GAZAL ANNUAL REPORT 2007

ANNUAL REPORT 2007 For personal use only use personal For

www.gazal.com.au

ABN 57 004 623 474 CORPORATE DIRECTORY

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 BUSINESS 3–7 McPherson Street Banksmeadow NSW 2019

Telephone: (02) 9316 2800 Fax (02) 9316 7207 Web: www.gazal.com.au

SHARE REGISTRY REGISTRIES LIMITED CONTENTS FINANCIAL CALENDAR 2007 28 Margaret Street Sydney NSW 2000 OUR MISSION 1 PRELIMINARY FINAL Telephone: (02) 9279 0677 REPORT AND DIVIDEND 23 AUGUST OUR CORE VALUES 1 ANNOUNCEMENT SOLICITOR OUR VISION 1 RECORD DATE FOR FINAL DIVIDEND 21 SEPTEMBER MARC DUNN LLB THE YEAR IN REVIEW 2 FINAL DIVIDEND PAYABLE 5 OCTOBER STATE OF INCORPORATION FINANCIAL REPORT 3 VICTORIA, AUSTRALIA

CORPORATE DIRECTORY IBC ANNUAL REPORT AND NOTICE OF SECURITIES EXCHANGE LISTINGS ANNUAL GENERAL MEETING MAILED 30 OCTOBER Gazal Corporation Limited shares are quoted on TO SHAREHOLDERS the Australian Securities Exchange

ANNUAL GENERAL MEETING 29 NOVEMBER ASX CODE GZL

HALF YEAR END 31 DECEMBER For personal use only use personal For

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. OUR MISSION OUR VISION BUILDING GREAT BRANDS WE ARE the leading specialist branded apparel group. THAT PEOPLE LOVE IS OUR FOCUS AND PASSION WE ARE PROFITABLE every year, focusing on maximising shareholder value over time. OUR CORE VALUES WE SERVE OUR CUSTOMERS with industry best weekly CUSTOMERS FIRST replenishment order fulfi lments, consistent quality, Delivery, performance and service delivering on time and with service that exceeds their GROWTH expectations. We are the market leader in operational We chase business but it must effi ciency across our brands. be profi table WE CONTINUALLY INVEST in marketing our brands OPPORTUNITY to ensure their success for the long term. Every individual has every opportunity to succeed OUR PEOPLE ARE OUR COMPETITIVE ADVANTAGE. We will provide them with every opportunity to excel RECOGNITION AND REWARD and achieve their full potential. As a result of our people For effort and success reaching their potential, we will reach our potential. For personal use only use personal For FAMILY AND RELATIONSHIPS Developing respect and trust WE ACKNOWLEDGE THE CONTRIBUTION OF OUR TEAM over time by sharing with it the rewards of our success. INTEGRITY WE COMBINE LARGE COMPANY THINKING with the We do what we say we’re values, execution, effi ciency, fl exibility and agility of going to do a small family operation. We think long term. THE YEAR IN REVIEW

THE GAZAL CORPORATION fi ndings of the review, we expect to be in LIMITED GROUP (“GAZAL”) a position to inform shareholders of its RECORDED AN AFTER TAX conclusions by the time of the annual general PROFIT OF $8.371 MILLION FOR meeting in November 2007, if not sooner. THE YEAR ENDED 30 JUNE 2007. Despite sales revenue increasing by 16%, THIS WAS AN INCREASE OF 12.7% Group inventory levels ended at $45.7 million ON THE PREVIOUS YEAR. as at 30 June 2007, in line with the same time last year. The strategic objective we set TRADING RESULTS ourselves to increase the Group’s stock turns Sales from continuing operations increased continues to be a key focus of the highest by 16% to $250.4 million. Generally positive priority for management and the Board. consumer sentiment in the retail sector Management of inventory levels and during the year helped the Group’s key extended trade creditors assisted Gazal brands, Calvin Klein, Van Heusen, Nautica, to generate a cash infl ow from operating Bisley, Midford and Body Nancy Ganz to activities of $10.67 million for the year in achieve solid growth. The sales increase review. Last year’s comparative cash fl ow was also assisted by a full 12 months of from operating activities of $23.597 million sales recorded from businesses acquired benefi ted from the Company undertaking in fi nancial year 2006 and strong sales from acquisitions at high points in the working the Trade Secret outlets division which capital cycle of target companies and the opened three new stores during the year. subsequent reduction to normal levels at Earnings before interest, tax, depreciation year end. Also, the timing of income tax and amortisation (“EBITDA”) were lower payments had a negative impact on cash by 1.3% at $23.4 million compared to the fl ow while trade debtors increased as a previous year. However, it should be noted result of higher turnover. that this EBITDA fi gure includes the capital REVALUATION OF gain of $2.719 million, which arose from the BANKSMEADOW PROPERTY settlement and release agreement reached with Dare Jennings as reported in the half The Company-owned land and buildings, year profi t report announced in February which accommodate the Group’s head 2007. Gross profi t margins were impacted offi ce and distribution centre, are located by higher prices from Chinese suppliers as at Banksmeadow in the sought after South well as the clearance of excess inventory at Sydney industrial precinct. The Directors lower margins in certain divisions. Further have received independent advice that the impacting EBITDA was a one-off charge value of this property has increased by taken at year end for the impairment $5.165 million to $38.65 million. Accordingly, of certain retail stores trading below the Directors have adopted the increased acceptable levels of return. Distribution value in the fi nancial statements for the year and administration expenses increased ended 30 June 2007. at a greater rate than sales in the year as we continued the program of investing DIVIDENDS in improved supply chain infrastructure, The Directors declared a fi nal dividend of including the partial implementation of a 7 cents per share fully franked (fi nal dividend new Warehouse Management System (“WMS”) 2006: 7 cents per share fully franked) taking for our Banksmeadow distribution centre. the total dividend for the year to 14 cents The ongoing rollout of the new WMS system, per share fully franked (total dividend 2006: along with our continued program of direct- 14 cents per share fully franked). The record to-store deliveries from our factory sources date for determining shareholders’ entitlement in China via third party logistics providers, for the fi nal dividend is 21 September 2007 will assist in expected lower warehousing and the fi nal dividend is payable on costs in fi nancial year 2008. 5 October 2007.

The losses as a result of winding down The Directors would like to convey their the Mambo European operations of appreciation to management and staff for $2.018only use personal For million during the year were far less their contribution during the year. We also compared to last year’s loss of $4.064 million. wish to thank you, our shareholders, for your The Mambo brand continues to trade well in continuing support. 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 J.W. BLOOD M.J. GAZAL a strategic review in relation to its Mambo CHAIRMAN MANAGING brand. This review is continuing satisfactorily DIRECTOR and whilst it is too early to conclude the FINANCIAL REPORT DIRECTORS’ STATUTORY REPORT 4 FOR THE YEAR ENDED 30 JUNE 2007 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 For personal use only use personal For

SHAREHOLDER INFORMATION 69

TOP 20 SHAREHOLDERS 70

ANNUAL REPORT 2007 3 GAZAL DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

Your Directors have pleasure in submitting Michael J. Gazal B.Com Graham Paton AM B.Ec FCPA their report for the year ended 30 June 2007. Managing Director Non-Executive Director Joined the Gazal Group in 1986 after Appointed to the Board on 1 August 2006, gaining experience in merchant banking he was previously a partner of 23 years in DIRECTORS and stockbroking. In November 1989, Arthur Andersen, Chartered Accountants, The names and details of the Company’s after the passing of Mr J.S. Gazal AM, his retiring from that fi rm and public practice Directors in offi ce during the fi nancial father and founding Chairman of the Gazal in July 2001. He is presently a Director of year and until the date of this report are Group, he was appointed Chief Executive Harvey Norman Holdings Limited. He is as follows. Directors were in offi ce for this Offi cer and is responsible for the day-to-day a member of the Audit Committee. entire period unless otherwise stated. management of the Group. David J. Gazal COMPANY SECRETARY NAMES, QUALIFICATIONS, Executive Director Peter J. Wood CA FICS EXPERIENCE AND SPECIAL Joined the Gazal Group in 1987, appointed RESPONSIBILITIES Has been the Company Secretary of Gazal Director on 24 April 1999 and has performed Corporation Limited for 21 years. Prior John W. Blood a number of key roles within the Group since to holding this position he held the role Non-Executive Chairman joining, including Group Divisional Manager of Financial Controller of related Gazal Has had widespread experience in the Textile of Surf and Casualwear and Managing companies for six years. Mr Wood has been and Garment Industry. He is presently a Director of Mambo. He is currently the a Chartered Accountant for over 27 years. Director of Canning Vale Weaving Mills, General Manager of the Youth Group. Macquarie Textiles Group Limited and Cotton Seed Distributors. He is a member of the Craig Kimberley Remuneration and Nomination and Audit Non-Executive Director Committees. 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.

INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE At 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:

Relevant interest in ordinary Director Ordinary shares shares held Options

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

29,582,911 (1)

1,007,554 (2)

M.J. Gazal 4,045,328 578,246 (3) 400,000

29,582,911 (1)

1,007,554 (2)

D.J. Gazal 1,472,956 1,734,362 (4) 200,000

C. Kimberley – 250,000 300,000 For personal use only use personal For 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.

4 DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

DIRECTORS’ MEETINGS The 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:

Remuneration and Board of Directors Audit Committee Nomination Committee

Maximum Maximum Maximum possible possible possible Attended attended Attended attended Attended 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 101122––

PRINCIPAL ACTIVITIES The 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 REVIEW The 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.

DIVIDENDS The 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 OPERATIONS A 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 AFFAIRS There 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.

SIGNIFICANTonly use personal For EVENTS AFTER BALANCE DATE There 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.

ANNUAL REPORT 2007 5 GAZAL DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

LIKELY DEVELOPMENTS AND which may arise as a result of work performed the Company must attract, motivate and FUTURE RESULTS in their respective capacities. retain highly skilled directors and executives. The Directors have excluded from this As part of the above agreement Gazal To this end, the Company embodies the report any further information on the likely Corporation Limited paid an insurance following principles in its remuneration developments in the operations of the premium in respect of a contract insuring framework: economic entity and the expected results each of the Directors of the Company named „ Provide competitive rewards to attract of those operations in future fi nancial years, earlier in this report and each full-time high calibre executives. as the Directors have reasonable grounds executive offi cer, Director and Secretary of „ Link variable executive remuneration to to believe that it would be likely to result in Gazal Corporation Limited and its controlled fi nancial and operational performance. unreasonable prejudice to the economic entity. entities, against all liabilities and expenses arising as a result of work performed in their „ Link executive rewards to shareholder respective capacities, to the extent permitted value. ENVIRONMENTAL by law. The terms of the above insurance REGULATION AND policy prohibit disclosure of the nature of the REMUNERATION AND NOMINATION PERFORMANCE risks insured or the premium paid. COMMITTEE The economic entity’s environmental The Remuneration and Nomination obligations are regulated under both State Committee of the Board of Directors is and Federal Law. The Audit Committee ROUNDING OF AMOUNTS responsible for determining and reviewing monitors environmental obligations. The The Company is of the kind specifi ed in compensation arrangements for the economic entity has a policy of at least Australian Securities and Investments directors, the chief executive offi cer complying, but in most cases exceeding its Commission (“ASIC”) Class Order 98/0100. and the senior management team. The environment performance obligations. No In accordance with that class order, amounts Remuneration and Nomination Committee environmental breaches have been notifi ed in the fi nancial statements and Directors’ assesses the appropriateness of the nature by any Government agency during the year Report have been rounded to the nearest and amount of emoluments of such offi cers ended 30 June 2007. thousand dollars unless specifi cally stated on a periodic basis by reference to relevant to be otherwise. employment market conditions with the overall objective of ensuring maximum SHARE OPTIONS stakeholder benefi t from the retention of Details of options granted to Directors REMUNERATION REPORT a high quality Board and executive team. or relevant executives as part of their This report outlines the remuneration remuneration are set out in the section of arrangements in place for directors and REMUNERATION STRUCTURE this report headed Directors’ and Executives’ executives of Gazal Corporation Limited, In accordance with best practice corporate Remuneration. Details of shares and in accordance with the requirements of the governance, the structure of non-executive interests under option, or issued during or Corporations Act 2001 and its regulations. director and executive remuneration is since the end of the fi nancial year to the It also provides the remuneration disclosures separate and distinct. date of this report due to the exercise of an required under AASB 124 Related Party option, are set out in Note 22 of the fi nancial Disclosures which have been transferred statements and form part of this report. to the Remuneration Report in accordance NON-EXECUTIVE DIRECTOR There have been no further options issued with Corporations Regulation 2M.6.04. For REMUNERATION (AUDITED) from 30 June 2007 to the date of this report. the purpose of this report Key Management Personnel (“KMP”) of the Group are defi ned OBJECTIVE as those persons having authority and The Board seeks to set aggregate INDEMNIFICATION AND responsibility for planning, directing and remuneration at a level which provides INSURANCE OF DIRECTORS controlling the major activities of the the Company with the ability to attract and AND OFFICERS Company and Group, directly or indirectly, retain directors of the highest calibre, whilst including any director (whether executive incurring a cost which is acceptable to Insurance arrangements established in or otherwise) of the parent Company, shareholders. the previous year concerning offi cers of the and includes the fi ve executives in the economic entity were renewed during 2007. parent and the Group receiving the highest STRUCTURE

For personal use only use personal For remuneration. Indemnity agreements have been entered into The Constitution and the Australian between Gazal Corporation Limited and each Securities Exchange (“ASX”) Listing Rules REMUNERATION PHILOSOPHY of the Directors of the Company named earlier specify that the aggregate remuneration of (AUDITED) in this report. Under the agreement, the non-executive directors shall be determined Company has agreed to provide reasonable The performance of the Company from time to time by a general meeting. protection for the Directors against liabilities, depends upon the quality of its directors An amount not exceeding the amount and executives and to grow and prosper,

6 DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

determined is then divided between the executives before the Committee makes VARIABLE REMUNERATION directors as agreed. The latest determination its recommendations to the Board. – SHORT TERM INCENTIVE was at the Annual General Meeting held on 30 November 2001 when shareholders The Remuneration Committee considers (“STI”) approved an aggregate remuneration of it appropriate that employment contracts OBJECTIVE $500,000 per year. are entered into with the executive The objective of the STI program is to link the directors and senior management. achievement of the divisional and Company The amount of aggregate remuneration Details of the contracts with the executive performance with the remuneration received sought to be approved by shareholders directors Messrs M.J. Gazal the CEO and by the executives charged with meeting the and the manner in which it is apportioned Mr D.J. Gazal are provided on page 8. divisional performance. The total potential amongst directors is reviewed annually. STI provides suffi cient incentive to the The Board considers advice from external Remuneration consists of the following key senior manager to achieve the divisional consultants as well as the fees paid to non- elements: performance such that the cost to the executive directors of comparable companies „ Fixed Remuneration (base salary, Company is reasonable in the circumstances. when undertaking the annual review process. superannuation and non-monetary benefi ts); and Each director receives a fee for being a director STRUCTURE „ Variable Remuneration of the Company. Actual STI payments granted to each – Short Term Incentive (“STI”); and senior manager depend mainly on the Non-executive directors have long been – Long Term Incentive (“LTI”). performance of their division. Operational encouraged by the Board to hold shares in measures cover mainly fi nancial and some the Company (purchased by the director on The proportion of fi xed remuneration and non-fi nancial measures of performance. market). The non-executive directors of the variable remuneration (potential short term The usual measures include contribution Company can participate in the Employee and long term incentives) is established for to net profi t before tax, risk management, Share Option Plan. each senior manager by the Remuneration product management, and leadership/ Committee. The table on page 9 details the team contribution. The remuneration of non-executive directors variable component (%) of the fi ve most for the period ended 30 June 2007 is detailed highly remunerated senior managers. On an annual basis, after consideration of in the Table on page 9 of this report. divisional performance, each executive is reviewed and STIs assessed including a FIXED REMUNERATION short term incentive pool based on total SENIOR MANAGER AND OBJECTIVE Company performance is allocated to each EXECUTIVE DIRECTOR executive who is deemed to have a positive REMUNERATION (AUDITED) The level of fi xed remuneration is set so impact on profi tability. as to provide a base level of remuneration OBJECTIVE which is both appropriate to the position and The aggregate of annual STI payments The Company aims to reward executives is competitive in the market. available for executives across the with a level and mix of remuneration Company is subject to the approval of the commensurate with their position and Fixed remuneration is reviewed annually Remuneration Committee. Payments made responsibilities within the Company and by the Remuneration Committee and the are usually delivered as a cash bonus. so as to: process consists of a review of Companywide, business unit and individual performance, „ reward executives for Company, business STI BONUS FOR 2006 AND 2007 relevant comparative remuneration in the unit and individual performance against FINANCIAL YEARS market and internal and, where appropriate, fi nancial and operating performance; external advice on policies and practices. The entire STI cash bonus of $630,494 for „ link reward with the strategic goals and the 2006 fi nancial year as accrued in the performance of the Company; and ensure STRUCTURE previous period vested to executives was paid total remuneration is competitive by in the 2007 fi nancial year. The Remuneration Executives are given the opportunity to receive market standards; Committee has approved the STI payments their fi xed (primary) remuneration in a variety for the 2007 fi nancial year which were „ align the interests of executives with of forms including fringe benefi ts such as accrued at June 2007 of $755,052. This those of shareholders. motor vehicles. It is intended that the manner

For personal use only use personal For amount has been accrued on the basis that of payment chosen will be optimal for the it is probable that the executives will meet STRUCTURE recipient without creating undue cost for their respective fi nancial targets for the In determining the level and make-up of the Company. year. Any adjustments between the actual executive remuneration, the Remuneration amounts to be paid as determined by the The fi xed remuneration component of Committee obtains independent advice Remuneration Committee and the amounts executives is detailed in the Table on page 9. when it thinks necessary on market accrued will be adjusted in the 2008 fi nancial levels of remuneration of comparable year. There have been no alterations to the SPI bonus plan since their grant in 2007.

