Globe International : 23/08/2016 - Appendix 4E – Preliminary Final Report FY 2016

APPENDIX 4E

Preliminary Final Report

Lodged with the ASX under Listing Rule 4.3A

Consolidated Entity

Parent Entity‌

23 September 2016

26 October 2016

Your directors present their report on Globe International Limited ("the Company") and its controlled entities (collectively "Globe" or the "consolidated entity") for the year ended 30 June 2016.

The name and position of each director of the Company in office during the financial year and up to the date of this report:

Paul Isherwood AO FCA

Independent Non-Executive Chairman

Paul Isherwood was appointed to the Board of Directors in March 2001 and elected Chairman in March 2003. Paul is an experienced company director with a strong finance and accounting background and extensive corporate governance experience across different industry sectors, mostly with listed companies. He has proven leadership skills from a career with Coopers & Lybrand that spanned 38 years. He held the position of National Chairman and Managing Partner of Coopers & Lybrand (Australia) from 1985 to 1994 and served on the International Board and Executive Committee of the firm from 1985 to 1994. Paul was also a Director of the Australand Property Group from December 2005 to November 2014.

1,000,000

Stephen Hill Executive Director

Stephen Hill co-founded Globe in 1984, remains a shareholder in the business, and has expertise in the development of growth initiatives, brand development and market positioning strategies for the Company. Stephen is a former skateboarding champion and remains an active skateboarder, snowboarder and surfer.

12,525,606

Peter Hill Executive Director

Peter Hill co-founded Globe in 1984 and maintains a significant shareholding in the business. He is a major contributor to the strategic market direction and brand development of the business with a particular emphasis on Asian sourcing and distribution where he is based. Peter is a former skateboarding champion and maintains an extensive interest in extreme action sports and motorsports.

12,436,009

Gerhard M. Correa CPA, CA

Gerhard Correa was appointed as the Company Secretary in November 2004. Gerhard joined the Company in November 2000 as Financial Controller. Prior to joining the Company, Gerhard held senior accounting positions with Motorola Australia Pty Ltd (1992 to 1996) and Sportsgirl Sportscraft Group Pty Ltd (1996 to 2000).

The principal activities of the consolidated entity during the financial year were the specialized production and distribution of purpose-built apparel, footwear and hardgoods for the board sports, street fashion and workwear markets globally.

There have been no significant changes in the state of affairs of the consolidated entity during the financial year.

There are no reportable matters that have occurred subsequent to the end of the financial year.

The consolidated entity reported an improvement in its financial performance compared to the previous financial year, with both revenues and profitability continuing to grow, albeit at a slower rate than the high rates of the prior financial year amidst more difficult trading conditions, particularly in the Northern Hemisphere.

• Net Sales of $150.3 million grew 10% over the prior financial year (3% in constant currency).

• Earnings before interest, tax, depreciation and amortization (EBITDA) of $6.8 million were $0.5 million ahead of the previous financial year.

• Net Profit After Tax (NPAT) of $4.7 million for the full year was $1.0 million higher than the previous financial year.

Financial Performance

Reported Net Sales of $150.3 million for the consolidated entity were 10% higher than the previous financial year, despite a significant reduction in Northern Hemisphere hardgoods sales. The overall sales growth was driven by the Australasian Division, where revenues were 36% higher than the same time last year. The Australian Division in particular benefits from recent investments and diversification into new markets, with much of its sales growth coming from expansion into a more diverse apparel business. Both the North American and European Divisions were impacted by softer retail conditions, particularly for hardgoods, resulting in a reduction in local currency net sales in each region by 14% and 15% respectively.

Profitability for the year was adversely impacted by the stronger US Dollar which resulted in significant reductions in gross margins in both the Australasian and European Divisions. Despite this, the reported EBITDA of $6.8m was $0.5m ahead of the same time last year. The increase in EBITDA was driven by sales growth and restructuring in North America.

Net Profit After Tax (NPAT) of $4.7 million for the full year was $1.0 million ahead of the previous financial year. The increase is driven by higher EBITDA as well as a lower effective tax rate due to an increase in the utilization of tax losses in Australia.

