Part of our daily life. Prospectus Pacific Brands Limited. A leading manager of some of Australia's icon brands number 1 in key product categories.

Transcription

1 A leading manager of some of Australia's icon brands number 1 in key product categories. Part of our daily life Prospectus Pacific Brands Limited ABN Joint Lead Managers: Macquarie Equity Capital Markets Limited and UBS AG, Australia Branch

2 Important notice This Prospectus The Offer contained in this Prospectus is an invitation to apply for Shares in Pacific Brands Limited (the Company). The Offer does not take into account your investment objectives, financial situation and particular needs. It is important that you read this Prospectus in its entirety before deciding whether to invest in the Company. In particular, you should consider the risk factors that could affect the performance of the Company. You should carefully consider these factors in the light of your personal circumstances (including financial and taxation issues) and seek professional guidance before deciding whether to invest. A number of key risk factors that you should consider are outlined in Section 9. This Prospectus is dated 1 March 2004 (Prospectus Date). A copy of this Prospectus was lodged with the Australian Securities and Investments Commission (ASIC) on that date. No responsibility for the contents of this Prospectus or the merits of the investment to which this Prospectus relates is taken by ASIC or Australian Stock Exchange Limited (ASX). The Company will apply to ASX for listing and quotation of the Shares on ASX within seven days after the Prospectus Date. No Shares will be issued on the basis of this Prospectus later than 13 months after the Prospectus Date. No person is authorised to provide any information or to make any representation in connection with the Offer described in this Prospectus which is not contained in this Prospectus. Any information or representation not so contained may not be relied upon as having been authorised by the Company, the Joint Lead Managers (Macquarie Equity Capital Markets Limited and UBS AG, Australia Branch) or any other person in connection with the Offer. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of it should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. This Prospectus does not constitute an offer or invitation in any jurisdiction where, or to any person to whom, such an offer or invitation would be unlawful. Residents of New Zealand should refer to Section 2.15 of this Prospectus and the New Zealand Investment Statement. The Shares have not been, and will not be registered under the US Securities Act and may not be offered or sold in the United States except to Qualified Institutional Buyers (QIBs) in transactions exempt from the registration requirements of the US Securities Act in accordance with Regulation D thereunder and applicable US state securities laws. Financial Information Presentation Unless otherwise indicated, references in this Prospectus to historical financial information are to the Adjusted Historical Financial Information included in Section 6. The Adjusted Historical Financial Information contained in this Prospectus has been derived from the audited and unaudited historical financial statements of Pacific Brands and its predecessor entities, and has been prepared in accordance with the recognition and measurement principles prescribed in Australian Accounting Standards and other mandatory professional requirements in Australia. The historical financial results in respect of the year ended 30 June 2001 and the five months ended 30 November 2001 (the date of the acquisition of the Pacific Brands business from Ansell Limited (formerly Pacific Dunlop Limited)) by the Existing Shareholder, have been derived from the audited financial statements of Ansell Limited. In preparing the Adjusted Historical Financial Information, certain adjustments were made to the audited and unaudited financial statements as the Company considered appropriate to reflect the operations of Pacific Brands over the period for which historical financial information is included in this Prospectus and going forward. These adjustments, together with a reconciliation of the Adjusted Historical Financial Information to the audited and unaudited financial statements of Pacific Brands, are described in Section The pro forma forecast financial information for FY2004 contained in this Prospectus is derived from the Pacific Brands Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures that will be in place upon Settlement, as if they were in place as at 30 June The forecast financial information for FY2005 contained in this Prospectus similarly reflects the new corporate and capital structures of the Group, upon Settlement. Details of the new corporate and capital structures are set out in Sections 6.12 and The actual financial information that Pacific Brands will report in its annual report for FY2004 (Statutory Financial Results) will differ from the pro forma forecast for that year. The FY2004 Statutory Financial Results will reflect the Group s actual financial results for the period from Settlement to 30 June All financial amounts contained in this Prospectus are expressed in Australian currency unless otherwise stated. Any discrepancies between totals and sums of components in tables contained in this Prospectus are due to rounding. Exposure Period The Corporations Act prohibits the Company from processing Applications during the Exposure Period. The purpose of the Exposure Period is to enable this Prospectus to be examined by market participants prior to the raising of funds. Any Applications received during the Exposure Period will not be processed until after the expiry of the Exposure Period. No preference will be conferred on any Applications received during the Exposure Period. This Prospectus will be made generally available during the Exposure Period at Definitions and Abbreviations Defined terms and abbreviations used in this Prospectus are explained in the Glossary in Section 11. Electronic Prospectus This Prospectus is available in electronic form at The Offer constituted by this Prospectus and the New Zealand Investment Statement in electronic form is available only to residents in Australia and New Zealand. Persons who access the electronic version of this Prospectus should ensure that they download and read the entire Prospectus. A hard copy of this Prospectus and New Zealand Investment Statement is available free of charge to any person in Australia or New Zealand by telephoning the Pacific Brands Share Offer Information Line on in Australia or in New Zealand during the period of the Offer. The Corporations Act prohibits any person from passing the Application Form on to another person unless it is attached to a hard copy of this Prospectus or the complete and unaltered electronic version of this Prospectus. Privacy If you apply for Shares, you will provide personal information to the Company and the Share Registrar. The Company and the Share Registrar collect, hold and use your personal information in order to assess your Application, service your needs as an investor, provide facilities and services that you request and carry out appropriate administration. Tax and company law requires some of the information to be collected in connection with your Application. If you do not provide the information requested, your Application may not be able to be processed efficiently, or at all. The Company and the Share Registrar may disclose your personal information for purposes related to your investment to their agents and service providers including those listed below or as otherwise authorised under the Privacy Act 1988 (Cwlth): the Joint Lead Managers in order to assess your Application; the Share Registrar for on-going administration of the register; the printers and the mailing house for the purposes of preparation and distribution of statements and for handling of mail; and if applicable, the Company, in order to verify employees. If you become a Shareholder, your information may also be used or disclosed from time to time to inform you about the Company s products or services that the Company thinks may be of interest to you. If you do not want your personal information to be used for this purpose, you should contact: John Grover, Legal Counsel & Company Secretary Pacific Brands Limited Level 3, 290 Burwood Road Hawthorn VIC 3122 Ph: (03) privacyofficer@pacbrands.com.au The information may also be disclosed to members of the Group and to their agents and service providers on the basis that they deal with such information in accordance with the Company s privacy policy. Under the Privacy Act 1988 (Cwlth), you may request access to your personal information held by (or on behalf of) the Company or the Share Registrar. You can request access to your personal information by telephoning or writing to the Company through the Share Registrar as follows: Computershare Investor Services Pty Limited Level 12, 565 Bourke Street Melbourne VIC 3000 Telephone: You can obtain a copy of the Company s privacy policy electronically at

3 Contents Important dates and key Offer statistics 2 Chairman s letter 3 Investment highlights 4 Section 1 Summary of key information 17 Section 2 Details of the Offer 27 Section 3 Industry overview 41 Section 4 The Pacific Brands business 47 Section 5 Board, Senior Management and employees 63 Section 6 Financial information 73 Section 7 Investigating Accountant s Report on historical financial information 89 Section 8 Independent Review of Forecast Financial Information 93 Section 9 Risk factors 97 Section 10 Additional information 103 Section 11 Glossary 127 Appendix I Combined Special Purpose Financial Report 133 Application Forms 151 Corporate Directory Inside back cover Questions If you have any questions in relation to the Offer, please call the Pacific Brands Share Offer Information Line on in Australia or in New Zealand. This document is important and should be read carefully in its entirety. 1

4 Important dates Prospectus Date Monday, 1 March 2004 Retail Offer opens Monday, 8 March 2004 Retail Offer closes Wednesday, 24 March 2004 Institutional Offer opens Monday, 29 March 2004 Institutional Offer closes Wednesday, 31 March 2004 Pricing and allocation announcement Friday, 2 April 2004 Expected commencement of trading on ASX and NZSX (conditional and deferred settlement basis) Friday, 2 April 2004 Institutional Settlement Tuesday, 6 April 2004 Allotment of Shares Tuesday, 6 April 2004 Expected despatch of shareholder statements Tuesday, 13 April 2004 Shares expected to begin trading on a normal basis Wednesday, 14 April 2004 Note: This timetable is indicative only. All dates are Melbourne time. The Company, in conjunction with the Joint Lead Managers, reserves the right to vary the dates and times of the Offer, including to close the Offer early or to accept late Applications, either generally or in particular cases, without notifying any recipient of this Prospectus or any Applicants. Investors are encouraged to submit their Applications as soon as possible. Key Offer statistics Retail Application Price 1 Institutional Offer Indicative Price Range Total number of Shares available under the Offer 2 Total number of Shares on issue following the Offer 2 Total gross proceeds from the Offer 3 Market capitalisation 3,4 Net debt 5 Enterprise value 3 Forecast year ending 30 June Earnings per Share (pre goodwill amortisation) 19.5 cents Dividends per Share 13.4 cents Price earnings ratio (pre goodwill amortisation) x Dividend yield % $2.60 per Share $2.25 $2.60 per Share 503 million 503 million $1,127.0 $1,303.0 million $1,131.8 $1,307.8 million $466.5 million $1,598.3 $1,774.3 million Notes: 1. Applicants under the Retail Offer will pay the lower of the Retail Application Price and the Final Price (refer Section 2.6.2). 2. Includes Shares issued under the Employee Gift and Shares to be purchased by Directors and management (refer Sections 2.7, 10.5 and 10.12). 3. Based on the Institutional Offer Indicative Price Range. The Offer is being made to enable the Group to acquire the companies which own the Pacific Brands business described in this Prospectus (Purchased Group) from the Existing Shareholder (refer Section 10.5). 4. Based on total number of Shares on issue following the Offer. The difference between market capitalisation and total gross proceeds is represented by the estimated value of Shares issued under the Employee Gift. 5. Refer to Section 6.9 for Pro forma Statement of Financial Position as at 31 December Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments that are subject to business, economic and competitive uncertainties and contingencies, with respect to future business decisions, which are subject to change and in many cases outside the control of the Company and the Directors. The Forecast Financial Information presented in this Prospectus may vary from actual financial results, and these variations may be material. Details of the Forecast Financial Information, the assumptions on which they are based and Senior Management s discussion and analysis of them together with associated Risk factors are set out in Sections 6 and 9. 2

5 Chairman s letter 1 March 2004 Dear Investor On behalf of the Directors of Pacific Brands Limited, I am pleased to present you with the opportunity to invest in one of Australia and New Zealand s leading managers of consumer brands, with sales of approximately $1.5 billion in FY2003. Pacific Brands wide-ranging stable of brands including Berlei, Bonds, Clarks (childrens), Dunlop, Everlast, Grosby, Holeproof, Hush Puppies, KingGee, Slazenger, Sleepmaker and Tontine, combined with its product category leading positions across consumer everyday essentials including socks, underwear, hosiery, intimate apparel, footwear and pillows, provides it with a strong combination of growth and defensive attributes to deliver sustainable shareholder value into the foreseeable future. In addition, Pacific Brands standing within the industries in which it operates has enabled it to build a supply chain of significant competitive advantage delivering benefits in sourcing, logistics and distribution. Since the Pacific Brands business was acquired from Ansell Limited (formerly Pacific Dunlop Limited) in late 2001, Senior Management, with the strong support of the current owners of the business, has focused heavily on promoting branded products as well as creating a more efficient operating environment, which has resulted in significantly improved operating and financial performance. This has been demonstrated by the average 18% per annum increase in EBITA between FY2001 and FY2003 and the Directors forecast of an average 16% per annum increase in EBITA over FY2004 and FY2005. Operationally, Pacific Brands maintains significant flexibility through import sourcing, while retaining a strategic Australian manufacturing base where local manufacturing is expected to provide a long-term competitive advantage. In recent years, Pacific Brands growth has been underpinned by its branded products, including brands which have been acquired or licensed. Of course, this growth would not be possible without a knowledgeable and dedicated group of Directors and managers. Senior Management has a wealth of experience in the consumer goods industry providing a solid base for continued growth. The Board has been chosen to ensure an experienced and complementary skill set exists across corporate governance and financial management, and to oversee the implementation of strategic growth initiatives. Shares in Pacific Brands Limited are now being offered. The total gross proceeds of the Offer will be approximately $1.22 billion 1 from the issue of new Shares. Funds raised from the issue of new Shares will enable the current owners to realise their investment. It is expected that the Company will have a market capitalisation of approximately $1.22 billion 1. The FY2005 forecast price earnings ratio (pre goodwill amortisation) is approximately 12.4x and the FY2005 forecast dividend yield is approximately 5.5% fully franked 1. Details of the Offer and the financial and operating performance of Pacific Brands are set out in this Prospectus and it should be read carefully in its entirety before making an investment decision. Management and the Board are positive about the future prospects for Pacific Brands. On behalf of the Directors, I commend the Offer to you and look forward to welcoming you as a Shareholder. Yours faithfully Pat Handley Chairman Note: 1. Based on the mid-point of the Institutional Offer Indicative Price Range. 3

6 Investment highlights Proven growth formula built on: Icon brands wide-ranging stable of leading Australian and New Zealand consumer brands Category leadership No.1 position in key product categories Everyday essential products leading authority on the what, where, when and why of a consumer s branded everyday essentials Investment in brands, products, people successful evolution from manufacturer to brand manager with brands, products and people being core assets Operational scale competitive cost advantage built on scale and logistics Acquisition upside further potential for expansion leveraging off brand leadership and operational scale in otherwise fragmented industries Track record and positive outlook: Strong profitability average 18% per annum increase in EBITA between FY2001 and FY2003, and average 16% per annum forecast increase in EBITA in FY2004 and FY2005 Robust cash flows with modest capital expenditure requirements and prudent inventory and asset management, strong cash flows have historically been achieved and are forecast to continue in FY2004 and FY2005 Attractive yields approximately 70% of FY2005 NPAT (pre goodwill amortisation) is expected to be distributed as dividends Reliable performance low sensitivity to changing economic conditions Well-balanced position diversity of product, retail distribution and sourcing mix Experienced Senior Management and Board: Strong management depth and ability track record of strong brand management and marketing skills Efficient operating and administrative functions well-developed operating group structures leveraged off strategic centre-led direction and common back-end functions and infrastructure Embedded performance culture ownership culture permeates all levels of fast moving, vibrant organisation Experienced and complementary Board skills across corporate governance, financial management and strategic growth initiatives 4

7 5

8 Group Overview Pacific Brands is a leading manager of some of the most recognised consumer brands in Australia and New Zealand. Pacific Brands has a strong stable of everyday essential products, including Australian icon brands, such as Bonds, Grosby, KingGee and Tontine. Constant product innovation is a key focus of Pacific Brands, which has a long-standing history of innovative product development, using a combination of creative people and the latest design technology. No.1 position in key product categories. Over 200 million items of clothing and footwear sold per year, including: underwear, intimate apparel, socks and outerwear. High brand awareness. 6

9 Part of our daily life 7

10 Underwear &Hosiery Pacific Brands dresses a nation. The Underwear & Hosiery Group is a market leader in the Australian and New Zealand TCF industries with sales of $612 million in FY2003. The largest business within Pacific Brands, The Underwear & Hosiery Group offers a broad range of underwear, intimate apparel, hosiery and socks for women, men and children, across Australasia and in selected international markets. Bonds has sold over 300 million Chesty Bonds singlets over the last 75 years. Over 22,000 bras sold on average every day of the year. Average of 2.5 pairs of socks sold per year to every Australian. 8

11 Underwear & Hosiery 9

12 Outerwear &Sport Pacific Brands keeps a nation at work and play. The Outerwear & Sport Group is one of Australia s leading suppliers of workwear, casual clothing, sports clothing and footwear, sporting equipment and hardgoods with FY2003 sales of $323 million. Products from The Outerwear & Sport Group can be found in action on the street, on work sites, tennis courts, cricket pitches and golf courses across Australasia with famous brands such as KingGee, Dunlop, Slazenger and Maxfli. With brands like Malvern Star and Repco, chances are that most Australian kids grow up riding a Pacific Brands bicycle. Slazenger the ball of choice for the Australian Open. Over 25 million Dunlop Volleys sold since

13 Outerwear & Sport 11

14 Home Comfort Pacific Brands beds down a nation. The Home Comfort Group is a leading manufacturer and marketer of mattresses, pillows, foam and carpet underlay in Australia and New Zealand with sales of $296 million in FY2003. Sleepmaker is one of Australia s best known bedding brands, Dunlopillo has been creating luxurious pillows and mattresses for over 70 years, and Pacific Brands has introduced Serta to Australia, America s favourite mattress. A Pacific Brands pillow is made and sold on average every 7 seconds. 490,000 mattresses and beds sold per year it s amazing what a good night s sleep can do. Pacific Brands sells enough foam to fill the MCG from pitch to roofline. 12

15 Home Comfort 13

16 Footwear Pacific Brands keeps a nation on its toes. The Footwear Group is the largest supplier of footwear in Australia with sales of $225 million in FY2003. Offering a comprehensive range of casual, comfort and fashion footwear for women, men and children, The Footwear Group markets great brands such as Clarks (childrens), Grosby, Hush Puppies, Candy and Sachi. We invented casual Hush Puppies. 97% awareness for Clarks children s shoes. Pacific Brands sells the equivalent of 2 pairs of footwear to each Australian home every year. 14

17 Footwear 15

18 Supply Chain Pacific Brands' leading position across its major product categories has enabled it to develop a flexible supply chain of substantial scale. This scale delivers operational cost advantages in sourcing, logistics, distribution, marketing and selling Holeproof factory Nunawading, Victoria. 2. Kayser Hosiery Coolaroo, Victoria. 3. Pacific Brands Distribution Centre Altona, Victoria. 2 3 Approximately 1.5 million deliveries per year. On average, 3.2 million cartons handled through distribution centres every year. Movement of 12,000 containers of product annually. 16

19 17 Section 1 Summary of key information

20 Summary of key information 1.1 Business Overview The origins of Pacific Brands can be traced back to Today, Pacific Brands is one of Australia and New Zealand s leading managers of some of the most recognised consumer brands, including Berlei, Bonds, Clarks (childrens), Dunlop, Everlast, Grosby, Holeproof, Hush Puppies, KingGee, Slazenger, Sleepmaker and Tontine. Pacific Brands manufactures, sources, markets and distributes these brands primarily in Australia and New Zealand. Pacific Brands has substantial scale, generating sales of approximately $1.5 billion in FY2003 through the commitment of 7,000 dedicated employees. Pacific Brands participation in an extensive range of product categories coupled with its strong and diversified customer network underpin its position as a market leading supplier of consumer goods to the Australian and New Zealand retail marketplace. In November 2001, the Pacific Brands business was acquired by the Existing Shareholder from Ansell Limited (formerly Pacific Dunlop Limited). A number of key strategic initiatives, which had previously been identified by Senior Management, were embraced by the Existing Shareholder, including: substantially increased brand development and marketing; consolidation of back-end operations of sourcing, manufacturing and distribution; continued development of strong relationships with key customers; and exiting of unprofitable business. Pacific Brands commitment to achieving product category leadership has resulted in a strong position across many categories within the textile, clothing and footwear (TCF), sporting goods, and household furnishings and equipment industries. To maximise the sales and marketing opportunities that exist across its product categories, Pacific Brands is organised into four key Operating Groups: Underwear & Hosiery Outerwear & Sport Home Comfort Footwear The Underwear & Hosiery Group the leading marketer in the underwear and hosiery segment of the Australian and New Zealand TCF industries with FY2003 sales of $612 million. Products include a broad range of underwear, intimate apparel, hosiery, and socks for women, men and children; The Outerwear & Sport Group one of Australia s leading suppliers of workwear, casual clothing, sports clothing and footwear, sporting equipment and hardgoods with FY2003 sales of $323 million; The Home Comfort Group a leading manufacturer and marketer of mattresses, pillows, foam and carpet underlay in Australia and New Zealand with FY2003 sales of $296 million; and The Footwear Group the largest supplier of footwear in Australia with FY2003 sales of $225 million. Products include a comprehensive range of casual, comfort and fashion footwear for women, men and children. The Pacific Brands Senior Management team has extensive experience in branded consumer goods and has demonstrated the ability to successfully adjust to significant changes in its operating environment. The Board has been chosen to ensure a highly experienced and complementary skill set exists across corporate governance and financial management, and to oversee the implementation of strategic growth initiatives. 18

21 Section Key Investment Highlights Leading brand manager Wide-ranging stable of brands Pacific Brands has a wide-ranging stable of brands including some of Australia s most recognised icon brands. The quality of these brands, enhanced through substantial brand marketing investment, provides Pacific Brands with a competitive advantage in driving sales and margin growth. 19

22 Summary of key information Product category leadership Pacific Brands holds the number one or two positions in its major product categories as set out below. These category leading positions drive significant advantages in brand development and marketing, product innovation and category extension, providing continued growth opportunities. Table 1.1 Selected major Australian category positions The Underwear & Hosiery Group The Home Comfort Group Underwear Mattresses and beds 2nd Men s underpants 1st Pillows 1st Women s briefs 1st Foam 1st Intimate apparel (eg bras) 1st Carpet underlay 1st Hosiery 1st Socks 1st The Outerwear & Sport Group The Footwear Group Sporting equipment and hardgoods Footwear 1st Bicycles 2nd Golf balls 2nd Tennis racquets and championship quality balls 1st Outerwear Workwear 2nd Source: Management estimate (based on market supply units) Comprehensive product offering Pacific Brands operates across many product categories within the TCF, sporting goods, and household furnishings and equipment industries. In FY2003, no one product category accounted for more than 18% of sales and no one brand more than 14% of sales. Pacific Brands products are mostly positioned at value price points and the majority of products are everyday consumer essentials helping to ensure low sensitivity to changing economic conditions. Figure 1.1 Sales by product category (FY2003) Underwear 18% Intimate apparel 9% Hosiery 3% Socks 7% Sporting equipment 6% and hardgoods Outerwear (workwear, 15% casual and sport) Mattresses and beds 8% Pillows 2% Foam 8% Carpet underlay 2% Footwear 17% Other 5% Source: Management financial information Retail customer and channel diversification Pacific Brands has a diverse customer base across Australia and New Zealand, ensuring: no customer dominates no single customer represented more than 10% of sales in FY2003 (refer Section 4.5); and no single retail channel dominates the majority of sales are spread across department, discount department and specialty stores. 20

23 Section Scale provides competitive advantages Operational cost advantages Pacific Brands leading position across its major product categories has enabled it to develop a supply chain of significant scale. This scale enables Pacific Brands to deliver operational cost advantages in sourcing, logistics, distribution, marketing and selling. Figure 1.2 Sales by retail channel (FY2003) Department stores 13% Discount 31% department stores Specialty stores 10% Supermarkets 5% Independents/other 41% Long-standing customer relationships Pacific Brands has long-standing relationships Source: Management financial information with, and is one of the largest suppliers to, its major customers. This has resulted in Pacific Brands being an important supplier to its major customers and enables Pacific Brands to continue to enhance its competitive positioning through brand investment and logistics solutions. Flexible sourcing Pacific Brands is one of Australia s largest importers of consumer goods from Asia. The scale of its overseas sourcing base enables Pacific Brands to optimise product quality and price. Pacific Brands also retains a strategic Australian manufacturing base in product categories where local manufacturing is expected to provide a long-term competitive advantage. The flexibility provided by a combination of local manufacturing and import sourcing is a strength of Pacific Brands Solid financial performance and robust cash flows Substantial earnings growth and margin enhancement Pacific Brands has generated average EBITA growth of 18% per annum between FY2001 and FY2003, and the Directors forecast an average 16% per annum increase in EBITA over FY2004 and FY2005. Pacific Brands EBITA margin has increased from 6.8% to 8.5% between FY2001 and FY2003, and the Directors forecast EBITA margin to increase to 9.7% in FY2004 and 10.3% in FY2005, primarily due to increased brand development and marketing and advertising activity together with Senior Management s decision to exit unprofitable business. Excluding divestments, Senior Management estimates that approximately $90 million of unprofitable sales have been eliminated, primarily in FY2003. Robust cash flow generation and low capital expenditure requirements Pacific Brands has historically generated, and is forecast to generate in FY2004 and FY2005, strong operating cash flows. In FY2003, Pacific Brands produced an operating cash flow of $129 million, and the Directors forecast an operating cash flow of $165 million in FY2004 and $174 million in FY2005. This strong cash flow generation reflects the efficient management of working capital and the low capital expenditure requirements of Pacific Brands. The low capital expenditure requirements are primarily due to Pacific Brands use of import sourcing for approximately 65% to 70% (by value) of products sold to the Australian retail marketplace and the relatively low capital intensity of its domestic manufacturing operations Investment in future growth Significant investment in key business drivers Over recent years, Pacific Brands has followed a growth strategy focused on investment in brand development and marketing, increased advertising, and consolidation of its sourcing, manufacturing and distribution operations, in order to drive profitable growth. Consistent with this strategy, Pacific Brands has invested in the following key business drivers: brands advertising spend is forecast to more than double from $32 million in FY2001 to $73 million in FY2005; products product development, innovation and brand extension represent a significant proportion of new products each year; and people performance management and talent development programs have been established with a focus on brand management and sales skills. 21

24 Summary of key information The benefit of this on-going focused investment has resulted in improved performance since the change in ownership in November 2001 and provides a solid base for future growth. Sales growth opportunity Pacific Brands has the opportunity to achieve sales growth from three primary sources: industry growth the Australian industries in which Pacific Brands operates comprised approximately 10% of household disposable income (HDI) in FY2003, and are forecast to grow over the Forecast Period; improving product category share Pacific Brands drives growth through increased advertising spend, category management, product innovation and brand extension across product categories; and overseas sales Pacific Brands primary business focus remains on the Australian and New Zealand markets; however, it believes it is well positioned to exploit appropriate overseas opportunities. Pacific Brands currently distributes intimate apparel and footwear in selected overseas markets, including the UK and US. Operational effectiveness Pacific Brands scale and flexible sourcing strategy provide the ability to obtain low cost and high quality products. When combined with its leading product category positions, this is expected to enable Pacific Brands to continue to enhance margins over the Forecast Period. Pacific Brands has recently established a dedicated internal team focused on operational efficiencies (Project Brave New Way). The Brave New Way team analyses, evaluates, recommends and actions operational efficiency programs across Pacific Brands, with a view to eliminating operational complexity and improving margins. Acquisition opportunities Pacific Brands substantial scale has enabled it to extract synergies by using its existing infrastructure to maximise returns from acquisitions. Recent business acquisitions have included Clarks (childrens), Hush Puppies, Sara Lee Apparel Australasia (which included brands such as KingGee, Razzamatazz and Stubbies), Sachi and Kolotex. These acquisitions have enabled Pacific Brands to cost efficiently achieve an improved position in segments of existing or new product categories which would not have been achievable in the short term through internal brand and product development Experienced Senior Management and Board Senior Management Senior Management has extensive experience in the branded consumer goods industry. Since the change of ownership of the Pacific Brands business in November 2001, Senior Management has demonstrated the ability to generate strong and growing earnings and returns through the development and implementation of appropriate business strategies. Board The Board has been appointed to ensure a highly experienced and complementary skill set exists to the benefit of Pacific Brands. Board members have extensive public company experience in: application of best practice corporate governance principles; prudent financial management; implementation of both operational and corporate strategic initiatives; and various industries, including the consumer goods, retail and financial services industries. 1.3 Summary Financial Information The following table of summary financial information should be read in conjunction with the more detailed discussion of financial information in Section 6, the Investigating Accountant s Report on historical financial information in Section 7, the Combined Special Purpose Financial Report included in Appendix I, the Independent Review of Forecast Financial Information in Section 8, the Risk factors set out in Section 9 and other information set out in this Prospectus. 22

25 Section 1 Table 1.2 Pacific Brands summary financial information Pro forma Adjusted Historical 1 Forecast 3, 4, 6 Forecast 6 6 months 6 months ended ended $ million (unless otherwise stated) FY2001 FY2002 FY Dec Dec 2003 FY2004 FY2005 Sales revenue 1, , , , ,653.1 EBITDA EBITA EBIT NPAT (pre goodwill amortisation) NPAT (post goodwill amortisation) EPS (pre goodwill amortisation) (cents) EPS (post goodwill amortisation) (cents) DPS (cents) Notes: 1. Adjusted Historical Financial Information (excluding the six months ended 31 December 2002) has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the adjustments are included in Section Adjusted Historical Financial Information for the six months ended 31 December 2002 has been derived from the unaudited financial statements of Pacific Brands. 3. Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures (details of which are set out in Sections 6.12 and 10.5) that will be in place upon Settlement, as if they were in place as at 30 June FY2004 Statutory Financial Results will differ from the pro forma forecast insofar as it will reflect Pacific Brands actual financial results from Settlement to 30 June The FY2004 statutory net profit after tax (post goodwill amortisation) is forecast by the Directors to be $8.2 million. The FY2004 statutory net profit after tax (pre goodwill amortisation) is forecast by the Directors to be $18.3 million, consistent with the seasonal trading pattern of the business. 5. Pacific Brands believes that EBITDA, EBITA and EBIT provide a useful measure of the Group s operating performance but should not be considered as an indication of, or alternative to, gross profit or net profit as an indicator of financial performance or as an alternative to cash flow as a measure of liquidity. These terms are defined in the Glossary. 6. Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Section Final dividend for FY2004 based on period of approximately three months from Settlement Date to 30 June Dividend Policy Subject to the forecasts being achieved and other relevant factors, the Board expects to declare the following dividends. It is anticipated that these dividends will be fully franked in Australia and imputed to at least 7% for New Zealand resident Shareholders. Cents per Share Yield 2 Final dividend (FY2004) % 3 Full year dividend (FY2005) % Notes: 1. Final dividend for FY2004 based on period from Settlement to 30 June 2004, anticipated to be paid in October Based on the Institutional Offer Indicative Price Range. 3. Based on annualised dividend for FY2004 of 12.9 cents per Share. Beyond the Forecast Period, the Directors dividend policy is to distribute between 60% and 70% of net profit after tax (pre goodwill amortisation) and to frank dividends to the greatest extent possible. In respect of future years, subject to available profits and the financial position of the Company, an interim dividend is expected to be payable annually in March, with a final dividend payable annually in October. Consistent with this policy, the anticipated final dividend for the period from Settlement until 30 June 2004 of 3.0 cents per Share is expected to be paid in October No guarantee can be given about the payment of dividends, the level of franking or imputation of such dividends or the extent of payout ratios for FY2004 and FY2005 or for any future period, as these matters will depend upon the future profits of the Company, and its financial and taxation position at the time. 23

26 Summary of key information Legislation has recently been enacted in New Zealand to enable Australian companies to maintain a New Zealand imputation credit account and earn imputation credits for income tax paid in New Zealand. The Company intends to elect to maintain an imputation credit account. As a result, New Zealand resident Shareholders will be able to receive New Zealand imputation credits attached to any dividend paid equal to their proportionate shareholding. The Company anticipates that dividends paid by the Company to New Zealand resident Shareholders will not be fully imputed with New Zealand imputation credits and therefore, depending on their individual tax paying positions, New Zealand resident Shareholders are likely to be required to pay income tax on a proportion of dividends earned on Shares. 1.5 Description of the Offer Under the Offer, 503 million Shares will be available. The Offer comprises: the Retail Offer, consisting of: the General Public Offer open to Australian and New Zealand resident Retail Investors; approximately $1,000 of Shares issued to each Eligible Employee under the Employee Gift component of the Employee Share Acquisition Plans (refer Sections 2.7 and ); the Employee Purchase Offer open to employees of Pacific Brands in Australia and New Zealand; the Broker Firm Offer open to Australian and New Zealand resident Retail Investors who have received a firm allocation from their Broker; and the Institutional Offer, which consists of an invitation to bid for Shares made to Institutional Investors in Australia, New Zealand and a number of other overseas jurisdictions pursuant to this Prospectus, the New Zealand Investment Statement and the International Offering Circular (refer Section 2.8). The Offer includes Shares to be purchased by management and Directors (refer Sections 10.5 and 10.12). The allocation of Shares between the Retail Offer and the Institutional Offer will be determined by the Company and the Joint Lead Managers. All Shares being offered under this Prospectus, the New Zealand Investment Statement and the International Offering Circular will rank equally with each other. 1.6 Purpose of the Offer The purpose of the Offer is to enable the Group to purchase the companies which own the Pacific Brands business from the Existing Shareholder, and also to: provide Pacific Brands with an appropriate capital structure and the financial flexibility to pursue growth opportunities; improve on-going access to capital markets; provide a liquid market for Shares; and provide an opportunity for employees to invest in the Company. The total gross proceeds of the Offer will be approximately $1.22 billion (based on the mid-point of the Institutional Offer Indicative Price Range). The total gross proceeds, less an amount to cover the costs of the Offer, will be received by the Existing Shareholder, although see Sections 10.5 and regarding investment by certain Ultimate Shareholders or their associates of part of the amount received. The Company will not retain any of the proceeds of the Offer, other than an amount to cover the costs of the Offer. The Directors expect that Pacific Brands will have sufficient working capital from its operations and existing funding sources to fund its stated business objectives. 24

