GALE Pacific
Annual Report 2017

Plain-text annual report

Annual Report 2017 For personal use only Corporate Directory GALE Pacific Limited ABN 80 082 263 778 Principal Places of Business Australia Solicitors Norton Gledhill Directors David Allman (Chairman) Nick Pritchard (Group Managing Director) Peter Landos (Non Executive Director) John Murphy (Non Executive Director) Company Secretary Sophie Karzis Registered Office 145 Woodlands Drive Braeside, VIC, 3195 T +61 3 9518 3333 Website Address www.galepacific.com 145 Woodlands Drive Braeside, VIC, 3195 Tel: +61 3 9518 3333 New Zealand Unit 9, 39 Apollo Drive Rosedale, Auckland, 0632 Tel: +64 9 479 9119 China 777 Hengshan West Road Beilun, Ningbo, 315800 Tel: +86 574 5626 8888 USA Level 23, 459 Collins Street Melbourne, VIC, 3000 T + 613 9614 8933 Auditors Deloitte Touche Tohmatsu 550 Bourke Street Melbourne, VIC, 3000 T + 61 3 9671 7000 Stock Exchange Listing Gale Pacific Limited shares are listed on the Australian Securities Exchange (ASX code: GAP) Suite 1704, 285 West Central Parkway Altamonte Springs, Florida 32714 Tel: +1 407 333 1038 Share Registry Computershare UAE PO Box 17696, Jebel Ali, Dubai Tel: +971 4 881 7114 Yarra Falls, 452 Johnston Street Abbotsford, VIC, 3067 T + 61 3 9415 4000 Contents IFC Corporate Directory 1 Company Introduction 2 Results at a Glance 3 Chairman’s Letter 6 Group Managing Director’s Review 9 Operational Report 12 Board of Directors & Chief Financial Officer 14 Executive Leadership 15 Corporate Governance 16 Directors’ Report 29 Financial Report 2017 Annual General Meeting The Annual General Meeting will be held on Friday 27 October 2017. The Notice of Meeting and Proxy Form are separate items accompanying this 2017 Annual Report. 02 GALE PACIFIC LIMITED 2017 ANNUAL REPORT For personal use onlyWho we are GALE Pacific is a manufacturer and marketer of commercial and DIY products that protect and enhance environments around the world. Based in Australia, we operate globally with approximately half our revenue coming from other markets. Our products are marketed across commercial and retail sectors, with distribution into architectural, horticultural, agricultural, mining, construction, and home improvement channels. They are stocked by many of the world’s largest retailers and also have strong online distribution. Key products include architectural shade fabrics, exterior window shades, shade sails and an array of specialised commercial fabrics used for crop protection, irrigation, water storage and screening. Retail shade and screening products are marketed under the Coolaroo brand. Commercial products are marketed under the GALE Pacific brand. GALE Pacific is a world leader in specialised textiles and associated products and is recognised in our markets as an innovator and long-term producer of premium quality products. The company is focused on strengthening our global market position through product innovation and brand strength. 01 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyResults at a glance Over the past three years, we have achieved compound annual revenue growth of 8.5% and compound underlying earnings growth of 10%, while transforming the company into a focused technical textiles business. Revenue $A million Operating Cash Flow $A million 200 150 100 50 0 137.3 148.0 76.4 60.9 2014 80.6 67.4 2015 173.2 175.3 90.8 92.7 82.4 2016 82.6 2017 20% 15% 10% 5% 0% 13.4 16.3 20.5 1.5 (0.7) 20 10 0 -10 -20 8.2 (4.0) (9.0) 2014 2015 2016 2017 H1 H2 Growth H1 H2 as a % of EBITDA NPAT $A million Net Debt $A million 200 100 0 -100 -200 40% 30% 20% 10% 0% 26.2 20.0 16.7 13.6 11.2 13.7 8.2 30 25 20 15 10 5 0 -5 2014 2015 2016 2017 H1 H2 as a % of Equity (1.3) -10% Sales by Region $A million ‘000s Australasia $92,350 Middle East/North Africa $12,775 Americas $61,963 Eurasia $6,177 12 10 8 6 4 2 0 8.2 4.7 3.5 2014 10.2 10.1* 6.9* 5.8 1.1 7.0 3.2 2015 2016 H1 H2 *Underlying 6.8 3.4 2017 EBITDA $A million 25 20 15 10 5 0 17.6 18.2* 22.3 21.4* 10.3 7.3 2014 13.7 4.5 2015 14.1 13.5 8.2 2016 7.9 2017 H1 H2 *Underlying 02 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Chairman’s letter GALE Pacific has produced solid financial results for FY2017 while continuing to make excellent progress with the key strategic transformation initiatives previously announced. Sales revenue of $175.3 million was marginally ahead of prior 25 September 2017. With a vastly improved balance sheet year while underlying pre-tax profit of $13.5 million was in line position, we initiated an on-market share buyback as an with prior year. Strong operating cash flow was a particular additional capital management tool as we continue our focus highlight and reflects continuing improvement in supply chain on improving shareholder returns. Our People Under Nick Pritchard’s leadership, the management team has managed the difficult transformation process extremely well. They have been well supported by all our employees and, on behalf of the board, I would like to express our gratitude for their contribution. Looking Ahead The company is now in a good position to execute its growth strategy and we see potential in all selling regions, particularly the Americas. Investment in manufacturing capacity will be required to support this growth, and this is underway, together with a developing pipeline of exciting new products. David Allman Chairman 25 August 2017 management and working capital control. The transformation phase of the company is now largely complete and, with a very strong balance sheet, we are well-positioned to take advantage of exciting organic and other growth opportunities. Investment in Growth Initiatives During the period, further growth in the commercial channel was, in part, constrained by the production capacity of our Melbourne-based coating equipment. We see the commercial channel as a significant growth opportunity and consequently have decided to invest in additional coating capacity. This investment in a new coater, which has been ordered and will be commissioned early in the 2019 financial year, will deliver increased capacity, flexibility and capability for our commercial customers. Exit of Non-core Businesses During the period, much of the focus in the Australia/ New Zealand business was on the efficient exit of non-core products, principally the company’s glass business. The exit of non-core products was largely completed during the period and, in that regard, the Board made the decision to write off the goodwill and other items on the balance sheet related to these non-core products, resulting in a non-cash expense of $18.4 million. Shareholder Returns and Capital Management The board has declared a final dividend for FY 2017 of 1.0 cent per share which takes the total payout for the year to 2.0 cents per share. This is a 14% increase on the prior year payout and represents 58% of underlying earnings per share of 3.4 cents. The record date for the final dividend is 03 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only GALE Pacific: Geared for Growth Our vision is to be the leading provider of innovative and practical products that protect and enhance the environments and lifestyles of our customers. 04 GALE PACIFIC LIMITED 2017 ANNUAL REPORT For personal use only Our values Integrity We do what is right. We are honest and ethical, worthy of the trust of others. It is the price of entry to our team. Respect Respect guides the way we operate at all levels – with consumers, customers, suppliers, investors, the community and our own team. Collaboration We believe in the power of working together in a collaborative way. Every function and every role is as important as each other. People People are the heart and soul of our business. We continually strive to provide a safe, supportive and engaging environment for our team to achieve their full potential. Community We are proud to be part of the communities we operate in globally. We are committed to supporting local causes and operating in an environmentally responsible manner at all times. Innovation Creative thinking inspires innovation in everything we do. We seek and value ideas from our team that improve our products and provide meaningful benefits to our consumers and customers. Our strengths How we plan to grow • Innovation and Technology • Premium Brands and Marketing • Our People and Culture • Our World Class Manufacturing • Financial Discipline • Accelerating the development of our Americas business, focusing on shading and screening, whilst simultaneously entering the market for commercial coated fabrics • Extending our market-leading shading, screening and technical fabrics businesses in Australia and New Zealand • Accelerating the growth in our Middle East and North Africa markets, focusing on commercial shading • Investing in differentiated technologies and technical partnerships that support the development of innovative products driven by consumer need. GALE PACIFIC LIMITED 05 2017 ANNUAL REPORT 05 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Group Managing Director’s Review Over the last three years we have been transforming GALE Pacific into a focused, innovative, global, collaborative, and more service-driven business. Whilst there is still much to do, the transformation phase is largely complete. Our Strategy Our strategy since August 2014 has been about growth; We have created an efficient facility footprint, upgrading our but first we had to create a business platform capable of core facilities to a higher standard and closing four others. supporting and sustaining it. Our brand portfolio has been rationalised, enabling us to The fundamental elements of our growth strategy invest more in a smaller number of brands and make them remain unchanged. more meaningful to our consumers and customers. We have focused on our core business and have largely completed the exit of non-core products. Typically, these non-core products were outside our core competence, of lower value and margin, and in categories where innovation is difficult. They created complexity and cost and, in many cases, considerable distraction. Focus Our plan is to focus on a small number of geographic markets to build larger, faster-growing and more sustainable businesses. We have concentrated our efforts on the USA and Canada, Australia and New Zealand, and a small number of countries in the Middle East, Europe and Asia where there is demand for high quality shade-related products. On 30 June, the most significant of these exits occurred with the sale of our pool fencing, balustrade and mirrors business. We continue to rationalise our product ranges to focus on products where we can innovate, and where our customers Whilst undertaking this transformation, over the last three and consumers value superior performance and quality. years we have achieved compound annual revenue growth of 8.5% and underlying earnings growth of 10%. We have built a robust balance sheet underpinned by significant improvements in inventory and working capital. At year end, we closed with net cash of $1.3 million. During the year, despite significant economic challenges in the MENA (Middle East and North Africa) region and lower retail sales in Australia/New Zealand due to category exits and Masters’ closure, sales revenues were $175 million, up 1% on the prior year. NPAT, on an underlying basis, was $10.1 million, flat on the prior year primarily due to lower sales in MENA, our most profitable region. Our Vision Our goal is to become experts and global leaders in the innovation, development, manufacture, marketing and distribution of shade solutions and high performance technical textiles. We are well on our way to achieving this goal, and everything we do is geared towards it. Our manufacturing has also been rationalised to focus on processes where we have capability and a globally competitive cost position. Innovation Our goal is to deliver meaningful innovation in our core categories. Over the last three years, we have focused our development activities and progressively increased our investment in research and development. Whilst investing in additional internal resources, simultaneously we have built external technical partnerships that are helping to accelerate our new product development and assist in developing our manufacturing facilities’ technical capability. We are beginning to see the results of this strategy and plan to increase steadily our investment in this important area. Collaborative We are working hard at becoming a trusted supplier to our customers around the world. Our strategy involves working closely and effectively with existing customers and building stronger relationships with a smaller number of strategic supplier partners which are critical to our success. 06 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use onlyRight: Warehousing operations, Melbourne, Australia Far right: Investing in additional extrusion coating capacity to accelerate commercial sector growth. We have made good progress in this area and have achieved capacity, and allow us to develop additional domestic and improvements in quality and service, as well as cost reductions. export markets for new and existing products. Service-Driven During the year, we achieved further improvements in our service performance across most regions. At our China manufacturing operations, we reduced lead times and • Americas Region – We are excited about the potential for our products in North America. In 2017, we accelerated our growth in this region, and developed the right sales and marketing organisation for the future. increased order fill rates. Our strategy to manufacture Our strategy is to build a strong retail shade category, North American requirements earlier resulted in higher under our Coolaroo brand, in retail and online markets. In inventory at the end of December, but translated into service 2017, we were successful in trialling many new products improvements and manufacturing cost reductions as planned. and categories with our retail customers and secured Despite productivity improvements, continued growth in the additional customer ranging and trials for 2018. commercial sector provided challenges for our production • New USA Warehouse – In 2017, we undertook a detailed capacity. Consequently, we have committed to further review of our Americas region supply chain requirements investment to increase output at our Melbourne facility. to support our aggressive growth plan there. Health and Safety Underpinning our strategy is an unwavering commitment to the health and safety of our employees. Our safety performance in all regions improved during the year, with no major incidents or injuries. We have made tremendous progress in building a consistent safety culture across all parts of our business, but know that we can never rest on our laurels in this critical area. We have increased our investment in training our leaders and employees in key safety skills. Looking Forward Key elements of our 2018 plan include: • Fabrics Technology – Continuing our transition towards leadership in technical fabrics through further innovation in our core product categories and a final ‘clean up’ of non-core product categories. • Coating Manufacturing Capacity – We foresee considerable growth opportunities in the commercial coated fabrics market globally. As such, we have committed to invest $8 million in the purchase of a new, state-of-the-art production line for advanced coated fabrics. This coating line will be installed at our Melbourne facility and will support the development of our coated fabrics business, currently constrained by manufacturing Following that review, we leased a new, larger warehouse in Fontana, California, enabling the business to service our Americas customers from a single distribution facility. We took control of this facility in August 2017 and will spend the next few months setting it up in readiness for it to become operational in December. The new warehouse is expected to enable us to achieve service, cost and other improvements. • China Manufacturing Operations – In the last three years, we have made considerable improvements to our manufacturing facility in Ningbo, China. These have included upgrading buildings, amenities, dormitories, and production equipment, all factors which have contributed to a more cost-efficient operation and one delivering improved service and margins. In 2018, we will invest in further enhancements, including new plant and equipment, to support our growth, improve quality and service, and reduce costs. In addition, our China manufacturing operations will transition to our global I.T. system. We will also close our weaving facility in China and extend our sourcing arrangement with one of our key weaving suppliers, enabling us to increase the efficiency of our China manufacturing. 