PACIFIC BRANDS ANNUAL REPORT 2009
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PACIFIC
BRANDS
AR09
chairman & CEO’s review
Financial summary
Operational highlights
Board of directors
Senior management
Corporate social responsibility program
Corporate governance statement
directors’ report
remuneration report
Financial report to shareholders
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6
7
9
11
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PACIFIC
BRANDS
AR09
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Chairman & CEO’s review
“The outcome of our review is a strategy we
believe will deliver the most sustainable future
for our Company – Pacific Brands 2010.”
Dear Shareholders,
The last twelve months have seen significant change in your
business – changes that position the Company for a sustainable,
positive future.
As we mentioned in our last annual report, Pacific Brands
completed a comprehensive strategic review of your business,
driven by the imperative to keep Pacific Brands relevant,
competitive and strong.
The outcome of our review is a strategy we believe will deliver the
most sustainable future for our Company – ‘Pacific Brands 2010’.
The strategic review confirmed that while our business model
is inherently sound, there were areas of the business we could
improve. We had too many brands, too much complexity, high
cost structures in local manufacturing and limited uniformity of
processes and procedures.
However, the review also revealed pockets of excellence which
could be leveraged throughout our entire Company.
Throughout the year, we commenced the implementation of
Pacific Brands 2010 – encompassing restructuring, refinancing,
retraining, reskilling and regenerating our Company.
We are pleased to present the 6th Annual Report of Pacific Brands
for the year ended 30 June 2009.
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PACIFIC
BRANDS
AR09
Chairman & CEO’s review (CONTINUED)
“Pacific Brands achieved solid operating earnings
and cashflow in challenging market conditions.”
Financial Results
Pacific Brands achieved solid operating earnings and cashflow
in challenging market conditions.
Our sales were $2.0 billion and our earnings before interest tax
and amortisation (EBITA) and significant items were $205.3
million. Reported earnings in F09 were impacted by a number of
significant items not related to ongoing operations. The group
booked non-cash asset impairment and write-down charges and
incurred restructuring expenses of $334.6 million (post tax)
associated with the implementation of Pacific Brands 2010.
We’ve maintained solid net operating cashflow of $81.2 million
after significant items and capital expenditure through tight
control of expenses and prudent inventory management.
more of the right skills and resources into the teams that support
our key brands.
We have made good progress implementing Pacific Brands 2010
– transforming our business and strengthening our business
model. All the initiatives contained in the plan are underway. Our
cost savings are ahead of plan and are tracking towards an
annualised target of $150 million by the end of F11 with full
impact in F12 (based on current market conditions and currency
rates, and before any reinvestment).
The Pacific Brands 2010 transformation program has six core
themes set out below.
1. Rationalise and focus the portfolio
2. Optimise the revenue base
Significant costs have been taken out in all businesses as we
accelerated the implementation of the Pacific Brands 2010
transformation program in response to the volatile and softer
market conditions.
3. Rebase overhead cost structures
4. Transform supply chain and operations
5. Reduce capital employed
6. Build organisational capability
New Capital Structure
Implementation achievements during F09 included:
The Company now has a much stronger balance sheet following
the equity raising and debt refinancing completed during the year.
• Discontinued, merged and divested more than 150 brands
and reduced stock keeping units by 10%
• Increased prices for the first time in many years for some
businesses
• Prioritised marketing expenditure to increase effectiveness
• Decreased the workforce by more than 800
We were also pleased with the results of our $256.0 million equity
raising, successfully completed in June this year. The strong
support from investors has resulted in a strengthening of
Pacific Brands’ balance sheet and has provided the Company
with additional financial flexibility.
• Re-negotiated more than 50% of the volume of our
supplies from China
• Closed four factories and part of another
• Reduced inventory holdings
• Rolled out a ‘brand excellence’ improvement program
As a result of the equity raising and our solid cash flow
generation, we have reduced our net debt levels to $452.8 million
at 30 June 2009, from $742.7 million at 30 June 2008. Our
gearing levels have dropped during the year to 2.0 times from 2.9
times, we have fully repaid tranche 1 of our debt and have
reduced tranche 2 by $117.5 million.
• Introduced new product development processes to the
majority of the group
• Implemented new product lifecycle management and
financial reporting systems
We would like to welcome our new shareholders who joined the
register throughout the year and thank our existing shareholders
who supported us during the equity raising.
While the Pacific Brands 2010 strategy has involved many
decisions, the most significant of these in terms of the impact on
our employees has been the cessation of the majority of clothing
manufacturing in Australia and New Zealand and the resulting
outsourcing of these to offshore suppliers.
As we announced in April, Pacific Brands has extended the
maturity date of its debt, with no significant refinancing now
required until March 2012. This is an excellent result that
demonstrates continued support from our banking syndicate.
Pacific Brands 2010
Our strategic review left us in no doubt that we needed to make
significant structural changes to the Company.
While Pacific Brands had performed well in the environment that
existed in previous years, the new environment, with production
and performance benchmarked by global standards, meant that
we had to update the way we did business in order to ensure the
future strength and performance of the Company.
The strategic review highlighted that we had an extremely
cluttered portfolio – our top twenty brands provided us with
almost two-thirds of our sales – and our long tail of almost two
hundred other brands accounted for just 2% of sales.
The strategic review confirmed we could get better returns by
concentrating on our key brands and devoting more resources to
growing them. Under Pacific Bands 2010, we are progressively
discontinuing, merging or divesting our smaller brands to create a
stronger and more focused portfolio of brands. We are putting
Manufacturing Closures
Pacific Brands was the last major Australian company still
manufacturing clothing in any significant capacity onshore. Until
now, we have maintained as much manufacturing here as
possible. Yet we have sourced approximately 70% of our
products from overseas for many years.
This decision will result in more than 1,200 manufacturing
employees being made redundant. While the rationale of making
so many people redundant was compelling, it didn’t make the
decision any easier or more palatable. Many of these people have
been with us for decades and have made an important
contribution to the development of Pacific Brands.
In the course of deciding to restructure the business, our
considerations included ensuring that we would do everything
possible to give our employees being made redundant the best
chance of getting a new job in sustainable industries.
PACIFIC
BRANDS
AR09
We have been working in consultation with the Textile Clothing and
Footwear Union of Australia to develop, fund and implement an
extensive retraining program for all manufacturing employees being
made redundant.
It is a program that is unique in Australia and has been extended
to our New Zealand employees in consultation with the National
Distribution Union in New Zealand. This sets a new benchmark
for managing redundancies.
Most significantly, impacted employees have already, and will continue
to, receive retraining and re-skilling while still in their current jobs.
All affected manufacturing workers have been offered retraining
and have access to $3,000 worth of courses and up to three
weeks paid leave while they are still in their jobs, which is over
and above any government retraining they may be eligible for.
We are determined to support our employees and assist them
with their transition to new work and new opportunities.
Pacific Brands, like most other major wholesalers, has been
importing from Asia for more than 50 years. We will continue to work
closely with our supply partners to ensure all our products and
fabrics manufactured offshore maintain our high quality standards.
Changes to the Board and Management Team
There were a number of changes to the structure and
composition of the Board and Management team of Pacific Brands
during the past year:
• In November 2008, Pat Handley resigned as Chairman of
Pacific Brands after seven years in the position. We thank Pat
for his contribution to the Company
• James MacKenzie was elected to the role of Chairman by
the Board following Pat’s resignation
• Dr Nora Scheinkestel joined the Board in June. Nora
brings invaluable experience to Pacific Brands, having
served as a non-executive Chairman and director of
companies in a wide range of sectors in the public,
government and private spheres
• In April this year, CFO Stephen Tierney resigned after
nineteen years at Pacific Brands. We thank Stephen for his
contribution to the Company
• David Bortolussi joined the Company as Chief Financial
and Operating Officer in June this year. David joined the
Company from Foster’s and prior to that was with
McKinsey & Company and PricewaterhouseCoopers
• Simon Smith joined Pacific Brands to lead our Home
Comfort division from eBay Australia where he spent eight
years as Managing Director
• Melanie Allibon joined the Company to manage Human
Resources across the group following roles at Amcor,
Foster’s and BHP
Pacific Brands has a skilled management team with the
experience and enthusiasm to continue the successful
implementation of Pacific Brands 2010 and ongoing operations of
the Company.
Dividend
The Pacific Brands Board has decided to preserve the
Company’s capital and no dividends have been declared in the
year ending 30 June 2009.
The Board will make a decision in respect of future dividends after
assessing the Company’s operating performance at each half and
the outlook at that time.
Outlook
Since the start of the financial year, trading has been mixed with
some businesses performing well and others marginally down on
the prior corresponding period. Although the economic
environment and outlook remain uncertain, the Company notes
cautious optimism in the market and recent signs of improving
consumer confidence.
Consistent with the Pacific Brands 2010 strategy to rationalise
and focus the portfolio, reported sales revenue is expected to
reduce over the course of the transformation period. However,
implementation of Pacific Brands 2010 is expected to result in a
more robust and profitable business in the longer term.
Feedback
Your feedback is extremely important to us and we want to
ensure that you, our shareholders, have an avenue to ask any
questions about Pacific Brands 2010 or other Company matters.
We have created a designated email address for you to submit
questions and we will endeavour to address these at our Annual
General Meeting on 20 October 2009 at The Sebel, Albert Park in
Melbourne. Please email any questions you may have to
agmquestions@pacbrands.com.au
Thank you for your support over the past 12 months.
James MacKenzie, Chairman
26 August 2009
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Sue Morphet, Chief Executive Officer
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PACIFIC
BRANDS
AR09
Financial Summary
$ millions
Notes
2009
2008
2007
2006
2005
2,000.0
2,116.6
1,820.7
1,624.9
1,521.7
868.2
953.6
772.1
680.2
630.3
Sales and Profit
Net sales revenue
Gross profit
EBITA
1,2
205.3
229.1
194.0
173.0
174.6
NPAT
1,2
102.5
119.3
107.4
101.4
101.0
(234.5)
116.6
106.0
101.2
100.9
Reported NPAT (post minority interests)
Balance Sheet
Inventory
311.4
356.9
361.5
296.5
255.4
Receivables
231.5
246.4
280.7
187.9
174.7
Property, plant & equipment
144.4
204.9
206.8
167.0
152.3
Intangibles
1,321.3
1,507.5
1,503.8
1,297.3
1,227.1
Creditors
(117.4)
(150.5)
(138.8)
(107.3)
(102.4)
Other
(175.3)
(96.1)
(97.1)
(35.0)
(41.9)
Total capital employed
1,715.9
2,069.1
2,116.9
1,806.4
1,665.2
Net debt
(452.8)
(742.7)
(802.2)
(512.6)
(391.6)
Net assets / total equity
1,263.1
1,326.4
1,314.7
1,293.8
1,273.6
Ratios
EBITA margin (%)
EPS (cents)
1,2
10.3
10.8
10.6
10.6
11.5
1,2,3
17.4
21.3
19.2
18.1
18.0
Dividends per share (cents)
Debt / equity (%)
Return on capital employed (%)
1,2
0.0
17.0
16.5
15.0
15.0
35.8
56.0
61.0
39.4
30.7
12.0
11.1
9.2
9.6
10.5
1 Before significant items comprising asset impairment, writedowns and restructuring expenses.
2 Before amortisation of acquired intangibles. 3 Comparative EPS figures have been re-stated for the impact of the rights issue undertaken during F09 in accordance with AASB133 Earnings per Share.
Portfolio snapshot
Sales by operating group
EBITA by operating group1
n
Outerwear / Sport
n
32.1%
n
Underwear / Hosiery
25.7%
n
31.3%
n
Home Comfort
n
Footwear
n
Other
1.2%
1 Before significant items comprising asset impairment, writedowns and restructuring expenses.
U
nderwear / Hosiery
42.9%
n
H
ome Comfort
n
F
ootwear
22.8%
12.6%
O
uterwear / Sport
18.6%
12.8%
PACIFIC
BRANDS
AR09
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Operational highlights
Review of Operations
Home Comfort
Group sales overall contracted by $116.6 million to $2.0 billion as
we divested businesses, discontinued brands and due to the
general economic slowdown. Excluding divested businesses and
discontinued brands, sales in the underlying business were down
by approximately 1%.
Home Comfort sales were down 13.1% to $456.0 million and
EBITA (before significant items) down 18.3% to $40.6 million. The
tough housing and construction markets, consumer slowdown and
fixed cost structures in the manufacturing businesses all impacted
profitability.
EBITA before significant items was down 10.4% to $205.3 million
due to volume declines and adverse mix changes as consumers
traded down, and through an increase in raw materials and input
costs, partially offset by price increases. Currency also had an
impact on the Company’s profitability over the year with imported
unit costs increasing sharply from the unprecedented currency
volatility in F09. Our hedging program delayed the impact by
around six to nine months, however, as anticipated, earnings
were impacted in 4Q09.
Sheridan and Sleepmaker were adversely impacted by softer
consumer demand and Tontine was the standout performer with
sales up in all channels. The industrial businesses, Dunlop Foams
and Dunlop Flooring, grew market share in markets that were down.
Highlights:
• Significantly restructured many of these businesses over
the year reducing manufacturing shifts, overheads and
discretionary spend
• Tontine introduced a unique Pillow Selection System that
categorises pillows by height and feel to allow consumers
to find their perfect pillow
• ComforPedic by Simmons™ mattresses have been
launched with New NXG™ Advanced Memory Foam
Underwear & Hosiery
Underwear and Hosiery sales were down 1.8% to $625.6 million
and EBITA (before significant items) down 7.9% to $93.4 million.
Hosiery, Bonds and Berlei grew but this was offset by declines in
Clothing New Zealand and Holeproof.
Highlights:
• Bonds continued to innovate and deliver new products to
the market throughout the year, such as the youth Sloppy
Joe, the revamp of the iconic Cottontails and the men’s Fit
and Active ranges
• Bonds introduced cricketer Michael Clarke as a brand
ambassador alongside Sarah Murdoch and Pat Rafter
• Berlei’s successful Uplifting Tour of Australia campaign for
the Barely There bra won two awards at the Media
Federation Awards – Best Integrated Campaign and Best
Clothing/Cosmetics & Retail Campaign
Footwear
Footwear sales were down 7.0% to $251.9 million and EBITA
(before significant items) down 23.0% to $28.0 million. Footwear
sales were down mainly due to the poor performance of Grosby,
unbranded and international operations, and profitability was
impacted by currency movements. Management is in the process
of restructuring the international footwear operations. Branded
businesses such as Dunlop Volley, Hush Puppies, Clarks, and
Julius Marlow performed strongly.
Highlights:
• Dunlop Volley’s Internationally Average campaign was voted
as one of the top 10 best campaigns by B&T Magazine
• Berlei extended its offering during the year to include an
intimates range
• Playtex launched the Secrets range led by new brand
ambassador, Kate Ceberano
• Volley Uggly closed the gap between slippers and street
footwear
• Grosby launched Hoodies for your feet
• Dunlop Sport collaborated with running legend Cathy
Freeman to develop the Freeman performance running shoe
Outerwear & Sport
Outerwear and Sport sales were down 2.3% to $641.4 million
and EBITA (before significant items) down 3.8% to $56.0 million.
Streetwear (within Outerwear) and sports segments were up,
Workwear was flat and unbranded sales down.
Highlights:
• B2B (Business to Business) contract uniform business
grew 6%, with new contracts and roll outs including the
NSW Police Force and Compass Group in Europe
• Hard Yakka launched a new, modernised women’s
workwear range and the Kids Action Back Overall
• Everlast introduced the Hydrolast boxing boot featuring a
high-tech proprietary rubber sole
• Malvern Star launched the Oppy range of performance
road bikes featuring an exclusively Australian designed
carbon frame
• Slazenger brand management was consolidated bringing
together previously independent elements of apparel,
footwear, socks and sporting equipment
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PACIFIC
BRANDS
AR09
Board of directors
James MacKenzie
Chairman, Independent Non-Executive
BBus, FCA, FAICD, Age 56
James joined the Board of Pacific Brands Limited in May 2008 and was appointed as Chairman
in November 2008. A Chartered Accountant by profession, James was a partner in both the
Melbourne and Hong Kong offices of a Deloitte antecedent firm. James led the transformation
of the Victorian Government’s personal injury schemes as Chairman of the Transport Accident
Commission and the Victorian WorkCover Authority. James is Chairman of Mirvac Group (since
2005) and Gloucester Coal Limited (appointed June 2009), and a director of Melco Crown
Entertainment Limited (appointed April 2008). James has previously been a director of Bravura
Solutions Limited (2006 to 2008), 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 54
Sue was appointed Chief Executive Officer 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, is a member of Chief Executive Women and has various other philanthropic interests.
Andrew Cummins
Director, Independent Non-Executive
BEng (Hons), MBA, PostGradDip (Bus Studies), MIEAust, Age 60
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 Stella Hotels &
Travel Limited, I-Med Group and RCTI Inc. He is also a director of PBL Media and Asia
Bottles Limited. 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.
Dominique Fisher
Director, Independent Non-Executive
BA (Hons), Age 52
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.
PACIFIC
BRANDS
AR09
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Max Ould
Director, Independent Non-Executive
BEcon, Age 62
Max was appointed to the Board of Pacific Brands Limited in February 2004, bringing
leadership expertise in the consumer goods industry. Max is Chairman of Goodman Fielder
Limited (since 2006) and a director of Foster’s Group Limited (since 2004) and AGL Energy
Limited (previously The Australian Gas Light Company) (since 2004). 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.
Maureen Plavsic
Director, Independent Non-Executive
Age 53
Maureen joined the Board of Pacific Brands Limited in May 2004, bringing more than
twenty-five years 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 (since 2003), a non-executive director of Macquarie Radio
Network Limited (since 2005) and a director of not for profit entity Bestest Inc. Maureen has
previously been a director of Seven Network Limited (1998 to 2003) and Opera Australia
(1998 to 2003). Maureen previously spent fourteen 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.
Nora Scheinkestel
Director, Independent Non-Executive
LLB (Hons), PhD, FAICD, Age 49
Nora joined the Board of Pacific Brands Limited in June 2009, having served as a non-executive
Chairman and director of companies in a wide range of industry sectors and in the public,
government and private spheres. Currently, Nora is a director of AMP Limited (since 2003) and two
of its subsidiaries, AMP Bank Ltd and AMP Capital Investors. Nora is also a director of Orica Ltd
(since 2006) and PaperlinX Ltd (since 2000). Her prior directorships include Newcrest Mining Ltd
(2000 to 2007), Mayne Group Ltd (2005), Mayne Pharma Ltd (2005 to 2007) North Ltd, MBF Health
Fund IOOF Funds Management and various Government Business Enterprises. Nora has also
served as a director of a number of utilities across the gas, water and electricity sectors. Nora’s
executive background is as a senior banking executive in international and project financing,
responsible for the development and financing of major projects in Australasia and South East Asia.
Nora is an Associate Professor at the Melbourne Business School at Melbourne University. In 2003,
she was awarded a centenary medal for services to Australian society in business leadership.
John Grover
Company Secretary
LLB, BComm, FCIS, Age 47
John was appointed to the position of General Counsel and 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 a major Australian law
firm, which included two roles based in South East Asia.
9
PACIFIC
BRANDS
AR09
Senior management
Melanie Allibon
Group General Manager, Human Resources
BBus, Age 44
Melanie joined Pacific Brands in November 2008 to manage the business’ Human Resources
function including the Pacific Brands Safety, Health, Environment and Quality program. Prior to
joining Pacific Brands, Melanie held senior human resources and operating risk roles with
Amcor and Foster’s Group. Earlier in her career, Melanie worked with BHP for seven years.
David Bortolussi
Chief Financial & Operating Officer
BComm, FFin, FCA, Age 40
David joined Pacific Brands in June 2009 in the role of Chief Financial and Operating Officer.
Prior to his appointment, David spent five years at Foster’s Group, most recently, as Chief
Strategy Officer where his responsibilities included corporate strategy, business development,
financial planning and analysis, performance management and operational performance
improvement. David has a strong background in the financial sector, having held senior consulting
roles with McKinsey & Company and PricewaterhouseCoopers.
Mark Clark
Group General Manager, Workwear
BComm, Age 56
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 of
Coca-Cola Amatil Australasia for eight years. Mark is the Group General Manager of Pacific
Brands’ Workwear division. Mark is responsible for performance improvement and growth
in the combined businesses of Yakka, King Gee, NNT, Dowd and CTE across our major
B2B customers as well as various retail channels.
PACIFIC
BRANDS
AR09
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Kate Hann
Group General Manager, Bonds
BMark, Age 46
Kate joined Pacific Brands when the Company acquired Kolotex in 2003. Kate was General
Manager of the Hosiery group until she was appointed to her current role in June 2008.
Kate was extensively involved in the integration and turnaround of the Hosiery business.
Prior to the acquisition, Kate has held product development and marketing roles in hair care
and consumer goods companies for seventeen years.
