re everyday essentials… - Hanes Australasia...COST OF DOING BUSINESS TO GROSS MARGIN % (Costs include freight, distribution, IT, sales and marketing, advertising and administration)

More everyday

R+A PACIFIC BRANDS LIMITED AND ITS CONTROLLED ENTITIESABN 64 106 773 059

PACIFIC BRANDS REPORT + ACCOUNTS 2007

essentials…

join the Pacifi c

(front cover image)Providers of innovative, technologically advanced apparel and footwear

Welcome

Lee Directional denim fashion brand with authentic roots

Mooks Street savvy youth label. Witty, unpretentious and credible

Welcome

More everydayessentials…

Paul Frank For individuals who want to make things different and better

Welcome

acifi c Brands family

WranglerRebellious American denim brand with over 100 years of heritage

Welcome

Welcome

StussyIconic Californian youth streetwear brand, with international fl avour

Welcome

MossimoThe original authentic streetwear brand

Report+Accounts 2007 1

2 Pacific Brands

+

DOWD – Solutions in corporate apparel

Welcome

NNT Uniforms – Enhance your image

Welcome

Hard YakkaAustralia’s leading workwear brand.Nothing’s tougher

Welcome


+

4 Pacific Brands

>$2,000,000,00

Category management leadership:

Our extensive brand stable ensures we can deliver unsurpassed market category coverage.

Icon brand development:

Strong consumer brands are our highest priority and most important asset.

Consumer and retailer intimacy:

Relevant brands and products engage consumers and continue to make Pacifi c Brands a supplier of choice.

Ability to leverage scale:

Our size improves our per unit cost effi ciency and speed to market while we maintain fl exibility to meet changing consumer needs.


000,000,000*

Strong cash generation:

Allows the payment of strong dividends and the ability to make further strategic acquisitions as they arise.

Vibrant and rewarding workplace of choice:

Empowerment, creativity, alignment and collaboration are the cornerstones of our culture.

Strong fi nancial discipline:

Continuing focus on working capital and return on assets.

*Greater than $2 billion on an annualised basis

6 Pacific Brands

Paul has been the key ingredient to our success.

He has been an inspiring leader and developer of

people. Both Paul and the Board focus heavily on

succession planning. It is a tribute to his ability to

develop people that his successor was chosen from

his team. He leaves behind an excellent group of

managers, who together with Sue Morphet as CEO,

will lead this company through its exciting next phase

of development.

Sue Morphet has a distinguished career at Pacific

Brands demonstrating she has the skills to take brands

to new levels of performance. She is well qualified to

continue implementing the strategy we have pursued

over the last few years.

Our role in the community is also important to our

success. With the encouragement of our staff, we

have enhanced our partnerships with the Breast

Cancer Network of Australia and the Prostate

Cancer Foundation of Australia. As a manufacturer

of consumer goods as well as an importer, we have

embarked on various initiatives to conserve valuable

resources and minimise harm to our environment.

We are mindful of our responsibilities and are making

good progress.

Thank you for your continued support during 2007.

We believe we are positioned to deliver good

performance both for our community and our

shareholders during 2008.

Pat Handley

Chairman

Pacific Brands Limited

The 2007 financial year has seen Pacific Brands

achieve a much stronger market position as the

number 1 or 2 in most of its consumer goods

categories. This has given us an opportunity to offer

new product at attractive margins using our extensive

scale in sourcing and distribution.

The consistent dedication to our strategic direction

delivered a strong financial performance as evidenced

by our record sales, profit, cash position and dividend.

The continuing investment in our brands and people,

the continuing drive for operational efficiencies as well

as the purchase of well run companies all contributed

to our strong result. In addition, the depth and breadth

of our customer base has increased which will

contribute to a less volatile growth in the future.

One of the important financial metrics of our company

is the ability to generate good cash flow. That was

certainly a feature of this result again. It not only

enables us to pay a good dividend but gives us the

flexibility to manage our growth sensibly. Since all of

our acquisitions, either of brands or companies, have

been funded by cash, management can properly

evaluate the financial trade-offs between using the

excess cash (after dividends) to pay down debt or

to make further strategic acquisitions. We anticipate

that cash generation in 2008 will again be a feature

of the result.

Aside from the financial outcomes during the 2007

financial year, there were several other important

events that occurred.

Ms Dominique Fisher, who is new to the board and

is standing for election this year, brings extensive

experience across the information technology area to

our board. Technology is a vital ingredient to achieving

the benefits from our scale. We believe she will be an

important contributor.

Most importantly, Paul Moore has announced his

intention to retire at the end of 2007. After a 30 year

career with Pacific Brands and 9 years as its CEO,

Chairman’s letter


‘Good cash fl ow…It not only enables us to pay

a good dividend, but gives us the fl exibility

to manage our growth sensibly.’

8 Pacific Brands

• Net sales revenue $1,820.7 million, up 12.1%

on previous year

• $216.4 million EBITDA, up 12.5%

• $194.0 million EBITA, up 12.2%

• $107.3 million net profi t after tax1, up 6.0%

• Earnings per share1 of 21.3 cents, up 6.1%

• $112.9 million net operating cash fl ow,

up 41.1%

• Completion of Brand Collective and

Yakka Group acquisitions

1 NPAT and EPS exclude the impact of the amortisation of acquired intangible assets.

Strong results achieved through the focus

on a consistent strategic direction –

investment in brands and people, product

innovation, the drive for operational

excellence and well targeted acquisitions.

2007 Highlights


FINANCIAL RESULTS FOR 2007

FIVE YEAR FINANCIAL COMPARISON ($ MILLION)

SALES EBITDA

0706050403

1,820.7

1,624.9

1,521.71,535.1

1,489.1

0706050403

N/AN/A

112.9

80.075.1

0706050403

75.174.672.173.775.6

COST OF DOING BUSINESS

TO GROSS MARGIN %

(Costs include freight, distribution, IT, sales and marketing, advertising and administration)

NET OPERATING CASH FLOW

(Cashfl ow from Operations less interest, tax and capital expenditure.)

Note: Net Operating Cashflow

not available on a like for like

basis prior to IPO in 2004.

10 Pacific Brands

‘An unrelenting focus

on our strategic

priorities has delivered

record levels of sales,

profi t, cash and

dividends in the 2007

fi nancial year.’

CEO’s report


business mix continues to evolve with almost two-

thirds of our sales now coming from Department and

Specialty Stores and Independents.

Our category strength is reinforced by strong consumer

demand and our powerful portfolio of iconic brands.

Enhance brand leadership

Some of our brands have heritages that stretch back

more than 100 years but they remain relevant to

today’s consumers, responding to changes in the

retail environment and staying ahead of changing

consumer trends.

Our businesses manage their brands individually to

retain their character and connection to their heritage.

Our portfolio of unique brands each with its own,

distinctive personality, allows us to properly position

brands in each category with maximum market effect.

Continuing consumer loyalty helps to extend our

brand leadership which in turn builds category

leadership. We continue to invest heavily in market

research, consumer insights and targeted marketing

initiatives.

Effi ciency through scale

The volume and scope of our shipping and product

movements from Asia to Australia, together with our

domestic operations give us the scale equivalent to

a large logistics company. In 2007 we delivered more

than 300 million units and on an annualised basis,

our annual net sales now exceed $2 billion. This scale

provides many opportunities for efficiency and sourcing

gains and gives us a sustainable competitive advantage.

We continue to expand our resources in Asia to

manage and optimise our efficiency and speed.

We opened a new office in Hong Kong and have

extended our presence in Southern China and

Shanghai increasing our shipments direct from Asia

to customers.

In the 2007 financial year Pacific Brands consolidated

and extended its position as the leading everyday

consumer goods company in Australasia.

An unrelenting focus on our strategy

The Pacific Brands strategy is simple and remains

unchanged:

• Category management;

• Extend brand leadership;

• Leverage our scale; and,

• Growth through category enlarging acquisitions.

Execution of these strategic priorities has delivered

record levels of sales, profit, cash flow and dividend

in the 2007 financial year.

The ongoing investment in our brands and people, the

benefits of scale, greater operational efficiencies and

the completion of two strategic acquisitions (the Yakka

Group and Brand Collective, formerly the streetwear

division of Globe) all contributed to our record result.

Category management

Our strategy continues to be to take big positions in

big categories.

We have the resources and expertise to compete

head-on and build the brands within our existing

portfolio to grow our categories and we have the ability

to successfully acquire and integrate new brands into

our business. We will continue to do both.

During 2007 the strength of our core business and

sound acquisitions allowed us to extend our category

leadership. We now have big positions in footwear,

underwear, hosiery, outerwear, pillows, sheets, beds,

lifestyle, jeans, and now workwear.

Our category positioning spreads right across the retail

spectrum from everyday value up to super-premium.

As we continue to manage our key categories our

12 Pacific Brands

Our scale gives us scope to move to more strategic

relationships with both suppliers and customers. We

are rationalising our supplier base and are better able

to work with them to ensure quality and the flexibility to

more quickly respond to market requirements. We are

increasing our ability to interface and collaborate with

our major customers, driving efficiency and growing

categories.

Growth through strategic acquisitions

During the year we acquired the Yakka Group and Brand

Collective (formerly the streetwear division of Globe

International) each with a strong strategic rationale.

They are profitable businesses adding to and benefiting

from our scale and extending our consumer reach in

key categories. Progress is already being made through

the use of Pacific Brands’ shared services, logistics and

sourcing functions. These and other ongoing integration

benefits will be followed by longer-term marketing gains

following increased marketing support.

The strong cash generating capability of our business

means that we are constantly on the look out for value

creating additions. Suitable opportunities still exist and

we expect to continue to grow through acquisition.

People – the cornerstone of our success

Our people are highly skilled in category management,

branding, product development and service delivery.

We work hard on maintaining a high performance culture

where we can attract and retain the best people who will

continue to drive the company forward.

We recognise and value the contribution that each of our

9,000 employees makes to the success of our business.

Operational Performance

The 2007 financial year delivered strong results including

EBITA up 12.2 percent and earnings per share1 up 6.1

percent. Especially pleasing was delivering the record

Net Operating Cash Flow as management continues to

focus on working capital management and return

on assets.

We anticipate that cash generation in 2008 will again

be strong and with some confidence in the future,

we have increased the final dividend to 8.5 cents, giving

a 16.5 cents full year dividend.

Underwear and Hosiery consolidated its market position

with clear category leadership, better brand positioning,

and more new product development. Outerwear and

Sport was up considerably on last year as a result of

the inclusion of the Yakka Group and Brand Collective

businesses. A restructuring of its core businesses should

lead to further growth. Home Comfort completed a

year of organic growth supplemented by the successful

integration of the Sheridan business that is showing

the benefits of increased brand investment. Footwear

returned a commendable result of increased profit

in a market that has been fairly volatile.

Outlook - Growth

We have set the foundation for the company to grow

solidly over the next period, and the integration of the

Yakka Group and Brand Collective will further cement

our position in important categories. The new financial

year has started well and we expect to achieve a net

sales increase in the order of 15-20 percent. With our

increased debt following acquisition and the higher

interest cost, we expect net profit to be up more than

10 percent given the current economic outlook.

Pacific Brands is a fantastic company with excellent

prospects and I am confident under Sue’s stewardship

the company will continue to prosper.

In closing, I would like to thank all the colleagues who

have made my time at Pacific Brands so rewarding.

Paul MooreChief Executive Officer Pacific Brands Limited

1 EPS exclude the impact of the amortisation of acquired intangible assets.


SALES BY CUSTOMER CHANNEL

Department stores 16.2%

Discount department stores 25.8%

International 5.8%

Speciality/Independents/Other 46.8%

Supermarkets 5.4%

SALES BY GEOGRAPHICAL LOCATION

Australia 85.0%

Rest of world 5.8%

NZ 9.2%

SALES BY OPERATING GROUP

Underwear/Hosiery 34.6%

Outerwear/Sport 19.9%

Home comfort 28.4%

Footwear 15.4%

Other 1.7%

Yakka is the largest supplier

and marketer of industrial and

corporate workwear in Australia.

The Yakka and Hard Yakka brands

are iconic brands in the workwear

category. The purchase of Yakka

represents the most significant

acquisition for Pacific Brands

since Bonds in 1987.

The Yakka Group is a strong

strategic fit with the existing King

Gee business, delivering Pacific

Brands the leading presence in the

industrial and corporate workwear

category.

In addition to workwear, the

Yakka Group acquisition brings

the lifestyle brands of Lee and

Wrangler into the portfolio further

enhancing our lifestyle clothing

position following the acquisition of

the streetwear business of Globe

(now known as Brand Collective).

The Yakka Group acquisition

will further improve our scale

efficiencies and market positioning

and (on an annualised net sales

basis) will make Pacific Brands a

$2 billion company.

Strategic Rationale for Yakka

A CHANGING BUSINESS PORTFOLIO

Portfolio Snapshot

14 Pacific Brands

250,111 pairs of underwear 169,444 pairs of socks 100,278 pairs of hosiery 64,278 pairs of shoes 55,911 outerwear garments 47,808 kilograms of foam 46,188 square metres of carpet underlay 25,010 pieces of workwear 14,444 golf balls 13,238 pillows 11,111 tennis balls

everyday


All over Australia and New Zealand people not only wear our brands but they sleep in our brands. They play sport in our brands. They go to work in our brands. They dress their children in our brands. Virtually every aspect of their lifestyle incorporates at least one of our brands.

Every day. Every week. Every month.

That’s the power of everyday essential brands.

A strategic platform for building shareholder value.

Over the following pages we take a

look at our competitive advantages

and how we’re measuring up.

16 Pacific Brands

Building brand

LEADERSHIPCategory leadership comes through strong brands

and Pacific Brands is home to some of Australia’s

most iconic brands. Our brands are a key driver of

our competitive advantage. Our continued investment

in branding and brand development has extended

our category leadership.

Brands are the building blocks of category management

Our brands stretch right across the retail spectrum and

cover many needs and almost all price points. This diversity

allows us to best position our brands in each category

to maximise our performance.

UNDERWEAR & HOSIERY

Home of Australia’s top-5 underwear and top-3 hosiery brands.

Sales: $630 million

OUTERWEAR & SPORT

Leading brands in lifestyle clothing, workwear and sport.

Sales $363 million

HOME COMFORT

Iconic brands for the bedroom and household.

Sales $517 million


RSHIP

FOOTWEAR

Australia’s leading branded footwear business

Sales $280 million Note: Other sales of $30 million

18 Pacific Brands

Driving product

INNOVATIONGreat brands need to be backed up with great

products. At Pacific Brands, exceptional quality and

ensuring products are fit for purpose are ingrained as

‘business as usual’. In supporting our brands, Pacific

Brands’ ability to extend trusted ranges with products

that surprise and excite consumers forms another

source of competitive advantage.

Product innovation opens up new growth opportunities,

expands market horizons and draws new consumers

into the market.

Speed to market with new products a key driver

of success

Pacific Brands continues to invest in its creative

product development capability: The people, skills

and resources needed to stay at the forefront of

innovations in its categories. Our local capability in

developing products for the unique Australasian market

is well supported by our global sourcing experts who

enable Pacific Brands to be proactive in taking on new

technology from around the world.

Jockey 3D-innovations™


TIONRecent Innovations

• Bonds Cotton Coolmax men’s underwear

• Holeproof Grow Socks

• Bonds Cotton Santoni – women’s seamless underwear

• Holeproof Nothings – women’s underwear

• Sheridan ‘Ultra Soft’ Towel

• Platinum Bodywear

• Dunlop AEROGEL Tennis Racquet

• Dunlop V389 Cricket Bat

• Bonds Cropped Hoodie

• Patagonia eco-friendly footwear

• Sleepmaker Select – Customised mattress

• Sheridan Supima Sheets and Towels

• Dunlop Flooring Firebrake Underlay

• Sheridan Cool-Sheet Technology

• Tontine breathable fibre pillows and quilts

Dunlop AEROGEL Holeproof Nothings Sleepmaker Select

20 Pacific Brands

Delivering on

SERVICEMore than 15,000 containers are shipped and we deliver

more than 300 million units every year, to more than

23,000 customers.

The volume and scope of our shipping and product

movements from Asia to Australia, together with our

domestic operations give us the scale equivalent to

a large logistics company.

We continue to expand our resources in Asia to manage

and optimise our efficiency and speed. We opened a new

office in Hong Kong and have extended our presence

in Southern China and Shanghai to allow us to rapidly

absorb the servicing of our new brands and products.

A new warehouse in Shanghai will take on Yakka Group

product and we are increasing our shipments direct from

Asia to customers.


Our scale is important as we move to more strategic

relationships with both suppliers and customers. We are

rationalising our supplier base and are better able to work

with our suppliers to ensure quality and the flexibility to more

quickly respond to market requirements. We are increasing

our ability to interface and collaborate with our major

customers, driving efficiency and growing categories.

22 Pacific Brands

Developing our

PEOPLEPacific Brands has more than 9,000 employees

in 216 locations across 8 countries and they form

the cornerstone of our success.

We work hard to attract, develop and retain people who

can positively contribute to the business. Pacific Brands

continues to strive to improve its high performance

culture and maintain an environment where talented

and creative people want to make a difference for our

shareholders, customers, and community.

We aim to develop our people to take on more complex

roles and leadership positions all across our business.

Employees work with us to assess their readiness for

the next step, and work on their own development

through both internal activities and external programs.


Our values are the foundation for our culture:

ACCOUNTABILITY do what you say, take responsibility

ACTION make it happen, focus on solutions

COURAGE speak up and be counted, challenge

INNOVATION to lead the way. Explore, dare to try

INTEGRITY is non-negotiable

PERFORMANCE be the best you can be, commit and deliver

SPEED be there first, do it, don’t wait

UNITY work as one winning team, collaborate

24 Pacific Brands

Corporate Social Responsibility

At Pacifi c Brands, we have a commitment to

ethical, responsible and sustainable conduct in all

our operations for all our stakeholders including

shareholders, employees, customers, consumers,

suppliers and the wider community.

Our Employees Pacifi c Brands is continuing to build a great

place to work. We strive to provide a collegiate environment,

challenging work, career development opportunities, and a

core set of values we aspire to live by.

We are working hard to protect our employees’ safety at

work. Brandssafe, our Pacifi c Brands Safety Management

System, is certifi ed within AS/NZS:4801 and continues to

deliver a reduction in injury rates.

In addition, we have a comprehensive employee wellness

program including -

• An Employee Assistance Program, providing confi dential

counselling for employees and their families

• Quit Smoking Programs

• Fitness2live – an on-line health program for employees

and their families

• Private Health Insurance discount

• Medical support both in Australia, and overseas when

employees are travelling

• Our Health & Community Planner, distributed to all our

sites, raising awareness of health issues for all employees.

Our Consumers and Customers We work with Retailers

to ensure we provide good value, high quality products

made locally or sourced from ethical trading suppliers for

our consumers. We strive to deliver all products on time.

Our Quality System, certifi ed within ISO:9001 operates

across all Underwear & Hosiery brands, Outerwear & Sport

brands and Tontine. All of Pacifi c Brands will be certifi ed by

May 2008.

Our Community We continue to invest in our community

with our ‘Brands for Good’ program, addressing our

employees’ concerns around ‘cancer awareness and

prevention’, and ‘children, youth and families at risk’.

We have key strategic partnerships with the Breast Cancer

Network of Australia and the Prostate Cancer Foundation of

Australia – both working to raise community awareness and

promote early detection of cancer.

In addition, we work closely with The Brotherhood of

St Laurence and Lifeline, both working at a grassroots

level to combat social disadvantage and poverty in our

community.

On a needs basis, we also support World Vision (tsunami

relief), Reconciliation Australia (support for Indigenous

people), The Long Walk and various other community

initiatives which fi t our ‘Brands for Good’ strategy.

Our Environment Pacifi c Brands is committed to the

protection of the environment, minimising our environmental

impact wherever possible. We have a robust Environmental

Management System which is certifi ed within ISO:14001.

Our major environmental impacts are –

• Paper & packaging • Air emission

• Energy usage • Water usage

To reduce our environmental impact we have a number

of initiatives in place –

• Member of the National Packaging Covenant, abiding by

its policies and principles

• A National Waste Minimisation & Recycling Program

(partnered with Visy)

• Recycle scrap foam into fl ooring products

• Reducing water usage across pertinent sites including

a partnership with Sydney Water

• Plans to trial a water recycling program commencing

in New South Wales

• Targets for energy reduction of 10% by June 2008

• Joined Greenfl eet to offset vehicle carbon emissions

• Migrating company owned vehicles to LPG.

WHAT ARE WE DOING?


The debt to equity ratio at 30 June 2007 was 61.0%,

up from 39.6% at 30 June 2006. This was the result

of increasing net debt from the funding of acquisitions.

The company will continue to use its strong cash

generation to pay down debt.

Review of Cash Flows Pacifi c Brands generated

$112.9 million in net operating cashfl ow (after interest

tax and capital expenditure) during the fi nancial year.

This is a strong improvement of 41.1% over the previous

corresponding period. Improved cash fl ows are consistent

with the uplift in the operating result and the ongoing focus

on working capital management.

The business is focussed on the ongoing management

of inventory with good progress made during the year on

reducing inventory levels. Reductions in working capital will

provide further scope for us to pay down debt.

Delivering strong sustainable cash fl ows remains a key

feature of Pacifi c Brands, generating strong dividends

and providing us the ability to make further strategic

acquisitions as they arise.

Tax The effective tax rate on earnings was 27.1%, which

was marginally above the rate of 26.3% for the year

ended 30 June 2006.

Interest Net interest expense increased as a result of

acquisitions but the company maintained a strong interest

cover (EBIT/Interest) of 4.1 times.

Dividends The improved fi nancial performance for the

fi nancial year supports the payment of an increased fi nal

dividend of 8.5 cents per share. The full year dividend

of 16.5 cents per share is a 10% increase over last year

and represents a payout of 78.2% of reported NPAT.

Dividends will be fully franked for Australian shareholders

at a 30% tax rate.

Review of Financial Position The net assets of Pacifi c

Brands have increased over the year as a result of the

Yakka Group and Brand Collective acquisitions. Intangible

assets increased by $206.4m (15.9%), including brand

names, brand licences, contracts and the goodwill

balances acquired.

Pacifi c Brands delivered growing returns for our

shareholders in this fi nancial year. We have seen

improved performances across each operating

group in what has been a challenging and volatile

retail market. The momentum we developed in

the fi rst half continued into the second. The second

half was further assisted by the strategic acquisitions

of the Yakka Group and Brand Collective.

Financial Highlights

• Total net sales $1,820.7m up 12.1% on last year

• EBITA $194.0m up 12.2%

• NPAT1 up 6.0% to $107.3m

• Net operating cash fl ow, up 41.1% to $112.9m

• Earnings per share1 up 6.1% to 21.3 cents per share

• Final dividend of 8.5 cents, resulting in a 16.5 cent

full year dividend, up 10.0%

1 NPAT and EPS exclude the impact of the amortisation of acquired intangible assets

Business Overview

REVIEW OF OPERATIONS

26 Pacific Brands

Underwear & HosieryThe Underwear & Hosiery group fi nished the

year positively through a strong focus on category

management delivering sales and margin both ahead

of last year. The group has reaffi rmed and consolidated

its position as the leader in the Underwear & Hosiery

market.

The group has extremely strong brands and the focus

has been on delivering clear, big ideas in all market

segments. A continued investment in understanding

market trends and consumer insights through targeted

consumer research has provided more focus and sharper

new product development.

Underwear & Hosiery is leading the men’s underwear

market with its major brands of Bonds, Jockey,

Holeproof and Rio and is focussed on providing the best

products in each category in terms of fi t and fabric.

Bonds continues to trade extremely well – driving the

market with continued innovation. Highlights for the

year have included cotton seamfree underwear for

men and women, the T-shirt bra and capitalising on the

ongoing strength of the fl eece market with new ranges of

hoodies.

Other highlights in underwear have included the

resurgence of the Rio brand, the high technology/

contemporary sports bra at Berlei, 3D Jockey

performance underwear, and Holeproof Nothings. Grow

socks and copper socks have provided market-leading

innovation in the sock category.

A record year for hosiery was led by the fashion trend

back to legs and the hosiery team’s ability to lead this

trend with great products – for both leg and body wear.

FY06 FY07 Change

Total net sales 610.8 630.0 3.1%

EBIT ($m) 87.6 93.7 6.9%

EBIT (%) 14.3% 14.9%

Note: EBITA = EBIT for each operating group.

Financial performance


Outerwear & SportOuterwear & Sport has spent the year repositioning the

core business and will return to profi table growth in FY08,

bolstered by the contribution of the acquired Yakka Group

and Brand Collective businesses.

Structural changes implemented in the core businesses

during the year are already starting to yield benefi ts but did

require additional costs. We have now completed a strategic

review of each business, category and brand and expect to

achieve an improved performance in Outerwear and Sport

during FY08:

• The bikes and equipment businesses now have a strong

range across each market segment with the premium

offering improved through the introduction of new licences

such as Ridley;

• The casual outerwear business has been simplifi ed with

unprofi table, unbranded sales discontinued and a renewed

focus on the core brands of Lightning Bolt and Slazenger;

• Everlast continues its strong trend in the youth sporting

apparel segment;

• King Gee generated strong sales growth with a focus on

customer service and new product introductions. They

have continued to roll out the ’totally workwear’ store

concept increasing the brand’s distribution.

The group’s result includes three months of trading from

the Yakka Group. We are encouraged by its performance

since acquisition and look forward to achieving further

improvements as the integration progresses.

Brand Collective has performed in line with expectation and

improved its distribution in specialty stores.

FY06 FY07 Change

Total net sales 249.1 363.1 45.8%

EBIT ($m) 22.3 27.0 21.0%

EBIT (%) 8.9% 7.4%


28 Pacific Brands

Home Comfort

Home Comfort has delivered solid growth through a

combination of continued core business strength and the

successful integration of the Sheridan business. The key

brands of Sheridan, Sleepmaker and Tontine continue to

drive the consumer businesses within the group.

Sheridan has been relaunched on television and

improved its ranges to drive profi table sales growth in

both the bedroom and bathroom categories. Sheridan

has increased its market leadership in the department

store channel and has cemented its position as the

number one bed linen brand. The bed linen category has

also been extended across all segments and channels in

the market.

Sleepmaker strengthened its position in the bedding

category through product leadership, investment in

research and development and operational excellence.

During the year the Group invested in a new 26,000 m2

facility for Tontine – the largest and most modern of its

type in the Southern Hemisphere. It will provide improved

and more cost-effi cient operations in both manufacturing

and distribution. Tontine continues to be the number one

pillow and bedding accessories brand.

The foam business remained steady; managing to

recover signifi cant rises in input costs while focussing on

developing higher margin specialist foam products. Flooring

extended its market leadership in Australia and delivered

record sales of carpet underlay in New Zealand.

The efforts undertaken in the group in FY07 should

continue to drive further growth in FY08.

FY06 FY07 Change

Total net sales 448.6 517.1 15.3%

EBIT ($m) 36.5 45.5 24.7%

EBIT (%) 8.1% 8.8%



and this will continue with planned concept store openings

for Hush Puppies and Naturalizer in Australia.

A focus on inventory management, consolidation of suppliers

and improved lead times have all contributed to positive

earnings results in a challenging market place.

The group will continue to invest in consumer research and

innovation will remain the focus across fi t, style, materials

and comfort for all brands. We look forward to another good

year for Footwear in FY08.

FootwearFootwear performed solidly in a challenging and volatile

retail market. The group has maintained its market share

through ongoing commitment to its brands. Increased

advertising spend and well-received marketing campaigns

across the core brands have generated strong consumer

support. Strong sales performances were achieved in Hush

Puppies, Dunlop, Merrell and Julius Marlow.

The growth in pick and pack replenishment programs across

all customer groups has resulted in the rise to now over six

million pairs of shoes being individually packed per annum

in the Altona distribution centre in Melbourne. The group

has consolidated the New Zealand warehouse into Altona

to further improve effi ciencies.

The group is working closely with retailers and logistics

partners on increasing direct deliveries from source to

customer.

Merrell footwear continues to gain share in the outdoor/

lifestyle category through a targeted distribution program

with key specialty retailers. The concept store program

continues to work well for Hush Puppies in New Zealand

FY06 FY07 Change

Total net sales 277.5 280.1 0.9%

EBIT ($m) 35.7 37.3 4.4%

EBIT (%) 12.9% 13.3%


30 Pacific Brands

Maureen Plavsic

Director, Independent Non-Executive

Age 51

Maureen joined the Board of Pacifi c Brands

Limited in May 2004, bringing a wealth of

experience in advertising, media buying and

brand marketing.

Maureen is currently also a trustee of National

Gallery of Victoria (appointed 2003) a non-

executive director of Macquarie Radio Network

Limited (appointed 2005) and a non-executive

director of a charity formed to provide

assistance to children in need, Bestest Inc.

She has previously been a director of Seven

Network Limited (1998 to 2003) and Opera

Australia (1998 to 2003). She previously spent

14 years in various executive roles at the

Seven Network, including Chief Executive of

Broadcast Television and prior to that Director

of Sales and Corporate Marketing. Maureen

also held various roles in the advertising

industry including a senior regional media role

at Unilever for just under three years.

Pat Handley

Chairman, Independent Non-Executive

BA (Econ), MBA (Finance) Age 62

Pat has been Chairman of Pacifi c Brands

Limited since incorporation in December

2003 and was Chairman of its predecessor,

Pacifi c Brands Holdings Pty Ltd, since

December 2001.

