GALE Pacific
Annual Report 2020

Plain-text annual report

2 0 2 0 A N N U A L R E P O R T Who we are We are recognised in our markets as an innovator and long-term producer of premium quality products. Based in Australia, we operate globally with more than half our revenues and profits coming from markets outside Australia. Our products are marketed across commercial and retail sectors; with distribution into architectural, agricultural, horticultural, mining, construction, as well as home improvement, club and e-commerce channels. They are stocked by many of the world’s largest retailers. GALE Pacific is a world leader in specialised textiles and associated products. Key products include shade and screening fabrics, exterior window shades, shade sails, sun umbrellas, and an array of specialised commercial fabrics used for architectural shade, crop protection, water containment and screening. Retail shade and screening products are marketed under the Coolaroo brand. Commercial products are marketed under the GALE Pacific brand. We are focused on growth through product innovation, customer and category development, geographic expansion, and brand building. Corporate Directory GALE Pacific Limited ABN 80 082 263 778 Directors Chairman David Allman Non Executive Director Peter Landos Non Executive Director Donna McMaster Non Executive Director Tom Stianos John Paul Marcantonio Chief Executive Officer & Managing Director Who we are Contents Results at a Glance Chairman’s Letter Chief Executive Officer & Managing Director’s Review Operational Report Board of Directors Executive Leadership Corporate Governance Directors’ Report Auditor’s Independence Declaration Independent Auditor’s Report Directors’ Declaration Financial Report Additional Securities Exchange Information 04 06 08 11 17 18 20 20 34 35 40 41 80 Company Secretary Sophie Karzis Registered Office 145 Woodlands Drive, Braeside, Victoria, 3195 + 613 9518 3333 Auditors Deloitte Touche Tohmatsu 477 Collins Street, Melbourne, Victoria, 3000 + 613 9671 7000 Share Registry Computershare Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067 + 613 9415 4000 Stock Exchange Listing GALE Pacific Limited shares are listed on the Australian Securities Exchange (ASX code: GAP) www.galepacific.com 3 Gale PacificResults at a glance Sales revenue of $156.3 million. Americas $73.3M Australia $64.6M Middle East $10.5M Eurasia $8.0M Sales Revenue Change 2019 - 2020 Sales by Region T R O P E R L A U N N A 0 2 0 2 Americas 3.2% Australia & New Zealand 11.4% Middle East & North Africa (18.6) Eurasia 8.1% 160 140 120 100 80 60 149.2 81.4 67.8 2019 156.3 94.0 62.3 2020 FY H2 H1 Revenue ($M) H1 H2 FY 2020 ANNUAL REPORT Results at a glance Profit Before Tax 4.8 11.2 Results for the full year Profit After Tax 3.7 9.2 ($M) Basic earnings per share (cents) Final dividend per share (cents) 1.34 3.21 1.00 1.00 8.4 4.8 (3.6) 2020 H2 FY H1 5 H1 H2 FY PBT ($M) Financial Highlights 2020 2019 2020 2019 12 10 8 6 4 2 0 -2 -4 EBIT 7.0 13.1 Net Cash (Debit) ($M) (15.3) (10.9) 11.2 9.9 1.3 2019 Gale PacificWe continued to execute on our strategy of building GALE into a more quickly growing, global fabrics technology business. David Allman Chairman Chairman’s Letter The twelve months to 30 June 2020 was an eventful and extraordinarily challenging period. First half trading was exceptionally difficult for a number of reasons previously reported on and this resulted in a pre-tax loss of $3.6 million for the six months to 31 December 2019 (prior year $1.3 million profit). and the health and safety of our employees and other stakeholders has been our top priority during this period. Production in China was affected first with our facility in Ningbo closed or severely restricted for much of February and March following which all global operations were impacted. Toward the end of this period John Paul Marcantonio was appointed as Chief Executive Officer of GALE Pacific replacing Nick Pritchard who had held the position for five years. John Paul was previously President and General Manager of GALE’s Americas business. I am very pleased to be able to report that the new management team responded quickly and professionally to this unprecedented challenge by introducing safe working practices at all locations which enabled us to continue to employ our staff and keep them healthy and serve our customers. Other key management appointments were also made including Domenic Romanelli as Chief Financial Officer and Troy Mortleman as General Manager for Australia and New Zealand. The second half of the year has of course been greatly affected by the COVID-19 pandemic It is very pleasing that, despite the massive dislocation, second half revenue increased by 16% from prior year to $94.0 million and that pre-tax profit of $8.4 million (prior year $9.9 million) was generated. This was achieved despite increased costs due to safety requirements, tariffs in the USA, input cost increases, an unbudgeted incentive arrangement with 2020 ANNUAL REPORTChairman’s Letter 7 a major customer and one time expenses associated with a restructure of the Australian business. The revenue increase was mainly due to improved sales to retail customers in Australia and the USA as consumer offtake in the hardware channel increased in both regions. Overall pre-tax profit for the year was $4.8 million (prior year $11.2 million) on revenue of $156.3 million (prior year $149.2 million). Earnings per share was 1.34 cents (prior year 3.21 cents). In February the Board decided not to pay an interim dividend because of the poor first half result and the highly uncertain outlook at the start of the COVID-19 pandemic. It is therefore pleasing that we are able to recommence dividend payments with a final dividend of 1 cent per share unfranked due to the much improved second half and positive momentum going into FY21. Despite the difficulties during the year we continued to execute on our strategy of building GALE into a fast growing global fabrics technology business. During the year a number of technically advanced commercial products were launched together with exciting new retail offerings. Also, we continued to invest in product development and sales and marketing resources. While it is always disappointing to report a reduced profit, the progress made during the second half of the year has placed GALE in a very strong position and on behalf of the Board I would like to thank the management team and all our employees for their excellent and committed work under very difficult conditions. We would also like to congratulate John Paul Marcantonio on his recent appointment to the Board of GALE Pacific. Gale PacificWe are making progress against our growth strategy and our global business is healthy, stable, profitable & growing. John Paul Marcantonio Chief Executive Officer & Managing Director T R O P E R L A U N N A 0 2 0 2 GALE Pacific FY20 Overview Global operating conditions have been unprecedented, highly dynamic and historically challenging since late-January. We first prioritised the health and safety of our teams around the world, irrespective of the financial implications. We then prioritised servicing our customers, consumers, and end users once we ensured that we were able to do so safely. It is a testament to the team at GALE Pacific that we have been able to keep our employees healthy, safe and working through the challenges of the last six months. The team developed new, more effective and efficient ways of working. We streamlined processes, increased communication, improved collaboration, sped-up decision making, and focused ourselves on driving results. We developed new ways to operate in our facilities and were able to expand capacity as a result. No matter how difficult, we have acted with integrity, empathy, care and respect. Our teams have displayed the highest possible levels of professionalism, resilience and perseverance in the face of extraordinary personal and professional difficulty. Fortunately, we were able to implement operational strategies that mitigated portions of the potentially major service risks introduced by the COVID-19 pandemic across the Company’s global supply chain and manufacturing facilities in China, Australia, and the United States. As anticipated, our operations in China were directly impacted throughout February and into March due to various challenges posed by COVID-19 but largely returned to full production and improved service capacity by the start of April. Pleasingly, we were also able to further increase production capacity throughout the fourth quarter to meet demand increases across the United States and Australia. We did, however, incur higher than planned input cost inflation for labour, materials, transportation and health and safety practices across the business in the second half and there continues to be cost pressure associated with import tariffs in the United States for goods made in China. We witnessed a positive shift in consumer purchasing behaviour that has benefited retail sales in the United States and Australia as we progressed through the back half of the year, especially in the fourth quarter. Our partner retailers in both countries have experienced 2020 ANNUAL REPORT Chief Executive Officer & Managing Director’s Review Product Innovation Grow our Categories Improved Operations New Markets increased levels of sell-through across “do-it-yourself” product ranges as people have increased spending across home improvement categories. Our brands and products are well positioned for this shift in spending and we’ve realised additional benefit from securing incremental new ranging both in-store and online. We’ve also achieved year on year increases in the growth rates across our retail partners that have eCommerce and online selling capabilities, primarily in the United States. We are well positioned across the distribution landscape to take advantage of these trends and have a significant opportunity to further expand our footprint in both markets over the coming years. We’ve continued to invest in our capacity to drive innovation and distribution development initiatives throughout the year despite these challenges. In the back half we executed a global launch of the world’s most comprehensive, technically advanced range of flame retardant architectural shade fabrics and the initial response is encouraging. In Australia, we have secured new distribution for our core coated fabrics ranges used in water management applications and demand for our coated fabrics ranges used in agricultural applications has increased as we exited FY20. Both growth initiatives were enabled by our investment in additional coating capacity in our Melbourne facility in prior periods and our focus on driving operational efficiency throughout the back half of this year. We’re adding new customers in the Americas and are gaining new placement for existing ranges in line with our strategy to develop that market for the long term. Our business across the Eurasia region showed a high level of resilience and we were able to grow both the top and bottom line despite the various challenges we faced throughout the year. Trading continued to be challenging in the MENA region due to macroeconomic conditions that were exacerbated by new challenges posed by the pandemic. The broad market for our products and our business performance in the region were further impacted throughout the back half of the year as a result. In June FY20 we made 9 Gale Pacificthe difficult decision to implement a restructuring plan in the ANZ region designed to deliver profit expansion in FY21 and beyond by lowering structural costs, delivering operational cost efficiencies, better matching capacity to demand in the region, and improving overall organisational capability. Throughout the COVID-19 pandemic our primary concern has been ensuring the health and safety of our employees around the world. We enacted flexible, ‘work from home where able’ policies ahead of government requirements in all regions and quickly developed and implemented strict, facility specific safety and hygiene protocols across all global locations. All of our distribution and manufacturing facilities continue to operate according to best available practice to maintain healthy and safe workplaces for all stakeholders including team members, suppliers, contractors, customers, and consumers while the company continues its essential business operations. Our business and team have proven to be highly resilient and I have faith in our ability to manage this operating environment. We grew revenue year on year in all markets except MENA and remained profitable as a group despite the headwinds, cost inflation and operational challenges. We finished the year with momentum in most markets and I am cautiously optimistic as we head into the new financial year. I am proud of the financial and operational performance that GALE has delivered in FY20 and I am enormously proud to work alongside the team that delivered it. Outlook The health, safety and wellbeing of our team is, and always will be, our top priority. We’ve enacted health and safety measures in-line with the best available guidance at all locations and we’ll continue to develop and evolve our work practices in-line with government policies and leading agency recommendations as they become available. At the Company, we continue to execute our core strategy of building GALE Pacific into a faster growing, world-class, global fabrics technology business. We are making progress against our business development and expansion agenda in the USA, investing in line with our strategy to build a larger footprint in this critical market. In Australia, we will focus our efforts on driving profitable growth initiatives, delivering operational efficiency and better matching capacity to demand to increase profitability. We’ll do this while working to serve encouragingly high levels of demand across our coated fabrics ranges used in agricultural and grain handling applications in 1H21. We continue with our efforts to grow our business in Eurasia and remain committed to working with our partners across the MENA region. We will further develop and implement productivity and efficiency initiatives to offset the effects of disruption and cost inflation in our global supply chain as a result of the COVID-19 pandemic and the persistence of import tariffs in the USA for goods manufactured in China. Overall, our core global business is largely healthy, stable, profitable and growing. We are pleased with the start to FY21, having experienced sustained demand increases in our core consumer and commercial products categories in the USA and Australia. Given the shifts witnessed in consumer and commercial behaviour we are hopeful, but cautious, about the continuance of these largely encouraging trends throughout the entirety of the coming financial year. We anticipate that the company will deliver improvement in both revenue and profit before tax in 1H21 compared to 1H20 given the business momentum across retail and commercial sectors in both the United States and Australia as we enter the financial year. Thank You I would