Simon Smith
Group General Manager, Home Comfort
BEcon, MBA, Age 41
Simon joined Pacific Brands in March 2009 from eBay Australia where he spent eight years
as Managing Director. Simon has also held senior strategy and marketing roles with Lion
Nathan and was a consultant at McKinsey & Company for seven years. Simon is
responsible for leading performance improvement and growth in the Home Comfort
division, comprising Sheridan, Tontine, Sleepmaker, Dunlop Foams and Dunlop Flooring.
Ross Taylor
Group General Manager, Underwear & Hosiery
Age 56
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 footwear, bikes, sporting
equipment, workwear, outerwear, home comfort and underwear and hosiery. Ross brings
extensive sales and marketing experience to this role and a real depth of understanding of the
operational capacity of Pacific Brands.
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PACIFIC
BRANDS
AR09
Corporate Social Responsibility Program
We are committed to attaining the highest
standards in the ethical, responsible and
sustainable conduct of our business.
We are committed to attaining the highest standards in the ethical,
responsible and sustainable conduct of our business. We believe it
is the appropriate way of doing business and we believe our
consumers make a stronger connection with our brands as a result.
Our five-year plan for a sustainable future, known as PlanetBrands,
was launched in 2008 and touches every part of the business.
PlanetBrands also encourages our stakeholders to contribute to our
vision for significantly reducing our impact on the environment and
supporting the communities in which we operate.
PlanetBrands focuses on four key areas where we are seeking to
make a difference
• Our People
• Our Community
• Our Environment
• Our Marketplace
Our People
Pacific Brands has an ongoing commitment to providing a
responsible working environment for all of our employees. We
recognise it is important to ensure all employees have the best
opportunities available to prepare them for the future.
Our learning and development programs help us build a high
performance organisation capable of delivering Pacific Brands’
strategy. A key focus has been on leadership development at all
levels and on actively managing performance and talent across all
divisions.
Training Advocacy and Support Program
During the year the Textile, Clothing and Footwear Union of
Australia (TCFUA) in conjunction with Pacific Brands, developed,
funded and commenced implementing an Australian-first
retraining program for our displaced manufacturing workers.
The program is unique in that workers are being trained while still
in their current jobs, and trained to work in new, more sustainable
industries. Affected staff were given advance notice – up to 18
months in some cases – of their retrenchment dates to allow time
to retrain for work that will provide jobs into the future. Pacific
Brands is also giving workers paid leave to attend these training
courses during normal work hours.
In addition to redundancy entitlements, the Training Advocacy
and Support Program provides up to $3,000 worth of retraining
for each affected worker over and above any government
retraining funding that workers are eligible for.
The program involves funding provided by Pacific Brands, made
available for retraining in areas likely to result in employment.
Eligible employees have, to date, signed up for more than 420
different training courses spanning the hospitality, aged care,
transport, IT and specialist retail sectors.
Some employees are also opting for multiple training courses,
including significant sign-ups for literacy and computer skills
programs. Many of Pacific Brands’ workers have already found
new jobs in new industries.
The program was also launched in New Zealand during the year,
in co-operation with the National Distribution Union (NDU).
The Training Advocacy and Support Program rises to the
challenge of retraining and re-skilling employees to help keep our
workforce contemporary and globally relevant.
A retraining coordinator will remain available at each site to assist
affected employees while needed.
In addition, Pacific Brands is providing external outplacement
advice to affected workers, with specialists providing in-house
seminars and assistance in the preparation of CV’s, job search
and interview skills, career guidance, financial planning and other
related areas.
Health and Safety Programs
The health and safety of our employees is a top priority for
Pacific Brands and we have a number of initiatives to assure this,
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 in all three systems
• Open and consultative OH&S programs
• Online services delivering health assessments, lifestyle
plans, healthy recipes and a library of health and fitness
information
• Annual influenza vaccination programs
• Discounted private hospital insurance
• General wellbeing advice
Our supplier evaluation processes requires suppliers to
demonstrate they have formal management systems in place to
identify and manage safety, environment and quality.
Ethical Trading
Pacific Brands is committed to ensuring we meet our social
compliance responsibilities.
We have continued our program of auditing our supply chain
for adherence to ethical practices spanning safety, quality and
the environment.
We have a strong dedication to social compliance, however we
recognise the difficulties in dealing with a large and complex
supply chain. We have made a commitment to developing, over
time, social compliance within our supplier base.
PACIFIC
BRANDS
AR09
12
Retraining Case Studies
Rhonda
King Gee Machinist
Following 22 years working for King Gee as a Machinist and Examiner, Rhonda initially felt there
would be few options available to her after the factory closed. However, after completing an Aged
Care certificate course and work placements at a local nursing home, this grandmother of seven
was offered a job which she will begin in September. Rhonda decided to pursue Aged Care as she
has experience in caring for elderly relatives and finds working with elderly people stimulating and
rewarding. While she will miss the friendships she formed at King Gee, she is very excited about her
new challenge.
Pheth
Holeproof Textile Machinist
Pheth came to Australia with his family from Laos when he was 28 years old without being able to
speak a word of English. He was employed by Holeproof and worked as a Textile Machinist for 22
years, learning to speak English by communicating with his co workers on the factory floor. Pheth
has recently started training for his truck and forklift licence and is currently interviewing with several
logistics firms. He believes it’s important to stay positive and in the long-term is hoping to start his
own truck or bus driving business. Commenting on recent events, Pheth said: “It’s fair enough.
Pacific Brands was the last clothing manufacturing business in Australia . . . Pacific Brands has
provided good support and training, when some companies would give you nothing.”
Ian
King Gee Maintenance Coordinator
Ian worked for Pacific Brands all his working life, at both the Bonds and King Gee factories. Over
the next two years, Ian will undertake a variety of IT courses with the goal of becoming a Microsoft
Certified Technician. Ian plans to set up his own small business, building and fixing computers and
setting up networks. He is pleased with the new opportunities and support he has received from
Pacific Brands during this time. Ian said: “You couldn’t fault it. I don’t think any other Company in
the country would have done what Pacific Brands has done for us.”
13
PACIFIC
BRANDS
AR09
Corporate Social Responsibility Program (CONTINUED)
Our Community
Can’t Tear ‘Em
Looking after the communities our employees and consumers live
in is the right thing to do and we value the deeper connections it
helps us build with them.
As the closure of the Can’t Tear ‘Em factory in West End
approached, employees voluntarily undertook a project to
manufacture clothing for underprivileged children in Africa. They
created patterns, cut and manufactured 1,000 pairs of shorts.
These were delivered to an orphanage in Kenya.
Our community investment program 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.
The stand out initiative for 2009 was our response to the
devastating Black Saturday bushfires.
As the news unfolded, Pacific Brands implemented an emergency
response that assisted those affected by the tragedy.
Our businesses pooled together to collectively donate more than
$500,000 worth of goods to those affected by the fires, including
underwear, socks, shoes, clothing, sleepwear, workwear, mattresses,
bedding, pillows and bikes. We also provided work boots and
protective clothing to fire fighters and emergency services.
To assist with the distribution of donated product, we formed a
partnership with The Salvation Army and worked closely with our
freight suppliers. We also worked with our major retail customers
to ensure stock was continually available in affected areas.
We are extremely proud of our employees who showed support
in many ways, including:
• The donation of more than $50,000 to the Red Cross
Bushfire Appeal through a designated salary sacrifice
program
• Participating in business fundraising activities that raised
another $50,000 for the appeal
• Volunteering their time at various relief and drop off centres
throughout Victoria
• Responding to the call from the Red Cross to donate blood Dunlop Foams, Dunlop Flooring and Tontine
Dunlop Foams, Dunlop Flooring and Tontine continued to
support the National Asthma Council Australia (NAC). Dunlop
Flooring’s ComfortCHOICE range of flooring and Tontine’s
Breathe Easy Range of pillows and quilts are part of the NAC’s
Sensitive Choice program, which aims to help people with
asthma and allergies identify products and services that may be
better choices for their health.
Grosby
For Mother’s Day, Grosby released a limited edition Pink Lady
Slipper in support of the Breast Cancer Network of Australia.
This slipper was one of the top selling Mother’s Day gifts at
department stores.
Hard Yakka
Hard Yakka is the longest-serving sponsor for the KIDS
Foundation, supporting the foundation since it first began its vital
work as a health promotion charity in 1993. For every Hard Yakka
Kids Action Back Overall sold, $1.50 was donated to the
foundation to assist its work in childhood injury prevention and
injury recovery.
King Gee
We will continue to support those affected by the bushfire tragedy
wherever we can in the long-term as lives and homes are rebuilt.
King Gee’s Jack of All Trades competition saw a group of
tradesmen undertake building challenges to complete a newly built
house and find Australia’s best all-round tradie. The finished house
was auctioned for $570,000, with $200,000 donated to the Mater
Hospital in Brisbane and the Cancer Council.
Many of our businesses also conduct a range of community
initiatives, including:
Rosebank
Berlei
For the third consecutive year, Berlei and its retail partners
donated $5 from every Pinked Up bra sold during October to the
Breast Cancer Network of Australia (BCNA) in support of Breast
Cancer Awareness Month. In the two years the promotion has
run, Berlei has raised over $215,000 in support for BCNA. Berlei
has also donated more than 12,000 My Care Kits to women who
have breast cancer.
Bonds
Bonds continued its affiliation with the National Breast Cancer
Foundation and Prostate Cancer Foundation of Australia, designing
branded ranges to support the organisations, with a percentage of
sales donated to each cause. Bonds is also a long-time supporter
of Nippers surf lifesaving clubs around Australia.
In preparation for National Ride2School day in March, Rosebank
formed a partnership with the Ride2School program. A
competition was developed to encourage more children to ride or
walk to school by giving them the chance to win a new bike shed
for their school worth $15,000. The competition attracted 5,000
entries from around Australia.
Volleys
Dunlop launched a specially designed range of Volleys in support
of the Prostate Cancer Foundation of Australia. Launched just in
time for Father’s Day, the Volleys featured the PCFA blue ribbon
and raised $10,000 for the cause.
PACIFIC
BRANDS
AR09
14
Our Environment
We are committed to reducing our environmental footprint. Our
robust Environmental Management System (EMS) is certified
within ISO 14001 and helps to ensure that we have a positive
impact on emissions.
During the year, we implemented a number of new environmental
initiatives.
Examples of our reduced environmental impact included:
• Working closely with our environmental partners, we have
significantly reduced our waste to landfill during the year
• Membership of the National Packaging Covenant (NPC)
– a voluntary initiative by Government and industry to help
reduce the environmental effects of packaging in Australia.
The majority of our packaging materials are either reused
or recycled and new opportunities are being explored
across Pacific Brands on an ongoing basis
• Auditing of the energy and lighting we use in all our
operations to identify where we can do better
• Setting all printers to double-sided printing to effectively
halve our printing outputs
• Working with Energetics to establish a baseline environmental
footprint which will assist us to meet National Greenhouse
and Energy Reporting requirements in the future
• Reducing our water usage and trialling water recycling
programs across our sites
Recycling enhancement is at the forefront of many of our businesses,
including Dunlop Flooring – Australia’s first manufacturer to introduce
a carpet cushion recovery program, enabling the business to retrieve
used product to source as raw material. Dunlop Flooring recycles 98%
of its own manufacturing waste and produces carpet cushion that is
both recycled and recyclable.
At the beginning of the 2009 financial year, Pacific Brands
commenced a group-wide review of travel. The recommendations
and outcomes of the review resulted in significant changes to our
travel policy, including increased use of video conferencing
facilities and more advanced planning of travel.
In the six-month period January – June 2009, our total travel
spend and number of trips were reduced significantly compared
with the same six month period last year.
We also encourage our employees to use more energy efficient
hybrid cars when they require a hire car for fuel efficiency and
environmental benefits. We continued the process of converting
our company vehicles to LPG.
Our Marketplace
The impact a business makes on the environment and the
communities in which they operate is becoming more important
to all of us every day.
More and more, people are beginning to think about how a
product is made rather than focussing solely on the product itself.
This concern also extends to the environmental and social
conduct of our suppliers.
To ensure that we provide good social and environmental
outcomes for all our stakeholders while continuing to deliver the
best products, we aim to foster partnerships that are mutually
beneficial by being innovative, transparent and fair in all our
dealings with our suppliers, customers and consumers.
15
PACIFIC
BRANDS
AR09
FINANCIAL CoNTENTS
Corporate Governance Statement
Directors’ Report
Remuneration Report
Lead Auditor’s Independence Declaration
Financial Report to Shareholders
NoteS to the financial Statements
Directors’ Declaration
Independent Auditor’s report TO THE
members of Pacific Brands Limited
Shareholders’ Statistics
Shareholders’ information
Company DIRECTORY
15
16
24
27
40
41
46
83
84
85
86
87
PACIFIC
BRANDS
AR09
16
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 Securities 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 corporate governance policies 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 shareholder value and financial return, and sustaining, on a long term
basis, a portfolio of high quality brands.
In conducting business in line with these objectives, the Board is responsible for ensuring 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. Annual performance evaluations of senior management occur in accordance with
the process 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. 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 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.
The Board is currently made up of seven directors, the Company’s one executive director and six independent non-executive directors.
Details of the directors as at the date of this Annual Report, including their terms of office, qualifications and experience, are set out on
pages 7-8 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
re-election every three years. It is the Board’s current policy that, in general, directors do not hold office beyond a maximum term of nine years.
The Company’s Constitution requires directors to hold a minimum number of shares in the Company as determined by the Board from time
to time, which is currently 500 shares, so that directors’ interests are aligned with those of shareholders.
Directors’ shareholdings are shown on page 24 of the Annual Report.
17
PACIFIC
BRANDS
AR09
Corporate Governance Statement (continued)
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 2009 financial year, the Board met nineteen times. A significant number of
extraordinary meetings were convened to address a number of significant matters that arose during the 2009 financial year, including the
extension of the Company’s debt facilities and the Company’s equity raising which was finalised in May 2009.
The table on page 24 of the Annual Report shows the number of Board meetings held in the 2009 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 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
•
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 each committee to be comprised of a minimum of three non-executive directors, a majority of
whom must be independent and, in relation to the Audit, Business Risk and Compliance Committee, chaired by an independent director,
other than the Chairman of the Board. 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.
PACIFIC
BRANDS
AR09
18
4 Board committees (continued)
Details of the committee members’ qualifications are set out on pages 7-8 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
• o
verseeing 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;
• a
ssessing 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);
• o
verseeing the relationship with the external auditor,
auditor independence and the external audit function;
• e
stablishing processes for reviewing the performance
of individual non-executive directors, the Board as a
whole and the operation of Board committees;
• e
valuating the processes in place to ensure that
accounting records are properly maintained in
accordance with statutory requirements; and
• e
nsuring that financial information provided to
shareholders and the Board is accurate and reliable.
• o
verseeing the selection and appointment practices for
non-executive directors and senior management of the
Company;
• d
eveloping succession plans for the Board and
overseeing the development of succession planning in
relation to the Chief Executive Officer and senior
management;
• m
aking 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
• James MacKenzie
• James MacKenzie
• Maureen Plavsic
• Max Ould
• Nora Scheinkestel
• Nora Scheinkestel
Composition
The committee is chaired by an independent nonexecutive director and must comprise of at least three
non-executive directors, a majority of whom must be
independent. The Chairman of the Board is not permitted
to chair the committee.
The committee is chaired by an independent director and
must comprise of at least three non-executive directors, a
majority of whom must be independent.
Consultation
The Chief Financial and Operating 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 cooperation 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, Human Resources have standing invitations to
attend committee meetings. The committee may obtain
information from, and consult with, management and
external advisers, as it considers appropriate.
Meetings and
attendance
The committee is scheduled to meet four times in the
2010 financial year. The table on page 24 of this statement
shows the number of meetings held in the 2009 financial
year and the attendance of each member.
The committee is scheduled to meet four times in the
2010 financial year. The table on page 24 of the Annual
Report shows the number of meetings held in the 2009
financial year and the attendance of each member.
19
PACIFIC
BRANDS
AR09
Corporate Governance Statement (continued)
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 Board committees),
commenced in May 2009 and concluded in August 2009.
The evaluation process included 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 2009 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 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. As the only director standing
for re-election at the 2009 Annual General Meeting will be Dr Scheinkestel, who was appointed to the Board in June 2009 to fill a casual
vacancy, no review of any individual director’s performance occurred in 2009. 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 28.
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. 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 from
the Chief Executive Officer and Chief Financial & Operating Officer:
•
declaration that, in their opinion, the Company’s financial statements and notes present a true and fair view of the Company’s
a
financial position and performance and comply with relevant accounting standards; and
•
written assurance that the above declaration is founded on a sound system of risk management and internal compliance and control
a
and that system is operating effectively in all material respects in relation to financial reporting risks.
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, 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
and the Board 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;
•
ccupational health and safety standards and management systems (‘BrandsSafe’) are monitored and reviewed to achieve high
o
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).
PACIFIC
BRANDS
AR09
20
7discussion of governance policies (continued)
7.1 Risk management (continued)
•
financial reporting accuracy and compliance with the financial reporting regulatory framework (see above); and
•
environmental regulation compliance (see section 9 of this statement).
The Company has also adopted a code of conduct which sets out the Company’s commitment to maintaining the highest level of integrity
and ethical standards in all business practices. The code of conduct sets out for all directors, management and employees, the standards
of behaviour expected of them, and the steps that should be taken in the event of uncertainty or a suspected breach by a colleague.
The code of conduct is discussed in more detail in section 7.4 of this statement.
7.2 Continuous disclosure and keeping shareholders informed
The Company aims to ensure that shareholders are well informed of all major developments affecting the state of affairs of the Company.
To achieve this, the Company has implemented the following procedures:
•
s hareholders 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;
•
ll relevant announcements made to the market and any related information are posted on the Company’s website as soon as they
a
have been released to the ASX and New Zealand Stock Exchange (‘NZX’);
•
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.
7.3Trading 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 ‘trading windows’, 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. 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:
•
wareness of, and compliance with, laws and regulations relevant to the Company’s operations including environmental laws and the
a
Trade Practices Act 1974 and equivalent overseas legislation;
•
ll business transactions to be conducted solely in the best interests of the Company and for directors and employees to avoid
a
situations where their personal interest could conflict with interests of the Company or create the appearance of a conflict of interest;
•
mployees and directors to protect any Company assets under their control and not to use Company assets for personal purposes,
e
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.
In addition, the code contains procedures for reporting improper conduct, and how the Company protects whistleblowers. A copy of the
code of conduct is available on the Company’s website at www.pacificbrands.com.au.
21
PACIFIC
BRANDS
AR09
Corporate Governance Statement (continued)
7discussion of governance policies (continued)
7.4 Ethical standards and code of conduct (continued)
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.
Employees are encouraged to bring to the attention of their manager, their Human Resources 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, Human Resources. 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 with the objective of providing a working environment which is free 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 2009
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 regularly conducts audits of its non-Australasian suppliers and in the event that a supplier is unable
or unwilling to achieve compliance, the Company may impose a range of sanctions, depending on the nature of the failure, including
terminating the relevant supply contract. Whilst the Company has a strong commitment to social compliance, the Company recognises the
practical difficulties in dealing with a large and complex supply chain. The Company adopts a process of continuous improvement with
respect to its sourcing of products, with the goal of lifting the standards of our suppliers and achieving best practice over time.
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 ‘BrandsSafe 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. BrandsSafe 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 environment impact are discussed on page 14 of the Annual Report.
10 NZX corporate governance rules
The following statement is included in compliance with NZX Listing Rule 5.1.8(d).
The Company notes that the ASX Corporate Governance Council’s Good Corporate Governance Principles 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.
PACIFIC
BRANDS
AR09
22
11ASX Corporate Governance Council’s Corporate Governance PRINCIPLES
and Recommendations
ASX principle
reference1
compliance
Principle 1:
Lay solid foundations for management and oversight
1.1
Companies should establish the functions reserved to the Board and those
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
Comply
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
(pages 7 & 8), Directors’
Report (page 24)
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 the:
7.4
Comply
• practices necessary to maintain confidence in the Company’s integrity;
• p
ractices necessary to take into account their legal obligations and the
reasonable expectations of their stakeholders; and
• 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; and
• is chaired by an independent chair, who is not chair of the Board
and has at least three members.
4.3
The audit committee should have a formal charter.
4
Comply
4.4
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
23
PACIFIC
BRANDS
AR09
CORPORATE GOVERNANCE STATEMENT (CONTINUED)
11ASX Corporate Governance Council’s Corporate Governance PRINCIPLES
and Recommendations (CONTINUED)
ASX principle
reference1
compliance
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
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 24 and
Remuneration Report
Comply
1 All references are to sections of this Corporate Governance Statement unless otherwise stated.
24
PACIFIC
BRANDS
AR09
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 2009 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 27 to 40 which forms part of this Directors’ Report.