07 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Group Managing Director’s Review continued • Middle East North Africa – despite the considerable Subject to economic conditions, we expect that 2017/18 net economic and political challenges in 2017, we remain profit after tax will be higher than the 2016/17 underlying optimistic about the potential of this region. During the equivalent of $10.1 million. year, we invested in additional sales resources and in 2018 will invest further to provide our team with the resources to pursue the opportunities identified. We are confident that we will see this region recover and return to growth during the year. Outlook Market conditions during the year are expected to be similar In line with previous years, second half earnings are expected to be considerably greater than those of the first half. Our People We have a wonderful team of people around the world. Some of these employees have joined our business recently as we have undertaken the transformational journey. Many are long-term employees who have committed to GALE to those experienced in the prior year. Pacific over an extended period – in some cases more than In the Middle East, uncertainty remains, though we anticipate thirty years. a gradual improvement in market conditions that impacted I am proud of what our team has achieved, and would like negatively throughout last year. to thank them for their efforts as we work hard to build our In Australia and New Zealand, we will see revenue decline, company’s performance. a result of the exit of the non-core categories, primarily I would also like to thank our customers for their support of glass products. These exits will not impact profitability. GALE Pacific, and our suppliers for the important role they Core product categories are expected to continue to grow play in our success. and solid customer ranging in the retail shade category has been confirmed. Finally, I would like to thank our shareholders for their support. We are working hard to make GALE Pacific worthy of We expect the Americas region to accelerate its growth your investment. trajectory, driven by growth in retail shade sails and window shades. Seasonal commitments from North American retailers look very promising at this early stage. Major investments will include the new warehouse in the USA, in-store racking to support new ranging that has been secured in North America, China manufacturing facility upgrades, and new production equipment to support growth. In Australia, we will commence preparations for the new extrusion coating line at the Melbourne facility. Nick Pritchard Group Managing Director 25 August, 2017 08 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use onlyOperational Report Revenue Underlying EBITDA Underlying EBIT Underlying profit before tax Underlying profit after tax Statutory profit before tax Statutory profit after tax Net cash provided by operating activities Net cash/(debt) Underlying basic earnings per share (cents) Final dividend per share (cents) Dividends per share Please see page 11 for reconciliation from underlying earnings to statutory earnings. Australia/New Zealand Revenue Underlying EBITDA Underlying PBT FY2017 A$ million FY2016 A$ million Change % 175.3 173.2 21.4 15.1 13.5 10.1 (4.9) (8.0) 19.7 1.3 3.39 1.00 2.00 22.3 15.1 13.5 10.2 13.5 10.2 17.8 (8.2) 3.44 1.00 1.75 1% (4)% – – (1)% (136)% (178)% 10% 116% (1)% – 14% FY2017 A$ million FY2016 A$ million Change % 92.4 2.9 1.9 97.5 3.6 2.6 (5)% (18)% (25)% Sales to the commercial channel grew strongly, with increases in most product categories, although these were limited by capacity constraints during the peak period. Further investment in the coating operations improved output and quality, but production remained insufficient to capitalise on the full potential. To take advantage of growth opportunities in the commercial coated fabrics market, the decision has been taken to invest $8 million in a new, state-of-the-art coating production line. This will be installed at the Melbourne facility and will allow the development of additional domestic and export markets for new and existing products. In the retail sector, sales declined due to the discontinuation of non-core products and the exit of Masters from the home improvement market, which caused short-term deflation and diverted consumers from GALE Pacific’s retail partners. Retailers’ sales of the company’s products, however, increased. The year’s result follows strong performance in FY2016 when there was substantial new business in the portable shade category. The business continued to improve the efficiency of its supply chain, reduced inventory substantially, increased inventory turns, enhanced service and reduced operational costs. Americas Revenue EBITDA PBT FY2017 A$ million FY2016 A$ million Change % 62.0 6.5 4.4 53.6 4.9 3.2 16% 33% 39% Sales grew strongly in the retail channel, including online. The new retail business secured in the prior year was serviced efficiently and customers’ sales were positive. Major retailers extended trials of the company’s window shades and shade sails, and new ranging and trials are being extended to new geographic markets and more products in FY2018. 09 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyFollowing a detailed review of the Americas supply chain and to support growth, a new, larger warehouse has been leased in Fontana, California so customers can be serviced from a single distribution facility. This will become operational in December 2017 and will meet the business’ medium-term requirements and enable it to make service and cost improvements. The opportunity for growth in the Americas is significant, and with the business now focused on the shade category and commercial fabrics, we see considerable potential in both the retail and commercial sectors. To take advantage of this, new leadership was appointed to lead the commercial business expansion in the region from July 2017. Middle East/North Africa Revenue EBITDA PBT FY2017 A$ million FY2016 A$ million Change % 12.8 2.5 2.3 15.4 3.2 3.1 (17)% (22)% (24)% Despite the scale of the opportunities in this region, market conditions remained subdued with a number of projects being postponed. The company remains confident in its ability to be successful with these projects and is positive about opportunities in the region; additional sales resources were recruited during the year, and further investment is planned in FY2018. China Manufacturing & Eurasia Revenue Intersegment Sales (eliminated when consolidating group results) EBITDA PBT FY2017 A$ million FY2016 A$ million Change % 8.2 49.8 11.5 8.0 6.8 58.4 12.6 7.0 21% (15)% (9)% 13% Sales in the Eurasia region increased, driven by demand for commercial fabrics. New distributors were appointed in focus markets and low-volume, low-margin retail products were exited. Facility and plant upgrades continued at the China manufacturing operations, and refurbishment of the extrusion plant was completed, setting a new internal benchmark. Service and delivery performance improved. As part of the strategy to focus on cost, quality and service, the business invested in building lean manufacturing capability and upgrading other management roles. Further investment in new plant and equipment is planned for FY2018, and the China manufacturing operations will transition to the company’s global IT system. The weaving facility will also be closed and the sourcing arrangement with a key weaving supplier will be extended to increase manufacturing efficiency. Balance Sheet and Cash Generation GALE Pacific’s balance sheet is now well positioned to increase investment in the company’s core business. Operating cash flow of $19.7 million was a new record for the company, exceeding the prior year record by 10%. Total group inventory declined by 15%, despite unfavourable exchange rate movements, with inventory days reduced by 22 days. The business also improved receivable collections and payment terms with key suppliers which, combined with inventory reductions, drove overall cash conversion improvement. The core business, in particular in the Americas and our commercial sectors in all markets, continue to contribute strong operating cash generation. We continue to see improved productivity in our manufacturing operations in China with improved supplier terms and inventory efficiency. The company made a non-cash write-off of goodwill and other related items of $18.4 million, which will have no impact on future trading or banking covenants. After non-cash items, after tax (loss) is $(8.0) million. The write-off is one-off and relates largely to historical goodwill dating back to 2012. The businesses affected are considered non-core and do not form part of the company’s strategy moving forward. 10 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use onlyReconciliation of Underlying Results to Statutory Results for FY2017 In FY2017, the company made a non-cash, non-recurring write-off of goodwill and other related items of $18.4 million pre-tax and $18.1 million after tax respectively. The following table reconciles the underlying results to the statutory results. EBITDA A$ million EBIT A$ million Profit before tax A$ million Profit after tax A$ million Basic earnings per share cents Statutory Goodwill write-off and associated costs Underlying 3.0 18.4 21.4 (3.3) 18.4 15.1 (4.9) 18.4 13.5 (8.0) 18.1 10.1 (2.71) 6.10 3.39 Underlying profit, EBITDA and EBIT are the statutory profit, EBITDA and EBIT respectively adjusted for non-cash, non-recurring impairment of goodwill and other related items. The company believes that underlying profit, EBITDA and EBIT provide a better understanding of its financial performance and allow for a more relevant comparison of financial performance between financial periods. Underlying profit, EBITDA and EBIT are useful as they remove significant items that are material items of revenue or expense that are unrelated to the underlying performance of the business, thereby facilitating a more representative comparison of financial performance between financial periods. Underlying profit is presented with reference to the Australian Securities and Investments Commission Regulatory Guide 230 “Disclosing non-IFRS financial information” issued in December 2011. The company’s policy for reporting underlying profit is consistent with this guidance. The directors had the consistency of the application of the policy reviewed by the external auditor. 11 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyBoard of Directors & Chief Financial Officer From left: Nick Pritchard, John Murphy, Peter Landos, David Allman and Matt Parker. David Allman, B.Sc. Chairman and Non Executive Director since November 2009. Nick Pritchard, B Bus. (Marketing) Group Managing Director appointed 22 August 2014. Nick David was Managing Director of McPherson’s Limited from was appointed to the position of Group Managing Director 1995 to 2009 and prior to that was Managing Director of in August 2014. Prior to joining GALE Pacific, he held senior Cascade Group Limited for seven years. Before this, he held leadership positions at Newell Brands (Newell Rubbermaid) senior positions with Elders IXL Limited and Castlemaine for 11 years, most recently Vice-President/General Manager – Tooheys Limited. David holds a degree in engineering and, Australia & New Zealand, where he led all business segments. prior to obtaining general management positions, held Nick has considerable local and international experience managerial roles in production management, finance and leading a highly profitable, high growth organisation. marketing. He is Chairman of Catalyst Education Pty Ltd. In the three years prior to 30 June 2017, he was also a director of McPherson’s Group 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. 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 which 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 on mergers and acquisitions, divestments, business restructurings and capital markets. He is also Non Executive Chairman of Adacel Technologies Limited. In the three years prior to 12 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only30 June 2017, Peter was also a director of McPherson’s Group Limited and Rattoon Holdings Limited. Peter is a member of the Company’s Nomination, Audit and Risk and Remuneration Committees. Sophie Karzis, B Juris LLB Company Secretary since June 2004. Sophie is a practising lawyer with over 15 years’ experience as a corporate and commercial lawyer, company secretary and general counsel for a number of private and public companies. Sophie is John Murphy, CA, FCPA, B.Comm, M.Comm Non Executive Director since August 2007. John was the principal of Corporate Counsel, a corporate law practice with a focus on equity capital markets, mergers and acquisitions, Managing Director of Investec Wentworth Private Equity corporate governance for ASX-listed entities, as well as the Limited (“IWPE”) from 2002 until 2012, when he changed more general aspects of corporate and commercial law. She from being an executive to a non-executive director of is currently the company secretary of a number of ASX-listed Investec Bank (Australia) Limited. He is currently the and unlisted entities, and is a member of the Law Institute of Managing Director of private equity firm Adexum Capital Victoria as well as the Governance Institute of Australia. Limited. John has extensive director experience having sat on the boards of the 28 investments made by IWPE and Adexum over the last 15 years. John is currently a director of Ariadne Australia Limited and, in the three years prior to 30 June 2017, he was also a director of Clearview Wealth Limited, Kresta Holdings Limited, Redflex Holdings Limited and Vocus Communications Limited. John is the Chairman of the Company’s Remuneration Committee, the Audit and Risk Committee and is a member of the Nomination Committee. Above left: Caption text to go here, text to go here. Above right: Caption text to go here, text to go here. 13 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyExecutive Leadership Nick Pritchard Group Managing Director Nick re-joined GALE Pacific in August 2013 following 11 years in senior leadership positions at Newell Rubbermaid (IRWIN Tools, Rubbermaid, Waterman, Parker, Sharpie, PaperMate, DYMO, Liquid Australian retailer with 58 stores across Australia employing over 2,000 staff. At Harris Scarfe, Vicki led the human resources function, as well as group payroll, for seven years. Prior to Harris Scarfe, she held roles of increasing seniority at Skilled Group, Apis Consulting Group, Bristol-Myers Squibb, Coles Myer and Myer Grace Brothers. She holds a Bachelor’s Degree in Business Administration (HR Management) from Monash University. Paper). He led the GALE Australia/New Zealand business until August 2014 when he was appointed Group Managing Director. Nick was formerly Marketing Manager and Product Manager of GALE Pacific between 1996 and 2003. He developed the Coolaroo brand and many of the company’s highly successful products, including DIY shade sails and window shades. Nick is a registered member of the Australian Insitute of Company Directors. Matt Parker Chief Financial Officer Matt joined GALE Pacific in April 2015. Matt is an experienced finance professional having held key finance roles at Ford Motor Company Australia, Nissan Motor Company Australia and Cadbury Schweppes. Prior to joining GALE Pacific, he was the CFO of Paragon Care Ltd (ASX:PGC). Matt is a certified practising accountant and holds a Bachelor’s Degree in Business and Arts (Japanese). He is a registered member of CPA Australia and an affiliate of the Securities Institute of Australia. Bruno Marotta General Manager – Supply Chain Bruno joined GALE Pacific in October 2014 and has over 30 years’ experience in the supply chain arena. He spent 18 years in senior supply chain roles at American Tool Company/Newell Rubbermaid where his responsibilities included leading warehouse facilities, logistics, procurement and customer service functions across the Asia Pacific region. Vicki Klunyck General Manager – People & Culture Vicki joined GALE Pacific in February 2017. She is an accomplished HR professional with experience in national and Asia-Pacific roles in publicly listed Cliff XinHua Zhang General Manager – Manufacturing Cliff joined GALE Pacific in May 2016. He is an experienced manufacturing leader having held senior manufacturing and product quality roles at Bosch Power Tools over 13 years, and operations, logistics and production roles at Andrews Telecommunications, Honeywell CATIC Engine Co. and Solectron Technology Co., Ltd., a U.S.