like to thank the entire GALE Pacific team for their commitment, collaboration, dedication and hard work. We have been able to make progress on our growth strategy during an unprecedented and challenging trading period. The business has proven its strength in FY20, and I am confident that we can continue to make progress against our strategic plan as we head into the new financial year. 2020 ANNUAL REPORTOperational Report Operational Report Results for the full year A$ million 30 June 20201 30 June 2019 Change % 156.3 18.7 7.0 4.8 3.7 7.2 (15.3) 1.34 1.00 149.2 19.3 13.1 11.2 9.2 15.3 (10.9) 3.21 1.00 4.8 (3.1) (46.6) (57.1) (59.8) (52.9) (40.4) (58.3) 0 Net Revenue EBITDA EBIT Profit before tax Profit after tax Operating Cash Flow Net cash (debt) Basic earnings per share (cents) Final dividend per share (cents) 1 FY20 financial numbers are inclusive of the impact of ASB16 Results By Region Americas Results for the full year A$ million Net Revenue EBITDA PBT 30 June 2020 30 June 2019 Change % 73.3 11.8 4.2 71.0 13.8 8.5 3.2 (14.5) (50.6) Americas revenue grew 3.2% to $73.3 million ($71.0 million in FY19), driven by a significant positive shift in consumer purchasing behavior on the back of COVID-19 related restrictions coupled with incremental distribution and ranging in 2H20. The second half performance, particularly in the fourth quarter, skewed full year revenue to the second half of the financial year at a higher rate than historical averages. Profit acceleration from 1H20 to 2H20 proved promising with sell-out rates for GALE Pacific’s core retail product ranges generally stronger than market and category averages at most major customers across brick and mortar, eCommerce, and omni-channel retail partners throughout 2H20. The Americas region incurred additional cost headwinds in 1H20 that persisted for the entirety of 2H20 associated with increases in import tariffs imposed by the United States for goods manufactured in China. Though the situation with respect to import tariffs stabilised in 2H20, there exists ongoing material impact from the active tariff arrangements. The company was also impacted by cost inflation in material, freight, transportation, labour and with health & safety initiatives as a result of the COVID-19 pandemic. We continue to work on operational efficiency projects to offset these cost headwinds and to reduce the 11 Gale Pacificimpact of import tariffs. There was also material year over year impact in 1H20 due to the stock build associated with a major customer new business win in 1H19. Despite these headwinds, GALE’s core ranges and new products resonated well with consumers. The company was able to drive material improvement in 2H20 by securing incremental points of distribution across the retail landscape, increasing item counts across the core brick & mortar locations, increasing listings on eCommerce partner sites, and driving increased consumer demand and sell-through across the US market at nearly all retail partners. Though broad market demand for the commercial fabrics business was adversely impacted by COVID-19 restrictions, the category remains an important part of GALE’s growth strategy in the region. The company launched its innovative, market leading range of flame- retardant architectural fabrics in the second half and was able to secure incremental new business as a result. In line with its growth strategy, GALE remains committed to investing to accelerate adoption and preference for its differentiated commercial fabrics ranges in the Americas region. Finally, and despite these challenges, the company increased its investment in selling, marketing & service infrastructure in 2H20 in line with its strategy to build a larger, quickly growing business in the Americas region and remains committed to doing so over the coming periods. Australia & New Zealand Results for the full year A$ million Net Revenue EBITDA PBT 30 June 2020 30 June 2019 Change % 64.6 5.4 0.2 58.0 2.8 1.1 11.4 92.9 (81.8) Australia/New Zealand revenues grew 11.4% for the year to $64.6 million ($58.0 million in FY19), driven by a significant positive shift in consumer purchasing behaviour on the back of COVID-19 related restrictions in the second half, increased ranging across core retail categories, new distribution for core coated fabrics ranges and increased demand for core coated products used in agricultural, water management, food handling and packaging applications. Profit before tax performance in FY20 was impacted by cost inflation in freight, transportation, material, labour, and health & safety initiatives as a result of the COVID-19 pandemic, an unbudgeted incentive arrangement with a major customer, and the implementation of a regional restructuring plan. The company received no income from Jobkeeper or any other Government support schemes. Growth in the retail sector of GALE’s ANZ business was driven by the successful introduction and sell-through of a significant number of new retail products in its core consumer categories coupled with the demand increase associated with changes in consumer buying behaviour due to COVID-19 restrictions, both of which accelerated second half performance. GALE’s core product categories and brands were well positioned as sector spending shifted towards a focus on home 2020 ANNUAL REPORTGALE Pacific experienced strong growth in sell through across core retail categories in the second half driven by incremental product placements and expanded ranging in key customers. improvement and ‘do-it-yourself’ products, with GALE products able to help drive overall category growth with its retail partners. The company’s commercial fabrics business also performed strongly in both 2H20 and across the entirety of FY20 as a result of new customer conversions and increased demand across several categories of its business. As previously mentioned, the company was successful in acquiring a major new customer in the water management sector which began in 2H20. GALE has also seen increased demand across its non-woven coated products categories used in food handling and packaging applications in the second half of FY20. Additionally, GALE saw higher levels of early season demand than previously experienced for its leading line of coated fabrics used in grain handling applications. 2H20 purchasing patterns were ahead of typical seasonal trends for the coming grain harvest, which is forecasted to be one of the most productive seasons in several years. While this positively impacted the 2H20 result, the majority of the benefit is expected to be realised in 1H21. GALE has been able to capitalise on these demand increases and service partner customers as a result of its investment in additional coating capacity (which came online in 2H19) and a focus on operational excellence initiatives in 2H20. Finally, GALE implemented a restructuring plan in the ANZ region in June FY20 designed to deliver profit expansion in FY21 and beyond by lowering regional structural costs, delivering operational cost efficiencies, better matching capacity to demand, and improving overall organisational capability to drive profitable business expansion over the coming periods. The company remains committed to the ANZ region and will work diligently to build a more efficient, more profitable and more quickly growing business there. Operational Report 13 Gale PacificMiddle East & North Africa Results for the full year A$ million Net Revenue EBITDA PBT 30 June 2020 30 June 2019 Change % 10.5 2.2 1.6 12.9 4.0 3.5 (18.6) (45.0) (54.3) Difficult trading conditions persisted throughout FY20 and continued to negatively impact revenues and profits in the region. Challenging macroeconomic conditions and overall instability coupled with the impact of the company’s decision to tighten credit policy earlier in the year impacted business performance in the region. Further, the COVID-19 pandemic had a negative impact on GALE’s business in the region in 2H20 as challenges posed by the varying degrees of restrictions and market openness across several of GALE’s major trading markets caused trading inconsistency. Changes in provisions for doubtful debts, reflecting these difficult local trading conditions, also had a material impact on profit before tax in 2H20 and FY20. Despite the current difficulties, GALE Pacific continues to support its partners in the region and remains optimistic about returning to growth in the region over the coming periods. 2020 ANNUAL REPORTEurasia Results for the full year Net Revenue EBITDA PBT Operational Report A$ million 30 June 2020 30 June 2019 Change % 8.0 2.7 2.2 7.4 2.3 1.8 8.1 17.4 22.2 Eurasia revenues grew 8.1% for the year to $8.0 million ($7.4 million in FY19) and profit before tax grew 22.2% for the year to $2.2 million ($1.8 million in FY19), driven primarily by awards for large scale new projects in its core architectural shade fabrics ranges and new distribution expansion. The Eurasia region business performance for 2H20 and FY20 was pleasing considering the range of challenges across both Europe and Asia associated with COVID-19, which negatively affected key trading geographies and partner customers differently and at different times. In line with its global strategy, the company continues to invest in growth initiatives to expand the usage of GALE’s core, differentiated commercial fabrics ranges and to further expand distribution across targeted markets in both Europe and Asia. 15 Gale PacificBalance Sheet and Cash Generation Net cash flows from operating activities for FY20 were $7.2 million versus $15.3 million for the prior year. The Company expects to generate positive cash flows from operating activities in FY21. Net debt as at 30 June 2020 was $15.3 million versus $10.9 million as at 30 June 2019, which included $2.0 million of capital used for share buy backs. Payments for shares $2.0M Net Debt $15.3M Net cash flows from operating activities for FY20 were $7.2 million versus $15.3 million for the prior year. 2020 ANNUAL REPORTBoard of Directors Board of Directors David Allman, B.Sc. Chairman and Non Executive Director David was Managing Director of McPherson’s Limited from 1995 to 2009 and prior to that was Managing Director of Cascade Group Limited for seven years. Before this David held senior positions with Elders IXL Limited and Castlemaine Tooheys Limited. David holds a degree in engineering and prior to obtaining general management positions held managerial since November 2009 roles in production management, finance and marketing. David is Chairman of Catalyst Education Pty Ltd and of Direct Couriers Group Pty Ltd. David is the Chairman of the Company’s Nomination Committee and is a member of the Remuneration and Audit and Risk Committees. Peter Landos, B.Econ., CA Non Executive Director Peter is the Chief Operating Officer of the Thorney Investment Group of Companies, which he joined in 2000. Prior to joining Thorney, Peter previously worked at Macquarie Bank Limited. Peter has extensive business and corporate experience specialising in advising boards and management in mergers and acquisitions, divestments, business Donna McMaster, GAICD Non-Executive Director Donna has extensive experience in senior executive and strategic roles within public and private retail companies, with a proven track record in developing proprietary brands, and spearheading brand acquisitions and licence agreements. Donna serves on multiple Boards and is currently the Deputy Chair & Non Executive since May 2014 restructurings and capital markets. Peter is a non-executive director of Adacel Technologies Limited, and a non-executive director of Rural Press Pty Ltd. Peter is the Chairman of the Audit and Risk Committee and is a member of the Company’s Nomination Committee. since March 2018 Director of YMCA Service Pty Ltd where she is also Chair of the HR & Governance Committee & is a Non-Executive Director of Dandenong Market Pty Ltd. Donna is a member of the Company’s Nomination and Remuneration Committees. Tom Stianos, B.App.Sc., FAICD Non-Executive Director since October 2017 Tom has extensive experience as a non- executive director of listed companies including many years as Managing Director. Management & Technology (ASX:SMX), and Director of the Australian Information Industry Association. Tom is currently Chairman of Empired (ASX:EPD) and Chairman of Escient. Tom was previously a non-executive director of Inabox Group (ASX:IAB), CEO of SMS Tom is the Chairman of the Remuneration Committee and is a member of the Company’s Nomination and Audit and Risk Committees. 17 Gale PacificExecutive Leadership John Paul Marcantonio CEO and Managing Director John Paul joined GALE Pacific in October 2017 as the General Manager of the Americas business. He was appointed Chief Executive Officer in November 2019 and was appointed as Managing Director in August 2020. John Paul has extensive experience working across both consumer and commercial products sectors globally. Prior to joining GALE Pacific, John Paul built an impressive career at Newell Brands in roles of increasing responsibility in marketing, sales and management over fifteen years. John Paul lived and worked in Melbourne, Australia for several years as the Regional Marketing Director of Newell Brands’ APAC hardware businesses and has held multiple global product and brand marketing leadership positions over his tenure. In his last role before joining GALE, John Paul served as the Global Vice President of Marketing for the Rubbermaid brand. Domenic Romanelli Chief Financial Officer Domenic joined GALE Pacific in September 2019. Domenic is an experienced finance professional, having previously held key senior finance roles with Orica Limited (VP Finance – Australia, Pacific & Indonesia, and General Manager - Finance), Minova International (Global CFO), Smorgon Steel Group (Group Financial Controller), BHP and Deloitte. In addition, Domenic has held the position of Director and Treasurer at the Melbourne Racing Club. Domenic holds a Bachelor of Science degree (Applied Mathematics and Accounting). Domenic is also a registered member of the Institute of Chartered Accountants, Financial Services Institute of Australia, and a graduate and member of the Australian Institute of Company Directors. 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 Andrew Nasarczyk Senior Manager | Research & Development Andrew joined GALE Pacific in July 2002, moving into the company through the acquisition of Visy Industrial Textiles. Andrew has held various Production and Technical roles within GALE Pacific, including a 3-year secondment to GALE’s manufacturing plant in China. During 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. he’s time at GALE, Andrew has been commended by industry peers for his technical and market knowledge. Andrew was recently a Standards Committee member for the update to Australia’s Synthetic Shade Standard. Andrew has a Bachelor of Engineering (Polymers). 