27 Section Risk Factors As with any investment in the stock market, an investment in Pacific Brands is subject to a number of risks. The price of the Shares may fall as well as rise. A number of key risk factors which prospective applicants should be aware of are described in Section 9. Some are general risks, while others are risks specific to an investment in Pacific Brands. All of these risks may impact Pacific Brands future performance, and many are outside the control of the Company and the Directors and cannot be mitigated. Prior to applying for Shares, prospective applicants should read carefully the entire Prospectus and, in particular, should consider the assumptions underlying the Forecast Financial Information and the risk factors that could affect the future financial performance of Pacific Brands. 1.8 How to Apply for Shares Details on how to apply for Shares in the Retail Offer are included in Section 2 of this Prospectus. New Zealand resident investors should refer to the New Zealand Investment Statement for details on how to apply for Shares. If you have any questions about how to invest in the Company, you should contact your stockbroker, solicitor, accountant or other independent financial adviser. 1.9 Enquiries All enquiries in relation to this Prospectus should be directed to the Pacific Brands Share Offer Information Line on in Australia (from 8.00am to 8.00pm Melbourne time, Monday to Friday and 8.00am to 5.00pm Melbourne time on Saturday), and on in New Zealand (from 8.30am to 5.00pm New Zealand time, Monday to Friday), until Friday, 16 April For further details on the Offer, visit the Pacific Brands website at or contact a Syndicate Member (see the Corporate Directory for contact details). 25

28 26

29 27 Section 2 Details of the Offer

30 Details of the Offer 2.1 The Offer The Offer consists of a total of 503 million Shares. All Shares under the Retail Offer will be issued at the Retail Final Price and all Shares under the Institutional Offer will be issued at the Final Price. The Final Price will be determined by the Company and the Joint Lead Managers after the close of the Institutional Offer, as described in Section 2.8. The Final Price may be higher than the top of the Institutional Offer Indicative Price Range. The Retail Final Price will be the lower of the Final Price and the Retail Application Price. 2.2 Purpose of the Offer The purpose of the Offer is to enable the Group to purchase the companies which own the Pacific Brands business from the Existing Shareholder, and also to: provide Pacific Brands with an appropriate capital structure and the financial flexibility to pursue growth opportunities; improve on-going access to capital markets; provide a liquid market for Shares; and provide an opportunity for employees to invest in the Company. Following Settlement, neither the Existing Shareholder nor the Ultimate Shareholders will be shareholders of the Company, except to the extent of any investment by Ultimate Shareholders as referred to in Sections 10.5 and Offer Proceeds The total gross proceeds of the Offer will be approximately $1.22 billion (based on the mid-point of the Institutional Offer Indicative Price Range). The total gross proceeds, less an amount to cover the costs of the Offer, will be received by the Existing Shareholder, although see Sections 10.5 and regarding investment by certain Ultimate Shareholders or their associates of part of the amount received. The Company will not retain any of the proceeds of the Offer, other than an amount to cover the costs of the Offer. The Directors expect that Pacific Brands will have sufficient working capital from its operations and existing funding sources to fund its stated business objectives. The total gross proceeds are comprised of the number of Shares issued under the Offer multiplied by the Final Price except in the case of the Retail Offer (excluding Shares issued to Eligible Employees under the Employee Gift as described in Section 2.7) where Shares are being issued at the Retail Final Price (as described in Section 2.6). All of the Shares available under the Offer must be issued for the Offer to proceed. 2.4 Important Dates Prospectus Date Monday, 1 March 2004 Retail Offer opens Monday, 8 March 2004 Retail Offer closes Wednesday, 24 March 2004 Institutional Offer opens Monday, 29 March 2004 Institutional Offer closes Wednesday, 31 March 2004 Pricing and allocation announcement Friday, 2 April 2004 Expected commencement of trading on ASX and NZSX (conditional and deferred settlement basis) Friday, 2 April 2004 Institutional Settlement Tuesday, 6 April 2004 Allotment of Shares Tuesday, 6 April 2004 Expected despatch of shareholder statements Tuesday, 13 April 2004 Shares expected to begin trading on a normal basis Wednesday, 14 April 2004 Note: This timetable is indicative only. All dates are Melbourne time. The Company, in conjunction with the Joint Lead Managers, reserves the right to vary the dates and times of the Offer, including to close the Offer early or to accept late Applications, either generally or in particular cases, without notifying any recipient of this Prospectus or any Applicants. Investors are encouraged to submit their Applications as soon as possible. 28

31 Section Structure of the Offer Under the Offer, 503 million Shares will be available. The Offer comprises: the Retail Offer, consisting of: the General Public Offer open to Australian and New Zealand resident Retail Investors; approximately $1,000 of Shares issued to each Eligible Employee under the Employee Gift component of the Employee Share Acquisition Plans (refer Sections 2.7 and ); the Employee Purchase Offer open to employees of Pacific Brands in Australia and New Zealand; the Broker Firm Offer open to Australian and New Zealand resident Retail Investors who have received a firm allocation from their Broker; and the Institutional Offer, which consists of an invitation to bid for Shares made to Institutional Investors in Australia, New Zealand and a number of other overseas jurisdictions pursuant to this Prospectus, the New Zealand Investment Statement and the International Offering Circular (refer Section 2.8). The Offer includes Shares to be purchased by management and Directors (refer Sections 10.5 and 10.12). The allocation of Shares between the Retail Offer and the Institutional Offer will be determined by the Company and the Joint Lead Managers. All Shares being offered under this Prospectus, the New Zealand Investment Statement and the International Offering Circular will rank equally with each other. 2.6 The Retail Offer Who can apply in the Retail Offer? General The Retail Offer is open only to Australian and New Zealand resident Retail Investors. The Company reserves the right to treat any Applications in the Retail Offer which are for more than 100,000 Shares, or which are from persons whom they believe may be Institutional Investors, as Final Price bids in the Institutional Offer, or to reject them. The Company also reserves the right to aggregate any Applications which it believes may be multiple Applications from the same person for this purpose and for the purpose of determining entitlement to guaranteed minimum allocations of Shares. General Public Offer The General Public Offer is open only to Australian and New Zealand resident Retail Investors. Pre-registered General Applicants, being Applicants under the General Public Offer who reserved a copy of this Prospectus or the New Zealand Investment Statement by 5.00pm Melbourne time (or 5.00pm New Zealand time for Applicants under the New Zealand Retail Offer) on 27 February 2004 under the Pre-registration Program, should have received a personalised Application Form with this Prospectus or the New Zealand Investment Statement. Applicants who pre-registered but did not receive a personalised Application Form should contact the Pacific Brands Share Offer Information Line on in Australia or in New Zealand. If they apply correctly on that form, they will receive a guaranteed minimum allocation of 1,000 Shares at the Retail Final Price, and a general preference in allocation over Non Pre-registered General Applicants for any Shares applied for in excess of 1,000 Shares. See Sections and for how to apply and the allocation policy. 29

32 Details of the Offer Employee Purchase Offer Employees of the Group in Australia and New Zealand are eligible to participate in the Employee Purchase Offer. As an employee in Australia or New Zealand, you are entitled to apply for Shares under the Employee Purchase Offer and you are guaranteed the allocation of Shares (subject to a minimum of 400 Shares and a maximum of 10,000 Shares) that you apply for under the Employee Purchase Offer. Any Shares applied for above 10,000 Shares will be treated as an Application under the General Public Offer but will receive priority in allocation over General Public Offer Applications. Employees are entitled to transfer their right to apply for Shares under the Employee Purchase Offer (including their entitlement to a guaranteed allocation and priority benefits) to members of their immediate family, or associated companies or trustees. See Sections and for how to apply and the allocation policy. If you are an Eligible Employee, you should have received a personalised Application Form with this Prospectus or the New Zealand Investment Statement. If you are an Eligible Employee but did not receive your personalised Application Form, you should contact the Pacific Brands Share Offer Information Line on in Australia or in New Zealand. The Employee Purchase Offer described above and elsewhere in this Section 2 is separate from the Employee Gift of approximately $1,000 of Shares (described in further detail in Section 2.7) which Pacific Brands is extending to Eligible Employees together with this Prospectus. A separate employee offer document will be sent together with this Prospectus to Eligible Employees detailing the terms of the Employee Gift. Broker Firm Offer The Broker Firm Offer is open only to Australian and New Zealand resident Retail Investors who have received a firm allocation from their Broker. Broker Firm Offer participants must lodge their Application Form and Application Monies with the relevant Broker in accordance with the relevant Broker s directions in order to receive their firm allocation. A Broker may make this Prospectus available on its website and provide an on-line application facility for the submission of on-line Application Forms and Application Monies. If you elect to participate in the Broker Firm Offer, your Broker will act as your agent in submitting your Application Form and Application Monies to the Share Registrar (which receives them on behalf of the Company). It will be your Broker s responsibility to ensure they are submitted to the Share Registrar by 5.00pm Melbourne time (or 5.00pm New Zealand time for Applicants under the New Zealand Retail Offer) on the Closing Date. The Company, the Share Registrar and the Joint Lead Managers take no responsibility for any acts or omissions by your Broker in connection with your Application, Application Form or Application Monies Retail Application Price and Retail Final Price Applicants under the Retail Offer must apply for Shares at the Retail Application Price of $2.60. This is the maximum price payable by Applicants under the Retail Offer. The Retail Final Price payable by Applicants under the Retail Offer, will be the lower of the Final Price and the Retail Application Price. The Company and the Joint Lead Managers will determine the Final Price after the close of the Institutional Offer as outlined in Section 2.8. If the Final Price is lower than the Retail Application Price, a refund (without interest) of the excess Application Monies, equal to the difference between the Retail Application Price and the Final Price, will be made to Successful Applicants under the Retail Offer (see also Section for determination of the Final Price) How to apply for Shares under the Retail Offer Which form should I use? When you apply for Shares, make sure you use the correct Application Form. If you are applying in the Broker Firm Offer, you must lodge your Application Form and Application Monies with the Broker from which you received a firm allocation, in accordance with that Broker s directions. The following table summarises which Application Forms Australian Applicants should use. 30

33 Section 2 should use this These people... Application Form... and... to get your... Employee Purchase yellow personalised lodge your Application guaranteed allocation Offer Applicants Application Form Form and Application of Shares applied for Monies in accordance under the Employee with the directions on the Purchase Offer subject Application Form to a minimum of 400 Shares and a maximum of 10,000 Shares and general preference in allocation for Shares applied for above 10,000 Shares Pre-registered General orange personalised lodge your Application 1,000 Shares guaranteed Applicants Application Form 1 Form and Application minimum allocation and Monies in accordance general preference in with the directions on allocation for Shares applied the Application Form for above 1,000 Shares Broker Firm Offer grey Application Form lodge your Application Broker Firm Offer firm Applicants at the back of this Form and Application allocation Prospectus Monies with the Broker from which you received a firm allocation, in accordance with that Broker s directions Non Pre-registered grey Application Form lodge your Application allocation of Shares General Applicants at the back of this Form and Application subject to the absolute (being all other Prospectus 1 Monies in accordance discretion of the Applicants) with the directions on Company and the Joint the Application Form Lead Managers Note: 1. If you are a resident of Australia and are applying under the Retail Offer, you can also use the electronic Application Form in the on-line Prospectus at New Zealand resident Retail Investors should refer to the New Zealand Investment Statement for details on how to apply for Shares. Some Applicants may fit into several of the above categories (although see generally Section under General, relating to the Company s right to aggregate Applications which it believes may be multiple Applications from the same person). Applicants who have not received a firm allocation in the Broker Firm Offer will have the best chance of receiving Shares they apply for by: applying under the Employee Purchase Offer if they are eligible to do so; or otherwise, applying as a Pre-registered General Applicant if they are eligible to do so. If they are not eligible to apply in either of the above two categories, they must apply as a Non Pre-registered General Applicant. Applications made under the Employee Purchase Offer or as a Pre-registered General Applicant should be made on the hard copy personalised Application Forms accompanying this Prospectus or the New Zealand Investment Statement. Pre-registered General Applicants may also apply on-line by quoting the Applicant s Application number (which is on the hard copy personalised Application Form accompanying this Prospectus). If you change the name or other personalised details on a personalised Application Form, the Company may elect to treat the Application Form as an Application by a Non Pre-registered General Applicant. Other Applications can be made either by completing and returning the hard copy (grey) Application Form at the back of this Prospectus or by printing a copy of the on-line Prospectus and completing and returning a hard copy of the Application Form within it or by applying on-line. Only Australian General Applicants may submit on-line Applications. This Prospectus and the New Zealand Investment Statement may be viewed on-line only by Australian and New Zealand residents at 31

34 Details of the Offer Forms relating to the Employee Gift are contained in the separate employee offer document detailing the terms of the Employee Gift. How to complete the Application Form Applications must be for a minimum of 1,000 Shares (or a minimum of 400 Shares for employees in Australia and New Zealand) and in multiples of 100 Shares thereafter. Application Forms must be completed and submitted in accordance with the instructions set out on the reverse of the form (or the instructions set out in the on-line forms, in the case of the forms in the on-line Prospectus). The Company reserves the right to reject any Application Form which is not correctly completed or which is submitted by a person who it believes may be an ineligible Applicant, or to waive or correct any errors made by the Applicant in completing any Application Form. Application Monies Application Forms must be accompanied by cheque(s) for the relevant Application Monies. Alternatively, Australian General Applicants may apply on-line and submit their Application Monies using BPAY. The Application Monies must be provided by 5.00pm Melbourne time (5.00pm New Zealand time for Applicants under the New Zealand Retail Offer) on the Closing Date. Applicants must apply at the Retail Application Price of $2.60 per Share and will receive a refund (without interest) if the Retail Final Price is set lower than this. For Australian Applicants paying by cheque, cheque(s) must be in Australian dollars and drawn on an Australian branch of an Australian bank, must be crossed Not Negotiable and must be made payable: for General Public Offer and Employee Purchase Offer Applicants to Pacific Brands Share Offer ; or for Broker Firm Offer Applicants in accordance with the directions of the Broker from which you received a firm allocation. You should ensure that sufficient funds are held in the relevant account(s) to cover the cheque(s). If the amount of your cheque(s) for Application Monies (or the amount for which those cheque(s) clear in time for allocation) is insufficient to pay for the number of Shares you have applied for in your Application Form (or your BPAY payment is for any reason not received or not received in full), you may be taken to have applied for such lower number of Shares as your cleared Application Monies will pay for (and to have specified that number of Shares in your Application Form) or your Application may be rejected. Where and when to lodge completed Application Forms and Application Monies Completed Application Forms and Application Monies should be lodged: for Australian Applicants in the General Public Offer and Employee Purchase Offer, at Computershare Investor Services Pty Limited, GPO Box 505, Melbourne VIC Alternatively, Australian General Applicants may apply on-line and submit your Application Monies using BPAY ; or for New Zealand Applicants in the General Public Offer and Employee Purchase Offer, according to the instructions provided in the New Zealand Investment Statement; or for Broker Firm Offer Applications, in accordance with the Broker s directions, with the Broker from which you received a firm allocation. On-line Application Forms and Application Monies lodged with a Broker providing an on-line application facility must be lodged in accordance with the instructions provided by them. Applications and Application Monies must be received by the Share Registrar (on behalf of the Company) no later than 5.00pm Melbourne time (5.00pm New Zealand time for Applicants under the New Zealand Retail Offer) on Wednesday, 24 March 2004, unless the Company, in conjunction with the Joint Lead Managers, elects to close the Offer or any part of it early, or extend the Offer or any part of it, or accept late Applications either generally or in particular cases. The Offer or any part of it may be closed at any earlier date and time, without further notice. Applicants are therefore encouraged to submit their Applications as early as possible. 32 What to do if you have queries or want extra copies of this Prospectus Applicants with queries on how to complete the Application Form or who require additional copies of this Prospectus or the New Zealand Investment Statement, can contact the Pacific Brands Share Offer Information Line on in Australia or in New Zealand, contact a Syndicate Member (see the Corporate Directory for contact details) or, if a resident in Australia or New Zealand, visit Pacific Brands website at

35 Section 2 The Company will send a hard copy of this Prospectus or the New Zealand Investment Statement free of charge to any person in Australia or New Zealand, respectively, who requests a copy in the period up to and including the Closing Date Broker stamping fee Where the Application Form of an Applicant who receives Shares under the General Public Offer bears the code of a participating organisation of ASX, the Joint Lead Managers will pay that participating organisation a broker stamping fee of an amount equal to 1.0% of the total amount paid by the Applicant for Shares received under the Application, capped at a maximum stamping fee per Application (or group of Applications from the same end Retail Investor) of $2,500. This broker stamping fee will not apply to Shares issued under the Employee Purchase Offer or the Broker Firm Offer Acceptance of Applications An Application in the Retail Offer is an offer by the Applicant to the Company to subscribe for all or any of the Shares specified in the Application Form at the Retail Final Price on the terms and conditions set out in this Prospectus and the New Zealand Investment Statement including any supplementary or replacement prospectus (or supplementary or replacement New Zealand investment statement in the case of Applications in the New Zealand Offer) and the Application Form (including the conditions regarding quotation on ASX and Settlement in the Institutional Offer referred to in Section 2.11). To the extent permitted by law, the offer by an Applicant is irrevocable. An Application may be accepted by the Company, in consultation with the Joint Lead Managers, in respect of the full number of Shares specified in the Application Form or any of them, without further notice to the Applicant. Acceptance of an Application will give rise to a binding contract Allocation policy under the Retail Offer The Company and the Joint Lead Managers have absolute discretion regarding the allocation of Shares to Applicants in the Retail Offer and may reject any Application, or allocate fewer Shares than applied for, in their absolute discretion, subject to the following: Guaranteed allocations The following groups of Applicants will receive guaranteed allocations of Shares: These Applicants... Employee Purchase Offer Applicants Pre-registered General Applicants will, if they apply correctly, receive guaranteed minimum allocations of... the number of Shares they apply for, subject to a minimum of 400 Shares and a maximum of 10,000 Shares 1,000 Shares General preference in allocation These groups of Applicants will also receive a general preference in allocation in respect of any remaining balance of Shares they apply for: These Applicants... Employee Purchase Offer Applicants Pre-registered General Applicants will, if they apply correctly, receive a general preference in allocation for... Shares applied for in excess of 10,000 Shares Shares applied for in excess of 1,000 Shares Should these Applicants apply correctly, they will receive a preference in allocation over Non Pre-registered General Applicants. The level of preference in allocation will be determined by the Company and the Joint Lead Managers, and may differ between the groups of Applicants. Firm stock which has been allocated to Brokers for allocation to their Australian and New Zealand resident Retail Investor clients will be issued to the Applicants nominated by those Brokers (subject to Section under General, and to the right of the Company and the Joint Lead Managers to treat Applications which are for more than 100,000 Shares, or which are from persons whom they believe may be Institutional Investors, as Final Price 33

36 Details of the Offer bids in the Institutional Offer, or to reject them). It will be a matter for the Brokers how they allocate firm stock among their Retail Investor clients, and they (and not the Company or the Joint Lead Managers) will be responsible for ensuring that Retail Investor clients who have received a firm allocation from them receive the relevant Shares Announcement of Retail Final Price and final allocation policy in the Retail Offer The announcement of the Final Price, the Retail Final Price and the final allocation policy in the Retail Offer will be advertised in The Australian, The New Zealand Herald and other Australian and New Zealand newspapers selected by the Company shortly after the close of the Institutional Offer. This announcement is expected to occur on the morning of Friday, 2 April From 8.00am Melbourne time on Friday, 2 April 2004, Retail Offer Applicants will be able to call the Pacific Brands Share Offer Information Line on in Australia or from 8.30am New Zealand time on in New Zealand to find out details of their allocations. Broker Firm Offer Applicants will also be able to confirm their firm allocations through the Brokers from which they received those allocations. The Company, the Share Registrar and the Joint Lead Managers disclaim all liability, whether in negligence or otherwise, to persons who sell Shares before receiving their initial statement of holding, whether on the basis of a confirmation of allocation provided by any of them or by the Pacific Brands Share Offer Information Line or a Broker or otherwise Disbursement of Application Monies All Application Monies received under this Prospectus and the New Zealand Investment Statement will be banked in a separate trust account, the Offer Application Account. If an Application is rejected, all of the relevant Application Monies will be refunded (without interest) to the relevant Applicant. Application Monies will also be refunded (without interest) if the Offer is cancelled, or if contracts arising on acceptance of Applications are cancelled because the conditions regarding quotation on ASX, and Settlement in the Institutional Offer referred to in Section 2.11, are not met. Application Monies will also be refunded in relevant part (without interest) if part of the Offer is cancelled. If an Application is accepted for some or all of the Shares applied for and the conditions regarding quotation on ASX, and Settlement in the Institutional Offer referred to in Section 2.11, are met, the relevant Applicant will receive the number of Shares in respect of which the Application is accepted, at the Retail Final Price and a refund (without interest) of the balance of the relevant Application Monies. All refunds will be made without interest (although the Company reserves the right to pay interest in particular cases in its absolute discretion). The Company will receive any interest paid on the Offer Application Account. Refunds will be paid out of the Offer Application Account. The issue price of Shares allocated in the Offer will be paid out of the Offer Application Account to the Company against the issue of Shares to which the relevant funds related. Any remaining balance in the Offer Application Account will be paid to the Company. 2.7 Employee Gift All Eligible Employees of the Group are eligible to participate in the Employee Gift, which forms part of the Employee Share Acquisition Plans. Under the Australian Employee Share Acquisition Plan (AESAP), Eligible Employees in Australia will be issued the nearest number of whole Shares to the value of $1,000 of Shares (rounded down) at the Retail Final Price, at no cost to the employee, free of income tax in accordance with current Australian tax legislation where a tax election is made. Under the New Zealand Employee Share Acquisition Plan (NZESAP), Eligible Employees in New Zealand will be issued the nearest number of whole Shares to the value of $1,000 at the Retail Final Price, at a cost of NZ$1 to the employee, free of tax in accordance with current New Zealand tax legislation. The Employee Gift is only available under the Offer. However, solely at the discretion of the Board, similar allocations may be made in subsequent years, subject to the performance of Pacific Brands. A separate employee offer document will be sent together with this Prospectus to Eligible Employees detailing the terms of the Employee Gift. For further details of the Employee Gift, see Section

37 Section The Institutional Offer Invitations to bid The Company is inviting certain Institutional Investors to bid for Shares in the Institutional Offer. The Institutional Offer is structured in four parts: an invitation to Australian and New Zealand resident Institutional Investors to bid for Shares made under this Prospectus and the New Zealand Investment Statement; an invitation to Australian and New Zealand Brokers which elect to bid for Shares under the Institutional Offer on behalf of Australian and New Zealand resident Retail Investors made under this Prospectus and the New Zealand Investment Statement; an invitation to QIBs in the United States to bid for Shares in transactions exempt from the registration requirements of the US Securities Act pursuant to Regulation D thereunder made under the International Offering Circular; and an invitation to institutional investors in certain jurisdictions outside Australia, New Zealand and the United States to bid for Shares in transactions exempt from the registration requirements of the US Securities Act in reliance on Regulation S under the US Securities Act and in compliance with all applicable laws in the jurisdictions in which such Shares are offered and sold made under the International Offering Circular The bookbuild process and Institutional Offer Indicative Price Range The Institutional Offer will be conducted using a bookbuild process managed by the Joint Lead Managers, which will be the joint bookrunners. Details of how to participate, including bidding instructions, will be provided to participants by the Joint Lead Managers. Participants can only bid into the book for Shares through the Joint Lead Managers or Co-Lead Managers. They may bid for Shares at specific price(s) or at the Final Price. Participants may bid above, within or below the Institutional Offer Indicative Price Range, which is $2.25 to $2.60 per Share. The Institutional Offer Indicative Price Range may be varied at any time by the Company and the Joint Lead Managers. The minimum bid size is 50,000 Shares. However, the Company reserves the right to accept smaller bids (including any Applications in the Retail Offer which they elect to treat as Final Price bids in the Institutional Offer as described in Section under General ). Bids must be made between 9.00am Melbourne time on Monday, 29 March 2004 and midday Melbourne time on Wednesday, 31 March 2004, unless these times and dates are varied by the Company, in conjunction with the Joint Lead Managers. Bids may be amended or withdrawn at any time up to the close of the bookbuild for the Institutional Offer. Any bid not withdrawn by that time is an irrevocable offer by the relevant bidder to subscribe or procure subscribers for the Shares bid for (or such lesser number as may be allocated) at or below the price per Share bid, on the terms and conditions set out in this Prospectus, the New Zealand Investment Statement or the International Offering Circular (as applicable) including any supplementary or replacement document (including the conditions regarding quotation on ASX, and Settlement in the Institutional Offer referred to in Section 2.11) and in any bidding instructions provided by the Joint Lead Managers to participants. Bids can be accepted or rejected by the Company in whole or in part, without further notice to the bidder. Acceptance of a bid will give rise to a binding contract. All successful bidders will pay the Final Price. Details of the arrangements for notification and settlement of allocations applying to participants in the Institutional Offer will be provided to participants prior to the opening of the bookbuild process. In some cases, Shares allocated may be delivered by the Joint Lead Managers or their respective international affiliates, pursuant to settlement support arrangements under which the relevant Shares may be issued to them and on-sold by them to satisfy the relevant allocations. See also Section 2.9 regarding the Offer Management Agreement. 35

38 Details of the Offer Determination of the Final Price The bookbuild process will be used to determine the Final Price. The Final Price will be determined by the Company and the Joint Lead Managers. It is expected that the Final Price will be determined and announced by Friday, 2 April In determining the Final Price, consideration will be given to the following factors: the level of demand for Shares in the Institutional Offer at various prices; the level of demand for Shares in the Retail Offer; the Existing Shareholder s objective of maximising the purchase price paid to it for the companies which own the Pacific Brands business, which is linked to the proceeds of the Offer; and the desire for an orderly secondary market in the Shares. As outlined in Sections 2.17 and 10.5, the Company must comply with any directions of the Existing Shareholder in exercising its rights in relation to the setting of the Final Price. The Final Price will not necessarily be the highest price at which Shares could be sold and may be set above, within or below the Institutional Offer Indicative Price Range Allocation policy under the Institutional Offer The allocation of Shares amongst bidders in the Institutional Offer will be determined by the Company and the Joint Lead Managers. They have absolute discretion regarding the basis of allocation of Shares, and there is no assurance that any bidder will be allocated any Shares, or the number of Shares for which it has bid. The initial determinant of the allocation of Shares in the Institutional Offer will be the Final Price. Bids lodged at prices below the Final Price will not receive an allocation of Shares. The allocation policy will be influenced by the following factors: the price and number of Shares bid for by particular bidders; the timeliness of the bid by particular bidders; the Company s desire for an informed and active trading market in Shares following the Listing Date; the Company s desire to establish a wide spread of institutional Shareholders; the size and type of funds under the management of particular bidders; the likelihood that particular bidders will be long-term Shareholders; and any other factors that the Company and the Joint Lead Managers consider appropriate, in their sole discretion. 2.9 Offer Management Agreement The Offer will not be underwritten. The Company and the Joint Lead Managers have entered into an Offer Management Agreement in respect of the management of the Offer. Once the Final Price has been determined, Syndicate Members or their affiliates will be obliged to provide settlement support in respect of successful bids in the Institutional Offer under the Offer Management Agreement. The Offer Management Agreement sets out a number of circumstances under which the Joint Lead Managers may terminate the agreement and the settlement support obligations. A summary of certain terms of the agreement and associated settlement support arrangements, including the termination provisions, is set out in Section ASX Listing Application for admission of the Company to the official list of ASX and for quotation of the Shares on ASX will be made to ASX no later than seven days after the Prospectus Date. If the Company is not admitted to the official list of ASX within three months after the Prospectus Date (or any longer period permitted by law), the Offer will be cancelled and all Application Monies will be refunded (without interest). ASX takes no responsibility for this Prospectus or the investment to which it relates. Admission to the official list of ASX and quotation of the Shares on ASX are not to be taken as an endorsement by ASX of the Company Conditional and Deferred Settlement Trading It is expected that the Shares will be quoted on ASX on or about Friday, 2 April 2004, initially on a conditional and deferred settlement basis.

39 Section 2 The contracts formed on acceptance of Applications and bids in the Institutional Offer will be conditional on ASX agreeing to quote the Shares on ASX, and on settlement occurring under the Offer Management Agreement (Settlement). Trades on ASX before Settlement will be conditional on Settlement occurring. Conditional trading will continue until the Company has advised ASX that Settlement has occurred, which is expected to be on or about Tuesday, 6 April Trading will then be on an unconditional but deferred settlement basis until the Company has advised ASX that initial statements of holding have been despatched to Shareholders. Normal delivery trading is expected to commence on or about Wednesday, 14 April If Settlement has not occurred within 14 days (or such longer period as ASX allows) after the day Shares are first quoted on ASX, the Offer and all contracts arising on acceptance of Applications and bids will be cancelled and of no further effect and all Application Monies will be refunded (without interest). In these circumstances, all purchases and sales made through ASX participating organisations during the conditional trading period will be cancelled and of no effect. Details of the Final Price, the Retail Final Price and the final allocation policy in the Retail Offer will be advertised in The Australian, The New Zealand Herald and other Australian and New Zealand newspapers selected by the Company before the Shares are quoted on ASX. Retail Offer Applicants will also be able to call the Pacific Brands Share Offer Information Line on in Australia or in New Zealand or their Broker (for Broker Firm Offer Applicants) to find out or confirm their allocations. See Sections 2.6.7, and for further details. It is the responsibility of each Applicant or bidder to confirm their holding before trading in Shares. Applicants or bidders who sell Shares before they receive an initial statement of holding do so at their own risk. The Company, the Share Registrar and the Joint Lead Managers disclaim all liability, whether in negligence or otherwise, to persons who sell Shares before receiving their initial statement of holding, whether on the basis of a confirmation of allocation provided by any of them or by the Pacific Brands Share Offer Information Line or a Broker or otherwise Brokerage, Commission and Stamp Duty No brokerage or commission is payable by Applicants on acquisition of Shares under the Offer. See Sections 2.6.4, , and for details of various fees payable by the Joint Lead Managers to other Syndicate Members and by the Company to the Joint Lead Managers Company s Discretion The Company reserves the right not to proceed with the Offer or any part of it at any time before the allocation of Shares to Applicants in the Retail Offer and to bidders in the Institutional Offer. If the Offer or any part of it is cancelled, all Application Monies, or the relevant Application Monies, will be refunded (without interest) (see also Section for further details). The Company also reserves the right to close the Offer or any part of it early, or extend the Offer or any part of it, or accept late Applications or bids either generally or in particular cases, or reject any Application or bid, or allocate to any Applicant or bidder fewer Shares than applied or bid for Selling Shares and CHESS The Company will apply to participate in the ASX s Clearing House Electronic Sub-register System (CHESS), in accordance with the Listing Rules and the Securities Clearing House (SCH) Business Rules. CHESS is an automated transfer and settlement system for transactions in securities quoted on ASX under which transfers are effected in a paperless form. When the Shares become CHESS Approved Securities, holdings will be registered in one of two sub-registers, an electronic CHESS sub-register or an issuer sponsored sub-register. The Shares of a Shareholder who is a participant in CHESS or a person sponsored by a participant in CHESS will be registered on the CHESS sub-register. All other Shares will be registered on the issuer sponsored sub-register. Following Settlement, Shareholders will be sent an initial statement of holding that sets out the number of Shares that have been allocated. This statement will also provide details of a Shareholder s Holder Identification Number (HIN) or, where applicable, the Securityholder Reference Number (SRN) of issuer sponsored holders. 37

40 Details of the Offer Shareholders will subsequently receive statements showing any changes to their shareholding. Certificates will not be issued New Zealand Offer The New Zealand Offer will be made pursuant to the Exemption Notice. A New Zealand Investment Statement which complies with the Exemption Notice, the Securities Act 1978 (NZ) and the Securities Regulations 1983 (NZ), as modified by the Securities Act (Pacific Brands Limited) Exemption Notice 2004, has been prepared in connection with the New Zealand Offer. Copies of the New Zealand Investment Statement, which includes or will be accompanied by Application Forms for use only by New Zealand resident Retail Investors, can be obtained only by New Zealand resident Retail Investors: from any NZX Firm; from the Joint Lead Managers; by visiting the Company s website at from the Company s New Zealand subsidiary office at 308 Great South Road, Greenlane, Auckland, New Zealand; and from Computershare Investor Services Pty Limited in Melbourne or Computershare Investor Services Limited in New Zealand. New Zealand resident Retail Investors applying in the New Zealand Offer and wanting to apply in New Zealand dollars and have their holdings recorded on the New Zealand register should apply using those Application Forms in the New Zealand Investment Statement, and comply with the instructions on them, rather than using the Application Forms in or accompanying this Prospectus. If they want to apply in Australian dollars and have their holdings recorded on the Australian register they should use the Application Form at the back of this Prospectus that accompanies the New Zealand Investment Statement. New Zealand resident Retail Investors applying in the New Zealand Offer who apply using the New Zealand dollar Application Forms will apply at the NZ Retail Application Price of NZ$2.95. The price per Share that Successful Applicants actually pay will be the lesser of the NZ Retail Application Price and the New Zealand dollar equivalent of the Retail Final Price. The latter will be calculated by converting the Retail Final Price (which is expressed in Australian dollars) to a New Zealand dollar equivalent using the New Zealand dollar/australian dollar exchange rate as at 4.00pm Melbourne time on the date that the Institutional Offer closes, sourced from the Reserve Bank of Australia and published by Reuters on page RBA26. New Zealand Offer Applicants who are allocated Shares will receive a refund (without interest) to the extent, if any, that the Retail Final Price converted to New Zealand dollars is lower than the NZ Retail Application Price (see also Section 2.6.8). Application Monies must be received by the Share Registrar by 5.00pm New Zealand time on the Closing Date NZX listing Application has been made to NZX for admission of the Company to the official list of NZX and for quotation of the Shares on NZSX as an Overseas Listed Issuer and all the requirements of NZX relating thereto that can be complied with on or before the Prospectus Date have been duly complied with. If the Company is not admitted to the official list of NZX within three months after the Prospectus Date (or any longer period permitted by law), the New Zealand Offer will (unless otherwise permitted by law, including the law as modified pursuant to any modification) be cancelled and all Application Monies will be refunded (without interest). NZX takes no responsibility for any statement in this Prospectus or the New Zealand Investment Statement or the investment to which they relate. Admission of the Company to the official list of NZX and quotation of the Shares on NZSX is not to be taken as an endorsement by NZX of the Company. 38

