A N N U A L R E P O R T 2 0 2 1 A B O U T G A L E PA C I F I C GA LE PAC IFI C IS A M ARKET-L EA DI NG MANUFACTURER OF TECHN ICAL FA BR IC S USE D FO R C ON SUM E R AND CO MMERCIAL A PPLICATION S A ROUND TH E WORLD. Founded in Melbourne, Australia in 1951, today GALE has operations in Australia, New Zealand, the United States, China, and Dubai and employs more than 600 people worldwide. GALE’s products are sold across Australia, Asia, the Americas, Europe, the Middle East, and a growing number of additional markets. GALE’s products are recognised for their innovative technology, quality, durability, and reliability. The company’s consumer products, marketed under the Coolaroo® brand, include outdoor roller shades, shade sails, shade and garden fabrics, shade structures and pet beds. They can be found at market leading retailers around the world, both in-store and online. The company’s commercial products, marketed under the GALE Pacific Commercial® brand, include knitted, coated, and advanced polymer fabrics used across the agricultural, horticultural, aquacultural, architectural, construction, mining, and packaging industries. GALE’s core strategy is to accelerate its growth as a world-class global fabrics technology business through product innovation, category expansion, expanded distribution in existing and new markets, and improved operational efficiency and flexibility. CONTENTS 1 2 4 12 14 15 2021 highlights Chairman’s letter Chief Executive Officer & Managing Director’s review Business overview Board of directors Executive leadership 18 28 29 33 34 73 77 Directors’ report Auditor’s independence declaration Independent auditor’s report Directors’ declaration Financial report Additional securities exchange information Corporate directory A NNUAL GENERA L ME E TING Gale Pacific will hold its 2021 Annual General Meeting on Friday 19 November, 2021. Details will be provided in the Notice of Meeting. 1 2 0 2 1 H I G H L I G H T S $205.2m R E VE NUE Up from $156.3m $17.2m PROF IT BE FORE TA X Up from $4.8m $19.0m EBI T Up from $7.0m $12.3m NPAT Up from $3.7m $1.5m NE T CAS H Up from net debt of ($15.3)m 4.48c EARNINGS PER SHARE Up from 1.34c $28.2m EB IT DA Up from $18.7m $34.6m NET CASH FLOW from operating activities 4.0c TOTAL DIVIDENDS Up from 1.0c REVENUE $m PROFIT BEFORE TAX $m 2019 2020 2021 $149.2m $156.3m 2019 $11.2m 2020 $4.8m $205.2m 2021 $17.2m OP ERAT ING CASH F LOW $m NE T DEBT/ CASH $m 2019 $15.3m 2020 $7.2m 2021 $34.6m 2019 2020 2021 ($10.9m) ($15.3m) $1.5m * All figures compare FY21 to FY20 unless otherwise indicated 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | C H A I R M A N ’ S L E T T E R David Allman 2 The twelve months to end June 2021 was an extraordinary period greatly impacted by the COVID-19 pandemic. The health and safety of our employees and other stakeholders has been our top priority during this period. It is pleasing to report that, despite all the difficulties associated with the pandemic, our management team produced excellent financial outcomes, while continuing with our strategy of building GALE into a growing global fabrics technology business. During FY21, revenue increased by 31% to $205 million and earnings per share increased by 234% to 4.5 cents. Cash generation was especially noteworthy, with net cash from operating activities of $34.6 million. This produced a net cash balance of $1.5 million at 30 June 2021. This strong financial performance enabled the payment of 4 cents per share unfranked in dividends for the year, compared with the prior year’s 1 cent. The much-improved results were due to substantial increases in revenue in both our key markets of the USA and Australia. This was driven by our continuing strategy of investing in product development and distribution expansion, coupled with a large Australian grain harvest leading to record demand for our coated fabrics in that market. Despite very challenging working conditions due to coronavirus restrictions, our operations and supply teams expanded production and generated operating efficiencies, which enabled us to successfully serve an increased level of demand. They managed to successfully deal with the challenges of cost inflation and capacity constraints and maintained a high level of customer service. The management team, and all our employees, successfully dealt with a historically testing environment while prioritising the provision of a safe working environment. I would like to thank all our employees for their commitment and resilience during a very difficult time. Our main growth opportunity is to expand our presence in the large Americas market. In pursuit of this objective, we have centralised a number of key management functions in the USA. The Managing Director, John Paul Marcantonio has been based in the USA since his appointment to the role in November 2019. D ESP IT E A LL THE DIF FICU LTI E S AS SO C IAT ED WI TH THE PA NDE MIC, O UR M A NAG EME NT T EA M PR OD UCED EXCELLE NT FINA NC I AL O U TC OM ES . 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 3 | D E T I M I L C I F I C A P E L A G | T R O P E R L A U N N A 1 2 0 2 In pursuing growth in the Americas and other markets we are adding resources which will result in significant additional expenses in the short term, but which are necessary to support achievement of our growth objectives. While it is already clear that FY22 will see a much more difficult trading environment, we are continuing to pursue these objectives and to invest for the long term, with the aim of building a larger and stronger company. David Allman Chairman E A R N I N G S P E R S H A R E 4.5c Up from 1.3 cents DIVID END S 4.0c Up from 1.0 cents C H I E F E X E C U T I V E O F F I C E R & M A N A G I N G D I R E C T O R ’ S R E V I E W John Paul Marcantonio 4 FY21 was a breakout year for the company as we continued building GALE Pacific into a faster-growing, world-class, global fabrics technology business. Our global team delivered record revenue with accelerated profit delivery while improving operating cash, enabling the company to end the year in a net cash position. Our strategy to grow the company through product innovation, category growth, improved operations and expanding into new markets remained consistent. Our growth plans are built on a strong foundation of vertically integrated manufacturing core competencies in knitted and coated technical fabrics and our investments to accelerate growth have delivered results this year, particularly in our anchor markets of Australia and the United States. Our consumer and commercial products are recognised for their innovative technology, quality, durability, and reliability in the markets they serve. Our primary consumer brand, Coolaroo®, is a market leader in outdoor roller shades, shade sails, shade and garden fabrics, shade structures and pet beds sold through major retailers, both in-store and online, around the world. In the commercial sector, the GALE Pacific® Commercial Fabrics brand is known for market leading, advanced polymer fabrics used across the agricultural, horticultural, aquacultural, architectural, construction, mining and packaging industries. We’ve expanded our core categories by developing and launching new products, increasing distribution and accelerating demand across both consumer and commercial markets. We continue to improve our global supply chain to enable our growth plans, better matching capacity to market demand, focusing on service, efficiency and flexibility. The markets that we serve today provide long-term growth opportunities for our company and we are investing to realise that potential. These include investments to realise profitable growth and operational improvement initiatives in Australia and in management, selling and marketing capability and capacity in the United States. GROUP RE SULTS Global revenue was $205.2 million for the year ended 30 June 2021, an increase of 31.3% and a record for the company. Three of our four selling regions in which we operate increased sales, with revenue growth across our core markets of Australia and the Americas totalling over $50 million. G LOB AL R EVEN UE WAS $205 .2 M ILL ION F O R T HE YEAR EN DED 3 0 JUNE 202 1, A N INC R E AS E OF 3 1.3 % AND A R EC ORD F OR TH E C OMPAN Y. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 5 NET CASH FRO M OPERAT ING ACT IV IT IE S $34.6m Up from $7.2m 380% INC RE ASE Incremental new and promotional product placements, the addition of new customers and increased sell-through of our core consumer categories due to increased consumer demand were key drivers across the retail sector. While we are proud of the efforts and accomplishments of our team and the growth achieved, a portion of the revenue uplift can be attributed to a positive shift in consumer spending on home improvement during periods of lockdown and government stimulus, particularly in Australia and the United States. Our brands and products resonated well with our target consumers and commercial end-users throughout the year. Over this and previous years, investments in and improvement initiatives across our manufacturing facilities and global supply chain positioned us well to capitalise on these robust market conditions. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 6 CHIEF EX ECUT IVE OF FICER & MANAGI NG DIR E CTOR’ S RE V I E W (CON TINUED) This strong revenue growth and increased scale resulted in earnings before interest, tax, depreciation and amortisation of $28.2 million, an increase of 51% on the previous year. Profit before tax was $17.2 million, up 258% on prior year, and includes a provision of $6.6 million for the full impairment of personal protective equipment inventory. and broad market supply chain complexity, particularly in international shipping. In Australia, our Braeside coating production team delivered record levels of manufactured product while developing productivity, capacity utilisation, quality and operator development initiatives, with further improvements planned for FY22 and the years to follow. Net profit after tax was $12.3 million, up 232% on prior year. STRONG BALANCE SHEET A ND CASH FLOW There was material improvement in net cash from operating activities to $34.6 million compared to $7.2 million in the previous year. This allowed our company to pay down a significant portion of its debt and resulted in a net cash position of $1.5 million at 30 June 2021, compared to net debt of $15.3 million at 30 June 2020. Our strong balance sheet provides a sound platform and the financial flexibility to fund and accelerate our global growth ambitions over the coming years. IM PROVED MANUFACTURING, OP E RAT IONS AND SUPP LY C HAIN Our global supply chain and manufacturing operations are an important enabler of our growth strategy. Our team did a great job of improving our operations while servicing record demand increases in the face of historically complex operating challenges this year. At our China facility, our operations team expanded production capacity, improved manufacturing lead times, and maintained a high level of quality and service in the face of significant demand increases We continued to invest in equipment to improve production capacity, efficiency, and quality despite the challenges faced, building for the future. Our strategy to prioritise customer service in the face of these global supply chain challenges proved largely effective despite significant input cost headwinds and shipping capacity constraints. REGIONAL RESULTS AMERICAS Revenue in the Americas was a record $96.2 million, up 31% (FY20: $73.3 million). First-half revenue increased 111% to $37.0 million (1H FY20: $17.5 million) while second-half revenue increased 6% to $59.2 million (2H FY20: $55.8 million), both new half-year records for the company in the region. Our core consumer ranges, new products and incremental promotional lines resonated strongly with consumers, as evidenced by in-store and online sell-in and sell-through increases across the region. Comparative growth rates for sell-through increased significantly throughout the first three quarters and then moderated in quarter four as the company cycled the initial positive demand impacts of COVID-19 restrictions and government stimulus in the prior corresponding period. Our team also delivered strong growth for our commercial architectural shade fabric ranges following the launch of our new flame-retardant product range, OUR TEAM D ID A G R EAT JOB OF I MPR OVI NG O UR OP E RAT ION S WHILE SERV ICI NG R EC ORD DE MA ND I NC R EASE S I N TH E FAC E OF HISTO RICALLY C OMPLE X OPER ATI NG C HA LL ENG ES TH IS YEA R . 