Financial Position

At 30 June 2016, the consolidated entity reported net cash reserves of $4.1 million, compared to $10.3 million at the same time last year. The reduction in net cash reserves during the financial year was largely due to $2.9 million of dividends paid and $3.4 million of cash used in operations. This cash used in operations was to fund a $6.7 million increase in working capital. The increase in working capital is reflective of an underlying shift in the business during the financial year, with the sales mix trending towards higher proportions of apparel, which has higher working capital needs relative to the hardgoods business. The underlying ageing profile of accounts receivable and inventory remains sound. Inventory was tightly managed in the second half which resulted in a reduction of aged stock on hand at 30 June 2016 compared to the same time last year.

Dividends relating to the financial year ended 30 June 2016

During the year the Company paid a fully franked interim dividend of 3 cents per share. This dividend amounting to $1.244 million was paid to shareholders on 14 April 2016.

Since the end of the financial year the directors have determined that a fully franked final dividend of 3 cents per share will be payable on 14 October 2016.

In total, divdends of 6 cents per share will be paid to shareholders in respect of the financial year ended 30 June 2016, compared to 7 cents paid in relation to the year ended 30 June 2015.

The consolidated entity is not subject to particular or significant environmental regulation in respect of its activities.

Details of attendances by directors at Board meetings during the financial year were as follows:

1. Details of remuneration

2. Service agreements

3. Share-based compensation

4. Other transactions with directors and key management personnel

5. Additional information

1. Principles used to determine the nature and amount of remuneration

   Over-riding principles of remuneration

   The objective of the Company's executive remuneration framework is to attract and retain directors and executives capable of managing the consolidated entity's diverse operations in Australasia, North America and Europe. As the Company does not have a Remuneration Committee, executive remuneration is reviewed on an annual basis by the Board, having regard to personal performance, Company performance and relevant comparative external information.

   Remuneration for directors comprises a fixed component only. Remuneration for other senior executives comprises both fixed compensation and an "at risk" component. The "at risk" component includes the potential for both short and long term incentives. The short term incentive is based on a combination of the Company's results and individual performance levels. Incentive targets are set at the beginning of each year and assessed on an annual basis by the CEO, and the Board in the case of the CEO. The long term incentive component is based solely on Company performance, as set out in the Executive Long Term Incentive Plan (LTIP).

   This executive remuneration framework is aligned with shareholders interests in the following respects:

   • it attracts and retains high calibre executives, as it:

     • remunerates capability and experience

     • is competitive

     • rewards executives for contributing to the achievement of Company and business unit targets

     • provides a clear structure for earning remuneration

   • remuneration is linked to certain financial performance measures. Globe International Limited's net profit after tax (NPAT) and earnings before interest, tax, depreciation and amortisation (EBITDA) have been the central performance measures for the Company's executives in recent years. Other financial measures taken into consideration include revenue growth, net operating cash flows and other business objectives.

     Based on these over-riding principles, the executive remuneration framework satisfies the following criteria for good remuneration governance practices:

   • competitiveness and reasonableness

   • compensation linked to performance

   • transparency

   • capital management

     REMUNERATION REPORT (AUDITED) (continued) Directors

     Remuneration and fees paid to directors reflect the demands which are made on, and the responsibilities of, the directors in their capacity as board members and/or executive directors, as the case may be. Directors' remuneration and fees are reviewed annually by the Board, both in total and by individual director. Directors do not participate in any incentive schemes.

     Non-executive directors

     Fixed compensation

     The current base remuneration was last reviewed with effect from 1 October 2008, which at that time resulted in a reduction in the fees paid to the non-executive director. There have been no changes to the fees since this point. As there are no sub-committees of the Board, this is an all inclusive annual fee.

     Retirement allowances

     The only retirement allowances for the non-executive directors are superannuation payments to a nominated contribution scheme, which are made in accordance with statutory obligations in Australia. The director may also elect to have a further portion of his remuneration into his personal superannuation plans.

     Executive directors

     Fixed compensation

     The financial year ended 30 June 2011 was the first year since 2001 in which the executive directors were remunerated in accordance with their positions in the Company. For the preceding 9 continuous years, the founding directors who were full time executive directors had elected not to receive any remuneration for their services. During the 2016 financial year, effective 1 September 2015, the annual base pay of each of the executive directors was increased to reflect their on-going contribution towards the development and enhancement of the Company's brands, which ultimately drives the growth in revenue and profits.

