annual report 2009

ABN 57 004 623 474 623 004 57 ABN ANNUAL REPORT 2009 www.gazal.com.au annual report 2009 Financial calendar 2009

Preliminary final report 26 August and dividend announcement

Record date for final dividend 18 September

Final dividend payable 6 October

Annual Report and Notice of 23 October Annual General Meeting Mailed to Shareholders

Annual General Meeting 26 November

Half year end 31 December

The Annual General Meeting of Shareholders of Gazal Corporation Limited will be held at The J.S. Gazal Building, 3-7 McPherson Street Banksmeadow on 26 November 2009 at 11:30am. A formal notice of meeting is enclosed with this Annual Report setting out the business of the Annual General Meeting.

ANNUAL REPORT 2009 1 THE YEAR IN REVIEW

The Gazal Corporation Limited Group (“Gazal”) recorded an after‑tax Looking forward into the new financial year, the work undertaken profit of $6.833 million for the year ended 30 June 2009. This was in reducing our overhead cost base places the Company in a far better a decrease of 28.3% on the previous year. position. There are some recent signs of growing consumer confidence; however, underlying retail trading conditions remain somewhat Group sales revenue from continuing operations decreased 1.6% uncertain. Whilst the A$/US$ exchange rate has improved recently, any to $243.5 million. The economic slowdown impacted our sales benefit that may arise from a stronger A$/US$ rate is not likely to be of branded merchandise to the department store sector, although realised until the second half of financial year 2010. It is too early to the Government’s stimulus money assisted sales in the second half make any predictions in relation to earnings for the new financial year; of the financial year. The slowdown in the construction and mining however, we expect to be able to update shareholders at the Annual industries also affected our workwear business. Sales increased in our General Meeting in November 2009. direct‑to‑consumer businesses. The Directors declared a final dividend of 4 cents per share fully franked After-tax profit from continuing operations was $6.8 million for the (final dividend 2008: 7 cents per share fully franked). The record date 12 months, compared with $9.2 million last year, a decline of 26%. for determining shareholders’ entitlement for the final dividend is This disappointing outcome was mainly as a result of lower gross profit 18 September 2009 and the final dividend is payable on 5 October 2009. margins in the second half due to the sharp decline in the Australian dollar exchange rate. The average A$/US$ rate achieved to pay The Directors would like to convey their appreciation to management overseas suppliers in the January to June 2009 period was 0.6744. and staff for their contribution during the year. We also wish to thank This compares to the average rate of 0.8802 for the same period last you, our shareholders, for your continuing support. year. Margins were also impacted by clearance of surplus inventories, particularly in the last quarter of the financial year. Much work was done to reduce overheads in the business, with selling and marketing, distribution and administration expenses all down on last year. Also, these expenses include one-off restructuring charges, mainly in relation to redundancies made during the year. J.W. Blood M.J. Gazal The marked drop in the A$/US$ exchange rate resulted in higher Chairman Managing Director closing inventory levels, which ended the period at $45.9 million. This was $6.5 million higher than at the same time last year. This impacted on cash flows from operating activities during the year, which were $7.4 million. This result was much lower than that of the previous year, which benefited from substantial reductions in working capital from the higher levels that prevailed at the beginning of financial year 2008.

Net debt levels as at 30 June 2009 were $41.7 million compared to $33.8 million at the same time last year. The Company’s loan facilities with Westpac of $74 million are in place through to September 2010 and we expect that these facilities will be renewed through to September 2011 following Westpac’s normal annual review process.

The Company’s new SAP ERP computer system, which went live in February 2009, is performing to expectations. Over the next period, we will continue to develop its capabilities as we fine-tune its integration with our other software systems to provide the Company with best practice support systems in the apparel industry. We continue to work with these new systems with a heightened emphasis on inventory planning and working capital management.

GAZAL CORPORATION LIMITED 2 FINANCIAL REPORT

DIRECTORS’ REPORT 4

Auditor independence and 12 non‑audit services

STATEMENT OF CORPORATE 13 GOVERNANCE PRACTICES

INDEPENDENT AUDIT REPORT 16

DIRECTORS’ DECLARATION 18

INCOME STATEMENT 19

BALANCE SHEET 20

CASH FLOW STATEMENT 21

STATEMENT OF CHANGES IN EQUITY 22

NOTES TO THE FINANCIAL 23 STATEMENTS

SHAREHOLDER INFORMATION 73

TOP 20 SHAREHOLDERS 74

CORPORATE INFORMATION 75

ANNUAL REPORT 2009 3 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

Your Directors have pleasure Directors in submitting their report for the year ended 30 June 2009. The names and details of the Company’s Directors in office during the financial year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated.

Names, Qualifications, Experience and Special Responsibilities John W. Blood Non-executive Chairman – Has had widespread experience in the textile and garment industry. He is presently a director of Canningvale Australia Pty Ltd, Macquarie Textiles Group Limited and Cotton Seed Distributors. He is a member of the Audit and Risk Committee and Chairman of the Remuneration and Nomination Committee.

Michael J. Gazal B.Com Managing Director and CEO – Joined the Gazal Group in 1986 after gaining experience in merchant banking and stockbroking. In November 1989, after the passing of Mr J.S. Gazal AM, his father and founding Chairman of the Gazal Group, he was appointed Chief Executive Officer and is responsible for the day-to-day management of the Group.

David J. Gazal Executive Director – Joined the Gazal Group in 1987, appointed Director on 24 April 1999 and has performed a number of key roles within the Group since joining, including Group Divisional Manager of Surf and Casual wear and Managing Director of Mambo. He is currently the General Manager of Sourcing and certain group operating divisions.

Craig Kimberley Non-executive Director – The founder of the Just Jeans retail chain, he has had 30 years experience in the retail and apparel industries. He is a member of the Remuneration and Nomination Committee.

Graham Paton AM B.Ec FCPA Non-executive Director – Previously a partner for 23 years in Arthur Andersen, Chartered Accountants, retiring from that firm and public practice in July 2001. He is presently a director of Harvey Norman Holdings Limited, a position he has held since 26 June 2005. He is the Chairman of the Audit and Risk Committee.

Company Secretary Peter J. Wood CA FICS Has been the Company Secretary of Gazal Corporation Limited for 22 years. Prior to holding this position, he held the role of Financial Controller of related Gazal companies for six years. Mr. Wood has been a Chartered Accountant for over 30 years.

GAZAL CORPORATION LIMITED 4 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

Interests in the shares and options of the Company and related body corporate

At the date of this report, the interests of the Directors in the shares and other equity securities of the Company and related body corporate are:

Total interest Ordinary in ordinary Director shares shares held Options

J.W. Blood 250,000 100,000 –

M.J. Gazal 1,212,211 29,582,911(1) –

1,007,554(2) – 3,411,363(3) –

D.J. Gazal 1,139,622 29,582,911(1) –

1,007,554(2) –

2,067,696(4) –

C. Kimberley – 265,000 –

G. Paton – – –

1-2 M.J. Gazal and D.J. Gazal have a relevant interest in Gazal Corporation Limited shares held by a wholly owned subsidiary of Gazal Nominees Pty Limited (1) and directly by Gazal Nominees Pty Limited (2), as each of M.J. Gazal and D.J. Gazal have a 25% shareholding in Gazal Nominees Pty Limited. 3 M.J. Gazal has a relevant interest in Gazal Corporation Limited shares held by MJ and HH Gazal Pty Limited as trustee for the Michael Gazal Family Trust, as M.J. Gazal has a 50% shareholding in MJ and HH Gazal Pty Limited. 4 D.J. Gazal has a relevant interest in Gazal Corporation Limited shares held by The David Gazal Family Company Pty Limited as trustee for the David Gazal Family Trust, as D.J. Gazal has a 50% shareholding in The David Gazal Family Company Pty Limited.

Directors’ 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 financial year were: Remuneration and Board of Directors Audit and Risk Committee Nomination Committee

Maximum Maximum Maximum possible possible possible Attended attended Attended attended Attended attended

J.W. Blood 8 8 2 2 1 1

M.J. Gazal 8 8 – – – –

D.J. Gazal 8 8 – – – –

C. Kimberley 7 8 – – 1 1

G. Paton 8 8 2 2 – –

ANNUAL REPORT 2009 5 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

Principal Activities Likely Developments and Expected Results The principal activities of Gazal Corporation Limited and its subsidiaries (“the economic entity”, “the Group” or “the Company”) The Directors have excluded from this report any further information in the course of the financial year were the design, manufacture, on the likely developments in the operations of the economic entity importation, wholesale and retail of well known branded apparel and the expected results of those operations in future financial years, and accessories. as the Directors have reasonable grounds to believe that it would be likely to result in unreasonable prejudice to the economic entity. Operating and Financial Review Environmental Regulation and The consolidated profit of the economic entity for the financial year ended 30 June 2009 after income tax was $6,833,000. This Performance represents a 28.3% decrease on the 2008 result of $9,524,000. The economic entity’s environmental obligations are regulated under both State and Federal Law. The Audit and Risk Committee monitors Dividends environmental obligations. The economic entity has a policy of at least complying, but in most cases exceeding its environment performance The following dividends of the economic entity have been paid, declared obligations. No environmental breaches have been notified by any or recommended since the end of the preceding financial year: Government agency during the year ended 30 June 2009. On ordinary shares $’000 Share Options Final fully franked dividend for 2008 (7c per share) as declared in the 2008 Directors’ report paid Details of options granted to Directors or relevant executives as part 4 November 2008 4,247 of their remuneration are set out in the section of this report headed “Remuneration Report”. Details of shares and interests under option, Interim fully franked dividend for 2009 (4c per share) paid 4 May 2009 2,427 or issued during or since the end of the financial year to the date of this report due to the exercise of an option, are set out in note 21 Final fully franked dividend for 2009 (4c per share) to the financial statements and form part of this report. There have as recommended and declared by the Directors, payable 5 October 2009 2,427 been no further options issued from 30 June 2009 to the date of this report.

Review of Operations Indemnification and Insurance of A review of operations of the economic entity and the results of those Directors and Officers operations is contained in “The Year In Review”. Insurance arrangements established in the previous year concerning Significant Changes in the State officers of the economic entity were renewed during 2009. of Affairs Indemnity agreements have been entered into between Gazal Corporation Limited and each of the Directors of the Company named There were no significant changes in the state of affairs of the earlier in this report. Under the agreement, the Company has agreed to economic entity that occurred during the financial year not otherwise provide reasonable protection for the Directors against liabilities which disclosed in this report or the consolidated financial statements. may arise as a result of work performed in their respective capacities. Significant Events after the Balance As part of the above agreement, Gazal Corporation Limited paid an insurance premium in respect of a contract insuring each of the Date Directors of the Company named earlier in this report and each full‑time executive officer, Director and Secretary of Gazal Corporation There are no matters or circumstances that have arisen since Limited and its controlled entities, against all liabilities and expenses 30 June 2009 that have significantly affected or may significantly arising as a result of work performed in their respective capacities, affect the operations of the economic entity, the results of those to the extent permitted by law. The terms of the above insurance operations or the state of affairs of the economic entity in subsequent policy prohibit disclosure of the nature of the risks insured or the financial years. premium paid.

GAZAL CORPORATION LIMITED 6 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

Rounding Remuneration and Nomination Committee The Remuneration and Nomination Committee of the Board of The amounts contained in this report and in the financial report have Directors of the Company is responsible for determining and reviewing been rounded to the nearest $1,000 (where rounding is applicable) compensation arrangements for the Directors, the chief executive under the option available to the Company under ASIC Class Order officer and the senior management team. The Remuneration and 98/0100. The Company is an entity to which the Class Order applies. Nomination Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by Remuneration Report (audited) reference to relevant employment market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention This report outlines the remuneration arrangements in place for of a high quality Board and executive team. Such officers are given Directors and executives of Gazal Corporation Limited (the “Company”), the opportunity to receive their base emolument in a variety of forms, in accordance with the requirements of the Corporations Act 2001 including cash and fringe benefits such as motor vehicles. It is intended and its regulations. For the purposes of this report, Key Management that the manner of payment chosen will be optimal for the recipient Personnel (“KMP”) of the Group are defined as those persons having without creating undue cost for the Company. authority and responsibility for planning, directing and controlling the major activities of the Company and Group, directly or indirectly, To assist in achieving these objectives, the Remuneration and including any Director (whether executive or otherwise) of the parent Nomination Committee links the nature and amount of executive Company, and includes the five executives in the parent and the Group Directors’ and officers’ emoluments to the Company’s financial and receiving the highest remuneration. operational performance. All Directors and executives have the opportunity to qualify for participation in the Gazal Employee Share Details of key management personnel Option Plan. In addition, all executives are entitled to annual bonuses (i) directors payable upon the achievement of annual divisional and corporate J.W. Blood Chairman (Non-executive) profitability measures. M.J. Gazal Director and Chief Executive Officer (“CEO”) Remuneration philosophy Executive Director and General Manager The performance of the Company depends upon the quality of its D.J. Gazal – Sourcing and certain operating divisions Directors and executives, and to grow and prosper, the Company must C. Kimberley Director (Non-executive) attract, motivate and retain highly skilled Directors and executives. G. Paton Director (Non-executive) To this end, the Company embodies the following principles in its (ii) executives remuneration framework: C. Barnett Chief Operating Officer „„ Provide competitive rewards to attract high caliber executives. D. Thompson General Manager – Intimate Apparel „„ Link variable executive remuneration to financial and operational – resigned 11 March 2009 performance. R. Gazal General Manager – Retail „„ Link executive rewards to shareholder value.

P. O’Regan General Manager – Supply Chain In accordance with best practice corporate governance, the structure – resigned 12 November 2008 of non-executive Director and executive remuneration is separate D. Coghlan Chief Financial Officer and distinct. P. Wood Company Secretary Non-executive director remuneration Other than the resignation of Messrs D. Thompson and P. O’Regan, Objective there were no other changes of the CEO or KMP after the reporting The Board seeks to set aggregate remuneration at a level which provides date and before the date the financial report was authorised for issue. the Company with the ability to attract and retain Directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.

Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the Directors as agreed. The latest determination was at the Annual General Meeting held on 30 November 2001, when shareholders approved an aggregate remuneration of $500,000 per year.

ANNUAL REPORT 2009 7 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

The amount of aggregate remuneration sought to be approved Fixed Remuneration by shareholders and the manner in which it is apportioned amongst Objective Directors is reviewed annually. The Board considers advice from external The level of fixed remuneration is set so as to provide a base level consultants, as well as the fees paid to non-executive directors of of remuneration which is both appropriate to the position and comparable companies when undertaking the annual review process. competitive in the market.