41 Section Conditional trading on NZSX It is expected that the Shares will be quoted on NZSX on or about Friday, 2 April 2004, initially on a conditional and deferred settlement basis similar to that applying to ASX conditional and deferred settlement trading (see Section 2.11), and thereafter on a deferred settlement basis following Settlement and until despatch of holding statements to Successful Applicants in New Zealand, as referred to in Section Further detail regarding trading on NZSX is included in the New Zealand Investment Statement Selling Shares on NZSX The Company will not issue Share certificates to Successful Applicants in New Zealand. The Company will instead participate in the Fully Automated Screen Trading and Electronic Registration system (FASTER). Under FASTER, Shareholders will be sent a statement of their holding, following the issue of Shares to them under the Offer and on any subsequent transfers or issues, detailing the number of Shares transferred or issued to them. FASTER is a comprehensive system for recording and completing the transfer of securities listed on NZX markets FASTER provides for paperless settlement and full electronic transfer of securities. Companies listed on NZX are generally required to have their share registers connected electronically to FASTER, and accordingly, that system will contain details of all New Zealand Shareholders except those that elect to hold their Shares on the Australian register Copies of this Prospectus and the New Zealand Investment Statement It is a term of the New Zealand Offer that the Company will, within five working days of receiving a request from a New Zealand offeree for a copy of this Prospectus and the New Zealand Investment Statement, without fee, send or cause to be sent, to that offeree: a copy of this Prospectus and the New Zealand Investment Statement; copies of any documents that, under the laws of Australia, must accompany any copy of this Prospectus sent to any person to whom an offer of the Shares is made in Australia; and a copy of any document, or part of a document, lodged with ASIC that is incorporated by reference in this Prospectus under section 712 of the Corporations Act Foreign Selling Restrictions No action has been taken to register or qualify the Shares that are the subject of the Offer, or otherwise to permit a public offering of the Shares, in any jurisdiction outside Australia and New Zealand. The Shares have not been, and will not be, registered under the US Securities Act and may not be offered or sold in the United States except to QIBs in accordance with the exemption from the registration requirements of the US Securities Act pursuant to Regulation D. This Prospectus may not be distributed in the United States or elsewhere outside Australia and New Zealand unless it is attached to, or constitutes part of, the International Offering Circular that describes selling restrictions applicable in the United States and other jurisdictions outside Australia and New Zealand, and may only be distributed to persons to whom the Offer may be lawfully made in accordance with the laws of any applicable jurisdiction. This Prospectus may only be distributed to members of the public in New Zealand if accompanied by the New Zealand Investment Statement. The Offer is not an offer or invitation in any jurisdiction where, or to any person to whom, such an offer or invitation would be unlawful. Each Applicant in the Retail Offer will be taken to have represented, warranted and agreed as follows: the Applicant is an Australian or New Zealand citizen or is a resident in Australia or New Zealand located in Australia or New Zealand at the time of such Application, and is not acting for the account or benefit of, a person in the United States or any other foreign person; and the Applicant will not offer or sell the Shares in the United States or in any other jurisdiction outside Australia or New Zealand except in transactions exempt from registration under the US Securities Act and in compliance with all applicable laws in the jurisdiction in which such Shares are offered and sold. Each person in Australia and New Zealand to whom the Institutional Offer is made under this Prospectus will be required to represent, warrant and agree as follows (and will be taken to have done so if it bids in the Institutional Offer): 39

42 Details of the Offer it understands that the Shares have not been and will not be registered under the US Securities Act and may not be offered, sold or resold in the United States except in transactions exempt from registration under the US Securities Act; it is not in the United States or a US Person and is not acting for the account or benefit of a US Person; and it is not engaged in the business of distributing securities or, if it is, it agrees that it will not offer or resell in the United States or to a US Person (a) any Shares it acquires in the Offer at any time or (b) any Shares it acquires other than in the Offer until 40 days after the date on which the Final Price is determined and the Shares are allocated in the Offer, in either case other than in a transaction meeting the requirements of Rule 144A under the US Securities Act. No person is authorised to give any information or make any representations other than those contained in this Prospectus and, if given or made, such information or representations will not be relied upon as having been authorised by the Company, the Joint Lead Managers or any other person, nor will any such persons have any liability or responsibility Existing Shareholder s Rights Given that the purchase price to be paid to the Existing Shareholder for the companies which own the Pacific Brands business is linked to the proceeds of the Offer, the Company has agreed to comply with any directions of the Existing Shareholder in exercising the rights described in this Section 2 in relation to the setting of the Final Price, allocation of Shares and acceptance of Applications under the Offer and any election not to proceed with the Offer. See Section 10.5 for further detail. 40

43 41 Section 3 Industry overview

44 Industry overview 3.1 Introduction Pacific Brands is a leading manager of consumer brands in Australia and New Zealand within the following industries: textiles, clothing and footwear (TCF); sporting goods; and household furnishings and equipment. Pacific Brands believes that it is well positioned within each of the above industries which, as described below, are forecast to grow over the Forecast Period. According to the Australian Bureau of Statistics and management estimates, Australians spent over $44 billion in the above industries in FY2003, which represented approximately 10% of household disposable income (HDI). This compared to expenditure on food, which represented approximately 11% of HDI in FY2003. Over the last decade, the growth rate in Australian HDI has averaged 5.5% per annum. The major drivers of demand for consumer goods in the above industries are HDI, population growth and fashion and consumer trends. The level of building activity also drives demand for household furnishings and equipment. Set out below is a description of each of the industries in Australia and New Zealand in which Pacific Brands participates. 3.2 TCF Industry Pacific Brands participates in the TCF industry through its clothing and footwear products which represented 57% and 17%, respectively, of its sales in FY Australian TCF industry The TCF industry is an integral part of Australia s industrial and social infrastructure and an important driver and benefactor of economic growth due to its size and linkages to the rest of the economy. The TCF industry represented approximately 4% of Australian HDI in FY2003. Spending on TCF has grown from $13.3 billion in FY1998 to $17.6 billion in FY2003, representing an average growth rate of 5.7% per annum. The slowdown in growth in FY2001 was driven primarily by the introduction of the GST, which brought forward consumer purchases into FY2000, as well as reduced overall consumer spending in Australia following the 2000 Sydney Olympic Games. The table below sets out the estimated size of selected Australian TCF product categories including Pacific Brands category positions: $ billions Figure 3.1 Total Australian TCF expenditure (current, seasonally adjusted) 10% 8% 6% Table 3.1 Selected Australian TCF categories (by units (FY2003)) Total category Pacific Brands units (m) 1 category position 2 Underwear Men s underpants st Women s briefs st Intimate apparel (eg bras) st Hosiery st Socks st Footwear st Sources: 1. TFIA Business Services Pty Ltd (total category units excluding socks); Australian Bureau of Statistics 2. Management estimate TCF expenditure TCF expenditure as % of HDI Source: Australian Bureau of Statistics, Australian National Accounts (Cat. No. 5206) year ended 30 June 4% 2% 0% 42

45 Section 3 The Australian retail TCF industry is highly fragmented and comprises a wide range of retail formats. The table below sets out some of the major participants in this industry, ranging from large department stores to specialty retail chains and small single-store operations: Table 3.2 Major retail participants in the Australian TCF industry Participants Examples Department stores Discount department stores Specialty stores Supermarkets Small, independent operators David Jones, Harris Scarfe, Myer Best & Less, Big W, Kmart, Target BNT, Colorado, Katies, Lowes, Miller s Fashion Club, Payless Shoes Bi-Lo, Coles, Woolworths/Safeway Typically less than 10 stores per operator One of the most significant changes to the TCF industry in Australia over the last decade has been the Australian Federal Government s dismantling of protective barriers which has led to the globalisation of the industry. As a result, Australia s TCF industry has become one of the most open and competitive in the OECD. The decrease in levels of protection has resulted in the movement offshore of Australian TCF manufacturing and the consequent emergence of significant imports. Since 1990, import tariffs attached to clothing and footwear have fallen from 55% to 25% and from 45% to 15%, respectively. On 1 January 2005, Australian tariffs will further reduce from their current level of 25% to 17.5% (clothing) and from 15% to 10% (footwear). The Australian Federal Government s Strategic Investment Program (SIP) currently provides funding of $678 million over five years to 2005, to encourage increased investment and innovation in local manufacturing over this period with the intention of achieving international competitiveness. On 27 November 2003, the Australian Federal Government announced a further package of adjustment assistance for the period 2005 to 2015 that is designed to provide support as the tariff rates run down to a common 5% level. This package involves total industry funding of $747 million and is directed towards companies that invest in key business drivers including product innovation, information technology (IT), and brand support. 60% 50% 40% 30% 20% Figure 3.2 TCF tariff rates 1990 to 2015 Approximately 65% to 70% (by value) of Pacific Brands products sold to the Australian retail marketplace are sourced from offshore. Pacific Brands is one of Australia s largest importers from Asia while at the same time retaining a strategic local manufacturing base in those product categories where Australian manufacturing provides a long-term competitive advantage. Pacific Brands has successfully adjusted to the changing operating environment since 1990 and the 2005 tariff cut is not expected to significantly affect its operating and financial performance. Refer to Section for further detail in relation to Pacific Brands sourcing strategy. 10% 0% Clothing and finished textiles Footwear The general outlook for the TCF industry is largely dependent on prevailing economic conditions and consumer sentiment. As per Access Economics December quarter 2003 Business Outlook publication, growth forecasts for HDI are 6.5% for FY2004 and 5.1% for FY2005. Additionally, given the proportion of imported product in the TCF industry, sales growth (by value) is likely to be affected by the impact on general retail prices from any movement in foreign exchange rates. Pacific Brands believes that the expected growth areas within the TCF industry are menswear and womenswear, which are also the largest segments by retail sales. It is anticipated that these segments of the industry may continue to benefit from social trends such as the increasing number of dual income households and a slowing birth rate, which are expected to result in both men and women having increased disposable income with which to purchase TCF products New Zealand TCF industry Retail sales figures produced by Statistics New Zealand indicate that the New Zealand TCF industry (comprising the clothing, softgoods and footwear categories) has grown from NZ$1.6 billion in the year ended 31 March 1998 to NZ$2.1 billion in the year ended 31 March 2003, corresponding to an annual average growth rate of 5.6%. In the year ended 31 March 2003, the industry represented approximately 6% of total New Zealand retail sales (excluding automobiles) and approximately 3% of New Zealand HDI. 43

46 Industry overview As in Australia, the New Zealand retail TCF industry is reasonably fragmented with participants comprising department, discount and specialty stores and independent operators. Broadly influenced by general economic conditions, New Zealand retail sales are forecast by the New Zealand Institute of Economic Research to grow by 5.1% in the year to 31 March 2004 and 3.8% in the year to 31 March Sporting Goods Industry Pacific Brands is a major participant in the sporting goods industry particularly in the segment of sporting equipment and hardgoods (eg bicycles and bicycle helmets) which represented 6% of its sales in FY Australian sporting goods industry Consumer spending in the sporting goods industry in Australia was estimated by management to be approximately $1.5 billion in FY2003. The Australian sporting goods industry represents a combination of national and international branded equipment and hardgood products, all with a participatory emphasis. The sporting equipment and hardgoods segment comprises ball sports (eg tennis, golf, cricket) together with wheel sports, fitness and associated products. With a few exceptions (such as the manufacture of bicycle helmets), the industry is serviced by imports. As such, brand and distribution channels are major determinants in the supply chain. The table below sets out the estimated size of selected product categories within the Australian sporting goods industry including Pacific Brands category positions: Table 3.3 Selected Australian sporting goods categories (by units) Total category Pacific Brands units 1 category position 2 Sporting equipment and hardgoods Bicycles 1,100, nd Golf balls 20,400,000 2nd Tennis racquets 390,000 1st Tennis balls (championship quality) 4,500,000 1st Sources: 1. Australian Sporting Goods Association (total category units excluding bicycles) 2. Management estimate The main distribution channel for sporting goods is specialist stores due to their relatively higher level of expertise and focus on product categories. Other participants in the retail marketplace are department stores such as David Jones, Harris Scarfe and Myer; discount department stores such as Big W, Kmart and Target; and specialty retail chains such as Amart, Foot Locker, Rebel Sport and Sportsco. Demand for sporting goods is strongly influenced by the amount of leisure time available; HDI; population growth; the cost of, and access to, participation in sporting activity; and climatic conditions. Product innovation stimulates and maintains interest in the industry. Australian product direction and innovation are broadly consistent with the major world markets. The table below sets out the level of participation of some key sporting categories in which Pacific Brands is a major supplier of sporting goods in Australia: Table 3.4 Australian sports participation Sport Level of participation Tennis 26% Golf 23% Cricket 11% Squash 10% Source: Sweeney Sports Report Summer 2003 (based on people aged 16 to 65 who participate in the sport at least once a year) 44

47 Section 3 In 2001, the Australian Federal Government announced a new sport policy entitled Backing Australia s Sporting Ability A More Active Australia. The aim of this policy is to increase community participation in sport by entering into partnerships with national/local sporting clubs, schools and the business community. The Australian Federal Government has allocated approximately $82 million towards this objective over the four years commencing in FY2002. The outlook for the sporting goods industry is expected to be favourably impacted by developments in product innovation, changing fashion trends and higher levels of participation. The industry also anticipates sales growth associated with the 2004 Olympic Games New Zealand sporting goods industry The New Zealand sporting goods industry is structured similarly to that of Australia, comprising predominantly imported international branded equipment and hardgood products. The primary distribution channels are specialist stores and independent operators. Historically, a highly fragmented segment, consolidation is being witnessed in the retail sector with the advent of several chains, including Lifestyle Sports and Rebel Sport. 3.4 Household Furnishings and Equipment Industry Pacific Brands participates in the household furnishings and equipment industry through The Home Comfort Group which represented 20% of its sales in FY Australian household furnishings and equipment industry The Australian household furnishings and equipment industry represented approximately 5.6% of Australian HDI in FY2003. Spending on household furnishings and equipment has grown from $18.8 billion in FY1998 to $25.3 billion in FY2003, representing an average growth rate of 6.2% per annum. The level of Australian building activity is one of the key drivers of demand for household furnishings and equipment. The construction of a new house or renovations to an existing house usually generates demand for household furniture. Figure 3.4 (following page) demonstrates the strong correlation between the demand for household furnishings and equipment and the cyclical nature of the building industry. $ billions Figure 3.3 Total Australian household furnishings and equipment expenditure (current, seasonally adjusted) 10% 8% 6% 4% 2% % Household furnishings and equipment expenditure Household furnishings and equipment expenditure as % of HDI Source: Australian Bureau of Statistics, Australian National Accounts (Cat. No. 5206) year ended 30 June 45

48 Industry overview Retailing of household furnishings and equipment encompasses the full range of outlets from small independent stores to specialty retail chains including Capt n Snooze, Forty Winks and Harvey Norman, and department stores such as David Jones and Myer. Production in the household furnishings and equipment industry segments in which Pacific Brands participates is primarily locally based due to the bulk of the products and the nature of their manufacture. Production in these segments is decentralised within Australia as regional plants are more cost effective (due to freight costs), than one national distribution point. The development of a national network is only open to those participants with sufficient scale to undertake the required infrastructure investment. The table below sets out the estimated size of selected product categories within the Australian household furnishings and equipment industry in which Pacific Brands participates, including its product category positions: Figure 3.4 Australian furniture retail turnover and value of buildings approved (base = 100, January 1998) Table 3.5 Selected Australian household furnishings and equipment categories (by units (FY2003)) Total category Pacific Brands units category position Mattresses and beds (million) 1.3 2nd Pillows (million) st Foam (million kg) st Carpet underlay (sq km) st 50 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Furniture and floor covering retailing Total building (seasonally adjusted) Source: Australian Bureau of Statistics Building approvals ; and Retail Trade Source: Management estimate The industry segments in which Pacific Brands operates are expected to continue to grow, particularly in categories such as bedding which benefit from strong economic conditions. Despite the recent upturn in interest rates from their historical low levels, residential building activity is expected to continue with the do-it-yourself (DIY) renovation market being a positive force behind the demand for household furnishings and equipment New Zealand household furnishings and equipment industry Retail sales of furniture and floor coverings represented 2% of New Zealand HDI in the year ended 31 March Sales have grown on average 5.9% per annum from the year ended 31 March 1998, to reach NZ$1.4 billion in the year ended 31 March As in Australia, the key driver of demand for household furnishings and equipment is activity in the housing market, including residential dwelling construction and refurbishment. 46

49 47 Section4 The Pacific Brands business

50 The Pacific Brands business 4.1 Overview Pacific Brands is a leading manager of consumer brands in Australia and New Zealand, marketing some of the most recognised brands including Berlei, Bonds, Clarks (childrens), Dunlop, Everlast, Grosby, Holeproof, Hush Puppies, KingGee, Slazenger, Sleepmaker and Tontine. Pacific Brands commitment to market leadership has provided it with number one or two positions across its major product categories in Australia and New Zealand. These category leading positions have been achieved through a focus on being at the forefront of brand development (including acquisitions), product innovation, marketing and an efficient and effective supply and distribution network. Pacific Brands believes that it is one of Australia and New Zealand s most informed companies on the what, where, when and why of a consumer s branded everyday essentials. In November 2001, the Pacific Brands business was acquired by the Existing Shareholder from Ansell Limited (formerly Pacific Dunlop Limited). A number of key strategic initiatives, which had been identified by Senior Management, were embraced by the Existing Shareholder, including: substantially increased brand development and marketing; consolidation of back-end operations of sourcing, manufacturing and distribution; continued development of strong relationships with key customers; and exiting of unprofitable business. The implementation of these initiatives has led to a significantly improved operating and financial performance and has laid the foundation for further growth. Table 4.1 Summary financial information The following table of summary financial information should be read in conjunction with the more detailed discussion of financial information contained in Section 6, the Investigating Accountant s Report on historical financial information in Section 7, the Combined Special Purpose Financial Report included in Appendix I, the Independent Review of Forecast Financial Information in Section 8, the Risk factors set out in Section 9 and other information set out in this Prospectus. Pro forma Adjusted Historical 1 Forecast 3, 4, 5 Forecast 5 6 months 6 months ended ended 31 Dec 31 Dec $ million FY2001 FY2002 FY FY2004 FY2005 Sales revenue 1, , , , ,653.1 Gross profit Gross margin 31.6% 31.9% 35.7% 34.9% 37.4% 37.4% 39.1% EBITA EBITA margin 6.8% 7.3% 8.5% 8.4% 10.1% 9.7% 10.3% Notes: 1. Adjusted Historical Financial Information (excluding the six months ended 31 December 2002) has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the adjustments are included in Section Adjusted Historical Financial Information for the six months ended 31 December 2002 has been derived from the unaudited financial statements of Pacific Brands. 3. Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures (details of which are set out in Sections 6.12 and 10.5) that will be in place upon Settlement, as if they were in place as at 30 June The FY2004 Statutory Financial Results will differ from the pro forma forecast insofar as it will reflect Pacific Brands actual financial results from Settlement to 30 June Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Section

51 Section 4 Pacific Brands has four Operating Groups: The Underwear & Hosiery Group, The Outerwear & Sport Group, The Home Comfort Group and The Footwear Group (refer Section 4.3 for Business Structure). The Underwear & Hosiery Group is Pacific Brands largest Operating Group, representing 41% of FY2003 sales. Approximately 95% of Pacific Brands FY2003 sales were generated in Australia and New Zealand. Figure 4.1 Sales by Operating Group (FY2003) Figure 4.2 Sales by country (FY2003) Underwear & Hosiery 41% Outerwear & Sport 22% Home Comfort 20% Footwear 15% Other 2% Australia 87% New Zealand 8% United Kingdom 3% Malaysia 1% United States 1% Source: Management financial information Source: Management financial information Since Paul Moore s appointment as Managing Director in August 1999, a focused strategy has been developed to leverage the scale and category leadership positions of Pacific Brands to drive profitable growth. This strategy has changed Pacific Brands business model from autonomously operating sub-groups aimed at establishing product category leadership positions to a focus on enhanced Group-wide profitability, competitive position and future earnings prospects. Over the years, the Pacific Brands business has demonstrated the ability to change and adapt to differing operating environments, such as: dismantling of protective trade barriers by the Australian Federal Government; material fluctuations in exchange rates; shift away from sourcing products solely from local manufacturing, to a strategic balance of local manufacturing and imports; change in the retail marketplace, including the demise of major customers (eg Ezywalkin, Venture and Waltons); major business acquisitions (eg Bonds, Clarks (childrens), Hush Puppies and Sara Lee Apparel Australasia); change of ownership; and significant divestments (eg adidas, Bonds Spinning, Sheridan, Tontine Fibres and owned China-based clothing manufacturing operations). 49

52 The Pacific Brands business 4.2 Brands Owned brands Pacific Brands most recognised brands, of which a number are icon brands in Australia, include the following: In addition, a number of sub-brands are recognised by Australian consumers as icons. These include: This icon status is demonstrated in part by the high levels of consumer awareness of the brands. Pacific Brands commissioned Sweeney Research, a leading independent market research company, to conduct a survey of its major brands in The Underwear & Hosiery Group and The Outerwear & Sport Group. Of the brands surveyed, the average prompted overall consumer awareness level was 82%. This confirmed that these are leading brands in terms of consumer awareness across product categories including underwear, intimate apparel, hosiery, socks, sporting goods and workwear. Since July 2001, Pacific Brands has significantly increased its level of brand marketing support, including advertising spend on owned and licensed brands. Pacific Brands considers that its increased advertising spend continues to enhance overall brand awareness and it is continually researching its product categories to identify and lead consumer trends. 50

53 Section Licensed brands Pacific Brands has the right to manufacture, source and distribute certain brands within various product categories in Australia and New Zealand under licence agreements. Licensed brand sales represented approximately 11% of Pacific Brands FY2003 sales and are a valuable contribution to its overall brand positioning strategy. The major licences are: Pacific Brands believes that it is an attractive licensee of brands due to its: substantial scale; leading category positions; innovative product development; creative and significant investment in brand marketing and advertising; continuous consumer research; strategic customer partnerships; effective merchandising programs; strong sales force; and breadth of distribution. Consequently, Pacific Brands is often approached by potential licensors directly. Terms and arrangements of major licences typically range from five to 10 years with royalties generally payable based on a percentage of sales. The strength of Pacific Brands relationships with its licensors was tested during the acquisition of the Pacific Brands business from Ansell Limited (formerly Pacific Dunlop Limited) in November In all cases, licences were retained, reinforcing Pacific Brands commitment to the development of licensed brands. All material licence approvals required under the change of ownership proposed under this Prospectus have been obtained Brand development and product innovation Pacific Brands focuses on brand development and product innovation to enhance its category leading positions. This approach involves increasing advertising and brand development expenditure which in turn enhances the profile of the brands with consumers, strengthens product category positions and helps generate increased sales and profitability. Accordingly, Pacific Brands believes that this approach, and the range of brands that it can activate, provide positive growth opportunities for the Group. As part of its brand strategy to enhance margins and profitability, Pacific Brands has exited certain unprofitable sales in primarily unbranded products. Excluding divestments, Senior Management estimates that approximately $90 million of unprofitable sales have been eliminated, primarily in FY2003. In accordance with this strategy, Pacific Brands has significantly increased its level of advertising spend. From FY2001 to FY2003, advertising spend increased from $32 million to $45 million and is forecast to increase to $61 million in FY2004 and $73 million in FY

54 The Pacific Brands business This increased advertising spend together with a focus on driving sales of branded products have contributed to a compound annual increase in sales (FY2001 to FY2003) for the following brands: Bonds: 9% Clarks (childrens): 12% Hush Puppies: 31% Slazenger: 15% Tontine: 12%. Bonds is an example of the recent brand development strategy implemented by Pacific Brands. An icon brand in Australia for almost 90 years, Bonds was reinvigorated in 2001 by new products focused on the women s youth underwear category, combined with a brand endorsement from Sarah O Hare. Prior to this brand development strategy, Bonds had limited recognition as a contemporary clothing brand. Constant product innovation is also an important aspect of Pacific Brands business model in order to help it maintain its leading product category positions. Pacific Brands has a long-standing history of innovative product development and believes its design rooms are of world-class standard, using a combination of creative people and the latest design technology. Over the years, Pacific Brands has been at the forefront of innovation with the introduction of various products including: Holeproof Computer socks Berlei One fused bra Bonds hipsters Santoni seamless underwear Hush Puppies Zero G comfort shoes Tontine variable warmth quilt (marketed as Venus & Mars ) Dunlop Volley LoveKylie range of underwear (developed Holeproof Explorer socks in conjunction with Kylie Minogue). Pacific Brands has a long history of elite sportspeople using certain brands including Australian legends such as Sir Donald Bradman, Evonne Goolagong-Cawley, Margaret Court, Ken Rosewall and Mark Waugh. Current identities actively endorsing various brands include Michael Clarke, Jamie Durie, Kristy Hinze, Kylie Minogue, Sarah O Hare and Pat Rafter. 4.3 Business Structure To maximise differing sales and marketing opportunities that exist across its product categories, Pacific Brands is organised into four key Operating Groups: Figure 4.3 Operating Group structure Underwear & Hosiery Outerwear & Sport Home Comfort Footwear 52

55 Section 4 The historical and forecast sales of these Operating Groups are set out below: Table 4.2 Operating Group sales summary Pro forma Adjusted Historical 1 Forecast 2, 3 Forecast 3 $ million FY2001 FY2002 FY2003 FY2004 FY2005 Underwear & Hosiery Outerwear & Sport Home Comfort Footwear Other Total 1, , , , ,653.1 Notes: 1. Adjusted Historical Financial Information has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the adjustments are included in Section Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Section Includes intercompany eliminations and clearance store sales. The increase in FY2003 resulted from a change in allocation policy relating to clearance store activities. As mentioned above, Pacific Brands has exited certain unprofitable sales in primarily unbranded products. Excluding divestments, Senior Management estimates that approximately $90 million of unprofitable sales have been eliminated, primarily in FY2003. Refer to Section 6.5 for management discussion and analysis of historical financial information and Section 6.6 for a description of the Directors estimates, assumptions and pro forma adjustments on which the Forecast Financial Information is based The Underwear & Hosiery Group The Underwear & Hosiery Group is a leading marketer in the Australian and New Zealand TCF industries in each of its major product categories. It is the largest Operating Group within Pacific Brands with FY2003 sales of $612 million, EBITA of $66.9 million and approximately 3,400 employees. Sales are derived from a broad range of products, including underwear, intimate apparel, hosiery and socks for women, men and children, which are distributed throughout Australia and New Zealand and in selected international markets. The leading brands in The Underwear & Hosiery Group are: 53

56 The Pacific Brands business The Underwear & Hosiery Group has achieved its category leading positions through a strategy of: substantial marketing investment to enhance brand strength; capitalising on emerging product markets as exhibited by the LoveKylie and Bonds ranges of underwear and intimate apparel; extending key brands into new categories such as Bonds into bras and outerwear (ie contemporary clothing); licences to enable quick response to trends; product innovation and development as seen with the focus on seamless underwear for women; efficiency in sourcing the business is well balanced between third party sourcing and own manufacturing; and effective distribution and strong customer relationships. The Underwear & Hosiery Group has invested in local manufacturing where it believes it has long-term sustainable advantages in production capabilities (refer to Section for details of the benefits of local manufacturing). Major production facility investments have been made in: underwear Nunawading (Victoria), Cessnock (NSW), and Unanderra (NSW); hosiery Coolaroo (Victoria); and socks Nunawading (Victoria). The group also has manufacturing facilities in Christchurch (socks) and Palmerston North (thermal underwear) in New Zealand. The Underwear & Hosiery Group imports a significant proportion of its products from overseas sources. Approximately 65% to 70% (by value) of its products are manufactured outside Australia and New Zealand, with most goods sourced from China. The Underwear & Hosiery Group operates, and subject to the obtaining of the approvals referred to in Section 10.5, will continue to operate, an Indonesian-based intimate apparel production facility servicing both the Australian and overseas markets. Rationalisation of the supply network has been a key focus of The Underwear & Hosiery Group. Over the past 12 months, significant effort has been directed towards consolidating the number of distribution centres within the group. In conjunction with the consolidation of distribution centres, enhanced supply planning capabilities have been introduced in order to reduce inventory levels and customer delivery times The Outerwear & Sport Group The Outerwear & Sport Group is one of Australia s leading suppliers of workwear, casual clothing, sports clothing and footwear, sporting equipment and hardgoods (bicycles and bicycle helmets) with FY2003 sales of $323 million, EBITA of $30.6 million and approximately 550 employees. Traditionally, branded products within the sports clothing and footwear category grew rapidly as products to wear while playing sport. However, this segment of the sporting goods industry is now centred on technology-based leisure products. These products are increasingly branded in response to international trends. The leading brands in The Outerwear & Sport Group are listed in Table 4.3: 54

57 Section 4 Table 4.3 The Outerwear & Sport Group brands by product category Sporting equipment Brands and hardgoods Clothing Footwear 55

58 The Pacific Brands business The Outerwear & Sport Group s strategic focus is to: continue to leverage its brands in existing and new categories; drive efficiency improvements in its operational processes; and identify and acquire strategic bolt-on branded businesses. A significant proportion of The Outerwear & Sport Group s sales are through independent and specialty retail channels. The benefits of combining outerwear and sporting goods products into one Operating Group include the similar retail channel distribution requirements and the performance characteristics of the products. A recent example of these benefits is the integration of KingGee into this Operating Group following its acquisition in The positioning of KingGee within The Outerwear & Sport Group, combined with additional marketing support, has contributed to KingGee s significantly improved performance resulting in sales growth of 12% between FY2001 and FY2003. The Outerwear & Sport Group sources more than 90% of its products outside Australia, primarily from China and Fiji. Its local manufacturing facilities are based in Hallam, Victoria (Rosebank bicycle helmets) and Bellambi, NSW (KingGee). The Outerwear & Sport Group manages the design, sourcing and distribution of its products. Warehouse and distribution facilities are located throughout Australia and New Zealand. As bicycles are bulky and expensive to transport, localised sites are maintained as distribution points to meet orders both in a timely and cost-efficient manner The Home Comfort Group The Home Comfort Group is a leading manufacturer and marketer of mattresses, pillows, foam and carpet underlay in Australia and New Zealand. In FY2003, it generated sales of $296 million, EBITA of $24.4 million and employed approximately 1,600 people. The leading brands in The Home Comfort Group are: Pacific Brands believes that the vertical integration of The Home Comfort Group makes it well placed to consolidate its position, primarily through: continuing to develop consumer loyalty; strengthening relationships with retail customers; and enhancing its technical expertise in its product categories. While the different customer distribution in this Operating Group (ie exposure to specialty stores and furniture manufacturers) spreads Pacific Brands risk, there are a number of commonalities that assist its performance including Group-wide brand marketing skills and supply chain capability. The Home Comfort Group has manufacturing operations in Australia and New Zealand (see Table 4.4 below) and, subject to the obtaining of the approvals referred to in Section 10.5, will retain a 50% interest in a joint venture in Malaysia which manufactures mattresses. Table 4.4 The Home Comfort Group Australian and New Zealand manufacturing locations Product category Location Australia Mattresses and beds Pillows Foam Carpet underlay New Zealand Mattresses and foam Brisbane, Hobart, Melbourne, Perth, Sydney Melbourne Adelaide, Brisbane, Hobart, Melbourne, Perth, Sydney Melbourne, Sydney Auckland, Christchurch 56

59 Section 4 Products supplied by The Home Comfort Group are typically bulky in nature. The associated distribution and transport costs mean that import opportunities are less viable, and therefore, approximately 85% of manufacturing has remained within proximity to its major customers in Australia and New Zealand. Distribution is managed at each of the manufacturing sites, with product shipped directly to customers The Footwear Group The Footwear Group is the largest supplier of footwear in Australia and has a presence in the UK market through Pacific Brands (UK) Ltd. The Footwear Group has maintained its leadership position utilising its flexible sourcing and manufacturing arrangements throughout the Australian Federal Government s dismantling of protective trade barriers. With FY2003 sales of $225 million, EBITA of $17.0 million and approximately 950 employees (including 650 employees in China), The Footwear Group offers a comprehensive range of casual, comfort and fashion footwear for women, men and children. The leading brands in The Footwear Group are: The Footwear Group s strategic focus is to become a leading marketer of branded casual, comfort and fashion footwear, primarily through: developing a brand management focus; acquiring and/or licensing national and international brands; and increasing advertising spend to improve the awareness of its brands. Pacific Brands acquired the Clarks (childrens) and Hush Puppies Australian and New Zealand businesses in September These acquisitions have allowed The Footwear Group to compete at the premium end of the children s and comfort footwear segments and gain access to international footwear product development. Clarks (childrens) and Hush Puppies were quickly integrated into The Footwear Group, complementing existing product offerings, as well as providing supply chain benefits. In addition, the June 2003 acquisition of Sachi has enabled The Footwear Group to improve its category position within the high-end women s fashion footwear segment of the market. The Footwear Group s products are sourced and manufactured overseas, mostly in Asia. In addition, Pacific Brands owns a China-based footwear manufacturing facility, which is used to supply its Australian and UK operations. In recent years, The Footwear Group has consolidated its distribution activities. The majority of Australian warehousing and distribution is centralised at the Altona (Victoria) distribution centre. 57