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 7 the addition of new customers and increased market demand for shade applications. We expanded operational capacity in the region across customer service, custom roller shade manufacturing and distribution, including direct-to-consumer shipments, to service the increased demand. Supply chain complexity, including international shipping capacity constraints and overall input cost inflation, increased while import tariffs for goods made in China persisted throughout the year. AUSTR ALIA AND NE W ZE ALAND ANZ revenue grew 42% to $92.0 million in FY21 (FY20: $64.6 million) across end markets and categories. First-half revenue of $62.4 million was up 70% (1H FY20: $36.8 million), driven by increased demand for our market-leading commercial coated fabrics used in grain handling applications and strong growth across consumer categories in retail. Growth was more moderate in the second half, with sales up 7% to $29.6 million (2H FY20: $27.8 million). Consumer spending on home improvement projects and products on the back of COVID-19 restrictions and government stimulus drove significant and sustained increases in sell-through rates throughout the first three quarters, 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 8 CHIEF EX ECUT IVE OF FICER & MANAGI NG DIR E CTOR’ S RE V I E W (CON TINUED) with quarter four sell-through returning to more moderate levels. A significant number of new products, leading to incremental ranging, and promotional items across core consumer categories were launched in the year, a key driver of the result. Our team partnered with Cancer Council Australia for an exclusive endorsement partnership for shade products across core retail and commercial product ranges and brands, brought to life both in-store and online. Our teams implemented manufacturing, procurement and retail store servicing efficiency initiatives while developing further improvement projects in regional distribution and transportation to optimise costs and improve quality, service and delivery over the coming years. MIDD LE E AST AND NO RTH A FRI CA Revenue in the Middle East and North Africa region was $8.6 million, a decrease of 18% on the previous year. Challenging economic and broad market trading conditions persisted during the first three quarters as pandemic-related restrictions continued to affect demand region-wide. We experienced some improvement in the fourth quarter as the company returned to growth compared to the previous corresponding quarter. Though overall debtors decreased and efforts to reduce long-dated debtors showed signs of improvement exiting the year, challenges persisted, with the company’s tightened policy continuing to impact trading. We remain committed to supporting our trading partners throughout the region. EURASIA Eurasia regional revenue grew 5% to $8.4 million. Growth accelerated in the second half, driven by increased demand for our differentiated commercial fabrics ranges and select consumer product ranges, in line with our strategy in the region. Our team delivered growth across most trading countries due to increased demand for commercial shade structures and consumer demand increases on the back of COVID-19 restrictions. Capacity constraints and cost escalations in international shipping created operational complexity throughout the year for both the company and its trading partners. PRODUCT INNOVATION New product innovation is an essential component of our growth strategy. Our team has made steady progress in developing and launching new products in our core categories over the last three years across consumer and commercial categories in Australia and the United States. An example of this innovation is our flame retardant architectural shade fabrics ranges, developed and tested to meet or exceed the most stringent fire safety standards in the world. Over 30 colours and three ranges provide the fabric weights, performance requirements and colour selection necessary for any shade project. These FR fabrics are now available across our well- known and trusted architectural shade fabric brands including Commercial NinetyFive, Commercial DualShade and Commercial Heavy. WE PART N E RE D W ITH CAN CER COUNCIL AUSTRALIA FOR A N EXC LUSI VE EN DORSE M E NT PARTNERSHIP FOR SHADE PRODUCTS ACR OSS R E TAIL AN D CO M MERCIAL P RODUCT RANGES AN D BR AN DS, B RO UGHT TO L IF E I N-STORE AND ONLINE. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 9 | D E T I M I L C I F I C A P E L A G | T R O P E R L A U N N A 1 2 0 2 PEOP L E We are working diligently to achieve our full potential as a team and as a company. I am encouraged by all we have accomplished in the face of our collective and individual challenges this year. Our team demonstrated resilience and adaptability despite the complexity posed by the pandemic. By developing and refining our work practices, we continued to operate and evolve our business though challenged by pandemic-related restrictions across markets. Continually finding ways to persevere, our team developed new, more effective ways of working while maintaining largely uninterrupted, safe and healthy operations worldwide throughout the year. Because of their collective efforts and contributions, our company maintained a high level of customer service in a historically challenging and dynamic environment. I want to thank the entire GALE Pacific team for their commitment, collaboration, hard work and care throughout a complex and challenging year. 10 CHIEF EX ECUT IVE OF FICER & MANAGI NG DIR E CTOR’ S RE V I E W (CON TINUED) OU TLOOK The acceleration in results delivery and progress against our strategy in FY21 was encouraging and placed the company in a solid position entering FY22, a year in which we will see a much more challenging trading environment. We expect that the significant, positive demand forces across both consumer and commercial end markets will moderate and normalise to a meaningful degree in FY22 compared to FY21. We also expect the complex, unpredictable environment for global supply chains and the inflationary environment for international shipping, transportation, materials, and labour to continue in FY22, with input costs expected to increase materially as a result. We will implement price increases to offset a portion of the expected cost inflation progressively throughout the year. While it is still unclear to what degree demand levels will normalise and input costs will inflate, we will continue to invest in building the company for the future. Though this increased expenditure will have a near-term impact on earnings, it will better enable our company to realize the full potential of our existing products and new ranges over the coming years. Our strategy to grow GALE Pacific through product innovation, category growth, improved operations and expanding into new markets will remain consistent. Given the long-term potential for our business in the Americas, we have taken the strategic decision to invest in management, selling and marketing capability in the United States in the coming year. We are investing to accelerate profitable growth initiatives and to improve our operations in Australia across consumer and commercial categories and customers. Further distribution expansion and market development opportunities are ahead of us in the MENA and Eurasia regions over the coming years. I want to again thank our team for their hard work, dedication, and commitment to building our company through this challenging period and thank our customers, suppliers, and all other external stakeholders for their continued partnership. I also want to thank our Board for their counsel, input, alignment, and commitment to our operating plans and company strategy over many years. John Paul Marcantonio Chief Executive Officer & Managing Director 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 11 | D E T I M I L C I F I C A P E L A G | T R O P E R L A U N N A 1 2 0 2 B U S I N E S S O V E R V I E W GAL E PAC IFIC I S A FAST-GROWING , WO RLD-CLASS G LOB AL FA B RICS T E C HNO LOGY B US INE SS . 12 THE AMERICAS Revenue in the Americas was a record as GALE’s core consumer ranges, new products, and incremental promotional lines delivered significant in-store and online sell-in and sell-through increases across the region. The Americas region offers long-term growth potential for the company and we are investing in management, selling, and marketing capability and capacity to realize this opportunity over the coming years. AUSTRALIA & NEW ZEALAND First-half revenue of $62.4 million was up 70%, driven by increased demand for GALE’s commercial coated fabrics used in grain handling and strong growth across consumer categories. Growth was more moderate in the second half with sales up 6.5% to $29.6 million. Over the coming years, we will continue to invest in profitable growth and operational improvement initiatives across our consumer and commercial businesses in our home market. MIDDLE EAST & NORTH A FRICA Challenging trading persisted throughout the first three quarters, with improvement versus prior year in the fourth quarter. Though overall debtors decreased and long-dated debtors showed signs of improvement exiting the year, challenges persisted. GALE remains committed to supporting its trading partners in the region. EURASIA Growth accelerated in the second half due to increased demand for commercial shade structures and consumer demand increases on the back of COVID-19 restrictions. Further distribution expansion and market development opportunities are ahead of us in the Eurasia region over the coming years. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | We are a market leading manufacturer and innovator of technical fabrics used for consumer and commercial applications around the world. Our products are used in various industries, such as architectural, agricultural, mining, construction and home improvement. 13 REVENUE by region EBI TDA by region ANZ $92.0m Americas $96.2m MENA $8.6m Eurasia $8.0m ANZ $14.4m Americas $13.5m MENA $2.2m Eurasia $2.7m $205.2m RE V EN UE Up from $156.3m Orlando, USA Dubai, UAE Ningbo, China Auckland, New Zealand Los Angeles, USA Perth, Australia Melbourne, Australia Brisbane, Australia M A P L E G E N D : Head office Sales office Warehouse Manufacturing 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 14 BOARD OF DIRECTORS DAVID ALLMAN , B.SC. CHA IRMAN AND NON EX ECUTI VE D IR ECTO R S INCE NOVEMBER 2009 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 roles in production management, finance and marketing. During the last three years David has been Chairman of Catalyst Education Pty Ltd and Chairman 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 EXEC UTIVE DIRECTOR SI NCE M AY 2014 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 restructurings and capital markets. Peter is a non-executive director of Adacel Technologies Limited, and a non-executive director of various entities within the Australian Community Media Group including Rural Press Pty Ltd. Peter is the Chairman of the Audit and Risk Committee and is a member of the Company’s Nomination Committee. DONNA MCMASTER , GAICD NON-EXE CUTIVE DIRE CTOR S IN CE MARCH 2018 Donna has extensive experience in senior executive and strategic roles within public and private retail companies, with a proven track record in retail, brand and product development, marketing and communications. Donna serves on multiple Boards and is currently Board Chair & Non-Executive Director of Dandenong Market Pty Ltd, Deputy Chair & Non-Executive Director of YMCA Service Pty Ltd where she is also Chair of the HR & Governance Committee & is a Board Advisor with Leading Edge Retail. Donna is a member of the Company’s Nomination and Remuneration Committees. TOM STIANOS , B.APP.SC., FAICD NON-EX ECUTIVE D IRECTOR S IN CE OCTOBER 2 017 Tom has extensive experience as a non-executive director of listed companies including many years as Managing Director. 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 Management & Technology (ASX:SMX), and Director of the Australian Information Industry Association. Tom is the Chairman of the Remuneration Committee and is a member of the Company’s Nomination and Audit and Risk Committees. