ar08 - hanes australasia · 2013. 8. 6. · exceeded our earnings, giving us the ability to reduce...

CONTENTs 01 WE ARE BRANDs 02 Full YEAR REsulTs 04 ChAiRmAN’s lETTER 08 CEO’s REPORT 10 BONDs 14 iNNOvATiON & REsEARCh 16 POiNTs OF PREsENCE 17 DuNlOP vOllEY 20 EvERlAsT 21 hARD YAkkA 24 lEADiNg PROCEssEs 26 TAlENT & CulTuRE 27 BusiNEssEs BEhAviNg WEll 30 OPERATiONAl highlighTs 34 BOARD OF DiRECTORs 38 sENiOR mANAgEmENT TEAm 40 shERiDAN 44 FiNANCiAls 45

PACiFiC BRANDs

AR081

We are obsessed by brands; we th rive on brands; we believe in brands. Brands add value to what c ould otherwise be just products.Being responsible for some of Aus tralia’s most loved brands (some living legends) is not easy.We like it that way.it makes our expertise and track re cord all the more valuable. it is our competitive advantage. un derstanding consumers’ deepest needs, knowing when and how to in novate, whether to lead a trend or create whole new categories, ho w we take never-before-seen products to market gives us our ed ge.By being better at brands all our st akeholders win.Our consumers get products that e xceed their functional and emotional needs. Our retailers get stock that people actively come to their stores to find. And ou r shareholders get regular reminders of what top brands can do for bottom lines.Pacific Brands drives brands. And vice versa.

We are brands

Pacific Brands 2008 Full Year Results

Resilient and innovative business delivered results in line with guidance despite challenging conditions.ThE YEAR iN REviEW

•Fullyearsalesandprofitgrowthdelivered–Totalrevenueup16.3%to$2,116.6m–EBITAincreased18.1%to$229.1m

• Marginsimproved–EBITAmarginof10.8%fortheyear–11.3%inthesecond-half

•NetProfitAfterTaxup11.1%to$119.3m(pre-amortisation)•Earningspershareincreaseof11.1%to23.7centspershare(pre-amortisation)•Strongcashflowaftercapitalexpenditure–up39.2%to$157.2m•Netdebtreducedby$59.5mto$742.7m• Improvedreturnoncapital–Increasedreturnonaveragecapitalemployed–up0.6%points

• Increaseddividends–Finaldividendof8.5centspershare,resultingina17.0centspersharefullyeardividend–Fullyfrankedto30%forAustralianshareholders

DRivERs OF PERFORmANCE

•Categoryleadershippositionmaintainedandstrengthened•Growthofshareofmarket•Returnoninvestmentiniconbrands•Acquisitionsintegratedseamlesslyandperformingtoplan• BusinesstoBusiness(contracteduniformsupply)providinggrowthandincreaseddiversityofrevenuesources• Disposalscompletedsuccessfully–WorldBrandsJVandtheNZFoams,FlooringandBeddingbusinesses–whichcontributed$48.4minrevenueduringFY08

4 PACiFiC BRANDs AR08

Underwear/Hosiery

30.1% Outerwear/Sport

31.0% HomeComfort

24.8% Footwear

12.8% Other

1.3%

Departmentstores

14.0% Discountdepartmentstores

24.7% Specialty/Independents/Other

51.7% Supermarkets

5.0% SalesoutsideAustralia/NZ

4.6%

PORTFOliO sNAPshOTsAlEs BY OPERATiNg gROuP sAlEs BY CusTOmER ChANNEl

PACiFiC BRANDs Full YEAR REsulTsYEAR ENDED 30 JuNE 2008

Full Year (A$ million) FY07 FY08 % Chg

Totalnetsales 1,820.7 2,116.6 16.3

EBITDA 216.4 253.0 16.9

EBITA 194.0 229.1 18.1

EBIT 192.3 226.1 17.6

EBITAmargin% 10.6 10.8

NPAT(pre-amortisation) 107.3 119.3 11.2

ReportedNPAT(postminorityinterests) 106.0 116.6 10.0

EPS(pre-amortisation)cents 21.3 23.7

EPS(reported)cents 21.1 23.2

DPS(cents) 16.5 17.0

PACiFiC BRANDs

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“ Can’t get on the plane without it.” mikaela, 29, international woman of mystery, loves her Tontine pillow

PACiFiC BRANDs

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Dear shareholders, The2008FinancialYearshowedPacificBrandstobearesilientbusiness,deliveringresultsthatdemonstratedgoodmarketandfinancialmanagementinaperiodofdeterioratingmarketconditions.Wehaveachievedthisoutcomebyplacingmoreemphasisonourcorebrands.Inaddition,acrossthecompanywebecamemoreeffectiveatmanagingourinventorylevelsandworkingcapital.Asmostofourearningsarecashearnings,wehavebeenabletokeepourdividendpayoutratioatthehigherendofourrangeofexpectations.Combinedwithbettermanagementofourworkingcapital,ourcashgenerationexceededourearnings,givingustheabilitytoreduceourdebtlevelsandpayahealthydividend.Asaresult,webelieveweenter2009morefocusedontheaspectsofourbusinessthatcanmakeadifferenceinthismarketenvironment.Wehavedemonstratedthatwhenwedeliverproductstothemarketplacewhicharedifferentiated,theoutcomesarequiterewarding.Whileoursales,profitandcashpositionhaveneverbeenhigher,wewerenotcompletelyimmunetothedownturnintheretailenvironment.Ourprincipalstrategyistocontinuetoinvestinourmarket-leadingbrandsaswellasourpeople.Ifwedothiswell,webelievewewillbewellpositionedtocapitaliseontheseeffortsovertheentirecycle,especiallywhenretailconditionsimprove.Asyounodoubtknow,wehaveappointedMsSueMorphetasChiefExecutiveOfficertoreplacePaulMoore,whoretiredattheendof2007after30-yearsofadistinguishedcareeratPacificBrands.Priortoassumingthisnewrole,Sueranourmostsuccessfuldivision.Underherguidance,weareformulatingthenextstagesofPacificBrands’evolution.Asourbusinesshasbroadenedandincreased,weelectedtobroadenourexpertiseontheboardwiththeappointmentofJamesMacKenzieinMay2008.JamesbringsextensiveexperiencetoPacificBrands,havingheldboardpositionswithadiversesetoflistedcompaniesinAustraliaandinternationally.

Inadditiontoourresponsibilitytoyou,ourshareholders,oursuccessdependsuponhavingabalancedviewofourresponsibilitiestothecommunityanditsneeds.Wehavestrengthenedthoserelationshipswithourcommunitypartners,notonlythroughdirectsupportbutbysupportingourpeopleastheyconnectwithlocalcommunitygroups,schoolsandcharities.PacificBrandsisalsoseriousaboutinvestinginsustainableoptionsforthefuture.InthepastyearweimplementedavarietyofinitiativestohelpreduceourimpactontheenvironmentandwehavebolsteredouralreadystrongcommitmenttoethicaltradingwithmembershipoftheEthicalTradingInitiative.Ourentireteamcontinuestoworktoidentifytheareaswherewecanbestuseourpositionandresourcestomakeadifferencetoallourstakeholders.Thankyouforyourcontinuedsupportduringtheyear.Weareoptimisticaboutthefuture.ItrustyouwillfindthisAnnualReportinformativeanduseful.

PatHandleyChairmanPacificBrandsLimited

Pat handleyChAiRmAN’s lETTER

“WE hAvE DEmONsTRATED ThAT WhEN WE DElivER PRODuCTs TO ThE mARkETPlACE

WhiCh ARE DiFFERENTiATED, ThE OuTCOmEs ARE quiTE REWARDiNg.”


PACiFiC BRANDs

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PacificBrandsisanexcellentcompany.ItsstrengthisatestamenttotheeffortandvisionofourpreviousChiefExecutiveOfficerPaulMoore.AsthenewChiefExecutiveOfficer,Iamhonouredtohavetheopportunitytoleadthenextphaseofourdevelopment.Asyouknow,PacificBrandshasalwaysbeenbuiltonfourpillars–people,products,serviceandbrands.Inpreviousannualreportswehavetalkedaboutourtalentedpeople,ourproductsandourservices.Inthisreportwegivespecialfocustoourpowerbrandsandhowtheyhelpdrivetheperformanceofourbusinessinallmarketconditions.PacificBrandshasconcludedanotherstrongyear.Despiteachangingmarket,wedeliveredresultsinlinewithourcommitmenttoourshareholders–15–20%salesgrowthandmorethan10%profitgrowth.Themeasuresofourperformance–sales,earningsbeforeinterest,taxandamortisation(EBITA),netprofitaftertax(NPAT),earningspershareanddividends–continuetoimprove.Liketherestoftheretailsector,wewerenotimmunetothecurrentdownturninconsumersentiment.However,ourresultsshowthatourbusinessmodelisresilient.Wearewellpreparedandwellequippedtomanagethroughthesechallengingtimes.Iampleasedtoreportthatourtwoacquisitionsfromtheprioryear,YakkaGroupandBrandCollective,arebeingsuccessfullyintegratedintoourbusinessandbothcontributedpositivelytoourresult.Asplanned,theYakkaGrouphasaddedanotherdimensiontoPacificBrandswithastrongworkwearandcorporateapparelbusiness,enablingustoleverageourproductandsourcingcapabilitiesintoapredominantlynewchannel.Ourrevenueincreasedby16.3%to$2,116.6million,ourdebtwasreducedby7.4%to$743millionandwe’vemaintainedourstrongcashflowaftercapitalexpenditurewithanetresultof$157million–up39%onlastyear.Ourorganicgrowthhasalsocontinuedthroughrecentdifficultconditions.Australiancorebusinessgrew2.5%fortheyear.PacificBrandstodayisavastlydifferentcompanytotheonethatlistedin2004.However,theessentialingredientsofourcompanyremainthesame:ourgreatbrands,products,serviceandourgreatpeople.Wewillcontinuetoevolve,developandimprovewithadedicatedleadership

teamcommittedtodeliveringperformanceandincreasedshareholdervalue.Werecentlycompletedafullreviewofthecompany,whichconfirmedtheeffectivenessofourbusinessstrategy.Whilstexposingareaswherewecanimproveandbuildonourstrengths,weidentifiedanumberofgrowthopportunitiesworthyofprudentpursuit.Thisreviewhasenabledtheexecutiveteamtocrystalisetheirfocusonthebusinesswithaclearvisionforthefuture,specificallytargetedongrowth,whilstcontinuingtoimprovethoseareasofthebusinessnotperformingaswellaswewouldlikeorexpect.Thiswillbeachievedbygivingevengreaterfocustoourstrongestbrandsandcontinuinginvestmentinourcorestrengthofproductinnovation.Wearealsoworkingtoensurethattheretailpresentationandpenetrationofourproductsimprovesourconsumers’shoppingexperience.Everyindicationsuggeststhatthenextyearwillcontinuetobechallenging–butwearereadyforit.Ourgreatdesignteamswillkeepleadingthewayanddevelopingthebestproducts;ourbusinesseswillprovidetheircustomersthebestservice;andwewillcontinuetohavethebrandsourcustomersandconsumerswantandneed.Wewillcontinuetogroworganicallytodeliverhigherrevenue.Wewillgeneratestrongcashflow.Inthe2009financialyearweexpecttoliftourlike-for-likesalesby2–3%,EBITAandNPATby3–5%.Onapersonalnote,IwouldliketothankPaulMoore,thePacificBrandsBoard,theSeniorLeadershipTeamandallPacificBrands’employeesforsupportingmeduringmytransitionintotheChiefExecutiveposition.IfeelwearewellpositionedtodirectthecompanyintoitsnextphaseandIlookforwardtoworkingcloselywiththeteamduringthecomingyear.

SueMorphetCEOPacificBrandsLimited

sue morphetCEO’s REPORT

“ThE EssENTiAl iNgREDiENTs OF OuR COmPANY REmAiN ThE sAmE: OuR gREAT BRANDs,

PRODuCTs, sERviCE AND OuR gREAT PEOPlE.”

PACiFiC BRANDs

AR0811

“ All the right moves.” sam and vanessa, 16, teach themselves the latest Bonds mash Tv moves

PACiFiC BRANDs

AR0813

“ it’s all about the look.” Cody, 13, accomplished busker and Chesty wearer


Bonds

iF uNDiEs ARE JusT uNDiEs, hOW COmE BONDs is BETTER?Twentyyearsagotheconceptofarangeofclothingbasicsasa‘Superbrand’wouldhaveseemedabsurd.Feweverseeyourunderwear;asweatshirtisasweatshirt;babyclothesarewash’nwear.HowcouldaBondstaghopetomakeourbrandofbasicsmorehighlyvaluedanddesiredthanthoseofourcompetitors?Tomakethetaskharderstill,mostsuccessfulbrandshaveatightlydefinedmarket.Oursis‘everyone’:allages,alldemographics…everyone.Achallengeindeed.Butbecomea‘Superbrand’isexactlywhatBondshasdone:•Bondswasrecentlyrankedinthetop10mostvaluablebrandsinAustralia(outof1456).(Source:2006BrandAssetValuator,GPY&R)

•AlmostfouroutoffiveAustralianteensthinkBondsisthenumberoneclothingbrandthatreflectstheirvalues.(Source:DollyYouthMonitor,’07/’08)

• In2008,BondswasrankedthefifthmostauthenticbrandinAustralia(outof104leadingAustralianbrands).(Source:PrincipalsSynovate,’08)

ThesecrethasbeenmanagingtheBondsbrandwithpassion,visionandrealisingitspotentialbyspottingtrendsothersdon’tandtakingthemtomarketwithperfectlyexecutedcampaigns.Ourhistory(includingChestyBondwhoturned70in2008)isrichandtobeleveraged.Butthere’sathinlinebetween‘oldfavourite’and‘oldfashioned’andthekeytoBonds’successistobecontemporaryandforeversurprisingourconsumersbybeingonestepahead.Bondsambassadors,particularlySarahMurdochandPatRafter,haveplayedakeyroleinoursuccess.Thisyear,cricketerMichaelClarkejoinedourteamtohelpuscontinuetokeepBonds’publicfacefresh.AlongthewayBondshasinventedmanynewwordsthatarenowpartoftheAustralianvernacular:Hipsters,Hoodies,Hi-TopsandotherssuchasChesty,CottontailsandEasysuit.Andwe’renotabouttorestonourlaurels.PacificBrandsisascommittedasevertomaintainingBonds’momentumandgivingallAustralianstheconfidencetolookgoodandfeelgoodeveryday.

The key to Bonds’ success is to be contemporary and forever surprising our consumers by being one step ahead.

PACiFiC BRANDs

AR0815

innovation with insightiNNOvATiON & REsEARChAtPacificBrandsweloveclassicsandhavemorethanourfairshareofthem–ChestyBondsingletsandDunlopVolleyshoestonamebuttwo.ButstayingrelevantastimeschangeisessentialforallbrandsandknowingwhenandhowtoinnovateissomethingPacificBrandshasbecomeamasterofovermanyyears.Nobodydoesitbetter.Ourproductdevelopmentteamsaretheindustry’sbestatidentifyingemergingtrendsanddevelopingproductstocreatedemandandleadthemarket.Weinnovateinstyle,functionandquality–sometimesallthreeatonce.Attheheartofitisourcommitmenttoresearch.Notjustconsumerresearch,soweknowwhatnewproductsorimprovementspeoplewant,butproductresearch,sowecancreatenewproductsnoone’severdreamtofanddrivedemandthroughourmarketingcampaigns.Atthesametimewekeepawatchfuleyeonemergingtrendsbothhereandoverseassowe’reaheadofthecurveandnotplayingcatch-up.WespottrendsanddevelopproductsfromscratchthroughourownR&D.Sometimeswespotnichesolutionsandturnthemintomass-marketopportunities.Aboveallelse,itisPacificBrands’skilfulmanagementofinnovationandresearchthatkeepsourclassicsatthetopoftheirgameandcreatesthenewclassicsoftomorrow.HoodiesandEasysuitsaretworecentexamplesfromBonds.SlazengerBioSlyxandVoodooLadderControlPantyhosearetwofromotherbrandsinthePacificBrands’portfolio.Weworkhardtomaketheordinaryextraordinary.Wewantourconsumerstonotonlylookgoodbutfeelgreat.Soweneedtoknowhowcomfortabletheyareintheirsocksandunderwear,howfastkidsfeetgrowandwhetherourpillowsaregivingthenecksupportforagoodnights’sleep.It’swhatkeepsusinfront.Ourretailpartnersaregreatsupportersofourinnovationandabilitytogrowanddrivecategoriesthroughdesign,developmentandadvertisingandmarketingactivities.Withtherightproduct,attherightprice,ontherightshelf,intherightplace,attherighttime,ourclassicswillstayclassicandnewclassicswillemerge.

Throughout2007/2008thesearejustsomeofthenewproductsandinnovationsweintroducedtothemarket:•DunlopVolleySSSkateseries•VoodooLadderControlPantyhose•SlazengerBioSlyxcompressiontrainingproducts•MookslovesVolleycollaboration•DunlopDouble-LaminatedCarpetCushion•MerrelllightweightBaradoshoes•SHEbySheridanbedlinenrange•BondsHi-Tops•BondsEasysuit•YakkaXtremerangeofworkwear

BONDs hi-TOPs

TheBondsteamsawtheemergingtrendofhigh-waistedjeansandbeltedskirtsintheUSandrealisedthatwhenitreachedAustralia,asitwassureto,therewasnounderwearspecificallydesignedforhighwaistlines.TheBondsHi-Topwasborn.Launchedwiththeunforgettable‘Mash’dancecampaign,itbecameaninstantsuccess.

BONDs EAsYsuiT

Existingcoverallshaveaseriesofstuds,tiesorbuttonsthat,evenforthemostexperiencedofparents,canbewell…tricky.TheBondsteamsawthisasanopportunityandafterIntensiveresearch,gavebirthtoaninnovationinbabywear,the‘BondsEasysuit’–thefirsteverall-in-onebabysuitwithoutbuttons,studsorfastenersofanykind.SinceitslaunchinDecember2007,saleshavesurpassedallexpectations.

vOODOO lADDER CONTROl PANTYhOsE

It’stheoldestchallengeinpantyhose:thesheerfinishwomenwantwiththedurabilitytheyneed.VoodooovercameitbydevelopingLadderControlPantyhosewithelastomericyarnbondedwithaspecialheattreatment.Evenifaholedoesoccur,thebondedfabricstopsitladdering.IndependenttestsbyRMITUniversityagree.

slAzENgER BiOslYx

TheSlazengerteamsawthegrowthandbenefitsof‘compression’garmentsbutcouldalsoseethattheirhighpricewaskeepingthemoutofreachofmany‘everyday’athletes.TheytookupthechallengeandtheresultwasBioSlyx,whichdeliveredtheperformanceneededatafractionoftheprice.Notsurprisingly,they’vebeenarunawaysuccess.


having our products in the right place, at the right time, presented in the right way is one of our greatest opportunities for competitive advantage.

POiNTs OF PREsENCEPointsofpresenceequatestohowourproductlooksatpointofpurchase–andit’smoreimportanteveryday.Wehavethousandsofpointsofpresencewhenyouconsiderourfullrangeofbrands.Thecriticalthingforusisthateverypointofpresencemeetsourstandards–andisconsistentwiththebrands’valuesandproposition.Wehavesomewaytogobeforeweachievethestandardsweaspiretoacrosstheboard–butitissomethingweareworkingonandwebelievethattherewillbesalesupsidetobegained.Thisdisciplineofoptimumpresentationmeetsconsumers’expectationsandhelpsdrivethecategoryforretailers.Themorewehavefocusedonimprovingoursophisticationinthisarea,themoreweseeopportunitiesemerge.PartlyasaconsequenceofouracquisitionsofSheridanandBrandCollective,andtheworkwehavedonewithourheroBrands,wenowhavedirectinfluenceoverpresentationthroughconcessions,conceptstoresandbrandedrelationshipswithlicensedthirdpartyretailoperators.Ourpresencetodayincludes:•60concessionsinDepartmentStores•70ClearanceStores/DirectSheridanOutlets•50Concept/Boutique/WorkwearStores• 65TotallyWorkwearandBike-Hubstoreslicensedtothirdpartyoperators

•StoresinUKandretailpartnerships

Wearealsodiversifyingourthinkingandattitudestoensurewecapitaliseonchangesinbuyingbehaviour–suchastheinternet.

Closing the sale

PACiFiC BRANDs

AR0817

“ in total? 23 pairs and counting.” ian, 55, founder of the volley Fanclub


PACiFiC BRANDs

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how do you innovate a classic? very carefully indeed.

mAkiNg uNDERsTATED OuR BEsT FEATuREDunlopVolleys,born1939.TheshoeofchoicefornineoutoftenWimbledonplayersforfortyyears–EvonneGoolagong,KenRosewall,MargaretCourtamongthem.VerylittlehaschangedinVolleysinmorethan75years,rightdowntostillhavingthesamepatternonthesole.WhenDunlopjoinedPacificBrands,Volleyspresentedafascinatingchallenge.Clearlythesportsshoelandscapehadchangedbeyondrecognition–nowdominatedbysomeofthebiggest,mostaggressivelymarketedbrandsintheworld.YettherewassomethingaboutVolleys–theirverybasic-ness–thatourteamfeltcouldprovideawelcomeantidotetotherelentlesswaveofslicksportsshoemarketing.Couldwereallyturnunderstatedintobrilliant?The1.8millionpairsofVolleyssoldinthe12monthstoJune2008provesourteamwasright…wecouldandwedid.Ittookskill,carefulplanningandadegreeof‘un-marketing’.InDecember2007,welaunchedthe‘ExceptionallyAverage’campaignfeaturingUS‘HandMusician’GerryPhillips,wearingVolleyInternationalswhileplayingclassictuneswithnothingbuthishands.ThecaptivatingquirkinessofthecampaignmatchedtheVolleybrandpropositionperfectlyandstruckachordwithconsumers.Salesrose42%onthepreviousyear,withthecampaignitselfdevelopingahugefollowingoninternetvideositeYoutube.Howdoyouinnovateaclassic?Verycarefullyindeed.Whenyourbrandisgroundedbybeingunderstated,bellsandwhistleswillnotbewellreceived.Butinnovateourteamhas–bothskilfullyandsuccessfully.

vOllEY ss

HearingthattheclassicVolleywasnolongermeasuringupagainstthemoreadvancedtricksoftoday’sskatescene,DunlopteamedupwithAustralianskaterTrevorWardtocreateamorehard-wearing,double-layeredcanvas,paddedshoeperfectforthejob.

sTEEl CAPPED vOllEYs

Volleyshavelongbeenworninthetradesector–particularlybyroofersandpaintersduetothehighgripofthesole.SowereleasedSteelCappedVolleysmeetingthesafetyrequirementsofthemodernworksiteandstilllettingyoungguysweartheshoestheywant.

mOOks lOvEs vOllEYs

InOctober2007,DunlopandAustralianstreetwearlabel,Mooks,collaboratedontheMookslovesVolleysrange–alimitededitionrangeofVolleyInternationalscustomisedwithMooksdesigns.Salesweregreatandconsumerfeedbackwaspositive,sowatchoutformorecollaborationsinthefuture.

Asweheadtowards2009,DunlopVolleysareinaleagueoftheirownwithahugeandloyalfanbase.JustflickingthroughthepicturesandstoriesoftheirbelovedshoesthatVolleyfansuploadonourwebsiteisevidenceenoughofthisremarkablebrand’scultstatusandenduringpotential.

Dunlop volley


Everlast

EvERlAsT PuNChEs WEll ABOvE iTs WEighTEverlastgrewuponthestreetsofTheBronxandbecametheoriginalboxingbrand,withthetoughreputationyou’dexpectfromthatstartinlife.Almostacenturylater,Everlastisnowknowninmorethan100countriesandbecameapartofPacificBrandsin1995.Sincethen,thebrand’srichheritagehasbeencarefullymanagedtoleverageitsstrengthswhilebuildingapowerfulbrand,relevanttotheultra-competitivesportsapparelmarketinAustraliatoday.NosmalltaskwhenEverlastisoutspentmanytimesoverbysomeoftheworld’smostheavilymarketedsportsbrands.ButEverlastalwayspunchesaboveitsweight.Inthelastfiveyearssaleshavesoared34%andwe’renowfightingattheelitelevel–upwiththetopthreesportsapparelbrandsinthecountryEverlastiswidelycelebratedasanauthenticsportsfashionbrand,withabroadappealtobothsexesrightacrossthecountry.Andwhilewe’vemanagedEverlastfortheAustraliansportsmarket,we’veneverlosttouchwiththebrand’sgrittyheritage.Everlastisabrandwiththestrengthandcredibilitytobecomeaneventoughercompetitorinthesportsapparelarena.Afterall,nothingsoftcomesoutofTheBronx.

And while we’ve managed Everlast for the Australian sports market, we’ve never lost touch with the brand’s gritty heritage.

PACiFiC BRANDs

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“ Whoever said ‘no pain no gain’ was right.” Thomas, 30, wears Everlast but sometimes doesn’t feel everlasting


PACiFiC BRANDs

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hard Yakka

gROWiNg AN iCONiC BRAND is hARD YAkkAWherecanyoutakeabrandthat’sover70yearsoldandalreadysynonymouswithworkwearAustraliawide?Onwardandupward–justsolongasyoucontinuallyreinforceyourcorestrengthsanduseinnovationsmartlytoenhance(andneverdiminish)youriconicstatus.In2007/2008,PacificBrands’expertiseinmanagingbrandshasservedHardYakkawell.Thebrandremainstopofmindandrelevantontoday’sworksitesandtothenewgenerationoftradiesthatinhabitthem.AndallwithoutevercompromisingHardYakka’shard-earnedheritageofruggedtoughness,durabilityandstrength.InApril2008wereleasedHardYakkaXtremeWorkwear,utilisingnewtechnologyandfabricstoprovideeventougherclothingforthosedoingthehardestyakka.We’vealsoimprovedourexistinglineswithmoredurablefabrics,UPF50+sunprotection,double-stitchedseamsandextrapockets,includingoneforeverytradie’smostimportanttool–themobilephone.Andwe’vekeptacautiouseyeontheroleoffashion,ensuringtheHardYakkarangeisasrelevanttodayasitwasinthebeginning.InMay2008,HardYakkahaditsbiggestsalesmonthever.Youcouldsayallourhardyakkaispayingoff.

hARD YAkkA hARD FACTs

• ‘Yakka’isanindigenousAustralianwordmeaning‘work’•The‘HardYakka’chanthasremainedlargelyunchangedsinceitwasfirstintroducedinadvertisingalmost40yearsago

•HardYakka’ssupportoftheCollingwoodAustralianRulesFootballClubismorethan30yearsold,makingitoneofthelongestpartnershipsinAustraliansport.

in may 2008, hard Yakka had its biggest sales month ever. You could say all our hard yakka is paying off.


“ We breed them tough out here” ken, 62, wears hard Yakka and his favourite Chesty. he loves his dog.

PACiFiC BRANDs

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(Endnotes)i TwentyFootEquivalentUnits(TEUs)

WORlD ClAss suPPlY ChAiNPacificBrandsisoneofthelargestimportersofshippingcontainersinAustralia.Inthe2008FinancialYear,weshipped14,000containersi,deliveredtomorethan23,000customeraddressesandsuppliedinexcessof300millionunitsinternationally.Thescaleofourbusinesshasdemandedweoperateaworld-classsupplychain,spanningtheAsiaPacificregionanddeliveringtocustomersthroughouttheworld.Infact,LogisticsMagazine–theofficialpublicationoftheSupplyChainLogisticsAssociationofAustralia–rankedPacificBrandsasAustralia’sTopApparelSupplyChain.Thesophisticationofoursupplyoperationsallowsustoofferflexibilitytoourcustomersandincreasespeedtomarketforthebenefitofourconsumers.Wearecommittedtomaintainingworld-bestpracticewithoursupplychainandwearecontinuallylookingforwaystooptimiseitsspeedandefficiency.Onerecentimprovementinourcontinuingevolutionhasbeentheconsolidationoffourofourbusinessesintoonedistributioncentreatthenew$1billionTradeCoastIndustrialParkatEagleFarmnorth-eastofBrisbane.PacificBrandswasthefoundationtenantofthesite,acquiringa24,000m2warehouse,2,000m2officeandshowrooms.Thenewlocationisasignificantimprovement,deliveringbettersafetyoutcomes,modernhandlingequipmentandmoreadvancedtechnology.Wehavealsoimplementedastrategicprocurementplanthathasledtousdevelopinganumberofkeypartnershipswithsuppliersofindirectgoodsandservicessuchastravel,communications,logisticsandinsurance.Bysharingthissupplierbaseacrossthebusiness,productivityisincreasedandcostsareminimised.

sOuRCiNgThemajorityofourproductsaresourcedfromChina.OurrelationshipswithoursuppliersinChinaarelong-standing,builtonour50-yearhistoryintheregionandbasedonsharedvaluesofflexibility,quality,speedandethicalresponsibility.AscostsinChinaincrease,wewillcontinuetoworkcloselywithourkeysuppliersandstrategicpartnerstomaintainthequalityofourproductswhileatthesametime,achievingthelowestcostsandreducedleadtimes.WhilethemajorityofourproductsaresourcedfromChina,wealsosourcefromotheremergingproducernations.WewillcontinuetosourceproductsfromothercountriessuchasVietnam,IndonesiaandBangladesh.WearealsoinvestigatingemergingproducerregionsinChina.PacificBrandsAsia(PBA),ourpermanentpresenceinAsia,isbasedinHongKong.Itsobjectiveistoensurethatwebuildormaintainmeaningfulandtrustedrelationshipswithleadingsuppliers,ensuringthatourstandardsofqualityandsocialcomplianceareupheld.WedriveoursourcingscalethroughPBAwhereitisappropriatetodoso.

leading Processes

300 million units. 23,000 customers. 14,000 shipping containers. 9,000 employees in 8 countries. more than $2 billion in net sales.


Frommanufacturingandwarehousing,toproductdevelopment,salesandmarketing,everyonehelpsmakethecrucialconnectionbetweenourbrandsandtheconsumerswholovetobuythem.Wehavefivecorevalues,whichweencourageallouremployeestoliveby.Theyurgeustoworksmarterandmorecollaboratively–andtoensurethemostethicalandcommercialoutcomesforourcustomers,shareholdersandpartners.Ourvaluesare:•Unity–oneteam,onecompany;• Innovation–daretotry;•Speed–better,smarter,faster;•Accountability–takeresponsibility;and•Commitment–tobrands,employees,retailers,consumers,andcommunity.

We’reenthusiasticaboutdevelopingourpeople–helpingthemtoenhancetheirskillsandcapabilityforlargermorecomplexroles,andprovidingtherightlevelofchallengeforthoseseekingtobuildcareersatPacificBrands.Wemeasureourinternalpromotionsandturnoverratestoensurewearedoingallwecantoretainourkeytalenttogrowourbrands.We’vealsotakensomeinnovativestepstowardswinningthebattletoattractandretaintheverybestemployeesinahighlycompetitiveglobalmarket.Weattractthebestavailabletalenttoourbusinessthroughourinternalrecruitmentteamandcareersmicro-siteatwww.pacificbrands.com.au/careersWehavejoinedupwiththeMelbourneBusinessSchool(MBS)andtheRMITSchoolofFashionandTextilestoofferinternshipsandemploymentopportunitiestothebestavailablematurehires(MBS)andgraduates(RMIT)tocontinuallybuildourtalentpool.

Talent and Culture

Our stable of iconic Australian brands is successful because of the passion and commitment of our employees.

PACiFiC BRANDs

AR0827

“ Can you wear the same pair of jeans too much?” karen, 22, admits to a lee addiction

PACiFiC BRANDs

AR0829

Businesses Behaving Well

Whenwesetanexamplethroughourethical,responsibleandsustainableconductasabusiness,ourconsumersmakeastrongerconnectionwithourbrands.We’recommittedtoethical,responsibleandsustainableconductacrosstheentirebusinessandhaverealisedthatwiththelaunchofPlanetBrands,ourbusinessstrategyforsustainablegrowth.PlanetBrandsisafive-yearplanwhichtoucheseverypartofourbusinessandencouragesourstakeholderstocontributetoourvisionofamoresustainablefuture.By2013,wewanttohavemadeasignificantcontributiontoreducinggreenhousegasemissions,zerotradewastetolandfillandtohavesignificantlyreducedourenergyandwaterconsumption.PlanetBrandstouchesfourareaswherewewanttomakeadifference:ourpeople,ourmarketplace,ourcommunityandourenvironment.

OuR PEOPlECorporateresponsibilityintheworkplacebeginsbyprovidingsafe,equitableandsupportiveworkingconditions.Creatingaresponsibleworkingenvironment,wherepeoplearevaluedandrespected,leadstoimprovedproductivity,profitability,reputationandultimatelygreatervaluetoourcustomers,consumersandshareholders.We’veinstitutedanumberofhealthandwellbeingprogramstoensurethatourpeopleremainsafeandhealthy,including:•Brandssafe–ourworkplaceIntegratedManagementSystemencompassingsafety(AS/NZS:4801),quality(ISO:9001)andenvironment(ISO:14001).Brandssafecoversareassuchasleadership,processapproachandcontinualimprovement.PacificBrandsisexternallyaccreditedtoallthreesystems;

•Onlineservicesdeliveringhealthassessments,lifestyleplans,healthyrecipesandalibraryofhealthandfitnessinformation;

•Annualinfluenzavaccinationprogram;and•Discountedprivatehospital,healthandwellbeinginsuranceandgymmemberships.

Ourbehaviourcansetanexampleforoursuppliersandtheiremployees.Oursupplierevaluationprocessesrequireoursupplierstoshowtheyhaveformalmanagementsystemsinplacetoidentifyandmanagesafety,health,environmentandquality(SHEQ)aspects,ahistoryofSHEQcomplianceandevidenceofhowtheymanagetheSHEQperformanceoftheirsubcontractors.