60 The Pacific Brands business 4.4 Category Leading Positions With wide-ranging brands across the various retail channels, Pacific Brands leads the marketplace in its major product categories: Table 4.5 Selected major Australian category positions The Underwear & Hosiery Group The Home Comfort Group Underwear Mattresses and beds 2nd Men s underpants 1st Pillows 1st Women s briefs 1st Foam 1st Intimate apparel (eg bras) 1st Carpet underlay 1st Hosiery 1st Socks 1st The Outerwear & Sport Group The Footwear Group Sporting equipment and hardgoods Footwear 1st Bicycles 2nd Golf balls 2nd Tennis racquets and championship quality balls 1st Outerwear Workwear 2nd Source: Management estimate (based on market supply units) Pacific Brands operates across many product categories within the TCF, sporting goods, and household furnishings and equipment industries. In FY2003, no one product category accounted for more than 18% of sales and no one brand more than 14% of sales. Products are mostly positioned at value price points and the majority of products are everyday consumer essentials helping to ensure low sensitivity to changing economic conditions. Figure 4.4 Sales by product category (FY2003) Underwear 18% Intimate apparel 9% Hosiery 3% Socks 7% Sporting equipment 6% and hardgoods Outerwear (workwear, 15% casual and sport) Mattresses and beds 8% Pillows 2% Foam 8% Carpet underlay 2% Footwear 17% Other 5% Source: Management financial information 4.5 Diversified Customer Network Pacific Brands markets and distributes its products to the key participants in the major retail channels, with no single retail channel dominating its sales. The major retail channels include: department stores; discount department stores; specialty stores; supermarkets; and independent stores. This broad customer network ensures Pacific Brands products are accessible to most Australian and New Zealand consumers while not being reliant on any single customer. No single customer accounted for more than 10% of sales in FY2003. Pacific Brands continues to strengthen its relationships with customers in a continually changing retail environment. 58

61 Section 4 Figure 4.5 Sales by retail channel (FY2003) Department stores 13% Discount 31% department stores Specialty stores 10% Supermarkets 5% Independents/other 41% Source: Management financial information In FY2003, Pacific Brands top 10 customers (listed in alphabetical order) accounted for 49% of sales: Best & Less Lowes Big W Myer David Jones Payless Shoes Farmers (New Zealand) Target Kmart Woolworths/Safeway 4.6 Supply Chain Introduction The strength of Pacific Brands supply chain underpins its brand and product category positioning. In recent years, Pacific Brands has emerged from a period of autonomously operating businesses. The Group has consolidated its sourcing, manufacturing and distribution systems to create supply chain efficiencies across its Operating Groups. Pacific Brands has continually adapted its sourcing, manufacturing and distribution activities to accommodate and pre-empt changes in product category requirements and customer needs. Pacific Brands recognises the strategic importance of a flexible supply chain to pursue new and different opportunities as they arise as well as being responsive to customer demands. Pacific Brands product category scale, together with the breadth of its infrastructure, allows it to: meet customer requirements in a timely and effective manner; work with major customers on effective supply chain solutions; and provide services that eliminate costs for itself and its customers through its various distribution and logistics networks. Figure 4.6 Annual product category scale (selected categories) Scale of supply chain (indicative) 60 million pairs of underpants/briefs 50 million pairs of socks 9 million units of intimate apparel (eg bras) 5 million golf balls 25 million outerwear garments 16 million kgs of foam 490,000 mattresses and beds 4 million pillows 11 sq kms of carpet underlay 23 million pairs of shoes Source: Management estimate 59

62 The Pacific Brands business 60 Major Australian retailers are embracing supply chain improvements. Pacific Brands views this as a positive as it can interact with major retailers with a scale not readily available to others. Pacific Brands is working collaboratively with its major retailers to improve their respective supply chain capabilities Overseas sourcing and local manufacturing Pacific Brands is one of Australia s largest importers of consumer goods from Asia, while at the same time retaining a strategic local manufacturing base in product categories where it believes Australian manufacturing will provide a long-term competitive advantage. The flexibility provided by a combination of import sourcing and local manufacturing is a strength of Pacific Brands. Overseas sourcing Third party sourcing encompasses a diverse product range and provides Pacific Brands with: greater flexibility in changing designs and products; a variable cost base and low cost of production; and greater efficiency. Pacific Brands long history of product sourcing provides it with on-going benefits including: expertise and skills acquired through experience; long-term relationships with quality suppliers who are accustomed and committed to Pacific Brands requirements; exclusive relationships with various overseas suppliers enhancing product quality, design protection, flexibility, timeliness and responsiveness; commitment to use of suppliers who comply with International Labour Organization standards; development of experienced sourcing personnel; and established credit track record which helps improve payment terms. Pacific Brands is continually consolidating its sourcing arrangements through its dedicated offices situated in Hong Kong and China. Local manufacturing Pacific Brands has a substantial investment in Australian-based manufacturing, serving a strategic purpose of balancing the needs of customers with Pacific Brands cost objectives. In particular, the Australian manufacturing presence is maintained because: it is more capital intensive (such as the production of socks and hosiery) allowing it to be cost competitive; it offers a flexible, quick-response capability; it allows the local manufacture of new products on a trial basis while design, demand and other requirements are assessed (if required, overseas sourcing can then be utilised); the flexible modular garment assembly processes and systems contribute to low cost and responsive production; and bulkier products (mainly those within The Home Comfort Group) need to be positioned within proximity of sources of demand to minimise freight costs and lead times Distribution activities In Australia, Pacific Brands has 12 stand-alone distribution centres, with the major facilities utilising radio frequency (RF) technology for the management of inventory and the paperless picking of customer order requirements resulting in high inventory accuracy and labour efficiency levels. The integrated IT and RF technologies enable the picking of multiple orders simultaneously. Due to the extensive reach of Pacific Brands products, the distribution centres handle a multitude of customer requirements, with technology enabling customer service and support. 4.7 Future Growth Opportunities Pacific Brands growth strategy is founded on three core planks, being: brand and category growth; operational effectiveness; and strategic acquisitions.

63 Section Brand and category growth Brand development There is little doubt that consumers respond positively to strong brands. Pacific Brands manages a wide-ranging stable of brands that are distributed primarily through retail customers. The brand development strategy is focused on ensuring that consumer demand for its products remains high. Concepts and initiatives continue to be developed by Pacific Brands to provide enhanced profitability, mainly through increased margins. These concepts and initiatives include the on-going marketing and development of existing brands in order to improve product category positions, together with the rationalisation of unprofitable product categories. Increased advertising and marketing focus on key brands across various product categories is expected to enhance their everyday essentials status in the retail marketplace. New categories Pacific Brands scale, brand awareness, infrastructure and customer relationships provide the opportunity to enter new product categories within the consumer goods industries in which it operates (eg KingGee into workboots). Pacific Brands diligently assesses the viability of entering new product categories and will only enter such categories if their brand attributes are consistent with its business model, and Pacific Brands flexible sourcing and distribution capabilities can be sufficiently utilised to ensure a profitable return. Overseas sales Pacific Brands primary business focus remains on the Australian and New Zealand markets; however, it believes that it is well positioned outside these core markets to exploit overseas opportunities. Pacific Brands currently distributes intimate apparel and footwear in the UK and US. Its brand management and product sourcing capability provide it with the capacity to expand its global reach. In FY2003, overseas sales included: intimate apparel in the US and UK ($19 million); bedding in Malaysia ($17 million); and footwear in the UK ($34 million) Operational effectiveness Pacific Brands supply chain strategy provides significant opportunities for it to leverage its scale and enhance profitability by rationalising, consolidating and extending its operations. Some of the initiatives underway include: consolidation of: offshore sourcing arrangements, providing improved pricing, quality of product and increased flexibility with regard to make or buy decisions; customer orders, resulting in reduced freight costs; and warehouses, leading to reduced transport costs and more effective use of existing space; moving to electronic ordering and despatch through the use of bar-coding; and collaborative forecasting with customers, in order to improve Pacific Brands forecasting of demand patterns, resulting in more effective inventory management. Pacific Brands has recently established a dedicated internal team focused on operational efficiencies (Project Brave New Way). The Brave New Way team analyses, evaluates, recommends and actions operational efficiency programs across Pacific Brands, with a view to eliminating business complexity and improving margins Strategic acquisitions Pacific Brands substantial scale has enabled it to extract benefits by utilising its existing infrastructure to maximise returns from acquisitions. This has been evidenced by the recent business acquisitions of Clarks (childrens), Hush Puppies, Sara Lee Apparel Australasia (including brands such as KingGee, Razzamatazz and Stubbies), Sachi and Kolotex. Significant cost savings have been, and continue to be, extracted in areas including manufacturing, distribution, sales and marketing, and administration. 61

64 The Pacific Brands business Through focused brand marketing and product innovation, Pacific Brands has achieved, and continues to achieve, sales growth through these acquisitions. The extraction of such benefits facilitates Pacific Brands exceeding its internal required rate of return on acquisitions and also provides it with a competitive advantage in pursuing complementary acquisitions. Pacific Brands is continually reviewing the potential for acquisitions that can be absorbed into its existing infrastructure to provide either new product category opportunities or improve existing product category positions. 4.8 Business Systems Pacific Brands has a stable and reliable IT infrastructure. The majority of Pacific Brands businesses operate under one of two enterprise resource planning (ERP) systems complemented by in-depth business intelligence software and a centralised data warehouse and supply chain system. Within Australia and New Zealand, call centre, hardware and communications infrastructure has been outsourced to third party providers. Pacific Brands has a disaster recovery plan in place for its key IT systems, including off-site back-up facilities. Pacific Brands has focused its e-business activities on business-to-business initiatives. Approximately 80% of orders with customers are electronic. A leading edge web-based system has been developed to efficiently service small to medium-sized customers. 4.9 Corporate Social Responsibility Pacific Brands has a strong commitment to supporting the communities in which it conducts business, providing funding, products, and the time of its employees to various community-based charities. To date, Pacific Brands key initiative has been supporting the Caring For You program. Caring For You is a grass roots program in Australia that operates workshops for women treated for breast cancer. It is staffed by both full-time employees and volunteers (all breast cancer survivors) who donate their time to run these workshops across Australia. Pacific Brands believes that this program will help make a difference to women afflicted with breast cancer. Looking forward, Pacific Brands will continue its involvement with various community-based charities Code of Conduct for Manufacturers and Suppliers Pacific Brands is committed to ethical and responsible conduct in all of its operations and respect for the rights of all individuals and the environment. Pacific Brands expects these same commitments to be shared by all manufacturers and suppliers of its products and seeks to enforce this policy through a formal code of conduct, which includes: not using child labour; not using any forced or involuntary labour; and providing employees with a safe and healthy workplace in compliance with all applicable laws and regulations. Pacific Brands regularly conducts audits of its suppliers and in the event that a supplier is unable or unwilling to achieve compliance, Pacific Brands reserves the right to terminate or suspend the relevant supply contract Environment Pacific Brands operations are subject to environmental laws and regulations, the details of which vary depending upon the jurisdiction in which the operation is located. These environmental laws and regulations control the use of land, erection of buildings and structures on land, the emissions of substances to water, land and atmosphere, the emission of noise and odours, the treatment and disposal of waste, and the investigation and remediation of soil and groundwater contamination. Pacific Brands has procedures in place designed to ensure compliance with all environmental regulatory requirements. 62

65 63 Section 5 Board, Senior Management and employees

66 Board, Senior Management and employees 5.1 Board of Directors The Board has been appointed to ensure a highly experienced and complementary skill set exists to the benefit of Pacific Brands. Board members have extensive public company experience in: application of best practice corporate governance principles; prudent financial management; implementation of both operational and corporate strategic initiatives; and various industries, including the consumer goods, retail and financial services industries. The Board comprises: Pat Handley Chairman, Non-Executive Pat Handley has been Chairman of Pacific Brands Holdings Pty Ltd since December 2001, bringing with him over 30 years international financial services experience. Pat was appointed to the Board of Pacific Brands Limited in December Pat has previously been an Executive Director and Chief Financial Officer of Westpac Banking Corporation, Chairman and Chief Executive Officer of Country Savings Bank (USA), Chief Financial Officer of BancOne Corporation (USA) and a Director of Suncorp-Metway Ltd. Pat is currently a Director of AMP Limited and HHG plc. In addition, Pat is a strategic adviser to PricewaterhouseCoopers and Nomura Securities Paul Moore Chief Executive Officer, Executive Paul joined Pacific Brands in Within two years, he was appointed General Manager of adidas Australia (previously part of Pacific Brands) and since that time has held various leadership roles across all of Pacific Brands operations. Prior to joining Pacific Brands, Paul held various marketing roles at The Gillette Company and Petersville Sleigh Limited. In August 1999, Paul was appointed to the role of Managing Director where he has facilitated the development of a Group-wide business strategy, which includes the acquisition of synergygenerating businesses. In November 2001, he was appointed Chief Executive Officer of Pacific Brands Holdings Pty Ltd. Paul was appointed to the Board of Pacific Brands Limited in December Stephen Tierney Chief Financial Officer, Executive Stephen joined Pacific Brands in 1990 as Group Accountant after an 11 year career with Touche Ross & Co (now KPMG) specialising in finance, taxation and accounting. Stephen was appointed to the role of Chief Financial Officer in December In November 2001, he was appointed an Executive Director of Pacific Brands Holdings Pty Ltd. Stephen was appointed to the Board of Pacific Brands Limited in December

67 Section Andrew Cummins Director, Non-Executive Andrew joined the Board of Pacific Brands Holdings Pty Ltd in November 2001, bringing with him many years of experience as a senior executive in prominent Australian and international public companies. Andrew was appointed to the Board of Pacific Brands Limited in February Currently, Andrew is Managing Director of CVC Asia Pacific Limited. Previously, Andrew has been a Director of Inchcape plc, Strategy Director of Elders IXL Limited/Foster s Brewing Group Limited and Chief Executive of Elders Investments Limited. Andrew also spent nine years with McKinsey & Company Helen Lynch AM Deputy Chair, Non-Executive Helen joined the Board of Pacific Brands Holdings Pty Ltd in November 2003 and brings extensive experience as a Non- Executive Director in the retail and financial services industries. Helen was appointed to the Board of Pacific Brands Limited in February Helen is currently a Director of Southcorp Limited and Westpac Banking Corporation and Chair of Sydney Symphony Holdings and has previously been a Director of Coles Myer Ltd and Chair of OPSM Group Limited. Helen spent 35 years at Westpac Banking Corporation before retiring in Max Ould Director, Non-Executive Max joined the Board of Pacific Brands Holdings Pty Ltd in September 2003 bringing leadership expertise in the consumer goods industry. Max was appointed to the Board of Pacific Brands Limited in February Max is currently a Director of Foster s Group Limited and The Australian Gas Light Company and has considerable experience in the Australian food industry, including previous roles as Managing Director of the East Asiatic Company, Chief Executive Officer of Peters Foods, and Managing Director of National Foods Limited from 1996 to

68 Board, Senior Management and employees 5.2 Senior Management Sue Morphet, Group General Manager, Underwear & Hosiery (Bonds & The Berlei Group) Sue joined Pacific Brands in 1996 as General Manager, Tontine having had extensive experience gained in the food and TCF industries. In September 1999, Sue was appointed to the role of General Manager, Bonds. Since June 2003, Sue has also been responsible for The Berlei Group Stephen Audsley, Group General Manager, Underwear & Hosiery (Holeproof, Jockey, Hosiery & Clothing New Zealand) Stephen joined Pacific Brands in 1991 after 13 years with consumer goods companies, including Southcorp Limited and Nissan Motor Co (Australia) Pty Ltd. In his 12 years with Pacific Brands, Stephen has worked across a number of Operating Groups including Footwear and Outerwear & Sport prior to his current appointment in February Ross Taylor, Group General Manager, Outerwear & Sport Ross joined Pacific Brands in 1991 as National Sales and Marketing Manager of Dunlop Sport Equipment. Prior to Pacific Brands, Ross held key sales and marketing roles with various consumer goods companies including Metro Quality Food Pty Ltd and Bowater-Scott Australia Ltd. In July 2001, he was appointed General Manager, KingGee. In February 2002, Ross was appointed to his current role Ian Barton, Group General Manager, Home Comfort Ian joined Pacific Brands in 1978 as an accountant at adidas Australia (previously part of Pacific Brands). He spent 13 years as a Financial Controller across several business units including Holeproof. In 2001, Ian was appointed General Manager of Jockey Australia and Clothing New Zealand. Ian was appointed to his current role in July Malcolm Ford, Group General Manager, Footwear Malcolm joined Pacific Brands in 1991 after 20 years in product development, sales and marketing, and general management within the TCF industry. Malcolm was appointed to his current role in Malcolm has been instrumental in developing a brand-focused footwear business, with brands including Clarks (childrens), Hush Puppies and Sachi. Pictured this page from left to right are: Sue Morphet, Stephen Audsley, Ross Taylor, Ian Barton and Malcolm Ford. 66

69 Section Rick Rostolis, General Manager, Corporate Development Rick joined Pacific Brands in 1998, as Financial Controller, Shared Services after a 12 year career with KPMG. In December 1999, Rick was appointed to his current role. Rick s role encompasses corporate strategy, business restructuring and mergers & acquisitions (including integration project management) Mary Keely, General Manager, People Mary joined Pacific Brands in 1999, after spending nine years in senior human resource roles at Coca-Cola Amatil Limited and Westpac Banking Corporation. Mary s role encompasses occupational health and safety, corporate social responsibility and accountability, employee relations, learning and development, remuneration, recruitment and talent management Neil Padoa, General Manager, Manufacturing (Underwear & Hosiery) Neil joined Pacific Brands in 1995, after 25 years with a large clothing manufacturer in South Africa. Neil is responsible for all aspects of manufacturing and sourcing of imported product for The Underwear & Hosiery Group Mark Daniel, General Manager, Supply Chain Mark joined Pacific Brands in 2002 having worked both domestically and internationally in supply chain and manufacturing with companies such as Coca-Cola Amatil Limited, Coles Myer Ltd and Linfox Pty Ltd. Mark is responsible for all aspects of Pacific Brands supply chain planning, distribution and logistics requirements Tom Dalianis, General Manager, Information Technology Tom joined Pacific Brands in 1989 and has held senior roles including IT Manager, Holeproof. Tom was appointed to his current role in November Tom has developed key customer and supplier relationships through various IT integration initiatives. Tom is also responsible for the Brave New Way project. Pictured this page from left to right are: Rick Rostolis, Mary Keely, Neil Padoa, Mark Daniel and Tom Dalianis. 67

70 Board, Senior Management and employees 5.3 Employees Pacific Brands has approximately 7,000 employees primarily in Australia with representation across a number of countries including New Zealand, China, Indonesia, Malaysia and the UK. Pacific Brands category leading positions and strong customer alliances are, in large part, attributable to the quality and commitment of its employees. Pacific Brands has a commitment to a hands on management style in sourcing, product development, marketing and sales. In recent times, these skills have been complemented and supported by the introduction of functional specialists in the Senior Management team to allow further growth and the leveraging of efficiencies across Pacific Brands. Figure 5.1 Employees by location Figure 5.2 Employees by function Australia 66% New Zealand 9% China 9% Indonesia 12% Malaysia 3% UK/Other 1% Local manufacturing 32% Overseas 26% manufacturing Sales and marketing 17% Administration 14% Distribution 11% Source: Management information Source: Management information Pacific Brands believes that it has a positive relationship with its employees and various union representatives, and there has been minimal industrial action over the past five years. In Australia, the major unions covering employees are the Textile, Clothing and Footwear Union of Australia (TCFUA), the National Union of Workers (NUW) and the Construction, Forestry, Mining and Energy Union (CFMEU). Employees that are members of a union are remunerated according to industrial awards and enterprise bargaining agreements. 5.4 The Board and Corporate Governance The Board is committed to maximising performance, generating appropriate levels of shareholder value and financial return and sustaining a stable of recognisable and successful brands. In conducting business with these objectives, the Board is concerned to ensure that the Company is properly managed to protect and enhance shareholder interests, and that the Company, its Directors, officers and employees operate in an appropriate environment of corporate governance. Accordingly, the Board has adopted corporate governance policies and practices designed to promote responsible management and conduct of the Company. The main policies and practices adopted by the Company are summarised below. In addition, many governance elements are enshrined in the Constitution. The Pacific Brands code of conduct outlines how the Company expects Directors and employees to behave and conduct business in a range of circumstances. In particular, the code requires awareness of, and compliance with, laws and regulations relevant to Pacific Brands operations including environmental laws and the Trade Practices Act 1974 (Cwlth) and equivalent overseas legislation. The Pacific Brands Occupational Health and Safety Policy outlines the methods and practices that the Company requires to be observed to provide a working environment, which is free, as far as practicable, from risk of injury or disease for the Company s employees, visitors and contractors. Details of the Company s key policies and practices, and the charters for the Board and each of its committees may be found at 68

71 Section Board appointment and composition It is the Board s policy that there should be a majority of independent, Non-Executive Directors. That is, the majority of Directors should be free from any business or other relationship that could materially compromise their independent judgement. As an additional safeguard in preserving independence, the policy requires that the office of Chairman be held by an independent, Non-Executive Director. The Board considers a Director to be independent where he or she is not a member of management and is free of any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the Director s ability to act in the best interests of the Company. The Board will consider the materiality of any given relationship on a case by case basis and has adopted materiality guidelines to assist it in this regard. The Board reviews the independence of each Director in light of interests disclosed to the Board from time to time. The Board is currently made up of six Directors, four of whom are Non-Executive Directors. In general, the Board s policy is that it should include a majority of independent, Non-Executive Directors. The Board considers that Andrew Cummins may not be considered to be independent at the Listing Date due to his association with CVC Capital Partners Asia Pacific LP, one of the Ultimate Shareholders of the Existing Shareholder, which is party to the arrangements with PBA described in Section The Board is not aware of any other matter that may compromise his independence following Settlement Date. Accordingly, the Board would expect Mr Cummins to meet its definition of independence during the year following the Offer. The Board believes that the retention of Mr Cummins knowledge of, and experience with, the Group, and the particular expertise that he brings to the Board, as a Non-Executive Director, are of considerable importance following the Listing Date. The Constitution requires Directors to hold a minimum number of Shares in the Company as determined by the Board from time to time, which at Listing Date is 500 Shares, such that Directors interests are aligned with those of Shareholders. The Board has adopted a Non-Executive Director Share Plan to be effective following listing, pursuant to which each Non-Executive Director will apply a portion of his or her Director s fees in acquiring Shares (refer to Section ) Risk management The Company is committed to the proper identification and management of risk. The Company has in place a process to identify and measure business risk, including regular review of results from its risk identification procedures. The Audit, Business Risk and Compliance Committee is charged with oversight of this process (refer to Section 5.4.3). Pacific Brands regularly undertakes reviews of its risk management procedures which include implementation of a system of internal sign-offs to ensure not only that Pacific Brands complies with its legal obligations but that the Board, and ultimately Shareholders, can take comfort that an appropriate system of checks and balances is in place regarding those areas of the business which present financial or operating risks. The Company has also adopted a code of conduct which sets out the Company s commitment to maintaining the highest level of integrity and ethical standards in all business practices. The code of conduct sets out for all Directors, management and employees the standards of behaviour expected of them, and the steps that should be taken in the event of uncertainty or a suspected breach by a colleague Board responsibilities The Board has ultimate responsibility to set policy regarding the business and affairs of the Company for the benefit of the Shareholders and other stakeholders. The Board delegates management of the Company s resources to Senior Management, under the leadership of the Chief Executive Officer, to deliver the strategic direction and goals determined by the Board. In discharging their duties, Directors are provided direct access to and may rely upon Senior Management and outside advisers and auditors. Board committees and individual Directors may seek independent professional advice at the Company s expense for the purposes of the proper performance of their duties. 69

72 Board, Senior Management and employees The Board discharges its duties in relation to certain specific functions through the following committees of the Board: Audit, Business Risk and Compliance Committee; and Nomination and Remuneration Committee. Audit, Business Risk and Compliance Committee The Audit, Business Risk and Compliance Committee monitors and reviews the effectiveness of the Company s controls in the areas of operational and balance sheet risk, legal and regulatory compliance and financial reporting. The committee discharges these responsibilities by: overseeing the adequacy of the controls established by Senior Management to identify and manage areas of potential risk and to safeguard the assets of the Company; overseeing the Company s relationships with the external auditor and the external audit function generally; and evaluating the processes in place to ensure that accounting records are properly maintained in accordance with statutory requirements and financial information provided to investors and the Board is accurate and reliable. A copy of the committee s charter is available on the Company s website at: The committee has also adopted a policy on the provision of non-audit services and the rotation of external audit personnel. The committee s charter provides that the committee will comprise at least two Non-Executive Directors, a majority of whom are independent. The current members of the committee are: Max Ould (Chairman); Andrew Cummins; and Pat Handley. Members of management and the external auditors attend meetings of the committee by invitation. The committee may also have access to financial and legal advisers, in accordance with the Board s general policy. Nomination and Remuneration Committee The Nomination and Remuneration Committee is responsible for matters relating to succession planning, recruitment and the appointment and remuneration of the Directors and the Chief Executive Officer, and overseeing succession planning, selection and appointment practices and remuneration packages for management and employees of Pacific Brands. The objectives of the committee include to: review, assess and make recommendations to the Board on the desirable competencies of the Board; assess the performance of the members of the Board; oversee the selection and appointment practices for Non-Executive Directors and management of the Group; develop succession plans for the Board and oversee the development of succession planning in relation to management; and assist the Board in determining appropriate remuneration policies (including short and long-term incentive plans for the Chief Executive Officer). In making recommendations to the Board regarding the appointment of Directors, the committee periodically assesses the appropriate mix of skills, experience and expertise required on the Board and assesses the extent to which the required skills and experience are represented on the Board. The committee may obtain information from, and consult with, management and external advisers, as it considers appropriate. A copy of the committee s charter is available on the Company s website at: 70

73 Section 5 The committee consists of two Non-Executive Directors and the Chief Executive Officer. The committee s charter provides that the majority of the committee members will be independent Directors. The current members of the committee are: Helen Lynch AM (Chair); Max Ould; and Paul Moore. The Chief Executive Officer may not participate in deliberations of the committee where he has a personal interest Corporate governance policies The Board has adopted the following corporate governance policies (which become effective upon the Listing Date): Continuous disclosure policy The Company places a high priority on communication with Shareholders and is aware of the obligations it will have, once listed, under the Corporations Act, and the ASX and NZX Listing Rules, to keep the market fully informed of information which is not generally available and which may have a material effect on the price or value of the Company s securities. The Company has adopted a policy which establishes procedures to ensure that Directors and management are aware of and fulfil their obligations in relation to the timely disclosure of material price-sensitive information. Share trading guidelines The Company has adopted guidelines for dealing in securities which are intended to explain the prohibited type of conduct in relation to dealings in securities under the Corporations Act and the Securities Markets Act 1988 (NZ) and establish a best practice procedure in relation to Directors, management s and employees dealings in the Company s securities. Subject to the overriding restriction that persons may not deal in Shares while they are in possession of material price-sensitive information, Directors, management and employees will only be permitted to deal in Shares during certain window periods, such as following release of the Company s financial results and the annual general meeting. Outside of these periods, Directors, management and employees must receive clearance for any proposed dealing in Shares with such clearance only to be granted in exceptional circumstances. A separate procedure has been adopted for dealings by Directors, management and employees on NZSX or off-market in New Zealand Employee, senior executive and Director share plans The Company has introduced a number of share plans pursuant to which employees, management and Directors may acquire Shares. These are: the Australian Employee Share Acquisition Plan (pursuant to which the Employee Gift, which is open to Eligible Employees of the Group in Australia, is made) and the New Zealand Employee Share Acquisition Plan (pursuant to which the Employee Gift, which is open to Eligible Employees of the Group in New Zealand, is made); the Performance Rights Plan (which is open to Executive Directors and selected senior executives); and the Non-Executive Director Share Plan (which applies to all Non-Executive Directors). Details of the terms and conditions of the Plans are set out in Section

74 Board, Senior Management and employees Remuneration Non-Executive Directors are paid an annual fee for their service on the Board and all committees of the Board within the maximum aggregate sum for such Directors approved from time to time by Shareholders. The current maximum aggregate sum is $1.0 million per annum, which is intended to provide the Board with scope to appoint new Directors in the future. It is not intended to distribute this full amount by way of fees in the current year. A minimum of 25% of a Non-Executive Director s annual fee must be taken in the form of Shares pursuant to the Non-Executive Director Share Plan, which Shares must, in general, be held for the period the Director holds office as a Director. At present, there are no retirement benefits payable to Non-Executive Directors upon their retirement Deeds of access, indemnity and insurance The Company has entered into deeds of access, indemnity and insurance with each Director which confirm the Director s right of access to Board papers and require the Company to indemnify the Director for liability incurred as an officer or promoter of the Company, subject to the restrictions imposed by the Corporations Act, and the terms of its Constitution. 72

75 73 Section 6 Financial information

76 Financial information 6.1 Introduction This Section contains a summary of the historical and forecast financial information of Pacific Brands (Financial Information). The Financial Information comprises: the statements of financial performance for FY2001, FY2002 and FY2003 and the six months ended 31 December 2002 and 31 December 2003 as set out in Section 6.2 and the summary of cash flows for FY2001, FY2002 and FY2003 as set out in Section 6.7 (Adjusted Historical Financial Information). The Adjusted Historical Financial Information (excluding the six months ended 31 December 2002) has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. The Adjusted Historical Financial Information for the six months ended 31 December 2002 has been derived from the unaudited financial statements of Pacific Brands. The Adjusted Historical Financial Information in respect of the year ended 30 June 2001 and the five months ended 30 November 2001 component of the year ended 30 June 2002 has been derived from the audited financial statements of Ansell Limited (formerly Pacific Dunlop Limited), from which the Pacific Brands business was acquired on 30 November 2001; the forecast statements of financial performance and summary of cash flows for FY2004 and FY2005 as set out in Sections 6.2 and 6.7 (Forecast Financial Information). The pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures that will be in place upon Settlement, as if they were in place at 30 June The Forecast Financial Information is reported on by PricewaterhouseCoopers Securities Ltd as Independent Accountant, in Section 8; and the Pro forma Statement of Financial Position as at 31 December 2003, which is derived from the audited statement of financial position as at 31 December 2003 and adjusted as set out in Section 6.9 and reviewed and reported on by KPMG as Investigating Accountant, in Section 7. In preparing the Adjusted Historical Financial Information, adjustments were made to the audited and unaudited financial statements of Pacific Brands that the Company considered appropriate to reflect the Group s current operations and to eliminate certain non-recurring items. These adjustments, together with a reconciliation of the Adjusted Historical Financial Information to the audited and unaudited financial statements of Pacific Brands, are set out in Section The Adjusted Historical Financial Information has been presented to an EBIT line only. This is because the Pacific Brands business was acquired from Ansell Limited in November 2001 and, therefore, for FY2001 and for the first five months of the year ended 30 June 2002, Pacific Brands was part of Ansell Limited. As part of Ansell Limited, the Pacific Brands business operated under a different corporate structure and gearing, treasury and tax profiles. Accordingly, reported borrowing expenses, income tax and net financing cash flows are not considered to be meaningful or appropriate. Additionally, new and different corporate and capital structures will prevail upon Settlement. Accordingly, reporting historical net borrowing expenses or payments and income tax expenses or payments are not considered to be meaningful or appropriate as they are not indicative of what these expenses or payments would have been, had the Pacific Brands business operated under the new corporate and capital structures which will apply upon Settlement. The Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments concerning future events, including the general and specific best estimate assumptions set out in Section 6.6. The Directors believe that they have prepared the Forecast Financial Information with due care and attention and consider all best estimate assumptions when taken as a whole to be reasonable at the time of preparing this Prospectus. However, the actual financial results are likely to vary from the Forecast Financial Information and any variation may be materially positive or negative. The Forecast Financial Information and the best estimate assumptions on which it is based are by their very nature subject to significant uncertainties and contingencies, and to a number of business, economic and competitive risks, many of which are outside the control of the Company and the Directors and are not reliably predictable (refer Risk factors in Section 9). Accordingly, neither the Company nor its Directors can give any assurance that the forecast performance in the Forecast Financial Information or any prospective statement contained in this Prospectus will be achieved. Events and outcomes might differ in quantum and timing from the assumptions, with a material consequential impact on the Forecast Financial Information. The Forecast Financial Information should be read together with the best estimate assumptions underlying its preparation set out in Section 6.6, the sensitivity analysis set out in Section 6.11, the Investigating Accountant s Report on historical financial information set out in Section 7, the Independent Review of Forecast Financial Information set out in Section 8, the Risk factors set out in Section 9 and other information contained in this Prospectus. 74

