Financial Report The twenty members holding the largest number of shares together held a total of 70.6% of the issued capital. Following the completion of the Financial Report, the Statement of Financial Performance has been amended from the ASX Appendix 4E Preliminary Final Report with Depreciation and amortisation expenses restated as $4,677, operating overheads restated as $23,492 and other expenses from ordinary activities restated as $3,085. These were re-allocations and did not alter the profit after tax. Other information: The name of the Company Secretary is Ms S Karzis. Ms Karzis was appointed the Company Secretary on 11 June 2004 following the resignation of 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 62 63 

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