“The restructuring that
has occurred has put the
Company in a much
better position to
implement its business
growth strategy”
“We are well positioned
to expand the range of
Gale products carried by
our growing international
customer base”
Annual
Report
2006
“The new senior
management team will be
more focused on growing
our core business,
delivering organic sales
growth and operational
efficiencies”
CORPORATE INFORMATION
GALE PACIFIC LIMITED
ABN 80 082 263 778
DIRECTORS
Mr. Harry Boon (Chairman)
Mr. Peter McDonald (Managing Director and Chief Executive Officer)
Mr. Gary Gale (Non-Executive Director)
Mr. Daryl Reilly (Non-Executive Director)
Mr. George Richards (Non-Executive Director)
COMPANY SECRETARY
Ms. Sophie Karzis
REGISTERED OFFICE
145 Woodlands Drive, Braeside, Victoria, 3195
T + 613 9518 3333
SOLICITORS
Norton Gledhill
Level 23, 459 Collins Street, Melbourne, Victoria, 3000
T + 613 9614 8933
SHARE REGISTER
Computershare
Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067
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
2
“We are committed and
determined to better match
future results with the
Company’s true potential
Table of Contents
and our shareholders’
expectations”
Corporate Information
Chairman’s Report
Page
2
4
Managing Director and Chief Executive Officer’s Report 6
Corporate Governance Statement
Directors’ Report
Auditor’s Independence Declaration
Independent Audit Report
Directors’ Declaration
Income Statement
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Additional Stock Exchange Information
10
16
23
23
23
24
25
26
27
28
57
3
Chairman’s Report
Dear Shareholders
The Year in Review
In last year's Annual Report, your Directors indicated that
many challenges were expected in 2005/06 as your
Company progressed its northern hemisphere strategy to
balance the seasonality inherent in the southern
hemisphere business. These challenges included growing
our presence in Europe and the USA, completion of a
world class manufacturing operation in China,
improvements in management of working capital and
inventory control, reduction of debt, recapitalisation of the
balance sheet and strengthening of our management team.
It is pleasing to report solid progress on all these fronts.
Firstly, the expansion of our business in the northern
hemisphere has progressed well with Gale’s shade
products now sold through approximately 1270 retail
outlets in Europe, with sales revenue up by more than 56%
in the Middle East and by over 45% in the USA. Overall
sales revenue grew by 12% compared with last year.
Removing the effect of Jung garden products, revenue
grew by 19%.
Secondly, the restructure of manufacturing gathered
momentum, with the completion of a purpose built
manufacturing facility in China, the relocation of a
significant portion of the Australian plant and equipment,
and the installation of substantial new capacity for future
growth. This is a significant achievement and one which we
believe will be the cornerstone of the Company’s ability to
be more competitive through reduced lead times and
lower costs. Performance improvements were slower to
reach the bottom line than originally anticipated due to
delays in the commissioning of equipment and additional
costs of extending Australian manufacturing operations
through the transition period.
Another important element of our strategy was to improve
working capital management and to reduce debt. In July
2006 the Company successfully completed a capital raising
of $20 million via a combination of a private placement
and a share purchase plan. In addition, $15.5 million of
debt represented by unsecured convertible notes was
converted to ordinary shares. This has significantly reduced
debt and strengthened the balance sheet, delivering a
stable platform to fund the future operation of the
business. Capital expenditure of $19.4 million was invested
in the business to complete the investment stage of our
current plan. This level of capital expenditure will reduce
significantly in coming years as the focus shifts to
maximising the return from these investments.
After careful review, the Directors authorised the sale of our
German garden product distribution business, Jung, which
will contribute cash proceeds of approximately $14 million
to further reduce debt. Jung had been the Company’s
vehicle for accelerated entry into the European retail market,
and having achieved this goal, was no longer considered to
be a core part of the Company’s future strategy.
Directors and management also undertook a comprehensive
review of the Company’s major business units, research and
development activities, organisational structure and
accounting controls and processes. This review was led by
the Company’s new senior management team, (Peter
McDonald, Managing Director and Chief Executive Officer
appointed in April 2006 and Jeff Cox, Chief Financial Officer
appointed in March 2006) and resulted in substantially
improved processes throughout the supply chain, a new
clarity in research and development priorities, as well as
writing off equipment and raw material remaining from the
transfer of the knitting plant to China, writing down the
carrying value of certain research and development
activities, and taking up additional provisions for slow
moving inventories.
The culture that has brought the Company to the current
stage in its development needs to develop in maturity, and
management is dedicated to ensuring our people feel
appreciated and rewarded for the work they do and equally
to continue to foster accountability and commitment. In
many instances employee effort and commitment has been
much greater than is reflected in the year’s operating result,
and represents an investment in the foundations of the
business which will be rewarded with improved future results.
Results
The Company reported a loss after tax of $11.9 million,
which is predominantly a reflection of the previously
mentioned write downs and provisions and the loss on sale
of the Jung business. Despite the disappointing result,
Directors believe that the restructuring that has occurred in
the past twelve months has put the Company in a much
better position for growth in Australia and New Zealand,
China, the United States of America, the Middle East and
Europe. The benefits of these initiatives should become
increasingly evident during 2006/07 and the next few years.
4
Tax
Adoption of Australian Equivalents to IFRS
The effective tax rate on earnings was 25.3% (income tax
benefit) compared with 15.4% (income tax expense) for the
year ended 30 June 2005. This was due to losses in
offshore operations with higher effective tax rates.
From 1 July 2005, the Company is required to comply with
the Australian equivalents to International Financial
Reporting Standards (AIFRS) issued by the Australian
Accounting Standards Board.
Dividends
The Company paid a fully franked interim dividend of 1.5
cents on 18 April 2006. In light of the disappointing result,
Directors have decided not to pay a final dividend this
financial year. Directors expect that the Company’s overall
dividend policy of paying out 50-55% of profit will be
resumed on 2006/07’s anticipated improved result.
Annual General Meeting
A notice of the Company’s Annual General Meeting to be
held on 21 November 2006 and a proxy form for voting is
enclosed with this report.
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 the Company’s operating results in the future.
Outlook
The Company’s strategy is to develop and grow both retail
and commercial product ranges across a diversified
customer base. This will be achieved through innovative
“Despite the disappointing result, the restructuring that has
occurred has put the Company in a much better
position to implement its business growth strategy”
new products and low cost supply from China. Continued
improvements in working capital management are
anticipated from greater flexibility in managing inventory in
response to customer demand changes. The new senior
management team will be focused on delivering organic
sales growth and operational efficiencies.
Mr. Harry Boon
Chairman
29 September 2006
Re-election of Directors
One of the items of business at the Company’s Annual
General Meeting is the re-election of Mr. Daryl Reilly and
Mr. Gary Gale who retire as Directors by rotation in
accordance with the constitution of the Company and,
being eligible, offer themselves for re-election. The Board
endorses Mr. Reilly’s and Mr. Gale’s re-election.
Corporate Governance
The Company is committed to the principles of good corporate
governance. A full discussion on the Company’s progress in
creating strong and transparent corporate governance and
in meeting all of the ‘Principles and Best Practice
Recommendations’ published by the Corporate Governance
Council of the Australian Stock Exchange is contained in the
Directors’ Report section of this Annual Report.
As part of this commentary, the Directors' Report contains
the Remuneration Report. This report shows how the
Company aligns employee remuneration with Company
performance, putting a significant portion of executive
remuneration at risk. It details both variable short term
cash incentives and longer term performance hurdles.
The Board believes such short and long term incentive
programs are vital to improving organisational
performance. At this year's Annual General Meeting
shareholders will be asked to provide a non-binding vote
on the Remuneration Report.
Retirement of Managing Director and
Chief Executive Officer
Following the retirement of Mr. Gary Gale, the Board
appointed Mr. Peter McDonald, the former Chief Operating
Officer, to the role of Managing Director and Chief Executive
Officer, effective 26 April 2006. Mr. Gale will continue his
involvement with the Company as a Non-Executive Director.
5
Managing Director and Chief Executive Officer’s Report
The Year in Review
Asia / Pacific
Fiscal year 2006 has been an enormously challenging year
Australia
for the Company. Whilst we have delivered a revenue
increase of 12% to $167 million, we have recorded a net loss
after tax of $11.9 million, largely attributable to the sale of the
Jung business in Germany of approximately $6.5 million and
asset write downs at year end of approximately $6.4 million.
During the year we absorbed considerable costs associated
with the relocation of knitted fabric production to China and
the shut down of the Australian knitting operations.
Significant expenses were incurred in Europe for market
entry costs and start up expenses. The result does not reflect
our strategic progress or our medium term potential as we
continue to expand internationally with our Coolaroo (retail)
and Synthesis (commercial) products and restructure our
manufacturing to give us increased capacity, reduced costs
and shortened supply lead times. Management is now very
focussed on continuing to grow organic sales, improving our
research and product development processes, plant
productivity and efficiency levels, and reducing inventory
levels through improved supply chain processes.
The Company has a sound underlying strategy, unique
technologies and innovative products with which to drive
future growth.
Despite challenging conditions, we have maintained a
strong market position in Australia, our most mature market.
Overall sales were down approximately 4% on the previous
year, with sales to retailers down approximately 12% as they
reduced inventories to drive efficiencies within their own
organisations in tough retail conditions. Despite this, sales of
Coolaroo products to consumers through these retail outlets
were up on the previous year, a positive sign for our future
sales activities. With retailers’ inventories now at lower levels
and new products coming through for the next season, we
anticipate sales growth returning to our Australian operation.
Sales of Synthesis commercial fabrics remained stable and
our direct to market distribution strategy strengthened ties
with customers and aligned us more closely with the market.
New Zealand
New Zealand completed its first full year of operations since
the purchase of selected assets of Donaghys Industries in
December 2004. The year was very much focused on
continuing the integration of the business fully within Gale.
“The Company has a sound underlying strategy,
unique technologies and innovative products with which to
drive future growth”
Stephen Carroll
Managing Director (Australia)
“One of the most exciting
areas for growth lies in
our ability to manage
innovation and product
development to give
us a defensible competitive
advantage and enable us
to be first to market”
Craig McCallum
Managing Director (New Zealand)
“The business is now well placed to
supply high end specialist products
from its Christchurch manufacturing
facility and when necessary,
have the advantage of being able
to draw on our manufacturing
facility in China for a range of value
added lines”
6
The implementation of a new sales and distribution structure
Europe / Middle East
established the Company as a major direct supplier in each
of the three market segments, retail, commercial, and
Europe
agricultural. The key objective for 2006/07 is to continue to
Since the acquisition of Jung in Germany in February 2004,
grow sales in these market channels and derive the benefits
we have established a good base for Gale’s shade
of this new structure implemented during 2005/06.
China
products which are now sold through approximately 1270
retail outlets in Europe. With this objective having been
achieved, it was decided to sell the Jung business and to
Delays in the realisation of operating efficiencies from the
concentrate on the core Gale shade products.
new and relocated knitting plant in our China manufacturing
facility resulted in additional costs being absorbed in
2005/06. The resultant lower output levels necessitated
keeping the Australian knitting plant open longer than
planned. While these factors had a significant impact on
the past year’s result, they are largely behind us, and we are
now focusing on delivering the efficiencies and improved
profitability from the investment in China manufacturing.
The appointment of Paul Ducray as Head of Manufacturing
has strengthened our manufacturing resources in China.
Paul has over 18 years of manufacturing experience
including the position of Manufacturing Manager of our
New Zealand plant for the past 18 months.
In addition to the retail business, we have commenced
selling the Gale range of Synthesis commercial fabrics into
the European market. Management is enthusiastic about
the opportunities to establish a strong sales network for
these products, and to expand the market distribution for
our retail products.
With the experience of the past two years since we entered
the European market, we have now reached a customer
base with coverage of the most attractive countries for sun
protection products in Europe. The plan for future growth is
to concentrate on fast moving products and the combined
offering of local supply and direct container load shipments
from China to provide competitive advantage and flexibility
Additional full time resources in technical knitting and
which will attract new customers and distribution channels.
polymer engineering have also been added to support the
team in China and ensure the required efficiency levels,
costs, output and quality are achieved as early as possible.
Emma Xu
Managing Director (China)
“The investment and commissioning
phases are now complete. We
have the appropriate plans and
personnel in place to generate
the increased efficiencies and
improved returns we need to
achieve from the Company’s
manufacturing investment
in China”
7
Managing Director and Chief Executive Officer’s Report (cont’d)
Middle East
Sales revenue in the Middle East increased by more than
56% from the previous period, representing the third
consecutive year of double-digit growth in this region.
Whilst the UAE is still our largest market in the Middle East,
we have expanded strongly into Saudi Arabia, Kuwait,
Importantly, we also increased our commercial/architectural
fabric market penetration with sales almost doubling on the
prior year. This is a market we expect to continue to grow
as the use of high end commercial grade fabrics expands in
the USA with an increased number of fabricators now
servicing this emerging market segment.
Qatar and Bahrain as demand for our commercial fabrics in
The Company recently appointed a new Managing Director
the region increases.
With a management team now in place, our Regional
Manager, Zafar Fakroddin, will spend more time focusing
on establishing a market presence for the commercial range
of Synthesis fabrics in the European market.
USA
Sales revenue for the year increased by over 46% on the
previous year, with an increase in the number of stores in
which our products are sold and strong sell-through with
our major retail customers. Our Coolaroo products are now
sold through many of the major retail chains including The
Home Depot, Lowe’s, Costco, Wal-Mart and Sam’s. With
this increased market penetration our focus is to expand the
product range with these retail customers and develop new
products to suit consumer demand and tastes.
to head up the USA operations. Martin Denney, who will
relocate from Australia to the USA with his family, brings to
the Company a broad range of strategic, business
development and operational experience across a range of
industries including consumer goods, manufacturing and
building products.
Investing for the future
Significant effort has been directed towards restructuring
our operations recently to refocus the business and to
improve controls and systems within the organisation to
increase accountability, reduce costs and improve our
profitability. We continue to invest in our business, to make
it more efficient and responsive to the needs of the markets
we serve. This investment in both physical and human
capital will set the base for future organic growth.
“The new management team is committed to delivering a
solid profit result for 2007 and beyond.”