77 Section Summary of Statements of Financial Performance Set out in the table below is a summary of the Pacific Brands Adjusted Historical Financial Information and Forecast Financial Information for the periods specified. Pro forma Adjusted Historical 1 Forecast 3, 4, 6 Forecast 6 6 months 6 months ended ended $ million FY2001 FY2002 FY Dec Dec 2003 FY2004 FY2005 Sales revenue 1, , , , ,653.1 Gross profit Operating expenses EBITDA Depreciation EBITA Amortisation EBIT Net borrowing expenses Income tax expense Net profit after tax Other financial information Net profit after tax (pre goodwill amortisation) Notes: 1. Adjusted Historical Financial Information (excluding the six months ended 31 December 2002) has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the adjustments are included in Section Adjusted Historical Financial Information for the six months ended 31 December 2002 has been derived from the unaudited financial statements of Pacific Brands. 3. Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures (details of which are set out in Sections 6.12 and 10.5) that will be in place upon Settlement, as if they were in place as at 30 June FY2004 Statutory Financial Results will differ from the pro forma forecast insofar as it will reflect Pacific Brands actual financial results from Settlement to 30 June The FY2004 statutory net profit after tax (post goodwill amortisation) is forecast by the Directors to be $8.2 million. The FY2004 statutory net profit after tax (pre goodwill amortisation) is forecast by the Directors to be $18.3 million, consistent with the seasonal trading pattern of the business. 5. Pacific Brands believes that EBITDA, EBITA and EBIT provide a useful measure of the Group s operating performance but should not be considered as an indication of, or alternative to, gross profit or net profit as an indicator of financial performance or as an alternative to cash flow as a measure of liquidity. These terms are defined in the Glossary. 6. Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Section Gross profit is represented by sales revenue and other income less cost of sales (excluding depreciation). 8. The substantial increase in amortisation from $7.3 million in FY2003 to $40.3 million in FY2004 and FY2005 reflects the full year amortisation charge relating to the additional goodwill that will be recognised by the Group on acquisition of the Purchased Group upon Settlement. 6.3 Sales Revenue by Operating Group The table below sets out the sales revenue for each Operating Group of Pacific Brands as described in Section 4. Pro forma Adjusted Historical 1 Forecast 2, 3 Forecast 3 $ million FY2001 FY2002 FY2003 FY2004 FY2005 Underwear & Hosiery Outerwear & Sport Home Comfort Footwear Other Total 1, , , , ,653.1 Notes: 1. Adjusted Historical Financial Information has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the adjustments are included in Section Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Section Includes intercompany eliminations and clearance store sales. The increase in FY2003 resulted from a change in allocation policy relating to clearance store activities. 75

78 Financial information 6.4 Key Factors Affecting Pacific Brands Operational and Financial Performance While the Group s financial condition and results of operations are affected by a number of factors, Pacific Brands believes the following are of particular importance: increases in advertising and brand promotion leading to increased sales of branded products, evidenced by the compound annual increase in sales (FY2001 to FY2003) for the following brands: Bonds 9%, Clarks (childrens) 12%, Hush Puppies 31%, Slazenger 15% and Tontine 12%; exiting of unprofitable business, primarily through a reduction in unbranded sales evidenced by Senior Management s estimate that, excluding divestments, approximately $90 million of unprofitable sales have been eliminated, primarily in FY2003; extension of existing brands into new product categories leading to increased sales; strategic acquisitions of brands and licences to cost efficiently achieve an improved position in segments of existing or new product categories; reduction in business complexity and achievement of operational efficiencies through Project Brave New Way; prudent working capital management and low capital expenditure requirements; and ability to generate consistent and growing profitability in the context of the dismantling of Australian protective trade barriers and movements in foreign exchange rates. 6.5 Management Discussion and Analysis of Adjusted Historial Financial Information This Section should be read in conjunction with the description of the basis of preparation of the Adjusted Historical Financial Information detailed in Section 6.1. FY2002 compared to FY2001 Sales revenue In FY2002, Pacific Brands total sales revenue increased 11.4% to $1,482.8 million. Factors that contributed to this result included: The Underwear & Hosiery Group sales increased 10.4% to $597.6 million reflecting the initial benefits of focused brand advertising, particularly in Bonds, and the full year impact of the acquisition of the Sara Lee Apparel Australasia business (including Razzamatazz, Formfit and Kayser trademarks and Playtex and Wonderbra licences) in March 2001; The Outerwear & Sport Group sales increased 28.0% to $329.8 million reflecting the full year impact of the acquisition of the Sara Lee Apparel Australasia business (including KingGee and Stubbies trademarks) in March 2001; The Home Comfort Group sales increased 7.6% to $298.2 million driven by strong growth in bedding and foam product categories as the housing market strengthened; and The Footwear Group sales decreased by 0.6% to $245.4 million resulting from the elimination of unprofitable sales particularly in the women s fashion and commodity business, offset by the full year impact of the acquisition of the Clarks (childrens) and Hush Puppies licences in September Gross profit margin Pacific Brands gross profit margin increased from 31.6% in FY2001 to 31.9% in FY2002. Factors that contributed to this result included: a refocus on higher margin business rather than pursuing unprofitable sales growth; and regaining some of the lost pricing and margin experienced in FY2001 as a result of the impact of GST, the related restrictions on post-gst pricing imposed by regulatory authorities and the general post-2000 Sydney Olympic Games downturn in spending. Operating expenses Operating expenses decreased from 23.6% of total sales in FY2001 to 23.4% of total sales in FY2002. The reduction was largely driven by decreases in freight, distribution and general administration expenses as percentages of total sales. EBITA margin In FY2002, Pacific Brands EBITA grew 19.6% to $108.7 million. EBITA margin increased from 6.8% in FY2001 to 7.3% in FY2002, driven by the movements in gross profit margins and operating expenses as described above. FY2003 compared to FY Sales revenue In FY2003, Pacific Brands total sales revenue growth was 0.4%, impacted by Senior Management s decision to exit unprofitable business, primarily through a reduction in unbranded sales, leading to total sales of $1,489.1 million.

79 Section 6 Specific factors that contributed to this result included: The Underwear & Hosiery Group sales increased 2.4% to $612.0 million reflecting a strong increase in Bonds sales, offset by a decline in intimate apparel sales due to supply chain and product acceptance issues; The Outerwear & Sport Group sales decreased 2.1% to $322.8 million primarily due to a difficult winter trading period for casual clothing and sporting equipment; however, KingGee sales continued to grow strongly; The Home Comfort Group sales decreased 0.9% to $295.5 million reflecting a decline in bedding product category sales due to product mix issues and the elimination of unprofitable sales, offset by continued growth in the foam product category as the housing market strengthened; and The Footwear Group sales decreased by 8.4% to $224.7 million primarily due to the elimination of unprofitable sales particularly in the women s fashion and commodity business, offset primarily by the increased branded sales of Clarks (childrens) and Hush Puppies. Gross profit margin Pacific Brands gross profit margin increased from 31.9% in FY2002 to 35.7% in FY2003. Factors that contributed to this result included: initial benefits of the reduction of business complexity and increased operational effectiveness derived through the implementation of Project Brave New Way initiatives (eg a significant reduction in SKUs); product mix changes through a focus on increasing sales of branded products and the continued efforts to eliminate unprofitable and low margin sales of primarily unbranded products; regaining the majority of lost pricing and margin experienced in FY2001 as a result of the impact of GST, the related restrictions on post-gst pricing imposed by regulatory authorities and the general post-2000 Sydney Olympic Games downturn in spending; and favourable impact on cost of goods sold from movements in foreign exchange rates. Operating expenses Operating expenses increased from 23.4% of total sales in FY2002 to 26.0% of total sales in FY2003. Factors that contributed to this result included: $13 million increase in advertising spend to $45 million representing an increase in the promotion of key brands; an increase in distribution expenses; and offset by additional cost benefit synergies achieved through maximising the integration of the Sara Lee Apparel Australasia, Clarks (childrens) and Hush Puppies business acquisitions. EBITA margin In FY2003, Pacific Brands EBITA grew 17.0% to $127.2 million. EBITA margin increased from 7.3% in FY2002 to 8.5% in FY2003 driven by the movement in gross profit margins and operating expenses as described above. Six months ended 31 December 2003 compared to six months ended 31 December 2002 Sales revenue Pacific Brands total sales revenue grew 1.9% from $796.3 million in the six months ended 31 December 2002 to $811.2 million in the six months ended 31 December Factors that contributed to this result included: The Underwear & Hosiery Group sales increased 9.2% to $341.8 million reflecting the increased branded sales of Bonds, Berlei and Holeproof products and the impact of the acquisition of Kolotex in August 2003; The Outerwear & Sport Group sales decreased 2.2% to $180.4 million reflecting the continued difficult trading period for casual clothing and sporting equipment, offset by increased KingGee sales; The Home Comfort Group sales decreased 1.1% to $149.6 million due to a decrease in sales in Malaysia and the foams category, offset by strong sales growth in Tontine and improvement in bedding category sales; and The Footwear Group sales decreased by 6.1% to $122.0 million primarily due to the elimination of unprofitable sales particularly in the women s fashion and commodity business, offset by the increased branded sales of Clarks (childrens) and Hush Puppies and the impact of the acquisition of Sachi on 30 June Gross profit margin Pacific Brands gross profit margin increased from 34.9% in the six months ended 31 December 2002 to 37.4% in the six months ended 31 December Factors that contributed to this result included: 77

80 Financial information continued benefits of the reduction of business complexity and increased operational effectiveness derived through the implementation of Project Brave New Way initiatives; product mix changes through a focus on increasing sales of branded products and the continued efforts to eliminate unprofitable and low margin sales of primarily unbranded products; and favourable impact on cost of goods sold from movements in foreign exchange rates. Operating expenses Pacific Brands operating expenses increased from 25.5% of total sales in the six months ended 31 December 2002 to 26.3% of total sales in the six months ended 31 December Factors that contributed to this result included: $10 million increase in advertising spend to $33 million representing the continued promotion of key brands; offset by cost benefit synergies achieved through the integration of the Kolotex acquisition. EBITA margin Pacific Brands EBITA grew 22.5% from $66.8 million in the six months ended 31 December 2002 to $81.8 million in the six months ended 31 December EBITA margin increased from 8.4% in the six months ended 31 December 2002 to 10.1% in the six months ended 31 December 2003 driven by the movement in gross profit margins and operating expenses as described above. 6.6 Preparation of Forecast Financial Information The Directors believe that they have prepared the Forecast Financial Information with due care and attention and consider all best estimate assumptions when taken as a whole to be reasonable at the time of preparing this Prospectus. The Forecast Financial Information has been prepared on the basis of a number of estimates, assumptions and pro forma adjustments, as set out below. Such assumptions are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company and the Directors. This information is intended to assist investors in assessing the reasonableness and likelihood of the assumptions occurring and is not intended to be a representation that the assumptions will occur. Investors should be aware that the timing of actual events and the magnitude of their impact might differ from that assumed in preparing the Forecast Financial Information and that this may have a materially positive or negative effect on Pacific Brands future financial performance or financial position. Therefore, the Forecast Financial Information should not be regarded as a representation or warranty with respect to its accuracy or the accuracy of the best estimate assumptions or that the Group will achieve, or is likely to achieve, any particular results. Investors are advised to review the best estimate assumptions set out below in conjunction with the description of the basis of preparation of the Forecast Financial Information in Section 6.1, the Independent Review of Forecast Financial Information set out in Section 8, the sensitivity analysis set out in Section 6.11, the risk factors set out in Section 9 and other information contained in this Prospectus. Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures that will be in place upon Settlement, as if they were in place as at 30 June Details of the new corporate and capital structures are set out in Sections 6.12 and The FY2004 Statutory Financial Results will reflect the Group s actual results from Settlement to 30 June The FY2004 statutory net profit after tax (post goodwill amortisation) is forecast by the Directors to be $8.2 million. The FY2004 statutory net profit after tax (pre goodwill amortisation) is forecast by the Directors to be $18.3 million, consistent with the seasonal trading pattern of the business General assumptions No material change in the legislative regimes and regulatory environments (including in relation to tax) in the jurisdictions in which Pacific Brands or its key customers or suppliers operate which will materially impact on the Forecast Financial Information. No material amendment to any material agreement or arrangement relating to Pacific Brands. The parties to those agreements and arrangements are assumed to continue to comply with the terms of all material agreements and arrangements. No material changes to Pacific Brands accounting policies or to Australian Accounting Standards, Statements of Accounting Concepts or other mandatory professional reporting requirements including Urgent Issues Group Consensus Views or the Corporations Act which will have a material impact on the Forecast Financial Information. The potential impact of the application of International Financial Reporting Standards for periods beyond the Forecast Period is described in Section No material impact on the Forecast Financial Information from the Australian Federal Government s proposed tariff reduction on 1 January 2005 from their current level of 25% to 17.5% (clothing) and from 15% to 10% (footwear). Refer to Section for a more detailed discussion of Australian tariff reductions.

81 Section 6 No material adverse changes to Pacific Brands offshore product sourcing capabilities and costs, in particular, from the proposed entry of China into the World Trade Organisation. No material industrial strikes or other disturbances, environmental costs or legal claims. Retention of key personnel. No material adverse change in the competitive environment in the industries in which Pacific Brands operates. No material business acquisitions or disposals. No material change in the value of Pacific Brands brandnames and other identifiable intangibles. No change in Pacific Brands capital structure other than as set out in, or contemplated by, this Prospectus. The gross amount raised through the Offer totals approximately $1.22 billion (based on the mid-point of the Institutional Offer Indicative Price Range). The gross proceeds, less an amount to be retained by Pacific Brands to cover the costs of the Offer of approximately $52 million, will be paid to the Existing Shareholder. Annual costs associated with being a publicly listed company have been included in the Directors forecasts for FY2004 and FY2005. No significant change in the economic conditions prevailing in Australia and New Zealand and the other markets in which Pacific Brands operates other than as reflected in the following specific macroeconomic assumptions: an increase in the Australian Consumer Price Index of 2.3% in both FY2004 and FY2005; the Directors have assumed average unhedged A$/US$ exchange rates of 0.68 and 0.70 in FY2004 and FY2005, respectively. Assumed foreign exchange rates impact the Directors forecasts in conjunction with the lagged effect of Pacific Brands foreign exchange hedging policy described in Section Consideration has also been given to the impact of additional factors underlying the forecast gross profit margins, including sales volume assumptions, customer and competitor pricing decisions and product sourcing and freight costs (some of which offset or compound each other) as set out in Section ; and the Directors have assumed average unhedged A$/NZ$ exchange rates of 1.14 in both FY2004 and FY2005. Assumed foreign exchange rates impact the Directors forecasts in conjunction with the lagged effect of Pacific Brands foreign exchange hedging policy described in Section Specific assumptions Sales revenue Pacific Brands is a leading manager of consumer brands in Australia and New Zealand within the following industries: textiles, clothing and footwear; sporting goods; and household furnishings and equipment. As discussed in Section 3, the industries in which Pacific Brands operates are expected to grow over the Forecast Period. The Underwear & Hosiery Group Sales revenue for The Underwear & Hosiery Group is forecast to grow 9.7% to $671.3 million in FY2004 and 7.1% to $718.8 million in FY2005. This is largely driven by the Directors forecast increase in sales in the intimate apparel product category, as well as Bonds and Holeproof brands over the Forecast Period. This increase reflects the additional advertising, promotional spend and range expansion supporting these brands in FY2003 and the Directors forecast further increases in advertising and promotional spend in FY2004 and FY2005. In particular, sales growth for The Underwear & Hosiery Group is forecast to be generated primarily from: Bonds following the brand makeover initiated by Pacific Brands post the 2000 Sydney Olympic Games, continuing advertising and brand promotion to further increase both men s and women s underwear sales as well as focusing advertising on brand extensions, including into product categories such as outerwear (eg contemporary clothing); Berlei, Formfit and Hestia reinvigoration of intimate apparel brands through continuing advertising and brand promotion campaigns initiated in June 2003, with a focus on brand management across the retail marketplace and product innovation to satisfy growing consumer demand for basic products with a fashion element; and 79

82 Financial information Holeproof continuation of significantly increased advertising and brand promotion initiated in FY2003 targeted at reinvigorating the Holeproof brand and sub-brands such as Antz Pantz and Rio, as well as other brands including LoveKylie. The acquisition of Kolotex in August 2003 is also forecast to contribute to sales growth in FY2004. The Directors forecast a continuing focus in FY2004 and FY2005 on eliminating unprofitable sales of primarily unbranded products, which will offset to some extent the sales growth described above. The Outerwear & Sport Group Sales revenue for The Outerwear & Sport Group is forecast to grow 1.3% to $327.1 million in FY2004 and 6.6% to $348.6 million in FY2005. This is largely driven by the Directors forecast increase in sales of key brands which are expected to be supported by further increases in advertising and promotional spend over the Forecast Period. In particular, sales growth for The Outerwear & Sport Group is forecast to be generated primarily from: KingGee continuation of the reinvigoration of the brand following its acquisition in March 2001, including the recent association with television personality Jamie Durie, as well as extending the brand into new product categories such as workboots, and product launches such as Worn Gees released in January 2004; Slazenger continued advertising and brand promotion following the relaunch of the brand during the 2004 Australian Open (tennis) through the bring out the animal television and print media campaign and the association of young Australian cricketer Michael Clarke with the brand; Everlast increased advertising and promotion focused on brand positioning following its relaunch in FY2003; and bicycle product category increased advertising and brand promotion of key brands such as Malvern Star and a renewed focus on increased distribution to specialty stores and discount department stores. Offsetting the branded sales growth in FY2004, the Directors forecast a reduction in unbranded and unprofitable outerwear sales. The Home Comfort Group Sales revenue for The Home Comfort Group is forecast to grow 3.2% to $305.0 million in FY2004 and 3.6% to $315.9 million in FY2005. This is largely driven by the Directors forecast increase in bedding product category sales, product mix changes and an increase in foam product category sales through the development of new markets. Product development is forecast by the Directors to be supported by increased advertising and promotional spend. In particular, sales growth for The Home Comfort Group is forecast to be generated primarily from: bedding product category increased advertising and promotion behind key brands such as Sleepmaker, Serta and Simmons, release of higher price new ranges (Sleepmaker) and expansion ranges (Serta and Simmons) in FY2004 and a focus on increased distribution to specialty and department stores; foam product category increased demand consistent with general increased bedding product category sales as well as a focus on increasing exposure to the consumer segment (eg pillows); carpet underlay product category new product ranges to be released in FY2004; and bedding accessories product category (eg pillows) continued advertising and promotion of key brands, particularly Tontine. The Footwear Group Sales revenue for The Footwear Group is forecast to grow 0.2% to $225.2 million in FY2004 and 5.8% to $238.3 million in FY2005. This is largely driven by the Directors forecast increase in sales of key brands over the Forecast Period, offset by a continuing focus in FY2004 and FY2005 on eliminating primarily women s unbranded fashion sales and a shift to commission business for the group s unbranded footwear products in FY2004 which is expected to stabilise in FY2005. The increase in branded footwear sales reflects the additional advertising and promotional spend behind these brands in FY2003 and the Directors forecast further increases in FY2004 and FY2005. In particular, sales growth for The Footwear Group is forecast to be generated primarily from: new brands increased sales from the addition of Sachi (acquired in June 2003) enabling an improving category position within the women s high-end fashion footwear segment; new licences increased sales from the addition of the Caterpillar licence (acquired in FY2003), Yarra Trail licence (acquired in FY2004) and Kenneth Cole licence (acquired in FY2004); and existing brands brand reinvigoration through increased advertising, promotion and product launches behind key brands including Hush Puppies, Clarks (childrens) and Grosby. 80

83 Section 6 Gross profit margins The Directors forecast gross profit margins to increase from 35.7% in FY2003 to 37.4% in FY2004 and to 39.1% in FY2005. The Directors gross profit margin forecast reflects the following key drivers: product mix changes through a focus on increasing sales of branded products supported by additional advertising and promotional spend and the continued efforts to eliminate unprofitable sales of primarily unbranded products; net favourable impact on costs of goods sold from movements in product sourcing costs, freight costs and foreign exchange rates; impact of customer and competitor pricing decisions in response to movements in foreign exchange rates; and margin improvements achieved by Project Brave New Way through the continued reduction of business complexity across the Group, including a significant reduction in SKUs. Operating expenses The Directors are forecasting the Group s variable operating expenses (freight, settlement discounts and agents commissions) to increase marginally as a percentage of sales over the Forecast Period, from 5.2% in FY2003, to 5.4% in FY2004 and 5.5% in FY2005. Consistent with Pacific Brands emphasis on brand development within each of the Operating Groups, the Directors are forecasting: advertising expenses to increase from $45.3 million in FY2003 to $60.9 million in FY2004 and to $73.2 million in FY2005; and sales and marketing expenses (excluding advertising) to increase from $104.2 million in FY2003 to $115.3 million in FY2004 and to $122.7 million in FY2005. The Directors are forecasting the Group s other operating expenses (primarily distribution, administrative and other expenses) to slightly decrease as a percentage of sales over the Forecast Period. This reflects some of the operating efficiencies the Directors are forecasting to be achieved through the implementation of Project Brave New Way initiatives, as well as efficiencies from the integration of acquisitions (such as Kolotex and Sachi). EBITA margins The Directors forecast EBITA margins to increase from 8.5% in FY2003 to 9.7% in FY2004 and 10.3% in FY2005. This improvement in margins is driven by the Directors forecast increase in gross profit margins and movement in operating expenses as described above. Net borrowing expenses Pro forma net borrowing expenses for FY2004 are forecast to be $32.6 million, reflecting the full year impact of Pacific Brands debt facilities upon Settlement as set out in Section 6.12 as if they were in place as at 30 June Net borrowing expenses for FY2005 are forecast to be $29.8 million. For the term debt facilities and debtor securitisation program, the interest rate is set at a specified margin over the average bid rate displayed on Reuters screen BBSWAV for a term equal or closest to roll-over periods. Margins for these facilities range from 0.5% to 2.0% per annum depending on the actual terms of the facility and the most recent quarterly calculated gearing ratio. Net borrowing expenses include the amortisation, over the term of the financing facilities, of pro forma deferred debt establishment costs calculated based on the estimated cost that Pacific Brands might expect to incur had the facilities upon Settlement been established as at 1 July Refer to Section 6.12 for a more detailed discussion of the Pacific Brands financing facilities and interest rate hedging policy. Income tax expense Pro forma income tax expense is forecast to be $37.1 million and $42.4 million, respectively, in FY2004 and FY2005. This reflects an effective tax rate of 31.3% and 30.1%, respectively, before allowing for the impact of non-deductible goodwill amortisation charges. The Australian subsidiaries of the Group have elected to enter the tax consolidations regime effective from 1 July The Company and its Australian subsidiaries will form a new consolidated group effective from Settlement and the subsequent recording of any timing differences associated with entry into the tax consolidations regime is not anticipated to have a material impact on forecast income tax expense. Income tax payable Pro forma income tax payable is forecast to be $30.3 million and $42.5 million, respectively, in FY2004 and FY2005. It incorporates the tax benefits of Offer costs which will be deductible to Pacific Brands over a period of five years. Dividends The Directors forecast a final dividend for the approximate three month period from Settlement to 30 June 2004 of 3.0 cents per Share (approximately $15.1 million) and a full year dividend for the year ending 30 June 2005 of 13.4 cents per Share (approximately $67.5 million). It is anticipated that these dividends will be fully franked in Australia and imputed to at least 7% for New Zealand resident Shareholders. Refer to Section 6.10 for a more detailed discussion of the Company s dividend policy. 81

84 Financial information In forecasting the final dividend for the period from Settlement to 30 June 2004 of approximately $15.1 million, the Directors have taken into account their FY2004 statutory net profit after tax (pre goodwill amortisation) forecast of $18.3 million. 6.7 Summary of Cash Flows Set out in the table below is a summary of Pacific Brands adjusted historical cash flows and forecast cash flows for FY2001 to FY2005. Pro forma Adjusted Historical 1 Forecast 2, 3, 4 Forecast 4 $ million FY2001 FY2002 FY2003 FY2004 FY2005 EBIT Depreciation Amortisation Net capital expenditure (11.3) (14.4) (11.6) (19.5) (17.3) Movement in other operating net assets (54.7) 12.5 (2.8) Operating cash flow Net borrowing costs (31.7) (28.9) Income taxes paid (30.3) (42.5) Net operating cash flow Notes: 1. Adjusted Historical Financial Information has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the adjustments are included in Section Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures (details of which are set out in Sections 6.12 and 10.5) that will be in place upon Settlement, as if they were in place as at 30 June FY2004 Statutory Financial Results will differ from the pro forma forecast insofar as it will reflect Pacific Brands actual financial results from Settlement to 30 June The FY2004 statutory net operating cash flow is forecast by the Directors to be $47.3 million reflecting the cash flow benefit in this period of the seasonal reduction in working capital balances. 4. Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Sections 6.6 and Net operating cash flow excludes the impact of the Directors forecast dividend payments in FY Management discussion and analysis of historical operating cash flows FY2002 compared to FY2001 Pacific Brands operating cash flows were lower in FY2001 principally due to the necessary increase in working capital arising from the acquisition of the operations of Sara Lee Apparel Australasia, Clarks (childrens) and Hush Puppies businesses (as accounts receivable balances were not acquired) of approximately $29 million, together with additional spending on restructuring activities of approximately $11 million. In FY2002, Pacific Brands operating cash flows were positively impacted by a reduction in the working capital committed to inventories on hand of approximately $37 million, although offset by the further cash committed to the restructuring spending commenced in FY2001 of an additional $25 million relating to Sara Lee Apparel Australasia as well as various internal restructuring programs. FY2003 compared to FY2002 In FY2003, Pacific Brands operating cash flows were impacted by spending on the finalisation of the restructuring program of $12 million relating to Sara Lee Apparel Australasia as well as various internal restructuring programs, offset by the release of cash from asset sales. 82

85 Section Working Capital and Net Capital Expenditure Summary Set out below is a summary of Pacific Brands adjusted historical and forecast working capital and net capital expenditure for FY2001 to FY2005. Pro forma Adjusted Historical 1 Forecast 2,3 Forecast 3 $ million FY2001 FY2002 FY2003 FY2004 FY2005 Working capital Working capital/sales 28.6% 21.8% 21.7% 19.6% 18.8% Net capital expenditure Net capital expenditure/depreciation 0.67x 0.87x 0.72x 1.17x 1.01x Notes: 1. Adjusted Historical Financial Information has been derived from the audited financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the adjustments are included in Section Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate structure (details of which are set out in Section 10.5) that will be in place upon Settlement, as if it was in place as at 30 June Forecast Financial Information is based on a number of estimates and assumptions as described in Section Working capital is defined as trade receivables plus inventories less trade creditors. Refer also Appendix I Management discussion and analysis of working capital movements The Group s working capital requirement typically varies during the financial year by $40 million to $60 million. Consistent with the seasonal trading pattern of the business, the Group s working capital requirement peaks in around October and is at its minimum by the end of the financial year. FY2002 compared to FY2001 Factors impacting changes in Pacific Brands working capital included: $37 million decrease in inventory levels in FY2002 as Pacific Brands focused on clearing outdated product lines and the introduction of more rigorous monitoring of stock holding levels; and following the reintegration of shared services into Pacific Brands, debtors days reduced from 46 days to 43 days. FY2003 compared to FY2002 Factors impacting changes in Pacific Brands working capital included: a continued focus on decreasing inventory levels as the Group cleared outdated product lines; and reduction in debtors days from approximately 43 days to approximately 41 days. Forecast FY2004 and FY2005 Factors impacting forecast changes in Pacific Brands working capital include: inventory control is expected to be further enhanced as a result of continued adherence to strict policies on product introduction and the elimination of product inventories each season; and the reduction in debtors days in recent years is expected to be maintained by Pacific Brands over the Forecast Period as a result of the continued observance of strict trading terms across the Operating Groups Capital expenditure The nature of the Pacific Brands business results in capital expenditure generally approximating depreciation. The low capital expenditure requirements are primarily due to Pacific Brands use of import sourcing for approximately 65% to 70% (by value) of products sold to the Australian retail marketplace and the relatively low capital intensity of its domestic manufacturing operations. This low capital expenditure requirement is forecast by the Directors to continue in FY2004 and FY Pro forma Statement of Financial Position Set out in the following table is the Pro forma Statement of Financial Position as at 31 December The major changes to the audited statement of financial position as at 31 December 2003, also reported upon in the Investigating Accountant s Report on historical financial information in Section 7, are to reflect the proposed new corporate and capital structures of the Company upon Settlement as if they had been in place as at 31 December

86 Financial information The key assumptions and adjustments underlying the Pro forma Statement of Financial Position are as follows: reclassification of $40 million debt from current to non-current as previously scheduled half yearly repayments are no longer required post Settlement; write-down of $25.4 million deferred costs relating to initial financing of Pacific Brands Holdings Pty Ltd to an amount calculated based on the estimated cost that Pacific Brands might expect to incur had the existing facilities upon Settlement been established as at 1 July 2003 and $30 million increase in property, plant and equipment based on estimated fair value adjustments in accordance with acquisition accounting; elimination of $40.3 million of redeemable preference shares in Pacific Brands Holdings Pty Ltd held by the Existing Shareholder; the incremental increase to intangibles (goodwill and brandnames) based on the net amount raised through the Offer being applied to acquire the Purchased Group. Brandnames will be carried in the statements of financial position at $375 million (refer Section 6.14); and issue of Shares with an equity value of $1,219.8 million (based on the mid-point of the Institutional Offer Indicative Price Range) less Offer costs of $52 million. Refer also the Investigating Accountant s Report on historical financial information in Section 7. Refer to Section 6.12 for further details of the proposed financing facilities. Audited Pro forma Pro forma $ million 31 December 2003 Adjustments 31 December 2003 Current assets Cash Receivables Inventories Other Total current assets Non-current assets Property, plant and equipment Intangibles ,181.8 Deferred costs 29.1 (25.4) Other Total non-current assets ,399.5 Total assets ,884.6 Current liabilities Payables Interest bearing liabilities 41.3 (40.0) Provisions Total current liabilities (40.0) Non-current liabilities Payables Provisions Interest bearing liabilities (0.3) 3, Other/outside equity interests Total non-current liabilities (0.3) Total liabilities (40.3) Net assets , , Notes: 1. The incremental increase to intangibles (goodwill and brandnames) based on the net amount raised through the Offer being applied to acquire the Purchased Group. Brandnames will be carried in the statements of financial position at $375 million (refer Sections 6.14 and 6.15). 2. Write-down of $25.4 million deferred costs relating to initial financing of Pacific Brands Holdings Pty Ltd to an amount calculated based on the estimated cost that Pacific Brands might expect to incur had the existing facilities upon Settlement been established as at 1 July 2003 and $30 million increase in property, plant and equipment based on estimated fair value adjustments in accordance with acquisition accounting. 3. Reclassification of $40 million debt from current to non-current as scheduled half yearly repayments are no longer required post Settlement. 4. Elimination of $40.3 million of redeemable preference shares in Pacific Brands Holdings Pty Ltd held by the Existing Shareholder. 5. Issue of Shares with an equity value of $1,219.8 million (based on the mid-point of the Institutional Offer Indicative Price Range) less after tax costs of the Offer (resulting in shareholders funds of $1,183.4 million).

