annual report 2007 - gazal continually invest in marketing our brands to ensure their success for...
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ANNUAL REPORT 2007
ABN 57 004 623 474
www.gazal.com.au
GA
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7
CONTENTS
OUR MISSION 1
OUR CORE VALUES 1
OUR VISION 1
THE YEAR IN REVIEW 2
FINANCIAL REPORT 3
CORPORATE DIRECTORY IBC
FINANCIAL CALENDAR 2007PRELIMINARY FINAL REPORT AND DIVIDENDANNOUNCEMENT
23 AUGUST
RECORD DATE FOR FINAL DIVIDEND 21 SEPTEMBER
FINAL DIVIDEND PAYABLE 5 OCTOBER
ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING MAILED TO SHAREHOLDERS
30 OCTOBER
ANNUAL GENERAL MEETING 29 NOVEMBER
HALF YEAR END 31 DECEMBER
The Annual General Meeting of Shareholders of Gazal Corporation Limited will be held at The J.S. Gazal Building, 3-7 McPherson Street, Banksmeadow on 29 November 2007 at 11:30am.
A formal notice of meeting is enclosed with this Annual Report setting out the business of the Annual General Meeting.
AUDITOR
ERNST & YOUNG
680 George Street Sydney NSW 2000
BANKERS
WESTPAC BANKING CORPORATION
60 Martin Place Sydney NSW 2000
COMPANY SECRETARY
PETER JAMES WOOD CA, FICS
REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS3–7 McPherson Street
Banksmeadow NSW 2019
Telephone: (02) 9316 2800
Fax (02) 9316 7207
Web: www.gazal.com.au
SHARE REGISTRY
REGISTRIES LIMITED
28 Margaret Street Sydney NSW 2000
Telephone: (02) 9279 0677
SOLICITOR
MARC DUNN LLB
STATE OF INCORPORATION
VICTORIA, AUSTRALIA
SECURITIES EXCHANGE LISTINGSGazal Corporation Limited shares are quoted on
the Australian Securities Exchange
ASX CODEGZL
CORPORATE DIRECTORY
OUR MISSIONBUILDING GREAT BRANDS
THAT PEOPLE LOVE IS OUR
FOCUS AND PASSION
OUR CORE VALUESCUSTOMERS FIRST
Delivery, performance and service
GROWTH
We chase business but it must
be profi table
OPPORTUNITY
Every individual has every
opportunity to succeed
RECOGNITION AND REWARD
For effort and success
FAMILY AND RELATIONSHIPS
Developing respect and trust
over time
INTEGRITY
We do what we say we’re
going to do
OUR VISION
WE ARE the leading specialist branded apparel group.
WE ARE PROFITABLE every year, focusing on maximising
shareholder value over time.
WE SERVE OUR CUSTOMERS with industry best weekly
replenishment order fulfi lments, consistent quality,
delivering on time and with service that exceeds their
expectations. We are the market leader in operational
effi ciency across our brands.
WE CONTINUALLY INVEST in marketing our brands
to ensure their success for the long term.
OUR PEOPLE ARE OUR COMPETITIVE ADVANTAGE.
We will provide them with every opportunity to excel
and achieve their full potential. As a result of our people
reaching their potential, we will reach our potential.
WE ACKNOWLEDGE THE CONTRIBUTION OF OUR TEAM
by sharing with it the rewards of our success.
WE COMBINE LARGE COMPANY THINKING with the
values, execution, effi ciency, fl exibility and agility of
a small family operation. We think long term.
THE GAZAL CORPORATION LIMITED GROUP (“GAZAL”) RECORDED AN AFTER TAX PROFIT OF $8.371 MILLION FOR THE YEAR ENDED 30 JUNE 2007. THIS WAS AN INCREASE OF 12.7% ON THE PREVIOUS YEAR.
TRADING RESULTS
Sales from continuing operations increased
by 16% to $250.4 million. Generally positive
consumer sentiment in the retail sector
during the year helped the Group’s key
brands, Calvin Klein, Van Heusen, Nautica,
Bisley, Midford and Body Nancy Ganz to
achieve solid growth. The sales increase
was also assisted by a full 12 months of
sales recorded from businesses acquired
in fi nancial year 2006 and strong sales from
the Trade Secret outlets division which
opened three new stores during the year.
Earnings before interest, tax, depreciation
and amortisation (“EBITDA”) were lower
by 1.3% at $23.4 million compared to the
previous year. However, it should be noted
that this EBITDA fi gure includes the capital
gain of $2.719 million, which arose from the
settlement and release agreement reached
with Dare Jennings as reported in the half
year profi t report announced in February
2007. Gross profi t margins were impacted
by higher prices from Chinese suppliers as
well as the clearance of excess inventory at
lower margins in certain divisions. Further
impacting EBITDA was a one-off charge
taken at year end for the impairment
of certain retail stores trading below
acceptable levels of return. Distribution
and administration expenses increased
at a greater rate than sales in the year
as we continued the program of investing
in improved supply chain infrastructure,
including the partial implementation of a
new Warehouse Management System (“WMS”)
for our Banksmeadow distribution centre.
The ongoing rollout of the new WMS system,
along with our continued program of direct-
to-store deliveries from our factory sources
in China via third party logistics providers,
will assist in expected lower warehousing
costs in fi nancial year 2008.
The losses as a result of winding down
the Mambo European operations of
$2.018 million during the year were far less
compared to last year’s loss of $4.064 million.
The Mambo brand continues to trade well in
the UK market, now operated under licence
by Blacks Leisure Group plc. No further
losses for this discontinued operation will
be incurred in fi nancial year 2008.
On 31 May 2007, the Company announced
a strategic review in relation to its Mambo
brand. This review is continuing satisfactorily
and whilst it is too early to conclude the
fi ndings of the review, we expect to be in
a position to inform shareholders of its
conclusions by the time of the annual general
meeting in November 2007, if not sooner.
Despite sales revenue increasing by 16%,
Group inventory levels ended at $45.7 million
as at 30 June 2007, in line with the same
time last year. The strategic objective we set
ourselves to increase the Group’s stock turns
continues to be a key focus of the highest
priority for management and the Board.
Management of inventory levels and
extended trade creditors assisted Gazal
to generate a cash infl ow from operating
activities of $10.67 million for the year in
review. Last year’s comparative cash fl ow
from operating activities of $23.597 million
benefi ted from the Company undertaking
acquisitions at high points in the working
capital cycle of target companies and the
subsequent reduction to normal levels at
year end. Also, the timing of income tax
payments had a negative impact on cash
fl ow while trade debtors increased as a
result of higher turnover.
REVALUATION OF BANKSMEADOW PROPERTY
The Company-owned land and buildings,
which accommodate the Group’s head
offi ce and distribution centre, are located
at Banksmeadow in the sought after South
Sydney industrial precinct. The Directors
have received independent advice that the
value of this property has increased by
$5.165 million to $38.65 million. Accordingly,
the Directors have adopted the increased
value in the fi nancial statements for the year
ended 30 June 2007.
DIVIDENDS
The Directors declared a fi nal dividend of
7 cents per share fully franked (fi nal dividend
2006: 7 cents per share fully franked) taking
the total dividend for the year to 14 cents
per share fully franked (total dividend 2006:
14 cents per share fully franked). The record
date for determining shareholders’ entitlement
for the fi nal dividend is 21 September 2007
and the fi nal dividend is payable on
5 October 2007.
The Directors would like to convey their
appreciation to management and staff for
their contribution during the year. We also
wish to thank you, our shareholders, for your
continuing support.
J.W. BLOOD M.J. GAZAL
CHAIRMAN MANAGING
DIRECTOR
THE YEAR IN REVIEW
ANNUAL REPORT 2007 GAZAL3
DIRECTORS’ STATUTORY REPORT 4
STATEMENT OF CORPORATE
GOVERNANCE PRACTICES 14
INDEPENDENT AUDIT REPORT 16
DIRECTORS’ DECLARATION 18
INCOME STATEMENT 19
BALANCE SHEET 20
STATEMENT OF CASH FLOWS 21
STATEMENT OF CHANGES IN EQUITY 22
NOTES TO THE FINANCIAL
STATEMENTS 23
SHAREHOLDER INFORMATION 69
TOP 20 SHAREHOLDERS 70
FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2007
4
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
Your Directors have pleasure in submitting
their report for the year ended 30 June 2007.
DIRECTORSThe names and details of the Company’s
Directors in offi ce during the fi nancial
year and until the date of this report are
as follows. Directors were in offi ce for this
entire period unless otherwise stated.
NAMES, QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES
John W. BloodNon-Executive Chairman
Has had widespread experience in the Textile
and Garment Industry. He is presently a
Director of Canning Vale Weaving Mills,
Macquarie Textiles Group Limited and Cotton
Seed Distributors. He is a member of the
Remuneration and Nomination and Audit
Committees.
Michael J. Gazal B.ComManaging Director
Joined the Gazal Group in 1986 after
gaining experience in merchant banking
and stockbroking. In November 1989,
after the passing of Mr J.S. Gazal AM, his
father and founding Chairman of the Gazal
Group, he was appointed Chief Executive
Offi cer and is responsible for the day-to-day
management of the Group.
David J. GazalExecutive Director
Joined the Gazal Group in 1987, appointed
Director on 24 April 1999 and has performed
a number of key roles within the Group since
joining, including Group Divisional Manager
of Surf and Casualwear and Managing
Director of Mambo. He is currently the
General Manager of the Youth Group.
Craig KimberleyNon-Executive Director
Formerly the founder of the Just Jeans retail
chain, he has had 30 years experience in the
retail and apparel industries. He is a member of
the Remuneration and Nomination Committee.
Graham Paton AM B.Ec FCPANon-Executive Director
Appointed to the Board on 1 August 2006,
he was previously a partner of 23 years in
Arthur Andersen, Chartered Accountants,
retiring from that fi rm and public practice
in July 2001. He is presently a Director of
Harvey Norman Holdings Limited. He is
a member of the Audit Committee.
COMPANY SECRETARYPeter J. Wood CA FICS
Has been the Company Secretary of Gazal
Corporation Limited for 21 years. Prior
to holding this position he held the role
of Financial Controller of related Gazal
companies for six years. Mr Wood has been
a Chartered Accountant for over 27 years.
INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATEAt the date of this report, the direct interests of the Directors in the shares and other equity securities of the Company and related bodies
corporate are:
Director Ordinary shares
Relevant interest
in ordinary
shares held Options
J.W. Blood 250,000 100,000 400,000
M.J. Gazal 4,045,328
29,582,911 (1)
1,007,554 (2)
578,246 (3) 400,000
D.J. Gazal 1,472,956
29,582,911 (1)
1,007,554 (2)
1,734,362 (4) 200,000
C. Kimberley – 250,000 300,000
G. Paton – – –
(1)–(2) M.J. Gazal and D.J. Gazal have a relevant interest in Gazal Corporation Limited shares held by a wholly owned subsidiary of Gazal Nominees Pty Limited (1) and directly by Gazal Nominees
Pty Limited (2) as each of M.J. Gazal and D.J. Gazal have a 25% shareholding in Gazal Nominees Pty Limited.
(3) M.J. Gazal has a relevant interest in Gazal Corporation Limited shares held by MJ and HH Gazal Pty Limited as trustee for the Michael Gazal Family Trust as M.J. Gazal has a 50% shareholding
in MJ and HH Gazal Pty Limited.
(4) D.J. Gazal has a relevant interest in Gazal Corporation Limited shares held by The David Gazal Family Company Pty Limited as trustee for the David Gazal Family Trust as D.J. Gazal has a 50%
shareholding in The David Gazal Family Company Pty Limited.
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL5
DIRECTORS’ MEETINGSThe names of Directors and members of Committees of the Board are outlined below. The attendances of the Directors at meetings of the Board
and of its Committees held during the fi nancial year were:
Board of Directors Audit Committee
Remuneration and
Nomination Committee
Attended
Maximum
possible
attended Attended
Maximum
possible
attended Attended
Maximum
possible
attended
J.W. Blood 11 12 2 2 1 1
M.J. Gazal 12 12 – – – –
D.J. Gazal 12 12 – – – –
C. Kimberley 10 12 1 1 1 1
G. Paton 10 11 2 2 – –
PRINCIPAL ACTIVITIESThe principal activities of Gazal Corporation Limited and its subsidiaries (“the economic entity”, “the Group” or “the Company”) in the course
of the fi nancial year were the design, manufacture, importation, wholesale and retail of well known branded apparel and accessories.
OPERATING AND FINANCIAL REVIEWThe consolidated profi t of the economic entity for the fi nancial year ended 30 June 2007 after income tax was $8,371,000. This represents
a 12.7% increase on the 2006 result of $7,430,000.
DIVIDENDSThe following dividends of the economic entity have been paid, declared or recommended since the end of the preceding fi nancial year:
On ordinary shares
$’000
Final fully franked dividend for 2006 (7c per share) as declared in the 2006 Directors’ Report, paid 6 October 2006 4,323
Interim fully franked dividend for 2007 (7c per share), paid 5 April 2007 4,247
Final fully franked dividend for 2007 (7c per share) as recommended and declared by the Directors, payable 5 October 2007 4,247
REVIEW OF OPERATIONSA review of operations of the economic entity and the results of those operations is contained in “The Year in Review”.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRSThere were no signifi cant changes in the state of affairs of the economic entity that occurred during the fi nancial year not otherwise disclosed
in this report or the consolidated fi nancial statements.
SIGNIFICANT EVENTS AFTER BALANCE DATEThere are no matters or circumstances that have arisen since 30 June 2007 that have signifi cantly affected or may signifi cantly affect the
operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent fi nancial years.
6
LIKELY DEVELOPMENTS AND FUTURE RESULTSThe Directors have excluded from this
report any further information on the likely
developments in the operations of the
economic entity and the expected results
of those operations in future fi nancial years,
as the Directors have reasonable grounds
to believe that it would be likely to result in
unreasonable prejudice to the economic entity.
ENVIRONMENTAL REGULATION AND PERFORMANCEThe economic entity’s environmental
obligations are regulated under both State
and Federal Law. The Audit Committee
monitors environmental obligations. The
economic entity has a policy of at least
complying, but in most cases exceeding its
environment performance obligations. No
environmental breaches have been notifi ed
by any Government agency during the year
ended 30 June 2007.
SHARE OPTIONSDetails of options granted to Directors
or relevant executives as part of their
remuneration are set out in the section of
this report headed Directors’ and Executives’
Remuneration. Details of shares and
interests under option, or issued during or
since the end of the fi nancial year to the
date of this report due to the exercise of an
option, are set out in Note 22 of the fi nancial
statements and form part of this report.
There have been no further options issued
from 30 June 2007 to the date of this report.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERSInsurance arrangements established in
the previous year concerning offi cers of the
economic entity were renewed during 2007.
Indemnity agreements have been entered into
between Gazal Corporation Limited and each
of the Directors of the Company named earlier
in this report. Under the agreement, the
Company has agreed to provide reasonable
protection for the Directors against liabilities,
which may arise as a result of work performed
in their respective capacities.
As part of the above agreement Gazal
Corporation Limited paid an insurance
premium in respect of a contract insuring
each of the Directors of the Company named
earlier in this report and each full-time
executive offi cer, Director and Secretary of
Gazal Corporation Limited and its controlled
entities, against all liabilities and expenses
arising as a result of work performed in their
respective capacities, to the extent permitted
by law. The terms of the above insurance
policy prohibit disclosure of the nature of the
risks insured or the premium paid.
ROUNDING OF AMOUNTSThe Company is of the kind specifi ed in
Australian Securities and Investments
Commission (“ASIC”) Class Order 98/0100.
In accordance with that class order, amounts
in the fi nancial statements and Directors’
Report have been rounded to the nearest
thousand dollars unless specifi cally stated
to be otherwise.
REMUNERATION REPORT This report outlines the remuneration
arrangements in place for directors and
executives of Gazal Corporation Limited,
in accordance with the requirements of the
Corporations Act 2001 and its regulations.
It also provides the remuneration disclosures
required under AASB 124 Related Party
Disclosures which have been transferred
to the Remuneration Report in accordance
with Corporations Regulation 2M.6.04. For
the purpose of this report Key Management
Personnel (“KMP”) of the Group are defi ned
as those persons having authority and
responsibility for planning, directing and
controlling the major activities of the
Company and Group, directly or indirectly,
including any director (whether executive
or otherwise) of the parent Company,
and includes the fi ve executives in the
parent and the Group receiving the highest
remuneration.
REMUNERATION PHILOSOPHY (AUDITED)
The performance of the Company
depends upon the quality of its directors
and executives and to grow and prosper,
the Company must attract, motivate and
retain highly skilled directors and executives.
To this end, the Company embodies the
following principles in its remuneration
framework:
Provide competitive rewards to attract
high calibre executives.
Link variable executive remuneration to
fi nancial and operational performance.
Link executive rewards to shareholder
value.
REMUNERATION AND NOMINATION COMMITTEE
The Remuneration and Nomination
Committee of the Board of Directors is
responsible for determining and reviewing
compensation arrangements for the
directors, the chief executive offi cer
and the senior management team. The
Remuneration and Nomination Committee
assesses the appropriateness of the nature
and amount of emoluments of such offi cers
on a periodic basis by reference to relevant
employment market conditions with the
overall objective of ensuring maximum
stakeholder benefi t from the retention of
a high quality Board and executive team.
REMUNERATION STRUCTURE
In accordance with best practice corporate
governance, the structure of non-executive
director and executive remuneration is
separate and distinct.
NON-EXECUTIVE DIRECTOR REMUNERATION (AUDITED)
OBJECTIVE
The Board seeks to set aggregate
remuneration at a level which provides
the Company with the ability to attract and
retain directors of the highest calibre, whilst
incurring a cost which is acceptable to
shareholders.