Frank Albertsmeier
Managing Director (Europe)
“Since launching two years
ago we have achieved a
broad customer base
with coverage of the
most attractive
European countries
needing sun
protection products”
8
Jeff Cox
Chief Financial Officer
“The financial restructuring during
recent months has provided a
strong foundation for the business
to deliver growth and operational
improvements. The focus
includes significant generation
of cash through sharpened
working capital management
and improved profitability
from organic growth and
cost reductions.”
In March 2006, Jeff Cox joined Gale as Chief Financial
The new management team is committed to delivering
Officer and Frank Albertsmeier joined our Gale Europe
a solid profit result for 2006/07 and beyond. With more
business as Managing Director Europe. The increased size
focused operations, improved efficiencies, significantly
of the Group has placed demands on the senior executives
reduced debt and a stronger balance sheet, 2006/07 is
and these appointments have strengthened the Gale team
expected to see the Company return to profitability
to help grow and consolidate the businesses. The recent
and generate positive cash flows. I would like to thank the
appointment of Martin Denney as Managing Director of our
team for their efforts, commitment and acceptance of
USA operation adds further strength.
these changes as we deliver a more focused and
2007 Priorities
profitable business.
Management priorities for the 2007 financial year will be to
focus on organic growth, operational efficiencies and to
capitalise on the low cost manufacturing base which has
been implemented in this past year. Measures have been
taken to ensure improved plant productivity, process
controls and efficiency levels. Supply chain processes are
being streamlined to better align sales and production
demands and to better manage inventory levels.
The Company is well positioned to maximise opportunities
to further expand the range of Gale products carried by our
growing international customer base and to continue to
develop the commercial and industrial fabric sales and
distribution channels.
Product development will benefit from a more robust
system and better control of expenditures to deliver clear
and measurable outcomes from the Company’s significant
research and development investment. New processes are
being implemented to ensure that there is wider commitment
and acceptance within the group of these priorities to ensure
we focus our activities on our core fabric development areas
and execute these plans well through the whole business.
Mr. Peter McDonald
Managing Director and Chief Executive Officer
29 September 2006
9
Corporate Governance Statement
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”). Gale Pacific’s Directors and management are committed to conducting the
Company’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Board
believes that Gale Pacific complies with the Corporate Governance Council’s Principles of Good Corporate Governance and Best
Practice Recommendation. A summary of how the Company complies with the ASX Corporate Governance Council’s Principles of
Good Corporate Governance and Best Practice Recommendations is included below. The various charters and policies are all
available on the Gale Pacific web site: www.galepacific.com
ASX Principle
Status
Reference/Comment
Principle 1 Lay solid foundation for management oversight
1.1
Formalise and disclose the functions reserved
Complying
The Board has adopted a charter which establishes
to the board and those delegated to
management.
the role of the Board and its relationship with
management. The primary role of the Board is the
protection and enhancement of long-term
shareholder value. Its responsibilities include the
overall strategic direction of the Company,
establishing goals for management and monitoring
the achievement of these goals. The functions and
responsibilities of the Board and management are
consistent with ASX Principle 1. A copy of the
Board Charter is posted on the Company’s website.
2.1 A majority of the board members should be
Complying
The Board comprises five directors, three of whom
Principle 2 Structure the Board to add value
independent.
are non-executive and independent. 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.
2.2
The chairman should be an independent
Complying
The Chairman, Mr. H. Boon has been Chairman of
director.
the Company since 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.
2.3
The roles of the chairman and the chief
Complying
The positions of Chairman and Chief Executive
executive officer should not be exercised by
Officer are held by separate persons.
the same individual.
10
ASX Principle
Status
Reference/Comment
Principle 2 Structure the Board to add value
2.4
The board should establish a nomination
Complying
The Board has a formal Nomination Committee
committee.
comprising of the non-executive independent
Directors. The Nomination Committee’s functions
and powers are formalised in a Charter.
2.5
Provide the information indicated in the
Complying
The following information is set out in the
Guide to reporting on Principle 2.
Company’s annual report:
•
•
The skills and experience of Directors.
The Directors considered by the Board to
constitute independent Directors and the
Company’s materiality thresholds.
• A statement regarding Directors’ ability to
take independent professional advice at
the expense of the Company.
•
•
The term of office held by each Director in
office at the date of the report.
The names of members of the Company’s
committees and their attendance at
committee meetings.
Principle 3 Promote ethical and responsible decision-making
3.1 Establish a code of conduct to guide the
Complying
The Company has formulated a Code Of Conduct
directors, the chief executive officer, the
chief financial officer and any other key
executives as to the practices necessary to
maintain confidence in the company’s integrity
and the responsibility and accountability of
individuals for reporting and investigating
reports of unethical practices.
which can be viewed on the Company’s website.
3.2 Disclose the policy concerning trading in
Complying
The Company has adopted a Securities Trading
company securities by directors, officers and
Policy which can be viewed on its website.
employees.
3.3
Provide the information indicated the Guide
Complying
The Company’s policy documents are posted on its
to Reporting on Principle 3.
website.
Principle 4 Safeguard integrity in financial reporting
4.1 Require the chief executive officer and the
Complying
The Directors are committed to the preparation of
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.
financial statements that present a balanced and
clear assessment of the Group’s financial position
and prospects. The Audit & Risk Committee reviews
the Company’s half yearly and annual financial
statements and makes recommendations to the
Board. The Board requires the Managing Direcor
and Chief Executive Officer and the Chief Financial
Officer to state in writing to the Board that the
Company’s financial reports present a true and fair
view, in all material respects, of the Company’s
financial condition and operational results and are
in accordance with relevant accounting standards.
4.2
The board should establish an audit
Complying
The Company has an Audit & Risk Committee. The
committee.
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.
11
Corporate Governance Statement (cont’d)
ASX Principle
Status
Reference/Comment
Principle 4 Safeguard integrity in financial reporting (cont’d)
4.3
The audit committee should be structured so
Complying
The Audit & Risk Committee consists of only
that it consists of only non-executive
directors; a majority of independent
directors, and have an independent
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
chairperson who is not chairman of the board
& Risk Committee.
and have at least three members.
4.4
The audit committee should have a formal
Complying
The Audit & Risk Committee has a formal charter
charter.
which sets out the Audit Committee’s role and
responsibilities, composition, structure and
membership requirements. The Audit Committee is
given the necessary power and resources to meet
its charter.
4.5
Provide the information indicated in Guide to
Complying
Details of the names and qualifications of the
Reporting on Principle 4.
members of the Audit & Risk Committee and the
number of meetings held and attended by each
member are contained in the Directors’ Report of
the Annual Report.
Principle 5 Make timely and balanced disclosure
5.1 Establish written policies and procedures
Complying
The Company has a documented policy which has
designed to ensure compliance with ASX
Listing Rule disclosure requirements and
to ensure accountability at a senior
management level for that compliance.
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 and Chief
Executive Officer, 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.
5.2
Provide the information indicated in Guide to
Complying
A copy of the Company’s Disclosure Policy is
Reporting on Principle 5.
posted on the Company’s website.
12
ASX Principle
Status
Reference/Comment
Principle 6 Respect the rights of shareholders
6.1 Design and disclose a communications
Complying
strategy to promote effective communication
with shareholders and encourage effective
participation at general meetings.
The Board informs shareholders of all major
developments affecting the Company’s state of
affairs as follows:
1. 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.
2. 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.
3. All major announcements to the Australian
Stock Exchange are distributed to
shareholders, and posted on the Company’s
website.
4. Proposed major changes in the
consolidated entity which may impact on
share ownership rights are submitted to a
vote of shareholders.
5. 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.
6.2 Request the external auditor to attend the
Complying
The Company’s auditor attends the Annual General
Annual General Meeting and be available to
Meeting.
answer shareholder questions about the
conduct of the audit and the preparation and
content of the Auditor’s Report.
Principle 7 Recognise and manage risk
7.1
The board or appropriate board committee
Complying
The Board has responsibility for monitoring risk
should establish policies on risk oversight and
oversight and ensures that the Managing Director
management.
and Chief Executive Officer 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.
In addition to its financial reporting obligations, the
Audit & Risk Committee is responsible for reviewing
the risk management framework and policies of the
Company. The structure of the Audit & Risk
Committee and its responsibilities reflect the
requirements of ASX Principle 7. In performing this
function, the Committee receives periodic reports
from the auditor, senior management and, in some
instances, external consultants.
7.2
The chief executive officer and the chief
Complying
The Managing Director and Chief Executive Officer
financial officer should state to the Board in
and the Chief Financial Officer are required to state
writing that the statement given regarding the
to the Board in writing that the integrity of the
integrity of financial statements is founded on
financial statements is founded on a sound system of
a sound system of risk management and
internal compliance and control.
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.
13
Corporate Governance Statement (cont’d)
ASX Principle
Status
Reference/Comment
Principle 7 Recognise and manage risk (cont’d)
7.3
Provide the information indicated in Guide to
Part
Management has completed a review of the
Reporting on Principle 7.
Complying
Company’s major business units, organisational
structure and accounting controls and processes.
As a result of this review a number of risk
management recommendations have been made
and will be implemented. A description of the
Company’s risk management policy and internal
compliance and control systems is currently being
documented and will be posted on the Company’s
web site as soon as it is available.
Principle 8 Encourage enhanced performance
8.1 Disclose the process for performance
Complying
The Company has in place systems designed to
evaluation of the board, its committees and
fairly review and actively encourage enhanced
individual directors, and key executives.
Board and management effectiveness.
The Nomination Committee takes responsibility
for evaluating the Board’s performance and the
Company’s key executives.
8.2
Provide the information indicated in Guide
Complying
A performance evaluation for the Board and its
to Reporting on Principle 8.
members has recently been completed.
No material internal deficiencies or issues were
identified through this process although some areas
have been identified for further improvement or
enhancement which the Board will focus on over
the coming period.
Principle 9 Remunerate fairly and responsibly
9.1
Provide disclosure in relation to the
Complying
Details of the Directors and key senior executives
company’s remuneration policies to enable
remuneration are set out in the Remuneration
investors to understand (i) the costs and
benefits of those policies and (ii) the link
between remuneration paid to directors and
key executives and corporate performance.
Report of the Annual Report.
14
ASX Principle
Status
Reference/Comment
Principle 9 Remunerate fairly and responsibly (cont’d)
9.2
The board should establish a remuneration
Complying
committee.
The Board has in place a Remuneration Committee.
The structure of this Committee and its responsibilities
reflect the requirements of ASX Principle 9. All three
members of the Committee are independent
Directors. In addition to the members, the Managing
Director and Chief Executive Officer is invited to the
meetings at the discretion of the Committee.
This Committee is responsible for ensuring that the
recruitment and remuneration policies and practices
of the Company are consistent with its strategic
goals and are designed to enhance corporate and
individual performance as well as meet the appropriate
recruitment and succession planning needs.
9.3 Clearly distinguish the structure of
Complying
The structure of non-executive Directors’
non-executive directors’ remuneration from
remuneration is distinct from that of executives and
that of executives.
is further detailed in the Remuneration Report of
the Annual Report.
9.4 Ensure that payment of equity-based
Complying
The Remuneration Committee is responsible for
executive remuneration is made in
accordance with thresholds set in plans
approved by shareholders.
reviewing and monitoring executive performance,
remuneration and incentive policies and the manner
in which they should operate, the introduction and
operation of share plans, executive succession
planning and development programs to ensure that
they are appropriate to the Company’s needs and
the remuneration framework for Directors
(as approved by shareholders). The Committee may
consult with remuneration advisors to assist in its role.
9.5
Provide the information indicated in Guide to
Complying
The charter setting out the responsibilities of the
reporting on Principle 9.
Remuneration Committee has been adopted and a
copy of this charter is posted on the Company’s
website.
Principle 10 Recognise the legitimate interests of stakeholders
10.1 Establish and disclose a code of conduct to
Complying
The Company has in place a Code of Conduct
guide compliance with legal and other
obligations to legitimate stakeholders.
which sets standards for the Board and employees
in dealing with the Company’s customers, suppliers,
shareholders and other stakeholders. A copy of this
Code of Conduct has been posted on the
Company’s website.
15
Directors’ Report
The Directors of Gale Pacific Limited present their annual financial report of the
Company for the financial year ended 30 June 2006.
The Directors in office at any time during or since the end
of the year to the date of this report are:
GARY STEPHEN GALE
Non-Executive Director since 2006
HARRY BOON, LLB (HONS), B. Com
Chairman and Non-Executive Director appointed on 25
August 2005
Mr. Gale studied textile engineering in Germany, and is the
son of the founder of the Gale business. Mr. Gale was
responsible for the restructuring of the Gale Group both in
Australia and the USA in 1996/97 and was appointed as
Mr. Boon joined the Company in August 2005 and brings
Managing Director of the Company in 1998. He was
to the role his experience as a senior executive in one of
responsible for the Company entering the advanced
Australia’s leading listed companies, Ansell Limited. Mr.
polymer fabric industry as a manufacturer in 1977, taking
Boon’s executive career culminated with the position of
the former Gale family business public in late 2000,
Chief Executive Officer of Ansell Limited from April 2002 to
expansion into world markets, and the establishment of a
June 2004, having previously been President, Chief
world-class manufacturing facility in China. Mr. Gale
Executive Officer and Managing Director of Ansell
resigned as Managing Director in April 2006 but has
Healthcare since February 1989.
remained on the Board as a Non-Executive Director.
During the last three years, Mr. Boon has also served as a
No other directorships of listed companies were held by
Director of the following other listed companies:
Mr. Gale at any time during the three years prior to 30
• Tattersall’s Limited
• Funtastic Limited
• Hastie Group Limited.
Mr. Boon is Chairman of the Company’s Remuneration
Committee and is also a member of the Audit & Risk
and Nomination Committees.
PETER RONALD MCDONALD,
Bachelor of Business (Marketing)
Managing Director and Chief Executive Officer since 2006
and Executive Director since 1998
Mr. McDonald was appointed Managing Director and Chief
Executive Officer of Gale in April 2006. Mr. McDonald
joined Gale in 1988 and was appointed as an Executive
Director of the Company in 1998. Mr. McDonald has held
the positions of Product Manager, National Marketing
Manager, National Sales and Marketing Manager and most
recently the Company’s Chief Operating Officer and
Managing Director of the Company’s U.S. Operations.
No other directorships of listed companies were held by
Mr. McDonald at any time during the three years prior to
30 June 2006.
June 2006.
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,
which has recently changed its name to Advent Private
Capital Pty Ltd. 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 2006.
Mr. Reilly is Chairman of the Company’s Audit & Risk
Committee and is also a member of the Remuneration
and Nomination Committees.