2020 ANNUAL REPORTExecutive Leadership Troy Mortleman General Manager | Australia & New Zealand Troy joined GALE Pacific in January 2020. Over the last 14 years he has built an impressive career at previously NSX listed Methven Ltd (MVN) as the Chief Operating Officer of Methven Australia. Troy held many senior roles of increasing responsibility in sales and general management and has experience across both retail & commercial channels of distribution for both consumer & commercial durables categories. Troy has a proven track record of concurrently building growing businesses while developing and leading highly functioning teams. Ali Haidar General Manager | Middle East North Africa Ali joined GALE Pacific in August 2004 and has 16 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. 19 Gale Pacific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). Directors’ Report The Directors of GALE Pacific Limited (“the Company”) present their annual financial report for the Company and its controlled entities (“the Group”) for the financial year ended 30 June 2020. State of Affairs Throughout the COVID-19 pandemic GALE Pacific’s primary concern has been ensuring the health and safety of its employees around the world. The Company enacted flexible, ‘work from home where able’ policies ahead of government requirements in all regions and quickly developed and implemented strict, facility specific safety and hygiene protocols across all global locations. All distribution and manufacturing facilities continue to operate according to best available practice to maintain healthy and safe workplaces for all stakeholders including team members, suppliers, contractors, customers, and consumers while the Company continues its essential business operations. With the 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 (https://www.galepacific.com/investor-info/corporate- governance) 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 (https://www.galepacific.com/investor-info/corporate- governance). implementation of stage 4 restrictions in August 2020 in Melbourne, Australia, the manufacturing facilities in Braeside continue to operate albeit at a reduced two- thirds capacity at its Braeside warehousing location. Events Subsequent to Balance Date Apart from the dividend declared, no other matter or circumstance has arisen since 30 June 2020 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 environmental regulations under the 2020 ANNUAL REPORTDirectors’ Report 21 Commonwealth or State legislation. The Directors believe that the Group has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Group. Dividends Dividends paid to members during the financial year were as follows: 2019 / 2020 In addition to the above dividends, on the 25 August 2020 the Directors declared a dividend of 1.00 cent per share to the holders of fully paid ordinary shares in respect of the year ended 30 June 2020, payable on 16 October 2020 to shareholders on the register at 4 September 2020. 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 $2,750,000. Final Dividend for the year ending 30 June 2019 Interim Dividend for the 6 months ended 31 Dec 2019 For the full year, the dividend of 1.00 cent per share has been declared on earnings of 1.34 cents per share. 1.00cent paid 08 October 2019 0.00cent no dividend declared Gale PacificShare Based Payments Performance Rights The number of performance rights on issue at the date of this report is 2,876,971 (2019: 4,894,000). No amount is payable on the vesting of a performance right. Each performance right entitles the holder to one (1) ordinary share in GALE Pacific Limited in the event that the performance right is exercised. Performance rights carry no rights to dividends and no voting rights. 1,034,971 performance rights were granted to executives on 16 January 2020. The performance rights will vest subject to a continuation of employment to 30 June 2022 and the satisfying of relevant performance hurdles based on the Group’s diluted earnings per share over the three year period from 1 July 2019 to 30 June 2022. None of these performance rights can vest until 30 June 2022 and expire on 1 December 2022. On the 30 June 2019, 1,299,000 performance rights lapsed due to not meeting the performance conditions. The vesting of those performance rights was subject to a continuation of employment for three years and the satisfactory achievement of performance hurdles based on improvements in the Group’s diluted earnings per share over the three year period between 1 July 2016 and 30 June 2019. On the 30 June 2020, 1,753,000 performance rights lapsed due to not meeting the continuation of employment condition by key management personnel exiting the business. 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. Further details of the options and performance rights movements during the reporting period are disclosed in the Remuneration Report. 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. Fully Paid Ordinary Shares Options Performance Rights ’ s r o t c e r i D D Allman 4,500,000 P Landos - D McMaster 50,000 T Stianos 600,000 N/A N/A N/A N/A N/A N/A N/A N/A 2020 ANNUAL REPORTDirectors’ Meetings The table below sets out the attendance by Directors Board of Director’s 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 ’ s r o t c e r i D D Allman P Landos D McMaster N Pritchard T Stianos 12 12 12 4 12 12 12 12 4 12 3 3 - - 3 3 3 - - 3 1 - 1 - 1 1 - 1 - 1 1 1 1 - 1 1 1 1 - 1 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. Allman and Donna McMaster. The current Chairman of the Remuneration Committee is Tom Stianos. As at the date of this report the members of the Audit & Risk Committee are Peter Landos, Tom Stianos and David Allman. The Chairman of the Audit & Risk Committee is Peter Landos. As at the date of this report the members of the Remuneration Committee are Tom Stianos, David As at the date of this report the members of the Nomination Committee are David Allman, Peter Landos, Donna McMaster, and Tom Stianos. 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. Directors’ Report 23 Gale PacificThe Group’s remuneration policy is based on the following principles: Remuneration packages contain the following key elements: 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. 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 2020: 30 June of every year 2020 2019 2018 2017 2016 Sales 156,338* 149,217* 148,811* 175,265 173,191 Net profit before tax Net profit after tax 4,757 3,719 11,208 12,484 (4,861) 13,509 9,198 9,807 (8,044) 10,228 Share price at start of year 32.0 cents 35.5 cents 40.0 cents 36.0 cents 17.0 cents Share price at end of year 16.0 cents 32.0 cents 35.5 cents 40.0 cents 36.0 cents Interim dividend 0.0 cent 1.00 cent 1.00 cent 1.00 cent 0.75 cents Final dividend 1.00 cent 1.00 cent 1.00 cent 1.00 cent 1.00 cent Basic earnings per share 1.34 cents 3.21 cents 3.35 cents (2.71) cents 3.44 cents Diluted earnings per share 1.32 cents 3.16 cents 3.29 cents (2.71) cents 3.40 cents * Sales in 2020, 2019 and 2018 reflect the adoption of the accounting standard AASB 15 Revenue from Contracts with Customers 2020 ANNUAL REPORTRemuneration Practices Directors’ Report The Group policy for determining the nature and amount of emoluments of Board members and Senior Executives is as follows. The remuneration structure for Executive Officers, including Executive Directors, is based on a number of factors including length of service, particular experience of the individual concerned, and overall performance of the Group. The contracts of service between the Group and Executive Directors and Executives are on a continuing basis, the terms of which are not expected to change in the immediate future. Upon retirement Executive Directors and Executives are paid employee benefit entitlements accrued to date of retirement. Payment of bonuses, and other incentive payments are made at the discretion of the Remuneration Committee to Key Executives of the Group based predominantly on an objective review of the Group’s financial performance, the individuals’ achievement of stated financial and non financial targets and any other factors the Committee deems relevant. Non Executive Directors receive a fee for being Directors of the Company and do not participate in performance based remuneration. Remuneration Structure In accordance with best practice corporate governance, the structure of Non Executive Directors and Senior Managers remuneration is separate and distinct. Non Executive Director Remuneration Objective The Board seeks to set remuneration at a level which provides the Company with the ability to attract and retain directors of relevant experience and skill, whilst incurring costs which are acceptable to shareholders. Structure The Company’s Constitution and the Australian Securities Exchange Listing Rules specify that the aggregate remuneration of Non Executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Directors as agreed. The last determination was at the Annual General Meeting held on 25 October 2019 when Senior Manager and Executive Director Remuneration Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group. The objective of the remuneration policy is: shareholders approved an increase to the maximum aggregate amount of fees that may be paid each year to the Non-Executive Directors of the Company from $500,000 to $600,000. The amount of the aggregate remuneration and the manner in which it is apportioned is reviewed periodically. The Board considers fees paid to Non Executive Directors of comparable companies when undertaking this review process. Each Non Executive Director receives a fee for being a Director of the Company and does not participate in performance based remuneration. • Reward executives for Group and individual performance; • Align the interests of the executives with those of the shareholders; • Ensure that total remuneration is competitive by market standards. 25 Gale PacificStructure In determining the level and make up of executive remuneration, the Remuneration Committee reviews reports detailing market levels of remuneration for comparable roles. Remuneration consists of fixed and variable elements. A. Share Based Payments The Group maintains a performance rights scheme for certain staff and executives, including the 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: performance rights were granted on 16 January 2020 and will not vest until the time of the Company’s 2022 annual report is released on the ASX (on or around 1 October 2022). Each performance right entitles the holder to one (1) ordinary share in GALE Pacific Limited and is subject to satisfying the relevant performance hurdles based on improvements in the Group’s diluted earnings per share. Options and performance rights issued to executives during the year were issued in accordance with the Group’s remuneration policy which: • Reward executives for Group and individual performance; • Align the interests of the executives with those of • Improvement in earnings per share; and the shareholders; and • Improvement in return to shareholders. • Ensure that total remuneration is competitive by market standards. The number of performance rights on issue at 30 June 2020 was 2,876,971. 956,000 of these performance rights were granted on 23 November 2017 and will not vest until the time of the Company’s 2020 annual report is released on the ASX (on or around 1 October 2020). 886,000 of these performance rights were granted on 29 October 2018 and will not vest until the time of the Company’s 2021 annual report is released on the ASX (on or around 1 October 2021). 1,034,971 of these Key Management Personnel of the Group Who Held Office During the Year B. Cash Bonuses One year short term performance cash bonus payments are awarded in accordance with the Company’s remuneration policy. The budget targets for each business unit and the Company overall is established each year by the Board. The performance criteria include sales and earnings before interest and tax growth and working capital management. For corporate executives, the performance criteria include growth in earnings before interest and tax and profit after tax. s r o t c e r i D D Allman Chairman Non Executive P Landos Non Executive D McMaster Non Executive N Pritchard Group Managing Director Resigned 29 November 2019 J P Marcantonio CEO and Managing Director Effective 14 August 2020 T Stianos Non Executive s e v i t u c e x E A Haidar General Manager Middle East & North Africa J P Marcantonio Chief Executive Officer From 29 November 2019 to 13 August 2020 (previously President and General Manager Americas) T Mortleman General Manager Australia & New Zealand Effective 13 January 2020 M Nicholls General Manager EurAsia M Parker Chief Financial Officer Resigned 26 July 2019 D Romanelli Chief Financial Officer Effective 24 September 2019 C Zhang General Manager China * During the period from 27 July 2019 to 23 September 2019, C Hanchette was the acting Chief Financial Officer. 2020 ANNUAL REPORTDirectors’ Report The following table discloses the remuneration of the Directors of the Company: Short Term Benefits Post Employment Share Based Payments Termination Benefits Total Performance Related 2019 / 2020 Salary & Fees ($) Bonus ($) Non Monetary ($) Super ($) Rights ($) ($) ($) Total (%) Rights (%) ’ s r o t c e r i D Executive Directors N Pritchard1 221,755 Non-Executive Directors D Allman P Landos T Stianos D McMaster Total 117,756 95,388 87,123 77,169 599,191 - - - - - - - - - - - - 10,417 (4,101) 90,643 318,713 (1)% (1)% 19,752 7,375 8,277 7,331 - - - - - - - - 137,508 102,763 95,400 84,500 53,151 (4,101) 90,643 738,883 - - - - - - - - - - Short Term Benefits Post Employment Share Based Payments Termination Benefits Total Performance Related 2018 / 2019 Salary & Fees ($) Bonus ($) Non Monetary ($) Super ($) Rights ($) ($) ($) Total (%) Rights (%) ’ s r o t c e r i D Executive Directors N Pritchard 524,717 Non-Executive Directors D Allman P Landos T Stianos D McMaster J Murphy2 Total 121,048 84,444 87,884 77,169 3,570 898,832 - - - - - - - - - - - - - - 25,000 4,101 19,752 7,989 8,566 7,331 1,265 - - - - - 69,903 4,101 - - - - - - - 553,818 1% 1% 140,800 92,433 96,450 84,500 4,835 972,836 - - - - - - - - - - - - 1 Departed 29 November 2019 and the termination benefit represents his statutory employee entitlements. 2 Mr J Murphy resigned on the 15 August 2018. 27 Gale PacificThe following table discloses the remuneration of the Group’s key management personnel: Short Term Benefits Post Employment Share Based Payments Termination Benefits Total Performance Related 2019 / 2020 Salary & Fees ($) Bonus ($) Non Monetary ($) Super ($) Rights ($) ($) ($) Total (%) Rights (%) J P Marcantonio 1 548,431 27,482 23,643 25,952 (1,887) M Nicholls 2 232,264 47,710 - 17,228 C Zhang 3 A Haidar 4 212,350 59,014 14,628 279,339 - D Romanelli 5 242,308 7,415 T Mortleman 6 130,448 5,093 M Parker 7 24,209 - - - - - 3,285 3,347 4,434 7,975 - - 23,019 12,393 - 2,083 (1,448) Total 1,669,349 146,714 38,271 80,676 15,705 - - - - - - 623,621 4% 300,487 17% 289,338 22% 283,773 280,717 147,934 2% 5% 3% 13,074 13,074 37,918 (4)% 1,963,788 8% 0% 1% 1% 2% 3% - (4)% 1% Short Term Benefits Post Employment Share Based Payments Termination Benefits Total Performance Related 2018 / 2019 Salary & Fees ($) Bonus ($)9 Non Monetary ($) Super ($) Rights ($) ($) ($) Total (%) Rights (%) J P Marcantonio 397,523 156,425 12,304 19,642 M Parker A Haidar C Zhang 308,194 257,099 - - - - 197,053 52,754 21,515 M Nicholls 201,231 68,414 B Marotta 8 198,998 - - - 1,887 1,448 1,039 724 706 25,000 - - 16,138 18,905 - - - - - - - - 587,781 27% 334,642 258,138 0% 0% 272,046 14% 286,489 7% 217,903 - 1,957,000 14% 0% 0% 0% 0% 0% - 0% Total 1,560,099 277,593 33,819 79,685 5,805 l e n n o s r e P t n e m e g a n a M y e K l e n n o s r e P t n e m e g a n a M y e K 1 Mr J P Marcantonio (Chief Executive Officer) - Located in the Americas and is remunerated in United States Dollars. 