STRUCTURE
The Constitution and the Australian
Securities Exchange (“ASX”) Listing Rules
specify that the aggregate remuneration of
non-executive directors shall be determined
from time to time by a general meeting.
An amount not exceeding the amount
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL7
determined is then divided between the
directors as agreed. The latest determination
was at the Annual General Meeting held
on 30 November 2001 when shareholders
approved an aggregate remuneration of
$500,000 per year.
The amount of aggregate remuneration
sought to be approved by shareholders
and the manner in which it is apportioned
amongst directors is reviewed annually.
The Board considers advice from external
consultants as well as the fees paid to non-
executive directors of comparable companies
when undertaking the annual review process.
Each director receives a fee for being a director
of the Company.
Non-executive directors have long been
encouraged by the Board to hold shares in
the Company (purchased by the director on
market). The non-executive directors of the
Company can participate in the Employee
Share Option Plan.
The remuneration of non-executive directors
for the period ended 30 June 2007 is detailed
in the Table on page 9 of this report.
SENIOR MANAGER AND EXECUTIVE DIRECTOR REMUNERATION (AUDITED)
OBJECTIVE
The Company aims to reward executives
with a level and mix of remuneration
commensurate with their position and
responsibilities within the Company and
so as to:
reward executives for Company, business
unit and individual performance against
fi nancial and operating performance;
link reward with the strategic goals and
performance of the Company; and ensure
total remuneration is competitive by
market standards;
align the interests of executives with
those of shareholders.
STRUCTURE
In determining the level and make-up of
executive remuneration, the Remuneration
Committee obtains independent advice
when it thinks necessary on market
levels of remuneration of comparable
executives before the Committee makes
its recommendations to the Board.
The Remuneration Committee considers
it appropriate that employment contracts
are entered into with the executive
directors and senior management.
Details of the contracts with the executive
directors Messrs M.J. Gazal the CEO and
Mr D.J. Gazal are provided on page 8.
Remuneration consists of the following key
elements:
Fixed Remuneration (base salary,
superannuation and non-monetary
benefi ts); and
Variable Remuneration
Short Term Incentive (“STI”); and
Long Term Incentive (“LTI”).
The proportion of fi xed remuneration and
variable remuneration (potential short term
and long term incentives) is established for
each senior manager by the Remuneration
Committee. The table on page 9 details the
variable component (%) of the fi ve most
highly remunerated senior managers.
FIXED REMUNERATION
OBJECTIVE
The level of fi xed remuneration is set so
as to provide a base level of remuneration
which is both appropriate to the position and
is competitive in the market.
Fixed remuneration is reviewed annually
by the Remuneration Committee and the
process consists of a review of Companywide,
business unit and individual performance,
relevant comparative remuneration in the
market and internal and, where appropriate,
external advice on policies and practices.
STRUCTURE
Executives are given the opportunity to receive
their fi xed (primary) remuneration in a variety
of forms including fringe benefi ts such as
motor vehicles. It is intended that the manner
of payment chosen will be optimal for the
recipient without creating undue cost for
the Company.
The fi xed remuneration component of
executives is detailed in the Table on page 9.
–
–
VARIABLE REMUNERATION – SHORT TERM INCENTIVE (“STI”)
OBJECTIVE
The objective of the STI program is to link the
achievement of the divisional and Company
performance with the remuneration received
by the executives charged with meeting the
divisional performance. The total potential
STI provides suffi cient incentive to the
senior manager to achieve the divisional
performance such that the cost to the
Company is reasonable in the circumstances.
STRUCTURE
Actual STI payments granted to each
senior manager depend mainly on the
performance of their division. Operational
measures cover mainly fi nancial and some
non-fi nancial measures of performance.
The usual measures include contribution
to net profi t before tax, risk management,
product management, and leadership/
team contribution.
On an annual basis, after consideration of
divisional performance, each executive is
reviewed and STIs assessed including a
short term incentive pool based on total
Company performance is allocated to each
executive who is deemed to have a positive
impact on profi tability.
The aggregate of annual STI payments
available for executives across the
Company is subject to the approval of the
Remuneration Committee. Payments made
are usually delivered as a cash bonus.
STI BONUS FOR 2006 AND 2007 FINANCIAL YEARS
The entire STI cash bonus of $630,494 for
the 2006 fi nancial year as accrued in the
previous period vested to executives was paid
in the 2007 fi nancial year. The Remuneration
Committee has approved the STI payments
for the 2007 fi nancial year which were
accrued at June 2007 of $755,052. This
amount has been accrued on the basis that
it is probable that the executives will meet
their respective fi nancial targets for the
year. Any adjustments between the actual
amounts to be paid as determined by the
Remuneration Committee and the amounts
accrued will be adjusted in the 2008 fi nancial
year. There have been no alterations to the
SPI bonus plan since their grant in 2007.
8
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
VARIABLE PAY – LONG TERM INCENTIVE (“LTI”)
OBJECTIVE
The objective of the LTI plan is to reward
senior managers in a manner which aligns
this element of remuneration with the
creation of shareholder wealth.
As such, LTI grants are only made to
executives who are able to infl uence the
generation of shareholder wealth and thus
have a direct impact on the Company’s
performance.
STRUCTURE
LTI grants to executives are delivered in the
form of share options administered under
an Employee Share Option Plan (“ESOP”).
A new ESOP was approved by shareholders
at the Annual General Meeting held in
November 2005 with Company-based
performance hurdles.
RELATIONSHIP OF REWARDS TO PERFORMANCE
In assessing performance hurdles for the
new ESOP the Directors considered that
a Company-based performance hurdle is
more appropriate than a market-based
performance hurdle because the Company’s
size and product mix is such that it does not
really have any meaningfully comparable
peers. Any comparisons would need to be
made against much larger companies with
quite different product mixes. It would be
inappropriate to assess the Company’s
performance relative to such companies and
this is why the Directors have not selected
a market-based performance hurdle.
Instead, the Directors considered a more
meaningful measure of the Company’s
performance is the increase in net profi t
over a period of three consecutive fi nancial
years. This also has the advantage of being a
performance measure which the Company’s
management team can directly relate to and
more directly infl uence.
COMPANY PERFORMANCE
The Directors have selected a net profi t
growth rate of at least 6% per annum over
three consecutive years from the base year
for its performance hurdle. The reason
this rate was selected was because it is
double current CPI and it is also marginally
higher than the Company’s growth rate
over recent trading results. The Directors
believe this represents a suitably challenging
but achievable target for continuing future
growth. Refer to Note 22 for further
information.
The graph below shows Gazal’s net profi t
before tax and material items for the past
fi ve years (including the current year).
PROFIT BEFORE TAX ($ MILLIONS)
0 5 10 15 20
2003
2004
2005
2006
2007
14.162
16.175
16.918
16.802
15.159
EMPLOYMENT CONTRACTS (AUDITED)
CHIEF EXECUTIVE OFFICER
The CEO, Mr Michael J. Gazal, is employed
under a contract. Mr Gazal’s contract was
renewed on 1 July 2004 and terminates on
30 June 2009, at which time the Company
may choose to commence negotiations to
extend or enter into a new employment
contract. Under the terms of the contract:
Mr Gazal may resign from his position
and thus terminate the contract by
giving three months written notice. On
resignation any options will be forfeited.
The Company may terminate the contract
by providing three months written notice
in the event of extended absence by Mr
Gazal by reason of illness or if he is by
reason of illness or incapacity permanently
unable to perform his responsibilities
and duties. In these circumstances the
Company may elect to provide payment in
lieu of the notice period (based on the fi xed
component of Mr Gazal’s remuneration).
OTHER EXECUTIVES
In addition, Mr David J. Gazal is also
employed under a contract. The current
contract continues on the basis of 12 months
notice by either party. The contract also
contains termination provisions which are
similar to those under Mr Michael Gazal’s
contract described above.
Certain executives have standard contracts
which may be terminated by providing
between six months and one month written
notice or providing payment in lieu of the
notice period (based on the fi xed component
of the executive’s remuneration). On
termination on notice by the Company, any
LTI options that have vested or that will vest
during the notice period will be forfeited.
LTI options that have not vested will also
be forfeited. The Company may terminate
written contracts at any time without notice
if serious misconduct has occurred.
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL9
DIRECTORS’ AND EXECUTIVES’ REMUNERATION FOR THE YEAR ENDED 30 JUNE 2007 (AUDITED)Details of the nature and amount of each element of the remuneration of each Director of the Company and each of the key management
personnel of the Company and the consolidated entity receiving remuneration during the fi nancial year including those executives requiring
disclosure under Accounting Standard AASB 124 are as follows:
Short term benefi ts Post employment
Share-
based
payment Total
%
performance
related
Directors
Salary &
fees
Cash
bonus
Non-
monetary
benefi ts Other
Super-
annuation
Retirement
benefi ts Options
J.W. Blood 2007 150,000 – – – – – 51,556 201,556 25.58
Chairman 2006 140,000 – – – – – 19,247 159,247 12.09
M.J. Gazal 2007 469,116 – – 30,052 42,384 – 51,556 593,108 8.69
Chief Executive 2006 434,440 – 3,553 32,310 40,560 – 19,247 530,110 3.63
D.J. Gazal 2007 270,000 18,871 – 30,997 29,500 – 25,778 375,146 11.90
Executive 2006 260,000 193,000 – 30,775 28,500 – 9,624 521,899 38.82
C. Kimberley 2007 75,000 – – – 7,500 – 38,667 121,167 31.91
Non-executive 2006 70,000 – – – 7,000 – 14,435 91,435 15.79
G. Paton 2007 77,916 – – – 7,792 – – 85,708 –
Non-executive 2006 – – – – – – – – –
Sub-total Directors 2007 1,042,032 18,871 – 61,049 87,176 – 167,557 1,376,685
2006 904,440 193,000 3,553 63,085 76,060 – 62,553 1,302,691
KEY MANAGEMENT PERSONNEL
Executives
C. Barnett 2007 300,000 213,750 – 29,038 32,500 – 41,633 616,921 41.40
Chief Operating Offi cer 2006 233,744 225,000 – 30,236 25,874 – 36,624 551,478 47.44
D. Thompson 2007 208,558 153,789 – 27,878 21,020 – 11,933 423,178 39.16
General Manager
– Outerwear
2006 33,462 – – 4375 3,405 – – 41,242 –
P. Lovegrove 2007 210,000 122,883 17,176 2,403 21,000 – 17,767 391,229 35.95
General Manager
– Intimates
2006 204,250 149,086 17,842 2,612 20,425 – 9,624 403,839 39.30
P. Queeney 2007 235,000 80,000 – 27,293 23,400 – 11,933 377,626 24.34
General Manager
– Supply Chain and IT
2006 109,567 42,510 – 12,115 10,938 – – 175,130 24.27
D. Coghlan 2007 240,000 80,000 6,866 2,262 24,000 – 17,767 370,895 26.36
Chief Financial Offi cer 2006 222,500 86,000 6,945 2,096 22,250 – 9,624 349,415 27.37
R. Gazal 2007 200,000 66,630 – 28,366 20,250 – 17,767 333,013 25.34
General Manager
– Retail
2006 175,000 86,898 – 27,179 18,000 – 9,624 316,701 30.48
P. Wood 2007 196,055 38,000 – 34,820 28,338 – 17,767 314,980 17.70
Company Secretary 2006 173,250 41,000 – 28,615 23,594 – 9,624 276,083 18.34
Sub-total 2007 1,589,613 755,052 24,042 152,060 170,508 – 136,567 2,827,842
Executive KMP 2006 1,151,773 630,494 24,787 107,228 124,486 – 75,120 2,113,888
Options granted as part of Director and executive emoluments have been valued using a Binomial option pricing model, which takes account of factors including the option exercise price, the current level
and volatility of the underlying share price, the risk-free interest rate, expected dividends on the underlying share, current market price of the underlying share and the expected life of the option. For further
details refer to Note 22 of the fi nancial statements.
10
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
OPTIONS GRANTED AS PART OF REMUNERATION (AUDITED)
Grant date Granted no
Fair value
per option at
grant date
(cents)
Value of
options
granted
during
the year
($)
Value of
options
exercised
during
the year
($)
Value of
options
lapsed
during
the year
($)
Total value
of options
granted,
exercised
and lapsed
during the
year
($)
% of
remuneration
consisting of
options for
the year
30 JUNE 2007
Directors
J. Blood 4/12/2006 200,000 41.2 82,400 – – 82,400 25.58
M. Gazal 4/12/2006 200,000 41.2 82,400 – – 82,400 8.69
C. Kimberley 4/12/2006 150,000 41.2 61,800 – – 61,800 31.91
D. Gazal 4/12/2006 100,000 41.2 41,200 – – 41,200 6.87
Executives
C. Barnett 3/7/2006 200,000 35.8 71,600 172,500 – 244,100 6.75
P. Queeney 3/7/2006 100,000 35.8 35,800 – – 35,800 3.16
D. Thompson 3/7/2006 100,000 35.8 17,900 – – 17,900 2.82
P. Lovegrove – – – – 125,000 115,000 240,000 4.54
D. Coghlan – – – – 25,000 – 25,000 4.79
P. Wood – – – – 37,500 – 37,500 5.64
30 JUNE 2006
Directors
J. Blood 19/12/2005 200,000 53.3 106,600 – – 106,600 12.09
M. Gazal 19/12/2005 200,000 53.3 106,600 – – 106,600 3.63
C. Kimberley 19/12/2005 150,000 53.3 79,950 – – 79,950 15.79
D. Gazal 19/12/2005 100,000 53.3 53,300 – – 53,300 1.84
Executives
C. Barnett 19/12/2005 100,000 53.3 53,300 – – 53,300 6.64
P. Lovegrove 19/12/2005 100,000 53.3 53,300 – – 53,300 2.38
D. Holmes 19/12/2005 50,000 53.3 26,650 – – 26,650 1.60
R. Gazal 19/12/2005 100,000 53.3 53,300 – – 53,300 3.03
D. Coghlan 19/12/2005 100,000 53.3 53,300 126,000 – 179,300 2.75
P. Wood 19/12/2005 100,000 53.3 53,300 71,700 – 125,000 3.48
For details on the valuation of the options, including models and assumptions used, please refer to Note 22. There were no alterations to the terms and conditions of options granted as remuneration since
their grant date. Exercise prices, expiry dates and fi rst and last exercise dates are included in Note 22.
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL11
REMUNERATION OPTIONS: GRANTED AND VESTED DURING THE FINANCIAL YEAR (AUDITED)During the fi nancial year options were granted as equity compensation benefi ts under the long term incentive plan to certain key management
personnel as disclosed above. The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinary share
in the entity at an exercise price equal to the weighted average market price of the shares on the fi ve business days preceding the date of grant.
The options vest if and when the Groups’ net profi t before tax and material items increases by 6% over three consecutive fi nancial years from a base
year. If this increase is not met within three years from the date of grant, the options are forfeited. Alternatively, the Directors may re-assess the
options. The contractual life of each option is fi ve years. There are no cash settlement alternatives. For further details relating to the options, refer
to Note 22. (Key management personnel who have not been granted options during the year are excluded from the table below.)
TERMS AND CONDITIONS FOR EACH GRANT
Vested no Granted no Grant date
Fair value
per option at
grant date
(cents)
Exercise
price
per option
($)
Expiry
date
First
exercise
date
Last
exercise
date
30 JUNE 2007
Directors
J. Blood – 200,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011
M. Gazal – 200,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011
C. Kimberley – 150,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011
D. Gazal – 100,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011
Executives
C. Barnett 150,000 200,000 3/7/2006 35.8 2.35 2/7/2011 3/7/2009 2/7/2011
P. Queeney – 100,000 3/7/2006 35.8 2.35 2/7/2011 3/7/2009 2/7/2011
D. Thompson – 100,000 3/7/2006 35.8 2.35 2/7/2011 3/7/2009 2/7/2011
30 JUNE 2006
Directors
J. Blood – 200,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
M. Gazal – 200,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
C. Kimberley – 150,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
D. Gazal – 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
Executives
C. Barnett 225,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
P. Lovegrove 100,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
R. Gazal – 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
D. Coghlan 10,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
P. Wood 15,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010
12
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
SHARES ISSUED ON EXERCISE OF REMUNERATION OPTIONS (AUDITED)
Shares issued
Number
Paid
$ per share
Unpaid
$ per share
30 JUNE 2007
Executives
C. Barnett 75,000 2.11 –
D. Coghlan 10,000 2.11 –
P. Lovegrove 50,000 2.11 –
P. Wood 15,000 2.11 –
30 JUNE 2006
Executives
D. Coghlan 42,000 2.11 –
P. Wood 24,000 2.11 –
AUDITOR INDEPENDENCE AND NON-AUDIT SERVICESThe Directors received the following declaration from the auditor of Gazal Corporation Limited.
AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF GAZAL CORPORATION LIMITED
In relation to our audit of the fi nancial report of Gazal Corporation Limited for the fi nancial year ended 30 June 2007, to the best of my knowledge
and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of
professional conduct.
Ernst & Young John Haydon
Partner
26 September 2007
DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL13
NON-AUDIT SERVICESThe following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are satisfi ed that the provision of non-audit
services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each
type of non-audit service provided means that auditor independence was not compromised.
Ernst & Young Australia received or is due to receive the following amounts for the provision of non-audit services:
$
Tax compliance services and corporate tax planning 120,479
Advice in respect to remuneration plan 3,000
123,479
This report has been made in accordance with a resolution of the Directors.
Signed for and on behalf of the Directors
J.W. Blood M.J. Gazal
Chairman Managing Director
Dated at Sydney this 26th day of September 2007.