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | E X E CUTIVE LEADERSHIP 15 JOHN PAUL MA RCA NTONIO CE O AND MA NAGIN G DIRE CTO R 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 broad experience working across both consumer and commercial product sectors globally. Prior to joining GALE Pacific, John Paul built his career at Newell Brands in roles of increasing responsibility and scope in marketing, sales and management over fifteen years. John Paul lived and worked in Melbourne, Australia as the Regional Marketing Director of Newell Brands’ APAC hardware business and has held multiple global product and brand marketing leadership positions over his tenure. DOMENIC ROMANELLI CH IE F FINANCIAL OFF ICE R 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 GE NERAL MANAG ER | M AN UFACTUR ING Cliff joined GALE Pacific in May 2016. He is an experienced manufacturing leader having held senior manufacturing and product quality roles at Bosch Power Tools over 13 years, and operations, logistics and production roles at Andrews Telecommunications, Honeywell CATIC Engine Co. and Solectron Technology Co., Ltd., a U.S.-based manufacturer of electronics products. Cliff has a Bachelor of Science (Mechanical Engineering), from Nanjing University of Science & Technology, China. ANDREW NASARC ZYK SENI OR MA NAGER | RES EARC H & D EVELO PM E NT 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 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). 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 16 E X E C U T I V E L E A D E R S H I P ( C O N T I N U E D ) TROY MORTLEMAN GE NERAL MANAGER | AUSTRALIA & N EW Z EALAND Troy joined GALE Pacific in January 2020. Over the last 14 years he has built an impressive career at previously NZX 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. Troy holds a Master of Business Administration from Deakin University and is a Graduate Member of the Australian Institute of Company Directors. ALI HAIDAR GE NERAL MANAGER | M IDDLE E AST NO RTH AFRI CA 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 GE NERAL MANAGER | EURASI A 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. MATT RUSSELL CHI EF HUMA N RE SOURCES O FFI CER Matt joined GALE Pacific in January 2021 as the Chief Human Resources Officer and leader of the Global Health & Safety Environmental function for GALE Pacific. Matt has extensive experience leading the Human Resources function for both public and private-equity global businesses in the consumer and commercial durable goods space. Prior to joining GALE Pacific, Matt was the global Human Resources leader for several business units of Newell Brands, most recently the Rubbermaid/Rubbermaid Commercial Business Unit. During his tenure with Newell Brands, Matt lived in Hong Kong where he served as the Vice President, Human Resources for Asia Pacific. In all, Matt spent 15 years with Newell Brands in Human Resources roles of increasing responsibility and scope. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 17 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 (Fourth 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). CORPORATE GOVERNANCE2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 18 D IRECTORS’ REPORT The directors present their report, together with the consolidated financial statements, of Gale Pacific Limited (referred to hereafter as the ‘Company’ or ‘Parent entity’) and its controlled entities (together the ‘Group’) for the year ended 30 June 2021 and the independent Auditor’s report thereon. C HANGES IN STATE O F A FFA IRS 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 continued to enact flexible, ‘work from home where able’ policies ahead of government requirements in all regions and maintained 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. We also successfully adapted our global supply chain to meet the opportunity presented by sharp increases in demand and managed well the challenges posed by worldwide shipping and transportation constraints, material and labor inflation, and the continued complexity posed by the COVID-19 pandemic. P RINC IPAL ACTIVITIES During the financial year, the principal continuing activities of the Group consisted of marketing, sales, manufacture and distribution of branded screening, architectural shading, commercial agricultural / horticultural fabric products to domestic and global markets. RE VIEW OF OPERATIONS The profit for the Group after providing for income tax amounted to $12,327,000 (30 June 2020: profit of $3,719,000). EVENTS SUBSEQUENT TO BALANCE DATE Apart from the dividend declared, no other matter or circumstance has arisen since 30 June 2021 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. ENVIRONMENTAL REGULATIO N AND PERF ORMANC E The Group’s operations are not subject to any significant environmental regulations under the Commonwealth or State legislation. The Directors believe that the Group has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Group. DIV IDENDS Dividends paid to members during the financial year were as follows: 2020/2021 Final Dividend for the year ending 30 June 2020 (paid 16 October 2020) 1.00 cent Interim Dividend for the 6 months ended 31 Dec 2020 (paid 9 April 2021) 2.00 cents In addition to the above dividends, on the 24 August 2021 the Directors declared a dividend of 2.00 cents per share to the holders of fully paid ordinary shares in respect of the year ended 30 June 2021, payable on 15 October 2021 to shareholders on the register at 3 September 2021. 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 $5,500,000. For the full year, dividends of 4.00 cents per share have been declared on earnings of 4.48 cents per share. DIRECTORS’ REPORT (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 19 SH A RE BASED PAYMENTS PER FORMANCE RIG HTS The number of performance rights on issue at the date of this report is 17,907,971 (2020: 2,876,971). 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. 14,000,000 performance rights were granted to the CEO and Managing Director on 23 December 2020. The performance rights will vest subject to employment conditions and achieving a TSR growth of at least 25% (vesting of 25%) and TSR growth of 260% (vesting of 100%) over the performance period between 1 July 2020 to 30 June 2023. 1,987,000 performance rights were granted to executives on 30 October 2020. The performance rights will vest subject to a continuation of employment to 30 June 2023 and the satisfying of relevant performance hurdles based on the Group’s diluted earnings per share over the three-year period from 1 July 2020 to 30 June 2023. None of these performance rights can vest until 30 June 2023 and expire on 1 December 2023. On the 30 June 2020, 956,000 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 2017 and 30 June 2020. Further details of the options and performance rights movements during the reporting period are disclosed in the Remuneration Report. DI R ECTORS’ SHAREHOLDINGS The following table sets out each Director’s relevant interest in shares, options and performance rights in shares of the Company as at the date of this report. Directors D Allman P Landos D McMaster T Stianos J P Marcantonio Fully Paid Ordinary Shares Options Performance Rights 4,500,000 – 50,000 600,000 – N/A N/A N/A N/A N/A N/A N/A N/A N/A 14,318,0001 1 In accordance with the early achievement criteria of the three-year incentive scheme in place for the CEO & Managing Director, TSR hurdles for the period 1 January 2021 to 30 June 2021 have been satisfied and accordingly 6,770,400 performance rights will convert to ordinary fully paid shares subject to all of the other requirements under the incentive scheme being met. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 20 DIRE C TORS’ MEETINGS The table below sets out the attendance by Directors. Board of Directors’ Meetings Audit and Risk Committee Meetings Remuneration Committee Meetings Nomination Committee Meetings No. of Meetings Eligible to Attend Attended No. of Meetings Eligible to Attend Attended No. of Meetings Eligible to Attend Attended No. of Meetings Eligible to Attend Attended 11 11 11 11 10 11 11 11 11 10 4 4 – 4 4 4 4 – 4 4 1 – 1 1 1 1 – 1 1 1 1 1 1 1 – 1 1 1 1 – Directors D Allman P Landos D McMaster T Stianos JP Marcantonio 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. 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 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 Nomination Committee are David Allman, Peter Landos, Donna McMaster, and Tom Stianos. The Chairman of the Nomination Committee is David Allman. RE MUNERATION REPORT This report contains the remuneration arrangements in place for Directors and Executives of the Group. The Remuneration Committee reviews the remuneration packages of all Directors and Executive Officers on an annual basis and makes recommendations to the Board. Remuneration packages are reviewed with due regard to performance and other relevant factors, and advice is sought from external advisors in relation to their structure. The Group’s remuneration policy is based on the following principles: ■ Provide competitive rewards to attract high quality executives; ■ Provide an equity incentive for senior executives that will provide an incentive to executives to align their interests with those of the Group and its shareholders; and ■ Ensure that rewards are referenced to relevant employment market conditions. Remuneration packages contain the following key elements: ■ Primary benefits – salary/fees; ■ Benefits, including the provision of motor vehicles and incentive schemes, including performance rights; and ■ Performance rights, if the performance criteria and any Board discretion are satisfied, entitle an executive to be issued shares in the Company at no cost to the executive. Shares are issued subsequently after the time all performance rights vesting conditions are met DIRECTORS’ REPORT (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 21 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 2021: 30 June 2021 30 June 2020 30 June 2019 30 June 2018 30 June 2017 Sales (‘000s) 205,223 156,338 149,217 148,811 175,265* Net profit before tax (‘000s) Net profit after tax (‘000s) 17,220 12,327 4,757 3,719 11,208 9,198 12,484 9,807 (4,861) (8,044) Share price at start of year 16.0 cents 32.0 cents 35.5 cents 40.0 cents 36.0 cents Share price at end of year 41.0 cents 16.0 cents 32.0 cents 35.5 cents 40.0 cents Interim dividend Final dividend 2.00 cents 0.0 cent 2.00 cents 1.00 cent 1.00 cent 1.00 cent 1.00 cent 1.00 cent 1.00 cent 1.00 cent Basic earnings per share 4.48 cents 1.34 cents 3.21 cents 3.35 cents (2.71) cents Diluted earnings per share 4.21 cents 1.32 cents 3.16 cents 3.29 cents (2.71) cents * Sales in 2017 does not reflect the adoption of the accounting standard AASB 15 Revenue from Contracts with Customers. Remuneration Practices Non-executive directors remuneration 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 Practices In accordance with best practice corporate governance, the structure of Non Executive Directors and Senior Managers remuneration is separate and distinct. 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. 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 shareholders approved the Company’s constitution which provides for an aggregate remuneration of $600,000 per annum. The amount of the aggregate remuneration and the manner in which it is apportioned is reviewed periodically. The Board considers fees paid to Non Executive Directors of comparable companies when undertaking this review process. Each non executive director receives a fee for being a director of the Company and does not participate in performance based remuneration. Senior manager and executive director remuneration 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: 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 22 ■ 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. 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. The executive remuneration packages contain the following key elements: ■ Primary benefits – salary/fees; ■ 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. ■ Share based payments, if the performance criteria and any Board discretion are satisfied, entitle an executive or senior manager to be issued shares in the Company at no cost to them. Shares are issued subsequently after the time all performance rights vesting conditions are met. The combination of these comprises the senior manager and executive ‘s total remuneration. Share-based payments The Group maintains a performance rights scheme for certain staff and executives, including the Group Managing Director and Chief Executive Officer, 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: ■ Improvement in earnings per share; and ■ Improvement in return to shareholders. The number of performance rights on issue at 30 June 2021 was 17,907,971. 