GALE Pacific
Annual Report 2014

Plain-text annual report

T R O P E R L A U N N A 4 1 0 2 For personal use only CORPORATE DIRECTORY Gale Pacific Limited Solicitors ABN 80 082 263 778 Directors Mr David Allman (Chairman) Mr Nick Pritchard (Group Managing Director) Mr Peter Landos (Non Executive Director) Mr John Murphy (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 Norton Gledhill Level 23, 459 Collins Street, Melbourne, Victoria, 3000 T + 613 9614 8933 Auditor Deloitte Touche Tohmatsu 550 Bourke Street, Melbourne, Victoria, 3000 T + 613 9671 7000 Share Registery Computershare Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067 T + 613 9415 4000 Website Address www.galepacific.com For personal use only S T N E T N O C INTRODUCTION Corporate Directory Chairman’s Letter CORPORATE Board of Directors Senior Management Corporate Governance Directors’ Report 2 4 8 9 10 11 FINANCIAL RESULTS Financial Results 28 2014 Annual General Meeting The Annual General Meeting will be held on Friday 24 October 2014. The Notice of Meeting and Proxy Form are separate items accompanying this 2014 Annual Report. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 3 For personal use only CHAIRMAN’S LETTER Dear Shareholders, Financial year 2014 has been a challenging year for Gale highlighted by continued sales and profit growth in our overseas divisions and a number of challenges that have had a negative impact on our Australasian operations. Despite improved sales and profit performance in the second half, we were unable to make up the shortfall from the first half of FY14. The company recorded a decrease in net profit after tax of 9.4% to $8.2 million compared to $9.1 million for the previous corresponding period. The results once again included very strong sales and profit growth for our Americas and Middle East businesses and a return to growth in our International business. Our Australasian businesses grew sales despite very competitive trading conditions, however profits declined as the businesses undertook significant organisational restructuring and continued to address the added complexity that the integration of the Zone and Highgrove businesses have placed on the organisation. We were again very pleased with the contribution from our Chinese manufacturing operations. The key items of the results were; Sales EBITDA Depreciation and amortisation EBIT Interest Profit before tax Tax Reported profit after tax Net cash provided by operating activities Net debt 2013 / 2014 (A $ Million) 137.3 2012 / 2013 (A $ Million) 120.0 17.6 5.4 12.1 1.1 11.0 2.8 8.2 4.2 11.2 18.0 5.1 12.9 0.9 12.0 2.9 9.1 11.5 3.2 Diluted earnings per share Final dividend per share 2.72 cents 1.35 cents 3.00 cents 1.35 cents Change (%) 14% (2)% 6% (6)% 22% (8)% (3)% (9)% (63)% 250% (9)% 0% Revenue Increase of 14% to $137.3 Million Revenue for the year increased by 14% to $137.3 million . Sales revenues in local currencies grew by 27% in the USA and 14% in the Middle East. Sales revenues increased in Australasia by 4%. We continued to invest in the development of our international business by increasing direct marketing and selling activities, predominantly in Europe, South America and China. EBITDA Decrease of 2% to $17.6 Million Earnings before interest, tax, depreciation and amortisation (EBITDA) was slightly down on last year at $17.6 million for the year. EBIT Decrease of 6% to $12.1 Million Earnings before interest and tax (EBIT) was $12.1 million compared to $12.9 million for the previous corresponding period. The reduction in EBIT was due to the decline in the Australasian business offset by improved earnings in the USA, Middle East and China / International operations. NPAT Decrease of 9% to $8.2 Million Net profit after tax of $8.2 million for the financial year ended 30 June 2014 declined by 9.4% or $0.85 million compared to the previous corresponding period. 4 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Final Dividend Payment of 1.35 Cents Unfranked The Directors are pleased to announce to shareholders that the Company has maintained the ordinary final dividend at 1.35 cents per share. Dividends for the full year of 2.65 cents per share have been declared on diluted earnings of 2.72 cents per share. However, the final dividend payment of 1.35 cents per share will be unfranked. The final dividend will be paid to shareholders on 1 December 2014. Cash From Operations $4.2 Million The ongoing profitability of the Company continued to generate strong cash flow from operations, however lower than in the previous corresponding period due to working capital increases. Working capital management is, and will continue to be, a major focus of the business and an overall improvement in working capital is expected moving forward. The business recorded capital expenditure of $3.4 million for the year, an increase of $0.9 million on the prior year and includes $1.3 million of expenditure for upgraded IT systems for implementation in the USA in 2014 / 2015. Dividends of $7.9 million were paid to shareholders. The company had net debt of $11.2 million as at 30 June 2014 compared to net debt of $3.2 million at 30 June 2013. Organisational Restructure The company has also announced a major organisational restructure which will streamline the Group's operations, shorten reporting lines and reduce administrative duplication. As a result of this Mr Nick Pritchard, currently Managing Director of the Australasian business, has been appointed Group Managing Director. Nick joined Gale Pacific in August 2013 and has been leading the transformation of the Australasian business, which is expected to report improved underlying earnings in FY2015. Previously, Nick was Chief Executive of the Australasian business of the US based multi national Newell Rubbermaid which owns brands such as Parker, PaperMate, Waterman, DYMO, Rubbermaid and IRWIN Tools. As a result of this change Mr Peter McDonald, the current Managing Director and Chief Executive Officer, has left the company and the Board would like to thank him for his considerable contribution, particularly during his eight years as Managing Director. Review of Operations While our businesses in the Americas and Middle East continued to perform well, our results in Australasia, which accounts for 58% of the group's sales, were unacceptable. The restructuring is aimed at creating a more focused and agile business with improved customer service, lower costs and the ability to leverage Gale Pacific's technology, global scale and strong market positions. Benefits are also expected in the group's marketing and supply chain, including inventory management. Australasia (Australian Dollars) Local Currency Sales EBITDA FY14 (A$M’s) 79.9 1.7 FY13 (A$M’s) 76.9 6.2 Change (%) 4% (73)% Australasian sales increased through both retail and commercial channels. In the retail channel, sales of Coolaroo and ZONE branded products increased, but sales of Highgrove branded products were lower. In the commercial channel, higher sales of tank liners and a large export contract for water fluming fabric offset lower demand for grain storage covers and mining fabric. Margins were affected by higher raw material and logistics costs, the weaker Australian dollar and a change in the sales mix. Earnings were also affected by costs related to the restructuring of the business, implementation of the new ERP system and integration of the ZONE and Highgrove businesses. Working capital increased by 35%, due partly to inventory carried over from the previous grain season. Inventory held in a major retailer's stores was reduced during the year to more realistic levels; affecting Gale Pacific's revenue but, with the customer's sales increasing satisfactorily, the impact is expected to be short term. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 5 For personal use only The new leadership team, appointed during the year, has made considerable progress with improving service levels, stabilising the IT system and introducing systems and processes to improve management visibility and reduce costs. In addition, brand and product strategies have been defined, there is now a strong pipeline of new products, a digital platform is under development, and there are plans for investment to strengthen the company's core consumer brands. Two significant product launches, an Everton range of glass pool fencing and balustrade, and a ZONE Interiors range of interior window furnishings will take place in FY2015. Americas (US Dollars) Local Currency Sales EBITDA FY14 (US$M’s) 32.9 3.0 FY13 (US$M’s) 25.9 2.1 Change (%) 27% 43% Improved consumer confidence, together with new products and effective seasonal marketing programs, resulted in higher sales by most major retail customers, and additional listings were secured with some of the larger traditional and online retailers. Sales of fabrics to the commercial sector also increased. Margins were slightly lower due to an increase in direct shipments to retailers from China. Additional investment in marketing and sales resources, combined with new product development, is expected to lead to further sales growth. Two of the largest wholesale clubs have expanded their range commitments for FY2015. Middle East (US Dollars) Local Currency Sales EBITDA FY14 (US$M’s) 11.1 2.4 FY13 (US$M’s) 9.7 1.9 Change (%) 14% 26% Construction activity and demand for architectural shade fabric in Gale Pacific's two main markets resulted in increased demand for the company's commercial fabrics which have a reputation in the region for withstanding extreme heat. Sales to the UAE increased by over 10% and sales to Saudi Arabia increased by over 20%. Margins in the region were also higher. China and International Export Sales (US Dollars) China (US Dollars) Local Currency Sales – International Sales - Internal EBITDA FY14 (US$M’s) 8.3 38.9 9.0 FY13 (US$M’s) 7.6 28.6 7.6 Change (%) 9% 36% 18% Higher labour and material costs were offset by record volumes, increased efficiencies, improved yields and reduced waste levels contributing to a record result from the China operations. EBITDA was US$9.0M, up 18% on prior year predominantly representing margin on intercompany sales. A new large scale tape extrusion line is currently being commissioned. This will increase tape extrusion output by approximately 50%, or 1,000 tonnes per annum. A number of knitting machines have been recommissioned to utilise this tape increase, further increasing plant capacity and supporting future sales growth. Other Overseas Markets (US Dollars) Sales in Japan, South Africa, Israel and Italy all increased, although overall sales in Europe were lower. Further growth is expected in Japan following the launch of new commercial products in FY2015, and business development activities in China, South America and Europe are also expected to lead to higher sales. 6 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Cash Flow and Balance Sheet Net operating cash flow remained strong at $4.2 million, but was lower than FY2013 ($11.5 million) due to an increase in working capital. Steps are being taken to reduce working capital and, while inventory will increase in the first half of FY2015 to support two major product launches, an improvement is expected over the course of the year. Capital expenditure increased by $0.9 million to $3.4 million, due partly to investment of $1.3 million to upgrade IT systems. Net debt at 30 June 2014 was $11.2 million, compared with $3.2 million at 30 June 2013, and the ratio of net debt to total funds employed was 12.3% (30 June 2013: 3.7%). Organic and Acquisition Growth Gale maintains a strong continuous improvement culture, skilled and motivated employees and management, and an effective and expanding international infrastructure. Innovation and product development continues to be a main focus as a driver of growth from our core business base. The Company has ongoing strong cash generation and a strong balance sheet. Further complementary acquisitions will continue to be assessed and actively pursued. Management and Staff On behalf of the Directors, we would like to thank all Gale employees for their hard work and commitment to grow and improve the business. The company has faced a number of challenges in FY14 and a significant amount of restructuring has taken place in the business to improve our operations and the service we provide to our customers. We welcome the new members to the team and look forward to their contribution as we strive to profitably grow the organisation and drive for continuous improvements in everything we do. Outlook Trading conditions are expected to remain largely consistent with the past year, but there are signs of increasing consumer spending in the USA and demand in the Middle East remains stable, fuelled by construction activity. Margins are likely to remain under pressure due to increasing material and labour costs in China and the strengthening of the renminbi. The restructuring of the Australasian business is expected to lead to an improvement in Australasian earnings and, as a result, the company's FY2015 underlying after-tax profit is expected to show an improvement on FY2014. The statutory result will include non-recurring costs of approximately $2.5 million pretax ($1.75 million after tax) relating to the restructuring announced today and the transformation process that is underway. This includes costs associated with the refresh and relaunch of the company’s ZONE window furnishings range and the rebranding and marketing program relating to the company’s pool fencing and balustrade range. We see strong growth opportunities in these product categories and the investments in these projects will considerably improve the products, packaging, consumer shopping experience and marketing support programs. Annual General Meeting A notice of the Company’s Annual General Meeting to be held on 24 October 2014 and a voting form is enclosed with this report. David Allman Chairman 25 August 2014 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 7 For personal use only BOARD OF DIRECTORS David Allman B.Sc. Chairman and Non Executive Director since November 2009. David was Managing Director of McPherson’s Limited from 1995 to 2009 and prior to that he was Managing Director of Cascade Group Limited for 7 years. Before this he held senior positions with Elders IXL Limited and Castlemaine Tooheys Limited. David holds a degree in engineering and prior to obtaining general management positions held managerial roles in production management, finance and marketing. David is Chairman of McPherson’s Limited and Muir Engineering Pty Ltd. David is the Chairman of the Company’s Nomination Committee and is a member of the Audit and Risk and Remuneration Committees. Nick Pritchard B.Bus (Marketing) Nick joined Gale in August 2013 as Managing Director Australia and New Zealand and was appointed Group Managing Director in August 2014. Prior to joining Gale, Nick held senior leadership positions at Newell Rubbermaid, most recently, Vice-President / General Manager – Australia and New Zealand where he led all business segments for the Australia and New Zealand markets. Nick has considerable local and international experience in brand development, business consolidation and leading a highly profitable, high growth organisation. Nick was formerly Marketing Manager and Product Manager of Gale Pacific between 1996 and 2003 and developed the Coolaroo brand and many of the company’s highly successful products. Peter Landos B.Econ., CA Non Executive Director in May 2014. Peter is the Chief Operating Officer of the Thorney Investment Group of Companies with whom he has been since September 2000, having previously worked at Macquarie Bank Limited. Peter has extensive business and corporate experience specialising in advising boards and management in mergers and acquisitions, divestments, business restructurings and capital markets. Peter is also a Non Executive Chairman of Adacel Technologies Limited. Peter is a member of the Company’s Nomination, Risk, Audit and Remuneration Committees. John Murphy CA, FCPA, B.Comm, M.Comm Non Executive Director since August 2007. John was the Managing Director of Investec Wentworth Private Equity Limited from 2002 until 30 September 2011. Also on that date John changed from being an executive to a non executive director of Investec Bank (Australia) Limited. He is currently a director of a number of listed companies including Ariadne Australia Limited, Vocus Communications Limited, Redflex Holdings Limited and Kresta Holdings Limited. John is the Chairman of the Company's Remuneration Committee and is a member of the Audit and Risk and Nomination Committees. George Richards CPA Non Executive Director since May 2004. George was the Chief Executive of Mitre 10 South West Ltd during the 1990’s and was previously the Managing Director of Cooper Tools, a market leader in hand tools manufacture and distribution.George has had over 50 years experience in retail, marketing, manufacturing and distribution. He is a board member of The Alfred Foundation and an Associate Member of the Australian Society of Accountants (CPA). George is Chairman of the Company’s Audit and Risk Committee and is a member of the Nomination and Remuneration Committees. 