16
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 45 years experience in retail, marketing,
manufacturing and distribution. He is a Board member of
The Alfred Foundation, a Director of Magnet Mart Pty Ltd,
Bowen & Pomeroy Pty Ltd, Chairman of Carpet Court
Australia Limited, 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 2006.
Mr. Richards is Chairman of the Company’s Nomination
Committee and is also a member of the Audit & Risk and
Remuneration Committees.
THEO EVERSTEYN, FCA, Graduate Diploma Industrial
Accounting and Bus. Admin.
Former Chairman and Non-Executive Director, retired on
25 August 2005
Mr. Eversteyn retired as the Company’s Chairman on
25 August 2005. Mr. Eversteyn was a partner of the
chartered accounting firm Bentleys MRI since 1973 and was
appointed Chairman of the Melbourne partnership on
1 July 2004 and retired on 30 June 2006. 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.
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.
17
Directors’ Report (cont’d)
Nature of Operations and Principal Activities
Likely Developments
The consolidated entity’s principal activities in the course
Disclosure of information regarding likely developments in
of the financial year were the manufacture and exporting of
the operations of the consolidated entity in future financial
advanced polymer fabrics and related products.
years has been made in part in the Chairman’s Report and
Review & Results of Operations
The consolidated loss of the economic entity for the
financial year attributable to the members of Gale Pacific
Limited was $11.9 million. Refer to the Chairman’s Report
for further details on the Company’s result.
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
In July 2006, the Company completed a $20 million capital
raising via a combination of a share purchase plan and a
private placement resulting in the Company issuing
23,529,412 ordinary fully paid shares at a price of 85 cents.
In addition, the Company negotiated with holders of
convertible notes issued by the Company in December
2004 and September 2005 to convert the notes into
ordinary fully paid shares at a conversion price of 85 cents.
18,235,289 shares were issued in conversion of 6,864,864
the Managing Director and Chief Executive Officer’s
Report of this Annual Report. Any further such disclosure
and the expected results of those operations is likely to
result in unreasonable prejudice to the consolidated entity
and has accordingly 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 2005, a final
dividend of 1.5 cents per share franked to 100% at the
30% corporate income tax rate was paid to the holders of
fully paid ordinary shares on 17 October 2005.
In respect of the financial year ended 30 June 2006, the
Company paid a fully franked interim dividend of 1.5 cents
on 18 April 2006.
notes. The Company’s shareholders approved the above
The Directors have determined not to pay a final dividend
share issues at the Company’s Extraordinary General
this financial year.
Meeting held on 30 June 2006.
Share Options
On 5 September 2006, the Company announced that it
had sold its German garden products distribution business,
Jung Garten, and that it had received cash for the sale of
approximately $12.5 million and a further $1.5 million
receivable in October 2006.
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 870,000. The issue price of each option is zero. Each
Other than the matters discussed above, there has not
option entitles the option holder to one (1) ordinary share in
arisen in the interval between the end of the financial year
Gale Pacific Limited in the event that the option is exercised.
and the date of this report any item, transaction or event of
a material and unusual nature likely, in the opinion of the
Directors of the Company, to affect significantly, the
operations of the consolidated entity, the results of those
operations, or the state of affairs of the consolidated entity
in future financial years.
Of the 870,000 options on issue, 50,000 options were
issued on 30 December 2004, 240,000 options were issued
under the Company’s executive share plan to the Managing
Director and Chief Executive Officer, Mr. Peter McDonald,
as approved by the Company’s shareholders at the
Company’s Annual General Meeting held on 15 November
18
2004 and 580,000 options were issued on 16 November
Indemnification of Officers and Auditors
2005. The exercise price of the 50,000 options is $1.50, the
exercise price of the 240,000 issued options is $3.00, and
the exercise price of the 580,000 issued options is $1.52.
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 240,000 options is determined in accordance
with the achievement of certain levels of adjusted weighted
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.
average earnings per share of the Company’s share price over
The Company has not otherwise, during or since the
time and the vesting of the 580,000 options is determined in
financial year, indemnified or agreed to indemnify an officer
accordance with the achievement of certain levels of adjusted
or auditor of the Company or of any related body corporate
weighted average earnings per share of the Company’s share
against a liability incurred as an officer or auditor.
price over time. The 50,000 options are not exercisable after
1 December 2006, the 240,000 options and the 580,000
options are not exercisable after 1 December 2008. Options
carry no rights to dividends and no voting rights.
Directors’ Meetings
The following table sets out the number of Directors’
meetings (including meetings of committees of Directors)
Directors’
meetings
Audit & Risk
Remuneration
Committee meetings Committee meetings
Nomination
Committee
Directors
H Boon
P R McDonald
G S Gale
D E J Reilly
G H Richards
No of
meetings
eligible
to attend
20
21
21
21
21
Attended
19
19
20
20
21
No of
meetings
eligible
to attend
No of
meetings
eligible
to attend
Attended
Attended
No of
meetings
eligible
to attend
Attended
4
-
-
5
5
4
-
-
5
5
1
-
-
1
1
1
-
-
1
1
1
-
-
1
1
1
-
-
1
1
held during the financial year and the number of meetings
attended by each Director while they were a Director or
committee member.
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
H Boon
G S Gale
P R McDonald
D E J Reilly
G H Richards
Fully paid ordinary shares
Share options
73,000
15,399,709
334,714
423,141
78,851
-
-
240,000
-
-
During the financial year no options vested. As set out in
the accounting standard AASB 2 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
17(b) to the Financial Statements.
19
Directors’ Report (cont’d)
Remuneration Report
This report contains the remuneration arrangements in
divided between the directors as agreed. The last
determination was at the Annual General Meeting held on
place for Directors and executives of the Company.
14 December 2000 when shareholders’ approved the
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:
• Provide competitive rewards to attract high
quality executives;
Company’s constitution which provides for an aggregate
remuneration of $300,000 per annum. The amount of the
aggregate 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
• Provide an equity incentive for senior executives
governance for Directors to have a stake in the Company.
that will provide an incentive to executives to
align their interests with those of the Company
and its shareholders; and
The remuneration of Non-Executive Directors for the
period ended 30 June 2006 is detailed below.
• Ensure that rewards are referenced to relevant
Senior Manager & Executive Director Remuneration
employment market conditions.
Objective
Remuneration packages contain the following key
elements:
• Primary benefits – salary/fees;
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
• Benefits, including the provision of motor
remuneration policy is:
vehicles and superannuation; and
• Incentive schemes, including share options under
the executive share option plan as disclosed in
Note 17 and Note 23 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
• 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.
directors of relevant experience and skill, whilst incurring
Options issued to executives as a form of compensation
costs which are acceptable to shareholders.
are dependant upon the performance conditions outlined
Structure
in note 17(b) of the financial statements.
The Company’s Constitution and the Australian Stock
Cash bonuses granted to executives are based on the
Exchange Listing Rules specify that the aggregate
remuneration of Non-Executive Directors shall be
respective performance of their regional business unit.
Bonuses are paid out at various times during the year and
determined from time to time by a general meeting. An
are determined at the discretion of the Remuneration
amount not exceeding the amount determined is then
Committee.
20
The following table discloses the remuneration of the Directors of the Company:
Short-term benefits
Post
employment
Share based
payments
Termination
benefits
Total
Performance
related
Superannuation
Options
Total
Options
$
$
$
$
%
%
2006
Directors
Salary &
fees
$
Non-
monetary
$
Executive Directors
G S Gale (i)
P R McDonald
371,635
359,942
61,964
62,401
Non-Executive Directors
H Boon
T J Eversteyn
D E J Reilly
G H Richards
95,833
14,166
75,000
65,000
-
-
-
-
12,139
5,171
41,667
-
-
-
51,658
72,580
-
-
-
-
102,849
-
-
-
-
-
600,245
500,094
8.6
14.5
8.6
14.5
137,500
14,166
75,000
65,000
-
-
-
-
-
-
-
-
-
-
TOTAL
981,576
124,365
58,977
124,238
102,849
1,392,005
(i)
Mr. Gale resigned from his role as an Executive Director on 26 April 2006, and therefore the details of his remuneration for the reporting period are to that
date. Mr. Gale has not received any remuneration in his role as Non-Executive Director.
Short-term benefits
Post
employment
Share based
payments
Total
Performance
related
2005
Directors
Salary &
fees
$
Non-
monetary
$
$
$
$
Superannuation Options
Total
Options
Executive Directors
G S Gale
P R McDonald
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
66,500
39,037
11,549
11,549
33,922
25,442
-
-
-
-
-
-
-
-
-
508,922
345,442
144,992
119,124
68,000
105,537
23,098
59,364
1,186,480
%
6.7
7.4
-
-
-
-
%
6.7
7.4
-
-
-
-
The following table discloses the remuneration of the 5 highest remunerated executives of the Company and the consolidated entity.
Short-term benefits
Post
employment
Share based
payments
Total
Performance
related
2006
Salary &
fees
$
E Jung (ii)
255,940
Z Fakroddin (iii) 148,610
S Carroll
208,900
C McCallum (iv)
198,825
150,013
Bonus
$
38,538
67,549
-
36,357
24,318
Non-
monetary
$
15,784
60,031
27,070
15,558
18,919
Superannuation Options
Total
Options
$
4,171
-
20,527
-
-
$
$
-
3,950
3,950
4,938
48,600
314,433
280,140
260,447
255,678
241,850
%
12.3
25.5
1.5
16.2
30.2
-
%
-
1.4
1.5
1.9
20.1
-
962,288
166,762
137,362
24,698
61,438
1,352,548
Short-term benefits
Post
employment
Share based
payments
Total
Performance
related
Superannuation Options
Total
Options
E Xu (v)
TOTAL
2005
D Whyte (vi)
E Jung (ii)
E Xu (v)
S Carroll
TOTAL
Salary &
fees
$
261,815
222,603
128,958
175,100
Bonus
$
31,915
51,370
27,813
31,919
-
Non-
monetary
$
34,000
31,906
20,850
61,621
24,677
Z Fakroddin (ii)
147,200
$
-
6,545
50,850
15,759
73,154
$
$
-
-
-
-
327,730
312,424
246,713
255,779
215,536
%
9.7
16.4
11.3
25.5
-
-
%
-
-
-
13.0
-
-
-
33,281
935,676
143,017
173,054
33,281
1,358,182
(ii)
(iii)
(iv)
(v)
(vi)
Mr. Jung was based in Germany and remunerated in Euro converted to Australian dollars in the table above.
Mr. Fakroddin was based in the Middle East and remunerated in US dollars converted to Australian dollars in the table above.
Mr. McCallum is based in New Zealand and remunerated in New Zealand dollars converted to Australian dollars in the table above.
Ms. Xu is based in China and remunerated in RMB and US dollars converted to Australian dollars in the table above.
Mr. Whyte was based in the USA and remunerated in US dollars converted to Australian dollars in the table above.
21
Directors’ Report (cont’d)
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 nature 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:
Taxation services
General review & assistance
Due diligence
Consolidated
Company
2005/06
$’000
99
-
-
2004/05
$’000
53
45
17
2005/06
$’000
74
-
-
2004/05
$’000
31
16
17
Total
99
115
74
64
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
Harry Boon
Chairman
29 September 2006
Peter McDonald
Managing Director and Chief Executive Officer
22
Auditor’s Independence Declaration
To the Directors of Gale Pacific Limited
In relation the Independent audit for the year ended
30 June 2006, to the best of my knowledge and belief
there have been:
(i) No contraventions of the auditor independence
requirements of the Corporations Act 2001;
(ii) No contraventions of any applicable code of
professional conduct.
Audit Opinion
In our opinion, the financial report of Gale Pacific Limited
and its 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 2006
and of its 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
PITCHER PARTNERS
M W PRINGLE
Partner
Melbourne
29 September 2006
M W PRINGLE
Partner
Melbourne
29 September 2006
Independent Audit Report
Directors’ Declaration
Scope
The Directors of the Company declare that:
We have audited the financial report of Gale Pacific
The financial statements and notes, as set out on pages
Limited and its controlled entities for the financial year
24 to 56 are in accordance with the Corporations Act 2001
ended 30 June 2006 comprising the Directors' Declaration,
including:
Income Statement, Balance Sheet, Statement of Changes
in Equity, 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 its 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.
• compliance with Accounting Standards in
Australia and the Corporations Regulations 2001;
• providing a true and fair view of the financial
position as at 30 June 2006 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; and
• that the Directors have been given the
declaration required under section 295A of the
Corporations Act 2001.
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.
