GALE Pacific
Annual Report 2005

Plain-text annual report

Annual Report 2005 CORPORATE INFORMATION Gale Pacific Limited ABN 80 082 263 778 DIRECTORS Mr. Harry Boon (Chairman) Mr. Gary Gale (Managing Director and Chief Executive Officer) Mr. Peter McDonald (Chief Operating Officer) Mr. Daryl Reilly Mr. George Richards COMPANY SECRETARY Ms. Sophie Karzis REGISTERED OFFICE 145 Woodlands Drive, Braeside, Victoria 3195 SOLICITORS Norton Gledhill Level 23, 459 Collins Street, Melbourne, Victoria 3000 T + 613 9614 8933 PRINICIPAL BANKERS Commonwealth Bank Hong Kong Shanghai Banking Corporation SHARE REGISTER Computershare Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 WALMART HOME DEPOT BUNNINGS LOWE’S JOHN DANKS PRAKTIKER MITRE 10 METRO SAM’S CLUB SUPERSPAN GLOBUS KELMATT ABC PRODUCTS ROCKLEA CANVAS J D & M J KNIGHT PORTCO NOLAN WAREHOUSES J A GRIGSON HARRIS SCARFE BHP COLLIERS ACADEMY TARPS PATCHS CANVAS SUN ‘N SURF MAXITRANS C E BARTLETT ICL TASMAN INSULATION Local call 1300 850 505 International call + 613 9415 4000 AUDITOR Pitcher Partners Level 19, 15 William Street, Melbourne, Victoria 3000 T + 613 8610 5000 WEBSITE ADDRESS www.galepacific.com DARLING DOWNS TARPAULINS ORCHARD SUPPLY HARDWARE THOR BUILDING PRODUCTS ABGAL DIXIELINE JAYLON 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 FRED MEYER HELLA BAUHAUS LEROY MERLIN REAL TOOM BALUIS PLUS MAX BAHR 2 Table of Contents Gale Pacific Limited Annual Report 2005 Corporate Information A Message from the Chairman Report from Managing Director & Chief Executive Officer Corporate Governance Statement Directors’ Report Auditor’s Independence Declaration 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 2 4 8 16 24 32 33 34 35 36 37 38 66 3 A Message from the Chairman for the year ended 30 June 2005 Dear Shareholders On first hearing about Gale Pacific, I was drawn to the many direct comparisons with my own experience and history at Ansell Limited. I was fortunate to have spent the last 28 years with Ansell, with the last 8 years as CEO. Gale has a very similar background to Ansell – both started as family businesses which became public companies; both developed technology for large-scale manufacturing in Melbourne; both expanded into offshore production to better compete in international markets; and both invested in marketing, sales and distribution channels overseas through a series of strategic acquisitions. With so many similarities, my experience in helping to build Ansell to the financially successful multinational consumer and industrial product supplier it is today will be directly relevant to many of the decisions that the board of Gale will need to take as we build on the strong foundation now in place. Your Company has entered a very important and exciting phase of its development, and has put in place the structure needed for its long term success. This past year has seen Gale invest for future growth into Europe and the Americas, commence restructuring manufacturing, and, more recently, the announced relocation of our Chief Operating Officer, Mr Peter McDonald, to the U.S.A. Gale’s strengths include exciting and innovative products and brands, advanced technology, low cost of production, established strong customer relationships in a globally diverse marketplace, and a well balanced management team with a worldly view of its many opportunities. The restructure of manufacturing, which will be largely complete by the end of 2005, will see a significant portion of the Company’s production plant in Braeside, Australia relocated to the purpose built facility in Ningbo, China (see artist’s impression below). This transfer is planned to yield improved competitiveness through reduced lead times to our customers, lower costs, more effective capacity utilisation, and the ability to quickly react to new sales opportunities in the large northern hemisphere markets. The 2004/05 financial year has been a difficult one for the Company, and the Board acknowledges that the financial results were disappointing. However, with most of the structural work now behind us, we are committed and determined to better match future results with the Company’s true potential and our shareholders’ expectations. Gale’s strengths include exciting and innovative products, advanced technology, low cost of production, established strong customer relationships, and an experienced management team. 4 A diverse range of all-weather fabrics to protect and enhance life 5 A Message from the Chairman cont’d for the year ended 30 June 2005 Results Profit after tax attributable to shareholders was $4.7 million, which marginally exceeded the Company’s most recent market guidance. The results reflect the flat domestic DIY business cycle, rapidly rising raw material costs, and the initial offshore building phase expenses. Additional detail is covered in the Managing Director’s Report. In the past 12 months, acquisitions have been bedded down, management teams have been strengthened, the manufacturing base has been restructured significantly, and new markets have been opened up. The benefits should be evident over the next few years, as the business becomes less dependent on the Australian summer retail market, and more diversified with the growth of our Northern Hemisphere markets. Our forward strategy will include the development and expansion of both our retail and commercial product ranges across a more diversified customer base. We will also focus on delivering improvements in working capital management as our low cost supply from China starts to provide greater flexibility in managing inventory in response to demand changes offshore. No doubt, there will be many challenges during this phase of internationalisation of your Company, and the Management and Board are looking forward to being part of the team that will work together to meet these challenges. Tax The effective tax rate on earnings was 19.8% compared with 27.2% for the year ended 30 June 2004. This was due to increased profits in offshore operations with lower effective tax rates. Dividends The Directors have declared a fully franked final dividend of 1.5 cents per share payable on 17 October 2005 with a record date of 23 September 2005, making a full year dividend of 5 cents per share, and a payout of 55% of profit attributable to shareholders. This is in accordance with the Company’s previously announced policy of paying out 50% - 55% of after tax profits, subject to the performance of the business, including acquisitions. The Company operates a dividend reinvestment plan (“DRP”). Shareholders who have not previously participated in the DRP, or who wish to change their level of participation, should contact the Company’s share registry. As the record date for the dividend was 23 September 2005, any such notified changes will only take effect for any subsequent dividends declared by the Company. Annual General Meeting A notice of the Company’s annual general meeting to be held on 22 November 2005 and a proxy form is enclosed with this report. Re election of Directors Mr. Peter McDonald retires as a Director by rotation in accordance with the constitution of the Company and, being eligible, offers himself for re-election. Additionally as my own appointment was to fill a casual vacancy, I am required to retire in accordance with the constitution and, being eligible, offer myself for re-election. The Board endorses these re-elections. Beilun facility China Melbourne Cricket Ground pitch cover 6 Agricultural covers A Message from the Chairman cont’d for the year ended 30 June 2005 Corporate Governance The Company is committed to the principles of good corporate governance. The Board and management continue to review and advance the Company’s corporate governance policies to ensure that best practice standards are met and maintained. The Company intends to focus further on this area over the coming year, to ensure that all of the ‘Principles and Best Practice Recommendations’ published by the Corporate Governance Council of the Australian Stock Exchange in March 2003, are being met. Greater detail on the Company’s current corporate governance practices is contained in the Directors’ report section of this Annual Report. The Company’s corporate governance practices are also important in the context of the Company’s subsidiaries which form part of the Gale Pacific Group. The Company’s offshore boards have served it well with experienced local knowledge and open lines of communications with the parent Board. Adoption of Australian equivalents to IFRS From 1 July 2005, the unconsolidated entity is required to comply with the Australian equivalents to International Financial Reporting Standards (AIFRS) issued by the Australian Accounting Standards Board. Entities complying with AIFRS for the first time are required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period. Notes explaining the impact of the application of AIFRS on the statements of financial performance and position are set out in the financial statements of the Annual Report. The new AIFRS standards should not materially impact on the Company’s operating results into the future. Outlook & Earnings Guidance The Directors anticipate a substantial uplift in earnings for the coming year. In the first half, underlying net profit is anticipated to be significantly ahead of the same period last year. However, this underlying profit will be more than offset in the half by the previously announced plant relocation costs of approximately $2.3 million. Given the seasonal bias to the Company’s trading, the Directors anticipate a strong financial performance in the second half. A further update will be provided at the Annual General Meeting on 22 November 2005. Mr. Harry Boon Chairman 29 September 2005 Newly installed extruder, China 7 Report from the Managing Director and Chief Executive Officer for the year ended 30 June 2005 Gale Pacific, a manufacturer of advanced polymer fabrics and related value added products, has delivered a revenue increase of 40% to $149 million, and a net profit of $4.7 million for the year ending 30 June 2005. The net profit result is slightly ahead of the Company’s previous guidance of $4.5 million released on 21 April 2005, but 33% lower than the previous year’s $7 million. Importantly, net profit in the second half year increased 15% to $4.5 million. While I am disappointed with our financial results this year as all shareholders would be, I am very proud of our team’s actions during this difficult time where raw material prices increased to unprecedented levels and our Australian DIY market softened, along with in-store inventories being tightened. During this period, we successfully implemented two rounds of price increases designed to progressively pass on raw material costs, remained on track with the European expansion of our “Coolaroo” TM range, neared completion of our new Chinese manufacturing facility in Ningbo, while augmenting and strengthening our management teams in all locations. We also reduced our annual fixed operating expenses in our Australian operation, resulting in marginal savings in the second half, after taking redundancy costs into account. I believe that the result does not reflect the Company’s strategic progress or medium term potential. In recent periods we have completed several acquisitions, a US$15 million capital expenditure program and have commenced the relocation of manufacturing capacity to China. The Company is now well positioned to leverage the benefits from expected sustained growth in the years ahead. Asia Pacific China In November 2004, the Company officially opened a purpose built facility of approximately 32,000m2 in Ningbo. Currently employing 738 full time employees, this will expand to over 1000 employees at the height of the production season. Our employees go through extensive training before starting at Gale and we are very proud of the retention rates we are achieving in the workplace. It is important in China to establish a quality reputation as an employer as these workers have many choices in the vibrant Chinese labour market. We are very proud that the Ningbo Economic Trade & Development Authority (NETDA) cites Gale China as a role model of how to establish and retain excellent relations with local government and its employees. The Company was recognised in this regard by being presented with the highly honoured Camellia award from the NETDA. The previously announced relocation of a significant portion of our Braeside, Melbourne production equipment to China has progressed very well. The first wave of equipment has been shipped and installed in China, and appropriate redundancies have been completed in an orderly manner. The majority of the equipment will be transferred to China through October/November 2005, while sufficient equipment will remain available in Melbourne to run through December to act as a backup while China completes installation of the transferred plant. The equipment transfer complements the current US$15 million capital expenditure program, and our manufacturing now has sufficient capacity to satisfy the Company’s planned northern hemisphere growth over the next two to three years. Australasia Australian sales of $56 million are approximately in line with the previous year despite the difficult retail trading conditions and the prolonged drought in the agricultural sector. Sales of industrial fabrics are slightly ahead, with retail sales down in a softening DIY market. While sales Net profit in the second half year increased 15% to $4.5 million. 