Pacific Brands Sees Outerwear Stumble, But Footwear Step Up

Pacific Brands Limited announced a full year EBITA result of AU$176.1 million (US$132.7 million) which represents a 13.5% increase over the previous year and is consistent with guidance provided at the half year results announcement in February 2005.
Net profit for the full year ended 30 June 2005, was $102.5 million (US$77.2 million), which exceeded the net profit for the same period last year by 16.0%. This has resulted in earnings per share (pre goodwill amortisation) of 20.4 cents (US$0.15), also a 16.0% improvement over the prior year.

Commenting on the result, CEO Paul Moore said, “The Group’s achievement of its EBITA target number was the result of the commitment to branded, profitable sales and margin improvement. Even though total sales were down slightly on the previous year, branded sales grew over 1.5%. Excluding the Outerwear and Sport group which is undergoing restructuring, branded group net sales were up 3.8% on the previous year, 4.8% up in the second half. This is an encouraging result in an environment of heavy retail discounting and time of price deflation.”

“In a changing retail and consumer market with fluctuating consumer confidence – the power of brands is essential and that is why we are committed to building “Everyday Essential Brands” across all our categories.”

“The business commitment will continue to be on branded profitable sales and margin improvement. The Group’s strategies which have driven the solid earnings growth during the year are building brand equity through a strong commitment to advertising, product development and innovation, driving operational efficiencies through China sourcing and Brave New Way and adding growth through
acquisitions.”

“I am also pleased to announce that the Group generated $75.1 million in net operating cash flow for the year with $110.5 million generated in the second half. The business traditionally generates the majority of its cash in the second half as working capital requirements are higher in the first half.”

“In addition, we reduced our inventory levels back to $255.4 million after the business took a conservative position at the end of the first half to accumulate inventory in preparation for China entering the World Trade Organisation.”

“The focus has been on building brand equity across all categories of the business. Investing in advertising and marketing as well as customer service has enabled us to improve margins, which can then be reinvested back into the brands.”

“The ordering patterns of our customers are also changing with shorter lead times and greater emphasis on replenishment orders which clearly requires a “pull” marketing strategy.”

Sourcing

During the 2005 financial year, the Group has increased its commitment to China and now has over
120 people based in China across four offices. This enabled the Group to further expand its already
strong sourcing position in China. The plan is to increase numbers to 150 people by the end of the
2006 calendar year. During the year a new office in Taiping was opened and the offices in Hong
Kong and Shanghai were expanded.

Significant resources have been added in China to the quality control and product development
functions. The key decision-makers have been located closer to the factories to enable
improvements in speed to market. Flexibility and speed will be important areas in driving further
efficiencies across the Group.

The Group continues to use its scale to achieve efficiencies and rationalise its supplier base.

Improved purchasing and inventory management systems have been implemented to generate
greater “end to end” visibility through the supply chain.
Brave New Way
Since September 2002, Brave New Way has contributed to the improvements in the operations of the
Group. The team has focused on gross profit improvement (category management, planning and
merchandising), complexity reduction (SKU and stock reduction) and strategic sourcing.

The priorities for the team into 2006 will be on category planning to maximise profitable growth,
generating greater market insights and developing a consistent “go to market” approach across the
business whilst continuing to reduce complexity.

Commenting on the Brave New Way programme, Mr Moore said “Reviewing the way we do things
and continually doing them better is a must for our business.”

Cashflow

The Group continues to generate positive cash flows with $75.1 million in cash flow from operations1
generated during the year with $110.5 million generated in the second half. This was a decrease of
31.9% over the previous year. A $12.1 million increase in trade receivables due to the timing of winter
season sales, a $8.3 million decrease in trade creditors and $5.1 million in restructuring costs
influenced cash flow.

Cash was used during the year to fund $55.3 million in shareholder dividends, acquisitions of $9.6
million and $5.6 million on stamp duty payable in respect of the purchase of Pacific Brands Holdings.

Tax
The effective tax rate on earnings was 28.6%, which was the same as for the year ending 30
June 2004.

Balance Sheet
There was no significant change in the net assets of the Group over the 2005 financial year. The debt
to equity ratio at 30 June 2005 was 31.7%, down slightly from 32.0% at 30 June 2004.