Harry Boon
Chairman
Peter McDonald
Managing Director and
29 September 2006
Chief Executive Officer
23
Income Statement
for the year ended 30 June 2006
Revenue
Expenses
Changes in inventories of finished goods and
work in progress
Raw materials and consumables used
Employee benefits expense
Depreciation and amortisation expenses
Impairment of goodwill and assets
Operating overheads
Other expenses
Finance costs expense
Profit/(loss) before income tax expense
Income tax (expense)/benefit
Profit/(loss) after income tax
Loss attributable to minority interests
Net profit/(loss) attributable to the members
of the parent entity
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Note
3
4
5
20
29
29
C O N S O L I D A T E D
C O M P A N Y
2005/06
$’000
167,169
2004/05
$’000
149,010
2005/06
$’000
62,212
2004/05
$’000
69,829
(2,978)
(16,484)
(7,985)
2,356
(23,150)
(9,684)
(5,287)
(6,478)
(14,439)
(3,043)
(4,349)
(12,203)
3,196
(9,007)
-
(9,007)
(35,785)
(12,946)
(3,776)
-
(12,738)
(1,693)
(3,350)
1,897
(631)
1,266
-
1,266
(85,807)
(27,823)
(9,472)
(4,462)
(41,821)
(4,630)
(6,157)
(15,981)
4,037
(11,944)
2
(11,942)
(22.57)
(22.03)
(58,114)
(21,824)
(5,572)
-
(33,567)
(2,280)
(4,926)
6,243
(960)
5,283
2
5,285
10.32
10.31
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
24
Balance Sheet
as at 30 June 2006
CURRENT ASSETS
Cash and cash equivalents
Receivables
Inventories
Current tax assets
Other current assets
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Receivables
Other financial assets
Plant and equipment
Intangible assets
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Payables
Income received in advance
Short term borrowings
Current tax liabilities
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Long term borrowings
Deferred tax liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained profits
PARENT ENTITY INTEREST
Minority interests
TOTAL EQUITY
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
6
7
8
5
9
7
10
11
12
5
13
14
5
15
14
5
15
17
18
19
20
10,552
36,702
47,599
1,047
1,497
97,397
-
-
70,220
12,486
2,054
84,760
182,157
22,654
-
97,672
344
872
121,542
12,070
1,185
427
13,682
135,224
46,933
47,124
(2,096)
1,916
46,944
(11)
46,933
3,965
32,753
50,577
1,239
1,449
89,983
-
-
57,765
16,210
294
74,269
164,252
19,790
-
62,247
165
1,226
83,428
20,650
5,093
547
26,290
109,718
54,534
42,071
(2,989)
15,461
54,543
(9)
54,534
6,055
6,414
11,257
591
365
24,682
55,072
25,909
19,407
5,913
-
106,301
130,983
3,768
1,026
73,030
-
768
78,592
7,237
1,185
73
8,495
87,087
43,896
47,124
178
(3,406)
43,896
-
43,896
2
7,118
19,242
1,034
377
27,773
39,731
24,816
23,802
6,490
-
94,839
122,612
5,155
-
41,116
-
1,152
47,423
20,650
5,093
73
25,816
73,239
49,373
42,071
98
7,204
49,373
-
49,373
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
25
Statement of Changes in Equity
for the Year Ended 30 June 2006
Note
TOTAL EQUITY AT THE BEGINNING OF THE
PERIOD
Exchange differences on translation of foreign
operations
Employee share options
18(a)
18(b)
Net income recognised directly in equity
Profit/loss for the year
Total recognised income and expense for the
period
Attributable to:
Member of the parent
Minority interest
Transactions with equity holders in their
capacity as equity holders:
Contributions
Dividends provided for or paid
20
17
24
C O N S O L I D A T E D
C O M P A N Y
2005/06
$’000
54,534
813
80
893
(11,944)
(11,051)
43,485
(2)
43,483
5,053
(1,603)
3,450
2004/05
$’000
52,753
2005/06
$’000
49,373
2004/05
$’000
48,795
(2,814)
93
(2,721)
5,283
2,562
55,317
(2)
55,315
3,044
(3,825)
(781)
-
80
80
(9,007)
(8,927)
40,446
-
40,446
5,053
(1,603)
3,450
-
93
93
1,266
1,359
50,154
-
50,154
3,044
(3,825)
(781)
TOTAL EQUITY AT THE END OF THE PERIOD
46,933
54,534
43,896
49,373
T h e a c c o m p a n y i n g n o t e s f o r m p a r t o f t h e s e f i n a n c i a l s t a t e m e n t s
26
Statement of Cash Flows
for the year ended 30 June 2006
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
CASH FLOW FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
181,639
(176,266)
155,693
(153,127)
Interest received
Borrowing costs paid
Income tax paid
Net cash provided by operating activities
21(b)
CASH FLOW USED IN INVESTING ACTIVITIES
Proceeds from sale of plant and equipment
Payment for plant and equipment
Payment for acquisition of business
21(c)
Investment in controlled entity
Payment for intangible assets
Amounts advanced to related parties
Net cash used in investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from borrowings
Proceeds from issue of convertible notes
Proceeds from issue of equity securities
Repayment of principal on finance leases
Proceeds from/(repayment of principal on) hire
purchases
Dividends paid
Net cash provided by financing activities
Net increase in cash held
Cash at beginning of year
Effects of exchange rate changes on items
denominated in foreign currencies
Cash at end of year
114
(6,157)
(1,260)
(1,930)
134
(19,443)
-
-
(1,921)
-
1,231
(4,926)
(1,588)
(2,717)
167
(25,051)
(11,646)
-
(2,747)
-
(21,230)
(39,277)
8,849
9,000
4,681
(219)
(1,646)
(1,232)
19,433
(3,727)
(2,348)
(339)
34,560
6,500
277
(188)
(1,839)
(2,866)
36,444
(5,550)
5,430
(2,228)
67,492
(56,648)
1,560
(4,349)
(721)
7,334
4,483
(3,208)
-
(6,843)
(1,941)
(15,341)
(22,850)
2,891
9,000
4,681
(220)
(1,819)
(1,232)
13,301
(2,215)
(1,021)
-
70,704
(60,532)
1,231
(3,350)
(641)
7,412
157
(2,034)
(11,646)
-
(2,761)
(17,383)
(33,667)
22,125
6,500
277
(186)
(1,839)
(2,866)
24,011
(2,244)
1,223
-
21(a)
(6,414)
(2,348)
(3,236)
(1,021)
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
27
Notes to the Financial Statements
NOTE 1: BASIS OF PREPARATION
This financial report is a general purpose financial report that
has been prepared in accordance with Australian Accounting
Standards, Urgent Issues Group Interpretations Views
and other authoritative pronouncements of the Australian
Accounting Standards Board and the Corporations Act 2001.
The financial report covers Gale Pacific Limited as an individual
parent entity and Gale Pacific Limited and controlled entities
as a consolidated entity. Gale Pacific Limited is a company
limited by shares, incorporated and domiciled in Australia.
The following is a summary of material accounting policies
adopted by the consolidated entity in the preparation and
presentation of the financial report. The accounting policies
have been consistently applied, unless otherwise stated.
(a) Basis of Preparation of the Financial Report
The financial report of Gale Pacific Limited and controlled
entities, and Gale Pacific Limited as an individual parent entity
comply with Australian equivalents to International Financial
Reporting Standards (AIFRS).
This is the first annual financial report of Gale Pacific Limited
prepared in accordance with Australian Equivalents of
International Financial Reporting Standards (AIFRS). The
financial reports of Gale Pacific Limited were prepared in
accordance with the previous Australian Generally Accepted
Accounting Principles (AGAAP) until 30 June 2005. There are
certain differences between accounting policies under AIFRS
and AGAAP and where applicable the comparative figures
have been restated to reflect these adjustments. A summary
of the significant accounting policies under AIFRS is provided
below. Reconciliations of equity and operating profit/loss
between AGAAP and AIFRS are provided in Notes 32 and 33.
The financial report has been prepared under the historical
cost convention, as modified by revaluations to fair value
for certain classes of assets as described in the accounting
policies.
(b) Principles of Consolidation
The consolidated financial statements are those of the
consolidated entity, comprising the financial statements of
the parent entity and of all entities, which Gale Pacific Limited
controlled from time to time during the year and at balance
date. Details of the controlled entities are contained in
Note 27.
The financial statements of subsidiaries are prepared for the
same reporting period as the parent entity, using consistent
accounting policies. Adjustments are made to bring into line
any dissimilar accounting policies, which may exist.
All inter-company balances and transactions, including
any unrealised profits or losses have been eliminated on
consolidation.
Minority interests in the equity and results of the entities
that are controlled are shown separately in the consolidated
financial report.
(c) Revenue Recognition
Revenue from the sale of goods is recognised upon the
delivery of goods to customers.
Where a Government grant (including SIP income) is received
or receivable relating to research and development costs that
have been expensed, the grant is recognised as revenue.
Where a grant is received or receivable relating to research
and development costs that have been deferred, the grant is
deducted from the carrying amount of the deferred costs.
Other revenue is recognised when the right to receive the
revenue has been established.
All revenue is stated net of the amount of goods and services
tax (GST).
(d) 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.
(e) 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.
(f) Plant and Equipment
Each class of plant and equipment is carried at cost less,
where applicable, any accumulated depreciation.
Plant and Equipment
Plant and equipment is measured on the cost basis. The
carrying value of plant and equipment is reviewed annually
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 discounted net cash flows that will
be received from the asset’s employment and subsequent
disposal. Refer to Note 1(i). The cost of fixed assets
constructed within the economic entity includes the cost of
materials, direct labour and an appropriate proportion of fixed
and variable overheads.
Depreciation
The depreciable amounts of all fixed assets including
capitalised leased assets are depreciated on a straight
line basis over their estimated useful lives to the entity
commencing from the time the asset is held ready for
use. Leasehold improvements are depreciated over the
shorter of either the unexpired period of the lease or the
estimated useful lives of the improvements. Depreciation and
amortisation rates are reviewed annually for appropriateness.
When changes are made, adjustments are reflected in current
and future periods only.
The depreciation rates used for each class of assets are:
Class of fixed asset
Leasehold
improvements
Plant and equipment
Leased plant and
equipment
Motor vehicles
Office equipment
Depreciation
rates
Determined by
lease term
6.7% - 20.0%
6.7% - 20.0%
Depreciation
basis
Straight line
Straight line
Straight line
20.0%
14.3% - 50.0%
Straight line
Straight line
28
NOTE 1: BASIS OF PREPARATION (cont’d)
(g) Leases
Finance Leases
Leases of fixed assets, where substantially all the risks and
benefits incidental to the ownership of the asset, but not
the legal ownership, are transferred to the entities within the
economic entity are classified as finance leases. Finance leases
are capitalised, recording at the inception of the lease an
asset and a liability equal to the present value of the minimum
lease payments, including any guaranteed residual values.
Leased assets are amortised 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.
Operating Leases
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 and are brought into account as a reduction of rental
expense over the lease term.
(h) Intangibles
Goodwill
Goodwill on consolidation represents the excess of the cost
of an acquisition over the fair value of the Group’s share of
net identifiable assets of the acquired entities at the date of
acquisition.
Goodwill is not amortised but is tested annually for impairment
or more frequently if events or changes in circumstances
indicate that it might be impaired. Goodwill is carried at cost
less accumulated impairment losses. (Refer also to notes 32
and 33 regarding first-time adoption of AIFRS).
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.
Research and Development
Research and development costs are charged to profit before
income tax as incurred or deferred where it is expected
beyond any reasonable doubt that sufficient future benefits
will be derived so as to recover those deferred costs.
Deferred research and development expenditure is amortised
on a straight-line basis over the period during which the
related benefits are expected to be realised, once commercial
production is commenced but not exceeding three years.
(i) Impairment of Assets
Assets with an indefinite useful life are not amortised but are
tested annually for impairment in accordance with AASB 136.
Assets subject to annual depreciation or amortisation are
reviewed for impairment whenever events or circumstances
arise that indicate that the carrying amount of the asset may
be impaired.
An impairment loss is recognised where the carrying amount
of the asset exceeds its recoverable amount. The recoverable
amount of an asset is defined as the higher of its fair value less
costs to sell and value in use.
(j) Taxes
Current income tax expense or revenue is the tax payable on
the current period’s taxable income based on the applicable
income tax rate adjusted by changes in deferred tax assets
and liabilities.
A balance sheet approach is adopted under which deferred
tax assets and liabilities are recognised for temporary
differences between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. No deferred
tax asset or liability is recognised in relation to temporary
differences arising from the initial recognition of an asset or
a liability if they arose in a transaction, other than a business
combination, that at the time of the transaction did not affect
either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for temporary differences
and unused tax losses only when it is probable that future
taxable amounts will be available to utilise those temporary
differences and losses.
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised directly in
equity.
(k) Employee Benefits
Provision is made for the economic entity’s liability for
employee entitlements arising from services rendered by
employees to balance date. Employee entitlements expected
to be settled within one year together with entitlements
arising from wages and salaries, annual leave and sick leave
which will be settled after one year, have been measured at
their nominal amount. Other employee entitlements payable
later than one year have been measured at the present value
of the estimated future cash outflows to be made for those
entitlements.
Contributions are made by the economic entity to an
employee superannuation fund and are charged as expenses
when incurred.
Share Based Payments
The total amount to be expensed over the vesting period
is determined by reference to the fair value of the options
at grant date. Under the transitional arrangements for first-
time adoption of AIFRS, no expense has been recognised
for options granted before 7 November 2002 and/or vested
before 1 January 2005. For options granted after 7 November
2002 and vesting after 1 January 2005 the fair value of options
at grant date is determined using a Black-Scholes option
pricing model, and is recognised as an employee expense
over the period during which the employees become entitled
to the option. The market value of shares issued to employees
for no cash consideration under the employee share scheme
is recognised as an expense when the employees become
entitled to the shares.
(l) Classification
The group classifies its financial instruments in the following
categories: financial assets at fair value through profit or loss,
loans and receivables, held-to-maturity investments, and
available-for-sale financial assets. The classification depends
on the purpose for which the investments were acquired.
Management determines the classification of its investments
at initial recognition and re-evaluates the designation at each
reporting date.
Loans and Receivables
Loans and receivables are measured at fair value at inception
and subsequently at amortised cost using the effective interest
rate method.
Financial Liabilities
Financial liabilities include trade payables, other creditors and
loans from third parties including inter-company balances and
loans from or other amounts due to director-related entities.
Non-derivative financial liabilities are recognised at amortised
cost, comprising original debt less principal payments and
amortisation.
29
NOTE 2: CRITICAL ACCOUNTING ESTIMATES AND
JUDGEMENTS
Estimates and judgements are based on past performance
and management’s expectation for the future.
Critical Accounting Estimates and Assumptions
The group makes certain estimates and assumptions
concerning the future, which, by definition will seldom
represent actual results. The estimates and assumptions that
have a significant inherent risk in respect of estimates based
on future events which could have a material impact on the
assets and liabilities in the next financial year are discussed
below:
(a) Estimated Impairment of Goodwill
Goodwill is allocated to cash generating units (CGU’s)
according to applicable business operations. The
recoverable amount of a CGU is based on value-in-use
calculations. These calculations are based on projected
cash flows approved by management covering a period
not exceeding five (5) years. Management’s determination
of cash flow projections and gross margins are based on
past performance and its expectation for the future and is
based on reasonable growth rates. The present value of
future cash flows has been calculated using a discount rate
of 12.5% to determine value-in-use. Any business risk has
been limited to that which would be commonly
anticipated in the current environment.
(b) Income Taxes
Income tax benefits are based on the assumption that no
adverse change will occur in the income tax legislation
and the anticipation that the Company will derive
sufficient future assessable income to enable the benefit to
be realised and comply with the conditions of deductibility
imposed by the law.
NOTE 1: BASIS OF PREPARATION (cont’d)
(m) Foreign Currencies
Functional and Presentation Currency
The financial statements of each group entity are measured
using its functional currency, which is the currency of the
primary economic environment in which that entity operates.
The consolidated financial statements are presented in
Australian dollars, as this is the parent entity’s functional and
presentation currency.