1 Directors
The directors of the Company during the financial year and up to the date of this report are:
J.A.C. MacKenzie (Chairman)
A.D. Cummins
D.G. Fisher
R.P. Handley (resigned 19 December 2008)
S.M. Morphet, Chief Executive Officer
M.G. Ould
M.A. Plavsic
N.L. Scheinkestel (appointed 9 June 2009)
S.J. Tierney (resigned 9 June 2009)
Particulars of directors’ age, qualifications, other listed Company directorships, experience and special responsibilities are detailed on pages
7 & 8 of the Annual Report.
2 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
Performance
rights1
1,031,060
D.G. Fisher
67,480
J.A.C. MacKenzie
202,162
S.M. Morphet
919,663
M.G. Ould
407,859
M.A. Plavsic
197,263
N.L. Scheinkestel
332,677
32,000
1Details of the terms and conditions of issue of the performance rights granted to S.M. Morphet are set out on pages 31 to 36 in this Directors’ Report.
3 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 2009 financial year are:
Board
Audit, Business Risk and Compliance Committee
Nomination and
Remuneration Committee
HELD1
attended2
HELD1
attended2
HELD1
attended2
A.D. Cummins
19
17
4
3
5
4
D.G. Fisher
19
15
4
3
5
3
7
7
2
2
3
3
R.P. Handley
J.A.C. MacKenzie
19
17
4
4
5
5
S.M. Morphet3
19
19
N/A
N/A
N/A
N/A
M.G. Ould
19
17
4
4
5
3
M.A. Plavsic
19
19
4
4
5
5
2
2
N/A
N/A
1
1
17
17
N/A
N/A
N/A
N/A
N.L. Scheinkestel
S.J. Tierney
4
1 This column shows the number of meetings held during the period the director was a member of the Board or committee.
2 This column shows the number of meetings attended.
3S.M. Morphet also attended all meetings of the Audit, Business Risk and Compliance Committee and the Nomination and Remuneration Committee by invitation.
4 S.J. Tierney also attended all meetings of the Audit, Business Risk and Compliance Committee by invitation.
25
PACIFIC
BRANDS
AR09
Directors’ Report (continued)
4 State of affairs
In the opinion of the directors, there were no significant changes in the state of affairs of the consolidated entity other than those noted in
principal activities below.
5 Principal activities
The principal activities of the consolidated entity during the course of the 2009 financial year were the manufacturing, sourcing, marketing
and selling of predominantly consumer lifestyle brands, across the underwear, socks, hosiery, sleepwear, intimate apparel, footwear, bed
linen, bedding accessories, bedding, carpet underlay, 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, workwear and bed linen in the United Kingdom, the United States and Europe.
There has been no significant change in the nature of principal activities during the year other than as a consequence of the ‘Pacific Brands
2010’ plan discussed below.
The Company’s key strategy established to drive future shareholder value is the implementation of the ‘Pacific Brands 2010’ plan which
focuses effort on primary businesses and brands, removing complexity from the business, reducing duplication and inefficiency.
The six core themes of Pacific Brands 2010 are:
•
rationalise and focus the portfolio;
•
optimise the revenue base;
•
rebase overhead cost structures;
•
transform supply chain and operations;
•
reduce capital employed; and
•
build organisational capability.
Following implementation of the plan, the Company will focus on organic growth opportunities including the expansion of its most powerful
brands, both domestically and offshore, expanding its retail footprint and further increasing its business to business offering.
In the 2010 financial year, the Company’s key objectives are to restructure the business, improve underlying sales growth, maintain earnings
and maximise cash flow via:
•
implementation of Pacific Brands 2010;
•
profitable, branded sales growth;
•
brand investment through above and below the line marketing activity;
•
innovative product development based on consumer insight and research;
•
continued emphasis on gross profit improvement through effective sourcing;
•
maintenance of flexibility and speed in the supply chain to meet the changing needs of the marketplace;
•
ongoing reduction in the cost of doing business expenses; and
•
management of working capital and cash flow.
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
and CEO’s Review and Operational Highlights.
6 Review and results of operations
A review of the operations of the consolidated entity during the 2009 financial year and of the results of those operations is contained in the
Chairman and CEO’s Review and Operational Highlights.
7 Dividends
Neither an interim dividend nor a final dividend was declared or paid in respect of the 2009 financial year.
8 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.
9Likely developments
Likely developments in the operations of the consolidated entity and the expected results of those operations are covered generally in the
Chairman and CEO’s Review and Operational Highlights.
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.
PACIFIC
BRANDS
AR09
26
10 Non-audit services
During the 2009 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:
•
ll non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by
a
the Audit, Business Risk and Compliance Committee to ensure they did not impact the integrity and objectivity of the auditor; and
•
the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code
of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or
decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.
A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is included on page 40 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
2009
$
2008
$
1,323,500
1,259,600
288,478
377,400
1,611,978
1,637,000
82,500
85,641
915,680
–
Statutory audit:
Auditors of the Company
– audit and review of financial reports (KPMG Australia)
– audit of financial reports (overseas KPMG firms)
Services other than statutory audit:
Other services
– other assurance services (KPMG Australia)
– other advisory services (KPMG Australia)
– other assurance services (overseas KPMG firms)
– taxation services (KPMG Australia)
– taxation services (overseas KPMG firms)
13,545
26,873
222,677
171,294
35,951
14,461
1,270,353
298,269
11 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 2008 to 30 November 2009 and the premium was paid on 30 January
2009. Due to confidentiality obligations and undertakings of the policy, no further details in respect of the policy or premium can be disclosed.
12 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 environmental regulatory requirements. The directors are
not aware of any material breaches of environmental regulations during the financial year.
13 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 2009) 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.
27
PACIFIC
BRANDS
AR09
remuneration report
1 Remuneration Strategy
The Board believes that a transparent and appropriately structured remuneration strategy underpins a strong performance based culture
and assists in driving above average returns. The Company’s remuneration strategy, developed with the assistance of external remuneration
specialists, is based on this philosophy and is designed to attract, motivate and retain appropriately qualified and experienced directors and
senior executives.
This Remuneration Report includes details and an explanation, of the remuneration strategies for key management personnel of the
consolidated entity. The key management personnel of the Company and the consolidated entity are defined under accounting standard
AASB 124 to include the non-executive directors, the executive directors and those persons with authority and responsibility for planning,
directing and controlling the activities of the Company during the financial year. The key management personnel, other than the nonexecutive directors, are referred to throughout this Remuneration Report as ‘senior executives’. The senior executives include the five most
highly remunerated executives of the Company and the consolidated entity. The names and positions of the senior executives, as at the
date of this Remuneration Report, are listed, among other places, in the table on page 39 of this report.
In keeping with current market best practice, a substantial proportion of remuneration of its executives, up to 64% in the case of the Chief
Executive Officer, is at risk if key performance measurements are not met. In the case of the Chief Executive Officer, this includes the
requirement to meet both internal (short term) performance hurdles set at the beginning of the financial year, as well as market based (long
term) performance hurdles. In most instances, just over half of the remuneration of executives is paid as fixed salary. As noted, in the case
of the Chief Executive Officer, only 36% of remuneration is fixed.
In keeping with achieving and maintaining best practice standards and recognising changing market conditions the Board will review the
Company’s current remuneration strategies in line with the current review of director and executive remuneration being undertaken by the
Commonwealth Productivity Commission and in respect to the employee share scheme changes announced in the Federal Budget on 12
May 2009. The Board notes that the changes to employee share schemes have been referred to the Senate Economics References
Committee and it will make amendments as required following the release of that report.
An overview of the elements of remuneration is set out in the following table. The more detailed discussion of each element is contained in
this Remuneration Report.
directors
elements of remuneration
Fixed remuneration
Fees
non-executive
Superannuation1
discussion in
remuneration report
✔
✔
Page 30
✔
✔
Pages 28 & 30
✔
✔
Page 30
Page 28
✔
Other benefits
Post employment
senior
executives
✔
Salary
At risk remuneration
executive
Short term incentive
✔
✔
Page 30
Long term incentive
✔
✔
Page 31
Notice periods and
termination payments
✔
✔
Page 38
1Non-executive directors’ fees are set inclusive of 9% statutory superannuation contributions.
2 Company performance
As reported on page 5, the consolidated entity generated EBITA (as defined below) of $205.3 million for the year ended 30 June 2009.
Recognising the volatility in trading conditions experienced by the Company in the 2009 financial year, the Board decided to preserve the
Company’s capital and as a result no interim or final dividend was declared or paid by the Company in respect of that financial year.
The following table sets out various measures of the consequences of Company’s performance on shareholder wealth:
2009
2008
2007
2006
20051
2,000.0
2,116.6
1,820.7
1,624.9
1,521.7
EBITA ($m)2
205.3
229.1
194.0
173.0
174.6
NPAT ($m)
(234.3)
117.1
106.0
101.2
100.9
(39.9)
20.9
21.1
20.1
20.1
0
17.0
16.5
15.0
15.0
0.86
1.78
3.49
2.15
2.27
Net sales revenue ($m)
3
EPS (cents)4,5
Dividends per share price (cents)
Year end share price ($)
Return of capital ($m)
TSR (%)6
0
0
1.87
0
0
(5.8)
(44.9)
66.4
(1.1)
(12.4)
1 The measures of financial performance for the 2005 financial year were restated in accordance with AIFRS.
2Earnings before tax, interest, amortisation and significant items.
3 Net operating profit (loss) after tax.
4 Earnings per share have been calculated based on the weighted average number of shares outstanding for the period, being 587,944,140.
5 2008 earnings per share has been restated to reflect the impact of the discounted rights issue undertaken during the year.
6TSR 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.
PACIFIC
BRANDS
AR09
28
2 Company performance (continued)
As part of the Board’s commitment to align remuneration with Company performance, employee performance is measured annually against
agreed performance objectives 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 Board agrees criteria for the evaluation of the Chief Executive
Officer and reviews the objectives of the other senior executives.
The performance of the Chief Executive Officer against the agreed objectives is reviewed by the Chairman on behalf of the Board. The
performance of all other senior executives is reviewed by the Chief Executive Officer. All performance reviews take place annually, shortly
after the end of the financial year. 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.
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 Related Party Disclosures.
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 committee fees, are set by the Board within the aggregate amount approved by shareholders.
Currently, this amount is $1,500,000 per annum, which is the limit shareholders approved at the Company’s last Annual General Meeting on
21 October 2008. The fees paid to non-executive directors are set at levels which reflect the responsibilities and time commitment required
from each director to discharge their duties. In that regard, it should be noted that all non-executive directors are currently 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.
Fee levels are set having regard to independent advice and the fees paid by comparable companies. 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 fee.
Non-executive directors are eligible to participate in the Company’s 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.
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 2009 financial year were $865,000, being
approximately 8.1% above the aggregate fee amount for the 2008 financial year, due to an increase in the number of non-executive
directors over the comparative period.
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 $865,000 paid as directors’ fees during 2009 financial year is inclusive of superannuation contributions.
Directors are also entitled to be reimbursed for all business related expenses, including travel on Company business, as may be incurred
in the discharge of their duties in accordance with rule 8.3(e) of the Company’s Constitution.
The Board has determined that retirement benefits are not payable to non-executive directors upon their retirement.
29
PACIFIC
BRANDS
AR09
remuneration report (continued)
3 Non-executive directors’ remuneration (CONTINUED)
B. Remuneration
Details of non-executive directors’ remuneration for the 2009 financial year are set out in the following table:
short term payments
J.A.C. MacKenzie (Chairman)3
A.D. Cummins
D.G. Fisher
R.P. Handley4
M.G. Ould
M.A. Plavsic
N.L. Scheinkestel5
Total
2009
post employment
benefits
total2
$
225,000
cash
$
shares1
$
superannuation
contribution
$
150,172
56,250
18,578
2008
13,348
5,001
1,651
20,000
2009
30,592
63,500
25,908
120,000
2008
28,092
60,000
31,908
120,000
2009
80,092
30,000
9,908
120,000
2008
80,092
30,000
9,908
120,000
2009
106,365
31,250
12,385
150,000
2008
200,229
75,000
24,771
300,000
2009
63,592
46,500
9,908
120,000
2008
62,092
48,000
9,908
120,000
2009
11,250
30,000
78,750
120,000
2008
11,250
30,000
78,750
120,000
2009
9,174
0
826
10,000
2008
N/A
N/A
N/A
N/A
2009
451,237
257,500
156,263
865,000
2008
395,103
248,001
156,896
800,000
1 Relates solely to the purchase of shares under the Non-Executive Director Share Plan through salary sacrifice.
2Amounts disclosed for remuneration of directors exclude insurance premiums paid by the consolidated entity in respect of directors’ and officers’ liability insurance
contracts which covers, among others, current and former directors of the Company. Due to confidentiality obligations and undertakings of the policy, the premium
paid cannot be disclosed. No amount has been allocated to the individuals covered by the insurance policy as, based on all available information, the directors
believe that no reasonable basis for such allocation exists.
3 J.A.C. MacKenzie was appointed as a director of the Company on 27 May 2008 and was elected to the role of Chairman effective 27 November 2008.
4 R.P. Handley resigned as Chairman of the Company on 27 November 2008 and resigned as a director of the Company on 19 December 2008.
5 N.L. Scheinkestel was appointed as a director of the Company on 9 June 2009.
4 Executive director and senior executive remuneration
The disclosures in this section relate to the remuneration for key management personnel other than the non-executive directors.
A. Board Policy
The Board believes that a transparent and appropriately structured remuneration strategy underpins a strong performance based culture
and assists in driving above average returns. The Company’s remuneration plan, is designed to attract, retain and motivate appropriately
qualified and experienced senior executives and includes the following objectives:
•
nsuring alignment of executive remuneration with the short and long term objectives as set out in the Company’s strategic business
e
plans endorsed by the Board;
•
roviding a common interest between employees and shareholders by linking the rewards that accrue to management to the creation
p
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, profit after tax (‘PAT’) 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.
Prior to the commencement of the 2009 financial year, the Board initiated a review of the fixed and performance related components of
remuneration. The outcome of the review resulted in changes to the weighting of executive director and senior management remuneration
between fixed and performance related components. As a result of the review, the requirement that executive directors defer a material percentage
of any short term incentive which vests into the purchase of shares in the Company, to be held subject to a holding lock for a period of two years
from the date of award, was extended to all other members of senior management.
30
PACIFIC
BRANDS
AR09
4 Executive director and senior executive remuneration (continued)
The relative proportion of executive directors’ and senior management’s total remuneration packages for the 2009 financial year that is
performance based is set out in the table below:
% of total target remuneration (annualised)1
fixed
remuneration
performance
based remuneration
short term
incentives
long term
incentives
total performance
based remuneration2
Chief Executive Officer
36.5%
29.3%
34.2%
63.5%
Chief Financial Officer
41.7%
37.5%
20.8%
58.3%
Other senior executives1
52.5%
31.5%
16.0%
47.5%
1 Percentages based on target remuneration for the relevant executives assuming incentives fully vest.
2Based on the average remuneration for those senior executives employed for the full period. The remuneration of those employees who ceased or commenced to
be employed by the Company part way through the financial year has 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 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.
B. 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 since 2001.
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 retiring executives for whom remuneration is disclosed are, or were, 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.
C. Short term incentives (‘STI’)
Both the Chief Executive Officer 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 a cash bonus on a percentage of the executive’s fixed remuneration. In the
case of the Chief Executive Officer, the STI bonus opportunity is calculated as a percentage of base salary. In the case of all other senior
executives, it is a percentage of the executive’s fixed annual remuneration. In respect of the 2009 financial year, the Chief Executive Officer had
the opportunity to earn a bonus equivalent to 100% of her base salary. In the case of the former Chief Financial Officer the STI bonus
opportunity was an amount equal to 90% of fixed annual remuneration. In relation to other members of the senior executive team, 60% of their
fixed annual remuneration could be earned as a cash bonus for target performance.
For the 2009 financial year, it was a condition to the payment of any STI to a senior executive that the profit after tax (‘PAT’) of the
consolidated entity be in excess of the budgeted PAT growth hurdle (after fully providing for all STI payments) over the prior year. This was a
threshold criterion which had to be satisfied before the payment of any STI could be contemplated. Additional performance requirements
also needed to be met for a senior executive to be entitled to the maximum STI incentive. Individual performance requirements related to
individual financial and non-financial objectives. The specified objectives represented outcomes that could extend the Company’s
sustainable profit growth over time. These objectives varied with the individual executive and his/her responsibilities and included financial,
operational, acquisition, divestment, investment, workforce capability and succession planning goals. Targets for each objective are
determined annually 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 2009 financial year, the threshold criterion of budgeted PAT growth was not met. Accordingly, cash bonuses were not paid to the
Chief Executive Officer or any other member of the senior executive team in respect of the 2009 financial year.
31
PACIFIC
BRANDS
AR09
remuneration report (continued)
4 Executive director and senior executive remuneration (continued)
In addition, the deferred shares are 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 may be acquired on-market or through the issue of new share capital, at
the Company’s election. The balance of any annual incentive award will be paid to the executive in cash.
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 ($)
maximum
total value
of STI ($)
30 November
2007
0
100
Nil
700,000
21 November
2008
0
100
Nil
240,360 11
N/A
N/A
N/A
N/A
N/A
10 October
2008
0
100
Nil
304,800
10 October
2008
0
100
Nil
290,742
10 October
2008
0
100
Nil
262,623
24 February
2008
0
100
Nil
279,600 11
10 October
2008
0
100
Nil
283,596
10 October
2008
0
100
Nil
279,600 11
10 October
2008
0
100
Nil
236,628 11
10 October
2008
0
100
Nil
214,200 11
10 October
2008
0
100
Nil
531,828
Executive directors
S.M. Morphet
Chief Executive Officer
Current senior executives
M.J. Allibon
Group General Manager, Human Resources1
D.L. Bortolussi
Chief Financial & Operating Officer2
M.M. Clark
Group General Manager, Workwear
M.J. Ford
Group General Manager, Footwear3
K.J. Hann
Group General Manager, Bonds4
S.M. Smith
Group General Manager, Homewares5
R.A. Taylor
Group General Manager, Underwear & Hosiery6
Former senior executives
B.A. Hannagan
Group General Manager, Underwear & Hosiery7
M.E. Keely
Group General Manager, People & Performance8
M. Sonand
Group General Manager, Outerwear & Sport9
S.J. Tierney,
Chief Financial Officer10
1 M.J. Allibon was appointed to the role of Group General Manager, Human Resources effective 19 November 2008.
2 D.L. Bortolussi was appointed to the role of Chief Financial & Operating Officer effective 9 June 2009.
3 M.J. Ford retired from the Company effective 17 July 2009.
4 K.J. Hann was appointed to the role of Group General Manager, Bonds effective 1 August 2008.
5 S.M. Smith was appointed to the role of Group General Manager, Home Comfort effective 16 March 2009.
6R.A. Taylor ceased in the role of Group General Manager, Home Comfort effective 1 February 2009 and on the same date was appointed to the role of
Group General Manager, Underwear & Hosiery.
7 B.A. Hannagan resigned from the Company effective 16 January 2009.
8 M.E. Keely resigned from the Company effective 31 December 2008.
9 M. Sonand ceased as an employee of the Company effective 13 February 2009.
10 S.J. Tierney ceased in the role of Chief Financial Officer effective 9 June 2009 and resigned from the Company effective 10 July 2009.
11 Calculated assuming a full years service.
D.Long term incentives (‘LTI’)
The Company’s LTI arrangements are designed to link executive reward with the key performance drivers which underpin sustainable
growth in shareholder value. Participation in the LTI arrangements is only offered to executives who are able to 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.
32
PACIFIC
BRANDS
AR09
4 Executive director and senior executive remuneration (continued)
The Company’s senior executive LTI plan is currently comprised of a performance rights plan (‘PRP’) first 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 under the STI arrangements and longer term goals
so that executives continue to be motivated by long term growth in shareholder value. There have been grants of performance rights
to senior executives pursuant to the terms of the PRP in 2005, 2006, 2007 and 2008. 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
The granting of performance rights to executive directors has been approved by shareholders at the Company’s Annual General Meetings.
Under all current grants of performance rights, half of the grant of performance rights is subject to a relative TSR hurdle which provides an
external measure in respect of share price growth and dividend income.
It is the view of the Board that TSR alone does not always reflect the long term value created by senior executives in the relevant
measurement period. For this reason, as noted above, an EPS measure of performance has also been employed in respect of each grant of
performance rights since 2005.
The Board also includes an EPS 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 it complements the relative TSR performance requirement.
The Board continue to be of the opinion that, collectively, TSR and EPS performance is better correlated with executive performance over
time and creates a better alignment between the executives’ reward and shareholder interests.
Frequency of testing against performance hurdles
The 2005 grant was 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, 2007 and 2008 grants of performance rights have the performance requirements tested only once, at the end of a three year
performance measurement period, being the 2009, 2010 and 2011 financial years respectively.
Based on the financial performance of the Company in the 2009 financial year, no performance rights vested in the executive directors and
senior executives effective 1 July 2009.