14
STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2007
The Board of Directors of Gazal Corporation
Limited is responsible for the corporate
governance of the consolidated entity. The
Board guides and monitors the business
and affairs of Gazal Corporation Limited on
behalf of the shareholders by whom they are
elected and to whom they are accountable.
In accordance with the Australian Securities
Exchange Corporate Governance Council’s
recommendations, the Corporate Governance
Statement contains certain specifi c
information and must disclose the extent
to which the Company has followed the
guidelines during the period. Where a
recommendation has not been followed,
that fact must be disclosed, together with the
reasons for the departure. Gazal Corporation
Limited’s Corporate Governance Statement
is structured with reference to the Corporate
Governance Council’s “Principles of Good
Corporate Governance and Best Practice
Recommendations”, which are as follows:
Principle 1. Lay solid foundations for
management and oversight.
Principle 2. Structure the Board
to add value.
Principle 3. Promote ethical and
responsible decision making.
Principle 4. Safeguard integrity in
fi nancial reporting.
Principle 5. Make timely and balanced
disclosure.
Principle 6. Respect the rights of
shareholders.
Principle 7. Recognise and manage risk.
Principle 8. Encourage enhanced
performance.
Principle 9. Remunerate fairly and
responsibly.
Principle 10. Recognise the legitimate
interests of stakeholders.
Gazal Corporation Limited’s corporate
governance practices have been in place
all year and reviewed by the Directors
throughout the year ended 30 June 2007
and are compliant with the Council’s best
practice recommendations, unless indicated
otherwise in this report. The Board has
received a signed declaration by the CEO and
CFO in accordance with section 295A of the
Corporations Act 2001.
For further information on corporate
governance policies adopted by Gazal
Corporation Limited, refer to our website:
www.gazal.com.au
STRUCTURE OF THE BOARDThe skills, experience and expertise relevant
to the position of Director held by each
Director in offi ce at the date of the annual
report is included in the Directors’ Report
on page 4. Directors of Gazal Corporation
Limited are considered to be independent
when they are independent of management
and free from any business or other
relationship that could materially interfere
with – or could reasonably be perceived to
materially interfere with – the exercise of
their unfettered and independent judgement.
In the context of Director independence,
“materiality” is considered from both the
Company and individual Director perspective.
Materiality determination is considered both
quantitatively and qualitatively. An item is
presumed to be quantitatively immaterial
if it is less than 5% of the base amount.
Qualitative factors considered include
whether a relationship is strategically
important, the competitive landscape, the
nature of the relationship and the contractual
or other arrangements governing it and other
factors which point to the actual ability of the
Director in question to shape the direction of
the Company’s loyalty.
In accordance with the defi nition of
independence above, and the materiality
thresholds set, the following Directors of
Gazal Corporation Limited are considered
to be independent:
Name Position
J.W. Blood Chairman, Non-Executive Director
C. Kimberley Non-Executive Director
G. Paton Non-Executive Director
There are procedures in place, agreed by the
Board, to enable Directors, in furtherance of
their duties, to seek independent professional
advice at the Company’s expense.
The term in offi ce held by each Director in
offi ce at the date of this report is as follows:
Name Term in offi ce
J.W. Blood 14 years
M.J. Gazal 21 years
C. Kimberley 32 months
D.J. Gazal 8 years
G. Paton 14 months
For additional details regarding Board
appointments, please refer to our website.
REMUNERATION AND NOMINATION COMMITTEEThe Board has established a Remuneration
and Nomination Committee, which meets
at least annually, to ensure that the
Board continues to operate within the
established guidelines, including when
necessary, selecting candidates for the
position of Director. The Remuneration
and Nomination Committee comprises
Non-Executive Directors. The remuneration
for Remuneration and Nomination Committee
meeting attendance is included in their
annual fees.
It is the Company’s objective to provide
maximum stakeholder benefi t from the
retention of a high quality Board and
executive team by remunerating Directors
and key executives fairly and appropriately
with reference to relevant employment
market conditions. To assist in achieving
this objective, the Remuneration and
Nomination Committee links the nature and
amount of Executive Directors’ and offi cers’
emoluments to the Company’s fi nancial
and operational performance. The expected
outcomes of the remuneration structure are:
Retention and motivation of key executives.
Attraction of quality management to the
Company.
Performance incentives which allow
executives to share the rewards of the
success of Gazal Corporation Limited.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL15
For details on the amount of remuneration
and all monetary and non-monetary
components for each of the fi ve highest
paid (non-Director) executives and key
management personnel during the year
and for all Directors, refer to pages 6 to
12 of the Directors’ Report. In relation to
the payment of bonuses, options and other
incentive payments, discretion is exercised
by the Board, having regard to the overall
performance of Gazal Corporation Limited
and the performance of the individual
during the period.
The Board is responsible for determining
and reviewing compensation arrangements
for the Directors themselves and the Chief
Executive Offi cer and the executive team. The
Board has established a Remuneration and
Nomination Committee, which comprises
two Non-Executive Directors. Members of the
Remuneration and Nomination Committee
throughout the year were:
J.W. Blood
C. Kimberley
For details of Directors’ attendance
at meetings of the Remuneration and
Nomination Committee, refer to page 5
of the Directors’ Report.
For additional details regarding the
Remuneration and Nomination Committee,
please refer to our website.
AUDIT COMMITTEEThe Board has established an Audit
Committee, which operates under a
charter approved by the Board. It is the
Board’s responsibility to ensure that an
effective internal control framework exists
within the entity. This includes internal
controls to deal with both the effectiveness
and effi ciency of signifi cant business
processes, the safeguarding of assets, the
maintenance of proper accounting records,
and the reliability of fi nancial information
as well as non-fi nancial considerations
such as the benchmarking of operational
key performance indicators. The Board
has delegated the responsibility for the
establishment and maintenance of a
framework of internal control and ethical
standards for the management of the
consolidated entity to the Audit Committee.
The committee also provides the Board with
additional assurance regarding the reliability
of fi nancial information for inclusion in the
fi nancial reports. All members of the Audit
Committee are Non-Executive Directors.
The members of the Audit Committee during
the year were:
G. Paton
J.W. Blood
C. Kimberley
Mr. C Kimberley was appointed to the Audit
committee during the later part of last year
to temporarily fi ll the vacancy left with the
retirement of Mr C. O’Reilly. On 1 August
2006, Mr G. Paton was appointed to the Board
and the Audit Committee and Mr Kimberley
subsequently stood down in that role.
Recommendation 4.3 of Principle 4 of the
“Principles of Good Corporate Governance and
Best Practice Recommendations” indicates it
is preferable to have at least three members
on the Audit Committee. The Board of Gazal
Corporation Limited believes that given the
size of the Company and the experience of
the present members, subject to the above
temporary vacancy being fi lled, that two Audit
Committee members is adequate.
QUALIFICATIONS OF AUDIT COMMITTEE MEMBERS
J.W. Blood has signifi cant experience in the
management of Gazal Corporation Limited,
having served as a Non-Executive Director of
Gazal Corporation Limited for 14 years. He
is also Director of a number of companies
where as part of his role, he serves as a
member on the Audit Committee. He is the
Chairman of the Audit Committee.
C. Kimberley has had extensive experience
in the retail industry and founded the Just
Jeans group chain of retail stores.
G. Paton has had extensive experience in
the accounting industry and was previously
a partner of 23 years in Arthur Andersen,
Chartered Accountants, retiring from that fi rm
and public practice in July 2001.
For details on the number of meetings of the
Audit Committee held during the year and
the attendees at those meetings, refer to
page 5 of the Directors’ Report.
PERFORMANCE The performance of the Board and key
executives is reviewed regularly. The
performance criteria against which Directors
and executives are assessed is aligned with
the fi nancial and non-fi nancial objectives of
Gazal Corporation Limited. Directors whose
performance is consistently unsatisfactory
may be asked to retire.
RISK MANAGEMENT AND INTERNAL CONTROLS Procedures have been established at the
Board and executive management level to
evaluate risk and the associated internal
controls necessary to safeguard the assets
and interests of Gazal Corporation Limited,
and to ensure the integrity of reporting.
These include accounting, fi nancial reporting
and internal control policies and procedures.
16
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF GAZAL CORPORATION LIMITED
Gazal Corporation Limited Annual Report and Accounts 2007 18
Independent auditor’s report to the members of Gazal Corporation Limited
We have audited the accompanying financial report of Gazal Corporation Limited and the consolidatedentity, which comprises the balance sheet as at 30 June 2007, and the income statement, statement ofchanges in equity and cash flow statement for the year ended on that date, a summary of significantaccounting policies, other explanatory notes and the directors’ declaration. The consolidated entitycomprises the company and the entities it controlled at year’s end or from time to time during the financialyear.
The company has disclosed information as required by paragraphs Aus 25.4 to Aus 25.7.2 of AccountingStandard 124 Related Party Disclosures (“remuneration disclosures”), under the heading “RemunerationReport” on pages 7 to 13 of the directors’ report, as permitted by Corporations Regulation 2M.6.04.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation and fair presentation of the financial reportin accordance with the Australian Accounting Standards (including the Australian AccountingInterpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaininginternal controls relevant to the preparation and fair presentation of the financial report that is free frommaterial misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies;and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also statethat the financial report, comprising the financial statements and notes, comply with International FinancialReporting Standards. The directors are also responsible for the remuneration disclosures contained in thedirectors’ report.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted ouraudit in accordance with Australian Auditing Standards. These Auditing Standards require that we complywith relevant ethical requirements relating to audit engagements and plan and perform the audit to obtainreasonable assurance whether the financial report is free from material misstatement and that theremuneration disclosures comply with Accounting Standard AASB 124 Related Party Disclosures..
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial report. The procedures selected depend on our judgment, including the assessment of the risks ofmaterial misstatement of the financial report, whether due to fraud or error. In making those riskassessments, we consider internal controls relevant to the entity’s preparation and fair presentation of thefinancial report in order to design audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting estimatesmade by the directors, as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinion.
Liability limited by a scheme approved underProfessional Standards Legislation.
6 12
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF GAZAL CORPORATION LIMITED
ANNUAL REPORT 2007 GAZAL17
Gazal Corporation Limited Annual Report and Accounts 2007 19
IndependenceIn conducting our audit we have met the independence requirements of the Corporations Act 2001. We havegiven to the directors of the company a written Auditor’s Independence Declaration, a copy of which isincluded in the directors’ report. In addition to our audit of the financial report and the remunerationdisclosures, we were engaged to undertake the services disclosed in the notes to the financial statements.The provision of these services has not impaired our independence.
Auditor’s Opinion
In our opinion:1. the financial report of Gazal Corporation Limited is in accordance with:
the Corporations Act 2001, including:(i) giving a true and fair view of the financial position of Gazal Corporation Limited and the
consolidated entity at 30 June 2007 and of their performance for the year ended on that date;and
(ii) complying with Australian Accounting Standards (including the Australian AccountingInterpretations); and the Corporation Regulations 2001.
2. the consolidated/parent financial statements and notes or financial report also comply withInternational Financial Reporting Standards as disclosed in Note 2
3. the remuneration disclosures that are contained on pages 7 to 13 of the directors’ report comply withAccounting Standard AASB 124 Related Party Disclosures.
Ernst & Young
J K HaydonPartnerSydneyDate: 26 September 2007
6 12
18
DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2007
In accordance with a resolution of the Directors of Gazal Corporation Limited, we state that:
In the opinion of the Directors:
the fi nancial report and the additional disclosures included in the Directors’ Report designated as audited, of the Company and of the
consolidated entity are in accordance with the Corporations Act 2001, including:
giving a true and fair view of the Company’s and consolidated entity’s fi nancial position as at 30 June 2007 and of their performance
for the year ended on that date; and
complying with Accounting Standards and Corporations Regulations 2001; and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the
Corporations Act 2001 for the fi nancial year ended 30 June 2007.
In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed
Group identifi ed in Note 31 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed
of Cross Guarantee.
On behalf of the Board
J.W. Blood M.J. Gazal
Chairman Managing Director
Dated at Sydney this 26th day of September 2007.
1.
a)
i)
ii)
b)
2.
3.
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL19
CONSOLIDATED PARENT ENTITY
Notes
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Continuing operations
Sales revenue 4 250,405 215,807 – –
Cost of sales (129,686) (106,466) – –
Gross profi t 120,719 109,341 – –
Other revenues 4 6,327 3,491 13,969 18,006
Selling and marketing expenses (72,120) (63,771) – –
Distribution expenses (17,322) (14,612) – –
Administration expenses (18,274) (14,622) (3,252) (3,632)
Finance costs 4 (4,171) (3,025) – –
Impairment – retail stores (1,170) – – –
Impairment – diminution of investment – – – (2,952)
Profi t before income tax 13,989 16,802 10,717 11,422
Income tax (expense)/benefi t 5 (3,600) (5,308) 10 (58)
Profi t after tax from continuing operations 10,389 11,494 10,727 11,364
Discontinued operation
Loss after tax from discontinuing operations 6 (2,018) (4,064) – –
Profi t attributable to members of the parent 8,371 7,430 10,727 11,364
Earnings per share (cents per share)
Basic for profi t for the year 7 13.8 12.1
Basic for profi t from continuing operations 7 17.1 18.8
Diluted for profi t for the year 7 13.7 12.0
Diluted for profi t from continuing operations 7 17.0 18.6
Dividends per share 24 14.0 14.0
The accompanying notes form an integral part of the Income Statement.
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007
20
BALANCE SHEET AS AT 30 JUNE 2007
CONSOLIDATED PARENT ENTITY
Notes
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Current assets
Cash and cash equivalents 27(a) 2,352 4,525 32 –
Trade and other receivables 9 21,680 19,127 23,520 25,050
Inventories 10 45,699 45,422 – –
Derivative fi nancial instruments 30 38 456 – –
Tax receivable 2,096 – 1,397 –
Other current assets 11 3,239 2,763 42 51
75,104 72,293 24,991 25,101
Assets classifi ed as held for sale 6 – 976 – –
Total current assets 75,104 73,269 24,991 25,101
Non-current assets
Receivables 12 – 216 – –
Investment in subsidiaries 15 – – 39,317 39,317
Property, plant and equipment 13 52,454 44,639 27 33
Intangibles 14 35,427 34,555 4 –
Deferred tax assets 5 4,004 3,578 277 72
Other non-current assets 16 2,060 2,441 – –
Total non-current assets 93,945 85,429 39,625 39,422
Total assets 169,049 158,698 64,616 64,523
Current liabilities
Trade and other payables 17 25,424 20,664 244 239
Derivative fi nancial instruments 30 938 79 – –
Interest-bearing loans and borrowings 18 18,085 26,461 – –
Loans other 30 87 55 – –
Income tax payable – 1,404 – 78
Provisions 19 4,867 5,617 – –
Total current liabilities 49,401 54,280 244 317
Non-current liabilities
Interest-bearing loans and borrowings 20 40,000 27,000 – –
Provisions 21 563 438 – –
Deferred tax liabilities 5 7,560 6,011 – –
Total non-current liabilities 48,123 33,449 – –
Total liabilities 97,524 87,729 244 317
Net assets 71,525 70,969 64,372 64,206
Equity
Contributed equity 22 69,816 72,257 69,816 72,257
Reserves 23 20,416 17,197 794 321
Accumulated losses 24 (18,707) (18,485) (6,238) (8,372)
Total equity 71,525 70,969 64,372 64,206
The accompanying notes form an integral part of the Balance Sheet.
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL21
CONSOLIDATED PARENT ENTITY
Notes
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Cash fl ows from operating activities
Receipts from customers (inclusive of GST) 280,975 252,443 6,662 749
Payments to suppliers and employees (inclusive of GST) (259,497) (221,259) (6,562) (583)
Dividends received – – 10,450 17,200
Interest and bill discounts received 130 180 – 6
Interest and other costs of fi nance paid (4,331) (3,193) – –
Income taxes paid (6,607) (4,574) (1,670) 101
Net cash fl ows from operating activities 27(b) 10,670 23,597 8,880 17,473
Cash fl ows from investing activities
Purchases of property, plant and equipment (7,994) (5,444) (17) (33)
Proceeds from sale of buildings, plant and equipment 421 251 – –
Acquisition of subsidiary – (16,169) – –
Purchase of intangibles (1,599) (179) (6) –
Net cash fl ows used in investing activities (9,172) (21,541) (23) (33)
Cash fl ows from fi nancing activities
Proceeds from issue of shares 346 165 346 165
Proceeds from borrowings 7,016 14,648 – –
Repayment of borrowings (2,961) (282) – –
Dividends paid (8,593) (14,936) (8,593) (14,936)
Loans provided by entity – – (578) (2,669)
Net cash fl ows used in fi nancing activities (4,192) (405) (8,825) (17,440)
Net increase/(decrease) in cash and cash equivalents (2,694) 1,651 32 –
Cash and cash equivalents at the beginning of the period 4,525 2,790 – –
Net foreign exchange differences (64) 84 – –
Cash and cash equivalents at the end of the year 27(a) 1,767 4,525 32 –
The accompanying notes form an integral part of the Statement of Cash Flows.