2 Mr M Nicholls (General Manager – EurAsia) – Located in England and is remunerated in Great British Pounds. 3 Mr C Zhang (General Manager – China Manufacturing) – Located in China and is remunerated in Chinese renminbi. 4 Mr Haidar (General Manager – Middle East and North Africa) - Located in USA and is remunerated in United States dollars. 5 Mr D Romanelli (Chief Financial Officer) - Located in Australia and is remunerated in Australian dollars. D Romanelli commenced 24 September 2019. 6 Mr T Mortleman (General Manager – ANZ). Located in Australia and is remunerated in Australian dollars. T Mortleman commenced 13 January 2020. 7 Mr M Parker (Chief Financial Officer). Located in Australia and remunerated in Australian dollars. M Parker resigned 26 July 2019. 8 Mr B Marotta (General Manager- Supply Chain). Effective 30 June 2019, the role is not considered as Key Management. 9 2018/19 bonus has been restated to reflect accrual basis. Directors’ Report ’ s r o t c e r i D ’ s r o t c e r i D Directors’ and Executives’ Equity Holdings: Fully Paid Ordinary Shares 2019 / 2020 Executive Directors Balance 30 June 20191 Granted as Compensation Received on Exercise of Options Other Movements2 Balance 30 June 2020 N Pritchard 1,434,593 Non Executive Directors D Allman T Stianos D McMaster Executives M Parker A Haidar D Romanelli Total 3,000,000 200,000 - 227,257 516,364 - 5,378,214 - - - - - - - - - - - - - - - - (1,434,593) - 1,500,000 4,500,000 400,000 50,000 600,000 50,000 (227,257) - - 263,000 551,150 516,364 263,000 5,929,364 Directors’ and Executives’ Equity Holdings: Fully Paid Ordinary Shares 2018 / 2019 Executive Directors Balance 30 June 2018 Granted as Compensation Received on Exercise of Options Other Movements2 Balance 30 June 2019 N Pritchard 521,593 913,000 Non Executive Directors D Allman J Murphy T Stianos Executives M Parker B Marotta A Haidar Total 2,400,000 4,416,599 100,000 - 289,122 334,364 - - - 320,000 299,000 182,000 8,061,678 1,714,000 - - - - - - - - - 1,434,593 600,000 3,000,000 (4,416,599) - 100,000 200,000 (92,743) - - 227,257 588,122 516,364 (3,809,342) 5,966,336 1 Opening balance for FY20 excludes B Marotta as he is no longer a KMP. 2 Purchases and disposals of shares. 29 Gale PacificShare Based Compensation Grant Date Value per performance rights at grant date 26 cents Each performance right entitles the holder to one (1) ordinary share in GALE Pacific Limited 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 23 November 2017 are subject to the continuation of employment to 30 June 2020 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 2017 to 30 June 2020. None of these rights can vest until the Company releases its FY20 annual report to the ASX (on or around 20th September 2020) and expire on 1 December 2020. The performance rights granted on 29 October 2018 are subject to the continuation of employment to 30 June 2021 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 2018 to 30 June 2021. None of these rights can vest until the Company releases its FY21 annual report to the ASX (on or around 20th September 2021) and expire on 1 December 2021. The performance rights granted on 16 January 2020 are subject to the continuation of employment to 30 June 2022 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 2020 to 30 June 2022. None of these rights can vest until the Company releases its FY22 annual report to the ASX (on or around 20th September 2022) and expire on 1 December 2022. In addition to the time requirement of continuous 3 year employment, the diluted EPS needs to increase by greater than 3.0% over the relevant 3-year performance period. The number of Rights vesting will be determined proportionately, on a straight-line basis, between 3.0% and 10.0%. Directors’ and Executives’ Equity Holdings, Compensation Options and Performance Rights: Granted and Vested During the Year ’ s r o t c e r i D ’ s r o t c e r i D 2019 / 2020 Vested Number Granted Number Grant Date Management Personnel (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 Key Management Other Management Total - - - 849,306 16/01/20 0.2642 185,665 16/01/20 0.2642 1,034,971 - - Nil Nil - 1/12/22 01/10/22 01/10/22 1/12/22 01/10/22 01/10/22 - - - None Executive Directors (Performance Rights), Non-Executive Directors and Executive Terms and Conditions for Each Grant Vested Number Granted Number Grant Date Value Per Option / Right at Grant Date Exercise Price Expiry Date First Exercise Date Last Exercise Date 2018 / 2019 Executive Directors N Pritchard - 691,000 13/11/18 0.3504 Nil 01/12/21 01/10/21 01/10/21 Management Personnel (Performance Rights) Key Management Other Management Total - - - 978,000 13/11/18 0.3504 152,000 13/11/18 0.3504 1,821,000 - - Nil Nil - 01/12/21 01/10/21 01/10/21 01/12/21 01/10/21 01/10/21 - - - None Non-Executive Directors and Executive Directors’ and Executives’ Equity Holdings Compensation Options and Performance Rights: Movements During the Year Directors’ Report 2019 / 2020 Executive Directors Balance 1 July 2019 Granted as Compensation Exercised Lapsed Net Other Change1 Balance 30 June 2020 Balance Held Nominally Value of Lapsed Options/Rights ($) N Pritchard 1,875,000 Executives (Performance Rights) - - M Parker A Haidar 659,000 465,000 216,088 Cliff Zhang 331,000 160,737 J P Marcantonio 588,000 - M Nicholls 232,000 157,585 D Romanelli - 314,896 Management Personnel (Performance Rights) Other Management 744,000 185,665 Total 4,894,000 1,034,971 - - - - - - - - - (578,000) (1,297,000) (203,000) (456,000) (146,000) (105,000) - - - (267,000) - - - - - - - - 535,088 386,737 588,000 389,585 314,896 662,665 (1,299,000) (1,753,000) 2,876,971 - - - - - - - - - - - - - - - - - - 2018 / 2019 Executive Directors Balance 1 July 2018 Granted as Compensation Exercised Lapsed Net Other Change Balance 30 June 2019 Balance Held Nominally Value of Lapsed Options/Rights ($) N Pritchard 2,097,000 691,000 (913,000) Executives (Performance Rights) M Parker B Marotta A Haidar 735,000 244,000 (320,000) 665,000 - (299,000) 472,000 175,000 (182,000) Cliff Zhang 209,000 122,000 J P Marcantonio 270,000 318,000 M Nicholls 113,000 119,000 - - - Management Personnel (Performance Rights) Other Management 375,000 152,000 (149,000) Total 4,936,000 1,821,000 (1,863,000) 1 Options forfeited due to not meeting the continuation of employment condition - - - - - - - - - - - - - - - - - - 1,875,000 659,000 366,000 465,000 331,000 588,000 232,000 378,000 4,894,000 - - - - - - - - - - - - - - - - - - 31 Gale PacificEmployment Agreements Indemnity and Insurance of Auditor Executives serve under terms and conditions contained in a standard executive employment agreement, that allows for termination under certain conditions with two to three months’ notice. The agreements include restraints of trade on the employee as well as confidentiality and intellectual property agreements. 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 Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not, 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 the auditor. 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 to which the Company is a party for the purpose of taking 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 33 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 2020 ANNUAL REPORT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 33 to the financial statements do not compromise 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 objectivity of the auditor; and • none of the services undermine the general principles 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 Tohmatsu. There are no officers of the Company who are former partners of Deloitte Touche Tohmatsu. 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 nearest dollar. 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 Tohmatsu continues in office in accordance 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. Directors’ Report 33 Gale PacificAuditors Independence Declaration Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne VIC 3000 Tel: +61 (0) 3 9671 7000 www.deloitte.com.au 25 August 2020 The Board of Directors Gale Pacific Limited 145 Woodlands Drive Braeside VIC 3195 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 2020, 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 faithfully DELOITTE TOUCHE TOHMATSU Genevra Cavallo Partner Chartered Accountants Member of Deloitte Asia Pacific Limited and the Deloitte Network Liability limited by a scheme approved under Professional Standards Legislation. 2020 ANNUAL REPORT Independent Auditors Report Independent Auditor’s Report Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne VIC 3000 Tel: +61 (0) 3 9671 7000 www.deloitte.com.au Independent Auditor’s Report to the members of Gale Pacific Limited Report on the Audit of 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 2020, the consolidated statement of profit and loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies 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 2020 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 (including Independence Standards) (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. 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. Member of Deloitte Asia Pacific Limited and the Deloitte Network Liability limited by a scheme approved under Professional Standards Legislation. 35 Gale Pacific Key Audit Matter Recoverability of trade receivables in Middle East and North Africa Refer to Note 10 Current assets – trade and other receivables. As at 30 June 2020, the carrying amounts of Middle East and North Africa (“MENA”) trade receivable totalled AU$10.27 million with AU$1.89 million of the outstanding balance aged over 365 days as disclosed in Note 10. The balance of the provision for impairment of receivables in MENA accounts for 60% of trade receivables greater than 365 days. The provision determination as to whether the receivables are collectable requires a high level of management judgment and estimates, whereby the management considers specific factors including the age of the balances, historical payment patterns and any other information concerning the creditworthiness of the counterparties. relevant How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: • Obtaining an understanding of how the provision for impairment of receivables is estimated by management and assessing management’s process in determining the estimated future cash flows of accounts receivables; Evaluating on a sample basis, the aging analysis and subsequent settlement of the account’s source documents including invoices and bank statements; receivable the to • • Assessing the reasonableness of provision for impairment of receivables with reference to the credit history including default or delay in payments, settlement records, subsequent settlements and aging analysis of the account’s receivables; and Evaluating the historical accuracy of the management’s assessment of provision for receivables by assessing the actual write- offs, the reversal of previous recorded provision and new provision recorded in the respect of accounts current year receivables. in • We also assessed the appropriateness of the disclosures included in Note 10 the financial statements. 2020 ANNUAL REPORT Key Audit Matter Key Audit Matter Carrying value of goodwill relating to the USA business Carrying value of goodwill relating to the USA business As at 30 June 2020, the Group has recognised goodwill of $2.98 million as As at 30 June 2020, the Group has disclosed in Note 13. recognised goodwill of $2.98 million as disclosed in Note 13. The assessment of the recoverability of goodwill requires the exercise of significant The assessment of the recoverability of judgement, in estimating future growth goodwill requires the exercise of significant rates, discount rates and the expected cash judgement, in estimating future growth flows of the cash generating unit (“CGU”) to rates, discount rates and the expected cash which goodwill has been allocated. flows of the cash generating unit (“CGU”) to which goodwill has been allocated. As disclosed in Note 13, the Group has prepared a value-in-use impairment model As disclosed in Note 13, the Group has to determine the recoverable amount of prepared a value-in-use impairment model each CGU. The Group’s impairment model is to determine the recoverable amount of sensitive to changes in the future growth each CGU. The Group’s impairment model is rates and discount rates. sensitive to changes in the future growth rates and discount rates. Independent Auditor’s Report How the scope of our audit responded to the Key Audit Matter How the scope of our audit responded to the Our procedures in conjunction with our valuation Key Audit Matter specialists included, but were not limited to: Our procedures in conjunction with our valuation specialists included, but were not limited to: the the process process • Understanding • Understanding that management has undertaken to assess the that recoverable amount; management has undertaken to assess the • Assessing the assumptions and methodology recoverable amount; used in the impairment models, in particular • Assessing the assumptions and methodology those relating to EBITDA and discount rates, used in the impairment models, in particular including: those relating to EBITDA and discount rates, o Agreeing forecasted cash flows to the including: latest Board approved budget and o Agreeing forecasted cash flows to the assessing the historical accuracy of latest Board approved budget and forecasting, assessing the historical accuracy of flow forecasting, assumptions in the impairment model flow including management’s assessment of assumptions in the impairment model the impact of COVID-19 on the forecasted including management’s assessment of cash flows, the impact of COVID-19 on the forecasted o Testing the calculations in the impairment cash flows, model for mathematical accuracy, o Testing the calculations in the impairment the the o Considering model for mathematical accuracy, calculations by varying key assumptions the the o Considering within a reasonably possible range and, calculations by varying key assumptions o Assessing the discount rate and long term within a reasonably possible range and, growth rate adopted. o Assessing the discount rate and long term growth rate adopted. o Evaluating the underlying cash o Evaluating the underlying cash sensitivity of sensitivity of We also assessed the appropriateness of the disclosures included in Note 13 the financial We also assessed the appropriateness of the statements. disclosures included in Note 13 the financial statements. Other Information 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 2020, but does not The directors are responsible for the other information. The other information comprises the include the financial report and our auditor’s report thereon. information included in the Group’s annual report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. 