Each Director receives a fee for being a Director of the Company. Fixed remuneration is reviewed annually by the Remuneration Non-executive Directors have long been encouraged by the Board and Nomination Committee. The process consists of a review of to hold shares in the Company (purchased by the Director on market). Company‑wide, business unit and individual performance, relevant The non-executive Directors of the Company can participate in the comparative remuneration in the market and internal and, where Employee Share Option Plan. appropriate, external advice on policies and practices. Structure The remuneration of non-executive Directors for the year ended Executives are given the opportunity to receive their fixed (primary) 30 June 2009 is detailed in the table on page 10 of this report. remuneration in a variety of forms including fringe benefits such Senior manager and executive as motor vehicles. It is intended that the manner of payment chosen will director remuneration be optimal for the recipient without creating undue cost for the Company. Objective The fixed remuneration component of executives is detailed in the The Company aims to reward executives with a level and mix of table on page 10. remuneration commensurate with their position and responsibilities within the Company so as to: Variable Remuneration – Short Term „„ reward executives for Company, business unit and individual Incentive (“STI”) performance against financial and operating performance; Objective „„ link reward with the strategic goals and performance of the The objective of the STI program is to link the achievement of the Company, and ensure total remuneration is competitive by market divisional and Company performance with the remuneration received standards; and by the executives charged with meeting the divisional performance. „„ align the interests of executives with those of shareholders. The total potential STI provides sufficient incentive to the senior executives to achieve the divisional performance such that the cost Structure to the Company is reasonable in the circumstances. In determining the level and make-up of executive remuneration, the Remuneration and Nomination Committee obtains independent Structure advice when necessary on market levels of remuneration Actual STI payments granted to each senior executive depend of comparable executives before the Committee makes its mainly on the performance of the senior executive as the key driver recommendations to the Board. of their division. Operational measures cover mainly financial and some non‑financial measures of performance. The usual process for The Remuneration and Nomination Committee considers it appropriate evaluating performance and KPI measures include contribution to that employment contracts are entered into with the executive net profit before tax, risk management, product management, and Directors and senior management. Details of the contracts with the leadership/team contribution. executive directors Mr. M.J. Gazal (the CEO) and Mr. D.J. Gazal are provided on page 9. On an annual basis, after consideration of divisional performance, each executive is reviewed in accordance with the above process and Remuneration consists of the following key elements: STIs assessed, including a short term incentive pool based on total „„ Fixed remuneration (base salary, superannuation and Company performance, are allocated to each executive who is deemed non‑monetary benefits). to have a positive impact on profitability. „„ Variable remuneration The aggregate of annual STI payments available for executives across –– Short Term Incentive (“STI”); and the Company is subject to the approval of the Remuneration and –– Long Term Incentive (“LTI”). Nomination Committee. Payments made are usually delivered as The proportion of fixed remuneration and variable remuneration a cash bonus. (potential short term and long term incentives) is established for each STI Bonus for 2008 and 2009 financial years senior manager by the Remuneration and Nomination Committee. The entire STI cash bonus of $622,000 for the 2008 financial year The table on page 10 details the variable component (%) of the key as accrued in the previous period vested to executives and was management personnel. paid in the 2009 financial year. The Remuneration and Nomination Committee has approved the STI payments for the 2009 financial year of $325,000 which were accrued at June 2009. This amount has

GAZAL CORPORATION LIMITED 8 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

been accrued on the basis that it is probable that the executives have The graph below shows Gazal’s consolidated net profit before tax, met their respective financial targets for the year. Any adjustments amortisation and impairment (and excluding material items as between the actual amounts to be paid as determined by the disclosed in the accounts, being items of a non-recurring nature) Remuneration and Nomination Committee and the amounts accrued for the past five years (including the current year). will be adjusted in the 2010 financial year. The STI bonus plan was Consolidated profit before tax, amortisation and impairment amended in late 2008 to align financial targets to the Company’s ($million) budget with effect for the year ended 30 June 2009. 18,000 Variable Pay – Long Term Incentive (“LTI”) 16,000 Objective 14,000 The objective of the LTI plan is to reward senior executives in a manner which aligns this element of remuneration with the creation 12,000 of shareholder wealth. 10,000 LTI grants are only made to executives who are able to influence the 8,000 generation of shareholder wealth and thus have a direct impact on the 6,000 Company’s performance. 4,000 Structure 2,000 LTI grants to executives are delivered in the form of share options administered under an Employee Share Option Plan (“ESOP”). 0,000 The most recent ESOP was approved by shareholders at the Annual 2005 2006 2007 2008 2009 General Meeting held in November 2005, with Company-based performance hurdles. Employment contracts Chief Executive Officer and Managing Director Relationship of rewards to performance „„ The CEO and MD, Mr Michael J Gazal, is employed under a contract. In assessing performance hurdles for the ESOP, the Directors Mr. Gazal’s current contract continues on the basis of 12 months considered that a Company-based performance hurdle is more notice by either party. Under the terms of the contract: appropriate than a market-based performance hurdle because the Mr Gazal may resign from his position and thus terminate the Company’s size and product mix is such that it does not really have contract by giving 3 months written notice. On resignation any any meaningful comparable peers. Any comparisons would need to options will be forfeited. be made against much larger companies with quite different product „„ The Company may terminate the contract by providing 3 months mixes. It would be inappropriate to assess the Company’s performance written notice in the event of extended absence by Mr Gazal by relative to such companies and this is why the Directors have not reason of illness or incapacity permanently unable to perform his selected a market-based performance hurdle. responsibilities and duties. In these circumstances the Company Instead, the Directors considered that a more meaningful measure may elect to provide payment in lieu of the notice period (based of the Company’s performance is the increase in net profit before on the fixed component of Mr Gazal’s remuneration). tax, amortisation and impairment (and excluding material items Other Executives as disclosed in the accounts, being items of a non-recurring nature) In addition, Mr David J Gazal is also employed under a contract. over a period of three consecutive financial years. This also has The current contract continues on the basis of 12 months notice by the advantage of being a performance measure the Company’s either party. The contract also contains termination provisions which management team can directly relate to and more directly influence. are similar to those under Mr Michael Gazal’s contract described above. Company performance All executives have similar contracts which may be terminated The Directors have selected a net profit growth rate of at least 6% by providing between 6 months and one months written notice or per annum over three consecutive years from the base year for its providing payment in lieu of the notice period (based on the fixed performance hurdle. The reason this rate was selected was because component of the executive’s remuneration). On termination on it is double CPI at commencement of the plan and it is also marginally notice by the company, any LTI options that have vested or that higher than the Company’s growth rate over recent trading results. will vest during the notice period will be forfeited. LTI options that The Directors believe this represents a suitably challenging but have not vested will also be forfeited. The Company may terminate achievable target for continuing future growth. Refer to note 21 for written contracts at any time without notice if serious misconduct further information. has occurred.

ANNUAL REPORT 2009 9

The above graph has been adjusted following further clarification around some of the items included in the calculation of profit before tax, amortisation and impairment (excluding material items of a non-recurring nature) and the correction to the 2007 results disclosed in note 36. DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

Directors’ and Executives’ Remuneration for the year ended 30 June 2008 Details of the nature and amount of each element of the remuneration of each Director of the Company and each Key Management Personnel of the Company and the consolidated entity receiving remuneration during the financial year including the five highest paid executives of the Company and the Group are as follows. % Share based Performance Short term benefits Post employment payment Total related Non- Salary Cash monetary Super– Retirement Lti Directors and fees bonus benefits Other annuation benefits options J.W. Blood, Chairman 2009 150,000 – – – 3,000 – (43,488) 109,512 (39.71) 2008 150,000 – – – 3,000 – 27,467 180,467 15.22 M.J. Gazal, Chief Executive Officer 2009 467,202 75,000 – 30,267 44,298 – (43,488) 573,279 5.50 2008 467,202 100,000 – 29,088 44,298 – 27,467 668,055 19.08 D.J. Gazal, Executive 2009 270,000 92,167 – 25,948 29,500 – (21,744) 395,871 17.79 2008 270,000 103,482 – 31,179 29,500 – 13,733 447,894 26.17 C. Kimberley, Non-executive 2009 75,000 – – – 7,500 – (32,616) 49,884 (65.38) 2008 75,000 – – – 7,500 – 20,600 103,100 19.98 G. Paton, Non-executive 2009 85,000 – – – 8,500 – – 93,500 – 2008 85,000 – – – 8,500 – – 93,500 – Total Directors 2009 1,047,202 167,167 – 56,215 92,798 – (141,336) 1,222,046 2008 1,047,202 203,482 – 60,267 92,798 – 89,267 1,493,016 Key Non- Management Salary Cash monetary Super– Retirement Lti Personnel and fees bonus benefits Other annuation benefits options Executives C. Barnett, Chief Operating Officer 2009 300,000 – – 29,849 32,500 – (47,733) 314,616 (15.17) 2008 300,000 160,000 – 29,445 32,500 – 23,867 545,812 33.69 R. Gazal, General Manager – Retail 2009 250,000 250,000 – 23,554 24,317 – – 547,871 45.63 2008 200,000 251,000 – 28,098 20,250 – – 499,348 50.27 D. Coghlan, Chief Financial Officer 2009 250,000 50,000 10,789 2,695 25,000 – – 338,484 14.77 2008 240,000 100,000 10,789 1,456 24,000 – – 376,245 26.58 D. Thompson*, General Manager – Intimate Apparel 2009 168,347 – – 22,870 16,496 98,437 (23,866) 282,284 (8.45) 2008 230,000 45,000 – 28,122 23,063 – 11,933 338,118 16.84 P. Wood, Company Secretary 2009 200,000 25,000 16,868 807 31,921 – – 274,596 9.10 2008 165,304 41,000 1,525 15,496 22,150 – – 245,475 16.70

GAZAL CORPORATION LIMITED 10 DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2009

% Share based Performance Short term benefits Post employment payment Total related Key Non- Management Salary Cash monetary Super– Retirement Lti Personnel and fees bonus benefits Other annuation benefits options P.O’Regan**, General Manager – Supply Chain 2009 81,692 – – 9,565 7,390 112,500 – 211,147 – 2008 62,307 25,000 – 7,729 6,303 – – 101,339 25 P. Lovegrove***, General Manager – Intimates 2009 – – – – – – – – – 2008 52,501 – 5,419 95,307 5,250 140,000 – 298,477 – P. Queeney****, General Manager – Supply Chain and IT 2009 – – – – – – – – – 2008 208,474 – – 23,586 18,368 25,000 – 275,428 – Total Executive KMP 2009 1,250,039 325,000 27,657 89,340 137,624 210,937 (71,599) 1,968,998 2008 1,458,586 622,000 17,733 229,239 151,884 165,000 35,800 2,680,242

*Resigned 11 March 2009. ** Resigned 12 November 2008. ***Resigned 30 September 2007. ****Resigned 11 April 2008.

Note: 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 21 to the financial statements.

Options granted as part of remuneration Shares issued on exercise of remuneration options There were no options granted as remuneration for the year ended There were no options exercised in the year ended 30 June 2009 and 30 June 2009 and in the year ended 30 June 2008. in the year ended 30 June 2008.

Remuneration Options: Granted and Vested during the Value of options cancelled and forfeited financial year During the year, options previously granted to the Directors on There were no options granted during the year. Options previously 4 December 2006 at $2.32 were cancelled, as the Company granted as equity compensation benefits under the long term incentive performance hurdles attaching to the options were not met. During the plan to certain key management personnel are as disclosed above. year, options previously granted to Mr. C. Barnett on 3 July 2006 were The options were issued free of charge. Each option entitles the cancelled, as the Company performance hurdles were not met. In 2008, holder to subscribe for one fully paid ordinary share in the entity options granted on 19 December 2005 at $3.05 to Directors and at an exercise price equal to the weighted average market price executives were also cancelled, as the Company performance hurdles of the shares on the five business days preceding the date of grant. were not met. The options vest if and when the Group’s net profit before tax and material items increases by 6% over three consecutive financial 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 five years. There are no cash settlement alternatives. For further details relating to the options, refer to note 21.

There were no options issued to Directors or executives in the year ended 30 June 2009 and in the year ended 30 June 2008.

ANNUAL REPORT 2009 11 AUDITOR INDEPENDENCE AND NON AUDIT SERVICES FOR THE YEAR ENDED 30 JUNE 2009

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 financial report of Gazal Corporation Limited for the financial year ended 30 June 2009, 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 25 September 2009 Liability limited by a scheme approved under Professional Standards legislation

NON-AUDIT SERVICES

The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are satisfied 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 are due to receive the following amounts for the provision of non-audit services:

Tax compliance services and corporate tax planning $95,783

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 25th day of September 2009.

GAZAL CORPORATION LIMITED 12 STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2009

This statement provides an outline of the main corporate governance Structure of the Board practices that the Company had in place during the past financial year. The Board comprises Directors with a broad range of experience The Board is committed to conducting the Company’s business reflecting the character of the Group’s business. The Board is ethically and in accordance with high standards of corporate structured in such a way that it has proper understanding and governance. The Board (together with the Company’s management) competency in the current and emerging issues facing the Company, regularly reviews the Company’s policies, practices and other and can effectively review and challenge management’s decisions. arrangements governing and guiding the conduct of the Company. Details of the Directors as at the date of this report, including their In keeping with these regular reviews, the Board and management have qualifications, experience, expertise, terms of office, other past and reviewed the Company’s risk framework in accordance with changes present directorships and special responsibilities are set out on in the Australian Securities Exchange Corporate Governance Council’s page 4 in the Directors’ report. recommendations, which will be mentioned further in this statement. Directors of Gazal Corporation Limited are considered to be The Board believes the Company’s corporate governance practices independent when they are independent of management and free from are compliant with the Council’s best practice recommendations, any business or other relationship that could materially interfere with unless indicated otherwise in this statement. The Company maintains – or could reasonably be perceived to materially interfere with – the a corporate website at www.gazal.com.au which provides further exercise of their unfettered and independent judgment. The Board’s information on corporate governance policies and practices adopted framework for determining director independence is included in the by Gazal Corporation Limited, including: Board Charter. „„ A Board Charter. „„ A Remuneration and Nomination Charter. The following is a list of all Directors in the Company. In accordance with the definition of independence included in the Board’s Charter, „„ A Code of Conduct. and the materiality thresholds set, the following Directors of Gazal „„ A Securities Trading Policy Summary. Corporation Limited with an asterix below, representing a majority „„ An Audit and Risk Charter. of Directors, are considered to be independent: „„ A Risk Management Policy. „„ A Continuous Disclosure Policy. Name Position „„ A Shareholder Communication Policy. J.W. Blood Chairman, Non-executive Director* „„ A Human Rights Policy. G. Paton Non-executive Director * C. Kimberley Non-executive Director* The Board of Directors M.J. Gazal Chief Executive Officer D.J. Gazal Executive Director The Board of Directors of Gazal Corporation Limited is responsible for the corporate governance of the consolidated entity. The Board Messrs M.J. Gazal and D.J. Gazal are not considered to be independent, operates in accordance with a broad statement of principles included as their family interests have a majority ownership of the Gazal in its Charter, which mainly sets out the Board’s composition Corporation Limited Group as indicated on page 73 in the shareholder and responsibilities and functions and is available from the information in this annual report. Company’s website. There are procedures in place, agreed by the Board, to enable Directors The Role of the Board in furtherance of their duties to seek independent professional advice at the Company’s expense. Directors also have access to senior The role of the Board of Directors is to protect and optimise executives, including the Company Secretary, when required and the performance of the Group and accordingly the Board takes to any further information required to make informed decisions. accountability for setting strategic direction, establishing policy, In carrying out its responsibilities and functions, the Board may overseeing the financial position and monitoring the business delegate any of its powers to a Board committee, a Director, employee and affairs of the Group on behalf of shareholders to whom they or other person subject to ultimate responsibility of the Directors are accountable. Responsibility for the day-to-day management under the Corporations Act 2001. of the Company is delegated to the Managing Director and senior management and their relationship with the Board and responsibilities are also included in the Board Charter on the Company’s website. The Remuneration and Nomination Committee

The Board has established a Remuneration and Nomination Committee, which meets at least annually, to assist and advise the Board on matters relating to the appointment and remuneration

ANNUAL REPORT 2009 13 STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2009

of the Non-executive Directors, the Managing Director and other the establishment and maintenance of a framework of internal control senior executives of the Company. and ethical standards for the management of the consolidated entity to the Audit and Risk Committee. The Remuneration and Nomination Committee is responsible for monitoring the length of service of current Board members (although The committee has appropriate financial expertise and all members a strict tenure policy has not been adopted), monitoring the skills are financially literate and have an appropriate understanding of the and expertise of Board members, considering succession planning industry in which the Company operates. issues and identifying the likely order of retirement by rotation of non‑executive Directors. The committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in the The Board is responsible for determining and reviewing compensation financial reports. All members of the Audit and Risk Committee are arrangements for the Directors themselves and the Chief Executive non‑executive Directors and are independent. Members of the Audit Officer and the executive team. Remuneration levels are competitively and Risk Committee during the year were Mr. G. Paton (Chairman) and set to attract and retain appropriately qualified and experienced Mr. J.W. Blood. personnel. Performance, duties and responsibilities, market comparison and independent advice are all considered as part of the Recommendation 4.2 of Principle 4 of the “Principles of Good remuneration process. The structure and details of the remuneration Corporate Governance and Best Practice Recommendations” indicates paid to the Directors and senior executives during the period are it is preferable to have at least three members on the audit committee. set out in the Remuneration Report on pages 7 to 11 and note 33 to The Board of Gazal Corporation Limited believes that, given the size the financial statements. of the Company and the experience of the present members, two Audit and Risk Committee members are adequate. The Remuneration and Nomination Committee comprises two non‑executive Directors. Members of the Remuneration Committee A copy of the Audit and Risk Charter is available on the Company’s throughout the year were Mr. J.W. Blood (Chairman) and Mr. C. Kimberley. website which includes details of the procedures for selection, appointment and rotation of the external auditor and its For details of Directors’ attendance at meetings of the Remuneration engagement partners. and Nomination Committee, refer to page 5 in the Directors’ Report. For additional details regarding the Remuneration and Nomination Qualifications of Audit and risk Committee and its policies, please refer to our website. Committee Members

Performance Reviews Mr. G. Paton has had extensive experience in the accounting industry and was previously a partner for 21 years in Arthur Andersen, The performance of the Board and senior executives is reviewed Chartered Accountants, retiring from that firm and public practice regularly. The performance criteria against which Directors and senior in July 2001. He is the Chairman of the Audit and Risk Committee. executives are assessed is aligned with the financial and non-financial objectives of Gazal Corporation Limited. Directors and executives whose Mr. J.W. Blood has significant experience in the management of Gazal performance is consistently unsatisfactory may be asked to leave. Corporation Limited, having served as a non-executive Director of Gazal Corporation Limited for 16 years, four years of which as Chairman. The Chairman carried out a review in the current year of the Directors and the committees of which they were members. The process of Members of management may attend meetings of the committee evaluation consists of assessing the relative strengths and weaknesses at the invitation of the Committee Chairman. It is the practice of the of the Directors and the committees of which they are members and committee that the Managing Director, the Chief Financial Officer and identifying areas that can be improved. The process for evaluating the the Company Secretary attend all Audit and Risk Committee meetings. performance of senior executives during the year is included in the Further, in fulfilling its responsibilities, the committee has rights of Remuneration Report. access to management and to auditors without management present and may seek explanations and additional information. The committee Audit and Risk Committee may, with the approval of the Board, engage any independent advisers in relation to any matter pertaining to the powers, duties The Board has established an Audit and Risk Committee, which and responsibilities of the committee. operates under a charter approved by the Board. It is the Board’s For details on the number of meetings of the Audit and Risk Committee responsibility to ensure that an effective internal control framework held during the year and the attendees at those meetings, refer to exists within the entity. This includes internal controls to deal with page 5 in the Directors’ Report. the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information, as well as non‑financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated the responsibility for

GAZAL CORPORATION LIMITED 14 STATEMENT OF CORPORATE GOVERNANCE PRACTICES FOR THE YEAR ENDED 30 JUNE 2009

Risk Reporting associated internal controls necessary to safeguard the assets and interests of Gazal Corporation Limited and to ensure the integrity of The Chief Executive Officer and the Chief Financial Officer have made reporting. These include accounting, financial reporting and internal the following certifications to the Board: control policies and procedures. For more details on the Company’s risk „„ that the Company’s financial reports present a true and fair view, assessment and management policy, refer to the Company’s website. in all material respects, of the financial condition and operational results of the Company and are in accordance with relevant Code of Conduct accounting standards; A Code of Conduct has been adopted which requires that all Directors, „„ that the Company has adopted an appropriate system of risk management and internal compliance and control which senior management and employees act with the utmost integrity and implements the policies adopted by the Board and forms the basis honesty. It aims to further strengthen the Company’s ethical climate for the statement given above; and by promoting practices that promote the Company’s key values. The Code of Conduct is publicly available on the Company’s website. „„ that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all The Company has also adopted various other policies covering material respects. a number of matters such as occupational health and safety, environment, community support and human rights, which are Risk Management and Internal encompassed in corporate social responsibility.