-based manufacturer of electronics products. Cliff has a Bachelor of Science (Mechanical Engineering), from Nanjing University of Science & Technology, China. Ali Haidar General Manager – Middle East North Africa Ali joined GALE Pacific in August 2004 and has 12 years’ experience in sales and marketing with a strong record of business development in the region. He has led GALE Pacific’s profitable growth in the Middle East and was recently given responsibility to lead the company’s focused expansion in the Middle East/North Africa region. Mark Nicholls General Manager – Eurasia Mark joined GALE Pacific in June 2016. He has tremendous experience in the UK, Europe, Asia, South Africa and Israel, with knowledge of both retail and commercial sectors and experience of appointing new distributors, managing large, multi-country retailers, etc. Mark’s most recent role was Business Development Manager (UK/Ireland) for FISKARS and prior to that held Business Development Manager and International Sales Manager roles for Trisport (a division of Pride Sports), Newell Rubbermaid and SANDVIK. entities and emerging/high growth entrepreneurial companies. Previously, she was employed by Harris Scarfe, a leading 14 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For 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). 15 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyDirectors’ Report The Directors of Gale Pacific Limited (“the Company”) In addition to the above dividends, on the 25 of August present their annual financial report for the Company and its 2017 the Directors declared a dividend of 1 cent per share controlled entities (“the Group”) for the financial year ended to the holders of fully paid ordinary shares in respect of the 30 June 2017. 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 year ended 30 June 2017, payable on 2 October 2017 to shareholders on the register at 25 September 2017. The final dividend will be unfranked. This dividend has not been included as a liability in these financial statements. The total estimated dividend to be paid is $2,972,000. For the full year, the dividend of 2.0 cents per share has been declared on earnings of (2.71) cents per share Apart from the dividend declared as discussed above, no (underlying 3.39). other matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. Likely Developments Disclosure of information regarding likely developments in the operations of the Group in future financial years has been made in part in the Chairman’s Letter of this Annual Report. Environmental Regulation and Performance The Group’s operations are not subject to any significant Share Based Payments Performance Rights The number of performance rights on issue at the date of this report is 4,757,802. No amount is payable on the vesting of a performance right. Each performance right entitles the holder to one (1) ordinary share in GALE Pacific Limited in the event that the performance right is exercised. Performance rights carry no rights to dividends and no voting rights. 1,569,000 performance rights were granted to executives and the Group Managing Director on 21 September 2016. The performance rights will vest subject to a continuation of employment to 30 June 2019 and the satisfying of relevant environmental regulations under the Commonwealth or State performance hurdles based on the Group’s diluted earnings legislation. The Directors believe that the Group has adequate per share over the three year period from 1 July 2016 to systems in place for the management of its environmental 30 June 2019. None of these performance rights can vest requirements and is not aware of any breach of those environmental requirements as they apply to the Group. Dividends Dividends paid to members during the financial year were as follows: 2016/2017 ($’000) until 30 June 2019 and expire on 1 December 2019. As at 30 June 2017, 413,603 performance rights lapsed during the year to 30 June 2017 as the relevant personnel ceased employment with the Company. The performance rights are subject to a continuation of employment for three years and then the satisfying of relevant performance hurdles based on improvements in the Group’s diluted earnings per share over the three year period. Final ordinary dividend for the year ended 30 June 2016 of 1.00 cent per share paid Further details of the options and performance rights movements during the reporting period are disclosed in the on 3 October 2016 (unfranked) 1.0 cent Remuneration Report. Interim ordinary dividend for the half year ended 31 December 2016 of 1.00 cents per share paid on 3 April 2017 (unfranked) 1.0 cent 16 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For 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 J Murphy N Pritchard Fully Paid Ordinary Shares 2,400,000 – 4,416,599 212,804 Options Performance Rights – – – – – – – 2,356,385 Directors’ Meetings The table below sets out the attendance by Directors. Directors’ Meetings Audit and Risk Committee Meetings Remuneration Committee Meetings Nomination Committee Meetings No of Meetings Eligible to Attend Attended No of Meetings Eligible to Attend Attended No of Meetings Eligible to Attend Attended No of Meetings Eligible to Attend Attended 13 13 13 13 12 12 13 13 4 4 4 – 4 3 4 – 1 1 1 – 1 1 1 – 1 1 1 – 1 1 1 – Directors D Allman P Landos J Murphy N Pritchard As at the date of this report, the Company has an Audit & Risk Committee, a Remuneration Committee and a Nomination Committee of the Board of Directors. The members of the Audit and Risk Committee are John Murphy, David Allman and Peter Landos. The Chairman of the Audit and Risk Committee is John Murphy. The members of the Remuneration Committee are John Murphy, David Allman and Peter Landos. The Chairman of the Remuneration Committee is John Murphy. The members of the Nomination Committee are David Allman, Peter Landos and John Murphy. 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: • 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. 17 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyRemuneration packages contain the following key elements: • 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 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 2017: 30 June 2017 30 June 2016 30 June 2015 30 June 2014 30 June 2013 Sales 175,265 173,191 147,993 137,304 119,988 Underlying profit before tax* Underlying profit after tax* Net profit before tax Net profit after tax 13,546 10,078 13,509 10,228 (4,861) 13,509 (8,044) 10,228 8,707 6,911 6,221 5,170 10,988 12,016 8,233 9,094 10,988 12,016 8,233 9,094 Share price at start of year 36 cents 17 cents 23 cents 26 cents 24 cents Share price at end of year 40 cents 36 cents 17 cents 23 cents 26 cents Interim dividend Final dividend 1.00 cent 0.75 cents – 1.30 cents 1.20 cents 1.00 cent 1.00 cents 1.00 cent 1.35 cents 1.35 cents Basic earnings per share (2.71) cents 3.44 cents 1.74 cents 2.77 cents 3.07 cents Diluted earnings per share (2.71) cents 3.40 cents 1.72 cents 2.72 cents 3.00 cents *Reconciliation from underlying earnings to statutory earnings 2017 is on page 11. Remuneration Practices The Group policy for determining the nature and amount of Remuneration Structure In accordance with best practice corporate governance, the emoluments of Board members and Senior Executives is as structure of Non Executive Directors and Senior Managers follows. The remuneration structure for Executive Officers, remuneration is separate and distinct. including Executive Directors, is based on a number of factors including length of service, particular experience of the Non Executive Director Remuneration individual concerned, and overall performance of the Group. Objective 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. 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. Payment of bonuses, and other incentive payments are Structure 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. 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 18 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Directors’ Report continuedFor personal use onlyannum. The amount of the aggregate remuneration and the as the relevant personnel ceased employment with the manner in which it is apportioned is reviewed periodically. company. Each performance right entitles the holder The Board considers fees paid to Non Executive Directors of to one (1) ordinary share in Gale Pacific Limited and is comparable companies when undertaking this review process. subject to satisfying the relevant performance hurdles Each Non Executive Director receives a fee for being a Director of the Company and does not participate in based on improvements in the Group’s diluted earnings per share. performance based remuneration. Actual results will be normalised by the board as Senior Manager and Executive Director Remuneration Objective considered necessary (at the boards absolute discretion) so that it reflects underlying profit. Options and performance rights issued to executives during the year were issued in accordance with the The Group aims to reward executives with a level and mix Group’s remuneration policy which: of remuneration commensurate with their position and responsibilities within the Group. The objective of the remuneration policy is: • 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 • 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 In determining the level and make up of executive remuneration policy. The budget targets for each business remuneration, the Remuneration Committee reviews reports unit and the company overall is established each year detailing market levels of remuneration for comparable roles. by the Board. The performance criteria include sales Remuneration consists of fixed and variable elements. and earnings before interest and tax growth and working (a) Share Based Payments capital management. For corporate executives, the performance criteria include growth in earnings before tax The Group maintains a performance rights scheme and cash flow management. for certain staff and executives, including the Group 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: Actual results will be normalised by the board as considered necessary (at the boards absolute discretion) so that it reflects underlying profit. Key Management Personnel of the Group Who Held Office During the Year • • Improvement in earnings per share; and Directors Improvement in return to shareholders. D Allman (Chairman Non Executive) The number of unissued ordinary shares under the performance rights scheme at 30 June 2017 was P Landos (Non Executive) J Murphy (Non Executive) 4,757,802. 1,325,802 of these shares were granted on N Pritchard (Group Managing Director) 11 December 2014 and will not vest until the time of the company’s 2017 annual report is released on the ASX Executives (on or around 1st October 2017). 1,863,000 of these M Parker (Chief Financial Officer) shares were granted on 9 October 2015 and will not vest C Fuller (General Manager Australia & New Zealand) until the time of the company’s 2018 annual report is L Klebenow (General Manager – Americas) released on the ASX (on or around 1st October 2018). C Zhang (General Manager – China) A further 1,569,000 of these shares were granted on B Marotta (General Manager – Supply Chain) 21 September 2016 and will not vest until the time of the A Haidar (General Manager – Middle East & North Africa) company’s 2019 annual report is released on the ASX T Varani (General Manager – EurAsia) (on or around 1 October 2019). In the period between 1 July 2016 and 30 June 2017, 413,603 shares lapsed 19 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only The following table discloses the remuneration of the Directors of the Company: 2016/2017 Short Term Benefits Post Employ- ment Share Based Payments Termina- tion Benefits Total Performance Related Salary & Fees $ Bonus $ Non Monetary $ Super $ Rights $ $ $ Total % Rights % Directors Executive Directors N Pritchard 451,500 230,590 Non–Executive Directors D Allman J Murphy P Landos Total 99,673 85,312 74,581 – – – 711,066 230,590 – – – – – 30,000 101,344 – 813,434 41% 12% 31,742 8,979 7,259 – – – – – – 131,415 94,291 81,840 77,980 101,344 – 1,120,980 30% 9% 2015/2016 Short Term Benefits Post Employ- ment Share Based Payments Termina- tion Benefits Total Performance Related Salary & Fees $ Bonus $ Non Monetary $ Super $ Rights $ $ $ Total % Rights % Directors Executive Directors N Pritchard 420,000 Non–Executive Directors D Allman G Richards1 J Murphy P Landos Total 92,720 16,667 83,508 68,493 681,388 1. Mr Richards retired 29 September 2015. – – – – – – – – – – – – 30,000 111,611 – 561,611 20% 20% 32,280 5,833 8,158 6,507 – – – – 82,778 111,611 – – – – – 125,000 22,500 91,666 75,000 875,777 13% 13% 20 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Directors’ Report continuedFor personal use onlyThe following table discloses the remuneration of the Group’s key management personnel: 2016/2017 Key Management Personnel Short Term Benefits Post Employ- ment Share Based Payments Termina- tion Benefits Total Performance Related Salary & Fees $ Bonus $ Non Monetary $ Super $ Rights $ $ $ Total % Rights % L Klebenow1 367,586 – 20,563 – 47,341 M Parker2 B Marotta3 E Varani4 A Haidar5 C Fuller6 C Zhang7 M Denney8 S Elding9 V Klunyk10 263,750 107,609 235,749 100,530 – – 25,056 35,593 22,396 31,385 196,116 42,898 66,822 191,849 40,678 43,536 – – – 25,599 216,157 13,951 – 19,791 – 157,705 – 92,085 62,769 – – – – 33,080 – – – – – 8,281 5,963 18,410 – – – – – – – – – – 435,489 432,009 390,060 305,836 301,662 249,899 209,195 165,991 165,991 – – 100,366 68,732 11% 33% 34% 14% 22% 6% 9% 0% 0% 0% Total 1,783,766 305,666 164,000 81,487 158,329 165,991 2,659,238 17% 11% 8% 8% 0% 8% 0% 9% 0% 0% 0% 6% 2015/2016 Key Management Personnel B Wang11 M Denney M Parker B Marotta E Varani A Haidar S Elding A Richardson12 C Fuller C Zhang L Klebenow Short Term Benefits Post Employ- ment Share Based Payments Termina- tion Benefits Total Performance Related Salary & Fees $ Bonus $ Non Monetary $ Super $ Rights $ 109,377 102,529 14,911 365,836 106,597 29,138 514 – – – 245,000 228,883 240,490 178,890 131,553 79,514 70,192 23,923 21,061 – – – – – – – – – – – 23,275 18,260 21,744 36,945 6,195 46,036 – – 11,184 17,219 – – – 11,186 – 12,497 13,583 7,554 6,668 694 – – – – – $ $ Total % Rights % 287,082 514,413 6% 13% 4% 7% 9% 6% 13% 4% 7% 9% – – – – – – – – – – 501,571 286,535 287,572 257,869 242,144 157,633 87,068 76,860 35,803 21,061 Total 1,694,719 209,126 107,465 72,947 97,191 287,082 2,468,530 4% 4% 1. Mr Klebenow was the General Manager – Americas, remunerated in United States dollars converted to Australian dollars in the table above. Mr Klebenow departed on 7 August 2017. 