87 Section Dividend Policy Subject to the forecasts being achieved and other relevant factors, the Board expects to declare the following dividends. It is anticipated that these dividends will be fully franked in Australia and imputed to at least 7% for New Zealand resident Shareholders. Cents per Share Yield 2 Final dividend (FY2004) % 3 Full year dividend (FY2005) % Notes: 1. Final dividend for FY2004 based on period from Settlement to 30 June 2004, anticipated to be paid in October Based on the Institutional Offer Indicative Price Range. 3. Based on annualised dividend for FY2004 of 12.9 cents per Share. Beyond the Forecast Period, the Directors dividend policy is to distribute between 60% and 70% of net profit after tax (pre goodwill amortisation) and to frank dividends to the greatest extent possible. In respect of future years, subject to available profits and the financial position of the Company, an interim dividend is expected to be payable annually in March, with a final dividend payable annually in October. Consistent with this policy, the anticipated final dividend for the period from Settlement until 30 June 2004 of 3.0 cents per Share, is expected to be paid in October No guarantee can be given about the payment of dividends, the level of franking or imputation of such dividends or the extent of payout ratios for FY2004 and FY2005 or for any future period, as these matters will depend upon the future profits of the Company, and its financial and taxation position at the time. Legislation has recently been enacted in New Zealand to enable Australian companies to maintain a New Zealand imputation credit account and earn imputation credits for income tax paid in New Zealand. The Company intends to elect to maintain an imputation credit account. As a result, New Zealand resident Shareholders will be able to receive New Zealand imputation credits attached to any dividend paid equal to their proportionate shareholding. The Company anticipates that dividends paid by the Company to New Zealand resident Shareholders will not be fully imputed with New Zealand imputation credits and therefore, depending on their individual tax paying positions, New Zealand resident Shareholders are likely to be required to pay income tax on a proportion of dividends earned on Shares Sensitivity Analysis The Forecast Financial Information has been based on certain economic and business assumptions about future events. A summary of the best estimate assumptions underlying the Forecast Financial Information is set out in Section 6.6. The Forecast Financial Information is considered to be sensitive to movements in a number of key assumptions. A summary of the likely impact of movements in certain key assumptions on the forecast NPAT for FY2005 is set out below. However, the changes in the key assumptions set out below are not intended to be indicative of the complete range of variations that may occur. Care should be taken in interpreting this information. This analysis treats each movement in an assumption in isolation from possible movements in other assumptions, which may not be the case. Movements in one assumption may have offsetting or compounding effects on other variables, the effects of which are not reflected in the following analysis. In addition, it is possible that more than one assumption may move at any one point in time, giving rise to cumulative, or offsetting effects, which also are not reflected in this analysis. Typically, the Group would respond to any material adverse change in conditions by taking appropriate action to minimise, to the extent possible, any adverse effect on profits and dividends. The effect of any such mitigating action has been excluded from the following analysis. Sensitivity Debt facility interest rate increases/(reduces) by 1% Sales volume increases/(reduces) by 1% Sales prices increase/(reduce) by 1% Gross margin increases/(reduces) by 1% Operating expenses increase/(reduce) by 1% Impact on NPAT for FY2005 reduces/(increases) by $0.5 million increases/(reduces) by $3.9 million increases/(reduces) by $11.6 million increases/(reduces) by $4.5 million reduces/(increases) by $3.2 million Refer to Section for a detailed discussion on foreign exchange sensitivity. 85

88 Financial information 6.12 Financing Facilities Pacific Brands debt facilities upon Settlement will comprise: $140 million three year term debt facility, extendable after one year by mutual agreement; $200 million five year term debt facility, extendable after three years by mutual agreement; $45 million five year trade finance facility expiring on 30 May 2008, extendable by mutual agreement and a $65 million 364 day revolving facility; and $250 million debtor securitisation arrangement. As mentioned above, the Group has entered into a debtor securitisation arrangement expiring on 29 May 2008, under which it transfers to a third party its gross trade debtors in exchange for an immediate discounted cash payment while retaining a continuing obligation to service its accounts with its customers. The maximum amount currently allowed to be drawn on this facility is $250 million (subject to the Group s level of trade receivables). This arrangement is extendable, at Pacific Brands option for further periods of 12 months, at each anniversary date. For financial reporting purposes, funds received under the securitisation arrangement are treated as a borrowing and are recorded as a liability in the statements of financial position. For the term debt facilities, the interest rate is set at a specified margin over the 90 day bank bill rate. However, Pacific Brands has currently entered into interest rate swaps to hedge approximately 80% of interest rate risk against unfavourable interest rate movements and is required to maintain a policy of hedging at least 50% of interest rate risk against interest rate movements in the future. The debt facilities generally contain terms which are standard for debt facilities of this type. Pacific Brands is subject to certain undertakings and covenants in respect of its debt facilities which if materially breached may lead to the funds borrowed becoming due and the facilities cancelled. Pacific Brands expects to remain in compliance with these undertakings and covenants. In addition, if a Shareholder and its associates hold more than 19.9% of the Shares, the debt financiers have the right to review their debt facility and either agree upon revised terms with Pacific Brands or require repayment of the debt facilities within 120 days of the acquisition of the Shares giving rise to the holding of more than 19.9% Foreign Exchange Hedging policy Approximately 65% to 70% (by value) of Pacific Brands products sold to the Australian retail marketplace are sourced from offshore and consequently, Pacific Brands may be exposed to exchange rate movements and in particular, movements in the A$/US$. Pacific Brands costing rate is set at the start of each season. At that time, Pacific Brands hedges against approximately 80% of potentially negative movements in A$/US$ through a series of options with the maturity spread across the season to replicate the anticipated buying activity of the Operating Groups. As the season progresses, Pacific Brands enters into firm forward exchange rate contracts to meet its actual requirements on or prior to the placement of firm orders. This foreign exchange hedging policy is expected to be maintained over the Forecast Period Sensitivity In addition to Pacific Brands offshore sourcing, in FY2003, approximately 13% of total sales were in countries other than Australia, with sales in New Zealand representing 8% of total sales. Set out in Section 6.6 are macroeconomic assumptions reflected in the preparation of the Forecast Financial Information, including average unhedged foreign exchange rates for the A$/US$ and A$/NZ$. To the extent the actual exchange rates differ from those set out in Section 6.6, this is likely to have an impact on Pacific Brands future financial performance. The Directors consider it would be misleading to provide a sensitivity analysis of the gross impact of a movement in the assumed A$/US$ and A$/NZ$ exchange rates since the resulting impact of any such movement on forecast FY2005 NPAT is subject to a number of interrelated factors. These factors include: Pacific Brands hedging policy and positions (refer to Section ); price elasticity of Pacific Brands different products; impact of customer and competitor pricing decisions in response to movements in exchange rates; impact of supply costs and raw material costs in response to movements in exchange rates; and movements in other cross currency rates in response to movements in particular exchange rates. The Directors consider that the gross margin sensitivity provided in Section 6.11 provides a meaningful indicator of the sensitivity of Pacific Brands forecast FY2005 NPAT to the underlying components of gross margin, including movements in foreign exchange rates. 86

89 Section Brand Valuation Brandnames amounting to $375 million and included in this Prospectus will be recorded at cost of acquisition, based upon an independent valuation conducted by Interbrand in January International Financial Reporting Standards For reporting periods beginning on or after 1 January 2005, Pacific Brands must comply with International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board. Pending standards have been released, with further standards to come; and as such, Pacific Brands is continuing to evaluate the impact that these new standards will have. Consequently, reported results beyond FY2005 could materially vary to those reported under current Australian Accounting Standards. First time application for Pacific Brands of this change, including comparatives, will be for FY2006. Details of Pacific Brands significant accounting policies are included with the Combined Special Purpose Financial Report included in Appendix I. The most significant anticipated change to accounting treatment under IFRS as it applies to Pacific Brands is related to the amortisation of goodwill. Under Australian Accounting Standards, goodwill has to be amortised over a period no longer than 20 years. Under IFRS, goodwill will not be amortised but will be subject to an annual impairment test. The Group will be required to test the values attributed to goodwill for impairment on at least an annual basis. Such testing will require an identification of appropriate cash generating units, the allocation of goodwill to those units or combinations of units, and the ability to determine reliable estimates of the future cash flows that those units will provide. Under IFRS, it will not be possible to carry internally developed intangible assets in the statement of financial position. In regard to the current Prospectus, the proceeds of the Offer will be applied to purchase the companies which own the Pacific Brands business from the Existing Shareholder. Accordingly, to the extent that a cost is attributed to brandnames as part of the application of the principles of the purchase method of accounting, such value may be carried by the Group. Although IFRS will not prescribe an amortisation period in respect of brandname intangible assets with indefinite useful lives, the Group will be required to test the values attributed to such brandnames for impairment on at least an annual basis. In the absence of an external market value, such testing will require an identification of appropriate cash generating units, and the ability to determine reliable estimates of the future cash flows that they will provide. While other IFRS will likely require modification in presentations and disclosures which the Group is seeking to tabulate, it is not in a position to quantify the full extent of such differences. Given the nature of the Group s operations, the maintenance of a specific hedging program, and the fact that the Group s debtor securitisation program is reflected in its financial statements as on-balance sheet debt, it is not expected that there will be any substantial adverse impact on the Group s statement of financial performance. 87

90 Financial information 6.16 Adjusted Historial Financial Information In preparing the Adjusted Historical Financial Information, adjustments were made to Pacific Brands audited and unaudited historical financial statements to reflect the Group s current operations and to eliminate certain non-recurring items: FY2001 FY2002 FY2003 Adjusted Adjusted Adjusted $ million Audited Adjustments Historical Audited Adjustments Historical Audited Adjustments Historical Sales revenue 1,355.1 (23.8) 1 1, ,507.3 (24.5) 1 1, ,506.4 (17.3) 1 1,489.1 Gross profit (9.9) 1, 2, (8.8) 1, 2, (6.8) Operating expenses (11.4) 1, 3, 4, (7.7) 1, 4, (5.2) EBITDA (1.1) (1.6) Depreciation 18.1 (1.3) (1.0) (0.6) EBITA (0.1) (1.0) Amortisation EBIT (0.1) (1.0) Six months ended 31 December 2002 Six months ended 31 December 2003 Adjusted Adjusted $ million Unaudited Adjustments Historical Audited Adjustments Historical 7 Sales revenue (13.9) Gross profit (5.6) Operating expenses (4.1) EBITDA 76.4 (1.5) Depreciation 8.5 (0.4) EBITA 67.9 (1.1) Amortisation EBIT 64.2 (1.1) Adjustments: 1. During FY2003, Pacific Brands disposed of its fibre processing business. The financial results of this business including sales, costs, operating expenses and depreciation have been adjusted out of the historical financial results for FY2001, FY2002 and FY2003 and the six months ended 31 December Royalty expenses which were not an ongoing cost to Pacific Brands have been adjusted out of the historical financial results for FY2001 (increase to gross profit of $1.5 million) and FY2002 (increase to gross profit of $0.6 million). 3. One-time charges incurred in relation to promotional activities arising under the former ownership structure have been adjusted to reduce operating expenses in FY2001 ($1.0 million). 4. Reflects adjustment to reduce operating expenses in FY2001 ($3.5 million) and FY2002 ($1.5 million) of software amortisation relating to deferred costs not part of ongoing business operations. 5. Adjustment to increase operating expenses in FY2001 ($0.3 million) and FY2002 ($1.2 million) for the impact of a one time change in accounting policy implemented in FY2002 relating to the write-off of sample costs. 6. Adjustment to allocate expenses to the correct financial year ($0.9 million). 7. The Adjusted Historical Financial Information for the six months ended 31 December 2003 reflects the actual corporate and capital structures that have been in place over that period Significant Accounting Policies The preparation of the Combined Special Purpose Financial Report contained in Appendix I requires estimates and judgements that affect the reported amounts of revenues, expenses, assets and liabilities. Actual financial results may differ from these estimates under different assumptions or conditions. Note 1 to the Combined Special Purpose Financial Report in Appendix I provides a summary of the Group s significant accounting policies Off-Balance Sheet Arrangements The Group has no off-balance sheet financing arrangements. 88

91 89 Section 7 Investigating Accountant s Report on historical financial information

92 Investigating Accountant s Report on historical financial information KPMG 161 Collins Street Melbourne VIC 3000 Australia GPO Box 2291U Melbourne VIC 3001 Australia Telephone: (03) Facsimile: (03) Internet: ABN: The Directors Pacific Brands Limited 290 Burwood Road Hawthorn Vic March 2004 Dear Directors 7.1 Introduction This report has been prepared by KPMG for inclusion in this Prospectus to be dated on or about 1 March 2004 (the Prospectus ), and to be issued by Pacific Brands Limited (the Company ) in respect of the Offer of 503 million Shares in the Company at an issue price to be determined via a bookbuild process. KPMG has been requested to prepare a report covering the financial information described in Section 7.2 of this report and disclosed in this Prospectus, insofar as it relates to the Pacific Brands business to be acquired by the Group upon Settlement. Expressions defined in this Prospectus have the same meaning in this report. 7.2 Financial Information Historical financial information The historical financial information, as set out in Section 6 and Appendix I of this Prospectus, comprises the: statements of financial performance for the years ended 30 June 2001, 30 June 2002 and 30 June 2003 and six months ended 31 December 2002 and 31 December 2003; sales revenue by Operating Group for the years ended 30 June 2001 and 30 June 2002 and 30 June 2003; summary of cash flows for the years ended 30 June 2001, 30 June 2002 and 30 June 2003; working capital and net capital expenditure summary for the years ended 30 June 2001, 30 June 2002 and 30 June 2003; statement of financial position as at 30 June 2003 and 31 December 2003; Adjusted Historical Financial Information for the years ended 30 June 2001, 30 June 2002 and 30 June 2003 and the six month periods ended 31 December 2002 and 31 December 2003; and selected notes to the financial statements and including the statement of accounting policies. The historical financial information set out in Section 6 of this Prospectus has been derived from the audited financial statements of Pacific Brands for the years ended 30 June 2001, 30 June 2002 and 30 June 2003 and six months ended 31 December 2003, and the unaudited financial statements for the six months ended 31 December 2002, and adjusted as set out in Section The financial statements of Pacific Brands in varying contexts for each of those years ended 30 June, and for the six months ended 31 December 2003, were audited by KPMG, Pacific Brands external auditor, in accordance with Australian Auditing and Assurance Standards. The audit opinions issued to the members of Pacific Brands relating to those financial statements were unqualified. The FY2001 financial information was audited for purposes of the consolidated financial statements of Ansell Limited (formerly Pacific Dunlop Limited). 90 KPMG, an Australian partnership, is a member of KPMG International, a Swiss nonoperating association.

93 Section 7 The FY2002 financial information was audited for purposes of the completion financial statements for the five months ended 30 November 2001 in respect of the sale by Ansell Limited, and on a stand-alone basis for the seven months ended 30 June The FY2003 financial information is derived from audited financial statements for the year ended 30 June 2003, included in Appendix I. The interim financial information for the six months ended 31 December 2003 is derived from the audited financial statements, included in Appendix I. The interim financial information for the six months ended 31 December 2002 is derived from the financial statements of the Group, and is unaudited. The Directors of Pacific Brands are responsible for the preparation and presentation of the historical financial information. The historical financial information in Section 6 and Appendix I is presented in an abbreviated form insofar as it does not include all of the disclosures required by the Australian Accounting Standards applicable to annual financial reports prepared in accordance with the Corporations Act 2001 (Cwlth) ( Corporations Act ) Pro forma Statement of Financial Position The Pro forma Statement of Financial Position has been derived from the audited statement of financial position as at 31 December 2003, included in Appendix I, after adjusting for the pro forma transactions and/or adjustments described in Section 6.9 of this Prospectus and is presented in an abbreviated form. The Directors of Pacific Brands are responsible for the preparation and presentation of the Pro forma Statement of Financial Position, including the determination of the pro forma transactions and/or adjustments. 7.3 Scope Review of historical and Adjusted Historical Financial Information We have reviewed the historical and Adjusted Historical Financial Information in order to report whether anything has come to our attention which causes us to believe that the historical financial information, as set out in Section 6 of this Prospectus, does not present fairly: the financial performance of Pacific Brands for the years ended 30 June 2001, 30 June 2002 and 30 June 2003 and the six months ended 31 December 2003; the summary cash flows, working capital and net capital expenditure for the years ended 30 June 2001, 30 June 2002 and 30 June 2003; and the historical statement of financial position of Pacific Brands as at 31 December 2003, in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements, and accounting policies adopted by Pacific Brands disclosed in Appendix I of this Prospectus. Our review has been conducted in accordance with Australian Auditing and Assurance Standard AUS 902 Review of Financial Reports. We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances, including: analytical procedures on the historical financial information; a review of audited financial statements, work papers, accounting records and other documents; a comparison of consistency in application of the recognition and measurement principles in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by Pacific Brands disclosed in Appendix I of this Prospectus; and enquiry of Directors, management and others. The procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion Review of Pro forma Statement of Financial Position We have reviewed the pro forma Statement of Financial Position in order to report whether anything has come to our attention that causes us to believe that the Pro forma Statement of Financial Position, as set out in Section 6 of this Prospectus, has not been presented fairly: on the basis of the pro forma transactions and/or adjustments; and in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements, and accounting policies adopted by Pacific Brands disclosed in Appendix I of this Prospectus. 91

94 Investigating Accountant s Report on historical financial information Our review has been conducted in accordance with Australian Auditing and Assurance Standard AUS 902 Review of Financial Reports. We made such enquiries and performed such procedures as we, in our professional judgement, considered reasonable in the circumstances, including: a review of the pro forma transactions and/or adjustments made to the historical financial information; a review of audited financial statements, work papers, accounting records and other documents; a comparison of consistency in application of the recognition and measurement principles in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by Pacific Brands disclosed in Appendix I of this Prospectus; and enquiry of Directors, management and others. The procedures do not provide all the evidence that would be required in an audit, thus the level of assurance provided is less than given in an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. 7.4 Review Statements Review statement on the historical and Adjusted Historical Financial Information Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the historical and Adjusted Historical Financial Information, as set out in Section 6 of this Prospectus, does not present fairly: the financial performance of Pacific Brands for the years ended 30 June 2001, 30 June 2002 and 30 June 2003 and the six months ended 31 December 2003; the summary cash flows, working capital and net capital expenditure for the years ended 30 June 2001, 30 June 2002 and 30 June 2003; and the historical statement of financial position of Pacific Brands as at 31 December 2003, in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements, the accounting policies adopted by Pacific Brands disclosed in Appendix I of this Prospectus, and the adjustments set out in Section Review statement on the Pro forma Statement of Financial Position Based on our review, which is not an audit, nothing has come to our attention which causes us to believe that the Pro forma Statement of Financial Position, as set out in Section 6 of this Prospectus, has not been presented fairly: on the basis of the pro forma transactions and/or adjustments; and in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements, the accounting policies adopted by Pacific Brands disclosed in Appendix I of this Prospectus, and the adjustments set out in Section Independence KPMG does not have any interest in the outcome of the Offer, other than in connection with the preparation of this report and participation in due diligence procedures for which normal professional fees will be received. KPMG is the auditor of Pacific Brands and from time to time, KPMG also provides Pacific Brands with certain other professional services for which normal professional fees are received. Yours faithfully 92 William J Stevens Partner, KPMG

95 93 Section 8 Independent Review of Forecast Financial Information

96 Independent Review of Forecast Financial Information The Directors Pacific Brands Limited 290 Burwood Road HAWTHORN VIC March 2004 Dear Directors Independent Review of Forecast Financial Information We have prepared this report on the Forecast Financial Information of Pacific Brands Limited (the Company ) for inclusion in a Prospectus to be dated on or about 1 March 2004 (the Prospectus ) relating to the Offer of 503 million Shares in the Company at an issue price to be determined via a bookbuild process. This report takes into account the requirements of PS170 Prospective Financial Information. Expressions defined in this Prospectus have the same meaning in this report. The nature of this report is such that it should be given by an entity which holds an Australian Financial Services licence under the Financial Services Reform Act PricewaterhouseCoopers Securities Ltd is wholly owned by PricewaterhouseCoopers and holds the appropriate Australian Financial Services licence. Background The purpose of the Offer is to enable the Group to purchase the companies which own the Pacific Brands business from the Existing Shareholder with effect from Settlement, and also to provide Pacific Brands with an appropriate capital structure to pursue growth opportunities, to provide liquidity for its Shares, to enhance its on-going access to capital markets and to provide an opportunity for employees to invest in the Company. The Company will not retain any of the proceeds of the Offer, other than an amount to cover costs associated with the Offer. Scope You have requested PricewaterhouseCoopers Securities Ltd to prepare an independent report covering the following information: (a) the Directors pro forma forecast statements of financial performance and cash flows of the Company for the financial year ending 30 June 2004, and (b) the Directors forecast statements of financial performance and cash flows for the financial year ending 30 June 2005, (collectively, the Forecast Financial Information set out in Sections 6.2, 6.3, 6.6, 6.7 and 6.8 of this Prospectus and prepared on the basis set out in Section 6.1 of this Prospectus). 94

97 Section 8 The Directors of the Company are responsible for the preparation and presentation of the Forecast Financial Information, including the best estimate assumptions on which they are based and the pro forma adjustments made to compile the pro forma forecast financial performance and cash flows for the year ending 30 June This report has been prepared for inclusion in this Prospectus. We disclaim any assumption of responsibility for any reliance on this report or on the Forecast Financial Information to which it relates for any purposes other than for which it was prepared. Our review of the best estimate assumptions and pro forma adjustments underlying the Forecast Financial Information was conducted in accordance with Australian Auditing Standard AUS 902 Review of Financial Reports. Our procedures consisted primarily of enquiry and comparison and other such analytical review procedures we considered necessary so as to adequately evaluate whether the best estimate assumptions and pro forma adjustments provide a reasonable basis for the Forecast Financial Information. These procedures included discussion with the Directors and management of the Company and discussions with the external auditor concerning their audit of the results of the Company for the six months ended 31 December These procedures have been undertaken to form an opinion whether anything has come to our attention which causes us to believe that the best estimate assumptions and pro forma adjustments do not provide a reasonable basis for the preparation of the Forecast Financial Information and whether, in all material respects, the Forecast Financial Information has been properly prepared on the basis of the best estimate assumptions and pro forma adjustments and is presented fairly in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies of the Company disclosed in the Combined Special Purpose Financial Report as set out in Appendix I of this Prospectus, so as to present a view of the Company which is consistent with our understanding of the Company s past, current and future operations. Our review of the Forecast Financial Information is substantially less in scope than an audit examination conducted in accordance with Australian Auditing Standards. A review of this nature provides less assurance than an audit. We have not performed an audit and we do not express an audit opinion on the Forecast Financial Information included in this Prospectus. Review statement on the Forecast Financial Information The Forecast Financial Information has been prepared by the Directors of the Company to provide investors with a guide to the potential future financial performance and cash flows of the Company based upon the achievement of certain economic, operating and trading assumptions about future events and actions that have not yet occurred and may not necessarily occur. The pro forma forecast for the year ending 30 June 2004 is derived from the Adjusted Historical Financial Information for the six months ended 31 December 2003 and the Directors forecasts for the six months ending 30 June 2004 and reflects the full year impact of the new corporate and capital structures that will be in place upon Settlement, as if they were in place as at 30 June There is a considerable degree of subjective judgement involved in the preparation of the Forecast Financial Information. Actual results may vary materially from the Forecast Financial Information and the variation may be materially positive or negative. Accordingly, investors should have regard to the sensitivity analysis set out in Sections 6.11 and 6.13 of this Prospectus and to the investment risks set out in Section 9 of this Prospectus. The underlying assumptions are subject to significant uncertainties and contingencies often outside the control of the Company, the Directors and management. If events do not occur as assumed, actual results, cash flows and distributions achieved by the Company may vary significantly from the Forecast Financial Information. Accordingly, we do not confirm or guarantee the achievement of the Forecast Financial Information, as future events, by their very nature, are not capable of independent substantiation. 95

98 Independent Review of Forecast Financial Information Based on our review of the Forecast Financial Information, which is not an audit, and based on an investigation of the reasonableness of the best estimate assumptions and pro forma adjustments giving rise to the Forecast Financial Information, nothing has come to our attention which causes us to believe that: (a) the best estimate assumptions and pro forma adjustments set out in Section 6.6 of this Prospectus do not provide a reasonable basis for the preparation of the Forecast Financial Information; (b) the Forecast Financial Information has not been properly prepared on the basis of the best estimate assumptions and pro forma adjustments and presented fairly in accordance with the recognition and measurement principles prescribed in Accounting Standards and other mandatory professional reporting requirements in Australia, and the accounting policies adopted by the Company disclosed in the Combined Special Purpose Financial Report as set out in Appendix I of this Prospectus; and (c) the Forecast Financial Information is unreasonable. Subsequent events Apart from the matters dealt with in this report, and having regard to the scope of our report, to the best of our knowledge and belief no material transactions or events outside of the ordinary business of the Company have come to our attention that would require comment on, or adjustment to, the information referred to in our report or that would cause such information to be misleading or deceptive. Independence or disclosure of interest PricewaterhouseCoopers Securities Ltd does not have any interest in the outcome of the Offer other than in respect of the preparation of this report and participation in due diligence procedures and enquiries for which normal professional fees will be received. Yours faithfully Charles Humphrey Authorised Representative of PricewaterhouseCoopers Securities Ltd 96

99 97Risk factors Section 9

100 Risk factors Introduction There are a number of risks, both specific to Pacific Brands and general investment risks, which may materially and adversely affect the future operating and financial performance of Pacific Brands and the value of the Shares. Many of these risks are outside the control of the Company and the Directors. There can be no guarantee that Pacific Brands will achieve its stated objectives or that any forward-looking statements or forecasts will eventuate. This Section 9 describes the areas that are believed to be the major risks associated with an investment in the Shares. Prospective investors should note that this list of risks might not be exhaustive. Prior to making an investment decision, prospective investors should read the entire Prospectus and carefully consider the following Risk factors. Investors should have regard to their own investment objectives and financial circumstances, and should consider seeking professional guidance from their stockbroker, solicitor, accountant or other professional adviser before deciding whether to invest. 9.2 Company Specific Risks Competition The Australian TCF industry is very fragmented, with a limited number of major participants and a large number of small to medium companies effectively competing with Pacific Brands. International clothing and footwear companies are also present in Australia through their own outlets or franchises, or by selling their brands to retailers. Furthermore, a number of international participants have sold licences for the region to Australian companies. There can be no assurance that the actions of these competitors or changes in consumer preferences will not materially adversely affect Pacific Brands financial performance and cash flows. Retailers also compete with Pacific Brands in certain product categories. A proportion of Pacific Brands revenue is unbranded/housebrand product sourced for, and supplied to, various customers. There is the potential for retailers to source further unbranded/housebrand product, directly impacting Pacific Brands financial performance and cash flows. Brands/fashion Pacific Brands products are sold under a number of brands. These brands and their associated consumer images are key assets. Should these brands be damaged or in any way lose their market appeal, Pacific Brands operating and financial performance could be materially adversely impacted. Pacific Brands objective is to design, develop and deliver products for changing fashion trends as they emerge. However, fashion trends change rapidly and if Pacific Brands does not design and deliver products that appeal to consumers, the financial performance and cash flows of Pacific Brands may be materially adversely impacted. Customer relationships Any adverse change in Pacific Brands existing relationships with key customers could have a material adverse impact on the ability of Pacific Brands to achieve its financial forecasts. Tariff reductions The Australian Federal Government has opened the Australian TCF industry to global competition in recent years via the dismantling of protective trade barriers. Quotas were removed in 1993 and a program of phased annual reductions in tariffs has been occurring since the mid-1980s with tariffs falling to 25% for clothing and 15% for footwear in On 27 November 2003, the Australian Federal Government announced a further reduction in tariffs beginning on 1 January Tariffs will reduce to 17.5% for clothing and 10% for footwear with further reductions anticipated in 2010 and 2015 as detailed in the table below: Clothing and footwear tariffs Clothing 55.0% 51.0% 43.0% 37.0% 31.0% 25.0% 17.5% 10.0% 5.0% Footwear 45.0% 41.0% 33.0% 27.0% 21.0% 15.0% 10.0% 5.0% 5.0% Tariff reductions may: adversely impact margins for suppliers if retailers overcompensate for the tariff reduction; increase pressure to lower product costs beyond Pacific Brands forecast assumptions; and increase competition from importers.

101 Section 9 Product sourcing Risks associated with Pacific Brands product sourcing strategy include: any change in existing relationships, including the termination of any key supply arrangements, could have an adverse impact on the ability of Pacific Brands to source product at reasonable cost; any further change in tariff arrangements may impact the sourcing of Pacific Brands products, thereby adversely impacting its operational and financial performance and cash flows; and any change in terms or conditions of overseas suppliers or in the political or economic environment could materially adversely impact overseas supplies. If any of the events described above occurs, disruptions in product sourcing may lead to material adverse changes to Pacific Brands operational and financial performance, financial position, cash flows, ability to pay dividends and Share price. Supply chain management Pacific Brands has established an extensive and reliable supply chain that allows it to procure and deliver products to customers in a timely and efficient manner. The efficiency of Pacific Brands supply chain management assists in managing working capital levels, in particular inventory levels and the reliability of delivery to customers. Disruption to any aspect of the Company s supply chain could have a material adverse impact on Pacific Brands operational and financial performance and cash flows. Exchange rates Approximately 65% to 70% (by value) of Pacific Brands products sold to the Australian retail marketplace are sourced offshore and, consequently, Pacific Brands may be exposed to rapid and material movements in exchange rates, in particular the A$/US$ exchange rate. Pacific Brands costing rate is set at the start of each season. At that time, Pacific Brands hedges against approximately 80% of potentially negative movements in the A$/US$ exchange rate through a series of options with the maturity spread across the season to replicate the buying activity of the Operating Groups. As the season progresses, Pacific Brands enters into firm forward exchange rate contracts to meet its actual requirements on or prior to the placement of firm orders. This foreign exchange hedging policy is expected to be maintained over the Forecast Period. Adverse movements in exchange rates relating to either finished product or raw material costs, or increased price competitiveness in response to movements in exchange rates may materially adversely impact the operational and financial performance and cash flows of Pacific Brands in the future. Refer to Section 6.13 for a more detailed discussion of foreign exchange rates. Loss of key personnel Pacific Brands operations are dependent upon a stable workforce. In particular, the Senior Management team discussed in Section 5.2 has accumulated a significant number of years experience. Pacific Brands operations are dependent upon the continued performance, efforts, abilities and expertise of its key management personnel. The loss of services of such personnel could have a material adverse operational and financial impact on Pacific Brands as the Company may not be able to recruit replacements for the key personnel within a short timeframe. Interest rates Pacific Brands, as a borrower of monies, is potentially exposed to adverse interest rate movements that may increase the financial risk inherent in its business. While this risk may be reduced through interest rate hedging, such as interest rate swaps or other mechanisms, there is sometimes residual exposure. Credit Pacific Brands provides credit to its customers in the ordinary course of its business. The inability of a customer to pay its debts may have an impact on the profitability of Pacific Brands. Further, Pacific Brands may need to incur additional costs in order to pursue customers who default on payment terms. Pacific Brands cannot guarantee that it will be able to recover inventory from customers in default, in which case it may be required to write off assets previously recognised. Macroeconomic factors Macroeconomic factors influence underlying product category growth in all retail sectors. The major macroeconomic factors are the level of retail price inflation, HDI, population growth and, in respect of The Home Comfort Group, the building cycle. Changes in general macroeconomic factors may result in consumers changing spending patterns or their level of consumption, which may have a material adverse impact upon Pacific Brands operating and financial performance and cash flows. 99

102 Risk factors Tax Any change to the current rate of company income tax in jurisdictions where Pacific Brands operates will impact on financial performance and cash flows, the ability to pay dividends and the Share price which could impact Shareholder returns. Any changes to the current rates of income tax applying to individuals and trusts will similarly impact on Shareholder returns. In addition, any change in tax arrangements between Australia and other jurisdictions could have an adverse impact on future NPAT, net operating cash flows and the level of dividend franking. Acquisitions/new businesses In undertaking its business (including pursuing opportunities for future growth), Pacific Brands may undertake strategic acquisitions to add to its existing business. To finance such acquisitions, the Company may incur additional indebtedness as permitted under its financing facilities and may seek to raise capital. Such actions, and the terms on which such funding could be obtained, may have a material adverse impact on the Company s financial position. To the extent that it grows through acquisition, Pacific Brands will face operational and financial risks commonly encountered with such a strategy, including but not limited to, continuity or assimilation of operations and personnel, dissipation of the Company s limited management resources, and impairment of relationships with employees and customers of the acquired businesses as a result of changes in ownership and management. In addition, depending on the type of transaction, it may take a substantial period of time to completely realise an acquisition s full benefit. Operations Pacific Brands is, and will be exposed to, a range of operational risks related to both current and future operations. Pacific Brands will be exposed to operational risks present in the current business including equipment failures and other accidents, IT system failure, industrial action or disputes, lease renewals, damage by third parties, floods, fire, major cyclone, earthquake, terrorist attack or other disaster. Pacific Brands endeavours to take appropriate action or take out appropriate insurance to mitigate these risks. However, investors should realise that certain residual risk will remain with Pacific Brands. One or more of these risks may have a material adverse impact on Pacific Brands financial performance and cash flows. Non-compliance with policies and codes of conduct As noted in Sections 4.10, 4.11 and 5.4, Pacific Brands has a number of policies and codes of conduct including: code of conduct for manufacturers and suppliers; code of conduct addressing compliance with laws and regulations; and occupational health and safety policy. These policies and codes of conduct are designed to ensure that the Group complies, and that third parties with whom the Group has dealings (eg suppliers of products) comply, with applicable legal and community expectations in the conduct of their operations. There is a risk that, due to the size of the Group, there may be instances of non-compliance with these policies and codes of coduct by parts of the Group. Also, while the Group seeks to ensure that the relevant third parties with whom the Group has dealings are aware of and comply with the relevant policies, there is a risk that such third parties may not comply with the policies. Non-compliance with Pacific Brands policies and codes of conduct may have an adverse impact on the business or financial position of the Group. The Group is not currently aware of any material non-compliance by its businesses or third parties with the terms of its policies or codes of conduct. 9.3 General Risks Stock market fluctuations The price of the Shares on ASX may rise or fall due to numerous factors which may affect the market performance of Pacific Brands, including: general economic conditions, including inflation rates and interest rates; variations in the local and global market for listed stocks, in general, or for industrial, textile and clothing or retail stocks, in particular; changes to government policy, legislation or regulation; inclusion or removal from major market indices; the nature of competition in the industries in which Pacific Brands operates; and general operational and business risks. 100