Controls In conjunction with the Code of Conduct, the Company has The Board, through the Audit and Risk Committee, is responsible for a Whistleblowers policy which requires all officers, employees, ensuring there are adequate policies in relation to the management contractors, agents or people associated with the Company to report and oversight of material risks and internal compliance and control any potential breaches to the Company Secretary. This may be systems. It is part of the Board’s oversight role to regularly review done anonymously. the effectiveness of the Company’s implementation of that system. The Company has a formal policy governing the trading of the Company’s Management is responsible for identifying and managing both financial securities by Directors, officers and employees which is set out below. and non-financial risks to the Company’s businesses. The Board, through the committee, monitors the management of these risks. Securities Trading Policy The Company has further developed its risk management policy into a Gazal Corporation Risk Management Framework which encompasses The Board has a policy that Directors and employees may not buy or policies on code of conduct, whistle blowing, fraud control, risk reviews sell Gazal Corporation Limited shares except within specified trading and securities trading. windows which are: „„ the next business day after the day on which the half-year results This framework, which was reviewed in accordance with changes in the are released until 30 June; and Australian Securities Exchange (“ASX”) Corporate Governance Council’s „„ the next business day after the day on which the full-year results recommendations, is designed to ensure that strategic, operational, are released until 31 December. legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of the The policy supplements the Corporations Act 2001 provisions that Company’s business objectives. The annual report specifically considers preclude Directors and employees from trading in securities when a number of categories of risk including interest rate, credit and foreign they are in possession of “insider information”. A summary of the currency risks which are disclosed in note 28 to these accounts. Share Trading Policy, including prohibitions on equity-base incentives, is available on the Company’s website. Risk Framework Continuous Disclosure and A vigorous control environment is fundamental to the effectiveness Shareholder Communication of the Company’s risk management framework. The Company has a clear organisational structure with clearly drawn lines of The Company is committed to providing relevant and timely accountability and delegation of authority. Matters reserved for the information to its shareholders and the market, in accordance with its Board are set out in the Board Charter, which is available on the obligations under the ASX continuous disclosure regime. Details of the Company’s website. Company policy on continuous disclosure, together with its established procedures for compliance and other investor-related information and All Directors, executives and employees are required to adhere to the a separate policy on shareholders communications, is publicly available Code of Conduct (mentioned below) and the Board actively promotes on the Company’s website . a culture of quality and integrity. Procedures have been established at the Board and executive management level to evaluate risk and the

ANNUAL REPORT 2009 15 INDEPENDENT AUDIT REPORT TO MEMBERS OF GAZAL CORPORATION LIMITED

GAZAL CORPORATION LIMITED 16 INDEPENDENT AUDIT REPORT TO MEMBERS OF GAZAL CORPORATION LIMITED

ANNUAL REPORT 2009 17 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2009

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

1. In the opinion of the Directors: (a) the financial statements, notes and 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 financial position as at 30 June 2009 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and the 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 financial year ended 30 June 2009. 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 identified in note 30 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 25th day of September 2009.

GAZAL CORPORATION LIMITED 18 INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2009

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 Notes $’000 $’000 $’000 $’000

Continuing operations Sales revenue 4 243,522 247,476 – – Cost of sales (131,485) (124,282) – – Gross profit 112,037 123,194 – – Other revenues 4 2,792 3,753 5,521 9,768 Selling and marketing expenses (65,399) (69,454) – – Distribution expenses (18,139) (19,686) – – Administration expenses (18,906) (20,296) (160) (458) Finance costs 4 (2,854) (4,033) – –

Profit before income tax 9,531 13,478 5,361 9,310 Income tax (expense)/benefit 5 (2,695) (4,242) 104 (6) Profit after tax from continuing operations 6,836 9,236 5,465 9,304

Discontinued operation Profit/(loss) after tax from discontinued operations 6 (3) 288 – – Profit attributable to members of the parent 6,833 9,524 5,465 9,304

Earnings per share (cents per share) Basic for profit for the year 7 11.3 15.7 Basic for profit from continuing operations 7 11.3 15.2 Diluted for profit for the year 7 11.3 15.7 Diluted for profit from continuing operations 7 11.3 15.2

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

ANNUAL REPORT 2009 19 BALANCE SHEET AS AT 30 JUNE 2009

Consolidated Parent Entity

As at 30 June As at As at As at 2009 30 June 30 June 30 June Notes $’000 2008 $’000 2009 $’000 2008 $’000

Current assets Cash and cash equivalents 26(a) 7,162 6,159 8 48 Trade and other receivables 9 14,254 16,211 22,823 25,242 Inventories 10 45,905 39,428 – – Derivative financial instruments 29 297 – – – Tax receivable 113 – 944 85 Other current assets 11 3,888 1,815 6 156 71,619 63,613 23,781 25,531 Assets of disposal group classified as held for sale 6 162 1,295 – – Total current assets 71,781 64,908 23,781 25,531

Non-current assets Investment in subsidiaries 14 – – 39,364 39,317 Property, plant and equipment 12 49,671 51,167 – 3 Intangibles 13 30,702 29,023 – 2 Deferred tax assets 5 4,744 3,979 290 325 Other non-current assets 15 1,846 1,800 – – Total non-current assets 86,963 85,969 39,654 39,647 Total assets 158,744 150,877 63,435 65,178

Current liabilities Trade and other payables 16 26,578 25,826 238 231 Derivative financial instruments 29 2,709 713 – – Interest-bearing loans and borrowings 17 18,908 10,000 – – Income tax payable – 439 – – Provisions 18 4,450 4,436 – – 52,645 41,414 238 231 Liabilities directly associated with the assets classified as held for sale 6 216 719 – – Total current liabilities 52,861 42,133 238 231

Non-current liabilities Interest-bearing loans and borrowings 19 30,000 30,000 – – Provisions 20 537 492 – – Deferred tax liabilities 5 7,968 7,289 – – Total non-current liabilities 38,505 37,781 – – Total liabilities 91,366 79,914 238 231 Net assets 67,378 70,963 63,197 64,947

Equity Contributed equity 21 69,816 69,816 69,816 69,816 Reserves 22 16,474 20,218 – 541 Accumulated losses 23 (18,912) (19,071) (6,619) (5,410) Total equity 67,378 70,963 63,197 64,947

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

GAZAL CORPORATION LIMITED 20 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2009

Consolidated Parent Entity

Year ended Year ended 30 Year ended Year ended 30 June 2009 June 2008 30 June 2009 30 June 2008 Notes $’000 $’000 $’000 $’000

Cash flows from operating activities Receipts from customers (inclusive of GST) 267,094 288,472 556 1,305 Payments to suppliers and employees (inclusive of GST) (254,762) (253,462) (698) (1,339) Dividends received – – 5,115 9,000 Interest and bill discounts received 118 168 6 18 Interest and other costs of finance paid (2,843) (4,208) – (2) Income taxes paid (2,222) (1,997) (720) 1,253 Net cash flows from operating activities 26(b) 7,385 28,973 4,259 10,235

Cash flows from investing activities Purchases of property, plant and equipment 12 (6,022) (4,980) – (1) Proceeds from sale of buildings, plant and equipment 548 233 – – Proceeds from disposal of discontinued operations 6 – 9,925 – – Payments for investments – – (46) – Purchase of intangibles 13 (3,259) (3,699) – – Proceeds from sale of intangibles 23 – – – Net cash flows used in investing activities (8,710) 1,479 (46) (1)

Cash flows from financing activities Proceeds from borrowings 8,907 – – – Repayment of borrowings – (17,356) – – Dividends paid (6,674) (8,495) (6,674) (8,495) Loans provided by entity – – – (1,723) Proceeds from inter-entity loans – – 2,419 – Net cash flows used in financing activities 2,233 (25,851) (4,255) (10,218) Net increase/(decrease) in cash and cash equivalents 908 4,601 (42) 16 Cash and cash equivalents at the beginning of the year 6,370 1,767 48 32 Net foreign exchange differences – 2 2 – Cash and cash equivalents at the end of the year 26(a) 7,278 6,370 8 48

The accompanying notes form an integral part of this Cash Flow Statement.

ANNUAL REPORT 2009 21 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009

Consolidated Parent Entity

Attributable to shareholders of Gazal Corp Ltd Attributable to shareholders of Gazal Corp Ltd Issued Accumulated Total Issued Accumulated Total capital losses Reserves equity capital losses Reserves equity $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 At 1 July 2007 69,816 (20,100) 20,416 70,132 69,816 (6,238) 794 64,372 Currency translation differences – – 255 255 – – – – Revaluation of land and building – – (904) (904) – – – – Net loss on cash flow hedge – – 225 225 – – – – Income tax on items taken directly to or transferred from equity – – 479 479 – 19 – 19 Net change recognised directly in equity – – 55 55 – 19 – 19 Profit for the year – 9,524 – 9,524 – 9,304 – 9,304 Total recognised income and expenses for the year – 9,524 55 9,579 – 9,323 – 9,323 Equity transactions Cost of share-based payments – – (253) (253) – – (253) (253) Equity dividends – (8,495) – (8,495) – (8,495) – (8,495) At 30 June 2008 69,816 (19,071) 20,218 70,963 69,816 (5,410) 541 64,947

At 1 July 2008 69,816 (19,071) 20,218 70,963 69,816 (5,410) 541 64,947 Currency translation differences – – 100 100 – – – – Revaluation of land and building – – (2,043) (2,043) – – – – Net profit on cash flow hedge – – (1,699) (1,699) – – – – Income tax on items taken directly to or transferred from equity – – 439 439 – – – – Net change recognised directly in equity – (3,203) (3,203) – – – – Profit for the year – 6,833 – 6,833 – 5,465 – 5,465 Total recognised income and expenses for the year – 6,833 (3,203) 3,630 – 5,465 – 5,465 Equity transactions Cost of share-based payments – – (541) (541) – – (541) (541) Equity dividends – (6,674) – (6,674) – (6,674) – (6,674) At 30 June 2009 69,816 (18,912) 16,474 67,378 69,816 (6,619) – 63,197

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

GAZAL CORPORATION LIMITED 22 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

1 CORPORATE INFORMATION

The annual financial report of Gazal Corporation Limited for the year ended 30 June 2009 was authorised for issue in accordance with a resolution of the Directors on 25 September 2009.

Gazal Corporation Limited is a company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange.

The nature of the operations and principal activities of the Group is described in the Director’s Report.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation The financial report is a general purpose financial 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 financial report has also been prepared on a historical cost basis, except for land and buildings, and derivative financial instruments, which have been measured at fair value.

The financial report 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 98/0100. The Company is an entity to which the Class Order applies.

Statement of compliance The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board (“AASB”). The financial report also complies with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The Directors have not early adopted any of these new or amended standards and interpretations. These are outlined in the table below,

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 8 and Operating New Standard replacing 1 January 2009 AASB 8 is a disclosure standard 1 July 2009 AASB 2007-3 Segments and AASB 114 Segment Reporting, so will have no direct impact consequential which adopts a management on the amounts included amendments to reporting approach to segment in the Group’s financial other Australian reporting. statements, although it may Accounting indirectly impact the level at Standards which goodwill is tested for impairment. In addition, the amendments may have an impact on the Group’s segment disclosures. AASB 1039 Concise AASB 1039 was revised in 1 January 2009 The standards are disclosure 1 July 2009 (revised) Reporting August 2008 to achieve standards so will have no consistency with AASB 8 direct impact on the amounts Operating Segments. The included in the Group’s financial revisions include changes to statements. The amendments terminology and descriptions may have an impact on the to ensure consistency with the Group’s disclosures. revised AASB 101 Presentation of Financial Statements.

ANNUAL REPORT 2009 23 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 123 Borrowing Costs The amendments to AASB 123 1 January 2009 The Group has not yet 1 July 2009 (Revised) and and consequential require that all borrowing costs determined the extent of the AASB 2007-6 amendments to associated with a qualifying impact of the amendments, if other Australian asset be capitalised. any. Accounting Standards AASB 101 Presentation Introduces a statement of 1 January 2009 The standards are disclosure 1 July 2009 (Revised), AASB of Financial comprehensive income. standards so will have no 2007-8 and AASB Statements and direct impact on the amounts 2007-10 consequential Other revisions include impacts included in the Group’s financial amendments to on the presentation of items statements. The amendments other Australian in the statement of changes may have an impact on the Accounting in equity, new presentation Group’s disclosures. Standards requirements for restatements or reclassifications of items in the financial statements, changes in the presentation requirements for dividends and changes to the titles of the financial statements. AASB 2008-1 Amendments The amendments clarify 1 January 2009 The Group has not yet 1 July 2009 to Australian the definition of “vesting determined the extent of the Accounting conditions”, introducing impact of the amendments, Standard – the term “non-vesting if any. Share‑based conditions” for conditions Payments: other than vesting conditions Vesting as specifically defined and Conditions and prescribe the accounting Cancellations treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied. AASB 3 (Revised) Business The revised Standard 1 July 2009 The Group has not yet 1 July 2009 Combinations introduces a number of determined the extent of the changes to the accounting impact of the amendments, for business combinations, if any. the most significant of which includes the requirement to have to expense transaction costs and a choice (for each business combination entered into) to measure a non- controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively.

GAZAL CORPORATION LIMITED 24 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 2008-3 Amendments Amending Standard issued as 1 July 2009 Refer to AASB 3 (Revised) 1 July 2009 to Australian a consequence of revisions to above. Accounting AASB 3 and AASB 127. Refer Standards arising above. from AASB 3 and AASB 127 AASB 2008-5 Amendments The Improvements Project is 1 January 2009 The Group has not yet 1 July 2009 to Australian an annual project that provides determined the extent of the Accounting a mechanism for making impact of the amendments, if Standards arising non-urgent, but necessary, any. from the Annual amendments to IFRS. The IASB Improvements has separated the amendments Project into two parts: Part 1 deals with changes the IASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact.

This was the first omnibus of amendments issued by the IASB arising from the Annual Improvements Project and it is expected that going forward, such improvements will be issued annually to remove inconsistencies and clarify wording in the Standards.

The AASB issued these amendments in two separate amending standards; one dealing with the accounting changes effective from 1 January 2009 and the other dealing with amendments to AASB 5, which will be applicable from 1 July 2009 [refer below AASB 2008-6]. AASB 2008-6 Further This was the second omnibus 1 July 2009 Refer to AASB 2008-5 above 1 July 2009 Amendments of amendments issued by the for more details to Australian IASB arising from the Annual Accounting Improvements Project. Standards arising from the Annual Refer to AASB 2008-5 above Improvements for more details. Project

ANNUAL REPORT 2009 25 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 2008-7 Amendments The main amendments 1 January 2009 Recognising all dividends 1 July 2009 to Australian of relevance to Australian received from subsidiaries, Accounting entities are those made to jointly controlled entities and Standards – Cost AASB 127 deleting the “cost associates as income will likely of an Investment method” and requiring all give rise to greater income in a Subsidiary, dividends from a subsidiary, being recognised by the parent Jointly Controlled jointly controlled entity or entity after adoption of these Entity or associate to be recognised amendments. Associate in profit or loss in an entity’s separate financial statements (i.e. parent company accounts). The distinction between pre‑and post-acquisition profits is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment.

AASB 127 has also been amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value. AASB 2008-8 Amendments The amendment to AASB 139 1 July 2009 The Group has not yet 1 July 2009 to Australian clarifies how the principles determined the extent of the Accounting underlying hedge accounting impact of the amendments, Standards – should be applied when (i) if any. Eligible Hedged a one-sided risk in a hedged Items item is being hedged and (ii) inflation in a financial hedged item existed or was likely to exist.