The maximum percentage of remaining and proposed performance rights that may vest, subject to performance, in any one year are set
out in the table below:
maximum %
0f 2005 grant1
maximum %
of 2006 grant1
1 July 2009
82.5%
100%
0%
0%
1 July 2010
0%
0%
100%
0%
vesting date
1 July 2011
Maximum
maximum %
of 2007 grant
maximum %
of 2008 grant
0%
0%
0%
100%
82.5%
100%
100%
100%
1No shares vested under any of the LTI grants in respect of the Company’s performance in the 2006, 2008 or 2009 financial years. 17.5% of the 2005 grant of
performance rights vested effective 1 July 2007 and the balance lapsed on this date.
TSR performance conditions
Each year, the Board reviews and if necessary refines the peer group for TSR performance comparison. 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, 2007
and 2008 grants was comprised of companies which were:
•
ASX listed;
•
in the consumer staples and discretionary sectors; and
•
ither side of the Company in market capitalisation, such that the Company’s market capitalisation at the start of the performance
e
period approximates the median of the comparison group. The companies that met these criteria compete with the Company for
capital, customers and talent.
The only changes to the comparator groups for the 2006, 2007 and 2008 grants of performance rights have been to remove any
companies which have been delisted (Burns Philp & Company Limited and UNiTAB Limited which were removed from the comparator
group for the 2007 grant, and Just Group Limited and Southern Cross Broadcasting (Australia) Limited which were removed from the
comparator group for the 2008 grant).
33
PACIFIC
BRANDS
AR09
remuneration report (continued)
4 Executive director and senior executive remuneration (continued)
A summary of comparator companies for unvested performance rights is provided in the table below:
2005:
Highest yield companies in ASX 200
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
2008:
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.
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, Metcash
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 all grants of performance rights are:
target
Percentage of shares
available in given year
that vests
The Company’s TSR is less than the median TSR of the comparator companies
0%
The Company’s TSR equals or exceeds performance of the median TSR of the comparator companies
50%
The Company’s TSR ranks in third quartile of the comparator companies
Pro rata between 50% and
100% (2% increase for
each higher ranking)
The Company’s TSR ranks in fourth quartile of the comparator companies
100%
EPS performance conditions
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.
PACIFIC
BRANDS
AR09
34
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, 2007 and 2008 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 exceeds 10.5%
The Company’s 3 year compound EPS growth is
equal to or exceeds 12.0%
Testing
The performance conditions in relation to the 2005 grant of performance rights were tested for a final time at the end of the 2009 financial
year. The performance conditions in relation to the 2006 grant of performance rights were also tested for a first and final time at the end of
the 2009 financial year. Based on the EPS growth and relative TSR of the Company for the 2009 financial year, no performance rights
vested on 1 July 2009 under the 2005 or 2006 performance rights grants.
Restrictions on performance rights that vest
In the case of the 2005 grant 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, 2007 and 2008 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.
Vesting and lapsing of rights
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 1 July 2005 to 30 June 2009 is set out in section 2 of this report. As shown above,
the Company’s performance is linked to vesting and reward, as two grants of performance rights did not vest on the most recent test date
because the Company’s performance was such that the required hurdles were not satisfied.
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.
35
PACIFIC
BRANDS
AR09
remuneration report (continued)
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 grant1
($)
Maximum
total value
of grant2
($)
Nature of compensation/
instrument granted
Effective
date of
grant
62,500 performance rights
40,698 performance rights
250,000 performance rights
82,677 performance rights
01/07/2005
01/07/2006
01/07/2007
01/07/2008
17.5
Nil
Nil
Nil
82.5
100
Nil
Nil
N/A
N/A
2010
2011
Nil
Nil
Nil
Nil
Nil
Nil
570,000
105,000
M.M. Clark
131,496 performance rights
01/07/2008
Nil
Nil
2011
Nil
167,000
M.J. Ford3
50,000 performance rights
40,116 performance rights
45,000 performance rights
28,346 performance rights
01/07/2005
01/07/2006
01/07/2007
01/07/2008
17.5
Nil
Nil
Nil
82.5
100
Nil
Nil
N/A
N/A
2010
2011
Nil
Nil
Nil
Nil
Nil
Nil
102,600
35,999
K.J. Hann4
50,000 reward rights
29,000 performance rights
25,984 performance rights
01/07/2006
01/07/2007
01/07/2008
40
Nil
Nil
Nil
Nil
Nil
2011
2010
2011
Nil
Nil
Nil
90,000
66,120
33,000
R.A. Taylor
41,000 performance rights
28,346 performance rights
01/07/2007
01/07/2008
Nil
Nil
Nil
Nil
2010
2011
Nil
Nil
93,480
35,999
B.A. Hannagan5
50,000 reward rights
44,000 performance rights
01/07/2006
01/07/2007
Nil
Nil
100
100
N/A
N/A
Nil
Nil
Nil
Nil
M.E. Keely6
50,000 performance rights
31,977 performance rights
44,000 performance rights
01/07/2005
01/07/2006
01/07/2007
17.5
Nil
Nil
82.5
Nil
Nil
N/A
N/A
N/A
Nil
Nil
Nil
Nil
Nil
Nil
35,000 performance rights
01/07/2007
Nil
100
N/A
Nil
Nil
75,000 performance rights
48,837 performance rights
55,000 performance rights
51,591 performance rights
01/07/2005
01/07/2006
01/07/2007
01/07/2008
17.5
Nil
Nil
Nil
82.5
100
Nil
Nil
N/A
N/A
2010
2011
Nil
Nil
Nil
Nil
Nil
Nil
125,400
65,520
Executive directors
S.M. Morphet
Chief Executive Officer
Current senior executives
Former senior executives
M. Sonand7
S.J. Tierney
8
1A 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. The balance of these performance rights lapsed on 30 June 2009. A total
of 433,722 performance rights were granted under the 2006 issue of performance rights and all of these performance rights lapsed on 30 June 2009. The terms and
conditions attached to the 2005, 2006, 2007 and 2008 performance rights grants are set out on pages 32 to 34 in this Annual Report.
2The fair value of performance rights as at the date of their grant has been determined in accordance with AASB 124 applying AASB 2 Share-based Payment
Valuation Guidelines and Guidance Note GN510 issued by the Institute of Actuaries of Australia (further details of the valuation methodology can be found in Note
29(b) to the financial statements). 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. The fair
value in respect of the grant having an effective date of 1 July 2008 is $1.27 per share.
3M.J. Ford resigned from the Company effective 15 July 2009.
4 K
.J. Hann 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, Pacific
Brands Hosiery Group. The reward rights were issued pursuant to the Company’s Deferred Employee Share Plan, 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. 40% of the reward
rights are tested against a service condition and 60% of the reward rights are tested against an earnings per share hurdle. 20,000 shares will be issued to K.J. Hann
in September 2009, based on the service condition being satisfied. The balance of the reward rights will be retested against the earnings per share hurdle effective
30 June 2011.
5B.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 described in Note 4 above. These reward rights lapsed upon
B.A. Hannagan’s resignation from the Company on 16 January 2009.
6 M.E. Keely resigned from the Company effective 31 December 2008.
7 M. Sonand ceased to be an employee of the Company effective 13 February 2009.
8 S.J. Tierney ceased in the role of Chief Financial Officer effective 9 June 2009 and resigned from the Company effective 10 July 2009.
During the financial year, the Company has not granted any options or rights in addition to the performance rights granted on 1 July 2008
(and summarised in the previous table).
36
PACIFIC
BRANDS
AR09
4 Executive director and senior executive remuneration (continued)
The following table set out details of any movement in performance rights currently on issue to the Chief Executive 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
01/07/2008
lapsed/
forfeited
balance at
30/06/2009
granted
342,261
$697,402
82,677
$105,000
Nil
Nil
92,261
$127,400
332,677
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
131,496
$167,000
Nil
Nil
Nil
Nil
131,496
126,366
$215,252
28,346
$35,999
Nil
Nil
81,366
$112,652
73,346
29,000
$66,120
25,984
$33,000
Nil
Nil
Nil
Nil
54,984
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
41,000
$93,480
28,436
$35,999
Nil
Nil
Nil
Nil
69,436
44,000
$100,320
Nil
Nil
Nil
Nil
44,000
$100,320
Nil
117,227
$201,414
Nil
Nil
Nil
Nil
117,227
$201,414
Nil
35,000
$79,800
Nil
Nil
Nil
Nil
35,000
$79,800
Nil
165,712
$278,279
51,591
$65,521
Nil
Nil
110,712
$152,880
106,591
900,566
$1,732,067
348,530
$442,519
Nil
Nil
480,566
$774,466
768,530
exercised
1
aggregate
value total at
30/06/2009
Executive director
S.M. Morphet
Number
Value
$675,002
Current senior executives
M.J. Allibon1
Number
Value
Nil
D.L. Bortolussi2
Number
Value
Nil
M.M. Clark
Number
Value
$167,000
M.J. Ford3,10
Number
Value
$138,599
K.J. Hann4
Number
Value
$99,120
S.M. Smith5
Number
Value
Nil
R.A. Taylor
Number
Value
$129,479
Former senior executives
B.A. Hannagan6
Number
Value
Nil
M.E. Keely7
Number
Value
Nil
M. Sonand8
Number
Value
Nil
S.J. Tierney9,10
Number
Value
$190,920
Total executive director
and senior executives
Number
Value
1
2
3
4
$1,400,120
M.J. Allibon was appointed to the role of Group General Manager, Human Resources effective 19 November 2008.
D.L. Bortolussi was appointed to the role of Chief Financial & Operating Officer effective 9 June 2009.
M.J. Ford resigned from the Company effective 15 July 2009.
K.J. Hann was also granted 50,000 reward rights granted with effect from 1 July 2006, as part of her remuneration when in the role of General Manager, Pacific
Brands Hosiery Group. The notional value of these reward rights was $90,000. 20,000 shares will be issued to K.J. Hann in September 2009, based on the service
condition in respect of the reward rights being satisfied. The balance of the reward rights will be retested against the earnings per share hurdle effective 30 June 2011.
5 S.M. Smith was appointed to the role of Group General Manager, Homewares effective 16 March 2009.
6B.A. Hannagan was also granted 50,000 reward rights, effective 1 July 2006, at the time she held the role of General Manger, The Berlei Group. The notional value
of these reward rights was $90,000. These reward rights lapsed upon B.A. Hannagan’s resignation from the Company on 16 January 2009.
7 M.E. Keely resigned from the Company effective 31 December 2008.
8 M. Sonand ceased to be an employee of the Company effective 13 February 2009.
9 S.J. Tierney resigned from the Company effective 10 July 2009.
10Performance rights for these Executives were forfeited subsequent to year end.
37
PACIFIC
BRANDS
AR09
remuneration report (continued)
4 Executive director and senior executive remuneration (continued)
Hedging and Margin Lending Arrangements
The Company’s guidelines for dealing in securities 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. 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.
E. Service agreements
The remuneration and other terms of employment for the Chief Executive 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 30 in this
report), and participation in the Company’s employee long term incentive scheme (as disclosed on page 35 in this report).
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 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, after
which the contract is ongoing unless terminated by either party. 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. S.J. Tierney, the former Chief Financial
Officer, was also employed under a fixed term service agreement which had an expiry date of 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 or any of the other senior executives on giving a maximum of three months notice. Generally, 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 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 is 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.
38
PACIFIC
BRANDS
AR09
4 Executive director and senior executive remuneration (continued)
Relevant terms of the service contracts of the Chief Executive Officer and the other senior executives are set out in the table below:
Termination payment
Date of contract
Notice period – Company
30 November 2007
3 months
12 months plus pro rata STI
3 months
23 February 2009
3 months
12 months plus pro rata STI
3 months
21 April 2009
3 months
9 months plus pro rata STI
3 months
16 April 2008
3 months
12 months plus pro rata STI
3 months
3 March 2004
3 months
12 months plus pro rata STI
3 months
23 February 2009
3 months
12 months plus pro rata STI
3 months
24 February 2009
3 months
12 months plus pro rata STI
3 months
23 February 2009
3 months
12 months plus pro rata STI
3 months
9 October 2007
3 months
12 months plus pro rata STI
3 months
3 March 2004
3 months
12 months plus pro rata STI
3 months
2 February 2007
1 month
1 month
1 month
24 February 2004
12 months2
12 months plus pro rata STI
3 months
entitlement
Notice period – employee
Executive director
S.M. Morphet,
Chief Executive Officer
Current senior executives
M.J. Allibon
Group General Manager, Human Resources
D.L. Bortolussi
Chief Financial & Operating Officer1
M.M. Clark
Group General Manager, Workwear
M.J. Ford
Group General Manager, Footwear
K.J. Hann
Group General Manager, Bonds
S.M. Smith
Group General Manager, Homewares
R.A. Taylor
Group General Manager, Underwear
& Hosiery
Former senior executives
B.A. Hannagan
Group General Manager, Underwear
& Hosiery
M.E. Keely
Group General Manager, People
& Performance
M. Sonand
Group General Manager, Outerwear
& Sport
S.J. Tierney
Chief Financial Officer
2
1 D.L. Bortolussi was appointed to the role of Chief Financial and Operating Officer effective 9 June 2009.
2S.J. Tierney ceased to be Chief Financial Officer on 9 June 2009 and resigned from the Company effective 10 July 2009. Under the terms of S.J. Tierney’s service
contract, S.J. Tierney is prohibited from engaging in any activity that would compete with the Company for a period of one year from the date of his resignation
from the Company and S.J. Tierney was paid one year’s base salary in consideration for the restraint.
Sign-on payments
The Company agreed to grant to S.M. Smith, the Group General Manager, Home Comfort, a sign on bonus of 100,000 performance rights.
The performance rights were issued at no cost to S.M. Smith on 1 July 2009 and will vest on 1 July 2010, subject to S.M. Smith remaining
in the employ of the Company. The Company agreed on 21 April 2009 to issue to D.L. Bortolussi, the Chief Financial and Operating Officer,
$500,000 worth of shares in the Company as a sign on bonus. The shares were issued on 1 July 2009, at no cost to D.L. Bortolussi, and
are held on trust for D.L. Bortolussi, subject to satisfaction of a service condition that he is still employed by the Company on the relevant
vesting dates. Assuming that this service condition is met, 50% of the shares will vest on 1 July 2010 and the balance will vest on 1 July
2011. The number of shares acquired was calculated based on the volume weighted average price (‘VWAP’) during the period discussions
were held between D.L. Bortolussi and the Company regarding his possible employment, specifically 23 February 2009 to 20 April 2009.
The VWAP for the period was 28.7 cents per share. Accordingly, on 1 July 2009 the Company issued 1,742,160 shares to the Pacific
Brands Employee Share Trust to be held on D.L. Bortolussi’s behalf.
F.
Remuneration paid and other specific disclosures
Details of the remuneration paid to the Chief Executive Officer and each of the five named executives of the Company and the consolidated
entity with the highest remuneration during the 2009 financial year and the key management personnel (excluding the executive director)
are set out in the following table. All values are in Australian dollars unless otherwise stated.
39
PACIFIC
BRANDS
AR09
remuneration report (continued)
4 Executive director and senior executive remuneration (continued)
Remuneration for 2009 financial year
Chief Executive Officer and other senior executives of the Company and the consolidated entity
Short term employee benefits
Post employment benefits
retirement
payments
$
Share
based
payments
Termination
benefits
Total
value of
performance
rights as %
of total
performance
rights3
$
$
%
fixed
salary1
incentive
payments
nonmonetary
benefits2
superannuation
benefits
$
2009
2008
703,559
742,444
0
700,000
41,361
37,408
136,500
115,570
188,811
265,227
1,070,231
1,860,649
17.6
14.3
M.J. Allibon
Group General Manager,
Human Resources
2009
2008
217,141
N/A
0
N/A
17,113
N/A
20,567
N/A
0
N/A
254,821
N/A
0.0
N/A
D.L. Bortolussi
Chief Financial &
Operating Officer4
2009
2008
45,748
N/A
0
N/A
0
N/A
3,946
N/A
0
N/A
49,694
N/A
0.0
N/A
M.M. Clark
Group General Manager,
Workwear
2009
2008
344,629
39,589
0
0
37,064
2,822
38,447
3,946
55,667
0
475,807
46,357
11.7
0.0
M.J. Ford
Group General Manager,
Footwear5
2009
2008
358,065
321,917
0
180,000
38,171
38,169
86,400
136,400
4,360
97,923
971,566
774,409
0.4
12.6
K.J. Hann
Group General Manager,
Bonds
2009
2008
396,310
312,347
0
108,000
28,742
55,459
33,300
29,970
9,095
51,971
467,447
557,747
1.9
9.3
S.M. Smith Group General
Manager, Homewares4
2009
2008
119,788
N/A
0
N/A
8,150
N/A
11,395
N/A
0
N/A
139,333
N/A
0.0
N/A
R.A. Taylor
Group General Manager,
Underwear & Hosiery
2009
2008
359,657
295,152
0
165,000
35,719
36,391
72,637
113,367
43,160
31,160
511,173
641,070
8.4
4.9
2009
2008
2,544,897
1,711,449
0
1,153,000
206,320
170,249
403,192
399,253
301,093
446,281
484,570
3,940,072
3,880,232
7.6
11.5
B.A. Hannagan
Group General Manager,
Underwear & Hosiery 6
2009
2008
152,652
301,531
0
175,000
53,132
90,814
19,768
30,488
(43,141)
63,107
466,000
648,411
660,940
-6.7
9.5
M.E. Keely
Group General Manager,
People & Performance7
2009
2008
172,709
333,221
0
635,880
13,440
26,880
42,000
84,000
(12,094)
93,349
460,880
676,935
1,173,330
-1.8
7.8
M. Sonand
Group General Manager,
Outerwear & Sport8
2009
2008
171,174
227,516
0
150,000
17,113
37,522
18,328
86,979
13,300
26,600
267,750
487,665
528,617
2.7
5.0
S.J. Tierney
2009
2008
451,805
452,415
0
436,800
32,919
34,534
108,000
104,832
10,234
132,072
1,181,840
1,784,798
1,160,653
0.5
11.4
2009
2008
948,340
1,314,683
0
1,397,680
116,604
189,750
188,096
306,299
(31,701)
315,128
2,376,470
0
3,597,809
3,523,540
-0.8
8.9
591,288
705,552
269,392
761,409
2,861,040
0
7,537,881
7,403,772
3.6
10.3
others
$
Executive director
S.M. Morphet,
Chief Executive Officer
Current senior executives
484,570
Former senior executives
Chief Financial Officer 9
Total remuneration – executive director and senior executives
2009
2008
1
2
3,493,237
3,026,132
0
2,550,680
322,924
359,999
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.
3To 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 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. The fair value in respect of the grant having an effective date of 1 July 2008 is $1.27 per share.
4D.L. Bortolussi and S.M. Smith were issued sign on payments on 1 July 2009, refer to page 38 for further details. The fair value of these sign on payments will be
expensed over the term of the relevant vesting period.
5 M.J. Ford resigned from the Company effective 15 July 2009.
6 B.A. Hannagan resigned from the Company effective 16 January 2009.
7 M.E. Keely resigned from the Company effective 31 December 2008.
8 M. Sonand ceased as an employee of the Company effective 13 February 2009.
9 S.J. Tierney ceased in the role of Chief Financial Officer effective 9 June 2009 and resigned from the Company effective 10 July 2009.
PACIFIC
BRANDS
AR09
40
4 Executive director and senior executive remuneration (continued)
G. Audit of remuneration report
This Remuneration Report, has been audited in conjunction with the audit of the Financial Statements forming part of the Annual Report.
Dated at Melbourne this 26th day of August 2009.
Signed in accordance with a resolution of the directors:
James MacKenzie
Sue Morphet
Chairman
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 2009 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 relation to the audit.
KPMG
Melbourne
26 August 2009
Don Pasquariello
Partner
41
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Income Statements
for the year ended 30 June 2009
consolidated
note
2009
$’000
the Company
2008
$’000
2009
$’000
2008
$’000
2,000,035
2,116,640
–
–
(1,144,221)
(1,176,214)
–
–
855,814
940,426
–
–
12,341
13,193
45,000
70,000
Freight and distribution expenses
(140,846)
(150,329)
–
–
Sales and marketing expenses
(364,800)
(400,035)
–
–
Administrative expenses
(160,227)
(177,179)
(2,513)
(2,503)
(380,572)
–
(67,578)
–
(178,290)
226,076
(25,091)
67,497
2,443
3,459
21
42
(65,643)
(68,608)
–
–
Sales revenue
2
Cost of sales
Gross profit
Other income
Other expenses
2
4
Result from operating activities
Financial income
Financial expenses
Net financing (costs)/income
3
(Loss)/profit before income tax benefit/(expense)
Income tax benefit/(expense)
6
(Loss)/profit for the period
(63,200)
(65,149)
21
42
(241,490)
160,927
(25,070)
67,539
7,199
(43,801)
1,018
579
(234,291)
117,126
(24,052)
68,118
(234,479)
116,558
(24,052)
68,118
188
Attributable to:
Equity holders of the parent
21
Minority interest
23
(Loss)/profit for the period
568
–
–
(234,291)
117,126
(24,052)
68,118
(39.9) cents
20.9 cents
Basic and diluted earnings per share
Ordinary shares
7
The Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 46 to 82.