886,000 of these performance rights were granted on 13 November 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 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). 1,987,000 of these performance rights were granted on 30 October 2020 and 14,000,000 of these performance rights were granted on 23 December 2020 and both will not vest until the time of the Company’s 2023 annual report is released on the ASX (on or around 1 October 2023). Each performance right has $nil exercise price and 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 the shareholders; and ■ Ensure that total remuneration is competitive by market standards. KEY MAN AGEME NT PERSONNEL OF THE GROUP WHO HELD OF FICE DURI NG THE YEAR Directors D Allman (Chairman Non Executive) P Landos (Non Executive) D McMaster (Non Executive) T Stianos (Non Executive) J P Marcantonio (CEO and Managing Director) – Effective 14 August 2020 Executives A Haidar (General Manager – Middle East & North Africa) T Mortleman (General Manager – Australia & New Zealand) M Nicholls (General Manager – EurAsia) D Romanelli (Chief Financial Officer) C Zhang (General Manager – China Manufacturing) DIRECTORS’ REPORT (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 23 The following table discloses the remuneration of the Directors of the Company: Short-Term Benefits Salary & Fees $ Non- Monetary $ Bonus $ Post Employ- ment Share Based Payments Super $ Rights $ Term- ination Benefits $ Performance Related Total $ Total % Rights % Directors 2020 / 2021 Executive Directors J P Marcantonio 599,910 Non-Executive Directors D Allman P Landos T Stianos D McMaster Total 2019/2020 117,756 95,388 87,123 77,169 977,346 Executive Directors N Pritchard 221,755 Non-Executive Directors D Allman P Landos T Stianos D McMaster Total 117,756 95,388 87,123 77,169 599,191 – – – – – – – – – – – – 17,566 20,137 991,830 – 1,629,444 61% 61% – – – 19,752 7,375 8,277 – – – – 17,566 7,331 – 62,872 991,830 – 137,508 – 102,763 – 95,400 – 84,500 – 2,049,615 – – – – – – – 48% – 48% – – – – – – 10,417 (4,101) 90,643 318,713 (1)% (1)% 19,752 7,375 8,277 7,331 53,151 – – – – 137,508 – 102,763 – 95,400 – 84,500 (4,101) 90,643 738,883 – – – – – – – – – – – The following table discloses the remuneration of the Group’s key management personnel: Short-Term Benefits Salary & Fees $ Non- Monetary $ Bonus $ Post Employ- ment Share Based Payments Super $ Rights $ Term- ination Benefits $ Performance Related Total $ Total % Rights % Key Management Personnel 2020 / 2021 M Nicholls C Zhang A Haidar D Romanelli T Mortleman Total 2019/2020 206,922 73,124 – 16,934 75,429 209,173 42,851 9,457 255,025 33,624 319,725 186,730 – – – 77,301 – 107,016 30,374 66,525 279,125 121,857 1,269,970 458,186 – 9,457 14,489 26,517 73,825 340,760 J P Marcantonio 548,431 27,482 23,643 25,952 (1,887) M Nicholls C Zhang A Haidar D Romanelli T Mortleman M Parker Total 232,264 47,710 – 17,228 212,350 59,014 14,628 279,339 242,308 130,448 – 7,415 5,093 – – – 24,209 – 1,669,349 146,714 – 38,271 – – 23,019 12,393 2,083 80,676 3,285 3,347 4,434 7,975 – (1,448) 15,705 13,074 37,918 13,074 1,963,788 – 372,409 – 338,781 – 395,665 – 603,353 – 441,988 – 2,152,197 – 623,621 – 300,487 – 289,338 – 283,773 – 280,717 – 147,934 40% 35% 36% 42% 31% 37% 4% 17% 22% 2% 5% 3% (4)% 8% 20% 23% 27% 11% 3% 16% 0% 1% 1% 2% 3% – (4)% 1% 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 24 DIRECTORS’ AND EX E CUT IV ES ’ E QUIT Y HOLD IN GS : Fully Paid Ordinary Shares Balance at the start of the year No. Granted as Compensation No, Received on Exercise of Options No. Other1 Movements No. Balance at the end of the year No. 2020/2021 Executive Directors J P Marcantonio Non Executive Directors D Allman T Stianos D McMaster Executives A Haidar D Romanelli Total 2019/2020 Executive Directors N Pritchard Non Executive Directors D Allman T Stianos D McMaster Executives M Parker A Haidar D Romanelli Total – 4,500,000 600,000 50,000 516,364 263,000 5,929,364 1,434,593 3,000,000 200,000 – 227,257 516,364 – 5,378,214 1 Includes shares traded on the stock market – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,500,000 600,000 50,000 10,000 192,190 202,190 526,364 455,190 6,131,554 (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’ REPORT (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 25 SH A RE BASED COMPENSATION Each performance right entitles the holder to one ordinary share in the Company 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 13 November 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 1st October 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 1st October 2022) and expire on 1 December 2022. The performance rights granted on 30 October 2020 to the senior executives are subject to the continuation of employment to 30 June 2023 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 2021 to 30 June 2023. 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%. The performance rights granted on 23 December 2020 to the CEO and Managing Director are subject to employment conditions and satisfying of relevant performance hurdles based on TSR over the three year period from 1 July 2021 to 30 June 2023. Further details can be found in note 31. None of these rights can vest until the Company releases its FY23 annual report to the ASX (on or around 1st October 2023) and expire on 1 December 2023. DIRECTORS’ AND E X ECUT IVE S ’ E Q UI T Y HOL DIN GS , COM PEN SATION OP TION S AN D PER FORMANCE RIG HTS: Vested Number Granted Number Grant Date Value Per Option/ Right at Grant Date Terms and Conditions for Each Grant Exercise Price Expiry Date First Exercise Date Last Exercise Date 2020/2021 – 14,000,000 23/12/20 Executive Directors (Performance Rights) J P Marcantonio Non Executive Directors None Management Personnel (Performance Rights) Key Management Other Management Total 2019/2020 – 1,504,000 483,000 – – 15,987,000 – – 30/10/20 30/10/20 – – Executive Directors (Performance Rights) None Non-Executive Directors None Management Personnel (Performance Rights) Key Management Other Management Total 849,306 – – 185,665 – 1,034,971 – – 16/01/20 16/01/20 0.1800 Nil 1/12/23 01/10/23 01/10/23 0.1600 0.1600 Nil Nil 1/12/23 01/10/23 01/10/23 1/12/23 01/10/23 01/10/23 0.2642 0.2642 Nil Nil 1/12/22 01/10/22 01/10/22 1/12/22 01/10/22 01/10/22 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 26 DIRECTORS’ AND EX E CUT IV ES ’ E QUIT Y HOLD IN GS COM PEN SAT ION OPT ION S AN D PE RF O RMANC E RIG HTS: Movements During the Year Balance at the start of the year No. Granted as Comp- ensation No, Exercised No. Lapsed No. Net Other Change No. Balance at the end of the year No. Balance Held Nominally No. Value of Lapsed Options/ Rights $ 2020/2021 Executive Directors (Performance Rights) J P Marcantonio 588,000 14,000,000 – (270,000) – 14,318,000 Non Executive Directors None – – Executives (Performance Rights) T Mortleman A Haidar Cliff Zhang M Nicholls – 361,000 535,088 285,000 386,737 226,000 389,585 218,000 D Romanelli 314,896 414,000 – – – – – – – – (144,000) (104,000) (113,000) – – – – – – – – 361,000 676,088 508,737 494,585 728,896 Other Management Personnel (Performance Rights) Other Management 662,665 483,000 Total 2,876,971 15,987,000 2019/2020 Executive Directors (Performance Rights) – – (325,000) (956,000) – 820,665 – 17,907,971 – – – N Pritchard 1,875,000 Non Executive Directors None – 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 D Romanelli 232,000 157,585 – 314,896 – – – – (578,000) (1,297,000) – – – – – – – – – (203,000) (456,000) (146,000) (105,000) – – – – – – – – 535,088 386,737 588,000 389,585 314,896 Other Management Personnel (Performance Rights) Other Management 744,000 185,665 – (267,000) – 662,665 Total 4,894,000 1,034,971 – (1,299,000) (1,753,000) 2,876,971 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – DIRECTORS’ REPORT (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 27 EMPLOYM ENT AND SE RVICE AG REE MENTS 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 O F OF FICERS 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. INDEMNITY AND INSURANCE O F AUDITOR The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by 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 BE HALF O F T HE 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. 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 32 to the consolidated 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 COM PANY WHO ARE F ORMER PARTN ERS OF DELOITT E TOUCHE TOHMATSU There are no officers of the Company who are former partners of Deloitte Touche Tohmatsu. ROUN DING OF AMOUNTS The Company is of a kind referred to in Class Order 106/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding off’. Amounts in this report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. AUDITOR’S INDEP ENDEN CE DE CLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors’ report. NON-AUDIT SERVI CE S AUDITOR 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 32 to the consolidated 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 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 28 Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au 24 August 2021 The Board of Directors Gale Pacific Limited 145 Woodlands Drive Braeside VIC 3195 Dear Board Members GGaallee PPaacciiffiicc LLiimmiitteedd 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 2021, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Genevra Cavallo Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 15 AUDITOR’S INDEPENDENCE DECLARATION2021 ANNUAL REPORT | GALE PACIFIC LIMITED | I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F G A L E PA C I F I C L I M I T E D 29 Deloitte Touche Tohmatsu ABN 74 490 121 060 477 Collins Street Melbourne, VIC, 3000 Australia Phone: +61 3 9671 7000 www.deloitte.com.au IInnddeeppeennddeenntt AAuuddiittoorr’’ss RReeppoorrtt ttoo tthhee mmeemmbbeerrss ooff GGaallee PPaacciiffiicc LLiimmiitteedd RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt 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 2021, the consolidated statement of profit or 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 and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: • Giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year then ended; and • 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 & 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. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 16 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 30 | D E T I M I L C I F I C A P E L A G | T R O P E R L A U N N A 1 2 0 2 I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F G A L E PA C I F I C L I M I T E D KKeeyy AAuuddiitt MMaatttteerr HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr RReeccoovveerraabbiilliittyy ooff ttrraaddee rreecceeiivvaabblleess MMiiddddllee EEaasstt aanndd NNoorrtthh AAffrriiccaa iinn Our procedures included, but were not limited to: Refer to Note 10 Current assets – trade and other receivables. As at 30 June 2021, the carrying amounts of Middle East and North Africa (“MENA”) trade receivables totalled AU$7.7 million with AU$2.1 million of the outstanding balance aged over 365 days as disclosed in Note 10. The balance of the expected credit loss allowance over impairment of receivables in MENA accounts for 73% of trade receivables greater than 365 days. The allowance determination as to whether the receivables are collectable requires a high level of management judgment and estimates, whereby management considers specific factors including the age the balances, historical payment of relevant patterns information the creditworthiness of the counterparties. other concerning and any • Obtaining an understanding of how the allowance for impairment of MENA receivables is estimated by management and assessing management’s process in determining the estimated future cash flows of MENA receivables; • • • Evaluating on a sample basis, the aging analysis and subsequent settlement of the MENA receivables to the invoices and bank including source documents statements; the reasonableness of allowance Assessing for impairment of MENA receivables with reference to the credit history including default or delay in payments, settlement records, subsequent settlements and aging analysis of the MENA receivables; and Evaluating the historical accuracy of management’s assessment of allowance for MENA receivables by assessing the actual write-offs, the reversal of previous recorded allowances and new allowances recorded in the current year in respect of MENA receivables. We also assessed the appropriateness of disclosures included in Note 10 of the Financial Report relating to receivables. 