GAZAL CORPORATION LIMITED 26 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 2009-2 Amendments The main amendment to Annual reporting The Group has not yet 1 July 2009 to Australian AASB 7 requires fair value periods beginning determined the extent of the Accounting measurements to be disclosed on or after impact of the amendments, Standards by the source of inputs, using 1 January 2009 if any. – Improving the following three-level that end Disclosures hierarchy: on or after about Financial „„ quoted prices (unadjusted) 30 April 2009. Instruments in active markets for [AASB 4, AASB identical assets or liabilities 7, AASB 1023 and (Level 1); AASB 1038] „„ inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and „„ inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

These amendments arise from the issuance of Improving Disclosures about Financial Instruments (Amendments to IFRS 7) by the IASB in March 2009.

The amendments to AASB 4, AASB 1023 and AASB 1038 comprise editorial changes resulting from the amendments to AASB 7.

ANNUAL REPORT 2009 27 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 2009-4 Amendments The amendments to some 1 July 2009 The Group has not yet 1 July 2009 to Australian Standards result in accounting determined the extent of the Accounting changes for presentation, impact of the amendments, Standards arising recognition or measurement if any. from the Annual purposes, while some Improvements amendments that relate to Project terminology and editorial changes are expected to [AASB 2 and have no or minimal effect AASB 138 on accounting. and AASB Interpretations 9 The main amendment of and 16] relevance to Australian entities is that made to IFRIC 16 which allows qualifying hedge instruments to be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements in AASB 139 that relate to a net investment hedge are satisfied. More hedging relationships will be eligible for hedge accounting as a result of the amendment.

These amendments arise from the issuance of the IASB’s Improvements to IFRS. The amendments pertaining to IFRS 5, 8, IAS 1,7, 17, 36 and 39 have been issued in Australia as AASB 2009-5 (refer below).

GAZAL CORPORATION LIMITED 28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Reference Title Summary Application date Impact on Group financial Application date of standard report for Group AASB 2009-5 Further The amendments to some 1 January 2010 The Group has not yet 1 July 2010 Amendments Standards result in accounting determined the extent of the to Australian changes for presentation, impact of the amendments, Accounting recognition or measurement if any. Standards arising purposes, while some from the Annual amendments that relate to Improvements terminology and editorial Project changes are expected to have no or minimal effect [AASB 5, 8, 101, on accounting. 107, 117, 118, 136 and 139] The main amendment of relevance to Australian entities is that made to AASB 117 by removing the specific guidance on classifying land as a lease so that only the general guidance remains. Assessing land leases based on the general criteria may result in more land leases being classified as finance leases and if so, the type of asset which is to be recorded (intangible v property, plant and equipment) needs to be determined.

These amendments arise from the issuance of the IASB’s Improvements to IFRS. The AASB has issued the amendments to IFRS 2, IAS 38, IFRIC 9 as AASB 2009-4 (refer above). AASB 2009-7 Amendments These comprise editorial 1 July 2009 The Group has not yet 1 July 2009 to Australian amendments and are expected determined the extent of the Accounting to have no major impact on the impact of the amendments, Standards requirements of the amended if any. pronouncements. [AASB 5, 7, 107, 112, 136 and 139, and Interpretation 17]

ANNUAL REPORT 2009 29 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING Segment reporting POLICIES continued A business segment is a distinguishable component of the entity that is engaged in providing products or services that are subject Basis of consolidation to risks and returns that are different to those of other business segments. A geographical segment is a distinguishable component The consolidated financial statements comprise the financial of the entity that is engaged in providing products or services statements of Gazal Corporation Limited and its subsidiaries within a particular economic environment and is subject to risks and (“the Group”). The financial statements of subsidiaries are prepared returns that are different than those of segments operating in other for the same reporting period as those of the parent Company, using economic environments. consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. Foreign currency translation All inter-company balances and transactions, including unrealised (i) Functional and presentation currency profits arising from intra-group transactions, have been eliminated in Both the functional and the presentation currency of Gazal Corporation full. Unrealised losses are eliminated unless costs cannot be recovered. Limited and its Australian subsidiaries are Australian dollars (A$).

Subsidiaries are consolidated from the date on which control is (ii) Transactions and balances transferred to the Group and cease to be consolidated from the date Transactions in foreign currencies are initially recorded in the on which control is transferred out of the Group. functional currency by applying the exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign Business combinations currencies are retranslated at the rate of exchange ruling at the balance sheet date. The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets All exchange differences in the consolidated financial report are taken are acquired. Cost is measured as the fair value of the assets given, to the income statement. Non-monetary items measured at fair value shares issued or liabilities incurred or assumed at the date of exchange in a foreign currency are translated using the exchange rates at the plus costs directly attributable to the combination. Where equity date when the fair value was determined. instruments are issued in a business combination, the fair value of the instruments is their published market price as at the date of exchange (iii) Transaction of overseas subsidiaries unless, in rare circumstances, it can be demonstrated that the The functional currencies of the various overseas subsidiaries include published price at the date of exchange is an unreliable indicator of fair Great British pounds, New Zealand dollars, Hong Kong dollars, the Euro value and that other evidence and valuation methods provide a more and Chinese yuan. reliable measure of fair value. Transaction costs net of tax arising from As at the reporting date, the assets and liabilities of these overseas equity instruments are recognised directly in equity. subsidiaries are translated into the presentation currency of the Except for non-current assets or disposal groups classified as held for Group at the rate of exchange ruling at the balance sheet date and the sale (which are measured at fair value less costs to sell), all identifiable income statements are translated at the weighted average exchange assets acquired and liabilities and contingent liabilities assumed rates for the year. in a business combination are measured initially at their fair values The exchange differences arising on the retranslation are taken at the acquisition date, irrespective of the extent of any minority directly to a separate component of equity. interest. The excess of cost of the business combination over the net fair value of the Group’s share of the identifiable net assets acquired Cash and cash equivalents is recognised as goodwill. If the cost of acquisition is less than the Cash and cash equivalents in the balance sheet comprise cash at bank Group’s share of the net fair value of the identifiable net assets of and in hand and short-term deposits with an original maturity of three the subsidiary, the difference is recognised as a gain in the income months or less that are readily convertible to known amounts of cash statement, but only after a reassessment of the identification and and which are subject to an insignificant risk of changes in value. measurement of the net assets acquired. For the purposes of the Cash Flows Statement, cash and cash Where settlement of any part of the consideration is deferred, the equivalents consist of cash and cash equivalents as defined above, net amounts payable in the future are discounted to their present value of outstanding bank overdrafts. Bank overdrafts are included within as at the date of exchange. The discount rate used is the entity’s current interest-bearing loans and borrowings on the Balance Sheet. incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

GAZAL CORPORATION LIMITED 30 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING Other taxes POLICIES continued The net amount of Goods and Services Tax (“GST”) or other value added taxes (“VAT”) recoverable from, or payable to, the taxation Income tax authority or the relevant revenue authority is included as part of trade receivables or payables in the Balance Sheet. 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 Cash flows are included in the Cash Flow Statement on a gross basis taxation authorities. The tax rates and tax laws used to compute the and the GST or VAT component of cash flows arising from investing amount are those that are enacted or substantively enacted by the and financing activities, which is recoverable from, or payable to, balance sheet date. the taxation authority or the relevant revenue authority are classified as operating cash flows. The policy relating to tax consolidation is in note 5(f). Commitments and contingencies are disclosed net of the amount Deferred income tax liabilities are recognised for all taxable temporary of GST or VAT recoverable from, or payable to, the taxation authority differences except: or the relevant revenue authority. „„ when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction Inventories that is not a business combination and that, at the time of the Inventories include raw materials, work in progress and finished goods. transaction, affects neither the accounting profit nor taxable profit or loss; or Costs incurred in bringing each product to its present location and „„ when the taxable temporary differences are associated with condition are accounted for as follows: investments in subsidiaries, associates and interests in joint Raw materials – purchase cost on moving average cost basis. The cost ventures, and the timing of the reversal of the temporary of purchase comprises the purchase price including the transfer from differences can be controlled and it is probable that the temporary equity of gains and losses on qualifying cash flow hedges of purchases differences will not reverse in the foreseeable future. of raw materials, import duties and other taxes (other than those Deferred income tax assets are recognised for all deductible temporary subsequently recoverable by the entity from the taxing authorities), differences, carry-forward of unused tax assets and unused tax losses, transport, handling and other costs directly attributable to the to the extent that it is probable that taxable profit will be available against acquisition of raw materials. Volume discounts and rebates are included which the deductible temporary differences, and the carry-forward of in determining the cost of purchase. unused tax assets and unused tax losses can be utilised, except: Finished goods and work in progress – cost of direct materials and „„ when the deferred income tax asset relating to the deductible labour and a proportion of variable and fixed manufacturing overheads difference arises from the initial recognition of an asset or liability based on normal operating capacity. Costs are assigned on moving in a transaction that is not a business combination and, at the time average cost basis and include freight, duty and other inward charges. of the transaction, affects neither the accounting profit nor taxable profit or loss; or The basis of valuation of inventories is the lower of cost and net „„ when the deductible temporary differences are associated with realisable value. Net realisable value is the estimated selling price investments in subsidiaries, associates and interests in joint in the ordinary course of business, less estimated costs of completion ventures, deferred tax assets are only recognised to the extent and the estimated costs necessary to make the sale. that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which Property, plant and equipment the temporary differences can be utilised. Land and buildings are measured at fair value less accumulated depreciation and any impairment in value. Revaluations are made The carrying amount of deferred income tax assets is reviewed at in accordance with a regular policy whereby independent valuations each balance sheet date and reduced to the extent that it is no longer are obtained and carrying amounts adjusted accordingly. probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Plant and equipment are valued at historical cost less accumulated depreciation and any impairment losses. Depreciation is provided Deferred income tax assets and liabilities are measured at the tax rates on a straight-line basis, their economic lives as follows: 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 Life Method enacted or substantively enacted at the balance sheet date. Buildings 40 years Straight-line Income taxes relating to items recognised directly in equity are Leasehold improvements Term of lease Straight-line recognised in equity and not in profit or loss. Plant and machinery 2.5 – 17 years Straight-line

ANNUAL REPORT 2009 31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING Derecognition and disposal POLICIES continued An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset or its disposal. The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying Impairment amount of the item) is included in the Income Statement in the year The carrying values of plant and equipment are reviewed for the item is derecognised. impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Procurement Fee For an asset that does not generate largely independent cash inflows, This represents amounts prepaid in respect to procurement of future the recoverable amount is determined for the cash-generating unit services and goods. This will be expensed over the term of the agreement. to which the asset belongs. Goodwill If any such indication exists and where the carrying values exceed the Goodwill on acquisition is initially measured at cost, being the excess estimated recoverable amount, the assets or cash-generating units are of the cost of the business combination over the acquirer’s interest written down to their recoverable amount. in the net fair value of the identifiable assets, liabilities and contingent The recoverable amount of plant and machinery is the greater of the liabilities. Following initial recognition, goodwill is measured at cost less fair value less costs to sell or value in use. In assessing value in use, the any accumulated impairment losses. Goodwill is not amortised but is estimated future cash flows are discounted to their present value using reviewed for impairment annually or more frequently if events or changes a pre-tax discount rate that reflects current market assessments of the in circumstances indicate that the carrying value may be impaired. time value of money and the risks specific to the asset. At the acquisition date, any goodwill acquired is allocated to each of Revaluations of land and buildings the cash-generating units expected to benefit from the combination’s Following initial recognition at cost, land and buildings are carried at synergies. Impairment is determined by assessing the recoverable a revalued amount which is the fair value at the date of the revaluation amount of the cash-generating unit to which the goodwill relates. less any subsequent accumulated depreciation on buildings and Where the recoverable amount of the cash-generating unit is less than accumulated impairment losses. the carrying amount, an impairment loss is recognised.

Fair value is determined by reference to market-based evidence, which Where goodwill forms part of a cash-generating unit and part of the is the amount for which the assets could be exchanged between operation within that unit is disposed of, the goodwill associated a knowledgeable willing buyer and a knowledgeable willing seller in with the operation disposed of is included in the carrying amount an arm’s length transaction as at the valuation date. of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on Any revaluation increment is credited to the asset revaluation reserve the basis of the relative values of the operation disposed of and the included in the equity section (net of tax) of the Balance Sheet unless portion of the cash-generating unit retained. it reverses a revaluation decrement of the same asset previously recognised in the Income Statement, in which case the increment Impairment losses recognised for goodwill are not subsequently reversed. is recognised in the Income Statement. Intangible assets Any revaluation decrement is recognised in the Income Statement Intangible assets acquired separately are capitalised at cost. Intangible unless it offsets a previous revaluation increment for the same asset, assets acquired from a business combination are capitalised at fair in which case the decrement is debited directly to the asset revaluation value as at the date of acquisition. Following initial recognition, the reserve to the extent of the credit balance existing in the revaluation cost model is applied to the class of intangible assets. reserve for that asset. The useful lives of intangible assets are assessed to be either finite In addition, any accumulated depreciation as at revaluation date is in the case of industrial designs or infinite in the case of trademarks. eliminated against the gross carrying amount of the asset and the net Where amortisation is charged on assets with finite lives, this expense amount is restated to the revalued amount of the asset. is taken to the Income Statement through the “depreciation and Upon disposal, any revaluation reserve relating to the particular asset amortisation” line item. being sold is transferred to retained earnings. Intangible assets created within the business are not capitalised. Independent valuations are performed with sufficient regularity to Such expenditure is charged against profits in the period in which the ensure that the carrying amount does not differ materially from the expenditure is incurred. Intangible assets are tested for impairment asset’s fair value at the balance sheet date. where an indicator of impairment exists or, in the case of indefinite

GAZAL CORPORATION LIMITED 32 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING Recoverable amount of assets POLICIES continued At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of life intangibles, annually, either individually or at the cash-generating impairment exists, the Group makes a formal estimate of recoverable unit level. Useful lives are also examined on an annual basis and amount. Where the carrying amount of an asset exceeds its adjustments, where applicable, are made on a prospective basis. recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Provisions Recoverable amount is the greater of fair value less costs to sell Provisions are recognised when the Group has a present obligation and value in use. It is determined for an individual asset, unless the (legal or constructive) as a result of a past event, it is probable that asset’s value in use cannot be estimated to be close to its fair value an outflow of resources embodying economic benefits will be required less costs to sell and it does not generate cash inflows that are largely to settle the obligation and a reliable estimate can be made of the independent of those from other assets or groups of assets, in which amount of the obligation. case, the recoverable amount is determined for the cash-generating unit to which the asset belongs. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is In assessing value in use, the estimated future cash flows are recognised as a separate asset but only when the reimbursement is discounted to their present value using a pre-tax discount rate that virtually certain. The expense relating to any provision is presented reflects current market assessments of the time value of money and in the Income Statement net of any reimbursement. the risks specific to the asset.

Provisions are measured at the present value of management’s best An impairment loss is recognised for the amount by which the asset’s estimate of the expenditure required to settle the present obligation carrying amount exceeds its recoverable amount. Non-financial at the balance sheet date. If the effect of the time value of money is assets other than goodwill that suffer an impairment are tested for material, provisions are discounted using a current pre-tax rate that possible reversal of the impairment whenever events or changes in reflects the time value of money and the risks specific to the liability. circumstances indicate that the impairment may have reversed. The increase in the provision resulting from the passage of time is recognised in finance costs. Trade and other receivables Employee leave benefits Trade receivables, which generally have 30–60 day terms, are recognised initially at fair value and subsequently measured at (i) Wages, salaries, annual leave and sick leave amortised cost using the effective interest method, less an allowance Liabilities for wages and salaries, including non-monetary benefits, for impairment. annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in other provisions Collectibility of trade receivables is reviewed on an ongoing basis in respect of employees’ services up to the reporting date. They are at an operating unit level. Individual debts that are known to be measured as the amounts expected to be paid when the liabilities are uncollectible are written off when identified. An impairment provision settled. Expenses for non-accumulating sick leave are recognised when is recognised when there is objective evidence that the Group will not the leave is taken and are measured at the rates paid or payable. be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered (ii) Long service leave objective evidence of impairment. The amount of the impairment The liability for long service leave is recognised in the provision for loss is the receivable carrying amount compared to the present value employee benefits and measured as the present value of expected of estimated future cash flows, discounted at the original effective future payments to be made in respect of services provided by interest rate. employees up to the reporting date. Consideration is given to expected future wages and salary levels, experience of employee departures, Trade and other payables and periods of service. Expected future payments are discounted using Trade creditors and other payables are carried at amortised cost; market yields at the reporting date on national government bonds with due to their short-term nature they are not discounted. They present terms to maturity and currencies that match, as closely as possible, liabilities for goods and services provided to the Group prior to the the estimated future cash outflows. end of the financial year that are unpaid and arise when the Group Post-employment benefits becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are In respect of the Group’s accumulated contribution superannuation funds, usually paid within 30 days of recognition. any contributions made to the superannuation funds by entities within the Group consolidated entity are recognised against profits when due.

