pacific
brands
ar08
1
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
We are obsessed by brands; we th
brands. Brands add value to what c
Being responsible for some of Aus
(some living legends) is not easy.
We like it that way.
It makes our expertise and track re
It is our competitive advantage. Un
needs, knowing when and how to in
or create whole new categories, ho
products to market gives us our ed
By being better at brands all our st
Our consumers get products that e
emotional needs. Our retailers get
come to their stores to find. And ou
reminders of what top brands can
Pacific Brands drives brands. And
rive on brands; we believe in
ould otherwise be just products.
tralia’s most loved brands
cord all the more valuable.
derstanding consumers’ deepest
novate, whether to lead a trend
w we take never-before-seen
ge.
akeholders win.
xceed their functional and
stock that people actively
r shareholders get regular
do for bottom lines.
vice versa.
4
pacific
brands
ar08
Pacific Brands 2008
Full Year Results
Resilient and innovative
business delivered results
in line with guidance despite
challenging conditions.
The year in review
• Full year sales and profit growth delivered
– Total revenue up 16.3% to $2,116.6m
– EBITA increased 18.1% to $229.1m
• Margins improved
– EBITA margin of 10.8% for the year – 11.3% in the second-half
• Net Profit After Tax up 11.1% to $119.3m (pre-amortisation)
• Earnings per share increase of 11.1% to 23.7 cents per share (pre-amortisation)
• Strong cashflow after capital expenditure – up 39.2% to $157.2m
• Net debt reduced by $59.5m to $742.7m
• Improved return on capital
– Increased return on average capital employed – up 0.6% points
• Increased dividends
– Final dividend of 8.5 cents per share, resulting in a 17.0 cents per share full year dividend
– Fully franked to 30% for Australian shareholders
Drivers of performance
• Category leadership position maintained and strengthened
• Growth of share of market
• Return on investment in icon brands
• Acquisitions integrated seamlessly and performing to plan
• Business to Business (contracted uniform supply) providing growth and increased diversity of revenue sources
• Disposals completed successfully
– World Brands JV and the NZ Foams, Flooring and Bedding businesses – which contributed $48.4m in revenue during FY08
pacific
brands
ar08
Pacific Brands Full Year Results
Year ended 30 June 2008
Full Year (A$ million)
FY07
FY08
% Chg
Total net sales
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
EBITA margin %
10.6
10.8
NPAT (pre-amortisation)
107.3
119.3
11.2
Reported NPAT (post minority interests)
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
PORTFOLIO SNAPSHOT
SALES BY OPERATING GROUP
SALES BY CUSTOMER CHANNEL
Underwear/Hosiery
Department stores
Outerwear/Sport
Discount department stores
Home Comfort
Specialty/Independents/Other
Footwear
Supermarkets
Other
Sales outside Australia/NZ
30.1%
31.0%
24.8%
12.8%
1.3%
14.0%
24.7%
51.7%
5.0%
4.6%
5
6
pacific
brands
ar08
pacific
brands
ar08
“Can’t get on the
plane without it.”
Mikaela, 29, international woman of mystery, loves her Tontine pillow
7
8
pacific
brands
ar08
Pat Handley
chairman’s letter
“We have demonstrated that when
we deliver products to the marketplace
which are differentiated, the outcomes
are quite rewarding.”
Dear Shareholders,
The 2008 Financial Year showed Pacific
Brands to be a resilient business, delivering
results that demonstrated good market
and financial management in a period of
deteriorating market conditions.
We have achieved this outcome by
placing more emphasis on our core brands.
In addition, across the company we became
more effective at managing our inventory
levels and working capital. As most of our
earnings are cash earnings, we have been
able to keep our dividend payout ratio at
the higher end of our range of expectations.
Combined with better management
of our working capital, our cash generation
exceeded our earnings, giving us the
ability to reduce our debt levels and pay
a healthy dividend.
As a result, we believe we enter 2009
more focused on the aspects of our
business that can make a difference in
this market environment. We have
demonstrated that when we deliver products
to the marketplace which are differentiated,
the outcomes are quite rewarding.
While our sales, profit and cash position
have never been higher, we were not
completely immune to the downturn in
the retail environment.
Our principal strategy is to continue to
invest in our market-leading brands as well
as our people. If we do this well, we believe
we will be well positioned to capitalise on
these efforts over the entire cycle, especially
when retail conditions improve.
As you no doubt know, we have appointed
Ms Sue Morphet as Chief Executive
Officer to replace Paul Moore, who retired
at the end of 2007 after 30-years of a
distinguished career at Pacific Brands. Prior
to assuming this new role, Sue ran our most
successful division. Under her guidance,
we are formulating the next stages of
Pacific Brands’ evolution.
As our business has broadened and
increased, we elected to broaden our
expertise on the board with the appointment
of James MacKenzie in May 2008.
James brings extensive experience
to Pacific Brands, having held board
positions with a diverse set of listed
companies in Australia and internationally.
In addition to our responsibility to you,
our shareholders, our success depends
upon having a balanced view of our
responsibilities to the community
and its needs. We have strengthened
those relationships with our community
partners, not only through direct support
but by supporting our people as they
connect with local community groups,
schools and charities.
Pacific Brands is also serious about
investing in sustainable options for the
future. In the past year we implemented
a variety of initiatives to help reduce our
impact on the environment and we have
bolstered our already strong commitment
to ethical trading with membership of
the Ethical Trading Initiative.
Our entire team continues to work to
identify the areas where we can best
use our position and resources to make
a difference to all our stakeholders.
Thank you for your continued support
during the year. We are optimistic about
the future.
I trust you will find this Annual Report
informative and useful.
Pat Handley
Chairman
Pacific Brands Limited
pacific
brands
ar08
9
10
pacific
brands
ar08
pacific
brands
ar08
11
Sue Morphet
ceo’s report
“The essential ingredients of our company
remain the same: our great brands,
products, service and our great people.”
Pacific Brands is an excellent company. Its strength is a testament to the effort and
vision of our previous Chief Executive Officer
Paul Moore. As the new Chief Executive
Officer, I am honoured to have the opportunity
to lead the next phase of our development.
As you know, Pacific Brands has always been
built on four pillars – people, products, service
and brands. In previous annual reports we
have talked about our talented people, our
products and our services. In this report we
give special focus to our power brands and
how they help drive the performance of our
business in all market conditions.
Pacific Brands has concluded another
strong year. Despite a changing market, we
delivered results in line with our commitment
to our shareholders – 15–20% sales growth
and more than 10% profit growth.
The measures of our performance – sales,
earnings before interest, tax and amortisation
(EBITA), net profit after tax (NPAT), earnings per
share and dividends – continue to improve.
Like the rest of the retail sector, we were
not immune to the current downturn in
consumer sentiment. However, our results
show that our business model is resilient.
We are well prepared and well equipped to
manage through these challenging times.
I am pleased to report that our two
acquisitions from the prior year, Yakka
Group and Brand Collective, are being
successfully integrated into our business
and both contributed positively to our result.
As planned, the Yakka Group has added
another dimension to Pacific Brands with
a strong workwear and corporate apparel
business, enabling us to leverage our
product and sourcing capabilities into a
predominantly new channel.
Our revenue increased by 16.3% to
$2,116.6 million, our debt was reduced by
7.4% to $743 million and we’ve maintained our
strong cash flow after capital expenditure with
a net result of $157 million – up 39% on last
year. Our organic growth has also continued
through recent difficult conditions. Australian
core business grew 2.5% for the year.
Pacific Brands today is a vastly different
company to the one that listed in 2004.
However, the essential ingredients of our
company remain the same: our great
brands, products, service and our great
people. We will continue to evolve, develop
and improve with a dedicated leadership
team committed to delivering performance
and increased shareholder value.
We recently completed a full review of the
company, which confirmed the effectiveness
of our business strategy. Whilst exposing
areas where we can improve and build on
our strengths, we identified a number of
growth opportunities worthy of prudent
pursuit. This review has enabled the
executive team to crystalise their focus
on the business with a clear vision for
the future, specifically targeted on growth,
whilst continuing to improve those areas
of the business not performing as well as
we would like or expect.
This will be achieved by giving even
greater focus to our strongest brands and
continuing investment in our core strength
of product innovation. We are also working
to ensure that the retail presentation and
penetration of our products improves our
consumers’ shopping experience.
Every indication suggests that the next year
will continue to be challenging – but we
are ready for it. Our great design teams will
keep leading the way and developing the
best products; our businesses will provide
their customers the best service; and we will
continue to have the brands our customers
and consumers want and need.
We will continue to grow organically to
deliver higher revenue. We will generate
strong cash flow. In the 2009 financial year
we expect to lift our like-for-like sales
by 2–3%, EBITA and NPAT by 3–5%.
On a personal note, I would like to thank
Paul Moore, the Pacific Brands Board, the Senior Leadership Team and all Pacific
Brands’ employees for supporting me
during my transition into the Chief Executive
position. I feel we are well positioned to
direct the company into its next phase and
I look forward to working closely with the
team during the coming year.
Sue Morphet
CEO
Pacific Brands Limited
12
pacific
brands
ar08
pacific
brands
ar08
“All the right moves.”
Sam and Vanessa, 16, teach themselves the latest Bonds Mash TV moves
13
14
pacific
brands
ar08
“It’s all about
the look.”
Cody, 13, accomplished busker and Chesty wearer
pacific
brands
ar08
15
Bonds
If undies are just undies,
how come Bonds is better?
Twenty years ago the concept of a range of clothing basics
as a ‘Superbrand’ would have seemed absurd.
Few ever see your underwear; a sweatshirt is a sweatshirt;
baby clothes are wash ’n wear. How could a Bonds tag
hope to make our brand of basics more highly valued and
desired than those of our competitors?
To make the task harder still, most successful brands
have a tightly defined market. Ours is ‘everyone’: all ages,
all demographics… everyone.
A challenge indeed. But become a ‘Superbrand’ is exactly
what Bonds has done:
• Bonds was recently ranked in the top 10 most valuable
brands in Australia (out of 1456).
(Source: 2006 Brand Asset Valuator, GP Y&R)
• Almost four out of five Australian teens think Bonds
is the number one clothing brand that reflects their values.
(Source: Dolly Youth Monitor, ’07/’08)
• In 2008, Bonds was ranked the fifth most authentic
brand in Australia (out of 104 leading Australian brands).
(Source: Principals Synovate, ’08)
The secret has been managing the Bonds brand with passion,
vision and realising its potential by spotting trends others don’t
and taking them to market with perfectly executed campaigns.
Our history (including Chesty Bond who turned 70 in 2008)
is rich and to be leveraged. But there’s a thin line between
‘old favourite’ and ‘old fashioned’ and the key to Bonds’ success
is to be contemporary and forever surprising our consumers by
being one step ahead.
Bonds ambassadors, particularly Sarah Murdoch and Pat Rafter,
have played a key role in our success. This year, cricketer Michael
Clarke joined our team to help us continue to keep Bonds’ public
face fresh.
Along the way Bonds has invented many new words that are
now part of the Australian vernacular: Hipsters, Hoodies,
Hi-Tops and others such as Chesty, Cottontails and Easysuit.
And we’re not about to rest on our laurels. Pacific Brands
is as committed as ever to maintaining Bonds’ momentum
and giving all Australians the confidence to look good and
feel good every day.
The key to Bonds’ success is
to be contemporary and forever
surprising our consumers by
being one step ahead.
16
pacific
brands
ar08
Innovation
with Insight
Innovation & Research
At Pacific Brands we love classics and have more than our fair share
of them – Chesty Bond singlets and Dunlop Volley shoes to name
but two.
But staying relevant as times change is essential for all brands
and knowing when and how to innovate is something Pacific Brands
has become a master of over many years. Nobody does it better.
Our product development teams are the industry’s best at
identifying emerging trends and developing products to create
demand and lead the market. We innovate in style, function
and quality – sometimes all three at once.
At the heart of it is our commitment to research. Not just consumer
research, so we know what new products or improvements people
want, but product research, so we can create new products no one’s
ever dreamt of and drive demand through our marketing campaigns.
At the same time we keep a watchful eye on emerging trends
both here and overseas so we’re ahead of the curve and not
playing catch-up.
We spot trends and develop products from scratch through
our own R&D. Sometimes we spot niche solutions and turn them
into mass-market opportunities.
Above all else, it is Pacific Brands’ skilful management of innovation
and research that keeps our classics at the top of their game and
creates the new classics of tomorrow.
Hoodies and Easysuits are two recent examples from Bonds.
Slazenger BioSlyx and Voodoo Ladder Control Pantyhose are
two from other brands in the Pacific Brands’ portfolio.
We work hard to make the ordinary extraordinary. We want our
consumers to not only look good but feel great. So we need
to know how comfortable they are in their socks and underwear,
how fast kids feet grow and whether our pillows are giving the
neck support for a good nights’ sleep. It’s what keeps us in front.
Our retail partners are great supporters of our innovation and
ability to grow and drive categories through design, development
and advertising and marketing activities.
With the right product, at the right price, on the right shelf, in the
right place, at the right time, our classics will stay classic and new
classics will emerge.
Throughout 2007/2008 these are just some of the new products
and innovations we introduced to the market:
• Dunlop Volley SS Skate series
• Voodoo Ladder Control Pantyhose
• Slazenger BioSlyx compression training products
• Mooks loves Volley collaboration
• Dunlop Double-Laminated Carpet Cushion
• Merrell lightweight Barado shoes
• SHE by Sheridan bed linen range
• Bonds Hi-Tops
• Bonds Easysuit
• Yakka Xtreme range of workwear
Bonds Hi-Tops
The Bonds team saw the emerging trend of high-waisted jeans
and belted skirts in the US and realised that when it reached
Australia, as it was sure to, there was no underwear specifically
designed for high waistlines. The Bonds Hi-Top was born.
Launched with the unforgettable ‘Mash’ dance campaign,
it became an instant success.
Bonds Easysuit
Existing coveralls have a series of studs, ties or buttons that,
even for the most experienced of parents, can be well… tricky.
The Bonds team saw this as an opportunity and after Intensive
research, gave birth to an innovation in babywear, the ‘Bonds
Easysuit’ – the first ever all-in-one babysuit without buttons, studs
or fasteners of any kind. Since its launch in December 2007,
sales have surpassed all expectations.
Voodoo Ladder Control Pantyhose
It’s the oldest challenge in pantyhose: the sheer finish women want
with the durability they need. Voodoo overcame it by developing
Ladder Control Pantyhose with elastomeric yarn bonded with a
special heat treatment. Even if a hole does occur, the bonded fabric
stops it laddering. Independent tests by RMIT University agree.
Slazenger BioSlyx
The Slazenger team saw the growth and benefits of ‘compression’
garments but could also see that their high price was keeping them
out of reach of many ‘everyday’ athletes. They took up the challenge
and the result was BioSlyx, which delivered the performance
needed at a fraction of the price. Not surprisingly, they’ve been a
runaway success.
pacific
brands
ar08
Closing the Sale
Points of Presence
Points of presence equates to how our product looks at point
of purchase – and it’s more important everyday. We have thousands
of points of presence when you consider our full range of brands.
The critical thing for us is that every point of presence meets our
standards – and is consistent with the brands’ values and proposition.
We have some way to go before we achieve the standards
we aspire to across the board – but it is something we are working
on and we believe that there will be sales upside to be gained.
This discipline of optimum presentation meets consumers’
expectations and helps drive the category for retailers.
The more we have focused on improving our sophistication
in this area, the more we see opportunities emerge.
Partly as a consequence of our acquisitions of Sheridan
and Brand Collective, and the work we have done with our hero
Brands, we now have direct influence over presentation through
concessions, concept stores and branded relationships with
licensed third party retail operators.
Our presence today includes:
• 60 concessions in Department Stores
• 70 Clearance Stores/Direct Sheridan Outlets
• 50 Concept/Boutique/Workwear Stores
• 65 Totally Workwear and Bike-Hub stores licensed to
third party operators
• Stores in UK and retail partnerships
We are also diversifying our thinking and attitudes to ensure
we capitalise on changes in buying behaviour – such as the internet.
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.
17
18
pacific
brands
ar08
“In total? 23 pairs
and counting.”
Ian, 55, founder of the Volley Fanclub
pacific
brands
ar08
19
20
pacific
brands
ar08
Dunlop Volley
Making understated
our best feature
Dunlop Volleys, born 1939. The shoe of choice for nine out
of ten Wimbledon players for forty years – Evonne Goolagong,
Ken Rosewall, Margaret Court among them. Very little has changed
in Volleys in more than 75 years, right down to still having the same
pattern on the sole.
When Dunlop joined Pacific Brands, Volleys presented a fascinating
challenge. Clearly the sports shoe landscape had changed beyond
recognition – now dominated by some of the biggest, most
aggressively marketed brands in the world.
Yet there was something about Volleys – their very basic-ness –
that our team felt could provide a welcome antidote to the relentless
wave of slick sports shoe marketing. Could we really turn
understated into brilliant? The 1.8 million pairs of Volleys sold
in the 12 months to June 2008 proves our team was right…
we could and we did.
It took skill, careful planning and a degree of ‘un-marketing’.
In December 2007, we launched the ‘Exceptionally Average’
campaign featuring US ‘Hand Musician’ Gerry Phillips,
wearing Volley Internationals while playing classic tunes
with nothing but his hands. The captivating quirkiness of
the campaign matched the Volley brand proposition perfectly
and struck a chord with consumers. Sales rose 42% on
the previous year, with the campaign itself developing a huge
following on internet video site Youtube.
How do you innovate a classic? Very carefully indeed. When
your brand is grounded by being understated, bells and
whistles will not be well received. But innovate our team has –
both skilfully and successfully.
Steel Capped Volleys
Volleys have long been worn in the trade sector – particularly
by roofers and painters due to the high grip of the sole. So we
released Steel Capped Volleys meeting the safety requirements
of the modern worksite and still letting young guys wear the shoes
they want.
Mooks Loves Volleys
In October 2007, Dunlop and Australian streetwear label, Mooks,
collaborated on the Mooks loves Volleys range – a limited edition
range of Volley Internationals customised with Mooks designs.
Sales were great and consumer feedback was positive, so
watch out for more collaborations in the future.
As we head towards 2009, Dunlop Volleys are in a league of
their own with a huge and loyal fan base. Just flicking through
the pictures and stories of their beloved shoes that Volley fans
upload on our website is evidence enough of this remarkable
brand’s cult status and enduring potential.
Volley SS
Hearing that the classic Volley was no longer measuring up
against the more advanced tricks of today’s skate scene,
Dunlop teamed up with Australian skater Trevor Ward to create
a more hard-wearing, double-layered canvas, padded shoe
perfect for the job.
How do you innovate a classic?
Very carefully indeed.
pacific
brands
ar08
21
Everlast
Everlast punches well
above its weight
Everlast grew up on the streets of The Bronx and became
the original boxing brand, with the tough reputation you’d
expect from that start in life.
Almost a century later, Everlast is now known in more than
100 countries and became a part of Pacific Brands in 1995.
Since then, the brand’s rich heritage has been carefully managed
to leverage its strengths while building a powerful brand, relevant
to the ultra-competitive sports apparel market in Australia today.
No small task when Everlast is outspent many times over by some
of the world’s most heavily marketed sports brands.
But Everlast always punches above its weight. In the last five years
sales have soared 34% and we’re now fighting at the elite level –
up with the top three sports apparel brands in the country
Everlast is widely celebrated as an authentic sports fashion brand,
with a broad appeal to both sexes right across the country.
And while we’ve managed Everlast for the Australian sports market,
we’ve never lost touch with the brand’s gritty heritage.
Everlast is a brand with the strength and credibility to become
an even tougher competitor in the sports apparel arena. After all,
nothing soft comes out of The Bronx.
And while we’ve managed
Everlast for the Australian
sports market, we’ve never
lost touch with the brand’s
gritty heritage.
22
pacific
brands
ar08
“Whoever said ‘no pain
no gain’ was right.”
Thomas, 30, wears Everlast but sometimes doesn’t feel everlasting
pacific
brands
ar08
23
24
pacific
brands
ar08
Hard Yakka
Growing an iconic brand
is hard yakka
Where can you take a brand that’s over 70 years old and already
synonymous with workwear Australia wide?
Onward and upward – just so long as you continually reinforce
your core strengths and use innovation smartly to enhance
(and never diminish) your iconic status.
In 2007/2008, Pacific Brands’ expertise in managing brands
has served Hard Yakka well. The brand remains top of mind
and relevant on today’s work sites and to the new generation
of tradies that inhabit them. And all without ever compromising
Hard Yakka’s hard-earned heritage of rugged toughness, durability
and strength.
In April 2008 we released Hard Yakka Xtreme Workwear, utilising
new technology and fabrics to provide even tougher clothing
for those doing the hardest yakka.
We’ve also improved our existing lines with more durable fabrics,
UPF 50+ sun protection, double-stitched seams and extra pockets,
including one for every tradie’s most important tool – the mobile phone.
And we’ve kept a cautious eye on the role of fashion, ensuring the
Hard Yakka range is as relevant today as it was in the beginning.
In May 2008, Hard Yakka had its biggest sales month ever.
You could say all our hard yakka is paying off.
Hard Yakka Hard Facts
• ‘Yakka’ is an indigenous Australian word meaning ‘work’
• The ‘Hard Yakka’ chant has remained largely unchanged since
it was first introduced in advertising almost 40 years ago
• Hard Yakka’s support of the Collingwood Australian Rules Football
Club is more than 30 years old, making it one of the longest
partnerships in Australian sport.
In May 2008, Hard Yakka had
its biggest sales month ever.
You could say all our hard
yakka is paying off.
pacific
brands
ar08
“We breed them tough
out here”
Ken, 62, wears Hard Yakka and his favourite Chesty. He loves his dog.
25
26
pacific
brands
ar08
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.
World Class Supply Chain
Sourcing
Pacific Brands is one of the largest importers of shipping
containers in Australia. In the 2008 Financial Year, we shipped
14,000 containers i, delivered to more than 23,000 customer
addresses and supplied in excess of 300 million units internationally.
The scale of our business has demanded we operate a world-class
supply chain, spanning the Asia Pacific region and delivering
to customers throughout the world. In fact, Logistics Magazine –
the official publication of the Supply Chain Logistics Association
of Australia – ranked Pacific Brands as Australia’s Top Apparel
Supply Chain.
The sophistication of our supply operations allows us to offer
flexibility to our customers and increase speed to market for
the benefit of our consumers.
We are committed to maintaining world-best practice with
our supply chain and we are continually looking for ways to
optimise its speed and efficiency.
One recent improvement in our continuing evolution has been
the consolidation of four of our businesses into one distribution
centre at the new $1 billion TradeCoast Industrial Park at Eagle Farm
north-east of Brisbane. Pacific Brands was the foundation tenant
of the site, acquiring a 24,000m2 warehouse, 2,000m2 office
and showrooms. The new location is a significant improvement,
delivering better safety outcomes, modern handling equipment and
more advanced technology.
We have also implemented a strategic procurement plan that has
led to us developing a number of key partnerships with suppliers
of indirect goods and services such as travel, communications,
logistics and insurance. By sharing this supplier base across the
business, productivity is increased and costs are minimised.
The majority of our products are sourced from China.
Our relationships with our suppliers in China are long-standing,
built on our 50-year history in the region and based on shared
values of flexibility, quality, speed and ethical responsibility.
As costs in China increase, we will continue to work closely with
our key suppliers and strategic partners to maintain the quality
of our products while at the same time, achieving the lowest costs
and reduced lead times.
While the majority of our products are sourced from China,
we also source from other emerging producer nations.
We will continue to source products from other countries
such as Vietnam, Indonesia and Bangladesh. We are also
investigating emerging producer regions in China.
Pacific Brands Asia (PBA), our permanent presence in Asia,
is based in Hong Kong. Its objective is to ensure that we build
or maintain meaningful and trusted relationships with leading
suppliers, ensuring that our standards of quality and social
compliance are upheld. We drive our sourcing scale through
PBA where it is appropriate to do so.
(Endnotes)
i Twenty Foot Equivalent Units (TEUs)
pacific
brands
ar08
Talent and Culture
Our stable of iconic Australian
brands is successful because
of the passion and commitment
of our employees.
From manufacturing and warehousing, to product development,
sales and marketing, everyone helps make the crucial connection
between our brands and the consumers who love to buy them.
We have five core values, which we encourage all our employees
to live by. They urge us to work smarter and more collaboratively
– and to ensure the most ethical and commercial outcomes for
our customers, shareholders and partners.
Our values are:
• Unity – one team, one company;
• Innovation – dare to try;
• Speed – better, smarter, faster;
• Accountability – take responsibility; and
• Commitment – to brands, employees, retailers, consumers,
and community.
We’re enthusiastic about developing our people – helping them
to enhance their skills and capability for larger more complex roles,
and providing the right level of challenge for those seeking to build
careers at Pacific Brands.
We measure our internal promotions and turnover rates to ensure
we are doing all we can to retain our key talent to grow our brands.
We’ve also taken some innovative steps towards winning the battle
to attract and retain the very best employees in a highly competitive
global market.
We attract the best available talent to our business through
our internal recruitment team and careers micro-site at
www.pacificbrands.com.au/careers
We have joined up with the Melbourne Business School (MBS)
and the RMIT School of Fashion and Textiles to offer internships
and employment opportunities to the best available mature hires
(MBS) and graduates (RMIT) to continually build our talent pool.