Pat brings with him over 30 years of

international fi nancial services experience.

Pat was appointed a director of Vantage

Private Equity Growth Limited in 2005 and

Chairman of Calliva Group Holdings Pty

Ltd in June 2007. He has previously been

an Executive Director and Chief Financial

Offi cer of Westpac Banking Corporation,

Chairman and Chief Executive Offi cer of

Country Savings Bank (USA), Chief Financial

Offi cer of BancOne Corporation (USA) and

a director of Suncorp-Metway Limited, AMP

Limited (2003 to 2004) and HHG plc.

In addition, Pat is currently a strategic

adviser to PricewaterhouseCoopers

and Chairman of the Advisory Board

of Nomura Securities.

Board of Directors

Paul Moore

Chief Executive Offi cer, Executive Director

BEcon, Age 56

Paul joined Pacifi c Brands in 1979. Within two

years, he was appointed General Manager of

Adidas Australia (previously part of Pacifi c Brands)

and since that time has held various leadership

roles across all of Pacifi c Brands’ operations.

Prior to joining Pacifi c Brands, Paul held various

marketing roles at The Gillette Company and

Petersville Sleigh Limited.

In August 1999, Paul was appointed to the role

of Managing Director of Pacifi c Brands (then

a division of Pacifi c Dunlop Limited) where he

then facilitated the development of a group-wide

business strategy, which included the acquisition

of synergy-generating businesses. In November

2001, he was appointed Chief Executive Offi cer

and an executive director of Pacifi c Brands

Holdings Pty Ltd. Paul was appointed to the

Board of Pacifi c Brands Limited in December

2003.

After 9 years as Pacifi c Brands’ Chief Executive

Offi cer, Paul has decided to retire at the end of

December 2007. Sue Morphet (currently Group

General Manager, Underwear and Hosiery) has

been appointed by the board to succeed Paul

as Chief Executive Offi cer.


LEFT TO RIGHT

Pat Handley

Paul Moore

Maureen Plavsic

Stephen Tierney

Dominique Fisher

Max Ould

Andrew Cummins

John Grover

Andrew Cummins


BEng (Hons), MBA (Stanford), PostGradDip (Bus

Studies), MIEAust, Age 58

Andrew joined the Board of Pacifi c Brands

Holdings Pty Ltd in November 2001, bringing

with him many years of experience in private

equity and as an executive in prominent

Australian and international public companies.

Andrew was appointed to the Board of Pacifi c

Brands Limited in February 2004.

Currently, Andrew is Chairman of the Advisory

Board of CVC Asia Pacifi c Limited and a director

of DCA Group Limited and RCTI Inc. Previously,

Andrew has been Chairman of Amatek Holdings

Limited, a director of Affi nity Health Limited

(2003 – 2005), Tech Pacifi c Holdings, Li & Fung

(Distribution) Limited, Inchcape plc, Strategy

Director of Foster’s Brewing Group Limited

and Chief Executive of Elders Investments

Limited. Andrew also spent nine years with

McKinsey & Company.

Max Ould


BEcon, Age 60

Max joined the Board of Pacifi c Brands Holdings

Pty Ltd in September 2003, bringing leadership

expertise in the consumer goods industry. Max

was appointed to the Board of Pacifi c Brands

Limited in February 2004.

Max is currently a director of Foster’s Group

Limited (since 2004), AGL Energy Limited

(previously The Australian Gas Light Company)

(since 2004) and Chairman of Goodman Fielder

Limited (since 2006). Max has considerable

experience in the Australian food industry,

including previous roles as Managing Director

of the East Asiatic Company, Chief Executive

Offi cer of Peters Foods and Managing Director

of National Foods Limited from 1996 to 2003.

John Grover

Company Secretary

LLB, BComm, FCIS, Age 45

John was appointed to the position of General

Counsel & Company Secretary in December

2003 having held the same role with the

Company’s predecessor, Pacifi c Brands

Holdings Pty Ltd, since December 2001.

Prior to joining Pacifi c Brands, he held senior

corporate legal roles with Ansell Limited (formerly

Pacifi c Dunlop Limited) and RTZ Limited

(formerly CRA Limited), which followed an eight

year career with major Australian law fi rm,

Freehills, which included two roles based

in South East Asia.

Dominique Fisher


BA (Hons), Age 50

Dominique joined the Board of Pacifi c Brands

Limited in March 2007, bringing with her

signifi cant experience gained in information

technology, telecommunications and commerce.

Dominique is currently the Chairman of

Circadian Technologies Ltd (CIR), Executive

Chairman of WebAlive Pty Ltd, and Chairman

of Sky Technologies Pty Ltd and the Australia

Council Dance Board. She is a councillor of

the Australian Council of Arts and the Prostate

Cancer Foundation of Victoria. She also runs

her own business EC Strategies Pty Ltd.

Dominique has previously been a non-executive

director of Insurance Australian Group Ltd

(IAG) and its predecessor companies for eight

years. She is a past member of the advisory

board to the Minister for Information Technology

and Communications and is a director of the

Malthouse Theatre, Sydney Opera House

Trust and a wide range of other community

organisations.

Stephen Tierney

Group General Manager, Operations,

Executive Director

BComm, CA, Age 49

Stephen joined Pacifi c Brands in 1990 as

Group Accountant after an 11 year career with

Touche Ross & Co (now KPMG) specialising

in fi nance, taxation and accounting.

Stephen was appointed to the role of Chief

Financial Offi cer in December 1998. In

December 2005, he was appointed to the role

of Group General Manager, Operations where

he is responsible for the day to day operations

for all the Operating Groups. In November

2001, he was appointed an executive director

of Pacifi c Brands Holdings Pty Ltd. Stephen

was appointed to the Board of Pacifi c Brands

Limited in December 2003.

32 Pacific Brands

Senior management

Building a high performance culture is fundamental to Pacifi c Brands.

We need leadership capability across all levels of the organisation.

A key focus of the Senior Management team is in identifying, developing

and supporting the next generation of leaders.

1. Sue Morphet

Group General Manager, Underwear & Hosiery

& Chief Executive Offi cer Elect

Sue joined Pacifi c Brands in 1996 as General Manager, Tontine having

had extensive experience in both the food and textile industries.

From September 1999, Sue was General Manager, Bonds and in

June 2003, she also became responsible for The Berlei Group. In

December 2005, Sue was appointed to her current role managing

all underwear & hosiery brands in Australia and New Zealand.

In August 2007, the Board of Directors appointed Sue as CEO elect

to succeed Paul Moore following his decision to retire at the end

of December 2007.

2. Stephen Audsley

Chief Financial Offi cer

Stephen joined Pacifi c Brands in 1991 after 13 years with various

consumer goods companies including Southcorp and Nissan.

In his 16 years with the Company, Stephen has worked across a

number of operating groups including Footwear, Outerwear & Sport

and Underwear & Hosiery. In December 2005, he was appointed

Chief Financial Offi cer. He is responsible for Group legal, company

secretarial, corporate development (mergers & acquisitions), investor

relations, information technology, fi nancial services and treasury.

3. Malcolm Ford

Group General Manager, Footwear

Malcolm joined Pacifi c Brands in 1991 after 20 years in product

development, sales, marketing and general management within the

footwear industry.

Malcolm has been instrumental in developing a successful, strongly

branded and category focussed footwear business, with the

acquisition of brands and licences including Clarks, Hush Puppies,

Sachi and Merrell.

4. Michael Sonand

Group General Manager, Outerwear & Sport

Mike joined Pacifi c Brands in January 2007 as part of the acquisition

of the Streetwear division of Globe. Previously Mike was President

Australasia and Chief Operating Offi cer of Globe International Limited.

He brings extensive wholesale and retail experience to the role having

held positions at Just Group, Globe, Myer and previously at KPMG.

5. Ian Barton

Group General Manager, Home Comfort

Ian joined Pacifi c Brands in 1978 in a fi nancial role at Adidas.

He has spent 13 years as a Financial Controller across several

parts of the business including Adidas and Holeproof.

Ian spent some time as General Manager, Pacifi c Brands Clothing

New Zealand and was appointed to his current role in July 2002.

Home Comfort has strengthened its focus on consumer brands

with the acquisition of Sheridan in 2005.

6. Mary Keely

Group General Manager, People and Performance

Mary joined Pacifi c Brands in 1999, after spending six years

in senior human resources roles at Coca-Cola Amatil and prior

to that, Westpac.

Mary’s role encompasses performance management, recruitment,

safety, health and environment, corporate social responsibility,

community investment, employee relations, learning and

development, remuneration and benefi ts, and organisational

development.

7. Mark Daniel

Group General Manager, Yakka Group

Mark joined Pacifi c Brands in 2002 as General Manager, Supply

Chain. Mark has worked both domestically and internationally in

supply chain and manufacturing with companies such as

Coca-Cola Amatil, Linfox and Australian Defence Force.

Following the successful completion of the Yakka acquisition,

in July 2007, Mark was appointed to the role of Group General

Manager Yakka Group. He is responsible for the day to day

operations of the workwear brands as well as the integration

of this group into Pacifi c Brands.

8. Karl Railton–Woodcock

Group Corporate Development Manager

Karl joined Pacifi c Brands in April 2006. He had previously held

senior positions internationally and domestically in strategy and

business development across many industry sectors including

consumer goods and retail.

Karl is responsible for corporate strategy, corporate development,

acquisitions, divestments and investor relations.

9. Tom Dalianis

General Manager, Integrated Services

Tom joined Pacifi c Brands in 1989 and has held senior roles in

the business across Information Technology. He was appointed

to his current role in July 2005. He runs the Integrated Services

Group which is responsible for accounting services, accounts

payable, accounts receivable, payroll and information technology

across the Group.


10. Bernadette Hannagan

General Manager, Asia

Bernadette joined Pacifi c Brands in October 2001 as General Manager

Tontine, having gained experience in the textile industry, including a fi ve

year period at Sheridan. In 2004, she was appointed to the role of General

Manager, The Berlei Group.

Bernadette was appointed to her current role in January 2007, based in

Hong Kong. She is responsible for Asian sourcing and supplier relationship

management working across all key categories of the company. She runs

four offi ces across Hong Kong, Shanghai, Dongguang and Taiping.

11. Tim Hossack

General Manager, Logistics

Tim joined Pacifi c Brands in January 2005 as Head of Operations, Supply

Chain. Prior to this he held various executive and consulting supply chain

roles both domestically and internationally across Australia, South Korea

and the Pacifi c with companies such as Coles Myer and Coca-Cola Amatil.

Tim was appointed to General Manager Logistics April 2007. He has

responsibility for supply chain activities across the company including

freight, distribution, planning, inventory and infrastructure. Tim’s key focus

is on customer service, speed, fl exibility, cost control and value creation.

21

8

3

7

4 5

1110

6

9

34 Pacifi c Brands

Annual Report 2007

Pacifi c Brands’ directors and management are committed to conducting the Company’s business ethically and in accordance with high

standards of corporate governance. Good corporate governance structures encourage companies to create value for shareholders through

sensible risk taking, but provide accountability and control systems commensurate with the risks involved.

This statement describes Pacifi c Brands’ approach to corporate governance. The Board believes that the Company’s policies and practices

comply in all substantial respects with the Australian Stock Exchange (ASX) Corporate Governance Council’s Principles of Good Corporate

Governance and Best Practice Recommendations. A checklist summarising this is found in section 11 of this Statement.

Copies of the main policies of corporate governance adopted by the Company can be found on the Company’s website at

www.pacifi cbrands.com.au.

1 Role and responsibilities of the Board

The Board is committed to maximising performance, generating appropriate levels of shareholder value and fi nancial return, and sustaining

a stable of recognisable and successful brands.

In conducting business in line with these objectives, the Board is concerned to ensure that the Company is properly managed to protect

and enhance shareholder interests, and that the Company, its directors, offi cers and employees operate in an appropriate environment of

corporate governance. The Board’s charter can be found on the Company’s website at www.pacifi cbrands.com.au. The Board has ultimate

responsibility for establishing policies regarding the business and affairs of the Company for the benefi t of its shareholders and other

stakeholders. The Board’s key responsibilities include:

• appointing, and reviewing the performance of, the Chief Executive Offi cer;

• ensuring executive and Board succession planning;

• approving budgets and strategic plans;

• evaluating the performance of the Company against strategies and business plans;

• approving the Company’s risk management strategy and monitoring its effectiveness;

• approving signifi cant acquisitions or divestments;

• overseeing relations with shareholders; and

• approving accounting policies and annual accounts.

The Board delegates management of the Company’s resources to senior management, under the leadership of the Chief Executive Offi cer,

to deliver the strategic direction and goals agreed between senior management and the Board. A key function of the Board is to monitor

the performance of senior management in this function. The evaluation of senior management’s performance is addressed as part of the

processes described in the Remuneration Report.

2 Board appointment and composition

It is the Board’s policy that there should be a majority of independent, non-executive directors. That is, the majority of directors should be

free from any business or other relationship that could materially compromise their independent judgement. As an additional safeguard in

preserving independence, the policy requires that the offi ce of Chairman be held by an independent, non-executive director.

Specifi cally, the Board considers a director to be independent where he or she is not, and was not within the last three years, a member

of management and is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to

materially interfere with, the director’s ability to act in the best interests of the Company. The Board will consider the materiality of any

given relationship on a case by case basis and has adopted materiality guidelines to assist it in this regard. Under the Board’s materiality

guidelines, the following interests are regarded as, prima facie, material:

• a holding of 5% or more of the Company’s shares; or

• an affi liation with a business which accounts for 5% or more of the revenue or expenses of the Company.

However, ultimately the Board will make a qualitative assessment of any factors or considerations which may, or might reasonably be

perceived to, materially interfere with the director’s ability to act in the best interests of the Company. The Board reviews the independence

of each director in light of interests disclosed to the Board from time to time and at least once a year. The Board has determined that each

of the fi ve non-executive directors satisfy the Board’s criteria for independence. Directors are required to promptly disclose to the Board

interests in contracts, other directorships or offi ces held, possible related party transactions and sales or purchases of the Company’s

shares.

The Board is currently made up of seven directors, the Company’s two executive directors and fi ve independent non-executive directors.

Details of the directors as at the date of this Annual Report, including their qualifi cations and experience, are set out on pages 28 and 29

of the Annual Report.

Corporate Governance Statement

Report + Accounts 2007 35

Annual Report 2007

In making recommendations to the Board regarding the appointment of directors, the Nomination and Remuneration Committee periodically

assesses the appropriate mix of skills, experience and expertise required by the Board and assesses the extent to which the required skills

and experience are represented on the Board. Nominations for appointment are then approved by the Board as a whole. New directors are

provided with a letter of appointment, setting out the terms of their appointment, including their powers, rights and obligations. An induction

program is provided for new members of the Board.

Under the Company’s Constitution and the ASX Listing Rules, all directors other than the Chief Executive Offi cer are subject to shareholder

re-election every three years. It is the Board’s current policy that, in general, directors do not hold offi ce beyond a maximum term of nine

years.

The Company’s Constitution requires directors to hold a minimum number of shares in the Company as determined by the Board from time

to time, which is currently 500 shares, so that directors’ interests are aligned with those of shareholders.

Directors’ shareholdings are shown on page 43 of the Annual Report.

3 Board processes

The Board currently schedules nine meetings per year. In addition, the Board meets whenever necessary to deal with specifi c matters

requiring attention between the scheduled meetings. During the 2007 fi nancial year, the Board met 11 times. Extraordinary meetings take

place at such other times as may be necessary to address any specifi c signifi cant matters that may arise.

The table on page 44 of the Annual Report shows the number of Board meetings held in the 2007 fi nancial year and the attendance of

each director.

The agenda for meetings is prepared by the Company Secretary, in conjunction with the Chairman and Chief Executive Offi cer, with periodic

input from the Board. Comprehensive Board papers are distributed to directors in advance of scheduled meetings. Board meetings take

place both at the Company’s head offi ce and at key operating sites, on a rotational basis, to assist the Board in its understanding of

operational issues.

4 Board committees

To assist the Board in the execution of its responsibilities, the Board has established two standing committees, being:

• the Audit, Business Risk and Compliance Committee; and

• the Nomination and Remuneration Committee.

Any issues of corporate governance which are not dealt with specifi cally by either committee are the responsibility of the full Board.

Each committee operates under a specifi c charter, both of which can be found on the Company’s website at www.pacifi cbrands.com.au.

The charter of each committee requires all independent directors to be members of the committee and for the committee to be comprised

of a minimum of three independent directors. The purpose of having all independent directors as members of each committee is to allow

the Board to delve more deeply into issues, without formal Board meetings being burdened with discussions of technical compliance and

other issues.

36 Pacifi c Brands

Annual Report 2007

4 Board committees (continued)

Details of the committee members’ qualifi cations are set out on pages 28 and 29 of the Annual Report. Further details regarding the two

committees are set out in the table below:

Audit, Business Risk and Compliance Committee Nomination and Remuneration Committee

Role and

responsibilities

The committee’s role is to monitor and review the

effectiveness of the Company’s controls in the areas of

operational and balance sheet risk, legal and regulatory

compliance and fi nancial reporting.

The committee is responsible for matters relating to

succession planning, recruitment and the appointment

and remuneration of directors and the Chief Executive

Offi cer, as well as for other management and employees.

Functions • overseeing the adequacy of processes and controls

established by senior management to identify and

manage areas of potential risk and to safeguard the

assets of the Company;

• overseeing the relationship with the external auditor,

auditor independence and the external audit function;

• evaluating the processes in place to ensure that

accounting records are properly maintained in

accordance

with statutory requirements; and

• ensuring that fi nancial information provided to

shareholders and the Board is accurate and reliable.

• assessing Board composition, strategic function and

size (taking into consideration the skills and experience

required and the extent to which they are represented

on the Board);

• establishing processes for reviewing the performance

of individual non-executive directors, the Board as a

whole and the operation of Board committees;

• overseeing the selection and appointment practices for

non-executive directors and senior management of the

Company;

• developing succession plans for the Board and

overseeing the development of succession planning

in relation to the Chief Executive Offi cer and senior

management;

• making recommendations to the Board on the Chief

Executive Offi cer’s remuneration (including short and

long term incentive plans); and

• reviewing and approving recommendations from the

Chief Executive Offi cer on total levels of remuneration,

and performance targets, for senior executives

reporting to the Chief Executive Offi cer.

Members • Max Ould (Chair)

• Andrew Cummins

• Dominique Fisher

• Pat Handley

• Maureen Plavsic

• Maureen Plavsic (Chair)

• Andrew Cummins

• Dominique Fisher

• Pat Handley

• Max Ould

Composition The committee must comprise of at least three independent

directors.

The Chairman of the Board is not permitted to chair the

committee.

The committee must comprise of at least three

independent directors.

Consultation The Chief Financial Offi cer and external auditor have

standing invitations to attend committee meetings. Other

members of management may also attend by invitation.

The committee has access to fi nancial and legal advisers,

in accordance with the Board’s general policy.

The chairman of the committee also meets privately with

the auditor to ensure the committee can be satisfi ed that

the auditor has had the full co-operation of management

in conducting the audit, and to give the auditor the

opportunity to raise any matters of concern.

The Chief Executive Offi cer and the Group General

Manager, People and Performance have standing

invitations to attend committee meetings.

The committee may obtain information from, and consult

with, management and external advisers, as it considers

appropriate.

Meetings and

attendance

The committee is scheduled to meet four times in the

2008 fi nancial year.

The table on page 44 of this statement shows the number

of meetings held in the 2007 fi nancial year and the

attendance of each member.

The committee is scheduled to meet three times in the

2008 fi nancial year.

The table on page 44 of this statement shows the

number of meetings held in the 2007 fi nancial year and

the attendance of each member.

Corporate Governance Statement (continued)


Annual Report 2007

5 Review of Board performance

The performance of the Board is reviewed bi-annually by the Board with the assistance of the Nomination and Remuneration Committee

and an external adviser. The most recent process of formally reviewing the performance of the Board commenced in July 2007 and was

ongoing at the time of this statement.

The evaluation process includes a review of:

• the Board’s membership;

• Board processes and its committees’ effectiveness in supporting the Board; and

• the performance of the Board and its committees.

As part of this process, all directors completed a questionnaire and were able to make other comments or raise any issue that they had

relating to the Board’s or a committee’s operation. The results of the questionnaire are compiled by the external adviser and a written report

provided to the Board which includes both a quantitative and qualitative analysis. The external adviser is to present this report to the Board

at its November 2007 meeting and will facilitate a discussion of the report’s fi ndings and recommendations.

In addition, a review of each director’s performance is also undertaken prior to a director standing for re-election. In the case of directors,

other than the Chairman, the review is undertaken by the Chairman after consultation with the other directors. This occurred during 2007 in

respect of the proposed re-election of Ms D.G. Fisher. In the case of the Chairman, a director chosen by the Board for this purpose review’s

the Chairman’s performance. As Mr R.P Handley is standing for re-election at the 2007 annual general meeting, this process was also

undertaken during 2007.

6 Access to information and independent advice

Each director has the right of access to all relevant Company information and to the Company’s senior management, external advisers and

auditors. Directors may also seek independent professional advice at the Company’s expense. Any director seeking such advice is required

to make a formal request to the Chairman. Where the Chairman wishes to seek independent advice, he must make a formal request to

the Chair of the Audit, Business Risk and Compliance Committee. Any advice so received must be made available to all other directors.

Pursuant to a deed executed by the Company and each director, a director also has the right to have access to all documents which have

been presented to meetings of the Board or to any committee of the Board or otherwise made available to the director whilst in offi ce. This

right continues for a term of seven years after ceasing to be a director or such longer period as is necessary to determine relevant legal

proceedings that commenced during that term.

7 Discussion of governance policies

The Board has adopted corporate governance policies and practices designed to promote responsible management and conduct of

the Company. The Board (together with management) regularly review these policies and practices to ensure the Company maintains or

improves its corporate governance standards in a changing environment. A discussion of the Company’s key governance policies is set out

below.

7.1 Risk management

The Company is committed to the proper identifi cation and management of risk. The Company has in place a process to identify and

measure business risk, including regular review of results from its risk identifi cation procedures. The Audit, Business Risk and Compliance

Committee is charged with oversight of this process.

The Board receives regular reports about the fi nancial condition and operational results of the Company. The Chief Executive Offi cer and

Chief Financial Offi cer provide formal statements to the Board that in all material respects:

• the Company’s fi nancial statements present a true and fair view of the Company’s fi nancial condition and operational results and comply

with relevant accounting standards; and

• the risk management and internal compliance and control systems:

• are sound, appropriate and operating effi ciently and effectively; and

• implement the policies adopted by the Board.

38 Pacifi c Brands

Annual Report 2007

7 Discussion of governance policies (continued)

7.1 Risk management (continued)

The Company regularly undertakes reviews of its risk management procedures which include implementation of a system of internal sign-

offs to ensure not only that the Company complies with its legal obligations but that the Board, and ultimately shareholders, can take

comfort that an appropriate system of checks and balances is in place regarding those areas of the business which present fi nancial

or operating risks. In the 2006 fi nancial year, the Audit, Business Risk and Compliance Committee initiated an external review of the

Company’s risk management practices which did not reveal any material issues of concern in relation to the Company’s risk management

practices. An external review will be conducted from time to time when determined to be of material value by the committee.

The committee reviews the appropriateness of the framework adopted by the Company for managing operational risk issues and the

Company’s action plans designed to strengthen and improve risk control practices. In this regard, on a rotational basis, senior management

updates the committee or the full Board on the Company’s risk profi le and compliance and control systems. The Committee also monitors

and reviews activities in the Company’s material risk areas of taxation, treasury operations, insurance and environment, quality and

occupational health and safety.

As part of the Company’s risk management framework, comprehensive practices have been established to ensure:

• capital expenditure and leasing commitments above a certain size obtain prior Board approval;

• fi nancial exposures are controlled, including the use of hedging arrangements;

• occupational health and safety standards and management systems (‘Brandsafe’) are monitored and reviewed to achieve high

standards of performance and compliance with regulations;

• business transactions are properly authorised and executed;

• the quality and integrity of personnel;

• the ethical practices of its suppliers (see section 8 of this statement);

• fi nancial reporting accuracy and compliance with the fi nancial reporting regulatory framework (see above); and

• environmental regulation compliance (see section 9 of this statement).

The Company has also adopted a code of conduct which sets out the Company’s commitment to maintaining the highest level of integrity

and ethical standards in all business practices. The code of conduct sets out for all directors, management and employees, the standards

of behaviour expected of them, and the steps that should be taken in the event of uncertainty or a suspected breach by a colleague. The

code of conduct is discussed in more detail in section 7.4 of this statement.

7.2 Continuous disclosure and keeping shareholders informed

The Company aims to ensure that shareholders are well informed of all major developments affecting the state of affairs of the Company. To

achieve this, the Company has implemented the following procedures:

• shareholders can gain access to information about the Company, including media releases, key policies, annual reports and fi nancial

accounts, and the terms of reference of the Company’s committees through the Company’s website at www.pacifi cbrands.com.au or

by writing to the Company Secretary at the Company’s registered offi ce address;

• all relevant announcements made to the market and any related information are posted on the Company’s website as soon as they

have been released to the ASX and New Zealand Stock Exchange (‘NZX’); and

• the Company encourages full participation of shareholders at its Annual General Meeting to ensure a high level of accountability and

discussion of the Company’s strategy and goals; and

• the Company also invites the external auditor to attend its Annual General Meeting and be available to answer shareholder questions

about the conduct of the audit, and the preparation and content of the auditor’s report.

The Company’s commitment to keeping shareholders fully informed is embodied in the Company’s Shareholder Communications Policy, a

copy of which can be found on the Company’s website at www.pacifi cbrands.com.au.

The Company is fully aware of the obligations under the Corporations Act 2001, and the ASX and NZX listing rules, to keep the market

fully informed of information which is not generally available and which may have a material effect on the price or value of the Company’s

securities. The Company has adopted a policy which establishes procedures to ensure that directors and management are aware of, and

fulfi l their obligations, in relation to the timely disclosure of material price-sensitive information. Information must not be selectively disclosed

prior to being announced to the ASX and NZX. Directors and senior management must notify the Company Secretary as soon as they

become aware of information that should be considered for release to the market. The Company Secretary is the person responsible for

communication with the ASX and NZX. A copy of the Company’s Continuous Disclosure Policy may be found on the Company’s website at

www.pacifi cbrands.com.au.



Annual Report 2007

7.3 Trading in shares by directors and employees

The Company has adopted guidelines for dealing in securities which provide a summary of prohibited conduct in relation to dealings

in securities under the Corporations Act 2001 and the Securities Markets Act 1988 (NZ). The guidelines also establish a best practice

procedure in relation to directors’, management’s and employees’ dealings in the Company’s shares.

Subject to the overriding restriction that persons may not deal in shares while they are in possession of material price-sensitive information,

directors, management and employees will only be permitted to deal in shares during certain ‘window periods’, being within 31 days

following release of the Company’s full and half year fi nancial results and the holding of the Company’s Annual General Meeting. Outside of

these periods, directors, management and employees must receive clearance from the person stated in the guidelines for any proposed

dealing in shares, with such clearance only to be granted in exceptional circumstances. For New Zealand, any dealing in the Company’s

shares must receive clearance from the Company Secretary.

Except in circumstances of special hardship, with the Chairman’s approval, employees may not buy and sell the Company’s shares within a

three month period.

A copy of the Company’s Guidelines for Dealing in Securities is available on the Company’s website at www.pacifi cbrands.com.au.

7.4 Ethical standards and code of conduct

The Board believes it is important to provide employees with a clear set of values that emphasise a culture encompassing strong corporate

governance, sound business practices and good ethical conduct. Accordingly, the Company adopted a code of conduct which outlines

how the Company expects directors and employees to behave and conduct business in a range of circumstances. In particular, the code

requires:

• awareness of, and compliance with, laws and regulations relevant to the Company’s operations including environmental laws and the

Trade Practices Act 1974 and equivalent overseas legislation;

• all business transactions to be conducted solely in the best interests of the Company and for directors and employees to avoid

situations where their personal interest could confl ict with interests of the Company or create the appearance of a confl ict of interest;

• employees and directors to protect any Company assets under their control and not to use Company assets for personal purposes,

without prior Company approval;

• employees and directors to respect the privacy of others and comply with the Company’s privacy policy; and

• employees and directors not to disclose or use in any improper manner confi dential information about the Company, its customers or

affairs.

A copy of the code of conduct is available on the Company’s website at www.pacifi cbrands.com.au.

The Company has extensive dealings with companies based in countries where gift giving has important cultural signifi cance and plays an

important role in business relationships. As a consequence, the Company has a policy on the giving and receipt of gifts, a copy of which

can be found on the Company’s website at www.pacifi cbrands.com.au. The policy prohibits the giving and acceptance of gifts of a material

nature and, in particular, the giving and acceptance of gifts where they are given or offered with the intention to infl uence business dealings.

Employees are encouraged to bring to the attention of their manager, their People and Performance Manager or members of senior

management any behaviour or activity occurring in the business which they believe to be inappropriate or inconsistent with the Company’s

code of conduct. For those employees who are concerned about directly raising such matters with their superiors, the Company has

established a ‘freecall’ telephone line to enable employees to report matters of concern on a confi dential basis. The service, known as

‘Faircall’, is operated by an independent third party to ensure that calls can be made in total confi dence. Callers may also elect to remain

anonymous. The third party reports on each call to the Group General Manager, People and Performance. A summary of all calls and

the subsequent actions undertaken are periodically reported to the Nomination and Remuneration Committee. Under the provisions of

the Company’s whistleblower protection policy, any reported improper conduct will be investigated while protecting the confi dentiality

of the identity of the whistleblower.