22
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007
CONSOLIDATED PARENT ENTITY
Attributable to shareholders of Gazal Corporation Limited Attributable to shareholders of Gazal Corporation Limited
Contributed
equity
$’000
Accumulated
losses
$’000
Reserves
$’000
Total
equity
$’000
Contributed
equity
$’000
Accumulated
losses
$’000
Reserves
$’000
Total
equity
$’000
At 1 July 2005 71,037 (16,049) 12,009 66,997 71,037 (9,870) 55 61,222
Currency translation differences – – 70 70 – – – –
Revaluation of land and buildings – – 4,852 4,852 – – – –
Net change recognised directly
in equity
– – 4,922 4,922 – – – –
Profi t for the year – 7,430 – 7,430 – 11,364 – 11,364
Total recognised income and
expenses for the year
– 7,430 4,922 12,352 – 11,364 – 11,364
Shares issued as a result of
exercise of options
165 – – 165 165 – – 165
Cost of share-based payments – – 266 266 – – 266 266
Equity dividends – (9,866) – (9,866) – (9,866) – (9,866)
Shares issued as a result of
dividend reinvestment
1,055 – – 1,055 1,055 – – 1,055
At 30 June 2006 72,257 (18,485) 17,197 70,969 72,257 (8,372) 321 64,206
At 1 July 2006 72,257 (18,485) 17,197 70,969 72,257 (8,372) 321 64,206
Currency translation differences – – 50 50 – – – –
Revaluation of land and buildings – – 3,616 3,616 – – – –
Net loss on cash fl ow hedge – – (920) (920) – – – –
Net change recognised directly
in equity
– – 2,746 2,746 – – – –
Profi t for the year – 8,371 – 8,371 – 10,727 – 10,727
Total recognised income and
expenses for the year
– 8,371 2,746 11,117 – 10,727 – 10,727
Shares issued as a result of
exercise of options
346 – – 346 346 – – 346
Cost of share-based payments – – 473 473 – – 473 473
Equity dividends – (8,593) – (8,593) – (8,593) – (8,593)
Share buy-back (2,787) – – (2,787) (2,787) – – (2,787)
At 30 June 2007 69,816 (18,707) 20,416 71,525 69,816 (6,238) 794 64,372
The accompanying notes form an integral part of the Statement of Changes in Equity.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL23
1 CORPORATE INFORMATIONThe annual fi nancial report of Gazal Corporation Limited for the year ended 30 June 2007 was authorised for issue in accordance with
a resolution of the Directors on 26 September 2007.
Gazal Corporation Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian
Securities Exchange.
The nature of the operations and principal activities of the Group are described in the Directors’ Report.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The fi nancial report is a general purpose fi nancial report, which has been prepared in accordance with the requirements of the Corporations
Act 2001, applicable Australian Accounting Standards and other mandatory professional reporting requirements.
The fi nancial report has also been prepared on a historical cost basis, except for land and buildings, and derivative fi nancial instruments,
which have been measured at fair value.
The fi nancial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (“AIFRS”)
and is presented in Australian dollars, the functional currency of the principal operating subsidiaries of the Company.
All values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC
Class Order 98/100. The Company is an entity to which the class order applies.
STATEMENT OF COMPLIANCE
The fi nancial report complies with Australian Accounting Standards, which include AIFRS. The fi nancial report complies with International
Financial Reporting Standards (“IFRS”).
Applicable Australian Accounting Standards and Interpretations that have been issued or amended but are not yet effective and have not been
adopted for the annual report for the year ended 30 June 2007 are as follows:
Reference Title
AASB 2007-1
Amendments to Australian Accounting Standards (AASB-2) – applicable to annual reporting periods beginning on or after
1 March 2007 with early adoption required if AASB Interpretation 11 is applied to the period.
AASB 2007-2
Amendments to Australian Accounting Standards (AASB 1, 117, 118, 120, 121, 127, 134, 136, 1023, 1038) – applicable to
annual reporting periods beginning on or after 1 January 2008 with early adoption required if AASB Interpretation 12 is applied
to the period.
AASB 2007-3
Amendments to Australian Accounting Standards (AASB 5, 6, 102, 107, 119, 127, 134, 136, 1023, 1038) – applicable to annual
reporting periods beginning on or after 1 January 2009 with early adoption required if AASB 8 is applied to the period.
AASB 7 Financial Instruments: Disclosures.
AASB 8 Operating Segments – applicable to annual reporting periods beginning on or after 1 January 2009.
BASIS OF CONSOLIDATION
The consolidated fi nancial statements comprise the fi nancial statements of Gazal Corporation Limited and its subsidiaries (“the Group”). The
fi nancial statements of subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies.
Adjustments are made to bring into line any dissimilar accounting policies that may exist.
All inter-Company balances and transactions, including unrealised profi ts arising from intra-Group transactions, have been eliminated in full.
Unrealised losses are eliminated unless costs cannot be recovered.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which
control is transferred out of the Group.
24
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
BUSINESS COMBINATIONS
The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets
are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus
costs directly attributable to the combination. Where equity instruments are issued in a business combination, the fair value of the instruments
is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the
date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair
value. Transaction costs net of tax arising from equity instruments are recognised directly in equity.
Except for non-current assets or disposal groups classifi ed as held for sale (which are measured at fair value less costs to sell), all identifi able
assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest. The excess of cost of the business combination over the net fair value of the
Group’s share of the identifi able net assets acquired is recognised as goodwill. If the cost of acquisition is less than the Group’s share of the
net fair value of the identifi able net assets of the subsidiary, the difference is recognised as a gain in the Income Statement, but only after a
reassessment of the identifi cation and measurement of the net assets acquired.
Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at
the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be
obtained from an independent fi nancier under comparable terms and conditions.
SEGMENT REPORTING
A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and
returns that are different to those of other business segments. A geographical segment is a distinguishable component of the entity that is
engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than
those of segments operating in other economic environments.
FOREIGN CURRENCY TRANSLATION
(i) Functional and presentation currency
Both the functional and presentation currency of Gazal Corporation Limited and its Australian subsidiaries is Australian dollars (A$).
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.
All exchange differences in the consolidated fi nancial report are taken to the Income Statement. Non-monetary items measured at fair value
in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
The functional currency of the various overseas subsidiaries includes Great British pounds, New Zealand dollars, and the Euro.
As at the reporting date the monetary assets and liabilities of these overseas subsidiaries are translated into the presentation currency of the
Group at the rate of exchange ruling at the balance sheet date and the Income Statements are translated at the weighted average exchange
rates for the year.
The exchange differences arising on the retranslation are taken directly to a separate component of equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three
months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above,
net of outstanding bank overdrafts.
Bank overdrafts are included within current interest-bearing loans and borrowings on the Balance Sheet.
INCOME TAX
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the
taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance
sheet date.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL25
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continuedDeferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for fi nancial reporting purposes.
The policy in relation to tax consolidation appears in Note 5(i).
Deferred income tax liabilities are recognised for all taxable temporary differences except:
when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not
a business combination and that, at the time of the transaction, affects neither the accounting profi t nor taxable profi t or loss; or
when the taxable temporary differences are associated with investments in subsidiaries, associates and interests in joint ventures, and the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses,
to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences, and the carry-forward of
unused tax assets and unused tax losses can be utilised, except:
when the deferred income tax asset relating to the deductible difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profi t nor taxable profi t
or loss; or
when the deductible temporary differences are associated with investments in subsidiaries, associates and interests in joint ventures,
deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future
and taxable profi t will be available against which the temporary differences can be utilised .
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that suffi cient taxable profi t will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the
liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profi t or loss.
OTHER TAXES
The net amount of Goods & Services Tax (“GST”) or other value added taxes (“VAT”) recoverable from, or payable to, the taxation authority or the
relevant revenue authority is included as part of trade receivables or payables in the Balance Sheet.
Cash fl ows are included in the Cash Flow Statement on a gross basis and the GST or VAT components of cash fl ows arising from investing and
fi nancing activities, which are recoverable from, or payable to, the taxation authority or the relevant revenue authority are classifi ed as operating
cash fl ows.
Commitments and contingencies are disclosed net of the amount of GST or VAT recoverable from, or payable to, the taxation authority or the
relevant revenue authority.
INVENTORIES
Inventories include raw materials, work in progress and fi nished goods.
Costs incurred in bringing each product to its present location and condition is accounted for as follows:
Raw materials – purchase cost on a fi rst-in, fi rst-out basis. The cost of purchase comprises the purchase price including the transfer from
equity of gains and losses on qualifying cash fl ow hedges of purchases of raw materials, import duties and other taxes (other than those
subsequently recoverable by the entity from the taxing authorities), transport, handling and other costs directly attributable to the acquisition
of raw materials.
Finished goods and work-in-progress – cost of direct materials and labour and a proportion of variable and fi xed manufacturing overheads
based on normal operating capacity. Costs are assigned on a fi rst-in, fi rst-out basis and include freight, duty and other inward charges.
The basis of valuation of inventories is the lower of cost and net realisable value. Net realisable value is the estimated selling prices in the
ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
26
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
PROPERTY, PLANT AND EQUIPMENT
Land and buildings are measured at fair value less accumulated depreciation and any impairment in value. Revaluations are made in accordance
with a regular policy whereby independent valuations are obtained and carrying amounts adjusted accordingly.
Plant and equipment are valued at historical cost less accumulated depreciation and any impairment losses. Depreciation is provided on
a straight-line basis, their economic lives as follows:
Life Method
Buildings 40 years Straight Line
Leasehold improvements Term of lease Straight Line
Owned plant and equipment 2.5–17 years Straight Line
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected to arise from
continued use of the asset. Any gain or loss arising on the derecognition of an asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the Income Statement in the period that the item is derecognised.
Impairment
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value
may not be recoverable.
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.
If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are
written down to their recoverable amount.
The recoverable amount of plant and equipment is the greater of the fair value less costs to sell or 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.
Revaluations of land and buildings
Following initial recognition at cost, land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation less
any subsequent accumulated depreciation on buildings and accumulated impairment losses.
Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between
a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date.
Any revaluation surplus is credited to the asset revaluation reserve included in the equity section (net of tax) of the Balance Sheet unless
it reverses a revaluation decrease of the same asset previously recognised in the Income Statement.
Any revaluation defi cit is recognised in the Income Statement unless it directly offsets a previous surplus of the same asset in the asset
revaluation reserve.
In addition, any accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset and the net amount
is restated to the revalued amount of the asset.
Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.
Independent valuations are performed with suffi cient regularity to ensure that the carrying amount does not differ materially from the asset’s
fair value at the balance sheet date.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL27
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continuedDerecognition and disposal
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected to arise from the
continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount
of the item) is included in the Income Statement in the year the item is derecognised.
PROCUREMENT FEE
This represents amounts prepaid in respect to procurement of future services and goods. This will be expensed over the term of the agreement.
GOODWILL
Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the
net fair value of the identifi able assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is not amortised but is reviewed for impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefi t from the combination’s
synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the
recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with
the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the
cash-generating unit retained.
INTANGIBLE ASSETS
Intangible assets acquired separately are capitalised at cost. Intangible assets acquired from a business combination are capitalised at fair value
as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets.
The useful lives of intangible assets are assessed to be either fi nite in the case of industrial designs or infi nite in the case of trademarks. Where
amortisation is charged on assets with fi nite lives, this expense is taken to the Income Statement through the “depreciation and amortisation”
line item.
Intangible assets created within the business are not capitalised. Such expenditure is charged against profi ts in the period in which the
expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists or, in the case of indefi nite life
intangibles, annually, either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and adjustments,
where applicable, are made on a prospective basis.
PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation.
When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised
as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income
Statement net of any reimbursement.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the
balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that refl ects the time
value of money and the risks specifi c to the liability. The increase in the provision resulting from the passage of time is recognised in fi nance costs.
28
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
EMPLOYEE LEAVE BENEFITS
(i) Wages, salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefi ts, annual leave and accumulating sick leave expected to be settled within
12 months of the reporting date are recognised in other provisions in respect of employees’ services up to the reporting date. They are measured
at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is
taken and are measured at the rates paid or payable.
(ii) Long service leave
The liability for long service leave is recognised in the provision for employee benefi ts and measured as the present value of expected
future payments to be made in respect of services provided by employees up to the reporting date using the projected until credit method.
Consideration is given to expected future wages and salary levels, experience of employee departures, and periods of service. Expected future
payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that
match, as closely as possible, the estimated future cash outfl ows.
POST-EMPLOYMENT BENEFITS
In respect of the Group’s accumulated contribution superannuation funds, any contributions made to the superannuation funds by entities within
the Group consolidated entity are recognised against profi ts when due.
RECOVERABLE AMOUNT OF ASSETS
At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment
exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the
asset is considered impaired and is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s
value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash infl ows that are largely independent
of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the
asset belongs.
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.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are initially recorded at the amount of contracted sales proceeds. Provision for doubtful debts is recognised to the
extent that recovery of the outstanding receivable balance is considered less than likely. Any provision established is based on a review of all
outstanding amounts at balance date and when collection of the full amount is no longer probable.
TRADE AND OTHER PAYABLES
Liabilities for trade creditors and other payables are carried at cost which is the fair value of the consideration to be paid in the future for goods
and services received, whether or not billed to the Group.
DERIVATIVES
Derivative instruments are used to hedge interest rate and foreign exchange exposures. These derivatives qualify for hedge accounting therefore
the gains and losses are taken directly to equity. The fair values of forward exchange contracts are determined as the recognised gain or loss at
reporting date calculated by reference to current forward exchange rates for contracts with similar maturity profi les on a mark to market basis.
Amounts payable or receivable under interest rate swaps are recognised as a component of interest expense as they accrue. Forward currency
contracts are taken out for periods no greater than 13 months.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL29
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
The Group has qualifi ed for hedge accounting for the annual periods beginning on or after 1 July 2006.
The Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with
interest rate and foreign currency fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which
a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is
positive and as liabilities when their fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash fl ow hedges, are taken directly to
profi t or loss for the year.
The fair value of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity
profi les. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments.
For the purpose of hedge accounting, hedges are classifi ed as:
fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability;
cash fl ow hedges when they hedge the exposure to variability in cash fl ows that is attributable either to a particular risk associated with
a recognised asset or liability or to a forecast transaction; or
a hedge of the foreign currency risk of a fi rm commitment is accounted for as a cash fl ow hedge.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply
hedge accounting and the risk management objectives and strategies 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 items’ 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 values 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 were designated.
(i) Cash fl ow hedges
Cash fl ow hedges are hedges of the Group’s exposure to variability in cash fl ows that is attributable to a particular risk associated with a
recognised asset or liability or a highly probable forecast transaction and that could affect profi t or loss. The effective portion of the gain or loss
on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profi t or loss.
Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profi t or loss, such as when hedged
income or expenses are recognised or when a forecast sale or purchase occurs. When the hedged item is the cost of a non-fi nancial asset
or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-fi nancial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement.
If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked,
amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur,
the amount is taken to the Income Statement.
INTEREST-BEARING LOANS AND BORROWINGS
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings.
Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the balance date.
30
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
SHARE-BASED PAYMENT TRANSACTIONS
The Group provides benefi ts to certain employees (including directors) of the Group in the form of share options, whereby employees render
services in exchange for options over shares (“equity-settled transactions”). The cost of these equity-settled transactions with employees is
measured by reference to the fair value at the date on which they are granted. The fair value is determined by using a binomial pricing model.
There are currently two plans in place to provide these benefi ts:
the Employee Share Option Plan established in 1990. This plan is being phased out as it did not have performance hurdles and there is only
one grant of 150,000 options remaining to one employee.
the Gazal Group Share Option Plan established in 2005 provides benefi ts to eligible participants as determined by the Board.
In valuing equity-settled transactions in the later plan, account is taken of performance conditions as indicated in Note 22, in this case a
profi tability hurdle. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in
which the performance conditions are fulfi lled, ending on the date on which the relevant employees become fully entitled to the award (“vesting
date”). The dilutive effect, if any, of outstanding options is refl ected as additional share dilution in the computation of diluted earnings per share.
REVENUE RECOGNITION
Revenue from sale of goods is recognised after deducting returns, settlement and trade discounts and rebates and is recognised when the goods
or services are provided.
Interest income is recognised as it accrues with the effective interest method. Dividends are recognised when the Group’s right to receive the
payment is established. Profi t and loss on disposal of assets is brought to account at the date an unconditional contract of sale is signed.
Royalty income from licensees and sub-licensees is recognised based on the percentage of sales as stipulated in the relevant contract.
CONTRIBUTED EQUITY
Issued and paid up capital is recognised at the fair value of consideration received by the Company. Any transaction costs arising on the issue of
ordinary shares are recognised directly in equity (net of tax) as a reduction of the share proceeds received. The fair value of equity instruments
granted and other estimates of other expected share issues are recognised as a separate component of equity.
EARNINGS PER SHARE
Basic earnings per share is calculated as profi t after tax attributable to members of the parent entity, adjusted to exclude costs of servicing
equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share are calculated as net profi t attributable to members, adjusted for:
costs of servicing equity (other than dividends);
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses and
which, in the case of equity options, are recognised as dilutive when they would result in the issue of ordinary shares for less than the average
price of ordinary shares during the period; and
other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.
OPERATING LEASES
The Group has established operating leases, where the lessor effectively retains substantially all of the risks and benefi ts of ownership of the
leased item. Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term.
Lease incentives are recognised in the Income Statement as an integral part of the total lease expense.
i)
ii)
iii)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL31
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
INVESTMENTS AND OTHER FINANCIAL ASSETS
The parent Company carries investments in subsidiary companies initially at cost. The carrying value of subsidiaries is assessed at regular
intervals having regard to net assets and future cash fl ows of these entities. A provision for diminution is established should the carrying value
of a subsidiary be considered impaired.
Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classifi ed as either fi nancial assets at
fair value through profi t or loss, loans and receivables, held-to-maturity investments, or available-for-sale fi nancial assets. When fi nancial
assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profi t or loss, directly
attributable transaction costs. The Group determines the classifi cation of its fi nancial assets after initial recognition and, when allowed and
appropriate, re-evaluates this designation at each fi nancial year-end.
All regular purchases and sales of fi nancial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset.
Regular way purchases or sales are purchases or sales of fi nancial assets under contracts that require delivery of the assets within the period
established generally by regulation or convention in the market place.
(i) Loans and receivables
Loans and receivables including loan notes and loans to key management personnel are non-derivative fi nancial assets with fi xed or
determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method.