2. Mr Parker is the Chief Financial Officer. He is located in Australia and remunerated in Australian dollars. 3. Mr Marotta is General Manager – Supply Chain. He is located in Australia and remunerated in Australian dollars. 4. Mr Varani is the General Manager – EurAsia. He is based in Shanghai and remunerated in United States dollars converted to Australian dollars in the table above. 5. Mr Haidar is the General Manager – Middle East and North Africa and is based in Dubai. He is remunerated in United States dollars converted to Australian dollars in the table above. 6. Mr Fuller was the General Manager – Australia and New Zealand. Mr Fuller resigned 27 April 2017. 7. Mr Zhang is the General Manager – China and is based in China and remunerated in Chinese renminbi converted to Australian dollars in the above table. 8. Mr Denney was the General Manager – Americas, remunerated in United States dollars converted to Australian dollars in the table above. Mr Denney resigned 10 May 2016. 9. Ms Elding was the Manager – People and Culture. Ms Elding resigned 3 March 2017. 10. Ms Klunyk is the General Manager – People and Culture. She is located in Australia and remunerated in Australian dollars. Ms Klunyk commenced 23 February 2017. 11. Mr Wang was the General Manager – China, remunerated in Chinese renminbi converted to Australian dollars in the above table. Mr Wang resigned 21 October 2015. 12. Mr A Richardson was the General Manager, Australia and New Zealand located in Australia. Mr Richardson resigned 16 October 2015. 21 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyDirectors’ and Executives’ Equity Holdings: Fully Paid Ordinary Shares Balance 30 June 2016 No. Granted as Compensation No. Received on Exercise of Options No. Other Movements No. Balance 30 June 2017 No. 212,804 4,416,599 2,400,000 – 7,029,403 – – – – – – – – – – – – – – – 212,804 4,416,599 2,400,000 – 7,029,403 Balance 30 June 2015 No. Granted as Compensation No. Received on Exercise of Options No. Other Movements No. Balance 30 June 2016 No. 212,804 3,316,599 1,443,804 491,899 800,000 1,500,000 7,765,106 – – – – – – – – – – – – – – – 212,804 1,100,000 4,416,599 956,196 2,400,000 – 491,899 (300,000) 500,000 (1,500,000) – 256,196 8,021,302 2016/2017 Executive Directors N Pritchard Non–Executive Directors J Murphy D Allman Executives None Total 2015/2016 Executive Directors N Pritchard Non-Executive Directors J Murphy D Allman G Richards1 Executives M Denney2 B Wang3 Total 1. Mr Richards retired 29 September 2015 2. Mr Denney resigned 10 May 2016 3. Mr Wang resigned 21 October 2015 Share Based Compensation The terms and conditions of each grant of performance rights granted but not vested as at 30 June 2016 affecting remuneration in the current or a future reporting period are as follows: Grant Date Value per performance rights at grant date 35 cents 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 11 December 2014 are subject to a continuation of employment to 30 June 2017 and then the satisfying of relevant performance hurdles based on improvements in the Group’s diluted earnings per share over the three year period from 1 July 2014 to 30 June 2017. None of these performance rights can vest until the Company releases its FY17 Annual Report to the ASX (on or around 20th September 2017) and expire on 1 December 2017. 22 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Directors’ Report continuedFor personal use onlyThe performance rights granted on 9th of October 2015 are subject to the continuation of employment to 30 June 2018 and then the satisfying of relevant performance hurdles based on improvements in the Groups diluted earnings per share over the three year period from 1 July 2015 to 30 June 2018. None of these rights can vest until the company releases its FY18 annual report to the ASX (on or around 20th September 2018) and expire on 1 December 2018. The performance rights granted on 21st of October 2016 are subject to the continuation of employment to 30 June 2019 and then the satisfying of relevant performance hurdles based on improvements in the Groups diluted earnings per share over the three year period from 1 July 2016 to 30 June 2019. None of these rights can vest until the company releases its FY19 annual report to the ASX (on or around 20th September 2018) and expire on 1 December 2019. Directors’ and Executives’ Equity Holdings, Compensation Options and Performance Rights: Granted and Vested during the year 2016/2017 Vested Number Granted Number Grant Date Executive Directors (Performance Rights) Terms and Conditions for Each Grant Value Per Option/Right at Grant Date Exercise Price Expiry Date First Exercise Date Last Exercise Date N Pritchard – 578,000 21/09/16 0.3507 Nil 01/12/19 01/10/19 01/10/19 Non–Executive Directors None Management Personnel (Performance Rights) Other Management Total – – 991,000 21/09/16 0.3507 Nil 01/12/19 01/10/19 01/10/19 1,569,000 2015/2016 Vested Number Granted Number Grant Date Executive Directors (Performance Rights) Terms and Conditions for Each Grant Value Per Option/Right at Grant Date Exercise Price Expiry Date First Exercise Date Last Exercise Date N Pritchard – 913,000 09/10/2015 $0.2143 Nil 01/12/2018 01/10/2018 01/10/2018 Non-Executive Directors None Management Personnel (Performance Rights) Other Management Total – – 2,109,000 09/10/2015 $0.2143 Nil 01/12/2018 01/10/2018 01/10/2018 3,022,000 23 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyDirectors’ and Executives’ Equity Holdings Compensation Options and Performance Rights: Movements during the year Exercised No. Lapsed No. Net Other Change No. Balance 30 June 2017 No. Balance Held Nominally No. Balance 1 July 2016 No. Granted as Compen- sation No. 2016/2017 Executive Directors (Performance Rights) N Pritchard 1,778,385 578,000 Non-Executive Directors None Executives (Performance Rights) B Marotta 588,122 179,000 M Parker 320,000 203,000 A Haidar 281,364 146,000 S Elding E Varani Cliff Zhang Lindsay Klebenow 217,603 196,000 – – – – 105,000 270,000 Other Management Personnel (Performance Rights) Other Management 220,931 88,000 Total 3,602,405 1,569,000 – – – – – – – – – – – – – – (217,603) (196,000) – – – (413,603) – 2,356,385 – – – – – – – – – 767,122 523,000 427,364 – – 105,000 270,000 308,931 4,757,802 – – – – – – – – – – Exercised No. Lapsed No. Net Other Change No. Balance 30 June 2016 No. Balance Held Nominally No. Balance 1 July 2015 No. Granted as Compen- sation No. 2015/2016 Executive Directors (Performance Rights) N Pritchard 865,385 913,000 Non-Executive Directors None Executives (Performance Rights) B Marotta 289,122 299,000 M Parker A Haidar S Elding E Varani B Wang – 320,000 99,364 182,000 99,603 118,000 – 196,000 247,793 367,000 M Denney 343,805 478,000 – – – – – – – – – – – – – – (614,793) (821,805) Other Management Personnel (Performance Rights) Other Management 419,066 149,000 Total 2,364,138 3,022,000 – – (347,135) (1,783,733) 24 – 1,778,385 – – – – – – – – – 588,122 320,000 281,364 217,603 196,000 – – 220,931 3,602,405 – – – – – – – – – – Value of Lapsed Options/ Rights $ – – – – 44,528 44,989 – – – 89,516 Value of Lapsed Options/ Rights $ – – – – – – 122,025 162,621 60,791 345,437 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Directors’ Report continuedFor personal use onlyEmployment Agreements Executives serve under terms and conditions contained in a standard executive employment agreement, that allows for termination under certain conditions with two to three the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and months’ notice. The agreements include restraints of trade objectivity of the auditor; and on the employee as well as confidentiality and intellectual • none of the services undermine the general principles property agreements. Indemnity and Insurance of Officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors and executives of the Company against a liability to the extent permitted by the relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are Former Partners of Deloitte Touche Tohmastsu There are no officers of the Company who are former partners Corporations Act 2001. The contract of insurance prohibits of Deloitte Touche Tohmastsu. disclosure of the nature of the liability and the amount of the premium. Indemnity and Insurance of Auditor The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by Rounding of Amounts The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the the auditor. nearest dollar. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on Behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings Auditor’s Independence Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. Auditor Deloitte Touche Tohmastsu continues in office in accordance to which the Company is a party for the purpose of taking with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. responsibility on behalf of the Company for all or part of those proceedings. Non Audit Services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 31 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are of the opinion that the services as disclosed in note 30 to the financial statements do not compromise 25 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Auditor’s Independence Declaration Deloitte Touche Tohmatsu ABN 74 490 121 060 550 Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Tel: +61 (0) 3 9671 7000 Fax: +61 (0) 3 9671 7001 www.deloitte.com.au The Board of Directors Gale Pacific Limited 145 Woodlands Drive BRAESIDE VIC 3195 25 August 2017 Dear Board Members Gale Pacific Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Gale Pacific Limited. As lead audit partner for the audit of the financial statements of Gale Pacific Limited for the financial year ended 30 June 2017, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Stephen Roche Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 26 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Independent Auditor’s Report Deloitte Touche Tohmatsu ABN 74 490 121 060 550 Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Tel: +61 (0) 3 9671 7000 Fax: +61 (0) 3 9671 7001 www.deloitte.com.au Independent Auditor’s Report to the members of Gale Pacific Limited Report on the Financial Report Opinion We have audited the financial report of Gale Pacific Limited (the “Company”) and its subsidiaries (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the Directors’ of the Company, would be in the same terms if given to the Directors’ as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 27 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter Carrying value of intangible assets As at 30 June 2017 the Group recognised a impairment of goodwill $17.5 million relating the Australasian CGU predominantly associated with current forecasts not supporting the carrying value as disclosed in note 13. to The evaluation of the recoverable amount of goodwill and other assets requires significant judgement in determining the key assumptions supporting the expected future cash flows of the business and the utilisation of the relevant assets including: discount rate revenue growth rates    EBITDA margin How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to:     obtaining an understanding of management’s process associated with the preparation of the valuation models used the recoverable amount of the Australia CGU; to assess in conjunction with our valuation experts, assessing and challenging: o o o the and the identification of CGUs including the allocation of indefinite life intangible assets and property, plant and equipment associated identification and allocation of cash flows for the purposes of assessing the the cash recoverable amount of generating units; the key assumptions for long-term growth rates in the forecast cash flows by comparing them to historical results, economic and industry forecasts; and the discount rate applied. evaluating management’s assessment of the sensitivity to a change in key assumptions that either individually or collectively would be required for assets to be impaired and considering the likelihood of such a movement in those key assumptions arising; and re-calculating the mathematical accuracy of the cash flow models, agreeing forecast cash flows to the latest Board approved forecasts and assessing the historical accuracy of forecasting by Gale. We also assessed the appropriateness of the disclosures in note 13 to the financial statements. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and our auditor’s report thereon. 28 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Independent Auditor’s Report continuedFor personal use only Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting intentional omissions, involve collusion, fraud may from error, as misrepresentations, or the override of internal control. forgery,  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.  Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. 29 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only  Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 17 to 24 of the Directors’ Report for the year ended 30 June 2017. In our opinion, the Remuneration Report of Gale Pacific Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Stephen Roche Partner Chartered Accountants Melbourne, 25 August 2017 30 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Independent Auditor’s Report continuedFor personal use only Gale Pacific Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2017 Revenue Sale of goods Other income Expenses Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense Impairment of assets - goodwill Marketing and advertising Occupancy costs Warehouse and related costs Other expenses Finance costs Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense for the year attributable to the owners of Gale Pacific Limited Other comprehensive income Consolidated Note 2017 $'000 2016 $'000 5 6 6 6 7 175,265 173,191 1,067 5,234 (96,972) (27,442) (6,368) (17,455) (2,145) (5,175) (12,107) (12,004) (1,525) (96,863) (28,511) (7,180) - (3,200) (5,160) (11,178) (11,203) (1,621) (4,861) 13,509 (3,183) (3,281) (8,044) 10,228 Items that may be reclassified subsequently to profit or loss Net change in the fair value of cash flow hedges taken to equity, net of tax Foreign currency translation 19 19 665 (3,173) (1,949) (1,523) Other comprehensive income for the year, net of tax (2,508) (3,472) Total comprehensive income for the year attributable to the owners of Gale Pacific Limited Basic earnings per share Diluted earnings per share (10,552) 6,756 Cents Cents 8 8 (2.71) (2.71) 3.44 3.40 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes 16 31 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Statement of financial position As at 30 June 2017 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Prepayments Total current assets Non-current assets Prepayments Property, plant and equipment Intangibles Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Derivative financial instrument - cash flow hedges Current tax liabilities Employee benefits Provisions Total current liabilities Non-current liabilities Borrowings Deferred tax Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits Total equity Consolidated Note 2017 $'000 2016 $'000 9 10 11 12 13 7 14 15 7 16 17 7 18 19 24,974 29,497 37,449 1,419 93,339 58 26,955 7,283 4,274 38,570 24,563 30,226 44,577 969 100,335 357 30,414 25,210 4,068 60,049 131,909 160,384 19,451 7,268 471 863 1,718 286 30,057 16,400 1,946 109 18,455 19,598 13,192 1,421 2,771 1,832 318 39,132 19,523 2,000 106 21,629 48,512 60,761 83,397 99,623 71,365 (2,591) 14,623 71,485 (988) 29,126 83,397 99,623 The above statement of financial position should be read in conjunction with the accompanying notes 17 32 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Statement of changes in equity For the year ended 30 June 2017 Consolidated Balance at 1 July 2015 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (note 29) Statutory transfers from