CAsE sTuDY

PACiFiC BRANDs JOiNs EThiCAl TRADiNg iNiTiATivE (ETi)

TheEthicalTradingInitiativeisanallianceofcompanies,tradeunionorganisationsandnon-governmentorganisationscommittedtoworkingtogethertoidentifyandpromotegoodpracticeinimplementinglabourpracticecodes.PacificBrandsisthefirstAustraliancompanytojointheETItopromoteandenhanceoursocialcomplianceprogram.Itgivesustheopportunitytomakesurewe’reaworld’sbest-practicecompanywhenitcomestolookingafterouremployeesandpartners.ETImembersbelievethatthiscollaborativeapproachprovidestheopportunityformakingsignificantprogressinpromotingtheobservanceofinternationallyrecognisedlabourstandardsthroughoutglobalsupplychains.Whilewehaveastrongcommitmenttosocialcompliance,werecognisethedifficultiesindealingwithalargeandcomplexsupplychain.However,atargetedfocusoncontinualimprovementinthisareawillresultinliftingthestandardsofoursuppliers.

OuR mARkETPlACEManyconsumersnowlookbeyondtheactualproductthey’rebuyingtoaskseriousquestionsabouthowthatproductwasmade.Ourconsumerswanttomakesuretheproductwasproducedusingethicalmanufacturing,withminimalenvironmentalimpact.Andiftheycan’tbesure,thatwillinfluencetheirbuyingdecision.Weaimtofosterpartnershipsthataremutuallybeneficialbybeinginnovative,transparentandfairinallourdealingswithoursuppliers,retailpartnersandconsumers.Supplierscanalsohaveasignificantsocialandenvironmentalimpactonacompany’sperformanceandreputation.Wewanttoworkwithourconsumersandoursupplychain,todeliverthebestproductstomeetourcustomers’needswhileprovidinggoodsocialandenvironmentaloutcomesforallourstakeholders.

OuR COmmuNiTYLookingafterthecommunityouremployeesandconsumersliveinhelpsusbuilddeeperconnectionswiththem.Toenhancetheeconomicandsocialwellbeingofourcommunities,wedevelopinnovativeprogramsandpartnerships.Ourcommunityinvestmentstrategyaimstoenhancethesocialandeconomicwellbeingofthecommunitieswhereweliveandwork.Theheartofourapproachinvolvesdevelopinginnovativeprogramsandpartnershipswithclearaimsandmeaningfuloutcomes.Ourcommunityinvestmentprogram,BrandsforGood,continuestosupportoursixnational,not-for-profitcommunitypartnersintheareasofcancerawarenessandchildren,youthandfamiliesatrisk:•BreastCancerNetworkofAustralia(BCNA)•ProstateCancerFoundationofAustralia(PCFA)•CampQuality•LifelineAustralia•TheBrotherhoodofStLaurence•ReconciliationAustralia


WehaveincreasedoursupportofBCNAbyformingathree-yearpartnershipthatwillassistinfundingkeyactivitiesandanumberofstrategiesinsupportofwomendiagnosedwithbreastcancer.OurrelationshipwithBCNAbeganin2005,viatheMyCareKitwhichseeswomennewlydiagnosedwithbreastcancergivenkitscontainingaBerleisoft-cupbra,breastformsandacarrybagtohelpthemthroughthemonthsaftersurgery.TheMyCareKitprogramnowprovidesmorethan130kitstowomeneachweek.OursponsorshipofPCFAhasalsogrown.We’reaPlatinumsponsoroftheorganisationandwillcontinuetosupportthe2008NationalMen’sHealthPromotionForumswhichassistinraisingawarenessandearlydetectionofprostatecancer.Asthecompanywhichsellsmoremen’sunderwearinAustraliathananyother,weknowtheimportanceofhelpingmenunderstandandcombatprostatecancer.PacificBrandsalsodonatesstockfromourbusinessestohelpourcharitypartners–lastyearwedonated$500,000worthofin-kindstocktoLifelineandBrotherhoodofStLaurencestorestohelpthoselessfortunate.Manyofourbusinessessupportawiderangeoflocalcommunitygroups,schools,charitiesandvoluntaryorganisationsbyprovidingfinancialsupportandin-kinddonations.Weencourageeveryoneofouremployeestobeactiveinfundraisingandvolunteeringinitiativesinthecommunity.OurBrandsforGoodprogrammecontinuestousetheLondonBenchmarkingModel,aninternationallyrecognisedframeworkformeasuringandreportingcorporatecommunitycontributions.

OuR ENviRONmENTAnybusinessmakesanimpactontheenvironment,butwebelievethatminimisingourenvironmentalfootprintdeliversbenefitsnotonlytoourcompanyandouremployees,buttoourcustomersandthebroadercommunityaswell.We’recontinuallyimprovingourenvironmentalimpact,withanenvironmentalmanagementsystemtomeasurehowweaffectthecommunitythrough:•Paperandpackaging;•Greenhouseemissions;•Wasteproductionandrecycling;•Energyuse;•Wateruse;and•Transport.

Wetrytoreduceourenvironmentalimpactby:•SupportingtheNationalPackagingCovenant(NPC)anditscommitmenttomanagingtheenvironmentalimpactofconsumerpackaginginAustralia.OurpackagingmaterialsareeitherreusedorrecycledandnewopportunitiesarebeingexploredacrossPacificBrandsonanongoingbasis;

•SubscribingtoGreenfleetandsupportingitstree-plantingprogrammetoneutralisegreenhouseemissionsfromallourcorporatevehicles.Wehave1,000carsregisteredwiththeprogramme;

•RecyclingasmuchaspossiblethroughourpartnersSITAEnvironmentalServicesandVisyRecyclingtoachieveourtargetofzeropercentwastetolandfill;

•Auditingoftheenergyandlightingweuseinallouroperationstoidentifywherewecandobetter;

•Settingprinterstodouble-sidedprinting,whichhasreducedtheamountofpaperweuseforprinting;

•Usingwater-savingprogrammesatourmanufacturingsites;and• InsistingonallemployeesusingaToyotaPriushybridcarwhentheyrequireahirecar.

CAsE sTuDY

WATER

Manyofourbusinessesuseasignificantamountofwaterintheirmanufacturingoperations.Threeofthesesitesnowhavewater-savinginitiativesinplacethatreusewaterpreviouslydiscardedaspartoftheprocess.InMay2008,PacificBrandsHosieryGroupinCoolaroo,Victoriainstalledawater-recyclingplantthatreusesthewaterusedinthehosierydyeingprocess.Usingreverse-osmosistechnology–afinefilteringtechnique–waterfromtherinsecyclesisdirectedthroughaseriesoffilterswhereitispurifiedandreusedinthenextbatchtobedyed.Theplantnowsavesalmost125,000litresofwaterperday,halvingitswateruse.Thisisthefirsttimereverse-osmosistechnologyhasbeenusedinanAustraliantextileindustrydyehouseonthisscale.HoleproofinNunawading,VictoriaandBondsinWentworthville,NewSouthWalesalsohavewaterreuseprograms,wherewaterusedtowashpre-dyedyarnisreusedinthedyeingprocess.Theseprogrammeshaveseenthesitessave27,500litresand120,000litresofwateradayrespectively.Moreconversionsofdyeingmachinestousewatersavingtechniquesareplannedinthecomingmonths.We’llcontinuetolookfornewwayswecandecreaseourwaterusewithoutcompromisingthequalityofourproducts.

PACiFiC BRANDs

AR0831

“ This is the one i wear for special occasions.” Jason, 42, has a Chesty in every colour. Except pink.


PACiFiC BRANDs

AR0833

Operational highlights

REviEW OF OPERATiONs

PacificBrandsisaresilientbusinessandperformedwellin2008delivering16.3%salesincreaseand18.1%increaseinearningsbeforeinterest,taxandamortisation.Ourresultswereinlinewiththegrowthguidanceweprovidedatthestartoftheyear.Wewereparticularlypleasedtohaveincreasedoursecond-halfprofitdespitedecliningretailconditions.Australianlike-for-likegrowth,excludingClearanceStoreswas2.5%,affectedbyweakersecond-halfretailmarketconditions.ConditionsinNewZealandweredifficult.Ournewlyintegratedbusinesses,theYakkaGroupandBrandCollectivehavebothperformedwellandtoexpectation.

TAx

Theeffectivetaxrateonearningsfortheyearwas27.2%,whichwasmarginallyabovetherateof27.1%forthepriorcorrespondingperiod.

iNTEREsT

Netinterestexpenseincreasedasaresultofacquisitionsbutthecompanymaintainedastronginterestcover(EBITDA/Interest)of3.5timesdownfrom4.1inthepriorcorrespondingperiod.

DiviDENDs

Thefullyeardividendof17.0centspersharehasbeendeclaredandrepresentsapayoutof73%ofreportedNPAT.DividendswillbefullyfrankedforAustralianshareholdersata30%taxrate.

REviEW OF FiNANCiAl POsiTiON

Netdebtwasreducedby$59.5mduringtheyearto$742.7m.Gearing(NetDebt/EBITDA)hasbeenreducedtopre-YakkaGroupacquisitionlevels.TotalCapitalEmployedreducedby2.3%duringtheyearto$2,069.1m.

REviEW OF CAsh FlOWs

WorkingCapitalreduced10.1%againstthepriorcorrespondingperiodto$452.8m.Inventorywaswellcontrolledwithinventoryturnimprovingto3.4times.Netoperatingcashflowup39.2%to$157.2m,assistedbythetimingofcollectionofdebtors.

uNDERWEAR & hOsiERYOurUnderwearandHosierybrandsaretheclearmarketleadersinAustralia–amarketinwhichwegrew3.3%duringtheyear.BondsandRioareAustralia’snumber1and2women’sunderwearbrands.Berlei,BondsandHestiaarethenumber1,2and3women’sintimatesbrands,whileBonds,HoleproofandRioarethecountry’snumber1,2,and3sockbrandsi.BrandandproductstrengthenabledUnderwearandHosierytosuccessfullyfocusonprofitablegrowth–totalsalesgrew1.2%overthepriorcorrespondingperiod,butprofitgrew8.2%.Bondswasakeycategorydriverandhadanotherrecordsalesyear.Fivemajorcampaignsweresuccessfullyconductedthroughtheyear–eachsupportingnewexcitingrangesandinnovations–the‘Kaleidoscope’women’syouthrange,BabyEasySuit,theMashrangeofmixandmatchtops/bottoms,thenowubiquitousHoodiesandthePattyCakeHi&Lorange.TheBerleibrandinAustraliaalsoimproveditspositionwithitshighlysuccessful‘GreatShapeBus’campaign.Thebrandnowhasthehighestaffinitylevelamongconsumersforwomen’sbrasaswellasthehighestadvocacyandbiggestcoreloyaltygroupi.

Berlei’sreputationasaleaderinbradesignandinnovationwasfurthercementedbyanendorsementfromtheAustralianInstituteofSportwhorevealedthattheBerleiHighPerformanceSportsBraisthebraofchoicebyfemaleathletesattheInstitute.RadioandtelevisionpersonalityFifiBoxwasappointedbrandambassadorforRiomen’sandwomen’sunderwear.TelevisionadsfeaturingFificoincidedwithherroleonDancingWiththeStarsandwerewellreceived.PlaytexhavealsorecentlyappointedKateCebranoastheirbrandambassadorandinthecomingyearwilluseKate’simagetostrengthenthebrand.Ourhosierybrandshavealsoperformedwell,leveragingfromthecontinuingpopularityofthe‘legwear’trend.VoodooandRazzamatazzwereamongthekeybrandsthatreleasednewstylesandcoloursthroughouttheyeartocapitaliseonthetrend.Webelievethatthe‘legwear’trendwillcontinueinthenextperiodandwewillcontinuetosupportourhosierybrandstoensuretheyarethefastesttomarketwithnewandimprovedranges.

(A$ million) FY07 FY08 % Chg

underwear & hosiery

Totalnetsales 630.0 637.3 1.2%

EBITA 93.7 101.4 8.2%

EBITAmargin% 14.9% 15.9% +1.0%

OuTERWEAR & sPORTOuterwearandSportsalesandprofitincreasedsharplyduringtheyear.Aspredicted,growthinthedivisionwasstrong,significantlyheightenedbythefirstfullyearofouracquisitionsofBrandCollectiveandYakkaGroup,bothofwhichhavebeencompletedandintegratedseamlesslyintothebusiness.Inlinewithlastyears’results,BrandCollectiveiscontinuingtoperformtoplan,increasingitsnumberofflagshipretailstoresthroughoutAustraliaandoverseas.YakkaGrouphasexceededexpectations,havingachieveditsbestsalesmontheverinMay2008.TheacquisitionofYakkaGrouphasalsosignificantlyboostedtheWorkweardivisionofOuterwearandSportandwenowownthenumberoneandnumbertwoindustrialworkwearbrandsinAustralia:HardYakkaandKingGee.OurBusinesstoBusiness(B2B)divisionoftheWorkwearGroupcontinuedtoperformstronglysupportedbythefollowingbusinesses:Yakka,CTE,NNTandDowd.OurholisticapproachtoTotalApparelManagementhasenabledsuccessinwinningnewcontractswhilstsimultaneouslyretainingexistingaccounts.Anumberofourkeycontractshavebeenretained,includingBendigoBankandNSWFireBrigadeandwehavealsosecurednumerouscontractsfornewclientsincludingWestfieldAustralia,NewZealandandUK,SingaporeAirlinesandNSWPolice.WewillcontinuetoidentifyopportunitiestoexpandourbusinessintheB2Bsectoroverthenextfinancialyear.Whiletheacquisitionswereintegratedseamlesslyandcontributedstrongly,theunderlyingOuterwearandSportbusinessesdeliveredontheirpromisetoreturntoprofitfollowingthecompletionofarestructure.


(Endnotes)i Source–AMRInteractiveAwarenessStudyMay/June2008(ConsumerawarenessMen/Women)ii Source–RoyMorganResearchMarch2008iii Source–Newspoll

SlazengerSportsweardeliveredpleasingresults,particularlyinthediscountdepartmentstorechannel.TheSlazengerBioSlyxperformanceapparelrangelaunchedinSeptember2007wasexceptionallywellreceivedbythemarketgivenitshighqualityataverycompetitiveprice.Bikeshavealsoshownstronggrowththroughouttheyear,cappedoffwiththerelaunchofMalvernStartowardstheyearend,witharepositioningofthebrandtorebuildequityinthemarket.ThereleaseofthenewMalvernStarLegendseries,includingthetopoftherangeOppyLeMaucobikewilldrivesolidgrowthinthecategoryinthecomingyear.


Outerwear & sport


EBITA 27.0 58.2 115.6%

EBITAmargin% 7.4% 8.9% +1.5%

hOmE COmFORTHomeComfortdeliveredastrongprofitupliftof9.2%overthepriorcorrespondingperiod.SheridanremainsthefavouritemanchesterbrandinAustraliaii.Brandstrengthandthelaunchofstrongrangesthroughtheyeardrovethebusinesstosolidgrowthinthefirsthalfoftheyear,however,manchesterwasmoresusceptibletothereductionindiscretionaryspendingespeciallyevidentinthesecondhalf.Sheridanreleasedtwomajorcampaignsduringtheyear–theblackandwhite‘Feel’campaignandthenew‘SHEbySheridan’premiumrange.Bothcampaignswerewellreceivedinthemarket.ThestrengthoftheSheridanbrandanditsproductrangesmakesitwellplacedtocapitalisewhenmarketconditionsbecomemorefavourable.Inthecomingperiod,thefocusforSheridanwillbetoincreasemarketshareprofitably.Pillowsandquiltscontinuedtosellwellanddeliveredstronggrowthduringtheyear.TontineisAustralia’snumberonebrandforpillowsiiiandhasdeliveredsolidgrowththroughouttheyear.ThebrandcontinuestoconnectwellwithconsumersbyreleasingproductsthattapintoneedsthatareimportantsuchastheBreathEASYrangeofbeddingaccessoriessupportedbytheNationalAsthmaCouncilofAustralia.OurFoamsandFlooringbusinessesremainedsteadythroughouttheyearinachallengingmarket.InNovember2007,DunlopFoamssponsoredthefirstannualYoungDesignerFurnitureAward07,auniquedesigncompetitiontoencouragenewideasinthedesignandproductionoffoam-basedfurniturefortheAustralianyouthmarket.Thewinningpiecefromthecompetition–themulti-purposeZeus–inspiredthethree-pieceDuskoCollectionfromSmith,arangeofversatilemicro-suedecoveredpiecesfilledwithAustralian-madeDunlopfoam.

Aspreviouslyannouncedtothemarket,PacificBrandssoldtheNewZealandFoams,FlooringandBeddingbusinesses.


home Comfort


EBITA 45.5 49.7 9.2%

EBITAmargin% 8.8% 9.5% +0.7%

FOOTWEARFootwearhelditsmarketshareinthesporting,comfortandcasualcategories,butcontinuedthedecliningtrendfromthepreviousyearinthewomen’sfashioncategory.DunlopFootwear,inparticular,performedstronglyoverallwiththeirmarketinginvestmentwinningthreeawardsattheMelbourneAdvertisingandDesignClub(MADC)Awards–BestArtDirectionfortheDunlopIndustrialCampaign,BestOutdoorfortheDunlopIndustrialCampaignandBestWebsiteforDunlopVolleys.Moreimportantly,thesuccessfulmarketingcampaigndrovesalesofVolleystoincreaserapidly,withthebrandshowingstrongconnectionstoconsumersofallages.Anastonishing1.8millionpairsweresoldinthe2008financialyear–up42%from1.27millionlastyear.RisingsalesoftheshoescanlargelybeattributedtoVolleys’‘ExceptionallyAverage’campaignthatranoverSummer2007/2008.ThecampaignhadanextremelypositiveresponseinthemarketanddevelopedastrongfollowingoninternetvideositeYoutube.Merrellalsogrewtheirshareinthemarket,expandingtheirrangeinthewomen’soutdoormarketwiththeBarado–alightweightshoeusing4-waystretchfabricthatledthelifestylecategory.ClarksChildren’sfootwearalsoshowedstronggrowththroughouttheyear,withthePerfectFitcampaignre-establishingthebrandinthefashioncategory.Clarkscontinuestofollowan‘ongoingfitting’story,beingtheonlychildren’sbrandthatcomesinfivedifferentwidths.PacificBrandsishighlyregardedbyretailersforpossessingtheabilitytoreplenishfootwearquicklyandefficiently.Duringthe2008financialyear,7millionpairsofshoesweredeliveredthroughoureffective‘pickandpack’service.


Footwear

Totalnetsales 280.1 270.8 (3.3%)

EBITA 37.3 36.4 (2.4%)

EBITAmargin% 13.3% 13.4% +0.1%

PACiFiC BRANDs

AR0835

“ They understand the difference between going out and working out.” madeleine, 28, on why she loves her Berlei bras


PACiFiC BRANDs

AR0837

Board of Directors

left to right [standing]:DominiqueFisher,AndrewCummins,JohnGrover(CompanySecretary),MaxOuld,JamesMacKenzieleft to right [seated]:SueMorphet,StephenTierney,PatHandley,MaureenPlavsic


PAT hANDlEY ChAiRmAN, iNDEPENDENT NON-ExECuTivE

BA(Econ),MBA(Finance)Age63PathasbeenChairmanofPacificBrandsLimitedsinceincorporationinDecember2003.Patbringswithhimover30-yearsofinternationalfinancialservicesexperience.PatwasappointedadirectorofVantagePrivateEquityGrowthLimitedin2005.HehaspreviouslybeenanExecutiveDirectorandChiefFinancialOfficerofWestpacBankingCorporation,ChairmanandCEOofCountrySavingsBank(USA),ChiefFinancialOfficerofBancOneCorporation(USA),ChairmanofCallivaGroupHoldingsPtyLtdandadirectorofSuncorp-MetwayLimited,AMPLimited(2003to2004)andHHGplc.Inaddition,PatiscurrentlyastrategicadvisertoPricewaterhouseCoopersandChairmanoftheAdvisoryBoardofNomuraSecurities.

suE mORPhET ChiEF ExECuTivE OFFiCER, ExECuTivE DiRECTOR

BSc(Ed)Age:53SuewasappointedCEOinJanuary2008andpriortothiswasGroupGeneralManagerofUnderwear&HosieryatPacificBrands,thelargestoperatinggroupwithinthebusiness.SuejoinedPacificBrandsin1996asGeneralManagerofTontine,followingwhichshebecametheGeneralManagerofBondsin1999.Underherleadership,theBondsteamrelaunchedtheiconicbrand,morethandoublingsalesandtakingthebrandtowomenforthefirsttime.PriortojoiningPacificBrands,SueheldseniormarketingroleswithSheridanandHerbertAdams.SueisadirectoroftheL’OréalMelbourneFashionFestivalandisamemberofChiefExecutiveWomentogetherwithvariousotherphilanthropicinterests.

sTEPhEN TiERNEY ChiEF FiNANCiAl OFFiCER, ExECuTivE DiRECTOR

BComm,CA,Age50StephenjoinedPacificBrandsin1990asGroupAccountantafteran11yearcareerwithToucheRoss&Co(nowKPMG)specialisinginfinance,taxationandaccounting.StephenwasappointedtotheroleofChiefFinancialOfficerinDecember1998whichhehelduntilDecember2005.InDecember2005,hewasappointedtotheroleofGroupGeneralManager,OperationswherehewasresponsibleforthedaytodayoperationsforallOperatingGroups.InMarch2008Stephenwasre-appointedtotheroleofChiefFinancialOfficer.StephenwasappointedtotheBoardofPacificBrandsLimitedinDecember2003.

ANDREW CummiNs DiRECTOR, iNDEPENDENT NON-ExECuTivE

BEng(Hons),MBA(Stanford),PostGradDip(BusStudies),MIEAust,Age59AndrewjoinedtheBoardofPacificBrandsHoldingsPtyLtdinNovember2001,bringingwithhimmanyyearsofexperienceinprivateequityandasanexecutiveinprominentAustralianandinternationalpubliccompanies.AndrewwasappointedtotheBoardofPacificBrandsLimitedinFebruary2004.Currently,AndrewisChairmanoftheAdvisoryBoardofCVCAsiaPacificLimitedandadirectorofSamsoniteInc.,GlobalVoyagerHoldingsPtyLtd,I-MedGroup,AsiaBottlesLimitedandRCTIInc.Previously,AndrewhasbeenChairmanofAmatekHoldingsLimited,adirectorofAffinityHealthLimited(2003to2005),TechPacificHoldings,Li&Fung(Distribution)Limited,Inchcapeplc,StrategyDirectorofFoster’sBrewingGroupLimitedandChiefExecutiveofEldersInvestmentsLimited.AndrewalsospentnineyearswithMcKinsey&Company.

DOmiNiquE FishER DiRECTOR, iNDEPENDENT NON-ExECuTivE

BA(Hons),Age51DominiquejoinedtheBoardofPacificBrandsLimitedinMarch2007,bringingwithhersignificantexperiencegainedininformationtechnologyandtelecommunications,electroniccommerce,commercialisationofnewtechnologiesandthedevelopmentandimplementationofbusinessstrategyacrossarangeofindustriesincludingrolesasCEO.DominiqueiscurrentlytheChairmanofCircadianTechnologiesLtd,ManagingDirectorofWebAlivePtyLtd,andChairmanofSkyTechnologiesPtyLtdandtheAustralianCounciloftheArtsDanceBoard.SheisalsoaboardmemberoftheAustralianCouncilofArtsandtheProstateCancerFoundationofVictoria.DominiquehaspreviouslybeenadirectorofInsuranceAustralianGroupLtdanditspredecessorcompaniesforeightyears.SheisapastmemberoftheadvisoryboardtotheMinisterforInformationTechnologyandCommunicationsandadirectoroftheMalthouseTheatre,SydneyOperaHouseTrustandawiderangeofothercommunityorganisations.

mAx OulD DiRECTOR, iNDEPENDENT NON-ExECuTivE

BEcon,Age61MaxwasappointedtotheBoardofPacificBrandsLimitedinFebruary2004,bringingleadershipexpertiseintheconsumergoodsindustry.MaxisadirectorofFoster’sGroupLimited(since2004),AGLEnergyLimited(previouslyTheAustralianGasLightCompany)(since2004)andChairmanofGoodmanFielderLimited(since2006).MaxhasconsiderableexperienceintheAustralianfoodindustry,includingpreviousrolesasManagingDirectoroftheEastAsiaticCompany,CEOofPetersFoodsandManagingDirectorofNationalFoodsLimitedfrom1996to2003.MaxiscurrentlyChairoftheAudit,BusinessRiskandComplianceCommittee.

mAuREEN PlAvsiC DiRECTOR, iNDEPENDENT NON-ExECuTivE

Age52MaureenjoinedtheBoardofPacificBrandsLimitedinMay2004,bringingover25yearsofexperienceinmedia,advertisingandbrandmarketingroles.MaureeniscurrentlyChairoftheNominationandRemunerationCommittee.MaureenisatrusteeofNationalGalleryofVictoria(appointed2003)anon-executivedirectorofMacquarieRadioNetworkLimited(appointed2005).MaureenhaspreviouslybeenadirectorofSevenNetworkLimited(1998to2003)andOperaAustralia(1998to2003).Maureenpreviouslyspent14yearsinvariousexecutiverolesattheSevenNetwork,includingChiefExecutiveofBroadcastTelevisionandpriortothatDirectorofSalesandCorporateMarketing.MaureenalsoheldvariousrolesintheadvertisingindustryandaseniorregionalmediaroleatUnilever.

JAmEs mACkENziE DiRECTOR, iNDEPENDENT NON-ExECuTivE

BBus,FCA,FAICD,Age55JamesjoinedtheBoardofPacificBrandsLimitedinMay2008bringingwithhimextensiveboardexperiencegainedinthefinancialsector.ACharteredAccountantbyprofession,JameswasapartnerinboththeMelbourneandHongKongofficesofaninternationalaccountingfirm,nowpartofDeloitteToucheTohmatsu.HehasalsopreviouslyheldthepositionsofManagingDirector,FundsManagementandInsuranceatAustraliaandNewZealandBankingGroupLimited,CEOofNorwichUnionAustralia,andaDirectoroffundsmanagementcompaniesPaladinAustralia,PortfolioPartnersandVictorianFundsManagementCorporation.JameswasformerlyChairmanoftheVictorianTransportAccidentCommissionandtheVictorianWorkCoverAuthorityandcontinuesonbothBoardsofManagementasaDirector.JamesisChairmanofMirvacGroup(since2005)andadirectorofBravuraSolutionsLimited(since2006)andMelcoCrownEntertainmentLimited(appointedApril2008).JameshaspreviouslybeenadirectorofCircadianTechnologiesLimited(2002to2008),JamesFieldingHoldingsLimited(2001to2005),MedaireInc.(2004to2005),StrategicPooledDevelopmentLimited(2005to2007)andZenythTherapeuticsLimited(2005to2006).

JOhN gROvER COmPANY sECRETARY

LLB,BComm,FCIS,Age46JohnwasappointedtothepositionofGeneralCounsel&CompanySecretaryinDecember2003havingheldthesamerolewiththeCompany’spredecessor,PacificBrandsHoldingsPtyLtd,sinceDecember2001.PriortojoiningPacificBrands,heheldseniorcorporatelegalroleswithAnsellLimited(formerlyPacificDunlopLimited)andRTZLimited(formerlyCRALimited).PriortothisJohnhadaneightyearcareerwithmajorAustralianlawfirm,Freehills,whichincludedtworolesbasedinSouthEastAsia.

PACiFiC BRANDs

AR0839

ROss TAYlOR gROuP gENERAl mANAgER, hOmE COmFORT

RossjoinedPacificBrandsin1991afteracareerinsalesandmarketingwithanumberofmajorfoodandconsumergoodscompanies.InhistimewithPacificBrands,Rosshasworkedacrossallsectorsofthebusiness,withseniorrolesinsportingfootwear,bikes,sportingequipment,workwear,outerwear,underwearandnowhomecomfort.RossbringsextensivesalesandmarketingexperiencetothisroleandarealdepthofunderstandingoftheoperationalcapacityofPacificBrands.RossiscurrentlyfocusedondrivingmarketingandoperationalexcellenceprogrammesintheHomeComfortGroup.

mARY kEElY gROuP gENERAl mANAgER, PEOPlE & PERFORmANCE

MaryjoinedPacificBrandsin1999,afteracareeratbothCoca-ColaAmatilandWestpac.Maryisresponsibleforperformancemanagement,recruitment,safety,healthandenvironment,corporatesocialresponsibility,communityinvestment,employeerelations,learninganddevelopment,remunerationandbenefits,andorganisationaldevelopment.

miChAEl sONAND gROuP gENERAl mANAgER, OuTERWEAR & sPORT

MikejoinedPacificBrandsinJanuary2007aspartoftheacquisitionofBrandCollective,thestreetweardivisionofGlobe,wherehewasPresidentAustralasiaandChiefOperatingOfficerofGlobe

InternationalLimited.HebringsextensivewholesaleandretailexperiencetotherolehavingheldpositionsatGlobeInternationalLimited,JustGroup,MyerandpreviouslyatKPMG.

kiT ChEONg gROuP gENERAl mANAgER, suPPlY & OPERATiONs

KitjoinedPacificBrandsinMarch2008afterspendingatotalof18yearsattheformerColesMyerinnumerousGeneralManagerpositionsincludingroleswithintheTarget,Myer,ColesSupermarketsandFood,LiquorandFueldivisions.Kitisresponsibleforallsupplyandoperationsactivitiesacrossthebusiness,includingsourcing,supplychain,freight,qualityandinfrastructure.

senior management Team

left to right:RossTaylor,MaryKeely,MichaelSonand,KitCheong


mAlCOlm FORD gROuP gENERAl mANAgER, FOOTWEAR

MalcolmjoinedPacificBrandsin1991after20yearsinproductdevelopment,sales,marketingandgeneralmanagementwithinthefootwearindustry.Malcolmhasbeeninstrumentalindevelopingasuccessful,stronglybrandedandcategory-focusedfootwearbusiness,withtheacquisitionofbrandsandlicencesincludingClarks,HushPuppies,SachiandMerrell.

mARk ClARk gROuP gENERAl mANAgER, WORkWEAR

MarkjoinedPacificBrandsinMay2008fromCoca-ColaAmatil,whereheheldpositionsincludingPresidentofCoca-ColaBottlersKoreaforfouryearsandManagingDirectorforCoca-ColaAmatilAustralasiaforeightyears.MarkistheGroupGeneralManagerofPacificBrands’newestdivision–Workwear.Mark’sresponsibleforgrowingthecombinedbusinessesofYakka,KingGee,NNT,Dowd,andCTEacrossourmajorB2Bcustomersaswellasvariousretailchannels.

BERNADETTE hANNAgAN gROuP gENERAl mANAgER, uNDERWEAR & hOsiERY

BernadettejoinedPacificBrandsinOctober2001asGeneralManager,Tontine,havinggainedexperienceinthetextileindustry,includingasevenyearperiodatSheridan.In2004,shewasappointedtotheroleofGeneralManager,TheBerleiGroup.Followingthis,BernadettewasGeneralManager,AsiabasedinHongKongwhereshewasresponsibleforAsiansourcingandsupplierrelationshipmanagementworkingacrossallkeycategoriesofthecompany.BernadettewasappointedtohercurrentroleinDecember2007.

left to right:MalcolmFord,MarkClark,BernadetteHannagan

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“ i love my sheets nearly as much as my snooze button.” melissa, 27, blames her sheridans every time she’s late for work


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sheridan

sheridan has a rich history of quality and innovation, including the introduction of the printed sheet in the 1960s, which forever changed the way we sleep.

AND sO TO BEDWhenyouconsiderwespendathirdofourlivesinourbeds,it’snosurpriseweplaceahighpriorityonthelookandfeeloftheproductswechoosetosleepin.Sheridan’srichhistoryofinnovationanddesignincludestheintroductionofthefirstprintedandfittedsheetstoAustralia,bringinganewworldofcolourtoourbedrooms.HugelysuccessfulrangesdesignedbyKenDoneandJennyKeefollowedinthe1980ssuccessfullybroadeningthebrandsappealandcementedourcredentialsasthefashionleaderinourcategory.OurinnovativeapproachtostyleandluxurycometogethertodaywithpowerfulemotionaldimensionsinourSheridan‘Feel’campaign.Auniquemarketingprogrammethatintroducedconsumerstotheconceptofchoicesintextualsensationstofeelagainstyourskin.TheluxuriousSHEcollectionlaunchedin2007istheultimateinbeautifuldesignandquality.HauteCoutureforthebedroom–inspiredbytheclassicglamourofthe1940sand’50s–itfeaturesdecadentextrassuchaspearlbuttonclosuresandhand-sewnbeads.TheSHEcollectionalsostrengthensSheridan’sreputationforinnovationbyfusingwearablefashionandhomedesignbyincludingpiecesforoutsidethebedroom–cushionsfeaturinghighlightelegantglassbroochesandacharmeusethrow,designedinasizesuitabletowearasawrapoveraneveninggown.Sheridan’squalityratingamongconsumersisfivetimeshigherthananyothermanchesterbrandandtodayitistruly‘afashionbrandforthehome’.SheridanbecameapartofPacificBrandsin2005andourbrandexpertisehascementedSheridan’spositionasAustralia’sbestknown,mosttrustedandpreferredmanchesterbrand.ManyAustraliansviewthebedroomasoneoftheirfavouriteroomsintheirhomes.IfSheridanhasitsway,it’llsoonbetheirmostfavourite.


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FINANCIAL CONTENTS 45CORPORATE GOVERNANCE STATEMENT 46

DIRECTORS’ REPORT 54REMUNERATION REPORT 57

LEAD AUDITOR’S INDEPENDENCE DECLARATION 70FINANCIAL REPORT TO SHAREHOLDERS 71

NOTE TO THE FINANCIAL STATEMENTS 76DIRECTORS’ DECLARATION 111

INDEPENDENT AUDITOR’S REPORT TO THEMEMBERS OF PACIFIC BRANDS LIMITED 112

SHAREHOLDERS’ STATISTICS 113SHAREHOLDERS’ INFORMATION 114

COMPANY DIRECTORY 115

4775_Pacific Brands_Financials 15/9/08 12:48 PM Page 45

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Pacific Brands’ directors and management are committed to conducting the Company’s business ethically and in accordance with highstandards of corporate governance. Good corporate governance structures encourage companies to create value for shareholders throughsensible risk taking, but provide accountability and control systems commensurate with the risks involved.