8 Water conservation Every product stems from the latest fabric and polymer technologies 9 Report from the Managing Director and Chief Executive Officer cont’d for the year ended 30 June 2005 to our retail customers are down, our sell through at retail reflects modest growth in consumer demand even during this slowdown. Significant increases in world polymer prices caused increased costs in both the Australian and New Zealand plants. These increases affected margins negatively, but were progressively passed on throughout the season. The $13.5 million acquisition of the industrial and knitted fabrics operations of Donaghys Industries Limited of New Zealand has been successfully integrated into the group, and we are very pleased with the experience and depth of the management team. Revenue of $9.8 million was in line with expectations for the partial year of operation. The acquisition settled on 15 December 2004. We have also integrated the Gale and Donaghys customer base and product ranges. This facilitated the recently announced ‘direct to market’ distribution strategy for the Australian market, improving margins and market penetration of the new “Synthesis” TM brand as well as the “Donaghys” TM brand for specialty products. We now have a focussed low cost industrial manufacturing plant specialising in technical fabrics in New Zealand providing the Company with further manufacturing flexibility and enhanced productive capacity. Donaghys export customers in the Middle East, USA and Mexico will be offered innovative cross-over fabrics from Gale’s range, while other synergies are expected to flow as this operation takes advantage of our global manufacturing and distribution base. The acquisition has also strengthened the Company’s position in the commercial, horticultural and industrial markets in New Zealand and Australia. Europe, Middle East & Africa Europe Gale has established a high quality management team responsible for the development of the “Coolaroo” TM brand of products throughout greater Europe. Our acquisition of Jung Garten & Freizeit Vertriebsgesellschaft mbH (‘Jung’) has helped establish the “Coolaroo” TM brand on a very solid basis with orders from approximately 750 stores across Europe. A selection of our current customers includes Praktiker, Leroy Merlin, Gamma, Hella, Globus and Bauhaus, all leading and well respected European chains. We attended the SPOGA (outdoor garden products) trade show in Cologne Germany during September 2005, with high levels of interest shown in our products. Many of our new and existing customers have increased their purchasing commitment for next season, and new customers have joined our distribution base. Overall, our new products were received very well, with significant commitments expected to follow. Middle East Regional growth continued with revenue doubling to $4 million as our plans to expand into the high margin markets throughout this region were implemented successfully. Sales outside the United Arab Emirates now account for almost 70% of regional revenues and continue to grow, with the recent expansion into Saudi Arabia contributing significantly to these excellent results. This region is a strong market for our industrial and architectural fabric range, which is now specified widely. Americas Sales revenue in the USA increased marginally in US dollar terms on the previous year to US $11.6 million. Late in the year, we succeeded in expanding the number of major retail stores stocking our standard window shades, in addition to a significant increase in stores carrying the custom shade program. Custom shades provide higher than average margins. Extensive knitting capabilities Long-lasting coated PVC fabrics 10 Versatile shade structures Barrier safety fencing Birdnet fruit protection Solarweave greenhouse fabric BioClip biological shearing 11 Report from the Managing Director and Chief Executive Officer cont’d for the year ended 30 June 2005 We finalised the consolidation of our Cal Shades acquisition and “Coolaroo” TM logistics into one location in Rancho Cucamonga, California, with significant operational and transportation savings expected to follow. Custom shade production within the combined West Coast facility will be expanded to supply a larger variety of window furnishings, including horizontal shades. We expanded the ranging of pet beds with Wal Mart and Petco this season, and initial sell through is very encouraging. Research and Development The Company continues to invest significant resources into the development of new business and product extensions within our range of existing products. During the year, China has continued to increase its staffing in this area to complement our Australian development team. China R&D has delivered a large and unique expansion of our window furnishing range specifically designed to meet the needs of our new European retailers and their customers. We have completed, tested and received initial orders for our new horizontal European awnings that will be fully manufactured in our Chinese plant using our new aluminium extrusion and powder coating lines. In the agricultural sector, we have fully commercialised the BioClip biological shearing nylon nets, a new development that has expanded the potential volume of this technology. These nets allow for biological shearing while being made of a compatible material to the wool harvested. These predominantly nylon nets have subsequently been commercialised with over 500,000 units ordered to date and contractual requirements to purchase over 2.5 million units by September 2006. Working in conjunction with a long time customer, we have developed and commercialised a range of ventilation ducting specifically for use in underground mines. We have also successfully commercialised a new Aquaspan chlorine resistant fabric for covering water storage basins that eliminate algae blooms, retain concentrations of water treatment additives, and reduce airborne contamination and water loss due to evaporation. Our materials have been utilised to cover several dams, with additional dams proposed in the future. Other water management projects are now entering commercialisation, with a family of fluming and lay-flat pipe products for pressurised irrigation continuing to be developed for agricultural and water authority use. Recognition Gale Pacific Limited was presented with the “Sustainable Small Company of the Year Award” at the 4th Annual Ethical Investor Corporate Sustainability Awards held on 1 December 2004 in Sydney. This Award is given for leading the way on corporate social responsibility as judged by Australia's experts in the area. Gale Pacific Limited is committed to striving for excellence in its business without impacting negatively on the environment or the community, while manufacturing products that help to preserve the environment. Hail protection Mining ventilation 12 Wind break Report from the Managing Director and Chief Executive Officer cont’d for the year ended 30 June 2005 Management On 25 August 2005, the Company announced two significant management changes. Mr. Peter McDonald, Chief Operating Officer is to assume the position of Managing Director, U.S. Operations, and will relocate to our Orlando, Florida, U.S. headquarters later this year. Peter will remain responsible for our Australasian and U.S. operations, and will have responsibility for leveraging the Company’s new lower cost manufacturing platform, shorter lead times, and expanded capabilities to drive Gale’s market expansion throughout the Americas. He will focus on building on the existing diversified base of retail and commercial customers, and will also seek additional growth opportunities in those markets. Peter remains an Executive Director of Gale Pacific Limited. Mr. Stephen Carroll, Australian Sales and Marketing Manager, will be promoted to the position of Managing Director, Australian Operations. Mr. Carroll has successfully overseen the integration of the distribution and sales operation of the Donaghys and Gale commercial and industrial fabric organisation, including the successful launch of our “Synthesis” TM range of commercial fabrics, and the introduction of direct containerised sales from our Chinese operations through our Australian retail network of customers. Our People The Company has changed significantly over recent years, as we transitioned from a purely Australian enterprise to a global organisation. During that period there have been many sacrifices made and the need to adapt to new working environments throughout our worldwide team. We are currently relocating a portion of our manufacturing facility from Braeside to Ningbo, and I would like to thank sincerely our employees for their commitment, dedication, and flexibility over this difficult time. We especially wish to acknowledge those who have departed from the Company and those who soon will do so, and wish them well in their future endeavours. We must continue to strive to improve our customer service levels and lower our costs of operation into the future while maintaining significant levels of innovation. This will give us the growth that delivers great opportunities for individuals within our team to grow with the Company. Board of Directors Mr. Harry Boon joined the Board as Chairman on 25 August 2005 upon the retirement of Mr Theo Eversteyn. Harry recently retired as Chief Executive Officer and Managing Director of the ASX listed company Ansell Limited, after a career spanning some 28 years with Ansell. Harry has lived and worked in senior positions in Australia, Europe, USA and Canada, and has broad-based experience in global marketing and sales, manufacturing, and product development. He is multi-lingual, and has a strong track record of achieving business results through setting ambitious goals, building the appropriate organisation and relationships, and relentlessly pursuing delivery of commitments. I look forward to benefiting significantly from Harry’s experience in establishing and growing a large global enterprise. On behalf of the Board, I would like to acknowledge and recognise the contribution of Mr. Theo Eversteyn for his 30 years of support to the Company, as both a professional advisor, and more recently as a Director and Chairman of the Board. Mr. Eversteyn contributed significantly to the opportunities that are now ahead of the Group, and he was particularly active in the establishment of our Chinese and European activities. Tape line, China 13 Report from the Managing Director and Chief Executive Officer cont’d for the year ended 30 June 2005 Cash Flow and Balance Sheet The Company substantially increased its inventory base on the establishment of its Gale Europe operations, and a precautionary increase in Australian inventory to support any potential supply shortfall during the transfer of our Braeside plant to China. Inventory also increased as a result of the previously described inventory tightening of the DIY market within Australia. The Company purchased capital equipment of some US$15 million for our new plant in China. China will continue to modestly impact the Group’s cash flow until December 2005, as the final deliveries of the equipment are received. At that point, the capital investment base is anticipated to be sufficient to support the Company’s growth plans for the next two to three years. As a direct result of these factors, the Company’s net debt to equity increased to 1.45:1 at year- end. The Directors anticipate that working capital and net debt will reduce significantly over the next 12 to 18 months. Finance & Banking As previously forecast, the Company finalised a broader range of banking facilities with additional banking partners whose operations complement our international growth plans. On 25 August 2005, the Company announced the underwritten issue of $9 million of convertible notes to augment our working capital and to allow the Company to capitalise on the positive response and commitments we are receiving from our northern hemisphere markets. The notes were issued on 9 September 2005, with a term of 5 years and a conversion right into fully paid ordinary shares at $1.85 per share. This pricing minimises the dilution effect to existing shareholders. Barrier fencing 29 September 2005 Mr. Gary S. Gale Managing Director and Chief Executive Officer Pallet cover 14 Agricultural fabrics Stentering line reduces fabric shrinkage, China Computerised control thread production 15 Corporate Governance Statement for the year ended 30 June 2005 This statement sets out the corporate governance practices that were in operation throughout the financial year for Gale Pacific Limited and its controlled entities (“the Company”) and which substantially comply with the Australian Stock Exchange Corporate Governance Council recommendations. 1. BOARD OF DIRECTORS 1.1 Responsibilities The role and responsibilities of the Board include the following: • Setting and monitoring of objectives, goals and strategic direction for management with a view to maximising shareholder wealth. • Accepting an annual budget and the monitoring of financial performance. • Approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestments. • 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: • Selecting, appointing and reviewing the performance of the Chief Executive Officer and determining his/her terms of engagement and remuneration. • Approval of transactions, expenditure or other matters in 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 carrying out its responsibilities and powers, the Board recognises its overriding responsibility to act honestly, diligently and in accordance with the law in the best interests of the Company’s shareholders while also having regard to the interests of its other stakeholders, including its customers and employees. The Board periodically reviews the functions of management and the responsibilities of the Board. Balcony ‘Privacy Screen’ Bi-axially oriented mesh 16 “Coolaroo” TM Corporate Governance Statement cont’d for the year ended 30 June 2005 1.2 Terms of Appointment The Board has settled a form of letter of appointment to be provided to potential new non- executive directors which prescribes: • Remuneration. • The term of appointment, subject to shareholder approval. • The expectation of the Board in relation to attending and preparing for all Board Meetings and other duties. • Procedures for dealing with conflicts of interest. • Trading policy governing dealings in the Company’s securities. • The availability of independent professional advice. Non-executive directors are remunerated for their services from the maximum aggregated amount approved by shareholders for that purpose. 