ANNUAL REPORT 2009 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING purchase occurs. When the hedged item is the cost of a non-financial POLICIES continued asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

Derivative financial instruments and hedging If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to the Income The Group uses derivative financial instruments such as forward Statement. If the hedging instrument expires or is sold, terminated currency contracts and interest rate swaps to hedge its risks associated or exercised without replacement or rollover, or if its designation as with interest rate and foreign currency fluctuations. Such derivative a hedge is revoked, amounts previously recognised in equity remain in financial instruments are initially recognised at fair value on the date equity until the forecast transaction occurs. If the related transaction on which a derivative contract is entered into and are subsequently is not expected to occur, the amount is taken to the Income Statement. remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. (ii) Interest rate hedges Interest rate hedges are hedges of the Group’s exposure to variability Any gains or losses arising from changes in the fair value of in interest rate movements that is attributable to a particular risk derivatives, except for those that qualify as cash flow hedges, are associated with a recognised liability or a highly probable forecast taken directly to profit or loss for the year. transaction and that could affect profit or loss. The effective portion The fair values of forward currency contracts are calculated by of the gain or loss on the hedging instrument is recognised directly reference to current forward exchange rates for contracts with similar in equity, while the ineffective portion is recognised in profit or loss. maturity profiles. The fair values of interest rate swap contracts are determined by reference to market values for similar instruments. Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the For the purpose of hedge accounting, hedges are classified as: consideration received less directly attributable transaction costs. „„ fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or After initial recognition, interest-bearing loans and borrowings are „„ cash flow hedges when they hedge the exposure to variability in subsequently measured at amortised cost using the effective interest cash flows that is attributable either to a particular risk associated method. Fees paid on the establishment of loan facilities that are with a recognised asset or liability or to a forecast transaction. yield related are included as part of the carrying amount of the loans A hedge of the foreign currency risk of a firm commitment is and borrowings. accounted for as a cash flow hedge. Borrowings are classified as current liabilities unless the Group has At the inception of a hedge relationship, the Group formally designates an unconditional right to defer settlement of the liability for at least and documents the hedge relationship to which the Group wishes 12 months after the balance date. to apply hedge accounting and the risk management objectives Borrowing costs and strategies for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item Borrowing costs are recognised as an expense when incurred. or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the Share-based payment transactions exposure to changes in the hedged items’ fair value or cash flows The Group provides benefits to certain employees (including Directors) attributable to the hedged risk. Such hedges are expected to be highly of the Group in the form of share options, whereby employees effective in achieving offsetting changes in fair values or cash flows render services in exchange for options over shares (“equity-settled and are assessed on an ongoing basis to determine that they actually transactions”). The cost of these equity-settled transactions with have been highly effective throughout the financial reporting periods employees is measured by reference to the fair value at the date for which they were designated. on which they are granted. The fair value is determined by using a binomial pricing model. (i) Cash flow hedges Cash flow hedges are hedges of the Group’s exposure to variability The Gazal Group Employee Share Option Plan was established in in cash flows that is attributable to a particular risk associated with 2005 to provide benefits to eligible participants as determined by a recognised asset or liability or a highly probable forecast transaction the Board. In valuing equity-settled transactions, account is taken of and that could affect profit or loss. The effective portion of the gain performance conditions as indicated in note 21, in this case a profitability or loss on the hedging instrument is recognised directly in equity, while hurdle. The cost of equity-settled transactions is recognised, together the ineffective portion is recognised in profit or loss. with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the Amounts taken to equity are transferred to the Income Statement relevant employees become fully entitled to the award (“vesting date”). when the hedged transaction affects profit or loss, such as when The dilutive effect, if any, of outstanding options is reflected as additional hedged income or expenses are recognised or when a forecast sale or share dilution in the computation of diluted earnings per share.

GAZAL CORPORATION LIMITED 34 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING (iii) other non-discretionary changes in revenues or expenses during POLICIES continued 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 Revenue recognition bonus element. Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable Operating leases that the economic benefits will flow to the Group and the revenue can The Group has entered into operating leases, where the lessor be reliably measured. The following specific recognition criteria must effectively retains substantially all of the risks and benefits of also be met before revenue is recognised: ownership of the leased item. Operating lease payments are recognised as an expense in the Income Statement on a straight-line (i) Sale of goods basis over the lease term. Lease incentives are recognised in the Revenue from sale of goods is recognised after deducting returns, Income Statement as an integral part of the total lease expense and settlement and trade discounts and rebates and is recognised when are amortised over the lease term on a straight-line basis. there is persuasive evidence, usually in the form of an executed sales agreement at the time of delivery of the goods to the customer, Investments and other financial assets indicating that there has been a transfer of risks and rewards to the customer, no further work or processing is required, the quantity The parent company carries investments in subsidiary companies and quality of the goods has been determined, the price is fixed and initially at cost. The carrying value of subsidiaries is assessed at generally title has passed. regular intervals having regard to net assets and future cash flows of these entities. A provision for diminution is established should the (ii) Interest revenue carrying value of a subsidiary be considered impaired. Interest income is recognised as it accrues using the effective interest method. Financial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as either financial (iii) Royalty revenue assets at fair value through profit or loss, loans and receivables, Royalty income from licensees and sub-licensees is recognised based held‑to‑maturity investments, or available–for-sale financial assets. on the percentage of sales as stipulated in the relevant contract. When financial assets are recognised initially, they are measured at fair (iv) Dividends value, plus, in the case of investments not at fair value through profit Revenue is recognised when the Group’s right to receive the payment or loss, directly attributable transaction costs. The Group determines is established. the classification of its financial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each Contributed equity financial year end. Issued and paid up capital is recognised at the fair value of (i) Loans and receivables consideration received by the Company. Any transaction costs arising Loans and receivables including loan notes and loans to key on the issue of ordinary shares are recognised directly in equity management personnel are non-derivative financial assets with fixed (net of tax) as a reduction of the share proceeds received. The fair value or determinable payments that are not quoted in an active market. of equity instruments granted and other estimates of other expected Such assets are carried at amortised cost using the effective interest share issues are recognised as a separate component of equity. method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through Earnings per share the amortisation process. Basic earnings per share is calculated as profit after tax attributable to members of the parent entity, adjusted to exclude costs of servicing Non-current assets and disposal groups equity (other than dividends), divided by the weighted average number held for sale and discontinued operations of ordinary shares, adjusted for any bonus element. Non-current assets and disposal groups are classified as held for sale and measured at the lower of their carrying amount and fair value Diluted earnings per share are calculated as net profit attributable less costs to sell if their carrying amount will be recovered principally to members, adjusted for: through a sale transaction. They are not depreciated or amortised. (i) costs of servicing equity (other than dividends); For an asset or disposal group to be classified as held for sale, it must (ii) the after-tax effect of dividends and interest associated with be available for immediate sale in its present condition and its sale dilutive potential ordinary shares that have been recognised as must be highly probable. expenses and which, in the case of equity options, are recognised as dilutive when they would result in the issue of ordinary shares An impairment loss is recognised for any initial or subsequent for less than the average price of ordinary shares during the write‑down of the assets (or disposal group) to fair value less costs to period; and sell. A gain is recognised for any subsequent increases in fair value less

ANNUAL REPORT 2009 35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

2 SUMMARY OF SIGNIFICANT ACCOUNTING Long service leave provision POLICIES continued As discussed in note 2, the liability for long service leave is recognised and measured at the present value of the estimated future cash flows costs to sell of an asset (or disposal group), but not in excess of any to be made in respect of all employees at balance date. In determining cumulative impairment loss previously recognised. A gain or loss not the present value of the liability, attrition rates and pay increases previously recognised by the date of the sale of the non-current asset through promotion and inflation have been taken into account. (or disposal group) is recognised at the date of derecognition. Estimation of useful lives of assets A discontinued operation is a component of the entity that has The estimation of the useful lives of assets has been based on been disposed of or is classified as held for sale and that represents historical experience as well as manufacturers’ warranties (for plant a separate major line of business or geographical area of operations, and equipment), lease terms (for leased equipment) and turnover is part of a single coordinated plan to dispose of such a line of business policies. In addition, the condition of the assets is assessed at least or area of operations, or is a subsidiary acquired exclusively with once per year and considered against the remaining useful life. a view to resale. The results of discontinued operations are presented Adjustments to useful life are made when considered necessary. separately on the face of the Income Statement. Depreciation charges are included in note 12.

3 SIGNIFICANT ACCOUNTING JUDGMENTS, Bonus Provision ESTIMATES and ASSUMPTIONS Bonus payments granted to each senior manager depend mainly on the performance of their division. Operational measures cover In applying the Group’s accounting policies, management continually mainly financial and some non-financial measures of performance. evaluates judgments, estimates and assumptions based on experience The usual measures include contribution to net profit before tax, and other factors, including expectations of future events that stock turnover ratios, risk management, product management, may have an impact on the Group. All judgments, estimates and and leadership/team contribution. assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results On an annual basis, after consideration of divisional performance may differ from the judgments, estimates and assumptions. Significant each executive is reviewed, and a bonus calculated by including judgments, estimates and assumptions made by management in the a proportion of an incentive pool based on total Company performance preparation of these financial statements are outlined below: is allocated to each executive who is deemed to have a positive impact on profitability. Recovery of deferred tax assets Deferred tax assets are recognised for deductible temporary Stock Obsolescence Provision differences, as management considers that it is probable that future Each balance date, inventories are assessed on receipt date/selling taxable profits will be available to utilise those temporary differences. season and any inventory holdings that were received into the warehouse greater than one year prior to balance date are subject Impairment of goodwill and intangibles with to a write-down ranging from 40% to 100%. indefinite useful lives This charge against profit will take the form of a provision which is The Group determines whether goodwill and intangibles with indefinite returned to profit when the inventory to which the provisions apply useful lives are impaired at least on an annual basis. This requires are sold or otherwise disposed of. an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite 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 indefinite useful lives are discussed in note 13.

GAZAL CORPORATION LIMITED 36 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

4 REVENUES AND EXPENSES

Revenue and Expense from Continuing Operations Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 Notes $’000 $’000 $’000 $’000 (i) Revenue Sales revenue 243,522 247,476 – – Other revenue Dividends from wholly owned group – – 5,115 9,000 Interest received 58 172 6 18 Royalty revenue 501 730 – – Management fees – – 400 750 Others 2,233 2,851 – – Total other revenue 2,792 3,753 5,521 9,768 Total revenue 246,314 251,229 5,521 9,768

(ii) Expenses and losses Depreciation, amortisation and impairment Depreciation of buildings 12 340 340 – – Depreciation of plant and machinery 12 3,663 3,105 2 14 Depreciation of leasehold improvements 12 718 674 – 11 Amortisation of industrial designs 13 123 123 – – Amortisation of intangibles 13 389 387 – – Amortisation of software 13 1,044 613 1 2 6,277 5,242 3 27

Employee benefit expense Wages and salaries 34,677 34,227 361 204 Defined contribution superannuation expense 3,296 3,500 68 83 Provision for employee entitlements 2,674 2,639 – – Share-based payments (541) (253) (541) (253) 40,106 40,113 (112) 34 Finance costs – Interest expenses to other persons 2,854 4,033 – 2 Bad and doubtful debts 98 232 – – Operating lease rentals 10,090 9,871 75 141 Provision for inventories’ obsolescence 1,761 1,510 – – Foreign exchange loss 41 295 – – Net loss on disposal of non-current asset 207 221 – –

ANNUAL REPORT 2009 37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

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 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Income Statement Current income tax Current income tax charge 2,199 3,960 (125) 66 Adjustments in respect of current income tax of previous years (111) 4 (14) (12) Deferred income tax Relating to origination and reversal of temporary differences 368 232 35 (48) Income tax expense reported in the Income Statement 2,456 4,196 (104) 6

(b) Amounts charged or credited directly to equity Deferred income tax related to items charged or credited directly to equity Net gain/(loss) on cash flow hedges (509) (208) – – Net gain/(loss) on revaluation of buildings 70 (271) – – Income tax expense reported in equity (439) (479) – –

(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 profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before tax from continuing operations 9,531 13,478 5,361 9,310 Profit/(loss) before tax from discontinued operations (242) 242 – – Accounting profit before income tax 9,289 13,720 5,361 9,310 At statutory income tax rate of 30% (2008: 30%) 2,787 4,116 1,608 2,793 Depreciation not deductible 102 102 – – Amortisation of intangible 117 117 – – Entertainment expenses 40 62 – – Effect of higher rates of tax on overseas income (7) 19 – – Rebateable dividends received – – (1,535) (2,700) Investment allowance (194) – – – Other items (172) (90) (163) (75) Termination claims (56) (190) – – Amounts under/(over) provided in prior years (166) 7 (14) (12) Unrecovered tax losses 5 53 – – Total income tax attributable to operating profit 2,456 4,196 (104) 6 Income tax reported in the consolidated income statement 2,695 4,242 (104) 6 Income tax attributable to discontinued operations (239) (46) – – 2,456 4,196 (104) 6

GAZAL CORPORATION LIMITED 38 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

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 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 CONSOLIDATED Deferred tax liabilities Revaluation of land and buildings to fair value (7,359) (7,289) – – Accelerated amortisation of industrial designs for tax purposes (19) – (19) – Accelerated amortisation/depreciation for tax purposes (98) – (98) – Derivative asset/other (492) – (403) – (7,968) (7,289) (520) – CONSOLIDATED Deferred tax assets Accelerated depreciation for book purposes 2 (1) 3 (268) Software development expenses for book purposes 364 463 (99) (2) Accelerated amortisation of industrial designs for tax purposes – (19) 19 – Unrealised foreign exchange gains 65 94 (29) 82 Provisions for employee benefits 1,497 1,477 20 (87) Other provisions not deductible 359 652 (293) 57 Fair value adjustments relating to inventory 725 525 200 175 Doubtful debts 68 67 1 (14) Accrual for rent free period 341 247 94 (66) Unearned income deferred to later years – 30 (30) (60) Prepayments/other 307 18 289 (86) Uplift to retail stock value 209 232 (23) 37 Derivative liability 807 194 – – 4,744 3,979 152 (232) PARENT Deferred tax assets Other provisions not deductible 71 71 – – Uplift to retail stock value 210 232 (22) 37 Unrealised foreign exchange gains 9 22 (13) 11 290 325 (35) 48

(e) tax losses The Group has Australian capital gains tax losses for which no deferred tax asset is recognised. The deferred tax asset, if recognised, would be $6,667,000. There is uncertainty regarding the Company’s ability to generate future taxable capital gains to take advantage of the capital gains tax losses and the Company has therefore not raised a deferred tax asset for this amount. These Australian capital gains tax losses are available indefinitely for offset against future capital gains under current taxation laws subject to continuing to meet relevant statutory tests.

ANNUAL REPORT 2009 39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

5 INCOME tax continued

(f) 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 Agreement 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, 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.

6 DISCONTINUED OPERATIONS

Following the Mambo brand strategic review announced in June 2007, the Mambo brand in the UK and Europe was sold on 26 October 2007 and its Australian wholesale and retail business was sold to a private equity group, Equity and Capital Finance Australia, on 29 January 2008.

The results of the discontinued operations are presented below:

2009 2008

Mambo Mambo Mambo Mambo Australasia European Australasia European Operations Operations Total Operations Operations Total $’000 $’000 $’000 $’000 $’000 $’000 Trading Revenue 302 – 302 8,203 – 8,203 Other revenue – 59 59 208 12 220 Cost of sales (499) – (499) (3,425) – (3,425) Depreciation and amortisation – – – (248) – (248) Provision for employee entitlements – – – 31 – 31 Bad and doubtful debts – (9) (9) 57 (15) 42 Operating lease rentals – – – (943) – (943) Other expenses (27) (68) (95) (3,326) (177) (3,503) Gain on disposal – – – 40 – 40 Finance cost – – – (175) – (175) Profit/(loss) before tax from discontinued operations (224) (18) (242) 422 (180) 242 Tax (expense)/benefit 192 47 239 (144) 190 46 Profit/(loss) for the year from discontinued operations (32) 29 (3) 278 10 288

GAZAL CORPORATION LIMITED 40 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

6 DISCONTINUED OPERATIONS continued

The major classes of assets and liabilities at 30 June are as follows:

2009 2008

Mambo Mambo Mambo Mambo Australasia European Australasia European Operations Operations Total Operations Operations Total $’000 $’000 $’000 $’000 $’000 $’000

Assets Inventory – – – 491 – 491 Cash and short-term deposits – 116 116 92 119 211 Other receivables – 46 46 2 103 105 Tax asset – – – – 488 488 Assets classified as held for sale – 162 162 585 710 1,295

Liabilities Trade and other payables – 216 216 120 599 719 Classified as held for sale – 216 216 120 599 719 Net assets/(liabilities) attributable to discontinued operations – (54) (54) 465 111 576

Net cash flows of the discontinued operations are as follows:

2009 2008

Mambo Mambo Mambo Mambo Australasia European Australasia European Operations Operations Total Operations Operations Total $’000 $’000 $’000 $’000 $’000 $’000 Operating activities (92) 230 138 1,569 (94) 1,475 Investing activities – – – 9,869 – 9,869 Financing activities – (233) (233) (12,266) – (12,266) Net cash inflow/(outflow) (92) (3) (95) (828) (94) (922)

2009 2008 cents cents

Earnings per share – cents per share: – Basic from discontinued operations – 0.5 – Diluted from discontinued operations – 0.5

ANNUAL REPORT 2009 41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

7 EARNINGS PER SHARE

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

Consolidated

Year ended Year ended 30 June 2009 30 June 2008 $’000 $’000 Net profit attributable to ordinary equity holders of the parent from continuing operations 6,836 9,236 Profit/(loss) attributable to ordinary equity holders of the parent from discontinued operations (3) 288 Earnings used in calculating basic and diluted earnings per share 6,833 9,524

Number Number of shares of shares Weighted average number of ordinary shares used in calculating basic earnings per share 60,675,978 60,675,978

Effect of dilutive securities Share options – – Adjusted weighted average number of ordinary shares used in calculating basic earnings per share 60,675,978 60,675,978

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 profit figures used as the numerator: Consolidated

Year ended Year ended 30 June 2009 30 June 2008 $’000 $’000 Profit/(loss) attributable to ordinary equity holders of the parent from discontinued operations – for basic earnings per share (3) 288 – for diluted earnings per share (3) 288

All potential ordinary shares, being options to acquire ordinary shares, are considered dilutive unless the exercise price of the options exceeds the average market price of shares traded during the current financial year.