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 2021 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. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 17 31 | D E T I M I L C I F I C A P E L A G | T R O P E R L A U N N A 1 2 0 2 Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional skepticism 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 from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • 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’s 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. 18 32 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. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. RReeppoorrtt oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 20 to 26 of the Directors’ Report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Gale Pacific Limited, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Genevra Cavallo Partner Chartered Accountants Melbourne, 24 August 2021 19 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF GALE PACIFIC LIMITED (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | D I R E C T O R S ’ D E C L A R AT I O N 33 In the opinion of the Directors of Gale Pacific Limited (the Company): ■ the attached consolidated financial statements and notes comply with the Corporations Act 2001, the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; ■ the attached consolidated financial statements and notes (page 34 to page 72) 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 consolidated financial statements and notes give a true and fair view of the Group’s financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and ■ there are reasonable grounds to believe that the Group 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 24 August 2021 Melbourne John Paul Marcantonio Chief Executive Officer and Managing Director 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 34 Revenue Sale of goods Other income Expenses Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense Marketing and advertising Occupancy costs Warehouse and related costs Other expenses Finance costs Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of Gale Pacific Limited Other comprehensive income 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 Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Gale Pacific Limited Basic earnings per share Diluted earnings per share Consolidated Note 2021 $’000 2020 $’000 5 6 6 6 6 7 205,223 156,338 1,935 1,255 (107,520) (77,121) (40,254) (34,951) (9,198) (11,780) (1,949) (2,679) (2,283) (2,949) (13,326) (10,289) (13,215) (11,269) (1,797) 17,220 (4,893) (2,194) 4,757 (1,038) 12,327 3,719 22 22 263 (1,210) (947) (212) (505) (717) 11,380 3,002 Cents Cents 8 8 4.48 4.21 1.34 1.32 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFor the year ended 30 June 2021 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 35 Consolidated Note 2021 $’000 2020 $’000 9 10 11 26 12 13 14 7 15 16 18 26 7 17 19 20 7 21 22 30,407 41,471 46,547 515 3,421 122,361 30,705 8,142 20,314 6,889 66,050 188,411 29,507 19,364 3,764 – 1,156 6,174 501 60,466 9,575 18,579 6,702 170 35,026 95,492 92,919 63,068 4,459 25,392 92,919 27,811 39,603 48,699 – 2,221 118,334 32,354 8,119 21,780 11,100 73,353 191,687 23,144 23,274 3,830 595 1,023 4,179 144 56,189 19,824 19,338 7,765 205 47,132 103,321 88,366 63,068 3,992 21,306 88,366 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative financial instrument – cash flow hedges Prepayments Total current assets Non-current assets Property, plant and equipment Intangibles Right-of-use assets Deferred tax Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Lease liabilities Derivative financial instrument – cash flow hedges Current tax liabilities Employee benefits Provisions Total current liabilities Non-current liabilities Borrowings Lease liabilities Deferred tax Employee benefits Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained profits Total equity The above consolidated statement of financial position should be read in conjunction with the accompanying notes CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2021 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 36 Consolidated Balance at 1 July 2019 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (note 31) Transfer to Enterprise Reserve Fund Share Buy Back (note 21) Other Dividends paid (note 23) Balance at 30 June 2020 Consolidated Balance at 1 July 2020 Profit after income tax expense for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Transactions with owners in their capacity as owners: Share-based payments (note 31) Transfer to Enterprise Reserve Fund Dividends paid (note 23) Balance at 30 June 2021 Issued Capital $’000 Reserves (Note 22) $’000 Retained Profits $’000 Total Equity $’000 65,097 4,070 – – – – – (2,029) – – – (717) (717) 16 623 – – – 21,030 3,719 – 3,719 – (623) – 2 90,197 3,719 (717) 3,002 16 – (2,029) 2 (2,822) (2,822) 63,068 3,992 21,306 88,366 Issued Capital $’000 Reserves (Note 22) $’000 Retained Profits $’000 Total Equity $’000 63,068 3,992 – – – – – – – (947) (947) 1,435 (21) – 21,306 12,327 88,366 12,327 – (947) 12,327 11,380 – 21 1,435 – (8,262) (8,262) 63,068 4,459 25,392 92,919 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 30 June 2021 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 37 Consolidated Note 2021 $’000 2020 $’000 Cash flows from operating activities Profit before income tax expense for the year Adjustments for: Depreciation and amortisation Share-based payments Foreign currency gain Interest and other finance costs Change in operating assets and liabilities: Increase in trade and other receivables Decrease/(increase) in inventories Increase in derivative assets Increase in prepayments Increase in trade and other payables Increase/(decrease) in derivative liabilities Increase in employee benefits Increase/(decrease) in other provisions Interest and other finance costs paid Income taxes paid Net cash from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Proceeds from disposal of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Proceeds/(repayment) of leases Payments for share buy-backs Dividends paid Repayment of borrowings Net cash 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 12 13 19 18,20 21 23 19 17,220 4,757 9,198 1,435 1,461 1,797 11,780 16 (793) 2,194 31,111 17,954 (1,868) (11,451) 2,152 (515) (1,200) 6,363 (333) 1,960 357 (2,503) – (97) 7,470 256 684 (313) 38,027 12,000 (1,797) (1,612) 34,618 (2,194) (2,647) 7,159 (3,002) (3,087) (855) 96 (813) 240 (3,761) (3,660) – (4,182) – (8,262) (14,159) (26,603) 4,254 27,811 (1,658) 9,144 (3,401) (2,029) (2,822) (6,793) (5,901) (2,402) 29,846 367 Cash and cash equivalents at the end of the financial year 9 30,407 27,811 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 30 June 2021 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 38 | D E T I M I L C I F I C A P E L A G | T R O P E R L A U N N A 1 2 0 2 N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOT E 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 consolidated 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: BASIS OF PREPARAT ION 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. 145 Woodlands Drive Braeside, VIC 3195 Australia 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 marketing, sales, manufacture and distribution of branded screening, architectural shading, commercial agricultural / horticultural fabric products to domestic and global markets. The financial statements were authorised for issue, in accordance with a resolution of directors, on 24 August 2021. The directors have the power to amend and reissue the financial statements. STATE MENT O F C OMPLI ANC E 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’). NOTE 2. SIGNIF ICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the consolidated 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. NE W OR AMEN DE D ACCOUNT IN G STANDARDS AND IN TE RPRETATIONS ADOPT ED 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 2018-6 AM ENDM EN TS TO AUSTRALIAN ACCOUNTIN G STANDARDS – DE FIN ITION OF A BUSINESS This Standard makes amendments to AASB 3 Business Combinations (August 2015). These amendments arise from the issuance of International Financial Reporting Standard Definition of a Business (Amendments to IFRS 3) by the International Accounting Standards Board (IASB) in October 2018. The Group has assessed the impact of AASB 2018-6 Amendments and determined there is no impact to the financial statements. 39 AASB 2018-7 A MENDME NTS TO AUSTR ALIAN ACC OUNTING STANDAR D S – DEF INITION OF MATE RIAL The Standard principally amends AASB 101 and AASB 108. The amendments refine the definition of material in AASB 101. The amendments clarify the definition of material and its application by improving the wording and aligning the definition across AASB Standards and other publications. The amendment also includes some supporting requirements in AASB 101 in the definition to give it more prominence and clarifies the explanation accompanying the definition of material. The Group has assessed the impact of AASB 2018-7 Amendments and determined there is no impact to the financial statements. AASB 2019-1 AME NDMENTS TO AUSTR ALIAN ACC OUNTING STANDAR D S – R E FERENCES TO T HE CONCE PT UAL FRA MEWORK This Standard makes amendments to the Australian Accounting Standards, Interpretations and other pronouncements listed on pages 6 to 7 of the Standard. These amendments arise from the issuance of the Conceptual Framework for Financial Reporting and the International Financial Reporting Standard Amendments to References to the Conceptual Framework in IFRS Standards by the International Accounting Standards Board (IASB) in March 2018. The Group has assessed the impact of AASB 2019-1 Amendments and determined there is no impact to the financial statements. AASB 2019-3 AME NDMENTS TO AUSTR ALIAN ACC OUNTING STANDAR D S – INTER EST RATE BENC HMARK R EF ORM This Standard makes amendments to AASB 7 Financial Instruments: Disclosures (August 2015), AASB 9 Financial Instruments (August 2015) and AASB 139 Financial Instruments: Recognition and Measurement (August 2015). These amendments arise from the issuance of International Financial Reporting Standard Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) by the International Accounting Standards Board (IASB) in September 2019. The Group has assessed the impact of AASB 2019-3 Amendments and determined there is no impact to the financial statements. AASB 2019-5 AME NDME NTS TO AUSTRALIAN ACCOUNTIN G STANDARDS – DISCLOSURE OF THE EF FE CT OF N EW IFRS STANDARD S N OT YET ISSUE D IN AUSTRALIA This Standard makes amendments to AASB 1054 Australian Additional Disclosures (May 2011). The AASB decided to add an additional disclosure requirement to AASB 1054 on the potential effect on an entity’s financial statements of issued IFRS Standards that have not yet been issued by the AASB. This is to ensure that IFRS compliance can be maintained automatically when for-profit publicly accountable entities comply with Australian Accounting Standards. The Group has assessed the impact of AASB 2019-5 Amendments and determined there is no impact to the financial statements. Comparatives Where necessary, the comparative statement of profit or loss and other comprehensive income has been reclassified and repositioned for consistency with the current period disclosures. PRIN CIPLES OF CON SOLIDAT ION The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Gale Pacific Limited as at 30 June 2021 and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Company has control. The Company 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 Company. They are de-consolidated from the date that control ceases. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 40 NOT E 2. SIGNIFICANT ACCOUNTING P OLIC IE S (CON TINUED) Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent. Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss. FO REIG N C URRE NCIES A ND 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’ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 41 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 performance obligation is satisfied and 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 NO N-C URRE NT CLASSIFICATION Assets and liabilities are presented in the statement of financial position based on current and non-current classification. 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. DER IVATIVE FINANC IAL I NST R UME NTS 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. IMPAIRM EN T 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 42 NOT E 2. SIGNIFICANT ACC OU NTING POLICIES (CONTINU ED) 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. 