Transactions and Balances
Transactions in foreign currencies of entities within the
consolidated entity are translated into functional currency at
the rate of exchange ruling at the date of the transaction.
Foreign currency monetary items that are outstanding at
the reporting date (other than monetary items arising under
foreign currency contracts where the exchange rate for that
monetary item is fixed in the contract) are translated using the
spot rate at the end of the financial year.
Resulting exchange differences arising on settlement or re-
statement are recognised as revenues and expenses for the
financial year.
A monetary item arising under a foreign currency contract
outstanding at the reporting date where the exchange rate for
the monetary item is fixed in the contract is translated at the
exchange rate fixed in the contract.
Except for certain specific hedges, all resulting exchange
differences arising on settlement or re-statement are
recognised as revenues and expenses for the financial year.
Group Companies
The financial statements of foreign operations whose
functional currency is different from the group’s presentation
currency are translated as follows:
• Assets and liabilities are translated at year-end exchange
rates prevailing at that reporting date;
•
Income and expenses are translated at average exchange
rates for the period; and
• All resulting exchange differences are recognised as a
separate component of equity.
Exchange differences arising on translation of foreign
operations are transferred directly to the group’s foreign
currency translation reserve as a separate component of equity
in the balance sheet.
(n) Comparatives
In accordance with the first-time adoption of AIFRS,
comparative information has been reclassified where
appropriate through retrospective application of AIFRS to the
previous years results so as to achieve consistency with current
year disclosures.
(o) Rounding Amounts
The Company is of a kind referred to in ASIC Class Order CO
98/0100 and in accordance with that Class Order, amounts in
the financial statements have been rounded off to the nearest
thousand dollars, or in certain cases, to the nearest dollar.
30
NOTE 3: REVENUE
Operating activities
- Sale of goods
- SIP income
-
-
Interest income – other parties
Interest income – related parties
- Other revenue
Total revenue
NOTE 4: PROFIT
Profit before income tax expense has been
determined after charging/(crediting):
Cost of sales
Finance 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
- Patents and trademarks
Research and development expenditure
- Capitalised and amortised
- Expensed as incurred
Impairment of non current assets
- Plant and equipment
- Goodwill
Impairment of investment in subsidiary
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
Remuneration of the auditors of parent
entity for
- Auditing the financial report
- Taxation services
- General review and assistance
- Due diligence
Remuneration of other auditors of controlled
entities – audit services
- Auditing the financial report
- Taxation services
- General review and assistance
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
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
165,885
146,850
59,784
748
114
-
422
718
1,231
-
211
167,169
149,010
748
114
1,446
120
62,212
67,880
718
1,231
-
-
69,829
108,439
87,771
45,146
49,517
6,157
4,926
4,349
3,350
44
5,690
295
720
162
40
76
2,445
-
1,464
2,998
-
3,855
36
(179)
117
74
-
-
193
25
-
409
(984)
5
3,713
31
3,691
220
613
289
5
125
598
308
-
-
-
(84)
-
(123)
102
31
16
17
115
22
29
332
(398)
32
3,294
21
2,158
148
240
162
40
73
2,445
-
728
-
5,750
632
2
25
117
74
-
-
-
-
-
191
(984)
5
2,311
19
2,401
209
150
289
5
105
598
308
-
-
-
47
-
(2)
102
31
16
17
-
-
-
166
(398)
32
2,462
31
NOTE 5: TAX
(a) The Components of Tax Expense:
Current tax
Deferred tax
Total income tax expense/(benefit)
(b) The Prima Facie Income Tax Payable on Profit is
Reconciled to the Income Tax Expense as Follows:
Prima facie tax payable on profit before income
tax at 30%
Add tax effect of:
Tax rate differentials in foreign countries
Impairment of goodwill
Tax losses not recognised
Attributed CFC income
Other non-allowable/non-assessable items
Movements in SIP income
Less tax effect of:
(Under)/over provision for income tax in prior
year
Income tax expense/(benefit) attributable to
profit from ordinary activities
(c) Current Tax
Current tax asset
Current tax liability
(d) Deferred Tax Relates to the Following:
Deferred tax liabilities
Accelerated depreciation for tax purposes
Foreign exchange
Income not derived
Leases
Research and development
Total deferred tax liabilities
Deferred tax assets
Provisions
Employee benefits
Other
Capitalised costs
Losses available for offset against future taxable
income
Total deferred tax assets
Net deferred tax
Represented by:
Deferred tax asset
Deferred tax liability
C O N S O L I D A T E D
C O M P A N Y
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
1,631
(5,668)
(4,037)
314
646
960
712
(3,908)
(3,196)
149
482
631
(4,794)
1,872
(3,661)
569
(271)
899
1,151
303
(12)
(70)
(2,794)
(1,243)
(4,037)
(523)
-
-
262
(443)
(200)
968
(8)
960
1,047
1,239
344
165
(2,788)
-
(524)
(55)
(698)
(3,550)
(2,032)
(754)
(50)
(974)
-
-
1,725
303
(250)
(70)
(1,953)
(1,243)
(3,196)
591
-
(1,526)
-
(524)
(55)
(698)
-
-
-
262
8
(200)
639
(8)
631
1,034
-
(2,014)
(2,032)
(754)
(50)
(974)
(4,065)
(7,360)
(2,803)
(5,824)
324
790
314
519
2,987
4,934
160
993
50
200
1,158
2,561
240
263
22
263
830
1,618
51
368
112
200
-
731
869
(4,799)
(1,185)
(5,093)
2,054
(1,185)
869
294
(5,093)
(4,799)
-
(1,185)
(1,185)
-
(5,093)
(5,093)
32
NOTE 5: TAX (cont’d)
The entity has partially offset deferred tax assets and deferred tax liabilities where;
(i)
the entity has a legally enforceable right to set off current tax assets and current tax liabilities; and,
(ii) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either:
(a) the same taxable entity; or
(b) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets
and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax
liabilities or assets are expected to be settled or recovered
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
(e) Deferred Income Tax Assets Related to
Items Charged or Credited Directly to Equity
Equity raising costs
(f) Deferred Tax Assets not Brought to
Account, as it is not Probable that Future
Taxable Income will be Available to Utilise
these Losses
Tax losses – income
Tax losses – capital
(g) Tax Losses
The Group has recognised, as a deferred tax asset,
income tax losses of $2,987,000 (2005: $1,158,000) in
the tax jurisdictions where it is probable that future
taxable income will be available to utilise these losses
NOTE 6: CASH AND CASH EQUIVALENTS
Cash on hand
Cash at bank
NOTE 7: RECEIVABLES
CURRENT
Trade debtors
Less provision for doubtful debts
Other debtors
NON-CURRENT
Amounts receivable from
Controlled entities
NOTE 8: INVENTORIES
CURRENT
Raw materials at cost
Work in progress at cost
Finished goods at cost
Less provision for obsolescence
NOTE 9: OTHER ASSETS
CURRENT
Prepayments
128
132
128
132
1,151
1,725
2,876
-
-
-
-
1,725
1,725
2
10,550
10,552
32,243
(135)
32,108
4,594
36,702
2
3,963
3,965
29,110
(314)
28,796
3,957
32,753
2
6,053
6,055
4,633
(28)
4,605
1,809
6,414
-
-
-
2
-
2
4,442
(3)
4,439
2,679
7,118
-
-
55,072
39,731
4,891
4,608
42,334
(4,234)
47,599
4,121
4,794
42,041
(379)
50,577
452
2,249
9,327
(771)
11,257
841
3,347
15,193
(139)
19,242
1,497
1,449
365
377
NOTE 10: OTHER FINANCIAL ASSETS
NON-CURRENT
Shares in controlled entities at cost
-
-
25,909
24,816
33
NOTE 11: PLANT AND EQUIPMENT
Plant and equipment
At cost
Less accumulated depreciation
Plant and equipment under lease
At cost
Less accumulated amortisation
Leasehold improvements
At cost
Less accumulated depreciation
Motor vehicles
At cost
Less accumulated depreciation
Motor vehicles under lease
At cost
Less accumulated amortisation
Office equipment
At cost
Less accumulated depreciation
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
85,807
(19,773)
66,034
67,950
(14,088)
53,862
29,034
(11,687)
17,347
33,290
(11,819)
21,471
1,376
(661)
715
409
(177)
232
2,174
(1,338)
836
240
(43)
197
5,430
(3,224)
2,206
1,376
(499)
877
391
(132)
259
1,687
(687)
1,000
32
(3)
29
1,376
(661)
715
318
(122)
196
899
(535)
364
240
(43)
197
1,376
(499)
877
318
(101)
217
912
(387)
525
32
(3)
29
3,767
(2,029)
1,738
2,082
(1,494)
588
1,937
(1,254)
683
Total plant and equipment
70,220
57,765
19,407
23,802
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
Leasehold Improvements
Balance at the beginning of the year
Additions
Disposals
Depreciation expense
Impairment loss
Net foreign currency movements arising from
foreign operations
Carrying amount at the end of the year
Plant & Equipment
Balance at the beginning of the year
Additions
Disposals
Depreciation expense
Impairment loss
Net foreign currency movements arising from
foreign operations
Carrying amount at the end of the year
11(a)
259
7
-
(44)
-
10
232
53,862
18,492
(99)
(5,690)
(1,464)
933
208
82
-
(31)
-
-
259
27,330
30,223
-
(3,691)
-
-
217
-
-
(21)
-
-
196
21,471
3,230
(4,468)
(2,158)
(728)
-
192
44
-
(19)
-
-
217
21,999
1,873
-
(2,401)
-
-
66,034
53,862
17,347
21,471
34
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
Leased Plant and Equipment
Balance at the beginning of the year
Additions/(transfers)
Disposals
Depreciation expense
Net foreign currency movements arising from
foreign operations
Carrying amount at the end of the year
Motor Vehicles
Balance at the beginning of the year
Additions/(transfers)
Disposals
Depreciation expense
Net foreign currency movements arising from
foreign operations
Carrying amount at the end of the year
Office Equipment
Balance at the beginning of the year
Additions/(transfers)
Disposals
Depreciation expense
Net foreign currency movements arising from
foreign operations
Carrying amount at the end of the year
Leased Motor Vehicles
Balance at the beginning of the year
Additions/(transfers)
Disposals
Depreciation expense
Net foreign currency movements arising from
foreign operations
Carrying amount at the end of the year
(a) Impairment
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
877
1,291
877
1,291
-
-
(162)
-
715
1,000
65
(28)
(295)
94
836
1,738
879
(12)
(720)
321
2,206
29
208
-
(40)
-
197
(125)
-
(289)
-
877
1,021
398
(199)
(220)
-
1,000
2,272
79
-
(613)
-
1,738
46
(12)
-
(5)
-
29
-
-
(162)
-
715
525
-
(13)
(148)
-
364
683
153
(8)
(240)
-
588
29
208
-
(40)
-
197
(125)
-
(289)
-
877
792
133
(191)
(209)
-
525
716
117
-
(150)
-
683
46
(12)
-
(5)
-
29
The impairment charge in the parent entity of $728,000 arose from the closure of the knitting plant in Braeside, Australia
(allocated to the Asia/Pacific reportable segment) and transfer of plant and equipment to the China manufacturing facility.
This process identified assets (that were not transferred) to be held below their recoverable amount based on the Directors’
assessment of the fair value. The impairment charge represents a write down to fair value less costs to sell.
The consolidated impairment charge represents a further $736,000 (Total $1,464,000) charge to plant and equipment.
This arose from the post balance date decision to sell the Jung Garten business, an identified Cash Generating Unit (CGU) in
Europe (and allocated to the Europe/Middle East/Africa segment). The post balance date sale of the business identified that
the CGU was fully impaired at balance date and required a full write down of the goodwill allocated to that CGU.
The calculated impairment loss exceeded the goodwill write down, and consequently required a further write down of assets
within the CGU.
35
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
NOTE 12: INTANGIBLE ASSETS
Goodwill at cost
Less accumulated impairment
Patents, trademarks and licenses at cost
Less accumulated amortisation
Research and development
Reconciliation of Intangible Assets
Goodwill
Balance at the beginning of the year
Net foreign currency movements arising from
foreign operations
Impairment of goodwill
12(a)
Additions
Carrying amount at the end of the year
Patents, Trademarks & Licences
Balance at the beginning of the year
Net foreign currency movements arising from
foreign operations
Additions
Amortisation expense
Carrying amount at the end of the year
Research & Development
Balance at the beginning of the year
Additions
Amortisation expense
Carrying amount at the end of the year
13,928
(4,437)
9,491
1,169
(500)
669
2,326
13,754
(1,439)
12,315
1,072
(424)
648
3,247
12,486
16,210
4,127
(1,054)
3,073
937
(423)
514
2,326
5,913
3,836
(1,054)
2,782
811
(350)
461
3,247
6,490
12,315
(120)
(2,998)
294
9,491
648
(6)
103
(76)
669
3,247
1,524
(2,445)
2,326
9,006
2,782
2,776
-
-
3,309
12,315
635
-
138
(125)
648
1,382
2,463
(598)
3,247
-
-
291
3,073
461
-
126
(73)
514
3,247
1,524
(2,445)
2,326
-
-
6
2,782
414
-
152
(105)
461
1,382
2,463
(598)
3,247
(a) Impairment
The goodwill impairment charge of $2,998,000 arose from the post balance date decision to sell the Jung Garten business,
an identified Cash Generating Unit (CGU) in Europe (and allocated to the Europe/Middle East/Africa segment). The post
balance date sale of the business identified that the CGU was fully impaired at balance date and required a full write down
of the goodwill allocated to that CGU. The calculated impairment loss exceeded the goodwill write down, and consequently
required a further write down of assets within the CGU, as detailed in Note 11(a)
NOTE 13: PAYABLES
CURRENT
Unsecured liabilities
Trade creditors
Sundry creditors and accruals
NOTE 14: BORROWINGS
CURRENT
Secured liabilities
Bank overdrafts
Bank loans
Commercial bills
Finance lease liability
Hire purchase liability
Convertible notes
Convertible notes
36
16,702
5,952
22,654
16,966
53,587
9,700
239
1,680
6,500
9,000
14,398
5,392
19,790
6,313
51,885
1,600
334
2,115
-
-
1,602
2,166
3,768
9,291
36,620
9,700
239
1,680
6,500
9,000
3,704
1,451
5,155
1,023
36,044
1,600
334
2,115
-
-
97,672
62,247
73,030
41,116
21(d)
21(d)
21(d)
25(a)
25(b)
30(d)
30(d)
NOTE 14: BORROWINGS (cont’d)
NON-CURRENT
Secured liabilities
Bank loans
Commercial bills
Convertible notes
Finance lease liability
Hire purchase liability
NOTE 15: PROVISIONS
CURRENT
Employee entitlements
NON-CURRENT
Employee entitlements
(a) Aggregate employee entitlements liability
(b) Number of employees at year end
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
21(d)
21(d)
30(d)
25(a)
25(b)
8,848
-
-
488
2,734
12,070
-
9,800
6,500
405
3,945
20,650
872
1,226
427
1,299
1,218
547
1,773
1,197
4,015
-
-
488
2,734
7,237
768
73
841
109
-
9,800
6,500
405
3,945
20,650
1,152
73
1,225
196
NOTE 16: 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
30,288
-
30(e)
30,288
71,902
2,013
73,915
30(e)
24,537
-
24,537
52,140
2,382
54,522
Receivables
Current
Non-current
Payables
Current
Non-current
NOTE 17: CONTRIBUTED EQUITY
Paid up capital
55,069,815 fully paid ordinary shares
(2005: 51,905,861)
Movement in Share Capital
Shares issued at the beginning of the
financial year
GST on IPO costs
Costs of capital raising (net of tax)
717,671 shares issued as part of the
consideration for acquisition of a business –
15 December 2004
224,490 shares issued under Dividend
Reinvestment Plan – 18 October 2004
427,942 shares issued under the Company
option scheme – 29 November 2004
177,333 shares issued under Dividend
Reinvestment Plan – 15 April 2005
99,969 shares issued under Dividend
Reinvestment plan – 17 October 2005
2,936,000 shares issued as part of a share
placement offer – 9 March 2006
127,985 shares issued under Dividend
Reinvestment plan – 18 April 2006
3,553
55,017
58,570
36,501
-
36,501
233
39,677
39,910
37,799
-
37,799
47,124
42,071
42,071
39,027
-
(162)
-
-
-
-
160
4,844
211
(147)
1,804
591
428
368
-
-
-
47,124
42,071
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.