ANNUAL REPORT 2007 7 GAZAL DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

VARIABLE PAY – LONG TERM COMPANY PERFORMANCE INCENTIVE (“LTI”) The Directors have selected a net profi t growth rate of at least 6% per annum over OBJECTIVE three consecutive years from the base year The objective of the LTI plan is to reward for its performance hurdle. The reason senior managers in a manner which aligns this rate was selected was because it is this element of remuneration with the double current CPI and it is also marginally creation of shareholder wealth. higher than the Company’s growth rate over recent trading results. The Directors As such, LTI grants are only made to believe this represents a suitably challenging executives who are able to infl uence the but achievable target for continuing future generation of shareholder wealth and thus growth. Refer to Note 22 for further have a direct impact on the Company’s information. performance. The graph below shows Gazal’s net profi t STRUCTURE before tax and material items for the past LTI grants to executives are delivered in the fi ve years (including the current year). form of share options administered under an Employee Share Option Plan (“ESOP”). PROFIT BEFORE TAX ($ MILLIONS) A new ESOP was approved by shareholders at the Annual General Meeting held in 2003 14.162 November 2005 with Company-based 2004 16.175 performance hurdles. 2005 16.918 2006 16.802 RELATIONSHIP OF REWARDS 2007 15.159 TO PERFORMANCE 0 5101520 In assessing performance hurdles for the new ESOP the Directors considered that EMPLOYMENT CONTRACTS a Company-based performance hurdle is (AUDITED) more appropriate than a market-based CHIEF EXECUTIVE OFFICER OTHER EXECUTIVES performance hurdle because the Company’s In addition, Mr David J. Gazal is also size and product mix is such that it does not The CEO, Mr Michael J. Gazal, is employed employed under a contract. The current really have any meaningfully comparable under a contract. Mr Gazal’s contract was contract continues on the basis of 12 months peers. Any comparisons would need to be renewed on 1 July 2004 and terminates on notice by either party. The contract also made against much larger companies with 30 June 2009, at which time the Company contains termination provisions which are quite different product mixes. It would be may choose to commence negotiations to similar to those under Mr Michael Gazal’s inappropriate to assess the Company’s extend or enter into a new employment contract described above. performance relative to such companies and contract. Under the terms of the contract: this is why the Directors have not selected „ Mr Gazal may resign from his position Certain executives have standard contracts a market-based performance hurdle. and thus terminate the contract by which may be terminated by providing giving three months written notice. On between six months and one month written Instead, the Directors considered a more resignation any options will be forfeited. notice or providing payment in lieu of the meaningful measure of the Company’s „ The Company may terminate the contract notice period (based on the fi xed component performance is the increase in net profi t by providing three months written notice of the executive’s remuneration). On over a period of three consecutive fi nancial in the event of extended absence by Mr termination on notice by the Company, any years. This also has the advantage of being a Gazal by reason of illness or if he is by LTI options that have vested or that will vest performance measure which the Company’s reason of illness or incapacity permanently during the notice period will be forfeited. management team can directly relate to and unable to perform his responsibilities LTI options that have not vested will also more directly infl uence. and duties. In these circumstances the be forfeited. The Company may terminate

For personal use only use personal For Company may elect to provide payment in written contracts at any time without notice lieu of the notice period (based on the fi xed if serious misconduct has occurred. component of Mr Gazal’s remuneration).

8 DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

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:

Share- % based performance Short term benefi ts Post employment payment Total related

Non- Salary & Cash monetary Super- Retirement Directors fees bonus benefi ts Other annuation 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 2006 33,462 – – 4375 3,405 – – 41,242 – – Outerwear

P. Lovegrove 2007 210,000 122,883 17,176 2,403 21,000 – 17,767 391,229 35.95 General Manager 2006 204,250 149,086 17,842 2,612 20,425 – 9,624 403,839 39.30 – Intimates

P. Queeney 2007 235,000 80,000 – 27,293 23,400 – 11,933 377,626 24.34 General Manager 2006 109,567 42,510 – 12,115 10,938 – – 175,130 24.27 – Supply Chain and IT

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 2006 175,000 86,898 – 27,179 18,000 – 9,624 316,701 30.48 – Retailonly use personal For

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.

ANNUAL REPORT 2007 9 GAZAL DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

OPTIONS GRANTED AS PART OF REMUNERATION (AUDITED)

Total value of options Value of Value of Value of granted, % of options options options exercised remuneration Fair value granted exercised lapsed and lapsed consisting of per option at during during during during the options for Grant date Granted no grant date the year the year the year year the year (cents) ($) ($) ($) ($)

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 For personal use only use personal For

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.

10 DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

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

Fair value Exercise First Last per option at price Expiry exercise exercise Vested no Granted no Grant date grant date per option date date date (cents) ($)

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

ANNUAL REPORT 2007 11 GAZAL DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

SHARES ISSUED ON EXERCISE OF REMUNERATION OPTIONS (AUDITED)

Shares issued Paid Unpaid Number $ per share $ 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 SERVICES The 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 For personal use only use personal For 26 September 2007

12 DIRECTORS’ STATUTORY REPORT FOR THE YEAR ENDED 30 JUNE 2007

NON-AUDIT SERVICES The 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. For personal use only use personal For

ANNUAL REPORT 2007 13 GAZAL STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2007

The Board of Directors of Gazal Corporation For further information on corporate The term in offi ce held by each Director in Limited is responsible for the corporate governance policies adopted by Gazal offi ce at the date of this report is as follows: governance of the consolidated entity. The Corporation Limited, refer to our website: Board guides and monitors the business www.gazal.com.au Name Term in offi ce and affairs of Gazal Corporation Limited on J.W. Blood 14 years behalf of the shareholders by whom they are elected and to whom they are accountable. STRUCTURE OF THE BOARD M.J. Gazal 21 years The skills, experience and expertise relevant C. Kimberley 32 months In accordance with the Australian Securities to the position of Director held by each Exchange Corporate Governance Council’s Director in offi ce at the date of the annual D.J. Gazal 8 years recommendations, the Corporate Governance report is included in the Directors’ Report Statement contains certain specifi c on page 4. Directors of Gazal Corporation G. Paton 14 months information and must disclose the extent Limited are considered to be independent to which the Company has followed the when they are independent of management For additional details regarding Board guidelines during the period. Where a and free from any business or other appointments, please refer to our website. recommendation has not been followed, relationship that could materially interfere that fact must be disclosed, together with the with – or could reasonably be perceived to reasons for the departure. Gazal Corporation materially interfere with – the exercise of REMUNERATION AND Limited’s Corporate Governance Statement their unfettered and independent judgement. NOMINATION COMMITTEE is structured with reference to the Corporate The Board has established a Remuneration Governance Council’s “Principles of Good In the context of Director independence, and Nomination Committee, which meets Corporate Governance and Best Practice “materiality” is considered from both the at least annually, to ensure that the Recommendations”, which are as follows: Company and individual Director perspective. Board continues to operate within the „ Principle 1. Lay solid foundations for Materiality determination is considered both established guidelines, including when management and oversight. quantitatively and qualitatively. An item is necessary, selecting candidates for the presumed to be quantitatively immaterial „ Principle 2. Structure the Board position of Director. The Remuneration if it is less than 5% of the base amount. to add value. and Nomination Committee comprises Qualitative factors considered include Non-Executive Directors. The remuneration „ Principle 3. Promote ethical and whether a relationship is strategically for Remuneration and Nomination Committee responsible decision making. important, the competitive landscape, the meeting attendance is included in their „ Principle 4. Safeguard integrity in nature of the relationship and the contractual annual fees. fi nancial reporting. or other arrangements governing it and other „ Principle 5. Make timely and balanced factors which point to the actual ability of the It is the Company’s objective to provide disclosure. Director in question to shape the direction of maximum stakeholder benefi t from the the Company’s loyalty. retention of a high quality Board and „ Principle 6. Respect the rights of shareholders. executive team by remunerating Directors In accordance with the defi nition of and key executives fairly and appropriately „ Principle 7. Recognise and manage risk. independence above, and the materiality with reference to relevant employment „ Principle 8. Encourage enhanced thresholds set, the following Directors of market conditions. To assist in achieving performance. Gazal Corporation Limited are considered this objective, the Remuneration and „ Principle 9. Remunerate fairly and to be independent: Nomination Committee links the nature and responsibly. amount of Executive Directors’ and offi cers’ Name Position emoluments to the Company’s fi nancial „ Principle 10. Recognise the legitimate and operational performance. The expected interests of stakeholders. J.W. Blood Chairman, Non-Executive Director outcomes of the remuneration structure are: C. Kimberley Non-Executive Director Gazal Corporation Limited’s corporate „ Retention and motivation of key executives. governance practices have been in place G. Paton Non-Executive Director „ Attraction of quality management to the all year and reviewed by the Directors Company. throughout the year ended 30 June 2007 There are procedures in place, agreed by the „ Performance incentives which allow and are compliant with the Council’s best Board, to enable Directors, in furtherance of executives to share the rewards of the practiceonly use personal For recommendations, unless indicated their duties, to seek independent professional success of Gazal Corporation Limited. otherwise in this report. The Board has advice at the Company’s expense. received a signed declaration by the CEO and CFO in accordance with section 295A of the Corporations Act 2001.