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: H. Boon, 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 with the group that could materially interfere with – or could reasonably be perceived to materially interfere with –the exercise of their unfettered and independent judgement. All of the non-executive directors are considered independent. The names of the Directors in office at the date of this Report, the year of appointment and their status as non-executive, independent or executive directors is set out on pages 24 and 25 of this Annual Report. 2.2 Chairman The Chairman, Mr. H. Boon has been chairman of the Company since 25 August 2005 and was, at the date of his appointment and continues to be, independent. The Chairman leads the Board and is responsible for the efficient organisation and conduct of the Board’s functions. The Chairman during the relevant reporting period was Mr. T. Eversteyn and was, at the date of his appointment until the date of his retirement on 25 August 2005, independent. 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 & Risk Committee, and the Remuneration Committee. Nomination Committee The Nomination Committee consists of all of the Directors. Mr. G. Richards is the Chairman of the Committee. It 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. The Committee has access to external advice. Blown film line, China 17 Corporate Governance Statement cont’d for the year ended 30 June 2005 Audit & Risk Committee The primary role of the Audit & Risk Committee is to assist the Board in fulfilling its responsibilities relating to the accounting, internal control and reporting practices of the Company and its subsidiaries. The Audit & Risk Committee 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 & Risk Committee. The Committee’s responsibilities include: • 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 will rotated. • To review the annual and half-year financial reports and to ensure compliance with Australian Accounting Standards and generally accepted accounting principles. • To monitor the establishment of an appropriate internal control framework, and appropriate ethical standards. • To monitor the procedures to ensure compliance with the Corporations Act 2001 and the 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. Remuneration Committee The Board has a Remuneration Committee consisting of the three independent non-executive directors, Mr. H. Boon, (who is the Chairman of the Committee), Mr. G. Richards 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. 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. Non-Executive Directors receive directors’ fees and do not participate in performance based remuneration. 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 responsibilities of the committee. Leading edge technologies International manufacturing 18 Worldwide consumers Window furnishings Patio sails Shade sails Store merchandiser, Germany 19 Corporate Governance Statement cont’d for the year ended 30 June 2005 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 progressing the development and documentation of 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. 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 30 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. FINANCIAL REPORTING 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. Dam liners 4.2 Audit & Risk Committee The Audit & Risk 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 a documented policy which 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. Hail net 20 Architectural fabrics Aquaspan water conservation Architectural fabric, Kuwait Public playground shade structure Architectural fabric, Dubai 21 Corporate Governance Statement cont’d for the year ended 30 June 2005 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. • All major announcements to the Australian Stock Exchange are distributed to shareholders, and posted on the Company’s website at www.galepacific.com. • Proposed major changes in the consolidated entity which may impact on share ownership rights are submitted to a vote of shareholders. • The Board encourages full participation of shareholders at the annual general meeting to ensure a high level of accountability and identification with the consolidated entity’s strategy and goals. • The Company’s auditor attends the annual general meeting. 7. RISK MANAGEMENT The Board has responsibility for monitoring risk oversight and management and ensuring that the Managing Director and the Chief Financial Officer report on the status of business risks through risk management programs aimed at ensuring risks are identified, assessed and appropriately managed. Management has established and implemented a system for identifying, assessing, monitoring and managing material risk throughout the organisation. The Company’s risk management procedures cover environment, occupational health and safety, property, financial reporting and internal control. The Managing Director and the Chief Financial Officer are required to state to the Board in writing that the integrity of the financial statements is founded on a sound system of risk management and internal compliance and control and that the Company’s risk 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 to review the requirement for evaluation of the performance of each Director and the process for same, if any, to be formally adopted. The Board is provided with the information it needs to efficiently discharge its responsibilities. The Board has a policy of enabling Directors to seek independent professional advice at the Company’s expense, subject to estimated costs being approved by the Chairman in advance as being reasonable. All Directors have access to the Company Secretary and the appointment and removal of the Company Secretary is a matter for decision by the Board as a whole. Horizontal awnings Stylish gazebos 22 Timber market umbrellas Corporate Governance Statement cont’d for the year ended 30 June 2005 9. REMUNERATION Details of the remuneration paid to the Directors (executive and non-executive) are set out on page 30 of this Annual Report. 10. CORPORATE SOCIAL RESPONSIBILITY The Company’s Board and management are committed to ensuring the Company conducts its business in a way which reflects its health, safety, and environment and community responsibilities. Gale Pacific Limited was presented with the “Sustainable Small Company of the Year Award” at the 4th Annual Ethical Investor Corporate Sustainability Awards held on 1 December 2004 in Sydney. This Award is given for leading the way on corporate social responsibility as judged by Australia's experts in the area. Gale Pacific Limited is committed to striving for excellence in its business without impacting negatively on the environment or the community, while manufacturing products that help to preserve the environment. 11. WEBSITE The Company is currently upgrading its website, www.galepacific.com. This is expected to be completed during October 2005 and will include the information recommended to be published on a company’s website in the Australian Stock Exchange’s Principles of Good Governance and Best Practice Recommendations. 12. PRINCIPLES OF GOOD GOVERNANCE AND BEST PRACTICE RECOMMENDATIONS The Company’s compliance with the Principles of Good Governance and Best Practice Recommendations published by the Australian Stock Exchange Corporate Governance Council in March 2003 is described in this Annual Report including the Corporate Governance Statement, the Directors’ Report and the Financial Statements. The Listing Rules of the Australian Stock Exchange require listed companies to report on the extent to which they comply with the Best Practice recommendations. The Company complies with the majority of the recommendations, and where it does not, it has indicated so in this Corporate Governance Statement. While the Board of the Company is satisfied with its level of compliance with the governance requirements, it recognises and acknowledges that the Company’s practices and procedures should be constantly reviewed and improved. Coating line, Australia 23 Directors’ Report for the year ended 30 June 2005 The Directors of Gale Pacific Limited present their annual financial report of the Company for the financial year ended 30 June 2005. Directors The Directors in office at any time during or since the end of the year to the date of this report are: HARRY BOON, LLB (HONS), B. Com Chairman and Non-Executive Director appointed on 25 August 2005. Mr. Boon recently retired as Chief Executive Officer and Managing Director of the ASX listed company Ansell Limited, after a career spanning some 28 years with Ansell. Harry has lived and worked in senior positions in Australia, Europe, USA and Canada, and has broad-based experience in global marketing and sales, manufacturing, and product development. He is multi-lingual, and has a strong track record of achieving business results through setting ambitious goals, building the appropriate organisation and relationships, and relentlessly pursuing delivery of commitments. During the last three years, Mr. Boon has also served as a director of the following other listed companies: Tattersall’s Limited, Funtastic Limited and Hastie Group Limited. Mr. Boon resides in Melbourne and is aged 57. THEO EVERSTEYN, FCA, Graduate Diploma Industrial Accounting and Bus. Admin. Former Chairman and Non-Executive Director, Retired on 25 August 2005 Mr. Eversteyn recently retired as the Company’s Chairman. 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. No other directorships of listed companies were held by Mr. Eversteyn during the three years prior to 30 June 2005. Mr. Eversteyn resides in Melbourne and is aged 64. GARY STEPHEN GALE Managing Director and Chief Executive Officer. 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. No other directorships of listed companies were held by Mr. Gale at any time during the three years prior to 30 June 2005. Mr. Gale resides in Melbourne and is aged 52. Tarpaulins for trucks and trailers Printed banner fabrics 24 Truck side curtains Directors’ Reportcont’d for the year ended 30 June 2005 PETER RONALD MCDONALD, Bachelor of Business (Marketing) Chief Operating Officer and Executive Director. 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. In November 2005, Mr. McDonald, is to assume the position of Managing Director, U.S. Operations, and will relocate to our Orlando, Florida, U.S. headquarters. He remains an Executive Director and Chief Operating Officer. No other directorships of listed companies were held by Mr. McDonald at any time during the three years prior to 30 June 2005. Mr. McDonald resides in Melbourne and is aged 39. DARYL EDWARD JAMES REILLY, Graduate Diploma of Business (Accounting), CPA, ACIS, FTMA, AICD Non-Executive Director since 1998. Mr. Reilly 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. He is a director of 8T8 Corporation Pty Ltd, the holding company of Sleepmaster Pty Ltd and is a director of its Chinese subsidiary. No other directorships of listed companies were held by Mr. Reilly at any time during the three years prior to 30 June 2005. Mr. Reilly resides in Melbourne and is aged 51. MR. GEORGE HENRY RICHARDS, CPA, ACIS Non-Executive Director since 2004. Mr Richards 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. No other directorships of listed companies were held by Mr. Richards at any time during the three years prior to 30 June 2005. Mr. Richards resides in Melbourne and is aged 59. Company Secretary Ms Sophie Karzis. B.Juris LLB Ms. Karzis was appointed as Company Secretary on 11 June 2004. Ms Karzis is a practising lawyer who has previously held roles at Touchcorp Limited and Australian Central Finance Pty Ltd. Warehouse facility, Melbourne 25 Directors’ Reportcont’d for the year ended 30 June 2005 Nature of Operations and Principal Activities The consolidated entity’s principal activities in the course of the financial year were the manufacture and exporting of advanced polymer fabrics and related products. Review & Results of Operations The consolidated profit of the economic entity for the financial year attributable to the members of Gale Pacific Limited was $4.7 million. For further details on the Company’s operations, refer to the Message from the Chairman and the Report from the Managing Director and Chief Executive Officer in this Annual Report. State of Affairs In the opinion of the Directors there were no significant changes in the state of affairs of the Company and its controlled entities that occurred during the financial year under review not otherwise disclosed in this report or the accompanying financial report. Events Subsequent to Balance Date Subsequent to the end of the financial year, no significant capital expenditure was approved. The previously announced relocation of a significant portion of the Company’s Braeside Melbourne production equipment to China commenced subsequent to the end of the financial year and is expected to continue through October/November 2005. On 9 September 2005, the Company raised $9 million through an issue of convertible loan notes. These funds will augment and support the Company’s capital investment in China and general expansion of its distribution globally. Other than the relocation of production equipment from Braeside Melbourne to China and the capital raising mentioned above there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature 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 affairs of the economic entity in subsequent financial years. Likely Developments Disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. Environmental Regulation and Performance The economic entity’s operations are not subject to any significant environmental regulations under the Commonwealth or State legislation. However, the Directors believe that the economic entity has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the economic entity. Dividends In respect of the financial year ended 30 June 2004, a final dividend of 4.0 cents per share franked to 100% at the 30% corporate income tax rate was paid to the holders of fully paid ordinary shares on 18 October 2004. Aeronautical shade Marine shade 26 Horticultural shade Directors’ Reportcont’d for the year ended 30 June 2005 In respect of the financial year ended 30 June 2005, an interim dividend of 3.5 cents per share franked to 100% at the 30% corporate income tax rate was paid to the holders of fully paid ordinary shares on 15 April 2005. In respect of the financial year ended 30 June 2005, the Directors have declared a final dividend of 1.5 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 17 October 2005. Share 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 number of unissued ordinary shares under option as at the date of this report is 610,000. 