Following this year’s result, Directors considered it prudent not to pay a final dividend this financial year.
37
NOTE 17: CONTRIBUTED EQUITY (cont’d)
(a) Movement in Share Capital
During the financial year, the Company undertook a capital
raising via a private placement on 9 March 2006 where
2,936,000 shares were issued at $1.65 per share (raising
$4,844,400).
On 18 April 2006, the Company issued 127,985 shares to
shareholders under its Dividend Reinvestment Plan at $1.65
per share.
Subsequent to the financial year, (3 July 2006) the Company
raised $20 million through a combination of a private
placement and a Share Purchase Plan where 23,529,412
shares were issued at 85 cents
On 5 July 2006, the Company issued 10,941,177 ordinary
shares in conversion of 4,270,271 convertible notes.
in addition to any other Options the holder has previously
become entitled to exercise, provided that at any time
before the day on which Options are exercised by the
holder, the Market Price on each day for a consecutive
period of 30 days on which there was a sale of the
Company’s shares on the stock market of ASX was equal to
or exceeded $3.60; and
3. 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,
in addition to any other Options the holder has previously
become entitled to exercise, provided that at any time
before the day on which Options are exercised by the
holder, the Market Price on each day for a consecutive
period of 30 days on which there was a sale of the
Company’s shares on the stock market of ASX was equal to
or exceeded $3.95.
The principal terms of the issue of the 240,000 options issued
to Mr. Peter McDonald are as follows:
On 1 August 2006, the Company issued 7,294,112 ordinary
shares in conversion of 2,594,593 convertible notes.
1. The expiry date of the options is 31 December 2008.
(b) 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 870,000. The issue price of each option is zero. Each
option entitles the option holder to one (1) ordinary share in
Gale Pacific Limited in the event that the option is exercised.
Of the 870,000 options on issue, 50,000 options were issued
on 5 May 2004, 240,000 options were issued under the
Company’s executive share plan to the Managing Director
and Chief Executive Officer, Mr. Peter McDonald on 30
December 2004, as approved by the Company’s shareholders
at the Company’s Annual General Meeting held on 15
November 2004 and 580,000 options were issued on 16
November 2005. The exercise price of the 50,000 options is
$1.50, the exercise price of the 240,000 options is $3.00, and
the exercise price of the 580,000 options is $1.52. 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 240,000
options is determined in accordance with the achievement
of certain levels of adjusted weighted average earnings per
share of the Company’s share price over time and the vesting
of the 580,000 options is determined in accordance with the
achievement of certain levels of adjusted weighted average
earnings per share of the Company’s share price over time.
The 50,000 options are not exercisable after 1 December
2006, the 240,000 options and the 580,000 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 50,000 options issued
to a senior executive of the Company on 5 May 2004 are as
follows:
The holder of Options may only exercise the following number
of Options on or after 1 September 2005 and no later than
11.59 p.m. on 1 December 2006 on the following conditions:
1. 45% 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 at any time before the day on which Options are
exercised by the holder, the Market Price on each day for
a consecutive period of 30 days on which there was a sale
of the Company’s shares on the stock market of ASX was
equal to or exceeded $3.20;
2. a further 30% 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,
2. 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:
(i) 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
(ii) 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;
3. 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, in
addition to any other Options the holder has previously
become entitled to exercise:
(i) 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
(ii) 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;
38
4. The holder may, on and from the later of:
(B) that change results in the earnings specified in the
(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,in
addition to any other Options the holder has previously
become entitled to exercise:
(i) 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
(ii) unless the holder has previously, or as a result
of becoming entitled to exercise Options under
paragraph (3)(B) (i), 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
5. 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, in
addition to any other Options the holder has previously
become entitled to exercise:
(i) 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
(ii) unless the holder has previously, or as a result
of becoming entitled to exercise Options under
paragraph (4)(B) (i), 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
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.
The principal terms of the 580,000 options issued to key
management on 16 November 2005 are as follows:
1. Provided that the Company meets its NPAT target for
the financial year ended June 2006 (as evidenced by the
Company’s Audited Financial Report), the holder may from
12 months after the date the Company lodges with the ASIC
and ASX its Audited Financial Report, exercise 50% of the
total number of Options.
2. Provided that the Adjusted Weighted Average Earnings Per
Share of the Company for the year ended 30 June 2007
increases by 15% or more over the Adjusted Weighted
Average Earnings Per Share for the year ended 30 June
2006 (as evidenced by the Company’s relevant Audited
Financial Reports), the holder may from 12 months after
the date the Company lodges with the ASIC and ASX its
Audited Financial Report, exercise 50% of the total number
of Options.
For the purpose of the above paragraphs:
“Adjusted Weighted Average Earnings Per Share” means:
1. for any financial year (“Relevant Financial Year”), the
diluted earnings per share of the Company as disclosed in
the Company’s Audited Financial Report 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.
39
NOTE 17: CONTRIBUTED EQUITY (cont’d)
Options Valuation Assumptions
Option Series
Grant Date Share Price
Exercise Price
Expected Volatility
Option Life
Tranche 1
Tranche 2
Tranche 3
Tranche 4
Dividend Yield
Risk Free Interest Rate
Tranche 1
Tranche 2
Tranche 3
Tranche 4
5 May 2004
$2.64
15 December 2004
$3.00
16 November 2005
$1.60
$1.50
37%
2.02 years
2.05 years
2.08 years
-
2.76%
5.39%
5.39%
5.39%
-
$3.00
35%
2.50 years
3.00 years
3.50 years
4.00 years
2.47%
4.86%
4.87%
4.91%
4.95%
$1.52
40%
2.49 years
2.99 years
-
-
2.96%
5.21%
5.21%
-
-
Balance at the beginning of the financial year
Granted during the financial year
Options exercised during the financial year
Lapsed during the financial year
Balance at the end of the financial year
As at 30 June 2006, no options on issue were exercisable.
Number of options
2006
No.
610,000
1,260,000
-
(1,000,000)
870,000
2005
No.
477,942
560,000
(427,942)
-
610,000
40
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
NOTE 18: RESERVES
Foreign currency reserve
Share based payment reserve
(a) Foreign Currency Reserve
Opening balance
Foreign currency movement on consolidation for
the year
Closing balance
(b) Share Based Payment Reserve
Opening balance
Net movement for the year
Closing balance
(2,274)
178
(2,096)
(3,087)
813
(3,087)
98
(2,989)
(273)
(2,814)
1(m)
(2,274)
(3,087)
98
80
178
5
93
98
Total reserve
(2,096)
(2,989)
-
178
178
-
-
-
98
80
178
178
-
98
98
-
-
-
5
93
98
98
NOTE 19: 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 20: MINORITY INTERESTS
Minority interest in controlled entities comprises:
Opening balance
Net loss attributable to minority interest
NOTE 21: CASH FLOW INFORMATION
15,461
14,001
7,204
9,763
(11,942)
(1,603)
1,916
5,285
(3,825)
15,461
(9,007)
(1,603)
(3,406)
1,266
(3,825)
7,204
(9)
(2)
(11)
(7)
(2)
(9)
(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
2
2
2
Cash at bank
Bank overdrafts
10,550
(16,966)
(6,414)
3,963
(6,313)
(2,348)
6,053
(9,291)
(3,236)
2
-
(1,023)
(1,021)
(b) Reconciliation of Cash Flow from Operations with Profit
Profit/loss after income tax
(11,942)
5,285
(9,007)
1,266
Non-cash flows in profit
Attributable to minority interest
Loss on disposal of fixed assets
Amortisation of intangible assets
Impairment of goodwill
Depreciation and amortisation of plant and
equipment
Impairment of assets
Other
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 provision for tax
Increase/(decrease) in deferred tax balance
Net cash inflow/outflow provided by operations
(2)
5
2,521
2,998
6,951
1,464
-
(3,949)
(48)
2,978
2,391
371
(5,668)
(1,930)
(2)
32
723
-
4,849
-
(609)
(5,310)
1,704
(12,291)
3,531
(1,798)
1,169
(2,717)
-
5
2,720
-
2,567
6,478
80
704
12
7,985
(745)
443
(3,908)
7,334
-
32
703
-
3,073
-
(620)
822
1,570
(2,373)
2,954
(742)
727
7,412
41
NOTE 21: CASH FLOW INFORMATION (cont’d)
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
(c) Acquisition of Business
During the 2005 financial year the Company acquired the assets of Donaghys in New Zealand.
Details of the acquisition are as follows:
Consideration
Cash
11,646
-
Ordinary shares
Fair value of net assets acquired
Inventories
Non-current assets
Plant and equipment
Goodwill
Current liabilities
Creditors & accruals
Net assets acquired
Less
Ordinary shares issued
Net cash outflow on acquisition
-
-
-
-
-
-
-
-
-
1,804
13,450
4,562
6,108
3,309
(529)
13,450
1,804
11,646
-
-
-
-
-
-
-
-
-
11,646
1,804
13,450
4,562
6,108
3,309
(529)
13,450
1,804
11,646
It is impractical to provide an estimation of revenue and profit/(loss) for the period as though they traded for the whole period.
(d) Multi Option Facility and Bills Discount Facility
The Company has access to a Multi Option Facility (including an AUD overdraft, USD overdraft, commercial bills, fixed rate
trade advances, documentary credit and trade finance), a Bills Discount Facility and a Bank Guarantee facility to a maximum
of $81,829,000 as at 30 June 2006 (2005: $72,195,000), leaving an unused facility of $3,278,000 (2005: $2,162,000).
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 and a fixed and floating charge (or equivalent) over all assets of Jung Garten
& Freizeit Vertriebsgesellschaft mbH, Gale Europe Vertriebsgesellschaft mbH and Gale Pacific (New Zealand) Limited.
(e) 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.
The Company issued further convertible notes to the value of $9,000,000 on 9 September 2005, at an interest rate of 8.8%.
Subsequent to balance date, all notes were converted into ordinary fully paid shares at a conversion price of 85 cents.
NOTE 22: COMPANY DETAILS
The registered office of the Company is:
Gale Pacific Limited
145 Woodlands Drive
Braeside Victoria 3195
NOTE 23: DIRECTORS’ AND EXECUTIVES’ COMPENSATION
The key management personnel of the economic entity who held office during the year were:
Directors
H Boon (Chairman, Non-Executive) – Appointed 25 August 2005
T J Eversteyn (Chairman, Non-Executive) – Resigned 25 August 2005
P R McDonald (Managing Director and Chief Executive Officer) – Appointed Managing Director and Chief Executive Officer
26 April 2006
G S Gale (Non-Executive) – Resigned as Managing Director 26 April 2006 and appointed as Non-Executive 26 April 2006
D E J Reilly (Non-Executive)
G H Richards (Non-Executive)
42
NOTE 23: DIRECTORS’ AND EXECUTIVES’ COMPENSATION (cont’d)
Executives
(at date of this report)
F Albertsmeier (Managing Director, Gale Europe)
S Carroll (Managing Director, Gale Australia)
J Cox (Chief Financial Officer)
Z Fakroddin (Regional Manager, Gale Middle East)
C McCallum (Managing Director, Gale New Zealand)
E Xu (Managing Director, Gale China)
Key Management Personnel’s Compensation
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 17 to the Financial
Statements.