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

For details on the amount of remuneration The committee also provides the Board with PERFORMANCE and all monetary and non-monetary additional assurance regarding the reliability The performance of the Board and key components for each of the fi ve highest of fi nancial information for inclusion in the executives is reviewed regularly. The paid (non-Director) executives and key fi nancial reports. All members of the Audit performance criteria against which Directors management personnel during the year Committee are Non-Executive Directors. and executives are assessed is aligned with and for all Directors, refer to pages 6 to the fi nancial and non-fi nancial objectives of 12 of the Directors’ Report. In relation to The members of the Audit Committee during Gazal Corporation Limited. Directors whose the payment of bonuses, options and other the year were: performance is consistently unsatisfactory incentive payments, discretion is exercised „ G. Paton may be asked to retire. by the Board, having regard to the overall „ J.W. Blood performance of Gazal Corporation Limited „ C. Kimberley and the performance of the individual RISK MANAGEMENT AND during the period. Mr. C Kimberley was appointed to the Audit INTERNAL CONTROLS The Board is responsible for determining committee during the later part of last year Procedures have been established at the and reviewing compensation arrangements to temporarily fi ll the vacancy left with the Board and executive management level to for the Directors themselves and the Chief retirement of Mr C. O’Reilly. On 1 August evaluate risk and the associated internal Executive Offi cer and the executive team. The 2006, Mr G. Paton was appointed to the Board controls necessary to safeguard the assets Board has established a Remuneration and and the Audit Committee and Mr Kimberley and interests of Gazal Corporation Limited, Nomination Committee, which comprises subsequently stood down in that role. and to ensure the integrity of reporting. two Non-Executive Directors. Members of the These include accounting, fi nancial reporting Recommendation 4.3 of Principle 4 of the Remuneration and Nomination Committee and internal control policies and procedures. “Principles of Good Corporate Governance and throughout the year were: Best Practice Recommendations” indicates it „ J.W. Blood is preferable to have at least three members „ C. Kimberley on the Audit Committee. The Board of Gazal Corporation Limited believes that given the For details of Directors’ attendance size of the Company and the experience of at meetings of the Remuneration and the present members, subject to the above Nomination Committee, refer to page 5 temporary vacancy being fi lled, that two Audit of the Directors’ Report. Committee members is adequate.

For additional details regarding the QUALIFICATIONS OF AUDIT Remuneration and Nomination Committee, COMMITTEE MEMBERS please refer to our website. J.W. Blood has signifi cant experience in the management of Gazal Corporation Limited, AUDIT COMMITTEE having served as a Non-Executive Director of Gazal Corporation Limited for 14 years. He The Board has established an Audit is also Director of a number of companies Committee, which operates under a where as part of his role, he serves as a charter approved by the Board. It is the member on the Audit Committee. He is the Board’s responsibility to ensure that an Chairman of the Audit Committee. effective internal control framework exists within the entity. This includes internal C. Kimberley has had extensive experience controls to deal with both the effectiveness in the retail industry and founded the Just and effi ciency of signifi cant business Jeans group chain of retail stores. processes, the safeguarding of assets, the maintenance of proper accounting records, G. Paton has had extensive experience in and the reliability of fi nancial information the accounting industry and was previously as well as non-fi nancial considerations a partner of 23 years in Arthur Andersen, such as the benchmarking of operational Chartered Accountants, retiring from that fi rm key performanceonly use personal For indicators. The Board and public practice in July 2001. has delegated the responsibility for the establishment and maintenance of a For details on the number of meetings of the framework of internal control and ethical Audit Committee held during the year and standards for the management of the the attendees at those meetings, refer to consolidated entity to the Audit Committee. page 5 of the Directors’ Report.

ANNUAL REPORT 2007 15 GAZAL INDEPENDENT AUDIT REPORT TO THE MEMBERS OF GAZAL CORPORATION LIMITED

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

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

The company has disclosed information as required by paragraphs Aus 25.4 to Aus 25.7.2 of Accounting Standard 124 Related Party Disclosures (“remuneration disclosures”), under the heading “Remuneration Report” on pages 67 to12 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 report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state that the financial report, comprising the financial statements and notes, comply with International Financial Reporting Standards. The directors are also responsible for the remuneration disclosures contained in the directors’ report.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement and that the . remuneration 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 the financial report. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

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

audit opinion. For personal use only use personal For

Liability limited by a scheme approved under Professional Standards Legislation.

Gazal Corporation Limited Annual Report and Accounts 2007 18

16 INDEPENDENT AUDIT REPORT TO THE MEMBERS OF GAZAL CORPORATION LIMITED

Independence In conducting our audit we have met the independence requirements of the Corporations Act 2001.Wehave given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included in the directors’ report. In addition to our audit of the financial report and the remuneration disclosures, 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 Accounting Interpretations); and the Corporation Regulations 2001.

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

3. the remuneration disclosures that are contained on pages6 7 to12 13 of the directors’ report comply with Accounting Standard AASB 124 Related Party Disclosures.

Ernst & Young

JKHaydon Partner Sydney

Date: 26 September 2007 For personal use only use personal For

Gazal Corporation Limited Annual Report and Accounts 2007 19

ANNUAL REPORT 2007 17 GAZAL DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2007

In accordance with a resolution of the Directors of Gazal Corporation Limited, we state that: 1. In the opinion of the Directors: a) 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: i) 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 ii) complying with Accounting Standards and Corporations Regulations 2001; and b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. 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. 3. 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. For personal use only use personal For

18 INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’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. For personal use only use personal For

ANNUAL REPORT 2007 19 GAZAL BALANCE SHEET AS AT 30 JUNE 2007

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’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 For personal use only use personal For 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.

20 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2007

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’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. For personal use only use personal For

ANNUAL REPORT 2007 21 GAZAL STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007

CONSOLIDATED PARENT ENTITY

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

Contributed Accumulated Total Contributed Accumulated Total equity losses Reserves equity equity losses Reserves equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’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 – – 4,922 4,922 – – – – in equity

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

Total recognised income and – 7,430 4,922 12,352 – 11,364 – 11,364 expenses for the year

Shares issued as a result of 165 – – 165 165 – – 165 exercise of options

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

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

Shares issued as a result of 1,055 – – 1,055 1,055 – – 1,055 dividend reinvestment

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 – – 2,746 2,746 – – – – in equity

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

Total recognised income and – 8,371 2,746 11,117 – 10,727 – 10,727 expenses for the year

Shares issued as a result of 346 – – 346 346 – – 346 exercise of options

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 For personal use only use personal For

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

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

1 CORPORATE INFORMATION The 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

Amendments to Australian Accounting Standards (AASB-2) – applicable to annual reporting periods beginning on or after AASB 2007-1 1 March 2007 with early adoption required if AASB Interpretation 11 is applied to the period.