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 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. The Group primarily uses the value-in-use methodology to estimate the recoverable amount for impairment testing purposes. EMP LOYEE BENE FITS Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date is measured at the amounts expected to be paid when the liabilities are settled. Long-term employee benefits The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. ROUNDING O F AMOUN TS The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, issued by the Australian Securities NOTE 3. CRITICAL ACC OU NTIN G JUDGEMENTS, ESTIMATES AN D 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 consolidated 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 43 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 a combination of Monte Carlo simulation model and Dividend Discount model taking into account the terms and conditions upon which the instruments were granted, expected volatility, expected dividend yield and risk-free rate assumptions. 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. 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. 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, 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 44 NOT E 4. OPERATING SEGME NTS (CON TINUED) 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 the Group’s management reporting GALE Pacific Limited follows an activity-based allocation method of reporting. Intersegment sales/margin and central costs are allocated to external revenue generating segments where the final economic benefit is derived. This enhanced method of reporting is being used by the CODM, to target product costing, product line profitability analysis, customer profitability analysis, and service pricing structures. EurAsia: Sales distribution based in China and Australasia, servicing European and Asian countries. Americas: 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. Middle East and North Africa (‘MENA’): 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. The results from our manufacturing operations in China are allocated to the operating segments where the sales originate, whilst its assets and liabilities are included within the EurAsia segment. The operating segments are as follows: Major customers Australasia: Manufacturing and distribution facilities are located in Australia, and distribution facilities are located in New Zealand. Sales offices are located in all states in Australia. During the year ended 30 June 2021 approximately 35% (2020: 35%) of the Group’s external revenue was derived from sales to two customers (2020: Two), one customer located in the Australasian region and one customer located in the Americas region. Operating segment information Consolidated – 2021 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 91,971 91,971 14,397 (3,828) (698) 96,219 96,219 13,515 (4,822) (1,002) 8,603 8,603 2,208 (239) (48) 8,430 8,430 2,722 (309) (50) – – 205,223 205,223 (4,626) 28,216 – – (9,198) (1,798) 9,871 7,691 1,921 2,363 (4,626) 17,220 (4,893) 12,327 39,689 73,694 11,008 41,531 22,489 188,411 24,464 32,464 633 17,899 20,032 188,411 95,492 95,492 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 45 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) 10,469 10,469 2,161 (514) (89) 7,978 7,978 2,656 (412) (64) – – 156,338 156,338 (3,310) 18,731 - (11,780) (46) (2,194) 180 4,195 1,558 2,180 (3,356) 4,757 (1,038) 3,719 45,575 74,139 15,871 36,185 19,917 191,687 191,687 23,814 32,481 639 15,072 31,315 103,321 103,321 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. N OTE 5. OT HER INCOME Other income Consolidated 2021 $’000 2020 $’000 1,935 1,255 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 46 NOT E 6. EXPENSES Profit before income tax includes the following specific expenses: Raw materials and consumables used Provision for personal protective equipment (note 11) 6,574 – Consolidated 2021 $’000 2020 $’000 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 Variable lease payments 4,423 4,207 5,908 4,651 8,630 10,559 568 1,221 9,198 11,780 38,819 34,935 1,435 16 40,254 34,951 1,013 784 1,797 1,326 868 2,194 1,648 2,016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | N OTE 7. INCOME TAX Income tax expense Current tax Deferred tax – origination and reversal of temporary differences Aggregate income tax expense Deferred tax included in income tax expense comprises: Decrease/(increase) in deferred tax assets Numerical reconciliation of income tax expense and tax at the statutory rate Profit 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 Difference in overseas tax rates Income tax expense Amounts charged/(credited) directly to equity Deferred tax assets 47 Consolidated 2021 $’000 2020 $’000 1,503 3,390 4,893 1,401 (363) 1,038 3,390 (363) 17,220 5,166 4,757 1,427 117 5,283 (390) 4,893 151 1,578 (540) 1,038 Consolidated 2021 $’000 2020 $’000 112 (91) 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 48 NOT E 7. INCOME TAX (C ONTIN UED) Net deferred tax asset Deferred taxes comprises temporary differences attributable to: Amounts recognised in P&L: Tax losses Tax offsets Property, plant and equipment Foreign exchange Capitalised costs Provisions Impairment of receivables Other financial liabilities Employee benefits Franking Deficit Credit Other Deferred tax asset Movements: Opening balance Credited/(charged) to profit or loss Credited/(charged) to equity Transfer from current tax liability Closing balance Provision for income tax Provision for income tax Consolidated 2021 $’000 2020 $’000 – – (885) (1,249) (774) 1,667 174 303 974 – (23) 187 3,335 (3,390) (112) 354 187 561 1,143 (936) (458) (444) 850 – 116 503 1,617 383 3,335 2,872 363 91 9 3,335 Consolidated 2021 $’000 2020 $’000 1,156 1,023 The 2021 net deferred tax asset of $187,000 (2020: $3,335,000) is comprised of $6,889,000 in deferred tax assets (2020: $11,100,000) and $6,702,000 (2020: $7,765,000) in deferred tax liabilities, reflecting various tax positions in different jurisdictions. As at 30 June 2021, the Group has $nil unused tax losses (2020: $1,871,000) and $nil deferred tax with respect to any such losses (2020: $561,000) in the consolidated financial statements. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 49 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: 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. ■ 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. 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. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of recognised and unrecognised deferred tax assets are reviewed at each reporting date. Deferred tax assets recognised are reduced to the extent that it is no longer probable that future taxable profits will be available for the carrying amount to be recovered. Previously unrecognised deferred tax assets are recognised to the extent that it is probable that there are future taxable profits available to recover the asset. Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax N OTE 8. E ARNINGS PER SHARE 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. Profit after income tax attributable to the owners of Gale Pacific Limited Consolidated 2021 $’000 12,327 2020 $’000 3,719 Number Number Weighted average number of ordinary shares used in calculating basic earnings per share 275,391,310 277,684,598 Adjustments for calculation of diluted earnings per share: Performance rights 17,608,820 3,537,653 Weighted average number of ordinary shares used in calculating diluted earnings per share 293,000,130 281,222,251 Basic earnings per share Diluted earnings per share Cents Cents 4.48 4.21 1.34 1.32 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 50 NOT E 8. EAR NINGS PER SHARE (CON TINUED) ACCO UNTIN G PO LI CY FO R E A RNIN GS P ER S HAR E 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. NOT E 9. CURRENT ASSETS – CAS H AND CAS H EQUI VALE NTS Cash on hand Cash at bank Consolidated 2021 $’000 5 30,402 30,407 2020 $’000 7 27,804 27,811 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. NOT E 1 0. CURRENT ASSETS – TRADE AND OTHER REC EI VA BL ES Trade receivables Less: Allowance for expected credit losses Other receivables Consolidated 2021 $’000 2020 $’000 42,545 40,644 (1,621) (1,199) 40,924 39,445 547 158 41,471 39,603 Allowance for expected credit losses The Group has recognised an additional expected credit loss allowance of $465,000 (2020: $884,000) in profit or loss in respect of impairment of receivables for the year ended 30 June 2021. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 51 Trade receivables and allowances for expected credit losses The following table details the risk profile of trade receivables based on the Group’s provision matrix. Trade receivables Not Outside of Credit Terms Outside Credit Terms 0-30 Days Outside Credit Terms 31-120 Days Outside Credit Terms 121 Days to one year More than One Year Allowance for expected credit losses Outside Credit Terms 31-120 Days Outside Credit Terms 121 Days to one year More than One Year Consolidated 2021 $’000 2020 $’000 30,620 27,893 6,257 1,854 1,589 2,225 42,545 (2) (30) (1,589) (1,621) 4,295 2,983 3,567 1,906 40,644 (27) (12) (1,160) (1,199) As per management’s assessment the allowance for expected credit losses on Not Outside of Credit Terms and Outside Credit Terms 0-30 Days is not material and not recognised. Movements in the allowance for expected credit losses are as follows: Opening balance Additional allowances recognised Receivables written off during the year as uncollectable Closing balance 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. The Group always measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The average credit terms vary between 30 to 60 days which depend on the sales region and the type of customer. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the Consolidated 2021 $’000 1,199 465 (43) 1,621 2020 $’000 406 884 (91) 1,199 current as well as the forecast direction of conditions at the reporting date. The Group has recognised a loss allowance of 71% (2020: 60%) against all receivables over 365 days past due because historical experience has indicated that these receivables are generally not recoverable. The Group has significantly increased the expected loss rates for trade receivables from the prior year based on its judgement of the impact of current economic conditions and the forecast direction of travel at the reporting date. There has been no change in the estimation techniques during the current reporting period. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 52 NOT E 1 1. CURRENT ASSETS – INVENTOR IES Raw materials Work in progress Finished goods Less: Provision for impairment Consolidated 2021 $’000 8,177 2,958 2020 $’000 5,948 2,717 44,958 43,251 (9,546) (3,217) 35,412 40,034 46,547 48,699 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 ‘weighted average cost’ 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. NOT E 1 2. NON-CURRE NT ASS ETS – P ROP ERTY, P LA NT A ND E QUIPMENT Buildings and leasehold improvements – at cost Less: Accumulated depreciation Plant and equipment – at cost Less: Accumulated depreciation Motor vehicles – at cost Less: Accumulated depreciation Capital work-in-progress – at cost Consolidated 2021 $’000 2020 $’000 17,399 17,708 (7,701) 9,698 (7,243) 10,465 114,584 113,402 (94,712) (92,024) 19,872 21,378 305 (142) 163 972 248 (130) 118 393 30,705 32,354 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 53 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 Buildings and leasehold improvements $’000 Plant and equipment $’000 Motor vehicles $’000 Balance at 1 July 2019 10,928 15,905 Additions Disposals Exchange differences Transfers in/(out) Depreciation expense Balance at 30 June 2020 Additions Disposals Exchange differences Transfers in/(out) Depreciation expense Balance at 30 June 2021 9 – (52) 511 (931) 10,465 25 – (26) 236 (1,002) 9,698 552 (230) 3 10,121 (4,973) 21,378 73 (96) (102) 2,028 (3,409) 19,872 94 38 (10) – – (4) 118 52 – – 5 (12) 163 Capital work-in- progress $’000 8,565 2,488 – 26 (10,686) – 393 2,852 – (4) (2,269) – 972 Total $’000 35,492 3,087 (240) (23) (54) (5,908) 32,354 3,002 (96) (132) – (4,423) 30,705 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 allocate cost on a systematic basis for each item of property, plant and equipment over their estimated useful lives as follows: Buildings 45 years Leasehold improvements Over lease term Plant and equipment 2-15 years Motor vehicles 2-5 years Depreciation commences from the time the asset is held ready for use. The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. When changes are made, adjustments are reflected in current and future periods only. Leasehold improvements 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 54 NOT E 1 3. NON-CURRENT ASS ETS – I NTANGI BLES 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 2021 $’000 2020 $’000 11,027 11,286 (7,961) 3,066 4,074 (404) 3,670 1,652 (1,410) 242 8,966 (7,802) 1,164 8,142 (7,961) 3,325 3,242 (191) 3,051 1,658 (1,381) 277 9,264 (7,798) 1,466 8,119 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 2019 Additions Exchange differences Transfers in/(out) Amortisation expense Balance at 30 June 2020 Additions Exchange differences Amortisation expense Balance at 30 June 2021 Goodwill $’000 Development $’000 Patents, trademarks and licenses $’000 3,261 – 64 – – 3,325 – (259) – 3,066 2,357 790 – – (96) 3,051 837 (4) (214) 3,670 305 24 – – (52) 277 18 (1) (52) 242 Application software $’000 Total $’000 2,469 8,392 – 17 53 (1,073) 1,466 – – (302) 1,164 814 81 53 (1,221) 8,119 855 (264) (568) 8,142 Goodwill acquired through business combinations have been allocated to the following cash generating units (CGU): Goodwill USA (2021: US$2,077,000; 2020: US$2,077,000) China Consolidated 2021 $’000 2020 $’000 2,719 347 3,066 2,978 347 3,325 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 55 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 2021. 