Gains and losses are recognised in profi t or loss when the loans and receivables are derecognised or impaired, as well as through the
amortisation process.
NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND DISCONTINUED OPERATIONS
Non-current assets and disposal groups are classifi ed as held for sale and measured at the lower of their carrying amount and fair value less
costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an
asset or disposal group to be classifi ed as held for sale, it must be available for immediate sale in its present condition and its sale must be
highly probable.
An impairment loss is recognised for any initial or subsequent write-down of the assets (or disposal group) to fair value less costs to sell. A gain
is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative
impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal
group) is recognised at the date of derecognition.
A discontinued operation is a component of the entity that has been disposed of or is classifi ed as held for sale and that represents a separate
major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of
operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the
face of the Income Statement.
32
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
3 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONSIn applying the Group’s accounting policies, management continually evaluates judgments, estimates and assumptions based on experience and
other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made
are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the
judgments, estimates and assumptions. Signifi cant judgments, estimates and assumptions made by management in the preparation of these
fi nancial statements are outlined below:
(I) SIGNIFICANT ACCOUNTING JUDGMENTS
Recovery of deferred tax assets
Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profi ts
will be available to utilise those temporary differences.
(II) SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS
Impairment of goodwill and intangibles with indefi nite useful lives
The Group determines whether goodwill and intangibles with indefi nite useful lives are impaired at least on an annual basis. This requires an
estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefi nite useful lives are allocated.
There were no impairment adjustments in the year. The assumptions used in this estimation of recoverable amount and the carrying amount of
goodwill and intangibles with indefi nite useful lives are discussed in Note 14.
Long service leave provision
As discussed in Note 2, the liability for long service leave is recognised and measured at the present value of the estimated future cash fl ows to
be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through
promotion and infl ation have been taken into account.
Estimation of useful lives of assets
The estimation of the useful lives of assets has been based on historical experience as well as manufacturers’ warranties (for plant and
equipment), lease terms (for leased equipment) and turnover policies. In addition, the condition of the assets is assessed at least once per year
and considered against the remaining useful life. Adjustments to useful life are made when considered necessary. Depreciation charges are
included in Note 13.
Bonus provision
Bonus payments granted to each senior manager depends mainly on the performance of their division. Operational measures cover mainly
fi nancial and some non-fi nancial measures of performance. The usual measures include contribution to net profi t before tax, stock turnover
ratios, risk management, product management, and leadership/team contribution.
On an annual basis, after consideration of divisional performance each executive is reviewed and a bonus is calculated including a proportion
of an incentive pool based on total Company performance is allocated to each executive who is deemed to have a positive impact on profi tability.
Stock obsolescence provision
Each balance date inventories are assessed on receipt date/selling season and any inventory holdings that were received into the warehouse
greater than one year prior to balance date are subject to a write-down ranging from 40% to 100%.
This charge against profi t will take the form of a provision which is returned to profi t when the inventory to which the provisions apply are sold
or otherwise disposed of.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL33
4 REVENUES AND EXPENSES
REVENUE AND EXPENSE FROM CONTINUING OPERATIONS
CONSOLIDATED PARENT ENTITY
Notes
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
(i) Revenue
Sales revenue 250,405 215,807 – –
Other revenue
Dividends from wholly owned group – – 10,450 17,200
Interest received 130 180 – 6
Management fees – – 800 800
Settlement and release* 2,719 – 2,719 –
Others 3,478 3,311 – –
Total other revenue 6,327 3,491 13,969 18,006
Total revenue 256,732 219,298 13,969 18,006
(ii) Expenses and losses
Depreciation, amortisation and impairment
Depreciation of buildings 13 337 419 – –
Depreciation of plant and equipment 6,13 2,984 2,652 12 –
Depreciation of leasehold improvements 13 752 687 11 –
Impairment – retail stores** 13 893 – – –
Amortisation of industrial designs 14 123 123 – –
Amortisation of software 14 179 26 2 –
5,268 3,907 25 –
Finance costs – interest expenses to other persons 4,171 3,025 – –
Bad and doubtful debts (84) 21 – 2,828
Operating lease rentals 10,754 8,659 113 19
Provision for lease termination** 276 – – –
Provision for inventories obsolescence 1,008 1,431 – –
Provision for employee entitlements 312 644 – –
Share-based payments 473 266 473 266
Foreign exchange loss 265 54 – –
Impairment of trademark – – – –
Impairment – diminution of investment – – – 2,952
Net loss on disposal of non-current assets: 195 167 – –
* Agreement between the Company and Mr Jennings to settle and release each other from certain remaining restraint obligations contained in the sale agreement to acquire the Mambo business in
March 2000.
** Impairment and provision for lease termination of retail stores.
34
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
5 INCOME TAX
(A) INCOME TAX EXPENSE
The major components of income tax expense are:
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Income Statement
Current income tax
Current income tax charge 3,563 5,406 58 70
Adjustments in respect of current income tax
of previous years
(140) 156 (37) 1
Deferred income tax
Relating to origination and reversal of temporary differences (211) (180) (31) (13)
Income tax expense reported in the Income Statement 3,212 5,382 (10) 58
(B) AMOUNTS CHARGED OR CREDITED DIRECTLY TO EQUITY
Current income tax related to items charged or credited directly to equity
– – – –
Deferred income tax related to items charged or credited directly to equity
Net gain on revaluation of buildings 1,549 2,080 – –
Income tax expense reported in the equity 1,549 2,080 – –
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL35
5 INCOME TAX continued
(C) NUMERICAL RECONCILIATION BETWEEN AGGREGATE TAX EXPENSE RECOGNISED IN THE INCOME STATEMENT AND TAX EXPENSE CALCULATED PER THE STATUTORY INCOME TAX RATE
A reconciliation between tax expense and the product of accounting profi t before income tax multiplied by the Group’s applicable income tax rate
is as follows:
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Accounting profi t before tax from continuing operations 13,989 16,802 10,717 11,422
Profi t/(loss) before tax from discontinued operations (2,406) (3,990) – –
Accounting profi t before income tax 11,583 12,812 10,717 11,422
At statutory income tax rate of 30% (2006: 30%) 3,475 3,843 3,218 3,427
Depreciation not deductible 101 126 – –
Entertainment expenses 47 36 – –
Effect of higher rates of tax on overseas income (23) 21 – –
Rebateable dividends received – – (3,135) (5,160)
Settlement and release (816) – (816) –
Impairment – diminution of investment – – – 886
Other items (47) 111 763 83
Termination claims (111) – – –
Amounts under/(over) provided in prior years 14 48 (40) (26)
Unrecovered tax losses 572 1,197 – 848
Total income tax attributable to operating profi t 3,212 5,382 (10) 58
Income tax reported in the consolidated Income Statement 3,600 5,308 (10) 58
Income tax attributable to discontinued operations (388) 74 – –
3,212 5,382 (10) 58
36
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
5 INCOME TAX continued
(D) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Deferred income tax at 30 June relates to the following:
BALANCE SHEET INCOME STATEMENT
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
CONSOLIDATED
Deferred tax liabilities
Revaluation of land and buildings to fair value (7,560) (6,011) – –
(7,560) (6,011) – –
CONSOLIDATED
Deferred tax assets
Accelerated depreciation for book purposes 267 24 243 (6)
Software development expenses for book purposes 465 312 153 69
Accelerated amortisation of industrial designs for tax purposes (19) (19) – –
Unrealised foreign exchange gains 12 (38) 44 –
Income not assessable – – – 20
Provisions for employee benefi ts 1,564 1,204 160 121
Other provisions not deductible 595 461 (19) 168
Fair value adjustments relating to inventory 352 574 (284) (256)
Doubtful debts 81 118 (42) (75)
Accrual for rent free period 313 361 (48) (13)
Unearned income deferred to later years 90 151 (61) 151
Prepayments/other 89 42 45 1
Fair value adjustments on acquisition – 388 – –
Uplift to retail stock value 195 – 20 –
4,004 3,578 211 180
PARENT
Deferred tax assets
Other provisions not deductible 71 71 – (14)
Consolidation adjustment – – – 27
Prepayments/other – 1 – –
Uplift to retail stock value 195 – 20 –
Unrealised foreign exchange gains 11 – 11 –
277 72 31 13
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL37
5 INCOME TAX continued
TAX CONSOLIDATION
(i) Members of the tax consolidated group and the Tax Sharing Agreement
Gazal Corporation Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from
1 July 2003. Gazal Corporation Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing
arrangement in order to allocate income tax expense to the wholly owned subsidiaries, based on the formula as set out in the agreement. In
addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment
obligations. At the balance date, the possibility of default is remote.
(ii) Tax effect accounting by members of the tax consolidated group
Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of
current taxes to members of the tax consolidated group in accordance with the accounting period, while deferred taxes are allocated to members
of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are
made annually.
The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ inter-Company accounts
with the tax consolidated group head Company, Gazal Corporation Limited. Because under UIG 1052 Tax Consolidation Accounting the allocation
of current taxes to tax consolidated group members on the basis of accounting profi ts is not an acceptable method of allocation given the
group’s circumstances, the difference between the current tax amount that is allocated under the tax funding agreement and the amount that is
allocated under an acceptable method is recognised as a contribution/distribution of the subsidiaries’ equity accounts. The group has applied the
group allocation approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group.
6 DISCONTINUING OPERATIONSPrior to 30 June 2006, the Board of Directors announced a restructuring of its Mambo overseas businesses involving a change from Company
owned operations to a licensing model. The Company actively sought to fi nd a licensee who potentially could buy the operations in the United
Kingdom. These companies had been underperforming.
Sale of the UK retail business was concluded on 31 August 2006. The closure of the balance of the UK and Italian business has been completed
during the year ended 30 June 2007.
38
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
6 DISCONTINUING OPERATIONS continuedThe results of the discontinuing operations are presented below:
2007 2006
Note
Mambo
International
Europe
Limited$’000
Mambo
Italy
Srl$’000
Total$’000
Mambo
International
Europe
Limited$’000
Mambo
Italy
Srl$’000
Total$’000
Trading
Revenue 4,644 65 4,709 11,634 1,501 13,135
Other revenue 403 – 403 77 – 77
Cost of sales (3,534) (59) (3,593) (5,587) (775) (6,362)
Depreciation and amortisation (95) (5) (100) (341) (16) (357)
Provision for employee entitlements* (7) (1) (8) (302) (151) (453)
Bad and doubtful debts* – – – (297) (761) (1,058)
Operating lease rentals (561) (23) (584) (1,446) (47) (1,493)
Lease exit cost* – – – (226) (35) (261)
Other expenses (1,982) (1,091) (3,073) (5,441) (1,007) (6,448)
Finance cost (151) (9) (160) (168) (31) (199)
Impairment of plant and machinery* 13 – – – (126) (38) (164)
Loss recognised on the remeasurement to fair
value less cost to sell*
– – – (407) – (407)
Loss before tax from discontinuing operations (1,283) (1,123) (2,406) (2,630) (1,360) (3,990)
Tax expense 238 150 388 – (74) (74)
Loss for the year from discontinuing operations (1,045) (973) (2,018) (2,630) (1,434) (4,064)
* Included within the items marked * are costs relating to the restructure and sale of Mambo European assets, $2,066,000.
The assets held for sale of Mambo International Europe Limited at 30 June are as follows:
2007 2006
$’000 $’000
Assets
Property, plant and equipment (Note 12) – 298
Inventory – 678
Assets classifi ed as held for sale – 976
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL39
6 DISCONTINUING OPERATIONS continuedNet cash fl ows of the discontinuing operations are as follows:
2007 2006
Mambo
International
Europe
Limited$’000
Mambo
Italy
Srl$’000
Total$’000
Mambo
International
Europe
Limited$’000
Mambo
Italy
Srl$’000
Total$’000
Operating activities 2,574 (610) 1,964 (9) 52 43
Investing activities 310 – 310 (108) (142) (250)
Financing activities (2,961) – (2,961) (281) – (281)
Net cash infl ow/(outfl ow) (77) (610) (687) (398) (90) (488)
7 EARNINGS PER SHAREThe following refl ects the income and share data used in the calculations of basic and diluted earnings per share:
CONSOLIDATED
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Net profi t attributable to ordinary equity holders of the
parent from continuing operations
10,389 11,494
Profi t/(loss) attributable to ordinary equity holders of the
parent from discontinuing operations
(2,018) (4,064)
Earnings used in calculating basic and diluted earnings
per share
8,371 7,430
Number of
shares
Number of
shares
Weighted average number of ordinary shares used in
calculating basic earnings per share
60,670,264 61,290,941
Effect of dilutive securities
Share options 346,350 608,761
Adjusted weighted average number of ordinary shares
used in calculating basic earnings per share
61,016,614 61,899,702
To calculate earnings per share amounts for the discontinued operations, the weighted average number of ordinary shares for both basic
and diluted amounts is as per the table above. The following table provides the profi t fi gures used as the numerator:
CONSOLIDATED
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Profi t/(loss) attributable to ordinary equity holders of the
parent from discontinuing operations
– for basic earnings per share (2,018) (4,064)
– for diluted earnings per share (2,018) (4,064)
All potential ordinary shares, being options to acquire ordinary shares, are considered dilutive.
40
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
8 SEGMENT INFORMATION
GEOGRAPHIC SEGMENTS
The Directors believe the risks in the business are in the international development of the business and hence geography is the primary segment.
Transfer prices between business segments are set at an arms length basis in a manner similar to transactions with third parties. Segment revenue,
expenses and result include transfers between business segments. Those transfers are eliminated on consolidation.
SECONDARY SEGMENT
The company and economic entity operates predominately in the clothing industry, comprising various brands.
AUSTRALASIA EUROPE* ELIMINATIONS CONSOLIDATED
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Revenue
Sales to customers outside the
consolidated entity
250,405 215,807 4,709 12,270 – – 255,114 228,077
Other revenues from customers
outside the consolidated entity
6,327 3,491 403 77 – – 6,730 3,568
Intersegment revenues 231 128 – – (231) (128) – –
Total segment revenue 256,963 219,426 5,112 12,347 (231) (128) 261,844 231,645
Unallocated revenue – – – – – – – –
Total consolidated revenue 256,963 219,426 5,112 12,347 (231) (128) 261,844 231,645
Results
Segment result – EBIT 18,161 19,827 (2,246) (3,822) – – 15,915 16,005
Unallocated expenses – interest (4,331) (3,193)
Profi t from ordinary activities before
income tax expense
11,584 12,812
Income tax expense (3,213) (5,382)
Net profi t from ordinary activities
after income tax expense
8,371 7,430
Net profi t attributable to outside
equity interests
– –
Net profi t for the period attributable
to members
8,371 7,430
* This segment is classifi ed as discontinued operation on 30th June 2006.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL41
8 SEGMENT INFORMATION continued
AUSTRALASIA EUROPE* ELIMINATIONS CONSOLIDATED
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Year ended
30 June
2007
$’000
Year ended
30 June
2006
$’000
Assets
Segment assets 166,206 153,845 405 4,424 (3,662) (3,149) 162,949 155,120
Unallocated assets 6,100 3,578
Total assets 169,049 158,698
Liabilities
Segment liabilities 31,001 23,892 946 3,229 (155) (323) 31,792 26,798
Unallocated liabilities 65,732 60,931
Total liabilities 97,524 87,729
Other segment information
Capital expenditure 9,593 5,429 – 194 – – 9,593 5,623
Depreciation and amortisation 5,268 3,907 100 357 – – 5,368 4,264
Non-cash expenses other than
depreciation and amortisation
1,985 2,363 558 2,343 – 2,543 4,706
Cash fl ow information
Net cash fl ow operating activities 8,706 23,554 1,964 43 – – 10,670 23,597
Net cash fl ow investing activities (9,482) (21,291) 310 (250) – – (9,172) (21,541)
Net cash fl ow fi nancing activities (1,231) (124) (2,961) (281) – – (4,192) (405)
* This segment is classifi ed as discontinued operation on 30 June 2006.
Transfer prices between business segments are set at an arm’s length basis in a manner similar to transactions with third parties.
Segment revenue, expenses and result include transfers between business segments. Those transfers are eliminated on consolidation.
SECONDARY SEGMENT
The Company and economic entity operate predominantly in the clothing industry, comprising various brands.
42
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
9 TRADE AND OTHER RECEIVABLES (CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Trade debtors (i) 22,090 20,523 – –
Provision for doubtful debts (517) (1,396) – –
21,573 19,127 – –
Related parties receivables
Wholly owned group (ii) – – 26,348 27,878
Associated entity (iii) 232 – – –
Provision for doubtful debts (125) – (2,828) (2,828)
Total current receivables 21,680 19,127 23,520 25,050
(i) Trade receivables are non-interest bearing and are predominantly on 30 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired.
(ii) Loans to wholly owned group entities repayable on demand.
(iii) Interest-bearing loan to associated entity repayable in October 2007.
10 INVENTORIES (CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Raw materials and stores, at cost 978 1,130 – –
Provision for inventory obsolescence (46) (137) – –
Raw materials and stores, net 932 993 – –
Work in progress, at cost 179 78 – –
Finished goods, at cost 40,961 41,265 – –
Provision for inventory obsolescence (962) (2,141) – –
Finished goods, net 39,999 39,124 – –
Stock in transit 4,589 5,227 – –
Total inventories 45,699 45,422 – –
11 OTHER ASSETS (CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Prepayments 2,280 2,167 – –
Other 959 596 42 51
Total other current assets 3,239 2,763 42 51
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL43
12 RECEIVABLES (NON-CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Related parties receivables (i)
Associated entity – 216 – –
Total other current assets – 216 – –
(i) Interest-bearing loan to associated entity repayable in October 2007.