     The executive directors' remuneration is fixed, and consists of base pay and superannuation. The base pay is determined by the Chairman, and is considered to be reasonable in that it is in line with market remuneration for similar positions in the industry and in line with the remuneration paid to KMP's with similar levels of responsibilities. Furthermore, there are no guaranteed base pay increases included in the executive directors' employment contract and no entitlements to participate in the Company's short or long term incentive plans.

     Termination benefits

     Executive directors are not entitled to termination benefits other than the minimum requirements set under the National Employment Standards.

     Retirement allowances

     The only retirement allowances for the executive directors are superannuation payments to a nominated contribution scheme, which are made in accordance with statutory obligations in Australia.

     Executives

     The executive remuneration framework has three components that, combined, represent total remuneration:

   • fixed compensation

   • short-term incentives

   • long-term incentives

     Fixed compensation

     The terms of employment for all executive management include a fixed compensation component, which is expressed in local currency. This fixed component is set in accordance with the market rate for a comparable role by reference to appropriate external information and having regard to the individual's responsibility, qualifications, experience and location. Executive compensation is also reviewed on promotion and at the expiration of service agreements.

     Fixed compensation includes contributions to superannuation in accordance with relevant legislation, where applicable. Fixed compensation is structured as a total employment cost package which may be delivered as a mix of cash and non-financial benefits at the executive's discretion. There are no guaranteed fixed remuneration increases included in any senior executive's contracts.

     REMUNERATION REPORT (AUDITED) (continued)

     Short term incentives ("STI")

     The STI is a plan that involves linking specific targets, both quantitative and qualitative, with the opportunity to earn incentives in addition to fixed compensation. The amount of STI available each year is established at the discretion of the Board, with Executives' STI's capped at 75% of their base pay, and the CEO's STI capped at 100% of his base pay. A combination of quantitative and qualitative targets are set by the Board and the CEO at the start of each financial year. The targeted quantitative performance levels include a mix of both individual performance levels and total Company performance levels. This ensures that the incentive is directly linked to areas of individual control, while at the same time ensuring that such incentives are ultimately linked to the creation of shareholder wealth through improved Company performance. Qualitative targets make up a smaller portion of the total potential incentive payment. Such targets are more subjective and therefore payment is largely subject to the discretion of the Board.

     Short term incentives have historically been settled in cash. However, during the 2015 financial year a Short Term Incentive Equity Plan (STIEP) was approved by the Board. The purpose of the STIEP is to provide the Company with an alternative settlement option for short term incentive obligations, which will continue to motivate key management personnel ("KMPs"). Under the STIEP, KMP's will be allocated shares in lieu of cash. Shares to be allocated under the STIEP may be existing unallocated shares currently held on trust under the terms of the Globe International Long Term Incentive Plan Trust (Globe LTIP Trust) or alternatively shares purchased on market. As at the date of this report, there have been no shares allocated under the STIEP.

     Short term incentives have been awarded and recognised in the year of measurement in both the current and prior period. All of the payments relating to both the 2015 and 2016 years were substantially less than the maximum possible incentive payment. It is expected that the 2016 short term incentives will be settled in cash.

     Long term incentive plan ("LTIP")

     The objective of the LTIP is to remunerate senior executives in a manner which aligns their remuneration with the creation of shareholder wealth. LTIP grants are delivered in the form of performance rights, and are only made to senior executives. These performance rights are linked to pre-determined earnings per share (EPS) targets and growth. The Board believes this to be the most relevant performance measure as it aligns closely to the creation of wealth for shareholders. There are currently no performance rights outstanding under the existing LTIP.