This statement describes Pacific Brands’ approach to corporate governance. The Board believes that the Company’s policies and practicescomply in all substantial respects with the Australian Stock Exchange (ASX) Corporate Governance Council’s Corporate Governance Principlesand Recommendations. A checklist summarising this is found in section 11 of this Statement.

Copies of the main policies of corporate governance adopted by the Company can be found on the Company’s website atwww.pacificbrands.com.au.

1 ROLE AND RESPONSIBILITIES OF THE BOARD

The Board is committed to maximising performance, generating appropriate levels of shareholder value and financial return, and sustaining ona long term basis a stable of recognisable and successful brands.

In conducting business in line with these objectives, the Board is concerned to ensure that the Company is properly managed to protect andenhance shareholder interests, and that the Company, its directors, officers and employees operate in an appropriate environment of corporategovernance. The Board’s charter can be found on the Company’s website at www.pacificbrands.com.au. The Board has ultimate responsibilityfor establishing policies regarding the business and affairs of the Company for the benefit of its shareholders and other stakeholders. TheBoard’s key responsibilities include:

• appointing, and reviewing the performance of, the Chief Executive Officer;

• ensuring executive and Board succession planning;

• approving budgets and strategic plans;

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

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

• approving significant acquisitions or divestments;

• overseeing relations with shareholders; and

• approving accounting policies and annual accounts.

The Board delegates management of the Company’s resources to senior management, under the leadership of the Chief Executive Officer, todeliver the strategic direction and goals agreed between senior management and the Board. A key function of the Board is to monitor theperformance of senior management in this function. The evaluation of senior management’s performance is addressed as part of the processesdescribed in the Remuneration Report.

2 BOARD APPOINTMENT AND COMPOSITION

It is the Board’s policy that there should be a majority of independent, non-executive directors. That is, the majority of directors should be freefrom any business or other relationship that could materially compromise their independent judgement. As an additional safeguard in preservingindependence, the policy requires that the office of Chairman be held by an independent, non-executive director.

Specifically, the Board considers a director to be independent where he or she is not, and was not within the last three years, a member ofmanagement and is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materiallyinterfere with, the director’s ability to act in the best interests of the Company. The Board will consider the materiality of any given relationshipon a case by case basis and has adopted materiality guidelines to assist it in this regard. Under the Board’s materiality guidelines, the followinginterests are regarded as, prima facie, material:

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

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

However, ultimately the Board will make a qualitative assessment of any factors or considerations which may, or might reasonably be perceivedto, materially interfere with the director’s ability to act in the best interests of the Company. The Board reviews the independence of eachdirector in light of interests disclosed to the Board from time to time and at least once a year. The Board has determined that each of the sixnon-executive directors satisfy the Board’s criteria for independence. Directors are required to promptly disclose to the Board interests incontracts, other directorships or offices held, possible related party transactions and sales or purchases of the Company’s shares.

The Board is currently made up of eight directors, the Company’s two executive directors and six independent non-executive directors.Details of the directors as at the date of this Annual Report, including their qualifications and experience, are set out on page 39 of theAnnual Report.

In making recommendations to the Board regarding the appointment of directors, the Nomination and Remuneration Committee periodicallyassesses the appropriate mix of skills, experience and expertise required by the Board and assesses the extent to which the required skills andexperience are represented on the Board. Nominations for appointment are then approved by the Board as a whole. New directors areprovided with a letter of appointment, setting out the terms of their appointment, including their powers, rights and obligations. An inductionprogram is provided for new members of the Board.

Under the Company’s Constitution and the ASX Listing Rules, all directors other than the Chief Executive Officer are subject to shareholder re-election every three years. It is the Board’s current policy that, in general, directors do not hold office beyond a maximum term of nine years.

The Company’s Constitution requires directors to hold a minimum number of shares in the Company as determined by the Board from time totime, which is currently 500 shares, so that directors’ interests are aligned with those of shareholders.

Directors’ shareholdings are shown on page 54 of the Annual Report.

CORPORATE GOVERNANCE STATEMENT


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3 BOARD PROCESSES

The Board currently schedules nine meetings per year. In addition, the Board meets whenever necessary to deal with specific matters requiringattention between the scheduled meetings. During the 2008 financial year, the Board met nine times. Extraordinary meetings take place at suchother times as may be necessary to address any specific significant matters that may arise.

The table on page 54 of the Annual Report shows the number of Board meetings held in the 2008 financial year and the attendance of eachdirector.

The agenda for meetings is prepared by the Company Secretary, in conjunction with the Chairman and Chief Executive Officer, with periodicinput from the Board. Comprehensive Board papers are distributed to directors in advance of scheduled meetings. Board meetings take placeboth at the Company’s head office and at key operating sites, on a rotational basis, to assist the Board in its understanding of operational issues.

4 BOARD COMMITTEES

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

• the Audit, Business Risk and Compliance Committee; and

• the Nomination and Remuneration Committee.

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

Each committee operates under a specific charter, both of which can be found on the Company’s website at www.pacificbrands.com.au. The charter of each committee requires all independent directors to be members of the committee and for the committee to be comprised of aminimum of three independent directors. The purpose of having all independent directors as members of each committee is to allow the Boardto delve more deeply into issues, without formal Board meetings being burdened with discussions of technical compliance and other issues.


4 BOARD COMMITTEES (CONTINUED)

Details of the committee members’ qualifications are set out on page 39 of the Annual Report. Further details regarding the two committeesare set out in the table below:

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48

Role andresponsibilities

Functions

Members

Composition

Consultation

Meetings andattendance

AUDIT, BUSINESS RISK AND COMPLIANCE COMMITTEE

The committee’s role is to monitor and review theeffectiveness of the Company’s controls in the areas ofoperational and balance sheet risk, legal and regulatorycompliance and financial reporting.

• overseeing the adequacy of processes and controlsestablished by senior management to identify and manage areas of potential risk and to safeguard the assets of the Company;

• overseeing the relationship with the external auditor, auditor independence and the external audit function;

• evaluating the processes in place to ensure that accounting records are properly maintained in accordance with statutory requirements; and

• ensuring that financial information provided to shareholders and the Board is accurate and reliable.

• Max Ould (Chair)

• Andrew Cummins

• Dominique Fisher

• Pat Handley

• James MacKenzie

• Maureen Plavsic

The committee must comprise of at least three independentdirectors. The Chairman of the Board is not permitted tochair the committee.

The Chief Financial Officer and external auditor havestanding invitations to attend committee meetings. Othermembers of management may also attend by invitation. The committee has access to financial and legal advisers, inaccordance with the Board’s general policy. The chairman of the committee also meets privately with the auditor toensure the committee can be satisfied that the auditor hashad the full co-operation of management in conducting theaudit, and to give the auditor the opportunity to raise anymatters of concern.

The committee is scheduled to meet three times in the 2009financial year. The table on page 54 of this statement showsthe number of meetings held in the 2008 financial year andthe attendance of each member.

NOMINATION AND REMUNERATION COMMITTEE

The committee is responsible for matters relating tosuccession planning, recruitment and the appointment andremuneration of directors and the Chief Executive Officer,as well as for other senior executives.

• assessing Board composition, strategic function and size(taking into consideration the skills and experiencerequired and the extent to which they are representedon the Board);

• establishing processes for reviewing the performance ofindividual non-executive directors, the Board as a wholeand the operation of Board committees;

• overseeing the selection and appointment practices fornon-executive directors and senior management of theCompany;

• developing succession plans for the Board and overseeingthe development of succession planning in relation to theChief Executive Officer and senior management;

• making recommendations to the Board on the ChiefExecutive Officer’s remuneration (including short and long term incentive plans); and

• reviewing and approving recommendations from theChief Executive Officer on total levels of remuneration,and performance targets, for senior executives reportingto the Chief Executive Officer.

• Maureen Plavsic (Chair)

• Andrew Cummins

• Dominique Fisher

• Pat Handley

• James MacKenzie

• Max Ould

The committee must comprise of at least threeindependent directors.

The Chief Executive Officer and the Group GeneralManager, People and Performance have standinginvitations to attend committee meetings. The committeemay obtain information from, and consult with,management and external advisers, as it considersappropriate.

The committee is scheduled to meet three times in the2009 financial year. The table on page 54 of this statementshows the number of meetings held in the 2008 financialyear and the attendance of each member.

CORPORATE GOVERNANCE STATEMENT (CONTINUED)


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5 REVIEW OF BOARD PERFORMANCE

The performance of the Board is reviewed bi-annually by the Board with the assistance of the Nomination and Remuneration Committee andan external adviser. The most recent process of formally reviewing the performance of the Board (including the Board committees) wasundertaken in late 2007.

The evaluation process includes a review of:

• the Board’s membership;

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

• the performance of the Board and its committees.

As part of the 2007 review process, all directors completed a questionnaire and were able to make other comments or raise any issue thatthey had relating to the Board’s or a committee’s operation. The results of the questionnaire were compiled by the external adviser and awritten report provided to the Board which included both a quantitative and qualitative analysis.

In addition, a review of each director’s performance is also undertaken prior to a director standing for re-election. In the case of directors, otherthan the Chairman, the review is undertaken by the Chairman after consultation with the other directors. This occurred during 2008 in respectof the proposed re-election of Mr A.D. Cummins, Ms M.A. Plavsic and Mr S.J. Tierney. In the case of the Chairman, a director chosen by theBoard for this purpose would review the Chairman’s performance.

Details about the senior executive performance review process are contained in the Remuneration Report on page 57.

6 ACCESS TO INFORMATION AND INDEPENDENT ADVICE

Each director has the right of access to all relevant Company information and to the Company’s senior management, external advisers and auditors.Directors may also seek independent professional advice at the Company’s expense. Any director seeking such advice is required to make a formalrequest to the Chairman. Where the Chairman wishes to seek independent advice, he must make a formal request to the Chair of the Audit,Business Risk and Compliance Committee. Any advice so received must be made available to all other directors. Pursuant to a deed executedby the Company and each director, a director also has the right to have access to all documents which have been presented to meetings of theBoard or to any committee of the Board or otherwise made available to the director whilst in office. This right continues for a term of seven yearsafter ceasing to be a director or such longer period as is necessary to determine relevant legal proceedings that commenced during that term.

7 DISCUSSION OF GOVERNANCE POLICIES

The Board has adopted corporate governance policies and practices designed to promote responsible management and conduct of theCompany. The Board (together with management) regularly review these policies and practices to ensure the Company maintains or improvesits corporate governance standards in a changing environment. A discussion of the Company’s key governance policies is set out below.

7.1 Risk management

The Company is committed to the proper identification and management of risk. The Company has in place processes to identify and measurebusiness risk, including the regular review of results from its risk identification procedures. The Audit, Business Risk and ComplianceCommittee is charged with oversight of these processes. The Committee has adopted a written policy in relation to the Company’s riskoversight and management practices and a copy of this policy is available through the Company’s website at www.pacificbrands.com.au.

The Board receives regular reports about the financial condition and operational results of the Company. The Board has also received writtenassurances from the Chief Executive Officer and Chief Financial Officer that to the best of their knowledge and belief:

• the Company’s financial statements present a true and fair view of the Company’s financial condition and operational results and complywith relevant accounting standards; and

• the risk management and internal compliance and control systems are sound, appropriate and operating effectively and implement thepolicies adopted by the Board.

The Company regularly undertakes reviews of its risk management procedures which include implementation of a system of internal sign-offsto ensure not only that the Company complies with its legal obligations but that the Board, and ultimately shareholders, can take comfort thatan appropriate system of checks and balances is in place regarding those areas of the business which present financial or operating risks.Periodically the Audit, Business Risk and Compliance Committee initiate an external review of the Company’s risk management practiceswhich to date have not revealed any material issues of concern in relation to the Company’s risk management practices.

The committee reviews the appropriateness of the framework adopted by the Company for managing operational risk issues and theCompany’s action plans designed to strengthen and improve risk control practices. In this regard, on a rotational basis, senior managementupdates the committee or the full Board on the Company’s risk profile and compliance and control systems. Management has also reported tothe committee on the effectiveness of the Company’s compliance and control systems in the management of material risks. The Committeealso monitors and reviews activities in the Company’s material risk areas of taxation, treasury operations, insurance and environment, qualityand occupational health and safety.

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

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

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

• occupational health and safety standards and management systems (‘Brandsafe’) are monitored and reviewed to achieve high standards ofperformance and compliance with regulations;

• business transactions are properly authorised and executed;

• the quality and integrity of personnel;

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

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

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


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7 DISCUSSION OF GOVERNANCE POLICIES (CONTINUED)

7.1 Risk management (continued)

The Company has also adopted a code of conduct which sets out the Company’s commitment to maintaining the highest level of integrity andethical standards in all business practices. The code of conduct sets out for all directors, management and employees, the standards ofbehaviour expected of them, and the steps that should be taken in the event of uncertainty or a suspected breach by a colleague. The code ofconduct is discussed in more detail in section 7.4 of this statement.

7.2 Continuous disclosure and keeping shareholders informed

The Company aims to ensure that shareholders are well informed of all major developments affecting the state of affairs of the Company. To achieve this, the Company has implemented the following procedures:

• shareholders can gain access to information about the Company, including media releases, key policies, annual reports and financialaccounts, and the terms of reference of the Company’s committees through the Company’s website at www.pacificbrands.com.au or bywriting to the Company Secretary at the Company’s registered office address;

• all relevant announcements made to the market and any related information are posted on the Company’s website as soon as they havebeen released to the ASX and New Zealand Stock Exchange (‘NZX’); and

• the Company encourages full participation of shareholders at its Annual General Meeting to ensure a high level of accountability anddiscussion of the Company’s strategy and goals; and

• the Company also invites the external auditor to attend its Annual General Meeting and be available to answer shareholder questions aboutthe conduct of the audit, and the preparation and content of the auditor’s report.

The Company’s commitment to keeping shareholders fully informed is embodied in the Company’s Shareholder Communications Policy, a copyof which can be found on the Company’s website at www.pacificbrands.com.au.

The Company is fully aware of the obligations under the Corporations Act 2001, and the ASX and NZX listing rules, to keep the market fullyinformed of information which is not generally available and which may have a material effect on the price or value of the Company’s securities.The Company has adopted a policy which establishes procedures to ensure that directors and management are aware of, and fulfil theirobligations, in relation to the timely disclosure of material price-sensitive information. Information must not be selectively disclosed prior to beingannounced to the ASX and NZX. Directors and senior management must notify the Company Secretary as soon as they become aware ofinformation that should be considered for release to the market. The Company Secretary is the person responsible for communication with theASX and NZX. A copy of the Company’s Continuous Disclosure Policy may be found on the Company’s website at www.pacificbrands.com.au.

7.3 Trading in shares by directors and employees

The Company has adopted guidelines for dealing in securities which provide a summary of prohibited conduct in relation to dealings insecurities under the Corporations Act 2001 and the Securities Markets Act 1988 (NZ). The guidelines also establish a best practice procedurein relation to directors’, management’s and employees’ dealings in the Company’s shares.

Subject to the overriding restriction that persons may not deal in shares while they are in possession of material price-sensitive information,directors, management and employees will only be permitted to deal in shares during certain ‘window periods’, being within 31 days followingrelease of the Company’s full and half year financial results and the holding of the Company’s Annual General Meeting. Outside of theseperiods, directors, management and employees must receive clearance from the person stated in the guidelines for any proposed dealing inshares, with such clearance only to be granted in exceptional circumstances. For New Zealand, any dealing in the Company’s shares mustreceive clearance from the Company Secretary.

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

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

7.4 Ethical standards and code of conduct

The Board believes it is important to provide employees with a clear set of values that emphasise a culture encompassing strong corporategovernance, sound business practices and good ethical conduct. Accordingly, the Company adopted a code of conduct which outlines howthe Company expects directors and employees to behave and conduct business in a range of circumstances. In particular, the code requires:

• awareness of, and compliance with, laws and regulations relevant to the Company’s operations including environmental laws and the TradePractices Act 1974 and equivalent overseas legislation;

• all business transactions to be conducted solely in the best interests of the Company and for directors and employees to avoid situationswhere their personal interest could conflict with interests of the Company or create the appearance of a conflict of interest;

• employees and directors to protect any Company assets under their control and not to use Company assets for personal purposes,without prior Company approval;

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

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

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

The Company has extensive dealings with companies based in countries where gift giving has important cultural significance and plays animportant role in business relationships. As a consequence, the Company has a policy on the giving and receipt of gifts, a copy of which canbe found on the Company’s website at www.pacificbrands.com.au. The policy prohibits the giving and acceptance of gifts of a material natureand, in particular, the giving and acceptance of gifts where they are given or offered with the intention to influence business dealings.



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7 DISCUSSION OF GOVERNANCE POLICIES (CONTINUED)

7.4 Ethical standards and code of conduct (continued)

Employees are encouraged to bring to the attention of their manager, their People and Performance Manager or members of seniormanagement any behaviour or activity occurring in the business which they believe to be inappropriate or inconsistent with the Company’scode of conduct. For those employees who are concerned about directly raising such matters with their superiors, the Company hasestablished a ‘freecall’ telephone line to enable employees to report matters of concern on a confidential basis. The service, known as ‘Faircall’,is operated by an independent third party to ensure that calls can be made in total confidence. Callers may also elect to remain anonymous.The third party reports on each call to the Group General Manager, People and Performance. A summary of all calls and the subsequentactions undertaken are periodically reported to the Nomination and Remuneration Committee. Under the provisions of the Company’swhistleblower protection policy, any reported improper conduct will be investigated while protecting the confidentiality of the identity of thewhistleblower.

The Company also has in place an Occupational Health and Safety Policy which outlines the methods and practices that the Companyrequires to be observed to provide a working environment which is free, as far as practicable, from risk of injury or disease for the Company’semployees, visitors and contractors. Occupational health and safety key performance indicators are reported to the Board on a regular basis,to assist the Board in monitoring compliance with the Company’s Occupational Health and Safety Policy.

7.5 Remuneration

Full details of the remuneration paid to non-executive and executive directors and the Company’s senior executives in relation to the 2008financial year, as well as the Board policy for determining the nature and amount of remuneration and the relationship between such policy andperformance, is discussed in detail in sections 3 and 4 of the Remuneration Report.

7.6 External audit

The Audit, Business Risk and Compliance Committee has also adopted a policy on the provision of non-audit services and the rotation ofexternal audit personnel. Subject to some limited exceptions, unless the committee determines otherwise, the auditor is prohibited fromproviding valuation and fairness opinions, internal audit services, advice on deal structuring, tax planning advice, IT systems services, executiverecruitment services, material human resources functions or legal services or from acting as a broker, promoter or underwriter. The policy alsorequires the partner managing the Company’s audit to be rotated within five years from the date of appointment. A copy of this policy is alsoavailable on the Company’s website at www.pacificbrands.com.au.

8 CODE OF CONDUCT FOR SUPPLIERS

The Company is committed to ethical and responsible conduct in all of its operations, and respect for the rights of all individuals and theenvironment. The Company expects these same commitments to be shared by all suppliers of its products and seeks to enforce this policythrough a formal code of conduct, which includes:

• not using child labour;

• not using any forced or involuntary labour; and

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

The Company, through external auditors, periodically conducts audits of its non-Australasian suppliers and in the event that a supplier is foundto be unable or unwilling to achieve compliance, the Company reserves the right to terminate or suspend the relevant supply contract.

9 ENVIRONMENT

The Company’s operations are subject to environmental laws and regulations, the details of which vary depending upon the jurisdiction inwhich the operation is located. These environmental laws and regulations control the use of land, the erection of buildings and structures onland, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal of waste, andthe investigation and remediation of soil and groundwater contamination.

The Company has procedures in place designed to ensure compliance with all environmental regulatory requirements. In particular, the Companyhas developed a system, known as the ‘Brandsafe Environmental Management System’, for identifying and assessing the environmental hazardswhich arise from its activities and effectively managing those risks by applying sound practices for the prevention of pollution and disposal andminimisation of waste. Brandsafe is based on international standards AS/NZS ISO 9001 which covers areas such as leadership, processapproach and continual improvement.

The Company’s major environmental impacts and the key programs in place to help reduce the Company’s environmental impact are discussedon page 31 of the Annual Report.

10 NZX CORPORATE GOVERNANCE RULES

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

The Company notes that the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best PracticeRecommendations (‘ASX Corporate Governance Rules’) may materially differ from NZX’s corporate governance rules and principles in the NZXCorporate Governance Best Practice Code. Details of the ASX corporate governance rules are available on the ASX website at www.asx.com.au.


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11 ASX CORPORATE GOVERNANCE COUNCIL’S PRINCIPLES OF GOOD CORPORATE GOVERNANCE AND BEST PRACTICE RECOMMENDATIONS

ASX PRINCIPLE REFERENCE1 COMPLIANCE

Principle 1: Lay solid foundations for management and oversight

1.1 Companies should establish the functions reserved to the board and those 1, Remuneration Report Complydelegated to senior executives and disclose those functions.

1.2 Companies should disclose the process for evaluating the performances 1, Remuneration Report Complyof senior executives.

1.3 Companies should provide the information indicated in the Guide to 1, Remuneration Report Complyreporting on Principle 1.

Principle 2: Structure the board to add value

2.1 A majority of the board should be independent directors. 2

2.2 The chair should be an independent director. 2 Comply

2.3 The roles of chair and chief executive officer should not be exercised by 2 Complythe same individual.

2.4 The board should establish a nomination committee. 4 Comply

2.5 Companies should disclose the process for evaluating the performance 5 Complyof the board, its committees and individual directors.

2.6 Companies should provide the information indicated in Guide to reporting 1, 2, 4, 6, Board members Complyon Principle 2. (page 39), Directors’ Report

(page 54)

Principle 3: Promote ethical and responsible decision making

3.1 Companies should establish a code of conduct and disclose the code or 7.4 Complya summary of the code as to:

3.1.1 the practices necessary to maintain confidence in the company’sintegrity;

3.1.2 the practices necessary to take into account their legal obligationsand the reasonable expectations of their stakeholders; and

3.1.3 the responsibility and accountability of individuals for reporting andinvestigating reports of unethical practices.

3.2 Companies should establish a policy concerning trading in company 7.3 Comply securities by directors, senior executives and employees and disclose the policy or a summary of that policy.

3.3 Companies shall provide the information indicated in Guide to reporting 7.3, 7.4 Comply on Principle 3.

Principle 4: Safeguard integrity in financial reporting

4.1 The board should establish an audit committee. 4 Comply

4.2 The audit committee should be structured so that it: 4 Comply

• consists only of non-executive directors;

• consists of a majority of independent directors;

• is chaired by an independent chair, who is not chair of the board; and

• has at least three members

4.4 The audit committee should have a formal charter. 4 Comply

4.5 Companies should provide the information indicated in Guide to reporting 4 Complyon Principle 4.

Principle 5: Make timely and balanced disclosure

5.1 Companies should establish written policies and procedures designed to 7.2 Complyensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.

5.2 Companies should provide the information indicated in Guide to reporting 7.2 Comply on Principle 5.

Principle 6: Respect the rights of shareholders

6.1 Companies should design and disclose a communications policy for 7.2 Comply promoting effective communication with shareholders and encouraging theirparticipation at general meetings and disclose their policy or a summary of that policy.

6.2 Companies should provide the information indicated in the Guide to reporting 7.2 Comply on Principle 6.



PACIFICBRANDS

AR0853

11 ASX CORPORATE GOVERNANCE COUNCIL’S PRINCIPLES OF GOOD CORPORATE GOVERNANCE AND BEST PRACTICE RECOMMENDATIONS (CONTINUED)

ASX PRINCIPLE REFERENCE1 COMPLIANCE

Principle 7: Recognise and manage risk

7.1 Companies should establish policies for the oversight and management of 7.1 Complymaterial business risks and disclose a summary of those policies.

7.2 The board should require management to design and implement the risk 7.1 Comply management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks.

7.3 The board should disclose whether it has received assurance from the 7.1 Comply chief executive officer (or equivalent) and the chief financial officer (or equivalent) that, the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all materialrespects in relation to financial reporting risks.

7.4 Companies should provide the information indicated in Guide to reporting 4, 7.1, 7.6 Comply on Principle 7.

Principle 8: Remunerate fairly and responsibly

8.1 The board should establish a remuneration committee. 4 Comply

8.2 Companies should clearly distinguish the structure of non-executive Remuneration Report Comply directors’ remuneration from that of executive directors and senior executives.

8.3 Companies should provide the information indicated in Guide to reporting 4, 7.5, Directors’ Report Comply on Principle 8. (page 54) and Remuneration

Report

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


PACIFICBRANDSAR08

54

The directors of Pacific Brands Limited (‘Company’) present their report together with the financial report of the Company and its controlledentities (collectively the ‘consolidated entity’) for the year ended 30 June 2008 and the auditor’s report thereon. The information set out below isto be read in conjunction with the Remuneration Report set out on pages 57 to 70 which forms part of this Directors’ Report.

DIRECTORS

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

R.P. Handley, Chairman

A.D. Cummins

D.G. Fisher

J.A.C. MacKenzie (appointed 27 May 2008)

P.R. Moore (retired 1 January 2008)

S.M. Morphet, Chief Executive Officer (appointed 1 January 2008)

M.G. Ould

M.A. Plavsic

S.J. Tierney, Chief Financial Officer

Particulars of directors’ age, qualifications and other listed company directorships, experience and special responsibilities are detailed on page39 of the Annual Report.

DIRECTORS’ INTERESTS IN SHARE CAPITAL

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

ORDINARY SHARES RIGHTS1

A.D. Cummins 316,293

D.G. Fisher 15,321

R.P. Handley 928,544

J.A.C. MacKenzie 3,911

S.M. Morphet 361,337 342,261

M.G. Ould 104,827

M.A. Plavsic 70,000

S.J. Tierney 393,126 165,712

1 Details of the terms and conditions of issue of the performance rights granted to Mrs Morphet and Mr Tierney are set out on pages 61 to 66 in this Directors’Report.

DIRECTORS’ MEETINGS

The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directorsof the Company during the 2008 financial year are:

BOARD AUDIT, BUSINESS RISK AND NOMINATION ANDCOMPLIANCE COMMITTEE REMUNERATION COMMITTEE

DIRECTOR HELD1 ATTENDED2 HELD1 ATTENDED2 HELD1 ATTENDED2

A.D. Cummins 9 9 4 4 3 3

D.G. Fisher 9 9 4 4 3 3

R.P. Handley 9 9 4 4 3 3

J.A.C. MacKenzie 2 1 N/A N/A N/A N/A

P.R. Moore 4 4 N/A N/A N/A N/A

S.M. Morphet 5 5 N/A N/A N/A N/A

M.G. Ould 5 9 4 4 3 3

M.A. Plavsic 9 9 4 4 3 3

S.J. Tierney 9 9 N/A N/A N/A N/A

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

meetings of the Audit, Business Risk and Compliance Committee held during the relevant period each was a director of the Company.4 Mrs Morphet also attended all meetings of the Nomination and Remuneration Committee by invitation. Mr Moore attended the one meeting of the Nomination

and Remuneration Committee held while he was a director.

DIRECTORS’ REPORT


PACIFICBRANDS

AR0855

STATE OF AFFAIRS

In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity that occurred during thefinancial year under review.

PRINCIPAL ACTIVITIES

The principal activities of the consolidated entity during the course of the 2008 financial year were the manufacturing, sourcing, marketing anddistribution of consumer lifestyle brands across the underwear, socks, hosiery, intimate apparel, footwear, bed linen, bedding accessories,bedding, foams, corporate uniforms, workwear, streetwear, lifestyle apparel and sporting goods markets. All products are sold predominantlythroughout the Asia-Pacific region. The consolidated entity also markets and distributes underwear, intimates, footwear and bed linen in theUnited Kingdom and Europe.

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

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

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

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

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

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

These strategies have been applied to drive branded sales growth and demonstrate the power of our branded portfolio. Outside of its people, theCompany’s brands are its number one asset. The Company is focused on branded sales, margin growth, earnings growth and cash generation.

In the 2009 financial year, the Company will continue to focus on earnings growth, profit improvement and cash generation via:

• raising the performance bar – brand processes and people;

• profitable, branded sales growth;

• brand investment through relevant advertising and targeted marketing;

• innovative product development based on consumer insight and research – driving consumer needs and wants;

• increasing our points of presence through retail presentation and new geographies;

• continued emphasis on gross profit improvement;

• building “Business to Business” (corporate uniform) channels;

• leveraging of scale across the total business;

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

• creation of local manufacturing excellence;

• management of working capital and cash flow; and

• execution of strategically sound, value enhancing acquisitions.

Disclosure of information relating to developments in the business strategies and prospects for the consolidated entity for future financial yearswhich would not, in the opinion of the directors, be unreasonably prejudicial to the consolidated entity is contained in the Chairman’s Letter andthe Chief Executive Officer’s Report and the Review of Operations.

REVIEW AND RESULTS OF OPERATIONS

A review of the operations of the consolidated entity during the 2008 financial year and of the results of those operations is contained on pages34 and 35 of the Annual Report.

DIVIDENDS

An interim dividend of 8.5 cents per share, amounting to $42.7 million was paid on 1 April 2008.

The directors have declared a final dividend of $42.7 million to be paid at the rate of 8.5 cents per share on 502,277,852 ordinary shares. Thedividend is expected to be paid on 1 October 2008 to shareholders on the register at the record date of 29 August 2008. This dividend will befully franked at the 30% corporate tax rate in Australia.

EVENTS SUBSEQUENT TO REPORTING DATE

There has not arisen in the interval between the end of the financial year and the date of this report, any item, transaction or event that hassignificantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairsof the consolidated entity, in future financial periods.

LIKELY DEVELOPMENTS

Likely developments in the operations of the consolidated entity and the expected results of those operations are covered generally in theReview of Operations on pages 34 and 35 of the Annual Report.

Further information as to likely developments in the operations of the consolidated entity and the expected results of those operations insubsequent financial periods has not been included in this report because disclosure would be likely to result in unreasonable prejudice to theconsolidated entity.


PACIFICBRANDSAR08

56

NON-AUDIT SERVICES

During the 2008 financial year, KPMG, the Company’s auditor, performed certain other services in addition to its statutory duties.

The Board has considered the non-audit services provided during the financial year by the auditor and in accordance with written adviceprovided by resolution of the Audit, Business Risk and Compliance Committee, is satisfied that the provision of those non-audit services duringthe financial year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act2001 for the following reasons:

• all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by theAudit, Business Risk and Compliance Committee to ensure they did not impact the integrity and objectivity of the auditor; and

• the non-audit services provided do not undermine the general principles relating to auditor independence as set out in ProfessionalStatement F1 Professional Independence, as they did not involve reviewing or auditing the auditor’s own work, acting in a management ordecision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 70 in thisreport.

Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided duringthe financial year are set out below:

CONSOLIDATED

2008 2007

$ $

Statutory audit:

Auditors of the Company

– audit and review of financial reports (KPMG Australia) 1,259,600 1,128,000

– audit and review of financial reports (overseas KPMG firms) 377,400 291,000

1,637,000 1,419,000

Services other than statutory audit:

Other assurance services

– other assurance services (KPMG Australia) 85,641 13,240

– other assurance services (overseas KPMG firms) 26,873 38,167

Other services

– taxation compliance services (KPMG Australia) 171,294 209,800

– taxation compliance services (overseas KPMG firms) 14,461 9,357

298,269 270,564

INDEMNIFICATION AND INSURANCE OF OFFICERS

In accordance with the Company’s Constitution, the Company has agreed to indemnify every person who is, or has been, an officer of theCompany or its controlled entities against any liability (including reasonable legal costs) incurred by the person as such an officer of theCompany or its controlled entities, to the extent permitted by law and subject to the restrictions in section 199A of the Corporations Act 2001.Indemnified officers are the directors and secretaries of the Company or its controlled entities. During the financial year, there were no claimsmade against any officer of the Company that would invoke the above indemnity.

In addition, the Company has entered into standard form deeds of indemnity with all of its current directors against all liabilities which they mayincur in the performance of their duties as directors of the Company, except liability to the Company or a related body corporate, liability for apecuniary penalty or compensation under the Corporations Act 2001, and liability arising from conduct involving a lack of good faith.

The Company holds a directors’ and officers’ liability insurance policy on behalf of current and former directors and officers of the Companyand its controlled entities. The period of the policy extends from 1 December 2007 to 30 November 2008 and the premium was paid on 7February 2008. Due to confidentiality obligations and undertakings of the policy, no further details in respect of the premium or policy can bedisclosed.

ENVIRONMENTAL REGULATION

The consolidated entity’s operations are subject to environmental laws and regulations, the details of which vary depending upon thejurisdiction in which the operation is located. These environmental laws and regulations control the use of land, the erection of buildings andstructures on land, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal ofwaste, and the investigation and remediation of soil and groundwater contamination.

The consolidated entity has procedures in place designed to ensure compliance with all environmental regulatory requirements.The directors are not aware of any material breaches of environmental regulations during the financial year.

ROUNDING OFF

The Company is of a kind referred to in Australian Securities and Investments Commission Class Order 98/100 dated 10 July 1998 (as in force on 30 June 2008) and in accordance with that Class Order, amounts in the financial report and this Directors’ Report have beenrounded off to the nearest thousand dollars, unless otherwise stated.

DIRECTORS’ REPORT (CONTINUED)


PACIFICBRANDS

AR0857

1 REMUNERATION STRATEGY

The Board believes that a transparent and appropriately structured remuneration strategy can underpin a strong performance based cultureand assist in driving above average returns. The Company’s remuneration strategy has been constructed based on this belief and is designedto attract, retain and motivate appropriately qualified and experienced directors and senior executives. This Remuneration Report discloses theremuneration of, and provides an explanation of the remuneration strategies for key management personnel of the consolidated entity, includingthe directors and the five most highly remunerated executives of the Company and the consolidated entity.

A substantial proportion of the remuneration of executives is at risk and is based on the achievement of both internal (short term) performancehurdles set at the beginning of the financial year and the achievement of market based (long term) performance hurdles.