27
28
pacific
brands
ar08
pacific
brands
ar08
29
“Can you wear the same
pair of jeans too much?”
Karen, 22, admits to a Lee addiction
30
pacific
brands
ar08
Businesses Behaving Well
When we set an example through our ethical, responsible
and sustainable conduct as a business, our consumers make
a stronger connection with our brands.
We’re committed to ethical, responsible and sustainable conduct
across the entire business and have realised that with the launch
of PlanetBrands, our business strategy for sustainable growth.
PlanetBrands is a five-year plan which touches every part of
our business and encourages our stakeholders to contribute
to our vision of a more sustainable future.
By 2013, we want to have made a significant contribution
to reducing greenhouse gas emissions, zero trade waste
to landfill and to have significantly reduced our energy and
water consumption.
PlanetBrands touches four areas where we want to make
a difference: our people, our marketplace, our community
and our environment.
Our People
Corporate responsibility in the workplace begins by providing safe,
equitable and supportive working conditions.
Creating a responsible working environment, where people are
valued and respected, leads to improved productivity, profitability,
reputation and ultimately greater value to our customers, consumers
and shareholders.
We’ve instituted a number of health and wellbeing programs
to ensure that our people remain safe and healthy, including:
• Brandssafe – our workplace Integrated Management System
encompassing safety (AS/NZS:4801), quality (ISO:9001) and
environment (ISO:14001). Brandssafe covers areas such as leadership,
process approach and continual improvement. Pacific Brands
is externally accredited to all three systems;
• Online services delivering health assessments, lifestyle plans,
healthy recipes and a library of health and fitness information;
• Annual influenza vaccination program; and
• Discounted private hospital, health and wellbeing insurance
and gym memberships.
Our behaviour can set an example for our suppliers and
their employees. Our supplier evaluation processes require our
suppliers to show they have formal management systems in place
to identify and manage safety, health, environment and quality
(SHEQ) aspects, a history of SHEQ compliance and evidence of
how they manage the SHEQ performance of their subcontractors.
Case Study
Pacific Brands joins Ethical Trading Initiative (ETI)
The Ethical Trading Initiative is an alliance of companies, trade
union organisations and non-government organisations committed
to working together to identify and promote good practice in
implementing labour practice codes.
Pacific Brands is the first Australian company to join the ETI
to promote and enhance our social compliance program.
It gives us the opportunity to make sure we’re a world’s bestpractice company when it comes to looking after our employees
and partners.
ETI members believe that this collaborative approach provides
the opportunity for making significant progress in promoting
the observance of internationally recognised labour standards
throughout global supply chains.
While we have a strong commitment to social compliance,
we recognise the difficulties in dealing with a large and complex
supply chain. However, a targeted focus on continual improvement
in this area will result in lifting the standards of our suppliers.
Our Marketplace
Many consumers now look beyond the actual product they’re
buying to ask serious questions about how that product was made.
Our consumers want to make sure the product was produced
using ethical manufacturing, with minimal environmental impact.
And if they can’t be sure, that will influence their buying decision.
We aim to foster partnerships that are mutually beneficial by being
innovative, transparent and fair in all our dealings with our suppliers,
retail partners and consumers.
Suppliers can also have a significant social and environmental
impact on a company’s performance and reputation.
We want to work with our consumers and our supply chain,
to deliver the best products to meet our customers’ needs
while providing good social and environmental outcomes for
all our stakeholders.
Our Community
Looking after the community our employees and consumers live
in helps us build deeper connections with them.
To enhance the economic and social wellbeing of our communities,
we develop innovative programs and partnerships.
Our community investment strategy aims to enhance the social and
economic wellbeing of the communities where we live and work.
The heart of our approach involves developing innovative programs
and partnerships with clear aims and meaningful outcomes.
Our community investment program, Brands for Good, continues
to support our six national, not-for-profit community partners in the
areas of cancer awareness and children, youth and families at risk:
• Breast Cancer Network of Australia (BCNA)
• Prostate Cancer Foundation of Australia (PCFA)
• Camp Quality
• Lifeline Australia
• The Brotherhood of St Laurence
• Reconciliation Australia
pacific
brands
ar08
We have increased our support of BCNA by forming a three-year
partnership that will assist in funding key activities and a number
of strategies in support of women diagnosed with breast cancer.
Our relationship with BCNA began in 2005, via the My Care Kit
which sees women newly diagnosed with breast cancer given
kits containing a Berlei soft-cup bra, breast forms and a carry bag
to help them through the months after surgery. The My Care Kit
program now provides more than 130 kits to women each week.
Our sponsorship of PCFA has also grown. We’re a Platinum sponsor
of the organisation and will continue to support the 2008 National
Men’s Health Promotion Forums which assist in raising awareness
and early detection of prostate cancer. As the company which sells
more men’s underwear in Australia than any other, we know the
importance of helping men understand and combat prostate cancer.
Pacific Brands also donates stock from our businesses to help
our charity partners – last year we donated $500,000 worth of
in-kind stock to Lifeline and Brotherhood of St Laurence stores
to help those less fortunate.
Many of our businesses support a wide range of local community
groups, schools, charities and voluntary organisations by providing
financial support and in-kind donations. We encourage every one
of our employees to be active in fundraising and volunteering
initiatives in the community.
Our Brands for Good programme continues to use the London
Benchmarking Model, an internationally recognised framework
for measuring and reporting corporate community contributions.
Our Environment
Any business makes an impact on the environment, but we believe
that minimising our environmental footprint delivers benefits not
only to our company and our employees, but to our customers
and the broader community as well.
We’re continually improving our environmental impact, with an
environmental management system to measure how we affect
the community through:
• Paper and packaging;
• Greenhouse emissions;
• Waste production and recycling;
• Energy use;
• Water use; and
• Transport.
We try to reduce our environmental impact by:
• Supporting the National Packaging Covenant (NPC) and its
commitment to managing the environmental impact of consumer
packaging in Australia. Our packaging materials are either reused
or recycled and new opportunities are being explored across
Pacific Brands on an ongoing basis;
31
• Subscribing to Greenfleet and supporting its tree-planting
programme to neutralise greenhouse emissions from all
our corporate vehicles. We have 1,000 cars registered
with the programme;
• Recycling as much as possible through our partners SITA
Environmental Services and Visy Recycling to achieve our target
of zero percent waste to landfill;
• Auditing of the energy and lighting we use in all our operations
to identify where we can do better;
• Setting printers to double-sided printing, which has reduced
the amount of paper we use for printing;
• Using water-saving programmes at our manufacturing sites; and
• Insisting on all employees using a Toyota Prius hybrid car when
they require a hire car.
Case Study
water
Many of our businesses use a significant amount of water
in their manufacturing operations. Three of these sites now
have water-saving initiatives in place that reuse water previously
discarded as part of the process.
In May 2008, Pacific Brands Hosiery Group in Coolaroo,
Victoria installed a water-recycling plant that reuses the water
used in the hosiery dyeing process.
Using reverse-osmosis technology – a fine filtering technique
– water from the rinse cycles is directed through a series of filters
where it is purified and reused in the next batch to be dyed.
The plant now saves almost 125,000 litres of water per day,
halving its water use. This is the first time reverse-osmosis
technology has been used in an Australian textile industry
dyehouse on this scale.
Holeproof in Nunawading, Victoria and Bonds in Wentworthville,
New South Wales also have water reuse programs, where water
used to wash pre-dyed yarn is reused in the dyeing process.
These programmes have seen the sites save 27,500 litres and
120,000 litres of water a day respectively. More conversions of
dyeing machines to use water saving techniques are planned
in the coming months.
We’ll continue to look for new ways we can decrease our
water use without compromising the quality of our products.
32
pacific
brands
ar08
“This is the one I wear
for special occasions.”
Jason, 42, has a Chesty in every colour. Except pink.
pacific
brands
ar08
33
34
pacific
brands
ar08
Operational Highlights
Review of Operations
Pacific Brands is a resilient business and performed well in 2008
delivering 16.3% sales increase and 18.1% increase in earnings
before interest, tax and amortisation. Our results were in line with
the growth guidance we provided at the start of the year. We were
particularly pleased to have increased our second-half profit despite
declining retail conditions.
Australian like-for-like growth, excluding Clearance Stores was
2.5%, affected by weaker second-half retail market conditions.
Conditions in New Zealand were difficult. Our newly integrated
businesses, the Yakka Group and Brand Collective have both
performed well and to expectation.
Tax
The effective tax rate on earnings for the year was 27.2%, which was
marginally above the rate of 27.1% for the prior corresponding period.
Interest
Net interest expense increased as a result of acquisitions but
the company maintained a strong interest cover (EBITDA/Interest)
of 3.5 times down from 4.1 in the prior corresponding period.
Dividends
The full year dividend of 17.0 cents per share has been declared
and represents a payout of 73% of reported NPAT. Dividends will
be fully franked for Australian shareholders at a 30% tax rate.
Review of Financial Position
Net debt was reduced by $59.5m during the year to $742.7m.
Gearing (Net Debt/EBITDA) has been reduced to pre-Yakka Group
acquisition levels. Total Capital Employed reduced by 2.3% during
the year to $2,069.1m.
Review of Cash Flows
Working Capital reduced 10.1% against the prior corresponding
period to $452.8m. Inventory was well controlled with inventory turn
improving to 3.4 times. Net operating cash flow up 39.2% to $157.2m,
assisted by the timing of collection of debtors.
Underwear & Hosiery
Our Underwear and Hosiery brands are the clear market leaders
in Australia – a market in which we grew 3.3% during the year.
Bonds and Rio are Australia’s number 1 and 2 women’s
underwear brands. Berlei, Bonds and Hestia are the number
1, 2 and 3 women’s intimates brands, while Bonds, Holeproof
and Rio are the country’s number 1, 2, and 3 sock brands i.
Brand and product strength enabled Underwear and Hosiery to
successfully focus on profitable growth – total sales grew 1.2%
over the prior corresponding period, but profit grew 8.2%.
Bonds was a key category driver and had another record sales year.
Five major campaigns were successfully conducted through the
year – each supporting new exciting ranges and innovations – the
‘Kaleidoscope’ women’s youth range, Baby EasySuit, the Mash range
of mix and match tops/bottoms, the now ubiquitous Hoodies and the
Patty Cake Hi & Lo range.
The Berlei brand in Australia also improved its position with its
highly successful ‘Great Shape Bus’ campaign. The brand now
has the highest affinity level among consumers for women’s bras
as well as the highest advocacy and biggest core loyalty group i.
Berlei’s reputation as a leader in bra design and innovation was
further cemented by an endorsement from the Australian Institute
of Sport who revealed that the Berlei High Performance Sports Bra
is the bra of choice by female athletes at the Institute.
Radio and television personality Fifi Box was appointed brand
ambassador for Rio men’s and women’s underwear. Television ads
featuring Fifi coincided with her role on Dancing With the Stars
and were well received.
Playtex have also recently appointed Kate Cebrano as their
brand ambassador and in the coming year will use Kate’s
image to strengthen the brand.
Our hosiery brands have also performed well, leveraging from
the continuing popularity of the ‘leg wear’ trend. Voodoo and
Razzamatazz were among the key brands that released new
styles and colours throughout the year to capitalise on the trend.
We believe that the ‘leg wear’ trend will continue in the next period
and we will continue to support our hosiery brands to ensure they
are the fastest to market with new and improved ranges.
(A$ million)
FY07
Underwear & Hosiery
Total net sales
630.0
EBITA
93.7
EBITA margin %
14.9%
FY08
% Chg
637.3
101.4
15.9%
1.2%
8.2%
+1.0%
Outerwear & Sport
Outerwear and Sport sales and profit increased sharply during
the year.
As predicted, growth in the division was strong, significantly
heightened by the first full year of our acquisitions of Brand Collective
and Yakka Group, both of which have been completed and integrated
seamlessly into the business.
In line with last years’ results, Brand Collective is continuing
to perform to plan, increasing its number of flagship retail stores
throughout Australia and overseas. Yakka Group has exceeded
expectations, having achieved its best sales month ever in
May 2008.
The acquisition of Yakka Group has also significantly boosted
the Workwear division of Outerwear and Sport and we now own
the number one and number two industrial workwear brands in
Australia: Hard Yakka and King Gee.
Our Business to Business (B2B) division of the Workwear Group
continued to perform strongly supported by the following businesses:
Yakka, CTE, NNT and Dowd. Our holistic approach to
Total Apparel Management has enabled success in winning
new contracts whilst simultaneously retaining existing accounts.
A number of our key contracts have been retained, including
Bendigo Bank and NSW Fire Brigade and we have also secured
numerous contracts for new clients including Westfield Australia,
New Zealand and UK, Singapore Airlines and NSW Police. We will
continue to identify opportunities to expand our business in the B2B
sector over the next financial year.
While the acquisitions were integrated seamlessly and contributed
strongly, the underlying Outerwear and Sport businesses delivered
on their promise to return to profit following the completion of
a restructure.
pacific
brands
ar08
Slazenger Sportswear delivered pleasing results, particularly
in the discount department store channel. The Slazenger
BioSlyx performance apparel range launched in September
2007 was exceptionally well received by the market given its
high quality at a very competitive price.
Bikes have also shown strong growth throughout the year,
capped off with the relaunch of Malvern Star towards the year
end, with a repositioning of the brand to rebuild equity in the market.
The release of the new Malvern Star Legend series, including the
top of the range Oppy Le Mauco bike will drive solid growth in
the category in the coming year.
(A$ million)
Outerwear & Sport
Total net sales
EBITA
EBITA margin %
FY07
363.2
27.0
7.4%
FY08
% Chg
656.3
58.2
8.9%
80.7%
115.6%
+1.5%
Home Comfort
Home Comfort delivered a strong profit uplift of 9.2% over
the prior corresponding period.
Sheridan remains the favourite manchester brand in Australia ii.
Brand strength and the launch of strong ranges through the year
drove the business to solid growth in the first half of the year,
however, manchester was more susceptible to the reduction
in discretionary spending especially evident in the second half.
Sheridan released two major campaigns during the year –
the black and white ‘Feel’ campaign and the new ‘SHE by Sheridan’
premium range. Both campaigns were well received in the market.
The strength of the Sheridan brand and its product ranges makes
it well placed to capitalise when market conditions become
more favourable. In the coming period, the focus for Sheridan
will be to increase market share profitably.
Pillows and quilts continued to sell well and delivered strong growth
during the year. Tontine is Australia’s number one brand for pillows iii
and has delivered solid growth throughout the year. The brand
continues to connect well with consumers by releasing products
that tap into needs that are important such as the BreathEASY
range of bedding accessories supported by the National Asthma
Council of Australia.
Our Foams and Flooring businesses remained steady throughout
the year in a challenging market.
In November 2007, Dunlop Foams sponsored the first annual
Young Designer Furniture Award 07, a unique design competition
to encourage new ideas in the design and production of foambased furniture for the Australian youth market. The winning piece
from the competition – the multi-purpose Zeus – inspired the threepiece Dusko Collection from Smith, a range of versatile micro-suede
covered pieces filled with Australian-made Dunlop foam.
35
As previously announced to the market, Pacific Brands sold the
New Zealand Foams, Flooring and Bedding businesses.
(A$ million)
Home Comfort
Total net sales
EBITA
EBITA margin %
FY07
517.1
45.5
8.8%
FY08
% Chg
524.9
49.7
9.5%
1.5%
9.2%
+0.7%
Footwear
Footwear held its market share in the sporting, comfort and casual
categories, but continued the declining trend from the previous year
in the women’s fashion category.
Dunlop Footwear, in particular, performed strongly overall
with their marketing investment winning three awards at
the Melbourne Advertising and Design Club (MADC) Awards –
Best Art Direction for the Dunlop Industrial Campaign,
Best Outdoor for the Dunlop Industrial Campaign and
Best Website for Dunlop Volleys.
More importantly, the successful marketing campaign drove
sales of Volleys to increase rapidly, with the brand showing strong
connections to consumers of all ages. An astonishing 1.8 million
pairs were sold in the 2008 financial year – up 42% from
1.27 million last year. Rising sales of the shoes can largely
be attributed to Volleys’ ‘Exceptionally Average’ campaign that
ran over Summer 2007/2008. The campaign had an extremely
positive response in the market and developed a strong following
on internet video site Youtube.
Merrell also grew their share in the market, expanding their range
in the women’s outdoor market with the Barado – a lightweight
shoe using 4-way stretch fabric that led the lifestyle category.
Clarks Children’s footwear also showed strong growth throughout
the year, with the Perfect Fit campaign re-establishing the brand in
the fashion category. Clarks continues to follow an ‘ongoing fitting’
story, being the only children’s brand that comes in five different
widths.
Pacific Brands is highly regarded by retailers for possessing
the ability to replenish footwear quickly and efficiently. During
the 2008 financial year, 7 million pairs of shoes were delivered
through our effective ‘pick and pack’ service.
(A$ million)
Footwear
Total net sales
EBITA
EBITA margin %
(Endnotes)
i Source – AMR Interactive Awareness Study May/June 2008 (Consumer awareness Men/Women)
ii Source – Roy Morgan Research March 2008
iii Source – Newspoll
FY07
280.1
37.3
13.3%
FY08
% Chg
270.8
36.4
13.4%
(3.3%)
(2.4%)
+0.1%
36
pacific
brands
ar08
“They understand the
difference between going
out and working out.”
Madeleine, 28, on why she loves her Berlei bras
pacific
brands
ar08
37
38
pacific
brands
ar08
Left to right [standing]: Dominique Fisher, Andrew Cummins, John Grover (Company Secretary), Max Ould, James MacKenzie
Left to right [seated]: Sue Morphet, Stephen Tierney, Pat Handley, Maureen Plavsic
Board of Directors
pacific
brands
ar08
39
Pat Handley
Chairman, Independent
Non-Executive
Andrew Cummins
Director, Independent
Non-Executive
Maureen Plavsic
Director, Independent
Non-Executive
BA (Econ), MBA (Finance) Age 63
Pat has been Chairman of Pacific Brands
Limited since incorporation in December 2003.
Pat brings with him over 30-years of
international financial services experience.
Pat was appointed a director of Vantage
Private Equity Growth Limited in 2005.
He has previously been an Executive
Director and Chief Financial Officer
of Westpac Banking Corporation,
Chairman and CEO of Country Savings
Bank (USA), Chief Financial Officer of
BancOne Corporation (USA), Chairman
of Calliva Group Holdings Pty Ltd and
a director of Suncorp-Metway Limited,
AMP Limited (2003 to 2004) and HHG plc.
In addition, Pat is currently a strategic adviser
to PricewaterhouseCoopers and Chairman
of the Advisory Board of Nomura Securities.
BEng (Hons), MBA (Stanford), PostGradDip
(Bus Studies), MIEAust, Age 59
Andrew joined the Board of Pacific Brands
Holdings Pty Ltd in November 2001, bringing
with him many years of experience in private
equity and as an executive in prominent
Australian and international public companies.
Andrew was appointed to the Board of
Pacific Brands Limited in February 2004.
Currently, Andrew is Chairman of the
Advisory Board of CVC Asia Pacific Limited
and a director of Samsonite Inc., Global
Voyager Holdings Pty Ltd, I-Med Group,
Asia Bottles Limited and RCTI Inc.
Previously, Andrew has been Chairman
of Amatek Holdings Limited, a director
of Affinity Health Limited (2003 to 2005),
Tech Pacific Holdings, Li & Fung (Distribution)
Limited, Inchcape plc, Strategy Director
of Foster’s Brewing Group Limited and
Chief Executive of Elders Investments
Limited. Andrew also spent nine years
with McKinsey & Company.
Age 52
Maureen joined the Board of Pacific
Brands Limited in May 2004, bringing over
25 years of experience in media, advertising
and brand marketing roles. Maureen is
currently Chair of the Nomination and
Remuneration Committee.
Maureen is a trustee of National Gallery
of Victoria (appointed 2003) a non-executive
director of Macquarie Radio Network
Limited (appointed 2005). Maureen has
previously been a director of Seven Network
Limited (1998 to 2003) and Opera Australia
(1998 to 2003). Maureen previously spent
14 years in various executive roles at the
Seven Network, including Chief Executive
of Broadcast Television and prior to that
Director of Sales and Corporate Marketing.
Maureen also held various roles in the
advertising industry and a senior regional
media role at Unilever.
Dominique Fisher
Director, Independent
Non-Executive
BBus, FCA, FAICD, Age 55
James joined the Board of Pacific Brands
Limited in May 2008 bringing with him
extensive board experience gained in
the financial sector.
A Chartered Accountant by profession,
James was a partner in both the Melbourne
and Hong Kong offices of an international
accounting firm, now part of Deloitte Touche
Tohmatsu. He has also previously held
the positions of Managing Director,
Funds Management and Insurance
at Australia and New Zealand Banking
Group Limited, CEO of Norwich Union
Australia, and a Director of funds
management companies Paladin Australia,
Portfolio Partners and Victorian Funds
Management Corporation. James was
formerly Chairman of the Victorian Transport
Accident Commission and the Victorian
WorkCover Authority and continues on
both Boards of Management as a Director.
James is Chairman of Mirvac Group
(since 2005) and a director of Bravura
Solutions Limited (since 2006) and
Melco Crown Entertainment Limited
(appointed April 2008). James has
previously been a director of Circadian
Technologies Limited (2002 to 2008),
James Fielding Holdings Limited (2001
to 2005), Medaire Inc. (2004 to 2005),
Strategic Pooled Development Limited
(2005 to 2007) and Zenyth Therapeutics
Limited (2005 to 2006).
Sue Morphet
Chief Executive Officer,
Executive Director
BSc (Ed) Age: 53
Sue was appointed CEO in January 2008
and prior to this was Group General
Manager of Underwear & Hosiery at
Pacific Brands, the largest operating group
within the business.
Sue joined Pacific Brands in 1996 as
General Manager of Tontine, following
which she became the General Manager
of Bonds in 1999. Under her leadership,
the Bonds team relaunched the iconic
brand, more than doubling sales and taking
the brand to women for the first time.
Prior to joining Pacific Brands, Sue held
senior marketing roles with Sheridan and
Herbert Adams.
Sue is a director of the L’Oréal Melbourne
Fashion Festival and is a member of
Chief Executive Women together with
various other philanthropic interests.
Stephen Tierney
Chief Financial Officer,
Executive Director
BComm, CA, Age 50
Stephen joined Pacific Brands in 1990 as
Group Accountant after an 11 year career with
Touche Ross & Co (now KPMG) specialising
in finance, taxation and accounting.
Stephen was appointed to the role of
Chief Financial Officer in December 1998
which he held until December 2005.
In December 2005, he was appointed
to the role of Group General Manager,
Operations where he was responsible
for the day to day operations for all
Operating Groups. In March 2008
Stephen was re-appointed to the role
of Chief Financial Officer. Stephen was
appointed to the Board of Pacific Brands
Limited in December 2003.
BA (Hons), Age 51
Dominique joined the Board of
Pacific Brands Limited in March 2007,
bringing with her significant experience
gained in information technology and
telecommunications, electronic commerce,
commercialisation of new technologies
and the development and implementation
of business strategy across a range
of industries including roles as CEO.
Dominique is currently the Chairman
of Circadian Technologies Ltd, Managing
Director of WebAlive Pty Ltd, and Chairman
of Sky Technologies Pty Ltd and the
Australian Council of the Arts Dance
Board. She is also a board member of the
Australian Council of Arts and the Prostate
Cancer Foundation of Victoria.
Dominique has previously been a director
of Insurance Australian Group Ltd and its
predecessor companies for eight years.
She is a past member of the advisory
board to the Minister for Information
Technology and Communications and
a director of the Malthouse Theatre,
Sydney Opera House Trust and a wide
range of other community organisations.
Max Ould
Director, Independent
Non-Executive
BEcon, Age 61
Max was appointed to the Board of
Pacific Brands Limited in February 2004,
bringing leadership expertise in the
consumer goods industry.
Max is a director of Foster’s Group Limited
(since 2004), AGL Energy Limited (previously
The Australian Gas Light Company) (since
2004) and Chairman of Goodman Fielder
Limited (since 2006). Max has considerable
experience in the Australian food industry,
including previous roles as Managing
Director of the East Asiatic Company, CEO
of Peters Foods and Managing Director of
National Foods Limited from 1996 to 2003.
Max is currently Chair of the Audit, Business
Risk and Compliance Committee.
James MacKenzie
Director, Independent
Non-Executive
John Grover
Company Secretary
LLB, BComm, FCIS, Age 46
John was appointed to the position of
General Counsel & Company Secretary
in December 2003 having held the same
role with the Company’s predecessor,
Pacific Brands Holdings Pty Ltd, since
December 2001. Prior to joining Pacific
Brands, he held senior corporate legal roles
with Ansell Limited (formerly Pacific Dunlop
Limited) and RTZ Limited (formerly CRA
Limited). Prior to this John had an eight
year career with major Australian law firm,
Freehills, which included two roles based
in South East Asia.
40
pacific
brands
ar08
Left to right: Ross Taylor, Mary Keely, Michael Sonand, Kit Cheong
Senior Management
Team
Ross Taylor
Group General Manager,
Home Comfort
Mary Keely
Group General Manager,
People & Performance
Ross joined Pacific Brands in 1991
after a career in sales and marketing
with a number of major food and consumer
goods companies. In his time with
Pacific Brands, Ross has worked across
all sectors of the business, with senior
roles in sporting footwear, bikes, sporting
equipment, workwear, outerwear, underwear
and now home comfort.