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. Of the 610,000 options on issue, 50,000 options were issued on 5 May 2004, and 560,000 options were issued under the Company’s executive share plan to the Managing Director and Chief Executive Officer, Mr. Gary Gale, and the Chief Operating Officer, Mr. Peter McDonald, as approved by the Company’s shareholders at the Company’s Annual General Meeting held on 15 November 2004. The exercise price of the 50,000 options is $1.50 and the exercise price of the 560,000 issued options is $3.00. The vesting of options is determined in accordance with specific share price and/or performance hurdles. In the case of the 50,000 options, their vesting is determined by the performance of the Company’s share price over time; the vesting of the 560,000 options is determined in accordance with the achievement of certain levels of adjusted weighted average earnings per share and the Company’s share price over time. The 50,000 options are not exercisable after 1 December 2006, and the 560,000 options are not exercisable after 1 December 2008. Options carry no rights to dividends and no voting rights. 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 following inputs: • Current price of the underlying shares as at the grant date. • Exercise price. • Expected volatility of the share price over the expected life of the options. • First exercisable date. • Expected life. • Expected dividend yield. • Risk free interest rate for the expected life of the options. The Company has utilised the Black-Scholes methodology as a comparison to the values using the Binomial methodology and there was a plus or minus 5% correlation between the values achieved under the two methodologies which is not unreasonable. Further details of the option plan are disclosed in note 19 to the Financial Statements. 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. School yard shade, Middle East 27 Directors’ Reportcont’d for the year ended 30 June 2005 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 No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED AUDIT & RISK COMMITTEE MEETINGS No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED REMUNERATION COMMITTEE MEETINGS No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED NOMINATION COMMITTEE No. OF MEETINGS ELIGIBLE TO ATTEND ATTENDED 21 21 21 21 21 20 18 18 20 20 4 - - 4 4 3 - - 4 4 1 - - 1 1 1 - - 1 1 1 1 - 1 - 1 1 - 1 - DIRECTORS T J Eversteyn G S Gale P R McDonald D E J Reilly G H Richards 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 Wheat storage (under construction) H Boon T J Eversteyn G S Gale P R McDonald D E J Reilly G H Richards 32,000 180,000 15,329,709 306,925 300,180 57,778 Remuneration Report - - 320,000 240,000 - - This report contains the remuneration arrangements in place for directors and executives of the Company. 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. The Company’s remuneration policy is based on the following principles: A cool change in a Dubai summer • Provide competitive rewards to attract high quality executives; • Provide an equity incentive for senior executives that will provide an incentive to executives to align their interests with those of the Company and its shareholders; and • Ensure that rewards are referenced to relevant employment market conditions. 28 Sun protection for safer outdoor living • Primary benefits – salary/fees; Remuneration packages contain the following key elements: Directors’ Reportcont’d for the year ended 30 June 2005 • 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 19 and Note 26 to the financial statements. Remuneration Structure In accordance with best practice corporate governance, the structure of non-executive directors and senior manager remuneration is separate and distinct. Non-Executive Director Remuneration Objective The Board seeks to set remuneration at a level which provides the Company with the ability to attract and retain directors of relevant experience and skill, whilst incurring costs which are acceptable to shareholders. Structure The Company’s Constitution and the Australian Stock Exchange Listing Rules specify that the total ordinary remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The last determination was at the Annual General Meeting held on 14 December 2000 when shareholders’ approved the Company’s constitution which provides for total ordinary remuneration of $300,000 per annum. The amount of the total ordinary remuneration and the manner in which it is apportioned is reviewed periodically. The Board considers fees paid to non-executive directors of comparable companies when undertaking this review process. Each non-executive director receives a fee for being a director of the Company and does not participate in performance based remuneration. Non-executive directors are encouraged to hold shares in the Company (purchased by the director on-market). It is considered good governance for directors to have a stake in the Company. The remuneration of non-executive directors for the period ended 30 June 2005 is detailed below. Senior Manager & Executive Director Remuneration Objective The Company aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Company. The objective of the remuneration policy is: • Reward executives for Company and individual performance; • Align the interests of the executives with those of the shareholders; and • Ensure that total remuneration is competitive by market standards. Structure In determining the level and make-up of executive remuneration, the Remuneration Committee reviews reports detailing market levels of remuneration for comparable roles. Remuneration consists of fixed and variable elements. Channel liner water conservation 29 Directors’ Reportcont’d for the year ended 30 June 2005 The following table discloses the remuneration of the Directors of the Company: PRIMARY BONUS $ NON- MONETARY $ SUPER- ANNUATION $ POST EMPLOYMENT PRESCRIBED BENEFITS $ OTHER $ EQUITY OPTIONS $ OTHER BENEFITS $ TOTAL $ SALARY & FEES $ 396,951 269,414 144,992 119,124 68,000 998,481 322,498 252,961 49,583 60,554 47,500 6,167 739,263 2005 Executive Directors G S Gale P R McDonald Non-Executive Directors T J Eversteyn D E J Reilly G H Richards TOTAL 2004 Executive Directors G S Gale P R McDonald Non-Executive Directors T J Eversteyn H G Davies D E J Reilly G H Richards TOTAL - - - - - - 66,500 39,037 11,549 11,549 - - - - - - 105,537 23,098 120,000 75,000 66,500 36,037 11,002 11,002 - - - - - - - - - - - - 195,000 102,537 22,004 - - - - - - - - - - - - - - - - - - - - - - - - - - 33,922 25,442 - - - 59,364 33,889 26,358 - - - - 60,247 - - - - - - - - - - - - - The following table discloses the remuneration of the 5 highest remunerated executives of the Company and the consolidated entity. SALARY & FEES $ 261,815 222,603 147,200 128,958 175,100 935,676 162,307 139,373 262,272 219,855 170,000 953,807 PRIMARY BONUS $ 31,915 51,370 27,813 31,919 - 143,017 30,000 - 33,660 - - 63,660 NON- MONETARY SUPER- ANNUATION POST EMPLOYMENT PRESCRIBED BENEFITS EQUITY OTHER OPTIONS OTHER BENEFITS $ 34,000 31,906 20,850 61,621 24,677 173,054 19,026 62,629 31,116 - 25,000 137,771 $ - 6,545 50,850 - 15,759 73,154 14,608 - - - 15,300 29,908 $ - - - - - - - - - - - - $ - - - - - - $ - - - 33,281 - 33,281 10,000 17,465 - - - - - - - - 10,000 17,465 $ - - - - - - - - - - - - 2005 D. Whyte (i) E. Jung (ii) Z. Fakroddin (iii) E. Xu (iv) S. Carroll TOTAL 2004 R. House (v) P. Cashion (vi) D. Whyte (i) E. Jung (ii) S. Carroll TOTAL 508,922 345,442 144,992 119,124 68,000 1,186,480 553,889 401,358 49,583 60,554 47,500 6,167 1,119,051 TOTAL $ 327,730 312,424 246,713 255,779 215,536 1,358,182 253,406 202,002 327,048 219,855 210,300 1,212,611 (i) Mr. Whyte (resigned July 2005) was based in the USA and was remunerated in US dollars converted to Australian dollars in the table above. (ii) Mr. Jung is based in Germany and remunerated in Euro converted to Australian dollars in the table above. (iii) Mr. Fakroddin is based in the Middle East and is remunerated in US dollars converted to Australian dollars in the table above. (iv) Ms. Xu is based in China and is remunerated in US dollars converted to Australian dollars in the table above. (v) Mr. House received a $10,000 eligible termination payment on 27 July 2004. (vi) Mr. Cashion (resigned February 2005) was based in China and was principally remunerated in US dollars converted to Australian dollars in the table above. 30 Directors’ Reportcont’d for the year ended 30 June 2005 Auditor Independence and Non-Audit Services A copy of the auditor’s independence declaration in relation to the audit for the financial year is provided with this report. Non-Audit Services The following non-audit services were provided by the Company’s auditor, Pitcher Partners. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The name and scope of each non-audit service provided means that auditor independence was not compromised. Amounts paid or payable to an auditor for non-audit services provided during the year by the auditors to any entity that is part of the consolidated entity for: C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 2003/04 $ ’000 2004/05 2003/04 $ ’000 $ ’000 Taxation services Other assurance services Due Diligence Total 53 45 17 115 17 9 - 26 31 16 17 64 11 9 - 20 Family sun protection 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 Mr. Harry Boon Chairman 29 September 2005 Mr. Gary S. Gale Managing Director and Chief Executive Officer 31 Auditor’s Independence Declaration for the year ended 30 June 2005 To the Directors of Gale Pacific Limited In relation to the Independent audit for the year ended 30 June 2005, to the best of my knowledge and belief there have been: • No contraventions of the auditor independence requirements of the Corporations Act 2001; • No contraventions of any applicable code of professional conduct. PITCHER PARTNERS M W PRINGLE PARTNER Melbourne 29 September 2005 32 A colourful selection of UV block fabrics Independent Audit Report for the year ended 30 June 2005 Scope We have audited the financial report of Gale Pacific Limited and it’s controlled entities for the financial year ended 30 June 2005 comprising the Directors' Declaration, Statement of Financial Performance, Statement of Financial Position, Statement of Cash Flows and notes to the financial statements. The Company's directors are responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of the Company. Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements in Australia and the Corporations Act 2001 so as to present a view which is consistent with our understanding of the Company's and it’s controlled entities’ financial position and performance as represented by the results of their operations and their cash flows. The audit opinion expressed in this report has been formed on the above basis. Audit Opinion In our opinion, the financial report of Gale Pacific Limited and it’s controlled entities is in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the Company's and its controlled entities’ financial position as at 30 June 2005 and of their performance for the financial year ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory professional requirements in Australia. PITCHER PARTNERS M W PRINGLE PARTNER Melbourne 29 September 2005 Advanced fabric technology enhances architectural freedom 33 Directors’ Declaration for the year ended 30 June 2005 The Directors of the Company declare that: 1. The financial statements and notes, as set out on pages 35 to 65 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 2005 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. • that the Directors have been given the declaration required under section 295A of the Corporations Act 2001. 