ANNUAL REPORT 2007 - Gazal CONTINUALLY INVEST in marketing our brands to ensure their success for...

ANNUAL REPORT 2007

ABN 57 004 623 474

www.gazal.com.au

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CONTENTS

OUR MISSION 1

OUR CORE VALUES 1

OUR VISION 1

THE YEAR IN REVIEW 2

FINANCIAL REPORT 3

CORPORATE DIRECTORY IBC

FINANCIAL CALENDAR 2007PRELIMINARY FINAL REPORT AND DIVIDENDANNOUNCEMENT

23 AUGUST

RECORD DATE FOR FINAL DIVIDEND 21 SEPTEMBER

FINAL DIVIDEND PAYABLE 5 OCTOBER

ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING MAILED TO SHAREHOLDERS

30 OCTOBER

ANNUAL GENERAL MEETING 29 NOVEMBER

HALF YEAR END 31 DECEMBER

The Annual General Meeting of Shareholders of Gazal Corporation Limited will be held at The J.S. Gazal Building, 3-7 McPherson Street, Banksmeadow on 29 November 2007 at 11:30am.

A formal notice of meeting is enclosed with this Annual Report setting out the business of the Annual General Meeting.

AUDITOR

ERNST & YOUNG

680 George Street Sydney NSW 2000

BANKERS

WESTPAC BANKING CORPORATION

60 Martin Place Sydney NSW 2000

COMPANY SECRETARY

PETER JAMES WOOD CA, FICS

REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS3–7 McPherson Street

Banksmeadow NSW 2019

Telephone: (02) 9316 2800

Fax (02) 9316 7207

Web: www.gazal.com.au

SHARE REGISTRY

REGISTRIES LIMITED

28 Margaret Street Sydney NSW 2000

Telephone: (02) 9279 0677

SOLICITOR

MARC DUNN LLB

STATE OF INCORPORATION

VICTORIA, AUSTRALIA

SECURITIES EXCHANGE LISTINGSGazal Corporation Limited shares are quoted on

the Australian Securities Exchange

ASX CODEGZL

CORPORATE DIRECTORY

OUR MISSIONBUILDING GREAT BRANDS

THAT PEOPLE LOVE IS OUR

FOCUS AND PASSION

OUR CORE VALUESCUSTOMERS FIRST

Delivery, performance and service

GROWTH

We chase business but it must

be profi table

OPPORTUNITY

Every individual has every

opportunity to succeed

RECOGNITION AND REWARD

For effort and success

FAMILY AND RELATIONSHIPS

Developing respect and trust

over time

INTEGRITY

We do what we say we’re

going to do

OUR VISION

WE ARE the leading specialist branded apparel group.

WE ARE PROFITABLE every year, focusing on maximising

shareholder value over time.

WE SERVE OUR CUSTOMERS with industry best weekly

replenishment order fulfi lments, consistent quality,

delivering on time and with service that exceeds their

expectations. We are the market leader in operational

effi ciency across our brands.

WE CONTINUALLY INVEST in marketing our brands

to ensure their success for the long term.

OUR PEOPLE ARE OUR COMPETITIVE ADVANTAGE.

We will provide them with every opportunity to excel

and achieve their full potential. As a result of our people

reaching their potential, we will reach our potential.

WE ACKNOWLEDGE THE CONTRIBUTION OF OUR TEAM

by sharing with it the rewards of our success.

WE COMBINE LARGE COMPANY THINKING with the

values, execution, effi ciency, fl exibility and agility of

a small family operation. We think long term.

THE GAZAL CORPORATION LIMITED GROUP (“GAZAL”) RECORDED AN AFTER TAX PROFIT OF $8.371 MILLION FOR THE YEAR ENDED 30 JUNE 2007. THIS WAS AN INCREASE OF 12.7% ON THE PREVIOUS YEAR.

TRADING RESULTS

Sales from continuing operations increased

by 16% to $250.4 million. Generally positive

consumer sentiment in the retail sector

during the year helped the Group’s key

brands, Calvin Klein, Van Heusen, Nautica,

Bisley, Midford and Body Nancy Ganz to

achieve solid growth. The sales increase

was also assisted by a full 12 months of

sales recorded from businesses acquired

in fi nancial year 2006 and strong sales from

the Trade Secret outlets division which

opened three new stores during the year.

Earnings before interest, tax, depreciation

and amortisation (“EBITDA”) were lower

by 1.3% at $23.4 million compared to the

previous year. However, it should be noted

that this EBITDA fi gure includes the capital

gain of $2.719 million, which arose from the

settlement and release agreement reached

with Dare Jennings as reported in the half

year profi t report announced in February

2007. Gross profi t margins were impacted

by higher prices from Chinese suppliers as

well as the clearance of excess inventory at

lower margins in certain divisions. Further

impacting EBITDA was a one-off charge

taken at year end for the impairment

of certain retail stores trading below

acceptable levels of return. Distribution

and administration expenses increased

at a greater rate than sales in the year

as we continued the program of investing

in improved supply chain infrastructure,

including the partial implementation of a

new Warehouse Management System (“WMS”)

for our Banksmeadow distribution centre.

The ongoing rollout of the new WMS system,

along with our continued program of direct-

to-store deliveries from our factory sources

in China via third party logistics providers,

will assist in expected lower warehousing

costs in fi nancial year 2008.

The losses as a result of winding down

the Mambo European operations of

$2.018 million during the year were far less

compared to last year’s loss of $4.064 million.

The Mambo brand continues to trade well in

the UK market, now operated under licence

by Blacks Leisure Group plc. No further

losses for this discontinued operation will

be incurred in fi nancial year 2008.

On 31 May 2007, the Company announced

a strategic review in relation to its Mambo

brand. This review is continuing satisfactorily

and whilst it is too early to conclude the

fi ndings of the review, we expect to be in

a position to inform shareholders of its

conclusions by the time of the annual general

meeting in November 2007, if not sooner.

Despite sales revenue increasing by 16%,

Group inventory levels ended at $45.7 million

as at 30 June 2007, in line with the same

time last year. The strategic objective we set

ourselves to increase the Group’s stock turns

continues to be a key focus of the highest

priority for management and the Board.

Management of inventory levels and

extended trade creditors assisted Gazal

to generate a cash infl ow from operating

activities of $10.67 million for the year in

review. Last year’s comparative cash fl ow

from operating activities of $23.597 million

benefi ted from the Company undertaking

acquisitions at high points in the working

capital cycle of target companies and the

subsequent reduction to normal levels at

year end. Also, the timing of income tax

payments had a negative impact on cash

fl ow while trade debtors increased as a

result of higher turnover.

REVALUATION OF BANKSMEADOW PROPERTY

The Company-owned land and buildings,

which accommodate the Group’s head

offi ce and distribution centre, are located

at Banksmeadow in the sought after South

Sydney industrial precinct. The Directors

have received independent advice that the

value of this property has increased by

$5.165 million to $38.65 million. Accordingly,

the Directors have adopted the increased

value in the fi nancial statements for the year

ended 30 June 2007.

DIVIDENDS

The Directors declared a fi nal dividend of

7 cents per share fully franked (fi nal dividend

2006: 7 cents per share fully franked) taking

the total dividend for the year to 14 cents

per share fully franked (total dividend 2006:

14 cents per share fully franked). The record

date for determining shareholders’ entitlement

for the fi nal dividend is 21 September 2007

and the fi nal dividend is payable on

5 October 2007.

The Directors would like to convey their

appreciation to management and staff for

their contribution during the year. We also

wish to thank you, our shareholders, for your

continuing support.

J.W. BLOOD M.J. GAZAL

CHAIRMAN MANAGING

DIRECTOR

THE YEAR IN REVIEW

ANNUAL REPORT 2007 GAZAL3

DIRECTORS’ STATUTORY REPORT 4

STATEMENT OF CORPORATE

GOVERNANCE PRACTICES 14

INDEPENDENT AUDIT REPORT 16

DIRECTORS’ DECLARATION 18

INCOME STATEMENT 19

BALANCE SHEET 20

STATEMENT OF CASH FLOWS 21

STATEMENT OF CHANGES IN EQUITY 22

NOTES TO THE FINANCIAL

STATEMENTS 23

SHAREHOLDER INFORMATION 69

TOP 20 SHAREHOLDERS 70

FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2007

4

DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

Your Directors have pleasure in submitting

their report for the year ended 30 June 2007.

DIRECTORSThe names and details of the Company’s

Directors in offi ce during the fi nancial

year and until the date of this report are

as follows. Directors were in offi ce for this

entire period unless otherwise stated.

NAMES, QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES

John W. BloodNon-Executive Chairman

Has had widespread experience in the Textile

and Garment Industry. He is presently a

Director of Canning Vale Weaving Mills,

Macquarie Textiles Group Limited and Cotton

Seed Distributors. He is a member of the

Remuneration and Nomination and Audit

Committees.

Michael J. Gazal B.ComManaging Director

Joined the Gazal Group in 1986 after

gaining experience in merchant banking

and stockbroking. In November 1989,

after the passing of Mr J.S. Gazal AM, his

father and founding Chairman of the Gazal

Group, he was appointed Chief Executive

Offi cer and is responsible for the day-to-day

management of the Group.

David J. GazalExecutive Director

Joined the Gazal Group in 1987, appointed

Director on 24 April 1999 and has performed

a number of key roles within the Group since

joining, including Group Divisional Manager

of Surf and Casualwear and Managing

Director of Mambo. He is currently the

General Manager of the Youth Group.

Craig KimberleyNon-Executive Director

Formerly the founder of the Just Jeans retail

chain, he has had 30 years experience in the

retail and apparel industries. He is a member of

the Remuneration and Nomination Committee.

Graham Paton AM B.Ec FCPANon-Executive Director

Appointed to the Board on 1 August 2006,

he was previously a partner of 23 years in

Arthur Andersen, Chartered Accountants,

retiring from that fi rm and public practice

in July 2001. He is presently a Director of

Harvey Norman Holdings Limited. He is

a member of the Audit Committee.

COMPANY SECRETARYPeter J. Wood CA FICS

Has been the Company Secretary of Gazal

Corporation Limited for 21 years. Prior

to holding this position he held the role

of Financial Controller of related Gazal

companies for six years. Mr Wood has been

a Chartered Accountant for over 27 years.

INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATEAt the date of this report, the direct interests of the Directors in the shares and other equity securities of the Company and related bodies

corporate are:

Director Ordinary shares

Relevant interest

in ordinary

shares held Options

J.W. Blood 250,000 100,000 400,000

M.J. Gazal 4,045,328

29,582,911 (1)

1,007,554 (2)

578,246 (3) 400,000

D.J. Gazal 1,472,956

29,582,911 (1)

1,007,554 (2)

1,734,362 (4) 200,000

C. Kimberley – 250,000 300,000

G. Paton – – –

(1)–(2) M.J. Gazal and D.J. Gazal have a relevant interest in Gazal Corporation Limited shares held by a wholly owned subsidiary of Gazal Nominees Pty Limited (1) and directly by Gazal Nominees

Pty Limited (2) as each of M.J. Gazal and D.J. Gazal have a 25% shareholding in Gazal Nominees Pty Limited.

(3) M.J. Gazal has a relevant interest in Gazal Corporation Limited shares held by MJ and HH Gazal Pty Limited as trustee for the Michael Gazal Family Trust as M.J. Gazal has a 50% shareholding

in MJ and HH Gazal Pty Limited.

(4) D.J. Gazal has a relevant interest in Gazal Corporation Limited shares held by The David Gazal Family Company Pty Limited as trustee for the David Gazal Family Trust as D.J. Gazal has a 50%

shareholding in The David Gazal Family Company Pty Limited.



DIRECTORS’ MEETINGSThe names of Directors and members of Committees of the Board are outlined below. The attendances of the Directors at meetings of the Board

and of its Committees held during the fi nancial year were:

Board of Directors Audit Committee

Remuneration and

Nomination Committee

Attended

Maximum

possible

attended Attended

Maximum

possible

attended Attended

Maximum

possible

attended

J.W. Blood 11 12 2 2 1 1

M.J. Gazal 12 12 – – – –

D.J. Gazal 12 12 – – – –

C. Kimberley 10 12 1 1 1 1

G. Paton 10 11 2 2 – –

PRINCIPAL ACTIVITIESThe principal activities of Gazal Corporation Limited and its subsidiaries (“the economic entity”, “the Group” or “the Company”) in the course

of the fi nancial year were the design, manufacture, importation, wholesale and retail of well known branded apparel and accessories.

OPERATING AND FINANCIAL REVIEWThe consolidated profi t of the economic entity for the fi nancial year ended 30 June 2007 after income tax was $8,371,000. This represents

a 12.7% increase on the 2006 result of $7,430,000.

DIVIDENDSThe following dividends of the economic entity have been paid, declared or recommended since the end of the preceding fi nancial year:

On ordinary shares

$’000

Final fully franked dividend for 2006 (7c per share) as declared in the 2006 Directors’ Report, paid 6 October 2006 4,323

Interim fully franked dividend for 2007 (7c per share), paid 5 April 2007 4,247

Final fully franked dividend for 2007 (7c per share) as recommended and declared by the Directors, payable 5 October 2007 4,247

REVIEW OF OPERATIONSA review of operations of the economic entity and the results of those operations is contained in “The Year in Review”.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRSThere were no signifi cant changes in the state of affairs of the economic entity that occurred during the fi nancial year not otherwise disclosed

in this report or the consolidated fi nancial statements.

SIGNIFICANT EVENTS AFTER BALANCE DATEThere are no matters or circumstances that have arisen since 30 June 2007 that have signifi cantly affected or may signifi cantly affect the

operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent fi nancial years.

6

LIKELY DEVELOPMENTS AND FUTURE RESULTSThe Directors have excluded from this

report any further information on the likely

developments in the operations of the

economic entity and the expected results

of those operations in future fi nancial years,

as the Directors have reasonable grounds

to believe that it would be likely to result in

unreasonable prejudice to the economic entity.

ENVIRONMENTAL REGULATION AND PERFORMANCEThe economic entity’s environmental

obligations are regulated under both State

and Federal Law. The Audit Committee

monitors environmental obligations. The

economic entity has a policy of at least

complying, but in most cases exceeding its

environment performance obligations. No

environmental breaches have been notifi ed

by any Government agency during the year

ended 30 June 2007.

SHARE OPTIONSDetails of options granted to Directors

or relevant executives as part of their

remuneration are set out in the section of

this report headed Directors’ and Executives’

Remuneration. Details of shares and

interests under option, or issued during or

since the end of the fi nancial year to the

date of this report due to the exercise of an

option, are set out in Note 22 of the fi nancial

statements and form part of this report.

There have been no further options issued

from 30 June 2007 to the date of this report.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERSInsurance arrangements established in

the previous year concerning offi cers of the

economic entity were renewed during 2007.

Indemnity agreements have been entered into

between Gazal Corporation Limited and each

of the Directors of the Company named earlier

in this report. Under the agreement, the

Company has agreed to provide reasonable

protection for the Directors against liabilities,

which may arise as a result of work performed

in their respective capacities.

As part of the above agreement Gazal

Corporation Limited paid an insurance

premium in respect of a contract insuring

each of the Directors of the Company named

earlier in this report and each full-time

executive offi cer, Director and Secretary of

Gazal Corporation Limited and its controlled

entities, against all liabilities and expenses

arising as a result of work performed in their

respective capacities, to the extent permitted

by law. The terms of the above insurance

policy prohibit disclosure of the nature of the

risks insured or the premium paid.

ROUNDING OF AMOUNTSThe Company is of the kind specifi ed in

Australian Securities and Investments

Commission (“ASIC”) Class Order 98/0100.

In accordance with that class order, amounts

in the fi nancial statements and Directors’

Report have been rounded to the nearest

thousand dollars unless specifi cally stated

to be otherwise.

REMUNERATION REPORT This report outlines the remuneration

arrangements in place for directors and

executives of Gazal Corporation Limited,

in accordance with the requirements of the

Corporations Act 2001 and its regulations.

It also provides the remuneration disclosures

required under AASB 124 Related Party

Disclosures which have been transferred

to the Remuneration Report in accordance

with Corporations Regulation 2M.6.04. For

the purpose of this report Key Management

Personnel (“KMP”) of the Group are defi ned

as those persons having authority and

responsibility for planning, directing and

controlling the major activities of the

Company and Group, directly or indirectly,

including any director (whether executive

or otherwise) of the parent Company,

and includes the fi ve executives in the

parent and the Group receiving the highest

remuneration.

REMUNERATION PHILOSOPHY (AUDITED)

The performance of the Company

depends upon the quality of its directors

and executives and to grow and prosper,

the Company must attract, motivate and

retain highly skilled directors and executives.

To this end, the Company embodies the

following principles in its remuneration

framework:

Provide competitive rewards to attract

high calibre executives.

Link variable executive remuneration to

fi nancial and operational performance.

Link executive rewards to shareholder

value.

REMUNERATION AND NOMINATION COMMITTEE

The Remuneration and Nomination

Committee of the Board of Directors is

responsible for determining and reviewing

compensation arrangements for the

directors, the chief executive offi cer

and the senior management team. The

Remuneration and Nomination Committee

assesses the appropriateness of the nature

and amount of emoluments of such offi cers

on a periodic basis by reference to relevant

employment market conditions with the

overall objective of ensuring maximum

stakeholder benefi t from the retention of

a high quality Board and executive team.

REMUNERATION STRUCTURE

In accordance with best practice corporate

governance, the structure of non-executive

director and executive remuneration is

separate and distinct.

NON-EXECUTIVE DIRECTOR REMUNERATION (AUDITED)

OBJECTIVE

The Board seeks to set aggregate

remuneration at a level which provides

the Company with the ability to attract and

retain directors of the highest calibre, whilst

incurring a cost which is acceptable to

shareholders.