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 2.0%. 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. 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 8.5% (2020: 10%). EBITDA assumptions EBITDA for FY2022 is based on the Board approved budget, with FY2023 to FY2026 increasing by an average of 5.0% per annum, which is in line with the management’s growth strategies for the short to medium term. 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 a decline of 2% of the EBITDA to terminal year for each year 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 56 NOT E 1 3. NON-CURRENT ASS ETS – I NTANGI BLES (CON TINUED) 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. NOT E 1 4. NON-CURR ENT ASSE TS – RI GHT- OF - US E AS SETS Land and buildings – right-of-use Less: Accumulated depreciation Reconciliations Consolidated 2021 $’000 27,664 (7,350) 20,314 2020 $’000 26,371 (4,591) 21,780 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 2019 Balance on initial adoption of AASB16 on 1 July 2019 Additions Exchange differences Depreciation expense Balance at 30 June 2020 Additions Disposals Exchange differences Depreciation expense Balance at 30 June 2021 Land and buildings – right-of-use $’000 – 24,323 2,246 (138) (4,651) 21,780 4,784 (1,427) (616) (4,207) 20,314 Total $’000 – 24,323 2,246 (138) (4,651) 21,780 4,784 (1,427) (616) (4,207) 20,314 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 57 N OTE 15. C URRENT LIABILITIE S – TR ADE AND OTH ER PAYA BL ES Trade payables Sundry payables and accruals – Customer rebates Sundry payables and accruals – Other Consolidated 2021 $’000 2020 $’000 17,927 14,390 8,054 3,526 5,836 2,918 29,507 23,144 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. N OTE 16. C URRENT LIABILITIE S – BORROWINGS Bank loans Refer to note 25 for further information on financial instruments. N OTE 17. CURRENT LIABILITIE S – PROVI SI ONS Warranties Warranties Consolidated 2021 $’000 2020 $’000 19,364 23,274 Consolidated 2021 $’000 2020 $’000 501 144 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 Consolidated 2021 $’000 2020 $’000 144 708 (351) 501 457 312 (625) 144 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 58 NOT E 1 7. CUR RENT LIABILITIES – P ROVI SI ONS (CON TINUED) 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. NOT E 1 8. CURRENT LIABILIT IES – LEAS E LI AB ILI TI ES Lease liability Refer to note 25 for further information on financial instruments. NOT E 1 9. NON-CURR ENT LIAB I LITI ES – BORROWI NGS 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 Assets pledged as security Consolidated 2021 $’000 2020 $’000 3,764 3,830 Consolidated 2021 $’000 2020 $’000 9,575 19,824 Consolidated 2021 $’000 2020 $’000 28,939 43,098 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 59 N OTE 20. NON-CURRENT LIA BI LI TIES – LEAS E LI AB ILI TI ES Lease liability – 1 to 5 years Lease liability – greater than 5 years Consolidated 2021 $’000 2020 $’000 17,977 15,757 602 3,581 18,579 19,338 Refer to note 25 for further information on financial instruments. 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. N OTE 21 . EQUITY – ISSUED CAP ITAL Consolidated 2021 Shares 2020 Shares 2021 $’000 2020 $’000 Ordinary shares – fully paid 275,391,310 275,391,310 63,068 63,068 Movements in ordinary share capital Consolidated 2021 Shares 2020 Shares 275,391,310 282,217,475 – (6,826,165) 2021 $’000 63,068 – 275,391,310 275,391,310 63,068 2020 $’000 65,097 (2,029) 63,068 Opening Balance Shares Buy Back Closing Balance 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 60 NOT E 21. EQUITY – ISSUED CA PI TA L (CONTINUED) 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 No new buy-back scheme was effective for the financial year ended 30 June 2021. 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. NOT E 22. EQUITY – RESERVES Foreign currency reserve Hedging reserve – cash flow hedges Share-based payments reserve Enterprise reserve fund Consolidated 2021 $’000 (2,201) 118 2,607 3,935 4,459 2020 $’000 (991) (145) 1,172 3,956 3,992 Foreign currency reserve 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 61 Total $’000 4,070 (504) (303) 91 16 622 3,992 (1,210) 342 (79) 1,435 (21) 4,459 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 2019 Foreign currency translation* Movement in hedge Income tax Share-based payment Statutory transfers from retained earnings Balance at 30 June 2020 Foreign currency translation* Movement in hedge Income tax Share-based payment Statutory transfers from retained earnings Foreign currency $’000 (487) (504) – – – – (991) (1,210) – – – – Hedging $’000 Share-based payments $’000 Enterprise reserve fund $’000 67 – (303) 91 – – (145) – 342 (79) – – 1,156 3,334 – – – 16 – 1,172 – – – 1,435 – 2,607 – – – – 622 3,956 – – – – (21) 3,935 Balance at 30 June 2021 (2,201) 118 * Refer to note 24 for details of monetary items identified as a net investment in a foreign operation N OTE 23 . EQUITY – DIVIDENDS Dividends paid during the financial year were as follows: Final Dividend for the year ended 30 June 2019 of 1.00 cent per ordinary share (unfranked) Final Dividend for the year ended 30 June 2020 of 1.00 cent per ordinary share (unfranked) Interim Dividend for the year ended 30 June 2021 of 2.00 cents per ordinary share (unfranked) Consolidated 2021 $’000 2020 $’000 – 2,822 2,754 5,508 8,262 – – 2,822 On 24 August 2021 the Directors declared a dividend of 2.00 cents per share to the holders of fully paid ordinary shares in respect of the year ended 30 June 2021. This dividend has not been included as a liability in these financial statements. Including the final dividend with respect to 30 June 2021, for the full year, the dividends of 4.00 cents per ordinary share have been declared on earnings of 4.48 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 62 NOT E 24. MONETARY ITEMS IDENTI F IE D AS A NET I NVESTM EN T IN A F OREIGN OPERATION 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 Monetary items identified as a net investment in a foreign operation Consolidated 2021 $’000 2020 $’000 9,444 3,828 10,345 3,905 13,272 14,250 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. NOT E 25. FINANCIA L INST RUMENTS FINANCIAL RI SK MA NAGE ME NT OBJEC TIVES 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. MAR KET RISK Foreign currency risk The Group undertakes certain transactions denominated in foreign currency and is exposed to foreign currency risk through foreign exchange rate fluctuations. The Group enters into foreign exchange contracts to buy and sell specified amounts of foreign currency in the future at stipulated exchange rates. The objective of entering into forward exchange contracts is to protect the Group against exchange rate movements for both contracted and anticipated future sales and purchases undertaken in foreign currencies. There was no cash flow hedge ineffectiveness during the reporting period. 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 63 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 rate 2021 $’000 2020 $’000 2021 2020 8,313 1,362 9,828 1,508 0.7638 0.7710 0.6715 0.6632 Sell US dollars Average exchange rate 2021 $’000 2020 $’000 2021 2020 33,000 23,000 6.5112 7.0093 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 The Group had net assets denominated in foreign currencies of $36,082,000 (assets of $62,454,000 less liabilities of $26,372,000 as at 30 June 2021 (2020: $25,861,000 (assets of $54,618,000 less liabilities of $28,757,000)). Based on this exposure, had the Australian dollar strengthened by 10% / weakened by 10% (2020: 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 $285,000 lower/higher (2020: $322,000 higher/lower) and equity would have been $2,952,000 higher/lower (2020: $2,601,000 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. Assets Liabilities 2021 $’000 2020 $’000 2021 $’000 2020 $’000 60,370 52,903 26,097 28,603 746 489 849 583 272 860 275 – – 154 – – 62,454 54,618 26,372 28,757 Price risk The Group is not exposed to any significant price risk. Interest rate risk The Group is exposed to interest rate risk as entities in the Group borrow and deposit funds at both fixed and variable interest rates. Effective weighted average interest rates on classes of financial liabilities are disclosed under liquidity risk. The Group does not 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: 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 64 NOT E 25. FINANCIA L INSTRU MENTS (CONTINUED) 2021 2020 Weighted average interest rate % Weighted average interest rate % Balance $’000 Balance $’000 – 30,407 – 27,811 2.19% (28,912) 2.49% (43,036) (15,225) Consolidated Cash and cash equivalents Bank loans Net exposure to cash flow interest rate risk 1,495 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group manages liquidity risk by maintaining adequate cash reserves and available borrowing facilities by continuously monitoring actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. Remaining contractual maturities The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position. An analysis by remaining contractual maturities is shown in ‘liquidity and interest rate risk management’ below. An official increase/decrease in interest rates of 100 (2020: 100) basis points would have an adverse/ favourable effect on profit before tax of $289,116 (2020: $430,250) 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 65 Consolidated – 2021 Non-derivatives Non-interest bearing Trade payables Sundry payables and accruals Interest-bearing – variable Bank loans Lease liability Total non-derivatives Weighted average interest rate % 1 year or less $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Over 5 years $’000 Remaining contractual liabilities $’000 – – 2.19% 3.49% 17,927 11,580 19,364 3,764 52,635 – – 9,575 – 9,575 – – – 17,977 17,977 – – – 602 602 17,927 11,580 28,939 22,343 80,789 The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above. N OTE 26. FAIR VALUE MEASUREME NT 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 – 2021 Assets Forward foreign exchange contracts Total assets Consolidated – 2020 Liabilities Forward foreign exchange contracts Total liabilities Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 – – 515 515 – – 515 515 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 – – 595 595 – – 595 595 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. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 66 NOT E 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. NOT E 27. RELATED PA RTY TRANSAC TIONS Parent entity Gale Pacific Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 30. Key management personnel Disclosures relating to key management personnel are set out in note 28 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 67 N OTE 28. KEY MANAGEMENT P ERSO NNEL DI S CLOS URES Compensation The aggregate compensation made to directors and other members of key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Termination benefits Share-based payments N OTE 29. PAR ENT ENTITY INF ORMATI ON 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 2021 $ 2020 $ 2,732,525 2,453,525 136,696 133,827 – 103,717 1,332,590 11,604 4,201,811 2,702,673 Parent 2021 $’000 10,610 10,873 2020 $’000 2,550 2,338 Parent 2021 $’000 2020 $’000 22,846 25,758 116,201 123,030 21,688 43,922 21,584 54,796 63,068 63,068 117 2,606 6,488 (145) 1,172 4,139 72,279 68,234 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 68 NOT E 29. PARENT ENT ITY INFOR MATI ON (CONTINUED) 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 2021 and 30 June 2020. Please note comparative year has been changed to reflect consolidation entries between group entities. Contingent liabilities The parent entity had no contingent liabilities as at 30 June 2021 and 30 June 2020. 