Ross brings extensive sales and marketing
experience to this role and a real depth of
understanding of the operational capacity of
Pacific Brands. Ross is currently focused on
driving marketing and operational excellence
programmes in the Home Comfort Group.
Mary joined Pacific Brands in 1999,
after a career at both Coca-Cola Amatil
and Westpac.
Mary is responsible for performance
management, recruitment, safety, health
and environment, corporate social
responsibility, community investment,
employee relations, learning and
development, remuneration and benefits,
and organisational development.
Michael Sonand
Group General Manager,
Outerwear & Sport
Mike joined Pacific Brands in January 2007
as part of the acquisition of Brand Collective,
the streetwear division of Globe,
where he was President Australasia
and Chief Operating Officer of Globe
International Limited. He brings extensive
wholesale and retail experience to the role
having held positions at Globe International
Limited, Just Group, Myer and previously
at KPMG.
Kit Cheong
Group General Manager,
Supply & Operations
Kit joined Pacific Brands in March 2008
after spending a total of 18 years at the
former Coles Myer in numerous General
Manager positions including roles within
the Target, Myer, Coles Supermarkets
and Food, Liquor and Fuel divisions.
Kit is responsible for all supply and
operations activities across the business,
including sourcing, supply chain, freight,
quality and infrastructure.
pacific
brands
ar08
41
Left to right: Malcolm Ford, Mark Clark, Bernadette Hannagan
Malcolm Ford
Group General Manager,
Footwear
Mark Clark
Group General Manager,
Workwear
Bernadette Hannagan
Group General Manager,
Underwear & Hosiery
Malcolm joined Pacific Brands in 1991
after 20 years in product development,
sales, marketing and general management
within the footwear industry.
Malcolm has been instrumental in
developing a successful, strongly branded
and category-focused footwear business,
with the acquisition of brands and licences
including Clarks, Hush Puppies, Sachi
and Merrell.
Mark joined Pacific Brands in May 2008
from Coca-Cola Amatil, where he held
positions including President of Coca-Cola
Bottlers Korea for four years and Managing
Director for Coca-Cola Amatil Australasia
for eight years.
Mark is the Group General Manager of
Pacific Brands’ newest division – Workwear.
Mark’s responsible for growing the
combined businesses of Yakka, King Gee,
NNT, Dowd, and CTE across our major B2B
customers as well as various retail channels.
Bernadette joined Pacific Brands in
October 2001 as General Manager,
Tontine, having gained experience in
the textile industry, including a seven year
period at Sheridan. In 2004, she was
appointed to the role of General Manager,
The Berlei Group.
Following this, Bernadette was General
Manager, Asia based in Hong Kong where
she was responsible for Asian sourcing
and supplier relationship management
working across all key categories of the
company. Bernadette was appointed to
her current role in December 2007.
42
pacific
brands
ar08
“I love my sheets nearly
as much as my snooze button.”
Melissa, 27, blames her Sheridans every time she’s late for work
pacific
brands
ar08
43
44
pacific
brands
ar08
Sheridan
And so to bed
When you consider we spend a third of our lives in our beds,
it’s no surprise we place a high priority on the look and feel
of the products we choose to sleep in.
Sheridan’s rich history of innovation and design includes
the introduction of the first printed and fitted sheets to Australia,
bringing a new world of colour to our bedrooms. Hugely successful
ranges designed by Ken Done and Jenny Kee followed in the 1980s
successfully broadening the brands appeal and cemented our
credentials as the fashion leader in our category.
Our innovative approach to style and luxury come together
today with powerful emotional dimensions in our Sheridan
‘Feel’ campaign. A unique marketing programme that introduced
consumers to the concept of choices in textual sensations to feel
against your skin.
The luxurious SHE collection launched in 2007 is the ultimate
in beautiful design and quality. Haute Couture for the bedroom
– inspired by the classic glamour of the 1940s and ’50s – it features
decadent extras such as pearl button closures and hand-sewn beads.
The SHE collection also strengthens Sheridan’s reputation for
innovation by fusing wearable fashion and home design by including
pieces for outside the bedroom – cushions featuring highlight
elegant glass brooches and a charmeuse throw, designed in a size
suitable to wear as a wrap over an evening gown.
Sheridan’s quality rating among consumers is five times higher
than any other manchester brand and today it is truly ‘a fashion
brand for the home’.
Sheridan became a part of Pacific Brands in 2005 and our brand
expertise has cemented Sheridan’s position as Australia’s best
known, most trusted and preferred manchester brand.
Many Australians view the bedroom as one of their favourite
rooms in their homes. If Sheridan has its way, it’ll soon be
their most favourite.
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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 45
PACIFIC
BRANDS
AR08
FINANCIAL CONTENTS
CORPORATE GOVERNANCE STATEMENT
DIRECTORS’ REPORT
REMUNERATION REPORT
LEAD AUDITOR’S INDEPENDENCE DECLARATION
FINANCIAL REPORT TO SHAREHOLDERS
NOTE TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PACIFIC BRANDS LIMITED
SHAREHOLDERS’ STATISTICS
SHAREHOLDERS’ INFORMATION
COMPANY DIRECTORY
45
45
46
54
57
70
71
76
111
112
113
114
115
4775_Pacific Brands_Financials
46
15/9/08
12:48 PM
Page 46
PACIFIC
BRANDS
AR08
CORPORATE GOVERNANCE STATEMENT
Pacific Brands’ directors and management are committed to conducting the Company’s business ethically and in accordance with high
standards of corporate governance. Good corporate governance structures encourage companies to create value for shareholders through
sensible risk taking, but provide accountability and control systems commensurate with the risks involved.
This statement describes Pacific Brands’ approach to corporate governance. The Board believes that the Company’s policies and practices
comply in all substantial respects with the Australian Stock Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles
and Recommendations. A checklist summarising this is found in section 11 of this Statement.
Copies of the main policies of corporate governance adopted by the Company can be found on the Company’s website at
www.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 on
a 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 and
enhance shareholder interests, and that the Company, its directors, officers and employees operate in an appropriate environment of corporate
governance. The Board’s charter can be found on the Company’s website at www.pacificbrands.com.au. The Board has ultimate responsibility
for establishing policies regarding the business and affairs of the Company for the benefit of its shareholders and other stakeholders. The
Board’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, to
deliver the strategic direction and goals agreed between senior management and the Board. A key function of the Board is to monitor the
performance of senior management in this function. The evaluation of senior management’s performance is addressed as part of the processes
described in the Remuneration Report.
2
BOARD APPOINTMENT AND COMPOSITION
It is the Board’s policy that there should be a majority of independent, non-executive directors. That is, the majority of directors should be free
from any business or other relationship that could materially compromise their independent judgement. As an additional safeguard in preserving
independence, the policy requires that the 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 of
management and is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially
interfere with, the director’s ability to act in the best interests of the Company. The Board will consider the materiality of any given relationship
on a case by case basis and has adopted materiality guidelines to assist it in this regard. Under the Board’s materiality guidelines, the following
interests are regarded as, prima facie, material:
•
a holding of 5% or more of the Company’s shares; or
•
an 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 perceived
to, materially interfere with the director’s ability to act in the best interests of the Company. The Board reviews the independence of each
director in light of interests disclosed to the Board from time to time and at least once a year. The Board has determined that each of the six
non-executive directors satisfy the Board’s criteria for independence. Directors are required to promptly disclose to the Board interests in
contracts, other directorships or 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 the
Annual Report.
In making recommendations to the Board regarding the appointment of directors, the Nomination and Remuneration Committee periodically
assesses the appropriate mix of skills, experience and expertise required by the Board and assesses the extent to which the required skills and
experience are represented on the Board. Nominations for appointment are then approved by the Board as a whole. New directors are
provided with a letter of appointment, setting out the terms of their appointment, including their powers, rights and obligations. An induction
program is provided for new members of the Board.
Under the Company’s Constitution and the ASX Listing Rules, all directors other than the Chief Executive Officer are subject to shareholder reelection 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 to
time, 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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 47
PACIFIC
BRANDS
AR08
3
BOARD PROCESSES
The Board currently schedules nine meetings per year. In addition, the Board meets whenever necessary to deal with specific matters requiring
attention between the scheduled meetings. During the 2008 financial year, the Board met nine times. Extraordinary meetings take place at such
other 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 each
director.
The agenda for meetings is prepared by the Company Secretary, in conjunction with the Chairman and Chief Executive Officer, with periodic
input from the Board. Comprehensive Board papers are distributed to directors in advance of scheduled meetings. Board meetings take place
both at the Company’s head 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 a
minimum of three independent directors. The purpose of having all independent directors as members of each committee is to allow the Board
to delve more deeply into issues, without formal Board meetings being burdened with discussions of technical compliance and other issues.
47
4775_Pacific Brands_Financials
48
15/9/08
12:48 PM
Page 48
PACIFIC
BRANDS
AR08
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
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 committees
are set out in the table below:
AUDIT, BUSINESS RISK AND COMPLIANCE COMMITTEE
NOMINATION AND REMUNERATION COMMITTEE
Role and
responsibilities
The committee’s role is to monitor and review the
effectiveness of the Company’s controls in the areas of
operational and balance sheet risk, legal and regulatory
compliance and financial reporting.
The committee is responsible for matters relating to
succession planning, recruitment and the appointment and
remuneration of directors and the Chief Executive Officer,
as well as for other senior executives.
Functions
• overseeing the adequacy of processes and controls
established by senior management to identify and
manage areas of potential risk and to safeguard the
assets of the Company;
• assessing Board composition, strategic function and size
(taking into consideration the skills and experience
required and the extent to which they are represented
on the Board);
• overseeing the relationship with the external auditor,
auditor independence and the external audit function;
• establishing processes for reviewing the performance of
individual non-executive directors, the Board as a whole
and the operation of Board committees;
• 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.
• overseeing the selection and appointment practices for
non-executive directors and senior management of the
Company;
• developing succession plans for the Board and overseeing
the development of succession planning in relation to the
Chief Executive Officer and senior management;
• making recommendations to the Board on the Chief
Executive Officer’s remuneration (including short and
long term incentive plans); and
• reviewing and approving recommendations from the
Chief Executive Officer on total levels of remuneration,
and performance targets, for senior executives reporting
to the Chief Executive Officer.
Members
• Max Ould (Chair)
• Maureen Plavsic (Chair)
• Andrew Cummins
• Andrew Cummins
• Dominique Fisher
• Dominique Fisher
• Pat Handley
• Pat Handley
• James MacKenzie
• James MacKenzie
• Maureen Plavsic
• Max Ould
Composition
The committee must comprise of at least three independent
directors. The Chairman of the Board is not permitted to
chair the committee.
The committee must comprise of at least three
independent directors.
Consultation
The Chief Financial Officer and external auditor have
standing invitations to attend committee meetings. Other
members of management may also attend by invitation.
The committee has access to financial and legal advisers, in
accordance with the Board’s general policy. The chairman
of the committee also meets privately with the auditor to
ensure the committee can be satisfied that the auditor has
had the full co-operation of management in conducting the
audit, and to give the auditor the opportunity to raise any
matters of concern.
The Chief Executive Officer and the Group General
Manager, People and Performance have standing
invitations to attend committee meetings. The committee
may obtain information from, and consult with,
management and external advisers, as it considers
appropriate.
Meetings and
attendance
The committee is scheduled to meet three times in the 2009
financial year. The table on page 54 of this statement shows
the number of meetings held in the 2008 financial year and
the attendance of each member.
The committee is scheduled to meet three times in the
2009 financial year. The table on page 54 of this statement
shows the number of meetings held in the 2008 financial
year and the attendance of each member.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 49
PACIFIC
BRANDS
AR08
5
REVIEW OF BOARD PERFORMANCE
The performance of the Board is reviewed bi-annually by the Board with the assistance of the Nomination and Remuneration Committee and
an external adviser. The most recent process of formally reviewing the performance of the Board (including the Board committees) was
undertaken 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 that
they had relating to the Board’s or a committee’s operation. The results of the questionnaire were compiled by the external adviser and a
written 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, other
than the Chairman, the review is undertaken by the Chairman after consultation with the other directors. This occurred during 2008 in respect
of 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 the
Board 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 formal
request to the Chairman. Where the Chairman wishes to seek independent advice, he must make a formal request to the Chair of the Audit,
Business Risk and Compliance Committee. Any advice so received must be made available to all other directors. Pursuant to a deed executed
by the Company and each director, a director also has the right to have access to all documents which have been presented to meetings of the
Board or to any committee of the Board or otherwise made available to the director whilst in office. This right continues for a term of seven years
after ceasing to be a director or such longer period as is necessary to determine relevant legal proceedings that commenced during that term.
7
DISCUSSION OF GOVERNANCE POLICIES
The Board has adopted corporate governance policies and practices designed to promote responsible management and conduct of the
Company. The Board (together with management) regularly review these policies and practices to ensure the Company maintains or improves
its corporate governance standards in a changing environment. A discussion of the Company’s key governance policies is set out below.
7.1 Risk management
The Company is committed to the proper identification and management of risk. The Company has in place processes to identify and measure
business risk, including the regular review of results from its risk identification procedures. The Audit, Business Risk and Compliance
Committee is charged with oversight of these processes. The Committee has adopted a written policy in relation to the Company’s risk
oversight 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 written
assurances 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 comply
with relevant accounting standards; and
•
the risk management and internal compliance and control systems are sound, appropriate and operating effectively and implement the
policies adopted by the Board.
The Company regularly undertakes reviews of its risk management procedures which include implementation of a system of internal sign-offs
to ensure not only that the Company complies with its legal obligations but that the Board, and ultimately shareholders, can take comfort that
an appropriate system of checks and balances is in place regarding those areas of the business which present financial or operating risks.
Periodically the Audit, Business Risk and Compliance Committee initiate an external review of the Company’s risk management practices
which 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 the
Company’s action plans designed to strengthen and improve risk control practices. In this regard, on a rotational basis, senior management
updates the committee or the full Board on the Company’s risk profile and compliance and control systems. Management has also reported to
the committee on the effectiveness of the Company’s compliance and control systems in the management of material risks. The Committee
also monitors and reviews activities in the Company’s material risk areas of taxation, treasury operations, insurance and environment, quality
and occupational health and safety.
As part of the Company’s risk management framework, comprehensive practices have been established to ensure:
•
capital expenditure and leasing commitments above a certain size obtain prior Board approval;
•
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 of
performance and compliance with regulations;
•
business transactions are properly authorised and executed;
•
the quality and integrity of personnel;
•
the ethical practices of its suppliers (see section 8 of this statement);
•
financial reporting accuracy and compliance with the financial reporting regulatory framework (see above); and
•
environmental regulation compliance (see section 9 of this statement).
49
4775_Pacific Brands_Financials
50
15/9/08
12:48 PM
Page 50
PACIFIC
BRANDS
AR08
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
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 and
ethical standards in all business practices. The code of conduct sets out for all directors, management and employees, the standards of
behaviour expected of them, and the steps that should be taken in the event of uncertainty or a suspected breach by a colleague. The code of
conduct is discussed in more detail in section 7.4 of this statement.
7.2 Continuous disclosure and keeping shareholders informed
The Company aims to ensure that shareholders are well informed of all major developments affecting the state of affairs of the Company.
To achieve this, the Company has implemented the following procedures:
•
shareholders can gain access to information about the Company, including media releases, key policies, annual reports and financial
accounts, and the terms of reference of the Company’s committees through the Company’s website at www.pacificbrands.com.au or by
writing 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 have
been released to the ASX and New Zealand Stock Exchange (‘NZX’); and
•
the Company encourages full participation of shareholders at its Annual General Meeting to ensure a high level of accountability and
discussion of the Company’s strategy and goals; and
•
the Company also invites the external auditor to attend its Annual General Meeting and be available to answer shareholder questions about
the conduct of the audit, and the preparation and content of the auditor’s report.
The Company’s commitment to keeping shareholders fully informed is embodied in the Company’s Shareholder Communications Policy, a copy
of which can be found on the Company’s website at www.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 fully
informed of information which is not generally available and which may have a material effect on the price or value of the Company’s securities.
The Company has adopted a policy which establishes procedures to ensure that directors and management are aware of, and fulfil their
obligations, in relation to the timely disclosure of material price-sensitive information. Information must not be selectively disclosed prior to being
announced to the ASX and NZX. Directors and senior management must notify the Company Secretary as soon as they become aware of
information that should be considered for release to the market. The Company Secretary is the person responsible for communication with the
ASX and NZX. A copy of the Company’s Continuous Disclosure Policy may be found on the Company’s website at www.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 in
securities under the Corporations Act 2001 and the Securities Markets Act 1988 (NZ). The guidelines also establish a best practice procedure
in relation to directors’, management’s and employees’ dealings in the Company’s shares.
Subject to the overriding restriction that persons may not deal in shares while they are in possession of material price-sensitive information,
directors, management and employees will only be permitted to deal in shares during certain ‘window periods’, being within 31 days following
release of the Company’s full and half year financial results and the holding of the Company’s Annual General Meeting. Outside of these
periods, directors, management and employees must receive clearance from the person stated in the guidelines for any proposed dealing in
shares, with such clearance only to be granted in exceptional circumstances. For New Zealand, any dealing in the Company’s shares must
receive clearance from the Company Secretary.
Except in circumstances of special hardship, with the Chairman’s approval, employees may not buy and sell the Company’s shares within a
three month period.
A copy of the Company’s Guidelines for Dealing in Securities is available on the Company’s website at www.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 corporate
governance, sound business practices and good ethical conduct. Accordingly, the Company adopted a code of conduct which outlines how
the Company expects directors and employees to behave and conduct business in a range of circumstances. In particular, the code requires:
•
awareness of, and compliance with, laws and regulations relevant to the Company’s operations including environmental laws and the Trade
Practices Act 1974 and equivalent overseas legislation;
•
all business transactions to be conducted solely in the best interests of the Company and for directors and employees to avoid situations
where their personal interest could 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 an
important role in business relationships. As a consequence, the Company has a policy on the giving and receipt of gifts, a copy of which can
be found on the Company’s website at www.pacificbrands.com.au. The policy prohibits the giving and acceptance of gifts of a material nature
and, in particular, the giving and acceptance of gifts where they are given or offered with the intention to influence business dealings.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 51
PACIFIC
BRANDS
AR08
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 senior
management any behaviour or activity occurring in the business which they believe to be inappropriate or inconsistent with the Company’s
code of conduct. For those employees who are concerned about directly raising such matters with their superiors, the Company has
established a ‘freecall’ telephone line to enable employees to report matters of concern on a 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 subsequent
actions undertaken are periodically reported to the Nomination and Remuneration Committee. Under the provisions of the Company’s
whistleblower protection policy, any reported improper conduct will be investigated while protecting the confidentiality of the identity of the
whistleblower.
The Company also has in place an Occupational Health and Safety Policy which outlines the methods and practices that the Company
requires to be observed to provide a working environment which is free, as far as practicable, from risk of injury or disease for the Company’s
employees, visitors and contractors. Occupational health and safety key performance indicators are reported to the Board on a regular basis,
to assist the Board in monitoring compliance with the Company’s Occupational Health and Safety Policy.
7.5 Remuneration
Full details of the remuneration paid to non-executive and executive directors and the Company’s senior executives in relation to the 2008
financial year, as well as the Board policy for determining the nature and amount of remuneration and the relationship between such policy and
performance, is discussed in detail in sections 3 and 4 of the Remuneration Report.
7.6 External audit
The Audit, Business Risk and Compliance Committee has also adopted a policy on the provision of non-audit services and the rotation of
external audit personnel. Subject to some limited exceptions, unless the committee determines otherwise, the auditor is prohibited from
providing valuation and fairness opinions, internal audit services, advice on deal structuring, tax planning advice, IT systems services, executive
recruitment services, material human resources functions or legal services or from acting as a broker, promoter or underwriter. The policy also
requires the partner managing the Company’s audit to be rotated within five years from the date of appointment. A copy of this policy is also
available 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 the
environment. The Company expects these same commitments to be shared by all suppliers of its products and seeks to enforce this policy
through a formal code of conduct, which includes:
•
not using child labour;
•
not using any forced or involuntary labour; and
•
providing employees with a safe and healthy workplace in compliance with all applicable laws and regulations.
The Company, through external auditors, periodically conducts audits of its non-Australasian suppliers and in the event that a supplier is found
to 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 in
which the operation is located. These environmental laws and regulations control the use of land, the erection of buildings and structures on
land, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal of waste, and
the investigation and remediation of soil and groundwater contamination.
The Company has procedures in place designed to ensure compliance with all environmental regulatory requirements. In particular, the Company
has developed a system, known as the ‘Brandsafe Environmental Management System’, for identifying and assessing the environmental hazards
which arise from its activities and effectively managing those risks by applying sound practices for the prevention of pollution and disposal and
minimisation of waste. Brandsafe is based on international standards AS/NZS ISO 9001 which covers areas such as leadership, process
approach and continual improvement.
The Company’s major environmental impacts and the key programs in place to help reduce the Company’s environmental impact are discussed
on 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 Practice
Recommendations (‘ASX Corporate Governance Rules’) may materially differ from NZX’s corporate governance rules and principles in the NZX
Corporate Governance Best Practice Code. Details of the ASX corporate governance rules are available on the ASX website at www.asx.com.au.
51
4775_Pacific Brands_Financials
52
15/9/08
12:48 PM
Page 52
PACIFIC
BRANDS
AR08
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
11
ASX CORPORATE GOVERNANCE COUNCIL’S PRINCIPLES OF GOOD CORPORATE GOVERNANCE
AND BEST PRACTICE RECOMMENDATIONS
ASX PRINCIPLE
REFERENCE 1
COMPLIANCE
Principle 1:
Lay solid foundations for management and oversight
1.1
Companies should establish the functions reserved to the board and those
delegated to senior executives and disclose those functions.
1, Remuneration Report
Comply
1.2
Companies should disclose the process for evaluating the performances
of senior executives.
1, Remuneration Report
Comply
1.3
Companies should provide the information indicated in the Guide to
reporting on Principle 1.
1, Remuneration Report
Comply
Principle 2:
Structure the board to add value
2.1
A majority of the board should be independent directors.
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
the same individual.
2
Comply
2.4
The board should establish a nomination committee.
4
Comply
2.5
Companies should disclose the process for evaluating the performance
of the board, its committees and individual directors.
5
Comply
2.6
Companies should provide the information indicated in Guide to reporting
on Principle 2.
1, 2, 4, 6, Board members
(page 39), Directors’ Report
(page 54)
Comply
7.4
Comply
Principle 3:
Promote ethical and responsible decision making
3.1
Companies should establish a code of conduct and disclose the code or
a summary of the code as to:
2
3.1.1 the practices necessary to maintain confidence in the company’s
integrity;
3.1.2 the practices necessary to take into account their legal obligations
and the reasonable expectations of their stakeholders; and
3.1.3 the responsibility and accountability of individuals for reporting and
investigating reports of unethical practices.
3.2
Companies should establish a policy concerning trading in company
securities by directors, senior executives and employees and disclose the
policy or a summary of that policy.
7.3
Comply
3.3
Companies shall provide the information indicated in Guide to reporting
on Principle 3.
7.3, 7.4
Comply
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
on Principle 4.
4
Comply
Principle 5:
Make timely and balanced disclosure
5.1
Companies should establish written policies and procedures designed to
ensure 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.
7.2
Comply
5.2
Companies should provide the information indicated in Guide to reporting
on Principle 5.
7.2
Comply
Principle 6:
Respect the rights of shareholders
6.1
Companies should design and disclose a communications policy for
promoting effective communication with shareholders and encouraging their
participation at general meetings and disclose their policy or a summary of
that policy.
7.2
Comply
6.2
Companies should provide the information indicated in the Guide to reporting
on Principle 6.
7.2
Comply
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 53
PACIFIC
BRANDS
AR08
11
ASX CORPORATE GOVERNANCE COUNCIL’S PRINCIPLES OF GOOD CORPORATE GOVERNANCE
AND BEST PRACTICE RECOMMENDATIONS (CONTINUED)
ASX PRINCIPLE
REFERENCE 1
COMPLIANCE
Principle 7:
Recognise and manage risk
7.1
Companies should establish policies for the oversight and management of
material business risks and disclose a summary of those policies.
7.1
Comply
7.2
The board should require management to design and implement the risk
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.
7.1
Comply
7.3
The board should disclose whether it has received assurance from the
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 material
respects in relation to financial reporting risks.
7.1
Comply
7.4
Companies should provide the information indicated in Guide to reporting
on Principle 7.
4, 7.1, 7.6
Comply
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
directors’ remuneration from that of executive directors and senior executives.
Remuneration Report
Comply
8.3
Companies should provide the information indicated in Guide to reporting
on Principle 8.
4, 7.5, Directors’ Report
(page 54) and Remuneration
Report
Comply
1
All references are to sections of this Corporate Governance Statement unless otherwise stated.
53
4775_Pacific Brands_Financials
54
15/9/08
12:48 PM
Page 54
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT
The directors of Pacific Brands Limited (‘Company’) present their report together with the financial report of the Company and its controlled
entities (collectively the ‘consolidated entity’) for the year ended 30 June 2008 and the auditor’s report thereon. The information set out below is
to be read in conjunction with the Remuneration Report set out on pages 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 page
39 of the Annual Report.