The fees paid to non-executive directors are set at levels which reflect both the responsibilities of, and the time commitments required from,each non-executive director to discharge their duties. Fee levels are set having regard to independent advice and the fees paid by comparablecompanies.

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

Overview of elements of remunerationDIRECTORS SENIOR DISCUSSION IN

ELEMENTS OF REMUNERATION NON-EXECUTIVE EXECUTIVE EXECUTIVES REMUNERATION REPORT

Fixed remuneration Fees 1 ✔ Page 58

Salary ✔ ✔ Page 60

Superannuation 2 ✔ ✔ ✔ Page 60

Other benefits ✔ ✔ Page 60

At risk remuneration Short term incentive ✔ ✔ Page 60

Long term incentive ✔ ✔ Page 61

Post employment Notice periods and ✔ ✔

termination payments Page 68

1 Non-executive directors are required to apply a minimum of 25% of their fee in acquiring shares in the Company under the terms of the Pacific Brands Non-Executive Director Share Plan.

2 Non-executive directors fees are set inclusive of 9% statutory superannuation contributions.

2 COMPANY PERFORMANCE

As reported on page 5, the consolidated entity generated a record $229.1 million in EBITA (earnings before interest, tax and amortisation) forthe year ended 30 June 2008 (which was 18.1% higher than the prior year’s result of $194.0 million) and a reported net operating profit aftertax pre amortisation of $118.7 million (which was 10.7% higher than the prior year’s amount of $107.2 million).

The strategic direction of the Company has remained constant and continues to deliver solid results. Investment in brands, people and productinnovation, a continuing drive for operational excellence and well targeted acquisitions all contributed to this strong performance.

A fully franked final dividend of 8.5 cents per share has been declared. This results in a fully franked 17.0 cent per share full year dividendwhich represents a 73% payout ratio to shareholders.

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

2008 2007 2006 20051 20042

Net sales revenue ($m) 2,116.6 1,820.7 1,624.9 1,521.7 363.4

EBITA ($m) 229.1 194.0 173.0 174.6 29.5

NPAT3 117.1 106.0 101.2 100.9 11.8

EPS (cents)4 23.2 21.1 20.1 20.1 2.3

Dividends per share (cents) 17.0 16.0 15.0 15.0 3.5

Year end share price ($) 1.78 3.49 2.15 2.27 2.67

Return of capital ($m) 0 1.87 0 0 0

TSR (%)5 (44.9) 66.4 (1.1) (12.4) 6.8

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

6 April 2004, through to 30 June 2004, and were restated in accordance with AIFRS.3 Net operating profit after tax.4 Earnings per share have been calculated based on the weighted average number of shares outstanding for the relevant period, currently being 502,277,852.5 TSR or total shareholder return is, broadly, a measure of the return to shareholders provided by movements in the Company’s share price plus any dividends paid

or declared in respect of the relevant financial period and reinvested in Company shares, expressed as a percentage of investment.

As part of the Board’s commitment to maximising the performance of the Company and shareholder wealth, employee performance is measuredannually against agreed performance objectives which will have been set prior to the commencement of the relevant financial year. So far aspractical, objectives should be Specific, Measureable, Achievable, Relevant and Time bound (‘SMART’).

The performance of the Chief Executive Officer is reviewed by the Chairman on behalf of the Board. The performance of the Chief FinancialOfficer and all other senior executive is reviewed by the Chief Executive Officer. All performance reviews take place annually, shortly after theend of the financial year and, in respect of the 2008 financial year, occurred in July and August 2008. The Company’s performance reviewsystem involves employees completing a self assessment template as well as their manager completing an assessment document. Thesewritten assessments form the basis of a performance review discussion between the employee and their manager. Details about the Boardand Non-executive Director performance review process are contained in Section 5 of the Corporate Governance Statement.

DIRECTORS’ REPORT/REMUNERATION REPORT


PACIFICBRANDSAR08

58

3 NON-EXECUTIVE DIRECTORS’ REMUNERATION

A. Board policy on remuneration

The disclosures in this section relate to the remuneration for the Company’s non-executive directors who are regarded as ‘key managementpersonnel’ for the purpose of Australian Accounting Standard AASB 124.

The focus of the Board is on long term strategic direction and the overall performance of the Company and accordingly non-executivedirector remuneration is not linked to Company performance and short term results. In order to better align the interests of non-executivedirectors and shareholders in relation to the long term performance of the Company, a minimum of 25% of each non-executive director’sannual fee must be taken in the form of shares in the Company pursuant to the terms of the Non-Executive Director Share Plan. The planenables non-executive directors to elect to apply up to 100% of their fees in acquiring shares in the Company. The Non-Executive DirectorShare Plan is not a performance based share plan, nor is it intended as an incentive component of non-executive director remuneration, soas to maintain the independence and impartiality of the non-executive directors. Shares acquired under the Non-Executive Director SharePlan must, in general, be held for the period the director holds office as a director and are purchased monthly, on-market, at the prevailingmarket price at the end of each calendar month.

Non-executive directors are provided with formal letters of appointment prior to commencing their directorship. Their tenure with the Companyis also governed by the Company’s Constitution and the Australian Securities Exchange (‘ASX’) Listing Rules, which provide that all non-executivedirectors are subject to shareholder re-election every three years.

Non-executive directors’ fees, including any committee fees, are set by the Board within the maximum aggregate amount approved byshareholders. Currently this amount is $1,000,000 per annum which has not varied since the time of the Company’s initial public offering in April2004. The Company intends to seek shareholder approval at its Annual General Meeting on 21 October 2008 to increase the maximumaggregate amount of non executive director remuneration by $500,000 to $1,500,000 per annum. This increase is being sought to ensure thatdirectors’ fees can be set out at a level which enables the Company to appoint and retain the best and most appropriate non-executive directorsand to accommodate any increase in the number of non executive directors. The fees paid to non-executive directors are set at levels whichreflect both the responsibilities of, and the time commitments required from, each director to discharge their duties. In that regard, it should benoted that all non-executive directors are required to be members of the two Board committees in order to be informed on all issues which areconsidered by the committees and which may subsequently come before the full Board and to facilitate in depth discussion on such issues.

The Nomination and Remuneration Committee makes recommendations to the Board on the total level of remuneration of the Chairman andother non-executive directors, including any additional fees payable to directors for membership of Board committees. The Chairman is notpresent at discussions relating to his own fees.

The Board, through the auspices of the Nomination and Remuneration Committee, reviews periodically its approach to non-executive directorremuneration to ensure it remains in line with general industry practice and reflects proper compensation for duties undertaken.

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

• the Company’s existing remuneration policies;

• independent remuneration consultants’ advice;

• fees paid by comparable companies; and

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

Details of the membership of the Nomination and Remuneration Committee and its responsibilities are set out in section 4 of the CorporateGovernance Statement. The Nomination and Remuneration Committee Charter is available on the Company’s website atwww.pacificbrands.com.au.

The aggregate fees paid to the non-executive directors, including the Chairman, during the 2008 financial year were $791,846 approximately22% above the aggregate fee amount for the 2007 financial year.

The Company does not currently pay additional fees for membership of the Board’s committees.

Superannuation contributions are made on behalf of the non-executive directors in accordance with the Company’s statutory superannuationobligations and any election of a director to sacrifice part of his/her fee in favour of increased superannuation contributions. The sum of$791,846 paid as directors’ fees during the 2008 financial year is inclusive of such superannuation contributions.

Directors are also entitled to be reimbursed for all business related expenses, including travel on Company business, as may be incurred in thedischarge of their duties in accordance with rule 8.3(e) of the Company’s Constitution.

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

DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)


PACIFICBRANDS

AR0859

B. Remuneration

Details of non-executive directors’ remuneration for the 2008 financial year are set out in the following table:POST

SHORT TERM PAYMENTS EMPLOYMENT TOTAL2

SUPERANNUATIONCASH SHARES1 CONTRIBUTIONS

$ $ $ $

R.P. Handley (Chairman) 2008 200,229 75,000 24,771 300,0002007 166,858 62,500 20,642 250,000

A.D. Cummins 2008 28,092 60,000 31,908 120,0002007 43,830 52,500 8,670 105,000

D.G. Fisher3 2008 80,092 30,000 9,908 120,0002007 18,328 6,865 2,267 27,460

J.A.C. MacKenzie4 2008 7,906 2,962 978 11,8462007 – – – –

M.G. Ould 2008 62,092 48,000 9,908 120,0002007 0 30,000 80,000 110,000

M.A. Plavsic 2008 11,250 30,000 78,750 120,0002007 17,520 26,250 61,230 105,000

Total 2008 389,661 245,962 156,223 791,8462007 279,908 190,615 176,937 647,460

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

insurance contracts which covers, among others, current and former directors of the Company. Due to confidentiality obligations and undertakings of the policy,the premium paid cannot be disclosed No amount has been allocated to the individuals covered by the insurance policy as, based on all available information,the directors believe that no reasonable basis for such allocation exists.

3 Ms D.G. Fisher was appointed as a director of the Company on 28 March 2007.4 Mr J.A.C. MacKenzie was appointed as a director of the Company on 27 May 2008.

4 EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION

The disclosures in this section relate to the remuneration for key management personnel of both the Company and the consolidated entity(being those persons with authority and responsibility for planning, directing and controlling the activities of the Company during the financialyear) other than the non-executive directors. This group of executives (referred to throughout this Remuneration Report as “senior executives”)includes the five most highly remunerated executives of the Company and the consolidated entity during the financial year.

The names and positions of the senior executives of the Company and the consolidated entity, as at the date of this report, are listed in,among other places, the table on page 69 of this report.

The Board and the Nomination and Remuneration Committee believe that the performance of the Company depends on the quality of itspeople. The Board has adopted a remuneration policy which assists the Company to achieve its business strategy and goals and has thefollowing objectives:

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

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

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

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

The Nomination and Remuneration Committee obtains independent advice from external specialists on the level and mix of remuneration forcomparable roles in comparable companies.

Alignment of executive remuneration with the Company’s business strategy is achieved through both short and long term incentives. Keyfinancial and strategic value drivers are identified, targets set, and rewards provided on their achievement. Value drivers include, in the case ofshort term incentives, net profit after tax (‘NPAT’) growth and the achievement of specified strategic objectives and, in the case of long termincentives, relative total shareholder return (‘TSR’) and earnings per share (‘EPS’) growth.

The mix of short and long term incentives varies with each executive’s business focus. As much of the Company’s business is subject to shortretail cycles, it follows that many executives will have a balance between short term and long term incentives.

The Board believes that a company’s remuneration policy needs to be contemporary and as such must be capable of adjustment over time to reflect changes in market conditions. For this reason, the Board has initiated a review of the fixed and performance related components ofremuneration, ( which are summarised below in respect of the 2008 financial year) to ensure that the current weighting between fixed andperformance related components reflects market conditions. The review will also consider whether or not the current performance hurdles aresufficiently aligned with the ability of the relevant executives to drive the performance of the Company. The outcome of the review referred toabove may result in changes to the weighting of executive directors and senior managements remuneration between fixed and performancerelated components and changes in the hurdles applicable to the performance based elements of such employees remuneration.


4 EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)

The relative proportion of executive directors’ and senior management’s total remuneration packages for the 2008 financial year that isperformance based is set out in the table below:

% OF TOTAL TARGET REMUNERATION (ANNUALISED)

FIXED PERFORMANCEREMUNERATION BASED REMUNERATION

SHORT TERM LONG TERM TOTAL PERFORMANCEINCENTIVES INCENTIVES BASED REMUNERATION2

Chief Executive Officer 34% 27% 39% 66%

Chief Financial Officer 38% 29% 33% 62%

Other senior executives1 59% 23% 18% 41%

1 Percentages based on average remuneration for the relevant executives assuming incentives fully vest. 2 The remuneration of those employees who ceased or commenced to be employed by the company part way through the financial year have not been taken into

account as the inclusion of the remuneration of these employees would distort the relative proportions of fixed and performance based remuneration and give amisleading representation of the Company’s remuneration policy.

Financial results are verified by reference to the Company’s audited accounts. Relative TSR performance is verified by external advisers. Theachievement of performance objectives is assessed by the Chief Executive Officer for direct reports and verified by the Board, while the Boardassesses whether or not the Chief Executive Officer has met her performance objectives.

A. Fixed remuneration

The terms of employment for all executive management contain a fixed remuneration component comprising base salary, superannuation andmotor vehicle (or motor vehicle allowance). The Company utilises the Hay points rating system to value individual roles.

Longer serving employees receive defined benefit superannuation as a legacy from the previous ownership of Pacific Brands. The cost ofproviding their superannuation benefit varies with each individual’s salary level and years of membership of the plan. Longer serving employeeswill attract greater superannuation costs than more recent employees. This plan has been closed to new members for several years. Neweremployees receive a superannuation benefit that allows them to control and vary their contribution levels above the mandated statutoryminimum on a salary sacrifice basis.

The executive directors and a majority of the executives for whom remuneration is disclosed are members of the defined benefit plan. Hence,the expense associated with their superannuation benefit reflects most individuals’ relatively long periods of service.

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

B. Short term incentives (‘STI’)

Both executive directors and all other members of the senior executive team participate in a STI program which involves linking specific targets(both financial and qualitative) with the opportunity to earn cash based on a percentage of the executive’s base salary. In respect of the 2008financial year, the Chief Executive Officer and the Chief Financial Officer both had the opportunity to earn a bonus equivalent to 100% of theirrespective base salary. In relation to other Australian members of the senior executive team, the opportunity generally comprised an amount ofup to 50% of their base salary for target performance.

Payment of executive STI was conditional on the consolidated entity’s earnings before interest and tax (‘EBIT’) being in excess of the budgetedEBITA growth of 17.6% (after fully providing for all STI payments) over the prior year. This is a threshold criterion which must be satisfied beforethe payment of any STI can be contemplated. Additional performance requirements need to be met for a senior executive to be entitled to themaximum STI incentive. Individual performance requirements relate to individual financial and non-financial objectives. The specified objectivesmust represent outcomes that can extend the Company’s sustainable profit growth over time. These may vary with the individual executive andhis/her responsibilities and can include financial, operational, acquisition, divestment, investment, workforce capability and succession planninggoals. Targets for each objective are determined by the Chief Executive Officer (and, in the case of the Chief Executive Officer by the Board)according to the roles and responsibilities of the relevant executive.

The actual amount of any STI award is determined based on achievement of annual performance conditions. Performance is tested at the endof each financial year. The payment of a STI to the Chief Executive Officer is subject to the discretion of the Board notwithstanding achievementof the performance hurdles. Similarly, in the case of all other senior executives the payment of any STI is subject to the discretion of the ChiefExecutive Officer, in consultation with the Board, to take account of the overall level of performance of the senior executive.

In the 2008 financial year, the threshold criterion of budgeted EBITA growth of 17.6% and all other individual specified performance conditionswere met, and accordingly cash bonuses were paid to all senior executives employed by the Company as at the end of the 2008 financial year,other than those senior executives who had not been employed with the Company for the entirety of the 2008 financial year. The serviceagreements for the Chief Executive Officer and the Chief Financial Officer provide that a percentage (determined at the discretion of the Board) ofany STI to which they may become entitled is to be applied to acquiring shares (‘Deferred Shares’). Specifically, the Chief Executive Officer isrequired to apply forty percent of any annual incentive to acquiring Deferred Shares, while the Chief Financial Officer is required to apply one thirdof any incentive towards the acquisition of Deferred Shares. The executives may elect to apply a greater percentage of any incentive to acquiringshares which are subject to the ‘restriction’ condition described below. Other senior executives receive their STI in the form of a cash payment.

In the case of the Chief Executive Officer and the Chief Financial Officer, the Deferred Shares are subject to a vesting period of two years,based on service, from the date of allocation. Once acquired, the Deferred Shares are held on trust, subject to a further restriction on dealingfor a period of three years after the date of allocation of the Deferred Shares. If the executive is terminated for cause prior to the end of the twoyear vesting period, any entitlement to the Deferred Shares ceases. If the employment of the executive ceases in other circumstances, theexecutive will, in general, be entitled to receive their Deferred Shares. Deferred Shares allocated under this arrangement will generally beacquired on-market. The balance of any annual incentive award will be paid to the executive in cash.

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Current STI programs relevant to executive directors and senior executives PERCENTAGE PERCENTAGE

OF STI OF STI NOT MINIMUM MAXIMUMPAYABLE AWARDED TOTAL VALUE TOTAL VALUE

DATE OF GRANT (%) (%) OF STI ($) OF STI ($)

Executive directors

S.M. MorphetChief Executive Officer1 30/11/2007 100 0 $0 $700,000

P.R. Mooreformer Chief Executive Officer1 01/07/2007 100 0 $0 $525,000

S.J. TierneyChief Financial Officer2 24/02/2007 100 0 $0 $436,800

Senior executives

S.W. AudsleyChief Financial Officer3 N/A N/A N/A N/A N/A

I.C. BartonGroup General Manager,Home Comfort4 30/11/2007 83% 17% $0 157,500

Y.K. CheongGroup General Manager, Supply & Operations 5 N/A N/A N/A N/A N/A

M.M. ClarkGroup General Manager,Workwear6 N/A N/A N/A N/A N/A

M.S. DanielGroup General Manager,Workwear7 16/10/2007 N/A N/A N/A N/A

M.J. FordGroup General Manager,Footwear 16/10/2007 100 0 $0 $180,000

B.A. HannaganGroup General Manager,Underwear & Hosiery 8 16/10/2007 100 0 $0 $175,000

M.E. KeelyGroup General Manager,People & Performance 16/10/2007 100 0 $0 $175,000

M. SonandGroup General Manager,Outerwear & Sport 16/10/2007 100 0 $0 $150,000

R.A.TaylorGroup General Manager,Home Comfort 9 16/10/2007 100 0 $0 $165,000

1 P.R. Moore retired from the Company effective 1 January 2008 and S.M. Morphet was appointed to the role of Chief Executive Officer effective 1 January 2008.2 S.J. Tierney was appointed to the role of Chief Financial Officer effective 17 March 2008. Prior to this Mr Tierney held the role of Group General Manager,

Operations.3 S.W. Audsley resigned from the Company effective 5 October 2007.4 I.C. Barton ceased in the role of Group General Manager, Home Comfort effective 30 November 2007 and resigned from the Company effective 30 April 2008.5 Y.K. Cheong was appointed to the role of Group General Manager, Supply & Operations effective 10 March 2008.6 M.M. Clark was appointed to the role of Group General Manager, Workwear effective 26 May 2008.7 M.S. Daniel resigned from the Company effective 2 May 2008.8 B.A. Hannagan was appointed to the role of Group General Manager, Underwear & Hosiery effective 29 January 2008.9 R.A. Taylor was appointed to the role of Group General Manager, Home Comfort effective 1 December 2007.

C. Long term incentives (‘LTI’)

The Company’s LTI arrangements are designed to link executive reward with the key performance drivers which underpin sustainable growth in shareholder value. Participation in the LTI arrangements is only offered to executives who are able to influence the generation of shareholderwealth and thus have a direct impact on the Company’s performance against the relevant performance hurdles. In addition, the Board believesthat the appropriateness of LTI arrangements cannot be viewed in isolation, but must be considered in the context of the total array of possibleremuneration elements which may be provided to senior executives, taking account of the remuneration practices of competitor companies.

The Company’s senior executive LTI plans are currently comprised of a performance rights plan (‘PRP’) introduced in 2004 as part of theCompany’s initial public offering, giving an entitlement to shares on satisfaction of the performance requirements. Grants are generally madeannually to ensure there is a balance between the achievement of short term objectives and longer term goals. There have been grants ofperformance rights to senior executives pursuant to the terms of the PRP in 2004, 2005, 2006 and 2007. As noted above, the Board hasinitiated a review of the fixed and performance related components of remuneration so as to ensure alignment of the performance relatedcomponents of remuneration and the ability of, and the incentives for, the relevant executives to drive the performance of the Company.


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The rules of the PRP provide that the Board may, at the time of making a grant of performance rights, determine an amount that is payable bythe relevant senior executive upon allocation of a share following vesting of a performance right, or that no amount is payable upon allocationof a share once a performance right vests. In respect of the performance rights granted to date, the Board has on each occasion determinedthat no amount is payable by the relevant executive on vesting of their grant of rights.

Performance hurdle selection

Eligible executives (including the executive directors) were first granted performance rights in 2004. Under the 2004 grant, vesting was basedon relative TSR performance against the individual TSRs of the companies comprising the ASX 100 index at that time.

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

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

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

• measures and rewards the extent to which shareholder returns are generated relative to the performance of those companies with whichthe Company competes for capital, customers and talent.

At the 2005, 2006 and 2007 Annual General Meetings of the Company, shareholders approved further grants of performance rights to theexecutive directors. Similar grant of performance rights were also made to other eligible senior executives at these times. Half of these grantsof performance rights are subject to an EPS growth hurdle. The other half of each grant is subject to a relative TSR hurdle.

In moving from a purely TSR based measure (which formed the basis of the 2004 grant of performance rights), to a combination of TSR andEPS based performance measures (adopted in respect of each subsequent grant of performance rights), the Board determined that TSR alonedid not always reflect the long term value created by senior executives in the measurement period. At the time of issue, the Board believedthat, collectively, TSR and EPS performance was better correlated with executive performance over time.

Frequency of testing against performance hurdles

The 2004 and 2005 grants were divided into tranches corresponding to performance measurement periods of one year, two years, three yearsand four years. Any unvested tranche in any period is held over and subject to retesting against the performance criteria in following periods.The 2006 and 2007 grant of performance rights have the performance requirements tested only once, at the end of the 2009 and 2010financial years, respectively.

Based on the financial performance of the Company in the 2008 financial year no performance rights vested in the executive directors andsenior executives effective 1 July 2008.

The maximum percentage of remaining performance rights that may vest, subject to performance, in any one year are set out in the table below:MAXIMUM % MAXIMUM % MAXIMUM %

VESTING DATE OF 2005 GRANT1 OF 2006 GRANT1 OF 2007 GRANT1

1 July 2009 82.5% 100% 0%

1 July 2010 0% 0% 100%

Maximum 82.5% 100% 100%

1 No shares vested under any of the LTI grants in respect of the Company’s performance in the 2005, 2006 or 2008 financial years. 17.5% of the 2005 grant ofperformance rights vested effective 1 July 2007.

2 The percentage of performance rights which may vest on 1 July 2009 under the 2005 grant includes a certain percentage of the performance rights grantedwhich did not vest on 1 July 2008 and which therefore carried forward to the next possible vesting date.

TSR performance conditions

Each year, the Board reviews and if necessary refines the peer group for TSR performance comparison. The 2004 grant used a comparisongroup of the ASX’s 100 largest companies by market capitalisation and the 2005 comparison group was composed of a basket of 72companies selected from the ASX 200 as comparable yield stocks. The comparison group for the 2006 and 2007 grants was comprised ofcompanies which were:

• ASX listed;

• in the consumer staples and discretionary sectors; and

• either side of the Company in the market capitalisation, such that the Company’s market capitalisation at the start of the performanceperiod approximates the median of the comparison group. The companies that met these criteria compete with the Company forcustomers’ spending, while representing alternatives to current and potential investors in the competition for capital in this sector.

The 2007 comparator group is identical to the comparator group which applied to the 2006 grant of performance rights, but excluding BurnsPhilp & Company Limited and UNiTAB Limited which were removed from the comparator group for the 2007 grant of performance rights, asthose companies had been delisted.



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The Company’s performance is given a percentile ranking having regard to its TSR performance compared with the TSR performance of othercompanies in the relevant comparator group. This is done in respect of each grant of performance rights.

The TSR performance conditions in relation to the 2004, 2005, 2006 and 2007 grants of performance rights are:TARGET PERCENTAGE OF SHARES AVAILABLE IN

GIVEN YEAR THAT VESTS

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

The Company’s annual TSR equals or exceeds performance of the median TSR of the comparator companies 50%

The Company’s annual TSR ranks in third quartile of the comparator companies Pro rata between 50% and 100%(2% increase for each higher ranking)

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

EPS performance conditions

As noted above, the EPS growth requirement was introduced in 2005 for half of the performance rights and is also a requirement in relation to the 2006 and 2007 grant of performance rights. The Board introduced this performance requirement because:

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

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

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

EPS performance requirements are reviewed prior to each year’s allocation of performance rights. The range of EPS growth reflects theCompany’s view of what is a reasonable target value, taking account of likely business cycle conditions as well as the upside potential theCompany has for further earnings growth.

2004:ASX 100

All companiescomprising the ASX100 at the start ofthe performanceperiod.

2005:HIGHEST YIELD COMPANIES IN ASX 200

ABC Learning Centres Limited, Adelaide BrightonLimited, Adsteam Marine Limited, AlescoCorporation Limited, Amcor Limited, AnsellLimited, Aristocrat Leisure Limited, Austereo GroupLimited, Australian Gas Light Company (The),Australian Pharmaceutical Industries Limited, AWBLimited, Baycorp Advantage Limited, BillabongInternational Limited, BlueScope Steel Limited,Boral Limited, Bradken Limited, BramblesIndustries Limited, Burns Philp & CompanyLimited, Coates Hire Limited, Cochlear Limited,Coles Myer Limited, Colorado Group Limited,Corporate Express Australia Limited, Crane GroupLimited, CSL Limited, CSR Limited, David JonesLimited, DCA Group Limited, Downer EDI Limited,Flight Centre Limited, Foodland AssociatedLimited, Foster’s Group Limited, GRD Limited,GUD Holdings Limited, Gunns Limited, GWAInternational Limited, Harvey Norman HoldingsLimited, Hills Industries Limited, HousewaresInternational Limited, Invocare Limited, JB Hi-FiLimited, Just Group Limited, McGuigan SimeonWines Limited, Metcash Limited, MYOB Limited,Nufarm Limited, OAMPS Limited, OneSteelLimited, Orica Limited, Origin Energy Limited,Pacific Brands Limited, Pacifica Group Limited,PaperlinX Limited, Promina Group Limited, QantasAirways Limited, Repco Corporation Limited, RidleyCorporation Limited, Rinker Group Limited, SevenNetwork Limited, Sigma Company Limited, SimsGroup Limited, Smorgon Steel Group Limited,Sonic Healthcare Limited, Spotless GroupLimited, STW Communications Group Limited,Tabcorp Holdings Limited, Ten Network HoldingsLimited, Toll Holdings Limited, UNiTAB Limited,United Group Limited, Wattyl Limited, WesfarmersLimited and Woolworths Limited.

2006:CONSUMER STAPLES ANDDISCRETIONARY COMPANIES

ABC Learning Centres Limited,Austereo Group Limited,Amalgamated Holdings Limited,APN News & Media Limited,AWB Limited, BillabongInternational Limited, Burns Philp& Company Limited, DavidJones Limited, FuturisCorporation Limited, FlightCentre Limited, GUD HoldingsLimited, Harvey NormanHoldings Limited, JB Hi-FiLimited, Just Group Limited,Metcash Limited, SouthernCross Broadcasting (Australia)Limited, Seek Limited, SevenNetwork Limited, STWCommunications Group Limited,Ten Network Holdings Limited,Tattersall’s Limited, UNiTABLimited and West AustraliaNewspapers Holdings Limited.

2007:CONSUMER STAPLES ANDDISCRETIONARY COMPANIES

ABC Learning Centres Limited,Austereo Group Limited,Amalgamated Holdings Limited,APN News & Media Limited,AWB Limited, BillabongInternational Limited, DavidJones Limited, FuturisCorporation Limited, FlightCentre Limited, GUD HoldingsLimited, Harvey NormanHoldings Limited, JB Hi-FiLimited, Just Group Limited,Metcash Limited, SouthernCross Broadcasting (Australia)Limited, Seek Limited, SevenNetwork Limited, STWCommunications GroupLimited, Ten Network HoldingsLimited, Tattersall’s Limited andWest Australia NewspapersHoldings Limited.

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



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EPS performance requirements for each grant are shown in the table below:PERCENTAGE OF SHARESIN TRANCHE AVAILABLE INGIVEN YEAR THAT VESTS 2005 PERFORMANCE RIGHTS EPS TARGET 2006 AND 2007 PERFORMANCE RIGHTS EPS TARGET

0% The Company’s compound EPS growth (tested over 1, The Company’s 3 year compound EPS growth2, 3 and 4 years) is less than 8.5% is less than 8.0%

25% The Company’s compound EPS growth (tested over 1, The Company’s 3 year compound EPS growth2, 3 and 4 years) equals 8.5% equals 8.0%

Pro rata between 25% The Company’s compound EPS growth (tested over 1, The Company’s 3 year compound EPS growthand 100% 2, 3 and 4 years) is between 8.5% and 10.5% is between 8.0% and 12.0%

100% The Company’s compound EPS growth (tested over 1, The Company’s 3 year compound EPS growth2, 3 and 4 years) equal to or exceeding10.5% equal to or exceeding 12.0%

Testing

In relation to the 2004 and 2005 grants of performance rights, performance conditions were again tested at the end of the 2008 financial year.Based on the EPS growth and the relative TSR of the Company for the 2008 financial year, no performance rights vested on 1 July under eitherthe 2004, or 2005 performance rights grants. The final testing of the performance hurdles in respect of the 2005 grant will occur on 30 June 2009.

Restrictions on performance rights which vest

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

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

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

In the case of the 2006 and 2007 grants executives are not entitled to trade in shares allocated on vesting of the performance rights until theearliest to occur of:

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

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

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

Performance rights will lapse in accordance with the terms of the grant if performance hurdles are not achieved or if participants resign prior tothe completion of required vesting periods.

Where a participant leaves the Company as a result of death, disability, retrenchment, or other reason with the approval of the Board, subjectto performance hurdles being met, the Board may determine the extent to which performance rights granted to the participant vest.

In the event of a takeover for the Company, performance rights may, at the discretion of the Board, vest on a pro rata basis in accordance withan assessment of performance on the same performance criteria, but with the performance period pro rated to the date of the takeover offer.

A discussion of the Company’s performance, specifically against the Company’s earnings and the consequences of the Company’sperformance on shareholder wealth in the period from 2 April 2004 to 30 June 2008 is set out in section 1 of this report.

Vesting of rights

Details of the number of performance rights which have been granted and the extent (if any) to which they have vested are set out in the tablefollowing. The Company values and discloses all performance rights granted under the PRP in accordance with relevant Australian AccountingStandards.

The Company’s guidelines for dealing in securities also prohibit any employee who has been granted performance rights or deferred shares inthe Company pursuant to the terms of any of the Company’s employee share plans from entering into a transaction to limit the economic riskof such performance rights or deferred shares, whether through a derivative, hedge or other similar arrangement, without the prior writtenapproval of the Chief Executive Officer or the Board.



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Equity grants made to executive directors and senior executives1

PERCENTAGE PERCENTAGE FUTURE MINIMUM MAXIMUMEFFECTIVE OF GRANT OF GRANT FINANCIAL YEARS TOTAL VALUE TOTAL VALUE

NATURE OF COMPENSATION/ DATE OF PAID/VESTED FORFEITED THAT GRANT WILL OF GRANT1 OF GRANT2

INSTRUMENT GRANTED GRANT (%) (%) BE PAYABLE ($) ($)

Executive directors

S.M. Morphet 250,000 performance rights 01/07/2004 60 40 N/A Nil NilChief Executive Officer 62,500 performance rights 01/07/2005 17.5 Nil 2009 Nil 69,609

40,698 performance rights 01/07/2006 Nil Nil 2009 Nil 57,792250,000 performance rights 01/07/2007 Nil Nil 2010 Nil 570,000

P.R. Moore,3 500,000 performance rights 01/07/2004 100 Nil N/A Nil Nilformer 125,000 performance rights 01/07/2005 100 Nil N/A Nil NilChief Executive Officer 122,093 performance rights 01/07/2006 Nil 100 N/A Nil Nil

S.J. Tierney, 300,000 performance rights 01/07/2004 60 40 N/A Nil NilChief Financial Officer 75,000 performance rights 01/07/2005 17.5 Nil 2009 Nil 83,531

48,837 performance rights 01/07/2006 Nil Nil 2009 Nil 69,34955,000 performance rights 01/07/2007 Nil Nil 2010 Nil 125,400

Senior executives

S.W. Audsley4 250,000 performance rights 01/07/2004 60 40 N/A Nil Nil62,500 performance rights 01/07/2005 17.5 82.5 N/A Nil Nil40,698 performance rights 01/07/2006 Nil 100 N/A Nil Nil

I.C. Barton5 200,000 performance rights 01/07/2004 60 40 N/A Nil Nil50,000 performance rights 01/07/2005 17.5 82.5 N/A Nil Nil36,628 performance rights 01/07/2006 Nil 100 N/A Nil Nil

M.S. Daniel6,7 200,000 performance rights 01/07/2004 60 40 N/A Nil Nil42,442 performance rights 01/07/2006 Nil 100 N/A Nil Nil50,000 reward rights 01/07/2006 Nil 100 N/A Nil Nil48,000 performance rights 01/07/2007 Nil 100 N/A Nil Nil

M.J. Ford 200,000 performance rights 01/07/2004 60 40 2008 Nil Nil50,000 performance rights 01/07/2005 17.5 Nil 2009 Nil 55,68840,116 performance rights 01/07/2006 Nil Nil 2009 Nil 56,96545,000 performance rights 01/07/2007 Nil Nil 2010 Nil 102,600

B.A. Hannagan8 44,000 performance rights 01/07/2007 Nil Nil 2010 Nil 100,32050,000 reward rights 01/07/2006 Nil Nil 2009 Nil 90,000

M.E. Keely 200,000 performance rights 01/07/2004 60 40 2008 Nil 128,00050,000 performance rights 01/07/2005 17.5 Nil 2009 Nil 55,68831,977 performance rights 01/07/2006 Nil Nil 2009 Nil 45,40744,000 performance rights 01/07/2007 Nil Nil 2010 Nil 100.320

M. Sonand 35,000 performance rights 01/07/2007 Nil Nil 2010 Nil 79,800

R. Taylor 41,000 performance rights 01/07/2007 Nil Nil 2010 Nil 93,480

1 A total of 2,500,000 performance rights were granted under the 2004 issue of performance rights and 1,500,000 of these performance rights vested with effectfrom 1 July 2007 based on the financial performance of the Company in the 2007 financial year. The balance of this grant of performance rights lapsed on 30June 2008. A total of 530,000 performance rights were granted under the 2005 issue of performance rights and 91,874 of these performance rights vested witheffect from 1 July 2007 based on the financial performance of the Company in the 2007 financial year. A total of 433,722 performance rights were granted underthe 2006 issue of performance rights and 562,000 performance rights were granted under the 2007 issue of performance rights and to date none of theseperformance rights have vested. The terms and conditions attached to the 2004, 2005, 2006 and 2007 performance rights grants are set out on pages 62 to 64in this Annual Report.