103 Section 9 In particular, the share prices of many companies have in recent times been subject to wide fluctuations, which in many cases may reflect a diverse range of non-company specific influences such as global hostilities and tensions, acts of terrorism and the general state of the economy. Such market fluctuations may materially adversely affect the market price of the Shares. No assurances can be given that the Company s market performance will not be adversely affected by any such market fluctuations or factors. None of the Company, the Directors or any other person guarantees Pacific Brands market performance. Liquidity and realisation There can be no guarantee that an active market in the Shares will develop or that the price of the Shares will increase. There may be relatively few, or many potential buyers or sellers of the Shares on ASX at any time. This may increase the volatility of the market price of the Shares. It may also affect the prevailing market price at which Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is less or more than the Final Price. Changes in regulatory environment Changes to laws and regulations or accounting standards which apply to Pacific Brands from time to time could also materially adversely impact the operating and financial performance and cash flows of Pacific Brands. For reporting periods beginning on or after 1 January 2005, Pacific Brands must comply with International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board. Pending standards have been released, with further standards to come; and as such, Pacific Brands is continuing to evaluate the impact that these new standards will have. Consequently, reported results beyond FY2005 could materially vary to those reported under current Australian Accounting Standards. First time application for Pacific Brands of this change, including comparatives, will be for FY2006. Details of Pacific Brands significant accounting policies are included with the Combined Special Purpose Financial Report included in Appendix I. The most significant anticipated change to accounting treatment under IFRS as it applies to Pacific Brands is related to the amortisation of goodwill. Under Australian Accounting Standards, goodwill has to be amortised over a period no longer than 20 years. Under IFRS, goodwill will not be amortised but will be subject to an annual impairment test. The Group will be required to test the values attributed to goodwill for impairment on at least an annual basis. Such testing will require an identification of appropriate cash generating units, the allocation of goodwill to those units or combinations of units, and the ability to determine reliable estimates of the future cash flows that those units will provide. Under IFRS, it will not be possible to carry internally developed intangible assets in the statement of financial position. In regard to the current Prospectus, the proceeds of the Offer will be applied to purchase the companies which own the Pacific Brands business from the Existing Shareholder. Accordingly, to the extent that a cost is attributed to brandnames as part of the application of the principles of the purchase method of accounting, such value may be carried by the Group. Although IFRS will not prescribe an amortisation period in respect of brandname intangible assets with indefinite useful lives, the Group will be required to test the values attributed to such brandnames for impairment on at least an annual basis. In the absence of an external market value, such testing will require an identification of appropriate cash generating units, and the ability to determine reliable estimates of the future cash flows that they will provide. While other IFRS will likely require modification in presentations and disclosures which the Group is seeking to tabulate, it is not in a position to quantify the full extent of such differences. Given the nature of the Group s operations, the maintenance of a specific hedging program, and the fact that the Group s debtor securitisation program is reflected in its financial statements as on-balance sheet debt, it is not expected that there will be any substantial adverse impact on the Group s statement of financial performance. 101

104 102

105 103 Section 10 Additional information

106 Additional information 10.1 Registration and Corporate Structure The Company was registered in Victoria, Australia on 12 December 2003 as a public company. The following table is a simplified corporate and operational structure of the Group following the acquisition of the Purchased Group by PBA under the Purchase Option referred to in Section 10.5 and completion of the separate acquisitions of shares in Restonic (M) Sdn Bhd and PT Berlei Indonesia referred to in Section 10.5: Pacific Brands Limited Pacific Brands (Australia) Pty Ltd (100% owned) Australian operations Overseas operations Pacific Brands Holdings Pty Ltd (100% owned) Restonic (M) Sdn Bhd (50% owned) PT Berlei Indonesia (100% owned) Pacific Brands Holdings (NZ) Limited (100% owned) Pacific Brands Holdings (Hong Kong) Limited (100% owned) Pacific Brands (UK) Ltd (100% owned) Grosby (China) Limited (100% owned) Operating Groups The Underwear & Hosiery Group The Outerwear & Sport Group The Home Comfort Group The Footwear Group 10.2 Company Tax Status The Company will be treated as a public company for Australian tax purposes Share Capital There is only one class of shares in the Company, fully paid ordinary shares. At the Prospectus Date, the number of Shares is three. The Company has no other securities on issue. 104

107 Section Constitution and Rights Attaching to Shares The key provisions of the Constitution, read together with the Corporations Act, are summarised below. This summary is not intended to be exhaustive Rights attaching to Shares The rights attaching to the Shares are: set out in the Constitution; and in certain circumstances, regulated by the Corporations Act, the Listing Rules, the SCH Business Rules and the general law. The principal rights, liabilities and obligations attaching to the Shares are summarised below Voting At a general meeting, every Shareholder present in person or by proxy, attorney or representative has one vote on a show of hands and one vote on a poll for each fully paid share held (with proportional voting rights for partly paid shares). Voting at any meeting of Shareholders is by a show of hands unless a poll is demanded. A poll may be demanded by at least five Shareholders entitled to vote on the resolution, Shareholders with at least 5% of the votes that may be cast on the resolution, or by the Chairman Dividends The Directors may from time to time pay dividends to Shareholders out of the profits of the Company. The Directors may pay any interim and final dividends as, in their judgement, the financial position of the Company justifies. The Directors may fix the amount and the method of payment of the dividends. The payment of a dividend does not require any confirmation by a general meeting. Subject to any special rights attaching to shares with special dividend rights, of which none are currently on issue, all dividends must be paid equally on all shares and in proportion to the number of, and the amounts paid on, the shares held Issue of further shares The Directors may (subject to the restrictions on the issue of shares imposed by the Constitution, the Listing Rules and the Corporations Act) issue, grant options in respect of, or otherwise dispose of further shares on terms and conditions (including preferential, deferred or special rights, privileges or conditions, or restrictions) as they see fit Variation of class rights Subject to their terms of issue, the rights attaching to any class of shares may be varied with the written consent of 75% of the holders of shares in the class or by a special resolution passed at a separate meeting of the holders of shares of the class. In either case, the holders of not less than 10% of the votes in the class of shares whose rights have been varied or cancelled may apply to a court of competent jurisdiction to exercise its discretion to set aside such variation or cancellation. The creation or issue of further shares ranking equally with a class of shares already on issue is not a variation of class rights Transfer of Shares Shareholders may transfer Shares by a written transfer instrument in the usual form, or any form approved by the Directors or by a proper transfer effected in accordance with the SCH Business Rules and ASX requirements. All transfers must comply with the Constitution, the Listing Rules, the SCH Business Rules and the Corporations Act. The Directors may refuse to register a transfer of Shares, including in circumstances, where the transfer is not in registrable form or the refusal to register the transfer is permitted by the Listing Rules or ASX. The Directors must refuse to register a transfer of Shares where required to do so by the Listing Rules. If the Directors decline to register a transfer, the Company must give notice of the refusal as required by the Corporations Act and the Listing Rules. Subject to the Listing Rules and SCH Business Rules, while the Company is a listed company, the Directors may suspend the registration of transfers at such times and for such periods as they think fit. 105

108 Additional information Share buy-backs The Company may buy back shares in itself in accordance with the provisions of the Corporations Act General meeting and notices Each Shareholder is entitled to receive notice of, and except in certain circumstances, attend and vote at general meetings of the Company and to receive all notices, accounts and other documents required to be sent to Shareholders under the Constitution or the Corporations Act Winding up Subject to any special resolution or rights or restrictions attaching to any class or classes of shares, shareholders will be entitled on a winding up to a share in any surplus assets of the Company in proportion to the shares held by them Proportional takeover provisions The Constitution contains provisions requiring Shareholder approval in relation to any proportional takeover scheme. The provisions will lapse unless renewed by a special resolution of Shareholders in general meeting three years from the date of its adoption Sale of non-marketable parcels The Constitution provides that the Directors may cause the Company to sell a Shareholder s shares, if that Shareholder holds less than a marketable parcel of Shares, provided that the procedures set out in the Constitution are followed. A non-marketable parcel of shares is defined in the ASX Business Rules and is, generally, a holding of shares with a market value of less than $ Directors appointment and removal The minimum number of Directors is six and the maximum is fixed by the Directors but may not be more than 10 unless the Shareholders pass a resolution varying that number. Directors are elected at annual general meetings of the Company. Retirement will occur on a rotational basis so that generally one third of the Directors plus any Director who has held office for three or more annual general meetings (excluding the Chief Executive Officer) retire at each annual general meeting of the Company. A Director retiring by rotation may, subject to certain restrictions, offer themself for re-election. The Directors may also appoint a Director to fill a casual vacancy on the Board or in addition to the existing Directors, who will then hold office until the next annual general meeting of the Company Directors voting Questions arising at a meeting of Directors will be decided by a majority of votes of the Directors present at the meeting and entitled to vote on the matter. If the votes are equal on a proposed resolution, the Chairman of the meeting does not have a casting vote Directors remuneration The Directors, other than the Chief Executive Officer or an Executive Director, are entitled to be paid fees for their services as a Director (including service on any Board committee) as the Directors decide, but the total amount provided to all Directors for such services must not exceed in aggregate in any financial year the maximum aggregate sum as may be approved from time to time by the Company in general meeting. The current maximum aggregate sum is $1 million. Any change to that aggregate sum needs to be approved by Shareholders. Under the Non-Executive Director Share Plan (see Section ), Non-Executive Directors are required to sacrifice at least 25% of their annual Directors fees into Shares. At present, there are no retirement benefits payable to a Non- Executive Director upon their retirement. The Constitution also makes provision for the Company to pay all reasonable expenses of Directors in attending meetings and carrying out their duties Directors and officers indemnity The Company, on a full indemnity basis and to the full extent permitted by law, indemnifies each person who is or has been a Director or executive officer of the Company, and such other officers or former officers of the Company or its related bodies corporate as the Directors in each case determine (each an Officer), against any liability (including costs and expenses) incurred by that person as an Officer of the Company or a related body corporate of the Company.

109 Section 10 The Company, to the extent permitted by law, may insure an Officer against a liability incurred by the Officer as an officer of the Company or of a related body corporate including, but not limited to, a liability for negligence or for reasonable costs or expenses incurred in defending proceedings whether civil or criminal and whatever the outcome. The Company has entered into deeds of access, indemnity and insurance with each Director which confirm the Director s right of access to Board papers and require the Company to indemnify the Director for liability incurred as an officer or promoter of the Company, subject to the restrictions imposed by the Corporations Act and the Constitution Amendment The Constitution may be amended only by a special resolution passed by at least three quarters of the votes cast by shareholders entitled to vote on the resolution. Currently, the Corporations Act requires at least 28 days written notice specifying the intention to propose the resolution to be given Purchase Option and other Restructure Agreements The Offer is being made to enable the Group to acquire the companies which own the Pacific Brands business described in this Prospectus (Purchased Group) from the Existing Shareholder. The Existing Shareholder has granted an option (Purchase Option) in favour of Pacific Brands (Australia) Pty Ltd (PBA), a wholly owned subsidiary of the Company, under which, once the Final Price has been determined, PBA will have the right to acquire the Purchased Group from the Existing Shareholder upon Settlement of the Offer. The amount (Purchase Price) payable for the Purchased Group will equal: the amount which the Company will raise in the Offer by the issue of Shares this amount will vary depending on the Final Price (for a Final Price of $2.425, the mid-point of the Institutional Offer Indicative Price Range, it would be approximately $1.215 billion) less approximately $16 million, being the Company s expected costs in connection with the Offer (other than the fees payable to the Joint Lead Managers as referred to in Section ); and less the fees payable to the Joint Lead Managers as referred to in Section By way of illustration, if the Final Price were set at $2.425, the mid-point of the Institutional Offer Indicative Price Range, and the discretionary component of the Joint Lead Managers fees were paid in full, the Purchase Price would be approximately $1.163 billion. It is intended that certain Ultimate Shareholders who are Directors or Senior Management (or entities associated with them) (Reinvesting Shareholders) will invest cash in Shares at the Retail Final Price, so that at least $11 million (on a post-tax basis) of the Purchase Price will effectively be reinvested in Shares at the Retail Final Price (other management or entities associated with them may also, if they so elect, effectively reinvest in Shares at the Retail Final Price). The Shares issued under these arrangements will be satisfied out of the Shares available under the Offer and will be issued under this Prospectus. Each of the Reinvesting Shareholders has agreed with the Company that they will not dispose of their Shares issued under these arrangements prior to the announcement of the preliminary final result in respect of FY2005 (anticipated to be in August 2005). The Purchase Option is exercisable on or after the Settlement Date by PBA procuring payment to the Existing Shareholder. Upon such exercise, the Existing Shareholder must transfer the Purchased Group to PBA. The Purchase Option arrangements contain no warranties or indemnities (except certain warranties as to title and capacity and a requirement that the Purchased Group and its assets be sold free of any security interests other than security interests associated with Pacific Brands own financing arrangements). Stamp duty on the acquisition of the Purchased Group under the Purchase Option (expected to total approximately $6 million) is payable by Pacific Brands and has been taken into account in the FY2005 forecast cash flows. As the Purchase Price under the Purchase Option arrangements is dependent on the amount which the Company raises in the Offer and on the Joint Lead Managers fees, the Company has agreed to comply with any directions of the Existing Shareholder in exercising its rights in relation to determination of the Final Price and allocation of Shares under the Offer and determination of the discretionary component of the Joint Lead Managers fees (under the Offer Management Agreement these matters are to be determined by agreement between the Company and the Joint Lead Managers or, in the case of the discretionary component of the Joint Lead Managers fees, by the Company see Section ). The Company has also agreed to comply with any directions of the Existing 107

110 Additional information Shareholder in any exercise of its rights under the Offer Management Agreement to withdraw the Offer at any time before successful completion of the bookbuild. If the Offer is withdrawn before successful completion of the bookbuild, Settlement would not occur and the Purchase Option would never become exercisable. Separately from the Purchase Option arrangements described above, the Existing Shareholder had previously agreed to sell its shareholdings in Restonic (M) Sdn Bhd and PT Berlei Indonesia to Pacific Brands Holdings Pty Ltd (PBH), one of the companies which PBA will acquire under the Purchase Option arrangements. As at the Prospectus Date, those sales had not yet completed, pending receipt of relevant approvals. Once the relevant approvals are received, and those sales complete, the purchase price payable by PBH (and hence the Group) for the Existing Shareholder s shares in Restonic (M) Sdn Bhd and PT Berlei Indonesia will be approximately $6,877,000 and $2,274,000 respectively, which will be paid in cash. This has been taken into account in forecast cash flows. PBH has only received warranties from the Existing Shareholder in relation to those shares regarding title and capacity to sell. PBH does not expect any difficulty in obtaining the relevant approvals in Malaysia and Indonesia, nor any material effect on the business of the Group if the approvals were withheld and the sales were therefore unable to be completed Employee, senior executive and Director Share Plans The Company has established Plans to assist in the attraction, retention and motivation of employees, management and Directors of the Company and its Subsidiaries. These Plans are: the Australian Employee Share Acquisition Plan and the New Zealand Employee Share Acquisition Plan (pursuant to which the Employee Gift, which is open to Eligible Employees, is made); the Performance Rights Plan (which is open to Executive Directors and selected senior executives); and the Non-Executive Director Share Plan (which applies to all Non-Executive Directors). The Plans contain customary and usual terms for dealing with the administration of the Plans, variation of the Plans and termination and suspension of the Plans. The key terms of each Plan are set out below: Employee Share Acquisition Plans (ESAPs) Australian Employee Share Acquisition Plan (AESAP) The AESAP is a general employee share plan pursuant to which Shares will be granted under the Offer at no cost to Eligible Employees of the Group in Australia to acquire the nearest number of whole Shares (rounded down) to the value of $1,000 calculated at the Retail Final Price, free of income tax in accordance with current Australian tax legislation where a tax election is made. Solely at the discretion of the Board, similar allocations may be made in subsequent years, subject to the performance of Pacific Brands. In accordance with current Australian tax legislation, Shares acquired under the AESAP must be held in the AESAP for a minimum of three years (or earlier cessation of employment), during which time the Shares are subject to a disposal restriction such that the participant cannot deal in (ie sell or transfer) the Shares. In accordance with the relevant Australian tax legislation, an employee participating in the AESAP cannot forfeit Shares allocated by the Company in any circumstances. The Board has the discretion to determine the specific terms and conditions applying to each offer. New Zealand Employee Share Acquisition Plan (NZESAP) The NZESAP is a DF 7 employee share plan pursuant to which offers will be made under the Offer to Eligible Employees of the Group in New Zealand to acquire the nearest number of whole Shares (rounded down) to the value of $1,000 calculated at the Retail Final Price, at a nominal cost of NZ$1, free of tax, in accordance with New Zealand tax legislation. Solely at the discretion of the Board, similar allocations may be made in subsequent years, subject to the performance of Pacific Brands. In accordance with current New Zealand tax legislation, Shares acquired under the NZESAP must be held by a trustee for a minimum of three years (or earlier cessation of employment). If an employee ceases employment for reasons other than accident, sickness, death, redundancy or retirement at normal retiring age, that employee will not be entitled to the Shares. While Shares are held in trust, the trustee may exercise any voting rights attaching to the Shares. 108

111 Section 10 Employee Gift A separate employee offer document will be sent, accompanying this Prospectus, to Eligible Employees detailing the terms of the Employee Gift. In summary, approximately 4,800 Eligible Employees will be eligible to participate in the Employee Gift under the ESAPs. If all Eligible Employees choose to participate, this will result in the allocation of approximately $4.8 million of Shares to Eligible Employees under the Offer. Eligible Employees Participation in the ESAPs is open to Australian and New Zealand full-time and permanent part-time employees of the Group and, in respect of the AESAP only, casual employees in Australia who have completed a minimum of 36 months service with the Group (which does not need to be continuous), as determined by the Board at the date of the pricing and allocation announcement (expected to be Friday, 2 April 2004). In general, it is intended that for any future invitation, all full-time and permanent part-time employees of the Group having completed a minimum length of service specified by the Board (or other individuals nominated by the Board) will be eligible to subscribe for, or acquire, Shares under the ESAPs on the terms and conditions determined by the Board. Directors who participate in the Non-Executive Director Share Plan or the Performance Rights Plan are not currently eligible to participate in offers under the ESAPs. Restrictions on Shares As described above, Shares acquired under the ESAPs are subject to a disposal restriction. The Company will implement such arrangements (including a holding lock) as it determines are necessary to enforce this restriction. Shares acquired under the NZESAP will be held by a trustee for the restriction period. Allocation of Shares The Board may determine the price at which the Shares will be offered to an employee. Shares may be granted at no cost to the employee or the Board may determine that market value or some other price is appropriate. Under the ESAPs, a financial benefit may be provided to participants for the purposes of acquiring Shares. The financial benefit may include providing free Shares to employees under the AESAP (ie at no cost to the employee), allowing employees to purchase Shares at nominal cost under the NZESAP or inviting employees to sacrifice salary in return for Shares. Australian taxation considerations The Australian tax implications to employees of the Company and its Australian Subsidiaries who are residents for Australian tax purposes and who hold Shares acquired through the Employee Purchase Offer and/or the Employee Gift are summarised in Section Performance Rights Plan (PRP) General The PRP is the Company s long-term incentive scheme for selected key senior executives. Under the PRP, eligible executives will be granted performance rights (each being an entitlement to a Share, subject to the satisfaction of vesting conditions) on terms and conditions determined by the Board. If the vesting conditions are satisfied, the performance rights vest and Shares will be delivered to the executive. Grant of performance rights Under the initial grant, performance rights are granted at no cost to the executive. The rules of the PRP provide that the Board may determine a price that is payable upon allocation of a Share following vesting of a performance right, or that no amount is payable by the executive upon allocation of a Share once a performance right vests. The Board has determined that no amount is payable by Messrs Moore and Tierney on vesting under the initial grant referred to below. In addition to the initial grants outlined below, the Board currently intends making grants under the PRP to eligible executives during the 2004/05 financial year, on the terms of the PRP rules with such additional terms and conditions as the Board considers appropriate. In relation to future grants, the Board may impose performance conditions that reflect the Company s business plans, targets, budgets and its performance relative to peer groups of companies. 109

112 Additional information Eligibility The Board has approved the following initial grants of performance rights under the PRP, effective 1 July 2004: 500,000 performance rights to Mr Paul Moore, the Company s Chief Executive Officer; and 300,000 performance rights to Mr Stephen Tierney, the Company s Chief Financial Officer. At this time, no other executives have been determined to be eligible to participate in the PRP. Messrs Moore and Tierney, being Executive Directors of the Company, are the only Directors entitled to participate in the PRP. If any other Director is to participate in the PRP, the Company would seek shareholder approval as required by the Listing Rules. Allocation of Shares Shares will immediately be allocated on vesting of a performance right following satisfaction of performance conditions. In respect of the initial grant to Messrs Moore and Tierney, the performance conditions are based on the relative total shareholder return (TSR) of the Company, measured against other companies in the ASX 100. TSR is, broadly, a measure of the return to shareholders provided by share price appreciation, plus reinvested dividends, expressed as a percentage of investment. In addition, the price of the Company s Shares must, as at the relevant date, exceed the Retail Final Price prior to any performance rights vesting, subject to the operation of the PRP rules. The TSR performance conditions in relation to the initial grant are: Target Percentage of Shares available in given year that vests Pacific Brands annual TSR does not meet 0% performance of the median company in ASX 100 Pacific Brands annual TSR equals or exceeds 50% performance of the median company in ASX 100 Pacific Brands annual TSR ranked in third quartile Pro rata between 50% and 100% of companies in ASX 100 (2% increase for each higher ranking) Pacific Brands annual TSR ranked in fourth quartile 100% of companies in ASX 100 In relation to the initial grant, the performance conditions will be tested at the end of FY2005 and the following three financial years. The maximum number of performance rights that may vest in favour of Messrs Moore and Tierney over that four year period are as follows: Vesting date Maximum number of Shares available each year Paul Moore Stephen Tierney (Chief Executive Officer) (Chief Financial Officer) 1 July ,000 45,000 1 July ,000 60,000 1 July ,000 75,000 1 July , , ,000 (max) 300,000 (max) Any performance rights which do not vest in a financial year will be added to the performance rights otherwise available in the next vesting year and tested against the performance condition applicable to that subsequent year. In general, the executives are not entitled to trade in Shares allocated on vesting of the performance rights until the earlier to occur of: three years after the date of grant of the Shares allocated on vesting; or 12 months following the date of cessation of employment with the Company. 110

113 Section Deferred Shares The annual incentive scheme for the Chief Executive Officer and Chief Financial Officer provides that a percentage of any annual incentive award to which they may become entitled is to be applied in acquiring Shares (Deferred Shares). The executives may elect to apply more of any incentive to acquiring Shares which are only subject to the restriction condition described below. The actual amount of the annual incentive award is determined by the Board based on achievement of annual performance conditions. Performance will be tested at the end of FY2004 and the end of each subsequent financial year of the executive s employment. The Chief Executive Officer is required to apply 50% of any annual incentive in acquiring Deferred Shares, while the Chief Financial Officer is required to apply 33% of any incentive towards the acquisition of Deferred Shares. In general, Deferred Shares are subject to a vesting period, which requires the executive to be employed by the Company for a period of two years from the date of allocation. If the executive is terminated for cause prior to the end of the two year vesting period, all entitlement to the Deferred Shares ceases. If the employment of the executive ceases in other circumstances, the executive will, in general, be entitled to receive his Deferred Shares. Shares allocated under this arrangement are subject to a restriction on dealing until the earlier to occur of: three years after the date of allocation of the Shares; or 12 months after the date of cessation of employment with the Company. The balance of any annual incentive award will be paid to the executive in cash Non-Executive Director Share Plan (NED Plan) General All current and future Non-Executive Directors will be required post listing to sacrifice a percentage of their annual Directors fees. As a result of this sacrifice, Shares will be allocated to the Non-Executive Directors under the NED Plan and must be held for a specified period. Eligibility Under the NED Plan, Non-Executive Directors are required to sacrifice at least 25% (or such other minimum percentage determined by the Board from time to time) of their annual Directors fees. Non-Executive Directors will be able to elect to sacrifice more than 25% of their fees, up to a maximum of 100%, in any year under the NED Plan. It is intended that the NED Plan will operate from the first fee payment date following listing. Restrictions on Shares Non-Executive Directors will not be able to sell or otherwise dispose of the Shares until the earliest of 10 years after acquisition, the Non-Executive Director ceasing to be a director of the Company, or the Non-Executive Director applying to the Board and the Board determining that any or all restrictions applying to the Shares cease. Allocation of Shares Shares will usually be purchased on-market at the prevailing market price of Shares by applying an amount equal to the amount of fees a Non-Executive Director has elected to sacrifice to acquire Shares. In general, the allocation date will be the day following the date for the payment of fees. If Shares cannot be purchased on-market, new Shares will be issued at a price equal to the weighted average price of Shares on ASX on the five trading days up to and including the allocation date to satisfy the allocation, subject to Shareholder approval. If for legal or other reasons Shares cannot be purchased on-market or issued, each Non-Executive Director will be paid a cash amount equivalent to the amount of fees sacrificed Material Contract Offer Management Agreement On 1 March 2004, the Company and the Joint Lead Managers entered into the Offer Management Agreement. Under the agreement, the Joint Lead Managers agreed to manage the Offer, including the bookbuild process and completion of the issue of Shares. The Company must pay the Joint Lead Managers a fee of 2.0% of the total gross proceeds of the Offer on the issue of the Shares and receipt by the Company of the relevant proceeds free from trust. The Company agrees to pay the Joint Lead Managers an incentive fee of up to 1.0% of the total gross proceeds of the Offer on a date to 111

114 Additional information 112 be agreed but no later than three weeks after allotment of the Shares. The incentive fee is payable at the absolute discretion of the Company based on a range of benchmarks agreed between the Company and the Joint Lead Managers. The Company must pay, or reimburse the Joint Lead Managers for any costs incurred in connection with the marketing roadshow for the Offer; the cost of a US legal counsel opinion for the benefit of the Company and the Joint Lead Managers; and all costs payable in relation to ASX s delivery versus payment settlement service or NZX s FASTER settlement service; as soon as reasonably practicable after a request for payment or reimbursement is made by the Joint Lead Managers. Under the Offer Management Agreement, the Company gives certain representations, warranties and undertakings. The Company s undertakings include that it will not, during the period following the date of the agreement until 180 days after the Settlement Date, allot or agree to allot, or indicate that it may or will allot, any equity securities or securities that convert into equity (other than in connection with the Offer, an employee share plan, a dividend reinvestment plan or a bonus share plan described in this Prospectus) without the consent of the Joint Lead Managers. Subject to certain exclusions relating to, among other things, fraud, recklessness, negligence and wilful misconduct by an indemnified party, the Company agrees to keep the Joint Lead Managers and certain affiliated parties indemnified from losses suffered in connection with the Offer. Each Joint Lead Manager may terminate the Offer Management Agreement by notice to the Company (whether or not with the consent of the other Joint Lead Manager, but only after consultation with the other Joint Lead Manager) if one or more of the termination events set out below occurs (although, in the case of the termination events marked with an asterisk, a Joint Lead Manager may not terminate the agreement unless it has reasonable grounds to believe and does believe that (i) the event has or is likely to have a materially adverse effect on the success or Settlement of the Offer or, the likely price at which the Shares will trade on ASX; or (ii) the event would give rise to a material liability of the Joint Lead Managers under any applicable law or regulation): *a statement contained in this Prospectus is misleading or deceptive, or a matter is omitted from this Prospectus; *the International Offering Circular includes (i) an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or (ii) any forecasts, expressions of opinion, intention or expectation expressed in the International Offering Circular is not, in all material respects, fair and honest and based on reasonable assumptions, when taken as a whole; *the due diligence report or any other information supplied by or on behalf of the Company to the Joint Lead Managers in relation to the Company or the Offer is misleading or deceptive; *there is an adverse change in the assets, liabilities, financial position or performance, profits, losses or prospects of the Group; the Company issues or becomes required to issue a supplementary prospectus in circumstances where the matter is materially adverse from the point of view of an investor within the meaning of section 719 of the Corporations Act; there is an outbreak or major escalation of hostilities involving any one or more of Australia, New Zealand, the United States, the United Kingdom, any member of the European Union, Indonesia, North Korea, South Korea, China or Japan or the declaration by any of these countries of a national emergency or war or a terrorist attack is perpetrated involving any of those countries or any diplomatic, military, commercial or political establishment of any of those countries elsewhere in the world. In this case there will only be a termination right if, in the reasonable opinion of the Joint Lead Managers, it is impracticable to market the Offer or to enforce contracts to issue and allot the Shares; the S&P/ASX 200 Index is, at close of trading on any Business Day between completion of the bookbuild process and Settlement, lower than 85% of the level of that Index as at close of trading on the day prior to completion of the bookbuild process and remains at or below that level for at least one Business Day; *there is introduced, or there is a public announcement of a proposal to introduce, into the parliament of Australia or any State of Australia, New Zealand, the congress of the United States, a new law, or the Reserve Bank of Australia, any federal or state authority of Australia or New Zealand, adopts or announces a proposal to adopt a new policy (other than a law or policy which has been announced before the date of this agreement), any of which does or is likely to prohibit or regulate the Offer, capital issues or stock markets;

115 Section 10 *there is a change in senior management or in the board of directors of the Company; any of the following occur: a director of the Company is charged with an indictable offence; *the commencement of legal proceedings against the Company or any director of the Company; *any regulatory body commences any public action against a Director in their capacity as a director of the Company, or announces that it intends to take such action; any director of the Company is disqualified from managing a corporation under the Corporations Act; or the chairman or chief executive officer of the Company vacates his or her office; *a contravention by the Company or any entity in the Group of the Corporations Act, the New Zealand Securities Act 1978 (NZ), the New Zealand Securities Regulation 1983 (NZ), its constitution, or any of the ASX Listing Rules or the NZX Listing Rules; *this Prospectus or any aspect of the Offer does not comply with the Corporations Act, the ASX Listing Rules or any other applicable law or regulation; *the New Zealand Investment Statement or any aspect of the Offer does not comply with the Securities Act 1978 (NZ), the Securities Regulation 1983 (NZ), the NZX Listing Rules or any other applicable law or regulation; *the Company is prohibited from allotting the Shares under section 37A of the New Zealand Securities Act 1978; approval is refused or not granted, other than subject to customary conditions, in respect of admission of the Company to, or its quotation on, ASX or NZSX; any of the following notifications are made: ASIC issues an order under section 739 of the Corporations Act; an application is made by ASIC for an order under Part 9.5 of the Corporations Act in relation to this Prospectus or ASIC commences any investigation or hearing under Part 3 of the Australian Securities and Investments Commission Act 1989 (Cwlth) in relation to this Prospectus; *any person gives a notice under section 733(3) of the Corporations Act or any person who has previously consented to the inclusion of its name in this Prospectus or any supplementary prospectus or to be named in the Prospectus withdraws that consent; any person gives a notice under section 730 of the Corporations Act in relation to this Prospectus; and *the Company or an entity in the Group issues a public statement concerning the Offer which has not been approved by both Joint Lead Managers; the Company withdraws this Prospectus or the Offer; *there is a default by the Company in the performance of any of its obligations under the Offer Management Agreement; *a warranty contained in the Offer Management Agreement is not true or correct; *after completion of the bookbuild process there is a suspension or material limitation in trading in securities generally on ASX, NZSX, the New York Stock Exchange and/or the London Stock Exchange; *after completion of the bookbuild process, a general moratorium on commercial banking activities in Australia, New Zealand, New York or London is declared, or there is a material disruption in commercial banking or securities settlement or clearance services in those places; *after completion of the bookbuild process, there is an adverse change or disruption to the existing financial markets, political or economic conditions of Australia, Japan, the United Kingdom, the United States or the international financial markets or any change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the reasonable opinion of the Joint Lead Manager, impracticable to market the Offer or to enforce contracts to issue and allot the Shares; *after completion of the bookbuild process, there is a change or development involving a prospective change in Australian or New Zealand taxation affecting the Company, the Shares or their transfer; or the other Joint Lead Manager validly terminates the Offer Management Agreement. 113

116 Additional information 10.8 Dividend Reinvestment Plan The Directors have approved and will implement a dividend reinvestment plan (DRP) to provide Shareholders with the choice of reinvesting some or all of their dividends in Shares rather than receiving those dividends in cash. The Directors intend to annually review the operation of the DRP. The following is a summary of the main features of the DRP: Participation Eligible Shareholders may elect to reinvest the dividends on some or all of their Shares. The Board may at any time, determine a maximum or minimum number of Shares in relation to which any individual Shareholder may participate in the DRP. A Shareholder may vary or terminate their participation in the DRP by notice to the Company Eligibility Shareholders whose registered address is in Australia or New Zealand may participate in the DRP. Shareholders whose registered address is outside Australia or New Zealand may not participate in the DRP unless the Board is satisfied that the issue of Shares to them under the DRP is lawful and practicable. The Board is entitled to make the final determination as to whether any Shareholder may participate in the DRP Allocation price of Shares At the sole discretion of the Board, Shares will be issued under the DRP at either the weighted average market price of all Shares sold on ASX during a pricing period or the arithmetic average of the daily weighted average market price (rounded to the nearest cent) of all Shares sold on ASX during a pricing period (excluding trades otherwise than in the ordinary course of trading), less a percentage discount (if any) determined by the Board from time to time (Allocation Price) Issue or transfer The Board has discretion to determine whether Shares to be allocated under the DRP will be newly issued Shares or Shares acquired on-market for transfer to Shareholders under the DRP. All Shares issued under the DRP will rank equally with existing Shares unless the Board determines that the Shares issued under the DRP will not participate in any offer of Shares open at the time that the Shares are issued under the DRP Entitlement The number of Shares to be issued to a participant in the DRP will be determined by dividing the amount available for reinvestment on behalf of that participant by the Allocation Price and rounding that number up to the nearest whole number Sale of Shares Shares allocated under the DRP may be sold by the Shareholder to whom they were allocated at any time after those Shares are allocated and quoted on ASX and NZSX DRP statements On or as soon as practicable after a dividend is paid, the Company will provide to each participating Shareholder a statement giving details of that Shareholder s participation in the DRP Variation, suspension and termination by Directors The DRP may be varied, suspended or terminated by the Board at any time by notification on the Company s website and by notice to ASX and NZX. If the DRP is suspended and reinstated, then subject to a Shareholder not having varied their participation in the DRP, that Shareholder will participate under the reinstated DRP on the same basis as they participated prior to the suspension Costs To the extent permitted by law, the Company will pay any brokerage, commission or other transaction costs, including any stamp or other duties payable by participants in respect of Shares allocated under the DRP Listing The Company will apply promptly to ASX and NZX for quotation of Shares issued under the DRP. Shareholders will be sent full details of the DRP together with a DRP Notice of Election in sufficient time to allow an election to be made in respect of the dividend projected for October 2004.