DIRECTORS’ INTERESTS IN SHARE CAPITAL
The relevant interest of each director in the share capital of the Company as at the date of this report is as follows:
FULLY PAID
ORDINARY SHARES
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
M.G. Ould
104,827
M.A. Plavsic
70,000
S.J. Tierney
393,126
1
PERFORMANCE
1
RIGHTS
342,261
165,712
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 directors
of the Company during the 2008 financial year are:
BOARD
DIRECTOR
HELD
1
AUDIT, BUSINESS RISK AND
COMPLIANCE COMMITTEE
ATTENDED
2
1
HELD
2
ATTENDED
NOMINATION AND
REMUNERATION COMMITTEE
1
HELD
2
ATTENDED
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
2
3
4
This column shows the number of meetings held during the period the director was a member of the Board or committee.
This column shows the number of meetings attended.
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.
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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 55
PACIFIC
BRANDS
AR08
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 the
financial 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 and
distribution 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 predominantly
throughout the Asia-Pacific region. The consolidated entity also markets and distributes underwear, intimates, footwear and bed linen in the
United 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, the
Company’s brands are its number one asset. The Company is focused on branded sales, margin growth, earnings growth and cash generation.
In the 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 years
which would not, in the opinion of the directors, be unreasonably prejudicial to the consolidated entity is contained in the Chairman’s Letter and
the Chief Executive 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 pages
34 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. The
dividend 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 be
fully franked at the 30% corporate tax rate in Australia.
EVENTS SUBSEQUENT TO REPORTING DATE
There has not arisen in the interval between the end of the financial year and the date of this report, any item, transaction or event that has
significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs
of 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 the
Review 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 in
subsequent financial periods has not been included in this report because disclosure would be likely to result in unreasonable prejudice to the
consolidated entity.
55
4775_Pacific Brands_Financials
56
15/9/08
12:48 PM
Page 56
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT (CONTINUED)
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 advice
provided by resolution of the Audit, Business Risk and Compliance Committee, is satisfied that the provision of those non-audit services during
the financial year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act
2001 for the following reasons:
•
all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the
Audit, Business Risk and Compliance Committee to ensure they did not impact the integrity and objectivity of the auditor; and
•
the non-audit services provided do not undermine the general principles relating to auditor independence as set out in Professional
Statement F1 Professional Independence, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or
decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 70 in this
report.
Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services provided during
the financial year are set out below:
CONSOLIDATED
2008
2007
$
$
1,259,600
1,128,000
Statutory audit:
Auditors of the Company
– audit and review of financial reports (KPMG Australia)
– 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
171,294
209,800
14,461
9,357
298,269
270,564
Other services
– taxation compliance services (KPMG Australia)
– taxation compliance services (overseas KPMG firms)
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 the
Company or its controlled entities against any liability (including reasonable legal costs) incurred by the person as such an officer of the
Company or its controlled entities, to the extent permitted by law and subject to the restrictions in section 199A of the Corporations Act 2001.
Indemnified officers are the directors and secretaries of the Company or its controlled entities. During the financial year, there were no claims
made 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 may
incur in the performance of their duties as directors of the Company, except liability to the Company or a related body corporate, liability for a
pecuniary penalty or compensation under the Corporations Act 2001, and liability arising from conduct involving a lack of good faith.
The Company holds a directors’ and officers’ liability insurance policy on behalf of current and former directors and officers of the Company
and its controlled entities. The period of the policy extends from 1 December 2007 to 30 November 2008 and the premium was paid on 7
February 2008. Due to confidentiality obligations and undertakings of the policy, no further details in respect of the premium or policy can be
disclosed.
ENVIRONMENTAL REGULATION
The consolidated entity’s operations are subject to environmental laws and regulations, the details of which vary depending upon the
jurisdiction in which the operation is located. These environmental laws and regulations control the use of land, the erection of buildings and
structures on land, the emission of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal of
waste, and the investigation and remediation of soil and groundwater contamination.
The consolidated entity has procedures in place designed to ensure compliance with all environmental regulatory requirements.
The directors are not aware of any material breaches of environmental regulations during the 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 been
rounded off to the nearest thousand dollars, unless otherwise stated.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 57
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT
1
REMUNERATION STRATEGY
The Board believes that a transparent and appropriately structured remuneration strategy can underpin a strong performance based culture
and assist in driving above average returns. The Company’s remuneration strategy has been constructed based on this belief and is designed
to attract, retain and motivate appropriately qualified and experienced directors and senior executives. This Remuneration Report discloses the
remuneration of, and provides an explanation of the remuneration strategies for key management personnel of the consolidated entity, including
the directors and the 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) performance
hurdles 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 comparable
companies.
An overview of the elements of remuneration are set out in the following table. The more detailed discussion of each element is contained in
this Remuneration Report.
Overview of elements of remuneration
DIRECTORS
ELEMENTS OF REMUNERATION
Fixed remuneration
NON-EXECUTIVE
EXECUTIVE
SENIOR
EXECUTIVES
✔
✔
Page 60
✔
Fees 1
Page 58
Salary
✔
✔
Page 60
Other benefits
✔
✔
Page 60
Short term incentive
✔
✔
Page 60
Long term incentive
✔
✔
Page 61
Notice periods and
termination payments
✔
✔
Superannuation
At risk remuneration
Post employment
1
2
2
DISCUSSION IN
REMUNERATION REPORT
✔
2
Page 68
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.
Non-executive directors fees are set inclusive of 9% statutory superannuation contributions.
COMPANY PERFORMANCE
As reported on page 5, the consolidated entity generated a record $229.1 million in EBITA (earnings before interest, tax and amortisation) for
the 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 after
tax pre amortisation of $118.7 million (which was 10.7% higher than the prior year’s amount of $107.2 million).
The strategic direction of the Company has remained constant and continues to deliver solid results. Investment in brands, people and product
innovation, a continuing drive for operational excellence and well targeted acquisitions all contributed to this strong performance.
A fully franked final dividend of 8.5 cents per share has been declared. This results in a fully franked 17.0 cent per share full year dividend
which represents a 73% payout ratio to shareholders.
The following table sets out various measures of the consequences of Company’s performance on shareholder wealth:
Net sales revenue ($m)
2008
2007
2006
1
2005
2
2004
2,116.6
1,820.7
1,624.9
1,521.7
EBITA ($m)
229.1
194.0
173.0
174.6
29.5
NPAT 3
117.1
106.0
101.2
100.9
11.8
23.2
21.1
20.1
20.1
2.3
EPS (cents) 4
363.4
Dividends per share (cents)
17.0
16.0
15.0
15.0
3.5
Year end share price ($)
1.78
3.49
2.15
2.27
2.67
0
1.87
0
0
0
(44.9)
66.4
(1.1)
(12.4)
6.8
Return of capital ($m)
TSR (%)
1
2
3
4
5
5
The measures of financial performance for the 2005 financial year were restated in accordance with AIFRS.
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.
Net operating profit after tax.
Earnings per share have been calculated based on the weighted average number of shares outstanding for the relevant period, currently being 502,277,852.
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 measured
annually against agreed performance objectives which will have been set prior to the commencement of the relevant financial year. So far as
practical, 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 Financial
Officer and all other senior executive is reviewed by the Chief Executive Officer. All performance reviews take place annually, shortly after the
end of the financial year and, in respect of the 2008 financial year, occurred in July and August 2008. The Company’s performance review
system involves employees completing a self assessment template as well as their manager completing an assessment document. These
written assessments form the basis of a performance review discussion between the employee and their manager. Details about the Board
and Non-executive Director performance review process are contained in Section 5 of the Corporate Governance Statement.
57
4775_Pacific Brands_Financials
58
15/9/08
12:48 PM
Page 58
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)
3
NON-EXECUTIVE DIRECTORS’ REMUNERATION
A.
Board policy on remuneration
The disclosures in this section relate to the remuneration for the Company’s non-executive directors who are regarded as ‘key management
personnel’ for the purpose of Australian Accounting Standard AASB 124.
The focus of the Board is on long term strategic direction and the overall performance of the Company and accordingly non-executive
director remuneration is not linked to Company performance and short term results. In order to better align the interests of non-executive
directors and shareholders in relation to the long term performance of the Company, a minimum of 25% of each non-executive director’s
annual fee must be taken in the form of shares in the Company pursuant to the terms of the Non-Executive Director Share Plan. The plan
enables non-executive directors to elect to apply up to 100% of their fees in acquiring shares in the Company. The Non-Executive Director
Share Plan is not a performance based share plan, nor is it intended as an incentive component of non-executive director remuneration, so
as to maintain the independence and impartiality of the non-executive directors. Shares acquired under the Non-Executive Director Share
Plan must, in general, be held for the period the director holds office as a director and are purchased monthly, on-market, at the prevailing
market price at the end of each calendar month.
Non-executive directors are provided with formal letters of appointment prior to commencing their directorship. Their tenure with the Company
is also governed by the Company’s Constitution and the Australian Securities Exchange (‘ASX’) Listing Rules, which provide that all non-executive
directors are subject to shareholder re-election every three years.
Non-executive directors’ fees, including any committee fees, are set by the Board within the maximum aggregate amount approved by
shareholders. Currently this amount is $1,000,000 per annum which has not varied since the time of the Company’s initial public offering in April
2004. The Company intends to seek shareholder approval at its Annual General Meeting on 21 October 2008 to increase the maximum
aggregate amount of non executive director remuneration by $500,000 to $1,500,000 per annum. This increase is being sought to ensure that
directors’ fees can be set out at a level which enables the Company to appoint and retain the best and most appropriate non-executive directors
and to accommodate any increase in the number of non executive directors. The fees paid to non-executive directors are set at levels which
reflect both the responsibilities of, and the time commitments required from, each director to discharge their duties. In that regard, it should be
noted that all non-executive directors are required to be members of the two Board committees in order to be informed on all issues which are
considered by the committees and which may subsequently come before the full Board and to facilitate in depth discussion on such issues.
The Nomination and Remuneration Committee makes recommendations to the Board on the total level of remuneration of the Chairman and
other non-executive directors, including any additional fees payable to directors for membership of Board committees. The Chairman is not
present at discussions relating to his own fees.
The Board, through the auspices of the Nomination and Remuneration Committee, reviews periodically its approach to non-executive director
remuneration 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 Corporate
Governance Statement. The Nomination and Remuneration Committee Charter is available on the Company’s website at
www.pacificbrands.com.au.
The aggregate fees paid to the non-executive directors, including the Chairman, during the 2008 financial year were $791,846 approximately
22% 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 superannuation
obligations 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 the
discharge 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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 59
PACIFIC
BRANDS
AR08
B.
Remuneration
Details of non-executive directors’ remuneration for the 2008 financial year are set out in the following table:
POST
EMPLOYMENT
SHORT TERM PAYMENTS
CASH
SHARES
1
$
$
R.P. Handley (Chairman)
2008
2007
200,229
166,858
75,000
62,500
24,771
20,642
300,000
250,000
A.D. Cummins
2008
2007
28,092
43,830
60,000
52,500
31,908
8,670
120,000
105,000
D.G. Fisher3
2008
2007
80,092
18,328
30,000
6,865
9,908
2,267
120,000
27,460
J.A.C. MacKenzie4
2008
2007
7,906
–
2,962
–
978
–
11,846
–
M.G. Ould
2008
2007
62,092
0
48,000
30,000
9,908
80,000
120,000
110,000
M.A. Plavsic
2008
2007
11,250
17,520
30,000
26,250
78,750
61,230
120,000
105,000
Total
2008
2007
389,661
279,908
245,962
190,615
156,223
176,937
791,846
647,460
1
2
3
4
4
$
$
2
TOTAL
SUPERANNUATION
CONTRIBUTIONS
Relates solely to the purchase of shares under the Non-Executive Director Share Plan.
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.
Ms D.G. Fisher was appointed as a director of the Company on 28 March 2007.
Mr J.A.C. MacKenzie was appointed as a director of the Company on 27 May 2008.
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 financial
year) 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 its
people. The Board has adopted a remuneration policy which assists the Company to achieve its business strategy and goals and has the
following objectives:
•
ensuring alignment of executive remuneration with the short and long term objectives as set out in the Company’s strategic business plans
endorsed by the Board;
•
providing a common interest between employees and shareholders by linking the rewards that accrue to management to the creation of
value for shareholders;
•
being competitive in the markets in which the Company operates in order to attract, motivate and retain high calibre employees; and
•
being fully costed on a ‘cost to company’ basis including all applicable fringe benefits and other taxes.
The Nomination and Remuneration Committee obtains independent advice from external specialists on the level and mix of remuneration for
comparable roles in comparable companies.
Alignment of executive remuneration with the Company’s business strategy is achieved through both short and long term incentives. Key
financial and strategic value drivers are identified, targets set, and rewards provided on their achievement. Value drivers include, in the case of
short term incentives, net profit after tax (‘NPAT’) growth and the achievement of specified strategic objectives and, in the case of long term
incentives, 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 short
retail 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 of
remuneration, ( which are summarised below in respect of the 2008 financial year) to ensure that the current weighting between fixed and
performance related components reflects market conditions. The review will also consider whether or not the current performance hurdles are
sufficiently aligned with the ability of the relevant executives to drive the performance of the Company. The outcome of the review referred to
above may result in changes to the weighting of executive directors and senior managements remuneration between fixed and performance
related components and changes in the hurdles applicable to the performance based elements of such employees remuneration.
59
4775_Pacific Brands_Financials
60
15/9/08
12:48 PM
Page 60
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)
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 is
performance based is set out in the table below:
% OF TOTAL TARGET REMUNERATION (ANNUALISED)
FIXED
REMUNERATION
PERFORMANCE
BASED REMUNERATION
SHORT TERM
INCENTIVES
LONG TERM
INCENTIVES
TOTAL PERFORMANCE
2
BASED REMUNERATION
Chief Executive Officer
34%
27%
39%
66%
Chief Financial Officer
38%
29%
33%
62%
Other senior executives1
59%
23%
18%
41%
1
2
Percentages based on average remuneration for the relevant executives assuming incentives fully vest.
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 a
misleading 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. The
achievement of performance objectives is assessed by the Chief Executive Officer for direct reports and verified by the Board, while the Board
assesses 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 and
motor 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 of
providing their superannuation benefit varies with each individual’s salary level and years of membership of the plan. Longer serving employees
will attract greater superannuation costs than more recent employees. This plan has been closed to new members for several years. Newer
employees receive a superannuation benefit that allows them to control and vary their contribution levels above the mandated statutory
minimum 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 2008
financial year, the Chief Executive Officer and the Chief Financial Officer both had the opportunity to earn a bonus equivalent to 100% of their
respective base salary. In relation to other Australian members of the senior executive team, the opportunity generally comprised an amount of
up 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 budgeted
EBITA growth of 17.6% (after fully providing for all STI payments) over the prior year. This is a threshold criterion which must be satisfied before
the payment of any STI can be contemplated. Additional performance requirements need to be met for a senior executive to be entitled to the
maximum STI incentive. Individual performance requirements relate to individual financial and non-financial objectives. The specified objectives
must represent outcomes that can extend the Company’s sustainable profit growth over time. These may vary with the individual executive and
his/her responsibilities and can include financial, operational, acquisition, divestment, investment, workforce capability and succession planning
goals. 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 end
of each financial year. The payment of a STI to the Chief Executive Officer is subject to the discretion of the Board notwithstanding achievement
of the performance hurdles. Similarly, in the case of all other senior executives the payment of any STI is subject to the discretion of the Chief
Executive 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 conditions
were 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 service
agreements for the Chief Executive Officer and the Chief Financial Officer provide that a percentage (determined at the discretion of the Board) of
any STI to which they may become entitled is to be applied to acquiring shares (‘Deferred Shares’). Specifically, the Chief Executive Officer is
required to apply forty percent of any annual incentive to acquiring Deferred Shares, while the Chief Financial Officer is required to apply one third
of any incentive towards the acquisition of Deferred Shares. The executives may elect to apply a greater percentage of any incentive to acquiring
shares which are subject to the ‘restriction’ condition described below. 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 dealing
for a period of three years after the date of allocation of the Deferred Shares. If the executive is terminated for cause prior to the end of the two
year vesting period, any entitlement to the Deferred Shares ceases. If the employment of the executive ceases in other circumstances, the
executive will, in general, be entitled to receive their Deferred Shares. Deferred Shares allocated under this arrangement will generally be
acquired on-market. The balance of any annual incentive award will be paid to the executive in cash.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 61
PACIFIC
BRANDS
AR08
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
Current STI programs relevant to executive directors and senior executives
DATE OF GRANT
PERCENTAGE
OF STI
PAYABLE
(%)
PERCENTAGE
OF STI NOT
AWARDED
(%)
MINIMUM
TOTAL VALUE
OF STI ($)
MAXIMUM
TOTAL VALUE
OF STI ($)
S.M. Morphet
Chief Executive Officer 1
30/11/2007
100
0
$0
$700,000
P.R. Moore
former Chief Executive Officer1
01/07/2007
100
0
$0
$525,000
S.J. Tierney
Chief Financial Officer 2
24/02/2007
100
0
$0
$436,800
N/A
N/A
N/A
N/A
N/A
I.C. Barton
Group General Manager,
Home Comfort 4
30/11/2007
83%
17%
$0
157,500
Y.K. Cheong
Group General Manager,
Supply & Operations 5
N/A
N/A
N/A
N/A
N/A
M.M. Clark
Group General Manager,
Workwear 6
N/A
N/A
N/A
N/A
N/A
M.S. Daniel
Group General Manager,
Workwear 7
16/10/2007
N/A
N/A
N/A
N/A
M.J. Ford
Group General Manager,
Footwear
16/10/2007
100
0
$0
$180,000
B.A. Hannagan
Group General Manager,
Underwear & Hosiery 8
16/10/2007
100
0
$0
$175,000
M.E. Keely
Group General Manager,
People & Performance
16/10/2007
100
0
$0
$175,000
M. Sonand
Group General Manager,
Outerwear & Sport
16/10/2007
100
0
$0
$150,000
R.A.Taylor
Group General Manager,
Home Comfort 9
16/10/2007
100
0
$0
$165,000
Executive directors
Senior executives
S.W. Audsley
Chief Financial Officer 3
1
2
3
4
5
6
7
8
9
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.
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.
S.W. Audsley resigned from the Company effective 5 October 2007.
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.
Y.K. Cheong was appointed to the role of Group General Manager, Supply & Operations effective 10 March 2008.
M.M. Clark was appointed to the role of Group General Manager, Workwear effective 26 May 2008.
M.S. Daniel resigned from the Company effective 2 May 2008.
B.A. Hannagan was appointed to the role of Group General Manager, Underwear & Hosiery effective 29 January 2008.
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 shareholder
wealth and thus have a direct impact on the Company’s performance against the relevant performance hurdles. In addition, the Board believes
that the appropriateness of LTI arrangements cannot be viewed in isolation, but must be considered in the context of the total array of possible
remuneration elements which may be provided to senior executives, taking account of the remuneration practices of competitor companies.
The Company’s senior executive LTI plans are currently comprised of a performance rights plan (‘PRP’) introduced in 2004 as part of the
Company’s initial public offering, giving an entitlement to shares on satisfaction of the performance requirements. Grants are generally made
annually to ensure there is a balance between the achievement of short term objectives and longer term goals. There have been grants of
performance rights to senior executives pursuant to the terms of the PRP in 2004, 2005, 2006 and 2007. As noted above, the Board has
initiated a review of the fixed and performance related components of remuneration so as to ensure alignment of the performance related
components of remuneration and the ability of, and the incentives for, the relevant executives to drive the performance of the Company.
61
4775_Pacific Brands_Financials
62
15/9/08
12:48 PM
Page 62
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
The rules of the PRP provide that the Board may, at the time of making a grant of performance rights, determine an amount that is payable by
the relevant senior executive upon allocation of a share following vesting of a performance right, or that no amount is payable upon allocation
of a share once a performance right vests. In respect of the performance rights granted to date, the Board has on each occasion determined
that no amount is payable by the relevant executive on vesting of their grant of rights.
Performance hurdle selection
Eligible executives (including the executive directors) were first granted performance rights in 2004. Under the 2004 grant, vesting was based
on relative TSR performance against the individual TSRs of the companies comprising the ASX 100 index at that time.
The use of a TSR based hurdle was regarded by the Company as appropriate as it:
•
ensures an alignment between comparative shareholder return and reward for the executive;
•
provides an external market performance measure in respect of share price growth and dividends; and
•
measures and rewards the extent to which shareholder returns are generated relative to the performance of those companies with which
the Company competes for capital, customers and talent.
At the 2005, 2006 and 2007 Annual General Meetings of the Company, shareholders approved further grants of performance rights to the
executive directors. Similar grant of performance rights were also made to other eligible senior executives at these times. Half of these grants
of performance rights are subject to an EPS growth hurdle. The other half of each grant is subject to a relative TSR hurdle.
In moving from a purely TSR based measure (which formed the basis of the 2004 grant of performance rights), to a combination of TSR and
EPS based performance measures (adopted in respect of each subsequent grant of performance rights), the Board determined that TSR alone
did not always reflect the long term value created by senior executives in the measurement period. At the time of issue, the Board believed
that, 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 years
and four years. Any unvested tranche in any period is held over and subject to retesting against the performance criteria in following periods.
The 2006 and 2007 grant of performance rights have the performance requirements tested only once, at the end of the 2009 and 2010
financial years, respectively.
Based on the financial performance of the Company in the 2008 financial year no performance rights vested in the executive directors and
senior 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 %
OF 2005 GRANT1
MAXIMUM %
OF 2006 GRANT1
1 July 2009
82.5%
100%
0%
1 July 2010
0%
0%
100%
82.5%
100%
100%
VESTING DATE
Maximum
1
2
MAXIMUM %
OF 2007 GRANT1
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 of
performance rights vested effective 1 July 2007.
The percentage of performance rights which may vest on 1 July 2009 under the 2005 grant includes a certain percentage of the performance rights granted
which 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 comparison
group of the ASX’s 100 largest companies by market capitalisation and the 2005 comparison group was composed of a basket of 72
companies selected from the ASX 200 as comparable yield stocks. The comparison group for the 2006 and 2007 grants was comprised of
companies 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 performance
period approximates the median of the comparison group. The companies that met these criteria compete with the Company for
customers’ spending, while representing alternatives to current and potential investors in the competition for capital in this sector.
The 2007 comparator group is identical to the comparator group which applied to the 2006 grant of performance rights, but excluding Burns
Philp & Company Limited and UNiTAB Limited which were removed from the comparator group for the 2007 grant of performance rights, as
those companies had been delisted.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 63
PACIFIC
BRANDS
AR08
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
A summary table of comparator companies for unvested performance rights is provided in the table below:
2004:
ASX 100
2005:
HIGHEST YIELD COMPANIES IN ASX 200
All companies
comprising the ASX
100 at the start of
the performance
period.
ABC Learning Centres Limited, Adelaide Brighton
Limited, Adsteam Marine Limited, Alesco
Corporation Limited, Amcor Limited, Ansell
Limited, Aristocrat Leisure Limited, Austereo Group
Limited, Australian Gas Light Company (The),
Australian Pharmaceutical Industries Limited, AWB
Limited, Baycorp Advantage Limited, Billabong
International Limited, BlueScope Steel Limited,
Boral Limited, Bradken Limited, Brambles
Industries Limited, Burns Philp & Company
Limited, Coates Hire Limited, Cochlear Limited,
Coles Myer Limited, Colorado Group Limited,
Corporate Express Australia Limited, Crane Group
Limited, CSL Limited, CSR Limited, David Jones
Limited, DCA Group Limited, Downer EDI Limited,
Flight Centre Limited, Foodland Associated
Limited, Foster’s Group Limited, GRD Limited,
GUD Holdings Limited, Gunns Limited, GWA
International Limited, Harvey Norman Holdings
Limited, Hills Industries Limited, Housewares
International Limited, Invocare Limited, JB Hi-Fi
Limited, Just Group Limited, McGuigan Simeon
Wines Limited, Metcash Limited, MYOB Limited,
Nufarm Limited, OAMPS Limited, OneSteel
Limited, Orica Limited, Origin Energy Limited,
Pacific Brands Limited, Pacifica Group Limited,
PaperlinX Limited, Promina Group Limited, Qantas
Airways Limited, Repco Corporation Limited, Ridley
Corporation Limited, Rinker Group Limited, Seven
Network Limited, Sigma Company Limited, Sims
Group Limited, Smorgon Steel Group Limited,
Sonic Healthcare Limited, Spotless Group
Limited, STW Communications Group Limited,
Tabcorp Holdings Limited, Ten Network Holdings
Limited, Toll Holdings Limited, UNiTAB Limited,
United Group Limited, Wattyl Limited, Wesfarmers
Limited and Woolworths Limited.
2006:
CONSUMER STAPLES AND
DISCRETIONARY COMPANIES
2007:
CONSUMER STAPLES AND
DISCRETIONARY COMPANIES
ABC Learning Centres Limited,
Austereo Group Limited,
Amalgamated Holdings Limited,
APN News & Media Limited,
AWB Limited, Billabong
International Limited, Burns Philp
& Company Limited, David
Jones Limited, Futuris
Corporation Limited, Flight
Centre Limited, GUD Holdings
Limited, Harvey Norman
Holdings Limited, JB Hi-Fi
Limited, Just Group Limited,
Metcash Limited, Southern
Cross Broadcasting (Australia)
Limited, Seek Limited, Seven
Network Limited, STW
Communications Group Limited,
Ten Network Holdings Limited,
Tattersall’s Limited, UNiTAB
Limited and West Australia
Newspapers Holdings Limited.