retained earnings Other Dividends paid (note 20) Issued Capital $'000 Reserves (Note 19) $'000 Retained Profits $'000 Total equity $'000 71,485 1,598 24,705 97,788 - - - - - - - - (3,472) 10,228 - 10,228 (3,472) (3,472) 10,228 6,756 187 699 - - - (699) 98 (5,206) 187 - 98 (5,206) Balance at 30 June 2016 71,485 (988) 29,126 99,623 Consolidated Balance at 1 July 2016 Loss after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (note 29) Transfer to Enterprise Reserve Fund Share Buy Back Other Dividends paid (note 20) Issued Capital $'000 Reserves (Note 19) $'000 Retained Profits $'000 Total equity $'000 71,485 (988) 29,126 99,623 - - - - - (120) - - - (2,508) (8,044) - (8,044) (2,508) (2,508) (8,044) (10,552) 303 602 - - - - (602) - 93 (5,950) 303 - (120) 93 (5,950) Balance at 30 June 2017 71,365 (2,591) 14,623 83,397 The above statement of changes in equity should be read in conjunction with the accompanying notes 18 33 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Statement of cash flows For the year ended 30 June 2017 Cash flows from operating activities Profit/(loss) before income tax expense for the year Adjustments for: Depreciation and amortisation Impairment of assets Share-based payments Foreign currency gain Interest and other finance costs paid Decrease/(increase) in trade and other receivables Decrease/(increase) in inventories Increase in derivative assets Increase in prepayments Decrease in other operating assets Increase/(decrease) in trade and other payables Increase/(decrease) in derivative liabilities Increase/(decrease) in employee benefits Increase/(decrease) in other provisions Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Payments for share buy-backs Other Dividends paid Repayment of borrowings Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Consolidated Note 2017 $'000 2016 $'000 (4,861) 13,509 6,368 17,454 303 (1,391) 1,525 19,398 728 7,128 - (151) 1 (147) (285) (111) (32) 26,529 (1,525) (5,351) 7,180 - 187 (151) 1,621 22,346 (3,145) (5,348) (586) (507) - 6,711 1,421 84 256 21,232 (1,621) (1,797) 19,653 17,814 (3,785) (523) 292 (3,841) (712) 343 (4,016) (4,210) 933 (120) 93 (5,950) (9,980) 25,386 - (112) (5,206) (27,095) (15,024) (7,027) 613 24,563 (202) 6,577 17,769 217 12 13 20 Cash and cash equivalents at the end of the financial year 9 24,974 24,563 The above statement of cash flows should be read in conjunction with the accompanying notes 19 34 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 1. General information The financial report covers Gale Pacific Limited ('Company' or 'parent entity') and controlled entities as a consolidated entity (referred to as the 'Group'). The financial statements are presented in Australian dollars, which is Gale Pacific Limited's functional and presentation currency. Gale Pacific Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: 145 Woodlands Drive Braeside, VIC 3195 A description of the nature of the Group's operations is included in the directors' report, which is not part of the financial statements. The entity’s principal activities are the manufacture of branded screening and shading products for domestic, commercial and industrial applications The financial statements were authorised for issue, in accordance with a resolution of directors, on 25 August 2017. The directors have the power to amend and reissue the financial statements. Note 2. Significant accounting policies The principal accounting policies adopted in the preparation of the financial statements are set out either in the respective notes or below. These policies have been consistently applied to all the years presented, unless otherwise stated. New or amended Accounting Standards and Interpretations adopted The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the Group. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. Statement of Compliance These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for-profit entity. Accounting Standards include Australian Accounting Standards. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the company and the Group comply with International Financial Reporting Standards (‘IFRS’). Basis of Preparation The consolidated financial statements have been prepared on the basis of historical cost, except for certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. All amounts are presented in Australian dollars, unless otherwise noted. Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Gale Pacific Limited as at 30 June 2017 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. 20 35 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyGale Pacific Limited Notes to the financial statements 30 June 2017 Note 2. Significant accounting policies (continued) Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non- controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. Foreign currencies and translations Foreign currency transactions Foreign currency transactions are translated into the entity's functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign operations The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. 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), the cumulative amount in the foreign currency translation reserve in respect of that operation is then recognised in profit or loss Monetary items forming net investment in foreign operations The Group classifies monetary items of a non-current nature where settlement is not planned in the foreseeable future as part of the net investment in foreign operations. All foreign exchange differences on these items are recognised in other comprehensive income through the foreign currency reserve in equity. As and when settlements occur, the cumulative amount in the foreign currency translation reserve is then recognised in profit or loss. Revenue recognition Revenue is recognised when it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Sale of goods Sale of goods revenue is recognised at the point of sale, which is where the customer has taken delivery of the goods, the risks and rewards are transferred to the customer and there is a valid sales contract. Amounts disclosed as revenue are net of sales returns and trade discounts. Government grant Where a government grant, including Strategic Investment Plan income ('SIP'), is received or receivable relating to 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 Other revenue is recognised when it is received or when the right to receive payment is established. Current and non-current classification Assets and liabilities are presented in the statement of financial position based on current and non-current classification. 21 36 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 2. Significant accounting policies (continued) An asset is classified as current when: it is either expected to be realised or intended to be sold or consumed in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is expected to be realised within 12 months after the reporting period; or the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: it is either expected to be settled in the Group's normal operating cycle; it is held primarily for the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. Deferred tax assets and liabilities are always classified as non-current. Derivative financial instruments Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Derivatives are classified as current or non-current depending on the expected period of realisation. Cash flow hedges Cash flow hedges are used to cover the Group's exposure to variability in cash flows that is attributable to particular risks associated with a recognised asset or liability or a firm commitment which could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income through the cash flow hedges reserve in equity, whilst the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred out of equity and included in the measurement of the hedged transaction when the forecast transaction occurs. Cash flow hedges are tested for effectiveness on a regular basis both retrospectively and prospectively to ensure that each hedge is highly effective and continues to be designated as a cash flow hedge. If the forecast transaction is no longer expected to occur, the amounts recognised in equity are transferred to profit or loss. If the hedging instrument is sold, terminated, expires, exercised without replacement or rollover, or if the hedge becomes ineffective and is no longer a designated hedge, the amounts previously recognised in equity remain in equity until the forecast transaction occurs. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A distinction is made between finance leases, which effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to the ownership of leased assets, and operating leases, under which the lessor effectively retains substantially all such risks and benefits. Operating lease payments, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease. The Group has no finance leases. Impairment of assets Goodwill, other intangible assets that have an indefinite useful life, and assets not yet ready for use as intended by management, are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Where the asset does not generate independent cash flows, the Group estimates the recoverable amount of the cash generating unit ('CGU') to which the asset belongs. Recoverable amount is the higher of fair value less cost of disposal 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 cost of disposal, recognised valuation methodologies are applied, utilising current and forecast financial information as appropriate, benchmarked against relevant market data. 22 37 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 2. Significant accounting policies (continued) Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date is measured at the amounts expected to be paid when the liabilities are settled. Long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Note 3. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Binomial model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Provision for impairment of inventories The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence. Goodwill The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. An impairment loss of $17.455 million relating to goodwill in the Australasia CGU was recognised in the 2017 financial year, due to current forecasts not supporting the carrying value. This primarily relates to the goodwill acquired with the previous business acquisitions (Zone Hardware Pty Ltd, Riva Window Fashions Pty Ltd and Highgrove Pty Ltd). 23 38 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 3. Critical accounting judgements, estimates and assumptions (continued) Income tax The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary differences and tax losses only if the Group considers it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Derivative financial instruments Forward foreign exchange contracts, designated as cash flow hedges, are measured at fair value. Reliance is placed on Gale Pacific Limited future cash flows and judgement is made on a regular basis, through prospective and retrospective testing, including at Notes to the financial statements the reporting date, that the hedges are still highly effective. 30 June 2017 Note 4. Operating segments Note 4. Operating segments Identification of reportable operating segments Identification of reportable operating segments The Group is organised into four operating segments identified by geographic location and identity of the service line The Group is organised into four operating segments identified by geographic location and identity of the service line manager, together with Corporate. These operating segments are based on the internal reports that are reviewed and manager, together with Corporate. These operating segments are based on the internal reports that are reviewed and used used by the Group Managing Director (who is identified as the Chief Operating Decision Maker ('CODM')) in assessing by the Group Managing Director (who is identified as the Chief Operating Decision Maker ('CODM')) in assessing performance and in determining the allocation of resources. There is no aggregation of operating segments. performance and in determining the allocation of resources. There is no aggregation of operating segments. The Group operates predominantly in one business segment, being branded shading, screening and home improvement The Group operates predominantly in one business segment, being branded shading, screening and home improvement products. products. The CODM reviews revenue and segment earnings, before interest, tax, depreciation and amortisation ('EBITDA'). The The CODM reviews revenue and segment earnings, before interest, tax, depreciation and amortisation ('EBITDA'). The accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial accounting policies adopted for internal reporting to the CODM are consistent with those adopted in the financial statements. statements. Discrete financial information about each of these segments is reported on a monthly basis. Discrete financial information about each of these segments is reported on a monthly basis. The operating segments are as follows: The operating segments are as follows: Australasia Australasia China Manuf. and EurAsia China Manuf. and EurAsia Americas Americas Middle East and North Africa Middle East and North Africa ('MENA') ('MENA') Manufacturing and distribution facilities are located in Australia, and distribution facilities 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 are located in New Zealand. Sales offices are located in all states in Australia and in New Zealand. Zealand. Manufacturing facilities are located in Beilun, China which supply to the Group’s sales and Manufacturing facilities are located in Beilun, China which supply to the Group’s sales and marketing operations throughout the world. marketing operations throughout the world. Sales offices are located in Florida and custom blind assembly and distribution facilities Sales offices are located in Florida and custom blind assembly and distribution facilities are located in California which service the North American region. are located in California which service the North American region. A sales office and distribution facility is located in the United Arab Emirates to service this A sales office and distribution facility is located in the United Arab Emirates to service this market. market. The 'Other Segments' represents Corporate and Intersegment eliminations. The 'Other Segments' represents Corporate and Intersegment eliminations. Major customers Major customers During the year ended 30 June 2017 approximately 32% (2016: 36%) of the Group's external revenue was derived from During the year ended 30 June 2017 approximately 32% (2016: 36%) of the Group's external revenue was derived from sales to one (2016: one) customer in the Australasian region. sales to one (2016: one) customer in the Australasian region. 