2 The fair value of performance rights as at the date of their grant has been determined in accordance with AASB 124 applying AASB 2 Valuation Guidelines andGuidance Note GN510 issued by the Institute of Actuaries of Australia (further details of the valuation methodology can be found in Note 28(b) to the financialstatements). The fair value in respect of the grant having an effective date of 1 July 2004 was $1.60 per share. The fair value in respect of the grant having aneffective date of 1 July 2005 is $1.35 per share. The fair value in respect of the grant having an effective date of 1 July 2006 is $1.42 per share. The fair value inrespect of the grant having an effective date of 1 July 2007 is $2.28 per share.

3 Mr P.R. Moore retired from the Company effective 1 January, 2008.4 Mr S.W. Audsley resigned from the Company effective 5 October, 2007.5 Mr I.C. Barton, resigned from the Company effective 30 April 2008.6 Mr M.S. Daniel resigned from the Company effective 2 May 2008.


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7 Mr M.S. Daniel was the recipient of 50,000 Reward Rights granted with effect from 1 July 2006, as part of his remuneration when in the role of General Manager,Supply Chain. The terms of the Reward Rights, which lapsed upon Mr Daniel’s resignation from the Company on 2 May 2008, were identical to the terms of theReward Rights granted to Ms B.A. Hannagan and discussed in note 8, below.

8 Ms B.A. Hannagan was the recipient of 50,000 ‘Reward Rights’ granted with effect from 1 July 2006, as part of her remuneration when in the role of GeneralManager, The Berlei Group. The Reward Rights were issued pursuant to the Company’s Deferred Employee Share Plan (DESP), established with the approval ofthe Board in June 2006 to provide long-term equity incentives to certain senior management, not being senior executives, approved by the Chief ExecutiveOfficer. Subject to the satisfaction of performance and service conditions described below, the Reward Rights will vest and Ms Hannagan will be allocated 50,000Reward Shares in the Company. The Performance Conditions applicable to the Reward Rights are measured over a period of 3 years from the effective date of grant of Reward Rights, as follows:

(a) 60% of the Reward Rights will be available to vest in accordance with the following schedule:

Actual EPS (compound % of available RewardGrowth per annum) Rights to vest

8.5% 25%+0.1% +3.75%10.5% 100%

(b) 40% of the Reward Rights will be available to vest if Ms Hannagan discharges her obligations to the Company in accordance with annual keyperformance measures agreed with her manager, subject to the overriding discretion of the Chief Executive Officer.

If the target EPS does not reach 10.5% at the end of 3 years and some Reward Rights remain unvested, those unvested Reward Rights remain available for a further 2 years, and will be re-tested at that time. Therefore, unvested Reward Rights will be tested over a 5 year period from the grant date, so that if thethreshold EPS of 8.5% per annum compound is achieved over the 5 year period, 25% of those previously unvested Reward Rights will vest. Vesting will again bescaled on a straight line basis to 100%, at the target EPS of 10.5% per annum on a compound basis.

During the financial year, the Company has not granted any options or rights in addition to the performance rights granted on 1 July 2007 (and summarised in theprevious table).



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The following table set out details of any movement in performance rights and other equity grants currently on issue to the Chief ExecutiveOfficer, Chief Financial Officer and senior executives and the number of rights held by such persons during the reporting period.

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

BALANCE AT LAPSED/ BALANCE AT VALUE TOTAL AT01/07/2007 GRANTED EXERCISED1 FORFEITED 30/06/2008 30/06/2008

Executive Directors

P.R. Moore 2

Number 747,093 Nil 625,000 122,093 NilValue $1,142,122 $968,750 $173,372 Nil

S.M. MorphetNumber 353,198 250,000 160,937 100,000 342,261Value $542,167 $570,000 $254,765 $160,000 $697,402

S.J. TierneyNumber 423,837 55,000 193,125 120,000 165,712Value $650,598 $125,400 $305,719 $192,000 $278,279

Senior Executives

S.W. Audsley 3

Number 353,198 Nil 160,937 192,261 NilValue $542,167 $254,765 $287,402 Nil

B.A. Hannagan4

Number Nil 44,000 Nil Nil 44,000Value Nil $100,320 $100,320

I.C. Barton5

Number 286,628 Nil 128,750 157,878 NilValue $439,512 $203,813 $235,699 Nil

R.A. TaylorNumber Nil 41,000 Nil Nil 41,000Value Nil $93,480 $93,480

M.S. Daniel6

Number 242,442 48,000 120,000 170,442 NilValue $380,268 $109,440 $192,000 $297,708 Nil

M.M. ClarkNumber Nil Nil N/A N/A NilValue Nil Nil

M.J. FordNumber 290,116 45,000 128,750 80,000 126,366Value $444,465 $102,600 $203,813 $128,000 $215,252

M.E. KeelyNumber 281,977 44,000 128,750 80,000 117,227Value $432,907 $100,320 $203,813 $128,000 $201,414

Y.K. CheongNumber Nil Nil N/A N/A NilValue Nil Nil

M. Sonand Number Nil 35,000 Nil Nil 35,000Value Nil $79,800 $79,800

Total – Executive directors and senior executivesNumber 2,978,489 562,000 1,646,249 1,022,674 871,566Value $4,574,206 $1,281,360 $2,587,438 $1,602,181 $1,665,947

1 Based on the financial performance of the Company in the 2007 financial year 1,343,124 performance rights vested with effect from 1 July 2007. The same numberof shares in the Company were acquired on-market and issued to the relevant executive directors and senior executives.

2 Mr P.R. Moore retired from the Company effective 1 January 2008.3 Mr S.W. Audsley resigned from the Company effective 5 October 2007.4 Ms Hannagan was also granted 50,000 Reward Rights, effective 1 July 2006, at the time she held the role of General Manager, The Berlei Group.

The notional value of these Reward Rights is $90,000. No further Reward Rights have been granted to Ms Hannagan and no Reward Rights have been exercisedor have lapsed or been forfeited. Accordingly the number and value of Reward Rights was unchanged at 30 June 2008.

5 Mr I.C. Barton resigned from the Company effective 30 April 2008.6 Mr Daniel was also granted 50,000 Reward Rights, effective 1 July 2006, at the time he held the role of General Manager, Supply Chain. These Reward Rights

were forfeited upon Mr Daniel’s resignation from the Company effective 2 May 2008.


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Hedging and Margin Lending Arrangements

Any shares which issue upon the vesting of performance rights are restricted from trading, the Company’s Guidelines for Dealing in Securitiesalso prohibit executives from entering into a transaction to limit the economic risk of such shares, whether through a derivative, hedge or othersimilar arrangement without the prior written approval of the Chief Executive Officer or the Board. To date, no such approval has been soughtor given.

In addition, directors are required to inform the Board annually of the existence of any lending arrangements in respect of shares in the Companywhich a director has a relevant interest in, where those shares are offered as security for the lending arrangement.

The Company treats compliance with these policies as a serious issue and takes appropriate measures to ensure the policy is adhered to,requiring directors and senior executives to confirm in writing their compliance with these policies on an annual basis. Any employee found tohave breached these policies will be subject to appropriate sanctions, which could include termination of employment.

D. Service agreements

The remuneration and other terms of employment for the Chief Executive Officer, Chief Financial Officer and the senior executives areformalised in service agreements. Each of these agreements provides for the payment of a fixed annual remuneration component comprising ofa base salary, car allowance and superannuation contributions, the provision of performance related cash bonuses (as disclosed on page 61 inthis report), and participation in the Company’s employee long term incentive scheme (as disclosed on page 65 in this report).

Each year, the Board agrees criteria for the evaluation of the Chief Executive Officer and reviews performance against those criteria at the endof the financial year. The Board similarly reviews the objectives of the other senior executives. Performance against those criteria is reviewed bythe relevant senior executive’s manager.

General information regarding the duration of each agreement, the periods of notice required to terminate the agreement and the terminationpayments provided for under the service agreements are summarised in the discussion below.

Duration of service agreements

The Chief Executive Officer is employed under a fixed term service agreement of three years which expires on 31 December 2010. Under theterms of the service agreement, the Chief Executive Officer’s employment will terminate on the expiry date of the agreement unless terminatedearlier or renewed. The Chief Financial Officer is also employed under a fixed term service agreement which expires on 31 December 2010. Allother senior executives are employed under agreements that are ongoing unless terminated by either party.

Notice periods and payments on termination

The service agreements provide for termination payments to be made in certain circumstances. In particular, the Company may terminate theemployment of the Chief Executive Officer, Chief Financial Officer or any of the other senior executives on giving three months notice. TheCompany may make a payment in lieu of notice not to exceed one year’s fixed annual remuneration plus a pro rata part of the current STI(cash bonus), based on the performance of the relevant executive against the annual target applicable at that time. In general, the ChiefExecutive Officer, Chief Financial Officer and other senior executives must give the Company at least three months notice of resignation. In theevent that the Chief Executive Officer ceases to be the most senior executive in the consolidated entity or the Company ceases to be listed onthe ASX, the Company will be deemed to have terminated the employment of the Chief Executive Officer and will be liable to makecompensation payments.

Upon termination of employment for any reason, the Chief Executive Officer and the Chief Financial Officer are both prohibited from engaging inany activity that would compete with the Company for a period of one year, in order to protect the Company’s business interests.

Sign-on payments

No payment was made to the Chief Executive Officer, the Chief Financial Officer or any of the other senior executives of the Company and theconsolidated entity before they took office as part consideration for them agreeing to hold office.

E. Remuneration paid and other specific disclosures

Details of the remuneration paid to the Chief Executive Officer, the Chief Financial Officer, each of the five named executives of the Companyand the consolidated entity with the highest remuneration during the 2008 financial year and the key management personnel (excluding thenon-executive directors) are set out in the following table. All values are in Australian dollars unless otherwise stated.



PACIFICBRANDS

AR0869


Remuneration for 2008 financial yearChief Executive Officer, Chief Financial Officer and other senior executives of the Company and the consolidated entity

SHARE TERM-BASED INATION

SHORT TERM EMPLOYEE BENEFITS POST EMPLOYMENT BENEFITS PAYMENTS BENEFITS TOTAL

NON- SUPER- RETIRE- PERFORM-FIXED INCENTIVE MONETARY ANNUATION MENT ANCE

SALARY 1 FEES PAYMENTS BENEFITS 2 BENEFITS PAYMENTS OTHER RIGHTS 3

$ $ $ $ $ $ $ $ $ $

S.M. Morphet, 2008 742,444 700,000 37,408 115,570 265,227 1,860,649Chief Executive Officer 4,6 2007 356,202 100,000 54,874 68,071 106,628 685,775

P.R. Moore, former 2008 1,560,130 525,000 28,885 126,000 3,448,357 169,525 5,857,897Chief Executive Officer 4 2007 1,192,603 250,000 53,134 252,000 213,255 1,960,992

S.J. Tierney, 2008 452,415 436,800 34,534 104,832 132,072 1,160,653Chief Financial Officer 5 2007 441,955 50,000 32,265 100,800 127,953 752,973

S.W. Audsley, 2008 363,280 0 29,511 19,844 75,227 205,160 693,022Chief Financial Officer 6 2007 365,468 100,000 20,493 67,364 106,628 659,953

I.C. Barton, 2008 593,600 131,250 26,474 63,000 62,089 501,120 1,377,533Group General Manager, 2007 320,024 25,000 31,136 75,600 85,302 537,062Home Comfort7

Y.K. Cheong, 2008 148,743 0 11,173 12,066 0 171,982Group General Manager, 2007Supply & Operations

M.M. Clark, 2008 39,589 0 2,822 3,946 0 46,357Group General Manager, 2007Workwear8

M.S. Daniel, 2008 347,525 0 19,940 44,574 101,293 513,332Group General Manager, 2007 364,014 50,000 14,950 31,047 63,303 523,313Yakka9

M.J. Ford, 2008 321,917 180,000 38,169 136,400 97,923 774,409Group General Manager, 2007 342,028 50,000 37,410 82,800 85,302 597,540Footwear

B.A. Hannagan, 2008 301,531 175,000 90,814 30,488 63,107 660,940Group General Manager, 2007 249,450 0 47,965 23,278 29,667 350,360Underwear and Hosiery10

M.E. Keely, 2008 333,221 635,880 26,880 84,000 93,349 1,173,330Group General Manager, 2007 229,453 100,000 26,096 57,841 85,302 498,692People & Performance11

M. Sonand, 2008 227,516 150,000 37,522 86,979 26,600 528,617Group General Manager, 2007 102,045 25,000 13,761 8,688 0 149,494Outerwear & Sport12

R.A. Taylor, 2008 295,152 165,000 36,391 113,367 31,160 641,070Group General Manager, 2007 265,000 25,000 26,196 51,675 367,871Home Comfort13

Total remuneration –senior executives

2008 5,727,063 3,098,930 420,523 941,066 3,448,357 1,117,572 706,280 15,459,7912007 4,228,242 775,000 350,280 819,163 0 903,340 0 7,084,025

1 Includes movements in annual leave and long service leave provisions.2 Amounts disclosed for remuneration of senior executives exclude insurance premiums paid by the consolidated entity in respect of directors’ and officers’ liability

insurance contracts which cover current and former directors and officers, including, among others, the named senior executives. Due to confidentialityobligations and undertakings of the policy, the premium paid cannot be disclosed. No amount has been allocated to the individuals covered by the insurancepolicy as, based on all available information, the directors believe that no reasonable basis for such allocation exists.

3 To the extent required by the Australian Accounting Standards, remuneration includes a proportion of the fair value of equity compensation granted or outstandingduring the financial year. The fair value of equity instruments which do not vest during the reporting period is required to be determined as at the grant date and isprogressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executivesmay ultimately realise should the equity instruments vest. The notional value of performance rights as at the date of their grant has been determined in accordancewith AASB 124 applying AASB 2 Valuation Guidelines and Guidance Note GN510 issued by the Institute of Actuaries of Australia. The fair value in respect of thegrant having an effective date of 1 July 2004 is $1.60 per share. The fair value in respect of the grant having an effective date of 1 July 2005 is $1.35 per share.The value in respect of the grant having an effective date of 1 July 2006 is $1.42 per share. The value in respect of the grant having an effective date of 1 July2007 is $2.28. Part of the Chief Executive Officer’s, Chief Financial Officer’s and other senior executives’ remuneration for the financial year ended 30 June 2008consisted of performance rights which vested in the relevant executive in respect of the financial performance of the Company in the 2007 financial year.

4 S.M. Morphet replaced P.R. Moore as Chief Executive Officer effective 1 January 2008.5 S.J. Tierney was appointed as Chief Financial Officer effective 17 March 2008.6 S.W. Audsley resigned from the Company effective 5 October 2007.7 I.C. Barton resigned from the Company effective 30 April 2008.8 M.M. Clark was appointed as Group General Manager, Workwear effective 26 May 2008.9 M.S. Daniel resigned from the Company effective 2 May 2008.10 B.A. Hannagan replaced S.M. Morphet as Group General Manager, Underwear & Hosiery effective 29 January 2008.11 M.E. Keely was paid a retention bonus of $460,880 pursuant to the terms of an agreement dated 7 August 2006.12 M. Sonand commenced employment with the Company on 2 January 2007.13 R.A. Taylor replaced I.C. Barton as Group General Manager, Home Comfort effective 1 December 2007.


PACIFICBRANDSAR08

70

F. Audit of remuneration report

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

Dated at Melbourne this 20th day of August 2008.

Signed in accordance with a resolution of the directors:

Pat Handley Sue MorphetChairman Chief Executive Officer

LEAD AUDITOR’S INDEPENDENCE DECLARATION

under Section 307C of the Corporations Act 2001

To: the Directors of Pacific Brands Limited

I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2008 there have been:

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

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

KPMG Don PasquarielloPartner

Melbourne20 August 2008



PACIFICBRANDS

AR0871

for the year ended 30 June 2008CONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Sales revenue 2 2,116,640 1,820,737 – –

Cost of sales (1,176,214) (1,062,103) – –

Gross profit 940,426 758,634 – –

Other income 2 13,193 13,425 70,000 100,000

Freight and distribution expenses (143,763) (118,543) – –

Sales, marketing and advertising expenses (406,601) (332,762) – –

Information technology expenses (30,786) (24,954) – –

Administrative expenses (146,393) (103,544) (2,503) (4,791)

Results from operating activities 226,076 192,256 67,497 95,209

Financial income 3,459 3,378 42 44

Financial expenses (68,608) (50,016) – –

Net financing costs 3 (65,149) (46,638) 42 44

Profit before income tax (expense)/benefit 160,927 145,618 67,539 95,253

Income tax (expense)/benefit 5 (43,801) (39,482) 579 2,553

Profit for the year 117,126 106,136 68,118 97,806

Attributable to:

Equity holders of the parent 20 116,558 105,959 68,118 97,806

Minority interest 22 568 177 – –


Basic and diluted earnings per share

Ordinary shares 6 23.2 cents 21.1 cents

The Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 76 to 110.

Financial Report to Shareholders

Income Statements


PACIFICBRANDSAR08

72

as at 30 June 2008CONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Current assets

Cash and cash equivalents 8 104,822 138,640 538 568

Trade and other receivables 9 272,306 302,966 37,160 48,624

Inventories 10 356,970 361,524 – –

Other current assets 11 14,266 9,636 – –

Total current assets 748,364 812,766 37,698 49,192

Non-current assets

Trade and other receivables 9 30 50 1,203,714 1,203,714

Property, plant and equipment 12 204,899 206,849 – –

Intangible assets 13 1,507,516 1,503,765 – –

Deferred tax assets 14 24,053 30,357 1,625 3,321

Other non-current assets 11 1,530 1,731 – –

Total non-current assets 1,738,028 1,742,752 1,205,339 1,207,035

Total assets 2,486,392 2,555,518 1,243,037 1,256,227

Current liabilities

Trade and other payables 15 199,732 191,702 394 1,133

Interest-bearing loans and borrowings 16 1,340 2,689 – –

Income tax payable 12,917 7,924 16,135 7,725

Provisions 17 76,660 70,681 – –

Total current liabilities 290,649 272,996 16,529 8,858

Non-current liabilities

Trade and other payables 15 9,306 14,599 – –

Interest-bearing loans and borrowings 16 846,194 938,171 – –

Provisions 17 10,155 10,378 – –

Total non-current liabilities 865,655 963,148 – –

Total liabilities 1,156,304 1,236,144 16,529 8,858

Net assets 1,330,088 1,319,374 1,226,508 1,247,369

Equity

Contributed equity 18 1,218,577 1,218,577 1,218,577 1,218,577

Reserves 19 (28,330) (12,109) 4,591 4,911

Retained earnings 20 136,140 108,241 3,340 23,881

Total equity attributable to equity holders of the parent 1,326,387 1,314,709 1,226,508 1,247,369

Minority interest 22 3,701 4,665 – –

Total equity 1,330,088 1,319,374 1,226,508 1,247,369

The Balance Sheets are to be read in conjunction with the Notes to the Financial Statements set out on pages 76 to 110.

Balance Sheets



PACIFICBRANDS

AR0873

for the year ended 30 June 2008CONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Cash flows from operating activities

Cash receipts from customers 2,208,032 1,851,155 – –

Cash paid to suppliers and employees (1,928,395) (1,641,491) (3,240) (2,002)

Dividends received – – 70,000 100,000

Income taxes paid (34,645) (30,830) (25,350) (22,610)

Reimbursements received from tax consolidated entities – – 36,035 26,946

Interest paid (65,941) (43,713) – –

Interest received 3,459 3,174 42 84

Net cash from operating activities 27(b) 182,510 138,295 77,487 102,418

Cash flows from investing activities

Proceeds from sale of property, plant and equipment 838 1,432 – –

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

Acquisition of businesses (net of cash acquired) 26 (6,516) (42,304) – –

Disposal of businesses (net of cash disposed) 6,116 – – –

Acquisition of property, plant and equipment (25,276) (23,921) – –

Net cash used in investing activities (24,838) (331,141) – –

Cash flows from financing activities

Lease payments (1,913) (4,059) – –

Repayment of borrowings (95,765) (10,846) – –

Loans to controlled entities – – 7,907 (22,548)

Dividends paid (85,424) (77,920) (85,424) (77,920)

Dividend paid to minority interest (533) (358) – –

Proceeds from borrowings – 334,300 – –

Share buy back – (1,869) – (1,869)

Net cash (used in)/from financing activities (183,635) 239,248 (77,517) (102,337)

Net (decrease)/increase in cash and cash equivalents (25,963) 46,402 (30) 81

Cash and cash equivalents at the beginning of the year 138,640 94,025 568 487

Effect of exchange rate fluctuations on cash held (7,855) (1,787) – –

Cash and cash equivalents at the end of the year 27(a) 104,822 138,640 538 568

The Cash Flow Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 76 to 110.

Cash Flow Statements


PACIFICBRANDSAR08

74

for the year ended 30 June 2008TOTAL EQUITY

FOREIGN ATTRIBUTABLE EQUITY CURRENCY TO EQUITY

ISSUED RETAINED COMPENSATION TRANSLATION HEDGE HOLDERS OF MINORITY TOTALCAPITAL EARNINGS RESERVE RESERVE RESERVE THE PARENT INTEREST EQUITY

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

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

Effective portion of changes infair value of cash flow hedges1 – – – – (7,341) (7,341) (325) (7,666)

Foreign exchange translationdifferences – – – 202 – 202 – 202

Total income/(expense) for the periodrecognised directly in equity – – – 202 (7,341) (7,139) (325) (7,464)

Profit for the year – 105,959 – – – 105,959 177 106,136

Total recognised income/(expense) – 105,959 – 202 (7,341) 98,820 (148) 98,672

Minority interest acquired – – – – – – 407 407

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

Dividends recognised – (77,920) – – – (77,920) (358) (78,278)

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

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

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

Effective portion of changes infair value of cash flow hedges1 – – – – 5,918 5,918 – 5,918

Foreign exchange translation differences – – – (21,819) – (21,819) (266) (22,085)

Total (expense)/income recognised directly in equity – – – (21,819) 5,918 (15,901) (266) (16,167)

Profit for the year – 116,558 – – – 116,558 568 117,126

Total recognised income/(expense) – 116,558 – (21,819) 5,918 100,657 302 100,959

On-market purchase of performance rights – (3,235) (2,750) – – (5,985) – (5,985)

Minority interest disposed – – – – – – (733) (733)

Dividends recognised – (85,424) – – – (85,424) (533) (85,957)

Cost of share based payments – – 2,430 – – 2,430 – 2,430

Balance at 30 June 2008 1,218,577 136,140 4,591 (31,834) (1,087) 1,326,387 3,701 1,330,088

The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Financial Statements set out on pages 76 to 110.

1 Net of any related income tax.


Consolidated Statement of Changes in Equity


PACIFICBRANDS

AR0875

for the year ended 30 June 2008EQUITY

ISSUED RETAINED COMPENSATION TOTALCAPITAL EARNINGS RESERVE EQUITY

$’000 $’000 $’000 $’000

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

Profit for the year – 97,806 – 97,806

Total recognised income – 97,806 – 97,806

Share buy back (1,869) – – (1,869)

Dividends recognised – (77,920) – (77,920)

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

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

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

Profit for the year – 68,118 – 68,118

Total recognised income – 68,118 – 68,118

Dividends recognised – (85,424) – (85,424)

Cost of share based payments – – 2,430 2,430

On-market purchase of performance rights – (3,235) (2,750) (5,985)

Balance at 30 June 2008 1,218,577 3,340 4,591 1,226,508

The Company Statement of Changes in Equity is to be read in conjunction with the Notes to the Financial Statements set out on pages 76 to 110.

Company Statement of Changes in Equity


PACIFICBRANDSAR08

76

for the year ended 30 June 2008

Note

1 Significant accounting policies ................................................................................................................................................................ 77

2 Revenue and other income ...................................................................................................................................................................... 84

3 Other expenses ...................................................................................................................................................................................... 84

4 Auditors’ remuneration ............................................................................................................................................................................ 85

5 Income tax expense/(benefit) .................................................................................................................................................................. 85

6 Earnings per share .................................................................................................................................................................................. 86

7 Segment reporting.................................................................................................................................................................................... 86

8 Cash and cash equivalents ...................................................................................................................................................................... 88

9 Trade and other receivables .................................................................................................................................................................... 89

10 Inventories .............................................................................................................................................................................................. 89

11 Other assets ............................................................................................................................................................................................ 89

12 Property, plant and equipment ................................................................................................................................................................ 89

13 Intangible assets ...................................................................................................................................................................................... 90

14 Recognised deferred tax assets and liabilities .......................................................................................................................................... 91

15 Trade and other payables ........................................................................................................................................................................ 91

16 Interest-bearing loans and borrowings .................................................................................................................................................... 92

17 Provisions ................................................................................................................................................................................................ 92

18 Contributed equity .................................................................................................................................................................................. 93

19 Nature of reserves .................................................................................................................................................................................... 93

20 Retained earnings .................................................................................................................................................................................... 93

21 Dividends ................................................................................................................................................................................................ 93

22 Minority interest ........................................................................................................................................................................................ 94

23 Additional financial instruments disclosure .............................................................................................................................................. 94

24 Commitments .......................................................................................................................................................................................... 99

25 Controlled entities .................................................................................................................................................................................. 100

26 Acquisitions and disposals...................................................................................................................................................................... 101

27 Notes to the Cash Flow Statements ...................................................................................................................................................... 102

28 Employee benefits .................................................................................................................................................................................. 102

29 Key management personnel disclosures ................................................................................................................................................ 108

30 Non-key management personnel disclosures ........................................................................................................................................ 109

31 Events subsequent to reporting date .................................................................................................................................................... 110


Notes to the Financial Statements


PACIFICBRANDS

AR0877

Pacific Brands Limited (‘Company’) is a company domiciled inAustralia. The consolidated Financial Report of the Company as atand for the year ended 30 June 2008 comprises the Company andits controlled entities (together referred to as the ‘Consolidated Entity’).

This Financial Report was authorised for issue by the directors on 20August 2008.

(a) Statement of compliance

The Financial Report is a general purpose financial report which hasbeen prepared in accordance with Australian Accounting Standards(‘AASBs’) (including Australian Accounting Interpretations) adopted bythe Australian Accounting Standards Board (‘AASB’) and theCorporations Act 2001.

The consolidated Financial Report of the Consolidated Entity and theFinancial Report of the Company comply with International FinancialReporting Standards and interpretations adopted by the InternationalAccounting Standards Board.

(b) Basis of preparation

This Financial Report is presented in Australian dollars.

This Financial Report is prepared on the historical cost basis exceptfor derivative financial instruments that are stated at their fair value.

The Company is of a kind referred to in Australian Securities andInvestments Commission Class Order 98/100 dated 10 July 1998and in accordance with that Class Order, amounts in this FinancialReport and the Directors’ Report have been rounded off to thenearest thousand dollars, unless otherwise stated.

The preparation of a financial report in conformity with AASBsrequires management to make judgements, estimates andassumptions that affect the application of policies and reportedamounts of assets, liabilities, income and expenses. The estimatesand associated assumptions are based on historical experience andvarious other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making thejudgements about carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differfrom these estimates. These accounting policies have beenconsistently applied by each entity in the Consolidated Entity.

In the current year, the Consolidated Entity adopted all of the new andrevised AASBs issued by the AASB that are relevant to its operationsand effective for the current annual reporting period. Details of theimpact of the adoption of the new AASBs are set out in the individualaccounting policy notes below. The Consolidated Entity has alsoadopted the following AASBs as listed below that only impacted onthe Consolidated Entity’s financial statements with respect todisclosures:

• AASB 101 Presentation of Financial Statements (revised October2006);

• AASB 2007-4 Amendments to Australian Accounting Standardsarising from ED151 and Other Amendments;

• AASB 2007-7 Amendments to Australian Accounting Standards;

• AASB 7 Financial Instruments: Disclosures; and

• AASB 2005-10 Amendments to Australian AccountingStandards.

The following AASBs, amendments and interpretations have beenidentified as those which may impact the entity in the period of initialapplication. They are available for early adoption but have not beenapplied by the Company and Consolidated Entity in these financialstatements:

• AASB 101 Presentation of Financial Statements (revised

September 2007) introduces as a financial statement the“Statement of Comprehensive Income”. The revised standarddoes not change the recognition, measurement or disclosure of transactions or events that are required by other AASBs. Therevised standard will become mandatory for the ConsolidatedEntity’s 30 June 2010 financial statements. The ConsolidatedEntity has not determined the potential effect of the revisedstandard on the Consolidated Entity’s disclosures;

• AASB 8 Operating Segments replaces the presentationrequirements of segment reporting in AASB 114 SegmentReporting. AASB 8 is applicable for annual reporting periodsbeginning on or after 1 January 2009 and is not expected tohave an impact on the financial results of the Company and the

Consolidated Entity as the standard is only concerned withdisclosures;

• revised AASB 123 Borrowing Costs removes the option ofexpensing borrowing costs directly attributable to the acquisition,construction or production of a qualifying asset. The revisedAASB 123 will become mandatory for the Consolidated Entity’s30 June 2010 financial statements. The Consolidated Entity hasnot yet determined the potential effect of the revised standard onthe Financial Report;

• revised AASB 3 Business Combinations changes the applicationof acquisition accounting for business combinations and theaccounting for non-controlling (minority interests) interests and isapplicable for annual reporting periods beginning on or after 1July 2009. The Consolidated Entity has not yet determined thepotential effect of this revised standard on the Financial Report;

• revised AASB 127 Consolidated and Separate FinancialStatements changes the accounting for investments insubsidiaries and is applicable for annual reporting periodsbeginning on or after 1 July 2009. The potential impact on initialadoption of this revised standard has not been determined; and

• AASB 2008-1 Amendments to Australian Accounting Standard –Share-based Payment: Vesting Conditions and Cancellations willbecome mandatory for the Consolidated Entity’s 30 June 2010financial report. The Consolidated Entity has not yet determinedthe potential impact of amending the standard on theConsolidated Entity’s Financial Report.

(c) Principles of consolidation

Controlled entities

Controlled entities are entities controlled by the Company. Controlexists when the Company has the power, directly or indirectly, togovern the financial and operating policies of an entity so as to obtainbenefits from its activities. In assessing control, potential voting rightsthat presently are exercisable or convertible are taken into account.The financial statements of controlled entities are included in thisFinancial Report from the date that control commences until the datethat control ceases.

Transactions eliminated on consolidation

Intragroup balances, and any unrealised gains and losses or revenuesand expenses arising from intragroup transactions, are eliminated inpreparing the consolidated financial statements.

Unrealised losses are eliminated in the same way as unrealised gains,but only to the extent that there is no evidence of impairment.

(d) Revenue recognition

Revenues are recognised at fair value of the consideration received,net of the amount of goods and services tax (‘GST’) payable to therelevant taxation authority.


1 SIGNIFICANT ACCOUNTING POLICIES


PACIFICBRANDSAR08

78

Sale of goods

Revenue from the sale of goods (net of returns, discounts andallowances) is recognised in the Income Statement when thesignificant risks and rewards of ownership have been transferred to the buyer. Transfers of risks and rewards vary depending on theindividual terms of the contract of sale. No revenue is recognised ifthere are significant uncertainties regarding recovery of theconsideration due, the costs incurred or to be incurred cannot bemeasured reliably, there is a risk of return of goods or there iscontinuing management involvement with the goods.

Dividends

Dividend revenue is recognised net of any franking credits. Revenuefrom distributions from controlled entities is recognised by theCompany when they are declared by the controlled entities.

Dividends received out of pre-acquisition reserves are eliminatedagainst the carrying amount of the investment and are not recognisedin revenue.

Other income

Government grants

Revenue from government grants is recognised when theConsolidated Entity has complied with the conditions attaching tothe grant and has reasonable assurance that the grant will bereceived.

Sale of non-current assets

The profit on disposal of non-current assets is included in otherincome of the Consolidated Entity and is brought to account at thedate control of the asset passes to the buyer, usually when anunconditional contract of sale is signed.

The gain or loss on disposal is calculated as the difference betweenthe carrying amount of the asset at the time of the disposal and thenet proceeds on disposal.

(e) Net financing costs

Net financing costs comprise interest payable on borrowingscalculated using the effective interest rate method, interest receivableon funds invested and gains and losses on hedging instruments thatare recognised in the Income Statement (refer Note 1(v)). Borrowingcosts are expensed as incurred and included in net financing costs.

Interest income is recognised in the Income Statement as it accrues,using the effective interest rate method.

(f) Goods and services tax

Revenues, expenses and assets are recognised net of the amount ofGST, except where the amount of GST incurred is not recoverablefrom the relevant taxation authorities. In these circumstances, theGST is recognised as part of the cost of acquisition of the asset oras part of an item of the expense.

Receivables and payables are stated with the amount of GSTincluded.

The net amount of GST recoverable from, or payable to, the relevanttaxation authority is included as a current asset or liability in theBalance Sheet.

Cash flows are included in the Cash Flow Statements on a grossbasis. The GST components of cash flows arising from investing andfinancing activities which are recoverable from, or payable to, therelevant tax authority are classified as operating cash flows.