STRUCTURE

The Constitution and the Australian

Securities Exchange (“ASX”) Listing Rules

specify that the aggregate remuneration of

non-executive directors shall be determined

from time to time by a general meeting.

An amount not exceeding the amount




determined is then divided between the

directors as agreed. The latest determination

was at the Annual General Meeting held

on 30 November 2001 when shareholders

approved an aggregate remuneration of

$500,000 per year.

The amount of aggregate remuneration

sought to be approved by shareholders

and the manner in which it is apportioned

amongst directors is reviewed annually.

The Board considers advice from external

consultants as well as the fees paid to non-

executive directors of comparable companies

when undertaking the annual review process.

Each director receives a fee for being a director

of the Company.

Non-executive directors have long been

encouraged by the Board to hold shares in

the Company (purchased by the director on

market). The non-executive directors of the

Company can participate in the Employee

Share Option Plan.

The remuneration of non-executive directors

for the period ended 30 June 2007 is detailed

in the Table on page 9 of this report.

SENIOR MANAGER AND EXECUTIVE DIRECTOR REMUNERATION (AUDITED)

OBJECTIVE

The Company aims to reward executives

with a level and mix of remuneration

commensurate with their position and

responsibilities within the Company and

so as to:

reward executives for Company, business

unit and individual performance against

fi nancial and operating performance;

link reward with the strategic goals and

performance of the Company; and ensure

total remuneration is competitive by

market standards;

align the interests of executives with

those of shareholders.

STRUCTURE

In determining the level and make-up of

executive remuneration, the Remuneration

Committee obtains independent advice

when it thinks necessary on market

levels of remuneration of comparable

executives before the Committee makes

its recommendations to the Board.

The Remuneration Committee considers

it appropriate that employment contracts

are entered into with the executive

directors and senior management.

Details of the contracts with the executive

directors Messrs M.J. Gazal the CEO and

Mr D.J. Gazal are provided on page 8.

Remuneration consists of the following key

elements:

Fixed Remuneration (base salary,

superannuation and non-monetary

benefi ts); and

Variable Remuneration

Short Term Incentive (“STI”); and

Long Term Incentive (“LTI”).

The proportion of fi xed remuneration and

variable remuneration (potential short term

and long term incentives) is established for

each senior manager by the Remuneration

Committee. The table on page 9 details the

variable component (%) of the fi ve most

highly remunerated senior managers.

FIXED REMUNERATION

OBJECTIVE

The level of fi xed remuneration is set so

as to provide a base level of remuneration

which is both appropriate to the position and

is competitive in the market.

Fixed remuneration is reviewed annually

by the Remuneration Committee and the

process consists of a review of Companywide,

business unit and individual performance,

relevant comparative remuneration in the

market and internal and, where appropriate,

external advice on policies and practices.

STRUCTURE

Executives are given the opportunity to receive

their fi xed (primary) remuneration in a variety

of forms including fringe benefi ts such as

motor vehicles. It is intended that the manner

of payment chosen will be optimal for the

recipient without creating undue cost for

the Company.

The fi xed remuneration component of

executives is detailed in the Table on page 9.

–

–

VARIABLE REMUNERATION – SHORT TERM INCENTIVE (“STI”)

OBJECTIVE

The objective of the STI program is to link the

achievement of the divisional and Company

performance with the remuneration received

by the executives charged with meeting the

divisional performance. The total potential

STI provides suffi cient incentive to the

senior manager to achieve the divisional

performance such that the cost to the

Company is reasonable in the circumstances.

STRUCTURE

Actual STI payments granted to each

senior manager depend mainly on the

performance of their division. Operational

measures cover mainly fi nancial and some

non-fi nancial measures of performance.

The usual measures include contribution

to net profi t before tax, risk management,

product management, and leadership/

team contribution.

On an annual basis, after consideration of

divisional performance, each executive is

reviewed and STIs assessed including a

short term incentive pool based on total

Company performance is allocated to each

executive who is deemed to have a positive

impact on profi tability.

The aggregate of annual STI payments

available for executives across the

Company is subject to the approval of the

Remuneration Committee. Payments made

are usually delivered as a cash bonus.

STI BONUS FOR 2006 AND 2007 FINANCIAL YEARS

The entire STI cash bonus of $630,494 for

the 2006 fi nancial year as accrued in the

previous period vested to executives was paid

in the 2007 fi nancial year. The Remuneration

Committee has approved the STI payments

for the 2007 fi nancial year which were

accrued at June 2007 of $755,052. This

amount has been accrued on the basis that

it is probable that the executives will meet

their respective fi nancial targets for the

year. Any adjustments between the actual

amounts to be paid as determined by the

Remuneration Committee and the amounts

accrued will be adjusted in the 2008 fi nancial

year. There have been no alterations to the

SPI bonus plan since their grant in 2007.

8


VARIABLE PAY – LONG TERM INCENTIVE (“LTI”)

OBJECTIVE

The objective of the LTI plan is to reward

senior managers in a manner which aligns

this element of remuneration with the

creation of shareholder wealth.

As such, LTI grants are only made to

executives who are able to infl uence the

generation of shareholder wealth and thus

have a direct impact on the Company’s

performance.

STRUCTURE

LTI grants to executives are delivered in the

form of share options administered under

an Employee Share Option Plan (“ESOP”).

A new ESOP was approved by shareholders

at the Annual General Meeting held in

November 2005 with Company-based

performance hurdles.

RELATIONSHIP OF REWARDS TO PERFORMANCE

In assessing performance hurdles for the

new ESOP the Directors considered that

a Company-based performance hurdle is

more appropriate than a market-based

performance hurdle because the Company’s

size and product mix is such that it does not

really have any meaningfully comparable

peers. Any comparisons would need to be

made against much larger companies with

quite different product mixes. It would be

inappropriate to assess the Company’s

performance relative to such companies and

this is why the Directors have not selected

a market-based performance hurdle.

Instead, the Directors considered a more

meaningful measure of the Company’s

performance is the increase in net profi t

over a period of three consecutive fi nancial

years. This also has the advantage of being a

performance measure which the Company’s

management team can directly relate to and

more directly infl uence.

COMPANY PERFORMANCE

The Directors have selected a net profi t

growth rate of at least 6% per annum over

three consecutive years from the base year

for its performance hurdle. The reason

this rate was selected was because it is

double current CPI and it is also marginally

higher than the Company’s growth rate

over recent trading results. The Directors

believe this represents a suitably challenging

but achievable target for continuing future

growth. Refer to Note 22 for further

information.

The graph below shows Gazal’s net profi t

before tax and material items for the past

fi ve years (including the current year).

PROFIT BEFORE TAX ($ MILLIONS)

0 5 10 15 20

2003

2004

2005

2006

2007

14.162

16.175

16.918

16.802

15.159

EMPLOYMENT CONTRACTS (AUDITED)

CHIEF EXECUTIVE OFFICER

The CEO, Mr Michael J. Gazal, is employed

under a contract. Mr Gazal’s contract was

renewed on 1 July 2004 and terminates on

30 June 2009, at which time the Company

may choose to commence negotiations to

extend or enter into a new employment

contract. Under the terms of the contract:

Mr Gazal may resign from his position

and thus terminate the contract by

giving three months written notice. On

resignation any options will be forfeited.

The Company may terminate the contract

by providing three months written notice

in the event of extended absence by Mr

Gazal by reason of illness or if he is by

reason of illness or incapacity permanently

unable to perform his responsibilities

and duties. In these circumstances the

Company may elect to provide payment in

lieu of the notice period (based on the fi xed

component of Mr Gazal’s remuneration).

OTHER EXECUTIVES

In addition, Mr David J. Gazal is also

employed under a contract. The current

contract continues on the basis of 12 months

notice by either party. The contract also

contains termination provisions which are

similar to those under Mr Michael Gazal’s

contract described above.

Certain executives have standard contracts

which may be terminated by providing

between six months and one month written

notice or providing payment in lieu of the

notice period (based on the fi xed component

of the executive’s remuneration). On

termination on notice by the Company, any

LTI options that have vested or that will vest

during the notice period will be forfeited.

LTI options that have not vested will also

be forfeited. The Company may terminate

written contracts at any time without notice

if serious misconduct has occurred.



DIRECTORS’ AND EXECUTIVES’ REMUNERATION FOR THE YEAR ENDED 30 JUNE 2007 (AUDITED)Details of the nature and amount of each element of the remuneration of each Director of the Company and each of the key management

personnel of the Company and the consolidated entity receiving remuneration during the fi nancial year including those executives requiring

disclosure under Accounting Standard AASB 124 are as follows:

Short term benefi ts Post employment

Share-

based

payment Total

%

performance

related

Directors

Salary &

fees

Cash

bonus

Non-

monetary

benefi ts Other

Super-

annuation

Retirement

benefi ts Options

J.W. Blood 2007 150,000 – – – – – 51,556 201,556 25.58

Chairman 2006 140,000 – – – – – 19,247 159,247 12.09

M.J. Gazal 2007 469,116 – – 30,052 42,384 – 51,556 593,108 8.69

Chief Executive 2006 434,440 – 3,553 32,310 40,560 – 19,247 530,110 3.63

D.J. Gazal 2007 270,000 18,871 – 30,997 29,500 – 25,778 375,146 11.90

Executive 2006 260,000 193,000 – 30,775 28,500 – 9,624 521,899 38.82

C. Kimberley 2007 75,000 – – – 7,500 – 38,667 121,167 31.91

Non-executive 2006 70,000 – – – 7,000 – 14,435 91,435 15.79

G. Paton 2007 77,916 – – – 7,792 – – 85,708 –

Non-executive 2006 – – – – – – – – –

Sub-total Directors 2007 1,042,032 18,871 – 61,049 87,176 – 167,557 1,376,685

2006 904,440 193,000 3,553 63,085 76,060 – 62,553 1,302,691

KEY MANAGEMENT PERSONNEL

Executives

C. Barnett 2007 300,000 213,750 – 29,038 32,500 – 41,633 616,921 41.40

Chief Operating Offi cer 2006 233,744 225,000 – 30,236 25,874 – 36,624 551,478 47.44

D. Thompson 2007 208,558 153,789 – 27,878 21,020 – 11,933 423,178 39.16

General Manager

– Outerwear

2006 33,462 – – 4375 3,405 – – 41,242 –

P. Lovegrove 2007 210,000 122,883 17,176 2,403 21,000 – 17,767 391,229 35.95

General Manager

– Intimates

2006 204,250 149,086 17,842 2,612 20,425 – 9,624 403,839 39.30

P. Queeney 2007 235,000 80,000 – 27,293 23,400 – 11,933 377,626 24.34

General Manager

– Supply Chain and IT

2006 109,567 42,510 – 12,115 10,938 – – 175,130 24.27

D. Coghlan 2007 240,000 80,000 6,866 2,262 24,000 – 17,767 370,895 26.36

Chief Financial Offi cer 2006 222,500 86,000 6,945 2,096 22,250 – 9,624 349,415 27.37

R. Gazal 2007 200,000 66,630 – 28,366 20,250 – 17,767 333,013 25.34

General Manager

– Retail

2006 175,000 86,898 – 27,179 18,000 – 9,624 316,701 30.48

P. Wood 2007 196,055 38,000 – 34,820 28,338 – 17,767 314,980 17.70

Company Secretary 2006 173,250 41,000 – 28,615 23,594 – 9,624 276,083 18.34

Sub-total 2007 1,589,613 755,052 24,042 152,060 170,508 – 136,567 2,827,842

Executive KMP 2006 1,151,773 630,494 24,787 107,228 124,486 – 75,120 2,113,888

Options granted as part of Director and executive emoluments have been valued using a Binomial option pricing model, which takes account of factors including the option exercise price, the current level

and volatility of the underlying share price, the risk-free interest rate, expected dividends on the underlying share, current market price of the underlying share and the expected life of the option. For further

details refer to Note 22 of the fi nancial statements.

10


OPTIONS GRANTED AS PART OF REMUNERATION (AUDITED)

Grant date Granted no

Fair value

per option at

grant date

(cents)

Value of

options

granted

during

the year

($)

Value of

options

exercised

during

the year

($)

Value of

options

lapsed

during

the year

($)

Total value

of options

granted,

exercised

and lapsed

during the

year

($)

% of

remuneration

consisting of

options for

the year

30 JUNE 2007

Directors

J. Blood 4/12/2006 200,000 41.2 82,400 – – 82,400 25.58

M. Gazal 4/12/2006 200,000 41.2 82,400 – – 82,400 8.69

C. Kimberley 4/12/2006 150,000 41.2 61,800 – – 61,800 31.91

D. Gazal 4/12/2006 100,000 41.2 41,200 – – 41,200 6.87

Executives

C. Barnett 3/7/2006 200,000 35.8 71,600 172,500 – 244,100 6.75

P. Queeney 3/7/2006 100,000 35.8 35,800 – – 35,800 3.16

D. Thompson 3/7/2006 100,000 35.8 17,900 – – 17,900 2.82

P. Lovegrove – – – – 125,000 115,000 240,000 4.54

D. Coghlan – – – – 25,000 – 25,000 4.79

P. Wood – – – – 37,500 – 37,500 5.64

30 JUNE 2006

Directors

J. Blood 19/12/2005 200,000 53.3 106,600 – – 106,600 12.09

M. Gazal 19/12/2005 200,000 53.3 106,600 – – 106,600 3.63

C. Kimberley 19/12/2005 150,000 53.3 79,950 – – 79,950 15.79

D. Gazal 19/12/2005 100,000 53.3 53,300 – – 53,300 1.84

Executives

C. Barnett 19/12/2005 100,000 53.3 53,300 – – 53,300 6.64

P. Lovegrove 19/12/2005 100,000 53.3 53,300 – – 53,300 2.38

D. Holmes 19/12/2005 50,000 53.3 26,650 – – 26,650 1.60

R. Gazal 19/12/2005 100,000 53.3 53,300 – – 53,300 3.03

D. Coghlan 19/12/2005 100,000 53.3 53,300 126,000 – 179,300 2.75

P. Wood 19/12/2005 100,000 53.3 53,300 71,700 – 125,000 3.48

For details on the valuation of the options, including models and assumptions used, please refer to Note 22. There were no alterations to the terms and conditions of options granted as remuneration since

their grant date. Exercise prices, expiry dates and fi rst and last exercise dates are included in Note 22.



REMUNERATION OPTIONS: GRANTED AND VESTED DURING THE FINANCIAL YEAR (AUDITED)During the fi nancial year options were granted as equity compensation benefi ts under the long term incentive plan to certain key management

personnel as disclosed above. The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinary share

in the entity at an exercise price equal to the weighted average market price of the shares on the fi ve business days preceding the date of grant.

The options vest if and when the Groups’ net profi t before tax and material items increases by 6% over three consecutive fi nancial years from a base

year. If this increase is not met within three years from the date of grant, the options are forfeited. Alternatively, the Directors may re-assess the

options. The contractual life of each option is fi ve years. There are no cash settlement alternatives. For further details relating to the options, refer

to Note 22. (Key management personnel who have not been granted options during the year are excluded from the table below.)

TERMS AND CONDITIONS FOR EACH GRANT

Vested no Granted no Grant date

Fair value

per option at

grant date

(cents)

Exercise

price

per option

($)

Expiry

date

First

exercise

date

Last

exercise

date

30 JUNE 2007

Directors

J. Blood – 200,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011

M. Gazal – 200,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011

C. Kimberley – 150,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011

D. Gazal – 100,000 4/12/2006 41.2 2.32 3/12/2011 4/12/2009 3/12/2011

Executives

C. Barnett 150,000 200,000 3/7/2006 35.8 2.35 2/7/2011 3/7/2009 2/7/2011

P. Queeney – 100,000 3/7/2006 35.8 2.35 2/7/2011 3/7/2009 2/7/2011

D. Thompson – 100,000 3/7/2006 35.8 2.35 2/7/2011 3/7/2009 2/7/2011

30 JUNE 2006

Directors

J. Blood – 200,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

M. Gazal – 200,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

C. Kimberley – 150,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

D. Gazal – 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

Executives

C. Barnett 225,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

P. Lovegrove 100,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

R. Gazal – 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

D. Coghlan 10,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

P. Wood 15,000 100,000 19/12/2005 53.3 3.05 18/12/2010 19/12/2008 18/12/2010

12


SHARES ISSUED ON EXERCISE OF REMUNERATION OPTIONS (AUDITED)

Shares issued

Number

Paid

$ per share

Unpaid

$ per share

30 JUNE 2007

Executives

C. Barnett 75,000 2.11 –

D. Coghlan 10,000 2.11 –

P. Lovegrove 50,000 2.11 –

P. Wood 15,000 2.11 –

30 JUNE 2006

Executives

D. Coghlan 42,000 2.11 –

P. Wood 24,000 2.11 –

AUDITOR INDEPENDENCE AND NON-AUDIT SERVICESThe Directors received the following declaration from the auditor of Gazal Corporation Limited.

AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF GAZAL CORPORATION LIMITED

In relation to our audit of the fi nancial report of Gazal Corporation Limited for the fi nancial year ended 30 June 2007, to the best of my knowledge

and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of

professional conduct.

Ernst & Young John Haydon

Partner

26 September 2007



NON-AUDIT SERVICESThe following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are satisfi ed that the provision of non-audit

services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each

type of non-audit service provided means that auditor independence was not compromised.

Ernst & Young Australia received or is due to receive the following amounts for the provision of non-audit services:

$

Tax compliance services and corporate tax planning 120,479

Advice in respect to remuneration plan 3,000

123,479

This report has been made in accordance with a resolution of the Directors.

Signed for and on behalf of the Directors

J.W. Blood M.J. Gazal

Chairman Managing Director

Dated at Sydney this 26th day of September 2007.