13 PROPERTY, PLANT AND EQUIPMENT
CONSOLIDATED PARENT ENTITY
Land and
building
$’000
Leasehold
improvement
$’000
Plant and
machinery
$’000
Total
$’000
Leasehold
improvement
$’000
Plant and
machinery
$’000
Total
$’000
Cost or fair value
Opening balance – 1 July 2006 32,354 7,001 29,195 68,550 19 14 33
Additions 240 1,841 5,913 7,994 3 14 17
Disposals – (982) (4,097) (5,079) – – –
Revaluation 4,828 – – 4,828 – – –
Others – currency translation difference – 2 12 14 – – –
Closing balance – 30 June 2007 37,422 7,862 31,023 76,307 22 28 50
Accumulated depreciation
Opening balance – 1 July 2006 – 3,883 20,028 23,911 – – –
Depreciation for the year 337 752 3,084 4,173 11 12 23
Impairment – retail stores* – 529 364 893 – – –
Disposals (809) (3,986) (4,795) – – –
Revaluation (337) – – (337) – – –
Others – currency translation difference – (3) 11 8 – – –
Closing balance – 30 June 2007 – 4,352 19,501 23,853 11 12 23
Net carrying amount as at 30 June 2007 37,422 3,510 11,522 52,454 11 16 27
Property, plant and equipment – at fair value 37,422 – – 37,422 – – –
Property, plant and equipment – at cost – 3,510 11,522 15,032 11 16 27
Total property, plant and equipment 37,422 3,510 11,522 52,454 11 16 27
* Impairment and provision for lease termination of retail stores.
All assets are secured by fi rst mortgages, deeds of charge and mortgage debentures.
44
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
13 PROPERTY, PLANT AND EQUIPMENT continued
CONSOLIDATED PARENT ENTITY
Land and
building
$’000
Leasehold
improvement
$’000
Plant and
machinery
$’000
Total
$’000
Leasehold
improvement
$’000
Plant and
machinery
$’000
Total
$’000
Cost or fair value
Opening balance – 1 July 2005 25,827 5,678 25,783 57,288 – – –
Additions 838 1,191 3,395 5,424 19 14 33
Disposals – (145) (1,405) (1,550) – – –
Assets included in discontinued operation
held for sale (Note 5)
– – (298) (298) – – –
Revaluation 5,689 – – 5,689
Assets acquired on acquisition – 255 1,717 1,972 – – –
Others – currency translation difference – 22 3 25 – – –
Closing balance – 30 June 2006 32,354 7,001 29,195 68,550 19 14 33
Accumulated depreciation
Opening balance – 1 July 2005 824 3,297 16,942 21,063 – – –
Depreciation for the year 419 690 3,005 4,114 – – –
Disposals – (139) (993) (1,132) – – –
Impairment* – – 164 164 – – –
Revaluation (1,243) – – (1,243) – – –
Assets acquired on acquisition – 9 917 926 – – –
Others – currency translation difference – 26 (7) 19 – – –
Closing balance – 30 June 2006 – 3,883 20,028 23,911 – – –
Net carrying amount as at 30 June 2006 32,354 3,118 9,167 44,639 19 14 33
Property, plant and equipment – at fair value 32,354 – – 32,354 – – –
Property, plant and equipment – at cost – 3,118 9,167 12,285 19 14 33
Total property, plant and equipment 32,354 3,118 9,167 44,639 19 14 33
* This impairment loss relates to the assets attributable to discontinued operations.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL45
13 PROPERTY, PLANT AND EQUIPMENT continued
REVALUATION OF LAND AND BUILDINGS
The Group engaged CB Richard Ellis, an accredited independent valuer, to advise the Directors on determining the fair value of its land and
buildings which the Directors have adopted. Fair value is determined directly by reference to market-based evidence, which is the amounts for
which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction
as at the valuation date. The effective date of the revaluation was 30 June 2007.
If land and buildings were measured using the cost model the carrying amounts would be as follows:
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Cost 13,545 13,305 – –
Accumulated depreciation (3,359) (3,022) – –
Net carrying amount 10,186 10,283 – –
14 INTANGIBLE ASSETS
CONSOLIDATED PARENT ENTITY
Trademarks
$’000
Industrial
designs
$’000
Goodwill
$’000
Software
$’000
Total
$’000
Software
$’000
At 1 July 2005 15,232 815 9,447 – 25,494 –
Additions – – – 179 179 –
Disposal – – – – – –
Amortisation – (123) – (26) (149) –
Intangible acquired on acquisition – 26 8,945 60 9,031 –
Year ended 30 June 2006 15,232 718 18,392 213 34,555 –
At 1 July 2006 15,232 718 18,392 213 34,555 –
Additions – – 196 1,491 1,687 6
Disposal – – – (48) (48) –
Amortisation – (123) – (179) (302) (2)
Intangible acquired on acquisition – – (465) – (465) –
Year ended 30 June 2007 15,232 595 18,123 1,477 35,427 4
46
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
14 INTANGIBLE ASSETS continued
(I) TRADEMARKS
Trademark values are assessed at brand level within each cash-generating unit (“CGU”). The useful lives of trademarks are estimated as
indefi nite and the relief from royalty method is utilised for the measurement of fair value when recognised on acquisition. The trademarks are
determined to have indefi nite life when it is the Company’s intention to support, maintain and enhance the market perception of the trademarks.
The methodology is based on an estimate of arm’s length royalty of between 3% and 6% (2006: 3% to 6%) which would be payable to a third party
licensor on sales of trademark branded product. Estimated royalty values (less brand maintenance expenses) are discounted to arrive at a Net
Present Value (“NPV”) of the royalty income attributable to the trademark. The trademark is deemed not to be impaired if the resulting fair value
calculation described above is greater than the carrying value of the trademark. Sales projections refl ect budget for the ensuing year and further
growth between 2.5% and 4% p.a. (2006: 2.5% to 4%) for subsequent three years plus terminal value. The discount rate of 10.7% (2006: 10.5%)
used in the NPV calculations approximates the Company’s actual pre tax weighted average cost of capital for the year in review.
The useful life of industrial designs is estimated as being 16 years from the date of recognition at fair value on acquisition. The royalty method
is utilised for its measurement and the asset is being amortised over its estimated useful life.
(II) GOODWILL
Goodwill is measured for each CGU by calculating its enterprise value being the NPV of future free cash fl ows and deducting from this value the
net tangible assets and identifi able intangible assets such as trademarks and industrial designs used by the CGU. A CGU for Gazal consists of
like style product groupings and risk is deemed to be constant across all groupings. Goodwill which has been purchased as a part of a business
combination is regarded as having an indefi nite life. Value in use of goodwill is tested at least annually for impairment, and always at the end
of fi nancial year to ensure that assets are carried at a recoverable value. No impairment loss was charged for continuing operations in the
2007 fi nancial year. The discount rate of 10.7% (2006: 10.5%) used in goodwill calculations approximates the Company’s actual pre tax weighted
average cost of capital for the year in review. Valuations have assumed budget sales growth in the ensuing year and further growth of between
2.5% and 4% (2006: 2.5% to 4%) for the subsequent three years plus terminal value.
(III) SOFTWARE
All software is capitalised and written off over the estimated useful life which presently ranges from 2.5 to fi ve years.
Carrying amounts attributed to trademarks and goodwill are as follows:
2007 CONSOLIDATED 2006 CONSOLIDATED
Trademarks
$’000
Goodwill
$’000
Trademarks
$’000
Goodwill
$’000
Youth 7,559 – 7,559 –
Outerwear 115 7,092 115 7,536
Intimates 7,558 8,709 7,558 8,534
Retail – 2,322 – 2322
Total trademarks and goodwill 15,232 18,123 15,232 18,392
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL47
15 INVESTMENT IN SUBSIDIARIES (NON-CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Shares in controlled entities – unlisted
At cost – – 66,943 66,943
Provision for diminution in investment – – (27,626) (27,626)
Total other non-current fi nancial assets – – 39,317 39,317
16 OTHER ASSETS (NON-CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Procurement fee 2,060 2,441 – –
Total other non-current assets 2,060 2,441 – –
17 TRADE AND OTHER PAYABLES (CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Trade payables(i) 15,014 10,002 – –
Other payables(ii) 9,554 9,670 244 239
Goods and services tax 856 992 – –
Total current payables 25,424 20,664 244 239
(i) Trade payables are non-interest bearing and are normally settled between 0–60 day terms.
(ii) Other payables are non-interest bearing and are normally settled between 0–90 day terms.
18 INTEREST-BEARING LOANS AND BORROWINGS (CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Bank overdrafts – secured (Refer Note 20(a)) 585 – – –
Bank loans – secured (Refer Note 20(a)) 17,500 26,461 – –
Total current borrowings 18,085 26,461 – –
48
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
19 PROVISIONS (CURRENT)
CONSOLIDATED PARENT
Provision
for annual
leave
$’000
Provision for
long service
leave
$’000
Onerous
lease
contracts
$’000
Other
provisions
$’000
Total
$’000
Provision
for
dividend
$’000
At 1 July 2006 3,365 1,584 261 407 5,617 –
Arising during the year 2,402 281 – 50 2,733 –
Utilised (2,655) (264) (261) (236) (3,416) –
Discount rate adjustment – (67) – – (67) –
At 30 June 2007 3,112 1,534 – 221 4,867 –
Long service leave – Refer to Note 2 and Note 3 respectively for the relevant accounting policy and a discussion of the signifi cant estimations
and assumptions applied in the measurement of this provision.
Onerous lease contracts provision and other provisions both relate to the discontinued UK operation.
20 INTEREST-BEARING LOANS AND BORROWINGS (NON-CURRENT)
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Bank loans – secured(a) 40,000 27,000 – –
Total non-current borrowings 40,000 27,000 – –
(a) The bank overdrafts $585,000 (2006: Nil) and loans $57,500,000 (2006: $53,461,000) are secured by a fi rst mortgage over freehold land and buildings and by deeds of charge, and mortgage debentures
over all assets of the economic entity with total assets pledged as security totalling $122,185,000 (2006: $113,713,000). Refer Note 28(c). Bank loans have been classifi ed as non-current and current
liabilities. The non-current portion is that amount, which will be utilised and fully drawn over the coming 13 months and is non-current on the basis that the loan facilities with our bankers do not expire
until 31 December 2008. The current portion is the portion which will be repaid over the next 12 months as indicated in Note 18. The bank facility may be extended for a further two years from the date
of each annual review. The bank reserves the right to withdraw the facilities if in the opinion of the bank there has been a breach or event of default and certain fi nancial ratios are not maintained to the
satisfaction of the bank.
The interest rates on fl oating rate borrowings at year-end ranged from 6.9% to 10.7% (2006: 5.6% to 9.6%), fi xed rate borrowings are at 7.0% (2006: 5.95%). Borrowings at 30 June 2007 were in
Australian dollars only.
21 PROVISIONS (NON-CURRENT)
CONSOLIDATED PARENT
Provision for
long service
leave
$’000
Provision for
long service
leave
$’000
At 1 July 2006 438 –
Arising during the year 203 –
Utilised – –
Discount rate adjustment (78) –
At 30 June 2007 563 –
Long service leave– Refer to Note 2 and Note 3 respectively for the relevant accounting policy and a discussion of the signifi cant estimations
and assumptions applied in the measurement of this provision.
a)
b)
a)
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL49
22 CONTRIBUTED EQUITY
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Ordinary shares
Issued and fully paid 69,816 72,257 69,816 72,257
The Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the parent does not have
authorised capital nor par value in respect of its issued shares.
Movements in contributed equity for the year
CONSOLIDATED PARENT ENTITY
Number
‘000
Value
$’000
Number
’000
Value
$’000
Opening balance at 1 July 2005 61,232 71,037 61,232 71,037
Employee options converted to ordinary shares 78 165 78 165
Shares issued pursuant to the Dividend Reinvestment Plan 365 1,055 365 1,055
Closing balance at 30 June 2006 61,675 72,257 61,675 72,257
Opening balance 1 July 2006 61,675 72,257 61,675 72,257
Employee options converted to ordinary shares 190 346 190 346
Share buy-back (1,189) (2,787) (1,189) (2,787)
Closing balance at 30 June 2007 60,676 69,816 60,676 69,816
ORDINARY SHARES
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from
the sale of all surplus assets in proportion to the number of and amounts paid up on shares.
Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.
SHARE-BASED PAYMENT PLANS
In November 2005 the Company established the Gazal Group Employee Share Option Plan. The exercise price of options under this option plan
is equal to a formula based on the market price of the shares sold on the ASX on the fi ve preceding days to the grant date, however, options only
vest if and when the Group’s average annual net profi t before tax and material items refl ects a growth rate of at least 6% over three consecutive
fi nancial years from the base year. If this increase is not met from the date of grant, the options may be re-assessed by the Board.
The Company has also issued options to a consultant Mr B. Klatsky on similar terms and conditions to the Gazal Group Employee Share Option
Plan in consideration of consulting advice provided as mentioned at the 2006 Annual General Meeting. The expenses in the 2007 year amounted
to $99,723.
The contractual life of each option is fi ve years. The expense recognised in the Income Statement in relation to share-based payments is
disclosed in Note 3.
50
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
22 CONTRIBUTED EQUITY continuedThe following table illustrates the number and exercise prices of and movements in share options during the year:
Date granted
Exercise
price
On issue
30 June
2006
Issued
during the
year (g)(h)
Converted
to fully paid
shares (e) Forfeited
On issue
30 June
2007 (f) Exercise period
30 Nov 2001 2.11 583,400 – (164,000) (419,400) – 30 Nov 2003 to 29 Nov 2006*
27 Feb 2004 (a) 2.60 150,000 – – – 150,000 27 Feb 2006 to 26 Feb 2009*
28 July 2005 (b) 2.94 50,000 – – (50,000) – 28 July 2007 to 27 July 2010*
19 Dec 2005 (c) 3.05 1,910,000 – – (130,000) 1,780,000 19 Dec 2008 to 18 Dec 2010*
3 July 2006 (c) 2.35 – 560,000 – (60,000) 500,000 3 July 2009 to 2 July 2011*
3 July 2006 (c)(d) 2.35 – 500,000 – – 500,000 3 July 2009 to 2 July 2011*
4 Dec 2006 (c) 2.32 – 650,000 – – 650,000 4 Dec 2009 to 3 Dec 2011*
4 Dec 2006 (c)(d) 2.32 – 500,000 – – 500,000 4 Dec 2009 to 3 Dec 2011*
Total 2,693,400 2,210,000 (164,000) (659,400) 4,080,000
* Expiry date.
(a) The 27 February 2004 options remaining on issue at 30 June 2006 were all exercisable at the end of the year.
(b) The 28 July 2005 options have lapsed since balance date as the employee has left the Group’s service.
(c) All options granted since 19 December 2005 with exercise prices as indicated in the table are only exercisable upon meeting the above conditions and until the relevant expiry date.
(d) These options were granted to Mr B. Klatsky on similar terms as the Employee Options.
(e) The weighted average share price for options exercised during the year is $2.39 (2006: $2.95).
(f) The weighted average remaining contractual life for the share options outstanding at 30 June 2007 is between 20 months and 4½ years (2006: 5 months and 4½ years).
(g) The weighted average fair value of options granted during the year was $2.33 (2006: $3.05).
(h) The fair value of the equity-settled share options granted under the option plans is estimated as at the date of grant using a binomial model taking into account the terms and conditions
upon which the options were granted.
The following table lists the inputs to the model used for the years ended 30 June 2007 and 30 June 2006:
4 Dec 2006 3 July 2006 19 Dec 2005 28 July 2005
Dividend yield (%) 6.09 6.90 5.25 5.44
Expected volatility (%) 27.18 25.72 5.54 27.47
Risk-free interest rate (%) 6.12 5.77 5.27 5.14
Expected life of options (years) 4 4 4 3
Option exercise price ($) 2.32 2.35 3.05 2.94
Weighted average share price at grant date ($) 2.32 2.35 3.05 2.94
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected
volatility refl ects the assumption that the historical volatility is indicative of future trends which may also not necessarily be the actual outcome.
The fair value of the cash-settled options is measured at the grant date using a binomial option pricing model taking into account the terms and
conditions upon which the instruments were granted.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL51
23 RESERVES
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Assets revaluation 20,335 16,719 – –
Asset realisation 562 562 – –
Employee equity benefi t 794 321 794 321
Hedge (920) – – –
Foreign currency translation (355) (405) – –
Total reserves 20,416 17,197 794 321
Transfer to or from reserves:
(a) Asset revaluation reserve
Opening balance 16,719 11,867 – –
Revaluation of land and building 3,616 4,852 – –
Closing balance 20,335 16,719 – –
(b) Employee equity benefi ts reserve
Opening balance 321 55 321 55
Recognition of share-based payment cost 473 266 473 266
Closing balance 794 321 794 321
(c) Foreign currency translation reserve
Opening balance (405) (475) – –
Net exchange difference on translation of overseas controlled
entities
50 70 – –
Closing balance (355) (405) – –
(d) Cash fl ow hedge reserve
Opening balance – – – –
Net gains/(loss) on cash fl ow hedge (920) – – –
Closing balance (920) – – –
NATURE AND PURPOSE OF RESERVES
Asset revaluation reserve
The asset revaluation reserve is used to record increments and decrements in the fair value of land and buildings to the extent that they offset
one another. The reserve can only be used to pay dividends in limited circumstances.
Asset realisation reserve
This reserve is used to record realised increases in the fair value of non-current assets which have been sold.
Employee equity benefi ts reserve
This reserve is used to record the value of share-based payments provided to employees, including key management personnel, as part of their
remuneration. Refer to Note 22 for further details of these plans.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the fi nancial statements
of foreign subsidiaries.