24 39 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 4. Operating segments (continued) Operating segment information Consolidated - 2017 Revenue Sales to external customers Intersegment sales Total revenue Segment EBITDA* Goodwill Impairment Other Related Items Depreciation and amortisation Finance costs Loss before income tax expense Income tax expense Loss after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities China Manuf. and EurAsia $'000 Australasia $'000 America $'000 MENA $'000 Other segments $'000 Total $'000 92,350 2,644 94,994 8,177 49,761 57,938 61,963 14 61,977 2,924 (17,455) (952) (808) (180) 11,513 - - (3,454) 6,542 - - (1,559) (109) (594) 12,775 - 12,775 2,457 - - (3) (130) - (52,419) (52,419) (1,997) - - (544) (512) (16,471) 7,950 4,389 2,324 3,053 30,465 33,637 41,117 12,074 14,616 10,997 9,074 6,232 745 21,464 175,265 - 175,265 21,439 (17,455) (952) (6,368) (1,525) (4,861) (3,183) (8,044) 131,909 131,909 48,512 48,512 * Reported in line with information provided to the CODM. 40 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Gale Pacific Limited Notes to the financial statements Note 4. Operating segments (continued) 30 June 2017 Note 4. Operating segments (continued) China Manuf. and EurAsia China Manuf. $'000 and EurAsia $'000 Australasia $'000 Australasia $'000 97,470 3,077 100,547 97,470 3,077 3,578 100,547 6,766 58,451 65,217 6,766 58,451 12,620 65,217 3,578 (813) (190) 12,620 (4,547) (1,037) Americas $'000 Americas $'000 53,603 37 53,640 53,603 37 4,920 53,640 4,920 (1,321) (452) MENA $'000 MENA $'000 15,352 20 15,372 15,352 20 3,148 15,372 Other segments $'000 Other segments $'000 - (61,585) (61,585) - (61,585) (1,956) (61,585) 3,148 (3) (1,956) (496) (88) 146 2,575 7,036 3,147 3,057 (2,306) (813) (190) (4,547) (1,037) (1,321) (452) (3) (88) (496) 146 58,544 58,544 36,089 36,089 32,203 32,203 10,738 10,738 22,810 22,810 15,168 15,168 13,109 13,109 5,680 5,680 674 674 26,130 26,130 Consolidated - 2016 Revenue Consolidated - 2016 Sales to external customers Intersegment sales Revenue Total revenue Sales to external customers Intersegment sales Segment EBITDA Total revenue Depreciation and amortisation Finance costs Segment EBITDA Profit before income tax Depreciation and amortisation expense Finance costs Income tax expense Profit before income tax Profit after income tax expense expense Income tax expense Segment results include: Profit after income tax Depreciation and amortisation expense Finance costs Assets Assets Segment assets Segment assets Total assets Total assets Liabilities Liabilities Segment liabilities Segment liabilities Total liabilities Total liabilities Total $'000 Total $'000 173,191 - 173,191 173,191 - 22,310 173,191 (7,180) (1,621) 22,310 (7,180) 13,509 (1,621) (3,281) 13,509 10,228 (3,281) (7,180) 10,228 (1,621) 160,384 160,384 160,384 160,384 60,761 60,761 60,761 60,761 Accounting policy for operating segments Accounting policy for operating segments Operating segments are presented using the 'management approach', where the information presented is on the same Operating segments are presented using the 'management approach', where the information presented is on the same basis as the internal reports provided to the CODM. The CODM is responsible for the allocation of resources to operating basis as the internal reports provided to the CODM. The CODM is responsible for the allocation of resources to operating segments and assessing their performance. segments and assessing their performance. Note 5. Other income Net foreign exchange gain Other income (including sales of scrap material from manufacturing) Other income Consolidated 2017 $'000 2016 $'000 - 1,067 4,219 1,015 1,067 5,234 26 41 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 6. Expenses Profit/(loss) before income tax includes the following specific expenses: Depreciation Property, plant and equipment (note 12) Amortisation Intangible assets (note 13) Total depreciation and amortisation Employee benefit expense Employment costs and benefits Share-based payment expense Total employee benefit expense Finance costs Interest and finance charges paid/payable Rental expense relating to operating leases Minimum lease payments Note 7. Income tax Income tax expense Current tax Deferred tax - origination and reversal of temporary differences Adjustment recognised for prior periods Aggregate income tax expense Deferred tax included in income tax expense comprises: Decrease/(increase) in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit/(loss) before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Impairment of goodwill Non allowable/(non assessable) items Adjustment recognised for prior periods Difference in overseas tax rates Income tax expense 27 42 Consolidated 2017 $'000 2016 $'000 5,328 6,165 1,040 1,015 6,368 7,180 27,139 303 28,324 187 27,442 28,511 1,525 1,621 4,487 4,505 Consolidated 2017 $'000 2016 $'000 2,659 435 89 3,719 (325) (113) 3,183 3,281 435 (325) (4,861) 13,509 (1,458) 4,053 5,236 38 3,816 89 (722) - 340 4,393 (113) (999) 3,183 3,281 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 7. Income tax (continued) Amounts charged/(credited) directly to equity Deferred tax assets Deferred tax asset Deferred taxes comprises temporary differences attributable to: Amounts recognised in P&L: Tax losses Property, plant and equipment Foreign exchange Capitalised costs Provisions Impairment of receivables Other financial liabilities Employee benefits Franking Deficit Credit Other Deferred tax asset Movements: Opening balance Credited/(charged) to profit or loss Credited/(charged) to equity Transfer from current tax liability Closing balance Provision for income tax Provision for income tax Consolidated 2017 $'000 2016 $'000 285 (835) Consolidated 2017 $'000 2016 $'000 1,872 (546) (817) (1,107) (224) 14 394 452 1,590 700 1,450 (642) (1,183) (957) (223) 14 304 717 1,590 998 2,328 2,068 2,068 (435) (285) 980 (397) 325 835 1,305 2,328 2,068 Consolidated 2017 $'000 2016 $'000 863 2,771 The 2017 tax asset of $2,328,000 (2016: $2,068,000) is comprised of $4,742,000 in deferred tax assets (2016: $4,068,000) and $1,946,000 ($2,000,000) in deferred tax liabilities, reflecting various tax positions in different jurisdictions. Accounting policy for income tax The tax currently payable is based on taxable profit for the financial year. Taxable profit differs from profit as reported in the 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. 28 43 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 7. Income tax (continued) Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively enacted, except for: ● When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or ● When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to the same taxable authority on either the same taxable entity or different taxable entities which intend to settle simultaneously. Gale Pacific Limited (the 'head entity') and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. The head entity and each subsidiary in the tax consolidated group continue to account for their own current and deferred tax amounts. The tax consolidated group has applied the 'separate taxpayer within group' approach in determining the appropriate amount of taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from each subsidiary in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the tax consolidated group. The tax funding arrangement ensures that the intercompany charge equals the current tax liability or benefit of each tax consolidated group member, resulting in neither a contribution by the head entity to the subsidiaries nor a distribution by the subsidiaries to the head entity. Note 8. Earnings per share Consolidated 2017 $'000 2016 $'000 Profit/(loss) after income tax attributable to the owners of Gale Pacific Limited (8,044) 10,228 Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: 297,162,696 297,474,396 Performance rights - 3,768,003 Weighted average number of ordinary shares used in calculating diluted earnings per share 297,162,696 301,242,399 Number Number Basic earnings per share Diluted earnings per share Accounting policy for earnings per share 29 44 Cents Cents (2.71) (2.71) 3.44 3.40 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 8. Earnings per share (continued) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the owners of Gale Pacific Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Note 9. Current assets - cash and cash equivalents Cash on hand Cash at bank Cash on deposit Consolidated 2017 $'000 2016 $'000 3 24,838 133 12 24,413 138 24,974 24,563 Accounting policy for cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Note 10. Current assets - trade and other receivables Trade receivables Less: Provision for impairment of receivables Other receivables Consolidated 2017 $'000 2016 $'000 29,346 (111) 29,235 29,649 (80) 29,569 262 657 29,497 30,226 The Group has recognised a loss of $42,000 (2016: $66,000) in profit or loss in respect of impairment of receivables for the year ended 30 June 2017. The ageing of the impaired receivables provided for above are as follows: Over 6 months overdue Consolidated 2017 $'000 2016 $'000 111 80 30 45 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 10. Current assets - trade and other receivables (continued) Movements in the provision for impairment of receivables are as follows: Opening balance Additional provisions recognised Receivables written off during the year as uncollectable Closing balance Consolidated 2017 $'000 2016 $'000 80 42 (11) 111 97 66 (83) 80 Past due but not impaired Customers with balances past due but without provision for impairment of receivables amount to $6,184,000 as at 30 June 2017 ($6,763,000 as at 30 June 2016). The Group did not consider a credit risk on the aggregate balances after reviewing the credit terms of customers based on recent collection practices. The ageing of trade receivables not impaired at the reporting date was: Outside credit terms 0-30 days Outside credit terms 31-120 days Outside credit terms 121 days to one year More than one year Consolidated 2017 $'000 2016 $'000 2,906 1,720 1,172 386 3,522 1,954 1,083 204 6,184 6,763 Accounting policy for trade and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Other receivables are recognised at amortised cost, less any provision for impairment. 31 46 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 11. Current assets - inventories Raw materials - at cost Work in progress - at cost Finished goods - at cost Less: Provision for impairment Consolidated 2017 $'000 2016 $'000 3,710 5,723 4,778 4,508 30,443 (1,482) 28,961 35,283 (937) 34,346 37,449 44,577 Accounting policy for inventories Raw materials, work in progress and finished goods are stated at the lower of cost and net realisable value on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labour, import duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on normal operating capacity, and, where applicable, transfers from cash flow hedging reserves in equity. Costs of purchased inventory are determined after deducting rebates and discounts received or receivable. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Note 12. Non-current assets - property, plant and equipment Buildings and leasehold improvements - at cost Less: Accumulated depreciation Plant and equipment - at cost Less: Accumulated depreciation Motor vehicles - at cost Less: Accumulated depreciation Capital work-in-progress - at cost Consolidated 2017 $'000 2016 $'000 14,961 (5,409) 9,552 100,130 (83,470) 16,660 304 (204) 100 643 14,125 (5,162) 8,963 102,949 (82,199) 20,750 374 (247) 127 574 26,955 30,414 32 47 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 12. Non-current assets - property, plant and equipment (continued) Reconciliations Reconciliations of the movements in property, plant and equipment at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2015 Additions Disposals Exchange differences Transfers in/(out) Depreciation expense Balance at 30 June 2016 Additions Disposals Exchange differences Transfers in/(out) Depreciation expense Buildings and leasehold improvement s $'000 Plant and Motor Capital work- equipment $'000 vehicles $'000 in-progress $'000 Total $'000 7,390 871 - (262) 1,327 (363) 8,963 67 - (443) 1,419 (454) 26,665 2,197 (334) (1,507) (496) (5,775) 20,750 1,167 (285) (934) 819 (4,856) 162 - (9) 1 - (27) 127 - (7) (2) - (18) 100 655 773 - (23) (831) - 574 2,551 - (32) (2,451) - 34,872 3,841 (343) (1,791) - (6,165) 30,414 3,785 (292) (1,411) (213) (5,328) 642 26,955 Balance at 30 June 2017 9,552 16,661 Accounting policy for property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated on a straight line basis to write off the net cost of each item of property, plant and equipment over their estimated useful lives as follows: Buildings Leasehold improvements Plant and equipment Motor vehicles 45 years Over lease term 2-15 years 2-5 years Depreciation commences from the time the asset is held ready for use. The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. When changes are made, adjustments are reflected in current and future periods only. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. 33 48 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 13. Non-current assets - intangibles Goodwill - at cost Less: Impairment Development - at cost Less: Accumulated amortisation Patents, trademarks and licenses - at cost Less: Accumulated amortisation Application software - at cost Less: Accumulated amortisation Consolidated 2017 $'000 2016 $'000 21,512 (18,508) 3,004 1,070 (20) 1,050 1,632 (1,260) 372 6,955 (4,098) 2,857 21,607 (1,054) 20,553 565 - 565 1,562 (1,210) 352 6,917 (3,177) 3,740 7,283 25,210 Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Consolidated Balance at 1 July 2015 Additions Exchange differences Transfers in/(out) Amortisation expense Balance at 30 June 2016 Additions Exchange differences Impairment of assets Transfers in/(out) Amortisation expense Patents, trademarks Goodwill Development and licenses $'000 $'000 $'000 Application software $'000 Total $'000 20,462 - 91 - - 20,553 - (94) (17,455) - - - 565 - - - 565 505 - - - (20) 502 - 4 (121) (33) 352 18 (5) - 53 (46) 372 4,347 147 107 121 (982) 3,740 - (69) - 160 (974) 25,311 712 202 - (1,015) 25,210 523 (168) (17,455) 213 (1,040) 2,857 7,283 Balance at 30 June 2017 3,004 1,050 Impairment testing for goodwill In accordance with the accounting policies, the Group performs an annual impairment assessment of goodwill. An impairment loss of $17.455 million relating to goodwill in the Australasia CGU was recognised in the 2017 financial year, primarily due to the cessation of the Glass business and current forecasts not supporting the carrying value. This primarily relates to the goodwill acquired with the previous business acquisitions (Zone Hardware Pty Ltd, Riva Window Fashions Pty Ltd and Highgrove Pty Ltd). (2016: no impairment). 34 49 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 13. Non-current assets - intangibles (continued) Impairment testing approach Impairment testing compares the carrying value of a CGU with its recoverable amount, based on value-in-use. Value-in- use was calculated based on the present value of cash flow projections over a five year period with the period extending beyond five years extrapolated using estimated revenue growth rates between of 2.5%. Years one to three are based on budgets and forecasts, with years four onwards extrapolated at the rate of 4%. These growth rates are based on management's expectations, industry knowledge and other features specific to the CGU. Cash flows are discounted using the weighted average cost of capital with mid-year discounting. Goodwill acquired through business combinations have been allocated to the following cash generating units (CGU): Goodwill Australasia USA (2016/2017: US$2,077,000; 2015/2016: US$ 2,077,000) China Consolidated 2017 $'000 2016 $'000 - 2,657 347 17,455 2,751 347 3,004 20,553 Australasia In assessing the recoverable amount of the Australasian CGU, management considered information available from industry analysts and other sources in relation to the key assumptions used. Management considers that it has taken a conservative view of the market conditions and business operations. The following assumptions were used in the value-in-use calculations in the model for Australasia: Discount Factor The discount factor used in the model is 10.5% (2016: 10.5%) Revenue growth rate assumption Average actual revenue growth rate from 2014 to 2017 was 5%. The values assigned in the assumptions for 2018 to 2022 is an average of 1% which is lower than historical values. This average is influenced by the one time effect of the cessation of the glass business at the end of FY 2017. Management believe this is achievable based on historical trends and the plans to continue to invest in product development. A 1% plus or minus change in the revenue growth rate will have a ~$1m effect on the recoverable amount. EBITDA margin assumption Margin achieved in the period immediately before the budget period, increasing for expected efficiency improvements. Management expect efficiency improvements averaging 0.6% per year to be achievable for years 2018 to 2022. Working capital assumption Key components affecting working capital include inventory on hand, debtor day collections and accounts payable days. Management believes the assumptions used in the cash flow projection period are conservative based on historic performance and measures to improve inventory positions going forward. USA In assessing the recoverable amount of the USA CGU, management made a number of significant assumptions including foreign exchange rates and risk adjustments to future cash flows. Management considered information available from industry analysts and other sources in relation to key assumptions used. Management considers that it has taken a conservative view of the market conditions and business operations. Management believe that any reasonably possible further change in the key assumptions on which recoverable amount is based would not cause the USA CGU's carrying amount to exceed its recoverable amount. 