14

STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2007

The Board of Directors of Gazal Corporation

Limited is responsible for the corporate

governance of the consolidated entity. The

Board guides and monitors the business

and affairs of Gazal Corporation Limited on

behalf of the shareholders by whom they are

elected and to whom they are accountable.

In accordance with the Australian Securities

Exchange Corporate Governance Council’s

recommendations, the Corporate Governance

Statement contains certain specifi c

information and must disclose the extent

to which the Company has followed the

guidelines during the period. Where a

recommendation has not been followed,

that fact must be disclosed, together with the

reasons for the departure. Gazal Corporation

Limited’s Corporate Governance Statement

is structured with reference to the Corporate

Governance Council’s “Principles of Good

Corporate Governance and Best Practice

Recommendations”, which are as follows:

Principle 1. Lay solid foundations for

management and oversight.

Principle 2. Structure the Board

to add value.

Principle 3. Promote ethical and

responsible decision making.

Principle 4. Safeguard integrity in

fi nancial reporting.

Principle 5. Make timely and balanced

disclosure.

Principle 6. Respect the rights of

shareholders.

Principle 7. Recognise and manage risk.

Principle 8. Encourage enhanced

performance.

Principle 9. Remunerate fairly and

responsibly.

Principle 10. Recognise the legitimate

interests of stakeholders.

Gazal Corporation Limited’s corporate

governance practices have been in place

all year and reviewed by the Directors

throughout the year ended 30 June 2007

and are compliant with the Council’s best

practice recommendations, unless indicated

otherwise in this report. The Board has

received a signed declaration by the CEO and

CFO in accordance with section 295A of the

Corporations Act 2001.

For further information on corporate

governance policies adopted by Gazal

Corporation Limited, refer to our website:

www.gazal.com.au

STRUCTURE OF THE BOARDThe skills, experience and expertise relevant

to the position of Director held by each

Director in offi ce at the date of the annual

report is included in the Directors’ Report

on page 4. Directors of Gazal Corporation

Limited are considered to be independent

when they are independent of management

and free from any business or other

relationship that could materially interfere

with – or could reasonably be perceived to

materially interfere with – the exercise of

their unfettered and independent judgement.

In the context of Director independence,

“materiality” is considered from both the

Company and individual Director perspective.

Materiality determination is considered both

quantitatively and qualitatively. An item is

presumed to be quantitatively immaterial

if it is less than 5% of the base amount.

Qualitative factors considered include

whether a relationship is strategically

important, the competitive landscape, the

nature of the relationship and the contractual

or other arrangements governing it and other

factors which point to the actual ability of the

Director in question to shape the direction of

the Company’s loyalty.

In accordance with the defi nition of

independence above, and the materiality

thresholds set, the following Directors of

Gazal Corporation Limited are considered

to be independent:

Name Position

J.W. Blood Chairman, Non-Executive Director

C. Kimberley Non-Executive Director

G. Paton Non-Executive Director

There are procedures in place, agreed by the

Board, to enable Directors, in furtherance of

their duties, to seek independent professional

advice at the Company’s expense.

The term in offi ce held by each Director in

offi ce at the date of this report is as follows:

Name Term in offi ce

J.W. Blood 14 years

M.J. Gazal 21 years

C. Kimberley 32 months

D.J. Gazal 8 years

G. Paton 14 months

For additional details regarding Board

appointments, please refer to our website.

REMUNERATION AND NOMINATION COMMITTEEThe Board has established a Remuneration

and Nomination Committee, which meets

at least annually, to ensure that the

Board continues to operate within the

established guidelines, including when

necessary, selecting candidates for the

position of Director. The Remuneration

and Nomination Committee comprises

Non-Executive Directors. The remuneration

for Remuneration and Nomination Committee

meeting attendance is included in their

annual fees.

It is the Company’s objective to provide

maximum stakeholder benefi t from the

retention of a high quality Board and

executive team by remunerating Directors

and key executives fairly and appropriately

with reference to relevant employment

market conditions. To assist in achieving

this objective, the Remuneration and

Nomination Committee links the nature and

amount of Executive Directors’ and offi cers’

emoluments to the Company’s fi nancial

and operational performance. The expected

outcomes of the remuneration structure are:

Retention and motivation of key executives.

Attraction of quality management to the

Company.

Performance incentives which allow

executives to share the rewards of the

success of Gazal Corporation Limited.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2007


For details on the amount of remuneration

and all monetary and non-monetary

components for each of the fi ve highest

paid (non-Director) executives and key

management personnel during the year

and for all Directors, refer to pages 6 to

12 of the Directors’ Report. In relation to

the payment of bonuses, options and other

incentive payments, discretion is exercised

by the Board, having regard to the overall

performance of Gazal Corporation Limited

and the performance of the individual

during the period.

The Board is responsible for determining

and reviewing compensation arrangements

for the Directors themselves and the Chief

Executive Offi cer and the executive team. The

Board has established a Remuneration and

Nomination Committee, which comprises

two Non-Executive Directors. Members of the

Remuneration and Nomination Committee

throughout the year were:

J.W. Blood

C. Kimberley

For details of Directors’ attendance

at meetings of the Remuneration and

Nomination Committee, refer to page 5

of the Directors’ Report.

For additional details regarding the

Remuneration and Nomination Committee,

please refer to our website.

AUDIT COMMITTEEThe Board has established an Audit

Committee, which operates under a

charter approved by the Board. It is the

Board’s responsibility to ensure that an

effective internal control framework exists

within the entity. This includes internal

controls to deal with both the effectiveness

and effi ciency of signifi cant business

processes, the safeguarding of assets, the

maintenance of proper accounting records,

and the reliability of fi nancial information

as well as non-fi nancial considerations

such as the benchmarking of operational

key performance indicators. The Board

has delegated the responsibility for the

establishment and maintenance of a

framework of internal control and ethical

standards for the management of the

consolidated entity to the Audit Committee.

The committee also provides the Board with

additional assurance regarding the reliability

of fi nancial information for inclusion in the

fi nancial reports. All members of the Audit

Committee are Non-Executive Directors.

The members of the Audit Committee during

the year were:

G. Paton

J.W. Blood

C. Kimberley

Mr. C Kimberley was appointed to the Audit

committee during the later part of last year

to temporarily fi ll the vacancy left with the

retirement of Mr C. O’Reilly. On 1 August

2006, Mr G. Paton was appointed to the Board

and the Audit Committee and Mr Kimberley

subsequently stood down in that role.

Recommendation 4.3 of Principle 4 of the

“Principles of Good Corporate Governance and

Best Practice Recommendations” indicates it

is preferable to have at least three members

on the Audit Committee. The Board of Gazal

Corporation Limited believes that given the

size of the Company and the experience of

the present members, subject to the above

temporary vacancy being fi lled, that two Audit

Committee members is adequate.

QUALIFICATIONS OF AUDIT COMMITTEE MEMBERS

J.W. Blood has signifi cant experience in the

management of Gazal Corporation Limited,

having served as a Non-Executive Director of

Gazal Corporation Limited for 14 years. He

is also Director of a number of companies

where as part of his role, he serves as a

member on the Audit Committee. He is the

Chairman of the Audit Committee.

C. Kimberley has had extensive experience

in the retail industry and founded the Just

Jeans group chain of retail stores.

G. Paton has had extensive experience in

the accounting industry and was previously

a partner of 23 years in Arthur Andersen,

Chartered Accountants, retiring from that fi rm

and public practice in July 2001.

For details on the number of meetings of the

Audit Committee held during the year and

the attendees at those meetings, refer to

page 5 of the Directors’ Report.

PERFORMANCE The performance of the Board and key

executives is reviewed regularly. The

performance criteria against which Directors

and executives are assessed is aligned with

the fi nancial and non-fi nancial objectives of

Gazal Corporation Limited. Directors whose

performance is consistently unsatisfactory

may be asked to retire.

RISK MANAGEMENT AND INTERNAL CONTROLS Procedures have been established at the

Board and executive management level to

evaluate risk and the associated internal

controls necessary to safeguard the assets

and interests of Gazal Corporation Limited,

and to ensure the integrity of reporting.

These include accounting, fi nancial reporting

and internal control policies and procedures.

16

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF GAZAL CORPORATION LIMITED

Gazal Corporation Limited Annual Report and Accounts 2007 18

Independent auditor’s report to the members of Gazal Corporation Limited

We have audited the accompanying financial report of Gazal Corporation Limited and the consolidatedentity, which comprises the balance sheet as at 30 June 2007, and the income statement, statement ofchanges in equity and cash flow statement for the year ended on that date, a summary of significantaccounting policies, other explanatory notes and the directors’ declaration. The consolidated entitycomprises the company and the entities it controlled at year’s end or from time to time during the financialyear.

The company has disclosed information as required by paragraphs Aus 25.4 to Aus 25.7.2 of AccountingStandard 124 Related Party Disclosures (“remuneration disclosures”), under the heading “RemunerationReport” on pages 7 to 13 of the directors’ report, as permitted by Corporations Regulation 2M.6.04.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial reportin accordance with the Australian Accounting Standards (including the Australian AccountingInterpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaininginternal controls relevant to the preparation and fair presentation of the financial report that is free frommaterial misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies;and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also statethat the financial report, comprising the financial statements and notes, comply with International FinancialReporting Standards. The directors are also responsible for the remuneration disclosures contained in thedirectors’ report.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted ouraudit in accordance with Australian Auditing Standards. These Auditing Standards require that we complywith relevant ethical requirements relating to audit engagements and plan and perform the audit to obtainreasonable assurance whether the financial report is free from material misstatement and that theremuneration disclosures comply with Accounting Standard AASB 124 Related Party Disclosures..

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial report. The procedures selected depend on our judgment, including the assessment of the risks ofmaterial misstatement of the financial report, whether due to fraud or error. In making those riskassessments, we consider internal controls relevant to the entity’s preparation and fair presentation of thefinancial report in order to design audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of accounting estimatesmade by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinion.

Liability limited by a scheme approved underProfessional Standards Legislation.

6 12

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF GAZAL CORPORATION LIMITED


Gazal Corporation Limited Annual Report and Accounts 2007 19

IndependenceIn conducting our audit we have met the independence requirements of the Corporations Act 2001. We havegiven to the directors of the company a written Auditor’s Independence Declaration, a copy of which isincluded in the directors’ report. In addition to our audit of the financial report and the remunerationdisclosures, we were engaged to undertake the services disclosed in the notes to the financial statements.The provision of these services has not impaired our independence.

Auditor’s Opinion

In our opinion:1. the financial report of Gazal Corporation Limited is in accordance with:

the Corporations Act 2001, including:(i) giving a true and fair view of the financial position of Gazal Corporation Limited and the

consolidated entity at 30 June 2007 and of their performance for the year ended on that date;and

(ii) complying with Australian Accounting Standards (including the Australian AccountingInterpretations); and the Corporation Regulations 2001.

2. the consolidated/parent financial statements and notes or financial report also comply withInternational Financial Reporting Standards as disclosed in Note 2

3. the remuneration disclosures that are contained on pages 7 to 13 of the directors’ report comply withAccounting Standard AASB 124 Related Party Disclosures.

Ernst & Young

J K HaydonPartnerSydneyDate: 26 September 2007

6 12

18

DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2007

In accordance with a resolution of the Directors of Gazal Corporation Limited, we state that:

In the opinion of the Directors:

the fi nancial report and the additional disclosures included in the Directors’ Report designated as audited, of the Company and of the

consolidated entity are in accordance with the Corporations Act 2001, including:

giving a true and fair view of the Company’s and consolidated entity’s fi nancial position as at 30 June 2007 and of their performance

for the year ended on that date; and

complying with Accounting Standards and Corporations Regulations 2001; and

there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the

Corporations Act 2001 for the fi nancial year ended 30 June 2007.

In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed

Group identifi ed in Note 31 will be able to meet any obligations or liabilities to which they are or may become subject, by virtue of the Deed

of Cross Guarantee.

On behalf of the Board

J.W. Blood M.J. Gazal

Chairman Managing Director

Dated at Sydney this 26th day of September 2007.

1.

a)

i)

ii)

b)

2.

3.

INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007


CONSOLIDATED PARENT ENTITY

Notes

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Continuing operations

Sales revenue 4 250,405 215,807 – –

Cost of sales (129,686) (106,466) – –

Gross profi t 120,719 109,341 – –

Other revenues 4 6,327 3,491 13,969 18,006

Selling and marketing expenses (72,120) (63,771) – –

Distribution expenses (17,322) (14,612) – –

Administration expenses (18,274) (14,622) (3,252) (3,632)

Finance costs 4 (4,171) (3,025) – –

Impairment – retail stores (1,170) – – –

Impairment – diminution of investment – – – (2,952)

Profi t before income tax 13,989 16,802 10,717 11,422

Income tax (expense)/benefi t 5 (3,600) (5,308) 10 (58)

Profi t after tax from continuing operations 10,389 11,494 10,727 11,364

Discontinued operation

Loss after tax from discontinuing operations 6 (2,018) (4,064) – –

Profi t attributable to members of the parent 8,371 7,430 10,727 11,364

Earnings per share (cents per share)

Basic for profi t for the year 7 13.8 12.1

Basic for profi t from continuing operations 7 17.1 18.8

Diluted for profi t for the year 7 13.7 12.0

Diluted for profi t from continuing operations 7 17.0 18.6

Dividends per share 24 14.0 14.0

The accompanying notes form an integral part of the Income Statement.

INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007

20

BALANCE SHEET AS AT 30 JUNE 2007


Notes

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Current assets

Cash and cash equivalents 27(a) 2,352 4,525 32 –

Trade and other receivables 9 21,680 19,127 23,520 25,050

Inventories 10 45,699 45,422 – –

Derivative fi nancial instruments 30 38 456 – –

Tax receivable 2,096 – 1,397 –

Other current assets 11 3,239 2,763 42 51

75,104 72,293 24,991 25,101

Assets classifi ed as held for sale 6 – 976 – –

Total current assets 75,104 73,269 24,991 25,101

Non-current assets

Receivables 12 – 216 – –

Investment in subsidiaries 15 – – 39,317 39,317

Property, plant and equipment 13 52,454 44,639 27 33

Intangibles 14 35,427 34,555 4 –

Deferred tax assets 5 4,004 3,578 277 72

Other non-current assets 16 2,060 2,441 – –

Total non-current assets 93,945 85,429 39,625 39,422

Total assets 169,049 158,698 64,616 64,523

Current liabilities

Trade and other payables 17 25,424 20,664 244 239

Derivative fi nancial instruments 30 938 79 – –

Interest-bearing loans and borrowings 18 18,085 26,461 – –

Loans other 30 87 55 – –

Income tax payable – 1,404 – 78

Provisions 19 4,867 5,617 – –

Total current liabilities 49,401 54,280 244 317

Non-current liabilities

Interest-bearing loans and borrowings 20 40,000 27,000 – –

Provisions 21 563 438 – –

Deferred tax liabilities 5 7,560 6,011 – –

Total non-current liabilities 48,123 33,449 – –

Total liabilities 97,524 87,729 244 317

Net assets 71,525 70,969 64,372 64,206

Equity

Contributed equity 22 69,816 72,257 69,816 72,257

Reserves 23 20,416 17,197 794 321

Accumulated losses 24 (18,707) (18,485) (6,238) (8,372)

Total equity 71,525 70,969 64,372 64,206

The accompanying notes form an integral part of the Balance Sheet.

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2007



Notes

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Cash fl ows from operating activities

Receipts from customers (inclusive of GST) 280,975 252,443 6,662 749

Payments to suppliers and employees (inclusive of GST) (259,497) (221,259) (6,562) (583)

Dividends received – – 10,450 17,200

Interest and bill discounts received 130 180 – 6

Interest and other costs of fi nance paid (4,331) (3,193) – –

Income taxes paid (6,607) (4,574) (1,670) 101

Net cash fl ows from operating activities 27(b) 10,670 23,597 8,880 17,473

Cash fl ows from investing activities

Purchases of property, plant and equipment (7,994) (5,444) (17) (33)

Proceeds from sale of buildings, plant and equipment 421 251 – –

Acquisition of subsidiary – (16,169) – –

Purchase of intangibles (1,599) (179) (6) –

Net cash fl ows used in investing activities (9,172) (21,541) (23) (33)

Cash fl ows from fi nancing activities

Proceeds from issue of shares 346 165 346 165

Proceeds from borrowings 7,016 14,648 – –

Repayment of borrowings (2,961) (282) – –

Dividends paid (8,593) (14,936) (8,593) (14,936)

Loans provided by entity – – (578) (2,669)

Net cash fl ows used in fi nancing activities (4,192) (405) (8,825) (17,440)

Net increase/(decrease) in cash and cash equivalents (2,694) 1,651 32 –

Cash and cash equivalents at the beginning of the period 4,525 2,790 – –

Net foreign exchange differences (64) 84 – –

Cash and cash equivalents at the end of the year 27(a) 1,767 4,525 32 –

The accompanying notes form an integral part of the Statement of Cash Flows.