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 AASB 2007-2 to the period.

Amendments to Australian Accounting Standards (AASB 5, 6, 102, 107, 119, 127, 134, 136, 1023, 1038) – applicable to annual AASB 2007-3 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. For personal use only use personal For 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.

ANNUAL REPORT 2007 23 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued BUSINESS COMBINATIONS The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination. Where equity instruments are issued in a business combination, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs net of tax arising from equity instruments are recognised directly in equity.

Except for non-current assets or disposal groups classifi ed as held for sale (which are measured at fair value less costs to sell), all identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of cost of the business combination over the net fair value of the Group’s share of the identifi able net assets acquired is recognised as goodwill. If the cost of acquisition is less than the Group’s share of the net fair value of the identifi able net assets of the subsidiary, the difference is recognised as a gain in the Income Statement, but only after a reassessment of the identifi cation and measurement of the net assets acquired.

Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent fi nancier under comparable terms and conditions.

SEGMENT REPORTING A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is a distinguishable component of the entity that is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different than those of segments operating in other economic environments.

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

(ii) Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date.

All exchange differences in the consolidated fi nancial report are taken to the Income Statement. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

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

As at the reporting date the monetary assets and liabilities of these overseas subsidiaries are translated into the presentation currency of the Group at the rate of exchange ruling at the balance sheet date and the Income Statements are translated at the weighted average exchange rates for the year.

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

CASH AND CASH EQUIVALENTS Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above,

net of outstanding bank overdrafts. For personal use only use personal For 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.

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

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Deferred 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 ofonly use personal For 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.

ANNUAL REPORT 2007 25 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued PROPERTY, PLANT AND EQUIPMENT Land and buildings are measured at fair value less accumulated depreciation and any impairment in value. Revaluations are made in accordance with a regular policy whereby independent valuations are obtained and carrying amounts adjusted accordingly.

Plant and equipment are valued at historical cost less accumulated depreciation and any impairment losses. Depreciation is provided on a straight-line basis, their economic lives as follows:

Life Method

Buildings 40 years Straight Line

Leasehold improvements Term of lease Straight Line

Owned plant and equipment 2.5–17 years Straight Line

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts are expected to arise from continued use of the asset. Any gain or loss arising on the derecognition of an asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Income Statement in the period that the item is derecognised.

Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

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

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

The recoverable amount of plant and equipment is the greater of the fair value less costs to sell or value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset.

Revaluations of land and buildings Following initial recognition at cost, land and buildings are carried at a revalued amount which is the fair value at the date of the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses.

Fair value is determined by reference to market-based evidence, which is the amount for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date.

Any revaluation surplus is credited to the asset revaluation reserve included in the equity section (net of tax) of the Balance Sheet unless it reverses a revaluation decrease of the same asset previously recognised in the Income Statement.

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

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

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

Independentonly use personal For 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.

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

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Derecognition 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 balanceonly use personal For 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.

ANNUAL REPORT 2007 27 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued EMPLOYEE LEAVE BENEFITS (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefi ts, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other provisions in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable.

(ii) Long service leave The liability for long service leave is recognised in the provision for employee benefi ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected until credit method. Consideration is given to expected future wages and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outfl ows.

POST-EMPLOYMENT BENEFITS In respect of the Group’s accumulated contribution superannuation funds, any contributions made to the superannuation funds by entities within the Group consolidated entity are recognised against profi ts when due.

RECOVERABLE AMOUNT OF ASSETS At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash infl ows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset.

TRADE AND OTHER RECEIVABLES Trade and other receivables are initially recorded at the amount of contracted sales proceeds. Provision for doubtful debts is recognised to the extent that recovery of the outstanding receivable balance is considered less than likely. Any provision established is based on a review of all outstanding amounts at balance date and when collection of the full amount is no longer probable.

TRADE AND OTHER PAYABLES Liabilities for trade creditors and other payables are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group.

DERIVATIVES Derivative instruments are used to hedge interest rate and foreign exchange exposures. These derivatives qualify for hedge accounting therefore the gains and losses are taken directly to equity. The fair values of forward exchange contracts are determined as the recognised gain or loss at reporting date calculated by reference to current forward exchange rates for contracts with similar maturity profi les on a mark to market basis.

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

contracts are taken out for periods no greater than 13 months. For personal use only use personal For

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

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING The Group has qualifi ed for hedge accounting for the annual periods beginning on or after 1 July 2006.

The Group uses derivative fi nancial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fl uctuations. Such derivative fi nancial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.

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

The fair value of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profi les. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments.

For the purpose of hedge accounting, hedges are classifi ed as: „ fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; „ cash fl ow hedges when they hedge the exposure to variability in cash fl ows that is attributable either to a particular risk associated with a recognised asset or liability or to a forecast transaction; or „ a hedge of the foreign currency risk of a fi rm commitment is accounted for as a cash fl ow hedge.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objectives and strategies for undertaking the hedge. The documentation includes identifi cation of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged items’ fair value or cash fl ows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair values or cash fl ows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the fi nancial reporting periods for which they were designated.

(i) Cash fl ow hedges Cash fl ow hedges are hedges of the Group’s exposure to variability in cash fl ows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and that could affect profi t or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profi t or loss.

Amounts taken to equity are transferred to the Income Statement when the hedged transaction affects profi t or loss, such as when hedged income or expenses are recognised or when a forecast sale or purchase occurs. When the hedged item is the cost of a non-fi nancial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-fi nancial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the Income Statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to the Income Statement.

INTEREST-BEARING LOANS AND BORROWINGS All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings.

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

12 monthsonly use personal For after the balance date.

ANNUAL REPORT 2007 29 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued SHARE-BASED PAYMENT TRANSACTIONS The Group provides benefi ts to certain employees (including directors) of the Group in the form of share options, whereby employees render services in exchange for options over shares (“equity-settled transactions”). The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using a binomial pricing model.

There are currently two plans in place to provide these benefi ts: „ the Employee Share Option Plan established in 1990. This plan is being phased out as it did not have performance hurdles and there is only one grant of 150,000 options remaining to one employee. „ the Gazal Group Share Option Plan established in 2005 provides benefi ts to eligible participants as determined by the Board.

In valuing equity-settled transactions in the later plan, account is taken of performance conditions as indicated in Note 22, in this case a profi tability hurdle. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfi lled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The dilutive effect, if any, of outstanding options is refl ected as additional share dilution in the computation of diluted earnings per share.

REVENUE RECOGNITION Revenue from sale of goods is recognised after deducting returns, settlement and trade discounts and rebates and is recognised when the goods or services are provided.

Interest income is recognised as it accrues with the effective interest method. Dividends are recognised when the Group’s right to receive the payment is established. Profi t and loss on disposal of assets is brought to account at the date an unconditional contract of sale is signed.

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

CONTRIBUTED EQUITY Issued and paid up capital is recognised at the fair value of consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity (net of tax) as a reduction of the share proceeds received. The fair value of equity instruments granted and other estimates of other expected share issues are recognised as a separate component of equity.

EARNINGS PER SHARE Basic earnings per share is calculated as profi t after tax attributable to members of the parent entity, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

Diluted earnings per share are calculated as net profi t attributable to members, adjusted for: i) costs of servicing equity (other than dividends); ii) 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 iii) 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. For personal use only use personal For

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

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued INVESTMENTS AND OTHER FINANCIAL ASSETS The parent Company carries investments in subsidiary companies initially at cost. The carrying value of subsidiaries is assessed at regular intervals having regard to net assets and future cash fl ows of these entities. A provision for diminution is established should the carrying value of a subsidiary be considered impaired.

Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classifi ed as either fi nancial assets at fair value through profi t or loss, loans and receivables, held-to-maturity investments, or available-for-sale fi nancial assets. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profi t or loss, directly attributable transaction costs. The Group determines the classifi cation of its fi nancial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each fi nancial year-end.

All regular purchases and sales of fi nancial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of fi nancial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place.

(i) Loans and receivables Loans and receivables including loan notes and loans to key management personnel are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in profi t or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND DISCONTINUED OPERATIONS Non-current assets and disposal groups are classifi ed as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset or disposal group to be classifi ed as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable.