Short-term benefits
Post
employment
Share based
payments
Termination
benefits
Total
Performance
related
Superannuation
Options
Total
Options
$
$
$
$
%
%
2006
Directors
Salary &
fees
$
Non-
monetary
$
Executive Directors
G S Gale (i)
371,635
P R McDonald
359,942
Non-Executive Directors
H Boon
T J Eversteyn
D E J Reilly
G H Richards
95,833
14,166
75,000
65,000
61,964
62,401
-
-
-
-
12,139
5,171
41,667
-
-
-
51,658
72,580
-
-
-
-
102,849
-
-
-
-
-
600,245
500,094
8.6
14.5
8.6
14.5
137,500
14,166
75,000
65,000
-
-
-
-
-
-
-
-
-
-
TOTAL
981,576
124,365
58,977
124,238
102,849
1,392,005
2005
Directors
Short-term benefits
Salary &
fees
$
Non-
monetary
$
Post
employment
Superannuation
Share based
payments
Options
Termination
benefits
Total
Performance
related
Total
Options
$
$
$
$
%
%
Executive Directors
G S Gale (i)
396,951
P R McDonald
269,414
Non-Executive Directors
T J Eversteyn
D E J Reilly
G H Richards
144,992
119,124
68,000
66,500
39,037
11,549
11,549
33,922
25,442
-
-
-
-
-
-
-
-
-
TOTAL
998,481
105,537
23,098
59,364
-
-
-
-
-
-
508,922
345,442
6.7
7.4
6.7
7.4
144,992
119,124
68,000
1,186,480
-
-
-
-
-
-
-
-
43
NOTE 23: DIRECTORS’ AND EXECUTIVES’ COMPENSATION (cont’d)
2006
Short-term benefits
Post
employment
Share based
payments
Total
Performance
related
Key
management
personnel
Salary &
fees
$
Bonus
$
Non-
monetary
$
J Cox (ii)
A London (iii)
F Albertsmeier (iv)
E Jung (v)
S Carroll
Z Fakroddin (vi)
C McCallum (vii)
E Xu (viii)
TOTAL
69,833
157,888
79,888
255,940
208,900
148,610
198,825
150,013
-
-
-
38,538
-
67,549
36,357
24,318
-
17,007
2,422
15,784
27,070
60,031
15,558
18,919
Superannuation
Options
Total
Options
$
6,285
10,956
4,650
4,171
20,527
-
-
-
$
-
6,406
-
-
3,950
3,950
4,938
48,600
67,844
$
76,118
192,257
86,960
314,433
260,447
280,140
255,678
241,850
1,707,833
%
-
3.3
-
12.3
1.5
25.5
16.2
30.2
-
%
-
3.3
-
-
1.5
1.4
1.9
20.1
-
1,269,897
166,762
156,791
46,589
2005
Short-term benefits
Post
employment
Share based
payments
Total
Performance
related
Key
management
personnel
Salary &
fees
$
Bonus
$
Non-
monetary
$
A London (ix)
L Doddridge (x)
E Jung (xi)
Z Fakroddin (iv)
E Xu (viii)
D Whyte (xii)
S Carroll
TOTAL
11,694
176,458
222,603
147,200
128,958
261,815
175,100
-
-
51,370
27,813
31,919
31,915
-
1,700
23,077
31,906
20,850
61,621
34,000
24,677
1,123,828
143,017
197,831
Superannuation
Options
Total
Options
$
1,075
15,881
6,545
50,850
-
-
15,759
90,110
$
$
-
-
-
-
33,281
-
-
14,469
215,416
312,424
246,713
255,779
327,730
215,536
33,281
1,588,067
%
-
-
16.4
11.3
25.5
9.7
-
-
%
-
-
-
-
13.0
-
-
-
(i) Mr. Gale resigned from his role as a Managing Director on 26 April 2006, and therefore the details of his remuneration for
the reporting period are to that date. Mr. Gale was appointed a non-executive director on 26 April 2006 has not received
any remuneration in his role as Non-Executive Director.
(ii) Mr. Cox was appointed as Chief Financial Officer on 1 March 2006 and therefore the details of his remuneration for the
reporting period are from that date.
(iii) Mr. London resigned on 1 March 2006 and therefore the details of his remuneration for the reporting period are to that date.
(iv) Mr. Albertsmeier was appointed Managing Director Gale Jung and Europe on 1 April 2006 and therefore the details of his
remuneration for the reporting period are from that date. He is based in Germany and remunerated in Euro converted to
Australian dollars in the table above.
(v) Mr. Jung (resigned 31 March 2006) was based in Germany and therefore the details of his remuneration for the reporting
period are to that date. He was remunerated in Euro converted to Australian dollars in the table above.
(vi) Mr. Fakroddin was based in the Middle East and is remunerated in US dollars converted to Australian dollars in the
table above.
(vii) Mr. McCallum is based in New Zealand and is remunerated in New Zealand dollars converted to Australian in the
table above.
(viii) Ms. Xu is based in China and is remunerated in US dollars converted to Australian dollars in the table above.
(ix) Mr. London was appointed as Chief Financial Officer on 2 June 2005 and therefore the details of his remuneration for the
reporting period were from that date.
(x) Mr. Doddridge resigned from the position of Chief Financial Officer on the 2 June 2005 and therefore the details of his
remuneration for the reporting period are to that date.
(xi) Mr. Jung was based in Germany and was remunerated in Euro converted to Australian dollars in the table above.
(xii) Mr. Whyte (resigned July 2005) was based in the USA and was remunerated in US dollars converted to Australian dollars
in the table above.
44
NOTE 23: CASH FLOW INFORMATION (cont’d)
Compensation by Category
Short-term employment benefits
Post employment benefits
Termination benefits
Share-based payments
Directors’ Equity Holdings
Fully paid ordinary shares
Executive Directors
G S Gale
P R McDonald
Non Executive Directors
H Boon
D E J Reilly
G H Richards
15,329,709
306,295
-
316,065
57,778
Total
16,009,847
C O N S O L I D A T E D
2004/05
2005/06
$’000
$’000
2,569
2,699
106
103
192
3,100
113
-
93
2,775
C O M P A N Y
2005/06
$’000
1,587
97
103
135
1,922
2004/05
$’000
1,517
56
-
59
1,632
Balance
1 July 2005
Received as
remuneration
Options exercised
Net change
Balance
30 June 2006
-
-
-
-
-
-
-
-
-
-
-
-
70,000
28,419
15,399,709
334,714
73,000
107,076
21,073
73,000
423,141
78,851
299,568
16,309,415
Directors’ and Executives’ Equity Holdings Compensation Options: Granted and vested during the year
Share options –
key management
personnel
Vested
number
Granted
number
Grant date
Value per
option at
grant date
Terms and conditions for each grant
Exercise
price
Expiry date First exercise
Last exercise
date
-
-
-
-
-
-
-
-
-
-
date
-
-
-
-
Executive Directors
P R McDonald
G S Gale
-
-
Non Executive Directors
None
Executives
S Carroll
-
Z Fakroddin
A London
C McCallum
E Xu
Total
-
-
-
-
-
Share options –
key management
personnel
Executive Directors
P R Mc Donald
G S Gale
Non Executive Directors
None
Executives
S Carroll
Z Fakroddin
A London
C McCallum
E Xu
Total
80,000
80,000
80,000
16/11/2005
16/11/2005
16/11/2005
100,000
16/11/2005
-
340,000
-
$0.445
$0.445
$0.445
$0.445
-
$1.52
$1.52
$1.52
$1.52
-
1/12/2008
28/9/2007 1/12/2008
1/12/2008
28/9/2007
1/12/2008
1/12/2008
28/9/2007
1/12/2008
1/12/2008
28/9/2007
1/12/2008
-
-
-
Balance
1 July 2005
Received as
remuneration
Options
exercised
Options
lapsed
Balance
30 June
2006
Total vested
30 June
2005
Total
exercisable
30 June
2006
240,000
320,000
-
-
-
-
-
-
50,000
610,000
80,000
80,000
80,000
100,000
-
340,000
-
-
-
-
-
-
-
-
-
240,000
320,000
-
40,000
40,000
80,000
50,000
-
40,000
40,000
-
50,000
50,000
530,000
420,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Directors acquired shares through the Dividend Reinvestment Plan on the same terms and conditions available to other
shareholders.
45
NOTE 23: CASH FLOW INFORMATION (cont’d)
Remuneration Practices
The Company 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 Executive Directors and executives are on a continuing basis the terms of which are not
expected to change in the immediate future. Upon retirement Executive Directors and executives are paid employee benefit
entitlements accrued to date of retirement. Payment of bonuses, share options and other incentive payments are made at the
discretion of the Remuneration Committee to key executives of the Company 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. Non-Executive Directors receive a fee for being Directors of the Company and do not participate
in performance based remuneration.
Options issued to executives as a form of compensation are dependant upon the performance conditions outlined in note 17(b).
Cash bonuses granted to exceutives are based on the respective performance of their regional business unit. Bonuses are paid
out at various times during the year and are determined at the discretion of the Remuneration Committee.
NOTE 24: DIVIDENDS
Ordinary shares
Interim dividend – fully franked
Final dividend – fully franked
Adjusted franking account balance
2005/06
2004/05
Cents per
share
Total
$’000
Cents per
share
1.5
1.5
779
824
1,603
508
4.0
3.5
Total
$’000
2,015
1,810
3,825
723
Since the end of the financial year, Directors have not declared a final dividend.
46
NOTE 25: CAPITAL AND LEASING COMMITMENTS
C O N S O L I D A T E D
C O M P A N Y
Note
2005/06
$’000
2004/05
$’000
2005/06
$’000
2004/05
$’000
(a) Finance Leasing Commitments
Payable
- not later than one year
-
years
Minimum lease payments
later than one year and not later than five
Less future finance charges
Total lease liability
Represented by:
Current liability
Non-current liability
14
14
444
691
1,135
(408)
727
239
488
727
389
603
992
(253)
739
334
405
739
444
691
1,135
(408)
727
239
488
727
389
603
992
(253)
739
334
405
739
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.
(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
(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
14
14
2,002
2,909
4,911
(497)
4,414
1,680
2,734
4,414
3,156
6,146
3,321
12,623
2,186
4,252
6,438
(378)
6,060
2,115
3,945
6,060
3,860
7,334
4,014
15,208
2,002
2,909
4,911
(497)
4,414
1,680
2,734
4,414
1,818
2,007
171
3,996
2,186
4,252
6,438
(378)
6,060
2,115
3,945
6,060
2,532
2,987
-
5,519
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.
47
NOTE 26: RELATED PARTY TRANSACTIONS
Equity Investments in Controlled Entities
Details of the percentage of ordinary shares held in controlled entities are disclosed in Note 27 to the financial statements.
Directors’ Remuneration
Details of Directors’ remuneration are disclosed in Note 23.
(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:
Current
C O N S O L I D A T E D
C O M P A N Y
2005/06
$’000
5
2004/05
$’000
11
2005/06
$’000
5
2004/05
$’000
11
Mr. T Eversteyn was a Partner of the chartered accounting firm Bentleys MRI. In addition to Directors fees received (and disclosed
in Note 23) Bentleys MRI provided other business services during the year ended 30 June 2006 to Gale Pacific Limited. The value
of services provided was $10,000 (2005: $68,329).
During the financial year, key management personnel 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.
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 7. These amounts are repayable at call, and
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%. Total value of these purchases were $22,958,000
(2005: $22,837,000)
- Reimbursement of certain operating costs including interest charges of $1,446,000 (2005: $1,231,000).
- Plant and equipment transferred at written down value $3,274,260.
(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 $139,000 (2005: $22,000).
48
NOTE 27: 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 mbH
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 ( % )
2005/06
2004/05
Australia
-
-
USA
United Arab Emirates
Australia
China
Germany
Germany
New Zealand
100
100
50
100
100
100
100
100
100
50
100
100
100
100
49
NOTE 28: SEGMENT REPORTING
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, interest-bearing loans, borrowings and
expenses, and corporate assets and expenses.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used
for more than one period.
Inter-segment pricing is predominantly determined on an arm’s length basis.
Geographical Segment
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of
customers. Segment assets are based on the geographical location of the assets.
The consolidated entity comprises the following main geographical segments, based on the consolidated entity’s management
reporting system:
Asia/Pacific
Manufacturing and distribution facilities are located in Australia, China and New Zealand which supplies products to Australia,
New Zealand, Europe, USA and the Middle East. Sales offices are located in all states in Australia and through distribution
agreements in New Zealand.
Americas
Sales offices are located in Florida and custom-awning manufacturing and distribution facilities are located in California which
service the North American region.
Europe/Middle East/Africa
Sales offices and distribution facilities are located in the United Arab Emirates and Germany which service those regional markets.
Business Segment
The consolidated entity operates predominantly in one business segment, being the advanced polymer fabrics industry. The
consolidated entity manufactures and markets advanced durable knitted and woven polymer fabrics and value added structures
made from these fabrics. With the 2004 acquisition of “Jung” the Company marketed domestic garden products to the home
hardware sector in Europe. Subsequent to balance date, the Jung business has been sold.
50
NOTE 28: SEGMENT REPORTING (cont’d)
Primary Reporting – Geographical Segments
30 June 2006
Revenue outside the economic entity
Inter-segment revenue
Total revenue
Segment operating profit/(loss)
Income tax (expense)/benefit
Operating profit/(loss) after tax
Depreciation and amortisation
Individually significant items
Reimbursement of R&D expenditure
Impairment of assets
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
Acquisition of non-current assets
30 June 2005
Revenue outside the economic entity
Inter-segment revenue
Total revenue
Segment operating profit
Income tax (expense)/benefit
Operating profit/(loss) after tax
Depreciation and amortisation
Individually significant items
Reimbursement of R&D expenditure
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
Acquisition of non-current assets
Asia/
Pacific
$’000
80,402
32,703
113,105
(10,954)
2,931
(8,023)
8,198
748
(728)
Americas
$’000
22,511
-
22,511
340
(145)
195
453
-
-
Europe/
Middle East/
Africa
$’000
64,256
-
64,256
(5,202)
1,278
(3,924)
940
-
(3,734)
Eliminations Consolidation
$’000
$’000
-
167,169
(32,703)
(32,703)
(165)
(27)
(192)
(119)
-
-
-
167,169
(15,981)
4,037
(11,944)
9,472
748
(4,462)
117,313
14,099
48,622
1,790
181,824
119,958
1,360
13,001
17,749
583
1,319
69,812
32,625
102,437
5,850
(932)
4,918
4,892
718
15,430
-
15,430
(959)
351
(608)
211
-
63,768
-
63,768
1,609
(576)
1,033
181
-
-
-
-
(32,625)
(32,625)
(257)
197
(60)
288
-
333
182,157
134,319
905
135,224
19,651
149,010
-
149,010
6,243
(960)
5,283
5,572
718
109,490
11,722
39,769
3,109
164,090
93,491
878
10,628
27,157
596
2,892
294
164,384
104,997
4,853
109,850
30,645
-
-
51
NOTE 29: 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
Weighted average number of share options on issue during the year
Weighted average number of ordinary shares and potential ordinary shares used in the
calculation of diluted earnings per share
NOTE 30: FINANCIAL INSTRUMENTS
(a) Financial Instruments
C O M P A N Y
2005/06
2004/05
$11,942,000
$5,285,000
52,910,527
51,189,261
1,305,123
52,516
54,215,650
51,241,777
Derivative financial instruments may be used by the economic entity to limit exposure to exchange rate risk associated with
foreign currency borrowings. The derivative financial instruments are recognised in the financial statements. Transactions to
reduce foreign currency exposure 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 read-
ily traded on organised markets in standardised form other than forward exchange contracts.