22

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007


Attributable to shareholders of Gazal Corporation Limited Attributable to shareholders of Gazal Corporation Limited

Contributed

equity

$’000

Accumulated

losses

$’000

Reserves

$’000

Total

equity

$’000

Contributed

equity

$’000

Accumulated

losses

$’000

Reserves

$’000

Total

equity

$’000

At 1 July 2005 71,037 (16,049) 12,009 66,997 71,037 (9,870) 55 61,222

Currency translation differences – – 70 70 – – – –

Revaluation of land and buildings – – 4,852 4,852 – – – –

Net change recognised directly

in equity

– – 4,922 4,922 – – – –

Profi t for the year – 7,430 – 7,430 – 11,364 – 11,364

Total recognised income and

expenses for the year

– 7,430 4,922 12,352 – 11,364 – 11,364

Shares issued as a result of

exercise of options

165 – – 165 165 – – 165

Cost of share-based payments – – 266 266 – – 266 266

Equity dividends – (9,866) – (9,866) – (9,866) – (9,866)


dividend reinvestment

1,055 – – 1,055 1,055 – – 1,055

At 30 June 2006 72,257 (18,485) 17,197 70,969 72,257 (8,372) 321 64,206

At 1 July 2006 72,257 (18,485) 17,197 70,969 72,257 (8,372) 321 64,206

Currency translation differences – – 50 50 – – – –

Revaluation of land and buildings – – 3,616 3,616 – – – –

Net loss on cash fl ow hedge – – (920) (920) – – – –

Net change recognised directly

in equity

– – 2,746 2,746 – – – –

Profi t for the year – 8,371 – 8,371 – 10,727 – 10,727

Total recognised income and

expenses for the year

– 8,371 2,746 11,117 – 10,727 – 10,727


exercise of options

346 – – 346 346 – – 346

Cost of share-based payments – – 473 473 – – 473 473

Equity dividends – (8,593) – (8,593) – (8,593) – (8,593)

Share buy-back (2,787) – – (2,787) (2,787) – – (2,787)

At 30 June 2007 69,816 (18,707) 20,416 71,525 69,816 (6,238) 794 64,372

The accompanying notes form an integral part of the Statement of Changes in Equity.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007


1 CORPORATE INFORMATIONThe annual fi nancial report of Gazal Corporation Limited for the year ended 30 June 2007 was authorised for issue in accordance with

a resolution of the Directors on 26 September 2007.

Gazal Corporation Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian

Securities Exchange.

The nature of the operations and principal activities of the Group are described in the Directors’ Report.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PREPARATION

The fi nancial report is a general purpose fi nancial report, which has been prepared in accordance with the requirements of the Corporations

Act 2001, applicable Australian Accounting Standards and other mandatory professional reporting requirements.

The fi nancial report has also been prepared on a historical cost basis, except for land and buildings, and derivative fi nancial instruments,

which have been measured at fair value.

The fi nancial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (“AIFRS”)

and is presented in Australian dollars, the functional currency of the principal operating subsidiaries of the Company.

All values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC

Class Order 98/100. The Company is an entity to which the class order applies.

STATEMENT OF COMPLIANCE

The fi nancial report complies with Australian Accounting Standards, which include AIFRS. The fi nancial report complies with International

Financial Reporting Standards (“IFRS”).

Applicable Australian Accounting Standards and Interpretations that have been issued or amended but are not yet effective and have not been

adopted for the annual report for the year ended 30 June 2007 are as follows:

Reference Title

AASB 2007-1

Amendments to Australian Accounting Standards (AASB-2) – applicable to annual reporting periods beginning on or after

1 March 2007 with early adoption required if AASB Interpretation 11 is applied to the period.

AASB 2007-2

Amendments to Australian Accounting Standards (AASB 1, 117, 118, 120, 121, 127, 134, 136, 1023, 1038) – applicable to

annual reporting periods beginning on or after 1 January 2008 with early adoption required if AASB Interpretation 12 is applied

to the period.

AASB 2007-3

Amendments to Australian Accounting Standards (AASB 5, 6, 102, 107, 119, 127, 134, 136, 1023, 1038) – applicable to annual

reporting periods beginning on or after 1 January 2009 with early adoption required if AASB 8 is applied to the period.

AASB 7 Financial Instruments: Disclosures.

AASB 8 Operating Segments – applicable to annual reporting periods beginning on or after 1 January 2009.

BASIS OF CONSOLIDATION

The consolidated fi nancial statements comprise the fi nancial statements of Gazal Corporation Limited and its subsidiaries (“the Group”). The

fi nancial statements of subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies.

Adjustments are made to bring into line any dissimilar accounting policies that may exist.

All inter-Company balances and transactions, including unrealised profi ts arising from intra-Group transactions, have been eliminated in full.

Unrealised losses are eliminated unless costs cannot be recovered.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which

control is transferred out of the Group.

24


2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

BUSINESS COMBINATIONS

The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets

are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus

costs directly attributable to the combination. Where equity instruments are issued in a business combination, the fair value of the instruments

is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the

date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair

value. Transaction costs net of tax arising from equity instruments are recognised directly in equity.

Except for non-current assets or disposal groups classifi ed as held for sale (which are measured at fair value less costs to sell), all identifi able

assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the

acquisition date, irrespective of the extent of any minority interest. The excess of cost of the business combination over the net fair value of the

Group’s share of the identifi able net assets acquired is recognised as goodwill. If the cost of acquisition is less than the Group’s share of the

net fair value of the identifi able net assets of the subsidiary, the difference is recognised as a gain in the Income Statement, but only after a

reassessment of the identifi cation and measurement of the net assets acquired.

Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at

the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be

obtained from an independent fi nancier under comparable terms and conditions.

SEGMENT REPORTING

A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and

returns that are different to those of other business segments. A geographical segment is a distinguishable component of the entity that is

engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than

those of segments operating in other economic environments.

FOREIGN CURRENCY TRANSLATION

(i) Functional and presentation currency

Both the functional and presentation currency of Gazal Corporation Limited and its Australian subsidiaries is Australian dollars (A$).

(ii) Transactions and balances

Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

All exchange differences in the consolidated fi nancial report are taken to the Income Statement. Non-monetary items measured at fair value

in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currency of the various overseas subsidiaries includes Great British pounds, New Zealand dollars, and the Euro.

As at the reporting date the monetary assets and liabilities of these overseas subsidiaries are translated into the presentation currency of the

Group at the rate of exchange ruling at the balance sheet date and the Income Statements are translated at the weighted average exchange

rates for the year.

The exchange differences arising on the retranslation are taken directly to a separate component of equity.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three

months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above,

net of outstanding bank overdrafts.

Bank overdrafts are included within current interest-bearing loans and borrowings on the Balance Sheet.

INCOME TAX

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the

taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance

sheet date.



2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continuedDeferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their

carrying amounts for fi nancial reporting purposes.

The policy in relation to tax consolidation appears in Note 5(i).

Deferred income tax liabilities are recognised for all taxable temporary differences except:

when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not

a business combination and that, at the time of the transaction, affects neither the accounting profi t nor taxable profi t or loss; or

when the taxable temporary differences are associated with investments in subsidiaries, associates and interests in joint ventures, and the

timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the

foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses,

to the extent that it is probable that taxable profi t will be available against which the deductible temporary differences, and the carry-forward of

unused tax assets and unused tax losses can be utilised, except:

when the deferred income tax asset relating to the deductible difference arises from the initial recognition of an asset or liability in a

transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profi t nor taxable profi t

or loss; or

when the deductible temporary differences are associated with investments in subsidiaries, associates and interests in joint ventures,

deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future

and taxable profi t will be available against which the temporary differences can be utilised .

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable

that suffi cient taxable profi t will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the

liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profi t or loss.

OTHER TAXES

The net amount of Goods & Services Tax (“GST”) or other value added taxes (“VAT”) recoverable from, or payable to, the taxation authority or the

relevant revenue authority is included as part of trade receivables or payables in the Balance Sheet.

Cash fl ows are included in the Cash Flow Statement on a gross basis and the GST or VAT components of cash fl ows arising from investing and

fi nancing activities, which are recoverable from, or payable to, the taxation authority or the relevant revenue authority are classifi ed as operating

cash fl ows.

Commitments and contingencies are disclosed net of the amount of GST or VAT recoverable from, or payable to, the taxation authority or the

relevant revenue authority.

INVENTORIES

Inventories include raw materials, work in progress and fi nished goods.

Costs incurred in bringing each product to its present location and condition is accounted for as follows:

Raw materials – purchase cost on a fi rst-in, fi rst-out basis. The cost of purchase comprises the purchase price including the transfer from

equity of gains and losses on qualifying cash fl ow hedges of purchases of raw materials, import duties and other taxes (other than those

subsequently recoverable by the entity from the taxing authorities), transport, handling and other costs directly attributable to the acquisition

of raw materials.

Finished goods and work-in-progress – cost of direct materials and labour and a proportion of variable and fi xed manufacturing overheads

based on normal operating capacity. Costs are assigned on a fi rst-in, fi rst-out basis and include freight, duty and other inward charges.

The basis of valuation of inventories is the lower of cost and net realisable value. Net realisable value is the estimated selling prices in the

ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

26



PROPERTY, PLANT AND EQUIPMENT

Land and buildings are measured at fair value less accumulated depreciation and any impairment in value. Revaluations are made in accordance

with a regular policy whereby independent valuations are obtained and carrying amounts adjusted accordingly.

Plant and equipment are valued at historical cost less accumulated depreciation and any impairment losses. Depreciation is provided on

a straight-line basis, their economic lives as follows:

Life Method

Buildings 40 years Straight Line

Leasehold improvements Term of lease Straight Line

Owned plant and equipment 2.5–17 years Straight Line

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected to arise from

continued use of the asset. Any gain or loss arising on the derecognition of an asset (calculated as the difference between the net disposal

proceeds and the carrying amount of the item) is included in the Income Statement in the period that the item is derecognised.

Impairment

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value

may not be recoverable.

For an asset that does not generate largely independent cash infl ows, the recoverable amount is determined for the cash-generating unit to

which the asset belongs.

If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are

written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of the fair value less costs to sell or value in use. In assessing value in use, the

estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the

time value of money and the risks specifi c to the asset.

Revaluations of land and buildings

Following initial recognition at cost, land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation less

any subsequent accumulated depreciation on buildings and accumulated impairment losses.

Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between

a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date.

Any revaluation surplus is credited to the asset revaluation reserve included in the equity section (net of tax) of the Balance Sheet unless

it reverses a revaluation decrease of the same asset previously recognised in the Income Statement.

Any revaluation defi cit is recognised in the Income Statement unless it directly offsets a previous surplus of the same asset in the asset

revaluation reserve.

In addition, any accumulated depreciation as at revaluation date is eliminated against the gross carrying amount of the asset and the net amount

is restated to the revalued amount of the asset.

Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.

Independent valuations are performed with suffi cient regularity to ensure that the carrying amount does not differ materially from the asset’s

fair value at the balance sheet date.



2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continuedDerecognition and disposal

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected to arise from the

continued use of the asset.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount

of the item) is included in the Income Statement in the year the item is derecognised.

PROCUREMENT FEE

This represents amounts prepaid in respect to procurement of future services and goods. This will be expensed over the term of the agreement.

GOODWILL

Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest in the

net fair value of the identifi able assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any

accumulated impairment losses. Goodwill is not amortised but is reviewed for impairment annually or more frequently if events or changes in

circumstances indicate that the carrying value may be impaired.

At the acquisition date, any goodwill acquired is allocated to each of the cash-generating units expected to benefi t from the combination’s

synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the

recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with

the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.

Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the

cash-generating unit retained.

INTANGIBLE ASSETS

Intangible assets acquired separately are capitalised at cost. Intangible assets acquired from a business combination are capitalised at fair value

as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets.

The useful lives of intangible assets are assessed to be either fi nite in the case of industrial designs or infi nite in the case of trademarks. Where

amortisation is charged on assets with fi nite lives, this expense is taken to the Income Statement through the “depreciation and amortisation”

line item.

Intangible assets created within the business are not capitalised. Such expenditure is charged against profi ts in the period in which the

expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists or, in the case of indefi nite life

intangibles, annually, either individually or at the cash-generating unit level. Useful lives are also examined on an annual basis and adjustments,

where applicable, are made on a prospective basis.

PROVISIONS

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an

outfl ow of resources embodying economic benefi ts will be required to settle the obligation and a reliable estimate can be made of the amount

of the obligation.

When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised

as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income

Statement net of any reimbursement.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the

balance sheet date. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that refl ects the time

value of money and the risks specifi c to the liability. The increase in the provision resulting from the passage of time is recognised in fi nance costs.

28



EMPLOYEE LEAVE BENEFITS

(i) Wages, salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefi ts, annual leave and accumulating sick leave expected to be settled within

12 months of the reporting date are recognised in other provisions in respect of employees’ services up to the reporting date. They are measured

at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is

taken and are measured at the rates paid or payable.

(ii) Long service leave

The liability for long service leave is recognised in the provision for employee benefi ts and measured as the present value of expected

future payments to be made in respect of services provided by employees up to the reporting date using the projected until credit method.

Consideration is given to expected future wages and salary levels, experience of employee departures, and periods of service. Expected future

payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that

match, as closely as possible, the estimated future cash outfl ows.

POST-EMPLOYMENT BENEFITS

In respect of the Group’s accumulated contribution superannuation funds, any contributions made to the superannuation funds by entities within

the Group consolidated entity are recognised against profi ts when due.

RECOVERABLE AMOUNT OF ASSETS

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment

exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the

asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s

value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash infl ows that are largely independent

of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the

asset belongs.

In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects

current market assessments of the time value of money and the risks specifi c to the asset.

TRADE AND OTHER RECEIVABLES

Trade and other receivables are initially recorded at the amount of contracted sales proceeds. Provision for doubtful debts is recognised to the

extent that recovery of the outstanding receivable balance is considered less than likely. Any provision established is based on a review of all

outstanding amounts at balance date and when collection of the full amount is no longer probable.

TRADE AND OTHER PAYABLES

Liabilities for trade creditors and other payables are carried at cost which is the fair value of the consideration to be paid in the future for goods

and services received, whether or not billed to the Group.

DERIVATIVES

Derivative instruments are used to hedge interest rate and foreign exchange exposures. These derivatives qualify for hedge accounting therefore

the gains and losses are taken directly to equity. The fair values of forward exchange contracts are determined as the recognised gain or loss at

reporting date calculated by reference to current forward exchange rates for contracts with similar maturity profi les on a mark to market basis.

Amounts payable or receivable under interest rate swaps are recognised as a component of interest expense as they accrue. Forward currency

contracts are taken out for periods no greater than 13 months.




DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

The Group has qualifi ed for hedge accounting for the annual periods beginning on or after 1 July 2006.

The Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with

interest rate and foreign currency fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which

a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is

positive and as liabilities when their fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash fl ow hedges, are taken directly to

profi t or loss for the year.

The fair value of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity

profi les. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments.

For the purpose of hedge accounting, hedges are classifi ed as:

fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability;

cash fl ow hedges when they hedge the exposure to variability in cash fl ows that is attributable either to a particular risk associated with

a recognised asset or liability or to a forecast transaction; or

a hedge of the foreign currency risk of a fi rm commitment is accounted for as a cash fl ow hedge.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply

hedge accounting and the risk management objectives and strategies for undertaking the hedge. The documentation includes identifi cation

of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging

instrument’s effectiveness in offsetting the exposure to changes in the hedged items’ fair value or cash fl ows attributable to the hedged risk.

Such hedges are expected to be highly effective in achieving offsetting changes in fair values or cash fl ows and are assessed on an ongoing basis

to determine that they actually have been highly effective throughout the fi nancial reporting periods for which they were designated.

(i) Cash fl ow hedges

Cash fl ow hedges are hedges of the Group’s exposure to variability in cash fl ows that is attributable to a particular risk associated with a

recognised asset or liability or a highly probable forecast transaction and that could affect profi t or loss. The effective portion of the gain or loss

on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profi t or loss.

Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profi t or loss, such as when hedged

income or expenses are recognised or when a forecast sale or purchase occurs. When the hedged item is the cost of a non-fi nancial asset

or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-fi nancial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement.

If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked,

amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur,

the amount is taken to the Income Statement.

INTEREST-BEARING LOANS AND BORROWINGS

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings.

Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least

12 months after the balance date.

30



SHARE-BASED PAYMENT TRANSACTIONS

The Group provides benefi ts to certain employees (including directors) of the Group in the form of share options, whereby employees render

services in exchange for options over shares (“equity-settled transactions”). The cost of these equity-settled transactions with employees is

measured by reference to the fair value at the date on which they are granted. The fair value is determined by using a binomial pricing model.

There are currently two plans in place to provide these benefi ts:

the Employee Share Option Plan established in 1990. This plan is being phased out as it did not have performance hurdles and there is only

one grant of 150,000 options remaining to one employee.

the Gazal Group Share Option Plan established in 2005 provides benefi ts to eligible participants as determined by the Board.

In valuing equity-settled transactions in the later plan, account is taken of performance conditions as indicated in Note 22, in this case a

profi tability hurdle. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in

which the performance conditions are fulfi lled, ending on the date on which the relevant employees become fully entitled to the award (“vesting

date”). The dilutive effect, if any, of outstanding options is refl ected as additional share dilution in the computation of diluted earnings per share.

REVENUE RECOGNITION

Revenue from sale of goods is recognised after deducting returns, settlement and trade discounts and rebates and is recognised when the goods

or services are provided.

Interest income is recognised as it accrues with the effective interest method. Dividends are recognised when the Group’s right to receive the

payment is established. Profi t and loss on disposal of assets is brought to account at the date an unconditional contract of sale is signed.

Royalty income from licensees and sub-licensees is recognised based on the percentage of sales as stipulated in the relevant contract.

CONTRIBUTED EQUITY

Issued and paid up capital is recognised at the fair value of consideration received by the Company. Any transaction costs arising on the issue of

ordinary shares are recognised directly in equity (net of tax) as a reduction of the share proceeds received. The fair value of equity instruments

granted and other estimates of other expected share issues are recognised as a separate component of equity.

EARNINGS PER SHARE

Basic earnings per share is calculated as profi t after tax attributable to members of the parent entity, adjusted to exclude costs of servicing

equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share are calculated as net profi t attributable to members, adjusted for:

costs of servicing equity (other than dividends);

the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses and

which, in the case of equity options, are recognised as dilutive when they would result in the issue of ordinary shares for less than the average

price of ordinary shares during the period; and

other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;

divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

OPERATING LEASES

The Group has established operating leases, where the lessor effectively retains substantially all of the risks and benefi ts of ownership of the

leased item. Operating lease payments are recognised as an expense in the Income Statement on a straight-line basis over the lease term.