The Company also has in place an Occupational Health and Safety Policy which outlines the methods and practices that the Company

requires to be observed to provide a working environment which is free, as far as practicable, from risk of injury or disease for the

Company’s employees, visitors and contractors. Occupational health and safety key performance indicators are reported to the Board on a

regular basis, to assist the Board in monitoring compliance with the Company’s Occupational Health and Safety Policy.

7.5 Remuneration

Full details of the remuneration paid to non-executive and executive directors and the Company’s senior executives in relation to the 2007

fi nancial year, as well as the Board policy for determining the nature and amount of remuneration and the relationship between such policy

and performance, is discussed in detail in sections 3 and 4 of the Remuneration Report.

40 Pacifi c Brands

Annual Report 2007

7 Discussion of governance policies (continued)

7.6 External audit

The Audit, Business Risk and Compliance Committee has also adopted a policy on the provision of non-audit services and the rotation of

external audit personnel. Subject to some limited exceptions, unless the committee determines otherwise, the auditor is prohibited from

providing valuation and fairness opinions, internal audit services, advice on deal structuring, tax planning advice, IT systems services,

executive recruitment services, material human resources functions or legal services or from acting as a broker, promoter or underwriter. The

policy also requires the partner managing the Company’s audit to be rotated within fi ve years from the date of appointment. A copy of this

policy is also available on the Company’s website at www.pacifi cbrands.com.au.

8 Code of conduct for suppliers

The Company is committed to ethical and responsible conduct in all of its operations, and respect for the rights of all individuals and the

environment. The Company expects these same commitments to be shared by all suppliers of its products and seeks to enforce this policy

through a formal code of conduct, which includes:

• not using child labour;

• not using any forced or involuntary labour; and

• providing employees with a safe and healthy workplace in compliance with all applicable laws and regulations.

The Company periodically conducts audits of its suppliers and in the event that a supplier is unable or unwilling to achieve compliance,

the Company reserves the right to terminate or suspend the relevant supply contract.

9 Environment

The Company’s operations are subject to environmental laws and regulations, the details of which vary depending upon the jurisdiction in

which the operation is located. These environmental laws and regulations control the use of land, the erection of buildings and structures on

land, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal of waste,

and the investigation and remediation of soil and groundwater contamination.

The Company has procedures in place designed to ensure compliance with all environmental regulatory requirements. In particular, the

Company has developed a system, known as the ‘Brandsafe Environmental Management System’, for identifying and assessing the

environmental hazards which arise from its activities and effectively managing those risks by applying sound practices for the prevention

of pollution and disposal and minimisation of waste.

10 NZX corporate governance rules

The following statement is included in compliance with NZX Listing Rule 5.1.6(d).

The Company notes that the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice

Recommendations (‘ASX Corporate Governance Rules’) may materially differ from NZX’s corporate governance rules and principles in

the NZX Corporate Governance Best Practice Code. Details of the ASX corporate governance rules are available on the ASX website at

www.asx.com.au.



Annual Report 2007

11 ASX Corporate Governance Council’s Principles of Good Corporate Governance and

Best Practice Recommendations

ASX Principle Reference1 Compliance

Principle 1:

1.1

Lay solid foundations for management and oversight

Formalise and disclose the functions reserved to the board and those

delegated to management.

1

Comply

Principle 2:

2.1

2.2

2.3

2.4

2.5

Structure the board to add value

A majority of the board should be independent directors.

The chairperson should be an independent director.

The roles of chairperson and chief executive offi cer should not be

exercised by the same individual.

The board should establish a nomination committee.

Provide the information indicated in Guide to reporting on Principle 2.

2

2

2

4

1, 2, 4, 6, Board members

(pages 28 and 29)],

Directors’ Report

(page 43)

Comply

Comply

Comply

Comply

Comply

Principle 3:

3.1

3.2

3.3

Promote ethical and responsible decision making

Establish a code of conduct to guide the directors, the chief executive

offi cer (or equivalent), the chief fi nancial offi cer (or equivalent) and any

other key executives as to:

3.1.1 the practices necessary to maintain confi dence in the company’s

integrity; and

3.1.2 the responsibility and accountability of individuals for reporting

and investigating reports of unethical practices

Disclose the policy concerning trading in company securities by

directors, offi cers and employees.


7.4

7.3

7.3, 7.4

Comply

Comply

Comply

Principle 4:

4.1

4.2

4.3

4.4

4.5

Safeguard integrity in fi nancial reporting

Require the chief executive offi cer (or equivalent) and the chief

fi nancial offi cer (or equivalent) to state in writing to the board that the

company’s fi nancial reports present a true and fair view, in all material

respects, of the company’s fi nancial condition and operational results

and are in accordance with relevant accounting standards.

The board should establish an audit committee.

Structure the audit committee so that it consists of:

• only non-executive directors;

• a majority of independent directors;

• an independent chairperson, who is not chairperson of the board;

and

• at least three members

The audit committee should have a formal charter.


7.1

4

4

4

4, Directors’ Report

(page 43)

Comply

Comply

Comply

Comply

Comply

Principle 5:

5.1

5.2

Make timely and balanced disclosure

Establish written policies and procedures designed to ensure

compliance with ASX Listing Rule disclosure requirements and

to ensure accountability at a senior management level for that

compliance.


7.2

7.2

Comply

Comply

42 Pacifi c Brands

Annual Report 2007

11 ASX Corporate Governance Council’s Principles of Good Corporate Governance and

Best Practice Recommendations (continued)

ASX Principle Reference1 Compliance

Principle 6:

6.1

6.2

Respect the rights of shareholders

Design and disclose a communications strategy to promote

effective communication with shareholders and encourage effective

participation at general meetings.

Request the external auditor to attend the annual general meeting and

be available to answer shareholder questions about the conduct of the

audit and the preparation and content of the auditor’s report.

7.2

7.2

Comply

Comply

Principle 7:

7.1

7.2

7.3

Recognise and manage risk

The board or appropriate board committee should establish policies

on risk oversight and management.

The chief executive offi cer (or equivalent) and the chief fi nancial offi cer

(or equivalent) should state to the board in writing that:

7.2.1 the statement given in accordance with best practice

recommendation 4.1 (the integrity of fi nancial statements) is founded

on a sound system of risk management and internal compliance and

control which implements the policies adopted by the board; and

7.2.2 the company’s risk management and internal compliance and

control system is operating effi ciently and effectively in all material

respects.


7.1

7.1

4, 7.1, 7.6

Comply

Comply

Comply

Principle 8:

8.1

Encourage enhanced performance

Disclose the process for performance evaluation of the board, its

committees and individual directors, and key executives.

4, 5

Comply

Principle 9:

9.1

9.2

9.3

9.4

9.5

Remunerate fairly and responsibly

Provide disclosure in relation to the company’s remuneration policies

to enable investors to understand (i) the costs and benefi ts of those

policies and (ii) the link between remuneration paid to directors and

key executives and corporate performance.

The board should establish a remuneration committee.

Clearly distinguish the structure of non-executive directors’

remuneration from that of executives.

Ensure that payment of equity based executive remuneration is made

in accordance with thresholds set in plans approved by shareholders.


Remuneration Report

4

Remuneration Report

Remuneration Report

4, 7.5, Directors’

Report (page 43) and

Remuneration Report

Comply

Comply

Comply

Comply

Comply

Principle 10:

10.1

Recognise the legitimate interests of stakeholders

Establish and disclose a code of conduct to guide compliance with

legal and other obligations.

7.4

Comply

1 All references are to sections of this Corporate Governance Statement unless otherwise stated.



Annual Report 2007

The directors of Pacifi c Brands Limited (‘Company’) present their report together with the fi nancial report of the Company and its controlled

entities (collectively the ‘consolidated entity’) for the year ended 30 June 2007 and the auditor’s report thereon. The information set out

below is to be read in conjunction with the Remuneration Report set out on pages 47 to 60 which forms part of this Directors’ Report.

Directors

The directors of the Company during the fi nancial year and up to the date of this report are:

R.P. Handley, Chairman

A.D. Cummins

H.A. Lynch, Deputy Chair (retired 24 October 2006)

P.R. Moore, Chief Executive Offi cer

M.G. Ould

M.A. Plavsic

S.J. Tierney, Group General Manager, Operations

D.G. Fisher (appointed 28 March 2007)

Particulars of directors’ age, qualifi cations and other listed company directorships, experience and special responsibilities are detailed on

pages 28 to 29 of the Annual Report.

Directors’ interests in share capital

The relevant interest of each director in the share capital of the Company as at the date of this report is as follows:

Fully paid

ordinary shares

Performance

rights1

A.D. Cummins 165,965

D.G. Fisher 2,657

R.P. Handley 1,392,181

P.R. Moore 1,300,001 425,218

M.G. Ould 84,560

M.A. Plavsic 54,692

S.J. Tierney 400,001 230,712

1 Details of the terms and conditions of issue of the performance rights granted to Mr Moore and Mr Tierney are set out on pages 52 to 57 in this

Directors’ Report.

Directors’ Report

44 Pacifi c Brands

Annual Report 2007

Directors’ meetings

The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the

directors of the Company during the 2007 fi nancial year are:

Board

Audit, Business Risk and

Compliance Committee

Nomination and

Remuneration Committee

Director Held1 Attended2 Held1 Attended2 Held1 Attended2

A.D. Cummins 11 8 4 3 4 4

D.G. Fisher 3 3 1 1 3 3

R.P. Handley 11 11 4 4 4 4

H.A. Lynch 3 3 1 1 1 1

P.R. Moore3,4 11 11 N/A N/A N/A N/A

M.G. Ould 11 11 4 4 4 3

M.A. Plavsic 11 10 4 4 4 4

S.J. Tierney3 11 11 N/A N/A N/A N/A

1 This column shows the number of meetings held during the period the director was a member of the Board or committee.2 This column shows the number of meetings attended.3 Mr Moore and Mr Tierney also attended all meetings of the Audit, Business Risk and Compliance Committee by invitation.4 Mr Moore also attended all meetings of the Nomination and Remuneration Committee by invitation.

State of affairs

In the opinion of the directors, there were no signifi cant changes in the state of affairs of the consolidated entity that occurred during the

fi nancial year under review.

Principal activities

The principal activities of the consolidated entity during the course of the 2007 fi nancial year were the manufacturing, sourcing, marketing

and distribution of everyday essential and consumer lifestyle brands across the underwear, socks, hosiery, intimate apparel, footwear, bed

linen, bedding accessories, bedding, foams, workwear, lifestyle apparel and sporting goods markets. All products are sold predominantly

throughout the Asia-Pacifi c region. The consolidated entity also markets and distributes underwear, intimates, footwear and bed linen in the

United Kingdom and Europe.

There has been no signifi cant change in the nature of principal activities during the year.

The Company’s key strategies established to drive future shareholder value include:

• building brand leadership through advertising, targeted marketing, innovation and strong product development;

• operational excellence by leveraging scale across sourcing, logistics and technology;

• growth through strategic acquisitions to build strong category positions; and

• increased investment in attracting and retaining a creative, talented and motivated workforce.

These strategies have been applied to drive branded sales growth and demonstrate the power of ‘Everyday Essential Brands’. The

Company’s brands are its number one asset. The Company is focused on branded sales, margin growth, earnings growth and cash

generation.

In the 2008 fi nancial year, the Company will continue to focus on earnings growth, profi t improvement and cash generation via:

• profi table, branded sales growth;

• brand investment through relevant advertising and targeted marketing;

• innovative product development based on consumer insight and research;

• category planning;

• continued emphasis on gross profi t improvement;

• integration of acquisitions made during the 2007 fi nancial year;

Directors’ Report (continued)


Annual Report 2007

Principal activities (continued)

• leveraging of scale across the total business;

• maintaining fl exibility and speed in the supply chain to meet the changing needs of the marketplace;

• creation of local manufacturing excellence;

• management of working capital and cash fl ow; and

• execution of strategically sound, value enhancing acquisitions.

Disclosure of information relating to developments in the business strategies and prospects for the consolidated entity for future fi nancial

years which would not, in the opinion of the directors, be unreasonably prejudicial to the consolidated entity is contained in the Chairman’s

Letter and the Chief Executive Offi cer’s Report and the Review of Operations.

Review and results of operations

A review of the operations of the consolidated entity during the 2007 fi nancial year and of the results of those operations is contained on

pages 22 to 26 of the Annual Report.

The business had a solid year led by the focus on branded sales growth, product innovation and a continuing drive for operational

excellence. Pacifi c Brands also completed two major strategic acquisitions being the Streetwear Division of Globe International in January

2007 and the Yakka Group of Companies in April 2007.

Dividends

An interim dividend of 8.0 cents per share, amounting to $40.2 million was paid on 2 April 2007.

The directors have declared a fi nal dividend of $42.7 million to be paid at the rate of 8.5 cents per share on 502,277,852 ordinary shares.

The dividend is expected to be paid on 1 October 2007 to shareholders on the register at the record date of 30 August 2007. This dividend

will be fully franked at the 30% corporate tax rate in Australia.

Events subsequent to reporting date

There has not arisen in the interval between the end of the fi nancial 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 signifi cantly the operations of the consolidated

entity, the results of those operations, or the state of affairs of the consolidated entity, in future periods.

Likely developments

Likely developments in the operations of the consolidated entity and the expected results of those operations are covered generally in the

Review of Operations on pages 22 to 26 of the Annual Report.

Further information as to likely developments in the operations of the consolidated entity and the expected results of those operations in

subsequent fi nancial periods has not been included in this report because disclosure would be likely to result in unreasonable prejudice to

the consolidated entity.

Non-audit services

During the 2007 fi nancial year, KPMG, the Company’s auditor, performed certain other services in addition to its statutory duties.

The Board has considered the non-audit services provided during the fi nancial year by the auditor and in accordance with written advice

provided by resolution of the Audit, Business Risk and Compliance Committee, is satisfi ed that the provision of those non-audit services

during the fi nancial year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the

Corporations Act 2001 for the following reasons:

• all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the

Audit, Business Risk and Compliance Committee to ensure they did not impact the integrity and objectivity of the auditor; and

• the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code

of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or

decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 60 in

this report.

46 Pacifi c Brands

Annual Report 2007

Non-audit services (continued)

Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during

the fi nancial year are set out below:

Consolidated

2007

$

2006

$

Statutory audit:

Auditors of the Company

– audit and review of fi nancial reports (KPMG Australia) 1,128,000 1,065,000

– audit and review of fi nancial reports (overseas KPMG fi rms) 291,000 230,000

1,419,000 1,295,000

Services other than statutory audit:

Other assurance services

– other assurance services (KPMG Australia) 13,240 12,695

– other assurance services (overseas KPMG fi rms) 38,167 7,036

Other services

– taxation compliance services (KPMG Australia) 209,800 210,070

– taxation compliance services (overseas KPMG fi rms) 9,357 20,043

270,564 249,844

Indemnifi cation and insurance of offi cers

In accordance with the Company’s Constitution, the Company has agreed to indemnify every person who is, or has been, an offi cer of the

Company or its controlled entities against any liability (including reasonable legal costs) incurred by the person as such an offi cer of the

Company or its controlled entities, to the extent permitted by law and subject to the restrictions in section 199A of the Corporations Act

2001. Indemnifi ed offi cers are the directors and secretaries of the Company or its controlled entities. During the fi nancial year, there were

no claims made against any offi cer of the Company that would invoke the above indemnity.

In addition, the Company has entered into standard form deeds of indemnity with all of its current directors against all liabilities which they

may incur in the performance of their duties as directors of the Company, except liability to the Company or a related body corporate,

liability for a pecuniary penalty or compensation under the Corporations Act 2001, and liability arising from conduct involving a lack of

good faith.

The Company holds a directors’ and offi cers’ liability insurance policy on behalf of current and former directors and offi cers of the Company

and its controlled entities. The period of the policy extends from 1 December 2006 to 30 November 2007 and the premium was paid on

7 February 2007. Due to confi dentiality obligations and undertakings of the policy, no further details in respect of the premium or policy

can be disclosed.

Environmental regulation

The consolidated entity’s operations are subject to environmental laws and regulations, the details of which vary depending upon the

jurisdiction in which the operation is located. These environmental laws and regulations control the use of land, the erection of buildings

and structures on land, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and

disposal of waste, and the investigation and remediation of soil and groundwater contamination.

The consolidated entity has procedures in place designed to ensure compliance with all environmental regulatory requirements. The

directors are not aware of any material breaches of environmental regulations during the fi nancial year.

Rounding off

The Company is of a kind referred to in Australian Securities and Investments Commission Class Order 98/100 dated 10 July 1998 (as

in force on 30 June 2007) and in accordance with that Class Order, amounts in the fi nancial report and this Directors’ Report have been

rounded off to the nearest thousand dollars, unless otherwise stated.

Directors’ Report (continued)


Annual Report 2007

1 Remuneration Strategy

The Board believes that a transparent and appropriately structured remuneration strategy can underpin a strong performance based

culture and assist in driving above average returns. The Company’s remuneration strategy has been constructed based on this belief and

is designed to attract, retain and motivate appropriately qualifi ed and experienced directors and senior executives. This Remuneration

Report discloses the remuneration of, and provides an explanation of the remuneration strategies for key management personnel of the

consolidated entity, including the directors and the fi ve most highly remunerated executives of the Company and the consolidated entity.

A substantial proportion of the remuneration of executives is at risk and is based on the achievement of both internal (short term)

performance hurdles set at the beginning of the fi nancial year and the achievement of market based (long term) performance hurdles.

The fees paid to non-executive directors are set at levels which refl ect both the responsibilities of, and the time commitments required

from, each non-executive director to discharge their duties. Fee levels are set having regard to independent advice and the fees paid by

comparable companies.

An overview of the elements of remuneration are set out in the following table. The more detailed discussion of each element is contained

in this Remuneration Report.

Overview of elements of remuneration

Directors

Elements of remuneration Non-executive Executive

Senior

executives

Discussion in

Remuneration

Report

Fixed remuneration Fees1 3 Page 48

Salary 3 3 Page 50

Superannuation 3 3 3 Page 51

Other benefi ts 3 3 Page 51

At risk remuneration Short term incentive 3 3 Page 51

Long term incentive 3 3 Page 52

Post employment Notice periods and termination

payments

3 3

Page 58

1 Non-executive directors are required to apply a minimum of 25% of their fee in acquiring shares in the Company under the terms of the Pacifi c Brands

Non-Executive Director Share Plan.

2 Company performance

As reported on page 48, the consolidated entity generated a record $194.0 million in EBITA (earnings before interest, tax and amortisation)

for the year ended 30 June 2007 (which was 12.1% higher than the prior year’s result of $173.0 million) and a reported net operating profi t

after tax pre amortisation of $107.2 million (which was 5.9% higher than the prior year’s amount of $101.2 million).

The strategic direction of the Company has remained constant and continues to deliver solid results. Investment in brands, people and

product innovation, a continuing drive for operational excellence and well targeted acquisitions all contributed to this strong performance.

A fully franked fi nal dividend of 8.5 cents per share has been declared. This results in a fully franked 16.5 cent per share full year dividend

which represents a 78.2% payout ratio to shareholders’.

Directors’ Report/Remuneration Report

48 Pacifi c Brands

Annual Report 2007

2 Company performance (continued)

The following table sets out various measures of the consequences of Company’s performance on shareholder wealth:

2007 2006 20051 20042

Net sales revenue ($m) 1,820.7 1,624.9 1,521.7 363.4

EBITA ($m) 194.0 173.0 174.6 29.5

NPAT3 106.0 101.2 100.9 11.8

EPS (cents)4 21.1 20.1 20.1 2.3

Dividends per share (cents) 16.0 15.0 15.0 3.5

Year end share price ($) 3.49 2.15 2.27 2.67

Return of capital ($m) 1.87 0 0 0

TSR (%)5 66.4 (1.1) (12.4) 6.8

1 The measures of fi nancial performance for the 2005 fi nancial year were restated in accordance with AIFRS.2 The measures of fi nancial performance for 2004 relate to the period since the Company’s incorporation on 12 December 2003, with trading commencing

on 6 April 2004, through to 30 June 2004.3 Net operating profi t after tax.4 Earnings per share have been calculated based on the weighted average number of shares outstanding for the period being 502,485,144.5 TSR or total shareholder return is, broadly, a measure of the return to shareholders provided by movements in the Company’s share price plus any dividends

paid or declared in respect of the relevant fi nancial period and reinvested in Company shares, expressed as a percentage of investment

3 Non-executive directors’ remuneration

A. Board policy on remuneration

The disclosures in this section relate to the remuneration for the Company’s non-executive directors who are regarded as ‘key management

personnel’ for the purpose of Australian Accounting Standard AASB 124.

The focus of the Board is on long term strategic direction and the overall performance of the Company and accordingly non-executive

director remuneration is not linked to short term results. In order to better align the interests of non-executive directors and shareholders in

relation to the long term performance of the Company, a minimum of 25% of each non-executive director’s annual fee must be taken in the

form of shares in the Company pursuant to the terms of the Non-Executive Director Share Plan. The plan enables non-executive directors

to elect to apply up to 100% of their fees in acquiring shares in the Company. The Non-Executive Director Share Plan is not a performance

based share plan, nor is it intended as an incentive component of non-executive director remuneration, so as to maintain the independence

and impartiality of the non-executive directors. Shares acquired under the Non-Executive Director Share Plan must, in general, be held for

the period the director holds offi ce as a director and is purchased monthly, on-market, at the prevailing market price at the end of each

calendar month.

Non-executive directors’ are provided with formal letters of appointment prior to commencing their directorship. Their tenure with the

Company is also governed by the Company’s Constitution and the Australian Stock Exchange (‘ASX’) Listing Rules, which provide that all

non-executive directors are subject to shareholder re-election every three years. Non-executive directors’ fees, including committee fees, are

set by the Board within the maximum aggregate amount approved by shareholders of $1,000,000 per annum which has not varied since

the time of the Company’s initial public offering in April 2004. The fees paid to non-executive directors are set at levels which refl ect both

the responsibilities of, and the time commitments required from, each director to discharge their duties. In that regard, it should be noted

that all non-executive directors are required to be members of the two Board committees in order to be informed on all issues which are

considered by the committees and which may subsequently come before the full Board and to facilitate in depth discussion on such issues.

The Nomination and Remuneration Committee makes recommendations to the Board on the total level of remuneration of the Chairman

and other non-executive directors, including any additional fees payable to directors for membership of Board committees. The Chairman

is not present at discussions relating to his own remuneration.

The Board, through the auspices of the Nomination and Remuneration Committee, reviews annually its approach to non-executive director

remuneration to ensure it remains in line with general industry practice and refl ects proper compensation for duties undertaken.

Directors’ Report/Remuneration Report (continued)


Annual Report 2007

A. Board policy on remuneration (continued)

In setting fee levels, the Nomination and Remuneration Committee takes into account:

• the Company’s existing remuneration policies;

• independent remuneration consultants’ advice;

• fees paid by comparable companies; and

• the level of remuneration necessary to attract and retain directors of appropriate experience, qualifi cations and time commitment.

Details of the membership of the Nomination and Remuneration Committee and its responsibilities are set out in section 4 of the Corporate

Governance Statement.

The aggregate fees paid to the non-executive directors, including the Chairman, during the 2007 fi nancial year were $647,460

approximately 10% below the aggregate fee amount for the 2006 fi nancial year.

The Company does not currently pay additional fees for membership of the Board’s committees (other than a small additional fee to the

chairman of a committee).

Superannuation contributions are made on behalf of the non-executive directors in accordance with the Company’s statutory

superannuation obligations and any election of a director to sacrifi ce part of his/her fee in favour of increased superannuation contributions.

The sum of $647,460 in respect of directors’ fees is inclusive of superannuation contributions.

Directors are also entitled to be reimbursed for all business related expenses, including travel on Company business, as may be incurred in

the discharge of their duties in accordance with rule 8.3(e) of the Company’s Constitution.

The Board has determined that retirement benefi ts are not payable to non-executive directors upon their retirement.

B. Remuneration

Details of non-executive directors’ remuneration for the 2007 fi nancial year are set out in the following table:

Short term payments

Post

employment Total2

Cash

$

Shares1

$

Superannuation

contributions

$ $

R.P. Handley (Chairman) 2007

2006

166,858

166,858

62,500

62,500

20,642

20,642

250,000

250,000

A.D. Cummins 2007

2006

43,830

43,830

52,500

52,500

8,670

8,670

105,000

105,000

D.G. Fisher3 2007

2006

18,328

n/a

6,865

n/a

2,267

n/a

27,460

n/a

H.A. Lynch (Deputy Chair)4 2007

2006

33,372

95,115

12,500

42,500

4,128

12,385

50,000

150,000

M.G. Ould 2007

2006

0

64,617

30,000

36,300

80,000

9,083

110,000

110,000

M.A. Plavsic 2007

2006

17,520

70,080

26,250

26,250

61,230

8,670

105,000

105,000

Total 2007

2006

279,908

440,500

190,615

220,050

176,937

59,450

647,460

720,000

1 Relates solely to the purchase of shares under the Non-Executive Director Share Plan.2 Amounts disclosed for remuneration of directors exclude insurance premiums paid by the consolidated entity in respect of directors’ and offi cers’ liability

insurance contracts which covers, among others, current and former directors of the Company. Due to confi dentiality obligations and undertakings of the

policy, the premium paid cannot be disclosed No amount has been allocated to the individuals covered by the insurance policy as, based on all available

information, the directors believe that no reasonable basis for such allocation exists.3 Ms D.G. Fisher was appointed as a director of the Company on 28 March 2007.4 Ms H.A. Lynch resigned as a director of the Company at the Company’s 2006 Annual General Meeting on 24 October 2006.

50 Pacifi c Brands

Annual Report 2007

4 Executive director and senior executive remuneration

The disclosures in this section relate to the remuneration for key management personnel of both the Company and the consolidated entity

(being those persons with authority and responsibility for planning, directing and controlling the activities of the Company during the fi nancial

year) other than the non-executive directors. This group of executives includes the fi ve most highly remunerated executives of the Company

and the consolidated entity during the fi nancial year.

A. Board policy on remuneration

The Board and the Nomination and Remuneration Committee believe that the performance of the Company depends on the quality of its

people. The Board has adopted a remuneration policy which assists the Company to achieve its business strategy and goals and has the

following objectives:

• ensuring alignment of executive remuneration with the short and long term objectives as set out in the Company’s strategic business

plans endorsed by the Board;

• providing a common interest between employees and shareholders by linking the rewards that accrue to management to the creation of

value for shareholders;

• being competitive in the markets in which the Company operates in order to attract, motivate and retain high calibre employees; and

• being fully costed on a ‘cost to company’ basis including all applicable fringe benefi ts and other taxes.

The Nomination and Remuneration Committee obtains independent advice from external specialists on the level and mix of remuneration for

comparable roles in comparable companies.

Alignment of executive remuneration with the Company’s business strategy is achieved through both short and long term incentives. Key

fi nancial and strategic value drivers are identifi ed, targets set, and rewards provided on their achievement. Value drivers include, in the case

of short term incentives, net profi t after tax (‘NPAT’) growth and the achievement of specifi ed strategic objectives and, in the case of long

term incentives, relative total shareholder return (‘TSR’) and earnings per share (‘EPS’) growth.

The Board believes that the balance between fi xed and performance related components of remuneration, as summarised below, refl ects

market conditions and the ability of the relevant executives to drive the performance of the Company. The Board believes that a company’s

remuneration policy needs to be contemporary and as such must be capable of adjustment over time to refl ect changes in market

conditions.

The relative proportion of executive directors and senior management’s total remuneration packages that is performance based is set out in

the table below:

% of total target remuneration (annualised)

Fixed

remuneration

Performance

based remuneration

Short term

incentives

Long term

incentives

Total

performance

based

remuneration

Chief Executive Offi cer 29% 45% 26% 71%

Group General Manager, Operations 33% 26% 41% 67%

Other senior executives1 41% 18% 41% 59%

1 Percentages based on average remuneration for the relevant executives assuming incentives fully vest.

The mix of short and long term incentives varies with each executive’s business focus. As much of the Company’s business is subject to

short retail cycles, it follows that many executives will have a balance between short term and long term incentives.

Financial results are verifi ed by reference to the Company’s audited accounts. Relative TSR performance is verifi ed by external advisers.

The achievement of performance objectives is assessed by the Chief Executive Offi cer for direct reports and verifi ed by the Board, while the

Board assesses whether or not the Chief Executive Offi cer has met his performance objectives.



Annual Report 2007

B. Fixed remuneration

The terms of employment for all executive management contain a fi xed remuneration component comprising base salary, superannuation

and motor vehicle (or motor vehicle allowance). The Company utilises the Hay points rating system to value individual roles.

Longer serving employees receive defi ned benefi t superannuation as a legacy from the previous ownership of Pacifi c Brands. The cost

of providing their superannuation benefi t varies with each individual’s salary level and years of membership of the plan. Longer serving

employees will attract greater superannuation costs than more recent employees. This plan has been closed to new members for several

years. Newer employees receive a superannuation benefi t that allows them to control and vary their contribution levels above the mandated

statutory minimum on a salary sacrifi ce basis.