GAZAL CORPORATION LIMITED 42 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

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. Australasia Europe* Eliminations Consolidated Year Year Year Year Year Year Year Year ended ended ended ended ended ended ended ended 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2009 2008 2009 2008 2009 2008 2009 2008 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Revenue Sales to customers outside the consolidated entity 243,824 255,679 – – – – 243,824 255,679 Other revenues from customers outside the consolidated entity 2,792 3,961 59 12 – – 2,851 3,973 Intersegment revenues – – – – – – – – Total segment revenue 246,616 259,640 59 12 – – 246,675 259,652 Unallocated revenue – – – – – – – – Total consolidated revenue 246,616 259,640 59 12 – – 246,675 259,652

Results Segment result – earnings before interest and tax expenses 12,161 18,108 (18) (180) – – 12,143 17,928 Unallocated expenses – interest (2,854) (4,208) Profit from ordinary activities before income tax expense 9,289 13,720 Income tax expense (2,456) (4,196) Net profit from ordinary activities after income tax expense 6,833 9,524 Net profit for the period attributable to members 6,833 9,524

Assets Segment assets 156,631 149,988 162 180 (2,906) (3,758) 153,887 146,410 Unallocated assets 4,857 4,467 Total assets 158,744 150,877 Liabilities Segment liabilities 34,587 32,329 216 600 (313) (743) 34,490 32,186 Unallocated liabilities 56,876 47,728 Total liabilities 91,366 79,914 Other segment information Capital expenditure 9,281 8,679 – – – – 9,281 8,679 Depreciation and amortisation 6,277 5,490 – – – – 6,277 5,490 Impairment losses 98 174 9 15 – – 107 189 Other non-cash expenses 1,805 1,103 – – – – 1,805 1,103 Cash flow information Net cash flow operating activities 7,155 29,067 230 (94) – – 7,385 28,973 Net cash flow investing activities (8,477) 1,479 – – (233) – (8,710) 1,479 Net cash flow financing activities 2,233 (25,851) (233) – 233 – 2,233 (25,851)

* This segment is classified as a discontinued operation for 30 June 2008 and 2009.

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 results include transfers between business segments. Those transfers are eliminated on consolidation.

ANNUAL REPORT 2009 43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

Secondary Segment The company and economic entity operates predominantly in the clothing industry, comprising various brands.

9 TRADE AND OTHER RECEIVABLES (CURRENT)

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Trade receivables 14,478 16,432 – – Allowance for impairment loss (a) (224) (221) – – 14,254 16,211 – – Related parties receivables (b) Wholly owned group – – 25,651 28,070 Associated entity – – – – Allowance for impairment loss – – (2,828) (2,828) Carrying amount 14,254 16,211 22,823 25,242

(a) Allowance for impairment loss Trade receivables are non-interest bearing and are generally on 30–60­ day terms. A provision for impairment loss is recognised when there is objective evidence that an individual trade receivable is impaired. An impairment loss of $3,000 (2008: $79,000) has been recognised by the Group in the current year. These amounts have been included in the selling and administrative expense items.

Movements in the provision for impairment loss were as follows

At 1 July 221 642 2,828 2,828 Charge for the year 3 79 – – Amounts written off against allowance for impairment loss – (500) – – At 30 June 224 221 2,828 2,828

At 30 June, the ageing analysis of trade receivables is as follows: 61–90 61–90 +91 +91 0–30 31–60 Days Days Days Days Total Days Days PDNI* CI* PDNI* CI* 2009 Consolidated 14,478 13,243 337 638 28 36 196 Parent – – – – – – – 2008 Consolidated 16,432 10,942 3,843 894 35 532 186 Parent – – – – – – –

* Past due not impaired (“PDNI”) Considered impaired (“CI”)

Receivables past due but not considered impaired are: Consolidated $674,000 (2008: $1,426,000); Parent $nil (2008: $nil). Payment terms on these amounts have not been re-negotiated; however, credit has been stopped until full payment is made. Each operating unit has been in direct contact with the relevant debtor and is satisfied that payment will be received in full.

Other balances within trade and other receivables, do not contain impaired assets and are not past due. It is expected that these other balances will be received when due.

(b) Related party receivables For the terms and conditions of related party receivables, refer to note 30. Loans to wholly owned group entities are repayable on demand.

GAZAL CORPORATION LIMITED 44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

9 TRADE AND OTHER RECEIVABLES (CURRENT) continued

(c) Fair value and credit risk

Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivables mentioned above.

Refer to note 28 for more information on the financial risk management policy of the Group.

(d) Foreign exchange and interest rate risk Detail regarding foreign exchange and interest rate risk exposure is disclosed in note 28.

10 INVENTORIES (CURRENT)

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Raw materials and stores, at cost 241 591 – – Provision for inventory obsolescence (5) (59) – – Raw materials and stores, net 236 532 – – Work in progress, at cost – 301 – – Finished goods, at cost 45,036 36,886 – – Provision for inventory obsolescence (2,356) (1,488) – – 42,680 35,398 – – Stock in transit 2,989 3,197 – – 45,905 39,428 – – Inventories attributable to discontinued operations (note 6) – 491 – – Total inventories 45,905 39,919 – –

(a) Inventory expenses Inventories recognised as an expense for the year ended 30 June 2009 totalled $131,036,000 (2008: $121,569,000) for the Group. This expense has been included in the cost of sales line item as a cost of inventories.

11 OTHER ASSETS (CURRENT)

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Prepayments 1,432 1,349 – – Other 2,456 466 6 156 3,888 1,815 6 156 Other receivables attributable to discontinued operations (note 6) 46 105 – – Total other current assets 3,934 1,920 6 156

ANNUAL REPORT 2009 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

12 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 2008 36,178 6,431 30,887 73,496 – 29 29 Additions – 1,232 4,790 6,022 – – – Disposals – (257) (3,194) (3,451) – (29) (29) Revaluation (2,383) – – (2,383) – – – Others – currency translation difference – 2 (7) (5) – – – Closing balance – 30 June 2009 33,795 7,408 32,476 73,679 – – –

Accumulated depreciation Opening balance – 1 July 2008 – 3,345 18,984 22,329 – 26 26 Depreciation for the year* 340 718 3,663 4,721 – 2 2 Disposals – (193) (2,489) (2,682) – (28) (28) Revaluation (340) – – (340) – – – Others – currency translation difference – (1) (19) (20) – – – Closing balance – 30 June 2009 – 3,869 20,139 24,008 – – – Net carrying amount as at 30 June 2009 33,795 3,539 12,337 49,671 – – – Property, plant and equipment – at fair value 33,795 – – 33,795 – – – Property, plant and equipment – at cost – 3,539 12,337 15,876 – – – Total property, plant and equipment 33,795 3,539 12,337 49,671 – – –

* Depreciation includes continuing and discontinuing operations. All assets are secured by first mortgages, deeds of charge and mortgage debentures.

GAZAL CORPORATION LIMITED 46 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

12 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 2007 37,422 7,862 31,023 76,307 22 28 50 Additions – 487 4,493 4,980 – 1 1 Disposals – (1,914) (4,610) (6,524) (22) – (22) Revaluation (1,244) – – (1,244) – – – Others – currency translation difference – (4) (19) (23) – – – Closing balance – 30 June 2008 36,178 6,431 30,887 73,496 – 29 29

Accumulated Depreciation Opening balance – 1 July 2007 – 4,352 19,501 23,853 11 12 23 Depreciation for the year * 340 720 3,301 4,361 11 14 25 Disposals – (1,725) (3,785) (5,510) (22) – (22) Revaluation (340) – – (340) – – – Others – currency translation difference – (2) (33) (35) – – – Closing balance – 30 June 2008 – 3,345 18,984 22,329 – 26 26 Net carrying amount as at 30 June 2008 36,178 3,086 11,903 51,167 – 3 3 Property, plant and equipment – at fair value 36,178 – – 36,178 – – – Property, plant and equipment – at cost – 3,086 11,903 14,989 – 3 3 Total property, plant and equipment 36,178 3,086 11,903 51,167 – 3 3

* Depreciation includes continuing and discontinued operations.

Revaluation of land and buildings The Group engaged CB Richard Ellis, an accredited independent valuer, to determine the fair value of its land and buildings. 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 2009.

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 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Cost 13,545 13,545 – – Accumulated depreciation (4,036) (3,696) – – Net carrying amount 9,509 9,849 – –

ANNUAL REPORT 2009 47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

13 INTANGIBLE ASSETS

Parent Consolidated ENTITY

Industrial Finite life Trademarks designs Goodwill intangible Software Total Software $’000 $’000 $’000 $’000 $’000 $’000 $’000 At 1 July 2007 15,232 595 14,237 2,493 1,477 34,034 4 Additions – – – – 3,699 3,699 – Disposal (7,559) – – – (22) (7,581) – Amortisation* – (123) – (387) (619) (1,129) (2) Year ended 30 June 2008 7,673 472 14,237 2,106 4,535 29,023 2

At 1 July 2008 7,673 472 14,237 2,106 4,535 29,023 2 Additions – – – – 3,259 3,259 – Disposal – – – – (24) (24) (1) Amortisation – (123) – (389) (1,044) (1,556) (1) Year ended 30 June 2009 7,673 349 14,237 1,717 6,726 30,702 –

* Amortisation includes continuing and discontinued operations.

(a) Trademarks Trademark values are assessed at brand level within each cash-generating unit (“CGU”). The useful lives of trademarks are estimated as indefinite and the relief from royalty method is utilised for the measurement of fair value when recognised on acquisition. The trademarks are determined to have indefinite 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 5% and 6% (2008: 4% 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 reflect budget for the ensuing year and further growth between 4% and 5% p.a. (2008: 4% to 5%) for the subsequent three years plus terminal value. The discount rate of 17.4% (2008: 15.4%) was used in the NPV calculations. There is sufficient head room and hence this did not result in an impairment.

(b) Industrial designs The useful life of industrial designs is estimated as being 16 years from the date of recognition at fair value on acquisition.

(c) Goodwill Goodwill is measured for each CGU by calculating its enterprise value, being the NPV of future free cash flows and deducting from this value the net tangible assets and identifiable 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 indefinite life. Value in use of goodwill is tested at least annually for impairment, and always at the end of a financial year to ensure that assets are carried at a recoverable value. No impairment loss was charged for continuing operations in the 2009 financial year. The discount rate of 17.4% (2008: 15.4%) 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 4% (2008: 4%) for the subsequent three years plus terminal value.

(d) Finite life intangible A distribution agreement which was acquired as part of a business combination which has been classified as an intangible asset with a finite life has been tested for impairment on the same basis as goodwill. No impairment loss was charged for the 2009 financial year (2008: nil).

GAZAL CORPORATION LIMITED 48 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

13 INTANGIBLE ASSETS continued

(e) Software All software is capitalised and written off over the estimated useful life, which presently ranges from 2.5 to seven years.

Carrying amounts attributed to trademarks and goodwill are as follows:

2009 Consolidated 2008 Consolidated

Trademarks Goodwill Trademarks Goodwill $’000 $’000 $’000 $’000 Outwear 115 7,092 115 7,092 Intimates 7,558 4,823 7,558 4,823 Retail – 2,322 – 2,322 Total trademarks and goodwill 7,673 14,237 7,673 14,237

14 INVESTMENT IN SUBSIDIARIES (NON-CURRENT)

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Shares in controlled entities – unlisted At cost – – 66,990 66,943 Provision for diminution in investment – – (27,626) (27,626) Total other non-current financial assets – – 39,364 39,317

15 OTHER ASSETS (NON-CURRENT)

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Procurement fee 1,300 1,681 – – Other 546 119 – – Total other non-current assets 1,846 1,800 – –

ANNUAL REPORT 2009 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

16 TRADE AND OTHER PAYABLES (CURRENT)

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Trade payables (a) 18,086 13,687 – – Other payables 8,213 11,642 238 231 Goods and services tax 279 497 – – 26,578 25,826 238 231 Other payables attributable to discontinued operations (note 6) 216 719 – – Carrying amount of trade and other payables 26,794 26,545 238 231

(a) Foreign exchange risk The carrying amounts of the Group’s and parent entity’s trade and other payables denominated in foreign currencies are: New Zealand dollar 67 105 – – Hong Kong dollar 177 342 – – US dollar 1,572 1,614 – – Carrying amount of foreign currency trade and other payables 1,816 2,061 – –

(b) Fair value Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value.

(c) Foreign exchange, interest rate and liquidity risk Detail regarding foreign exchange, interest rate and liquidity risk exposure is disclosed in note 28. Refer to note 29 for further information relating to the sensitivity of trade and other payables to foreign currency risk.

(d) Financial guarantees The Group has provided the financial guarantees to its associates which commit the Group to make payments on behalf of these entities upon their failure to perform under the terms of the relevant contract. Refer to note 25 and note 30 for further information relating to the Parent’s financial guarantee.

17 INTEREST-BEARING LOANS AND BORROWINGS (CURRENT)

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Bank overdrafts – secured (refer to note 19(a)) – – – – Bank loans – secured (refer to note 19(a)) 18,908 10,000 – – Total current borrowings 18,908 10,000 – –

GAZAL CORPORATION LIMITED 50 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

18 PROVISIONS (CURRENT)

Parent Consolidated entity

Provision Provision for long Provision for annual service Other for leave leave provisions Total dividend $’000 $’000 $’000 $’000 $’000 At 1 July 2008 3,014 1,422 – 4,436 – Arising during the year 2,272 301 – 2,573 – Utilised (2,147) (412) – (2,559) – At 30 June 2009 3,139 1,311 – 4,450 –

(a) Long service leave Refer to note 2 and note 3 respectively for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.

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

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Bank loans – secured (a) 30,000 30,000 – – Total non-current borrowings 30,000 30,000 – –

(a) The bank overdrafts of $nil (2008: $nil) and loans of $48,908,000 (2008: $40,000,000) are secured by a first 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 $117,108,000 (2008: $113,667,000). Refer to note 27(c). Bank loans have been classified as non-current and current liabilities. The non‑current portion is that amount which will be utilised and fully drawn over the coming 15 months and is non-current on the basis that the loan facilities with our bankers do not expire until 30 September 2010. We expect that these facilities will be renewed through to September 2011 following Westpac’s normal annual review process. The current portion is the portion which will be repaid over the next 12 months as indicated in note 17. 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 financial ratios are not maintained to the satisfaction of the bank. The Company’s bank covenants were compliant at 30 June 2009.

The interest rates on floating rate borrowings at year-end ranged from 3.5% to 8.1% (2008: 8.2% to 11.2%). Borrowings at 30 June 2009 were in Australian dollars and New Zealand dollars.

ANNUAL REPORT 2009 51 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

20 PROVISIONS (NON-CURRENT)

Consolidated Parent entity

Provision Provision for long for long service leave service leave $’000 $’000 At 1 July 2008 492 – Arising during the year 101 – Discount rate adjustment (56) – At 30 June 2009 537 –

(a) Long service leave Refer to note 2 and note 3 respectively for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.

21 CONTRIBUTED EQUITY

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Ordinary shares Issued and fully paid 69,816 69,816 69,816 69,816

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 2007 60,676 69,816 60,676 69,816 Closing balance at 30 June 2008 60,676 69,816 60,676 69,816

Opening balance 1 July 2008 60,676 69,816 60,676 69,816 Closing balance at 30 June 2009 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 the winding up of 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 five preceding days to the grant date. However, options only vest if and when the Group’s average annual net profit before tax, amortisation and impairment (and excluding material items as disclosed in the accounts, being items of a non-recurring nature) reflects a growth rate of at least 6% over three consecutive financial 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.