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. Mr. Harry Boon Chairman 29 September 2005 Mr. Gary S. Gale Managing Director and Chief Executive Officer Award winning Al Maha Resort, UAE European awnings, Germany 34 Wheat storage basin, Australia Statement of Financial Performance for the year ended 30 June 2005 Revenue from ordinary activities Expenses from ordinary activities: 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/(loss) 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) Note 2 3 4 22 21 20 23 32 32 C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 149,177 2003/04 $ ’000 106,400 2004/05 $ ’000 2003/04 $ ’000 69,986 71,942 (16,484) (58,114) (21,731) (6,067) (33,734) (2,280) (4,926) 5,841 (1,158) 4,683 2 4,685 (2,814) (2,814) 1,871 9.15 9.14 (14,273) (32,309) (16,542) (4,677) (23,492) (3,085) (2,398) 9,624 (2,615) 7,009 (5) 7,004 1,223 1,223 8,227 15.20 15.05 2,356 (35,785) (12,853) (3,973) (12,895) (1,693) (3,350) 1,793 (829) 964 - 964 - - 1,051 (33,326) (12,276) (3,669) (13,348) (2,051) (2,313) 6,010 (1,882) 4,128 - 4,128 - - 964 4,128 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 Financial Position as at 30 June 2005 C O N S O L I D A T E D C O M P A N Y Note 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 CURRENT ASSETS Cash assets Receivables Inventories Current tax assets 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 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained profits PARENT ENTITY INTEREST Outside equity interests TOTAL EQUITY 5 6 7 8 9 6 10 11 12 13 9 14 15 16 17 15 16 17 19 20 21 22 23 3,965 32,753 50,577 1,239 1,449 89,983 - - 57,765 12,468 294 3,247 73,774 163,757 19,790 62,247 165 1,226 83,428 20,650 4,853 547 26,050 109,478 54,279 41,939 (3,087) 15,436 54,288 (9) 54,279 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 2 7,118 19,242 1,034 377 27,773 39,731 24,816 23,802 3,046 - 3,247 94,642 122,415 5,155 41,116 - 1,152 47,423 20,650 4,853 73 25,576 72,999 49,416 41,939 - 7,477 49,416 - 49,416 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 24,879 18,046 3,923 110 22,079 46,958 49,237 38,899 - 10,338 49,237 - 49,237 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 Statement of Cash Flows for the year ended 30 June 2005 C O N S O L I D A T E D C O M P A N Y Note 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 CASH FLOW FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Borrowing costs paid Income tax paid 155,693 (153,127) 1,231 (4,926) (1,588) Net cash provided by/(used in) operating activities 24(b) (2,717) CASH FLOW USED IN INVESTING ACTIVITIES Proceeds from sale of plant and equipment Payment for plant and equipment Payment for acquisition of business 24(c) Investment in controlled entity Payment for intangible assets Payment for other non-current assets Amounts advanced to related parties Net cash used in investing activities CASH FLOW FROM FINANCING ACTIVITIES Proceeds from/(repayment of) borrowings Prceeds from issue of convertible notes Proceeds from issue of equity securities Repayment of principal on finance leases Repayment of principal on hire purchases Dividends paid Repayment from outside equity interest Net cash provided by financing activities Net increase/(decrease) in cash held Cash at beginning of year Effects of exchange rate changes on items denominated in foreign currencies Cash at end of year 24(a) 167 (25,051) (11,646) - (138) (2,609) - (39,277) 34,560 6,500 277 (186) (1,839) (2,866) (2) 36,444 (5,550) 5,430 (2,228) (2,348) 107,418 (90,458) 45 (2,398) (2,204) 12,403 8 (6,459) (5,233) - (55) (2,972) - (14,711) (5,811) - 15,461 (108) (1,011) (2,635) (706) 5,190 2,882 1,457 1,091 5,430 70,704 (60,532) 1,231 (3,350) (641) 61,190 (50,673) 282 (2,313) (1,986) 7,412 6,500 157 (2,034) (11,646) - (152) (2,609) (17,383) (33,667) 22,125 6,500 277 (186) (1,839) (2,866) - 24,011 (2,244) 1,223 - (1,021) 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 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 for the year ended 30 June 2005 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Timing differences which arise due to the different accounting The financial report is a general purpose financial report that has been periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought prepared in accordance with Accounting Standards, Urgent Issues Group to account as either a provision for deferred income tax or as a Consensus Views and other authoritative pronouncements of the future income tax benefit at the rate of income tax applicable to the Australian Accounting Standards Board and the Corporations Act 2001. period in which the benefit will be received or the liability will The financial report covers Gale Pacific Limited as an individual parent entity and Gale Pacific Limited and controlled entities as an economic entity. Gale Pacific Limited is a company limited by shares, incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis and is based on historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets. Cost is based on the fair value of consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (a) Principles of Consolidation A controlled entity is any entity controlled by Gale Pacific Limited. Control exists where Gale Pacific Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Gale Pacific Limited to achieve the objectives of Gale Pacific become payable. Future income tax benefits are not brought to account unless realisation of the asset is assured beyond any reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the benefit. The tax effect of capital losses are not recorded unless realisation is virtually certain. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation, and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (c) Inventories Inventories are measured at the lower of cost and net realisable value. Net realisable value is determined on the basis of each inventory line’s normal selling pattern. Costs are assigned on a first- in first-out basis and include direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenses. Limited. Details of the controlled entities are contained in Note 30. (d) Plant and Equipment All inter-company balances and transactions between entities in the Each class of plant and equipment is carried at cost less, where economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Where a controlled entity has entered or left the economic entity during the year its operating results have been included from the date control was obtained or until the date control ceased. (b) Income Tax The economic entity adopts the liability method of tax-effect accounting whereby the income tax expense shown is based on the profit from ordinary activities adjusted for any permanent differences between taxable and accounting income. applicable, any accumulated depreciation. 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. 38 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (f) Investments 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 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 asset is held ready for use. Leasehold improvements are depreciated proposed by the controlled entities. over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. Depreciation and (g) Foreign Currency Transactions and Balances amortisation rates are reviewed annually for appropriateness. When Foreign currency transactions during the year are converted to changes are made, adjustments are reflected in current and future Australian currency at the rates of exchange applicable at the dates periods only. of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the rates of exchange The depreciation rates used for each class of assets are: ruling at that date. Class of fixed asset Depreciation rates Depreciation basis The gains and losses from conversion of short-term assets and Leasehold improvements Determined by lease term Plant and equipment 6.7% - 20.0% Leased plant and equipment Motor vehicles Leased motor vehicles 6.7% - 20.0% 20.0% 20.0% Office equipment 14.3% - 50.0% (e) Leases Straight Line Straight Line Straight Line Straight Line Straight Line Straight Line 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. liabilities, whether realised or unrealised, are included in profit from ordinary activities as they arise. The assets and liabilities of overseas controlled entities, which are self-sustaining, are translated at year-end rates and operating results are translated at rates ruling at the end of each month. Gains and losses arising on translation are taken directly to the foreign currency translation reserve. Exchange differences arising on hedged transactions undertaken to hedge foreign currency exposures, other than those for the purchase and sale of goods and services, are brought to account in the profit from ordinary activities when the exchange rates change. Any material gain or loss arising at the time of entering into hedge transactions is deferred and brought to account in the profit from ordinary activities over the lives of the hedges. Costs or gains arising at the time of entering hedged transactions for the purchase and sale of goods and services, and exchange differences that occur up to the date of purchase or sale are deferred and included in the measurement of the purchase or sale. (h) Employee Entitlements Provision is made for the economic entity's liability for employee entitlements arising from services rendered by employees to balance date. Employee entitlements expected to be settled within one year together with entitlements arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at their nominal amount. Other employee entitlements payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those entitlements. 39 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (cont’d) (m) Intangibles Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. (i) Research and Development Expenditure Research and Development costs are charged to profit from ordinary activities before income tax as incurred or deferred where it is expected beyond any reasonable doubt that sufficient future benefits will be derived so as to recover those deferred costs. Goodwill Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Both purchased goodwill and goodwill on consolidation are amortised on a straight- line basis over the period of 20 years. The balances are reviewed annually and any balance representing future benefits for which the realisation is considered to be no longer profitable is written off. Deferred Research and Development expenditure is amortised on a straight-line basis over the period during which the related benefits are expected to be realised, once commercial production is commenced but not exceeding three years. Patents and Trademarks Patents and trademarks are valued in the accounts at cost of acquisition and are amortised over the period in which the benefits are expected to be realised, but not exceeding 20 years. (j) Cash and Cash Equivalents For the purposes of the statement of cash flows, cash includes cash on hand and at call, deposits with banks or financial institutions, investments in money market instruments maturing within less than two months and net of bank overdrafts. (k) Comparative Figures Where required by Accounting Standards comparative figures have (n) International Financial Reporting Standards The Company has: • Evaluated the key differences in accounting policies; • Identified the changes to the Company's financial reporting systems; and been adjusted to conform with changes in presentation for the • Evaluated the financial impact arising from key differences in current financial year. (l) Revenue accounting policies that are expected to arise from adopting Australian equivalents of IFRS. Revenue from the sale of goods is recognised upon the delivery of The key differences in accounting policies that are expected to arise goods to customers. from adopting Australian equivalents to IFRS are detailed under Note 35. Where a Government grant (including SIP income) is received or receivable relating to research and development costs that have been expensed, the grant is recognised as revenue. Where a grant is received or receivable relating to research and development costs that have been deferred, the grant is deducted from the carrying amount of the deferred costs. Other revenue is recognised when the right to receive the revenue has been established. All revenue is stated net of the amount of goods and services tax (GST). 