117 Section Taxation Under the DRP, Shareholders have the option of applying their dividend to acquire Shares rather than receive a cash payment. For Australian tax purposes, Shareholders who participate in the DRP are treated as if they had received a cash dividend and then used the cash to buy additional Shares. As such, Shareholders will need to include in their assessable income a dividend equal to the value of the Shares acquired under the DRP, together with any franking credits attached (refer Section ). Further, any subsequent disposal of Shares acquired under the DRP will be generally subject to capital gains tax, with the cost base of the Shares equal to the amount paid to acquire them (ie the amount of the dividend is required to be included in the Shareholder s assessable income), including any incidental costs of acquisition (refer Section ) Ownership Restrictions Australia The sale and purchase of shares in the Company is regulated by a number of laws that restrict the level of ownership or control by any one person (either alone or in combination with others). This Section 10.9 contains a general description of these laws. Foreign Acquisitions and Takeovers Act 1975 (Cwlth) Generally, the Foreign Acquisitions and Takeovers Act 1975 (Cwlth) applies to acquisitions of shares and voting power in a company of 15% or more by a single foreign person and its associates (substantial interest), or 40% or more by two or more unassociated foreign persons and their associates (aggregate substantial interest). Where an acquisition of a substantial interest meets certain criteria, the acquisition may not occur unless notice of it has been given to the Federal Treasurer and the Federal Treasurer has either stated that there is no objection to the proposed acquisition in terms of the Australian Federal Government s Foreign Investment Policy or a statutory period has expired without the Federal Treasurer objecting. An acquisition of a substantial interest or an aggregate substantial interest meeting certain criteria may also lead to divestment orders unless a process of notification, and either a statement of non-objection or expiry of a statutory period without objection, has occurred. Corporations Act The takeover provisions in Chapter 6 of the Corporations Act restrict acquisitions of shares in listed companies, and unlisted companies with more than 50 members, if the acquirer s (or another party s) voting power would increase to above 20%, or would increase from a starting point that is above 20% and below 90%, unless certain exceptions apply. The Corporations Act also imposes notification requirements on persons having voting power of 5% or more in the Company New Zealand Securities Markets Act 1988 (NZ) The Securities Markets Act 1988 (NZ) imposes obligations on shareholders (and other persons holding relevant interests) of NZX listed companies to file details of, including changes in, substantial security holdings with the Company and NZX. This arises notwithstanding the separate disclosure regime in Australia. In practice, however, the timetables and information are similar albeit that separate New Zealand specific forms will be required to be filed Australian Taxation Considerations This is a general description of the Australian income tax consequences for investors who acquire Shares through the Retail Offer or Institutional Offer. The taxation summary seeks to provide Australian resident individual Shareholders, Australian resident complying superannuation fund Shareholders, Australian resident corporate Shareholders and non-resident Shareholders with an overview of the relevant Australian income tax considerations associated with the payment of dividends by the Company and the future disposal of their Shares. 115

118 Additional information The Australian tax laws are complex. The summary is general in nature and is not intended to be an authoritative or complete statement of the applicable law. The individual circumstances of each investor may affect the taxation implications of the investment of that investor. Investors should seek appropriate independent professional advice that considers the taxation implications in respect of their own specific circumstances. Unless otherwise indicated, the comments are based on the income tax law, established interpretations of that law and understanding of the practice of the tax authority in Australia as at the Prospectus Date. Investors should also be aware that the Australian tax rules are continuing to undergo significant change Taxation of dividends Dividends are paid to Shareholders from the accounting profits of the Company. Shareholders will receive credits for any Australian corporate tax that has been paid on these profits. These credits are known as franking credits and they represent the extent to which a dividend is franked. It is possible for a dividend to be fully or partly franked, or unfranked. Where a dividend is partly franked, the franked portion is treated as fully franked and the remainder as being unfranked. It should be noted that the definition of dividend for Australian income tax purposes is broad and can include certain capital returns and off-market share buy-backs. Australian resident Shareholders individuals Individual resident Shareholders will need to include dividends in their assessable income in the income year in which the dividend is paid. In addition, to the extent that the dividends are franked, then the franking credits attaching to the franked dividends must also be included in their assessable income (ie the dividend is grossedup). Shareholders are taxed at their prevailing marginal rate on the dividend and franking credits received. Individual Shareholders will be entitled to a tax offset equal to the amount of franking credits received. Individual Shareholders will receive a tax benefit if the franking credits attached to the dividend exceed their tax payable on the receipt of the dividend. Individuals will need to pay additional tax if the tax payable as a result of receiving the dividend exceeds the franking credits attached to the dividend. Individuals are entitled to claim a refund for any excess franking credits. To the extent that the dividend is unfranked, there is no gross-up and Shareholders should generally be taxed at their prevailing marginal rate on the dividend received, with no tax offset. In order for individuals to be entitled to claim the tax offset in relation to the franked dividend amount, the recipient of the dividend must be a qualified person. Broadly, to be a qualified person, two tests must be satisfied, namely the holding period rule and the related payments rule. In broad terms, if individual Shareholders have held the Shares at risk for at least 45 days (excluding the dates of acquisition and disposal), they are able to claim a tax offset for the amount of any franking credits attaching to the dividend. Australian resident Shareholders corporate Dividends payable to Australian resident corporate Shareholders will be included in their assessable income in the income year the dividend is paid. To the extent that the dividends are franked, then the franking credits attaching to the franked dividend must also be included in assessable income (ie the dividend is grossed-up). The corporate Shareholder may be entitled to a tax offset equal to the amount of franking credits received. This would result in the dividend being free of further company tax to the extent that it is franked. A fully franked dividend should effectively be free of tax to an Australian resident corporate Shareholder. To the extent that the dividend is unfranked, there is no gross-up and Shareholders should generally be taxed at the company tax rate on the dividend received, with no tax offset. Australian resident corporate Shareholders are also entitled to a franking credit in their franking accounts equal to the franking credit attaching to the dividend. Australian resident corporate Shareholders can then use the credit to make frankable distributions to their Shareholders. Australian resident Shareholders complying superannuation funds In general terms, superannuation funds treat the receipt of a dividend in the same way as an individual. 116

119 Section 10 Non-resident Shareholders general Unfranked dividends payable to non-resident Shareholders will be subject to dividend withholding tax. Australian dividend withholding tax is imposed at 30% unless a Shareholder is a resident of a country with which Australia has concluded a double taxation agreement. In these circumstances, the withholding tax is generally then limited to 15%. Fully franked dividends are not subject to Australian dividend withholding tax. In certain circumstances, non-resident Shareholders may be assessable for tax on any such dividends. They should also consider the impact of dividends under their domestic tax regime Taxation of future Share disposals Australian resident Shareholders general Australian resident Shareholders who trade Shares in the ordinary course of their business and/or hold their Shares on revenue account must include any gains made on the disposal of their Shares in their assessable income. Shareholders who include gains made on the disposal of their Shares in their assessable income are not assessed for capital gains tax on the disposal. All other Australian resident Shareholders will hold their Shares on capital account. These Australian resident Shareholders must consider the impact of Australian capital gains tax rules on the disposal of their Shares. A Shareholder derives a capital gain on the disposal of Shares where the capital proceeds received on disposal exceed the capital gains tax cost base of those Shares. The cost base of each Shareholder should generally be equal to the issue price of the Shares and, among other things, any incidental costs of acquisition and non-deductible interest expenditure in acquiring the Shares. A Shareholder incurs a capital loss on the disposal of Shares where the capital proceeds received on disposal is less than the reduced capital gains tax cost base of the Shares. All capital gains and losses for the income year are added together to produce a net capital gain position for that income year. A net capital gain for an income year is included in the resident taxpayer s assessable income and is subject to taxation in Australia. A net capital loss is effectively quarantined and may generally be carried forward to be deducted against future capital gains. Non-resident Shareholders general Non-resident Shareholders who hold Shares on revenue account may need to include profits from the sale of Shares in their assessable income. Applicable double taxation agreements may provide relief from Australian taxation. Non-resident Shareholders who do not hold Shares on revenue account may be subject to Australian capital gains tax upon disposal of their Shares. Non-resident Shareholders are only subject to Australia s capital gains tax on the disposal of Shares if they and their associates held more than 10% of the issued capital of the Company at any time within five years of the disposal. These Shareholders may be able to obtain relief from Australian capital gains tax via the application of any relevant double taxation agreement. Non-resident Shareholders, who together with associates own less than 10% of the Company s issued capital, will not be subject to Australia s capital gains tax rules. Individuals capital gains tax concession Individual Shareholders may be entitled to a concession on the amount of capital gains assessed. The concession is available to individuals who hold their Shares for at least 12 months prior to disposal. The concession results in only 50% of any capital gain being assessable. Capital losses must be applied first to reduce capital gains before applying the discount capital gains tax provisions. The concession is not available to companies. The capital gains tax treatment of Australian resident complying superannuation funds is, in general, the same as that set out for Australian resident individuals, except that the capital gains tax discount is one-third rather than 50%. 117

120 Additional information Tax File Number and Australian Business Number You are not obliged to quote your tax file number (TFN), or where relevant, Australian Business Number (ABN), to the Company. However, if a TFN or ABN is not quoted and no exemption is applicable, tax is required to be deducted by the Company at the highest marginal rate (currently 47%) plus Medicare Levy (currently 1.5%) from certain distributions. No withholding requirement applies in respect of fully franked dividends paid by the Company on the Shares Stamp duty No stamp duty will be payable on the issue of Shares pursuant to the Offer. Under current stamp duty legislation, no stamp duty would ordinarily be payable on any subsequent transfer of Shares Goods and Services Tax Under current Australian law, goods and services tax will not be payable in respect of any issue or transfer of Shares Employee Purchase Offer and Employee Gift Taxation Considerations The following taxation summary addresses the general tax implications to employees of the Company and its Australian Subsidiaries who are residents of Australia for Australian tax purposes and who will hold Shares acquired through the Employee Purchase Offer and/or the Employee Gift. This taxation summary is not intended to be an authoritative or complete statement of the law applicable. As the precise tax consequences of participation in the offers will be affected by a participant s personal circumstances, it is recommended that participants obtain independent professional advice. Employee Purchase Offer Acquisition of Shares For capital gains tax (CGT) purposes, Shares are acquired on the date the Shares are purchased by the employee. A CGT event will occur on disposal of the Shares. The cost base of a Share acquired under the Employee Purchase Offer is the market value at the time the employee acquired it (plus any incidental costs associated with acquiring, owning or disposing of that Share, such as brokerage costs). The Company will advise employees of the market value for these purposes. Disposal of Shares A capital gain is derived on the disposal of Shares where the capital proceeds received on disposal exceed the capital gains tax cost base of those Shares. A capital loss is incurred on the disposal of Shares where the capital proceeds received on disposal is less than the reduced capital gains tax cost base of the Shares. All capital gains and losses for the income year are added together to produce a net capital gain position for that income year. A net capital gain for an income year is included as assessable income and is subject to taxation in Australia. A net capital loss is effectively quarantined and may generally be carried forward to be deducted against future capital gains. An employee may be entitled to a concession on the amount of capital gains assessed. The concession is available to individuals who hold their Shares for at least 12 months from the date of acquisition. The concession results in only 50% of any capital gain being assessable. Capital losses must be applied first to reduce capital gains before applying the discount capital gains tax provisions. Employee Gift Discount at grant Eligible Employees participating in the Employee Gift are eligible for concessional tax treatment. Provided that the appropriate election to be taxed in the year of grant is made, Eligible Employees will be exempt from income tax on the Shares granted under the Employee Gift (CGT may be payable on a disposal of Shares refer below). If no election is made, no tax is payable in the year of grant in respect of the Shares granted under the Employee Gift. However, income tax will be assessed at the earlier of the time the employee ceases employment with the Group or three years from the date the Eligible Employee is granted the Shares (Cessation Time). 118

121 Section 10 Where the Shares are disposed of within 30 days of the Cessation Time, the assessable income will be the proceeds received on sale. There will be no capital gains tax implications. Where the Shares are not disposed of within 30 days of the Cessation Time, the assessable income will be the market value of the Shares at the Cessation Time. CGT may be payable on a disposal of Shares (refer below). Acquisition of Shares For capital gains tax purposes, Shares are acquired on the date the Shares are granted to the employee. If an election is made to be taxed at grant the cost base of any Share is the market value of the Share when the employee was granted the Shares. If no election is made, the cost base of any Share acquired under the Employee Gift is the market value of the Share at the Cessation Time, that is the amount included as assessable income at the Cessation Time. Disposal of Shares A CGT liability is derived on the disposal of Shares where the capital proceeds received on disposal exceed the capital gains tax cost base of those Shares. A capital loss is incurred on the disposal of Shares where the capital proceeds received on disposal is less than the reduced capital gains tax cost base of the Shares. All capital gains and losses for the income year are added together to produce a net capital gain position for that income year. A net capital gain for an income year is included as assessable income and is subject to taxation in Australia. A net capital loss is effectively quarantined and may generally be carried forward to be deducted against future capital gains. An employee may be entitled to a concession on the amount of capital gains assessed. The concession is available to individuals who hold their Shares for at least 12 months from the date of acquisition. The concession results in only 50% of any capital gain being assessable. Capital losses must be applied first to reduce capital gains before applying the discount capital gains tax provisions. If an election is made to be taxed at grant, the capital gain is calculated as the disposal proceeds less the cost base (ie the market value of the Shares at the date of grant). If no election is made, any capital gain or loss is disregarded if the Shares are disposed of within 30 days of the Cessation Time. Where Shares, which were not disposed of within 30 days of the Cessation Time are subsequently sold, the capital gain will be the sale proceeds less the cost base (ie the amount that was subject to tax at the Cessation Time). Taxation of dividends Dividends are paid from the accounting profits of the Company. An employee will receive credits for any Australian corporate tax that has been paid on these profits. These credits are known as franking credits and they represent the extent to which a dividend is franked. It is possible for a dividend to be fully franked or partly franked, or unfranked. Where a dividend is partly franked, the franked portion is treated as fully franked and the remainder as being unfranked. The definition of dividend for Australian income tax purposes is broad and can include certain capital returns and off-market share buy-backs. Dividends will need to be included as assessable income in the income year in which the dividends are paid. In addition, to the extent that the dividends are franked, then the franking credits attaching to the franked dividends must also be included as assessable income (ie the dividend is grossed-up). An employee will be taxed at his or her prevailing marginal rate on the dividend and franking credits received. An employee will be entitled to a tax offset equal to the amount of franking credits received. An employee will receive a tax benefit if the franking credits attached to the dividend exceed the tax payable on the receipt of the dividend. The employee will need to pay additional tax if the tax payable as a result of receiving the dividend exceeds the franking credits attached to the dividend. Individual Shareholders are entitled to claim a refund for any excess franking credits. To the extent that the dividend is unfranked, there is no gross-up and the employee will generally be taxed at his or her prevailing marginal rate on the dividend received with no tax offset. 119

122 Additional information In order to be entitled to claim the offset in relation to the franked dividend amount, an employee, as the recipient of the dividend must be a qualified person. Broadly, to be a qualified person, two tests must be satisfied, namely the holding period rule and the related payments rule. In broad terms, if the employee has held the Shares at risk for at least 45 days (excluding the dates of acquisition and disposal), the employee is able to claim a tax offset for the amount of any franking credits attaching to the dividend. Stamp duty No stamp duty will be payable by employees on the issue of Shares pursuant to the Employee Purchase Offer or the Employee Gift New Zealand Taxation Considerations for New Zealand Residents The following taxation summary addresses the tax implications for investors who are New Zealand residents for New Zealand tax purposes and who will hold Shares acquired through the Retail Offer or Institutional Offer on capital account. New Zealand tax laws are complex. This taxation summary is not intended to be an authoritative or complete statement of the laws applicable. Prospective investors are advised to obtain independent professional advice relevant to their own particular circumstances before investing. Acquisition of Shares No stamp duty or goods and services tax is payable in New Zealand on Share allotments or transfers and no notice of such transfers need be given by a Shareholder to New Zealand revenue authorities. Disposal of Shares The New Zealand tax system does not contain a capital gains tax. Consequently, where the disposal of Shares does not form part of a person s business (it may, for example, in the case of institutional investors), amounts derived from the disposal of Shares will generally not be subject to New Zealand income tax. However, there are exceptions to this where the Shares were purchased for the purpose of sale or if the Shares were acquired as part of a profit making undertaking or scheme. Gifts of Shares made by a Shareholder domiciled in New Zealand may be subject to New Zealand gift duty. Gift duty applies at 5% on the excess of gifts over NZ$27,000 in any 12 month period and rises on a graduated scale to a maximum rate of 25% of the excess amount of gifts over NZ$72,000. Dividends For the purpose of this summary, the term dividends includes taxable bonus issues and amounts received in respect of share repurchases or cancellations to the extent such amounts are treated as a dividend for New Zealand tax purposes. New Zealand tax residents are not entitled to receive any rebate or credit for any Australian franking credits attached to dividends received from Australian companies. Legislation has recently been introduced which enables Australian companies to maintain a New Zealand imputation credit account and collect imputation credits for income tax paid in New Zealand by Group companies. New Zealand shareholders in an Australian company will be able to receive a proportion of the New Zealand imputation credits equal to their proportion of shareholding in the Australian company. Imputation credits must be allocated proportionately to all shareholders wherever resident. When dividends are received by a New Zealand individual tax resident, the amount of taxable income for New Zealand purposes is the net cash amount received plus any Australian withholding taxes (converted to New Zealand dollars at the time of payment) and any New Zealand imputation credits attached to the dividend, but excluding the amount of any franking credit. Under the double taxation agreement between Australia and New Zealand, withholding tax on dividends is limited to 15%. New Zealand resident shareholders are allowed a tax credit in New Zealand for any Australian withholding tax deducted from the dividends and any New Zealand imputation credits attached to the dividend not exceeding the New Zealand tax payable on the Australian dividends. Any unutilised New Zealand imputation credits can be credited against tax on other income or converted to losses to carry forward. 120

123 Section 10 New Zealand resident companies are generally not subject to income tax on dividends received from overseas companies. However, New Zealand resident company shareholders with less than a 10% voting interest in the Company will be liable for a foreign dividend withholding payment at the rate of 33% on any dividends that they receive. A credit should be available for any Australian withholding tax deducted from the dividend and any imputation credits attached to the dividend but only to the extent of the New Zealand foreign dividend withholding payment imposed on the dividend. New Zealand resident companies (if any) that hold more than a 10% voting interest in the Company should not have a foreign dividend withholding payment liability due to the operation of the underlying foreign tax credit regime Interests of Directors, Advisers and Promoters Other than as stated in Section 10.6, this Section and elsewhere in this Prospectus: no amount has been paid or agreed to be paid and no benefit has been given or agreed to be given to a Director, or proposed Director to induce them to become, or to qualify as, a Director; none of the following persons: a Director or proposed Director of the Company; each person named in this Prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation or distribution of this Prospectus; a promoter of the Company; or a stockbroker to the issue of the Shares, holds or has held at any time in the two years before lodgement of this Prospectus with ASIC, an interest in: the formation or promotion of the Company; the offer of the Shares; or property acquired or proposed to be acquired by the Company in connection with its formation or promotion or the Offer; or was paid or given, or agreed to be paid or given, any amount or benefit for services provided by such persons in connection with the formation or promotion of the Company or the Offer Interests of Directors As Reinvesting Shareholders, Messrs Pat Handley, Paul Moore and Stephen Tierney or entities associated with them will ultimately be entitled to receive approximately 0.45%, 1.45% and 0.50% respectively of the Purchase Price paid by PBA to acquire the Purchased Group from the Existing Shareholder under the Purchase Option as calculated in Section 10.5 (based on the mid-point of the Institutional Offer Indicative Price Range and assuming full payment of the discretionary component of the Joint Lead Managers fees). As stated in Section 10.5 and identified in the table below, Messrs Pat Handley, Paul Moore and Stephen Tierney (or their associates) intend to reinvest a share of these Purchase Price proceeds to acquire Shares issued under this Prospectus at the Retail Final Price. Messrs Pat Handley, Paul Moore and Stephen Tierney have agreed with the Company that they will not dispose of these Shares prior to the announcement of the preliminary final result of the Company in respect of FY2005 (anticipated to be in August 2005). In addition, the Directors (and their associates) are entitled to apply for further Shares under the Offer. Ms Helen Lynch and Mr Max Ould, Non-Executive Directors, have informed the Company that they intend to apply under the Offer at the Retail Final Price for the number of Shares identified in the table below. Mr Andrew Cummins, a Non-Executive Director, is precluded from participating in the Offer because of his association with CVC Capital Partners Asia LP and Asia Investors LLC (which are Ultimate Shareholders), but expects to invest in Shares once the Company is listed and the purchase of the Purchased Group has settled. Set out below are details of the minimum expected interests of the Directors (and their associates) in Shares on the Settlement Date (including following the reinvestment referred to above and assuming Shares are issued in full to Non-Executive Directors based on their proposed applications referred to above). 121

124 Additional information 122 Minimum number of Shares proposed to be Minimum amount of Purchase applied for by Non-Executive Directors Price to be reinvested in Shares at Director (otherwise than by reinvestment of Purchase Price) 1 Retail Final Price Pat Handley 2 $3,000,000 Paul Moore 2 $3,000,000 Stephen Tierney 2 $1,000,000 Helen Lynch 41,000 Andrew Cummins 3 - Max Ould 41,000 Notes: 1. Based on the mid-point of the Institutional Offer Indicative Price Range. 2. Each of Messrs Handley, Moore and Tierney currently holds one Share. 3. As stated in Section 5, Mr Andrew Cummins is associated with CVC Capital Partners Asia Pacific LP and Asia Investors LLC, both Ultimate Shareholders. See also Section Under the provisions of the Constitution, Directors are required to hold, whether directly or indirectly, a minimum number of Shares determined by the Board from time to time, and which at the Listing Date is 500 Shares. Directors must acquire the minimum shareholding within three months of the Listing Date and, after that, within three months of being appointed a Director, otherwise the Director will immediately cease to hold office, unless the Directors resolve otherwise. Directors will also acquire Shares after the Offer, including under the Non-Executive Director Share Plan referred to in Section under which Non-Executive Directors are required to sacrifice at least 25% (or such other minimum percentage determined by the Board from time to time) of their annual Directors fees in return for Shares. The Constitution provides that Non-Executive Directors are entitled to such remuneration as determined by the Directors, which remuneration must not exceed in aggregate the maximum amount determined by the Company in general meeting. Currently it has been determined that such remuneration will not exceed $1 million per annum, to be apportioned among the Non-Executive Directors as they determine in their absolute discretion. It is not intended to distribute this full amount by way of fees in the current year. The Directors acknowledge that as the Company grows, the demands on the Directors will increase and the Directors fees will be increased commensurate with their responsibilities and workload, as determined by the Board and approved by the members Remuneration of Senior Management Remuneration (base salary, vehicle and superannuation) received by members of Pacific Brands Senior Management team during FY2003 was approximately $3.9 million Interests of Advisers Macquarie Equity Capital Markets Limited and UBS AG, Australia Branch have acted as Joint Lead Managers to the Offer. The Company has agreed to pay Macquarie Equity Capital Markets and UBS AG, Australia Branch the amounts referred to in Section for these services. Each of Citigroup Global Markets Australia Pty Limited and Goldman Sachs JBWere Pty Limited has agreed to act as a Co-Lead Manager of the Offer. They will share in fees of up to 0.5% in respect of Shares issued in the Institutional Offer. In addition, they will each be paid a 1.5% commission on all Applications submitted by them in the Broker Firm Offer and a 1% commission on other Applications in the General Public Offer bearing their stamp (to the extent allocated and subject to the cap described in Section 2.6.4). All of the amounts payable to Co-Lead Managers are payable by the Joint Lead Managers out of the fees payable to them by the Company. Each of ABN AMRO Craigs Limited, ABN AMRO Morgans Limited, Bell Potter Securities Limited, Commonwealth Securities Limited, First NZ Capital Securities Limited, Macquarie Equities Limited, Macquarie Equities New Zealand Limited, Ord Minnett Limited and UBS Private Clients Australia Ltd has agreed to act as a Co-Manager to the Offer. They will each be paid a 1.5% commission on all Applications submitted by them in the Broker Firm Offer and a 1% commission on other Applications in the General Public Offer bearing their stamp (to the extent allocated and subject to the cap described in Section 2.6.4). All of the amounts payable to Co-Managers are payable by the Joint Lead Managers out of the fees payable to them by the Company. Freehills has acted as Australian legal adviser to the Company in connection with the Offer and has performed work in relation to the Australian due diligence enquiries on legal matters. The Company has agreed to pay

125 Section 10 $1.5 million for such services to the Prospectus Date. Further amounts may be paid to Freehills in accordance with its usual time-based charge-out rates. Bell Gully has acted as New Zealand legal adviser to the Company in connection with the Offer and has performed work in relation to the New Zealand due diligence enquiries on legal matters. The Company has agreed to pay $220,000 for such services to the Prospectus Date. Further amounts may be paid to Bell Gully in accordance with its usual time-based charge-out rates. KPMG is the Company s auditor and has prepared the Investigating Accountant s Report on historical and Adjusted Historical Financial Information included in this Prospectus. KPMG has also performed due diligence enquiries in relation to historical and Adjusted Historical Financial Information. The Company has agreed to pay $300,000 for such services to the Prospectus Date. Further amounts may be paid to KPMG in accordance with its usual time-based charge-out rates. PricewaterhouseCoopers Securities Ltd has prepared the Independent Review of Forecast Financial Information included in this Prospectus. PricewaterhouseCoopers Securities Ltd has also performed due diligence enquiries in relation to Forecast Financial Information associated with the Offer. The Company has agreed to pay $900,000 for such services to the Prospectus Date. Further amounts may be paid to PricewaterhouseCoopers Securities Ltd in accordance with its usual time-based charge-out rates. Ernst & Young has acted as taxation advisers to the Company in relation to the taxation affairs of the Company. Ernst & Young has also performed due diligence enquiries in relation to taxation matters. The Company has agreed to pay $250,000 for such services to the Prospectus Date. Further amounts may be paid to Ernst & Young in accordance with its usual time-based charge-out rates Consents and Disclaimers of Responsibility Written consents to the issue of this Prospectus have been given and, at the time of lodgement of this Prospectus with ASIC, had not been withdrawn by the following parties: ABN AMRO Craigs Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; ABN AMRO Morgans Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; Access Economics has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion of the statements in Section which are based on statements made by it in the form and context in which those statements are included; Australian Sporting Goods Association has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion of the statements in Section which are based on statements made by it in the form and context in which those statements are included; Bell Gully has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as the Company s New Zealand legal adviser in the form and context so named; Bell Potter Securities Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; Citigroup Global Markets Australia Pty Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Lead Manager to the Offer in the form and context so named; Commonwealth Securities Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; 123

126 Additional information 124 Computershare Investor Services Pty Limited and Computershare Investor Services Limited have given and not withdrawn prior to the lodgement of this Prospectus with ASIC, their written consent to be named in this Prospectus as the Share Registrar in the form and context in which they are so named; Ernst & Young has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as the taxation adviser to the Company in the form and context so named; First NZ Capital Securities Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; Freehills has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as the Company s Australian legal adviser in the form and context so named; Goldman Sachs JBWere Pty Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Lead Manager to the Offer in the form and context so named; Interbrand Australia Pty Ltd has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion of the statements in Section 6 and the Combined Special Purpose Financial Report relating to the brands valuation in the form and context in which those statements are included; KPMG has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as auditor and investigating accountant to the Company as to historical and Adjusted Historical Financial Information in the form and context so named and has given and not withdrawn its consent to the inclusion in this Prospectus of its Investigating Accountant s Report on historical and Adjusted Historical Financial Information in the form and context in which it is included; Macquarie Equity Capital Markets Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Joint Lead Manager to the Offer in the form and context so named; Macquarie Equities Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; Macquarie Equities New Zealand Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; Ord Minnett Limited has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; PricewaterhouseCoopers Securities Ltd has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as independent accountant to the Company in relation to Forecast Financial Information in the form and context so named and has given and not withdrawn its consent to the inclusion in this Prospectus of its Independent Review of Forecast Financial Information in the form and context in which it is included; Sweeney Research has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion of statements in Sections and which are based on statements made by it in the form and context in which those statements are included; TFIA Business Services Pty Ltd has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to the inclusion of the statements in Section which are based on statements made by it in the form and context in which those statements are included; UBS AG, Australia Branch has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Joint Lead Manager to the Offer in the form and context so named; UBS Private Clients Australia Ltd has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, its written consent to be named in this Prospectus as a Co-Manager to the Offer in the form and context so named; and

127 Section 10 each of Messrs Pat Handley, Paul Moore and Stephen Tierney, and each other Reinvesting Shareholder, has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, their written consent to the inclusion of the statements in Sections 10.5 and relating to their reinvestment of a share of the Purchase Price proceeds to acquire Shares issued under the Offer and their agreement as to disposal of those Shares, and each of Ms Helen Lynch and Messrs Andrew Cummins and Max Ould has given, and not withdrawn prior to the lodgement of this Prospectus with ASIC, their written consent to the inclusion of the statements in Section relating to their intention to aquire Shares. No entity or person referred to above (other than a Director) has made any statement that is included in this Prospectus or any statement on which a statement made in this Prospectus is based, except as stated above. Each of the entities and persons referred to above (other than a Director) expressly disclaims and takes no responsibility for any statements in or omissions from this Prospectus. This applies to the maximum extent permitted by law and does not apply to any matter to the extent to which consent is given above Costs of the Offer If the Offer proceeds, the total estimated costs in connection with the Offer (including advisory, legal, accounting, tax, listing and administrative fees, as well as printing, advertising and other expenses) are currently estimated to be approximately $16 million plus fees payable to the Joint Lead Managers as referred to in Section At the mid-point of the Insitutional Offer Indicative Price Range, and assuming full payment of the discretionary component of the Joint Lead Managers fees, the total estimated costs would be approximately $52 million Litigation and Claims So far as the Directors are aware, there is no current or threatened civil litigation, arbitration proceeding or administrative appeal, or criminal or governmental prosecution of a material nature in which the Company is directly or indirectly concerned which is likely to have a material adverse impact on the business or financial position of the Company ASIC and ASX Relief ASIC has granted a number of exemptions from, and modifications of, the Corporations Act including: relief from the pre-prospectus advertising and publicity rules in section 734(2) of the Corporations Act to permit the Company to provide employees with certain information relating to the Offer; relief from the pre-prospectus advertising and publicity rules in section 734(2) of the Corporations Act to allow advertisements and publications explaining how to pre-register an interest in receiving a Prospectus to include United States foreign selling restrictions; and relief from section 707 of the Corporations Act to permit, without the requirement to lodge a further disclosure document, the resale of securities issued in the New Zealand Offer and issued outside Australia and New Zealand under the International Offering Circular. In addition, upon application to ASX for admission to the Official List, the Company will apply to ASX for a waiver of Listing Rule to permit the acquisition of Shares in the ordinary course of trading on ASX under the Non- Executive Director Share Plan and under the annual incentive scheme for the CEO and CFO (refer Sections and ), without Shareholder approval. The Company also intends to apply for a conditional waiver from Listing Rule 7.1 to the extent necessary to permit the Company to issue Shares to an underwriter pursuant to an underwriting agreement of the Company s proposed DRP without obtaining Shareholder approval. 125

128 Additional information Governing Law This Prospectus and the contracts that arise from the acceptance of the Applications are governed by the law applicable in Victoria and each Applicant submits to the exclusive jurisdiction of the courts of Victoria ASX Admission and Quotation The Company will apply to ASX within seven days of the date of this Prospectus for admission to the Official List and quotation of the Shares on the exchange operated by ASX Expiry Date No Shares will be offered on the basis of this Prospectus after the Expiry Date Documents Available for Inspection Copies of the Constitution, the Employee Share Acquisition Plans, the Dividend Reinvestment Plan, the audited financial statements of Pacific Brands and its predecessor entities from which the Adjusted Historical Financial Information in respect of FY2001 and FY2002 is derived and the consents referred to in Section 10.13, will be available for inspection free of charge between 9.00am and 5.00pm AEST, Monday to Friday, at the Company's registered office during the Offer Statement of Directors The Directors report that after due enquiries by them, in their opinion, since the date of the audited financial statements in Appendix I, there have not been any circumstances that have arisen or that have materially affected or will materially affect the assets and liabilities, financial position, profits or losses or prospects of the Company, other than as disclosed in this Prospectus. This Prospectus is authorised by each Director who consents to its lodgement with ASIC and its issue. This Prospectus is signed by each Director. Dated: 1 March 2004 Pat Handley Paul Moore Stephen Tierney Andrew Cummins Helen Lynch Max Ould 126

129 127 Glossary Section 11