The executive directors and a majority of the executives for whom remuneration is disclosed are members of the defi ned benefi t plan.

Hence, the expense associated with their superannuation benefi t refl ects most individuals’ relatively long periods of service.

Executive fi xed remuneration is reviewed annually, with effect from 1 July each year.

C. Short term incentives (‘STI’)

Both executive directors and all other members of the senior executive team participate in a STI program which involves linking specifi c

targets (both fi nancial and qualitative) with the opportunity to earn cash and deferred share Incentives are based on a percentage of the

executive’s base salary. In respect of the 2007 fi nancial year, the Chief Executive Offi cer had the opportunity to earn a bonus equivalent to

200% of his base salary. In the case of the Group General Manager, Operations, in respect of the 2007 fi nancial year, the opportunity was

to earn a bonus equivalent to 100% of his base salary. In relation to other Australian members of the senior executive team, the opportunity

generally comprised an amount equal to between 50% and 75% of their base salary for target performance.

Payment of executive STI is conditional on consolidated entity net profi t after tax (‘NPAT’) growth of 5% or more (after STI payments)

over the prior year. This is a threshold criterion which must be satisfi ed before the payment of any STI can be contemplated. Additional

performance requirements, including in some cases NPAT (pre amortisation) growth targets in excess of 5%, need to be met for a senior

executive to be entitled to the maximum STI incentive. Individual performance requirements relate to individual fi nancial and non-fi nancial

objectives. The specifi ed objectives must represent outcomes that can extend the Company’s sustainable profi t growth over time. These

may vary with the individual executive and his/her responsibilities and can include fi nancial, operational, acquisition, divestment, investment,

workforce capability and succession planning goals. Targets for each objective are determined by the Chief Executive Offi cer (and, in the

case of the Chief Executive Offi cer by the Board) according to the roles and responsibilities of the relevant executive.

The actual amount of any STI award is determined based on achievement of annual performance conditions. Performance is tested at the

end of each fi nancial year. The payment of a STI to the Chief Executive Offi cer is subject to the discretion of the Board notwithstanding

achievement of the performance hurdles. Similarly, in the case of all other senior executives the payment of any STI is subject to the

discretion of the Chief Executive Offi cer, in consultation with the Board, to take account of the overall level of performance of the senior

executive.

In the 2007 fi nancial year, the threshold criterion of NPAT growth was met, however cash bonuses were only paid in part to certain senior

executives, based on the extent of their achievement of other individual qualitative performance requirements.

The service agreements for the Chief Executive Offi cer and Group General Manager, Operations, provide that a percentage (determined

at the discretion of the Board) of any STI to which they may become entitled is to be applied to acquiring shares (‘Deferred Shares’).

Specifi cally, the Chief Executive Offi cer is required to apply half of any annual incentive to acquiring Deferred Shares, while the Group

General Manager, Operations is required to apply one third of any incentive towards the acquisition of Deferred Shares. The executives may

elect to apply a greater percentage of any incentive to acquiring shares which are subject to the ‘restriction’ condition described below.

In the case of the Chief Executive Offi cer and the Group General Manager, Operations, the Deferred Shares are subject to a vesting period

of two years, based on service, from the date of allocation. Once acquired, the Deferred Shares are held on trust, subject to a further

restriction on dealing for a period of three years after the date of allocation of the Deferred Shares. If the executive is terminated for cause

prior to the end of the two year vesting period, any entitlement to the Deferred Shares ceases. If the employment of the executive ceases

in other circumstances, the executive will, in general, be entitled to receive their Deferred Shares. Deferred Shares allocated under this

arrangement will generally be acquired on-market. The balance of any annual incentive award will be paid to the executive in cash.

The service agreements of certain other senior executives also provide for one third of any annual incentive to which they become entitled to

be applied in acquiring Deferred Shares, however, there is no vesting period, nor are there any restrictions as to the disposal of the Deferred

Shares allocated to these executives (other than the Company’s policy on dealing in securities in the Company).

52 Pacifi c Brands

Annual Report 2007

Current STI programs relevant to executive directors and senior executives

Date of grant

Percentage

of STI

payable

(%)

Percentage

of STI not

Awarded

(%)

Minimum

total value

of STI ($)

Maximum

total value

of STI ($)

Executive directors

P.R. Moore,

Chief Executive Offi cer

01/07/2006 11.9 88.1 $0 $2,100,000

S.J. Tierney,

Group General Manager,

Operations

01/07/2006 6.3 93.7 $0 $420,000

Senior executives

S.W. Audsley,


01/07/2006 37.7 62.3 $0 $262,500

I.C. Barton,


Home Comfort

01/07/2006 0 100 $0 $157,500

M.S. Daniel,


Yakka

01/07/2006 27.4 72.6 $0 $182,500

M.J. Ford,


Footwear

01/07/2006 29.0 71.0 $0 $172,500

M.E. Keely,


People & Performance

01/07/2006 72.7 27.3 $0 $137,500

S.M. Morphet,


Underwear & Hosiery

01/07/2006 37.7 62.3 $0 $262,500

G.R. Nurse

Group Director

Pacifi c Brands Holdings (HK) Limited

17/11/2006 50.0 50.0 $0 $100,000

M. Sonand,


Outerwear & Sport1

07/12/2006 40.0 60.0 $0 $62,500

1 Mr M. Sonand was appointed to the role of Group General Manager, Outerwear & Sport effective 2 January 2007

D. Long term incentives (‘LTI’)

The Company’s LTI arrangements are designed to link executive reward with the key performance drivers which underpin sustainable

growth in shareholder value. Participation in the LTI arrangements is only offered to executives who are able to infl uence the generation of

shareholder wealth and thus have a direct impact on the Company’s performance against the relevant performance hurdles. In addition, the

Board believes that the appropriateness of LTI arrangements cannot be viewed in isolation, but must be considered in the context of the

total array of possible remuneration elements which may be provided to senior executives, taking account of the remuneration practices of

competitor companies.

The Company’s LTI plans are currently comprised of a performance rights plan (‘PRP’) introduced in 2004 as part of the Company’s initial

public offering, giving an entitlement to shares on satisfaction of the performance requirements. Grants are generally made annually to

ensure there is a balance between the achievement of short term objectives and longer term goals. There have been grants of performance

rights to senior executives pursuant to the terms of the PRP in 2004, 2005 and 2006 and a further grant of performance rights to senior

executives is contemplated in 2007.

The rules of the PRP provide that the Board may, at the time of making a grant of performance rights, determine an amount that is payable

by the relevant senior executive upon allocation of a share following vesting of a performance right, or that no amount is payable upon

allocation of a share once a performance right vests. In respect of the performance rights granted to date, the Board has on each occasion

determined that no amount is payable by the relevant executive on vesting of their grant of rights.



Annual Report 2007

Performance hurdle selection

Eligible executives (including the executive directors) were granted performance rights in 2004. Vesting is based on relative TSR

performance against the individual TSRs of the companies comprising the ASX 100 index at that time.

The use of a TSR based hurdle was regarded by the Company as appropriate as it:

• ensures an alignment between comparative shareholder return and reward for the executive;

• provides an external market performance measure in respect of share price growth and dividends; and

• measures and rewards the extent to which shareholder returns are generated relative to the performance of those companies with

which the Company competes for capital, customers and talent.

At the 2005 and 2006 Annual General Meetings of the Company, shareholders approved a grant of performance rights to the executive

directors. A similar grant of performance rights was also made to other eligible senior executives. Half of these grants of performance rights

are subject to an EPS growth hurdle. The other half of each grant is subject to a relative TSR hurdle.

In moving from a purely TSR based measure (which formed the basis of the 2004 grant of performance rights), to a combination of TSR

and EPS based performance measures (adopted in respect of the 2005 and 2006 grants of performance rights), the Board determined

that TSR alone did not always refl ect the long term value created by senior executives in the measurement period. The Board believes that,

collectively, TSR and EPS performance is better correlated with executive performance over time.

Frequency of testing against performance hurdles

The 2004 and 2005 grants were divided into tranches corresponding to performance measurement periods of one year, two years, three

years and four years. Any unvested tranche in any period is held over and subject to retesting against the performance criteria in following

periods. The 2006 grant of performance rights will have the performance requirements tested only once, at the end of the 2009 fi nancial

year.

Based on the fi nancial performance of the Company in the 2007 fi nancial year a total of 1,343,124 performance rights vested in the

executive directors and senior executives effective 1 July 2007, as set out on page 57 of this Report.

The maximum percentage of remaining and proposed performance rights that may vest, subject to performance, in any one year are set out

in the table below:

Vesting date

Maximum %

of 2004 grant1

Maximum %

of 2005 grant1

Maximum %

of 2006 grant

1 July 2008 40% 42.5%2 0%

1 July 2009 – 40% 100%

Maximum 40% 82.5% 100%

1 No shares vested under any of the LTI grants in respect of the Company’s performance in the 2005 or 2006 fi nancial year’s. 60% of the 2004 grant of

performance rights and 17.5% of the 2005 grant of performance rights will vest effective 1 July 2007.2 The percentage of performance rights which may vest on 1 July 2008 under the 2005 grant includes a certain percentage of the performance rights

granted which did not vest on 1 July 2007 and which therefore carried forward to the next possible vesting date.

TSR performance conditions

Each year, the Board reviews and if necessary refi nes the peer group for TSR performance comparison. The 2004 grant used a

comparison group of the ASX’s 100 largest companies by market capitalisation and the 2005 comparison group was composed of a

basket of 72 companies selected from the ASX 200 as comparable yield stocks. The comparison group for the 2006 grant was comprised

of 23 peer companies which are:

• ASX listed;

• in the consumer staples and discretionary sectors; and

• either side of the Company in the market capitalisation, such that the Company’s market capitalisation at the start of the performance

period approximates the median of the comparison group. The companies that met these criteria compete with the Company for

customers’ spending, while representing alternatives to current and potential investors in the competition for capital in this sector.

Although comparator companies may change, the Board expects to consistently apply the peer selection criteria which was used in

respect of the 2006 grant for future grants of performance rights, including the contemplated 2007 grant.

54 Pacifi c Brands

Annual Report 2007

A summary table of comparator companies for unvested performance rights is provided in the table below:

2004:

ASX 100

2005:

Highest yield companies in ASX 200

2006:

Consumer staples and

discretionary companies

All companies comprising

the ASX 100 at the start

of the performance period.

ABC Learning Centres Limited, Adelaide Brighton Limited,

Adsteam Marine Limited, Alesco Corporation Limited,

Amcor Limited, Ansell Limited, Aristocrat Leisure Limited,

Austereo Group Limited, Australian Gas Light Company (The),

Australian Pharmaceutical Industries Limited, AWB Limited,

Baycorp Advantage Limited, Billabong International Limited,

BlueScope Steel Limited, Boral Limited, Bradken Limited,

Brambles Industries Limited, Burns Philp & Company Limited,

Coates Hire Limited, Cochlear Limited, Coles Myer Limited,

Colorado Group Limited, Corporate Express Australia Limited,

Crane Group Limited, CSL Limited, CSR Limited, David Jones

Limited, DCA Group Limited, Downer EDI Limited, Flight

Centre Limited, Foodland Associated Limited, Foster’s Group

Limited, GRD Limited, GUD Holdings Limited, Gunns Limited,

GWA International Limited, Harvey Norman Holdings Limited,

Hills Industries Limited, Housewares International Limited,

Invocare Limited, JB Hi-Fi Limited, Just Group Limited,

McGuigan Simeon Wines Limited, Metcash Limited, MYOB

Limited, Nufarm Limited, OAMPS Limited, OneSteel Limited,

Orica Limited, Origin Energy Limited, Pacifi c Brands Limited,

Pacifi ca Group Limited, PaperlinX Limited, Promina Group

Limited, Qantas Airways Limited, Repco Corporation Limited,

Ridley Corporation Limited, Rinker Group Limited, Seven

Network Limited, Sigma Company Limited, Sims Group

Limited, Smorgon Steel Group Limited, Sonic Healthcare

Limited, Spotless Group Limited, STW Communications

Group Limited, Tabcorp Holdings Limited, Ten Network

Holdings Limited, Toll Holdings Limited, UNiTAB Limited,

United Group Limited, Wattyl Limited, Wesfarmers Limited

and Woolworths Limited.

ABC Learning Centres Limited, Austereo

Group Limited, Amalgamated Holdings

Limited, APN News & Media Limited,

AWB Limited, Billabong International

Limited, Burns Philp & Company Limited,

David Jones Limited, Futuris Corporation

Limited, Flight Centre Limited, GUD

Holdings Limited, Harvey Norman Holdings

Limited, JB Hi-Fi Limited, Just Group

Limited, Metcash Limited, Southern

Cross Broadcasting (Australia) Limited,

Seek Limited, Seven Network Limited,

STW Communications Group Limited,

Ten Network Holdings Limited, Tattersall’s

Limited, UNiTAB Limited, West Australia

Newspapers Holdings Limited.

The Company’s performance is given a percentile ranking having regard to its TSR performance compared with the TSR performance of other

companies in the relevant comparator group. This is done in respect of each grant of performance rights.

The TSR performance conditions in relation to the 2004, 2005 and 2006 grants of performance rights are:

Target

Percentage of shares available in

given year that vests

The Company’s annual TSR is less than the median TSR of the comparator companies 0%

The Company’s annual TSR equals or exceeds performance of the median TSR of the

comparator companies

50%

The Company’s annual TSR ranks in third quartile of the comparator companies Pro rata between 50% and 100%

(2% increase for each higher ranking)

The Company’s annual TSR ranks in fourth quartile of the comparator companies 100%



Annual Report 2007

EPS performance conditions

As noted above, the EPS growth requirement was introduced in 2005 for half of the performance rights and is a requirement in relation to

the 2006 grant of performance rights. The Board introduced this performance requirement because:

• as an absolute measure, it provides management with a performance goal over which they can directly exert some control;

• it provides a very good ‘line of sight’ between the actions of senior executives and the Company’s results; and

• it is directly correlated with shareholder returns, so complements the relative TSR performance requirement.

EPS performance requirements are reviewed prior to each year’s allocation of performance rights. The range of EPS growth refl ects the

Company’s view of what is a reasonable target value, taking account of likely business cycle conditions as well as the upside potential the

Company has for further earnings growth.

EPS performance requirements for each grant are shown in the table below:

Percentage of shares

in tranche available in

given year that vests 2005 performance rights EPS target

2006 performance

rights EPS target

0% The Company’s compound EPS growth

(tested over 1, 2, 3 and 4 years) is less

than 8.5%

The Company’s 3 year compound EPS growth is less

than 8.0%


(tested over 1, 2, 3 and 4 years) equals 8.5%

The Company’s 3 year compound EPS growth equals 8.0%

Pro rata between

25% and 100%

The Company’s compound EPS growth

(tested over 1, 2, 3 and 4 years) is between

8.5% and 10.5%

The Company’s 3 year compound EPS growth is between

8.0% and 12.0%


(tested over 1, 2, 3 and 4 years) equal to

or exceeding 10.5%

The Company’s 3 year compound EPS growth equal to or

exceeding 12.0%

Testing

In relation to the 2004 and 2005 grants of performance rights, performance conditions were again tested at the end of the 2007 fi nancial

year. In the 2007 fi nancial year, the relative TSR of the Company was in the top quartile. Consequently, 100% of the performance rights

under the 2004 and 2005 grants that were subject to testing against TSR performance will vest on 1 July 2007. Based on the EPS growth

for the 2007 fi nancial year, none of the performance rights under the 2005 grant subject to testing against that measure will vest with effect

from 1 July 2007. The next testing of the performance hurdles in respect of the 2004 and 2005 grants will occur on 30 June 2008.

Restrictions on performance rights which vest

In the case of the 2004 and 2005 grants of performance rights, executives are not entitled to trade in shares allocated on vesting of the

performance rights until the earlier to occur of:

• three years after the date of grant of the shares allocated on vesting; or

• 12 months following the date of cessation of employment with the consolidated entity.

In the case of the 2006 grant executives are not entitled to trade in shares allocated on vesting of the performance rights until the earliest

to occur of:

• a request from the relevant executive to the Board to release the holding lock; or

• 10 years after the date of grant of the shares allocated on vesting; or

• six months following the date of cessation of employment with the consolidated entity.

While the shares are restricted from trading, the Company’s Guidelines for Dealing in Securities prohibit executives from entering into a

transaction to limit the economic risk of such shares, whether through a derivative, hedge or other similar arrangement without the prior

written approval of the Chief Executive Offi cer or the Board. To date, no such approval has been sought or given.

Performance rights will lapse in accordance with the terms of the grant if performance hurdles are not achieved or if participants resign prior

to the completion of required vesting periods.

Where a participant leaves the Company as a result of death, disability, retrenchment, or other reason with the approval of the Board,

subject to performance hurdles being met, the Board may determine the extent to which performance rights granted to the participant vest.

In the event of a takeover for the Company, performance rights may, at the discretion of the Board, vest on a pro rata basis in accordance

with an assessment of performance on the same performance criteria, but with the performance period pro rated to the date of the

takeover offer.

56 Pacifi c Brands

Annual Report 2007

A discussion of the Company’s performance, specifi cally against the Company’s earnings and the consequences of the Company’s

performance on shareholder wealth in the period from 2 April 2004 to 30 June 2007 is set out in section 1 of this report.

Vesting of rights

Details of the number of performance rights which have been granted and the extent (if any) to which they have vested are set out in the

table following. The Company values and discloses all performance rights granted under the PRP in accordance with relevant Australian

Accounting Standards.

Equity grants made to executive directors and senior executives2

Nature of compensation/

instrument granted

Effective

date of

grant

Percentage

of grant

paid/

vested

(%)

Percentage

of grant

forfeited

(%)

Future

fi nancial

years

that grant

will be

payable

Minimum

total

value

of grant1

($)

Maximum

total

value

of grant1,3

($)

Executive directors

P.R. Moore,


500,000 performance rights



01/07/2004

01/07/2005

01/07/2006

60

17.5

Nil

Nil

Nil

Nil

2008

2008 – 2009

2010

Nil

Nil

Nil

320,000

139,219

173,372

S.J. Tierney,


Operations




01/07/2004

01/07/2005

01/07/2006

60

17.5

Nil

Nil

Nil

Nil

2008

2008 – 2009

2010

Nil

Nil

Nil

192,000

83,531

69,349

Senior executives

S.W. Audsley 250,000 performance rights



01/07/2004

01/07/2005

01/07/2006

60

17.5

Nil

Nil

Nil

Nil

2008

2008 – 2009

2010

Nil

Nil

Nil

160,000

69,609

57,792

I.C. Barton 200,000 performance rights



01/07/2004

01/07/2005

01/07/2006

60

17.5

Nil

Nil

Nil

Nil

2008

2008 – 2009

2010

Nil

Nil

Nil

128,000

55,688

52,012

M.S. Daniel 200,000 performance rights


01/07/2004

01/07/2006

60

Nil

Nil

Nil

2008

2010

Nil

Nil

128,000

60,268

M.J. Ford 200,000 performance rights



01/07/2004

01/07/2005

01/07/2006

60

17.5

Nil

Nil

Nil

Nil

2008

2008 – 2009

2010

Nil

Nil

Nil

128,000

55,688

56,965

M.E. Keely 200,000 performance rights



01/07/2004

01/07/2005

01/07/2006

60

17.5

Nil

Nil

Nil

Nil

2008

2008 – 2009

2010

Nil

Nil

Nil

128,000

55,688

45,407

S.M. Morphet 250,000 performance rights



01/07/2004

01/07/2005

01/07/2006

60

17.5

Nil

Nil

Nil

Nil

2008

2008 – 2009

2010

Nil

Nil

Nil

160,000

69,609

57,792

1 The notional value of performance rights as at the date of their grant has been determined in accordance with AASB 124 applying AASB 2 Valuation

Guidelines and Guidance Note GN510 issued by the Institute of Actuaries of Australia (further details of the valuation methodology can be found in Note 29(b)

to the fi nancial statements). The notional value in respect of the grant having an effective date of 1 July 2004 is $1.60 per share. The notional value in respect

of the grant having an effective date of 1 July 2005 is $1.35 per share. The notional value in respect of the grant having an effective date of 1 July 2006 is

$1.42 per share.2 A total of 2,500,000 performance rights were granted under the 2004 issue of performance rights and to date 1,500,000 of these performance rights will

vest with effect from 1 July 2007 based on the fi nancial performance of the Company in the 2007 fi nancial year. A total of 530,000 performance rights were

granted under the 2005 issue of performance rights and to date 91,874 of these performance rights will vest with effect from 1 July 2007 based on the

fi nancial performance of the Company in the 2007 fi nancial year. A total of 433,722 performance rights were granted under the 2006 issue of performance

rights and to date none of these performance rights have vested. The terms and conditions attached to the 2004, 2005 and 2006 performance rights grants

are set out on pages 52 to 55 in this Annual Report.3 The maximum total value of grants is exclusive of the performance rights which will vest with effect from 1 July 2007 based on the performance of the

Company in the 2007 fi nancial year.

During the fi nancial year, the Company has not granted any options or rights in addition to the performance rights granted on 1 July 2006

(and summarised in the previous table).



Annual Report 2007

The following table set out details of any movement in performance rights currently on issue to the Chief Executive Offi cer, Group General

Manager, Operations and senior executives and the number of performance rights held by such persons during the reporting period. All

performance rights which vested were automatically exercised.

Number and value of performance rights held by executive directors and senior executives

Balance at

01/07/2006 Granted Exercised

Lapsed/

forfeited

Balance at

30/06/2007

Aggregate

value total at

30/06/2007

Vested &

exercisable1

Executive Directors

P.R.Moore

Number 625,000 122,093 Nil Nil 747,093 321,875

Value $968,750 $173,372 $1,142,122 $509,531

S.J. Tierney

Number 375,000 48,837 Nil Nil 423,837 193,125

Value $581,250 $69,348 $650,598 $305,719

Senior Executives

S.W. Audsley

Number 312,500 40,698 Nil Nil 353,198 160,937

Value $484,375 $57,792 $542,167 $254,765

I.C. Barton

Number 250,000 36,628 Nil Nil 286,628 128,750

Value $387,500 $52,012 $439,512 $203,813

M.S. Daniel

Number 200,000 42,442 Nil Nil 242,442 120,000

Value $320,000 $60,268 $380,628 $192,000

M.J. Ford

Number 250,000 40,116 Nil Nil 290,116 128,750

Value $387,500 $56,965 $444,465 $203,813

M.E. Keely

Number 250,000 31,977 Nil Nil 281,977 128,750

Value $387,500 $45,407 $432,907 $203,813

S.M. Morphet

Number 312,500 40,698 Nil Nil 353,198 160,937

Value $484,375 $57,792 $542,167 $254,765

Total – senior directors and executives

Number 2,575,000 403,489 Nil Nil 2,978,489 1,343,124

Value $4,001,250 $572,956 $4,574,206 $2,128,217

1 Based on the fi nancial performance of the Company in the 2007 fi nancial year these performance rights will vest with effect from 1 July 2007. In aggregate,

1,343,124 shares in the Company will be issued to the relevant executive directors and senior executives subsequent to the date of this report.

58 Pacifi c Brands

Annual Report 2007

E. Service agreements

The remuneration and other terms of employment for the Chief Executive Offi cer, Group General Manager, Operations and the senior

executives are formalised in service agreements. Each of these agreements provides for the payment of a fi xed annual remuneration

component comprising of a base salary, car allowance and superannuation contributions, the provision of performance related cash

bonuses (as disclosed on page 52 in this report), and participation in the Company’s employee long term incentive scheme (as disclosed on

page 56 in this report).

Each year, the Board agrees criteria for the evaluation of the Chief Executive Offi cer and reviews performance against those criteria at the

end of the fi nancial year. The Board similarly reviews the objectives of the other senior executives. Performance against those criteria is

reviewed by the relevant senior executive’s manager.

General information regarding the duration of each agreement, the periods of notice required to terminate the agreement and the

termination payments provided for under the service agreements are summarised in the discussion below.

Duration of service agreements

The Chief Executive Offi cer is employed under a fi xed term service agreement of fi ve years which expires on 24 February, 2009. Under

the terms of the service agreement, the Chief Executive Offi cer’s employment will terminate on the expiry date of the agreement unless

terminated earlier or renewed. The Group General Manager, Operations’ three year service agreement expired in April 2007 and has been

renewed upon the same terms and conditions and is ongoing unless terminated by either party. All other senior executives are employed

under agreements that are ongoing unless terminated by either party.

Notice periods and payments on termination

The service agreements provide for termination payments to be made in certain circumstances. In particular, the Company may terminate

the employment of the Chief Executive Offi cer, Group General Manager, Operations or any of the other senior executives on giving three

months notice. The Company may make a payment in lieu of notice not to exceed one year’s fi xed annual remuneration plus a pro rata part

of the current STI (cash bonus), based on the performance of the relevant executive against the annual target applicable at that time. In

general, the Chief Executive Offi cer, Group General Manager, Operations and other senior executives must give the Company at least three

months notice of resignation. In the event that the Chief Executive Offi cer ceases to be the most senior executive in the consolidated entity

or the Company ceases to be listed on the ASX, the Company will be deemed to have terminated the employment of the Chief Executive

Offi cer and will be liable to make compensation payments.

Upon termination of employment for any reason, the Chief Executive Offi cer and the Group General Manager, Operations are both

prohibited from engaging in any activity that would compete with the Company for a period of one year, in order to protect the Company’s

business interests. In order to ensure that the restraint is enforceable by the Company, both the Chief Executive Offi cer and the Group

General Manager, Operations are entitled to an amount equal to one year of their fi xed annual remuneration as at the time of termination of

their employment. The Company makes provision for employee benefi ts in accordance with applicable Australian Accounting Standards.

Sign-on payments

No payment was made to the Chief Executive Offi cer, the Group General Manager, Operations or any of the other senior executives of the

Company and the consolidated entity before they took offi ce as part consideration for them agreeing to hold offi ce.

F. Remuneration paid and other specifi c disclosures

Details of the remuneration paid to the Chief Executive Offi cer, the Group General Manager, Operations, each of the fi ve named executives

of the Company and the consolidated entity with the highest remuneration during the 2007 fi nancial year and the key management

personnel (excluding the executive directors) are set out in the following table. All values are in Australian dollars unless otherwise stated.



Annual Report 2007

Remuneration for 2007 fi nancial year

Chief Executive Offi cer, Group General Manager Operations and other senior executives of the Company and the consolidated entity

Short term employee benefi ts Post employment benefi ts

Share

based

payments

Term-

ination

benefi ts Total

Fixed

salary1 Fees

Incentive

payments

Non-

monetary

benefi ts3

Super-

annuation

benefi ts

Retire-

ment

payments Other

Perform-

ance

rights2

$ $ $ $ $ $ $ $ $ $

P.R. Moore,


2007

2006

1,192,603

1,066,968

250,000 53,134

46,357

252,000

206,788

213,255

323,259

1,960,992

1,643,372

S.J. Tierney,


Operations

2007

2006

441,955

421,002

50,000 32,265

31,350

100,800

94,034

127,953

193,955

752,973

740,341

S.W. Audsley,


2007

2006

365,468

307,975

100,000 20,493

64,007

67,364

59,487

106,628

161,629

659,953

593,098

I.C. Barton,


Home Comfort

2007

2006

320,024

320,665

25,000 31,136

30,250

75,600

70,200

85,302

129,303

537,062

550,418

M.S. Daniel,


Yakka

2007

2006

364,014

331,929

50,000 14,950

31,623

31,046

29,100

63,303

103,750

523,313

496,402

M.J. Ford,


Footwear

2007

2006

342,028

343,512

50,000

45,808

37,410

36,350

82,800

75,200

85,302

129,303

597,540

630,173

M.E. Keely,


People & Performance

2007

2006

229,453

254,448

100,000 26,096

25,000

57,841

60,800

85,302

129,303

498,692

469,551

S.M. Morphet,


Underwear & Hosiery

2007

2006

356,202

292,251

100,000 54,874

97,098

68,071

54,451

106,628

161,629

685,775

605,429

G.R. Nurse

Group Director,

Pacifi c Brands Holdings

(HK) Limited

2007

2006

379,600

343,743

50,000 70,000

70,000

72,423

64,298

572,023

478,041

M. Sonand,


Outerwear & Sport4

2007

2006

102,045

25,000

13,761 8,688 149,494

Total remuneration –

senior executives

2007

2006

4,093,392

3,682,493

800,000

45,808

354,119

432,035

816,633

714,358

873,673

1,332,131

6,937,817

6,206,825

1 Includes movements in annual leave and long service leave provisions.2 To the extent required by the Australian Accounting Standards, remuneration includes a proportion of the notional value of equity compensation granted or

outstanding during the fi nancial year. The notional value of equity instruments which do not vest during the reporting period is required to be determined as at

the grant date and is progressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefi t (if any)

that individual executives may ultimately realise should the equity instruments vest. The notional value of performance rights as at the date of their grant has been

determined in accordance with AASB 124 applying AASB 2 Valuation Guidelines and Guidance Note GN510 issued by the Institute of Actuaries of Australia. The

notional value in respect of the grant having an effective date of 1 July 2004 is $1.60 per share. The notional value in respect of the grant having an effective date

of 1 July 2005 is $1.35 per share. The notional value in respect of the grant having an effective date of 1 July 2006 is $1.42 per share. Part of the Chief Executive

Offi cer’s, Group General Manager, Operation’s and other senior executives’ remuneration for the fi nancial year ended 30 June 2007 consisted of performance rights

which vested in the relevant executive.3 Amounts disclosed for remuneration of senior executives exclude insurance premiums paid by the consolidated entity in respect of directors’ and offi cers’ liability

insurance contracts which cover current and former directors and offi cers, including, among others, the named senior executives. Due to confi dentiality obligations

and undertakings of the policy, the premium paid cannot be disclosed. No amount has been allocated to the individuals covered by the insurance policy as, based

on all available information, the directors believe that no reasonable basis for such allocation exists.4 M. Sonand commenced employment with the group on 2 January 2007.