8 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only SENIOR MANAGEMENT Howard Abbey Chief Financial Officer (“CFO”) Howard joined Gale in October 2013 and is an experienced CFO having held senior finance positions within large, international businesses with significant sales, distribution and manufacturing operations. Howard began his career with the BOC Group where he spent 18 years in both operational and financial roles within Europe, Asia and the USA. He then spent 4 years in China as CFO for the ECCO Group where he played a leading role in the establishment and subsequent management of a new Chinese manufacturing facility. Prior to joining Gale he was CFO for Australian Defence Apparel Pty Ltd. Howard holds a Masters degree in Electrical & Mechanical Engineering and is a CPA and member of the Chartered Institute of Management Accountants. Martin Denney Managing Director, USA Martin joined Gale in June 2006 and has strong commercial and strategic planning skills gained over 20 years across a range of industries including food and beverage, distribution, manufacturing, technology and property development. He has held senior management roles including General Manager of Socomin, a branded food import and distribution division of Pacific Dunlop Group (turnover A$40 million). Other roles include National Sales and Marketing Manager at Dennis Family Corporation (turnover A$250 million), and Business Development Manager at Adacel Technologies. Bernie Wang Managing Director, China Bernie joined Gale in February 2009 and has 20 years experience in the chemical fibre textile industry. Bernie started his career with a large tyre cord manufacturer in China as a spinning process engineer and was promoted to Plant Manager and finally to Technical Director. Bernie then spent four years with DuPont Fibre as Operations Manager and Maintenance Manager. Before joining Gale, he worked for 5 years as General Manager for a German company in China where he was responsible for the design and construction of the factory and the establishment of manufacturing operations. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 9 For personal use only CORPORATE GOVERNANCE The Company’s Directors and management are committed to conducting the Group’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Company has adopted and substantially complies with the ASX Corporate Governance Principles and Recommendations (Third Edition) (Recommendations) to the extent appropriate to the size and nature of the Group’s operations. The Company has prepared a statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company, identifies any Recommendations that have not been followed, and provides reasons for not following such Recommendations (Corporate Governance Statement). In accordance with ASX Listing Rules 4.10.3 and 4.7.4, the Corporate Governance Statement will be available for review on Gale Pacific’s website (www.galepacific.com), and will be lodged together with an Appendix 4G with ASX at the same time that this Annual Report is lodged with ASX. The Appendix 4G will particularise each Recommendation that needs to be reported against by Gale Pacific, and will provide shareholders with information as to where relevant governance disclosures can be found. The Company’s corporate governance policies and charters are all available on Gale Pacific’s website (www.galepacific.com). 10 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only DIRECTORS’ REPORT The Directors of Gale Pacific Limited (“the Company”) present their annual financial report for the Company and its controlled entities (“the Group”) for the financial year ended 30 June 2014. The Directors in office at any time during or since the end of the year to the date of this report are: David Allman, B.Sc. Chairman and Non Executive Director since November 2009 David was Managing Director of McPherson’s Limited from 1995 to 2009 and prior to that he was Managing Director of Cascade Group Limited for 7 years. Before this he held senior positions with Elders IXL Limited and Castlemaine Tooheys Limited. David holds a degree in engineering and prior to obtaining general management positions held managerial roles in production management, finance and marketing. David is Chairman of McPherson’s Limited and Muir Engineering Pty Ltd. Other than the above, no other directorships of listed companies were held by David at anytime during the three years prior to 30 June 2014. David is Chairman of the Company’s Nomination Committee and is a member of the Audit and Risk and Remuneration Committees. Peter McDonald, B.Bus (Marketing) Managing Director and Chief Executive Officer from April 2006 and Executive Director from 1998 until 22 August 2014 Peter was appointed Managing Director and Chief Executive Officer of Gale in April 2006. Peter joined Gale in 1988 and was appointed as an Executive Director of the Company in 1998. Peter has held the positions of Product Manager, National Marketing Manager, National Sales and Marketing Manager, Chief Operating Officer and Managing Director of Gale’s United States operations. No other directorships of listed companies were held by Peter at any time during the three years prior to 30 June 2014. Nick Pritchard B Bus (Marketing) Group Managing Director appointed 22 August 2014 Nick joined Gale in August 2013 as Managing Director Australia and New Zealand and was appointed Group Managing Director on 22 August 2014. Prior to joining Gale, Nick held senior leadership positions at Newell Rubbermaid, most recently, Vice-President / General Manager – Australia and New Zealand where he led all business segments for the Australia and New Zealand markets. Nick has considerable local and international experience in brand development, business consolidation and leading a highly profitable, high growth organisation. Nick was formerly Marketing Manager and Product Manager of Gale Pacific between 1996 and 2003 and developed the Coolaroo brand and many of the company’s highly successful products. Peter Landos, B.Econ., CA Non Executive Director since May 2014 Peter is the Chief Operating Officer of the Thorney Investment Group of Companies with whom he has been since September 2000, having previously worked at Macquarie Bank Limited. Peter has extensive business and corporate experience specialising in advising boards and management in mergers and acquisitions, divestments, business restructurings and capital markets. Peter is also a Non Executive Chairman of Adacel Technologies Limited. In the three years prior to 30 June 2014 Peter was also a director of McPherson’s Group Limited and Rattoon Holdings Limited. Peter is a member of the Company’s Nomination, Risk, Audit and Remuneration Committees. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 11 For personal use only John Murphy, CA, FCPA, B.Comm, M.Comm Non Executive Director since August 2007 John was the Managing Director of Investec Wentworth Private Equity Limited from 2002 until 30 September 2011. Also on that date John changed from being an executive to a non executive director of Investec Bank (Australia) Limited. He is currently a director of a number of listed companies including Ariadne Australia Limited, Vocus Communications Limited, Redflex Holdings Limited and Kresta Holdings Limited. In the three years prior to 30 June 2014 John was also a director of Clearview Wealth Limited. John is the Chairman of the Company's Remuneration Committee and is a member of the Audit and Risk and Nomination Committees. George Richards, CPA Non Executive Director since May 2004 George was the Chief Executive of Mitre 10 South West Ltd during the 1990’s and was previously the Managing Director of Cooper Tools, a market leader in hand tools manufacture and distribution. George has had over 50 years experience in retail, marketing, manufacturing and distribution. He is a board member of The Alfred Foundation and an Associate Member of the Australian Society of Accountants (CPA). No other directorships of listed companies were held by George at any time during the three years prior to 30 June 2014. George is Chairman of the Company’s Audit and Risk Committee and is a member of the Nomination and Remuneration Committees. Ms Sophie Karzis, B Juris LLB Company Secretary Sophie was appointed as Company Secretary in June 2004. Sophie is a practising lawyer who holds roles at a number of public and private companies. Nature of Operations and Principal Activities The Group’s principal activities in the course of the financial year were the marketing, sales, manufacture and distribution of branded screening, shading and home improvement products to global markets. Review and Results of Operations Revenue for the year increased by 14% to $137.3 million . Sales revenues in local currencies grew by 27% in the USA and 14% in the Middle East. Sales revenues increased in Australasia by 4%. We continued to invest in the development of our international business by increasing direct marketing and selling activities, predominantly in Europe, South America and China. Earnings before interest, tax, depreciation and amortisation (EBITDA) was slightly down on last year at $17.6 million for the year. Earnings before interest and tax (EBIT) was $12.1 million compared to $12.9 million for the previous corresponding period. The reduction in EBIT was due to the decline in the Australasian business offset by improved earnings in the USA, Middle East and China / International operations. Net profit after tax of $8.2 million for the financial year ended 30 June 2014 declined by 9.4% or $0.85 million compared to the previous corresponding period. The Directors are pleased to announce to shareholders that the Company has maintained the ordinary final dividend at 1.35 cents per share. Dividends for the full year of 2.65 cents per share have been declared on diluted earnings of 2.72 cents per share. The final dividend payment of 1.35 cents per share will be unfranked. The final dividend will be paid to shareholders on 1 Decemberr 2014. 12 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only The ongoing profitability of the Company continued to generate strong cash flow from operations, however lower than in the previous corresponding period due to working capital increases. Working capital management is, and will continue to be, a major focus of the business and an overall improvement in working capital is expected moving forward. The business recorded capital expenditure of $3.4 million for the year, an increase of $0.9 million on the prior year and includes $1.3 million of expenditure for upgraded IT systems for implementation in the USA in 2014 / 2015. Dividends of $7.9 million were paid to shareholders. The company had net debt of $11.2 million as at 30 June 2014 compared to net debt of $3.2 million at 30 June 2013. The company has also announced a major organisational restructure which will streamline the group's operations, shorten reporting lines and reduce administrative duplication. As a result of this Mr Nick Pritchard, currently Managing Director of the Australasian business, has been appointed Group Managing Director. Nick joined Gale Pacific in August 2013 and has been leading the transformation of the Australasian business, which is expected to report improved underlying earnings in FY2015. Previously, Nick was Chief Executive of the Australasian business of the US based multi-national Newell Rubbermaid which owns brands such as Parker, PaperMate, Waterman, DYMO, Rubbermaid and IRWIN Tools. As a result of this change Mr Peter McDonald, the current Managing Director and Chief Executive Officer, has left the company and the Board would like to thank him for his considerable contribution, particularly during his eight years as Managing Director. While our businesses in the Americas and Middle East continued to perform well, our results in Australasia, which accounts for 58% of the group's sales, were unacceptable. The restructuring is aimed at creating a more focused and agile business with improved customer service, lower costs and the ability to leverage Gale Pacific's technology, global scale and strong market positions. Benefits are also expected in the group's marketing and supply chain, including inventory management. Australasian sales increased through both retail and commercial channels. In the retail channel, sales of Coolaroo and ZONE branded products increased, but sales of Highgrove branded products were lower. In the commercial channel, higher sales of tank liners and a large export contract for water fluming fabric offset lower demand for grain storage covers and mining fabric. Margins were affected by higher raw material and logistics costs, the weaker Australian dollar and a change in the sales mix. Earnings were also affected by costs related to the restructuring of the business, implementation of the new ERP system and integration of the ZONE and Highgrove businesses. Working capital increased by 35%, due partly to inventory carried over from the previous grain season. Inventory held in a major retailer's stores was reduced during the year to more realistic levels; affecting Gale Pacific's revenue but, with the customer's sales increasing satisfactorily, the impact is expected to be short term. The new leadership team, appointed during the year, has made considerable progress with improving service levels, stabilising the IT system and introducing systems and processes to improve management visibility and reduce costs. In addition, brand and product strategies have been defined, there is now a strong pipeline of new products, a digital platform is under development, and there are plans for investment to strengthen the company's core consumer brands. Two significant product launches, an Everton range of glass pool fencing and balustrade, and a ZONE Interiors range of interior window furnishings will take place in FY2015. Improved consumer confidence, together with new products and effective seasonal marketing programs, resulted in higher sales by most major retail customers, and additional listings were secured with some of the larger traditional and online retailers. Sales of fabrics to the commercial sector also increased. Margins were slightly lower due to an increase in direct shipments to retailers from China. Additional investment in marketing and sales resources, combined with new product development, is expected to lead to further sales growth. Two of the largest wholesale clubs have expanded their range commitments for FY2015. Construction activity and demand for architectural shade fabric in Gale Pacific's two main markets resulted in increased demand for the company's commercial fabrics which have a reputation in the region for withstanding extreme heat. Sales to the UAE increased by over 10% and sales to Saudi Arabia increased by over 20%. Margins in the region were also higher. Higher labour and material costs were offset by record volumes, increased efficiencies, improved yields and reduced waste levels contributing to a record result from the China operations. EBITDA was $9.0M, up 18% on prior year predominantly representing margin on intercompany sales. A new large scale tape extrusion line is currently being commissioned. This will increase tape extrusion output by approximately 50%, or 1,000 tonnes per annum. A number of knitting machines have been recommissioned to utilise this tape increase, further increasing plant capacity and supporting future sales growth. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 13 For personal use only Sales in Japan, South Africa, Israel and Italy all increased, although overall sales in Europe were lower. Further growth is expected in Japan following the launch of new commercial products in FY2015, and business development activities in China, South America and Europe are also expected to lead to higher sales. Net-operating cash flow remained strong at $4.2 million, but was lower than FY2013 ($11.5 million) due to an increase in working capital. Steps are being taken to reduce working capital and, while inventory will increase in the first half of FY2015 to support two major product launches, an improvement is expected over the course of the year. Capital expenditure increased by $0.9 million to $3.4 million, due partly to investment of $1.3 million to upgrade IT systems. Net debt at 30 June 2014 was $11.2 million, compared with $3.2 million at 30 June 2013, and the ratio of net debt to total funds employed was 12.3% (30 June 2013: 3.7%). Trading conditions are expected to remain largely consistent with the past year, but there are signs of increasing consumer spending in the USA and demand in the Middle East remains stable, fuelled by construction activity. Margins are likely to remain under pressure due to increasing material and labour costs in China and the strengthening of the renminbi. The restructuring of the Australasian business is expected to lead to an improvement in Australasian earnings and, as a result, the company's FY2015 underlying after tax profit is expected to show an improvement on FY14. The statutory result will include non recurring costs of approximately $2.5 million pre tax ($1.75 million after tax) relating to the restructuring announced today and costs associated with the refresh and relaunch of the company’s ZONE window furnishings range and the rebranding and marketing program build relating to the company’s pool fencing and balustrade range. We see strong growth opportunities in these product categories and the investments in these projects will considerably improve the products, packaging, consumer shopping experience and marketing support programs. State of Affairs There were no significant changes in the state of affairs of the Group during the financial year. Events Subsequent to Balance Date The Company has announced a major organisational restructure which will streamline the Group's operations, shorten reporting lines and reduce administrative duplication. Nick Pritchard, previously Managing Director of the Australasian business, has been appointed Group Managing Director. As a result of this change Peter McDonald, the previous Managing Director and Chief Executive Officer, has left the company. Likely Developments Disclosure of information regarding likely developments in the operations of the Group in future financial years has been made in part in the Chairman’s Letter of this Annual Report. Any further such disclosure and the expected results of those operations is likely to result in unreasonable prejudice to the Group and has accordingly not been disclosed in this report. Environmental Regulation and Performance The Group’s operations are not subject to any significant environmental regulations under the Commonwealth or State legislation. The Directors believe that the Group 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 Group. 14 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Dividends Dividends paid to members during the financial year were as follows: Final ordinary dividend for the year ended 30 June 2013 of 1.35 cents per share paid on 4 October 2013 Interim ordinary dividend for the year ended 30 June 2014 of 1.30 cents per share paid on 10 April 2014 2013 / 2014 ($000) 2012 / 2013 ($000) 4,016 3,867 3,693 3,858 In addition to the above dividends, since the end of the financial year the Directors have declared the payment of a final ordinary dividend of 1.35 cents per share to be paid on 1 December 2014. This dividend payment will be unfranked. For the full year dividends of 2.65 cents per share have been declared on diluted earnings of 2.72 cents per share. This maintains the full year ordinary dividend in line with last year. Share Based Payments Performance Rights The number of performance rights on issue at the date of this report is 3,100,000. No amount is payable on the vesting of a performance right. Each performance right entitles the holder to one (1) ordinary share in Gale Pacific Limited in the event that the performance right is exercised. Performance rights carry no rights to dividends and no voting rights. 3,150,000 performance rights were granted to Executives apart from the Managing Director on 20 September 2012. As of 30 June 2014, 1,200,000 of these performance rights lapsed as the performance hurdles were not met. A further 1,125,000 performance rights lapsed during the year to 30 June 2014 as the relevant personnel ceased employment with the company. 3,500,000 performance rights were granted to other management personnel on 20 September 2012. As of 30 June 2014, 2,075,000 of these performance rights lapsed as the performance hurdles were not met. A further 675,000 performance rights lapsed during the year to 30 June 2014 as the relevant personnel ceased employment with the company. 1,200,000 performance rights were granted to the Managing Director on 26 November 2012. As of 30 June 2014, 600,000 of these performance rights lapsed as the performance hurdles were not met. The remaining 600,000 performance rights lapsed on 22 August 2014 as the Managing Director ceased employment with the company. The remaining performance rights will vest subject to a continuation of employment to 20 September 2015 and the satisfying of relevant performance hurdles based on the Group’s diluted earnings per share over the three year period from 1 July 2012 to 30 June 2015. None of these performance rights can vest until 20 September 2015 and expire on 20 September 2022. 750,000 performance rights were granted to one Executive member on 3 October 2013. As of 30 June 2014, 187,500 of these performance rights lapsed as the performance hurdles were not met. 550,000 performance rights were granted to other management personnel outside the key management group on 3 October 2013. As of 30 June 2014, 137,500 of these performance rights lapsed as the performance hurdles were not met. The remaining performance rights will vest subject to a continuation of employment to 31 August 2016 and the satisfying of relevant performance hurdles based on the Group’s diluted earnings per share over the three year period from 1 July 2013 to 30 June 2016. None of these performance rights can vest until 31 August 2016 and expire on 3 October 2023. On 5 July 2013 the Company issued 735,000 fully paid ordinary shares in the company relating to performance rights issued to Executives on 15 August 2010 and after satisfying the relevant performance hurdles for the period from 1 July 2010 to 30 June 2013. Further details of the options and performance rights movements during the reporting period are disclosed in the Remuneration Report. Indemnification of Officers and Auditors During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and all Executive Officers of the Company and of any related body corporate against a liability incurred as a Director, Secretary or Executive Officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as an officer or auditor. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 15 For personal use only Directors’ Shareholdings The following table sets out each Director’s relevant interest in shares, options and performance rights in shares of the Company as at the date of this report. Directors D Allman P Landos P McDonald J Murphy N Pritchard G Richards Fully Paid Ordinary Shares Options Performance Rights 1,000,000 Nil 2,337,874 2,816,599 Nil 491,899 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 562,500 Nil Directors’ Meetings The table below sets out the attendance by Directors. Directors’ Meetings Audit and Risk Committee Meetings Remuneration Committee Meetings Nomination Committee Meetings Directors D Allman P Landos P McDonald J Murphy G Richards No of Meetings Eligible to Attend 11 3 11 11 11 Attended 11 3 11 11 10 No of Meetings Eligible to Attend 2 - - 2 2 Attended 2 - 2 2 2 No of Meetings Eligible to Attend 1 - - 1 1 Attended 1 - 1 1 1 No of Meetings Eligible to Attend 1 - - 1 1 Attended 1 - 1 1 1 By Board invitation, Peter McDonald also attended all of the Audit and Risk, Remuneration and Nomination Committee meetings. The members of the Audit and Risk Committee are David Allman, Peter Landos, John Murphy and George Richards. The Chairman of the Audit and Risk Committee is George Richards.  The members of the Remuneration Committee are David Allman, Peter Landos, John Murphy and George Richards. The Chairman of the Remuneration Committee is John Murphy. The members of the Nomination Committee are David Allman, Peter Landos, John Murphy and George Richards. The Chairman of the Nomination Committee is David Allman. Remuneration Report This report contains the remuneration arrangements in place for Directors and Executives of the Group. 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 Group’s remuneration policy is based on the following principles: (cid:131) (cid:131) (cid:131) Provide competitive rewards to attract high quality executives; Provide an equity incentive for senior executives that will provide an incentive to executives to align their interests with those of the Group and its shareholders; and Ensure that rewards are referenced to relevant employment market conditions. Remuneration packages contain the following key elements: (cid:131) (cid:131) (cid:131) Primary benefits – salary / fees; Benefits, including the provision of motor vehicles and incentive schemes, including performance rights; and Performance rights, if the performance criteria and any Board discretion are satisfied, entitle an executive to be issued shares in the Company at no cost to the executive. Shares are issued subsequently after the time all performance rights vesting conditions are met 16 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Relationship between the remuneration policy and company performance The table below set out summary information about the consolidated entity’s earnings and movements in shareholder wealth for the five years to 30 June 2014: Sales Net profit before tax Net profit after tax 30 June 2014 30 June 2013 30 June 2012 30 June 2011 30 June 2010 137,304 119,988 110,473 95,580 98,811 10,988 8,233 12,016 9,084 11,454 8,477 9,061 7,100 8,071 6,011 Share price at start of year 26 cents 24 cents 21 cents 16 cents 8 cents Share price at end of year 23 cents 26 cents 24 cents 21 cents 15 cents Interim dividend Final dividend 1.30 cents 1.20 cents 1.20 cents 1.00 cents 1.00 cents 1.35 cents 1.35 cents 1.20 cents 1.00 cents 1.00 cents Basic earnings per share 2.77 cents 3.07 cents 2.86 cents 2.42 cents 2.15 cents Diluted earnings per share 2.72 cents 3.00 cents 2.45 cents 2.20 cents 2.08 cents Remuneration Practices The Group 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 Group. The contracts of service between the Group 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, and other incentive payments are made at the discretion of the Remuneration Committee to Key Executives of the Group based predominantly on an objective review of the Group’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. Remuneration Structure In accordance with best practice corporate governance, the structure of Non Executive Directors and Senior Managers remuneration is separate and distinct. Non Executive Director Remuneration Objective The Board seeks to set remuneration at a level which provides the Company with the ability to attract and retain directors of relevant experience and skill, whilst incurring costs which are acceptable to shareholders. Structure The Company’s Constitution and the Australian Securities Exchange Listing Rules specify that the aggregate remuneration of Non Executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Directors as agreed. The last determination was at the Annual General Meeting held on 26 October 2012 when shareholders’ approved the Company’s constitution which provides for an aggregate remuneration of $500,000 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. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 17 For personal use only Senior Manager and Executive Director Remuneration Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group. The objective of the remuneration policy is: (cid:131) (cid:131) (cid:131) Reward executives for Group 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. (a). Share Based Payments The Group maintains a performance rights scheme for certain staff and executives, including the Managing Director, as approved by shareholders at an annual general meeting. These schemes are designed to reward key personnel when the Group meets performance hurdles increasing the diluted earnings per share and relate to: (cid:131) (cid:131) Improvement in earnings per share; and Improvement in return to shareholders. 735,000 performance rights vested on 30 June 2013 and the shares were subsequently issued to settle the rights on 5 July 2013. The number of unissued ordinary shares under the performance rights scheme at 30 June 2014 was 3,700,000. The performance rights granted on 20 September 2012 and 26 November 2012 will not vest until 20 September 2015. The performance rights granted on 3 October 2013 will not vest until 31 August 2016. Each performance right entitles the holder one (1) ordinary share in Gale Pacific Limited when exercised and is subject to the satisfying of relevant performance hurdles based on improvements in the Group’s diluted earnings per share. Options and performance rights issued to executives during the year were issued in accordance with the Group’s remuneration policy which: (cid:131) (cid:131) (cid:131) Reward executives for Group and individual performance; Align the interests of the executives with those of the shareholders; and Ensure that total remuneration is competitive by market standards. (b). Cash Bonuses One year short term performance cash bonus payments are awarded in accordance with the company’s remuneration policy. The budget targets for each business unit and the company overall is established each year by the Board. The performance criteria include sales and earnings before interest and tax growth and working capital management. For corporate executives, the performance criteria include growth in earnings before interest and tax and profit after tax. Key Management Personnel of the Group Who Held Office During the Year Directors D Allman (Chairman, Non Executive) P Landos (Non Executive) J Murphy (Non Executive) G Richards (Non Executive) P McDonald (Managing Director and Chief Executive Officer) Executives H Abbey (Chief Financial Officer) J Cox (Chief Financial Officer) (Retired on 31 October 2013) A Haidar (Regional Manager (Middle East) M Denney (Managing Director USA) S McPherson (Managing Director Australasia) (Resigned 9 July 2013) N Pritchard (Managing Director Australasia) A Scott (General Manager International Sales and Marketing) B Wang (Managing Director China) 18 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only The following table discloses the remuneration of the Directors of the Company: 2013 / 2014 Short Term Benefits Post Share Based Total Performance Related Employment Payments Directors Salary & Bonus Non Super Performance Total Performance Fees $ Executive Directors P McDonald 1 495,500 Non Executive Directors D Allman G Richards J Murphy P Landos 2 Total 114,416 51,314 77,803 11,442 750,475 Monetary $ - - - - - - $ - - - - - - $ 25,000 10,584 33,686 7,197 1,058 77,525 Rights $ $ % Rights % - - - - - - 520,500 125,000 85,000 85,000 12,500 828,000 - - - - - - - - - - 2012 / 2013 Short Term Benefits Post Share Based Total Performance Related Employment Payments Directors Salary & Bonus Non Super Performance Total Performance Fees $ Executive Directors P McDonald 480,339 Non Executive Directors D Allman G Richards J Murphy Total 114,679 77,982 77,982 750,982 Monetary $ - - - - - $ - - - - - $ Rights $ $ 25,000 14,750 520,089 10,321 7,018 7,018 49,357 - - - 125,000 85,000 85,000 14,750 815,089 % 2.8 - - - Rights % 2.8 - - - The following table discloses the remuneration of the Group’s key management personnel: 2013 / 2014 Short Term Benefits Post Share Based Termination Total Performance Related Employment Payments Benefits Key Salary & Bonus Non Super Rights Total Rights Management Personnel J Cox 3 N Pritchard 4 H Abbey 5 M Denney 6 B Wang 7 A Scott 8 Total Fees $ 158,966 286,173 186,205 292,099 216,800 183,302 Monetary $ - - - $ - - - 76,484 53,522 - 13,135 14,351 - 1,323,545 130,006 27,486 $ 8,333 20,734 17,224 - - 16,956 63,247 $ - - - - - - - 50,000 - - - - - - $ 217,299 306,907 203,429 381,718 284,673 200,258 1,594,284 % - - - 20.0% 18.8% - % - - - - - - 2012 / 2013 Short Term Benefits Post Share Based Total Performance Related Employment Payments Key Salary & Bonus Non Super Rights Total Rights Management Personnel J Cox Fees $ 301,351 Monetary $ - $ - M Denney 256,106 114,446 8,266 S McPherson 9 A Scott B Wang Total 314,066 178,372 179,560 - - 69,328 1,229,455 183,744 - - 13,955 22,221 $ 25,000 - 25,000 16,053 - 66,053 $ - 6,760 9,219 6,760 6,760 29,499 $ 326,351 385,578 348,285 201,185 269,603 1,531,002 % - 31.4% 2.6% 3.4% 28.2% % - 1.8% 2.6% 3.4% 2.5% 1 Mr McDonald left the company on 22 August 2014. 2 Mr Landos is a Non Executive Director. He commenced on 1 May 2014. 3 Mr Cox retired on 31 October 2013. 4 Mr Pritchard commenced employment as Managing Director – Australia & New Zealand on 19 August 2013 and became a Director on 22 August 2014. 5 Mr Abbey is the Chief Financial Officer. He commenced employment on 7 October 2013. 