40 Notes to the Financial Statements for the year ended 30 June 2005 C O N S O L I D A T E D C O M P A N Y Note 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’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/(Decrease) in provision for obsolete inventory Bad and doubtful debts: - Bad debts written off - trade debtors - Movement in provisions for doubtful debts - trade debtors 146,850 718 1,231 211 167 149,177 87,771 4,926 31 3,691 220 613 289 5 495 125 598 308 (84) - (123) 104,963 1,086 286 57 8 106,400 67,880 718 1,231 - 157 69,986 70,508 1,086 283 57 8 71,942 59,955 49,517 46,192 2,398 32 2,926 267 483 (10) 20 489 119 351 1 366 1 405 3,350 19 2,401 209 150 289 5 197 105 598 308 47 - (2) 2,313 18 2,471 225 305 (10) 20 193 96 351 1 (5) 1 (27) 41 Notes to the Financial Statements for the year ended 30 June 2005 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 - - Auditing the financial report Other 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 C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 102 64 115 51 332 (398) 32 3,294 83 20 54 6 163 (211) 51 2,703 102 64 - - 166 (398) 32 2,462 83 20 - - 103 (211) 51 2,510 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 Attributed CFC income Less: Under provision for income tax in prior year Other non-allowable/non-assessable items Tax rate differentials in foreign countries Income tax expense attributable to profit from ordinary activities 1,405 2,887 538 1,803 149 247 1,801 (8) (112) (523) 1,158 120 (28) 2,979 - (325) (39) 2,615 58 262 858 (8) (21) - 829 56 28 1,887 - (5) - 1,882 42 Notes to the Financial Statements for the year ended 30 June 2005 C O N S O L I D A T E D C O M P A N Y Note 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 2 3,963 3,965 29,110 (314) 28,796 3,957 32,753 26 6,684 6,710 21,882 (437) 21,445 7,160 28,605 2 - 2 4,442 (3) 4,439 2,679 7,118 2 2,511 2,513 5,266 (5) 5,261 3,671 8,932 - - 39,731 22,348 4,121 4,794 42,041 (379) 50,577 2,136 3,364 29,056 (463) 34,093 841 3,347 15,193 (139) 19,242 613 2,772 13,593 (92) 16,886 1,239 - 1,034 - 1,449 3,247 1,058 1,382 377 3,247 512 1,381 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: CURRENT TAX ASSETS CURRENT Income tax NOTE 9: OTHER ASSETS CURRENT Prepayments NON-CURRENT Research & development NOTE 10: OTHER FINANCIAL ASSETS NON-CURRENT Shares in controlled entities at cost 30 - - 24,816 15,397 43 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 11: 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 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 67,950 (14,088) 53,862 1,376 (499) 877 391 (132) 259 1,687 (687) 1,000 32 (3) 29 3,767 (2,029) 1,738 57,765 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 33,290 (11,819) 21,471 1,376 (499) 877 318 (101) 217 912 (387) 525 32 (3) 29 1,937 (1,254) 683 23,802 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 44 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 11: 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: 2004/05 Balance at the beginning of the year Additions Disposals Depreciation expense Carrying amount at the end of the year 2004/05 Balance at the beginning of the year Additions/transfers Disposals Depreciation expense Carrying amount at the end of the year 2004/05 Balance at the beginning of the year Additions/transfers 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 $ ’000 208 82 - (31) 259 192 44 - (19) 217 27,330 30,223 - (3,691) 53,862 21,999 1,873 - (2,401) 21,471 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 1,291 (125) - (289) 877 1,291 (125) - (289) 877 1,021 398 (199) (220) 1,000 792 133 (191) (209) 525 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 2,272 79 - (613) 1,738 716 117 - (150) 683 46 (12) - (5) 29 46 (12) - (5) 29 45 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 12: INTANGIBLE ASSETS Goodwill at cost Less accumulated amortisation Patents, trademarks and licenses at cost Less accumulated amortisation Reconciliation of Intangible Assets 2004/05 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 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 13,754 (1,934) 11,820 1,072 (424) 648 12,468 10,445 (1,439) 9,006 934 (299) 635 9,641 3,835 (1,250) 2,585 811 (350) 461 3,046 3,829 (1,053) 2,776 659 (245) 414 3,190 G O O D W I L L PAT 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 9,006 3,309 (495) 11,820 2,776 6 (197) 2,585 635 138 (125) 648 414 152 (105) 461 46 Notes to the Financial Statements for the year ended 30 June 2005 C O N S O L I D A T E D C O M P A N Y Note 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 NOTE 13: DEFERRED TAX ASSETS The future income tax benefits comprise: Timing differences 294 346 - - NOTE 14: PAYABLES CURRENT Unsecured liabilities Trade creditors Sundry creditors and accruals NOTE 15: INTEREST BEARING LIABILITIES CURRENT Secured liabilities Bank overdrafts Bank loans Commercial bills Finance lease liability Hire purchase liability NON-CURRENT Secured liabilities Commercial bills Convertible notes Finance lease liability Hire purchase liability NOTE 16: INCOME TAX LIABILITIES CURRENT Income tax NON-CURRENT Deferred income tax 24(e) 24(e) 24(e) 28(a) 28(b) 24(e) 24(f) 28(a) 28(b) 14,398 5,392 19,790 6,313 51,885 1,600 334 2,115 62,247 9,800 6,500 405 3,945 20,650 165 4,853 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 3,704 1,451 5,155 1,023 36,044 1,600 334 2,115 41,116 9,800 6,500 405 3,945 20,650 - 4,853 3,651 2,906 6,557 1,290 12,118 1,500 310 2,168 17,386 11,700 - 615 5,731 18,046 - 3,923 47 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 17: PROVISIONS CURRENT Employee entitlements NON-CURRENT Employee entitlements (a) Aggregate employee entitlements liability (b) Number of employees at year end NOTE 18: NON-HEDGED FOREIGN CURRENCY BALANCES The Australian dollar equivalents of foreign currency balances included in the financial statements that are not effectively hedged are as follows: US Dollars, Euro & NZD Receivables Current Non-current Payables Current Non-current C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 1,226 547 1,773 1,197 24,537 - 24,537 52,140 2,382 54,522 989 110 1,099 427 20,192 - 20,192 26,388 2,114 28,502 1,152 73 1,225 196 233 39,677 39,910 37,799 - 37,799 936 110 1,046 200 342 22,368 22,710 14,593 - 14,593 48 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 19: CONTRIBUTED EQUITY Paid up Capital 51,905,861 fully paid ordinary shares (2004: 50,358,425) Movement in Share Capital Shares issued at the beginning of the financial year GST on IPO Costs 717,671 shares issued as part of the consideration for acquisition of a business – 15 December 2004 (i) 4,230,769 shares issued to Institutional Investors – 16 February 2004 (ii) 1,602,601 shares issued as part of the Company Share Purchase Plan – 18 March 2004 237,930 shares issued under Dividend Reinvestment Plan (iii) 224,490 shares issued under Dividend Reinvestment Plan – 18 October 2004 827,843 shares issued under the Company option scheme (iii) 427,942 shares issued under the Company option scheme – 29 November 2004 177,333 shares issued under Dividend Reinvestment Plan – 15 April 2005 C O M P A N Y 2004/05 $ ’000 2003/04 $ ’000 41,939 38,899 38,899 (151) 1,804 - - - 591 - 428 368 22,798 - - 10,466 4,167 640 - 828 - - 41,939 38,899 (i) Shares issued as part of the consideration for the acquisition of the industrial and knitted fabrics operations of Donaghys Industries Limited of New Zealand. The acquisition is further detailed in note 24(c). (ii) 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 Gale’s working capital requirements and new product initiatives, and to reduce gearing. (iii) Shares issued under 2003/04 Dividend Reinvestment Plan and Share Option Scheme are listed as aggregate for the year. Fully paid ordinary shares carry one vote per share and carry the right to dividends. A dividend reinvestment plan was established on 5 September 2001, and is available to all shareholders. Options The Company maintains an option scheme for certain staff and executives, including executive Directors, as approved by shareholders at an annual general meeting. The issue price of each option is zero. Each option entitles the option holder to 1 ordinary share in the Company in the event that the option is exercised. The exercise price of the 50,000 options is $1.50 and the exercise price of the 560,000 issued options is $3.00. The vesting of options is determined in accordance with specific share price and/or performance hurdles. In the case of the 50,000 options, their vesting is determined by the performance of the Company’s share price over time; the vesting of the 560,000 options is determined in accordance with the achievement of certain levels of adjusted weighted average earnings per share and the Company’s share price over time. The 50,000 options are not exercisable after 1 December 2006, and the 560,000 options are not exercisable after 1 December 2008. Options carry no rights to dividends and no voting rights. The principal terms of the issue of the 560,000 options under the plan are as follows: • Each option entitles the holder to subscribe for one fully paid ordinary share. • The exercise price is $3.00 per option. • The expiry date of the options is 31 December 2008. • The holder may, on and from the later of: (A) 1 November 2005; and (B) the date on which the Company lodges its audited financial report (as defined in the Corporations Act 2001 (Commonwealth)) for the year ended 30 June 2005 with ASIC and, if the Company is listed, with ASX, exercise: 49 Notes to the Financial Statements for the year ended 30 June 2005 (C) 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share (see below) for the year ended 30 June 2005 increased by 15% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2004; and (D) a further 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2005 increased by 25% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2004; • The holder may, on and from the later of: (A) 1 November 2006; and (B) the date on which the Company lodges its audited financial report (as defined in the Corporations Act 2001 (Commonwealth)) for the year ended 30 June 2006 with the ASIC and, if the Company is listed, with ASX, exercise, in addition to any other Options the holder has previously become entitled to exercise: (C) 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2006 increased by 15% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2005; and (D) a further 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2006 increased by 25% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2005; • The holder may, on and from the later of: (A) 1 November 2007; and (B) the date on which the Company lodges its audited financial report (as defined in the Corporations Act 2001 (Commonwealth)) for the year ended 30 June 2007 with the ASIC and, if the Company is listed, with ASX, exercise, in addition to any other Options the holder has previously become entitled to exercise: (C) unless the holder has previously become entitled to exercise all of the holder’s Options, 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2007 increased by 15% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2006; and (D) unless the holder has previously, or as a result of becoming entitled to exercise Options under paragraph (3)(C), become entitled to exercise all of the holder’s Options, a further 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2007 increased by 25% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2006; and • The holder may, on and from the later of: (A) 1 November 2008; and (B) the date on which the Company lodges its audited financial report (as defined in the Corporations Act 2001 (Commonwealth)) for the year ended 30 June 2008 with the ASIC and, if the Company is listed, with ASX, exercise, in addition to any other Options the holder has previously become entitled to exercise: (C) unless the holder has previously become entitled to exercise all of the holder’s Options, 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2008 increased by 15% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2007; and 50 Notes to the Financial Statements for the year ended 30 June 2005 (D) unless the holder has previously, or as a result of becoming entitled to exercise Options under paragraph (4)(C), become entitled to exercise all of the holder’s Options, a further 25% of the total number of Options (rounded to the nearest whole number) issued to the holder, subject to any adjustments made under clause 5 of these terms, provided that the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2008 increased by 25% or more over the Adjusted Weighted Average Earnings Per Share for the year ended 30 June 2007. • For the purpose of the above paragraphs “Adjusted Weighted Average Earnings Per Share” means: (1) for the financial year ended 30 June 2004, 17.85 cents; and (2) for any other financial year (“Relevant Financial Year”), the diluted earnings per share of the Company as disclosed in the Company’s audited financial report (as defined in the Corporations Act 2001 (Commonwealth)) for the Relevant Financial Year (“Relevant Report”). However, if: (A) there is any change to the accounting standards (as defined in the Corporations Act 2001 (Commonwealth)), including without limitation, as a result of the adoption of International Financial Reporting Standards; and (B) that change results in the earnings specified in the Relevant Report as having been used in the calculation of diluted earnings per share (“Total Earnings”) for the Relevant Financial Year being determined on a basis different from that on which Total Earnings for the financial year immediately preceding the Relevant Financial Year (“Prior Year Total Earnings”) was determined, then, for the purpose of: (C) calculating Adjusted Weighted Average Earnings Per Share for the Relevant Financial Year; or (D) determining whether there has been any increase in Adjusted Weighted Average Earnings Per Share for the Relevant Financial Year over Adjusted Weighted Average Earnings Per Share for the financial year prior to the Relevant Financial Year, Total Earnings for the Relevant Financial Year or Prior Year Total Earnings must be adjusted to the extent necessary to ensure that Total Earnings for the Relevant Financial Year and Prior Year Total Earnings are determined on the same or a comparable basis. Options Summary 2004/05 2003/04 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 (15 December 2004) Balance at the end of the financial year At 30 June 2005, no options on issue are currently exercisable. No. 477,942 - (427,942) - 560,000 610,000 No. 1,310,785 50,000 (827,843) (55,000) - 477,942 51 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 20: 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 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 (3,087) (273) (2,814) (3,087) (273) (1,496) 1,223 (273) - - - - - - - - Exchange differences relating to foreign currency monetary items forming part of the net investment in a self-sustaining foreign operation and the translation of self-sustaining foreign controlled entities are brought to account by entries made directly to the foreign currency translation reserve, as described in Note 1(g). NOTE 21: RETAINED PROFITS Retained profits at the beginning of the financial year Net profit attributable to members of the entity Dividends paid Retained profits at reporting date NOTE 22: OUTSIDE EQUITY INTERESTS Outside equity in controlled entities comprises: Opening balance Proceeds for outside entity Net profit attributable