60 Pacifi c Brands

Annual Report 2007

G. Audit of remuneration report

This Remuneration Report, has been audited in conjunction with the audit of the Financial Statements forming part of the Annual Report.

Dated at Melbourne this 21st day of August 2007.

Signed in accordance with a resolution of the directors:

Pat Handley Paul Moore

Chairman Director


Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To: the Directors of Pacifi c Brands Limited

I declare that, to the best of my knowledge and belief, in relation to the audit for the fi nancial year ended 30 June 2007 there have been:

(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

(ii) no contraventions of any applicable code of professional conduct in relations to the audit.

KPMG Don Pasquariello

Partner

Melbourne

21 August 2007


Financial Report to Shareholders

Annual Report 2007

for the year ended 30 June 2007

Consolidated The Company

2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Sales revenue 2 1,820,737 1,624,878 – –

Cost of sales (1,062,103) (961,912) – –

Gross profi t 758,634 662,966 – –

Other income 2 13,425 17,189 100,000 77,500

Freight and distribution expenses (118,543) (111,906) – –

Sales, marketing and advertising expenses (332,762) (288,005) – –

Information technology expenses (24,954) (21,510) – –

Administrative expenses (103,544) (85,719) (4,791) (3,226)

Results from operating activities 192,256 173,015 95,209 74,274

Financial income 3,378 2,174 44 100

Financial expenses (50,016) (37,717) – –

Net fi nancing costs 3 (46,638) (35,543) 44 100

Profi t before income tax (expense)/benefi t 145,618 137,472 95,253 74,374

Income tax (expense)/benefi t 5 (39,482) (36,106) 2,553 459

Profi t for the year 106,136 101,366 97,806 74,833

Profi t attributable to minority interest 22 (177) (155) – –

Profi t attributable to equity holders of the parent 20 105,959 101,211 97,806 74,833

Basic and diluted earnings per share

Ordinary shares 6 21.1 cents 20.1 cents

The Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 66 to 108.

Income Statements

62 Pacifi c Brands


Annual Report 2007

as at 30 June 2007


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Current assets

Cash and cash equivalents 8 138,640 94,025 568 487

Trade and other receivables 9 302,966 211,402 48,624 26,076

Inventories 10 361,524 296,501 – –

Other current assets 11 9,636 7,064 – –

Total current assets 812,766 608,992 49,192 26,563

Non-current assets

Trade and other receivables 9 50 214 1,203,714 1,203,714

Property, plant and equipment 12 206,849 167,086 – –

Intangible assets 13 1,503,765 1,297,330 – –

Deferred tax assets 14 30,357 32,185 3,321 5,964

Other non-current assets 11 1,731 1,979 – –

Total non-current assets 1,742,752 1,498,794 1,207,035 1,209,678

Total assets 2,555,518 2,107,786 1,256,227 1,236,241

Current liabilities

Trade and other payables 15 191,702 126,782 1,133 140

Interest-bearing loans and borrowings 16 2,689 1,642 – –

Income tax payable 7,924 3,903 7,725 8,585

Provisions 17 70,681 54,705 – –

Total current liabilities 272,996 187,032 8,858 8,725

Non-current liabilities

Trade and other payables 15 14,599 9,983 – –

Interest-bearing loans and borrowings 16 938,171 601,643 – –

Provisions 17 10,378 10,522 – –

Total non-current liabilities 963,148 622,148 – –

Total liabilities 1,236,144 809,180 8,858 8,725

Net assets 1,319,374 1,298,606 1,247,369 1,227,516

Equity

Contributed equity 18 1,218,577 1,220,446 1,218,577 1,220,446

Reserves 19 (12,109) (6,806) 4,911 3,075

Retained earnings 20 108,241 80,202 23,881 3,995

Total equity attributable to equity holders of the parent 1,314,709 1,293,842 1,247,369 1,227,516

Minority interest 22 4,665 4,764 – –

Total equity 1,319,374 1,298,606 1,247,369 1,227,516

The Balance Sheets are to be read in conjunction with the Notes to the Financial Statements set out on pages 66 to 108.

Balance Sheets



Annual Report 2007



2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Cash fl ows from operating activities

Cash receipts from customers 1,682,869 1,535,692 – –

Cash paid to suppliers and employees (1,473,205) (1,377,484) (2,002) (7,593)

Dividends received – – 100,000 77,500

Income taxes paid (30,830) (37,862) (22,610) (7,623)

Reimbursements received from tax consolidated entities – – 26,946 11,231

Interest paid (43,713) (34,240) – –

Interest received 3,174 2,313 84 100

Net cash from operating activities 27(b) 138,295 88,419 102,418 73,615

Cash fl ows from investing activities

Proceeds from sale of property, plant and equipment 1,432 1,457 – –

Acquisition of controlled entities (net of cash acquired) 26 (266,348) (64,702) – –

Acquisition of businesses (net of cash acquired) 26 (42,304) (15,216) – –

Acquisition of property, plant and equipment (23,921) (21,598) – –

Net cash used in investing activities (331,141) (100,059) – –

Cash fl ows from fi nancing activities

Lease payments (4,059) (1,945) – –

Repayment of borrowings (10,846) (28,675) – –

Loans to controlled entities – – (22,548) –

Dividends paid (77,920) (75,493) (77,920) (75,493)

Dividend paid to minority interest (358) – – –

Proceeds from borrowings 334,300 111,804 – –

Share buy back (1,869) – (1,869) –

Net cash from/(used in) fi nancing activities 239,248 5,691 (102,337) (75,493)

Net increase/(decrease) in cash and cash equivalents 46,402 (5,949) 81 (1,878)

Cash and cash equivalents at the beginning of the year 94,025 101,106 487 2,365

Effect of exchange rate fl uctuations on cash held (1,787) (1,132) – –

Cash and cash equivalents at the end of the year 27(a) 138,640 94,025 568 487

The Cash Flow Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 66 to 108.

Cash Flow Statements

64 Pacifi c Brands


Annual Report 2007


Issued

capital

Retained

earnings

Equity

compensation

reserve

Foreign

currency

translation

reserve

Hedge

reserve

Total equity

attributable

to equity

holders of

the parent

Minority

interest

Total

equity

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Balance at 30 June 2005 1,220,446 54,484 1,510 (2,855) – 1,273,585 4,330 1,277,915

Change in accounting policy

application of AASB 132 and

AASB 139 – – – – (2,781) (2,781) – (2,781)

Restated balance at 1 July 2005 1,220,446 54,484 1,510 (2,855) (2,781) 1,270,804 4,330 1,275,134

Effective portion of changes in

fair value of cash fl ow hedges – – – – 3,117 3,117 – 3,117

Foreign exchange translation

differences – – – (7,362) – (7,362) 279 (7,083)

Total (expense)/income for the period

recognised directly in equity – – – (7,362) 3,117 (4,245) 279 (3,966)

Profi t for the year – 101,211 – – – 101,211 155 101,366

Total recognised income/(expense)

for the year – 101,211 – (7,362) 3,117 96,966 434 97,400

Dividends recognised during

the year – (75,493) – – – (75,493) – (75,493)

Cost of share based payments – – 1,565 – – 1,565 – 1,565

Balance at 30 June 2006 1,220,446 80,202 3,075 (10,217) 336 1,293,842 4,764 1,298,606

Balance at 1 July 2006 1,220,446 80,202 3,075 (10,217) 336 1,293,842 4,764 1,298,606

Foreign exchange translation

differences – – – 202 – 202 – 202

Effective portion of changes in

fair value of cash fl ow hedges – – – – (7,341) (7,341) (325) (7,666)

Total expense for the period

recognised directly in equity – – – – – – – –

Profi t for the year – 105,959 – – – 105,959 177 106,136

Total recognised income/(expense)

for the year – 105,959 – 202 (7,341) 98,820 (148) 98,672

Minority interest acquired during

the period – – – – – – 407 407

Share buy back (1,869) – – – – (1,869) – (1,869)

Dividends recognised during

the year – (77,920) – – – (77,920) (358) (78,278)

Cost of share based payments – – 1,836 – – 1,836 – 1,836

Balance at 30 June 2007 1,218,577 108,241 4,911 (10,015) (7,005) 1,314,709 4,665 1,319,374

The Consolidated Statement of Changes in Equity are to be read in conjunction with the Notes to the Financial Statements set out on pages 66 to 108.

Consolidated Statement of Changes in Equity



Annual Report 2007


Issued

capital

Retained

earnings

Equity

compensation

reserve

Total

equity

$’000 $’000 $’000 $’000

Balance at 1 July 2005 1,220,446 4,655 1,510 1,226,611

Profi t for the year – 74,833 – 74,833

Total recognised income for the year – 74,833 – 74,833

Dividends recognised during the year – (75,493) – (75,493)

Cost of share based payments – – 1,565 1,565

Balance at 30 June 2006 1,220,446 3,995 3,075 1,227,516

Balance at 1 July 2006 1,220,446 3,995 3,075 1,227,516

Profi t for the year – 97,806 – 97,806

Total recognised income for the year – 97,806 – 97,806

Dividends recognised during the year – (77,920) – (77,920)

Cost of share based payments – – 1,836 1,836

Share buy back (1,869) – – (1,869)

Balance at 30 June 2007 1,218,577 23,881 4,911 1,247,369

The Company Statement of Changes in Equity are to be read in conjunction with the Notes to the Financial Statements set out on pages 66 to 108.

Company Statement of Changes in Equity

66 Pacifi c Brands

1 Signifi cant accounting policies ..............................................................................................................................................................67

2 Revenue and other income ....................................................................................................................................................................75

3 Other expenses .....................................................................................................................................................................................75

4 Auditors’ remuneration ..........................................................................................................................................................................76

5 Income tax expense/(benefi t) .................................................................................................................................................................77

6 Earnings per share ................................................................................................................................................................................78

7 Segment reporting .................................................................................................................................................................................78

8 Cash and cash equivalents ....................................................................................................................................................................80

9 Trade and other receivables ...................................................................................................................................................................81

10 Inventories .............................................................................................................................................................................................81

11 Other assets ..........................................................................................................................................................................................81

12 Property, plant and equipment ...............................................................................................................................................................82

13 Intangible assets ....................................................................................................................................................................................83

14 Recognised deferred tax assets and liabilities ........................................................................................................................................84

15 Trade and other payables ......................................................................................................................................................................85

16 Interest-bearing loans and borrowings ...................................................................................................................................................85

17 Provisions ..............................................................................................................................................................................................86

18 Contributed equity .................................................................................................................................................................................86

19 Nature of reserves .................................................................................................................................................................................87

20 Retained earnings ..................................................................................................................................................................................87

21 Dividends...............................................................................................................................................................................................87

22 Minority interest .....................................................................................................................................................................................88

23 Additional fi nancial instruments disclosure .............................................................................................................................................89

24 Commitments ........................................................................................................................................................................................92

25 Controlled Entities..................................................................................................................................................................................93

26 Acquisitions ...........................................................................................................................................................................................95

27 Notes to the Cash Flow Statements .....................................................................................................................................................97

28 Employee benefi ts .................................................................................................................................................................................98

29 Key management personnel disclosures ..............................................................................................................................................106

30 Non-key management personnel disclosures ......................................................................................................................................108

31 Events subsequent to reporting date ...................................................................................................................................................108


Annual Report 2007

Notes to the Financial Statements


Note


Pacifi c Brands Limited (‘Company’) is a company domiciled in

Australia. The consolidated Financial Report of the Company as

at and for the year ended 30 June 2007 comprises the Company

and its controlled entities (together referred to as the ‘consolidated

entity’).

This Financial Report was authorised for issue by the directors on

21 August 2007.

(a) Statement of compliance

The fi nancial report is a general purpose fi nancial report which has

been prepared in accordance with Australian Accounting Standards

(‘AASBs’) (including Australian Accounting Interpretations) adopted

by the Australian Accounting Standards Board (‘AASB’) and the

Corporations Act 2001.

(b) Basis of preparation

This Financial Report is presented in Australian dollars.

This Financial Report is prepared on the historical cost basis except

for derivative fi nancial instruments that are stated at their fair value.

The Company is of a kind referred to in Australian Securities and

Investments Commission Class Order 98/100 dated 10 July 1998

(updated by CO 05/641 effective 28 July 2005 and CO 06/51

effective 31 January 2006) and in accordance with that Class

Order, amounts in this Financial Report and the Directors’ Report

have been rounded off to the nearest thousand dollars, unless

otherwise stated.

The preparation of a fi nancial report in conformity with AASBs

requires management to make judgements, estimates and

assumptions that affect the application of policies and reported

amounts of assets and liabilities, income and expenses. The

estimates and associated assumptions are based on historical

experience and various other factors that are believed to be

reasonable under the circumstances, the results of which form the

basis of making the judgements about carrying values of assets

and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates. These accounting

policies have been consistently applied by each entity in the

consolidated entity.

The following AASBs, amendments and interpretations have been

identifi ed as those which may impact the entity in the period of

initial application. They are available for early adoption but have

not been applied by the Company and consolidated entity in these

fi nancial statements:

• AASB 7 Financial Instruments: Disclosures (August 2005)

replaces the presentation requirements of fi nancial instruments

in AASB 132. AASB 7 is applicable for annual reporting periods

beginning on or after 1 January 2007, and will require extensive

additional disclosures with respect to the consolidated entity’s

fi nancial instruments and share capital;

• AASB 2005-10 Amendments to Australian Accounting

Standards (September 2005) makes consequential

amendments to AASB 132 Financial Instruments: Disclosure

and Presentation, AASB 101 Presentation of Financial

Statements, AASB 114 Segment Reporting, AASB 117

Leases, AASB 133 Earnings Per Share, AASB 139 Financial

Instruments: Recognition and Measurement, AASB 1 First-time

Adoption of Australian Equivalents to International Financial

Reporting Standards, AASB 4 Insurance Contracts, AASB

1023 General Insurance Contracts and AASB 1038 Life

Insurance Contracts arising from the release of AASB 7. AASB

2005-10 is applicable for annual reporting periods beginning

on or after 1 January 2007 and is expected to only impact

disclosures contained within the consolidated fi nancial report;

• AASB 8 Operating Segments replaces the presentation

requirements of segment reporting in AASB 114 Segment

Reporting. AASB 8 is applicable for annual reporting periods

beginning on or after 1 January 2009 and is not expected

to have an impact on the fi nancial results of the Company

and the consolidated entity as the standard is only concerned

with disclosures;

• AASB 101 Presentation of Financial Statements (October 2006)

makes amendments to the existing AASB 101. The standard

is applicable for annual reporting periods beginning on or

after 1 January 2007, with early adoption permitted and is

not expected to have an impact on the fi nancial results of

the Company and consolidated entity but may impact certain

disclosures.


Standards arising from AASB 8 makes amendments to AASB 5

Non-current Assets Held for Sale and Discontinued Operations,

AASB 6 Exploration for and Evaluation of Mineral Resources,

AASB 102 Inventories, AASB 107 Cash Flow Statements,

AASB 119 Employee Benefi ts, AASB 127 Consolidated and

Separate Financial Statements, AASB 134 Interim Financial

Reporting, AASB 136 Impairment of Assets, AASB 1023

General Insurance Contracts and AASB 1038 Life Insurance

Contracts. AASB 2007-3 is applicable for annual reporting

periods beginning on or after 1 January 2009 and must be

adopted in conjunction with AASB 8 Operating Segments.

This standard is only expected to impact disclosures contained

within the fi nancial report;

• ED 151 Australian Additions to, and Deletions from, IFRSs

further eliminates differences between AASBs and IFRS. ED

151 is applicable for annual reporting periods beginning on

or after 1 July 2007, with early adoption permitted. It is not

expected to have an impact on the fi nancial results of the

Company or the consolidated entity but may impact certain

disclosures.

1 Signifi cant accounting policies



Annual Report 2007

68 Pacifi c Brands

(b) Basis of preparation

• Interpretation 10 Interim Financial Reporting and Impairment

prohibits the reversal of an impairment loss recognised in a

previous interim period in respect of goodwill, an investment

in an equity instrument or a fi nancial asset carried at cost.

Interpretation 10 will become mandatory for the consolidated

entity’s 2008 fi nancial statements, and will apply to goodwill,

investments in equity instruments, and fi nancial assets carried

at cost prospectively from the date that the consolidated

entity fi rst applied the measurement criteria of AASB 136

and AASB 139 respectively (i.e. 1 July 2004 and 1 July 2005,

respectively). The adoption of Interpretation 10 is not expected

to have a material impact on the fi nancial statements;

• Interpretation 11 AASB 2 Share-based Payment – Group and

Treasury Share Transactions addresses the classifi cation of a

share-based payment transaction (as equity or cash settled),

in which equity instruments of the parent or another group

entity are transferred, in the fi nancial statements of the entity

receiving the services. Interpretation 11 will become mandatory

for the consolidated entity’s 2008 fi nancial report. Interpretation

11 is not expected to have any impact on the consolidated

fi nancial report. The potential effect of the Interpretation on the

Company’s fi nancial report has not yet been determined; and


Standards arising from AASB Interpretation II amends AASB 2

Share-based Payments to insert the transitional provisions of

AASB 2, previously contained in AASB 1 First-time Adoption

of Australian Equivalents to international Financial Reporting

Standards. AASB 2007-1 is applicable for annual reporting

periods beginning on or after 1 March 2007 and is not

expected to have any impact on the consolidated fi nancial

report. The potential impact on the Company has not yet been

determined.

In the prior fi nancial year the Group adopted AASB 132: Financial

Instruments: Disclosure and Presentation and AASB 139: Financial

Instruments: Recognition and Measurement in accordance with

the transitional rules of AASB 1: First-time Adoption of Australian

Equivalents to International Financial Reporting Standards. This

change has been accounted for by adjusting the opening balance

of retained earnings and reserves at 1 July 2005, as disclosed in

the movements in equity.

(c) Principles of consolidation

Controlled entities

Controlled entities are entities controlled by the Company. Control

exists when the Company has the power, directly or indirectly, to

govern the fi nancial and operating policies of an entity so as to

obtain benefi ts from its activities. In assessing control, potential

voting rights that presently are exercisable or convertible are

taken into account. The fi nancial statements of controlled entities

are included in this Financial Report from the date that control

commences until the date that control ceases.

Acquisitions from entities under common control

Business combinations arising from transfers of interests in entities

that are under the control of the shareholder that controls the

consolidated entity are accounted for as if the acquisition had

occurred at the beginning of the earliest comparative period

presented or, if later, at the date that common control was

established; for this purpose comparatives are restated. The

assets and liabilities acquired are recognised at the carrying

amounts recognised previously in the consolidated entity’s

controlling shareholder’s consolidated fi nancial statements.

The components of equity of the acquired entities are added

to the same components within the consolidated entity equity.

Any cash paid for the acquisition is recognised directly in equity.

Transactions eliminated on consolidation

Intragroup balances, and any unrealised gains and losses or

revenues and expenses arising from intragroup transactions, are

eliminated in preparing the consolidated fi nancial statements.

Unrealised losses are eliminated in the same way as unrealised

gains, but only to the extent that there is no evidence of

impairment.

(d) Revenue recognition

Revenues are recognised at fair value of the consideration

received, net of the amount of goods and services tax (‘GST’)

payable to the relevant taxation authority.

Sale of goods

Revenue from the sale of goods (net of returns, discounts and

allowances) is recognised in the Income Statement when the

signifi cant risks and rewards of ownership have been transferred

to the buyer. Transfers of risks and rewards vary depending on the

individual terms of the contract of sale. No revenue is recognised

if there are signifi cant uncertainties regarding recovery of the

consideration due, the costs incurred or to be incurred cannot

be measured reliably, there is a risk of return of goods or there is

continuing management involvement with the goods.

Dividends

Dividend revenue is recognised net of any franking credits.

Revenue from distributions from controlled entities is recognised by

the Company when they are declared by the controlled entities.

Dividends received out of pre-acquisition reserves are eliminated

against the carrying amount of the investment and are not

recognised in revenue.

Other income

Government grants

Revenue from government grants is recognised when the

consolidated entity has complied with the conditions attaching

1 Signifi cant accounting policies (continued)



Annual Report 2007


to the grant and has reasonable assurance that the grant will be

received.

Sale of non-current assets

The profi t on disposal of non-current assets is included in other

income of the consolidated entity and is brought to account at

the date control of the asset passes to the buyer, usually when an

unconditional contract of sale is signed.

The gain or loss on disposal is calculated as the difference between

the carrying amount of the asset at the time of the disposal and the

net proceeds on disposal.

(e) Net fi nancing costs

Net fi nancing costs comprise interest payable on borrowings

calculated using the effective interest rate method, interest

receivable on funds invested and gains and losses on hedging

instruments that are recognised in the Income Statement (refer

Note 1(v)). Borrowing costs are expensed as incurred and included

in net fi nancing costs.

Interest income is recognised in the Income Statement as it

accrues, using the effective interest rate method.

(f) Goods and services tax

Revenues, expenses and assets are recognised net of the

amount of GST, except where the amount of GST incurred is

not recoverable from the relevant taxation authorities. In these

circumstances, the GST is recognised as part of the cost of

acquisition of the asset or as part of an item of the expense.

Receivables and payables are stated with the amount of GST

included.

The net amount of GST recoverable from, or payable to, the

relevant taxation authority is included as a current asset or liability

in the Balance Sheet.

Cash fl ows are included in the Cash Flow Statements on a gross

basis. The GST components of cash fl ows arising from investing

and fi nancing activities which are recoverable from, or payable to,

the relevant tax authority are classifi ed as operating cash fl ows.

(g) Income tax

Income tax on the profi t or loss for the years presented comprises

current and deferred tax. Income tax is recognised in the Income

Statement except to the extent that it relates to items recognised

directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for

the year, using tax rates enacted or substantially enacted at the

balance sheet date, and any adjustment to tax payable in respect

of previous years.

Deferred tax is provided using the tax balance sheet method,

providing for temporary differences between the carrying amounts

of assets and liabilities for fi nancial reporting purposes and the

amounts used for taxation purposes. The following temporary

differences are not provided for: goodwill, the initial recognition of

assets or liabilities that is not a business combination that affect

neither accounting nor taxable profi t, and differences relating

to investments in controlled entities to the extent that they will

probably not reverse in the foreseeable future. The amount

of deferred tax provided is based on the expected manner of

realisation or settlement of the carrying amount of assets and

liabilities, using tax rates enacted or substantively enacted at the

balance sheet date.

A deferred tax asset is recognised only to the extent that it is

probable that future taxable profi ts will be available against which

the asset can be utilised. Deferred tax assets are reduced to the

extent that it is no longer probable that the related tax benefi t will

be realised.

Tax consolidation

The Company and its wholly-owned Australian resident entities

have formed a tax consolidated group with effect from April 2004

and are therefore taxed as a single entity from that date. The head

entity within the tax consolidated group is Pacifi c Brands Limited.

Current tax expense/income, deferred tax liabilities and deferred

tax assets arising from temporary differences of the members of

the tax consolidated group are recognised in the separate fi nancial

statements of the members of the tax consolidated group using

the ‘group allocation’ method consistent with UIG 1052 Tax

Consolidation Accounting.

Any current tax liabilities (or assets) and deferred tax assets arising

from unused tax losses of subsidiaries are assumed by the head

entity in the tax consolidated group and are recognised as amounts

payable to (receivable from) other entities in the tax consolidated

group in conjunction with any tax funding arrangement amount

(refer below).

Nature of tax funding arrangements and tax sharing agreements

The members of the tax consolidated group have entered into a

tax funding arrangement which sets out the funding obligations of

members of the tax consolidated group in respect of tax amounts.

The tax funding arrangements require payments to/from the head

entity equal to the current tax liability/(asset) assumed by the head

entity and any tax-loss deferred tax asset assumed by the head

entity.

The members of the tax consolidated group have also entered

into a tax sharing agreement. The tax sharing agreement provides

for the determination of the allocation of income tax liabilities

between the entities should the head entity default on its tax

payment obligations. No amounts have been recognised in the

fi nancial statements in respect of this agreement as payment of any

amounts under the tax sharing agreement is considered remote.




Annual Report 2007

70 Pacifi c Brands

(h) Earnings per share

Basic earnings per share is calculated by dividing the profi t

attributable to equity holders of the parent for the reporting period,

after excluding any costs of servicing, by the weighted average

number of ordinary shares of the Company, adjusted for any bonus

issue.

(i) Receivables

Trade and other receivables are stated at their amortised cost less

impairment losses (refer Note 1(n)).

(j) Inventories

Inventories are carried at the lower of cost and net realisable

value. Cost includes direct materials, direct labour, other direct

variable costs and allocated production overheads necessary to

bring inventories to their present location and condition, based on

normal operating capacity of the production facilities.

Manufacturing activities

The costs of manufacturing inventories and work in progress

are assigned on a fi rst-in, fi rst-out basis. Costs arising from

exceptional wastage are expensed as incurred.

Net realisable value

Net realisable value is determined on the basis of each inventory

line’s normal selling pattern. Expenses of marketing, selling and

distribution to customers are estimated and are deducted to

establish net realisable value.

Obsolete and slow moving stocks are allowed for, to ensure the

inventories are recorded at net realisable value where such value is

below cost.

(k) Investments

Controlled entities

Investments in controlled entities are carried in the Company’s

fi nancial statements at the lower of cost and recoverable amount

(refer Note 1(n)).

(l) Property, plant and equipment

Owned assets

Items of property, plant and equipment are stated at cost less

accumulated depreciation and impairment (refer Note 1(n)). The

cost of self-constructed assets includes the cost of materials,

direct labour, the initial estimate, where relevant, of the costs of

dismantling and removing the items and restoring the site on which

they are located, and an appropriate proportion of production

overheads.

Leased assets

Leases under which the consolidated entity assumes substantially

all the risks and benefi ts of ownership are classifi ed as fi nance

leases. Other leases are classifi ed as operating leases.

Finance leases

A lease asset and a lease liability are recognised equal to the

fair value of the leased property or if lower the present value of

the minimum lease payments determined at the inception of the

lease. Lease liabilities are reduced by repayments of principal.

The interest components of the lease payments are expensed.

Contingent rentals are expensed as incurred.

Operating leases

Payments made under operating leases are expensed on a

straight line basis over the term of the lease, except where an

alternative basis is more representative of the pattern of benefi ts to

be derived from the leased property.

Depreciation and amortisation

Items of property, plant and equipment are depreciated over their

estimated useful lives as set out below.

Depreciation and amortisation are calculated on a straight line

basis so as to write off the cost of each item of property, plant and

equipment, excluding land, over its estimated useful life.

The expected useful lives, in the current and comparative periods,

are as follows:

• freehold buildings: 40 years;

• leasehold improvements: life of lease; and

• owned and leased plant and equipment: 3 to 10 years.

The residual value of, the useful life of and the depreciation method

applied to an asset are reassessed at least annually.

(m) Intangible assets

Brandnames

The carrying value of brandnames are reviewed at least at each

reporting date to determine whether they are in excess of its

recoverable amount. If the carrying amount exceeds its recoverable

amount, the asset is written down to the lower amount, through

a charge to the Income Statement.

No amortisation is allowed for, against the carrying value of

these brandnames on the basis that the lives of these assets are

considered indefi nite at this point in time, as they are not currently

associated with products that are likely to become commercially or

technically obsolete.

Software

Software that is acquired by the consolidated entity is stated

at cost less accumulated amortisation and impairment losses.

Amortisation is charged to the Income Statement on a straight line

basis over the estimated useful life.

Other intangibles

Other intangibles that are acquired by the consolidated entity are

stated at cost less accumulated amortisation and impairment

losses. Amortisation is charged to the Income Statement on a

straight line basis over the estimated useful life of the asset.




Annual Report 2007


(n) Impairment

The carrying amounts of the consolidated entity’s assets, other

than inventories (refer Note 1(j)) and deferred tax assets (refer Note

1(g)), are reviewed at each reporting date to determine whether

there is any indication of impairment. If any such indication exists,

the asset’s recoverable amount is estimated.

For goodwill and intangible assets that have an indefi nite useful life,

the recoverable amount is estimated annually.

An impairment loss is recognised whenever the carrying amount of

an asset or cash generating unit exceeds its recoverable amount.

Impairment losses are recognised in the Income Statement

unless the asset has previously been revalued, in which case

the impairment loss is recognised as a reversal to the extent of

that previous revaluation with any excess recognised through the

Income Statement.

Impairment losses recognised in respect of a cash generating unit

are allocated fi rst to reduce the carrying amount of any goodwill

allocated to the cash generating unit (group of units) and then, to

reduce the carrying amount of the other assets in the unit (group of

units) on a pro rata basis.