Lease incentives are recognised in the Income Statement as an integral part of the total lease expense.

i)

ii)

iii)




INVESTMENTS AND OTHER FINANCIAL ASSETS

The parent Company carries investments in subsidiary companies initially at cost. The carrying value of subsidiaries is assessed at regular

intervals having regard to net assets and future cash fl ows of these entities. A provision for diminution is established should the carrying value

of a subsidiary be considered impaired.

Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classifi ed as either fi nancial assets at

fair value through profi t or loss, loans and receivables, held-to-maturity investments, or available-for-sale fi nancial assets. When fi nancial

assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profi t or loss, directly

attributable transaction costs. The Group determines the classifi cation of its fi nancial assets after initial recognition and, when allowed and

appropriate, re-evaluates this designation at each fi nancial year-end.

All regular purchases and sales of fi nancial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset.

Regular way purchases or sales are purchases or sales of fi nancial assets under contracts that require delivery of the assets within the period

established generally by regulation or convention in the market place.

(i) Loans and receivables

Loans and receivables including loan notes and loans to key management personnel are non-derivative fi nancial assets with fi xed or

determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method.

Gains and losses are recognised in profi t or loss when the loans and receivables are derecognised or impaired, as well as through the

amortisation process.

NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND DISCONTINUED OPERATIONS

Non-current assets and disposal groups are classifi ed as held for sale and measured at the lower of their carrying amount and fair value less

costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an

asset or disposal group to be classifi ed as held for sale, it must be available for immediate sale in its present condition and its sale must be

highly probable.

An impairment loss is recognised for any initial or subsequent write-down of the assets (or disposal group) to fair value less costs to sell. A gain

is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative

impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal

group) is recognised at the date of derecognition.

A discontinued operation is a component of the entity that has been disposed of or is classifi ed as held for sale and that represents a separate

major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of

operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the

face of the Income Statement.

32


3 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONSIn applying the Group’s accounting policies, management continually evaluates judgments, estimates and assumptions based on experience and

other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made

are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the

judgments, estimates and assumptions. Signifi cant judgments, estimates and assumptions made by management in the preparation of these

fi nancial statements are outlined below:

(I) SIGNIFICANT ACCOUNTING JUDGMENTS

Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences as management considers that it is probable that future taxable profi ts

will be available to utilise those temporary differences.

(II) SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

Impairment of goodwill and intangibles with indefi nite useful lives

The Group determines whether goodwill and intangibles with indefi nite useful lives are impaired at least on an annual basis. This requires an

estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefi nite useful lives are allocated.

There were no impairment adjustments in the year. The assumptions used in this estimation of recoverable amount and the carrying amount of

goodwill and intangibles with indefi nite useful lives are discussed in Note 14.

Long service leave provision

As discussed in Note 2, the liability for long service leave is recognised and measured at the present value of the estimated future cash fl ows to

be made in respect of all employees at balance date. In determining the present value of the liability, attrition rates and pay increases through

promotion and infl ation have been taken into account.

Estimation of useful lives of assets

The estimation of the useful lives of assets has been based on historical experience as well as manufacturers’ warranties (for plant and

equipment), lease terms (for leased equipment) and turnover policies. In addition, the condition of the assets is assessed at least once per year

and considered against the remaining useful life. Adjustments to useful life are made when considered necessary. Depreciation charges are

included in Note 13.

Bonus provision

Bonus payments granted to each senior manager depends mainly on the performance of their division. Operational measures cover mainly

fi nancial and some non-fi nancial measures of performance. The usual measures include contribution to net profi t before tax, stock turnover

ratios, risk management, product management, and leadership/team contribution.

On an annual basis, after consideration of divisional performance each executive is reviewed and a bonus is calculated including a proportion

of an incentive pool based on total Company performance is allocated to each executive who is deemed to have a positive impact on profi tability.

Stock obsolescence provision

Each balance date inventories are assessed on receipt date/selling season and any inventory holdings that were received into the warehouse

greater than one year prior to balance date are subject to a write-down ranging from 40% to 100%.

This charge against profi t will take the form of a provision which is returned to profi t when the inventory to which the provisions apply are sold

or otherwise disposed of.



4 REVENUES AND EXPENSES

REVENUE AND EXPENSE FROM CONTINUING OPERATIONS


Notes

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

(i) Revenue

Sales revenue 250,405 215,807 – –

Other revenue

Dividends from wholly owned group – – 10,450 17,200

Interest received 130 180 – 6

Management fees – – 800 800

Settlement and release* 2,719 – 2,719 –

Others 3,478 3,311 – –

Total other revenue 6,327 3,491 13,969 18,006

Total revenue 256,732 219,298 13,969 18,006

(ii) Expenses and losses

Depreciation, amortisation and impairment

Depreciation of buildings 13 337 419 – –

Depreciation of plant and equipment 6,13 2,984 2,652 12 –

Depreciation of leasehold improvements 13 752 687 11 –

Impairment – retail stores** 13 893 – – –

Amortisation of industrial designs 14 123 123 – –

Amortisation of software 14 179 26 2 –

5,268 3,907 25 –

Finance costs – interest expenses to other persons 4,171 3,025 – –

Bad and doubtful debts (84) 21 – 2,828

Operating lease rentals 10,754 8,659 113 19

Provision for lease termination** 276 – – –

Provision for inventories obsolescence 1,008 1,431 – –

Provision for employee entitlements 312 644 – –

Share-based payments 473 266 473 266

Foreign exchange loss 265 54 – –

Impairment of trademark – – – –

Impairment – diminution of investment – – – 2,952

Net loss on disposal of non-current assets: 195 167 – –

* Agreement between the Company and Mr Jennings to settle and release each other from certain remaining restraint obligations contained in the sale agreement to acquire the Mambo business in

March 2000.

** Impairment and provision for lease termination of retail stores.

34


5 INCOME TAX

(A) INCOME TAX EXPENSE

The major components of income tax expense are:


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Income Statement

Current income tax

Current income tax charge 3,563 5,406 58 70

Adjustments in respect of current income tax

of previous years

(140) 156 (37) 1

Deferred income tax

Relating to origination and reversal of temporary differences (211) (180) (31) (13)

Income tax expense reported in the Income Statement 3,212 5,382 (10) 58

(B) AMOUNTS CHARGED OR CREDITED DIRECTLY TO EQUITY

Current income tax related to items charged or credited directly to equity

– – – –

Deferred income tax related to items charged or credited directly to equity

Net gain on revaluation of buildings 1,549 2,080 – –

Income tax expense reported in the equity 1,549 2,080 – –



5 INCOME TAX continued

(C) NUMERICAL RECONCILIATION BETWEEN AGGREGATE TAX EXPENSE RECOGNISED IN THE INCOME STATEMENT AND TAX EXPENSE CALCULATED PER THE STATUTORY INCOME TAX RATE

A reconciliation between tax expense and the product of accounting profi t before income tax multiplied by the Group’s applicable income tax rate

is as follows:


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Accounting profi t before tax from continuing operations 13,989 16,802 10,717 11,422

Profi t/(loss) before tax from discontinued operations (2,406) (3,990) – –

Accounting profi t before income tax 11,583 12,812 10,717 11,422

At statutory income tax rate of 30% (2006: 30%) 3,475 3,843 3,218 3,427

Depreciation not deductible 101 126 – –

Entertainment expenses 47 36 – –

Effect of higher rates of tax on overseas income (23) 21 – –

Rebateable dividends received – – (3,135) (5,160)

Settlement and release (816) – (816) –

Impairment – diminution of investment – – – 886

Other items (47) 111 763 83

Termination claims (111) – – –

Amounts under/(over) provided in prior years 14 48 (40) (26)

Unrecovered tax losses 572 1,197 – 848

Total income tax attributable to operating profi t 3,212 5,382 (10) 58

Income tax reported in the consolidated Income Statement 3,600 5,308 (10) 58

Income tax attributable to discontinued operations (388) 74 – –

3,212 5,382 (10) 58

36



(D) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES

Deferred income tax at 30 June relates to the following:

BALANCE SHEET INCOME STATEMENT

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

CONSOLIDATED

Deferred tax liabilities

Revaluation of land and buildings to fair value (7,560) (6,011) – –

(7,560) (6,011) – –

CONSOLIDATED

Deferred tax assets

Accelerated depreciation for book purposes 267 24 243 (6)

Software development expenses for book purposes 465 312 153 69

Accelerated amortisation of industrial designs for tax purposes (19) (19) – –

Unrealised foreign exchange gains 12 (38) 44 –

Income not assessable – – – 20

Provisions for employee benefi ts 1,564 1,204 160 121

Other provisions not deductible 595 461 (19) 168

Fair value adjustments relating to inventory 352 574 (284) (256)

Doubtful debts 81 118 (42) (75)

Accrual for rent free period 313 361 (48) (13)

Unearned income deferred to later years 90 151 (61) 151

Prepayments/other 89 42 45 1

Fair value adjustments on acquisition – 388 – –

Uplift to retail stock value 195 – 20 –

4,004 3,578 211 180

PARENT

Deferred tax assets

Other provisions not deductible 71 71 – (14)

Consolidation adjustment – – – 27

Prepayments/other – 1 – –

Uplift to retail stock value 195 – 20 –

Unrealised foreign exchange gains 11 – 11 –

277 72 31 13




TAX CONSOLIDATION

(i) Members of the tax consolidated group and the Tax Sharing Agreement

Gazal Corporation Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from

1 July 2003. Gazal Corporation Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing

arrangement in order to allocate income tax expense to the wholly owned subsidiaries, based on the formula as set out in the agreement. In

addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment

obligations. At the balance date, the possibility of default is remote.

(ii) Tax effect accounting by members of the tax consolidated group

Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of

current taxes to members of the tax consolidated group in accordance with the accounting period, while deferred taxes are allocated to members

of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are

made annually.

The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ inter-Company accounts

with the tax consolidated group head Company, Gazal Corporation Limited. Because under UIG 1052 Tax Consolidation Accounting the allocation

of current taxes to tax consolidated group members on the basis of accounting profi ts is not an acceptable method of allocation given the

group’s circumstances, the difference between the current tax amount that is allocated under the tax funding agreement and the amount that is

allocated under an acceptable method is recognised as a contribution/distribution of the subsidiaries’ equity accounts. The group has applied the

group allocation approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group.

6 DISCONTINUING OPERATIONSPrior to 30 June 2006, the Board of Directors announced a restructuring of its Mambo overseas businesses involving a change from Company

owned operations to a licensing model. The Company actively sought to fi nd a licensee who potentially could buy the operations in the United

Kingdom. These companies had been underperforming.

Sale of the UK retail business was concluded on 31 August 2006. The closure of the balance of the UK and Italian business has been completed

during the year ended 30 June 2007.

38


6 DISCONTINUING OPERATIONS continuedThe results of the discontinuing operations are presented below:

2007 2006

Note

Mambo

International

Europe

Limited$’000

Mambo

Italy

Srl$’000

Total$’000

Mambo

International

Europe

Limited$’000

Mambo

Italy

Srl$’000

Total$’000

Trading

Revenue 4,644 65 4,709 11,634 1,501 13,135

Other revenue 403 – 403 77 – 77

Cost of sales (3,534) (59) (3,593) (5,587) (775) (6,362)

Depreciation and amortisation (95) (5) (100) (341) (16) (357)

Provision for employee entitlements* (7) (1) (8) (302) (151) (453)

Bad and doubtful debts* – – – (297) (761) (1,058)

Operating lease rentals (561) (23) (584) (1,446) (47) (1,493)

Lease exit cost* – – – (226) (35) (261)

Other expenses (1,982) (1,091) (3,073) (5,441) (1,007) (6,448)

Finance cost (151) (9) (160) (168) (31) (199)

Impairment of plant and machinery* 13 – – – (126) (38) (164)

Loss recognised on the remeasurement to fair

value less cost to sell*

– – – (407) – (407)

Loss before tax from discontinuing operations (1,283) (1,123) (2,406) (2,630) (1,360) (3,990)

Tax expense 238 150 388 – (74) (74)

Loss for the year from discontinuing operations (1,045) (973) (2,018) (2,630) (1,434) (4,064)

* Included within the items marked * are costs relating to the restructure and sale of Mambo European assets, $2,066,000.

The assets held for sale of Mambo International Europe Limited at 30 June are as follows:

2007 2006

$’000 $’000

Assets

Property, plant and equipment (Note 12) – 298

Inventory – 678

Assets classifi ed as held for sale – 976



6 DISCONTINUING OPERATIONS continuedNet cash fl ows of the discontinuing operations are as follows:

2007 2006

Mambo

International

Europe

Limited$’000

Mambo

Italy

Srl$’000

Total$’000

Mambo

International

Europe

Limited$’000

Mambo

Italy

Srl$’000

Total$’000

Operating activities 2,574 (610) 1,964 (9) 52 43

Investing activities 310 – 310 (108) (142) (250)

Financing activities (2,961) – (2,961) (281) – (281)

Net cash infl ow/(outfl ow) (77) (610) (687) (398) (90) (488)

7 EARNINGS PER SHAREThe following refl ects the income and share data used in the calculations of basic and diluted earnings per share:

CONSOLIDATED

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Net profi t attributable to ordinary equity holders of the

parent from continuing operations

10,389 11,494

Profi t/(loss) attributable to ordinary equity holders of the

parent from discontinuing operations

(2,018) (4,064)

Earnings used in calculating basic and diluted earnings

per share

8,371 7,430

Number of

shares

Number of

shares

Weighted average number of ordinary shares used in

calculating basic earnings per share

60,670,264 61,290,941

Effect of dilutive securities

Share options 346,350 608,761

Adjusted weighted average number of ordinary shares

used in calculating basic earnings per share

61,016,614 61,899,702

To calculate earnings per share amounts for the discontinued operations, the weighted average number of ordinary shares for both basic

and diluted amounts is as per the table above. The following table provides the profi t fi gures used as the numerator:

CONSOLIDATED

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Profi t/(loss) attributable to ordinary equity holders of the

parent from discontinuing operations

– for basic earnings per share (2,018) (4,064)

– for diluted earnings per share (2,018) (4,064)

All potential ordinary shares, being options to acquire ordinary shares, are considered dilutive.

40


8 SEGMENT INFORMATION

GEOGRAPHIC SEGMENTS

The Directors believe the risks in the business are in the international development of the business and hence geography is the primary segment.

Transfer prices between business segments are set at an arms length basis in a manner similar to transactions with third parties. Segment revenue,

expenses and result include transfers between business segments. Those transfers are eliminated on consolidation.

SECONDARY SEGMENT

The company and economic entity operates predominately in the clothing industry, comprising various brands.

AUSTRALASIA EUROPE* ELIMINATIONS CONSOLIDATED

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Revenue

Sales to customers outside the

consolidated entity

250,405 215,807 4,709 12,270 – – 255,114 228,077

Other revenues from customers

outside the consolidated entity

6,327 3,491 403 77 – – 6,730 3,568

Intersegment revenues 231 128 – – (231) (128) – –

Total segment revenue 256,963 219,426 5,112 12,347 (231) (128) 261,844 231,645

Unallocated revenue – – – – – – – –

Total consolidated revenue 256,963 219,426 5,112 12,347 (231) (128) 261,844 231,645

Results

Segment result – EBIT 18,161 19,827 (2,246) (3,822) – – 15,915 16,005

Unallocated expenses – interest (4,331) (3,193)

Profi t from ordinary activities before

income tax expense

11,584 12,812

Income tax expense (3,213) (5,382)

Net profi t from ordinary activities

after income tax expense

8,371 7,430

Net profi t attributable to outside

equity interests

– –

Net profi t for the period attributable

to members

8,371 7,430

* This segment is classifi ed as discontinued operation on 30th June 2006.



8 SEGMENT INFORMATION continued

AUSTRALASIA EUROPE* ELIMINATIONS CONSOLIDATED

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Year ended

30 June

2007

$’000

Year ended

30 June

2006

$’000

Assets

Segment assets 166,206 153,845 405 4,424 (3,662) (3,149) 162,949 155,120

Unallocated assets 6,100 3,578

Total assets 169,049 158,698

Liabilities

Segment liabilities 31,001 23,892 946 3,229 (155) (323) 31,792 26,798

Unallocated liabilities 65,732 60,931

Total liabilities 97,524 87,729

Other segment information

Capital expenditure 9,593 5,429 – 194 – – 9,593 5,623

Depreciation and amortisation 5,268 3,907 100 357 – – 5,368 4,264

Non-cash expenses other than

depreciation and amortisation

1,985 2,363 558 2,343 – 2,543 4,706

Cash fl ow information

Net cash fl ow operating activities 8,706 23,554 1,964 43 – – 10,670 23,597

Net cash fl ow investing activities (9,482) (21,291) 310 (250) – – (9,172) (21,541)

Net cash fl ow fi nancing activities (1,231) (124) (2,961) (281) – – (4,192) (405)

* This segment is classifi ed as discontinued operation on 30 June 2006.

Transfer prices between business segments are set at an arm’s length basis in a manner similar to transactions with third parties.

Segment revenue, expenses and result include transfers between business segments. Those transfers are eliminated on consolidation.

SECONDARY SEGMENT

The Company and economic entity operate predominantly in the clothing industry, comprising various brands.

42


9 TRADE AND OTHER RECEIVABLES (CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Trade debtors (i) 22,090 20,523 – –

Provision for doubtful debts (517) (1,396) – –

21,573 19,127 – –

Related parties receivables

Wholly owned group (ii) – – 26,348 27,878

Associated entity (iii) 232 – – –

Provision for doubtful debts (125) – (2,828) (2,828)

Total current receivables 21,680 19,127 23,520 25,050

(i) Trade receivables are non-interest bearing and are predominantly on 30 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired.