PACIFIC
BRANDS
AR09
42
Balance Sheets
as at 30 June 2009
consolidated
the Company
note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
9
126,475
104,822
557
538
Current assets
Cash and cash equivalents
Trade and other receivables
10
252,873
272,306
26,666
37,160
Inventories
11
311,445
356,970
–
–
Other current assets
12
Total current assets
8,322
14,266
–
–
699,115
748,364
27,223
37,698
32
30
1,387,016
1,203,714
Non-current assets
Trade and other receivables
10
Property, plant and equipment
13
144,402
204,899
–
–
Intangible assets
14
1,321,277
1,507,516
–
–
Deferred tax assets
15
60,669
24,053
1,945
1,625
Other non-current assets
12
–
1,530
–
–
Total non-current assets
1,526,380
1,738,028
1,388,961
1,205,339
Total assets
2,225,495
2,486,392
1,416,184
1,243,037
16
203,473
199,732
629
394
17
816
1,340
–
–
7,175
12,917
3,572
16,135
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Provisions
18
Total current liabilities
149,963
76,660
–
–
361,427
290,649
4,201
16,529
Non-current liabilities
Trade and other payables
16
5,900
9,306
–
–
Interest-bearing loans and borrowings
17
578,471
846,194
–
–
Provisions
18
Total non-current liabilities
Total liabilities
Net assets
12,644
10,155
–
–
597,015
865,655
–
–
958,442
1,156,304
4,201
16,529
1,267,053
1,330,088
1,411,983
1,226,508
1,469,457
1,218,577
1,469,457
1,218,577
Equity
Contributed equity
19
Reserves
20
(65,351)
(28,330)
5,946
4,591
(Accumulated losses)/retained earnings
21
(141,047)
136,140
(63,420)
3,340
1,263,059
1,326,387
1,411,983
1,226,508
3,994
3,701
–
–
1,267,053
1,330,088
1,411,983
1,226,508
Total equity attributable to equity holders of the parent
Minority interest
Total equity
23
The Balance Sheets are to be read in conjunction with the Notes to the Financial Statements set out on pages 46 to 82.
43
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Cash Flow Statements
for the year ended 30 June 2009
consolidated
note
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2,227,205
2,356,684
–
–
Cash flows from operating activities
Cash receipts from customers
(2,042,770)
(2,077,047)
(2,290)
(3,240)
Dividends received
–
–
45,000
70,000
Income taxes paid
(13,461)
(34,645)
(14,990)
(25,350)
–
–
5,418
36,035
(69,710)
(65,941)
–
–
Cash paid to suppliers and employees
Reimbursements received from tax consolidated entities
Interest paid
Interest received
Net cash from operating activities
28(b)
2,443
3,459
21
42
103,707
182,510
33,159
77,487
451
838
–
–
–
(6,516)
–
–
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of businesses (net of cash acquired)
27
–
6,116
–
–
Acquisition of property, plant and equipment
(22,473)
(25,276)
–
–
Net cash used in investing activities
(22,022)
(24,838)
–
–
(1,540)
(1,913)
–
–
(268,509)
(95,765)
–
–
Disposal of businesses (net of cash disposed)
Cash flows from financing activities
Finance lease payments
Repayment of borrowings
Loans (to)/from controlled entities
Dividends paid
–
–
(239,029)
7,907
(42,708)
(85,424)
(42,708)
(85,424)
(281)
(533)
–
–
Proceeds from share issue
248,597
–
248,597
–
Net cash used in financing activities
(64,441)
(183,635)
(33,140)
(77,517)
17,244
(25,963)
19
(30)
104,822
138,640
538
568
4,409
(7,855)
–
–
126,475
104,822
557
538
Dividend paid to minority interest
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the year
28(a)
The Cash Flow Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 46 to 82.
PACIFIC
BRANDS
AR09
44
Consolidated Statement of Changes in Equity
for the year ended 30 June 2009
total
equity
attributable to
equity
holders
of the
parent
$’000
minority
interest
$’000
total equity
$’000
1,314,709
4,665
1,319,374
Issued
capital
$’000
equity
compensation
reserve
$’000
foreign
currency
translation
reserve
$’000
1,218,577
4,911
(10,015)
(7,005)
108,241
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 for the period
recognised directly in equity
–
–
(21,819)
5,918
–
(15,901)
(266)
(16,167)
Profit for the period
–
–
–
–
116,558
116,558
568
117,126
Total recognised income/(expense)
–
–
(21,819)
5,918
116,558
100,657
302
100,959
On-market purchase of performance rights
–
(2,750)
–
–
(3,235)
(5,985)
–
(5,985)
Minority interest disposed
–
–
–
–
–
–
(733)
(733)
Dividends recognised
–
–
–
–
(85,424)
(85,424)
(533)
(85,957)
Balance at 1 July 2007
Cost of share based payments
(accumulated
losses)/
hedge
retained
reserve
earnings
$’000
$’000
–
2,430
–
–
–
2,430
–
2,430
Balance at 30 June 2008
1,218,577
4,591
(31,834)
(1,087)
136,140
1,326,387
3,701
1,330,088
Balance at 1 July 2008
1,218,577
4,591
(31,834)
(1,087)
136,140
1,326,387
3,701
1,330,088
Effective portion of changes in fair value
of cash flow hedges1
–
–
–
(45,297)
–
(45,297)
–
(45,297)
Foreign exchange translation differences
–
–
6,921
–
–
6,921
386
7,307
Total (expense)/income recognised
directly in equity
–
–
6,921
(45,297)
–
(38,376)
386
(37,990)
(Loss)/profit for the period
–
–
–
–
(234,479)
(234,479)
188
(234,291)
Total recognised (expense)/income
–
–
6,921
(45,297)
(234,479)
(272,855)
574
(272,281)
250,880
–
–
–
–
250,880
–
250,880
Movement of treasury shares
–
–
–
–
–
–
–
–
Dividends recognised
–
–
–
–
(42,708)
(42,708)
(281)
(42,989)
–
1,355
–
–
–
1,355
–
1,355
1,469,457
5,946
(24,913)
(46,384)
(141,047)
1,263,059
3,994
1,267,053
Issue of ordinary shares
Cost of share based payments
Balance at 30 June 2009
The Consolidated Statement of Changes in Equity is to be read in conjunction with the Notes to the Financial Statements set out on pages 46 to 82.
1 Net of any related income tax.
45
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Company Statement of Changes in Equity
for the year ended 30 June 2009
Balance at 1 July 2007
Issued capital
$’000
equity
compensation
reserve
$’000
(Accummulated
losses)/
retained
earnings
$’000
total equity
$’000
1,218,577
4,911
23,881
1,247,369
Profit for the period
–
–
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
–
(2,750)
(3,235)
(5,985)
Balance at 30 June 2008
1,218,577
4,591
3,340
1,226,508
Balance at 1 July 2008
1,218,577
4,591
3,340
1,226,508
(Loss)/profit for the period
–
–
(24,052)
(24,052)
Total recognised expense
–
–
(24,052)
(24,052)
250,880
–
–
250,880
–
–
(42,708)
(42,708)
–
1,355
–
1,355
1,469,457
5,946
(63,420)
1,411,983
Issue of ordinary shares
Dividends recognised
Cost of share based payments
Balance at 30 June 2009
The Company Statement of Changes in Equity are to be read in conjunction with the Notes to the Financial Statements set out on pages 46 to 82.
PACIFIC
BRANDS
AR09
46
Notes to the Financial Statements
for the year ended 30 June 2009
1
Significant accounting policies
47
2
Revenue and other income
54
3
Other expenses
54
4
Significant items
55
5
Auditors’ remuneration
55
6
Income tax (benefit)/expense
56
7
Earnings per share
56
8
Segment reporting
57
9
Cash and cash equivalents
58
10
Trade and other receivables
58
11
Inventories
59
12
Other assets
59
13
Property, plant and equipment
59
14
Intangible assets
61
15
Recognised deferred tax assets and liabilities
62
16
Trade and other payables
62
17
Interest-bearing loans and borrowings
62
18
Provisions
63
19
Contributed equity
64
20
Nature of reserves
64
21
Accumulated losses/retained earnings
64
22
Dividends
65
23
Minority interest
65
24
Additional financial instruments disclosure
66
25
Commitments
72
26
Controlled entities
72
27
Acquisitions and disposals
73
28
Notes to the Cash Flow Statements
74
29
Employee benefits
74
30
Key management personnel disclosures
80
31
Related parties
82
32
Events subsequent to reporting date
82
47
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
1significant accounting policies
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 2009 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
26 August 2009.
-the definition of a business has been broadened, which is
likely to result in more acquisitions being treated as business
combinations;
-contingent consideration will be measured at fair value, with
subsequent changes therein recognised in profit or loss;
-transaction costs, other than share and debt issue costs,
will be expensed as incurred;
-any pre-existing interest in the acquiree will be measured
at fair value with the gain or loss recognised in profit or loss;
(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) 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.
•
mended AASB 127 Consolidated and Separate Financial
a
Statements (2008) requires accounting for changes in
ownership interests by the Consolidated Entity in a subsidiary,
while maintaining control, to be recognised as an equity
transaction. When the Consolidated Entity loses control of a
subsidiary, any interest retained in the former subsidiary will be
measured at fair value with the gain or loss recognised in
profit or loss. The amendments to AASB 127, which become
mandatory for the Consolidated Entity’s 30 June 2010 financial
statements, are not expected to have a significant impact on
the financial statements;
•
ASB 8 Operating Segments introduces the “management
A
approach” to segment reporting. AASB 8, which becomes
mandatory for the Consolidated Entity’s 30 June 2010
financial statements, will require a change in the presentation
of and disclosure of segment information based on the
internal reports regularly reviewed by the Consolidated Entity’s
chief operating decision maker in order to assess each
segment’s performance and to allocate resources to them.
Currently the Consolidated Entity presents segment
information in respect of its business and geographical
segments (see note 8); the Consolidated Entity has not yet
determined the potential effect of the standard;
•
revised AASB 101 Presentation of Financial Statements
(2007) introduces the term total comprehensive income,
which represents changes in equity during a period other than
those changes resulting from transactions with owners in their
capacity as owners. Total comprehensive income may be
presented in either a single statement of comprehensive
income (effectively combining both the income statement and
all non-owner changes in equity in a single statement) or, in an
income statement and a separate statement of comprehensive
income. Revised AASB 101, which becomes mandatory for
the Consolidated Entity’s 30 June 2010 financial statements,
is expected to have a significant impact on the presentation of
the financial statements;
•
revised AASB 123 Borrowing Costs removes the option to
expense borrowing costs and requires that an entity capitalise
borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset as part of
the cost of that asset. The revised AASB 123 will become
mandatory for the Consolidated Entity’s 30 June 2010
In the current year, the Consolidated Entity adopted all of the new
and revised AASBs and Interpretations issued by the AASB that
are relevant to the Company and their operations and effective for
the current annual reporting period. These included:
•
Australian Interpretation 12 Service Concession Arrangements;
•
Australian Interpretation 13 Customer Loyalty Programmes;
•
ustralian Interpretation 14 AASB 119 – The Limit on a
A
Defined Benefit Asset, Minimum Funding Requirements
and their Interaction; and
•
ASB 2008 – 10 Amendments to Australian Accounting
A
Standards – Reclassification of Financial Assets.
These new and revised Standards and Interpretations resulted
in changes to the Company’s and the Consolidated Entity’s
accounting policies however did not affect the reported amounts in
the current or prior year.
The following Standards, amendments to Standards and
Interpretations have been identified as those which may impact
the entity in the period of initial application. They are available
for early adoption at 30 June 2009, but have not been applied
preparing this financial report:
•
revised AASB 3 Business Combinations (2008) incorporates
the following changes that are likely to be relevant to the
Consolidated Entity’s operations:
-any non-controlling (minority) interest will be measured
at either fair value, or at its proportionate interest in the
identifiable assets and liabilities of the acquiree, on a
transaction-by-transaction basis.
Revised AASB 3, which becomes mandatory for the
Consolidated Entity’s 30 June 2010 financial statements,
will be applied prospectively and therefore there will be no
impact on prior periods in the Consolidated Entity’s 2010
consolidated financial statement;
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 AASB requires
management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets,
liabilities and 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.
and
PACIFIC
BRANDS
AR09
48
Notes to the Financial Statements
1significant accounting policies (continued)
financial statements and will constitute a change in accounting
policy for the Consolidated Entity. In accordance with the
transitional provisions the Consolidated Entity will apply the
revised AASB 123 to qualifying assets for which capitalisation
of borrowing costs commences on or after the effective date.
Therefore there will be no impact on prior periods in the
Consolidated Entity’s 30 June 2010 financial statements;
•
•
ASB 2008-1 Amendments to Australian Accounting
A
Standard – Share-based Payment: Vesting Conditions and
Cancellations clarifies the definition of vesting conditions,
introduces the concept of non-vesting conditions, requires
non-vesting conditions to be reflected in grant-date fair value
and provides the accounting treatment for non-vesting
conditions and cancellations. The amendments to AASB 2
will be mandatory for the Consolidated Entity’s 30 June 2010
financial statements, with retrospective application. The
Consolidated Entity has not yet determined the potential effect
of the amendments;
ASB 2008-5 Amendments to Australian Accounting
A
Standards arising from the Annual Improvements Process and
AASB 2008-6 Further Amendments to Australian Accounting
Standards arising from The Annual Improvements Process
affect various AASBs resulting in minor changes for
presentation, disclosure, recognition and measurement
purposes. The amendments, which become mandatory for the
Consolidated Entity’s 30 June 2010 financial statements, are
not expected to have any impact on the financial statements;
(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.
In the Company’s financial statements, investments in subsidiaries
are carried at cost.
Transactions eliminated on consolidation
Intragroup balances, and any unrealised gains and losses or
revenues and expenses arising from intragroup transactions, are
eliminated in preparing the consolidated financial statements.
Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that there is no evidence of impairment.
(d) Revenue recognition
Revenues are recognised at fair value of the consideration
received, net of the amount of goods and services tax (‘GST’)
payable to the relevant taxation authority.
Sale of goods
Revenue from the sale of goods (net of returns, discounts,
rebates 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.
•
ASB 2008-7 Amendments to Accounting Standards –
A
Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate changes the recognition and measurement
of dividend receipts as income and addresses the accounting
of a newly formed parent entity in the separate financial
statements. The amendments become mandatory for the
Consolidated Entity’s 30 June 2010 financial statements. The
Consolidated Entity has not yet determined the potential effect
of the amendments;
•
ASB 2008-8 Amendments to Australian Accounting
A
Standard – Eligible Hedged Items clarifies the effect of using
options as hedging instruments and the circumstances in
which inflation risk can be hedged. The amendments become
mandatory for the Consolidated Entity’s 30 June 2010
financial statements, with retrospective application. The
Consolidated Entity has not yet determined the potential effect
of the amendment;
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.
I 16 Hedges of a Net Investment in a Foreign Operation
A
clarifies that net investment hedging can only be applied
when the net assets of the foreign operation are recognised
in the entity’s consolidated financial statements. AI 16 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 Interpretation; and
Government grants
•
•
I 17 Distributions of Non-Cash Assets to Owners provides
A
guidance in respect of measuring the value of distributions
of non-cash assets to owners. AI 17 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 Interpretation.
Dividends
Dividends received out of pre-acquisition reserves are eliminated
against the carrying amount of the investment and are not
recognised in revenue.
Other income
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.
49
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
1significant accounting policies (continued)
(e) Net financing costs/(income)
Tax consolidation
Net financing costs/(income) 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.
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.
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 Statement 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 taxation authority are classified as operating cash flows.
(g) Income tax
Income tax on the loss or profit comprises current and deferred
tax. Income tax expense is recognised in the Income Statement
except to the extent that it relates to items recognised directly in
equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment to tax payable in respect
of previous years.
Deferred tax is provided using the 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.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they
relate to income taxes levied by the same tax authority on the
same taxable entity, or on different tax entities, but they intend to
settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realised simultaneously.
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.
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 taxpayer’ 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 arrangement and tax sharing agreement
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.
(h) Earnings per share
Basic and diluted earnings per share is calculated by dividing the
loss or profit attributable to equity holders of the Company for the
reporting period, after excluding any costs of servicing, by the
weighted average number of ordinary shares of the Company.
(i)
Receivables
Trade and other receivables are stated at their amortised cost less
impairment losses (refer Note 1(n)).
(j)
Inventories
Inventories are measured at the lower of cost and net realisable
value. Cost includes direct materials, direct labour, other direct
variable costs and allocated production and supply overheads
necessary to bring inventories to their present location and
condition, and where relevant based on normal operating capacity
of the production facilities.
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.
Manufacturing activities
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.
PACIFIC
BRANDS
AR09
50
Notes to the Financial Statements
1significant accounting policies (continued)
Net realisable value
Brand names
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and
selling expense.
Brand names are considered indefinite life assets, as they are
not currently associated with products that are likely to become
commercially or technically obsolete. Brand names are measured
at cost less accumulated impairment losses.
Obsolete and slow moving stocks are provided for, to ensure the
inventories are recorded at net realisable value where such value
is below cost.
(k)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 asset 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.
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 intangible 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.
The estimated useful lives, in the current and comparative periods,
are as follows:
•
licences: 5-15 years
Operating leases
(n) Impairment
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.
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.
(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)). Cost
includes expenditure that is directly attributable to the acquisition
of the asset. 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.
Depreciation
Items of property, plant and equipment are depreciated over their
estimated useful lives as set out below.
An impairment loss is recognised whenever the carrying amount
of an asset or cash generating unit exceeds its recoverable amount.
Impairment losses are recognised in the Income Statement
unless the asset has previously been revalued, in which case the
impairment loss is recognised as a reversal to the extent of that
previous revaluation with any excess recognised through the
Income Statement.
Impairment losses recognised in respect of a cash generating unit
are allocated 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.
•
freehold buildings: 40 years;
•
leasehold improvements: life of lease; and
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.
•
owned and leased plant and equipment: 3 to 10 years.
Calculation of recoverable amount
Depreciation is recognised in the income statement on a straight
line basis over the estimated useful lives of each item of property,
plant and equipment. Land is not depreciated.
The estimated useful lives, in the current and comparative periods,
are as follows:
The residual value, the useful life and the depreciation method
applied to an asset are reviewed at least annually.
(m) Intangible assets
Goodwill
Goodwill (negative goodwill) arises on the acquisition of
subsidiaries, associates and jointly controlled entities.
Goodwill represents the excess of the cost of the acquisition over
the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities of the acquiree. When the excess
is negative (negative goodwill), it is recognised immediately in profit
or loss.
Goodwill is measured at cost less accumulated impairment losses.
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.
51
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
1significant accounting policies (continued)
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.
(o) Payables
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.
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.
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.
Trade and other payables are stated at their amortised cost.
(p) Interest-bearing loans and borrowings
(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 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 to maturity of the related liabilities.
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.
Superannuation plans
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.
A defined contribution plan is a post-employment benefit plan under
which an entity pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution plans are
recognised as a personal expense in profit or loss when they are
due. Prepaid contributions are recognised as an asset to the extent
that a cash refund or a reduction in future payments is available.
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.
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.
The Consolidated Entity contributes to various defined benefit and
defined contribution superannuation plans.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than
a defined contribution plan. 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 is deducted.
The discount rate is the yield at the balance sheet date on national
government bonds that have maturity dates approximating the terms
of the Consolidated Entity’s obligations. The calculation is performed
by a qualified actuary using the projected unit credit method.
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
PACIFIC
BRANDS
AR09
52
Notes to the Financial Statements
1significant accounting policies (continued)
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) Share based payments
The Company has introduced a number of share plans pursuant to
which senior executives and directors may acquire shares or to be
granted performance rights. 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
expensed 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) 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 specific to the liability.
Dividends
A provision for dividends payable is recognised in the reporting period
in which the dividends are declared, for the entire undistributed
amount, regardless of the extent to which they will be paid in cash.
Restructuring
Provisions for restructuring or termination 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.
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 their 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) Segment reporting
A segment is a distinguishable component of the Group that is
engaged either in providing related products or services (business
segment), or in providing products or services within a particular
economic environment (geographical segment), which is subject to
risks and returns that are different from those of other segments.
Segment information is presented in respect of the Group’s
business and geographical segments. The Group’s primary format
for segment reporting is based on business segments. The
business segments are determined based on the Group’s
management and internal reporting structure.
Inter-segment pricing is determined on an arm’s length basis.
(u) Foreign currency
Transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to Australian dollars at the
foreign exchange rate ruling at that date. Foreign exchange 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 operation
The assets and liabilities of controlled foreign operation, 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 of investments. 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.