When a decline in the fair value of an available-for-sale fi nancial

asset has been recognised directly in equity and there is objective

evidence that the asset is impaired, the cumulative loss that

had been recognised directly in equity is recognised in the

Income Statement even though the fi nancial asset has not been

derecognised. The amount of the cumulative loss that is

recognised in the Income Statement is the difference between the

acquisition cost and current fair value, less any impairment loss on

that fi nancial asset previously recognised in the Income Statement.

Calculation of recoverable amount

The recoverable amount of the consolidated entity’s receivables

carried at amortised cost is calculated as the present value of

estimated future cash fl ows, discounted at the original effective

interest rate (i.e. the effective interest rate computed at initial

recognition of these fi nancial assets). Receivables with a short

duration are not discounted.

Impairment of receivables is not recognised until objective evidence

is available that a loss event has occurred. Signifi cant receivables

are individually assessed for impairment. Impairment testing of

signifi cant receivables that are not assessed as impaired individually

is performed by placing them into portfolios of signifi cant

receivables with similar risk profi les and undertaking a collective

assessment of impairment. Non-signifi cant receivables are not

individually assessed. Instead, impairment testing is performed

by placing non-signifi cant receivables in portfolios of similar risk

profi les, based on objective evidence from historical experience

adjusted for any effects of conditions existing at each balance date.

The recoverable amount of other assets is the greater of their fair

value less costs to sell, and value in use. In assessing value in use,

the estimated future cash fl ows are discounted to their present

value using a pre-tax discount rate that refl ects current market

assessments of the time value of money and the risks specifi c to

the asset. For an asset that does not generate largely independent

cash infl ows, the recoverable amount is determined for the cash

generating unit to which the asset belongs.

Reversals of impairment

Impairment losses, other than in respect of goodwill, are reversed

when there is an indication that the impairment loss may no

longer exist and there has been a change in the estimate used to

determine the recoverable amount.

An impairment loss in respect of a held-to-maturity security or

receivable carried at amortised cost is reversed if the subsequent

increase in recoverable amount can be related objectively to an

event occurring after the impairment loss was recognised.

An impairment loss in respect of an investment in an equity

instrument classifi ed as available-for-sale is not reversed through

the Income Statement. If the fair value of a debt instrument

classifi ed as available-for-sale increases and the increase can be

objectively related to an event occurring after the impairment loss

was recognised in the Income Statement, the impairment loss shall

be reversed, with the amount of the reversal recognised in the

Income Statement.

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, an impairment loss is reversed if

there has been a change in the estimates used to determine the

recoverable amount.

An impairment loss is reversed only to the extent that the asset’s

carrying amount does not exceed the carrying amount that would

have been determined, net of depreciation or amortisation, if no

impairment loss had been recognised.

Derecognition of fi nancial assets and liabilities

A fi nancial asset (or, where applicable, a part of a fi nancial asset or

part of a group of similar fi nancial assets) is derecognised when:

• the rights to receive cash fl ows from the asset have expired;

• the Company and consolidated entity retain the right to receive

cash fl ows from the asset, but have assumed an obligation to

pay them in full without material delay to a third party; or

• the Company or consolidated entity have transferred their

rights to receive cash fl ows from the asset and either (a) have

transferred substantially all the risks and rewards of the asset,

or (b) have neither transferred nor retained substantially all the

risks and rewards of the asset, but have transferred control of

the asset.




Annual Report 2007

72 Pacifi c Brands

(n) Impairment (continued)

Derecognition of fi nancial assets and liabilities (continued)

A fi nancial liability is derecognised when the obligation under

the liability is discharged, cancelled or expired. When an existing

fi nancial liability is replaced by another from the same lender on

substantially different terms, or the terms of an existing liability are

substantially modifi ed, such an exchange or modifi cation is treated

as a derecognition of the original liability and the recognition of a

new liability. The difference in the respective carrying amounts is

recognised in the Income Statement.

(o) Payables

Trade and other payables are stated at their amortised cost.

(p) Interest-bearing loans and borrowings

Interest-bearing loans and borrowings are recognised initially at

fair value less attributable transaction costs. Subsequent to initial

recognition, interest-bearing loans and borrowings are stated at

amortised cost with any difference between cost and redemption

value being recognised in the Income Statement over the period of

the loans or borrowings on an effective interest rate basis.

(q) Employee benefi ts

Wages, salaries and annual leave

Liabilities for employee benefi ts for wages, salaries and annual

leave represent the present obligations resulting from employees’

services provided up to the reporting date. The provisions have

been calculated at undiscounted amounts based on expected

wage and salary rates that the consolidated entity expects to

pay as at reporting date and include related on-costs, such as

workers’ compensation insurance and payroll tax.

Long service leave

The provision for employee benefi ts to long service leave

represents the present value of the estimated future cash outfl ows

to be made by the consolidated entity resulting from employees’

services provided up to the reporting date.

The provision is calculated using expected future increases in

wage and salary rates including related on-costs and expected

settlement dates based on turnover history and is discounted

using the rates attaching to national government bonds at

reporting date which most closely match the terms of maturity of

the related liabilities. The unwinding of the discount is treated as

long service leave expense.

Superannuation plans

The consolidated entity contributes to various defi ned benefi t and

defi ned contribution superannuation plans. Employer contributions

to these plans are recognised as an expense as they are made.

Defi ned benefi t plans

The consolidated entity’s net obligation in respect of defi ned

benefi t superannuation plans is calculated separately for each plan

by estimating the amount of future benefi t that employees have

earned in return for their service in the current and prior years; that

benefi t is discounted to determine its present value, and the fair

value of any plan assets deducted.

The discount rate is the yield at the balance sheet date on national

government bonds that have maturity dates approximating to the

terms of the consolidated entity’s obligations. The calculation is

performed by a qualifi ed actuary using the projected unit credit

method.

When employee benefi ts under the plan are improved, the

proportion of the increased benefi t relating to past service by

employees is recognised as an expense in the Income Statement

on a straight line basis over the average period until the benefi ts

become vested. To the extent that the benefi ts vest immediately,

the expense is recognised immediately in the Income Statement.

Where the calculation results in a net benefi t to the consolidated

entity, the recognised asset is limited to the net total of any

unrecognised past service costs and the present value of any

future refunds from the plan or reductions in future contributions

to the plan.

For actuarial gains and losses that arise in calculating the

consolidated entity’s obligation in respect of a plan, to the

extent that any cumulative unrecognised actuarial gain or loss

exceeds 10% of the greater of the present value of the defi ned

benefi t obligation and the fair value of plan assets, that portion is

recognised in the Income Statement over the expected average

remaining working lives of the active employees participating in the

plan. Otherwise, the actuarial gain or loss is not recognised.

(r) Share based payments

The Company has introduced a number of share plans pursuant

to which senior executives and directors may acquire shares.

The fair value of performance rights granted is recognised as an

employee expense with a corresponding increase in equity. The

fair value is measured at grant date and spread over the period

during which the employees become unconditionally entitled to

the performance rights. The fair value of the performance rights

granted is measured using a Monte-Carlo simulation model, taking

into account the terms and conditions upon which the options

were granted. The amount recognised as an expense is adjusted

to refl ect the actual number of performance rights that vest except

where forfeiture is only due to share prices not achieving the

threshold for vesting.

(s) Provisions

A provision is recognised when there is a legal, equitable or

constructive obligation as a result of a past event and it is probable

that a future sacrifi ce of economic benefi ts will be required to settle

the obligation, the timing or amount of which is uncertain.

If the effect is material, a provision is determined by discounting

the expected future cash fl ows (adjusted for expected future

risks) required to settle the obligation at a pre-tax rate that refl ects




Annual Report 2007


current market assessments of the time value of money and the

risks specifi c to the liability, being risk-free rates on government

bonds most closely matching the expected future payments,

except where noted below. The unwinding of the discount is

treated as part of the expense related to the particular provision.

Dividends

A provision for dividends payable is recognised in the reporting

period in which the dividends are declared, for the entire

undistributed amount, regardless of the extent to which they will be

paid in cash.

Restructuring

Provisions for restructuring or termination benefi ts are only

recognised when a detailed plan has been approved and the

restructuring or termination benefi t has either commenced or been

publicly announced, or fi rm contracts related to the restructuring

or termination benefi ts have been entered into. Costs related to

ongoing activities are not provided for.

Surplus lease space

Provision is made for non-cancellable operating lease rentals

payable on surplus leased premises when it is determined that no

substantive future benefi t will be obtained from its occupancy and

sub-lease rentals are less.

The estimate is calculated based on discounted net future cash

fl ows, using the interest rate implicit in the lease or an estimate

thereof.

(t) Accounting for acquisitions

Business combinations

All business combinations are accounted for by applying the

purchase method. Goodwill represents the difference between

the cost of the acquisition and the fair value of the net identifi able

assets acquired. Goodwill is allocated to cash generating units and

is tested annually for impairment (refer Note 1(n)).

Negative goodwill arising on an acquisition is recognised directly in

the Income Statement.

Property, plant and equipment

The fair value of property, plant and equipment recognised as a

result of a business combination is based on market values. The

market value of property is the estimated amount for which a

property could be exchanged on the date of valuation between

a willing buyer and a willing seller in an arm’s length transaction

after proper marketing wherein the parties had each acted

knowledgeably, prudently and without compulsion. The market

value of items of plant, equipment, fi xtures and fi ttings is based on

the quoted market prices for similar items.

Intangible assets

The fair value of patents and trademarks acquired in a business

combination is based on the discounted estimated royalty

payments that have been avoided as a result of the patent or

trademark being owned. The fair value of other intangible assets is

based on the discounted cash fl ows expected to be derived from

the use and eventual sale of the assets.

(u) Foreign currency

Transactions

Transactions in foreign currencies are translated at the foreign

exchange rate ruling at the date of the transaction. Monetary

assets and liabilities denominated in foreign currencies at the

balance sheet date are translated to Australian dollars at the foreign

exchange rate ruling at that date. Foreign exchange differences

arising on translation are recognised in the Income Statement.

Non-monetary assets and liabilities that are measured in terms

of historical cost in a foreign currency are translated using the

exchange rate at the date of the transaction. Non-monetary assets

and liabilities denominated in foreign currencies that are stated at

fair value are translated to Australian dollars at foreign exchange

rates ruling at the dates the fair value was determined.

Translation of controlled foreign operations

The assets and liabilities of controlled foreign operations, including

goodwill and fair value adjustments arising on consolidation,

generally are translated to Australian dollars at foreign exchange

rates ruling at the balance sheet date. The revenues and expenses

of foreign operations are translated to Australian dollars at rates

approximating the foreign exchange rates ruling at the dates of the

transactions. Foreign exchange differences arising on retranslation

are recognised directly in a separate component of equity.

Net investment in foreign operations

Exchange differences arising from the translation of the net

investment in foreign operations, and of related hedges, are taken

to the foreign currency translation reserve. They are released

into the Income Statement upon disposal. In respect of all

foreign operations, any differences are presented as a separate

component of equity.

(v) Derivative fi nancial instruments

The consolidated entity uses derivative fi nancial instruments

to hedge its exposure to foreign exchange and interest rate

risks arising from operating, investing and fi nancing activities.

In accordance with its treasury policy, the consolidated entity

does not hold or issue derivative fi nancial instruments for trading

purposes. However, derivatives that do not qualify for hedge

accounting are accounted for as trading instruments.

Derivative fi nancial instruments are recognised initially at fair value.

Subsequent to initial recognition, derivative fi nancial instruments are

stated at fair value. The gain or loss on remeasurement to fair value

is recognised immediately in the Income Statement. However,




Annual Report 2007

74 Pacifi c Brands

(v) Derivative fi nancial instruments (continued)

where derivatives qualify for hedge accounting, recognition of any

resultant gain or loss depends on the nature of the item being

hedged.

The fair value of interest rate swaps is the estimated amount that the

consolidated entity would receive or pay to terminate the swap at the

balance sheet date, taking into account current interest rates and the

current creditworthiness of the swap counterparties. The fair value

of forward exchange contracts is their quoted market price at the

balance sheet date, being the present value of the quoted forward

price.

Hedging

On entering into a hedging relationship, the consolidated entity

formally designates and documents the hedge relationship and the

risk management objective and strategy for undertaking the

hedge. The documentation includes identifi cation of the hedging

instrument, the hedged item or transaction, the nature of the

risk being hedged and how the entity will assess the hedging

instrument’s effectiveness in offsetting the exposure to changes in

the hedged item’s fair value or cash fl ows attributable to the hedged

risk. Such hedges are expected to be highly effective in achieving

offsetting changes in fair value or cash fl ows and are assessed on

an ongoing basis to determine that they actually have been highly

effective throughout the fi nancial reporting periods for which they are

designated.

Cash fl ow hedges

Where a derivative fi nancial instrument is designated as a hedge

of the variability in cash fl ows of a recognised asset or liability, or a

highly probable forecast transaction, the effective part of any gain

or loss on the derivative fi nancial instrument is recognised directly

in equity. When the forecast transaction subsequently results in

the recognition of a non-fi nancial asset or non-fi nancial liability, or

the forecast transaction for a non-fi nancial asset or non-fi nancial

liability, the associated cumulative gain or loss is removed from

equity and included in the initial cost or other carrying amount of the

non-fi nancial asset or liability. If a hedge of a forecast transaction

subsequently results in the recognition of a fi nancial asset or a

fi nancial liability, then the associated gains and losses that were

recognised directly in equity are reclassifi ed into the Income

Statement in the same period or periods during which the asset

acquired or liability assumed affects the Income Statement (i.e. when

interest income or expense is recognised).

For cash fl ow hedges, other than those covered by the preceding

two policy statements, the associated cumulative gain or loss is

removed from equity and recognised in the Income Statement in the

same period or periods during which the hedged forecast transaction

affects the Income Statement. The ineffective part of any gain or loss

is recognised immediately in the Income Statement.

When a hedging instrument expires or is sold, terminated or

exercised, or the entity revokes designation of the hedge relationship

but the hedged forecast transaction still is expected to occur,

the cumulative gain or loss at that point remains in equity and is

recognised in accordance with the above policy when the transaction

occurs. If the hedged transaction is no longer expected to take place,

then the cumulative unrealised gain or loss recognised in equity is

recognised immediately in the Income Statement.

Hedge of monetary assets and liabilities

When a derivative fi nancial instrument is used to hedge economically

the foreign exchange exposure of a recognised monetary asset or

liability, hedge accounting is not applied and any gain or loss on the

hedging instrument is recognised in the Income Statement.

Hedge of net investment in foreign operation

The portion of the gain or loss on an instrument used to hedge a

net investment in a foreign operation that is determined to be an

effective hedge is recognised directly in equity. The ineffective portion

is recognised immediately in the Income Statement.

(w) Accounting estimates and judgements

The preparation of the fi nancial report requires the making of

estimations and assumptions that affect the recognised amounts

of assets, liabilities, revenues and expenses and the disclosure of

contingent liabilities. The estimates and associated assumptions

are based on historical experience and various other factors that

are believed to be reasonable under the circumstances, the results

of which form the basis of making the judgements about carrying

values of assets and liabilities that are not readily apparent from other

sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an

ongoing basis. Revisions to accounting estimates are recognised in

the period in which the estimate is revised if the revision affects only

that period, or in the period of the revision and future periods if the

revision affects both current and future periods.

The estimates and judgements that have a signifi cant risk of causing

an adjustment to the carrying amounts of assets and liabilities within

the next fi nancial year are discussed below.

Defi ned benefi t superannuation plan assumptions

The consolidated entity has decided on a rate of return on assets

of 6.9% per annum because this is the average premium achieved

over the last three years. If this were to reduce, then the consolidated

entity’s unrecognised actuarial gains would increase with the risk that

they would fall outside the corridor and would be recognised in the

Income Statement and Balance Sheet in 2008.

Impairment of goodwill and intangible assets with indefi nite

useful lives

The consolidated entity assesses whether goodwill and intangible

assets with indefi nite useful lives are impaired at least annually (refer

Note 13). These calculations involve an estimation of the recoverable

amount of the cash generating units to which the goodwill and

intangible assets with indefi nite useful lives are allocated.




Annual Report 2007



Annual Report 2007

2 Revenue and other income


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Sales revenue 1,820,737 1,624,878 – –

Other income

Royalties – other parties 919 805 – –

Dividends – controlled entities – – 100,000 77,500

Net gain on disposal of non-current assets – 1,561 – –

Sundry income 12,506 14,823 – –

Total other income 13,425 17,189 100,000 77,500

Total revenue and other income 1,834,162 1,642,067 100,000 77,500

3 Other expenses

Depreciation of:

Freehold buildings and leasehold improvements 3,962 2,499 – –

Plant and equipment 14,232 12,742 – –

18,194 15,241 – –

Amortisation of:

Software 2,692 2,832 – –

Other intangibles 1,781 – – –

Leased plant and equipment 1,440 1,230 – –

5,913 4,062 – –

Total depreciation and amortisation 24,107 19,303 – –

Net fi nancing costs:

Financial income (3,378) (2,174) (44) (100)

Interest on bank loans and overdraft 49,688 36,644 – –

Finance charges on capitalised leases 328 1,073 – –

46,638 35,543 (44) (100)

Impairment loss on trade debtors 628 1,417 – –

Amounts set aside to allow for:

Doubtful debts 1,255 1,040 – –

Rebates, trade allowances, claims and settlement discounts 125,759 101,837 – –

Personnel expenses:

Wages and salaries 322,146 284,373 – –

Contributions to defi ned contributions superannuation plans 21,606 21,018 – –

Defi ned benefi t superannuation expense 1,050 1,430 – –

Leave entitlements 33,405 28,552 – –

Other employee costs 17,136 16,281 – –

Share based payments 1,836 1,565 1,836 1,565

397,179 353,219 1,836 1,565

Net foreign exchange loss 1,327 1,009 – –


76 Pacifi c Brands


Annual Report 2007

4 Auditors’ remuneration


2007

$

2006

$

2007

$

2006

$

Audit services


KPMG Australia

Audit and review of fi nancial reports 1,128,000 1,065,000 60,000 55,000

Overseas KPMG fi rms

Audit of fi nancial reports 291,000 230,000 – –

1,419,000 1,295,000 60,000 55,000

Other services


KPMG Australia

Taxation services 209,800 210,070 – –

Other assurance services 13,240 12,695 – –

Overseas KPMG fi rms

Taxation services 9,357 20,043 – –

Other assurance services 38,167 7,036 – –

270,564 249,844 – –

It is the Company’s policy to employ KPMG on assignments additional to its statutory audit duties where KPMG’s expertise with the Company is

important. Approval for these assignments is required from the Audit, Business Risk and Compliance Committee; the assignments are principally

related to tax advice and assurance services relating to debt covenants and regulatory requirements.




Annual Report 2007

5 Income tax expense/(benefi t)


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Current income tax expense/(benefi t)

Current year 42,103 35,193 (5,193) (3,564)

Adjustments for prior year (4,713) (2,483) – –

Deferred income tax expense

Origination and reversal of temporary differences 2,092 3,396 2,640 3,105

Total income tax expense/(benefi t) in the Income Statements 39,482 36,106 (2,553) (459)

Numerical reconciliation between income tax expense/(benefi t)

and profi t before income tax

Profi t before income tax expense/(benefi t) 145,618 137,472 95,253 74,374

Income tax using the domestic corporation tax rate of 30% 43,685 41,241 28,575 22,312

Increase in income tax expense due to:

Share based payments 550 469 550 469

Decrease in income tax expense due to:

Non-assessable dividend income – – (30,000) (23,250)

Sundry items (40) (3,121) (1,678) 10

Over provided in prior year (4,713) (2,483) – –

Total income tax expense/(benefi t) on profi t before income tax 39,482 36,106 (2,553) (459)

Deferred tax recognised directly in equity

Relating to derivative fi nancial instruments 1(v) (3,146) 1,336 – –

Current income tax liability

The current tax liability for the consolidated entity of $7.9 million (2006: $3.9 million) and for the Company of $7.7 million (2006: $8.6 million)

represent the amount of income taxes payable in respect of current and prior fi nancial periods. In accordance with the tax consolidation

legislation, the Company as the head entity of the Australian tax consolidated group has assumed the current tax liability initially recognised

by the members in the tax consolidated group.


78 Pacifi c Brands


Annual Report 2007

6 Earnings per share

Consolidated

2007 2006

$’000 $’000

Earnings reconciliation

Profi t for the year 106,136 101,366

Less minority interest (177) (155)

Basic earnings 105,959 101,211

Consolidated

2007 2006

Number Number

Weighted average number of shares used as the denominator

Number for basic earnings per share

Ordinary shares at 1 July 2006 503,000,003 503,000,003

Effect of shares brought back during the period 514,859 –

Ordinary shares at 30 June 2007 502,485,144 503,000,003

7 Segment reporting

Segment information is presented in respect of the consolidated entity’s business and geographical segments. The primary format, business

segments, is based on the consolidated entity’s management and internal reporting structure.

Intersegment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable

basis.

Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one

year.

Primary reporting: business segments

The consolidated entity comprises the following main business segments, based on the consolidated entity’s management reporting system:

Underwear & Hosiery Marketer, distributor, importer and manufacturer of underwear, intimate apparel, socks and hosiery.

Outerwear & Sport Marketer, distributor, importer and manufacturer of casual outerwear, workwear, sports clothing, sports

footwear and sporting equipment.

Home Comfort Marketer, distributor, importer and manufacturer of mattresses, pillows, bed linen, bedding accessory

products and foam.

Footwear Marketer, distributor, importer and manufacturer of women’s, men’s and children’s footwear.

Other Retail clearance outlets, administration functions and amortisation.




Annual Report 2007

7 Segment reporting (continued)

Underwear

& Hosiery

Outerwear

& Sport

Home

Comfort Footwear Other Eliminations1 Consolidated

$’000 $’000 $’000 $’000 $’000 $’000 $’000

2007

Revenue

External segment revenue 633,580 362,706 518,530 284,435 34,911 – 1,834,162

Intersegment revenue 122 79 – – 468 (669) –

Total segment revenue 633,702 362,785 518,530 284,435 35,379 (669) 1,834,162

Result

Segment result 93,701 26,959 45,544 37,251 (11,199) – 192,256

Net fi nancing costs 46,638

Income tax expense 39,482

Profi t for the year 106,136

Depreciation and amortisation 6,633 3,479 7,042 1,493 5,460 – 24,107

Segment assets 366,121 480,134 290,292 129,875 1,499,162 (210,066) 2,555,518

Segment liabilities 67,595 173,990 191,657 35,029 977,939 (210,066) 1,236,144

Acquisition of non-current assets 5,252 245,770 15,993 1,404 2,636 – 271,055

2006

Revenue

External segment revenue 617,876 249,533 448,889 282,161 43,608 – 1,642,067

Intersegment revenue 7 98 – 449 765 (1,319) –

Total segment revenue 617,883 249,631 448,889 282,610 44,373 (1,319) 1,642,067

Result

Segment result 87,644 22,271 36,529 35,693 (9,122) – 173,015

Net fi nancing costs (35,543)

Income tax expense (36,106)

Profi t for the year 101,366

Depreciation and amortisation 6,662 1,671 6,056 1,371 3,543 – 19,303

Segment assets 335,273 106,723 259,603 104,720 1,453,219 (151,752) 2,107,786

Segment liabilities 67,065 67,593 176,863 29,889 619,522 (151,752) 809,180

Acquisition of non-current assets 7,403 3,056 92,124 2,172 4,543 – 109,298

1 Segment revenue, results, assets and liabilities are determined before the effects of consolidation eliminations, except where transactions are between entities in a

single segment.


80 Pacifi c Brands


Annual Report 2007

7 Segment reporting (continued)

Secondary reporting: geographical segments

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.

Segment assets are based on the geographical location of the assets:

Australia Manufacturing facilities, distribution facilities and sales offi ces

New Zealand Manufacturing facilities, distribution facilities and sales offi ces

Rest of world Manufacturing facilities, distribution facilities and sales offi ces

Australia New Zealand Rest of world Consolidated

$’000 $’000 $’000 $’000

2007

External segment revenue by location of customers 1,561,625 167,196 105,341 1,834,162

Segment assets by location of assets 2,255,101 219,215 81,202 2,555,518

Acquisition of non-current assets 260,083 8,413 2,559 271,055

2006

External segment revenue by location of customers 1,410,438 136,714 94,915 1,642,067

Segment assets by location of assets 1,843,994 178,410 85,382 2,107,786

Acquisition of non-current assets 90,644 11,556 7,098 109,298

8 Cash and cash equivalents


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Cash on hand 326 465 – –

Cash at bank 128,631 91,132 568 487

Bank short term deposits 9,683 2,428 – –

27(a) 138,640 94,025 568 487

The bank short term deposit matures within 45 days and interest is paid at a weighted average interest rate of 6.3% per annum

(2006: 4.7% per annum).




Annual Report 2007

9 Trade and other receivables


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Current

Trade debtors 315,686 212,554 – –

Less allowance for doubtful trade debtors (4,467) (1,999) – –

Less allowance for rebates, trade allowances, claims and settlement

discounts (30,552) (22,638) – –

280,667 187,917 – –

Amounts owing by controlled entities 30 – – 48,618 26,068

Other debtors 22,299 23,485 6 8

302,966 211,402 48,624 26,076

Non-current

Amounts owing by controlled entities 30 – – 1,203,714 1,203,714

Other debtors 50 214 – –

50 214 1,203,714 1,203,714

Other debtor amounts generally arise from transactions outside

the usual operating activities of the consolidated entity.

10 Inventories

Raw materials and stores 56,642 41,247 – –

Work in progress 22,670 15,190 – –

Finished goods 282,212 240,064 – –

361,524 296,501 – –

11 Other assets

Current

Prepayments 9,636 7,064 – –

Non-current

Other investments 1,731 1,979 – –


82 Pacifi c Brands


Annual Report 2007

12 Property, plant and equipment


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Freehold land

At cost 34,134 31,413 – –

Freehold buildings

At cost 52,009 30,528 – –

Accumulated depreciation (8,859) (1,644) – –

43,150 28,884 – –

Leasehold improvements

At cost 23,749 14,497 – –

Accumulated amortisation (6,483) (3,319) – –

17,266 11,178 – –

Plant and equipment

At cost 155,655 106,721 – –

Accumulated depreciation (61,286) (23,380) – –

94,369 83,341 – –

Leased plant and equipment

At capitalised cost 7,409 5,610 – –

Accumulated amortisation (2,063) (1,586) – –

5,346 4,024 – –

Capital works in progress 12,584 8,246 – –

Total property, plant and equipment at net book value 206,849 167,086 – –

Reconciliation

A reconciliation of the carrying amounts for each class of property, plant and equipment is set out below:

Freehold

land

Freehold

buildings

Leasehold

improvements

Plant and

equipment

Leased

plant and

equipment

Capital

works in

progress Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000

Consolidated 2007

Carrying amount at the beginning of the year 31,413 28,884 11,178 83,341 4,024 8,246 167,086

Acquisitions through business combinations 2,400 15,074 4,189 10,860 367 88 32,978

Additions – – 235 1,380 3,606 22,919 28,140

Transfer from/(to) capital works in progress 384 50 4,871 14,515 (1,079) (18,741) –

Disposals (197) – – (1,791) (29) – (2,017)

Depreciation and amortisation – (1,084) (2,878) (14,232) (1,440) – (19,634)

Effects of movements in foreign exchange 134 226 (329) 296 (103) 72 296

Carrying amount at the end of the year 34,134 43,150 17,266 94,369 5,346 12,584 206,849




Annual Report 2007

12 Property, plant and equipment (continued)

Freehold

land

Freehold

buildings

Leasehold

improvements

Plant and

equipment

Leased

plant and

equipment

Capital

works in

progress Total

$000 $000 $000 $000 $000 $000 $000

Consolidated 2006

Carrying amount at the beginning of the year 29,916 29,492 7,046 75,543 2,068 8,232 152,297

Acquisitions through business combinations – – 2,857 4,151 – 2,516 9,524

Additions 3,004 – 40 1,709 3,775 17,330 25,858

Transfer from/(to) capital works in progress 190 379 3,020 16,484 (309) (19,764) –

Disposals (1,540) – (10) (1,393) (288) – (3,231)

Depreciation and amortisation – (739) (1,760) (12,742) (1,230) – (16,471)

Effects of movements in foreign exchange (157) (248) (15) (411) 8 (68) (891)

Carrying amount at the end of the year 31,413 28,884 11,178 83,341 4,024 8,246 167,086

13 Intangible assets

Consolidated

Goodwill Brandnames Software

Other

intangibles1 Total

$’000 $’000 $’000 $’000 $’000

Balance at 1 July 2005 830,367 375,000 21,702 – 1,227,069

Acquisitions through business combinations 43,355 30,561 – – 73,916

Amortisation for the year – – (2,832) – (2,832)

Effects of movements in foreign exchange 173 (996) – – (823)

Balance at 30 June 2006 873,895 404,565 18,870 – 1,297,330

Acquisitions through business combinations 109,265 80,000 – 20,672 209,937

Amortisation for the year – – (2,692) (1,781) (4,473)

Effects of movements in foreign exchange 299 672 – – 971

Balance at 30 June 2007 983,459 485,237 16,178 18,891 1,503,765

1 Other intangibles include licences, customer contracts and other customer related intangibles.

Impairment tests for cash generating units containing goodwill

The following units have signifi cant carrying amounts of indefi nite life intangible assets.