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 In connection with our audit of the financial report, our responsibility is to read the other information report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, and, in doing so, consider whether the other information is materially inconsistent with the financial based on the work we have performed, we conclude that there is a material misstatement of this report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, other information, we are required to report that fact. We have nothing to report in this regard. 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 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 The directors of the Company are responsible for the preparation of the financial report that gives a and for such internal control as the directors determine is necessary to enable the preparation of the true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 financial report that gives a true and fair view and is free from material misstatement, whether due and for such internal control as the directors determine is necessary to enable the preparation of the to fraud or error. financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. 37 Gale Pacific 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. • 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, actions taken to eliminate threats or safeguards applied. 2020 ANNUAL REPORT Independent Auditor’s Report 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 From the matters communicated with the directors, we determine those matters that were of most matters. We describe these matters in our auditor’s report unless law or regulation precludes public significance in the audit of the financial report of the current period and are therefore the key audit disclosure about the matter or when, in extremely rare circumstances, we determine that a matter matters. We describe these matters in our auditor’s report unless law or regulation precludes public should not be communicated in our report because the adverse consequences of doing so would disclosure about the matter or when, in extremely rare circumstances, we determine that a matter reasonably be expected to outweigh the public interest benefits of such communication. 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 Report on the Remuneration Report Opinion on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 23 to 31 of the Directors’ Report for the year ended 30 June 2020. We have audited the Remuneration Report included in pages 23 to 31 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Gale Pacific Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. In our opinion, the Remuneration Report of Gale Pacific Limited, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities 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 The directors of the Company are responsible for the preparation and presentation of the responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our accordance with Australian Auditing Standards. responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Genevra Cavallo Partner Genevra Cavallo Chartered Accountants Partner Melbourne, 25 August 2020 Chartered Accountants Melbourne, 25 August 2020 39 Gale PacificOn behalf of the Board I would like to thank the management team and all our employees for their contribution. Directors’ Declaration In the Directors’ opinion: The attached financial statements and notes comply with the Corporations Act 2001, the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; The attached financial statements and notes comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 2 to the financial statements; The attached financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the financial year ended on that date; and There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the directors. David Allman Chairman 2020 ANNUAL REPORTFinancial Report Financial Report Gale Pacific Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2020 Gale Pacific Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2020 Revenue Sale of goods Revenue Other income Sale of goods Expenses Other income Raw materials and consumables used Employee benefits expense Expenses Depreciation and amortisation expense Raw materials and consumables used Marketing and advertising Employee benefits expense Occupancy costs Depreciation and amortisation expense Warehouse and related costs Marketing and advertising Other expenses Occupancy costs Finance costs Warehouse and related costs Other expenses Profit before income tax expense Finance costs Income tax expense Profit before income tax expense Profit after income tax expense for the year attributable to the owners of Gale Income tax expense Pacific Limited Profit after income tax expense for the year attributable to the owners of Gale Other comprehensive income Pacific Limited Items that may be reclassified subsequently to profit or loss Other comprehensive income Net change in the fair value of cash flow hedges taken to equity, net of tax Foreign currency translation 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 Other comprehensive income for the year, net of tax Foreign currency translation Total comprehensive income for the year attributable to the owners of Gale Other comprehensive income for the year, net of tax Pacific Limited Total comprehensive income for the year attributable to the owners of Gale Pacific Limited Basic earnings per share Diluted earnings per share Basic earnings per share Diluted earnings per share Note Note 5 5 6 6 6 6 6 6 7 7 22 22 22 22 8 8 8 8 Consolidated 2020 $'000 2019 $'000 Consolidated 2020 $'000 156,338 2019 $'000 149,217 1,255 156,338 1,353 149,217 1,255 (77,121) (34,951) (11,780) (77,121) (2,283) (34,951) (2,949) (11,780) (10,289) (2,283) (11,269) (2,949) (2,194) (10,289) (11,269) 4,757 (2,194) (1,038) 4,757 1,353 (69,604) (33,668) (6,218) (69,604) (2,251) (33,668) (6,498) (6,218) (9,628) (2,251) (9,653) (6,498) (1,842) (9,628) (9,653) 11,208 (1,842) (2,010) 11,208 (1,038) 3,719 (2,010) 9,198 3,719 9,198 (212) (505) (212) (717) (505) (106) 1,887 (106) 1,781 1,887 (717) 3,002 1,781 10,979 Cents 3,002 Cents 10,979 Cents 1.34 1.32 Cents 3.21 3.16 1.34 1.32 3.21 3.16 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes FINANCIAL STATEMENTS PAGE 40 FINANCIAL STATEMENTS PAGE 40 41 Gale PacificGale Pacific Limited Statement of financial position As at 30 June 2020 Gale Pacific Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2020 Assets Current assets Revenue Cash and cash equivalents Sale of goods Trade and other receivables Inventories Other income Prepayments Total current assets Expenses Raw materials and consumables used Non-current assets Employee benefits expense Property, plant and equipment Depreciation and amortisation expense Intangibles Marketing and advertising Right-of-use assets Occupancy costs Deferred tax Warehouse and related costs Total non-current assets Other expenses Finance costs Total assets Profit before income tax expense Liabilities Income tax expense Current liabilities Trade and other payables Profit after income tax expense for the year attributable to the owners of Gale Borrowings Pacific Limited Lease liabilities Other comprehensive income Derivative financial instrument - cash flow hedges Current tax liabilities Items that may be reclassified subsequently to profit or loss Employee benefits Net change in the fair value of cash flow hedges taken to equity, net of tax Provisions Foreign currency translation Total current liabilities Other comprehensive income for the year, net of tax Non-current liabilities Borrowings Total comprehensive income for the year attributable to the owners of Gale Lease liabilities Pacific Limited Deferred tax Employee benefits Total non-current liabilities Basic earnings per share Total liabilities Diluted earnings per share Net assets Equity Issued capital Reserves Retained profits Total equity Consolidated Note 2020 $'000 2019 $'000 Consolidated Note 2020 $'000 2019 $'000 5 6 6 6 7 22 22 8 8 9 10 11 12 13 14 7 15 16 18 7 17 19 20 7 21 22 156,338 27,811 39,603 48,699 2,221 118,334 1,255 149,217 29,846 28,152 46,196 2,124 106,318 1,353 (77,121) (34,951) (11,780) (2,283) (2,949) (10,289) (11,269) (2,194) 32,354 8,119 21,780 11,100 73,353 191,687 (69,604) (33,668) (6,218) (2,251) (6,498) (9,628) (9,653) (1,842) 35,492 8,392 - 4,345 48,229 154,547 4,757 11,208 (1,038) (2,010) 3,719 9,198 23,427 23,274 3,830 595 1,023 3,896 144 56,189 (212) (505) 15,958 25,793 - 127 2,169 3,230 457 47,734 (106) 1,887 (717) 1,781 3,002 10,979 19,824 19,338 7,765 205 47,132 14,956 - 1,473 187 16,616 Cents Cents 1.34 103,321 1.32 3.21 3.16 64,350 88,366 90,197 63,068 3,992 21,306 65,097 4,070 21,030 88,366 90,197 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes The above statement of financial position should be read in conjunction with the accompanying notes FINANCIAL STATEMENTS FINANCIAL STATEMENTS PAGE 41 PAGE 40 2020 ANNUAL REPORTGale Pacific Limited Statement of changes in equity For the year ended 30 June 2020 Gale Pacific Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2020 Consolidated Balance at 1 July 2018 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Revenue Sale of goods Total comprehensive income for the year Other income Transactions with owners in their capacity as owners: Expenses Share-based payments (note 32) Raw materials and consumables used Transfer to Enterprise Reserve Fund Employee benefits expense Share Buy Back (note 21) Depreciation and amortisation expense Other Marketing and advertising Dividends paid (note 23) Occupancy costs Warehouse and related costs Other expenses Finance costs Balance at 30 June 2019 Profit before income tax expense Consolidated Income tax expense Balance at 1 July 2019 Financial Report Issued Capital $'000 Reserves (Note 22) $'000 Retained Profits $'000 Total equity $'000 Consolidated 18,087 2020 $'000 Note 1,752 - 1,781 1,781 5 11 526 6 - 6 - - 4,070 6 Reserves (Note 22) $'000 7 4,070 9,198 - 156,338 9,198 1,255 - (77,121) (526) (34,951) - (11,780) (7) (2,283) (5,722) (2,949) (10,289) 21,030 (11,269) (2,194) Retained Profits $'000 4,757 (1,038) 21,030 67,641 - - - - - (2,544) - - 65,097 Issued Capital $'000 65,097 - - - 87,480 2019 $'000 9,198 1,781 149,217 10,979 1,353 11 (69,604) - (33,668) (2,544) (6,218) (7) (2,251) (5,722) (6,498) (9,628) 90,197 (9,653) (1,842) 11,208 Total equity $'000 (2,010) 90,197 9,198 3,719 (717) 3,002 (106) 1,887 16 - 1,781 (2,029) 2 (2,822) 10,979 Profit after income tax expense for the year attributable to the owners of Gale Pacific Limited Profit after income tax expense for the year Other comprehensive income for the year, net of tax Other comprehensive income Total comprehensive income for the year 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 Transactions with owners in their capacity as owners: Foreign currency translation Share-based payments (note 32) Transfer to Enterprise Reserve Fund Share Buy Back (note 21) Other Total comprehensive income for the year attributable to the owners of Gale Dividends paid (note 23) Pacific Limited Other comprehensive income for the year, net of tax - - (2,029) - - - (717) (717) 22 22 16 623 - - - 3,719 3,719 - 3,719 (212) (505) - (623) (717) - 2 (2,822) 3,002 Balance at 30 June 2020 Basic earnings per share Diluted earnings per share 63,068 3,992 21,306 Cents 88,366 Cents 8 8 1.34 1.32 3.21 3.16 The above statement of profit or loss and other comprehensive income should be read in conjunction with the The above statement of changes in equity should be read in conjunction with the accompanying notes accompanying notes FINANCIAL STATEMENTS FINANCIAL STATEMENTS PAGE 42 PAGE 40 43 Gale PacificGale Pacific Limited Statement of cash flows For the year ended 30 June 2020 Gale Pacific Limited Statement of profit or loss and other comprehensive income For the year ended 30 June 2020 Cash flows from operating activities Profit before income tax expense for the year Consolidated Note 2020 $'000 2019 $'000 Note Consolidated 4,757 2020 $'000 11,208 2019 $'000 Revenue Sale of goods Adjustments for: Depreciation and amortisation Share-based payments Foreign currency gain Interest and other finance costs Other income Expenses Raw materials and consumables used Employee benefits expense Change in operating assets and liabilities: Depreciation and amortisation expense Decrease/(increase) in trade and other receivables Marketing and advertising Decrease/(increase) in inventories Occupancy costs Increase in prepayments Warehouse and related costs Increase/(decrease) in trade and other payables Other expenses Increase/(decrease) in derivative liabilities Finance costs Increase in employee benefits Decrease in other provisions Profit before income tax expense Income tax expense Interest and other finance costs paid Income taxes paid Profit after income tax expense for the year attributable to the owners of Gale Pacific Limited Net cash from operating activities Other comprehensive income Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of property, plant and equipment 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 Net cash used in investing activities Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Gale Pacific Limited Cash flows from financing activities Proceeds from borrowings Proceeds/(repayment) of leases Payments for share buy-backs Other Dividends paid Basic earnings per share Repayment of borrowings Diluted earnings per share Net cash from/(used in) financing activities Net increase/(decrease) 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 5 6 6 6 7 12 13 22 22 19 21 23 19 8 8 156,338 11,780 16 (793) 2,194 1,255 17,954 (77,121) (34,951) (11,780) (11,451) (2,283) (2,503) (2,949) (97) (10,289) 7,470 (11,269) 256 (2,194) 684 (313) 4,757 149,217 6,218 11 518 1,842 1,353 19,797 (69,604) (33,668) (6,218) (2,251) (6,498) (9,628) (9,653) (1,842) 5,710 540 (573) (5,836) (459) 116 (18) 11,208 (1,038) 12,000 (2,194) (2,647) (2,010) 19,277 (1,842) (2,095) 3,719 7,159 9,198 15,340 (3,087) (813) 240 (212) (505) (3,660) (717) (11,454) (763) 244 (106) 1,887 (11,973) 1,781 Cents 3,002 9,144 (3,401) (2,029) - (2,822) 1.34 (6,793) 1.32 Cents 10,979 13,946 - (2,544) (7) (5,722) 3.21 (2,912) 3.16 (5,901) 2,761 (2,402) 29,846 367 6,128 22,991 727 Cash and cash equivalents at the end of the financial year 9 27,811 29,846 The above statement of cash flows should be read in conjunction with the accompanying notes The above statement of profit or loss and other comprehensive income should be read in conjunction with the PAGE 43 accompanying notes FINANCIAL STATEMENTS FINANCIAL STATEMENTS PAGE 40 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 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 2020. 