to outside interest NOTE 23: EQUITY Total equity at the beginning of the financial year Total changes in equity recognised in the Statement of Financial Performance Transactions with owners as owners Movement in outside equity interest Movement in contributed capital Dividends Total equity at reporting date 14,576 4,685 (3,825) 15,436 (6) - (3) (9) 53,196 1,871 (3) 3,040 (3,825) 54,279 10,847 7,004 (3,275) 14,576 694 (705) 5 (6) 32,843 8,227 (700) 16,101 (3,275) 53,196 10,338 964 (3,825) 7,477 9,485 4,128 (3,275) 10,338 49,237 964 - 3,040 (3,825) 49,416 32,283 4,128 - 16,101 (3,275) 49,237 52 Notes to the Financial Statements for the year ended 30 June 2005 C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 NOTE 24: 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 2 3,963 (6,313) (2,348) (b) Reconciliation of cash flow from operations with profit from ordinary activities Profit from ordinary activities after income tax 4,683 Non-cash flows in profit from ordinary activities: - - - - - - Loss on Disposal of fixed assets 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: - - - - - (Increase)/decrease in receivables Decrease in other assets (Increase) in inventories Increase/(decrease) in payables and accruals Increase/(decrease) in income tax payable Net cash provided by operations 32 620 598 4,849 16 (718) (5,310) 1,704 (12,291) 3,531 (431) (2,717) 26 6,684 (1,280) 5,430 7,009 - 608 351 3,718 106 (1,086) 1,983 2,575 (1,596) (1,675) 410 12,403 2 - (1,023) (1,021) 964 32 302 598 3,073 - (718) 822 1,570 (2,373) 2,954 188 7,412 2 2,511 (1,290) 1,223 4,128 - 289 351 3,029 21 (1,086) 143 1,532 (1,051) (752) (104) 6,500 53 Notes to the Financial Statements for the year ended 30 June 2005 C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 NOTE 24: 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 Ordinary Shares Issued Balance payable 20 August 2004 Net cash outflow on acquisition (d) Non-cash financing and investing activities 11,646 1,804 13,450 - 4,562 - - 6,108 - 3,309 (529) - 13,450 - - 1,804 - 11,646 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 11,646 1,804 13,450 - 4,562 - - 6,108 - 3,309 6,351 - 6,351 256 11,537 9,660 6,029 1,189 - 2,939 (529) (8,202) - 13,450 - - 1,804 11,646 (17,057) 6,351 - - (829) 5,522 Plant and equipment During the financial year the economic entity did not acquire plant and equipment via non cash financing arrangements (2004: $274,000). (e) Multi Option Facility and Bills Discount Facility The Company has access to a Multi Option Facility (including an AUD, USD, Euro and NZD overdrafts commercial bills, fixed rate trade advances, documentary credit and trade finance), a Bills Discount Facility and a Bank Guarantee facility to a maximum of $72,195,000 as at 30 June 2005 (2004 $33,400,000), leaving an unused facility of $2,595,000 (2004: $3,445,000). 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. (f) Convertible Notes The Company issued Convertible Notes to the value of $6,500,000 on 9 December 2004, at an interest rate of 8.5% per annum. These notes mature on 9 December 2009 and are convertible at a price of $3.25 per share. 54 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 25: COMPANY DETAILS The registered office of the Company is: Gale Pacific Limited 145 Woodlands Drive Braeside Victoria Australia 3195 NOTE 26: DIRECTORS’ AND EXECUTIVES’ REMUNERATION The Specified Directors of the economic entity who held office during the year were: H Boon (Chairman, non-executive) – Appointed 25 August 2005 TJ Eversteyn (Chairman, non-executive) – Resigned 25 August 2005 G S Gale (Chief Executive Officer) D E J Reilly (Non-executive) P R McDonald (Chief Operating Officer) G H Richards (Non-executive) The Specified Executives of the economic entity at the date of this report are: S Carroll (Gale Australasian Sales & Marketing Manager) E Xu (Executive Director) A London (Chief Financial Officer) E Jung (Jung/Gale Europe, Managing Director) Z Fakroddin (Regional Manager, Middle East) 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 19 to the Financial Statements. 2005 SPECIFIED DIRECTORS Executive Directors G S Gale P R McDonald SALARY & FEES $ 396,951 269,414 Non-Executive Directors T J Eversteyn D E J Reilly G H Richards TOTAL 144,992 119,124 68,000 998,481 PRIMARY BONUS $ NON- MONETARY $ SUPER- ANNUATION $ POST EMPLOYMENT PRESCRIBED BENEFITS $ OTHER $ EQUITY OPTIONS $ OTHER BENEFITS $ - - - - - - 66,500 39,037 11,549 11,549 - - - - - - 105,537 23,098 - - - - - - - - - - - - 33,922 25,442 - - - 59,364 - - - - - - TOTAL $ 508,922 345,442 144,992 119,124 68,000 1,186,480 55 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 26: DIRECTORS’ AND EXECUTIVES’ REMUNERATION (cont’d) 2004 SPECIFIED DIRECTORS Executive Directors G S Gale P R McDonald Non-Executive Directors SALARY & FEES $ PRIMARY BONUS $ NON- MONETARY $ SUPER- ANNUATION $ POST EMPLOYMENT PRESCRIBED BENEFITS $ OTHER $ 322,498 252,961 120,000 75,000 66,500 36,037 11,002 11,002 49,583 60,554 47,500 6,167 - - - - - - - - - - - - 739,263 195,000 102,537 22,004 - - - - - - - - - - - - - - PRIMARY BONUS $ NON- MONETARY $ SUPER- ANNUATION $ POST EMPLOYMENT PRESCRIBED BENEFITS $ OTHER $ T J Eversteyn H G Davies D E J Reilly G H Richards TOTAL 2005 SPECIFIED EXECUTIVES 2005 A London (i) L Doddridge (ii) E Jung (iii) Z Fakroddin (iv) E Xu (v) D Whyte (vi) S Carroll TOTAL 2004 L Doddridge (vii) R House P Cashion (viii) D Whyte (vi) E Jung (iii) S Carroll TOTAL SALARY & FEES $ 11,694 176,458 222,603 147,200 128,958 261,815 175,100 - - 51,370 27,813 31,919 31,915 - 1,123,828 143,017 5,105 162,307 139,373 262,272 219,855 170,000 958,912 - 30,000 - 33,660 - - 63,660 1,700 23,077 31,906 20,850 61,621 34,000 24,677 197,831 775 19,026 62,629 31,116 - 25,000 138,546 1,075 15,881 6,545 50,850 - - 15,759 90,110 459 14,608 - - - 15,300 30,367 - - - - - - - - - - - - - - - - - - - - - - - - 10,000 - - - - 10,000 17,465 EQUITY OPTIONS $ 33,889 26,358 - - - - 60,247 EQUITY OPTIONS $ - - - - 33,281 - - 33,281 - 17,465 - - - - OTHER BENEFITS $ - - - - - - - OTHER BENEFITS $ - - - - - - - - - - - - - - - TOTAL $ 553,889 401,358 49,583 60,554 47,500 6,167 1,119,051 TOTAL $ 14,469 215,416 312,424 246,713 255,779 327,730 215,536 1,588,067 6,339 253,406 202,002 327,048 219,855 210,300 1,218,950 (i) Mr. London was appointed as Chief Financial Officer on 2 June 2005 and therefore the details of his remuneration for the reporting period are from that date. (ii) Mr. Doddridge resigned from the position of CFO on the 2 June 2005 and therefore the details of his remuneration for the reporting period are to that date. (iii) Mr. Jung is based in Germany and is remunerated in Euro converted to Australian dollars in the table above. (iv) Mr. Fakroddin is based in the Middle East and is remunerated in US dollars converted to Australian dollars in the table above. (v) Ms. Xu is based in China and is remunerated in US dollars converted to Australian dollars in the table above. (vi) Mr. Whyte (resigned July 2005) was based in the USA and was remunerated in US dollars converted to Autralian dollars in the table above. (vii) Mr. Doddridge was appointed as Chief Financial Officer on the 22 June 2004 and therefore the details of his remuneration for the reporting period shown cover eight working days. (viii) Mr. Cashion (resigned February 2005) was based in China and was remunerated in US dollars converted to Australian dollars in the table above. 56 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 26: DIRECTORS’ AND EXECUTIVES’ REMUNERATION (cont’d) FULLY PAID ORDINARY SHARES BALANCE 1 JULY 2004 RECEIVED AS REMUNERATION OPTIONS EXERCISED NET CHANGE (i) BALANCE 30 JUNE 2005 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 14,784,980 415,276 190,000 259,612 10,000 - Total (i) Net change refers to purchase and sales during the year. 15,659,868 - - - - - - - 427,942 - - - - - 427,942 544,729 (108,351) (10,000) 40,568 47,778 - 514,724 15,329,709 306,925 180,000 300,180 57,778 - 16,174,592 SHARE OPTIONS BALANCE 1 JULY 2004 RECEIVED AS REMUNERATION OPTIONS EXERCISED BALANCE 30 JUNE 2005 TOTAL VESTED 30 JUNE 2005 TOTAL 30 JUNE 2005 EXERCISABLE Executive Directors G S Gale P R Mc Donald Non Executive Directors None Specified Executives E Xu Total 427,942 - - 50,000 477,942 320,000 240,000 - - (427,942) - - - 560,000 (427,942) 320,000 240,000 - 50,000 610,000 - - - - - - - - - - Directors acquired shares through the Dividend Reinvestment Plan on the same terms and conditions available to other shareholders. REMUNERATION PRACTICES The Companies policy for determining the nature and amount of emoluments of 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 immediate 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 individuals’ achievement of stated financial and non financial targets and any other factors the committee deems relevant. NOTE 27: DIVIDENDS Ordinary Shares Interim dividend – fully franked Final dividend – fully franked Adjusted franking account balance 2 0 0 4 / 0 5 Cents per Share 3.5 4.0 Total $ ’000 1,810 2,015 3,825 723 2 0 0 3 / 0 4 Cents per Share Total $ ’000 3.5 3.5 1,521 1,754 3,275 3,889 Since the end of the financial year, Directors have declared a fully franked final dividend of 1.5 cents per share, amounting to $780,000. The final dividend for the year ended 30 June 2005 has not been recognised in this financial report because the final dividend was declared subsequent to 30 June 2005. 57 Notes to the Financial Statements for the year ended 30 June 2005 C O N S O L I D A T E D C O M P A N Y Note 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 NOTE 28: 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 15 15 389 603 992 (253) 739 334 405 739 363 669 1,032 (107) 925 310 615 925 389 603 992 (253) 739 334 405 739 363 669 1,032 (107) 925 310 615 925 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 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’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 15 15 2,186 4,252 6,438 (378) 6,060 2,115 3,945 6,060 2,447 6,067 8,514 (615) 7,899 2,168 5,731 7,899 2,186 4,252 6,438 (378) 6,060 2,115 3,945 6,060 2,447 6,067 8,514 (615) 7,899 2,168 5,731 7,899 58 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 28: CAPITAL AND LEASING COMMITMENTS (cont’d) (c) Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the accounts: Payable - not later than one year - - later than one year and not later than five years later than five years C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 2003/04 $ ’000 2004/05 $ ’000 2003/04 $ ’000 3,860 7,334 4,014 15,208 3,411 7,908 2,999 14,318 2,532 2,987 - 5,519 2,685 5,502 - 8,187 The Company leases property and equipment 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. (d) Capital Commitments At 30 June 2005 the wholly owned Chinese entity, Gale Pacific Textiles Company Limited (“GPST”) had capital commitments on contracts for buildings and plant and equipment to the value of US$1.65 million. NOTE 29: RELATED PARTY TRANSACTIONS Equity Investments in Controlled Entities Details of the percentage of ordinary shares held in controlled entities are disclosed in Note 30 to the financial statements. Directors’ Remuneration Details of Directors’ remuneration are disclosed in Note 26. (a) Directors’ Equity Holdings Transactions with Directors and Director-related entities The following amounts were payable to Directors and their Director-related entities as at the reporting date: Payable not later than one year C O N S O L I D A T E D C O M P A N Y 2004/05 $ ’000 11 2003/04 $ ’000 25 2004/05 $ ’000 11 2003/04 $ ’000 25 Mr T Eversteyn is a Partner of the Chartered Accounting firm Bentleys MRI. In addition to Directors fees received (and disclosed in Note 26) Bentleys MRI have provided other business services during the year ended 30 June 2005 to Gale Pacific Limited. The value of services provided was $578 (2004: $166,863). 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 $11,250 is represented by director’s fees payable as follows: Mr T Eversteyn Mr G Richards 7,083 4,167 11,250 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. (b) 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 $22,000 (2004:$412,000). 59 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 30: CONTROLLED ENTITIES Parent Entity: Gale Pacific Limited Controlled Entities: Gale Pacific USA Inc. Gale Pacific FZE Aquaspan Pty Ltd Gale Pacific Special Textiles Company Limited Jung Garten & Freizeit Vertriebsgesellschaft mbH Gale Europe Vertriebsgesellschaft GmbH Gale Pacific (New Zealand) Limited 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 ( % ) 2004/05 2003/04 Australia - - USA United Arab Emirates Australia China Germany Germany New Zealand 100% 100% 50% 100% 100% 100% 100% 100% 100% 50% 100% 100% - - The Company incorporated Gale Pacific (New Zealand) Limited in November 2004, it acquired the assets of Donaghys in New Zealand on 15 December 2004 for $13.5m. The Company incorporated Gale Europe Vertriebsgesellschaft GmbH in December 2004. NOTE 31: SEGMENT REPORTING Americas Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a Sales offices are located in Florida and California which service the North American region. reasonable basis. Unallocated items mainly comprise income-earning Europe/Middle East/Africa assets and revenue, interest-bearing loans, borrowings and expenses, Sales offices and distribution facilities are located in the United Arab and corporate assets and expenses. Emirates and Germany which service those regional markets. Segment capital expenditure is the total cost incurred during the Business Segment period to acquire segment assets that are expected to be used for more than one period. The consolidated entity operates predominantly in one business segment, being the advanced polymer fabrics industry. The Inter-segment pricing is predominantly determined on an arm's length consolidated entity manufactures and markets advanced durable basis. Geographical segment knitted and woven polymer fabrics and value added structures made from these fabrics. With the acquisition of “Jung” the Company also markets domestic garden products to the home hardware sector in In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. Europe. The consolidated entity comprises the following main geographical segments, based on the consolidated entity's management reporting system: Asia/Pacific Manufacturing and distribution facilities are located in Australia and New Zealand. Sales offices are located in all states in Australia and through distribution agreements in New Zealand. A manufacturing facility is located in Ningbo, which supplies products to the Group. 