Consolidated

Goodwill Brandnames

2007 2006 2007 2006

$’000 $’000 $’000 $’000

Pacifi c Brands Group 832,468 832,169 382,237 381,565

Sheridan 41,726 41,726 23,000 23,000

Brand Collective 18,728 – – –

Yakka Group 90,537 – 80,000 –

983,459 873,895 485,237 404,565


84 Pacifi c Brands


Annual Report 2007

13 Intangible assets (continued)

The recoverable amount of the Pacifi c Brands Group cash generating unit is based on value in use calculations. Those calculations use cash

fl ow projections based on actual operating results and cash fl ows for a further fi ve year period which are extrapolated using a growth rate

appropriate for markets and industries in which the Pacifi c Brands Group operates. A pre-tax discount rate of 11.3% per annum has been used

in discounting the projected cash fl ows.

The recoverable amount of the Sheridan cash generating unit is based on value in use calculations. Those calculations use cash fl ow projections

based on actual operating results and cash fl ows for a further fi ve year period which are extrapolated using a growth rate appropriate for markets

in which Sheridan operates. A pre-tax discount rate of 11.3% per annum has been used in discounting the projected cash fl ows.

The recoverable amount of the Brand Collective cash generating unit is based on value in use calculations. Those calculations use cash fl ow

projections based on actual operating results and cash fl ows for a further fi ve year period which are extrapolated using a growth rate appropriate

for markets in which Brand Collective operates. A pre-tax discount rate of 11.3% per annum has been used in discounting the projected cash

fl ows.

The recoverable amount of the Yakka Group cash generating unit is based on value in use calculations. Those calculations use cash fl ow

projections based on actual operating results and cash fl ows for a further fi ve year period which are extrapolated using a growth rate appropriate

for markets and industries in which Yakka Group operates. A pre-tax discount rate of 11.3% per annum has been used in discounting the

projected cash fl ows.

14 Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

2007 2006 2007 2006 2007 2006

$’000 $’000 $’000 $’000 $’000 $’000

Consolidated

Trade and other receivables 2,695 1,177 – – 2,695 1,177

Inventories 3,751 4,035 – – 3,751 4,035

Property, plant and equipment – – (3,705) (813) (3,705) (813)

Provisions for employee benefi ts 19,062 15,063 – – 19,062 15,063

Other provisions 3,466 5,180 – – 3,466 5,180

Transaction costs 2,981 5,964 – – 2,981 5,964

Other items1 2,107 1,579 – – 2,107 1,579

Tax assets/(liabilities) 34,062 32,998 (3,705) (813) 30,357 32,185

Set off of tax (3,705) (813) 3,705 813 – –

Net tax assets 30,357 32,185 – – 30,357 32,185

Company

Provisions for employee benefi ts 340 – – – 340 –

Transaction costs 2,981 5,964 – – 2,981 5,964

Tax assets 3,321 5,964 – – 3,321 5,964

Set off of tax – – – – – –

Net tax assets 3,321 5,964 – – 3,321 5,964

1 Includes a deferred tax asset of $3.0 million (2006: $0.1 million) relating to derivative fi nancial instruments recognised directly in equity.




Annual Report 2007

15 Trade and other payables


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Current

Trade creditors 138,753 107,334 1,133 140

Other creditors and accruals 52,949 19,448 – –

191,702 126,782 1,133 140

Non-current

Other creditors 14,599 9,983 – –

16 Interest-bearing loans and borrowings

Current

Lease liabilities 2,689 1,642 – –

Non-current

Bank loans – secured 936,708 599,287 – –

Lease liabilities 1,463 2,356 – –

938,171 601,643 – –

Bank overdrafts

Interest on bank overdrafts is charged at prevailing market rates.

Finance lease liability

The consolidated entity’s lease liabilities are secured by the leased assets of $5.3 million as in the event of default, the assets revert to the lessor.

Finance lease liabilities of the consolidated entity are payable as follows:

Minimum

lease

payments Interest Principal

Minimum

lease

payments Interest Principal

2007 2007 2007 2006 2006 2006

$’000 $’000 $’000 $’000 $’000 $’000

Within one year 2,907 218 2,689 1,855 213 1,642

One year or later and no later than fi ve years 1,562 99 1,463 2,493 137 2,356

4,469 317 4,152 4,348 350 3,998

The consolidated entity leases motor vehicles under fi nance leases expiring in one to fi ve years. At the end of the lease term, the consolidated

entity has the option to purchase the motor vehicles at the agreed residual value.

Bank loans

All bank loans are denominated in Australian dollars.

The consolidated entity is required to comply with various fi nancial covenants which it has met. Additionally the consolidated entity entered into

a debtor securitisation arrangement by which it transfers to a third party its gross trade debtors in exchange for an immediate discounted cash

payment while retaining an exposure to credit losses and a continuing obligation to service its accounts with these customers. The maximum

amount allowed to be drawn on this facility is $250 million. At 30 June 2007, this arrangement was drawn to $172 million (2006: $160 million).

The gross trade debtors which have been securitised have been presented as trade debtors (refer Note 9) with the secured borrowing included

as a component of bank loans – secured.


86 Pacifi c Brands


Annual Report 2007

17 Provisions


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Current

Employee benefi ts 28 65,666 51,532 – –

Leased premises 5,015 3,173 – –

70,681 54,705 – –

Non-current

Employee benefi ts 28 6,343 7,354 – –

Leased premises 4,035 3,168 – –

10,378 10,522 – –

Reconciliation

A reconciliation of the carrying amounts of each class of provision, except for employee benefi ts (refer Note 28), is set out below:

Leased premises

2007 2006

Consolidated $’000 $’000

Carrying amount at the beginning of the year 6,341 6,729

Recognised in the Income Statement 1,709 (307)

Increase through business combinations 1,686 585

Payments (686) (666)

Carrying amount at the end of the year 9,050 6,341

18 Contributed equity


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Share capital

503,000,003 fully paid ordinary shares at the beginning of the year 1,220,446 1,220,446 1,220,446 1,220,446

722,151 shares were bought back during the fi nancial year (1,869) – (1,869) –

502,277,852 fully paid ordinary shares at the end of the year 1,218,577 1,220,446 1,218,577 1,220,446

Terms and conditions

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’

meetings.

In the event of the winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any

proceeds of liquidation.




Annual Report 2007

19 Nature of reserves

The nature and purpose of reserves included in the Statement of Changes in Equity for the Company and consolidated entity are:

Equity compensation reserve

The equity compensation reserve arises on the grant of performance rights to executives under the performance rights plan. Amounts are

transferred out of the reserve and into issued capital when the rights are exercised. Further information about equity compensation payments to

employees is given in Note 28.

Foreign currency translation reserve

The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations, the translation

of transactions that hedge the Company’s net investment in a foreign operation or the translation of foreign currency monetary items forming part

of the net investment in a foreign operation (refer Note 1(u)).

Hedge reserve

The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash fl ow hedging instruments related to

hedged transactions that have not yet occurred.

20 Retained earnings


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Balance at the beginning of the year 80,202 54,484 3,995 4,655

Net profi t attributable to equity holders of the parent 105,959 101,211 97,806 74,833

Dividends recognised during the year (77,920) (75,493) (77,920) (75,493)

Balance at the end of the year 108,241 80,202 23,881 3,995

21 Dividends

Dividends recognised in the current year by the Company are:

Cents

per

share

Total

amount

Franked/

unfranked

Date of

payment

$’000

2007

Interim 2007 ordinary 8.0 40,182 franked 2 April 2007

Final 2006 ordinary 7.5 37,738 franked 2 October 2006

77,920

2006

Interim 2006 ordinary 7.5 37,751 franked 3 April 2006


75,493

Franked dividends declared or paid during the year were franked at the tax rate of 30%.

Subsequent events

Since the end of the fi nancial year, the directors declared the following dividends:



88 Pacifi c Brands


Annual Report 2007

21 Dividends (continued)

The fi nancial effect of these dividends have not been brought to account in the fi nancial statements for the year ended 30 June 2007 and will be

recognised in subsequent fi nancial reports.

The Company

2007 2006

$’000 $’000

Dividend franking account

30% franking credits available to shareholders of the Company for subsequent fi nancial years 40,156 12,456

The above available amounts are based on the balance of the dividend franking account at the end of the year adjusted for:

• franking credits that will arise from the payment of the current tax liabilities;

• franking debits that will arise from the payment of dividends recognised as a liability at the end of the year;

• franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the end of the year;

and

• franking credits that the entity may be prevented from distributing in subsequent years.

The ability to utilise the franking credits is dependent upon there being suffi cient available profi ts to declare dividends. The impact on the dividend

franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it to $22.9 million (2006: $nil).

22 Minority interest

The minority interest relates to a 50% interest in Restonic (M) Sdn Bhd and a 50.1% in World Brands Pty Ltd which is not held by the Company

nor by one of its controlled entities.

Consolidated

2007 2006

$’000 $’000

Minority interests in controlled entities comprise:

Interest in retained earnings/(accumulated losses) at the beginning of the year 129 (26)

Net profi t attributable to minority interest 177 155

Minority interest acquired 407 –

Dividend paid to minority interest (358) –

Interest in retained earnings at the end of the year 355 129

Interest in share capital 4,293 4,293

Interest in reserves 17 342

Total minority interest 4,665 4,764




Annual Report 2007

23 Additional fi nancial instruments disclosure

(a) Interest rate risk

The consolidated entity enters into interest rate swaps to manage cash fl ow risks associated with the interest rates on borrowings that are

fl oating.

Interest rate swaps

Interest rate swaps allow the consolidated entity to swap fl oating rate borrowings into fi xed rates. Maturities of swap contracts are principally

between two and fi ve years. Each contract involves quarterly payment or receipt of the net amount of interest.

Interest rate risk exposures

The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for classes of fi nancial assets and fi nancial

liabilities are set out below:

Average

effective

interest rate

pa

Floating

interest rate

$’000

Fixed interest maturing in

Non-interest

bearing

$’000

Total

$’000

1 year

or less

$’000

1 to 5

year(s)

$’000

2007

Financial assets

Cash and cash equivalents 6.3% 138,640 – – – 138,640

Trade and other receivables – – – – 302,966 302,966

Foreign exchange options – – – – 776 776

Other fi nancial assets – – – – 1,731 1,731

138,640 – – 305,473 444,113

Financial liabilities

Trade and other payables – – – 206,301 206,301

Bank loans 7.1%1 936,708 – – – 936,708

Lease liabilities 6.6% – 2,689 1,463 – 4,152

936,708 2,689 1,463 206,301 1,147,161

Interest rate swaps2 (344,000) – 344,000 – –

2006

Financial assets

Cash and cash equivalents 4.7% 94,025 – – – 94,025

Trade and other receivables – – – – 211,402 211,402

Foreign exchange options – – – – 347 347

Other fi nancial assets – – – – 1,979 1,979

94,025 – – 213,728 307,753


Trade and other payables – – – – 136,765 136,765

Bank loans 6.6%1 599,287 – – – 599,287

Lease liabilities 6.6% – 1,642 2,356 – 3,998

599,287 1,642 2,356 136,765 740,050

Interest rate swaps2 (340,036) – 340,036 – –

1 After incorporating the effect of interest rate swaps, forward agreements and options.2 Notional principal amounts.


90 Pacifi c Brands


Annual Report 2007

23 Additional fi nancial instruments disclosure (continued)

(b) Foreign exchange risk

From time to time in the ordinary course of business, the consolidated entity enters into forward exchange contracts to hedge a proportion

of anticipated purchase and sale commitments denominated in foreign currencies (principally US dollars). The amount of anticipated future

purchases and sales is forecast in light of current market conditions and commitments from customers. Hedge contracts are used to cover the

next available trading exposure until all contacts are fully utilised. Hedge cover generally does not exceed 12 months.

The following table sets out the weighted average contracted exchange rates, the gross value to be received under foreign currency contracts

and the settlement periods of outstanding contracts for the consolidated entity:

Consolidated

2007 2006

Weighted

average

exchange

rate

Australian

dollar

equivalent

$’000

Weighted

average

exchange

rate

Australian

dollar

equivalent

$’000

Not later than one year

Buy US dollars 0.80 252,372 0.74 216,852

Buy Hong Kong dollars 6.25 39,429 5.97 41,575

Buy Sterling Pounds 0.4164 1,854 0.40 2,421

Buy Euros 0.6198 1,805 0.59 473

Buy Japanese yen 96.08 2,157 84.62 2,227

Buy New Zealand dollars 1.1138 701 1.22 833

The net deferred costs and exchange gains and losses on hedges of anticipated foreign currency purchases and sales recognised in other

debtors at Note 9 and the timing of their anticipated recognition as part of purchases and sales are:

Consolidated

Net gains/(losses)

2007 2006

$’000 $’000

Within six months (15,160) (429)

(c) Credit risk exposures

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. Management has a credit policy in place

and the exposure to credit risk is monitored on an ongoing basis.

The maximum exposure to credit risk on fi nancial assets, excluding investments, of the consolidated entity, is represented by the carrying amount

of each fi nancial asset, including derivatives, in the balance sheet.




Annual Report 2007

23 Additional fi nancial instruments disclosure (continued)

(d) Net fair values of fi nancial assets and liabilities

Valuation approach

Net fair values of fi nancial assets and liabilities are determined by the consolidated entity on the following basis.

Monetary fi nancial assets and fi nancial liabilities not readily traded in an organised fi nancial market are determined by valuing them at the present

value of contractual future cash fl ows on amounts due from customers (reduced for expected credit losses) or due to suppliers. Cash fl ows are

discounted using standard valuation techniques at the applicable on-market yield having regard to the timing of the cash fl ows. The carrying

amounts of cash and cash equivalents, trade and other receivables, trade and other payables, bank loans, lease liabilities and provision for

employee benefi ts approximate net fair value due to their short term nature.

Net fair values

Recognised fi nancial instruments

The carrying amounts and net fair values of fi nancial assets and liabilities as at the reporting date are as follows:

Consolidated

2007 2006

Carrying

amount

Net fair

value

Carrying

amount

Net fair

value

$’000 $’000 $’000 $’000

Financial assets

Cash and cash equivalents 138,640 138,640 94,025 94,025

Trade and other receivables 297,813 297,813 211,402 211,402

Interest rate swaps 5,153 5,153 908 908

Foreign exchange contract receivable 39 39 2,682 2,682

Foreign exchange options 1,340 776 610 347

Other fi nancial assets 1,731 1,731 1,979 1,979


Trade and other payables 191,102 191,102 137,265 137,265

Bank loans 936,708 936,708 599,287 599,287

Foreign exchange contract payable 15,199 15,199 3,111 3,111

Lease liabilities 4,152 4,152 3,998 3,998

Cash assets are readily traded on organised markets in a standardised form. All other fi nancial assets and liabilities are not readily traded on

organised markets in a standardised form.

(e) Financing facilities


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Unsecured bank overdraft facility, reviewed annually and payable at call:

Amount used – – – –

Amount unused 40,000 40,000 –

40,000 40,000 – –

Secured bank loan facilities with various maturity dates through to 2012 which

may be extended by mutual agreements:

Amount used 936,500 602,200 – –

Amount unused 113,500 197,800 – –

1,050,000 800,000 – –


92 Pacifi c Brands


Annual Report 2007

24 Commitments

Consolidated

2007 2006

$’000 $’000

Non-cancellable operating lease expense commitments

Future operating lease commitments not provided for in the

fi nancial statements and payable:

Within one year 51,324 29,403

One year or later and no later than fi ve years 135,105 78,009

Later than fi ve years 34,378 12,349

220,807 119,761

The consolidated entity leases property under non-cancellable operating leases expiring in one to fi ve year(s). Leases generally provide the

consolidated entity with a right of renewal at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental

contingent rental. Contingent rentals are based on either movements in the Consumer Price Index or operating criteria. Where the incremental

rentals are fi xed, they are incurred evenly over the term of the lease. The consolidated entity has provided for these fi xed increments (refer

Note 17).




Annual Report 2007

25 Controlled Entities

The consolidated entity has a 100 per cent ownership interest in the following entities in the current and prior years except where noted:

Controlled Entity

Place of

Incorporation/

Formation Controlled Entity

Place of

Incorporation/

Formation

Pacifi c Brands (Australia) Pty Ltd Australia Shared Apparel Services Pty Ltd Australia2

Pacifi c Brands Holdings Pty Ltd Australia Wrights Workwear Pty Ltd Australia2

Pacifi c Brands Footwear Pty Ltd Australia Yakka Apparel Solutions Limited New Zealand2

Sachi Australia Pty Ltd Australia Yakka New Zealand Limited New Zealand2

Pacifi c Brands Sport & Leisure Pty Ltd Australia Neat n Trim Uniforms Pty Ltd Australia2

Pacifi c Brands Clothing Pty Ltd Australia Neat n Trim Uniforms Ltd New Zealand2

Pacifi c Brands Household Products

Pty Ltd Australia Dowd Corporation Pty Ltd Australia2

Bonds Industries Pty Ltd Australia Dowd Corporation (NZ) Limited New Zealand2

Sheridan Australia Pty Ltd Australia Icon Clothing Pty Ltd Australia2

Pacifi c Brands Services Group Pty Ltd Australia Icon Clothing (NZ) Pty Ltd Australia2

PT Berlei Indonesia Indonesia Yakka (Kingsgrove) Pty Ltd Australia2

Pacifi c Brands Holdings (NZ) Ltd New Zealand Yakka (QLD) Pty Ltd Australia2

Sheridan NZ Limited New Zealand Yakka (Wodonga) Pty Ltd Australia2

Pacifi c Brands Holdings

(Hong Kong) Ltd Hong Kong1 Cushen Clothing Company Pty Ltd Australia2,3

Grosby (China) Ltd Hong Kong Cushen Clothing (Distributors) Pty Ltd Australia2,3,4

Pacifi c Brands (Asia) Ltd Hong Kong Cushen Unit Trust Australia2,3

Pacifi c Brands (UK) Ltd UK FW Fleming Pty Ltd Australia2,3

Sheridan UK Limited UK Industrial Workwear Centre Pty Ltd Australia2,3

PacBrands USA Inc USA Yakka (WA) Pty Ltd Australia2,3

Pacifi c Brands (Fiji) Limited Fiji Yakka (SA) Pty Ltd Australia2,3

Yakka (Aust) Pty Ltd Australia2 Yalee Pty Ltd Australia2,3

Yakka Pty Ltd Australia2 West End Clothing Pty Ltd Australia2,3

CTE Pty Ltd Australia2 Yakobi Pty Ltd Australia2,3

1 Pacifi c Brands Holdings (Hong Kong) has a 36% interest in Dunlop Slazenger Philippines Inc and a 50% Interest in Pacifi c Brands Marketing (Hong Kong) Ltd

but does not have control of these entities. 2 These entities were acquired on 2 April 2007. See Note 26.3 Following year end, these entities are to be placed into voluntary liquidation.4 Cushen Clothing (Distributors) Pty Ltd is the trustee for Cushen Unit Trust.


94 Pacifi c Brands


Annual Report 2007

25 Controlled Entities (continued)

The consolidated entity has a controlling interest in the ordinary shares of the following entities that are not 100% owned:

Controlled entity Place of incorporation

Ordinary share

consolidated entity

interest 2007

Ordinary share

consolidated entity

interest 2006

% %

Restonic (M) Sdn Bhd Malaysia 50% 50%

Dream Crafts Sdn Bhd Malaysia 50% 50%

Dream Products Sdn Bhd Malaysia 50% 50%

Dreamland Corporation (M) Sdn Bhd Malaysia 50% 50%

Dreamland (Singapore) Pte Ltd Singapore 50% 50%

Dreamland Spring Manufacturing Sdn Bhd Malaysia 50% 50%

Eurocoir Products Sdn Bhd Malaysia 50% 50%

Sleepmaker Sdn Bhd Malaysia 50% 50%

World Brands Pty Ltd Australia1 50.1% 0%

1 A controlling interested in this entity was made on 2 January 2007. See Note 26.




Annual Report 2007

26 Acquisitions

On 2 April 2007, the consolidated entity acquired all of the equity of Yakka (Aust) Pty Ltd for $266.3 million in cash (net of cash acquired). The

company manufactures, imports, distributes and retails industrial, corporate and casual wear in Australia and New Zealand.

On 2 January 2007, the consolidated entity acquired the Australasian streetwear business and a 50.1% controlling interest in World Brands Pty

Limited from Globe International Limited for $42.3 million cash. The streetwear and World Brands businesses’ design, develop and distribute

youth apparel under both propriety brands and other licensed and distributed brands.

These acquisitions had the following effect on the consolidated entity’s assets and liabilities on acquisition date:

Book value

Adjusted for

accounting

polices

Provisional

fair value

adjustments

Provisional

fair value

Cash 16,650 – – 16,650

Trade and other receivables 63,335 – (612) 62,723

Inventories 88,139 (810) (11,528) 75,801

Property, plant and Equipment 33,638 – (660) 32,978

Brandnames – – 80,000 80,000

Other Intangibles – – 20,672 20,672

Other assets 2,710 – – 2,710

Deferred tax assets 3,702 1,088 (1,856) 2,934

Trade and other payables (13,662) – – (13,662)

Other liabilities (30,437) – (2,017) (32,454)

Provision for taxation (930) 63 – (867)

Current provisions (9,340) (313) – (9,653)

Non-current provisions (578) (84) (5,247) (5,909)

Lease Liabilities (668) – – (668)

External debt (14,810) – – (14,810)

Minority Interest (382) – (26) (408)

Net assets acquired 137,367 (56) 78,726 216,037

Goodwill 109,265

Consideration 325,302

Less: cash acquired (16,650)

Consideration (net of cash acquired) 308,652

Since acquisition the acquired businesses have contributed net profi t of $1.5 million to the consolidated profi t for the year. If the acquisitions had

occurred on 1 July 2006, management estimates that consolidated revenue would have been $2,079.4 million.

Due to the uncertainty of the impact of changes in the cost and management structures of the combined entities, the Directors’ are of the opinion

that it is impracticable to determine the pro-forma net profi t for the full year had the acquisitions occurred on 1 July 2006.

Effect of prior year acquisitions

On 26 September 2005, the consolidated entity acquired 100% of the equity of Sheridan Australia Pty Ltd, Sheridan NZ Limited and Sheridan

UK Limited for $64.7 million in cash (net of cash acquired) and assumed interest bearing debt of $28.7 million. These companies design, source

and distribute high quality bed linen and towels primarily to the consumer market in Australia, New Zealand and the United Kingdom.

On 30 November 2005, the consolidated entity acquired from Arthur Ellis Limited its Bedwares and the Everwarm/Survival businesses for

$11.5 million in cash. The Bedwares business manufactures, supplies and distributes pillows, quilts and mattress protectors to major retailers

in New Zealand whilst the Everwarm/Survival business supply and distribute thermalwear products.

During June 2006, the consolidated entity acquired the Peri bed linen business and Foam Products Australia’s foam manufacturing business

for $0.7 million and $3.0 million in cash respectively.


96 Pacifi c Brands


Annual Report 2007

26 Acquisitions (continued)

Effect of prior year acquisitions (continued)

These acquisitions had the following effect on the consolidated entity’s assets and liabilities:

Book value

$’000

Adjustment for

accounting

policies

$’000

Fair value

adjustments

$’000

Fair value

$’000

Inventories 48,854 (845) (14,018) 33,991

Trade and other receivables 13,155 (705) (2,434) 10,016

Property, plant and equipment 11,768 – (2,244) 9,524

Brandnames 30,561 – – 30,561

Other assets 1,781 (253) (196) 1,332

Deferred tax assets 1,906 771 2,335 5,012

Trade and other payables (12,452) – (2,036) (14,488)

Interest bearing liabilities (1) – – (1)

Current provisions (6,019) (1,356) (3,134) (10,509)

Non-current provisions (200) – – (200)

Net assets acquired 89,353 (2,388) (21,727) 65,238

Goodwill 43,355

Consideration 108,593

Less: Interest bearing debt assumed (28,675)

Total Cash 79,918




Annual Report 2007

27 Notes to the Cash Flow Statements

(a) Reconciliation of cash

For the purposes of the Cash Flow Statements, cash includes cash on hand and at bank and short term deposits at call. Cash as at the end

of the year as shown in the Cash Flow Statements is reconciled to the related items in the Balance Sheets as follows:


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Cash and cash equivalents 8 138,640 94,025 568 487

(b) Reconciliation of profi t for the year to net cash

from operating activities

Profi t for the year 106,136 101,366 97,806 74,833

Add/(less) non-cash items:

Share based payments 1,836 1,565 1,836 1,565

Net gain on disposal of non-current assets – (1,561) – –

Amounts set aside to allow for doubtful debts, rebates,

claims and settlement discounts 3 127,014 102,877 – –

Amounts set aside to allow for employee benefi ts 29,297 25,309 – (384)

Depreciation and amortisation 3 24,107 19,303 – –

Increase/(decrease) in income taxes payable 3,191 (6,286) (861) (2,646)

Decrease/(increase) in current and deferred tax assets 5,559 4,530 2,643 3,097

Net cash provided by operating activities before

change in assets and liabilities 297,140 247,103 101,424 76,465

Change in assets and liabilities:

Increase in trade and other receivables (151,633) (105,505) – (2,970)

Decrease/(increase) in inventories 10,733 (12,931) – –

(Increase)/decrease in prepayments (2,572) 1,607 2 2

Increase/(decrease) in trade and other payables 11,364 (11,627) 992 118

(Decrease)/increase in provisions (26,737) (30,228) – –

Net cash from operating activities 138,295 88,419 102,418 73,615


98 Pacifi c Brands


Annual Report 2007

28 Employee benefi ts


2007 2006 2007 2006

Note $’000 $’000 $’000 $’000

Aggregate liability for employee benefi ts, including on-costs:

Current 17 65,666 51,532 – –

Non-current 17 6,343 7,354 – –

72,009 58,886 – –

The present values of employee benefi ts not expected to be settled within 12 months of reporting date have been calculated using the following

weighted averages:

Consolidated

2007 2006

Assumed rate of increase in wage and salary rates (per annum) 4.0% 4.0%

Discount rate (per annum) 5.4% 5.5%

Settlement term (period) 10 years 10 years

Number of employees

Number of employees at the end of the year 8,878 8,126

(a) Superannuation plans

The consolidated entity contributes to the Pacifi c Brands Superannuation Plan (‘Plan’), which is a plan in the Mercer Super Trust, at rates advised

from time to time by the Plan’s actuary. The consolidated entity has been contributing at the rates set out in the previous actuarial review, as at

1 July 2004.

The actuarial assessments of the Plan as at both 1 July 2006 and 1 July 2005 were carried out by Mr D.A. Scott, Fellow of the Institute of

Actuaries of Australia on behalf of Mercer Human Resource Consulting Pty Ltd. The results of the valuations were provided in reports dated

August 2004 and August 2005. The Actuary concluded that the assets of the Plan were suffi cient to meet all benefi ts payable in the event of the

Plan’s termination, or the voluntary or compulsory termination of employment of each employee of the Company.

The Plan provides both defi ned benefi ts, based on years of service and fi nal average salary, and accumulation benefi ts. In accordance with

AAS 25 Financial Reporting by Superannuation Plans the surplus of the Plan at the last actuarial review date of 1 July 2004, on a funding basis,

was $1.0 million (fund assets of $112.9 million and accrued benefi ts $111.9 million).




Annual Report 2007

28 Employee benefi ts (continued)

(a) Superannuation plans (continued)

With respect to the defi ned benefi ts component of the Plan, the defi ned benefi t obligations and Plan assets at fair value are:

Movements in the recognised net defi ned benefi t obligations (included in non-current employee benefi ts)


2007 2006 2007 2005

$’000 $’000 $’000 $’000

Present value of funded defi ned benefi t obligation 50,287 47,363 – –

Fair value of plan assets (60,183) (54,617) – –

Surplus (9,896) (7,254) – –

Unrecognised actuarial gains 8,564 6,349 – –

Net (asset)/liability for defi ned benefi t obligations at 30 June (1,332) (905) – –

Amounts for the current and previous periods are as follows:

Defi ned benefi t obligation 50,287 47,363 – –

Fund assets (60,183) (54,617) – –

Surplus (9,896) (7,254) – –

Experience adjustments (gains)/losses – plan assets (4,010) (4,323) – –

Experience adjustments (gains)/losses – plan liabilities 2,579 1,657 – –

The consolidated entity and the Company have used the AASB 1.20A

exemption and disclosed amounts under AASB 1.20A(p) above for

each annual reporting period prospectively from the transition date.

Changes in the present value of the defi ned benefi t obligation are

as follows:

Opening defi ned benefi t obligation 47,363 46,384 – –

Service cost 2,416 2,588 – –

Interest cost 2,229 1,890 – –

Contributions by plan participants 510 1,305 – –

Actuarial gains and losses 1,650 260 – –

Benefi ts paid (3,335) (4,193) – –

Taxes and premium paid (460) (871) – –

Contributions to accumulation section (86) – – –

Closing defi ned benefi t obligation 50,287 47,363 – –


100 Pacifi c Brands


Annual Report 2007



Changes in the fair value of fund assets are as follows:


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Opening fair value of fund assets 54,617 48,118 – –

Expected return 3,450 3,048 – –

Actuarial gains and (losses) 4,010 4,323 – –

Contributions by employer 1,477 2,887 – –

Contributions by plan participants 510 1,305 – –

Benefi ts paid (3,335) (4,193) – –

Taxes and premiums paid (460) (871) – –

Contributions to accumulation section (86) – – –

Closing fair value of fund assets 60,183 54,617 – –

The major categories of fund assets as a percentage of total fund

assets are as follows:

Australian Equities 34% 34% – –

International Equities 28% 29% – –

Fixed Income 14% 14% – –

Property 9% 8% – –

Cash 15% 15% – –

The consolidated entity’s investment policies and strategies for the defi ned benefi t superannuation funds and post retirement benefi ts funds do

not use target allocations for the individual asset categories. The consolidated entity’s investment goals are to maximise returns subject to specifi c

risk management policies. Its risk management policies permit investments in mutual funds and prohibit direct investments in debt and equity

securities and derivative fi nancial instruments. The consolidated entity addresses diversifi cation by the use of mutual fund investments whose

underlying investments are in domestic and international fi xed income securities and domestic and international equity securities. These mutual

funds are readily marketable and can be sold to fund benefi t payment obligations as they become payable.