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. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include: • AASB 16 Leases • Interpretation 23 Uncertainty over Income Tax Treatments and AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatment AASB 16 Leases In the current year, the Group has adopted AASB16 Leases from 1 July 2019. AASB 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets when such recognition exemptions are adopted. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements are described in Note 3. The impact of the adoption of AASB 16 on the Group’s consolidated financial statements is described below. The date of initial application of AASB 16 for the Group is 1 July 2019. The Group has applied AASB 16 using the cumulative catch-up approach which: • Requires the Group to recognise the cumulative effect of initially applying AASB 16 as an adjustment to the opening balance of retained earnings at the date of initial application. • Does not permit restatement of comparatives, which continue to be presented under IAS 17 and IFRIC 4. FINANCIAL STATEMENTS PAGE 44 Financial Report 45 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) (a) Impact of the new definition of a lease The Group has made use of the practical expedient available on transition to AASB 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered or changed before 1 July 2019. The change in definition of a lease mainly relates to the concept of control. AASB 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is in contrast to the focus on ‘risks and rewards’ in IAS 17 and IFRIC 4. (b) Impact on Lessee Accounting Former operating leases AASB 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet. Applying AASB 16, for all leases (except as noted below), the Group: • Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments, with the right-of-use asset adjusted by the amount of any prepaid or accrued lease payments in accordance with IFRS 16:C8(b)(ii) • Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss; • Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. Lease incentives (e.g. rent free period) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive, amortised as a reduction of rental expenses on a straight line basis. Under AASB 16, right-of-use assets are tested for impairment in accordance with IAS 36. For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes tablets and personal computers, small items of office furniture and telephones), the Group has opted to recognise a lease expense on a straight-line basis as permitted by AASB 16. This expense is presented within ‘other expenses’ in profit or loss. The Group has used the following practical expedients when applying the cumulative catch-up approach to leases previously classified as operating leases applying IAS 17. The Group has applied a single discount rate to a portfolio of leases with reasonably similar lease periods. •The Group has adjusted the right-of-use asset at the date of initial application by the amount of provision for onerous leases recognised under IAS 37 in the statement of financial position immediately before the date of initial application as an alternative to performing an impairment review. •The Group has elected not to recognise right-of-use assets and lease liabilities to leases for which the lease term ends within 12 months of the date of initial application. •The Group has excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application. •The Group has used hindsight when determining the lease term when the contract contains options to extend or terminate the lease. (c) Financial impact of initial application of AASB 16 The weighted average lessees incremental borrowing rate applied to lease liabilities recognised in the statement of financial position on 1 July 2019 is 3.6%. FINANCIAL STATEMENTS PAGE 45 2020 ANNUAL REPORT Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Statement of profit or loss Depreciation - Right-of use-assets (note 6) Depreciation and amortisation - Property, plant and equipment (note 6) Finance costs - Lease liabilities (note 6) Finance costs - Borrowings (note 6) Occupancy Costs Statement of financial position Right-of-use assets Decrease in assets from derecognition of prepaid rent Deferred Tax Asset Net impact on total assets Lease liabilities Deferred Tax Liability Net impact on total liabilities Retained earnings Consolidated 2020 $'000 2019 $'000 (4,651) (5,908) (868) (1,326) (2,949) - (4,869) - (1,842) (6,498) (15,702) (13,209) As previously AASB 16 reported $'000 adjustments $'000 As restated $'000 - 308 4,345 4,653 - (1,473) (1,473) 24,323 (308) 6,692 30,707 (24,015) (6,692) (30,707) 24,323 - 11,037 35,360 (24,015) (8,165) (32,180) - - - The reconciliation of non-cancellable operating lease commitments disclosed at 30 June 2019 to initial lease liabilities recognised as at 1 July 2019 is set out below Reconciliation of Lease commitments Operating lease commitments disclosed as at 30 June 2019 Adjustments as a result of a different treatment of extension and termination options Short term and low value leases Discounting with incremental borrowing rate at the first application of AASB16 Lease liabilities recognised as of 1 July 2019 Consolidated 1 July 2019 $'000 13,297 14,885 (190) (3,977) 24,015 FINANCIAL STATEMENTS PAGE 46 Financial Report 47 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) Interpretation 23 Uncertainty over Income Tax Treatments AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments Interpretation 23 clarifies the accounting for uncertainties in income taxes. The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates (‘tax amounts’), when there is uncertainty over income tax treatments under AASB 112 Income Taxes. The Interpretation requires an entity to: • Use judgement to determine whether each tax treatment should be considered independently or whether some tax treatments should be considered together • Assume that a taxation authority with the right to examine any amounts reported to it will examine those amounts and will have full knowledge of all relevant information when doing so • Determine tax amounts on a basis that is consistent with the tax treatment included in its income tax filings if an entity concludes that it is probable that a particular tax treatment will be accepted by the taxation authorities • Determine tax amounts using the most likely amount or expected value of the tax treatment (whichever provides better predictions of the resolution of the uncertainty) where an entity concludes that it is not probable that a particular tax treatment will be accepted by the taxation authorities. The adoption of Interpretation 23 does not have a material impact on the financial statements 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 2019 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. 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. FINANCIAL STATEMENTS PAGE 47 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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 The Group recognises revenue as follows: Sale of goods Revenue is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the Group: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Revenue from the sale of goods is recognised at the point in time when the customer obtains control of the goods, which is generally at the time of delivery. Other income Other income 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. FINANCIAL STATEMENTS PAGE 48 Financial Report 49 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 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 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. 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. FINANCIAL STATEMENTS PAGE 49 2020 ANNUAL REPORTFinancial Report Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 2. Significant accounting policies (continued) 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. There are no critical accounting judgements, estimates and assumptions that are likely to affect the current or future financial years. 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. In addition, the known and potential impacts of the COVID-19 pandemic in the near future have been taken into consideration when determining significant estimates and judgements. We are not aware, as at the date of this report, of a material uncertainty arising from COVID-19 that casts significant doubt on the ability of Gale Pacific Limited to continue as a going concern. 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. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience and historical collection rates. 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. FINANCIAL STATEMENTS PAGE 50 51 Gale Pacific Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 3. Critical accounting judgements, estimates and assumptions (continued) 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. 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 Cash Flow Hedges Forward foreign exchange contracts, designated as cash flow hedges, are measured at fair value. Reliance is placed on future cash flows and judgement is made on a regular basis, through prospective and retrospective testing, including at the reporting date, that the hedges are still highly effective. Fair Value Hedges Forward foreign exchange contracts, designated as fair value hedges, are measured as such. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date Note 4. 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 manager, together with Corporate. These operating segments are based on the internal reports that are reviewed and used 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. The Group operates predominantly in one market segment, being branded shading, screening and home improvement products. 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 statements. Discrete financial information about each of these segments is reported on a monthly basis. To continuously improve the transparency of GALE Pacific’s management reporting GALE Pacific Limited follows an activity-based allocation method of reporting. Intersegment sales/margin and central costs have allocated to external revenue generating segments where the final economic benefit is derived. This enhanced method of reporting is being used by the Group Managing Director (who is identified as the Chief Operating Decision Maker (‘CODM’), to target product costing, product line profitability analysis, customer profitability analysis, and service pricing structures. FINANCIAL STATEMENTS PAGE 51 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 Note 4. Operating segments (continued) Financial Report The operating segments are as follows: Australasia EurAsia Americas Middle East and North Africa ('MENA') Manufacturing and distribution facilities are located in Australia, and distribution facilities are located in New Zealand. Sales offices are located in all states in Australia and in New Zealand. Sales distribution based in China and Australasia, servicing European and Asian countries. Sales office is located in Florida. Custom blind assembly and distribution facilities are located in both California and Florida which service the North American region. A sales office and distribution facility is located in the United Arab Emirates to service this market. The 'Other Segments' represents Corporate and Intersegment eliminations. Major customers During the year ended 30 June 2020 approximately 35% (2019: 38%) of the Group's external revenue was derived from sales to two customers (2019: Two), one customer located in the Australasian region and one customer located in the Americas region. Operating segment information Consolidated - 2020 Revenue Sales to external customers Total revenue Segment EBITDA Depreciation and amortisation Finance costs Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Australasia $'000 Americas $'000 MENA $'000 EurAsia $'000 Other Segments $'000 Total $'000 64,554 64,554 5,397 (4,465) (752) 73,337 73,337 11,827 (6,389) (1,243) 180 4,195 10,469 10,469 2,161 (514) (89) 1,558 7,978 7,978 2,656 (412) (64) (3,310) - (46) 2,180 (3,356) - - 156,338 156,338 45,575 74,139 15,871 36,185 19,917 23,814 32,481 639 15,072 31,315 18,731 (11,780) (2,194) 4,757 (1,038) 3,719 191,687 191,687 103,321 103,321 FINANCIAL STATEMENTS PAGE 52 53 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 4. Operating segments (continued) Consolidated - 2019 Revenue Sales to external customers Total revenue Segment EBITDA Depreciation and amortisation Finance costs Profit/(loss) before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Total assets Liabilities Segment liabilities Total liabilities Australasia $'000 Americas $'000 MENA $'000 EurAsia $'000 Other Segments $'000 Total $'000 57,988 57,988 2,792 (1,227) (458) 70,954 70,954 13,849 (4,184) (1,146) 1,107 8,519 12,922 12,922 3,975 (343) (140) 3,492 7,353 7,353 2,310 (433) (98) (3,658) (31) - 1,779 (3,689) - - 149,217 149,217 19,268 (6,218) (1,842) 11,208 (2,010) 9,198 154,547 154,547 64,350 64,350 36,095 45,937 16,994 35,601 19,920 6,806 19,507 617 12,712 24,708 Accounting policy for operating segments 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 segments and assessing their performance. Note 5. Other income Other income (including sales of scrap material from manufacturing) 1,255 1,353 Consolidated 2020 $'000 2019 $'000 FINANCIAL STATEMENTS PAGE 53 2020 ANNUAL REPORT Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 6. Expenses Profit before income tax includes the following specific expenses: Depreciation Property, plant and equipment (note 12) Right-of-use assets (note 14) Total depreciation 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 on borrowings Interest and finance charges paid/payable on lease liabilities Finance costs expensed Leases Minimum lease payments Variable lease payments Financial Report Consolidated 2020 $'000 2019 $'000 5,908 4,651 4,869 - 10,559 4,869 1,221 1,349 11,780 6,218 34,951 16 33,668 11 34,967 33,679 1,326 868 1,842 - 2,194 1,842 - 2,016 5,890 - 2,016 5,890 FINANCIAL STATEMENTS PAGE 54 55 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 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: Increase in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit before income tax expense Tax at the statutory tax rate of 30% Tax effect amounts which are not deductible/(taxable) in calculating taxable income: Non allowable/(non assessable) items Adjustment recognised for prior periods Difference in overseas tax rates Income tax expense Amounts credited directly to equity Deferred tax assets Consolidated 2020 $'000 2019 $'000 1,401 (363) - 2,414 (933) 529 1,038 2,010 (363) (933) 4,757 11,208 1,427 3,362 151 (741) 1,578 - (540) 2,621 529 (1,140) 1,038 2,010 Consolidated 2020 $'000 2019 $'000 (91) (574) FINANCIAL STATEMENTS PAGE 55 2020 ANNUAL REPORT Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 7. Income tax (continued) Net 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 Net deferred tax asset Movements: Opening balance Credited to profit or loss Credited to equity Transfer from current tax liability Closing balance Provision for income tax Provision for income tax Consolidated 2020 $'000 2019 $'000 1,704 (936) (458) (444) 850 - 116 503 1,590 410 1,718 (1,218) (669) (733) (174) 6 1,581 469 1,590 302 3,335 2,872 2,872 363 91 9 789 933 574 576 3,335 2,872 Consolidated 2020 $'000 2019 $'000 1,023 2,169 The 2020 net deferred tax asset of $3,335,000 (2019: $2,872,000) is comprised of $11,100,000 in deferred tax assets (2019: $4,345,000) and $7,765,000 (2019: $1,473,000) in deferred tax liabilities, reflecting various tax positions in different jurisdictions. The increase in deferred tax assets and deferred tax liabilities for the financial year is predominantly due to the implementation of AASB16 (Refer Note 2). 