ABC Learning Centres Limited,
Austereo Group Limited,
Amalgamated Holdings Limited,
APN News & Media Limited,
AWB Limited, Billabong
International Limited, David
Jones Limited, Futuris
Corporation Limited, Flight
Centre Limited, GUD Holdings
Limited, Harvey Norman
Holdings Limited, JB Hi-Fi
Limited, Just Group Limited,
Metcash Limited, Southern
Cross Broadcasting (Australia)
Limited, Seek Limited, Seven
Network Limited, STW
Communications Group
Limited, Ten Network Holdings
Limited, Tattersall’s Limited and
West Australia Newspapers
Holdings Limited.
The Company’s performance is given a percentile ranking having regard to its TSR performance compared with the TSR performance of other
companies in the relevant comparator group. This is done in respect of each grant of performance rights.
The TSR performance conditions in relation to the 2004, 2005, 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 the
Company’s view of what is a reasonable target value, taking account of likely business cycle conditions as well as the upside potential the
Company has for further earnings growth.
63
4775_Pacific Brands_Financials
64
15/9/08
12:48 PM
Page 64
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
EPS performance requirements for each grant are shown in the table below:
PERCENTAGE OF SHARES
IN TRANCHE AVAILABLE IN
GIVEN YEAR THAT VESTS
2005 PERFORMANCE RIGHTS EPS TARGET
2006 AND 2007 PERFORMANCE RIGHTS EPS TARGET
0%
The Company’s compound EPS growth (tested over 1,
2, 3 and 4 years) is less than 8.5%
The Company’s 3 year compound EPS growth
is less than 8.0%
25%
The Company’s compound EPS growth (tested over 1,
2, 3 and 4 years) equals 8.5%
The Company’s 3 year compound EPS growth
equals 8.0%
Pro rata between 25%
and 100%
The Company’s compound EPS growth (tested over 1,
2, 3 and 4 years) is between 8.5% and 10.5%
The Company’s 3 year compound EPS growth
is between 8.0% and 12.0%
100%
The Company’s compound EPS growth (tested over 1,
2, 3 and 4 years) equal to or exceeding10.5%
The Company’s 3 year compound EPS growth
equal to or exceeding 12.0%
Testing
In relation to the 2004 and 2005 grants of performance rights, performance conditions were again tested at the end of the 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 either
the 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 the
performance rights until the earlier to occur of:
•
three years after the date of grant of the shares allocated on vesting; or
•
12 months following the date of cessation of employment with the consolidated entity.
In the case of the 2006 and 2007 grants executives are not entitled to trade in shares allocated on vesting of the performance rights until the
earliest to occur of:
•
a request from the relevant executive to the Board to release the holding lock; or
•
10 years after the date of grant of the shares allocated on vesting; or
•
six months following the date of cessation of employment with the consolidated entity.
Performance rights will lapse in accordance with the terms of the grant if performance hurdles are not achieved or if participants resign prior to
the completion of required vesting periods.
Where a participant leaves the Company as a result of death, disability, retrenchment, or other reason with the approval of the Board, subject
to performance hurdles being met, the Board may determine the extent to which performance rights granted to the participant vest.
In the event of a takeover for the Company, performance rights may, at the discretion of the Board, vest on a pro rata basis in accordance with
an assessment of performance on the same performance criteria, but with the performance period pro rated to the date of the takeover offer.
A discussion of the Company’s performance, specifically against the Company’s earnings and the consequences of the Company’s
performance on shareholder wealth in the period from 2 April 2004 to 30 June 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 table
following. The Company values and discloses all performance rights granted under the PRP in accordance with relevant Australian Accounting
Standards.
The Company’s guidelines for dealing in securities also prohibit any employee who has been granted performance rights or deferred shares in
the Company pursuant to the terms of any of the Company’s employee share plans from entering into a transaction to limit the economic risk
of such performance rights or deferred shares, whether through a derivative, hedge or other similar arrangement, without the prior written
approval of the Chief Executive Officer or the Board.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 65
PACIFIC
BRANDS
AR08
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
Equity grants made to executive directors and senior executives 1
PERCENTAGE
OF GRANT
PAID/VESTED
(%)
PERCENTAGE
OF GRANT
FORFEITED
(%)
FUTURE
FINANCIAL YEARS
THAT GRANT WILL
BE PAYABLE
MINIMUM
TOTAL VALUE
OF GRANT 1
($)
MAXIMUM
TOTAL VALUE
OF GRANT 2
($)
NATURE OF COMPENSATION/
INSTRUMENT GRANTED
EFFECTIVE
DATE OF
GRANT
S.M. Morphet
Chief Executive Officer
250,000 performance rights
62,500 performance rights
40,698 performance rights
250,000 performance rights
01/07/2004
01/07/2005
01/07/2006
01/07/2007
60
17.5
Nil
Nil
40
Nil
Nil
Nil
N/A
2009
2009
2010
Nil
Nil
Nil
Nil
Nil
69,609
57,792
570,000
P.R. Moore,3
former
Chief Executive Officer
500,000 performance rights
125,000 performance rights
122,093 performance rights
01/07/2004
01/07/2005
01/07/2006
100
100
Nil
Nil
Nil
100
N/A
N/A
N/A
Nil
Nil
Nil
Nil
Nil
Nil
S.J. Tierney,
Chief Financial Officer
300,000 performance rights
75,000 performance rights
48,837 performance rights
55,000 performance rights
01/07/2004
01/07/2005
01/07/2006
01/07/2007
60
17.5
Nil
Nil
40
Nil
Nil
Nil
N/A
2009
2009
2010
Nil
Nil
Nil
Nil
Nil
83,531
69,349
125,400
S.W. Audsley4
250,000 performance rights
62,500 performance rights
40,698 performance rights
01/07/2004
01/07/2005
01/07/2006
60
17.5
Nil
40
82.5
100
N/A
N/A
N/A
Nil
Nil
Nil
Nil
Nil
Nil
I.C. Barton5
200,000 performance rights
50,000 performance rights
36,628 performance rights
01/07/2004
01/07/2005
01/07/2006
60
17.5
Nil
40
82.5
100
N/A
N/A
N/A
Nil
Nil
Nil
Nil
Nil
Nil
M.S. Daniel6,7
200,000 performance rights
42,442 performance rights
50,000 reward rights
48,000 performance rights
01/07/2004
01/07/2006
01/07/2006
01/07/2007
60
Nil
Nil
Nil
40
100
100
100
N/A
N/A
N/A
N/A
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
M.J. Ford
200,000 performance rights
50,000 performance rights
40,116 performance rights
45,000 performance rights
01/07/2004
01/07/2005
01/07/2006
01/07/2007
60
17.5
Nil
Nil
40
Nil
Nil
Nil
2008
2009
2009
2010
Nil
Nil
Nil
Nil
Nil
55,688
56,965
102,600
B.A. Hannagan8
44,000 performance rights
50,000 reward rights
01/07/2007
01/07/2006
Nil
Nil
Nil
Nil
2010
2009
Nil
Nil
100,320
90,000
M.E. Keely
200,000 performance rights
50,000 performance rights
31,977 performance rights
44,000 performance rights
01/07/2004
01/07/2005
01/07/2006
01/07/2007
60
17.5
Nil
Nil
40
Nil
Nil
Nil
2008
2009
2009
2010
Nil
Nil
Nil
Nil
128,000
55,688
45,407
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
Executive directors
Senior executives
1
2
3
4
5
6
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 effect
from 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 30
June 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 with
effect 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 under
the 2006 issue of performance rights and 562,000 performance rights were granted under the 2007 issue of performance rights and to date none of these
performance 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 64
in this Annual Report.
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 and
Guidance 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 financial
statements). 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 an
effective 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 in
respect of the grant having an effective date of 1 July 2007 is $2.28 per share.
Mr P.R. Moore retired from the Company effective 1 January, 2008.
Mr S.W. Audsley resigned from the Company effective 5 October, 2007.
Mr I.C. Barton, resigned from the Company effective 30 April 2008.
Mr M.S. Daniel resigned from the Company effective 2 May 2008.
65
4775_Pacific Brands_Financials
66
15/9/08
12:48 PM
Page 66
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)
4
7
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
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 the
Reward 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 General
Manager, The Berlei Group. The Reward Rights were issued pursuant to the Company’s Deferred Employee Share Plan (DESP), established with the approval of
the Board in June 2006 to provide long-term equity incentives to certain senior management, not being senior executives, approved by the Chief Executive
Officer. Subject to the satisfaction of performance and service conditions described below, the Reward Rights will vest and Ms Hannagan will be allocated 50,000
Reward 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 Reward
Growth 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 key
performance 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 the
threshold 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 be
scaled 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 the
previous table).
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 67
PACIFIC
BRANDS
AR08
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
The following table set out details of any movement in performance rights and other equity grants currently on issue to the Chief Executive
Officer, 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 executives
BALANCE AT
01/07/2007
GRANTED
EXERCISED 1
LAPSED/
FORFEITED
BALANCE AT
30/06/2008
747,093
$1,142,122
Nil
625,000
$968,750
122,093
$173,372
Nil
S.M. Morphet
Number
Value
353,198
$542,167
250,000
$570,000
160,937
$254,765
100,000
$160,000
342,261
S.J. Tierney
Number
Value
423,837
$650,598
55,000
$125,400
193,125
$305,719
120,000
$192,000
165,712
353,198
$542,167
Nil
160,937
$254,765
192,261
$287,402
Nil
Nil
Nil
44,000
$100,320
Nil
Nil
44,000
286,628
$439,512
Nil
128,750
$203,813
157,878
$235,699
Nil
Nil
Nil
41,000
$93,480
Nil
Nil
41,000
242,442
$380,268
48,000
$109,440
120,000
$192,000
170,442
$297,708
Nil
Nil
Nil
Nil
N/A
N/A
Nil
M.J. Ford
Number
Value
290,116
$444,465
45,000
$102,600
128,750
$203,813
80,000
$128,000
126,366
M.E. Keely
Number
Value
281,977
$432,907
44,000
$100,320
128,750
$203,813
80,000
$128,000
117,227
Y.K. Cheong
Number
Value
Nil
Nil
Nil
N/A
N/A
Nil
M. Sonand
Number
Value
Nil
Nil
35,000
$79,800
Nil
Total – Executive directors and senior executives
Number
2,978,489
Value
$4,574,206
562,000
$1,281,360
1,646,249
$2,587,438
AGGREGATE
VALUE TOTAL AT
30/06/2008
Executive Directors
P.R. Moore 2
Number
Value
Nil
$697,402
$278,279
Senior Executives
S.W. Audsley 3
Number
Value
B.A. Hannagan
Number
Value
I.C. Barton
Number
Value
M.S. Daniel
Number
Value
3
4
5
6
Nil
$93,480
6
M.M. Clark
Number
Value
2
$100,320
5
R.A. Taylor
Number
Value
1
Nil
4
Nil
Nil
$215,252
$201,414
Nil
Nil
35,000
$79,800
1,022,674
$1,602,181
871,566
$1,665,947
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 number
of shares in the Company were acquired on-market and issued to the relevant executive directors and senior executives.
Mr P.R. Moore retired from the Company effective 1 January 2008.
Mr S.W. Audsley resigned from the Company effective 5 October 2007.
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 exercised
or have lapsed or been forfeited. Accordingly the number and value of Reward Rights was unchanged at 30 June 2008.
Mr I.C. Barton resigned from the Company effective 30 April 2008.
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.
67
4775_Pacific Brands_Financials
68
15/9/08
12:48 PM
Page 68
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
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 Securities
also prohibit executives from entering into a transaction to limit the economic risk of such shares, whether through a derivative, hedge or other
similar arrangement without the prior written approval of the Chief Executive Officer or the Board. To date, no such approval has been sought
or given.
In addition, directors are required to inform the Board annually of the existence of any lending arrangements in respect of shares in the Company
which 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 to
have 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 are
formalised in service agreements. Each of these agreements provides for the payment of a fixed annual remuneration component comprising of
a base salary, car allowance and superannuation contributions, the provision of performance related cash bonuses (as disclosed on page 61 in
this 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 end
of the financial year. The Board similarly reviews the objectives of the other senior executives. Performance against those criteria is reviewed by
the relevant senior executive’s manager.
General information regarding the duration of each agreement, the periods of notice required to terminate the agreement and the termination
payments provided for under the service agreements are summarised in the discussion below.
Duration of service agreements
The Chief Executive Officer is employed under a fixed term service agreement of three years which expires on 31 December 2010. Under the
terms of the service agreement, the Chief Executive Officer’s employment will terminate on the expiry date of the agreement unless terminated
earlier or renewed. The Chief Financial Officer is also employed under a fixed term service agreement which expires on 31 December 2010. All
other senior executives are employed under agreements that are ongoing unless terminated by either party.
Notice periods and payments on termination
The service agreements provide for termination payments to be made in certain circumstances. In particular, the Company may terminate the
employment of the Chief Executive Officer, Chief Financial Officer or any of the other senior executives on giving three months notice. The
Company may make a payment in lieu of notice not to exceed one year’s 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 Chief
Executive Officer, Chief Financial Officer and other senior executives must give the Company at least three months notice of resignation. In the
event that the Chief Executive Officer ceases to be the most senior executive in the consolidated entity or the Company ceases to be listed on
the ASX, the Company will be deemed to have terminated the employment of the Chief Executive Officer and will be liable to make
compensation payments.
Upon termination of employment for any reason, the Chief Executive Officer and the Chief Financial Officer are both prohibited from engaging in
any activity that would compete with the Company for a period of one year, in order to protect the Company’s business interests.
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 the
consolidated 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 Company
and the consolidated entity with the highest remuneration during the 2008 financial year and the key management personnel (excluding the
non-executive directors) are set out in the following table. All values are in Australian dollars unless otherwise stated.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 69
PACIFIC
BRANDS
AR08
4
EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION (CONTINUED)
Remuneration for 2008 financial year
Chief Executive Officer, Chief Financial Officer and other senior executives of the Company and the consolidated entity
SHORT TERM EMPLOYEE BENEFITS
S.M. Morphet,
2008
Chief Executive Officer 4,6 2007
SHARE
BASED
PAYMENTS
POST EMPLOYMENT BENEFITS
SUPERANNUATION
BENEFITS
RETIREMENT
PAYMENTS
OTHER
$
$
TERMINATION
BENEFITS
TOTAL
FIXED
SALARY 1
FEES
INCENTIVE
PAYMENTS
NONMONETARY
BENEFITS 2
PERFORMANCE
RIGHTS 3
$
$
$
$
$
742,444
356,202
700,000
100,000
37,408
54,874
115,570
68,071
265,227
106,628
1,860,649
685,775
$
$
$
P.R. Moore, former
Chief Executive Officer 4
2008
2007
1,560,130
1,192,603
525,000
250,000
28,885
53,134
126,000 3,448,357
252,000
169,525
213,255
5,857,897
1,960,992
S.J. Tierney,
Chief Financial Officer 5
2008
2007
452,415
441,955
436,800
50,000
34,534
32,265
104,832
100,800
132,072
127,953
1,160,653
752,973
S.W. Audsley,
Chief Financial Officer 6
2008
2007
363,280
365,468
0
100,000
29,511
20,493
19,844
67,364
I.C. Barton,
2008
Group General Manager, 2007
Home Comfort 7
593,600
320,024
131,250
25,000
26,474
31,136
63,000
75,600
Y.K. Cheong,
2008
Group General Manager, 2007
Supply & Operations
148,743
0
11,173
12,066
0
171,982
M.M. Clark,
2008
Group General Manager, 2007
Workwear 8
39,589
0
2,822
3,946
0
46,357
M.S. Daniel,
2008
Group General Manager, 2007
Yakka 9
347,525
364,014
0
50,000
19,940
14,950
44,574
31,047
101,293
63,303
513,332
523,313
M.J. Ford,
2008
Group General Manager, 2007
Footwear
321,917
342,028
180,000
50,000
38,169
37,410
136,400
82,800
97,923
85,302
774,409
597,540
B.A. Hannagan,
2008
Group General Manager, 2007
Underwear and Hosiery 10
301,531
249,450
175,000
0
90,814
47,965
30,488
23,278
63,107
29,667
660,940
350,360
M.E. Keely,
2008
Group General Manager, 2007
People & Performance 11
333,221
229,453
635,880
100,000
26,880
26,096
84,000
57,841
93,349
85,302
1,173,330
498,692
M. Sonand,
2008
Group General Manager, 2007
Outerwear & Sport 12
227,516
102,045
150,000
25,000
37,522
13,761
86,979
8,688
26,600
0
528,617
149,494
R.A. Taylor,
2008
Group General Manager, 2007
Home Comfort 13
295,152
265,000
165,000
25,000
36,391
26,196
113,367
51,675
31,160
641,070
367,871
5,727,063
4,228,242
3,098,930
775,000
420,523
350,280
75,227 205,160
106,628
693,022
659,953
62,089 501,120 1,377,533
85,302
537,062
Total remuneration –
senior executives
2008
2007
1
2
3
4
5
6
7
8
9
10
11
12
13
941,066 3,448,357
819,163
0
1,117,572 706,280 15,459,791
903,340
0 7,084,025
Includes movements in annual leave and long service leave provisions.
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 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.
To the extent required by the Australian Accounting Standards, remuneration includes a proportion of the fair value of equity compensation granted or outstanding
during 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 is
progressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives
may ultimately realise should the equity instruments vest. The notional value of performance rights as at the date of their grant has been determined in accordance
with AASB 124 applying AASB 2 Valuation Guidelines and Guidance Note GN510 issued by the Institute of Actuaries of Australia. The fair value in respect of the
grant 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 July
2007 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 2008
consisted of performance rights which vested in the relevant executive in respect of the financial performance of the Company in the 2007 financial year.
S.M. Morphet replaced P.R. Moore as Chief Executive Officer effective 1 January 2008.
S.J. Tierney was appointed as Chief Financial Officer effective 17 March 2008.
S.W. Audsley resigned from the Company effective 5 October 2007.
I.C. Barton resigned from the Company effective 30 April 2008.
M.M. Clark was appointed as Group General Manager, Workwear effective 26 May 2008.
M.S. Daniel resigned from the Company effective 2 May 2008.
B.A. Hannagan replaced S.M. Morphet as Group General Manager, Underwear & Hosiery effective 29 January 2008.
M.E. Keely was paid a retention bonus of $460,880 pursuant to the terms of an agreement dated 7 August 2006.
M. Sonand commenced employment with the Company on 2 January 2007.
R.A. Taylor replaced I.C. Barton as Group General Manager, Home Comfort effective 1 December 2007.
69
4775_Pacific Brands_Financials
70
15/9/08
12:48 PM
Page 70
PACIFIC
BRANDS
AR08
DIRECTORS’ REPORT/REMUNERATION REPORT (CONTINUED)
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
Chairman
Sue Morphet
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
Melbourne
20 August 2008
Don Pasquariello
Partner
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 71
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Income Statements
for the year ended 30 June 2008
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
NOTE
$’000
$’000
$’000
$’000
2
2,116,640
1,820,737
–
–
Cost of sales
(1,176,214)
(1,062,103)
–
–
Gross profit
940,426
758,634
–
–
Sales revenue
Other income
13,193
13,425
70,000
100,000
Freight and distribution expenses
2
(143,763)
(118,543)
–
–
Sales, marketing and advertising expenses
(406,601)
(332,762)
–
–
(30,786)
(24,954)
–
–
(146,393)
(103,544)
(2,503)
(4,791)
226,076
192,256
67,497
95,209
3,459
3,378
42
44
(68,608)
(50,016)
–
–
(65,149)
(46,638)
42
44
160,927
145,618
67,539
95,253
(43,801)
(39,482)
579
2,553
117,126
106,136
68,118
97,806
Information technology expenses
Administrative expenses
Results from operating activities
Financial income
Financial expenses
Net financing costs
3
Profit before income tax (expense)/benefit
Income tax (expense)/benefit
5
Profit for the year
Attributable to:
Equity holders of the parent
20
116,558
105,959
68,118
97,806
Minority interest
22
568
177
–
–
117,126
106,136
68,118
97,806
23.2 cents
21.1 cents
Profit for the year
Basic and diluted earnings per share
Ordinary shares
6
The Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 76 to 110.
71
4775_Pacific Brands_Financials
72
15/9/08
12:48 PM
Page 72
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Balance Sheets
as at 30 June 2008
CONSOLIDATED
NOTE
THE COMPANY
2008
2007
2008
2007
$’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
–
–
748,364
812,766
37,698
49,192
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
9
30
50
1,203,714
1,203,714
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
199,732
191,702
394
1,133
Current liabilities
Trade and other payables
15
Interest-bearing loans and borrowings
16
1,340
2,689
–
–
12,917
7,924
16,135
7,725
76,660
70,681
–
–
290,649
272,996
16,529
8,858
15
9,306
14,599
–
–
Interest-bearing loans and borrowings
16
846,194
938,171
–
–
Provisions
17
10,155
10,378
–
–
Income tax payable
Provisions
17
Total current liabilities
Non-current liabilities
Trade and other payables
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
Total equity attributable to equity holders of the parent
Minority interest
Total equity
22
136,140
108,241
3,340
23,881
1,326,387
1,314,709
1,226,508
1,247,369
3,701
4,665
–
–
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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 73
PACIFIC
BRANDS
AR08
Cash Flow Statements
for the year ended 30 June 2008
CONSOLIDATED
NOTE
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
2,208,032
1,851,155
–
–
(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)
26,946
Reimbursements received from tax consolidated entities
Interest paid
Interest received
Net cash from operating activities
27(b)
–
–
36,035
(65,941)
(43,713)
–
–
3,459
3,174
42
84
182,510
138,295
77,487
102,418
838
1,432
–
–
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
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)
–
–
(1,913)
(4,059)
–
–
(95,765)
(10,846)
–
–
Cash flows from financing activities
Lease payments
Repayment of borrowings
Loans to controlled entities
Dividends paid
Dividend paid to minority interest
Proceeds from borrowings
Share buy back
–
–
7,907
(22,548)
(85,424)
(77,920)
(85,424)
(77,920)
(533)
(358)
–
–
–
334,300
–
–
–
(1,869)
–
(1,869)
(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
Net cash (used in)/from financing activities
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
27(a)
(7,855)
(1,787)
–
–
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.
73
4775_Pacific Brands_Financials
74
15/9/08
12:48 PM
Page 74
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Consolidated Statement of Changes in Equity
for the year ended 30 June 2008
ISSUED
CAPITAL
RETAINED
EARNINGS
EQUITY
COMPENSATION
RESERVE
FOREIGN
CURRENCY
TRANSLATION
RESERVE
HEDGE
RESERVE
TOTAL EQUITY
ATTRIBUTABLE
TO EQUITY
HOLDERS OF
THE PARENT
MINORITY
INTEREST
TOTAL
EQUITY
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
1,220,446
80,202
3,075
(10,217)
336
1,293,842
Effective portion of changes in
fair value of cash flow hedges1
–
–
–
–
(7,341)
(7,341)
(325)
(7,666)
Foreign exchange translation
differences
–
–
–
202
–
202
–
202
Total income/(expense) for the period
recognised directly in equity
–
–
–
202
(7,341)
(7,139)
(325)
(7,464)
Balance at 1 July 2006
4,764 1,298,606
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
Dividends recognised
Cost of share based payments
(1,869)
–
–
–
–
(1,869)
–
(1,869)
–
(77,920)
–
–
–
(77,920)
(358)
(78,278)
–
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 in
fair 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
1,218,577
136,140
4,591
(31,834)
(1,087)
1,326,387
Balance at 30 June 2008
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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 75
PACIFIC
BRANDS
AR08
Company Statement of Changes in Equity
for the year ended 30 June 2008
ISSUED
CAPITAL
Balance at 1 July 2006
RETAINED
EARNINGS
EQUITY
COMPENSATION
RESERVE
TOTAL
EQUITY
$’000
$’000
$’000
$’000
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)
1,218,577
3,340
4,591
1,226,508
Balance at 30 June 2008
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.
75
4775_Pacific Brands_Financials
76
15/9/08
12:48 PM
Page 76
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
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
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 77
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
1
SIGNIFICANT ACCOUNTING POLICIES
September 2007) introduces as a financial statement the
“Statement of Comprehensive Income”. The revised standard
does not change the recognition, measurement or disclosure
of transactions or events that are required by other AASBs. The
revised standard will become mandatory for the Consolidated
Entity’s 30 June 2010 financial statements. The Consolidated
Entity has not determined the potential effect of the revised
standard on the Consolidated Entity’s disclosures;
Pacific Brands Limited (‘Company’) is a company domiciled in
Australia. The consolidated Financial Report of the Company as at
and for the year ended 30 June 2008 comprises the Company and
its controlled entities (together referred to as the ‘Consolidated Entity’).
This Financial Report was authorised for issue by the directors on 20
August 2008.
(a)
Statement of compliance
The Financial Report is a general purpose financial report which has
been prepared in accordance with Australian Accounting Standards
(‘AASBs’) (including Australian Accounting Interpretations) adopted by
the Australian Accounting Standards Board (‘AASB’) and the
Corporations Act 2001.
The consolidated Financial Report of the Consolidated Entity and the
Financial Report of the Company comply with International Financial
Reporting Standards and interpretations adopted by the International
Accounting Standards Board.