Cash fl ow hedge reserve
This reserve records the portion of the gain or loss on a hedging instrument in a cash fl ow hedge that is determined to be an effective hedge.
52
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
24 RETAINED PROFITS AND DIVIDENDS
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Accumulated losses
(a) Movement in retained profi ts
Balance at the beginning of the fi nancial year (18,485) (16,049) (8,372) (9,870)
Net profi t attributable to members – continuing 10,389 11,494 10,727 11,364
Net profi t attributable to members – discontinued (2,018) (4,064) – –
Dividends provided for or paid (8,593) (9,866) (8,593) (9,866)
Balance at the end of the fi nancial year (18,707) (18,485) (6,238) (8,372)
(b) Dividends paid during the fi nancial year
Interim franked dividend 7 cents (2006: 7 cents) paid
5 April 2007
4,270 4,316 4,270 4,316
Prior year fi nal franked dividend 7 cents (2006: 7 cents) paid
6 October 2006
4,323 5,550 4,323 5,550
Special fully franked dividend 10 cents paid 15 July 2005
– declared and provided for 30 June 2005
– 6,124 – 6,124
(c) Dividends proposed but not recognised as a liability
Final fully franked dividend 7 cents (2006: 7 cents) paid
5 October 2007
4,247 4,323 4,247 4,323
Franking credit balance
Franking credits available for the subsequent fi nancial year are:
Balance at the end of the fi nancial year at 30% (2006: 30%) 13,822 11,263 13,822 11,263
Franking debit amount from the payment of dividends as at the
end of the fi nancial year
– – – –
Franking credits that will arise from the payment of income tax
payable as at the end of the fi nancial year
(1,417) 1,674 (1,417) 1,674
12,405 12,937 12,405 12,937
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL53
25 COMMITMENTS
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Capital expenditure contracted for is payable as follows:
Not later than one year 268 883 – –
Operating lease expenditure contracted for is payable
as follows:
Not later than one year 10,351 8,644 – –
Later than one year but not later than fi ve years 26,012 20,685 – –
Later than fi ve years 4,521 3,782 – –
40,884 33,111 – –
Operating leases have an average lease term of fi ve years (2006: fi ve years) and an average implicit interest rate of 6% (2006: 6%). Assets that are
the subject of operating leases are rental properties.
26 CONTINGENT LIABILITIES
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
At 30 June utilised bank facilities totalled* 58,085 53,461 58,085 53,461
* The parent entity in conjunction with other related corporations has given intercompany guarantees in respect of certain bank facilities of related corporations.
The parent has given guarantees in relation to a number of controlled entities’ retail shops. These guarantees approximate fair value.
As explained in Note 31, the parent entity has entered into a Deed of Cross Guarantee in accordance with a class order issued by the Australian
Securities and Investments Commission. The parent entity, and all the controlled entities which are a party to the Deed, have guaranteed the
payment of all current and future creditors in the event any of these companies are wound up.
54
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
27 CASH AND CASH EQUIVALENTS (CURRENT)
(A) RECONCILIATION OF CASH
For the purpose of the Statement of Cash Flows, cash includes cash on hand and in banks and short term deposits at call, net of outstanding
bank overdrafts. Cash at the end of fi nancial year as shown in the Balance Sheet is as follows:
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Cash at bank 2,352 4,525 32 –
Bank overdraft (585) – – –
1,767 4,525 32 –
(B) RECONCILIATION OF NET CASH PROVIDED FROM OPERATING ACTIVITIES TO OPERATING PROFIT AFTER INCOME TAX
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Operating profi t after income tax 8,371 7,430 10,727 11,364
Adjustments for non-cash income and expenses items:
Depreciation and amortisation expense 5,368 4,264 16 –
Other (2,734) 241 (197) 6,047
Loss on sale of property, plant and equipment 195 167 – –
Changes in assets and liabilities
(Increase)/decrease in trade debtors (2,321) 891 – –
(Increase)/decrease in inventory 401 4,771 – –
(Increase)/decrease in other assets 5 (40) 9 (51)
(Increase)/decrease in prepaid expenses 318 1,194 – –
Increase/(decrease) in trade creditors 5,012 587 – –
Increase/(decrease) in other creditors 159 93 5 (46)
Increase/(decrease) in income tax payable (3,500) 1,011 (1,475) 172
Increase/(decrease) in deferred income tax (426) 1,901 (205) (13)
Increase/(decrease) in employee entitlements provisions (178) 1,087 – –
10,670 23,597 8,880 17,473
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL55
28 FINANCING FACILITIES AVAILABLE
(A) TERMS AND CONDITIONS
Bank overdrafts
The bank overdrafts are secured by a fi xed and fl oating charge over all of the Group’s assets. The bank overdraft facilities may be withdrawn
at any time and may be terminated by the bank if in the opinion of the bank there has been a breach or event of default and certain fi nancial
ratios are not maintained to the satisfaction of the bank.
Secured bank loan
The facility is secured by a fi rst charge over certain of the Group’s land and buildings and a fi xed and fl oating charge over the Group’s plant
and machinery.
(B) FINANCING FACILITIES AVAILABLE
At reporting date, the following fi nancing facilities have been negotiated and were available:
CONSOLIDATED PARENT ENTITY
Accessible
$’000
Drawdown
$’000
Unused
$’000
Accessible
$’000
Drawdown
$’000
Unused
$’000
At 30 June 2007
Bank overdraft facility (a) 3,000 (585) 2,415 – – –
Bank loan facilities (a) 76,000 (57,500) 18,500 – – –
Total fi nancing facilities 79,000 (58,085) 20,915 – – –
At 30 June 2006
Bank overdraft facility (a) 3,247 – 3,247 – – –
Bank loan facilities (a) 63,935 (53,461) 10,474 – – –
Total fi nancing facilities 67,182 (53,461) 13,721 – – –
All of the economic entity’s facilities are subject to annual review and subject to the conditions referred to Note 20(a).
(C) ASSETS PLEDGED AS SECURITY
The carrying amounts of assets pledged as security for current and non-current interest-bearing liabilities are:
CONSOLIDATED PARENT ENTITY
Notes
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Current
Floating charge
Cash at bank 27(a) 2,352 4,525 32 –
Receivables 9 21,680 19,127 32 –
Inventories 10 45,699 45,422 64 –
Total current assets pledged as security 69,731 69,074 64 –
Non-current
First mortgage
Freehold land and buildings 13 37,422 32,354 – –
Floating charge
Leasehold Improvements 13 3,510 3,118 – –
Plant and machinery 13 11,522 9,167 16 –
Total non-current assets pledged as security 52,454 44,639 16 –
Total assets pledged as security 122,185 113,713 80 –
56
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
29 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe economic entity operates in several countries and is reliant on external debt fi nance. These operations give rise to signifi cant exposure
to market risks due to changes in interest rates and foreign exchange rates. Derivative fi nancial instruments are used by the economic
entity to reduce these risks, as explained in this note. The economic entity does not hold or issue fi nancial instruments for speculative
or trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivatives, as summarised below, represent the contract or face values of these derivatives and do not represent
amounts exchanged by the parties. The amounts to be exchanged are calculated on the basis of the notional amounts and other terms of the
derivatives, which relate to interest rates or exchange rates.
(a) Interest rate risk management
The economic entity raises short and long term debt at both fi xed and fl oating rates. In order to minimise risk, interest rate swaps are used to
convert fl oating rate debt to fi xed rates when this results in a fi xed rate lower than that available if fi xed-rate debt was raised directly. Under the
swaps, the economic entity agrees with other parties to exchange, at specifi ed intervals, the difference between the fi xed-rate and fl oating-rate
interest amounts calculated by reference to the agreed notional principal amounts.
The economic entity is exposed to interest rate risk through primary fi nancial assets and liabilities, modifi ed by interest rate swaps. Interest rate
swap contracts – which is limited to the net fair value of the swap agreement at reporting date being $19,455 (2006: $50,497). The table included
in Note 30 summarises interest rate risk for the economic entity, together with effective interest rates at balance date.
The parent entity is not exposed to interest rate risk as it does not have any interest-bearing liabilities.
(b) Credit risk
The economic entity’s exposures to credit risk at reporting date are as indicated by the carrying amounts of its fi nancial assets. Concentrations
of credit risk (whether on or off Balance Sheet) that arise from derivative instruments exist for groups of counterparties when they have similar
economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other
conditions. The economic entity does not have a signifi cant exposure to any individual counterparty.
The Group trades only with recognised, creditworthy third parties.
It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures. In addition, receivable
balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not signifi cant.
There are no signifi cant concentrations of credit risk within the Group.
(c) Hedging instruments
With respect to the use of derivative fi nancial instruments, it is Company policy that fi nancial derivatives are only used as a defensive mechanism to
cover real fi nancial and trading risks associated with the Company’s business. Key procedures to provide effective control for fi nancial derivatives
include separation of duties between deal making/accounting functions, and setting authority limits and approving confi rmation of dealings.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL57
30 FINANCIAL INSTRUMENTS
FAIR VALUE
Set out below is comparison by category of carrying amounts and fair values of all the Group’s fi nancial instruments recognised in the fi nancial
statements, including those classifi ed under discontinuing operations.
The fair value of derivatives and borrowings has been calculated by discounting the expected future cash fl ows at prevailing interest rates.
The fair values of loan notes and other fi nancial assets have been calculated using market interest rates.
There is no signifi cant difference between the carrying amounts and estimated net fair values of fi nancial assets and fi nancial liabilities
(including derivatives) held at balance date. Net fair value are assessed as follows:
Cash and cash equivalents: The carrying amount approximates their fair value because of the short term to maturity.
Trade debtors and payables: The carrying amount approximates their fair value.
Loans: The carrying amount approximates their fair value.
CARRYING AMOUNT FAIR VALUE
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
CONSOLIDATED
Financial assets and derivatives
Cash 2,352 4,525 2,352 4,525
Trade receivables 21,573 19,127 21,573 19,127
Forward currency contracts 38 456 38 456
Loan receivable 107 216 107 216
24,070 24,324 24,070 24,324
Financial liabilities and derivatives
Bank overdraft (585) – (585) –
Trade payables (25,424) (20,664) (25,424) (20,664)
Interest free loan (87) (55) (87) (55)
Interest-bearing loans and borrowings
Floating rate borrowings (52,500) (48,461) (52,500) (48,461)
Fixed rate borrowings (5,000) (5,000) (5,000) (5,000)
Forward currency contracts (938) (79) (938) (79)
(84,534) (74,259) (84,534) (74,259)
Included in the above are interest rate swaps – refer to Note 30(e).
PARENT
Financial assets and derivatives
Trade receivables 23,520 25,050 23,520 25,050
Other fi nancial assets (non-current) 39,317 39,317 39,317 39,317
62,837 64,367 62,837 64,367
Financial liabilities and derivatives
Trade payables (244) (239) (244) (239)
(244) (239) (244) (239)
58
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
30 FINANCIAL INSTRUMENTS continued
INTEREST RATE RISK
The following table sets out the carrying amount, by maturity, of the fi nancial instruments exposed to interest rate risk:
Year ended 30 June 2007
<1 year
$’000
>1 <2 years
$’000
>2 <3 years
$’000
Total
$’000
Weighted
average effective
interest rate
$’000
CONSOLIDATED
Financial assets
Fixed rate
Loan receivable 232 – – 232 7.5%
Weighted average effective interest rate 7.5%
Floating rate
Cash assets 2,352 – – 2,352 3.5%
Weighted average effective interest rate 3.5%
Financial liabilities
Fixed rate
Bank loan (5,000) – – (5,000) 5.5%
Weighted average effective interest rate 5.5%
Floating rate
Bank overdraft (585) – – (585) 10.1%
Bank loan (12,500) (40,000) – (52,500) 7.0%
Weighted average effective interest rate 7.1% 7.0%
Year ended 30 June 2006
CONSOLIDATED
Financial assets
Fixed rate
Loan receivable – 216 – 216 7.5%
Weighted average effective interest rate 7.5%
Floating rate
Cash assets 4,525 – – 4,525 4.1%
Weighted average effective interest rate 4.1%
Financial liabilities
Fixed rate
Bank loan – (5,000) – (5,000) 5.5%
Weighted average effective interest rate 5.5%
Floating rate
Bank loan (26,461) (22,000) – (48,461) 6.5%
Weighted average effective interest rate 6.5% 6.5%
Interest on fi nancial instruments classifi ed as fl oating rate is repriced at intervals of less than one year. Interest on fi nancial instruments
classifi ed as fi xed rate is fi xed until maturity of the instrument. The other fi nancial instruments of the Group and parent that are not in the above
tables are non-interest-bearing and are therefore not subject to interest rate risk.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL59
30 FINANCIAL INSTRUMENTS continued
HEDGING ACTIVITIES
(a) Foreign exchange contracts
Gazal has entered into foreign exchange contracts to buy foreign currency to offset inventory purchase obligations and to protect against
exchange rate movements. These contracts are hedging highly probable forecasted purchases and they are timed to mature when payments
are scheduled to be made.
As these are designated effective hedges, an adjustment of $900,000 has been made to the hedge reserve while no adjustment (2006: $377,000)
has been included in the net profi t for the year relating to the forward exchange contracts. This comprises an asset of $38,000 (2006: $456,000)
and a liability of $938,000 (2006: $79,000).
(b) Interest rates
At 30 June 2007, the Group had an interest rate swap agreement in place with a notional amount of $5,000,000 whereby Gazal receives a fi xed
rate of interest of 5.47% and pays a variable rate equal to the BBSY on the notional amount.
The swap is being used to hedge the exposure to changes in interest payable on working capital requirements.
(c) Hedge of net investments in foreign operations
No loan of this type existed at 30 June 2007. Included in other loans at 30 June 2006, was a borrowing of GBP1,200,000 (A$2,960,770), which had
been designated as a hedge of the net investments in the subsidiary, and used to hedge the Group’s exposure to foreign exchange risk on these
investments.
Gains or losses on the translation of this borrowing are transferred to equity to offset any gains or losses on translation of the net investment
in the subsidiary.
(d) Equity investment
The Company holds an equity investment in an unlisted associated company which has been written down to nil value for book purposes.
The Company estimates the value of this investment as zero.
(e) Cash fl ow hedges
Year ended 30 June 2007 Amount Expiry date Rate
Forward exchange contracts – buy (US$’000) US$13,549 12.07.07–29.11.07 0.7752–0.8420
Forward exchange contracts – buy (HK$’000) HK$19,331 05.07.07–28.11.07 6.0255–6.4828
Amount Maturity Interest rate
Interest rate swaps A$5,000 02.12.07 5.47%
Year ended 30 June 2006 Amount Maturity Interest rate
Interest rate swaps A$5,000 02.12.07 5.47%
The forward exchange contracts are considered to be fully effective hedges as they are matched exactly against inventory purchases and any gain
or loss on the contracts is taken directly to equity. When the inventory is delivered the amount recognised in equity is adjusted to the inventory
account in the Balance Sheet.
60
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
30 FINANCIAL INSTRUMENTS continued(f) Held for trading
Year ended 30 June 2007 Amount Expiry Date Rate
Forward exchange contracts – buy (US$’000) – – –
Year ended 30 June 2006 Amount Expiry Date Rate
Currency options – buy (US$’000) US$600 29.08.06–29.01.07 0.7600
US$500 08.08.06–07.09.06 0.7425
Currency options – sell (US$’000) US$600 29.08.06–29.01.07 0.7600
US$1,000 08.08.06–07.09.06 0.7633
Forward exchange contracts – buy (US$’000) US$18,313 03.07.06–31.01.07 0.7297–0.7710
Forward exchange contracts – buy (HK$’000) HK$36,124 05.07.06–06.09.06 5.6215– 5.9409
31 RELATED PARTY DISCLOSURESThe consolidated fi nancial statements as at 30 June 2007 include the fi nancial statements of Gazal Corporation Limited and the subsidiaries
listed in the table below.
Name of controlled entity Notes
Country of
incorporation
Equity interest
2007 2006
Gazal Corporation Limited Australia – –
Gazal Apparel Pty Limited (a) Australia 100 100
Fashion Factory Outlets (Trade Secret) Pty Limited (a) Australia 100 100
Gazal Clothing Company Pty Limited (a) Australia 100 100
Manline Clothing Company Pty Limited (a) Australia 100 100
Mambo Graphics Pty Limited (a) Australia 100 100
Mambo Street Pty Limited (a) Australia 100 100
Ultimate Factory Outlets (UFO) Pty Limited (a) Australia 100 100
Body Art Australia Pty Limited (a) Australia 100 100
Brands United Pty Limited (a) Australia 100 100
Bracks Apparel Pty Limited (b) Australia 100 100
Coronet Corporate Pty Limited (b) Australia 100 100
Mambo International (Europe) Limited (In Liquidation) United Kingdom 100 100
Mambo Italy Srl Italy 100 100
Gazal (NZ) Limited New Zealand 100 100
Bracks (NZ) Limited New Zealand 100 100
Gazal Hong Kong Limited Hong Kong 100 100
The Lovable Company (Aust) Pty Limited (a) Australia 100 100
Gross Industries Pty Limited (b) Australia 100 100
Klippel Brothers Pty Limited (a) Australia 100 100
Gazal Productions Pty Limited (a) Australia 100 100
Crystal International Pty Limited (a) Australia 100 100
New Story Pty Limited (b) Australia 100 100
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL61
31 RELATED PARTY DISCLOSURES continuedThese companies have entered into a deed of cross guarantee dated 26 March 1993 with Gazal Corporation Limited which provides that
all parties to the deed will guarantee to each creditor payment of any debt of each company participating in the deed on winding-up of
that company. In addition, as a result of the Class Order 98/1418 issued by the Australian Securities and Investments Commission these
companies are relieved from the requirement to prepare fi nancial statements.