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. 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. FINANCIAL STATEMENTS PAGE 56 Financial Report 57 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 7. Income tax (continued) 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 2020 $'000 2019 $'000 Profit after income tax attributable to the owners of Gale Pacific Limited 3,719 9,198 Weighted average number of ordinary shares used in calculating basic earnings per share Adjustments for calculation of diluted earnings per share: 277,684,598 286,763,316 Performance rights 3,537,653 4,765,008 Weighted average number of ordinary shares used in calculating diluted earnings per share 281,222,251 291,528,324 Number Number Basic earnings per share Diluted earnings per share Accounting policy for earnings per share Cents Cents 1.34 1.32 3.21 3.16 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. FINANCIAL STATEMENTS PAGE 57 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 Note 9. Current assets - cash and cash equivalents Cash on hand Cash at bank Financial Report Consolidated 2020 $'000 2019 $'000 7 27,804 2 29,844 27,811 29,846 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: Allowance for expected credit losses Other receivables Consolidated 2020 $'000 2019 $'000 40,644 (1,199) 39,445 28,431 (406) 28,025 158 127 39,603 28,152 The Group has recognised a loss of $884,000 (2019: $178,000) in profit or loss in respect of impairment of receivables for the year ended 30 June 2020. 1 to 4 months overdue 4 to 12 months overdue Over 12 months overdue Movements in the allowance for expected credit losses are as follows: Opening balance Additional provisions recognised Receivables written off during the year as uncollectable Closing balance Consolidated 2020 $'000 2019 $'000 27 12 1,160 1,199 - 46 360 406 Consolidated 2020 $'000 2019 $'000 406 884 (91) 1,199 277 178 (49) 406 Past due but not impaired Customers with balances past due but without provision for impairment of the receivables amount to $11,554,000 as at 30 June 2020 ($8,933,000 as at 30 June 2019) FINANCIAL STATEMENTS PAGE 58 59 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 10. Current assets - trade and other receivables (continued) 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: Consolidated 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 2020 $'000 2019 $'000 4,295 2,956 3,556 747 1,721 3,392 3,260 560 11,554 8,933 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. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. 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 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. Note 11. Current assets - inventories Raw materials - at cost Work in progress - at cost Finished goods - at cost Less: Provision for impairment Consolidated 2020 $'000 2019 $'000 5,948 6,967 2,717 2,151 43,251 (3,217) 40,034 39,062 (1,984) 37,078 48,699 46,196 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. FINANCIAL STATEMENTS PAGE 59 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 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 Financial Report Consolidated 2020 $'000 2019 $'000 17,708 (7,243) 10,465 113,402 (92,024) 21,378 248 (130) 118 393 17,663 (6,735) 10,928 107,979 (92,074) 15,905 312 (218) 94 8,565 32,354 35,492 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 2018 Additions Disposals Exchange differences Transfers in/(out) Depreciation expense Balance at 30 June 2019 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 10,078 201 - 136 1,212 (699) 10,928 9 - (52) 511 (931) 16,265 2,044 (244) 297 1,710 (4,167) 15,905 552 (230) 3 10,121 (4,973) 97 - - - - (3) 94 38 (10) - - (4) 118 3,683 9,209 - 13 (4,340) - 8,565 2,488 - 26 (10,686) - 30,123 11,454 (244) 446 (1,418) (4,869) 35,492 3,087 (240) (23) (54) (5,908) 393 32,354 Balance at 30 June 2020 10,465 21,378 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 FINANCIAL STATEMENTS PAGE 60 61 Gale Pacific Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 12. Non-current assets - property, plant and equipment (continued) 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 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. Impairment testing for property, plant and equipment During the year, as a result of current economic conditions including COVID19, the Group carried out a review of the recoverable amount of property, plant and equipment. The review had a particular focus on the Australasia segment as the segment holding the majority of the Group’s assets, coupled with the fact that assets within the America’s segment were considered as part of goodwill impairment testing detailed further in Note 13. Similar to goodwill impairment testing recoverable amount was determined 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 a terminal growth rate of 2% and a discount rate of 10.5%. The review did not result in an impairment charge being recognised by the Group for the year ended 30 June 2020. 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 2020 $'000 2019 $'000 11,286 (7,961) 3,325 3,242 (191) 3,051 1,658 (1,381) 277 9,264 (7,798) 1,466 11,222 (7,961) 3,261 2,452 (95) 2,357 1,629 (1,324) 305 9,143 (6,674) 2,469 8,119 8,392 FINANCIAL STATEMENTS PAGE 61 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 Note 13. Non-current assets - intangibles (continued) Reconciliations Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Financial Report Consolidated Balance at 1 July 2018 Additions Exchange differences Transfers in/(out) Amortisation expense Balance at 30 June 2019 Additions Exchange differences Transfers in/(out) Amortisation expense Balance at 30 June 2020 Patents, trademarks Goodwill Development and licenses $'000 $'000 $'000 Application software $'000 Total $'000 3,112 - 149 - - 3,261 - 64 - - 3,325 1,666 739 - - (48) 2,357 790 - - (96) 3,051 327 1 1 9 (33) 305 - - 29 (52) 282 2,259 23 46 1,409 (1,268) 2,469 23 17 25 (1,073) 7,364 763 196 1,418 (1,349) 8,392 813 81 54 (1,221) 1,461 8,119 Goodwill acquired through business combinations have been allocated to the following cash generating units (CGU): Goodwill USA (2020: US$2,077,000; 2019: US$ 2,077,000) China Consolidated 2020 $'000 2019 $'000 2,978 347 2,914 347 3,325 3,261 Impairment testing for goodwill In accordance with the accounting policies, the Group performs an annual impairment assessment of goodwill. The review did not result in an impairment charge being recognised by the Group for the year ended 30 June 2020. 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 a terminal growth rate of 1.9%. USA In assessing the recoverable amount of the USA CGU, management considered information available from industry analysts and other sources in relation to the key assumptions used. Management considers that it has taken an appropriate view of the market conditions and business operations. FINANCIAL STATEMENTS PAGE 62 63 Gale Pacific Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 13. Non-current assets - intangibles (continued) The following assumptions were used in the value-in-use calculations in the model for USA: Discount Rate The discount rate used in the model is 10.0% (2019:10%) EBITDA assumptions EBITDA for FY 2021 is based on the Board approved budget, with FY2022 to FY2025 increasing by an average of 1.9% per annum, which is lower than historical growth rates. Management believe this is achievable based on historical trends and the plans to continue to invest in product development and expansion within the Americas region. Sensitivity Analysis Management have conducted an analysis of the sensitivity of the impairment test to reasonably possible changes in the key assumptions used to determine the recoverable amount of the CGU. This sensitivity analysis highlights that the recoverable amount is sensitive to the achievement of short term EBITDA and that achievement of 95% of FY2021 EBITDA would reduce the headroom in the CGU to nil but would not result in an impairment charge. China In assessing the recoverable amount of the China CGU, management made a number of significant assumptions including assumptions regarding 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 believes that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the carrying amount to exceed the recoverable amount of the CGU. 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. FINANCIAL STATEMENTS PAGE 63 2020 ANNUAL REPORT Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 14. Non-current assets - right-of-use assets Land and buildings - right-of-use Less: Accumulated depreciation Financial Report Consolidated 2020 $'000 2019 $'000 26,371 (4,591) 21,780 - - - 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 2018 Balance at 30 June 2019 Balance on initial adoption of AASB16 on 1 July 2019 Additions Exchange differences Depreciation expense Balance at 30 June 2020 Land and buildings - right-of-use $'000 Total $'000 - - - 24,323 2,246 (138) (4,651) - 24,323 2,246 (138) (4,651) 21,780 21,780 Accounting policy for right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. FINANCIAL STATEMENTS PAGE 64 65 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 15. Current liabilities - trade and other payables Trade payables Sundry payables and accruals Consolidated 2020 $'000 2019 $'000 14,390 9,037 10,762 5,196 23,427 15,958 Refer to note 25 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. Note 16. Current liabilities - borrowings Bank loans Refer to note 25 for further information on financial instruments. Note 17. Current liabilities - provisions Warranties Consolidated 2020 $'000 2019 $'000 23,274 25,793 Consolidated 2020 $'000 2019 $'000 144 457 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. Warranty movements Carrying amount at the start of the year Additional provisions recognised Claims Carrying amount at the end of the year Consolidated 2020 $'000 2019 $'000 457 312 (625) 144 475 664 (682) 457 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. FINANCIAL STATEMENTS PAGE 65 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 Note 18. Current liabilities - lease liabilities Lease liability Refer to note 25 for further information on financial instruments. Note 19. Non-current liabilities - borrowings Total Bank loans Refer to note 25 for further information on financial instruments. Total secured liabilities The total secured liabilities (current and non-current) are as follows: Total Bank loans Financial Report Consolidated 2020 $'000 2019 $'000 3,830 - Consolidated 2020 $'000 2019 $'000 19,824 14,956 Consolidated 2020 $'000 2019 $'000 43,098 40,749 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 20. Non-current liabilities - lease liabilities Lease liability Refer to note 25 for further information on financial instruments. Consolidated 2020 $'000 2019 $'000 19,338 - Accounting policy for lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. FINANCIAL STATEMENTS PAGE 66 67 Gale Pacific Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 21. Equity - issued capital Consolidated 2020 Shares 2019 Shares 2020 $'000 2019 $'000 Ordinary shares - fully paid 275,391,310 282,217,475 63,068 65,097 Movements in ordinary share capital Opening Balance Shares Issued Shares Buy Back Closing Balance Consolidated Consolidated Consolidated Consolidated 2020 Shares 2019 Shares 2020 $'000 2019 $'000 282,217,475 288,181,757 1,863,000 (7,827,282) - (6,826,165) 65,097 - (2,029) 67,641 - (2,544) 275,391,310 282,217,475 63,068 65,097 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 March 28th 2019 an on-market share buy-back was announced. It ran from 15th April 2019 to 14th April 2020. At the end of this program, a total of 9,641,360 shares were bought by the company. No new buy-back scheme has been initiated up until 30 June 2020. 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. FINANCIAL STATEMENTS PAGE 67 2020 ANNUAL REPORT Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 22. Equity - reserves Foreign currency reserve Hedging reserve - cash flow hedges Share-based payments reserve Enterprise reserve fund Financial Report Consolidated 2020 $'000 2019 $'000 (991) (145) 1,172 3,956 (486) 67 1,156 3,333 3,992 4,070 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 2018 Foreign currency translation * Movement in hedge Income tax Share-based payment Statutory transfers from retained earnings Balance at 30 June 2019 Foreign currency translation * Movement in hedge Income tax Share-based payment Statutory transfers from retained earnings Balance at 30 June 2020 Foreign currency $'000 Hedging $'000 Share-based Enterprise payments $'000 reserve fund $'000 Total $'000 (2,374) 1,887 - - - - (487) (504) - - - - (991) 173 - (152) 46 - - 67 - (303) 91 - - (145) 1,145 - - - 11 - 1,156 - - - 16 - 1,172 2,808 - - - - 526 3,334 - - - - 622 3,956 1,752 1,887 (152) 46 11 526 4,070 (504) (303) 91 16 622 3,992 * Refer to note 24 for details of monetary items identified as a net investment in a foreign operation FINANCIAL STATEMENTS PAGE 68 69 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 23. Equity - dividends Dividends paid during the financial year were as follows: Final Dividend for the year ended 30 June 2018 of 1.00 cents per ordinary share (unfranked) Interim Dividend for the year ended 30 June 2019 of 1.00 cents per ordinary share (unfranked) Final Dividend for the year ended 30 June 2019 of 1.00 cents per ordinary share (unfranked) Consolidated 2020 $'000 2019 $'000 - - 2,872 2,850 2,822 - 2,822 5,722 On 25 August 2020 the Directors declared a dividend of 1.00 cent per share to the holders of fully paid ordinary shares in respect of the year ended 30 June 2020. This dividend has not been included as a liability in these financial statements. Including the final dividend with respect to 30 June 2020, for the full year, the dividends of 1.00 cent per ordinary share have been declared on earnings of 1.34 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 24. Monetary items identified as a net investment in a foreign operation Consolidated 2020 $'000 2019 $'000 Related party receivable to the Company from Gale Pacific Special Textiles (Ningbo) Limited Related party receivable to the Company from Gale Pacific (New Zealand) Limited 10,345 3,905 10,124 4,038 Monetary items identified as a net investment in a foreign operation 14,250 14,162 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 22. Note 25. 