(b)
•
AASB 8 Operating Segments replaces the presentation
requirements of segment reporting in AASB 114 Segment
Reporting. AASB 8 is applicable for annual reporting periods
beginning on or after 1 January 2009 and is not expected to
have an impact on the financial results of the Company and the
Consolidated Entity as the standard is only concerned with
disclosures;
•
revised AASB 123 Borrowing Costs removes the option of
expensing borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset. The revised
AASB 123 will become mandatory for the Consolidated Entity’s
30 June 2010 financial statements. The Consolidated Entity has
not yet determined the potential effect of the revised standard on
the Financial Report;
•
revised AASB 3 Business Combinations changes the application
of acquisition accounting for business combinations and the
accounting for non-controlling (minority interests) interests and is
applicable for annual reporting periods beginning on or after 1
July 2009. The Consolidated Entity has not yet determined the
potential effect of this revised standard on the Financial Report;
•
revised AASB 127 Consolidated and Separate Financial
Statements changes the accounting for investments in
subsidiaries and is applicable for annual reporting periods
beginning on or after 1 July 2009. The potential impact on initial
adoption of this revised standard has not been determined; and
•
AASB 2008-1 Amendments to Australian Accounting Standard –
Share-based Payment: Vesting Conditions and Cancellations will
become mandatory for the Consolidated Entity’s 30 June 2010
financial report. The Consolidated Entity has not yet determined
the potential impact of amending the standard on the
Consolidated Entity’s Financial Report.
Basis of preparation
This Financial Report is presented in Australian dollars.
This Financial Report is prepared on the historical cost basis except
for derivative financial instruments that are stated at their fair value.
The Company is of a kind referred to in Australian Securities and
Investments Commission Class Order 98/100 dated 10 July 1998
and in accordance with that Class Order, amounts in this Financial
Report and the Directors’ Report have been rounded off to the
nearest thousand dollars, unless otherwise stated.
The preparation of a financial report in conformity with AASBs
requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates. These accounting policies have been
consistently applied by each entity in the Consolidated Entity.
In the current year, the Consolidated Entity adopted all of the new and
revised AASBs issued by the AASB that are relevant to its operations
and effective for the current annual reporting period. Details of the
impact of the adoption of the new AASBs are set out in the individual
accounting policy notes below. The Consolidated Entity has also
adopted the following AASBs as listed below that only impacted on
the Consolidated Entity’s financial statements with respect to
disclosures:
(c)
Principles of consolidation
Controlled entities
Controlled entities are entities controlled by the Company. Control
exists when the Company has the power, directly or indirectly, to
govern the financial and operating policies of an entity so as to obtain
benefits from its activities. In assessing control, potential voting rights
that presently are exercisable or convertible are taken into account.
The financial statements of controlled entities are included in this
Financial Report from the date that control commences until the date
that control ceases.
•
AASB 101 Presentation of Financial Statements (revised October
2006);
•
AASB 2007-4 Amendments to Australian Accounting Standards
arising from ED151 and Other Amendments;
•
AASB 2007-7 Amendments to Australian Accounting Standards;
Transactions eliminated on consolidation
•
AASB 7 Financial Instruments: Disclosures; and
•
AASB 2005-10 Amendments to Australian Accounting
Standards.
Intragroup balances, and any unrealised gains and losses or revenues
and expenses arising from intragroup transactions, are eliminated in
preparing the consolidated financial statements.
The following AASBs, amendments and interpretations have been
identified as those which may impact the entity in the period of initial
application. They are available for early adoption but have not been
applied by the Company and Consolidated Entity in these financial
statements:
•
AASB 101 Presentation of Financial Statements (revised
Unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.
(d)
Revenue recognition
Revenues are recognised at fair value of the consideration received,
net of the amount of goods and services tax (‘GST’) payable to the
relevant taxation authority.
77
4775_Pacific Brands_Financials
78
15/9/08
12:48 PM
Page 78
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sale of goods
(g)
Revenue from the sale of goods (net of returns, discounts and
allowances) is recognised in the Income Statement when the
significant risks and rewards of ownership have been transferred to
the buyer. Transfers of risks and rewards vary depending on the
individual terms of the contract of sale. No revenue is recognised if
there are significant uncertainties regarding recovery of the
consideration due, the costs incurred or to be incurred cannot be
measured reliably, there is a risk of return of goods or there is
continuing management involvement with the goods.
Income tax on the profit or loss for the years presented comprises
current and deferred tax. Income tax is recognised in the Income
Statement except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in equity.
Dividends
Dividend revenue is recognised net of any franking credits. Revenue
from distributions from controlled entities is recognised by the
Company when they are declared by the controlled entities.
Dividends received out of pre-acquisition reserves are eliminated
against the carrying amount of the investment and are not recognised
in revenue.
Other income
Government grants
Revenue from government grants is recognised when the
Consolidated Entity has complied with the conditions attaching to
the grant and has reasonable assurance that the grant will be
received.
Sale of non-current assets
The profit on disposal of non-current assets is included in other
income of the Consolidated Entity and is brought to account at the
date control of the asset passes to the buyer, usually when an
unconditional contract of sale is signed.
The gain or loss on disposal is calculated as the difference between
the carrying amount of the asset at the time of the disposal and the
net proceeds on disposal.
(e)
Net financing costs
Net financing costs comprise interest payable on borrowings
calculated using the effective interest rate method, interest receivable
on funds invested and gains and losses on hedging instruments that
are recognised in the Income Statement (refer Note 1(v)). Borrowing
costs are expensed as incurred and included in net 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 of
GST, except where the amount of GST incurred is not recoverable
from the relevant taxation authorities. In these circumstances, the
GST is recognised as part of the cost of acquisition of the asset or
as part of an item of the expense.
Receivables and payables are stated with the amount of GST
included.
The net amount of GST recoverable from, or payable to, the relevant
taxation authority is included as a current asset or liability in the
Balance Sheet.
Cash flows are included in the Cash Flow Statements on a gross
basis. The GST components of cash flows arising from investing and
financing activities which are recoverable from, or payable to, the
relevant tax authority are classified as operating cash flows.
Income tax
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment to tax payable in respect
of previous years.
Deferred tax is provided using the tax balance sheet method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are
not provided for: goodwill, the initial recognition of assets or liabilities
from a transaction that is not a business combination that affect
neither accounting nor taxable profit, and differences relating to
investments in controlled entities to the extent that they will probably
not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using tax
rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which the
asset can be utilised. Deferred tax assets are reduced to the extent
that it is no longer probable that the related tax benefit will be
realised.
Tax consolidation
The Company and its wholly-owned Australian resident entities have
formed a tax consolidated group with effect from April 2004 and are
therefore taxed as a single entity from that date. The head entity
within the tax consolidated group is Pacific Brands Limited.
Current tax expense/income, deferred tax liabilities and deferred tax
assets arising from temporary differences of the members of the tax
consolidated group are recognised in the separate financial statements
of the members of the tax consolidated group using the ‘stand-alone
tax payer’ method consistent with UIG 1052 Tax Consolidation
Accounting.
Accounting.
Any current tax liabilities (or assets) and deferred tax assets arising
from unused tax losses of subsidiaries are assumed by the head
entity in the tax consolidated group and are recognised as amounts
payable to/(receivable from) other entities in the tax consolidated
group in conjunction with any tax funding arrangement amount (refer
below).
Nature of tax funding arrangements and tax sharing agreements
The members of the tax consolidated group have entered into a tax
funding arrangement which sets out the funding obligations of
members of the tax consolidated group in respect of tax amounts.
The tax funding arrangement requires payments to/from the head
entity equal to the current tax liability/(asset) assumed by the head
entity and any tax-loss deferred tax asset assumed by the head
entity.
The members of the tax consolidated group have also entered into a
tax sharing agreement. The tax sharing agreement provides for the
determination of the allocation of income tax liabilities between the
entities should the head entity default on its tax payment obligations.
No amounts have been recognised in the financial statements in
respect of this agreement as payment of any amounts under the tax
sharing agreement is considered remote.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 79
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h)
Earnings per share
Basic and diluted earnings per share is calculated by dividing the
profit attributable to equity holders of the parent for the reporting
period, after excluding any costs of servicing, by the weighted average
number of ordinary shares of the Company, adjusted for any bonus
issue.
Operating leases
Payments made under operating leases are expensed on a straight
line basis over the term of the lease, except where an alternative
basis is more representative of the pattern of benefits to be derived
from the leased property.
Depreciation and amortisation
(i)
Receivables
Trade and other receivables are stated at their amortised cost less
impairment losses (refer Note 1(n)).
(j)
Inventories
Inventories are carried at the lower of cost and net realisable value.
Cost includes direct materials, direct labour, other direct variable costs
and allocated production overheads necessary to bring inventories to
their present location and condition, based on normal operating
capacity of the production facilities.
Items of property, plant and equipment are depreciated over their
estimated useful lives as set out below.
Depreciation and amortisation are calculated on a straight line basis
so as to write off the cost of each item of property, plant and
equipment, excluding land, over its estimated useful life.
The expected useful lives, in the current and comparative periods,
are as follows:
•
freehold buildings: 40 years;
•
leasehold improvements: life of lease; and
The cost of inventory may also include transfers from equity of any
gain or loss on qualifying cash flow hedges of foreign currency
purchases of inventory.
•
owned and leased plant and equipment: 3 to 10 years.
Manufacturing activities
(m) Intangible assets
The costs of manufacturing inventories and work in progress are
assigned on a first-in, first-out basis. Costs arising from exceptional
wastage are expensed as incurred.
Brandnames
Net realisable value
Net realisable value is determined on the basis of each inventory line’s
normal selling pattern. Expenses of marketing, selling and distribution
to customers are estimated and are deducted to establish net
realisable value.
Obsolete and slow moving stocks are allowed for, to ensure the
inventories are recorded at net realisable value where such value is
below cost.
(k)
Investments
Controlled entities
Investments in controlled entities are carried in the Company’s
financial statements at cost less any impairment losses (refer Note
1(n)).
(l)
Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost less
accumulated depreciation and impairment (refer Note 1(n)). The cost of
self-constructed assets includes the cost of materials, direct labour,
the initial estimate, where relevant, of the costs of dismantling and
removing the items and restoring the site on which they are located,
and an appropriate proportion of production overheads.
Leased assets
Leases under which the Consolidated Entity assumes substantially all
the risks and 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 fair
value of the leased property or if lower the present value of the
minimum lease payments determined at the inception of the lease.
Lease liabilities are reduced by repayments of principal. The interest
components of the lease payments are expensed. Contingent rentals
are expensed as incurred.
The residual value of, the useful life of and the depreciation method
applied to an asset are reassessed at least annually.
The carrying value of brandnames is reviewed at least at each
reporting date to determine whether they are in excess of their
recoverable amount. If the carrying amount exceeds the recoverable
amount, the asset is written down to the lower amount, through a
charge to the Income Statement.
No amortisation is allowed for, against the carrying value of these
brandnames on the basis that the lives of these assets are
considered indefinite at this point in time, as they are not currently
associated with products that are likely to become commercially or
technically obsolete.
Software
Software that is acquired by the Consolidated Entity is stated at cost
less accumulated amortisation and impairment losses. Amortisation
is charged to the Income Statement on a straight line basis over the
estimated useful life.
Other intangible assets
Other intangibles assets that are acquired by the Consolidated Entity
are stated at cost less accumulated amortisation and impairment
losses. Amortisation is charged to the Income Statement on a
straight line basis over the estimated useful life of the asset.
(n)
Impairment
The carrying amounts of the Consolidated Entity’s assets, other than
deferred tax assets (refer Note 1(g)) and inventories (refer Note 1(j)),
are reviewed at each reporting date to determine whether there is
any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated.
For goodwill and intangible assets that have an indefinite useful life,
the recoverable amount is estimated annually.
An impairment loss is recognised whenever the carrying amount of
an asset or cash generating unit exceeds its recoverable amount.
Impairment losses are recognised in the Income Statement unless
the asset has previously been revalued, in which case the
impairment loss is recognised as a reversal to the extent of that
previous revaluation with any excess recognised through the Income
Statement.
79
4775_Pacific Brands_Financials
80
15/9/08
12:48 PM
Page 80
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment losses recognised in respect of a cash generating unit
are allocated first to reduce the carrying amount of any goodwill
allocated to the cash generating unit (group of units) and then, to
reduce the carrying amount of the other assets in the unit (group of
units) on a pro rata basis.
When a decline in the fair value of an available-for-sale financial asset
has been recognised directly in equity and there is objective evidence
that the asset is impaired, the cumulative loss that had been
recognised directly in equity is recognised in the Income Statement
even though the financial asset has not been derecognised. The
amount of the cumulative loss that is recognised in the Income
Statement is the difference between the acquisition cost and current
fair value, less any impairment loss on that financial asset previously
recognised in the Income Statement.
An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
Derecognition of financial assets and liabilities
A financial asset (or, where applicable, a part of a financial asset or
part 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 receive
cash flows from the asset, but have assumed an obligation to
pay them in full without material delay to a third party; or
•
the Company and Consolidated Entity have transferred their
rights to receive cash flows from the asset and either (a) have
transferred substantially all the risks and rewards of the asset, or
(b) have neither transferred nor retained substantially all the risks
and rewards of the asset, but have transferred control of the
asset.
Calculation of recoverable amount
The recoverable amount of the Consolidated Entity’s receivables
carried at amortised cost is calculated as the present value of
estimated future cash flows, discounted at the original effective
interest rate (i.e. the effective interest rate computed at initial
recognition of these financial assets). Receivables with a short
duration are not discounted.
Impairment of receivables is not recognised until objective evidence
is available that a loss event has occurred. Significant receivables are
individually assessed for impairment. Impairment testing of significant
receivables that are not assessed as impaired individually is
performed by placing them into portfolios of significant receivables
with similar risk profiles and undertaking a collective assessment of
impairment. Non-significant receivables are not individually assessed.
Instead, impairment testing is performed by placing non-significant
receivables in portfolios of similar risk profiles, based on objective
evidence from historical experience adjusted for any effects of
conditions existing at each balance date.
The recoverable amount of other assets is the greater of their fair
value less costs to sell, and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the cash
generating unit to which the asset belongs.
Reversals of impairment
Impairment losses, other than in respect of goodwill, are reversed
when there is an indication that the impairment loss may no longer
exist and there has been a change in the estimate used to determine
the recoverable amount.
An impairment loss in respect of a held-to-maturity security or
receivable carried at amortised cost is reversed if the subsequent
increase in recoverable amount can be related objectively to an event
occurring after the impairment loss was recognised.
An impairment loss in respect of an investment in an equity
instrument classified as available-for-sale is not reversed through the
Income Statement. If the fair value of a debt instrument classified as
available-for-sale increases and the increase can be objectively related
to an event occurring after the impairment loss was recognised in
the Income Statement, the impairment loss shall be reversed, with
the amount of the reversal recognised in the Income Statement.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable
amount.
A financial liability is derecognised when the obligation under the
liability is discharged, cancelled or expired. When an existing financial
liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is
recognised in the Income Statement.
(o)
Payables
Trade and other payables are stated at their amortised cost.
(p)
Interest-bearing loans and borrowings
Interest-bearing loans and borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing loans and borrowings are stated at
amortised cost with any difference between cost and redemption
value being recognised in the Income Statement over the period of
the loans or borrowings on an effective interest rate basis.
(q)
Employee benefits
Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries and annual leave
represent the present obligations resulting from employees’ services
provided up to the reporting date. The provisions have been
calculated at undiscounted amounts based on expected wage and
salary rates that the Consolidated Entity expects to pay as at
reporting date and include related on-costs, such as workers’
compensation insurance and payroll tax.
Long service leave
The provision for employee benefits to long service leave represents
the present value of the estimated future cash outflows to be made
by the Consolidated Entity resulting from employees’ services
provided up to the reporting date.
The provision is calculated using expected future increases in wage
and salary rates including related on-costs and expected settlement
dates based on turnover history and is discounted using the rates
attaching to national government bonds at reporting date which
most closely match the terms of maturity of the related liabilities. The
unwinding of the discount is treated as long service leave expense.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 81
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Superannuation plans
The Consolidated Entity contributes to various defined benefit and
defined contribution superannuation plans. Employer contributions to
these plans are recognised as an expense as they are made.
specific to the liability, being risk-free rates on government bonds
most closely matching the expected future payments, except where
noted below. The unwinding of the discount is treated as part of the
expense related to the particular provision.
Defined benefit plans
Dividends
The Consolidated Entity’s net obligation in respect of defined benefit
superannuation plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned
in return for their service in the current and prior years; that benefit is
discounted to determine its present value, and the fair value of any
plan assets deducted.
A provision for dividends payable is recognised in the reporting
period in which the dividends are declared, for the entire
undistributed amount, regardless of the extent to which they will be
paid in cash.
The discount rate is the yield at the balance sheet date on national
government bonds that have maturity dates approximating to the
terms of the Consolidated Entity’s obligations. The calculation is
performed by a qualified actuary using the projected unit credit
method.
Provisions for restructuring or termination benefits are only
recognised when a detailed plan has been approved and the
Consolidated Entity has raised a valid expectation in those affected
that it will carry out the restructuring by starting to implement the
plan or announcing its main features to those affected by it. Costs
related to ongoing activities are not provided for.
When employee benefits under the plan are improved, the proportion
of the increased benefit relating to past service by employees is
recognised as an expense in the Income Statement on a straight line
basis over the average period until the benefits become vested. To
the extent that the benefits vest immediately, the expense is
recognised immediately in the Income Statement.
Where the calculation results in a net benefit to the Consolidated
Entity, the recognised asset is limited to the net total of any
unrecognised past service costs and the present value of any future
refunds from the plan or reductions in future contributions
to the plan.
For actuarial gains and losses that arise in calculating the
Consolidated Entity’s obligation in respect of a plan, to the extent
that any cumulative unrecognised actuarial gain or loss exceeds 10%
of the greater of the present value of the defined benefit obligation
and the fair value of plan assets, that portion is recognised in the
Income Statement over the expected average remaining working
lives of the active employees participating in the plan. Otherwise, the
actuarial gain or loss is not recognised.
(r)
Surplus lease space
Provision is made for non-cancellable operating lease rentals payable
on surplus leased premises when it is determined that no substantive
future benefit will be obtained from its occupancy and sub-lease
rentals are less.
The estimate is calculated based on discounted net future cash
flows, using the interest rate implicit in the lease or an estimate
thereof.
(t)
Accounting for acquisitions
Business combinations
All business combinations are accounted for by applying the
purchase method. Goodwill represents the difference between the
cost of the acquisition and the fair value of the net identifiable assets
acquired. Goodwill is allocated to cash generating units and is tested
annually for impairment (refer Note 1(n)).
Negative goodwill arising on an acquisition is recognised directly in
the Income Statement.
Share based payments
The Company has introduced a number of share plans pursuant to
which senior executives and directors may acquire shares. The fair
value of performance rights granted is recognised as a personnel
expense with a corresponding increase in equity. The fair value is
measured at grant date and spread over the period during which the
employees become unconditionally entitled to the performance
rights. The fair value of the performance rights granted is measured
using a Monte-Carlo simulation model, taking into account the terms
and conditions upon which the performance rights were granted.
The amount recognised as an expense is adjusted to reflect the
actual number of performance rights that vest except where
forfeiture is only due to share prices not achieving the threshold for
vesting. The expense related to share based payments is accounted
for in the entity which employs the relevant individual.
(s)
Restructuring
Provisions
A provision is recognised when there is a legal, equitable or
constructive obligation as a result of a past event and it is probable
that a future sacrifice of economic benefits will be required to settle
the obligation, the timing or amount of which is uncertain.
If the effect is material, a provision is determined by discounting the
expected future cash flows (adjusted for expected future risks)
required to settle the obligation at a pre-tax rate that reflects current
market assessments of the time value of money and the risks
Property, plant and equipment
The fair value of property, plant and equipment recognised as a
result of a business combination is based on market values. The
market value of property is the estimated amount for which a
property could be exchanged on the date of valuation between a
willing buyer and a willing seller in an arm’s length transaction after
proper marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion. The market value of items of
plant, equipment, fixtures and fittings is based on the quoted market
prices for similar items.
Intangible assets
The fair value of patents and trademarks acquired in a business
combination is based on the discounted estimated royalty payments
that have been avoided as a result of the patent or trademark being
owned. The fair value of other intangible assets is based on the
discounted cash flows expected to be derived from the use and
eventual sale of the assets.
(u)
Foreign currency
Transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet
81
4775_Pacific Brands_Financials
82
15/9/08
12:48 PM
Page 82
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
date are translated to Australian dollars at the foreign exchange rate
ruling at that date. Foreign exchange gains and losses arising on
translation are recognised in the Income Statement on a net basis.
Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets
and liabilities denominated in foreign currencies that are stated at fair
value are translated to Australian dollars at foreign exchange rates
ruling at the dates the fair value was determined.
Translation of controlled foreign operations
The assets and liabilities of controlled foreign operations, including
goodwill and fair value adjustments arising on consolidation,
generally are translated to Australian dollars at foreign exchange
rates ruling at the balance sheet date. The revenues and expenses
of foreign operations are translated to Australian dollars at rates
approximating the foreign exchange rates ruling at the dates of the
transactions. Foreign exchange differences arising on retranslation
are recognised directly in a separate component of equity.
Net investment in foreign operations
Exchange differences arising from the translation of the net
investment in foreign operations, and of related hedges, are taken to
the foreign currency translation reserve. They are released into the
Income Statement upon disposal. In respect of all foreign operations,
any differences are presented as a separate component of equity.
(v)
Derivative financial instruments
The Consolidated Entity uses derivative financial instruments to
hedge its exposure to foreign exchange and interest rate risks arising
from operating, investing and financing activities. In accordance with
its treasury policy, the Consolidated Entity does not hold or issue
derivative financial instruments for trading purposes. However,
derivatives that do not qualify for hedge accounting are accounted
for as trading instruments.
Derivative financial instruments are recognised initially at fair value.
Subsequent to initial recognition, derivative financial instruments are
stated at fair value. The gain or loss on remeasurement to fair value
is recognised immediately in the Income Statement. However, where
derivatives qualify for hedge accounting, recognition of any resultant
gain or loss depends on the nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount that the
Consolidated Entity would receive or pay to terminate the swap at
the balance sheet date, taking into account current interest rates and
the current creditworthiness of the swap counterparties. The fair
value of forward exchange contracts is their quoted market price at
the balance sheet date, being the present value of the quoted
forward price.
Hedging
On entering into a hedging relationship, the Consolidated Entity
formally designates and documents the hedge relationship and the
risk management objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument,
the hedged item or transaction, the nature of the risk being hedged
and how the entity will assess the hedging instrument’s effectiveness
in offsetting the exposure to changes in the hedged item’s fair value
or cash flows attributable to the hedged risk. Such hedges are
expected to be highly effective in achieving offsetting changes in
fair value or cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout
the financial reporting periods for which they are designated.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of
the variability in cash flows of a recognised asset or liability, or a highly
probable forecast transaction, the effective part of any gain or loss on
the derivative financial instrument is recognised directly in equity.
When the forecast transaction subsequently results in the recognition
of a non-financial asset or non-financial liability, or the forecast
transaction for a non-financial asset or non-financial liability, the
associated cumulative gain or loss is removed from equity and
included in the initial cost or other carrying amount of the nonfinancial asset or liability. If a hedge of a forecast transaction
subsequently results in the recognition of a financial asset or a
financial liability, then the associated gains and losses that were
recognised directly in equity are reclassified into the Income
Statement in the same period or periods during which the asset
acquired or liability assumed affects the Income Statement (i.e. when
interest income or expense is recognised).
For cash flow hedges, other than those covered by the preceding two
policy statements, the associated cumulative gain or loss is removed
from equity and recognised in the Income Statement in the same
period or periods during which the hedged forecast transaction
affects the Income Statement. The ineffective part of any gain or loss
is recognised immediately in the Income Statement.
When a hedging instrument expires or is sold, terminated or exercised,
or the entity revokes designation of the hedge relationship but the
hedged forecast transaction still is expected to occur, the
cumulative gain or loss at that point remains in equity and is
recognised in accordance with the above policy when the
transaction occurs. If the hedged transaction is no longer expected
to take place, then the cumulative unrealised gain or loss recognised
in equity is recognised immediately in the Income Statement.
Hedges of monetary assets and liabilities
When derivative financial instruments are used to hedge economically
the foreign exchange exposure of recognised monetary assets or
liabilities, hedge accounting is not applied and any gains or losses on
the 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 net
investments in foreign operations that are determined to be effective
hedges are recognised directly in equity. The ineffective portions are
recognised immediately in the Income Statement.
(w) Accounting estimates and judgements
The preparation of the Financial Report requires the making of
estimations and assumptions that affect the recognised amounts of
assets, liabilities, revenues and expenses and the disclosure of
contingent liabilities. The estimates and associated assumptions are
based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of
which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only
that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
The estimates and judgements that have a significant risk of causing
an adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 83
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 over
the last three years. If this were to reduce, then the Consolidated
Entity’s unrecognised actuarial gains would increase with the risk that
they would fall outside the corridor and would be recognised in the
Income Statement and Balance Sheet in future years.
Impairment of goodwill and intangible assets with indefinite useful
lives
The Consolidated Entity assesses, at least annually, whether goodwill
and intangible assets with indefinite useful lives are impaired (refer
Note 13). These calculations involve an estimation of the recoverable
amount of the cash generating units to which the goodwill and
intangible assets with indefinite useful lives are allocated.