GAZAL CORPORATION LIMITED 52 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

21 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 Lapsed/ 30 June Date Granted Price 2008(c) year shares cancelled 2009 Exercise period

27 Feb 2004 (a) 2.60 150,000 – – (150,000) – 27 Feb 2006 to 26 Feb 2009* 3 July 2006 (b) 2.35 330,000 – – (330,000) – 3 July 2009 to 2 July 2011* 3 July 2006 (b) 2.35 500,000 – – (500,000) – 3 July 2009 to 2 July 2011* 4 Dec 2006 (b) 2.32 650,000 – – (650,000) – 4 Dec 2009 to 3 Dec 2011* 4 Dec 2006 (b) 2.32 500,000 – – (500,000) – 4 Dec 2009 to 3 Dec 2011* TOTAL 2,130,000 – – (2,130,000) –

* Expiry date. (a) The 27 February 2004 options were not taken up and lapsed during the year. (b) The 3 July 2006 and 4 December 2006 options respectively all cancelled at balance date, as the performance hurdles were not met on these options. (c) The Weighted Average Exercise Price (“WAEP”) for options at grant date is $2.35.

Capital Management When managing capital, management’s objective is to ensure that the entity continues as a going concern, as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity.

Management is constantly adjusting the capital structure to take advantage of favourable costs of capital or higher returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

During 2009, management paid dividends of $6,674,000 (2008: $8,495,000).

Management monitors capital through the gearing ratio (net debt/total capital). The gearing ratios based on continuing operations at 30 June 2009 and 2008 were as follows:

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Total borrowings* 75,702 66,545 238 231 Less cash and cash equivalents (7,278) (6,370) (8) (48) Net debt 68,424 60,175 230 183 Total equity 67,378 70,963 63,197 64,947 Total capital 135,802 131,138 63,427 65,130 Gearing ratio 50% 46% 0% 0%

* Includes interest-bearing loans and borrowings and trade and other payables.

ANNUAL REPORT 2009 53 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

22 RESERVES

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Asset revaluation 17,588 19,702 – – Asset realisation 562 562 – – Employee equity benefit – 541 – 541 Cash flow hedge (1,676) (487) – – Foreign currency translation – (100) – – Total reserves 16,474 20,218 – 541

Transfer to or from reserves: (a) Asset revaluation reserve Opening balance 19,702 20,335 – – Revaluation of land and building (2,114) (633) – – Closing balance 17,588 19,702 – – (b) Employee equity benefits reserve Opening balance 541 794 541 794 Recognition of share-based payment cost (541) (253) (541) (253) Closing balance – 541 – 541 (c) Foreign currency translation reserve Opening balance (100) (355) – – Net exchange difference on translation of overseas controlled entities 100 255 – – Closing balance – (100) – – (d) Cash flow hedge reserve Opening balance (487) (920) – – Net gains/(loss) on cash flow hedge (1,189) 433 – – Closing balance (1,676) (487) – –

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 benefits reserve This reserve is used to record the value of share-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 21 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 financial statements of foreign subsidiaries.

Cash flow hedge reserve This reserve records the portion of the gain or loss on hedging instruments in a cash flow hedge that are determined to be effective hedges.

GAZAL CORPORATION LIMITED 54 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

23 RETAINED PROFITS AND DIVIDENDS

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Accumulated losses (a) Movement in accumulated losses Balance at the beginning of the financial year (19,071) (20,100) (5,410) (6,238) Opening balance adjustment – – – 19 Net profit attributable to members – continuing 6,836 9,236 5,465 9,304 Net profit/(loss) attributable to members – discontinued (3) 288 – – Dividends provided for or paid (6,674) (8,495) (6,674) (8,495) Balance at the end of the financial year (18,912) (19,071) (6,619) (5,410)

(b) Dividends paid during the financial year Interim franked dividend of 4 cents (2008: 7cents) paid 4 May 2009 2,427 4,247 2,427 4,247 Prior year final franked dividend of 7 cents (2008: 7 cents) paid 4 November 2008 4,247 4,248 4,247 4,248

(c) Dividends proposed but not recognised as a liability Final fully franked dividend of 4 cents (2008: 7 cents) payable 6 October 2009 2,427 4,248 2,427 4,248

Franking credit balance Franking credits available for the subsequent financial year are:

Balance at the end of the financial year at 30% (2008: 30%) 11,768 12,201 11,768 12,201 Franking credits that will arise from the payment/ (receipt) of income tax payable/(receivable) as at the end of the financial year (118) 404 (118) 404 11,650 12,605 11,650 12,605

ANNUAL REPORT 2009 55 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

24 COMMITMENTS

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 (a) Commitments Capital expenditure contracted for is payable as follows: Not later than one year 3,512 603 – – Operating lease expenditure contracted for is payable as follows: Not later than one year 8,742 9,789 – – Later than one year but not later than five years 18,162 18,548 – – Later than five years 6,834 3,763 – – 33,738 32,100 – –

Operating leases have remaining terms between one and 10 years with an average lease term of three years (2008: three years) and an average implicit interest rate of 6% (2008: 6%). Leases include a clause to enable upward revision of the rental charge on an annual basis. Assets that are the subject of operating leases are rental properties and office machines.

25 CONTINGENT LIABILITIES

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 At 30 June utilised bank facilities totalled* 48,908 40,000 48,908 40,000

* The parent entity in conjunction with other related corporations has given inter-company 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 30, 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 that any of these companies are wound up.

GAZAL CORPORATION LIMITED 56 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

26 CASH AND CASH EQUIVALENTS (CURRENT)

(a) Reconciliation of cash For the purpose of the Cash Flow Statement, cash includes cash on hand and in banks and short-term deposits at call, net of outstanding bank overdrafts. Cash at the end of financial year as shown in the Balance Sheet is as follows:

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Cash at bank 7,162 6,159 8 48 Cash and short-term deposits attributable to discontinued operations (note 6) 116 211 – – 7,278 6,370 8 48

(b) Reconciliation of net cash provided by/(used in) operating activities to operating profit after income tax Operating profit after income tax 6,833 9,524 5,465 9,304 Adjustments for non-cash income and expenses items: Depreciation and amortisation expense 6,277 5,490 3 27 Other (1) 225 (544) (233) Profit on sale of discontinued operations – (40) – – Loss on sale of property, plant and equipment 207 207 2 – Changes in assets and liabilities (Increase)/decrease in trade debtors 1,957 5,237 – – (Increase)/decrease in inventory (5,986) 4,038 – – (Increase)/decrease in other assets – 476 150 (114) (Increase)/decrease in prepaid expenses (2,061) 1,141 – – Increase/(decrease) in trade creditors 4,116 (1,044) – – Increase/(decrease) in other creditors (3,866) 1,720 7 (13) Increase/(decrease) in income tax payable (64) 2,047 (859) 1,312 Increase/(decrease) in deferred income tax (86) 233 35 (48) Increase/(decrease) in employee entitlements provisions 59 (281) – – 7,385 28,973 4,259 10,235

ANNUAL REPORT 2009 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

27 FINANCING FACILITIES AVAILABLE

(a) Terms and conditions Bank overdrafts The bank overdrafts are secured by a fixed and floating 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 financial ratios are not maintained to the satisfaction of the bank.

Secured bank loan The facility is secured by a first charge over certain of the Group’s land and buildings and a fixed and floating charge over the Group’s plant and machinery.

(b) Financing facilities available At reporting date, the following financing 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 2009 Bank overdraft facility 3,080 – 3,080 – – – Bank loan facilities 70,903 (48,908) 21,995 – – – Total financing facilities 73,983 (48,908) 25,075 – – –

At 30 June 2008 Bank overdraft facility 3,000 – 3,000 – – – Bank loan facilities 75,983 (40,000) 35,983 – – – Total financing facilities 78,983 (40,000) 38,983 – – –

Expiry date: 30 September 2011 (2008: 30 September 2010).

All of the economic entity’s facilities are subject to annual review and subject to the conditions referred to note 19(a).

At balance date, the Group has approximately $25 million of unused credit facilities available for its immediate use.

GAZAL CORPORATION LIMITED 58 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

27 FINANCING FACILITIES AVAILABLE continued

(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 2009 30 June 2008 30 June 2009 30 June 2008 Notes $’000 $’000 $’000 $’000 Current Floating charge Cash at bank 26(a) 7,278 6,370 8 48 Receivables 9 14,254 16,211 – – Inventory 10 45,905 39,919 – – Total current assets pledged as security 67,437 62,500 8 48 Non-current First mortgage Freehold land and buildings 12 33,795 36,178 – – Floating charge Leasehold improvement 12 3,539 3,086 – – Plant and machinery 12 12,337 11,903 – 3 Total non-current assets pledged as security 49,671 51,167 – 3 Total assets pledged as security 117,108 113,667 8 51

28 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company operates in several countries and is reliant on external debt finance. These operations give rise to significant exposure to market risks due to changes in interest rates and foreign exchange rates. Derivative financial instruments are used by the economic entity to reduce these risks, as explained in this note. The Company does not hold or issue financial instruments for speculative or trading purposes.

Primary responsibility for identification and control of financial risks rests with management and the Board. The Board reviews and agrees policies for managing each of the risks identified below, including the setting of limits for hedging cover of foreign currency and interest rate risk, credit allowances, and future cash flow forecast projections.

The Group’s principal financial instruments comprise receivables, payables, bank loans and overdrafts, cash and short-term deposits and derivatives. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

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 fixed and floating rates. In order to minimise risk, interest rate swaps are used to convert floating rate debt to fixed rates when this results in a fixed rate lower than that available if fixed-rate debt was raised directly. Under the swaps, the economic entity agrees with other parties to exchange, at specified intervals, the difference between the fixed-rate and floating-rate interest amounts calculated by reference to the agreed notional principal amounts.

ANNUAL REPORT 2009 59 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

28 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued

At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk that are not designated in cash flow hedges:

Consolidated Parent entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 7,278 6,370 – – 7,278 6,370 – – Financial liabilities Bank loans at floating rate 43,908 40,000 – – 43,908 40,000 – – Net exposure (36,630) (33,630) – –

The parent entity is not exposed to interest rate risk, as it does not have any interest-bearing liabilities.

Interest-bearing assets and liabilities are denominated in Australian dollars and New Zealand dollars.

The economic entity is exposed to interest rate risk through primary financial assets and liabilities, modified by interest rate swaps. Interest rate swap contracts are limited to the net fair value of the swap agreement at reporting date, being $297,000 (2008: $nil). The table included in note 29 summarises interest rate risk for the economic entity, together with effective interest rates at balance date.

The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewals of existing positions, alternative financing, alternative hedging positions and the mix of fixed and variable interest rates.

The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date:

At 30 June, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity would have been affected as follows:

Post-Tax Profit Equity Judgments of reasonable possible movements: Higher/(Lower) Higher/(Lower) Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Consolidated +1% (100 basis points) (256) (235) 131 – –.5% (50 basis points) 128 118 (68) – Parent +1% (100 basis points) – – – – –.5% (50 basis points) – – – –

The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances. The movement in equity is due to an increase/decrease in the fair value of derivative instruments designated as cash flow hedges. The sensitivity is higher in 2009 than in 2008 because of an increase in outstanding borrowings that has occurred due to net cash outflows. Equity sensitivity is higher in 2009 as no interest rate swaps were in place at June 2008.

GAZAL CORPORATION LIMITED 60 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

28 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued

(b) Credit risk The economic entity’s exposures to credit risk at reporting date are as indicated by the carrying amounts of its financial 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 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 verification procedures. In addition, receivable balances are monitored on an ongoing basis, with the result that the Group’s exposure to bad debts is not significant.

There is a 24% concentration of credit risk with major customer groups.

(c) foreign currency risk As a result of a large purchase of inventory denominated in United States dollars, the Group’s Balance Sheet can be affected significantly by movements in the A$/US$ and A$/HK$ exchange rates. The Group also has transactional currency exposures. Such exposure arises from sales or purchases by an operating entity in currencies other than the functional currency.

The Group uses forward currency contracts to eliminate the currency exposures on any individual transactions.

At 30 June, the Group had the following exposure to US$ foreign currency that is not designated in cash flow hedges:

Consolidated Parent entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Financial assets Cash and cash equivalents 7 19 – – Trade and other receivables 75 34 – – 82 53 – – Financial liabilities Trade and other payables – 1,614 – – – 1,614 – – Net exposure 82 (1,561) – –

ANNUAL REPORT 2009 61 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

28 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued

The Group has, as outlined in note 29, forward currency contracts designated as cash flow hedges and held for trading that are subject to fair value movements through equity and profit and loss respectively as foreign exchange rates move.

The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date:

At 30 June, had the Australian dollar moved, as illustrated in the table below, with all other variables held constant, post-tax profit and equity would have been affected as follows:

Post-Tax Profit Equity Judgments of reasonable possible movements: Higher/(Lower) Higher/(Lower) Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Consolidated A$/US$ +10% (6) 109 (1,419) (921) A$/US$ –5% 3 (55) 822 542 A$/HK$ +10% – – (18) (188) A$/HK$ –5% – – 10 109

The movements in profit in 2009 are less sensitive than in 2008 due to the lower level of US dollar payables not designated as cash flow hedges at balance date. The movements in equity are higher in 2009 than in 2008 owing to the sharp appreciation of the A$ in the final quarter of 2009.

Management believes the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.

(d) liquidity risk The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and committed available credit lines.

The table below reflects all contractually fixed pay-offs and receivables for settlement, repayments and interest resulting from recognised financial assets and liabilities, including derivative financial instruments as of 30 June 2009. For derivative financial instruments the market value is presented, whereas for the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. Cash flows for financial assets and liabilities without fixed amount or timing are based on the conditions existing at 30 June 2009.

The remaining contractual maturities of the Group’s and parent entity’s financial liabilities are:

Consolidated Parent entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Financial liabilities 0–12 months 48,411 38,018 – – 1–5 years 30,000 35,130 – – Over 5 years – – – – 78,411 73,148 – –

Maturity analysis of financial assets and liability is based on management’s expectation.

GAZAL CORPORATION LIMITED 62 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

28 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES continued

The risk implied from the values shown in the table below reflects a balanced view of cash inflows and outflows. Trade payables and other financial liabilities mainly originate from the financing assets used in our ongoing operations such as property, plant, equipment and investments in working capital, e.g. inventories and trade receivables. These assets are considered in the Group’s overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable an effective controlling of future risks, the Group has established comprehensive risk reporting covering its worldwide business units that reflects expectations of management of expected settlement of financial assets and liabilities.

0–12 months 1–5 years >5 years Total $’000 $’000 $’000 $’000 Year ended 30 June 2009 CONSOLIDATED Financial assets Cash and cash equivalents 7,278 – – 7,278 Trade and other receivables 14,254 – – 14,254 Derivatives 297 – – 297 21,829 – – 21,829 CONSOLIDATED Financial liabilities Trade and other payables 26,794 – – 26,794 Interest-bearing loans and borrowings 18,908 30,000 – 48,908 Derivatives 2,709 – – 2,709 48,411 30,000 – 78,411 Net maturity (26,582) (30,000) – (56,582)

Year ended 30 June 2008 CONSOLIDATED Financial assets Cash and cash equivalents 6,370 – – 6,370 Trade and other receivables 16,211 – – 16,211 22,581 – – 22,581 CONSOLIDATED Financial liabilities Trade and other payables 26,545 – – 26,545 Interest-bearing loans and borrowings 10,000 30,000 – 40,000 Derivatives 713 – – 713 37,258 30,000 – 67,258 Net maturity (14,677) (30,000) – (44,677)

(e) Hedging instruments With respect to the use of derivative financial instruments, it is Company policy that financial derivatives are only used as a defensive mechanism to cover real financial and trading risks associated with the Company’s business. Key procedures to provide effective control for financial derivatives include separation of duties between deal-making/accounting functions, and setting authority limits and approving confirmation of dealings.

(f) Fair value The methods for estimating fair value are outlined in the relevant notes to the financial statements.

ANNUAL REPORT 2009 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

29 DERIVATIVE FINANCIAL INSTRUMENTS

Hedging activities Consolidated Parent entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Current assets Interest rate swaps – cash flow hedges 297 – – – Current liabilities Forward currency contracts – cash flow hedges 2,709 713 – –

(a) Instruments used by the Group Derivative financial instruments are used by the Group in the normal course of business in order to hedge exposure to fluctuations in interest rate and foreign exchange rates.

(i) Forward currency 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 forecast purchases which are timed to mature when payments are scheduled to be made and are therefore considered 100% effective.

As these are designated effective hedges, an adjustment of $1,996,000 (2008: $187,000) has been made to the hedge reserve while no adjustment has been included in the net profit for the year relating to the forward exchange contracts. This comprises an asset of $nil (2008: $nil) and a liability of $2,709,000 (2008: $713,000).