35 50 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 13. Non-current assets - intangibles (continued) Accounting policy for intangible assets Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Research and development Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be a success considering its commercial and technical feasibility; the Group is able to use or sell the asset; the Group has sufficient resources; and intent to complete the development and its costs can be measured reliably. Capitalised development costs are amortised on a straight-line basis over the period of their expected benefit. Patents, trademarks and licenses Significant costs associated with patents and trademarks are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite useful life of 20 years. Application software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite useful life of 5 years. Note 14. Current liabilities - trade and other payables Trade payables Sundry payables and accruals Consolidated 2017 $'000 2016 $'000 12,647 6,804 10,161 9,437 19,451 19,598 Refer to note 22 for further information on financial instruments. Accounting policy for trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short-term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. 36 51 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 15. Current liabilities - borrowings Bank loans Other loans Refer to note 22 for further information on financial instruments. Note 16. Current liabilities - provisions Warranties Consolidated 2017 $'000 2016 $'000 7,025 243 12,691 501 7,268 13,192 Consolidated 2017 $'000 2016 $'000 286 318 Warranties The provision represents the estimated warranty claims in respect of products sold which are still under warranty at the reporting date. The provision is estimated based on historical warranty claim information, sales levels and any recent trends that may suggest future claims could differ from historical amounts. Consolidated - 2017 Carrying amount at the start of the year Additional provision recognised Claims Carrying amount at the end of the year Warranties $'000 318 429 (461) 286 Accounting policy for provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of a past event, it is probable the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. If the time value of money is material, provisions are discounted using a current pre-tax rate specific to the liability. The increase in the provision resulting from the passage of time is recognised as a finance cost in profit or loss. Note 17. Non-current liabilities - borrowings Consolidated 2017 $'000 2016 $'000 16,400 - 19,280 243 16,400 19,523 Bank loans Other loans Refer to note 22 for further information on financial instruments. 37 52 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 17. Non-current liabilities - borrowings (continued) Total secured liabilities The total secured liabilities (current and non-current) are as follows: Bank loans Consolidated 2017 $'000 2016 $'000 23,425 31,971 Assets pledged as security The bank loans are secured by a fixed and floating charge (or equivalent foreign charge) over all the assets and undertakings, including uncalled capital of each entity in the Group. Accounting policy for borrowings Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Note 18. Equity - issued capital Consolidated 2017 Shares 2016 Shares 2017 $'000 2016 $'000 Ordinary shares - fully paid 297,162,696 297,474,396 71,365 71,485 Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the Company does not have a limited amount of authorised capital. On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. Share buy-back On February 16th 2017, an on-market share buy-back was announced. It will run from 3 March 2017 to 2 March 2018. Up until June 30 2017, 311,700 shares have been bought by the Company. Capital risk management The Group's objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. This is achieved through monitoring of historical and forecast performance and cash flows. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Accounting policy for issued capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 38 53 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 19. Equity - reserves Foreign currency reserve Hedging reserve - cash flow hedges Share-based payments reserve Enterprise reserve fund Consolidated 2017 $'000 2016 $'000 (6,029) (330) 1,065 2,703 (2,856) (995) 762 2,101 (2,591) (988) Foreign currency reserve The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. It is also used to recognise gains and losses on hedges of the net investments in foreign operations. Hedging reserve - cash flow hedges The reserve is used to recognise the effective portion of the gain or loss of cash flow hedge instruments that is determined to be an effective hedge. Share-based payments reserve The reserve is used to recognise the value of equity benefits provided to employees and directors as part of their remuneration, and other parties as part of their compensation for services. Enterprise reserve fund Gale Pacific Special Textiles (Ningbo) Limited and Gale Pacific Trading (Ningbo) Limited are required by Chinese Company Law to maintain this reserve in its financial statements. This reserve is unavailable for distribution to shareholders but can be used to expand the entity's business, make up losses or increase the registered capital. Both companies are required to allocate 10% of their annual profit after tax to this reserve until it reaches 50% of the registered capital. Movements in reserves Movements in each class of reserve during the current and previous financial year are set out below: Consolidated Balance at 1 July 2015 Foreign currency translation * Movement in hedge Income tax Share-based payment Statutory transfers from retained earnings Balance at 30 June 2016 Foreign currency translation * Movement in hedge Income tax Share-based payment Statutory transfers from retained earnings Balance at 30 June 2017 Foreign currency $'000 Hedging $'000 Share-based Enterprise payments $'000 reserve fund $'000 Total $'000 (1,333) (1,523) - - - - (2,856) (3,173) - - - - (6,029) 954 - (2,784) 835 - - (995) - 950 (285) - - (330) 575 - - - 187 - 762 - - - 303 - 1,402 - - - - 699 2,101 - - - - 602 1,598 (1,523) (2,784) 835 187 699 (988) (3,173) 950 (285) 303 602 1,065 2,703 (2,591) * Refer to note 21 for details of monetary items identified as a net investment in a foreign operation 39 54 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 20. Equity - dividends Dividends paid during the financial year were as follows: Final dividend for the year ended 30 June 2015 of 1.00 cents per ordinary share (unfranked) Interim dividend for the year ended 30 June 2016 of 0.75 cents per ordinary share (unfranked) Final Dividend for the year ended 30 June 2016 of 1.00 cents per ordinary share (unfranked) Interim Dividend for the year ended 30 June 2017 of 1.00 cents per ordinary share (unfranked) Consolidated 2017 $'000 2016 $'000 - - 2,975 2,231 2,975 2,975 - - 5,950 5,206 For the full year, the dividends of [2.00] cents per ordinary share have been declared on earnings of [3.18] cents per share. Accounting policy for dividends Dividends are recognised when declared during the financial year and no longer at the discretion of the Company. Note 21. Monetary items identified as a net investment in a foreign operation Consolidated 2017 $'000 2016 $'000 Related party receivable to the Company from Gale Pacific (New Zealand) Limited 4,613 5,049 The foreign exchange gain arising during the financial year on monetary items forming part of the net investment in related party, recognised in foreign currency translation reserve is detailed in note 19. Note 22. Financial instruments Financial risk management objectives The Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity 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. Derivative financial instruments are used by the Group to limit exposure to exchange rate risk associated with foreign currency transactions. 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. Market risk Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. 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. 40 55 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 22. Financial instruments (continued) 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. The maturity, settlement amounts and the average contractual exchange rates of the Group's outstanding forward foreign exchange contracts at the reporting date were as follows: Buy US dollars/sell Australian dollars Maturity: Less than 6 months 6 - 12 months Buy Euros/sell Australian Dollars Maturity: Less than 6 months 6 - 12 months Sell Australian dollars Average exchange rates 2017 $'000 2016 $'000 2017 2016 10,814 2,694 28,831 8,371 0.7398 0.7424 0.7096 0.7168 1,149 1,167 - - 0.6789 0.6681 - - The carrying amount of the Group's foreign currency denominated financial assets and financial liabilities at the reporting date were as follows: Consolidated US dollars New Zealand dollars Chinese renminbi UAE dirham Assets Liabilities 2017 $'000 2016 $'000 2017 $'000 2016 $'000 29,327 936 7,940 1,265 20,514 1,564 6,489 890 5,423 285 - - 4,043 229 1,668 - 39,468 29,457 5,708 5,940 The Group had net assets denominated in foreign currencies of $33,760,000 (assets of $39,468,000 less liabilities of $5,708,000 as at 30 June 2017 (2016: $23,519,000 (assets of $29,457,000 less liabilities of $5,940,000)). Based on this exposure, had the Australian dollars strengthened by 10% / weakened by 10% (2016: strengthened by 10% / weakened by 10%) against these foreign currencies with all other variables held constant, the Group's profit before tax for the year would have been $904,000 higher/lower (2016: $308,000 lower/ higher) and equity would have been $1,840,000 higher/lower (2016: $1,746,000 higher/lower). The percentage change is the expected overall volatility of the significant currencies, which is based on management's assessment of reasonable possible fluctuations taking into consideration movements over the last 12 months each year and the spot rate at each reporting date. Price risk The Group is not exposed to any significant price risk. 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 material long term borrowings and does not use interest rate swaps to manage the risk of interest rate changes. 41 56 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 22. Financial instruments (continued) As at the reporting date, the Group had the following variable rate bank balances and borrowings outstanding: Consolidated Cash and cash equivalents Bank loans Other loans Net exposure to cash flow interest rate risk 2017 2016 Weighted average interest rate % Weighted average interest rate % Balance $'000 Balance $'000 - 3.20% 6.96% 24,974 (23,425) (243) 1,306 - 3.65% 6.96% 24,563 (31,971) (744) (8,152) An analysis by remaining contractual maturities in shown in 'liquidity and interest rate risk management' below. An official increase/decrease in interest rates of 100 (2016: 100) basis points would have an adverse/favourable effect on profit before tax of $237,000 (2016: $327,000) per annum. The percentage change is based on the expected volatility of interest rates using market data and analysts forecasts. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. 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. The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of financial position and notes to the financial statements. The Group does not hold any collateral. Liquidity risk 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. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Remaining contractual maturities The following tables detail the Group's remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. Consolidated - 2017 Non-derivatives Non-interest bearing Trade payables Sundry payables and accruals Interest-bearing - variable Bank loans Other loans Total non-derivatives Weighted average interest rate 1 year or less % $'000 Between 1 and 2 years $'000 Between 2 and 5 years Over 5 years $'000 $'000 Remaining contractual maturities $'000 - - 17,157 - 17,157 - - - - - - - - - - 12,647 6,667 24,407 260 43,981 - - 3.20% 6.96% 12,647 6,667 7,250 260 26,824 42 57 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 22. Financial instruments (continued) Consolidated - 2016 Non-derivatives Non-interest bearing Trade payables Sundry payables and accruals Interest-bearing - variable Bank loans Other loans Total non-derivatives Weighted average interest rate 1 year or less % $'000 Between 1 and 2 years $'000 Between 2 and 5 years Over 5 years $'000 $'000 Remaining contractual maturities $'000 - - 3.65% 6.96% 10,161 9,437 13,858 553 34,009 - - - - 3,584 260 3,844 17,597 - 17,597 - - - - - 10,161 9,437 35,039 813 55,450 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 23. Fair value measurement Fair value hierarchy The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Consolidated - 2017 Liabilities Forward foreign exchange contracts Total liabilities Consolidated - 2016 Liabilities Forward foreign exchange contracts Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 Level 1 $'000 - - - - 471 471 Level 2 $'000 Level 3 $'000 1,421 1,421 - - - - 471 471 Total $'000 1,421 1,421 There were no transfers between levels during the financial year. 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. Valuation techniques for fair value measurements categorised within level 2 and level 3 Derivative financial instruments have been valued using quoted market rates. This valuation technique maximises the use of observable market data where it is available and relies as little as possible on entity specific estimates. Accounting policy for fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. 43 58 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 23. Fair value measurement (continued) Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Note 24. Commitments Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Consolidated 2017 $'000 2016 $'000 4,688 13,563 3,142 4,560 18,251 7,702 The above lease commitments relate to property leases. The Group has no rights to purchase the properties at the end of the lease term. Note 25. Related party transactions Parent entity Gale Pacific Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 28. Key management personnel Disclosures relating to key management personnel are set out in note 26 and the remuneration report included in the directors' report. Receivable from and payable to related parties There were no trade receivables from or trade payables to related parties at the current and previous reporting date. Loans to/from related parties There were no loans to or from related parties at the current and previous reporting date. 44 59 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 26. Key management personnel disclosures Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Termination benefits Share-based payments Note 27. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit/(loss) after income tax Total comprehensive income Statement of financial position Total current assets Total assets Total current liabilities Total liabilities Equity Issued capital Hedging reserve - cash flow hedges Share-based payments reserve Retained profits Total equity Consolidated 2017 $ 2016 $ 3,195,087 159,467 165,991 259,673 2,692,699 155,724 287,082 208,802 3,780,218 3,344,307 Parent 2017 $'000 2016 $'000 (13,134) 4,706 (12,469) 2,757 Parent 2017 $'000 2016 $'000 34,766 55,880 108,014 135,241 15,460 21,208 31,969 40,837 71,365 (330) 1,065 3,945 71,485 (995) 762 23,152 76,045 94,404 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity had no guarantees in relation to the debts of its subsidiaries as at 30 June 2017 and 30 June 2016. Please note comparative year has been changed to reflect consolidation entries between group entities. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2017 and 30 June 2016. 45 60 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 27. Parent entity information (continued) Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment as at 30 June 2017 and 30 June 2016. Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following: ● ● Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may be an indicator of an impairment of the investment. Note 28. Interests in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2: Name 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 Riva Window Fashions Pty Ltd Note 29. Share-based payments Principal place of business / Country of incorporation New Zealand United Arab Emirates China China USA Australia Australia Ownership interest 2016 2017 % % 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% The Group maintains a performance rights scheme for certain staff and executives, including executive directors, as approved by shareholders at an annual general meeting. The scheme is designed to reward key personnel when the Group meets performance hurdles relating to: ● Improvement in earnings per share; and ● Improvement in return to shareholders. Each performance right entitles the holder one ordinary share in the Company when exercised and is subject to the satisfying of relevant performance hurdles based on improvements in the Group’s diluted earnings per share. Performance rights issued to executives during the financial year were issued in accordance with the Group’s remuneration policy which: ● 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. Refer to note 6 for the amount expensed to profit or loss during the financial year. A share option plan has been established by the Group and approved by shareholders at a general meeting, whereby the Group may, at the discretion of the Nomination and Remuneration Committee, grant options over ordinary shares in the Company to certain key management personnel of the Group. The options are issued for nil consideration and are granted in accordance with performance guidelines established by the Nomination and Remuneration Committee. 46 61 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 29. Share-based payments (continued) Set out below are summaries of performance rights granted under the plan: 2017 Grant date Expiry date 11/12/2014 09/10/2015 21/09/2016 01/12/2017 01/12/2018 01/12/2019 2016 Grant date Expiry date 11/12/2014 09/10/2015 01/12/2017 01/12/2018 Grant price Balance at the start of the year Granted Exercised $0.18 $0.23 $0.35 1,425,405 2,177,000 - 3,602,405 - - 1,569,000 1,569,000 Grant price Balance at the start of the year Granted Exercised $0.18 $0.23 2,364,138 - 2,364,138 - 3,022,000 3,022,000 Expired/ forfeited/ other Balance at the end of the year (99,603) (314,000) - (413,603) 1,325,802 1,863,000 1,569,000 4,757,802 Expired/ forfeited/ other Balance at the end of the year (938,733) (845,000) (1,783,733) 1,425,405 2,177,000 3,602,405 - - - - - - - Accounting policy for share-based payments Equity-settled share-based compensation benefits are provided to certain employees including executive directors. Equity-settled transactions are awards of performance rights over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently determined using the Binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. Market conditions are taken into consideration in determining fair value. Therefore any awards subject to market conditions are considered to vest irrespective of whether or not that market condition has been met, provided all other conditions are satisfied. The weighted average fair value of the share options granted during the financial year is $0.35 (2016: $0.23). Expected volatility is based on the historical share price volatility over the past 3 years. To allow for the effects of early exercise, it was assumed that executives and senior employees would exercise the options after vesting date when the share price is two and a half times the exercise price. If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification. If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited. 47 62 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 29. Share-based payments (continued) If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification. Note 30. Remuneration of auditors During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmastsu, the auditor of the Company: Audit services - Deloitte Touche Tohmastsu Audit or review of the financial statements Other services - Deloitte Touche Tohmastsu Other services (including tax services) Consolidated 2017 $ 2016 $ 247,150 223,250 147,217 57,484 394,367 280,734 Note 31. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the Group for the annual reporting period ended 30 June 2017. The Group's assessment of the impact of these new or amended Accounting Standards and Interpretations, most relevant to the Group, are set out below. AASB 9 Financial Instruments This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard replaces all previous versions of AASB 9 and completes the project to replace AASB 39 'Financial Instruments: Recognition and Measurement'. AASB 9 introduces new classification and measurement models for financial assets and makes minor amendments for financial liabilities. New simpler hedge accounting requirements are intended to more closely align the accounting treatment with the risk management activities of the entity. New impairment requirements will use an 'expected credit loss' model to recognise an allowance. The Group will adopt this standard from 1 July 2018 but it is not expected to significantly impact the financial statements on the basis that the main financial assets recognised represent cash and cash equivalent and trade receivables that do not carry a significant financing component and involve a single cash flow representing the repayment of principal, which in the case of trade receivables is the transaction price. Both asset classes will continue to be measured at face value. Other financial asset classes are not material to the Group. Financial liabilities of the Group are not impacted as the Group does not carry them at fair value. AASB 15 Revenue from Contracts with Customers This standard is applicable to annual reporting periods beginning on or after 1 January 2018. The standard provides a single standard for revenue recognition. The core principle of the standard is that an entity will recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Group will adopt this standard from 1 July 2018 but it is not expected to significantly impact the financial statements on the basis that most of the Group's revenue is recognised at the time of transfer of units to customer which represents the satisfaction of the primary performance obligation. 48 63 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use only Gale Pacific Limited Notes to the financial statements 30 June 2017 Note 31. New Accounting Standards and Interpretations not yet mandatory or early adopted (continued) AASB 16 Leases This standard is applicable to annual reporting periods beginning on or after 1 January 2019. The standard will eliminate the classifications of operating leases and finance leases for lessees. Subject to exceptions (short-term leases of 12 months or less and leases of low-value assets), a 'right-of-use' asset will be capitalised in the statement of financial position, measured as the present value of the unavoidable future lease payments to be made over the lease term. A liability corresponding to the capitalised lease will also be recognised, adjusted for lease prepayments, lease incentives received, initial direct costs incurred and an estimate of any future restoration, removal or dismantling costs. Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset and an interest expense on the recognised lease liability. In the earlier periods of the lease, the expenses associated with the lease under AASB 16 will be higher when compared to lease expenses under AASB 117 ‘Leases’. However EBITDA results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under AASB 16. For lessor accounting, the standard does not substantially change how a lessor accounts for leases. The Group will adopt this standard from 1 July 2019 but the impact of its adoption is yet to be assessed by the Group. Other amending accounting standards Other amending accounting standards issued are not considered to have a significant impact on the financial statements of the Group as their amendments provide either clarification of existing accounting treatment or editorial amendments. Note 32. Events after the reporting period No matter or circumstance has arisen since 30 June 2017 that has significantly affected, or may significantly affect the Group's operations, the results of those operations, or the Group's state of affairs in future financial years. 49 64 GALE PACIFIC LIMITED2017 ANNUAL REPORT02For 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 14 August 2017 (Reporting Date). Corporate Governance Statement 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). Number of Holdings of Equity Securities As at the Reporting Date, the number of holders in each class of equity securities on issue in Gale Pacific is as follows: • The fully paid issued capital of the Company consisted of 297,162,696 ordinary fully paid shares held by 1,573 shareholders. Each share entitles the holder to one vote. • 10 holders have been granted 4,757,802 performance rights over ordinary shares. Performance rights do not carry a right to vote. 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 1,573 holders of a total of 297,162,696 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: At a general meeting of the Company, every holder of ordinary shares present in person or by proxy, attorney or representative has one vote on a show of hands and on a poll, one vote for each ordinary share held. On a poll, every member (or his or her proxy, attorney or representative) is entitled to vote for each fully paid share held and in respect of each partly paid share, is entitled to a fraction of a vote equivalent to the proportion which the amount paid up (not credited) on that partly paid share bears to the total amounts paid and payable (excluding amounts credited) on that share. Amounts paid in advance of a call are ignored when calculating the proportion. 65 GALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyDistribution of Holders of Equity Securities The distribution of holder of equity securities on issue in the Company as at the Reporting Date is as follows: Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Ordinary Fully Paid Shares Total Holders Units % of Issued Capital 120 339 232 691 28,323 1,020,695 1,846,989 25,602,152 0.01 0.34 0.62 8.62 191 268,664,537 90.41 1,573 297,162,696 100.00 Performance Rights Total Holders Units % of Performance Rights 0 0 0 0 10 10 0 0 0 0 4,757,802 4,757,802 0.00 0.00 0.00 0.00 100.00 100.00 Unmarketable Parcels The number of holders of less than a marketable parcel of ordinary shares based on the closing market price as at the Reporting Date is as follows: Unmarketable Parcels as at 14 August 2017 Minimum Parcel Size Holders Units Minimum $500 parcel at $0.38 per unit 1,316 139 50,251 Substantial Shareholders 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 Class of securities ORDINARY No. % THORNEY HOLDINGS PTY LTD SHARES 79,702,646 26.82% WINDHAGER HOLDING AG SHARES 41,925,781 14.11% JP MORGAN NOMINEES AUSTRALIA LIMITED SHARES 21,308,955 7.17% ORDINARY ORDINARY 6666 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Additional Securities Exchange Information continuedGALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use onlyTwenty Largest Holders of Quoted Equity Securities 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: No. % Shareholder HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED WINDHAGER HOLDING AG J P MORGAN NOMINEES AUSTRALIA LIMITED GALE AUSTRALIA PTY LTD UBS NOMINEES PTY LTD GERNIS HOLDINGS PTY LIMITED CONTEMPLATOR PTY LTD BFA SUPER PTY LTD NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD STITCHING PTY LTD CHILLEN PTY LIMITED (TALLEN) BOND STREET CUSTODIANS LIMITED GALLIUM PTY LTD BNP PARIBAS NOMS PTY LTD W DONNELLY SERVICES PTY LTD VENN MILNER SUPERANNUATION PTY LTD CITICORP NOMINEES PTY LIMITED APM ENTERPRISES PTY LTD GDL INVESTMENTS PTY LIMITED TOTAL: TOP 20 HOLDERS OF ORDINARY FULLY PAID SHARES AS AT 14 AUGUST 2017 212,782,270 TOTAL: REMAINING HOLDERS BALANCE 84,380,426 Voluntary Escrow There are no securities on issue in Gale Pacific that are subject to voluntary escrow. 84,116,584 41,925,781 21,308,955 13,997,844 7,718,384 7,409,665 4,691,433 3,327,428 3,284,882 3,279,598 3,050,000 2,431,317 2,400,000 2,279,359 2,163,617 2,010,000 2,000,000 1,853,260 1,816,599 1,717,564 28.31 14.11 7.17 4.71 2.60 2.49 1.58 1.12 1.11 1.10 1.03 0.82 0.81 0.77 0.73 0.68 0.67 0.62 0.61 0.58 71.60 28.40 6767 GALE PACIFIC LIMITED2017 ANNUAL REPORTGALE PACIFIC LIMITED2017 ANNUAL REPORTFor personal use onlyUnquoted Equity Securities The number of each class of unquoted equity securities on issue, and the number of their holders, are as follows: Class of Equity Securities Shares Options Convertible Notes Performance Rights Number of unquoted Equity Securities Number of holders 0 0 0 4,757,802 0 0 0 10 There are no persons who hold 20% or more of equity securities in each unquoted class other than under an employee incentive scheme. On Market Buyback The Company is currently conducting an on-market buy-back. It was announced to the market on 16 February 2017 and covers the period 3 March 2017 to 2 March 2018. The maximum number of shares the Company proposes to acquire under the on- market buy-back is approximately up to 30 million, or up to 10% of the lowest number of ordinary shares on issue during the previous 12 months. Accordingly, the on-market buy-back will not require shareholder approval. To date, 311,700 shares have been bought back under the buyback. 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. Securities purchased on-market No securities were purchased on-market during the reporting period under or for the purposes of an employee incentive scheme or to satisfy the entitlements of the holders of options or other rights to acquire securities granted under an employee incentive scheme. Stock Exchange Listing Gale Pacific’s ordinary shares are quoted on the Australian Securities Exchange (ASX issuer code: GAP) Other Information The name of the Company Secretary is Ms Sophie Karzis. The address of the principal registered office in Australia, and the principal administrative office is 145 Woodlands Drive, Braeside, 3195, Victoria, Australia, telephone is (03) 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. 6868 GALE PACIFIC LIMITED2017 ANNUAL REPORT02Additional Securities Exchange Information continuedGALE PACIFIC LIMITED2017 ANNUAL REPORT02For personal use onlyDesigned and produced by FCR www.fcr.com.au For personal use onlywww.galepacific.com.au For personal use only

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