(d) Interest Rate Risk
The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result
of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial
liabilities, is as follows:
Note Weighted
average
interest
rate
Floating
interest
rate
$‘000
Fixed
interest
rate
$‘000
Non
interest
bearing
$‘000
Maturing
Total
$‘000
1 year
or less
$‘000
1 to 5
years
$‘000
More than
5 years
$‘000
6
7
13
14
14
14
14
14
14
14
14
14
14
15
5.5%
10,550
-
-
-
10,550
-
8.1%
16,966
-
-
-
-
-
-
4,697
9.1%
6.2%
6.0%
6.2%
6.2%
8.5%
8.8%
7.5%
8.2%
-
57,738
-
-
6,600
-
-
-
-
-
-
1,200
1,900
-
6,500
9,000
727
4,414
2
36,702
34,704
22,654
-
-
-
-
-
-
-
-
-
-
10,552
36,702
47,254
22,654
16,966
4,697
57,738
1,200
1,900
6,600
6,500
9,000
727
4,414
1,299
10,552
36,702
47,254
22,654
16,966
682
52,905
1,200
1,900
6,600
6,500
9,000
239
1,680
872
-
-
-
-
-
4,015
4,833
-
-
-
-
-
488
2,734
427
-
1,299
81,304
28,438
23,953
133,695
121,198
12,497
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30 June 2006
Financial assets
Cash assets
Receivables
Financial liabilities
Payables
Bank overdrafts and
loans
Bank loan
Bank loan
Commercial bills
Commercial bills
Commercial bills
Convertible notes
Convertible notes
Lease liabilities
Hire purchase liabilities
Employee entitlements
52
Maturing
1 to 5
years
$‘000
More than
5 years
$‘000
NOTE 30: FINANCIAL INSTRUMENTS (cont’d)
30 June 2005
Financial assets
Cash assets
Receivables
Financial liabilities
Payables
Bank overdrafts and
loans
Commercial bills
Commercial bills
Commercial bills
Commercial bills
Convertible notes
Lease liabilities
Hire purchase liabilities
Employee entitlements
Note Weighted
average
interest
rate
Floating
interest
rate
$‘000
Fixed
interest
rate
$‘000
Non
interest
rearing
$‘000
6
7
13
14
14
14
14
14
14
14
14
15
5.4%
3,963
-
-
-
3,963
-
5.5%
6,313
5.5%
6.0%
6.3%
6.0%
8.5%
7.5%
8.2%
-
51,885
-
-
6,600
-
-
-
-
-
-
-
-
-
-
2,300
2,500
-
6,500
739
6,060
2
32,753
32,755
19,790
-
-
-
-
-
-
-
-
-
1,773
Total
$‘000
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
1 year
or less
$‘000
3,965
32,753
36,718
19,790
6,313
51,885
1,000
600
-
-
334
2,115
1,226
-
-
-
-
-
-
1,300
1,900
6,600
6,500
405
3,945
547
64,798
18,099
21,563
104,460
83,263
21,197
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(e) Forward Exchange Contracts
The consolidated entity enters into forward exchange contracts to buy and sell specified amounts of foreign currency in the
future at stipulated exchange rates. The objective in entering the forward exchange contracts is to protect the consolidated entity
against unfavourable exchange rate movements for both the contracted and anticipated future sales and purchases undertaken in
foreign currencies.
The full amount of the foreign currency the consolidated entity will be required to pay or purchase when settling the brought
forward exchange contracts should the counterparty not pay the currency it is committed to deliver to the consolidated entity has
been recognised in the Company’s balance sheet. At balance date the net amount payable was $78,169.
The accounting policy in regard to forward exchange contracts is detailed in Note 1(m).
At balance date, the details of outstanding forward exchange contracts are:
Buy United States Dollars
Settlement
Less than 6 months
Buy Euro
Settlement
Less than 6 months
Buy United States Dollars
Settlement
Less than 6 months
NOTE 31: SUBSEQUENT EVENTS
2005/06
$’000
2004/05
$’000
2005/06
2004/05
Sell Australia
Average exchange rate
1,620
Sell Australia
74
Sell Euro
955
-
-
-
0.7405
Average exchange rate
0.6075
Average exchange rate
1.2133
-
-
-
In July 2006, the Company completed a $20 million capital raising via a combination of a share purchase plan and a private
placement resulting in the Company issuing 23,529,412 ordinary fully paid shares at a price of 85 cents. In addition, the Company
negotiated with holders of convertible notes issued by the Company in December 2004 and September 2005 to convert the
notes into ordinary fully paid shares at a conversion price of 85 cents. 18,235,289 shares were issued in conversion of 6,864,864
notes. The Company’s shareholders approved the above share issues at the Company’s Extraordinary General Meeting held on
30 June 2006.
On 5 September 2006, the Company announced that it had sold its German garden products distribution business, Jung Garten,
and that it had received cash for the sale of approximately $12.5 million and a further $1.5 million receivable in October 2006.
Other than the matter discussed 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 likely, in the opinion of the Directors of the Company,
to affect significantly, the operations of the consolidated entity, the results of those operations, or the state of affairs of the
consolidated entity in future financial years.
53
NOTE 32: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING
STANDARDS
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 2006. 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.
FIRST-ADOPTION OF AIFRS - RECONCILIATION OF EQUITY REPORTED UNDER AGAAP TO EQUITY UNDER AIFRS
(a) At the Date of Transition of AIFRS - 1 July 2004
C O N S O L I D A T E D
P A R E N T
AGAAP
Adjustment
$’000
$’000
AIFRS
$’000
6,710
28,605
34,093
1,058
70,466
32,168
11,023
346
43,537
114,003
15,942
20,783
724
989
2,513
8,932
16,886
512
28,843
25,036
4,571
-
29,607
58,450
6,557
17,386
-
936
38,438
24,879
18,046
4,655
110
22,811
61,249
52,754
39,027
(268)
14,001
52,760
(6)
18,046
3,923
110
22,079
46,958
11,492
38,899
-
10,338
49,237
-
52,754
49,237
AIFRS
$’000
2,513
8,932
16,886
512
28,843
25,036
4,571
-
29,607
58,450
6,557
17,386
-
936
24,879
18,046
4,365
110
22,521
47,400
11,050
39,027
5
9,763
48,795
-
48,795
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
442
-
442
442
(442)
128
5
(575)
(442)
-
(442)
AGAAP
Adjustment
$’000
$’000
CURRENT ASSETS
Cash and cash equivalents
Receivables
Inventories
Other
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Plant and equipment
Intangible assets
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Payables
Short term borrowings
Current tax liabilities
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Long term borrowings
Deferred tax liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained profits
PARENT ENTITY INTEREST
Minority interest
TOTAL EQUITY
6,710
28,605
34,093
1,058
70,466
32,168
11,023
346
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
442
-
442
442
(442)
128
5
(575)
(442)
-
(442)
54
NOTE 32: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING
STANDARDS (cont’d)
(b) At the End of the Last Annual Reporting Period under AGAAP - 30 June 2005
C O N S O L I D A T E D
P A R E N T
AGAAP
Adjustment
$’000
$’000
AGAAP
Adjustment
$’000
$’000
CURRENT ASSETS
Cash & cash equivalents
Receivables
Inventories
Current tax asset
Other
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Receivables
Other financial assets
Plant and equipment
Intangible assets
Deferred tax assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Payables
Short term borrowings
Current tax liabilities
Provisions
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Long term borrowings
Deferred tax liabilities
Provisions
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Reserves
Retained profits
PARENT ENTITY INTEREST
Minority interests
TOTAL EQUITY
(i) Share Based Options
3,965
32,753
50,577
1,239
1,449
89,983
-
-
57,765
15,715
294
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
-
-
-
-
-
-
-
-
-
495
-
495
495
-
-
-
-
-
-
240
-
240
240
255
132
98
25
255
-
255
AIFRS
$’000
3,965
32,753
50,577
1,239
1,449
89,983
-
-
57,765
16,210
294
74,269
164,252
19,790
62,247
165
1,226
83,428
20,650
5,093
547
26,290
109,718
54,534
42,071
(2,989)
15,461
54,543
(9)
2
7,118
19,242
1,034
377
27,773
39,731
24,816
23,802
6,293
-
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
-
54,534
49,416
AIFRS
$’000
2
7,118
19,242
1,034
377
27,773
39,731
24,816
23,802
6,490
-
94,839
122,612
5,155
41,116
-
1,152
47,423
20,650
5,093
73
25,816
73,239
49,373
42,071
98
7,204
49,373
-
49,373
-
-
-
-
-
-
-
-
-
197
-
197
197
-
-
-
-
-
-
240
-
240
240
(43)
132
98
(273)
(43)
-
(43)
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.
(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 was 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.
55
NOTE 32: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING
STANDARDS (cont’d)
(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 resulted in a change to the accounting policy, whereby undiscounted expected net cash
flows used in determining the recoverable amounts of non-current assets.
Gale Pacific Limited describes CGUs as a group of assets working together to generate cash flows. Those CGUs were defined, the
impairment testing policy was reassessed and assets tested for impairment as at 30 June 2005. The assessment required no write
down in the 2005 financial year.
(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.
(v) Income Taxes
Under AIFRS a balance sheet approach has been adopted under which temporary differences are identified for each asset
and liability rather than the accounting for the effect of timing and permanent differences between taxable and account profit.
A deferred tax asset is recognised for tax losses where their realisation is considered probable.
NOTE 33: FIRST-ADOPTION OF AIFRS - RECONCILIATION OF PROFIT REPORTED UNDER AGAAP TO PROFIT
UNDER AIFRS
(a) Reconciliation of Profit for the Year Ended 30 June 2005
Revenue
Sales revenue
Other income
C O N S O L I D A T E D
C O M P A N Y
AGAAP Adjustment
$’000
$’000
AIFRS
$’000
AGAAP Adjustment
$’000
$’000
AIFRS
$’000
146,850
2,327
149,177
-
146,850
(167)
2,160
67,880
2,106
(167)
149,010
69,986
-
(157)
(157)
67,880
1,949
69,829
Changes in inventories of finished goods and
work in progress
Raw materials, consumables and other cost of sale (58,114)
(16,484)
Employee benefits expense
Depreciation and amortisation expenses
Finance costs
Operating overheads
Other expense
Profit before income tax
Income tax (expense)/income tax benefit
Profit for the year
Profit attributable to minority interests
Profit attributable to the members of the
parent
(21,731)
(6,067)
(4,926)
(33,734)
(2,280)
5,841
(1,158)
4,683
2
4,685
-
-
(93)
495
-
(16,484)
2,356
(58,114)
(21,824)
(5,572)
(4,926)
(35,785)
(12,853)
(3,973)
(3,350)
-
-
(93)
197
-
2,356
(35,785)
(12,946)
(3,776)
(3,350)
167
(33,567)
(12,895)
157
(12,738)
-
402
198
600
-
(2,280)
6,243
(960)
5,283
2
600
5,285
(1,693)
1,793
(829)
964
-
964
-
104
198
302
-
302
(1,693)
1,897
(631)
1,266
-
1,266
(b) 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.
56
Additional Stock Exchange Information
Number of Holdings of Equity Securities as at 18 September 2006
The fully paid issued capital of the Company consisted of 96,834,516 ordinary fully paid shares held by 1,167 shareholders. Each
share entitles the holder to one vote.
Thirty-three option holders hold 870,000 options over ordinary shares. Options do not carry a right to vote.
Distribution of Holders of Equity Securities
Number of shareholders
Size of Shareholding
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 18 September 2006
Shareholder
Gary Stephen Gale (i)
Gale Australia Pty Ltd (ii)
Barbara Gale (ii)
UBS Nominees Pty Ltd
Thorney Holdings Pty Ltd (iii)
Monterrey Investment Management Limited
Regal Funds Management Pty Ltd
Equipsuper Pty Ltd
Fully Paid Ordinary Shares
167
427
230
300
43
1,167
96
Options Over Ordinary Shares
-
-
-
32
1
33
-
No.
%
15,399,709
13,927,844
13,927,844
14,031,101
13,316,632
11,147,453
9,651,101
5,572,797
15.90
14.46
14.46
14.19
13.75
11.51
9.97
5.75
(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, and 14 on the schedule of Twenty Largest
Holders of Quoted Equity Securities and includes a holding that is outside of the top twenty holdings.
Twenty Largest Holders of Quoted Equity Securities
1 Gale Australia Pty Ltd
2
3
4
Invia Custodian Pty Limited (Thirty Five A/C)
ANZ Nominees Limited (Cash Income A/C)
UBS Nominees Pty Ltd
5 National Nominees Limited
6
Citicorp Nominees Pty Limited
7 National Nominees Limited (Equipsuper Account)
8
9
ANZ Nominees Limited (Income Reinvest Plan A/C)
Equity Trustees Limited (SGH PI Smaller Co’s Fund)
10 National Australia Trustees Limited
11 Contemplator Pty Ltd (A R G Pension Fund A/C)
12 Ruminator Pty Ltd
13 J P Morgan Nominees Australia Limited
14 Invia Custodian Pty Limited (White A/C)
15 Mrs Anne Lesley Gale
16 Gwynvill Trading Pty Limited
17 Cogent Nominees Pty Limited (SMP Accounts)
18 Atkone Pty Ltd
19 Womby Investments Pty Ltd
20 Citicorp Nominees Pty Limited (CFSIL CWLTH BOFF Super A/C)
13,927,844
12,247,396
8,934,736
8,414,617
7,207,665
6,530,194
5,572,797
5,455,987
3,978,058
1,577,353
1,176,471
982,352
835,857
801,938
773,923
716,213
690,235
588,234
570,957
530,580
14.38
12.65
9.23
8.69
7.44
6.74
5.75
5.63
4.11
1.63
1.21
1.01
0.86
0.83
0.80
0.74
0.71
0.61
0.59
0.55
Top 20 holders of ORDINARY FULLY PAID SHARES as at 18 Sep 2006
81,513,407
84.16
Other information:
The name of the Company Secretary is Ms. Sophie 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
57
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59
Melbourne, Australia
Christchurch, New Zealand
Florida, USA
Jebel Ali, Dubai
Neunkirchen, Germany
Beilun, China
Gale Pacific Limited
ABN 80 082 263 778
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