(g) Income tax

Income tax on the profit or loss for the years presented comprisescurrent and deferred tax. Income tax is recognised in the IncomeStatement except to the extent that it relates to items recogniseddirectly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income forthe year, using tax rates enacted or substantially enacted at thebalance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the tax balance sheet method,providing for temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and the amountsused for taxation purposes. The following temporary differences arenot provided for: goodwill, the initial recognition of assets or liabilitiesfrom a transaction that is not a business combination that affectneither accounting nor taxable profit, and differences relating toinvestments in controlled entities to the extent that they will probablynot reverse in the foreseeable future. The amount of deferred taxprovided is based on the expected manner of realisation orsettlement of the carrying amount of assets and liabilities, using taxrates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it isprobable that future taxable profits will be available against which theasset can be utilised. Deferred tax assets are reduced to the extentthat it is no longer probable that the related tax benefit will berealised.

Tax consolidation

The Company and its wholly-owned Australian resident entities haveformed a tax consolidated group with effect from April 2004 and aretherefore taxed as a single entity from that date. The head entitywithin the tax consolidated group is Pacific Brands Limited.

Current tax expense/income, deferred tax liabilities and deferred taxassets arising from temporary differences of the members of the taxconsolidated group are recognised in the separate financial statementsof the members of the tax consolidated group using the ‘stand-alonetax payer’ method consistent with UIG 1052 Tax ConsolidationAccounting.

Accounting.

Any current tax liabilities (or assets) and deferred tax assets arisingfrom unused tax losses of subsidiaries are assumed by the headentity in the tax consolidated group and are recognised as amountspayable to/(receivable from) other entities in the tax consolidatedgroup in conjunction with any tax funding arrangement amount (referbelow).

Nature of tax funding arrangements and tax sharing agreements

The members of the tax consolidated group have entered into a taxfunding arrangement which sets out the funding obligations ofmembers of the tax consolidated group in respect of tax amounts.The tax funding arrangement requires payments to/from the headentity equal to the current tax liability/(asset) assumed by the headentity and any tax-loss deferred tax asset assumed by the headentity.

The members of the tax consolidated group have also entered into atax sharing agreement. The tax sharing agreement provides for thedetermination of the allocation of income tax liabilities between theentities should the head entity default on its tax payment obligations.No amounts have been recognised in the financial statements inrespect of this agreement as payment of any amounts under the taxsharing agreement is considered remote.



1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


PACIFICBRANDS

AR0879

(h) Earnings per share

Basic and diluted earnings per share is calculated by dividing theprofit attributable to equity holders of the parent for the reportingperiod, after excluding any costs of servicing, by the weighted averagenumber of ordinary shares of the Company, adjusted for any bonusissue.

(i) Receivables

Trade and other receivables are stated at their amortised cost lessimpairment losses (refer Note 1(n)).

(j) Inventories

Inventories are carried at the lower of cost and net realisable value.Cost includes direct materials, direct labour, other direct variable costsand allocated production overheads necessary to bring inventories totheir present location and condition, based on normal operatingcapacity of the production facilities.

The cost of inventory may also include transfers from equity of anygain or loss on qualifying cash flow hedges of foreign currencypurchases of inventory.

Manufacturing activities

The costs of manufacturing inventories and work in progress areassigned on a first-in, first-out basis. Costs arising from exceptionalwastage are expensed as incurred.

Net realisable value

Net realisable value is determined on the basis of each inventory line’snormal selling pattern. Expenses of marketing, selling and distributionto customers are estimated and are deducted to establish netrealisable value.

Obsolete and slow moving stocks are allowed for, to ensure theinventories are recorded at net realisable value where such value isbelow cost.

(k) Investments

Controlled entities

Investments in controlled entities are carried in the Company’sfinancial statements at cost less any impairment losses (refer Note1(n)).

(l) Property, plant and equipment

Owned assets

Items of property, plant and equipment are stated at cost lessaccumulated depreciation and impairment (refer Note 1(n)). The cost ofself-constructed assets includes the cost of materials, direct labour,the initial estimate, where relevant, of the costs of dismantling andremoving the items and restoring the site on which they are located,and an appropriate proportion of production overheads.

Leased assets

Leases under which the Consolidated Entity assumes substantially allthe risks and benefits of ownership are classified as finance leases.Other leases are classified as operating leases.

Finance leases

A lease asset and a lease liability are recognised equal to the fairvalue of the leased property or if lower the present value of theminimum lease payments determined at the inception of the lease.Lease liabilities are reduced by repayments of principal. The interestcomponents of the lease payments are expensed. Contingent rentalsare expensed as incurred.

Operating leases

Payments made under operating leases are expensed on a straightline basis over the term of the lease, except where an alternativebasis is more representative of the pattern of benefits to be derivedfrom the leased property.

Depreciation and amortisation

Items of property, plant and equipment are depreciated over theirestimated useful lives as set out below.

Depreciation and amortisation are calculated on a straight line basisso as to write off the cost of each item of property, plant andequipment, excluding land, over its estimated useful life.

The expected useful lives, in the current and comparative periods, are as follows:

• freehold buildings: 40 years;

• leasehold improvements: life of lease; and

• owned and leased plant and equipment: 3 to 10 years.

The residual value of, the useful life of and the depreciation methodapplied to an asset are reassessed at least annually.

(m) Intangible assets

Brandnames

The carrying value of brandnames is reviewed at least at eachreporting date to determine whether they are in excess of theirrecoverable amount. If the carrying amount exceeds the recoverableamount, the asset is written down to the lower amount, through acharge to the Income Statement.

No amortisation is allowed for, against the carrying value of thesebrandnames on the basis that the lives of these assets areconsidered indefinite at this point in time, as they are not currentlyassociated with products that are likely to become commercially ortechnically obsolete.

Software

Software that is acquired by the Consolidated Entity is stated at costless accumulated amortisation and impairment losses. Amortisationis charged to the Income Statement on a straight line basis over theestimated useful life.

Other intangible assets

Other intangibles assets that are acquired by the Consolidated Entityare stated at cost less accumulated amortisation and impairmentlosses. Amortisation is charged to the Income Statement on astraight line basis over the estimated useful life of the asset.

(n) Impairment

The carrying amounts of the Consolidated Entity’s assets, other thandeferred tax assets (refer Note 1(g)) and inventories (refer Note 1(j)), are reviewed at each reporting date to determine whether there isany indication of impairment. If any such indication exists, the asset’srecoverable amount is estimated.

For goodwill and intangible assets that have an indefinite useful life, the recoverable amount is estimated annually.

An impairment loss is recognised whenever the carrying amount ofan asset or cash generating unit exceeds its recoverable amount.Impairment losses are recognised in the Income Statement unlessthe asset has previously been revalued, in which case theimpairment loss is recognised as a reversal to the extent of thatprevious revaluation with any excess recognised through the IncomeStatement.




PACIFICBRANDSAR08

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Impairment losses recognised in respect of a cash generating unitare allocated first to reduce the carrying amount of any goodwillallocated to the cash generating unit (group of units) and then, toreduce the carrying amount of the other assets in the unit (group ofunits) on a pro rata basis.

When a decline in the fair value of an available-for-sale financial assethas been recognised directly in equity and there is objective evidencethat the asset is impaired, the cumulative loss that had beenrecognised directly in equity is recognised in the Income Statementeven though the financial asset has not been derecognised. Theamount of the cumulative loss that is recognised in the IncomeStatement is the difference between the acquisition cost and currentfair value, less any impairment loss on that financial asset previouslyrecognised in the Income Statement.

Calculation of recoverable amount

The recoverable amount of the Consolidated Entity’s receivablescarried at amortised cost is calculated as the present value ofestimated future cash flows, discounted at the original effectiveinterest rate (i.e. the effective interest rate computed at initialrecognition of these financial assets). Receivables with a shortduration are not discounted.

Impairment of receivables is not recognised until objective evidenceis available that a loss event has occurred. Significant receivables areindividually assessed for impairment. Impairment testing of significantreceivables that are not assessed as impaired individually isperformed by placing them into portfolios of significant receivableswith similar risk profiles and undertaking a collective assessment ofimpairment. Non-significant receivables are not individually assessed.Instead, impairment testing is performed by placing non-significantreceivables in portfolios of similar risk profiles, based on objectiveevidence from historical experience adjusted for any effects ofconditions existing at each balance date.

The recoverable amount of other assets is the greater of their fairvalue less costs to sell, and value in use. In assessing value in use,the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to theasset. For an asset that does not generate largely independent cashinflows, the recoverable amount is determined for the cashgenerating unit to which the asset belongs.

Reversals of impairment

Impairment losses, other than in respect of goodwill, are reversedwhen there is an indication that the impairment loss may no longerexist and there has been a change in the estimate used to determinethe recoverable amount.

An impairment loss in respect of a held-to-maturity security orreceivable carried at amortised cost is reversed if the subsequentincrease in recoverable amount can be related objectively to an eventoccurring after the impairment loss was recognised.

An impairment loss in respect of an investment in an equityinstrument classified as available-for-sale is not reversed through theIncome Statement. If the fair value of a debt instrument classified asavailable-for-sale increases and the increase can be objectively relatedto an event occurring after the impairment loss was recognised inthe Income Statement, the impairment loss shall be reversed, withthe amount of the reversal recognised in the Income Statement.

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, an impairment loss is reversed if there hasbeen a change in the estimates used to determine the recoverableamount.

An impairment loss is reversed only to the extent that the asset’scarrying amount does not exceed the carrying amount that wouldhave been determined, net of depreciation or amortisation, if noimpairment loss had been recognised.

Derecognition of financial assets and liabilities

A financial asset (or, where applicable, a part of a financial asset orpart of a group of similar financial assets) is derecognised when:

• the rights to receive cash flows from the asset have expired;

• the Company and Consolidated Entity retain the right to receivecash flows from the asset, but have assumed an obligation topay them in full without material delay to a third party; or

• the Company and Consolidated Entity have transferred theirrights to receive cash flows from the asset and either (a) havetransferred substantially all the risks and rewards of the asset, or(b) have neither transferred nor retained substantially all the risksand rewards of the asset, but have transferred control of theasset.

A financial liability is derecognised when the obligation under theliability is discharged, cancelled or expired. When an existing financialliability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as aderecognition of the original liability and the recognition of a newliability. The difference in the respective carrying amounts isrecognised in the Income Statement.

(o) Payables

Trade and other payables are stated at their amortised cost.

(p) Interest-bearing loans and borrowings

Interest-bearing loans and borrowings are recognised initially at fairvalue less attributable transaction costs. Subsequent to initialrecognition, interest-bearing loans and borrowings are stated atamortised cost with any difference between cost and redemptionvalue being recognised in the Income Statement over the period ofthe loans or borrowings on an effective interest rate basis.

(q) Employee benefits

Wages, salaries and annual leave

Liabilities for employee benefits for wages, salaries and annual leaverepresent the present obligations resulting from employees’ servicesprovided up to the reporting date. The provisions have beencalculated at undiscounted amounts based on expected wage andsalary rates that the Consolidated Entity expects to pay as atreporting date and include related on-costs, such as workers’compensation insurance and payroll tax.

Long service leave

The provision for employee benefits to long service leave representsthe present value of the estimated future cash outflows to be madeby the Consolidated Entity resulting from employees’ servicesprovided up to the reporting date.

The provision is calculated using expected future increases in wageand salary rates including related on-costs and expected settlementdates based on turnover history and is discounted using the ratesattaching to national government bonds at reporting date whichmost closely match the terms of maturity of the related liabilities. Theunwinding of the discount is treated as long service leave expense.





PACIFICBRANDS

AR0881

Superannuation plans

The Consolidated Entity contributes to various defined benefit anddefined contribution superannuation plans. Employer contributions tothese plans are recognised as an expense as they are made.

Defined benefit plans

The Consolidated Entity’s net obligation in respect of defined benefitsuperannuation plans is calculated separately for each plan byestimating the amount of future benefit that employees have earnedin return for their service in the current and prior years; that benefit isdiscounted to determine its present value, and the fair value of anyplan assets deducted.

The discount rate is the yield at the balance sheet date on nationalgovernment bonds that have maturity dates approximating to theterms of the Consolidated Entity’s obligations. The calculation isperformed by a qualified actuary using the projected unit creditmethod.

When employee benefits under the plan are improved, the proportionof the increased benefit relating to past service by employees isrecognised as an expense in the Income Statement on a straight linebasis over the average period until the benefits become vested. Tothe extent that the benefits vest immediately, the expense isrecognised immediately in the Income Statement.

Where the calculation results in a net benefit to the ConsolidatedEntity, the recognised asset is limited to the net total of anyunrecognised past service costs and the present value of any futurerefunds from the plan or reductions in future contributions to the plan.

For actuarial gains and losses that arise in calculating theConsolidated Entity’s obligation in respect of a plan, to the extentthat any cumulative unrecognised actuarial gain or loss exceeds 10%of the greater of the present value of the defined benefit obligationand the fair value of plan assets, that portion is recognised in theIncome Statement over the expected average remaining workinglives of the active employees participating in the plan. Otherwise, theactuarial gain or loss is not recognised.

(r) Share based payments

The Company has introduced a number of share plans pursuant towhich senior executives and directors may acquire shares. The fairvalue of performance rights granted is recognised as a personnelexpense with a corresponding increase in equity. The fair value ismeasured at grant date and spread over the period during which theemployees become unconditionally entitled to the performancerights. The fair value of the performance rights granted is measuredusing a Monte-Carlo simulation model, taking into account the termsand conditions upon which the performance rights were granted.The amount recognised as an expense is adjusted to reflect theactual number of performance rights that vest except whereforfeiture is only due to share prices not achieving the threshold forvesting. The expense related to share based payments is accountedfor in the entity which employs the relevant individual.

(s) Provisions

A provision is recognised when there is a legal, equitable orconstructive obligation as a result of a past event and it is probablethat a future sacrifice of economic benefits will be required to settlethe obligation, the timing or amount of which is uncertain.

If the effect is material, a provision is determined by discounting theexpected future cash flows (adjusted for expected future risks)required to settle the obligation at a pre-tax rate that reflects currentmarket assessments of the time value of money and the risks

specific to the liability, being risk-free rates on government bondsmost closely matching the expected future payments, except wherenoted below. The unwinding of the discount is treated as part of theexpense related to the particular provision.

Dividends

A provision for dividends payable is recognised in the reportingperiod in which the dividends are declared, for the entireundistributed amount, regardless of the extent to which they will bepaid in cash.

Restructuring

Provisions for restructuring or termination benefits are onlyrecognised when a detailed plan has been approved and theConsolidated Entity has raised a valid expectation in those affectedthat it will carry out the restructuring by starting to implement theplan or announcing its main features to those affected by it. Costsrelated to ongoing activities are not provided for.

Surplus lease space

Provision is made for non-cancellable operating lease rentals payableon surplus leased premises when it is determined that no substantivefuture benefit will be obtained from its occupancy and sub-leaserentals are less.

The estimate is calculated based on discounted net future cashflows, using the interest rate implicit in the lease or an estimatethereof.

(t) Accounting for acquisitions

Business combinations

All business combinations are accounted for by applying thepurchase method. Goodwill represents the difference between thecost of the acquisition and the fair value of the net identifiable assetsacquired. Goodwill is allocated to cash generating units and is testedannually for impairment (refer Note 1(n)).

Negative goodwill arising on an acquisition is recognised directly inthe Income Statement.

Property, plant and equipment

The fair value of property, plant and equipment recognised as aresult of a business combination is based on market values. Themarket value of property is the estimated amount for which aproperty could be exchanged on the date of valuation between awilling buyer and a willing seller in an arm’s length transaction afterproper marketing wherein the parties had each acted knowledgeably,prudently and without compulsion. The market value of items ofplant, equipment, fixtures and fittings is based on the quoted marketprices for similar items.

Intangible assets

The fair value of patents and trademarks acquired in a businesscombination is based on the discounted estimated royalty paymentsthat have been avoided as a result of the patent or trademark beingowned. The fair value of other intangible assets is based on thediscounted cash flows expected to be derived from the use andeventual sale of the assets.

(u) Foreign currency

Transactions

Transactions in foreign currencies are translated at the foreignexchange rate ruling at the date of the transaction. Monetary assetsand liabilities denominated in foreign currencies at the balance sheet




PACIFICBRANDSAR08

82

date are translated to Australian dollars at the foreign exchange rateruling at that date. Foreign exchange gains and losses arising ontranslation are recognised in the Income Statement on a net basis.Non-monetary assets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translated using theexchange rate at the date of the transaction. Non-monetary assetsand liabilities denominated in foreign currencies that are stated at fairvalue are translated to Australian dollars at foreign exchange ratesruling at the dates the fair value was determined.

Translation of controlled foreign operations

The assets and liabilities of controlled foreign operations, includinggoodwill and fair value adjustments arising on consolidation,generally are translated to Australian dollars at foreign exchangerates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Australian dollars at ratesapproximating the foreign exchange rates ruling at the dates of thetransactions. Foreign exchange differences arising on retranslationare recognised directly in a separate component of equity.

Net investment in foreign operations

Exchange differences arising from the translation of the netinvestment in foreign operations, and of related hedges, are taken tothe foreign currency translation reserve. They are released into theIncome Statement upon disposal. In respect of all foreign operations,any differences are presented as a separate component of equity.

(v) Derivative financial instruments

The Consolidated Entity uses derivative financial instruments tohedge its exposure to foreign exchange and interest rate risks arisingfrom operating, investing and financing activities. In accordance withits treasury policy, the Consolidated Entity does not hold or issuederivative financial instruments for trading purposes. However,derivatives that do not qualify for hedge accounting are accountedfor as trading instruments.

Derivative financial instruments are recognised initially at fair value.Subsequent to initial recognition, derivative financial instruments arestated at fair value. The gain or loss on remeasurement to fair valueis recognised immediately in the Income Statement. However, wherederivatives qualify for hedge accounting, recognition of any resultantgain or loss depends on the nature of the item being hedged.

The fair value of interest rate swaps is the estimated amount that theConsolidated Entity would receive or pay to terminate the swap atthe balance sheet date, taking into account current interest rates andthe current creditworthiness of the swap counterparties. The fairvalue of forward exchange contracts is their quoted market price atthe balance sheet date, being the present value of the quotedforward price.

Hedging

On entering into a hedging relationship, the Consolidated Entityformally designates and documents the hedge relationship and therisk management objective and strategy for undertaking the hedge.The documentation includes identification of the hedging instrument,the hedged item or transaction, the nature of the risk being hedgedand how the entity will assess the hedging instrument’s effectivenessin offsetting the exposure to changes in the hedged item’s fair valueor cash flows attributable to the hedged risk. Such hedges areexpected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis todetermine that they actually have been highly effective throughoutthe financial reporting periods for which they are designated.

Cash flow hedges

Where a derivative financial instrument is designated as a hedge ofthe variability in cash flows of a recognised asset or liability, or a highlyprobable forecast transaction, the effective part of any gain or loss onthe derivative financial instrument is recognised directly in equity.When the forecast transaction subsequently results in the recognitionof a non-financial asset or non-financial liability, or the forecasttransaction for a non-financial asset or non-financial liability, theassociated cumulative gain or loss is removed from equity andincluded in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transactionsubsequently results in the recognition of a financial asset or afinancial liability, then the associated gains and losses that wererecognised directly in equity are reclassified into the IncomeStatement in the same period or periods during which the assetacquired or liability assumed affects the Income Statement (i.e. wheninterest income or expense is recognised).

For cash flow hedges, other than those covered by the preceding twopolicy statements, the associated cumulative gain or loss is removedfrom equity and recognised in the Income Statement in the sameperiod or periods during which the hedged forecast transactionaffects the Income Statement. The ineffective part of any gain or lossis recognised immediately in the Income Statement.

When a hedging instrument expires or is sold, terminated or exercised,or the entity revokes designation of the hedge relationship but thehedged forecast transaction still is expected to occur, thecumulative gain or loss at that point remains in equity and isrecognised in accordance with the above policy when thetransaction occurs. If the hedged transaction is no longer expected to take place, then the cumulative unrealised gain or loss recognised in equity is recognised immediately in the Income Statement.

Hedges of monetary assets and liabilities

When derivative financial instruments are used to hedge economicallythe foreign exchange exposure of recognised monetary assets orliabilities, hedge accounting is not applied and any gains or losses onthe hedging instruments are recognised in the Income Statement.

Hedges of net investment in foreign operation

The portions of the gains or losses on instruments used to hedge netinvestments in foreign operations that are determined to be effectivehedges are recognised directly in equity. The ineffective portions arerecognised immediately in the Income Statement.

(w) Accounting estimates and judgements

The preparation of the Financial Report requires the making ofestimations and assumptions that affect the recognised amounts ofassets, liabilities, revenues and expenses and the disclosure ofcontingent liabilities. The estimates and associated assumptions arebased on historical experience and various other factors that arebelieved to be reasonable under the circumstances, the results ofwhich form the basis of making the judgements about carrying valuesof assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on anongoing basis. Revisions to accounting estimates are recognised inthe period in which the estimate is revised if the revision affects onlythat period, or in the period of the revision and future periods if therevision affects both current and future periods.

The estimates and judgements that have a significant risk of causingan adjustment to the carrying amounts of assets and liabilities withinthe next financial year are discussed below.





PACIFICBRANDS

AR0883

Defined benefit superannuation plan assumptions

The Consolidated Entity has decided on a rate of return on assets of 6.9% per annum because this is the average return achieved overthe last three years. If this were to reduce, then the ConsolidatedEntity’s unrecognised actuarial gains would increase with the risk thatthey would fall outside the corridor and would be recognised in theIncome Statement and Balance Sheet in future years.

Impairment of goodwill and intangible assets with indefinite usefullives

The Consolidated Entity assesses, at least annually, whether goodwilland intangible assets with indefinite useful lives are impaired (referNote 13). These calculations involve an estimation of the recoverableamount of the cash generating units to which the goodwill andintangible assets with indefinite useful lives are allocated.




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2 REVENUE AND OTHER INCOMECONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Sales revenue 2,116,640 1,820,737 – –

Other income

Royalties – other parties 2,619 919 – –

Dividends – controlled entities – – 70,000 100,000

Net gain on disposal of businesses 564 – – –

Sundry income 10,010 12,506 – –

Total other income 13,193 13,425 70,000 100,000

Total revenue and other income 2,129,833 1,834,162 70,000 100,000

3 OTHER EXPENSES

Depreciation of:

Freehold buildings and leasehold improvements 4,788 3,962 – –

Plant and equipment 15,712 14,232 – –

20,500 18,194 – –Amortisation of:

Software 2,379 2,692 – –

Other intangible assets 3,052 1,781 – –

Leased plant and equipment 1,029 1,440 – –

6,460 5,913 – –

Total depreciation and amortisation 26,960 24,107 – –

Net financing costs:

Financial income (3,459) (3,378) (42) (44)

Interest on bank loans and overdraft 68,328 49,688 – –

Finance charges on capitalised leases 280 328 – –

65,149 46,638 (42) (44)

Amounts set aside to allow for:

Doubtful debts 709 1,255 – –

Rebates, trade allowances, claims and settlement discounts 147,943 125,759 – –

148,652 127,014

Personnel expenses:

Wages and salaries 371,804 322,146 – –

Contributions to defined contribution superannuation plans 25,538 21,606 – –

Defined benefit superannuation expense (474) 1,050 – –

Leave entitlements 53,664 33,405 – –

Other employee costs 27,749 17,136 – –

Share based payments 2,430 1,836 – 1,836

480,711 397,179 – 1,836

Net foreign exchange loss 516 1,327 – –




PACIFICBRANDS

AR0885

4 AUDITORS’ REMUNERATIONCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Audit services


KPMG Australia:

Audit and review of financial reports 1,259,600 1,128,000 62,000 60,000

Overseas KPMG firms:

Audit of financial reports 377,400 291,000 – –

1,637,000 1,419,000 62,000 60,000

Other services


KPMG Australia:

Taxation services 171,294 209,800 – –

Other assurance services 85,641 13,240 – –

Overseas KPMG firms:

Taxation services 14,461 9,357 – –

Other assurance services 26,873 38,167 – –

298,269 270,564 – –

It is the Company’s policy to employ KPMG on assignments additional to its statutory audit duties where KPMG’s expertise with the Companyis important. Approval for these assignments is required from the Audit, Business Risk and Compliance Committee; the assignments areprincipally related to tax advice and assurance services relating to debt covenants and regulatory requirements.

5 INCOME TAX EXPENSE/(BENEFIT)CONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Current income tax expense/(benefit)

Current year 44,435 42,103 (3,615) (5,193)

(Over)/under provided in prior year (2,134) (4,713) 159 –

Deferred income tax expense

Origination and reversal of temporary differences 1,500 2,092 2,877 2,640

Total income tax expense/(benefit) in the Income Statements 43,801 39,482 (579) (2,553)

Numerical reconciliation between income tax expense/(benefit)and profit before income tax

Profit before income tax expense/(benefit) 160,927 145,618 67,539 95,253

Income tax using the domestic corporation tax rate of 30% 48,278 43,685 20,262 28,575

Increase in income tax expense due to:

Share based payments 729 550 – 550

Decrease in income tax expense due to:

Non-assessable dividend income – – (21,000) (30,000)

Sundry items (3,072) (40) – (1,678)

(Over)/under provided in prior year (2,134) (4,713) 159 –

Total income tax expense/(benefit) on profit before income tax 43,801 39,482 (579) (2,553)

Deferred tax recognised directly in equity

Relating to derivative financial instruments 1(v) 2,535 (3,146) – –

Current income tax liability

The current tax liability for the Consolidated Entity of $12.9 million (2007: $7.9 million) and for the Company of $16.1 million (2007: $7.7 million)represents the amount of income taxes payable in respect of current and prior financial periods. In accordance with the tax consolidationlegislation, the Company as the head entity of the Australian tax consolidated group has assumed the current tax liability initially recognisedby the members in the tax consolidated group.



6 EARNINGS PER SHARECONSOLIDATED

2008 2007

$’000 $’000

Earnings reconciliation

Profit for the year 117,126 106,136

Less minority interest (568) (177)

Basic and diluted earnings 116,558 105,959

CONSOLIDATED

2008 2007NUMBER NUMBER

Weighted average number of shares used as the denominator

Number for basic and diluted earnings per share

Ordinary shares at 1 July 502,277,852 503,000,003

Effect of shares bought back – (514,859)

Ordinary shares at 30 June 502,277,852 502,485,144

7 SEGMENT REPORTING

Segment information is presented in respect of the Consolidated Entity’s business and geographical segments. The primary format, businesssegments, is based on the Consolidated Entity’s management and internal reporting structure.

It is the Consolidated Entity’s policy that intersegment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonablebasis.

Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more thanone year.

Primary reporting: business segments

The Consolidated Entity comprises the following main business segments, based on the Consolidated Entity’s management reporting system:

Underwear & Hosiery Marketer, distributor, importer and manufacturer of underwear, intimate apparel, socks and hosiery;

Outerwear & Sport Marketer, distributor, importer and manufacturer of casual outerwear, workwear, sports clothing, sportsfootwear and sporting equipment;

Home Comfort Marketer, distributor, importer and manufacturer of mattresses, pillows, bed linen, bedding accessoryproducts and foam;

Footwear Marketer, distributor and importer of women’s, men’s and children’s footwear; and

Other Retail clearance outlets, administration functions and amortisation of other intangible assets.

PACIFICBRANDSAR08

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PACIFICBRANDS

AR0887

7 SEGMENT REPORTING (CONTINUED)

Primary reporting: business segments (continued)

UNDERWEAR OUTERWEAR HOME& HOSIERY & SPORT COMFORT FOOTWEAR OTHER ELIMINATIONS1 CONSOLIDATED

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

2008

Revenue

External segment revenue 638,231 661,230 525,877 274,582 29,913 – 2,129,833

Intersegment revenue – 250 7 30 117 (404) –

Total segment revenue 638,231 661,480 525,884 274,612 30,030 (404) 2,129,833

Result

Segment result 101,414 58,191 49,685 36,422 (19,636) – 226,076

Net financing costs (65,149)

Income tax expense (43,801)

Profit for the year 117,126

Depreciation and amortisation 6,444 4,754 7,654 1,635 6,473 – 26,960

Segment assets 398,907 448,839 260,285 148,060 1,405,537 (175,236) 2,486,392

Segment liabilities 80,227 156,715 149,965 34,421 910,212 (175,236) 1,156,304

Acquisition of non-current assets 3,555 11,124 11,703 3,262 930 – 30,574

2007

Revenue

External segment revenue 633,580 362,706 518,530 284,435 34,911 – 1,834,162

Intersegment revenue 122 79 – – 468 (669) –

Total segment revenue 633,702 362,785 518,530 284,435 35,379 (669) 1,834,162

Result

Segment result 93,701 26,959 45,544 37,251 (11,199) – 192,256

Net financing costs (46,638)

Income tax expense (39,482)

Profit for the year 106,136

Depreciation and amortisation 6,633 3,479 7,042 1,493 5,460 – 24,107

Segment assets 366,121 480,134 290,292 129,875 1,499,162 (210,066) 2,555,518

Segment liabilities 67,595 173,990 191,657 35,029 977,939 (210,066) 1,236,144

Acquisition of non-current assets 5,252 245,770 15,993 1,404 2,636 – 271,055

1 Segment revenue, results, assets and liabilities are determined before the effects of consolidation eliminations, except where transactions are between entities in asingle segment.



7 SEGMENT REPORTING (CONTINUED)

Secondary reporting: geographical segments

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.

Segment assets are based on the geographical location of the assets:

Australia Manufacturing facilities, distribution facilities and sales offices;

New Zealand Manufacturing facilities, distribution facilities and sales offices; and

Rest of world Manufacturing facilities, distribution facilities and sales offices.

AUSTRALIA NEW ZEALAND REST OF WORLD CONSOLIDATED

$’000 $’000 $’000 $’000

2008

External segment revenue by location of customers 1,819,295 213,170 97,368 2,129,833

Segment assets by location of assets 2,300,300 111,074 75,018 2,486,392

Acquisition of non-current assets 26,646 1,002 2,926 30,574

2007

External segment revenue by location of customers 1,561,625 167,196 105,341 1,834,162

Segment assets by location of assets 2,357,101 117,215 81,202 2,555,518

Acquisition of non-current assets 260,083 8,413 2,559 271,055

8 CASH AND CASH EQUIVALENTSCONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Cash on hand 196 326 – –

Cash at bank 92,144 128,631 538 568

Bank short term deposits 12,482 9,683 – –

27(a) 104,822 138,640 538 568

The bank short term deposits mature within 19 days (2007: 45 days) and interest is received at a weighted average interest rate of 6.8% perannum (2007: 6.3% per annum).

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9 TRADE AND OTHER RECEIVABLESCONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Current

Trade debtors 285,021 315,686 – –

Less allowance for doubtful trade debtors (3,128) (4,467) – –

Less allowance for rebates, trade allowances, claims and settlement discounts (35,471) (30,552) – –

246,422 280,667 – –

Amounts owing by controlled entity 30 – – 37,156 48,618

Other debtors 25,884 22,299 4 6

272,306 302,966 37,160 48,624

Non-current

Amounts owing by controlled entity 30 – – 1,203,714 1,203,714

Other debtors 30 50 – –

30 50 1,203,714 1,203,714

Other debtor amounts generally arise from transactions outsidethe usual operating activities of the Consolidated Entity.

10 INVENTORIESCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Raw materials and stores 50,835 56,642 – –

Work in progress 17,898 22,670 – –

Finished goods 288,237 282,212 – –

356,970 361,524 – –

11 OTHER ASSETS

CurrentPrepayments 14,266 9,636 – –

Non-currentOther investments 1,530 1,731 – –

12 PROPERTY, PLANT AND EQUIPMENT

Freehold land

At cost 41,620 34,134 – –

Freehold buildings

At cost 36,544 52,009 – –

Accumulated depreciation (4,151) (8,859) – –

32,393 43,150 – –

Leasehold improvements

At cost 27,738 23,749 – –

Accumulated amortisation (9,526) (6,483) – –

18,212 17,266 – –

Plant and equipment

At cost 145,150 155,655 – –

Accumulated depreciation (49,781) (61,286) – –

95,369 94,369 – –

Leased plant and equipment

At capitalised cost 5,784 7,409 – –

Accumulated amortisation (1,920) (2,063) – –

3,864 5,346 – –

Capital works in progress 13,441 12,584 – –

Total property, plant and equipment at net book value 204,899 206,849 – –



PACIFICBRANDSAR08

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12 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Reconciliation

A reconciliation of the carrying amounts for each class of property, plant and equipment is set out below:LEASED CAPITAL

FREEHOLD FREEHOLD LEASEHOLD PLANT AND PLANT AND WORKS INLAND BUILDINGS IMPROVEMENTS EQUIPMENT EQUIPMENT PROGRESS TOTAL

CONSOLIDATED $’000 $’000 $’000 $’000 $’000 $’000 $’000

2008

Carrying amount at the beginning of the year 34,134 43,150 17,266 94,369 5,346 12,584 206,849

Acquisitions through business combinations 3,196 – – – – – 3,196

Disposed businesses – – (70) (2,945) – (25) (3,040)

Fair value adjustments 4,660 (9,613) (310) 1,813 (62) – (3,512)

Additions – 16 2,952 2,651 866 19,774 26,259

Transfer from/(to) capital works in progress – – 3,076 16,935 (1,197) (18,814) –

Disposals – (53) (203) (1,132) – – (1,388)

Depreciation and amortisation – (837) (3,951) (15,712) (1,029) – (21,529)

Effects of movements in foreign exchange (370) (270) (548) (610) (60) (78) (1,936)

Carrying amount at the end of the year 41,620 32,393 18,212 95,369 3,864 13,441 204,899

2007

Carrying amount at the beginning of the year 31,413 28,884 11,178 83,341 4,024 8,246 167,086

Acquisitions through business combinations 2,400 15,074 4,189 10,860 367 88 32,978

Additions – – 235 1,380 3,606 22,919 28,140

Transfer from/(to) capital works in progress 384 50 4,871 14,515 (1,079) (18,741) –

Disposals (197) – – (1,791) (29) – (2,017)

Depreciation and amortisation – (1,084) (2,878) (14,232) (1,440) – (19,634)

Effects of movements in foreign exchange 134 226 (329) 296 (103) 72 296

Carrying amount at the end of the year 34,134 43,150 17,266 94,369 5,346 12,584 206,849

13 INTANGIBLE ASSETSCONSOLIDATED

OTHERINTANGIBLE

GOODWILL BRANDNAMES SOFTWARE ASSETS1 TOTAL

$’000 $’000 $’000 $’000 $’000

Balance at 1 July 2006 873,895 404,565 18,870 – 1,297,330

Acquisitions through business combinations 109,265 80,000 – 20,672 209,937

Amortisation – – (2,692) (1,781) (4,473)

Effects of movements in foreign exchange 299 672 – – 971

Balance at 30 June 2007 983,459 485,237 16,178 18,891 1,503,765

Additions – – – 1,119 1,119

Disposals – – (41) – (41)

Amortisation – – (2,379) (3,052) (5,431)

Fair value adjustments 9,988 – – – 9,988

Effects of movements in foreign exchange (999) (885) – – (1,884)

Balance at 30 June 2008 992,448 484,352 13,758 16,958 1,507,516

1 Other intangible assets include licences, customer contracts and other customer related intangible assets.

Impairment tests for cash generating units containing goodwill

The following cash generating units have significant carrying amounts of indefinite life intangible assets:

CONSOLIDATED

GOODWILL BRANDNAMES

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Pacific Brands Group 832,088 832,468 381,352 382,237

Sheridan 41,107 41,726 23,000 23,000

Brand Collective 19,645 18,728 – –

Yakka Group 99,608 90,537 80,000 80,000

992,448 983,459 484,352 485,237




PACIFICBRANDS

AR0891

13 INTANGIBLE ASSETS (CONTINUED)

The recoverable amount of the Pacific Brands Group excluding the cash generating units below is based on value in use calculations. Separatevalue in use calculations are prepared for each of the business segments that make-up the Pacific Brands Group (refer Note 7 for a listing ofbusiness segments). Those calculations use cash flow projections based on actual operating results and cash flows for a further five yearperiod which are extrapolated using a growth rate appropriate for markets and industries in which the Pacific Brands Group operates. A pre-tax discount rate of 11.6% per annum has been used in discounting the projected cash flows.