6 Mr Denney is based in the United States of America and remunerated in United States dollars converted to Australian dollars in the table above. 7 Mr Wang is based in China and remunerated in Chinese renminbi converted to Australia dollars in the above table. 8 Mr Scott is the General Manager International Sales and Marketing and is located in Australia. 9 Mr McPherson was the Managing Director – Australia & New Zealand. He resigned on 9 July 2013. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 19 For personal use only Directors’ and Executives’ Equity Holdings: Fully Paid Ordinary Shares 2013 / 2014 Executive Directors P McDonald Non Executive Directors D Allman J Murphy G Richards P Landos Executives J Cox H Abbey M Denney N Pritchard A Scott B Wang Total 2012 / 2013 Balance 30 June 2013 Granted as Compensation No. No. Received on Exercise of Options No. Other Movements Balance 30 June 2014 No. No. 2,337,874 1,000,000 3,684,579 491,899 - 1,448,472 - 800,000 - - 1,500,000 11,262,824 - - - - - - - - - - - - - - - - - - - - - 245,000 - - - (867,980) - - (472,824) - - - - - 245,000 (1,340,804) 2,337,874 1,000,000 2,816,599 491,899 - 975,648 - 800,000 - 245,000 1,500,000 10,167,020 Balance 30 June 2012 Granted as Compensation No. No. Received on Exercise of Options No. Executive Directors P McDonald Non Executive Directors D Allman J Murphy G Richards Executives J Cox S McPherson M Denney A Scott B Wang Total Share Based Compensation 3,228,105 - 1,000,000 491,899 2,000,000 1,500,000 1,500,000 - 1,500,000 11,220,004 - - - - - - - - - - - - - - - - - - - - Other Movements Balance 30 June 2013 No. No. (890,231) 2,337,874 1,000,000 2,684,579 - (551,528) (1,000,000) (700,000) - - 542,820 1,000,000 3,684,579 491,899 1,448,472 500,000 800,000 - 1,500,000 11,762,824 The terms and conditions of each grant of performance rights granted but not vested as at 30 June 2014 affecting remuneration in the current or a future reporting period are as follows: Grant Date 3 October 2013 26 November 2012 20 September 2012 Value per performance rights at grant date 0.1994 0.1475 0.1475 Each performance right entitles the holder to one (1) ordinary share in Gale Pacific in the event that the performance rights are exercised. Performance rights carry no rights to dividends and no voting rights. The performance rights granted on 20 September 2012 and 26 November 2012 are subject to a continuation of employment to 20 September 2015 and then the satisfying of relevant performance hurdles based on improvements in the Group’s diluted earnings per share over the three year period 1 July 2012 to 30 June 2015. None of these performance rights can vest until 20 September 2015 and expire on 20 September 2022. The performance rights granted on 3 October 2013 are subject to a continuation of employment to 31 August 2016 and then the satisfying of relevant performance hurdles based on improvements in the Group’s diluted earnings per share over the three year period 1 July 2013 to 30 June 2016. None of these performance rights can vest until 31 August 2016 and expire on 3 October 2023. 20 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Directors’ and Executives’ Equity Holdings, Compensation Options and Performance Rights: Granted and Vested During the Year 2013 / 2014 Vested Number Granted Number Grant Date Terms and Conditions for Each Grant Exercise Price Expiry Date First Exercise Date Last Exercise Date Value Per Option / Right at Grant Date Executive Directors (Performance Rights) None Non Executive Directors None Executives (Performance Rights) N Pritchard - 750,000 03/10/2013 $0.1994 Nil 31/08/2023 31/08/2016 03/10/2023 Other Management Personnel (Performance Rights) Other Management Total - - 550,000 03/10/2013 $0.1994 Nil 31/08/2023 31/08/2016 03/10/2023 1,300,000 2012 / 2013 Vested Number Granted Number Grant Date Executive Directors (Performance Rights) Terms and Conditions for Each Grant Exercise Price Expiry Date First Exercise Date Last Exercise Date Value Per Option / Right at Grant Date P McDonald - 1,200,000 26/11/2012 $0.1475 Nil 20/09/2022 20/09/2015 20/09/2022 Non Executive Directors None Executives (Performance Rights) J Cox S McPherson M Denney A Scott B Wang - - - 750,000 20/09/2012 $0.1475 750,000 20/09/2012 $0.1475 550,000 20/09/2012 $0.1475 245,000 550,000 20/09/2012 $0.1475 - 550,000 20/09/2012 $0.1475 Other Management Personnel (Performance Rights) Nil Nil Nil Nil Nil 20/09/2022 20/09/2015 20/09/2022 20/09/2022 20/09/2015 20/09/2022 20/09/2022 20/09/2015 20/09/2022 20/09/2022 20/09/2015 20/09/2022 20/09/2022 20/09/2015 20/09/2022 Other Management 490,000 3,500,000 20/09/2012 $0.1475 Nil 20/09/2022 20/09/2015 20/09/2022 Total 735,000 7,850,000 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 21 For personal use only Directors’ and Executives’ Equity Holdings Compensation Options and Performance Rights: Movements During the Year 2013 / 2014 Balance 1 July 2013 Granted as Compensation Exercised Lapsed Net Other Change Balance 30 June 2014 No. No. No. No. No. No. Balance Held Nominally No. Executive Directors (Performance Rights) P McDonald 900,000 - (300,000) Non Executive Directors None Executives (Performance Rights) J Cox 562,500 - N Pritchard H Abbey - - M Denney 412,500 B Wang A Scott 412,500 657,500 750,000 - - - - - - - - - (562,500) (187,500) - (137,500) (137,500) (245,000) (137,500) Other Management Personnel (Performance Rights) Other Management 3,677,500 550,000 (490,000) (2,025,000) Total 6,622,500 1,300,000 (735,000) (3,487,500) - - - - - - - - - 600,000 - 562,500 - 275,000 275,000 275,000 1,712,500 3,700,000 2012 / 2013 Balance 1 July 2012 Granted as Compensation Exercised Lapsed Net Other Change Balance 30 June 2013 No. No. No. No. No. No. Executive Directors (Performance Rights) P McDonald - 1,200,000 - (300,000) - 900,000 Non Executive Directors None Executives (Performance Rights) J Cox S McPherson M Denney B Wang A Scott - - - - 750,000 750,000 550,000 550,000 245,000 550,000 Other Management Personnel (Performance Rights) Other Management 490,000 3,500,000 Total 735,000 7,850,000 Employment Agreements - - - - - - - (187,500) (187,500) (137,500) (137,500) (137,500) (875,000) (1,962,500) - - - - - - - 562,500 562,500 412,500 412,500 657,500 3,115,000 6,622,500 - - - - - - - - - Balance Held Nominally No. - - - - - - - - Value of Lapsed Options/Rights $ (44,250) (82,969) (37,388) - (20,281) (20,281) (20,281) (305,824) (531,274) Value of Lapsed Options/Rights $ (44,250) (27,656) (27,656) (20,281) (20,281) (20,281) (129,062) (289,467) Executives serve under terms and conditions contained in a standard executive employment agreement, that allows for termination under certain conditions with two to three months’ notice. The agreements include restraints of trade on the employee as well as confidentiality and intellectual property agreements. 22 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only 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 Non audit services have been approved by the Audit Committee and reported to the Board. 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. 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 section 298(2) of the Corporations Act 2001. On behalf of the Directors; David Allman Chairman 25 August 2014 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 23 For personal use only 24 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only GALE PACIFIC LIMITED 2014 ANNUAL REPORT 25 For personal use only 26 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Directors’ Declaration The Directors of the Company declare that: The financial statements and notes, as set out on pages 28 to 69 are in accordance with the Corporations Act 2001 including: (cid:131) (cid:131) (cid:131) (cid:131) 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 2014 and of the performance, as represented by the results of the operations and the cash flows, of the Group for the year ended on that date; As stated in Note 1, the financial statements also comply with International Financial Reporting Standards; 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. David Allman Chairman 25 August 2014 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 27 For personal use only CONTENTS Consolidated Statement of Profit or Loss Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Additional Securities Exchange Information 29 30 31 32 33 34 70 S T L U S E R L A C N A N I F I 28 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Consolidated Statement of Profit or Loss FOR THE YEAR ENDED 30 JUNE 2014 Revenue Cost of goods sold Gross profit Other Income Warehousing and distribution Marketing and selling Administration Other expenses Net finance costs Profit before income tax Income tax expense Profit after tax for the year Earnings Per Share From operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form part of these financial statements. Consolidated Note 2013 / 2014 ($000) 2012 / 2013 ($000) 2 3 3 4 19 21 21 137,304 (85,129) 52,175 839 (16,729) (12,377) (10,265) (1,521) (1,134) 10,988 (2,755) 8,233 119,988 (70,697) 49,291 481 (13,542) (11,003) (8,802) (3,552) (857) 12,016 (2,932) 9,084 2.77 2.72 3.07 3.00 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 29 For personal use only Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 30 JUNE 2014 Profit after tax for the year Other Comprehensive Income Items that may be reclassified subsequently to profit or loss Net changes in fair value of cash flow hedges, net of tax Exchange differences on translation of foreign operations Other comprehensive income for the year Total comprehensive income for the year Profit Attributable To Members of the parent Profit for the year Total Comprehensive Income Attributable To Members of the parent Total comprehensive income for the year The accompanying notes form part of these financial statements. Consolidated Note 2013 / 2014 ($000) 2012 / 2013 ($000) 8,233 9,084 18 18 (1,629) (1,488) (3,117) 5,116 8,233 8,233 5,116 5,116 1,032 5,985 7,017 16,101 9,084 9,084 16,101 16,101 30 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Consolidated Statement of Financial Position FOR THE YEAR ENDED 30 JUNE 2014 Consolidated Note 2013 / 2014 ($000) 2012 / 2013 ($000) Current Assets Cash and cash equivalents Trade and other receivables Other financial assets Inventories Current tax assets Other current assets Total current assets Non Current Assets Property, plant and equipment Intangible assets Deferred tax assets Total non current assets Total assets Current Liabilities Trade and other payables Borrowings Other financial liabilities Current tax liabilities Provisions Total current liabilities Non Current Liabilities Borrowings Deferred tax liabilities Provisions Total non current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity The accompanying notes form part of these financial statements. 6 7 9 8 4 10 11 12 4 13 14 15 4 16 14 4 16 17 18 19 13,058 19,751 - 34,851 1,721 2,765 72,146 30,469 22,983 815 54,267 126,413 13,309 23,584 709 1,071 1,959 40,632 690 4,834 90 5,614 46,246 80,167 71,485 (11,415) 20,097 80,167 11,187 19,026 1,580 27,876 233 1,159 61,061 34,669 21,233 924 56,826 117,887 11,723 13,913 - 1,493 2,023 29,152 462 5,059 50 5,571 34,723 83,164 71,338 (8,079) 19,905 83,164 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 31 For personal use only Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 30 JUNE 2014 30 June 2014 Note Contributed Equity ($000) Reserves ($000) Retained Earnings ($000) Total Equity ($000) Balance at 1 July 2013 71,338 (8,079) 19,905 83,164 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions With Owners In Their Capacity As Owners Shares issued Employee share based payments Amounts recognised directly in equity Statutory transfer to reserves Dividends paid 17 18 19 - - - 147 - - - - - (3,117) (3,117) (147) (87) - 15 - Total transactions with owners in their capacity as owners 147 (219) 8,233 - 8,233 - - (143) (15) (7,883) (8,041) 8,233 (3,117) 5,116 - (87) (143) - (7,883) (8,113) Balance at 30 June 2014 71,485 (11,415) 20,097 80,167 30 June 2013 Note Contributed Equity ($000) Reserves ($000) Retained Earnings ($000) Total Equity ($000) Balance at 30 June 2012 70,988 (15,592) 18,781 74,177 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions With Owners In Their Capacity As Owners Shares issued Employee share based payments Statutory transfer to reserves Dividends paid Total transactions with owners in their capacity as owners - - - 350 - - - 350 - 7,017 7,017 - 87 409 - 496 9,084 - 9,084 - - (409) (7,551) (7,960) 9,084 7,017 16,101 350 87 - (7,551) (7,114) 17 18 18 Balance at 30 June 2013 71,338 (8,079) 19,905 83,164 The accompanying notes form part of these financial statements. 32 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Consolidated Statement of Cash Flows FOR THE YEAR ENDED 30 JUNE 2014 Consolidated Note 2013 / 2014 ($000) 2012 / 2013 ($000) Cash Flow From Operating Activities Receipts from customers Payments to suppliers and employees Interest received Borrowing costs paid Income tax payments Net cash provided by operating activities 23 Cash Flow From Investing Activities Proceeds from sale of plant and equipment Proceeds / (payment) from / for disposal / acquisition of business 29(b) Payment for plant and equipment Payment for intangible assets Net cash used by investing activities Cash Flow From Financing Activities Proceeds from / (repayment of) borrowings Proceeds from / (repayment of) principal on finance leases Dividends paid Net cash used by financing activities Net increase / (decrease) in cash held Cash at beginning of year Effects of exchange rate changes on items denominated in foreign currencies Cash at the end of the year 23 The accompanying notes form part of these financial statements. 144,130 (134,711) 6 (1,140) (4,116) 4,169 56 - (1,426) (2,003) (3,373) 9,899 - (7,883) 2,016 2,812 11,187 (941) 13,058 127,139 (110,516) 2 (859) (4,246) 11,520 93 (2,498) (1,508) (989) (4,902) 7,126 - (7,551) (425) 6,193 3,121 1,873 11,187 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 33 For personal use only Notes to the Financial Statements NOTE 1: Statement of Significant Accounting Policies The following is a summary of material accounting policies adopted by the Group 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 Gale Pacific Limited is a for profit entity. The financial report of Gale Pacific Limited and controlled entities is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act. The financial report covers Gale Pacific Limited and controlled entities as a consolidated entity (“the Group”). Gale Pacific Limited is a company limited by shares, incorporated and domiciled in Australia. The financial report was authorised for issue by the Directors at the date of the Directors’ Report. The financial report also complies with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The financial report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain financial instruments 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 26. Control is achieved when the Company: (cid:131) (cid:131) (cid:131) has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. 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. Subsidiaries are consolidated from the date on which control is established and are derecognised from the date that control ceases. (c). Use of Estimates and Judgements The preparation of the financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Information about areas of estimation and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial report is included in the following notes: (cid:131) (cid:131) (cid:131) Note 4 – Income Tax Note 11 – Property, Plant and Equipment Note 12 – Intangible Assets 34 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (d). 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 Group 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 restatement are recognised as revenues and expenses for the financial year. Foreign Currency Translation The financial statements of foreign operations whose functional currency is different from the Group’s presentation currency are translated as follows: (cid:131) (cid:131) (cid:131) 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 statement of financial position. On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss. Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in equity. (e). Segment Reporting Operating segments are reported based on internal reporting provided to the Managing Director and Chief Executive Officer who is the Group’s chief operating decision maker. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 35 For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (f). Revenue Recognition Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. Risks and rewards of ownership are considered passed to the buyer at the time of the delivery of goods to the customer. Where a government grant (including Strategic Investment Plan income (SIP)) 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). (g). Cash and Cash Equivalents Cash and cash equivalents include cash on hand at call, deposits with banks or financial institutions, investments in money market instruments maturing within less than three months and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. 