83
4775_Pacific Brands_Financials
84
15/9/08
12:48 PM
Page 84
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
2
REVENUE AND OTHER INCOME
CONSOLIDATED
Sales revenue
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
2,116,640
1,820,737
–
–
2,619
919
–
–
–
–
70,000
100,000
564
–
–
–
Other income
Royalties – other parties
Dividends – controlled entities
Net gain on disposal of businesses
Sundry income
10,010
12,506
–
–
Total other income
13,193
13,425
70,000
100,000
2,129,833
1,834,162
70,000
100,000
Total revenue and other income
3
OTHER EXPENSES
Depreciation of:
Freehold buildings and leasehold improvements
4,788
3,962
–
–
15,712
14,232
–
–
20,500
18,194
–
–
Software
2,379
2,692
–
–
Other intangible assets
3,052
1,781
–
–
Leased plant and equipment
1,029
1,440
–
–
6,460
5,913
–
–
26,960
24,107
–
–
Plant and equipment
Amortisation of:
Total depreciation and amortisation
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)
709
1,255
–
–
–
–
Amounts set aside to allow for:
Doubtful debts
Rebates, trade allowances, claims and settlement discounts
147,943
125,759
148,652
127,014
371,804
322,146
–
–
25,538
21,606
–
–
Personnel expenses:
Wages and salaries
Contributions to defined contribution superannuation plans
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
516
1,327
–
–
Net foreign exchange loss
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 85
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
4
AUDITORS’ REMUNERATION
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
1,259,600
1,128,000
62,000
60,000
Audit services
Auditors of the Company
KPMG Australia:
Audit and review of financial reports
Overseas KPMG firms:
Audit of financial reports
377,400
291,000
–
–
1,637,000
1,419,000
62,000
60,000
171,294
209,800
–
–
85,641
13,240
–
–
14,461
9,357
–
–
26,873
38,167
–
–
298,269
270,564
–
–
Other services
Auditors of the Company
KPMG Australia:
Taxation services
Other assurance services
Overseas KPMG firms:
Taxation services
Other assurance services
It is the Company’s policy to employ KPMG on assignments additional to its statutory audit duties where KPMG’s expertise with the Company
is important. Approval for these assignments is required from the Audit, Business Risk and Compliance Committee; the assignments are
principally related to tax advice and assurance services relating to debt covenants and regulatory requirements.
5
INCOME TAX EXPENSE/(BENEFIT)
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
Current year
44,435
42,103
(3,615)
(5,193)
(Over)/under provided in prior year
(2,134)
(4,713)
159
–
NOTE
Current income tax expense/(benefit)
Deferred income tax expense
Origination and reversal of temporary differences
Total income tax expense/(benefit) in the Income Statements
1,500
2,092
2,877
2,640
43,801
39,482
(579)
(2,553)
160,927
145,618
67,539
95,253
48,278
43,685
20,262
28,575
729
550
–
550
–
–
(21,000)
(30,000)
Numerical reconciliation between income tax expense/(benefit)
and profit before income tax
Profit before income tax expense/(benefit)
Income tax using the domestic corporation tax rate of 30%
Increase in income tax expense due to:
Share based payments
Decrease in income tax expense due to:
Non-assessable dividend income
(3,072)
(40)
–
(1,678)
(Over)/under provided in prior year
Sundry items
(2,134)
(4,713)
159
–
Total income tax expense/(benefit) on profit before income tax
43,801
39,482
(579)
(2,553)
2,535
(3,146)
–
–
Deferred tax recognised directly in equity
Relating to derivative financial instruments
1(v)
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 consolidation
legislation, the Company as the head entity of the Australian tax consolidated group has assumed the current tax liability initially recognised
by the members in the tax consolidated group.
85
4775_Pacific Brands_Financials
86
15/9/08
12:48 PM
Page 86
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
6
EARNINGS PER SHARE
CONSOLIDATED
2008
2007
$’000
$’000
117,126
106,136
Earnings reconciliation
Profit for the year
Less minority interest
Basic and diluted earnings
(568)
(177)
116,558
105,959
CONSOLIDATED
2008
NUMBER
2007
NUMBER
502,277,852
503,000,003
Weighted average number of shares used as the denominator
Number for basic and diluted earnings per share
Ordinary shares at 1 July
Effect of shares bought back
Ordinary shares at 30 June
7
–
(514,859)
502,277,852
502,485,144
SEGMENT REPORTING
Segment information is presented in respect of the Consolidated Entity’s business and geographical segments. The primary format, business
segments, is based on the Consolidated Entity’s management and internal reporting structure.
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 reasonable
basis.
Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than
one year.
Primary reporting: business segments
The Consolidated Entity comprises the following main business segments, based on the Consolidated Entity’s management reporting system:
Underwear & Hosiery
Marketer, distributor, importer and manufacturer of underwear, intimate apparel, socks and hosiery;
Outerwear & Sport
Marketer, distributor, importer and manufacturer of casual outerwear, workwear, sports clothing, sports
footwear and sporting equipment;
Home Comfort
Marketer, distributor, importer and manufacturer of mattresses, pillows, bed linen, bedding accessory
products and foam;
Footwear
Marketer, distributor and importer of women’s, men’s and children’s footwear; and
Other
Retail clearance outlets, administration functions and amortisation of other intangible assets.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 87
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
7
SEGMENT REPORTING (CONTINUED)
Primary reporting: business segments (continued)
UNDERWEAR
& HOSIERY
OUTERWEAR
& SPORT
HOME
COMFORT
FOOTWEAR
OTHER
1
CONSOLIDATED
$’000
$’000
$’000
$’000
$’000
$’000
$’000
638,231
661,230
525,877
274,582
29,913
–
2,129,833
ELIMINATIONS
2008
Revenue
External segment revenue
Intersegment revenue
Total segment revenue
–
250
7
30
117
(404)
–
638,231
661,480
525,884
274,612
30,030
(404)
2,129,833
101,414
58,191
49,685
36,422
(19,636)
–
226,076
Result
Segment result
Net financing costs
(65,149)
Income tax expense
(43,801)
Profit for the year
117,126
Depreciation and amortisation
Segment assets
Segment liabilities
Acquisition of non-current assets
6,444
4,754
7,654
1,635
6,473
–
26,960
398,907
448,839
260,285
148,060
1,405,537
(175,236)
2,486,392
80,227
156,715
149,965
34,421
910,212
(175,236)
1,156,304
3,555
11,124
11,703
3,262
930
–
30,574
633,580
362,706
518,530
284,435
34,911
–
1,834,162
2007
Revenue
External segment revenue
Intersegment revenue
Total segment revenue
122
79
–
–
468
(669)
–
633,702
362,785
518,530
284,435
35,379
(669)
1,834,162
93,701
26,959
45,544
37,251
(11,199)
–
192,256
Result
Segment result
Net financing costs
(46,638)
Income tax expense
(39,482)
Profit for the year
106,136
Depreciation and amortisation
Segment assets
Segment liabilities
Acquisition of non-current assets
1
6,633
3,479
7,042
1,493
5,460
–
24,107
366,121
480,134
290,292
129,875
1,499,162
(210,066)
2,555,518
67,595
173,990
191,657
35,029
977,939
(210,066)
1,236,144
5,252
245,770
15,993
1,404
2,636
–
271,055
Segment revenue, results, assets and liabilities are determined before the effects of consolidation eliminations, except where transactions are between entities in a
single segment.
87
4775_Pacific Brands_Financials
88
15/9/08
12:48 PM
Page 88
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
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
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
26,646
1,002
2,926
30,574
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
260,083
8,413
2,559
271,055
2008
Acquisition of non-current assets
2007
Acquisition of non-current assets
8
CASH AND CASH EQUIVALENTS
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
196
326
–
–
Cash at bank
92,144
128,631
538
568
Bank short term deposits
12,482
9,683
–
–
104,822
138,640
538
568
NOTE
Cash on hand
27(a)
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% per
annum (2007: 6.3% per annum).
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 89
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
9
TRADE AND OTHER RECEIVABLES
CONSOLIDATED
NOTE
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
285,021
315,686
–
–
(3,128)
(4,467)
–
–
(35,471)
(30,552)
–
–
246,422
280,667
–
–
Current
Trade debtors
Less allowance for doubtful trade debtors
Less allowance for rebates, trade allowances, claims and settlement discounts
Amounts owing by controlled entity
30
Other debtors
–
–
37,156
48,618
25,884
22,299
4
6
272,306
302,966
37,160
48,624
Non-current
Amounts owing by controlled entity
–
–
1,203,714
1,203,714
30
50
–
–
30
50
1,203,714
1,203,714
2008
2007
2008
2007
$’000
$’000
$’000
$’000
Raw materials and stores
50,835
56,642
–
–
Work in progress
17,898
22,670
–
–
288,237
282,212
–
–
356,970
361,524
–
–
14,266
9,636
–
–
1,530
1,731
–
–
41,620
34,134
–
–
36,544
52,009
–
–
Other debtors
30
Other debtor amounts generally arise from transactions outside
the usual operating activities of the Consolidated Entity.
10
INVENTORIES
CONSOLIDATED
Finished goods
11
OTHER ASSETS
Current
Prepayments
Non-current
Other investments
12
THE COMPANY
PROPERTY, PLANT AND EQUIPMENT
Freehold land
At cost
Freehold buildings
At cost
Accumulated depreciation
(4,151)
(8,859)
–
–
32,393
43,150
–
–
At cost
27,738
23,749
–
–
Accumulated amortisation
(9,526)
(6,483)
–
–
18,212
17,266
–
–
At cost
145,150
155,655
–
–
Accumulated depreciation
(49,781)
(61,286)
–
–
95,369
94,369
–
–
Leasehold improvements
Plant and equipment
Leased plant and equipment
At capitalised cost
Accumulated amortisation
Capital works in progress
Total property, plant and equipment at net book value
5,784
7,409
–
–
(1,920)
(2,063)
–
–
3,864
5,346
–
–
13,441
12,584
–
–
204,899
206,849
–
–
89
4775_Pacific Brands_Financials
90
15/9/08
12:48 PM
Page 90
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
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:
FREEHOLD
LAND
FREEHOLD
BUILDINGS
LEASEHOLD
IMPROVEMENTS
PLANT AND
EQUIPMENT
LEASED
PLANT AND
EQUIPMENT
CAPITAL
WORKS IN
PROGRESS
TOTAL
$’000
$’000
$’000
$’000
$’000
$’000
$’000
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
CONSOLIDATED
2008
Disposed businesses
–
–
(70)
(2,945)
–
(25)
(3,040)
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)
Fair value adjustments
Effects of movements in foreign exchange
(370)
(270)
(548)
(610)
(60)
(78)
(1,936)
41,620
32,393
18,212
95,369
3,864
13,441
204,899
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
Carrying amount at the end of the year
2007
Additions
Transfer from/(to) capital works in progress
Disposals
Depreciation and amortisation
Effects of movements in foreign exchange
Carrying amount at the end of the year
13
–
–
235
1,380
3,606
22,919
28,140
384
50
4,871
14,515
(1,079)
(18,741)
–
(197)
–
–
(1,791)
(29)
–
(2,017)
–
(1,084)
(2,878)
(14,232)
(1,440)
–
(19,634)
134
226
(329)
296
(103)
72
296
34,134
43,150
17,266
94,369
5,346
12,584
206,849
INTANGIBLE ASSETS
CONSOLIDATED
GOODWILL
BRANDNAMES
SOFTWARE
OTHER
INTANGIBLE
1
ASSETS
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
Effects of movements in foreign exchange
Balance at 30 June 2007
–
–
(2,692)
(1,781)
(4,473)
299
672
–
–
971
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)
992,448
484,352
13,758
16,958
1,507,516
Balance at 30 June 2008
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
Pacific Brands Group
BRANDNAMES
2008
2007
2008
2007
$’000
$’000
$’000
$’000
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
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 91
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
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. Separate
value in use calculations are prepared for each of the business segments that make-up the Pacific Brands Group (refer Note 7 for a listing of
business segments). Those calculations use cash flow projections based on actual operating results and cash flows for a further five year
period 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 flow
projections based on actual operating results and cash flows for a further five year period which are extrapolated using a growth rate
appropriate for markets in which Sheridan 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 Brand Collective cash generating unit is based on value in use calculations. Those calculations use cash flow
projections based on actual operating results and cash flows for a further five year period which are extrapolated using a growth rate
appropriate for markets in which Brand Collective 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 Yakka Group cash generating unit is based on value in use calculations. Those calculations use cash flow
projections based on actual operating results and cash flows for a further five year period which are extrapolated using a growth rate appropriate
for markets and industries in which Yakka Group operates. A pre-tax discount rate of 11.6% per annum has been used in discounting the
projected 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
Trade and other receivables
2,092
2,695
–
–
2,092
2,695
Inventories
1,232
3,751
–
–
1,232
3,751
–
–
(3,129)
(3,705)
(3,129)
(3,705)
22,976
19,062
–
–
22,976
19,062
1,870
3,466
–
–
1,870
3,466
Consolidated
Property, plant and equipment
Provisions for employee benefits
Other provisions
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
340
The Company
Provisions for employee benefits
Other items
Transaction costs
Tax assets
Set off of tax
Net tax assets
1
105
340
–
–
105
1,520
–
–
–
1,520
–
–
2,981
–
–
–
2,981
1,625
3,321
–
–
1,625
3,321
–
–
–
–
–
–
1,625
3,321
–
–
1,625
3,321
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 PAYABLES
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
150,581
138,753
394
1,133
49,151
52,949
–
–
199,732
191,702
394
1,133
9,306
14,599
–
–
Current
Trade creditors
Other creditors and accruals
Non-current
Other creditors
91
4775_Pacific Brands_Financials
92
15/9/08
12:48 PM
Page 92
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
16
INTEREST-BEARING LOANS AND BORROWINGS
CONSOLIDATED
Current
Lease liabilities
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
1,340
2,689
–
–
844,427
936,708
–
–
1,767
1,463
–
–
846,194
938,171
–
–
Non-current
Bank loans
Lease liabilities
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 assets
revert to the lessor.
Finance lease liabilities of the Consolidated Entity are payable as follows:
Within one year
One year or later and no later than five years
MINIMUM
LEASE
PAYMENTS
INTEREST
PRINCIPAL
MINIMUM
LEASE
PAYMENTS
INTEREST
2008
2008
2008
2007
2007
2007
$’000
$’000
$’000
$’000
$’000
$’000
1,545
205
1,340
2,907
218
2,689
PRINCIPAL
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 Consolidated
Entity has the option to purchase the motor vehicles at the agreed residual value.
Bank loans
All bank loans are denominated in Australian dollars.
The Consolidated Entity is required to comply with various financial covenants which it has met. Additionally, the Consolidated Entity entered
into a debtor securitisation arrangement by which it transfers to a third party its gross trade debtors in exchange for an immediate discounted
cash payment while retaining an exposure to credit losses and a continuing obligation to service its accounts with these customers. The
maximum amount allowed to be drawn on this facility is $250 million. At 30 June 2008, this arrangement was drawn to $171 million (2007: $172
million). The gross trade debtors which have been securitised have been presented as trade debtors (refer Note 9) with the secured borrowing
included as a component of bank loans.
17
PROVISIONS
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
NOTE
$’000
$’000
$’000
$’000
28
72,711
65,666
–
–
3,949
5,015
–
–
76,660
70,681
–
–
Current
Employee benefits
Leased premises
Non-current
Employee benefits
Leased premises
28
4,330
6,343
–
–
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
CONSOLIDATED
Carrying amount at the beginning of the year
Recognised in the Income Statement
Increase through business combinations
Fair value adjustments
Payments
Carrying amount at the end of the year
2008
2007
$’000
$’000
9,050
6,341
949
1,709
–
1,686
3,456
–
(3,681)
(686)
9,774
9,050
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 93
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
18
CONTRIBUTED EQUITY
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
1,218,577
1,220,446
1,218,577
1,220,446
Share capital
502,277,852 (2007: 503,000,003) fully paid ordinary shares at the beginning
of the year
No shares were bought back during the financial year (2007: 722,151)
502,277,852 fully paid ordinary shares at the end of the year
–
(1,869)
–
(1,869)
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 at
shareholders’ meetings.
In the event of the winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any
proceeds of liquidation.
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 are
transferred out of the reserve and into issued capital when the rights are exercised. Further information about equity compensation payments
to employees is given in Note 28.
Foreign currency translation reserve
The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations, the translation
of transactions that hedge the Company’s net investment in foreign operations or the translation of foreign currency monetary items forming
part 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 to
hedged transactions that have not yet occurred.
20
RETAINED EARNINGS
CONSOLIDATED
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
(3,235)
–
(3,235)
–
On-market purchase of performance rights
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
SHARE
TOTAL
AMOUNT
FRANKED/
UNFRANKED
DATE OF
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
Final 2006 ordinary
7.5
37,738
franked
2 October 2006
franked
1 October 2008
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:
Final 2008 ordinary
8.5
42,694
93
4775_Pacific Brands_Financials
94
15/9/08
12:48 PM
Page 94
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
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 will
be recognised in subsequent financial reports.
THE COMPANY
2008
2007
$’000
$’000
46,073
40,156
Dividend franking account
30% franking credits available to shareholders of the Company for subsequent financial years
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 the
dividend 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 its
controlled entities. The minority interest at 30 June 2007 also included a 50.1% interest in World Brands Pty Ltd that was disposed of during
the year.
CONSOLIDATED
2008
2007
$’000
$’000
Interest in retained earnings at the beginning of the year
355
129
Net profit attributable to minority interest
Minority interest in controlled entities comprise:
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, policies
and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this
Financial 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 appropriate
risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the Company’s and Consolidated Entity’s activities. The Company and Consolidated Entity, through their
training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Audit, Business Risk and Compliance Committee oversees how management monitors compliance with the Company’s and Consolidated
Entity’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by
the Company and Consolidated Entity.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 95
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
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 future
development 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 dividends
paid to shareholders, return capital to shareholders, issue new shares or reduce debt. The Board monitors the level of dividends to ordinary
shareholders. 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 Dividend
Reinvestment 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 nonfinancial 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 or
liability.
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 at
the 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 fair
value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of
the 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 future
cash 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
CARRYING
AMOUNT
$’000
Cash and cash equivalents
Trade and other receivables
30 JUNE 2007
FAIR VALUE
CARRYING
AMOUNT
FAIR VALUE
$’000
$’000
$’000
104,822
104,822
138,640
138,640
267,307
267,307
297,048
297,048
4,438
4,438
5,153
5,153
591
591
39
39
–
–
776
776
Financial assets
Derivative instruments designated in hedge relationship:
Interest rate swaps
Forward exchange contracts receivable
Foreign exchange options
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
3,107
3,107
4,152
4,152
6,583
6,583
15,199
15,199
Finance lease liabilities
Derivative instruments designated in hedge relationship:
Forward exchange contracts payable
95
4775_Pacific Brands_Financials
96
15/9/08
12:48 PM
Page 96
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
23
ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (CONTINUED)
THE COMPANY
30 JUNE 2008
CARRYING
AMOUNT
$’000
Cash and cash equivalents
Trade and other receivables
30 JUNE 2007
FAIR VALUE
CARRYING
AMOUNT
FAIR VALUE
$’000
$’000
$’000
538
538
568
568
1,240,874
1,240,874
1,252,338
1,252,338
394
394
1,133
1,133
Financial assets
Financial liabilities
Measured at amortised cost:
Trade and other payables
(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’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters.
The Consolidated Entity enters into derivatives, and also incurs financial liabilities, in order to manage market risk. All such transactions are carried
out 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 borrowings
is 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
AVERAGE
INTEREST RATE P.A.
WEIGHTED
AVERAGE
INTEREST RATE P.A.
WEIGHTED
AVERAGE
INTEREST RATE P.A.
WEIGHTED
AVERAGE
INTEREST RATE P.A.
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%
–
–
Instruments with interest rate risk exposure:
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 and
cash and cash equivalents to interest rates at the reporting date. The increase/decrease of 100 basis points is assumed to have taken place at
the beginning of the financial year and held constant throughout the entire reporting period, and is applied against the net balance of interestbearing 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) equity
by 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 the
beginning of the financial year. The impact to equity reflects the change in basis points on the valuation of interest swaps at the reporting date
on 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 functional
currencies 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 significantly
impacted by movements in the USD.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 97
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
23
ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (CONTINUED)
(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 forecast
purchases over the following six months. The Consolidated Entity uses forward exchange contracts to hedge its currency risk, most with a
maturity 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
WEIGHTED
AVERAGE
EXCHANGE RATE
2007
AUSTRALIAN
DOLLAR
EQUIVALENT
FAIR
VALUE
$’000
$’000
0.92
202,454
(5,716)
7.26
25,026
0.4888
1,203
WEIGHTED
AVERAGE
EXCHANGE RATE
AUSTRALIAN
DOLLAR
EQUIVALENT
FAIR
VALUE
$’000
$’000
0.80
252,372
(12,560)
(556)
6.25
39,429
(2,140)
19
0.4164
1,854
(32)
Maturing within one year
Buy US dollars
Buy Hong Kong dollars
Buy UK pounds
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 other
creditors in Note 15 and the timing of their anticipated recognition as part of purchases and sales are:
CONSOLIDATED
NET GAINS/(LOSSES)
Within six months
2008
2007
$’000
$’000
(5,992)
(15,160)
In respect of other monetary assets and liabilities denominated in foreign currencies, the Consolidated Entity ensures that its net exposure is
kept 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)
(5,716)
(12,560)
(17,399)
(19,395)
Forward exchange contracts
Net Exposure
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 above
currencies to the amounts shown above, on the basis that all other variables remain constant and any foreign exchange exposures deemed to
be 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 contractual
obligations, and arises principally from the Consolidated Entity’s receivables from customers. For the Company it arises from receivables due
from subsidiaries.
Exposure to credit risk
The carrying amount of the Consolidated Entity’s and Company’s financial assets represents the maximum credit exposure.
97
4775_Pacific Brands_Financials
98
15/9/08
12:48 PM
Page 98
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
23
ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (CONTINUED)
(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. The
demographics 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 individually
for creditworthiness before the Consolidated Entity’s standard payment and delivery terms and conditions are offered. The Consolidated Entity’s
review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which
represent 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 are
graded 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 respect
of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant
exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet
identified. 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
2008
2008
2007
IMPAIRMENT
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
Balance at 1 July
Impairment loss recognised
Increase in allowance recognised in profit or loss
Increase due to business combinations
2008
2007
$’000
$’000
4,467
1,999
(1,912)
(628)
709
1,255
–
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 the
Consolidated Entity is satisfied that no recovery of the amount owing is possible; at that point, the amount is considered irrecoverable and is
written 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 to
these interest rate swaps are ‘AA’ rated Australian financial institutions. The Consolidated Entity believes no impairment is necessary in respect of
these 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’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Consolidated Entity’s reputation.
The Consolidated Entity uses various methodologies, which assist it in monitoring cash flow requirements and optimising its cash return on
investments. Typically, the Consolidated Entity ensures that it has sufficient cash on demand to meet expected operational expenses for a
period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot
reasonably 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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 99
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
23
ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (CONTINUED)
(d) Liquidity Risk (continued)
Financing facilities
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
Unsecured bank overdraft facility, reviewed annually and payable at call:
Amount used
–
–
–
–
43,965
44,531
–
–
43,965
44,531
–
–
845,700
936,500
–
–
204,300
113,500
–
–
1,050,000
1,050,000
–
–
CARRYING
AMOUNT
LESS THAN
1 YEAR
1-5 YEAR(S)
$’000
$’000
$’000
Trade and other payables
202,455
202,455
–
Bank loans
844,427
–
844,427
3,107
1,340
1,767
6,583
6,583
–
Trade and other payables
191,102
191,102
–
Bank loans
936,708
–
936,708
4,152
2,689
1,463
15,199
15,199
–
Amount unused
Bank loan facilities with various maturity dates through to 2013 which
may be extended by mutual agreements:
Amount used
Amount unused
The following are the contractual maturities of financial liabilities:
CONSOLIDATED
2008
Non-derivative financial liabilities
Finance lease liabilities
Derivative financial liabilities
Forward exchange contracts
2007
Non-derivative financial liabilities
Finance lease liabilities
Derivative financial liabilities
Forward exchange contracts
24
COMMITMENTS
CONSOLIDATED
2008
2007
$’000
$’000
49,030
51,324
134,549
135,105
35,316
34,378
218,895
220,807
Non-cancellable operating lease expense commitments
Future operating lease commitments not provided for in the
financial statements and payable:
Within one year
One year or later and no later than five years
Later than five years
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 an
incremental contingent rental. Contingent rentals are based on either movements in the Consumer Price Index or operating criteria. Where the
incremental 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).
99
4775_Pacific Brands_Financials
100
15/9/08
12:48 PM
Page 100
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
25
CONTROLLED ENTITIES
The Consolidated Entity has a 100% ownership interest in the following entities in the current and prior years except where noted:
CONTROLLED ENTITY
PLACE OF
INCORPORATION/
FORMATION
CONTROLLED ENTITY
PLACE OF
INCORPORATION/
FORMATION
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) Ltd
but 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:
CONTROLLED ENTITY
PLACE OF
INCORPORATION/
FORMATION
CONTROLLED ENTITY
PLACE OF
INCORPORATION/
FORMATION
Yakka Apparel Solutions Limited
New Zealand 4
Neat n Trim Uniforms Ltd
New Zealand 4
Yakka New Zealand Limited
New Zealand
Yakobi Pty Ltd
Australia 5
Dowd Corporation (NZ) Limited
New Zealand 4
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
INTEREST
CONSOLIDATED ENTITY
INTEREST
CONTROLLED ENTITY
PLACE OF INCORPORATION
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%
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 101
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
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). The
company manufactures, imports, distributes and retails industrial, corporate and casual wear in Australia and New Zealand.