The recoverable amount of the Sheridan cash generating unit is based on value in use calculations. Those calculations use cash flowprojections based on actual operating results and cash flows for a further five year period which are extrapolated using a growth rateappropriate for markets in which Sheridan operates. A pre-tax discount rate of 11.6% per annum has been used in discounting the projectedcash flows.

The recoverable amount of the Brand Collective cash generating unit is based on value in use calculations. Those calculations use cash flowprojections based on actual operating results and cash flows for a further five year period which are extrapolated using a growth rateappropriate for markets in which Brand Collective operates. A pre-tax discount rate of 11.6% per annum has been used in discounting theprojected cash flows.

The recoverable amount of the Yakka Group cash generating unit is based on value in use calculations. Those calculations use cash flowprojections based on actual operating results and cash flows for a further five year period which are extrapolated using a growth rate appropriatefor markets and industries in which Yakka Group operates. A pre-tax discount rate of 11.6% per annum has been used in discounting theprojected cash flows.

14 RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities are attributable to the following:

ASSETS LIABILITIES NET

2008 2007 2008 2007 2008 2007

$’000 $’000 $’000 $’000 $’000 $’000

Consolidated

Trade and other receivables 2,092 2,695 – – 2,092 2,695

Inventories 1,232 3,751 – – 1,232 3,751

Property, plant and equipment – – (3,129) (3,705) (3,129) (3,705)

Provisions for employee benefits 22,976 19,062 – – 22,976 19,062

Other provisions 1,870 3,466 – – 1,870 3,466

Transaction costs – 2,981 – – – 2,981

Other items1 – 2,107 (988) – (988) 2,107

Tax assets/(liabilities) 28,170 34,062 (4,117) (3,705) 24,053 30,357

Set off of tax (4,117) (3,705) 4,117 3,705 – –

Net tax assets 24,053 30,357 – – 24,053 30,357

The Company

Provisions for employee benefits 105 340 – – 105 340

Other items 1,520 – – – 1,520 –

Transaction costs – 2,981 – – – 2,981

Tax assets 1,625 3,321 – – 1,625 3,321

Set off of tax – – – – – –

Net tax assets 1,625 3,321 – – 1,625 3,321

1 Includes a deferred tax asset of $0.5 million (2007: $3.0 million) relating to derivative financial instruments recognised directly in equity.

15 TRADE AND OTHER PAYABLESCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Current

Trade creditors 150,581 138,753 394 1,133

Other creditors and accruals 49,151 52,949 – –

199,732 191,702 394 1,133

Non-current

Other creditors 9,306 14,599 – –



16 INTEREST-BEARING LOANS AND BORROWINGSCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

CurrentLease liabilities 1,340 2,689 – –

Non-current

Bank loans 844,427 936,708 – –

Lease liabilities 1,767 1,463 – –

846,194 938,171 – –

Bank overdrafts

Interest on bank overdrafts is charged at prevailing market rates.

Finance lease liability

The Consolidated Entity’s lease liabilities are secured by the leased assets of $3.9 million (2007: $5.3 million) as in the event of default, the assetsrevert to the lessor.

Finance lease liabilities of the Consolidated Entity are payable as follows:

MINIMUM MINIMUMLEASE LEASE

PAYMENTS INTEREST PRINCIPAL PAYMENTS INTEREST PRINCIPAL

2008 2008 2008 2007 2007 2007

$’000 $’000 $’000 $’000 $’000 $’000

Within one year 1,545 205 1,340 2,907 218 2,689

One year or later and no later than five years 1,885 118 1,767 1,562 99 1,463

3,430 323 3,107 4,469 317 4,152

The Consolidated Entity leases motor vehicles under finance leases expiring in one to five years. At the end of the lease term, the ConsolidatedEntity has the option to purchase the motor vehicles at the agreed residual value.

Bank loans

All bank loans are denominated in Australian dollars.

The Consolidated Entity is required to comply with various financial covenants which it has met. Additionally, the Consolidated Entity enteredinto a debtor securitisation arrangement by which it transfers to a third party its gross trade debtors in exchange for an immediate discountedcash payment while retaining an exposure to credit losses and a continuing obligation to service its accounts with these customers. Themaximum amount allowed to be drawn on this facility is $250 million. At 30 June 2008, this arrangement was drawn to $171 million (2007: $172million). The gross trade debtors which have been securitised have been presented as trade debtors (refer Note 9) with the secured borrowingincluded as a component of bank loans.

17 PROVISIONSCONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Current

Employee benefits 28 72,711 65,666 – –

Leased premises 3,949 5,015 – –

76,660 70,681 – –

Non-current

Employee benefits 28 4,330 6,343 – –

Leased premises 5,825 4,035 – –

10,155 10,378 – –

Reconciliation

A reconciliation of the carrying amounts of each class of provision, except for employee benefits (refer Note 28), is set out below:LEASED PREMISES

2008 2007

CONSOLIDATED $’000 $’000

Carrying amount at the beginning of the year 9,050 6,341

Recognised in the Income Statement 949 1,709

Increase through business combinations – 1,686

Fair value adjustments 3,456 –

Payments (3,681) (686)

Carrying amount at the end of the year 9,774 9,050

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18 CONTRIBUTED EQUITYCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Share capital

502,277,852 (2007: 503,000,003) fully paid ordinary shares at the beginning of the year 1,218,577 1,220,446 1,218,577 1,220,446

No shares were bought back during the financial year (2007: 722,151) – (1,869) – (1,869)

502,277,852 fully paid ordinary shares at the end of the year 1,218,577 1,218,577 1,218,577 1,218,577

Terms and conditions

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share atshareholders’ meetings.

In the event of the winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to anyproceeds of liquidation.

19 NATURE OF RESERVES

The nature and purpose of reserves included in the Statements of Changes in Equity for the Company and Consolidated Entity are:

Equity compensation reserve

The equity compensation reserve arises on the grant of performance rights to executives under the Performance Rights Plan. Amounts aretransferred out of the reserve and into issued capital when the rights are exercised. Further information about equity compensation paymentsto employees is given in Note 28.

Foreign currency translation reserve

The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations, the translationof transactions that hedge the Company’s net investment in foreign operations or the translation of foreign currency monetary items formingpart of the net investment in foreign operations (refer Note 1(u)).

Hedge reserve

The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related tohedged transactions that have not yet occurred.

20 RETAINED EARNINGSCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Balance at the beginning of the year 108,241 80,202 23,881 3,995

Net profit attributable to equity holders of the parent 116,558 105,959 68,118 97,806

On-market purchase of performance rights (3,235) – (3,235) –

Dividends recognised (85,424) (77,920) (85,424) (77,920)

Balance at the end of the year 136,140 108,241 3,340 23,881

21 DIVIDENDS

Dividends recognised in the current year by the Company are:CENTS

PER TOTAL FRANKED/ DATE OFSHARE AMOUNT UNFRANKED PAYMENT

$’000

2008

Interim 2008 ordinary 8.5 42,709 franked 1 April 2008

Final 2007 ordinary 8.5 42,715 franked 1 October 2007

85,424

2007

Interim 2007 ordinary 8.0 40,182 franked 2 April 2007


77,920

Franked dividends declared or paid were franked at the tax rate of 30%.

Subsequent events

Since the end of the financial year, the directors declared the following dividends:




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21 DIVIDENDS (CONTINUED)

The financial effect of these dividends have not been brought to account in the financial statements for the year ended 30 June 2008 and willbe recognised in subsequent financial reports.

THE COMPANY

2008 2007

$’000 $’000

Dividend franking account

30% franking credits available to shareholders of the Company for subsequent financial years 46,073 40,156

The above available amounts are based on the balance of the dividend franking account at the end of the year adjusted for:

• franking credits that will arise from the payment of the current tax liabilities;

• franking debits that will arise from the payment of dividends recognised as a liability at the end of the year;

• franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the end of the year; and

• franking credits that the entity may be prevented from distributing in subsequent years.

The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on thedividend franking account of dividends proposed after the balance sheet date but not recognised as a liability is to reduce it to $27.8 million(2007: $22.9 million).

22 MINORITY INTEREST

The minority interest at 30 June 2008 relates to a 50% interest in Restonic (M) Sdn Bhd which is not held by the Company nor by one of itscontrolled entities. The minority interest at 30 June 2007 also included a 50.1% interest in World Brands Pty Ltd that was disposed of duringthe year.

CONSOLIDATED

2008 2007

$’000 $’000

Minority interest in controlled entities comprise:

Interest in retained earnings at the beginning of the year 355 129

Net profit attributable to minority interest 568 177

Minority interest acquired – 407

Minority interest disposed (733) –

Dividend paid to minority interest (533) (358)

Interest in (accumulated losses)/retained earnings at the end of the year (343) 355

Interest in share capital 4,293 4,293

Interest in reserves (249) 17

Total minority interest 3,701 4,665

23 ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE

Overview

The Company and Consolidated Entity have exposure to the following risks from their use of financial instruments:

• market risk;

• credit risk; and

• liquidity risk.

This Note presents information about the Company’s and Consolidated Entity’s exposure to each of the above risks, their objectives, policiesand processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout thisFinancial Report.

The Board has overall responsibility for the establishment and oversight of the risk management framework.

Risk management policies are established to identify and analyse the risks faced by the Company and Consolidated Entity, to set appropriaterisk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflectchanges in market conditions and the Company’s and Consolidated Entity’s activities. The Company and Consolidated Entity, through theirtraining and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employeesunderstand their roles and obligations.

The Audit, Business Risk and Compliance Committee oversees how management monitors compliance with the Company’s and ConsolidatedEntity’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced bythe Company and Consolidated Entity.




PACIFICBRANDS

AR0895

23 ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (CONTINUED)

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain futuredevelopment of the business. The Consolidated Entity defines capital as total shareholders’ equity in the Balance Sheet plus net debt. Net debt is calculated as total interest-bearing loans and borrowings less cash and cash equivalents. Total capital amounted to$2,072,800,000 (2007:$2,121,594,000). In order to adjust the capital structure, the Consolidated Entity may adjust the amount of dividendspaid to shareholders, return capital to shareholders, issue new shares or reduce debt. The Board monitors the level of dividends to ordinaryshareholders. The Company aims to return approximately 70% of net profit after tax to shareholders in the form of dividends.

From time to time, the Consolidated Entity purchases its own shares on market; the timing of these purchases depends on-market prices.Primarily, the shares are intended to be used for issuing shares under the Consolidated Entity’s Performance Rights Plan or DividendReinvestment Plan. Buy and sell decisions are made on a specific transaction basis by the management.

There were no changes in the Consolidated Entity’s approach to capital management during the year.

(a) Fair values of financial assets and liabilities

A number of the Consolidated Entity’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset orliability.

Trade and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest atthe reporting date.

Derivatives

The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fairvalue is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity ofthe contract using a risk-free interest rate (based on government bonds).

The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated futurecash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.

Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows,discounted at the market rate of interest at the reporting date.

Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the Balance Sheets, are as follows:

CONSOLIDATED 30 JUNE 2008 30 JUNE 2007

CARRYING CARRYINGAMOUNT FAIR VALUE AMOUNT FAIR VALUE

$’000 $’000 $’000 $’000

Financial assets

Cash and cash equivalents 104,822 104,822 138,640 138,640

Trade and other receivables 267,307 267,307 297,048 297,048

Derivative instruments designated in hedge relationship:

Interest rate swaps 4,438 4,438 5,153 5,153

Forward exchange contracts receivable 591 591 39 39

Foreign exchange options – – 776 776

Financial liabilities

Measured at amortised cost:

Trade and other payables 202,455 202,455 191,102 191,102

Bank loans 844,427 844,427 936,708 936,708

Finance lease liabilities 3,107 3,107 4,152 4,152

Derivative instruments designated in hedge relationship:

Forward exchange contracts payable 6,583 6,583 15,199 15,199




THE COMPANY 30 JUNE 2008 30 JUNE 2007

CARRYING CARRYINGAMOUNT FAIR VALUE AMOUNT FAIR VALUE

$’000 $’000 $’000 $’000

Financial assets

Cash and cash equivalents 538 538 568 568

Trade and other receivables 1,240,874 1,240,874 1,252,338 1,252,338

Financial liabilities

Measured at amortised cost:

Trade and other payables 394 394 1,133 1,133

(b) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Consolidated Entity’sincome or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market riskexposures within acceptable parameters.

The Consolidated Entity enters into derivatives, and also incurs financial liabilities, in order to manage market risk. All such transactions are carriedout within the guidelines set by the Board. The Consolidated Entity applies hedge accounting in order to manage volatility in profit or loss.

The market risk associated with the Consolidated Entity’s and Company’s financial instruments is detailed below.

(i) Interest rate risk

The Consolidated Entity adopts a policy of ensuring that between 40% and 60% of its exposure to changes in interest rates on borrowingsis on a fixed rate basis. This is achieved by entering into interest rate swaps.

At the reporting date the interest rate profile of the Company’s and the Consolidated Entity’s interest-bearing financial instruments was:

CONSOLIDATED THE COMPANY

2008 2007 2008 2007

WEIGHTED WEIGHTED WEIGHTED WEIGHTEDAVERAGE AVERAGE AVERAGE AVERAGE

INTEREST RATE P.A. INTEREST RATE P.A. INTEREST RATE P.A. INTEREST RATE P.A.

Instruments with interest rate risk exposure:

Cash and cash equivalents 6.8% 6.3% 6.8% 6.3%

Finance lease liabilities 9.2% 6.6% – –

Bank loans1 7.9% 7.1% – –

1 After incorporating the effect of interest rate swaps, forward agreements and options.

Refer ‘(d) Liquidity risk’ for maturity profile of the above financial liabilities.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure of interest-bearing loans and borrowings, interest rate swaps andcash and cash equivalents to interest rates at the reporting date. The increase/decrease of 100 basis points is assumed to have taken place atthe beginning of the financial year and held constant throughout the entire reporting period, and is applied against the net balance of interest-bearing loans and borrowings (excluding the portion fixed through interest rate swaps) and cash and cash equivalents held at reporting date.The analysis assumes the net balance at reporting date was held constantly throughout the financial year.

A change of 100 basis points in interest rates at the reporting date would increase/(decrease) profit before tax and increase/(decrease) equityby the amounts shown below for the Consolidated Entity. The analysis also assumes that all other variables, in particular foreign currency rates,remain constant. The analysis is performed on the same basis as at 30 June 2007.

The impact to profit before tax reflects the additional interest that would have been expensed had the change in basis points occurred at thebeginning of the financial year. The impact to equity reflects the change in basis points on the valuation of interest swaps at the reporting dateon the portion of debt fixed through effective cash flow hedges.

PROFIT BEFORE TAX EQUITY

100BP 100BP 100BP 100BP

INCREASE DECREASE INCREASE DECREASE

$000 $000 $000 $000

30 June 2008 (4,428) 4,428 3,817 (3,817)

30 June 2007 (4,539) 4,539 6,344 (6,344)

(ii) Currency risk

The Consolidated Entity is exposed to currency risk on purchases that are denominated in a currency other than the respective functionalcurrencies of entities within the Consolidated Entity, primarily the Australian dollar (‘AUD’), but also the US dollar (‘USD’), the New Zealand dollar(‘NZD’) and UK pound (‘GBP’). The currencies in which these transactions primarily are denominated are AUD, USD, GBP and Hong Kong dollar.

As a result of the large purchases of inventories denominated in USD, the Balance Sheet of the Consolidated Entity can be significantlyimpacted by movements in the USD.

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(b) Market risk (continued)

(ii) Currency risk (continued)

However, at any point in time the Consolidated Entity hedges 75% to 85% of its estimated foreign currency exposure in respect of forecastpurchases over the following six months. The Consolidated Entity uses forward exchange contracts to hedge its currency risk, most with amaturity of less than one year from the reporting date.

The following table sets out the weighted average contracted exchange rates, the gross value to be received under foreign currency contracts,the fair value of the foreign currency contracts and the settlement periods of outstanding contracts for the Consolidated Entity:

CONSOLIDATED

2008 2007

WEIGHTED AUSTRALIAN WEIGHTED AUSTRALIANAVERAGE DOLLAR FAIR AVERAGE DOLLAR FAIR

EXCHANGE RATE EQUIVALENT VALUE EXCHANGE RATE EQUIVALENT VALUE

$’000 $’000 $’000 $’000

Maturing within one year

Buy US dollars 0.92 202,454 (5,716) 0.80 252,372 (12,560)

Buy Hong Kong dollars 7.26 25,026 (556) 6.25 39,429 (2,140)

Buy UK pounds 0.4888 1,203 19 0.4164 1,854 (32)

Buy euros 0.6130 388 3 0.6198 1,805 (28)

Buy Japanese yen 100.83 2,086 (1) 96.08 2,157 (151)

Buy New Zealand dollars 1.2132 6,766 259 1.1138 701 (249)

The net deferred costs and exchange gains and losses on hedges of anticipated foreign currency purchases and sales recognised in othercreditors in Note 15 and the timing of their anticipated recognition as part of purchases and sales are:

CONSOLIDATEDNET GAINS/(LOSSES)

2008 2007

$’000 $’000

Within six months (5,992) (15,160)

In respect of other monetary assets and liabilities denominated in foreign currencies, the Consolidated Entity ensures that its net exposure iskept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short term imbalances.

The Consolidated Entity’s exposure to the USD at balance date was as follows, based on notional amounts:

30 JUNE 2008 30 JUNE 2007

$’000 $’000

Cash and cash equivalents 14,946 15,743

Trade debtors 11,282 7,790

Trade creditors (37,911) (30,368)

Forward exchange contracts (5,716) (12,560)

Net Exposure (17,399) (19,395)

Sensitivity analysis

A 10% strengthening of the AUD against the USD at 30 June 2008 would have increased/(decreased) profit before income tax and(decreased)/increased equity by the amounts shown below for the Consolidated Entity. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis as at 30 June 2007.

CONSOLIDATED

EQUITY NET PROFIT

$’000 $’000

30 June 2008 (18,512) 78

30 June 2007 (20,998) 155

A 10% weakening of the AUD against the USD at 30 June 2008 would effectively have had the equal but opposite effect on the abovecurrencies to the amounts shown above, on the basis that all other variables remain constant and any foreign exchange exposures deemed tobe translation risk exposures have been excluded from the analysis.

(c) Credit risk

Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial instrument fails to meet its contractualobligations, and arises principally from the Consolidated Entity’s receivables from customers. For the Company it arises from receivables duefrom subsidiaries.

Exposure to credit risk

The carrying amount of the Consolidated Entity’s and Company’s financial assets represents the maximum credit exposure.



PACIFICBRANDSAR08

98


(c) Credit risk (continued)

Trade and other receivables

The Company’s and Consolidated Entity’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Thedemographics of the Consolidated Entity’s customer base, including the default risk of the industry and country in which customers operate,have less of an influence on credit risk. The Company has established a credit policy under which each new customer is analysed individuallyfor creditworthiness before the Consolidated Entity’s standard payment and delivery terms and conditions are offered. The Consolidated Entity’sreview includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, whichrepresent the maximum open amount without requiring approval from senior management.

The Consolidated Entity’s trade and other receivables relate primarily to the Consolidated Entity’s wholesale customers. Customers that aregraded as “high risk” are placed on a restricted customer list, and future sales are made on a prepayment basis.

Goods are sold subject to retention of title clauses, so that in the event of non-payment the Consolidated Entity may have a secured claim. The Consolidated Entity does not require collateral in respect of trade and other receivables.

The Company and Consolidated Entity have established an allowance for impairment that represents their estimate of incurred losses in respectof trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significantexposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yetidentified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

Impairment losses

The ageing of the Consolidated Entity’s trade debtors past due at the reporting date was:

GROSS IMPAIRMENT GROSS IMPAIRMENT

2008 2008 2007 2007

$’000 $’000 $’000 $’000

Past due 0-30 days 16,792 – 18,707 –

Past due 30 days 15,009 3,128 11,133 4,467

The movement in the allowance for doubtful debts in respect of the Consolidated Entity’s trade debtors during the year was as follows:

CARRYING AMOUNT

2008 2007

$’000 $’000

Balance at 1 July 4,467 1,999

Impairment loss recognised (1,912) (628)

Increase in allowance recognised in profit or loss 709 1,255

Increase due to business combinations – 1,875

Effects of movements in foreign exchange (136) (34)

Balance at 30 June 3,128 4,467

Based on historic default rates, the Consolidated Entity believes that no impairment allowance is necessary in respect of trade debtors not past due or past due by up to 30 days. The allowance accounts in respect of trade debtors are used to record impairment losses unless theConsolidated Entity is satisfied that no recovery of the amount owing is possible; at that point, the amount is considered irrecoverable and iswritten off against the financial asset directly.

Other receivables includes the carrying value of derivative assets representing the Consolidated Entity’s interest rate swaps. The counterparties tothese interest rate swaps are ‘AA’ rated Australian financial institutions. The Consolidated Entity believes no impairment is necessary in respect ofthese receivables.

(d) Liquidity risk

Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as they fall due. The Consolidated Entity’sapproach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, underboth normal and stressed conditions, without incurring unacceptable losses or risking damage to the Consolidated Entity’s reputation.

The Consolidated Entity uses various methodologies, which assist it in monitoring cash flow requirements and optimising its cash return oninvestments. Typically, the Consolidated Entity ensures that it has sufficient cash on demand to meet expected operational expenses for aperiod of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannotreasonably be predicted, such as natural disasters. In addition, the Consolidated Entity maintains the following lines of credit:

• AUD40 million overdraft facility that is unsecured. Interest would be payable at the annual rate of BBSY plus 275 basis points; and

• NZD5 million overdraft facility that is unsecured. Interest would be payable at the annual rate of BBSY plus 275 basis points.




PACIFICBRANDS

AR0899


(d) Liquidity Risk (continued)

Financing facilitiesCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Unsecured bank overdraft facility, reviewed annually and payable at call:

Amount used – – – –

Amount unused 43,965 44,531 – –

43,965 44,531 – –

Bank loan facilities with various maturity dates through to 2013 which may be extended by mutual agreements:

Amount used 845,700 936,500 – –

Amount unused 204,300 113,500 – –

1,050,000 1,050,000 – –

The following are the contractual maturities of financial liabilities:CARRYING LESS THAN

AMOUNT 1 YEAR 1-5 YEAR(S)

CONSOLIDATED $’000 $’000 $’000

2008


Trade and other payables 202,455 202,455 –

Bank loans 844,427 – 844,427

Finance lease liabilities 3,107 1,340 1,767

Derivative financial liabilities

Forward exchange contracts 6,583 6,583 –

2007


Trade and other payables 191,102 191,102 –

Bank loans 936,708 – 936,708

Finance lease liabilities 4,152 2,689 1,463

Derivative financial liabilities

Forward exchange contracts 15,199 15,199 –

24 COMMITMENTSCONSOLIDATED

2008 2007

$’000 $’000

Non-cancellable operating lease expense commitments

Future operating lease commitments not provided for in thefinancial statements and payable:

Within one year 49,030 51,324

One year or later and no later than five years 134,549 135,105

Later than five years 35,316 34,378

218,895 220,807

The Consolidated Entity leases property under non-cancellable operating leases expiring in one to five year(s). Leases generally provide the Consolidated Entity with a right of renewal at which time all terms are renegotiated. Lease payments comprise a base amount plus anincremental contingent rental. Contingent rentals are based on either movements in the Consumer Price Index or operating criteria. Where theincremental rentals are fixed, they are incurred evenly over the term of the lease. The Consolidated Entity has provided for these fixed increments(refer Note 17).



PACIFICBRANDSAR08

100

25 CONTROLLED ENTITIES

The Consolidated Entity has a 100% ownership interest in the following entities in the current and prior years except where noted:PLACE OF PLACE OFINCORPORATION/ INCORPORATION/

CONTROLLED ENTITY FORMATION CONTROLLED ENTITY FORMATION

Pacific Brands (Australia) Pty Ltd Australia Yakka Pty Ltd Australia

Pacific Brands Holdings Pty Ltd Australia CTE Pty Ltd Australia

Pacific Brands Footwear Pty Ltd Australia Shared Apparel Services Pty Ltd Australia

Sachi Australia Pty Ltd Australia Wrights Workwear Pty Ltd Australia

Pacific Brands Sport & Leisure Pty Ltd Australia Neat n Trim Uniforms Pty Ltd Australia

Pacific Brands Clothing Pty Ltd Australia Dowd Corporation Pty Ltd Australia

Pacific Brands Household Products Pty Ltd Australia Icon Clothing Pty Ltd Australia

Bonds Industries Pty Ltd Australia Icon Clothing (NZ) Pty Ltd Australia

Sheridan Australia Pty Ltd Australia Yakka (Kingsgrove) Pty Ltd Australia

Pacific Brands Services Group Pty Ltd Australia Yakka (QLD) Pty Ltd Australia

PT Berlei Indonesia Indonesia Yakka (Wodonga) Pty Ltd Australia

Pacific Brands Holdings (NZ) Ltd New Zealand Cushen Clothing Company Pty Ltd Australia 2,3

Sheridan NZ Limited New Zealand Cushen Clothing (Distributors) Pty Ltd Australia 2,3

Pacific Brands Holdings(Hong Kong) Ltd Hong Kong 1 Cushen Unit Trust Australia 2,3

Grosby (China) Ltd Hong Kong FW Fleming Pty Ltd Australia 2

Pacific Brands (Asia) Ltd Hong Kong Industrial Workwear Centre Pty Ltd Australia 2

Pacific Brands (UK) Ltd UK Yakka (WA) Pty Ltd Australia 2

Sheridan UK Limited UK Yakka (SA) Pty Ltd Australia 2

PacBrands USA Inc USA Yalee Pty Ltd Australia 2

Pacific Brands (Fiji) Limited Fiji 2 West End Clothing Pty Ltd Australia 2

Yakka (Aust) Pty Ltd Australia

1 Pacific Brands Holdings (Hong Kong) Ltd has a 36% interest in Dunlop Slazenger Philippines Inc and a 50% interest in Pacific Brands Marketing (Hong Kong) Ltdbut does not have control of these entities.

2 These entities were placed into voluntary liquidation during the year and will be liquidated following year end.3 Cushen Clothing (Distributors) Pty Ltd is the trustee for Cushen Unit Trust.

The Consolidated Entity had a 100% ownership interest in the following entities at 30 June 2007 but not at 30 June 2008:

PLACE OF PLACE OFINCORPORATION/ INCORPORATION/

CONTROLLED ENTITY FORMATION CONTROLLED ENTITY FORMATION

Yakka Apparel Solutions Limited New Zealand 4 Neat n Trim Uniforms Ltd New Zealand 4

Yakka New Zealand Limited New Zealand 4 Yakobi Pty Ltd Australia 5

Dowd Corporation (NZ) Limited New Zealand 4

4 These entities were amalgamated into Pacific Brands Holdings (NZ) Ltd during the year.5 This entity was de-registered on 26 November 2007.

The Consolidated Entity has a controlling interest in the ordinary shares of the following entities that are not 100% owned:

CONSOLIDATED ENTITY CONSOLIDATED ENTITYCONTROLLED ENTITY PLACE OF INCORPORATION INTEREST INTEREST

2008 2007

Restonic (M) Sdn Bhd Malaysia 50% 50%

Dream Crafts Sdn Bhd Malaysia 50% 50%

Dream Products Sdn Bhd Malaysia 50% 50%

Dreamland Corporation (M) Sdn Bhd Malaysia 50% 50%

Dreamland (Singapore) Pte Ltd Singapore 50% 50%

Dreamland Spring Manufacturing Sdn Bhd Malaysia 50% 50%

Eurocoir Products Sdn Bhd Malaysia 50% 50%

Sleepmaker Sdn Bhd Malaysia 50% 50%

World Brands Pty Ltd Australia – 50.1%




PACIFICBRANDS

AR08101

26 ACQUISITIONS AND DISPOSALS

Effect of prior year acquisitions

On 2 April 2007, the Consolidated Entity acquired all of the equity of Yakka (Aust) Pty Ltd for $270.0 million in cash (net of cash acquired). Thecompany manufactures, imports, distributes and retails industrial, corporate and casual wear in Australia and New Zealand.

On 2 January 2007, the Consolidated Entity acquired the Australasian streetwear business and a 50.1% controlling interest in World BrandsPty Ltd from Globe International Limited for $42.3 million cash. The streetwear and World Brands businesses design, develop and distributeyouth apparel under both proprietary brands and other licensed and distributed brands.

During the year the Consolidated Entity finalised the fair values assigned to the net assets acquired and the consideration paid. Theseacquisitions had the following effect on the Consolidated Entity’s assets and liabilities on acquisition date:

ADJUSTED FORACCOUNTING FAIR VALUE

BOOK VALUE POLICIES ADJUSTMENTS FAIR VALUE

$’000 $’000 $’000 $’000

Cash and cash equivalents 16,650 – – 16,650

Trade and other receivables 63,335 – (612) 62,723

Inventories 88,139 (810) (13,663) 73,666

Property, plant and equipment 36,834 – (4,172) 32,662

Brandnames – – 80,000 80,000

Other intangible assets – – 20,672 20,672

Other assets 2,710 – – 2,710

Deferred tax assets 3,702 1,088 (2,412) 2,378

Trade and other payables (13,662) – (215) (13,877)

Other liabilities (30,437) – (2,017) (32,454)

Income tax payable (930) 63 958 91

Current provisions (9,340) (313) (559) (10,212)

Non-current provisions (578) (84) (8,703) (9,365)

Lease liabilities (668) – – (668)

External debt (14,810) – – (14,810)

Minority interest (382) – (26) (408)

Net assets acquired 140,563 (56) 69,251 209,758

Goodwill 119,252

Consideration 329,010

Less: cash and cash equivalents acquired (16,650)

Consideration (net of cash acquired) 312,360

Disposals

On 27 June 2008 the Consolidated Entity disposed of its New Zealand Flooring, Foam and Bedding businesses for $7.2 million in cash. The Consolidated Entity recorded a profit on disposal of $0.1 million.

On 30 June 2008 the Consolidated Entity disposed of its 50.1% interest in World Brands Pty Ltd for $1.3 million. The Consolidated Entityrecorded a profit on disposal of $0.5 million.



PACIFICBRANDSAR08

102

27 NOTES TO THE CASH FLOW STATEMENTS

(a) Reconciliation of cash

For the purposes of the Cash Flow Statements, cash includes cash on hand and at bank and short term deposits at call. Cash as at the end ofthe year as shown in the Cash Flow Statements is reconciled to the related items in the Balance Sheets as follows:


2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Cash and cash equivalents 8 104,822 138,640 538 568

(b) Reconciliation of profit for the year to net cashfrom operating activities


Add/(less) non-cash items:

Share based payments 2,430 1,836 – 1,836

Net gain on disposal of businesses (564) – – –

Loss on disposal of non-current assets 553 – – –

Amounts set aside to allow for doubtful debts, rebates, claims and settlement discounts 3 148,652 127,014 – –

Amounts set aside to allow for employee benefits 45,269 29,297 – –

Depreciation and amortisation 3 26,960 24,107 – –

Increase/(decrease) in income tax payable 5,950 3,191 8,410 (861)

Decrease in current and deferred tax assets 3,252 5,559 1,696 2,643

Net cash provided by operating activities beforechange in assets and liabilities 349,628 297,140 78,224 101,424

Change in assets and liabilities:

Increase in trade and other receivables (122,531) (151,633) – –

(Increase)/decrease in inventories (12,791) 10,733 – –

Increase in prepayments (4,477) (2,572) 2 2

Increase/(decrease) in trade and other payables 20,843 11,364 (739) 992

Decrease in provisions (48,162) (26,737) – –

Net cash from operating activities 182,510 138,295 77,487 102,418

28 EMPLOYEE BENEFITSCONSOLIDATED THE COMPANY

2008 2007 2008 2007

NOTE $’000 $’000 $’000 $’000

Aggregate liability for employee benefits, including on-costs:

Current 17 72,711 65,666 – –

Non-current 17 4,330 6,343 – –

77,041 72,009 – –

The present values of employee benefits not expected to be settled within 12 months of reporting date have been calculated using thefollowing weighted averages:

CONSOLIDATED

2008 2007

Assumed rate of increase in wage and salary rates (per annum) 4.0% 4.0%

Discount rate (per annum) 5.9% 5.4%

Settlement term (period) 6 years 6 years

Number of employees

Number of employees at the end of the year 9,022 8,878

(a) Superannuation plans

The Consolidated Entity contributes to the Pacific Brands Superannuation Plan (‘Plan’), which is a plan in the Mercer Super Trust, at ratesadvised from time to time by the Plan’s actuary. Defined benefit members receive lump sum benefits on retirement, death, disablement andwithdrawal. The defined benefit section of the plan is closed to new members.