60 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 31: SEGMENT REPORTING (cont’d) Primary Reporting – Geographical Segments ASIA/PACIFIC $’000 AMERICAS $’000 EUROPE/MIDDLE EAST/AFRICA ELIMINATIONS CONSOLIDATION $’000 $’000 30 June 2005 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 69,979 32,625 102,604 5,720 (1,130) 4,590 5,115 718 109,135 93,119 Acquisition of non-current assets 26,708 30 June 2004 Revenue outside the economic entity 60,685 21,905 82,590 6,996 (1,888) 5,108 3,995 1,086 78,335 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 15,430 - 15,430 (1,084) 351 (733) 336 - 11,597 878 596 15,842 - 15,842 77 44 121 303 - 14,522 $’000 63,768 - 63,768 1,462 (576) 886 328 - 39,622 10,628 2,892 30,285 - 30,285 2,949 (1,141) 1,808 83 - 27,919 49,952 1,413 9,369 (4,140) Acquisition of non-current assets 6,076 298 85 - - (32,625) (32,625) (257) 197 (60) 288 - 3,109 - - (412) (21,905) (22,317) (398) 370 (28) 296 - (7,119) 149,177 - 149,177 5,841 (1,158) 4,683 6,067 718 163,463 294 163,757 104,625 4,853 109,478 30,196 106,400 - 106,400 9,624 (2,615) 7,009 4,677 1,086 113,657 346 114,003 56,594 4,213 60,807 6,459 61 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 32: EARNINGS PER SHARE Earnings used in the calculations of basic and diluted earnings per share Weighted average number of ordinary shares used in the calculation of basic earnings per share Number of share options on issue Weighted average number of Share Options issued during the year Weighted average number of ordinary shares and potential ordinary shares C O M P A N Y 2004/05 2003/04 $4,685,000 51,189,261 610,000 302,247 $7,004,000 46,064,420 477,942 5,738 used in the calculation of diluted earnings per share 51,241,777 46,548,100 NOTE 33: 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. 62 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 33: FINANCIAL INSTRUMENTS (cont’d) (d) Interest Rate Risk The economic entity's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows: WEIGHTED AVERAGE INTEREST RATE FLOATING INTEREST RATE $‘000 FIXED INTEREST RATE $‘000 NON INTEREST BEARING $‘000 NOTE TOTAL $‘000 1 YEAR OR LESS $‘000 MATURING 1 TO 5 YEARS $‘000 MORE THAN 5 YEARS $‘000 30 June 2005 Financial Assets Cash assets Receivables Financial Liabilities Payables Bank overdrafts and loans Commercial bills Commercial bills Commercial bills Commercial bills Convetible Notes Lease liabilities Hire purchase liabilities Employee entitlements 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 5 6 14 15 15 15 15 15 15 15 15 17 5 6 14 15 15 15 15 15 15 15 17 5.4% - - 5.5% 5.5% 6.0% 6.3% 6.0% 8.5% 7.5% 8.2% - 5.15% - - 5.5% 6.9% 6.0% 6.0% 6.0% 7.5% 8.2% - 3,965 - 3,965 - 6,313 51,885 - - 6,600 - - - - - - - - - - 2,300 2,500 - 6,500 739 6,060 - 64,798 18,099 6,710 - 6,710 - 16,805 - - - - - - - - - - - - 3,100 3,300 6,600 200 925 7,899 - 16,805 22,024 - 32,753 32,753 19,790 - - - - - - - - 1,773 21,563 - 28,605 28,605 15,942 - - - - - - - 1,099 17,041 3,965 32,753 36,718 19,790 6,313 51,885 2,300 2,500 6,600 6,500 739 6,060 1,773 3,965 32,753 36,718 19,790 6,313 51,885 1,000 600 - - 334 2,115 1,226 104,460 83,263 6,710 28,605 35,315 15,942 16,805 3,100 3,300 6,600 200 925 7,899 1,099 55,870 6,710 28,605 35,315 15,942 16,805 600 900 - - 310 2,168 989 37,714 - - - - - - 1,300 1,900 6,600 6,500 405 3,945 547 21,197 - - - - - 2,500 2,400 6,600 200 615 5,731 110 18,156 - - - - - - - - - - - - - - - - - - - - - - - - - - - 63 Notes to the Financial Statements for the year ended 30 June 2005 NOTE 34: SUBSEQUENT EVENTS Subsequent to the end of the financial year, no significant capital expenditure was approved. In addition, the previously announced relocation of a significant portion of the Company’s Braeside Melbourne production equipment to China commenced subsequent to the end of the financial year and the majority of the equipment will be transferred through October/November 2005. On 9 September 2005, the Company raised $9 million through an issue of convertible loan notes. These funds will augment and support the Company’s capital investment in China and general expansion of its distribution globally Other than the relocation of a significant portion of the Company’s Braeside Melbourne production equipment to China and the capital raising mentioned above there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature 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 affairs of the economic entity in subsequent financial years. NOTE 35: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS Gale Pacific Limited is in the process of transitioning its accounting policies and financial reporting from current Australian Accounting Standards (AGAAP) to Australian equivalents of International Financial Reporting Standards (AIFRS). The adoption of AIFRS will be reflected in the consolidated entity’s financial statements for the half-year ending 31 December 2005 and year ending 30 June 2006. Entities complying with AIFRS for the first time are required to restate their comparative financial statements to reflect the application of AIFRS. The majority of AIFRS transition adjustments will be made retrospectively against opening retained earnings as at 1 July 2004. Set out below are the key areas where accounting policies are expected to change on adoption of IFRS and are managements best estimate at date of preparing 30 June 2005. These figures may change due to ongoing work by management and potential amendments to AIFRS, and emerging practice in respect to interpretation and application of AIFRS. (a) Reconciliation of equity as presented under AGAAP to that under AIFRS Total equity under AGAAP Adjustment to retained earnings Share based payments Amortisation of goodwill Adjustment to other reserves Share based payments Total Equity under AIFRS (i) Share Based Options C O N S O L I D A T E D P A R E N T Notes 2004/05 2003/04 2004/05 2003/04 54,279 53,196 49,416 49,237 (i) (ii) (i) (98) 495 98 54,774 (5) - 5 53,196 (98) 197 98 49,613 (5) - 5 49,237 Under AASB 2 Share-based payments, the company is required to expense the fair value of share rights and awards granted to employees as remuneration over the vesting period. This standard applies to all share rights and awards issued after 7 November 2002 which have not vested as at 1 January 2005 with a corresponding increase in a share-based payment reserve. Options are granted to senior executives of Gale Pacific Limited as part of the performance based package. The fair value and other details on share options are disclosed in the Remuneration Report on page 28 of this Annual Report. (ii) Goodwill Under AASB 3 Business Combinations, amortisation of goodwill will no longer be able to be amortised and will be replaced by impairment testing on an annual basis. Impairment testing will focus on the discounted cash flows of the related cash generating units. This will result in a change to the current accounting policy, whereby goodwill is amortised on a straight line basis over the period during which the benefits are expected to arise but not exceeding 20 years. Under the new policy, amortisation will no longer be charged, but goodwill will be written down to the extent it is impaired. (iii) Impairment of Assets AASB136 Impairment of Assets determines the recoverable amount of cash generating units (CGUs) by assessing the higher of net selling price and value in use. This will result in a change to the Company’s current accounting policy, which allows undiscounted expected net cash flows to be used in determining the recoverable amounts of non-current assets. 64 Gale Pacific Limited describes CGUs as a group of assets working together to generate cash flows. Those CGU’s were defined, the impairment testing policy was reassessed and assets tested for impairment as at 30 June 2005. The assessment requires no write down in the 2005 financial year as such assets have been written down under AGAAP. Notes to the Financial Statements for the year ended 30 June 2005 (iv) Foreign Currency Under AASB 121 The Effect of Changes in Foreign Exchange Rates, each entity in the consolidated entity determines its functional currency, being the currency of the primary economic environment in which the entity operates. Each entity maintains its books and records in its functional currency. Foreign operations are translated into the function currency of the consolidated entity based on an average rate for the profit and loss, and the exchange rate at reporting date for the balance sheet. Foreign exchange differences arising on translation are recognised directly in a separate reserve component of equity. There are no expected changes in functional currency for the company or its overseas entities. (b) Reconciliation of net profit as presented under AGAAP to that under AIFRS Profit from ordinary activities after income tax under AGAAP Amortisation of goodwill Share based payments Net profit from ordinary activities after income tax under AIFRS Notes C O N S O L I D A T E D 2004/05 P A R E N T 2004/05 (ii) (i) 4,683 495 (93) 5,085 964 197 (93) 1,068 (c) Restated AIFRS Statement of Cash Flows for the year ended 30 June 2005 No material impacts are expected to the cash flows presented under AGAAP on adoption of AIFRS 65 Additional Stock Exchange Information as at 20 September 2005 Number of Holdings of Equity Securities as at 20 September 2005 The fully paid issued capital of the Company consisted of 51,905,861 ordinary fully paid shares held by 1,319 shareholders. Each share entitles the holder to one vote. Three option holders hold 610,000 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 as at 16 September 2005 Shareholder Gary Stephen Gale (i) Gale Australia Pty Ltd (ii) Barbara Gale (ii) Thorney Holdings Pty Ltd (iii) Warakirri Asset Management Pty Ltd (iv) Equipsuper Pty Ltd Acorn Capital Limited (v) 170 531 290 296 32 1,319 51 No. 15,329,709 13,927,844 13,927,844 6,197,201 4,073,307 3,810,264 2,842,350 - - - 1 2 3 - % 29.53% 26.83% 26.83% 11.94% 7.85% 7.34% 5.48% (i) The substantial shareholding for Gary Stephen Gale includes the shares held by Gale Australia Pty Ltd and Barbara Gale (see note (ii) below). (ii) The substantial shareholdings for Gale Australia Pty Ltd and Barbara Gale relate to the same shares. (iii) The substantial shareholding of Thorney Holdings Pty Ltd includes holdings of Invia Custodian Pty Ltd, being numbers 2, 8 and 18 on the schedule of Twenty Largest Holders of Quoted Equity Securities and includes a holding that is outside of the top twenty holdings. (iv) The substantial holding Warakirri Asset Management Pty Ltd is held in the name of ANZ Nominees Limited, being number 3 on the Schedule. (v) Acorn Capital Limited includes holdings of National Nominees Limited and Health Super (numbers 5 and 19 on the Schedule respectively). 66 Additional Stock Exchange Information as at 20 September 2005 Twenty Largest Holders of Quoted Equity Securities Ordinary Shareholders 1. Gale Australia Pty Ltd 2. Invia Custodian Pty Limited (Thirty Five A/C) 3. ANZ Nominees Limited 4. National Nominees Limited (Equipsuper Account) 5. National Nominees Limited 6. Citicorp Nominees Pty Limited 7. Mrs Anne Lesley Gale 8. Invia Custodian Pty Ltd (White A/C) 9. Cogent Nominees Pty Limited 10. JP Morgan Nominees Australia Limited 11. Benefund Limited 12. Tricom Nominees Pty Ltd 13. Westpac Custodian Nominees Limited 14. Citicorp Nominees Pty Limited (CFSIL CWLTH BOFF SUPER A/C) 15. Mrs Diane Kay Riddell 16. Malla Pty Ltd 17. Daryl Edward James Reilly 18. Invia Custodian Pty Limited (Black A/C) 19. Health Super Pty Ltd 20. HSBC Custody Nominees (Australia) Limited Total No. 13,927,844 5,127,965 4,073,307 3,810,264 2,580,974 1,441,728 973,923 801,938 781,138 767,054 450,000 427,942 424,345 355,883 319,600 300,000 280,056 267,298 261,376 243,999 37,616,634 % 26.83% 9.88% 7.85% 7.34% 4.97% 2.78% 1.88% 1.54% 1.50% 1.58% 0.87% 0.82% 0.82% 0.69% 0.62% 0.58% 0.54% 0.51% 0.50% 0.47% 72.57% The twenty members holding the largest number of shares together held a total of 72.57% of the issued capital. Financial Report Following the completion of the Financial Report, the Statement of Financial Position and Notes to the Financial Statements Note 15, have been amend- ed as follows: The Preliminary Final Report classified non-current convertible notes, issued value of $6,500,000, as current bank loans. This disclosure has been cor- rected within the Financial Report. Other information: The name of the Company Secretary is Ms. S Karzis. The address of the principal registered office in Australia, and the principal administrative office, is: 145 Woodlands Drive, Braeside, Victoria 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 Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 Local call 1300 850 505 International call + 613 9415 4000 67 Melbourne, Australia Christchurch, New Zealand Florida, USA Jebel Ali, Dubai Neunkirchen, Germany Beilun, China Gale Pacific Limited ABN 80 082 263 778 BCA/GPL509 

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