An impairment loss is recognised for any initial or subsequent write-down of the assets (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

A discontinued operation is a component of the entity that has been disposed of or is classifi ed as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the

face of the Income Statement. For personal use only use personal For

ANNUAL REPORT 2007 31 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

3 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS In 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. For personal use only use personal For

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

4 REVENUES AND EXPENSES

REVENUE AND EXPENSE FROM CONTINUING OPERATIONS CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’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 – –

Impairmentonly use personal For 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.

ANNUAL REPORT 2007 33 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

5 INCOME TAX (A) INCOME TAX EXPENSE The major components of income tax expense are:

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Income Statement

Current income tax

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

Adjustments in respect of current income tax (140) 156 (37) 1 of previous years

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 – – For personal use only use personal For

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

5 INCOME TAX continued (C) NUMERICAL RECONCILIATION BETWEEN AGGREGATE TAX EXPENSE RECOGNISED IN THE INCOME STATEMENT AND TAX EXPENSE CALCULATED PER THE STATUTORY INCOME TAX RATE A reconciliation between tax expense and the product of accounting profi t before income tax multiplied by the Group’s applicable income tax rate is as follows:

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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 For personal use only use personal For

ANNUAL REPORT 2007 35 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

5 INCOME TAX continued (D) RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred income tax at 30 June relates to the following:

BALANCE SHEET INCOME STATEMENT

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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)

Consolidationonly use personal For adjustment – – – 27

Prepayments/other – 1 – –

Uplift to retail stock value 195 – 20 –

Unrealised foreign exchange gains 11 – 11 –

277 72 31 13

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

5 INCOME TAX continued TAX CONSOLIDATION (i) Members of the tax consolidated group and the Tax Sharing Agreement Gazal Corporation Limited and its 100% owned Australian resident subsidiaries have formed a tax consolidated group with effect from 1 July 2003. Gazal Corporation Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries, based on the formula as set out in the agreement. In addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. At the balance date, the possibility of default is remote.

(ii) Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with the accounting period, while deferred taxes are allocated to members of the tax consolidated group in accordance with the principles of AASB 112 Income Taxes. Allocations under the tax funding agreement are made annually.

The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the subsidiaries’ inter-Company accounts with the tax consolidated group head Company, Gazal Corporation Limited. Because under UIG 1052 Tax Consolidation Accounting the allocation of current taxes to tax consolidated group members on the basis of accounting profi ts is not an acceptable method of allocation given the group’s circumstances, the difference between the current tax amount that is allocated under the tax funding agreement and the amount that is allocated under an acceptable method is recognised as a contribution/distribution of the subsidiaries’ equity accounts. The group has applied the group allocation approach in determining the appropriate amount of current taxes to allocate to members of the tax consolidated group.

6 DISCONTINUING OPERATIONS Prior 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. For personal use only use personal For

ANNUAL REPORT 2007 37 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

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

2007 2006

Mambo Mambo International Mambo International Mambo Europe Italy Europe Italy Limited Srl Total Limited Srl Total Note $’000 $’000 $’000 $’000 $’000 $’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 – – – (407) – (407) value less cost to sell*

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

Assetsonly use personal For classifi ed as held for sale – 976

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

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

2007 2006

Mambo Mambo International Mambo International Mambo Europe Italy Europe Italy Limited Srl Total Limited Srl Total $’000 $’000 $’000 $’000 $’000 $’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 SHARE The following refl ects the income and share data used in the calculations of basic and diluted earnings per share:

CONSOLIDATED

Year ended Year ended 30 June 2007 30 June 2006 $’000 $’000 Net profi t attributable to ordinary equity holders of the 10,389 11,494 parent from continuing operations Profi t/(loss) attributable to ordinary equity holders of the (2,018) (4,064) parent from discontinuing operations Earnings used in calculating basic and diluted earnings 8,371 7,430 per share

Number of Number of shares shares Weighted average number of ordinary shares used in 60,670,264 61,290,941 calculating basic earnings per share Effect of dilutive securities Share options 346,350 608,761 Adjusted weighted average number of ordinary shares 61,016,614 61,899,702 used in calculating basic earnings per share

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 Year ended For personal use only use personal For 30 June 2007 30 June 2006 $’000 $’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.

ANNUAL REPORT 2007 39 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

8 SEGMENT INFORMATION GEOGRAPHIC SEGMENTS The Directors believe the risks in the business are in the international development of the business and hence geography is the primary segment.

Transfer prices between business segments are set at an arms length basis in a manner similar to transactions with third parties. Segment revenue, expenses and result include transfers between business segments. Those transfers are eliminated on consolidation.

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

AUSTRALASIA EUROPE* ELIMINATIONS CONSOLIDATED

Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2007 2006 2007 2006 2007 2006 2007 2006 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Revenue

Sales to customers outside the 250,405 215,807 4,709 12,270 – – 255,114 228,077 consolidated entity

Other revenues from customers 6,327 3,491 403 77 – – 6,730 3,568 outside the consolidated entity

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 11,584 12,812 income tax expense

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

Net profi t from ordinary activities 8,371 7,430 after income tax expense

Net profi t attributable to outside – – equity interests

Net profi t for the period attributable 8,371 7,430 to members

* This segment is classifi ed as discontinued operation on 30th June 2006. For personal use only use personal For

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

8 SEGMENT INFORMATION continued

AUSTRALASIA EUROPE* ELIMINATIONS CONSOLIDATED

Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2007 2006 2007 2006 2007 2006 2007 2006 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’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 1,985 2,363 558 2,343 – 2,543 4,706 depreciation and amortisation

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. For personal use only use personal For

ANNUAL REPORT 2007 41 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

9 TRADE AND OTHER RECEIVABLES (CURRENT)

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Trade debtors (i) 22,090 20,523 – –

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

21,573 19,127 – –

Related parties receivables

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

Associated entity (iii) 232 – – –

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

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

(i) Trade receivables are non-interest bearing and are predominantly on 30 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired. (ii) Loans to wholly owned group entities repayable on demand. (iii) Interest-bearing loan to associated entity repayable in October 2007.

10 INVENTORIES (CURRENT)

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

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

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

Raw materials and stores, net 932 993 – –

Work in progress, at cost 179 78 – –

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

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

Finished goods, net 39,999 39,124 – –

Stock in transit 4,589 5,227 – –

Total inventories 45,699 45,422 – –

11 OTHER ASSETS (CURRENT)

CONSOLIDATED PARENT ENTITY

For personal use only use personal For Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Prepayments 2,280 2,167 – –

Other 959 596 42 51

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

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

12 RECEIVABLES (NON-CURRENT)

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Related parties receivables (i)

Associated entity – 216 – –

Total other current assets – 216 – –

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

13 PROPERTY, PLANT AND EQUIPMENT

CONSOLIDATED PARENT ENTITY

Land and Leasehold Plant and Leasehold Plant and building improvement machinery Total improvement machinery Total $’000 $’000 $’000 $’000 $’000 $’000 $’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,only use personal For 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.

ANNUAL REPORT 2007 43 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

13 PROPERTY, PLANT AND EQUIPMENT continued

CONSOLIDATED PARENT ENTITY

Land and Leasehold Plant and Leasehold Plant and building improvement machinery Total improvement machinery Total $’000 $’000 $’000 $’000 $’000 $’000 $’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 – – (298) (298) – – – held for sale (Note 5)

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. For personal use only use personal For

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

13 PROPERTY, PLANT AND EQUIPMENT continued REVALUATION OF LAND AND BUILDINGS The Group engaged CB Richard Ellis, an accredited independent valuer, to advise the Directors on determining the fair value of its land and buildings which the Directors have adopted. Fair value is determined directly by reference to market-based evidence, which is the amounts for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction as at the valuation date. The effective date of the revaluation was 30 June 2007.

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

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Cost 13,545 13,305 – –

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

Net carrying amount 10,186 10,283 – –

14 INTANGIBLE ASSETS

CONSOLIDATED PARENT ENTITY

Industrial Trademarks designs Goodwill Software Total Software $’000 $’000 $’000 $’000 $’000 $’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 For personal use only use personal For

ANNUAL REPORT 2007 45 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

14 INTANGIBLE ASSETS continued (I) TRADEMARKS Trademark values are assessed at brand level within each cash-generating unit (“CGU”). The useful lives of trademarks are estimated as indefi nite and the relief from royalty method is utilised for the measurement of fair value when recognised on acquisition. The trademarks are determined to have indefi nite life when it is the Company’s intention to support, maintain and enhance the market perception of the trademarks. The methodology is based on an estimate of arm’s length royalty of between 3% and 6% (2006: 3% to 6%) which would be payable to a third party licensor on sales of trademark branded product. Estimated royalty values (less brand maintenance expenses) are discounted to arrive at a Net Present Value (“NPV”) of the royalty income attributable to the trademark. The trademark is deemed not to be impaired if the resulting fair value calculation described above is greater than the carrying value of the trademark. Sales projections refl ect budget for the ensuing year and further growth between 2.5% and 4% p.a. (2006: 2.5% to 4%) for subsequent three years plus terminal value. The discount rate of 10.7% (2006: 10.5%) used in the NPV calculations approximates the Company’s actual pre tax weighted average cost of capital for the year in review.