2. Details of Remuneration

   Details of the nature and amount of each element of remuneration for each director and the key management personnel (as defined in AASB 124 Related Party Disclosures) of the consolidated entity are set out in the following tables. The key management personnel (KMP) of the consolidated entity are the directors of the Company, the Chief Executive Officer (CEO) Matthew Hill, and those executives that report directly to the CEO, including:

   • Gary Valentine - Chief Operating Officer and President of North America

   • Jessica Moelands - Chief Financial Officer

   • Matthew Wong - President Global Product

   • Jon Moses - President Australasia

   DIRECTORS OF GLOBE INTERNATIONAL LIMITED

   2016			2015
   Cash Remuner- ation $	Super- annuation $	Total $	Cash Remuner- ation $	Super- annuation $	Total $
   Non-executive directors
   Paul Isherwood	115,000	10,925	125,925	115,000	10,925	125,925
   Sub-total	115,000	10,925	125,925	115,000	10,925	125,925
   Executive Directors
   Peter Hill	383,141	9,500	392,641	256,667	18,783	275,450
   Stephen Hill	373,333	19,308	392,641	256,667	18,783	275,450
   Sub-total	756,474	28,808	785,282	513,334	37,566	550,900
   Total Directors' Remuneration	871,474	39,733	911,207	628,334	48,491	676,825

   Name

   Short Term benefits
   Name	Cash Salary $	Other $	Short Term Incentives (3) $	Super- annuation $	Total $
   Matthew Hill (1)	1,157,904	27,684	-	-	1,185,588
   Gary Valentine (1)	536,903	10,488	34,483	-	581,874
   Jessica Moelands (2)	122,949	-	50,000	10,805	183,754
   Matthew Wong	300,000	-	50,000	19,308	369,308
   Jon Moses	300,000	-	150,000	19,308	469,308

   REMUNERATION REPORT (AUDITED) (continued) KEY MANAGEMENT PERSONNEL (KMP) 2016

   (1) US based executive. (2) Cash salary represents payments for part of the year only, as the executive was on unpaid maternity leave during the year.

   (3) These incentives were accrued in 2016, but will be paid during the 2017 financial year.

   Short Term benefits
   Name	Cash Salary $	Other $	Short Term Incentives (2) $	Super- annuation $	Total $
   Matthew Hill (1)	784,153	28,297	180,723	-	993,173
   Gary Valentine (1)	471,474	9,161	72,289	-	552,924
   Jessica Moelands	272,083	-	100,000	18,783	390,866
   Matthew Wong	275,000	-	100,000	18,783	393,783
   Jon Moses	265,000	-	100,000	18,783	383,783

   2015

   (1) US based executive (2) These incentives were accrued in 2015, but paid during the 2016 financial year. All incentives were settled in cash.

3. Service Agreements

   Remuneration and other terms of employment of the Chief Executive Officer (CEO) are formalised in a service agreement, the major provisions of which are as follows:

   • 5 year term, commencing from 1 July 2015 and expiring on 30 June 2020

   • base pay commencing 1 July 2015 of US$840,000 to be reviewed annually

   • twelve months' notice of termination by the Company or six months' notice of termination by the CEO.

   • termination payment is capped at the maximum limit allowed under part 2D.2 of the Corporations Act 2001.

   All other key management personnel are subject to employment contracts where duration is unlimited and standard notice periods of six to twelve weeks apply. In addition, key management personnel are eligible to participate in both short and long term incentive plans.

4. Share Based Compensation

   Executive Long Term Incentive Plan (LTIP)

   A scheme under which senior executives are awarded Performance Rights was approved by shareholders at the 2003 Annual General Meeting. The terms of the LTIP are as follows:

   • There is nil consideration payable by the participant to the Company for Performance Rights awarded under the LTIP.

   • The holder of the Performance Rights is not entitled to voting or dividend rights until the Performance Rights vest and the shares are issued.

   • The Performance Rights, subject to performance criteria, vest in equal annual instalments on each anniversary of the Award date. If the Performance Criteria for any year are not satisfied, those Performance Rights relating to that year will lapse and will not be carried forward.

   There have been a series of Rights awarded under this plan since 23 January 2007, none of which have vested, and all of which have been cancelled, replaced or have lapsed as the performance criteria were not met. There are currently no Performance Rights on issue.