53
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
1significant accounting policies (continued)
Hedging
(w) Share capital
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.
Ordinary shares
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 non-financial 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 operations
The portions of the gains or losses on instruments used to hedge
net investment 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.
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and share options
are recognised as a deduction from equity, net of any tax effects.
Dividends on ordinary shares are recognised as a liability in the
period in which they are declared.
Treasury shares
The Company operates the Pacific Brands Share Trust (Trust). The
main purpose of the Trust is to hold unvested performance shares
as part of the Pacific Brands Performance Rights Share Plan.
Under IFRS, the Trust qualifies as an equity compensation plan
special purpose entity and its results are included in those for the
Company and the Consolidated Entity.
Any shares held by the Trust are accounted for as treasury shares
and treated as a reduction in the share capital of the Company and
the Consolidated Entity.
(x) 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 noted below:
•
defined benefit superannuation plan assumptions;
•
impairment of goodwill and intangible assets with
indefinite useful lives;
•
impairment of property, plant and equipment;
•
utilisation of tax losses;
•
measurement of share based payments;
•
valuation of financial instruments;
•
rovisions and contingencies including restructuring
p
provisions;
•
measurement of defined benefit obligation.
PACIFIC
BRANDS
AR09
54
Notes to the Financial Statements
2revenue and other income
consolidated
Sales revenue
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2,000,035
2,116,640
–
–
2,635
2,619
–
–
–
–
45,000
70,000
–
564
–
–
9,706
10,010
–
–
Other income
Royalties – other parties
Dividends – controlled entity
Net gain on disposal of businesses
Sundry income
Total other income
12,341
13,193
45,000
70,000
2,012,376
2,129,833
45,000
70,000
5,233
4,788
–
–
16,073
15,712
–
–
21,306
20,500
–
–
Software
2,380
2,379
–
–
Other intangible assets
3,050
3,052
–
–
Leased plant and equipment
1,048
1,029
–
–
6,478
6,460
–
–
27,784
26,960
–
–
Total revenue and other income
3other expenses
Depreciation of:
Freehold buildings and leasehold improvements
Plant and equipment
Amortisation of:
Total depreciation and amortisation
Net financing costs/(income):
Financial income
(2,443)
(3,459)
(21)
(42)
Interest on bank loans and overdraft
65,323
68,328
–
–
Finance charges on capitalised leases
320
280
–
–
63,200
65,149
(21)
(42)
5,097
709
–
–
149,385
147,943
–
–
–
–
67,578
–
154,482
148,652
67,578
–
360,971
371,804
–
–
28,089
25,538
–
–
1,516
(474)
–
–
Amounts set aside to allow for:
Doubtful debts
Rebates, trade allowances, claims and settlement discounts
Impairment of amounts owing by controlled entity
Personnel expenses:
Wages and salaries
Contributions to defined contribution superannuation plans
Defined benefit superannuation expense
2,404
–
–
–
Leave entitlements
43,593
53,664
–
–
Other employee costs
23,599
27,749
–
–
1,355
2,430
–
–
461,527
480,711
–
–
(131)
516
–
–
Curtailment and settlement loss
Equity settled share based payments
Net foreign exchange (gain)/loss
55
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
4significant items
The Other expenses are reconciled as follows:
consolidated
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
128,813
–
–
–
52,529
–
–
–
Asset impairment and writedowns
Goodwill impairment1
Brand names impairment
1
40,081
–
–
–
Land and Buildings impairment2
19,130
–
–
–
Inventory writedowns
14,187
–
–
–
Other asset writedowns
19,133
–
67,578
–
273,873
–
67,578
–
Redundancies
81,958
–
–
–
Decommissioning and other costs
24,741
–
–
–
106,699
–
–
–
380,572
–
67,578
–
Plant and Equipment impairment
2
Restructuring expenses3
The related income tax benefit/(expense) on significant items, where applicable, is $46.0 million for the Consolidated Entity and nil for the Company.
1 For further information relating to impairment refer to note 14.
2 For further information relating to impairment refer to note 13.
3 For further information relating to restructuring expenses refer to note 18.
5auditors’ remuneration
consolidated
the Company
2009
$
2008
$
2009
$
2008
$
1,323,500
1,259,600
63,000
62,000
288,478
377,400
–
–
1,611,978
1,637,000
63,000
62,000
222,677
171,294
–
–
82,500
85,641
–
–
915,680
–
–
–
Taxation services
35,951
14,461
–
–
Other assurance services
13,545
26,873
–
–
1,270,353
298,269
–
–
Audit services
Auditors of the Company
KPMG Australia:
Audit and review of financial reports
Overseas KPMG firms:
Audit of financial reports
Other services
Auditors of the Company
KPMG Australia:
Taxation services
Other assurance services
Other advisory services
Overseas KPMG firms:
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, having regard to the
Auditor independence requirements of the Corporations Act and the Company’s policy on Auditor independence. The assignments are
principally related to tax advice and assurance services relating to debt covenants, regulatory requirements and transaction services.
PACIFIC
BRANDS
AR09
56
Notes to the Financial Statements
6income tax (benefit)/expense
consolidated
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Current year
11,689
44,435
(1,087)
(3,615)
(Over)/under provided in prior year
(5,251)
(2,134)
(276)
159
note
Current income tax (benefit)/expense
Deferred income tax (benefit)/expense
(13,637)
1,500
339
2,877
(7,199)
43,801
(1,024)
(579)
(Loss)/profit before income tax (benefit)/expense
(241,490)
160,927
(25,070)
67,539
Income tax using domestic corporation tax rate of 30%
(72,447)
48,278
(7,521)
20,262
406
729
–
–
Origination and reversal of temporary differences
Total income tax (benefit)/expense in the Income Statements
Numerical reconciliation between income tax (benefit)/expense
and (loss)/profit before income tax
Increase in income tax expense due to:
Share based payments
Increase/(decrease) in income tax expense due to:
Non-deductible asset impairment
66,063
–
20,279
–
Non-assessable dividend income
–
–
(13,500)
(21,000)
Sundry items
4,030
(3,072)
–
–
(Over)/under provided in prior year
(5,251)
(2,134)
(276)
159
Total income tax (benefit)/expense on (loss)/profit before income tax
(7,199)
43,801
(1,018)
(579)
(19,413)
2,535
–
–
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 $7.1 million (2008: $12.9 million) and for the Company of $3.6 million (2008:
$16.1 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.
7earnings per share
consolidated
2009
$’000
2008
$’000
(234,291)
117,126
Earnings reconciliation
(Loss)/profit for the period
(Less)/add minority interest
(188)
(568)
Basic and diluted earnings
(234,479)
116,558
2009
number
2008
number
502,277,852
502,277,852
1,575,921
56,708,856
Effect of shares issued in May 2009
76,526,103
–
Effect of shares issued in June 2009
7,565,150
–
587,945,026
558,986,708
Weighted average number of shares used as the denominator
Number for basic and diluted earnings per share:
Ordinary shares at 1 July
Effect of discount on rights issue
Ordinary shares at 30 June
2008 has been restated as a result of the placement and rights issue in 2009.
57
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
8 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
arketer, distributor, importer and manufacturer of casual outerwear, workwear, sports clothing, sports footwear
M
and sporting equipment;
Home ComfortMarketer, distributor, importer and manufacturer of mattresses, pillows, bed linen, bedding accessory products
and foam’s and carpet underlay;
Footwear
Marketer, distributor and importer of footwear; and
Other
Retail clearance outlets, administration functions and amortisation of other intangible assets.
underwear
outerwear
home
& hosiery
& sport
comfort
footwear
other
eliminations1
consolidated
$’000
$’000
$’000
$’000
$’000
$’000
$’000
625,861
646,201
456,517
256,107
27,690
–
2,012,376
2009
Revenue
External segment revenue
Intersegment revenue
Total segment revenue
–
32
9
138
–
(179)
–
625,861
646,233
456,526
256,245
27,690
(179)
2,012,376
93,412
55,994
40,560
27,955
(15,639)
–
202,282
(128,624)
(52,274)
(123,862)
(47,595)
(28,217)
–
(380,572)
(35,212)
3,720
(83,302)
(19,640)
(43,856)
–
(178,290)
Result
Segment result before significant items
Significant items
Segment result after significant items
(63,200)
Net financing costs
Income tax benefit
7,199
Loss for the period
(234,291)
Depreciation and amortisation
Segment assets
Unallocated assets2
Segment liabilities
Acquisition of non-current assets
6,272
4,837
7,952
2,032
6,691
–
27,784
1,033,940
623,170
356,865
312,260
90,339
(251,748)
2,164,826
–
–
–
–
–
–
60,669
110,996
152,997
121,990
23,699
800,508
(251,748)
958,442
5,778
5,454
4,654
700
6,526
–
23,112
638,231
661,230
525,877
274,582
29,913
–
2,129,833
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 period
Depreciation and amortisation
Segment assets
Unallocated assets
Segment liabilities
Acquisition of non-current assets
117,126
6,444
4,754
7,654
1,635
6,473
–
26,960
1,068,138
663,669
484,571
339,331
81,866
(175,236)
2,462,339
–
–
–
–
–
–
24,053
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
1Segment revenue, results, assets and liabilities are determined before the effects of consolidation eliminations, except where transactions are between entities in a
single segment.
2
Relates to deferred tax assets.
PACIFIC
BRANDS
AR09
58
Notes to the Financial Statements
8 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 & admin offices;
New Zealand
Manufacturing facilities, distribution facilities and sales & admin offices; and
Rest of World
Manufacturing facilities, distribution facilities and sales & admin offices.
Australia
$’000
New Zealand
$’000
rest of world
$’000
consolidated
$’000
External segment revenue by location of customers
1,763,494
145,704
103,178
2,012,376
Segment assets by location of assets
2,044,531
98,318
82,646
2,225,495
21,800
509
803
23,112
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
2009
Acquisition of non-current assets
2008
Acquisition of non-current assets
9 CASH AND CASH EQUIVALENTS
consolidated
note
Cash on hand
Cash at bank
Bank short term deposits
28(a)
2009
$’000
the Company
2008
$’000
2009
$’000
2008
$’000
713
196
–
–
104,383
92,144
557
538
21,379
12,482
–
–
126,475
104,822
557
538
The bank short term deposits mature within 44 days (2008: 19 days) and interest is received at a weighted average interest rate of 2.4% pa
(2008: 6.8% pa).
10TRADE AND OTHER RECEIVABLES
consolidated
note
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
274,422
285,021
–
–
Current
Trade debtors
Less allowance for doubtful trade debtors
Less allowance for rebates, trade allowances,
claims and settlement discounts
Amounts owing by controlled entity
31
Other debtors
(7,081)
(3,128)
–
–
(35,816)
(35,471)
–
–
231,525
246,422
–
–
–
–
26,660
37,156
21,348
25,884
6
4
252,873
272,306
26,666
37,160
Non-current
Amounts owing by controlled entity
Other debtors
31
–
–
1,387,016
1,203,714
32
30
-
–
32
30
1,387,016
1,203,714
Other debtor amounts generally arise from transactions outside the usual operating activities of the Consolidated Entity.
59
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
11 INVENTORIES
consolidated
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Raw materials and stores
50,026
50,835
–
–
Work in progress
15,880
17,898
–
–
245,539
288,237
–
–
311,445
356,970
–
–
8,322
14,266
–
–
–
1,530
–
–
At cost
41,745
41,620
–
–
Accumulated impairment losses
(2,000)
–
–
–
39,745
41,620
–
–
37,141
36,544
–
–
(19,218)
(4,151)
–
–
17,923
32,393
–
–
22,537
27,738
–
–
(11,437)
(9,526)
–
–
11,100
18,212
–
–
At cost
162,768
145,150
–
–
Accumulated depreciation and impairment losses
(95,307)
(49,781)
–
–
67,461
95,369
–
–
4,517
5,784
–
–
(2,044)
(1,920)
–
–
2,473
3,864
–
–
7,457
13,441
–
–
(1,757)
–
–
–
5,700
13,441
–
–
144,402
204,899
–
–
Finished goods
12other assets
Current
Prepayments
Non-current
Other investments
13 PROPERTY, PLANT AND EQUIPMENT
Freehold land
Freehold buildings
At cost
Accumulated depreciation and impairment losses
Leasehold improvements
At cost
Accumulated amortisation and impairment losses
Plant and equipment
Leased plant and equipment
At capitalised cost
Accumulated amortisation and impairment losses
Capital works in progress
At cost
Accumulated impairment losses
Total property, plant and equipment at net book value
PACIFIC
BRANDS
AR09
60
Notes to the Financial Statements
13 PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Reconciliation
A reconciliation of the carrying amounts for each class of property, plant and equipment is set out below:
CONSOLIDATED
freehold
land
$’000
freehold
buildings
$’000
leasehold
improvements
$’000
plant and
equipment
$’000
leased
plant and
equipment
$’000
capital
works in
progress
$’000
total
$’000
2009
41,620
32,393
18,212
95,369
3,864
13,441
204,899
Additions
–
28
961
1,763
599
19,718
23,069
Transfer from/(to) capital works in progress
–
407
430
25,983
(1,111)
(25,709)
–
Disposals
–
–
(2,457)
(1,532)
(34)
–
(4,023)
Depreciation and amortisation
–
(730)
(4,503)
(16,073)
(1,048)
–
(22,354)
(2,000)
(14,342)
(2,788)
(38,317)
(7)
(1,757)
(59,211)
125
167
1,245
268
210
7
2,022
39,745
17,923
11,100
67,461
2,473
5,700
144,402
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
–
–
(70)
(2,945)
–
(25)
(3,040)
Carrying amount at the beginning of the year
Impairment losses
Effects of movements in foreign exchange
Carrying amount at the end of the year
2008
Disposed businesses
Fair value adjustments
4,660
(9,613)
(310)
1,813
(62)
–
(3,512)
Additions
–
16
2,952
2,651
866
19,774
26,259
Transfer from/(to) capital works in progress
–
–
3,076
16,935
(1,197)
(18,814)
–
Disposals
–
(53)
(203)
(1,132)
–
–
(1,388)
Depreciation and amortisation
–
(837)
(3,951)
(15,712)
(1,029)
–
(21,529)
Effects of movements in foreign exchange
Carrying amount at the end of the year
(370)
(270)
(548)
(610)
(60)
(78)
(1,936)
41,620
32,393
18,212
95,369
3,864
13,441
204,899
During the year the Company announced its intention to exit local manufacturing, as a result, impairment losses have been recognised with
respect to redundant plant and equipment utilised in the manufacturing process and freehold and leasehold land and buildings where these
sites are located which were carried in excess of their recoverable amount.
61
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
14 INTANGIBLE ASSETS
CONSOLIDATED
Balance at 1 July 2007
goodwill
$’000
Brand
names
$’000
software
$’000
other
intangible
assets1
$’000
total
$’000
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)
9,988
–
–
–
9,988
(999)
(885)
–
–
(1,884)
992,448
484,352
13,758
16,958
1,507,516
Additions
–
–
28
15
43
Disposals
–
–
(9)
–
(9)
–
–
(2,380)
(3,050)
(5,430)
(128,813)
(52,529)
–
–
(181,342)
Fair value adjustments
Effects of movements in foreign exchange
Balance at 30 June 2008
Amortisation
Impairment losses
Effects of movements in foreign exchange
Balance at 30 June 2009
167
332
–
–
499
863,802
432,155
11,397
13,923
1,321,277
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
Underwear & Hosiery
Brand names
2009
$’000
20081
$’000
2009
$’000
20081
$’000
386,739
409,479
273,041
273,441
Outerwear & Sport
177,763
178,528
112,945
134,345
Home Comfort
153,443
236,517
27,244
51,741
Footwear
145,857
167,924
18,925
24,825
863,802
992,448
432,155
484,352
1The Goodwill and Brand names of the Sheridan CGU have been allocated to the Home Comfort CGU. The Goodwill, Brand names and other intangibles of the
Yakka and Brand Collective CGU’s have been allocated to the Outerwear and Sport CGU. This is reflective of the change in the Company’s strategy. The former
CGU’s were tested for impairment at the date of transition, with no impairment required.
The recoverable amount of the cash generating units (CGU) above was determined using value in use or fair value calculations as
appropriate. Separate value in use calculations are prepared for each of the CGUs that make up the Consolidated Entity. The CGU’s are
consistent with the business segments of the Consolidated Entity. (Refer to Note 8 for a listing of business segments). Those calculations use
cashflow projections based on actual operating results, and cashflows for a further five year period which are extrapolated using a growth
rate appropriate for markets and categories in which each of the cash generating units operates, generally 2-2.5%.
A pre-tax discount rate of 13.7% (2008:11.6%) per annum has been used in discounting the projected cash flows.
During the year, the Consolidated Entity recognised impairment losses with respect to the above cash generating units. The impairment
losses were triggered by a down turn in economic conditions both in the Australian and International markets in which the CGU’s operate.
The recoverable amount of the CGUs was determined using the value in use or fair value calculations as appropriate. The carrying amount
of the units was determined to be higher than their recoverable amount and an impairment loss was recognised against Goodwill in the
following units; Underwear and Hosiery $22.7m, Home Comfort $83.2m, Outerwear and Sport $0.8m and Footwear $22.1m.
Recoverability of Brand names
The carrying amount of intangible assets representing Brand names was impaired during the year. The impairment test was triggered by the
Consolidated Entity’s brand rationalisation strategy and certain Brand names have become redundant, been discontinued or identified for
retirement. The recoverable amount was calculated using value in use calculations. The carrying amount of the Brand names was determined
to be higher than their recoverable amount and an impairment loss was recognised against Brand names in the following units; Underwear
and Hosiery $0.4m, Home Comfort $24.9m, Outerwear and Sport $21.4m and Footwear $5.9m.
PACIFIC
BRANDS
AR09
62
Notes to the Financial Statements
15 RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
assets
liabilities
net
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Trade and other receivables
1,422
2,092
–
–
1,422
2,092
Inventories
2,308
1,232
–
–
2,308
1,232
Property, plant and equipment
8,296
–
–
(3,129)
8,296
(3,129)
19,654
22,976
–
–
19,654
22,976
Other provisions
8,883
1,870
–
–
8,883
1,870
Share issue costs1
1,827
–
–
–
1,827
–
19,878
466
–
–
19,878
466
–
–
(1,599)
(1,454)
(1,599)
(1,454)
Tax assets/(liabilities)
62,268
28,636
(1,599)
(4,583)
60,669
24,053
Set off of tax
(1,599)
(4,583)
1,599
4,583
–
–
Net tax assets
60,669
24,053
–
–
60,669
24,053
Consolidated
Provisions for employee benefits
Derivative financial instruments
2
Other items
The Company
Provisions for employee benefits
Share issue costs1
Other items
Tax assets
118
105
–
–
118
105
1,827
–
–
–
1,827
–
–
1,520
–
–
–
1,520
1,945
1,625
–
–
1,945
1,625
1 Included in equity.
2 Includes derivative financial instruments recognised directly in equity.
16 trade and other payables
consolidated
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
117,422
150,581
629
394
Current
Trade creditors
Other creditors and accruals
1
86,051
49,151
–
–
203,473
199,732
629
394
5,900
9,306
–
–
Non-current
Other creditors
1 Includes the fair value of foreign currency contracts (refer to note 24(b)).
17 INTEREST-BEARING LOANS AND BORROWINGS
consolidated
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
816
1,340
–
–
577,123
844,427
–
–
1,348
1,767
–
–
578,471
846,194
–
–
Current
Lease liabilities
Non-current
Bank loans
Lease liabilities
63
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
17 INTEREST-BEARING LOANS AND BORROWINGS (continued)
Finance lease liabilities
The Consolidated Entity’s finance lease liabilities are secured by the leased assets of $2.5 million (2008: $3.9 million) as in the event of
default, the assets revert to the lessor.
Finance lease liabilities of the Consolidated Entity are payable as follows:
minimum
lease
payments
2009
$’000
principal
2009
$’000
2008
$’000
2008
$’000
2008
$’000
interest
principal
926
110
816
1,545
205
1,340
1,501
153
1,348
1,885
118
1,767
2,427
263
2,164
3,430
323
3,107
Within one year
One year or later and no later than five years
interest
2009
$’000
minimum
lease
payments
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.
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 2009, this
arrangement was drawn to $170 million (2008: $171 million). The gross trade debtors which have been securitised have been presented as
trade debtors (refer Note 10) with the secured borrowing included as a component of bank loans.
Bank overdrafts
Interest on bank overdrafts is charged at prevailing market rates.