The consolidated Balance Sheet and Income Statement of all entities included in the class order “closed group”
are set out at footnote (c).
These companies meet the defi nition of small proprietary companies. As a result these companies are relieved from the requirement
to prepare fi nancial statements.
Financial information for class order closed group.
Gazal Corporation Limited Closed Group Balance Sheet at 30 June 2007
CONSOLIDATED
As at
30 June 2007
$’000
As at
30 June 2006
$’000
Current assets
Cash and cash equivalents 2,122 2,934
Trade and other receivables 22,388 19,739
Inventories 44,783 43,976
Derivative fi nancial instruments 38 456
Tax assets 1,711 –
Other current assets 3,055 1,852
Total current assets 74,097 68,957
Non-current assets
Receivables – 216
Investment 7,331 7,331
Property, plant and equipment 51,832 43,679
Intangibles 29,379 28,167
Deferred tax assets 3,804 3,230
Other 2,060 2,441
Total non-current assets 94,406 85,064
Total assets 168,503 154,021
a)
b)
c)
62
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
31 RELATED PARTY DISCLOSURES continuedGazal Corporation Limited Closed Group Balance Sheet at 30 June 2007 continued
CONSOLIDATED
As at
30 June 2007
$’000
As at
30 June 2006
$’000
Current liabilities
Trade and other payables 24,392 17,465
Derivative fi nancial instruments 938 79
Interest-bearing loans and borrowings 17,937 23,500
Income tax payable – 1,486
Provisions 4,343 4,131
Total current liabilities 47,610 46,661
Non-current liabilities
Interest-bearing liabilities 40,000 27,000
Provisions 516 438
Deferred tax liabilities 7,560 6,011
Total non-current liabilities 48,076 33,449
Total liabilities 95,686 80,110
Net assets 72,817 73,911
Equity
Contributed equity 69,816 72,257
Reserves 19,217 17,660
Retained earnings (16,216) (16,006)
Total equity 72,817 73,911
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL63
31 RELATED PARTY DISCLOSURES continued
Gazal Corporation Limited Closed Group Income Statement for the year ended 30 June 2007
CONSOLIDATED
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Sales revenue 243,181 209,832
Cost of sales (126,475) (103,905)
Gross profi t 116,706 105,927
Other revenues 7,750 3,490
Selling and marketing expenses (72,398) (64,187)
Distribution expenses (17,300) (14,612)
Administration expenses (18,370) (11,936)
Impairment and provision for lease termination of retail stores (1,170) –
Finance costs (4,167) (3,025)
Profi t before income tax expense 11,051 15,657
Income tax expense (2,668) (4,673)
Net profi t after related income tax expense 8,383 10,984
Retained profi ts at the beginning (16,006) (17,123)
Dividends paid (8,593) (9,867)
Retained profi ts at the ending (16,216) (16,006)
TRANSACTIONS WITH RELATED PARTIES IN THE WHOLLY OWNED GROUP
The following table provides the total amount of transactions that were entered into with related parties for the relevant fi nancial year:
CONSOLIDATED PARENT ENTITY
Transaction type Class of related party
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Loans to other related parties
Loan advanced Controlled entities – – 11,864 17,633
Loan advanced* Associated entity 232 216 – –
Loans from other related parties
Loan received from Controlled entities – – 14,472 15,764
Other transactions
Management charges received Controlled entities – – 800 800
* Mambo Graphics Pty Limited has a 20% investment in Icon Screenprinting Pty Limited. This investment has been fully written down.
Gazal Corporation Limited is the ultimate parent.
The Matilda Malouf Trust ultimately owns 50.4% of the ordinary shares in Gazal Corporation Limited.
All transactions with other related parties are conducted on normal commercial terms and conditions.
64
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
32 SIGNIFICANT EVENTS AFTER BALANCE DATEThere are no matters or circumstances that have arisen since 30 June 2007 that have signifi cantly affected or may signifi cantly affect the
operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent fi nancial years.
33 REMUNERATION OF AUDITOR
As at
30 June 2007
$
As at
30 June 2006
$
Auditor and review services
Australia
Ernst & Young – audit 146,250 140,000
Royalty, workers compensation and turnover audits 19,715 12,544
Acquisition due diligence – 119,814
Other services
– Taxation 120,479 96,724
– Other services 3,000 26,750
Affi liate fi rms of Ernst & Young
Audit – UK 12,285 41,607
Taxation – UK – 16,642
Other services – 15,216
Total fees paid to Ernst & Young 301,729 469,297
34 DIRECTOR AND EXECUTIVE DISCLOSURES
(A) DETAILS OF KEY MANAGEMENT PERSONNEL
(i) Directors
J.W. Blood Chairman (Non-Executive)
M.J. Gazal Director and Chief Executive Offi cer
D.J. Gazal Executive Director and General Manager – Youth Group
C. Kimberley Director (Non-Executive)
G. Paton Director (Non-Executive) – appointed 1 August 2006
(ii) Executives
C. Barnett Chief Operating Offi cer
P. Lovegrove General Manager – Intimate Apparel
D. Thompson General Manager – Outerwear Apparel
R. Gazal General Manager – Retail
P. Queeney General Manager – Supply Chain and IT
D. Coghlan Chief Financial Offi cer
P. Wood Company Secretary
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL65
34 DIRECTOR AND EXECUTIVE DISCLOSURES continued
(B) REMUNERATION OF KEY MANAGEMENT PERSONNEL
(i) Remuneration policy
The Remuneration and Nomination Committee of the Board of Directors of Gazal Corporation Limited is responsible for determining and
reviewing compensation arrangements for the Directors, the chief executive offi cer and the executive team. The Remuneration and Nomination
Committee assesses the appropriateness of the nature and amount of emoluments of such offi cers on a periodic basis by reference to relevant
employment market conditions with the overall objective of ensuring maximum stakeholder benefi t from the retention of a high quality Board
and executive team. Such offi cers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe
benefi ts such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost
for the Company.
To assist in achieving these objectives, the Remuneration and Nomination Committee links the nature and amount of executive Directors’ and
offi cers’ emoluments to the Company’s fi nancial and operational performance. All Directors and executives have the opportunity to qualify for
participation in the Gazal Employee Share Option Plan. In addition, all executives are entitled to annual bonuses payable upon the achievement
of annual divisional and corporate profi tability measures.
The Company has applied the exemption under Corporations Amendments Regulation 2006 which exempts listed companies from providing
remuneration disclosures in relation to their key management personnel in their annual fi nancial reports by Accounting Standard AASB 124
Related Party Disclosures. These remuneration disclosures are provided in the Remuneration Report section of the Directors’ Report designated
as audited.
(ii) Remuneration by category: Key Management Personnel
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Short term 3,642,721 3,078,360 1,121,953 1,164,078
Post employment 257,684 200,546 87,176 76,060
Share-based payments 304,122 137,673 167,556 62,553
4,204,527 3,416,579 1,376,685 1,302,691
66
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
34 DIRECTOR AND EXECUTIVE DISCLOSURES continued
(C) OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL
Balance at
beginning
of period
1 July 2006
Granted as
remun-
eration
Options
exercised
Net change
other
Balance
at end of
period
30 June 2007 Total
VESTED AT 30 JUNE 2007
Not
exercisable Exercisable
Directors
J. Blood 200,000 200,000 – – 400,000 400,000 400,000 –
M. Gazal 200,000 200,000 – – 400,000 400,000 400,000 –
C. Kimberley 150,000 150,000 – – 300,000 300,000 300,000 –
D. Gazal 100,000 100,000 – – 200,000 200,000 200,000 –
Executives
C. Barnett 325,000 200,000 (75,000) – 450,000 450,000 300,000 150,000
P. Lovegrove 200,000 – (50,000) (50,000) 100,000 100,000 100,000 –
R. Gazal 100,000 – – – 100,000 100,000 100,000 –
D. Coghlan 110,000 – (10,000) – 100,000 100,000 100,000 –
P. Wood 115,000 – (15,000) – 100,000 100,000 100,000 –
P. Queeney – 100,000 – – 100,000 100,000 100,000 –
D. Thompson – 100,000 – – 100,000 100,000 100,000 –
Total 1,500,000 1,050,000 (150,000) (50,000) 2,350,000 2,350,000 2,200,000 150,000
Balance at
beginning
of period
1 July 2005
Granted as
remun-
eration
Options
exercised
Net change
other
Balance
at end of
period
30 June 2006 Total
VESTED AT 30 JUNE 2006
Not
exercisable Exercisable
Directors
J. Blood – 200,000 – – 200,000 200,000 200,000 –
M. Gazal – 200,000 – – 200,000 200,000 200,000 –
C. Kimberley – 150,000 – – 150,000 150,000 150,000 –
D. Gazal – 100,000 – – 100,000 100,000 100,000 –
Executives
C. Barnett 225,000 100,000 – – 325,000 325,000 100,000 225,000
P. Lovegrove 100,000 100,000 – – 200,000 200,000 100,000 100,000
R. Gazal – 100,000 – – 100,000 100,000 100,000 –
D. Coghlan 52,000 100,000 (42,000) – 110,000 110,000 100,000 10,000
P. Wood 39,000 100,000 (24,000) – 115,000 115,000 100,000 15,000
Total 416,000 1,150,000 (66,000) – 1,500,000 1,500,000 1,150,000 350,000
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
ANNUAL REPORT 2007 GAZAL67
34 DIRECTOR AND EXECUTIVE DISCLOSURES continued
(D) SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL
30 JUNE 2007
Shares held in Gazal Corporation Limited (Number)
Balance
1 July 2006
ordinary
Granted as
remuneration
ordinary
On exercise
of options
ordinary
Net change
other
ordinary
Balance
30 June 2007
ordinary
Directors
J.W. Blood 350,000 – – – 350,000
M.J. Gazal (1) 6,097,315 – – 20,513 6,117,828
D.J. Gazal (1) 7,253,431 – – 20,513 7,273,944
C. Kimberley 166,491 – – 166,491
G. Paton – – – –
Executives
C. Barnett 75,000 – 75,000 – 150,000
P. Lovegrove 150,000 – 50,000 (40,000) 160,000
R. Gazal(1) 6,484,568 – – 194,419 6,678,987
D. Coghlan 482,640 – 10,000 – 492,640
P. Wood 299,000 – 15,000 – 314,000
D. Thompson – – – 30,600 30,600
30 JUNE 2006
Shares held in Gazal Corporation Limited (Number)
Balance
1 July 2005
ordinary
Granted as
remuneration
ordinary
On exercise
of options
ordinary
Net change
other
ordinary
Balance
30 June 2006
ordinary
Directors
J.W. Blood 308,772 – – 41,228 350,000
M.J. Gazal (1) 6,897,769 – – (800,454) 6,097,315
D.J. Gazal (1) 8,493,289 – – (1,239,858) 7,253,431
C. Kimberley 6,472 – – 160,019 166,491
A.C. O’Reilly* 10,293 – (10,293) – –
Executives
C. Barnett 75,000 – – – 75,000
P. Lovegrove 150,000 – – – 150,000
R. Gazal(1) 6,897,769 – – (413,201) 6,484,568
D. Coghlan 440,640 – 42,000 – 482,640
P. Wood 275,000 – 24,000 – 299,000
* Resigned 25 November 2005.
(1) Excludes Gazal Corporation Limited shares totalling 30,590,465 in which M.J. Gazal, D.J. Gazal and R. Gazal each have a relevant interest in the shares held by a wholly owned subsidiary of Gazal
Nominees Pty Limited (29,582,911) and directly by Gazal Nominees Pty Limited (1,007,554) as each of M.J. Gazal, D.J. Gazal and R. Gazal have a 25% shareholding in Gazal Nominees Pty Limited.
68
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007
34 DIRECTOR AND EXECUTIVE DISCLOSURES continued
(E) LOANS TO KEY MANAGEMENT PERSONNEL
There are no loans to Directors or executives.
(F) OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL
Messrs M.J. Gazal and D.J. Gazal are directors of Gazal Industries Pty Limited, a director related entity. During the year Gazal Corporation
Limited provided for the payment of expenses on behalf of Gazal Industries Pty Limited. These expenses have been recharged to Gazal Industries
Pty Limited. Mr J.W. Blood is a director of Macquarie Textiles Limited. During the year the Company purchased material from Macquarie Textiles
Limited on normal commercial terms amounting to $1,210,107 (2006: $616,507).
Mr J.W. Blood is a director of Canning Vale Weaving Mills Pty Limited. During the year the Company purchased material from Canning Vale
Weaving Mills Pty Limited on normal commercial terms amounting to $60,020 (2006: $66,478).
35 EMPLOYEES
CONSOLIDATED PARENT ENTITY
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
Year ended
30 June 2007
$’000
Year ended
30 June 2006
$’000
(a) Employee entitlements
Aggregate employee entitlement liability (Refer Notes 19 and 21) 5,209 5,387 – –
30 June 2007
Number
30 June 2006
Number
(b) Number of employees 793 727
(c) Superannuation
Gazal Corporation Limited and its controlled entities sponsor superannuation funds for offi cers and employees. Employee and employer
contributions and benefi ts are set out below:
Employees Offi cers
Benefi t type Accumulated fund Accumulated fund
Form of benefi t Lump sum benefi t on
retirement or withdrawal
Lump sum benefi t on
retirement or withdrawal
Contributions by:
– Employee Various Various
– Employer 9% 10%
The assets of the above funds were suffi cient to satisfy all benefi ts, which would have been vested in the event of termination of the funds,
or in the event of the voluntary or compulsory termination of the employment of each employee.
SHAREHOLDER INFORMATION
ANNUAL REPORT 2007 GAZAL69
SUPPLEMENTARY INFORMATION AS REQUIRED BY AUSTRALIAN SECURITIES EXCHANGE LISTING REQUIREMENTS.
ORDINARY SHAREHOLDERS AS AT 18 SEPTEMBER 2007
These statistics relate to 1,003 shareholders of 60,675,978 ordinary shares. The proportion of shares held by the 20 largest shareholders
is 87.27%. There are 95 shareholders who hold less than a marketable parcel.
VOTING RIGHTS
On a show of hands or on a poll, every member present in person or by proxy shall have one vote for every ordinary share held.
DISTRIBUTION OF SHAREHOLDERS AND SHAREHOLDINGS AS AT 18 SEPTEMBER 2007
Size of holding
Number of
shareholders
Number of
ordinary shares % of total
1–1,000 301 141,910 0.23
1,001–5,000 395 1,163,102 1.92
5,001–10,000 133 1,042,005 1.72
10,001–100,000 144 3,850,789 6.35
100,001 and over 30 54,478,172 89.78
Total 1,003 60,675,978 100.00
SUBSTANTIAL SHAREHOLDERS
The following information is extracted from the Company’s Register of substantial shareholders as at 18 September 2007.
Name
Relevant interest in
fully paid shares Percentage
Gazal Industries Pty Limited 29,582,911 48.8
Woodcray Pty Limited 29,582,911 48.8
Gazal Nominees Pty Limited as trustees of the Mathilda Malouf Settlement Trust,
a trust established for the benefi t of the family of J.S. Gazal
30,590,465 50.4
Michael Joseph Gazal 35,214,039 58.0
David Joseph Gazal 33,797,783 55.7
Richard Victor Gazal 31,729,870 52.4
Judith Anne Gazal 30,611,763 50.5
RBC Global Services Australia Nominees Pty Limited 3,336,249 5.5
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TOP 20 SHAREHOLDERS
TOP 20 SHAREHOLDERS AS AT 18 SEPTEMBER 2007
Registered holder
Number of
ordinary shares
% of
total shares
1. Gazal Industries Pty Limited 29,582,911 48.76
2. Michael Joseph Gazal 4,045,328 6.67
3. RBC Global Services Australia Nominees Pty Limited 3,336,249 5.50
4. Argo Investments Limited 2,900,000 4.78
5. Alan Dare Jennings 2,529,430 4.17
6. David Gazal Family Company Pty Limited 1,734,362 2.86
7. David Joseph Gazal 1,472,956 2.43
8. Cinu Investments Pty Limited 1,116,649 1.84
9. Gazal Nominees Pty Limited (Mathilda Malouf Trust) 1,007,554 1.66
10. Yoogalu Pty Limited 1,000,000 1.65
11. Andrew Rich Enterprises Pty Limited 738,480 1.22
12. UBS Wealth Management Australia Nominees Pty Limited 727,758 1.20
13. M J & H H Gazal Pty Limited 578,246 0.95
14. David John Coghlan 492,640 0.81
15. Gwynvill Investments Pty Limited 366,000 0.60
16. Citicorp Nominees Pty Limited 345,559 0.57
17. David John Holmes 263,333 0.43
18. Lippo Securities Nominees (BVI) Limited 250,000 0.41
19. John Wilson Blood 250,000 0.41
20. Brickworks Investments Company Limited 211,865 0.35
52,949,320 87.27
AUDITOR
ERNST & YOUNG
680 George Street Sydney NSW 2000
BANKERS
WESTPAC BANKING CORPORATION
60 Martin Place Sydney NSW 2000
COMPANY SECRETARY
PETER JAMES WOOD CA, FICS
REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS3–7 McPherson Street
Banksmeadow NSW 2019
Telephone: (02) 9316 2800
Fax (02) 9316 7207
Web: www.gazal.com.au
SHARE REGISTRY
REGISTRIES LIMITED
28 Margaret Street Sydney NSW 2000
Telephone: (02) 9279 0677
SOLICITOR
MARC DUNN LLB
STATE OF INCORPORATION
VICTORIA, AUSTRALIA
SECURITIES EXCHANGE LISTINGSGazal Corporation Limited shares are quoted on
the Australian Securities Exchange
ASX CODEGZL
CORPORATE DIRECTORY
ANNUAL REPORT 2007
ABN 57 004 623 474
www.gazal.com.au
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