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 three months and net of bank overdrafts. (h). Inventories Inventories are measured at the lower of cost or 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. (i). 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 a cost basis. 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 Buildings Leasehold improvements Plant and equipment Motor vehicles Office equipment Depreciation Rates Depreciation Basis 2.25% Determined by lease term 6.7% - 50.0% 20.0% 20.0% - 50.0% Straight line Straight line Straight line Straight line Straight line 36 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (j). Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. 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 Group are classified as finance leases. Finance leases are capitalised, recording an asset and a liability equal to the present value of the minimum lease payments, including any guaranteed residual values. The interest expense is calculated using the interest rate implicit in the lease and is included in finance costs in the statement of comprehensive income. Leased assets are depreciated on a straight line basis over their estimated useful lives 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 amortised over the term of the lease. (k). 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. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. 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. Application Software Application software is valued in the accounts at cost and amortised on a straight line basis over its expected useful life but not exceeding five years. Research and Development Expenditure on research is recognised as an expense when incurred. Expenditure on development activities is capitalised only when it is expected that future benefits will exceed the deferred costs. Capitalised development expenditure is stated at cost less accumulated amortisation. Amortisation is calculated using a straight line method to allocate the cost over a period (not exceeding three years), during which the related benefits are expected to be realised, once commercial production has commenced. (l). Impairment of Assets At each reporting date, the consolidated entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the consolidated entity estimates the recoverable amount of the cash generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. In assessing fair value less costs to sell, recognised valuation methodologies are applied, utilising current and forecast financial information as appropriate, benchmarked against relevant market data. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 37 For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (l). Impairment of Assets (continued) Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant asset is carried at fair value in which case the reversal of the impairment loss is treated as a revaluation increase. (m). Taxes Current Tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred Tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax liabilities and assets are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and Deferred Tax for the Year Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Tax Consolidation (cid:131) Relevance of tax consolidation to the Group The Company and all its wholly-owned Australian resident entities are part of a tax-consolidated group (formed on 1 June 2011), under Australian taxation law. Gale Pacific Limited is the head entity in the tax-consolidated group. The members of the tax-consolidated group are identified in note 26. A tax funding arrangement and a tax sharing agreement has been entered into between the entities. As such a notional current and deferred tax calculation for each entity as if it were a taxpayer in its own right (except that unrealised profits, distributions made and received and capital gains and losses and similar items arising on transactions within the tax-consolidated group are treated as having no tax consequences) has been performed. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax consolidated group). 38 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (m). Taxes (continued) (cid:131) Nature of tax funding arrangements and tax sharing agreements Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, Gale Pacific Limited and each of the other entities in the tax-consolidated group has agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax-consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax consolidated group is limited to the amount payable to the head entity under the tax funding arrangement. (n). Provisions A provision is recognised if, as a result of a past event , the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. (o). Employee Benefits Provision is made for the Group’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 Group to employee superannuation funds and are charged as expenses when incurred. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Share Based Payments The Group operates a share performance rights scheme for certain staff and Executives including Executive Directors. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share options and performance rights at grant date. The fair value of options and performance rights at grant date is determined using the method and assumptions disclosed in Note 17, and is recognised as an employee expense over the period during which the employees become entitled to the option or performance right. (p). Financial Instruments The Group classifies its financial instruments in the following categories: Non Derivative Financial Instruments Loans and Receivables Loans and receivables are measured at fair value at inception and subsequently at amortised cost using the effective interest rate method less any impairment losses. Financial Liabilities Financial liabilities include trade payables, other creditors, loans from third parties, related party balances and loans from or other amounts due to director related entities. Financial liabilities are recognised at fair value at inception and subsequently measured at amortised cost, using the effective interest rate method. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 39 For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (p). Financial Instruments (continued) Derivative Financial Instruments Cash Flow Hedges Forward foreign currency contracts are classified as cash flow hedges when they hedge exposure to variability in cash flows of a recognised asset, liability or a highly probable forecasted transaction. When established, a cash flow hedge is formally documented. This documentation includes identification of the hedging instrument, the hedged item or transaction, the foreign currency risk being hedged and an assessment of the hedging instrument’s effectiveness in offsetting the exposure to the hedged item’s cash flows. Cash flow hedges are expected to be highly effective in offsetting changes in cash flows and are assessed on an ongoing basis to determine effectiveness. The portion of any gain or loss on a hedging instrument that is an effective hedge is recognised directly in equity. Any ineffective portion is immediately recognised through profit and loss. Hedge accounting is discontinued when the hedging instrument matures or is closed out, or the designation as a cash flow hedge is terminated. At that point in time any gain or loss recognised in equity remains in equity until the hedged transaction occurs when it is transferred to profit and loss in the same period that the hedged item affects profit and loss, or is included as a basis adjustment to a non financial hedged item. Financial Instruments at Fair Value Through Profit and Loss Forward foreign currency contracts that do not qualify for hedge accounting are measured at their fair value with any increment or decrement in fair value recognised in profit and loss. (q). 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. (r). Comparatives Where necessary, comparative information has been reclassified and repositioned for consistency with current year disclosures. (s). New Accounting Standards and Interpretations Standards and Interpretations affecting amounts reported in the current period (and/or prior periods) In the current year, the Group has applied a number of new and revised AASBs issued by the Australian Accounting Standards Board (AASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2013. AASB 2011-4 ‘Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements’ AASB 2012-2 ‘Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities’ This standard removes the individual key management personnel disclosure requirements in AASB 124 ‘Related Party Disclosures’. In the current year the individual key management personnel disclosure previously required by AASB 124 is now disclosed in the remuneration report due to an amendment to Corporations Regulations 2001 issued in June 2013. The Group has applied the amendments to AASB 7 ‘Disclosures – Offsetting Financial Assets and Financial Liabilities’ for the first time in the current year. The amendments to AASB 7 require entities to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement. The amendments have been applied retrospectively. As the Group does not have any offsetting arrangements in place, the application of the amendments does not have any material impact on the consolidated financial statements. 40 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (s) New Accounting Standards and Interpretations (continued) AASB 10 ‘Consolidated Financial Statements’ and AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards’ AASB 10 replaces the parts of AASB 127 ‘Consolidated and Separate Financial Statements’ that deal with consolidated financial statements and Interpretation 112 ‘Consolidation – Special Purpose Entities’. AASB 10 changes the definition of control such that an investor controls an investee when a) it has power over an investee, b) it is exposed, or has rights, to variable returns from its involvement with the investee, and c) has the ability to use its power to affect its returns. All three of these criteria must be met for an investor to have control over an investee. Previously, control was defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. As all the subsidiaries are 100% wholly owned there is no change to the assessment of control over the subsidiaries. AASB 12 ‘Disclosure of Interests in Other Entities’ and AASB 2011-7 ‘Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards’ AASB 13 ‘Fair Value Measurement’ and AASB 2011-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’ AASB 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. There are no changes to disclosures for the Group. The Group has applied AASB 13 for the first time in the current year. AASB 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The scope of AASB 13 is broad; the fair value measurement requirements of AASB 13 apply to both financial instrument items and non-financial instrument items for which other AASBs require or permit fair value measurements and disclosures about fair value measurements, except for share based payment transactions that are within the scope of AASB 2 ‘Share-based Payment’, leasing transactions that are within the scope of AASB 117 ‘Leases’, and measurements that have some similarities to fair value but are not fair value (e.g. net realisable value for the purposes of measuring inventories or value in use for impairment assessment purposes). AASB 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions. Fair value under AASB 13 is an exit price regardless of whether that price is directly observable or estimated using another valuation technique. Also, AASB 13 includes extensive disclosure requirements. AASB 13 requires prospective application from 1 July 2013. In addition, specific transitional provisions were given to entities such that they need not apply the disclosure requirements set out in the Standard in comparative information provided for periods before the initial application of the Standard. In accordance with these transitional provisions, the Group has not made any new disclosures required by AASB 13 for the 2013 comparative period. Other than the additional disclosures, the application of AASB 13 does not have any material impact on the amounts recognised in the consolidated financial statements. AASB 119 ‘Employee Benefits’ (2011) and AASB 2011-10 ‘Amendments to Australian Accounting Standards arising from AASB 119 (2011)’ In the current year, the Group has applied AASB 119 (as revised in 2011) ‘Employee Benefits’ and the related consequential amendments for the first time. AASB 119 (as revised in 2011) changes the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of AASB 119 and accelerate the recognition of past service costs. As the Group does not have any defined benefit plans in place, the application of the amendments does not have any material impact on the consolidated financial statements. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 41 For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (s) New Accounting Standards and Interpretations (continued) Standards and Interpretations in issue not yet adopted At the date of authorisation of the financial statements, the Standards and Interpretations listed below were in issue but not yet effective. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 9 ‘Financial Instruments’, and the relevant amending standards 1 January 2018 30 June 2019 AASB 1031 ‘Materiality’ (2013) 1 January 2014 30 June 2015 AASB 2012-3 ‘Amendments to Australian Accounting Standards Offsetting Financial Assets and Financial Liabilities’ 1 January 2014 30 June 2015 AASB 2013-3 ‘Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets’ 1 January 2014 30 June 2015 AASB 2013-4 ‘Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting’ 1 January 2014 30 June 2015 AASB 2013-5 Standards – Investment Entities’ ‘Amendments to Australian Accounting 1 January 2014 30 June 2015 AASB 2013-9 ‘Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments’ 1 January 2014 30 June 2015 AASB 2014-1 Standards’ ‘Amendments to Australian Accounting 1 July 2014 30 June 2015 • Part A: ‘Annual Improvements 2010–2012 and 2011– 2013 Cycles’ • Part B: ‘Defined Benefit Plans: Employee Contributions (Amendments to AASB 119)’ • Part C: ‘Materiality’ AASB 2014-1 Standards’ – Part E: ‘Financial Instruments’ ‘Amendments to Australian Accounting 1 January 2016 30 June 2017 AASB 14 ‘Regulatory Deferral Accounts’ 1 January 2016 30 June 2017 AASB 2014-4 ‘Amendments to Australian Accounting Standards’ – Calrification of Acceptable Methods of Depreciation and Amortisation 1 January 2016 30 June 2017 At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations were also in issue but not yet effective, although Australian equivalent Standards and Interpretations have not yet been issued. IFRS 15 ‘Revenue from Contracts with Customers’ 1 January 2017 30 June 2018 42 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 1: Statement of Significant Accounting Policies (continued) (t). Business Combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred to the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that: (cid:131) (cid:131) (cid:131) deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively; liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with AASB 2 ‘Share-based Payments’ at the acquisition date; and assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 139 ‘Financial Instruments’, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain or loss being recognised in profit or loss. Where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. NOTE 2: Revenue Consolidated Operating Activities Sale of goods Total revenue 2013 / 2014 ($000) 2012 / 2013 ($000) 137,304 137,304 119,988 119,988 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 43 For personal use only NOTE 3: Profit Profit before income tax expense has been determined after charging / (crediting): Consolidated Other Income Other revenue Net foreign exchange gains Total other income Changes in inventories of finished goods and work in progress and raw materials and consumables used Employee benefits Net Finance Costs Finance income – other parties Finance expense – other parties Net finance costs Depreciation of Non Current Assets Amortisation of Non Current Assets Total depreciation and amortisation 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 Net foreign exchange losses Operating lease rental expense Share based payment expense The auditor of the parent entity is Deloitte Touche Tohmatsu Remuneration of the Auditors of the Parent Entity For Auditing the financial report Other assurance services Total remuneration of the auditors of the parent entity The auditors of the overseas controlled entities are overseas affiliates of Deloitte Touche Tohmatsu Remuneration of Other Auditors of Controlled Entities For Auditing the financial report Total remuneration of other auditors Total remuneration of auditors 2013 / 2014 ($000) 2012 / 2013 ($000) 512 327 839 481 - 481 58,840 51,433 28,242 23,814 (6) 1,140 1,134 5,156 289 5,445 (461) 103 (302) - 2,929 (87) 175 20 195 50 50 225 (2) 859 857 5,096 67 5,163 289 54 (49) 376 2,704 87 175 - 175 50 50 225 44 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 4: Income Tax (a). The Components of Tax Expense Current tax Deferred tax Total income tax expense Disclosed in the financial statements as Income tax expense from continuing operations Total Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 2,271 484 2,755 2,755 2,755 3,684 (752) 2,932 2,932 2,932 (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 Other non allowable / (non assessable) items Total Less tax effect of: Over provision for income tax in the prior year Income tax expense attributed to profit from continuing operations Total income tax expense Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 3,296 3,605 (844) 413 2,865 (110) 2,755 2,755 (579) (32) 2,994 (62) 2,932 2,932 (c). Income Tax Recognised Directly in Equity The following current and deferred tax amounts were (credited) / debited directly to equity during the period. Deferred Tax Cash flow hedges Total Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) (659) (659) 459 459 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 45 For personal use only NOTE 4: Income Tax (continued) (d). Current Tax Current tax asset Current tax liability Total Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 1,721 (1,071) 650 233 (1,493) (1,260) (e). Movement in Net Carrying Amount Movement in the current tax net carrying amount between the beginning and the end of the year. Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) (1,260) (2,271) 4,116 65 650 (1,561) (3,684) 4,246 (261) (1,260) Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) (84) (4,443) 2 164 (32) 692 (700) 382 (4,019) 815 (4,834) (4,019) 203 (4,548) 14 181 440 521 (660) (286) (4,135) 924 (5,059) (4,135) Balance at the beginning of the year Current year tax expense Income tax payments Net foreign currency movements arising from foreign operations Carrying amount at the end of the year (f). Deferred Tax Deferred Tax Assets / (Liabilities) Arise from the Following Property, plant and equipment Foreign exchange Doubtful debts Other financial liabilities Provisions Employee benefits Capitalised costs Other Net deferred tax liability Represented By Deferred tax asset Deferred tax liability Total 46 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 4: Income Tax (continued) (g). Unrecognised Deferred Tax Assets The following deferred tax assets have not been brought to account as it is not probable that these can be recovered. Tax losses – income Tax losses – capital Total Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 1,910 33,403 35,313 1,637 33,403 35,040 NOTE 5: Operating Segments The Group has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer in assessing performance and determining the allocation of resources. The Group’s four operating segments are identified by geographic location and identity of the service line manager. Discrete financial information about each of these segments is reported on a monthly basis. Revenue, result, depreciation and amortisation, significant items, assets and liabilities for the Group’s four operating segments plus discontinued operations are set out in the tables below. Australasia Manufacturing and distribution facilities are located in Australia, and distribution facilities are located in New Zealand. Sales offices are located in all states in Australia and in New Zealand. China and Rest of the World Export Sales Manufacturing facilities are located in Beilun, China which supply to the Group’s sales and marketing operations throughout the world. Americas Sales offices are located in Florida and custom blind assembly and distribution facilities are located in California which service the North American region. Middle East A sales office and distribution facility is located in the United Arab Emirates to service this market. Business Segment The Group operates predominantly in one business segment, being branded shading, screening and home improvement products. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 47 For personal use only NOTE 5: Operating Segments (continued) Segment Information Reporting – Geographical Segments 30 June 2014 Australasia China & ROW Export Sales Americas Middle East Unallocated / Elimination Total Group Revenue outside the economic entity Inter segment revenue Total revenue Segment EBITDA Depreciation and amortisation Segment EBIT Net finance expense Profit before income tax Income tax expense Profit for the year Segment assets Segment liabilities ($000) 79,931 2,103 82,034 1,721 (1,051) 670 ($000) 9,057 41,708 50,765 9,743 (3,874) 5,869 ($000) 36,098 (125) 35,973 3,272 (521) 2,751 ($000) 12,218 9 12,227 2,749 (1) 2,748 ($000) - (43,695) (43,695) 82 - 82 62,925 35,023 35,250 7,176 21,719 3,606 7,168 549 (649) (108) ($000) 137,304 - 137,304 17,567 (5,445) 12,122 (1,134) 10,988 (2,755) 8,233 126,413 46,246 30 June 2013 Australasia China & ROW Export Sales Americas Middle East Unallocated / Elimination Total Group Revenue outside the economic entity Inter segment revenue Total revenue Segment EBITDA Depreciation and amortisation Segment EBIT Net finance expense Profit before income tax Income tax expense Profit for the year Segment assets Segment liabilities ($000) 76,862 1,844 78,706 6,239 (890) 5,349 ($000) 7,555 28,641 36,196 7,642 (3,959) 3,683 ($000) 25,873 (102) 25,771 2,121 (311) 1,810 ($000) 9,698 31 9,729 1,916 (3) 1,913 ($000) - (30,414) (30,414) 118 - 118 53,847 26,542 40,163 4,781 18,630 2,963 5,978 525 (731) (88) ($000) 119,988 - 119,988 18,036 (5,163) 12,873 (857) 12,016 (2,932) 9,084 117,887 34,723 Notes: (cid:131) (cid:131) (cid:131) (cid:131) All inter segment pricing is on a commercial basis. Australasia result excludes finance costs, interest revenue and income tax expense. Australasia includes foreign exchange hedge and Australian Corporate costs. Revenue from one customer in the Australasian region represents $49,280,000 (2013 : $44,985,000) of the Groups total revenues. 48 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 6: Cash And Cash Equivalents Cash on hand Cash at bank Cash on deposit Total NOTE 7: Trade And Other Receivables Current Trade debtors Less provision for doubtful debts Total Other receivables Total Movement in the provision for doubtful debts were: Balance at the beginning of the year Charge for the year Amounts written off Net foreign currency movements arising from foreign operations Balance at the end of the year Trade Receivables Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 12 12,872 174 13,058 12 10,627 548 11,187 Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 19,384 (64) 19,320 431 19,751 (366) 237 66 (1) (64) 18,959 (366) 18,593 433 19,026 (403) 3 48 (14) (366) The average credit period on sales of goods varies by geographic region and market from 0 to 90 days. No interest is charged on trade receivables. Before accepting any new customer, the Group uses internal resources and criteria to assess the potential customer’s credit quality and defines credit limits by customer. NOTE 8: Inventories Current Raw materials at cost Work in progress at cost Finished goods at cost Less provision for obsolescence – finished goods Total Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 6,943 1,604 27,032 (728) 34,851 6,360 1,994 20,120 (598) 27,876 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 49 For personal use only NOTE 9: Other Financial Assets Current Foreign currency forward contracts Total NOTE 10: Other Current Assets Current Prepayments Total NOTE 11: Property, Plant And Equipment Buildings At cost Less accumulated depreciation Total Plant and Equipment At cost Less accumulated depreciation Total Leasehold Improvements At cost Less accumulated depreciation Total Motor Vehicles At cost Less accumulated depreciation Total Office Equipment At cost Less accumulated depreciation Total Capital Work in Progress Total property, plant and equipment 50 GALE PACIFIC LIMITED 2014 ANNUAL REPORT Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) - - 1,580 1,580 Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 2,765 2,765 1,159 1,159 Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 9,489 (2,070) 7,419 65,645 (43,868) 21,777 561 (439) 122 230 (137) 93 5,613 (4,717) 896 162 9,571 (1,845) 7,726 65,977 (40,239) 25,738 480 (413) 67 350 (212) 138 5,164 (4,348) 816 184 30,469 34,669 For personal use only NOTE 11: Property, Plant And Equipment (continued) Movements in Carrying Amounts Movement in the carrying amounts for each class of property, plant and equipment between the beginning and the end of the year. Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) Buildings Balance at the beginning of the year Reclassifications Additions / (transfers) Depreciation expense Net foreign currency movements arising from foreign operations Carrying amount at the end of the year Plant and Equipment Balance at the beginning of the year Reclassifications Additions / (transfers) Disposals Acquisitions through business combinations Depreciation expense Net foreign currency movements arising from foreign operations Carrying amount at the end of the year Leasehold Improvements Balance at the beginning of the year Additions / (transfers) 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 Reclassifications 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 Reclassifications Additions / (transfers) Disposals Depreciation expense Net foreign currency movements arising from foreign operations Carrying amount at the end of the year 7,726 - 54 (260) (101) 7,419 25,738 (41) 871 (96) - (4,520) (173) 21,779 67 85 (30) - 122 138 20 15 (47) (31) (2) 93 816 21 422 (3) (315) (45) 896 7,208 (21) - (228) 767 7,726 27,028 16 1,097 (158) 35 (4,558) 2,278 25,738 90 12 (34) (1) 67 160 2 72 (50) (47) 1 138 826 3 204 (9) (229) 21 816 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 51 For personal use only NOTE 12: Intangible Assets Goodwill at cost Less accumulated impairment Total Patents, trademarks and licenses at cost Less accumulated amortisation Total Application software at cost Less accumulated amortisation Total Research and development Less accumulated amortisation Total Total intangible assets Movements in Carrying Amounts Movement in the carrying amounts for each class of intangible assets between the beginning and the end of the year Goodwill Balance at the beginning of the year Acquisition through business combinations Net foreign currency movements arising from foreign operations Carrying amount at the end of the year Patents, Trademarks and Licences Balance at the beginning of the year Additions / (transfers) Disposals Amortisation expense Net foreign currency movements arising from foreign operations Carrying amount at the end of the year Application Software Balance at the beginning of the year Additions Amortisation expense Net foreign currency movements arising from foreign operations Carrying amount at the end of the year Goodwill Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 21,032 (1,054) 19,978 1,449 (1,099) 350 2,910 (255) 2,655 4,865 (4,865) - 22,983 19,933 85 (40) 19,978 333 60 (10) (34) 1 350 967 1,943 (255) - 2,655 20,987 (1,054) 19,933 1,404 (1,071) 333 2,293 (1,326) 967 4,865 (4,865) - 21,233 16,667 3,095 171 19,933 351 32 - (51) 1 333 26 957 (16) - 967 The recoverable amount of the cash generating units (CGU) have been determined based on a fair value less costs of disposal calculation using the EBITDA multiples method. This has been calculated based on historical, current and future maintainable earnings. FY15 budget, as approved by the Board of Directors, forecasts revenue growth for the period within the range of 3% to 5% depending on the demographic, economic, trading conditions and growth potential, of the CGU. Costs to dispose have been estimated at 2% of fair value, based on similar transactions in the market. In prior periods, a value in use model was used to determine the recoverable amount. This was done using a discount rate applied to the cash flow projections of 9.73% and a terminal value representing the growth rate applied to extrapolate the cash flows beyond the five year forecast period. These growth rates were based on the Board of Directors expectations, industry knowledge and other features specific to each CGU. The five year cash flow projections used for future maintainable earnings are based on the 2014 year budget (2013: based on 2013 budget) and an ongoing growth rate of 3% to 5% which is considered reasonable in light of past performance and future operating plans and business strategies. The values of the key assumptions reflect past experiences/external sources of information. The Group has moved to the FVLCD method instead of VIU method as it more accurately reflects the more relevant and reliable information. 52 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 12: Intangible Assets (continued) Goodwill (continued) Goodwill by CGU Australia USA – (2013 / 2014 US$2,077,000: 2012 / 2013 US$2,077,000:) China Total Sensitivity Analysis Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 17,455 2,176 347 19,978 17,370 2,216 347 19,933 Any reasonable change in the key assumptions of the fair value less costs of disposal and value in use calculations would not result in an impairment. NOTE 13: Trade And Other Payables Current Trade payables Sundry payables and accruals Total NOTE 14: Borrowings Current Secured liabilities: 1 Bank loans Other loans Commercial bills Total Non Current Unsecured liabilities: Bank loans Other loans Total Total Disclosed in the Consolidated Statement of Financial Position As Current borrowings Non current borrowings 1 Secured by general security interests over certain assets of the Group. Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 8,086 5,223 13,309 7,740 3,983 11,723 Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 1,757 - 20,550 22,307 692 585 1,277 - 263 13,650 13,913 - 462 462 24,274 14,375 23,584 690 13,913 462 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 53 For personal use only NOTE 15: Other Financial Liabilities Derivatives carried at fair value: Current Foreign currency forward contracts Total NOTE 16: Provisions Current Employee benefits Warranty claims Non Current Employee benefits Total Disclosed in the Consolidated Statement of Financial Position As Current provisions Non current provisions (a) Aggregate employee benefits liability (b) Number of employees at year end Movements in Carrying Amounts Movement in the carrying amounts for the following classes of provision between the beginning and the end of the year Restructuring and Termination Costs Balance at the beginning of the year Provisions recognised Payments made Reductions resulting from release of provision no longer required Net foreign currency movements arising from foreign operations Carrying amount at the end of the year Warranty claims Balance at the beginning of the year Provisions recognised Provisions written back Payments made Carrying amount at the end of the year 54 GALE PACIFIC LIMITED 2014 ANNUAL REPORT Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 709 709 - - Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 1,909 50 90 2,049 1,959 90 1,999 647 - - - - - - 228 169 (347) - 50 1,795 228 50 2,073 2,023 50 1,845 606 501 20 (75) (461) 15 - 108 125 (7) 2 228 For personal use only NOTE 17: Contributed Equity Paid Up Capital Fully paid ordinary shares Movement In Share Capital Shares issued at the beginning of the financial year Shares issued during the year Total (a). Movement in Share Capital Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 71,485 71,338 Consolidated Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 2013 / 2014 (No. of Shares) 2012 / 2013 (No. of Shares) 71,338 147 71,485 70,988 350 71,338 296,739,396 295,441,658 735,000 1,297,738 297,474,396 296,739,396 On 5 July 2013 the Company issued 735,000 ordinary shares under the terms of the Performance Rights Plan. On 30 November 2012 the Company issued 1,297,738 ordinary shares as part of the consideration for the acquisition of Highgrove Glass Solutions. (b). Rights of Each Type of Share Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called. (c). Capital Management When managing capital, management’s objective is to ensure the consolidated entity continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. This is achieved through monitoring of historical and forecast performance and cashflows. During the year the Company paid dividends of $7,883,072 (2013 : $7,550,633) (d). Share Based Payments The Group maintains a performance rights scheme for certain staff and executives, including executive directors, as approved by shareholders at an annual general meeting. These schemes are designed to reward key personnel when the Group meets performance hurdles relating to: (cid:131) (cid:131) Improvement in earnings per share; and Improvement in return to shareholders. The number of unissued ordinary shares under the performance rights scheme at the reporting date is 3,100,000. Each performance right entitles the holder one (1) ordinary share in Gale Pacific Limited when exercised and is subject to the satisfying of relevant performance hurdles based on improvements in the Company’s diluted earnings per share. Options and performance rights issued to executives during the year were issued in accordance with the Group’s remuneration policy which: (cid:131) (cid:131) (cid:131) Reward executives for Group and individual performance; Align the interests of the executives with those of the shareholders; and Ensure that total remuneration is competitive by market standards. The following share based payment arrangements were in existence during the current and comparative reporting periods. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 55 For personal use only NOTE 17: Contributed Equity (continued) (d). Share Based Payments (continued) Performance Rights Grant Date Expiry Date Exercise Price Balance Start of Year No. Granted During Year No. Exercised During Year No. Lapsed During Year No. Balance End of Year No. Exercisable End of Year No. Consolidated and Parent Entity - 2014 18 Aug 2010 30 Jun 2020 20 Sep 2012 20 Sep 2022 26 Nov 2012 20 Sep 2022 3 Oct 2013 3 Oct 2023 Total Consolidated and Parent Entity - 2013 18 Aug 2010 30 Jun 2020 20 Sep 2012 20 Sep 2022 26 Nov 2012 20 Sep 2022 Total Nil Nil Nil Nil Nil Nil Nil 735,000 4,987,500 900,000 - - - - 1,300,000 (735,000) - - - - - (2,862,500) 2,125,000 (300,000) 600,000 (325,000) 975,000 6,622,500 1,300,000 (735,000) (3,487,500) 3,700,000 - - - - - 735,000 - - - 6,650,000 1,200,000 735,000 7,850,000 - - - - - 735,000 735,000 (1,662,500) 4,987,500 (300,000) 900,000 - - (1,962,500) 6,622,500 735,000 Performance rights have been valued using the binomial option pricing model. Grant Date 3 October 2013 Grant Date 26 November 2012 Grant Date 20 September 2012 $0.1994 Nil 3.0 years 3.0 years 2.9 years 11.02% $0.1475 Nil 3.0 years 3.0 years 3.0 years 13.13% $0.1475 Nil 3.0 years 3.0 years 3.0 years 13.13% Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) (12,780) (11,292) 486 (508) 1,387 (11,415) 720 1,121 1,372 (8,079) Performance Rights Valuation Assumptions Value of rights to acquire one share Exercise price Expected Life Tranche 1 Tranche 2 Tranche 3 Dividend yield NOTE 18: Reserves Foreign currency translation reserve Share based payments reserve Hedging reserve Enterprise reserve fund Total 56 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 18: Reserves (continued) (a). Foreign Currency Translation Reserve Balance at the beginning of the year Translation of foreign controlled entities for the year Movement arising from the reclassification of non current related party monetary items to net investments in foreign operations Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) (11,292) (1,010) (478) (17,277) 7,372 (1,387) Balance at the end of the year (12,780) (11,292) Exchange differences relating to foreign currency monetary items forming part of the net investment in a foreign operation and the translation of foreign controlled entities are brought to account by entries made directly to the foreign currency translation reserve, as described in Notes 1(d) and 1(e). (b). Employee Share Based Payments Reserve Balance at the beginning of the year Share based expense Transfer to share capital Balance at the end of the year (c). Hedging Reserve Balance at the beginning of the year Forward exchange contracts Income tax on net changes recognised Balance at the end of the year Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 720 (87) (147) 486 633 87 - 720 Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 1,121 (2,288) 659 (508) 89 1,491 (459) 1,121 The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative gain or loss on the hedge is recognised as a profit or loss when the hedging instrument impacts the profit or loss, or is included as a basis adjustment to a non financial hedged item, consistent with the applicable accounting policy. (d). Enterprise Reserve Fund (Gale Pacific Special Textiles (Ningbo) Limited) and Gale Pacific Trading (Ningbo) Limited Balance at the beginning of the year Statutory transfers from retained earnings Balance at the end of the year Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 1,372 15 1,387 963 409 1,372 Gale Pacific Special Textiles (Ningbo) Limited (“GPST”) and Gale Pacific Trading (Ningbo) Limited are required by Chinese Company Law to maintain this reserve in its accounts. This reserve is unavailable for distribution to shareholders but can be used by GPST to expand the business, make up losses or increase the registered capital. They are required to allocate 10% of its annual profit after tax to this reserve until it reaches 50% of their registered capital. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 57 For personal use only NOTE 19: Retained Earnings Balance at the beginning of the year Net profit attributable to members of the parent entity Dividends paid Amounts recognised directly in equity Transfers to reserves Balance at the end of the year NOTE 20: Dividends The following dividends were paid during the year. Note Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 19,905 8,233 (7,883) (143) (15) 20,097 18,781 9,084 (7,551) - (409) 19,905 Final Dividend for the Financial Year 2012 / 2013 Franked to 80% at a 30% tax rate (date of payment 4 October 2013) Interim Dividend for the Financial Year 2013 / 2014 Franked to 75% at a 30% tax rate (date of payment 10 April 2014) Total Final Dividend for the Financial Year 2011 / 2012 Fully franked at a 30% tax rate (date of payment 3 October 2012) Interim Dividend for the Financial Year 2012 / 2013 Fully franked at a 30% tax rate (date of payment 25 march 2013) Total Fully Paid Ordinary Shares 2013 / 2014 Cents Per Share Consolidated 2013 / 2014 ($000) 1.35 1.30 2.65 4,016 3,867 7,883 Fully Paid Ordinary Shares 2012 / 2013 Cents Per Share Consolidated 2012 / 2013 ($000) 1.25 1.30 2.55 3,693 3,858 7,551 On 25 August 2014, the Directors declared an unfranked dividend of 1.35 cents per share to the holders of fully paid ordinary shares in respect of the year ended 30 June 2014, to be paid to shareholders on 1 December 2014. This dividend has not been included as a liability in these financial statements. The total estimated dividend to be paid is $4.06 million. Adjusted franking account balance Dividend Franking Account 2013 / 2014 ($000) Consolidated 2012 / 2013 ($000) 579 850 Balance of franking account on a tax paid basis at financial year end adjusted for franking credits arising from payment of provision for income tax. 58 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 21: Earnings Per Share Basic Earnings Per Share From continuing operations Total basic earnings per share Diluted Earnings Per Share From continuing operations Total diluted earnings per share Earnings Per Share The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows: Profit after tax for the year Earnings Used in the Calculation of Basic EPS Adjustments to exclude profit for the period from discontinued operations Earnings used in the calculation of basic and diluted EPS from continuing operations Consolidated 2013 / 2014 (Cents Per Share) 2012 / 2013 (Cents Per Share) 2.77 2.77 2.72 2.72 3.07 3.07 3.00 3.00 Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 8,233 9,084 - 8,233 - 9,084 Consolidated 2013 / 2014 (000) 2012 / 2013 (000) Weighted average number of ordinary shares for the purposes of basic earnings per share 297,464 296,195 Weighted average number of shares deemed to be issued for no consideration in respect of: Performance rights Weighted average number of ordinary shares for the purposes of diluted earnings per share 5,600 303,064 6,602 302,797 NOTE 22: Capital and Leasing Commitments (a). Operating Lease Commitments Non cancellable operating leases contracted for but not capitalised in the accounts Payable Not longer than one year Longer than one year and not longer than five years Total Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 2,476 1,395 3,871 2,332 1,363 3,695 The above lease commitments relate to property leases. The Company has no rights to purchase the properties at the end of the lease term. (b). Capital Expenditure Commitments Payable Not longer than one year Total Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 456 456 - - GALE PACIFIC LIMITED 2014 ANNUAL REPORT 59 For personal use only NOTE 23: Cash Flow Information (a). Reconciliation of Cash Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash on hand Cash at bank Cash on deposit Total (b). Reconciliation of Profit for the Period to Net Cash Provided by Operating Activities Profit after income tax Non Cash Flows in Profit (Profit) / Loss on disposal of fixed assets Depreciation of fixed assets Amortisation / impairment of intangible assets Equity settled share based payments Changes in Asset and Liabilities Processed Directly in Equity Changes in Tax Balances Processed Directly in Equity Changes in Assets and Liabilities (Increase) / decrease in receivables (Increase) / decrease in inventories (Increase) / decrease in other assets Decrease in payables, accruals and other financial liabilities Increase in tax balances Foreign exchange / other non operation movements backed out of assets and liabilities Net cash provided by operating activities NOTE 24: Directors’ and Executives’ Compensation Details of Directors and Key Executives remuneration is disclosed in the Remuneration Report. Directors’ and Executives’ Compensation by Category Short term employment benefits Post employment benefits Share based payments Termination benefits Total 60 GALE PACIFIC LIMITED 2014 ANNUAL REPORT Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 12 12,872 174 13,058 12 10,627 548 11,187 Consolidated 2013 / 2014 ($000) 2012 / 2013 ($000) 8,233 9,084 (1) 5,158 289 (87) (1,627) - (926) (7,140) (1,632) 3,952 (2,004) (46) 4,169 126 5,096 67 87 1,034 (409) (1,114) (1,658) (466) 565 (670) (222) 11,520 Consolidated 2013 / 2014 ($) 2012 / 2013 ($) 2,231,512 2,186,432 140,772 - 50,000 115,410 44,249 - 2,422,284 2,346,091 For personal use only NOTE 25: Related Party Transactions Transactions within the Wholly Owned Group The wholly owned group includes: (cid:131) (cid:131) 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 Group. During the financial year, the following transactions occurred between entities in the wholly owned group: (cid:131) (cid:131) (cid:131) (cid:131) Sale and purchase of goods totalling $43,695,000 (2013 : $30,414,000) Gale Pacific Limited received interest income from its subsidiaries totalling $732,000 (2013 : $614,000) Gale Pacific Limited made interest payments to its subsidiaries totalling $7,000 (2013 : $1,000) Reimbursement of certain operating costs totalling $455,000 (2013 : $430,000) 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 – Accrued Director fees and superannuation contributions Consolidated 2013 / 2014 ($000) 15,417 2012 / 2013 ($000) - NOTE 26: Controlled Entities Parent Entity Gale Pacific Limited 1 Controlled Entities Gale Pacific (New Zealand) Limited Gale Pacific FZE Gale Pacific Special Textiles (Ningbo) Limited Gale Pacific Trading (Ningbo) Limited Gale Pacific USA Inc Zone Hardware Pty Ltd 2, 3 Riva Window Fashions Pty Ltd 2, 3 Country of Incorporation Ownership Interest (%) 2013 / 2014 2012 / 2013 Australia New Zealand United Arab Emirates China China United States of America Australia Australia - 100% 100% 100% 100% 100% 100% 100% - 100% 100% 100% 100% 100% 100% 100% 1 Gale Pacific Limited is the head entity within the tax consolidated group. 2 These companies are members of the tax consolidated group. 3 These wholly owned subsidiaries are small proprietary companies and are relieved from the requirement to prepare and lodge an audited financial report. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 61 For personal use only NOTE 27: Financial Instruments Financial Risk Management Overview The Group’s activities expose it to a variety of financial risks: credit risk; liquidity risk; and market risk (including foreign currency risk and interest rate risk). The Group’s financial risk management processes and procedures seek to minimise the potential adverse effects on the Group’s financial performance that may occur due to the unpredictability of financial markets. Risk management policies are reviewed regularly to reflect changes in market conditions and the Group’s activities. Financial Instruments Derivative financial instruments are used by the Group to limit exposure to exchange rate risk associated with foreign currency transactions. Derivative financial instruments are recognised in the financial statements. Transactions to reduce foreign currency exposure are undertaken without the use of collateral as the Group only deals with reputable institutions with sound financial positions. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Net Fair Values The net fair value of assets and liabilities approximates their carrying value. No financial assets or financial liabilities are readily traded on organised markets in standardised form other than forward exchange contracts. (a). Credit Risk Exposure to Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at the reporting date to recognised financial assets is the carrying amount of those assets, net of any provisions for doubtful debts of those assets. The maximum exposure to credit risk at the reporting date was: Consolidated Note As at 30 Jun 2014 ($000) As at 30 Jun 2013 ($000) The maximum exposure to credit risk at the reporting date was: Loans and receivables Cash and cash equivalents Tradeable foreign currency forward contracts Total The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: 7 6 9 Australasia China Americas Middle East Total The ageing of trade receivables not impaired at the reporting date was: Not outside credit terms Outside credit terms 0-30 days Outside credit terms 31-120 days Outside credit terms 121 days to one year More than one year Total The ageing of impaired receivables at the reporting date was: Outside credit terms 121 days to one year More than one year Total 19,751 13,058 - 32,809 5,481 999 9,524 3,316 19,320 17,600 997 585 32 106 19,026 11,187 1,580 31,793 6,786 509 8,132 3,166 18,593 14,318 3,072 985 204 14 19,320 18,593 64 - 64 71 295 366 62 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 27: Financial Instruments (continued) (b). Liquidity Risk The following tables detail both the Group’s effective weighted average interest rates on classes of its financial liabilities at reporting date and the contractual maturity of these financial liabilities. Contractual cash flows include both interest and principal cash flows, are undiscounted and based on the earliest date on which the Group can be required to pay. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Consolidated 30 June 2014 Note Trade and Other Payables Trade payables Sundry payables and accruals Non Derivative Financial Liabilities Bank loans Other loans Derivative Financial Liabilities Foreign currency forward exchange contracts used for hedging Total 13 13 14 14 15 Consolidated 30 June 2013 Note Trade and Other Payables Trade payables Sundry payables and accruals Non Derivative Financial Liabilities Bank loans Other loans Total 13 13 14 14 Weighted Average Effective Interest Rate (%) Contractual Cash Flows Maturing In: Carrying Amount Contractual Cash Flows Less Than 6 Months 6 To 12 Months 1 To 2 Years 2 To 5 Years ($000) ($000) ($000) ($000) ($000) ($000) 8,086 5,223 8,086 5,223 8,086 5,223 - - - - 3.77 6.96 23,000 23,000 23,000 1,274 1,274 288 - 297 - 530 - - - 159 709 - - - - - 38,292 37,583 36,597 297 530 159 Weighted Average Effective Interest Rate (%) Carrying Amount Contractual Cash Flows Contractual Cash Flows Maturing In: Less Than 6 Months 6 To 12 Months 1 To 2 Years 2 To 5 Years ($000) ($000) ($000) ($000) ($000) ($000) 7,740 3,984 7,740 3,984 7,740 3,984 3.95% 6.96% 13,650 13,650 13,650 725 725 133 26,099 26,099 25,507 - - - - - - - - - 130 130 275 275 187 187 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 63 For personal use only NOTE 27: Financial Instruments (continued) (c). Market Risk The Group’s activities expose it to the financial risks of changes in the market rates for foreign currency exchange rates and interest rates. Foreign Exchange Risk The Group undertakes transactions denominated in foreign currencies that exposes it to fluctuations in foreign currency exchange rates. Foreign Exchange Contracts The Group enters into foreign exchange contracts to buy and sell specified amounts of foreign currency in the future at stipulated exchange rates. The objective of entering into forward exchange contracts is to protect the Group against exchange rate movements for both contracted and anticipated future sales and purchases undertaken in foreign currencies. There was no cash flow hedge ineffectiveness during the reporting period. The Group adopts hedge accounting and classifies forward exchange contracts as cash flow hedges where these contracts are hedging highly probable forecasted transactions and they are timed to mature when the cash flow from the underlying transaction is scheduled to occur. Cash flows are expected to occur during the next financial year. Changes in fair value on forward exchange contracts designated as cash flow hedges are taken directly to equity. Forward exchange contracts that are not designated as cash flow hedges have any changes in fair value recognised in profit or loss in the period the changes occur. The fair value of the amount of foreign currency the Group will be required to pay or purchase when settling the bought forward exchange contracts should the counterparty not pay the currency it is committed to deliver to the Group has been recognised in the Group’s statement of financial position. At balance date the net amount payable was $709,000 (2013 : $1,580,000 receivable). The accounting policy in regard to forward exchange contracts is detailed in Note 1(p). Average Exchange Rate Foreign Currency Contract Value Fair Value Fair Value Hierarchy 2013 / 2014 2012 / 2013 2013 / 2014 (FC000) 2012 / 2013 (FC000) 2013 / 2014 ($000) 2012 / 2013 ($000) 2013 / 2014 ($000) 2012 / 2013 ($000) Foreign Exchange Contracts Designated as Cash Flow Hedges Buy United States dollars / sell Australian dollars Less than 6 months 0.8943 1.0035 13,130 12,350 14,682 12,307 6 – 12 months 0.8985 0.9452 2,100 8,900 2,337 9,416 (108) (557) 1,130 Level 2 400 Level 2 Buy United States dollars / sell Chinese renminbi Less than 6 months 6.2256 6.1510 16,600 1,600 16,756 1,639 (44) 50 Level 2 Total (709) 1,580 64 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 27: Financial Instruments (continued) Foreign Exchange Risk Sensitivity The Group is mainly exposed to United States dollars, Euros and New Zealand dollars in its Australian operation and Australian dollars in its foreign operations. The following table details the Group’s sensitivity to a 10% (2013: 10%) increase or decrease in the Australian dollar against these currencies. This analysis includes only unhedged foreign currency denominated monetary items, as shown at the carrying value, and details the profit effect from each of these items of a 10% strengthening in the Australian dollar on the reporting date with all other variables held constant. For a weakening of the Australian dollar there would be an equal and opposite impact on profit to that shown on the following page. 30 June 2014 Consolidated Australian Dollar Carrying Value Australian Entities ($000) Australian Dollar Carrying Value Foreign Entities ($000) Profit / (Loss) AUD +10% Equity AUD +10% ($000) ($000) Financial Assets Cash and cash equivalents United States dollars Chinese renminbi New Zealand dollars UAE dirham Trade receivables United States dollars Chinese renminbi New Zealand dollars Amounts receivable from related parties United States dollars New Zealand dollars Foreign currency forward contracts United States dollars Financial Liabilities Trade payables United States dollars Chinese renminbi Euro New Zealand dollars UAE dirham Borrowings United States dollars Chinese renminbi Foreign currency forward contracts United States dollars Profit or (loss) impact Currency Asset / (Liability) Breakdown United States dollars Chinese renminbi Euro New Zealand dollars UAE dirham Profit or (loss) impact 6,066 - 1 - - - - - - - 374 - - - - - - 665 5,692 - - 1 - 3,234 448 305 513 13,970 84 224 - - - 671 3,889 86 139 130 - - 44 16,533 (3,357) (86) 390 383 (607) - - - - - - 870 (39) - 37 - - - - - - - 261 300 - - (39) - 261 (323) (45) (31) (51) (1,397) (8) (22) - - - 67 389 9 14 13 - - (4) (1,385) (1,653) 336 9 (39) (38) (1,385) GALE PACIFIC LIMITED 2014 ANNUAL REPORT 65 For personal use only NOTE 27: Financial Instruments (continued) 30 June 2013 Consolidated Australian Dollar Carrying Value Australian Entities ($000) Australian Dollar Carrying Value Foreign Entities ($000) Profit / (Loss) AUD +10% Equity AUD +10% ($000) ($000) Financial Assets Cash and cash equivalents United States dollars Chinese renminbi Euro New Zealand dollars UAE dirham Trade receivables United States dollars Chinese renminbi New Zealand dollars Amounts receivable from related parties United States dollars New Zealand dollars Foreign currency forward contracts 6,373 - 64 5 - - - - - - United States dollars 1,530 Financial Liabilities Trade payables United States dollars Chinese renminbi Euro New Zealand dollars UAE dirham Borrowings United States dollars Chinese renminbi Profit or (loss) impact Currency Asset / (Liability) Breakdown United States dollars Chinese renminbi Euro New Zealand dollars UAE dirham Profit or (loss) impact 500 - - - - - - 7,403 - 64 5 - 2,950 883 - 95 241 11,758 334 148 - - 50 2,087 2,800 87 70 102 - - 12,671 (1,583) (87) 172 139 (637) - (6) (1) - - - - 694 14 - 50 - - - - - - 114 107 - (6) 13 - 114 (295) (88) - (9) (24) (1,176) (33) (15) - - (5) 209 280 9 7 10 - - (1,130) (1,267) 159 9 (17) (14) (1,130) 66 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 27: Financial Instruments (continued) Interest Rate Risk The Group is exposed to interest rate risk as entities in the Group borrow and deposit funds at both fixed and variable interest rates. Effective weighted average interest rates on classes of financial liabilities are disclosed under liquidity risk. The Group does not have long term borrowings and does not use interest rate swaps to manage the risk of interest rate changes. The following table details the Group’s sensitivity to every 1% increase in interest rates at the reporting date. The analysis is on its variable rate financial instruments shown in the carrying value and details the profit effect of a 1% increase in interest rates on these financial instruments with the change taking place at the beginning of the following financial year and held constant throughout the reporting period. All other variables remain constant. 30 June 2014 Consolidated Financial Assets Cash and cash equivalents Financial Liabilities Borrowings (all fixed rates instruments) Total 30 June 2013 Financial Assets Cash and cash equivalents Financial Liabilities Borrowings (all fixed rates instruments) Total NOTE 28: Parent Entity Disclosures Results of the parent entity Profit for the year Other comprehensive income Total Financial position of the parent entity at year end Current assets Total assets Current liabilities Total liabilities Net assets Total equity of the parent entity comprising of: Contributed equity Share based payments reserve Hedging reserve Retained earnings Total equity Parent Entity Commitments Operating leases Capital expenditure Total Carrying Value ($000) 13,058 (22,997) (9,939) Profit / (Loss) +1% Movement ($000) 131 (230) (99) Consolidated Carrying Value ($000) 11,187 (14,375) (3,188) Profit / (Loss) +1% Movement ($000) 112 (144) (32) 2013 / 2014 ($000) 2012 / 2013 ($000) 46 (1,536) (1,490) 38,141 109,706 30,103 30,142 79,564 71,485 486 (465) 8,058 79,564 2,898 - 2,898 4,554 982 5,536 29,702 102,790 21,380 21,810 80,980 71,338 720 1,071 7,851 80,980 3,115 - 3,115 GALE PACIFIC LIMITED 2014 ANNUAL REPORT 67 For personal use only NOTE 29: Business Combinations (a). Summary Of Acquisition On 30 November 2012 the parent entity acquired the assets of Highgrove (Victoria) Pty Ltd. Highgrove specialises in the marketing and distribution of branded home improvement products including glass fencing, frameless shower screens, glass safety mirrors and kitchen splashback panels. The initial accounting for the acquisition was provisionally determined at the end of the financial year 2012 / 2013. As at 30 June 2014, the accounting was completed with no material adjustment made during the year. Details of the purchase consideration, the net assets acquired and goodwill are as follows. Purchase consideration (refer to (b)) Consideration paid Shares issued Deferred consideration payable Total consideration The assets and liabilities recognised as a result of the acquisition are as follows: Inventories Plant and equipment Provision for employee entitlements Deferred tax asset Total tangible net assets acquired Add goodwill Net assets acquired ($000) 3,399 350 49 3,798 631 36 (69) 21 619 3,179 3,798 The goodwill will not be deductible for tax purposes. Goodwill arising from the acquisition of Highgrove is mainly attributable to the expected synergies and revenue growth opportunities. Shares Issued 1,297,738 shares were issued as part of the consideration. The issue price of $0.2697 was based on the weighted average share price for the ten days prior to 30 November 2012. (b). 2012 / 2013 Purchase Consideration – Cash Outflow Acquisition Related Costs Cash consideration Outflow of cash – investing activities ($000) 3,399 3,399 68 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only NOTE 30: Subsequent Events The Company has announced a major organisational restructure which will streamline the Group's operations, shorten reporting lines and reduce administrative duplication. Nick Pritchard, previously Managing Director of the Australasian business, has been appointed Group Managing Director. As a result of this change Peter McDonald, the previous Managing Director and Chief Executive Officer, has left the company. NOTE 31: Company Details The registered office of the Company is: Gale Pacific Limited 145 Woodlands Drive Braeside, Victoria, 3195 Australia GALE PACIFIC LIMITED 2014 ANNUAL REPORT 69 For personal use only Additional Securities Exchange Information In accordance with ASX Listing Rule 4.10, the Company provides the following information to shareholders not elsewhere disclosed in this Annual Report. The information provided is current as at 12 August 2014 (Reporting Date). Distribution of Holders of Equity Securities as at 12 August 2014 Corporate Governance Statement The Company has prepared a Corporate Governance Statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company. In accordance with ASX Listing Rule 4.10.3, the Corporate Governance Statement will be available on Gale Pacific’s website (www.galepacific.com), and will be lodged with ASX at the same time that this Annual Report is lodged with ASX. review for Ordinary Fully Paid Shares Range Total Holders Units % Issued Capital 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over 116 280 228 731 228 33,036 861,876 1,852,138 28,891,450 0.01 0.29 0.62 9.71 265,835,896 89.36 Total 1,583 297,494,396 100.00 Number of Holdings of Equity Securities as at 12 August 2014 Less Than Marketable Parcels of Ordinary Shares As at the reporting date, the number of holders in each class of equity securities on issue in Gale Pacific is as follows: The number of holders of less than a marketable parcel of ordinary shares as at the Reporting Date is as follows: The fully paid issued capital of the Company consisted of 297,474,396 ordinary fully paid shares held by 1,583 shareholders. Each share entitles the holder to one vote. 13 holders have been granted 3,700,000 performance rights over ordinary shares. Performance rights do not carry a right to vote. Unmarketable Parcels as at 12 August 2014 Minimum $500 parcel at $0.255 per unit Minimum Parcel Size UMP Holders Units 1,961 169 114,533 Voting Rights of Equity Securities The only class of equity securities on issue in the Company which carry voting rights is ordinary shares. As at the Reporting Date, there were 1,583 holders of a total of 297,474,396 ordinary shares of the Company. The voting rights attaching to the ordinary shares, set out in Article 54 of the Company’s Articles of Association are: “Subject to any rights or restrictions for the time being attached to any class or classes of shares: (cid:131) (cid:131) at meetings of members or classes of members each member is entitled to vote in person or by proxy or attorney; and on a show of hands every person present who is a member has one vote, and on a poll every person present in person or by proxy or attorney has one vote for each ordinary share he holds.” Substantial Shareholders as at 12 August 2014 As at the Reporting Date, the names of the substantial holders of Gale Pacific and the number of equity securities in which those substantial holders and their associates have a relevant interest, as disclosed in substantial holding notices given to Gale Pacific, are as follows: Shareholder THORNEY HOLDINGS PTY LTD WINDHAGER HANDELS GESMBH INVESTEC BANK (AUSTRALIA) LIMITED Class of Securities No. % shares 79,702,646 26.79 shares 41,925,781 14.09 shares 19,794,793 6.65 70 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only Number of Holders Other Information As at the Reporting Date, the number of holders in each class of equity securities on issue in Gale Pacific is as follows: Twenty Largest Holders of Quoted Equity Securities as at 12 August 2014 The Company only has one class of quoted securities, being ordinary shares. The names of the 20 largest holders of ordinary shares, and the number of ordinary shares and percentage of capital held by each holder is as follows: Shareholder No. % HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 72,671,525 24.43 WINDHAGER HANDELS GESMBH 41,925,781 14.09 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, 3195, Victoria, Australia, telephone is +61 (3) 9518 3333. The Company is listed on the Australian Securities Exchange. The home exchange is Melbourne. Registers of securities are held by Computershare Investor Services Pty Limited, Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067, Australia, local call is 1300 850 505, international call is + 613 9415 4000. Stock Exchange Listing Gale Pacific’s ordinary shares are quoted on the Australian Securities Exchange (ASX issuer code: GAP) Voluntary Escrow INVESTEC INVESTMENTS (UK) LIMITED 14,182,685 4.77 There are no securities on issue in Gale Pacific that are subject to voluntary escrow. GALE AUSTRALIA PTY LTD 13,927,844 4.68 J P MORGAN NOMINEES AUSTRALIA LIMITED 9,347,355 3.14 Unquoted Equity Securities UBS NOMINEES PTY LTD 7,718,384 2.59 GERNIS HOLDINGS PTY LIMITED 7,409,665 2.49 INVESTEC AUSTRALIA LIMITED 5,612,108 1.89 CONTEMPLATOR PTY LTD MR GEOFFREY DUNCAN NASH STITCHING PTY LTD 3,691,433 1.24 3,327,428 1.12 Shares Options 3,000,000 1.01 Convertible Notes The number of each class of unquoted equity securities on issue, and the number of their holders, are as follows: Class of Equity Securities Number of unquoted Equity Securities Number of holders 0 0 0 0 0 0 13 Performance Rights 3,100,000 HAROLDSWICK CORPORATION PTY LTD 2,500,000 0.84 CHILLEN PTY LIMITED (TALLEN) 2,431,317 0.82 GFS SECURITIES PTY LTD 2,380,935 0.80 GALLIUM PTY LTD 2,279,359 0.77 There are no persons who hold 20% or more of equity securities in each unquoted class. On Market Buyback VENN MILNER SUPERANNUATION PTY LTD 2,000,000 0.67 The Company is not currently conducting an on-market buy- back. ATKONE PTY LTD W DONNELLY SERVICES PTY LTD APM ENTERPRISES PTY LTD 1,919,796 0.65 1,905,485 0.64 1,816,599 0.61 GDL INVESTMENTS PTY LIMITED 1,800,694 0.61 Top 20 holders of Ordinary Fully Paid Shares as at 12 August 2014 201,848,393 67.85 Total Remaining Holders Balance 95,626,003 32.15 Item 7 Issues of Securities There are no issues of securities approved for the purposes of item 7 of section 611 of the Corporations Act which have not yet been completed. GALE PACIFIC LIMITED 2014 ANNUAL REPORT 71 For personal use only OFFICE LOCATIONS Australia PO Box 892 145 Woodlands Drive, Braeside, Victoria, 3195, Ph: +61 3 9518 3333 Toll Free 1800 331 521 China 777 Hengshan West Road, Beilun, Ningbo, 315800 Ph: +86 574 5626 8888 Middle East PO Box 17696 Jebel Ali, Dubai, U.A.E. Ph: +971 4 881 7114 New Zealand Unit 9, 39 Apollo Drive, Rosedale, Auckland, 0632 Ph: + 64 9 479 9119 Toll Free: 0800 555 171 United States Suite 1704, 285 West Central Parkway, Altamonte Springs, Florida, 32714 Ph: +1 407 333 1038 72 GALE PACIFIC LIMITED 2014 ANNUAL REPORT For personal use only 

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