The useful life of industrial designs is estimated as being 16 years from the date of recognition at fair value on acquisition. The royalty method is utilised for its measurement and the asset is being amortised over its estimated useful life.

(II) GOODWILL Goodwill is measured for each CGU by calculating its enterprise value being the NPV of future free cash fl ows and deducting from this value the net tangible assets and identifi able intangible assets such as trademarks and industrial designs used by the CGU. A CGU for Gazal consists of like style product groupings and risk is deemed to be constant across all groupings. Goodwill which has been purchased as a part of a business combination is regarded as having an indefi nite life. Value in use of goodwill is tested at least annually for impairment, and always at the end of fi nancial year to ensure that assets are carried at a recoverable value. No impairment loss was charged for continuing operations in the 2007 fi nancial year. The discount rate of 10.7% (2006: 10.5%) used in goodwill calculations approximates the Company’s actual pre tax weighted average cost of capital for the year in review. Valuations have assumed budget sales growth in the ensuing year and further growth of between 2.5% and 4% (2006: 2.5% to 4%) for the subsequent three years plus terminal value.

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

Carrying amounts attributed to trademarks and goodwill are as follows:

2007 CONSOLIDATED 2006 CONSOLIDATED

Trademarks Goodwill Trademarks Goodwill $’000 $’000 $’000 $’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 For personal use only use personal For

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

15 INVESTMENT IN SUBSIDIARIES (NON-CURRENT)

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Shares in controlled entities – unlisted

At cost – – 66,943 66,943

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

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

16 OTHER ASSETS (NON-CURRENT)

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Procurement fee 2,060 2,441 – –

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

17 TRADE AND OTHER PAYABLES (CURRENT)

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Trade payables(i) 15,014 10,002 – –

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

Goods and services tax 856 992 – –

Total current payables 25,424 20,664 244 239

(i) Trade payables are non-interest bearing and are normally settled between 0–60 day terms. (ii) Other payables are non-interest bearing and are normally settled between 0–90 day terms.

18 INTEREST-BEARING LOANS AND BORROWINGS (CURRENT)

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Bank overdrafts – secured (Refer Note 20(a)) 585 – – – For personal use only use personal For

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

Total current borrowings 18,085 26,461 – –

ANNUAL REPORT 2007 47 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

19 PROVISIONS (CURRENT)

CONSOLIDATED PARENT

Provision Provision for Onerous Provision for annual long service lease Other for leave leave contracts provisions Total dividend $’000 $’000 $’000 $’000 $’000 $’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 – a) 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. b) Onerous lease contracts provision and other provisions both relate to the discontinued UK operation.

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

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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 Provision for long service long service leave leave $’000 $’000

At 1 July 2006 438 –

Arising during the year 203 –

Utilised – – For personal use only use personal For

Discount rate adjustment (78) –

At 30 June 2007 563 – a) 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.

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

22 CONTRIBUTED EQUITY

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Ordinary shares

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

The Corporations legislation in place abolished the concepts of authorised capital and par value shares. Accordingly, the parent does not have authorised capital nor par value in respect of its issued shares.

Movements in contributed equity for the year

CONSOLIDATED PARENT ENTITY

Number Value Number Value ‘000 $’000 ’000 $’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 disclosedonly use personal For in Note 3.

ANNUAL REPORT 2007 49 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

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

On issue Issued Converted On issue Exercise 30 June during the to fully paid 30 June Date granted price 2006 year (g)(h) shares (e) Forfeited 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) 4443

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. For personal use only use personal For

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

23 RESERVES

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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 50 70 – – entities 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 only use personal For 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.

ANNUAL REPORT 2007 51 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

24 RETAINED PROFITS AND DIVIDENDS

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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 4,270 4,316 4,270 4,316 5 April 2007

Prior year fi nal franked dividend 7 cents (2006: 7 cents) paid 4,323 5,550 4,323 5,550 6 October 2006

Special fully franked dividend 10 cents paid 15 July 2005 – 6,124 – 6,124 – declared and provided for 30 June 2005

(c) Dividends proposed but not recognised as a liability

Final fully franked dividend 7 cents (2006: 7 cents) paid 4,247 4,323 4,247 4,323 5 October 2007

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 (1,417) 1,674 (1,417) 1,674 payable as at the end of the fi nancial year

12,405 12,937 12,405 12,937 For personal use only use personal For

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

25 COMMITMENTS

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Capital expenditure contracted for is payable as follows:

Not later than one year 268 883 – –

Operating lease expenditure contracted for is payable as follows:

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

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

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

40,884 33,111 – –

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

26 CONTINGENT LIABILITIES

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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. For personal use only use personal For

ANNUAL REPORT 2007 53 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

27 CASH AND CASH EQUIVALENTS (CURRENT) (A) RECONCILIATION OF CASH For the purpose of the Statement of Cash Flows, cash includes cash on hand and in banks and short term deposits at call, net of outstanding bank overdrafts. Cash at the end of fi nancial year as shown in the Balance Sheet is as follows:

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

Cash at bank 2,352 4,525 32 –

Bank overdraft (585) – – –

1,767 4,525 32 –

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

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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 For personal use only use personal For

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

28 FINANCING FACILITIES AVAILABLE (A) TERMS AND CONDITIONS Bank overdrafts The bank overdrafts are secured by a fi xed and fl oating charge over all of the Group’s assets. The bank overdraft facilities may be withdrawn at any time and may be terminated by the bank if in the opinion of the bank there has been a breach or event of default and certain fi nancial ratios are not maintained to the satisfaction of the bank.

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

(B) FINANCING FACILITIES AVAILABLE At reporting date, the following fi nancing facilities have been negotiated and were available:

CONSOLIDATED PARENT ENTITY

Accessible Drawdown Unused Accessible Drawdown Unused $’000 $’000 $’000 $’000 $’000 $’000

At 30 June 2007 Bank overdraft facility (a) 3,000 (585) 2,415 – – – Bank loan facilities (a) 76,000 (57,500) 18,500 – – – Total fi nancing facilities 79,000 (58,085) 20,915 – – –

At 30 June 2006 Bank overdraft facility (a) 3,247 – 3,247 – – – Bank loan facilities (a) 63,935 (53,461) 10,474 – – – Total fi nancing facilities 67,182 (53,461) 13,721 – – –

All of the economic entity’s facilities are subject to annual review and subject to the conditions referred to Note 20(a).

(C) ASSETS PLEDGED AS SECURITY The carrying amounts of assets pledged as security for current and non-current interest-bearing liabilities are:

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Notes $’000 $’000 $’000 $’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 For personal use only use personal For 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 –

ANNUAL REPORT 2007 55 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

29 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The 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. For personal use only use personal For

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

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 Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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

For personal use only use personal For 62,837 64,367 62,837 64,367

Financial liabilities and derivatives Trade payables (244) (239) (244) (239) (244) (239) (244) (239)

ANNUAL REPORT 2007 57 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

30 FINANCIAL INSTRUMENTS continued INTEREST RATE RISK The following table sets out the carrying amount, by maturity, of the fi nancial instruments exposed to interest rate risk:

Weighted average effective <1 year >1 <2 years >2 <3 years Total interest rate Year ended 30 June 2007 $’000 $’000 $’000 $’000 $’000

CONSOLIDATED Financial assets Fixed rate Loan receivable 232 – – 232 7.5% Weighted average effective interest rate 7.5%

Floating rate Cash assets 2,352 – – 2,352 3.5% Weighted average effective interest rate 3.5%

Financial liabilities Fixed rate Bank loan (5,000) – – (5,000) 5.5% Weighted average effective interest rate 5.5%

Floating rate Bank overdraft (585) – – (585) 10.1% Bank loan (12,500) (40,000) – (52,500) 7.0% Weighted average effective interest rate 7.1% 7.0%

Year ended 30 June 2006

CONSOLIDATED Financial assets Fixed rate Loan receivable – 216 – 216 7.5% Weighted average effective interest rate 7.5%

Floating rate Cash assets 4,525 – – 4,525 4.1% Weighted average effective interest rate 4.1%

Financial liabilities Fixed rate Bank loan – (5,000) – (5,000) 5.5%

Weightedonly use personal For average effective interest rate 5.5%

Floating rate Bank loan (26,461) (22,000) – (48,461) 6.5% Weighted average effective interest rate 6.5% 6.5%

Interest on fi nancial instruments classifi ed as fl oating rate is repriced at intervals of less than one year. Interest on fi nancial instruments classifi ed as fi xed rate is fi xed until maturity of the instrument. The other fi nancial instruments of the Group and parent that are not in the above tables are non-interest-bearing and are therefore not subject to interest rate risk.