18 PROVISIONS
consolidated
the Company
note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
29
64,011
72,711
–
–
Current
Employee benefits
Leased premises
Restructuring
3,366
3,949
–
–
82,586
–
–
–
149,963
76,660
–
–
6,778
4,330
–
–
5,866
5,825
–
–
12,644
10,155
–
–
Non-current
Employee benefits
Leased premises
29
Reconciliation
A reconciliation of the carrying amounts of each class of provision, except for employee benefits (refer Note 29), is set out below:
restructuring
Carrying amount at the beginning of the year
Recognised in the Income Statement
Fair value adjustments
Payments
Carrying amount at the end of the year
leased premises
2009
$’000
2008
$’000
2009
$’000
2008
$’000
–
–
9,774
9,050
104,187
–
1,962
949
–
–
–
3,456
(21,601)
–
(2,504)
(3,681)
82,586
–
9,232
9,774
64
PACIFIC
BRANDS
AR09
Notes to the Financial Statements
18 PROVISIONS (continued)
Restructuring
During the year ended 30 June 2009 the Consolidated Entity committed to a plan to discontinue non core activities and some smaller
brands as part of its “Pacific Brands 2010” strategy to reduce complexity and cost of doing business. Following the announcement of the
plan, the Consolidated Entity recognised a provision of $104 million for expected restructuring costs including employee termination
benefits. Estimated cost was based on the terms of relevant contracts. The restructuring activities are expected to be substantially
completed by 30 June 2010.
19 CONTRIBUTED EQUITY
consolidated
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
1,218,577
1,218,577
1,218,577
1,218,577
250,880
–
250,880
–
Share capital
Publicly held
502,277,852 fully paid ordinary shares (2008: 502,277,852) at the beginning
of the year
427,016,236 fully paid ordinary shares were issued during the financial year
(2008: nil)1
Treasury shares
2,092,160 fully paid ordinary treasury shares were issued during the year (2008: nil)
931,386,248 fully paid ordinary shares at the end of the year (2008: 502,277,852)
–
–
–
–
1,469,457
1,218,577
1,469,457
1,218,577
1 Net of capital raising costs.
Treasury shares
Treasury shares represent the ordinary shares held by the trustee of the Consolidated Entity’s equity compensation plan.
As at 30 June 2009 the trust held 2,092,160 of the Company’s shares (2008: nil). These were issued by the Company during
the year for no consideration.
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.
20 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 29.
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.
21 (accumulated losses)/RETAINED EARNINGS
consolidated
Balance at the beginning of the year
Net (loss)/profit attributable to equity holders of the parent
On-market purchase of performance rights
Dividends recognised
Balance at the end of the year
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
136,140
108,241
3,340
23,881
(234,479)
116,558
(24,052)
68,118
–
(3,235)
–
(3,235)
(42,708)
(85,424)
(42,708)
(85,424)
(141,047)
136,140
(63,420)
3,340
65
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
22 DIVIDENDS
Dividends recognised in the current year by the Company are:
cents per
share
total
amount
$’000
franked/
unfranked
date of payment
8.5
42,708
Franked
1 October 2008
2009
Final 2008 ordinary
42,708
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
Franked dividends declared or paid were franked at the tax rate of 30%.
Subsequent events
Since the end of the financial year, the directors have not declared any dividends for 2009.
the Company
2009
$’000
2008
$’000
38,148
46,073
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 Company has not
declared a final dividend for the financial year.
23MINORITY INTEREST
The minority interest at 30 June 2009 relates to a 50% interest in Restonic (M) Sdn Bhd which is not held by the Company nor by one of its
controlled entities. During the prior year, the 50.1% controlling interest in World Brands Pty Ltd was also disposed.
consolidated
2009
$’000
2008
$’000
(343)
355
Minority interest in controlled entities comprise:
Interest in retained earnings at the beginning of the year
Net profit attributable to minority interest
Minority interest disposed
188
568
–
(733)
Dividend paid to minority interest
(281)
(533)
Interest in (accumulated losses) at the end of the year
(436)
(343)
Interest in share capital
4,293
4,293
137
(249)
3,994
3,701
Interest in reserves
Total minority interest
PACIFIC
BRANDS
AR09
66
Notes to the Financial Statements
24 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.
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 equity in the Balance Sheet plus net debt.
In accordance with this policy, the Company issued 427,016,326 fully paid ordinary shares to raise $250.9 million (net). These funds were
utilised to pay down outstanding debt. Further the Company did not declare a dividend at 31 December 2008 or 30 June 2009 in order to
preserve capital.
Net debt is calculated as total interest-bearing loans and borrowings less cash and cash equivalents. At balance date, total capital amounted to
$1,719,865,000 (2008: $2,072,800,000). 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 over the long term.
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 management.
There were no changes in the Consolidated Entity’s approach to capital management during the year.
(a) Fair values of financial assets and liabilities
A number of the Consolidated Entity’s accounting policies and disclosures require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following
methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific
to that asset 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.
67
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
24 ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued)
(a) Fair values of financial assets and liabilities (continued)
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 2009
carrying
amount
$’000
Cash and cash equivalents
Trade and other receivables
30 JUNE 2008
fair value
$’000
carrying
amount
$’000
fair value
$’000
126,475
126,475
104,822
104,822
252,905
252,905
267,307
267,307
Interest rate swaps
–
–
4,438
4,438
Forward exchange contracts receivable
–
–
591
591
Trade and other payables
151,595
151,595
202,455
202,455
Bank loans
577,123
577,123
844,427
844,427
2,164
2,164
3,107
3,107
Interest rate swaps
10,850
10,850
–
–
Forward exchange contracts payable
33,344
33,344
6,583
6,583
Foreign exchange options
13,584
13,584
–
–
carrying
amount
$’000
fair value
$’000
carrying
amount
$’000
fair value
$’000
Cash and cash equivalents
557
557
538
538
Trade and other receivables
1,413,682
1,413,682
1,240,874
1,240,874
629
629
394
394
Financial assets
Derivative instruments designated in hedge relationship:
Financial liabilities
Measured at amortised cost:
Finance lease liabilities
Derivative instruments designated in hedge relationship:
the Company
30 JUNE 2009
30 JUNE 2008
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 interest rates and foreign exchange 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 on the following page.
68
PACIFIC
BRANDS
AR09
Notes to the Financial Statements
24 ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued)
(b) Market risk (continued)
(i) Interest rate risk
The Consolidated Entity adopts a policy of ensuring that at least 60% of its exposure to changes in interest rates on senior debt 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
2009
weighted average
interest rate p.a.
2008
weighted average
interest rate p.a.
2009
weighted average
interest rate p.a.
2008
weighted average
interest rate p.a.
Cash and cash equivalents
2.4%
6.8%
2.4%
6.8%
Finance lease liabilities
9.2%
9.2%
–
–
Bank loans1
8.3%
7.9%
–
–
Instruments with interest rate risk exposure
1 After incorporating the effect of interest rate swaps.
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 interest-bearing loans and borrowings (excluding the portion fixed through interest rate swaps) and cash and cash equivalents held at
reporting date. The analysis assumes the net balance at reporting date was held constantly throughout the financial year.
A change of 100 basis points in interest rates at the reporting date would increase/(decrease) (loss)/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 2008.
The impact to (loss)/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.
(loss)/profit before tax
equity
100bp
increase
$’000
100bp
decrease
$’000
100bp
increase
$’000
100bp
decrease
$’000
30 June 2009
679
(679)
7,472
(7,472)
30 June 2008
(4,428)
4,428
3,817
(3,817)
(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’), Hong Kong dollar (‘HKD’) and UK pound (‘GBP’). The currencies in which these transactions primarily are denominated are
AUD, USD, GBP and HKD.
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.
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 to nine months. The Consolidated Entity uses forward exchange contracts and other derivatives to hedge
its currency risk.
69
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BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
24 ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (continued)
(b) Market risk (continued)
(ii) Currency risk (continued)
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
2009
weighted
average
exchange rate
2008
australian
dollar
equivalent
fair value
$’000
$’000
0.67
312,802
(42,972)
weighted
average
exchange rate
australian
dollar
equivalent
fair value
$’000
$’000
0.92
202,454
(5,716)
Maturing within one year
Buy US dollars
5.51
34,445
(3,889)
7.26
25,026
(556)
Buy UK pounds
0.4825
1,168
(6)
0.4888
1,203
19
Buy euros
0.5598
353
(6)
0.6130
388
3
75.80
2,050
(30)
100.83
2,086
(1)
1.2384
266
(24)
1.2132
6,766
259
Buy Hong Kong dollars
Buy Japanese yen
Buy New Zealand dollars
The net deferred costs and exchange gains and losses on hedges of anticipated foreign currency purchases and sales recognised in other
creditors and accruals in Note 16 and the timing of their anticipated recognition as part of purchases and sales are:
consolidated
net (losses)/gains
Within six months
2009
$’000
2008
$’000
(46,927)
(5,992)
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 2009
$’000
30 june 2008
$’000
13,539
14,946
9,944
11,282
Trade creditors
(21,713)
(37,911)
Forward exchange contracts and options
(42,972)
(5,716)
Net exposure
(41,202)
(17,399)
Cash and cash equivalents
Trade debtors
Sensitivity analysis
A 10% strengthening of the AUD against the USD at 30 June 2009 would have increased/(decreased) (loss)/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 2008.
consolidated
net profit
$’000
equity
$’000
30 June 2009
(26)
(25,191)
30 June 2008
(78)
(18,512)
A 10% weakening of the AUD against the USD at 30 June 2009 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.
70
PACIFIC
BRANDS
AR09
Notes to the Financial Statements
24 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 of the
Consolidated Entity is analysed individually for creditworthiness before 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 as follows:
gross
2009
$’000
impairment
2009
$’000
gross
2008
$’000
impairment
2008
$’000
Past due 0-30 days
16,431
–
16,792
–
Past due 30 days
12,147
7,081
15,009
3,128
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
Effects of movements in foreign exchange
Balance at 30 June
2009
$’000
2008
$’000
3,128
4,467
(1,204)
(1,912)
5,097
709
60
(136)
7,081
3,128
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.
(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 an appropriate level of unused overdraft
and bank loan facilities, which amounted to $286.5 million as at 30 June 2009.
71
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
24 ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURE (CONTINUED)
(d) Liquidity risk (continued)
Financing facilities
consolidated
2009
$’000
the Company
2008
$’000
2009
$’000
2008
$’000
Unsecured bank overdraft facility, reviewed annually and payable at call:
–
–
–
–
39,026
43,965
–
–
39,026
43,965
–
–
Amount used
582,500
845,700
–
–
Amount unused
247,500
204,300
–
–
830,000
1,050,000
–
–
carrying
amount
$’000
less than
1 year
$’000
1-5 year(s)
$’000
Trade and other payables
151,595
151,595
–
Bank loans
577,123
–
577,123
2,164
816
1,348
Interest rate swaps
10,850
10,850
–
Forward exchange contracts payable
33,344
33,344
–
Forward exchange options
13,584
13,584
–
Trade and other payables
202,455
202,455
–
Bank loans
844,427
–
844,427
3,107
1,340
1,767
6,583
6,583
–
Amount used
Amount unused
Bank loan facilities with various maturity dates through to 2012 which may be
extended by mutual agreement:
The following are the contractual maturities of financial liabilities:
consolidated
2009
Non-derivative financial liabilities
Finance lease liabilities
Derivative financial liabilities
2008
Non-derivative financial liabilities
Finance lease liabilities
Derivative financial liabilities
Forward exchange contracts payable
72
PACIFIC
BRANDS
AR09
Notes to the Financial Statements
25 COMMITMENTS
consolidated
2009
$’000
2008
$’000
Non-cancellable operating lease expense commitments
Future operating lease commitments not provided for in the financial statements and payable:
47,281
49,030
106,343
134,549
Within one year
One year or later and no later than five years
26,633
35,316
180,257
218,895
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 18).
26 CONTROLLED ENTITIES
The Consolidated Entity has a 100% ownership interest in the following entities in the current and prior years except where noted:
PLACE OF
PLACE OF
CONTROLLED ENTITYincorporation
CONTROLLED ENTITY incorporation
Pacific Brands (Australia) Pty Ltd
Australia
Yakka (Aust) Pty Ltd
Australia
Pacific Brands Holdings Pty Ltd
Australia
Yakka Pty Ltd
Australia
Pacific Brands Footwear Pty Ltd
Australia
CTE Pty Ltd
Australia
Sachi Australia Pty Ltd
Australia
Shared Apparel Services Pty Ltd
Australia
Pacific Brands Sport & Leisure Pty Ltd
Australia
Sthgirw Workwear Pty Ltd
Australia
Pacific Brands Clothing Pty Ltd
Australia
Neat n Trim Uniforms Pty Ltd
Australia
Pacific Brands Household Products Pty Ltd Australia
Dowd Corporation Pty Ltd
Australia
Bonds Industries Pty Ltd
Australia
Yakka (Kingsgrove) Pty Ltd
Australia2
Sheridan Australia Pty Ltd
Australia
Yakka (QLD) Pty Ltd
Australia2
Pacific Brands Services Group Pty Ltd
Australia
Yakka (Wodonga) Pty Ltd
Australia
PT Berlei Indonesia
Indonesia
Pacific Brands (Singapore) Pte Ltd
Singapore
Sheridan NZ Limited New Zealand
PacBrands USA Inc
USA
Pacific Brands Holdings (NZ) Ltd
New Zealand
Pacific Brands (UK) Ltd
UK
Pacific Brands Holdings (Hong Kong) Ltd
Hong Kong1
Sheridan UK Limited
UK
Grosby (China) Ltd
Hong Kong
Pacific Brands (Fiji) Limited
Fiji2
Pacific Brands (Asia) Ltd
Hong Kong
Icon Clothing Pty Ltd
Australia 1 Pacific Brands Holdings (Hong Kong) Ltd has a 36% interest in Dunlop Slazenger Philippines Inc but does not have control of this entity.
2 These entities were placed into voluntary liquidation during the year and will be liquidated following year end.
The Consolidated Entity had a 100% ownership interest in the following entities at 30 June 2008 but none at 30 June 2009:
CONTROLLED ENTITY
PLACE OF
INCORPORATION/
FORMATION
CONTROLLED ENTITY PLACE OF
INCORPORATION/
FORMATION
Cushen Clothing Company Pty Ltd
Australia Industrial Workwear Centre Pty Ltd
Australia
Cushen Clothing (Distributors) Pty Ltd
Australia
Yakka (WA) Pty Ltd
Australia
Cushen Unit Trust
Australia
Yakka (SA) Pty Ltd
Australia
FW Fleming Pty Ltd
Australia
Yalee Pty Ltd
Australia
Icon Clothing (NZ) Pty Ltd
Australia
West End Clothing Pty Ltd
Australia
73
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
26 CONTROLLED ENTITIES (continued)
The Consolidated Entity has a controlling interest in the ordinary shares of the following entities that are not 100% owned:
Place of
CONTROLLED ENTITYincorporation
CONTROLLED ENTITYconsolidated entity
interestinterest
2009
2008
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%
27 ACQUISITIONS AND DISPOSALS
Effect of prior year acquisitions
During the prior 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
$’000
adjusted for
accounting
policies
$’000
Cash and cash equivalents
16,650
Trade and other receivables
63,335
Inventories
Property, plant and equipment
fair value
adjustments
$’000
fair value
$’000
–
–
16,650
–
(612)
62,723
88,139
(810)
(13,663)
73,666
36,834
–
(4,172)
32,662
Brand names
–
–
80,000
80,000
Other intangible assets
–
–
20,672
20,672
Other assets
2,710
–
–
2,710
Deferred tax assets
3,702
1,088
(2,412)
2,378
Trade and other payables
(13,662)
–
(215)
(13,877)
Other liabilities
(30,437)
–
(2,017)
(32,454)
Income tax payable
Current provisions
Non-current provisions
Finance lease liabilities
External debt
Minority interest
Net assets acquired
(930)
63
958
91
(9,340)
(313)
(559)
(10,212)
(578)
(84)
(8,703)
(9,365)
(668)
–
–
(668)
(14,810)
–
–
(14,810)
(382)
–
(26)
(408)
140,563
(56)
69,251
209,758
Goodwill
119,252
Consideration
329,010
Less cash and cash equivalents acquired
(16,650)
Consideration (net of cash acquired)
312,360
Effect of prior year disposals
On 27 June 2008 the Consolidated Entity disposed of its New Zealand Flooring, Foam and Bedding businesses for $7.2 million in cash.
On 30 June 2008 the Consolidated Entity disposed of its 50.1% interest in World Brands Pty Ltd for $1.3 million.
74
PACIFIC
BRANDS
AR09
Notes to the Financial Statements
28 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
Cash and cash equivalents
the Company
note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
9
126,475
104,822
557
538
(234,291)
117,126
(24,052)
68,118
1,355
2,430
–
–
(b) Reconciliation of (loss)/profit for the period to net
cash from operating activities
(Loss)/profit for the period
Add/(less) non-cash items:
Share based payments
Net gain on disposal of businesses
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
Amounts set aside for restructuring
Depreciation and amortisation
3
–
(564)
–
–
490
553
–
–
154,482
148,652
–
–
40,649
45,269
–
–
85,098
–
–
–
27,784
26,960
–
–
273,873
–
67,578
–
(5,741)
5,950
(12,563)
8,410
(Decrease)/increase in current and deferred tax assets
(15,029)
3,252
1,964
1,696
Net cash provided by operating activities before change in
assets and liabilities
328,670
349,628
32,927
78,224
(140,900)
(122,531)
–
–
16,784
(12,791)
–
–
5,944
(4,477)
–
2
(Decrease)/increase in trade and other payables
(56,960)
20,843
232
(739)
Decrease in provisions
(49,831)
(48,162)
–
–
Net cash from operating activities
103,707
182,510
33,159
77,487
Asset impairment and writedowns
(Decrease)/increase in income tax payable
Change in assets and liabilities:
(Decrease)/increase in trade and other receivables
Decrease/(increase) in inventories
Decrease/(increase) in prepayments
29 EMPLOYEE BENEFITS
consolidated
the Company
note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Current
18
64,011
72,711
–
–
Non-current
18
6,778
4,330
–
–
70,789
77,041
–
–
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 assumptions:
consolidated
2009
2008
Assumed rate of increase in wage and salary rates (pa)
4.0%
4.0%
Discount rate (pa)
4.9%
5.9%
6 years
6 years
123
153
Settlement term (period)
Number of active defined benefit members
75
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
29 EMPLOYEE BENEFITS (continued)
(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 or
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, as adjusted in
accordance with annual updates provided by the Plans Actuary.
The Consolidated Entity expect to make a contribution of $3.2 million during the 2010 financial year.
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 obligation (included in non-current employee benefits)
consolidated
Present value of funded defined benefit obligation
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
34,943
41,173
–
–
(28,502)
(44,114)
–
–
Deficit/(Surplus)
6,441
(2,941)
–
–
Unrecognised actuarial losses/(gains)
4,721
1,135
–
–
Net liability/(asset) for defined benefit obligations at 30 June
1,720
(1,806)
–
–
41,173
50,287
–
–
Service cost
2,093
1,842
–
–
Interest cost
2,300
2,407
–
–
Fair value of Plan assets
Changes in the present value of the defined benefit obligation
are as follows:
Opening defined benefit obligation
451
459
–
–
(1,348)
(1,433)
–
–
–
–
–
–
Taxes and premium paid
(165)
(101)
–
–
Contributions to accumulation section
(167)
(91)
–
–
Contributions by plan participants
Actuarial (gains)/losses
Benefits paid
Curtailments
988
228
–
–
Settlements
(10,382)
(12,425)
–
–
34,943
41,173
–
–
Closing defined benefit obligation
Changes in the fair value of plan assets are as follows:
consolidated
Opening fair value of plan assets
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
44,114
60,183
–
–
2,877
3,628
–
–
(8,620)
(7,539)
–
–
Contributions by employer
394
–
–
–
Contributions by plan participants
451
459
–
–
–
–
–
–
Taxes and premiums paid
(165)
(101)
–
–
Contributions to accumulation section
(167)
(91)
–
–
(10,382)
(12,425)
–
–
28,502
44,114
–
–
Expected return
Actuarial gains/(losses)
Benefits paid
Settlements
Closing fair value of plan assets
PACIFIC
BRANDS
AR09
76
Notes to the Financial Statements
29 EMPLOYEE BENEFITS (continued)
(a) Superannuation plans (continued)
The major categories of fund assets as a percentage of total plan assets are as follows:
consolidated
the Company
2009
2008
2009
2008
Australian equities
33%
31%
–
–
International equities
28%
25%
–
–
8%
10%
–
–
Fixed income
Property
11%
12%
–
–
Cash
20%
22%
–
–
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
2009
$’000
2008
$’000
2007
$’000
2006
$’000
2005
$’000
Defined benefit obligation
34,943
41,173
50,287
47,363
46,384
Fair value of plan assets
(28,502)
(44,114)
(60,183)
(54,617)
(48,118)
Deficit/(surplus) in plan
6,441
(2,941)
(9,896)
(7,254)
(1,734)
Experience adjustments (gains)/losses – plan assets
8,620
7,539
(4,010)
(4,323)
(3,674)
(2,733)
(615)
2,579
1,657
(348)
Experience adjustments (gains)/losses – plan liabilities
Expenses /(income) recognised in the Income Statements
consolidated
Current service costs
Interest cost on obligation
Expected return on plan assets
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2,093
1,842
–
–
2,300
2,407
–
–
(2,877)
(3,628)
–
–
–
(347)
–
–
2,404
(748)
–
–
3,920
(474)
–
–
Administrative expenses
1,516
(474)
–
–
Other expenses
2,404
–
–
–
Actuarial losses/(gains)
Effects of curtailments/settlements
The expenses/(income) are recognised in the following line items in the
Income Statements:
consolidated
the Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Principal actuarial assumptions at the balance sheet date (expressed as
weighted average annual rates):
(5,743)
(3,911)
–
–
Discount rate at 30 June
4.9%
5.9%
–
–
Expected return on plan assets at 30 June
6.9%
6.9%
–
–
Future salary increases
4.0%
4.0%
–
–
Actual return on plan assets
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.