The cash flows are expected to occur between nil and five months from 1 July 2009 and the profit and loss within cost of sales will be affected over the next few years as the inventory is either used in production or sold. At balance date, the details of outstanding contracts are:

Amount Expiry date Rate Year ended 30 June 2009 Consolidated Forward exchange contracts – Buy (US$’000) US$ 18,528 01.07.09 – 31.10.09 0.6757 – 0.7629 Forward exchange contracts – Buy (HK$’000) HK$ 1,708 31.07.09 5.6055

Year ended 30 June 2008 Consolidated Forward exchange contracts – Buy (US$’000) US$ 15,677 01.07.08– 31.10.08 0.8834 – 0.9470 Forward exchange contracts – Buy (HK$’000) HK$ 20,052 31.07.08 – 31.10.08 7.0802 – 7.4056

The forward exchange contracts are considered to be highly effective hedges as they are matched against forecast inventory purchases and any gain or loss on the contracts attributable to the hedged risk 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.

GAZAL CORPORATION LIMITED 64 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

29 DERIVATIVE FINANCIAL INSTRUMENTS continued

Movement in forward currency contract cash flow hedge reserve:

Consolidated Parent entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Opening balance 696 920 – – Transferred to inventory (1,276) 1,683 – – Charge to equity 3,272 (1,907) – – Closing balance 2,692 696 – –

(ii) Interest rate swaps – cash flow hedges At 30 June 2009, the Group had an interest rate swap agreement in place with a notional amount of $5,000,000, whereby Gazal paid a fixed rate of interest of 4% and received a variable rate equal to the BBSY on the notional amount. The Group had no current interest rate swap agreements in place at 30 June 2008.

Amount Maturity Interest rate

Year ended 30 June 2009 Consolidated Interest rate swaps A$5,000,000 03.02.2014 4.00%

Year ended 30 June 2008 Consolidated Interest rate swaps – – –

The swap is being used to hedge the exposure to changes in interest payable on working capital requirements.

Movement in interest rate swaps cash flow hedge reserve:

Consolidated Parent

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Opening balance – – – – Transferred to interest expense – – – – Charge to equity 297 – – – Closing balance 297 – – –

(iii) Hedge of net investments in foreign operations No hedge of this type existed at 30 June 2009 (2008: nil).

(b) Interest rate risk Information regarding interest rate risk exposure is set out in note 28.

(c) Credit risk Information regarding credit risk exposure is set out in note 28.

ANNUAL REPORT 2009 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

30 RELATED PARTY DISCLOSURES

The consolidated financial statements as at 30 June 2009 include the financial statements of Gazal Corporation Limited and the subsidiaries listed in the table below.

Equity interest

Country of 2009 2008 Name of controlled entity Notes incorporation % % 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 M. Graphics Pty Limited (formerly Mambo Graphics Pty Limited) (a) Australia 100 100 M. Street Pty Limited (formerly Mambo Street Pty Limited) (b) 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 Gazal (NZ) Limited New Zealand 100 100 Bracks (NZ) Limited (c) New Zealand – 100 Gazal Apparel Trading Company Limited (Shanghai) (d) China 100 – Gazal Hong Kong Limited Hong Kong 100 100 Mambo International (Europe) Limited (In Liquidation) (e) United Kingdom 100 100 Mambo Italy Srl (In Liquidation) (e) Italy 100 100 Ultimate Factory Outlets (UFO) Pty Limited (In Liquidation) (e) Australia 100 100 The Lovable Company (Aust) Pty Limited (In Liquidation) (e) Australia 100 100 Gross Industries Pty Limited (In Liquidation) (e) Australia 100 100 Klippel Brothers Pty Limited (In Liquidation) (e) Australia 100 100 Gazal Productions Pty Limited (In Liquidation) (e) Australia 100 100 Crystal International Pty Limited (In Liquidation) (e) Australia 100 100 New Story Pty Limited Australia – 100

(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 the 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 financial statements. The consolidated income statement and balance sheet of all entities included in the Class Order “closed group” are set out on the following two pages. (b) These companies meet the definition of small proprietary companies. As a result these companies are relieved from the requirement to prepare financial statements. (c) Bracks (NZ) Limited was amalgamated under New Zealand Companies Law with Gazal (NZ) Limited on 3 April 2009. (d) Gazal Apparel Trading Company Limited (Shanghai) was incorporated on 31 July 2008 as a wholly owned foreign enterprise which took over the previous Representative Office function in Shanghai, China. (e) These companies are no longer of benefit to the Group and were placed into voluntary liquidation. In relation to the Australian controlled entities placed into voluntary liquidation, these were removed from the Class Order.

GAZAL CORPORATION LIMITED 66 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

30 RELATED PARTY DISCLOSURES continued

Financial information for Class Order closed group Gazal Corporation Limited Closed Group Income Statement for the year ended 30 June 2009

Consolidated

Year ended Year ended 30 June 2009 30 June 2008 $’000 $’000 Sales revenue 237,643 248,524 Cost of sales (129,171) (125,027) Gross profit 108,472 123,497

Other revenues 2,110 4,982 Selling and marketing expenses (65,124) (73,250) Distribution expenses (17,139) (20,038) Administration expenses (17,906) (18,527) Finance costs (2,791) (4,208) Profit before income tax expense 7,622 12,456 Income tax expense (1,996) (3,605) Net profit after related income tax expense 5,626 8,851 Retained profits at the beginning (17,253) (17,609) Dividends paid (6,674) (8,495) Retained profits at the ending (18,301) (17,253)

ANNUAL REPORT 2009 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

30 RELATED PARTY DISCLOSURES continued

Gazal Corporation Limited Closed Group Balance Sheet at 30 June 2009 Consolidated

As at As at 30 June 2009 30 June 2008 $’000 $’000 Current assets Cash and cash equivalents 6,327 5,457 Trade and other receivables 10,386 17,059 Inventories 44,380 38,969 Derivative financial instruments 297 – Tax assets 380 51 Other current assets 3,825 1,746 Total current assets 65,595 63,282

Non-current assets Investment 8,869 7,331 Property, plant and equipment 49,346 50,731 Intangibles 24,316 22,982 Deferred tax assets 4,673 3,872 Other 1,846 1,799 Total non-current assets 89,050 86,715 Total assets 154,645 149,997

Current liabilities Trade and other payables 26,241 26,143 Derivative financial instruments 2,706 713 Interest-bearing loans and borrowings 17,500 10,000 Provisions 4,412 4,331 Total current liabilities 50,859 41,187

Non-current liabilities Interest‑bearing liabilities 30,000 30,000 Provisions 537 485 Deferred tax liabilities 7,968 7,289 Total non-current liabilities 38,505 37,774 Total liabilities 89,364 78,961 Net assets 65,281 71,036

Equity Contributed equity 69,816 69,816 Reserves 13,766 18,473 Retained earnings (18,301) (17,253) Total equity 65,281 71,036

GAZAL CORPORATION LIMITED 68 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

30 RELATED PARTY DISCLOSURES continued

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 financial year:

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 Transaction type Class of related party $’000 $’000 $’000 $’000 Loans to other related parties Loan advanced Controlled entities – – 11,435 11,224 Loan advanced Associated entity – – – –

Loans from other related parties Loan received from Controlled entities – – 13,638 10,244

Other transactions Management charges received Controlled entities – – 400 750

Gazal Corporation Limited is the ultimate parent.

The Mathilda 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.

31 SIGNIFICANT EVENTS AFTER BALANCE DATE

There are no matters or circumstances that have arisen since 30 June 2009 that have significantly affected or may significantly affect the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent financial years.

32 REMUNERATION OF AUDITOR

Year ended Year ended 30 June 2009 30 June 2008 $ $ Auditor and review services Australia Ernst & Young – Audit 147,775 173,500 Royalty, workers’ compensation and turnover audits 16,900 15,985 Other services – Taxation 95,783 92,320 – Other services – 27,810 Affiliate firms of Ernst & Young Other services – UK 18,800 61,521 Audit – HK 14,474 23,153 Taxation – HK 7,330 11,423 Total fees paid to Ernst & Young 301,062 405,712

ANNUAL REPORT 2009 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

33 KEY MANAGEMENT PERSONNEL

(a) remuneration by Category: Key Management Personnel Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000 Short-term 2,962,620 3,638,509 1,270,584 1,310,951 Post employment 441,359 409,682 92,798 92,798 Share-based payments (212,935) 125,067 (141,336) 89,267 3,191,044 4,173,258 1,222,046 1,493,016

(b) oPtion holdings of Key Management Personnel Vested at Balance at 30 June 2009 beginning Balance at of period Granted as Options Net change end of period Not 1 July 2008 remuneration exercised other 30 June 2009 Total exercisable Exercisable Directors J. Blood 200,000 – – (200,000) (a) – – – – M. Gazal 200,000 – – (200,000) (a) – – – – C. Kimberley 150,000 – – (150,000) (a) – – – – D. Gazal 100,000 – – (100,000) (a) – – – – Executives C. Barnett 200,000 – – (200,000) (a) – – – – C. Barnett 150,000 – – (150,000) (c) – – – – D. Thompson 100,000 – – (100,000) (b) – – – – Total 1,100,000 – – (1,100,000) – – – –

(a) Cancelled; (b) Forfeited; (c) Lapsed. Vested at Balance at 30 June 2008 beginning Balance at of period Granted as Options Net change end of period Not 1 July 2007 remuneration exercised other 30 June 2008 Total exercisable Exercisable

Directors J. Blood 400,000 – – (200,000) (a) 200,000 200,000 200,000 – M. Gazal 400,000 – – (200,000) (a) 200,000 200,000 200,000 – C. Kimberley 300,000 – – (150,000) (a) 150,000 150,000 150,000 – D. Gazal 200,000 – – (100,000) (a) 100,000 100,000 100,000 – Executives C. Barnett 450,000 – – (100,000) (a) 350,000 350,000 200,000 150,000 P. Lovegrove 100,000 – – (100,000) (b) – – – – R. Gazal 100,000 – – (100,000) (a) – – – – D. Coghlan 100,000 – – (100,000) (a) – – – – P. Wood 100,000 – – (100,000) (a) – – – – P. Queeney 100,000 – – (100,000) (b) – – – – D. Thompson 100,000 – – – 100,000 100,000 100,000 – Total 2,350,000 – – (1,250,000) 1,100,000 1,100,000 950,000 150,000

(a) Cancelled; (b) Forfeited.

GAZAL CORPORATION LIMITED 70 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

33 KEY MANAGEMENT PERSONNEL continued

(c) Shareholdings of Key Management Personnel 30 June 2009 Balance Granted as On exercise Net change Balance 1 July 2008 remuneration of options other 30 June 2009 Shares held in Gazal Corporation Limited (Number) Ordinary Ordinary Ordinary Ordinary Ordinary

Directors J.W. Blood 350,000 – – – 350,000 M.J. Gazal (1) 5,804,850 – – – 5,804,850 D.J. Gazal (1) 4,461,183 – – – 4,461,183 C. Kimberley 250,000 – – – 250,000 Executives C. Barnett 150,000 – – – 150,000 R. Gazal (1) 3,570,136 – – – 3,570,136 D. Coghlan 492,640 – – – 492,640 P. Wood 324,000 – – – 324,000 D. Thompson* 30,600 – – (30,600) –

* Resigned on 11 March 2009.

30 June 2008 Balance Granted as On exercise Net change Balance 1 July 2007 remuneration of options other 30 June 2008 Shares held in Gazal Corporation Limited (Number) Ordinary Ordinary Ordinary Ordinary Ordinary

Directors J.W. Blood 350,000 – – – 350,000 M.J. Gazal (1) 6,117,828 – – (312,978) 5,804,850 D.J. Gazal (1) 7,273,944 – – (2,812,761) 4,461,183 C. Kimberley 250,000 – – – 250,000 Executives C. Barnett 150,000 – – – 150,000 R. Gazal (1) 6,678,987 – – (3,108,851) 3,570,136 D. Coghlan 492,640 – – – 492,640 P. Wood 324,000 – – – 324,000 D. Thompson 30,600 – – – 30,600 P. Lovegrove* 160,000 – – (160,000) –

* Resigned on 30 September 2007 (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.

(d) Loans to Key Management Personnel There are no loans to Directors or executives.

ANNUAL REPORT 2009 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

33 KEY MANAGEMENT PERSONNEL continued

(e) 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 $83,054 (2008: $670,594).

Mr. J.W. Blood is a Director of Canningvale Australia Pty Limited. During the year, the Company purchased material from Canning Vale Weaving Mills Pty Limited on normal commercial terms amounting to $113,673 (2008: $596,014).

Mr. G. Paton is a Director of Harvey Norman Holdings Limited. During the year, Harvey Norman Shopfitting Pty Limited, a subsidiary of Harvey Norman Holdings Limited provided shopfitting services on normal commercial terms amounting to $1,520,722 (2008: $nil).

34 EMPLOYEES

Consolidated Parent Entity

Year ended Year ended Year ended Year ended 30 June 2009 30 June 2008 30 June 2009 30 June 2008 $’000 $’000 $’000 $’000

(a) Employee entitlements Aggregate employee entitlement liability (refer to notes 18 and 20) 4,987 4,928 – –

30 June 2009 30 June 2008 Number Number

(b) number of Employees 688 706

(c) superannuation Gazal Corporation Limited and its controlled entities sponsor superannuation funds for officers and employees.

Employee and employer contributions and benefits are set out below:

Employees Officers Benefit type Accumulated fund Accumulated fund Lump sum benefit on Lump sum benefit on Form of benefit retirement or withdrawal retirement or withdrawal Contributions by – Employee Various – – Employer 9% 10%

The assets of the above funds were sufficient to satisfy all benefits 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.

GAZAL CORPORATION LIMITED 72 SHAREHOLDER INFORMATION

Supplementary Information as Required by Australian securities Exchange Listing Requirements

Ordinary shareholders as at 10 September 2009 These statistics relate to 906 shareholders of 60,675,978 ordinary shares. The proportion of shares held by the 20 largest shareholders is 88.18%. There are 115 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 10 September 2009 Number of Number of ordinary Size of holding shareholders shares % of total 1 – 1,000 282 135,897 0.23 1,001 – 5,000 341 991,607 1.63 5,001 – 10,000 123 960,742 1.58 10,001 – 100,000 132 3,874,959 6.39 100,001 and over 28 54,712,773 90.17 Total 906 60,675,978 100.00

Substantial Shareholders

The following information is extracted from the Company’s register of substantial shareholders as at 10 September 2009.

Relevant interest in fully Name paid shares Percentage Woodcray Pty Limited 29,582,911 48.8 Gazal Nominees Pty Limited as trustees of the Mathilda Malouf Settlement Trust, a trust established for the benefit of the family of the late J.S. Gazal 30,590,465 50.4 Michael Joseph Gazal 35,214,039 58.0 David Joseph Gazal 33,797,783 55.7 Richard Victor Gazal 31,787,470 52.4 Judith Ann Gazal 30,611,763 50.5 RBC Global Services Australia Nominees Pty Limited 3,810,728 6.3

ANNUAL REPORT 2009 73 TOP 20 SHAREHOLDERS

Top 20 Shareholders as at 10 September 2009

Number of % of ordinary total Registered holder shares shares

1. Woodcray Pty Limited 29,582,911 48.76 2. RBC Global Services Australia Nominees Pty Limited 3,810,728 6.28 3. M J & H H Gazal Pty Limited 3,411,363 5.62 4. Argo Investments Limited 2,900,000 4.78 5. Alan Dare Jennings 2,534,430 4.17 6. David Gazal Family Company Pty Limited 2,067,696 3.41 7. Michael Joseph Gazal 1,212,211 2.00 8. Cinu Investments Pty Limited 1,176,649 1.94 9. David Joseph Gazal 1,139,622 1.88 10. Gazal Nominees Pty Limited (Mathilda Malouf Trust) 1,007,554 1.66 11. Yoogalu Pty Limited 1,000,000 1.65 12. UBS Wealth Management Australia Nominees Pty Limited 911,909 1.50 13. Andrew Rich Enterprises Pty Limited 738,480 1.22 14. David John Coghlan 492,640 0.81 15. Gwynvill Investments Pty Limited 366,000 0.60 16. Lippo Securities Nominees (BVI) Limited 250,000 0.41 17. John Wilson Blood 250,000 0.41 18. Leeform Pty Limited 235,500 0.39 19. Brickworks Investments Company Limited 211,865 0.35 20. David John Holmes 203,333 0.34 53,502,891 88.18

GAZAL CORPORATION LIMITED 74 CORPORATE INFORMATION

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 207 Kent Street Sydney NSW 2000 Telephone: (02) 9290 9600 Web: www.registries.com.au

Solicitor Johnston Winter Slattery 264 George Street, Sydney NSW 2000

Blake Dawson Waldron 225 George Street Sydney NSW 2000

State of Incorporation Victoria, Australia

Stock Exchange Listings Gazal Corporation Limited shares are quoted on the Australian Securities Exchange

ASX Code GZL

ANNUAL REPORT 2009 75 Intentionally left blank.

GAZAL CORPORATION LIMITED 76 annual report 2009

annual report 2009

ABN 57 004 623 474 623 004 57 ABN ANNUAL REPORT 2009 www.gazal.com.au