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. FINANCIAL STATEMENTS PAGE 69 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 Note 25. Financial instruments (continued) The Group enters into foreign exchange contracts to buy and sell specified amounts of foreign currency in the future at stipulated exchange rates. The objective of entering into forward exchange contracts is to protect the Group against exchange rate movements for both contracted and anticipated future sales and purchases undertaken in foreign currencies. There was no cash flow hedge ineffectiveness during the reporting period. The Group adopts hedge accounting and classifies applicable 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 Group adopts fair value hedge accounting on forward exchange contracts that are designated and qualify as fair value hedges. Forward exchange contracts are recognised in the profit and loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. 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 Chinese Yuan/sell US Dollars Maturity: Less than 6 months Sell Australian dollars Average exchange rates 2020 $'000 2019 $'000 2020 2019 9,828 1,508 12,063 719 0.6715 0.6632 0.7129 0.6950 Sell US dollars Average exchange rates 2020 $'000 2019 $'000 2020 2019 23,000 17,000 7.0093 6.7838 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 2020 $'000 2019 $'000 2020 $'000 2019 $'000 52,903 583 272 860 49,456 289 1,132 1,098 28,603 154 - - 28,578 183 - - 54,618 51,975 28,757 28,761 The Group had net assets denominated in foreign currencies of $25,861,000 (assets of $54,618,000 less liabilities of $28,757,000 as at 30 June 2020 (2019: $23,214,000 (assets of $51,975,000 less liabilities of $28,761,000)). Based on this exposure, had the Australian dollar strengthened by 10% / weakened by 10% (2019: 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 $322,000 higher/lower (2019: $448,000 lower/ higher) and equity would have been $2,601,000 higher/lower (2019: $1,620,000 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. FINANCIAL STATEMENTS PAGE 70 Financial Report 71 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 25. Financial instruments (continued) Interest rate risk The Group is exposed to interest rate risk as entities in the Group borrow and deposit funds at both fixed and variable interest rates. Effective weighted average interest rates on classes of financial liabilities are disclosed under liquidity risk. The Group does not use interest rate swaps to manage the risk of interest rate changes. As at the reporting date, the Group had the following variable rate bank balances and borrowings outstanding: Consolidated Cash and cash equivalents Bank loans Net exposure to cash flow interest rate risk 2020 2019 Weighted average interest rate % - 2.49% Weighted average interest rate % - 3.47% Balance $'000 27,810 (43,036) (15,226) Balance $'000 29,846 (40,749) (10,903) 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 (2019: 100) basis points would have an adverse/favourable effect on profit before tax of $430,350 (2019: $407,500) 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. The Group has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the Group based on recent sales experience, historical collection rates and forward-looking information that is available. Generally, trade receivables are written off when there is no reasonable expectation of recovery. Indicators of this include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than 1 year. 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. FINANCIAL STATEMENTS PAGE 71 2020 ANNUAL REPORT Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 25. Financial instruments (continued) 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 - 2019 Non-derivatives Non-interest bearing Trade payables Sundry payables and accruals Interest-bearing - variable Lease liability Interest-bearing - fixed rate Bank 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 - - 13,507 9,063 3.60% 3,830 - - - - - 19,338 2.49% 23,274 49,674 19,824 19,824 - 19,338 - - - - - 13,507 9,063 23,168 43,098 88,836 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. Note 26. 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 - 2020 Liabilities Forward foreign exchange contracts Total liabilities Consolidated - 2019 Liabilities Forward foreign exchange contracts Total liabilities Level 1 $'000 Level 2 $'000 Level 3 $'000 Total $'000 Level 1 $'000 - - - - 595 595 Level 2 $'000 Level 3 $'000 127 127 - - - - 595 595 Total $'000 127 127 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. FINANCIAL STATEMENTS PAGE 72 Financial Report 73 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 26. Fair value measurement (continued) 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. 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 27. Commitments Consolidated 2020 $'000 2019 $'000 61 - 61 4,901 8,396 13,297 Lease commitments - operating Committed at the reporting date but not recognised as liabilities, payable: Within one year One to five years Note 28. Related party transactions Parent entity Gale Pacific Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 31. Key management personnel Disclosures relating to key management personnel are set out in note 29 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. FINANCIAL STATEMENTS PAGE 73 2020 ANNUAL REPORTGale Pacific Limited Notes to the financial statements 30 June 2020 Note 29. 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: Financial Report Short-term employee benefits Post-employment benefits Termination benefits Share-based payments Note 30. Parent entity information Set out below is the supplementary information about the parent entity. Statement of profit or loss and other comprehensive income Profit 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 2020 $ 2019 $ 2,453,525 133,827 103,717 11,604 2,770,342 149,588 - 9,906 2,702,673 2,929,836 Parent 2020 $'000 2019 $'000 2,550 5,201 2,338 5,095 Parent 2020 $'000 2019 $'000 25,758 19,507 123,030 101,978 21,584 16,104 54,796 31,247 63,068 (145) 1,172 4,139 65,097 67 1,156 4,411 68,234 70,731 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries The parent entity has guarantees in relation to the debts of its subsidiaries in fixed and floating charges (or equivalent foreign charge) over all the assets and undertakings, including uncalled capital of each entity in the Group as at 30 June 2020 and 30 June 2019. Please note comparative year has been changed to reflect consolidation entries between group entities. FINANCIAL STATEMENTS PAGE 74 75 Gale Pacific Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 30. Parent entity information (continued) Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2020 and 30 June 2019. 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 31. 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 32. Share-based payments Principal place of business / Country of incorporation Ownership interest 2019 2020 % % New Zealand United Arab Emirates China China USA Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 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. FINANCIAL STATEMENTS PAGE 75 2020 ANNUAL REPORT Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 32. Share-based payments (continued) Set out below are summaries of performance rights granted under the plan: 2020 Grant date Expiry date 21/09/2016 22/11/2017 13/11/2018 16/01/2020 01/12/2019 01/12/2020 01/12/2021 01/12/2022 2019 Grant date Expiry date 09/10/2015 21/09/2016 22/11/2017 13/11/2018 01/12/2018 01/12/2019 01/12/2020 01/12/2021 Grant price $0.35 $0.31 $0.35 $0.31 Grant price $0.23 $0.35 $0.31 $0.35 Balance at the start of the year 1,299,000 1,774,000 1,821,000 - 4,894,000 Balance at the start of the year 1,863,000 1,299,000 1,774,000 - 4,936,000 Granted Exercised - - - 1,034,971 1,034,971 Expired/ forfeited/ other Balance at the end of the year - - - - - (1,299,000) (818,000) (935,000) - (3,052,000) - 956,000 886,000 1,034,971 2,876,971 Granted Exercised - - - 1,821,000 1,821,000 (1,863,000) - - - (1,863,000) Expired/ forfeited/ other Balance at the end of the year - - - - - - 1,299,000 1,774,000 1,821,000 4,894,000 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 $0.31 (2019: $0.35). 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. FINANCIAL STATEMENTS PAGE 76 Financial Report 77 Gale PacificGale Pacific Limited Notes to the financial statements 30 June 2020 Note 32. 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 33. 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 Tohmatsu Audit or review of the financial statements Other services - Deloitte Touche Tohmatsu Other services (including tax services) Consolidated 2020 $ 2019 $ 320,640 335,775 302,309 79,631 622,949 415,406 Note 34. New Accounting Standards and Interpretations not yet mandatory or early adopted At the date of authorisation of the consolidated financial statements, other Standards and Interpretations in issue but not yet effective were listed below. Standard and Interpretation AASB 2014-10 Amendments to Australian Accounting Standards - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (AASB10 & AASB128), AASB 2015-10 Amendments to Australian Accounting Standards - Effective Date of Amendments to AASB 10 and AASB 128 and AASB 2017-5 Amendments to Australian Accounting Standards - Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2022 30 June 2023 AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business 1 January 2020 30 June 2021 AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material 1 January 2020 30 June 2021 AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework 1 January 2020 30 June 2021 AASB 2019-3 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform 1 January 2020 30 June 2021 AASB 2019-5 Amendments to Australian Accounting Standards - Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia 1 January 2020 30 June 2021 In addition, at the date of authorisation of the financial statements no IASB Standards and IFRIC Interpretations were on issue but not yet effective, but for which Australian equivalent Standards and Interpretations have not yet been issued. The Directors of the Group do not anticipate that the adoption of above amendments will have a material impact in future periods on the financial statements of the Group. FINANCIAL STATEMENTS PAGE 77 2020 ANNUAL REPORTFinancial Report Gale Pacific Limited Notes to the financial statements 30 June 2020 Note 35. Events after the reporting period The Group has reviewed the impact of the additional lockdown measures in the state of Victoria from 5 August 2020 on the Group’s operations, customers, suppliers and employees across the business and concluded that there were no matters evident at the date of the financial report that require adjustment. No other matter or circumstance has arisen since 30 June 2020 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. FINANCIAL STATEMENTS PAGE 78 79 Gale PacificAdditional Securities Exchange Information 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 1 September 2020 (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 complies with the ASX Corporate Governance Principles and Recommendations (Third Edition) (Recommendations). The Company has prepared a statement which sets out the corporate governance practices that were in operation throughout the financial year for the Company (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 (https://www.galepacific.com/investor-info/corporate- governance) 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 (https://www.galepacific.com/investor-info/corporate- governance). 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: Class of Equity Securities Fully paid ordinary shares Performance rights expiring 1 December 2020 Performance rights expiring 1 December 2021 Performance rights expiring 1 December 2022 Number of Holders 1,725 6 5 5 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 1,725 holders of a total of 275,391,310 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 2020 ANNUAL REPORT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.” 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: Short Term Benefits Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Performance Rights Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Total Holders 120 355 273 756 221 1,725 Units 25,255 1,093,872 2,203,248 28,225,577 243,843,358 275,391,310 % of Issued Capital 0.01 0.40 0.80 10.25 88.54 100 Holders of performance rights expiring 1 December 2019 Holders of performance rights expiring 1 December 2020 Holders of performance rights expiring 1 December 2021 - - - - 6 6 - - - - 5 5 - - - - 5 5 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 1 September 2020 Minimum $500 parcel at $0.2400 per unit Minimum Parcel Size Holders Units 2,084 233 216,135 Additional Securities 81 Gale Pacific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 No . of Ordinary Full Paid Shares Thorney Holdings Proprietary Limited Windhager Holding AG Gale Australia Pty Ltd 78,800,399 44,358,481 13,997,844 % 28.61 16.11 5.08 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: Shareholder HSBC Custody Nominees (Australia) Limited No . % 72,489,262 26.32 Windhager Holding AG National Nominees Limited GALE Australia Pty Ltd UBS Nominees Pty Ltd Mr Kenneth Joseph Hall Contemplator Pty Ltd Bond Street Custodians Limited Bfa Super Pty Ltd Stitching Pty Ltd J P Morgan Nominees Australia Pty Limited Chillen Pty Limited (Tallen) Stitching Pty Ltd Venn Milner Superannuation Pty Ltd Rathvale Pty Limited Mr Peter Howells Gfs Securities Pty Ltd Dalesam Pty Ltd Mr David Corley Dw & Co Pty Limited Mr Peter Howells 44,358,481 16,531,603 13,997,844 6,816,137 6,000,000 4,691,433 4,500,000 3,327,428 3,095,759 3,050,000 2,431,317 2,000,000 1,857,200 1,300,000 1,154,853 1,154,853 1,150,000 1,000,000 949,733 900,000 16.11 6.00 5.08 2.48 2.18 1.70 1.63 1.21 1.12 1.11 0.88 0.73 0.67 0.47 0.42 0.42 0.42 0.36 0.34 0.33 TOTAL: TOP 20 HOLDERS OF ORDINARY FULLY PAID SHARES AS AT 2 SEPTEMBER 2020 209,564,375 TOTAL: % OF UNITS 76.10 2020 ANNUAL REPORTVoluntary Escrow Unquoted Equity Securities There are no securities on issue in Gale Pacific that are subject to voluntary escrow. The number of each class of unquoted equity securities on issue, and the number of their holders, are as follows: Class of Equity Securities Number of Ordinary Full Paid Shares Performance Rights 2,876,971 % 7 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 Stock Exchange Listing There is no current on-market buy-back program in place. 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. 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. Additional Securities 83 Gale PacificGALE Pacific is a world leader in specialised textiles and associated products. Gale Pacific AU 145 Woodlands Drive, Gale Pacific USA 285 West Central Parkway, Ste. 1704 Gale Pacific MENA JAFZA 15, 6th Floor, Room 604, Gale Pacific EURASIA +44 7388 779124 Braeside Victoria 3195 Altamonte Springs, FL 32714 Jebel Ali Free Zone Toll Free: 1 800 331 521 Toll Free: 1 800 560 4667 Dubai, United Arab Emirates +971 4 881 7114 galepacific.com 

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