77
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
29 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:
number of performance rights
grant date
1 july 2008
(number)
grant 51
grant date
1 july 2007
(number)
grant 41
grant date
1 july 2006
(number)
grant 31
grant date
1 july 2005
(number)
grant 2
1 July 2007
–
–
433,721
525,000
Granted
–
659,000
–
–
Exercised
–
–
–
(195,000)
Forfeited
–
(48,000)
(241,861)
(98,213)
30 June 2008
–
611,000
191,860
231,787
381,511
–
–
–
–
–
–
–
Forfeited
(79,937)
(254,000)
(191,860)
(231,787)
30 June 2009
301,574
357,000
–
–
Granted
Exercised
1 These grants consisted of two equal tranches with different vesting conditions being, (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 2008
grant 5
1 july 2007
grant 4
1 july 2006
grant 3
1 july 2005
grant 2
Fair value of performance rights and assumptions
Fair value at measurement date
$1.27
$2.28
$1.42
$1.35
Share price
$1.83
$3.45
$2.15
$2.30
Expected volatility
Performance right life (period)
Dividend yield (per annum)
Risk-free interest rate (per annum)
31%
27%
25%
25%
3 years
3 years
3 years
4 years
5.4%
6.4%
6.0%
5.5%
6.78%
6.4%
5.8%
5.1%
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.
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 33 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.
78
PACIFIC
BRANDS
AR09
Notes to the Financial Statements
29 EMPLOYEE BENEFITS (CONTINUED)
(b) Share based payments (continued)
(i) Performance Rights Plan (‘PRP’) (continued)
The TSR performance conditions in relation to Grants 2, 3, 4 and 5 are:
TARGET
PERCENTAGE OF SHARES AVAILABLE
IN GIVEN YEAR THAT VESTS
The Company’s TSR does not exceed the median performance of the comparator companies
0%
The Company’s TSR exceeds the median performance of the comparator companies 50%
The Company’s 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 TSR is ranked in the fourth quartile of the comparator companies
100%
EPS performance conditions
Earnings per share (‘EPS’) growth are requirements in relation to Grants 2, 3, 4 and 5. 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 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, 4 AND 5 PERFORMANCE RIGHTS EPS TARGET
0%
The Company’s compound EPS growth (tested over
1, 2, 3 and 4 years) is less than 8.5% pa
The Company’s 3 year compound EPS growth is less
than 8.0% pa
25%
The Company’s compound EPS growth (tested over 1, 2, 3 and 4 years) equals 8.5% pa
The Company’s 3 year compound EPS growth equals
8.0% pa
Pro rata between
25% and 100%
The Company’s compound EPS growth (tested over
1, 2, 3 and 4 years) is between 8.5% pa and 10.5% pa
The Company’s 3 year compound EPS growth is
between 8.0% pa and 12.0% pa
100%
The Company’s compound EPS growth (tested over 1, 2, 3 and 4 years) is equal to or exceeding 10.5% pa
The Company’s 3 year compound EPS growth is equal
to or exceeding 12.0% pa
In relation to Grant 2, performance conditions were again tested at the end of the year ended 30 June 2009. Based on the financial
performance of the Company in the 2009 financial year, no shares (2008: nil 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
1 july 2008
% vesting
grant date
1 july 2007
% vesting
grant date
1 july 2006
% vesting
grant date
1 july 2005
–
–
–
17.5%
1 July 2008
–
–
–
Nil
1 July 2009
–
–
100%
82.5%1
1 July 2010
–
100%
–
–
1 July 2011
100%
–
–
–
Maximum
100%
100%
100%
100%
1 July 2007 (vested)
1 Includes 42.5% which were due to vest at 1 July 2008 as performance conditions were not met.
79
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
29 EMPLOYEE BENEFITS (CONTINUED)
(b) Share based payments (continued)
(i) Performance Rights Plan (‘PRP’) (continued)
Restrictions on shares
With respect to Grant 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.
With respect to Grants 3, 4 and 5, 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 Share Plan
Grant of deferred shares
The Board has approved the following grants of deferred shares:
number of deferred shares
grant date
1 july 2007
(number)
grant 2
1 July 2007
Granted
Exercised
Forfeited
30 June 2008
grant date
1 july 2006
(number)
grant 1
860,000
1,150,000
–
–
–
–
(50,000)
1,150,000
810,000
Granted
–
–
Exercised
–
(262,000)
(100,000)
(173,000)
1,050,000
375,000
Forfeited
30 June 2009
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:
1 july 2007
grant 2
1 july 2006
grant 1
Fair value at measurement date
$2.85
$1.80
Share price
$3.45
$2.15
3 years
3 years
6.4%
6.0%
number of deferred shares
Fair value of deferred shares and assumptions
Performance right life (period)
Dividend yield (per annum)
Performance conditions for vesting
The conditions with respect to deferred shares issued in Grants 1 and 2 are based on the following:
•
0% of the deferred shares will be available to vest in accordance with the following scheduled measured at the end of
6
the three year performance period:
TARGET
The Company’s 3 year compound EPS is less than 8.5% pa
The Company’s 3 year compound EPS is 8.5% pa
For each 0.1% per annum increase in The Company’s 3 year compound EPS growth rate above 8.5% pa
The Company’s 3 year compound EPS growth rate is above 10.5% pa
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%
PACIFIC
BRANDS
AR09
80
Notes to the Financial Statements
29 EMPLOYEE BENEFITS (CONTINUED)
(b) Share based payments (continued)
(ii) Deferred Shares Plan (continued)
•
0% of the deferred shares will be available to vest if eligible executives discharge their obligations to the Company in accordance with
4
annual KPIs agreed with their managers. This performance condition will be determined at the end of the three year performance
period (i.e. 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 three year period, and some of the deferred shares remain unvested,
those unvested deferred shares remain available for a further two years, and will be re-tested at the end of that time (i.e. 30 June 2011
for Grant 1 and 30 June 2012 for Grant 2). The unvested deferred shares will then be tested over a five year period in accordance with
the vesting schedule above, so that if the threshold EPS of 8.5% pa compound is achieved over the five 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% pa on a compound basis.
(iii) Non-Executive Director Share Plan
Under the Non-Executive Director Share Plan, non-executive directors are required to sacrifice at least 25% (or such other minimum
percentage determined by the Board from time to time) of their annual directors’ fees towards the acquisition of shares in the Company.
Non-executive directors are not able to sell or otherwise dispose of the shares until the earliest of 10 years after acquisition, the nonexecutive 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.
(iv) Sign-on payments
The Company agreed to grant to S.M. Smith, the Group General Manager, Home Comfort, a sign on bonus of 100,000 performance rights.
The performance rights were issued at no cost to S.M. Smith on 1 July 2009 and will vest on 1 July 2010, subject to S.M. Smith remaining
in the employ of the Company. The Company agreed on 21 April 2009 to issue to D.L. Bortolussi, the Chief Financial and Operating Officer,
$500,000 worth of shares in the Company as a sign on bonus. The shares were issued on 1 July 2009 , at no cost to D.L. Bortolussi, and
are held on trust for D.L. Bortolussi, subject to satisfaction of a service condition that he is still employed by the Company on the relevant
vesting dates. Assuming that this service condition is met, 50% of the shares will vest on 1 July 2010 and the balance will vest on 1 July
2011. The number of shares acquired was calculated based on the volume weighted average price (‘VWAP’) during the period discussions
were held between D.L. Bortolussi and the Company regarding his possible employment, specifically 23 February 2009 to 20 April 2009.
The VWAP for the period was 28.7 cents per share. Accordingly, on 1 July 2009 the Company has issued 1,742,160 shares to the
Pacific Brands Employee Share Trust to be held on D.L. Bortolussi’s behalf.
30 KEY MANAGEMENT PERSONNEL DISCLOSURES
Key management personnel compensation
The key management personnel (KMP) 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
Termination benefits
Retirement benefits
Share based payments
the Company
2009
$
2008
$
2009
$
2008
$
3,944,474
9,221,096
451,237
395,103
580,424
668,523
257,500
248,001
747,551
1,097,963
156,263
156,896
2,861,040
706,280
–
–
–
3,448,357
–
–
269,392
1,117,572
–
–
8,402,881
16,259,791
865,000
800,000
The key management personnel of the Company and the consolidated entity are the non-executive directors, the executive directors and
those persons with authority and responsibility for planning, directing and controlling the activities of the Company during the financial year.
The key management personnel, other than the non-executive directors, are referred to throughout the Financial Statements as ‘senior
executives’. The names and positions of the senior executives, are listed, among other places, in the table on page 39 of this report.
Individual director and executive compensation disclosures
Information regarding individual director and executive 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 27 to 40.
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.
81
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Notes to the Financial Statements
30 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED)
Performance rights over equity instruments
The movement during the reporting period in the number of performance rights over ordinary shares in the Company held, directly, indirectly
or beneficially, by each key management personnel, including their related parties, is as follows:
held at
30 june 2007
granted as
compensation
exercised
353,198
250,000
–
forfeited
held at
30 june 2008
granted as
compensation
exercised
forfeited
held at
30 june 2009
(160,937)
(100,000)
342,261
82,677
–
(92,261)
332,677
–
–
–
–
131,496
–
–
131,496
290,116
45,000
(128,750)
(80,000)
126,366
28,346
–
(81,366)
73,346
–
29,000
–
–
29,000
25,984
–
–
54,984
R.A. Taylor
–
41,000
–
–
41,000
28,346
–
–
69,436
D.L. Bortolussi
–
–
–
–
–
–
–
–
–
Directors
S.M. Morphet
Current Executives
M.M. Clark
M.J. Ford
1
K.J. Hann
M.J. Allibon
–
–
–
–
–
–
–
–
–
S.M. Smith
–
–
–
–
–
–
–
–
–
Former Executives
B.A. Hannagan
M.E. Keely
M. Sonand
S.J. Tierney1
–
44,000
–
–
44,000
–
–
(44,000)
–
281,977
44,000
(128,750)
(80,000)
117,227
–
–
(117,227)
–
–
35,000
–
–
35,000
–
–
(35,000)
–
423,837
55,000
(193,125)
(120,000)
165,712
51,591
–
(110,712)
106,591
No performance rights were exercised during the year ended 30 June 2009.
1 Performance right for these Executives were forfeited subsequent to year end.
Movements in shares
The movement during the year in the number of ordinary shares in the Company held, directly, indirectly or beneficially, by each key
management personnel (KMP), including their related parties, is as follows:
held at
30 june 2007
purchases
sales
held at
30 june 2008
purchases
sales
held at
30 june 2009
317,389
175,708
(20,000)
473,097
990,891
(45,000)
1,418,988
2,011
12,056
–
14,067
53,413
–
67,480
–
1,636
–
1,636
200,526
–
202,162
Non Executive Directors
A.D. Cummins
D.G. Fisher
J.A.C. MacKenzie
M.G. Ould
83,478
19,344
–
102,822
196,037
–
298,859
M.A. Plavsic
54,047
114,700
–
168,747
420,158
–
588,905
–
–
–
–
32,000
–
32,000
N.L. Scheinkestel
1
Current KMP
M.J. Allibon
–
–
–
–
–
–
–
D.L. Bortolussi2
–
–
–
–
–
–
–
–
100,000
–
100,000
233,000
–
333,000
215,555
132,462
(1,250)
346,767
289,286
(133,091)
502,962
3,628
–
–
3,628
138
–
3,766
200,400
160,937
–
361,337
860,263
–
1,221,600
M.M. Clark
M.J. Ford
K.J. Hann
S.M. Morphet
S.M.Smith
–
–
–
–
–
–
–
R.A. Taylor
109,587
399
–
109,986
318,477
–
428,463
1,390,646
34,766
(500,000)
925,412
624,490
(600,000)
949,902
470
34
–
504
1,199
–
1,703
150,429
128,750
–
279,179
–
–
279,179
Former KMP
R.P. Handley3
B.A. Hannagan
4
M.E Keely5
M. Sonand6
4,000
3,994
–
7,994
783
(4,000)
4,777
S.J. Tierney
400,001
193,125
(200,000)
393,126
415,035
–
808,161
1 N.L Scheinkestel was appointed as a director of the Company on 9 June 2009.
2 D.L. Bortolussi was appointed as Chief Financial and Operating Officer effective 9 June 2009.
3 R.P. Handley resigned as a director of the Company on 19 December 2008.
4 B.A. Hannagan resigned from the Company effective 16 January 2009.
5 M.E. Keely resigned from the Company effective 31 December 2008.
6 M. Sonand ceased as an employee of the Company effective 13 February 2009.
PACIFIC
BRANDS
AR09
82
Notes to the Financial Statements
31related parties
It is the Consolidated Entity’s policy that all transactions with related parties are on normal terms and conditions, except for the loan of $1,387
million shown below. $1,204 million of this loan was made from the Company 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. An additional loan of $250 million was made by the
Company to Pacific Brands (Australia) Pty Ltd after the capital raising conducted in June 2009. An impairment loss of $67 million was also
recognised on the loan.
the Company
2009
$’000
2008
$’000
45,000
70,000
26,660
37,156
1,387,016
1,203,714
The aggregate amounts included in the (loss)/profit before income tax (benefit)/expense that
resulted from transactions with controlled entities are:
Dividend revenue
Wholly-owned controlled entity
The aggregate amounts receivable from controlled entities are:
Amounts receivable other than trade receivables
Current
Wholly-owned controlled entity
Non-current
Wholly-owned controlled entity
Directors of related parties (not being directors of the entity or their director related entities)
As set out in the Directors’ Report, a number of the Directors of Pacific Brands are also Directors of other companies. On occasions
the Consolidated Entity may purchase goods and services or lease properties from or supply goods and services to these entities.
These transactions are undertaken on normal commercial terms and conditions and the Director and KMP do not directly influence
these transactions.
32 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.
83
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Directors’ Declaration
1.
In the opinion of the directors of Pacific Brands Limited (the ‘Company’):
(a) the financial statements and notes and the Remuneration report in the Directors’ report, set out on pages 27 to 82, 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 2009 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);
(c) there are reasonable grounds to believe that the Company will be able to pay its debts and when they become due and payable; and
2.The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Chief Executive Officer
and the Chief Financial and Operating Officer for the financial year ended 30 June 2009.
Dated at Melbourne this 26th day of August 2009.
Signed in accordance with a resolution of the directors:
James MacKenzie
Chairman
Sue Morphet
Chief Executive Officer
PACIFIC
BRANDS
AR09
84
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 2009, 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 32 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.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
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 2009 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 27 to 40 of the directors’ report for the year ended 30 June 2009. 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 2009, complies with Section 300A of the
Corporations Act 2001.
KPMG
Melbourne
26 August 2009
Don Pasquariello
Partner
85
PACIFIC
BRANDS
AR09
Financial Report to Shareholders
Shareholders’ Statistics
as at 27 August 2009
DISTRIBUTION OF ORDINARY SHAREHOLDERS AND SHAREHOLDINGS
size of holding
number of holders
number of shares
1
to
1,000
7,442
23.2%
4,000,356
0.4%
1,001
to
5,000
15,569
48.6%
39,268,444
4.2%
5,001
to
10,001 to 10,000
4,624
14.4%
34,382,354
3.7%
100,000
4,140
12.9%
104,583,372
11.2%
100,001 and over
274
0.9%
749,151,722
80.5%
32,049
100.0%
931,386,248
100.0%
SHARES
% OF TOTAL
J P Morgan Nominees Australia Limited
200,876,682
21.57%
National Nominees Limited
122,472,968
13.15%
HSBC Custody Nominees (Australia) Limited
107,870,501
11.58%
57,147,394
6.14%
Total
Included in the above total are 3,391 shareholders holding less than a marketable parcel of 422 shares.
TWENTY LARGEST ORDINARY FULLY PAID SHAREHOLDERS
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
42,167,031
4.53%
ANZ Nominees Limited <Cash income A/C>
33,734,306
3.62%
UBS Nominees Pty Ltd
13,295,196
1.43%
RBC Dexia Investor Services Australia Nominees Pty Limited <GSJBW A/C>
11,540,078
1.24%
Queensland Investment Corporation
9,352,021
1.00%
FJP Pty Limited <Palazzo Family S/F A/C>
8,625,000
0.93%
Citicorp Nominees Pty Limited (CFS Future Leaders Fund A/C>
7,680,748
0.82%
Cogent Nominees Pty Limited <SMP Accounts >
6,265,772
0.67%
RBC Dexia Investor Services Australia Nominees Pty Limited <BKCUST A/C>
5,616,095
0.60%
Citicorp Nominees Pty Limited <CFSIL CFS WS Small Comp A/C>
5,107,707
0.55%
AMP Life Limited
4,989,051
0.54%
Bond Street Custodians Limited <Macquarie Smaller Co’s A/C>
4,465,945
0.48%
Australian Reward Investment Alliance
4,134,740
0.44%
HSBC Custody Nominees (Australia) Limited – A/C 3
3,275,205
0.35%
Citicorp Nominees Pty Limited <CFS WSLE 452 Aust Share A/C>
2,980,854
0.32%
Olbia Pty Limited <Olbia Investments A/C>
2,967,192
0.32%
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:
16-06-09
Franklin Resources Inc
8.91%
24-02-09
452 Capital Pty Limited
6.15%
29-06-09
Dimensional Fund Advisors Inc
6.13%
19-05-09
Paradice Investment Management Pty Ltd
5.73%
PACIFIC
BRANDS
AR09
86
Shareholders Information
Annual General Meeting
Change of name and/or address
10.00am, Tuesday 20 October 2009.
The Sebel Albert Park
65 Queens Road
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 Securities
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
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
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road
Takapuna, Auckland
New Zealand
Pacific Brands’ website, 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.
Telephone:
Registered office
New Zealand
Australia: New Zealand:
International:
Facsimile:
Email:
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
Any 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.
ABN 64 106 773 059
Pacific Brands Limited
Level 3, 290 Burwood Road
Hawthorn, Victoria 3122
Telephone:
(61 3) 9947 4900
Facsimile: (61 3) 9947 4951
Email:
investorrelations@pacbrands.com.au
Website:
www.pacificbrands.com.au
Investor relations
Telephone:
Email:
(61 3) 9947 4900
investorrelations@pacbrands.com.au
Auditors
KPMG
147 Collins Street
Melbourne
Victoria 3000
Australia
87
PACIFIC
BRANDS
AR09
Pacific Brands
Company Directory
CHAIRMAN
James MacKenzie
CHIEF EXECUTIVE OFFICER
Sue Morphet
CHIEF FINANCIAL & operating OFFICER
David Bortolussi
NON-EXECUTIVE DIRECTORS
Andrew Cummins
Dominique Fisher
Max Ould
Maureen Plavsic
Nora Scheinkestel
Company SECRETARY
John Grover
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 LIMITED
REGISTERED OFFICE
Level 3, 290 Burwood Road
Hawthorn, Victoria 3122
Telephone: (61 3) 9947 4900
Facsimile: (61 3) 9947 4951
Email: investorrelations@pacbrands.com.au
PACIFIC BRANDS NEW ZEALAND
Level 1, 308 Great South Road
Greenlane, Auckland 1005
New Zealand
Telephone: (64 9) 523 7800
Facsimile: (64 9) 523 7801
PACIFIC BRANDS (ASIA) LIMITED
Langham Place, Level 40
Office Tower, 8 Argyle Street
Kowloon
Hong Kong
Telephone: (852) 2956 6688
Facsimile: (852) 2956 1778
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 of this annual report are printed on Monza Recycled Satin, a recycled stock that contains 55% recycled
fibre (25% post consumer waste and 30% pre consumer) and FSC Certified pulp, which ensures that all virgin pulp is derived from
well-managed forests and is manufactured by an ISO 14001 certified mill. Monza Recycled Satin is an FSC Mixed Source Certified paper.
The financial section is printed on Tudor RP – an Australian made stock that contains 100% recycled fibre sourced from collected office,
printing and converting waste. No chlorine bleaching occurs in the recycling process and Australian paper has ISO 14001 accreditation.
Sales of Tudor RP support Landcare Australia.
PACIFIC BRANDS ANNUAL REPORT 2009