Annual Report 2007



Expense recognised in the income statement


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Current service costs 2,416 2,588 – –

Interest on obligation 2,229 1,890 – –

Expected return on fund assets (3,450) (3,048) – –

Actuarial gain (145) – – –

1,050 1,430 – –

The expense is recognised in the following line items in the

income statement:

Administrative expenses 1,050 1,430 – –

Actual return on fund assets 7,460 7,371 – –


2007 2006 2007 2006

Principal actuarial assumptions at the balance sheet date (expressed

as weighted averages):

Discount rate at 30 June 5.4% 4.9% – –

Expected return on fund assets at 30 June 6.9% 6.5% – –

Future salary increases 4.0% 4.0% – –

The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation

of assets classes. The returns used for each class are net of investment tax and investment fees. An allowance for administration expenses has

been deducted from the expected return.


102 Pacifi c Brands


Annual Report 2007


(b) Share based payments

The Company has introduced a number of share plans pursuant to which senior executives and directors may acquire shares. These are:

• the Performance Rights Plan (which is open to executive directors and selected senior executives); and

• the Non-Executive Director Share Plan (which applies to all non-executive directors).

(i) Performance Rights Plan (‘PRP’)

General

The PRP is the Company’s long term incentive scheme for selected key senior executives. Under the PRP, eligible executives will be granted

performance rights (each being an entitlement to a share, subject to the satisfaction of vesting conditions, principally related to fi nancial

performance) on terms and conditions determined by the Board of Directors. If the vesting conditions are satisfi ed, the performance rights vest

and shares will be delivered to the executive.

Grant of performance rights

The Board of Directors has approved the following grants of performance rights to employees, under the PRP:

Grant date/employee entitled

Contractual life

of performance

rights

Valuation at

grant date

Grant date

1 July 2006

Grant date

1 July 2005

Grant date

1 July 2004

(Years) $ (Number)

Grant 3

(Number)

Grant 2

(Number)

Grant 1

Opening balance 3,025,000 2,500,000 –

Performance rights grant 1 July 2004 4 1.60

Key management personnel – – 2,100,000

Senior employees – – 400,000


Key management personnel – 475,000 –

Senior employees – 50,000 –


Key management personnel 403,489 – –

Senior employees 30,232 – –

Total performance rights 3,458,721 3,025,000 2,500,000

Valuation

The fair value of the performance rights was calculated at the date of grant using a Monte-Carlo simulation model and allocated to each reporting

period evenly over the period from grant date to vesting date. The value disclosed in Note 3 is the portion of the fair value of the performance

rights allocated to this year. In valuing the performance rights, market conditions have been taken into account.

1 July 2006

Grant 3

1 July 2005

Grant 2

1 July 2004

Grant 1

Fair value of performance rights and assumptions

Fair value at measurement date $1.42 $1.35 $1.60

Share price $2.15 $2.30 $2.70

Expected volatility 25% 25% 25%

Performance right life (period) 3 years 4 years 4 years

Dividend Yield (per annum) 6.0% 5.5% 3.0%

Risk-free interest rate (per annum) 5.8% 5.1% 5.4%

The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the performance rights),

adjusted for any expected changes to future volatility due to publicly available information.

Performance rights are granted under a service condition and, for grants to key management personnel, market and non-market performance

conditions. Non-market performance conditions are not taken into account in the grant date fair value measurement of the services received.




Annual Report 2007


(b) Share based payments (continued)

(i) Performance Rights Plan (‘PRP’) (continued)

Vesting conditions

Total shareholder return conditions

In respect of Grant 1 and half of Grant 2 and 3 the performance conditions are based on the relative total shareholder return (‘TSR’) of the

Company, measured against a comparator group of companies. Details of the comparator group of companies are contained on page 54 of

this Annual Report. TSR is, broadly, a measure of the return to shareholders provided by share price appreciation, plus reinvested dividends,

expressed as a percentage of investment. In addition, the price of the Company’s shares must, as at the relevant date, exceed the price at which

the shares listed on the Australian Stock Exchange on 6 April 2004 ($2.50) prior to any performance rights vesting, subject to the operation of the

PRP rules.

The TSR performance conditions in relation to these grants are:

Target

Percentage of shares available

in given year that vests

The Company’s annual TSR is less than the median TSR of the comparator companies 0%

The Company’s annual TSR equals or exceeds performance of the median TSR of the

comparator companies

50%

The Company’s annual TSR ranks in third quartile of the comparator companies Pro rata between 50% and 100%


The Company’s annual TSR ranks in fourth quartile of the comparator companies 100%

EPS performance conditions

EPS growth requirements were introduced in Grant 2 for half of the performance rights and is a requirement in relation to Grant 3. The Board

introduced this performance requirement because:

• as an absolute measure, it provides management with a performance goal over which can directly exert some control;

• it provides a very good ‘line of sight’ between the actions of senior executives and the Company’s result; and

• it is directly correlated with shareholder returns, so complements the relative TSR performance requirement.

EPS performance requirements are reviewed prior to each year’s allocation of performance rights. The range of EPS growth refl ects the

Company’s view of what is reasonable target value, taking account of likely business cycle conditions as well as the upside potential the

Company has for further earnings growth.

EPS performance requirements for each grant are shown in the table below:

Percentage of shares

in tranche available in

given year that vests Grant 2 performance rights EPS target Grant 3 performance rights EPS target

0% The Company’s compound EPS growth (tested over

1, 2, 3, and 4 years) is less than 8.5%

The Company’s 3 year compound EPS growth is less

than 8.0%


1, 2, 3, and 4 years) equals 8.5%

The Company’s 3 year compound EPS growth equals

8.0%

Pro rata between

25% and 100%

The Company’s compound EPS growth (tested over

1, 2, 3, and 4 years) is between 8.5% and 10.5%

The Company’s 3 year compound EPS growth is

between 8% and 12%


1, 2, 3, and 4 years) is equal or exceeding 10.5%

The Company’s 3 year compound EPS growth is equal

to or exceeding 12.0%

In relation to the grants to date, performance conditions were again tested at the end of the year ended 30 June 2007.


104 Pacifi c Brands


Annual Report 2007



(i) Performance Rights Plan (‘PRP’) (continued)

The maximum percentage of the performance rights granted to date which may vest in favour of the executives is as follows:

% vesting

grant date

% vesting

grant date

% vesting

grant date

1 July 2006 1 July 2005 1 July 2004

1 July 2007 – 35%1 60%2

1 July 2008 – 25% 40%

1 July 2009 100% 40% –

Maximum 100% 100% 100%

1 Includes 15% which were due to vest at 1 July 2006 as performance conditions were not met.2 Includes 15% which were due to vest at 1 July 2005 and 25% which were due to vest at 1 July 2006 as performance conditions were not met.

Any performance rights which do not vest in a fi nancial year will be added to the performance rights otherwise available in the next vesting year

and tested against the performance condition applicable to that subsequent year.

With respect to Grants 1 and 2, the executives are not entitled to trade in shares allocated on vesting of the performance rights until the earlier to

occur of:

• three years after the date of grant of the shares allocated on vesting; or

• 12 months following the date of cessation of employment with the consolidated entity.

Based on the fi nancial performance of the Company in the 2007 fi nancial year a total of 1,591,874 shares in the capital of the Company vested in

the executive directors and senior executives effective 1 July 2007, as set out on page 56 of the Remuneration Report.

Grant 3 – 1 July 2006

During the year the Board granted 403,489 performance rights to key management personnel, at no cost, effective 1 July 2006. The grant of

performance rights, under the Performance Rights Plan, consisted of two equal tranches being subject to different performance conditions.

Tranche 1 and Tranche 2 were valued at $1.06 and $1.78 respectively at the grant date, 1 July 2006.

In the case of Grant 3 executives are not entitled to trade in shares allocated on vesting of the performance rights until the earliest to occur of:

• a request from the relevant executive to the Board to release the holding lock; or

• 10 years after the date of grant of the shares allocated on vesting; or

• six months following the date of cessation of employment with the consolidated entity.




Annual Report 2007



Terms and conditions of Grant 3 (Tranche 1)

In respect of Tranche 1, the performance condition compares the total shareholder return (‘’TSR’’) performance of the Company with the TSR

performance of entities in the comparator group of entities over the performance condition measurement year. Specifi cally, the Company’s

TSR performance will be given a percentile ranking having regard to its TSR performance compared with the TSR performance of each of the

companies in the comparator group (with the highest ranking company being given a ranking at the 100th percentile) over the measurement year.

The entities comprising the comparator group are a basket of 23 ASX listed consumer stocks. Companies that are delisted, merged or taken over

during the vesting year will be removed from the comparator group and not replaced. The percentage of performance rights that will vest at a

particular percentile ranking is as follows:

Target



The Company’s 3 year TSR does not exceed the median performance of the comparator

companies

0%

The Company’s 3 year TSR exceeds the median performance of the comparator

companies

50%

The Company’s 3 year TSR is ranked in the third quartile of the comparator companies Pro rata between 50% and 100%


The Company’s 3 year TSR is ranked in the fourth quartile of the comparator companies 100%

Terms and conditions of Grant 3 (Tranche 2)

The conditions with respect to Tranche 2 are based on earning per share (‘EPS’) performance over a three-year period ending 30 June 2009. The

percentage of that part of the tranche of performance rights that will vest based on the company’s EPS performance is calculated as follows:

Target



The Company’s 3 year EPS compound growth is less than 8% 0%

The Company’s 3 year EPS compound growth is 8% 25%

The Company’s 3 year EPS compound growth is between 8% and 12% Pro rata between 25% and 100%

(1.875% increase for each 0.1% additional EPS

growth)

The Company’s 3 year EPS compound growth is greater than 12% 100%

(ii) Non-Executive Director Share Plan

Under the Non-Executive Director Share Plan, non-executive directors are required to sacrifi ce at least 25% (or such other minimum percentage

determined by the Board of Directors from time to time) of their annual directors’ fees towards the acquisition of shares in the Company. Non-

executive directors are not able to sell or otherwise dispose of the shares until the earliest of 10 years after acquisition, the non-executive director

ceasing to be a director of the Company, or the non-executive director applying to the Board of Directors and the Board of Directors determining

(in exceptional circumstances) that any or all restrictions applying to the shares cease. Shares will usually be purchased on-market at the prevailing

market price of shares by applying an amount equal to the amount of fees a non-executive director has elected to sacrifi ce to acquire shares.

Shares are acquired monthly at the end of each calendar month.


106 Pacifi c Brands


Annual Report 2007

29 Key management personnel disclosures

The following were key management personnel of the consolidated entity at any time during the year and unless otherwise indicated were key

management personnel for the entire year:

Non-executive directors

R.P. Handley

H.A. Lynch (Resigned effective 24 October 2006)

A.D. Cummins

M.G. Ould

M.A. Plavsic

D.G . Fisher (Appointed 28 March 2007)

Executive directors

P.R. Moore, Chief Executive Offi cer

S.J. Tierney, Group General Manager, Operations

Executives

S.W. Audsley, Chief Financial Offi cer

I.C. Barton, Group General Manager, Home Comfort

M.J. Ford, Group General Manager, Footwear

S.M. Morphet, Group General Manager, Underwear & Hosiery

M.E. Keely, Group General Manager, People and Performance

M.S. Daniel, Group General Manager, Yakka

M. Sonand, Group General Manager, Outerwear & Sport (Appointed 2 January 2007)

Key management personnel compensation

The key management personnel compensation included in personnel expenses (refer Note 3) are as follows:


2007 2006 2007 2006

$ $ $ $

Short-term employee benefi ts 4,743,700 3,825,058 279,608 440,500

Non-monetary benefi ts 474,734 582,085 190,615 220,050

Post-employment benefi ts 921,148 709,510 176,937 59,450

Share based payments 873,673 1,332,131 873,673 1,332,131

7,013,255 6,448,784 1,520,833 2,052,131

Individual directors and executives compensation disclosures

Information regarding individual directors and executives compensation and some equity instruments disclosure as permitted by Corporations

Regulations 2M.3.03 and 2M.6.04 is provided in the Remuneration Report section of the Directors’ Report on pages 47 to 59.

Apart from the details disclosed in this Note, no director has entered into a material contract with the Company or the consolidated entity since

the end of the previous year and there were no material contracts involving directors’ interests existing at year end.




Annual Report 2007

29 Key management personnel disclosures (continued)

Performance rights over equity instruments

The movement during the reporting period in the number of performance rights over ordinary shares in Pacifi c Brands Limited held, directly,

indirectly or benefi cially, by each key management person, including their related parties, is as follows:

Held at

30 June

2005

Granted as

compensation

Held at

30 June

2006

Granted as

compensation

Held at

30 June

2007

Directors

P.R. Moore 500,000 125,000 625,000 122,093 747,093

S.J. Tierney 300,000 75,000 375,000 48,837 423,837

Executives

S.W. Audsley 250,000 62,500 312,500 40,698 353,198

I.C. Barton 200,000 50,000 250,000 36,628 286,628

M.J. Ford 200,000 50,000 250,000 40,116 290,116

S.M. Morphet 250,000 62,500 312,500 40,698 353,198

M.E. Keely 200,000 50,000 250,000 31,977 281,977

M.S. Daniel 200,000 – 200,000 42,442 242,442

No performance rights were exercised during the years ended 30 June 2006 and 30 June 2007.

Movements in shares

The movement during the year in the number of ordinary shares in Pacifi c Brands Limited held, directly, indirectly or benefi cially, by each key

management person, including their related parties, is as follows:

Held at

30 June

2005 Purchases Sales

Held at

30 June

2006 Purchases Sales

Held at

30 June

2007

Directors

R.P. Handley 1,336,020 28,285 – 1,364,305 26,341 – 1,390,646

H.A. Lynch1 65,502 17,242 – 82,744 – – –

P.R. Moore 1,320,001 – – 1,320,001 – – 1,320,001

S.J. Tierney 400,001 – – 400,001 – – 400,001

A.D. Cummins 273,761 23,739 – 297,500 19,889 – 317,389

M.G. Ould 57,941 14,874 – 72,815 10,663 – 83,478

M.A. Plavsic 31,539 11,663 – 43,202 10,845 – 54,047

D.G. Fisher2 – – – – 2,011 – 2,011

Executives

S.W. Audsley 201,800 – – 201,800 – – 201,800

I.C. Barton 120,400 – – 120,400 – – 120,400

M.J. Ford 209,861 – – 209,861 27 – 209,888

S.M. Morphet 200,400 – – 200,400 – – 200,400

M.E Keely 208,599 5,665 (13,835) 200,429 – (50,000) 150,429

M.S Daniel 120,400 26 – 120,443 27 – 120,470

M. Sonand – – – – 4,000 – 4,000

No shares were granted to key management personnel during the year as compensation.

1 H.A. Lynch ceased being a Director of the Company on 24 October 2006.2 D.G. Fisher was appointed a Director of the Company on 28 March 2007.


108 Pacifi c Brands


Annual Report 2007

30 Non-key management personnel disclosures

All transactions with non-key management personnel are on normal terms and conditions, except for the interest free loan of $1,204 million

shown below. This loan was made from Pacifi c Brands Limited to Pacifi c Brands (Australia) Pty Ltd on 6 April 2004 to enable it to acquire Pacifi c

Brands Holdings Pty Ltd and its associated international operations.

Directors of related parties (not being directors of the entity or their director related entities)

From time to time, directors of related parties or their director related entities may purchase goods from the consolidated entity. These purchases

are on the same terms and conditions as those entered into by consolidated entity employees or customers and are immaterial or domestic in

nature.

The Company

2007 2006

$’000 $’000

The aggregate amounts included in the profi t from ordinary activities before income tax expense/(benefi t)

that resulted from transactions with controlled entities are:

Dividend revenue

Wholly-owned controlled entities 100,000 77,500

Aggregate amounts receivable from controlled entities:

Amounts receivable other than trade receivables

Current

Wholly-owned controlled entity 48,618 26,068

Non-current

Wholly-owned controlled entity (interest free) 1,203,714 1,203,714

31 Events subsequent to reporting date

There has not arisen in the interval between the end of the fi nancial 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 signifi cantly the operations of the consolidated entity, the results

of those operations, or the state of affairs of the consolidated entity, in future fi nancial periods.

Dividends

For dividends declared after 30 June 2007, refer Note 21.




Annual Report 2007

Directors’ Declaration

1. In the opinion of the directors of Pacifi c Brands Limited (the ‘Company’):

(a) the fi nancial statements and notes and the remuneration disclosures contained in the Remuneration Report in the Directors’ Report, set

out on pages 47 to 108, are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Company’s and the consolidated entity’s fi nancial position as at 30 June 2007 and of their

performance, for the fi nancial year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations

Regulations 2001;

(b) the remuneration disclosures that are contained in the Remuneration Report in the Directors’ Report comply with Australian Accounting

Standard AASB 124 Related Party Disclosures; and

(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Offi cer and

Chief Financial Offi cer for the fi nancial year ended 30 June 2007.

Dated at Melbourne this 21st day of August 2007

Signed in accordance with a resolution of the directors:

Pat Handley Paul Moore

Chairman Director

110 Pacifi c Brands


Annual Report 2007

Report on the fi nancial report and AASB 124 remuneration disclosures contained in the Directors’ report

We have audited the accompanying fi nancial report of Pacifi c Brands Limited (the Company), which comprises the balance sheets as

at 30 June 2007, the income statements, statements of changes in equity and cash fl ow statements for the year ended on that date, a

summary of signifi cant accounting policies and other explanatory notes 1 to 31, and the directors’ declaration of the Group comprising the

Company and the entities it controlled at the year’s end or from time to time during the fi nancial year.

As permitted by the Corporations Regulations 2001, the Company has disclosed information about the remuneration of directors and

executives (remuneration disclosures), required by Australian Accounting Standard AASB 124 Related Party Disclosures, under the heading

‘Remuneration report’ in the Directors’ report and not in the fi nancial report. We have audited these remuneration disclosures.

Directors’ responsibility for the fi nancial report and the AASB 124 remuneration disclosures contained in the directors’ report

The directors of the Company are responsible for the preparation and fair presentation of the fi nancial report in accordance with Australian

Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes

establishing and maintaining internal controls relevant to the preparation and fair presentation of the fi nancial report that is free from material

misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that

are reasonable in the circumstances.

The directors of the Company are also responsible for the remuneration disclosures contained in the Directors’ report.

Auditor’s responsibility

Our responsibility is to express an opinion on the fi nancial report based on our audit. We conducted our audit in accordance with Australian

Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and

plan and perform the audit to obtain reasonable assurance whether the fi nancial report is free from material misstatement. Our responsibility

is also to express an opinion on the remuneration disclosures contained in the Directors’ report based on our audit.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial report and the

remuneration disclosures contained in the Directors’ report. The procedures selected depend on the auditor’s judgement, including the

assessment of the risks of material misstatement of the fi nancial report and the remuneration disclosures contained in the Directors’ report,

whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation

and fair presentation of the fi nancial report and the remuneration disclosures contained in the Directors’ report 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 entity’s

internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by the Directors, as well as evaluating the overall presentation of the fi nancial report and the remuneration disclosures

contained in the Directors’ report.

We performed the procedures to assess whether in all material respects the fi nancial report presents fairly, in accordance with the

Corporations Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent

with our understanding of the Company’s and the Group’s fi nancial position and of their performance and whether the remuneration

disclosures are in accordance with Australian Accounting Standard AASB 124.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Auditor’s opinion on the fi nancial report

In our opinion, the fi nancial report of Pacifi c Brands Limited is in accordance with the Corporations Act 2001, including:

(a) giving a true and fair view of the Company’s and the Group’s fi nancial position as at 30 June 2007 and of their performance for the

fi nancial year ended on that date; and

(b) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001.

Auditor’s opinion on AASB 124 remuneration disclosures contained in the Directors’ report

In our opinion the remuneration disclosures that are contained in the Directors’ report comply with Australian Accounting Standard AASB 124

Related Party Disclosures.

KPMG Don Pasquariello

Partner

Melbourne, 21 August 2007

Independent Audit Report to the Members of Pacifi c Brands Limited



Annual Report 2007

as at 21 August 2007

Distribution of ordinary shareholders and shareholdings

Size of holding Number of holders Number of shares

1 to 1,000 9,188 30.1% 5,020,252 1.0%

1,001 to 5,000 16,636 54.6% 38,851,736 7.7%

5,001 to 10,000 3,069 10.1% 23,113,516 4.6%

10,001 to 100,000 1,498 4.9% 30,613,331 6.1%

100,001 and over 84 0.3% 404,679,017 80.6%

Total 30,475 100.0% 502,277,852 100.0%

Included in the above total are 1,706 shareholders holding less than a marketable parcel of 163 shares.

Twenty largest ordinary fully paid shareholders

Shares % of total

HSBC Custody Nominees (Australia) Limited 106,829,316 21.27%

J P Morgan Nominees Australia Limited 77,511,365 15.43%

National Nominees Limited 61,810,524 12.31%

ANZ Nominees Limited <Cash Income A/C> 45,909,945 9.14%

Citicorp Nominees Pty Limited 33,295,970 6.63%

Cogent Nominees Pty Limited 10,413,035 2.07%

UBS Nominees Pty Ltd 9,166,303 1.82%

AMP Life Limited 6,390,402 1.27%

Cogent Nominees Pty Limited <SMP Accounts> 6,204,052 1.24%

HSBC Custody Nominees (Australia) Limited – A/C 2 4,333,902 0.86%

Australian Reward Investment Alliance 3,965,927 0.79%

Citicorp Nominees Pty Limited <CFSIL CWLTH Aust Shs 18 A/C> 3,771,881 0.75%

Queensland Investment Corporation 3,041,718 0.61%

Merrell Lynch (Australia) Nominees Pty Limited <BPB A/C> 2,296,972 0.46%

Invia Custodian Pty Limited <GSJBW Managed A/c> 1,783,280 0.36%

Citicorp Nominees Pty Limited <CFSIL CWLTH SML COS 3 A/C> 1,729,790 0.34%

RBC Dexia Investor Services Australia Nominees Pty Limited <MLCI A/C> 1,524,019 0.30%

UBS Wealth Management Australia Nominees Pty Ltd 1,212,363 0.24%

Crown Advisory Pty Ltd <Superannuation Fund A/C> 1,200,000 0.24%

Mr Paul Moore & Mrs Virginia Moore <P & V Family Super Fund A/C> 1,200,000 0.24%

383,590,764 76.37%

Substantial shareholders

The names of substantial shareholders in the Company, and the number of fully paid ordinary shares in which each has an interest, as disclosed

in substantial shareholder notices to the Company on the respective dates, are as follows:

28-May-07 AXA Asia Pacifi c Holdings Limited 8.67%

02-Aug-07 Barclays Global Investors Australia Limited 5.17%

14-Jun-07 Dimensional Fund Advisors Inc 5.06%

12-Jul-07 IOOF Holdings Limited 9.37%

Shareholders’ Statistics

112 Pacifi c Brands

Annual General Meeting

10.00am, Tuesday 23 October 2007.

Palladium C, Crown Towers, 8 Whiteman Street,

Southbank, Melbourne, Australia.

Stock exchange listing

Pacifi c Brands shares are listed on the Australian Stock Exchange

(ASX) and New Zealand Stock Exchange (NZX) and are traded under

the code ‘PBG’.

Pacifi c Brands Share Registry

Australia

Computershare Investor Services Pty Limited

Yarra Falls, 452 Johnston Street

Abbotsford Victoria 3067

Australia

GPO Box 2975

Melbourne Victoria 3001

Australia

New Zealand

Computershare Investor Services Limited

Level 2, 159 Hurstmere Road

Takapuna, Auckland

New Zealand

Telephone:

Australia: 1300 132 632

New Zealand: (09) 488 8777

International: (61 3) 9415 4184

Facsimile: (61 3) 9473 2500

Email: [email protected]

Tax and dividend payments

For Australian registered shareholders who have not quoted their Tax

File Number (‘TFN’), exemption or Australian Business Number (‘ABN’),

the Company is obliged to deduct tax at the top marginal tax rate

plus Medicare levy from unfranked and/or partially franked dividends.

If you have not already provided your TFN/ABN, you may do so by

contacting the Share Registry or by registering your TFN/ABN at the

Share Registry’s website at www.computershare.com.au.

Dividend payments

Your dividends will be paid in Australian currency credited directly

into your nominated bank account. If you have not nominated a bank

account, a dividend cheque will be mailed to the address recorded

on the share register less an administration fee of $1.00. If you wish

to elect to receive your dividends by way of direct credit but have

not done so, you should complete an application form available

by contacting the Share Registry or enter the details at the Share

Registry’s website at www.computershare.com.au.

Dividend Reinvestment Plan

The Dividend Reinvestment Plan enables Pacifi c Brands’ fully paid

ordinary shareholders having a registered address or being resident

in Australia or New Zealand to reinvest all or part of their dividends in

additional Pacifi c Brands fully paid ordinary shares. Applications are

available from the Share Registry.

Consolidation of multiple holdings

If you have multiple issuer-sponsored holdings that you wish to

consolidate into a single account, please notify the Share Registry

in writing, quoting your full registered names and Security Reference

Numbers (SRNs) for these accounts and nominating the account to

which the holdings are to be consolidated.

Change of name and/or address

For issuer-sponsored holdings, please notify the Share Registry in

writing if you change your name and/or address. When advising the

Share Registry of a change of name, please supply details of your

new/previous name, your new/previous address, your SRN and

supporting documentation evidencing your change of name. You can

also change your address details online at the Share Registry’s website

at www.computershare.com.au. Changes of address relating to

shareholdings in a single name can be made over the phone by calling

1300 132 632 (Australia only). Please note that this does not apply to

shareholdings held jointly or in a company name.

For CHESS/broker-sponsored holdings, please notify your broker in

writing if you change your name and/or address.

Share enquiries

Shareholders seeking information about their shareholding or dividends

should contact the Share Registry. Contact details are above.

Pacifi c Brands’ communications

Pacifi c Brands internet site, www.pacifi cbrands.com.au offers

information about the Company, news releases, announcements to

ASX and NZX and addresses by the Chairman and CEO. The website

provides essential information about the Company and an insight into

Pacifi c Brands’ businesses.

Registered offi ce

ABN 64 106 773 059

Pacifi c Brands Limited

Level 3, 290 Burwood Road

Hawthorn Victoria 3122

Telephone: (61 3) 9947 4900

Fascimile: (61 3) 9947 4951


Website: www.pacifi cbrands.com.au

Investor relations

Telephone: (61 3) 9947 4900


Auditors

KPMG

Shareholder Information


Annual Report 2007

Chairman

Pat Handley


Paul Moore

Group General Manager, Operations

Stephen Tierney

Non-Executive Directors

Andrew Cummins

Dominique Fisher

Max Ould

Maureen Plavsic


Stephen Audsley

Company Secretary

John Grover

Access your annual report on the web

Pacifi c Brands offers the option for shareholders to be advised of the

availability of the Annual Report through the Company’s website via an

email notifi cation (refer instructions below). By providing us with your

email address through our website, shareholders will be notifi ed by

email when the Annual Report is available together with a direct link

to the Annual Report. You will also be notifi ed by email of other major

Pacifi c Brands announcements.

Email notifi cation

Enter Pacifi c Brands website www.pacifi cbrands.com.au and click

onto ‘Investor Relations’ then select ‘Shareholder Services’. Under the

heading Share Registry, click on the link to Computershare. You will be

requested to enter your SRN or Holder Identifi cation Number (HIN) and

postcode. This process is a security validation prior to entering your

email address under ‘Electronic Shareholder Communication’.

After confi rmation of your email address you will receive notifi cation

of the availability of future Annual Reports and other Pacifi c Brands

announcements by email.

Pacifi c Brands Limited Registered Offi ce

Level 3, 290 Burwood Road

Hawthorn, Victoria 3122

Telephone: (61 3) 9947 4900

Facsimile: (61 3) 9947 4951


Pacifi c Brands New Zealand

Greenlane

Level 1, 308 Great South Road

Greenlane, Auckland 1005

New Zealand

Telephone: (64 9) 523 7800

Facsimile: (64 9) 523 7801

Pacifi c Brands (Asia) Limited

Langham Place, Level 40

Offi ce Tower, 8 Argyle Street

Kowloon

Hong Kong

Telephone: (852) 2956 6688

Facsimile: (852) 2956 1778

Pacifi c Brands UK

Unit 1, Stretton Green Distribution Park

Langford Way, Appleton

Warrington, Cheshire, WA4 4TQ

England

Telephone: (44) 19 2521 2212

Facsimile: (44) 19 2521 2222

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PACIFIC BRANDS LIMITED

AND ITS CONTROLLED ENTITIES

ABN 64 106 773 059

www. pacificbrands.com.au

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