The Consolidated Entity has been contributing at the rates set out in the previous actuarial review, as at 1 July 2007.




PACIFICBRANDS

AR08103

28 EMPLOYEE BENEFITS (CONTINUED)

(a) Superannuation plans (continued)

With respect to the defined benefits component of the Plan, the defined benefit obligations and Plan assets at fair value are:

Movements in the recognised net defined benefit obligations (included in non-current employee benefits)


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Present value of funded defined benefit obligation 41,173 50,287 – –

Fair value of (plan) assets (44,114) (60,183) – –

Surplus (2,941) (9,896) – –

Unrecognised actuarial gains 1,135 8,564 – –

Net (asset)/liability for defined benefit obligations at 30 June (1,806) (1,332) – –

Changes in the present value of the defined benefit obligationare as follows:

Opening defined benefit obligation 50,287 47,363 – –

Service cost 1,842 2,416 – –

Interest cost 2,407 2,229 – –

Contributions by plan participants 459 510 – –

Actuarial (gains)/losses (1,433) 1,650 – –

Benefits paid – (3,335) – –

Taxes and premium paid (101) (460) – –

Contributions to accumulation section (91) (86) – –

Curtailments 228 – – –

Settlements (12,425) – – –

Closing defined benefit obligation 41,173 50,287 – –

Changes in the fair value of plan assets are as follows:CONSOLIDATED THE COMPANY

2008 2007 2008 2007

Opening fair value of plan assets 60,183 54,617 – –

Expected return 3,628 3,450 – –

Actuarial gains/(losses) (7,539) 4,010 – –

Contributions by employer – 1,477 – –

Contributions by plan participants 459 510 – –

Benefits paid – (3,335) – –

Taxes and premiums paid (101) (460) – –

Contributions to accumulation section (91) (86) – –

Settlements (12,425) – – –

Closing fair value of plan assets 44,114 60,183 – –



PACIFICBRANDSAR08

104


(a) Superannuation plans (continued)

The major categories of fund assets as a percentage of total plan assets are as follows:


2008 2007 2008 2007

Australian equities 31% 34% – –

International equities 25% 28% – –

Fixed income 10% 14% – –

Property 12% 9% – –

Cash 22% 15% – –

The Consolidated Entity’s investment policies and strategies for the defined benefit superannuation plans and post-retirement benefits funds donot use target allocations for the individual asset categories. The Consolidated Entity’s investment goals are to maximise returns subject tospecific risk management policies. Its risk management policies permit investments in mutual funds and prohibit direct investments in debt andequity securities and derivative financial instruments. The Consolidated Entity addresses diversification by the use of mutual fund investmentswhose underlying investments are in domestic and international fixed income securities and domestic and international equity securities. Thesemutual fund investments are readily marketable and can be sold to fund benefit payment obligations as they become payable.

Historical Information:

Amounts for the current and previous periods are as follows:

CONSOLIDATED

2008 2007 2006 2005

$’000 $’000 $’000 $’000

Defined benefit obligation 41,173 50,287 47,363 46,384

Plan assets (44,114) (60,183) (54,617) (48,118)

Surplus (2,941) (9,896) (7,254) (1,734)

Experience adjustments (gains)/losses – plan assets 7,539 (4,010) (4,323) (3,674)

Experience adjustments (gains)/losses – plan liabilities (615) 2,579 1,657 (348)

(Income)/Expenses recognised in the Income StatementsCONSOLIDATED THE COMPANY

2008 2007 2008 2007

$’000 $’000 $’000 $’000

Current service costs 1,842 2,416 – –

Interest cost on obligation 2,407 2,229 – –

Expected return on plan assets (3,628) (3,450) – –

Actuarial gain (347) (145) – –

Effects of curtailments and settlements (748) – – –

(474) 1,050 – –

The (income)/expenses are recognised in the following line items in the Income Statements:

Administrative expenses (474) 1,050 – –


2008 2007 2008 2007

$’000 $’000 $’000 $’000

Principal actuarial assumptions at the balance sheet date(expressed as weighted average annual rates):

Discount rate at 30 June 5.9% 5.4% – –

Expected return on plan assets at 30 June 6.9% 6.9% – –

Future salary increases 4.0% 4.0% – –

The expected return on plan assets assumption is determined by weighting the expected long term return for each asset class by the targetallocation of asset classes. The returns used for each class are net of investment tax and investment fees. An allowance for administrationexpenses has been deducted from the expected return.




PACIFICBRANDS

AR08105


(b) Share based payments

The Company has a number of share plans pursuant to which directors and senior executives may acquire shares. These are:

• the Performance Rights Plan (which is open to executive directors and selected senior executives);

• Deferred Shares (which is open to selected senior executives); and

• the Non-Executive Director Share Plan (which applies to all non-executive directors).

(i) Performance Rights Plan (‘PRP’)

General

The PRP is the Company’s long term incentive scheme for selected key senior executives. Under the PRP, eligible executives will be grantedperformance rights (each being an entitlement to a share, subject to the satisfaction of vesting conditions, principally related to financialperformance) on terms and conditions determined by the Board. If the vesting conditions are satisfied, the performance rights vest and shareswill be delivered to the executive.

Grant of performance rights

The Board has approved the following grants of performance rights to employees, under the PRP:

GRANT DATE GRANT DATE GRANT DATE GRANT DATENUMBER OF PERFORMANCE RIGHTS 1 JULY 2007 1 JULY 2006 1 JULY 2005 1 JULY 2004

(NUMBER) (NUMBER) (NUMBER) (NUMBER)GRANT 41 GRANT 31 GRANT 21 GRANT 1

1 July 2006 – – 525,000 2,500,000

Granted – 433,721 – –

30 June 2007 – 433,721 525,000 2,500,000

Granted 659,000 – – –

Exercised – – (195,000) (1,700,000)

Forfeited (48,000) (241,861) (98,213) (800,000)

30 June 2008 611,000 191,860 231,787 –

1 These grants consisted of two equal tranches with different vesting conditions, 1) total shareholder return; and 2) earnings per share.

Valuation

The fair value of the performance rights was calculated at the date of grant using a Monte-Carlo simulation model and allocated to eachreporting period evenly over the period from grant date to vesting date. The value of share based payments disclosed in Note 3 includes aportion of the fair value of the performance rights allocated to this year. In valuing the performance rights, market conditions have been takeninto account.

1 JULY 2007 1 JULY 2006 1 JULY 2005 1 JULY 2004GRANT 4 GRANT 3 GRANT 2 GRANT 1

Fair value of performance rights and assumptions

Fair value at measurement date $2.28 $1.42 $1.35 $1.60

Share price $3.45 $2.15 $2.30 $2.70

Expected volatility 27% 25% 25% 25%

Performance right life (period) 3 years 3 years 4 years 4 years

Dividend yield (per annum) 6.4% 6.0% 5.5% 3.0%

Risk-free interest rate (per annum) 6.4% 5.8% 5.1% 5.4%

The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the performance rights),adjusted for any expected changes to future volatility due to publicly available information.

Performance rights are granted under a service condition and, for grants to key management personnel, market and non-market performanceconditions. Non-market performance conditions are not taken into account in the grant date fair value measurement of the services received.

Vesting conditions

Total shareholder return conditions

The performance conditions are based on the relative total shareholder return (‘TSR’) of the Company, measured against a comparator groupof companies. The comparator group of companies differs for each grant, details of the comparator groups of companies are contained onpage 63 of this Annual Report. TSR is, broadly, a measure of the return to shareholders provided by share price appreciation, plus reinvesteddividends, expressed as a percentage of investment.

In respect of those performance rights with TSR conditions in Grants 1 and 2, the price of the Company’s shares must also, as at the relevantdate, exceed the price at which the shares listed on the Australian Stock Exchange on 6 April 2004 ($2.50) prior to any performance rightsvesting, subject to the operation of the PRP rules.




(b) Share based payments (continued)

(i) Performance Rights Plan (‘PRP’) (continued)

The TSR performance conditions in relation to Grants 1 and 2 are:PERCENTAGE OF SHARES AVAILABLE

TARGET IN GIVEN YEAR THAT VESTS

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

The Company’s annual TSR equals or exceeds performance of the median TSR of the comparator companies 50%

The Company’s annual TSR ranks in third quartile of the comparator companies Pro rata between 50% and 100%(2% increase for each higher ranking)

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

The TSR performance conditions in relation to Grants 3 and 4 are:PERCENTAGE OF SHARES AVAILABLE

TARGET IN GIVEN YEAR THAT VESTS

The Company’s 3 year TSR does not exceed the median performance of the comparator companies 0%

The Company’s 3 year TSR exceeds the median performance of the comparator companies 50%

The Company’s 3 year TSR is ranked in the third quartile of the comparator companies Pro rata between 50% and 100%(2% increase for each higher ranking)

The Company’s 3 year TSR is ranked in the fourth quartile of the comparator companies 100%

EPS performance conditions

Earnings per share (‘EPS’) growth requirements were introduced in Grant 2 for half of the performance rights and are requirements in relation toGrants 3 and 4. The Board introduced this performance requirement because:

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

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

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

EPS performance requirements are reviewed prior to each year’s allocation of performance rights. The range of EPS growth reflects theCompany’s view of what is reasonable target value, taking account of likely business cycle conditions as well as the upside potential theCompany has for further earnings growth. EPS performance requirements for each grant are shown in the table below:

PERCENTAGE OF SHARESIN TRANCHE AVAILABLE INGIVEN YEAR THAT VESTS GRANT 2 PERFORMANCE RIGHTS EPS TARGET GRANTS 3 AND 4 PERFORMANCE RIGHTS EPS TARGET

0% The Company’s compound EPS growth (tested over The Company’s 3 year compound EPS growth is less1, 2, 3 and 4 years) is less than 8.5% than 8.0%

25% The Company’s compound EPS growth (tested over The Company’s 3 year compound EPS growth equals 1, 2, 3 and 4 years) equals 8.5% 8.0%

Pro rata between The Company’s compound EPS growth (tested over The Company’s 3 year compound EPS growth is25% and 100% 1, 2, 3 and 4 years) is between 8.5% and 10.5% between 8.0% and 12.0%

100% The Company’s compound EPS growth (tested over The Company’s 3 year compound EPS growth is equal1, 2, 3 and 4 years) is equal to or exceeding 10.5% to or exceeding 12.0%

Any performance rights in Grants 1 and 2 which do not vest in a financial year will be added to the performance rights otherwise available inthe next vesting year and tested against the performance condition applicable to that subsequent year.

In relation to Grants 1 and 2, performance conditions were again tested at the end of the year ended 30 June 2008. Based on the financialperformance of the Company in the 2008 financial year, no shares (2007: 1,591,874 shares) in the capital of the Company vested in theexecutive directors and senior executives effective 1 July 2008.

The maximum percentage of the performance rights granted to date which may vest in favour of the executives is as follows:

% VESTING % VESTING % VESTING % VESTINGGRANT DATE GRANT DATE GRANT DATE GRANT DATE

1 JULY 2007 1 JULY 2006 1 JULY 2005 1 JULY 2004

1 July 2007 (vested) – – 17.5% 60%

1 July 2008 – – 42.5%1 40%

1 July 2009 – 100% 40% –

1 July 2010 100% – – –

Maximum 100% 100% 100% 100%

1 Includes 17.5% which were due to vest at 1 July 2007 as performance conditions were not met.

PACIFICBRANDSAR08

106




PACIFICBRANDS

AR08107



(i) Performance Rights Plan (‘PRP’) (continued)

Restrictions on shares

With respect to Grants 1 and 2, the executives are not entitled to trade in shares allocated on vesting of the performance rights until the earlierto occur of:

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

• 12 months following the date of cessation of employment with the Consolidated Entity.

In the case of Grants 3 and 4, executives are not entitled to trade in shares allocated on vesting of the performance rights until the earliest tooccur of:

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

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

• six months following the date of cessation of employment with the Consolidated Entity.

(ii) Deferred Shares

Grant of deferred shares

The Board has approved the following grants of deferred shares:NUMBER OF PERFORMANCE RIGHTS GRANT DATE GRANT DATE

1 JULY 2007 1 JULY 2006(NUMBER) (NUMBER)GRANT 2 GRANT 1

1 July 2006 –Granted 990,000Lapsed/forfeited (130,000)

30 June 2007 860,000

Granted 1,150,000 –Exercised – –Forfeited – (50,000)

30 June 2008 1,150,000 810,000

Valuation

The fair value of the deferred shares was calculated at the date of grant based on the market value of shares on that date. Expected dividendsare not considered in the determination of the fair value of deferred shares. The fair value of deferred shares is allocated to each reportingperiod evenly over the period from grant date to vesting date. The value of share based payments disclosed in Note 3 includes a portion of thefair value of the deferred shares allocated to this year. In valuing the deferred shares, the following assumptions have been taken into account.

1 JULY 2007 1 JULY 2006GRANT 2 GRANT 1

Fair value of deferred shares and assumptionsFair value at measurement date $2.85 $1.80Share price $3.45 $2.15Performance right life (period) 3 years 3 yearsDividend yield (per annum) 6.4% 6.0%

Performance conditions for vestingThe conditions with respect to deferred shares issued in Grants 1 and 2 are based on the following:

60% of the deferred shares will be available to vest in accordance with the following scheduled measured at the end of the 3 year performanceperiod.TARGET PERCENTAGE OF SHARES AVAILABLE

IN GIVEN YEAR THAT VESTS

The Company’s compound EPS is less than 8.5% per annum 0%

The Company’s compound EPS is 8.5% per annum 25%

For each 0.1% per annum increase in The Company’s compound EPS growth rate above 8.5% Pro rata between 25% and 100%(3.75% increase for each 0.1%

additional EPS growth)

The Company’s 3 compound EPS growth rate is above 10.5% 100%

40% of the deferred shares will be available to vest if eligible executives discharge their obligations to the Company in accordance with annualKPIs agreed with their managers. This performance condition will be determined at the end of the 3 year performance period (ie after 30 June2009 for Grant 1 and after 30 June 2010 for Grant 2) by the Chief Executive Officer.

If the target EPS does not reach 10.5% at the end of the initial 3 year period, and some of the deferred shares remain unvested, those unvesteddeferred shares remain available for a further 2 years, and will be re-tested at the end of that time (ie. 30 June 2011 for Grant 1 and 30 June2012 for Grant 2). The unvested deferred shares will then be tested over a 5 year period in accordance with the vesting schedule above, so thatif the threshold EPS of 8.5% per annum compound is achieved over the 5 year period, 25% of those previously unvested deferred shares willvest. Vesting will again be scaled on a straight line basis to 100%, at the target EPS of 10.5% per annum on a compound basis.





(iii) Non-Executive Director Share Plan

Under the Non-Executive Director Share Plan, non-executive directors are required to sacrifice at least 25% (or such other minimumpercentage determined by the Board from time to time) of their annual directors’ fees towards the acquisition of shares in the Company. Non-executive directors are not able to sell or otherwise dispose of the shares until the earliest of 10 years after acquisition, the non-executivedirector ceasing to be a director of the Company, or the non-executive director applying to the Board and the Board determining (in exceptionalcircumstances) that any or all restrictions applying to the shares cease. Shares will usually be purchased on-market at the prevailing marketprice of shares by applying an amount equal to the amount of fees a non-executive director has elected to sacrifice to acquire shares. Sharesare acquired monthly at the end of each calendar month.

29 KEY MANAGEMENT PERSONNEL DISCLOSURES

Key management personnel compensation

The key management personnel compensation included in the Consolidated Entity’s personnel expenses (refer Note 3) is as follows:


2008 2007 2008 2007

$ $ $ $

Short term employee benefits 9,215,654 4,743,700 389,661 279,608

Non-monetary benefits 666,484 474,734 245,961 190,615

Post-employment benefits 1,097,290 921,148 156,224 176,937

Termination benefits 706,280 – – –

Retirement benefits 3,448,357 – – –

Share based payments 1,117,572 873,673 – 873,673

16,251,637 7,013,255 791,846 1,520,833

Individual directors and executives compensation disclosures

Information regarding individual directors and executives compensation and some equity instruments disclosure as permitted by CorporationsRegulations 2M.3.03 is provided in the Remuneration Report section of the Annual Report on pages 57 to 70.

Apart from the details disclosed in this Note, no director has entered into a material contract with the Company or the Consolidated Entitysince the end of the previous year and there were no material contracts involving directors’ interests existing at year end.

Performance rights over equity instruments

The movement during the reporting period in the number of performance rights over ordinary shares in Pacific Brands Limited held, directly,indirectly or beneficially, by each key management personnel, including their related parties, is as follows:

HELD AT GRANTED AS HELD AT GRANTED AS HELD AT30 JUNE 2006 COMPENSATION 30 JUNE 2007 COMPENSATION EXERCISED FORFEITED 30 JUNE 2008

Directors

P.R. Moore 1 625,000 122,093 747,093 – (625,000) (122,093) –

S.M. Morphet 312,500 40,698 353,198 250,000 (160,937) (100,000) 342,261

S.J. Tierney 375,000 48,837 423,837 55,000 (193,125) (120,000) 165,712

Executives

S.W. Audsley 2 312,500 40,698 353,198 – (160,937) (192,261) –

I.C. Barton 3 250,000 36,628 286,628 – (128,750) (157,878) –

M.S. Daniel 4 200,000 42,442 242,442 48,000 (120,000) (170,442) –

M.J. Ford 250,000 40,116 290,116 45,000 (128,750) (80,000) 126,366

B.A. Hannagan 5 – – – 44,000 – – 44,000

M.E. Keely 250,000 31,977 281,977 44,000 (128,750) (80,000) 117,227

M. Sonand – – – 35,000 – – 35,000

R.A. Taylor 6 – – – 41,000 – – 41,000

No performance rights were exercised during the year 30 June 2007.

1 P.R. Moore retired from the Company effective 1 January 2008.2 S.W. Audsley resigned from the Company effective 5 October 2007.3 I.C. Barton ceased in the role of Group General Manager, Home Comfort effective 30 November 2007 and resigned from the Company effective 30 April 2008.4 M.S. Daniel resigned from the Company, effective 2 May 2008.5 B.A. Hannagan was appointed Group General Manager, Underwear and Hosiery effective 29 January 2008.6 R.A. Taylor was appointed Group General Manager, Home Comfort effective 1 December 2007.

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108




PACIFICBRANDS

AR08109

29 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)

Movements in shares

The movement during the year in the number of ordinary shares in Pacific Brands Limited held, directly, indirectly or beneficially, by each keymanagement personnel, including their related parties, is as follows:

HELD AT 30 HELD AT 30 HELD AT 30JUNE 2006 PURCHASES SALES JUNE 2007 PURCHASES SALES JUNE 2008

Directors

R.P. Handley 1,364,305 26,341 – 1,390,646 34,766 (500,000) 925,412

P.R. Moore 1 1,320,001 – – 1,320,001 625,000 – N/A1

S.M. Morphet 200,400 – – 200,400 160,937 – 361,337

S.J. Tierney 400,001 – – 400,001 193,125 (200,000) 393,126

A.D. Cummins 297,500 19,889 – 317,389 175,708 (20,000) 473,097

M.G. Ould 72,815 10,663 – 83,478 19,344 – 102,822

M.A. Plavsic 43,202 10,845 – 54,047 114,700 – 168,747

D.G. Fisher – 2,011 – 2,011 12,056 – 14,067

J.A.C. MacKenzie 2 N/A N/A N/A – 1,636 – 1,636

Executives

S.W. Audsley 3 201,800 – – 201,800 160,937 – N/A3

I.C. Barton 4 120,400 – – 120,400 128,750 – N/A4

Y.K. Cheong 5 N/A N/A N/A 1,250 – – 1,250

M.M. Clark 6 N/A N/A N/A – 100,000 – 100,000

M.S Daniel 7 120,443 27 – 120,470 120,000 – N/A7

M.J. Ford 215,528 27 – 215,555 132,462 (1,250) 346,767

B.A. Hannagan 8 N/A N/A N/A 470 34 – 504

M.E Keely 200,429 – (50,000) 150,429 128,750 – 279,179

M. Sonand – 4,000 – 4,000 3,994 – 7,994

R.A. Taylor 9 N/A N/A N/A 109,587 399 – 109,986

1 P.R. Moore retired from the Company effective 1 January 2008.2 J.A.C. MacKenzie was appointed as a director of the Company on 27 May 2008.3 S.W. Audsley resigned from the Company effective 5 October 2007.4 I.C. Barton ceased in the role of Group General Manager, Home Comfort effective 30 November 2007 and resigned from the Company effective 30 April 2008.5 Y.K. Cheong was appointed Group General Manager, Supply and Operations effective 10 March 2008.6 M.M. Clark was appointed Group General Manager, Workwear effective 26 May 2008.7 M.S. Daniel resigned from the Company, effective 2 May 2008.8 B.A. Hannagan was appointed Group General Manager, Underwear and Hosiery effective 29 January 2008.9 R.A. Taylor was appointed Group General Manager, Home Comfort effective 1 December 2007.

30 NON-KEY MANAGEMENT PERSONNEL DISCLOSURES

It is the Consolidated Entity’s policy that all transactions with non-key management personnel are on normal terms and conditions, except forthe interest-free loan of $1,204 million shown below. This loan was made from Pacific Brands Limited to Pacific Brands (Australia) Pty Ltd on 6 April 2004 to enable it to acquire Pacific Brands Holdings Pty Ltd and its associated international operations.

Directors of related parties (not being directors of the entity or their director related entities)

From time to time, directors of related parties or their director related entities may purchase goods from the Consolidated Entity. It is theConsolidated Entity’s policy that these purchases are on the same terms and conditions as those entered into by Consolidated Entityemployees or customers and are immaterial or domestic in nature.



PACIFICBRANDSAR08

110

30 NON-KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)

THE COMPANY

2008 2007

$’000 $’000

The aggregate amounts included in the before income tax expense/(benefit) that resulted from transactions with controlled entities are:

Dividend revenue

Wholly-owned controlled entity 70,000 100,000

Aggregate amounts receivable from controlled entities are:

Amounts receivable other than trade receivables

Current

Wholly-owned controlled entity 37,156 48,618

Non-current

Wholly-owned controlled entity (interest-free) 1,203,714 1,203,714

31 EVENTS SUBSEQUENT TO REPORTING DATE

There has not arisen in the interval between the end of the financial year and the date of this report, any item, transaction or event of a materialand unusual nature likely, in the opinion of the directors of the Company to affect significantly the operations of the Consolidated Entity, theresults of those operations, or the state of affairs of the Consolidated Entity, in future financial periods.

Dividends

For dividends declared after 30 June 2008, refer Note 21.




PACIFICBRANDS

AR08111

1. In the opinion of the directors of Pacific Brands Limited (the ‘Company’):

(a) the financial statements and notes and the remuneration disclosures contained in the Remuneration Report in the Directors’ Report, set out on pages 57 to 110, are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Company’s and the Consolidated Entity’s financial position as at 30 June 2008 and of theirperformance, for the financial year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the CorporationsRegulations 2001;

(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1 (a); and

(c) the remuneration disclosures that are contained in the Remuneration Report in the Directors’ Report comply with AustralianAccounting Standard AASB 124 Related Party Disclosures, the Corporations Act 2001 and the Corporations Regulations 2001; and

(d) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officerand Chief Financial Officer for the financial year ended 30 June 2008.

Dated at Melbourne this 20th day of August 2008.

Signed in accordance with a resolution of the directors:

Pat Handley Sue MorphetChairman Chief Executive Officer

Directors’ Declaration


PACIFICBRANDSAR08

112

Report on the financial report

We have audited the accompanying financial report of Pacific Brands Limited (the Company), which comprises the balance sheets as at 30 June 2008, and the income statements, statements of changes in equity and cash flow statements for the year ended on that date, a summary of significant accounting policies and other explanatory notes 1 to 31 and the directors’ declaration of the consolidated entitycomprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

Directors’ responsibility for the financial report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with AustralianAccounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includesestablishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from materialmisstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101Presentation of Financial Statements, that the financial report, comprising the financial statements and notes, complies with InternationalFinancial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with AustralianAuditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements andplan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The proceduresselected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due tofraud or error. In making those risk assessments, the auditor considers internal control 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 the purpose of expressing an opinionon the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the CorporationsAct 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with ourunderstanding of the Company’s and the consolidated entity’s financial position and of their performance.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Auditor’s opinion

In our opinion:

(a) the financial report of Pacific Brands Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Company’s and the Consolidated Entity’s financial position as at 30 June 2008 and of theirperformance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the CorporationsRegulations 2001.

(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1.

Report on the remuneration report

We have audited the Remuneration Report included in pages 57 to 70 of the directors’ report for the year ended 30 June 2008. The directorsof the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of theCorporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordancewith auditing standards.

Auditor’s opinion

In our opinion, the remuneration report of Pacific Brands Limited for the year ended 30 June 2008, complies with Section 300A of theCorporations Act 2001.

KPMG Don PasquarielloPartner

Melbourne, 20 August 2008

Independent Auditor’s Report to the Members of Pacific Brands Limited



PACIFICBRANDS

AR08113

as at 20 August 2008

DISTRIBUTION OF ORDINARY SHAREHOLDERS AND SHAREHOLDINGS

SIZE OF HOLDING NUMBER OF HOLDERS NUMBER OF SHARES

1 to 1,000 9,158 29.2% 4,948,886 1.0%

1,001 to 5,000 16,756 53.4% 40,048,992 8.0%

5,001 to 10,000 3,442 10.9% 26,104,509 5.2%

10,001 to 100,000 1,927 6.1% 40,748,133 8.1%

100,001 and over 108 3.4% 390,427,332 77.7%

Total 31,391 100.0% 502,277,852 100.0%

Included in the above total are 1,911 shareholders holding less than a marketable parcel of 248 shares.

TWENTY LARGEST ORDINARY FULLY PAID SHAREHOLDERS

SHARES % OF TOTAL

J P Morgan Nominees Australia Limited 105,452,045 20.99%

HSBC Custody Nominees (Australia) Limited 80,049,623 15.94%

National Nominees Limited 64,894,778 12.92%

Citicorp Nominees Pty Limited 28,866,573 5.35%

ANZ Nominees Limited <Cash income A/C> 12,777,683 2.54%

Cogent Nominees Pty Limited 12,582,439 2.50%

Australian Reward Investment Alliance 9,673,152 1.93%

Citicorp Nominees Pty Limited <CFS WSLE 452 AUST Share A/C> 8,551,010 1.70%

UBS Nominees Pty Ltd 7,888,653 1.57%

AMP Life Limited 4,369,104 0.87%

ANZ Nominees Limited 4,236,000 0.84%

Cogent Nominees Pty Limited <CFSIL CWLTH Aust Shs 18 A/C > 3,932,589 0.78%

RBC Dexia Investor Services Australina Nominees Pty Limited <GSJBW A/C> 3,472,647 0.69%

Citicorp Nominees Pty Limited <CFSIL CWLTH SML COS 3 A/C> 3,457,515 0.69%

Queensland Investment Corporation 3,070,856 0.61%

ANZ Nominees Limited <SL Cash Income A/C> 2,390,049 0.48%

Citicorp Nominees Pty Limited <CFSIL CFSWS GEAR 452 AU A/C> 2,232,400 0.44%

RBC Dexia Investor Services Australia Nominees Pty Limited <MLCI A/C> 1,961,479 0.39%

ES Group Operations Pty Ltd <HEIL A/C> 1,500,000 0.30%

Invia Custodian Pty Limited <GSJBW Managed A/c> 1,481,889 0.20%

360,840,484 71.83%

SUBSTANTIAL SHAREHOLDERS

The names of substantial shareholders in the Company, and the number of fully paid ordinary shares in which each has an interest, as disclosedin substantial shareholder notices to the Company on the respective dates, are as follows:

21-02-08 452 Capital Pty Limited 9.61%

30-04-08 AXA Asia Pacific Holdings Limited 7.52%

03-12-07 Commonwealth Bank of Australia 11.11%

14-06-07 Dimensional Fund Advisors Inc 5.06%

27-06-08 Franklin Resources Inc 5.20%

27-06-08 IOOF Holdings Limited 8.03%

Shareholders’ Statistics


PACIFICBRANDSAR08

114

Annual General Meeting

10.00am, Tuesday 21 October 2008.Level 17, RACV Club, 501 Bourke Street,Melbourne, Australia.

Stock exchange listing

Pacific Brands shares are listed on the Australian Stock Exchange(ASX) and New Zealand Stock Exchange (NZX) and are traded underthe code ‘PBG’.

Pacific Brands Share Registry

Australia

Computershare Investor Services Pty LimitedYarra Falls, 452 Johnston StreetAbbotsford Victoria 3067Australia

GPO Box 2975Melbourne Victoria 3001Australia

New Zealand

Computershare Investor Services LimitedLevel 2, 159 Hurstmere RoadTakapuna, AucklandNew Zealand

Telephone:

Australia: 1300 132 632New Zealand: (09) 488 8777International: (61 3) 9415 4184Facsimile: (61 3) 9473 2500Email: [email protected]

Tax and dividend payments

For Australian registered shareholders who have not quoted their TaxFile Number (‘TFN’), exemption or Australian Business Number(‘ABN’), the Company is obliged to deduct tax at the top marginal taxrate plus Medicare levy from unfranked and/or partially frankeddividends. If you have not already provided your TFN/ABN, you maydo so by contacting the Share Registry or by registering yourTFN/ABN at the Share Registry’s website atwww.computershare.com.au.

Dividend payments

Your dividends will be paid in Australian currency credited directly intoyour nominated bank account. If you have not nominated a bankaccount, a dividend cheque will be mailed to the address recordedon the share register less an administration fee of $1.00. If you wishto elect to receive your dividends by way of direct credit but have notdone so, you should complete an application form available bycontacting the Share Registry or enter the details at the ShareRegistry’s website at www.computershare.com.au.

Dividend Reinvestment Plan

The Dividend Reinvestment Plan enables Pacific Brands’ fully paidordinary shareholders having a registered address or being resident in Australia or New Zealand to reinvest all or part of their dividends in additional Pacific Brands fully paid ordinary shares. Applications are available from the Share Registry.

Consolidation of multiple holdings

If you have multiple issuer-sponsored holdings that you wish toconsolidate into a single account, please notify the Share Registry in writing, quoting your full registered names and Security ReferenceNumbers (SRNs) for these accounts and nominating the account towhich the holdings are to be consolidated.

Change of name and/or address

For issuer-sponsored holdings, please notify the Share Registry inwriting if you change your name and/or address. When advising theShare Registry of a change of name, please supply details of yournew/previous name, your new/previous address, your SRN andsupporting documentation evidencing your change of name. You canalso change your address details online at the Share Registry’swebsite at www.computershare.com.au. Changes of address relatingto shareholdings in a single name can be made over the phone bycalling 1300 132 632 (Australia only). Please note that this does notapply to shareholdings held jointly or in a company name.

For CHESS/broker-sponsored holdings, please notify your broker inwriting if you change your name and/or address.

Share enquiries

Shareholders seeking information about their shareholding or dividendsshould contact the Share Registry. Contact details are above.

Pacific Brands’ communications

Pacific Brands internet site, www.pacificbrands.com.au offersinformation about the Company, news releases, announcements toASX and NZX and addresses by the Chairman and CEO. The websiteprovides essential information about the Company and an insight intoPacific Brands’ businesses.

Registered office

ABN 64 106 773 059

Pacific Brands LimitedLevel 3, 290 Burwood RoadHawthorn Victoria 3122

Telephone: (61 3) 9947 4900Fascimile: (61 3) 9947 4951Email: [email protected]: www.pacificbrands.com.au

Investor relations

Telephone: (61 3) 9947 4900Email: [email protected]

Auditors

KPMG

Shareholders’ Information



PACIFICBRANDS

AR08115

CHAIRMAN

Pat Handley

CHIEF EXECUTIVE OFFICER

Sue Morphet

CHIEF FINANCIAL OFFICER

Stephen Tierney

NON- EXECUTIVE DIRECTORS

Andrew CumminsDominique FisherMax OuldMaureen PlavsicJames MacKenzie

COMPANY SECRETARY

John Grover

ACCESS PACIFIC BRANDS ON THE WEB

All Pacific Brands announcements andreports, including an electronic version of thisAnnual Report are available online atwww.pacificbrands.com.au.

You can also nominate to receive emailnotification of future announcements byregistering at Email Updates in the InvestorRelations section of the site.(www.pacificbrands.com.au/join-us.asp)

PACIFIC BRANDS LIMITED REGISTERED OFFICE

Level 3, 290 Burwood RoadHawthorn, Victoria 3122Telephone: (61 3) 9947 4900Facsimile: (61 3) 9947 4951Email: [email protected]

PACIFIC BRANDS NEW ZEALAND

GreenlaneLevel 1, 308 Great South RoadGreenlane, Auckland 1005New ZealandTelephone: (64 9) 523 7800Facsimile: (64 9) 523 7801

PACIFIC BRANDS (ASIA) LIMITED

Langham Place, Level 40Office Tower, 8 Argyle StreetKowloonHong KongTelephone: (852) 2956 6688Facsimile: (852) 2956 1778

PACIFIC BRANDS UK

Unit 1, Stretton Green Distribution ParkLangford Way, AppletonWarrington, Cheshire, WA4 4TQEnglandTelephone: (44) 19 2521 2212Facsimile: (44) 19 2521 2222

Pacific Brands Annual ReportCompany Directory

This Annual Report is printed on environmentally responsible paper

The cover and editorial sections are printed on Monza Satin, an environmentally responsible paper manufactured using 55% recycled and ForestStewardship Council (FSC) certified virgin fibre. Produced under ISO 14001 Environmental Accreditation.

The financial section is printed on Ecostar, a 100% post-consumer recycled paper.

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