(ii) Loans to wholly owned group entities repayable on demand.

(iii) Interest-bearing loan to associated entity repayable in October 2007.

10 INVENTORIES (CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Raw materials and stores, at cost 978 1,130 – –

Provision for inventory obsolescence (46) (137) – –

Raw materials and stores, net 932 993 – –

Work in progress, at cost 179 78 – –

Finished goods, at cost 40,961 41,265 – –

Provision for inventory obsolescence (962) (2,141) – –

Finished goods, net 39,999 39,124 – –

Stock in transit 4,589 5,227 – –

Total inventories 45,699 45,422 – –

11 OTHER ASSETS (CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Prepayments 2,280 2,167 – –

Other 959 596 42 51

Total other current assets 3,239 2,763 42 51



12 RECEIVABLES (NON-CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Related parties receivables (i)

Associated entity – 216 – –

Total other current assets – 216 – –

(i) Interest-bearing loan to associated entity repayable in October 2007.

13 PROPERTY, PLANT AND EQUIPMENT


Land and

building

$’000

Leasehold

improvement

$’000

Plant and

machinery

$’000

Total

$’000

Leasehold

improvement

$’000

Plant and

machinery

$’000

Total

$’000

Cost or fair value

Opening balance – 1 July 2006 32,354 7,001 29,195 68,550 19 14 33

Additions 240 1,841 5,913 7,994 3 14 17

Disposals – (982) (4,097) (5,079) – – –

Revaluation 4,828 – – 4,828 – – –

Others – currency translation difference – 2 12 14 – – –

Closing balance – 30 June 2007 37,422 7,862 31,023 76,307 22 28 50

Accumulated depreciation

Opening balance – 1 July 2006 – 3,883 20,028 23,911 – – –

Depreciation for the year 337 752 3,084 4,173 11 12 23

Impairment – retail stores* – 529 364 893 – – –

Disposals (809) (3,986) (4,795) – – –

Revaluation (337) – – (337) – – –

Others – currency translation difference – (3) 11 8 – – –

Closing balance – 30 June 2007 – 4,352 19,501 23,853 11 12 23

Net carrying amount as at 30 June 2007 37,422 3,510 11,522 52,454 11 16 27

Property, plant and equipment – at fair value 37,422 – – 37,422 – – –

Property, plant and equipment – at cost – 3,510 11,522 15,032 11 16 27

Total property, plant and equipment 37,422 3,510 11,522 52,454 11 16 27

* Impairment and provision for lease termination of retail stores.

All assets are secured by fi rst mortgages, deeds of charge and mortgage debentures.

44


13 PROPERTY, PLANT AND EQUIPMENT continued


Land and

building

$’000

Leasehold

improvement

$’000

Plant and

machinery

$’000

Total

$’000

Leasehold

improvement

$’000

Plant and

machinery

$’000

Total

$’000

Cost or fair value

Opening balance – 1 July 2005 25,827 5,678 25,783 57,288 – – –

Additions 838 1,191 3,395 5,424 19 14 33

Disposals – (145) (1,405) (1,550) – – –

Assets included in discontinued operation

held for sale (Note 5)

– – (298) (298) – – –

Revaluation 5,689 – – 5,689

Assets acquired on acquisition – 255 1,717 1,972 – – –

Others – currency translation difference – 22 3 25 – – –

Closing balance – 30 June 2006 32,354 7,001 29,195 68,550 19 14 33

Accumulated depreciation

Opening balance – 1 July 2005 824 3,297 16,942 21,063 – – –

Depreciation for the year 419 690 3,005 4,114 – – –

Disposals – (139) (993) (1,132) – – –

Impairment* – – 164 164 – – –

Revaluation (1,243) – – (1,243) – – –

Assets acquired on acquisition – 9 917 926 – – –

Others – currency translation difference – 26 (7) 19 – – –

Closing balance – 30 June 2006 – 3,883 20,028 23,911 – – –

Net carrying amount as at 30 June 2006 32,354 3,118 9,167 44,639 19 14 33

Property, plant and equipment – at fair value 32,354 – – 32,354 – – –

Property, plant and equipment – at cost – 3,118 9,167 12,285 19 14 33

Total property, plant and equipment 32,354 3,118 9,167 44,639 19 14 33

* This impairment loss relates to the assets attributable to discontinued operations.



13 PROPERTY, PLANT AND EQUIPMENT continued

REVALUATION OF LAND AND BUILDINGS

The Group engaged CB Richard Ellis, an accredited independent valuer, to advise the Directors on determining the fair value of its land and

buildings which the Directors have adopted. Fair value is determined directly by reference to market-based evidence, which is the amounts for

which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction

as at the valuation date. The effective date of the revaluation was 30 June 2007.

If land and buildings were measured using the cost model the carrying amounts would be as follows:


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Cost 13,545 13,305 – –

Accumulated depreciation (3,359) (3,022) – –

Net carrying amount 10,186 10,283 – –

14 INTANGIBLE ASSETS


Trademarks

$’000

Industrial

designs

$’000

Goodwill

$’000

Software

$’000

Total

$’000

Software

$’000

At 1 July 2005 15,232 815 9,447 – 25,494 –

Additions – – – 179 179 –

Disposal – – – – – –

Amortisation – (123) – (26) (149) –

Intangible acquired on acquisition – 26 8,945 60 9,031 –

Year ended 30 June 2006 15,232 718 18,392 213 34,555 –

At 1 July 2006 15,232 718 18,392 213 34,555 –

Additions – – 196 1,491 1,687 6

Disposal – – – (48) (48) –

Amortisation – (123) – (179) (302) (2)

Intangible acquired on acquisition – – (465) – (465) –

Year ended 30 June 2007 15,232 595 18,123 1,477 35,427 4

46


14 INTANGIBLE ASSETS continued

(I) TRADEMARKS

Trademark values are assessed at brand level within each cash-generating unit (“CGU”). The useful lives of trademarks are estimated as

indefi nite and the relief from royalty method is utilised for the measurement of fair value when recognised on acquisition. The trademarks are

determined to have indefi nite life when it is the Company’s intention to support, maintain and enhance the market perception of the trademarks.

The methodology is based on an estimate of arm’s length royalty of between 3% and 6% (2006: 3% to 6%) which would be payable to a third party

licensor on sales of trademark branded product. Estimated royalty values (less brand maintenance expenses) are discounted to arrive at a Net

Present Value (“NPV”) of the royalty income attributable to the trademark. The trademark is deemed not to be impaired if the resulting fair value

calculation described above is greater than the carrying value of the trademark. Sales projections refl ect budget for the ensuing year and further

growth between 2.5% and 4% p.a. (2006: 2.5% to 4%) for subsequent three years plus terminal value. The discount rate of 10.7% (2006: 10.5%)

used in the NPV calculations approximates the Company’s actual pre tax weighted average cost of capital for the year in review.

The useful life of industrial designs is estimated as being 16 years from the date of recognition at fair value on acquisition. The royalty method

is utilised for its measurement and the asset is being amortised over its estimated useful life.

(II) GOODWILL

Goodwill is measured for each CGU by calculating its enterprise value being the NPV of future free cash fl ows and deducting from this value the

net tangible assets and identifi able intangible assets such as trademarks and industrial designs used by the CGU. A CGU for Gazal consists of

like style product groupings and risk is deemed to be constant across all groupings. Goodwill which has been purchased as a part of a business

combination is regarded as having an indefi nite life. Value in use of goodwill is tested at least annually for impairment, and always at the end

of fi nancial year to ensure that assets are carried at a recoverable value. No impairment loss was charged for continuing operations in the

2007 fi nancial year. The discount rate of 10.7% (2006: 10.5%) used in goodwill calculations approximates the Company’s actual pre tax weighted

average cost of capital for the year in review. Valuations have assumed budget sales growth in the ensuing year and further growth of between

2.5% and 4% (2006: 2.5% to 4%) for the subsequent three years plus terminal value.

(III) SOFTWARE

All software is capitalised and written off over the estimated useful life which presently ranges from 2.5 to fi ve years.

Carrying amounts attributed to trademarks and goodwill are as follows:

2007 CONSOLIDATED 2006 CONSOLIDATED

Trademarks

$’000

Goodwill

$’000

Trademarks

$’000

Goodwill

$’000

Youth 7,559 – 7,559 –

Outerwear 115 7,092 115 7,536

Intimates 7,558 8,709 7,558 8,534

Retail – 2,322 – 2322

Total trademarks and goodwill 15,232 18,123 15,232 18,392



15 INVESTMENT IN SUBSIDIARIES (NON-CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Shares in controlled entities – unlisted

At cost – – 66,943 66,943

Provision for diminution in investment – – (27,626) (27,626)

Total other non-current fi nancial assets – – 39,317 39,317

16 OTHER ASSETS (NON-CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Procurement fee 2,060 2,441 – –

Total other non-current assets 2,060 2,441 – –

17 TRADE AND OTHER PAYABLES (CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Trade payables(i) 15,014 10,002 – –

Other payables(ii) 9,554 9,670 244 239

Goods and services tax 856 992 – –

Total current payables 25,424 20,664 244 239

(i) Trade payables are non-interest bearing and are normally settled between 0–60 day terms.

(ii) Other payables are non-interest bearing and are normally settled between 0–90 day terms.

18 INTEREST-BEARING LOANS AND BORROWINGS (CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Bank overdrafts – secured (Refer Note 20(a)) 585 – – –

Bank loans – secured (Refer Note 20(a)) 17,500 26,461 – –

Total current borrowings 18,085 26,461 – –

48


19 PROVISIONS (CURRENT)

CONSOLIDATED PARENT

Provision

for annual

leave

$’000

Provision for

long service

leave

$’000

Onerous

lease

contracts

$’000

Other

provisions

$’000

Total

$’000

Provision

for

dividend

$’000

At 1 July 2006 3,365 1,584 261 407 5,617 –

Arising during the year 2,402 281 – 50 2,733 –

Utilised (2,655) (264) (261) (236) (3,416) –

Discount rate adjustment – (67) – – (67) –

At 30 June 2007 3,112 1,534 – 221 4,867 –

Long service leave – Refer to Note 2 and Note 3 respectively for the relevant accounting policy and a discussion of the signifi cant estimations

and assumptions applied in the measurement of this provision.

Onerous lease contracts provision and other provisions both relate to the discontinued UK operation.

20 INTEREST-BEARING LOANS AND BORROWINGS (NON-CURRENT)


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Bank loans – secured(a) 40,000 27,000 – –

Total non-current borrowings 40,000 27,000 – –

(a) The bank overdrafts $585,000 (2006: Nil) and loans $57,500,000 (2006: $53,461,000) are secured by a fi rst mortgage over freehold land and buildings and by deeds of charge, and mortgage debentures

over all assets of the economic entity with total assets pledged as security totalling $122,185,000 (2006: $113,713,000). Refer Note 28(c). Bank loans have been classifi ed as non-current and current

liabilities. The non-current portion is that amount, which will be utilised and fully drawn over the coming 13 months and is non-current on the basis that the loan facilities with our bankers do not expire

until 31 December 2008. The current portion is the portion which will be repaid over the next 12 months as indicated in Note 18. The bank facility may be extended for a further two years from the date

of each annual review. The bank reserves the right to withdraw the facilities if in the opinion of the bank there has been a breach or event of default and certain fi nancial ratios are not maintained to the

satisfaction of the bank.

The interest rates on fl oating rate borrowings at year-end ranged from 6.9% to 10.7% (2006: 5.6% to 9.6%), fi xed rate borrowings are at 7.0% (2006: 5.95%). Borrowings at 30 June 2007 were in

Australian dollars only.

21 PROVISIONS (NON-CURRENT)

CONSOLIDATED PARENT

Provision for

long service

leave

$’000

Provision for

long service

leave

$’000

At 1 July 2006 438 –

Arising during the year 203 –

Utilised – –

Discount rate adjustment (78) –

At 30 June 2007 563 –

Long service leave– Refer to Note 2 and Note 3 respectively for the relevant accounting policy and a discussion of the signifi cant estimations

and assumptions applied in the measurement of this provision.

a)

b)

a)



22 CONTRIBUTED EQUITY


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Ordinary shares

Issued and fully paid 69,816 72,257 69,816 72,257

The Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the parent does not have

authorised capital nor par value in respect of its issued shares.

Movements in contributed equity for the year


Number

‘000

Value

$’000

Number

’000

Value

$’000

Opening balance at 1 July 2005 61,232 71,037 61,232 71,037

Employee options converted to ordinary shares 78 165 78 165

Shares issued pursuant to the Dividend Reinvestment Plan 365 1,055 365 1,055

Closing balance at 30 June 2006 61,675 72,257 61,675 72,257

Opening balance 1 July 2006 61,675 72,257 61,675 72,257

Employee options converted to ordinary shares 190 346 190 346

Share buy-back (1,189) (2,787) (1,189) (2,787)

Closing balance at 30 June 2007 60,676 69,816 60,676 69,816

ORDINARY SHARES

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from

the sale of all surplus assets in proportion to the number of and amounts paid up on shares.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

SHARE-BASED PAYMENT PLANS

In November 2005 the Company established the Gazal Group Employee Share Option Plan. The exercise price of options under this option plan

is equal to a formula based on the market price of the shares sold on the ASX on the fi ve preceding days to the grant date, however, options only

vest if and when the Group’s average annual net profi t before tax and material items refl ects a growth rate of at least 6% over three consecutive

fi nancial years from the base year. If this increase is not met from the date of grant, the options may be re-assessed by the Board.

The Company has also issued options to a consultant Mr B. Klatsky on similar terms and conditions to the Gazal Group Employee Share Option

Plan in consideration of consulting advice provided as mentioned at the 2006 Annual General Meeting. The expenses in the 2007 year amounted

to $99,723.

The contractual life of each option is fi ve years. The expense recognised in the Income Statement in relation to share-based payments is

disclosed in Note 3.

50


22 CONTRIBUTED EQUITY continuedThe following table illustrates the number and exercise prices of and movements in share options during the year:

Date granted

Exercise

price

On issue

30 June

2006

Issued

during the

year (g)(h)

Converted

to fully paid

shares (e) Forfeited

On issue

30 June

2007 (f) Exercise period

30 Nov 2001 2.11 583,400 – (164,000) (419,400) – 30 Nov 2003 to 29 Nov 2006*

27 Feb 2004 (a) 2.60 150,000 – – – 150,000 27 Feb 2006 to 26 Feb 2009*

28 July 2005 (b) 2.94 50,000 – – (50,000) – 28 July 2007 to 27 July 2010*

19 Dec 2005 (c) 3.05 1,910,000 – – (130,000) 1,780,000 19 Dec 2008 to 18 Dec 2010*

3 July 2006 (c) 2.35 – 560,000 – (60,000) 500,000 3 July 2009 to 2 July 2011*

3 July 2006 (c)(d) 2.35 – 500,000 – – 500,000 3 July 2009 to 2 July 2011*

4 Dec 2006 (c) 2.32 – 650,000 – – 650,000 4 Dec 2009 to 3 Dec 2011*

4 Dec 2006 (c)(d) 2.32 – 500,000 – – 500,000 4 Dec 2009 to 3 Dec 2011*

Total 2,693,400 2,210,000 (164,000) (659,400) 4,080,000

* Expiry date.

(a) The 27 February 2004 options remaining on issue at 30 June 2006 were all exercisable at the end of the year.

(b) The 28 July 2005 options have lapsed since balance date as the employee has left the Group’s service.

(c) All options granted since 19 December 2005 with exercise prices as indicated in the table are only exercisable upon meeting the above conditions and until the relevant expiry date.

(d) These options were granted to Mr B. Klatsky on similar terms as the Employee Options.

(e) The weighted average share price for options exercised during the year is $2.39 (2006: $2.95).

(f) The weighted average remaining contractual life for the share options outstanding at 30 June 2007 is between 20 months and 4½ years (2006: 5 months and 4½ years).

(g) The weighted average fair value of options granted during the year was $2.33 (2006: $3.05).

(h) The fair value of the equity-settled share options granted under the option plans is estimated as at the date of grant using a binomial model taking into account the terms and conditions

upon which the options were granted.

The following table lists the inputs to the model used for the years ended 30 June 2007 and 30 June 2006:

4 Dec 2006 3 July 2006 19 Dec 2005 28 July 2005

Dividend yield (%) 6.09 6.90 5.25 5.44

Expected volatility (%) 27.18 25.72 5.54 27.47

Risk-free interest rate (%) 6.12 5.77 5.27 5.14

Expected life of options (years) 4 4 4 3

Option exercise price ($) 2.32 2.35 3.05 2.94

Weighted average share price at grant date ($) 2.32 2.35 3.05 2.94

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected

volatility refl ects the assumption that the historical volatility is indicative of future trends which may also not necessarily be the actual outcome.

The fair value of the cash-settled options is measured at the grant date using a binomial option pricing model taking into account the terms and

conditions upon which the instruments were granted.



23 RESERVES


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Assets revaluation 20,335 16,719 – –

Asset realisation 562 562 – –

Employee equity benefi t 794 321 794 321

Hedge (920) – – –

Foreign currency translation (355) (405) – –

Total reserves 20,416 17,197 794 321

Transfer to or from reserves:

(a) Asset revaluation reserve

Opening balance 16,719 11,867 – –

Revaluation of land and building 3,616 4,852 – –

Closing balance 20,335 16,719 – –

(b) Employee equity benefi ts reserve

Opening balance 321 55 321 55

Recognition of share-based payment cost 473 266 473 266

Closing balance 794 321 794 321

(c) Foreign currency translation reserve

Opening balance (405) (475) – –

Net exchange difference on translation of overseas controlled

entities

50 70 – –

Closing balance (355) (405) – –

(d) Cash fl ow hedge reserve

Opening balance – – – –

Net gains/(loss) on cash fl ow hedge (920) – – –

Closing balance (920) – – –

NATURE AND PURPOSE OF RESERVES

Asset revaluation reserve

The asset revaluation reserve is used to record increments and decrements in the fair value of land and buildings to the extent that they offset

one another. The reserve can only be used to pay dividends in limited circumstances.