   REMUNERATION REPORT (AUDITED) (continued)

5. Other transactions with directors and KMP's

   Shareholdings

   The number of shares in the Company held during the financial year by each director of the Company and each of the key management personnel of the consolidated entity, including their personally related entities, are set out below:

   Name	Balance at the beginning of the year	Received during the year on the exercise of performance rights	Other changes during the year	Balance at the end of the year
   Directors of Globe International Limited - Ordinary Shares
   Paul Isherwood	1,000,000	-	-	1,000,000
   Peter Hill	12,436,009	-	-	12,436,009
   Stephen Hill	12,525,606	-	-	12,525,606
   Key management personnel of the consolidated entity - Ordinary Shares
   Matthew Hill	3,495,965	-	-	3,495,965
   Jessica Moelands	1,000	-	-	1,000
   Matthew Wong	117,500	-	-	117,500

   Related party transactions with directors and key management personnel

   From time to time the consolidated entity may engage in transactions with directors, key management personnel and their related entities where the transaction presents a commercial opportunity for the consolidated entity. Such transactions occur on the condition that they are based on arms- length, or better than arms- length, terms and conditions. Where such transactions are on a fixed contractual basis (such as property lease contracts), approval is required from the independent non-executive Chairman of the board prior to the execution of the contract. Such approval is only granted where management is able to provide evidence that the transaction is commercially relevant and has been made on an arm's length basis. For property leases, such evidence includes independent professional advice with regards to the appropriate valuation of the leased property.

   Peter Hill and Stephen Hill were directors of the Company throughout the financial period, and were involved with the following related party transaction, which was conducted under arms-length terms and conditions.

   • Peter and Stephen Hill are directors of LHCF Nominees Pty Ltd ("LHCF"). The consolidated entity leases a commercial property from LHCF and during the current year paid rent to LHCF of $760,938 (2015: $682,894). Rent is paid one month in advance, and is due and payable on the first of every month.

6. Additional Information

Over the past five financial years as a whole, there has been an increase in shareholder wealth of $38.4 million based on an increase in the Company's share price from $0.42 at 30 June 2011 to $1.34 at 30 June 2016. Additionally, as a contribution to shareholder wealth, the Company has returned $7.3 million to shareholders during this period, by way of fully-franked dividends paid in the financial years 2012 (5 cents per share), 2013 (2.5 cents per share), 2015 (3 cents interim dividend) and 2016 (4 cents final & 3 cents interim dividends). This increase in shareholder wealth is set out in the graph below:

During the financial year, Globe International Limited paid premiums to insure the directors, secretary and senior management of the Company and its subsidiaries. The amount of such premiums is confidential as per the terms of the insurance contract.

The liabilities insured include legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company and its controlled entities, but not in respect of obligations owed to the Company, or if they are found liable in such civil penalty or criminal proceedings.

Certain non-audit services were provided by the consolidated entity's auditor, PricewaterhouseCoopers. The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. PricewaterhouseCoopers and its related parties received, or are due to receive, $53,411 (2015: $105,316) from the consolidated entity for non-audit services rendered during the financial year, predominantly in relation to taxation compliance and advice.

A copy of the auditors' independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 11.

Amounts in the Directors' Report have been rounded off in accordance with ASIC Corporations (Rounding in Financial / Directors' Reports) Instrument 2016/191 to the nearest thousand dollars, or in certain cases, to the nearest dollar.

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001.

This report is made in accordance with a resolution of the Board of Directors pursuant to section 298(2) of the Corporations Act 2001. Melbourne

Dated this 23rd August 2016

............................................................

Paul Isherwood Chairman

Auditor's Independence Declaration

As lead auditor for the audit of Globe International Limited for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been:

1. no contraventions of the auditor independence requirements of the Corporations Act 2001

   in relation to the audit; and

2. no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Globe International Limited and the entities it controlled during the period.

PricewaterhouseCoopers, ABN 52 780 433 757

Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

11

This financial report includes the consolidated financial statements of the consolidated entity consisting of Globe International Limited and its subsidiaries. Unless otherwise noted, all financial information relates to the consolidated group.

Globe International Limited is a company limited by shares, incorporated and domiciled in Australia. The address of the Company's registered office is 1 Fennell Street, Port Melbourne, Victoria, 3207. The financial statements are presented in Australian currency and were authorised for issue by the directors on 23 August 2016. The Company has the power to amend and re-issue these financial statements.

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