During the year the Group re-financed and extended its debt facilities, taking advantage of the
lowering of credit margins in the financial markets and added an acquisition facility of $150 million.

The Group enters into interest rate swaps to mitigate the risks associated with the floating interest
rates on our borrowings. It also enters forward foreign exchange contracts to hedge purchase
commitments denominated in foreign currencies, principally USD.

AIFRS

From July 1, 2005, the consolidated entity is required to comply with Australian equivalents to
International Financial Reporting Standards (AIFRS) issued by the Australian Accounting Standards
Board.

The expected impacts of the resulting changes in accounting policies are disclosed in Note 31 to the
financial statements. The main areas of change include cessation of goodwill amortisation and the
expensing of performance rights. Adjustments are not expected to affect the cash flow of the Group.

Dividends

The achievement of solid profit numbers has allowed the Group to declare a final dividend of
7.5 cents which represents a full year dividend of 15.0 cents. This is 11.9% above prospectus
forecast.

The Group is committed to a high payout ratio and this year’s dividend represents a 73.6% payout.

Dividends were fully franked and it is expected that in future years they will continue to be fully
franked.

Review of Operating Groups

Outerwear and Sport

As anticipated, this operating group had a challenging year as it re-focused the business along the
branded sales channels and core business categories. During this time a new management team
was appointed to assist with the turn around of the group.

The group experienced an improved performance of 43.9% in EBITA in the second half through a
combination of a change in sales mix and the identification and execution of expense reduction
initiatives.

Core brands for the group include Dunlop, Everlast, KingGee, Slazenger and Stubbies.

Positioning of Everlast in the street and sporting markets supported by great product development
has driven strong sales growth in this brand.

Improved efficiencies led to better performance at KingGee.

The sporting goods market was tight, however the focus on core categories and expense reduction
has driven an improved result in the second half.

As advised at the half, Dunlop Footwear was transferred to the Footwear group during the course of
the year.

An ongoing commitment to branded sales and cost control will generate further improvements in
2006.

Footwear

The Footwear group had an excellent year with the continued focus on branded sales growth. The
group is one of the leading marketers and distributors of branded, casual footwear in Australia and
New Zealand.

Strong product development has driven double-digit sales growth in Hush Puppies, Grosby, Julius
Marlow and Naturalizer. Effective magazine campaigns increased the reach and appeal of the Hush
Puppies ranges, including the best selling “Apache” shoe for women. Partnering with our key retailers
in enhancing point of sale displays for the brand (including flagship concept stores) has been an
important contributor to success.

Grosby achieved strong sales success with its fluffy boot ‘Dakota’ supported by the ‘Be Afraid’
television campaign. The brand received a ‘Bronze Lion’ award in Cannes for its ‘Spider’ Television
Campaign which supported the success of its mainstream women’s range.

As noted above, Dunlop branded footwear moved into the Footwear group from the Outerwear and
Sport Group during the year.

Dunlop continued to build its brand appeal with the iconic ‘Volley’ and the ‘KT’ ranges. The ‘Legends
in the Backyard’ advertising campaign built brand equity and sales in the value athletic market.

Effective category management, which ensures that the right product development and advertising
resources are allocated to the right market segments, has been another key to the group’s success.
This will remain a priority for the group.

The recently acquired Merrell footwear distribution license will support growth in the premium outdoor
footwear category.

The branded sales strategy will continue to deliver results in 2006, combined with the strategic
alliances with international footwear brand managers such as Wolverine and Brown Shoe.

Outlook

The Group was pleased with the solid result generated for the 2005 financial year in a changing retail
and consumer market. Growth in the branded business, margin improvement and the continual
achievement of operational efficiencies has driven the Group’s results. The Group believes that it has
developed flexibility across its processes to manage the on-going changes in the external
environment.

Trading for the first few months of 2006 have been consistent with Group expectations.
In the 2006 financial year, the business will continue to focus on profit improvement and cash flow
generation through:

• profitable, branded sales;
• brand investment and product development;
• supply chain and operational efficiencies;
• working capital management; and
• ongoing review of potential acquisitions.