Asset realisation reserve

This reserve is used to record realised increases in the fair value of non-current assets which have been sold.

Employee equity benefi ts reserve

This reserve is used to record the value of share-based payments provided to employees, including key management personnel, as part of their

remuneration. Refer to Note 22 for further details of these plans.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the fi nancial statements

of foreign subsidiaries.

Cash fl ow hedge reserve

This reserve records the portion of the gain or loss on a hedging instrument in a cash fl ow hedge that is determined to be an effective hedge.

52


24 RETAINED PROFITS AND DIVIDENDS


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Accumulated losses

(a) Movement in retained profi ts

Balance at the beginning of the fi nancial year (18,485) (16,049) (8,372) (9,870)

Net profi t attributable to members – continuing 10,389 11,494 10,727 11,364

Net profi t attributable to members – discontinued (2,018) (4,064) – –

Dividends provided for or paid (8,593) (9,866) (8,593) (9,866)

Balance at the end of the fi nancial year (18,707) (18,485) (6,238) (8,372)

(b) Dividends paid during the fi nancial year

Interim franked dividend 7 cents (2006: 7 cents) paid

5 April 2007

4,270 4,316 4,270 4,316

Prior year fi nal franked dividend 7 cents (2006: 7 cents) paid

6 October 2006

4,323 5,550 4,323 5,550

Special fully franked dividend 10 cents paid 15 July 2005

– declared and provided for 30 June 2005

– 6,124 – 6,124

(c) Dividends proposed but not recognised as a liability

Final fully franked dividend 7 cents (2006: 7 cents) paid

5 October 2007

4,247 4,323 4,247 4,323

Franking credit balance

Franking credits available for the subsequent fi nancial year are:

Balance at the end of the fi nancial year at 30% (2006: 30%) 13,822 11,263 13,822 11,263

Franking debit amount from the payment of dividends as at the

end of the fi nancial year

– – – –

Franking credits that will arise from the payment of income tax

payable as at the end of the fi nancial year

(1,417) 1,674 (1,417) 1,674

12,405 12,937 12,405 12,937



25 COMMITMENTS


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Capital expenditure contracted for is payable as follows:

Not later than one year 268 883 – –

Operating lease expenditure contracted for is payable

as follows:

Not later than one year 10,351 8,644 – –

Later than one year but not later than fi ve years 26,012 20,685 – –

Later than fi ve years 4,521 3,782 – –

40,884 33,111 – –

Operating leases have an average lease term of fi ve years (2006: fi ve years) and an average implicit interest rate of 6% (2006: 6%). Assets that are

the subject of operating leases are rental properties.

26 CONTINGENT LIABILITIES


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

At 30 June utilised bank facilities totalled* 58,085 53,461 58,085 53,461

* The parent entity in conjunction with other related corporations has given intercompany guarantees in respect of certain bank facilities of related corporations.

The parent has given guarantees in relation to a number of controlled entities’ retail shops. These guarantees approximate fair value.

As explained in Note 31, the parent entity has entered into a Deed of Cross Guarantee in accordance with a class order issued by the Australian

Securities and Investments Commission. The parent entity, and all the controlled entities which are a party to the Deed, have guaranteed the

payment of all current and future creditors in the event any of these companies are wound up.

54


27 CASH AND CASH EQUIVALENTS (CURRENT)

(A) RECONCILIATION OF CASH

For the purpose of the Statement of Cash Flows, cash includes cash on hand and in banks and short term deposits at call, net of outstanding

bank overdrafts. Cash at the end of fi nancial year as shown in the Balance Sheet is as follows:


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Cash at bank 2,352 4,525 32 –

Bank overdraft (585) – – –

1,767 4,525 32 –

(B) RECONCILIATION OF NET CASH PROVIDED FROM OPERATING ACTIVITIES TO OPERATING PROFIT AFTER INCOME TAX


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Operating profi t after income tax 8,371 7,430 10,727 11,364

Adjustments for non-cash income and expenses items:

Depreciation and amortisation expense 5,368 4,264 16 –

Other (2,734) 241 (197) 6,047

Loss on sale of property, plant and equipment 195 167 – –

Changes in assets and liabilities

(Increase)/decrease in trade debtors (2,321) 891 – –

(Increase)/decrease in inventory 401 4,771 – –

(Increase)/decrease in other assets 5 (40) 9 (51)

(Increase)/decrease in prepaid expenses 318 1,194 – –

Increase/(decrease) in trade creditors 5,012 587 – –

Increase/(decrease) in other creditors 159 93 5 (46)

Increase/(decrease) in income tax payable (3,500) 1,011 (1,475) 172

Increase/(decrease) in deferred income tax (426) 1,901 (205) (13)

Increase/(decrease) in employee entitlements provisions (178) 1,087 – –

10,670 23,597 8,880 17,473



28 FINANCING FACILITIES AVAILABLE

(A) TERMS AND CONDITIONS

Bank overdrafts

The bank overdrafts are secured by a fi xed and fl oating charge over all of the Group’s assets. The bank overdraft facilities may be withdrawn

at any time and may be terminated by the bank if in the opinion of the bank there has been a breach or event of default and certain fi nancial

ratios are not maintained to the satisfaction of the bank.

Secured bank loan

The facility is secured by a fi rst charge over certain of the Group’s land and buildings and a fi xed and fl oating charge over the Group’s plant

and machinery.

(B) FINANCING FACILITIES AVAILABLE

At reporting date, the following fi nancing facilities have been negotiated and were available:


Accessible

$’000

Drawdown

$’000

Unused

$’000

Accessible

$’000

Drawdown

$’000

Unused

$’000

At 30 June 2007

Bank overdraft facility (a) 3,000 (585) 2,415 – – –

Bank loan facilities (a) 76,000 (57,500) 18,500 – – –

Total fi nancing facilities 79,000 (58,085) 20,915 – – –

At 30 June 2006

Bank overdraft facility (a) 3,247 – 3,247 – – –

Bank loan facilities (a) 63,935 (53,461) 10,474 – – –

Total fi nancing facilities 67,182 (53,461) 13,721 – – –

All of the economic entity’s facilities are subject to annual review and subject to the conditions referred to Note 20(a).

(C) ASSETS PLEDGED AS SECURITY

The carrying amounts of assets pledged as security for current and non-current interest-bearing liabilities are:


Notes

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Current

Floating charge

Cash at bank 27(a) 2,352 4,525 32 –

Receivables 9 21,680 19,127 32 –

Inventories 10 45,699 45,422 64 –

Total current assets pledged as security 69,731 69,074 64 –

Non-current

First mortgage

Freehold land and buildings 13 37,422 32,354 – –

Floating charge

Leasehold Improvements 13 3,510 3,118 – –

Plant and machinery 13 11,522 9,167 16 –

Total non-current assets pledged as security 52,454 44,639 16 –

Total assets pledged as security 122,185 113,713 80 –

56


29 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe economic entity operates in several countries and is reliant on external debt fi nance. These operations give rise to signifi cant exposure

to market risks due to changes in interest rates and foreign exchange rates. Derivative fi nancial instruments are used by the economic

entity to reduce these risks, as explained in this note. The economic entity does not hold or issue fi nancial instruments for speculative

or trading purposes.

NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES

The notional amounts of derivatives, as summarised below, represent the contract or face values of these derivatives and do not represent

amounts exchanged by the parties. The amounts to be exchanged are calculated on the basis of the notional amounts and other terms of the

derivatives, which relate to interest rates or exchange rates.

(a) Interest rate risk management

The economic entity raises short and long term debt at both fi xed and fl oating rates. In order to minimise risk, interest rate swaps are used to

convert fl oating rate debt to fi xed rates when this results in a fi xed rate lower than that available if fi xed-rate debt was raised directly. Under the

swaps, the economic entity agrees with other parties to exchange, at specifi ed intervals, the difference between the fi xed-rate and fl oating-rate

interest amounts calculated by reference to the agreed notional principal amounts.

The economic entity is exposed to interest rate risk through primary fi nancial assets and liabilities, modifi ed by interest rate swaps. Interest rate

swap contracts – which is limited to the net fair value of the swap agreement at reporting date being $19,455 (2006: $50,497). The table included

in Note 30 summarises interest rate risk for the economic entity, together with effective interest rates at balance date.

The parent entity is not exposed to interest rate risk as it does not have any interest-bearing liabilities.

(b) Credit risk

The economic entity’s exposures to credit risk at reporting date are as indicated by the carrying amounts of its fi nancial assets. Concentrations

of credit risk (whether on or off Balance Sheet) that arise from derivative instruments exist for groups of counterparties when they have similar

economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other

conditions. The economic entity does not have a signifi cant exposure to any individual counterparty.

The Group trades only with recognised, creditworthy third parties.

It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verifi cation procedures. In addition, receivable

balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not signifi cant.

There are no signifi cant concentrations of credit risk within the Group.

(c) Hedging instruments

With respect to the use of derivative fi nancial instruments, it is Company policy that fi nancial derivatives are only used as a defensive mechanism to

cover real fi nancial and trading risks associated with the Company’s business. Key procedures to provide effective control for fi nancial derivatives

include separation of duties between deal making/accounting functions, and setting authority limits and approving confi rmation of dealings.



30 FINANCIAL INSTRUMENTS

FAIR VALUE

Set out below is comparison by category of carrying amounts and fair values of all the Group’s fi nancial instruments recognised in the fi nancial

statements, including those classifi ed under discontinuing operations.

The fair value of derivatives and borrowings has been calculated by discounting the expected future cash fl ows at prevailing interest rates.

The fair values of loan notes and other fi nancial assets have been calculated using market interest rates.

There is no signifi cant difference between the carrying amounts and estimated net fair values of fi nancial assets and fi nancial liabilities

(including derivatives) held at balance date. Net fair value are assessed as follows:

Cash and cash equivalents: The carrying amount approximates their fair value because of the short term to maturity.

Trade debtors and payables: The carrying amount approximates their fair value.

Loans: The carrying amount approximates their fair value.

CARRYING AMOUNT FAIR VALUE

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

CONSOLIDATED

Financial assets and derivatives

Cash 2,352 4,525 2,352 4,525

Trade receivables 21,573 19,127 21,573 19,127

Forward currency contracts 38 456 38 456

Loan receivable 107 216 107 216

24,070 24,324 24,070 24,324

Financial liabilities and derivatives

Bank overdraft (585) – (585) –

Trade payables (25,424) (20,664) (25,424) (20,664)

Interest free loan (87) (55) (87) (55)

Interest-bearing loans and borrowings

Floating rate borrowings (52,500) (48,461) (52,500) (48,461)

Fixed rate borrowings (5,000) (5,000) (5,000) (5,000)

Forward currency contracts (938) (79) (938) (79)

(84,534) (74,259) (84,534) (74,259)

Included in the above are interest rate swaps – refer to Note 30(e).

PARENT

Financial assets and derivatives

Trade receivables 23,520 25,050 23,520 25,050

Other fi nancial assets (non-current) 39,317 39,317 39,317 39,317

62,837 64,367 62,837 64,367

Financial liabilities and derivatives

Trade payables (244) (239) (244) (239)

(244) (239) (244) (239)

58


30 FINANCIAL INSTRUMENTS continued

INTEREST RATE RISK

The following table sets out the carrying amount, by maturity, of the fi nancial instruments exposed to interest rate risk:

Year ended 30 June 2007

<1 year

$’000

>1 <2 years

$’000

>2 <3 years

$’000

Total

$’000

Weighted

average effective

interest rate

$’000

CONSOLIDATED

Financial assets

Fixed rate

Loan receivable 232 – – 232 7.5%

Weighted average effective interest rate 7.5%

Floating rate

Cash assets 2,352 – – 2,352 3.5%


Financial liabilities

Fixed rate

Bank loan (5,000) – – (5,000) 5.5%


Floating rate

Bank overdraft (585) – – (585) 10.1%

Bank loan (12,500) (40,000) – (52,500) 7.0%

Weighted average effective interest rate 7.1% 7.0%

Year ended 30 June 2006

CONSOLIDATED

Financial assets

Fixed rate

Loan receivable – 216 – 216 7.5%


Floating rate

Cash assets 4,525 – – 4,525 4.1%


Financial liabilities

Fixed rate

Bank loan – (5,000) – (5,000) 5.5%


Floating rate

Bank loan (26,461) (22,000) – (48,461) 6.5%

Weighted average effective interest rate 6.5% 6.5%

Interest on fi nancial instruments classifi ed as fl oating rate is repriced at intervals of less than one year. Interest on fi nancial instruments

classifi ed as fi xed rate is fi xed until maturity of the instrument. The other fi nancial instruments of the Group and parent that are not in the above

tables are non-interest-bearing and are therefore not subject to interest rate risk.



30 FINANCIAL INSTRUMENTS continued

HEDGING ACTIVITIES

(a) Foreign exchange contracts

Gazal has entered into foreign exchange contracts to buy foreign currency to offset inventory purchase obligations and to protect against

exchange rate movements. These contracts are hedging highly probable forecasted purchases and they are timed to mature when payments

are scheduled to be made.

As these are designated effective hedges, an adjustment of $900,000 has been made to the hedge reserve while no adjustment (2006: $377,000)

has been included in the net profi t for the year relating to the forward exchange contracts. This comprises an asset of $38,000 (2006: $456,000)

and a liability of $938,000 (2006: $79,000).

(b) Interest rates

At 30 June 2007, the Group had an interest rate swap agreement in place with a notional amount of $5,000,000 whereby Gazal receives a fi xed

rate of interest of 5.47% and pays a variable rate equal to the BBSY on the notional amount.

The swap is being used to hedge the exposure to changes in interest payable on working capital requirements.

(c) Hedge of net investments in foreign operations

No loan of this type existed at 30 June 2007. Included in other loans at 30 June 2006, was a borrowing of GBP1,200,000 (A$2,960,770), which had

been designated as a hedge of the net investments in the subsidiary, and used to hedge the Group’s exposure to foreign exchange risk on these

investments.

Gains or losses on the translation of this borrowing are transferred to equity to offset any gains or losses on translation of the net investment

in the subsidiary.

(d) Equity investment

The Company holds an equity investment in an unlisted associated company which has been written down to nil value for book purposes.

The Company estimates the value of this investment as zero.

(e) Cash fl ow hedges

Year ended 30 June 2007 Amount Expiry date Rate

Forward exchange contracts – buy (US$’000) US$13,549 12.07.07–29.11.07 0.7752–0.8420

Forward exchange contracts – buy (HK$’000) HK$19,331 05.07.07–28.11.07 6.0255–6.4828

Amount Maturity Interest rate

Interest rate swaps A$5,000 02.12.07 5.47%

Year ended 30 June 2006 Amount Maturity Interest rate

Interest rate swaps A$5,000 02.12.07 5.47%

The forward exchange contracts are considered to be fully effective hedges as they are matched exactly against inventory purchases and any gain

or loss on the contracts is taken directly to equity. When the inventory is delivered the amount recognised in equity is adjusted to the inventory

account in the Balance Sheet.

60


30 FINANCIAL INSTRUMENTS continued(f) Held for trading

Year ended 30 June 2007 Amount Expiry Date Rate

Forward exchange contracts – buy (US$’000) – – –

Year ended 30 June 2006 Amount Expiry Date Rate

Currency options – buy (US$’000) US$600 29.08.06–29.01.07 0.7600

US$500 08.08.06–07.09.06 0.7425

Currency options – sell (US$’000) US$600 29.08.06–29.01.07 0.7600

US$1,000 08.08.06–07.09.06 0.7633

Forward exchange contracts – buy (US$’000) US$18,313 03.07.06–31.01.07 0.7297–0.7710

Forward exchange contracts – buy (HK$’000) HK$36,124 05.07.06–06.09.06 5.6215– 5.9409

31 RELATED PARTY DISCLOSURESThe consolidated fi nancial statements as at 30 June 2007 include the fi nancial statements of Gazal Corporation Limited and the subsidiaries

listed in the table below.

Name of controlled entity Notes

Country of

incorporation

Equity interest

2007 2006

Gazal Corporation Limited Australia – –

Gazal Apparel Pty Limited (a) Australia 100 100

Fashion Factory Outlets (Trade Secret) Pty Limited (a) Australia 100 100

Gazal Clothing Company Pty Limited (a) Australia 100 100

Manline Clothing Company Pty Limited (a) Australia 100 100

Mambo Graphics Pty Limited (a) Australia 100 100

Mambo Street Pty Limited (a) Australia 100 100

Ultimate Factory Outlets (UFO) Pty Limited (a) Australia 100 100

Body Art Australia Pty Limited (a) Australia 100 100

Brands United Pty Limited (a) Australia 100 100

Bracks Apparel Pty Limited (b) Australia 100 100

Coronet Corporate Pty Limited (b) Australia 100 100

Mambo International (Europe) Limited (In Liquidation) United Kingdom 100 100

Mambo Italy Srl Italy 100 100

Gazal (NZ) Limited New Zealand 100 100

Bracks (NZ) Limited New Zealand 100 100

Gazal Hong Kong Limited Hong Kong 100 100

The Lovable Company (Aust) Pty Limited (a) Australia 100 100

Gross Industries Pty Limited (b) Australia 100 100

Klippel Brothers Pty Limited (a) Australia 100 100

Gazal Productions Pty Limited (a) Australia 100 100

Crystal International Pty Limited (a) Australia 100 100

New Story Pty Limited (b) Australia 100 100



31 RELATED PARTY DISCLOSURES continuedThese companies have entered into a deed of cross guarantee dated 26 March 1993 with Gazal Corporation Limited which provides that

all parties to the deed will guarantee to each creditor payment of any debt of each company participating in the deed on winding-up of

that company. In addition, as a result of the Class Order 98/1418 issued by the Australian Securities and Investments Commission these

companies are relieved from the requirement to prepare fi nancial statements.