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. NOT E 30. INTERESTS IN SUBSI DIAR IE S 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 Principal place of business / Country of incorporation Gale Pacific (New Zealand) Limited New Zealand Gale Pacific FZE United Arab Emirates Gale Pacific Special Textiles (Ningbo) Limited Gale Pacific Trading (Ningbo) Limited Gale Pacific USA, Inc. Zone Hardware Pty Ltd Riva Window Fashions Pty Ltd China China USA Australia Australia Ownership interest 2021 % 100% 100% 100% 100% 100% 100% 100% 2020 % 100% 100% 100% 100% 100% 100% 100% NOT E 31. SHAR E-BASED PAYMENTS The Group maintains a performance rights scheme for certain staff and executives, including executive directors, as approved by shareholders at an annual general meeting. 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 69 ■ 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. Set out below are summaries of performance rights granted under the plan: 2021 Grant date Expiry date Grant price 22/11/2017 13/11/2018 01/12/2020 01/12/2021 16/01/2020 01/12/2022 30/10/2020 01/12/2023 23/12/2020 01/12/2023 $0.31 $0.35 $0.26 $0.16 $0.18 2020 Balance at the start of the year 956,000 886,000 1,034,971 Granted Exercised – – – – 1,987,000 – 14,000,000 2,876,971 15,987,000 Expired/ forfeited/ other Balance at the end of the year (956,000) – – – – 886,000 1,034,971 1,987,000 – 14,000,000 (956,000) 17,907,971 – – – – – – Grant date Expiry date Grant price Balance at the start of the year Granted Exercised Expired/ forfeited/ other Balance at the end of the year 21/09/2016 01/12/2019 22/11/2017 13/11/2018 01/12/2020 01/12/2021 $0.35 1,299,000 $0.31 1,774,000 $0.35 1,821,000 – – – 16/01/2020 01/12/2022 $0.26 – 1,034,971 4,894,000 1,034,971 – (1,299,000) – – – (818,000) 956,000 (935,000) 886,000 1,034,971 – – – (3,052,000) 2,876,971 The performance rights granted on the 30 October 2020 to the senior executives are subject to performance conditions and time hurdles as outlined below. Performance condition – The number of Rights issued that will vest will be determined proportionately from zero Rights vesting if a 3.0% increase in EPS is achieved over the 3-year performance period to 100% of the Rights vesting if a 10.0% (or higher) increase in EPS is achieved. Time hurdle – The vesting of your Rights is also dependent upon the employee remaining in continuous employment with the Company until 30 September 2023. The performance rights granted on 23 December 2020 to the CEO (also the Managing Director of the Group) are subject to employment conditions and satisfying of relevant performance hurdles based on total shareholder return (TSR) over the three-year period from 1 July 2021 to 30 June 2023. 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 70 NOT E 31. SHARE-BASED PAYMENTS (CONTINUED) The percentage of the Performance Rights that will vest will be determined in accordance with the table below. have vested will be issued immediately prior to the completion of the change of control event. TSR Percentage of Performance Rights that vest Below Threshold TSR of below 25%: Nil At Threshold TSR of 25%: 25% (i.e., 3.5 million Performance Rights) Above Threshold Each additional whole 1% TSR above 25% will add 0.32% to proportion of Performance Rights vesting to a maximum of 100% of Performance Rights vesting at 260% TSR or above Any early achievement of the TSR thresholds will be taken into account at the end of the Performance Period. In particular, if the required TSR increase of 25% or above is achieved in any financial half year prior to 1 January 2023 (Early Achievement), the TSR performance condition will deemed to be satisfied as at the end of the Performance Period to the same extent as if the increase in the TSR had occurred over the full Performance Period (even if there is a subsequent decline in the TSR). For the purpose of testing the TSR performance condition at the end of the Performance Period, the highest TSR increase over the Performance Period or any single financial half year prior to 1 January 2023 will be used (i.e., TSR increases in respect of different periods, and any vesting of Performance Rights referrable to such increases, will not be cumulative). If there is a change of control, the TSR performance condition will be immediately tested and calculated on the basis of an end price determined with reference to the change of control event (the Change of Control Price) and Performance Rights may vest accordingly. Vesting of Performance Rights is generally also conditional upon Mr Marcantonio remaining employed by the Company for the Performance Period. Underlying shares for performance rights that have vested will be issued after the end of the Performance Period unless there is a change of control event, in which case underlying shares for performance rights that 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 Monte Carlo simulation 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 $0.18 (2020: $0.26). 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 71 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. 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. N OTE 32. REMUNERATION OF AUDITORS During the financial year the following fees were paid or payable for services provided by Deloitte Touche Tohmatsu, 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 2021 $ 2020 $ 331,865 320,640 282,953 302,309 614,818 622,949 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 72 NOT E 33. NEW ACCOUNTING STA NDA RDS AND I NTERP RETATIO N S NOT YET MANDATO RY O R EA RLY ADOP TED At the date of authorisation of the consolidated financial statements, other Standards and Interpretations in issue but not yet effective were listed below. Standard/amendment Effective for annual reporting periods beginning on or after AASB 17 Insurance Contracts and AASB 2020-5 Amendments to Australian Accounting Standards – Insurance Contracts 1 January 2023 AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, 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 AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current and AASB 2020-6 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-current – Deferral of Effective Date AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018-2020 and Other Amendments AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2 AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates 1 January 2022 (Editorial corrections in AASB 2017-5 applied from 1 January 2018 1 January 2022 1 January 2022 1 June 2021 1 January 2023 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. NOT E 34. EVENTS AF TER THE R EPO RTI NG P ERI OD There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Company in future financial years. The Group notes the ongoing COVID-19 lockdowns that have been implemented subsequent to reporting date across a number of states. The impact of these lockdowns do not have a material impact on these consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | A D D I T I O N A L S E C U R I T I E S E X C H A N G E I N F O R M AT I O N 73 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 24 September 2021 (Reporting Date). CO RPO RAT E 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 (Fourth 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). N UM BER OF HOLDINGS OF EQ UITY S ECURI TI ES 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 2021 Performance rights expiring 1 December 2022 Performance rights expiring 1 December 2023 Number of holders 1,665 5 2 8 VOTING RIGHTS OF EQUITY SE CURI TIE S 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 1,665 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 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.” 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 74 DISTRIBUTION OF HOLDERS OF E QUI TY S ECU RITI ES The distribution of holder of equity securities on issue in the Company as at the Reporting Date is as follows: Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Ordinary Fully Paid Shares Total Holders 129 396 226 687 227 Units 25,494 1,182,778 1,808,729 25,303,323 247,070,986 1,665 275,391,310 Performance Rights % of Issued Capital 0.01 0.43 0.66 9.19 89.72 100 Holders of performance rights expiring 1 December 2021 Holders of performance rights expiring 1 December 2022 Holders of performance rights expiring 1 December 2023 – – – – 5 5 – – – – 2 2 – – – – 8 8 UNM ARKETABLE PAR CELS 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 24/09/2022 Minimum Parcel Size Holders Units Minimum $500 parcel at $0.4200 per unit 1,191 140 37,706 ADDITIONAL SECURITIES EXCHANGE INFORMATION (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 75 SU BSTANTIAL SHAREHOLDER S As at the Reporting Date, the names of the substantial holders of Gale Pacific and the number of equity securities in which those substantial holders and their associates have a relevant interest, as disclosed in substantial holding notices given to Gale Pacific, are as follows: Shareholder Thorney Holdings Proprietary Limited Windhager Holding AG Castle Point Funds Management Gale Australia Pty Ltd No. of Ordinary Fully Paid Shares 78,800,399 44,358,481 17,131,603 12,997,844 % 28.61 16.11 6.22 4.72 T WE NT Y LARGEST HOLDERS OF QUOT ED EQUI TY S EC URI TI ES 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 THORNEY HOLDINGS PTY LTD WINDHAGER HOLDING AG NATIONAL NOMINEES LIMITED GALE AUSTRALIA PTY LTD UBS NOMINEES PTY LTD MR KENNETH JOSEPH HALLCONTEMPLATOR PTY LTD BFA SUPER PTY LTD BNP PARIBAS NOMS (NZ) LTD STITCHING PTY LTD CHILLEN PTY LIMITED (TALLEN) RATHVALE PTY LIMITED VENN MILNER SUPERANNUATION PTY LTD MR PETER HOWELLS W A ANDREWS MEDICAL PTY LTD JFT INVESTMENTS PTY LTD MR NICHOLAS BARRY DEBENHAM & MRS ANNETTE CECILIA DEBENHAM DALESAM PTY LTD No. 71,984,262 44,358,481 16,330,858 13,997,844 6,816,137 6,000,000 3,950,000 3,327,428 2,980,624 2,700,000 2,431,317 1,857,200 1,750,000 1,300,000 1,268,900 1,226,065 1,163,000 1,032,181 TOTAL: TOP 20 HOLDERS OF ORDINARY FULLY PAID SHARES AS AT 24 SEPTEMBER 2021 190,535,692 TOTAL: % OF UNITS % 26.14 16.11 5.93 5.08 2.48 2.18 1.43 1.21 1.08 0.98 0.88 0.67 0.64 0.47 0.46 0.45 0.42 0.37 69.19 2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 76 VOLUN TARY ESCROW There are no securities on issue in Gale Pacific that are subject to voluntary escrow. UNQU OTED EQUITY SECURITI ES The number of each class of unquoted equity securities on issue, and the number of their holders, are as follows: Class of Equity Securities Performance Rights Number of unquoted Equity Securities Number of holders 17,678,971 8 There are no persons who hold 20% or more of equity securities in each unquoted class other than under an employee incentive scheme. ON M A RKET BUYBACK There is no current on-market buy-back program in place. ISS UE S 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. SE CU RITIES PURCHASED ON-MAR KET 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. STOC K EXCHANGE LISTING Gale Pacific’s ordinary shares are quoted on the Australian Securities Exchange (ASX issuer code: GAP). OT H ER 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 EXCHANGE INFORMATION (CONTINUED)2021 ANNUAL REPORT | GALE PACIFIC LIMITED | 77 | D E T I M I L C I F I C A P E L A G | T R O P E R L A U N N A 1 2 0 2 C O R P O R AT E D I R E C T O R Y AUDITORS Deloitte Touche Tohmatsu 477 Collins Street, Melbourne, Victoria, 3000 + 613 9671 7000 STOCK EXCHANG E LISTING GALE Pacific Limited shares are listed on the Australian Securities Exchange (ASX code: GAP) SHARE REGISTRY Computershare Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067 + 613 9415 4000 GA L E PACIFIC LIMITED ABN 80 082 263 778 DI R ECTORS DAVID ALLMAN Chairman PETER LANDOS Non Executive Director DO NNA M CMAST ER Non Executive Director TOM STIANOS Non Executive Director JOH N PAUL MARCANTONIO Chief Executive Officer & Managing Director CO MPANY SECRETARY Sophie Karzis RE G ISTERE D OFFICE 145 Woodlands Drive, Braeside, Victoria, 3195 + 613 9518 3333