On 2 January 2007, the Consolidated Entity acquired the Australasian streetwear business and a 50.1% controlling interest in World Brands
Pty Ltd from Globe International Limited for $42.3 million cash. The streetwear and World Brands businesses design, develop and distribute
youth 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. These
acquisitions had the following effect on the Consolidated Entity’s assets and liabilities on acquisition date:
BOOK VALUE
ADJUSTED FOR
ACCOUNTING
POLICIES
FAIR VALUE
ADJUSTMENTS
FAIR VALUE
$’000
$’000
$’000
$’000
16,650
Cash and cash equivalents
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
–
–
80,000
80,000
Brandnames
Other intangible assets
Other assets
Deferred tax assets
–
–
20,672
20,672
2,710
–
–
2,710
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)
(930)
63
958
91
Income tax payable
Current provisions
(9,340)
(313)
(559)
(10,212)
Non-current provisions
(578)
(84)
(8,703)
(9,365)
Lease liabilities
(668)
–
–
(668)
(14,810)
–
–
(14,810)
(382)
–
(26)
(408)
140,563
(56)
69,251
External debt
Minority interest
Net assets acquired
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 Entity
recorded a profit on disposal of $0.5 million.
101
4775_Pacific Brands_Financials
102
15/9/08
12:48 PM
Page 102
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
27
NOTES TO THE CASH FLOW STATEMENTS
(a) Reconciliation of cash
For the purposes of the Cash Flow Statements, cash includes cash on hand and at bank and short term deposits at call. Cash as at the end of
the year as shown in the Cash Flow Statements is reconciled to the related items in the Balance Sheets as follows:
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
NOTE
$’000
$’000
$’000
$’000
8
104,822
138,640
538
568
117,126
106,136
68,118
97,806
Share based payments
2,430
1,836
–
1,836
Net gain on disposal of businesses
(564)
–
–
–
553
–
–
–
148,652
127,014
–
–
45,269
29,297
–
–
Cash and cash equivalents
(b) Reconciliation of profit for the year to net cash
from operating activities
Profit for the year
Add/(less) non-cash items:
Loss on disposal of non-current assets
Amounts set aside to allow for doubtful debts, rebates,
claims and settlement discounts
3
Amounts set aside to allow for employee benefits
Depreciation and amortisation
26,960
24,107
–
–
Increase/(decrease) in income tax payable
3
5,950
3,191
8,410
(861)
Decrease in current and deferred tax assets
3,252
5,559
1,696
2,643
349,628
297,140
78,224
101,424
(122,531)
(151,633)
–
–
(12,791)
10,733
–
–
(4,477)
(2,572)
2
2
Net cash provided by operating activities before
change in assets and liabilities
Change in assets and liabilities:
Increase in trade and other receivables
(Increase)/decrease in inventories
Increase in prepayments
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 BENEFITS
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
NOTE
$’000
$’000
$’000
$’000
Current
17
72,711
65,666
–
–
Non-current
17
4,330
6,343
–
–
77,041
72,009
–
–
Aggregate liability for employee benefits, including on-costs:
The present values of employee benefits not expected to be settled within 12 months of reporting date have been calculated using the
following 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%
6 years
6 years
9,022
8,878
Settlement term (period)
Number of employees
Number of employees at the end of the year
(a) Superannuation plans
The Consolidated Entity contributes to the Pacific Brands Superannuation Plan (‘Plan’), which is a plan in the Mercer Super Trust, at rates
advised from time to time by the Plan’s actuary. Defined benefit members receive lump sum benefits on retirement, death, disablement and
withdrawal. 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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 103
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
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)
CONSOLIDATED
Present value of funded defined benefit obligation
Fair value of (plan) assets
Surplus
Unrecognised actuarial gains
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
41,173
50,287
–
–
(44,114)
(60,183)
–
–
(2,941)
(9,896)
–
–
1,135
8,564
–
–
(1,806)
(1,332)
–
–
50,287
47,363
–
–
Service cost
1,842
2,416
–
–
Interest cost
2,407
2,229
–
–
Net (asset)/liability for defined benefit obligations at 30 June
Changes in the present value of the defined benefit obligation
are as follows:
Opening defined benefit obligation
Contributions by plan participants
Actuarial (gains)/losses
Benefits paid
459
510
–
–
(1,433)
1,650
–
–
–
(3,335)
–
–
(101)
(460)
–
–
Contributions to accumulation section
(91)
(86)
–
–
Curtailments
228
–
–
–
Settlements
(12,425)
–
–
–
41,173
50,287
–
–
Taxes and premium paid
Closing defined benefit obligation
Changes in the fair value of plan assets are as follows:
CONSOLIDATED
Opening fair value of plan assets
Expected return
Actuarial gains/(losses)
Contributions by employer
Contributions by plan participants
Benefits paid
Taxes and premiums paid
Contributions to accumulation section
Settlements
Closing fair value of plan assets
THE COMPANY
2008
2007
2008
2007
60,183
54,617
–
–
3,628
3,450
–
–
(7,539)
4,010
–
–
–
1,477
–
–
459
510
–
–
–
(3,335)
–
–
(101)
(460)
–
–
(91)
(86)
–
–
(12,425)
–
–
–
44,114
60,183
–
–
103
4775_Pacific Brands_Financials
104
15/9/08
12:48 PM
Page 104
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
28
EMPLOYEE BENEFITS (CONTINUED)
(a) Superannuation plans (continued)
The major categories of fund assets as a percentage of total plan assets are as follows:
CONSOLIDATED
Australian equities
THE COMPANY
2008
2007
2008
2007
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 do
not use target allocations for the individual asset categories. The Consolidated Entity’s investment goals are to maximise returns subject to
specific risk management policies. Its risk management policies permit investments in mutual funds and prohibit direct investments in debt and
equity securities and derivative financial instruments. The Consolidated Entity addresses diversification by the use of mutual fund investments
whose underlying investments are in domestic and international fixed income securities and domestic and international equity securities. These
mutual 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
Defined benefit obligation
Plan assets
Surplus
2008
2007
2006
2005
$’000
$’000
$’000
$’000
41,173
50,287
47,363
46,384
(44,114)
(60,183)
(54,617)
(48,118)
(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 Statements
CONSOLIDATED
Current service costs
Interest cost on obligation
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
1,842
2,416
–
–
2,407
2,229
–
–
(3,628)
(3,450)
–
–
Actuarial gain
(347)
(145)
–
–
Effects of curtailments and settlements
(748)
–
–
–
(474)
1,050
–
–
(474)
1,050
–
–
Expected return on plan assets
The (income)/expenses are recognised in the following line items
in the Income Statements:
Administrative expenses
CONSOLIDATED
THE COMPANY
2008
2007
2008
2007
$’000
$’000
$’000
$’000
5.9%
5.4%
–
–
Principal actuarial assumptions at the balance sheet date
(expressed as weighted average annual rates):
Discount rate at 30 June
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 target
allocation of asset classes. The returns used for each class are net of investment tax and investment fees. An allowance for administration
expenses has been deducted from the expected return.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 105
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
28
EMPLOYEE BENEFITS (CONTINUED)
(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 granted
performance rights (each being an entitlement to a share, subject to the satisfaction of vesting conditions, principally related to financial
performance) on terms and conditions determined by the Board. If the vesting conditions are satisfied, the performance rights vest and shares
will 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
1 JULY 2007
(NUMBER)
GRANT 4 1
GRANT DATE
1 JULY 2006
(NUMBER)
GRANT 3 1
GRANT DATE
1 JULY 2005
(NUMBER)
GRANT 2 1
GRANT DATE
1 JULY 2004
(NUMBER)
GRANT 1
–
–
525,000
2,500,000
Granted
–
433,721
–
–
30 June 2007
–
433,721
525,000
2,500,000
659,000
–
–
–
NUMBER OF PERFORMANCE RIGHTS
1 July 2006
Granted
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 each
reporting period evenly over the period from grant date to vesting date. The value of share based payments disclosed in Note 3 includes a
portion of the fair value of the performance rights allocated to this year. In valuing the performance rights, market conditions have been taken
into account.
1 JULY 2007
GRANT 4
1 JULY 2006
GRANT 3
1 JULY 2005
GRANT 2
1 JULY 2004
GRANT 1
Fair value at measurement date
$2.28
$1.42
$1.35
$1.60
Share price
$3.45
$2.15
$2.30
$2.70
Fair value of performance rights and assumptions
Expected volatility
27%
25%
25%
25%
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%
Performance right life (period)
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the performance rights),
adjusted for any expected changes to future volatility due to publicly available information.
Performance rights are granted under a service condition and, for grants to key management personnel, market and non-market performance
conditions. Non-market performance conditions are not taken into account in the grant date fair value measurement of the services received.
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 group
of companies. The comparator group of companies differs for each grant, details of the comparator groups of companies are contained on
page 63 of this Annual Report. TSR is, broadly, a measure of the return to shareholders provided by share price appreciation, plus reinvested
dividends, expressed as a percentage of investment.
In 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 relevant
date, exceed the price at which the shares listed on the Australian Stock Exchange on 6 April 2004 ($2.50) prior to any performance rights
vesting, subject to the operation of the PRP rules.
105
4775_Pacific Brands_Financials
106
15/9/08
12:48 PM
Page 106
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
28
EMPLOYEE BENEFITS (CONTINUED)
(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
IN GIVEN YEAR THAT VESTS
TARGET
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
IN GIVEN YEAR THAT VESTS
TARGET
The Company’s 3 year TSR does not exceed the median performance of the comparator companies
0%
The Company’s 3 year TSR exceeds the median performance of the comparator companies
50%
The Company’s 3 year TSR is ranked in the third quartile of the comparator companies
Pro rata between 50% and 100%
(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 to
Grants 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 the
Company’s view of what is reasonable target value, taking account of likely business cycle conditions as well as the upside potential the
Company has for further earnings growth. EPS performance requirements for each grant are shown in the table below:
PERCENTAGE OF SHARES
IN TRANCHE AVAILABLE IN
GIVEN YEAR THAT VESTS
GRANT 2 PERFORMANCE RIGHTS EPS TARGET
GRANTS 3 AND 4 PERFORMANCE RIGHTS EPS TARGET
0%
The Company’s compound EPS growth (tested over
1, 2, 3 and 4 years) is less than 8.5%
The Company’s 3 year compound EPS growth is less
than 8.0%
25%
The Company’s compound EPS growth (tested over
1, 2, 3 and 4 years) equals 8.5%
The Company’s 3 year compound EPS growth equals
8.0%
Pro rata between
25% and 100%
The Company’s compound EPS growth (tested over
1, 2, 3 and 4 years) is between 8.5% and 10.5%
The Company’s 3 year compound EPS growth is
between 8.0% and 12.0%
100%
The Company’s compound EPS growth (tested over
1, 2, 3 and 4 years) is equal to or exceeding 10.5%
The Company’s 3 year compound EPS growth is equal
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 in
the 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 financial
performance of the Company in the 2008 financial year, no shares (2007: 1,591,874 shares) in the capital of the Company vested in the
executive 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
GRANT DATE
% VESTING
GRANT DATE
% VESTING
GRANT DATE
% VESTING
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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 107
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
28
EMPLOYEE BENEFITS (CONTINUED)
(b) Share based payments (continued)
(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 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 Grants 3 and 4, executives are not entitled to trade in shares allocated on vesting of the performance rights until the earliest to
occur of:
•
a request from the relevant executive to the Board to release the holding lock;
•
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
1 JULY 2007
(NUMBER)
GRANT 2
1 July 2006
Granted
Lapsed/forfeited
GRANT DATE
1 JULY 2006
(NUMBER)
GRANT 1
–
990,000
(130,000)
30 June 2007
860,000
Granted
Exercised
Forfeited
1,150,000
–
–
–
–
(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 dividends
are not considered in the determination of the fair value of deferred shares. The fair value of deferred shares is allocated to each reporting
period evenly over the period from grant date to vesting date. The value of share based payments disclosed in Note 3 includes a portion of the
fair value of the deferred shares allocated to this year. In valuing the deferred shares, the following assumptions have been taken into account.
Fair value of deferred shares and assumptions
Fair value at measurement date
Share price
Performance right life (period)
Dividend yield (per annum)
1 JULY 2007
GRANT 2
1 JULY 2006
GRANT 1
$2.85
$3.45
3 years
6.4%
$1.80
$2.15
3 years
6.0%
Performance conditions for vesting
The 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 performance
period.
TARGET
The Company’s compound EPS is less than 8.5% per annum
The Company’s compound EPS is 8.5% per annum
For each 0.1% per annum increase in The Company’s compound EPS growth rate above 8.5%
The Company’s 3 compound EPS growth rate is above 10.5%
PERCENTAGE OF SHARES AVAILABLE
IN GIVEN YEAR THAT VESTS
0%
25%
Pro rata between 25% and 100%
(3.75% increase for each 0.1%
additional EPS growth)
100%
40% of the deferred shares will be available to vest if eligible executives discharge their obligations to the Company in accordance with annual
KPIs agreed with their managers. This performance condition will be determined at the end of the 3 year performance period (ie after 30 June
2009 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 unvested
deferred 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 June
2012 for Grant 2). The unvested deferred shares will then be tested over a 5 year period in accordance with the vesting schedule above, so that
if the threshold EPS of 8.5% per annum compound is achieved over the 5 year period, 25% of those previously unvested deferred shares will
vest. 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.
107
4775_Pacific Brands_Financials
108
15/9/08
12:48 PM
Page 108
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
28
EMPLOYEE BENEFITS (CONTINUED)
(b) Share based payments (continued)
(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 minimum
percentage determined by the Board from time to time) of their annual directors’ fees towards the acquisition of shares in the Company. Nonexecutive directors are not able to sell or otherwise dispose of the shares until the earliest of 10 years after acquisition, the non-executive
director ceasing to be a director of the Company, or the non-executive director applying to the Board and the Board determining (in exceptional
circumstances) that any or all restrictions applying to the shares cease. Shares will usually be purchased on-market at the prevailing market
price of shares by applying an amount equal to the amount of fees a non-executive director has elected to sacrifice to acquire shares. Shares
are 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:
CONSOLIDATED
Short term employee benefits
Non-monetary benefits
Post-employment benefits
THE COMPANY
2008
2007
2008
2007
$
$
$
$
9,215,654
4,743,700
389,661
279,608
666,484
474,734
245,961
190,615
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 Corporations
Regulations 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 Entity
since 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
30 JUNE 2006
GRANTED AS
COMPENSATION
HELD AT
30 JUNE 2007
GRANTED AS
COMPENSATION
EXERCISED
FORFEITED
HELD AT
30 JUNE 2008
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
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)
–
Directors
Executives
M.S. Daniel
200,000
42,442
242,442
48,000
(120,000)
(170,442)
–
250,000
40,116
290,116
45,000
(128,750)
(80,000)
126,366
–
–
–
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
–
–
–
41,000
–
–
41,000
4
M.J. Ford
B.A. Hannagan 5
6
No performance rights were exercised during the year 30 June 2007.
1
2
3
4
5
6
P.R. Moore retired from the Company effective 1 January 2008.
S.W. Audsley resigned from the Company effective 5 October 2007.
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.
M.S. Daniel resigned from the Company, effective 2 May 2008.
B.A. Hannagan was appointed Group General Manager, Underwear and Hosiery effective 29 January 2008.
R.A. Taylor was appointed Group General Manager, Home Comfort effective 1 December 2007.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 109
PACIFIC
BRANDS
AR08
Notes to the Financial Statements
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 key
management personnel, including their related parties, is as follows:
HELD AT 30
JUNE 2006
PURCHASES
SALES
HELD AT 30
JUNE 2007
PURCHASES
SALES
HELD AT 30
JUNE 2008
R.P. Handley
1,364,305
26,341
–
1,390,646
34,766
(500,000)
925,412
P.R. Moore
1,320,001
–
–
1,320,001
625,000
–
N/A1
200,400
–
–
200,400
160,937
–
361,337
Directors
1
S.M. Morphet
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
–
2,011
–
2,011
12,056
–
14,067
N/A
N/A
N/A
–
1,636
–
1,636
S.W. Audsley 3
201,800
–
–
201,800
160,937
–
N/A3
I.C. Barton
120,400
–
–
120,400
128,750
–
N/A4
1,250
–
–
1,250
D.G. Fisher
J.A.C. MacKenzie
2
Executives
4
Y.K. Cheong 5
N/A
N/A
N/A
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
N/A
N/A
N/A
470
34
–
504
M.M. Clark
B.A. Hannagan 8
200,429
–
(50,000)
150,429
128,750
–
279,179
M. Sonand
M.E Keely
–
4,000
–
4,000
3,994
–
7,994
R.A. Taylor
N/A
N/A
N/A
109,587
399
–
109,986
1
2
3
4
5
6
7
8
9
9
P.R. Moore retired from the Company effective 1 January 2008.
J.A.C. MacKenzie was appointed as a director of the Company on 27 May 2008.
S.W. Audsley resigned from the Company effective 5 October 2007.
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.
Y.K. Cheong was appointed Group General Manager, Supply and Operations effective 10 March 2008.
M.M. Clark was appointed Group General Manager, Workwear effective 26 May 2008.
M.S. Daniel resigned from the Company, effective 2 May 2008.
B.A. Hannagan was appointed Group General Manager, Underwear and Hosiery effective 29 January 2008.
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 for
the 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 the
Consolidated Entity’s policy that these purchases are on the same terms and conditions as those entered into by Consolidated Entity
employees or customers and are immaterial or domestic in nature.
109
4775_Pacific Brands_Financials
110
15/9/08
12:48 PM
Page 110
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Notes to the Financial Statements
30
NON-KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
THE COMPANY
2008
2007
$’000
$’000
70,000
100,000
37,156
48,618
1,203,714
1,203,714
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
Aggregate amounts receivable from controlled entities are:
Amounts receivable other than trade receivables
Current
Wholly-owned controlled entity
Non-current
Wholly-owned controlled entity (interest-free)
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 material
and unusual nature likely, in the opinion of the directors of the Company to affect significantly the operations of the Consolidated Entity, the
results 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.
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 111
PACIFIC
BRANDS
AR08
Directors’ Declaration
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 their
performance, for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 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 Australian
Accounting 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 Officer
and 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
Chairman
Sue Morphet
Chief Executive Officer
111
4775_Pacific Brands_Financials
112
15/9/08
12:48 PM
Page 112
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Independent Auditor’s Report to the Members of Pacific Brands Limited
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 entity
comprising 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 Australian
Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes
establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material
misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that
are reasonable in the circumstances. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101
Presentation of Financial Statements, that the financial report, comprising the financial statements and notes, complies with International
Financial 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 Australian
Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and
plan and perform the audit to obtain reasonable assurance whether the 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 procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations
Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with our
understanding of the Company’s and the 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 their
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 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 directors
of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the
Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance
with 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 the
Corporations Act 2001.
KPMG
Melbourne, 20 August 2008
Don Pasquariello
Partner
4775_Pacific Brands_Financials
15/9/08
12:48 PM
Page 113
PACIFIC
BRANDS
AR08
Shareholders’ Statistics
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%
108
3.4%
390,427,332
77.7%
31,391
100.0%
502,277,852
100.0%
SHARES
% OF TOTAL
100,001 and over
Total
Included in the above total are 1,911 shareholders holding less than a marketable parcel of 248 shares.
TWENTY LARGEST ORDINARY FULLY PAID SHAREHOLDERS
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 disclosed
in 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%
113
4775_Pacific Brands_Financials
114
15/9/08
12:48 PM
Page 114
PACIFIC
BRANDS
AR08
Financial Report to Shareholders
Shareholders’ Information
Annual General Meeting
Change of name and/or address
10.00am, Tuesday 21 October 2008.
Level 17, RACV Club, 501 Bourke Street,
Melbourne, Australia.
For issuer-sponsored holdings, please notify the Share Registry in
writing if you change your name and/or address. When advising the
Share Registry of a change of name, please supply details of your
new/previous name, your new/previous address, your SRN and
supporting documentation evidencing your change of name. You can
also change your address details online at the Share Registry’s
website at www.computershare.com.au. Changes of address relating
to shareholdings in a single name can be made over the phone by
calling 1300 132 632 (Australia only). Please note that this does not
apply to shareholdings held jointly or in a company name.
Stock exchange listing
Pacific Brands shares are listed on the Australian Stock Exchange
(ASX) and New Zealand Stock Exchange (NZX) and are traded under
the code ‘PBG’.
Pacific Brands Share Registry
Australia
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford Victoria 3067
Australia
GPO Box 2975
Melbourne Victoria 3001
Australia
New Zealand
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road
Takapuna, Auckland
New Zealand
Telephone:
Australia:
New Zealand:
International:
Facsimile:
Email:
For CHESS/broker-sponsored holdings, please notify your broker in
writing if you change your name and/or address.
Share enquiries
Shareholders seeking information about their shareholding or dividends
should contact the Share Registry. Contact details are above.
Pacific Brands’ communications
Pacific Brands internet site, www.pacificbrands.com.au offers
information about the Company, news releases, announcements to
ASX and NZX and addresses by the Chairman and CEO. The website
provides essential information about the Company and an insight into
Pacific Brands’ businesses.
Registered office
ABN 64 106 773 059
1300 132 632
(09) 488 8777
(61 3) 9415 4184
(61 3) 9473 2500
web.queries@computershare.com.au
Tax and dividend payments
For Australian registered shareholders who have not quoted their Tax
File Number (‘TFN’), exemption or Australian Business Number
(‘ABN’), the Company is obliged to deduct tax at the top marginal tax
rate plus Medicare levy from unfranked and/or partially franked
dividends. If you have not already provided your TFN/ABN, you may
do so by contacting the Share Registry or by registering your
TFN/ABN at the Share Registry’s website at
www.computershare.com.au.
Dividend payments
Your dividends will be paid in Australian currency credited directly into
your nominated bank account. If you have not nominated a bank
account, a dividend cheque will be mailed to the address recorded
on the share register less an administration fee of $1.00. If you wish
to elect to receive your dividends by way of direct credit but have not
done so, you should complete an application form available by
contacting the Share Registry or enter the details at the Share
Registry’s website at www.computershare.com.au.
Dividend Reinvestment Plan
The Dividend Reinvestment Plan enables Pacific Brands’ fully paid
ordinary shareholders having a registered address or being resident
in Australia or New Zealand to reinvest all or part of their dividends
in additional 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 to
consolidate into a single account, please notify the Share Registry
in writing, quoting your full registered names and Security Reference
Numbers (SRNs) for these accounts and nominating the account to
which the holdings are to be consolidated.
Pacific Brands Limited
Level 3, 290 Burwood Road
Hawthorn Victoria 3122
Telephone:
Fascimile:
Email:
Website:
(61 3) 9947 4900
(61 3) 9947 4951
enquiries@pacbrands.com.au
www.pacificbrands.com.au
Investor relations
Telephone:
Email:
Auditors
KPMG
(61 3) 9947 4900
investorrelations@pacbrands.com.au
PACIFIC
BRANDS
AR08
Pacific Brands Annual Report
Company Directory
CHAIRMAN
Pat Handley
CHIEF EXECUTIVE OFFICER
Sue Morphet
CHIEF FINANCIAL OFFICER
Stephen Tierney
PACIFIC BRANDS LIMITED
REGISTERED OFFICE
Level 3, 290 Burwood Road
Hawthorn, Victoria 3122
Telephone: (61 3) 9947 4900
Facsimile: (61 3) 9947 4951
Email: enquiries@pacbrands.com.au
PACIFIC BRANDS NEW ZEALAND
NON- EXECUTIVE DIRECTORS
Andrew Cummins
Dominique Fisher
Max Ould
Maureen Plavsic
James MacKenzie
Greenlane
Level 1, 308 Great South Road
Greenlane, Auckland 1005
New Zealand
Telephone: (64 9) 523 7800
Facsimile: (64 9) 523 7801
COMPANY SECRETARY
PACIFIC BRANDS (ASIA) LIMITED
John Grover
Langham Place, Level 40
Office Tower, 8 Argyle Street
Kowloon
Hong Kong
Telephone: (852) 2956 6688
Facsimile: (852) 2956 1778
ACCESS PACIFIC BRANDS ON THE WEB
All Pacific Brands announcements and
reports, including an electronic version of this
Annual Report are available online at
www.pacificbrands.com.au.
You can also nominate to receive email
notification of future announcements by
registering at Email Updates in the Investor
Relations section of the site.
(www.pacificbrands.com.au/join-us.asp)
PACIFIC BRANDS UK
Unit 1, Stretton Green Distribution Park
Langford Way, Appleton
Warrington, Cheshire, WA4 4TQ
England
Telephone: (44) 19 2521 2212
Facsimile: (44) 19 2521 2222
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 Forest
Stewardship Council (FSC) certified virgin fibre. Produced under ISO 14001 Environmental Accreditation.
The financial section is printed on Ecostar, a 100% post-consumer recycled paper.
115