The consolidated Balance Sheet and Income Statement of all entities included in the class order “closed group”

are set out at footnote (c).

These companies meet the defi nition of small proprietary companies. As a result these companies are relieved from the requirement

to prepare fi nancial statements.

Financial information for class order closed group.

Gazal Corporation Limited Closed Group Balance Sheet at 30 June 2007

CONSOLIDATED

As at

30 June 2007

$’000

As at

30 June 2006

$’000

Current assets

Cash and cash equivalents 2,122 2,934

Trade and other receivables 22,388 19,739

Inventories 44,783 43,976

Derivative fi nancial instruments 38 456

Tax assets 1,711 –

Other current assets 3,055 1,852

Total current assets 74,097 68,957

Non-current assets

Receivables – 216

Investment 7,331 7,331

Property, plant and equipment 51,832 43,679

Intangibles 29,379 28,167

Deferred tax assets 3,804 3,230

Other 2,060 2,441

Total non-current assets 94,406 85,064

Total assets 168,503 154,021

a)

b)

c)

62


31 RELATED PARTY DISCLOSURES continuedGazal Corporation Limited Closed Group Balance Sheet at 30 June 2007 continued

CONSOLIDATED

As at

30 June 2007

$’000

As at

30 June 2006

$’000

Current liabilities

Trade and other payables 24,392 17,465

Derivative fi nancial instruments 938 79

Interest-bearing loans and borrowings 17,937 23,500

Income tax payable – 1,486

Provisions 4,343 4,131

Total current liabilities 47,610 46,661

Non-current liabilities

Interest-bearing liabilities 40,000 27,000

Provisions 516 438

Deferred tax liabilities 7,560 6,011

Total non-current liabilities 48,076 33,449

Total liabilities 95,686 80,110

Net assets 72,817 73,911

Equity

Contributed equity 69,816 72,257

Reserves 19,217 17,660

Retained earnings (16,216) (16,006)

Total equity 72,817 73,911



31 RELATED PARTY DISCLOSURES continued

Gazal Corporation Limited Closed Group Income Statement for the year ended 30 June 2007

CONSOLIDATED

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Sales revenue 243,181 209,832

Cost of sales (126,475) (103,905)

Gross profi t 116,706 105,927

Other revenues 7,750 3,490

Selling and marketing expenses (72,398) (64,187)

Distribution expenses (17,300) (14,612)

Administration expenses (18,370) (11,936)

Impairment and provision for lease termination of retail stores (1,170) –

Finance costs (4,167) (3,025)

Profi t before income tax expense 11,051 15,657

Income tax expense (2,668) (4,673)

Net profi t after related income tax expense 8,383 10,984

Retained profi ts at the beginning (16,006) (17,123)

Dividends paid (8,593) (9,867)

Retained profi ts at the ending (16,216) (16,006)

TRANSACTIONS WITH RELATED PARTIES IN THE WHOLLY OWNED GROUP

The following table provides the total amount of transactions that were entered into with related parties for the relevant fi nancial year:


Transaction type Class of related party

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Loans to other related parties

Loan advanced Controlled entities – – 11,864 17,633

Loan advanced* Associated entity 232 216 – –

Loans from other related parties

Loan received from Controlled entities – – 14,472 15,764

Other transactions

Management charges received Controlled entities – – 800 800

* Mambo Graphics Pty Limited has a 20% investment in Icon Screenprinting Pty Limited. This investment has been fully written down.

Gazal Corporation Limited is the ultimate parent.

The Matilda Malouf Trust ultimately owns 50.4% of the ordinary shares in Gazal Corporation Limited.

All transactions with other related parties are conducted on normal commercial terms and conditions.

64


32 SIGNIFICANT EVENTS AFTER BALANCE DATEThere are no matters or circumstances that have arisen since 30 June 2007 that have signifi cantly affected or may signifi cantly affect the

operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent fi nancial years.

33 REMUNERATION OF AUDITOR

As at

30 June 2007

$

As at

30 June 2006

$

Auditor and review services

Australia

Ernst & Young – audit 146,250 140,000

Royalty, workers compensation and turnover audits 19,715 12,544

Acquisition due diligence – 119,814

Other services

– Taxation 120,479 96,724

– Other services 3,000 26,750

Affi liate fi rms of Ernst & Young

Audit – UK 12,285 41,607

Taxation – UK – 16,642

Other services – 15,216

Total fees paid to Ernst & Young 301,729 469,297

34 DIRECTOR AND EXECUTIVE DISCLOSURES

(A) DETAILS OF KEY MANAGEMENT PERSONNEL

(i) Directors

J.W. Blood Chairman (Non-Executive)

M.J. Gazal Director and Chief Executive Offi cer

D.J. Gazal Executive Director and General Manager – Youth Group

C. Kimberley Director (Non-Executive)

G. Paton Director (Non-Executive) – appointed 1 August 2006

(ii) Executives

C. Barnett Chief Operating Offi cer

P. Lovegrove General Manager – Intimate Apparel

D. Thompson General Manager – Outerwear Apparel

R. Gazal General Manager – Retail

P. Queeney General Manager – Supply Chain and IT

D. Coghlan Chief Financial Offi cer

P. Wood Company Secretary



34 DIRECTOR AND EXECUTIVE DISCLOSURES continued

(B) REMUNERATION OF KEY MANAGEMENT PERSONNEL

(i) Remuneration policy

The Remuneration and Nomination Committee of the Board of Directors of Gazal Corporation Limited is responsible for determining and

reviewing compensation arrangements for the Directors, the chief executive offi cer and the executive team. The Remuneration and Nomination

Committee assesses the appropriateness of the nature and amount of emoluments of such offi cers on a periodic basis by reference to relevant

employment market conditions with the overall objective of ensuring maximum stakeholder benefi t from the retention of a high quality Board

and executive team. Such offi cers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe

benefi ts such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost

for the Company.

To assist in achieving these objectives, the Remuneration and Nomination Committee links the nature and amount of executive Directors’ and

offi cers’ emoluments to the Company’s fi nancial and operational performance. All Directors and executives have the opportunity to qualify for

participation in the Gazal Employee Share Option Plan. In addition, all executives are entitled to annual bonuses payable upon the achievement

of annual divisional and corporate profi tability measures.

The Company has applied the exemption under Corporations Amendments Regulation 2006 which exempts listed companies from providing

remuneration disclosures in relation to their key management personnel in their annual fi nancial reports by Accounting Standard AASB 124

Related Party Disclosures. These remuneration disclosures are provided in the Remuneration Report section of the Directors’ Report designated

as audited.

(ii) Remuneration by category: Key Management Personnel


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Short term 3,642,721 3,078,360 1,121,953 1,164,078

Post employment 257,684 200,546 87,176 76,060

Share-based payments 304,122 137,673 167,556 62,553

4,204,527 3,416,579 1,376,685 1,302,691

66



(C) OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL

Balance at

beginning

of period

1 July 2006

Granted as

remun-

eration

Options

exercised

Net change

other

Balance

at end of

period

30 June 2007 Total

VESTED AT 30 JUNE 2007

Not

exercisable Exercisable

Directors

J. Blood 200,000 200,000 – – 400,000 400,000 400,000 –

M. Gazal 200,000 200,000 – – 400,000 400,000 400,000 –

C. Kimberley 150,000 150,000 – – 300,000 300,000 300,000 –

D. Gazal 100,000 100,000 – – 200,000 200,000 200,000 –

Executives

C. Barnett 325,000 200,000 (75,000) – 450,000 450,000 300,000 150,000

P. Lovegrove 200,000 – (50,000) (50,000) 100,000 100,000 100,000 –

R. Gazal 100,000 – – – 100,000 100,000 100,000 –

D. Coghlan 110,000 – (10,000) – 100,000 100,000 100,000 –

P. Wood 115,000 – (15,000) – 100,000 100,000 100,000 –

P. Queeney – 100,000 – – 100,000 100,000 100,000 –

D. Thompson – 100,000 – – 100,000 100,000 100,000 –

Total 1,500,000 1,050,000 (150,000) (50,000) 2,350,000 2,350,000 2,200,000 150,000

Balance at

beginning

of period

1 July 2005

Granted as

remun-

eration

Options

exercised

Net change

other

Balance

at end of

period

30 June 2006 Total

VESTED AT 30 JUNE 2006

Not

exercisable Exercisable

Directors

J. Blood – 200,000 – – 200,000 200,000 200,000 –

M. Gazal – 200,000 – – 200,000 200,000 200,000 –

C. Kimberley – 150,000 – – 150,000 150,000 150,000 –

D. Gazal – 100,000 – – 100,000 100,000 100,000 –

Executives

C. Barnett 225,000 100,000 – – 325,000 325,000 100,000 225,000

P. Lovegrove 100,000 100,000 – – 200,000 200,000 100,000 100,000

R. Gazal – 100,000 – – 100,000 100,000 100,000 –

D. Coghlan 52,000 100,000 (42,000) – 110,000 110,000 100,000 10,000

P. Wood 39,000 100,000 (24,000) – 115,000 115,000 100,000 15,000

Total 416,000 1,150,000 (66,000) – 1,500,000 1,500,000 1,150,000 350,000




(D) SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL

30 JUNE 2007

Shares held in Gazal Corporation Limited (Number)

Balance

1 July 2006

ordinary

Granted as

remuneration

ordinary

On exercise

of options

ordinary

Net change

other

ordinary

Balance

30 June 2007

ordinary

Directors

J.W. Blood 350,000 – – – 350,000

M.J. Gazal (1) 6,097,315 – – 20,513 6,117,828

D.J. Gazal (1) 7,253,431 – – 20,513 7,273,944

C. Kimberley 166,491 – – 166,491

G. Paton – – – –

Executives

C. Barnett 75,000 – 75,000 – 150,000

P. Lovegrove 150,000 – 50,000 (40,000) 160,000

R. Gazal(1) 6,484,568 – – 194,419 6,678,987

D. Coghlan 482,640 – 10,000 – 492,640

P. Wood 299,000 – 15,000 – 314,000

D. Thompson – – – 30,600 30,600

30 JUNE 2006

Shares held in Gazal Corporation Limited (Number)

Balance

1 July 2005

ordinary

Granted as

remuneration

ordinary

On exercise

of options

ordinary

Net change

other

ordinary

Balance

30 June 2006

ordinary

Directors

J.W. Blood 308,772 – – 41,228 350,000

M.J. Gazal (1) 6,897,769 – – (800,454) 6,097,315

D.J. Gazal (1) 8,493,289 – – (1,239,858) 7,253,431

C. Kimberley 6,472 – – 160,019 166,491

A.C. O’Reilly* 10,293 – (10,293) – –

Executives

C. Barnett 75,000 – – – 75,000

P. Lovegrove 150,000 – – – 150,000

R. Gazal(1) 6,897,769 – – (413,201) 6,484,568

D. Coghlan 440,640 – 42,000 – 482,640

P. Wood 275,000 – 24,000 – 299,000

* Resigned 25 November 2005.

(1) Excludes Gazal Corporation Limited shares totalling 30,590,465 in which M.J. Gazal, D.J. Gazal and R. Gazal each have a relevant interest in the shares held by a wholly owned subsidiary of Gazal

Nominees Pty Limited (29,582,911) and directly by Gazal Nominees Pty Limited (1,007,554) as each of M.J. Gazal, D.J. Gazal and R. Gazal have a 25% shareholding in Gazal Nominees Pty Limited.

68



(E) LOANS TO KEY MANAGEMENT PERSONNEL

There are no loans to Directors or executives.

(F) OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL

Messrs M.J. Gazal and D.J. Gazal are directors of Gazal Industries Pty Limited, a director related entity. During the year Gazal Corporation

Limited provided for the payment of expenses on behalf of Gazal Industries Pty Limited. These expenses have been recharged to Gazal Industries

Pty Limited. Mr J.W. Blood is a director of Macquarie Textiles Limited. During the year the Company purchased material from Macquarie Textiles

Limited on normal commercial terms amounting to $1,210,107 (2006: $616,507).

Mr J.W. Blood is a director of Canning Vale Weaving Mills Pty Limited. During the year the Company purchased material from Canning Vale

Weaving Mills Pty Limited on normal commercial terms amounting to $60,020 (2006: $66,478).

35 EMPLOYEES


Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

Year ended

30 June 2007

$’000

Year ended

30 June 2006

$’000

(a) Employee entitlements

Aggregate employee entitlement liability (Refer Notes 19 and 21) 5,209 5,387 – –

30 June 2007

Number

30 June 2006

Number

(b) Number of employees 793 727

(c) Superannuation

Gazal Corporation Limited and its controlled entities sponsor superannuation funds for offi cers and employees. Employee and employer

contributions and benefi ts are set out below:

Employees Offi cers

Benefi t type Accumulated fund Accumulated fund

Form of benefi t Lump sum benefi t on

retirement or withdrawal

Lump sum benefi t on

retirement or withdrawal

Contributions by:

– Employee Various Various

– Employer 9% 10%

The assets of the above funds were suffi cient to satisfy all benefi ts, which would have been vested in the event of termination of the funds,

or in the event of the voluntary or compulsory termination of the employment of each employee.

SHAREHOLDER INFORMATION


SUPPLEMENTARY INFORMATION AS REQUIRED BY AUSTRALIAN SECURITIES EXCHANGE LISTING REQUIREMENTS.

ORDINARY SHAREHOLDERS AS AT 18 SEPTEMBER 2007

These statistics relate to 1,003 shareholders of 60,675,978 ordinary shares. The proportion of shares held by the 20 largest shareholders

is 87.27%. There are 95 shareholders who hold less than a marketable parcel.

VOTING RIGHTS

On a show of hands or on a poll, every member present in person or by proxy shall have one vote for every ordinary share held.

DISTRIBUTION OF SHAREHOLDERS AND SHAREHOLDINGS AS AT 18 SEPTEMBER 2007

Size of holding

Number of

shareholders

Number of

ordinary shares % of total

1–1,000 301 141,910 0.23

1,001–5,000 395 1,163,102 1.92

5,001–10,000 133 1,042,005 1.72

10,001–100,000 144 3,850,789 6.35

100,001 and over 30 54,478,172 89.78

Total 1,003 60,675,978 100.00

SUBSTANTIAL SHAREHOLDERS

The following information is extracted from the Company’s Register of substantial shareholders as at 18 September 2007.

Name

Relevant interest in

fully paid shares Percentage

Gazal Industries Pty Limited 29,582,911 48.8

Woodcray Pty Limited 29,582,911 48.8

Gazal Nominees Pty Limited as trustees of the Mathilda Malouf Settlement Trust,

a trust established for the benefi t of the family of J.S. Gazal

30,590,465 50.4

Michael Joseph Gazal 35,214,039 58.0

David Joseph Gazal 33,797,783 55.7

Richard Victor Gazal 31,729,870 52.4

Judith Anne Gazal 30,611,763 50.5

RBC Global Services Australia Nominees Pty Limited 3,336,249 5.5

70

TOP 20 SHAREHOLDERS

TOP 20 SHAREHOLDERS AS AT 18 SEPTEMBER 2007

Registered holder

Number of

ordinary shares

% of

total shares

1. Gazal Industries Pty Limited 29,582,911 48.76

2. Michael Joseph Gazal 4,045,328 6.67

3. RBC Global Services Australia Nominees Pty Limited 3,336,249 5.50

4. Argo Investments Limited 2,900,000 4.78

5. Alan Dare Jennings 2,529,430 4.17

6. David Gazal Family Company Pty Limited 1,734,362 2.86

7. David Joseph Gazal 1,472,956 2.43

8. Cinu Investments Pty Limited 1,116,649 1.84

9. Gazal Nominees Pty Limited (Mathilda Malouf Trust) 1,007,554 1.66

10. Yoogalu Pty Limited 1,000,000 1.65

11. Andrew Rich Enterprises Pty Limited 738,480 1.22

12. UBS Wealth Management Australia Nominees Pty Limited 727,758 1.20

13. M J & H H Gazal Pty Limited 578,246 0.95

14. David John Coghlan 492,640 0.81

15. Gwynvill Investments Pty Limited 366,000 0.60

16. Citicorp Nominees Pty Limited 345,559 0.57

17. David John Holmes 263,333 0.43

18. Lippo Securities Nominees (BVI) Limited 250,000 0.41

19. John Wilson Blood 250,000 0.41

20. Brickworks Investments Company Limited 211,865 0.35

52,949,320 87.27

AUDITOR

ERNST & YOUNG

680 George Street Sydney NSW 2000

BANKERS

WESTPAC BANKING CORPORATION

60 Martin Place Sydney NSW 2000

COMPANY SECRETARY

PETER JAMES WOOD CA, FICS

REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS3–7 McPherson Street

Banksmeadow NSW 2019

Telephone: (02) 9316 2800

Fax (02) 9316 7207

Web: www.gazal.com.au

SHARE REGISTRY

REGISTRIES LIMITED

28 Margaret Street Sydney NSW 2000

Telephone: (02) 9279 0677

SOLICITOR

MARC DUNN LLB

STATE OF INCORPORATION

VICTORIA, AUSTRALIA

SECURITIES EXCHANGE LISTINGSGazal Corporation Limited shares are quoted on

the Australian Securities Exchange

ASX CODEGZL

CORPORATE DIRECTORY

ANNUAL REPORT 2007

ABN 57 004 623 474

www.gazal.com.au

GA

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