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

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. For personal use only use personal For

ANNUAL REPORT 2007 59 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

30 FINANCIAL INSTRUMENTS continued (f) Held for trading

Year ended 30 June 2007 Amount Expiry Date Rate

Forward exchange contracts – buy (US$’000) – – –

Year ended 30 June 2006 Amount Expiry Date Rate

Currency options – buy (US$’000) US$600 29.08.06–29.01.07 0.7600 US$500 08.08.06–07.09.06 0.7425 Currency options – sell (US$’000) US$600 29.08.06–29.01.07 0.7600 US$1,000 08.08.06–07.09.06 0.7633 Forward exchange contracts – buy (US$’000) US$18,313 03.07.06–31.01.07 0.7297–0.7710 Forward exchange contracts – buy (HK$’000) HK$36,124 05.07.06–06.09.06 5.6215– 5.9409

31 RELATED PARTY DISCLOSURES The 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.

Country of Equity interest Name of controlled entity Notes incorporation 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 For personal use only use personal For 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

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

31 RELATED PARTY DISCLOSURES continued a) These 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). b) 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. c) Financial information for class order closed group.

Gazal Corporation Limited Closed Group Balance Sheet at 30 June 2007

CONSOLIDATED

As at As at 30 June 2007 30 June 2006 $’000 $’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 For personal use only use personal For

ANNUAL REPORT 2007 61 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

31 RELATED PARTY DISCLOSURES continued Gazal Corporation Limited Closed Group Balance Sheet at 30 June 2007 continued

CONSOLIDATED

As at As at 30 June 2007 30 June 2006 $’000 $’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 For personal use only use personal For

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

31 RELATED PARTY DISCLOSURES continued

Gazal Corporation Limited Closed Group Income Statement for the year ended 30 June 2007

CONSOLIDATED

Year ended Year ended 30 June 2007 30 June 2006 $’000 $’000

Sales revenue 243,181 209,832 Cost of sales (126,475) (103,905) Gross profi t 116,706 105,927

Other revenues 7,750 3,490 Selling and marketing expenses (72,398) (64,187) Distribution expenses (17,300) (14,612) Administration expenses (18,370) (11,936) Impairment and provision for lease termination of retail stores (1,170) – Finance costs (4,167) (3,025) Profi t before income tax expense 11,051 15,657 Income tax expense (2,668) (4,673) Net profi t after related income tax expense 8,383 10,984

Retained profi ts at the beginning (16,006) (17,123) Dividends paid (8,593) (9,867) Retained profi ts at the ending (16,216) (16,006)

TRANSACTIONS WITH RELATED PARTIES IN THE WHOLLY OWNED GROUP The following table provides the total amount of transactions that were entered into with related parties for the relevant fi nancial year:

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 Transaction type Class of related party $’000 $’000 $’000 $’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 For personal use only use personal For

* 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.

ANNUAL REPORT 2007 63 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

32 SIGNIFICANT EVENTS AFTER BALANCE DATE There 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 As at 30 June 2007 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.only use personal For Queeney General Manager – Supply Chain and IT „ D. Coghlan Chief Financial Offi cer „ P. Wood Company Secretary

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

34 DIRECTOR AND EXECUTIVE DISCLOSURES continued (B) REMUNERATION OF KEY MANAGEMENT PERSONNEL (i) Remuneration policy The Remuneration and Nomination Committee of the Board of Directors of Gazal Corporation Limited is responsible for determining and reviewing compensation arrangements for the Directors, the chief executive offi cer and the executive team. The Remuneration and Nomination Committee assesses the appropriateness of the nature and amount of emoluments of such offi cers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefi t from the retention of a high quality Board and executive team. Such offi cers are given the opportunity to receive their base emolument in a variety of forms including cash and fringe benefi ts such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.

To assist in achieving these objectives, the Remuneration and Nomination Committee links the nature and amount of executive Directors’ and offi cers’ emoluments to the Company’s fi nancial and operational performance. All Directors and executives have the opportunity to qualify for participation in the Gazal Employee Share Option Plan. In addition, all executives are entitled to annual bonuses payable upon the achievement of annual divisional and corporate profi tability measures.

The Company has applied the exemption under Corporations Amendments Regulation 2006 which exempts listed companies from providing remuneration disclosures in relation to their key management personnel in their annual fi nancial reports by Accounting Standard AASB 124 Related Party Disclosures. These remuneration disclosures are provided in the Remuneration Report section of the Directors’ Report designated as audited.

(ii) Remuneration by category: Key Management Personnel

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’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 For personal use only use personal For

ANNUAL REPORT 2007 65 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

34 DIRECTOR AND EXECUTIVE DISCLOSURES continued (C) OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL

Balance at Balance VESTED AT 30 JUNE 2007 beginning Granted as at end of of period remun- Options Net change period Not 1 July 2006 eration exercised other 30 June 2007 Total 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 Balance VESTED AT 30 JUNE 2006 beginning Granted as at end of of period remun- Options Net change period Not 1 July 2005 eration exercised other 30 June 2006 Total 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 For personal use only use personal For

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

34 DIRECTOR AND EXECUTIVE DISCLOSURES continued (D) SHAREHOLDINGS OF KEY MANAGEMENT PERSONNEL

30 JUNE 2007 Balance Granted as On exercise Net change Balance 1 July 2006 remuneration of options other 30 June 2007 Shares held in Gazal Corporation Limited (Number) ordinary ordinary ordinary ordinary 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 Balance Granted as On exercise Net change Balance 1 July 2005 remuneration of options other 30 June 2006 Shares held in Gazal Corporation Limited (Number) ordinary ordinary ordinary ordinary 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. For personal use only use personal For

ANNUAL REPORT 2007 67 GAZAL NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2007

34 DIRECTOR AND EXECUTIVE DISCLOSURES continued (E) LOANS TO KEY MANAGEMENT PERSONNEL There are no loans to Directors or executives.

(F) OTHER TRANSACTIONS AND BALANCES WITH KEY MANAGEMENT PERSONNEL Messrs M.J. Gazal and D.J. Gazal are directors of Gazal Industries Pty Limited, a director related entity. During the year Gazal Corporation Limited provided for the payment of expenses on behalf of Gazal Industries Pty Limited. These expenses have been recharged to Gazal Industries Pty Limited. Mr J.W. Blood is a director of Macquarie Textiles Limited. During the year the Company purchased material from Macquarie Textiles Limited on normal commercial terms amounting to $1,210,107 (2006: $616,507).

Mr J.W. Blood is a director of Canning Vale Weaving Mills Pty Limited. During the year the Company purchased material from Canning Vale Weaving Mills Pty Limited on normal commercial terms amounting to $60,020 (2006: $66,478).

35 EMPLOYEES

CONSOLIDATED PARENT ENTITY

Year ended Year ended Year ended Year ended 30 June 2007 30 June 2006 30 June 2007 30 June 2006 $’000 $’000 $’000 $’000

(a) Employee entitlements Aggregate employee entitlement liability (Refer Notes 19 and 21) 5,209 5,387 – –

30 June 2007 30 June 2006 Number 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 Lump sum benefi t on retirement or withdrawal 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. For personal use only use personal For

68 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

Number of Number of Size of holding shareholders 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.

Relevant interest in Name 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, 30,590,465 50.4 a trust established for the benefi t of the family of J.S. Gazal

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 For personal use only use personal For

ANNUAL REPORT 2007 69 GAZAL TOP 20 SHAREHOLDERS

TOP 20 SHAREHOLDERS AS AT 18 SEPTEMBER 2007

Number of % of Registered holder ordinary shares 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

For personal use only use personal For

70 CORPORATE DIRECTORY

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 BUSINESS 3–7 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 LISTINGS Gazal Corporation Limited shares are quoted on the Australian Securities Exchange

ASX CODE

GZL For personal use only use personal For GAZAL ANNUAL REPORT 2007

ANNUAL REPORT 2007 For personal use only use personal For

www.gazal.com.au

ABN 57 004 623 474